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Ransom Notes: pay us to keep our old power plants running or else, say fossil fuel majors

by Michael West and Callum Foote | Jun 20, 2022 | Energy & Environment, Latest Posts

Prepare to subsidise fossil fuel plants indefinitely. That is the message this morning as, in the wake of Coalition dithering, the new government grooms Australian energy customers for more of the same energy policy. It’s the Richard Wilkins solution. Callum Foote and Michael West report.

Nine years of Coalition dithering on climate and energy have surely taken their toll. Way behind the eight-ball on transition to renewable energy, the new government is now grooming Australians to subsidise multinational fossil fuel corporations to keep their polluting coal and gas power stations running way into the future.

The public grooming comes via Murdoch and Nine media this morning to extend the life of fossil fuel plants and entrench the power of the very same corporations which have just extorted the energy market operator AEMO by threatening to pull supply out of the grid unless richly compensated. 

What the country needs is a Royal Commission, or at least an independent judicial inquiry into the way these fossil fuel donors have kidnapped national energy policy to make a profit, indeed right now a super profit. A debate on nationalisation at least. After all, this is an absolutely essential service and if these companies are not viable, why should we pay them to stay in business? Instead, we get this today:

The Australian: “Payments to coal and gas key to power fix”.

SMH and The Age: “Coal, gas to smooth transition to clean power: officials”.

“Australia’s switch to zero emissions needs a market reform that pays coal, gas and renewables to power the electricity grid … “the Energy Security Board will unveil the draft plan on Monday,” writes the SmhAge.

“Will unveil” …? This is the very media tactic used for years by the Morrison government to control the PR message. “Drops” to major media allies that is. A fait accompli. Business as usual. And ordinary Australians will be paying for it via their energy bills.

NBN Mark II?

The problem is the country needs another NBN, a big spend, that is a radical upgrade to transmission infrastructure, three times what we have now, to cope with the prospective doubling in demand for a transition to renewables. Yet the answer from the Energy Security Board is more of the same, the same on steroids. You will hear the term “capacity mechanism” a lot, that’s the euphemism for this orgy of corporate welfare.

“The dramatic call will clear the way for NSW to include gas in the new “capacity mechanism” in the hope of developing the Narrabri coal seam gas field in the north of the state, while Victoria could insist on keeping coal and gas out of the scheme in favour of renewable energy,” is the way it is framed in Nine Entertainment media this morning.

It is an ugly spectre. These are the very companies – major party donors to boot – which have just extorted the energy market operator AEMO to pay them hundreds of millions of dollars in compensation or they would withhold their coal and gas from the grid. The very companies which have paid little or no corporate income tax for years, are now making record profits, but have threatened Australians with black-outs.

Fed up AEMO finally stands up to fossil fuel bullies pulling electricity heist


Regrettably, there is still no plan to introduce a domestic gas reservation policy on the East Coast as is the case in Western Australia, to earmark a portion of gas for domestic customers and keep the price low, as in Western Australia. Just what the fossil fuel suppliers ordered, more of the same, power plant lives extended, the regulatory regime which has already failed Australians, extended, entrenched.

The SMH story even justified opening up the Santos gas fracking project at Narrabri so it could supply only the domestic market. We have heard that one before, a supreme irony given Australia is the biggest exporter of gas in the world. We don’t actually need more gas. Supply is not the problem. The problem is the power of the gas lobby and feeble government.

Savage revelations

Chair of the Australian Energy Regulator, Clare Savage, revealed last week that generators intentionally took their power from the grid because they knew they would be well compensated if the market was shut down. This, although they knew their profits would soar.

Triggering the shut down, AEMO moved to implement a market cap of $300 per megawatt hour, already far higher than normal. A far cry from being forced to produce power at a loss, as the companies were claiming, AEMO had laid out a methodology for compensation to ensure generators kept turning a profit under a market cap rule.

However, what the generators also knew is that they would receive more compensation if AEMO was forced to intervene further and implement a suspended market as occurred mid last week. 

So the generators withdrew their offers to supply the market, leading AEMO to trigger even more serious emergency powers which ultimately delivered more compensation to the generators.

The AER’s Clare Savage called out the generators on Thursday, claiming their lack of offers of supply “may be motivated” by “seeking to avoid” the compensation scheme under a price cap, “in favour of” the compensation they would receive if forced by market operator AEMO to provide power.

