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Interview with ABC Goulburn Murray

23 February 2017

Interviewer: 
Joseph Thomsen

Subject: energy security; gas supplies; renewable energy; South Australia blackouts

E&OE

JOSEPH THOMSEN:

Federal Minister for Resources, Matt Canavan is in Wodonga and Wangaratta today, touring a number of locations and holding a roundtable on energy security in Wodonga, and then tomorrow touring the Goulburn Valley, and likewise, Nationals Senator for Victoria, Bridget McKenzie.

Welcome to the studio.

MINISTER CANAVAN:

G'day Joseph, how are you?

SENATOR MCKENZIE:

Great to be here.

JOSEPH THOMSEN:

Minister, a question to you on energy security first up. It's been a hot topic lately. What are you going to say about it at this roundtable today?

MINISTER CANAVAN:

Well, look, I'm in this job because I want to find solutions, Joseph. I'm here to listen to local businesses that rely on having access to reliable and affordable energy for their businesses. Victoria and this region has a very proud history of manufacturing. You've had access to relatively cheap power over a hundred years. But we face a lot of challenges now, with the impending closure of Hazelwood, which is 20 per cent or just over, of Victoria's electricity supply. We need to be focused now on how we're going to maintain that energy security to maintain those jobs. I don't want to lose those jobs in manufacturing.

It's also very important for our farming sector because so many of our farmers rely on sending their products to milk processing facilities, honey factories, whatever they're producing, to then go on to market. So, we really need to be focused on that. I'm concerned about the moves, here in Victoria, to ban all kinds of gas exploration. Some businesses need to...

JOSEPH THOMSEN:

CSG's been banned in Victoria, of course.

MINISTER CANAVAN:

Well look, I come from Queensland and I completely understand the concerns people have about coal seam gas. I think it's important to say, you don't really have coal seam gas resources here in Victoria. You may have some shale gas resources.

But the Victorian legislation, that's before the Parliament right now, would ban all types of gas, including conventional gas development which has occurred since the 1860s. And that seems a little strange. What we should be looking at doing is have safe gas exploration that provides energy security.

Some businesses need gas. Some manufacturers can't just convert to electricity. Petrochemical producers, fertiliser producers – which is very important for farming of course – need to have gas. And sometimes for a fertiliser producer, 80 per cent of their costs can be in the gas costs. So we need to make sure they have an affordable supply, if we want to produce fertiliser.

JOSEPH THOMSEN:

Well, just on that, regardless of where the gas comes from- I mean, at one point gas was being spoken about as a perfect fuel for transitioning from coal to renewables, and also in the whole argument about energy security and yet in the current conversation gas is nowhere to be seen. Why is that?

MINISTER CANAVAN:

Well, it's a matter of price, Joseph. It comes down to that. So gas prices in Victoria over the past year have doubled from $4.50 a gigajoule, to $9. So it's doubled. That means at that price, gas-fired electricity is not competitive in the market place against coal or renewables. And so the current projections we've got at the Federal Government level has gas for electricity use declining in the new few years and you're absolutely right that should not be how it should have been going, we should have been moving more towards gas-fired power.

But if we're not going to develop the resource, of course, if we're going to ban even the traditional conventional ways of finding the gas, we don't have the gas, we're not going to be able to use it for electricity, either.

JOSEPH THOMSEN:

What's your position on renewables versus energy security?

MINISTER CANAVAN:

Well, renewables are going to become an increasing and important part of our energy mix. We, at the Federal Government level, have a 23.5 per cent target for renewables by 2020. That's basically a 50 per cent increase on our current levels of renewable energy. They'll be very important. They're declining in cost for solar and that will probably continue.

However, of course, the renewable technologies that we currently have are intermittent, they only work some times of the day, or some times of the year, when wind is blowing. And we need to be able to provide people with constant supply of electricity.

So we still need base load electricity. We'll still need coal and gas in this country, for a long time to come. And we need to make sure we manage that process, particularly as some of our coal-fired power stations start to reach the end of their natural lives. We've got to have a plan for how we either replenish, replace, retrofit, those with the latest technologies.

JOSEPH THOMSEN:

Are you holding to the line, that what we saw in South Australia, is that we can blame renewables in the mix?

