Today’s Paywallion:

Peter Dutton’s nuclear policy gives renewables investors a shock

Nick Cater
24 Jun 2024

Peter Dutton gave us more than a routine policy announcement last week. He delivered a credible threat of competition to a featherbedded industry that has grown lazy on government largesse.

If renewable energy was the cheapest electricity source and nuclear the most expensive, the green energy barons would have nothing to fear from a nuclear competitor.

Yet the market reaction to Dutton’s intervention proved investors don’t buy the government’s spin. They know that in a competitive market, nuclear generation will eat renewables’ lunch, just as coal once did before wind and solar were showered with subsidies and the market rules were altered in renewables’ favour.

The shift in the opposition’s policy settings would deter future investments and prompt today’s investors to reassess their positions, Clean Energy Investor Group CEO Marilyne Crestias told The Sydney Morning Herald.

Prices in relatively free markets like ours are not determined by ministerial decree, nor can they be accurately predicted by scientists at the CSIRO, however good their spreadsheets.

Prices are a mechanism that coordinates fragmented knowledge and spreads it instantaneously, allowing investors to allocate scarce capital for the most productive purpose. If the prospect of nuclear power is causing financiers to go cold on renewables, then the price signal has done them a favour by saving them from making a dud investment.

The Clean Energy Investor Group is hardly a disinterested observer. It is the peak body for major renewable investors, including Macquarie, Blackrock, Neoen and Tilt Energy. Together, they own 76 clean energy assets worth $38bn. The present value of those assets is now hostage to the electoral fortunes of Anthony Albanese, which is why cashed-up renewable energy investors are accumulating a war chest of hundreds of millions of dollars to keep Labor in power.

The influence of this powerful, crony-capitalist enterprise is one reason Dutton has only an outside chance of turning nuclear into an election-winning issue. Polling on public support for nuclear has been trending Dutton’s way, and the evidence from around the world is stacked in his favour.

The history of bad ideas shows them to be most potent when entrepreneurs discover ways of making a buck out of them, however. The influence of the cashed-up renewable energy sector in global politics and cultural institutions has made the net-zero narrative all but impossible to dislodge.

‘It is hard to find a single Western economy remotely on track to meet 2030 commitments, let alone the big one in 2050.’

Protecting the present value of trillions of dollars of global capital rests on maintaining the fiction that wind and solar power, backed up by numberless batteries yet to be built and pumped hydro yet to be installed, is the key to rescuing the planet. Trillions of dollars of capital have been misallocated to this purpose thanks to perverse incentives provided by politicians whose most pressing concern is not to save the planet, but to survive the next election.

Labor’s target of 82 per cent carbon-free electricity by 2030 was derived from the same RepuTex modelling that gave Albanese the confidence to stick his neck out on power bills by promising a household saving of $275 by this time next year. It is beyond the bounds of probability that either target will be met. Coal and gas generated 75 per cent of the electricity in the National Electricity Market over the weekend, a proportion that has barely shifted since Labor came to power.

Investment in renewable energy infrastructure is at its lowest level for eight years, and the rollout of new wind turbines, grid-scale solar, transmission and storage is hopelessly behind schedule.

The latest quarterly accounting report from the Climate Change and Energy Department shows Australia’s greenhouse gas emissions fell by 0.5 per cent last year. At that rate, the government won’t reach its 2030 target until 2051.

Australia is not the only country that was caught up in the exuberance of the 2019 Paris climate conference and promised more than it could possibly achieve. It is hard to find a single Western economy remotely on track to meet 2030 commitments, let alone the big one in 2050.

In a report published last month by the Fraser Institute, Czech-Canadian scientist Vaclav Smil outlined the task ahead. More than 4 terawatts of electricity-generating capacity must be replaced, and almost 1.5 billion gasoline and diesel vehicle engines must be converted to electricity.

Almost all the world’s agricultural and crop-processing machinery must be replaced, including 50 million tractors and more than 100 million irrigation pumps. New heat sources must be developed to smelt iron, manufacture cement and glass, process chemicals and preserve food. More than half a billion domestic, industrial and institutional gas furnaces must be abandoned. Novel forms of motive power must be found for 120,000 merchant vessels, and we’ll need to develop a carbon-free way of keeping 25,000 jetliners in the air.

All this must be achieved in a single generation, even though we have yet to reach the peak of global fossil fuel consumption and deploy any zero-carbon large-scale processes to produce essential materials.

For Smil, the most disturbing thing about the net-zero fallacy is what it tells us about the economic, numerical and scientific illiteracy of a generation that is, on paper, the most educated in history. As Smil told American author Robert Bryce in an email exchange, we live in a fully post-factual world.

The net-zero fallacy has taken root “because the soil is receptive: utterly brainless mass of mobile-bound individuals devoid of any historical perspective and any kindergarten commonsense understanding”.

The cartoonish reaction to Dutton’s nuclear announcement last week was evidence of Smil’s point. If there is a solid argument against legalising nuclear power in Australia, Chris Bowen failed to produce it. Until he does, Dutton can safely regard the debate as won.

Yet politicians are not rewarded for winning fact-based arguments. They are rewarded by winning elections. As Thomas Sowell points out, one of the differences between economics and politics is that politicians are not forced to pay attention to long-term consequences.

“An elected official whose policies keep the public happy up through election day stands a good chance of being voted another term in office, even if those policies will have ruinous consequences in later years,” Sowell wrote in Basic Economics.

Yet the test of Dutton’s policy is whether it will increase competition in the market, offering a credible alternative to the untrodden renewable-only path on which we are embarked.

The squeals from the renewable energy establishment last week suggest he is on the right track.

Nick Cater is a senior fellow at the Menzies Research Centre and a visiting fellow at the Danube Institute.

NICK CATER
 
 COLUMNIST