Archive for March, 2017

An awful example

I gather that energy task force supremo Alan Finkel has been visiting Ireland this week and will then venture on to Texas among other places.

Seeing he is out that way, I have another suggestion: call by Toronto and view the Ontario energy shemozzle that makes South Australia’s issues look like rather small beer.

I have written here before about Ontario (the New South Wales of Canada); it is a gift that keeps on giving – so long as you don’t live there – to those of us who see government intervention in energy markets more as devilry than beneficence.

The latest twist in the Ontarian power wheel has Premier Kathleen Wynne (whose Liberal party is roughly equivalent to Labor here) endeavouring, to quote a critic in the Canadian Financial Post (their equivalent of our Australian Financial Review), to sooth “savage” provincial views over “out-of-control electricity rates” with a scheme to “smooth” costs by re-arranging contracts with generators at lower rates but for longer periods.

The Canadian Taxpayers Federation complains that this doesn’t solve the problem, just extends it.

Wynne is also juggling some costs away from consumers and on to the provincial budget, a classic “rob Peter, pay Paul” gambit that is not unknown to politicians in our neck of the woods.

It is all “sleazy sleight of hand, a desperate attempt by Wynne’s party to escape responsibility for shamefully mutilating the once-stable electricity system,” according to the Financial Post writer. “It’s the plan of a government convinced voters are too foolish to realize they’re being hosed yet again and worse than before.”

The message that Finkel could glean in Ontario for the politicians (Coalition and Labor) who have given him the NEM security gig is that intervention in a marketplace inevitably begets more intervention and so on ad infinitum. He needn’t actually travel; he could telephone professor Dieter Helm at Oxford University or even just Google a column he wrote in the London Financial Times in October 2014 (advice I enthusiastically wrote up at the time both on this website and in Business Spectator for which I commentated before it was swallowed by Rupert Murdoch).

Helm’s view is pithy: “When it comes to energy policy, politicians always think they know the answers – and leave consumers paying the price for years after they leave office.

“The lesson is painfully obvious: the energy mix should be the outcome of market processes, not the objective of government policy. (Doing this will) create incentives to test out the options in the fire of the market. Public funds are better spent on basic research than on building capacity using current technology that is not up to the job.”

As Helm observes, removing subsidy schemes is far harder politically than introducing them (something we have done a lot to demonstrate in the NEM since 2008).

Finkel has told those attending a technology experts session he convened in Sydney that he is “looking at a time scale of up to 30 years” for his task force’s report, due to reach CoAG in mid-year. At one level this is fine and dandy, but what proffering jam in a distant tomorrow will do to solve the east coast’s multitude of problems today is the hard question.

Ontario has managed to create a situation where it has run up a public debt of $C125 billion by 2032 via arrangements to fund power purchase deals, green power subsidies and coal generation phase-outs. Under Premier Wynne’s new plan this liability will stretch to mid-century and, to quote the Financial Post, “cost tens of billions more.”

All of this can be traced back to a broad decision in 2010 to provide subsidies and ensure high prices for wind, solar and other renewables players that, Ontario voters, were promised. along with other interventions, would free the province of “dirty coal” and deliver jobs and growth. If this sounds strangely familiar, you must have been reading Bill Shorten’s headland speech on federal Labor’s plans here a few days ago.

In Ontario, the great leap in to the future (aka the unknown) has delivered hundreds of dollars a year more in household power bills, taking them to double what they were in 2005 and the situation to the point where Premier Wynne can’t mention electricity at public meetings without being roundly booed.

Her government has suspended plans to contract for more wind and solar power but that hasn’t made a dent in voter rage (and, of course, it hasn’t pleased environmental activists).

The Ontario auditor-general has estimated that the all-up cost to the provincial economy over 30 years of “going green” will be $C170 billion.

Critics call Ontario energy policymaking “a train wreck in slow motion” and declare the provincial electricity structure “badly broken.” Does this sound familiar in our own milieu?

Here, as in Ontario, we are not even close to having a durable policy regime in place that will return us to rational energy governance and deliver secure and affordable electricity and domestic gas supply as we pursue a lower carbon emissions environment by 2030 (which is 13 years away, not 30, as Finkel may care to note).

There, Ontario’s Society of Professional Engineers has issued a half dozen critical reports in less than a decade on the tendency of the Liberal government in Toronto to let green talk and politicking over-rule sound management. One of the SPE’s former chairmen has bitingly commented: “Because they (the politicians) know how to turn on a light bulb, they (feel secure in) issuing policy statements on the most complex engineering system on the planet.”

Another Toronto critic has summed up the Ontario situation like this: “Through subsidies and feed-in tariffs, the government has promoted a massive expansion of electricity capacity. At the same time, demand for electricity has gone in to decline as economic growth has slowed and the mass market has cut back on electricity needs. Soaring supply, falling demand and mandatory pricing is a recipe for economic chaos.”

Now, to be fair, eastern Australia is not Ontario – any more than New South Wales is South Australia – but there is a trend we all have in common, the one so clearly defined by Dieter Helm.

One last thought: the Ontario auditor-general has estimated that the province’s policies to eliminate coal and go green are, in effect, imposing a carbon abatement cost of $C250 per tonne. What, one wonders, could be the cost of what Shorten (and his State colleagues) propose?

We do not want to find ourselves in 2030 (let alone 2047) with the judgement on our energy and climate policies being the one just delivered in Toronto by one of the provincial government’s fiercest energy policy critics: “The regime is a monumental failure. The costs to consumers are prohibitive and damaging the economy. The environmental and health benefits are debatable. The few jobs created by this policy are mostly temporary, but the high prices foisted on consumers are permanent.”