Issue 220, August 2023
Blink – and that’s one twelfth of the new financial year gone by. For the energy scene, the next 11 months will definitely see prices remain a key feature of the public debate and Labor’s 2022 election promise of lower power bills remain a monkey on the government’s back, the more so if talk of a federal double dissolution election (over housing issues) leads to a poll. Few things are more obvious today than that cost-of-living problems for consumers, of which energy charges are a prominent part, will not being going away any time soon, no matter what noises politicians make. Meanwhile, Dan Andrews’ pratfall over the Commonwealth Games in Victoria has nothing to do with the energy debate – except that it underscores the big issue of just how and for how long governments here can continue to spend big on the “transition” while struggling to meet all the other demands on the public purse.
“To realize its goal of becoming a net-zero carbon emitter by 2050, Australia must reverse the trajectory of its energy use, which remains on a rising path” – Gavin Maguire, Reuters global energy transition columnist. “Australia’s total electricity consumption has grown nearly eight per cent over the past decade.”
“A lot of energy used in Australia goes towards producing goods for export such as minerals and metals” – Paul Graham, CSIRO energy chief economist. “Demand for Australia’s minerals and metals is expected to grow.”
“Australia must accelerate development of renewable energy generation or risk soaring electricity prices for households and businesses” – former Reserve Bank deputy governor Guy Debelle, now with Fortescue Future Industries.
“Australia isn’t building renewable energy quickly enough to replace coal and gas (generation)” – the Clean Energy Council. “Just 0.4 gigawatts of new large-scale renewable projects have been committed in the first half of 2023, a long way short of the five gigawatts per annum needed.”
“At present there is 19 GW of utility-scale renewable generation across the NEM. This needs to reach 35 GW by 2030, (then) representing more than half utility-scale generation capacity” – Australian Energy Market Operator.
“The angst among energy-intensive manufacturers is palpable: how can Australia contemplate switching off massive coal power stations that still collectively produce almost 60 per cent of the country’s electricity without replacement power ready to go?” – the Australian Financial Review’s Carbon Challenge newsletter.
“We are committed to an energy mix without nuclear” – federal Climate Change & Energy Minister Chris Bowen in an interview on the sidelines of the G20 energy ministers’ meeting in Goa. “The government remains committed to renewables.”
“Current solar and wind technology is already mature enough to transform our electricity system, support the growth of electric vehicles and make the switch to all-electric homes and businesses. However, it is clear the impressive renewable energy technologies currently at our disposal are not able to be produced and installed in the enormous volumes and at a sufficiently low cost to outcompete fossil fuels for many important end uses such as heavy industry, hydrogen production and long-distance transport” – Darren Miller, CEO, Australian Renewable Energy Agency.
“Last week we received a revised estimate of the capital costs of decarbonizing the grid from Net Zero Australia. Chris Bowen’s estimate was out by a factor of 20. The capital cost of the paraphernalia required to transform the grid by 2030 will not be $78 billion but $1.5 trillion” – Menzies Research Centre’s Nick Cater.
Frontier Economics managing director Danny Price says it is important for the Australian government and business to be realistic about the timeframe and cost required to decarbonise.
Speaking at an Australian Financial Review forum on energy in July, Price said: “The program for the electricity sector alone is going to cost $300-400 billion over the next 30 years. That’s a huge investment. Australia has never embarked on anything like that before and right now we’re doing it terribly.”
“To put our challenge into perspective,” he added, ”only four per cent of Australia’s total energy supply comes from renewables at the moment and we’re effectively talking about replacing 96 per cent of our total energy supply in the next 30 years.
“This is a massive challenge and we’re talking $300-400 billion for electricity alone which makes up only 25 per cent of our energy mix. Moreover, everyone’s doing this at the same time around the world, so people need to get a proper perspective on the challenge, cost and timeframes involved.”
There are too many uncertainties to map a single path for Australia for net zero decarbonization by 2050.
