Prime Minister Malcolm Turnbull addresses the media after his tour of the Snowy Hydro Tumut 3 power station in Talbingo, NSW, on Thursday 16 March 2017. fedpol Photo: Alex Ellinghausen Photo: Alex EllinghausenWhat if the biggest government announcement in electricity generation in years was both a great breakthrough and a distraction?
Depending on who you listen to, Malcolm Turnbull’s proposed $2 billion expansion of the Snowy Hydro Scheme is a bold piece of nation-building by a Prime Minister who had found his mojo, or a cynically timed thought-bubble that is years away at best.
The truth, as is often the case, probably lies somewhere between the extremes.
For his part, Turnbull didn’t hold back in tapping into n mythology. Speaking near the Tumut River on Thursday afternoon, he stressed the need for a flexible energy system in Dorothea McKellar’s land of droughts and flooding rains.
“I am a nation-building Prime Minister and this is a nation-building project,” he said through a broad grin.
“This is the next step in a great story of engineering in the Snowy Mountains and the courageous men and women who are confident and committed to ‘s future.”
But timing is everything, and the PM’s announcement of the plan can’t be divorced from what has been – in the usually wonkish arena of electricity and gas policy – an extraordinary 10 days.
Consider the avalanche of events.
Most people know power bills have leapt in recent years, but the extent of the surge was stressed by two recentanalyses showing wholesale electricity prices had doubled in a year – and, despite what had been suggested would happen, are now twice what they were under Labor’s allegedly economy-wrecking carbon price.
Similarly, years of warnings about risks to the east coast gas supply received little attention until the n Energy Market Operator last week observed that some states could face shortfalls as soon as next summer. Already, depending on your arrangements, gas prices have either doubled or trebled, as most of what we have on the east coast is sold to Asia.
On Monday, think-tank the Grattan Institute highlighted another open secret – that the vaunted competition of privatised electricity markets has failed, or at least not been properly managed. It found up to 43 per cent of household power bills goes into the pockets of electricity retailers as profits.
Some have quibbled over whether this adds up to an “energy crisis”, but political insiders are in no doubt. They say the common response from punters is: how did a country with such plentiful energy resources reach this point?
South ns, who have suffered through four blackouts of various extents in recent months, certainly consider it a crisis.
On Tuesday, the Labor state government responded with arguably the biggest intervention in the National Electricity Market’s two-decade history. Incensed by what he sees as a lack of national action and a failure by the market operator – and an election for an unlikely fifth term just a year away – South n Premier Jay Weatherill took unprecedented steps to ensure the state’s energy supply. His grab-bag of policies, including a state-funded gas plant and a tender for a grid-scale battery, are designed to make South far less reliant on what he says is a failed national grid.
Lest we get bored, on Wednesday the Prime Minister held a meeting with the country’s major gas exporters, demanding answers. He emerged declaring an agreement from two of the three companies that would ensure enough supply to meet local business and household demand, with details to come. If they failed to deliver, he threatened to use constitutional powers to force their hand. His message was clear: the needs of n residents must be met or the government will step in.
Asked whether this would be enough to keep prices down, the PM demurred.
So to Thursday, and what Turnbull dubbed Snowy Hydro 2.0 – a proposed 50 per cent expansion of the iconic scheme. If it goes ahead, it will effectively introduce a 2000 megawatt battery – a quarter bigger than Victoria’s doomed Hazelwood power plant – into the system to smooth out supply as more and more intermittent wind and solar energy are introduced.
As the PM was extolling his Menzian vision for the future, the dysfunctional face of the n energy debate was on show in Adelaide, where Weatherill and Energy Minister Josh Frydenberg traded barbs at an astonishing joint press conference in a suburban garage. Meant to promote a virtual storage project by company AGL, the event was hijacked as Weatherill accused Frydenberg of being part of “the most anti-SA government” in memory.
The Premier noted Turnbull had praised – and taken some credit for – South ‘s development of renewable energy during last year’s federal election campaign, before changing his tune. “For you to then turn around within a few short months, when there is a black-out, and point the finger at SA[‘s] leadership in renewable energy [as] the cause of that problem is an absolute disgrace,” he said.
In return, Frydenberg accused Weatherill of crashing the event and questioned whether he was fit to continue as premier.
What to make of this string of events?
For one, government investment in electricity generation is the new black.
After a couple of decades of leaving decisions about building new power plants to the private sector, governments of all stripes believe the market is not working. Weatherill says this explicitly. Turnbull and Frydenberg don’t put it that way, but you don’t heavy gas companies and propose to expand the Snowy Hydro Scheme by 50 per cent if you think energy systems are looking after themselves.
The disruption underway in the electricity grid – from an overwhelming reliance on coal to clean generation – is immense. The push for a pure market-based carbon price reflecting the cost of greenhouse gas emissions will continue, but experience shows the political reality will be messier.
And the electricity system is already being interfered with. There is a national renewable energy target of 23 per cent by 2020. There was a carbon price to help drive the change, but it was abolished. ACT and Victoria either have or are introducing incentives to deliver more wind and solar. There are a range of subsidies for various energy technologies across the country.
But the biggest – and, to date, vaguest – intervention in the electricity market is the Paris climate agreement signed by the Turnbull government in December 2015.
The government has signed up to cut greenhouse gas emissions by up to 28 per cent by 2030, compared with 2005 levels, with deeper cuts to follow. Industry insiders believe the electricity sector will have to carry a significant part of the load given how difficult it is to cut emissions in some other parts of the economy – steel production and gas-reliant manufacturing, for example. It is no small task.
