Australia’s energy insanity
Friday, 20 July 2018
| Ian Hore-Lacy
Despite being one of the best-endowed countries in the world with energy resources of all kinds, we have a disastrous situation in Australia, with failure to agree on what to do. Energy policy is more highly politicised than anywhere else on Earth. Common sense is displaced by ideological fantasy. The disincentives for investment in electricity infrastructure that will provide power for the next 50 years are overwhelming. The government has failed in its role of ensuring that the basic needs of its citizens, including the most vulnerable, are met.
The basic issues here for Christians are recognising God’s abundant provision for human wellbeing, being intelligent stewards of those resources and exercising practical concern for those least well-off in our society. The secondary issues are the political processes of rational policy-making to ensure growing common wealth and its equitable wide distribution.
On any rational basis, we need secure electricity supply to meet normal demand at low cost,[1] preferably with low CO2 emissions. That should not be a contentious assertion, but in practice it is, because we have both legislated incentives to build unreliable supply capacity and the popular demonisation of coal. Coal is the main source of reliable supply today but is unlikely to attract investment for building more capacity as the old plants reach end of life.
Reducing CO2 emissions from power generation is widely supported, but the government has mandated the least reliable way of achieving this, through the Renewable Energy target (RET). The focus has been on wind and solar, which for obvious reasons cannot be called upon whenever required to meet demand, i.e. they are not dispatchable.
So we have a market that provides incentives to build only the least-reliable capacity and to close down the most reliable. This results in wildly fluctuating wholesale prices and steadily increasing retail prices, which will continue as long as high targets are set for unreliable capacity. The major companies involved exploit this market situation in a perfectly rational and legal way as classic rent-seeking (i.e. increasing profit beyond reason), but the outcome is clearly and profoundly perverse.
The National Electricity Market (NEM) supplies most of Australia, with about 200 billion kWh per year. Last year (2016-17), 77% of this came from coal and 9% from gas. Another 8% came from hydro, a renewable resource but one that is dispatchable (like coal and gas) to meet demand. Only 5% came from wind, despite massive investment in wind turbines which only deliver power when the weather allows, hence providing only about 25-30% of their potential output, and this regardless of actual demand. If the reliable sources were being replaced as they age with other reliable sources, then this whole scene could be a good reliable and low-cost situation, apart from high CO2 emissions.
Enter the virtue signallers who home in on the CO2, and demand government policies to increase the share of unreliable renewables, notably wind but also solar. As a result, politicians who seem to care more about short-term populism than long-term sustainability entertain all sorts of fantasies about matching an intrinsically problematical means of generation with the realities of grid demand, and do so regardless of cost. A combination of ideology and relentless rent-seeking have weighted the renewables push at the expense of reliability and cost.
The political fantasies are immediately funded by subsidies – notably the Renewable Energy Target – to which the consequent system costs arising from such policies must be added. We perversely provide a guaranteed market, almost regardless of cost, to an electricity source that will always be incapable of meeting 24/7 demand. Ultimately all this is paid for by long-suffering consumers – all of us. The situation is fraught due to responsibilities being split between state and federal levels.
Having a small proportion (well under 20%) of supply from intermittent renewables is great and can be accommodated, but mandating ever-increasing amounts is nonsensical, inequitable and unjust, with the cost burden falling most heavily on those who can least afford it. This is a justice issue which should concern Christians.
We need to find a way of rewarding what works reliably. At the moment the worse things get, the higher the wholesale prices go, and the main beneficiaries are the producers and sellers of renewables sources which create the problem and those who invest in them.
The obvious means of replacing coal-fired capacity to meet base-load demand – about three quarters of total supply and about two thirds of capacity - for continuous 24/7 reliable supply without CO2 emissions is to build nuclear plants such as do this job safely and reliably in many countries.[2] But that option is not even on the table in Australia due to our long and comfortable reliance on coal coupled with irresponsible and factually unsupportable fearmongering. Its absence from serious consideration raises a major ethical question for those eager to reduce CO2 emissions while not jeopardising the economy and sacrificing manufacturing jobs.
In September 2016, South Australia suffered a state-wide blackout resulting from undue reliance in wind power. Apart from this we have muddled through so far, but the omens are not good. Shutting down further large coal-fired units will increase reliance on open cycle gas turbines, if these are available, plus the expensive band-aid measures already appearing – large-scale diesel generators and batteries.
The claim that Victoria’s Hazelwood (1.2 GWe brown coal-fired, now closed) plant is being replaced by wind power is deceitful. In capacity terms it’s true, but what matters is the actual electricity produced, and on that metric the replacement has been by increased production from brown coal and gas – 6 and 5 billion kWh per year respectively.
Early in June 2018, outages at several NSW coal-fired plants sent wholesale prices through the roof and highlighted the increasing vulnerability in the system. But at the same time government policies continued to incentivise investment in wind and solar capacity rather than beefing up dispatchable capacity. In that week calm conditions with heavy cloud meant that the intrinsic unreliability from that quarter was shown up. Briefly shutting down a NSW aluminium smelter averted blackouts. Third world infrastructure, anyone?
Coincidentally, early June showed up a similar problem in the UK, with 18 GWe of wind capacity (equivalent to about a third of Australia’s total generating capacity) contributing next to nothing for a couple of weeks. The same happened in the last week of June. But the UK is forging ahead to install 17.5 GWe of reliable new nuclear capacity by 2030.
