The faceless candidate

This is the post I was going to run here on Monday before the ACCC paper on electricity prices landed and required priority attention. I’m of the view that this is still one of the most important energy issues for Australia going forward and deserving of a lot more meaningful focus by policymakers: 

Here’s an odd thing: our local media and green activists, so eager to bag Australia at any opportunity in the energy arena, especially when it relates to carbon emissions, seem to have completely missed a new example of where we appear deserving of criticism and our federal government needs to lift its game.

My source is the new International Energy Agency review of global energy efficiency, released earlier this month.

At one level, this 143-page document (available free on the agency website) contains a fair amount of encouraging news.

It declares “the world continued to generate more value from its energy use in 2016,” recording that global energy intensity (measured as the amount of primary energy needed to produce one unit of GDP) improved by 1.8 per cent last year and has tracked at an average rate of 2.1 per cent annually since 2010.

The IEA points out that the saving last year (measured as the difference between actual GDP and the notional level had energy intensity stayed where it was in 2015) was equal to twice the size of the Australian economy: $US2.2 trillion.

In 2016, the agency adds, the world would have used 12 per cent more energy without the efficiency improvements since 2000, equivalent to adding another European Union’s energy consumption. Without the electricity productivity gains in the IEA nations and major emerging economies since 2000 more than 1,000 gigawatts of additional power plant capacity (costing $US1.9 trillion) would now need to be in use.

Gains in efficiency, it says, last year helped households across the world save between 10 and 30 per cent in annual energy spending. For factories globally, use of energy per unit of economic output fell nearly 20 per cent between 2000 and 2016.

Needless to say, performance in this area is patchy and the countries with strong programs lift the global averages. A case in point is Germany – where the famous Energiewende program has increased household power bills hugely but German householders appear strangely quiescent to outside observers. German households spent seven per cent of disposable income on all energy bills in 2016, with electricity a big part of the picture. But energy efficiency helped them save $US45 billion in 2016, according to the IEA.

We also hear a great deal about big spending on solar and wind generation. Well, the global investment in energy efficiency last year was more than $US230 billion, with China well to the fore.  Without China, the fall in global intensity in 2016 would have been 1.1 per cent. Chinese energy demand growth is now running at just one per cent a year; the IEA says it would be seven per cent without the energy intensity improvements.

And there’s this: 77 per cent of the recent global emissions abatement achievement – greenhouse gases have held steady at around 32 billion tonnes of carbon dioxide equivalent since 2014 – is down to improving energy intensity versus 23 per cent for changes in the fuel mix.

Now here is the bum note for Australia: the IEA report includes a focus on percentage improvements for energy efficiency in 28 countries between 2000 and 2016; our performance is the fourth worst. Only Mexico, Finland and Brazil are below us on this ladder. Way above us in percentage terms (performing up to five times better) are Ireland, the Netherlands, the UK, Japan, Switzerland and China in that order.

This news has passed over our collective heads here in the past 10 days since the report came out.

Where is Labor shouting the odds about this situation and promising to do so much better if it wins national office? Its official policy, after all, is to double energy productivity by 2030. More importantly right now, where was even a single sentence in Josh Frydenberg’s headland speech to last week’s “national energy summit” conference referring to the importance of energy efficiency in dealing with the crisis that is now in the headlines daily? Literally, he said not a word on the topic.

Of course, the issue is not being ignored by the federal government. You can dig in to its website to find it declaring “managing energy use is a critical issue for Australia” and outlining national programs for pursuing improvements. What you won’t find is top level promotion of the issue, still less acknowledgement of the warning by the Academy of Technology & Engineering nearly two years ago that this country has languished at or below the OECD average for energy productivity for two decades and the current approach won’t improve this. Go to an important op-ed Frydenberg published in The Australian on 21 August and you will find a passing reference to energy efficiency – he lumps it in with solar subsidies and so forth in noting that “green schemes” account for eight per cent of the average household power bill.

There’s another bar chart in the IEA report that shows up our less than stellar performance in this area. It measures the coverage potential of mandatory energy efficiency codes and standards – this time in 37 countries. Australia and New Zealand sit right at the bottom of the ladder with Chile and Brazil. The top five are China, Japan, the UK, Germany and the US. I’d be the last to argue that bureaucracy and red tape are a satisfactory measure of virtue, but there is a message for us there, too, surely.

The point at issue is not that Australia has done nothing about energy productivity but that it has done nowhere near enough in its own interests.

The Energy Efficiency Council in a submission to the federal government’s climate change review (which is due to report before the end of 2017) puts its this way: “While energy management has delivered substantial reductions in greenhouse gas emissions over the past 20 years, Australia has barely tapped its potential. The Australian government has set a target to improve energy productivity by 40 per cent by 2030 and numerous studies suggest that we have the potential to further strengthen the economy by doubling energy productivity by 2030. However, with the current suite of policies in Australia, we will not meet the government’s current energy productivity target, let alone more ambitious goals.”

The Climate Change Authority a year ago gave energy efficiency a solid plug in its review for the Turnbull government of abatement policies. It pointed to

  • Energy efficiency being one of the fastest and most cost-effective ways to reduce emissions
  • Many efficiency opportunities being low or negative cost
  • The benefits from improving efficiency include job creation.

Lobbyists here for energy efficiency were more than a little disappointed with the Finkel report failing to follow this up strongly. They complain Finkel dwelt too much on the supply side and nowhere near enough on the demand side even while giving lip service to the need to accelerate the roll-out of energy efficiency measures. The panel’s big failing, they assert, is no recommendation on mechanisms to foster greater take-up of energy efficiency technologies in homes and businesses.

As the lobby sees it, the tragedy of the policy debate is that energy efficiency seems far harder to grasp than the arguments for attention to generation (whether dispatchable power or wind and solar). It is, they complain, “the faceless candidate waiting for a decent seat at the policy table.”

The new IEA report seems to give credence to that perception.

Watchdog barks at quick fixes

The blockbuster report on electricity prices from the Australian Competition & Consumer Commission was always going to land with a crash in the media and both the document itself and today’s tsunami of journalism following it are no doubt weighing on Malcolm Turnbull and his cabinet energy committee as they face a week in which they seem to have committed themselves (probably unwisely, given the amount of unfinished preparatory business) to stand and deliver on energy policy.

The media all have their own angles, reflecting their pursuits of the past year, but perhaps the one that will catch the attention of ministers most sharply today is an ABC report that “ACCC chief (is) sceptical clean energy target would reduce power costs.”

The broadcaster highlights Rod Sims saying it is “arguable” whether the CET would have this impact, as claimed in the Finkel report.

That’s about politics, which is a vital aspect of the “energy crisis” game but far from the only one.

If the ministers want a fast summary of what Sims & Co are saying, they should go to page 151 of the 170-page report – where the ACCC focuses on four points.

First, it says, there appears to be insufficient competition in generation and retail markets, which both raises prices and increases barriers to supplier entry. “The lack of availability and high price of gas has also increased the price of electricity.”

Second, and no surprise given the work of its acolyte, the Australian Energy Regulator, it declares “there appears to have been over-investment in network operations” as well as inefficient cost recovery and higher than warranted rates of return due to the network regulation framework. “Some of these costs represent a continuing burden on consumers.”

