I don’t know about you, but I can do without the rhetoric about eastern Australia being a “third world” country in terms of electricity supply or being in danger of this happening soon.
This is hyperbole on steroids. Anyone familiar with the supply problem of a lot of Africa, parts of South America and the ASEAN states must know that there is no similarity with the current Australian situation. And would anyone suggest that the major power crisis of the turn of the century made California a “third world” country – did any of the massive past blackouts on the east coast of Canada and the US have this effect?
There is an increasing penchant for this sort of florid language in our neighborhood. For example, around 2013 we were deluged with pontification in the media and the commentariat about electricity network “gold-plating” and “gouging” because the billions spent on grid refurbishment (and their end-user price consequences) coincided with the post-GFC decline in power demand as well as a sharp rise in purchases of rooftop solar PVs. Labor in federal office, led by Julia Gillard, was particularly keen to bang this drum. The Greens even more so as they danced with PV glee. Editors loved it; the networks were a fish in a barrel.
Just one of many commentaries then declared “peak demand hit its peak a couple of years ago and now exists only in the minds of the networks.” It added “the party is over.”
And now? Peak demand manifestly isn’t over as recent heatwave experiences attest in New South Wales and Queensland, 60 per cent of the east coast market (versus South Australia’s six per cent).
Energy Networks Australia has just published a commentary on its website asserting that “the death of peak demand has been greatly exaggerated.”
It adds: “It is widely recognised that Australian energy consumption ‘decoupled’ from its lock-step relationship with economic growth in 2008. Aggregate NEM operational consumption fell by almost eight per cent in the five years to 2015 because of energy efficiency, community response to electricity prices and industry restructuring. Peak demand remains difficult to forecast and patchy between jurisdictions and grid locations over time (but) it continues to be a significant pressure on future network capacity requirements.”
In the case of Queensland, for example, the transmission system on 18 January had to cope with five new peaks in one day, eventually hitting 9,357 MW. By comparison, the State’s 2014-15 summer peak was 9,001 MW. And then a week ago (12 February) the new record was broken with a peak of 9,369 MW.
In New South Wales (and the ACT) on 10 February demand reached 14,100 MW, just short of the State record of 14,649 MW. This was a day when the Ausgrid network serving Sydney hit a record of 4,640 MW – and this summer has also seen the Endeavour Energy grid serving Western Sydney reach a new record of 4,084 MW.
On 11 February, NSW experienced the highest demand for a Saturday (13,500 MW) since 2011.
ENA comments: “What is particularly notable about these (recent) events is that demand peaks occurred on the weekend. Households using air conditioners to escape the heat were a big factor. Seventy-six per cent of homes in South East Queensland now have air conditioning compared with 45 percent in 2004. In NSW, more than 80 per cent of homes in Greater Western Sydney now have air conditioning. They create huge demand and strain on the network as households and businesses use air conditioners to escape the heat.”
We’ve been having a long-running discussion about how these challenges can be better met through tariff reform and “smart” metering as well as better public education about more efficiency in use of cooling systems (eg you don’t need the air-con set at 16 degrees and it’s costing you a motza when 24 degrees is comfortable enough). Some of the push for sensible management obviously percolated through to the community in SEQ and NSW in the recent heatwaves because the mass market response was one of the factors that helped us to dodge load problems. Nonetheless, a much better consumer environment seems still to be a long way off, not least because of political inability to push reform for fear of voter backlash.
(Something else worth a mention with respect to demand peaks is that quite a large share of the air-con fleet in current use on the east coast was bought years ago and doesn’t meet today’s efficiency standards for new appliances. What would the carbon abatement impact be of facilitating their replacement compared with other measures beloved of activists?)
Given that the death of peak demand was common rhetoric just three years ago, it is interesting to see what ENA and the Australian Energy Council are forecasting in the yearbook they now jointly publish for the electricity and gas sectors.
A little research will show that the industry has significantly moderated its views on the rise of peak demand. For example, in 2010 (after demand in NSW, Victoria and Queensland in 2008-09 had hit peaks of 14,514 MW, 10,505 MW and 8,812 MW respectively) the yearbook foresaw that these numbers would jump in 2018-19 to 17,452 MW, 11,609 MW and 13,204 MW. Come forward to the current edition, published in mid-December, and peak projections for 2018-19 are 13,039 MW, 8,866 MW and 10,063 MW. That’s a pretty darned big difference but it still represents sustained pressure on the power system. The potential value of the recent heatwave experience could (and should) be a timely reminder that managing generation and the networks to cope (in all respects) with such nasty events continues to be a big part of this game.
Network capital expenditure and spikes in end-user bills are inextricably linked, as every petshop galah now knows, and the current political “debate” – read shouting match – tends to confuse far more than educate as both the Coalition and Labor play with cost relating to higher levels of renewable power and vie to predict new dire or utopian consequences.
Some plain, unemotional, fact-based language accessible for the mass market would be a very good idea.
Having been brain-washed by politicians on the make, vested interests, activists and the media in the recent past on the “death of peak demand,” the community needs to get its collective head around the fact that this assertion was a furphy and to understand what the implications are of this being so.
In particular,as I keep pointing out, total system cost should be a key area for attention, especially when one is debating a 2030 grid that may have loads more variable renewable energy, substantially less coal-fired power and an insufficiency of gas generation while continuing to need to cope weather-driven demand spikes.
Any assertion about our political swamp is risky business – even the variables have variables – but it is possible that Bill Shorten’s performance on ABC Radio this week, when he failed four times to answer a straightforward question about the cost to consumers of Labor’s proposal for 50 per cent renewables by 2030, may be a seminal point in the current energy debate.
