Reality check for energy: coal-fired generators just not reliable, says Kerry Schott

Anarchy was how Dr Kerry Schott described the state of affairs back in 2018.

The chair of the Energy Security Board was in mourning after the death of the National Energy Guarantee – designed to cut power prices, cut emissions and achieve grid stability.

“I’m still going through the stages of grief, and I haven’t left anger yet,” she said at the time.

There are five stages of grief: denial, anger, bargaining, depression and acceptance. Take your pick as to where we sit in the process in June 2022, but it is a long way from acceptance.

Today Dr Schott says she feels at the “I told you so” stage. Sure there are unforeseen circumstances like Ukraine and flooding in coal mines that supply power stations.

But fundamentally she says the last 10 days is the wake-up call that coal-fired generators are simply not reliable. The investment to ensure they are reliable is uncertain. There is the risk of early closure and in the meantime the high price of coal means that for uncontracted supply, coal fired power stations are losing money.

News on Thursday that BHP would be shortening the life of its Mt Arthur coal mine should not be confused with the domestic energy crisis.

That coal is for export.

However, coal-fired power stations in NSW have their own issues. AGL’s Liddell, closing in April next year, still has to buy some coal on market. Vales Point has its own mine supplying half the coal but still has to buy the rest on market. Origin Energy’s Eraring, due to shut in 2025, is probably buying short-term about a year ahead of what it needs. And EnergyAustralia’s Mt Piper station is serviced by a mine with an end of life around 2025.

Back at the energy market operator this week, AEMO chief Daniel Westerman ditched bargaining for intervention and cancelled the energy spot market.

“They were ordering so many power plants to come on, you can’t just can’t keep picking the phone up to tell them. I think it was as much as anything an organisational difficulty,” says Dr Schott. Suggestions that some of the suppliers were gaming the spot system to avoid losses are hard to prove, she says.

One way or another, says MST Marquee’s energy analyst Mark Samter, retail, commercial and industrial customers will pay for the intervention.

Dr Schott says the immediate crisis will be fixed by coal-fired power coming back on line, some of it within a week. But a smooth transition requires more gas.

The first step is to lean on gas companies to find more uncontracted gas in the system, perhaps parked in pipes or elsewhere. Dr Schott sees sense in giving AEMO the power to have gas stored.

In exchange, the inertia around new gas development has to end. Narrabri looks more promising but the Victorian government’s zero tolerance for new gas is depressing, to use the grief scale.

To get out of this mess, this week activist investor Mike Cannon-Brookes called for a super profits tax on the LNG industry. Unsurprisingly the sector is pushing back. After all, these are the people who make the decisions about investing in new gas development.

On Thursday Energy Quest’s Graeme Bethune asked: where are the super-profits? He looked at the 10-year financial performance of Australian company Santos, heavily involved in LNG over the last decade. The results was a cumulative loss of $US1.347bn. “No matter how well they do this year they are still unlikely to turn this into a cumulative profit. Not much sign of a super-profit here,” he says. A super-profits tax to subsidise domestic energy also subsidises fossil fuels, he points out. “Wasn’t there something about that in COP26?”

Kerry Schott comes back to the need to co-ordinate emissions and reliable capacity. Her advice to government for a capacity mechanism that paid firm energy suppliers to keep power available has not been acted on.

Cannon-Brookes wants no more gas in the grid but more importantly, the communique from the emergency meeting of energy ministers last week only includes renewables and storage in the capacity mechanism. That is because Victorian Minister Lily D’Ambrosio refuses to pay gas suppliers for capacity.

Kerry Schott stresses that both gas and hydro, which can turn on and off with the flick of a switch, are critical players in capacity management of the grid.

“You must have gas until we have hydrogen. It take five years to build a pumped hydro station and the price of green hydrogen is unlikely to be commercial until 2030.”

For folk of green or teal hue, the ‘‘acceptance’’ part of the grief process must be for more gas. Perhaps the grid should give Victoria a month of no help and see how it feels after that.