Category: Economy

While on the fringe of our normal investment sphere, this article by Graham Young on energy costs, published today in Online Opinion, poses some serious questions for the Australian economy.

In an inversion of the social hierarchy of Yes Minister, it would appear that Australia has at least one courageous public servant – ACCC Chair Rod Sims.

When it comes to energy generation Sims has shown remarkable fortitude and has belled the cat a number of times, including calling-out the price gouging of the Queensland government through their publicly-owned electricity utilities.

His latest act of heroism is the ACCC Electricity supply and prices inquiry final report which is a tacit acknowledgement that current strategies for CO2 abatement will not work at an affordable price.

It is the best analysis of the energy market that we have, and must lead to a rethink of the role of the AEMO, AER and AEMC. These bodies have comprehensively failed and pushed Australian power prices up to unsustainable levels.

The report also calls into question the NEG, proposing a role for the federal government to provide stability through the provision of stable baseload power generation.

The role of the Chief Scientist, Mr Finkel, must also be under review as it shows how ineffective his Review into the Future Security of the National Electricity Market was.

It also means that the states should wind-down their subsidy schemes for wind and solar and hand control of these matters to the Commonwealth government. With a national electricity network the decisions in one state impact on the prices paid by consumers in all states.

Many on the left, including the Opposition, are pointing to market failure as a problem, but what the ACCC reveals is the real problem is regulator failure.

In an ideal world the ACCC proposal for the federal government to underwrite the construction of new baseload power is suboptimal, but a regrettable necessity in the current situation. It is likely to be less costly than building Snowy 2.0 to deal with the vagaries of increased penetration of wind and solar.

Another implication of the report is that Australia, and the world, also needs to adopt a new approach to CO2 abatement: intermittent energy will not power the world, even with storage.

Not only has the current approach led to unsustainably high power prices, but CO2 world emissions are still growing, and after an approximate 10% decrease since 2005, so too are Australia’s.

It’s likely that any decrease in Australian emissions is due to higher power prices creating a degree of de-industrialisation. But as we consume at ever increasing levels, the amount of CO2 embedded in our economic production and consumption is probably higher than it was in 2005.

All that has happened is there has been a flight of production from Australia to countries with lower electricity prices, and higher CO2 emissions.

The world has been running a number of real world experiments on renewable energy over the last 13 years since the Kyoto Climate Agreement came into effect. Those experiments prove conclusively that with present technologies renewables are not viable, even if the politicians of Germany and California, to mention two, haven’t worked it out yet.

Everywhere that penetration of renewables has exceeded 25% or so, prices have increased. This is because, while the collection of energy is relatively cheap, with the raw materials of wind and sunlight being provided free by nature, the systems components are phenomenally expensive, requiring investment in networks, standby power generation and storage, at the same time pushing the price of baseload power higher.

The only form of renewables that provide reliable power at reasonable prices are hydro schemes, and some of them run out of water at times as well.

The definitive proof of this failure is that, if it were possible to power an economy using renewables only, and if they were, as Mark Butler claimed yesterday, cheaper than alternatives, then the Communist People’s Republic of China, a brownfields site for industrialisation, would take this opportunity to provide all future power through renewable energy.

Instead of that, our chief strategic rival is building nuclear reactors (17 under construction and a total of 100 operational by 2030), and coal-fired power stations (299 units under construction in China today, according to the Australian Parliamentary Library).

They are then using that power to manufacture and then dump photovoltaic cells on the Western World which we are then using to deindustrialise, giving them a further industrial and strategic advantage.

If Butler is right they wouldn’t waste their time building a “more expensive” system with baseload power generators which they will then have to decommission, and retrofit the system for “cheaper” renewables – it just wouldn’t make sense.

The ACCC report gives us a chance to take account of these realities and recalibrate our approach to the Paris Accord.

In the first place we need to get a real feel for the CO2 intensity of world economies, and that can’t be measured just on domestic emissions, when much of our consumption is imported. We need to measure the CO2 actually embedded in our consumption.

This will provide a better discipline and put an end to the Ponzi scheme where we shuffle our emissions off somewhere else without actually changing much more than place of production.

Then we need to accept the reality that Bronze Age technologies like wind, and novelties like solar, cannot provide reliable grid-scale power, and increase actual electricity costs and that the only technology that has a chance of solving the energy trilemma (cost, reliability and emissions) is nuclear. So if we are serious about emissions we need to be serious about nuclear.

Given the issues with nuclear a sensible use of the resources being poured into “clean” energy should be redirected to researching nuclear power and handling spent nuclear fuel.

Australia is already a leader in one of these areas, having developed Synrock for safe storage of spent nuclear fuel in 1978.

An alternative to storage is reprocessing. As a country which already mines uranium and turns it into yellow cake we have advantages there as well.

While developing a nuclear program we need holding and bridging strategies to limit emissions. Efficiency is probably the lowest cost strategy, and an increased use of gas, which emits half as much CO2 as coal, another.

Finally we need to understand that storage will never be suitable for a large scale grid without repealing the Second Law of Thermodynamics – that’s the one that put paid to perpetual motion machines.

Battery enthusiasts draw comparisons between computers and batteries and predict that, just as computers have dived in cost and soared in computing power, the same will happen to batteries and power output.

But computers have done this by miniaturising and using less power to do the same work. Batteries are all about producing energy, and only so much efficiency can be wrung out of this process.

A more realistic model for how much increased efficiency is available is the motor vehicle. While it is true to say that the modern car is a significant refinement on the Model T, that refinement is nothing like the one that occurred between a pioneering computer like ENIAC, and the laptop on which I am typing this article.

The only step change in energy production comparable to that in computing is contained in the equation e=mc2, where Einstein showed that changing a small amount of mass into energy released huge amounts of energy.

Which brings us back to nuclear.

While the ACCC report doesn’t mention nuclear, it does open up the conversation. Politicians need to grab the opportunity. Otherwise they face a grinding political death between the stones of increasing electricity costs and decreasing reliability, all while CO2 emissions continue to rise.

This article was first published in The Spectator. Republished under a Creative Commons License.

Graham Young is chief editor and the publisher of On Line Opinion. He is executive director of the Australian Institute for Progress, an Australian think tank based in Brisbane, and the publisher of On Line Opinion.