Issue 177, January 2020
It’s no hardship to farewell 2019 from an energy supply perspective, but what will 2020, and the decade ahead, bring? One’s fervent new year wish is for anything but more of the same, although my granny used to warn me “Be careful what you wish for; you may just get it!” Whatever else happens, however, you can be assured of one thing: hyperbole is here to stay. It is now embedded in the energy (and climate change) discourse locally, in Europe and in America – and fuelled by the feedback loop between strident social media commentary and mainstream media coverage that to a growing extent eschews context and commonsense in favour of treating serious issues as a spectator sport. And then there is the running sore of hyper-partisan politics……. Perhaps, however, there are some signs that more people are beginning to understand the need for informed judgment rather than kneejerk reactions.
Quotes
“ I find the Australian energy debate far too emotional, far too nervous and far too hot” – Fatih Birol, executive director, International Energy Agency. “I suggest a bit more calm, result-oriented discussion.”
“If people are really serious about finding a solution to climate change, I think you don’t have a simple or single solution; we need all technologies and, for me, nuclear is one of them” – Fatih Birol. “Rather than looking at one tree, we should see the whole forest.”
“The best answer to climate dangers is rational energy investment policy and hysteria about bushfires is as unhelpful as head-in-the-sand denialism” – Australian Financial Review commentator John Kehoe.
“Longer drier periods, resulting in more drought and bushfires. If this is not a catalyst for change, I don’t know what is. We need to reduce our carbon emissions immediately” – New South Wales Energy & Environment Minister Matt Kean.
“I am not going to write off the jobs of thousands of Australians by walking away from traditional industries.” – Prime Minister Scott Morrison. “I am not going to embrace economy-wrecking, job- destroying reckless targets.”
“Australia should meet strong targets to reduce global greenhouse emissions but stopping coal exports will only lead to other countries increasing their supplies” – federal Labor leader Anthony Albanese.
“Business as usual is not an option” – a tweet by former prime minister Malcolm Turnbull.
Six organisations representing business, investors, the trade union movement, environmental activists and social welfare lobbyists banded together in mid-December to call on the Victorian government for “decisive and responsible action” to pursue a transition to a low-carbon economy.
A statement issued by the Australian Industry Group, the Victorian Chamber of Commerce & Industry, the Victorian Trades Hall Council, the Investor Group on Climate Change, Environment Victoria and the Victorian Council of Social Service called for the Andrews government to set an emissions target “in line with an equitable share of the reduction challenge set by the Paris agreement.”
The organisations urged the Victorian government to establish an independent authority to guide implementation of transition policies and to co-ordinate with other jurisdictions to achieve a nation-wide approach.
An AiG spokesman said: “Emission targets will have to keep deepening over time. These targets should be pursued through policies that avert negative impacts on the community. A key part of this is to maintain Australia’s trade competitiveness and help industry thrive through a successful transition to net zero emissions by 2050.”
Former South Australian premier Jay Weatherill has told his Labor party that its approach to climate change politically has failed “because we failed to treat inaction as an economic issue.”
Weatherill told a Chifley Research Centre forum in Sydney: “We didn’t do ourselves any favors when we declared this the greatest moral challenge of our generation.”
He added: “The problem with moralizing language is it prevents you from undertaking the really hard work of asking about the costs and benefits of action and how this works in the real world.”
Weatherill, who was co-chair of federal Labor’s post mortem on its 2019 May election defeat, said: “I am calling for serious economic analysis to be commissioned to measure climate risk and damage in the Australian economy and (to provide) an evidence base for us to deal with the risks of inaction.”
New South Wales Energy & Environment Minister Matt Kean has told journalists the State government has its chief scientist working on a report on technologies and services to pursue greater NSW decarbonisation with the aim of zero net emissions by 2050.
Hugh Durrant-Whyte’s work will include examining a nuclear energy option, Kean says.
The report will include new export opportunities, with “green hydrogen” a prominent focus.
Media perspective
The Australian Financial Review, which, like the media at large, has decided 2020 is the start of a new decade (versus those who argue it begins in 2021), has greeted the new year with an editorial declaration that “it is still not too late for a bipartisan compromise around a lasting and effective market-based solution” to what it describes as “the most disruptive (Australian) issue of the past decade: the culture war over climate and energy policy.”
