Dark Ages Deliverance: Australia’s Energy Minister Contracts Coal-Fired Power to Avoid More Mass Blackouts

Intermittent wind and solar guarantee power supply chaos and are a recipe for mass load shedding and blackouts: ask South Australians.

While the Federal Energy Minister, Angus Taylor’s public focus has been on reducing power prices, in reality his ‘mission-critical’ is ensuring that there is enough reliable electricity generating capacity in the system to prevent the entire Eastern Grid from collapsing.

The chaotic delivery of wind and solar has left Australia’s Eastern Grid on the brink of collapse. The Eastern Grid connects Queensland, New South Wales, the ACT, Victoria, Tasmania and South Australia.

Reliable coal-fired generators have been knocked out of the game, made uneconomic thanks to renewable energy policies that direct more than $3 billion a year in subsidies to wind and solar, and which give wind and solar preferential access to the grid.

The most recent losses – Victoria’s Hazelwood and South Australia’s Northern power plants – resulted in the removal of more than 2,200 MW of reliable supply, at a time when Australia needs it most.

When the sun sets and/or calm weather sets in, wind and solar power output collapses, like night follows day.

That (now routine) chaos has two immediate consequences: spot prices for power go through the roof; and the grid manager starts ‘dumping load’. For power punters, ‘dumping load’ manifests as load shedding (controlled blackouts) and sometimes blackouts involving less deliberation and design.

The renewable energy zealots that hijacked Australia’s Energy Market Operator are less than candid about that relationship.

STT, on the other hand, is only too happy to spill the beans – eg: Wind Power Output Collapses Send Power Prices into Orbit: The World’s Biggest Joke Just Got Serious

The very real and pressingly imminent threat of a total ‘system black’ across the entire Eastern Grid this summer has finally focused thinking amongst Australia’s political betters.

The chaos delivered by wind and solar has them fretting, for very good reason, that the eastern states will end up suffering mass load shedding and blackouts of the kind that rendered South Australia (Australia’s wind and solar capital) the butt of international jokes.

Morrison to insulate power plans from Labor
The Australian Financial Review
Ben Potter
9 November 2018

Energy Minister Angus Taylor has told industry representatives the government favours contracts to back firm power generation – such as coal or gas plant projects – over underwriting because it would be harder for a future Labor government to reverse the measure.

The move comes as Victorian Premier Daniel Andrews vows to extend the state’s renewable energy target to 50 per cent by 2030 and illustrates the sharp political divide between the Coalition and Labor on energy and climate. The Victorian opposition says it will tear up the state renewable energy target if it wins the November 24 state election.

Mr Taylor’s remarks at a forum with power industry executives on Wednesday confirm the Morrison government’s determination to use taxpayers’ money to back new coal, gas or hydro plant before the federal election due to be held by May 18, potentially making the measure – favoured by vocal anti-renewables backbenchers – a fait accompli.

Labor’s energy spokesman, Mark Butler, has said a Labor federal government would not rip up signed contracts but is strongly opposed to government funds being used to help build new coal power stations, which would make it harder for Australia to meet its Paris emissions reduction targets.

Industry sources said Mr Taylor told the forum he rewrote a recommendation by the Australian Competition and Consumer Commission for limited underwriting at a low $45-$50 per megawatt hour for years six to 15 of a firm generation project that already has customers for its early years because he wanted to future-proof the measure against the prospect of Labor repealing the program.

Under the proposal the federal government will instead choose from a wide range of contractual instruments – including contracts for difference of the type used by Victoria to back 928 megawatts of wind and solar projects – of potentially unlimited duration to support firm generation projects with the program open to all comers and not restricted to smaller players.

These are likely to include coal, gas or hydro plant and the government wants the contracts in place well before the election, Mr Taylor wrote in The Australian on Wednesday.

A spokesperson for Mr Taylor said: “The Minister indicated his preference was to ensure government support was via contractual obligations which gives certainty to project sponsors.”

Industry representatives told Mr Taylor at the meeting that the measure was unnecessary and could put a chill on the strong pipeline of private sector wind, solar, pumped hydro and battery storage projects already committed or going through development planning, which is more than sufficient to cover the 1160 MW of new generation the minister says is needed.

The industry representatives told Mr Taylor that the Australian Energy Market Operator is already requiring firming or grid support for new wind and solar generation coming onto the grid, for example insisting that French giant Tota Eren install a synchronous condenser at its 200 MW Kiamal solar farm before being connected to northwestern Victoria’s congested grid, and that this could go a long way to solving the problem identified by Mr Taylor.

The sources said they asked Mr Taylor if he was taking this into account in his plans but he declined to answer, instead saying that he is still concerned about the volume of variable wind and solar coming onto the grid and the lack of “firm” supply to balance it and that he was interested in what the industry representatives had to say.

