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.
And:
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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.
Finally:
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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.
He won’t be pleased with Essential Report out today, which has the LNP at 54-46 behind, and as John D has just commented on the other thread:
- 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.
Quiggin thinks:
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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.
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.
and he has predecessors aplenty.
First, his sworn enemy Mr Anthony Abbott.
Too many instances to list.
As admitted by Ms Peta (not Peter) Credlin, the “carbon tax” battle cry was a fib.
It pains me to cast my memory back that far, but PM E.G. Whitlam once told some reporters that the Premier of Qld was “a Bible-bashing bastard” ( instantly destroying some 5 to 10% of the Labor vote in that region, I estimate).
And yet, and yet……., Mr Turnbull announced on his accession that a new era of reasoned debate had arrived: no more trite, brief slogans; always full Cabinet consultation; “Captain’s Picks, begone!!; no more smuggling budgies into Parliament; no longer Leaks to selected Organs of the Press.
Yes, truly a Golden Era with the Sun King ascendant.
Wherefrom, then, hath this mud and ordure, this hawk and spittle, descended?
We find ourselves betwixt a solid rock and an exceptionally hard location.
cheerio
And none of it makes a scrap of difference to global emissions with what China and India are doing.
But it is good local theatre for the politically interested.
Jumpy, that is a completely false statement, as is the “we (Australia) are only 1.5% of emissions, therefore we don’t need to act at all…what difference will it make”. The moment Malcom Turnbull, or any other Prime Minister, makes that claim, I then have the right to stop paying taxes. After all what difference does my tiny contribution make.
A new coal plant in a developing country means that many thousands of people can stop cooking inefficiently with kerosene, or stripping away vegetation to cook with charcoal. Or in China many thousands of petrol powered vehicles will be scrapped in favour of electric vehicles which are far more efficient overall even when the energy is sourced from efficient coal plants. ie it is not necessarily all negative.
There now, your cup is nearly full.
I have gone way beyond dismay and alarm at the quality of politics in Australia. At the most hapless shopkeepers place, his goods must be “fit for purpose”. Pity the same legal obligation does not seem to apply to our politicians.
But it is good local theatre for the politically interested.
Really? Just theatre? No consequences for cold pensioners, or manufacturing plants large and small, or mechanised dairying , or sewage treatment, or coal mining, or solar panel installers, or transport companies, or builders of houses? Just theatre?
Theatre of the absurd??
Or looking at it another way: the bread and butter of politics; energy as an essential for life
and the pursuit of happiness.
All the world’s a stage, Mr J.
I am glad to hear someone talking about payment for capacity. It is similar in concept to what I have been saying about standby contracts.
JD would you say that Ergon’s daily charge is a capacity charge? As I understand it, the charge is for bringing power to your switch so that power is instantly available even if you don’t use power. I think the concept is reasonable but I’m not sure about the quantum of the fee.
Geoff: Yep, Ergon’s daily charge is a capacity charge. (It is worth remembering that water used to be paid for entirely on the basis of the unimproved value of the property. This gave some protection to the poor. Water now has a consumption charge as well to encourage people to reduce water useage A similar system makes sense for connected power.)
Most of the actual cost of power generation is a fixed charge that is largely about repaying capital and manning the power station when it is not actually producing power. If we want reliability we need contracts to provide capacity with an additional payments made for the plant to be at various levels of standby as well as a payment for any power actually generated. Levels of standby might be defined in terms of how long it would take to get to full production.
What I am taking about makes more sense that the crazy horse spot market system that only pays for power produced. One of the SA blackouts was caused because the the generator expected to start up for the peak demand part of a very hot day decided not to because they were not convinced that they would be able to sell the power they produced if they started up. Uncertainty adds to costs and reduces reliability.
I’m beginning to think that electricity is a case where competitive bidding produces the worst results. The old system of government ownership at least had the possibility of rationality.
Tonight on RN Drive there were interviews with Craig Kelly (a shocker) and Richard Di Natale (did well under rather obtuse questioning from Raphael Epstein). What pleased me most is that all the text messages were scathing of Turnbull’s action. The best, second time I’ve heard it in the last few days – “the stone age did not end for a want of stones”.
Bernard Keane says the best commentary is from Ben Potter at the AFR and Giles Parkinson.
From Potter, who has done about six articles in the past 24 hours:
If she has a plan, she needs Turnbull to get out of the way.
An important factor in this AGL / Liddell connection in the present commercial energy environment is that with a steadily less coordinated industry commercial operators must change their mode off operation to protect their customer bases.
Where competing energy companies own power generation assets a point is reached where conflicts over which generation source will “back down” and lose turnover when there is an oversupply. AGL’s strategy seems to me to be to provide a complete energy parcel from production to consumption with the intention to compete for end users aggressively expanding energy production capacity as it goes thereby minimising costs in a managed rather opportunistic manner. It is routine in industry to destroy key productive equipment when it is made obsolete rather than sell such equipment in order to prevent competitors from entering their commercial space. This is why they will not give up Liddell, and Turnbull is demonstrating that he is not the business person he purports to be with his attempt to meddle in matters he clearly knows nothing about.
The government should be taking notice of Audrey Zibelman’s advice and concern itself with regulating for the introduction of intelligent appliances so that an intelligent grid can manage power usage timing in a more coordinated and efficient manner.
Ben Potter said that the government recently had a briefing from GE on their prposal to upgrade the fleet of coal-fired power station. This was never intended to apply to Liddell.
Potter says the Turnbull govt added two and two and got seven.
Potter as well as a host of business commentators say that with arbitrary interventions by the government any policy framework to encourage investment goes up in smoke, which will cause the shortfalls the government claims it wants to avoid. The government should stick to providing an encouraging policy framework.
