Friday, October 28, 2022

Cheap renewables, rising power bills?

James Macpherson

I cannot work out which is more incredible – the claims this government makes, or the fact that this government expects Australians to believe their claims.

Labor continually promises to reduce cost of living while increasing the cost of living.

Their strategy to lower prices is to increase prices.

If I could afford to laugh, I would.

Renewable energy is the cheapest form of energy, the Prime Minister chants zombie-like, as prices rise in direct proportion to his use of renewable energy.

I swear, every time he utters the words ‘renewable energy’, my power bill goes up.

Australians are caught in a kind of twilight zone where we are continually told to expect cheaper power while continually told to expect more expensive power.

Oh, but don’t worry, you’ll still get that promised $275 cut to your power bill. It’s just that your power bill will have gone up by a couple of thousand dollars before Labor cut it by a couple of hundred dollars.

The Prime Minister will then claim, with a straight face, that he has saved us money. And my teenage son worries that he is the one struggling with math!

This is a government that believes it can keep global temperatures in check when it can’t even keep a $275 promise to struggling families in the suburbs.

Treasurer Jim Chalmers explained today that the delay in providing the promised cut was due to a flaw in the modelling. ‘That model was done in 2021, and it referred to an outcome in 2025,’ he said.

But don’t worry, the government’s modelling about how taxing cow farts will stop the warming of the planet and the rising of the oceans is totally legit!

This Labor government insists that renewable energy is the cheapest form of energy, or at least it will be, just as soon as they spend another $10 billion of your money here, and another $10 billion there.

How much will it cost taxpayers to end up with cheap power? The answer is always the same. Just a little bit more.

If you believe the government’s obsession with intermittent energy will deliver cheap power, you have the one prerequisite necessary to do energy minister Chris Bowen’s job – wishful thinking.

Expect him to provide a unicorn with your next power bill.


The perverse obsession of BHP with environmental correctnes

It’s known as ‘The Big Australian’, but is BHP really just the ‘Lucky Company’; the corporate version of Donald Horne’s 1964 book describing Australia as ‘a lucky country run mainly by second-rate people who share its luck’?

BHP has been rescued from its China-prompted iron ore doldrums by soaring prices for fossil fuels due to the Ukraine war’s energy crisis, with the hated coal providing the largest slice of BHP’s 2021-22 record profit. This is despite its woke board’s faithful adherence, in both word and deed, to the anti-CO2 dogma that has exacerbated this Western-world crisis (while authoritarian states like Russia and China wallow in mounting emissions) by the premature shut-down of power stations, the blocking of investment in base-load energy and the construction of bureaucratic and legal obstacles to fossil fuel developments.

BHP’s enthusiastic embrace of the gospel according to Saint Greta has led it, among many other errors, to what the Australian Financial Review last week classified as ‘the worst deal of the year’ where, in order to demonstrate its climate purity, it sold its interest in a coal mine in Columbia for what the AFR describes as ‘virtually nothing’ to Glencore – which this year expects to collect earnings from it of about $US4 billion. As London’s Investors’ Chronicle, with traditional under-statement, noted: ‘Recent deals mean that BHP has not fully enjoyed the bull market for coal’, observing that it also got rid of its 80 per cent stake in BMC, the joint Queensland venture with Mitsui, whose full-year earnings approached $US2 billion. At this rate, it will not take long for the Indonesian-controlled purchaser, Stanmore Resources to pay off, out of earnings, the modest $1.8 billion it cost.

In the same climate cause, BHP tried desperately for years to get rid of its NSW energy coal mines, but, in the absence of adequate bids, was forced to keep them open. The result has been a welcome boost to BHP group earnings in the 2021-22 financial year of a record $2 billion as the average prices received of $US217 a tonne provided a huge profit over costs of only $US71. Principles are one thing; money in the bank is another. So not only will BHP retain these energy coal assets until their licences expire in 2026, relevant approvals are being sought to extend their life to 2030.

