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Oct 18, 2017

How to extricate yourself from an energy policy jam

There are a few tricks to Malcolm Turnbull's new energy policy. Here's how he did it.

Yesterday the Prime Minister unveiled an energy policy that earned praise — in, variously, guarded, or more enthusiastic terms — from industry and the press gallery. After months of chaos, division and policy retreat, how did he do it? Here’s a guide:

Vagueness is your friend

While some selected sections of the press gallery were given a briefing on the policy, the rest of us had to make do with a media release less than 500 words long. That’s because most of the important detail around the emissions guarantee and the reliability guarantee don’t yet exist. We only know the framework and broad approach, not the specific detail about how any of this will work, which is still to come. But, it seems, Turnbull decided he couldn’t provide yet another week of policy vacuum for Tony Abbott to play in, so he went ahead before the full detail was ready.

Offer some half-baked savings numbers

Conscious that the first question about any energy policy would be how much it would save households, the lack of detail was always going to be a problem. Solution: drop some “up to” numbers to the newspapers overnight and hope they stick in people’s minds even after they’re revealed to be wildly generous. The government claimed savings of “up to” $115 a year would be achieved (although this was only around $20 a year more than savings under a CET). Except, that “up to” figure would only be achieved some years after 2020, when the policy was introduced. So $115 was an “up to, up to” figure. By the afternoon, the savings were being mocked. Sam Maiden on Sky reported that it was possible the savings would only be around $25 a year, leading to claims they amounted to 50 cents a week. Malcolm Farr noted that the savings in fact were savings off a status quo scenario of rising prices. No one could produce any modelling to explain the savings. Never mind.

Use “independent experts” as human shields

Like Kevin Rudd clinging to Ken Henry during the financial crisis, Turnbull and Frydenberg yesterday were at pains to insist that their policy was based on the advice of “independent experts” of the Energy Security Board, who dutifully flanked the Prime Minister and his minister at yesterday’s media conference (none of them are exactly strong media talent, so the worth of that decision is debatable). The point was to suggest that the government’s position had been reached not out of fear of Tony Abbott, or out of seething hatred of renewable energy, but because the experts had said so.

Who are the Energy Security Board? Well, the big hint is in the name — they’re not the Reducing Energy Emissions Board, or the Ensuring We Can Meet Our Paris Agreement Commitments board. And the board, which is made up of the head of the Australian Energy Market Commission, the Australian Energy Regulator and Australian Energy Market Operator, plus an independent chair, has only existed for two months. Funny how they seem to have devised an entirely new solution for the government’s energy dilemma so quickly…

Dramatically cut back renewables

Under the government’s plan, renewables may make up just 28% of power generation in 2030, and 36% under the most optimistic scenario. Under the Clean Energy Target as proposed by the Chief Scientist Alan Finkel, renewables would have been around 42%. In fact, even under the chaotic “business as usual” scenario modelling by Finkel, renewables would have made up nearly 40% of generation capacity. Indeed, there may be no additional renewable energy capacity built beyond what is driven by the existing Renewable Energy Target, which will cease in 2020. This is basically a policy that plans for renewables investment to grind to a halt.

Scale back on electricity’s contribution to meeting our emissions abatement targets

Despite electricity being our most emissions intensive industry sector with the easiest, lowest-cost path to significant emissions reductions, the plan significantly scales back the contribution the industry will make to meeting the Abbott government’s decidedly unambitious 26-28% by 2030 emissions reduction target. The government has no plan for how other sectors will make the necessary greater, more expensive contribution required. But understand that there are no costless paths to meeting our emissions abatement goals, and if we don’t do it in electricity, will pay more doing it somewhere else. The government just hopes you don’t notice it.

Engage in some definitional slipperiness

The reliability guarantee “will be set to deliver the right level of dispatchable energy (from ready-to-use sources such as coal, gas, pumped hydro and batteries) needed in each state.” Only, as John Quiggin pointed out, coal is not dispatchable. Coal is base load, which is very different. Coal-fired power can be turned on and off — but only over a period of many hours or days. By defining coal as dispatchable, however, the government is effectively providing regulatory protection for coal-fired power.

Allow international permit trading

Once derided as ”money that shouldn’t be going offshore into dodgy carbon farms in Equatorial Guinea and Kazakhstan” by Tony Abbott, international permits will be allowed so that the energy retailers who will be the subject of the reliability and emission guarantees can meet their emissions guarantee without actually sourcing any renewable energy locally — a key reason why local renewable energy investment is likely to grind to a halt

Abandon economic efficiency as a goal on climate

The point of a carbon pricing scheme was never that it was the only way to reduce emissions — it’s just that it was well established that pricing mechanisms deliver the greatest efficiency and lowest-cost outcomes out of any of the range of possible schemes — taxes, renewable energy targets, renewables investment, soil magic, straight regulation. But the government has decided straight regulation is the best way to reduce emissions in the electricity sector, while insisting that it’s really a lot like a trading scheme because it will be up to the big retailers to source dispatchable power and lower emissions power.

And it will be regulation that delivers more market power to AGL, Energy Australia and Origin Energy. How’s that? Aren’t they the targets of the regulation? Yes, but that’s good for them, because it creates even higher barriers to entry for any market entrant in electricity retailing, who will also have to comply with the regulations the government is imposing on retailers. A few days after the ACCC explained how the main cause of soaring electricity prices is the market power of the big three retailers, the government has flagged increasing their market power, in exchange for getting it out of its energy dilemma.

