Tony Wood, one of Australia’s leading energy experts, prefers to think that Scott Morrison was simply confused. “Let’s assume,” he says, “it wasn’t deliberate.”
It’s a charitable interpretation of the prime minister’s claims about Wood’s view of Labor’s climate policy this week. Others have called it a lie.
The confusion, if that’s what it was, happened at a media conference on Tuesday, the same day the Murdoch tabloids reported government “modelling” that purported to show Labor’s plan to commit $20 billion in extra funding for electricity transmission infrastructure would drive up average yearly household power bills $560 over the coming decade.
Given the Morrison government’s track record of coming up with dodgy climate costings at election time, and its refusal to provide details of its calculations, the claim was greeted with wide scepticism. It’s not surprising, then, that the prime minister was keen to borrow credibility by citing Wood, the well-regarded climate program director at the Grattan Institute and former senior executive at Origin Energy.
“When it comes to the issue of electricity prices, this isn’t just the government,” Morrison said. “Tony Wood from the Grattan Institute has said today that Labor’s policy, their poles and wires policy, is a bit of a mess [that will] end up building stuff at the wrong place at the wrong time. That is what he has said.”
But that wasn’t what he said at all. What he said, as reported by the Murdoch papers, was this: “Grattan Institute energy program director Tony Wood said Labor’s $20bn promise would help reduce the cost of transmission by bringing down the cost of capital, but it did not solve the ‘fundamental problem’ of deciding when and how new poles and wires should be delivered.”
When Wood referred to a “bit of a mess”, he was talking about the current situation, under this government, not Labor’s policy.
In the interests of clarity, Wood reiterates his point so it cannot be misunderstood.
“Labor’s approach, which is to provide low-cost finance through a new infrastructure fund, would, they say, lead to cost savings. Well, it might. But the real problem is not the cost of finance; it’s the whole process of planning and approving and building the transmission grid to support all the renewables,” he tells The Saturday Paper.
“We’ve got renewable energy projects that can’t connect, state governments who want to have more renewables, and yet we’re not getting on with the job of building the transmission infrastructure.
“That’s the mess the next minister, whoever they are, needs to sort out, because it’s been sitting there for the last three or four years not being fixed.”
There is a broad-brush plan to fix it, he says. The Integrated System Plan (ISP), produced by the federal government’s Australian Energy Market Operator (AEMO), provides “a series of pathways” to the decarbonised future.
But the devil is in the detail.
“The sequence in which you build stuff makes a big difference,” Wood says. “Building it too early is a very bad idea, building it late is an equally bad idea. And that’s where the challenge lies. The regulatory bodies have struggled to get on with the deal…”
News Corp’s co-ordinated attack on Labor’s climate policy this week was almost identical to an attack run during the 2019 election, with minor variations.
In that campaign, it was News Corp’s national broadsheet, The Australian, that ran the story, rather than the company’s tabloids. Again, there was a leak of damaging modelling. The headline ran: “Carbon cut apocalypse: cost of ALP energy plan”.
The report cited “independent modelling”, showing Labor’s proposal to cut carbon emissions by 45 per cent by 2030 would reduce Australia’s GDP by $144 billion, push electricity prices 580 per cent higher, and reduce employment and wages.
But the modelling was not as “independent” as claimed. An email trail subsequently brought to light through freedom of information (FOI) showed close co-ordination between the office of the minister for Energy, Angus Taylor, and the man who undertook the modelling, Brian Fisher. Seven weeks before the modelling came out, Taylor was using draft numbers from Fisher to plan a piece attacking Labor’s policy.
Fisher, a former head of the Australian Bureau of Agricultural and Resource Economics (ABARE), has consistently modelled the benefits of fossil fuel projects and given high estimates of the costs of renewables. He has frequently worked for fossil fuel companies.
The Australia Institute, which obtained the damning FOI documents, compared Fisher’s work for Taylor with that of other modellers, including the ANU, CSIRO, Victoria University and three major reports from Commonwealth Treasury, as well as former Reserve Bank board member, economist Warwick McKibbin, and found Fisher’s projection of the cost to GDP was five to 10 times higher than any of the others.
Although comprehensively debunked by an array of experts, the modelling did its job sowing fear of Labor’s plans. Labor subsequently wound back its emissions reduction target from 45 per cent to 43 per cent, and made sure it had its own modelling to back its energy policy announcement before this election.
Fisher was subsequently appointed by Taylor to the board of the troubled Emissions Reduction Assurance Committee, the body charged with ensuring the integrity of schemes that provide carbon credits used by big polluters to offset their carbon emissions.
There was, however, one big difference between the attack on Labor’s climate plan in 2019 and the one launched this week. At the last election, Fisher published his work, allowing others to test his assumptions. This time the government’s so-called modelling was just a press release, containing unsubstantiated numbers, calculated on the basis of a dubious interpretation of Labor’s policy. Wood, among others, suggests it was a “back of the envelope” exercise carried out in Taylor’s office.
The Taylor release also included brief quotes from several experts, including Wood, who questioned whether Labor’s plan would deliver the claimed $378 average household saving on power by 2030. But none of them supported the government claim that prices would actually go up. Half of the experts quoted in the release have since said they were misrepresented.
Wood says that predicting the price of electricity is a mug’s game anyway, for a couple of reasons.
