Grattan on Friday: King Coal is wearing big boots in the Turnbull government



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Labor mentioned Scott Morrison’s ‘pet rock’ during Question Time on Tuesday.
Lukas Coch/AAP

Michelle Grattan, University of Canberra

It took quite a while, but the Turnbull government this week finally “landed” its package for the biggest shake-up of media rules in decades.

The Senate deal was done thanks to a sprinkling of sugar for crossbenchers. Handouts for Nick Xenophon to help regional and small publishers, so he could say he was promoting “diversity”. Promises to Pauline Hanson to put some burdens on the ABC, so One Nation could brag it was chasing “the elephant in the room”.

The concessions don’t mean as much as the crossbenchers will claim, while the rule changes potentially mean a great deal. It might have seemed a tortuous process, but from the government’s point of view it has been a significant win at little cost.

If only the nation’s long-term energy policy could be “landed” as readily.

With the media changes, the industry stakeholders were united, in contrast to the vastly more complicated area of energy, as it transitions from fossil fuels to renewables, via a mixed system.

In another major difference with media policy, the most difficult negotiations on energy, at least imminently, are not with crossbenchers but within the government’s own ranks.

Just as it did in the dying days of his leadership in 2009, the coal cloud hangs darkly over Malcolm Turnbull. And once again, the Nationals are big players in the debate – and so is Tony Abbott.

But Turnbull’s own positions then and now are poles apart. In 2009, he famously championed the move to renewables, via a carbon price, which triggered his downfall. This time, bowing to the power of coal, he has increasingly become its vociferous public advocate.

When the government released the Finkel report on energy security in June, Turnbull made it clear he saw its centrepiece, a clean energy target (CET), as a torch to light the path to the future.

Chief Scientist Alan Finkel’s CET, with its particular focus on reducing emissions, was never going to be implemented in a pure form. Coal was always set for a larger role than Finkel would want, as Turnbull quickly made clear.

The CET debate should be seen as choosing a place on a spectrum rather than accepting or rejecting a single point. But at the start, even Nationals leader Barnaby Joyce was (sort of) on board for a CET, provided it allowed coal in.

Progressively, however, the Finkel blueprint has been pushed further and further on to the defensive.

The sharpest setback for it came last week, with the release of the report from the Australian Energy Market Operator (AEMO) warning of electricity shortages in coming years. The government had commissioned the report when it became panicky about so-called “dispatchable” power – power available whenever needed to meet demand – as the consequences of the closure of Hazelwood in Victoria sank in.

Energy Minister Josh Frydenberg said the AEMO report “reset the debate”. Joyce invoked John Maynard Keynes’ observation about changing his mind when he got new information – the report contained “new information”, Joyce said.

In fact the “resetting” had been creeping up well before the AEMO report. Abbott, especially, had been hard at work prosecuting the case against renewables.

Abbott – who was deposed two years ago this week – currently has two campaigns running: against the CET, and in opposition to same-sex marriage. He is highly energised and said to be enjoying himself.

On Thursday he was unequivocal. “We need to get right away from talking about renewable energy targets and clean energy targets and start talking about a 100% reliable energy target, ‘cause nothing else will do,” he said on 2GB.

“I welcome these signs that we are moving away from a clean energy target to a reliable energy target,” he said. Renewables always had to have a back-up “and if there’s got to be back-up you’ve got to ask the question, what useful purpose do they serve?

“Now there may well be some circumstances in which renewables in conjunction with back-up measures are economic, and if they’re economic and dependable, fair enough, but at the moment, they’re neither.”

The Nationals’ Matt Canavan, former resources minister who is on the backbench awaiting the citizenship case, has been a very loud voice for coal. The Nationals had the megaphone out at their weekend federal conference, calling for subsidies for renewables to be phased out.

As coal has muscled its way to the centre of the stage, we’ve seen the showdown between the government and AGL over the future of its Liddell coal-fired power station. This battle has a way to go.

At a trivial but symbolic level, there’s been the suggestion that whatever policy the government finally produces will avoid the sensitive “clean energy target” label. Maybe the focus groups are already at work on that one.

Despite the apparent mess, the government believes it can turn the energy debate to its political advantage. This is certainly the view among Nationals.

The strategy involves being seen to do a lot of things – Turnbull rehearses the check list of interventions on gas, power bills and the like – and demonising Labor’s attachment to renewables, with derision against “Blackout Bill”, “Brownout Butler” and “No Coal Joel [Fitzgibbon]”.

The government accuses Labor of selling out working-class people in favour of leftist, inner-city followers concerned about climate change. Turnbull is now emphasising the cost and reliability of power, with emissions reduction referred to sotto voce.

The Nationals are convinced their priority for coal will work well for them in the regions. They say it fits with the two issues that come at the top in their polling – jobs and cost of living.

When Abbott was fighting the Labor government, the carbon tax’s impact on the cost of living was an obvious plus for him. The question is whether power prices and cost of living can play for the Coalition when it is in office. The government and some observers suggest it will.

It does seem counterintuitive. Unless the voters are very gullible, you’d think they’d judge on results not rhetoric – that is, what their power bills are looking like when they get to the ballot box.

On the other hand, the government argues that if it can assert Labor’s policies would bring even higher bills, it can gain a tactical advantage.

Regardless of what the public are thinking, it’s clear that business – the constituency critical for future investment – remains deeply unimpressed with the politicking.

The ConversationUnless and until the government gets to grips with the substance of what needs to be done, the lack of a coherent energy policy will remain an indictment of the politicians and a burden on Australian families and enterprises.

https://www.podbean.com/media/player/fr3g9-72ed6d?from=site&skin=1&share=1&fonts=Helvetica&auto=0&download=0

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

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Time for pragmatism, not panic, for the electricity market



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There are many viable options for Australia’s energy future.
Shutterstock

David Blowers, Grattan Institute

There was a familiar kneejerk reaction to last week’s announcement by the Australian Energy Market Operator (AEMO) that there are risks to our electricity supply after the scheduled closure of the Liddell coal-fired power station in New South Wales in 2022. The sight of the Prime Minister looking for options to keep Liddell open raises the spectre of further reflexive government intervention that can’t end well.

Governments, understandably, want to make sure the lights stay on. But now is the time for perspective, not panic. Because, as the latest Grattan Institute report – Next Generation: the long-term future of the National Electricity Market – shows, there are emerging challenges to the NEM that need dealing with. Make the right decisions now and a return to affordable and reliable electricity supply is on the cards.


Read more: The true cost of keeping the Liddell power plant open


The NEM is an energy-only market. This means that generators only get revenue when they sell their electricity into the market. All costs – including the capital costs of building the plant – need to be covered by the revenue they make when they sell electricity. Anyone who wants to build new generation capacity wants to be pretty certain that the market is going to deliver the revenue they need to cover their costs.

But right now no one is building any generation, unless it is government-backed renewables. This is despite a ripe environment for investment: high current and future prices in the wholesale market and the closure of old power stations. The result, as AEMO pointed out last week, is potential shortfalls in generation and potential blackouts in South Australia, Victoria and NSW over the next few years.

