Enough of NEG, let’s just support new dispatchable power

The Loy Yang power station in the La Trobe Valley. Picture: AAP.

There is no doubt Malcolm Turnbull and Energy Minister Josh Frydenberg feel extremely panicked about the fate of the national ­energy guarantee.

We’re not talking here about Labor’s position or the Greens’ position or even the position of the Senate crossbenchers. They are principally worried about their own partyroom and the Nationals.

For all the brave talk about the partyroom being solidly behind the NEG, the multiple phone calls to wavering members of the parliamentary Liberal Party tell us a different story.

Just do the numbers: it takes a very small number of Coalition lower house members either to cross the floor or abstain to sink the whole deal. If Bill Shorten senses there is a possibility the Prime Minister could be defeated on the floor of the house, Labor will vote against the NEG legislation. And why wouldn’t Labor do this? After all, it can work up its own changes to the National Energy Market if it wins government. There is no rush because the main changes do not commence until 2020.

For a desperate Turnbull, this is where ACCC recommendation four — contained in the Australian Competition & Consumer Commission’s report into retail electricity pricing — comes in.

The reason for Turnbull declaring the government would implement the recommendation is to shore up partyroom support for the NEG, as well as appease sceptical Nats.

This recommendation involves the Australian government operating a program to enter into low fixed-price energy off-take agreements for the later years (six to 15 years, for instance) of new dispatchable generation projects that meet certain criteria, including:

● there must be at least three commercial or industrial customers who have agreed to take ­energy for at least five years;

● no retailer or generator with significant market share in the region can participate in the scheme;

● the generation facility must be big enough to meet the needs of large customers on a firm basis.

Now, in theory, these new plants can use any technology or any source of fuel. There is little doubt that, were the PM to have his way, he would prefer renewables backed by Snowy 2.0, but this option would not impress the doubters in his party.

The cheapest option would be a new plant built in the Latrobe Valley — say on the old Hazelwood site — because the feeder stock, brown coal, is so cheap relative to black coal or gas. Mind you, the Victorian government would seek to block this option — those inner-city voters would go berserk — but a change of government in that state in November could be a game-changer.

Another possibility is a new thermal plant using gas, probably imported. There are several plans around to construct receiving terminals to bring in gas on the spot market. While this option is feasible, the price of gas would make this relatively expensive. But it would at least bring some more dispatchable power into the system — there has been basically no new investment in this space for more than a decade — and introduce some price stability, albeit at a high level.

A coal-fired plant in northern Queensland is another possibility.

For the doubters, a key issue will be whether the PM is just making this pledge to get the NEG through the partyroom. Specific assurances will need to be made in terms of the process (legislation will probably be required) and to spell out the stages of that process and the timelines.

The real trouble with the NEG is that the only real element of guarantee in the policy is the emissions reduction target, in keeping with our commitment to the Paris climate agreement. Nothing else is guaranteed, particularly not any price reductions.

By seeking to oversell what is essentially a complex dog’s breakfast, Turnbull and his dogged lieutenant, Frydenberg, may have bitten off more than they can chew with the NEG. It may be better to ditch it and just run with supporting new dispatchable power plants. In this way, prices may ­actually come down, rather than be modelled to come down.