A Bigger Picture: Thank Malcolm Turnbull For Australia’s Power Pricing & Supply Calamity

Malcolm Turnbull’s miserable presence endures in the Snowy 2.0 pumped hydro project, a white elephant that’ll cost taxpayers at least $10billion.

Before he was ditched as PM by his Liberal Party over his pitch to expand subsidies to chaotically intermittent wind and solar and to extend those subsidies until the end of time, Malcolm Turnbull and his son, Alex were considered the dynamic duo among renewable energy rent seekers.

Turnbull the Younger managed to throw $millions at a nearly bankrupt wind power outfit (Infigen) just before daddy signed the Paris Climate Agreement, which lifted Infigen’s stocks and made the canny young investor a veritable fortune. Talk about lucky!: Born Lucky: Stars Align Perfectly for PM’s Son with Mammoth Bet on Wind Power Outfit Infigen

There’s plenty to dislike about Malcolm Turnbull, a man who should have headed up the Greens, rather than Australia’s notionally conservative party, the Liberals. He secretly assisted the former, while openly destroying the latter.

STT’s antipathy towards the ex-PM arises not least thanks to the ludicrous legacy of the Snowy 2.0 project.

Back in 2017, wind and large-scale solar were facing doom. Pundits reckoned their saviour would be pumped hydro; paid for, of course, with other people’s money.

Turnbull and his hapless sidekick, Josh Frydenberg heralded the Snowy 2.0 pumped hydro scheme as the Nation’s mega-battery and the saviour for the Australian wind and large-solar industries, being the only available cure for their hopeless intermittency. The project in question was shelved in the 1970s because it was uneconomic then, but economics was never Turnbull’s strong point.

The line goes something like this: if we use 3 MWh of wind power to pump water through 27 km of tunnels, over an elevation of 900m, later, when power consumers actually need it, Snowy Hydro could return 2 MWh to the grid.

Never mind squandering 1/4 to 1/3 of the electricity originally generated; never mind that with the inclusion of the $85 per MWh REC the cost of the wind power involved exceeds $110 per MWh; never mind that the owners of Snowy 2.0 will charge a further $150-300 per MWh to re-deliver power to the grid; never mind that, in reality, the power used to pump the water uphill will largely come from coal-fired power plants, delivered overnight when it’s cheapest.

At a time when the Federal government has earmarked over $300 billion of taxpayer’s money to be spent pump-priming the economy back to life – having throttled the life out of it in response to the COVID-19 virus threat – it seems reasonable to ask whether Snowy 2.0 is worth the starting price.

One of Australia’s leading economists, Judith Sloan took a set against Snowy 2.0 from the get go. Here she is being interviewed by Alan Jones.

Judith Sloan on Snowy 2.0
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Alan Jones and Judith Sloan
26 April 2020

Transcript

Alan Jones: Now when it comes to common sense, it is short supply, but I’ll have to tell you professor Judith Sloan is always a breath of fresh air. While much of the discussion, almost all of it, has been on this Coronavirus, life does go on and major problems are with us here and now.

One of them is in relation to university education because today even as I speak, they’re all studying online, whether they’re students, primary, secondary or university students. But before I go to that, I wanted to raise with Professor Sloan comments by the bilious Malcolm Turnbull and his oleaginous observations in relation to his so called legacy.

And I just thought I would talk to Professor Sloan to dismantle his Snowy 2.0 plan. You’ve got to talk simply about this and slowly. It was last year, I remember professor Judith Sloan read a scathing assessment of this Snowy 2.0. And she argued in fact that Scott Morrison had stretched the truth when he describes 2.0 as a fair dinkum power.

Of course she and I and others have argued pumping water uphill in order to release it to generate electricity with a net loss of energy of at least 20%, as Judith cites, it was more fairy story than fair dinkum. Now the logic underpinning Snowy 2.0, you’ve got to get your head around this, is that you can pump the water uphill. That will require more electricity than that water will later generate. Pump it uphill when the power prices are low, release it when the power prices are high – how smart is that?.

I thought the whole purpose of government was to reduce the cost of energy, not wait for it to be so high that we can justify Turnbull’s Snowy Hydro 2.0 which depends on continuing high and variable wholesale electricity prices. So rather than attacking the problem of high and wildly fluctuating wholesale electricity, which is what everyone wants, which is destroying our competitive edge, get the price of energy down.