Third, the ACCC says, “some measures to improve environmental sustainability have been overly generous and poorly targeted, with outcomes that appear inequitable.”

And finally, it sees retail deregulation as “benefiting some and hurting others.” This market, it adds, is “exceptionally complex” and consumers have no ability to exit it. “We need to ensure that that consumers have the tools to enable them to make informed decisions about their electricity services.”

As is being picked up and headlined in the media, the commission dumps on energy retailers, and especially the “big three,” for confronting mass market consumers with “unnecessarily complex and confusing behavior” – which it declares appears in some cases to be “designed to circumvent regulation.”

In summary, says the commission, “solutions to (the) affordability problem will not be straight forward; nor is there a ‘silver bullet’ that will address all problems.” (As Jennifer Hewett observes in the Australian Financial Review today, this is not especially helpful to a government “facing demands for urgent action and easy-to-understand ‘fixes’ – not to mention a few more three-word slogans.”)

The ACCC also comments: “Some mistakes of the past are beginning to be unwound while others, unfortunately, will affect electricity markets and consumers for decades to come.” (My emphasis.)

It finds that power bills for the mass market have risen by 63 per cent on top of inflation since 2007-08. It also points out that Queenslanders are paying the most, followed by South Australians and people living in New South Wales. Victoria, the spearcarrier for privatization and deregulation, so much demonized in recent debate, has the lowest bills.

And it is worth highlighting this snippet from the media statement Sims has put out this morning: “There is much ill-informed commentary about the drivers of Australia’s electricity affordability problem. The ACCC believes you cannot address the problem unless you have a clear idea about what caused it.” I don’t see that featuring prominently in today’s media………….

There is also this fierce shoulder charge in the report for the body politic: “Over the past decade successive (national and State) governments have failed to balance competing priorities of security and reliability, universal access to affordable energy services and reduced emissions, often making decisions with limited regard to (their) impacts on the overall affordability of electricity. These decisions, combined with other regulatory and business decisions, have led to higher prices for all users.”

This should not be allowed to slip through to the keeper. It’s a damning indictment of both sides of mainstream policymaking and the politicians far too often are allowed to point fingers elsewhere.

In passing, because so much fuss has been made about the point, it is worth noting that, while Australia’s international electricity cost position has “deteriorated substantially” (says the ACCC), the commission records OECD data showing that we have fallen from the fourth cheapest in 2004 to the 10th cheapest in 2016. As the commission notes, there are many and varied ways of considering price comparisons, but the essential point is (to quote it again) “on any measure, it is clear (our) prices have gone from being a source of competitive advantage to a drain on business productivity and a serious affordability concern for households.”

Stand far enough back, shove the politicking aside, and this is the fundamental issue for policymakers across the federal system but especially, of course, for the national government.

The challenge confronting Turnbull and his ministers right now, at a time of considerable political weakness for their government, as the opinion poll dirge dogs its every move, is to demonstrate that they are doing something meaningful to halt the downward slide and, in particular, to alleviate voter (ie household) unhappiness while explaining there is no one bound that will free us from this situation. Turnbull & Co cannot achieve this on their own and the State governments, mostly run by their opponents, are more hindrance than help.

Right now, the most important of the many slogans derivable from the watchdog’s report that could be daubed on the cabinet room walls in Canberra, and where else politicians gather to mull energy matters, is “there is no silver bullet” and the community needs to be told so. The message will not be greeted with cheers but Australians need to understand it to save us from being sucked in by more snake oil salesmen offering cures that will only make things worse.

Understanding capacity

Let’s avert our eyes for a moment from the slow motion energy policy train wreck that is playing out on our domestic scene. Fortunately there is a ready topic to hand.

The inability of so many who dabble in the energy pool to actually understand how it works is on display in the mainstream and social media most weeks and has been especially so in recent days in hyperbolic international reaction to the latest International Energy Agency publication looking at the state of play for renewable energy.

This has reached some sort of apogee (or do I mean nadir?) with no less than Christiana Figueres (the former head of the UN climate change activities) tweeting in the wake of the rush of gee-whiz media coverage of the IEA report that the “speed of the energy transition every day more jawdropping” (sic) on the basis of “solar to surpass nuclear by end-2017.”

This sort of stuff flows, as the knowledgeable readers of this blog know, from misunderstanding of capacity factors and of the fact that a megawatt of dispatchable power will deliver considerably more over a year than one of intermittent nature.

In the case of the Figueres, absurdly, the link she provides to the article exciting her tweet contradicts her point in its second sentence: “While nuclear currently far exceeds solar in terms of energy generation, some predict solar could be the world’s largest source of energy by 2050.” (I’ll come back to that use of “energy” in a moment.)

Yes, it is estimated that by the end of 2017 the capacity of solar power globally is likely to be 390 gigawatts versus the current 391.5 GW for nuclear reactors – but the electricity output of the two resources is 2,476,670 gigawatt hours a year at present from nuclear versus 375,000 GWh from solar, nuclear having a capacity factor around 90 per cent compared with about 24 per cent for solar PVs (with 32 per cent for wind farms and 58 per cent for today’s global coal fleet).

The IEA says that solar power “could feasibly” be the world’s single largest source of electricity (not energy overall) by 2050; readers will all know my view of projecting so far forward – the equivalent, as I have written frequently before, of standing in 1984 and predicting today’s scene.

Shorn of all the BS littering the public energy debate, what the IEA is asserting is that renewables collectively will increasingly take market share from fossil fuels in global power production. Stop the presses!

The agency, much criticized for leaning too far to fossil fuels in the past, seems to me to be now a tad anxious to paint itself a greener shade of black and this comes through in how it shapes and presents statements like the latest one. Dig deep enough in the material and you find the IEA saying “Coal (will) remain the largest source of electricity generation in 2022 (but) renewables (in all forms) are closing in on its lead.”

Today, actually, the global need for power is being met primarily by 9,200 terawatt hours of coal-burning generation and 5,700 TWh from gas turbines. In addition, 2,600 TWh comes from nuclear plants and 6,000 TWh from all forms of renewable energy, of which by far the dominant are hydro systems.

To break the shares down, in round terms coal generation is providing 39 per cent, gas almost 23 per cent, hydro 16 per cent, nuclear a bit under 11 per cent, oil just on four per cent and the collection of sources that include solar and wind just on five per cent with biofuels and waste about two per cent.

Broadly speaking, the agency is forecasting that coal-fired power production will be just under 10,000 TWh a year in 2022 and gas-fired around 6,000 TWh – that’s a rise for fossil fuels — while all forms of renewables will jump quite strongly to just over 8,000 TWh (of which hydro generation will still represent nearly half) with the nuclear contribution staying around 2,600 TWh.

No matter how the whirling dervishes of green boosterism twist and turn, this means that conventional power production (coal, gas, hydro, nuclear) will continue providing the vast bulk of world electricity five years from now, notwithstanding “jawdropping” investment in wind, solar and battery storage in the interim.

