Energy Security Australia – Prime Minister Turnbull’s New Electricity Plan Just Died

Malcolm Turnbull’s new energy policy is fuelling anxiety among government MPs, who are liken­ing it to a “cap and trade” carbon scheme and demanding that emissions reductions be delayed as long as possible to minimise costs.

The Prime Minister yesterday rejected Labor claims that his National Energy Guarantee resurrected a carbon tax by stealth, through the establishment of a set level of emissions that retailers would be required to meet each year.

Labor used question time to needle the government over the policy, arguing that the overhaul would force energy retailers to begin trading in “carbon abatement obligations” — effectively establishing an implicit carbon price. Concerned Coalition MPs questioned whether the scheme was too similar to a “cap and trade” or “cap and contract” system because retailers would be required to enter new power-purchasing contracts to shake up their energy mix if they exceeded the emissions cap.

Australia’s Minister For The Environment And Energy Josh Frydenberg And Prime Minister Malcolm Turnbull

Stop right there.

So this plan, meant to save the Government and the country by tackling soaring power prices, is by week’s end:

1. Boring.
2. Incomprehensible.
3. Too close to Labor’s.
4. Already branded another global warming scheme
5. ineffective – unlikely to cut prices even by the lousy $2 a week in a decade that’s claimed by the Government.

So this plan is a complete political dud, even without factoring in this: that to realise those pathetic savings – $2 a week 10 years from now – the Government says it needs the “investor security” that will come from Labor and the states backing the plan. And they so far give zero sign of doing that.

As for the sales job, spare me. The Prime Minister’s “engineering and economics” slogan is almost as meaningless and limp as his “jobs and growth” one.

The Liberals who howled down Tony Abbott in last week’s party meeting for requesting a discussion on the politics of this scheme yet again shot the messenger. I suspect many will come to regret that – starting with the 15 MPs almost certain now to lose their seats.

Henry Ergas is not as damning of the policy – but still concedes it is will not cut prices, which is surely the urgent political imperative. Turnbull’s global warming crusade keeps getting in the way:

At its simplest, it seeks to do so by reshaping the obligation on retailers, requiring them to enter into contracts with gen­erators that meet two criteria: that each retailer’s portfolio of contracts balances dispatchable and intermittent sources of power, thus helping ensure the system is secure and reliable; and that the portfolio also meets an emissions target.

In that sense, the new policy could be viewed as combining a RET-like approach to emissions with a RET-like approach to ­reliability, with both goals being pursued through mandates on electricity retailers. It is, however, much less prescriptive than the RET in how each target is to be met, encouraging retailers to find cost-effective ways of satisfying the criteria.

That is an improvement. And it is made even better by the fact the reliability criteria will be defined on a state-by-state basis. States that pursue absurd renew­ables targets will therefore bear the cost, as retailers serving those states will be required to buy the dispatchable capacity needed to offset the resulting system instability.

But it is important to also note the policy’s very real limits. Even if it works as intended, the new ­approach will neither eliminate the cost pressures inherent in the pursuit of ever lower carbon intensity nor return our electricity ­prices to internationally competitive levels. Rather, with the RET still in place, the continued ramp-up in renewables will worsen the problems experienced to date.

Nor is that on a trivial scale. ­According to the most recent data from the Australian Energy Market Operator, the connection requests now in train in the National Electricity Market would increase large-scale wind and solar capacity by a factor of five.

Even if not all of those projects proceed, network costs will soar as new transmission lines are built to connect those that do.

To repeat: a political dud. Show the the voters who will be impressed.