The twisted arguments about energy supply and security | RenewEconomy

The twisted arguments about energy supply and security

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Another of Australia’s dirtiest coal-fired generators has closed due to the confluence of incompatible energy market conditions. So how does that match with what the conservative types are telling us?

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It was fascinating to watch the conservative commentators in mainstream media twist themselves into a giant knot over the closure of the Hazelwood power station in Victoria – a veritable economy killer that will lead to high prices and the death of all industry if I understand them correctly.

Hang on for a moment. What did Engie say were the reasons for the closure?

“Hazelwood power station has been operating in difficult market conditions, with lower electricity prices and a surplus of electricity supply in Victoria State,” it said in its announcement.

This is not a reason that has been plucked from the sky. For years the coal-fired generators have been arguing that there is a massive surplus of capacity – 7,000MW – in Australia’s National Electricity Market. That was one of the reasons they thought they should be paid to close one of the ageing power stations.

What did that massive over-capacity do? It lowered electricity prices below where they would otherwise be. That’s the impact of renewable energy too – it reduces wholesale electricity prices.

The Hazelwood owners hung around for an exit payment long enough, but could no longer stand either the costs of upgrading their boilers, or the reputational damage of keeping the dirtiest power station open for any longer.

Those free-market champions in the conservative commentariat demand that government should have done something about it. It’s an argument they have been prosecuting about South Australia, where they blame the blackout on the absence of a coal-fired power station and the insidious nature of wind energy.

But the Northern brown coal power station in Port Augusta could not operate at the average price of wholesale power in South Australia either – despite it having the highest price of electricity in Australia.

It touted around contracts to big electricity consumers for prices of between $50 and $60/MWh, but there were no takers. So, having just about exhausted its economic reserves of brown coal, it closed.

So, just to sum up – two of the dirtiest coal-fired generators in Australia closed because the wholesale electricity price was not high enough for them to continue, and no business consumer wanted to buy the output from them directly.

Hmmmm. Now, how does that match with what the conservative types are telling us?

The closure of Hazelwood will have no impact on energy security either, the Australian Energy Market Operator has made clear. The grid will still operate at its reliability rate of 99.998 per cent – which means it allows for 11 minutes a year of outages.

It’s a formula that has made for a reliable but highly priced and gold-plated grid – so much so that, as Bruce Mountain points out today, consumers can get cheaper electricity from a combination of solar and battery storage than they can from the grid. And that is really going to throw a cat amongst the pigeons that are bleating about the cost to consumers.

That prospect is frightening to the generators that remain, and to the network operators – which is why they are now calling for more payments (capacity payments) to stop them closing. First they wanted money to close, now they want money to stay open. It’s hard to keep up.

It comes in a new round of fear-mongering that is designed to help them maximise their profits from coal-generation for as long as they can.

Federal environment minister Josh Frydenberg has bought into it, and warned of possible supply shortages in the summer of 2017/18. AEMO says it may well be that Victoria has to import power from other states at certain times – but that is what the grid is for, to transport electricity from the supplier to the customer.

Interestingly, its analysis took no account of renewable energy – either wind or solar. Consumers can be thankful that rooftop solar is clipping and narrowing the peaks: that is removing most of the high-priced events that used to be cream on the fossil fuel generators’ milking of the electricity market.

To be sure, coal generators will make merry before more renewable energy is built in Victoria. Deutsche Bank estimates that AGL will make an extra $150 million in profits from its Loy Yang A generator for every $15/MWh increase in the wholesale price in Victoria.

Engie’s Loy Yang B might make nearly as much, helping the company pay for its severance and remediation package at Hazelwood.

But watch the generators now: the calls for a stop to state-based renewable energy targets, and for those new “capacity payments” for fossil fuel generation will only intensify – supported, no doubt, by loud voices from the free-market conservatives in media land.

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  1. Michael James 4 years ago

    And one is reduced alternately to tears or laughter at the likes of Judith Sloan in today’s Murdoch rag:
    “It’s not that Hazelwood is a particularly old plant — with maintenance and upgrading, it could have kept going. ”

    At 50 years old this year, it is the oldest such coal generator in the entire world. China is closing down much younger plants that aren’t as polluting at Hazelwood.

    The mystery to me is why did the French Engie buy it? Hazelwood has been a game of musical chairs as ownership changed every few years, each making easy money (from the dirtiest electricity in Australia if not the world) while hoping not to be the one caught when the music stops.

    • howardpatr 4 years ago

      Judith Sloan – the right wing, ignorant economist untrained in the sciences.

      It was only a matter of time before Frydenberg used her as another of his spin doctors. Am waiting for the ABC’s Uhlmann to pop up talking about the dangers of renewable energy technologies to the world.

  2. bedlambay 4 years ago

    News Corpse has tried to pin the blame of closure on the Victorian government. We must call Oily FRYberg and Turnbull for their outrageous anti renewables rant following the SA blackout. And FRYberg had the gall to imply that only the LNP could guatantee energy security.

  3. Cooma Doug 4 years ago

    Im thinking the french bought it thinking of government handouts in support of coal.