One of the factors that tends to get lost in all the hoo-ha is the growing role of electricity in the overall energy scene. It amounts to about 18 per cent of total energy production today and you can find a range of crystal ball views of where it is going over the decades towards the middle of the century, the most popular being about 40 per cent. How this latter amount of electricity (or even, say, a 25 per cent share) will be sourced is a very large open question but how demand will be sourced through the next decade is not really that difficult to work out.

A problem with discussing global warming just in the context of power stations is that the issue (obviously) relates to all energy supply and use. The US Energy Information Administration, in its latest forecasts, suggests all global energy demand could rise 28 per cent between 2015 and 2040 – and, to the chagrin of the environmental activists, this scenario sees actual coal supply (in all its forms) rising a bit even as gas becomes the fastest-growing fossil fuel.

As the EIA carefully says, this is not a prediction of what will happen but rather of “what may happen given certain assumptions and (its) methodologies.”  To which it rightly adds: “Energy market projections are subject to much uncertainty, as many of the events that shape energy markets and future developments in technologies, demographics and resources cannot be foreseen with certainty.”

(If I ran the world, this sentence would be a mandatory prominent caveat in every media report of the “transition.”)

The grand dichotomy here is between the views (IEA, EIA, BP, Statoil, ExxonMobil, Shell etc) of an inexorable rise in world energy demand and those of the deep green activists with a neo-religious belief that peak energy demand can be achieved in the not too distant future.

Coming back home, today’s local energy policy battleground is occupied by the mainstream pragmatists seeking to ensure, to quote Josh Frydenberg, that emissions reductions are not pursued at the expense of reliability and affordability of electricity and gas supply and the idealists (and anti-capitalists in at least some cases) who want to bring about the earliest possible demise of fossil fuels and also to baulk any move to embrace new nuclear technology. We also have populists like Bill Shorten trying to play to both sides of this divide.

Scams like the solar assertion that kicked off this post are a weapon in this conflict – as an annoyed tweeter has responded to Figueres this week, the concern is that readers will walk away “with a lie in their heads” about what is actually going on in the energy marketplace.

Because this can influence how Australians vote, it is a not-unimportant issue at federal and State political levels – and this week’s “summit” is another reminder that our energy supply house of cards is teetering ever more dangerously because of politics.

Quo vadis?

In a year in which a slew of reports about energy have landed with a political bang in Australia, we can look forward to one more that will drop in December.

This will be the latest in the Australian Energy Market Commission’s series on residential price trends, a requirement of the CoAG Energy Council, covering financial years. The bang may turn out to be louder because this report for 2016-17 will roughly coincide with another for the federal government on climate policy being undertaken by Josh Frydenberg’s department.

The inter-action of energy costs and carbon emissions abatement is real and an ongoing source of friction in our debate.

The initial (2015) AEMC residential price review review, which got less attention publicly at the time than it deserved, highlighted the fact that, while network costs (focus of much political and media fuss about “gold-plating” since 2012) were decreasing, an upward trend in wholesale costs was emerging. The wholesale costs issue, of course, is now the demon king of the pantomime.

The 2016 AEMC review, published in mid-December last year, reinforced the message by making it clear that we could expect to see residential costs rise in financial years 2017-18 and 2018-19, “driven by significant increases in wholesale costs following the retirement of Hazelwood power station.”

That report told CoAG ministers that wholesale prices are being affected by environmental policy pushing large investment in wind and solar power, gas-fired power stations increasingly becoming the market’s price-setting generators and the need to focus more on system security. Which is what we have seen happen through calendar 2017 amid much political and media hyperbole.

(In passing, something the AEMC reviews bring out but which tends to get ignored in the media fuss about what households pay is that there is a wide variation in actual residential electricity consumption across the States: in New South Wales the average is not quite 6,000 kilowatt hours whereas in Victoria it is just over 4,000 kWh – because there is widespread direct use of gas – and in Queensland it is 5,170 kWh. It’s 5,000 kWh in South Australia, but 7,300 kWh in the winter-blasted ACT and 8,550 kWh in Tasmania.

(Another factor, which has become a focus of Turnbull government fuss about retailer behavior, a game still going on, is the percentage of households in each State on lower-priced market offers: in south-east Queensland it is 70 per cent, in NSW 73 per cent, in SA 85 per cent and in Victoria 91 per cent; in Tasmania it is hardly anyone. Push the SEQ and NSW rates up to the SA and Victorian ones and the price pressure picture would be a bit different. The argument that retailers are somehow conspiring to keep as many users as possible on the higher-price standing offers looks a bit odd when viewed against SA and Victoria.

(This stuff is not irrelevant when considering how householders/voters react to the cost situation.)

Against this background, it is interesting to see the AEMC push out a paper this week on “Making market transformation work,” which I don’t see getting any media attention. In it the chairman, John Pierce, and CEO, Anne Pearson, again highlight the importance of the wholesale price issue.

“Emerging benefits from the (NEM) energy revolution,” they say, “are very real but at risk because of the cost pressures coming from the wholesale generation sector.”

They also make a point that frequently seems lost on the journalists reporting the latest gee-whiz news on renewable energy. “While investments under the RET have increased the level of installed megawatts,” they say, “there are times when the overall mix cannot deliver enough hours of electricity or enough security services at the right time to meet consumer demand.”

This is the nub of the whole Animal Farm-style (“two legs good, four legs bad”) shouting match between contending fan clubs for technologies that is the seemingly endless background noise to the current debate. “Meeting consumer demand with a new mix of technologies,” the AEMC pair remind politicians, “requires price signals to guide private sector investment – and in the NEM these come from the spot price and the forward contract price.”

The critical element, they say, is for policymakers to put emissions reduction mechanisms in place that allow price signals to work. If you do this and put all technologies on a level playing field, investors can be expected to fill the capacity gaps. “International evidence suggests emissions reduction policy needs to support effective competition in the power system. Otherwise consumers bear the cost of investment risk and ongoing government intervention.”

The other reminder in the latest paper, a cat-on-the-mat point, is that “making the market transformation work is about two things: keeping the lights on and gas flowing (while) delivering change at least cost to consumers.”

In a speech in September, Pierce added an important caveat: “There are lots of actions we could take to keep the lights on and the gas flowing …… but not all of these will deliver the (transition) objectives while keeping bills affordable for consumers and supporting much needed private sector investment, which in the electricity sector at least, is estimated to be in the billions.”

A translation is needed: this game is really not about making energy cheaper again – in the sense of what prices were in the past – but keeping the pain of the transformation we have to have to a minimum.

I can’t see this message being conveyed by mainstream political leaders in the public slanging match that passes for a debate or, on the occasions when it gets passing mention in their comments, it being highlighted for the hoi polloi by the media in terms that can be understood.

Simply speaking the message is that there is no free lunch: system security and emissions reductions come at a cost. Which brings us to the two-fisted political problem of the day – households (ie voters) say they find the present cost unacceptable while manufacturers (they are telling us louder) are in at least some cases finding it unbearable with consequences for employment (impacting voters again).

“Quo vadis?” is a Latin phrase from the Christian tradition that became famous in my childhood because of an epic film. It is an apt question – “where are you going?” – for our political leadership as we move towards the final months of an epic year for energy in Australia.

