A Tale of Two Transitions

The models say cheap, clean power; the market says chaos and cost.

The best of days and the worst of days in South Australia tell the Dickensian tale of this nation’s energy transition.

The best was the kind Climate Change and Energy Minister Chris Bowen spruiks. For a moment on Wednesday, September 10, wind and solar supplied nearly 99 per cent of the state’s power and wholesale spot prices fell below zero.

The worst was another Wednesday, July 2, when the wind barely whispered and the interconnector linking South Australia to Victoria’s cheap brown coal was choked to a fraction of its normal flow. That sent wholesale prices above $300 a megawatt-hour for most of the day, with spikes above $13,000. On average that day, electricity in South Australia traded at nearly eight times what households normally pay, and that single event added about $19 per megawatt-hour to the state’s quarterly average wholesale price of roughly $104.

Wild price swings are a red flag in any market because volatility is risk made visible.

Australia’s east coast now lives with one of the most erratic electricity markets in the world because it is literally run by the weather. This is a boom-and-bust grid: long periods of oversupply and dirt-cheap prices followed by sudden shortages where demand is high, supply is thin and the bill explodes. As the Australian Energy Regulator has noted, those violent price spikes during the tight hours swamp the long stretches of cheap power. The spikes drive up the average price.

There will always be ups and downs in wholesale prices, but the trend line is rising because chaos comes at a cost. When prices ricochet from zero to thousands of dollars, they rattle the futures market retailers rely on to guard against price spikes. The greater the risk, the higher the cost of that insurance, and that cost is passed on to consumers.

This is one of the structural drivers of higher retail electricity prices baked into a weather-dependent grid and mostly airbrushed out of the fantasy models that claim bills will fall at the end of the rainbow. We don’t need any more computer models. We are conducting a real-world, real-time, proof-of-concept experiment on the eastern national electricity market, and the verdict on its cost is written in your power bill and growing system fragility.

Our energy transition is a tale of two parts: the age of wisdom in theory, the age of foolishness in practice. In the fairy floss theory that fuels the Barbie-world version of the energy transition, prices fall, jobs grow, manufacturing roars back and Australia reindustrialises on cheap, clean energy. But every promise rests on one assumption: that more wind and solar will drive power prices down. It is a single point of failure. If it proves false, the electricity system becomes an engine of wealth destruction.

Review the tale of this week and all the evidence shows the theory evaporates on contact with the real world. The folly of the path we have chosen is written in surging retail power prices and the slow destruction of jobs and industry. Worse, we are building a regressive energy tax: people who can’t afford solar, a home battery or an electric vehicle keep paying spiralling bills while public money is poured into helping those who can.

When the Band-Aid of state electricity rebates was ripped off in the latest consumer price index, electricity costs were revealed to have jumped 23.6 per cent across the past year. This is before the end of federal subsidies, which now tally $6.8bn. Expect the Albanese government’s dismount from this to be very painful because it will further expose the central lie of the push for a weather-dependent grid: that it will deliver cheaper power.

That was Labor’s pledge, one it won’t now repeat. But there are few signs of growing self-awareness in government. Bowen wrote in these pages this week that “nuclear power stations hinge on big government subsidies to be viable”.

“There is no nuclear construction anywhere in the world being undertaken solely by the private sector,” he said.

Bowen’s ministry appears to have evolved into an epic parody where the joke is on us. Does anyone proofread these lines and point out that the system he is presiding over is entirely taxpayer-funded? Consumers and taxpayers are on the hook for untold billions.

Renewables evangelist Ross Garnaut belled the cat in July when he said: “There is now almost no new private grid-scale investment in solar and wind generation that is not underwritten by the Capacity Investment Scheme or by government through other mechanisms.”

In more evidence that Bowen is now playing Alice in his own Through-the-Looking-Glass world, he recently declared that coal-fired power is “intermittent energy” and renewables are “predictable and reliable”.

So, minister, predict the reliability of wind and solar tomorrow, or next week. And why not turn off Loy Yang B in Victoria’s Latrobe Valley, where availability has averaged about 97 per cent across the past decade, and see what happens to reliability and price across the eastern grid. Our coal-fired plants are ageing and do break down, especially when they are forced to ramp up and down to match the vagaries of wind and solar output, but even the worst of them delivers more energy, more often, than the best of the weather harvesters. There is a reason Queensland is planning to hang on to its coal-fired power until the 2040s: it is the only anchor on prices and system stability.

The truth of the real cost of net zero is also written in the latest bailout of Tomago Aluminium. Add it to the long list of companies on taxpayer life support, such as the steelworks at Whyalla and the copper smelter at Mount Isa. Countless other large and small businesses are being squeezed by rising energy costs.

The real-world evidence that unreliable generation drives higher costs has been gathered in two reports from the Centre for Independent Studies. One argues that weather-dependent generation becomes more expensive and less valuable as its share of supply grows; the other shows how the rising cost of managing risk is driving prices higher. Both are grounded in observation, not modelling, and mirror a growing tide of international evidence.

