In 2016 all the lights went out in South Australia, the first time that had happened across an entire Australian state since the 1960s.
In the aftermath, energy and resources ministers met to discuss what went wrong. Tony Marxsen, chairman of the Australian Energy Market Operator at the time, pointed to the fluorescent lights above us and explained that they were flicking on and off constantly, at a frequency of 50 hertz, but that this was unobservable to the human eye.
I think for most of the ministers and senior departmental officials in the room, we were learning something new. Despite governments having force fed renewable power into the system for about a decade, very few in government knew how electricity worked, beyond you flick a switch and the light goes on.
It is, of course, much more complex than that. Because electricity cannot be easily stored, the amount of electricity supplied has to equal the amount of electricity in demand at any given time. In addition, in our alternating current system, the frequency of this electricity must be kept constant. If it goes too high or too low, the whole system must be shut off lest electrical equipment is damaged.
Renewable energy fails to deliver these two core requirements of a stable electricity system. It works only part of the time, often unpredictably if, say, the wind suddenly drops or clouds form.
And unlike turbine-based electricity generation (coal, gas or hydro), wind and solar electricity do not produce at a constant frequency, so when renewables are in the system other “spinning” power sources must constantly adjust to correct the overall frequency.
After the South Australian blackout, the state Labor government at the time realised it had to act. It had an offer to extend the life of the Northern coal-fired power station for just $25m. However, because of its anti-coal stance, the Labor government decided to spend $360m on a new gas-fired power plant. The Jay Weatherill plan kept the lights on but the state’s power prices are some of the highest in the world.
This is because gas prices are high in Australia and the gas-fired power station works only part of the time. That means capital costs are spread across a very small amount of power, pushing up the average price of the electricity.
This week the federal government announced a plan very similar to that of the South Australian government. The plan is to replace the Liddell coal-fired power station with a 1000-megawatt gas-fired power plant in the NSW Hunter Valley, backed up by renewables and the pumped hydro from Snowy 2.0. There is no reason to expect different results to South Australia. The plan will keep the lights on but it is unlikely to lower energy prices to the levels needed to bring manufacturing back to Australia.
If we were serious about getting prices down as low as possible, we would focus on the energy sources in which we have a natural advantage, and that is not gas. We face gas shortages in the years ahead.
As the Australian Competition & Consumer Commission commented earlier this year, “there is significant uncertainty about whether future supply from gas reserves and resources will be sufficient to meet overall demand on the east coast”.
And the gas we have in coal seams is expensive to extract. According to the ACCC more than 90 per cent of gas on the east coast costs more than $6 a gigajoule to extract — double the cost of gas in the US. Almost all of our coal can be mined for a cost less than $2/GJ. The government’s gas reservation policy is a good idea but it will not be able to push the price of gas below the cost of production.
Last year the federal government received an application from Delta Electricity to build a high-efficiency, low-emission coal-fired plant in the Hunter Valley. The government did not proceed with it because the view was coal would be unpopular.
Since then the pandemic has exposed our fragile supply chains and the need to focus on manufacturing.
This past decade our manufacturing sector shrank for the first time on record mainly because electricity prices have doubled in that time. Copying the policies of South Australia will not reverse that trend. Only a return to a focus on using the cheap natural resources with which we are blessed will do that.
The Newcastle coal terminal is the biggest coal port in the world and it exports enough coal to power more than 50 coal-fired power stations. Why should we export this natural advantage to the world but not keep some of it here to create manufacturing jobs for Australians?