In wading through the information swamp towards publishing my October Coolibah energy newsletter (now available on this site) I saw a comment by an American power system expert that has relevance for us. She wrote: “We have a complex society and a complex grid with conflicting sets of goals and requirements. Our electronically-based, electricity-dependent society needs a mix of fast, flexible, clean resources that can collectively deliver a low-cost, high-reliability, high-resilience energy system. Supply and demand-side resources should be assembled in portfolios that have a solid probability of meeting societal and operational goals under a wide variety of possible future paths and a reasonable range of costs.”

Who, as we in Australia finish out 2017, ushered in as a year of “energy crisis” by the Prime Minister, feels even minimal confidence that where we are going can deliver what this American outlines?

The watchdog cometh

This could be the most important week of the year for the electricity supply industry – which is saying something, given what has gone before.

However, Wednesday’s publication of the interim report in to the affordability of electricity by the Australian Competition & Consumer Commission is at the very least highly important in the extraordinary political melee that has developed since the Prime Minister declared an “energy crisis” at the beginning of the year. It could prove seminal in the political pursuit of a fix for an issue that is engulfing the governments and their opponents at a time when elections loom.

In particular, the imminence of the Queensland election, in which electricity issues are set to play a large part, as well as the Victorian government’s push for re-regulation will see the ACCC report played up by all sides.

Last week’s National Press Club address by ACCC chairman Rod Sims has set the scene for Wednesday’s announcement.

Sims told the Press Club that the large increases in electricity prices over the past decade have not been matched “at all” by increases in other prices or wages. Industry players, he went on, routinely point to policy uncertainty and its impact on generation investment as the sole reason for today’s power affordability problem. “This ignores a lot.”

However, he pointed out, when you divide retailer revenue by all customer usage, you find that power prices have not doubled as politicians and media constantly say they have – they have risen by 50 per cent overall or, on average, in cents per kilowatt hour by 62 per cent for the mass market.

Sims sees three factors in this.

The first is that consumers are using less electricity. The second is that some are benefitting from solar panels “with generous subsidies.” The third is that the costs of so-called “standing offers” from retailers have doubled but many households have opted for cheaper market offers (as the suppliers and the federal government keep urging them to do).

A key part of the price surge has been network costs, accounting for 41 per cent of mass market bills. Sims points the finger at “particular” State governments who achieved, he says, looser regulation a decade ago to protect their revenues from publicly-owned assets. (This is going to be a leading debating point in the Queensland election, with the Liberal National Party already beating this drum vigorously.)

Sims also acknowledges that network prices have been pushed higher by government decisions to increase reliability standards. He thinks it “highly doubtful” that householders are willing to pay so much for “a very small” increase in reliability.

In the Press Club speech, Sims signaled that there is no way the ACCC is going to climb down from its hobby horse of attacking concentrated ownership of generation, an issue on which the courts have rebuffed its stance several times. The NEM rules, he asserts, did not envisage two or three generators controlling 70 per cent of market share in various States (which, having been on hand when the NEM was created, I can say is true although some observers at the time could see the writing on the wall).

Factors in the current investment drought, Sims says, include “high current profits” by the coal-burning generators and who will own the renewable generation now being built or proposed?

While noting that much higher gas prices in eastern Australia and tighter supply availability are impacting on wholesale power prices – some gas turbine plants have had their fuel bills treble – Sims is also pointing a finger at the renewables games politicians have played over the past decade. “We have had some stunningly generous green schemes,” he told the Press Club. And he added: “The cost of green schemes is not transparent; it is smeared over all electricity consumers” and it is “often inequitable” as the minority with solar panels are subsidized by the majority who don’t have them.

Generation costs and green scheme costs together account for 35 per cent of household bills.

And then, of course, there is the controversial issue of retailers’ profit margins – Sims is saving the full story, as the ACCC sees it, until the report appears this Wednesday.

The commission’s broad advice to governments, set out in last week’s talk, is interesting. First, says Sims, weigh carefully what is spent to improve reliability. Consumers will pay for these measures. Second, be careful with “new or enhanced ideas” incurring costs that end up being smeared across all customer bills. Third, think carefully about new retail regulations; “they can have unintended consequences.” Fourth, “realize that moves to re-regulate prices will see many consumers pay more” and may inhibit innovation. Fifth, look at market power in retail and generation in making new policies. (This is the one that the big gentailers will fret most about, I suspect.) And last, don’t muddle affordability with reliability and sustainability in making policy. “Beware of silver bullets that are said to address all three objectives.”

He finished up at the Press Club with this point: “We know we have an energy affordability problem and we have some things we can do to address it. But more steps, yet to be determined, will be needed. Some will be controversial – but the consequences of not acting are dire for many Australians.”

Expectations (and concerns) about this Wednesday’s ACCC report will have stakeholders across the energy spectrum, including governments, on edge. There is media anticipation that the review will not be kind to the Gladstone LNG producers – with Turnbull’s finger poised on the gas export restrictions trigger – and that,as well, to quote one story, the commission will “turn up the heat on the big power players.”

As with the Finkel report, politicians will flick the switch to politics (or vaudeville, as Paul Keating would have it) immediately the report becomes public – it’s what they do – and media coverage will slavishly follow the “biff.” But, as Sims signaled last week, there are deep, serious issues that need to be addressed and the CoAG members have a collective responsibility to take up the overall challenge, not an easy task in an election atmosphere.

Expectations in the commentariat (as well as in business, I suspect) of an adequate response by policymakers are not high. Ross Gittins in the Sydney Morning Herald today declares: “The electricity market is such a mare’s nest of stuff-ups and problems it’s impossible to see the deeply divided Turnbull government making much progress in fixing it.” A really important point is that it is not Turnbull’s problem alone; all east coast governments share the blame and the burden of providing a fix. What suppliers, whether electricity or gas, have to fear is that, for these governments, the quick fix lies in beating up on them.

Doing it by numbers

As always, the International Energy Agency’s annual Key World Energy Statistics is a cornucopia of data, ripe for cherrypicking to suit anyone’s interests or need to make a point.

Something that catches my attention each year is the comparison the agency draws with the 1970s (which were a time of major geopolitical turbulence created by energy issues). In the case of coal use, for example, the IEA reports that last year saw 7,269 million tonnes produced — compared with 3,074 Mt in 1973. The part of the pie-chart on this aspect that immediately draws my eye is how the Chinese share has soared from 13.6 per cent to 44.5 per cent while the overall OECD share has fallen away from 55.6 per cent to 23.7 per cent. All sorts of angles strike me in looking at this — like the fact that the greet green exemplar to us all, Germany, last year produced 176 Mt of coal and was still a net importer of 53 Mt.

The Germans have spent $US780 billion on subsidies for green electricity in the past decade with the aim of cutting their carbon emissions in 2020 by 40 per cent below the 1990 level. Thanks in no small measure to forcing out nuclear power and having to rely on 140 coal-fired power stations, the outlook is that Germany will achieve no more than a 30 per cent cut at the decade’s end — but this is not creating a screaming political row there in the elections that reach their denouement on Saturday. This may change if Angela Merkel is forced to pursue the so-called “Jamaica coalition” — with the Greens and Free Democrats — because the Greens are demanding the closure of 20 coal plants as the price for their support.