Attempts by Labor to brazen this out could run aground on the rocks of community scepticism; politicians in both main parties are acutely vulnerable to the public’s rejection of their sophistry, as the opinion polls kept underscoring.
Certainly, Malcolm Turnbull will be hoping that Shorten’s “answer answerless” will work for his government in the weeks and months ahead.
The basic issue Shorten squibbed is not the utility of variable renewable energy in the NEM (the east coast market) and also the SWIS (the Western Australian grid centred on Perth) but how the Labor proposal plays in the context of the core requirement of the national electricity legislation that gave birth to the NEM.
That requirement is “to promote efficient investment in, and efficient operation and use of, electricity services for the long term interests of consumers of electricity with respect to price, quality, safety, reliability and security of supply of electricity; and the reliability, safety and security of the national electricity system.”
The fact that the NEM has, since 2008, been a plaything for politicians pandering to what they see as popular opinion (ie vote-catching) about the climate issue and power bill costs should not obscure what bipartisan policymakers (led by Paul Keating, Wayne Goss and Nick Greiner and subsequently supported by John Howard, in office when the electricity legislation was passed) laid down as the market’s raison d’etre in the 1990s.
The intent of those policymakers from the get-go in the mid-1990s was to improve the electricity lot of household and business consumers by capturing the collective resources of the east coast to general benefit, hence the focus on a “national” grid with a carefully crafted set of rules.
The reason today’s crop of politicians have sought to throw themselves a lifeline in the form of the Finkel task force is that recent events have made it obvious political interventions since 2008 have made delivery of the central objective really difficult.
The task force report is going to be of little value if political leaders carry on their games regardless (eg Turnbull’s kneejerk reaction to even the possibility Finkel might recommend an emissions intensity measure and Shorten’s 2030 RET proposal).
In the case of Shorten’s stumble, two conclusions can be drawn: either Labor hasn’t bothered to get independent expert advice on costs or it has and party leaders think they can brazen out carrying on regardless of what they have been told, treating the community like mushrooms. Either is beyond the pale.
The real issues with proposals to deliver any and all new generation (not just variable renewables) in the next 13 years are, first, the total system cost of a reconfigured NEM and, second, the credibility of a changed marketplace for investors called on to spend tens of billions of dollars on which they need at least 15-20 years to reap the necessary returns (or government subsidies).
The recent statement from 18 stakeholder bodies – representing suppliers, users, the trade union movement, environmental activists and consumer organizations – that “there is no room for partisan politics when the reliability, affordability and sustainability of the energy system is at stake” is manifestly wrong in the sense that the body politic obviously believes there is heaps of room and the “finger pointing” the groups say has “made most energy investments impossibly risky” is, if anything, revving up at present.
The “considered debate” these groups are demanding can only be effective if it focuses on a big main point: in developing Australia’s future electricity system there is a need to analyze the elements and operation of the system as a whole and not any single element in isolation.
Beyond this lies the obvious thought that the present considerable optimism about the future cost of renewable generation and storage does not ensure certainty about these outcomes.
Which means Shorten, Turnbull and all the rest need to remind themselves that energy policy should enable all available technologies to contribute to reliable lower-carbon supply at the lowest possible system cost.
Long-term decision-making should not rely on what is presently popular.
And, if readers of this commentary think this all sounds somewhat familiar, it should: these are all quotes from royal commissioner Kevin Scarce in his report that has been available to the body politic since last May.
I might add that some 18 months ago the Potsdam Institute for Climate Impact Research (not a “denier” organization) noted, on international experience, that integration costs in systems with high levels of intermittent renewable energy can be up to 50 per cent of generation costs – and that the largest single factor is the cost of back-up power.
By what magic would Australia be exempt from this?
Institute deputy director Ottmar Edenhofer, a prominent figure in IPCC work over a decade, said when in Brisbane in mid-2016 that “there are no riskless options in this game” – and he queried how well politicians everywhere understand the risks inherent in transitioning electricity markets to pursue environmental objectives?
Observing Shorten, and not just this week, he seems to have no real idea about these risks – and that, in my book, is pretty big weakness in someone striving to be our next Prime Minister.
Meanwhile, the challenge for the present incumbent is to lift the national debate to a much higher plane and perforce to carry Labor upwards with him so that the Finkel exercise does not turn out to be a waste of time and effort.
Turnbull has given some indication in recent weeks that he appreciates this to a certain extent – but he has miles to go and he in particular (because he is the PM) needs (in the national interest rather than in the Coalition interest) to do the heavy lifting required to carry the debate above the Punch and Judy show that exists today.
It was quite hard to see energy as a top-of-mind issue when the last federal election was held in 2016.
Apart from Bill Shorten and Labor running the “50 per cent renewable energy by 2030” line, a blatant pitch to shore up votes in a number of metropolitan seats where its MPs (including two senior shadow ministers) were under threat from the Greens, energy security and, to a large extent, energy prices were not big frontline issues.
What a difference today, as exemplified by a commentary in the News Ltd tabloids this weekend by Peta Credlin, former chief of staff to Prime Minister Tony Abbott.
Forget Cory Bernardi or Malcolm Turnbull’s parliamentary spray at Shorten, Credlin declares, “the standout political event” of the past week was the national focus on the threat of power failures and the cost of supply. The next federal election, she claims, will “turn on who will keep the lights on and the power bills down.”
