Australia must engage with nuclear research or fall far behind



Nuclear power will likely remain part of the global energy mix.
ioshimuro/Flickr, CC BY-NC

Heiko Timmers, UNSW

Much is made of the “next generation” of nuclear reactors in the debate over nuclear power in Australia. They are touted as safer than older reactors, and suitable for helping Australia move away from fossil fuels.

But much of the evidence given in September to a federal inquiry shows the economics of nuclear in Australia cannot presently compete with booming renewable electricity generation.




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However, international projections predict nuclear power will stick around beyond 2040. It is forecast to reduce the carbon footprint of other nations, in many cases fuelled by our uranium.

To choose wisely on nuclear power options in future, we ought to stay engaged. Renewables in combination with hydro storage might fail to fully decarbonise the electricity sector, or much more electricity may be needed in future for desalination, emission-free manufacturing, or hydrogen fuel to deal with an escalating climate crisis. Nuclear power might be advantageous then.

What reactors will be available in future?

All recent commissions of nuclear power stations, such as the Korean APR-1400 reactors in the United Arab Emirates, or the Chinese Hualong One design, are large Generation III type light water reactors that produce gigawatts of electricity. Discouraged by investment blowouts and considerable delays in England and Finland, Australia is not likely to consider building Generation III reactors.

The company NuScale in particular promotes a new approach to nuclear power, based on smaller modular reactors that might eventually be prefabricated and shipped to site. Although promoted as “next generation”, this technology has been used in maritime applications for many years. It might be a good choice for Australian submarines.




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NuScale has licensed its design in the United States and might be able to demonstrate the first such reactor in 2027 in a research laboratory in Idaho.

These small reactors each produce 60 megawatts of power and require a much smaller initial investment than traditional nuclear power stations. They are also safer, as the entire reactor vessel sits in a large pool of water, so no active cooling is needed once the reactor is switched off.

However the technical, operational and economic feasibility of making and maintaining modular reactors is completely untested.

Looking ahead: Generation IV reactors and thorium

If Australia decided to build a nuclear power station, it would take decades to complete. So we might also choose one of several other new reactor concepts, labelled Generation IV. Some of those designs are expected to become technology-ready after 2030.

Generation IV reactors can be divided into thermal reactors and fast breeders.

Thermal reactors

Thermal reactors are quite similar to conventional Generation III light water reactors.

However, some will use molten salts or helium gas as coolant instead of water, which makes makes hydrogen explosions – as occurred at Fukushima – impossible.

Some of these new reactor designs can operate at higher temperatures and over a larger temperature range without having to sustain the drastic pressures necessary in conventional designs. This improves effectiveness and safety.

Fast breeders

Fast breeder reactors require fuel that contains more fissile uranium, and they can also create plutonium. This plutonium might eventually support a sustainable nuclear fuel cycle. They also use the uranium fuel more efficiently, and generate less radioactive waste.

However, the enriched fuel and capacity to produce plutonium means that fast breeders are more closely linked to nuclear weapons. Fast reactors thus do not fit well with Australia’s international and strategic outlook.

Breeding fuel from thorium

An alternative to using conventional uranium fuel is thorium, which is far less useful for nuclear weapons. Thorium can be converted in a nuclear reactor to a different type of uranium fuel (U-233).

The idea of using this for nuclear power was raised as early as 1950, but development in the US largely ceased in the 1970s. Breeding fuel from thorium could in principle be sustained for thousands of years. Plenty of thorium is already available in mining tailings.

Thorium reactors have not been pursued because the conventional uranium fuel cycle is so well established. The separation of U-233 from the thorium has therefore not been demonstrated in a commercial setting.

India is working on establishing a thorium fuel cycle due to its lack of domestic uranium deposits, and China is developing a thorium research reactor.

Australia’s perspective

To choose wisely on nuclear power and the right technology in future, we can stay engaged by:

  • realising a much-needed national facility to store waste from our nuclear medicine
  • making our uranium exports competitive again
  • driving the navy’s submarines with nuclear power, and
  • possibly reconsidering the business case for a commercial spent fuel repository.

Australia has already joined the international Generation IV nuclear forum, a good first step to foster cooperation on nuclear technology research and stay in touch with reactor developments.




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Australia could deepen such research involvement by, for example, developing engineering expertise on thermal Generation IV reactors here. Such forward-looking engagement with nuclear power might pave a structured way for the commercial use of nuclear power later, if it is indeed needed.The Conversation

Heiko Timmers, Associate Professor of Physics, School of Science, UNSW Canberra, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Snowy 2.0 will not produce nearly as much electricity as claimed. We must hit the pause button



Prime Minister Scott Morrison in front of the Tumut 3 power station at the Snowy Hydro Scheme. New analysis suggests the benefits of Snowy 2.0 have been overstated.
AAP

Bruce Mountain, Victoria University

The federal government’s much-vaunted Snowy Hydro expansion is supposed to smooth out the bumps in electricity supply as Australia transitions to renewables. But not only is the project a bad deal for taxpayers, our analysis suggests it will deliver a fraction of the energy benefits promised.

Fossil-fuel power generators store coal or gas at the point of production. This means electricity can mostly be created on demand when homes and businesses need it. Renewable energy cannot do this. If wind or sun is not abundant, solar panels and wind turbines may not produce enough electricity to meet demand. At other times they might produce more than required.

The Snowy 2.0 project is supposed to provide a solution to this problem – storing renewable energy for when it is needed.

The project’s cost and time estimates have blown out massively. It would now be surprising if Snowy 2.0, including the transmission upgrades it relies on, comes in at less than A$10 billion or is finished before 2027.

But there is another serious problem. Our analysis has revealed that of the extra pumped hydro capacity promised by the project, less than half can be delivered. There is now overwhelming evidence the project should be put on hold.

The Tumut 3 scheme, with which Snowy 2.0 will share a dam.
Snowy Hydro Ltd

The problems we know about: cost and time blowouts

The list of possible alternatives to Snowy 2.0 is long. Aside from other pumped hydro projects, it includes chemical batteries, encouraging demand to follow supply, gas or diesel generators, and re-orienting renewable generators to capture the wind or sun when it is less plentiful.

