The Coalition’s nuclear fantasy

Dutton’s deceits

The Coalition’s nuclear plan, if implemented, would add to Australia’s CO2 emissions, would impose a huge demand on public finances, and result in higher prices for electricity.

But the story you hear from the Coalition and from partisan media, and will probably hear up to election day, is that Labor’s energy plan costs $263 billion more than the Coalition’s. Not “about $250 billion”, but a precise $263 billion, as if it is the result of carefully conducted analysis.

In fact that is a rubbish figure, based on selected numbers plucked from a consultant’s report, which itself has a strong bias towards nuclear power.

In itself, that selection contains two basic errors. No, not “errors”, because the word implies sloppiness or ignorance. Rather they are two acts of intentional deceit.

The first deceit is that contrasting the government’s plans with the Coalition’s does not compare like-for-like – “apples and oranges rather than apples and apples” to use words of some critics. The second deceit is that it takes no account of the timing of outlays.

The Coalition’s plan is on a website under the name Australia needs nuclear. It’s not clear why they set up a front organization to publicise their proposals, when it is clearly linked from the Liberal Party website as “our plan”. It is also linked on the Nationals’ website, but with less fanfare.

That “Australia needs nuclear” site takes you to two short documents, both titled “Our plan for zero-emissions nuclear”.

The first document has a few details not previously revealed. For example, there would be five conventional reactors and two SMRs, one of which is destined for Port Augusta, even though South Australia is well on the way to renewable self-sufficiency. The document claims that solar and renewable assets have lives of only 20 years (a surprise to any farmer who has been using a solar-powered pump for 40 years) and it warns of the challenge of dealing with panels that have reached the end of their useful lives, without any mention of the costs of dealing with nuclear waste and decommissioning reactors.

The other document has a sketchy explanation of the source of that $263 billion figure. It is drawn from figures in a report by Frontier Economics: Economic analysis of including nuclear power in the NEM, an update, with more detailed figures, of Frontier’s report covered in the roundup of November 23.

Deceit 1 – a false comparison

Frontier has examined two scenarios for electricity demand, and therefore the need for new capacity and supply. Both scenarios are among those used by the Australian Electricity Market Operator. One is called “Step change” which assumes a 3.2 percent average annual growth in demand for electricity, while the other, called “Progressive” assumes only 1.3 percent annual growth. The first is consistent with the “electrify everything” movement – continued uptake of electric vehicles, use of hydrogen to reduce iron ore, use of heat pumps to replace gas heating and induction cooktops to replace gas cooktops in homes – while the other assumes electricity consumption will be unchanged in per-capita terms.

Frontier then compares what outlays would be incurred under both scenarios, if we were to continue along our move to renewables, and if we were to switch to the Coalition’s plan.

The results, as interpreted by the Coalition, are shown in the 2X2 table below. These are total “undiscounted” outlays. That is, they take no account of whether outlays are made in 2025 or in 2051: they simply add them up as if timing doesn’t matter.

Table

From that set of figures the Coalition gets a $263 billion difference. It compares a scenario with high growth in electricity demand, and an eventual 100 percent renewable supply, with a scenario with low growth in electricity demand and a curtailed renewables expansion as nuclear power comes on stream. That’s what commentators mean when they refer to comparing apples and oranges.

Deceit 2 – unorthodox accounting

The other deceit, which receives less media attention, involves a false way of comparing the economic costs of projects with different outlays (or receipts) over time. Any accountant or project evaluator would consider the net present value of projects’ outlays. That is the normal way projects are evaluated when their costs and benefits are spread over time.

Frontier Economics has such a comparison, but the Coalition doesn’t use it. That’s somewhat incongruous for a party which claims to understand business. No reputable consulting firm would simply add up cash flows without discounting for the time profile of outlays.