Whatever you think of how she and Abbott ran the Prime Minister’s office in the first half of the Coalition’s present term in government, Credlin knows politics as well as anyone in the country, so her view is hardly to be brushed aside.
That said, we don’t know when the next election will be and what other issues will rise up to occupy the attention of fevered media with short attention spans and fickle voters — but, as I pointed out yesterday, the ball is at the feet of Turnbull and his new cabinet committee on energy.
Industry purists may groan, but the fact is that success for Turnbull & Co will not only be represented by the new policies they devise, but how they shepherd implementation and how they sell change to take the advantage over Labor that Credlin suggests they can gain. This is not a sprint, but a marathon, not least because said implementation depends on how State governments (three of them presently Labor-run) behave.
Just how fickle the States can be is well illustrated by this: South Australian Treasurer and Energy Minister Tom Koutsantonis told a parliamentary hearing in 2015 that the NEM had delivered high levels of reliability to his State. In mid-2016 he told his parliament: “We have designed it, we have built it and it’s worked and served us well.” (SA is the lead legislator for the national electricity law.) Now he says “My government has lost faith in the NEM.” SA Premier Jay Weatherill says the NEM is “clearly broken.”
And what will they be saying in, say, a year’s time — when the current Finkel task force has reported, CoAG has engaged in its usual bear pit behaviour and the Australian Energy Market Commission, the rule maker, has produced proposals for change?
Will the issues of energy security and power prices be still higher up the national agenda after a winter and another summer — or back in the pack again?
We are faced here not just with the shifting sands of politics but also the vagaries of Australian weather (of which this summer’s heat waves are a stand-out example) and the difficulties of operating the NEM under stress, as witness the furore over the SA blackouts and the high state of government and media angst over the potential for load-shedding in NSW during Friday and Saturday (10-11 February).
As not too much of an aside, yesterday’s extreme heat after Friday’s high temperatures delivered the largest Saturday power demand in NSW in six years (I’m using WattClarity website as a resource) and saw the State load at 13,402 megawatts just before 5pm, leaving 1,352 MW of available spare capacity. This, to quote the Duke of Wellington in an entirely different context, was a “damn’d near-run thing” as it also was on Friday.
I have been mildly amused to note assertions about what power source “saved NSW,” the Clean Energy Council claiming in a tweet yesterday that on Friday it was solar power.
Paul McArdle of WattClarity, in a post on Saturday, provided this breakdown of Friday’s actual NSW power production: out of a total of 243,870 megawatt hours, coal generation, even though hampered by two units of the Liddell power station being out of service with boiler problems, contributed 179,724 MWh versus 27,369 MWh from hydro and 21,2013 MWh from gas. The input from all solar was 8,661 MWh and wind 6,797 MWh. This comes out as 73.7 per cent coal-fired power, 11.2 per cent hydro and 8.7 per cent gas, a total of 93 per cent of the load from conventional generation.
One must not forget that the State also needed to access the interconnectors with Victoria and Queensland over the weekend (as it does most of the time) — with the Queensland Energy Minister claiming that his State “saved NSW” on Friday because there was 1,100 MW of QNI capacity available at the critical time.
McArdle, sounding rather exasperated with the “saved” claims, rightly opines that “every megawatt hour of generation mattered and every kilowatt hours of conservation and demand response mattered” in keeping NSW lights on. “None were more important than others.”
Coming back to the broader picture, we constantly run the risk (to quote a political journalist this weekend) of the energy debate “drifting off in to a Trump-like universe where truth belongs to whoever has the best poll-driven lines” — or, I’d add, poll-driving lines — and of failing to face up to the real challenges of maintaining system security and keeping prices affordable (not “cheap”) in a market designed for coal, hydro and gas generation that continues to be force-fed variable renewables. This is the main game.
One of the twists that needs recognition is that, while SA events have encouraged much comment that the NEM is “badly broken and in need of urgent attention,” developments in NSW over the past two days indicate that the system (with its many components) still works under great stress.
This isn’t to argue that there should not be change but that great care needs to be taken not to throw away what manifestly works (in keeping the lights on in the biggest sub-market in the country) in favour of further experimentation. And this lesson should take in current experience in Queensland, too. The community there is enduring weather not much less hellish than in NSW and its coal/gas power backbone plus another relatively-recently refurbished network system is standing up to near-record demand, especially in the populous SEQ while feeding power across the border.
In a submission to a Senate select committee that is looking at the resilience of electricity infrastructure, Origin Energy has spoken for more than itself in arguing a “strong preference” for policy being made at national level to balance emissions reduction with retaining reliable supply at an affordable cost. Ongoing events in NSW at present, as well as those in Queensland, between them representing 60 per cent of the NEM’s power production, highlight the importance of this wish — while ongoing political and lobbying noises underscore the degree of difficulty in its fulfilment.
Whether this can translate in to a definitive issue for the next federal election remains, I suggest, an open question.
Well, if there is one thing this shocker of a summer is achieving, it is under-scoring the pecking order for today’s electricity supply: (1) system security, (2) supply affordability and (3) pursuit of carbon emissions abatement.
We have gone years with the meretricious players, politicians and activists, insisting that (3) is utterly dominant and offering sophistry about (2). The big flaw of the electricity supply approach since 2008 has been the focus on driving renewable energy for political purposes without adequate understanding of the implications for total system costs and grid security. Now, if the Grattan Institute’s Tony Wood is right – “Turnbull is seeking to reset the energy debate,” he wrote in a newspaper op-ed – the Prime Minister’s objective (as set out in his National Press Club speech) is clear: secure and affordable power while meeting national carbon emission abatement commitments. By extension, this has to include a workable domestic gas supply system for the east coast because gas is an integral part of the power game.
