Issue 217, May 2023
There is a lot of colour and movement just now on the energy front and the federal budget will very likely provide more, with a decision on eastern Australia power bills also due from the regulator before the end of the month. Reports from the International Energy Agency and others in recent days highlight the size of the net zero challenge facing this country over the rest of the decade and beyond, but whether the messages are reaching the community at large in a meaningful way is open to doubt. The annual conference of the Australian Petroleum Production Association in Adelaide in mid-May will also underscore the numerous big issues confronting energy policymakers, market managers and investors now and out to 2030. The bumpy ride for the sector foreshadowed in late 2022 is very much under way – and, of course, the last week of April marked the closure of the Liddell power station and removal of 600 megawatts capacity from the market as winter neared. As well, the fate of Eraring, the largest coal-fired plant which could be shut in 2025, is the focus of much debate.
“Considerable uncertainty remains on the pace of clean energy investment at the right time and in the right place and the system integration and flexibility needs in generation and storage; demand response and grid investment; and workforce, supply chain and community needs” – the International Energy Agency in its report on Australia that it says “sets out the steps Australia can take to accelerate its clean energy transition securely and affordably”.
“Based on lessons learned from recent energy crises, investment in clean energy infrastructure, grids, energy system flexibility and fuel availability should be key priorities for Australia’s orderly transition” – the IEA.
“There is much more to be done” – Climate Change & Energy Minister Chris Bowen, reacting to the IEA analysis, adding: “The report shows Australia is heading in the right direction for a clean energy future.”
“Cleaner and cheaper energy is absolutely central to our growth strategy for the Australian economy” – Federal Treasurer Jim Chalmers, talking about preparatory work on the May Budget.
“Australia will need to triple the National Electricity Market’s power capacity by 2030 to be on track for net zero by 2050. requiring a rapid rollout of wind and solar power, transmission, storage, electric vehicles, and heat pumps as we replace our coal fleet” – the University of Melbourne, a participant in a new report of the “Net Zero Australia” research project.
“The scale of the job ahead defies easy comprehension” – Melbourne Energy Institute professor Michael Brear.
“Australia will need to triple the power capacity now in the National Electricity Market by 2030 to be on track for net zero by 2050 and it will ultimately need to increase the size of the NEM 40 times over to meet the economy-wide and clean export target” – RenewEconomy website.
"The public has been repeatedly told that the transition to renewables will mean lower prices. With AEMO at the helm, the opposite will happen. Instead of making the best use of the wonderful grid we already have, AEMO want the community and renewable generation developers to wait on it to deliver its monumental plans. Its own analysis shows that the most monumental thing about its plans is the amount of time, natural resources and money it wastes" – Victoria Energy Policy Centre’s Bruce Mountain and Simon Bartlett, criticizing plans for new Victorian transmission projects in a 118-page report.
Very few in the media, let alone the broader commentariat, are delving down in to the International Energy Agency’s new report on the Australian energy scene, the first major independent external review of developments here since 2018. Media coverage in April was fleeting and the role of taxpayers’ money in the net zero process received slim attention.
The IEA forecasts that renewable energy capacity Australia-wide will reach 40,000 megawatts by 2027 – taking in to account rooftop solar power as well as large-scale generation – “thanks to (local governments’) ambitious targets and increased clean energy funding at State and federal levels” – but it cautions that “considerable uncertainty remains on the pace of clean energy investment here at the right time and in the right place and on the system integration and flexibility needs in generation and storage as well as demand response and grid investment plus workforce, supply chain and community needs.”
Among the agency’s recommendations are the creation of “an appropriately resourced” national energy and climate information system, including end-use energy and prices data, an energy forecast and market data function with enlarged scope for mandatory reporting on natural gas and new fuels, while strengthening data governance and removing barriers to data sharing across government.
The IEA says there is not sufficient data available on sectoral end-use and pricing for policymaking in Australia and highlights a need to increase the availability of policy-relevant energy information as well as seeking cost-effective actions “to enhance the data granularity on the demand side for energy prices across all fuels while integrating new fuels and technologies in data collection and legislation and making use of data science”.
It also urges streamlining the regulatory landscape in the NEM.
One key point of the report catching newspaper attention is that the IEA sees a risk of last winter’s problems in the NEM being repeated because “Australia has no proper plan to manage the exit of coal power and decarbonise the power sector.” It says “the June 2022 electricity crisis reinforces the urgency for an orderly transition in the market,” adding that “considerable uncertainty remains on the pace of clean energy investment at the right time and in the right place.”
Meanwhile a study by a group of research institutions, including bodies at Melbourne, Queensland and Princeton universities, suggests that gas-fired capacity in the NEM will need to double to support the national push to net zero emissions by 2050.
The report says there will also need to be a "rapid rollout" of renewable generation, new transmission lines, storage facilities, electric vehicles and heat pumps at homes and businesses.
Ultimately, says Michael Brear, a director of Melbourne Energy Institute, one of the study participants, “trillions of dollars” will need to be spent on domestic electricity supply and replacements, such as hydrogen, for Australia’s coal and LNG exports (which current earn $200 billion annually).
