SA is making a bet both ways, using taxpayers’ money

//SA is making a bet both ways, using taxpayers’ money

SA is making a bet both ways, using taxpayers’ money

15 March, 2017

Judith Sloan

Courtesy of the Australian

 

South Australia is effectively broke, but it can still manage to put together $550 million of taxpayer money to solve a problem that should never have occurred in the first place.

It’s an iron-clad political law that when an electorally sensitive issue emerges, politicians will always throw money at seeking a solution.

If the total power blackout of the state in September last year wasn’t embarrassing enough — and caused massive commercial damage to the few large industrial operations left in the state — the load-shedding that affected 90,00 households last month was the final straw.

Mind you, the South Australian government should never have allowed the coal-fired Northern power station to close. Its owners proposed a value-for-money deal to the state government that would have offered energy security to the state for many years as well as provide continued employment in two regional centres.

At that stage the hapless Energy Minister, Tom Koutsantonis, thought he knew better and could score a few political brownie points by turning the government’s back on coal. This was notwithstanding the astonishing hypocrisy associated with the state’s increased reliance on importing coal-fired power from Victoria.

Now the state government wants to have it both ways — spend taxpayer money on building a gas-fired power station as well as subsidise some large-scale storage, the latter which cannot be assumed to work and is likely to cost about $200/MW.

The gas-fired power station is unlikely to make money because it will simply be used for back-up and the minister may use emergency powers to force producers to come up with the gas. It doesn’t sound very free-market but that’s what desperate governments tend to do.

The state government also intends to use its monopsony power as purchaser of electricity to induce an additional entrant to the generation market, but it’s not clear the size of the purchase is sufficient to achieve this result.

The irony of all this expensive meddling is that there are very strong elements in this package of back to the future.

In the past, each state ran its own, publicly owned electricity systems and there were legislated limits on the piping of gas across state borders.

South Australia also intends to legislate an Energy Security Target that will force retailers to source locally, taking into account the emissions intensity of the source of power.

How this can possibly work while there is a national Renewable Energy Target in place is anyone’s guess, but the aim of the exercise is to demonstrate that something is being done.

Whether it works is a contingency that can be handled down the track.

It seems unlikely that the $550m will be money well spent and the state may be expelled from the national market for violating the rules — but when the state Energy Minister can say with a straight face that “we can no longer be at the mercy of the markets because the market serves its own interests, not ours”, you know the time for rational debate is over.

Yet South Australia is just a microcosm of the problems likely to emerge in all states, bar Western Australia.

Without the distortions of the RET and other forms of subsidies to renewable energy, the National Electricity Market was delivering according to expectations.

There was no evidence privatisation had adversely affected wholesale or retail electricity prices.

The RET has undermined the security of the system to such an extent that further massively expensive interventions by governments will be needed to shore up reliability.

The obvious thing to do is to freeze the RET, but the federal government is incapable of reaching any decision on energy and is simply floundering.

2017-03-15T16:56:33+00:00 March 15th, 2017|