Australia’s enviable prosperity isn’t due to sunshine and glinting solar panels or windmills flailing in the breeze, it’s down to iron ore, coal and a bevy of other minerals including copper and uranium of the kind being gouged out of the ground by BHP Billiton at Roxby Downs in South Australia’s North (see above).
How long Australia maintains its wealth and enviable prosperity is down to energy policy and what happens next. Its renewable energy policy has destroyed once reliable and affordable supplies and those in charge of the businesses that critically depend on such a supply are beside themselves with frustration and anxiety.
One of them is Glencore’s Peter Freyberg. The front page of last Thursday’s Australian carried this desperate plea.
Cut power prices or business will go bust, says Glencore boss
Matt Chambers and Paul Garvey
3 August 2017
The nation’s biggest coalminer and copper producer, Glencore, has called for the abolition of the renewable energy target and suggested delaying Paris climate commitments as Australian industry struggles under the weight of rising power costs.
And in comments backed by big manufacturers, Glencore says Chief Scientist Alan Finkel’s proposed clean energy target will not be enough to save heavy industry, which needs pricing concessions from policies designed to tackle emissions reductions.
Speaking in Sydney yesterday, Glencore’s senior Australia-based executive, its global coal chief Peter Freyberg, said 10 years of poor policy development was coming home to roost.
“Electricity prices have got to a level where many industries, both large and medium, are either suffering or are becoming uneconomic because of high energy prices,” he said. “Either we intervene now to protect those businesses or we let them go — that’s a government decision.”
He said the RET, which was put in place with bipartisan support, and state-based renewable targets needed to be abolished and a national energy policy that allowed exemptions for heavy industry put in place.
“All we have is a renewable energy target that is seeing billions of dollars chucked into renewables and baseload power being shut down,” he said. “We are seeing the consequence of that in elevated energy prices and businesses going out of business.”
He said that if something had to take a back seat in solving the so-called energy “trilemma” of affordability, reliability and emissions reductions, it should be emissions.
“Let’s get energy and affordability right and then work emissions reductions into that in an orderly way,” Mr Freyberg said.
“That way we can achieve emissions reductions by sustaining the economy rather than achieving it by destroying the economy.”
If exempting heavy industry from emissions targets meant a delay in meeting Paris climate accord commitments, that should be looked at, he said.
Glencore makes almost all its coal profits from exports so is not overly exposed to reductions in the nation’s coal-fired power use.
But its Australian electricity bill is about $400 million a year and power is a third of the costs at its Mount Isa copper smelter and Townsville copper refinery.
Former prime minister Tony Abbott, who has called for a freeze on the renewable energy target at 15 per cent, said low power prices were critical for industry. “You can’t run a business, you can’t produce a great product and can’t employ people without energy and without power,” Mr Abbott said yesterday. “We need affordable, reliable power and policy has to change.’’
Federal Environment and Energy Minister Josh Frydenberg said the Turnbull government was committed to the RET. “The government remains committed to the renewable energy target, as legislated in 2015, recognising that it was the Coalition that ensured a 100 per cent exemption for emissions-intensive trade-exposed businesses,” Mr Frydenberg said.
He said Mr Freyberg was “absolutely right” that affordable, reliable power must be the number one priority.
“We support his call for the abolition of state-based renewable energy targets which only create inefficiencies across the system,” he said.
The Coalition and the Council of Australian Governments Energy Council have supported 49 of the 50 Finkel recommendations.
But the last, the CET, has not cleared the Coalition partyroom, where there is concern it will push up prices by discouraging coal-fired generation.
The Glencore boss said Dr Finkel’s CET was not enough on its own to take care of energy policy, no matter where the target was set and whether or not it encouraged cleaner coal technologies.
“There are a number of unanswered questions in terms of the modelling and analysis in the review, such as ‘what is the assumed make-up and nature of Australia’s industrial base — and, just as importantly — what are the policy recommendations around future energy affordability’?” he said.
This was backed by Manufacturing Australia, which represents the chief executives of 10 of the nation’s biggest manufacturers, including BlueScope Steel, Brickworks, CSR, Rheem, Dulux and Incitec Pivot.
“The Finkel report had some good recommendations with regards to security and emissions, but it really misses the mark on affordability, or internationally competitive prices,” MA chief executive Ben Eade said.
