Will the Coalition’s nuclear power policy reduce or increase the price of electricity for east coast Australians?
Earlier this month, consulting firm Frontier Economics estimated that it could result in “substantial cost savings”. Peter Dutton and Angus Taylor have claimed these could be as high as 44 per cent compared to what the government is proposing.
Not surprisingly, Energy Minister Chris Bowen and Treasurer Jim Chalmers have rubbished this suggestion and the modelling it is based on.
Writing in The Australian last Friday, Bowen accused the opposition of basing its case on “slippery” assumptions and “conscious mistruths”, insisting that nuclear power is the “most expensive” form of energy.
So who is right?
In my view, Bowen and Chalmers have – at least so far – failed to land a glove on Frontier Economics’ work. That said, the latter gives me no confidence that, under the Coalition’s plan, future electricity prices will be lower than they are today.
Let’s start with Frontier Economics’ results. Its starting point is AEMO’s Integrated System Plan, which models the system-wide (generation, storage and transmission) cost of the government’s largely renewables-dependent strategy to meet future electricity demand. Using largely the same assumptions as AEMO – including for future electricity demand – it estimates this amounts to $594bn between 2025 and 2051. Yes that’s right, over half a trillion dollars. This has not been rebutted by the government.
It finds that once the Coalition’s nuclear plans are factored in – with 13,000 megawatts of nuclear generation gradually coming on line from 2036 – this figure can be lowered by $150bn (25 per cent). A key reason for this is that nuclear power stations can operate at a higher capacity (90 per cent) than the renewables facilities they take the place of (30 per cent given the vagaries of the wind and sun).
This means that with nuclear, fewer additional facilities are needed to meet any given future electricity demand, reducing system costs. Fewer new power lines are needed as well.
(A further source of cost saving is Frontier Economics’ assumption that our existing coal plants will have slightly longer lives than AEMO does, which is what their operators have in fact announced.)
Frontier Economics also models a different scenario based on a more conservative outlook for future electricity demand than the one AEMO – and the government – favours. One where the future take-up of electric cars, for example, is lower. But this still results in a 25 per cent cost saving from the adoption of the Coalition’s policy. Bowen and Chalmers have huffed and puffed about the “fatal flaws” in this modelling, but on closer inspection their arguments have fallen flat.
For me, the key giveaway has been their focus on Frontier Economics’ alternative demand scenario, which both have claimed is the “biggest” flaw in its modelling. It is no such thing.
As we have seen, this makes no difference to its key finding. Yes, 25 per cent is a lot less than the 44 per cent saving Dutton and Taylor have claimed (by combining the maximum cost of one scenario and the minimum one of the other), but it is still substantial. In his op-ed, Bowen also assails Dutton for attacking “the fiercely independent and impartial staff” at the CSIRO, who have consistently found that nuclear energy “is the most expensive of all available options”.
This is a red herring, as Bowen must surely know. In its report, Frontier Economics assumes that nuclear power costs $10,000/kilowatt of capacity, which is higher – not lower – than what the CSIRO assumed in its 2023-24 GenCost report. In any case, the question at hand is the entire system cost of the government’s and opposition’s plans – that’s what Frontier Economics models.
Finally, Bowen objects to Frontier Economics’ assumption that nuclear facilities will operate at 90 per cent capacity, arguing that this will force some renewable energy (mainly solar) out of the power system. But as we have seen, Frontier Economics argues that that is precisely why – under the nuclear scenarios it examines – future costs in the system could be lower.
So why am I sceptical about the Coalition’s plans for the grid lowering future electricity prices?
Let’s put to one side the truism that forecasting future energy costs several decades away can be no more than a wild guess. Particularly for nuclear power.
The crucial point is this.
As Frontier Economics admits, under the opposition’s blueprint, “renewables continue to dominate the provision of electricity to consumers”, with wind and solar accounting for between 50 and 60 per cent of electricity generated in 2051 and nuclear between 38 and 29 per cent (depending on the demand scenario chosen).
Given that wind and solar currently account for 32 per cent of electricity output, their system-wide share will rise significantly under the Coalition’s plan. This is a recipe for still higher power prices. It means that subsidies for renewables must continue to rise, new transmission networks built, and expensive system back-ups must be put in place for the inevitable renewable droughts and gluts.
Make no mistake, this amounts to an escalating negative supply shock to the economy, lowering living standards and growth rates. We are already experiencing this.
As their policies currently stand, both Labor and the Coalition want this to be our energy future, with the latter’s nuclear twist making only a marginal difference. Both parties’ adherence to net zero means they must ditch low-cost coal, which currently provides 60 per cent of our power.
But this need not be our fate.
As I have argued in these pages before, Donald Trump’s election has effectively killed off the Paris climate agreement and net-zero agenda. As John Maynard Keynes would say, “the facts have changed”. Regardless of your view on climate change, it therefore makes no economic or environmental sense for Australia and other small economies to cling to net zero: it’s a pointless act of economic self-harm.
As Bjorn Lomborg has pointed out, there are better – less anti-growth – ways to deal with climate change. Our “road to Damascus” moment may still be some way off, but I dare say we are closer to it than our political elites realise.
David Pearl is a former Treasury assistant secretary.
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