But despite this plethora of options, the federal government announced the Snowy 2.0 project without a market assessment, cost-benefit analysis or indeed even a feasibility study.




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When former Prime Minister Malcolm Turnbull announced the expansion project in March 2017 he said it would cost A$2 billion and be commissioned by 2021. This was revised upwards several times and in April this year, a A$5.1 billion contract for partial construction was awarded. This excludes the costs of transmission and other considerable expenses.

The main contractor says the project will take eight years to build – bringing us to 2027 before the full scheme is completed. We will happily wager that more delays and cost increases will be announced.

Then prime minister Malcolm Turnbull during a tour of Tumut 3 power station when announcing the expansion in 2017.
Lucas Cochairs/AAP

Snowy Hydro has not costed the transmission upgrades upon which the project depends. TransGrid, owner of the grid in New South Wales, has identified options including extensions to Sydney with indicative costs up to A$1.9 billion. Massive extensions south to Melbourne will also be required.

Snowy Hydro contends it should not pay for the new transmission lines because the benefits would flow to the entire grid, not just its venture. In other words Snowy Hydro argues, conveniently, that we should count the benefits but ignore the costs when thinking about their project.

The numbers simply do not add up

The Snowy 2.0 project grandly claims it could generate at its full 2,000 megawatt capacity for 175 hours – or about a week. This capacity can also be expressed as 350 gigawatt hours (GWh).

Energy Minister Angus Taylor has talked up the project’s superiority to smaller-capacity alternatives such as batteries.

But the maximum additional pumped hydro capacity Snowy 2.0 can create, in theory, is less than half this. The reasons are technical, but worth taking the time to understand.

The figure below outlines the main physical features that define Snowy 2.0. It includes four dams: Tantangara, Talbingo, Jounama and Blowering. For simplicity, we have numbered these from 1-4 in the following explanation.



The Conversation, CC BY-ND

When Snowy 2.0 generates electricity, water will be released from Dam 1 at the top of the system. It will flow through a long tunnel to the smaller Dam 2. The flow of water drives turbines which generate energy. When the turbines are reversed, the water is pumped back to the top to continue the cycle.

For Snowy 2.0 to produce the 350 GWh of electricity claimed, the top dam must be full and all that water released through the system. But replenishing the top dam after this event would take many months of pumping water from elsewhere in the system, and use up 40% more electricity than was originally generated. So the 350 GWh would never be achieved because it is extremely inefficient and inflexible.

In reality, the pumped hydro capacity of Snowy 2.0 is defined by the amount of water that the smaller Dam 2 can hold. If the scheme was a closed system, with no other water flowing in or out, it could produce around 230 gigawatt hours (GWh) of electricity.

But the system does not exist in isolation. Part of the existing Snowy Hydro scheme, known as Tumut 3, also uses Dam 2. It creates pumped hydro electricity by cycling water between that dam and the even smaller Dam 3 below it.

For Snowy 2.0 to operate at full cyclical capacity, Dam 2 must be empty to receive the water. That would entail emptying Dam 2 into the smaller Dam 3 and from there to Dam 4 at the bottom of the system. This water could not be used again to generate electricity. This “lost” water would have generated 60 GWh worth of electricity in the Tumut 3 scheme.

Khancoban Dam, part of the soon-to-be expanded Snowy Hydro scheme.
Snowy Hydro Ltd

This means that as a cyclical pumped hydro system, Snowy 2.0 does not add 230 GWh of capacity. When you subtract the 60 GWh from the 230 GWh, Snowy 2.0 adds just 170 GWh of recyclable pumped hydro. This is less than half the claimed storage capacity.

And this is the maximum cyclical capacity in theory only. Snowy 2.0 would never produce continuously for the time needed to generate and then pump 230 GWh because it would never be economically viable to run it this way.

In practice if Snowy 2.0’s lower dam is operated in future as it is now – almost always close to full – the cycling capacity of Snowy 2.0 may be as low as 40 GWh – around one tenth of the promised number.

What does all this mean?

These facts put Snowy 2.0 in a completely different light. There are many competing alternatives that can provide storage far more flexibly for a fraction of Snowy 2.0’s price tag. These alternatives would also have far fewer environmental impacts or development risks, in most cases none of the transmission costs and could be built much more quickly.

It is always difficult to press the pause button on a major project once it has begun. But the evidence for doing this is overwhelming. In pursuit of the public interest, the federal government should put the project on hold and ask a reputable investment bank to publicly advise, perhaps through the Productivity Commission, what Snowy 2.0 would be worth if built.

A credible independent valuation would establish with some confidence how deeply Snowy Hydro will have its hands in the public’s pockets. A panel of independent experts should then be asked to publicly advise whether taxpayer money is needed to meet the demands of a renewables-dominated power system, and if so, the best way it should be spent.The Conversation

Bruce Mountain, Director, Victoria Energy Policy Centre, Victoria University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

View from The Hill: Malcolm Turnbull delivers the unpalatable truth to Scott Morrison on climate and energy


Michelle Grattan, University of Canberra

Sometimes birthdays are best let pass quietly. The Liberals are finding the 75th anniversary of their founding another occasion for the blood sport they thought they’d put behind them.

Tony Abbott and Malcolm Turnbull are out of parliament – for which Scott Morrison is much thankful – but their passions are unabated. Each has let fly in interviews with The Australian’s Troy Bramston to mark the anniversary.

Abbott repeated that it was Turnbull’s undermining which did him in (only the partial truth) and indicated he wouldn’t mind returning to parliament but didn’t think the Liberal party would ask him (absolutely true).

Turnbull’s was the more pertinent and, from where the government stands, pointed interview because it fed very directly into central issues of the moment, climate change and energy policy.

“The Liberal Party has just proved itself incapable of dealing with the reduction of greenhouse gas emissions in any sort of systematic way,” Turnbull said.

“The consequence … is without question that we are paying higher prices for electricity and having higher emissions.”




