Do-nothing Malcolm is more corrupt than Enron

There are many reasons why Australian power costs have risen over the past decade. But what has happened recently is decidedly uncomplicated. We’ve had a gas price shock owing to excessive exports. That has driven up the price of power because gas is the marginal price setter in the power market too.

The chaos engulfing the energy debate as a result is nearly all rubbish. Blaming renewables, base load, RETs, CETs, carbon prices or nuclear bans is all academic. The entire crisis could be solved with the stroke of the prime ministerial pen that forced the LNG gas exporters to sell enough gas locally over long enough horizons such that prices fell to reasonable levels.

This could be guaranteed by applying price fixing to the gas market. I’d say $5Gj in QLD is fair. The LNG firms might refuse but, if so, you simply threaten expropriation of the reserves. They won’t refuse for long.

That’s the thing you see. The gas firms can still make lot’s of money at $5Gj in terms of marginal costs. That price didn’t stop them shipping volumes into Asia last year. It does mean that they’ll have to write down the value of their white elephant LNG plants, so they’ll take a big balance sheet hit and may have to raise some equity to pay down debt. But that’s as it should be. They mis-allocated their capital in an LNG bubble and should wear the cost of it, not pass it onto Australian households and business in a utility bill bail out.

All of the debate would be over for the energy market. There’d be no more shortages or price shocks, manufacturing could cope, gas and power bills would fall and de-carbonisation could resume unmolested.

So why doesn’t Do-nothing Malcolm act in the national interest and do it? Sovereign risk? Phewy. The international observers I know are only shocked by our failure to do it. Everyone else does it. Do you think bank debt investors are comforted by the government’s refusal to protect household incomes from a blood-thirsty consumer staples cartel?

No, there’s only one reason why. It’s politics. If Do-nothing Malcolm fixes the gas and power crisis he will no longer be able to blame Labor for it, nor to look to coal as the answer for it.

That may seem pretty perverse and it is. But consider that the threat to the Coalition is not only from Labor. It is most pressingly from within its own fracturing base and One Nation, which is a central QLD powerhouse. Indeed, ON’s power base sits right on top of the gas production owned by the LNG exporters and it is the very same place from which are emanating the next big coal expansion plans for the country, both mines and power stations.

There is an echo here to US energy politics at the turn of the century. For those with a memory longer than a gold fish, which cancels out most of Australia’s political economy, it is useful to recall that the US west coast experienced an energy shortage at the turn of the millennium as a friendly company called Enron ran riot in power markets, via Wikipaedia:

The California electricity crisis, also known as the Western U.S. Energy Crisis of 2000 and 2001, was a situation in which the United States state of California had a shortage of electricity supply caused by market manipulations, illegal shutdowns of pipelines by the Texas energy consortium Enron, and capped retail electricity prices. The state suffered from multiple large-scale blackouts, one of the state’s largest energy companies collapsed, and the economic fall-out greatly harmed GovernorGray Davis‘ standing.

Drought, delays in approval of new power plants, and market manipulation decreased supply. This caused an 800% increase in wholesale prices from April 2000 to December 2000. In addition, rolling blackouts adversely affected many businesses dependent upon a reliable supply of electricity, and inconvenienced a large number of retail consumers.

California had an installed generating capacity of 45GW. At the time of the blackouts, demand was 28GW. A demand supply gap was created by energy companies, mainly Enron, to create an artificial shortage. Energy traders took power plants offline for maintenance in days of peak demand to increase the price. Traders were thus able to sell power at premium prices, sometimes up to a factor of 20 times its normal value. Because the state government had a cap on retail electricity charges, this market manipulation squeezed the industry’s revenue margins, causing the bankruptcy of Pacific Gas and Electric Company (PG&E) and near bankruptcy of Southern California Edison in early 2001.

G.W. Bush backed Enron to the hilt in its assault on Democratic held California and it helped get The Governator elected. Of course, a little later the charming Enron collapsed in the largest US bankruptcy in history (to that point).

Do-nothing Malcolm’s power play today is exactly the same; allow an artificial shortage to develop then mis-allocate the blame for political gain.

Except on one point. The Do-nothing Malcolm is the incumbent! That he can’t see he will be blamed for it all speaks volumes.

Meanwhile, Telstra shows where the power market is actually going:

Telstra has offered another tantalising insight into its unfolding energy market strategy, with the suggestion the telco has plans to mobilise its existing battery storage fleet of more than 1GWh, to help balance supply and demand on Australia’s rapidly transforming electricity market.