This is the key finding of the final report of the Net Zero Australia project, a partnership of the universities of Melbourne and Queensland, management consultancy Nous Group and America’s Andlinger Centre for Energy & Environment at Princeton University.
Robin Batterham, chairman of the project steering committee and an emeritus professor at Melbourne University, says policy planners “need to keep options (for the transition) on the table and to stay agile.”
He adds that “it is not useful to debate whether we will or won’t make it.”
Batterham says: “Our priority should be to plan well, to get on with it and to adapt to the lessons we learn.”
Richard Bolt, principal of Nous Group, says that “all options that can make a serious contribution at a competitive cost need to be accelerated.”
Bolt says Australia needs to “get ready to build a large fleet of gas-fired peaking plants, beginning in 2030, to back up renewables and exit coal-fired power – but with minimal actual use of gas.”
And he says that carbon capture utilization and storage basins “need to be prepared for large-scale commercial use by 2030.”
On nuclear power, Bolt declares the technology should not be in current plans because “it’s too expensive and slow.” Only a dramatic fall in nuclear technology costs and prolonged renewable constraints could prompt a rethink, he asserts.
The project report adds that “to reduce renewable targets in the belief that nuclear will be deployed later at scale will create a material risk of not achieving net zero or doing so at an excessive cost.”
Bolt and Batterham, in a newspaper op-ed, warn that targets are being set for emission cuts, renewable rollouts and green exports without a comprehensive analysis of their impacts on emissions, costs and the use of land. They note that all the project’s scenarios suggest that renewables will be the dominant future energy source. “An immense amount of new infrastructure will be needed, and must be built at a breathtaking speed,” they add. “Our use of land and sea will undergo extensive change. We will also have to convert to increasingly electric and efficient vehicles, appliances and industries at an unprecedented speed and scale.”
Australian Chris Greig, senior research scientist at the Andlinger centre, says the project has modelled a capital requirement of $1.2 to $1.5 trillion by 2030 and $7 to $9 trillion by 2060.
These targets will not be met at the current rate of outlays, he adds. “The gap is enormous.”
Commenting on the report, Nick Cater, a senior fellow at the Menzies Research Centre, says it includes “an important detail federal Labor chose not to share before the 2022 election – turbines, solar panels, transmission lines and assorted paraphernalia will cover 20,179 square kilometres, or about half the size of Victoria.”
He accuses the project of ruling out use of nuclear “because it is against the law, a prissy excuse when it happily backs a plan that defies the laws of physics, economics and politics.”
Meanwhile Climate & Energy Minister Chris Bowen told a mid-July clean energy conference that he has asked the Climate Change Authority to update the current federal net zero by 2050 plan set up by the Morrison Coalition government but he has rejected calls by the Greens and others for a new target date of 2035.
He added that major investment is needed in solar power, onshore wind farms, battery storage, pumped hydro and transmission infrastructure, urging “we need to accelerate.”
The Australian Financial Review says that 58 per cent of respondents to a poll of readers undertaken in July favor further study of the use here of small modular nuclear reactors.
The paper had 421 readers polled and 30 per cent responded negatively on the question while 12 per cent said they were unsure.
The poll result was published by the AFR at the time the CSIRO produced a new report claiming that “extensive consultation with the Australian electricity industry do not see any prospect of domestic (SMR) projects this decade, given the technology’s commercial immaturity and high cost.”
Meanwhile Andrew Liveris, president of the organising committee for the 2032 Olympic Games in Brisbane, has called for the event to be powered by nuclear energy to meet its contractual obligation to be “climate positive.”
A spokesman for the Queensland premier retorted that the State government opposed the idea, citing the CSIRO report.
However, the Australian Industry Group believes the federal government’s aim to produce a sector-by-sector emissions reduction plan for 2035 should make room for new nuclear technology.