It should be pretty sobering that the Australian Energy Council can declare “the grid is degrading in front of our eyes.” Nonetheless, as the past few days following the latest South Australian blackout have demonstrated, the political finger-pointing continues and some of the rhetoric has been bizarre (e.g. the SA Premier threatening to “renationalize” the State power system, whatever that means).
Perhaps the single most important development from a policy perspective this summer is Malcolm Turnbull deciding to create a cabinet sub-committee to focus on national energy policy with a membership that includes his deputy, Barnaby Joyce, Foreign Minister Julie Bishop, Treasurer Scott Morrison, Finance Minister Mathias Cormann, Environment & Energy Minister Josh Frydenberg, Industry Minister Arthur Sinodinos and Resources Minister Matt Canavan. After what the Australian Financial Review has characterized in an editorial as “a long period of (energy) policy missteps,” this is a much-needed move and lifts energy back to where it should be for a country like ours: a major focus of key policymakers’ attention.
The cabinet committee’s challenge in 2017, informed one hopes by a Finkel task force that keeps its feet on the ground and the climate policy review that is also under way, is to lead reconfiguration of the NEM to make it workable for a quarter century ahead in which investment of $180 billion or more is thought to be needed in power production alone. Central to this task are the concepts of energy security and total system cost (on which it is fair to say that Australia has no handle at this point in time).
The whole “out with old, in with the new” mindset that has dominated the debate for years gets a full-on reality check on days like yesterday (Friday, 10 February) when the largest sub-section of the NEM — the New South Wales market of three million households and a million businesses — is taken for a white knuckle ride over supply security on a working day of 40-plus degree heat. With two Liddell power units out for repairs and with supply over interconnectors to Victoria and Queensland constrained by those States’ needs as the heatwave struck eastern Australia, the prospect of load-shedding for NSW at the late-afternoon peak was real.
That it was avoided when demand didn’t quite reach record proportions — peaking at 14,108 megawatts, 500 MW below the highest-ever requirement — is a tribute to the power system’s backbone (coal, hydro and gas generation) as well as the resilience of the transmission and distribution networks (expensively refurbished earlier this decade amid howls of anger about the alleged “gold-plating.”). Conventional generation delivered 95.5 per cent of State production at the height of the late afternoon peak, led by coal plant with 65.5 per cent, hydro with 20 per cent and gas turbines with almost 10 per cent.
The hullabaloo about South Australia’s issues should not obscure the fact that, when demand is high and indeed when it is just normal, NSW is by far the bigger market; about five times bigger, in fact. The economic and community ramifications of things going badly wrong in the State are very considerable. The obvious point is that, if SA can get in to its present mess through driving without due care in the “transition,” what are the risks for NSW, Victoria and Queensland, representing some 90 per cent of the NEM?
The issue is not how to manage “the influx of clean energy,” as one newspaper put it yesterday, but to deliver change in a system that gives full weight to security and cost as well as due regard to the power sector’s role in meeting our national 2030 carbon abatement role. The test here and now is whether a group of senior politicians, represented by the cabinet sub-committee, can give genuine meaning to Turnbull’s rhetoric about technologically agnostic policy.
This raises another critical aspect: cost. I shudder every time I see “cheap” in a headline related to new energy policy. There can be nothing cheap about the transition. A moment’s thought will bring that home. What Turnbull appears to be trying to convey in recent comments is that the Coalition’s approach (as yet undefined) will be less expensive than Labor’s – but the impression delivered in the media is a promise that consumer costs will drop. They won’t. They can’t. The acid test is secure supply at the least possible cost. Education of the community on this point continues to be lost in the fog created by political wrangling and the shallow approach of the mass media.
It also needs to be understood that part of the cost challenge can only be met through more efficient use rather than just embracing solar PVs and energy storage. This is a very large topic in its own right, and the sins of planning and regulation causing today’s inadequate end-use efficiency are large indeed. In my book one of the priorities for Turnbull’s cabinet sub-committee is to get its head around this aspect quick smart before the mouthing about “cheap” comes back to bite the Coalition.
In sum, a reality check should give due credit to the existing pillars of power supply that are again called on today to support most of the market (in NSW, Victoria and Queensland) through another big stress test with relatively few “hiccups,” should fully embrace the issue of total system cost for steering a 20-year refreshment of generation (and not just pursuit of 40-50 per cent use of renewables) and should get to proper grips with the fact that power supply is a chain (including market structure, regulation and efficient use) that requires overall excellence in planning and management.
It is hardly a surprise that the holiday season saw a resurrection of the row over the renewable energy target. This is an issue that is not going to go way until there is a settled national approach to both climate change and energy policies — and we seem to be as far from this in 2017 as we were in 2007.
What’s notable about the current ruckus is that neither the Andrews government in Victoria nor federal opposition leader Bill Shorten is prepared to address the real issue of the cost of a much larger RET — while the Palaszczuk government in Queensland has so fudged the discussion as to defy rational appreciation of their Shorten-esque ambitions.
It is a bit early in the new year to be handing out awards for egregious political behaviour, but the effort by Victorian Energy Minister Lily D’Ambrosio, who has cited “cabinet confidentiality” for refusing to release detailed costings of the State’s 40 per cent by 2025 renewable energy target, deserves note. Why she isn’t being mauled by the Victorian parliamentary opposition and the State’s media for this dismissal of the community’s right to be fully informed is a good question? The ABC and the Fairfax Media, for two, wouldn’t rest for a moment if this boot was on the Coalition foot.