On top of all this fiscal self-harm (and unsuccessful attempts at it) BHP also took the major anti-fossil-fuel step of ridding itself of its oil and gas assets in a $41 billion deal with Woodside that saw their ownership effectively transferred from BHP to entitled BHP shareholders via the gift of Woodside shares. In keeping with BHP’s past form, its former assets participated in a record profit as Woodside’s doubling of production from the acquisition of BHP’s assets and a doubling of LNG prices enabled revenue for 2022’s September quarter to soar by 272 per cent to $9.3 billion.

But these ‘lost’ revenues do not involve any destruction of shareholders’ funds as did BHP’s last major deal, the onshore US oil and gas shale venture into which it ploughed upwards of $50 billion since acquisition in 2011 before selling out for $15 billion four years ago. BHP’s previous big US investment, in copper, was also a financial disaster. That is why ‘caution’ is the key word when BHP, now flush with funds, is in acquisition mode. It has just made a rejected $8.4 billion bid for OZ Minerals in its search to expand its interests in the commodities set to benefit from a low-carbon future, like copper and lithium.

Unsurprisingly, and despite BHP’s disposal of much of its fossil-fuel assets, there are concerns about BHP’s status in ESG portfolios as long as coal remains its major single earner. And despite BHP’s continual obsequious observance of climate purity, the true believers are unimpressed by BHP’s bountiful returns from coal, with the Australasian Centre for Corporate Responsibility critical not only of BHP’s current coal profits but also its progressing of a number of new coal mines and expansions in its Queensland joint venture with Mitsubishi, ‘including pursuit of a staggering 90-year licence for the Blackwater South mine’.

Whether these will proceed is far from certain. Even though CEO Mike Henry told investment analysts last month that while he sees ‘lots of opportunity yet to be unlocked in the coal business,… BHP will not be deploying any major capital into the Queensland coal business in the face of the recent royalty changes [by the Queensland government] and the way they were gone about….We are building a range of options…Queensland is not going to be at the front of the queue’.

The ACCR also questions BHP’s ‘good faith with regard to the urgent need to decarbonise the steel sector’, following BHP’s stated view that, despite the push for hydrogen processing, ‘blast furnace iron making, which depends on coke made from metallurgical coal, is unlikely to be displaced at scale by emergent technologies this half century’.

Nevertheless, the metallurgical-grade coal export industry faces a difficult and uncertain period ahead, with international economic and political problems. In addition, BHP claims ‘The regulatory environment has become less conducive to long-life capital investment in Queensland coal’ (the world’s premier source) even though ‘the advantages of highest quality coking coals with respect to greenhouse gas emissions will be increasingly apparent as carbon pricing becomes more pervasive’.

So what sort of company will the Big Australian become if it does replace its financially rewarding coal with any of its range of options? Potash in Canada is its current big-ticket punt. Bloomberg speculated earlier this year that, after sitting dormant for more than a decade (presumably waiting for burnt fingers to heal) BHP is positioning itself for a return to large-scale mergers and acquisitions.

But rather than mining the market in a search for financial jewels, how about looking at upgrading its bulk commodities into products – and transforming the Lucky Company into the Clever one. With ESG now more important than profit to BHP, why not?


Just when you thought energy plans couldn’t get any worse ... Dan Andrews horns in

Judith Sloan

Last week I wrote about the tipping point that the National Electricity Market is facing. Beset by the early withdrawal of coal-fired plants, which still supply between 60 and 70 per cent of all the required electrons, there is a very real danger that the system will collapse without the required firming/dispatchable capacity. The best-case scenario is much higher prices and intermittent blackouts and brownouts, hardship for many consumers and the closure of energy-intensive businesses.

But I clearly spoke too soon because the announcements of Victorian Premier, Dan Andrews, in full election campaigning mode, made the dangers both more imminent and more serious. In his infinite wisdom – pause here for predictable chuckle – he has decided that he wants to recreate the state-owned State Electricity Commission which was broken up and sold off over 30 years ago, for seriously big bucks.

