Do-nothing Malcolm bullies AGL into permanent high energy prices

My God, this nation has become a walking idiot. Here’s what Do-nothing Malcolm has secured for the future of energy security to lower prices, via cock-a-hoop Australian:

Malcolm Turnbull has struck a deal with power giant AGL to prevent a looming energy shortage by extending the life of a vital coal-fired power station for five years, unless the company drafts a plan within 90 days to install new generators to take its place.

The Prime Minister ended a meeting with AGL chief executive Andy Vesey with a commitment from the company to avoid the forecast market shortfall that is fuelling fears of higher prices and potential blackouts when the company closes its Liddell coal power station.

The Prime Minister will come under increasing pressure to decide whether to embrace a clean energy target across the electricity sector, given Mr Vesey’s public call for the government to “set the rules” so the industry can plan investments in new power.

The AGL board will consider plans to install gas-fired power stations to replace Liddell but the government said the outcome would have to ensure “no adverse impact on consumers” in price and reliability.

And The Australian added its own brand of culture war bullying to underline the madness:

AGL Energy chief executive Andy Vesey offloaded $1.24 million of company shares in the lead-up to yesterday’s meeting with Malcolm Turnbull, where the power boss said he would investigate selling or extending the life of the Liddell coal-fired power station in NSW.

The American chief executive, who took on the role in January 2015, turned some of his paper gains into cash after AGL’s shares jumped 50 per cent in the past year on the back of higher power prices. In a notice to the stock exchange, AGL said Mr Vesey had sold 50,000 ordinary shares on Friday at a price of $24.82 each.

The sale was made on the business day before yesterday’s meeting with the Prime Minister to discuss the future of the Liddell coal-fired power station.

Texture from the AFR:

“AGL has previously advised the market that replacement of capacity will likely be provided by a mix of load sharing and firming from gas peaking plant, demand response, pumped hydro and batteries,” he said.

“In this environment, we just don’t see new development of coal as economically rational, even before factoring in a carbon cost.”

Mr Vesey said Liddell was an unreliable option, saying the company had spent $123 million upgrading the plant since it bought it in 2015 from the NSW government.

“Despite this investment, during the February 2017 heatwave, two units from Liddell were out of the market due to unforeseeable boiler tube leaks. As a result, there was not enough energy in the system and NSW experienced blackouts in parts of the state,” he said.

“As Liddell approaches the end of its life in 2022, it will likely experience more unanticipated outages, which is why we will spend a further $159 million to improve reliability at Liddell before it closes.”

But the government told AGL that its preference was to keep Liddell running for another five years because that was the simplest, easiest and cheapest option.

“But we haven’t seen their plan. They have asked for 90 days to work on that, and we look forward to seeing that when it is complete,” Mr Frydenberg said.

You read it right. Do-nothing Malcolm has secured from AGL absolutely nothing. But if something does happen, it will not be keeping Liddell open, nor replacing Liddell with storage, it will be more gas generation.

As we know, the gas price is the primary driver of rising energy prices across the east coast economy. It is gas that sets the marginal cost of electricity owing to where it sits in the national electricity market (NEM). Via the Australian Energy Market Operator (AEMO):

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There are already oodles of gas generators offline across the country because the price is uneconomic, also from the AEMO:

If we had a lower gas price, then we would no be having this conversation at all. Gas was always planned to be the transitional fuel source for coal as renewables caught up.

But we have a astronomically high gas price because as east coast gas cartel has monopolised and sold the cheap reserves to Asia. And now, Do-nothing Malcolm has secured greater use of gas at home, guaranteeing high energy costs forever.

For AGL this is a no-brainer. It has a plan to import gas from US so it can form a vertically integrated gas-powered titan that runs renewable energy output at next to nothing while setting the marginal cost of power at astronomical highs with imported gas.

I mean, this would be a comedy act of it were not so serious. How did Do-nothing Malcolm ever make a cent in business?

The answer, the only answer, is unchanged. We don’t need to ramp up pressure on the gas price by using more of it into a shortage. We need to fix the shortage and gas price so it can release present and future power generation resources.

Today we are still paying double what Japan and India pay for our own gas:

If it wants to see quickly falling electricity and gas prices before the next election then the government’s gas reservation facility, the ADGSM, must be radically boosted. It is too slow and weak to bring down prices enough as it stands. If it is done right, Credit Suisse has estimated that it will cost Santos a grand total of $400m. Santos lied about having enough gas. Yet we’re putting ourselves through all of this torture to save that one lying firm a few lousy pennies.