What’s at stake, to quote Malcolm Turnbull in another context, is accountability, transparency and integrity. D’Ambrosio’s stance fails on all counts and she (and her leader) should be called out on it.
One of my friends and co-travellers in this energy vale of tears makes the absolutely correct point that “it is the system costs that are all-important and grid systems have to be designed to provide secure power in extreme weather conditions.” In a nutshell, this is where the Finkel task force’s close attention should be focused and to where policymakers’ next best efforts should be directed for the regions of the NEM as well as the SWIS in Western Australia.
The political problem is that the idea of energy from the wind and sun (and other such sources) is highly popular in a naive, general way with the Australian community — and ideologically popular in many parliamentary seats, most of them in inner metropolitan areas, that are continuously up for grabs — so offering large targets seems great politics. It is not great policy, however, which is why we are where we are right now in the goings-on encapsulated by the collective decision (via CoAG) to farm out the issue of energy security to Finkel & Co.
It is timely, I think, to remind all concerned of a fundamental part of the “national electricity objective” that is the guiding spirit for the NEM. It commits the jurisdictions to “promote efficient investment in, and efficient operation and use of, electricity services for the long-term interests of consumers with respect to price, quality, safety, reliability and security of supply.
If you lay down the green-tinted glasses through which so many (and especially so many political figures) view the power issue, this remains what consumers — whether householders, commercial businesses, public institutions or manufacturers — expect of the grid-connected service and what a considerable number of them, I imagine, don’t believe they are necessarily getting now or can be sure they will get in the foreseeable future.
The current chapter of the RET saga, sparked by Tony Abbott and happily kicked along by Labor, in both cases seeking to jostle Malcolm Turnbull, as well as carried forward by media like The Australian, is focused on the simple premise that killing the measure (to the extent possible given existing investment) will change the game — which is probably true, but the bigger question is “to what end?” closely followed by “what comes next?”
Only in La La Land is it not necessary to look to the guiding principle of the market (see above).
Only in la La Land, too, will we all live happily ever after in a market that has embraced 40 per cent, 50 per cent or more of variable renewable energy without due care and attention to total system costs and the delivery of affordable, secure supply while pursuing efficient carbon abatement against a national target. (And if I hear emoting on “net-zero emissions by 2050” one more time I am going to have to go out and buy a hat so I can jump up and down on it — as I keep saying, projecting 2050 from here is the same as trying to project 2017 from 1984.)
Fundamentally, the issue is not the RET; effective policy needs durable climate change directions and full acknowledgement of the realities of electricity supply in markets for the gamut of consumers — users like those in New South Wales in the case of the past two day’s horrible weather (just as an example) who ramped their needs up from 6,770 megawatts at dawn to 11,400 MW five hours later and beyond to almost 13,000 MW in mid-afternoon before, after the semi-relief of a cool change at least on the coast (which didn’t do much for residual heat indoors), taking them down to 9,900 MW in mid-evening. Through this roller-coaster of a regional market, black coal plant shouldered 88-plus per cent of the load both early and late in the day and around 73 per cent in the middle of it, mainly supported by gas turbines and hydro power. What would the picture be, in a policy environment of a much higher RET, in terms of the total system cost of ensuring system security in such conditions?
Bill Shorten, speaking to National Press Club, was quizzed in question time about what modelling Labor has done on its proposed 50 per cent RET? He ducked, dodged and weaved, providing an answer answerless. Ditto D’Ambrosio in Victoria, who offered a relatively meaningless response about “modest” cost while refusing to display her government’s modelling advice.
How will the Finkel task force deal with the role of the RET, the realities of total system costs and the broader issue of the national electricity objective? It may be the single most important aspect of their work.
For me, one of the most interesting tables in the ElectricityGasAustralia yearbook is the rolling 10-year load forecast, now extended to 2024-25.
Apart from anything else, the furthest peek at the horizon in this latest table is a mirror of how life has changed for suppliers (whose perspectives of the future provided to the publishing industry association, formerly the Electricity Supply Association and now both the Australian Energy Council and Energy Networks Australia, are the basis for the forecast).
Go back to the 2012 edition of the yearbook and you will see an industry expectation that the grid system energy requirement in 2020-21 for the whole country would be more than 275,000 gigawatt hours — and almost 248,000 GWh for the east coast’s NEM.
In the latest yearbook, published in December, the 2020-21 outlook is not quite 223,000 GWh for national grids and just under 200,000 GWh for the NEM.
That’s not just a helluva turnaround in demand perceptions, but it is a fair bump down from what the industry was expecting in 2014 — by which stage the new reality of post-GFC consumption plus the shift to rooftop PVs in reaction to those network-induced big retail price spikes was well and truly on every supplier’s radar. Back then, less than three years ago, a chastened industry had scaled down its 2020-21 expectation to 234,000 GWh nationally and 211,000 GWh for the NEM.
These numbers speak to a far less predictable business than electricity used to be. Back in the 1990s, when I served as CEO of the Electricity Supply Association, I frequently waved the load forecast chart at federal and State politicians, supporting the latest outlook by reference to how accurate these industry projections had been since the 1970s. It’s a very different landscape now.
