Frydenberg’s choice: Make a big step forward, or a big step back

The make-up of Australia’s new parliament cut a depressing vista on Monday.

There was Pauline Hanson, demanding royal commissions into Islam and climate science, who along with other minor party and independent Senators will most likely hold the balance of power in the Senate, with as many as 7 seats but a minimum of 3.

Screen Shot 2016-07-19 at 2.58.51 PM
Pauline Hanson on ABC’s Q&A on Monday night

Hanson gave us a taste of what is to come in an extraordinary debate on ABC’s Q&A, which was punctuated with the sort of ignorance and ideology we often see in the energy sector – see South Australia.

In the government, the Coalition led by Malcolm Turnbull has elevated more conservatives to the front bench. Zed Selseja, a conservative who opposes gay marriage and weekend penalty rates, is minister assisting social services.

Matt Canavan, a conservative who dismisses climate science, is appointed resources minister responsible for the coal industry and building dams in northern Australia. Be under no doubt about Canavan: the only energy that matters to him, he has said often, is cheap energy, dirty or not.

Josh Frydenberg, another conservative, a fan of nuclear and a man dubbed “Mr Coal” by Australia’s most extreme right wing commentator, is given stewardship of a new super-ministry combining environment and energy. Not a bad idea in itself, but it depends on who is running the show.

Frydenberg is, as we have discussed, a big supporter of nuclear. Indeed, he likes to thinks big in terms of base load energy, and in his relatively short time as energy and resources minister has repeated the talking points of the coal industry, such as “coal has a strong moral licence,” and attacked green “activist groups.”

In an appearance on the Murdoch TV’s The Bolt Report last year, he was dubbed Mr Coal by Andrew Bolt – an admirer of Hanson’s attack on Islam and a supporter of Canavan’s criticism of climate science who continues to hold a thrall over conservative politics.

It looks like a bad start, but not all are despairing. The Australian Solar Council, for instance, noted that Frydenberg – unlike other Coalition candidates – actually turned up at a candidates’ forum in Box Hill in Melbourne in mid June to talk about climate change.

According to the some of those present, Frydenberg impressed because – they said – he appeared to understand that the world was changing, recognised that coal was in deep trouble, and grasped the fact that new technologies – battery storage in particular – were inevitable and the way of the future.

That’s not the man that the incumbent energy industry think they have in the minister’s office. The Queensland Resources Council was boasting of “scoring a trifecta” with the appointments of Frydenberg, Canavan and former environment minister Greg Hunt as minister of Industry and Innovation.

“The resources sector requires steady safe hands to ride through the commodities downturn and in the face of a relentless green activist campaign,” QRC chief Michael Roche said in a statement.

Screen Shot 2016-07-19 at 3.02.22 PM

But there is a precedent here for a surprise. Mike Nahan, the former head of the ultra conservative and highly influential think tank, the Institute of Public Affairs, arrived in the West Australian energy portfolio with a similar disdain for renewable energy, a fascination for nuclear and a none-too-convincing “epiphany” on climate change.

But Nahan has been a revelation. Faced with the basket case economics of the WA fossil fuel grid, a microcosm of the national grid, with layers upon layers of subsidies and market rules pitched in favour of the incumbent fossil fuel oligopoly, Nahan has now recognised that the future energy system will be based around solar and storage.

And he has started to put in train a makeover of the energy system, pulling back layers of subsidies that saw diesel plants built with taxpayer funds but never used, and instructing the government-owned utilities to shut down coal and facilitate the uptake of solar and battery storage.

Over the next few months, Frydenberg has the opportunity to do the same in the national market, which has become completely untenable.

The energy industry – the networks, generators and miners – presumably think they have a man who can perpetuate the largesse of a system that is tilted in their favour.

Australians are already paying more than any other country for their delivery costs (networks), and now wholesale prices – thanks to record gas costs – are also soaring. As well as that, as Bruce Mountain reveals today, the big retailers are fattening their margins too.

Indeed, the consumers are under assault on all fronts. But they, more than anyone, understand that the system is changing and the opportunities – in producing and storing their own electricity – that are before them.

