Is the latest idea in Australia’s energy debate really a lifeline for coal?
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Is the latest idea in Australia’s energy debate really a lifeline for coal?

The latest big idea in Australia’s energy debate is being portrayed as a lifeline for coal power, but the proposal may not be needed at all.

The idea would lead the federal government to subsidise the construction of new power stations, giving heart to coal advocates who believe Australia needs new coal-fired generators to fill a looming shortage.

Prime Minister Malcolm Turnbull is open to the proposal from the Australian Competition and Consumer Commission, but that does not mean voters will be promised a new coal power station in the near future.

The ACCC report is calling for a major shake-up of the energy industry's power structures.

The ACCC report is calling for a major shake-up of the energy industry's power structures.Credit:Nick Moir

The ACCC proposal is being looked on favourably because it does not choose coal or any other energy source. It fits the constant message from Turnbull and his Energy Minister, Josh Frydenberg, about being “technology neutral” in setting policy.

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Even so, somebody must pay for the new scheme – and that means the taxpayer if this particular idea ever goes ahead.

The ACCC suggests the government sign “energy offtake agreements” with the builders of new power generators who can offer “firm” supply to commercial customers. The agreements could last up to 15 years and would be a way to guarantee the money recouped from building the new power supply.

Put simply, taxpayers would have to make up the difference if customers did not pay the price, such as $45 per megawatt hour, agreed between the government and the generator to build the power station in the first place.

While coal advocates assume this could make coal-fired power station viable, this is not the only scenario. A gas-fired power station might also meet the requirements, as might a renewable project with the ability to store its power – such as a solar farm with pumped hydro.

The scheme would probably require companies to bid for the government support. With a coal project, the obvious risk would be a future government putting a price on carbon. With a gas project, the bigger risk might be higher gas prices. A renewable project could be put forward with neither of these risks.

This proposal is being welcomed by Nationals MPs who back coal, but it also puts paid to another idea running around within the Nationals – a $5 billion federal fund for new coal power stations.

If the government underwrites the prices for a new power project, there is hardly a need for a direct $5 billion investment as well.

Another question hangs over this new idea. If the government’s plan for a National Energy Guarantee works so well, why does anyone need this separate underwriting scheme at all?

In theory, the NEG requires energy retailers to make sure a proportion of their electricity is absolutely reliable – dispatchable, in other words, or “baseload” to some. The effect is to encourage companies to keep their coal-fired power stations operating as long as possible, while the cost and reliability of renewable power steadily increases.

The fine print in the ACCC proposal is important. It is to be used for commercial and industrial customers only. It is not intended to be a blanket subsidy for coal power stations that serve consumers.

In a sense, it is just another government subsidy for big industry, such as cheaper electricity for an aluminium refinery.

None of this changes the government’s ambition to get an agreement on the NEG with the states and territories on August 10, followed by a Coalition party room agreement on the policy and a vote in Parliament on the Paris commitment to reduce emissions by 26 per cent by 2030.

Whether the “energy offtake agreements” ever go ahead is too soon to tell. What the idea proves, however, is that every argument in the energy war eventually comes down to a dispute over a subsidy. In most cases it is the consumer. In this case it is the taxpayer.

David Crowe is the chief political correspondent for the Sydney Morning Herald and The Age.

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