Now at the time, the SECV was a typical bloated bureaucracy whose operations included electricity generation, transmission and distribution, and retailing. Subject to frequent industrial action by the highly unionised workforce, it’s not clear that its demise was lamented by anyone with an interest in the delivery of efficient and affordable electricity in Victoria. Electricity prices fell significantly after the sale.

Towards the end of its existence, the SECV engaged in, or was forced to engage in, some dodgy dealings with the Cain/Kirner Labor government, including the raising of debt finance that was really just intended to cover the government’s daily expense needs. Those were the days.

But now Dan the Man has other ideas. He wants to resurrect the SECV, with the state government as majority owner and the other 49 per cent held by private interests. The intention is for the Victorian government to hand over $1 billion initially to the new organisation – which is peanuts, by the way, in this context. Mind you, given the heavy indebtedness of the Victorian government at the moment (over $160 billion), even another billion is a stretch.

As for the private partners, Dan has specified industry super funds as his preferred team mates. Evidently they have a social conscience and he thinks they will be interested in investing in renewable energy as well as delivering lower prices for Victorian consumers. Former federal treasurer, Wayne Swan – remember him, probably best to forget – who is now the ‘independent’ chair of one of the largest industry super funds, Cbus, was quick out of the blocks to endorse the idea.

But here’s the thing: superannuation funds are legally bound by a sole purpose test to maximise the retirement incomes of their members. There is nothing about having a social conscience, whatever that means. The very idea that a national industry super fund like Cbus would be interested in delivering lower electricity prices to Victorian consumers at the expense of investment returns should be quickly dismissed by all fund trustees.

This is yet another example of superannuation being used as a plaything by Labor governments. Albo and his team were initially very keen on the idea of industry super funds investing in social housing until it was pointed out to them that social housing involves below-market rents and is bound to make very low returns. It is interesting to note in this context that Homes Victoria, which manages Victoria’s social – once called public – housing stock, is completely broke and, by rights, should be declared insolvent.

Now apart from the thought-bubble of resurrecting the SECV, Dan thinks he’s on to a popular electoral pitch by upping the emissions-reduction targets of his state. He wants to legislate a cut of between 75 and 80 per cent by 2035 (from 2005) involving 95 per cent of electricity being generated in Victoria from renewable energy. And for good measure, the net-zero target will be brought forward to 2045.

You might think this is totally insane, but we must assume that the focus groups are telling his massive media department that this sort of ‘aggressive action against climate change’ still resonates with voters, particularly those in seats that might otherwise fall to the Greens or Teals. And while there have been some rises in electricity prices, they are small beer compared with what is to come.

Needless to say, all of Victoria’s coal-fired power plants will be closed by 2035, including the relatively new Long Yang A and Loy Yang B plants. In point of fact, these brown-coal-fired plants could prove extremely useful economically because brown coal is not a traded commodity and their principal input price is not affected by international events.

An economically rational option would be to keep them going and to buy offsets to accommodate them within an emissions-reduction framework. But ‘economically rational’ and ‘the Andrews’ government’, including the bungling energy minister, Lily D’Ambrosio, cannot be put into the one sentence.

Indeed, one of the most blatantly hypocritical decisions taken by any government has been the secret financial deal that the Victorian government has entered into with Energy Australia to pay the company to keep the brown-coal-fired Yallourn plant going until at least 2028. It is impossible to find out any details of the contract and the sum of monies involved. The suspicion is that the costs are being borne by taxpayers rather than electricity consumers.

When it came to the option of creating a capacity market for the broader NEM – the Yallourn deal is just a special capacity mechanism, after all – Victoria was loudest in its opposition, vetoing the use of any fossil fuels. At this stage, there is no prospect of a broader capacity market being introduced.