MINISTER CANAVAN:

Look, it's not about- it's not a matter of blaming. I mean, certainly- so the Australian Energy Market Operator had a very detailed investigation of this. It was- obviously the event was initiated by a storm, which caused some voltage changes, but then the wind turbines in the South Australian system couldn't handle those voltage changes and we lost 400 megawatts of wind and that's how the system blacked out.

Look, it is important to recognise that the energy system is very complex. And that way - you walk in to a room and hit a switch, and turn a light on, it seems like magic. To make it actually happen it is incredibly complex. And without going in to all the detail, the coal-fired, gas-fired, and hydro power that you have here in this region, they all provide inertia or stability to the system. They produce electricity naturally at 50Hz, which is what electricity system works on. Wind power and solar do not. And so if you rely on them heavily, like they do in South Australia - it's the largest share of renewables in the world, the South Australian electricity market – they don't provide that natural stability. And when you have storm events or voltage changes that happen in South Australia, you have less ability to respond there.

So, we just need to be very careful about this imbalance. So, we will need renewables and we should have some renewables in the system, but on current technologies should we go to 50 per cent renewables? I think that is very dangerous and not well thought through. We need to have a balanced and reasonable path forward on this to make sure we can have affordable power, reliable power, and more environmentally sustainable power.

JOSEPH THOMSEN:

Just quoting from the Australian Energy Market Operator's advice, and this is from the operator itself, they said that the generation mix i.e., renewables and fossil fuels, not to blame for the power blackout events in South Australia. They say that it was the loss of a thousand megawatts of power in a short space of time as transmission lines fell over.

MINISTER CANAVAN:

So part of that thousand megawatts is the 400 megawatts I mentioned of wind, and they also lost the interconnector because it tripped as they tried to draw more after the wind...

JOSEPH THOMSEN:

[Interrupts] But the operator's advice is renewables isn't the blame there.

MINISTER CANAVAN:

Well actually I reject that characterisation, Joseph. What they're saying is it wasn't the generation mix of wind per se that was the problem. The problem was that wind does not provide the inertia that coal and gas does.

I mean, certainly if you look at the AEMO- Australian Energy Market Operator put out a report just before the blackout in July last year, and it was looking at what the closure of the last coal-fired power station in Australia would mean for the system. And it clearly said that the system is now less stable and more vulnerable to shocks to it because of the lack of that coal-fired power, and some mothballing of gas-fired power as well. Now that- I've got to take their advice seriously, and I think we should, they're the engineers. We should not have our energy system run by public sentiment or on a popularity contest. We do- it is a complex system that needs to be looked at properly, and the Australian Energy Market Operator have signalled how a high penetration of renewables does make a system less stable. That doesn't mean we can't have 20 or so per cent of renewables in the system, but with current technologies, we just need to be a little bit careful…

JOSEPH THOMSEN:

Well just another angle on that. In New South Wales when we had the recent heatwave event, it was predicted that there was going to be a power outage in the middle of all of that, and New South Wales has got quite a low renewable mix. So having a higher fossil fuel mix there didn't save New South Wales from having to deal with those sorts of predictions. They weren't certain what was going to happen there.

MINISTER CANAVAN:

No, of course. It didn't blackout either. We- although in New South Wales what we've got to be very clear about is we need a proper balance of different technologies. What is increasingly happening in the Eastern coast markets is the peaks are becoming peakier because of the higher penetration of air conditioners. So the challenge is, how do you match demand for those high levels of load? Now traditionally what we would have done is relied on gas-fired power to start up because it can start up quickly and meet a high peak. So you'd have sort of coal running around at a base level, and then you'd have gas-fired power coming on and off when the air conditioners all run on at five o'clock when everyone gets home at night.

Solar has come into the system and helped a little bit but solar starts running off at about three or four in the afternoon so it doesn't necessarily get those peaks when people come home from work. But because gas-fired power has had a struggle to keep in the system because of those high prices for gas I mentioned, but also because an increasing penetration of renewables has pushed gas-fired power out first. Paradoxically some of the problems in the system are because when renewables come in in an unplanned way, they push out gas and therefore you don't have that response in the system you once had. So I think it just comes back to the fact that we've got to be very clear-headed about this. It shouldn't be ideological. We shouldn't be saying that one form of power must be supported over another. We should be looking at what works.

