To prove he’s no Weatherill, Turnbull must act now on energy

This week we learned that the complete power blackout that occurred in South Australia last September was due to the existence of a large number of wind farms that simply ceased to operate in the context of a strong storm, in turn causing the interconnector with Victoria to trip.

I’m not sure why anyone would be surprised to read this conclusion. The way our electricity system has been allowed to develop — a thin grid with poor interconnection and a concentration of intermittent generation at the end of the grid — meant this was an accident waiting to happen.

The rejigging of the wind farms to reduce the likelihood of them shutting down when the wind is blowing strongly will help a little.

But there is little that can be done when the wind doesn’t blow, which was the case when load-shedding affected 90,000 households in SA in February. Intermittent energy is just that — it can’t be relied on.

We also learned this week that Alinta Energy had offered to keep the coal-fired Northern Power Station operating until next year in exchange for a $25 million grant from the SA government.

Had that power station been in operation, neither the blackout nor the load-shedding would have occurred.

But to brag about its climate credentials, the SA government rejected the Alinta offer, claiming that its support for renewable energy would not only see the state through but it also would underpin economic prosperity and jobs growth.

Sadly, SA has enjoyed neither economic prosperity nor jobs growth, but the taxpayers will now bear the burden of a $550m bill to build a lightly used gas-fired power station, a big battery that will power the state for a few minutes, and a bank of diesel powered generators, just in case things turn really pear-shaped.

Not surprisingly, members of the federal government — particularly Malcolm Turnbull and Environment and Energy Minister Josh Frydenberg — have been making political points by bagging the SA government. But here’s the thing: the federal government is much better at bagging than fixing.

“Nation-building” exercises such as the pumped hydro project known as Snowy 2.0 will do absolutely nothing in the short term to deal with the two key problems in the electricity system: rapidly rising prices and dubious reliability.

And given that at least 20 per cent of the power that can be released from this project will be consumed in pumping the water uphill, as well as the size of the project, the whole exercise is likely to be marginal at best.

(Does anyone really say this? Radio presenter: “What if the feasible study says the project should not proceed?” Prime Minister: “It won’t.” The scriptwriters for the ABC’s mockumentary Utopia should be taking notes.)

The way to think about the energy problems is to consider the short term and the longer term. We simply cannot wait four or five years for a solution.

We also need to acknowledge that gas is a big part of the solution (as a source of electricity generation and as a direct fuel source), but as long as the renewable energy target remains in place, gas will continue to play a very marginal role.

We also need to realise that reliability isn’t everything.

In the past 10 years, electricity prices have more than doubled, having been essentially flat in real terms for the previous decade. Since the Hazelwood coal-fired station in Victoria’s Latrobe Valley was slated for closure (it shut down this week), wholesale prices have soared even higher, rising by a further 20 per cent.

So what can be done about the RET? The government is sticking firmly by its commitment that 33,000 megawatt hours of electricity should be generated from renewable energy sources by 2020, with the scheme continuing to 2030. The mechanism that drives this target is the renewable energy certificate.

The price of RECs is heading towards the legislated ceiling, which suggests the market doesn’t believe the RET will be met by 2020. This has been the case for some time. (Arguably, the RET was never going to be achieved, involving as it does annual licks of investment in renewable energy that have never been achieved in the past — one reason the government erred so badly when it renegotiated the RET in 2015.)

What the government urgently needs to consider is freezing the RET at its present level, plus some allowance for projects in the pipeline, and converting the target to a clean energy target in which different sources of electricity generation are weighted according to their emissions intensity.

In this way, there is every likelihood that some new gas-fired electricity generation could come on stream and some existing gas plants could be pulled out of mothballs. There also would be an incentive for the continuation of some existing coal-fired power stations.

The reality is that there is a virtual capital strike at the moment in respect of new sources of electricity generation apart from renewable energy projects that have back-to-back contractual arrangements.

The bizarre 100 per cent RET of the ACT government is generating some demand for the output of new renewable energy projects, for instance, and the output of some other projects has secured guaranteed contracts with retailers. But there is no new investment in renewable energy without committed demand.

Given what we have seen with the impact of the closure of the Hazelwood power station — does anyone really believe the assur­ances of the Australian Energy Market Operator that we will get by next summer, given the agency’s record thus far? — there may well be a case for the government making capacity payments to existing fossil-fuel power plants to ensure electricity reliability, but also to impart much needed inertia to the system.

Let’s face it, the federal government looked completely dumb as it wailed about Hazelwood closing down, but did absolutely nothing to prevent it happening.

To be sure, Hazelwood was old and “dirty” and its maintenance had been allowed to slip.

But there are many other power plants that are newer and in better nick. The government needs to be on its toes to prevent any further closures until the reliability and stability of the system have demon­strably improved. There is also a case for ditching the dispatch preference for renewable energy that is part of the rules of the National Electricity Market. This change is happening in ­Europe.

As for the supply of gas, there may be a case for the building of a new coal-fired power station in Gladstone that would power the liquefaction of the gas, thus releasing more gas for domestic pur­poses. Small operators also may be able to scoop up the puddles of gas that still exist in the Bass Strait.

The time for action is now, not in four or five years. Storage could play a bigger role down the track, but the problems of the electricity system and the shortage of domestic gas are with us now and can’t wait for longer-term solutions. If Canberra does not come up with short-term practical solutions — not the pretend ones it has proposed thus far — the ­electorate may well conclude that the federal government is no ­better than the SA government when it comes to ­energy policy.


APR 1 2017
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