The incumbent utilities know that too, but as various regulators launch inquiries into the “stability of the system,” the powerful oligopolies are seeking to may hay while the sun shines and are resisting change, opposing market rule fixes, fighting network spending cuts in the courts, and exercising their dominance over the markets.

They are asking for handouts at every turn – payments to close power stations, payments to keep them open (in the form of capacity markets, a system that Nahan is now trying to wind back in WA and which the EU and the UN have criticised as yet another fossil fuel subsidy).

At every turn, it seems, the energy incumbents are seeking to hold the market to ransom – a point that the South Australian government has realised, as it becomes increasingly vocal about the failure of the national market.

It is furious about the monopoly of the incumbents, and the inability of the regulators to reign them in. It is as though the industry is setting the state up for failure, with enthusiastic applause from many in the media.

The first thing that Frydenberg could do, as environment minister, is to write an environmental outcome in the National Electricity Market rules, which are scandalously absent. Coal and gas-fired plants are continuing to operate without being responsible for their environmental cost. That remains the biggest subsidy of all.

No decision about network planning or generation is required to consider an environmental outcome, which is why the pricing regulators can escape, with impunity, with ascribing a solar feed-in tariff that takes no account of the technology’s many benefits.

Australia is not alone in facing these questions, but it does find itself at the cutting edge of this energy revolution. A new analysis published by Cambridge University gives one of the most detailed insights into the rorts and subsidies embedded in the energy system.

In response to the oft-asked question about the need for subsidies and policy support for solar and wind, it notes that the current infrastructure was subsidised over many years and tailored to the incumbent technologies. 

That infrastructure refers to the physical infrastructure, such as poles and wires and fossil fuel generators, but also to the regulatory, political and economic framework that serves institutions, such as the energy market, the utility regulatory system, and the power, grid, and other massive projects built with government funds.

“The short answer is that the electricity market does not work,” the researches noted – and as the South Australian government is pointing out.

post tax fossil fuel subsidies

The total subsidy amount for fossil fuels in 2013, found by adding producer subsidies to post-tax subsidies, is in the range of $US5.5–$US6 trillion dollars. The total renewable subsidies (US$120 billion) were only about 2% of the total fossil fuel subsidies in 2013.

subsidies by technology“Oil & gas received 10 times the annual amount than all renewables received, and they received it for 6 times longer and are still receiving it,” the report notes.

“This puts renewables at a significant competitive disadvantage, even if they can offer a competitive price. The technologies and economics are not at issue, rather the question is whether policy makers will be able to steer energy subsidies to match the future they profess to choose.”

The study noted that DNV-GL conducted a survey of 1600 people in the energy industry across 71 countries. About half of the respondents believe that the electricity system could transition to 70% renewable generation with the next 15 years. 80% believe it will be achieved before 2050.

The overall perception – as the head of the Chinese national grid has pointed out – was that achieving 70 per cent renewables is not mainly a technical or an economic question, but rather a political one, meaning that government support is crucial. 

Transitioning to a primarily renewable electricity system is changing the fundamentals of the business. It requires fundamental changes in the electricity market, power sector regulations as well as the need to shift to a systems approach in maximizing synergies between renewable technologies.

“Political leadership can also help all industry players to pull together to achieve an orderly transition of the electricity system,” the report says. The chances are that Frydenberg knows this. But can he, or does he want to, convince his conservative peers that this is what he should be allowed to do.

Comments

20 responses to “Frydenberg’s choice: Make a big step forward, or a big step back”

  1. johnnewton Avatar
    johnnewton

    Wouldn’t hold out much hope given his performance on the Blot report, toeing the COALition line and lying like a trooper about our clean coal.

  2. Barry Avatar
    Barry

    Josh would do well to consider what happens when the children of the current Chinese & Indian generation don’t want to buy the coal our children dig up

  3. solarguy Avatar
    solarguy

    His over lords won’t let him do it, too much money at stake. Common sense can be corrupted.
    Next election vote Labor and rid ourselves of these buffoons!

    1. Chokyi Nyingpo Avatar
      Chokyi Nyingpo

      Voting Labor this time didn’t work so why do you think it will next time? The only hope for change is complete acceptance by consumers (of renewables) and that means boots on the ground – voting with your feet. Buy something and buy another thing. The tide IS turning away form FF but renewables need more users advocating their use on a local level by means of their wallets, not by platitudes and wishful thinking.

