Issue 224, December 2023
Against the backdrop of yet another hyperbolic climate change talkfest occupying world media attention and local media giving a large amount of coverage to the security of “the world’s most volatile electricity market” in eastern Australia as part of consumer concern about the cost of living (where energy bills loom large), it is not surprising that, according to a Guardian Essential Report opinion poll, 50 per cent of voters have “not that much, hardly any or no trust in government leading the energy transition.” The federal government’s standing, at a time when it is still in recovery mode from its crushing defeat in October’s Voice referendum and flustered by local reactions to the Middle East strife, is not being helped by the Australian Energy Market Operator repeatedly sounding the alarm that NEM transition developments are not adequate. As a newspaper editorial recently pointed out, public support for “net zero” programs tend not to extend to a willingness to pay large bills for them or to suffer substantial inconvenience. The hot summer now beginning seems likely to be a testing time for the market operator, energy system suppliers and consumers large and small – and therefore for federal and eastern State governments. For these governments, the answer to energy issues apparently is to controversially double down on their green NEM grid capacity plans for the next six years at taxpayers’ cost.
“The entire government apparatus is preparing for a long, hot summer” – federal Climate Change & Energy Minister Chris Bowen. “Everything prudent and necessary that should be done is being done.”
“The government has acted to provide urgent relief for energy consumers and is delivering the investment in cleaner, cheaper energy to keep the lights on and push prices down over the medium and long term” – Bowen.
“Investment will supercharge available power in the grid, delivering the long-term reliable, affordable and low-emissions energy system Australians deserve” – Bowen.
“We believe nobody should be left behind when it comes to the advantages of renewable energy. Not a single Australian should be left behind” – Bowen.
“The more renewable energy we have in the grid, the lower energy prices are” – Bowen.
“The 'renewables at all costs' ideological crusade doesn't pass the pub test Mr Bowen" – post on X (formerly Twitter).
“We’re talking about turning around an energy system that’s been in place for 100 years in 20 years; it’s not going to be easy” – Tony Wood, Grattan Institute.
“The overwhelming take-away from industry experts at this year’s AFR Energy & Climate Summit was that, while commitment to ambitious clean energy goals remains strong, achieving 82 per cent renewable energy by 2030 is fast becoming unachievable under the existing plan” – RenewEconomy newsletter.
“While the NEM has generally enjoyed better market outcomes this year, challenges continue to compound the delivery of low-cost and reliable energy supply in coming years” – Clare Savage, Australian Energy Regulator chair. “Work still remains to address energy affordability for consumers, co-ordinate the entry and exit of generation sources and ensure the timely and least-cost delivery of major transmission projects.”
“Labor’s decision to write a blank cheque on behalf of Australian taxpayers to bring more renewables online is a glaring admission that its climate and energy policies have failed” – federal Liberal energy spokesman Ted O’Brien.
“The failure of the Voice suggests Australians have limited bandwidth for big aspirational ideas at the moment” – Katharine Murphy in The Guardian newspaper. “People are head down in life – expensive mortgages, high power and petrol prices, big grocery bills.”
“The IEA declared in 2021 that no new coalmines, oil or gas fields should be opened up if the world was to reach net-zero emissions by 2050. A new report finds oil and gas is needed in every energy scenario, including the most ambitious target to keep global warming to 1.5C of pre-industrial levels” – report in The Australian newspaper on eve of CoP 28.
As Australian representatives prepare to throw themselves in to the cauldron of climate change debate at CoP28 in Dubai, the Bureau of Statistics has published new data highlighting the prominence of fossil fuels in the national energy economy.
The ABS reports that black coal, natural gas, crude oil and condensate, and brown coal are by far the dominating resources – with uranium performing strongly despite the federal government’s ongoing strident refusal to countenance nuclear power use at home.
Measuring production in petajoules for the 2021-22 financial year, the ABS says black coal accounted for 10,838 PJ – of which 93 per cent was exported, natural gas for 5,842 PJ – of which 79 per cent was exported as LNG, uranium for 2,108 PJ, all exported, crude oil and condensates for 844 PJ – of which 77 per cent was exported, and brown coal for 410 PJ, almost entirely used domestically.
