An aggressive switch to green energy and manufacturing is the boldest economic policy of the state election campaign, though the promise has many challenges.
It is a policy pitched by proponents as reviving the legacy of Sir Charles Court, but derided by others as a repeat of Colin Barnett’s 2005 ‘canal moment’.
Either way, the promise of green manufacturing that headlined the Liberal Party WA’s new energy jobs plan would be a dramatic change in economic development strategy for the state.
The pledge has also attempted a dramatic shift in electoral attention away from pandemic management, as Western Australia prepares to vote on March 13.
This site in Kwinana will soon host a battery. Photo: Matt Mckenzie
Government-owned Synergy would shut its five coal generation units by 2025, under the Liberals’ proposal, and underwrite a new 1.5-gigawatt solar and wind project in the Mid West.
The plan is for the project to become the foundation of a green hydrogen industry.
Opposition leader Zak Kirkup has sought to highlight similarities between his new energy plan and the development of the North West Shelf gas project.
As premier in 1980, Sir Charles Court led his coalition government in contracting to buy and pipe domestic gas from Karratha to underpin what eventually became a huge export operation.
However, critics of the new energy jobs plan see it more akin to the most recent Liberal premier’s vision, which came unstuck.
As opposition leader ahead of the 2005 state election, Colin Barnett promised a canal channelling water from the Kimberley to Perth, a policy that dominated the campaign from that point.
There are similarities between some of the criticisms of the new energy plan and the 2005 canal promise, with the canal debate contributing to the Liberals’ election loss.
This time, the challenges include: the impact on power reliability and price of closing coal; renewable generation’s cost and storage needs; and clarifying the steps toward green manufacturing beyond 2025, which are hazy.
The new energy policy attracted attention and created conversation, providing a genuine alternative idea to the Labor government’s road and rail recovery.
But if polling is any guide, the policy may have inadvertently exacerbated the Liberal’s weak point in this election: a perception of risk and inexperience.
Coal produced 41 per cent of the power distributed through WA’s main grid last year. The biggest and newest of Synergy’s coal generators, Collie G1, is due to close in 2040.
The 317-megawatt plant can produce electricity for $32 a megawatt hour, making it the cheapest power source in the state, Business News understands.
That is cheaper than even the best recent offtake deals for new wind farms in the Mid West, one of which was inked for about $45/MWh.
Wind farms and gas often set the price in the state’s Wholesale Electricity Market.
Uniquely, spot prices often drop into negative territory when high levels of renewable production are available, showing the level of disruption in the market.
Removal of units at the bottom of the cost curve could lead to higher cost units being needed more often, driving prices up, although views among experts differ.
An industry source added that renewable generators passed on costs to other participants in the market through intermittency and technological challenges.
As an inflexible base load generator, coal is worst hit.
Shutdown already looms for Synergy’s Muja C coal units five and six, scheduled in 2022 and 2024 respectively, while closing time for neighbouring Muja D (units seven and eight) is not set.
The government has said closing Muja C would save $350 million. Two more coal generators are privately owned by Bluewaters and would not be affected by the closure policy, although the Liberal Party has said it would not renew electricity contracts when they expire in the late 2020s.
The senior industry source told Business News the closure of further Muja units in the next decade had merit, but shuttering Collie G1 would be inadvisable.
The low price, proximity to existing transmission lines, and ability to provide baseload power meant closure of coal needed careful thought, they said.
Coal provides additional services to the grid by keeping frequency stable and maintaining inertia, some of which batteries can replicate.
Deviation from targeted frequency risks damaging equipment across the network and may lead to a blackout, as South Australia demonstrated in 2017.
The source said switching off the coal units meant those grid services would need to be provided elsewhere, at greater cost, likely through more gas capacity.
Instead of operating constantly, the units were forced to ramp up and down responding to wind and solar production, damaging generators.
Speaking at a recent Australian Institute of Energy debate, Dr Honey said the power stations were under pressure from intermittent renewable supply taking coal’s market share.
“They’re no longer baseload, they’re swing, and they’re up and down like a yoyo,” Dr Honey told the forum.
“Those power stations are being destroyed.”
On the afternoon of February 2, when sun in Perth was obscured by bushfire smoke and wind was low, the state’s coal units dispatched near full capacity.
On the afternoon of February 19, three of the Synergy units were off and the remaining two below half capacity.
The swing production explains why the Muja C units were already scheduled for closure.
By contrast, gas generation is designed to be flexible and react to rapid fluctuations in demand. Solar and wind, which would provide 1.5GW of capacity to replace the 1.1GW of coal to be decommissioned, are not dispatchable and need support from storage or gas firming.
Rough estimates for the price of an offtake contract for Synergy have ranged from about $180 million to $230 million annually, assuming the whole output is purchased.
The term length is also unclear.
The opposition did not forecast an offtake deal price; its commitments included $500 million for a new transmission line in the Mid West, a 500MW battery, and $400 million of industry incentive schemes.
Labor has countered that three transmission lines would be needed to make the plan work, totalling $3 billion.
They said it would require about 2,500MWh of extra battery capacity, costing $2.5 billion, and a new gas power station worth $600 million.
Speaking at the AIE debate, Energy Minister Bill Johnston said 500MW would be insufficient storage capacity.
“If you think you can balance the network on 20 minutes’ support, you’re crazy,” he said.
For his part, Dr Honey said the network already had sufficient gas capacity to back up the renewable project.