Mr Taylor’s spokesman said: “The Minister outlined that this program would work seamlessly with other government initiatives such as the reliability guarantee and AEMO directions for firming. The reality is that the energy market needs all of these initiatives to ensure there is reliability and prices are driven down.”

The exchanges left industry people with the impression that the government has made up its mind. The industry believes any federal subsidy program must be minimal if it is not to harm existing investment, and should ideally be confined to firming wind and solar energy because this is the cheapest form of new firm power and will only get cheaper.

The meeting was the second between the minister and industry representatives on Wednesday. An earlier meeting drew failed to elicit promises of price cuts sought by Mr Taylor.
The Australian Financial Review

Progress after Taylor shelves stick
The Australian Financial Review
Matthew Stevens
9 November 2018

Finally there is good reason to praise Angus Taylor rather than to bury him.

Having spent Wednesday morning in tense and theatrical conversation with the power retailers, the minister for getting electricity prices down went into an afternoon session with a broader church of Australian energy to thrash out just how the Commonwealth might encourage investment in new system-firming generation.

Taylor arrived sans Scott Morrison’s big stick, clutching instead a paper that had been circulated with those attending the meeting. It described the impressively active state of the government’s thinking on a proposal that emerged from the Australia Competition and Consumer Commission’s review of retail electricity markets.

In the name of renewed network security and a broader base of competition in Australian power generation, the ACCC invited policy that would see governments underwrite the out-years of the long supply contracts that are the established building blocks of bulk commodity businesses.

Taylor’s paper made it clear the government understood the problem the ACCC had divined but doubted the light-touch innovation it recommended was the most sensible solution.

The agreed starting point was that government should offer a helping hand to projects that served to firm a National Energy Market left vulnerable by the helter-skelter that has been, and continues to be, our national embrace of renewable energy.

But Taylor wondered to the meeting why the ACCC might want to reinvent the wheel in designing an answer to the problem. His preference is to look at what has worked elsewhere around the electricity globe and to adapt it.

Taylor is said to be attracted to something like the capacity payment system that is relatively common across Europe, the US and some Asian electricity geographies. The way that works is the owner of firming capacity is paid for just providing readily available latency to the system.

Let me explain. Firming or peaking generation is generation of last resort. The whole point is it does not work all the time. So, across a first world host of unstable power markets, governments or networks make capacity payments to encourage utilities to maintain a reserve of material, match-fit generation.

Alan Finkel looked at capacity payments in his 2017 review. In the end, he steered away from the idea because it was a step away from the pure energy market model that is preferred by the market regulators and the national market operator, AEMO.

The obvious problem with capacity payments is they can lead to the installation of economically inefficient levels of generation that only serves to undermine returns from sunk capital and to contain future investment in innovation. Part of the answer to that problem lies in the way any government contracting is capped. The ACCC recommended that public support only be offered to those whose projects arrived with a bank of at least three of four customer contracts.

The same neatly designed hurdle would work pretty well in the regime Taylor is understood to have proposed.

The ACCC proposed a second barrier to entry, which was that incumbent operators ought not to earn government assistance. Taylor is not so keen on this idea. Whatever support is offered in the future, it will be open to incumbents as well as those new to the sector and it seems certain it will be biased towards generation rather than storage.

Taylor’s second Wednesday meeting was a room of four commercial corners, each with differing points of view on both the need to invite new generation and the need to offer it the helping hand of government investment. The Energy Minister gave good hearing to delegations from the very old, the very new, the incumbents and the wannabes. And each time he was asked for insights in the government’s thinking, he deferred to those delegations saying he was there to listen, learn and assess.

The renewables sector advised that whatever firming capacity is needed will increasingly arrive in neat symbiosis with new solar and wind projects. From this corner the meeting heard that the future lay not with new gas-fired peaking generation but rather with the growing variety of storage options, which stretch from large and small pumped hydro generation to industrial and retail sized battery storage, and with rapidly evolving new technologies that better connect and manage the network flows.

All of that may be true. But the reason our national network is not as secure as it should be is that renewable generation has been rolled out without reinforcement and Taylor was not alone in wondering if we could afford a Field of Dreams strategy.

As you might imagine, this was a position strongly promoted by the coal-fired corner of Taylor’s squared ring and by the proponents of the gas-fired generation projects that sit umbilicals of some liquid natural gas import terminal proposals.

The coal dudes reckon that baseload is the answer while the LNG-landers reckon that $1 billion worth of modern, combined cycle gas generation would deliver the large volumes of dispatchable firming power at half the cost of the current generation of peaking plants.

And, what of the incumbents? Well, quite fairly, they warned Taylor that government intervention was essentially disruptive and might risk both their investment and disinvestment intentions.

Take AGL, for example. It has a circa $2 billion plan to progressively replace the baseload capacity of the Liddell coal-fired plant in NSW, which will close by 2022. But those intentions might be made much less attractive if the Andrew Forrest-based plan to connect an LNG regas terminal to, say, a 1000MW power plant whose investment is secured by government support.

