Features Australia

Energy robber barons

14 October 2017

9:00 AM

14 October 2017

9:00 AM

The car industry were amateurs compared to these guys. During the last great assistance package to the car sector, the Productivity Commission estimated that car manufacturers received $1.5 billion in budgetary and tariff assistance in 2009–10.

BAEconomics estimated earlier this year that the renewables industry receives almost $3 billion in subsidies every year, paid for by taxpayers and the hapless Australian electricity consumer.

We are told that the Renewable Energy Target creates a ‘market’ for renewable energy but this is a distortion of Adam Smith. Markets work when a basic principle is put first: the customer is always right.

Yet we have run energy markets for the past ten years not on this principle. Customers have barely got a look in. Instead, we have followed the exact opposite principle, the producer is always right.

The nation’s media reports the views of AGL, Energy Australia and Origin, the nation’s largest electricity producers, as gospel. These companies together have increased their ownership from 15 to 48 per cent of electricity capacity since 2009. And, they now account for 70 per cent of the electricity produced in the National Electricity Market. They have a vested interest in maintaining that position.

Yet when we hear them say that no one wants to invest in a new coal fired power station, the media take it as question resolved, nothing to see here. Can you imagine any media outlet, even the often gullible ABC, seriously asking Coles and Woolworths whether Aldi should be allowed to open stores here?

The energy robber barons do not want more coal. That would mean more competition. More competition would help us return to the central tenet that the customer is always right, and it is the principal reason that we should seek to build a new coal-fired power station in Australia.

The strategy of the energy companies is clear. If you keep the market tight enough, the price that the market sets will be more often forced to expensive gas and renewable power technologies, thus increasing their profits.

Every 30 minutes the price of power is set based on the bids from different electricity providers. These bids are ‘stacked’ from cheapest to most expensive. The price is set for the entire market based on the most expensive bid for the last megawatt of power needed to supply the entire market.

All bidders then are paid this price. So electricity companies – including those who own low-cost, big coal stations like AGL – have incentives to try to force the market to situations where the market is tight and the last bit of power needed is expensive.

Last year, gas set the price in the market 9 per cent of the time. This year gas has set the price almost 25 per cent of the time. The resulting higher prices have delivered a windfall gain to power station owners.

The closure of large coal-fired power stations has contributed to this result. That is principally why AGL will be more than happy to see Liddell shut. For AGL, it is likely that any lost revenue from shutting down this power station will be offset by the higher power prices that will result from the market becoming even shorter of supply.

Notwithstanding the massive profits that the energy companies are taking in, they are now claiming they need ‘investment certainty’, and by that they mean we need some variant of a carbon tax, so they can really make sure no one will invest in coal fired power.

These claims about the need for certainty are hollow because there will be no stability if we do not deliver lower power prices to Australian consumers. The political reality is that unless governments can start bringing power prices down there will be a political revolt.

A carbon tax (or price) is not sustainable for the simple reason that it is not popular. In the last three federal elections the Australian people have elected governments that have promised not to implement a carbon tax.

Anything that pushes up the cost of delivering power to Australians will eventually be tempting for an opposition to scrap, in order to provide relief to Australian consumers.

The National party has already seen the writing on the wall. At our federal conference last month we voted to remove all renewable energy subsidies over five years, and to get behind the building of a coal-fired power station.

We once had some of the cheapest power prices in the world. We now have some of the dearest. We should not return to the days of subsidising our manufacturing sector, but that doesn’t mean we should try to knee-cap any potential of having sustainable and competitive manufacturing jobs.

There is no reason in a country blessed with abundant sources of cheap coal and gas that we should not have a strong manufacturing sector. We also have massive supplies of iron ore, copper, bauxite and zinc. We should be able to combine cheap energy with these abundant minerals to make advanced metals. The alternative is we send all of these rocks overseas for another country to combine (and emit lots of carbon emissions in doing so) and then we import the metals back. That is the definition of madness.

We need to stop trying to save the planet through Australia’s National Electricity Market. The National Electricity Market accounts for just half of one per cent of global emissions. We could all turn ourselves into South Australia and it would make no difference to the global climate.

Building a coal fired power station, however, would increase the supply of reliable and cheap power. The $3 billion we hand over to the renewables sector every year could build a coal-fired power station every year. More supply would mean lower prices. You can see why the rent seekers in our energy sector may not like that but let’s turn away from what has not worked and do what the Australian people want.

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