Businesses & Families Despair Over Rocketing Power Prices: Energy Minister in Fantasy-land

Australia’s power pricing and supply calamity was caused by lunatics obsessed with wind and solar power: trouble is, they’re still in charge.

The Energy Minister, Josh Frydenberg demonstrates an astonishing lack of insight into the obvious cause and consequences of the debacle (further examples of which appear in the Alan Jones interview, laid out below).

And Kerry Schott, who heads up the Energy Security Board, is no brighter.

STT had an inkling that Kerry Schott was a Fruit Loop when she slotted into the job last year; with a series of ‘loose’ comments she made last week, Schott removed all doubt.

Schott – another of those dreamers who talks about the ‘inevitable transition’ – reckons that there’s no longer an investment case to build new coal-fired power stations in Australia, because “the cost of coal is always going to be more than the cost of wind and sun”.

There’s a reason for that, Kerry – you get what you pay for: the former provides a system of power generation, dictated by the needs of power consumers; whereas the wind and sun deliver nothing but chaos. No matter how much cash you’re holding, when the sun sets and the wind stops blowing (or blows too hard), power generated from nature’s wonder fuels, can’t be bought, at any price.

STT hears that the Monash Forum will soon have Kerry Schott checking her retirement package, with the likes of Craig Kelly, Matt Canavan and Tony Abbott pushing for her early exit, in order to return some much-needed sanity to Australia’s self-inflicted energy disaster. (Craig Kelly called her “clueless”, which pretty much sums it up).

Just as clueless is Josh Frydenberg, who copped a belting from an in form Alan Jones in this recent rematch.

‘Josh, you’re supposed to be smart’, Alan Jones hammers Energy Minister again
2GB
Alan Jones and Josh Frydenberg
3 May 2018

The Federal Energy Minister admits electricity prices are still high, but argues the government is starting to bring them down.

After last week’s fiery interview in the studio, Alan Jones and Josh Frydenberg have gone head to head once again.

Alan accused the minister of ignoring Australians’ pleas for help skyrocketing electricity prices.

“That’s not right. We’ve been trying to fix up the mess we inherited,” Mr Frydenberg claims.

As for the government’s bias against coal-fired power, the minister insists it’s the private sector that must invest, not the government.

Alan wasn’t having a bar of it though.

“Just put your hand up to your head and see if those ears are tin. They’re tin ears!

“Josh, you’re supposed to be smart. There are 1,600 coal-fired power plants that are planned or under construction in 62 countries around the world.

“How many coal-fired power plants are being built in Australia?”

Minister Frydenberg refused to answer the question.
2GB

 

Transcript

Alan Jones: The federal energy minister, Josh Frydenberg, is on the line from Melbourne. Minister, good morning.

Josh Frydenberg:  Nice to be with you, Alan.

Alan Jones: Thank you very much. The day before yesterday, your colleague, the treasurer, was really climbing into the Commonwealth Bank, and Mr. Morrison said there were boards sitting around the country that needed to take note of what was being said about the Commonwealth Bank. He said, “Boards needed to take note, or shareholders would take their business elsewhere.”

Do you accept that one of the most important businesses in this country is the business of government, and that you’re on the board of that business, and your shareholders are unhappy, and they are thinking of taking their business elsewhere?

The criticism of the Commonwealth Bank by APRA was that they were, quote, “Desensitised to the failings, their failings with customers,” and, quote: “They turned a tin ear to external voices, and community expectations about fair treatment.”

Now, if you listened to my program and correspondence, they believe you people have a tin ear to the ripoff that’s going on at the bowser, though we’ll leave that for another day. A tin ear, to $650,000 million of debt. A tin ear, to an education system that’s failing our parents and kids. A tin ear, to the awful treatment of our veterans. A tin ear to the problems that farms are facing now with drought.

But if the Commonwealth Bank has been told that it fails community expectations about fair treatment, and you’re on the board on one of the most important businesses in Australia, don’t you have a tin ear about electricity prices?

Josh Frydenberg:  Well, we certainly don’t. I’m very concerned about the high electricity prices, and that the impact it has on Australia’s international competitiveness, on household affordability, and the ability of businesses big and small to get ahead, and employ people.

Alan Jones: But how long have you been the Minister?

Josh Frydenberg:  Well, I’ve been the minister for the last three years.