It is understandable that Frontier Economics would use conventional accounting methods: it has a reputation to protect. But that is of no concern to the Liberal Party: it will use whatever figures it can to make renewable energy look expensive. The Coalition doesn’t have to demonstrate its business competence because everyone knows they are competent economic managers – they keep telling us they are. If you tell a lie big enough and often enough …

The table below shows Frontier Economics’ calculation of the net present values of the renewable versus nuclear options, under both demand scenarios.

Table

The differences are a lot less than $263 billion.

The ABC’s Tom Crowley, from a different perspective, points out these flaws in the Coalition’s use of the consultant’s and AEMO’s costings: The devil in the detail of Dutton’s nuclear costings. It’s a different take but with the same conclusion.

The biggest lie – assumptions and wild guesses incompatible with evidence

When these deceits are corrected the numbers still come out in favour of nuclear power, but that’s before the assumptions behind that modelling are examined. As Thomas Longden of Western Sydney University writes in The Conversation, the devil is in the missing detail.

It’s the model itself, rather than manipulation of its figures, that has properly attracted most criticism. Its assumptions are generous to nuclear power: there will be no cost overruns, no shortages of labour, or delays in construction, and legislation will sail through Parliament. Conversely its assumptions on renewables are loaded against it: there will be no more cost reductions in solar or wind technology and somehow the cost of building transmission lines will escalate.

The model has attracted a huge wave of criticism, and not just from the usual suspects. Notably, hardly anyone with a public voice is talking about the safety of nuclear power. Rather the criticisms, in rough rank order, are about:

The Climate Council is particularly critical of the Coalition’s idea: Less power, more climate pollution: four ways Dutton is cooking the books on nuclear. The Australian Conservation Foundation notes that the Coalition’s eye-watering nuclear price tag could buy solar for every Australian home that doesn’t have it, five times over.

The ABC’s Jacob Greber quotes a number of experts, including Bruce Mountain of the Victoria Energy Policy Centre, who see flaws in the Coalition’s assumptions. These include a failure to take into account the costs experienced in countries that have gone down the nuclear path: Dutton's nuclear plan a “heroic”, cherrypicked “recipe for higher energy bills”, experts say.

The Clean Energy Council calls the Coalition nuclear plan a disaster for power bills, rooftop solar and renewable energy investment.

The Institute of Energy Economics and Financial Analysis writes that the Opposition’s nuclear costings are unrealistic. They severely underestimate the time to construct nuclear plants and their cost.

Giles Parkinson of Renew Economy has four articles criticizing aspects of the Coalition’s plans:

Peter Dutton’s nuclear plan: Mad, bad, and extremely dangerous.

The Coalition’s master plan: Bring large scale wind, solar and battery storage installations to a halt.

 “You can’t charge your battery and your car at same time:” Dutton does not have a clue about energy.

Solar switch off: Dutton’s nuclear plan amounts to declaration of war against household energy systems.

The Australian Energy Council (the peak body representing energy retailers and generators) is concerned about the signals to investors and the Coalition’s plans to extend use of coal. The Coalition has vastly under-estimated the cost of keeping old coal-fired stations in operation.

Similar concerns are noted by the Australian Industry Group and by the Business Council of Australia. These business bodies more often support the Coalition’s policies than oppose them, and they have no standing opposition to nuclear power, but they disapprove of the way the opposition is creating uncertainty for investors.

The Australia Institute states that nuclear costings are a distraction. They note that the Coalition’s plans do not consider the costs of nuclear waste disposal or of decommissioning nuclear plants.

In fact it’s hard to find any non-partisan observer with a good word for the Coalition’s ideas. The Minerals Council of Australia welcomes the call for a broad energy mix to achieve net zero by 2050, but could we call the MCA “non-partisan”? They see a possible higher demand for uranium (although it would be tiny in relation to world demand), and they would clearly welcome another ten or twenty years of use of coal as a large energy source but it would be a little vulgar for any lobby to state openly that they seek an extension of coal-based pollution.

