Three coal fired power plants will be required to close earlier than expected under the Victoria Premier's plans. Photo / NZME
Three coal fired power plants will be required to close earlier than expected under the Victoria Premier's plans. Photo / NZME
OPINION:
A quarter of a century after Victoria sold its power assets, the state's Premier Daniel Andrews is planning to renationalise electricity generation.
In a stunning announcement last week, Andrews said he would revive Victoria's State Electricity Commission, which was carved up and sold off in the 1990s and provideA$1 billion to build new wind and solar generation.
The policy reverses three decades of privatisations by governments that have seen the selloff of businesses including Telstra, Qantas and the Commonwealth Bank of Australia, along with numerous ports, power generators and retailers.
"Unreliable, privatised coal will be replaced by clean, government-owned renewable energy," Andrews said. He also hasn't ruled out becoming an electricity retailer as well.
Andrews also announced aggressive new renewable energy targets. He will set an emissions reduction target of between 75 and 80 per cent by 2035, and bring forward its net-zero target by five years to 2045.
The new target will force the closure of the state's three remaining coal generators earlier than their owners anticipated.
The Loy Yang B coal power station in Victoria's La Trobe Valley scheduled to close in 2047 will probably now close in 2035. Jeff Dimery, CEO of the station's owner, Alinta Energy, said the early closure will cost jobs and has left his employees shocked.
The company will have to trash an asset 12 years earlier than planned and replace it with new renewable power. That's great for the environment, but bad news if you're unlucky enough to be an investor in Alinta. (However, it's also possible the world will have moved on so much in the coming years that the power station would have shut anyway.)
But that's only one consequence of Andrews' wacky market intervention.
He is planning to build renewable energy which will be 51 per cent owned by the state government and 49 per cent owned by superannuation funds.
"Those power stations won't be for profit," Andrews said.
Victoria Premier Daniel Andrews wants to nationalise the Australian state's power generators. Photo / Darrian Traynor
This is a big problem. Superannuation funds hold the pension savings of millions of Australians and are all about maximising profits to ensure their members have a financially secure retirement.
Superannuation members will be dismayed to say the least if their funds invest in Andrews' power plants, with the result that it leaves them with less money in retirement. They will be even more miffed if they don't live in Victoria and therefore don't reap the benefits of lower power prices, if indeed Andrews does deliver them.
There's also sovereign risk.
Big business often cries foul and says investment and foreign capital will be scared off when they don't get their own way from government.
A lot of businesses will think twice about setting up or investing in Victoria after witnessing Andrews' intervention in the market.
The Australian Energy Market Operator has estimated that A$230 billion of electricity assets including renewable generation and transmission will be needed for Australia to transition away from fossil fuel-generated electricity.
There is a risk that Andrews' intervention scares off private sector investment, with wind and solar generators wondering if they would have to compete with what Andrews is suggesting will be subsidised government generation.
None of this is to say there isn't a big problem in urgent need of fixing.
Electricity prices paid by Australian households have surged this year, thanks to the war in Ukraine, which has pushed up the price of gas. The global gas price effectively sets the wholesale electricity price in Australia thanks to the country's Byzantine energy market rules. Energy market futures point to another 37 per cent rise next year.
The war will eventually end but power prices won't come down much, if at all, as we all start to pay for the multibillion-dollar decarbonisation of the energy market.
The biggest problem will be the cost of transmission. The cost of getting electricity from generation sites to homes makes up about half of retail power bills and that will only increase as the grid needs to be modernised.
While there can be strong returns for private sector investors to build wind and solar, it's harder to make such a business case for transmission, and yet without upgraded transmission green power won't be viable.
The whole energy sector is suffering from years of ad hoc policy, which has held back the certainty investors need to get projects underway.
So something needs to be done.
But it's not a $1 billion privatisation of one state's energy generation.
There is no easy fix and Andrews' policy looks like more of the ad hoc policy we've had for the past two decades.
He is currently facing an election, and the policy looks more like a political gambit to convince voters he can do something about power prices rather than a well-thought-through solution to the energy market muddle.