As I said to you at the start, Joseph, what I'm interested in is solutions, not ideology. I expect to be today talking to practical people who just want to maintain their businesses, keep people in jobs, and keep a strong economy. And I presume they probably don't care so much how or where that power comes from, they just want it to be reliable and affordable, and increasingly environmentally sustainable.

JOSEPH THOMSEN:

Affordable is a big word, of course. I mean, everyone's had to deal with skyrocketing electricity prices. I don't know what the answer is to that but I can tell you what we hear - and I'm not saying this is a scientific poll - but it's a continuing big issue for households, people can't afford their electricity bills. And I think there's a perception the Government isn't doing enough on that. And secondly, again, I'm not sure what people want in the mix but a lot of people want more support for renewables. Just as- I say as a generalisation anecdotally, I don't ever get calls from people saying we don't want Australia or countries to keep investigating renewable energy. Everybody seems to think that's what we should be doing.

MINISTER CANAVAN:

And we should be doing that but I think the important thing is- so in terms of what we've done as Government - and I accept not everyone will always be happy with us all the time - but we did have the largest reduction in power prices in recorded history when we removed the carbon tax a couple of years ago. That was a big impost on the electricity sector...

JOSEPH THOMSEN:

Well you could say that but power prices have increased dramatically. Regardless of that, regardless of how you want to characterise that, everybody knows how much they're paying for power now and everyone knows how much power has risen.

MINISTER CANAVAN:

Yeah. And while we need to keep investing in renewables as you mentioned, Joseph, the reality is renewable energy is at the higher end of the cost curve in terms of producing power, so if we want to have cheap power as well, we can't turn our back on our cheap energy resources like coal and gas.

JOSEPH THOMSEN:

But at the same time that's partly because of subsidies that are going to fossil fuel.

MINISTER CANAVAN:

Oh no I completely reject that. So the Productivity Commission does a report every year on the amount of subsidies that go to different industries in the mining sector, the coal mining sector; coal-fired power have the lowest by far, they don't really have any subsidies. The only Government assistance that is provided to our mining sector or power sector in that regard is for research and development incentives, which apply to all industries.

JOSEPH THOMSEN:

Okay, well I’ve got this comment here on text. It says, if you go back in history, you can blame this whole energy problem back to when the Government sold off our essential services to private enterprise. Private enterprise is in it only for profit. They’ll not spend money to decrease pollution or build power plants unless forced to do so. A comment we’ve heard variations on. Heard other variations. Some people don’t agree with that of course. But what’s your comment? What’s your response?

MINISTER CANAVAN:

Well I come from Queensland and Queensland hasn’t privatised its assets like you have down here in Victoria and Queensland has the second highest wholesale electricity prices in the country at the moment after South Australia. Notwithstanding the fact that we have quite large coal resources there.

JOSEPH THOMSEN:

Queensland was of course preparing to sell off so …

MINISTER CANAVAN:

Yeah but it didn’t, and a Labor Government won that election.

JOSEPH THOMSEN:

Fattening half the market, isn’t it? That’s how these things work.

MINISTER CANAVAN:

So the issue there, what we’ve got to make sure we have in my view is proper competition in the marketplace, whether they’re government-owned or private owned, that’s largely a decision for the State Governments, I don’t have a particular view.

JOSEPH THOMSEN:

And where is that?

MINISTER CANAVAN:

So in Queensland the problem we’ve got is we’ve got generating companies, both owned by the Government, and there is some serious questions being asked. The Australian Energy Regulator’s currently doing a review on whether or not they are properly competing in the marketplace.       

The wholesale electricity price in Queensland over summer has been $241 a megawatt hour compared to $60 a megawatt hour the same time last year. This is going to force manufacturing – obviously the zinc refinery in Townsville the other day – they will not be able to keep the doors open if we keep that up. That’s 200 jobs. We’ve got to be clear here …

JOSEPH THOMSEN:

Well we can say that privatising them has not brought the prices down in Victoria.

MINISTER CANAVAN:

Well in Victoria it did originally. Now prices are going up more recently, largely because of network costs.

