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Abbott 1, Consumer 0. Turnbull’s energy fudge locks in high prices

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Whatever else you can say about Malcolm Turnbull’s new energy policy one thing is clear: Tony Abbott has won, and consumers have lost. Even in the most optimistic scenario presented by the government, energy consumers will see little reduction in their energy bills over the next decade.

That’s outrageous. Australians are paying absurd prices for their electricity – upwards of 40c/kWh and not just in South Australia – and this new scheme can envisage only a slight reduction over the next 12 years.

In an era where renewable energy costs are plunging, where the costs of rooftop solar are about one-sixth the cost of grid power, that spells an abrogation of the government’s duty, and it spells trouble for the future.

To please Abbott and the vast rump of climate deniers and renewable energy nay-sayers in the Coalition and the conservative commentariat, Turnbull has effectively abandoned the Paris climate target and closed the door on new renewable energy projects.

Paris is abandoned because Turnbull is committing only to the Abbott downpayment of a 26-28 per cent cut by 2030, and has co-opted the Energy Security Board to devise a plan that commits the electricity industry to account for just one-third of that target. It should, and could, do a lot more.

Renewable energy is abandoned because there is no obvious incentive to develop new generation. And consumers can rest assured they will be screwed because the power, quite literally, is conferred upon the big retailers and generators and their complicated series of price caps and hedges.

The government would like us to believe that this new plan is the work, solely and uniquely, of the newly established Energy Security Board. Given that this board only met for the first time a month ago, that seems unlikely, despite the fact that the directors were co-opted to attend the Turnbull policy launch.

More likely, this is the work of the vested interests who have controlled debate and policy making in Australia for all but the Gillard years of carbon pricing. The fact the current high levels of wholesale prices are, by the government’s own admissions, locked in for another decade at least, is confirmation of this.

Turnbull says it is about reliability, emissions and affordability. But it appears an own goal on all three counts: Australia simply cannot afford to dump climate targets, wind and solar are clearly cheaper than fossil fuels, and relying on ageing coal generators seems a recipe for disaster

The policy unveiled on Tuesday means he is effectively tearing up Australia’s commitment to the Paris treaty, because there is no path to 2°C.

It throws a wall of protection around the fossil fuel industry – as if it hasn’t benefited from enough political favours – and raises the drawbridge on new large-scale renewable energy investments.

The details of how this scheme will operate are far from clear. There are reliability and emissions standards to meet, but no decision on what these might be. We only know that they vary from state to state, and will be at the discretion of the AEMO and the AEMC.

Turnbull hailed the initiative as a significant breakthrough and a game-changer for the industry. Minutes later he was back in the parliament sprouting complete nonsense about the cost of the renewable energy target, quoting a discredited series of stories in The Australian that claim the cost is $66 billion.

And that’s the point. Renewable don’t need subsidies, and many new projects aren’t getting them. But they do need a target, and an incentive to encourage utilities to move beyond their current coal and gas interests.

They also need leadership. Political leadership in the form of a climate and clean energy vision. And there’s not much chance of that right now.

For Turnbull, the politics haven’t changed at all – and that’s why the renewable energy industry and the consumer should remain suspicious. There is no path to the decarbonised electricity grid that the CSIRO, the networks and any number of energy analysts have said is not just doable, but eminently affordable.

There is no path for falling energy costs, because the system will rely on the very institutions that have been gaming the market for the last decade. Reliability may be maintained, but at the cost of gold plating the coal and gas industry in the same way that regulators encourage and allowed the networks to do.

Most of all, it’s killed the chance of a bipartisan agreement. It’s a sorry tale. And unless something mighty surprising emerges in the next few months, when the policy details are finalised, it will have got us nowhere.  

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  • Chris Fraser

    Mmm … Turnbull was much more salient and concessional towards renewables between 2008 and 2013, while he was in opposition. Clearly, that’s where he belongs.

    • Vince Wardill

      I couldn’t agree with you more. The Malcolm Turnbull of those days couldn’t talk enough about how we had to follow the Renewable Energy path. Since the Liberal Party coming to power it has been a slippery slide in to oblivion for Renewables and the rise of the Coal Industry. I can’t believe that we could have been deceived so much by consecutive governments and I can’t wait for the next Federal Election to have my voice heard.

      • mick

        we?

  • RobertO

    Hi all, the sooner we change gov the better. They are not leaders, nor forward thinking or planning. There is no future.

