With the recent closure of Liddell Power Station, the electricity system is on a knife’s edge. It is time for energy policy makers to take stock – and focus on energy security – before it is too late.
Australia can continue down the path of closing what have been reliable low-cost baseload power stations without adequate replacements being available.
Or it can do what should be obvious to all elected officials – keep the lights on while building new power stations that are able to meet the real-world energy needs of Australian households and industry.
This IPA Research Paper demonstrates that energy security has been given insufficient attention by energy policy makers. It should in fact be the priority of all governments. We can no longer afford the luxury of pretending otherwise.
The recent announcement by Origin Energy’s new owner, Canadian private equity fund Brookfield, that it is prepared to entertain discussions about keeping open Eraring power station (Australia’s largest baseload plant) rather than closing it in 2025, should be welcomed by the New South Wales government.
At the very least, this is a victory for the real world over ideologically driven theoretical energy-market models that promise a high level of certainty while failing to explain why power prices and the risk of blackouts keep increasing.
While previous closures of baseload plants in New South Wales and South Australia were effectively offset by the shutdown of energy intensive aluminium smelters in New South Wales and Victoria, and by the shutdown of the car industry, Hazelwood’s closure in May 2017 provided an insight into what awaits Australia.
Wholesale prices jumped more than 70 per cent compared with the previous year. Over the following three years, the average wholesale electricity price was 135 per cent higher than the average over the previous decade. All the while, threats to system reliability became more acute.
Yet, between 2011 and 2021, wind turbine capacity in Australia increased more than 320 per cent to 8,951 MW. Solar capacity increased 672 per cent to more than 19,000 MW.
To put this in context, Hazelwood power station produced 1,600 MW.
But what is occurring in Australia has already been tried, and has failed, elsewhere. Germany and California offer sobering lessons for Australia on the risks of moving towards a high level of dependence on renewable energy.
Germany’s electricity costs 50 per cent more than France, yet produces 8 times the CO2 emissions. Californian households now pay 66 per cent more compared with the rest of the US.
But unlike Germany and California, Australia cannot rely on electricity supplies from neighbours. As an electricity system that is literally an island, the proportion of variable renewable energy in the energy grid, at 21.7 per cent (in 2021), already makes Australia the world leader by that measure.
The Albanese government’s push to increase renewable energy to 82 per cent by 2030 will only result in higher prices and lower reliability. No feasible or affordable combination of intermittent renewables, batteries, pumped hydro and grid extensions can substitute for the reliable and affordable power provided by the proven technology of existing baseload power stations.
The strains on the system will be made worse by the push to electrify everything, especially motor vehicles and industrial processes like steel smelting and minerals processing. Electricity demand is set to increase significantly. Critical international lessons have been ignored by Australian policy makers.
While Australia and other developed countries off-shored their energy intensive manufacturing to China, India and South East Asia, this was achieved by large-scale investment in new coal and gas fired power stations.
This explains why worldwide generation of electricity using fossil fuels is actually rising. In 2021, wind and solar only contributed 10 per cent of global electricity supplies. Fossil fuels still generate more than 80 per cent.
Promised and widely promoted, the global energy transition is not happening at anywhere near the pace politicians and renewable advocates are suggesting.
The inconvenient truth is that no major industrialised country has successfully decarbonised its electricity sector through large-scale investment in renewable energy.
Yet against all the international evidence, Australian governments – federal and state – insist they can deliver lower electricity prices, while electrifying everything and keeping the lights on.
The continuing refusal of the Federal Government to consider nuclear energy as an option means that it has in effect placed a desire to promote renewable energy above the stated policy objective of reducing emissions. Given the confusion of such a stance, it is legitimate now to prioritise energy security as the overriding objective – providing a stable national electricity grid and removing the source of upward pressure on wholesale prices.
The IPA concludes that in New South Wales and across Australia more generally, it is time for elected officials to do their job and focus on energy security and affordability – keeping the lights on and ensuring the remaining fleet of baseload power stations continues to operate for as long as is necessary.
No baseload power station should be allowed to close unless and until a like for like baseload replacement – be it coal-fired or nuclear – is ready to come online. For most operators, this will mean pushing out closure dates well beyond those promised in the rush to meet the Federal Government’s unrealistic plans for net zero and increased renewable energy.