AiG chief executive Innes Willox says: “Nuclear energy is a fraught subject but too important to be left to empty fights over symbolism. New nuclear technologies combine intriguing potential with formidable delivery and economic challenges.”
Willox adds: “It makes little sense to continue simply banning it, but mere legalisation is no substitute for a comprehensive and investable climate and energy policy for all technologies to compete under. Putting all your eggs in one basket is a bad idea for any side of politics.
"Setting Australia up for success on our next round of climate goals requires a wider canvas, stronger dialogue and more openness than we've seen in the past.”
The trajectory of east coast power prices – affecting most of Australia’s energy consumers – remains headline news going in to the new financial year even if media commentators can’t agree on the trends.
The green-oriented Guardian newspaper, for example, highlighted in the last week of July that wholesale electricity prices were almost 60 per cent lower in the June quarter than in “Australia’s short-lived energy crisis” and emissions in the NEM fell almost six percent QonQ – while the conservative The Australian newspaper led with a report that “households and businesses face extended power price pain into next year after the energy market operator revealed the cost of generating electricity rose 31 per cent in the three months to June.”
The Australian added: “Electricity futures prices for 2023-24 were similar to or slightly higher than the prior three months while prices for 2025 and 2026 rose from the March quarter. Elevated electricity prices would intensify pressure on households struggling with soaring inflation and a rapid increase in interest rates, and erode public support for green energy reforms.”
In a report by Australian Associated Press run in many regional newspapers, the agency, noting east coast wholesale gas prices averaged $14.20 per gigajoule for April to June and were still the second-highest June quarter outcome on record after last year's “$28.39/GJ shocker,” commented that “more households using rooftop solar to slash power bills are taking pressure off the national electricity grid but wholesale prices remain elevated”.
The Australian Financial Review led its report by observing that “power prices surged to their second-highest March quarter in 18 years, despite a glut of solar and wind production that sent prices into the negative during the middle of the day.”
The source of the statistics is the quarterly report of the Australian Energy Market Operator, which said that increased capacity of newly-commissioned wind farms and large-scale solar power “helped reduce overall operational demand across the NEM” and there was also an increase in available black coal generation capacity in New South Wales despite the retirement of the Liddell power station.
Nonetheless, AEMO added, output from black coal generation in NSW and Queensland in the quarter was the lowest for 22 years.
The Productivity Commission has declared in its new annual report on trade and industry assistance that pursuing Australian emissions reduction goals in the absence of an explicit economy-wide carbon pricing scheme is leading to proliferation of piecemeal sectoral abatement policies.
“Many of these abatement measures appear to possess some of the characteristics of more conventional forms of industry assistance – selectively available tax concessions, government grants, concessional finance schemes and regulatory obligations that only apply to some sectors,” the commission says.
“Ideally, estimating the industry assistance value of these policies would account for the extent to which they act to indirectly price greenhouse gas emissions. The greater the fiscal cost per tonne of emissions reductions, the greater the likelihood the policy will act more as a form of industry assistance than a cost-effective means of credibly contributing to Australian emissions reduction goals.”
It points out that the data required to estimate the industry assistance value of emissions reduction policies is generally not published by government departments.
The report has received media and political attention as a challenge to the federal government’s eagerness to establish a battery manufacturing industry in Australia with taxpayer support.
At what point in all this carry-on about net zero, and about Australia’s destiny to become a green energy “superhero,” do we pause as a nation to examine the real world in which we live and the intersection of that reality with what the dreamers, aided and abetted by the meretricious players in politics and the pursuit of profit, claim can be achieved?
It’s not an idle question and barely a month now goes by without further evidence of the giant gap between the “superhero” declamations and how a greater level of decarbonization can be realistically achieved without wrecking the economy and the lives of consumers, whether householders or business operators.
In this regard, the comments by Frontier Economics’ Danny Price, reported earlier in this issue of the newsletter, could not be more to the point.