Much of the blame for this investment hiatus can be placed on politicians and the climate change policy mess that is creating so much uncertainty for potential investors.


Read more: Turnbull is pursuing ‘energy certainty’ but what does that actually mean?


But the rise of wind and solar power is also causing problems. Wind and solar energy have zero marginal cost: once the facility is built, the energy produced is essentially free. And they are intermittent suppliers: they don’t produce energy unless the wind is blowing or the sun is shining. So when wind and solar plants are operating, the wholesale price of electricity is forced down. This means there needs to be high prices – sometimes very high – when wind and solar are not operating. This price volatility makes investors nervous that they will not be able to cover the costs of building new generation.

Governments may be tempted to conclude that the market has failed. But intervention may be premature.

There are still five years until Liddell is scheduled to close. Just because a new coal-fired power station will not be built in time to fill the gap doesn’t mean the market cannot respond. Coal was never going to be the market response, given climate change risks. But new gas-fired generators, or batteries to store electricity, could be built in this time frame. Or the market could finally get its act together on what is called demand-response: that is, paying consumers to reduce their electricity consumption during periods of peak demand, so that less new generation is required.


Read more: Managing demand can save two power stations’ worth of energy at peak times


There are no guarantees for government, however. The risks that the market won’t deliver the new generation that is needed are increasing. If nothing changes, Australia will need, in the words of AEMO, “a longer-term approach to retain existing investment and incentivise new investment in flexible dispatchable capability in the NEM”.

Many countries have responded to these same pressures by introducing a capacity mechanism. A capacity mechanism pays generators for being available, regardless of whether they actually sell electricity. Payments for capacity provide extra income for generators, giving them greater assurance that they will make enough revenue to cover their costs.

Any new market-based mechanism in Australia is likely to be better than the scattergun approach of various governments in recent years. Building Snowy 2.0, extending Liddell’s life, or providing state-based backing for new renewable generation might deliver the results needed. But the lack of coordination, planning and strategic thought that sits behind these policies means they probably won’t.

Getting it right

Our report suggests a better way. First, governments should give the market a chance. This means sorting out climate change policy, and quickly. Dithering about a Clean Energy Target, or arriving at a solution that cannot be supported across the political spectrum, will guarantee that investors’ hands remain firmly in their pockets.

Second, work should begin immediately on an additional capacity mechanism, so it is ready if needed. Capacity mechanisms are complex and take a long time to design and implement. There is no one-size-fits-all approach, so careful consideration needs to be given to how one would work in the Australian context.

Finally, AEMO should be asked to provide a more robust assessment of the future adequacy of generation supply. On the basis of this information, the newly formed Energy Security Board should make the judgement on whether an additional capacity mechanism is needed to make sure enough new generation is built.

The ConversationIt is understandable that politicians feel the need to act when faced with the threat of blackouts. After all, they are the ones who get the blame when the lights go out. But caution is needed. Capacity mechanisms are expensive; the peace of mind they bring comes at a price. A pragmatic and planned approach is the best way to ensure that, if a decision is made to redesign our electricity market, that decision is the right one.

David Blowers, Energy Fellow, Grattan Institute

This article was originally published on The Conversation. Read the original article.

What about the people missing out on renewables? Here’s what planners can do about energy justice



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Solar panels are integrated into a block of flats in the Viikki area of Helsinki, Finland.
Pöllö/Wikimedia, CC BY

Jason Byrne, Griffith University and Tony Matthews, Griffith University

The rapid shift to new energy sources is outpacing land use planning in cities. As interest in renewable energy burgeons, another concern has emerged – energy justice.

Improvements in renewable energy generation, energy efficiency and storage technology benefit more advantaged populations like homeowners. These innovations are generally beyond the reach of more disadvantaged groups like renters, pensioners, students and the working poor. Researchers see this as an emerging energy justice concern.

Energy costs hit the poor harder

Rising power bills hit lower-income households particularly hard.
shutterstock

A recent report, prepared by the Australian Council of Social Service, The Climate Institute and the Brotherhood of St Laurence, highlighted the disproportionate impacts of energy poverty. Current policy settings and energy price rises make life even more difficult for people who are already struggling to pay their power bills.

Energy price rises can affect residents’ ability to cool or heat their homes, cook food and get hot water. Ultimately, this can have dire consequences for people’s health and wellbeing.

Attention has been drawn to the inability of such households to tap into renewable energy in Western Australia and the Northern Territory. Less well known are the emerging opportunities to reduce energy poverty. These include solar leasing, energy co-operatives and landlord incentives.

Solar leasing

Solar leasing is a strategy where a homeowner signs an agreement with a company to install solar panels. Up-front costs are limited and the system is paid back incrementally over its lifespan. In theory, this could enable landlords and low-income owners to gain access to cheaper solar energy.

There are many variations on such leases. One involves the owner buying power back from the leasing company, which sells surplus power to the grid. Another is where the owner obtains a low-cost loan, such as those offered by the Fannie Mae foundation in the US.

Some caution is warranted before entering such agreements, not least because leases can make homes harder to sell.

The relative vacuum of Commonwealth energy policy in Australia is prompting some local governments to step in. The City of Darebin in Melbourne is an example. Its Solar Saver Program aims to help pensioners and other low-income earners get solar panels on rooftops. The panels are installed up-front and paid back through rates.

Some councils are helping pensioners and other low-income earners to install solar panels to cut their energy bills.
Michael Coghlan, CC BY-SA

Community renewable energy co-operatives

A second idea is to increase competition in the energy market by enabling communities to generate their own energy. Community renewable energy projects are an example.

But such projects need not be market-based. A recent innovation in New South Wales has been the development of an energy co-operative in Stucco apartments, a non-profit, student housing complex. This small-scale co-operative generates solar energy and stores it in batteries, selling it to tenants in the building, who are low-income students.

Larger versions exist in Germany. There whole villages have become energy co-operatives of sorts, achieving energy self-sufficiency.

Landlord incentives

A landlord who makes improvements such as double glazing should be able to claim these as a tax deduction.
Paul Flint/flickr, CC BY-SA

Several commentators have identified the need for better incentives and penalties to encourage landlords to retrofit properties to make them more energy-efficient.

This includes changing the tax system. If rental properties are upgraded – with insulation, more efficient hot water systems, energy-efficient stoves or windows – these costs should count as legitimate tax deductions. Currently, these improvements are not treated as repairs and instead are depreciated over time.

Similarly, new minimum standards for energy efficiency in rental properties are needed. The NSW BASIX system is a step in this direction.

The energy justice challenge for planners

Land use planning systems are typically future-oriented. But most of the buildings that will exist in the middle of this century are already built.

We need to update planning systems to better manage systemic changes in existing built environments. These changes include the transition to renewable energy and associated energy justice concerns.

