Australian Economy

Labor needs plan for Australia’s electric shock

Before it blew up, along with the Turnbull government, the National Energy Guarantee (supported by The Australian Financial Review) aimed to match those renewables with dispatchables – power rapidly generated with gas to ensure the system was always reliable.

A capacity mechanism which pays to keep generators on standby could replace it, but that’s not settled yet. With no NEG, the Coalition sidestepped its own pro-market views to intervene itself with government-owned gas back-up, knowing it would be blamed if the lights did go out. None of this has been coordinated, bringing its own crop of problems.

Energy chaos will weaken public confidence in the energy shift.

Now there are freelancers like billionaire-activist Mike Cannon-Brookes forcing the pace again, and casting Australia’s biggest energy supplier AGL into deep uncertainty at the same time.

And a new Labor government is trying to plan for the future, while doing what little it can in response to demands to do something about Vladimir Putin’s price shock.

Tom Parry, the first chairman of the Australian Energy Market Operator, lamented on these pages yesterday that for lack of a solid policy, the politics have taken over. Events promptly bore him out. A technocrat of the sort he advised governments to listen to, former Energy Security Board chairwoman Kerry Schott, told the Financial Review’s Mark Ludlow that gas was essential for the capacity mechanism – devised by the ESB – to stabilise the grid as coal exits.

But on the same day, state energy ministers discussing the crisis with federal Energy Minister Chris Bowen refused to include coal and even gas in it, only renewables and batteries. Their concern is coal and gas hanging on via a back door, an overblown fear that leaves not much of a mechanism. Even if regulators put gas into their final proposal, states could still reject it – though the delays to Snowy 2.0 might make that even more risky.

Once again, it’s the political veto at work against sensible policy.

An important piece of perspective is that decarbonisation will be drawn-out, expensive and inevitably unsettled by domestic and global crises.

But there is also much to build on. Australia has a great deal of solar, even if it has been brought in too disruptively. And Labor’s plan for higher baselines in the so-called safeguard mechanism for high-emitting enterprises finally promises to create a market price for carbon as an incentive to be rid of it.

Labor’s $20 billion proposal to wire more renewables into the grid is clearly important, but the wires would get built anyway, and transmission does not bring transition by itself.

Australia needs a better plan, and it is running out of time to be irrational about choosing what goes in the plan. Blocking gas development in NSW and Victoria, then demanding diversion of gas from the exporters who took a risk developing Queensland coal seam gas, hardly adds up. And the same people who reject nuclear out of hand often oppose mining for new electrification metals.

The job ahead is huge. Electricity demand will double by 2050, just as Australia removes and replaces its major sources of electrical power.

Making plans unworkable by refusing to compromise in the transition process will achieve only two things. It will vindicate the climate hold-outs who say the targets will never be met. And energy price chaos will weaken public confidence in the energy shift.

That cannot be the outcome of passing crises like this.

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