Alan Jones: So you’ve been able to do nothing about that.

Josh Frydenberg:  That’s not right. Actually, we’ve been trying to fix up the mess that we inherited.

Alan Jones: Well, the prices are still going through the roof.

Josh Frydenberg:  Well, the prices are still too high, but actually, if you look at why …

Alan Jones: Why are they too high?

Josh Frydenberg:  Well, if you look at the last six weeks, in terms of the average household electricity prices, they’re 34% down, on the same six weeks last year. Now, that’s an improvement.

Alan Jones: So we’re getting run over by a bus, not a concrete truck?

Josh Frydenberg:  Not at all, Alan. If you look at the gas market, we’ve intervened and secured an additional 70 petajoules into the domestic market that would have otherwise gone overseas, and when you consider that one petajoule of gas is enough to keep Wollongong or Warrnambool going for a whole year, that’s a lot of gas, and the ACCC says, as a result of these actions, they’ve seen a fall by up to 50% in the gas prices.

Alan Jones: Do you understand that right now, as I’m speaking to you, the bulk of the electricity being generated, 90% of it is coming from coal-fired power. If I could just come back to the …

Josh Frydenberg:  Well, you won’t hear us demonise coal, Alan.

Alan Jones: Oh, well, hang on, but you’re building a bias against coal. I just want to make this point to you, if I could, before we come to that demonising coal. We, I put some of the material from last week on social media, so that people could comment. There was hardly, there’s an election coming up next year, there was hardly one comment in support of you.

More than 28,000 people have viewed the videos. There are over 1,500 likes. These are astonishing figures. More than 500 people took the trouble to comment. More than 400 people shared the posts, that have sent it to friends and everybody else. That’s how concerned they are.

Almost 10,000 people have read all of this on the 2GB website, and they couldn’t believe what they were hearing. Now, what they are saying is, “How can this man talk to you, when he’s paying subsidies to the unreliable renewable energy, by 2022, that’d be about $20 billion, and that is affecting the price of electricity that we pay, full stop.

Josh Frydenberg:  Well, there is no doubt, that when the renewable energy target came in, it was a generous subsidy scheme. That’s why we want to end that subsidy mentality.

Alan Jones: What do you mean, “want to end”? Why don’t you end it today?

Josh Frydenberg:  Well, the point is, the National Energy Guarantee does involve no new subsidies, no taxes, no trading scheme. It’s been embraced by the farmers, by the miners, and by the factories.

Alan Jones: Oh, listen.

Josh Frydenberg:  The only people who are against it, Alan …

Alan Jones: Are me.

Josh Frydenberg:  No, the ACF, right? The Australian Conservation Federation, get up and the Greens.

Alan Jones: Now, hang on, but, so, you don’t even understand. Josh, you don’t even understand what you’re saying, then. No new subsidies. So you’re saying, “Ah, sovereign risk means, we’ve gotta keep paying subsidies.” So the subsidies that you’ll keep paying will equal about $25 billion by 2030, and that means that you’ll keep paying them, “because we’ve got a sovereign risk to Chinese outfits that build wind turbines. Oh, isn’t that lovely?”

But, $25 billion, even up to 2030, will be added to our electricity bills. I was reading last night, Minister, a report from the Chief Executive of the Master Grocers Association of Australia, who says that he copped a collective $110 million in power price hikes last year, after their old power contracts expired, and they were forced to negotiate new ones.

He said, “They’re out of control,” and he said, “This will soon cause people, almost, to be marching in the streets.” This was earlier this month, $110 million, you’ve been the minister for three years!

Josh Frydenberg:  Well, Alan, actually, the Food & Grocery Council, the farmers, and other like bodies have got behind our solution, which is the National Energy Guarantee, because you know what? They recognise that we need to get the market working. We’re going to need $200 billion worth of energy infrastructure in this country, between now and 2030.

Alan Jones: But not one coal-fired plant.

Josh Frydenberg:  Well, hang on, you’ve got …

Alan Jones: Not one coal-fired, tell me, where have you got a coal-fired plant? Where have you got … if 90% of the energy, as you speak to me, is coming from coal-fired power, where are you building a coal-fired plant, or where can you see a coal-fired plant being built? Tell me.

Josh Frydenberg:  My point is, is that it is not up to Government …

Alan Jones: Well, where is one?