Those reactions are before we consider the reporting by independent media. There are too many reports to list, but one report bringing many informed considerations together is Laura Tingle’s segment Cost of going nuclear on the ABC’s 730, where she has statements from Tony Wood of the Grattan Institute, Tristan Edis of Green Energy Markets, John Grimes of the Smart Energy Council, David Westerman of AEMO, and Clare Savage of the Australia Energy Regulator. All non-partisan, none predisposed against nuclear, all highly critical of the Coalition’s estimates.

The Coalition’s dismal vision for Australia’s energy sector

The Coalition is not very forthcoming about its vision, but to get some idea of where it is heading it’s informative to look at the diagram on Page 25 of the Frontier Report. That sees:

One interpretation is that it’s stuck in the old “base-load” model, rather than the idea of the “dispatchable” supply model.

Another is that it has yielded to the coal lobby. In fact some of the old coal plants are so rickety that it may be necessary to build one or two new ones in the long period before nuclear plants come on stream.

Then there is the possibility that its plan is based on a determination to build nuclear plants, regardless of the cost. But in order to make way for them it has to stop all this private investment in renewables. Otherwise it will be even harder to mount any case for nuclear. The side-benefit is political, in that it can assert more stridently that Labor cannot meet its targets.

Business groups, and those who believed that the Liberal Party, once the champion of the private sector and the free market, would surely not want to see private investment stopped in its tracks to make way for a Soviet-style state enterprise in a stagnant economy.

But that’s all to do with the politics of the proposal, covered in the next section.

Politics and the media – confusion of “electricity bills” with the “price of electricity”

The Coalition’s plan fails on so many engineering, environmental and economic grounds, that Michael West finds it hard to take it seriously.

But its very intention is to stop the transition to renewable energy, even if that involves bringing on a strike of capital. It’s clearly signalling to the world that if elected it will put an end to all this renewables nonsense.

The Coalition’s concerns aren’t about economics or the national interest. Rather they’re about identity. Renewable’s supporters are tree huggers and woke urbanites who have spent too long at school. Real men embrace coal and nuclear.

That way of thinking seems to be prominent in the National Party, some of whose members believe that Australia should do nothing about climate change, and others who don’t believe climate change is happening. Video has emerged of Nationals Senator Matt Canavan conceding that the Coalition’s plan is a political fix: it’s a way of yielding to demands for action on climate change, without relying on renewables, even though nuclear is a high-cost source of power.

The exposure of their numbers as deceit and bullshit doesn’t worry the Coalition. No-one understands this stuff. Most people don’t know the price of electricity per kWh: all they know is that their bills hurt, and that their bills have been getting more expensive as the amount of renewable energy has expanded and as Labor has been in office. Post hoc ergo propter hoc. Its Labor’s fault, and everyone knows that the Liberals are the better economic managers.

Evidence shouldn’t get in the way of gut feeling, particularly when that gut feeling is reinforced by journalists assuring their audience that Australia is in a “cost-of-living-crisis”.

A few professional journalists, however, are going out of their way to explain the situation to a public who need to be informed. In fact there have been some excellent articles in the Sydney Morning Herald and The Age by Mike Foley (abandoning Liberal principles), Natassia Chrysanthos (Dutton’s nuclear plan assumes $4 trillion loss to economy), Nick O’Malley (The very big assumption Peter Dutton’s nuclear plan makes), Shane Wright and Mike Foley (Dutton says nuclear will cost $331 billion. Chalmers adds $4 trillion to that.) But these are all paywalled, in a way that social media isn’t. And as already mentioned ABC journalists have made some informative contributions, but they are always scared about being seen as partisan, even when they are simply analysing and explaining.

The Coalition hopes that people don’t realize that it isn’t promising reduced electricity prices

The most conscientious journalists look not only at what is in a policy statement, but also at what isn’t, and some have noticed a huge gap. While the Coalition has made ridiculous statements about that $263 billion difference, it has said nothing about electricity prices or household power bills, either over the next 11 years (or more realistically 20 years) before their first plant is built, or after that when Australians have to pay for it.