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He knows what he’s talking about. These issues were critical (though not the only factor) in Turnbull losing the leadership twice – first in opposition and then in government. And that was despite doing deals and trade offs to try to satisfy the right in his party.

He still frets about the battles which cost him so much for so little gain. He told the Australian, amid boasts about what his government had done, that his biggest regret as PM was not settling a new energy policy.

What Scott Morrison really thinks on the climate challenge, or what he would do if he were just driven by policy concerns without regard to party considerations or electoral judgements are in that category of known unknowns.

In few areas can Morrison’s beliefs be divined free of political context.

But we do know two things.

Firstly, we don’t have a satisfactory energy policy: emissions are rising; power prices are too high; investment is being discouraged. An analysis released by the Grattan Institute this week was damning about how federal government policies were discouraging investment including by “bashing big companies” (the so-called “big stick” legislation, allowing for divestment when an energy company is recalcitrant, is still before parliament).

Secondly, climate change is again resonating strongly in the community.




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Critics dismiss the attention young activist Greta Thunberg has received internationally, and this week’s “Extinction Rebellion” demonstrations, and many in the government would point to the election result to note that climate change did not carry the day with the “quiet Australians”.

The Morrison win, however, doesn’t mean the issue lacks cut through, or won’t have potency in the future. And although the Liberals like to talk about the miracle victory, it should be remembered the win was by a sliver, not by 30 seats. What made it so notable was that it defied expectations.

Turnbull said in his interview the Liberal party had been influenced by a group that was denialist and reactionary on climate change.

It still is, but this group is not giving trouble at the moment because Morrison, unlike his predecessor, is not provoking them.

The problem for Morrison is that keeping his party calm doesn’t solve the policy problem. Unless that is more effectively tackled, it could come back to bite him, regardless of the positive tale he tries to spin, such as in his United Nations speech.

Turnbull also said in his interview that, among much else, in government he had been “very focused on innovation” which, as we remember, was his catch cry in his early days as PM.

And, if we take information from the Harvard Kennedy School’s Center for International Development, reported in Tuesday’s Australian Financial Review, Australia needs innovation to be a much higher priority.

Australia fell from 57th to 93rd between 1995 and 2017 on the index of economic complexity, which measures the diversity and sophistication of countries’ exports. Our wealth comes from the minerals and energy that form the bulk of our exports but “Australia⁩ is ⁨less complex than expected⁩ for its income level. As a result, its economy is projected to grow ⁨slowly.⁩ The Growth Lab’s ⁨2027⁩ Growth Projections foresee growth in ⁨Australia⁩ of ⁨2.2%⁩ annually over the coming decade, ranking in the ⁨bottom half⁩ of countries globally,” the data says.

“Economic growth is driven by diversification into new products that are incrementally more complex. … ⁨⁨Australia⁩ has diversified into too few products to contribute to substantial income growth.⁩”




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Turnbull’s talk of innovation, agility, and the like was seen by many in his ranks, particularly in hindsight, as too high falutin’. It certainly went down badly in regional areas, which is why in 2016 the Nationals sharply differentiated themselves in the election campaign.

The Harvard work suggests Turnbull’s innovation ambition was on the right track. But the political evidence showed he was a bad salesman for this (and a lot else).

Morrison is a good marketing man. But the test of his prime ministership will be whether he can use his marketing skills to sell policies that the country needs, rather just what he thinks will go over easily with his constituency.

The most effective leaders (and that excludes both Abbott and Turnbull) can both identify what the nation requires and persuade enough of the voters to embrace it, even when it’s difficult. They operate not on the principle of the lowest common electoral denominator, or simplistic descriptions of their supporters – rather they pursue the highest achievable goals.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Governments took the hard road on clean energy – and consumers are feeling the bumps



Prime Minister Scott Morrison (right) and Energy Minister Angus Taylor at Snowy Hydro Scheme. The Grattan Institute says the government should better encourage investment rather than build electricity infrastructure.
LUKAS COCH/AAP

Guy Dundas, Grattan Institute

More than two years on from the sudden closure of Victoria’s Hazelwood coal power station, quite a mess remains. It is clear the federal government’s market interventions have not worked. Electricity prices are higher and supply is tight. Consumers are not happy.

In the face of this, federal and state governments have felt pressured to act – especially after several severe blackouts attracted fever-pitch media coverage and prompted a national debate about electricity reliability. But their approach has been ad hoc and has made things worse in the long run.

Australia is in the midst of a great energy transition. The nation’s entire coal fleet will close over the next few decades, and the government must urgently improve its policy response or electricity consumers will continue to suffer. We propose a solution that ensures coal plants close in an orderly way.

A high-voltage electricity transmission tower in Brisbane. A new report says governments are hindering the clean energy transition.
AAP/Darren England

We can’t afford a repeat of the Hazelwood mess

The aftermath of the sudden Hazelwood closure is a good case study in failed government intervention.

Hazelwood closed in March 2017 after supplying Victoria with cheap brown coal-fired electricity for more than half a century. The plant’s owner, French energy company Engie, gave only five months’ notice of the shutdown. This left no time to build replacement electricity generation, so prices rose and supplies became less reliable.

In the years since Hazelwood’s closure, the federal government failed to clear up more than a decade of uncertainty around national climate and energy policy – including last year when it dumped the National Energy Guarantee. This has left investors wondering when a framework to cut emissions in the electricity sector will be imposed.

Instead of creating investor certainty, the federal government has adopted a “picking winners” approach. It plans to build new generation assets such as the Snowy 2.0 pumped hydro project, and subsidise others through a program of underwriting investments. Alongside this, the government’s proposed “big stick” laws would give it vast powers including those to break up big energy companies. Our research has confirmed this has a chilling effect on investment.

The sudden closure of large coal power stations is challenging enough without being made worse by ill-conceived policy responses. Hazelwood will be the first of many closures. Australia’s entire coal fleet is expected to retire over coming decades as it ages and gets displaced by low-cost solar and wind energy.



The Grattan Institute, CC BY-ND

Flogging the life out of coal plants is not the answer

The crucial lesson from Hazelwood is that Australia needs adequate notice of impending coal plant closures. This allows timely replacement investment to occur, minimising the price and reliability impacts on consumers.

