Adding More Wind and Solar is Like Putting Out Fire With Gasoline

Preventing power price hikes and keeping the lights on by adding more intermittent wind and solar is like putting out fire with gasoline.

These days, only the most delusional RE zealot still claims that spiralling power prices aren’t caused by chaotically intermittent and heavily subsidised wind and solar.

The mantra has shifted to one which suggests that rocketing power prices will help conserve the planet. Apparently, depriving the elderly and the poor of electricity represents societal progress. As does keeping hundreds of millions in the Third World in Stone Age poverty by denying them reliable and affordable energy supplies.

Australia’s energy crisis was as predictable as it is perfectly avoidable.

Setting a ludicrous 45,000 GWh Federal Renewable Energy Target, that penalises reliable generators and rewards unreliable wind and solar was just the beginning.

Virtue signalling States run by Labor governments, first South Australia, followed by Victoria have set their own 50% RETs and are watching power prices go into orbit. South Australia has suffered the world’s highest power prices, for years. Victorian wholesale prices jumped 19% in the financial year ending June 2019.

After renewable energy obsessed Liberal PM, Malcolm Turnbull was knifed in August last year – in a putsch led by rebel MPs keen to restore Australia’s reputation as an energy superpower – Angus Taylor stepped up as Energy Minister.

At the time, Taylor’s promotion seemed more like being gifted a poisoned chalice than the Holy Grail.

With Turnbull out of the way, the new Liberal leader, Scott Morrison managed to consolidated his party and in May this year went on to win what was the ‘unlosable’ election for the Labor/Green Alliance, headed by Bill ‘Shifty’ Shorten.

Shorten pitched it as the ‘climate change election’, promising a whopping carbon tax and a 50% RET nationwide.

Convinced that the populace was ready to give up mining jobs, dual-cab utes, hot showers and cold beer, the mainstream press and intelligentsia all tipped a Labor landslide.

During the campaign, renewable energy rent seekers and zealots all thought that they’d seen the last of Angus Taylor, a man renowned for his stance against subsidies for intermittent wind and solar.

Oops! Morrison retained power and Taylor remain firmly ensconced as Energy Minister.

One of his first moves was to bring in the retailer reliability obligation, which will penalise retailers who do not have sufficient electricity to meet their customer’s needs, even on worst-case scenarios. Those worst-case scenarios being, of course, breathless 42°C days when demand spikes and wind and solar output collapses.

The result of the retailer reliability obligation is that retailers are now contracting to obtain reliable supplies ahead of time, which means coal, gas and hydro (in that order) – at the expense of intermittent wind and solar. Which is why Taylor is public enemy number one amongst the wind and solar crowd.

Adding to their woes, Taylor is now attacking the generator/retailer firms who have hitherto made a killing around the inherent intermittency of wind and solar; using their dispatchable generation capacity to cash in on those routine and unpredictable occasions when their wind and solar ‘assets’ down tools. Some call it market manipulation, STT calls it outright theft.

Having abused their market power for more than a decade, Taylor has set about dismantling their ability to game the market by withholding reliable supply (in the short-term) or mothballing or destroying dispatchable generation plant (in the long-term).

On the surface the ‘big stick’ legislation being advanced by Taylor looks like classic anti-trust stuff. But, at a practical level, it’s quite evidently designed to restore (and ultimately increase) coal-fired power generation capacity. No wonder the wind and solar industries are so furious.

Energy Minister Angus Taylor has accused business leaders of bowing to political “fringe dwellers” and the anti-coal lobby over the Coalition’s proposed “big-stick” market reforms and its push for more baseload power.

Energy giants hardened their opposition to Scott Morrison’s big-stick legislation, which could potentially break up their electricity assets despite being given six months’ grace in order to adapt to the new regime.

The legislation, introduced to the House on Wednesday, is aimed squarely at the three big energy providers in a crackdown on price gouging and uncompetitive behaviour that the government claims will drive down retail prices.

Mr Taylor went on the offensive over the business community’s opposition to the reforms, claiming the major electricity companies were pandering to activists and putting the interests of Australians last.

“It’s no secret some in the business community oppose the legislation,” he told The Australian. “As someone who has spent much of my career working in business, I understand that business is often suspicious of government intervention.

“But this is an essential service, purchased by nearly all households and businesses. Increasingly, business leaders are capitulating to shrill cries from political fringe dwellers, like those who want to rapidly shut all coal-fired power stations. Meanwhile, the interests of the quiet Australians are lost in the noise.”

Mr Taylor’s attack follows the Business Council of Australia’s about-face on the big-stick legislation this week. The BCA told The Australian on Sunday it had accepted the government’s election mandate, but chief executive Jennifer Westacott told ABC radio on Tuesday she still ­opposed the bill and claimed it would not reduce energy prices.

At issue is a contentious provision in the legislation that could force divestiture on recidivist energy companies that abuse their market power.

The provision would only remain in force for six years because of the inclusion of a 2025 sunset clause, by which time the government believes more competition will have been injected into the market.

The big-stick powers will not come into effect until six months after the bill passes both houses of parliament and receives royal assent — a key change made by the government compared with an earlier version. Other changes will limit individual liability to company directors and senior executives while ensuring companies will be punished if they fail to make reasonable price adjustments to market offers.

Australian Energy Council chief executive Sarah McNamara said on Wednesday the amendments did not go far enough.

“The bill will not lower the cost of electricity, and this was confirmed by both the Treasury and the ACCC at its Senate committee hearing. It may result in more frequent price changes, leaving consumers confused and frustrated,” Ms McNamara said.

