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There is supposed to be a gas shortage on Australia’s east coast caused by the LNG plants in Gladstone sucking all the methane molecules out of the country. But AGL has a plan to shut a coal-fired power station and replace it with mostly natural-gas powered diesel engines. It just doesn’t make any sense. And, at the same time foreign companies continue to build wind farms subsidised by the Australian taxpayer.
Part of the background to this situation is that the game in the energy sector has moved from traditional utilities doing the investing and selling the power themselves, or selling it to a utility retailer, to one in which small developer teams run around doing all the approvals, including getting land, applying for network access, conditionally contracting an EPC firm (Engineering, Procurement and Construction), legally organising contracts, ie., the full development of a project short of financial close, and then selling the nearly done project to an investor.
Usually, to obtain project finance you’d have to put in 30%-40% equity and the bank(s) put in 60%-70% debt. But the traditional bank approach is that the developer must have a power purchase agreement (PPA) with a high grade retailer (state-owned monopolies preferred). So, unless they were traditional big utilities, aspiring developers wouldn’t get too far.
Now, once you have developed a project to the stage of obtaining all approvals but short of obtaining a PPA with a big retailer, you can turn around and sell the project to an investor with deep pockets, which can bring in its own 30%-40% percent equity and re-contract the hands-on work to others. But instead of going to private banks, the investor goes to the “federal subsidisation bank” called Clean Energy Finance Corporation (CEFC) to obtain cheaper debt. As stated, CEFC doesn’t require a PPA with a big guy as it is willing to take risk in the wholesale (spot) electricity market. The investor who has bought the project will also take risk in the wholesale market. But because the money that CEFC uses is Australian taxpayers’ money, commercial risk is passed from the investor, bank and retailer under the traditional model to the public purse. The market is being distorted by a federal agency, CEFC, elbowing private banks out of the game. The CEFC lends cheaper money than private banks and punts in the more volatile wholesale power market (compared to a long term PPA).
There is no problem with punting in the wholesale market as long as it’s done by private parties who should be able to hedge to minimise spot-market risks. They then should get the return commensurate with their risk-taking. I think the traditional model of forcing 20-year PPAs onto a developer or investor was too inflexible, itself forcing development of major projects into the hands of state-owned utilities because banks prefer them to private developers. To repeat, state-owned entities are implicitly guaranteed by taxpayers.
Australia developed wholesale power markets that are flexible and large in order to break up the monopoly of state-owned utilities. These wholesale markets enable small players by providing them with a ready market, instead of them being beholden to state-owned monopolies. But rather than forcing banks to learn how to deal with the new world of flexible and competitive wholesale market, and lend to smaller private suppliers to help them enter the market without seeking recourse to taxpayers’ money, government is destroying the rationale of the competitive private market by offering massive amounts of tax money through CEFC and ARENA (Australian Renewable Energy Agency), the latter dishing out equity money to complement CEFC’s debt offers.
To be fair, agencies like CEFC and ARENA are the messengers, as they only do the federal government’s bidding, which is to facilitate renewable projects as much as possible. At the end of the day, voters put the government in and, in so doing, they agree to a stronger renewable uptake. You can argue that voters don’t mind the government dishing out their money to help renewable projects get up. The only thing is that such a crowding-out effect on private lending has a detrimental impact on the free market as a whole. Meanwhile, renewables remain too expensive to enter the market without those significant subsidies. Our power-supply sector is a high-cost shambles because government swings with the Greens, who held balance of power for so long.
It really gets serious when the cheapest and most reliable bits of our power supply system are being destroyed for ideological reasons. So far that has been the case with the Port Augusta power station and Hazelwood in Victoria. Apparently the latter was scheduled to close in 2021, but that wasn’t soon enough for Premier Andrews who sent in Worksafe to find fault with the power station. Some half a billion dollars worth of things in need of fixing figured, so the plant’s owner brought forward closure instead.