The study sees 3,000 gigawatts of wind and solar power being needed to meet net zero ambitions – Australia currently has 30 GW.
The number of electric vehicles on Australian roads almost doubled in 2022, according to latest data, but boosters of the technology are not happy, pointing to the market share still being only 3.8 percent of new sales.
The platform for a fresh round of local barracking for EVs is a new International Energy Agency report on the global state of the sector, recording that worldwide sales rose 50 per cent between 2021 and last year.
The report says that last year there were 83,000 EVs in Australia – and local advocates want more federal incentives to add to State subsidies to stop this country, they say, from becoming a “dumping ground” for fossil-fuelled cars.
Origin Energy says it has committed to spend $600 million on a battery project at its Eraring coal power station site – which it is currently planning to shut in August 2025. The battery will have a two-hour operating duration of 920 megawatt hours. (Eraring has an annual output of the order of 16,000 gigawatt hours.)
The storage investment decision was announced in the wake of an indication by Canada’s Brookfield that it will press ahead with acquisition of Origin, offering $10.2 billion for the purchase. Brookfield has said that, if the sale goes ahead, it plans to spend $20 billion on building 14 gigawatts of new renewable generation, mostly wind farms, and storage in the NEM.
Origin CEO Frank Calabria told journalists that the battery at the Eraring site will have a 460 megawatt capacity and this could be increased to 700 MW (giving four hours supply duration). He said the initial project is intended to be on line in the last quarter of 2025.
A push is on, spearheaded by the Australian Council of Trade Unions and supported by 70 entities, including peak business bodies, investors and climate activist organisations, to get the federal government to set up a national Energy Transition Authority. The move also has the federal Greens behind it.
ACTU president Michele O’Neil has told the National Press Club that the main unions’ reason for supporting the authority is the need to protect the interest of workers in fossil fuel industries.
O’Neil said: “The adjustment to net zero emissions risks being a disruptive and difficult one. In the years between 2013 and 2020, we saw 11 coal-fired power plants close, with an average notice time of just four months. At least seven more are due for closure between now and 2030. A just transition plan is urgent and critical.”
However, the Senate economic legislation committee says the step would be “premature” ahead of federal cabinet’s consideration of a model for a body to address transition impacts.
Australia’s governments will garner $16.26 billion from the petroleum industry in taxes, royalties and excise this financial year. The Australian Petroleum Production & Exploration Association says the revenue is much higher than last financial year – when it was $6.46 billion.
APPEA chief executive Samantha McCulloch says “this will help governments fund policies like disability support and paid parental leave as well as important infrastructure like roads, schools and hospitals”.
She adds: “Taxation receipts for this single year could fund construction of around 11 new public hospitals or 160 new schools, or cover annual healthcare for about 1.6 million Australians.”
The petroleum industry has been under sustained attack during the past 18 months because companies have benefitted from much higher international prices as a result of the Ukraine war while local prices moved sharply higher. Politicians and media commentators have focussed on the petroleum resource rent tax, urging the Albanese government to raise it in the May federal budget.
Woodside Energy Group CEO Meg O’Neill, who is also the APPEA chair, told the National Press Club in mid-April that the government should beware “over-reaching” on the PRRT, choking off investment needed for increasing supply and undercutting future revenue. O’Neill declared Australian government energy market interventions are causing concern among Asian customers and their governments.
Treasurer Jim Chalmers said the government has not finalized its position on revising petroleum taxes.
McCulloch says: “Gas companies are among the biggest taxpayers in Australia yet face compounding regulatory interventions that risk energy security, investment and future revenue streams to governments.”
She also points to the industry’s role in the economy beyond the taxes it pays. It enables almost $500 billion economic activity annually, she says, “supporting 80,000 jobs and providing essential energy to millions of homes and businesses, including major sectors like manufacturing and transport.”
APPEA’s members, she adds, are expected to directly spend $45 billion this financial year on Australian goods and services, up from $29.9 billion last year.
The Australian Energy Regulator, which issued its latest quarterly report in April, says forward contract prices for electricity in the NEM are “well below” the levels seen in 2022.
The regulator, which will produce a new default market offer in May to take effect from 1 July, says average first quarter retail prices were higher than in the same period last year in New South Wales, South Australia and Tasmania, about the same in Victoria and lower in Queensland despite summer hot weather.
AER chair Claire Savage comments that the federal government’s black coal price caps and strong output from renewable generators helped to put downward pressure on bills – and east coast gas prices were also lower for the quarter despite a spike in February.
Looking forward, the AER cautions that the shutdown of AGL Energy’s Liddell coal-fired power station at the end of April “will tighten the supply-demand balance, especially in evening periods when solar output is low”. The closure, it says, “removes significant dispatchable capacity” from the market.
On the upside, it reports that large-scale solar output increased 11 per cent in this year’s first three months after a record high in Q4 of 2022. “This was an increase of 22 per cent from the previous year, reflecting strong investment in solar generation,” it says. Estimated use of rooftop solar also produced a record.
