Issue 218, June 2023
As we come to the cusp of the new financial year, are there grounds to hope that energy policy and supply management in 2023-24 will be less worrisome than in 2022-23, 2021-22 etcetera? Short answer, on the basis of more than a decade of shenanigans, is probably not – but the more alarming question may be how close are we now to the point, especially in the NEM, when the muddle turns in to a crisis of one form or another? Former prime ministerial adviser Peta Credlin declared in May that the energy scene in Australia is a “slow motion train wreck.” This reflects the concerns of more than a few knowledgeable observers that the traditional energy supply system is being placed under stress before a genuine alternative arrangement is ready to take its place. As one commentator put it recently, “the energy transition is happening back to front,” with the politically-driven rush to renewables unmoored from engineering and market reality. It is only three months since the Australian Energy Market Operator warned that “reliability gaps” loomed from 2025 onwards, widening in its opinion until “all mainland (NEM) States are forecast to breach reliability standard from 2027 onwards.” The operator declared that the “fundamental challenge” of keeping the NEM system stable as fossil-fuelled generation is sidelined and shuttered is ”daunting.” What’s changed since February to make this any less of a problem? What will change in the new financial year?
“If nuclear is not on the table and Australia is to achieve a target of 82 per cent renewable energy generation by 2030, then what ideas are not dumb?” – Spectator Australia commentator Michael de Percy reacting to Energy Minister Chris Bowen’s snipe that the Federal Opposition’s proposal to allow nuclear energy in the supply mix is “a dumb idea.”
“The rudiments of the plan B the country badly needs are not hard to fathom. The life of coal plants must be extended in the short term and gas supplies expanded. In the short-to-medium term, federal and State moratoriums on nuclear energy must be removed and the promise of small modular reactors embraced” – Menzies Research Centre’s Nick Cater.
“Australia is well below where it needs to be to reach its (energy-related) climate targets” – Clean Energy Finance Corporation CEO Ian Learmonth, telling a conference that the 2030 target needs development of the equivalent of “a substantial windfarm a month” to meet the requirement for 29,000 megawatts of large-scale renewables.
“There will be no net zero without gas backing up intermittent renewables” – South Australian Energy Minister Tom Koutsantonis. “Gas is the firming fuel. Gas will help us decarbonize.”
“Increasing amounts of solar and wind generation are being curtailed because there’s not enough transmission capacity to transport it” – AEMO chief executive Daniel Westerman. “In other words, parts of our energy highway are at gridlock.”
“Securing a social licence to build transmission lines is the most pressing issue facing Australia’s energy transition” – federal Energy Minister Chris Bowen.
“The longer-term solution for energy prices is to get more cheaper, cleaner renewable energy into the energy market” – federal Environment Minister Tanya Plibersek.
“Updating and expanding the grid is no simple challenge. Indeed, this is a three-part challenge: as well as being sustainable, the grid needs to be reliable and affordable (the energy trilemma)” – Siemens Energy in an advertorial.
“The notion that you’re going to have 82 per cent renewables in our system by 2030 is bullshit” – former Snowy Hydro CEO Paul Broad in a radio interview. “There are massive changes that need to occur. I’m deeply concerned about the rush, the notion that somehow this is all magic.”
“Decarbonizing Australia and the world is a mammoth task. It is likely to take longer and cost far more than expected. It will demand all available human ingenuity to drive clean power from solar, to hydrogen, to nuclear and technology not thought of yet” – Australian Financial Review in an editorial. “Governments need to keep open the options for innovation, not limiting it to what seems to be most politically appealing.”
The federal budget delivered in May forecasts a rise of 10 per cent in national retail electricity prices in 2023-24 financial year – notwithstanding a commitment to deliver a $3 billion energy relief package that the Albanese government, funding collectively with State and Territory governments, is to provide to small businesses and low-income households.
The bulk of the price relief will be directed to pensioners and people on fixed incomes, including welfare payments.
The budget papers state that the energy price rise in 2023-24 would have been 25 per cent without federal government interventions in the electricity and gas markets.
Treasurer Jim Chalmers says the government will also spend $1 billion to subsidize low-cost loans for households for energy efficiency improvements and installation of solar power.
