Last week AEMO, the Australian Energy Market Operator produced two reports on future of electricity markets. The Coalition government under Turnbull cherry picked the reports in a way that was almost infantile, going completely feral, politicising the energy policy, making clear that bipartisanship will be avoided at all costs.
On Saturday at the Country Liberals annual conference in Darwin, he said this:
- “I mean, Blackout Bill, fair dinkum, as my old dad would have said, he is so hopeless he could not find his backside with both hands.”
The electricity issue has been folded into his “kill Bill” strategy.
Greg Hunt in parliament last week said that Labor had literally blown up the Northern Power Station in Port Augusta, causing the death of embryos at Flinders Medical Centre.
So now Bill is accused of killing babies.
Well, yes, it was blown up, having been closed down by Alinta, its private owner, after being squeezed by cheaper wind power. No mention, though, that the Flinders emergency generators failed, and that a dirty big storm had blown down multiple power pylons between Port Augusta and Adelaide.
Nor did Hunt mention the new solar thermal plant to be built at Port Augusta, the biggest of its kind in the world. If he had, he would have claimed credit for such a visionary scheme, because the Commonwealth is providing a $100 million concessional equity loan, albeit in a deal for Xenophon votes to support the company tax cuts.
At present, everything good and exciting happening in electricity is claimed by the Turnbull government, and everything bad is blamed on “Blackout Bill”. Richo, former senator Graham Richardson, thinks that electricity could do the trick for Turnbull, and advises Bill to back off his renewables policy as fast as possible. The Oz has another article there Coalition takes control as ‘Blackout Bill’ flounders on power which won’t open for me.
I bought the OZ yesterday and it’s Richo again, saying Turnbull has finally worked out how to attack Bill Shorten, and he reckons it will work. We will hear “Blackout Bill” constantly, and Richo thinks it will work, especially when the summer blackouts arrive later this year.
Which shows that Richo didn’t read the AEMO reports, because they say, baring accidents which can always happen, they have the expected shortfalls covered.
There was more in parliament last week. We had someone complaining about expensive gas in wine-making because the gas was all going to Gladstone for export (Bill’s fault again), except, curiously the winemaker was in WA.
We had a rant from Barnaby Joyce in which he confused a coal mine with a coal-fired gas station. We had Josh Frydenberg repeating the lie that renewables caused blackouts in SA, he also reckoned that Queensland had the highest electricity prices in Australia during the first five months of 2017, curious because for the first six months they were the cheapest. Not sure what that was supposed to prove and why Bill was to blame.
Just to remind folks, this is what Jacobs Consulting found about electricity prices in work done for AEMO:
If you reference prices to 1.0 at the beginning of 2017, Queensland comes out best in the past as well as the future.
Just to confirm Frydenberg’s cherry-picking, I’ll repeat this graph that appeared in the AFR:
Curiously, in the AEMO report, the states that are in best shape in the future on the eastern network are Tasmania and Queensland, with the highest state ownership and the least competition in generation.
Adam Creighton, economics correspondent for the Oz, made a couple of interesting points, along with a rant against renewables and in favour of nukes. First, he says that Adam Smith would have nationalised electricity as one of the great foundational institutions of a state. Also he says that suppliers of intermittent electricity should be owned by the same people who own constantly flowing electricity like gas and coal. There is no doubt that renewables like wind and solar, which have a marginal cost of zero, can disrupt the economics of coal and gas stations.
Bill Shorten has been muttering about the follies of privatisation, was rounded on at the Oz, but came back saying he won’t be silenced on electricity privatisation.
John Quiggin picked up the kerfuffle in Shorten changes the game on electricity. I was interested in the comment by Herb, a power systems engineer working in the electricity industry, who says you need a vertically integrated system as we used to have under the old electricity commissions. I would suggest the having them corporatised, so they can act like corporations outside public service regulations, as in Queensland, may have merit.
The chances of this happening are quite low. However, if you look at the list of Queensland power stations, the government operators CS Energy and Stanwell have a fleet of nine which are said to provide two-thirds of the state’s electricity on the NEM. If these stations operated independently it seems to me many would fall by the wayside as maintenance and upgrades were required.
In the long run we will need to go beyond a Clean Energy Target (CET), which looks as though it may have to include dirty if it is to get through the LNP party room. Tony Wood of the Grattan Institute has come up with a timely intervention aimed at how the market can be reshaped to meet the emerging circumstances. Start here, and follow the links at the bottom.
His AFR opinion piece gives a careful reading of the AEMO Advice to Commonwealth Government on Dispatchable Capacity document. The NEM needs a strategic reserve and new rules to incentivise power needed in emergency. It appears to be gesturing towards what Wood names as a capacity mechanism – paying generators to hold capacity in reserve, as the SA taxpayers will with the new gas-fired power station that will only be used in emergencies.
