The burning question for energy-rich Australia

In other words, the mine is a “stranded asset”. This is Australia’s future if it remains reliant on carbon fuels. The country itself would become a stranded asset, an investment dead end, a political pariah.

The other was the decision by one of the world’s seven oil supermajors, BP, formerly known as British Petroleum, to take the lead in building a huge green hydrogen plant in Western Australia’s Pilbara region. BP announced it had bought 40 per cent of the planned project, the Asian Renewable Energy Hub. It has potential to be one of the world’s biggest renewable energy ventures. The price wasn’t disclosed. But the estimated cost of building the complex is $US36 billion ($51 billion).

Queensland Premier Annastacia Palaszczuk, NSW Premier Dominic Perrottet, Prime Minister Anthony Albanese, Victorian Premier Daniel Andrews and WA Premier Mark McGowan after the first national cabinet meeting.Credit:Rhett Wyman

The plan is to install 1700 wind turbines and 25 million solar panels to produce 1.6 million tonnes of green hydrogen a year from water. The hydrogen would be sold in Australia and exported.

The investment “reflects our belief that Australia has the potential to be a powerhouse in the global energy transition”, said BP’s head of low carbon energy Anja-Isabel Dotzenrath.

This is Australia’s future as it joins the world’s greatest investment boom. Australia can become a superpower in the new energy world of renewables. But it also can become a global economic superpower by using its super-cheap renewables to power manufacturing. This was the vision set out in Ross Garnaut’s 2019 book Superpower: Australia’s Low Carbon Opportunity

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The Coalition under Tony Abbott sold Australia the fiction that renewables were dangerous. Because it worked politically in 2010 and 2013, the Coalition never was able to wean itself off the fairy tale that coal was the future.

Even when it tried. Remember when the then energy minister, Josh Frydenberg, painstakingly negotiated the National Energy Guarantee under the Turnbull administration? He managed to win the support of the Liberal party room for the policy.

Schott says Australia would not have suffered its power crisis this week if that policy had been put in place. But this commonsense policy was instantly vandalized by the deniers and fabulists of the Liberal and National parties. By destroying the NEG, they destroyed the Turnbull prime ministership.

Australia’s stunning failure to modernize was not a result of partisan politics, says Malcolm Turnbull. “It was actually the result of fights within the Coalition,” he says. “The problem with energy at the federal level essentially was a consequence of right-wing Liberals and Nationals, backed by the Murdoch media and the fossil fuel lobby, relentlessly opposing any action to reduce emissions.”

The advent of the Albanian government is Australia’s opportunity to break out of the museum of stranded assets and move towards the value-added world of a prosperous renewables future.

Kerry Schott is an authority on the energy industry.

Kerry Schott is an authority on the energy industry.Credit:Oscar Colman

But Albanian doesn’t have a moment to waste. He and his Minister for Climate Change and Energy, Chris Bowen, are blaming the Coalition for the chaos and cost of the energy crisis. And fair enough, too. But if the power failure persists, Peter Dutton’s opposition will blame Albanian and his renewables plan.

Already, the Coalition is threatening to oppose the government’s updated emissions target – a 43 per cent cut to 2005 levels by 2030 – in the parliament. And Albanian only just formally committed Australia to this target this week. The government says it can implement it regardless, by using regulation. But the climate wars live on and the Coalition will use any opportunity to discredit renewables.

What to do?

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The first thing is for Bowen to fix the short-term crisis. He needs to capitalize on the current drama to create the impetus – the “burning platform” – for change.

He’s started well. He brought together all the state ministers and they jointly agreed to several useful initiatives. Such as a national plan for a transition to a renewables-based electricity grid. This sounds so basic – and it is – yet the Coalition never managed one. They aim to produce a specific plan when they meet next month.

And the ministers ordered the AEMO and the Energy Security Board “to proceed at pace with the development of a capacity mechanism”. A capacity mechanism?

“Think of it as an insurance policy” to supply immediate back-up supplies, says Schott. “It pays for firming capacity to be on standby.” This can be gas, battery or pumped hydro. The supplier is paid to keep capacity ready. So when a power shortfall looms, extra capacity can be thrown into the system immediately to keep the lights on.

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The Coalition suggested this sort of mechanism, too, but “it didn’t get through under the last government because a lot of the industry and a couple of the states – NSW and the ACT – were suspicious that the feds would use it to keep coal in the system unnecessarily,” explains Schott. “Angus Taylor was aware of the need for it but just couldn’t get the co-operation of fellow ministers and industry.”

Yet now the state and federal governments have agreed to create a capacity mechanism that doesn’t include coal. Bowen said “it should support new technologies and by that I mean I support storage and renewables being a particular focus of a capacity mechanism”.

Another outcome of the state and federal energy ministers’ meeting was to instruct AEMO to start malfunctioning gas for emergency use. Useful perhaps, but very limited.

There is another important short-term option – the trigger. The federal energy minister has an existing trigger to order more gas into the market. If Bowen pulls this “supply trigger”, he can order gas producers to divert export gas into the domestic market. But the procedure to do so takes six months.

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Bowen doesn’t intend to use it. Instead, he is quietly exploring the creation of a slightly different trigger, a “price trigger”. If a price ceiling is breached, he could pull the trigger to order gas into the market. He could design it to work fast. Once he had the power, he might not even need to use it. The threat alone could have the effect of motivating the gas companies to keep the domestic supply flowing.

There have been voices calling for a “gas reservation”, a rule requiring gas producers to reserve a fixed share of their output for the local market. In Western Australia, a 15 per cent gas reservation has worked well. The trick here is that Bowen could create one, but couldn’t apply it to existing gas supplies, only new ones. And that would be a slow and uncertain process with no effect for a long time. Rather, the gas “price trigger” is “where the action is”, as an informed source put it.

At the same time, Bowen must put in place the longer-term solutions contained in Labor’s election policy. The “rewiring the nation” plan and “powering Australia” policy.

In the immediate days and weeks ahead, Schott assures “there’s no need for panic because a lot of the coal generators will come back online, having done their repairs, and that will take a week or so”.

But Bowen and his state counterparts should take little comfort. Australia, in spite of its fast-growing renewables fleet, remains stuck in transition, unable to extract itself from the museum of stranded assets. And the Coalition will be happy to keep it there. The giant needs help. urgently.

Cut through the noise of federal politics with news, views and expert analysis from Jacqueline Maley. Subscribers can sign up to our weekly Inside Politics newsletter here.

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