Systems Under Strain

A year of living dangerously looms as global energy signals collide with Australian politics

It has been an uneasy summer in Australia after the Bondi massacre, and the year ahead shapes as a difficult one for the nation.

In the wake of the tragedy, the government flailed in its response and Prime Minister Anthony Albanese failed the test of leadership. But, showing an almost supernatural capacity for self-harm, the Opposition managed to make itself the story as it tore itself apart. Liberal Sussan Ley’s troubled tenure as party leader is now on life support and it will be a miracle if she makes it to Easter. Nationals leader David Littleproud has also been badly damaged. Meanwhile, the stocks of the right-wing populist party One Nation have surged, as voters toy with alternative forms of power.

Beyond its loss of authority over the handling of the massacre, the government is exposed for a runaway budget that is fuelling inflation and its absurdly expensive energy transition. It would be in deep strife if there were a half-way decent Opposition — but no such beast exists.

Let’s kick off February by looking at some of the energy stories that crossed the Powerlines desk over summer — because beneath the political noise, the real world is the real opposition to this government, as its policy idols are dashed on the rocks of physics and economics.

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Germany admits its energy transition is a train wreck

German Chancellor Friedrich Merz made headlines when he conceded the bleeding obvious: that shutting the country’s nuclear power plants had been a strategic mistake. But there were even larger admissions about the failed Energiewende (energy transition) in a speech to the German Chamber of Industry and Commerce in Dessau in mid-January.

I went in search of an English translation of this speech and could not find the detailed energy quotes, because the best material came in the question-and-answer session after the address.

Thanks to YouTube’s translation function, what follows are some of Merz’s most interesting observations. What is stark is that he says Germany is “undertaking the most expensive energy transition in the entire world”. He says he knows of no other country making things as difficult — perhaps because he is unaware of the yeoman efforts being performed down under by our Climate Change and Energy Minister, Chris Bowen.

More than once, Merz says Germany does not have enough “generation capacity”. This is a striking admission, because Germany has built nearly three times as much generation “capacity” as it once had — but of course most of it is wind and solar, which makes it worse than useless during Germany’s famed dark doldrums, the Dunkelflaute.

Capacity that cannot be switched on when it is needed is not capacity at all; it is incapacity. It appears that Merz has got the memo.

What Merz wants is dispatchable power and lower costs. He admits that subsidising energy is unsustainable, that high power prices are destroying Germany’s once-mighty manufacturing base and beggaring its people.

Germany’s example is not one that any rational nation would follow. But of course reason and physics do not drive this debate — the creed of climate alarm does.

Here are Merz’s most revealing quotes from the Q&A:

“One thing that needs solutions are our very high energy costs. In the long run we will not be able to subsidise them through tax revenue.”

“We need energy production capacities.”

“What we are seeing in Germany with heat pumps is one of the most expensive experiments being conducted in all of Europe. I believe we can do better.”

“Above all it is crucial that we now create the necessary energy generation capacities. I just mentioned the power plant strategy. The difference between our power plant strategy and the one planned by the previous government is that we can now build gas-fired power plants without having to make them hydrogen-capable from day one. We don’t have the hydrogen.”

“I want to have acceptable market prices for energy production again and not have permanent subsidies for energy prices from the federal budget.”

“I want to say it again. It was a serious strategic mistake to phase out nuclear energy. If you are going to do it, you should at least have left the last remaining nuclear power plants on the grid three years ago so you could retain the generation capacity we had. We are now undertaking the most expensive energy transition in the entire world. I know of no other country that makes things as difficult and expensive as Germany. We inherited something that now needs correcting, but we simply don’t have enough generation capacity.”

“Of course we need the wind and the sun, but there are also days and weeks when the sun doesn’t shine and the wind doesn’t blow — and then we need baseload energy generation. That is precisely our goal, and we want to achieve that quickly.”

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Electricity Is Physics, Not Politics

In an important opinion piece in the the Australian Financial Review, Stephen Anthony — director of Macroeconomics Advisory and former chair of the National Disability Insurance Scheme Independent Pricing Committee — argues Australia’s electricity system has drifted away from the physical fundamentals that make grids work. He emphasises that:

“Electricity is not a policy construct. It is physics — and the physics have not changed since Michael Faraday and the steam engine.”

The core message is that policy must be grounded in how electricity systems actually operate, not abstract targets.

Anthony warns that two decades of prioritising weather-dependent generation has left the system neither cheap nor secure. Renewables require extensive transmission, storage and backup to maintain reliability, and planners have underappreciated the engineering challenge of matching supply and demand continuously. His critique is as much about modelling and markets as emissions goals: without firm capacity and proper incentives, reliability and cost outcomes will be poor.

He calls for a reset in 2026 that realigns energy policy with the first principles of system design — recognising that supply must be dependable, grid stability must be engineered, and the transition must balance emissions, reliability and cost.