Coming back to the IEA document, another segment that interests me is the breakdown of global electricity consumption by sector. The agency chooses to render this in millions of tonnes of oil equivalent and in this issue compares 1973 and 2015 (it is notoriously hard to round up all the data for the immediate past year, so this stuff always lags — something journalists here seizing on the power price data in this publication should bear in mind; the Australian figures are not current). The agency pie-chart shows that global power demand has soared from 440 mtoe in 1973 to 1,737 mtoe in 2015 — and in this time heavy industry’s share of consumption has fallen from 53.5 per cent to 42 per cent while residential, public service and commercial consumption has gone from 38.2 per cent to 49.3 per cent.

With the endless focus in our local public debate on the role of coal, and especially its use for power generation, it is worth noting the global shares of coal use in 2015: iron and steel 29.3 per cent (a big rise from 17.5 per cent in 1973), chemicals and petrochemicals 10.5 per cent (a tripling of the 1973 share) and non-metallic minerals 22.2 per cent (a five-fold increase). Prating about the “death of coal” in this context is pretty silly, really. (It’s also worth noting, I suggest, a commentary in this week’s London Financial Times pointing out that the IEA seems to be now predicting “a long plateau” in coal use, with demand stable at around today’s level of 160 quadrillion BTU out to 2050. Very sensibly, the writer goes on to comment that “no one should put too much faith in (such) long-term projections.” I wish his peers here could show more understanding of this point.)

Elsewhere in the IEA publication, I see its calculation that the latest (2015) estimate of global electricity consumption is 24,255 terawatt hours (our Australian total is 250 TWh, less than half of what is used each by the South Koreans, French, Brazilians, Germans and Canadians and a fifth of the Japanese and Russian totals). The share of electricity regionally has changed very markedly since 1973 — when the OECD countries dominated with 72.8 per cent and now have 44.7 per cent. China accounted for just 2.9 per cent then and now uses 24.3 per cent of all electricity. Non-OECD Asia’s share has jumped from 2.7 per cent to 11.3 per cent.

A moral of all this is that the world is a very big place and that, in our own power consumption, we play a pretty small role — while at the same time, of course, playing a pretty big one in terms of our coal, gas and uranium exports to help the international community with their energy requirements.

There’s another set of data in this agency publication that is worth focus: of the 24,255 TWh consumption of electricity, 9,538 TWh is sourced from coal plants, 5,543 TWh comes from gas plants and all forms of renewable generation contribute 5,534 TWh. In a pie chart, the agency points out that in 2015, coal generation met 39.3 per cent of power production, gas 22.9 per cent, hydro power 16 per cent and nuclear 10.6 per cent, leaving a share of 7.1 per cent for non-hydro renewables and waste.

In this great scheme of things, solar PVs contributed 247 TWh (of which 6 TWh was generated here in Australia) from an estimated 220,000 megawatts of capacity.

Wind power delivered 838 TWh in 2015 from 414,000 MW of capacity.

By comparison, hydro-electric power delivered 3,978 TWh from 1,205 MW, of which a quarter of the dams systems are to be found in China.

(By the way, what’s the country with the largest hydro share of domestic electricity generation?  The answer is Norway — 95.9 per cent — with Brazil at almost 62 per cent and Canada at almost 57 per cent. The latter number is worth bearing in mind when local media, as The Australian has done today, make a fuss that our electricity bills are double what Canadians pay.)

My nuclear friends would not be happy if I failed to also point out that their favorite generation source accounted for 2,571 TWh of global production in 2015 from 383,000 MW of capacity. (The reactors’ share of Canadian supply was 15 per cent, giving that country 72 per cent of non-carbon power from dispatchable sources versus 3.9 per cent from wind turbines. The Canadians got 26 TWh from 11,200 MW of wind capacity in 2015. The neighbouring US got 193 TWh from 72,600 MW of wind farms in 2015 compared with 830 TWh from 99,000 MW of nuclear plants.)

And finally, it always interests me to see how the IEA slants its media commentary when it publishes this stuff. The lead sentence for its media statement about the Statistics publication says: “China is the world’s largest consumer of coal, but it also has more wind and solar generation than any other country.” I could think of five or six other ways to introduce this document that might convey a rather more balanced view of the big energy picture. From the agency’s membership perspective, for example, it might  have highlighted somewhere that these 35 nations (including us) accounting for well more than four in every 10 electrons produced around the world have a generation mix that now stands at 28 per cent for each of coal and gas, 18 per cent for nuclear, 13 per cent for hydro and 11 per cent for all the forms of non-hydro renewables.

 

 

Liddell manoeuvres

In a month in which the editor-in-chief of The Australian Financial Review has declared the “energy crisis” to be “the biggest national and business story of the year,” the speed with which the fate of Liddell power station has gone from being fait accompli in the much-discussed decarbonizing transition of the NEM over the next decade to an overnight cause celebre in the political power game is eye-opening (and pretty depressing).

In the past week’s political and media wildfire, Liddell’s owners, AGL Energy, are being presented as having caught off guard.

Whether this furore should have done so, and the impact of the past few days’ headline-hogging fuss on AGL Energy’s reputation with the community, is a matter for private reflection by the company’s board at some point – but its here-and-now task is how to manage its very public confrontation with the Coalition government leadership. More broadly, the energy supply industry’s task is to campaign against yet more ad hoc policymaking.

In the latter context, I think the most helpful thing politicians and others could do this weekend is to sit down for 15 minutes to watch a televised interview between the ABC’s Elysse Morgan and EnergyAustralia’s energy executive Mark Colette on The Business program. Put to air on Wednesday this week and still readily accessible on the ABC website, it is the most sensible and clear exposition of supply options available, covering not just the Liddell fracas but also the threat via green activism to EnergyAustralia’s 1,400 MW Mt Piper power station in the upper Hunter Valley, a generator of 12,000 gigawatt hours a year — an issue Colette points out for which there is a ready-made technical solution and more urgency for it to be pursued because the plant could be driven to close far sooner than Liddell.

It should be noted that the politically-contrived Liddell “crisis” may not have found AGL as flatfooted as some journalists obviously assume. The reason for saying so lies in the company’s recently-published annual report via opening comments from CEO Andy Vesey.

“We are undertaking a detailed State-by-State assessment, starting with New South Wales and Victoria, of Australia’s potential energy generation supply and capacity requirements from now to 2025,” he wrote. “This will pay particular attention to replacing energy and capacity currently supplied by Liddell, which will reach the end of its life in 2022.”

Vesey added: “Our assessment will inform the nature and scale of AGL’s future investment in low emissions generation and storage technologies. It will also offer insight in to how AGL should make those investments to ensure we deploy shareholders’ capital responsibly in the context of the significant uncertainties we face in both regulation and technology.”

