Last week ended with talk of breaking up AGL, along with experinced political journalist Philip Coorey saying:
- It is becoming more apparent the government is as happy to have a fight as find a solution.
A fight over energy all the way to the next election could suit it very well, if the main priority is to “kill Bill”. What it says it wants is “dispatchable baseload”. Cheap dispatchable baseload, and for a sizable rump it must be with coal.
Of “dispatchable baseload”, Giles Parkinson asks is that a thing? His answer:
- No, it’s like describing something as a “round square,” or trying to fit a square peg into a round hole. It is being used as a marketing term like “clean coal” or “high efficiency coal”, neither of which exists.
Wikipedia’s definition is useful: “Dispatchable generation refers to sources of electricity that can be dispatched at the request of power grid operators or of the plant owner; that is, generating plants that can be turned on or off, or can adjust their power output accordingly to an order.”
And distpachable resources, as discussed by AEMO, goes beyond generation, and can include storage such as pumped hydro and batteries, behind the meter resources, flexible demand resources, or flexible network capability.
The key is flexibility. Baseload isn’t flexible, it cannot be easily turned on or off, and so is little use when a market operator needs to respond quickly to changes in supply and demand.
So the solution to the government’s problem does not in fact exist.
Parkinson has more useful exposition of the AEMO reports, which were difficult to read. AEMO, he says, sees two big threats. One is not putting in place any policy to encourage dispatchable generation, the other is the failure of a big thermal unit at periods of critical peak demand.
It is not concerned about Liddell closing, but if another old coal plant closes as well, or fails suddenly we could be at unacceptable risk of blackouts.
Blackout risk is calculated in terms of “unserved energy” (USE). This is simply an estimate of the potential shortfall in energy over a year. In this regard Parkinson says Australia has about the highest standard for “reliability” in the world – it is expected to meet demand 99.998 per cent of the time. This, he says, has been the justification for much of the over-building of networks.
The story of risks is captured in this graph of future USE in NSW:
The reliability standard (USE) is the dotted line. If Liddell closes and another big coal generator shuts as well, the green dot on top of the black lines represents the risk.
However, if we have a coherent renewable energy policy, represented by the blue triangle, risk is virtually eliminated.
It’s a pity this could not have been said in plain English at the outset.
Meanwhile ACCC competition supremo Rod Sims, currently conducting an electricity affordability inquiry, is reminding people that he has not changed his mind about AGL’s acquisition of Liddell being anti-competitive.
Back in 2014 the ACCC opposed the Liddell acquisition saying the three largest generator-retailers would own about 70 per cent of electricity generation capacity and 80 per cent of output in NSW, as well as more than 85 per cent of the state’s retail market, making it difficult for smaller retailers to secure the hedge contracts they needed to operate effectively. The ACCC took the matter to court and lost, but Sims is not one to change his mind.
AGL has responded by saying that if it is broken up, or if retailing is separated from generation, it simply will not have the financial grunt to make the investments it is proposing to replace Liddell and remediate the site. At present AGL is:
- the country’s biggest power production business, comprising about 11,000 megawatts of thermal and renewable generation capacity, separated from the huge retailing arm with its 3.65 million customers. The two parts of the business are run together within AGL’s Energy Markets business, the powerhouse of its $802 million profit in 2016-17.
As I reported at Saturday salon, the government knows that it can kick big business without affecting its popularity, and actually seems intent on doing so.
UBS energy analyst Nik Burns has calculated:
- that AGL could stand to lose $32 million a year in earnings in keeping Liddell going, assuming a $500 million investment to extend the plant’s life, higher coal and operating costs, and lower wholesale prices.
His estimate assumes the price for coal for the plant rises to about $US70 a tonne after its current cut-price contract of about $35 a tonne expires in 2025, and uses the Finkel review modelling of average wholesale power prices under a Clean Energy Target of $60 per megawatt-hour from 2022-27.
Presumably a third party taking over Liddell would fare no better.
Sims has explained that AGL is not in breach of any law, and no legal case can be made to force them to sell.
AGL has said they would consider selling to a “responsible buyer”. This article reports that Delta Electricity, the only company expressing interest, is being accused by environmental law group Environmental Justice Australia (EJA) of seriously under-reporting micro pollution. Seriously, old coal plants cause health damage, even death.
Please note above, AEMO says all we need to solve this is a clean energy target.
Other solutions will be put to a Melbourne Economic Forum on energy today according to Ben Potter in the AFR.
Ross Garnaut says we should have two carbon targets, a strong one and a weak one. If prices stay the same we should pursue the weak target. If, however, prices fell at a compound rate of 1 per cent per annum after inflation, so that they were a few per cent lower when a new policy begins in 2020, a stronger target could be pursued.
Not sure Barnaby Joyce could wrap his mind around that.
Bruce Mountain will tell the forum that the government should subsidise home batteries. He says they are already economic in South Australia, and would only have to fall another 30 per cent for the system to save typical households in Queensland, NSW and Victoria as well.
His idea is to get ahead of the technology curve, to push it faster in the direction it is already going.
They found that coal-fired generation equal to 10 Liddell power stations will have to be closed by 2036 for Australia to meet its Paris climate agreement pledge. This is the energy mix they see if we are to reduce emissions by 28% by 2030:
They also mapped a scenario based on Labor’s more aggressive target of 45% emissions reduction:
In both cases coal fades faster than Finkel. Which shows, really, that Finkel would save coal.
However, the real need is to be able to distinguish themselves from Labor, so as we saw in Grattan on Friday: King Coal is wearing big boots in the Turnbull government where they demonise:
- Labor’s attachment to renewables, with derision against “Blackout Bill”, “Brownout Butler” and “No Coal Joel [Fitzgibbon]”.
Last week in the Senate I heard a Liberal senator get all three in one sentence. Penny Wong immediately made a point of order, objecting to childish abuse.
Brandeis was immediately on his feet, saying Australian parliaments are robust, and any way it was a joke.
The President of the senate ruled that the remark be withdrawn, but they’ve been using it ever since, including by Turnbull in parliament.
It might be a joke, but it’s central to their electoral strategy.
Elsewhere Michael Lambert takes a look in Australia’s electricity markets policy: The shambles continues.
Having been involved in setting up the NEM he summarises everything nicely. Bottom line, he says, is that Turnbull should stop engaging in stunts and allow AEMO to get on with its job and put in place a national transition scheme with an emissions reduction target for the NEM, plus a Clean Energy Target or Emissions Intensity scheme. Then, he says, we’ll know that the Commonwealth is serious about electricity markets policy.