When will the government admit the full cost of “renewables”...

When will the government admit the full cost of “renewables” INCLUDING the cost of transmission, rather than putting out silly cartoons …

Dallas Beaufort

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It’s no joke – our nation needs a serious discussion about energy

Judith Sloan The Australian June 25, 2024

Once upon a time, Andrew Leigh was a professor of economics at the Australian National University. He holds a doctorate from Harvard. These days, he is an assistant minister for bibs and bobs in the federal Labor government. To fill in his day, he is wont to put out “witty” posts on social media, including one with a picture of a three-eyed Blinky Bill, declaring this is what we have to look forward to if nuclear plants are built in Australia. (We already have a nuclear reactor at Lucas Heights, but facts don’t worry Leigh these days.)

Nothing like a bit of plagiarism from an old episode of The Simpsons is his attitude. That will show the supporters of nuclear energy a thing or two. Perhaps he should send it to the heads of government of all 32 countries around the world with nuclear plants, including some of our good friends in the US, the UK, France, Canada and Japan.

It is extraordinarily disappointing that someone of Leigh’s calibre would sink to this depth. We mightn’t expect much more from the Victorian Premier, Jacinta Allan, nor the hapless Victorian Climate Change Minister, Lily D’Ambrosio. What D’Ambrosio lacks in competence, she more than makes up for by pushing unfounded scare campaigns.

While the Prime Minister thinks we should all lighten up about these puerile examples of humour, the reality is the opposite. Our energy situation is so dire (and getting worse) that we must have an informed, thorough discussion of the issues and the options that are available.

With the wind failing to move the turbines – a not uncommon event in June – and with a shortage of gas, particularly in Victoria, it is clear the Australian Energy Market Operator is concerned. Wholesale electricity prices are skyrocketing. It is estimated that Victoria has already used up its normal winter gas supply in the first three weeks of the month.

Any good debate starts with an agreed statement of facts from which both the affirmative and negative sides can argue. It is one reason why it is entirely reasonable to expect the Coalition to provide a detailed assessment of the costs of its proposal to build seven nuclear reactors.

The good news is that there is a tonne of overseas data to establish some accurate costings, including from some of the recent successful builds in Korea and the UAE. There is not much point trawling up some older instances where costs massively blew out and there were substantial delays, such as the UK’s Hinkley Point C. This project was poorly conceived with a French design and Chinese financing. Apart from an offtake guarantee at a minimum strike price, there were no government funds provided to the project. Numerous changes were made during the course of construction and the various UK heads of government were never supportive, particularly former prime minister Theresa May.

Similarly, the much delayed and costly American plant in Georgia was hampered by a nuclear regulatory authority that was essentially anti-nuclear. The regulatory costs alone were over the top. But with industry now heading to that state, there is already talk of building another.

The Coalition has made the sensible decision that there will be one design only (for the larger-scale plants) so the economies of scale and scope can be captured. The French have mastered this approach now – President Emmanuel Macron has announced eight new plants – and other countries now accept this as best practice.

The figure for a one-gigawatt plant is likely to be about $8bn to $10bn. The plants will be modularised, which provides additional flexibility. There will be some need to upgrade transmission lines but the costs will not be substantial.

No doubt, the Coalition will release more details on costings so voters can make a sober assessment of the case for nuclear energy. It is a complicated exercise to predict the impact on electricity prices because of the required assumptions about the energy mix as well as demand. At least, we should expect numbers under different scenarios.

But as they say, everything is relative. And the federal government is not being upfront about the costs of its energy strategy, particularly in relation to the new subsidies on offer to renewable energy and the cost of the additional transmission lines.

Using the excuse of commercial-in-confidence simply doesn’t cut it; taxpayers need to know the range of dollars they are up for. Treasury should be insisting on the same.

But let me dwell on the cost of transmission. Recall that Chris Bowen, the Climate Change and Energy Minister, has stated that an additional 10,000km of transmission lines will be required by 2030, and 28,000km in total by 2050. Without this additional transmission, there is no way the proposed renewable energy projects can be connected to the grid.

The Rewiring the Nation fund has allocated $20bn to subsidise the rollout of the additional transmission lines, with a total figure of $100bn cited as the all-up cost. This is now looking like a massive underestimate with huge cost blowouts already apparent as well as slow progress.

This is the case with Hume Link, Energy Connect, VNI West and the Marinus Link. Hume Link, for instance, is 250 per cent over the original budgeted cost. Energy Connect between South Australia and New South Wales is expected to cost $2.3bn, up from the original figure of $1.5bn. The Marinus Link has been cut in half because of the cost increases.

With the blowout in transmission costs, it is entirely possible that there could be a 10-fold increase in the value of the base against which regulated returns are calculated. This would add significantly to electricity prices of itself, an effect not replicated with nuclear.

One of the key issues is the games that the investors in the transmission lines play to ensure their project becomes a regulated asset, thereby guaranteeing an agreed rate of return, paid by consumers. The incentive is to low-ball the cost of a project in order to pass the cost-benefit test undertaken by the regulator.

There is also a further complication of the disastrous Snowy 2.0 project requiring additional transmission (both Hume Link and VNI West) but with Snowy Hydro unprepared to foot any of the bill. Lest Snowy 2.0 become a stranded asset, regulators have been under pressure to give the tick of approval to transmission projects that should probably not go ahead.

I say let’s bring on the debate about the cost of different energy strategies. But this will require transparency on all sides. It won’t be enough for the government to simply whinge about the lack of costing detail on nuclear; it will require accurate apples-to-apples comparison with the government’s plans.

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1/ Labor MP Andrew Leigh has posted a meme of a three-eyed Blinky Bill suggesting the Coalition’s nuclear plan is environmentally dangerous. The Opposition said this undermines AUKUS. Picture: Instagram