What has also been lost to sight in the past week’s politics/media frenzy is the mindset AGL brought to the purchase of Liddell in the first place. Here is what the chairman, Jerry Maycock, now retiring from the board, told the company AGM in October 2014: “In our (purchase) valuation model, we assumed Liddell would close in 2017 because of the possibility that one of (our) major customers, Tomago aluminium smelter, may close. If the smelter remains open, Liddell will continue to operate.”

Tomago, one of the more cost-efficient smelters around the world, has so far remained open. Aluminium prices are not at the dire levels they were a few years ago – but the very high local wholesale power prices pose an ongoing threat to its viability.

At the AGM in 2015 Maycock directly addressed a point that is now being used by some politicians and some in the media to howl “hypocrite” at his company. “The profits and cash flow from (our) coal-powered generators will enable us to continue to invest in renewable assets if and when the investment climate improves (and) as well (is) funding investment in new digital technology and energy storage products.”

From all this it is not unreasonable to assume that AGL’s board and top management have been walking in the storm-tossed transition woods with their eyes open although perhaps they could not have foreseen themselves in today’s melee, a sudden product of Malcolm Turnbull’s rather desperate political needs.

(Commenting on the situation, EnergyAustralia chairman Graham Bradley says: “The Prime Minister is having to turn over every rock he possibly can to find the best solution to what is a terrible policy mess that has been created by a decade of bad decisions by both State and federal governments.”)

One can also see a certain irony, given current events, in a comment by Maycock to AGL shareholders at last year’s AGM: “It is necessary to ensure that the transition to a low-emissions electricity system occurs in an orderly rather than disorderly way.”

Whatever, as my grandchildren say. AGL’s board and MD now find themselves caught in the horrid glare of media and political attention with a 90-day deadline to come up with a game plan for delivering a path forward on generation capacity that fits with their future planning and their shareholder interests —  and doesn’t leave Turnbull further exposed politically because that will only put the company more in harm’s way.

The company’s preferred approach, as recently again outlined by Vesey before the current game kicked off, is not to go for a new coal plant or baseload gas to replace Liddell “but a mix of energy from wind and solar, along with load shaping and firming capacity from sources including battery storage, pumped hydro, demand response mechanisms and gas peaking plants.”

In this regard, Colette’s lucid explanation in his The Business interview of the wide-ranging options available and being pursued, especially by the big gentailers, is strong reinforcement for a more rational approach to the situation by policymakers.

Pared down, Turnbull’s political need should be to demonstrate that there is a viable plan for the NEM to have available by the decade’s end 8,000 gigawatt hours of dispatchable electricity (Liddell’s annual output) to ensure that the market’s security is not impaired by losing this level of non-intermittent production in addition to the 12,000 GWh foregone when Victoria’s Hazelwood shut in March this year.

(As it happens, AGL has on its files a fully-fledged plan to build a 2,000 megawatt power station on the Bayswater B site, approved by the last NSW Labor government in 2010 for Macquarie Generation, which it then owned, to burn either coal or gas. This project was designed to produce about 20 per cent of the State’s power needs and intended to be in operation by the end of this decade at the latest. In its gas-fired mode, the development would feature five 400 MW units. If coal-fired, it would involve two 1,000 MW units. This project design work, of course, was undertaken well before the current HELE coal technology was in commercial vogue or battery storage possibilities became top of mind.)

Over the early weeks of spring ahead of us the political heat, thanks to the government’s Liddell manoeuvres, seemingly falls on AGL. (“The ball is in their court,” said Josh Frydenberg, an accomplished tennis player, even as his leader was accusing the company of greed in parliamentary question time.)

But other players are jostling to get on the court, not least the Australian Competition & Consumer Commission. Its chairman, Rod Sims, is due to make a speech in the week ahead that is being anticipated in the media as a blast for vertically-integrated supply (generation and retail) and this will be followed by the ACCC’s interim report to the federal government on 27 September on the competitiveness of NEM retail power prices.

From above the arena, however, the most immediate community challenge – even though the one politically for Turnbull is now the self-imposed Liddell problem plus settling the Coalition’s internal shenanigans on energy policy – can be seen to be security and pricing of supply in the NEM this summer, especially in Victoria, NSW and South Australia.

Whatever AGL puts on the table with respect to Liddell (or alternatives to its share of supply) and however Turnbull & Co react to it, the issue with biggest near-term ramifications for consumers, governments, the Australian Energy Market Operator and the generators is how the production and delivery system deals with the inevitable summer heatwaves that lie just ahead.

Postscript: The latest opinion poll in Essential Report shows that 35 per cent of respondents think neither the Coalition nor Labor can deliver lower energy prices – and another 18 per cent don’t know what to think. Only 19 per cent of those polled believe the Turnbull government can provide lower bills – versus 28 per cent for Labor. Alarmingly for the gentailers, 86 per cent of those polled think electricity and gas prices should be regulated. Naively, 56 per cent favor government (which ones?) buying back coal-burning power stations from the private sector and 51 per cent want to “stop coal-fired power stations from closing down” while 81 per cent want to “increase investment in renewable energy and storage.” The degree of community energy illiteracy this represents is quite something, don’t you think — and it feeds in to a political fire that could run out of control in the opening months of 2018.

Big stick & big picture

I attended the business forum lunch in Sydney in August 2012 when Julia Gillard, in political strife over power prices (conflated by her opponents with her carbon tax), threatened to “take a big stick” to the electricity networks.

Five years later Malcolm Turnbull is wielding the prime ministerial stick with vim in an environment where power prices are much higher than they were in 2012 while his opponents and many in industry pursue him to introduce a carbon energy target.

Just how dangerous it is for political leaders to make promises about electricity bills can be demonstrated by a reminder: in December 2012, Gillard told Australians (after a much-hyped CoAG leaders’ discussion on energy) that a NEM-wide pursuit of household smart meters and time-of-use charges plus a national standard for network reliability would save the mass market $250 a year for each home – a headline promise that has failed to deliver to the tune of billions of dollars for households in aggregate over the past five years.

Five winters of discontent later, Turnbull’s own big stick approach embraces:

  • A legislated ban on networks challenging regulatory revenue decisions through the courts
  • Sooling the Australian Competition & Consumer Commission on to major energy retailers (the villains du jour) for examination of how they frame their charges – and personally hauling retail leaders in twice to demand action to herd householders towards taking up cheaper contracts
  • Running a major review via Alan Finkel’s task force which has seen CoAG commit to 49 recommendations for market change
  • Floating a proposal for the federal government to acquire the assets of Snowy Hydro from Victoria and New South Wales plus making qualified commitment to build “Snowy 2.0”
  • Leading a move to interfere in LNG exports in an effort to force more gas in to the east coast domestic market
  • Taking the most recent headline-hitting step in the form of pressuring AGL Energy to continue operating Liddell power station beyond its closure point of 2022 or to sell it to someone who will.

The mind boggles at what could eventuate politically if this summer does bring further supply problems, especially in Victoria and New South Wales.

Meanwhile Turnbull points to “10 years of colossal policy failure” and adds that the stability and security of east coast electricity supply has been reduced by pursuit of intermittent renewable energy at the expense of 24/7 dispatchable power “without very much thought,” denouncing the “ideology and idiocy” that has brought us to this point.

