Two approaches to energy — which will the nation choose?

The doyen of ALP energy policy, Martin Ferguson, has called for a gas-driven power station in the Latrobe Valley in a direct policy confrontation with current Energy Minister Chris Bowen.

Ferguson, a former President of the ACTU, was Federal Minister for Energy and Minerals from December 2007 until May 2013.

The Ferguson declaration was actually made three weeks ago in a Latrobe Valley local newspaper, but the power of the declaration will reverberate around the nation given the respect Ferguson has among ALP stalwarts, many of whom realise Sydney needs gas power as much as Melbourne.

When Ferguson made the declaration, he would not have known three weeks later shadow Minister for Energy Ted O’Brien would announce a Coalition policy which would aim to change the economics of erecting gas-fired power stations in Australia.

And, following my commentary revealing there is a gas crisis looming for Victoria (and a danger for Sydney), greater clarity is emerging on where the gas will come from to relieve a looming crisis.

And if these gas production developments do not work out as planned, Ferguson has a back-up plan.

Energy Minister Chris Bowen during Question Time. Picture: Martin Ollman

O’Brien has announced if the Coalition wins government, gas power plants will be included in the Capacity Investment Scheme. To understand how this simple announcement changes the economics of gas-driven power stations, I need to explain how the scheme works and how it would apply to gas power.

Around Australia, a large number of heavy power users, led by aluminium producers, contract with the regulators to substantially cut their power usage in times of crisis. They are paid large sums to undertake what otherwise would be an uneconomic action. It becomes an important source of revenue for many larger power users.

In a power generating community where wind and solar play a large part, gas power is a vital back-up for the times when these sources of power do not generate. But, it is uneconomic to build a power station simply to be switched on at night and when there is no wind.

Once gas power is included in the Capacity Investment Scheme, the economies of constructing a gas power station are transformed because there is a contracted regular income.

In addressing the Australian Pipelines & Gas Association Convention, O’Brien explained how his strategy differs from Bowen’s, which “puts all eggs in one basket for our energy future … one which is simply defined as a renewables-only approach”.

“No other nation on the planet has embarked on a path to decarbonise which is as radically ideological as that which this Labor Government is pursuing,” O’Brien added.

When it comes to sourcing gas, the most obvious is the vast deep underground gas deposits in Gippsland measured by Exxon and assessed by top US gas evaluators. But, further drilling is required and this cannot take place until Lily D’Ambrosio is removed as Victorian Energy Minister by the ALP government or if the state Coalition wins the next Victorian election in 2026.

It’s unlikely the present Victorian Premier would remove her friend Lily D’Ambrosio from the post. So, the nation must now go full steam ahead on the vast Beetaloo deposits in the Northern Territory.

Research by the Frontier group shows, compared to gas importing facilities operated year around, Beetaloo gas for industrial use would be substantially less expensive in both NSW and Victoria compared to using importing facilities in Port Kembla and Geelong.

While a 900km pipeline to join Beetaloo gas to the national grid is expensive, the costs can be amortised over 50 years or more. Meanwhile, extra drilling in Queensland and South Australia can fill some of the timing gap.

There is also drilling required in Gippsland outside the major project reservoir.

Ted O'Brien. Picture: Martin Ollman

The Beetaloo reserves are immense and cannot only meet the demands of NSW and Victoria but can also export via Darwin.

Ferguson says if there is a problem sourcing gas for a Latrobe Valley power station, it would be possible to efficiently use brown coal to produce the gas.

Victoria’s oil and gas caverns in the Bass Strait can store carbon, and Ferguson says considerable work has already been done on the feasibility of this process.

Accordingly, the Ferguson declaration on a power station in the Latrobe Valley is backed by the opportunity to have a very low-emissions operation.

O’Brien believes gas power is an important step in making the nation’s renewables investment economic and providing security to the market.

In the O’Brien plan, the next step is nuclear power as a base load to replace coal, including a station in the Latrobe Valley which would then be restored as a major Australian industrial complex.

Most estimates show nuclear power is substantially cheaper than the offshore wind schemes being proposed for Bass Strait and the Hunter Region of NSW after the initial construction investment.

Investment in offshore wind has a limited life whereas nuclear power stations last for 60 years and beyond, so the wind power costs are amortised over a much shorter period — hence the cost disadvantage.

The next election campaign is arguably the most important in the nation’s recent history because the two parties have totally different views on our energy feature. Bowen and O’Brien will be the leaders of their party’s energy policies, and the nation will need to choose which way to go.

The ALP is under threat from the Greens and will have limited room to move in the debate.