Day 66: 'It's new generation if it would otherwise be gone'
An introductory weekday newsletter from Schwartz Media. Counting the days since Australia had an energy policy.
Good morning and welcome to day 66.
Today in summary: the Coalition government pieces together parts of an energy policy, much of it still to be legislated; industry is still clinging to the NEG; and the states could prove the wild card in Friday’s COAG Energy Council meeting.
— Charis
Today’s policy spin level: 🌪
Prime Minister Scott Morrison and Energy Minister Angus Taylor say they are “building on” the ACCC’s energy affordability report, with a suite of measures that draw from, but aren’t entirely consistent with the competition regulator’s recommendations for energy affordability. In addition to the default market offer for energy prices, and “reference bill” requiring electricity retailers to advertise their consumer discounts using a common reference point, the government has released a consultation paper on its plan to underwrite new electricity generation. The call for submissions closes in 3 weeks.
The paper opens the door for government investment in retrofitting of existing plants - including coal-fired power stations. Taylor explained how this would equate to new generation by saying:
“It’s new generation if it would otherwise be gone, that’s the point. What we want is additional investment, new investment, that will mean we get capacity we wouldn’t otherwise have.
“If it’s an existing site and a new facility that may or may not be interesting. If you want a really good pipeline of projects, you don’t close down your options, you look at the broadest range of options available.”
The threatened “big stick” of measures targeted at energy companies will include increased fines, penalties, enforceable undertakings, structural separation and divestiture, which will require new legislation the government says it will deliver to Parliament this year.
On the agenda for the COAG Energy Council is a market cap on generation ownership, increased transparency in the wholesale contract market, higher penalties for breaches of the National Electricity Law, and more power for the Australian Energy Regulator.
NSW has previously resisted legislated default pricing, and Victorian Energy Minister Lily D’Ambrosio has signalled she won’t be making any decisions as Victoria nears its pre-election caretaker period.
We’ll be getting on with our Solar Homes program, #VRET and the many other initiatives to tackle climate change, increase our renewables and reduce prices. We won’t be pushed into deciding on any proposals at Friday’s meeting, four days out from caretaker. (2/2)Taylor says he’s willing to override the states to deliver on the package, and lobbed a dog whistle Victoria’s way with this comment to The Guardian on the potential for blackouts:
“We are confident states will support this in December. We are going into summer. Victoria is almost 400 megawatts short of capacity to be avoiding blackouts this summer. We want to see Victoria doing the right thing and we’re sure they will as we go into summer.
Industry is cool on the plan for underwriting and the threat of divestment. Taylor says divestment is a “last resort” measure designed to pull the energy companies in line, but the Business Council of Australia’s Jennifer Westacott warned it could backfire:
“Ad hoc intervention in the energy market, such as underwriting generation investment or forced divestment, is sending a signal to the world that investing in Australia comes with considerable risks. In the long-term, this will only result in less investment in energy generation, less reliable energy and ultimately higher prices.”
The Australian Energy Council continues to mourn the death of the NEG, and would like to see the reliability component agreed at Friday’s COAG Energy Council meeting. It’s already throwing shade on the government’s claim of up to A$832 a year in electricity savings for consumers.
“For the majority of customers who have already switched to a market offer, the government’s proposed default price won’t lower their bills.”
The Australian Chamber of Commerce and Industry is also still holding a vigil for the NEG. It’s supportive of default pricing, but not of the kind we used to have.
“The Australian Chamber supports the default offer and reference rates as proposed by the ACCC. It’s important, though, that the approach proposed by the government does not result in a return to regulated pricing.
The Commentariat
Energy Minister Angus Taylor will struggle on Friday to get the government’s proposed interventions in the energy market approved by the COAG Energy Council, writes the Grattan Institute’s energy program director Tony Wood.
“Friday's meeting of the COAG Energy Council will be the first chaired by Taylor. It will be a big surprise if his state and territory counterparts simply wave through this agenda… Taylor is likely to find very little enthusiasm from council members to provide a lifeline for the federal government's political fortunes.”
Scott Morrison has a challenge on his hands with coalition MPs seeming determined to “make an unpalatable political hash of the government's much battered energy policy,” writes the Australian Financial Review’s Jennifer Hewett.
“He told his party room he would not be altering policy, either left or right, in reaction to the voting debacle in Wentworth. But he knows he must quickly manoeuvre the warring factions into some facade of a truce and discipline as he manages the politics of minority government.”
Geopolitics
Germany will co-finance a €500 million (US$576 million) liquefied natural gas shipping terminal in northern Germany to open up the country to US gas, the Wall Street Journal reports. The US has lobbied strongly for Germany, which currently imports over 50% of its gas from Russia, to take LNG from the US instead - though its gas is 20% more expensive than Russian gas. At a meeting this month, Chancellor Angela Merkel reportedly told German lawmakers that the funding was a “strategic” decision that could pay off in the longer term, with hopes it will solve the extended trade dispute between Berlin and Washington.
Three more things
Colorado-based, solid-state battery startup Solid Power has scored an investment win, with chemical company Albemarle and Korean auto supply company Hanon Systems today disclosing multimillion dollar investments in the startup, effectively giving Solid Power investor interest across the whole spectrum of the electric vehicle supply chain.
The Australian government’s energy policy vacuum - following the scrapping of the NEG and the decision not to revise or replace the RET after 2020 - has caused investment uncertainty in the national renewable energy market, according to GlobalData power analyst Arkapal Sil. The result may be that Australia will “increase its conventional power capacity in order to maintain its annual base-load power requirements”. However, smaller state-funded projects remain largely unaffected, with Victoria and Queensland having clear renewable energy generation targets.
The EU has spent more than US $486 million over the past decade as it attempts to establish carbon-capture technology, which it views as critical in reaching its net-zero emissions targets. The European Energy Program for Recovery and the New Entrants Reserve 300 have invested in six carbon-capture and storage projects since 2009, four of which ended in termination of the grant agreement, and one without reaching completion. The auditors’ finding: “We conclude that neither of the programmes succeeded to deploy CCS in the EU.”
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