There are possibilities for improvement. For example, planners can learn from early innovations like the Stucco model. Working proactively with community energy co-operatives could reduce uncertainty for all stakeholders, minimise time wasted and maximise returns for participants.

Planners can also develop new policies and processes – such as model town planning schemes – to work with communities in delivering other small-scale renewable energy projects such as community solar farms and microgrids. Another possibility is to alter strata title laws to make it easier to install solar in apartment buildings.

The ConversationModern land use planning was driven in large part by a desire to improve public health and social justice by regulating development. Today’s planners should regard efforts to improve energy justice as a new but entirely appropriate professional responsibility.

Jason Byrne, Associate Professor of Environmental Planning, Griffith University and Tony Matthews, Lecturer in Urban and Environmental Planning, Griffith University

This article was originally published on The Conversation. Read the original article.

The true cost of keeping the Liddell power plant open


Frank Jotzo, Australian National University and Zeba Anjum, Australian National University

For a long time, Australian governments have believed that the private sector should run the electricity sector. And successive governments have used market instruments to incentivise reducing emissions, by supporting renewables, discouraging coal use, or both.

Now things seem inside out: uncertainty about energy policy mechanisms is pervasive, and the federal government is attempting to broker a deal for the ageing Liddell coal plant to stay open past its planned decommissioning date. It’s possible the plan will require government payments – amounting to a carbon subsidy.


Read more: AGL rejects Turnbull call to keep operating Liddell coal-fired power station


Fear of supply shortages and an appetite for coal have combined with an inability to resolve the political side of energy and climate policy.

Power companies see coal as a technology of the past, but the government seems unready to accept that wind and solar technologies (already the cheapest option for new capacity in Australia) are the future of Australia’s power.


Read more: The day Australia was put on blackout alert


The latest suggestion amounts to deferring serious investment in renewables for a while, fixing up some of the old coal plants up so they can run a few more years, and buying time in the hope of keeping power prices down. Chief Scientist Alan Finkel has backed the idea, at least in principle.

The cost of delaying the inevitable

Commissioned in 1972, the Liddell power plant is the oldest of Australia’s large coal-fired stations (after the closure of the Hazelwood station). The New South Wales government sold it to AGL in 2014, at an effective price of zero dollars.

AGL announced some time ago that it will close the plant in 2022 and has considerable financial incentive to do so. This week AGL reiterated this. The latest suggestion is that Delta Electricity might buy and continue to operate Liddell.

What might be the benefits and costs of keeping Liddell running for, say, another decade? We do not know the plant-level technical and economic parameters, but let’s look at the principles and rough magnitudes.

Keeping the plant running longer will require refurbishments, defer the investment costs in renewables, and result in additional emissions, both in carbon dioxide and local air pollutants.

Refurbishment is costly. Finkel put refurbishment costs at A$500-600 million for a 10-year extension. Such refurbishment might achieve an increase in efficiency – as GE, a maker of power station equipment, recently argued – but perhaps not by much for a very old plant like Liddell.


Read more: Coal and the Coalition: the policy knot that still won’t untie


And refurbishment might not work so well, as the experience with the Muja plant in Western Australia shows: A$300 million was spent on refurbishment that ultimately failed. Spending big money on outdated equipment is not a particularly attractive option for energy companies, as AGL’s CEO recently pointed out.

Liddell’s power output during 2015-16 was around 8 terawatt hours – about 10% of present NSW power supply (it was more in 2016-17, and less in previous years). It might well be lower as the plant ages.

Ironically, the reduction in the Renewable Energy Target, from 41 to 33 terawatt hours per year, almost exactly matches Liddell’s present power output. With the original RET target, new renewables would have covered Liddell’s output by 2020.

Liddell emitted around 7.5 million tonnes of carbon dioxide per year in 2015-2016. With the assumed reduction in output and some improvement in CO₂ emissions intensity, the carbon dioxide output might be in the order of 5-6 million tonnes per year, or 50-60 million tonnes over ten years.

If the government were to pay for the refurbishment, as has been suggested, this would equate to subsidising CO₂ emissions at a rate of perhaps $10 per tonne, compared to the alternative of replacing Liddell with renewable power.


Read more: FactCheck Q&A: is coal still cheaper than renewables as an energy source?


At the same time, the government is paying for projects to reduce emissions, at average prices of around $12 per tonne of carbon dioxide, under the Emissions Reduction Fund. The contradiction is self-evident. Furthermore, keeping more coal plants operational deters commercial investment in any kind of new plants.

Of course this needs to be seen in the context of supply security, any subsidies that might be paid in future to renewable energy generators, and the possibility that a Clean Energy Target will determine overall emissions from electricity production irrespective of whether Liddell operates or not. It’s complicated. But the fundamental point is clear: paying for an old coal plant to operate for longer means spending money to lock things in, and delay the needed transition to clean power.

A possible compromise might be to mothball the Liddell plant, to use if supply shortages loom, for example, on hot summer days. But such a “reserve” model could mean very high costs per unit of electricity produced.

It is not clear that it would be cheaper than a combination of energy storage and flexible demand-side responses. And it may be unreliable, especially as the plant ages further. During the NSW heatwave last summer Liddell was not able to run full tilt because of technical problems.

A market model to pay for reserve capacity would surely do better than government direction.

Australia’s energy companies have been calling for a mechanism to support new clean investment, such as the Clean Energy Target. And many would no doubt be content to simply see a broad-based, long-term carbon price, which remains the best economic option. If the policy framework was stable, private companies would go ahead with required investment in new capacity.


Read more: Finkel’s Clean Energy Target plan ‘better than nothing’: economists poll


The ConversationMeanwhile, federal and state governments are intervening ad-hoc in the market – making a deal to keep an old plant open here, building and owning new equipment there. It is the worst of all worlds: a market-based system but with extensive and unpredictable intervention by governments that tend to undermine investor confidence.

Frank Jotzo, Director, Centre for Climate Economics and Policy, Australian National University and Zeba Anjum, PhD student, Australian National University

This article was originally published on The Conversation. Read the original article.

Grattan on Friday: Turnbull’s rush for an energy ‘announceable’ sows confusion


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Malcolm Turnbull has tried to focus on energy policy while the opposition has been preoccupied with the eligibility of Barnaby Joyce.
Mick Tsikas/AAP

Michelle Grattan, University of Canberra

Barnaby Joyce looks like he’s doing it tough. Day after day, he sits behind Malcolm Turnbull in Question Time, facing Labor’s unrelenting attack on his right to be on the frontbench.

There’s the occasional laugh, to keep up appearances, but mostly he has the face of a man who’s whipping himself.

What’s most personally painful for Joyce, who as leader has been very focused on maintaining the Nationals’ sense of loyalty to the team, is that he has let the team down.

A check would have revealed he needed to address his dual New Zealand citizenship. He regularly warns the Coalition partyroom against distractions and he is embarrassed that he’s caused a big one.

But what’s done – or wasn’t done – is now in the past. Turnbull might be confident the High Court will uphold his position but Joyce is already preparing for a byelection if things go badly.

