Opinion | A Warning From Australia’s Power Crisis

Australia’s climate left blamed the mess on fossil-fuel companies manipulating markets. Sound familiar? Some accused coal generators of deliberately withholding power to drive up electricity prices to boost profits before they are forced to close by climate regulation. As usual, the real culprit is bad energy policy. Australia has plentiful gas reserves, but it lacks the pipeline capacity to transport the fuel to metropolitan areas in the nation’s south. Coal still generates about 60% of Australia’s power, and renewables make up a third. The latter is about as much as in California, which is experiencing similar power shortfalls.

Renewable mandates in Australia have made it harder for coal plants to turn a profit. Many have shut down. Others skimped on maintenance, though they are stressed from powering up and down to back up renewables. Meantime, coal and natural gas prices are surging globally amid the war in Ukraine and economic recovery from the pandemic. Weak solar and wind output at the start of Australia’s winter has also squeezed power supply.

This confluence of events caused Australia’s spot power prices to spike, which prompted its grid operator to cap wholesale prices. Coal and gas generators couldn’t cover the cost of their fuel. Predictably, they throttled production, which set the stage for the recent market suspension.

Australia’s grid problems could grow as many coal plants have announced plans to retire. While renewables are set to increase, they don’t provide reliable power around the clock. It’s worth noting that Australia has invested heavily in utility-scale lithium-ion batteries to store renewable power. They aren’t helping much.

The grid operator says the solution to the energy crisis is to build more transmission lines to connect more green energy. This is President Biden’s plan too. But building out transmission involves the same permitting headaches as pipeline construction.

U.S. Energy Department Loan Programs Office director

Jigar Shah

recently questioned whether transmission could be built out to meet President Biden’s climate goals. “The only thing harder to build than nuclear in this country is transmission,” he noted. “The lines that we’re building right now were started 12 years ago.”

The lesson for the U.S. is that a force-fed green transition invariably produces energy shortages, which then prompt calls for government intervention that often creates more market dysfunction. This has been the case in Europe and now it’s happening in Australia. Let’s hope the U.S. isn’t next.