New South Wales’ Liddell power station is due to close next and its owner AGL has given plenty of notice. In 2015 it announced a 2022 closure, and this year firmed up its plans for full closure by 2023. One unit of four will close in 2022.




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Federal Energy Minister Angus Taylor is so concerned at Liddell’s closure he set up a taskforce to examine how to manage it, including extending its life or replacing the lost generation like-for-like.

But his concerns are misplaced. The Australian Energy Market Operator’s 2019 reliability projection for New South Wales is that the outlook is improving more rapidly than it was in 2018. About 2.3 gigawatts of solar and wind energy has been committed in NSW since the start of 2017 – and more is planned.

The best way to maintain reliability is through investment – not by trying to keep an ageing power station running on hot summer days.

The now-closed Hazelwood coal-fired power station in the Latrobe Valley, Victoria.
Global Warming Images/Cover Images

Laws on coal plant closures must grow teeth

Liddell’s closure is very likely to prove manageable. But this cannot be taken for granted in all future cases.

A new rule introduced late last year requires generators to give at least three years’ notice of closure. It’s a step in the right direction, but the rule lacks teeth. The penalties for non-compliance are small, and the mechanism could be gamed by generators nominating a closure date and then continuously delaying closure. We need better insurance to avoid future disruptive closures.

Past Australian experience gives some lessons on what not to do. In 2011 the Gillard Labor government proposed paying coal generators to close, on the grounds that otherwise they might continue operating indefinitely. Four of the five short-listed generators have since closed – without being paid a cent of government money. We are now dealing with the opposite problem, but the lesson holds – taxpayers will be taken for a ride if government money is used to delay or otherwise “manage” coal closures.

International experience is not likely to translate well to Australia. Germany’s coal closure commission built on deep cooperation between business, unions and governments that is not present here. The UK and Canada legislated coal phase-outs, but they did so at a time when coal provided only 10% of their power, compared to more than 60% in Australia today.

Prime Minister Julia Gillard during a visit to the Acciona windfarm near Gunning, NSW, in 2011. Labor’s incentives for coal stations to close were also misguided.
AAP/Alan Porritt

Make coal plants guarantee orderly closure

The Grattan Institute’s latest report, Power play: how governments can better direct Australia’s electricity market, proposes a new approach. Coal generators should be required to put money – indicatively several hundreds of millions of dollars each – into a fund, managed by an independent third party, to be held as security. Generators would be allowed to nominate their own closure window, but would get these funds back only if they closed within this window – providing a strong financial incentive for predictable and orderly closure.

Circumstances change and generators cannot reasonably fix closure decades in advance. To balance flexibility and certainty, younger generators would be allowed to nominate relatively long windows, but they would need to tighten these windows as they age.




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Limited exemptions would be available if early closure did not harm the reliability of the market, or conversely if continued operation of the coal plant in question was absolutely necessary to maintain reliability.

This policy would come with costs. Collectively generators would need to place several billions of dollars into the fund. As generators have a higher cost of capital than would be earned on the held funds, this would cost them, collectively, several hundreds of millions of dollars a year. But the measure would provide low-cost insurance against the destabilising effect of poorly managed coal closures on the A$18 billion National Electricity Market.

The policy would give a clear signal for investment in new, clean power supply before – not after – coal closures, and better manage Australia’s energy transition.The Conversation

Guy Dundas, Energy Fellow, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Nuclear power should be allowed in Australia – but only with a carbon price



The Opal nuclear research reactor at Lucas Heights in Sydney. It does not produce nuclear energy but is used to produce medical radioisotopes and for other purposes.
Tracey Nearmy/AAP

John Quiggin, The University of Queensland

Looking at the state of policy on energy and climate change in Australia, it’s tempting to give in to despair. At the national level, following the abandonment of the National Energy Guarantee last year, we have no coherent energy policy and no serious policy to address climate change.

In this context, the announcement of two separate inquiries into the feasibility of nuclear power (by the New South Wales and federal parliaments) could reasonably give rise to cynicism. The only possible case for considering nuclear power, in my view, is that it might provide a way to decarbonise our electricity supply industry.

Yet many of the keenest boosters of nuclear power have consistently opposed any serious measure to address climate change, and quite a few have rejected mainstream science altogether.

Activists dressed as nuclear waste barrels protesting at the Lucas Heights nuclear reactor in 2001. Nuclear technology in Australia has long raised concern among environmentalists.
Laura Frriezer/AAP



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Yet in a situation which all responsible people view as a climate emergency, we can’t afford the luxury of despair. For this reason, rather than dismissing these inquiries as political stunts, I made a submission to the federal inquiry setting out the conditions required to allow for any possibility of nuclear power in Australia.

The submission was picked up by the national media, which largely focused on my proposal to lift the state ban on nuclear power and implement a carbon price.

The reception from commentators on the right, who want the ban lifted, and from renewables advocates, who want a price on carbon, suggests a middle ground on nuclear power may be achievable.

The three big problems with nuclear power

Three fundamental problems arise immediately when considering the prospect of nuclear power in Australia. First, the technology is expensive: more expensive than new fossil-fuelled power stations, and far too expensive to compete with existing fossil fuel generators under current market conditions.

Second, given the time lags involved, any substantial contribution from nuclear power in Australia won’t be available until well beyond 2030.

Third, given the strong public opposition to nuclear power, particularly from the environmental movement, any attempt to promote nuclear power at the expense of renewables would never get broad support. In these circumstances, any investor in nuclear power would face the prospect of losing their money the moment the balance of political power shifted.

A technician uses a hot cell which shields radioactive material at the Opal nuclear research reactor at Lucas Heights in Sydney.
Tracey Nearmy/AAP

On the first point, we have some evidence from the contract agreed by the UK government in for the construction of the Hinkley C nuclear power plant. This was the first new nuclear construction project to be approved in an OECD country for a number of years.

The agreement to construct Hinkley was based on a guaranteed “strike price” of £92.50/ megawatt hours (MWh), in 2012 prices, to be adjusted in line with the consumer price index during the construction period and over the subsequent 35-year tariff period. At current exchange rates, this price corresponds to approximately A$165.