“Firstly, most of the things that are causing electricity prices to move around have nothing to do with government policy anyway,” he says. “And secondly, there’s so many of them that anyone who thinks they can predict what prices are going to be in three or four or 10 years’ time has absolutely got rocks in their head.”
This much can be said, however: power prices have come down over the past few years and the main reason for that is a greater share of generation from renewables.
And, says Hugh Saddler, a veteran consultant on energy and emissions and honorary professor at the ANU Crawford School of Public Policy, there is a growing “separation in prices” between states that have more solar, wind and hydro and those that are more reliant on fossil fuels.
“They’re distinctly lower in Victoria, South Australia and Tasmania than they are on average in New South Wales, Queensland and Western Australia,” he says.
Saddler makes a couple of other salient observations, too. For one, as we move to electrify everything, including heating and cooking, not only will coal use decline but so will the use of gas spruiked ceaselessly by Taylor.
“The gas distribution industry is obviously an industry that’s heading for a lot of stranded assets,” he says.
Saddler notes that the cost of transmission – the focus of the government’s latest attack on Labor – makes up only about 8 per cent of the price of energy to consumers. He further notes that the latest iteration of the Integrated System Plan “has projections for the prices out into the future, and they really don’t go up”.
And he echoes Wood’s words, saying planning under the current government for the transmission changes needed to accommodate more renewables has been “a complete mess”.
Saddler has not analysed the detail of Labor’s plan but gives it some credit for at least “putting some additional public money back into the system to build the transmission links” and making some attempt at planning for the future, “not just leaving it”.
Constitutionally, electricity supply is a state responsibility. Only in the past couple of decades has there been any real attempt to link and co-ordinate the state markets and grids, and only much more recently has the federal government become directly involved.
Its first big initiative, Snowy Hydro 2.0, was announced in 2018 as the largest committed renewable energy project in Australia. But it is widely seen as a textbook case of how not to move towards a decarbonised future. Many experts see it as
the poster child for unplanned development.
The massive project involves the digging of 27 kilometres of underground tunnels to transfer water between the Tantangara and Talbingo dams. It also involves the construction of a new 2000-megawatt power station, to provide up to 350,000 megawatt hours of pumped hydro energy storage capacity.
Saddler doubts whether it would have gone ahead had it been subject to “any sort of detailed cost-benefit analysis, or cost optimisation or anything like that”.
Instead, he says, it was an “arbitrary” decision by former prime minister Malcolm Turnbull.
Wood, too, is among the many who questioned the financial justification for the project.
“Even if it was necessary at some point, it wasn’t yet,” he says, arguing that the scheme has caused uncertainty in the market.
“People who might have gone ahead with other projects backed off because the Snowy 2.0 was going to be this huge gorilla. When it is built, it will have enormous market power, which must give regulatory bodies reason for concern…”
Perhaps the strongest criticism, however, comes from Bruce Mountain, an energy economist and director of the Victoria Energy Policy Centre at Victoria University.
Mountain says the government rushed into the project without proper consideration of the costs, particularly those of its transmission connection, leading to enormous blowouts and likely higher power prices.
When the government announced the decision to proceed with the project in early 2017, it was expected to be finished by 2021 and cost $2 billion. Now it is estimated the cost of the tunnels and power station will be about three times that amount, at more than $5 billion, and that the scheme will not be operational until 2027.
“It’s now 2022, they’ve only dug the first kilometre of 27 kilometres of tunnel and there’s already a cost blowout,” Mountain says. “They’ve used all the surplus set aside. And the transmission lines, which were set to cost $1.3 billion, will … now cost $3.3 billion and maybe 50 per cent more.”
Mountain argues that the benefits of those transmission lines would largely accrue to coal generators. In the years since the Snowy project began, he says, technology is passing the project by and potentially challenging the whole notion of a national electricity grid.
While the current federal government has dithered, he suggests, the states have run “way ahead of the game”.
“South Australia already gets 66 per cent of its electricity from the wind and sun, and they’ll get to 100 per cent soon. Tasmania has long been 100 per cent because they’ve got the dams and the geology. And NSW and Victoria have really ambitious big policies and big commitments, of tens of billions of dollars to make it happen quickly.”
Back in 2017, when then prime minister Turnbull came up with the idea of Snowy 2.0, Treasurer Scott Morrison mocked the idea of big batteries as being akin to big bananas. But things have moved a long way since then.
Batteries, Mountain says, are “plug and play”.
“They come on a container. They’re put on a concrete platform and you do the electricity connection. That’s pretty much the extent of it. They can be located right in the middle of cities, if you want them. They can be sized and augmented as you go. They’ve got all these fantastic attributes. And so that just completely changes the game,” he says.
“A truly national grid is a dream of yesterday, stuck in the past when we had fossil fuel resources. Now the power system is localising and decentralising.”
Interestingly, Mountain was another of those quoted in the government’s press release of Tuesday, saying he was “sceptical of any claim that more transmission equals lower prices”.
But he was not simply criticising Labor’s policy. For him, the public policy question is whether the federal government should intervene at all in the energy sector.
Sure, it’s a radical view, and many other experts would argue otherwise.
But that’s not really the point. The point here is that he too was misrepresented by a government more concerned with propping up fossil fuels than planning for a renewable future.
This article was first published in the print edition of The Saturday Paper on April 23, 2022 as "Claiming costs".
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