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Energy firms gaming system: BlueScope Steel boss

The Australian

Matt Chambers

12 October 2017

BlueScope Steel chief executive Paul O’Malley says power prices will rise under a clean energy target if baseload sources such as NSW’s Liddell coal-fired power station close, and that a more urgent 10-year baseload transition plan is needed.

Mr O’Malley, whose Port Kembla steelworks is at risk of substantial damage in the event of a power outage, does not think AGL Energy’s plan to replace Liddell with a mix of gas, renewables, storage and demand-shedding offers a reliable alternative.

Speaking after BlueScope’s annual general meeting in Melbourne yesterday, Mr O’Malley launched a stinging criticism of the role of energy companies, accusing them of gaming the debate over power supply. “We have to stop the gaming that’s going on here and call it as it is,” he said.

Mr O’Malley, who has warned of an energy crunch for years, questioned the role in the debate of power companies that said they could not invest in more capacity without policy certainty.

“Does society and industry exist to guarantee the returns of the energy industry, or is the energy industry an essential service that should be supporting society and industry?

“I’m struggling with the fact that everything we are meant to do is give the energy companies investment certainty — I’m not sure that’s why we’re here.”

AGL Energy plans to close the 2000MW Liddell power plant in 2022, when it is about 50 years old, saying extending the plant would not be economic.

Rather than accede to Malcolm Turnbull’s requests to extend its life or sell to someone who will, AGL chief Andy Vesey has vowed to present a detailed plan to the federal government to replace the ageing plant with renewables, gas storage and demand-shedding.

However, Mr O’Malley said he was unconvinced, noting that when French company Engie closed the 1600MW Hazelwood power station in Victoria this month, the power price jumped 25 per cent.

“There is no technology today that has the capability Hazelwood had for 24 hours a day, seven days a week reliability and security, and there is no capability today to replace Liddell,” he said.

“Industry runs 24/7, hospitals run 24/7. What I’m concerned about is that the system that is developed is going to run 18 hours a day, 6½ days a week.”

Mr O’Malley said prices would stay high if Liddell were not extended or replaced by equivalent baseload power.

“And yet people will say under a CET, for instance, power prices are going to go down. Not without Hazelwood and Liddell they’re not.”

He said he was concerned about blackouts this summer after Hazelwood’s closure.

“My concern … is there is not enough baseload and that shedding does not take into account the jobs and livelihoods at risk because of inadequate planning in our system.” …

The Australian

Here’s an extract from Paul O’Malley’s address to BlueScope’s shareholders (available here bluescope-mdceo-agm-speech-2017):

ENERGY

Turning briefly to major public policy issues that affect our business. When we announced our half-year results in February this year, I warned of an imminent energy supply catastrophe. At the full year results I said the catastrophe was now happening.

More specifically however, you as shareholders should be aware that BlueScope’s Australian electricity costs are forecast to increase 93% between FY2016 and FY2018, with gas costs increasing 33% over the same period. And these sorts of increases are being faced by manufacturers, businesses and households across the country – dampening investment and employment, and squeezing household budgets.

The increase in domestic gas prices since 2015 has cost Australian gas users approximately $3.5 billion per annum. For electricity, the cost to users of rising electricity prices is over $3.7 billion per annum.

And so, in the first significant breakthrough in this national crisis, the Company welcomed the recent announcement by the Federal Government that it had secured a guarantee on gas supply from the major gas companies.

The Prime Minister announced on Wednesday 27 September that domestic gas supply will meet the expected shortfall over the next two years. This is good news, as it means the start of a properly functioning gas market – one where prices can be expected to moderate as more sellers meet customers’ demand and commercial offerings reflect global markets. In due course this should be of benefit to BlueScope – and all Australian energy consumers.

Your Company and its peers in Manufacturing Australia have lobbied long and hard for this sort of initiative and we applaud the Federal Government for achieving this outcome.

While political debate continues, there remains one constant truth in all this – Australia must have baseload power for Australia’s everyday life and its economy to run in an orderly manner.

Debating future coal or gas, hydro, nuclear or renewable energy supply, is fine – so long as there is a sensible transition over the next 10 years that secures our everyday life and living.

Without an adequate 10 year transition plan that addresses electricity affordability and reliability – we are condemned to even higher prices and more reliability issues.

11 October 2017

STT wouldn’t expect many businesses to survive a 93% increase in input costs over 2 financial years. But an energy hungry business like BlueScope has almost no hope of surviving a power price hike of that magnitude, over that time frame.