Now the action shifts to NSW, where AGL plans to close its Liddell power station in 2022 and replace it, in part, with 750 MW of natural gas-fired, piston-engined generation. Based on what AGL is building at its Barker Inlet power station near Adelaide, the generators will be 18 MW each with the ability to also run on diesel. These figures from an AGL presentation on 13th December shows AGL’s rationale for such a setup:
AGL plans to profit from a power-supply system that has been made unreliable and “spiky”, revelling in that inherent unreliability by capturing the high prices it creates. Batteries are too expensive for that, but diesel engines provide the fastest reaction times and can be brought on in smaller increments than gas turbines.
Liddell doesn’t have to close in 2022. AGL has put out numbers showing that keeping Liddell going will cost more than the scheme it has concocted, but anyone who has worked for a large company knows that job security often depends on providing provide management with nothing more tnor less than the numbers they are looking for. As Liddell is of limited value to AGL, by its own admission, then compensating for nationalising it won’t cost much. It should then be run by some power station engineers who like being power station engineers and are proud of their work. This is the optimum outcome from here.
All it would take to happen is for the re-emergence of members of parliament who have an interest in the welfare of the country.
David Archibald is the author of American Gripen: The Solution to the F-35 Nightmare
Mr Archibald, will I see your name on Australian Conservatives federal election candidates list?
They got less than the informal vote in Bennelong. Dont waste your time with AC.
On their 1st ever election, the Australian Conservatives cracked the 4% quota required for election funding, and so have established themselves as a 2nd rung political party. The informal vote nearly doubled – and is increasing across Australia – which will make it easier for new parties to become established as there is both a large disenchanted group to woo and the remaining votes become more valuable.
Laugh, then cry. The people running this country are all idiots. The trade association for the power and gas transmission networks, Energy Networks Australia, commissioned Deloitte to write a report on decarbonising Australia’s gas distribution networks: http://www.energynetworks.com.au/sites/default/files/054496_tg_decarbonising_australias_gas_network_final.pdf
One of the proposals examined was to steam reform the natural gas to hydrogen and somehow dispose of the CO2. This would destroy at least 60% of the energy value of the natural gas when we are supposed to be having a gas shortage.
The people have demanded the destruction of the energy sector, not politicians. As you sow….
The people were never offered an explicit, direct choice.
Noble cause corruption has become bi, even tri, partisan now so there is no political way back. The MSM are the cynical, sleaze-rich agenda enablers, cherry picking disinformation, bashing reputations of those who point this out, claiming “consensus” as evidence without ever defining the consensus, deliberately conflating climate change with anthropogenic climate change (modest as it is) – all with the cynical knowledge that the populace in general believes what they are told (even 9 contradictory things by breakfast). The general response I have heard to this discussion is along the lines of: “Why would they lie ?” … hopelessly naive and uninformed, an impossible mindset to penetrate.
Only 2 weeks ago, I had the occasion to cross-examine a journo from The Aus on why there has never been an MSM item with hard, experienced power grid engineers being interviewed (not once in over 15 linearly unbroken years). He understood the question of course (as I’ve noted previously, they are sleazy, not stupid) and his answer was basically a weasel-worded slink along the lines that the audience wouldn’t understand. So on that pathetic excuse, they refused to inform.
So for those reasons, I agree that Aus has what it deserves. Not because the “people” made an informed and deliberate choice.
Really Jody.
Which people?
When were ‘the people’ ever given the opportunity to demand this destruction?
Unless you can supply data to back your generalisation you stand naked, using clear plastic as a shield, in the headlights of the more enlightened among us.
And we don’t like what we see!
