Alan Kohler: The Coalition’s devotion to Abbottism is disastrous

To the extent that the Coalition’s nuclear energy waffle contains an actual policy, it is that Australia should have a capacity market that is technology neutral – that is, there should be capacity auctions and nuclear (as well as coal and gas) should be allowed to bid into them.

That seems to be the Coalition’s plan, although it’s also possible that Opposition Leader Peter Dutton and climate change shadow Ted O’Brien just want to say the word “nuclear” over and over because it’s what Tony Abbott would do, and it lets them and the National Party go along with net zero by 2050 while opposing renewable energy.

A capacity market is a sensible system whereby electricity supply is divided into two markets: the energy itself and reliability. I’m all in favour of it, including nuclear.

In a capacity market, the Australian Energy Market Operator would run two separate sets of auctions: Companies would bid to supply electrons every half an hour and would also, separately, bid to provide the capacity to supply dispatchable power in the future to ensure the grid’s reliability.

There have been attempts in Australia over many years to get up a capacity market, sometimes called a capacity mechanism, but they have always foundered on the rocks of politics, which dictate that every energy policy must result in lower power bills, and it’s hard to convince anyone that adding a cost for reliability in future onto today’s power bills will bring them down.

At the moment Australia has an energy-only market and something called the Capacity Investment Scheme – or at least we will have – from which nuclear is excluded because there is a law against it, passed by the Howard government in 1998. Labor has said it won’t repeal that law, so now it’s a Labor law, not a Coalition one as it used to be.

Similar, but quite different

The CIS is not a capacity market – it’s an attempt to achieve something similar, but less efficiently, using government money rather than customers’, because power bills must always be lowered.

It’s a bit like Labor’s method of reducing emissions: Rather than have an efficient emissions trading scheme like the one that was repealed in 2014 by the Coalition, it has turned the Coalition’s safeguard mechanism into an inefficient one.

For its CIS, Labor is repurposing part of the Coalition’s National Energy Guarantee developed in 2017 by Josh Frydenberg, but knocked off by the Nationals, Murdoch and the ghost of Tony Abbott, which included a provision for the government (not customers) to pay retailers for meeting a future reliability obligation.

Some of the capacity/reliability providers in other countries are continuous generators – coal and nuclear – that generate baseload power, where customers pay for both the electricity and the reliability. Gas is used more often, though, because it can be turned on and off as needed.

In Australia, since politicians must pretend that every action they take will mean lower power bills, the Coalition isn’t saying that customers would be paying for the cost of a nuclear power station in the event that one actually got up through a capacity market/mechanism.

And maybe they won’t because Dutton will baulk at a capacity market and simply keep Labor’s Capacity Investment Scheme, with nuclear unexcluded.

Of course, if the government is paying for the reliability, as it will be under the CIS, and would have under the Coalition’s NEG, customers also pay through their taxes and/or less government spending on other things, but that’s okay.

Power imbalance

Here’s a glimpse of reality about the cost of nuclear: In 2012 France’s EDF agreed to build a 3200-megawatt nuclear power plant for the UK called Hinkley C on the Somerset coast, in return for a minimum power price of £92.50 per megawatt-hour increased with inflation for the first 35 years of the plant’s operation, with any payouts on this contract to be paid for by British electricity consumers.

Inflated to 2023 dollars, that’s around £128, or $A248/MWh. By comparison, Australia’s wholesale price, on average, has fallen 40 per cent since mid-2022 to below $60/MWh.

The latest default market offer, released by the Australian Energy Regulator this week, will produce another drop in power bills of 6.4 per cent.

Lost decade

A small modular nuclear reactor would be cheaper to build than a big one, but it would produce a lot less power so whether the cost per megawatt hour would be cheaper is hard to know. Anyway, SMRs don’t exist.

But there is an argument that we’ll need nuclear at any cost for reliability in a net-zero world. That’s rubbish. Let’s see what Labor’s CIS throws up, and if necessary, use gas rather than nuclear – it’s much quicker and much, much cheaper.

Eventually lithium batteries and pumped hydro will do the job entirely and we won’t need fossil fuels at all.

At the moment, even big lithium batteries only last four hours, and can really only be used to shift power from the daytime to the night. They’re working on making it eight hours, which is better, which might be long enough but they’re not there yet.

Snowy 2.0 pumped hydro will go for seven days when the dams are full, which will be good, if and when it gets built, and a Canadian company called Hydrostor is working on using compressed air in disused mines near Broken Hill to store energy, which would also work … probably.

Hydrogen power gets a lot of mentions, but it hasn’t been wished into existence by political oratory yet, and even if it was there wouldn’t be much point using hydrogen to generate electricity, because it’s made from electricity, unless you get it straight out of the ground like methane. There’s a bit of that around, mainly owned by Gold Hydrogen, but not enough yet.

But it’s likely that some gas is going to be needed to provide capacity reliability, at least for a while until the battery technology catches up or there’s enough pumped hydro and compressed air. And that would enough; nuclear would not be needed.

It’s worth reflecting that the nonsense we’re putting up with about the politics of energy now, while the grid operators scramble to keep it stable with booming renewables and dying coal-fired power stations, is entirely due to the lost decade caused by the Liberal Party opting for Tony Abbott and climate change denial in 2009, derailing what would have been a smooth, sensible bipartisan approach to dealing with climate change and the energy transition with Kevin Rudd and Malcolm Turnbull.

Yes, Tony Abbott was an opposition marketing genius but the damage he caused with his lies, and “climate change is crap” crap is incalculable.

It is coming home to roost now, in the tentative half-baked policies of Labor and the continuing devotion to Abbottism in the Liberal opposition.

Alan Kohler writes twice a week for The New Daily. He is finance presenter on the ABC News and also writes for Intelligent Investor.

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