Targets had been recommended for emissions, through the CET, and reliability, through obligations for reliability, but none for prices, he said.
“If success is measured in getting electricity prices down from $120 a megawatt hour to $100 a megawatt hour, that’s not going to be good enough for heavy industry,” Mr Eade said.
“We need a grown-up discussion about what an internationally competitive energy price is for heavy industry and we think it is in the $60 to $80 range.”
Rio Tinto’s global chief executive Jean-Sebastien Jacques, who has railed against the impact of power prices on his Queensland aluminium assets, said affordability was key.
“What we want is an affordable and reliable source of energy, we want to make sure that Australia is globally competitive,” Mr Jacques said.
Mr Freyberg last week increased Glencore’s Australian coal presence by taking a stake in Rio Tinto’s Hunter Valley coalmines.
Glencore employs around 15,600 Australians, directly or as contractors – Rio Tinto employs 23,000 and many more contractors – and the bulk of those (well-paid) jobs are in remote regional locations, otherwise devoid of employment opportunities. Miners like Rio and Glencore are big employers of Aboriginal Australians, a group who face all manner of hurdles when it comes to finding a job and keeping it: over the last 20 years mining has injected life and dignity into many remote Aboriginal communities, and given the next generation real hope for a better life.
Placing that number of quality jobs under threat is a very dangerous game for those who pretend to govern us. But that’s precisely what those obsessed with maintaining the Federal government’s ‘heroic’ Large-Scale RET are engaged in.
And good to see that Josh Frydenberg continues to be as disingenuous as he is gormless. It’s his dogged commitment to the LRET that has already destroyed thousands of jobs and threatens to destroy tens of thousands more, in mining, mineral processing and manufacturing.
Frydenberg reminds STT of Captain Ahab and his maniacal pursuit of Moby Dick: a man driven by a deranged obsession with the very thing that will be his and his party’s demise.
While Frydenberg claims that the current LRET is a Turnbull government ‘commitment’, at last count, 25 Liberal and National MPs would scrap the LRET in a heartbeat, if either Frydenberg or Turnbull was capable of seeing sense.
The Federal LRET is the primary cause of rocketing power prices and grid insecurity. Frydenberg throws the blame at the States and their ‘aspirational’ RETs, but none of them bring with them subsidies for large-scale wind and solar of the magnitude available under the Federal LRET: subsidies which now add $3 billion a year to all Australian power bills, have already added $15 billion to those power bills and, unless and until the LRET is capped or scrapped, will add a further $42 billion to Australian power bills between now and 2031, when the LRET expires (see our post here).
Where Glencore’s Peter Fryberg comes unstuck is in his implicit belief that Alan Finkel’s CET offers Australian businesses some kind of hope. To the contrary, what Finkel proposes is, in effect, a 42% renewable energy target, dominated by erratic wind and solar power. Australia’s current LRET, with its ultimate annual target set for 2020-2031 at 33,000 GWh would represent about 23-25% the total annual demand over that time frame.
The power prices that are crippling miners and mineral processors like Glencore and Rio Tinto, as well as Australian manufacturers are rocketing as a result of the current target: this year it’s 26,000 GWh, although actual production of eligible renewable energy will fall short of that target by around 8-10,000 GWh (depending on the weather, of course), resulting in the imposition of fines on retailers (the ‘shortfall penalty’) that will cost their retail customers around $750 million this year alone.
Over the course of 2017 the cost of REC subsidies to wind and solar generators, combined with the cost of the shortfall penalty extracted from retailers, will add around $2.5 billion to power bills: It’s Time for Frydenberg Turnbull to Come Clean on the Cost of Subsidised Wind Power
But that’s simply the cost of the subsidies awarded and fines imposed under the LRET, which ignores the effect that the erratic and chaotic occasional delivery of wind and solar power to the grid has on the spot market for power.
In South Australia, Australia’s wind power capital, when the wind is blowing, wind power generators literally pay the grid manager to take their skittish wares; while still collecting the full price set by their power purchase agreements with retailers – in the order of $90-110 per MWh, which includes the value of the renewable energy certificate the generator collects and hands over to the retailer.
When the wind stops blowing (or blows too hard), the collapse in wind power output allows conventional generators to extort prices from the grid manager, starting from around $1,000 per MWh all the way to the regulated market cap of $14,000 per MWh.