Josh Frydenberg:  To build a coal-fired station.

Alan Jones: But the private sector is smart. They’ve got to make a quid. Why would they build a coal-fired plant, while you’re providing $25 billion of subsidies to renewable energy? They’re not viable!

Josh Frydenberg:  Well, there’ve been subsidies all around the shop, if you look at …

Alan Jones: That’s for the coal-fired plants that have shut down.

Josh Frydenberg:  Governments have traditionally built those coal-fired power plants, and you pay for it through your taxes, not through your electricity bill. Government is supporting the greater investment in gas, and of course, government has supported subsidies for renewables, but the point is, with the National Energy Guarantee, you will get the right investment signal, and that the 20 coal-fired power stations that we have today, who have an average life of 27 years, could see further investment in it.

Alan Jones: Oh, could.

Josh Frydenberg:  You won’t hear the coalition demonise coal, but you will hear Bill Shorten.

Alan Jones: Just put your hand up to your head, and see if those ears are tin. They’re tin ears. Josh, you’re supposed to be smart. There are 1,600 coal-fired power plants that are planned, or under construction, in 62 countries around the world, to increase global coal-fired capacity by 43%. Can you tell my listeners, in one simple sentence, how many coal-fired plants are being built in Australia?

Josh Frydenberg:  Well, we currently have 20, including four super critical HELE plants, which are all in Queensland. It’s going to be …

Alan Jones: Being built.

Josh Frydenberg:  It’s up to the private sector to make these investment decisions.

Alan Jones: Why would the pri … Look, can I just go back? I don’t believe, I just don’t believe you’re saying this stuff. Just, I’ll go back to making bread. So, you’re making bread, and I’m making bread, and someone says, “Get into this bread making business, it’s really terrific.”

Alan Jones: And I said, “Right, I will, I’ll open a baker’s  shop.”  “Well, hang on, hang on, hang on. This bloke Frydenberg’s being subsidised by the government. His bread making’s being subsidised by the government, you’re not going to make a quid.”

So, just supposing, Frydenberg’s building wind turbines, and Jones is doing coal-fired power plants, I’m not going to put my money into coal-fired power plants, because you’re subsidising the other crowd to $25 billion. What of that, don’t, equation, Josh, don’t you understand?

Josh Frydenberg:  Well, we want to end that subsidy game, because, as you say, it was industry policy designed to pump renewables into the system. It’s created a lot of problems. If I was to design the program again, it would be completely different.

Alan Jones: Ah, so you’re admitting it’s a farce, and a mistake, but you’re not ending the subsidies. You’re not ending them. You’re keeping in place the subsidies that currently exist, and they will be $25 billion by 2030, so, between now and 2030, $25 billion will be added to electricity bills. It’s unbelievable!

Josh Frydenberg:  Well, as you know, when it comes to the renewable energy target, Tony Abbott reduced it, and those investments, though, have been made, and they’ve been made on the basis of the legislation.

Alan Jones: You’ve signed up to Finkel! You’ve signed up to Paris!

Josh Frydenberg:  We have not signed up to Finkel.

Alan Jones: Oh, you don’t agree with Finkel?

Josh Frydenberg:  No, we have not signed up with Finkel.

Alan Jones: You don’t agree with Finkel?

Josh Frydenberg:  We have not signed up with Finkel.

Alan Jones: Do you agree with Finkel? Finkel says 42%. Do you agree with Finkel?

Josh Frydenberg:  No, I don’t.

Alan Jones: Turnbull said …

Josh Frydenberg:  No, I don’t.

Alan Jones: Well, Turnbull said, “We’ll accept the Finkel recommendations”!

Josh Frydenberg:  Well, I’ll give you one Finkel recommendation, that wasn’t accepted.

Alan Jones: Now, 42% renewables. Do you agree with that, or not?

Josh Frydenberg:  No, I don’t.

Alan Jones: Do you agree with Paris at 42% renewables?

Josh Frydenberg:  No, I agree that we have signed up to Paris, together with 170 other countries, …

Alan Jones: Do you agree with 42% renewables?

Josh Frydenberg:  No, I don’t! I just said it.

Alan Jones: Well, what are you doing about it?

Josh Frydenberg:  But, what, what I’m doing …

Alan Jones: That’s your policy!