Most importantly, contrary to the way some people have interpreted the Coalition’s proposal, it says nothing about the price of electricity under its nuclear plans. Rather their statement asserts that the total cost of delivering energy will be “at least 44 percent less than Labor’s plan”. That figure refers to the total national expenditure on electricity, because it is based on demand being much lower than AEMO forecasts, as explained above. Of course the nation’s electricity bill can be lower if less electricity is used.

Over the years that energy has been a strong issue, many journalists have used the terms “bills” and “prices” interchangeably, as if they are the same thing, but they are not. For example on last Wednesday night’s 730program, in an interview with the Coalition treasury spokesperson Angus Taylor, the compere stated that the Coalition planned to “bring down electricity prices by 44 percent”. In response Taylor cautiously avoided making any claim about prices, but he was clearly pleased to see that the compere was (unintentionally) leading listeners to believe that the Coalition has promised to reduce prices by 44 percent. (When journalists take too little care with their choice of words they can inadvertently help spread misinformation.)

The ABC’s Joanna Lauder and Tim Leslie point out that modelling by the Institute of Energy Economics and Financial Analysis shows that a switch to nuclear power would result in between $260 and $1259 higher household power bills: What can we actually learn from the Coalition's nuclear power modelling?. It’s hard to make precise predictions about power bills, because one’s bill is a product of consumption and price. It is quite possible that as the price of renewable-generated electricity falls, the amount of people’s power bills will rise. as people abandon gas and buy electric cars. But that would be in the context of a significant fall in their total outlays on energy.

Will journalists help to inform us, or will they inadvertently help the Coalition confuse voters?

Unfortunately, for every journalist who takes the effort to explain and inform, there are many more, working under tight deadlines, and under an assumption that every story has two sides, who write or state that it’s all very complicated and it’s just a matter of opinion. There has been a significant amount of such insipid journalism in the last few days.

It’s a tough battle to keep up voter interest. Laura Tingle warns on the political difficulties, noting that the Coalition chose almost the last possible day in the year to release its ideas, hoping that the new year will bring other concerns: The Coalition is playing voters for mugs once again with its nuclear costings. It doesn’t matter to Dutton that it’s all disjointed and flawed. In fact that’s an advantage, because it means no-one can understand it and reduce it to simple messages.

This is a challenge for the government. It can announce, as Chris Bowen has done, that the Coalition’s idea fails on several dimensions, and that new, cheaper, renewable energy is already pulling power prices down. But that’s not news, and journalists will always be more attracted to Dutton’s latest stunt or outrageous statement. They will say “the government is having trouble getting its message out”, without acknowledging that journalists themselves are responsible for this censorship, as effectively as any Stasi or NKVD enforcer ever was.

Will the Albanese government Challenge Dutton, or will it let him set the agenda?

If the government can prevail against journalists’ de-facto censorship it would do well to keep pressing a challenge to the Coalition: “if elected how do you propose to deal with power prices and people’s energy bills?”.

There is a belief, drawn from Trump’s success, that all the opposition has to do is to ask voters “are you better off now than you were when this government was first elected?” But the latest Essential poll casts doubt on that tactic.

It asks respondents about how their concern with the cost-of-living could influence their vote:

Which of the following is more important when considering your vote in the upcoming federal election next year?

Considering who will make me better off in three years,

  or

Considering whether I am better off than I was three years ago.

“Considering who will make me better off in three years,” wins hands down –68 percent to 32 percent, particularly among older people. It may be risky for the Coalition to rely on Trumpian discontent to drive it into office.

The Coalition has left itself open to a scare campaign – a scare campaign with a great deal of credibility.

To explain: nuclear power involves huge capital costs, but it costs next to nothing to run. In order to re-coup those capital costs it has to be generating and selling electricity 24/7, including the 12 or 14 hours of the day when the sun shines and the wind blows. That means renewable capacity has to be throttled back, or even cut off, in order to allow the nuclear plant to recoup its costs. That’s what engineers refer to when they point out that nuclear, as a “baseload” source, is not compatible with a system based on providing dispatchable power in a demand-driven system.