“There has been too much energy policy debate,” the Prime Minister declared at a mining industry dinner in Canberra, “built on glib slogans, on ideology, with political arguments with no basis in fact or reality.”

His government, he avers, is determined to base its approach on economics and engineering and to pursue a “policy trifecta” of affordable, reliable energy able to meet national carbon emissions reduction goals, embracing solar, wind, gas, hydro power “and, of course, coal.”

Lost in the wash of political brawling and media hyperbole in the past week has been a careful assessment of the wholesale power market situation and the latest Turnbull government thrust on generation by the Australian Energy Council CEO, Matthew Warren, representing generators and energy retailers.

“To manage system reliability and affordability, the market operator may want to buy some time and seek to extend the life of some (coal) generators,” Warren writes on the AEC website. “That may be a sensible and cost-effective solution.”

But, he goes on, “each power station is different – some will be better suited to this (life extension) option than others.” Decisions about whether or not to extend the life of any existing generator will need to be made on a case-by-case basis and as part of a national energy strategy.

Warren adds: “The cost of extending the life of old coal and the terms under which (such plant) would run need to stack up against competing technology solutions to do the same job. The whole system would need to reflect the emissions reductions targets agreed by successive governments.

“If it is not commercially prudent for the owner of a power station to re-invest millions of dollars to extend its life, then who should pay for it? How do we make sure this is the most efficient investment? What are the other options and what would they cost? Would (these extended-life plants) remain in the market or form part of a strategic reserve? In this case, how would (such) plant remain viable?”

These are questions the federal government should address and quite quickly because waving big sticks is not a solution, only a gesture. They are questions that need to be initially considered by economists and engineers before political decisions are made.

However, the space available for decisionmaking is shrinking, given the lead times power projects require (including upgrading existing plants). As the market operator says in its latest review of the NEM, noting the proposed Liddell closure in 2022, “time is of the essence to obtain the appropriate level of resources to support overall system reliability.”

Which raises another question: do the federal government and the CoAG Energy Council believe they have been fully and properly briefed on the complexities of the relationship between adequate system strength and the combination of synchronous and non-synchronous generation in the NEM, and especially the three southern mainland States? Back in April I recall CSIRO making the point that effective market-based approaches need to be developed to provide assurance of capacity, balancing and ancillary services important to system security. This is an issue that extends to the meshing of high voltage transmission and generation across the NEM, bringing in the links with Tasmania and Queensland.

Can CoAG be sure that what is being pursued politically (in Canberra and the States) will provide the right underpinning for the strength of the grid (and therefore ultimately the cost of the power supply)? Is this a task for the new Energy Security Board, a product of the Finkel review, and when might governments have advice?

The challenge here is particularly potent for the federal government. Its task is to hold the ring that is the NEM for the benefit of the community and the economy as a whole. States, as they keep demonstrating, will always pursue their self interest regardless of what Paul Keating dubbed “the big picture.” As the gas imbroglio, a core part of the issues of power security and cost, continues to demonstrate, State (and territory) political leaders will also ditch the interests of their own communities to maintain a grip on government in an environment where green activism and the social media carry so much clout in key seats, as witness the unscientific bans on new gas development.

Turnbull is right to say that a problem – the “energy crisis” – years in the making will take years to resolve but there also needs to be recognition that each additional misstep now further erodes our capacity to climb out of the power pit we are in.

The Australian’s Paul Kelly may well be right to say this past weekend that it is the credibility of Turnbull’s energy policy for the long run that will decide whether the issue can work to the Coalition’s advantage at the next federal election – but the temptation is always there for leaders to reach for the “big stick” for political gain rather than to ensure their policy’s foundations are strong.

Watch this space

Whether you are Malcolm Turnbull or Joe Citizen, fitting the gallons of energy stuff going on in to the pint pots of time we have available, to use the pre-metric lingo (it really loses its impact if you have to refer to 3.78 litres in to 0.47 litre pots!), is a constant challenge.

This is especially true for the electricity scene. Most consumers, I suspect, just let 99 per cent of the goings-on wash over them and focus on what they don’t like (prices); those of us dealing with the bigger picture find it an increasingly large ask to give meaningful attention to all the useful information (while ignoring the huge amount of dross available in mainstream and social media).

I’ve always liked the metaphor of trying to get a drink under a waterfall while holding a tin cup.

In getting my act together in the past week for the September issue of Coolibah Commentary – just published on this website – I have finally focused on TransGrid’s 2017 annual planning report, a document I have followed with close interest for most of the past quarter century but have not visited except in passing this year and then only through one of the company’s presentations at Australian Energy Week conference in July.

As always, the report contains a wealth of information about the largest electricity supply region in the country (home to 3.6 million customers, large and small, or 38 per cent of the NEM). And it is a timely reminder, to anyone knuckling down to read it, of the many troubling facets of just the generation and delivery aspects of the market.

I make a point at conferences of reminding audiences that power supply is a chain and every link is important – but it is undeniable that production and delivery of electrons to the load centres is the sine qua non of the process.

How interesting it is, then, to read some of the core comments in this year’s report.

TransGrid (which is now in private hands under a 99-year lease from the New South Wales government) kicks off by reminding us that last summer was the first time in 12 years that the State’s maximum demand could be met only by curtailing the load, an “issue of significant concern,” and it makes the big call that, with respect to maintaining reliable, affordable energy, the NEM as a whole has “clearly failed those it is meant to serve, all consumers.”

I am looking forward to hearing this issue of whether or not the 20-year-old east coast market has failed discussed at the NEM Future Forum I am co-chairing for Quest Events in Sydney at the end of next month.

In NSW, TransGrid goes on, energy consumption and maximum demand are expected to grow further after rising for each of the past three years. And here’s the rub: “Retirement of baseload power stations will reduce firm generation capacity in NSW and put the power system under pressure to reliably meet the State’s maximum demand.” As the company says, new generation, greater interconnection, storage and demand management will all be needed to provide additional capacity to assist to meet the peaks – and, one must add, to help put downward pressure on a significant component of mass market bills.

There are several time frames to consider in this context. One obviously is the summer ahead – where maximum demand may lie between 12,600 megawatts (which it did in the summers of 2014 and 2015) and 13,900 MW (last summer) or 14,200 MW (where it hasn’t been since 2011).

Another is the next couple of years because any adverse events (whether related to security or affordability of supply) will play in to the next federal and NSW elections (the latter falling just after summer 2019).

The longer horizon is out to the middle of the next decade – which is the one used in TransGrid’s planning review and which is expected to see the closure of the 2,000 MW Liddell power station in 2022 perhaps followed by the 1,320 MW Vales Point plant, which reaches its 50th birthday in 2028.

The challenge, succinctly put by the company, is that, “when replacing baseload generation with variable generation, around two to three times the installed capacity is required due to the variability of wind and solar resources.” This, it says, means around 10,000 MW of new renewable generation will be required over the next 10 years – the assumption obviously being that no new fossil-fuelled baseload will be constructed and that the residual coal-burning plants will not be upgraded.

