Crunch time to provide reliable, affordable power

Last week’s electricity supply crunch put the spotlight on how the transition to a lower-emissions power sector has imperilled the nation’s industrial base. Planned maintenance and breakdowns among coal generators, combined with poor weather conditions for wind and solar, squeezed supplies and pushed prices sharply higher to their $14,000 per megawatt hour limit. Industry, which accounts for double the power usage of households, has finally broken cover to protest.

Regulators described events of last week as a near miss because they did not result in forced blackouts. The unexpected winter electricity crunch was the second shoe to drop on a national emergency that came to light when South Australia was plunged into a statewide blackout in September 2016. With the closure of the Hazelwood brown coal generator in Victoria last year, the supply squeeze is now a national problem. The Australian Energy Market Operator concedes that with the exit of almost 5000 megawatts of generation in the past decade, Australia lacks the energy reserves it once had to lean on in times of need.

The goodwill of consumers faced with ever-rising power bills has been lost. The Australian Energy Market Commission, as we report today, has found energy users are less satisfied with power companies than with banking, mobile phones, internet, water and insurance services.

High electricity prices and worsening reliability reflect a woeful failure of planning. First in South Australia and now across the National Electricity Market, the intermittent nature of renewables such as wind and solar is at the centre of the problem. Coal-fired generation has been made less reliable as a result of ill-considered renewable energy targets that have “hollowed out” the electricity supply.

Price signals that should have led to investment in maintenance and replacement of assets have been distorted. The playing field has been tilted by subsidies and preferential market access in favour of renewables. Renewable energy supporters who claim wind and solar now represent the cheapest option for new generation do not take account of the full cost burden of intermittency. Big battery plants may have a role to play in grid stability but they are no solution when large amounts of generation go missing for extended periods because of lack of wind or sun.

The experience of major aluminium producers during last week’s supply disruption demonstrates the limits to demand management at scale. The alarm was raised by Tomago chief executive Matt Howell, who said if we wanted to be a nation that made things we needed an electricity system that reliably could deliver, independently of the weather. Looking to the future, the two main options to deal with intermittency appear to be mutually exclusive. One option, treated with derision by renewable energy supporters and not favoured by industry regulators, is to recommit to a baseload fleet. This could comprise new lower-emissions coal technology, small-scale modular nuclear reactors or a much heavier reliance on gas through an expansion of domestic production or imports of liquefied natural gas. The alternative is a hefty investment in new pumped hydro schemes via Snowy 2.0, 3.0 and 4.0 together with a network of projects in Tasmania. The renewables industry is backing hydro, the favoured option of Malcolm Turnbull. Big hydro would cost tens of billions of dollars and require an enormous overbuild of renewable energy projects to make it work. Coal and nuclear, in contrast, could provide a complete solution that would not require renewables but they face big hurdles in financing, politics and community acceptance.

Recent events demonstrate the urgency with which the issue of long-term supply security must be resolved. Decision-makers must not be blind to what is happening in other parts of the world. National debate is firmly anchored in the politics of climate change and the Paris Agreement to limit global warming to less than 2C. The Paris process, however, faces stiff hurdles as the deadline approaches for detail on how a global agreement will work and who will pay the billions promised for developing nations.

Germany, the poster child for action on renewables, is hosing down expectations as it looks set to miss its self-imposed targets. US manufactures are outcompeting Europe thanks to cheap energy while India, Asia and Indonesia are doubling down on coal, often financed by China. With domestic industry already counting the cost of expensive and unreliable power, this is a lesson Australia appears doomed to learn the hard way.