If Paul O’Malley’s forecast of a 93% increase in power costs is realised, BlueScope will join the throng of businesses that, over the next few years, will pack up stumps and head offshore, where power is still delivered reliably and at affordable prices: think China and the USA, for a start.

But it’s this observation from Paul O’Malley that really defines Australia’s energy crisis:

“Does society and industry exist to guarantee the returns of the energy industry, or is the energy industry an essential service that should be supporting society and industry? I’m struggling with the fact that everything we are meant to do is give the energy companies investment certainty — I’m not sure that’s why we’re here.”

20 years ago in this Country, no such question would have been asked. A place blessed with abundant reserves of coal, gas and uranium (and among the world’s largest exporter of all three essential commodities) surely shouldn’t be top ranked for energy costs? But, so it is.

The reason it got there, is pretty simple: governments at all levels and politicians of all persuasions determined to destroy Australia’s power market by introducing policies which favoured the chaos delivered by wind and solar power.

Now we have the head of the Australian Energy Market Operator, in concert with the hapless Federal Energy Minister, Josh Frydenberg, telling power consumers that they’ll be rewarded for not using power.

Insanity doesn’t cover it. That simply implies some malfunction in mental faculty. This goes way beyond congenital idiocy. It is deliberate. And it is malicious.

Audrey Zibelman and her co-travellers know full well what they are doing, and why.

In fairness to Josh Frydenberg, he probably has no real idea of the consequences of the policies he now peddles. Although, with zealots it’s always hard to tell.

Since Alan Finkel released his unicorns and pixie dust review of Australia’s energy market, the bright line distinction between those who get it and those who don’t has become oh so clear.

The Country is now divided into camps: those who understand that economies require secure, reliable and affordable power; and those eager to line their pockets from the largest single industry subsidy scheme and the greatest wealth transfer in Commonwealth history.

The former, like former PM Tony Abbott, keenly appreciate that the outcome for Australians and their wealth and prosperity is existential. The latter appear willing to sacrifice both, in order to ensure Australia’s hitherto enviable wealth and prosperity is an exclusive preserve, only enjoyed by a very limited few. And, the likes of Frydenberg, Turnbull and Zibelman have already determined who gets to prosper at the expense of the many. Watching Frydenberg cavorting with AGL’s Andrew Vesey at last week’s wind and sun cult love-in in Sydney gave a pretty fair clue.

When BlueScope is eventually driven out of business or offshore, thousands of blue-collar jobs will go, never to return. There will be nothing to replace them.

This Country got wealthy on cheap energy.

Now it is going to destroy itself by way of an obsession with unreliable energy, that all but a well-heeled few will be able to afford. Or, more to the point, be able to afford their own generators, panels and batteries (albeit, with the panels and batteries paid for by the working poor, who can afford neither).

Blackouts and load shedding are guaranteed, this summer and beyond. And it is literally every man, woman and child for themselves.

Power costs, as Paul O’Malley predicts, will more than double again over the next two or three years.

In Australia’s wind power capital, South Australia they’re already the highest in the world. And its Liberal opposition (which has a chance of gaining power at the State election in March next year) has policies which will guarantee much more of the same.

Its gormless leader, Steven ‘Holler-for-a’ Marshall is promising $100 million of taxpayers’ money to fund batteries to be installed in middle-class homes across the state. Households that are already sheathed in subsidised solar panels and which enjoy guaranteed feed in tariffs as high as $0.54 a kilowatt hour for the power they send back to the grid. And he wants more windmills and mega-batteries, just like his notional ‘opponent’, Jay Weatherill; a choice between Tweedledee and Tweedledum, if ever there was one. STT is not sure who the Liberals believe they’re representing? Clearly, neither side has any interest in business, pensioners or the working poor.

Let’s call it ‘The Great Divide’. The moment when a cynical elite destroyed the model which once allowed and encouraged ambitious working people to succeed and prosper on their own wit and merit, rather than as a result of rorting or gaming some government scheme, scam or subsidy.

Paul O’Malley is right. Anyone with a modicum of common sense and compassion struggles with Australia’s so-called ‘energy policy’.

The elevation of man-made carbon dioxide gas to the “greatest moral challenge of our time”, soon led to a cult-like worship of windmills and solar panels.

The rest, as they say is history.

Unless its political and media class gets on the right side of The Great Divide very soon, Australia’s wealth and prosperity will be a matter of history, too.