The bureau also reports that renewable energy use in 2021-22 was 291 petajoules – of which wind energy totalled 105 PJ, all forms of solar power 125 PJ and hydro energy 61 PJ.
The ABS notes that end-use of all forms of energy in Australia in this period was 3,232 petajoules – of which the manufacturing sector took 999 PJ, the mining industry 647 PJ, households 913 PJ, and commercial businesses and services 620 PJ. Agriculture, forestry and fishing accounted for 175 PJ. Electricity, domestic gas supply, water and waste services collectively accounted for 102 PJ.
Nation-wide, electricity prices rose 8.4 percent between June and October, the Australian Bureau of Statistics reports – and they went up 10.1 per cent in the 12 months to October.
Without government relief fund contributions, the ABS says, the June to October rise would have been 18.3 per cent.
Energy Minister Chris Bowen has declared that natural gas is “a flexible fuel necessary for peaking and firming” as Australia undertakes the power supply transformation from coal-fired generation.
Speaking at a conference in Perth, Bowen said achieving the ALP’s target of 82 per cent electricity production from renewable energy by 2030 means that the remaining 18 per cent will increasingly be focussed on gas. “Unlike coal-fired power stations (or, for that matter, nuclear), gas-fired power stations can be turned on and off at very short notice, making them vital for peaking and firming,” he added.
He said that there will also be an ongoing need for gas as a supporting fuel and feedstock for industrial and commercial users. “And as the Bass Strait gas field depletes, new sources are going to be required to underpin reliability and security.”
Meanwhile a new study commissioned by Australian Energy Producers asserts that Australia will still need substantial gas production 26 years from now to ensure affordable and reliable energy supply in mid-century.
Consultants EY used three scenarios to examine potential future gas demand. In the greenest, where renewable energy use is 20 times current levels, they claim that domestic and regional demand for Australian gas would still require 56 per cent of today’s production.
Under a scenario where the renewables demand is 13 times current levels, EY say demand for gas would rise between now and 2040 and be at 86 per cent of current levels in 2050.
AEP chief executive Samantha McCulloch says the report shows Australia needs to plan for both strong domestic and international demand for gas in developing its approach to net zero by mid-century.
Western Australia is “up to its guts in the decarbonisation story,” says State Premier Roger Cook.
Opening the government’s “energy transition summit” in Perth, Cook announced $160 million in incentives for clean energy and technology companies to invest in WA and $708 million to be spent on the power grid in the State’s south-west.
In addition, he announced almost $20 million in subsidies for the uptake of rooftop solar power by 2,000 homes in regional WA.
“Growing our electricity network is critical to unlocking our renewable energy potential,” Cook said, adding that the upgrade will enable the connection of about 1,000 megawatts of new wind and solar generation in the northern sector of the SWIS.
Minerals Council of Australia CEO Tania Constable says a failure to see nuclear energy as a key solution to reducing national emissions is restraining “our march towards net zero.”
Constable says decarbonizing the economy in the most effective way “needs all options on the table” to ease the burden on heavy industry and manufacturers and to ensure they retain their international competitiveness.
MCA has published a report on decarbonizing Australia’s industrial heat sector which points out that industrial demand accounts for 42 per cent of Australia’s total final domestic energy consumption and half of this requirement involves process heating – of which 80 per cent is generated from fossil fuels.
Constable says emissions from industrial heating contributed 21.1 per cent of the national total in 2022, “more than the entire transport sector and second only to electricity generation.”
Achieving net zero for Australia, she adds, “requires a profound change (that includes) an agnostic approach to technology and energy, one that overcomes outdated ideological positions and stubborn mindsets.”
This, she says, includes deployment of nuclear energy, carbon capture and storage, bio-methane and renewable diesel. Constable declares: “These critical pathways are being championed by our global peers and Australia (has been) put at the back of the grid in the race to net zero.”
She argues that viewing decarbonization through “the important but narrow lens of electricity generation” fails to comprehend the challenge of emissions in Australia’s industrial base.
Constable points out that industrial furnaces may require temperatures beyond 1,000 degrees “and current renewable energy options are not able to meet that challenge.”
