Bring out the thermals: There’s no quick fix to the energy crisis

The energy crisis is everyone’s problem, but no one wants to take responsibility. It’s degenerated into a blame game of epic proportions.

Some actors in Australia, not least of all policy makers and regulators with their complex and often competing signalling, must bear responsibility for the situation in which households and some industrial energy users find themselves - under threat of significant price rises.

A long-term lack of a coordinated framework around the transition from fossil fuels to renewables is the fundamental reason that Australia has been vulnerable to this crisis.

The latest energy price shock is therefore really a short-term crisis within a long-term crisis.

But the immediate electricity emergency we are grappling with today and which is pushing up our power bills is far easier to understand.

We still receive around 60 per cent of our energy from coal-fired power stations, and at this point, one-third of the energy they provide is offline. Some of these generators are under-producing because they have been shut down for maintenance, others due to situations peculiar to them, but more generally this supply shortage has arisen because the coal power stations that supply most of our domestic energy are an ageing fleet of utilities, set to be phased out over the next five to 20 years.

The latest energy price shock is therefore really a short-term crisis within a long-term crisis.

Their corporate owners have understandably been reluctant to commit too much capital to their upkeep, choosing instead to invest in cheaper renewable energy production.

In other words, coal is the culprit in this current crisis.

Enter Australia’s giant gas producers. Will they be our reluctant saviours?

In a sense, these companies have been shoe-horned into fixing the supply crisis created by deficits in coal-fired energy. And industry experts say there is enough gas to achieve that outcome. Australia is a major producer of gas, but exports most of it overseas.

The proponents of forcing the large producers to syphon off enough gas for domestic use are at loggerheads with the producers, who can sell gas in the international spot market at exorbitant prices.

The big gas companies say breaking contracts with international customers would give Australia a poor reputation - a sovereign risk. It feels a bit like they are talking their own book and that the bigger risk would be to their elevated profits, enabled in large part by the shortage resulting from the Russian war in Ukraine.

That said, the solution of just sending gas down to the Southern states is simplistic. There needs to be sufficient pipe capacity to deal with the shortages, and industry experts say these pipes are already running at capacity.

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Another group of stakeholders in this energy debacle are the big commercial users of energy - the companies that say the exorbitant prices they are paying now are sending them to the wall.

Most prudent large-scale industrial energy users have previously entered into longer-term supply contracts - and will only have a price issue when these contracts roll off. But there is a group of companies that did not hedge their energy needs over the past couple of years and have made hay on energy costs by acquiring what they needed on the previously cheaper spot markets.

This bunch is now screaming loudest.

Understanding why energy costs are skyrocketing is complex, but finding a solution is even more so.

But what the crisis is teaching us is that a relentless and uncoordinated transition to renewable energy is dangerous.

Instead, the shift to green power should have been accompanied by the development of appropriate infrastructure and proper pricing signals.

The transport of energy from where it is generated to where it is used takes place through a grid that was developed for a nation using coal-fired power plants as its main source of energy.

The web of transmission is centred around power stations - not the more fragmented locations that produce renewable energy. The current grid is not match fit to distribute energy - particularly around a national market.

Resolving this problem is what Australian Energy Market Commission Chair Anna Collyer is referring to when she talks about a $20 billion investment in the grid. It’s an expensive capital works project that no government really wants to budget for, and it’s not a short-term fix that will allow a political party to solve the cost of retail power bills today.

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In the meantime, the Albanese government doesn’t want to advocate for any solution that looks like it is backing down on its credentials. Financial support for fixing the problems of the ageing coal-fired generators would be a difficult sell.

But the reality is that the supply of renewable energy is less reliable and needs to be supplemented by more reliable firming (dispatchable) generation - pumped hydro, battery storage and some gas.

Origin boss Frank Calabria argues these firming generation assets have not received the necessary investment because there is no payment for power that is not used. He says a mechanism must be established whereby these assets can make a return even when they don’t generate energy.

The momentum towards decarbonisation won’t change. The crisis might be just what’s necessary to focus the attention on what’s needed to manage when coal does disappear as the country’s main source of power.