Leading article Australia

Our energy farce

16 September 2017

9:00 AM

16 September 2017

9:00 AM

What a mess! Australia has the world’s largest readily available supplies of coal, gas and uranium yet our power prices are among the world’s highest. Moreover, it looks like the lights are likely to go out this summer, especially in Victoria and South Australia. This is what happens when our energy policy is to reduce carbon dioxide emissions rather than to produce the most affordable and reliable power.

The absurdity of our position and its implications for our future as an industrial economy seem finally to be dawning on Malcolm Turnbull. He scoffed when in March Tony Abbott urged retaining the giant Hazelwood power station, but now says that he wants to keep open the next coal-fired power station that’s slated to close.

Last week, Mr Turnbull told parliament that the government was ‘already in discussions with the owner of Liddell, AGL, about how we can ensure that that power station stays in operation for at least another five years after 2022’. But within an hour, AGL responded that it was ‘committed to the closure of the Liddell power station in 2022 at the end of its operating life’ and Energy Minister Josh Frydenberg was reported as saying that discussions were ‘preliminary’ and that taking over the plant or paying for it to stay open ‘had not been broached’. It seems that, needing something to say, the PM exaggerated what had happened. Indeed, Turnbull’s Monday meeting with AGL’s managing director did not inspire any confidence that the PM can broker a viable energy policy. After all his faffing around, all that he achieved was that AGL will ‘consider’ delaying closing or selling the power station.

Neither government nor opposition is prepared to face up to the fact that renewable energy is putting our entire power system into jeopardy. The marginal cost of wind power is virtually zero so when the wind blows energy wholesalers take it in preference to coal or gas fired power. The big problem is when the wind doesn’t blow. That’s when we need power that can be switched on regardless of the weather or the time of day. But even though the overall costs of coal and gas are lower than wind and solar, renewables are driving them out of the market. In SA, wind can supply anything from 100 to zero per cent of the market and fluctuate from one to the other in a few minutes. This is fundamentally altering the economics of base load power – which is why the Northern (coal-fired) Power Station was closed down (and then blown up) and the Pelican Point (gas-fired) Power Station was in mothballs when SA’s wind power suddenly failed last year.

At present, about 8 per cent of our total power comes from hydro and 7 per cent from wind. But wind power is supposed to double in the next three years just to meet the existing 23 per cent renewable energy target, let alone the clean energy target of 42 per cent by 2030 that the government is talking about or the 50 per cent renewable energy target to which the ALP is committed. The only countries that get more than 15 per cent of their power from the unreliable wind are connected to the world’s biggest grid, in Europe. But here, as SA demonstrated, the more intermittent power there is, the less profitable base load power becomes, and the less stable is the overall system.

That’s why Mr Abbott wants us to stop talking about renewable energy targets and start talking about a reliable energy target of 100 per cent of that needed to keep society functioning. Subsidies for renewables must be dropped, and future renewable energy suppliers must have back-up. Yes, freezing the RET would require legislation that would be unlikely to pass the senate, but at least it constitutes a real policy.

What’s likely, though, is that the too-ing and fro-ing over Liddell will result in a government subsidy to AGL to keep it going. We will then have the ludicrous situation of subsidising renewable power (to the tune of $60 billion between now and 2030) to ‘save the planet’, and then subsidising base load power in order to keep the lights on! Surely it would be better to drop the forced consumer subsidy for renewables – and, that way, reduce prices, avoid the need to subsidise coal, and get back to allowing normal market forces to work. That would mean higher emissions but, at just over 1 per cent of the global total, nothing we do can make any discernible difference.

The only reason the market won’t fund new coal-fired power stations here is the political risk of policy change making them uneconomic. In Asia, though, the market is funding hundreds of new coal-fired stations because that remains the cheapest way to obtain the power that drives higher living standards. It’s not market failure but government failure that’s driving our domestic energy predicament.

We can have affordable, reliable power or we can reduce emissions but we can’t have both. Mr Turnbull has always presented himself as a climate change warrior, but his viability as prime minister now depends upon what he puts first: his previous political positioning, or the jobs and standards of living of the Australian people.

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