The future of the two Callide C power plants, providers of 10 per cent of Queensland’s coal-fired generation, remains under a cloud more than six months after the whole site near Biloela went off-line following collapse of the C3 cooling tower last October – and after an explosion wrecked the C4 unit in May 2021.
The situation is complicated by the private sector company in partnership with government-owned CS Energy descending in to administration.
Return of the C4 plant was first mooted for November last year, then for next month and now it is claimed it will not re-open until the end of September.
Latest media reports say the return dates for either plant remain unclear although C3 is “expected to be operational in December” and C4 “by January.” Brisbane newspapers report that the whole Callide complex, which provides around 30 per cent of State power, will not be available until 2024. The Queensland government has repeatedly asserted the State has enough electricity supply available without the complex being wholly back in running order.
The Australian Financial Review comments that “the closure of the Callide C power station is not an option for the Palaszczuk State government, which is keen to keep it in the grid to provide reliable and affordable energy until 2035 when coal will be phased out.”
A newspaper report in mid-April has drawn attention to a possibly perverse outcome for the drive to persuade households to switch from using gas to electricity.
The Sydney Morning Herald points to an Australian Energy Market Operator paper on the gas supply outlook. “Switching to electric appliances could raise the risk of adverse consequences for energy security on days of high demand, particularly if a winter snap fuelled a surge in demand for electric heaters at the same time as a slump in output from wind and solar farms,” it writes.
AEMO’s latest gas supply review warns that this could lead to a doubling of requirements for the fuel in the generation sector during a winter cold snap. It also says: “The winter maximum daily demand for gas generation is forecast to nearly double between 2023 and 2042 as the NEM’s winter load increases with electrification of heating.”
And an AEMO spokesman told the newspaper: “A forecast shortage of gas supply in NSW and Victoria, where no new gas projects are under development, could require use of emergency diesel generators in periods of peak gas demand in a winter cold snap as households switch on their heaters.”
In a media statement about the new survey, AEMO chief executive Daniel Westerman said: “The risk of gas shortfalls each year from winter 2023 to 2026 in all southern jurisdictions remains under extreme weather conditions and periods of high gas-powered electricity generation, with those risks further exacerbated if gas storage levels are insufficient.”
The latest Guardian Essential Poll throws up that the proportion of Australian respondents who say not enough is being done to combat climate change fell four points from the previous survey to 39 percent while those who believe too much is being done doing increased by four points to 16 percent. Thirty-three per cent said enough is being done – up one point – while 12 percent said they did not know.
The poll found that 77 percent of respondents supported capping prices for electricity and gas, and also for reducing the motor fuel excise.
Despite the Greens leader, Adam Bandt, citing earlier Guardian Essential polling that 62 percent of Australians want to stop new coal projects, the new poll found support for such a step drops to just 34 per cent when respondents were asked about ending all future coal mining and gas extraction projects.
In a sarky editorial comment at April’s end, London’s Daily Telegraph newspaper opined that “if the optimism expressed by politicians about green issues could be turned into an energy source, net zero would already be achieved.” Sadly, it added, decarbonisation to a fixed timeline, be it in electricity by 2035 or everything else by 2050, “is not only implausible but actively dangerous.”
Now the paper’s editors are looking at the situation in Britain, but, as a broad generality, it’s a sentiment, I reckon, that might be applied here as well.
Some regard April’s closure in the Hunter Valley of the half-century old Liddell generator as an omen in this regard. That remains to be seen – it’s the plans to close a lot more in the NEM over the next 10 years, starting with Eraring in 2025, and problems of replacing them all, that could create real challenges in eastern Australia in terms of consumer affordability and system security.
As highlighted by a scathing commentary last month on Victoria’s transmission plans written by Simon Bartlett (a former member of the NEM reliability panel, former COO of Powerlink and now professor of electrical engineering at the University of Queensland) and Bruce Mountain (director of the Energy Policy Centre at Victoria University), this is not only an issue of power production but also, vitally, of electricity delivery.
Cost blowouts, pretty well a given in major infrastructure projects these days, mean that what’s in train for transmission, not just in Victoria but across the NEM, may cost a very large amount more than is claimed and delivery could run way over the mooted timelines.
Last August Bartlett also put his name to a commentary in The Australian newspaper asserting that “the overall cost of the 35 transmission projects in the Energy Market Operator’s 2022 integrated system plan, together with the necessary connections within renewable energy zones, adds up to more than $50 billion (and), based on the abject estimating performance to date, there is every chance the final cost will be considerably higher.” And, he added, “not only have costs soared but scheduled completion dates also have blown out, by years for some projects.”
He also pointed out that the very large tab will be borne primarily by electricity consumers – and, while the Albanese government’s $20 billion “Rewiring the Nation” plan may partially support this expenditure, that serves only to transfer some of the cost to taxpayers.
“Either way it is the community that pays – across decades.”
Think on, as they say in Yorkshire.
Or remember what T.S.Eliot wrote in “The Hollow Men” -- Between the idea/And the reality/Between the motion/And the act/Falls the Shadow.
Keith Orchison
1 May 2023