  • Peter F

    Giles you are too pessimistic. This is a golden opportunity for VPP’s and microgrids. The cheapest way for a retailer to get reliability is for them to pay 10-20% subsidies for customer sited storage which they can access for 200-300 hours per year.
    In fact because coal plants and even gas has proved unreliable in recent times, if penalties for unreliability are sufficiently high no-one will go near older coal plants. Even newer coal and gas plants will probably only contract the equivalent of 70% capacity allowing one unit to be down at any time. This forces up the average cost of FF power and increases the attractiveness of renewables + storage.
    If reliability penalties are low, retailers will go with low cost and cop the fines, again more renewables
    Another potential benefit of reliability standards is that they force more conservative bidding behaviour which may force up typical prices $2-3/MWhr but will virtually eliminate the +$300 events so lowering average power costs.
    If the reliability extends to frequency stability again an inverter dominated system is much more stable than rotating FF generators which might need to add synchronous condensors or flywheels etc
    What may well happen as is happening in Germany and the UK is that coal and gas plants add storage. That has two benefits, the thermal plants spend more time at optimum operation thus reducing emissions but also the storage can sometimes be recharged from excess renewables further reducing FF use

    • Alex Hromas

      Peter I disagree on the pessimistic bit. Regardless of what Turnbull & Co. say we will be retiring several large coal fired generators over the next 10 years and this will lead to a serious short fall in capacity if no renewables are built. I am unaware of any European thermal generators installing storage and this will certainly not help us honour the Paris agreement.
      Individuals and business will inevitably install more PV and possibly battery to offset high grid costs. Export of any surplus will be governed by export tariffs and these are ridiculously low right now. Hopefully state governments will correct this as generation shortages become apparent.

      • Ken Dyer

        Renewables won’t stop.

        The Queensland government has submitted an open tender calling for the development of 400 MW of large-scale renewables and 100 MW of energy storage projects. It has received 115 proposals from 79 different companies for the program.

        Bids were placed on projects in a large range of technologies and energy storage projects. Among these were a 2200 MW wind energy project, a 6400 MW solar project, about 500 MW of other renewable energy technologies adding to 6,000 MW of energy storage projects.

        This is greater than the current 8,200 MW generated by coal-fired power stations and is further proof that Queensland does not need a new coal-fired power station being trumpeted by the LNP.

      • Peter F

        Alex. In the UK 200MW of battery contracts were awarded last year mostly going to CC gas or biomass plants. In Germany there are 200MW being installed this year including
        “An example is coal-to-power group Steag, which in a $106.32m project is due to complete the installation of six 15 MW batteries at German coal plant sites this year.”

        Nothing in this new plan will depress power prices, therefore new wind and solar farms will be very profitable. For example a new merchant windfarm in NSW will average $80-90/MWhr yet the cost is about $55 from the evidence of Silverton and Stockyard Creek, that suggests 30% + profit margins.

        At 40% CF they will generate 3500 MWhr/MW/yr. At $85 that is almost $300,000. Net of O&M $235,000. Assuming borrowings of 70% at 6% and an investment of $2m/MW interest is $84,000 and depreciation $80,000 leaving $70,000 profit on $600,000 of shareholders funds still pretty profitable. If they were borrowing in Germany they might get the funds at 3-4% further increasing their profits

    • trackdaze

      Good points though I imagine the detail may obstruct free unfettered installation of wind, solar hydro beyond a 26-28% renewable threshold.

      • solarguy

        Correct, this idea by the Coalaltion of restricting RE is ten amount to hobbling solar and wind and ensuring coal remains king. It will cost us more, much more…………….. unless we piss em off at the next election.

    • David Osmond

      love your optimism Peter. But I suspect the reliability guarantee will simply be a requirement to source X MW from a dispatchable generator, regardless of the reliability of that generator.

    • RobertO

      Hi Peter, I suspect that if they add 2-3/MWh on the wholesale price, it will be more like 20-30/MWH and it will apply for 8760 hr/year (every $10 is 1 cent /KWh). On the wholesale market the price in Tasmainer is rearly below $60 yet the dams are mostly paid for and they have market power to dominate. Yes I know that some repaires are required, but they are making plenty of money for Tassi Government.

      • Peter F

        There are many influences on bidding behaviour, but the current rules encourage brinkmanship, if penalties for non supply are high, more capacity will be bid and prices spikes should be lower and less frequent.

  • phred01

    Captains’s still in charge pulling puppet strings from the back bench

    • Joe

      General Tony ?

  • Malcolm M

    So in order to escape the energy price dominance of the incumbants, larger commercial users should be contracting their own wind and solar farms, plus some balancing. Are there commercial aggregators doing this already? The State governments have started doing this already for their own needs.