She says: “To secure a vital place in the global supply chain, Australia needs the investment and capability to not only extract rare earths and minerals but to process them in a cost-effective and reliable way rather than have China do it for us. Nuclear energy is the enabler.”
Meanwhile, Sky News reports an opinion poll undertaken by Resolve Political Monitor throws up that 49 per cent of respondents were in favor of the national ban on nuclear power being rethought versus 18 per cent being opposed and 33 per cent unsure. Asked if they supported the use of nuclear power here, 33 of respondents said yes, 24 per cent said no, 29 per cent “did not have strong view either way” and 13 per cent were undecided.
Resolve also report that 17 per cent of respondents identifying as Greens voters supported the use of nuclear energy in Australia while the breakdown for the rest in favor was 49 per cent for Coalition voters and 26 per cent among Labor voters. Twenty-eight per cent of Labor voters were opposed to the use of nuclear power and 14 per cent were Coalition supporters.
The NEM’s electricity networks are under attack for profiteering and have hit back – accusing the Institute for Energy Economics & Financial Analysis of using “flawed methodology” for a claim that they have made “unearned supernormal” earnings over the 2014 to 2022 financial years.
IEEFA claims the networks have pocketed $11 billion on top of profits of $16 billion allowed by the Australian Energy Regulator in this period.
Energy Networks Australia CEO Dominique van den Berg says the institute’s analysis is “flawed” and “repeats many errors made in an earlier version of the report, published last year.”
IEEFA says the networks have benefitted from “weaknesses in the regulatory regime,” but the AER has also rejected its assertions.
The regulator says in a statement: “The ability of business to outperform the regulated rate of return is the incentive-based framework working as intended under legislation. This out-performance is not an indicator of supernormal profits.”
Van den Berg adds that customers benefit under incentive-based regulation because networks are rewarded for delivering the same service for less cost or by delivering enhanced reliability. She says:
“Customers receive around 70 to 80 per cent of the gains, passed on through lower prices and higher service levels in to the future.”
She claims that consumers have “locked in” benefits of more than $13.4 billion through incentive regulation since 2006.
Faced with significant problems in meeting the “transition” of the NEM, governments State and federal have decided to launch a major rescue mission – putting forward policy changes at November’s end that they say will deliver an additional 32,000 megawatts of renewable energy and “clean dispatchable capacity, equivalent to around half the current NEM capacity,” in the next six years.
The move is being described as the biggest change to the NEM since its inception in the 1990s.
The key lever will be the federal government’s “capacity investment scheme,” which Climate Change & Energy Minister Chris Bowen declares will underwrite projects to deliver 9,000 MW of “clean dispatchable capacity” – battery or other storage – and 23,000 MW of wind and solar farms by 2030.”
The program will run by blind auctions every six months from June to 2027 – and the initial major debating point is what is the extent of taxpayer exposure in supporting it, with onlooker estimates differing by billions of dollars.
Amid large-scale media coverage of the new approach, one newspaper cartoonist has labeled it “green or bust.”
The federal Opposition has attacked the changes as “a blank cheque,” seizing on Bowen declining to say what they will cost in taxpayer support and arguing that he is recklessly “doubling down on a renewables policy that has lost all credibility.”
Bowen asserts that, in the global “race” to mitigate climate change “we’re all competing for capital, we’re all competing for materials so we need to provide as stable and welcoming policy environment for investment as we can.”
Promoters of green power are strongly welcoming the developments. Erwin Jackson of the Investor Group on Climate Change, says “the policy chaos we have had in the electricity sector for more than a decade has meant that institutional investors have found it very difficult to invest in Australia.”
The Australian Aluminium Council, the Australian Industry Group and the Energy Users Association have also all welcomed the new approach.
Clean Energy Finance director Tim Buckley declares the policy is “a game changer” although urging that further “complementary policy levers must be brought in to play to support this momentum.”
To meet the Albanese government’s plan to lift the renewables share of electricity supply from the current 34 per cent to 82 per cent by 2030, it needs installation of 7,000 MW of capacity annually – but in 2023 the total to date this has been just 600 megawatts.
The Queensland government claims “the world's most respected renewable energy investors are knocking on our door to work with us and partner with us” on the power transition.
State Energy Minister Mick de Brenni claims Queensland now has a “pipeline” of 22,000 megawatts of renewable generation projects plus 13,000 MW of storage and firming infrastructure.
