Will the National Energy Guarantee Make Electricity More Affordable?
Tony Abbott and the Monash Group are currently questioning the National Energy Guarantee on the grounds of affordability.
The nub of their argument is that the combination of the emissions target and its impact on coal fired power will render coal fired power too expensive which will mean that the National Energy Market (NEM) will be reliant on intermittently expensive renewable energy.
The counter argument is that the average cost of renewable energy is lower than coal fired power from high efficiency low emission (HELE) plants.
At the moment the average wholesale price of electricity is $80 per megawatt hour which is double the price when base load was provided by coal.
The argument is that wind power has had the effect of driving coal fired base load out of the market even though it has only been able to supply a very limited amount of the electricity demanded.
This has had the effect of driving up prices without the downward pressure that would occur if wind could supply more of the required electricity.
This is the problem that the hydro pumped storage of Snowy2.0 is being developed to overcome.
The cost of this storage is estimated to be up to $10 billion but there is no modelling that sets out the impact of Snowy 2.0 on future wholesale pricing.
The argument from the Monash group and an unknown number of Nationals is that the construction of a new goal fired power station would, at $5 billion, be cheaper and more reliable, even taking into account the cost of coal but this is not clear.
As Paul Broad, the CEO of Snowy Hydro, has pointed out the NEM can’t afford both a new coal fired power station and Snowy Hydro 2.0.
This is why the issue is seen through the prism of the leadership contest between Malcolm Turnbull, who supports Snowy Hydro, and Tony Abbott who favours a new coal fired power station.
At the moment all the major business groups in Australia seem to backing the Prime Minister and the National Energy Guarantee.
The major exception to this is the aluminium industry which says that current wholesale prices are unsustainable and they will have to cease operations in Australia if wholesale prices do not come down.
A report released by the Grattan Institute, entitled ‘Mostly working: Australia’s wholesale electricity market’, confirmed that whole sale prices had risen 130% between 2015 and 2017 and said that it was unlikely that prices would fall under present circumstances.
It said that a new bi-partisan policy was necessary to encourage investment in baseload power.
Energy Minister Josh Frydenberg can’t afford to weaken the emissions targets if he’s to get federal Labor and the Labor states to back the NEG which is what business wants above all else.
However it is clear that the current energy mix, even with the advent of Snowy Hydro, is unlikely to bring down the wholesale price of power.
Whether the public will accept this remains to be seen.
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