Josh Frydenberg:  Well, what? No, it’s my policy.

Alan Jones: Turnbull says he supports Finkel. Do you support that?

Josh Frydenberg:  Alan, with the greatest respect, you’re entitled to your own opinions, but not your own facts, and the reality is, that when it comes to the Finkel review, he made 50 different recommendations. Some of them were smart, like, to prevent the closure of Hazelwood, with just five or six months’ notice. He said there needed to be a minimum of three years’ notice. We accepted that.

Josh Frydenberg:  But he also put up the clean energy target, which, as you said, had a 42% renewable number. We didn’t accept that. We went through with the National Energy Guarantee, despite the criticism from the opposition, despite the criticism of Get Up, and the Greens, and now, we’ve won the broad-based support, and I’m trying to land it with the states.

Josh Frydenberg:  It will be a significant reform, which will get the market working again, and what we’ve been told, by independent modelling, is that the power prices will fall dramatically. The wholesale price of electricity will fall by 23%.

Alan Jones: The power prices cannot fall when you have a renewable energy target, which is a forced, compulsory tax on electricity, achieved by the threat of penalties. And I can only repeat, because you don’t understand your own policy. When the renewable energy target ends in 2031, government legislation will have forced the electricity retailers to buy 424 million certificates.

Alan Jones: Now, those certificates are about 80.72 to 87 bucks. That makes it all a bill of $25 billion. That will be built into the electricity price. You stop the electricity certificates, you stop forcing compulsory tax on electricity, and you’ll automatically reduce electricity prices by $25 billion. What of that don’t you understand?

Josh Frydenberg:  Well, what you were just wrong with was your estimation that the certificate price, at $80, would remain till 2030, when it actually shows, it will fall to zero by that time, and it falls to $34, in 2020, and what we’re seeing is a massive decline in those prices of certificates, as more supply comes into the market. But let me just accept one thing. Let me just …

Alan Jones: Do you accept that you’ve got a national emergency crisis, with the spiralling cost of electricity? I rate this the biggest crisis this country’s faced since federation, with the exception of war, and every person is writing to me about it. The social media said last week, you were talking rubbish, that is, tin ear, and unrelated to the concerns that people are facing every day.

Josh Frydenberg:  But don’t take your direction from social media, Alan.

Alan Jones: Oh, they’re the people. I just listen to the people. That’s all I do.

Josh Frydenberg:  And so do I, and they are feeling the pain of high electricity prices, but in order to get the prices down, we need to get the market working. Because government doesn’t have $200 billion at the ready, to fund that infrastructure that we need. And the one thing that I’m told by the market …

Alan Jones: Well, $25 billion in subsidies would build you, if you know what, build you four high efficiency, low emission, coal-fired power plants, at least. Five of them! Would build them. You’re putting it into renewable energy. I’m saying, “Put it into coal-fired power.”

Josh Frydenberg:  I want an all of the above approach, which sees a role for coal, which sees a role for gas, which sees a role for renewables. And, as I said to you last week, we need to get more gas out of the ground, New South Wales, imported, 95% of it’s gas.

Alan Jones: More? Are you kidding me?

Josh Frydenberg:  Gas is setting the price of electricity, now twice as much as it was a couple of years ago.

Alan Jones: Do you understand, that only last week, the day after I spoke to you, I didn’t say it. Reports said that we are on track to match Qatar as the world’s biggest exporter of gas. Hello? And you’re wanting to get more out of the ground, like your mate Macfarlane, who got us into this mess. I remember telling Tony Abbott, “This bloke’s gonna destroy the Australian economy. This is a national suicide note.”

Alan Jones: We’re never going to beat Qatar as the biggest exporter of gas, and you’re saying, “We’ve gotta get more of it out of the ground.”

Josh Frydenberg:  Well, we have 200 years’ worth of supply …

Alan Jones: Two hundred and forty, 240 years.

Josh Frydenberg:  In the Northern Territory, we have 40 year’ worth of supply in Victoria.

Alan Jones: And Colin Barnett, in Western Australia, had a gas reservation policy, a Liberal leader. A gas reservation policy. Why don’t we have a gas reservation policy?

