Nuclear to rise on the rubble of flawed policy

Energy ministers, and the uncountable legions of advisers, agencies and advocates responsible for the grid under construction, are inflicting the greatest act of self-harm in our nation’s history.

Labor’s plan uses flawed modelling that shuns a proven energy source. Collage: Emilia Tortorella.

It’s odds-on the Albanese government will deliver billions more in electricity subsidies some time after the Reserve Bank board meets next February.

Because, if not for the Ponzi scheme of state and federal governments laundering taxpayer dollars back through power bills, electricity prices would be 66 per cent higher.

In the parallel universe of politics the arsonists expect praise when they return with a fire extinguisher. In this world Labor and a long parade of Luddites also furiously attack a remote nuclear future in the hope people won’t focus on the disastrous energy present.

The here and now is where the focus should be sharp because the system under construction will be ruinously expensive and unreliable. The case for nuclear inevitably will rise on the rubble of bad policy, but not before enormous damage is done.

Economist Chris Richardson has calculated the difference between the subsidised and real cost of power from figures hiding in plain sight in the latest Australian Bureau of Statistics consumer price index.

Economist Chris Richardson. Picture: AAP

Richardson wrote on X that the politics of surging electricity prices were dire, so the federal government would almost certainly return to the taxpayer till to mask the bill shock. “But that’s another $3.5bn into the economy for the RBA to juggle,” he wrote. “So they may well keep the RBA guessing … because that’s what makes sense in a game of chicken.”

Flagging that it intends to pour more cash into the economy before the Reserve Bank board meets would imperil the chance of a pre-election interest rate cut the government so desperately covets. So expect it to delay and deny until the bank rules on the cash rate.

Given that Treasury secretary Steven Kennedy sits on the RBA board, one wonders if its other members will quiz him on the government’s intentions come February 17 or if he will volunteer the information. As David Pearl has written in these pages, a man serving two masters leaves you wondering where his loyalties lie. But there is no need to wonder whether the government’s plans for a weather-dependent grid will deliver cheap power.

Treasury secretary Steven Kennedy. Picture: NewsWire/Martin Ollman

It is a lie, and the truth is written in your electricity bill. Another round of energy subsidies would be an admission of abject policy failure from a government that was elected on the promise of cutting power costs. Labor’s pre-election pledge was based on modelling by Melbourne-based firm RepuTex, which forecast wholesale and retail electricity prices would be driven down by “access to an abundant supply of low-cost renewable electricity”.

The company went so far as to put a number on it, which Labor repeated ad nauseam. “It will see electricity prices fall from the current level by $275 for households by 2025, at the end of our first term,” Anthony Albanese said when he released the modelling in December 2021.

Labor has never walked away from this pledge, no matter how far it vanishes down the sinkhole of reality. The government position seems to be that wishing will make it so, or that economic models trump real-world experience.

The RepuTex analysis is wrong because it treats wind and solar energy gatherers as equivalent to coal, gas and nuclear generators. To borrow from philosophy, lumping gatherers in the same basket as generators is a category error, like asking “what colour is the number five?”.

The CSIRO’s GenCost report does include some of the additional costs of integrating weather-dependent generation on to the grid. But it doesn’t include them all and makes fundamental errors in writing off future expenditures as sunk costs, underestimating the price of backing up the system and using costs that seem extreme outliers.

And it can’t claim to be an analysis of the best energy policy for the country because changing the electricity grid changes everything. The grid is the system that runs all systems. Choosing the best mix of generators for it isn’t the same as comparing over-the-counter prices for microwave ovens.

Energy is not part of the economy, it is the economy. System-wide changes need to be analysed at this level. This point has been underlined by economist Alex Coram. In a recent post on X he wrote: “The problem is that the energy debate in Australia is carried out in accounting costs pretending to be economic costs and none of it is serious.” Coram tells this column: “I think the lack of a proper economic analysis of what amounts to the transformation of our entire economy is the big story in all this.”

He says to deal with the “energy is the economy” problem a serious analysis should begin by identifying the mix of goals Australia wants to achieve, then consider the full costs of all feasible technological options and trajectories to get there. Then develop a transition plan that maximises the mix.

A proper inquiry would need to go beyond using the usual tools of supply-and-demand side economics. This demands some innovative analysis and mathematics “that are not likely to be well handled with the sort of DIY approaches we have used so far”, Coram says.

And electricity is a market like no other. Here, keeping supply in perfect harmony with demand is essential in maintaining the system’s frequency and keeping the lights on. The random supply of wind and solar disrupts both the economics and the physics of an electricity market. On-and-off energy toggles the marginal cost of producing another unit of power between zero and infinity, as wind and solar dump their surplus or deficit costs on the entire system.

This is difficult to deal with in a theory of supply that holds that suppliers respond to demand; price rises are a signal to produce more goods. Or, in an electricity system with predictable generators, more power.

“If you think about it, it is pretty frightening that we are prepared to bet our economic future on what is nothing more than some DIY accounting by an organisation with no serious capacity in economic theory and analysis,” Coram says.

Australia is conducting a proof of concept experiment on our civilisation’s life support system.

And the evidence from South Australia and countries running grid-scale experiments with weather-dependent generation puts accounting orthodoxy to the sword.

In the real world, when wind and solar rise to become a dominant power source, electricity is expensive and grids unreliable.

Germany’s capricious grid is proving to be the most reliable predictor of Australia’s energy future. That nation’s energy transition has cost it $1 trillion since 2000, as it began closing coal-fired and nuclear generation and replacing it with wind and solar energy harvesting.

Its wind and solar droughts are now so routine they have a name: dunkelflaute, or the dark doldrums. Germany is lucky because it can import power from other parts of Europe through its web of interconnections. And its neighbours are unlucky because Germany’s random generators are exporting inflation.

