There is an energy crisis. Actually, there are two separate but related crises, an electricity price crisis, and a gas price crisis. Although different, they have the same problem, our dependence on fossil fuels.
The first is a sharp rise in electricity prices, driven almost entirely by our reliance on coal and gas for power generation.
Both the Australian Energy Market Operator (AEMO) and the Australian Energy Regulator (AER) have clearly identified failures at coal-fired power plants, Australian consumers competing with high global coal and gas prices, and difficulties getting coal to power stations. Because the main causes of this problem.
The states with the greatest dependence on coal have seen the largest increase in electricity prices, particularly Queensland, with a 141 percent increase in wholesale prices.
The second is a gas crisis due to our exposure to global gas prices. Because we allowed virtually unlimited exports of our gas from Gladstone in Queensland, Australian households and industry on the east coast now have to compete with exports to buy our own gas.
The gas crisis is depressing electricity prices because we generate part of our electricity from gas. More importantly, gas is used by manufacturing and households for heating, particularly in Victoria.
With global prices skyrocketing due to the war in Ukraine, gas exporters profit by exporting as much as possible and charging Australian customers exorbitant prices for what’s left.
This is by design, not by accident. While gas companies like Santos tried a decade ago to get their export projects approved, they told governments it would have no effect on Australian prices while telling investors the exports would peg their domestic reserves to world prices, giving them gas-much money in exactly these kinds of circumstances.
In response, Australia’s energy ministers met on Wednesday and released some promising and worrisome signs of things to come.
First, the good news. Australia now has a Federal Minister for Climate Change and Energy. Secretary Chris Bowen, who chaired the meeting with his counterparts in the state and territory, recommended solutions not just securing energy but delivering the shared commitment to achieving net zero emissions by 2050.
Energy ministers requested that amid this fossil fuel-fuelled crisis, “the time is right to work together on a new agreement to bring the vision for the transition of the Australian energy sector to net zero”.
For their next meeting in July, ministers expect an outline for a stable transformation towards decarbonization. Hopefully, this plan is based on international best practices, with the German Coal Commission providing the gold standard for planning and phasing out coal-fired power plants.
Such leadership could not have been imagined with Secretary Angus Taylor a month ago. To a man with a hammer, every problem is a nail; for Secretary Taylor, every problem was solved with more gas. Even the response to the pandemic has included a gas-fired storage facility.
But more gas won’t help. This is not a problem with the gas supply. It’s a gas export problem. And the solution is not more gas production but less dependence on gas.
Energy ministers clearly understand the importance of reducing our dependence on the export price of exposed coal and gas and disastrously unreliable coal-fired power plants. They note that this requires large amounts of clean generation, storage, and transmission.
They asked their departments to look at ways to merge renewable energy and storage projects, which involved a coordinated effort to procure large quantities of both to solve supply chain problems and reduce costs. This is essential for building large-scale renewable energy zones (SEZs) under the Integrated System Plan (ISP) already prepared by AEMO.
However, a worrying element of the communiqué is its focus on progressing a ‘capacity mechanism’. While ministers say it should “establish renewable energies and storage,” the version proposed so far by the Energy Security Board (ESB) has been dubbed “CoalKeeper” as it would reward existing coal and gas-fired power plants and would effectively exclude wind and solar energy and batteries.
Secretary Bowen has said he expects the ESB to return with an updated draft of the capacity market proposal in a few days. The new design should be radically different and explicitly exclude rewarding coal and gas plants because it’s ridiculous to support the fuels that got us into this mess.
Energy ministers have addressed immediate pressure to improve local gas supplies, which can be helpful on the margins. Still, it won’t even address the fundamental problem of our exposure to global gas prices.
The ministers also seem to have completely missed the most important task of electrifying our homes and manufacturing. It was much cheaper to heat our homes and hot water with electricity than with gas, even before the huge rise in gas prices.
This would lower household energy bills and free up gas for use where it is absolutely needed (where it is more difficult to replace, especially in some manufacturing processes). It would happen over time as we add renewable and storage capacity to increase the electricity supply.
But the biggest missed opportunity is not taking advantage of the gas companies’ unexpected profits from this crisis. We are talking about capturing some of the war profits made by these gas giants selling our resources. The revenue from unexpected taxes could then benefit Australians who are currently battling high electricity and gas prices.
If the UK can levy a windfall tax on oil and gas companies, so can the Australian government. Because if one thing is clear, Australians will continue to suffer as long as we rely heavily on fossil fuels.
