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Turnbull’s coal delusions as COAG “changes course” on energy

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From ABC TV's Utopia series.

From ABC TV’s Utopia series.

It is getting increasingly hard to make sense of exactly what is happening in Australian energy policy these days. Just ask comedian Rob Sitch, who looked at the industry while researching for his new series of “Utopia”, where he plays the head of the fictional National Building Authority.

Looking for “grand plans” that his character could announce, he conducted a mini Finkel review of his own and looked specifically at Snowy Hydro, even before the Turnbull government’s announcement of Snowy 2.0. What he found wasn’t so much an energy industry as a market more in common with junk bonds on Wall Street.

“Truth is stranger than fiction,” he said in an interview last week. In the end, he just found it too bizarre, even for a program like Utopia, which specialises in improbable projects that have the lure of being “announceble” even if they are never built: Essentially a turntable for government naming rights.

There has been more than bit of that sort of caper in the last few months, and the late John Clarke summed it up neatly with Bryan Dawe in one of the last episodes of their weekly satire, in a memorable interview with “Wal Socket.”

But if we are to believe, as energy minister Josh Frydenberg suggested on Friday, that the latest COAG meeting will be remembered and hailed as the meeting that “turned the ship” around on energy policy, it is still not clear exactly where that ship is heading.

Frydenberg was quoting Tony Marxsen, the head of the Australian Energy Market Operator, and it was in reference to the 49 out of 50 recommendations that were adopted from the Finkel Review.

It is what everyone was hoping. But the Finkel Review recommendations were so vague it was not entirely clear what it means. That might be a good thing, if the future is beyond coal.

Turnbull tried not to frighten the horses on the weekend by telling the Queensland LNP congress that anyone who did not believe in the future of coal was “delusional”.

bnef renewable costs one

 

One could strongly argue the opposite, as did Bloomberg New Energy Finance when shooting down the absurd technology costs pushed by the Minerals Council. But that is the role that Turnbull and Frydenberg have to play if they are ever to get a version of the Clean Energy Target past the party’s right wing.

There are four key considerations to be taken out of the COAG meeting last Friday.

The first is on the future of the CET itself. The states are promising to go it alone, but at this stage it seems little more than playing politics. It is hard to see what interest the ACT, already at 100 per cent renewables by 2020, would have in a state-based CET.

Victoria is still yet to introduce legislation for the VRET, its own state-based renewables target of 40 per cent by 2025. Studies show that the state-based initiatives, like the Victoria and Queensland targets, will be enough to get the country to the current 2030 emissions reduction targets.

That means that any national Clean Energy Target will be of little use unless it aims a lot higher than the 26-28 per cent reductions current sought by the Coalition government.

But with Turnbull still describing the Queensland government’s target of 50 per cent renewables as “reckless”, there is little room to propose a scheme that will see that much renewable or more across the nation.

And he has to deal with outrageous outbursts last week by the likes of energy committee chief Craig Kelly (renewables are killing people); Resources Minister Matt Canavan (we should ignore climate change) and broadcaster Alan Jones (the head of AEMO should be run out of town).

Instead, the focus needs to be put on the other important aspects of the Finkel recommendations.

Chief among these is the Generator Security Obligation. COAG resolved to ask AEMO to put together a rule-change to put to the Australian Energy Market Commission, the rule-making body known for its glacial progress on rule changes.

If the AEMC can somehow bring itself to issue a rule change in less than five years, something it has been unable to do with other key proposals that might weaken the incumbent business model, then it is hoped that AEMO is given a huge amount of discretion on where dispatch ale storage needs to be installed.

Frydenberg was at pains to point out to RenewEconomy last week that he was not suggesting that each and every wind and solar farm would have to have certain amounts of storage. That, he insisted, is to be decided by AEMO.

And experts point out that the levels of storage and dispatchable generation will be different from state to state, and location to location. This mustn’t be used simply as an excuse to make wind and solar more expensive. As ITK analyst David Leitch notes, it could be a dumb idea.

It’s pointless to ask a wind farm in Tasmania to add back-up, given the high level of hydro power. But while a new solar farm in South Australia may need to provide more, a second solar farm in the area might not. AEMO will need to monitor and manage this, but it will be a rapidly evolving brief as new technologies come on to the market.

It was interesting to note that COAG also gave the AEMC a strict deadline on new rules for demand management, an issue on which it has been dragging its heals, instructing it to produce something concrete by the summer of 2018/19.

The question of the Energy Security Board is also interesting. An independent chair and a deputy chair are to be appointed, with each state proposing a name or names to be put forward. It is not entirely clear why a new layer of bureaucracy is needed.

