Features Australia

Reinventing energy policy

24 June 2017

9:00 AM

24 June 2017

9:00 AM

While the Liberal party tears itself apart over whether a Clean Energy Target as proposed by the Finkel report delivered in mid-June should allow modern coal plants, anyone looking at the report would be alarmed by this statement in chapter three.

‘If new dispatchable capacity is not brought forward soon, the reliability of the NEM (National Energy Market) will be compromised. Without a market response, AEMO (Australian Energy Market Operator) forecasts a breach in the reliability standard by FY2018 in South Australia and in Victoria.”

‘Dispatchable’ means conventional power that can cover for renewable energy when it doesn’t deliver, and ‘financial year 2018’ means exactly what it says. Victoria and SA will have a problem next year because government policy has encouraged renewable energy projects, over gas and coal plants that might keep the lights on when renewables don’t deliver.

This point is reinforced by an AEMO report released in mid-June which points to the risk of blackouts in summer despite new initiatives from energy regulators and governments. The government of South Australia, however, home to most of the eastern grid’s wind farms, is making an effort to avoid a repetition of the state-wide blackouts, by aiming to deliver 200 megawatts of diesel capacity for emergencies plus another 100 megawatts of battery storage. Then there is hope that the state’s Pelican Point gas point (239 MW), which was not fired up during the last crisis, will be back in service, assuming that fuel can be found for it. Two other plants, Tasmania’s Tamar Valley and Swanbank E in Queensland, should also be on hand.

In other words, fingers crossed, the grid will muddle through this summer, and never mind the emissions from diesel generation. It’s all for a good cause of keeping green power in service. But what about the next decade’s worth of summers considering that under Finkel’s Clean Energy Target scenario, by 2030 about 35 per cent of the nation’s power will come from wind, solar projects and rooftop panels. To get to that average, given the variability of the output of such projects, at times almost all power on the grid will have to come from renewable projects, at other times nothing at all.

In one respect, the Coalition debate over allowing coal is beside the point. No investors in their right minds will want to build coal-fired power plants here for the foreseeable future. That leaves plants using gas at prices forced up by more state and federal government policy bungling. But how can we be sure that these will be built over the next decade to counter-balance the instability of green power?

The Finkel report, like all others in this area, does not give a definitive answer. In chapter 3 the report discusses setting up a capacity market, as occurs in other areas (including New York and Britain). Generators are paid for being available, rather than for the electricity they generate, to get around the problem of wind farms squeezing the profit margins of conventional power stations.

However, the report rejects the notion of a capacity market in favour of a vague suggestion that ensuring long-term investment security will make the reliability problem go away. Of more concern is that the report states that the reliability problem will be reduced by the grid using different technologies spread over a wide area. This is a mantra often repeated by activists that would be easier to accept if there was any evidence that anyone’s been able to do it effectively. Instead, evidence suggests it simply does not work.

The other standby excuse is that plenty of batteries and pumped hydro projects will store excess energy from the vast number of green energy projects. Batteries may be becoming cheaper by the hour but just how many will be required to make any significant difference in cities the size of Melbourne and Sydney? As for the pumped hydro schemes, they may be of some use if and when the endless environmental objections to new dams of any kind can be overcome. The uncosted, proposed expansion to the Snowy scheme, for example, is certain to meet strong objections from groups downstream of the existing dam. They have been complaining about the amount of water flowing in the river for years.

Assuming that enough pumped hydro projects can be built – the report admits that opportunities for them are limited – and that the vast number of batteries required can be found, many billions will be required on top of the investment required for endless wind farms and solar arrays. According to the modelling in the Finkel report, this will add up to nearly $900 billion by 2050. Despite that spending, the report’s modelling also finds that households will save $90 a year on power bills under the Clean Energy Target scenario. However, graphs buried deep in the report show this does not mean $90 off existing bills. It means $90 less than the bills as calculated under the business-as-usual scenarios.

Then there are the increased network costs, which the Finkel report does not seem to consider at all. This is a surprising omission, given that the rebuilding of the grid to meet new standards has driven much of the vast increases in power bills over the past decade, and the report recommendations will add to those costs. Wind farms and pumped hydro installations are typically built in remote areas but will still require power line connections. Wind farms require lines capable of handling their maximum output, rather than their much lower average output.

In other words, consumers hoping for cheaper power bills in the future will be sorely disappointed. In fact, a more likely scenario for the future of network planning is that federal and state governments will go their own way in ramming more renewable energy onto the grid and then adopting emergency measures to keep the lights on, as the SA government has done. Finkel report or not, that means Australian consumers are likely to end up paying much more for an increased risk of being left in darkness, while the politicians continue to argue.

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