Speaking at the All-energy Australia conference in Melbourne on Wednesday, Telstra’s executive director of energy, Ben Burge, said the the company’s extensive telecoms infrastructure – including its back-up generation, its plans for renewables, and its considerable energy storage assets – made it a key contender in the critical, grid-wide effort to balance supply and demand.

This, of course, is contingent on a few other things falling into place first – namely the implementation of a 5-minute settlement rule for the National Electricity Market, that is hoped to open the NEM up to a greater range of competition beyond the incumbent gen-tailers.

That should be in place by 2021. And Telstra’s plan will also require some significant technical manoeuvring and replacing of much of its current battery capacity – mostly of the type used in trucks – but this was happening anyway.

That 1 gigawatt hour of storage could be made available to AEMO to help manage peak demand, and provide grid security, in the same way as Tesla’s big battery in South Australia. That facility though is just 100MW/129MWh.

It would transform Telstra from one of the biggest users of electricity in the country – it accounts for 1.5 terawatt hours out of the country’s slightly less than 200TWh, but also into one of the biggest suppliers.

It is also building a large solar farm in north Queensland and plans others to help deflect its own energy costs.

Burge – who was snapped up by Telstra from his role at the helm of upstart energy retailer Powershop – sees many key synergies between the energy industry and the electricity industry. Particular in terms of reliability of service.

Energy efficiency and storage are the next booms. Coal is dead to all but Do-nothing Malcolm’s Enron flunkies.

Comments

  1. We had our Enron moment this year when Adelaide had power cuts!

    Pelican Point, one of the SA’s newest and most efficient gas-fired generators, chose not to offer its electricity…

    firing up Pelican Point would not only bring down electricity prices in South Australia, but it could also bring down prices for the power produced by its Victorian coal-fired power station

    • No, it is actually your third world moment. Welcome!
      No business will invest in a state or a country that cannot even keep its lights on.

      • The unis here are indeed 3rd world. Degrees went from being tough under PM Howard to dead easy under PM Gillard.

        Meanwhile…England makes jet engines and California makes rocket engines.

    • And SA is seen as the ‘renewable energy experiment’. With renewable energy and reliable gas at long term average prices, then SA would have one of the cheapest, most reliable power supplies in the Country and could be supplying surplus into the Eastern States. This would be the fossil fuel industry’s worst nightmare. It would trigger the adoption of MORE renewable sources in the Eastern States. Do you think the Fossil Fuel industry are driving up the price of gas to stop the spread of renewable energy? Not the same guys who spend money on bloggers to spread lies about climate change? (I actually think the motivation is just greed – but this was just a ‘nice bonus’ for them).

    • Makes my 24V 540Ah offgrid storage look puny, but I’ve got 3.2KVA petrol inverter backup for the backup.. even without the crisis we’d loose power 3 x a summer brought on by the shear number of new homes/apartments on the grid. If you’re on the wrong phase you get trashed for some reason.

    • truthisfashionable

      From that article..
      “For too long we’ve been relying on only half of the equation to match out demand and supply, b/c largely there hasn’t been a signal to the demand-side of the equation,” Burge said

      Is he implying the solution to a problem isn’t always just adding more supply? This man is a maniac.. he is basically suggesting that if you reduce the demand for something you don’t continually have a supply shortage… Geez imagine if you applied that thought process to almost every other issue in Australia currently, you might solve the housing affordability issue, or rentseeker forbid the stagnant wages!

  2. Just one comment on this the “do nothing”, he put his PM career before the country, and he should have sacked Abbot. He’ll go down in history as a failure!

    • He can’t sack Abbott. Abbott’s a back bencher, not a minister. What he can/could/should (but won’t) do is grow some balls and stand up to him on policy. What’s he got to lose…except the next election.

      • @Schillers ..fair enough didn’t know that, and agree. The election is lost for the lnp imo. They are so out of step with society now it’s not funny. Abbot is so extreme now and moved on from just being a menace

  3. And then they won’t drill any more wells because the price is fixed too low and soon enough we have a no supply. Need fully fleshed out solutions here.

  4. You don’t exporpriate reserves.You just legislate a maximum price for gas by location in Australia and automatically ban exports for a month if gas sells above the set maximum in any location
    Legislative disruption that is avoidable by meeting conditions is a lot cheaper than the compensation payable for expropriation.

  5. The Traveling Wilbur

    With that headline I hope someone’s Director’s insurance is up to date. Jolly Hockey sticks.

