The person known as Malcolm Turnbull who took over as Prime Minister is gone. That’s the one who declared immediately after getting the job that Australians have a wonderfully exciting future provided they recognise “change is our friend, if we are agile and smart enough to take advantage of it”.
That PM has retreated to a reactionary fear of change that underpins underpinning his current energy policy. Instead of championing exciting new technologies with falling costs, he exploits fears of future price rises and electricity blackouts. Rather than adopting a smart response, he now insists that relying on a clapped-out coal-fired station is the only path to salvation.
The fear of price rises is misplaced. It could be addressed by a couple of policy changes. One is to scrap the current rules which let traditional power generators create big price spikes by “gaming” the national electricity market. This manipulation could be fixed by a simple rule change to calculate prices on five-minute bidding intervals rather than 30 minutes. But rule maker, the Australian Energy Market Commission (AEMC), won’t introduce the necessary changes until 2021. The other change is to finally adopt a clean energy target that allows investors to take advantage of the rapid decline in the cost of solar energy compared to fossil fuels. Instead, Turnbull’s intervention in the market makes it harder for businesses to investors to plan future investment in generating technology. But he made plain on Tuesday that his target will guarantee a place for higher-priced, high emissions coal.
His insistence forcing the highly inefficient Liddell coal fired station in NSW to stay open beyond its 50 year lifespan in 2022 makes no sense. Contrary to some claims, the Australian Energy Market Operator (AEMO) didn’t recommend this option. Turnbull’s claim that Liddell’s closure will leave a 1000 MW supply gap is based on unrealistic assumptions. One is that Liddell dispatches 1000 MW to the grid – it is so decrepit that the figure is 500 MW on average. Boosting output would require serious investment for a short term gain.
Moreover, the AEMO’s CEO Audrey Zibelman has arranged a 1000 MW reserve from other sources that makes her confident of avoiding a serious blackout this summer. This 1000 MW relies on demand management policies using “behind the meter” measures and the new batteries and standby diesel generators in South Australia. But the crucial demand management component depends on a one-year exemption from rules that prevent this backup source being available in future years. The rule should be changed immediately to encourage a supply measure that is commonplace in the US and other countries.
Even without this addition to available supply, the AEMO’s estimate of the supply shortfall in 2022 is based on extraordinarily conservative assumptions that exclude some new solar, wind and battery projects which are due to start construction soon, but are not yet producing, such as the big new solar thermal plant at Whyalla.
AGL, Liddell’s current owner is investing heavily in renewable generation, backed up by batteries and “peaking” gas plants. AGL has previously announced it is prepared to do the same at Liddell, as has occurred already a former coal-fired station at Collinsville in Queensland.
Spending more money to keep producing coal-fired power at Liddell or elsewhere won’t guarantee no blackouts occur. Coal and gas-fired plants break down, or can be out of action for regular maintenance. When this happened on a large scale in NSW in February, electricity supplies had to be severely curtailed for large consumers, including an aluminium smelter.
It would also help if Turnbull stopped proposing that his government spend several billion on a “pumped hydro” scheme in the Snowy Mountains. The only way this heavy engineering project might be financially viable is if unrestrained spikes in electricity prices are allowed to continue. The reason is simple – it takes more energy to pump the water up for use in the new scheme than the amount of power it produces. This means it can only make a profit if the price of the pumped water is much lower than the price of the power produced.
Rather than promoting this scheme and putting Liddell on life support, Turnbull should revert to the PM who put his faith in an agile embrace of smart changes.
This article first appeared in the Australian Financial Review on Thursday, 14 September 2017