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Prices in Australia’s National Electricity Market have generally averaged around A$90/MWh. This implies that, if new nuclear power is to compete with existing fossil fuel generators, a carbon price must impose a cost of A$75/MWh on fossil fuel generation.

Assuming emission rates of 1.3 tonnes/MWh for brown coal, 1 tonne/MWh for black and 0.5 tonnes for gas, the implied carbon price ranges from A$50/tonne (to displace brown coal) to $150/tonne (to displace gas). On the basis that nuclear power is most plausible as a competitor for baseload generation from brown coal, I considered a price of A$50/tonne.

A blueprint for reform

The central recommendations of my submission were as follows:

Nuclear power, while costly, could dramatically reduce Australia’s electricity sector emissions.
AAP

Recommendation 1: A carbon price of A$25/tonne should be introduced immediately, and increased at a real rate of 5% a year, reaching A$50/tonne by 2035.

Recommendation 2: The government should immediately adopt the recommendations of its own Climate Change Authority for a 40% to 60% reduction in emissions by 2030, relative to 2000 levels, and match other leading OECD countries in committing to complete decarbonisation of the economy by 2050.

Recommendation 3: The parliament should pass a motion:

  • affirming its confidence in mainstream climate science and its acceptance of the key conclusions of the United Nations’ Intergovernmental Panel on Climate Change;
  • legislating a commitment to emissions reductions;
  • removing the existing ban on nuclear power.

Let’s all meet in the middle

Rather to my surprise, this proposal received a favourable reception from a number of centre-right commentators.

Reaction from renewables proponents, on social media at least, was cautious. But it did not indicate the reflexive hostility that might be expected, given the polarised nature of the debate.

There are immediate political implications of my proposal at both the state and federal level. It will be more difficult for the Coalition-dominated committees running the two inquiries to bring down a report favourable to nuclear power without addressing the necessary conditions – including a carbon price. If the government’s hostility to carbon pricing is such that a serious proposal for nuclear power cannot be considered, it will at least be clear that this option can be abandoned for good.

Former Nationals leader and now backbencher Barnaby Joyce is a strong advocate for nuclear power.
Lukas Coch/AAP

In the admittedly unlikely event that the Coalition government shows itself open to new thinking, the focus turns to Labor and the Greens.

Given the urgency of addressing climate change – a task that is best addressed through a carbon price – it makes no sense to reject action now on the basis that it opens up the possibility of nuclear power sometime in the 2030s. And, if renewables and storage perform as well as most environmentalists expect, nuclear power will be unable to compete even then.

Political hardheads will doubtless say that this is all impossible, and they may be right. But in a world where Donald Trump can win a US presidential election, and major investment banks support UK Labour leader Jeremy Corbyn over Prime Minister Boris Johnson, “impossible” is a big claim

In the absence of any prospect of progress on either energy or climate, the grand bargain I’ve proposed is at least worth a try.The Conversation

John Quiggin, Professor, School of Economics, The University of Queensland

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Australia’s energy woes will not be solved by reinforcing a monopoly



Australia’s energy market has a logjam,
Sean Davis/Flickr, CC BY-NC-SA

Bruce Mountain, Victoria University

The possibility of blackouts affecting half of Victoria has attracted plenty of attention to a document once read only by industry insiders and policy wonks: the Electricity Statement of Opportunities.

The Statement, updated every year by the Australian Energy Market Operator (AEMO), forecasts 10-year supply and demand in the main grids that serve the Australia’s south and eastern states.

But the chance of huge blackouts is just part of the Statement – and in fact it reveals a growing tension between the market operator and the bodies that oversee electricity regulations.




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Blackouts unlikely

So, what does the latest Statement say? The good news is AEMO calculates the expected level of “unserved energy” – that is, demand that cannot be met by supply – is likely to be fairly low, which makes blackouts unlikely.

The bad news is AEMO thinks a standard based on “expected unserved energy” is a poor way to forecast keeping the lights on.

Instead, AEMO points to the unlikely events that nonetheless could have a significant impact on consumers and says we should frame reliability obligations around those.




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In its analysis of these, AEMO finds it is possible (albeit unlikely) about half of Victoria’s households could lose supply in a single event in the coming year.

So, on the one hand AEMO expects the system will basically meet the current obligations for unserved energy, but it also says there is nonetheless the possibility half of Victoria’s homes could suffer outages because of shortfalls on the main power system.

Importantly, as AEMO’s obligation is to hit the expected unserved energy standard, not beat it, it is not authorised to take actions to mitigate these outside possibilities.

Market vs regulators

To really understand the issues here, we need to look back to last year. In 2018, AEMO sought to change Australia’s energy regulations so AEMO could buy as much reserve capacity as it decided was needed to reliably manage unlikely but possible severe failures.

It also asked for the authority to buy reserves for longer periods so that it could source reserves more cheaply.

The Australian Energy Market Commission (AEMC) that sets the rules rejected this application on the basis that the standards were already high enough – maybe even too high – and AEMO was unduly risk-averse (the political risk associated with power failures made it so). By implication, left to its own devices AEMO would look after itself, at customers’ expense.

Whatever the stated rationale, underlying AEMC’s rejection of AEMO’s application is the philosophy of the sanctity of the market: wherever possible, the market is to be protected from intervention.

From the regulator’s perspective, were it to have acceded to AEMO’s request to expand the volume of reserves AEMO bought outside the market, it would be buying reserves it did not need and allowing the price signals in the market to be further undermined.

But I would argue the regulator’s decision is better characterised as protecting the National Electricity Market’s monopoly for the exchange of wholesale electricity.

It may be acceptable to force transactions through a market if there is confidence in that market. But the evidence of market failure is abundant: wholesale prices in Victoria at record highs, rampant exercise of market power, reliability concerns that often make the front page, and in certain cases shortfalls in dispatchable capacity, storage and price-responsive demand.




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In its Statement, AEMO signalled it will work with Victoria’s state government to explore ways they can work together to meet Victoria’s reliability needs, in spite of the AEMC’s decision.

