May 2017


Base power

By Richard Denniss
The energy crisis is all about politics rather than supply

Australia relies more heavily on coal for its electricity than almost any other country in the world, yet we have some of the most expensive electricity in the world. Tony Abbott blamed the carbon tax for the rapid increase in the price of electricity, but its removal did nothing to stop the wholesale price of electricity from nearly doubling.

Australia is producing record amounts of gas, and soon we will become the world’s largest gas exporter. Yet the gas industry has told us that we have a “shortage” of gas. It assures us that the only solution is to allow even more fracking of coal seam gas on even more farmland. It’s the environmentalists who get the blame for high energy prices.

And despite the fact that the Turnbull government claims to be both short of cash and committed to tackling climate change, the Coalition plans to subsidise Adani’s enormous new export coalmine. Why are environmentalists opposed to it? You guessed it: because they are trying to ruin the economy.

It is often said that the Australian energy market is “broken”, but the market is working just as it was designed to. It’s not the market that is broken but the politics of energy.

It was politicians who sold the state-owned electricity generators. It was politicians who approved fracking all over Queensland. And it was politicians who approved the enormous gas export facilities that have driven the local price of gas higher than that paid in the countries we are selling it to. Those decisions have cost Australian consumers and taxpayers billions of dollars. When we blame “the market” we let the real culprits off the hook.

In recent years Australians have been told about the “spikes in demand” that place pressure on our electricity grid, but these events should more accurately be called “spikes in profits”. Any number of simple changes could be made to the thousands of pages of rules that govern our “free market”, but the big electricity companies have fought such changes tooth and nail. Then again, you can no more blame the companies for fighting to retain their profit spikes than you could blame the chocolate industry for fighting to retain Easter. Politicians, not companies, are responsible for market rules, and for as long as politicians can blame “the market” or, even better, “the environmentalists”, they can get away with both covering up their past mistakes and doing nothing to address them. Complexity is the cloak behind which the truth is hidden from Australian consumers. 

Can’t understand why you get paid a pittance for the energy from your solar panels when the wholesale price of electricity hits $14,000 per megawatt hour? Or why a country that has doubled its gas exports may soon have to start importing gas? Or why Saudi Arabia thinks investing in large-scale solar electricity is a good idea but we don’t?

Then you should leave it to the experts. Most of whom happen to work for the energy industry.

Luckily the façade is beginning to crumble. And the biggest crack came from a most unexpected source. A tweet. What better way to highlight the absurd complexity of our electricity system than a medium that limits messages to 140 characters? After Tesla promised to build the world’s largest battery arrays in South Australia, the Australian tech billionaire Mike Cannon-Brookes tweeted, “If I can make the $ happen (& politics), can you guarantee the 100MW in 100 days?”

Elon Musk, the man who transformed online payments via PayPal, the car industry via Tesla and the space industry via SpaceX, tweeted back, “Tesla will get the system installed and working 100 days from contract signature or it is free. That serious enough for you?”

All of a sudden Australians saw that change was possible, that alternatives did exist. Perhaps most importantly they also saw that one of the main things holding us back was, as Cannon-Brookes put it, “(& politics)”. Needless to say Malcolm Turnbull panicked.

Despite having once helped launch a plan to make Australia 100% renewable, Turnbull had lost interest in renewable energy. After settling into the big chair he apparently came to realise that coal was good for humanity, that renewable energy was unreliable and that the ALP’s support for a 50% renewable energy target was proof that they were “ideological”. We are told that such views help to appease the right of his party.

But when two of the richest, coolest, tech-savviest men in the world started tweeting about Australia’s renewable energy market, our prime minister just couldn’t stand not being in on it with the “innovators”. Within days he assured us that he too had spoken to Musk and that he too was proposing his own “bold” storage solution in the form of Snowy Hydro 2.0. 

And there’s the rub. The science, the economics and the politics of renewable energy are all evolving far more rapidly than those playing politics can keep up with. For decades, calls for reform to the National Electricity Market’s rules have been met with a knowing wink and a promise of a good long inquiry. Now the rapid collapse in the cost of renewable energy and battery storage is allowing individuals, state premiers and billionaires to get on with things themselves while the “free marketeers” in the Coalition try to use the energy market rules to slow them down.

A further problem for the Coalition is that it has constructed a whole political strategy around the idea that it is conservatives who want to build things and the left who want to block things. In the unforgettable words of our deputy prime minister, Barnaby Joyce, we need to get “yellow things pushing dirt around so we can get this nation moving”.