The Financial Times reported this week that a lack of wind in Germany and the North Sea pushed up electricity prices in southern Norway to their highest point since 2009 and almost 20 times their level of just a week earlier.

Norway’s Energy Minister Terje Aasland was blunt: “It’s an absolutely shit situation.”

The ruling centre-left Labour party now says it will campaign in September’s parliamentary election to turn off electricity interconnectors to Denmark when they come up for renewal in 2026.

Sweden’s Energy Minister Ebba Busch also attacked Germany for shutting its nuclear power plants.

Sweden’s Energy Minister Ebba Busch. Picture: AFP

“I’m furious with the Germans,” Busch told Swedish broadcaster SVT.

“They have made a decision for their country, which they have the right to make. But it has had very serious consequences.”

Busch said when German wind production was low, Swedish electricity was exported to fill the gap, reducing supply to Swedish consumers and driving up prices.

Sweden’s Prime Minister, Ulf Kristersson, also took aim at his own country’s energy choices.

“I realise that nobody is happy when I say that if we hadn’t shut down half of nuclear power we wouldn’t have these problems. But it’s true and it needs to be said,” Kristersson complained, referring to the previous Social Democrat-Greens coalition closing several nuclear reactors as part of a policy shift towards greater reliance on wind and solar.

Swedish Prime Minister Ulf Kristersson. Picture: AFP

The green dream sold to Germans was the same as that sold everywhere, that wind and solar would deliver cheap, abundant, reliable power. In 2015 The New York Times columnist Thomas L. Friedman bore witness to the promise of Germany’s energy transition.

“Here’s my prediction,” Friedman wrote. “Germany will be Europe’s first green, solar-powered superpower.”

This prediction has not aged well. Nearly a decade on, Germany is depowering and deindustrialising, its businesses and people crushed by the highest power prices in Europe.

The most reliable source of electricity in the EU comes from the country that generates 64 per cent of its energy from nuclear power. Reuters reports France is by far the largest electricity exporter in Europe, “accounting for roughly 60 per cent of net electricity exports so far in 2024”.

“Record French electricity exports this year have provided neighbours with critical supplies of cheap and clean power while the region remains hobbled by high energy costs, weak economic growth and political disarray,” the news agency reports.

But now France also is in political disarray and it seems nothing can save Europe from itself.

The International Energy Agency reports: “Electricity prices for energy-intensive industries in the European Union in 2023 were almost double those in the United States and China. As a result, the competitiveness of EU energy-intensive industries is expected to remain under pressure.”

Given Europe, and especially Germany, is not the energy example to follow, a sensible government might ask: What are the US and China getting right?

Here it is best, as ever, to look at what those countries are doing rather than listen to what they are saying, because both talk a great green game while burning lots of fossil fuel.

We have all heard China’s sales pitch, that it installed more wind and solar than the rest of the world combined in 2023. In the US the Biden administration’s Inflation Reduction Act is touted as “the largest investment in clean energy and climate action ever”. There is truth in both these claims but, to see how they actually run their economies, you need to lift the hood and have a closer look.

China did install a record amount of weather-dependent generation in 2023, at the same time as it was permitting the construction of two coal-fired power stations a week. Sixty per cent of China’s electricity comes from coal and it produces 35 per cent of the world’s carbon emissions.

While the nameplate capacity of wind and solar is an impressive 36 per cent of total generation, those sources delivered 13 per cent of the country’s electricity in 2023. This is always the case with weather-dependent generation – the headline and the story don’t match. In contrast, nuclear power is under 2 per cent of installed capacity but produces 4.7 per cent of the nation’s electricity.

China has 55 nuclear reactors, with 26 under construction, and is aiming to hit 150 of the units by 2035. This will lift the power they provide to the grid from under 5 per cent to 10 per cent. So, Beijing believes nuclear energy is compatible with building wind and solar. In fact, it’s essential to make the grid work while cutting carbon emissions.

Thanks to the shale revolution the US has risen to become the world’s largest producer of oil and natural gas, surpassing Saudi Arabia in oil production and Qatar in natural gas production. Abundant cheap gas has displaced coal in electricity generation and is the major driver of the US reduction in carbon emissions.

The US has 93 commercial nuclear reactors at 54 nuclear power plants across 28 states. The Biden administration’s green plan includes the pledge to triple nuclear power generation capacity by 2050. This goal has rare bipartisan support.

The artificial intelligence revolution will drive demand for staggering amounts of electricity, which is why Microsoft has signed a deal to secure the power from a reopened Three Mile Island nuclear generating station. In October, 15 of the world’s biggest banks signed a joint declaration to increase support for nuclear power construction and 31 countries have now agreed to triple global nuclear energy capacity by 2050. All this is before Donald Trump returns to the White House, elected on a pledge to “drill, baby, drill” for oil and gas and to walk away from America’s international climate commitments.

So, in both China and the US, the cheap fuel that actually powers their economies comes from coal and gas. Both understand the limits of wind and solar. Both have decided there is no road to net zero and stable grids that does not run through nuclear power.

Australia has abundant coal and gas resources and one-third of the world’s uranium. Our energy ministers have condemned all three power sources because they are way smarter than the Yanks and the Chinese and it’s sunny here.

These ministers, and the uncountable legions of advisers, agencies and advocates responsible for the grid under construction, are inflicting the greatest act of self-harm in our nation’s history. They have set us on a pathway to poverty. When the sun sets on this idiocy we will, too late, have to use nuclear energy or continue to burn coal and gas.

Chris Uhlmann’s documentary The Real Cost of Net Zero can be viewed on Sky News and YouTube.