Crikey reported earlier this month that two names being discussed included former energy ministers Ian Macfarlane and Martin Ferguson. Either would be a disaster for the industry, and hardly independent, given their respective roles as lobbyists for the coal industry, on one hand, and the oil and gas industry on another.

aer prices

Finally, there is the question about market gaming by generators. Frydenberg has focused on the generators owned by the Queensland state government (Labor), seeking to embarrass them.

Queensland has left something of a smoking gun because ever since energy minister Mark Bailey put the word on the generators to change their bidding practices, Queensland has gone from rivalling South Australia with the highest wholesale prices – over the last five years and not just this last summer as Bailey suggests – to having the lowest.

That’s why Frydenberg should ensure that the AER also focuses on other states too. Everyone in the industry knows this practice is rampant, and that is the basis of the proposal to change the 30-minute settlement period to a 5-minute settlement, to match with dispatch.

Energy-insiders-icon-final copyThe current arrangement is simply too easy to game, and it has been happening across the country, as one of the leading networks and some of the new specialist retailers have made very clear.

To hear RenewEconomy editor Giles Parkinson and ITK analyst David Leitch discuss these issues, please tune in to our Energy Insiders podcast, which can be found here.  

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  • Just_Chris

    Essentially the stability mechanism sounds a bit like a capacity market. That isn’t such a bad thing but if taken to extremes could lead to wind generators having to build gas or oil backup before they can build a wind farm which seems a bit crazy. I am willing to bet that we end up with a capacity market where only oil, coal, gas and hydro can bid into. That will run parallel to the regular market. Pretty much what is happening now in SA with the rules around number of gas turbines running.

    • Mike Westerman

      Very true Chris – a transactional pool like the NEM cannot drive long term investment in things like stability, but if the planned pool is too big, it will make the market too rigid. Unfortunately this level of sophistication in structuring is completely lost when fools get involved.

  • Ren Stimpy

    McFarlane is Abbott’s main rival for the title of Dumbest Shit, and Ferguson is a shoe-in for Biggest Sell-Out Hypocrite.

  • Patrick Comerford

    If ever an example were needed of the value of a Leader of a government who had leadership skills and through those skills make things happen for the good, this energy struggle between the forces of the vested interests and the public benefit should be it. But what have we got a PM who is totally and utterly bereft of any ability to lead this country. He is now delusional on a scale only bettered by Trump.
    There is no adjective that can fully describe what is happening with this.

  • Ken Dyer

    Turnbull is certainly delusional about coal up here in Queensland. According a 2014 report “The mouse that roars: Coal in the Queensland Economy,” by the Australia Institute,
    99 per cent of Queenslanders do not work in the coal industry.
    96 per cent of Queensland government revenue does not come from coal royalties.
    93 per cent of Queensland’s gross state product does not come from coal production.
    The exaggerated claims made by political leaders, based on coal industry public relationscampaigns, have resulted in a public perception of the coal industry that is unrelated to economic reality.
    While coal makes a modest contribution to the state budget, it is also a recipient of
    considerable assistance. Queensland government assistance to the coal sector over the last six budgets has totalled around $8 billion. The latest budget papers show assistance measures worth hundreds of millions of dollars, spent on coal infrastructure projects.
    Leave it in the ground.

    • George Michaelson

      I think this is the key to the story in Qld. we’ve been sold a lie about the actual benefits to the state of this industrial sector, and because we all know somebody who knows somebody who did FIFO, we think it must be true.

      Folks: it ain’t true. what we do, what works for Qld, is not neccessarily what the Minerals council says. Equally, its not necessarily what the sugar cane farmers say, or the dairy sector, or even the barrier reef tourism sector.

      But we would be well advised to think about what ALL of them say, because it is likely each them have a bit of the story.

      • john

        FIFO has totally ruined the local towns that have to provide the services to the workers, if needed, and who just take the benefits and leave each week.
        The attitude showed by mine owners has to be emphasized as they have sold mining operations for $1 to get out of having to do the rectification to the ruined landscape they leave.
        This industry has a pathetic attitude to society.
        Frankly they do not care less.

    • Mike Dill

      No values for the externalized costs to the medical system…..

  • Brunel

    New CCGT much cheaper than new coal?

    Strange how Turnbull cheers on coal and ScoMo tossed around a lump of coal in parliament.

    I love solar power stations but of course I know the LNP are paid to hate it. So why can the LNP not cheer on on gas power stations instead of coal?

    • DJR96

      Because supply of gas is constrained and it is expensive stuff. Gas prices largely determine electricity prices. More gas won’t make it much cheaper either. So gas is a bust.

      • Brunel

        But the graph indicates it is not costly?

        An LNG import terminal is being mulled for Vic. Alternatively, build an UHVDC transmission line from WA to NSW – which would be fantastic for solar power stations.

        • DJR96

          Hey I’m surprised it is that cheap too. Although $75/MWh is still not that cheap, and barely any cheaper than solar. Solar at least we know is getting cheaper.