As I mentioned above, the chart is a rolling 10-year forecast, so the 2016 yearbook, which reviews the 2014-15 financial year, has 2024-25 as its horizon — and the industry projects national, grid-connected system energy needs at that point at just over 229,000 GWh — with the NEM at a shade under 204,000 GWh. By comparison, the actual figures for 2014-15 are, respectively, just under 204,000 GWh and 183,376 GWh. (One has to bear in mind that the national figure does not include off-grid electricity supply — which boosts the total north of 250,000 GWh and is the relevant figure when greenhouse gas emissions are being tallied.)
Another interesting aspect of the new ElectricityGasAustralia chart is the difference between the outlook for New South Wales and Queensland on the one hand — the Big Two of the NEM today — and Victoria. The 2024-25 projection sees the latter adding just 4,200 GWh to its system energy requirement over 10 years to the mid-Twenties while it forecasts that NSW will add 8,430 GWh and Queensland 8,880 GWh — or, to put this another way, the growth in the Big Two will be the equivalent of adding another south-west grid of Western Australia (mainly Greater Perth) to the east coast system. By the way, growth in the SWIS will also exceed that in Victoria — being projected at more than 5,000 GWh. The outlook for Tasmania and South Australia, on the other hand, is negative — a fall of almost 600 GWh for the former and 340 GWh for SA.
Just looking at the Big Three, it’s probably also worth noting what the yearbook sees happening to system load between 2014-15 and 2024-25.
In the case of NSW, the projection is that the average system load will rise from 7,634 megawatts to 8,596MW. For Queensland, the rise is expected to be from 5,781 MW to 6,795 MW. And for Victoria, it is forecast to go up from 4,824 MW to 5,304 MW.
With summer peaks very much on our minds at the moment, the yearbook forecasts that the summer load in NSW will hit almost 14,100 MW in 2024-25 (it was 12,046 MW in 2014-15) and in Queensland it will exceed 10,600 MW (9,001 MW in 2014-15). For Victoria, the peak is projected to rise from 8,690 MW in 2014-15 to almost 9,300 MW.
Given the volatility we have seen in this forecast series in the past five years and all the other factors playing on power demand and generation investment in the rest of this decade, it’s a pretty fair bet that the projections in 2020 for 2025 and 2030 will show some substantial differences yet again, particularly in the NEM.
For sure, looking out now in power planning is more challenging than it was 10 or so years ago — and this makes it all the more important that policymakers try to make the playing fields as smooth as possible, the opposite of what they have been up to since about 2007.
If the said politicians want a fresh warning of the dangers of the energy and carbon games they are playing, they need look no further than an interview with ACCC chairman Rod Sims by Matthew Stevens published in today’s Australian Financial Review (headlined “Rod Sims says energy crisis could push industry to the wall”). It includes this quote from Sims: “Many aspects of Australia’s energy policies seem to give little thought to the impact on our otherwise efficient and globally competitive industries. In the case of gas, in particular, the market desperately needs more gas and in addition more gas suppliers.” A further aspect of this is what level of gas the market can make available affordably for power generation in the environment portrayed by ElectricityGasAustralia?
Stevens appends this thought to the Sims interview: “This intellectual disconnect between government policy thought bubbles and the real economy has emerged as a pivotal challenge for our investment times.”
The value of electricity in our society is never better illustrated than when the weather turns nasty and peak power demand takes off.
The eastern seaboard heat and humidity horror show on Tuesday (17 January) is a strong case in point.
While the media emoted about the community’s exodus to the beach (even in the middle of the night) in New South Wales, especially Sydney, a great many more were at home or at work striving to cope with the inclemency of nature – and, of course, the factory holidays were over.
At 7am on Tuesday, load requirements in the whole east coast power market were 23,718 megawatts. Five hours later the load had exceeded 30,000 MW for the first time this summer – and by late afternoon it peaked at 34,396 MW.
The high point, as Paul McArdle points out on his WattClarity blog (my source for this data) was just 1,000 megawatts below the NEM record of 29 January 2009, three day’s before “Black Saturday” – a day that lives in our bushfire infamy when 173 people died in Victoria.
A thought that keeps popping up in my mind is what next summer (or equally an especially bitter winter) could bring in terms of system resilience when Victoria’s Hazelwood power station (1,600 MW) is closed (in little more than two months)?
As McArdle points out in WattClarity, during Tuesday’s peak the NEM (including Hazelwood) had 4,400 MW of spare capacity at the height of demand – or 13 per cent of what AEMO calls instantaneous reserve plant margin.
McArdle observes that there is much uncertainty about both future market security and also about price outcomes in a peak environment. “Any politician, consultant, investor or other telling you otherwise is talking their book,” he adds.
As I mentioned in a recent post here, a lot of my focus tends to be on the Big Two (New South Wales and Queensland, especially SEQ) and Big Three (add Victoria) of the NEM, home to 90 per cent of the market’s supply and demand.
Last Tuesday at 7am the Big Two accounted for 66.5 per cent of the NEM load and still did so in mid-afternoon – only now their requirement was 4,000 MW higher. By late afternoon, the two-State load was another 2,700 MW higher – and more than 43 per cent above its early morning level.
If you toss Victoria in to this equation, at the height of the community need the Big Three load was 89 per cent of required NEM capacity.
Despite the strain, power plants (mostly coal with the bulk of support from gas and hydro) sustained supply and the grid sustained delivery. (The ongoing problems in South Australia are another story, but my focus here is on the Big Three.)
One of the curiosities of the way the media cover the energy scene is that we get loud and long reporting when there are failures, with the ongoing Finkel review being the response of current political kneejerking to recent massively-publicized unhappy SA events, and a certain amount of dancing on the spot when NEM spot prices soar as suppliers struggle to fulfill all demand (not least because they have to resource energy from high-priced gas) – but we get virtually no coverage of the far more common occurrence: the power system, including the networks, coping with extreme pressure without drama.