The budget preceded a late-May announcement by the Australian Energy Regulator of another increase in the default market price – and AER chair Clare Savage told journalists “it is too early to say whether electricity prices have peaked.”
She said wholesale energy costs, which account for about a third of final bills, continue to be “the predominant driver of increased retail electricity prices.”
The AER's decision impacts on around 600,000 power customers in South Australia, New South Wales and South-East Queensland who are on the retailers’ default offer, which is effectively a price cap for households and small businesses who have not shopped around for the best deals they can find.
While relatively few householders are on the DMO tariffs, they are used by energy retailers as a reference point for price discounts in the market at large.
A key change to the objectives of the east coast electricity market is in train.
State and federal energy ministers at their latest meeting – in mid-May – agreed to include an emissions reduction objective in the legislation under which the NEM operates.
This will require climate change targets to be considered by regulators rather than only economic factors.
The dominant requirement in law for the NEM until now has been to “promote efficient investment in, and efficient operation and use of, energy services for the long-term interests of consumers of energy with respect to price, quality, safety, reliability and security of supply.”
The South Australian parliament, the lead legislator for the market, will be asked to approve the new objective for implementation by September.
Energy ministers have ditched the Energy Security Board, set up six years ago to co-ordinate the NEM’s move to large-scale use of renewable technology, assuming control themselves over market security, reliability and affordability with help of a panel that will co-ordinate advice to governments.
The decision at May’s ministerial indaba in Alice Springs was accompanied by a communique declaring “the time is right” for a different approach. “The concept of an Energy Security Board which would receive regular referrals for policy work is no longer one that is fit for purpose,” federal Energy Minister Chris Bowen told media after the meeting.
Bowen said ministers also agreed to work together on “removing any obstacles to new transmission or generation coming online in the next couple of months.”
Meanwhile, the Clean Energy Council is proposing that the Australian Energy Market Commission, the NEM rule-maker, change regulation of new grid connections.
The CEC says the existing process has “historically created serious delays for renewable investors and developers.” It asserts that currently some generators face “open-ended delays” for connection to the grid.
The CEC is also campaigning for the federal renewable energy target to be extended past 2030.
Penny Sharpe, New South Wales Energy Minister, has told Australian Associated Press that “all options are on the table” for the future role of Eraring power station in the NEM.
Sharpe, who says she doesn’t want to keep coal-fired power units operating “for a minute longer than needed,” acknowledges that the Eraring situation – it is the market’s largest coal-fired generator – is “a challenge for energy reliability.”
The fate of the power station is complicated by its owner, Origin Energy, being probably taken over by international investor Brookfield Asset Management, which has told media it will follow the current timetable for closure in 2025. (The Brookfield bid is currently under Foreign Investment Review Board consideration.)
The Sydney Morning Herald reports that Sharpe has been briefed by the market operator that firming power supply gaps are possible in NSW in 2025 and 2026 following Eraring’s closure.
The newspaper adds that senior officials in the NSW government tell it up-to-date information on the need for ministerial intervention “should be available” by the end of this year.
The RenewEconomy website reports that “the New South Wales government has revealed big delays and blowouts in the cost of some its newly created renewable energy zones, raising new questions about the timing of the planned closure of Australia’s biggest coal generator at Eraring and the pace of the State’s green energy transition.”
Santos CEO Kevin Gallagher, one of the keynote speakers at May’s annual APPEA conference in Adelaide, had a simple message for climate change and energy policymakers: don’t pursue picking winners.
“People, innovation, technology and science will solve the energy transition problem,” Gallagher declared. “But there is no single silver bullet. It is why I encourage governments not to pick winners. It is why low carbon technologies should be incentivised on a technology-neutral basis so that we can find the lowest-cost path to net zero.”
Gallagher echoed the theme proffered by Meg O’Neill, CEO of Woodside Energy and APPEA’s current chair, who opened the event by asserting that “there is a strong argument for using more gas in the race to net zero,” highlighting the fuel’s importance in manufacturing processes and in supporting variable renewable energy.
O’Neill stressed Australia’s opportunity to become “a regional CO2 storage leader” through developing nine hubs across the country.
Conference attendees also heard federal Resources Minister Madeleine King speak out on the importance of Australia “remaining a reliable, essential supplier” of natural gas to the domestic and international markets as the world pursues emissions reduction between now and 2050.