Longer term, the government will need to reshape the gas market too. It will need to nationalise somewhere along the supply chain. Buying Santos and shutting one LNG train is one option. Buying (or expropriating) and force developing reserves in a national gas company with mandated rates of return is another. Either of these options would benchmark east coast prices. The simplest and quickest solution is plain old price controls. The east coast gas market has collapsed and requires radical restructure any way you look at it.

Even the average punter can see it, via The Guardian:

A clear majority of Australian voters want governments to step in and regulate electricity and gas prices and also boost investment in renewable energy, according to the latest Guardian Essential poll.

The latest poll of 1,826 voters found 86% support for the regulation of power prices and 81% support for more investment in renewable energy and storage.

Voters also approve of the government reserving more gas for onshore use and would support the cleanup of existing coal-fired power stations. Both ideas attracted 77% support.

Less popular, but still with majority support, are measures forcing energy companies to help their customers use less power (65%), and bringing privatised coal generators back into public ownership (56%).

The least popular options in a list of nine ideas were stopping coal-fired power stations from closing down (51%), building or subsidising new coal plants (48%) and allowing more onshore exploration of gas (48%).

Either the Do-nothing Malcolm government is the dumbest in the nation’s history or it is being paid off by the gas cartel. You decide.

Comments

    • Mining BoganMEMBER

      The media is doing its job though. They’re spreading the story of flippy-floppy smirky AGL guy yet his statements are the only thing being consistent.

      Corrupt arsehole of a country we’re in.

      • Mining, I can guarantee liddell will close
        China B set it out here the other day re maintenance of a worn out turbine, well that philosophy applies to the whole liddell project. that idiot economist turnball thinks you just keep extending the life of mechanical items at whim
        let him fly in a 50 yr old govt jet and see how he reacts.??
        Not to mention AGL has better more profitable means to replace that power, not to mention the RE value of the liddell site for immigrant housing. WTF
        I had comments deleted which outlined the status. Didnt add value.

    • The government will just lease it off AGL for 5 years, close it down when it can’t operate after 1 month, spend the other 4 years and 11 month on remediation, and then hand it back to AGL afterward for free so it can be sold for apartments.

  1. How much does gas cost in WA?

    It probably makes sense to build a gas power station in WA and transmit electricity to the eastern states via a UHVDC transmission line. The electron losses are 3% per 1000 km.

    The UHVDC transmission line will come in handy for solar power also.

    In USA, cheap gas killed coal power stations. In AUS, coal power stations are walking the plank but the stupid globalists are not thinking about what to replace coal with.

  2. The Traveling Wilbur

    My God, this nation has become a walking idiot.

    No argument here bro. An entire country will agree wholeheartedly with you on that. Some might say you’ve made a bit of a late call there though. Bro.

    • The irony is the poll above says that 56% of the electorate want old coal power stations to be nationalised!

      Must be the same bunch of voters that believed everything that Abbott said before the 2013 election.

      I thought coal power stations in Vic and SA shut because they are not profitable – far from ripping Victorians off, Hazelwood was not making any profit at all.

  3. The world’s biggest gas exporter will soon be importing gas.

    Reminds of the impoverished indentured farmers of South America who are forced to buy their food at the plantation store.

  4. Jake GittesMEMBER

    The Turnbull memoirs in a few years time are going to explain his executive powers.
    “I was faced with a energy crisis and I decided, after much consultation to do nothing, but not nothing exactly. It was these type of tough decisions that I ducked, avoided, ran from, hid under the bed, got Lucy to say I was out, for three years. There never was better time to be an innovative Australian, except all the other times in history.”