This is what happens just about all of the time – and that’s my point: the community and the media take this for granted when it is, in fact, quite a herculean effort in investment, engineering and system management in a tough climate.
The issue going forward – not a small one – is what could happen, especially in the Big Three region but also in Tasmania and South Australia, who each depend on interconnection with Victoria, in the not-very-distant future? What are the key resilience questions affecting more than seven million households and about a million businesses and what needs to be done to address them?
This, it seems to me, is a particular challenge for Finkel and his task force: not settling the dispute about how South Australia came to have a State-wide blackout last year but making it impossible for politicians (both energy ministers and first ministers) to avoid the challenge presented by less coal-fired generation in the Big Three States, a proposed lot more variable renewables and gas generation hampered by the fuel’s supply and price problems.
This is not a debate for 2030 – when Andrews, Palaszczuk and Co know their tenure will be over and others will be carrying the accountability can – but for here-and-now (or at the very least the summers of 2017-18, 2018-19 and 2019-20). The time to consider this stuff is not when the ordure is hitting the fan (except the fan will be immobile if there is no power) but when there is still room to prepare and to plan.
The Prime Minister keeps assuring us he understand the importance of energy costs and energy security; what he and others need to grasp is that the latter is by far the predominant issue for the community (including business) when the system in unable to deliver. Tasmania and SA provided lessons in this during 2016, but, in terms of the scale of impact, they are small fish in the NEM pool.
And furthermore: While January 18 did not see overall NEM requirements getting near Tuesday’s load (they seem to have peaked at around 28,360 MW), capacity needs in Queensland were actually higher than the day before – setting, according to WattClarity, an all-time record of 9,477 MW.
And we are not done with the heatwaves.
One of the problems about having a meaningful discussion on the ongoing role of coal in this country is that the howling of the “death to fossil fuels” brigade tends to overwhelm public perceptions of the larger scene.
This has been brought home to me yet again over the holiday season by reading a new report from the Oxford Institute for Energy Studies think tank on coal use in South-east Asian power stations.
Geographically, of course, this is our neighborhood, although local media coverage of the region tends to lean towards food, tourism and terrible tales of unpleasant events rather than much analysis of socio-economic issues relevant to our own interests.
First, about the neighborhood: “South-east Asia is one of the most dynamic regions in the world,” says the Oxford study. “It was home to 633 million people in 2015 and is continuing to experience high economic growth, robust population increase and rapid urbanization.”
Second, about energy: “Reflecting the economic growth and demographic development of the region, energy demand in South-east Asia has increased by over 150 per cent since 1990, from 233 million tons of oil equivalent (Mtoe) in 1990 to 624 mtoe in 2014.”
Third, about electricity: “Since 1990, electricity generation in South-east Asia has increased faster than economic growth rates.”
Between 1990 and 2014, the regional economy grew by 5 per cent per year on average, while electricity generation grew at 7.4 per cent and reached about 843 terawatt hours (TWh) in 2014. “Demand growth has been driven by rising population, the rapid pace of urbanization, enormous increases in industrial production, and the progressive extension of access to modern electricity to larger segments of rural populations.”
For context, generation in Australia’s NEM, a region of declining power demand this decade, is around 195 TWh annually.
Five SEA countries – Indonesia, Thailand, Malaysia, Vietnam and the Philippines – account for 90 per cent of the region’s power demand and fossil fuels account for 78 per cent of supply. Hydro tends to dominate the 17 per cent of electricity coming from renewables.
And now the bit about coal. The Oxford report says: “The shift to coal has accelerated since 2010. The share of gas in electricity generation has decreased from 49 per cent in 2010 to 44 per cent in 2014 while that of coal has surged from 27 per cent to 34 per cent. The continued ramp-up of coal-fired generation is underpinned by coal’s price advantage and availability relative to natural gas and other fuel sources, and the demand for widespread and rapid electrification.”
The region now has 205,000 megawatts of generation capacity – 62 per cent of it in three countries, Indonesia, Vietnam and Thailand – with coal accounting for 62,000 MW. Again, for context, all the NEM capacity adds up to less than 50,000 MW with a bit more than half coal plants.
As to what comes next, the Oxford study points out that “At the beginning of 2016 there were about 29 GW of coal-fired capacity under construction to be completed by around 2020, most of them in Vietnam (12.8 GW), Indonesia (6 GW), the Philippines (4.7 GW), and Malaysia (4.6 GW). Beyond plants under construction, the capacity of permitted, pre-permitted, and announced coal-fired power plants amounted to 113 GW at the beginning of 2016, making South-east Asia the third-highest region for coal proposals after East and South Asia.”
The Oxford report foresees the likelihood that there will be 134,000 megawatts of coal generation in the SEA region by 2030 – but the future is not all plain sailing for the coal sector. The institute points out that “across South-east Asia there is increasing political will to implement policies aimed at meeting electricity needs in a more sustainable manner” and suggests there are “major uncertainties” about ongoing coal plant development beyond 2020.
An important issue is the region’s contribution to curbing global warming, but the critical issue affecting energy investment is cost. The institute comments: “As a significant portion of the ASEAN population is within the lower-income consumer category, the lowest electricity supply costs are often favored by decisionmakers to reduce the financial burden on consumers. Despite efforts to increase the role of renewable energy, natural gas and coal will dominate the future electricity mix of the region and the relative generation cost will remain a fundamental factor in deciding between gas and coal.”