Now it appear that the government is going to dump the CET:
They haven’t understood that there is a difference between ‘baseload’ and ‘dispatchable power’.
A further irony is that AGL is being accused of withdrawing Liddell to create scarcity and thus push the prices up.
This is bitter irony, because before all this happened AGL set out plans to spend billions on new capacity – they say they are doing more than anyone – as well as spend hundreds of millions rehabilitating the Liddell site and turning it into a clean energy hub.
That is interesting that AGL intend to make Liddell a clean energy hub, Brian. It should be remembered that Liddell has David Mills’ first solar thermal facility built in Australia. The, what was called a “steam saver” can be seen in the background of most Liddell images near the lake. I recall hearing that AGL were more interest in recycling sections of the Liddell facility which I assumed would be the turbines and generators which have significant lead times to obtain with the global demand for new energy.
The world seems to be suffering from “Conservative Disease” us with Abbott, Turnbull and Co, and the US with…
https://skepticalscience.com/trump-hires-worst-nasa-next.html
Thanks, for the link, BilB. It’s depressing.
One point about AGL is that people are saying “AGL is getting out of coal”.
It isn’t. I’ve read that it is the biggest coal generator owner with 70% of it’s generation portfolio in coal.
Vesey seems to me to be a bloke who knows which way things are heading, so he wants to diversify his generation portfolio, and would be aware of the risks of being caught with stranded assets when the climate action warms up.
Brian: You said
Going back to government ownership might solve some current problems by giving governments control over when power stations are shut down, how much standby power is available at various times and…..
However, there could be problems caused by political pressure to keep plants going or build/not build in marginal electorates. Ditto problems with states running comercial prices down to attract investment to their state.
The problem at the moment is that the transition to privatization has not been done well and that the market is inappropriate for the needs of the power generation industry.
It seems that neither private nor government ownership is free from issues. Both camps are seduced by their own interests to deliver compromised solutions and outcomes. Put another way perhaps is that the ethic to serve public/social interest is broken. A company ethic is to serve the shareholder(s), with a few caveats to afford some protections to consumers. In my view that renders private ownership ineligible.
That leaves it to government. It would take a pretty major shift in policy but the potential to develop a worthy policy and implement it is possible. Such a solution would be a long term commitment and bipartisan for the sake of certainty. Project funding is at government interest rates plus a sensible margin. Project s could favour concepts such as skill building and technology advance – and much more.
This is within Australia’s capacity if we can conjure up the will and we elect politicians of more substance than we currently have.
I have just finished a new post Turnbull to walk away from the Clean Energy Target, where, amongst other things, I ponder why Turnbull is trying to fix a problem that the new Energy Security Board is supposed to fix while the new chair of the Board and the AEMO chief both say there really isn’t a problem.
I’ve been pondering the nationalisation issue, which I think is a bit academic, because it won’t happen. I’m aware of the hazards of public monopolies, but our public hospitals perform quite well, I think. For example, some years ago now the daughter of one of my nephews was accidentally stuck in the eye with a knife as a toddler. She was 45 minutes out of a provincial city at 4.30 pm. By 1.30am she was in Brisbane undergoing an operation that lasted five or six hours.
Frankly, the treatment she got was world class. So too last year when the son of another nephew had his liver almost split in two in a car accident.
Last week my bro-in-law was getting treatment in a provincial city that honestly left nothing to complain about.
I can quote an incident or two that are different, but by and large the service is good.
I think with power, Rod Sims competitive view would see smaller power stations go to the wall, but he says three major competitors in NSW is not enough. So how many, then? And how many does Tasmania need?
I’ve just seen it, but Quiggin has done a post How to replace the National Electricity Market. He’s suggesting the creation of a single Australian Energy Authority, to replace the Energy Security Board, AEMC, AEMO, AER, and the energy-related functions of the ACCC and state regulators. The authority would determine requirements for investment in the network, and undertake auctions for power purchase agreements, in which both privately owned and publicly owned generators would be free to compete.
And he goes on from there to eventually nationalise the whole thing with returns equivalent to the government bond rate.
In the discussion thread the really new idea was to use hydro (I think it’s about 7% of the whole system) as a smoothing agent, not a primary supplier as such.
He’s saying, forget bipartisanship, Labor should just do it after the next election.
I agree with much of what Quiggins says but what ever we move to must take account of of the lack of consensus, particularly at federal level.
I also have doubts about a national system and am inclined to independent state systems with some systems for interstate power flow. This may include options for states to set up generators outside of their boundaries so that, for example, Victoria is not too dependent on wind or Qld on solar. There may also be an option here for states to sell outside their boundaries and set up load sharing agreements outside their boundaries.
The central system and monopolistic things like the grid should be publicly owned.
I am agnostic re whether generators are publicly or privately owned provided that private supplies must not be able to shut down until replacement capacity is built.
It is also important that the systems selected do not depend on durable consensus. This rules out using trading schemes like the RET
John, the states have obviously been moving into the policy vacuum created by the feds, because the people probably still hold the states responsible for keeping the lights on, although they haven’t been for about two decades.
The CM today raises the question as to whether we should go it alone. Right now Qld is generating about 7,450MW as against NSW 6,700. Often Qld is the top generator.
The article pointed out that withholding gas exports is going to cost us royalties – billions, they reckon. Also the use of more gas will also make electricity prices higher here. My impression is that Qld is driving its coal generators hard, which is not good for the environment.
One thing worth thinking about, from memory in Germany when a coal or gas station closes down they have to hold it in readiness to re-open at 10 days notice for four years.
Something like that.