JONATHAN PAUL MARSHALL: Confusions of Australian Energy Policy

Feb 24, 2020

Current Australian Energy Policy is confused in both parties, but seems aimed at supporting coal, while not helping investment in Renewables

News from the last week, or so, helps capture the apparent leanings of Australian energy policy.

The Coalition government campaigns heavily on aiming to meet its Paris obligations and on cheap electricity.

It blames renewables for price increases. However prices appear to be coming down because of renewables. In its Quarterly Energy Dynamics report for the fourth quarter of 2019, the Australian Energy Market Operator (AEMO) says a “key driver” of this fall was a 39% increase in supply from wind and solar farms over Q4 2018. The largest price fall occurred in renewable rich South Australia.

There were also a significant number of coal outages, not only involving old power stations, but the most recent, Kogan Creek, built in 2007. According to the AEMO: “black coal-fired generation around the country decreased by 1,061MW on average compared to Q4 2018, its lowest quarterly level since Q4 2016.”

So much energy was generated, prices were occasionally negative and renewable sources were instructed to curtail production. Former minister, Matt Canavan, declared: “Renewables are the dole bludgers of the energy system, they only turn up to work when they want to”. In reality they are sometimes laid off to keep coal in business.

Coal is popular with the Coalition. The government announced $4m of taxpayers’ money was being given to Shine Energy “to conduct a feasibility study for a proposed 1GW HELE coal plant at Collinsville in Queensland.” The Australian Financial Review has previously suggested that “it makes little commercial sense to build more generation in Queensland at the moment. The state is in oversupply”.

Likewise, the NSW and Federal Government are planning to fast track evaluations of three projects under the federal Coalition’s Underwriting New Generation Investment program. This agreement includes:

  • extension of the Vales Point coal generator,
  • ensuring coal supplies, until 2042, for the Mt Piper generator near Lithgow,
  • a gas plant in Port Kembla
  • work on the grid in exchange for more gas production.

They also are attempting to keep the Liddell coal fired energy generator going beyond its planned 2023 closure date at a three year cost of $300m. This cost is probably more than can be recovered in profits, and it is not clear who would be paying.

Vales Point illustrates how business works in NSW. In November 2015, the NSW Government sold the Power Station to Sunset Power International for $1 million, massively under normal commercial rates. In 2017 the site was revalued at $730 million. The shareholders are companies associated with the owners of ERM Power Limited, which purchases power from Vales Point, to supply the NSW Government. So the NSW government sells a station at a bargain price, and then buys power from it, making a fortune for those investing. To cheapen the power station, the NSW government initially said it would close in 2021. Now, the closure date is being ignored, and (according to the Daily Telegraph) $11m dollars of taxpayers’ money will provide a turbine upgrade and high pressure heaters.

These grants ignore research from the CSIRO and AEMO showing that renewables with storage are cheaper than coal. Recent ANU research argues that there are around 22,000 potential pumped hydro storage sites in Australia, and Professor Blakers from the ANU Research School of Engineering says: “Australia needs only a tiny fraction of these sites for pumped hydro storage… to support a 100 per cent renewable electricity system.”

There are large scale private plans to sell renewable energy generated in Australia to Singapore, or to generate hydrogen gas and export it instead of methane (especially in South Australia), but the Federal government appears indifferent to these ideas.

The PM justifies the focus on coal by saying “we won’t be bullied into higher taxes and higher electricity prices.” “We listen to… Australians right across the country, not just those in the inner city.” However, “60% of a sample of 1,083 voters believes Australia should be doing more” and 64% in another poll see climate change as the prime threat to Australia, with most thinking we should act even with significant costs. The listening appears selective, with few in the Government seeming concerned about costs of climate change, including loss of agriculture and water, and storm, flood and fire damage.

The Labor deputy leader responded, saying: “I absolutely support coal mining jobs and coal miners, and the role that that plays within our economy, and it will continue to play a role for a long time to come” [but] “A Labor government is not going to put a cent into subsidising coal-fired power.” This sounds fairly straightforward, but according to the Canberra Times while “[b]usiness and industry groups are urging the government to commit to zero carbon emissions by 2050…. Mr Albanese refused to give a clear answer when pressed on whether Labor supported their calls, saying his party would cement their climate policies closer to the next federal election in 2022.”

Labor’s vagueness is further demonstrated by their response to Zali Steggall’s proposed legislation enforcing zero net emissions by 2050. Albanese does not appear keen to support her, saying the Government may not allow debate, while his climate change spokesman Mark Butler said they would engage with the proposed legistlation.

Policies encourage failure of emissions reduction, as companies seem free to increase their ‘emissions baselines’ under the government’s Safeguard Mechanism scheme. RenewEconomy reports: “[I]ndustry emissions (excluding electricity) have risen to 60% cent above 2005 levels behind increases in the Oil & Gas (621% increase), Road Transport (122%), Aviation (54%) and Mining (41%) sectors….”

Policy indifference is starting to affect investment in Renewables. “The level of new investment commitments in large-scale renewable energy projects has collapsed by more than 50 per cent according to new analysis by the Clean Energy Council which reveals a fall from 51 projects worth $10.7 billion in 2018 down to 28 projects worth $4.5 billion in 2019…. The top reasons for a decline in investor confidence was due to grid connection issues, a lack of strong national energy and climate policy and network congestions and constraints.”

The lack of an extensive, properly working electricity grid, is a fundamental problem deriving from policy. This may be resolved by the AEMO’s Integrated System Plan, but the earliest this is likely to be built is in 2026 or 2027. Consequently, it may take seven years before some new projects can connect to the grid. This does not encourage investment.

The CEO of AGL agrees fewer renewable energy projects will proceed because of the costs of connection, saying “A lot of renewable energy is getting choked.” One of the biggest constructors of large-scale solar farms in Australia, the Downer Group, is quitting the business, with the CEO saying: “Developers, contractors and bankers all struggle to come to terms with the risk of large power loss factors, grid stability problems, connection problems, and equipment performance issue”. Other companies are also having problems with the complications of the rules around connection and leaving the field.

While Labor may be incoherent, Coalition policy trends are clear; policy should make life difficult for investors in renewable energy, and easy for investors in coal.

Jonathan Paul Marshall is a researcher at the University of Technology, Sydney, investigating problems with climate technologies.

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