Turnbull’s Energy Dilemma: Pro-Coal Monash Forum Threatens PM’s Tenuous Grip on Power

 

Politics is a cruel caper and, in Australia, the politics of power is merciless.

Malcolm Turnbull has just lost 30 Newspolls in a row; the apparently fatal number that gave him licence to knife a sitting PM, Tony Abbott in September 2015.

In an election fought on Labor’s ‘Carbon Tax’ (a monstrously expensive tax on CO2 gas which applied to all energy production) Abbott promised to scrap the Tax and thereby led his Coalition to a thumping 17 seat majority victory in 2013.

In launching his coup d’état, the patrician and aloof Turnbull pointed to the polls and claimed he could do a whole lot better than Abbott. He didn’t.

At his first electoral outing in July 2016, Turnbull ran an underwhelming campaign (seemingly centred on his own personal brilliance – and sounding like a Marvel comic series – its tagline was ‘Team Turnbull’) and scraped home by a single seat, squandering the thumping majority Abbott had gathered in 2013.

Today, Turnbull’s electoral fortunes don’t look any brighter, not least because a group of 30 Liberal and National MPs have formed the Monash Forum, as a direct challenge to Turnbull and his gormless Energy Minister, Josh Frydenberg: Monash Forum’s Renewables Revolt: Australian MPs Demand End to Subsidised Wind & Solar

Knowing that their constituents are furious over Australia’s self-inflicted power pricing and supply calamity, the MPs driving the Monash Forum are motivated as much by their own survival instinct, as they are by a sense of civic altruism.

There are plenty of pundits speculating that the Monash Forum is merely a device to round up the numbers necessary to unseat Turnbull as PM, in order to give the backbenchers tied up with the Forum a fighting chance at the next election. However, what happens next depends very much on Turnbull’s next move. Here’s The Australian’s Chris Kenny spelling out just how limited Turnbull’s options have become.

Stop This Energy Masochism
The Australian
Chris Kenny
7 April 2018

Turnbull could ease energy crisis with retreat on Paris climate action

The air of unreality that pervades almost every aspect of our national energy debate goes far beyond anything we have seen. Not a single element of the debate is expressed in clear, factual and pragmatic terms, nor is a single perspective untainted by self-interest, contradictions or blatant deceptions.

With political poison and contortions to match a pit of vipers, the policy options are equally slippery. It is such a mess, deliberately contrived by both major parties, that there are no ideal solutions. The irreparable damage already done limits us to finding the least worst options to restore as much energy affordability and security as we can muster.

It is correct to pin the paradox of pro-market, small-government politicians in the Monash Forum calling for a $4 billion public investment in coal-fired generation, but it is hardly decisive or even useful because on the other side of the debate, deriding and opposing such investments, are big-government politicians who still bemoan the privatisation of electricity assets. And the hypocrisy and contradictions hardly stop there.

Malcolm Turnbull and his Treasurer, Scott Morrison, are happy to invest public funds in stored hydro through the Prime Minister’s signature Snowy 2.0 project, a $4.5bn nationalised renewable energy storage scheme. The federal government also hands out hundreds of millions of dollars through its $3bn renewable energy fund to bankroll solar, wind and battery projects.

The gorilla on the block of government intervention is the renewable energy target. It will build out its 33,000 gigawatts of generation within two years after the investment of more than $34bn in mainly wind and solar projects that are guaranteed a return through cross-subsidies from all energy consumers. Thanks primarily to the RET — which has always enjoyed bipartisan support — there is no level playing field or open market in electricity. While the RET will not be extended — at least under the current Coalition government — those investments will be subsidised for at least ­another 12 years, giving them an enormous commercial advantage and extending the market ­distortion.

Now, let us be clear. Anybody in their right mind would be in favour of renewable energy if it were affordable and reliable — cleanliness and inexhaustibility are no-brainers. But it is intermittent and therefore expensive because it is an additional cost to required ­dispatchable generation, so nobody in their right mind would rely on it yet.