This is a very significant development and I envisage it will presage similar bilateral arrangements between AEMO and other states.




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Should we be worried about this? Not in the least. Electricity markets do not spontaneously arise; they are administrative constructions. For too long the National Electricity Market has had a monopoly on the exchange of wholesale electricity and the AEMC has had a monopoly on its oversight. Monopolies and markets ossify when they get stuck in their originating orthodoxy and ideology.

AEMO is beginning to clear a log jam. There is a spirit of innovation and discovery in the air. This is something to welcome and it is not a moment too soon.The Conversation

Bruce Mountain, Director, Victoria Energy Policy Centre, Victoria University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Wind and solar cut rather than boost Australia’s wholesale electricity prices



Power failure. It’s gas, not wind, that’s pushing up electricity prices.
Shutterstock

Zsuzsanna Csereklyei, RMIT University

The 2019 Australian Conference of Economists is taking place in Melbourne from July 14 to 16.

During the conference The Conversation is publishing a selection of articles by the authors of papers being delivered at the conference. Others are here.


Wholesale prices in the National Electricity Market have climbed significantly in recent years. The increase has coincided with a rapid increase in the proportion of electricity supplied by wind and solar generators.

But that needn’t mean the increase in wind and solar generation caused the increase in prices. It might have been caused by other things.

Colleagues Songze Qu and Tihomir Ancev from the University of Sydney and I have examined the contribution of each type of generator to wholesale prices, half hour by half hour over the eight years between November 1, 2010 and June 30, 2018.

We find that, rather than pushing prices up, each extra gigawatt of dispatched wind generation cuts the wholesale electricity price by about A$11 per megawatt hour at the time of generation, while each extra gigawatt of utility-scale solar cuts it A$14 per megawatt hour.

Merit order matters

Here’s how.

In Australia’s National Electricity Market, prices are determined at five-minute intervals and averaged over 30-minute intervals for settlement. Generators place bids for supplying electricity to meet the expected demand which are accepted in a “merit order” of cheapest to most expensive.

The final price – awarded to all the bidders accepted – is determined by the final and most expensive bid accepted, which is often a bid by a gas generator.




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A high price for policy failure: the ten-year story of spiralling electricity bills


Wind and utility-scale solar generators bid into the market at low cost because their power is essentially free when the wind is blowing or the sun is shining. They displace higher cost bids, usually from gas or diesel turbines that have high fuel costs. We find this effect on prices (known as the “merit order effect”) has grown as wind and solar generation has grown.

The daily impact of wind and solar on wholesale prices is somewhat lower. A 1 gigawatt per hour increase in daily wind generation
is associated with about a A$1 per megawatt hour decrease in
the average daily wholesale price. The same increase in solar generation is associated with A$2.7 per megawatt hour decrease in daily wholesale electricity prices.

These findings and those of others since 2003 challenge the previous conventional wisdom that mandating renewable generation necessarily increases prices.

So why are prices climbing?

Natural gas prices have been climbing dramatically over the recent years, mainly due to the opening up of east coast export capacity and the integration of the Australian market with international markets. The higher prices have made it more expensive to run gas turbines and have pushed up the price of what is often the last bid to be accepted.

We find the price of natural gas has a strong positive effect on wholesale electricity prices. An increase of A$1 per gigajoule in the natural gas price pushes up wholesale electricity prices by about A$5 per megawatt hour.

Although in recent years the upward price pressure from more expensive gas has overwhelmed the downward pressure from greater wind and solar capacity, it is nevertheless true that wholesale prices are lower than they would have been without renewable generation.

Therefore, a continued expansion of renewables is likely to put downward pressure on wholesale prices for some time.

There’s a case for moving away from gas peaking plants

This means that rather than reconsidering renewables, authorities should reconsider their reliance on gas plants for handling peaks in demand. While peaking plants are more needed with the increased penetration of renewables, there is a case for switching to alternative providers of peaking power, such as large-scale batteries and pumped hydro.

In doing so governments should also consider something else. Wholesale prices that are too low will discourage investment, leading to higher prices down the track.

The lower prices go, the more the government might need to provide investment incentives.

For now, all other things being equal, more wind and solar power means lower wholesale prices. But they’ll have to be watched.




Read more:
The verdict is in: renewables reduce energy prices (yes, even in South Australia)


The Conversation


Zsuzsanna Csereklyei, Lecturer in Economics, RMIT University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

View from The Hill: Malcolm Turnbull’s home truths on the NEG help Labor in the climate wars


Michelle Grattan, University of Canberra

An Easter weekend in an election campaign might be a bit of a challenge for a pair of leaders who were atheists. But fortunately for Scott Morrison and Bill Shorten, declared believers, it wasn’t a problem.

Both attended church services during the so-called campaign cease-fire that the main parties had proclaimed for two of the four days.

Morrison on Sunday was pictured in full voice with raised arm at his Horizon Pentacostal church in The Shire, where the media were invited in. On Friday he’d been at a Maronite Catholic service in Sydney.

Sunday morning saw Shorten at an Anglican service in Brisbane, his family including mother-in-law Quentin Bryce, former governor-general.

Neither leader was hiding his light under a bushel.

Church, chocolate and penalty rates

Sunday was an opportunity to wheel out the kids, chasing Easter eggs (Shorten) or on the Rock Star ride at Sydney’s Royal Easter Show (Morrison). This was campaigning when you’re not (exactly) campaigning.

The minor players weren’t into the pretend game. For them, the relative restraint on the part of the majors presented rare opportunity. Usually Centre Alliance senator Rex Patrick would have little chance of being the feature interview on the ABC’s Insiders.

But while Friday and Sunday were lay days for the major parties Saturday was not (and Monday won’t be either).

For Labor, Easter has meshed nicely with one of the key planks of its wages policy – restoration of penalty rate cuts by the Fair Work Commission. Even on Sunday, Shorten pointedly thanked “everyone who’s working this weekend”.

It was the start of Labor’s campaign focus turning from health to wages this week, when it will cast the election as a “referendum on wages”.

