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.