Commentary

Issue 24  December 2006

So that was 2006

The year of energy task forces and inquiries is ending with little resolved in terms of Australia's future generation structure, its climate change policy and further reform of the national electricity market.

It remains to be seen how much of a platform the Council of Australian Government's ERIG inquiry and the Switkowski Report on nuclear energy for the Howard Federal Government will provide for policy change, with the new national inquiry in to emissions trading, launched by the Prime Minister towards the year-end, also at least potentially important for future policy. The emissions trading report is scheduled for delivery by May ahead of a federal election expected to be held in the last quarter of 2007.

There is a question over when the ERIG market reform review in its final form will be publicly available. After a day of public debate in Sydney in December about its draft report, ERIG, chaired by Bill Scales, was left with little time to produce its final report as scheduled before the year-end. The report will be conveyed to CoAG, which is unlikely to meet before April, given the New South Wales state election in late March, and may not be published before first ministers have formally received it.

And this is the future

The year has ended with the Australian Bureau of Agricultural & Resource Economics producing a dash of cold water for radical energy change advocates with a revised outlook to 2030 showing that annual generation output is expected to rise from 224,000 gigawatt hours at present to more than 400,000 GWh in a quarter of a century -- with most of it still being provided by fossil-fuelled power stations.

ABARE points out that delivery of electricity rose by more than 50 per cent in the 15 years to 2005 as the number of customers grew by 30 per cent. Consumption -- the balance being used by generators and lost over network lines -- has more than trebled (rising from 59,000 GWh to 214,000 GWh) between 1974 and 2005.

While there is currently under-utilised generation capacity, ABARE says, servicing the projected level of demand will require significant new investment -- of the order of 25,000 MW of new plant by 2030, most of it coal-fired and gas-fuelled.

The Bureau projects relatively small increases in renewable energy development -- it forecasts that wind power will be producing a little under 7,000 GWh in 2030 (compared with 1,255 GWh a year at present) and that biomass will contribute almost 5,500 GWh of electricity output (versus 950 GWh now). The bulk of renewable energy in 2030, as today, will be hydro-electricity, ABARE says, but its growth will be small due to lack of exploitable resources.  The Bureau estimates that total renewable power output will barely exceed 32,000 GWh in 2030, or less than 10 per cent of delivered electricity.

The forecast makes no allowance for production of geothermal energy from hot dry rocks, although ABARE notes that the technology is under development in South Australia. Some analysts believe that HDR geothermal power from the Cooper Basin can contribute 10 per cent of national electricity market demand by 2030.

Who's a big consumer, then?

The ABARE Energy in Australia 2006 report also provides a perspective on global energy consumption that counters the often over-the-top media and advocacy comments on Australia's role in worldwide output of greenhouse gas emissions.

Global primary energy consumption in 2005, says the Bureau, reached 9,868 million tonnes of oil equivalent. Australia's share was 115 million tonnes.

The three biggest consumers were the United States (2,276 mtoe), China (1,463 mtoe) and the five major European Union nations (Germany, France, Italy, Spain and Britain, with a combined total of 1,109 mtoe) followed by the Russian Federation (640 mtoe), Japan (504 mtoe), India (365 mtoe) and Canada (235 mtoe).   These 11 nations accounted for 66 per cent of worldwide primary energy use compared with Australia's 1.16 per cent. Also ahead of Australia in primary energy consumption were South Korea (223 mtoe), Iran (159 mtoe) and Brazil (127 mtoe).

Australia was the world's eighth largest coal consumer (52 mtoe) in 2005, with China burning 1,082 mtoe, the Americans 575 mtoe, India 213 mtoe, the five large EU nations 173 mtoe collectively and the Russians 111 mtoe.  Interestingly, Germany, which is constantly paraded in the Australian media as a model renewable energy developer, used 159 mtoe of fossil fuels to make electricity in 2005 -- 82 mtoe coal and 77 mtoe natural gas -- plus the equivalent of 37 mtoe in uranium for its nuclear power stations.

 

The report also provides context with respect to global energy production. While Australia was the world's third largest coal producer (at 199 mtoe) in 2005, it lagged far behind the biggest two coal nations (China with 990 mtoe and the US with 567 mtoe). Australia's production of coal accounted for 6.9 per cent of the global output of 2,887 mtoe. Australia was the second largest producer of uranium (127 mtoe) behind Canada (155 mtoe) and provided almost 23 per cent of the global fuel for nuclear power.

More than a third of global energy production (3,895 mtoe) was oil with natural gas providing 2,487 mtoe (Australia's share 32 mtoe).

$50 billion a year business

The CSIRO Energy Futures Forum has calculated that Australians now spend $50 billion a year on energy -- and that 120,000 Australians are directly employed in the energy sector, where consumption has doubled in 30 years.

CSIRO established the forum in 2004 to engage stakeholders in the energy industries, government and community in assessing pathways for the future of energy in Australia and published a series of reports in December on the deliberations.