Turnbull resurrects the NEG

The weekend standout, however, was the intervention of Malcolm Turnbull, who launched a series of pointed tweets about the National Energy Guarantee (NEG).

Turnbull was set off by a reference from journalist David Speers to “Malcolm Turnbull’s NEG”.

“In fact the NEG had the support of the entire Cabinet, including and especially the current PM and Treasurer. It was approved by the Party Room on several occasions”, the former prime minister tweeted.



“It had the support of the business community and energy sector in a way that no previous energy policy had. However a right wing minority in the Party Room refused to accept the majority position and threatened to cross the floor and defeat their own government”.

“That is the only reason it has been abandoned by the Government. The consequence is no integration of energy and climate policy, uncertainty continues to discourage investment with the consequence, as I have often warned, of both higher emissions and higher electricity prices.”

He wasn’t finished.



“And before anyone suggests the previous tweet is some kind of revelation – all of the economic ministers, including myself, @ScottMorrisonMP, @JoshFrydenberg spent months arguing for the NEG on the basis that it would reduce electricity prices and enable us to lower our emissions.”

And then:

“I see the @australian has already described the tweets above as attacking the Coalition. That’s rubbish. I am simply stating the truth: the NEG was designed & demonstrated to reduce electricity prices. So dumping it means prices will be higher than if it had been retained. QED”

“The @australian claims I ‘dropped the NEG’. False. When it was clear a number of LNP MPs were going to cross the floor the Cabinet resolved to not present the Bill at that time but maintain the policy as @ScottMorrisonMP, @JoshFrydenberg& I confirmed on 20 August.”



(Frydenberg, incidentally, has lost out every which way on the NEG. As energy minister he tried his hardest to get it up, only to see it fall over. Now he is subject to a big campaign against him in Kooyong on climate change, including from high-profile candidates and GetUp.)

Turnbull might justify the intervention as just reminding people of the history. But it is damaging for the government and an Easter gift for Labor – which is under pressure over how much its ambitious emissions reduction policy would cost the economy. It also feeds into Labor’s constant referencing of the coup against Turnbull.

Turnbull’s Easter tweets are a reminder

  • the Coalition sacrificed a coherent policy on energy and climate for a hotchpotch with adverse consequences for prices;

  • it dumped that policy simply because of internal bloodymindedness, and

  • the now-PM and treasurer were backers of the NEG, which had wide support from business.

Shorten has strengthened his commitment on the NEG, indicating on Saturday he’d pursue it in government even without bipartisan support.

“We’ll use some of the Turnbull, Morrison, Frydenberg architecture, and we will work with that structure,” he said.

Given the hole it has left in the government’s energy policy, pressing Morrison on the economic cost of walking away from the NEG is as legitimate as asking Shorten about the economic impact of his policy.




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The Conversation


Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The government’s electricity shortlist rightly features pumped hydro (and wrongly includes coal)


Mark Diesendorf, UNSW

The federal government this week released a shortlist of 12 project proposals for “delivering reliable and affordable power” to be considered for subsidy under its Underwriting New Generation Investments program.

The shortlist features six renewable electricity pumped hydro projects, five gas projects, and one coal upgrade project, supplemented by A$10 million for a two-year feasibility study for electricity generation in Queensland, possibly including a new coal-fired power station.

The study is unnecessary, because the GenCost 2018 study by CSIRO and the Australian Energy Market Operator already provides recent cost data for new power generation in Australia. It shows that new wind and solar farms can provide the lowest-cost electricity, even when two to six hours’ worth of storage is added.

Hence there is no economic case for new coal-fired power in Australia. After a century of coal, it should not be subsidised any longer.




Read more:
It’s clear why coal struggles for finance – and the government can’t change that


State of the states

While Queensland and Victoria have state government policies to drive the rapid growth of large-scale solar and wind, New South Wales does not even have a renewable electricity target. Yet the retirement of large, old coal-fired stations is in the pipeline: Liddell, nominally 1,680 megawatts, in 2022 and Vales Point, nominally 1,320MW, possibly in the late 2020s.

Coal baron Trevor St Baker bought Vales Point from the NSW government for the token sum of A$1 million in 2015. He wants to refurbish it and run it until 2049 – and his plan has made it onto the government’s shortlist.

Given that Vales Point is now arguably a A$730 million asset, St Baker has made a huge windfall profit at the expense of NSW taxpayers, and so a government subsidy to upgrade it would be unjust.

With the price of solar and wind electricity still falling, it will soon be cheaper to replace old operating coal stations that have paid off their capital costs with new renewable electricity, including storage.

Unfortunately, the newly elected NSW Liberal-National Coalition government has no policies of substance to fill the gap left by retiring coal stations with large-scale renewable electricity. It will therefore be up to the federal government after the May election to provide reverse auctions with contracts-for-difference, matching the policies of the ACT, Victorian and Queensland governments. Also, increased funding to ARENA and the Clean Energy Finance Corporation is needed for dispatchable renewables (those that can supply power on demand) and other forms of storage.

Driving the change

The transition to renewable electricity is already well under way, as even the federal energy minister Angus Taylor admits. The low costs of solar and wind power are driving the change. To maintain reliability, dispatchable renewables (as opposed to variable sources such as solar and wind) and other forms of storage are needed in the technology mix.

Batteries excel at responding rapidly to changes in supply and demand, on timescales of tens of milliseconds to a few hours. But they would be very expensive for covering periods of several days, even at half their current price. So there is a temporary role for open-cycle gas turbines (OCGTs) to meet demand peaks of a few hours, and to fill lows of several days in wind and/or solar supply.

Small-scale pumped hydro, in which excess local renewable electricity does the pumping, has huge potential for storage over periods of several days, but takes longer to plan and build, and has higher capital cost per megawatt, compared with OCGTs.

Small-scale pumped hydro should be the top priority for the federal program. In particular, the off-river proposal by SIMEC Zen Energy, which is part of Sanjeev Gupta’s GFG Alliance, will use a depleted iron ore pit and provide cheap, reliable, low-emission electricity for both GFG’s steelworks at Whyalla and other industrial and commercial users.




