Publicly-owned renewable energy assets that sell cheap electricity could be an alternate to green loans and underwriting deals for heavy and advanced industries, a new report says, and it has union backing.
The free market for electricity is failing energy-intensive industries, say the McKell Institute’s Allison Pennington and Thomas Probst, who argue in a research paper that commercial projects are not, and cannot, supply electricity to heavy industry cheaply enough or under long enough contracts.
The solution is what they’re calling “Sovereign Power”, a federal government-owned entity which would own generation and storage assets and offer long-term power purchase agreements (PPA) to industry.
Based on CSIRO modelling, they’re suggesting PPAs could sell power at a cost price of $66 per megawatt-hour (MWh), compared to average private market PPAs of $117/MWh.
Pennington says the energy assets that backstopped Australia’s industrial past are coming to the end of their lives, and the market has nothing to replace them with.
“Our competitors and allies provide long-term, low-cost public electricity to their own heavy industries, and we need to put Australia on a level playing field,” she said in a statement.
“Sovereign capability is not high-vis vets, hard-hats and photo-ops. It means controlling the inputs critical to the functioning of the economy.
“We have the raw materials and the skills. Electricity is the final piece we need to secure industrial capability.”
Australia is spending billions on speeding up renewable energy generation, launching new-energy industries and saving old ones.
But despite the $22 billion for Future Made in Australia, $5 billion since 2024 to keep energy intensive industries such as smelters open, and the Capacity Investment Scheme (CIS) which wants to back in $72 billion worth of capital investments by 2027, new manufacturers are predictably slow to get off the ground, big energy users still haven’t switched from gas, and generation projects are not being built fast enough.
Just three of the 31 wind, solar and storage CIS winners have reached financial close thanks to supply chain issues, construction costs and planning timelines.
On the industrial side, the government recently clawed back a portion of unspent Future Made in Australia funds with $1 billion of that coming out of green hydrogen incentives.
“Under a market-driven system, there is no mechanism to match the supply of renewable energy to the demand of energy-intensive manufacturers at a price they can afford,” Pennington and Probst write in the paper Powering Australia’s Future.
“Quebec, Norway, Iceland, New Zealand, and the United States all provide industrial electricity through public entities with long-term contracts. Australia did the same 40 years ago when public investment surged into coal generation.
“The private market cannot deliver firmed industrial electricity at the price heavy industry needs.”
Government ownership not new
Taxpayer support for energy and industry with loans, subsidies or tax deals is not new — for example, the Western Australia and federal governments are the reason why the North West Shelf gas field exists.
Western Australia, New South Wales (NSW) and Queensland have never got out of direct ownership of generation and transmission assets, and Victoria slid back in 2023 with the new-look SEC.
The federal government owns Snowy Hydro, which it is likely to use to provide cheap power to Rio Tinto’s Tomago aluminium smelter in New South Wales, following months of threats by the mining giant that it would shut it down on the back of spiralling energy costs.
Given governments are already doing ad hoc deals when industries reach a crisis point, Pennington and Probst say a permanent state-owned company could do the same thing, and be limited to the times when private markets can’t deliver.
Industries could include aluminium smelters, alumina refineries, primary steelworks, zinc and copper smelters and cement works, emerging critical minerals, refining and advanced manufacturing sectors – but not data centres, which can handle market-rate electricity prices.
The trick would be to limit deals to companies or industries that truly need it, a blurry line that is likely to be difficult to walk when such a huge discount on electricity is on offer.
Cheap power could be economic diversity answer
With the debate over the fairness of diesel rebates still rolling on and in light of the extent of BHP laziness on decarbonisation becoming clear last week, government-owned electricity could be an alternative solution.
Cheap electricity that undercuts diesel would encourage miners to follow through on commitments to electrify fleets and operations.
It could help to beef up nascent attempts at onshore ore processing, producing green hydrogen, low-carbon liquid fuels, and new manufacturing industries.
“By suspending private incentives at the energy input end of production, Sovereign Power creates conditions for an explosion in value creation sites downstream,” the paper says.
The paper also makes the decades-old promise of diversification.
“In this way, Sovereign Power can help diversify Australia’s economy, reducing the effects of a ‘resource curse’ typified by over reliance on exporting raw materials.”
Indeed, the backers of a dream to build a polysilicon plant in the Hunter Valley say they need brave investors who can see through those other issues, cheap power would partly get them there.
It shows electricity is as important as money because future industries “will live or die on the flow of electrons,” says ETU national secretary Michael Wright
“Our energy systems will determine business conditions, industrial output and living standards as least as much as our financial systems [in future],” Wright said in a statement before an address to the National Press Club in Canberra, where the report was launched.
“A future made in Australia must be powered by Australia. Government can step up, break the industry bailout cycle and create conditions for success.”
