On the brink

It’s extra-ordinary, really. Not quite two years ago we set out, at the instigation of the Prime Minister via the Finkel report, to have a well-informed debate about the current challenges and future opportunities of electricity supply – and now we are stuck on a political battlefield, to quote Paul Kelly in The Weekend Australian, where the price, reliability and make-up of power supply has become “the test of our time.”

How next Friday’s CoAG Energy Council discussion of the “national energy guarantee” – to be followed by a Coalition partyroom discussion and then another CoAG meeting via a conference call, rolling the official debate on in to at least September – will pan out is open to a range of opinions, all of them presented in hyper-drive in the media.

Tony Wood of the Grattan Institute has summed up the current environment pretty well in a conference talk: “Australia has drifted in to a place of high prices, questionable reliability and uncertainty on emissions; the primary cause is poor governance behind a toxic political battle (on carbon emissions abatement).”

At the same conference, Paul Simshauser (of Griffith University and Infigen) made the point that, for a market-based power system like the NEM to function properly, investor knowledge, expectation and conviction must match policy settings and intent – and vice versa. “This,” he said, “is the NEG’s main contribution to current market conditions – and this alone is where it is worth pursuing.” The market, he asserted, can be trusted to manage power prices back down if clarity prevails about the investment climate. “Security of supply is a serious issue, but the NEG can’t, and should not, deal with it.”

Also at this forum, Anne Pearson, CEO of the Australian Energy Market Commission, provided a salient thought on the context of the “debate” that will reach some form of denouement at the CoAG meetings. “The concept of social licence is more relevant than ever,” she said. “It’s also about energy consumers generally having confidence that the challenges of the (supply) transition are being addressed. Consumers want to know that while our generation is becoming cleaner through this technological transformation, it will still be secure, reliable and safe, and affordable.”

Pearson added: “It’s no good offering the latest, greatest technology if the power system is not resilient enough to deliver it to consumers. It’s no good having the perfect niche product if the market is not competitive or customers are not empowered to choose it. We need to be careful about how we manage change so least cost solutions can be put in place so consumers don’t pay more than necessary for certainty of their power supply.”

As she told her audience, “the appeal of simplistic solutions over pragmatic actions based on rigorous analysis can be strong when things are changing quickly.”

All of which throws an odd light over this recent tweet from the activist Labor Environment Action Network: “The truest thing said at clean energy conference: High prices are not a market failure. They are proof of the market working well.” (LEAN was the successful proponent of a 50 per cent renewable energy target as ALP policy at the party’s last national conference.)

In this context, the claim that adding more renewables to the NEM indisputably will lead to lower wholesale electricity prices is a tad ingenuous – the critical test is the total system cost, which needs to take in to account all the infrastructure and supply support needed in a market with a much higher level of variable generation.

Digressing only slightly, I am watching with a raised eyebrow the waffling in the media about the latest NEG modelling showing that the measure will result in 2030 in 24 per cent of market energy coming from variable sources plus up to 12 per cent from hydro power (which LEAN and the rest of the activist gang see as much too little). One can have a debate about how much energy will need to be provided to the grid then (for example how much manufacturing will Australia have at that point, remembering this sector is responsible for a third of demand), but, assuming that the level is still around 190 terawatt hours a year, the modeling suggests fossil fuels in the 2030 NEM will account for about 122 TWh versus about 167 TWh now. Just what will be needed in the way of support infrastructure and services to deliver an additional 45 TWh of variable energy to the grid? What costs will be incurred – and how will this feed through to consumers large and small?

Bear in mind these numbers do not include rooftop solar power. The large increase in this form of technology anticipated by all and sundry will come with its own impacts on the grid – and therefore on consumer bills – as well as impacts on the profitability of conventional supply.

Just one thing is clear from all the current goings-on: energy remains the plaything of politics, a thought leading a clearly over-it Katharine Murphy, The Guardian’s chief political reporter, to snarl this weekend about “self-interested rent-seekers and politicians prepared to traduce facts, reason and evidence, leaving the Australian people the biggest losers.”

Her message to the governments gathering under the CoAG umbrella (and to the federal politicians who eventually get to vote on emissions abatement as part of this package): “Get over yourselves – we need you to come together in good faith and sort this out.” And she added: “Will it be détente or is there political profit in confecting a state of permanent war where virtue-signalling triumphs and practical progress is nailed to a national monument called failure?”

To which one might append another comment from The Australian’s Kelly: “Success depends on compromise from all sides. But this violates the spirit of the age, riven by ideology, populism and sectional interest.”

The last word, however, should go to Kerry Schott, chair of the Energy Security Board, who said in her covering letter to CoAG submitting the latest iteration of the NEG: “Many stakeholders have stressed that at least some of the existing pipeline of new investment is predicated on the assumption that integrated energy and climate policy is now within reach. Any delay or, worse, a failure to reach agreement will simply prolong the current investment uncertainty and deny customers more affordable energy.”

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