  6. Assurances by the LNG exporters that suffucient gas will be delivered to the domestic market will be met. I would expect a range $6-8Gj (possibly $5 Qld).

    Expropriation is difficult and undesirable: likely not legally possibly Queensland, NSW, Victoria, possibly NT. The Big Stick threat of export controls should suffice.

    The Telstra proposal contingent on multiple factors, at least five to ten years away. That article is the sort of pro-renewable effusiveness I’ve endured for years, most of which I’m still waiting to happen. Has done immeasurable harm to the decarbonisation transition imo. Time for circumspection, realistic assessments, sober analysis from the renewables sector or public faith (Government policies, funding, subsidies) will be jeopardised: coal will be far from dead.

  7. I saw Josh Frydenbery repeat his usual squirm about the CET yesterday, something like “I’ve said.. we’ll have an answer about the CET by the end of the year”

    The reason for this suddenly twigged for me. By the end of the year (well into summer), it’s fairly likely we’ll have had an extreme hot weather event, which with current market problems has a high chance of leading to power outages.

    I think they’re gambling on this happening, so they can again pin the blame on renewables and cancel the CET with consumer support.

    F*ckers

    • +1000
      I agree that they will use high prices and blackouts to frighten the populace into accepting that their is no alternative to Coal and Coal Seam Gas as our futurepower scources.
      Wether they succeed is another question.

      Here is a scenario that could occur..
      The summer of 2017 will go down in history as the worst fire season in Australia’s history.
      After 21 days of 45 degree plus tempretures and very low humidity the blustery hot winds arrived in Sydney from the parched centre of the continent. No one knows how it startred , but, a fire in a bush gully in the drought stricken mountains soon became a raging inferno. The fire storm raced thru the bush to the city’s edge and the ferocious winds carried it across the highways and into the suburbs. Homes exploded into flames and the winds swept it from house to house. Thousands of people fled.
      The real catastrophe occured when the fires ignited a high rise apartment block coverd in highly flamable cladding. It just exploded in flames , none of the occupants stood a chance .Worse was to come as neighbouring blocks of units took fire, like a spark in a box of fireworks, one after another of these closely built towers erupted in flames.
      By nightfall a quarter of the city was in flames…

      • where can one get an independent assessment of cladding? i’m in a high rise, and there is no way to work out if the cladding is flammable or not.

      • Copied that, you will probably not be fat frm the mark
        from my personal experience with polystyrene it has, exudes a flammable vapor with moderate heat, have not been able to get my hands on any cladding to do an in house test, but if i had cladding on my building and the surface temp of the cladding was say 70c plus, in the sun, I would depart at great haste. seems the current fires were at night, It’ll go, burn, faster when hot during the day. The flammable grade of that stuff, as installed, is unsafe at any temperature.WW

  8. I believe some in the Coalition were keen to use high gas prices to edge the SA Labor government whose renewables policy left it vulnerable to blackouts, price spikes and shortages in supply at critical periods. When the Murdoch media is leading the charge, it was irresistable. They hope the community will not have a memory of what went down in California when the Republicans used the Enron to wedge their opponent’s despite the blatant criminality of what Enron and its employees were doing to ramp daily energy prices. Sick. What’s worse is that Xenophon has happily played along.

  9. The folks at MB will have to make up their mind about the basic laws of economics under their so called ‘natural monopolies’.

    I was told that gold-plating is due to private monopolies who artificially expanded their supply of infrastructure to provide more than is needed.

    Yet in the story above, we are supposed to believe that monopolists will restrict supply – “A demand supply gap was created by energy companies, mainly Enron, to create an artificial shortage.”

    Perhaps this theory of natural monopolies needs to be junked altogether, since there can be no natural monopoly in a truly free market with low/no barriers to entry.

    Unfortunately electricity is one of the most overregulated and controlled industries outside of banking and finance, so theres about as much chance of that happening as hell freezing over.

    • Perhaps this theory of natural monopolies needs to be junked altogether, since there can be no natural monopoly in a truly free market with low/no barriers to entry.

      LOL. Don’t strain anything lugging those goalposts around.

      I doubt many people would disagree that monopolies do not generally form in markets “with low/no barriers to entry”.

      But in reality, rather than Libertarian fantasy land, many markets not only have barriers to entry that are not low, but sometimes very, very high. Like, say, most utilities.

    • I find it fascinating how AVV airport has hardly any flights. MEL airport is perhaps a natural monopoly. Or is the reason more sinister – corruption?