In Australia’s high-wage economy, cheap power was the only competitive advantage our manufacturers, miners and energy-intensive industries enjoyed.
The idea was simple.
To compete with industry in developing nations that have access to dirt cheap labour, Australia needed substantially lower power prices on top of higher productivity.
Unfortunately, we’re squandering our great advantage.
In March 2004, the average spot price for wholesale power on the east coast of Australia was around $24/MWh (adjusted for inflation this figure comes out to $35/MWh).
Fast forward 18 years later to June 2022, and the average spot price for wholesale power on the east coast of Australia was around $347/MWh.
That’s a whopping 890% real increase in power prices in under 20 years.
Over the same time period, the proportion of grid power coming from fossil fuels fell from around 90 per cent to about 70 per cent off the back of billions in subsidies for renewables.
The rise in power prices is both a long and short term phenomenon.
In the last five years alone, power prices have risen by 197 per cent with this unlikely to improve markedly in the next 5.
Last week, Australian Energy Market Operator (AMEO) chief executive Daniel Westerman said the current list of fully funded energy projects did not have enough generation capacity to replace the forecast loss of 60 per cent of the eastern seaboard’s coal plants by 2030.
Meanwhile, Australia is losing manufacturing jobs at a rate we’ve never before seen.
In the late 1990s, Australian manufacturing employed almost 1.2 million people. Now, it’s reached a record low of fewer than 850,000, representing a loss of over 330,000 jobs.
It gets embarrassing when comparing the situation to the rest of the world.
Out of all developed nations, only Luxembourg has a lower share of its economic output devoted to manufacturing than Australia.
Harvard’s economic complexity index, which measures accumulation of productive knowledge and its application to and use, ranks Australia behind Uganda, Panama and Uzbekistan, at 91st out of 133.
The scale of resources at our disposal and we simply don’t create what we should ourselves.
Australia is now the world’s second biggest weapons importer, behind only Saudi Arabia.
And Australia imports 90 per cent of our crude oil, petrol, aviation fuel and diesel, 90 per cent of our medicines and 90 per cent of our fertiliser.
The vulnerabilities we face are startling, and it seems there are only really two clear options.
In the short term, there’s coal.
Kogan Creek power station in Queensland is the perfect example.
Kogan Creek was completed in 2007 by Siemens and Hitachi at a cost of $1.1 billion. The power station is fully owned by the people of Queensland and produces power at an extremely low marginal cost of $9/MWh according to the 2017 Finkel Report (this would be slightly higher now due to labour costs).
The plant has a capacity of 750 megawatts, runs at an 82% capacity factor and uses up to 90 per cent less water than conventional power plants. It uses 2.8 million t/yr of coal from the nearby 300 million tonne Kogan Creek coal deposit, which is also owned by the people of Queensland. The coal is delivered to the power station on a 4km conveyor belt.
What a piece of infrastructure!
Compare that to the Hepburn wind farm in Victoria which generated $293,815 in “electricity sales” but walked away with a tidy net profit after tax of $354,546 in 2021.
How can a power station make more profit than the revenue generated from power sales?
Well, Hepburn took home $213,804 in “large generation certificate sales”, otherwise known as “renewable energy certificates” (that the government gives them for generating “renewable energy”). Hepburn also got a $1 million dollar grant from the government. Meanwhile, the wind farm only produced power at a 17.5% capacity factor – meaning its turbines weren’t working most of the time.
The other option is nuclear.
According to Tony Irwin, a nuclear engineer with SMR Nuclear Technology who used to be the reactor manager of ANSTO’s Lucas Heights nuclear plant in Sydney:
“Nuclear-generated power comes in at $5596/kW, large-scale solar at more than $14,882/kW, wind at more than $12,372kW and fossil fuels (gas and coal with carbon capture and storage) at between $10,280/kW and $10,000/kW.”
Nuclear is now considered “green”, with the European Commission recently declaring nuclear to be a renewable source of generating power.
Australia has more uranium than any other country on Earth. In fact, Australia exported $688 million worth of uranium in 2019/20 – enough to generate 290 terawatt hours or 109 per cent of Australia’s domestic energy needs.
Legalising nuclear energy is as easy as scrapping FOUR WORDS – “a nuclear power plant” – from Section 140A(1)(b) of the Environment Protection and Biodiversity Conservation Act 1999 (Commonwealth).
And 53 per cent of Australians agree that “Australia should build nuclear power plants to supply electricity and reduce carbon emissions”, with only 23 per cent of the population disagreeing.
So, what’s holding us up?
Well, that’s the question we ask every day here at CRE.
It’s also why we’re so passionate about backing our heavy industries and common-sense reforms to boost them.