Speaking at the launch of a major report on energy resilience in Australia in August, Federal Minister for the Environment and Energy Josh Frydenberg stated that Australia and much of the Western world was experiencing a historic shift away from synchronous base-load power (like coal-fired electricity), to intermittent, renewable sources of power such as wind and solar.
Provision of backup power: may it not come
to this on cloudy, windless days.
Presenting this shift as an inevitable consequence of economic and technological progress, Mr Frydenberg said that the Turnbull Government’s approach to managing this shift would be guided by “engineering and economics – not ideology”.
This is entirely disingenuous of the minister, as the Turnbull Government, and most state and territory governments, have energy policies that are entirely driven by “green energy” ideology, as a result of which Australians now pay some of the highest power prices in the world.
According to the International Energy Agency (IEA), Australian households today pay almost three times what Americans pay for electricity, despite the two countries being similarly rich in low-cost, high-energy output fossil fuels.
More damningly, Australian households pay far more for electricity than do their counterparts in Japan and South Korea, which rely on exports of Australian coal and gas to generate electricity.
Furthermore, some Australian states are facing looming shortages of electricity (brownouts) or cuts to electricity (blackouts) over the coming years, especially during summer.
In Victoria alone, the operator of the National Electricity Market (NEM), the Australian Energy Market Operator (AEMO) has forecast over 70 days of brownouts and/or blackouts over the next two years.
These looming shortages are the result of state and federal government policies designed to shift investment away from fossil-fuel base-load power to intermittent, renewable wind and solar power. These policies have taken the form of:
1. Subsidies to build renewable-energy power stations.
2. Long-term agreements made by state governments to purchase renewable energy.
3. Dramatic increases in royalties payable on the extraction of coal for electricity generation.
4. The refusal by state governments everywhere except Western Australia to reserve a portion of natural gas exclusively for domestic use.
Renewable energy subsidies equate to $214 per megawatt/hour for solar energy and $74 per megawatt/hour for wind, while subsidies for coal were only $0.40 per megawatt/hour.
As a consequence of these policies, there has been a dearth of investment in new coal and gas-fired power stations. No new coal-fired stations have been commissioned in Australia since Bluewaters near Collie, Western Australia, in 2009.
The situation has been further compounded by the closure of the Hazelwood brown-coal station, driven by the 300 per cent increase in the royalties demanded by the state government on a power station that not only supplied a quarter of Victoria’s electricity but also supplied electricity into South Australia and New South Wales.
And the recommendations of the much-discussed Independent Review into the Future Security of the National Electricity Market (the Finkel Review) will do little to help. The report recommends privileging new energy generation that is capable of keeping carbon dioxide emissions below 600 kilograms per megawatt/hour of electricity. This excludes most coal, or 75 per cent of Australia’s electricity generation, from meeting the review’s recommended clean energy target.
And there is a looming shortage of gas, as most of the gas extracted is exported, and state government bans on exploration mean no new sources of supply are being found and developed. The only state that will not experience gas shortages is Western Australia, which reserves 15 per cent of all gas extracted for local use.
As a country that is geographically distant from most world markets, and has a relatively small population that benefits from high wages and high standards of living, Australia’s economic competitiveness is dependent on cheap energy, which the current policy approach now threatens.
In advice to Mr Frydenberg in relation to the NEM, AEMO has clearly stated that new investments in generation are required to avoid power supply interruptions.
A national energy policy is urgently needed
The lack of political clarity about Australia’s energy needs, and the price advantage of its cheap and abundant fossil and nuclear fuels have allowed “green energy” ideology to dominate the policy debate. The result has been the implementation of policies designed to disadvantage the extraction of fossil and nuclear fuels, as well as their use in low-cost power generation.
To bring national clarity to the essential role cheap energy plays in making Australia’s agricultural, manufacturing and services industries competitive, and hence able to grow employment opportunities, a national energy policy is required, an Australian Lower Energy Prices Policy (ALEPP).
The key initiatives of this policy would be:
- The abolition of the renewal energy target (RET), scrapping any clean energy target (CET), or any such policy mechanisms or subsidies designed to incentivise intermittent sources of energy at the expense of reliable 24/7 base-load energy.
- The urgent prioritisation of the design, build and commissioning of new 24/7 base-load power stations to meet projected short-term shortfalls, as well as medium to long-term population growth and economic development. It was no surprise that a key part of the plan to revive South Australia’s Whyalla steelworks proposed by its new owners was the building of a new coal-fired station to power the site. Recognition of the vital role coal-fired power plays in economic development is further demonstrated in the face that 1,600 new coal-fired power stations are currently being planned around the world, including in China, India, Japan and Indonesia.
- The re-positioning of the National Electricity Market (NEM) as the National Electricity Reserve (NER). Instead of fulfilling the NEM’s stated role – “to balance supply and demand for power using the most economic resources available”: that is, operating as a “business as usual” means to trade increasingly scarce fossil fuel-derived base-load electricity and intermittent renewable electricity – the NER would operate to ensure continuity of supply in emergency conditions. Significantly, AEMO has recommended the creation of a “strategic reserve” of energy within its current responsibilities to manage emergencies. However, a complete repositioning of the NEM into a NER would provide clear and unambiguous direction towards the necessity to commission adequate base-load generation in every state and territory to meet each jurisdiction’s projected demand.
- The introduction of natural gas reservation policies in all states and territories that do not already have them, to ensure supply for domestic use at all times.
- The use of export controls on natural gas exports from states and territories without reservation policies in times of shortages, until such time as reservation policies are introduced.
These recommendations will give Australians genuine clarity about the importance of cheap, reliable base-load energy, and the effectiveness of policies to deliver them.
Most importantly, it will provide a key part of a platform of stable, affordable economic policies to drive sustainable job creation, economic growth, stability and social cohesion.
References Josh Frydenberg, Remarks at launch of The challenge of energy resilience in Australia: Strategic options for continuity of supply by Paul Barnes and Neil Greet. Australian Strategic Policy Institute, August 24, 2017, Engineers Australia, 600 Bourke Street, Melbourne. Launch address.  Ibid.  Renewable$: The Inconvenient truth, Canberra: Minerals Council of Australia, May 2017.  Minerals Council of Australia, May 2017.  Josh Gordon, “Victoria warned of power shortfall risk after Hazelwood shuts down”, The Age, March 23, 2017. Web. 20 June 2017.  Electricity subsidies in Australia. Canberra: Minerals Council of Australia, April 2017.  Peter Westmore, “Shocking truths about soaring power prices”, News Weekly, May 6, 2017.  Brett Hogan, “Everything you need to know about the Finkel Review”, FreedomWatch, Institute of Public Affairs, June 9, 2017.  Jamie Smyth, “Australia curbs LNG exports amid domestic gas shortage”, Financial Times, April 27, 2017.  Audrey Zibelman, “Advice to the Commonwealth relating to Australia’s National Electricity Market”, September 4, 2017.  Jamie Smyth, “GFG confirms bid for Glencore’s Tahmoor coal mine”, Financial Times, July 19, 2017; Peter Westmore, “The rise and rise of Old King Coal”, News Weekly, July 29, 2017.  “Advice to Commonwealth Government on dispatchable capability”, Australian Energy Market Operator, September 2017; Audrey Zibelman, “Advice to the Commonwealth relating to Australia’s National Electricity Market”. September 4, 2017.