In 2019 Anthony and Professor Alex Coram co-authored an outstanding report for Industry Super Australia Modernising Australia’s Energy Systems where they point out an electricity system is a physical machine, not a spreadsheet exercise. Power has to be produced at the right moment, delivered through a stable grid, and backed up when things fail. You can’t modernise a system like that by comparing headline costs of individual technologies and hoping the rest will sort itself out. Generation, transmission, storage and demand all have to work together over decades, because once you build this stuff you are stuck with it for a very long time.

A wind-, solar- and battery-heavy grid looks cheap only if you examine technologies in isolation. When you step back and look at the whole system, they argue it becomes capital-hungry and operationally complex. You must overbuild generation, add long-distance transmission, install large amounts of storage, and still keep dispatchable backup for when the weather fails. Batteries help smooth short gaps, but they don’t solve multi-day or seasonal shortages. The authors’ key point is that a renewables-dominated grid shifts risk from fuel costs to system risk — reliability, coordination failure and the danger of locking in ever-rising capital costs — whereas nuclear shifts risk upfront but stabilises the system over time.

Their conclusion is not “nuclear versus renewables”, but that excluding nuclear forces the system to do far more work, at higher risk, to achieve the same reliability. In their framework, nuclear is valuable precisely because it lowers the burden placed on everything else.

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Minister blocks FOI on renewables deal

Environment Minister Murray Watt’s office has declined a Freedom of Information request seeking documents on a Victorian solar and wind farm agreement, claiming disclosure would harm Commonwealth–state relations.

The rationale is absurd and undermines the principle of transparency in major energy approvals.

This is not a technical exemption; it is a political choice with broader implications for public trust in energy planning. Blocking access to basic approval justifications for federal–state collaboration sets a worrying precedent, especially at a time when energy policy decisions carry enormous economic and strategic weight.

Of course, there is no intention to have any transparancy in the enery transition and burying body bags full of facts and costs is now and industrial exercise.

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Bowen to lecture the Saudis about oil

Australian energy minister and “president of negotiations for COP31”, Chris Bowen, has signalled he plans to engage Saudi Arabia and others in an effort to stop them hindering “progress” at UN climate summits.

Bowen singled out the oil-rich Gulf state, long accused of obstructing efforts to accelerate the phase-out of fossil fuels.

“We won’t get anywhere if we just have a jamboree of the willing,” Bowen said.

Oh to be a fly on the wall for these conversations. One suspects the Saudis might point to Australia’s exports of coal and gas as an inconvenient truth, and watching Bowen unleash one of his signature word-torrents in response would be a marvel to behold.

The language tango is Bowen’s great gift. Verbal missteps are all part of the great dance between the real world and the imaginary one he wants us to join him in. Who can forget his 2022 pledge to cut retail power bills, only for Australian taxpayers to cough up $6.8 billion in subsidies as electricity prices soared. In the tounge tango that followed the subsidies were branded as a cost of living triumph and proof that power prices were… falling

In 2023, Bowen told the council of parties meeting hosted in Saudi Arabia that fossil fuels must have “no ongoing role to play in our energy systems”. Yet the weather-dependent grid he is building cannot function without dispatchable power, and he is now desperately seeking gas while coal-fired power plants have their lives repeatedly extended. No matter how much the music changes the dancer blunders on.

With domestic and international roles this year Bowen will be dancing between landmines at home and abroad. It will be quite a show and Powerlines looks forward to writing the reviews.

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The Productivity Commission joins the activist chorus

The headline act in Australia’s bureaucracy-wide institutional collapse came on December 19 with the release of the Productivity Commission’s Orwellian-titled Investing in cheaper, cleaner energy and the net zero transformation.

The demonstrably false slogan on the cover reveals the document for what it is: activism dressed up as economics. Powerlines has already dissected that report in detail in an earlier post.

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Australian Aluminium Finishing collapses

Australian Aluminium Finishing (AAF), a Sydney-based architectural aluminium finisher operating for more than 40 years, is expected to enter liquidation by mid-February after collapsing under more than $18 million in debt.

The company went into voluntary administration on January 7 and has not traded since. Escalating costs — particularly electricity — are cited by workers and administrators as a major pressure, though filings make clear this was not the sole cause.

AAF operated plants in Brisbane, Sydney and Melbourne, along with 11 production facilities across Australia and South-East Asia. It is headquartered in Wetherill Park and owned by Australian Aluminium Holdings, with William Anthony Wyllie as sole director. The administrator has flagged a formal investigation into the company’s failure, while chemical supplier Alpha Chemicals has sought a court-ordered winding-up.

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UNSW finds solar panels fail faster than promised

A University of NSW-led study has found that up to 20 per cent of solar panels in large-scale photovoltaic plants degrade far faster than expected, in some cases cutting effective operating life to around 11 years rather than the assumed 25.