More than 450 industry representatives attended a forum in early November organized by government-owned Powerlink to focus on the State’s transmission needs and plans. The company says a key focus of discussions was the pursuit of renewable energy zones in the State.
The Australian Energy Market Operator’s latest modelling of NEM electricity demand has a central scenario that sees annual business requirements rising by just five terawatt hours between next year and 2030 – while community supply from rooftop solar jumps from 23 TWh to 38 TWh in this period. The PV shift is seen as reducing residential requirements from the grid generation system from 37 TWh next year down to 26 TWh in 2030.
As analyst David Leitch points out in a RenewEconomy commentary on the forecasts, “the key point is that, despite lacklustre growth in business demand and the decline in residential demand, overall centralized demand is expected to grow.”
He warns that there is a risk three aluminium smelters served by the NEM, with a combined demand of 20 TWh a year, will close by 2030. He adds that finding power supply for the trio, given the impending closure of coal-fired power stations in New South Wales, Victoria and Queensland, is “a national challenge.”
The single biggest question hanging over the NEM and Western Australia’s SWIS right now is what will the new summer season, just beginning, bring?
The summer readiness report released by AEMO late in November
suggests excessive heat created by El Nino weather conditions may see a 1-in-10 year high in electricity demand in eastern States and WA.
The market operator believes that new wind and solar farms plus battery storage will overcome the challenge to supply on the east coast represented by the final closure of Liddell coal units in the Hunter Valley in April as well as the ongoing loss of Callide units in Queensland – although the plant operator is targeting a return to the market in early 2024.
AEMO is also beefing up its reliability and emergency reserve trader arrangements, engaging large industrial consumers to reduce demand at short notice, to meet any problems.
There is a notable sense of unease in some of the media coverage of Chris Bowen’s latest lunge towards still more grand planning for his and the Albanese government’s big promise of reshaping electricity supply to pursue a huge share coming from renewable energy and storage by the turn of the decade – paired with their boast that the outcome will be reliable and affordable power for all consumers.
The unease relates to Bowen’s refusal to disclose the estimated cost to taxpayers of supporting the new policy thrust.
A commentary by Australian Financial Review reporters after the policy’s announcement sums this up pretty well: "The cost of Labor’s freshly minted Capacity Investment Scheme is being hotly debated by energy experts, with most agreeing the Commonwealth faces a material financial exposure. as well as concerns about the government’s refusal to reveal costings.”
Whether this exposure could run to hundreds of millions of dollars or billions is guesswork at this point but that the new Bowen scheme seems to be risky business is pretty clear. The minister himself declares “if all goes well, the scheme will provide a financial return to taxpayers.” Top marks at least for bare-faced chutzpah.
An associate editor of The Australian, Eric Johnston, observes: “The Bowen scheme is enormous in ambition and, when fully up and running, is likely to result in an equally large contingent liability in the nation’s budget. The scale of it means companies and energy investors will most certainly redraw investment plans, with the program risking the crowding out of existing renewable projects that are in planning.”
In another newspaper op-ed, economist Judith Sloan writes: “The idea that Australia can become an energy superpower is impossible to square with taxpayers stumping up billions of dollars to subsidize renewable energy.
“If renewable energy is really so cheap – the cheapest form of generating electricity, according to embattled Chris Bowen – why would the operators need a guaranteed flow of funds from taxpayers? That’s not how markets work.”
She adds: “The real tragedy of this story is the failure to appreciate the complicated features of the electricity grid and how government intervention generally worsens rather than improves outcomes.”
Grattan Institute energy program director Tony Wood told the Financial Review he is worried that the scheme is “too clever,” adding “we don’t know exactly how much yet, but this scheme moves some of the risk from the proponents (of big new projects) to the government.”
Wood said: “It also pushes the issue of reliability on to the States. It also doesn’t solve the transmission problem. You still have to connect 32GW of new capacity – wind and solar projects – to the grid.
“It also does not adequately address two key problems: making sure there is enough dispatchable capacity and transmission investment to connect all the wind and solar projects.”
Apart from all this, what could possibly go wrong?
Keith Orchison
29 November 2023