At the moment, there is no policy to drive it – but the industry believes it will inevitably come, and wants government to get on with it. Major energy companies, business groups, big miners including BHP and the National Farmers Federation are among those pushing for an emissions intensity scheme for the electricity sector to drive it at lowest possible cost.
But getting a policy through the Coalition party room will be difficult at best. Despite advice it would limit price rises, an emissions intensity scheme was ruled out in December within 36 hours of Frydenberg publicly raising it. The hard right, mostly made up of science contrarians, has an aversion to anything that could be described as carbon trading.
Until a policy is resolved, investment in new electricity plants is limited to the renewable target – only meant to be an add-on to the scrapped carbon price – and the federal and state governments’ new-found enthusiasm for using taxpayers’ money to pay for generation.
A second clear message from the past week is that Weatherill has had enough.
For six months, the South n government has been battered by Canberra as ministers and ideologues in the media have accused it of causing blackouts. In reality, the state renewable target is entirely aspirational – there is no policy to back it up.
The state was slow to respond after the closure of its last coal-fired power station last year, but the world-leading growth in wind farms in the state – they make up 40 per cent of its capacity – have overwhelmingly been driven by the national target. With the exception of the freak storm that shut down the entire state on September 28, the lights would not have gone out if all existing generators had been running.
Weatherill’s frustration is genuine, but he has also taken his stance with an eye on next year’s state election. Making Canberra the enemy tends can play well for beleaguered premiers.
It makes for a messy picture, but to the threshold question: is what’s planned likely to work?
As the old Irish joke goes, if you want to get functioning energy systems, well, you wouldn’t start from here. But that doesn’t mean none of the proposals have merit.
Weatherill has thrown everything at South ‘s problems in the knowledge that even a hint of a blackout next summer would mean his electoral chances are gone. Some of what he is doing has been widely welcomed. Some of it is likely to be redundant.
He gets a tick for the tender for the country’s biggest battery project, which may yet require mega-mogul Elon Musk to deliver on his Twitter promise that Tesla could build 100 megawatts’ storage in 100 days or give it away for free, but is open to other bidders.
Similarly, his introduction of new incentives for gas exploration – including offering farmers 10 per cent of the royalties for anything extracted beneath their land – has been applauded.
But the key step to the state keeping the lights on is likely to be far more mundane. He has required network operators to have 200 megawatts’ back-up in place when everyone turns on their air conditioners and demand soars next summer. It is likely to be met by hiring diesel generators. It’s an effective, if dirty and expensive, short-term answer, but doesn’t make much of a headline.
Other parts of the South n plan are more contentious. It will spend $360 million on a gas-fired plant that will only be turned on when absolutely necessary – perhaps as little as a week each year. Weatherill says it is justified as the plant will provide the “inertia” – a stabilising effect missing from intermittent plants – that the system needs. But grid frequency can be stabilised in other ways and the plant will take up to three years to build. It is hard to see it as anything other than a political solution.
The state will also give Energy Minister Tom Koutsantonis the power to interfere in the market to ensure the lights stay on, reflecting that the state lost faith in the market operator after it failed to ensure all gas plants were operating before power was lost in tens of thousands of homes last month. How this would work remains unclear, but Frydenberg has not unreasonably warned of chaos in the market if other states followed the SA lead.
Turnbull’s desperation is not as overt, but is driven by the knowledge that his government will carry the can if the spiralling problems are not addressed. He also knows his options on electricity are limited by the powerful reactionary rump within his government.
He has won kudos for leading on gas, but the commitment from producers has been vague. Analysts have warned manufacturers, which need affordable gas or face going under, are unlikely to see prices comes down or supply increase unless more is done. The Prime Minister may yet have to make good on his threat to use his constitutional powers to force a change.
His hydro battery plan is a different story. It has the vision thing. The government is doing something. And it is potentially huge in scale.
While some have accused Turnbull of policy on the run, the proposal – for 27 kilometres of new tunnels, pumps and generators – has been around since the 1980s.
It would involve using excess electricity at times of low demand to pump water up hills. It would be stored and released at times of need to flow back down through turbines, generating electricity.
Among other things, it would make the government’s flirtation with funding a new “clean” coal plant – still being spruiked this week by Resources Minister Matt Canavan – much harder to justify.
It is worth noting that while the Prime Minister has joined colleagues in emphasising the role played by coal, to date he is tipping money only into green solutions. The latest announcement follows $20 million for pumped hydro research in February. Renewable power advocates are buoyant: the future suddenly looks that bit cleaner.
But plenty of questions remain unanswered. It is not clear how long the Snowy plan will take to get up – Turnbull says within four years, but the n Renewable Energy Agency has said this sort of project could take up to seven. It is not clear what it would cost, or who will pay for it. A feasibility study is yet to be completed. Its impact on the environment has not yet been assessed. We don’t know if its viability in a projected future climate with reduced river flows has been considered.
NSW and Victoria, which own 58 and 29 per cent of the scheme respectively, only found out about the proposal shortly before it was announced. They are broadly supportive, but are withholding their final position until more is known.
It is also not clear what the electricity market it will feed into will look like. Households are now investing in their own battery systems to store power generated by their rooftop solar panels. That has the potential to ease the huge surge in demand for electricity at peak times – the same problem the Snowy is planned to address.
No matter how worthwhile, the Snowy 2.0 is also not a substitute for a national energy policy to drive private investment in new power plants.
The wait for that continues.
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