Scott Morrison and Angus Taylor have swooped in with plans that have managed to scare the power industry and the environmentalists at the same time.
On Wednesday afternoon this week, a government-commissioned report – which had been completed on April 24 – quietly appeared on the website of the federal Department of Industry, Science, Energy and Resources.
The Liddell Taskforce had been announced in August last year by federal Energy Minister Angus Taylor, who said it would look at all potential impacts of Liddell’s closure, options for extensions or like-for-like replacement, and ensure affordable and reliable energy for NSW families and businesses.
Angus Taylor and Scott Morrison announce the energy policy in blue-collar Port Kembla. Adam McLean
« Liddell » is the Liddell Power Station: a (very big) coal-fired power station in the NSW Hunter Valley owned by AGL.
AGL announced in 2015 it was going to close the ageing power station in 2022, just at the height of alarms about power shortages and vulnerabilities in Australia’s electricity grid.
There had been problems for both power supply and prices as the massive Hazelwood power station started to close down at short notice. And there would also be the infamous blackouts in South Australia in 2016.
The then Prime Minister, Malcolm Turnbull, pressured AGL to either keep Liddell open or sell it to someone else who would be prepared to do so.
Thus began a long period of machismo from the Coalition government about Liddell which was inextricably bound up in the internal Coalition wars about coal and its centrality to future power security.
AGL announced about the same time Taylor announced the taskforce that it would delay Liddell’s closure until after the 2022/23 summer, to ensure there were no supply constraints during peak demand periods.
There was also the chance to wedge Labor on energy: energy renegade frontbencher Joel Fitzgibbon is located in the Hunter.
What was significant about the release of the Liddell Taskforce report on Wednesday was that on Tuesday, Angus Taylor and Prime Minister Scott Morrison announced the government was “setting a target for the electricity sector to deliver 1000 megawatts of new dispatchable energy to replace the Liddell power station before it closes down in 2023”.
This was to “protect families and businesses against the risk of price rises, the government will step up and back a new gas power plant in the Hunter Valley if the sector doesn’t replace Liddell’s capacity”.
If, by the end of April 2021, « the private sector has not delivered on the target, the government will take necessary steps to ensure the required dispatchable capacity is built”, they said.
Announced at the same time as a plan for a “gas fired recovery” plan – which was quite a lot of hot air about possible plans and interventions in the gas market to try to ensure better gas supply in Australia’s south-east – the possibility of the government actually investing in a new power plant in the Hunter Valley seemed rather extraordinary.
Here was the party of the free market not just planning to enter the power business (via Snowy Hydro Corporation), but threatening the market players that it would do so if there was market failure in just a few months’ time.
First off, the possible government-owned power station would be gas-fired, not coal-fired, so that implied that the government wasn’t just being complete energy and climate change Neanderthals.
(Though, of course, there was appeasement to the coal supporters the following day in the form of proposed changes to the investment remit of the Clean Energy Finance Corporation and the Australian Renewable Energy Agency).
There was also the political opportunity to try to wedge Labor on energy: energy renegade frontbencher Joel Fitzgibbon is located in the Hunter Valley; and there is also a brawl going on within the party about whether it will stick with its emissions reduction targets.
But what left both the energy industry and environmentalists perplexed was why on earth the government would even be threatening to make this intervention.
The government’s own planning body, the Australian Energy Market Operator, has made clear that the immediate shortfall in the system when Liddell closes is nowhere near 1000 megawatts.
There are already upgrades and new, smaller power stations in the works which mean the shortfall is roughly only about 150 megawatts.
AGL itself outlined plans in 2017 to ensure it wouldn’t leave a huge hole in the system and the AEMO told the then energy minister Josh Frydenberg that “in its entirety, all three stages of AGL’s plan would deliver sufficient dispatchable resources to fill an identified 850MW resource gap” when Liddell closed.
A statement from Morrison and Taylor this week said that “the Liddell Taskforce found closing the plant without adequate dispatchable replacement capacity risks prices rising by around 30 per cent over two years, or $20 per megawatt hour to $80 in 2024 and up to $105 per MWH by 2030”.
But that wasn’t quite the whole story. And this possibly explains why the taskforce report wasn’t released until the next day, and even then was just quietly dropped on a website.
The taskforce downplayed the comparison with the disruption caused by Hazelwood, noting the longer lead time and that “there are more dispatchable generation projects on the horizon now in NSW than in Victoria when Hazelwood closed (though few have reached a Final Investment Decision)”.
It noted that “governments have made commitments that may improve price, reliability and security outcomes, including support for upgrades to interconnectors, Snowy 2.0, [and] NSW’s Emerging Energy Program”.
It found that “the modelling suggests Liddell’s planned closure could lead to a NSW wholesale price increase from the low $60s per MWh in 2022 to between $75 and $80 per MWh in 2023–24, depending on the market response to deliver new capacity”.
But crucially, it said that “where the model was allowed to add new generation, average NSW wholesale prices rise as Liddell exits to around $75 per MWh in 2024”, before ”the price moderates over the following years … to average $71 over the five years to 2027–28”.
In other words, the worst-case scenario is for an increase in power prices between 2023 and 2024 before they start to fall again.
The only people who might feel really at risk from even a small rise in power prices would be the owners of the Tomago aluminium smelter, including Rio Tinto, which has been powered by Liddell and which has been lobbying furiously on energy prices. Like aluminium smelters around the world, it is facing major viability problems in the face of a glut in supply and generally rising fuel prices.
But we are left with a truly excellent government rescue for a crisis which isn’t happening. This might be no more damaging than a gas-fired distraction, if it was not for the fact that the threatened intervention has now cast uncertainty over those projects that are already in the pipeline but which are now facing the possibility of government-backed competition.
The Morrison government is favouring giving casual workers a right to permanent employment after nine months as part of industrial relations reform talks.
Federal Energy Minister Angus Taylor says the private sector has to step up to boost supply in NSW by 1000 megawatts or the government will intervene.
While several of the government’s announcements this week are well targeted and worthy of support, none will contribute to a short-term economic boost.
SOURCE: https://www.w24news.com