  5. Now I must admit I’m confused: Wrt LNG gas I thought the high prices that Santos was receiving for gas resulted from the longish term contracts entered into by various NE Asian Electricity customers (primarily electricity generators, especially Japanese in the wake of Fukushima). Their temporary gas excesses are our temporary gas deficits, why temporary? well because the world prices for LNG has fallen dramatically from the high point when Santos inked their contracts. This reality puts Santos in a bind, Short term it’s contractual demand is high and it is receiving a high price for this contracted gas, However long term they can see the NE Asian market collapsing, volumes might remain high but prices will moderate. The worrying thing is that prices will settle at below the actual extraction costs for CSG and other Aussie tight gas sources.
    So in effect it is the medium term certainty resulting from these Asian contracts that is causing a Natural Gas surplus in Japan and a corresponding deficit in Australia.. Spot prices reflect this reality.
    The question in my mind is: Do we really want a government (any government) wading into these waters and mudding what’s already an opaque problem? I’m of the opinion that these supply / price issues are best handled contractually. Maybe theres room for the Federal government to support the development of a long term gas contract market in Australia, Maybe this long term gas certainty function should be left to the Derivatives market, because they have the tools to manage/understand this temporary supply imbalance and restore price certainty to the market.
    Personally I’d say the best place for federal government intervention is in the support/establishment/deepening of the Aussie Natural gas derivatives market.

      • It changes nothing that these are oil linked contracts. Suffice to say the contracts were profitable when they were entered into but now they’re contracts that both parties probably wish they’d never written but that’s contract law, you either honor the contract or you don’t.
        Personally I just can’t see a viable long term solution based on parties not honoring their contracts, if there is a place for governments it is creating certainty in these contract outcomes. Indirectly that probably means they’ll in some way underwrite or support contract derivatives/insurance markets.

  6. A 25-megawatt demonstration plant is due to come on line later this year in Houston that will burn natural gas in pure oxygen and have zero GHG emissions. Whats more it will have a smaller footprint and be far quicker to build that conventional gas fired power stations. If this technology works it will provide ‘on-demand’ power at the fraction of the cost of any other fossil fuel power station. Science had an article on this back in May and I have yet to see any commentary about it in the MSM or from our esteemed leaders. You can read about it here: Fossil power, guilt free. Robert F. Service (May 25, 2017) Science 356 (6340), 796-799. [doi: 10.1126/science.356.6340.796].

    • Interesting concept.

      They’re talking about 56% efficiency. That would equate to approx 7.5GJ of methane per MWh.

      That much methane weighs 135kg, which means that 270kg of oxygen would need to be liquified to produce each MWh – a bit more than a 44-gallon drum.

      I don’t know how much it would cost to liquify a 44-gallon drum’s worth of oxygen at -183 degrees (or higher if pressurised), but I can only imagine it would make up a fair chunk of the potential revenue for selling that MWh of energy.

      The other problem, of course (as the late, great John Clarke spoke) we’re the biggest exporter of methane in the world: “They’re EXPORTS Brian, by definition that means it’s not here anymore.”

      • Um, where is this O2 going to come from?
        Will we literally suck it from the atmosphere, thus eventually reducing the available O2?

        Genuine question.

      • @ Hadron Collision:

        According to the article that Lath referred to, yes, it will be sucked from the atmosphere.

        Oxygen has a slightly higher boiling point that nitrogen (-183 vs -196), so air is cooled below -183 but above -196 (probably cooled to exactly -183 as the latent energy of condensation of oxygen will keep it from cooling further), and then the oxygen will condense into liquid and the remaining nitrogen gas will be bled off.

        If this is performed under pressure the negative temperatures will not need to be this low.

        Apparently it is a “well established industrial process”.

        Will it suck it from our global atmospheric oxygen reserves, reducing available supply? Yes it will, but it will just the same as our current practice of burning fossil fuels does. Remember – the rise in atmospheric CO2 from 0.03% to 0.04% is a massive rise, but has been accompanied by a corresponding drop in atmospheric O2 from (for example) 21.00% to 20.99%.

  7. I like Andrew Vesey. He was the guy in the background trying not to piss himself laughing while Jay Weatherill systematically castrated Josh Freydenberg a few months ago.

    • I’d be pissing myself laughing too, here on a 457 picking up $7million a year running company reliant on coal generation simultaneously enjoying taxpayer subsidies for forays into renewables (money for jam) naturally I’m heartily recommending more of the same (how easy is this!) and cherry on top, subsequent rising energy prices courtesy government policies add to the bottom line profit of the outfit I run, profit which is estimated to increase to $1.36 billion by 2020, sure to help my bonuses folks. And I get to stand next to opposing members of the Aussie political class, outbidding each other for the pleasure of my company, each blind to my merriment! Gravy doesn’t taste this good in the ‘ole U S of A. I love Australia. What a country. Hahahahahaha.