  4. David Hall 4 years ago

    We would like to think that our politicians, who we elect, are smart, intelligent people who are looking after our long term interests as a nation. I though Frydenberg might be one of these but he is also turning out to be a dud.
    As Big Coal from the last century will become history in this century, does our Australian political system need restructuring to meet the needs of this century???
    A radical question but what do you think??

    • Chris Fraser 4 years ago

      All altruistic LNP members are inculcated into the far-right realm of thinking. Which is, to manage national affairs to benefit the very few at the top – so they can have the same benefits when they are old and not legislating anymore. It’s an Australian attempt at creating a socially stratified Class-system, but it’s also unsustainable like a Ponzi Scheme.

    • Rod 4 years ago

      The best form of Government is a benevolent dictator, until they stop being benevolent!
      The problem is lobbyists working for cashed up companies and perks offered to pollies. Just look at Andrew Robb. Signs FTAs condemning us to who knows what conditions with China and Japan then lands a job with one of the Chinese firms 6 Months after leaving parliament.
      Voters are sick of the Blue vs Red team setup and are now turning to the Pauline Hansons and Xenophons of this world. God help us.

    • Rob Campbell 4 years ago

      You are 100% correct, everyone talks about corruption in China, this benevolent dictatorship is surprisingly democratic, I spend many months in China per year and the biggest single issue that Chinese complain about is official corruption.This does not mean however that China is the sole home of this issue, Western countries like ours seem to accept corruption in a broad form, nepotism at the fore. China has been the factory of the world for years yet suffers criticism for the pollution that has simply transferred from us Westerners.

      Our political system is based on the English model, the difference is they have house of revue that performs as design, it is there to stop the commoners running amuck with bad legislation. In Australia, we might not have a senate full of pervs and pedos, but the hostage takers who insist on legislating from the senate are crippling this country. The sooner we have a political revolution in this country the better.

      • MaxG 4 years ago

        Bring it on! (The revolution)

    • disqus_3PLIicDhUu 4 years ago

      That’s because he is just another fear filled egotist, the so called ‘right’ are.
      Hanging around in hierarchial groups doing their masters bidding trying to keep their dog position.
      Due to incompetence, they have to peddle fear to protect their position and use smoke and mirrors, that’s obvious in their contrariness it’s all about power rather than really caring about having healthy citizens.

    • MaxG 4 years ago

      I never thought that — in fact, most of them had no education and are as dumb as bat sh!t. Chris is right on the money.

  5. Martin Nicholson 4 years ago

    Given the enthusiasm for closing Hazelwood, it’s interesting to read in the Fin Rev that Trevor St Baker of ERM Power fame wants to buy Hazelwood as well as Northern power station in South Australia. St Baker knows about electricity markets and is a successful investor. The reports of the death of Hazelwood and Northern may be greatly exaggerated.

  6. Hamish Barker 4 years ago

    I guess Trevor St Baker’s game plan is to buy the station for next to nothing on the basis that it has $300million clean up liability, but then somehow use his connections to convince the federal government to take on that liability in exchange for his company providing the service of keeping it running, and stopping the death spiral of coal generators, or at least keeping the site permitted as a power station – that’s the real value in the site.

    Think about how very very hard it would be to get a coal generator permitted these days. Once it’s shuttered, that’s it for those brown coal deposits. They are too wet and low energy density to be worth shipping any distance.

  7. AllanO 4 years ago

    Giles if you’re going to highlight the “twisted arguments” of the conservative commentariat – and twisted they are – then I think it behooves you to be somewhat more accurate about what AEMO said about the closure of Hazelwood.

    Nowhere does the AEMO “Market Insight” publication say that closure of Hazelwood will have “no impact on energy security”. It is physically not possible to take 1600 MW of capacity out of the region without leaving it somewhat more exposed to various risks of supply shortfall – even if those risks remain very unlikely. To say otherwise is just illogical. The AEMO report does point out that under certain combinations of extreme temperatures, low wind, outages etc then “market response may be required”, which is AEMO code for insufficient capacity reserves.

    Nor at this stage will AEMO have run a probabilistic loss of load / unserved energy assessment, so they have not positively confirmed that for 2017/18 summer (for example) the reliability standard of 99.998% would continue to be met without other changes to supply or demand. Maybe it will, but the AEMO publication certainly does not state this.

    Finally their illustrative capacity reserve chart does take wind and solar into account, although wind capacity is discounted by 93%, and solar is implicitly taken into account in the Native Maximum Demand projection.

    Sorry if this seems critical, but it is not helpful to a sensible discussion about transitioning the system to low carbon intensity to pretend that removal of a large block of capacity can magically have no material impact whatsoever on the supply-demand balance or reliability under extreme conditions. It’s fine to highlight that there are no immediate risks, but continued attention to keeping the system secure and reliable through the energy transition is vital.

    • DevMac 4 years ago

      If their target of 99.998% uptime isn’t affected, then I think it’s an accurate statement to say it won’t affect “energy security”.

      • AllanO 4 years ago

        But the AEMO report does not say that the 99.998% standard isn’t affected, because they have yet to do the modelling.The AEMO report is more nuanced than Giles is making it out to be.

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