While value-adding manufacturing was a component of Sir Charles’ vision for WA, in 2021 it’s the potential for green manufacturing jobs atop the Liberal Party’s election pitch.
Synergy’s offtake commitment would be used by the proponents behind the renewable project to fund a larger-scale green hydrogen production plant.
Mr Kirkup said he believed the planned plant would meet export demand from Japan and South Korea.
What’s less clear is how the new energy jobs policy would support a move from hydrogen production into green steel or manufacturing.
Australia already has cheap iron ore and cheap coal, and does not manufacture much steel, which implies the challenges are not the cost of raw materials.
But Dr Honey said renewable hydrogen would bring an advantage.
High transport costs would mean it may not be competitive for exporting long term.
However, he said excellent solar and wind conditions, and available land, meant renewable hydrogen feedstock would be produced more cheaply in the Mid West of WA than perhaps anywhere in the world.
Dr Honey hopes to leverage that low-cost feedstock as an input into other industries.
Mr Kirkup has pitched the policy as a vision for the next stage of the state’s industrial development.
WA can either be a driver or a passenger, he said, stressing the importance of moving first to get an advantage.
Critical here is that many developed countries are keen to cut emissions quickly, and some are planning tariffs to counteract carbon emissions from products they import.
This would put Australia at a unique disadvantage.
And as trade tensions with China continue, other sources of iron ore could be tapped within decades and WA’s economy could be injured badly.
That contrasted with the North West Shelf gas development, where the state had previously built the Parmelia Pipeline (effectively a trial), and LNG exporters were already in operation elsewhere.
“The allusion to this being the next North West Shelf is a bit of a stretch,” said Mr Pickford, who is an expert on the history of state agreements and resource development.
“This is an entirely new energy source to deploy.
“It’s skipping a number of steps.
“It is a very hard push into something that’s uncertain.”
The quick change in policy direction may also add to concerns about sovereign risk, Mr Pickford said.
There had already been an interest in developing a hydrogen industry in WA prior to the offtake proposal.
The Labor government ran an expressions of interest process for a renewable hydrogen hub at Oakajee, while the Future Energy Export Cooperative Research Centre is planning research to slash the price of renewable hydrogen to be more competitive with natural gas.
The Greens WA have advocated green manufacturing jobs policies in the past and are again heading into the March ballot.
Tim Clifford. Photo: David Henry
Energy and climate change spokesperson Tim Clifford told Business News some of the party’s members had been skeptical of the intent behind the Liberal policy.
“Some people saw it as a hail Mary,” Mr Clifford said, while highlighting what he said were key differences.
“Their policy focuses on government assets instead of state-wide.”
The Greens’ position is the state should be at net zero emissions by 2035, which would include a wind down of the LNG industry; the Liberal policy is net zero for government assets by 2030.
Labor has promised an aspirational net zero target by 2050.
“Aspiration is not legislation, it pretty much doesn’t require anyone to do anything,” Mr Clifford said.
“If the government is serious about tackling climate change, they need to legislate the target … it’s just political spin otherwise.”
He said moving to green manufacturing would secure prosperity, citing moves in Europe and the US towards low-carbon steel.
“We’d be very competitive,” Mr Clifford said.
“This is where the world is heading.
“There’s a lot of countries jockeying to fill that space.”
Mr Clifford estimated renewable hydrogen exports would be $5 billion for WA by 2040; this compares with about $27 billion for LNG exports in the year to June.
Part of the Greens WA platform is to cut subsidies for mining and oil and gas companies, which they estimate as more than $800 million annually in the state budget.
However, it is understood that figure includes capital expenditure items for government-owned assets such as ports, which miners use at commercial rates, so would not give an accurate picture of support for the industry.
Mr Clifford said the debate was about priorities, and the Greens wanted the money to be prioritised for emissions reduction.
More than hydrogen
Businesses that use more than 50MWh of power in a year, roughly the usage of a supermarket, can already buy electricity from retailers other than Synergy, and have made substantial savings.
For now, Synergy has a monopoly on the remainder of the market.
By contrast, the gas market has at least five competing retailers, and prices for households have come down substantially.
Labor has previously indicated it would move toward contestability, although it later walked back the proposal.
Dr Honey has said a Liberal government would also put a cap on prices to ensure no consumers were worse off.
Similarly, Labor has promised increases limited to the consumer price index.
“Until you deal with the pricing structure, deregulation … is just going to create a huge distortion,” Mr Pickford said, although acknowledging he was in favour of deregulation with the right settings.
More broadly, Mr Johnston has won plaudits in the energy sector for a methodical approach to reform, including plans for distributed storage to back up rooftop solar and in-depth modelling of future demand and supply scenarios.
The government updated the energy market rules on the back of these reports.
Labor has promised to roll-out 1,000 more standalone power systems, which use solar and storage in remote areas to provide power for much lower cost, and higher reliability, than networks spread over vast distances.
While hydrogen has dominated headlines, the opposition’s other economic promises have included extending Roe Highway and sinking the Fremantle rail line near City West.
There are also some incremental reforms, including cuts to payroll tax for small businesses with less than $3 million revenue, and stamp duty concessions.
WA Labor has made announcements on school upgrades, apprenticeships, and renewable projects, while seeking to continue priorities from its first term of government.
Those included a range of road and rail infrastructure projects, and posting an operating surplus.
Labor has also sought to promote local manufacturing, particularly through the state’s $2.5 billion contract with Alstom to manufacture and maintain rail cars in Bellevue.
On that front, there are investigations into assembling iron ore wagons within the state.