Policy brownout under Labor’s energy scheme

Energy is a vital issue for next year’s election because households and business are acutely aware that policy failure has damaged the competitive advantage Australia once enjoyed in affordable, reliable power. South Australia blew up its last coal-fired power station last year, pursued the renewables mirage, and ended up paying dearly for dirty diesel generators and battery storage. The former Weatherill government presided over some of the highest power prices in the world. Its Labor comrades in Victoria tripled the brown coal royalty rate and brought forward the closure of the Hazelwood coal-fired generator last year; wholesale power prices rose by 80 per cent. The loss of baseload supply has been funded by taxpayers as federal governments both Labor and Coalition have fed subsidies to intermittent power sources. So far, energy policy has been a no-go area for the Morrison government; its role in the leadership implosion is fresh in memory.

Against this background, the minimum requirement for Bill Shorten’s energy policy is to learn from past errors and not make things worse. Unfortunately, hubris is a renewable resource. As with its old SA colleagues, federal Labor preens itself as a bold administration with a 50 per cent renewable energy target (the share was just 15 per cent last year) and a goal to cut emissions 45 per cent by 2030 (Australia accounts for only 1.3 per cent of global greenhouse gases). Labor says it also will deliver affordability and reliability of supply, plus certainty for investment. It declares blithely that coal has no future, indifferent to the 2022 scheduled closure of NSW’s Liddell coal-fired power station. Four other baseload sources (three coal-fired, one gas) in four states are also threatened with closure, according to the Minerals Council of Australia.

Opposition climate change and energy spokesman Mark Butler says Labor would encourage new gas-fired power, which is fair enough. In addition, he says, a Labor government would underwrite new renewable power sources and storage while assisting upgrades to transmission and distribution. The idea is that competitive auctions will drive down the price of supply, with government contracts giving investors the necessary confidence. The headline figure is a $10 billion capital injection for the Clean Energy Finance Corporation yet Mr Butler claims this would not involve picking winners or a government subsidy, since he asserts that the cost of renewable energy, available on demand, is already lower than that of fossil fuel-driven power. It’s a contradiction. There’s no escaping the fact $10bn in taxpayer funds will be put at risk to some degree because, by its own admission, Labor will be supporting ventures that “cannot be left up to the big power companies”, meaning the business case may be weak. Apart from underwriting projects, a Shorten government would also use concessional loans and equity stakes; that’s more exposure. And it would pick winners in the sense of favouring renewables, even if clean coal might be favoured by a dispassionate cost-benefit analysis. It’s simply not clear how Labor would compensate for the loss of coal-fired baseload power.

Voters should find it easier to grasp the pros and cons of Labor’s $2000 subsidies for 100,000 households to install battery storage for better use of solar panels. A giveaway has immediate appeal but scepticism kicks in pretty quickly for most Australians. The Rudd government’s pump-prime schemes of roof insulation and school halls have not been forgotten. A pot of public money led to price-gouging, poor safety (four insulation installers died) and over-engineering (in school structures) or shoddy work because the spike in demand attracted dodgy tradies. Labor’s battery subsidies would have a trivial effect on the operation of the grid but they would be unlikely value for money. The price of batteries would rise with demand, so consumers may remain unconvinced of the payback proposition of investing in these systems. Households with disposable income may well buy enough battery storage to go off the grid, worsening the inequity already represented by solar panels with feed-in tariffs. People less well off have to cough up more money to pay for the necessary upgrades and maintenance of infrastructure. Although Labor’s battery grant is means tested, households still would have to find about $10,000. Mr Shorten also expects people to go into debt (with “low-cost loans”) for Labor to reach its battery targets.

For all these reasons, the government has an opportunity to make Labor pay a heavy political price on energy policy. It’s a question of sharpening the choice between ideology-free lower prices and reliable power on the one hand, and the chaotic expense of a renewables fetish on the other. Although Labor intimates it has jettisoned a carbon price, Mr Butler conceded there would be “emissions trading-type schemes” in manufacturing and other sectors. Voters may ask if Labor may revisit a Julia Gillard-style carbon tax that supposedly was never going to be imposed.