Monday 19 June 2017

Why you're about to pay through the nose for power

Analysis
Updated about an hour ago

It was a rare moment of triumph for a prime minister frustrated in his dealings with a difficult Senate.
Just on three years ago, a jubilant Tony Abbott — having just secured agreement to vanquish the carbon tax, the handbrake on the Australian economy — appeared on national television.
Australian households would be $550 a year better off with the removal of the "toxic" carbon tax, he declared. Gas prices would fall 7 per cent.

Electricity prices would drop 9 per cent. Everyone would be a winner, he told 7.30's Leigh Sales.
"Because the price of power is a component of just about every price in the economy. When the price of power falls, other prices should go down as well," he said.
Yep, it should. Except when it doesn't.
Ever since the carbon tax was removed, power prices have only headed one way; upwards. This, at a time when oil prices have halved and coal slumped.
And then last week, Australians were greeted with alarming headlines like this in The Australian: POWER PRICE HIKE SHOCK SPREADS.
Or this one in the Australian Financial Review: ENERGY PRICES GOING UP: HOW HOUSEHOLDS IN SOME STATES WILL SUFFER.
After doubling over the past five years, electricity prices will rise another 20 per cent this year.
Gas, now a key component in the electricity debacle, has become a controversy in its own right with domestic shortages and prices trebling in recent years.

How did it all go so horribly wrong? The short answer is that removing the carbon price and the winding back of the Renewable Energy Target was a disaster.
Rather than reducing energy costs, it instead brought our electricity generation industry closer to crisis point.
It was the final straw for an industry exasperated by more than a decade of political infighting and policy backflips.
As expected, investment in renewable energy plummeted. What wasn't expected was that the power industry began to make good on its plans to mothball its antiquated coal-fired generators.
The result? A supply shortage. For anyone with even a vague understanding of microeconomics that means just one thing; price hikes.
The Hazelwood power station closure in March — which is expected to cause blackouts across the eastern states this summer — may have brought the looming crisis to a head.
What's less understood is that within the next two decades, 68 per cent of our coal-fired generators will be more than half a century old and ready to be retired. There are no plans to replace any of them, at least not with coal.
If the situation is dire now, it will only get worse. No bank is willing to finance a new coal fired power station and no amount of argument in the Parliament will alter that.

Finkel's key findings

A little over a week ago, chief scientist Alan Finkel delivered his report into how to solve the 15 year impasse into how we should meet our emission reduction targets with minimal disruption to our power supply.
His key finding was that we should have a Clean Energy Target to reduce carbon emissions. That was expected. What wasn't anticipated was that his report also rammed home the point that whatever action we take to reduce emissions, we must ensure that we maintain a reliable network.
Critically, he recommended that new renewable energy projects must have an inbuilt back up system.

In addition to the solar or wind farm, new projects must include energy storage through either battery or hydro or some other means of back-up such as gas.
That increases the cost of renewables and ensures coal and fossil fuels will continue to play a role in electricity generation for at least the next decade and probably longer.
In fact, under Finkel's recommendations, coal will continue to supply around 53 per cent of our electricity generation in 2030, only marginally lower than the 57 per cent if we did nothing. Right now, coal accounts for 76 per cent of our electricity generation.

Canberra's climate war redux

Business leaders last week pleaded for bipartisan political support for report's findings.

About $900 billion in new investment is required for the National Electricity Market during the next 30 years and, without it, our economy will be crippled.
But like the re-run of a bad movie, the partisan breakdown over energy policy again erupted, not between the major parties, but within the ranks of the Federal Government.
It's pretty clear few of the dissenting voices have actually read Alan Finkel's report and instead continue to wage a war that, at its heart, is a dismissal of science and scientific research.
Not even the rapid rollout of announcements from the likes of AGL, Energy Australia and Origin — that three quarters of the nation's households and businesses would face power price hikes of to 20 per cent or more this year — appeared to sway them.
Coal should have a future, they argued.
They may be stunned to realise it, but Alan Finkel agrees. According to his report, adopting the Clean Energy Target will see coal supplying 17 per cent of our electricity in 2050.
If his Clean Energy Target is not adopted and we do nothing, coal will supply 16 per cent, slightly less, through a lack of investment and planning.
Ironically, an Emissions Intensity Scheme — torpedoed by furious government backbenchers even before Finkel got under way — would have been the kindest scheme for coal, according to the report, supplying 22 per cent of our electricity in 2050.

Don't do as I do

While the toxic politics surrounding energy policy and climate change show no sign of abating, it appears market forces have overtaken them.
The cost of solar panels has plummeted in recent years — from $US76.64/watt in 1977 to just 74c in 2013. It will be a similar story for battery storage systems as mass production gets underway.
According to the Finkel report, wind and solar are the cheapest sources of electricity.
Even with the financial burden of attaching a back-up system to ensure reliability of supply, wind still come out on top. That's closely followed by brown coal, black coal and then solar. The worst performer is gas.

It's by far the most expensive option, a cruel irony given we are set to become the world's biggest gas exporter in four years and a sad indictment on the short-sighted nature of Australian policy makers.
Still, it's best not to listen to the noise emanating from the national capital over climate, carbon emissions and coal. Far more enlightening is to look at the individual actions of those running the country.
It's no secret Prime Minister Malcolm Turnbull is an avid fan of renewables.
He lost the leadership to Mr Abbott when in opposition following an internal backlash over his plans to support an Emissions Trading Scheme. He also boasts one of the largest home solar generating and storage systems in the country.
What a surprise, however, to learn that ex-Liberal and noted anti-science activist Cory Bernardi has just plonked a bunch of solar panels on the roof of his Adelaide home.
He was quick to reassure followers, however, once the news leaked out, that he was still a non-believer.
"Don't fret, I haven't drunk the renewable energy Kool-Aid," he told the Australian Financial Review.
"I'll leave that idiocy to the Labor, Liberal and Xenophon crew."
Apparently, he just wants to ensure he has a reliable source of electricity.

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