Via Peter Hannam:
Prime Minister Malcolm Turnbull told the Queensland Media Club a month ago that his “obsession” was cutting energy bills. Climate barely got a look-in, even in a state seared by a multi-year drought that is spreading south to occupy all of NSW and is encroaching on northern Victoria. Brisbane itself was in the midst of its warmest July on record.
“My concern is from now, from here on, and since I’ve been Prime Minister, to focus on one thing and one thing alone, which is getting energy prices down,” he said.
In the run-up to Friday’s gathering in Sydney, the national energy guarantee’s promise of cutting an annual average of $550 per household during its first decade started to attract some belated media scrutiny. (Only $150 of that sum is due to the NEG itself.)
That prices are finally turning lower and should keep falling has registered with the public even less.
“If the NEG crashes into a festering heap, you’ll still see price reductions,” says Frank Jotzo, the director of the Centre for Climate Economics and Policy at the Australian National University.
Don’t be fooled. Malcolm Turnbull has no such obsession. Nor does he want to lower greenhouse gas emissions. His only goals are to protect the great Australian gas export cartel – the ONLY cause of rising power prices – and to get re-elected.
Gas prices set the marginal cost of electricity in the National Electricity Market (NEM). Not renewables nor coal. When energy producers bid to supply power into the NEM regularly through the day, it is most often gas that is the marginal priced supply and that is the price that all producers receive.
It would be very easy to crash electricity prices on the east coast tomorrow if that were one’s obsession. All it would take is forcing the gas price down from its current price of $10Gj to $5Gj which is still well above the historical average of $3Gj. To do that is easy too. Just toughen the domestic gas reservation regime. Since the Australian Domestic Gas Reservation Mechanism (ADGSM) was deployed it has already halved gas prices from highs around $20Gj and that’s why power prices are now falling. WA has the same policy and it has gas prices of $5Gj plus cheap power (it is outside the NEM).
Remember, domestic reservation is needed because the east coast has been attached to Asian gas prices via the Curtis Island export terminal in QLD. Although Aussie gas comes out of the ground from $1-5Gj cost, Asian customers pay $14Gj for it. If you remove the cost of freezing and shipping that’s the east coast Australian gas price (called export net-back). In short, we’re competing with Asian buyers to secure our own gas.
Why doesn’t the Turnbull Government end this farce? After all, it installed the ADGSM when MB forced it to by pointing out that the nation were paying more for its own gas than the Japanese were. Three reasons. First, the PM wants to protect the gas cartel’s profits. Second, the gas producers cut right across One Nation heartland in central QLD and Turnbull does not want to pick a fight with them and widen the split in his conservative base. Third, he likes to use higher power prices as a wedge against renewables in its climate war on Labor.
Now let me tell you what the Turnbull Government is doing instead of the waft of a pen that would end the Australian energy crisis. Turnbull has created a fantastically complicated policy smokescreen called the National Energy Guarantee (NEG).
The NEG forces power retailers to buy a certain amount of “dispatchable” power. Coal isn’t dispatchable, it can’t turn on and off quickly enough. So that means more volumes for gas-fired generation as renewable power construction is slowed. It could also mean more investment in power storage (batteries, pump-hydro etc which is dispatchable) but that will depend upon what emissions reduction goal is embedded in the policy.
That’s where byzantine turns Machiavellian. The east coast economy is already on track to meet the current NEG emissions goal. Unless the target is lifted then the policy only prevents cheaper and cleaner energy from being deployed. Yet the NEG also insists that any change to the emissions reduction target is endorsed by the entire Federal Parliament. There is only two ways that that happens. Either the major parties agree on a new target, and they don’t. Or the cross-bench in the senate agrees. This is effectively handing the carbon reduction target to none other than Pauline Hanson and her band of anti-science nutters.
The NEG is nothing but a smokescreen to prevent effective action to fix Aussie energy. How could adding complexity, entrenched monopolies, increased reliance on high-priced gas and slowed cheap renewables investment reduce the costs of electricity? It won’t. It will add cost. And the emissions reduction target will become the single most concentrated sight of political warfare in the history of Australian politics.
The NEG is just another Coalition energy policy disaster. Unfortunately, as it piles mistake upon blunder upon bastardry, the Coalition now risks a doubling of power prices in the next five years.
Why? Because Asian gas markets are considered to be on a tightening trajectory (I don’t agree but let’s go with the consensus). Within five years the price is thought likely to rise to USD15Gj versus today’s USD10Gj. Now multiply that by the Australian dollar. Today we pay the export net-back price of roughly $10Gj ($14 minus liquifaction and shipping). But the AUD is going to fall further as China slows and bulk commodities fall. If the currency reaches 60 cents over this period while the regional gas price climbs then the local gas export net-back price will be $21Gj, more than double that of today.
This will be allowed within the existing rules of the Australian Domestic Gas Reservation Mechanism (which only targets export net-back, endorsed by the moronic ACCC) so it won’t be used. Indeed, by then the half dozen LNG import terminals planned for the east coast will be in operation and they will insist that the ADGSM isn’t used because they will only be able to buy the Asian gas at $25Gj and reservation will wipe them out. Then they’ll add their margin so gas will be hitting the east coast at prices up to $30Gj.
This is only the base case. The AUD might fall to 50 cents or regional gas prices hit USD20. Or both!
This is how Australian power prices double from here in five years. Extortionate gas prices hit the NEM and the gas-fired marginal cost producers bid astronomical prices while the NEG is trapped in an endless low emissions reduction target by an anti-science parliament, which prevents the mass deployment of the forthcoming and MUCH cheaper power storage revolution.
That “industry” and “business” has piled in behind the NEG for “investment certainty” to deliver lower prices is a dark reminder of how destructive group think can be. The NEG does nothing to end the climate wars nor lower costs. By delaying the cheap renewables roll-out it makes both far worse. By involving the entire parliament in setting mitigation targets it makes both far worse. By adding byzantine complexity to the only functional market left in Aussie energy, the wholesale bidding system, it makes both far worse. By entrenching monopolies it makes both far worse. By missing Paris climate targets it makes both far worse. By forcing mitigation onto every sector other than energy it makes both far worse. Above all, by camouflaging the real problem, the gas cartel price gouge, it makes both far worse.
Sadly but predictably a dilettante media is completely lost in the propaganda, from David Crowe:
This is the dismal world of energy and climate politics in Australia, where legislators splinter on every decision. The repeated message to voters is that those they elect to parliament are incapable of a consensus. The federal and state politicians continue the uncertainty, which means investment stalls and prices rise.
No it doesn’t. Renewable energy investment is booming today while no NEG is driving it. It’s happening anyway because the economics stack up. Energy price rises have nothing whatsoever to do with renewables. They are the direct result of higher gas prices thanks to the export cartel.
The NEG is not some glowing breakthrough for Aussie energy, it is the apogee of its folly as it confuses and confounds to protect the great energy gouge.
It is a strange and elaborate form of national suicide.