The government can accuse the opposition of neglecting mainstream issues in its preoccupation with Joyce.

Its tactic, however, does serve to further unsettle him. Also, if the court were to find against him Labor, with its argument that he should have stood aside from the front bench at the start, would have laid the groundwork for some of its byelection campaigning. But if Joyce is vindicated Labor will have misplayed.

The court outcome on Joyce – to be considered among the swathe of MPs’ citizenship cases – is harder to predict than was the result in the challenges to the same-sex marriage postal ballot. On Thursday the court declared that ballot constitutional, as always seemed more likely than not.

There are still hurdles ahead for Turnbull on same-sex marriage – notably, he needs the “Yes” case to win. But at least he’s over a major one. Having the ballot struck down would have brought a crisis for him.

If the court does uphold the eligibility of Joyce and those with similar circumstances, it will surely mean it is effectively rewriting the constitutional provision that makes dual citizens ineligible for parliament. It would be saying that many dual citizens, born in Australia of foreign-born parentage, can be properly elected.

Amid the various distractions and the continuing bad polls, Turnbull’s strategy has become to focus, laser-like, on what is currently the biggest bread-and-butter issue in the community – the state of energy prices and the future of energy policy.

Turnbull faces multiple separate but related pressures: to get people some early relief with their bills; to deal with the circumstances of coming summers; and to craft a long-term clean energy policy that can survive a partyroom where the forces of the right have loud voices and a deep commitment to coal.

This week, against the background of a report from the Australian Energy Market Operator (AEMO) highlighting the risks to the reliability of the electricity supply in the next few years, Turnbull was looking in particular to the medium term.

While at times he has encouraged the idea of supporting the building of new clean coal power stations, the AEMO report pointed to keeping some existing generators operating longer as a more practical course.

Thus on Tuesday Turnbull told parliament he and Energy Minister Josh Frydenberg were in discussions to extend the life of AGL’s Liddell coal-fired power station, in the Hunter region of New South Wales, for at least five years beyond its scheduled 2022 closure.

But then Andy Vesey, chief executive of AGL, which has made much of its long-term intention to move out of coal, reaffirmed via Twitter the Liddell closure schedule.

Later Turnbull told reporters AGL was willing to sell Liddell to “a responsible party”. In a statement to the ASX the following morning, however, AGL seemed less than keen on a sale, although it was unclear whether this was a substantive or holding position.

The government has since said Vesey made the comment that he would consider selling to a responsible party a month back, when Turnbull and several ministers met electricity retailers.

It has all looked pretty messy. Turnbull should have been more precise in his remarks to parliament, or waited to make them until the position was clearer.

AGL copped a vitriolic spray from Matt Canavan, the former resources minister who will be back in the job if the High Court clears his citizenship issue. Canavan called AGL “the biggest hypocrite walking around Australia at the moment” for making money from producing coal-fired power while advertising its exit from coal – but not until 2050.

It makes a somewhat fractious backdrop to the meeting Turnbull and Frydenberg will have with Vesey on Monday to discuss a possible sale.

After all that’s been said, the stakes seem high for both the government and Vesey. On the other hand, the government believes that in the public mind the power companies are about as unpopular as the banks, so going after them wins rather than loses points.

The government is confident a buyer will be available for Liddell, although it doesn’t want to be the purchaser. Any buyer almost certainly would demand some sort of government financial support.

The AGL affair is another example of the extraordinary amount of intervention in the market and the manhandling of business that the Coalition is willing to resort to as it grapples with the energy conundrum.

Retailers have been summoned twice to be told to ensure customers can get the best deals available. The government not only plans to expand the Snowy but wants to buy out the whole enterprise. Then there is its willingness to use export controls to get more gas available for the local market.

As one government man puts it, “extraordinary problems create extraordinary interventions”. And ironies too, now that ministers have taken to labelling Bill Shorten a socialist leading New “Red” Labor. It would make as much sense – which is not much – for Labor to throw similar rhetoric back at the Coalition.

Whether from all this, and the still-to-be-joined battle over a clean energy target, will emerge a policy framework sufficient to convince voters that the government is getting on top of the challenges remains to be seen.

The ConversationIn trying to grapple with energy Turnbull is playing on the right field, but being able to kick the goals is another matter.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Coal and the Coalition: the policy knot that still won’t untie


Marc Hudson, University of Manchester

As the Turnbull government ties itself in yet more knots over the future of coal-fired power, it’s worth reflecting that climate and energy policy have been a bloody business for almost a decade now.

There was a brief period of consensus ushered in by John Howard’s belated realisation in 2006 that a price had to be put on carbon dioxide emissions. But by December 2009 the Nationals, and enough Liberals, had decided that this was a mistake, and have opposed explicit carbon pricing ever since.


Read more: Ten years of backflips over emissions trading leave climate policy in the lurch.


The resulting policy uncertainty has caused an investment drought which has contributed to higher energy prices. Now, with prices a hot potato, there are thought bubbles about extending the life of coal-fired power stations and a new effort to set up a Conservatives for Conservation group.

But the Liberal Party’s tussles over climate and energy policy (as distinct from denying the science itself) go back even further – some 30 years.

Early days and ‘early’ action

It’s hard to believe it now, but the Liberal Party took a stronger emissions target than Labor to the 1990 Federal election. Yet green-minded voters were not persuaded, and Labor squeaked home with their support. After that episode the Liberals largely gave on courting green voters, and under new leader John Hewson the party tacked right. Ironically, considering Hewson’s climate advocacy today, back then his Fightback! policy was as silent on climate change as it was on the price of birthday cakes.

In his excellent 2007 book High and Dry, former Liberal speech writer Guy Pearse recounts how in the mid-1990s he contacted the Australian Conservation Foundation, offering to to canvass Coalition MPs to “find the most promising areas of common ground” on which to work when the party returned to government. The ACF was “enthusiastic, if a little bemused at the novelty of a Liberal wanting to work with them”. Most Liberal MPs – including future environment minister Robert Hill and future prime minister Tony Abbott – were “strongly supportive” of the idea. But others (Pearse names Eric Abetz and Peter McGauran) were “paranoid that some kind of trap was being laid”. Nothing came of it.

Elected in 1996, Howard continued the staunch hostility to the United Nations climate negotiations that his Labor predecessor Paul Keating had begun. Not all businessmen were happy. Leading up to the crucial Kyoto summit in 1997, the Sydney Morning Herald reported how a “delegation of scientists and financiers” led by Howard’s local party branch manager Robert Vincin and Liberal Party grandee Sir John Carrick lobbied the prime minister to take a more progressive approach. Howard did not bend.

Howard stayed unmoved until 2006 when, facing a perfect storm of rising public climate awareness and spiralling poll numbers, he finally relented. Earlier that year a group of businesses convened by the Australian Conservation Foundation produced a report titled The Early Case for Business Action. “Early” is debatable, given that climate change had already been a political issue since 1988, but more saliently the report tentatively suggested introducing a carbon price. And Howard finally relented.

