EnergyAustralia, the owner of the ageing Yallourn brown coal generator and one of the big three energy “gen-tailers”, has ridiculed suggestions that a new coal generator would cause energy prices to fall, describing such claims as a “myth”.
The head of EnergyAustralia Catherine Tanna says that coal plants were old legacy technologies; they were not cheap, they would not bring prices down, and were of a different era – a solution that “my grandfather would have built.”
Tanna’s damning assessment – made at an AFR Forum on Wednesday – comes amid a relentless push by the conservative faction within the Federal Coalition government, and in the Murdoch media, against Alan Finkel’s proposed clean energy target, and for a new coal generator to be built, even funded by government.
“The first thing I would say about that is coal is a legacy technology,” the AFR quoted Tanna as saying.
“So that’s why I’m completely agnostic as to whether it is inside the CET or not. It can be in there. I don’t know that it will make the difference to create it actually happening because the third truth about it is it’s not cheap.
“So this myth that if there was another coal-fired power station in the mix that, suddenly, energy prices would go back to what we enjoyed three or five years ago, I just don’t think it’s borne out by the economics of those projects.”
Tanna, of course, is not the first senior executive to dump on the idea that a new coal plant could be in any way beneficial. The idea has been rejected by AGL and Origin Energy, and Tanna has said previously that the best way to reduce prices is to ensure more renewables are brought into the market.
These debates are getting tangled up in the push for a CET, which now has broad business support, and the ongoing debate around who is responsible for Australia’s ridiculously high electricity prices – now more costly than a diesel generator – and how to fix them.
One way is to increase competition in the market, and the Australian Competition and Consumer Commission has signaled that its inquiry into energy affordability will focus strongly on the market power of generators and their ability to dominate markets and set high prices.
ACCC chief Rod Sims says his inquiry will focus on six major factors – although many of these are historical, such as the gold plating of network assets and overly generous feed-in tariffs for rooftop solar.
Chief among the “live issues” is the power of the big generation companies, and the reduction of competition caused by the merger of the three generation companies in Queensland into two, and the decision to allow AGL to buy the two biggest coal generators in NSW, despite ACCC objections.
“They can often bid in at high prices knowing they will be dispatched,” Sims said. “Indeed, their market power is shown by the recent Queensland Government direction to alter their bidding; wholesale prices fell immediately.”
This has been pointed out by RenewEconomy and other analysts on numerous occasions, and retailers, network providers, big consumers and state governments have railed against the unfettered market power and unquestioned bidding practices of the big generators.
To prove the point, once the government made its bidding edict, Queensland has gone from rivalling South Australia for the highest wholesale prices to having by far the cheapest with a single edict.
The gaming of markets is the single most important reason that many in the industry want the settlement time periods cut from 30 minutes to 5 minutes, to match the dispatch intervals.
Supporters of the rule change, including the Australian Energy Market Operator, say this will reduce prices and encourage new competitors into the market, such as providers of battery storage.
Yet the power of the incumbents and the gaming of the markets allowed under current rule was completely ignored by the Australian Energy Market Commission – the main energy rule-maker – in its 350-page report into electricity prices earlier this week.
The AEMC instead chose to focus on the lack of liquidity in cap and hedge contracts, which it chose to blame on the renewable energy target, rather than the reduced competition amplified by the AGL purchase of two coal generators, and the sale of trading rights by NSW generators in the privatisation designed by AEMC chief John Pierce when he was the former NSW Treasury secretary.
Sims noted how the ACCC had argued forcefully against allowing AGL to buy the Bayswater and Liddell coal-fired generators in NSW. It was over-ruled by the Australian Competition Tribunal.
The ACCC argued at the time that the purchase by AGL, and the sale of the NSW generation rights meant that “the three largest generators in NSW will have been sold to the three largest retailers resulting in a permanent structural change in the NSW electricity market”
It warned, accurately, that: “These vertically integrated retailers will dominate electricity supply.”
On Thursday, in his speech, Sims said the ACCC would also be closely examining the implications of high concentration in the electricity industry.
“We will be examining what can be done, firstly, to lower entry barriers and, secondly, to deal with the consequences of this concentration,” he said.
“As you can see, these are all issues to do with affordability. They need their own focus. There are, of course, many links to reliability and sustainability.
“One link that is often neglected is that to deal with, for example, sustainability, you need a ‘social licence’. Australia’s current electricity affordability problems threaten this.”
Indeed, Australia’s electricity costs have now risen to almost farcical levels, with the cost of electricity jumping to near 40c/kWh, if fixed charges are included, higher than most estimates than the cost of diesel generators.
Sims noted that half of the electricity costs came from networks, a point underlined by a new report from The Australia Institute, which points to the “gold plating” of networks, and the ability of the main generators to pass on huge marketing costs for what is an essential service.
These marketing costs – explicitly and implicitly allowed under so-called retail “headroom allowances” – effectively allow the big gen-tailers to recoup their marketing costs from other consumers, as RenewEconomy outlined in this report way back in 2013.
But Sims also took a pot-shot at renewables, particularly the cost of solar tariffs which had been “smeared across” the market in general. Let’s hope he doesn’t repeat previous efforts at attributing costs of solar tariffs and not their benefits.
After all, the 1.7 million households with rooftop solar have emerged as the biggest competitive threat to the incumbents. Surely, that is good, and the only thing holding them in check.
Giles Parkinson is a journalist of 30 years experience, a former Business Editor and Deputy Editor of the Financial Review, a columnist for The Bulletin magazine and The Australian, and the former editor of Climate Spectator.