Interview with Melinda James, ABC Radio Illawarra
16 September 2020
Subject: Gas-fired recovery
MELINDA JAMES: Big news yesterday with the Prime Minister, Scott Morrison, talking about the gas-fuelled economic recovery. That, basically, they want the private electricity sector to invest in a gas-fuelled power plant and decide to do so by April, or the Federal Government will step in and build one itself. The plan has copped some criticism, not just from, I guess, you might call them the usual suspects, those who are advocates for renewables as opposed to a polluting, even if it's less polluting than coal, gas-powered industry. But the criticisms also come from some in the energy sector itself. I'm joined now by the Federal Energy Minister and the Member for Hume, Angus Taylor. Angus Taylor, good morning thanks for joining us.
ANGUS TAYLOR: G’day, Mel. Thanks for having me.
MELINDA JAMES: If we just focus on some of this criticism from the energy sector itself, saying that there is actually no reliability threat to justify this intervention from the Federal Government, that we've seen the Australian Energy Market Operator say most recently that even with the closure of the Liddell coal-fired power plant in the Hunter there will be a shortfall of just 154 megawatts here in New South Wales, that this intervention simply isn't justified - we're not facing a huge shortage in gas that's been forecast or is being talked about. What do you make of that?
ANGUS TAYLOR: Well the primary issue isn't just reliability, its price. And of course the energy companies want price to go up, not down. Now, it's economics 101 that when you take supply out of the market - 1000 megawatts, from Liddell, or more than 1000 megawatts - then the price will go up if it's not replaced. They want the price to go up, we don't. And the Australian people and people in New South Wales of course want lower electricity bills. So it's simply about that. I can understand they want prices to go up, but it's not the right thing for their customers, for the people of New South Wales. And so we've said they've got until April, they need to build. If they don't, we will - it's as simple as that. And, you know, we don't want a repeat of what we saw with Hazelwood down in Victoria where there was closure; there was no replacement; prices hiked; businesses left the area, went out of business; consumers paid for it; small businesses paid for it. We're not going to stand for that, so we're getting on with it if we had to. We would prefer the private sector get on with it, and there's good projects around - at Tallawarra, Energy Australia's project in your region, and there's work going on a project related to the new import terminal - we would very much like to see those projects proceed. But we do need to have this supply in the market to put downward pressure on prices and make sure we meet our reliability needs as well.
MELINDA JAMES: If it was economically fruitful and if the private energy sector felt there was a future in gas, wouldn't they have already invested? Is this going to be putting taxpayers' money at risk of an unnecessary surplus to requirements supply of gas in the future?
ANGUS TAYLOR: There's a simple reason for why they wouldn't invest, and that's that they want the price to go up. I mean, we've seen that. Look, there's no shortage of history here where we've seen the failure of the private energy companies to invest and deliver affordable prices for Australians. We've got a long history of them failing to do that. So we know that's the history. This time around though, we're not going to stand for it, and we need that investment to occur. As I say, we will only step in if we have to, Mel, but we are absolutely committed to stepping in if we need to and we will get on with it. But April next year is the deadline and we're more than happy, we'd be absolutely delighted if we had significant investment commitments occur between now and then. They've had years, this has been on the table for many years, and there's not a single serious commitment yet from any of the energy players to replace this capacity that's going, and that's simply not good enough.
MELINDA JAMES: Sure, there's the supply argument, but we did just hear in our news there at 7 o'clock from Sarah McNamara from the Australian Energy Council saying that the shortfall was only in the order of about 154 megawatts.
ANGUS TAYLOR: Well hang on, she's ignoring price and she will ignore price because she wants the price to go up.
MELINDA JAMES: [Interrupts] No. But that's what I wanted to get on to, price. Price is another thing altogether. And we have heard from the ACCC that price seems to be about price gouging from some of the big gas resources companies, particularly in Queensland. The fact that we as Australians are paying more for our gas than the places where it's exported to in Asia, still seems as baffling to many Australians. Isn't that likely to be a more productive government intervention than building a new gas-fired power plant, to get prices down?