Sophie Vorrath of Renew Economy points this out in her post: Biggest losers from Coalition’s nuclear plan will be Australia’s 4 million solar households, industry says. Crispin Hull (in a post about the pernicious influence of neoliberalism on public policy) points out that many households have more than one voter: 6m have solar and will vote. He writes that if nuclear goes ahead:

… there will be times when the grid has too much power and domestic solar generators will be blocked from exporting their product to the grid because nuclear power stations cannot be turned on and off without enormous cost and difficulty.

That is going to annoy the owners of four million rooftop solar systems. It would be about as popular as taking away Medicare.

The electoral dynamics for nuclear are made worse for the Coalition because more than three million of those solar systems are on the roofs of stand-alone houses – in the very suburbs and regions which the Coalition hopes to take from Labor. That is about six million voters in an electorate of 18 million.

Probably a graph

Note in the picture above, and in the front picture in this roundup, that these panel-rich settlements are in recently-developed outer suburbs. These are the traditionally Labor regions that Dutton is hoping to win.

There lies the opportunity for a good scare campaign – a “good” scare campaign because it is based on solid economics, and it is politically justifiable, because to counter it the Coalition would have to admit that no-one now of working age will live to see any nuclear generator in operation.

Let’s not forget who’s really to blame for high electricity prices

Most political argument about electricity concerns the cost of renewable versus non-renewable sources. Nuclear has now been thrown into the mix.

Would you believe it if you were told that if electricity were to cost nothing to generate, its price at your meter would fall by only 12 percent?

The other 88 percent of costs are mainly in network costs (poles, wires and transformers) which account for 34 percent of costs, retail costs (including advertising) taking another 15 percent, and retailers’ profits taking a whopping 35 percent.

Ross Gittins brings the breakup of costs to attention in his article Oligopolists gouge power and gas prices, Albanese cops the blame. He draws his data from an Australia Institute research publication by David Richardson Price gouging: AGL and Origin: are you being ripped off?.

Pole
The NEM: assured profits for private corporations

The Australia Institute paper, as its name suggests, focuses on price gouging and on waste, such as excess advertising: “Companies are waging an expensive war to encourage you to buy exactly the same thing from them and not a competitor”. (It does not go into network costs, but that’s another rip-off. The networks are regulated, but the owners are generously rewarded, being allowed an unjustifiable high return for an almost risk-free investment.)

Another reason your bill is high is that domestic consumers are charged more than businesses. Some very large businesses buy electricity wholesale, bypassing “retailers”, but smaller businesses deal with “retailers”, who offer generous business discounts. Yet still they grizzle, and even though they mostly operate during daytime hours, few bother to put panels on their establishments.

Gittins blames not only the oligopolists for high prices (they’re simply exploiting an opportunity others have given them), but also the “economists and technocrats” who designed the beast known as the National Electricity Market. The NEM broke up six well-functioning state and territory electricity utilities and in the name of “structural separation”, a term someone found in an old Economics 1 textbook, re-constituted them into separate components – generation, transmission, distribution and retail.

There was good sense in making the generation of electricity into a separate competitive industry, but the rest was just the application of economic dogma to fashion a system which the big energy companies quickly learned to exploit and which incurs high transaction costs right down the line to consumers. (Weirdly the Coalition wants to put a big government-owned entity into the only part of the electricity system where competition actually works.)

It’s unsurprising therefore that the biggest hike in electricity prices occurred in the 2005 to 2010 period, as the NEM was being fashioned. That’s shown on the graph of electricity prices over the last 46 years, shown below.

Probably a graph

Gittins points out the cruelty of the political system, which sheets the blame on Albanese (although, as the graph shows, and as the Australia Institute work shows, government subsidies and rebates have softened the blow.)

But is Albanese blameless? The faults in the NEM were well-known when he took office in 2022. There was a time when a Labor government would not have hesitated to re-nationalize the networks, abolish the parasitic “retail” businesses, and operate the system as an essential natural monopoly.