The proposed underwriting of new investments by what the the Coalition government likes to call ‘fair dinkum power” needs immediate clarification before the industry again wastes its time.
There are some core issues that jump to mind – and many of these revolve around the issue of a range of emissions and the government’s own procurement guidelines that any contracts must have the environment in mind.
The reason the government gives to justify its potential intervention in the market is to ensure that it accelerates the deployment of assets and technology that it says society needs, the delivery of dispatchable power.
It has made it clear it favours coal, gas or pumped hydro, and energy minister Angus Taylor is insisting this must be “24/7” power and has indicated the government may indemnify any projects against future carbon restrictions and price impacts.
The reason the market is challenged, and why such support may make sense, is that traditional methods of power generation must be replaced because they produce damaging emissions that create significant external costs to society.
The external costs are increasingly evident in the form of climate change, but also involve localised heavy metal pollution and the production of NOx/SOx and ash.
Traditional methods of power generation, by their nature, have higher dispatchablility. As they withdraw, new methods of producing dispatchable power must be deployed and developed. But if the government’s plan is to ignore and avoid these external costs, then its solution is seriously flawed.
The Coalition government insists it wants new investment in generation at lowest cost. If that is so, it must explain why it believes the known external costs of fossil fuel burning assets should not be factored into the price taxpayers and society will have to pay for the operation of that asset.
The government must also explain, should it decide to ignore the external cost, why it is in effect subsidising the fossil fuel generation, and why it will not provide the same value of that subsidy to a generation facility that doesn’t create the same external costs for society.
This government can easily address this problem by assessing all alternatives, assuming an appropriate carbon cost, which represents the external cost of the emissions from a fossil fuel facility.
So, is this government interested in acquiring with taxpayer money dispatchable power at a lowest net cost to society, or does it want to conduct a flawed tender that supports one type of company, product or asset over another, in effect selecting for the taxpayer a service at higher net cost?
Can the government explain how undertaking such a flawed tender complies with the government procurement obligations? Can the government confirm that it has the power to contract for services in potential contravention of the very intention of its own procurement rule?
For the very obvious reasons listed above, the government must either exclude dispatchable solutions that use fossil fuels, or access solutions using a carbon price, so that solutions that produce external costs can be correctly compared with solutions that produce no – or fewer – external costs.
To ensure the private sector invests its time tendering the best value solution, the government should immediately confirm what carbon cost it will apply to the assessment.
If the government intends to ignore the carbon costs/external costs, it should confirm how doing so complies with the intent of federal government procurement rules that require among other things:
“Officials responsible for a procurement must be satisfied, after reasonable enquires, that the procurement achieves a value for money outcome.
a. encourage competition and be non-discriminatory;
b. use public resources in an efficient, effective, economical and ethical manner that is not inconsistent with the policies of the Commonwealth.
c. facilitate accountable and transparent decision making;
d. encourage appropriate engagement with risk; and
e. be commensurate with the scale and scope of the business requirement.
When conducting a procurement, an official must consider the relevant financial and non-financial costs and benefits of each submission including, but not limited to:
a. the quality of the goods and services;
b. fitness for purpose of the proposal;
c. the potential supplier’s relevant experience and performance history;
d.flexibility of the proposal (including innovation and adaptability over the lifecycle of the procurement);
e. environmental sustainability of the proposed goods and services (such as energy efficiency and environmental impact); and
f. whole-of-life costs.”