Energy markets and power systems are complicated beasts at the best of times, but when you factor in war, extreme weather, policy disturbances and a pandemic, the picture gets even murkier.
However, some conservative commentators in Australia seem to think there is one thing to blame for the country’s rising electricity prices and the threat of power outages: it’s all ‘net zero’ to blame.
On Sky News, commentators warned of an “apocalypse” if the Albanian government pushed for net zero.
“Families are paying double for electricity thanks to Net Zero,” a headline in the Daily Telegraph said last month, with a similar take in the Daily Mail.
Both newspaper reports were based on analysis by the right-wing think tank the Institute of Public Affairs (IPA). The analysis, which predicted that household electricity bills would double by 2030, was based on the unrealistic assumption that six coal-fired power plants in Australia would close by 2030, but nothing else would come to replace them.
This week, the IPA again came to the fore, claiming that the “energy crisis” was a direct result of a policy of reaching net zero.
Separately, after the Albanian government formally submitted its improved 2030 emissions reduction target to the UN climate convention in June, Sky News commentator Andrew Bolt compared ministers to suicidal lemmings jumping off a cliff, and accused climate policy of threats to the electricity supply.
Bolt’s decision to choose the lemming analogy may be appropriate, as this suicidal tendency is a myth.
There is no argument that electricity prices are rising, but does net zero have anything to do with it at all? The short and maybe even the long answer is no.
“Our current energy prices are mainly driven by very high international fossil fuel prices,” said Prof Michael Brear, director of the Melbourne Energy Institute at the University of Melbourne.
Because Australian gas and coal prices are linked to international markets and also affected by rising oil prices, this has translated into higher costs.
According to the latest energy bulletin from the chief economist’s office, extreme weather, a global pandemic and the Russian invasion of Ukraine have pushed the cost of thermal coal to an average of $280 ($413) per tonne this year.
For much of the past decade, prices have been well below $100 per tonne. It’s a similar story for the cost of liquefied natural gas, and oil prices also hit record highs in March. Net zero gets no entry.
At the same time, some units of coal-fired power plants in Australia have closed due to maintenance or breakdowns, which has also pushed prices up. Flooding around Australian coal mines has also resulted in fuel shortages.
Brear says, “I don’t see renewable energy playing a significant role in these high domestic energy prices anywhere in that chain of events.”
While there’s been a lot of talk about reaching net zero, Brear says there’s still no legal mandate.
“How can we blame this?” [price crisis] on something that doesn’t exist yet? A lot of us want to hit zero by the middle of the century, but until it’s pushed in that direction by some mandate, I can’t see how anyone can blame it.”
Well before current record fossil fuel prices and market volatility, Brear says, there was broad agreement that renewables were the cheapest option for decarbonization.
“If anything, as fossil fuels have become more expensive in recent months, that argument for decarbonization, mainly through renewables, can only be improved.”
Blame policy dysfunction?
When Anthony Albanese became prime minister in May, he pledged to “end the climate wars” that have ravaged Australia and skewed its energy policy for decades.
Those climate wars were fueled and fueled by partisan politics and the sort of unwarranted terrifying stories that decarbonization would lead to economic disaster or the apocryphal $100 branding.
As a self-fulfilling prophecy, what role has all that policy dysfunction played in the state of the country’s electricity market?
Brear added: “I think it’s reasonable to assume that if we had successive Commonwealth and state governments all eager to work together to achieve safe, reliable and affordable energy that would decarbonize our economy, we would be in a better position would be than we are now.”
Alison Reeve, a climate change and energy expert at the Grattan Institute, says that even if there were legal obligations to reduce Australia’s emissions to zero by 2050, “it didn’t matter because it slows the economic recovery after Covid, or the Russian war in Ukraine, or the fact that our coal plants are old.”
“If you had a clear decarbonisation signal in the electricity market, it would be easier for [generators and investors] to make maintenance decisions. They would have a clear idea of when their departure date would be.
“But we could have had the clearest, rolled-up gold energy policy and that wouldn’t have stopped Russia from invading Ukraine and our prices would still be pegged to oil and gas.”
Reeve says coal and gas prices began to rise in late 2021 following a “Covid snapback with economies beginning to demand more energy”.
The invasion of Ukraine caused economies that had been major buyers of Russian fuels to look elsewhere, boosting demand and prices again.
But Reeve identifies another problem in Australia. She says that when coal plants went offline, those still in operation had to go faster and burn more coal than expected.
Because this coal was priced under contract, when generators ran out, they had to go out into the market to buy more coal where the spot prices were higher.
Reeve returned from Brussels last month after meeting energy experts and policymakers as a guest of the European Parliament. Europe is also going through an energy crisis and the UK has also seen electricity prices rise, mainly due to the rising cost of gas.
Reeve says European countries, including Germany, have “a number of short-term policy responses, such as filling gas storage facilities and restarting some coal-fired plants” to get them through the winter.
Steps like this in Germany have been highlighted by some pro-coal figures to argue that Australia should embrace more coal, not less.
But Reeve says these are short-term responses to cover immediate delivery issues and not reflect the longer term.
“Everything else they do is going to accelerate decarbonisation, because that reduces their reliance on Russia for gas,” she says.
To make this point clear, German Finance Minister Christian Lindner, of the center-right Free Democratic Party, has called renewable energy sources “the energy of freedom.”