David, a thought provoking article, but I think the main point about Liddell’s demise has been missed – that the government’s LRET legislation has been the direct cause of base load generation becoming increasingly unprofitable, by simultaneously (a) forcing network operators to take all the ‘renewable’ power that becomes available on the wholesale market at the expense of existing base load power, thereby reducing the amount of their full output that base load generators can sell and consequently making them less profitable for their owners, and (b) ensuring the building of ever-larger amounts of ‘renewable’ generation capacity by means of the gradually rising (currently about $80+ per MWH – i.e. between 50 and 80% of the wholesale price) subsidy achieved by gifting them LREC certificates for every MWH put into the grid. Imagine for a moment if a similar subsidy scheme were applied to free range eggs vs cage eggs. Such a huge subsidy (and its resultant huge windfall profits) would soon drive all cage egg producers bankrupt, and guarantee that only ‘free range’ eggs were produced, regardless of the public’s preference for either.
Unlike eggs however, the power generated by ‘renewables’ is not a perfect substitute for base load power, as is becoming clear. The ‘spikiness’ of supply as you call it requires active intervention by generators and/or load shedding, and the asynchronous nature of ‘renewables’ further de-stabilises the electricity network, requiring massive costs to be expended by synchronous generators and network operators to re-engineer the network and manage it on a second-by-second basis.
Yes, the market has changed from a few large generators making large, well-planned investments over decades, to a free-for-all funded by the combination of the LRET subsidy and the ‘progressive’ government agencies CEFC and ARENA, and yes, the ‘spikiness’ of ‘renewables’ power cause the NEM to make corresponding increases in the wholesale price of ‘fill-in’ power such as gas and even diesel generators, but these changes were IMHO driven almost solely by the pernicious effect of the massive LRET subsidy driving uneconomic investment for the past decade or more in intermittent, non-synchronous ‘renewables’ generation (more than $2 billion per annum now and rising), paid largely in ignorance by all Australian electricity consumers.
To answer the implied question of whether the government should seize Liddell as a solution, I would say it would make little or no difference unless the government also scraps the LRET. Unfortunately in either case the poor taxpayer would be saddled with $billions in reparations to the private electricity sector for breach of faith (or whatever the lawyers call it). What a shambles.
> ” … the pernicious effect of the massive LRET subsidy driving uneconomic investment for the past decade or more in intermittent, non-synchronous ‘renewables’ generation (more than $2 billion per annum now and rising), paid largely in ignorance by all Australian electricity consumers”
Yes, of course. As noted above, the populace was never offered an honest, direct, informed choice. So manipulated ignorance prevails. Almost no-one I’ve discussed this with knows what LRET is, let alone understands its’ pernicious effects.
Way past “shambles” now. No way back.
If only we had a real Conservative leader! The leader we have, MT, has stated his green commitment which once was non negotiable.
What we really need is Australia’s Donald J Trump. Who is it? Have him/her talk to David Archibald.
Such stupidity re financing renewables. Why don’t they cancel taxpayer financial support for wind and solar and use the money to support new generation coal fired power stations, nuclear, and gas, all of which can provide stability for the grid? Let those virtue signaling big banks (“we don’t lend money for coal based projects – aren’t we noble”) provide loans to the wind and solar industries and thus put their money where their mouth is. I would not have a problem with governments building and owning new technology coal, nuclear and gas power stations. It would drive down the price of electricity and later on they could privatise them and make a profit for the taxpayer. Historically, that’s how the States developed their infrastructure – railways, ports and other “public” utilities were developed (and owned by governments) by borrowing from the London Bond Market and elsewhere because private investors leading to private ownership could not wait for the long lead time before they received a return on capital, whereas the governments paid interest straight away.
When will the MSM ever do just a tiny bit of genuine investigative reporting and analysis and give us the facts instead of the emotive nonsense that now masquerades as news? There are more people killed or injured every year getting onto rooves to clean their solar panels than have ever been killed by the nuclear power industry in total. Yet the MSM still eagerly sensationalises reports on the [virtually non-existent] ‘dangers’ of nuclear energy.
