Fossil Fuel Industry Holding Australian Economy to Ransom

Illustration by Greg Foyster, greg.foyster@gmail.com

by Giles Parkinson, Renew Economy: http://reneweconomy.com.au/2016/fossil-fuel-industry-holding-australian-economy-to-ransom-58128

 

How often do we hear it? Australia, with its world-leading renewable energy resources, particularly wind and solar, and its technological know-how, has the opportunity to become a global energy superpower in a global economy committed to rapid decarbonisation.

 

Is it an opportunity the country is likely to seize? Probably not.

 

Australia has an opportunity to accelerate that shift at a critical meeting of the federal and state energy ministers on Friday, but it is highly unlikely that the status quo will be troubled. There are still too many powerful vested interests at play.

 

Take, for instance, the situation in South Australia. This so-called “energy crisis” - July’s big spike in prices that used to be common before the advent of wind and solar - was predicted, hoped for, and possibly even confected in the hope of illustrating the limitations of renewable energy.

 

Instead, it has simply proved that the fossil fuel industry is holding Australia’s transition to a clean energy economy to ransom, and that consumers are being gouged at every level of the energy industry.

 

Numerous reports have pointed to the market manipulation by a few powerful interests. The Melbourne Energy Institute outlined how a few generators “gamed” the system, exploiting their unusual market power to charge “monopoly rents”, with parallels to the energy crisis confected by Enron in California more than a decade ago. 

 

The Clean Energy Council has complained about stratospheric prices extracted by fossil fuel generators in the name of “energy security,” while RenewEconomy’s own David Leitch and the MEI have pointed to the huge lift in margins.

 

A new study to be released tomorrow by Bruce Mountain of research group CME will show that one-third of capacity was “deliberately” withheld at the peak of the south Australian energy “crisis”, at a time when the generators knew that they could cash in on high prices.

 

The first part of his report, released on Tuesday, showed how the big three retailers - pretty much the same companies that own the state’s gas generators - were price gouging in South Australia, charging $650 more than the cost of generation and delivery, just to act as a go-between for wholesalers and network companies.

 

And, of course, there are the network costs, the gold plating of which has seen consumer bills skyrocket in recent years. Even as regulators attempt to crack down on spending plans for yet more poles and wires, the network owners - and particularly the NSW government - is taking the regulator to court to enable them to spend more and pass those costs on to households and businesses.

Little wonder, then, that the ministers’ meeting in Canberra on Friday is being asked to look beyond more fossil fuel solutions - i.e. drilling for more gas - to solve the NEM’s problems, and to open the markets to more competition. Such measures might include new interconnectors, encouraging more battery storage and “complementary” renewables such as solar towers with storage. In short, they want more competition for the incumbents.

“The future of the national energy market is 100 per cent renewable,” says Tom Quinn, the CEO of the Future Business Council. “The grid must be re-imagined with this reality in mind and built to enable diversified generation and simple import and export throughout the national energy market.”

Quinn says Australia needs to rapidly transition from to its “dumb grid” to an “adaptive grid” and embrace those new technologies, which could include solar, storage, electric vehicles, pumped hydro and ocean energy. “The country has the world’s richest renewable energy resources and the opportunity to create the lowest cost base of energy for industry in the world,” he notes.

The Labor states appear to recognise this. South Australia’s Labor government says its economic future depends on transitioning to a clean energy economy. It is already nearly half way there, a benchmark that the incumbents and ideologues are keen to demonise rather than celebrate.

The ACT is half-way to its 2020 target of sourcing the equivalent of all its electricity from renewable energy, a remarkably canny and visionary strategy that will provide its homes and businesses with an effective hedge against volatile fossil fuel prices and price manipulation in the market.

Victoria and Queensland are keen to follow, and Tasmania is keen to use its massive hydro resources as a clean-energy battery for the mainland. Even Western Australia realises that the future lies in solar and storage.

But there is no sign of this transition at the federal level. Our interview with Josh Frydenberg last Thursday confirmed the worst fears of many in the industry. Frydenberg understands some of the dynamics that are working in the industry, but there is no sign that the Abbott era policies on climate and renewable energy are about to change.

Frydenberg may be less willing than some of his coalition colleagues to blames renewable energy for soaring electricity prices, but he shows he is not about to accelerate the push – ARENA will be stripped of funds; next year’s review of climate targets will be a stocktake, rather than a launch-pad; and there will be no long-term setting of targets, be they for renewable energy or for the decarbonised economy that the Coalition signed up for in Paris last year. The answer for everything appears to be: more gas.

This is depressing stuff. Everyone knows that the transition to new technologies is unavoidable, the question is over the shape, the pace and the cost of that change. The federal government’s role is critical: it can seize the moment and work towards becoming a world leader and renewable energy super-power, or it can be dragged along as it hits the brakes on change to suit the narrow business interests of a few powerful players.

It would, of course, be unfair to blame only Frydenberg for this mess. He, and Turnbull, are constrained by the right wing of the party who, far from wanting to accelerate the transition to clean energy, are reluctant to even accept the science of climate change. The actors may have changed, but the script remains the same.

The role of mainstream media is also important. In short, it has been appalling. Since when has the media considered its role to turn a blind eye - as it has done, quite literally - to the abuse of power of a few key players in the energy market.

The Murdoch press splashed a front page “scoop” about the absence of wind power at critical moments in early July, part of its long and intense campaign against renewable energy. Apart from being wrong - and sourced from the Coalition - it completely missed the point. Yet it has written nothing of the market manipulation and “economic” withdrawal of nearly 1,000MW of fossil fuel generation. The price gouging of retailers has barely got a mention.

Meanwhile, the fossil fuel industry does as it pleases: demonising renewables, withholding capacity, exploiting market holes to push prices higher, pleading for subsidies to help fossil fuel generation leave the market, pleading for other subsidies to “guarantee” the retention of other fossil fuel generators, fighting rule changes that could open the market to new competition, and taking the regulator to court in an effort to further gold plate the grid.

That is what they are able to do. They have a majority share of the market operator, extraordinary influence over the policy maker and federal and state regulators, and a stranglehold over conservative politicians. And as long as the Coalition refuses to translate its Paris commitment to practical policy, they will continue to run amok.