Australia’s looming power crisis: Gottliebsen

For the past 18 months, while we have been debating climate change and emissions trading, we have been largely ignoring the fact that with population and industrial growth Australia is rapidly losing its ability to supply reliable power.

Australians expect their governments to provide them with reliable electricity and if, or when, that doesn’t happen, community anger will be white hot. With the exception of a period in Perth, for the past few decades – except in extreme weather conditions – power has been reliable.

But unless we take action now Australia is about to enter an era where electricity supply will be much less reliable. We have received an alert from the UK where, like Australia, the country moved away from the traditional model of one government supplier.

According to the British Office of Gas and Electricity Markets (Ofgem), the UK has a secure power source only until 2015. After that Britain must be ready for substantial black outs unless they begin investing now.

Ofgem says that the UK will be required to invest £200 billion by 2020. The amount involved is so large that Ofgem is concerned the private sector may not have the required capital given the global demand for power investment and the rising cost of both equity and debt funds. It is possible that the UK will return to a situation where there is a much greater government involvement in power generation.

Australia has not published the equivalent detail about power generation capacity but, as I understand it, those who have done the calculations estimate by about 2012/13 any very hot weather around Australia will cause power outages and by 2015 you can expect substantial ongoing problems.

It takes about four to five years to put together a major power project, we must make decisions fairly quickly. The biggest problem is in Victoria. In the 2009/10 summer, Melbourne had only one very hot day and that took place in January when industry was shut and many people were on holiday.

Had Melbourne experienced a hot January/February, black outs would have been widespread and Premier John Brumby would have copped the blame – possibly leading to his electoral defeat later this year. Yet Brumby is fully aware of the problem but can’t act to solve it because of the buffoons in Canberra. Australia not only needs more baseload power, but also needs to reduce its dependence on coal, particularly brown coal. Renewables are important, but they can’t fill the gap. Gas, or nuclear, is essential.

The emissions trading scheme legislation would have had the effect of destroying the Australian equity of major global power generating companies (led by China Light & Power). If their capital was destroyed by government action, there is no way those global generating companies would fund new developments in Australia given the attractive proposals being offered to them by India and China.

Our local power generating groups like Origin and AGL do not have the capital for extensive investments and even if they could raise the equity funds, banks would not lend the enormous sums required to a few groups.

Fortunately the emissions legislation has not passed in parliament – though it could easily pass after the election and, if it does, governments will probably be required to fund new gas-fired power stations, which will reduce the money available for other areas like hospitals and education. Both Kevin Rudd and John Brumby face the polls later this year and they are fortunate that the electorate does not understand the looming crisis.

And, to date, Tony Abbott shows little signs of being interested in the area. But in the next five years power supplies are going to be an enormous issue and given the lack of understanding in Canberra, state premiers may have to lead Australian strategy.

This article first appeared on Business Spectator.