Replacing Australia’s coal-fired energy

To ensure energy security, Labor and the Coalition need to skip the politicking and work out what will supply tomorrow's power.

Former Origin Energy executive Andrew Stock made a darned good point about Australia’s electricity strategy in a radio commentary on Sunday, one that both the Coalition and Labor could be doing more to bring in to focus.

Stock, contributing to the ABC’s “Ockham’s Razor” program, said: “Australia needs to seriously start planning now for the looming retirement of its ageing coal (generation) fleet.”

This is the elephant in the green room of national energy debate and the “now” aspect of Stock’s comment needs to be heavily underscored.

He built some 3,000 megawatts of new power capacity for Origin and, as he points out, significant additions to supply take about 10 years to develop -- from first steps to commissioning.

This is important when you take in to account that more than two thirds of the core of our electricity supply -- 29,000 MW of coal-burning plants -- will be more than 40 years old in 2030 and 40 per cent of it will more than 50 years old, “facing high maintenance and operating costs and becoming increasingly unreliable,” as Stock said.

In one sense, it doesn’t matter what level of carbon emissions cuts Australia will need to pursue in 2030, because the coal fleet will still have to be scuttled.

The worst of all worlds will be a disorderly pursuit of this exercise, bedeviled by the acrimonious politicking over all things related to carbon policy, veering with each election, which is exactly what we have now.

The fact that lots of people have lots of differing opinions about what the next generation electricity supply system should look like is really not the point.

The often-repeated argument that “70 per cent of Australians like renewables” should cut no ice in a well-ordered strategy. (Nine-tenths of them have their fingers crossed, anyway, quietly adding the rider “so long as my power bills don’t go up.”)

At a government level, the abiding sin is politicians picking winners; the Coalition and Labor are at it again now with their negotiations over the renewable energy target.

Oxford University’s excellent Dieter Helm nailed the problem in a Financial Times op-ed this month: “When it comes to energy policy, politicians always think they know the answers -- and consumers pay the price for years after they leave office.”

Helm argues that the lesson by now should be painfully obvious: the energy mix should be the outcome of market processes, not the objective of government policy.

The Warburton RET review got told this politely by the body that makes the local power market rules, the Australian Energy Market Commission, and seems to be have completely ignored the point.

The effective integration of Australian energy and environmental policy, said the commission, requires a mechanism that both achieves abatement and “preserves the means of exchange and allocation of market risk.”

Policy should not be predicted on one view of the future. Policy that allows the greatest number of technology options is likely to minimise consumer cost.

The AEMC suggests that a good way to deal with the situation we are now in would be to transition the RET to an emissions-intensity based scheme for electricity supply.

There are a number of ways this could be designed.

The AEMC suggests that one is where generators below a defined emissions intensity level create certificates that generators above this level have to buy.

I don’t know whether this is what AGL Energy’s Michael Fraser has in mind when he calls for the RET to be scrapped and policymakers to start again, but the commission’s idea appeals to me as a way to deal with both the scrambled market environment that is now frightening off investors and the big point made by Andrew Stock: we must plan for the demise and replacement of most of the existing coal fleet for good energy security reasons not ideology.

Opinions about what should come next in technology terms differ widely.

Reconciling those who want much more wind and solar power with those who propose a shift to nuclear and those who believe in carbon capture and storage is a job for Sisyphus. Politicians shouldn’t take it on beyond setting the ground rules.

They certainly still need to make the big policy decisions -- one of which is whether Australian should be a nuclear power user as well as a supply of uranium to the world -- but they must, in order to avoid a train wreck in our most essential service, create a market set-up where investors will pursue what makes most commercial sense and consumers will gain long-term benefits in terms of secure, reliable and affordable electricity.

Someone gazing on the current mess and despairing, said to me the other day, “We can’t go on like this,” to which I retorted “Oh yes we can -- and the odds are that we will.”

But we don’t have to and we shouldn’t. The critical question is whether our political leadership can rise above their self-made ruck.