“The Post-2025 Energy Market Design is the most critical energy reform governments have been tasked to deliver,” Energy Minister Angus Taylor claimed on Friday – and then proceeded to steer that reform to prolong the use of fossil fuels.
The Energy Security Board has delivered a series of options for necessary National Energy Market reform, but Minister Taylor’s response stresses the usual coalition euphemisms for coal and gas generation – “encourage dispatchable capacity”, “the right mix of technologies”.
Australia Institute energy policy lead Dan Cass warns that while there are a number of positive options in the ESB paper, “one of the key options would unnecessarily extend the life of coal-fired power plants in Australia well beyond their use by date”.
In a response to the ESB options, Mr Cass writes the proposal to force energy retailers to have contracts with dispatchable generators would deliver greater power to coal-fired generators and stymie innovation.
Every energy retailer, no matter how “green” their customers’ preferences, would have to enter contracts with generators to guarantee capacity at the very highest peak summer demand rates. It would serve to lock in existing fossil fuel generation.
“Innovative new retailers that are offering green energy would be forced to enter into contracts with their coal competitors,” he writes.
“Most of the dispatchable generators in the NEM are coal and they would be in prime position to dominate the market.
“As the ESB concedes, this policy could lead to ‘increased barriers to retail competition’, reduce innovation and lead to ‘possible overcompensation’ of coal, which is code for a wealth transfer to the world’s most polluting power source. Why would any government do that?”
The option put before the federal and state governments appears to be at odds with statements by the ESB chief, Kerry Schott. Dr Schott is on the record saying a new government-backed gas-fired generator in the Hunter Valley would not make commercial sense and that the future of coal-fired electricity is dead and buried.
The contract option looks like something the government wanted to have on the table anyway.
“It is unbelievable that as Australia’s allies and trading partners phase down coal power, Australia could consider extending its reliance on coal,” Mr Cass said.
“This will damage our international reputation, push up prices for industry and households and harm competition.”
Mr Cass says Australia’s retail energy market is dominated by a handful of large, integrated energy companies or stand-along coal generators who would be the big winners from the ESB’s proposed market.
AGL, Origin and Energy Australia already have almost two-thirds of small customers and they are heavily invested in coal power stations.
“The biggest two generators supply two-thirds of supply in all states apart from South Australia. Giving them dominance over a new reliability market would harm competition and push up prices for all consumers.”
Mr Cass says Australia’s energy market was built around a coal-centric model of energy production and distribution that simply doesn’t exist anymore. Household solar and large-scale renewable energy generators are driving coal out of the market.
“The goal of the ESB’s reform process is to change the way our grid operates, alleviating that pressure and allowing coal to retire in an orderly manner.
“This work is essential because, as technology changes and evolves, new ways of interacting with that technology must also be developed. You can’t stream Netflix through a VCR, you can’t trade Bitcoin with an abacus and you can’t rely on an outdated grid to work with renewable energy and batteries.”
Mr Cass says demand response and building new storage should be prioritised over coal.
“Betting on the long term prospects of coal now would be like investing in Blockbuster Video in the early 2000s. We must move ahead with a market modernisation project that focuses on the rapid phase out of coal and dramatic expansion of renewables, or risk being left decades behind the rest of the world.”