There is a lot for the minister to ponder here. But all the feedback has reflected well on him and his capacities to imagine answers, to listen rather than opine and moderate effective, open discussion.
The Australian Financial Review

The first point to note is that Ben Potter from the AFR is a card-carrying member of the wind and sun cult and one of their leading shills. So, whatever Ben puts forward can be taken with a grain of salt.

Reading between the lines, however, it’s evident that Angus Taylor is a man with a mission: keeping the lights on.

The lack of reserve capacity in the system is critical. Taylor knows it, and so does every other player in the game.

Taylor’s strategy of striking binding agreements with conventional generators makes sense, on a number of levels.

Contracts between governments and power generators are far harder to undo than legislated policy, when power changes hands.

By locking in long-term contracts with coal- or gas-fired power plants, Taylor will guarantee the delivery of reliable and affordable power, for decades to come.

The deal is pretty simple: the government invites conventional generators to put forward offers to be available to supply electricity in given volumes, at a given price, over a given period. The lowest bidder wins the contract and power supply is secured, over the long-term.

Capacity contracts are an answer to the power market destruction caused by subsidised and intermittent wind and solar.

Having contracted to ensure that their capacity is always available to deliver power to the grid, conventional generators are bound to maintain their assets, rather than offloading them, thereby keeping generating capacity in the system. But capacity contracts come at an additional cost to power consumers. And, of course, none of this would be necessary if Australia hadn’t thrown tens of $billions in subsidies at the unreliables.

STT hears that another option under active consideration is providing an indemnity to the operators of coal-fired plant that would cover them for any losses they might suffer in future, if they get hit with a ‘carbon’ tax, emissions trading scheme or the like from a Greens-Labor government.

With Bill Shorten salivating at the prospect of taking government at the next Federal election – and promising a 50% RET and a 45% emissions reduction target – conventional generators face very serious exposure.

In addition to the capacity contract regime, the operators of existing coal- or gas-fired power plants – and those proposing to build new HELE coal-fired plant – will enter a contract with the Federal government, under which the Federal government (ie the taxpayer) agrees to indemnify the owners of those assets for any losses that might be suffered if they get lumbered with an ETS or ‘carbon’ tax.

At a political level, the move to immunise conventional generators from what’s referred to as ‘carbon’ risk, smacks of pure genius. Whatever a future Greens-Labor government might hope to extract from its ETS or ‘carbon’ tax, taxpayers (read ‘voters’) will be on the hook to compensate the owners of coal- or gas-fired plant for the losses they suffer as a result of any new tax or penalty, to precisely the same extent of any tax or penalty imposed. [Note to Ed: perhaps that’s what they mean by ‘carbon neutral’?] Indeed, the result may be so politically unpalatable that even a Greens backed Shorten government might be forced to think twice before unleashing the kind of economy destroying ETS that they’ve been threatening for years.

Meanwhile, Australians just might be able to enjoy power, as and when they need it.

Angus Taylor: Minister for Keeping the Lights On.

3 thoughts on “Dark Ages Deliverance: Australia’s Energy Minister Contracts Coal-Fired Power to Avoid More Mass Blackouts

  1. I don’t believe that those putting forward this scheme are familiar with the start up times for coal and gas fired thermal plants or CCGT & OCGT generators. Also they must not be aware that from time to time, according to “https://anero.id/energy/wind-energy”, the total electricity produced by the wind farms in the south eastern grid is as low 3% of installed capacity. That means they would need 100% backup instantly available all of the time. How is that going to reduce CO2 emissions, not that there is any need to do so of course?
    If you look at the document linked below you will see that there is considerable time involved in getting most of these up to full capacity. OCGT is fast but very expensive and emits about as much CO2 as coal-fired generators /MWh produced as they end up being used in a very inefficient manner.

    Click to access Technical_Assessment_of_the_Operation_of_Coal_and_Gas_Plant_PB_Power_FIN….pdf

    They don’t seem to know much about the costs of various backup options, battery, pumped hydro etc.
    It seems to me that they have entirely forgotten that the electricity being cheap, one of the requirements touted early on. Their solutions are going to be very expensive and unreliable!
    Right from the first I did not believe Angus Taylor would allowed to do what is required. Getting rid of the RET is the necessary first step, without doubt! That isn’t even mentioned and hasn’t been since this discussion started. Once again it has been reduced to a con. The government is to frightened to do what is necessary. Possibly that will change when we have huge black outs across the south eastern grid.

  2. The whole notion of decarbonisation is flawed in theory, based on unprovable and unproved scientific speculation, and unrealistic in practice, e.g., the UK: our proportional CO2 output, 1.3% of global, is negligible, yet, over the next 5 years, our government’s policy involves spending £66bn on subsidies to fight climate change.

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