The intended consequence of the RET was to encourage investment in gas generation for quick-response back-up power. Some­one forgot to tell the states that have banned gas exploration and exploitation in parts of NSW, Victoria and South Australia, helping to constrict supply (together with export demand) and send prices soaring. So gas generation has been mothballed rather than ­increased.

The direct cross-subsidies paid under the RET last year were close to $2bn — that is an extra $2bn paid by electricity consumers. At the least, the $34bn or more invested under the RET must be recouped from consumers — paying for extra capacity that was not needed or has to be duplicated with back-up generation or ­storage.

The RET’s fatal flaw was the gift of guaranteed returns to wind farms with no obligation to provide guaranteed power. Coal generators have been priced out of the market because they cannot compete when the wind is blowing and cannot start up and shut down to meet the vagaries of the weather.

To a degree, this was the intent; to force coal out. But gas was supposed to fill the gap. Yet without knowing the timing or quantities of power they could sell during the renewable doldrums, some gas generators couldn’t sign up for long-term gas contracts, so they ­shut down or declined to run except when they knew they could charge the highest rates.

Coal-fired stations have closed in South Australia, Victoria and NSW; gas plants have been mothballed; and wholesale prices have been forced up. It has been terrific for risk-free renewables investors and other suppliers taking advantage of the constricted market. But it has been disastrous for consumers. The world’s highest prices, a statewide blackout and the promise of more shortages — this has been the impact of bipartisan policies. The planned closure of Liddell in NSW’s Hunter Valley in 2022 has prompted warnings from the Australian Energy Market Operator about further price increases and supply shortfalls.

Private companies can’t invest in thermal generation when it cross-subsidises renewable competitors and they could be hit with a carbon price, increases in the RET or other regulatory burdens at any time. Given all this, it is hardly surprising — no matter how far it is from the ideal — that politicians who usually argue pro-market positions are suggesting public investments to ensure sufficient baseload generation.

They are simply placing a higher priority on energy affordability and security than on economic ­purity — in a market already corrupted by interventions.

Turnbull’s national energy guarantee is another proposed intervention aimed at balancing the distortions of the RET by setting targets for dispatchable power. A plausible bolt-on attachment to an already complicated system, it may encourage the desired investment. However, it still will labour under the over-arching objective of reducing emissions.

Why would Australia do this to itself? The emissions target aims to reduce our share of less than 1.3 per cent of global carbon dioxide emissions by 26 per cent to 28 per cent — so by 2030 perhaps our global share will be down to 1 per cent. But this won’t improve the environment or change the climate because worldwide emissions will continue to rise. The Climate Action Tracker service points out that most countries are not meeting their emissions reductions targets, while the US has abandoned Paris, and China and India continue to expand their emissions significantly. Even if all targets are met, by 2030 China’s emissions will increase by about 20 times Australia’s total emissions — try to imagine how inconsequential our reductions will have been.

Yet the Coalition is committed to our Paris targets and Labor is promising to do even more. The climate polices are enough, clearly, to drastically increase our energy costs, undermine our economy and imperil our energy security. Yet they cannot make a jot of difference to the planet, whether Paris succeeds or not.

This is self-inflicted pain for no gain. If you have any respect for science, economics and facts, it is hard to fathom.

Without bipartisan abandonment of this policy madness, private investment will not flow freely into any generation other than subsidised renewables — except, as we have seen in SA and may see at Liddell, when large consumers decide to pay a premium for reliable power. This is what climate gestures do to the affordable, reliable energy that was the foundation of our prosperity.

Yet Turnbull and Bill Shorten place the Paris Agreement clearly ahead of energy security and affordability at home. Turnbull lost the Liberal leadership in 2009 because he would not break this ­bipartisan consensus on climate (I was his chief of staff at the time) and Tony Abbott won a thumping majority in 2013 directly challenging Labor’s carbon tax jihad on emissions.

The Prime Minister has been given an opportunity to retreat in the name of common sense, economic sanity and political advantage. But he stands in a no man’s land of stranded coal assets and stored hydro schemes where he risks another insurrection on the same futile battleground.
The Australian