Alan Finkel’s otherworldly prognosis is bad enough. But toss in Malcolm Turnbull’s advocacy of renewables and then add an imported American chief regulator who would have been happier working for Hillary Clinton and where are you? The simple answer: thoroughly stuffed.
With Australian electricity prices now approaching world-beating highs, we have on Friday another meeting of the Council of Australian Government (CoAG) energy ministers who have created the current energy catastrophe.
They are to examine the Finkel report into electricity. Among the many counter-productive recommendations this report offered was an increase in the electricity market’s “governance”. This is a demand for even more of the political tinkering which, in the space of just 15 years, transformed the Australian electricity industry from the cheapest in the world to one of the dearest. Distortionary subsidies to renewable energy, which have also undermined reliability, are paramount in this.
Finkel decided that renewables are inevitable (which is why Malcolm Turnbull appointed him) and commissioned economic research to demonstrate that this is so. The modelling showed future lower prices from the substitution of wind/solar for lower cost coal. It did so by using two mechanisms.
First, it has the renewables subsidised and with priority access to the grid, meaning coal powered stations have either to run at a loss or close down. The optimists assume coal will run at a loss in an oversupplied market then close down in an ‘orderly’ manner.
In theory, this allows a second mechanism – forecast cost reductions of wind and solar – to swing in.
One shortcoming of this picture is that if the coal stations hit major expenditure needs at an inconvenient time, they will be forced to close down. This was the case with Hazelwood, which was operating in the face of Worksafe notices and requiring perhaps a billion dollars for new boilers. Finkel’s solution (adopted by politicians) of requiring three years notice of closure is absurd and unworkable.
Moreover, the fabled and imminent onset of cheap renewables will not occur, just as it has not ocurred through the past 30 years of similar erroneous predictions. Ah, but batteries will save the day, I hear some say. But no, they won’t. Batteries are simply a costly way of smoothing out the peaks of renewables’ intermittency.
Compared with the cost of coal at below $50 per MWh for new power stations and less than that for existing ones, wind is at least $90 plus the costs of storage ($14 according to the totally inadequate estimates published by Minister Josh Frydenberg) and requires aditional transmission expenditure.
With current policies having brought wholesale prices to around $100 per MWh, Finkel decided to airbrush from history the sub-$40 prices that prevailed until the renewable subsidies started to bite in 2016.
It is easy to forget the changes that the deregulation of energy created, before politics overturned its competitive nature.