The Australian Energy Market Operator in its “stocktake” of the NEM delivered to the government this week notes that the supply shortfall risk in NSW increases when Liddell closes and asserts this can be mitigated by development of more renewable generation – the issues being, of course, the impacts on reliability, security and cost of supply.

The AEMO report notes that there is currently 16,193 MW of generation capacity in the State – of which 10,160 MW is coal-burning, 2,121 MW uses gas, hydro accounts for 2,706 MW, wind 665 MW and large-scale solar 254 MW.

The operator says it is aware of 5,834 MW of proposed capacity development – of which 4,466 MW are wind farms and 837 MW utility-scale PVs. This does not include the $2 billion(?) Snowy 2.0 project towards which Turnbull last week threw $8 million in feasibility funding.

It’s worth tossing in here a warning from TransGrid: “the best (intermittent) renewable resources (in NSW) are in areas with limited transmission capacity.”

(It also should be well noted, I think, that AEMO acknowledges “uncertainty in all NEM forecasts remains extremely high, so all estimates of reserve requirements must be regarded as subject to progressive refinement.” Quite so.)

Meanwhile, as Turnbull has revealed in federal parliament today, the federal government is in talks with AGL Energy about what it would take to fend off the company’s plan to shut Liddell in 2022 and keep it operating “for at least another five years.”

As well, in a contribution to lobbying on the State situation, the NSW Minerals Council has released details of an opinion poll in the Upper Hunter region (the heartland of the State’s power supply) that shows 67 per cent of respondents would support construction of a new low-emissions coal plant in the area. The council’s CEO, Stephen Galilee, argues that a new HELE generator in the region “would lock in NSW energy needs for decades” while producing power with 25 per cent lower emissions than Liddell.

I suppose that, if you wanted a catchcry for this situation, and for the NEM as a whole, it should be “watch this space” – but, as the TransGrid planning report underscores, the need for policymakers (and, surely, especially the State ones) to genuinely resolve the future framework for supply in NSW could hardly be more pressing. Throw in South Australia and Victoria, where the supply problems are no less worrying, and there are some 6.4 million mass market accountholders alone who are caught up in the present ride on the edge.

The siren’s call

I would very much like to back our most egregious political players in the east coast energy system – notably but not solely Andrews & Co in Victoria, Palaszczuk & Co in Queensland and Weatherill in South Australia – in to a corner and not let them out until they have explained precisely what they are trying to achieve (apart from pursuing vote-catching) and have supported their actions with believable expert assessments.

This, of course, is not just an issue for eastern Australia. The same demand could be thrust at successive governments in the UK, administrations in North America and some in Europe.

The vogue right now is for helicopter reviews of power systems – such as Finkel here, Dieter Helm (just starting) in the UK and, interestingly for us (because of the resonance for our own set-up), the just completed review of the American grids by the US Department of Energy, ordered by Secretary of Energy Rick Perry, the former governor of Texas (a state that can be held up as having made a not unreasonable fist of pursuing a competitive, stand-alone electricity market).

The 187-page DoE report, delivered in the past week, is acessible on the Web and can also be seen through the lens of a multitude of critiques quickly published in reaction to it.

I thought one US commentator did a good job of summing it up in this fashion: “The review caused great trepidation among solar and wind advocates because Perry (previously) had singled out the importance of nuclear and coal – a favorite of President Trump – in maintaining grid reliability. In the end, the study said the sharp decline in natural gas prices over the past decade is the primary reason US coal generation has become less economic rather than the spread of wind and solar. The report also found that wind and solar, which provide power intermittently, have not caused any insurmountable problems in the grid’s functioning – yet.”

In a background briefing, an unnamed DoE official told a major American newspaper: “While no day-to-day reliability threats loom in ordinary circumstances, this report is meant as a warning that the nation’s electric grids and systems are at a pivotal point. The replacement of coal plants by gas and intermittent wind and solar generation, and the spread of new digital controls, means the grid’s future resilience cannot be taken for granted. The report doesn’t say coal plants are necessarily required for maintaining reliability but underscores the importance of how various kinds of power interact to affect reliability and resiliency.”

To which one of my friends, who is an expert advisor to a government in Europe, adds in an email over the weekend: “If you scan the report with no preconceptions, the message that comes through clearly is that the USA has a very diverse electricity generation system, including a lot of hydro-power and nuclear, which provides enormous resilience through that diversity.”

Robert Pritchard, executive director of the Energy Policy Institute of Australia, in a note to his members shared with me, has done a yeoman job of encapsulating the DoE document in four points:

  • The continued closure of traditional baseload power plants calls for a comprehensive strategy for long-term reliability and resilience.
  • States and regions are accepting increased risks that could affect the future reliability and resilience of electricity delivery for consumers in their regions.
  • Hydro power, nuclear, coal and natural gas power plants provide essential reliability services and fuel assurance critical to system resilience.
  • A continual comprehensive regional and national review is needed to determine how a portfolio of domestic energy resources can be developed to ensure grid reliability and resilience.

You don’t have to be Einstein to see how this translates in to some messages for the NEM down here, bearing in mind, of course, that we have gone on denying ourselves access to nuclear power past any point of commonsense despite our substantial uranium resources and international developments in technology, we have created a major wholesale power problem with a hysterical reaction in some quarters to gas exploration and development, the storage issue (batteries and hydro) is still up in the air even as some governments chase high levels of intermittent supply – as is the question of greater interstate interconnection – and we seem incapable of discussing advances in coal generation technology without descending to a Punch & Judy show.

The past week has been also notable locally for a ferocious blast for energy policymakers from Tom Parry, former chairman of the Australian Energy Market Operator and before that of the New South Wales regulator, IPART. If you haven’t read it, I recommend doing so. See “Expensive power: brought to you by 20 years of bipartisan federal/State failure” in The Australian.

In his op-ed, Parry declares: “Reliability is now subject to much greater stresses as the mix of generation plants has changed and transmission networks have not adequately adjusted. And the once world-leading NEM, developed some 20 years ago, as well as the three national market bodies that are responsible for the NEM, are now being seriously questioned as to whether the model is still fit for purpose.”

In this context, I am also taken with a comment in a recent paper by Tony Clark, a Washington DC lawyer who was an Obama-appointed commissioner at the US Federal Energy Regulatory Commission after a career at state level as a utility regulator. He writes: “States need to be clear about their goals and take the responsibility of pursuing them. While it can be alluring to think one can maintain the benefits of a restructured market while also reflecting your generation winners and losers, I have come to the conclusion that it is a siren’s call best left unanswered. There may be plenty of reasons a state might wish to exert more control over its generation mix, some of them legitimate, but it must not (be) done haphazardly.”

Readers are no doubt aware that synonyms for haphazard include disorderly, hit-and-miss, arbitrary, slapdash and slipshod, every one of which can be applied to the processes that have brought us locally to where we are today. In fairness, via the Finkel review, the Turnbull government is trying to extract us from some of the worst problems policymakers have caused – but its clean energy target hassles re-ignite the haphazard epithet as do the actions of other jurisdictions.

The siren’s call to mess with the east coast electricity market, as well as the gas market, in pursuit of picking winners in a populist contest is still ringing loud over what Parry derides as our ongoing race to the bottom.