Uninvestable has become a new buzzword in the Australian electricity debate.
It is being used currently by energy analysts Bloomberg New Energy Finance to highlight an 88 per cent fall in renewables investment in Australia between 2013 and 2014.
Mark Butler, federal Labor’s spokesman on the environment and climate change, has seized on Bloomberg’s report to accuse the Abbott government of an “anti-renewable ideology” and of being the main cause of the fall in investment.
In doing so, he ignores the critical issue highlighted by the Energy Supply Association before Christmas.
ESAA pointed out that the problem is significantly bigger than just a lack of renewables investment.
The entire generation sector, it argued, is “uninvestable” or “unbankable” as a result of constant policy changes and distortions from successive interference by governments.
The association has published a survey of major banks and other investors which, in its words, shows that “they are simply unwilling to invest in any new generation projects of any type for the foreseeable future because chronic over-supply (of capacity in the east coast wholesale market) and weak prices (for generated energy) mean their investments will only lose money".
ESAA also notes that the Climate Change Authority, which produced yet another review of the renewable energy target in December, “spoke to financiers but was unable to report that banks believe the current loss of investor confidence can be resolved by tinkering with the RET".
The association is calling on mainstream politicians to develop national energy policy that incorporates a long-term, credible strategy to reduce greenhouse emissions, restores the “bankability” of the sector and “does not destroy the balance sheets of businesses needed to underwrite the transformation” (of the power generation sector to a less emissions-intensive state).
There has been barely three weeks between this statement and Butler’s opportunistic seizing on Bloomberg report about 2014 renewables investment.
Has a hangover from the festive season clouded his memory or is he demonstrating another example of politicians ignoring what ESAA describes as “the elephant in the room” to score points?
Bloomberg’s local spokesman, in fact, has acknowledged the broader problem.
He is quoted, albeit well down in some stories in the media (bearing in mind the notorious public habit of reading headlines and only a couple of opening sentences in newspaper reports), as saying the investment damage is not confined to renewables “but affects all large energy investments.”
The Butler/Labor line is that “investment confidence has been smashed by Tony Abbott’s decision to walk away from his previous support for renewable energy.”
Labor, it asserts, is “committed to a strong and sustainable renewable energy sector.”
This doggedly ignores the bigger picture: one in which, for example, production from lower-emitting gas-fired generation, a technology explicitly supported by Labor policy in Queensland and welcomed by its governments in Victoria and New South Wales in the past decade, is expected to fall two-thirds by the decade’s end.
Between 2007 and 2013 gas-fired baseload and peaking plant accounted for almost half the generation capacity added to the east coast market. Labor’s Queensland gas scheme, launched in 2005, had lots to do with this.
There is a paragraph in Alstom Australia’s submission to the CCA’s RET review that Butler, and others in the body politic who are serious about national energy policy as opposed to tooting ideological or political trumpets, should read and absorb.
It says: “Typical power generation investments, whether renewable or thermal, are large in nature (and) long-life assets (25 years and more) with commensurate investment horizons. They require a supply and support industry with similar long-term commits to invest in R&D, capital and people to be able to build, operate and support these assets over their working lives. Undertaking such investment requires policy certainty. Where investments come from overseas, sovereign risk issues arise with frequent, major changes in policy.”
Alstom goes on to specifically cite the RET developments in 2010, firstly to allow highly subsidised rooftop solar, then reversed to create the current small-scale measure after a “consequential collapse in large-scale (renewable) investment, highlighting what sudden policy changes with unintended consequences can do to investment certainty. And who, Mark Butler, was in office federally (and, for that matter, in the east coast States and thus dominant in CoAG) in 2010?
In its energy white paper submission, Alstom deals strongly with the gas generation issue and adds that the end-result of a lack of adequate holistic policy responses will be “mostly coal-fired generation coupled with additional renewables capacity.”
The consequences, it warns, will include a raising of the emissions intensity of the generation portfolio, the loss of flexible gas plant to assist in the management of “demand transients,” the write-off of recently invested capital and the need to reinvest in major base load generation sooner due to the old coal power stations having less remnant life than newer gas turbine units.
ESAA, in its submission to the CCA in December, points out that there is around 10,000 megawatts of excess capacity in the east coast market today. “This is suppressing wholesale prices and making investment difficult -- more recently the association says impossible -- in all technologies.”
The RET issue, it adds, needs to be considered as one part of what ails the energy market as a whole.
The association also underlines a consequence lurking down the road that keeps getting ignored in the political argy-bargy: if the point is reached, it says, where paying thepenalty price represents the least-worst option for electricity businesses compared with underwriting uneconomic new renewables plant, “it will be a substantial policy failure.”
This is a serious challenge not just for the likes of Abbott, Ian Macfarlane and Greg Hunt on the current government side, but for people like Butler and Bill Shorten and the leaders of state governments whose communities will be on the receiving end of such failure’s price impacts.
As it happens, the majority of residential and business electricity accountholders (5.6 million out of a 9.4 million east coast total) are in Queensland and NSW, which are holding elections at the end of this month and the end of March respectively.
Security of electricity supply is a here-and-now issue for all of them.
Certain policy, as asserted by Alstom, ESAA and others, is the essential ingredient for this.
Nothing about Butler’s reaction to the Bloomberg report suggests he and Labor have their attention on the big picture at all.
This article was first published on Keith Orchison's blog, ThisisPower. Reproduced with permission.