The rules to solve the power crisis

In a strange twist of fate, Anthony Albanese has inadvertently set the rules to solve the power crisis.

Anthony Albanese, the Shadow Minister for Infrastructure. Picture: Gary Ramage

In a strange twist of fate, the opposition spokesman for infrastructure, Anthony Albanese, has inadvertently set the rules to solve the power crisis racking NSW, Victoria and South Australia.

Writing in The Australian and talking about politicians he said:

“We must secure outcomes in the national interest … this requires a greater focus on real, practical solutions to the problems that concern people in their daily lives.

Albanese listed a series of matters that required “practical solutions” — health, education, infrastructure, job security, housing affordability, and the cost of living. But apart from a reference to ‘cost of living’ he did not mention the crisis that ranks equally if not higher than the ones he mentioned — higher energy costs and the threat of blackouts.

He can’t mention it because ALP politicians created a big chunk of the higher power costs, although in NSW the Coalition politicians were the main culprits.

Albanese begins with an over riding statement: “The starting point for a revival of the political mainstream is an acceptance that, for many voters, the existing order has not delivered for them”.

While Albanese did not classify ballooning power prices and blackout threats as part of the “the existing order”, it certainly is and has delivered unmitigated misery to ordinary Australians. And that misery is set to get a lot worse because the rise in power prices has much further to go if we want energy security.

So both sides of politics need to recognise that “the existing order is not delivering”. NSW and Victorian government politicians still do not recognise the problem being created by the existing order and both major parties are still restricting gas and boosting solar and wind farms knowing (or should know) that means higher energy prices. They need to mix with the people instead of posturing for TV grabs each night. .

But lets stop the blame game and take Albanese’s advice and put greater focus on “real, practical solutions”.

A big part of the energy problem is gas prices. There are two “real, practical solutions” required. The first is to divert gas that was ear marked for Queensland LNG exports to NSW and Victoria. As far as I can tell the federal government has done this. Well-done Josh Frydenberg. The second “real, practical solution” is to allow production of the abundant non-fracked gas available in Gippsland and Narrabri. To date the major parties have preferred their voters to pay higher gas prices. Once voters wake up that they are paying through the nose to win “green seats” there will be a party from the right or the left that creams the votes as we have seen in the UK and US.

The higher gas prices also boost power prices. When you install solar or wind power there is a high capital cost but then the marginal cost of generating the power is almost nil. So politicians say we are reducing power costs but they are not telling the full truth.

The glut of minimal cost energy when wind and solar are producing makes the economics of 24 hour cycle generation from coal or gas much less economic. But wind and solar don’t produce 24 hours every day so the coal or gas base load power stations are essential to secure security of energy supplies, particularly in summer. If you put them out of business (and don’t replace them) then you face blackouts as South Australia discovered and Victoria will discover in the next year or two. The Hazelwood coal fired power station in Victoria saved NSW from blackouts earlier this year. It has now shut. . The NSW government has sensibly used band-aid demand related solutions, which reduces the blackout risk for 2017-18, but the risk will return because the underlying problem has not been addressed. We also need massive investment in the grid to maximise the usage of the new power sources we are developing.

In Victoria, unlike NSW, on hot days the north wind normally blows and Victoria’s energy security is based on that crazy climate punt.

“Real and practical solutions” are not easy but they start with a freeze on new subsidised major wind and solar farms. To provide energy security we now need an investment in either battery, hydro, gas or up dated coal plus a decentralised grid. In other words you are investing in security on a catch up basis. You can have any renewable energy target you like but the current practice of pretending that back up power and grid investment is not required is simply politicians telling blatant lies. And the truth is that security/grid investment on a catch-up basis will boost existing power prices. We have to tell people the truth.

The current game of negotiating a better deal with the retailer helps but its band-aid and does not address the underlying problem. It may even divert funds from the industry making the above investments harder to fund.

We have to tell our people the truth and if voters prioritise a maintenance of current power costs and freedom from blackouts then that may require substantial spending cuts in other areas. Unless battery, gas or hydro costs are slashed energy security will include continuing existing coal fired stations via long term fixed contracts and investing in them to keep them running and lower their carbon emissions.

A major coal generator, AGL reckons it wants to get out of coal and it appears it does not want to keep the Liddell power station in NSW operating after 2022. The “real, practical solution” to that is to take the power station off them and bill them for the restoration costs. Others will make the investment but only if there is a take or pay power contract. If AGL wants to avoid such a solution then they must offer a different lower cost alternative to energy security. Advertisements from advertising agencies are a dangerous game for shareholders.

I am not suggesting my solutions are comprehensive or the only ones. Others will have a different agenda. But we have got to start to by putting all the facts in the table. Nether major political party has done that but it is coming because in the words of Albanese “for many voters, the existing order has not delivered for them”.