The OECD International Energy Agency issued a report recently which highlighted the problems with where we are spending the most money. It said that
renewable power sources also come with a new set of challenges not faced before by power plants, utilities and system operators. The main one is the variability of renewable generation: how to ensure continuous and stable power when the wind is not blowing or the sun isn’t shining. This creates uncertainties for the security of electricity supply. The challenge of integrating variable renewable energy in daily operations is compounded by other developments, such as the deployment of decentralised energy sources like rooftop solar and smart loads such as electric vehicles.
Germany is a salutary case study in what not to do. For purely ideological reasons it is shutting down some of the best nuclear power plants in the world which used to provide about one quarter of its electricity cheaply and reliably. Instead of using these, it is hell-bent on building wind and solar capacity, with a renewable electricity target of 65% by 2030, which means 55% wind and solar, against 22% in 2017. But recently the Energy Minister, Peter Altmaier, has indicated that such targets are unachievable, and the country’s pursuit of its renewables fantasies is already costing €25 billion per year, with almost the highest retail electricity prices in Europe. In addition, new coal-fired plants are being built to replace nuclear, and carbon emissions are rising, and yet reducing carbon emissions was the main rationale for Energiewende in the first place. Their 2020 emission reduction target will be missed.
On the home front, Australian Competition & Consumer Commission chairman Rod Sims said in May that the market is not working effectively for commercial and industrial consumers (who make up 60 per cent of electricity demand). And he described the retail market as ‘a mess’, with ‘too many customers paying far too much’. The ACCC report released this week calls for a total and radical overhaul of the NEM due to rent-seeking by major energy companies, and for government underwriting of new dispatchable generation capacity capable of meeting base-load demand.
The government’s proposed national energy guarantee (NEG), which arises from last year’s review of the National Energy Market by Alan Finkel, offers some hope, but details have yet to be worked out and agreed on. So far it seems that ‘guarantee’ means the exact opposite for major consumers - provide your own diesel back-up or reduce your demand regardless of consequences. The NEG rhetoric is pitched towards reliability, but cost must be a prime consideration too. However, part of the aim is to reduce CO2 emissions currently dominated by coal. Meanwhile, the Australian Energy Council puts present large-scale wind and solar capacity at 5287 MWe, and expects a doubling of this in two years, making it ‘the new normal’, albeit with complete unreliability.
So what to do? Achieving public consensus concerning our self-imposed energy crisis seems fanciful, with vast sums already invested in subsidised renewables and another $5 billion more under construction or committed, all this economic inertia and rent-seeking backed by virtue-signalling urban elites indifferent to the practicalities of power supply. The practical effect is to condemn many to job losses and remove what was once the competitive advantage of low energy prices – we now have among the world’s highest domestic prices.
Meanwhile we are one of the world’s leading exporters of coal, LNG and uranium, which are a huge blessing to many countries especially to our north, helping to build economic powerhouses in manufacturing, and lifting millions out of poverty.
Resolution of the problem requires bipartisan agreement on changing the electricity market to some degree: either cutting back the growth of unreliable renewables; or providing massive and hugely expensive storage capacity well beyond even the proposed Snowy Hydro pumped storage scheme – unprecedented anywhere and inconceivable economically; or allowing nuclear power to progressively replace much coal capacity. The three criteria of reliability, low cost and much reduced CO2 emissions are not otherwise attainable in Australia.
How do other countries get on? Canada and Scandinavia have massive hydro resources, so can use them for more than just meeting peak load. France has about 75% nuclear plus some hydro, so it has the lowest CO2 emissions from power generation of any major country, at low cost. Germany is in a huge muddle, with ideological policy to shut down nuclear power, finding itself with almost the most expensive power in Europe and having to build more coal-fired plants. The UK is set to increase its reliance on nuclear power as old coal-fired plants disappear and wind’s unreliability is ever more obvious.
Bloomberg New Energy Finance reports world expenditure of $1,112 billion on solar and $918 billion on wind generating capacity over 2007-2016. This $2 trillion is a little more than the world’s investment in nuclear power over 54 years – now providing over 11% of world electricity reliably.
Elsewhere and over the last 15 years I have argued that God has provided very abundantly for many billions of people in the world, but humans have not risen to the challenge of mediating this to everyone so that there is sufficiency all round. My focus in my book (Responsible Dominion – a Christian approach to Sustainable Development, 2015) was mainly on minerals and energy, but it applies just as much to potable water, food, wood etc. Our failures are both moral – greed and corruption - and technological – failure to use innate creativity. But 15 years ago I never thought that Australia would become a case study in such failure.
Ian Hore-Lacy is a founding Zadok board member (1978-1998), author of Responsible Dominion - a Christian approach to sustainable development, and now Senior Advisor for the World Nuclear Association. He is co-author of Down to Earth Discipleship, a pastoral ‘book’ on the web at downtoearthdiscipleship.com.
[1] Comparing the generation cost of a kilowatt-hour from a dispatchable source (coal, gas, hydro, nuclear), with that from a source that produces only occasionally and for a small proportion of the time, makes no sense. They are different products when applied to continuous demand.
[2] Despite huge cost overruns in Finland, France, USA and impending in UK for a certain design of reactor, this is not normal. In China and Russia first class plants are built competitively with coal+FGD, and gas. Not to mention wind. The UAE’s four large modern reactors were built on time and on budget by South Koreans. The new Russian reactor planned in Finland is the lowest cost option (€34/MWh). Nuclear gets some subsidies in the USA due to competition from low-cost gas from fracking, but subsidies are less than routinely for wind. The Contract for Difference arrangement in the UK is simply a long-term pricing arrangement in a liberalised market. There are no subsidies elsewhere.