The carbon wars

The ensuing ten years after Kevin Rudd’s defeat of Howard don’t need much recapping here (go here for all the details). But one interesting phenomenon that has emerged from the policy wreckage is the emergence of some very unusual coalitions to beg for certainty.

In 2015, in the leadup to the crucial Paris climate talks, an “unprecedented alliance” of business, union, environmental, investor and welfare groups called the Australian Climate Roundtable sprang briefly into life to make the case for action.

Then, after the seminal South Australia blackout last September, a surprisingly diverse group of industry and consumer bodies – the Australian Energy Council, Australian Industry Group, Business Council of Australia, Clean Energy Council, Energy Users Association, Energy Consumers Australia, Energy Networks Association and Energy Efficiency Council – called on federal and state energy ministers to “work together to craft a cooperative and strategic response to the transformation underway in Australia’s energy system”.


Read more: Who tilts at windmills? Explaining hostility to renewables.


It’s in this light that the new Conseratives for Conservation lobbying effort should be seen. Its spearhead Kristina Photios surely knows she has no chance of converting the committed denialists, but she can chip away at the waverers currently giving them comfort and power.

Questions on notice

Of course, there are always cultural (or even psychological) issues, but you’d think that conservation would be a no-brainer for conservatives (the clue should be in the name).

There are a few questions, of course (with my answers in brackets).

  • Where were all the people who are now calling for policy certainty back in 2011 when Tony Abbott was declaring his oath to kill off the carbon tax? (They were AWOL.)

  • Will any business show any interest in building a new coal-fired power station? (No.)

  • Is renewable energy technology now advanced enough for them to make serious money? (We shall see.)

  • Can we make up for lost time in our emissions reductions? (No, and we have already ensured more climate misery than there would have been with genuinely early climate action.)

  • Will the Liberals further water down the Clean Energy Target proposal? (Probably.)

  • What will Tony Abbott say to UK climate sceptic think tank the Global Warming Policy Foundation when he gives a speech on October 6? (Who knows –
    grab your popcorn!).

  • What will happen to the Liberals in the medium term? (Who knows, but Michelle Grattan of this parish has some intriguing ideas.)

  • Are there reasons to be cheerful? (Renewable energy journalist Ketan Joshi thinks so.)

Perhaps the last word on this issue should go to John Hewson, who noted last year:

The ConversationThe “right” love to speak of the debt and deficit problem as a form of “intergenerational theft”, yet they fail to see the climate challenge in the same terms, even though the consequences of failing to address it substantively, and as a matter of urgency, would dwarf that of the debt problem. The “right” is simply “wrong”. It’s political opportunism of the worst sort, and their children and grandchildren will pay the price.

Marc Hudson, PhD Candidate, Sustainable Consumption Institute, University of Manchester

This article was originally published on The Conversation. Read the original article.

The day Australia was put on blackout alert



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One big mess: the market has failed to deliver on cheap, reliable energy.
Shutterstock

David Blowers, Grattan Institute

The only way the Australian Energy Market Operator (AEMO) could be blunter in its report on the state of our electricity system would be to stick a neon sign on top of its Melbourne head office saying “The market has failed”.

AEMO’s Advice to Commonwealth Government on Dispatchable Capability, released today, shows there are significant but manageable risks of the lights going out in South Australia and Victoria over the next two summers. And beyond 2018, AEMO will need more tools if shortfall risks are going to be dealt with.

The conclusions about the short-term risks are not surprising. AEMO has issued several reports over the past year or so telegraphing supply shortfalls in the next couple of years.

What is surprising is its view that action needs to be taken when Liddell, the AGL-owned power station in New South Wales, closes in 2022. That is five years away, and AGL has been trumpeting the decision at every opportunity, but AEMO is clearly not confident that the market will respond by delivering new generation, or storage, or demand response, to fill the gap.


Read more: AGL rejects Turnbull call to keep operating Liddell coal-fired power station


AEMO recommends immediate development of a strategic reserve that it can deploy to prevent loss of power over the next few summers. A strategic reserve is basically back-up generation (or storage or demand response) that is used only in an emergency.

AEMO’s job is to make sure there is enough generation available – that supply equals demand. A strategic reserve will deliver the capacity – be it gas generation, storage or demand response – that it needs to meet any shortfall. Neither coal nor wind and solar can fulfil this function. Coal takes too long to come online, while wind and solar provide intermittent supply so there is no certainty that renewable energy will be there when needed.


Read more: Managing demand can save two power stations’ worth of energy at peak times


A strategic reserve is an insurance policy, only to be used in extreme circumstances. And like any insurance policy it has a cost – a cost that will be passed on to consumers. Of course, if electricity keeps being delivered as required over the next two summers, governments and consumers may well consider this money well spent.

But a strategic reserve does not deal with the second problem AEMO is seeking to solve: that not enough dispatchable generation is being built in the National Electricity Market. Even with backup generation controlled by AEMO, Australia will still need new generation to provide day-to-day power when existing power stations such as Liddell close.

AEMO’s second major recommendation is the immediate “development of a longer-term approach to retain existing investment and incentivise new investment in flexible dispatchable capability in the NEM”.


Read more: The government’s new energy plans will leave investors less confident than ever


Since it was set up 20 years ago, the NEM has delivered sufficient generation to meet demand, and at a reasonable cost. But this report makes it clear that AEMO believes this is no longer the case and that changes to the market are needed.

The report is understandably silent on what this “longer-term approach” might look like, given that market design is tricky. But the report is unequivocal that a new mechanism needs to be in place by the time Liddell closes. If not, supply shortages – and the associated loss of power to consumers – will be far more likely.

AEMO has provided the federal government with a pathway to securing electricity supply for the foreseeable future. There will be costs, but all governments will have greater assurances that the lights will stay on.

What AEMO hasn’t done is call out the policy instability that has been a major reason we have got ourselves into this mess. Commentators, Chief Scientist Alan Finkel, and numerous industry players – including the Big Three owners of generation in Australia – have all long been arguing that the major barrier to investment in the NEM has been the dog’s breakfast that is climate change policy.

The federal government can use this report to satisfy critics within its own party that there is a plan to ensure enough dispatchable generation in the NEM.

But the government must not use AEMO’s report as a get-out clause that allows it to continue to avoid creating an effective emissions reduction policy in the electricity sector. If anything, the report should stand as a stark warning to politicians of all stripes about what happens when you get policy so badly wrong.

Bipartisan agreement on the only politically acceptable emissions reduction policy – a Clean Energy Target – may not be sufficient, but remains absolutely necessary, to ensure there is enough generation to meet Australia’s electricity needs.

The ConversationAEMO has shown it is willing to do its job. It is now up to our politicians to do theirs.

David Blowers, Energy Fellow, Grattan Institute

This article was originally published on The Conversation. Read the original article.

