Forget the coal wars, now it’s gas

Opinion

Jennifer Hewett

Scott Morrison’s plan to focus on gas will upset environmentalists and the pro-coal enthusiasts in his party. But the PM insists the government must be ready to step up.

Jennifer HewettColumnist

Changes in demand and technology have produced an effective ceasefire in the long-running coal wars, despite the best efforts of some politicians. Prepare for the gas wars.

These arguments will be as much with the broader energy market as with Labor or the different factions within the Coalition.

Heavy on gas: Scott Morrison addressing the Hunter Business Chamber in Newcastle on Tuesday. AAP

Scott Morrison is determined to push more gas into Australia’s energy equation – by fiat and by government investment if necessary.

The rationale is that this will boost Australian manufacturing and jobs as well as lower power costs for Australian households as part of the vital effort to revive an economy weakened by COVID-19.

How well that will work is far less certain. Australia was hardly a manufacturing powerhouse in a prior era of cheap energy. Morrison is putting his new plan under the banner of “JobMaker” programs, aware many manufacturing businesses are already on life support with high energy costs among their biggest problems. But just surviving is different from thriving and growing in a much altered world. That will require a lot more than somewhat cheaper gas.

Even so, the massive gap between a collapsed international spot price and the domestic contract prices available to Australian businesses infuriates everyone from Rod Sims to Energy Minister Angus Taylor to Canberra’s new gas guru, Andrew Liveris.

Consumer politics also work largely in the government’s favour. Threatening companies with punitive measures unless they lower prices will always be popular.

The catch is not only that gas – once seen as a reliable transition fuel en route to a carbon-free future – is increasingly counted as a carbon-emitting evil as well. The focus on gas will enrage the environmental lobby.

But the Morrison government is also challenging the private sector and Australia’s biggest energy businesses to step up their own investments in gas – or face the government doing so instead.

The government wants an immediate ‘action plan’ on gas to match its strong rhetoric about economic recovery.

Yet the latest ultimatum almost ensures it will be the government, through its Snowy Hydro business, that builds a new gas-fired power station in the Hunter Valley in NSW. Unless businesses come up with a commitment by next April to replace 1000MW of energy from the closure of AGL’s Liddell power plant in 2023, the government insists it will ‘step up’ instead.

According to its study of the Liddell closure, wholesale prices could jump by 30 per cent, or $20 per megawatt hour, if the station’s capacity is not replaced – a repeat of the jump in power prices after the Hazelwood coal-fired power station in Victoria shut in 2017.

The Australian Energy Council’s immediate retort is that government intervention will end up being counter-productive by deterring just the private-sector investment Canberra is attempting to encourage.

But big energy companies have proved reluctant to invest in the sort of dispatchable power – whether gas, batteries or pumped hydro – most useful in backing up the growth of intermittent renewables.

AGL is awaiting state environmental approvals before making an investment decision on smaller-scale gas turbines in Newcastle before it makes a final decision. Morrison still points out there has been no substantive investment in dispatchable generation in NSW for more than a decade, despite the ticking clock of ageing coal fired power stations being steadily retired. He wants an urgent deadline.

Investment risk

Businesses naturally blame much of this on a history of policy confusion and conflicting signals from Canberra. Guilty as charged.

They also argue Snow Hydro’s 2.0 big pumped hydro system coming onstream in a few years is a deterrent to investing in any smaller competing operations. Battery storage, while still too expensive and inadequate to offer sufficient competition, will become more sophisticated and significant over this decade. Rapid changes in technology and demand that make long-term investments even more commercially risky, especially when they involve fossil fuel alternatives, add to the powerful momentum, including from investors, for ever more renewables.

It’s true the rate of growth in new renewable projects in Australia has sharply declined recently. Part of that is because of congestion in existing transmission lines for the amount of new generation being created, often in remote areas, translating into an inability to get access when wanted. The amount of excess generation regularly occurring during windy or sunny days drives down wholesale prices or turns them negative, undermining the business case for renewables as well as baseload power.

That means the government’s less confrontational attempts to provide greater financial support to new transmission networks and more gas pipelines, as well as a better gas hub, are more likely to affect energy prices and supply. The Australian Industry Group certainly thinks so.

“While it isn’t the headline, it may well be the power grid boost that makes the biggest long-term difference for the better,” says CEO Innes Willox.

None of this will offer quick returns, however. And the government wants an immediate “action plan” on gas to match its strong rhetoric about economic recovery.

That plan includes measures such as extending the requirement for East Coast LNG exporters to provide “competitively priced gas” to the domestic market. Morrison pointedly complains about gas cargoes being sold offshore for much less than the prices offered to industrial customers.

The Prime Minister did not forget to throw lumps of coal at Coalition combustion levels. His speech in the coal-rich Hunter emphasised “affordable, reliable and secure energy”. No adjectival addition of “clean”. Coal will still be responsible for 25 per cent of the national energy market by 2040, he says. That seems ever less likely given the rapid market change and zero private-sector interest in new coal generation.

But the package allows Morrison a trademark message. “I’m interested in stuff that works. I’m interested in stuff that gets done.”

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