The ‘Market Suspension Compensation Methodology;’ prescribes the rules by which compensation is awarded to generators under a suspended market.

The mechanism that generators use to withdraw their capacity is by making “rebids” at extremely high prices such that the grid operator ceased to permit them to sell.

They’ve got form

This is not a new technique to crank up prices. In 2011, the AER took Stanwell Corporation to court over this exact thing. Stanwell Corporation was found to be intentionally removing offers of supply from the market with the intention of causing prices to spike. 

Greg Whyte, partner of law firm Piper Alderman, the law firm which conducted the Queensland Energy Class Action, has hit back at the comments made by Stanwell saying that “In its 2018 report on the wholesale electricity market, the AER stated that Stanwell and CS Energy ‘can exercise market power due to their dominant market position’ and that ‘over the past five years rebidding resulted in price spikes and volatility.’ 

“The rebidding described by the AER is the unlawful gaming we are accusing Stanwell and CS Energy of engaging in.”

Stanwell was removing capacity with the blatant intent of causing prices to rise sharply. Ten years last this practice remains rampant. Where is the competition regulator? The ACCC has yet to comment on whether it might be investigating the actions of generators who pulled their capacity during the crisis.

And the solution?

Bruce Robertson, a financial gas analyst at the pro-renewable energy think tank IEEFA says that there is a very common sense solution to the current energy crisis in the short term:

The government’s response has been to look at gas and coal to solve the problem that has been caused by gas and coal. It’s looking to a capacity mechanism, it’s looking to spend money on gas storage.

However, Australia is currently using less gas than we used to. It has simply become too expensive. Gas-powered electricity generation and industrial usage have fallen markedly in recent years and have ensured that overall gas consumption is down 23% from 2014 to last year.

Australia clearly doesn’t need more gas infrastructure if the existing infrastructure was built to handle higher volumes than are currently in use. “Gas pipes are essentially storage bottles. So the issue is not ‘do we have gas storage’ the issue is ‘let’s put some gas in the bloody pipes’.”

How does the Federal government ensure this? Simply by instituting a gas reservation policy, says Robertson.

Crisis, what crisis? Not in the West

The interesting this about this energy crisis according to Robertson is that it is not right across Australia. 

“The whole point about this crisis is that it’s not happening in Australia, it’s happening in Eastern Australia. If you go over to Western Australia it’s not happening there. There’s no power crisis in WA, there’s no collapse of the market and AEMO is not stepping in to take over the WA grid.”

Why is this? Since the 1980s, the WA government has made oil and gas producers commit to supply the domestic WA energy grid first before exporting their product. The WA gas reservation policy requires gas producers to reserve 15% by volume of LNG production for domestic use.

There are no concrete reasons why the Federal government should not work together with Eastern Australian states to institute a domestic gas reservation policy of their own.

According to Robertson, “It’s not a sovereign risk”  because similar policies exist in every gas exporting country on the globe. “It’s normal for sovereign states to demand that gas is supplied for the domestic market first. That’s entirely normal, that is situation normal.”

“It’s not abnormal, it’s not a sovereign risk. And it’s nothing that the gas companies themselves didn’t agree to when they built their Gladstone plants” says Robertson. “In their environmental impact statements, their approval statements for those plants they stated categorically that they would not impact the domestic market. I think everyone would agree, even themselves that they have effected the domestic market.”

Export pipes full, domestic pipes spare

As Mark Ogge from The Australia Institute pointed out last week, domestic gas pipelines have been running under capacity with South West Queensland Pipeline only running at 60% capacity and the Moomba to Sydney Pipeline at 70%.

“Meanwhile pipelines sending gas to Gladstone for export were running flat out,” meaning that any blackouts that occur would be a direct result of gas destined to export ports rather than reserved for domestic use.

So what would have happened under a gas reservation policy?

Under the same scenario in WA, if coal fired power generators shut down and demand spiked, their generation would be “replaced by relatively cheap gas that was readily available because of a reservation mechanism,” says Robertson, “the power prices might have gone up a tick or two but no one would have really noticed it. It wouldn’t have precipitated the crisis that has just happened in Eastern Australia”.

The question is why, when one key solution is staring them straight in the face, can authorities not embrace it? The answer, apart from the usual muddling and lobbying, is that the large fossil fuel corporations are also large donors to the major political parties. The latter, unfortunately, are captured, and therefore all of us are held hostage.

Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.

Callum Foote was a reporter for Michael West Media for four years.

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