The Liberal-National Coalition claims it has found the solution to bring down energy bills – slow the growth of renewable energy and roll-out nuclear power.
According to Liberal Leader Peter Dutton, their plan for a power system including a significant role for nuclear will be 44% cheaper than a system relying predominantly on renewables. This claim is based on energy market economic modelling it released just before Christmas, prepared by an economic consultant – Frontier Economics.
A range of energy analysts and economists have criticised the Coalition’s claims, finding an array of problems with how this number was derived (see the list at the bottom of this article for examples). Nonetheless this hasn’t made any difference to Peter Dutton’s claims, and earlier this month he was on ABC television telling viewers that he had a plan to deliver voters 44% cheaper power bills.
However, you don’t need to be any kind of expert analyst or economist to work out that the claim nuclear will deliver you 44% lower bills is a bit like a wrinkle cream claiming it will make you look 44% younger.
And in the end, though it might not be obvious, this is really about whether Liberal-National Party have discovered a miraculous cure for aging, and quite potentially the laws of physics. It isn’t really about nuclear.
To explain this you need to do a very simple calculation:
1) Get out a basic calculator.
2) Into this calculator type in the $20.5 billion dollars that the Liberal-National Party costing says will be the annual price of their power system once all the nuclear power plants are complete in 2051 (see Figure 12 on page 38 of the consultant’s report).
3) Then divide this cost by the total amount of electricity that system will deliver in 2051 after deducting generation from energy storage, which is roughly 255 million megawatt-hours (see table 8 on page 34).
That gives you the cost of energy under their system of around $80.30 per megawatt-hour.
Now do the same thing for the power system which Dutton claims to represent Labor’s policy (by the way it’s not really Labor’s policy, it’s the Australian Energy Market Operator’s Step Change modelling scenario). So divide $28.5 billion (Figure 12 on page 38 of consultant’s report) by 333 million megawatt-hours (table 5 on page 28).
That gives a cost of energy of close to $85.50 per megawatt-hour for the so called Labor system.
So according to the data within the Liberal-National Party’s costing document, Dutton’s power system underpinned by nuclear will generate electricity at 6% lower cost than one that doesn’t rely on nuclear. It leads you to wonder – how on earth did Dutton come up with it being 44% cheaper?
There are four accounting tricks behind the 44% cheaper claim which mean that, in reality, Peter Dutton’s plan is not cheaper and is far more risky. The four tricks involve the following:
1) It doesn’t reflect the real cost of building nuclear – the Liberal Party costing assumes a cost for nuclear power plants which is around half what nuclear reactors have actually cost to build. Once you use the average construction cost and construction time of real world nuclear plants, the cost per unit of energy for the Liberal-National Party’s power system is two thirds more expensive than what is estimated for Labor’s scenario, once the system is fully built.
2) Only considers electricity costs while ignoring the cost of petrol and gas – The costing omits much of the costs of energy to heat buildings, fuel vehicles and power industry in the Liberal-National party scenario because they seem to prefer that we continue to heavily rely on petrol to fuel our cars and gas instead of electricity to heat homes and run factories.
Meanwhile, a lot of these costs are included in the scenario for Labor, where electricity has largely replaced the use of petrol and gas for fuelling our vehicles and heating buildings and industrial processes. By just accounting for the 203 billion litres of extra petrol consumption in the Liberal-National scenario the claimed 44% saving evaporates and instead you find their energy system is $80 billion more expensive that what they claim is the cost for the Labor scenario.
3) Tries to hide the cost of replacing old coal power stations with nuclear to outside the time period covered by the costing. The costing only includes costs incurred between 2025 and 2051, anything beyond that point is ignored. Under the costing of the Liberal-National Party’s scenario they’ve pushed most of the costs of replacing old coal power stations to outside the 2025-2051 time period. Meanwhile, the costing ignores the risks and potential large costs associated with extended reliance on increasingly unreliable old power stations.
4) Assumes climate change isn’t an important and urgent problem – The modelling consultant has openly acknowledged the availability of economic data that would allow them to cost the damage from carbon emissions. But instead of using this data from the Australian Energy Regulator, they instead completely ignore the damage costs from the higher emissions under the Coalition’s preferred scenario of extended reliance on coal, petrol and gas.
If the consultant had adhered to the basics of first year economics based on work published back in 1920, and placed a cost on carbon in line with AER guidance, it would add $392 billion to the Liberal-National scenario compared to just $75 billion to the Labor scenario. If you add that to the extra cost of petrol then the Liberal-National scenario is almost $400 billion more expensive than the scenario claimed to be Labor’s across 2025 to 2051. That’s even if we ignore the extra costs associated with accounting tricks 1 and 3.
Over the next few days I’ll go into each one of these four accounting tricks in more detail with an article explaining how that trick acts to mislead voters and means that energy consumers would most likely face higher, not lower energy bills.
This isn’t intended to suggest that the Australian Energy Market Operator’s Step Change scenario (said to represent Labor policy) should go unquestioned. The future is full of uncertainties and we need to examine a range of options for how we can sensibly lower emissions while maintaining reliable and affordable energy suppliers.
Unfortunately, the suggestion that Nuclear Power is the easy fix simply ignores the incredible difficulties and costs Europe, North America and Japan have experienced with Nuclear Power.
Tristan Edis is director of analysis and advisory at Green Energy Markets. Green Energy Markets provides analysis and advice to assist clients make better informed investment, trading and policy decisions in energy and carbon abatement markets.
Appendix – Prior critiques of the Coalition’s Nuclear Power System Costing by Energy Market Analysts and Economists
Since the Liberal-National Coalition released their Frontier Economics authored costing for an alternative electricity system including nuclear, a range of energy analysts have pointed out major flaws in the work. My own analysis builds upon the good work of others. These include:
-Alan Rai (Executive Director of energy advisory firm CORE Markets and formerly Australian Energy Market Commission and Baringa Economics) – The devil of Frontier’s nuclear modelling is not in the detail, it’s in the omissions;
-Economics Professor Steven Hamilton (of University of Washington and Australian National University) – Economics of Coalition’s nuclear modelling are worth nothing;
-Tony Wood (Energy Program Director at the Grattan Institute) – The case to switch from renewables to nuclear has not been made
-Dr Dylan McConnell (University of NSW) – who stated the modelled nuclear pathway was, “an absolute failure in decarbonising the electricity sector and meeting our emission reduction goals.”
-Former NSW Liberal Government Energy Minister and Treasurer Matthew Kean, who noted that the Coalition’s preferred scenario reduced electricity system costs based on an “assumption that electricity usage will be minimised, which is indicative of a contracted economy and suppressed economic conditions”;
-Simon Holmes a Court (Superpower Institute) – The Coalition’s nuclear energy plan takes a sharp turn away from a cheaper, cleaner future;
-David Leitch (of energy advisory firm ITK and formerly UBS equity analyst) – This talk of nuclear is a waste of time: Wind, solar and firming can clearly do the job; and
-Johanna Bowyer (Institute of Energy Economics and Financial Analysis) – Opposition’s nuclear costings are unrealistic.