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51 thoughts on “How to extricate yourself from an energy policy jam

  1. Wayne Cusick

    Commentators were saying last night that the policy will give investors the certainty they need.

    But I still can’t see anybody investing in a coal fired power station, since the next government is likely to be Labor and they are likely to introduce an EIS.

    Maybe some investment in gas fired power stations would occur, but the price of gas is too high for that to be viable at the moment.

    And the reliance on coal and gas to provide the “security” will surely keep prices high, not reduce them.

    If investment in renewables is reduced or comes to a halt, investment in generation capacity will have also be reduced. And as the coal fired stations close as they get to their use-by date, generation capacity will fall further behind demand. And prices will rise.

    The policy does nothing to rectify the broken system that is the AEM. Nor control the costs of the monopoly distribution networks.

    PS: In one report I saw it suggested that this policy may have enabled Liddel’s life to be extended. I can’t see how – from all reports it is limping towards retirement with many issues.

  2. Wayne Robinson

    There’s no chance that it will help reaching Australia’s commitment to reducing CO2 emissions by 26-28% by 2030 from 2005 levels.

    According to the government’s 2016 review of projections of Australia’s emissions, for the commitment to be reached emissions in 2030 would have to be around 440-430 Mt. The projections for 2030 were 592 Mt, with electricity comprising 186 Mt and transport 111 Mt.

    Somehow, at least a reduction of at least 150 Mt would have to be found somewhere. It’s not going to be found in electricity. Converting all transport to electric vehicles won’t do it either, unless renewables are enormously increased and dedicated to recharging vehicle batteries.

    One thing though – the 224 Mt Josh Frydenberg claims Australia is exceeding on its 5% target for 2020 will rapidly disappear after 2020. I reckon Australia will be over the 2030 target by at least 750 Mt.

  3. Dog's Breakfast

    Back long ago, in a land far far away, there used to be a time when governments were expected to put out serious policy, and sometimes they really did.

    Back in those bygone days, this press release/policy would have been laughed at by the msm, they would barely have been able to ask a question for all the guffawing.

    It’s a good take down Bernard. There are so many holes in this it would barely make a net.

    Just on the dispatchable issue, really gas isn’t dispatchable either. Immediately dispatchable power is either hydro or batteries, unless someone can come up with an answer that isn’t nuclear (same deal). I understand that gas wouldn’t take quite as long to come on board as coal, but still not ‘dispatchable’. Something to do with water not immediately coming to the boil to drive turbines.

    Happy for any learned colleagues to edumacate me on that one, If I’m wrong.

    1. Wayne Cusick

      Open Cycle Gas Turbines are much quicker to respond than steam plant systems, but less efficient than Combined Cycle Gas Turbines.

      OCGT can operate at around 35-45% efficiency, similar to a gas or coal fired steam power plant.
      CCGT can operate at around 50-60% efficiency, which means more MW/MWh for your gas and less CO2/MWh. But I am unsure as to how quickly they can fire up compared to OCGT.

      Solar thermal can be made as dispatchable power too, storing the heat in a container for as much as a few days.

    2. Wayne Cusick

      Oh, and Diesel generators can supply power on demand.

      Natural gas or biogas can be used in reciprocating type generators too.

  4. rhwombat

    Out of the frying pan, into the fire. Wonder what Brian Trumble will use as next week’s distraction.

  5. brian crooks

    Turdy you`re gone, waving your tiny little girly hands around and spitting all over your front bench does`nt engender public trust, 9 polls to go tick tock, its time, round 21 and abbott has won every one, turdy is out on his feet and only standing by clinging desperately to abbott, doubtfull if he can make it round 30, they`ll probably stop the fight and declare tones the winner by a knockout soon.

  6. Arky

    This is the kind of frank policy analysis that this country needs more of and has inspired me to finally subscribe. Having to read in other media sources refer unironically and uncritically to the “independent” Energy Security Board and swallow the government’s “up to” numbers as gospel was just mindboggling. Good work Bernard.

  7. Lizzie

    Once again this government’s policy on energy and environmental issues appears to be a dismal solution. They are treating the public like idiots by promising a saving of $150 per year – remember Abbott’s $500 per year savings. Turnbull and his cronies will lie and deceive in a bid to keep their jobs. They have no integrity whatsoever and I only hope that many more people can see them for what they are charlatans.

    1. Marilyn J Shepherd

      Actually that was maybe $115 a yr by 2030 as if we want to sell out the environment for less than $2 per week. The environment and climate change was not mentioned once and that is supposed to be the goal.

  8. Graeski

    I have only one question: how do we drive this scum from office?

    1. AR

      …easy, vote but that just means the other scum, equally beholden to big coal via its membership donors, will carry on carrying on.
      Same old, same old – whoever you vote for, government wins.

  9. Mil Zall

    The problem is that the economic and social cost to the country of blackouts is not reflected by the electricity market. State governments and the community pick up the cost of the outages but the generators bear little cost.
    In the old days governments operated the generation, transmission and distribution and funded spinning reserve and managed redundancy in generation and the grid.

  10. Bill Hilliger

    Malcolm Trumble, vibble, vobble, wibble, wobble, girly man obfuscates, ducking and weaving, and nobody is believing.

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