This is a drama with many stages (as in performing platforms) – from the small (the homes and shops of the “little people”) to the grandiose (the next CoP meeting, the UN climate change talkfest, about to take place, ironically, in one of the heartlands of the fossil fuel world, the United Arab Emirates).
The latter is an annual opportunity for months-long posturing by governments and street performers but, after 27 CoPs, the single hard fact is that there is no tangible world-wide action to diminish the perceived threat of climate change – and you are advised not to hold your breath waiting for CoP28 to deliver a meaningful breakthrough.
Many Mount Everests of words have been declaimed globally about this issue and many more will be; for Australians right here and now the day-to-day question is what developments in our “transition” will actually deliver, how these outcomes will affect community well-being and, specifically, what their impact will be on the supply of reliable, affordable energy.
The first month of the new financial year has seen some more pointers to this and none of them, so far as I can see, should make Joe and Jo Public any more comfortable about the situation.
The latest of these, delivered at July’s end, is a report from the Committee for the Economic Development of Australia in which the most salient point is that the clean energy sector faces “pervasive” skills shortages. This is both a real-world fact and actually not news; various organisations and experienced people worth attention have been saying so for many months.
For example, Engineers Australia in June highlighted the “severe” engineering skills shortage that is forcing local energy businesses to compete with global demand for people needed at all stages of asset lifecycles -- from planning, design and construction to the operation and maintenance of renewable energy generation and, not least in importance, the masses of new high voltage systems needed to deliver power from far-flung sources to market.
Guy Debelle, former deputy governor of the Reserve Bank, now working at Fortescue Future Industries, added at a forum in July that the hurdle for local renewables development is “not just capital, it’s people,” adding that “there are only so many who know what they are doing in this space and they are all heading to Texas.”
Of course, the boosters respond that the solution is for governments to throw more – very much more – money at the problem, but, as just been publicly demonstrated in Victoria (the Commonwealth Games disaster) and New South Wales (where major and much-needed railway projects are in jeopardy), even our politicians must now accept that there is a very real limit to largesse from taxpayers’ wallets.
Overarching even this is the insouciant mindset captured by the phrase “energy superhero” that is being increasingly thrown around as a sort of umbrella for the “transition.”
In this respect, readers should go to the website of the Energy Policy Institute of Australia and read a new commentary by the EPIA executive director, Robert Pitchard.
It is a reflection on the recent book by Alan Finkel in which the former chief scientist suggests Australia could become the world’s “electro-state superhero”, a feat requiring the local scaling up of clean technologies by a factor of twenty.
Pritchard observes: “For Australia to portray itself at this point as a potential ‘renewable energy superpower’ or as a potential ‘electro-state superhero’ is a gross exaggeration.”
He adds: “The premature boasting of ‘superpower’ status may also be a turn-off for Australia’s traditional energy customers. For the transition to ‘net zero’ in Australia, all energy technologies should remain open. Reliability of supply should remain Australia’s all-pervasive energy policy priority.”
I concur with his point. And, from where I am sitting, the “superhero” polemic serves to mislead rather than lead, not least when you consider that Australia continues officially to eschew embracing all forms of clean energy for the decarbonising task – yes, I am referring to the refusal by our current political leadership to open the way to use of new nuclear technology.
In my previous life as chief executive of two national energy industry associations over some 25 years I not infrequently threw in to speeches the point that supply security crucially depends on three four-letter words: time, cost and risk. A great deal of focus at present in public debate is on the latter two but the time aspect is no less important.
There is no “with one bound Jack was free” option in the real world of energy supply – waking up in, say, 2028 to a crisis created by another decade of misdirection and mismanagement will not allow for an instant change of development without pain.
And, like it or lump it, the odds on that being the situation at the end of the Twenties are now much greater than those of us basking in global adulation of our energy superhero status in the Thirties.
All of which is a longwinded way of saying “Get real.”
Keith Orchison
28 July 2023