Nothing to help electricity prices or emissions

by Dan Cass and Mark Ogge

It is hard to find anything in this budget that will credibly bring down electricity prices or emissions over the years ahead. The budget was also underwhelming on the government’s two big tasks in the electricity sector: build new supply and redesign the grid so it stays reliable as coal retires. Energy Minister Taylor’s key contribution to the redesign of the National Electricity Market (NEM) is to call for a new subsidy to prop up unprofitable coal power stations. Rather than being up-front and putting it in the budget and in legislation to the Parliament, it will instead be snuck onto electricity bills for all consumers.

Once again, the budget has cherry picked a few fossil fuel favourite energy proposals for funding like $5m to foreign-owned EnergyAustralia for its Tallawarra B open cycle gas plant to make it ‘hydrogen ready’. This is on top of the up to $78 million handout from the NSW government for the same project.

If you recall, in 2018 the federal government set up the Underwriting New Generation Investments program (UNGI) to support new gas, coal and hydro projects. Three years later there is still no legislation.  The government’s plan to amend the Clean Energy Finance Corporation to take forward UNGI is effectively off the parliamentary agenda (despite the budget paper’s claims otherwise). This has happened since the National Party tried to amend the proposal to fund its pet projects, threatening to split the government.

Despite this lack of legislative authority, the government is pressing ahead with an UNGI proposal by directly providing $30m in the budget for billionaire Andrew Forest for a 635 MW gas and hydrogen-fired power station at Port Kembla. In the 2020 budget there was a similar direct line item for another UNGI shortlisted proposal, a coal fired power station upgrade for Delta Energy (owned in part by Trevor St Baker). Amusingly, the free money from the government was rejected by Delta two months later. Could the same happen with the Pork Kembla project?

It  has also been reported  that the Government has put money aside for a yet another gas power station in NSW at Kurri Kurri that would be built by Snowy Hydro on contaminated land owned by former Newcastle Mayor and Liberal Party Donor Jeff McCloy.  Mr McCloy resigned as Mayor of Newcastle when the NSW Independent Commission against Corruption (ICAC) found he had acted with the intention of evading the state-wide ban on political donations from property developers.

The money has reportedly been put aside under the shadowy category “decisions taken but not yet announced,” and Snowy Hydro has quietly submitted its application to the NSW planning department just two days after the budget.

These subsidies to gas power stations are occurring despite contradictory advice and analysis from the Government’s own experts and the Australian Energy Market Operator (AEMO). The Government originally proposed the 1000 MW power station to replace the Liddell coal power station despite its own Liddell Taskforce having found that committed and probable projects in NSW were “more than sufficient” to ensure reliability.  AEMO found there was a maximum potential shortfall of only 154 MW,  far less than the capacity of the proposed power station, and the chairperson of the Government’s Energy Security Board (ESB) commented that a new gas power in the Hunter “doesn’t stack up” and would provide “expensive energy” and would not reduce electricity prices.

While the red carpet is rolled out for new gas plants through direct budget financing, the green tape remains for renewables. The National Wind Farm Commissioner, who actually does a good job hearing complaints and helping mediate conflicts, has been given a promotion and additional funding. The Commissioner’s mandate now includes renewables, batteries and transmission lines that will power Renewable Energy Zones, an expansion the Australia Institute supported.  The big question is why the government stopped short of giving the Australian Energy Infrastructure Commissioner the right to also hear complaints about new gas plants.

On a final positive note, the budget supported a thrifty way to help the grid cope with summer electricity demand through $76.9 million over 5 years to subsidise the Portland aluminium smelter to turn down its massive potlines when necessary. However, there is an opportunity to go further. From October this year the NEM will have a wholesale demand response market. A strong national program to support this kind of industrial engagement (to alter electricity demand based on market signals). This could unlock 3 GW of capacity, push down energy prices for all consumers and allow coal to retire faster.

> Back to Budget Wrap 2021 

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