The blog.

Did Hazelwood go according to plan?

At the end of March we saw the voluntary closure of the Hazelwood power station after 50 years providing low cost electricity to power the Victorian economy.  Once celebrated as the cheapest and most reliable source of electricity in the country, Hazelwood’s latter years saw it condemned and widely vilified as the world’s dirtiest power station.

Hazelwood provided over a quarter of the electricity for Victoria and six percent of the National Energy Market’s total power. Against a backdrop of recent blackouts in South Australia, huge electricity and gas price increases and the general travesty of state and federal energy policy, the question about our energy security was rightly asked, “Should we Victorians be worried?”.

Not according to the Australian Energy Market Operator (AEMO), whose COO Mike Cleary confidently stated that “Assuming everything works according to plan, we should be OK”.

Only one month on from the closure of Hazelwood, AGL this week announced that it would suspend the operations of the state’s largest power station, Loy Yang A, in the face of industrial action by the CFMEU.  Leaving aside the merits of each side’s argument in this particular dispute, it does beg the question whether this all falls under AEMO’s description of an energy market “working to plan”?

Ours is an industry with a really poor run of luck and planning.  Were the South Australian storms last November “according to plan”?  Or the complete failure of Basslink which saw Tasmania’s water and electricity supplies running on empty for 3 months in 2015? What of the mine fire at Hazelwood the previous year, or the floods in the Yallourn mine in 2012 and 2008.  The industrial action which led to the failure of Yallourn in June 2012 was most definitely not according to any market or business plans.

The fact is, there’s a lot of risk in the energy industry. Good risk management means you have generation supplies to fall back on when things don’t go “according to plan”.  The failure of successive governments to establish a consistent and credible energy policy means we no longer have that back up plan. If Loy Yang A closes, there is a very real risk we will see blackouts in Victoria similar to those in South Australia last year.

The challenge is that state and federal Government subsidies for renewable electricity from wind and solar do not guarantee that electricity will be there when it is most needed. In fact, by promoting the construction of new renewables over existing fossil fuel generation, government policy can force the closure of a reliable source of baseload generation.  This is what happened with the closure of Northern power station in May last year.  Barely 6 months later the lights went out in Adelaide and now we have wholesale power prices higher than ever before.

The fundamental premise of the deregulated energy market is that market forces will build new generation when prices get high enough.  Works well on paper, but there are 2 key ingredients: fuel and money.  Unfortunately, the successive timidity of NSW and Victorian state governments has ensured we have no onshore gas developments in our most populous states.  Add to that the complete lack of federal leadership on energy and climate policy and it’s no surprise that capital investment has decided to sit on the sidelines.

Against this backdrop of uncertainty, confusion and ever higher costs, consumers are voting with their feet and installing solar and batteries in ever greater numbers.  They are also getting smarter about their habits. Energy efficiency is shaking off its dour, recession era image and becoming quite cool.  Smart buildings, smart energy systems and smart connected devices are becoming more accessible and easy to use.

By some estimates we waste 30-40% of the energy we produce.  New consumer technologies, such as LED lighting and smart thermostats, along with industry solutions for controlling voltage and reducing peak demand, can help make this saving a reality. So where is the government support for this?  We have solar rooftop targets, renewable energy schemes and Premiers in hard hats dazzling us with plans for billion dollar battery farms.  But there is no interest in promoting energy efficiency, despite the very obvious fact that the easiest and cheapest way to address energy security, high prices and carbon emissions is to use less electricity.

It is true that Victoria has had an energy efficiency scheme for several years, which has successfully promoted LED lighting and low energy showerheads. Sadly it didn’t grab many headlines.  Energy efficiency works, it’s cheap and it can be done right now, but it’s not big and shiny, it doesn’t lend need a flouro vest and hard hat, so it’s quietly drowning in some policy backwater.

In the meantime we’re all paying higher prices and together with Mr Cleary and his board at AEMO, keeping our fingers crossed that it “all works according to plan”.