The spot market cap was $13,800 during 2015/16. The following post gives the detail on the how wind power output collapses cause rocketing spot prices – entrenched market behaviour that has resulted in a tripling of wholesale prices in a little over 18 months, now being passed on to consumers with 20% increases in retail power bills: South Australia’s Unbridled Wind Power Insanity: Wind Power Collapses see Spot Prices Rocket from $70 to $13,800 per MWh
Among those consumers are businesses, large and small, watching their bottom lines deteriorate; which means shrinking investment, fewer jobs and lower incomes, across the board.
Power price surge slices up to 14pc from profits: Citi analysts
Andrew White and Matt Chambers
4 August 2017
Australian investors are about to get a taste of what the country’s neglect of energy policy is costing business, with soaring electricity and gas prices expected to clip 5-14 per cent from pre-tax profits at companies ranging from Woolworths to Wesfarmers and Inghams to NextDC.
Companies across transport, retailing, mining, electricity, data storage and manufacturing will be hit by the surge in energy prices, according to analysts at Citi.
The timing will depend on when long-term contracts typically used by major companies roll off and expose those businesses to the new supply and price conditions.
The recent spike in electricity and gas prices is expected to be sustained for at least three years as policymakers attempt to overcome years of neglect to restore reliability and affordability to the system, Citi said.
The analysis comes as Glencore’s most senior Australian executive this week warned that companies would close unless government policy shifted priorities to affordability and reliability.
Rio Tinto this week said higher Australian energy costs had knocked $63 million from its 2017 operating profit.
“Electricity prices have spiked higher across all the major states, excluding Western Australia,” the Citi team led by Craig Woolford said. “For most Australian-based companies, we expect the impact will likely be felt over 2017-18 and 2018-19, as most companies will have two or three-year contracts.”
Data centre company NextDC would suffer the biggest relative effect, with a 14 per cent, or $2m, hit to pre-tax profits. Still, higher prices could increase demand for its services, Citi said.
Ingham’s processing centres could take a 12 per cent earnings hit, while the big-store networks of Wesfarmers and Woolworths could be hit by about 5 per cent.
Citi said the mining sector was exposed to power price increases and reliability problems. Aluminium smelters would be particularly affected. The big miners would take less of a hit.
Glencore coal boss Peter Freyberg this week called for urgent action to help heavy industry deal with high prices. Glencore’s annual power bill in Australia is about $400m and it has said its Townsville copper refinery risks closure.
Rio CEO Jean-Sebastien Jacques has curtailed production and 100 jobs at the Boyne Island smelter at Gladstone.
“There is a serious situation in relation to energy in Australia,” Mr Jacques told London analysts on Wednesday night after the release of the company’s first-half profit report. “When I look at the plan, either at the state level or the federal level in Australia, where people want to develop more manufacturing activities, that will not work if the industry can’t have access to a reliable and affordable source of power. The model is broken today.”
One of SA’s recent RET victims was Plastic Granulating Services, a family owned business in Kilburn that was forced to make the “heartbreaking” decision to close its doors after 38 years, leaving 35 employees out of work, because of soaring electricity prices: its managing director, Stephen Scherer pulled the plug when its electricity bill of about $80,000 a month spiked to $180,000 a month (see our post here).
Joining Glencore, Rio Tinto and Manufacturing Australia’s members in their call for an end to Australia’s renewable energy madness, was Andrew ‘Twiggy’ Forrest’s Fortescue Metals Group (a major iron exporter from Western Australia).
Fortescue adds its voice to growing list of RET industry critics
4 August 2017
Andrew Forrest’s Fortescue Metals Group has added its voice to the growing industry call for the scrapping of the renewable energy target, warning a policy fixation with renewable energy was coming at a high cost to consumers.
Fortescue chief executive Nev Power told The Australian the RET was incentivising the development of renewables without due consideration to the impact of the intermittent supply on the broader power grid, leaving households to foot the bill for costly and inefficient sources of back-up power.
“I think (the RET) has outlived its usefulness and I don’t think it’s the way to go forward,” Mr Power said. “We should look for something that tries to create balance rather than simply incentivising one form of energy generation in a form that is not reliable and that doesn’t take into account the full cost of providing 24/7 power generation. Ultimately, who pays for this is the electricity consumer and this can have significant impacts on household incomes.”