      1. solarguy Avatar
        solarguy

        Labor won back 11 seats, unfortunately not enough to win government. Clearly if enough had voted Labor,we would have Mark Butler as Energy Minister and getting on with enacting Labor’s 50% target by 2030.
        Even though the RE tide is turning only the right policy can accelerate it!

        1. Diego Matter Avatar
          Diego Matter

          Mark Butler responded to my question at an event that Labor will let the market decide. In a skewed energy market that approch is bound to fail.

          1. solarguy Avatar
            solarguy

            What question? More info please.

          2. Diego Matter Avatar
            Diego Matter

            Labor’s support for renewables in general and solar in particular.

  4. GlennM Avatar
    GlennM

    Giles,
    I love your articles and am impressed with your optimism. I remember you being hopeful when Tony was rolled and MT put into power. Now you hope that Frydenberg will see the light. Naturally I hope you are correct.

    However I suspect that the past behavior informs the present. Murdoch and the Coalition will use any lies deceit and underhand tactics they can. They will try and reduce/cancel the RET, close ARENA steal the funds from CEFC for new Coal ports. They know that they are loosing and a cornered dog is the most dangerous.

    We just have to fight a rearguard battle as long as they are in power. I expect that the small shoots of momentum for building new RE will be stomped on now they are back in power. If they cannot cancel the RET then they will call it a failure and compensate the Utilities for any fines saying “see that proves RE is incapable”. Fortunately at the state, local and personal level people are nibbling away at the edges a kwH at a time.

    They can build a new Coal port but they cannot force India to buy the coal. As always education of the Public and businesses is the best weapon.

    Keep up the optimism and great work

  5. Cooma Doug Avatar
    Cooma Doug

    As you say here, the wholesale market needs a bit of a tweak. The overwhelming problem is the design of the market and the pricing signals being hinged on large base load generator performance. If a large gen fails, it is a big problem requiring a big response. Prices can go to 13000 dollars per mwh on such events. One main reason being that the response doesnt consider loadside options until a last resort.

    Today we have technology that would enable instant and spontaneous load side response to the worst case scenarios. This would happen with minimal power swings on the main grid. This would greatly reduce the need for many billions of dollars worth of infrastructure.

    I remember well the story out there that an air conditioner in the home, costing 2000 dollars, imposed a cost on the grid infrastructure of 7000 dollars. Shifting response to the load side of the meter with modern technology would virtually pay for itself with some cash to spare if those numbers were true. I must say that they most probably are true for the large base load grid where we ram power down the customers wires needed or not.

    1. Eb Avatar
      Eb

      The ‘system-wide cost of up to $7,000’ for a 2kWe air-con is from pg 351 of this report:
      http://www.pc.gov.au/inquiries/completed/electricity/report/electricity-volume2.pdf
      It is derived from Energex estimates from 2011, so before the massive networks over investments. Would be interesting to publish an updated estimate and methodology.

      1. Cooma Doug Avatar
        Cooma Doug

        Thanks for that Eb.
        Some years ago I was staying in a friends flat in Canberra. I noticed the hot water thermostat was on 70 degrees.
        Later that week I went round the complex and looked at 72 thermostates and 40 were set too high. We did some maths and concluded that we could eliminate 250 mw of gens off the Aussie grid if we investigated the millions on the system and set them to appropriate temp.
        Managing fridges, air cons and heating in coordination with everything will eliminate a great deal.

  6. Ken Fabian Avatar
    Ken Fabian

    Nuclear is a non starter – and as long as most of the political support for it is within the LNP and thus in bed with most of the opposition to a low emissions transition, that support can’t be mobilised by them in any effective way. It mostly serves as a raised finger to environmentalism and it’s concerns – concerns like climate that should really be front and centre, without any green colouring, simply for reasons of future economic prosperity and security. Too late by far – nuclear, dependent on sustained state intervention, just can’t compete and overcoming public distrust requires persistent campaigning centred on compelling necessity, ie climate and emissions being serious and urgent. I suppose it could have some traction with those within who have misgivings about ignoring climate – “we could fix emissions easily except for those ratbag greens!”