ANGUS TAYLOR: Well, hang on, hang on. When you've got 1000 megawatts of capacity leaving the market and the companies are refusing to replace it, or at least have not failed to replace it, government has to step in. It's that simple and its economics 101: if big amounts of supply leave a market, prices go up. Now, it seems that Sarah MacNamara wants the price to go up. She uses, by the way, misleading figures on the reliability - the reliability standard has been increased and she's not taking that into account. But putting that aside, you know, a loss of that level of capacity, it seems that they want that, and they want the price to go up. Now, coming to the gas point, look, the position here is very clear. We've seen a significant reduction in the spot price of gas, that's the short-term price of gas, in the market in Australia pre-COVID and it's continued on. In fact, it's been exacerbated-
MELINDA JAMES: [Interrupts] But still, can you answer the question though, why Australians are paying so much more for gas than the countries they export their gas to?
ANGUS TAYLOR: I’m coming to that - Mel, if you just give me a moment and let me explain - so we've seen a very significant reduction in spot price of gas. So that means you can buy gas on the short-term market now at the international price - you can do that. What you can't do and this is the problem is buy on a longer-term contract at that international price. And so the reforms that we put forward yesterday, that the Prime Minister outlined yesterday, are all about making sure we're going to see longer-term contracts for our manufacturers, for our electricity generators and others coming at an international price on long-term contracts. So for instance if you're a fertiliser manufacturer, they're big users of gas to help us produce the food we eat every day, then we need them to be able to buy on a long-term contract, so a 10-year contract, at the international price. They can buy short-term at that international price but not long-term. So these reforms we're talking about, pipeline reforms, market reforms are all designed to make sure those long-term contracts come into line with the international price.
MELINDA JAMES: Seems like a very expensive way to get gas suppliers to charge a price that's fair.
ANGUS TAYLOR: So that's got nothing to do with building the new generator in the Hunter Valley. That's a different issue. That's about electricity prices.
MELINDA JAMES: Yeah.
ANGUS TAYLOR: What you're talking about here is the gas price and we do need Australian domestic gas prices to reflect the international price, you're quite right. The point I'm making, is it is in the short-term we're not seeing that for contracts, longer-term contracts and there's a whole series of reforms which are not expensive, they're just basic good market reform to make sure that we do see prices in Australia on those long-term contracts aligned with international prices. And that makes sure our manufacturers, our steel manufacturers, our fertiliser manufacturers are competitive with others around the world.
MELINDA JAMES: Does it mean anything for the Port Kembla gas import terminal if a power plant, a gas-fired power plants built in the Hunter?
ANGUS TAYLOR: Well look, we have until April next year before commitments need to be made. Now, if we could get more gas generation built in the Illawarra committed by April next year, that would be fantastic. Tallawarra, as I mentioned earlier, but-
MELINDA JAMES: Tallawarra has received Government approval but they've held off on announcing its commitment to invest until there's more certainty from government. What do you think of the-
ANGUS TAYLOR: There's absolute certainty. There's absolute certainty here. There's 1000 megawatts leaving the market that will raise the price if it leaves the market, and we have until April next year for commitments to be made. So there is no lack of certainty here. Now and I am hopeful that Energy Australia will commit to that project. I know they've been working very hard on it. It would be fantastic to see. When we come to the import terminal, look, we are working closely with the team there. We would very much like to see them succeed and we're doing everything we can to support that. The point I would make more generally though, is this debate over Liddell closing is 1000 megawatts that needs to be replaced. AEMO has told us that up to 19,000 megawatts will need to be replaced in the coming years. So the need for new dispatchable generation to back up the record levels of investment we're seeing in solar and wind is very, very significant - well beyond just what we're talking about here with the closure of Liddell. So we need good projects, we're going to need many of them across a range of different fuel sources and technologies to complement the record levels of investment in solar and wind, and we'll work closely with project proponents who want to do that.
MELINDA JAMES: We'll have to leave it there. We've run out of time. But thanks so much for your time this morning.
ANGUS TAYLOR: Thanks, Mel.
Minister Taylor's office: 02 6277 7120