She claimed the government has a “robust” regulatory regime to underpin carbon capture development – while the Australian Financial Review, reporting on the conference, categorized the government’s support for the technology as “lukewarm,” pointing to $250 million being stripped from CCS funding in last October’s federal budget.
Meanwhile, research by leading analysts Wood Mackenzie, commissioned by APPEA, forecasts that Australia’s gas export trade will deliver $100 billion in taxes over the next two decades.
The Australian Energy Market Operator reports NEM carbon emissions in the first quarter of 2023 were the lowest on record for this period.
AEMO says this year’s first three months saw the market’s emissions total 28.83 million tonnes of carbon dioxide equivalent, down 5.1 per cent from Q1 last year.
Factors in the outcome, it adds, were a reduction in coal-fired capacity demand in the market and a rise in the use of intermittent renewables, including rooftop solar power.
Meanwhile the OpenNEM website records that, for the rolling 12 months of mid-May 2022 to mid-May 2023, black coal generation totalled 89,165 gigawatt hours, with brown coal-based production in Victoria reaching 31,486 GWh. The coal plants delivered 63.7 per cent of power sent to the east coast grid – with gas-burning generation delivering 12,663 GWh (6.6 per cent).
In this period wind farms accounted for 26,357 GWh sent to the grid and large-scale solar power 12,593 GWh, a 20.5 per cent share in total.
Hydro power contributed 16,526 GWh.
The estimated use of rooftop solar in this time was 20,613 GWh.
The controversial Snowy 2.0 project will clearly continue to be a federal political football, possibly well beyond the next election (due in 2025), as Snowy Hydro management reveals that first supply from the pumped hydro development could be available as late as the second half of 2029 – five years beyond the initial completion date.
The federal opposition leapt on the news in mid-May, with energy spokesman Ted O’Brien claiming the delays “spelled disaster” and warning the Albanese government of the risks of creating an “energy vacuum” in the mainland eastern electricity market “with baseload power stations being ripped out of the grid without replacement.”
Federal Energy Minister Chris Bowen retorted that Snowy 2.0, which is intended to provide 2,000 megawatts of new NEM capacity and storage of some 350,000 MWh a year, is being affected by “engineering complexities” and by “supply chain consequences across the world from the overhang of the pandemic affecting every construction project.”
Andrew Richards, CEO of the Energy Users Association of Australia, told journalists that the much-delayed Snowy completion date could result in NEM supply shortfalls if other new generation does not come on line quickly or if the rapid exit of coal-fired power continues.
Grattan Institute energy program director Tony Wood is calling for a “realistic” review of the project.
He told the ABC: “We need a very clear, hard-headed assessment of the costs and, more importantly, of the timetable for when we will get this online."
Wood added that timely development of Transgrid’s $3 billion HumeLink high voltage line is also important.
The interconnector was initially intended to be operational by 2026, ahead of Snowy 2.0 being completed. “You have got to line them up,” Wood said. “They need each other – and delays on either can have consequences for other renewable projects in the area.
The Clean Energy Finance Corporation is warning that annual investment is falling behind the levels needed to deliver projects to meet the federal government’s 2030 targets.
CEFC chief executive Ian Learmouth has told a Committee for the Economic Development of Australia forum that more than $120 billion needs to be outlayed in the remainder of the decade on 29,000 megawatts of wind and solar generation, energy storage and new transmission links. “We are well behind the pace,” he said, pointing to 2,300 MW of large renewable investment last year.
He also told CEDA members: ““Recent federal budget initiatives will provide the CEFC with $19bn to help with Rewiring the Nation. It is only a fraction of the capital needed.”
American research and analysis company BloombergNEF has published a report on Australia claiming the net zero transition here to meet the “Paris agreement” goals “represents at least a $US1.9 trillion investment opportunity” between now and 2050.
In one scenario, the analysts estimate that Australian wind and solar installations would need to reach 300 gigawatts by 2050, up from 39 gigawatts in 2022. Solar capacity alone would reach 201 gigawatts of installed capacity by 2050, split between rooftop systems and large-scale projects.
In this model, investment in Australia’s generation fleet between 2022 and 2050 would exceed $US413 billion, with 57 per cent of outlays flowing into wind and solar assets.