JOSEPH THOMSEN:

Yeah, but that’s just taking- that’s taking one- and what happened there is what’s happened in New South Wales and likely in Queensland. Jack the prices up to sell it off for a big profit.

MINISTER CANAVAN:

Well I think certainly State Governments have to answer questions Joseph, you’re on the money in terms of- when they do privatise assets, the objective should be to deliver services to people for the cheapest price possible. Rod Sims, the Chair of the ACCC, has raised concerns about what you just- the point you just raised. That some State Governments are seeking to maximise the sale price, not the benefits to consumers.

Now that is a matter for State Governments, not for us at the Federal level. What we’ve got to try and do now is introduce reforms which will bring prices down. So last week at the COAG Energy Council – and this is all very detailed, but in terms of getting prices down you’ve got to get into the details. We finally got an agreement from State Governments that they won’t challenge decisions of the Australian Energy Regulator. So the New South Wales Government has been challenging a decision of the energy regulator which would have saved households in New South Wales $300 a year. And they’ve agreed now that they’ll change the law to stop them from making those challenges in the future.

So that will help bring electricity prices down. That is what we are focused on at the government level, to get electricity as affordable as we can for people in their homes, and also to keep jobs around in our manufacturing industry.

JOSEPH THOMSEN:

We’ve got to let you go to start your tour in a minute. Matt Canavan is with us, the Federal Resources Minister, touring the North East today, Goulburn Valley tomorrow. Energy security roundtable coming up very shortly, and Bridget McKenzie, who is the Nationals Senator for Victoria, in the studio as well.

I’ve got another comment here via text, just want to run this past you before we let you go this morning. This one says, we have allowed Australian gas to go to world prices, and that’s really the reason why…

MINISTER CANAVAN:

That’s an excellent point. So in the last four or five years we’ve connected the Eastern coast up with Asian markets through Gladstone. We do have an issue with the amount of gas that’s being bought out of domestic markets to feed that. Now we have got a lot more gas produced now in this country because of that, and that gas wouldn’t have been invested in if it hadn’t of been for the export markets there. And we should- there’s a welcome opportunity for our country to make export revenue from that business, and that’s been incredibly beneficial to my area of Queensland, I live in Central Queensland. But there is an increasing concern about the amount of gas going over there. It’s something I think we’ve got to look at. Queensland recently released a gas tenement that was just reserved for domestic use and I think that’s going to be looked at more by governments to do that.

But of course, if the Victorian Parliament bans all exploration and extraction of gas, it doesn’t matter if we have a reserve policy or not. We’re reserving it for anyone, because no one will be able to use it. So I’m also here hoping to convince my colleagues and Labor Party colleagues in the Victorian Parliament that we need to not just turn our back on the resources we have in this country. Yes we need them for our use, but if we completely ban them the export market’s not going to be the issue, it’s the issue we don’t have access to the resource.

JOSEPH THOMSEN:

One last text comment. It says here, Mr Canavan claims the fossil fuel industry doesn’t get any subsidies; that’s rubbish, they get massive handouts like the diesel fuel subsidy.

MINISTER CANAVAN:

Well as I say the Productivity Commission look at this every year. They don’t classify it as a subsidy. Neither does the Australian Treasury, who do a tax concession report every year.

JOSEPH THOMSEN:

It’s still money though, isn’t it?

MINISTER CANAVAN:

Well- so the diesel fuel rebate goes to both the mining sector and the agriculture sector and other sectors who don’t use our roads. The reason we have that situation in place is we charge an excise on fuel to broadly fund the construction of roads. But of course, the mining sector and the farming sector, when they use diesel for their trucks are not using the public roads. In the mining sector’s case, they build their own roads in their mines. So it’s not fair to charge them that excise for that. That’s why it’s not a subsidy.

JOSEPH THOMSEN:

Alright. Better let you go. Thank you so much for coming into the studio this morning.

MINISTER CANAVAN:

No, no, thanks for your time.

JOSEPH THOMSEN:

Much appreciated. So Federal Resources Minister Matt Canavan there, and also Bridget McKenzie, Senator for Victoria, Nationals Senator for Victoria.