The MSM still has not seriously investigated or challenged the actual ‘science’ of the AGW scare campaign. For example, to date, the MSM has not yet reported on the latest findings/papers by Svensmark which explain the mechanisms of climate control/’climate change’ far more comprehensively and logically than do any of the numerous ‘models’ relying on CO2 and their unproven ‘forcing’/sensitivity theories could ever do. If Svensmark’s work had been in favour of the true believers of catastrophic AGW it would have been the lead item on every TV news for a month. However this latest news has only been published in a virtually hidden article by Graham Lloyd in today’s Australian, and that appearing in blogs like the GWPF [Global Warming Policy Forum]. I have been aware of Svensmark’s work for over a decade and to my it makes more sense than any amount of the politically inspired hysteria masquerading as science and news ever could.
In times past certain civilisations sacrificed the odd warrior or maiden to appease the ‘climate gods’ of their day, now modern GREEN socialist totalitarians are prepared sacrifice civilisation itself to appease their climate god – Gaia. In medieval Europe the ‘Black Death’ killed millions, in the twenty-first century the ‘GREEN’ death will prove to be even more destructive.
No! Liddell is a terrible plant. Right from the get go it has been a poor performer because of its design. Before Macgen was privatized they spent a lot of money on Liddell to no avail. They gave the plant to AGL for free for the sake of the Tomago aluminium smelter. Now Liddell is even older and just putters along.
On this point AGL is telling the truth. You don’t need a corporate insider to figure this out. Go and read Macgen’s annual reports before it was sold off and it is there in black and white. Talk to someone in energy and Liddell limps along. There is no conspiracy.
Liddell needs to be knocked down and replaced with a state-of-art new coal-fired power plant. The government has to build it. It is likely to cost 2-4 billion which is very little compared to other projects which will not bring the returns that a new coal fired power station will bring and that is, cheap electricity and increased business.
State and federal governments are too cowardly to announce a new coal fired power plant in NSW. It is not the money. It is the political backlash from a population which has been indoctrinated in environmental rubbish.
Privatisation of the electricity sector has not been a complete success and unfortunately government still needs to invest in large capital projects. This time it should keep the plant in state hands and make it mandatory that no future government use it as a cash cow vs using profits to maintain the plant.
If they don’t build a new plant you can say goodbye to Tomago and Newcastle will go through another major depression.
Ben,
You are right about Liddell not being very good, but the alternative is …?
Curiously, at its worst it is still more efficient and cheaper than any un-subsidised ‘so-called ‘renewable’ power source.
As for the Oz gas shortage: this is entirely artificial. The giant Gorgon Project in WA is being financed by $40Bn from the Chinese in return for 97% of the output. Victoria has banned drilling and fracking then blames the energy companies for a lack of Victorian gas. Duh, Homer! Join the dots …
> “Right from the get go it has been a poor performer because of its design”
Essentially, the ball mills for grinding the intended fuel supply seams were under-designed to save capital (similarly to Mt Piper being built without a coal unloader). This was not some high-tech mistake, just a penny-pinching State Govt. So Liddell struggled from Day 1.
David,
As Jarryd Diamond pointed out in his two related books: ‘Collapse: How Societies Choose to Fail’ and ‘Guns, Germs & Steel’ societies age, lose vitality and choose to die. Usually when they have become decadent they are just overrun and become slaves to a more energetic and driven culture (though with islam the word ‘culture’ does not seem appropriate). As entropy sets in generations later their descendants become soft, complacent and too irrational to survive. They no longer concern themselves with harsh reality, but with trivia (say, marriage laws, the climate centuries from now, denigrating their own culture as inferior to others, saving the planet {when we are powerless to do so}, etc. The EU has arrived at that stage and Oz is deliberately following to the Climate Con tune. Even if the resident troll was correct and CO2 and fossil fuels were destroying the Earth (which is untrue and a hoax as he cannot tell us the destination he seeks of the ideal concentration of CO2 or the ideal average temperature that would save the planet’). No matter what Oz does we cannot save the planet, but we can choose to destroy ourselves (just like the millions sacrificed by cultists throughout history to assuage every previous false god.)