      • George Michaelson

        Gas futures are explosive, and people try to demand we tie Aussie price to worlds price, in the role of some kind of free market mantra about best. But, best is whatever we want and we don’t HAVE to be sucked into an opportunity loss (selling it all to Japan) is a REAL loss, if we say some is ringfenced for strategic outcomes like use by aussies. Thats normal, everyone does it, its not anti free trade, and its not actually wrong.

        So yea, Gas prices are bad, but they don’t have to be: they are bad because we let them be because we buy a bunch of free market whack job statements, which nobody else worldwide believe. You think the Japanese would demand domestic Gas in Japan (if they had any) was the same price as imported? Dream on!

        • itdoesntaddup

          In 2016 LNG sold for 7$/MMbtu cif Japan on average. That’s about 3$/MMBtu, or just over 1 cent/kWh at the flange of the LNG plant in Australia. Australians chose not to compete for export gas, but they could have had gas at US style prices had they opted for it. Henry Hub has recently been around 3$/MMBtu. You cut off your noses to spite your faces.

  • solarguy

    Awh for F$^*k’s sake has any one got the balls to scrap this system and bring in some common sense. Simple, all we need is one governing body with at least an ounce of grey matter to sort this shit fight out, but no, to many vested interests including state governments like Queensland, the national LNP and the dumb coalies, etc who can’t see above their bank balance.

    No one, on less than $70k/annum have an unlimited capacity to keep paying, increasing prices for power, rego, insurance, rates…………………. f&+#k the list is endless.

    Mega fail government geese!

  • riley222

    Maybe Mal will still do a Bradbury and emerge victorious but it’s looking more and more like the right has him cornered, and not much will move forward until the next election.
    I hope the discipline in the Labor Party is strong, cause if Mal loses its going to be another Abbott style opposition, and heaven help OZ if Abbott manages to defeat another Labor government.

  • Ian

    What does it men to ‘turn the ship around’? This must mean to either aim it in the opposite direction IE back from whence it came, or on a tack different from a renewables one. Josh Frydenberg is making plain what the coalition think they have achieved at the COAG meeting: Stopped the transition to renewables in its track and made the environment for Coal and gas to continue unabated. They have ‘fixed’ this renewables energy problem, so it’s back to business as usual . Expect more announcements on new coal generating capacity to proceed.

  • Joe

    The Turnbull…our great self contradictory PM. Who can keep up with his different messages depending upon the audience that he is addressing…doesn’t matter that the new message contradicts his last message. The Abbott was ‘infected’ with public contradictions long ago. Last week it was Bananaby Joyce sodding for a new Solar Farm even though he is a 100% Coaler. Now it is The Turnbull’s turn with his “Delusional” presser / speech. No wonder the punters have switched off the Turnbull, they can’t work out and Turnbull can’t work out, if he is arthur, martha or yarfur. Next election the COALition will be gone. Labor will steer That Ship but will we see much difference ? I am guessing that The Labor States and a Labor Fed Govt will reach agreements on RET but The MCA and Coal Mining Companies will be there in a rearguard action to push back.

  • Michael Fairweather

    As a layman on most things I can see that the Turdbull Government actually believes the lie’s it keeps telling us and the more they repeat the lie the more they believe. I dont think commonsense will get through to Turdbull as he has dug him self into a hole and he cant get out. I can see possibility’s for energy for any State that has a river flowing 24/7/12 it just takes a PM with vision and that lets Turdbull out.

    • RobSa

      Its the same with conservative politicians everywhere. Its a failed fringe movement with no achievements and no legacy. Just look at Trump or Abbott; abysmal, disgraced failures that stand for nothing but fear, hate and ignorance.

  • Robert Comerford

    And, what to we get on last nights Q&A. A right wing LNP whackjob telling us that the poor Indians will suffer if we don’t send them more of our polluting coal. No one pulled him up… amazing!
    As for giving some unemployed and uneducated locals jobs on a mine site to justify polluting our planet he should be reminded there are hundreds of people already qualified and experienced to fill those jobs. Just to get on a mine site you will need to pay for and pass a rigorous medical and pay and pass the S11 mine safety course. And then you need to have some proven skills they need at a coal mine such as an electrician, heavy mine vehicle operator etc..
    Who are they going to employ??

    • solarguy

      No one pulled him up except the English guy, but yet he didn’t know enough to press on. I heard same guy mention that RE is cheaper etc. Some one like David Leitch would have been great on the panel or even me, but I would be like an attack dog on steroids to Canavan, it wouldn’t be pretty but I’d get the message across load and clear.

      Don’t get me started on Jones, he doesn’t know how to balance panellists invited to the show.

    • RobSa

      Do not turn to television news or current affairs programs. The revolution will not be televised.