04 April, 2017
Courtesy of the AFR
You’ve heard of income inequality. Get used to energy inequality, the gap between those who can and can’t afford electricity.
About 1.2 billion people don’t have electricity, mostly in sub-Saharan Africa and developing Asia. It’s no coincidence they’re among the world’s poorest regions. Cheap, abundant energy drives economic growth.
But energy poverty isn’t confined to developing economies. Over 2.3 million British households are “fuel poor” – they can’t afford heating.
It’s set to worsen. Andrew Wright, senior partner at Britain’s gas and electricity market regulator, Ofgem, warned the closure of Britain’s coal power industry by 2025 will leave some people without the electricity they want. He envisages a future two-tiered system where wealthier households pay more for better electricity; where “one household may be sitting with their lights on, charging their Tesla electric car, while someone else will be sitting in the dark.”
Australia is on this path. We now have the 10th most expensive electricity in the OECD and rising. Electricity is increasingly unreliable even as we spend billions more on it. Homeowners with financial means will install solar panels and batteries. The rest will face crippling bills and switch off heat, appliances, electronics and lights. Businesses will raise prices, close down or go offshore. Andrew Liveris, chairman and chief executive of Dow Chemical, said, “There’s no reason to reinvest here and every reason to leave”. Woolworths has warned of grocery price rises, despite its efforts to improve energy efficiency, saying, “We’re trying to outrun a bear”.
This is the handiwork of all governments and political parties. Governments have implemented wind and solar targets without precedent globally. Blanket bans on gas exploration have contributed to gas shortages. One coal station will close annually, despite coal generating 63 per cent of Australia’s electricity, 80 per cent at peak times. Governments pick winners rather than let the market adopt the best technologies. Policies target increased renewables instead of reduced emissions. Governments listen to the scientists on climate change but ignore them on nuclear and gas.
Proposed solutions to our energy crisis don’t inspire confidence. Politicians want to take over or build thermal power plants. Translation: government subsidising back-up plants to stabilise electricity supply, having subsidised wind and solar to destabilise it in the first place. Industry experts say we need to re-engineer the grid to handle decentralised, intermittent power. Translation: spend unknown billions rebuilding the system for wind and solar. AEMO suggests stabilising the grid by paying customers to reduce demand. Translation: voluntary electricity rationing; governments pay businesses to do less business. Seriously.
Bank on coal
We’re told coal plants are “unbankable”. Yet coal plants are being built and financed all over the world. Last year operating and in-construction coal power increased by 77 gigawatts (three times Australia’s entire coal power capacity). By 2040, coal power output in non-OECD Asian countries will increase by 2500 TWh (10 times Australia’s entire electricity output). That’s a lot of bankable coal power. If Australian companies refuse to finance or build coal plants, others can be found. If developers worry about unpredictable government policy, governments can provide guarantees. Unbankability is a problem of Australia’s own making; one Australia can reverse.
Sunshine and wind are free. Converting them into usable, reliable electricity isn’t. The 2015 Australia Power Generation Technology Report calculated Levelised Cost of Electricity (LCOE) for different electricity technologies. The lowest cost technologies to build and operate are black coal supercritical (average LCOE $79/MWh) and gas combined cycle ($78/MWh). Wind is the lowest of the renewables ($103/MWh). Solar PV is $134-162/MWh; nuclear, $180/MWh. Supercritical coals LCOE remains below wind up to a carbon price of $30 per tonne; below solar PV up to $70 per tonne.
Many people think no price is too high for emissions reductions. I disagree. Even if Australia had zero emissions, we’re stuck with the consequences of everyone else’s. Paying more for inferior electricity damages our economy, making it harder to adapt to those consequences.
It’s possible to reduce emissions with fossil fuels. Gas-fired power has substantially reduced US emissions. GE estimates Australia could achieve 12 per cent reductions by refurbishing existing coal plants to high efficiency, low emissions technologies (HELE). New ultra-supercritical HELE plants could deliver 21-34 per cent reductions. Coal carbon and storage offers up to 90 per cent reductions. It’s more expensive, emerging technology but costs will fall as it matures. Anti-coal activists scoff at this, yet use the same reasoning to advocate for battery technology.
If zero emissions are desired, stop ignoring nuclear. LCOE doesn’t include the cost of re-engineering the grid to accommodate solar and wind; nor the cost of battery farms; nor subsidies of $214/MWh for solar and $74/MWh for wind. With these costs, wind and solar look much more expensive than nuclear.
While billions of people are desperate to get the lights on, Australia distorts its electricity market, driving households into darkness. Time for our leaders to end this madness.
Nyunggai Warren Mundine AO is chairman and managing director of Nyungga Black Group