New PM, Scott Morrison must slash subsidies to renewables now to tame the 40 rebel MPs who crushed wind and solar obsessed Malcolm Turnbull.
Australia’s new Prime Minister Scott Morrison
The 40 MPs who forced Turnbull to walk the plank, will do exactly the same to Morrison if he fails to arrest Australia’s out-of-control energy crisis, starting right now.
Morrison’s first task is to stop listening to his gormless Deputy, Josh Frydenberg (now Treasurer) who, as Energy Minister promoted the National Energy Guarantee – which turned into a political quagmire and, ultimately, led to Turnbull’s crushing downfall.
Morrison also needs to stop listening for the so-called energy experts and the renewable energy rent seekers who, together, hijacked the NEG and turned it into the RET on steroids.
The biggest clowns in the circus, Audrey Zibelman, Kerry Schott and Chloe Munro came up with ridiculous notion that adding more wind and solar would actually reduce power prices; it was that nonsense that set the rebels on the war path, who then crushed both Turnbull and the NEG.
The idea that a modern economy can run on sunshine and breezes, is part delusion and part disease. As with any malady, resolving it involves a mix of diagnosis and prescription.
In this piece, Alan Moran provides both. It obviously predates Turnbull’s ignominious demise. However, Alan’s prescription will work just fine in the hands of the new PM, Scott Morrison.
A Simple Prescription for the Energy Mess
Alan Moran, Quadrant, 23 August 2018
Power prices have ignited the current leadership crisis and there are few signs of sufficient understanding of what caused this in the political firmament or, for that matter, in the mainstream media.
Malcolm Turnbull engineered the now comatose National Energy Guarantee to disguise his ideological imperative of a planned energy system that is fundamentally based on those wind/solar/battery technologies he regards as the shape of things to come. He says:
Our primary focus is to bring power prices down.
No single measure can achieve this …. there’s no single reason why power prices have been so high and there’s no single solution. So that’s why we’re taking action right across the board, with retailers, distributors, generators. And together, our measures will deliver cheaper electricity.
Turnbull is thrashing around, looking to place the blame for the energy mess on market manipulation by retailers and deceitful price offerings. His key solutions are
- price fixing disguised as some form of regulation of “standing offers”
- new powers for the ACCC to order separation of vertically integrated firms; and
- underwriting support for some form of new dispatchable energy.
The energy crisis was created by the subsidies to renewable energy, feted at every turn by green activists and supported by all the major research consultancies whose models saw this as a key to lowering prices, on the basis that the subsidised renewables, having their costs covered by subsidies, would bid in the market at very low prices forcing the established players to follow suit. Such regulatory initiatives neatly expropriated the established businesses, especially the coal-fired generators which, like wind generators, have low variable costs but, unlike wind, have long asset lives and do not, of course, get the subsidies.
All the major modelling firms — Frontier, ACiL, Jacobs — forecast that energy prices today would be of the order of $40 per MWh or less, compared to their actual levels of $80. All of them expect the same policies to bring overbuilding of wind with negligible marginal costs again resulting in prices of $40 per MWh two years from now.
Much of this forecasting failure is a result of a fixation by economists on prices being driven by marginal costs. In fact, this is the case only in highly distressed markets where excess capacity is evident – the marginal costs of a BMW X5 and a skinny latte are probably only $20,000 and 50 cents respectively but no such prices prevail.
The prospect of price fixing would be most appealing to the ALP, the Greens and Malcolm Turnbull, and seems to have some attraction for Peter Dutton. Price caps are terrible ideas and inevitably lead to suppression of cost recovery. They are particularly ill-advised in a market such as electricity with dozens of competing retailers and few barriers to entry.
Dutton is also ruminating about taking the GST off electricity, which would do nothing to redress the basic problem, plus establishing a Royal Commission – as if we have not had a constant version of this in the various reviews over the past 10 years.
Beyond talk of price caps, a GST fiddle and yet another inquiry, we need to scotch the panacea of a forced separation of retailers and generators. This coming together of these two market components was never anticipated in the development of the national market but has proven to be highly beneficial as another form of risk defrayment, with risk internalised within the company rather than by contracts at arm’s length. There is sufficient competition in retailing to prevent the vertical integration having the capacity to price gouge.
So what measures are needed? At the Commonwealth level, aside from exiting the Paris Agreement (or just staying in and doing nothing), two sets of policy changes are necessary….