The newspaper comments that “since the abandonment of the emissions trading scheme in 2010, rational policy has been sacrificed to appease the climate deniers on the right and the climate fanatics on the left.”
The Financial Review suggests “a modest revenue- and tech-neutral carbon price” in order to “keep the lights on and reduce emissions in the least costly way by 2030.”
The Australian in a New Year’s Day editorial says the outcome of last month’s UN summit meeting in Madrid “demonstrates that the international agenda on climate action has bigger problems than Australia.” It declares support for the major argument of federal Energy & Emissions Reduction Minister Angus Taylor that” least-cost abatement through technological innovation is the correct approach.”
The Sydney Morning Herald says “Australians increasingly are looking to the (federal) government to take national and global action to reduce greenhouse gas emissions and stop the terrifying advance of climate change.”
Audrey Zibelman, CEO of the Australian Energy Market Operator, declares that, to maximize economic benefits as traditional power generation is retired, the NEM must see investment in “significant consumer-led distributed energy resources” – mostly rooftop solar – and utility-scale variable renewables “supported by sufficient dispatchable resources and well-targeted augmentations of the network.”
Zibelman was speaking in December on the release of AEMO’s draft integrated system plan for the east coast, looking out to 2040. She told a Sydney forum that household PVs will be a strong contributor to electricity supply as part of a “phenomenal transition” that will see the “democratization of energy.”
The ISP is based on rooftop solar installations “doubling or even tripling,” investment in 30,000 megawatts of large-scale renewable energy generation and “up to 21 gigawatts of new dispatchable resources.”
AEMO observes that system services, including voltage control, system strength, frequency management and power system inertia and dispatchability “all need to be managed as the generation mix changes.”
The energy market operator is basing its planning on 63 per cent of the NEM’s current coal-burning generation in Victoria, NSW and Queensland being closed down by 2040.
In its new draft report on development of the east coast market, AEMO foresees that 15,000 megawatts of coal-fired capacity will be shuttered over the next 20 years.
In two scenarios of its “roadmap” the operator considers an earlier exit of coal generators if competition from renewables and changes to emissions abatement targets see their revenue fall below their economic operating levels.
In calendar 2019 black coal plants in NSW and Queensland contributed just over 106,000 gigawatt hours of electricity to the NEM and Victoria’s brown coal units just over 33,000 GWh.
According to the OpenNEM website, coal-fired power stations provided 11,660 gigawatt hours (or 73.7 per cent) of 15,813 GWh sent to the east coast power grid during December.
Estimated use of rooftop solar power during the month was 1,336 GWh – while wind (1,424 GWh) and solar (644 GWh) farms sent 2,068 GWh (or 13 per cent) to the grid.
The next largest contributed to the system was 1,103 GWh with hydro power providing 958 GWh.
The Clean Energy Council claims that the cost of capital for new renewable generation in the east coast market is the highest in the world.
In a December presentation to an Australian Energy Market Commission hearing on transmission loss factors, the CEC said marginal loss factors are among the variable renewables sector’s top five problems, leading to a one to two percentage point premium on the NEM cost of capital.
The lobby group says the weighted average cost of capital for the sector is averaging eight to 10 per cent – versus 5-6 per cent in the US and Britain. Given this, CEC asserts, “it is entirely possible renewable investors will withdraw from the market” to invest in regions with less loss factor volatility.
Mark Ho, president of the Australian Nuclear Association, argues that lifting the national ban on the technology “can strike a clear path for Australia to decarbonize cheaply and effectively.”
In a newspaper op-ed at the close of the year, Ho asserts that “the best possible solution” to drive down national carbon emissions is “renewables working alongside nuclear.”
He says there are new technologies “where the energy opportunity for Australia lies” – small modular reactors and six types of “Generation IV” reactors “which are all either in the production line or the pipeline.”
Tony Irwin, chairman of an Engineers Australia nuclear panel, adds that “from a clean energy standpoint, nuclear stacks up.” He says the technology “ticks the box for low emissions on a whole-of-life basis” – with nuclear power at 12 grams per kilowatt hours, the same as wind energy, and less than solar power.