    Don’t expect great things from Frydenberg – his job will be to shift the blame for LNP policy failures onto Labor and The Greens in political theatrics as the groundwork done by others is quietly undermined, compromised and defunded into irrelevancy.

    Will Australia even have genuine policy to reach those Paris targets? It doesn’t look likely. Will the commissioned review come up with anything the opponents of climate responsibility can’t approve? More unlikely. Are our conservatives hoping for a Howard type opportunity in a Trump Presidency – when the US refuses the Paris agreement, Australia can do so as well? Quite likely.

  7. Rob G Avatar
    Rob G

    I too share this optimism. Turnbull looks to be using an ambush approach here. Put a couple of right wing climate deniers on the front bench, look like you support their agenda and bit by bit install the change. There is an argument to make, by having a right wing person making positive change being less likely to be targeted by the deniers, “he’s one of us…I trust him”. But I agree with some of the comments, this is a distant second prize at best. Labor would have made some significant progress in this space over the next 3 years. The sort of progress we won’t get with this lot.

    1. morty007 Avatar
      morty007

      i agree

  8. David Avatar
    David

    The positive I see in this is the combination of Environment and Energy portfolios. Their separation has until now allowed the energy industry to avoid the need to account for the environmental and social costs of their decisions and their business model. the ERF is a classic example of this effect at work. Until the energy industry is required to include environmental and social costs in the ledger we will never see an industry driven transition to renewables. Frydenberg is a conservative but he is also a good risk manager (which incidentally is what conservatives traditionally are, who knows how denialism, the ultimate form of risk ignorance, found its way into the neoliberal psyche?), you can see it in his comments from Box hill, he is thinking strategically, not left foot right foot like the Abbott era. This is important because it will absolutely take a conservative to float the idea of market reform with the incumbent energy goliaths, you couldn’t even establish a dialogue with them if you are coming from the labor or greens camp.
    Here’s hoping that this is the case, it could just as easily be the case that he is there to continue the risk ignorance and pedal the denialism.
    As for Canavan, I completely agree with him on his “cheap energy” position. On an LCOE and EROI basis (which is how it must be assessed given the scale of investment required and the lifecycle of the equipment and infrastructure) the answer is renewables. He is going to find this out very quickly going into the resources ministry. Take a look a the cost per export tonne for gas and diesel power supply to the iron ore industry. I suspect the fossil lobby with lean on him to retract this position before too long.

  9. morty007 Avatar
    morty007

    mr frydenberg had better listen to the people now you only just got in and i personally
    would love to see a royal commission set up to deal with what has happened here i want to see an investigation into the other rc into the unions who made the deal and why was it done then we have the lnp delibertly going after the human rights commissioner then trying to force her to resign just because the hrc was going to release a report that is damaging to the govt every thing important was done in a corrupt way and we have to clean up our politics its a disgrace

  10. morty007 Avatar
    morty007

    im sad because we lost but we are winning in the poll status we need to keep the pressure on this govt to stop what his government was trying to do and we damm near won so that in its self was nothing to be ashamed of our right to protest peacefully is under attack here in nsw is nothing short of a disgrace seizing local governments sacking democratically elected councils just to seize tenders all the workings of the councils mike baird is a dictator nothing less and he is going to use very dangerous machines to try to enforce these these undemocratic laws on our land we have had the right since last century to peacefully protest for a long time
    and im dammed if ill let them take this from us

  11. morty007 Avatar
    morty007

    we also need these subsidies to the multinationals stopped too not only are they receiving subsidies from us they want 15 billion is tax cuts over the next decade
    as joe hockey says the days of dependence and and taking money for life at the expence of the taxpayers are over as well as parakeeler and geting all this advertising money from the taxpayers are over

  12. Alan S Avatar
    Alan S

    This will be counter-productive for the LNP. If Malcolm is really anti-renewables then he’d be better appointing intelligent people promoting subtle messages favouring fossil fuels. However when blatant knuckle draggers get into positions of power then even the uncommitted voter must begin to question them. Mid-’30s Germany comes to mind .

Get up to 3 quotes from pre-vetted solar (and battery) installers.