Article by Judith Sloan, courtesy of The Australian
11.11.2025
“If you think health care is expensive now,” political satirist PJ O’Rourke wrote, “wait until you see what it costs when it’s free.” What he clearly understood is that when something is “free”, someone else is always paying. And when something is “free”, overconsumption follows along with inefficient provision.
Sadly, for us, this message is not understood by our Climate Change and Energy Minister, Chris Bowen. Sensing last week that the energy transition has not been going well, with retail electricity prices rising rapidly, he tried the old trick: “Look over there.”
Three hours of “free” electricity in the middle of the day for everyone on a Default Market Offer in some places, starting from the middle of next year. That’s the diversion. OK, less than 10 per cent of customers are actually on DMOs and you need to have a smart meter – smart for the retailer/generator rather than the customer. These meters are by no means universal.
But if you opt in to this scheme – it’s called the Solar Sharer, the SS – you can run your clothes dryer, your washing machine, your dishwasher, even charge up your EV during these three hours – and it won’t cost you a penny.
How good it that? Sure, you will have to find those manuals – where did you put them? – that tell you how to command the appliances to switch on at certain times. But how hard can that be for those with up-to-date, top-of-the-line washing machines, dishwashers, airconditioners and the like. We are talking those on higher incomes, but let’s not forget that virtually all interventions made in the name of the climate are highly regressive.
Bowen was quick to point out, however, that it won’t be necessary to have solar panels on your roof to qualify. So those without them, renters and those living in apartment buildings – and don’t forget the government wants more of us to live in dogbox apartments – will be able to benefit.
The trouble with this thought bubble is that there are some major complications that haven’t been thought through. Just because the wholesale price is often low or negative during the middle of the day doesn’t remove the need for the fixed infrastructure costs – over 40 per cent of the retail bill – to be covered.
If retailers and gentailers (the companies that own generators as well as have retail arms) can’t cover these fixed costs during the “free” three-hour period, then prices at other times of the day will have to be jacked up.
Either Bowen is not very good at maths, or he doesn’t understand how the DMO is calculated; but there is no way around this. The alternative would be to send some retailers to the wall while inducing a massive hullabaloo about the scheme from the retailers/gentailers in the meantime.
One perverse consequence would be the misuse of electricity during the three-hour period. Only a few dishes in the dishwasher – turn it on. Whack the clothes in the dryer rather than hang them out. Turn on the AC on mild days. If consumers are not required to pay for the true cost of the electricity, then this sort of wasteful behaviour is likely to occur.
There is also the unanswered question of what the SS does to the incentives for households to fork out for new or replacement rooftop solar panels. If everyone gets the “free” three hours, why bother going to the trouble? But if prices are going to be jacked up at other times of the day and solar panels are already in place, it might make sense to invest in a battery, particularly as generous government subsidies are on offer.
The other strange thing about this “look over there” tactic is that there are currently several offers already in the marketplace that allow electricity customers to opt for time-of-day pricing. Why Bowen felt the need to compel retailers to make this offer is not entirely clear – the answer is almost certainly political, being seen to be doing something.
The deteriorating commercial position of many heavy industry operations in Australia is also something Bowen doesn’t want us to think about too much. The fates of the steelworks in Whyalla, the copper smelter in Mount Isa, the smelters in Port Augusta and Hobart, the aluminium smelters (Tomago, Boyne and Bell Bay) and several others are highly uncertain, with most of them being propped up by governments to the tune of several hundreds of millions of dollars a piece.
And the one common factor is the escalating cost of energy that is eroding the margins of these operations and sending them into the red. Take Tomago, Australia’s largest aluminium smelter in the Hunter Valley. Forty per cent of its input costs are electricity. Its current electricity contract runs out in 2028 and a doubling in the megawatt hour charge is being foreshadowed.
Even Bowen with his limited mathematical ability can surely understand that it won’t be possible for the plant to continue. The notion that more renewable energy would have helped is completely fatuous. In fact, the RE penetration of the grid has been increasing but electricity prices have been rapidly rising.
The cost to the federal and NSW governments of bailing out Tomago is massive – around half a billion dollars per year. The fact that one of the co-owners of Tomago has written down the value of the asset to zero tells you all you need to know.
It’s also naive to think the Boyne plant in Gladstone is safe. The non-transparent deal done with the previous Queensland Labor government may help, and there has been some additional investment in renewable energy. But companies need to earn an adequate return on the capital employed. If not, they can take their investment dollars elsewhere where energy costs are lower and returns are better.
The chair of the Climate Change Authority, Matt Kean, takes the view that it won’t matter if Tomago and other smelters close because aluminium is made in other places in the world and the plant is relatively old (it’s not). Many voters will not share this sanguine opinion.
The real meaning of the closure of Tomago would be the death of heavy industry in Australia. The Treasury is wont to tell us that net zero 2050 is a needed policy to create certainty for investors. In one sense, this statement is correct: the clear message is that if you are considering investing in a large-scale, energy-intensive operation in Australia, go away.
As Meg O’Neill of Woodside tells us, Australia is an increasingly hostile country in which to invest and operate. It is a whole lot easier in the US, both in terms of approval processes and input costs. That’s the real message for us. Implementing cute but largely pointless consumer electricity contracts is neither here nor there.
The idea that decarbonisation is some sort of economic prize was always a myth: economic prizes don’t require massive subsidies and regulation. It is finally dawning on one side of politics that the costs of any transition must be carefully managed and minimised.