Glencore, Australia’s biggest coalminer, on Wednesday called for the abolition of the RET and suggested Australia consider a delay in meeting its commitments under the Paris climate accord. Glencore’s senior Australian executive, Peter Freyberg, said the measures would bring relief to Australian industry struggling under the weight of rising power costs.
While Glencore’s Australian mines produce the coal that feeds into the nation’s coal-fired power stations, iron ore miner Fortescue is only exposed to the electricity market as a customer.
The company is phasing out diesel generated electricity across its Pilbara operations and has long been an exponent of gas as a means of efficiently reducing Australia’s energy footprint.
The government’s renewable energy target, in place with bipartisan support, aims to double the amount of electricity from renewable sources to 23.5 per cent by 2020. But its effectiveness has come under question amid rising energy prices in eastern Australia and blackouts in South Australia.
Mr Power said it was crucial that energy policy considered the knock-on costs from the intermittency of renewable energy sources such as solar and wind or risk seeing the market develop a “massive imbalance”. “The RET-type schemes strongly incentivise generators without recognition that maybe the grid is not capable of having that level of intermittent supply, and particularly South Australia and perhaps Victoria are in that category,” Mr Power said.
“Continuing to connect intermittent supplies into those (states) is going to lead to greater and greater instability and ultimately higher cost power and less reliable power for Australian households.”
He said developing gas in tandem with renewables would help smooth the transition for consumer and industry while also reducing emissions. “We want to make sure our communities can enjoy low-cost energy, and if there’s anywhere in the world that should enjoy low cost reliable energy it’s Australia,” Mr Power said.
Paul Garvey claims that ‘Glencore’s Australian mines produce the coal that feeds into the nation’s coal-fired power stations’. Paul should either take a peek at what appears on the pages of his own paper, or pop on to Glencore’s website.
The first Australian article (on which Paul Garvey claims a byline) makes it pretty plain when it says ‘Glencore makes almost all its coal profits from exports so is not overly exposed to reductions in the nation’s coal-fired power use.’ Perhaps Paul didn’t bother to read the article he supposedly co-wrote?
Glencore exports almost all of the coal it extracts from its mines in Queensland and New South Wales; and a large proportion of it is coking coal, used in the production of steel, which you will find in the thousands of these things carpeted across rural Australia.
The thermal coal that Glencore and other Australian miners export, principally ends up in Asia – China, Japan, South Korea and India – where it’s used to fuel hundreds of existing power plants and hundreds more spanking new, high-efficiency, low emissions (HELE) coal-fired plant.
In China 368 coal-fired plant are under construction, with another 800 planned; Japan is in the process of building 45 new HELE plant – 1,200 HELE plant are being built or planned across Asia (see our post here).
All of which begs the question. Why is Australia hell-bent on destroying its ability to take that abundant source of energy and continue to convert it into jobs, income and wealth?
Australia’s renewable energy policies almost seem deliberately designed to destroy the wealth and prosperity that Australians have worked hard for; a level of wealth and prosperity which has put it in the top 10 for living standards and quality of life for the best part of a century.
But it’s not just manufacturers, miners and mineral processors that are under threat, every Australian business, large and small faces financial Armageddon. Peter Freyberg’s suggestion that Alan Finkel’s CET would somehow save heavy industry is a nonsense: as an effective 42% RET, Finkel’s CET would simply accelerate the demise of what’s left of Australia’s energy dependent businesses.
Then there’s the small matter of having electricity available to power those businesses on demand, or at all.
SA’s miners, like BHP Billiton, have not only been belted with power prices rocketing out of control – during one wind power output collapse last July, BHP spent $2.5 million on power for its Olympic Dam operation in a single day, instead of the usual $250,000 – load shedding and blackouts have cost its miners (among others) hundreds of millions in lost production and downtime: the 28 September 2016 blackout, alone, cost businesses $367 million.
Unless and until Australia scraps its suicidal renewable energy policies – starting with the LRET – every industry that uses energy, right down to every business that turns on an air-conditioner, computers and lights is going to be pounded by increasing prices and a chaotic supply, and all for the sake of pandering to an ideological obsession.