Irwin points to power demand in New South Wales as an example of the supply challenge ahead. The State, the largest regional demand area in the country, needs 6,000 megawatts 24/7, he says. “Six thousand megawatts 24 hours a day is 52,560 gigawatt hours.” By comparison, Australia’s largest solar power farm is capable of generating 380 GWh a year. “You’d need more than a hundred of such solar plants to meet the minimum NSW demand.”
Meanwhile federal Liberal MP Ted O’Brien, who chaired a 2019 parliamentary committee inquiry on the nuclear issue, claims there is “movement” in public attitudes to nuclear power – as the Minerals Council of Australia releases a poll in which 40 per cent of respondents supported the nuclear ban being lifted. O’Brien says “facts and figures” can help garner more support.
The MCA poll shows 33 per cent of respondents wanting the ban continued and 26 per cent “neutral or unsure” on the issue.
O’Brien’s committee released a report in mid-December with majority support for nuclear power being considered as part of Australia’s energy – drawing an immediate response from federal Labor leader Anthony Albanese that this was “fantasy.”
Federal Energy & Emissions Reduction Minister Angus Taylor says in response to the report that the Morrison government “has no plans” to lift the nuclear moratorium that has been in place since 1998.
East coast households in 2018-19 were still paying about 20 per cent more than in 2007-08 for electricity – and the average cost for NEM residential users, in “real” (inflation-adjusted) terms was 45 per cent higher.
While media coverage in late December tended to focus on average household bills in 2018-19 being $65 (or four per cent) lower than in the previous financial year, according to the Australian Competition & Consumer Commission, the core message is that “there is still work to be done” on mass market affordability.
Commission chairman Rod Sims says environmental costs have been the biggest driving factor in the long-term rise in household charges. Federal, State and ACT policies to pursue greater uptake of renewable generation, promote energy efficiency and cut carbon emissions accounted for 41 per cent of the increase between 2007-08 and 2018-19.
The ACCC analysis shows that the $254 “real” rise in bills broke down to $103 for environmental costs, $81 for network charges, $53 for retail and related costs, less $3 for lower retail margins, and $20 for wholesale costs.
The commission says homes with rooftop solar panels made up 16 per cent of NEM households last financial year (versus 0.2 per cent in 2007-08) and residential customers paid about $550 a year more in power bills than PV owners. The situations, says Sims, raises questions about fairness.
“The cost of installing solar panels has reduced significantly in recent years,” he explains. “Environmental schemes like premium FiT rebates are no longer needed to make solar an attractive options for households that can afford it. We are concerned about the additional costs such schemes impose on households that cannot afford to install panels.
“Funding environmental schemes through government budgets rather than electricity charges (is) a more equitable option.”
A report commissioned from EnergyQuest by the New South Wales Business Chamber warns that the State is confronted by “an imminent shortfall” in gas supply and calls for the Berejiklian government to approve the controversial Narrabri field’s development as soon as possible in 2020.
The report points out that the NSW government designated the Narrabri project as “strategic” and signed a memorandum of understanding with Santos for its development five years ago. It recommends that the government follow the example of Queensland and appoint a co-ordinator to progress critical gas projects. At present three departments share responsibility for approving gas developments.
It points out that some 300,000 NSW jobs rely on gas supply for 33,000 businesses – and 1.3 million households use the fuel. It emphasizes that the State manufacturing sector, employing 253,000 people and using 84 per cent of the business gas load, could be at risk if a shortfall occurs.
The EnergyQuest review also stresses that the State may need to triple its gas power generation between now and 2037 as coal plants close in order to provide dispatchable electricity as use of renewable power increases
If there is one thing that stands out from Australian Domestic Gas Outlook conference debates over the past seven years it is that navigating to a safe harbor in the ‘Twenties for east coast consumers large and small is not easy.
The eighth ADGO event, to be held in March, is tightly focused on key elements of possible solutions – of which there manifestly must be more than one. There is no silver bullet in this game.
Front and centre in the debate is what can be done to alleviate the problems of Australia’s manufacturers, who are a critical part of the national economy, not least because of how many people they employ directly and indirectly as well as how the costs of their products flow through to other businesses and households.