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Hydro Tasmania’s proposed “Battery of the Nation” would involve building a new interconnector across the Bass Strait, together with possibly three new pumped hydro plants. It’s very expensive and is already receiving A$57 million in federal funding. Its inclusion in the shortlist is worrying because it could soak up all the program’s unspecified funding for pumped hydro.

Furthermore, the need to greatly increase Tasmania’s wind capacity to deal with droughts appears to be an optional extra, rather than an essential part of the project.

Little information is available for the other shortlisted pumped hydro projects. UPC Renewables is proposing a huge solar farm, together with pumped hydro, in the New England region of NSW. In South Australia, Sunset Power (trading as Delta Electricity, chaired by Trevor St Baker), in association with the Altura Group, is proposing an off-river pumped hydro project near Port Augusta, and Rise Renewables is proposing the Baroota pumped hydro project. BE Power Solutions, which does not have a website, is proposing pumped hydro on the Cressbrook Reservoir at Crows Nest, Queensland.

Pumping for Snowy 2.0 (which is not part of the program) will be done mostly by coal power for many years, until renewables dominate supply in NSW and Victoria. Therefore, I give low priority to this huge and expensive scheme.




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To sum up, new coal power stations and major upgrades to existing ones are both unnecessary. They are more expensive than wind and solar, even when short-term storage is added – not to mention very polluting.

A few open-cycle gas turbines may be acceptable for temporary peak supply during the transition to 100% renewable electricity. But the priority should be building pumped hydro to back up wind and solar farms. This will keep the grid reliable and stable as we do away with the old and welcome the new.The Conversation

Mark Diesendorf, Honorary Associate Professor, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Newsflash. The government doesn’t need to break up power companies in order to tame prices. The ACCC says so



File 20181207 128202 130403n.jpg?ixlib=rb 1.1
Victoria’s Loy Yang brown coal power station at night. Breaking up generation companies might do little to bring prices down.
Shutterstock

Tony Wood, Grattan Institute

Who wouldn’t want cheaper power?

And who wouldn’t enjoy a bit of a stoush between the big bad generators and the government, trying to break them up on our behalf?

Even if it was largely tangential to keeping prices low.

The “big stick” of forced divestiture, where the government through a court could order an energy company to sell off bits of itself, never made it to a vote in the final chaotic fortnight of parliament just finished.

It will be the subject of a Senate inquiry that will report on March 18. After that, parliament is set to sit for only seven days before the election, so its possible it’ll never happen, under this government.

The government’s bill is good in parts

Parts of its Treasury Laws Amendment (Prohibiting Energy Market Misconduct) Bill are uncontroversial.

The main trigger was the Australian Competition & Consumer Commission’s June report, Restoring Electricity Affordability and Australia’s Competitive Advantage.

It found against forced divestiture, but thought along similar lines to the government in some respects.

The legislation presented to parliament this month bans three types of misconduct:

  • electricity retailers’ failing to pass on cost savings
  • energy companies’ refusing to enter into hedge contracts (agreements to buy and sell at a particular price) with smaller competitors
  • generators’ manipulating the spot (short term) market, for example by withholding supply.

It imposes civil penalties for the first, forces companies to offer contracts for the second, and provides for divestiture orders for the third, after they have been recommended by the government and approved by the Federal Court.




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There are good reasons for the government to act on the three behaviours, although each of the its proposed solutions raises concerns.

The ACCC wants something similar but different

Firstly, the ACCC did not identify the legislation’s first target as a major cause of high prices. They did observe that it is complicated to shop around and the offers are confusing, and sometime next year Australian governments will force retailers in some states to offer fairer default offers at an affordable price.

But it not clear why the energy sector has been singled out as an industry whose retailers have to pass on cost savings, and not supermarkets or banks or airlines or petrol stations, or any other kind of industry.

Secondly, the ACCC most certainly did raise concerns about dominant generator-retailers preferring not to enter into hedge contracts with competitors, particularly in South Australia.




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It recommended that the Australian Energy Market Commission impose a “market making obligation” forcing large, so-called gentailers to buy and sell hedge contracts.

Its recommendation has the same intent as the one proposed by the government, although it has the advantage of being administered by a regulator that already exists.

Thirdly, the ACCC also concluded that concentration in the wholesale market means higher prices. Its report focused on the bidding activity of the Queensland government owned generator Stanwell Corporation.

Manipulation isn’t a major price driver

The Grattan Institute identified market manipulation by generators as a contributor to higher prices in our July 2018 report Mostly working: Australia’s wholesale electricity market.

But we found it made a much smaller contribution than high gas and coal prices and the closure of ageing coal generators.

We recommended a rule change to constrain generators’ bidding practices in specific circumstances.




Read more:
Why the free market hasn’t slashed power prices (and what to do about it)


The ACCC recommended giving powers to the Australian Energy Regulator to investigate and fix such problems.

It considered a divestiture mechanism of the kind in the government’s leglislation, but rejected it as extreme.

Its own less extreme recommendations would “if implemented, be a better means to restore competition to a level which serves consumers well”.

Breaking up corporations is a broader question

There may well be a case for breaking up corporations whose size prevents or substantially lessens competition. It happens overseas.

The government cites the example of the United States Sherman anti-trust legislation. It has been in place since 1890 and has been famously used to break up Standard Oil and AT&T. The ACCC does not have this power.

There is debate about whether it would work in the much smaller market of Australia.




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Allan Fels, a former head of the Australian Competition and Consumer Commission a believes it would.

But quite sensibly he argues it should apply across the board, including sectors such as banking in light of the findings of the royal commission.

Ian Harper, who led the government’s 2015 competition review, is less convinced. However, he says if a divestment power is introduced, it should be introduced broadly.




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It’s worth considering divestment powers broadly, rather than rushing to introduce them in one sector of the economy in what was to have been the leadup to Christmas because of a concern that its prices were too high.

The ACCC has already delivered a comprehensive report on the means to bring them down.

The government would be better served acting comprehensively on its recommendations.The Conversation

Tony Wood, Program Director, Energy, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.