----- The AFR View
Labor’s plan to make energy crisis worse
The domestic energy crisis is more than the result of the Russian war on Ukraine. Labor’s response seems to ban the obvious answer to the crisis of encouraging new gas supply.Dec 11, 2022 – 5.01pm
Fifteen years of culture war politics and incoherent climate change policy led to the most clumsy and on-the-run interventions into the energy supply sector that has helped hold up Australia’s modern prosperity. As The Australian Financial Review has warned, imposing domestic price caps on coal, and especially gas, come with a high risk of making Australia’s energy cost problem worse by ratcheting up political and sovereign investment risk and hence reducing supply.
The domestic energy crisis is more than the result of the Russian war on Ukraine as Labor’s ministers parrot. As Reserve Bank of Australia governor Philip Lowe warns, high and volatile energy prices are set to continue because renewable sources are not expanding fast enough, particularly for reliable or “firm” back-up, to make up for the reduced investment in traditional fossil fuel-based power.
Yes, the answer is to accelerate investment in wind, solar, pumped hydro and batteries. But the European energy crisis also highlights the danger of precipitously pulling out the traditional coal and gas before the cleaner renewables, with sufficient back-up, are installed.
As the Business Council of Australia said on Friday amid a global energy chaos beyond our control, the policy priority should be to avoid “the kind of domestic ad hoc intervention” that will make it worse. Yet as we report today, the Albanese government’s planned intervention into the east coast gas market goes beyond a 12-month temporary wholesale gas price gap and proposes a permanent “reasonable price provision” that would apply to all new supply from currently undeveloped gas fields.Regulating so-called ‘reasonable’ domestic contract prices is resource protectionism ill-suited to Australia’s LNG export industry.
Regulating so-called “reasonable” domestic contract prices based on underlying production costs and a politically determined rate of return on capital – a step that gas market analysts liken to “near nationalisation” – is resource protectionism ill-suited to Australia’s capital-intensive LNG export industry that is exposed to volatile global commodity markets. Labor wants to ram through parliament in one emergency sitting day on Thursday its extraordinary gas market shake-up that global energy giant ExxonMobil says is “reckless”, “rushed” and inevitably risks supply shortages and blackouts.
Labor’s response seems to ban the obvious answer to the crisis of encouraging new gas supply in order to keep the lights on amid the inevitable transition to a net zero carbon economy over the next few decades. This is happening amid the disruption to global supply chains, the labour shortages and the new social impediments to development that confront the required renewables investment boom.
The previous fetish of some on the political right in favour of coal and against putting a price on carbon has been replaced by the new fetish of the progressive left against the cleaner energy source that will help facilitate the massive transition to renewables and by a knee-jerk response to heavier government intervention that will only chill the needed new investment.
Labor has made a rod for its back through Anthony Albanese’s reckless pre-election vow to reduce annual household power bills by $275 on the basis that “renewables are cheaper”. In the long run, that may be the case. But the transition also involves massive investment in transmission to a much more geographically dispersed energy generation system, along with expensive investment in reserve or back-up “firm” capacity that will be tested when the passing of the La Nina weather pattern brings a return to scorching summer days and when increasing solar dependence runs into cloudy and windless winter stretches.
The long overdue “capacity mechanism” agreed in principle by state and federal energy ministers on Thursday rejects the energy regulator’s call for it to be technologically neutral and hence less costly by including gas, particularly, peaking gas to kick in when the renewables-based system hits its own supply shortfalls. Energy Security Board chairwoman Anna Collyer in June dismissed “coal keeper” criticism as just a catchy slogan that missed the point about managing the enormity of an increasingly difficult to predict zero carbon transition. Yet Queensland Energy Minister Mick de Brenni used Thursday’s ministerial meeting to declare that the new capacity mechanism means that “coal keeper is dead”. This from a coal-intensive state that demanded to be compensated for the loss of royalties from federal Labor’s price cap. The result is that mostly Labor state and federal energy ministers also have all but destroyed the market-based National Electricity Market, one of the great reforms from the Labor-driven economic reform era of the 1980s and ’90s. Now the massively expensive transition will be made more costly by being driven state-by-state through politicised government edict.
Whoops, when the lefty/globalist AFR comes out against.. you could have an issue.
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