AGL rejects Turnbull call to keep operating Liddell coal-fired power station



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Malcolm Turnbull told parliament on Tuesday he and Josh Frydenberg are in discussions with AGL about keeping Liddell operating beyond 2022.
Lukas Coch/AAP

Michelle Grattan, University of Canberra

Energy giant AGL has delivered an initial sharp rebuff to Malcolm Turnbull’s plea to extend the life of the Liddell coal-fired power station by at least five years.

But Turnbull is said to be determined to keep Liddell open and is exploring all options, saying on Tuesday night that while AGL wanted to get out of coal, it would be prepared to sell the power plant.

Turnbull on Tuesday rang AGL chief Andy Vesey to discuss lengthening Liddell’s life, after the Australian Energy Market Operator (AEMO) warned urgent action is needed to ensure Australia has adequate reliable power during the transition to cleaner energy.

The Liddell plant, located in New South Wales’ Hunter region, is set to close in 2022, and AGL has had a long-running advertising campaign saying things need to change and “we are getting out of coal starting 2022 and ending 2050”.

Turnbull told parliament in Question Time that he and Energy Minister Josh Frydenberg “are already in discussions” with AGL “about how we can ensure that the power station stays in operation for at least another five years after 2022”.

Vesey fired off tweets reiterating the company’s intentions. Responding to a Tony Abbott tweet that had said “good that AGL is no longer getting out of coal!”, Vesey tweeted: “We’re getting out of coal. We committed to the closure of the Liddell power station in 2022, the end of its operating life”.

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In another tweet, Vesey said “keeping old coal plants open won’t deliver the reliable, affordable energy our customers need”.

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After the tweets Turnbull rang Vesey again. Later Turnbull told reporters: “I’ve spoken to him several times about this matter. He says AGL wants to get out of coal, but he has said that he is prepared to sell to a responsible party and that’s what we’re talking about.”

“Mr Vesey has obligations to his shareholders, my commitment is to all Australians – families, businesses big and small – to deliver affordable and reliable electricity,” he said.

Turnbull appeared to rule out the government buying the station, saying “I think it’s better that the private sector owns generators like that”.

He said there were “obviously other options but one option clearly, that I responsibly as prime minister have to explore, is keeping Liddell going”.

Tony Wood, energy program director at the Grattan Institute, said on Tuesday night that a sale of Liddell would be possible if the price was right and there was a commercially viable market for the power.

The AEMO report says the National Energy Market (NEM) “is not delivering enough investment in flexible dispatchable resources to maintain the defined target level of supply reliability, as the transition from traditional generation to variable energy resources proceeds”.

It stresses immediacy, saying “short-term measures will be necessary until a long-term solution is agreed and becomes fully effective”.

The problem posed by the planned Liddell closure is a recurring theme in the AEMO report, which is also cool on new power plants “with uncertain long-term business viability”. Liddell, commissioned in the early 1970s, has a total capacity of 2,000 megawatts.

AEMO says that consideration should be given “to the possible extension of the capability of some existing resources … This could take the form of life-extension or investment to increase the flexibility of current dispatchable resources, and thereby improving their business viability and extending their life in the market.”

The report recommends:

  • before the coming summer: a strategic reserve of about 1,000 megawatts of flexible dispatchable energy resources is needed to maintain reliable supply in South Australia and Victoria. AEMO is already acting to deliver this.

  • up to 2020-22: progressively decreasing levels of strategic reserve will be required over the summers – and new mechanisms to deliver these must be put in place in time for 2018-19.

  • before the scheduled 2022 Liddell retirement about 1,000 megawatts of new investment is expected to be needed to preserve supply reliability in NSW and Victoria. Mechanisms should be established in the NEM design to deal with these and similar needs for the long term.

The government, which has before it the proposed clean energy target policy recommended by the Finkel report, in June commissioned the AEMO to assess the risks to reliability and affordability posed by the closure of the Hazelwood power station and similar closures to come.

Apart from the Vesey tweets, a spokesperson for AGL reiterated AGL’s position on closing Liddell. “AGL has committed to the closure of the Liddell power station in 2022, which is the end of its operating life.

“AGL has provided this advance notice to avoid the volatility created by the sudden exit of other coal-fired power stations. AGL is actively assessing what capacity will be needed post 2022 and we, along with other market participants, will consider AEMO’s report in light of these plans,” the spokesperson said.

Frydenberg said that “building on our actions to date including putting in place new restrictions on the export of gas and opening up discussions with AGL over Liddell, the Turnbull government will leave no stone unturned to ensure affordable and reliable power for all Australians”.

Labor’s climate change spokesman Mark Butler, referencing a Vesey tweet, said Turnbull’s “claim of a five-year extension didn’t last five minutes”.

Butler said the government’s policy inaction was driving up electricity prices and a clean energy target “is the solution to crippling policy paralysis.

The Conversation“Yet the government refuses to act, citing any and all excuse to delay, when everyone knows it is internal Coalition division and the weakness of the prime minister that are really to blame,” Butler said.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Turnbull is pursuing ‘energy certainty’ but what does that actually mean?


Alan Pears, RMIT University

Today Malcolm Turnbull met with energy retailers to discuss high power prices, for the second time this month. The retailers agreed to try even harder to inform their customers of cheaper contracts, but they also took the opportunity to call yet again for urgent commitment to a Clean Energy Target (CET).

The prime minister hopes to deliver a CET by Christmas, but has not indicated what the target would actually be.

This is just one more step towards the elusive goal of certainty in the energy market, which politicians, the energy industry and businesses have been calling for with increasing frequency. But underlying the ongoing political scrimmage is the reality that certainty means something very different to each player. It’s particularly difficult to achieve in a time of disruptive change.


Read more: Turnbull to tell power companies: do better by customers


What is certainty?

For politicians, certainty means getting energy prices and policy out of the media, ensuring construction of a new coal-fired power station, or both.

On the other hand, incumbent energy companies want to protect profits by blocking emerging competitors and guaranteeing their revenue.

For emerging energy businesses that sell renewable energy, batteries and smart energy solutions, it’s about opening markets to fair competition and finding a role in a rapidly changing environment.

For business and industry, it’s about access to stable, reliable, reasonably priced energy, so they can get on with their core business.

Households (and voters) also want affordable and reliable energy bills (and some basic respect from energy companies and politicians) but that doesn’t necessarily mean low prices: it can mean low fixed charges, access to energy efficiency programs, and finance for rooftop solar and batteries. Then they can buy less energy while living in comfortable homes with efficient appliances.

The traditional energy system involves large capital investments and long timeframes. This doesn’t sit comfortably with the agendas of many of the people described above, who want quick solutions – which can be delivered by emerging alternatives.

New solutions create new challenges

Any inflexible baseload power station faces the growing problem of the “duck curve”. That is, solar power is reducing baseload demand for energy during the day, but leaving the evening peak-time demand untouched – creating an exaggerated upswing in demand after about 4pm.


Read more: Slash Australians’ power bills by beheading a duck at night


This reduced daytime power use deprives a baseload plant of the demand it needs to keep running continuously. Excess electricity during the day also drives wholesale electricity prices down from traditionally high levels. Daytime sales have comprised a large proportion of revenue for base load generators.

