It's taken a decade, but it finally looks like policy might be moving in the right direction after the COAG Energy Council on Friday agreed to 49 of the 50 recommendations from chief scientist Alan Finkel's review into the security of the National Energy Market.
Yet the big unresolved issue was the centrepiece of the Finkel plan and the anchor on which the other measures would rest: a Clean Energy Target. The Coalition has, as yet, been unable to decide on what a CET might look like, or the level at which it might be set. Nor has it decided whether to include other complementary and cost effective ways of mitigating climate change such as purchasing international carbon credits. The sooner a plan is settled on the better it will be for business certainty.
And despite all that being worked through, a group of low-rent Labor state governments decided to try to embarrass Minister for the Environment and Energy Josh Frydenberg by asking for the Australian Energy Market Operator to undertake some modelling for a CET, even suggesting they might start their own CET schemes. Such is the game of politics, but are they really serious? This is exactly the sort of daft idea that led us to the current situation where the National Electricity Market is a mess of distortions: the chief among which has been the force-feeding of subsidised, virtually zero marginal cost wind and solar power into the energy grid – particularly in South Australia – via state renewable energy targets. The problem was that this new electricity is unreliable: it's cheap enough to put coal-fired power stations like Hazelwood out of business but not reliable enough to replace coal.
Then, the gas that should have come online to help bridge this shortage – but hasn't – has been effectively banned by some of the same state governments who demand we accept the science of climate change, while themselves rejecting the (much more provable) science of fracking. Victorian Labor, blind to this hypocrisy, even gave in to inner-city green biddies and rural lock-the-gaters and banned conventional gas exploration.
Coupled with record exports of gas, this has led to gas price hikes, which can also drive electricity spot market prices. These have been so high that the federal government has had to come in and announce it will institute 1970s-style gas export bans if needed, despite encouraging the very gas exploration boom which is set to make Australia the largest exporter of liquefied natural gas in the world.
So you'll forgive us if we are not enamoured of the states' grandstanding on their own climate schemes. Yet, that aside, there were positive COAG agreements.
In particular, the agreement by all states that new renewables will have to carry a level of storage capacity determined by the Australian Energy Market Operator. Not only could this help prevent another South Australian intermittency overload, but it will help make the economics of renewables more sustainable. Up until now, wind and solar energies have not had to bear the costs of their own intermittency: now they have to, at least to some extent, by having to pay for back-up storage in case the wind doesn't blow. The agreement for three years' warning for shutting down any coal-fired power station – compared with just months when Victoria's Hazelwood shut down – is also sensibly policy by ensuring that surprises aren't suddenly foist on the market.
Yet for much of this to work will still require reforms at state level. The anti-gas states will have to reconsider their flat-earther moratoriums and state energy generators have to be cleaned up and stopped from featherbedding. As we report today, the federal government has asked the energy regulator to look into Queensland State government electricity generators gouging customers. It's a good start to stabilising and reintroducing rationality into the National Energy Market, but the hard work of negotiations could be just beginning.
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