Created by a combination of federal political incompetence and ideology-based state stupidity, it is sovereign risk, above all else, that is condemning Australia to the energy crisis that is threatening to destroy what’s left of our industry, to hit consumers with blackouts and to hike prices to unaffordable heights. But sovereign risk is not mentioned by either side in the climate war. The anti-coal renewable-energy-at-any-price zealots pretend that there is no such thing as government-created sovereign risk; to them the failure to replace ageing coal-fired power stations (and for the lack of finance to do so) is simply evidence that the free market recognises that coal is on the way out and that technological change (like expensive and heavily subsidised wind and solar) makes it too risky to invest in multi-billion dollar long-term coal-fired generators; ‘No power companies in Australia are interested in cleaner coal High Efficiency Low Emissions plants because they cost too much and the business case does not stack up’. But it certainly stacks up overseas. The pro-coal lobby also won’t raise the spectre of sovereign risk because the word is poison to the foreign investors they need to replace local sources of finance, like banks, that are bending before the assaults of bullying activist campaigns. As for the generating companies like AGL, the triumph of self-interest over that of their customers (and the nation) involves creating a highly profitable price premium by helping to create a supply shortage. It would represent an ugly face of capitalism if AGL continued with its determination to close Liddell in five years rather than sell it so that a rival could ease the (profitable to AGL) power shortage either by extending the plant’s life or replacing it with a HELE plant and lessening the cost by utilising the infrastructure and local skills.
So sovereign risk is unquestionably the only reason Australia is not following the lead of other advanced nations like Germany and Japan in resolving their Paris Agreement commitment to reduce their carbon dioxide emissions by 2030, in our case by about 20 per cent from last year’s. Japan has readily found investors to build its proposed 45 HELE power stations – using high quality Australian coal – to maintain coal’s current 20 per cent of Japan’s electricity supply. The same goes for Germany, the world’s major miner of the brown coal that is the basis of Victoria’s power generation. It has developed HELE technology that would produce emissions intensity 43 per cent lower than the Latrobe valley’s closed Hazelwood station; Germany will be relying on this technology as it moves out of nuclear power to meet its emissions target. But there will be no emissions-reducing German plant in Latrobe while there’s a Labor government in Victoria. Then there are the 299 HELE plants under construction in China, 132 in India and more in Indonesia, Vietnam and South Korea, most depending on supplies of our coal.
So it really is possible to have both reduced emissions and affordable, reliable coal-fired electric power through the latest generation of ultra-efficient HELE plants. Recent studies have shown the contribution that HELE replacement of retiring coal-fired generators could make towards meeting Australia’s Paris emissions commitment. In political terms, the Turnbull government’s only hope is to make reliable energy the issue that distinguishes it from Shorten’s green-haunted ALP. Recent polling in NSW by Crosby Textor showed 64 per cent support for the construction of a new coal-fired power plant if its emissions were lower, with 81 per cent of Coalition voters agreeing and a majority of Labor voters (57 per cent) doing likewise.
When sovereign risk generated by political decisions (or the lack of them) causes such market disruption that consumers of a basic necessity like electric power can no longer access a reliable, affordable supply, it is not ‘socialist’ for governments to have an obligation to intervene to correct the consequences of their own error. The Turnbull government must protect both price and reliability, either by helping fund HELE plants or by irrevocable electricity supply contracts, recognising that governments change – and Turnbull’s looks a likely early candidate to go if it fails to fix this mess.
Subscribe to The Spectator Australia today for a quality of argument not found in any other publication. Get more Spectator Australia for less – just $1 for 6 weeks