Large scale wind and solar without storage are price takers: they’re paid the going wholesale price at the time they generate. They have benefited from the high daytime prices that solar is now undermining, and from high prices on tradeable certificates for renewable energy, driven by shortages caused by Tony Abbott’s “war on renewables”.

Certificate prices should moderate as more renewable energy capacity is built. Future investment depends heavily on decisions regarding national and state clean energy targets beyond 2020.

Batteries, pumped hydro and other storage rely on the gap between the lowest and highest price each day. Solar is reducing, and even reversing, this price gap in the daytime. But morning and evening demand offers some opportunity, as long as excess storage capacity doesn’t flood the market with electricity and depress prices at those times. In future, they will store cheap daytime excess power for use at other times. And storage will be increasingly important as variable renewable energy capacity grows.

Improving efficiency is ‘the first fuel’

Demand response, where consumers are paid to reduce demand at times of high wholesale electricity prices, is a serious threat to revenue for generators and energy storage. It usually involves smart management of consumption or use of existing backup generators, with little capital cost.

As the Australian Renewable Energy Agency has found, there is a lot of latent capacity. Its call for bids in May for its pilot scheme – originally aiming to provide 160 megawatts (MW) of reserve capacity – has unearthed almost 700MW available by December this year, and over 1900 MW by December 2018.

Our failure to properly manage demand for decades, despite the recommendations of many inquiries, has led to wasteful overinvestment in network and generation capacity that is now exposed to market forces. Now someone will pay for this policy failure: will it be shareholders or consumers?

Energy efficiency improvement adds another unpredictable factor. As shadow environment and energy minister Mark Butler commented at a recent conference, Australian governments have not performed well in this area. But the Finkel Review highlighted its substantial potential and called for governments to do better. The International Energy Agency calls energy efficiency “the first fuel” because it is so big and so cheap.

Our failure to capture energy efficiency is costly for the economy and consumers. When energy suppliers are prepared to invest in projects with risky annual rates of return of 8-15%, energy efficiency opportunities with returns of 20-100% are ignored.

Another complicating element is consumers, many of whom are no longer passively accepting energy market volatility and increasing prices. “Behind the meter” investment in energy efficiency, demand management, storage, on-site renewables and even diesel generators is making increasing sense. Indeed, social justice campaigners are increasingly calling for action to help vulnerable households be part of the future, not victims.

Lastly, there is the elephant in the room: climate change. Fossil-fuel-sourced electricity generation produces around a third of Australia’s emissions. And there is much more scope to cut emissions from electricity than from many other parts of our economy.

Where to now?

No government can provide certainty for all these competing players. Each face their own risks and opportunities, and powerful disruptive forces are at work. Trying to provide certainty for some involves propping up declining business models, at the expense of positioning the Australian economy for the future.

Despite criticism from the federal energy minister states are likely to continue setting their own clean energy targets.

Businesses and households are investing to insure themselves against the policy mess and, in doing so, are transforming the energy system. Local councils and community groups are coordinating action. Emerging businesses are taking risks to capture opportunities. Existing energy businesses are trying to juggle their existing assets while transforming. State governments are trying to win votes and capture jobs in emerging industries. Meanwhile, the federal government’s party room is split over a clean energy target.

The ConversationThe challenge for governments is to nudge this chaotic system in ways that deliver equitable, affordable and reliable energy services.

Alan Pears, Senior Industry Fellow, RMIT University

This article was originally published on The Conversation. Read the original article.

FactCheck Q&A: is coal still cheaper than renewables as an energy source?


Ken Baldwin, Australian National University

The Conversation fact-checks claims made on Q&A, broadcast Mondays on the ABC at 9.35pm. Thank you to everyone who sent us quotes for checking via Twitter using hashtags #FactCheck and #QandA, on Facebook or by email.


Excerpt from Q&A, July 17, 2017.

Q&A AUDIENCE MEMBER: Hi. Renewable energy is more carbon-efficient, and now cheaper, than coal and other fossil fuels …

MATT CANAVAN: Thanks, James. Look, I don’t accept that renewables are, at the moment, cheaper than coal.

– Excerpt from a question posed by Q&A audience member James Newbold to then-Resources Minister Senator Matt Canavan on Q&A, July 17, 2017.

One of the biggest debates underway in Australia (and around the world) is about electricity, and how it should be generated. One of the major pressure points is prices.

During an episode of Q&A, audience member James Newbold said renewable energy is “now cheaper than coal and other fossil fuels”. Senator Matt Canavan (then-Resources Minister) disagreed, saying: “I don’t accept that renewables are, at the moment, cheaper than coal.”

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Let’s look at the numbers.

Checking the sources

The Conversation contacted Matt Canavan’s spokesperson for sources to support his statement but did not hear back before deadline. Nonetheless, we can test his statement against publicly available data.

What do the data show?

Based on the electricity generated now by old coal-fired power stations with sunk costs (meaning money that has already been spent and cannot be recovered), Matt Canavan was right to say: “I don’t accept that renewables are, at the moment, cheaper than coal.”

In 2017, the marginal cost of generating power from an already existing coal station is less than $40/MWh, while wind power is $60-70/MWh (explained below). So why do people say renewables are now cheaper than coal?

Well, they’re often talking about what would be the cheaper option if old coal-fired power stations were replaced today – in other words, the new-build price.

Making the distinction between the cost of existing energy generation, and the cost of new-build energy generation in this debate is very important. Comparing the two is like comparing apples and oranges.

Current prices are based on existing installations, while new-build prices compare the costs of different technologies if their operating lives started today. This matters because Australia’s existing coal-fired power stations are ageing and will need to be replaced.

Comparing new-build prices is more complicated than comparing current costs, as I’ll discuss later in this FactCheck.

How do we measure the cost of electrical power?

Let’s cover the basic terminology first.

Electrical energy is measured in kilowatt-hours – the units generally used for metering and charging residential electricity use. One kilowatt-hour represents the amount of energy a device that draws one kilowatt of power (like a household heater, for example) would use in one hour.

A megawatt-hour is 1,000 times larger, and it’s what we typically use to measure large electricity loads or generators. So when we’re comparing the cost of electrical energy generated by different sources, we’ll be talking about Australian dollars per megawatt-hour ($/MWh).

Comparing prices for different sources of electricity

There are a few things we need to take into account when we’re calculating the cost of electricity created by different technologies.

First, we need to factor in how much it costs to establish the source in the first place – whether that’s a coal-fired power station, a wind farm or a hydro-power plant. Then we need to factor in how much it costs to operate, fuel and maintain that facility over its lifetime.

These factors and the cost of capital (like the interest rate) are commonly combined into a metric called the “levelised cost of electricity” (or the LCOE). This provides a measure of the total cost in current dollars per unit of electrical energy generated ($/MWh) over the lifetime of the facility.