Josh Frydenberg:  Well, we have intervened, in an unprecedented way, in the East Coast market, and we have secured that additional gas that would have otherwise gone for export, and the ACCC have said that the prices have come down. But let’s not become a branch office for Get Up, that’s trying to stop the…

Alan Jones: What? Tell you what. I’m not a branch office for Get up, I’m a branch office for common sense, Josh. Now, listen. I’ve got to go to the news. It’s been very good of you to talk. Can we have, next week, one item on the agenda, so you’ll have a week to do some homework, and that will be Snowy 2.0?

Josh Frydenberg:  Let’s talk.

Alan Jones: Okay, next Thursday. That’s Josh Frydenberg, this is a big, big issue, the energy issue. We’re grateful for his time, of course.

2GB

Gormless doesn’t really cover it. Obtuse gets close, neither of which would really matter if Australia wasn’t in the midst of an existential crisis.

This Country was built on cheap and reliable energy and it is in the process of being destroyed by the antithesis of that foundation: unreliable, intermittent and heavily subsidised wind and solar. The effect that that pair have had on Australian power prices is laid out above (courtesy of Dr Michael Crawford).

If we were to unpack every furphy, fallacy and falsehood being advanced by Frydenberg in the interview above, we’d be here all day. Instead, we’ll focus on one (and it’s a critical clanger). Frydenberg reckons that:

Well, what you were just wrong with was your estimation that the certificate price, at $80, would remain till 2030, when it actually shows, it will fall to zero by that time, and it falls to $34, in 2020, and what we’re seeing is a massive decline in those prices of certificates, as more supply comes into the market.

The value of Renewable Energy Certificates (RECs), aka Large-Scale Generation Certificates (LGCs) is fixed by the shortfall penalty, created by the Renewable Energy (Electricity) (Large-Scale Generation Shortfall Charge) Act 2000 and sections 5 and 6:

Imposition

The large-scale generation shortfall charge that is payable under the Renewable Energy (Electricity) Act 2000 is imposed by this section.

6 Rates of charge

(1) The rate of charge is $65 per MWh.

If a retailer fails or refuses (as a number have already done, with more to follow) to purchase RECs from wind and large-scale solar generators, that retailer is hit with the shortfall charge at a rate of $65 per MWh for every MWh they fall short of the 33 million MWh annual target, until 2031.

The choice is either purchase a tax-deductible REC or pay the non-tax-deductible fine.

The tax treatment of the shortfall charge, means that a corporation paying an effective 30% tax rate, is better off purchasing a REC and paying up to $93. It’s that relationship that has set a floor price for RECs (currently trading around $85 each).

For as long as that legislation sets the fine at $65 per MWh, with purchasing RECs the only way of avoiding the fine, it makes commercial sense for retailers to pay up to $93 for RECs to avoid the full, after-tax cost of the shortfall penalty.

That Frydenberg doesn’t understand legislation which sits at the heart of his portfolio, is not just gobsmacking, it is frightening for Australian power consumers, being belted by rocketing power prices. This man is in charge, for God’s sake.

It’s this simple Josh: the shortfall charge sets the floor price; that floor price is fixed by the Act referred to; and the Act is in place until December 31, 2030.

STT sources have been attempting to dig up data from the Clean Energy Regulator to ascertain when the shortfall penalty will start biting and by what magnitude. There is absolutely no way that the 33,000 GWh target is going to be satisfied in 2020 and beyond.

Once the market goes to ‘penalty’ (ie the shortfall charge applies because there are insufficient RECs to satisfy the target), the price of RECs will hit $90, or more.

When one energy retailer, ERM refused to buy RECs from wind and solar generators, it was forced to stump up $123 million in shortfall penalty for missing the target in 2016.

That sent the CER into a tailspin, because it revealed the fact that the Federal government has a hidden “massive penalty carbon tax of $93 per tonne which nobody wants to see.” (as described by the then Energy Minister, young Gregory Hunt).

While Alan Jones is keen to shed light on that massive hidden electricity tax on all Australian power consumers, for some reason, Josh Frydenberg is way too keen to cover it up.

STT hears that over the next few weeks, the Monash Forum will be doing its best to draw attention to the shortfall penalty tax, not least by demanding that the figure of $65 be reduced to $0.00, thus saving Australian households and businesses more than $35 billion.

Then, Josh Frydenberg’s prophecy about the price of renewable energy certificates falling to zero, will come true; and, for power consumers already paying the highest power prices in the world, not a moment too soon.