The lead author of the first report is senior policy analyst Zoe Hilton. Her team argues increasing wind and solar penetration is easy at the start but gets much harder the higher it rises. Costs start surging once wind and solar output regularly exceeds local demand. After that, every extra unit of power creates new costs because it must be wasted (curtailment) or shifted through space (transmission) or time (storage). These costs will swamp any reduction in wholesale prices and this pattern is playing out globally.

The second paper is by Jude Blik, an engineer who also worked in finance. He details how the shift to weather-dependent energy has transformed electricity markets from relatively stable systems into ones burdened by growing layers of financial and operational risk. Blik argues that volatility is not a temporary phase of the transition but an inherent feature of it because intermittent supply forces retailers, generators and governments to buy ever more complex and costly insurance against price shocks.

This research is part of an international awakening. Truth bombs are exploding all around the world as physics detonates politics.

Concerns about decarbonisation are giving way to an obsession with energy security and affordability. The most arresting recent example is the Damascene conversion of McKinsey & Company. The global consultancy is having second thoughts about rapid decarbonisation or, in its words, its thinking has “matured”.

McKinsey’s Global Energy Perspective 2025 concedes the energy transition has collided with economic and geopolitical reality. It warns that affordability, reliability and security are as important as emissions targets and that fossil fuels still will supply up to half the world’s energy in 2050. It notes that green hydrogen remains uncompetitive, low-carbon technologies are stalling.

“It is clear that the world is not on track to reach net zero by 2050,” the report says.

McKinsey is now on a unity ticket with the Tony Blair Institute. This week, the former British prime minister’s think tank released a paper that also discovered the bleeding obvious: “Around the world, countries are prioritising energy strategies over climate strategies.”

Follow the numbers and you find that record investment in wind and solar is undeniable, but this is not an energy transition, it is an energy addition. As weather-dependent generation grows, the world’s appetite for fossil fuel is growing with it.

This week the International Energy Agency released Gas 2025: Analysis and Forecasts to 2030, which signals the start of a new era of growth led by record liquefied natural gas expansions in the US and Qatar.

About 300 billion cubic metres of new LNG capacity will come online by 2030 – the largest expansion in history – enough to meet twice the annual gas demand of the entire EU.

The agency’s latest reports on oil and coal underline that the eulogy for fossil fuel is premature. Its Coal Mid-Year Update 2025 shows coal is still the world’s main source of electricity. The world burnt more of it than ever last year and that won’t change quickly because China and India keep building coal-fired power plants. September’s Oil Market Report shows global oil demand is still climbing, with the world consuming roughly five billion litres of it every hour, and growth expected to continue through the end of the decade.

In August, the Trump administration confirmed plans to expand domestic oil and gas leasing in Alaska and the Gulf of Mexico as part of its push for “energy dominance”. Japan moved to extend the life of its nuclear fleet and fast-track new reactors to secure baseload power. China added about 25 gigawatts of new coal capacity in the first half of 2025, roughly equivalent to the entire coal-fired generation fleet of Australia’s east coast.

Across Europe, utilities and manufacturers are warning that the continent’s rapid shutdown of coal and nuclear plants has left its grids fragile and its industries crippled by record power prices. In Germany, household electricity costs are among the highest in the world, and the country is now planning a massive expansion of gas-fired generation. Spain is still dealing with the fallout of a grid collapse that blacked out the entire Iberian Peninsula because its heavy reliance on wind and solar has delivered dangerous instability. Factories from Italy to Ireland are scaling back production because they simply cannot afford the cost of energy.

In Britain, The Guardian is fretting that Prime Minister Keir Starmer is about to abandon his central green pledge of removing almost all fossil fuel from the energy supply by 2030 if doing so “would push energy bills much higher than their current levels”.

When Bowen arrives in Brazil for the UN climate jamboree, he might ask his counterpart there how auctioning off 172 new oil and gas blocks this year, including 47 in the Amazon Basin, squares with hosting the summit.

Ahead of that meeting, Bill Gates has called for governments, investors, activists and scientists to change their approach to climate. The Microsoft founder has come to the realisation that the “doomsday view” of climate change – that it will “decimate civilisation” – is wrong.

This has always been evident to anyone who bothers to read the reports of the Intergovernmental Panel on Climate Change. Global warming is a problem but it is not an existential threat. The world should act in unison to sensibly ratchet down emissions but, so far, it hasn’t.

Australian governments, academics, activists and a gravy train of carpetbaggers are determined this nation will lead the world on cutting emissions even though our contribution will be all but irrelevant. They are determined to limit the pathway to the most expensive and least reliable technologies. All energy sources are not equal, and wind and solar are parasites. Here we are replacing predictable generation with a punt on the weather and calling it progress. Nuclear energy is expensive but it is predictable, reliable and will run industry. Ruling it out is a deliberate act of national self-harm.

Finally, transforming the electricity grid is the beginning, not the end, of the costs pursuing net zero will impose. The next steps are to cut emissions from agriculture and transport with yet-to-be-invented technologies. What lies ahead are permanent Covid-level interventions in your life, from the food you get to eat to the speed you get to drive on country roads. Agreeing to this agenda should be incompatible with any party that believes in personal liberty.

Why an energy superpower such as Australia would squander its wealth is a travesty. How the opposition cannot make a coherent argument against it is a mystery. But these are the times we live in.