Pearls and Irritations

Years of cat-herding by those who actually know and care about Australia’s electricity market will come to fruition this week with the meeting of COAG energy ministers to discuss the National Energy Guarantee, and possibly make a decision about it. Or maybe not.

Will the cats finally be herded into the pen labelled Energy Policy Certainty or will they break out and head off in all directions again? It still could go either way.

That it’s happening in the midst of the worst drought in a century and record temperatures and fires in Europe will weigh heavily on almost everyone in that room — all but one.

And that’s because of a very a strange fact about this country’s chaotic energy policy: every member of the COAG Energy Council — the key decision-making body — except one agrees that climate change is real and that carbon emissions need to be reduced. What’s more, the one standout is irrelevant.

He is Commonwealth Resources Minister Matthew Canavan, who either thinks, drawing on his vast scientific knowledge, that the science on climate change is unproven, or he simply doesn’t care and thinks we should stop trying to save the planet, as he said last year, and just look after ourselves. But the point is, he doesn’t matter.

The states and territories have to vote unanimously in favour, but Canavan has been overruled by Energy Minister Josh Frydenberg, chairman of the council, as well as the Prime Minister, so we know the Commonwealth’s vote on the NEG will be “Yes”, since it was their idea.

Frydenberg is the key. He is genuine in his desire to do the right thing, both for consumers and for the planet, and is extraordinarily hardworking in trying to achieve it.

So what’s the problem? Well, there are two: first, Canavan has some fellow travellers in the Coalition who don’t agree with NEG’s emissions reduction target, led by former PM Tony Abbott, and they might cross the floor when it gets to parliament; and second, the NEG actually doesn’t cut emissions, or at least it’s impossible to be sure whether it would or not, which is why the Labor Party — federal and states — might vote against it (also because they can’t see why they should help the bloody Coalition after what they did to Julia Gillard).

The NEG doesn’t cut prices either, at least on its own. The modelling from the Energy Security Board released last week makes it clear that the forecast of an electricity price reduction of $550 a year is based on the proposition that policy certainty will lead to more investment.

In general, the NEG is a stupendously complicated idea that isn’t really designed to achieve anything at all — except political agreement.

The emissions reduction part of the policy is so complex that nobody at all can figure out whether it will work.

But in any case that probably doesn’t matter because the Australian Energy Market Operator (AEMO) published a paper two weeks that suggested that the 26 per cent target of emissions reduction would be met whether the NEG was implemented or not (mainly because no one is going to build any more coal-fired power stations and the old ones are closing down).

And the reliability guarantee is unnecessary because that’s AEMO’s job, and they are all over it.

The question, then, is whether a broad political agreement about nothing is worth having, for the sake of having an agreement.

The answer is probably no. The problem is that the complexity of the NEG might actually offset the existence of stable policy and actually prevent investment.

On the other hand, as Paul Kelly wrote in this newspaper on Saturday: “Defeat would constitute a third policy shambles in 10 years, following the loss of Kevin Rudd’s scheme and the repeal of Julia Gillard’s so-called carbon tax.”

It’s more than three, Paul. The failure to support Finkel’s Clean Energy Target makes it the fourth, I’d suggest. And note that all four can be pinned on the chest of Tony Abbott, supported by his gang of empty cynics, both inside and outside parliament.

Anyway, the question is whether the defeat of the NEG would be just a political shambles or an actual one, leading to a capital strike and power shortages and blackouts.

Here’s the calculation, according to AEMO: by 2040, coal generators producing 70,000 gigawatt hours, or one third of total consumption, will be retired.

“AEMO’s modelling shows that the total investment required to replace the retiring generation capacity and meet consumer demand has an NPV cost of between $8 billion and $27 billion, depending on assumptions made around economic growth and rate of industry transformation.”

None of that will be spent on coal generation. It will be solar, wind, storage and DER (distributed energy resources — mainly rooftop solar). Plus a small amount of gas generation. No coal.

And by the way, if AEMO does say so itself, it has “become one of the recognised worldwide leaders in the complex operation of large power systems with substantial volumes of variable renewable and distributed generation.”

But AEMO’s qualities under the leadership of Audrey Zibelman will come to nothing if between $8-27 billion in new investment doesn’t materialise and the system falls short.

And nobody can be sure whether agreement on the NEG as proposed, will encourage or prevent that investment.

So I’d say that means the third/fourth shambles has already happened.

* Alan Kohler is publisher of The Constant Investor

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