But when the yellow things are set to move earth for wind turbines, solar panels or large-scale batteries, the right gets confused. Suddenly they worry about the birds that might be struck by wind turbines, though of course not the birds whose habitats are destroyed by coalmines. Wind turbines are “utterly offensive” and “a blight on the landscape”, yet few remark on the visual appeal of Adani’s proposal to dig coal pits that, combined, will make a scar 40 kilometres long and 10 kilometres wide.

Just as the industrial revolution confounded, and ultimately destroyed, the power base of the English landed gentry and created new economic and political coalitions, so too the renewable energy revolution is destroying the power base of the coal, oil and gas industries and forging new and unusual alliances and lines of argument.

Take the Nationals. Long the self-proclaimed voice of farmers, the party has decided to back the coal and gas industry instead of its traditional base in disputes over land use.

The Liberal Party, long the champions of free markets and small government, has decided to support billion-dollar subsidies for the coal industry as it scrambles to build the last new coalmines and coal-fired power stations in the world.

And One Nation, rarely suspected of having deep green tendencies, has emerged as one of the loudest voices standing up to the gas industry where it seeks to poison the earth and pollute the water. But only of course when it’s farmers, and not environmentalists, ringing the alarm bells.

The ALP supports both action on climate change and the Adani mine, but unlike the Liberal Party opposes any subsidies for the project.

New community organisations such as Lock the Gate and People for the Plains have built powerful coalitions of farmers, tourism operators, local environmentalists and people who simply don’t want a coalmine as their neighbour.

And while the Greens’ support for renewable energy has been consistent for decades, the plummeting cost of renewables has fundamentally transformed the arguments and allies now available to them. The unanimous Senate support for Sarah Hanson-Young’s proposal to improve National Electricity Market efficiency shows that the Greens can now deploy economic as well as environmental arguments to support their case.

The Greens demanding economic efficiency, the Liberals supporting subsidies for coal and One Nation worried about water and air pollution. What next?

In February this year, a former US Republican congressman, Bob Inglis, spoke at the National Press Club in Canberra on why he believed tackling climate change was not just good economics but what Jesus would want us to do. He described the “spiritual awakening” that he had while on the Great Barrier Reef with climate scientist Scott Heron, and continued, “Snorkelling with Scott, I could tell that we shared a world view because I could see that he was worshipping God as he showed me the wonders of the Reef. Afterwards, we had time to talk and he told me about conservation changes he was making in his life in order to love God and love people … I wanted to be like him, loving God and loving people. So I went home and introduced the Raise Wages, Cut Carbon Act of 2009.”

While Inglis’ comments were widely reported during his two-week trip, remarkably the political commentariat remained largely mute. Many commentators are so accustomed to choosing between neat boxes labelled left and right that they are genuinely lost for words when someone they deem credible says something important that doesn’t fit into their comfortable categories.

But the problems facing the Coalition in energy policy go much deeper than philosophical and historical contradictions, or whether conservatism also applies to the environment. The brutal electoral reality confronting Turnbull is that voters like renewable energy and hate the old electricity companies. A recent poll by the Australia Institute showed that, after a six-month campaign by the prime minister to blame renewable energy for everything from causing South Australia’s blackouts to forcing jobs offshore, 73% of the public believed that the Renewable Energy Target should be increased. Even among One Nation voters, only 17% opposed such an expansion of “green energy”.

While it is “accepted wisdom” in Australia that One Nation is to the right of the Coalition, a separate poll in the Queensland electorate of Dawson indicated that One Nation voters are in fact more supportive of a “left” issue such as renewable energy than Coalition voters. How can that be?

Put simply, a lot of voters (especially “right wing” survivalists) can’t wait to get off the electricity grid, can see that the world is turning away from coal, and would rather subsidise the rapid installation of the energy of the future than prop up the polluting steam engines of the past.

For the past 20 years, energy policy has been used as a political plaything as the fossil-fuel industry seeks to drag out the incredible profits it makes causing climate change. Trying to categorise the energy politics of the 21st century into the binary left–right political labels of the 18th century is like trying to categorise fish according to the number of legs they have. It could keep you busy for years and do nothing to advance your understanding of anything.

Richard Denniss
Richard Denniss is the chief economist at The Australia Institute.

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