Comment

John Hewson
The new climate denial

The climate wars may be over, but the battle continues. Now, the climate deniers have become renewables deniers.

Australia is engaged in the most significant economic, industrial and social transformation – the transition to renewable energy. Unfortunately, the opposition, backed by its loyal media comrades, is doing its level best to complicate and undermine this effort with baseless assertions and misrepresentations, scaremongering about the costs of the transition and raising unfounded doubts about the reliability of power supply. This is clearly against our national interests.

Surely an effective transition to clean, cheaper, reliable renewable energy is a no-brainer for our nation, especially given our extensive and enviable natural endowments of solar and wind resources and affordable essential technologies. And it would be smoother with bipartisanship.

This fear campaign by the opposition and right-wing media has come to a head in recent days over the government’s announcement of its expansion of the Capacity Investment Scheme (CIS) and the National Energy Transformation Partnership (NETP) in conjunction with the states. Wild assertions have been made about the supposed consequences, from unreliability and outages to impacts on household and business power bills.

Clearly the government’s decision wasn’t taken in a vacuum – it was made against the background of the failures of its Coalition predecessor to develop an effective energy policy, despite some 22 attempts. Specifically, it failed to deliver any policy to ensure replacement capacity despite 24 power plants – with a total capacity of 26.7 gigawatts – announcing closure dates. This left our grid in a precarious position, facing what’s expected to be a very challenging summer.

The government’s decision is of fundamental importance to achieve the objective of net-zero emissions by 2050, and especially to achieve its target of 82 per cent renewables generating electricity by 2030.

Clearly this is an ambitious target – especially in a global context, as accelerating demands for renewable energy are driving global competition for investment dollars.

The government’s CIS strategy is to use a series of Commonwealth-backed reverse auctions to attract enough investment in wind, solar and storage to achieve that target.

The aim is to add another 32GW to the current total generation capacity of the national electricity market of about 65GW.

As such it clearly builds on the renewable energy target that ended about two-and-a-half years ago and reflects what has been a successful strategy in Britain for both clean energy and firming up supply. Importantly, as the Grattan Institute’s Tony Wood has pointed out, it “puts all the responsibility for reliability of the grid in the hands of the states”.

To emphasise the significance of that cooperation, the government also joined with the New South Wales government to announce the successful bids of six major energy projects in the state, totalling 1075 megawatts of renewable capacity – equal to about 8 per cent of total 2022-23 NSW summer peak demand – added to the network at short notice. The projects will furnish $1.8 billion worth of energy infrastructure and will create 400 jobs. It is instructive that the successful bids exceeded the indicative 930MW targeted by the tender, and the timing of this arrangement is especially fortunate given that the ageing coal-fired power stations are becoming less reliable and leaving the grid.

Again, rather than be constructive, the opposition has been babbling at virtually every opportunity about the need for Australia to turn to nuclear for its power without offering any details as to costs and timing, all based on the anticipated but as yet unbuilt and unproven technology of so-called small modular reactors. This policy stance is just pie in the sky, and the opposition’s comments are designed more to be disruptive rather than to make any substantial contribution to the public discourse.

The opposition’s claims about the potential unreliability of renewable electricity sit awkwardly with me. Its argument ignores the existence of affordable load-shifting grid-scale storage technologies that store the power when the sun is shining and the wind blowing, to be drawn as needed later in the day or evening.

Similar points can be made about the opposition’s insistence that renewable electricity will increase household and business power costs. The Coalition seems to be obsessed with the government’s references to savings on bills – harking back to a statement by then opposition leader Anthony Albanese from December 2021, that Labor’s “Powering Australia” plan could save households $275 a year in electricity costs by 2025. Opposition Leader Peter Dutton’s speech in reply to the first Labor budget in October last year noted “97 occasions” in which the prime minister had made this “promise”, asserting that instead electricity bills would rise by “more than 50 per cent over the next two years”. In his response to the May budget, he accused Labor of “pushing to electrify homes and businesses despite the exorbitant cost for families”.

The argument that renewables will raise power costs is over-egged, as it fails to recognise the savings already achieved on power bills as a result of the government’s initiatives in its cost-of-living package, via limits on price increases and deals with power companies to moderate power bills.

It is also important to recognise the recent declines in wholesale prices, about 30 per cent of which are likely to be soon reflected in retail power prices.

Wholesale prices of electricity are down about 50 per cent in the 2023 calendar year, relative to 2022, because the “hyperinflation of gas and coal commodity prices internationally over 2022 has now in 2023 progressively come off [more than] 70 per cent from their peak”, according to Climate Energy Finance director Tim Buckley. The government is being transparent about this, in sharp contrast to Angus Taylor, who, as energy minister in the Morrison government, sat on the relevant report predicting significant price increases in the run-up to the last election.

It is important to note both AGL and Origin are already offering about a 15 per cent discount on the default market price, which is likely to be formally announced in July.

While some in the press gallery seem intent on attacking so-called Albonomics, I would respectfully suggest that they take a course in Economics 101. In regard to the CIS, an increase in supply should result in lower prices.

If power prices fall as I expect, this will be a double benefit in the context of the cost-of-living crisis. Power bills will ease and the extent to which this reflects in overall inflation will reduce the need for the Reserve Bank to raise interest rates further, on top of its already aggressive hikes.

The consumer price inflation numbers published this week confirmed that while electricity prices are still rising rapidly, the pace has slowed substantially, to 10.1 per cent on the year to October, from 18 per cent the prior month. The pace for gas and other household fuels picked up slightly, to 13 per cent on the year.

Another point being exploited by the current Coalition and its select media mouthpieces is Climate Change and Energy Minister Chris Bowen’s assertion that the expected costs of CIS contracts are not for publication, which he says is necessary to ensure reverse auctions achieve the best value for taxpayers. Actually, since the contracts to be written provide for the possibility that the government may share in the success of a project, the impact on taxpayers should not be exaggerated.

The essence of the CIS is to provide a much greater level of certainty for investors. This is done by the use of a “contract for difference” model, whereby the government only underwrites the risk, not the full amount. Each bid gives both a floor and a ceiling price. If the investors are not getting the agreed return, the government will pay the difference. However, if the project delivers more revenue than the agreed ceiling, then the government gets the excess. It is not a blank cheque, as some in the media have been arguing.

The depths to which the debate has sunk in some popular media were amply demonstrated last week by Ray Hadley, who on his Sydney 2GB radio show repeatedly derided Bowen as a “dickhead”. How had Bowen caused such offence? By having the audacity to attempt to climb over the energy mess left by the previous government. This is wasted airtime for an issue that deserves responsible and rational debate.

This crucial policy challenge of managing the transition to renewables coexists with another I have noted in earlier columns: addressing the inadequacy of our tax base to meet the aspirations of, and commitments to, Australians. Together they will continue to test the priorities of this government as it battles the deniers. At the top of its list should be cheap, clean and reliable power, which is in the interests of all Australians.

This article was first published in the print edition of The Saturday Paper on December 2, 2023 as "The new climate denial".

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