In its summary of the forum, CSIRO comments that Australia has a strong vested interest in finding solutions to climate change. "It is a major energy exporter, the environment sits prominently in the Australian psyche and, as a nation, it is vulnerable to the broad economic, social and environmental impacts of climate change."

The summary notes that Australia will require "several tens of billions of dollars" of new investment to replace ageing plant and develop new plant to meet growing energy demand. Electricity generation assets are most exposed to carbon price uncertainty, it adds, with asset lives of between 20 and 50 years plus construction lead times of several years.

Make it national

The Energy Supply Association has urged the ERIG review to recommend to CoAG that West Australian electricity market arrangements should be consistent with the national power market operating on the eastern seaboard -- and it has hit out at the Group's draft report suggestion that a "watching brief" be maintained on the need to extend the Trade Practices Act to regulate electricity industry mergers, ERIG having found that the current situation does not warrant toughening the legislation. What is to be watched and by whom, demands ESAA? "Rather than resolving a long-running and generally counter-productive debate," it says, "this proposition simply adds to regulatory uncertainty because it encourages proponents to continue their activity."

Commentary

Whether or not John Howard succeeds in opening the door, at least in principle, to use of nuclear power in Australia, there is no doubt that the market for our uranium is going to shoot up very soon because of developments in China alone.

China, which is experiencing an increase in annual energy consumption ranging between 8 and 10 per cent, is planning to build 25 nuclear plants in the next five years. (American industry is currently considering developing two.)

The Chinese strategy is not driven so much by a desire to reduce its greenhouse gas emissions, although this is a useful  policy by-product for the global dialogue, but by national logistics. Most of China's  coal reserves are in the north and the coastal regions, where demand for power is greatest, are far away.

The Chinese are not only looking to nuclear (and large-scale hydro-electric schemes); they also have a big  commitment to fossil fuel as they currently build more than 120,000 MW of new generation capacity -- almost three times the size of Australia's present generation fleet -- in pursuit of slaking  electricity demand which will be double 1994 levels by 2010.   But even this astonishing infrastructure feat will not resolve the Chinese government's concerns about power blackouts and rationing in the economic tiger zones and the plant build can be expected to continue apace beyond 2010.

Apart from the implications of Chinese power supply growth for our uranium (and our coal and liquid natural gas), this massive level of development is an entire herd of elephants in the global living room in the context of the climate change policy debate.

To suggest that Australia can "solve climate change" -- one of Kim Beazley's more bizarre policy throw-away lines of 2006 before his party turfed him out of office -- while China alone (plus a number of other developing countries) is on this  power supply trajectory  is the sort of naive rhetoric that has to be overcome before any serious national debate can take place about our role in the worldwide pursuit of a strategy. "Setting an example" by beggaring the Australian economy while China replicates our coal-fired generation fleet each year is not a policy, but a delusion.

The rejig of the ALP's federal frontbench doesn't promise a shift from the Beazley/Albanese mindset, judging by the comments of new environmental spokesman Peter Garrett, as reported in The Daily Telegraph on 13 December: "Set the targets, start the carbon trading and give business the opportunity to innovate, reduce emissions and strongly hold back the risk of temperatures reaching the tipping point."

How this is to be achieved by unilaterally acting in Australia, to the detriment of trade-exposed industry in the absence of a global carbon scheme, and how cuts in Australian emissions will impact on global warming while China, India and other developing nations massively expand their use of fossil fuels for power production is something Garrett should be asked to explain.

Meanwhile the ALP state governments continue to posture about this issue, spinning rather than taking effective action.

An egregious example of the genre is the current New South Wales Government advertisement running on television -- using taxpayer funds for a blatant party purpose ahead of the March State election -- which talks up renewable energy policy on a "world-leading basis" while a pretty child is portrayed in front of a mass of whirling wind turbines.   This is a pose by a government that has overseen the burning of coal for power rise from 22 million tonnes a year when they took office to more than 27 million tonnes in 2005 and which owns generation businesses with plans to add more than 1,000 MW of coal-fired capacity through renovating their existing assets.

This point is not presented as an argument against coal-fired electricity -- there is no possible way Australia can maintain its global cost-competitive trade position over the next 25 years without existing and new fossil-fuelled power stations -- but to illustrate the depths to which such politicians sink to cling to office.

Base as this behaviour is, the more important issue, of course,  is how national governments across the world can come to terms with the kind of abatement called for in the Stern Report -- which itself is both open to challenge in terms of some of its claims and yet another example of the unquestioning adulation in the media of anyone talking up massive economic and social change.

The recent Nairobi climate change conference could hardly have been a more graphic example of the inability of the United Nations processes to deal with the way forward and there is no prospect in sight of a breakthrough in 2007.

From an Australian perspective, the immediate challenge in 2007 is political, with the federal election likely to be in part at least fought on climate change politics. In this respect, it should be a requirement imposed on the main parties through media commentaries for national greenhouse gas abatement policy proposals to be set against the need to:

Keith Orchison

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