The research identifies a “long-tail” problem in solar deployments, where a minority of panels suffer severe and premature performance losses that materially drag down overall system output. Using a large dataset from the US National Renewable Energy Laboratory, the study concludes this effect is structural, not incidental.

Researchers identify three pathways: accelerated degradation driven by interacting failure mechanisms; early-life “infant mortality” caused by manufacturing defects; and random late-life failures such as solder fatigue or cell cracking.

The findings have serious implications for investment models, warranties, insurance and recycling planning — and undermine the comforting fiction that solar is a predictable, plug-and-play 25-year asset.

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Funke Kupper: beyond 2050, nuclear matters

Writing in the Australian Financial Review, former ASX and Tabcorp chief Elmer Funke Kupper argues that Australia’s energy policy is distorted by an overly narrow focus on 2030 and 2050 targets, which favour renewables on paper while ignoring long-term system costs and reliability risk.

He accepts the CSIRO/AEMO GenCost conclusion that renewables look cheapest at a 2050 snapshot, but argues this breaks down once asset lifetimes are considered. Solar, wind and batteries must be rebuilt every 25–30 years, while nuclear plants can operate for many decades.

Over a 75-year horizon, he argues, a mixed renewables-nuclear system is cost-competitive and materially lower risk. Without it, Australia risks de-industrialisation as energy-intensive industries lose confidence in long-term power security.

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Trump pulls the US out of the UN climate framework

Donald Trump has ordered the United States to withdraw from dozens of international and UN-affiliated bodies, arguing they operate against US national interests.

The decision includes exiting the UN Framework Convention on Climate Change — the parent treaty to the Paris Agreement — making the US the first country to leave it. The White House says the move is part of a broader review aimed at ending funding for “globalist” and ineffective institutions.

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Meta goes nuclear to power AI

Meta has announced a major expansion of its nuclear energy commitments, striking agreements with Vistra, TerraPower and Oklo, following an earlier deal with Constellation Energy.

The deals make Meta one of the largest corporate purchasers of nuclear power in US history, aimed at securing clean, firm electricity for its rapidly expanding data-centre and AI infrastructure.

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South Australia price spike exposes grid fragility

The Advertiser reported on January 28 that a sharp electricity price surge in South Australia — with wholesale prices spiking close to the $20,000/MWh cap — triggered warnings of catastrophic grid failure during a multi-city heatwave.

The spike occurred on a still summer evening when household batteries were depleted and wind generation fell, prompting a low-reserve notice from AEMO.

Frontier Economics chief Danny Price warned the system is becoming more fragile as coal exits faster than firm replacement arrives. He said it is only a matter of time before a multi-day, multi-state heatwave exposes the system’s weaknesses through outages and extreme prices.

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Dispatchable power is non-negotiable.

Again in the Australian Financial Review, Patrick Gibbons — a former Tehran-based diplomat and now a partner at corporate advisory firm Orizontas — argues that the energy and climate debate is shifting as hard demand collides with soft assumptions. When BlackRock chief Larry Fink openly warns at Davos that data centres and artificial intelligence cannot run on intermittent wind and solar alone, it signals what power-sector insiders have long known: dispatchable power is non-negotiable.

“You cannot rely solely on intermittent sources like wind and solar. You need dispatchable power because these data centres cannot simply turn on and off.”
— Larry Fink, CEO of BlackRock, the world’s largest asset manager

This matters acutely for Australia, where electricity demand — long stagnant — is now rising again, driven by data centres and the political imperative to preserve what remains of the industrial base.

Gibbons notes that for two decades Australia absorbed coal closures because demand was flat, manufacturing declined, and rooftop solar suppressed daytime load. That era is over. Electricity consumption has risen by about 7 per cent in four years and is set to accelerate. At the same time, the energy transition is slowing: coal plant closures are being pushed back, transmission build-outs downgraded as costs surge, and wholesale price volatility has increased even as average prices plateau — volatility that flows directly into higher retail prices as risk is priced in. The long-promised cheap power has not materialised, not simply because of Ukraine-driven fuel shocks, but because of the real system costs of integrating large volumes of renewables.

The political response is already visible. Governments are extending coal plants across Queensland, NSW, Victoria and Western Australia, backing aluminium smelters such as Tomago, and quietly acknowledging that gas will be required to replace ageing coal — even as state policies restrict new gas supply. Data centres now enter this mix, with governments spruiking digital ambition while remaining vague about where the electricity will come from. Gibbons’ conclusion is blunt: power prices will continue to rise, coal will stay longer than planned, and the energy transition is about to get messy. Larry Fink is right — dispatchable power is essential — and in Australia that reality arrives well before nuclear even enters the conversation.