Perfect storm: how Australia’s energy crisis started

But Australia – which has long been seen as being on the… cutting edge of renewable energy bedding and removing fossil fuels from the energy grid – is now tackling it from all sides.

A decade of failure

Tony Wood, director of the Grattan Institute’s energy program, says the blame for this month’s “perfect storm” of energy problems can be attributed to successive governments over the past decade, including the lack of a market mechanism to price carbon.

“You can blame all parties, but there is no doubt that the coalition is more to blame,” Wood said AFR weekend† “There is an increase in policy uncertainty, [and] states doing their own thing on renewables without considering the consequences has also been part of the problem. †

Coal-fired power plants have been the backbone of Australia’s energy network for decades. Fairfax Media

Wood says the lack of a proper carbon pricing mechanism — to both reduce emissions and send a signal to investors about what a new generation was needed — has put Australia in a worse position to tackle the problems it poses. years were created.

The failure of former Liberal Prime Minister Malcolm Turnbull and his then Energy Secretary Josh Frydenberg in 2019 to National Energy Guarantee – linking energy and climate policies, including reliability and emissions guarantees – was also a missed opportunity.

But Wood says there is now an opportunity for the Albanian government to solve some of the problems, including through its Cheap $20 Billion Loan to Build Poles and Wires to connect renewable projects across the country, and to implement the Energy Security Board’s capacity mechanism (to help close the gap between cheaper but less reliable renewable energy).

Labor also has plans to set the baselines for the so-called Safeguard mechanism to make big polluters pay – the other side of the energy and climate dilemma, as it seeks to cut emissions by 43 percent by 2030 from 2005 levels. “It’s all coming out now, but you should never waste a crisis,” says Wood .

The Energy Security Council – which emerged from the Finkel Review in 2017 and was tasked with dragging the energy grid into the 21st century – will report to the government in July, with a final draft for the post-2025 National Electricity Market to be completed by the end of the year.

Coming reforms

One of their main tasks is to create a capacity market mechanism that will enable companies to provide firm, shippable capacity to cover the retirement of coal-fired power plants and the intermittent wind and solar power.

ESB board member and chairwoman of Australian energy regulator Clare Savage – who last week de standard market offer, with electricity price rising to 18 per cent in NSW and 12 per cent in Queensland from 1 July – says she is confident that the ESB’s reforms will help alleviate some of the current problems.

“The market is really tight. If you don’t have the generation capacity, we see significantly higher prices,” she said. “That’s why it’s really important that we need this new market design to see how we can bring in new capacity when the sun isn’t shining and the wind isn’t blowing.”

This can be done through batteries, pumped hydropower and new means of transmission.

Bowen wasted no time this week blaming the former coalition government for the latest energy problems, saying the new Albanian government would not follow Morrison’s government in intervening in the energy market.

“The days of knee-jerk reactions, the days of ad hoc interventions, the days of implementing ill-considered policies are the days of the past nine years. These are not the days of this government,” he said on Thursday.

“This government will take action if necessary… based on expert advice, we will do so in conjunction with our state and territory colleagues. The climate wars are over and the energy wars are over.”

But the Albanian government will be under enormous political pressure to pull the “throttle trigger” (the Australian Domestic Gas Security Mechanism) that would force gas exporters to direct their product to the domestic market, even though it wouldn’t start until January next year.

Former Energy Secretary Angus Taylor had no qualms about silencing the big gas companies in order to achieve a political outcome – something Bowen may need to emulate.

The Australian energy market operator this week released the guarantee mechanism for gas supply – first introduced in 2017 – is forcing three major LNG exporters (including Origin Energy and Santos) to temporarily divert gas to the domestic market to make up for the shortfall in the NEM.

From an eight-year low

Why did things get so out of hand this year, just a few months after the Australian Competition and Consumer Commission — which controls electricity prices for the federal government — became concerned about electricity prices are at their lowest level in eight years?

Dylan McConnell, researcher at the Climate Energy College at the University of Melbourne says a confluence of factors has pushed electricity and gas prices up this year, but it all started moving north after the war in Ukraine started in February.

“You cannot ignore the impact on the international commodities market as a result of the conflict in Ukraine. That’s a big difference,” he says. “Earlier this year we had higher international gas prices, but domestically they were not high. We have now caught up with them.”

Domestic factors, such as planned maintenance and outages of coal plants, the increased use of gas to fill the gap, and inclement weather affecting renewable energy production have all played a role.

Gas-fired generation in the NEM rose from 6.3 percent in May last year to 9.4 percent in May — the highest level since May 2017, according to McConnell. Meanwhile, coal-fired power — as long as the backbone of the power grid — has fallen from 65 percent in May 2021 to 59 percent in May this year.

Some renewable energy proponents have crowed about states with higher renewable energy penetration to avoid major price spikes and production shortages.

AEMO figures on Friday showed that 44 percent of South Australia’s power generation – believed to be about 65 percent renewables – came from gas, while the other half came from wind (44 percent) and solar. (11 percent).

Sarah McNamara, chief executive of the Australian Energy Council, says the energy market was dealing with an “unprecedented coincidence of events”, not just international factors, for which there was no easy solution.

“Factory outages and coal supply constraints have also impacted electricity supply and we expect lower production of renewables in the winter,” she says.

“The return of coal-fired power plants will help ease the tightness in the electricity market in the coming months. But even with more supply, we can still expect continued price pressure.”

Global headwinds in the game

Matthew Warren – who has held senior positions with the Australian Energy Council, the Energy Supply Association of Australia and the Clean Energy Council – says a national energy market mechanism would have made a “little bit” difference to the current crisis, but it It was hard to avoid global headwinds pushing prices up.

He says Australia had done well to facilitate the introduction of renewables, but now faced the challenge of pushing coal and gas out of the market.

“We have renewables ready to transform the grid, but we are 20 years behind schedule” [with batteries and new technologies such as hydrogen] to get there,” he says.

Warren says it wouldn’t be such a bad idea to find a way to shut down coal-fired power plants so they can be reactivated during a crisis like this.

“Fossil fuels are unnecessary if the price is low. If the price is high, that indicates that it is in demand. These high prices for fossil fuels show that the world needs them,” he says.

The current futures market for wholesale electricity futures is set to see high prices in NSW and Queensland over the next two years.

McConnell says the current energy crisis shows it will not be an easy road to move away from fossil fuels and fully embrace renewable energy and storage on the road to net zero emissions by 2050.

Labour’s plans to increase the total number of renewables on the grid to 82 percent by 2030 — a 67 percent increase in the current business as usual scenario — will also pose greater challenges.

McConnell predicts that a “saw-tooth pattern” in pricing will be part of Australia’s energy grid for a while as cheaper renewables drive prices down, coal-fired exits push prices back up, until the next wave of renewables pushes prices back up. lowers .

Add to that the multi-billion dollar price tag of new poles and wires to connect renewables to the grid – these are regulated assets whose costs are passed on to consumers – and it’s going to be a bumpy ride.

“It’s part of the rollercoaster that the energy transition brings,” he says. “Maybe if we had more coordination [of policy] we would avoid some bumps, but it’s still a bumpy road.”

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