We also need to know the time frame in question. A coal-fired power station that’s nearing the end of its operating life may have recovered its original capital investment. So the marginal cost of coal-fired electricity may be low, compared to the levelised cost of a new wind farm that’s yet to recoup its initial capital cost.

Using the levelised costs of electricity created by different technologies does always not provide a perfect comparison. Comparing such different technologies will never be comparing apples with apples. But it’s the best measure we’ve got for a simple “plug-and-play” replacement of a single generating source.

Current prices for coal-fired and wind power

Today, most of Australia’s electricity is sourced from coal-fired power stations. In their discussion on Q&A, Newbold and Canavan referred broadly to “renewables”. Currently, wind power is the cheapest form of renewable energy. So we’ll use that as the basis for comparison with coal-fired energy.

In 2017, the marginal cost of generating power from an already existing black coal-fired station is less than $40/MWh. Brown coal-fired power is even cheaper.

To establish the current price of wind power, we can look at the announcement in May 2017 by Origin Energy, when the company agreed to buy all the power to be generated by the Stockyard Hill Wind Farm in Victoria between 2019 and 2030 for less than $60/MWh.

A similar price was struck in March 2016 when the Australian Capital Territory government conducted its second “wind auction”. The government uses wind auctions to buy contracts for future energy supplies. The lowest price in the 2016 auction yielded around $60/MWh in current prices. This figure is based on a flat rate of $77/MWh for 20 years and assuming around 3% inflation, which is the upper end of Australia’s inflation rate target of 2-3%.

Combining the total price range for that auction with this inflation range gives around $60-$70/MWh in current prices, with wind farms currently operating in that adjusted range.

So, based on the marginal cost of energy generated by existing coal-fired power stations with sunk costs, Canavan is correct in saying that renewables are not “at the moment, cheaper than coal”.

However, the story is different if we are talking about new-build electricity prices. And this is often where conversations and debates become confused.

Why new-build electricity prices matter

Coal-fired power stations in Australia have operating lives of around 50 years. As can be seen from the table below, nine of Australia’s 12 biggest operating coal-fired power stations are more than 30 years old.

In preparation for the retirement of those older coal-fired stations, policymakers, energy companies and other investors are debating whether to replace them with new coal-fired power stations, or other types of energy generation. This is where the comparison of new-build costs comes into play.

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New-build prices for coal-fired and wind power

FactChecks rely on data from events that have already occurred. So we can’t say with factual certainty whether or not renewables would be cheaper than coal as a new-build energy source, because no coal-fired power stations have been built recently.

But we do have recent prices for the cheapest form of new-build renewable energy, which is newly-installed wind power.

And we do have recent levelised price projections for the cheapest new-build fossil fuel energy, which is supercritical coal power.

The projected price for new supercritical coal power comes in at around $75/MWh from the recent Finkel review of the National Electricity Market, based on data produced by Jacobs Consultancy. That is consistent with the price of $80/MWh from the 2016 report from the CO2 Cooperative Research Centre, and less than the $84-94/MWh from the 2012/3 Australian Energy Technology Assessment .

These projections for new supercritical coal power are higher than the recent prices for newly-installed wind power (outlined earlier in the FactCheck) at around $60-70/MWh in current prices over the 20-year contract period (which is similar to a levelised cost).

So, if we look at recent wind power prices and recent price projections for new supercritical coal power, it’s reasonable to say that – as things stand today – wind power would be the cheaper new-build source of electricity.

Future prices

There are important additional factors that need to be taken into account when considering the costs of new-build coal-fired electricity and new-build renewable electricity as we look further into the future. Three of the main considerations are:

  • upgrades to the energy grid (including energy storage) to balance the use of intermittent renewables, especially once renewable energy exceeds around 50% of all energy supply (this would increase the price of renewables)
  • the introduction of a price on carbon emissions (this would increase the price of coal), and
  • improvements in technology (this is expected to reduce the price of renewables more so than coal).

It is possible to make educated assumptions about how these factors would affect prices in the future. But I won’t include those projections in this FactCheck, for two reasons:

  • firstly, we are yet to see the outcomes, and
  • secondly, the Q&A audience member and Canavan were discussing prices as they are “now” and “at the moment”.

So that’s what I’ve addressed in this FactCheck.

Verdict

Based on the electricity generated now by old coal-fired power stations with sunk costs, Matt Canavan was right to say: “I don’t accept that renewables are, at the moment, cheaper than coal”. In 2017, the marginal cost of generating power from an already existing coal station is less than $40/MWh, while wind power is $60-70/MWh.

The Q&A audience member may have been talking about new-build prices.

Based on recent prices for newly-installed wind power of around $60-70/MWh, and recent price projections for new supercritical coal power at around $75/MWh, it is reasonable to say that – as things stand today – wind power would be cheaper than coal as a new-build source of electricity. – Ken Baldwin

Review

The author has provided a sound FactCheck that covers a lot of the complexities around a challenging issue. I would add one remark which doesn’t detract from the author’s verdict.

The cost of new-build coal is likely to be higher than reported in the FactCheck.

The author was correct to point out that the introduction of a price on carbon emissions would increase the cost of new-build coal-fired electricity.

The mere possibility of the introduction of a price on carbon or carbon regulation in the future actually affects the costs of new-build coal-fired electricity today. The risk of increased costs or regulation for emission intensive generators manifests itself as a higher “risk premium” applied to current financing costs. The overall effect is a higher weighted average cost of capital (basically, a higher average interest rate) for emission intensive generation.

In the Finkel review, the weighted average cost of capital for coal is projected to be 14.9%, compared to 7.1% for renewables. Risk adjusted financing costs would result in the levelised cost of new coal being higher than the figures presented in the FactCheck. – Dylan McConnell

Review

The cost of electricity produced from a new wind farm is competitive with the best estimates for the cost of electricity produced from a new coal station, and cheaper than the cost of new coal quoted in very reputable analyses (CO2CRC 2015 and CSIRO 2017).

As noted by the author, the comparison in this FactCheck does not include the cost of intermittency for renewables. Recognising that no technology runs 100% of the time, there is a backup cost to be added to wind to make it as firm (or stable) as a fuel-based plant. Available costs for such backup, such as large scale battery or pumped storage, are based on estimates and are the subject of much current study.

New wind with backup could very well be very competitive with new coal, particularly if the cost of emissions is recognised. However, at present, the contention either way is unproven. – Tony Wood


The Conversation FactCheck is accredited by the International Fact-Checking Network.

The Conversation’s FactCheck unit is the first fact-checking team in Australia and one of the first worldwide to be accredited by the International Fact-Checking Network, an alliance of fact-checkers hosted at the Poynter Institute in the US. Read more here.

The ConversationHave you seen a “fact” worth checking? The Conversation’s FactCheck asks academic experts to test claims and see how true they are. We then ask a second academic to review an anonymous copy of the article. You can request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.

Ken Baldwin, Director, Energy Change Institute, Australian National University

This article was originally published on The Conversation. Read the original article.