As for Liddell, it is not an obsolete plant as claimed by AGL. When Macquarie Power handed it over:
• The four 500MW steam Turbines had recently been progressively refurbished (effectively replaced) to achieve higher efficiency and had an expected additional life of 20 to 25 years. This will provide about 80% efficiency (as they have to be taken out of operations and extensively serviced every 1-2 years (not a small task)
• The automatic control systems for the station are as up to date as any in Australia achieving relatively efficient performance.
• it was dispatching [electric power] to the Grid at $30/MWh, whereas AGL is now dispatching to the grid at >$100/MWh
• Liddell was showing an Internal rate of Return >20%
In short, as Jody correctly points out “The people have [chosen the economic collapse of Oz and] demanded the destruction of the energy sector, … [and with it the Oz sovereignty]”. And the Green Trolls will cheer their own destruction, because it took the rest of us with them into the Darkness.
Even though the turbines were effectively replaced with the purpose of increased output that has not occurred. AGL gets more generation out of Liddell than when it was under state control. The problem is the design of the plant. It’s poor design means it requires on-going capital input to maintain a below par capacity rate.
A correspondent has emailed in:
One follow-up letter from a John Gardner is quite good, and actually complements the meaning of the article although he thinks you missed the point about LRET in seizing Liddell.
The meaning of the article is that the federal govt has been pushing renewable at great cost to the economy. The first legislation that pushed renewable into the market is the Mandatory Renewable Energy Target legislation. MRET is the mother of LRET and now LGC and STC… So if the argument is to seize Liddell to prevent a perfectly functioning coal plant to be closed down, then the argument implies a reversal in energy policy, ie to stop pushing renewable into the market at great cost to the country. This is the whole point of the article: the irony of govt deliberately distorting the free market by setting up large subsidy-giving entities to help the highest cost suppliers enter the market, using taxpayers’ money, to elbow out lower cost suppliers from the market.
(One point about using tax money from nurses and police and firemen to subsidise international investors was regretfully edited out of the article).
The wholesale energy market rules for instance allow renewable energy plants to send energy onto the grid at will, ie anytime, because these plants are not controllable (dispatchable). You cannot predict wind and sun. yet, because fossil fuel plants are dispatchable (controllable by fuel), they must bid to supply the grid and are forced off the grid whenever renewable generators happen to over-generate relative to load. So the financial viability of coal plants, which should be run flat (baseload) for maximum efficiency, is shot by such rules favouring intermittent (unreliable) generation.
The argument in favour of such rules is that the end justifies the means. If society wants a clean economy it will get renewable although it suffers in the process. But once we have majority generation in renewable though, so the argument goes, the diversity of such intermittent plants will eventually mitigate individual plant intermittency, creating a more stable system overall. But you will need to build a lot of intermittent capacity, 4-5 times as much as building just fossil fuel plants, to stabilise the system through diversity. That’s the capital cost side.
The O&M cost side (fuel included) is that you will save on fuel cost if you build renewable. It’s then an economic evaluation of expending capital cost versus saving on fuel cost. There is no question that paying for fuel and saving on capital cost (the fossil fuel power system option) is cheaper UNLESS you create an artificial cost for the fossil fuel option, and that is EMISSION cost. The higher the emission cost the easier to swing the argument in favour of renewable. Hence Gillard’s starting point of $23/t carbon price compared to $5-10/t in Europe at the time of Carbon Tax introduction. Australia was whacking itself with a massive cost on energy even when socialist/greenist Europe could only afford to self-impose 1/3 that cost.
David, re the Gillard ‘carbon price’ of A$23/t. I just checked on the US EPA site (here: https://www.epa.gov/energy/greenhouse-gases-equivalencies-calculator-calculations-and-references) and they calculate that the CO2 emissions equal to the generation of a MWH of coal-fired electricity = 0.74 Metric tonnes. As the LRET subsidy certificates are currently worth A$85.00 per MWH, it seems to follow that the current LRET ‘carbon tax’ equates to about A$115/tonne. Maybe someone should point out this wee fact to Malcolm?