Bloomberg adds that its modelling also finds that an annual average of transmission system investments of $US11 billion is needed, “a far higher rate than Australia is currently investing in its grid”, to ensure a reliable energy system.
“Australia has fought hard over recent years to change the global perception of the country as a climate laggard.” says Leonard Quong, head of Australia research at BNEF. “But the country will need to reform existing policies and energy-market design to accelerate investment in both technologies and workforce needed for the transition if it is to realize the low-carbon opportunities that lie ahead.”
In a wake-up call for activists demanding an end to fossil fuel use in Australia and opposing use of nuclear power here, the Bloomberg modelling includes14 gigawatts of coal-fired power paired with carbon capture and storage to provide “a very expensive insurance policy” by being on standby to support the east coast grid “at times when more supply is critically needed”.
If one thing is clear from the financial year now ending it is that the local net zero debate is veering all over the energy pathway, a point underscored by the annual conference of the Australian Petroleum Production & Exploration Association held in Adelaide in mid-May.
Activists are bent on killing production and use of gas, along with coal and other fossil fuels, but the industry is determined to get on the front foot in the argument, as illustrated by the Santos MD, Kevin Gallagher.
He told the 2,000 attendees at the conference that gas, not renewables, will be the main game in the energy transition.
“Renewables are part of the (climate change) solution, but they are not the holy grail,” he said. “The main game is gas because it makes renewables possible, it provides feedstock for fertilizers and chemicals, and it fires the high temperature furnaces required for bricks and cement. However, while getting to net zero should be all about emissions reductions, our opponents are only about killing oil and gas. Which is why they now seek to discredit carbon capture and storage as well.’’
He didn’t stop there, adding that activists have given “no thought to the human cost of a world without oil and gas’’.
The world could not feed itself today, or anytime soon, without fertilizers made from gas, he pointed out. “Without ammonia-based fertilizers made from natural gas, we could feed about four billion people, roughly half of today’s global population. And we do not yet have replacements for the materials that are fundamental to our modern civilization – steel, cement and plastics.’’
It seems to me that one of the bigger problems in this rowdy climate change marketplace is that a combination of the many in the mainstream media who are content to just regurgitate propaganda plus the torrent of assertions flowing from social media mean that most in the community have been sucked in to believing that net zero at a fast pace is readily achievable.
Genuinely expert international voices, like that of Sir Dieter Helm, Oxford professor and author, just don’t cut through sufficiently – and politicians riding the green wave get away with far too much hype.
Recently, Helm declared that what achieving net zero really means is “we have to stop living beyond our means, and especially beyond our environmental means, and, as the ultimate polluters, we must pay for the pollution we are causing and save to invest too.”
He added: “If we really want to stop causing climate change, we have to go beyond the territorial net zero target and include all the emissions we cause along the global supply chains – all the emissions from imported energy-intensive goods, from the solar panels and the wind turbines, and the car batteries, the lithium, cobalt, nickel, copper, steel, aluminium, fertilisers, and petrochemicals.”
As Helm says, this would require politicians to go beyond simple spin and into really politically dangerous territory. He tags governments, like that in the UK, promising affordable (and reliable) energy supply forward in to the next decade. “It is like a magic money tree; we can have all the investment and we will have cheaper energy too. If only this were true,” he snaps.
Here in Australia, we have the added impediment that a swathe of politicians still resist opening the options for decarbonization in electricity supply to include new nuclear technology, aided and abetted by adversarial analysts who should know better.
The critical issue for us is the time it will take to remedy the serious problems inherent in trying to rely to the proposed maximum extent on wind power and large-scale solar to meet national electricity needs – and what damage will be done economically and socially while the planning wrongs are righted.
I thought economist Judith Sloan summed up the situation pretty well in a newspaper column last November.
“Even with the best of intentions,” she wrote,” it is highly unlikely the decarbonization plans for the NEM for the period ending in 2030 can be achieved.
“There are too many uncertainties; the cost pressures are considerable and worsening; and there is a widespread shortage of suitable workers. Alternative strategies need to be devised in the event of a lack of progress.”
This issue is a mountain, not a molehill.
Keith Orchison
25 May 2023