    The problem with being able to change retailer at short notice without penalties is that the retailer lacks the financial stability to contract new generation. So they are left with merchant generators who have to accept a higher return on their investment to offset its higher risk.

  • Radbug

    At least now there is no confusion. Coalition is pro-coal and ALP & Greens are pro-renewables. The only task left for the ALP is to dump Adani and give up the Federal Division of Flynn, and, by the way, pick up the Liberal “dress circle” seats in the cities.

    • mick

      yep

    • solarguy

      Yep, we have one chance and that’s to vote em out.

    • Joe

      It looks like the Abbott’s Battlelines have been drawn assuming that Labor will hold to its commitments that are on the public record. For Labor it is politik that is trumps so not sure if Fed Labor would go on record in dumping Adani, up until now they have weasel worded their way around the issue along the lines of the… ‘business case stacking up’. And Premier Annastacia needs those votes / seats to get re elected which is why she is hot for Adani.

  • Chris Fraser

    I bet they didn’t model the energy supply they need to guarantee at any particular time. Did they need a guarantee for enough energy for mid-season days ? Or colder, overcast days ? Or hot days at 43 degrees across half the NEM ?

  • Robin_Harrison

    Silver lining time. The ridiculously high prices foisted on us by these greedy bastards is driving the uptake of renewables much faster than most places.

  • hugh grant

    Turnbull has played all three ESB Members like a fiddle. I expect that all three of them will regret signing that letter when the details of the Coalition’s plan unfold.

    • Joe

      Gotta love the Two Tongues Turnbull. He bangs on about the experts, the ESB. But didn’t he just have experts, no less than The Chief Scientist led Finkel Report deliver a report. Of course the CET is not what Two Tongues Turnbull wanted to hear so it got dumped. The ESB gives Two Tongues Turnbull what he wants to hear so it gets…. accepted.

      • hugh grant

        The ESB members have no responsibility and no real interest in Australia’s emissions reduction targets – which are considered an “externality” by the NEM. I expect that their engagement with Labor and other parties will uncover the key sticking point of the Coalition’s NEG – it naively assumes that they will seamlessly reach bipartisan support on Australia’s emissions reductions trajectory and contribution of the power sector to Australia’s emissions reductions effort. The Coalition is assuming a 26% reduction by 2030, whereas meeting Australia’s Paris commitments in the most cost effective manner would involve power sector emissions reductions of around 70% by 2030.

  • Ray Miller

    Thanks Giles, we need to end up with energy systems which is fit for purpose with the current “real” context.
    – the great barrier reef could be lost in the coming decades due to a warming climate
    – Australia is setting temperature records almost every month and by increasing margins
    – The extra energy put into our climate is causing major disruptions in increasing rainfall intensity, higher wind velocities, and maybe extra and larger tornadoes, more damaging thunderstorms.
    – Bush fire risk is every growing in magnitude and duration
    – heat related impacts on productivity, health and morbidity.
    – increase in extreme heat events are growing in duration, temperature and area
    – our changing climate is dramatically negatively impacting on our food production

    So our energy policy must take into account the ‘physics’ and can not be formed without regard with an ‘immediate’ plan to significantly address system solutions.

    Resilience of our energy services to all our citizens needs to be designed from the ground up, not the top down taking into account all our increased risk of climate impacts. The solutions will require significant intellectual horse power, citizen and industry cooperation.

    Does the proposed rearrangement ‘guarantee’ anything, except making the Luddites feel better and cost us all significantly extra and risks all the real metrics worsening?
    Sorry Josh you have not convinced me yet.

  • Ben Courtice

    It may seem like historical nitpicking now, but “the vested interests who have controlled debate and
    policy making in Australia for all but the Gillard years of carbon
    pricing” had a fair bit of clout under her government too. It was Martin Ferguson’s energy white paper that led off on attacking the RET.

    • Joe

      Martin Ferguson……I just shake my head. A pure mercenary.

  • trackdaze

    Vote with your roofs and garage walls people.

  • Joe

    The best summations on Two Tongues Turnbull’s energy debacle. Firstly, Victoria’s Premier Dan who saw it beautifully in saying…”Australia’s Chief Scientist, Tony Abbott”. And SA’s Premier Jay said what everyone knows is the case…”Tony Abbott’s Energy Policy announced by his spokesman Malcolm Turnbull”. Who is running this country??

  • Shannon David

    Remember when Abbott was spouting ‘removing the carbon tax will lower household energy prices’? I do and did it have any effect? Nope

    • RobertO

      Hi Shannon David, Your 100% wrong, It had a massive effect when it was removed. Prices went up by nearly 50% in the next 4 years.