“The bill provides the government with unprecedented powers to force a business to sell an asset. This represents a significant shift in Australia’s legal framework, with economy-wide implications.

“Regrettably, the bill also provides the Treasurer with an extraordinary power to compel energy companies to contract, and will be able to specify the contract terms, conditions and prices a corporation must offer for up to three years. This creates serious sovereign risk issues for future investment in Australia’s energy market.

“The Australian Energy Council encourages the government to reconsider its approach and consult further with industry, state governments and the wider community on amendments.”

A spokesman for Origin Energy said it still feared the “interventionist” big-stick legislation would have unintended consequences. “We have consistently said the best way to reduce energy prices is to increase supply; and that increase in supply is only possible if policy settings allow us to make the necessary long-term investments,” the spokesman said.

“The ‘big stick’ did not form part of the ACCC’s July 2018 report into the retail electricity market, and our concern remains that interventionist policies of this nature, and the risk of unintended consequences, will not make energy more affordable nor ensure greater reliability.”

Despite concerns the bill was too punitive and at odds with free-market values, it passed unop­posed in the Coalition partyroom on Tuesday. Mr Taylor dismissed concerns a divestment order, which could only be issued by a court, would dampen investment.

This week the government is reintro­ducing electricity competition reforms to the parliament, widely known as the “big stick” legislation. We took this policy to the election and, in combination with other reforms, it is squarely focused on driving down the costs of electricity for all consumers — households, small business and industry.

Wholesale and retail electricity prices have been too high. One important reason is that markets have become less competitive.

The resulting behaviour, according to the Australian Competition & Consumer Commission, has been “unacceptable and unsustainable”, at the expense of middle Australia. All of this as some industry participants were boasting about the “virtue” of their environmental strategies.

Three players hold at least 60 per cent of generation and retail in almost every market. Generators increasingly are integrated with retailers to form “gentailers”, deterring new entries.

The loss of big baseload generators has made this worse. These generators are exiting the market in response to record investment in intermittent wind and solar, driving prices low or even negative when the wind blows and the sun shines. But as inflexible baseload generators exit the market, lack of competition is causing price spikes when the sun goes down.

Worse, this withdrawal of baseload generators has driven bidding behaviour that is increasing prices. The exit of the Hazelwood coal-fired generator from the Victorian market and the Northern gas-fired generator from South Australia had profound market impacts, far worse than the experts told us. The mere announcement of the Hazelwood exit in Victoria led to a doubling of wholesale ­prices and worse.

Part of the answer is to keep ageing gas and coal-fired generators in the market unless there is genuine like-for-like replacement. That’s why we have established the Retailer Reliability Obligation, which requires retailers to commit to the capacity needed to meet customers’ needs at least three years ahead of time. It’s also why we’ve established the Liddell taskforce to consider options to deal with AGL’s planned closure of that power station and ensure that we don’t see a repeat of the Hazelwood disaster in NSW.

We need to encourage more reliable supply into the market. That’s why we are underwriting new reliable supply into the market, with 12 shortlisted projects under the microscope (including gas, coal and hydro). Meanwhile we are investing in Snowy 2.0 and the development of the Marinus Link, the second Bass Strait interconnector needed to turn Tasmania’s “battery of the nation” vision into reality.

The government also is phasing out the subsidies that have been forcing renewables into the market at breakneck pace. The subsidies have caused substantial market distortion and a throng of noisy rent-seekers, who demand more subsidies while telling us their technologies can beat the economics of fossil fuels. For this reason, the renewable energy target (which is about to be reached years ahead of schedule) will not be replaced as its impact falls away in the next two years or so. We’re calling on states to do the same.

In a market where competition is weak, we need to prevent abuse of market power. The default market offer and reference price are designed to empower customers. Customers are always the best regulators, if they have the ability and information to act. Already, we are seeing good outcomes.

Preventing abuse of market power also means strengthening our competition laws, which have not always been fit for purpose in dealing with the most egregious cases of poor market behaviour in electricity. The legislation focuses on three areas.

The first is deliberate manipulation of the wholesale market, which most likely would result from withdrawal of supply or raising prices in the market. We saw sharp increases after the withdrawal of Hazelwood, and this can’t be repeated.

The second is withholding supply from contract markets to substantially lessen competition. In South Australia, for instance, the lack of competition has meant there is little contracting to independent players, creating strong barriers for new competitors to enter an otherwise attractive high-priced market.

And the third is retail price gouging, preventing retailers from pocketing falling costs. After all, this is a market where retail margins have more than doubled across a decade.

The legislation will provide for graduated remedies, extending from notices to penalties and, in the worst cases of wholesale market manipulation, to divestment. Divestment is available only for wholesale market manipulation and only with a court order after a recommendation from the ACCC. The ACCC, the Treasurer and the court must all be satisfied divestment delivers a net benefit.

The legislation is restricted to the electricity market and prevents forced privatisation of state-owned assets. The legislation sunsets at the end of 2025. The aim is to ensure the remedies are in place for six years as the market finds a more competitive footing.

It’s no secret that some in the business community oppose the legislation. With much of my career spent working in business, I understand the suspicion of government intervention.

But this is an essential service, purchased by almost all households and businesses. Increasingly, business leaders are capit­ulating to shrill cries from political fringe-dwellers, such as those who want to rapidly shut all coal-fired power stations. Meanwhile, the interests of the quiet Australians are lost in the noise.

The government’s hope is that we are already moving beyond the sharp practices of the past. New competition and supply should emerge as we remove the shocking market distortions of the past. That way the big stick can stay in the bag, then disappear in 2025.

In the meantime, we will work closely with like-minded industry participants to deliver the outcomes the hardworking quiet Australians deserve.

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