Despite Australia having vast reserves of natural gas and coal, state and federal governments have pursued policies that have caused an unprecedented shortage of electrical capacity, and the threat of serious shortages of gas for residential and industrial use.
Generous subsidies for green energy and ideologically driven opposition to fossil fuels, coupled with the closure of base-load power stations in South Australia and Victoria as a result of green power subsidies, are forcing enormous rises in electricity prices and leading to unprecedented unreliability of supply.
State government-imposed targets for electricity generated from wind and solar energy, coupled with policies which give renewable energy priority over base-load power, have made some of Australia’s large base-load power stations uneconomic.
Base-load power stations, usually fuelled by black or brown coal, need to run continuously, and produce electricity for prices that range from 5¢ per kilowatt/hour to 10¢/kwh. Since electricity generation and distribution was privatised in most states in the 1990s, the new owners cut maintenance, and had no incentive to produce more electricity than the minimum required.
As a result, the low-cost coal-fired power stations do not have sufficient capacity to meet the daily peaks in demand (peak load) that occur in the mornings and evenings, and if present trends continue, will be unable to meet base-load power demands.
The shortfall has been met by alternative energy, natural gas and hydro-electricity from Tasmania and the Snowy Mountains Scheme.
Low returns on base-load power, along with an ideologically driven campaign against low-cost coal, have led to a lack of investment, culminating in the closure of the Port Augusta power stations in South Australia, and the imminent closure of the huge Hazelwood Power Station in Victoria, which generates about a quarter of the state’s power.
No base-load stations have been built to replace them, although demand continues to rise. The announcement by the Weatherill Government in South Australia that it will build a new 250-megawatt government-owned gas-fired power station in SA, and support a new privately owned power station, together with incentives to develop the state’s gas reserves, is welcome.
Despite the Greens’ claims that we should rely on renewable energy (particularly solar and wind), each is fundamentally unreliable as a source of constant power.
Claims that solar and wind power can be stored in batteries is only partly true. Despite improvements in battery technology, it remains an expensive way to supply back-up power, and separately, once the battery has discharged, it is useless until recharged.
Despite the claims of the Greens, there is not one country in the developed world that relies on renewable energy to supply base-load power.
A separate issue has emerged with shortages in the supply of gas.
Despite the fact that the Australian Energy Market Operator (AEMO) is responsible for managing the Australian Energy Market, and Australia is one of the world’s largest producers of natural gas, there is not enough gas in Australia to meet demand, and the cost of gas has skyrocketed over the past year.
The impact on major Australian companies has been very serious.
BHP Billiton, Australia’s largest mining company, which owns coalmines in Queensland, the Olympic Dam mine in South Australia and iron ore mines in Western Australia, recently made a submission to the review of the National Energy Market being conducted by the Chief Scientist.
BHP said that it expected the energy costs in its Eastern Australian operations to increase by an aggregate 150 per cent between 2015 and 2017. It suffered a 42 per cent rise in power prices in 2016, and expects the price to rise by 78 per cent this year.
BHP said the soaring prices challenged the company’s ability to remain competitive in global markets, “particularly given that Australia is already one of the higher-cost mining jurisdictions in the world”.
Apart from soaring prices, BHP has also been adversely affected by the power outages last year, which cost it around $150 million. The total cost of the blackouts last September in South Australia have been put at $450 million, according to Business SA.
With SA dependent on an electricity interconnector with Victoria, and Victoria’s power supplies to be reduced significantly with the closure of Hazelwood, the likelihood of further price rises and blackouts in 2017 and beyond is increasing.
The problem is not confined to South Australia. If present trends continue, the large manufacturing states – Victoria, New South Wales and Queensland – will be severely impacted in the years ahead.
State Labor governments in South Australia, Victoria and Queensland have aggravated the problem through imposing mandatory renewable energy targets of up to 50 per cent of total energy generated.
But the National Energy Market Operator has long known of these policies, and has done little to tackle the crisis. In the absence of any credible alternative, the Federal Government must step in to ensure that all available power sources, including coal, are kept in operation.