Snowy Hydro can only win if it exploits and capitalises on power prices which are high. So it relies on price variations to balance the cost of pumping water uphill and the cost of that will be covered by profits when it’s later released. This is unbelievable madness. And as Judith Sloan says, “It’s rubbish for consumers.”

Then of course there’s the multimillion dollar cost of the scheme. Turnbull said it had cost 2 billion in March, 2017 and it’d be completed by 2021. Is 2021 next year? A contract for 5.1 billion covering just a section of construction has already been signed. 5.1 billion. And Snowy Hydro say completion won’t be until 2025.

Senior Engineer and the former EnergyAustralia Managing Director Ted Woodley, What would he know? He says the Australian public’s been left in the dark about the real cost of the project, which requires the construction of 27 kilometres of tunnels. Ted Woodley says the total bill for the project, including transmission lines, that’s just this project, is likely to top $10 billion, but we’ve already paid $6 billion to buy out New South Wales and Victoria and their stake in Snowy Hydro.

And Ted Woodley, a senior energy engineer and a former EnergyAustralia managing director has described Snowy Hydro 2.0 as the worst possible project in the worst possible place. He says it’s economically unviable. The Turnbull legacy.

Judith Sloan is on the line. Professor Sloan, good morning.

Judith Sloan: Good morning, Alan.

Alan Jones: Thank God they can’t fool you. Snowy 2.0? Would you run around the countryside boasting about this?

Judith Sloan: Well, no I wouldn’t and I think what’s happened is that it looked like a dud back then, but it looks like a bigger dud now. I think so. You always steal my good points, I might add, Alan.

The economics of this project were always predicated on high wholesale prices and variable wholesale prices. What’s happened recently is wholesale prices have come down. Partly of course we’ve got this induced low demand, but as you say, this project was supposed to cost two billion dollars. Now they’re talking about five billion dollars, and that’s just the construction aspect of it.

And then there’s the additional transmission. One of my concerns is that there might be a case for some small, smaller pumped hydro projects around the world, but this is putting all your eggs in the one basket. So as I’m thinking more white elephant than-

Alan Jones: How did we get out of it? Judith, how did we get out of it?

Judith Sloan: I think it’s too late.

Alan Jones: It is too late, yeah.

Judith Sloan: Yeah. I think so. I think that contracts have been signed and commitments have been made.

Alan Jones: Amazing, this. How do we get out of the submarine deal?

Judith Sloan: Yeah. Can I just go back?

Alan Jones: Yes.

Judith Sloan: You see, what we should always have focused on was building 24/7 power stations. We should have been seeking to replace Hazelwood, replace Liddell. The thing is, Snowy only makes sense because we have this high prevalence of intermittent wind and solar. If we didn’t have the prevalence of wind and solar, we wouldn’t even be talking about Snowy 2.0.

Alan Jones: Brilliant. Brilliant. Stop demonising coal fired power.
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Judith, one of the sharper tools in the shed, reckons that it’s simply too late to kill off the project because “contracts have been signed and commitments have been made.”

Well, that’s never been a reason for governments to refrain from terminating an agreement where the outcome of doing so provides a net benefit to the public.

The obvious benefit for the government of the day is added voter support, which usually outweighs the howls from the disappointed contracting party about “sovereign risk”.

Parties terminate contracts every day of the week, when economic conditions change in such a way that leaves them worse off if they remain in the contract.

As an economist, Judith would be well-familiar with the concept of the “efficient breach”, whereby a party is better off breaking an agreement and paying damages, than remaining bound to perform for the life of the contract.

In Ontario, Doug Ford scrapped 750 contracts with wind power developers in the blink of an eye: Ontario’s Salvation: Locals Ecstatic Over Decision to Cancel 750 Wind Power Contracts

Closer to home, soon after Daniel Andrews became Victorian Premier, he scrapped Melbourne’s East West Link road project. The cost attached to Andrew’s decision to breach the agreement struck by the previous Liberal government with the East West Connect consortium was more than $1.1 billion.

So, if Judith is looking for examples of governments reneging on deals, there are plenty of precedents. And plenty of those left the taxpaying public a whole lot better off.

The economic benefits of the Snowy 2.0 project are dubious, at best. The money set to be squandered would be far better spent building High Efficiency Low Emissions coal-fired power plants. Or, better yet, nuclear plants.

It’s long past time that Australia buried Malcolm Turnbull and his ludicrous and costly Snowy 2.0 project. Kill it now!