The hugely indebted Victorian government is also throwing money at the Marinus interconnector with Tasmania, notwithstanding the abundance of private investment money for regulated assets. It is also keen to rush the VNI-West Kerang link to New South Wales. Without being able to access electricity in greater licks from other states, even Andrews knows that Victoria is stuffed if his plans go ahead.

But just like you can’t hurry love, it’s impossible to hurry these large transmission projects, in part because of local objections and the need to obtain easements, but also because of shortages of materials and workers. Of course, Dan will be gone by the time the shit really hits the fan, probably chairing some industry super fund and meeting up with his wealthy mates.

The real tragedy however is the complete inability of the Victorian opposition to land a glove on him in the meantime.

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The inconvenient truth about electric cars

Prices are going UP, not down -- largely because battery prices are going up too

Rising battery costs are pushing up the price of electric vehicles, dampening hopes that they could close the gap to petrol vehicles by the turn of the decade.

Experts had tipped that EVs would cost the same as their petrol equivalents by 2030 as battery production scales up and economies of scale kick in.

But rising raw material prices are driving up the cost of batteries, and most EV makers have hiked up prices in the past year.

This week, Hyundai’s luxury offshoot Genesis, launched its GV70 large electric SUV at a higher price than originally predicted. In May, the brand said the EV would be priced between $105,000 and $115,000 plus on-road costs, but that has blown out to $127,800, or about $138,500 drive-away.

The brand is not alone in hiking prices.

Tesla increased the price of its Model Y SUV by $3000 to $72,300 (before on-road costs) within days of launching it in June, while rivals the Hyundai Ioniq 5 and Kia EV6 have also had multiple price rises in the past few months.

The Kia EV6, which launched at the beginning of this year, has risen from $67,990 (before on-road costs) to $72,590 in October for the cheapest model.

Hyundai’s Ioniq 5 Techniq AWD variant cost $75,900 (before on-road costs) early this year before jumping $1600 in August and increasing a further $2000 in October. The October price rise coincided with an increase in the size of battery, driving range and motor power.

An industry executive said further price rises were likely because the increase in raw materials costs hadn’t yet flowed through.

Despite the price rises, Aussies are lining up to get their hands on the machines and waiting times extend well into next year.

Australia isn’t the only market afflicted with high EV prices. A recent report by automotive research experts, JATO, showed EV prices had risen sharply in Europe and the US in recent years.

The average price of an EV in the first half of this year was €55,821 in Europe ($A87,412) and €63,864 ($A100,000) in the US – up from €48,942 ($A76,403) and €53,038 ($82,797) in 2015.

The average retail price for an electric car in Europe is 27 per cent more than a petrol vehicle, while in the US it is 43 per cent more.

Car makers say the cost of raw materials is the cause.

Ford has raised the price of its F-Series electric pick-up twice since August. The cheapest model is now $US12,000 ($18,810) more expensive, while the Mustang EV costs up to $US8000 ($12,510) more. Ford blamed “ongoing supply-chain constraints, rising material costs and other market factors” for the price hikes.

The world’s largest electric vehicle battery maker, China’s Contemporary Amperex Technology Co., reported a big surge in the price of its batteries.

A report in financial outlet Barron’s put the price per kWh of batteries at about $160, up from $150 earlier this year and $120 in 2021.

One of the major causes is the price of lithium, which is up 200 per cent in the past 12 months. The cost of the basket of materials that go into a battery is up about 62 per cent for the year.

Renault Group chief executive Luca de Meo told reporters at the Paris motor show last week that he didn’t believe electric and petrol cars would achieve price parity anytime soon.

He told Automotive News the industry had expected the price of batteries to drop to $100 a kWh three years ago.

He said raw materials made up 80 per cent of the battery cost, making it hard for carmakers to reduce costs.

He told Automotive News the company could come up with better battery chemistry and better power electronics, “but these gains would be erased when the price of cobalt doubles in just six months.”




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