Energy Council CEO warns against government investment in coal-fired power

The Chief Executive of the Energy Council, Matthew Warren, has warned that government intervention in the national electricity market through investment in new coal-fired power stations is not a viable solution to the “mess” that Australian energy policy is currently in.

Mr Warren said that, given the retirement since 2012 of 10 coal-fired power stations producing 5000MW of electricity, and the expected retirement of another 15,000MW over the next 15-20 years, Australia was facing a serious supply-demand imbalance. However, the replacement of new for old coal-fired power stations was “challenging” in Australia.

“It is extremely difficult to finance capital intense, 50 year assets with a high emissions generation profile.The notion that governments should invest where the market fears to tread should be treated with extreme caution. First, if a government was to subsidise or underwrite a new coal fired generator, it better get ready to build nine more, as the scale of this sort of intervention will effectively chill an already weak investment market. Second, even if it gets built, there won’t be any new electrons entering the market for another seven years.”

Mr Warren said that the major destabilising force in the current energy market was the range of ideological responses to climate change.

“At one end of the spectrum we have been told how the electricity system could magically and costlessly transform to 100 per cent renewable energy. At the other we are now being asked to ignore climate change altogether and just build new coal fired power stations. Neither view is anchored in reality,” he said.

Responding to the Finkel review, Mr Warren said the proposal for a Clean Energy Target combined with a Generator Reliability Obligation (GRO) was a “clear improvement on what we have now”.

“New generation will have to meet both an emissions and a reliability requirement. Coal struggles on emissions. Renewables struggle on reliability. A combination of technologies will be required.

“The design of the grid of the future will be shaped by many things: the cost of technologies like renewables and storage, the price of gas, the ability of lower emissions coal to get cheaper and cleaner, the evolution of distributed energy like solar and the way consumers are incentivised to manage their demand.

“We don’t know how these will play out. Yet we need to start building now. The Finkel Review creates a mechanism to get new firm-equivalent generation into the grid, and lets the market determine the portfolio of technologies that are best suited to the differing conditions in different regions. It does not pick technologies, nor does it exclude any. The most unlikely combinations may end up being viable.”

Mr Warren warned that the nation's electricity market was under real threat in the current policy vacuum.

“Governments will find themselves the only investors in a dead electricity market, and will then need to find more than $200 billion to re-build the grid.

“The significant benefits from competition policy that delivered us a competitive electricity market will be lost too. We would be foolish to abandon it due to policy inaction.”

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