    • Er if im not mistaken that mob went broke, plus theye fried a heap of eagles or something, someone will know
      they are building a trial version is SA, but they have capacity for about 36 hours, heaps of times during the year the sun is away longer than that. r2m will know. he probably has planned a hvdc cable to it in jv with jacob
      Nuclear is the only long term option WW

  8. So, Turnbull wants a plan?

    There’s one right there:

    AGL has previously advised the market that replacement of capacity will likely be provided by a mix of load sharing and firming from gas peaking plant, demand response, pumped hydro and batteries,” he said.

    AGL may be smart to start investing in smart meters and the behind the meter control hardware to start controlling demand…

    What could they roll out in 5 years, I wonder

    • IMHO The technology problem for behind the meter residential demand control is not nearly as difficult as contractual / social problem.
      What happens if Granny signs up on a discount power plan that regulates her AC at times of peak electricity usage. Since most Aussie houses have lousy Insulation even worse isolation and practically zero thermal storage the simple answer is that get Granny fries. It’s political dynamite when poor Granny can’t even turn on the AC for 3 or 4 hours on the hottest day of the year. She’s not the one that uses her AC all the time, she saves it for the hottest days only, only when she really needs it. Unfortunately it’s this high Peak to Average power usage ratio that accounts for so many of the costs in a modern Residential power system but there’s this implied social contract that prevents the Distribution sector from finding / deploying demand side control solutions.
      I’m not expecting anyone to find an acceptable Grid based solution any time soon which is why I’m firmly in the Grid death spiral camp.
      Individuals that understand the problems and solution will create their own local power using Residential PV and probably adding Thermal storage / battery storage to an over designed PV system. Unfortunately that leaves Granny on the Grid continuing to save-electricity while simultaneously creating a very high peak to average use profile (frankly that’s a customer I can do without)

      • SImple. Granny doesn’t get one.
        You start with the younger generations, perhaps targeting those with PV + storage + smart grid interactive inverters. Prove it all up, build acceptance, do targeted rollouts (e.g. greenfields)

        Agree with all your other points.

      • maybe it should be businesses that get asked to tone down power usage on high value days.

        – How many lights do shops have?
        – How hard to most shops pump air con when on a 40 degree day there are next to no customers?

        There is a lot of power waste that extends before a few elderly people using aircon during peak times.

      • maybe it should be businesses that get asked to tone down power usage on high value days
        Yeah that’s possible but it doesn’t really fix the local grid power distribution problem or ensure that local grid assets (wires , transformers, storage…)are adequately sized to serve the local needs on these hottest of hot days. Unfortunately it’s not just a problem of adequate net generation everything else within the grid needs to be sized to handle maximum rather than average power requirements. So these businesses (malls etc with freezing cold AC) will typically have much lower peak to average power use profiles because they pay for power according to a different formula (one the takes into account their peak electricity usage) If a similar formula were applied to calculate Grannies electricity costs then her Connection fees would double or triple while her electricity usage costs might halve.

  9. The National party had its annual sigmoidoscopy, instead of supporting traditional base of graziers, farmers and rural voters in general appears to be adjunct to the mineral council of australia and appea. Given that this junior partner to the coalition energy policy appears to be written by energy lobbyists, and the lack of policy from liberal party has led to this bloody mess.

  10. Easy things we should legislate quick smart:

    – Only LED house lights should be available for purchase, the conventional bulb needs to be phased out.
    – Peak power usage surcharges need to ramped up. Exemptions for pensioners so it’s not political suicide.
    – If consumers reach a certain target for energy use at their household per capita – they receive a bonus from the power company. (i.e. keep your household usage below a certain MW per person per month, and we will give you 10% off).

    • Might seem like a silly question but: Why would a company that sell Electricity ever want to reward customers for reducing their average Electricity usage?
      LED light bulbs etc go a long way towards reducing average electricity use but don’t really impact our absolute residential peaks, which are mainly caused by AC.
      I remember seeing a calculation that it would have been cheaper for a local grid to replace every old inefficient wall mounted AC system with a brand new state of the art heat pump than it was to upgrade all the local distribution assets to support the peak loads resulting from these old inefficient AC systems.
      Is there any other sector of the economy where the provider of the goods/services is expected to implement a business plan to effectively ration the main product that they sell. Now I’m not against the concept but it does appear to have some obvious implementation issues especially when you star with carve-outs for what many regard as the most entitled sector of the population (the elderly especially those living on their own in large in city houses)

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