Meanwhile Turnbull and Frydenberg did not do a close reading of the report, which highlighted, properly, that Liddell is scheduled to close in 2022, taking about 1000MW out of the system. They ignored the fact that AEMO’s other report released last week on electricity opportunities identified a tsunami of renewables in the pipeline:
- At 1 July 2017, there were 21,721 MW of connection requests in train in the NEM, comprising 10,678 MW for large-scale wind and 11,043 MW for large-scale solar. Some projects also nominate additional storage capacity to be developed in combination.
In contrast to this significant amount of proposed capacity, only approximately 1,331 MW of scheduled and semi-scheduled capacity currently meets AEMO’s commitment criteria and is included in the Committed and Existing generation pathway outlined in Section 1.3.
There is a clear opportunity there to add ‘firming’ to some of these projects.
However, there was also indeed a comment from AEMO that one option might be possible to extend the life of coal-fired stations. This is the one that Turnbull jumped on, but applied to Liddell, to manufacture a crisis.
AEMO was probably aware of a statement by GE, who do much of the maintenance work on power stations, that with the expenditure of $110 million on Australia’s coal-fired fleet 1500MW extra power could be produced with reduced emissions. That’s from memory from a Ben Potter article in the AFR. They no doubt missed the comment by Potter from GE saying that Liddell would not be one to get the treatment. Apparently it’d basically buggered.
Today in the AFR we hear that $123 million has been spent by AGL on Liddell since 2012, and they expect to spend another $129 million on it before 2022. The costs of keeping it open after 2022 are not precisely known outside AGL, but are thought to be upwards of half a billion.
Turnbull and Frydenberg have now had their meeting with AGL CEO Andrew Vesey. As a result AGL has agreed that it will take a proposal to the board to consider selling Liddell. However, the parties have also agreed that AGL will bring a proposal forward within 90 days to replace Liddell with clean dispatchable power.
Mr Vesey’s statement said renewables with gas back-up would be the favoured power source in the short-term, and beyond that it would be large-scale batteries supporting renewables.
“In this environment, we just don’t see new development of coal as economically rational, even before factoring in a carbon cost,” he said in the statement.
Which is what he wanted to do in the first place.
Vesey knows about new gas, because they’ve just announced plans to build one in SA. Remember, he’s also setting up a floating gas import facility off Crib Point.
It seems extremely unlikely that Turnbull and company would get a better outcome from another generator, or even that another generator would take the project on after they had done due diligence on Liddell.
I’ve commented elsewhere on the inappropriateness of the prime minister involving himself in the future of a single power station, given the joint arrangements established under COAG and the fact that their own direct involvement is limited to a part ownership of Snowy Hydro.
It’s worth scrolling down Giles Parkinson’s piece.
- Chloe Munro, the new head of AEMO’s expert advisory panel, and a panel member of the Finkel Review and a former chair of the Clean Energy Regulator, describes the move on Liddell – and the government’s involvement, as “mystifying” – given it goes against the advice of both AEMO reports and the Finkel Review itself.
The Liddell intervention is extraordinary, as ITK analyst David Leitch points out in our weekly Energy Insiders podcast and in this column: Bullying, cronyism and Captain’s picks.
Leitch compares the government’s latest intervention like that of Venezuela, given that it lacks probity, would likely kill smarter, cleaner and much cheaper projects, and was yet another example of policy on the run.
One sane voice at The Australian is Alan Kohler, who points out that despite the bluster of the Nationals and the conservatives within the Liberal Party, everybody knows coal-fired power stations must close if Australia is to meet the 2 degree commitment that everybody agreed to in 2015.
“The task of leadership is to prepare for that, not yearn for coal,” he writes.
“The Australian Energy Market Operator has made it clear the closures can be handled through demand management and some NEM redesign, with even more renewables and batteries, which is what’s happening anyway because that’s what businesses and investors want to invest in.
“There won’t be any new coal power stations, and the lives of existing ones won’t be extended unless the government, bizarrely and unnecessarily, pays for it.
“If that happened, it would bring about the final divorce of business and the Coalition, and the final retreat by Malcolm Turnbull into the loony fog inhabited by Donald Trump and the coal dancers on the Coalition’s right.”(Emphasis added)
Turnbull has been encouraged by his “kill Bill” strategy in the results of opinion polls by IPSOS-Fairfax and Newspoll. In both cases while TPP is still 53-47 to Labor, his personal rating indicate that people don’t dislike him quite as much, while Bill is slipping a bit in public esteem.
- This weeks essential report polled strong support for a number of energy related actions 81% favoured “Increase investment in renewable energy and smart solutions like energy storage” and 86% favouring regulation of gas and electricity prices. In addition, Labor was seen as the best hope for reduced energy prices. – but only 28% vs 19% for the LNP.
Renewables were also seen as better for the economy than fossil fuels.
Once the debate moves on to the real issue of the failure of market reform, the culture war rhetoric on which the government has relied so far will be totally irrelevant.
It’s not culture war rhetoric so much as personal abuse that would not be tolerated in a primary school yard. That’s what Turnbull has made of Australian political discourse. Poor fellow my country if we reward him.