All up guys, Australian electricity price and usability is only a Political Problem.
The only useful action is replace the existing Political Plebs.
The only reasonable action is for when a new government, from and for the people, comes to power, instigates a Royal Commission into the dismantling of the once fantastic power supply grid in Australia. It is set to identify everyone of those involved in the treason of undermining our economy. It ensures they are charged with treason, jailed for life and all benefits received or ‘earned’ during their reign of stupidity are stripped and returned to the public purse.
F… them all.
Today I fired up my own 12 kva generator, recently purchased, running on imported diesel, so my business and the livelihoods of my employees wont be so greatly disrupted in the coming blackouts and brownouts.
This whole bloody madness is a bloody disgrace.
I intend to watch and calculate the cost of running the genset compares to power from the grid.
If it is close then I’ll not draw from the grid.
I’m wondering how many other small businesses do the same?
Cheap electricity was once greatly valued now I’m looking at running a generator to ensure reliability and assess cost effectiveness.
Who would have thought the educated elites who have foistered climate change upon us could be so bloody stupid, not to foresee the consequences.
I recken they knew but went ahead with the madness. What are they going to do when the expected global cooling arrives?
Jail is too good for these mongrels.
The public broadcaster is complicit in this deception of the Australian people. Who has the courage to dismantle this publicly funded Labor/Green propaganda entity?
As Peter Prenavon says, “Australian electricity price and usability is only a Political Problem. The only useful action is replace the existing Political Plebs”.
I would go further and assert that most of the problems identified by conservatives are political problems and they won’t be properly addressed until we have politicians who understand them and are prepared to do something about them.
First we need to find those people and facilitate/promote their election. To do that we need to be able to inform/educate sufficient voters and that requires mass communication. We do not have the means at our disposal at this time. The print media is dominated by Fairfax and News Limited. The former are ideologically opposed to the sorts of policies that will help solve the problems. The latter is a mixed bag.
The Australian has historically provided a range of views but it does not have mass penetration. Its usefulness has been further limited in recent times by the move of its editorial policy and the direction of most of its in-house writers away from conservative views. This may have been a conscious attempt to attract readers from the Fairfax media. If so it showed in the nature of many of the online comments. I terminated my subscription to The Australian earlier this year after being a subscriber/reader from the very first issue because of my perception that it increasingly supported views and politicians that I could not.
The Daily Telegraph and The Herald Sun have more penetration but my perception is that they have little interest in dealing with issues in any but the most sporadic and superficial way.
As to the broadcast media, the ABC of course plays the most prominent role in disseminating anti-conservative propaganda about issues and people and stridently promoting leftwing causes. Yet I understand that many of its programmes are losing listeners/viewers. Commercial free to air TV seems little better in terms of the views it promotes but may well have more impact because of its reach. Commercial radio seems the most likely to support conservative viewpoints and some of the late-night talk-back programmes already have significant followings of older and more conservative listeners.
We need to find ways of better communicating with more people and bringing more pressure to bear on the existing media.
This is a daunting task but the sooner it is started the sooner progress can be made. And it is possible to get results. When the Coalition was in opposition with Turnbull as its leader and the Labor Government was developing the carbon tax with his co-operation, there were petitions with tens of thousands of signatures submitted to the Opposition and tens of thousands of individual emails and letters. The result was a challenge to Turnbull’s leadership and his eventual replacement by Abbott – and no carbon tax.
When Abbott was replaced as Prime Minister in the coup by Turnbull and his incontinent supporters. I contacted both the Federal Secretariat and the ACT Division of the Liberal Party and made it clear that as a supporter (but not a member) of the Party for close on 40 years, I would no longer support them while certain prominent politicians were members and unless they were prepared to adopt the defunding of the ABC as a policy.
As an individual I could not expect to have much of an impact. However, I suspect the membership of the Australian Conservatives includes many people like me. I also suspect that PHON and the Australian Liberty Alliance also have many supporters with similar views.