Federal Energy Minister Josh Frydenberg has not succeeded in getting Labor states and territories to agree with his proposed National Energy Guarantee (NEG), but he has secured their agreement to proceed to the next stage in the design of the proposal.
His plan is to provide security of supply without further rapid increases in prices, consistent with the government’s commitment to the Intergovernmental Panel on Climate Change (IPCC).
In explaining the new policy, Mr Frydenberg said: “The guarantee is our chance to secure a lasting consensus and in the words of the ESB [Energy Security Board], ‘resolve 15 years of energy and climate policy instability’.”
The minister’s plan follows the failure of the national energy market to hold down electricity prices and to solve the problem of the increased risk of blackouts since the closure of South Australia’s Northern Power Station in 2016 and the 1600 megawatt Hazelwood Power Station in Victoria in 2017.
Following blackouts and soaring electricity prices in South Australia, the power issue undoubtedly contributed to the recent defeat of the state Labor government, which had presided over the closure of the state’s last coal-fired power station and set a target of 75 per cent of SA’s electrical energy to come from renewables by 2025.
This undoubtedly focused the minds of other state Labor governments that were tempted to follow the same course.
Under the National Energy Guarantee, a complex process is being established to try to prevent shortages of base-load power within different regions of the national energy market.
Under the Frydenberg plan, the Australian Energy Market Operator (AEMO) will forecast 10 years ahead the demand-supply balance for each region, and identify areas where supply falls short of demand. This is designed to help generators prevent these shortfalls in supply by building increased capacity.
In the event that the market does not meet an anticipated shortfall three years out, AEMO may require the generator to meet the shortfall by generating additional despatchable (that is, gas, coal or hydro) power.
If they fail to do so, one year out from the expected shortfall, AEMO itself “will step in as the procurer of last resort”. But AEMO has no capacity to generate additional power itself.
Apart from the problem of getting state and territory Labor governments to agree to his plan, Mr Frydenberg faces the problem that at least some of the generating companies, including AGL, the owner of the 2000 MW Liddell Power Station, have proved themselves unwilling to play ball.
Liddell was acquired by AGL from the NSW government in September 2014. The following year, it announced that it would close the plant down in 2022, 50 years after it was commissioned.
In 2017, AGL repeated that it intended to close it, and more recently, has conducted an extensive advertising campaign announcing that it is shifting out of coal completely, beginning with the closure of Liddell in 2022.
In anticipation of a huge loss of base-load power, coming on top of earlier closures in South Australia and Victoria, the Federal Government asked AGL to keep the plant going for an additional five years. AGL refused but announced that it had a replacement plan that, if fully implemented, would deliver up to 1600 MW of renewable energy (solar and wind), an additional 100 MW of electricity from coal at the nearby Bayswater Power Station, and up to 750 MW of additional gas-fired peak power.
Claims that AGL’s plan would replace the lost base-load power have been firmly contradicted by the Australian Energy Market Operator, which has said that AGL had only made a firm commitment to supply an additional 100 MW of base-load power, and the plant closure could mean blackouts for about 200,000 homes in NSW. (Financial Review, March 22, 2018)
AGL then argued that it had to close the plant because it was unreliable, and approaching the end of its design life. The Federal Government then asked AGL to sell the plant. Another major generating company, Alinta Energy, announced that it was willing to buy it. But AGL refused to consider it.
The energy market, which is supposed to guarantee plentiful supply of electricity at low cost, has clearly failed.
It was significant that the Acting Premier of New South Wales, John Barilaro, called for the Government to compulsorily acquire Liddell if AGL would not sell. He told Sky News: “I think there’s an obligation from AGL to make sure that this state, and the broader national network, isn’t undermined by the loss of about 2,000 MW of power.”
He added: “Energy consumption is on the rise, so absolutely I think AGL has a corporate responsibility that if they don’t want to hold on to it, they should relinquish it, and if that doesn’t come freely, the government should maybe consider using its powers to [force it to] do so.”
The future of the Liddell Power Station is the first test of both the Federal and NSW governments’ declared policy of ensuring affordable, reliable power. It is far from certain that they will achieve this!
Peter Westmore is publisher of News Weekly.