There is an energy crisis. Actually, there are two separate but related crises, an electricity price crisis and gas price crisis. While separate they both have the same problem, our reliance on fossil fuels.
The first is a sharp rise in electricity prices, caused almost entirely by our dependence on coal and gas for electricity generation.
Both the Australian Energy Market Operator (AEMO) and the Australian Energy Regulator (AER) have clearly identified breakdowns at coal power stations, Australian consumers having to compete with high global coal and gas prices, and problems getting the coal to the power stations as the key drivers of this problem.
The states with the highest dependence on coal have had the largest increase in electricity prices, notably Queensland, with a 141 per cent increase in wholesale prices.
The second is a gas crisis due to our exposure to global gas prices. Because we allowed virtually unlimited exports of our gas from Gladstone in Queensland, Australian households and industry on the east coast now must compete with exports to buy our own gas.
The gas crisis feeds into the electricity prices because we generate some of our electricity from gas, but more importantly because gas is used by the manufacturing industry and households for heating, particularly in Victoria.
With global prices skyrocketing, largely due to the war in Ukraine, the gas exporters are profiteering by exporting as much as they can and charging Australian customers exorbitant prices for what remains.
This is by design, not accident. While gas companies like Santos were trying to get their export projects approved a decade ago, they told governments that it would have no effect on Australian prices, while telling investors that exports would link their domestic reserves to global prices, enabling them to make a gas-load of cash in exactly these kinds of circumstances.
In response, Australia’s energy ministers met on Wednesday and delivered some very promising signals and a few worrying signs of what is to come.
First the good news. Australia now has a federal Minister for Climate Change and Energy. Chairing the meeting with his state and territory counterparts, Minister Chris Bowen recommended solutions that weren’t just about securing energy but delivering the shared commitment to net zero emissions by 2050.
The energy ministers requested that in the midst of this crisis fuelled by fossil fuels, “the time is right to work together on a new agreement to set the vision for Australia’s energy sector transition to net zero”.
For their next meeting in July, ministers are expecting an outline for a stable transformation towards decarbonisation. Hopefully this plan draws on international best practice, with the German Coal Commission providing the gold standard of planning and phasing out coal power stations.
One could not have imagined such leadership just one month ago, with the then-minister Angus Taylor. To a man with a hammer, every problem is a nail; and to Minister Taylor, every problem was solved with more gas. Even the response to the pandemic involved a gas-fired recovery.
But more gas won’t help. This is not a gas supply problem. It is a gas export problem. And the solution is not more gas production, it’s less gas reliance.
The energy ministers clearly grasp the importance of reducing our dependence on export price exposed coal and gas and disastrously unreliable coal power stations. They note this will require large amounts of clean generation, storage and transmission.
They requested their departments look at ways to aggregate renewable energy and storage projects, meaning a coordinated attempt to procure large amounts of both to overcome supply chain issues and reduce the costs. This will be essential to building the large scale renewable energy zones (REZs) under the Integrated System Plan (ISP) already laid out by AEMO.
One concerning element of the communique though is the focus on progressing a ‘capacity mechanism’. While the ministers say it is to “bring on renewables and storage”, the version proposed by the Energy Security Board (ESB) to date has been dubbed “CoalKeeper” because it would reward existing coal and gas power stations and effectively exclude wind and solar and batteries.
Minister Bowen has said he expects the ESB to come back with an updated draft of capacity market proposal within a couple of days. The new draft would need to be radically different and should explicitly exclude rewarding coal and gas power stations because it is ridiculous to support the very fuels that put us in this mess.
The energy ministers addressed immediate pressures to improve local gas supply, which might be useful at the margins, but it won’t even start to tackle the fundamental problem of our exposure to global gas prices.
The ministers also seem to have completely missed the key task of electrifying our houses and manufacturing. It was far cheaper to heat our houses and hot water with electricity than with gas, even before the massive gas price rise.
Doing this would slash household energy bills and free up gas for use where it is absolutely needed (where it’s harder to replace, mainly in some manufacturing processes). It would be done over time as we add renewable and storage capacity to increase the electricity supply.
But the biggest lost opportunity is not capturing the windfall profits the gas companies are raking in from this crisis. We are talking about capturing a portion of the war profiteering made by these gas giants selling our resources. The windfall tax revenue could then be put to the benefit Australians currently suffering high power and gas prices.
If the UK can put in a windfall tax on oil and gas companies, then so could the Australian government. Because if there is one thing that’s clear, Australians will continue to suffer so long as we heavily rely on fossil fuels.
Richie Merzian is the climate & energy program director at independent think-tank, the Australia Institute. @RichieMerzian