The manufacturers’ perspective has been summed up recently by Orica chief executive Alberto Calderon. “It is ridiculous in a country like Australia,” he declares, “that gas prices for companies are around the $11 (per gigajoule) mark. It’s too high.”
The problem is relatively easily to state; it has been set out again and again at ADGO conferences. An acceptable, sustainable way of meeting both consumer needs and upholding the viability of gas suppliers is far less simple.
ADGO conferences are the premier public event where Australian users, suppliers, regulators and policymakers come together to express their views on this wicked problem and to debate possible ways forward. As Martin Ferguson, a former federal resources and energy minister and a regular participant, says, “this has become a very important event in terms of the gas industry.”
There will be many aspects discussed at 2020 ADGO, but perhaps the core questions that will be addressed are three:
• What are the risks of getting government involved still more in the domestic market?
• But how can wholesale gas prices be brought down without significant intervention?
• Will an increase in gas supply be enough to put downward pressure on prices and also underpin further new investment in exploration, production and transport?
One of the key contexts for this debate is what is happening in the gas world more widely and especially in Asia. ADGO will feature input from two top analysts to address this: Wood Mackenzie director Nicholas Browne and EnergyQuest chief executive Graeme Bethune.
Another issue, growing in importance every year as the world wrestles with the problems and opportunities of addressing climate change, is what role gas can play in the Australian energy transition? It’s a topic that will receive key attention on the 2020 ADGO agenda.
Among the who’s who of senior corporate executives and expert observers also on the conference agenda will be the man whose judgments on what is going on in the gas sector requires attention from the highest policymakers and the other movers and shakers in the market: Australian Competition & Consumer Commission chairman Rod Sims.
Already pursuing the “Battery of the Nation” project to further develop Tasmania’s electricity links with the mainland, the State government is now pushing a large role for the island to be a producer of “green hydrogen.”
The government has published a white paper claiming that a hydrogen development in the State, using its hydro and wind resources, could deliver at between 10 and 15 per cent less cost than the rest of the NEM where carbon emissions need to be offset and at 20 to 30 per cent below the cost of dedicated off-grid renewables in eastern Australia.
Steve Davy, CEO of Hydro Tasmania, says the white paper “has attracted plenty of interest” from investors. Promotion of the concept has included a forum on Tasmanian energy held in China.
At the start of the second decade of this century local political and media hysteria was about carbon pricing and affordable electricity. By mid-decade it was about the renewable energy target. After the events in South Australia in September 2016, it was about security of supply in the NEM and then about the “national energy guarantee.” For most of 2019 it was about “extinction” and climate change policies, fuelled in the year’s closing months by bushfires. And so it goes.
The quote from the IEA leader, Fatih Birol, that starts this newsletter applies in spades to this situation: there is far too much emotionalism in Australia about energy policy and an overwhelming need for calm, result-oriented debate.
Achieving this will not be helped by the ongoing degree of noisy disputation in the community and the lack of public trust in government – as witness a study of the outcome of May’s federal election by researchers at the Australian National University which has found only one in four respondents have trust in our political leaders or in parliament.
How the current community fright about the 2019-2020 summer bushfires plays out politically in this environment remains to be seen but it is hard to believe that it won’t influence energy-related politics – just as public angst over the major drought of the previous decade contributed to the Howard government being pushed out of office.
This is where Birol’s advice really matters; emotionalism, in many cases panic, will not carry Australian policy management in to a good place, most importantly because it risks serious damage to the economy with the substantial social consequences that would bring.
This newsletter includes a note of views expressed by Jay Weatherill, the former South Australian premier who made a botch of his State’s electricity supply management through a bull-at-a-gate approach to renewable energy and paid the price at the last SA poll. In recent months he has been part of federal Labor’s in-house review of how and why it lost the May 2019 election.
Weatherill now offers this advice: “The problem with moralizing language is it prevents you from undertaking the really hard work of asking about the costs and benefits of action and how this works in the real world.”
This isn’t just a salutary admonition for Labor; it applies equally to the Liberal and National parties. It doesn’t mean that current policies can’t be challenged for fear of making things worse; it does mean that there has to be a genuine attempt to examine energy decarbonisation action unemotionally and to lay down a path forward that won’t require re-invention every two, three or five years.
Keith Orchison
1 January 2020