Flat White

How government destroyed cheap electricity in Australia

26 February 2018

2:56 PM

26 February 2018

2:56 PM

You know something is wrong when a country with over 33 per cent of the world’s Uranium and abundant reserves of cheap coal struggles to provide cheap and reliable electricity to its own people. Power bills are now rising at over six times the rate of our wages – a staggering 12.4 per cent spike in 2017 alone. The price hikes don’t just hurt families. They kill jobs, stagger innovation and tarnish our productivity and competitiveness.

Unfortunately for us, the heavy-handed pursuit of taxpayer-subsidised wind and solar by zealous bureaucrats has driven our coal-fired plants into early retirement, cursed parts of the country with rolling blackouts and forced us to rely increasingly on expensive natural gas.

Coal has traditionally been the backbone of Australia’s energy needs. It is abundant and cheap to mine. Even today Australia holds an estimated 1,095 year supply of brown coal and 110 years of black coal reserves.

Coal also remains the preferred back-up for intermittent renewables as current solar and wind generation technology is incapable of accounting for energy needs without a backup generator powered by fossil fuels.

We saw this in action in 2016, when South Australia – a state committed to the most ambitious renewable energy target in the country, underwent a series of crippling blackouts due to insufficient supply when it was needed – forcing a bailout courtesy of coal-fired generators in Victoria and New South Wales. Today, SA and VIC, who have each pushed the hardest for renewables, enjoy the highest electricity prices in the country.

Even battery storage technology funded by substantial handouts from the South Australian government and others to multinational companies, like Tesla, remains far from viable as a replacement for fossil fuel.

The closure of coal-fired power stations means that our fossil fuel of choice is now natural gas, a relatively expensive product. Gas prices remain high due to tight regulations and strong demand from Asian export markets.

By contrast, the rest of the world continues to develop and rely on coal – including countries that have committed to reducing carbon emissions. TheInternational Energy Agency concludes that coal is likely to still be the world’s leading energy source in 2040 even if all Paris Accord signatory nations meet their commitments and even Greenpeace acknowledges that ten times the number of coal-fired power stations were under construction worldwide as of January 2017 than over the 10 months prior. Instead of eliminating coal, Germany and Thailand are both upgrading brown coal power stations to provide cheap energy with lower emissions.

So why aren’t energy companies in Australia investing in new coal-fired plants?

The answer is because government policy has created an environment that deters investment.

The government currently uses your tax dollars to subsidise electricity generated by wind and solar power to the tune of $74 and $214/MWh respectively. By contrast, coal and natural gas can only generate revenue as and when electricity is sold. During periods when wind or sunlight are abundant, coal plants sell less electricity due to the artificial advantage the subsidy creates and turn a lesser profit on what they do sell because wholesale prices are depressed.

This makes it difficult for investors in coal to pay for the large fixed costs involved, including staff salaries, capital financing and regulatory costs. Unlike solar and wind, these costs do not decrease based on the amount of electricity sold – making coal an unprofitable investment in Australia.

Some might consider these problems to be worth bearing. After all, coal will eventually run out and it isn’t ‘clean’ -it produces carbon emissions and pollutes the air.

But the answer cannot be policy that artificially props up another energy source which ironically relies on the very same carbon-polluting fossil fuels it is supposed to replace – resulting in rolling blackouts, volatile spot prices and exorbitant electricity bills.

Nuclear power offers cheap, clean and reliable energy. A kilogram of uranium-235 produces two to three million times the energy of a kilogram of coal and the carbon footprint of a nuclear plant is barely 25 per cent that of a solar farm. As early as 2006, a Howard government report concluded that nuclear power was a viable option and that ample sites and technology were available for safe disposal of waste, with recent innovations limiting the waste generated even further.

It’s no surprise that Russia, India and China are building new nuclear reactors while the UK, France, USA, South Korea and many other developed nations rely on nuclear for a substantial portion of their energy needs.

Australia has the world’s largest uranium reserves and over 20 per cent of the world’s thorium.

Of course, it would make far too much sense for Australia to pursue this option. Which is why we are the only country in the world’s top 25 economies where the government has effectively banned the development of nuclear power.

Satyajeet Marar is the Director of Policy at the Australian Taxpayers’ Alliance.  

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