Victorian consumers used to enjoy some of the cheapest energy in the world; manufacturers thrived on low-cost gas and electricity. Not any more.
One of the world’s most secure and affordable energy capitals has become one of supply uncertainty and prices which are rising to the top of the global price lists.
The uncertainty was underlined this week when two large numbers were revealed: $50 million to convince big energy consumers to curtail their activity, and $5 million in direct compensation to blackout victims.
These are sums ultimately paid by taxpayers and energy consumers, whether or not they agree with the ideology which underpins them. And the truth is that the ‘pure green’ approach at the centre of this issue is a matter of political power, not good governance, as we have noted previously.
The $50m payments were made by the Australian Energy Market Operator (AEMO) for a short, hot period a little over a fortnight ago, when temperatures soared in Victoria and South Australia. The payments are made under a ‘demand management’ emergency plan administered by AEMO.
Despite the $50m worth of reduced activity by big manufacturers, 50,000 homes were hit by black out in Victoria. They will share the $5m compensation to be paid by energy companies as part of a regulated service guarantee.
What makes this more difficult to swallow for taxpayers and energy customers is that the supply uncertainty and consequent high prices are a function of Government policy in both Victoria and SA.
As Federal Energy Minister Josh Frydenberg said earlier this week, the AEMO emergency measures were needed because neither Victoria or SA could be sure they could meet demand. They simply did not have enough dispatchable power to keep all businesses operating without the risk of blackouts.
It is a welcome relief for small businesses and consumers if the emergency measures work. But nobody enjoys paying the $50m bill – and it is not good for the economy to be telling goods manufacturers to cut back their production.
There is also an additional environmental negative; i.e. that diesel power is being used in Victoria and SA to try to plug the holes in electricity supply. Of the commonly generated dispatchable power, diesel is the worst in terms of carbon emissions – the very thing the Victorian and SA Governments are trying to reduce by replacing coal-fired power with renewable energy.
Victoria and SA are both working towards 50% renewable energy targets. SA is well advanced, but it has learned the hard way that wind and solar power are intermittent and unreliable.
An unprecedented whole-of-state blackout in SA in late 2016 prompted a re-think on future needs, with the result that SA is now investing in gas-fired back-up for its renewable energy plant – and it is having positive results.
The need for back-up to renewables is what helps make natural gas an attractive and sensible partner to increased deployment of renewable energy.
Natural gas can provide a ‘quick-switch’ dispatchable capability not available with coal-fired power. And it has the benefit of producing about 50-60% fewer carbon emissions.
Gas also has a complementary role because not only just when the sun is not shining and the wind s not blowing. Too much wind can also be problematic, as we have pointed out previously.
While they have been slow to react at the higher level, SA and Victoria have taken some interim steps to get more gas-powered stability back into their electricity networks, without which the January situation may have been worse.
SA and Victoria have both closed down coal-fired electricity generators in the past two years.
In the absence of more gas-fired power as back-up, the energy reliability situation will only get worse.
In September last year, AEMO forecast a 43% chance of blackouts in Victoria and 33% in SA this summer.
Batteries can help provide some relief. But even the world’s biggest, just commissioned in SA, is only a bit player.
SA is sensibly making natural gas part of its long-term solution. It has demonstrated that the claimed environmental hazards are overcooked – and readily managed. Natural gas, including using hydraulic fracturing (fracking) to release it, has been a mainstay of the SA economy for 60 years.
In Victoria, there really is no excuse for its illogical ban on natural gas development. Natural gas has a safe history in Bass Strait and eastern and western Victoria dating back a century.
As Victorian Opposition energy spokesman David Southwick said:
“Victorians have already suffered price hikes due to the Andrews Government’s’ ideological closure of Hazelwood (coal-fired generator), and now we’ll suffer more because of his need for green credentials on gas.
“The writing is on the wall here. Daniel Andrews didn’t listen to the experts when it came to closing Hazelwood, and he’s not listening to the experts when it comes to gas.”
Mr Southwick is right in identifying that Victoria’s best environmental scientists found that there was only “low risk” attached to developing shale gas in the east and west of the State.
That has been plain for years now – as we pointed out in 2015.
It remains to be seen if the Government desire to protect seats targeted by the Greens is strong enough to withstand the voter potency of high prices and job losses caused by energy supply uncertainty.