A critical factor is energy poverty; some 103 million people in the region have no access to electricity at all. As the Oxford study says, “A priority for South-east Asian countries is to increase power capacity to complete the electrification of the region and to meet rising electricity demand.” The political risks of failure to deliver on this are not trivial.
Given this situation, it isn’t surprising that one of the major areas of power development focus across the region is on deploying more efficient coal technology rather than relying on subcritical units that today meet 90 per cent of coal-burning output. New plants are increasingly ultra-supercritical, in the generation engineers’ jargon, targeting a reduction in emissions of about 30 per cent per unit.
The role of China and Japan in providing such technology is going to be hugely important (and builds on their home experience; China now has 86 ultra-supercritical power stations with a unit size of 1,000 megawatts.)
All of which underscores a point currently being made by Benjamin Sporton, CEO of the World Coal Association. “Coal is not the problem,” he asserts. “Emissions are.”
Noting that across Asia coal is the preferred generation fuel because of low costs and easy accessibility, Sporton sees “HELE” (high efficiency, low emissions) technology as an important player, especially if it can be combined with carbon capture and storage.
The challenges CCS continues to face are whole another story, but the new Oxford report highlights the fact that, while activists on our turf hog public attention with their campaigns against coal, out in the neighborhood the fuel is on a roll as a stable source of generation at an affordable cost. A similar point can be made about gas for power generation.
And, when one talks about renewable energy development in South-east Asia, it is as well to note that, while wind and solar projects there will triple present capacity levels by 2025, the larger endeavor is adding hydro capacity, which will double in a decade.
Whatever the technology, the big picture is that South-east Asia is on its way to being a global powerhouse led by fossil fuel use and there are a host of implications this trajectory has for the world’s energy and climate change outlook over the longer term.
Talking about electricity in the context of Australia as a whole or even the eastern market tends to mask a big point: the bulk of demand and supply lies in three States — Victoria, New South Wales (including the ACT) and Queensland (especially the south-east corner).
While events like those in South Australia in the second half of last year can hog the media headlines and excite political reaction on a broader scale than that State, the Big Three are where most of the market action is by far. This applies to a substantial degree in the political arena, too. How voters react to the issues of big concern to them (including energy security and costs as well as climate change policies) will decide who governs Queensland, Victoria and NSW between now and 2019 and will have a significant impact on who governs Australia (with the timing of the next national poll, officially due in mid-2019, very much up in the air — I’d not be surprised to see us voting again in 2018).
I find few people outside the electricity business are conscious of just how much power demand and supply is weighted towards the Big Three and, increasingly the Big Two (NSW and Queensland).
The numbers are like this:
- There are 7.5 million household accountholders in the Big Three compared with 9.5 million nationally (of whom a million are in the south-west corner of Western Australia)
- There are 945,000 business customers in the Big Three compared with 1.22 million nationally (including 125,000 in WA)
- The Big Three households required 42,648 gigawatt hours of power in 2014-15 compared with 54,200 GWh nationally and 48,311 GWh in the NEM as a whole
- The Big Three business community needed 111,078 GWh in 2014-15 compared with 142,136 GWh nationally and 127,466 GWh in the NEM as a whole.
- Generation of power in Victoria, Queensland and NSW totalled 174,226 GWh in 2014-15 compared with 195,567 GWh in the NEM as a whole. The lead generator was Queensland, with 59,969 GWh versus 59,252 GWh for NSW, the first time the “premier State” has not led the supply ladder.
- The other stat catching my eye is that in 2014-15 black coal generation contributed 97,301 GWh in NSW and Queensland, brown coal in Victoria delivered 48,493 GWh and gas generation in the Big Three accounted for 19,736 GWh — that’s a 95 per cent fossil fuel share of output in the Big Three.
(All the information is drawn from the excellent 2016 edition of ElectricityGas Australia yearbook published jointly by the Australian Energy Council and Energy Networks Australia — see their websites for access details.)
I made the point above about how the Big Two (NSW and Queensland) are now the dominant States in electricity production (NSW and Victoria having held this position for decades) — and a snapshot from Friday, 13 January, a horribly hot and humid day (as an example, the temperature stuck on 42 degrees where I live in Sydney’s Hill District for four hours and was still 36 degrees at midnight) illustrates this.
In the middle of Friday afternoon, the horrid peak, the NSW/Queensland load was 22,229 megawatts out of 31,877 MW in the NEM as a whole (that’s almost 70 per cent to save you the mental arithmetic) — of which 68 per cent was being served by the two States’ black coal generation and 15 per cent by gas turbines. (There was also 570 MW of wind in the mix at this point plus 172 MW of utility scale solar at Broken Hill and 1,593 MW of rooftop solar PV with hydro power, mainly the Snowy, contributing 1,078 MW).
Lobbyists will point to such numbers to illustrate the critical importance of coal generation and the valuable input of conventional renewables (hydro) and gas generation; they will ask, not without reason, just what level of variable renewables (solar and wind) would be needed to replace even a quarter of the fossil fuel contribution, let alone 40 or 50 per cent, and at what overall system cost (capital and retail)? The purveyors of VREs will look at the same data and see opportunity with a capital “O” — not of the ideological version (I note the “death of fossil fuels” brigade tend to keep their heads down on these occasions) but because even 10 per cent more of this market, especially if backed by government intervention, represents many tins of bikkies to them.
Regardless of all this, the fact that the main game in electricity supply is in the three States, and in particular in NSW and Queensland, needs more appreciation, especially when considering system security and supply affordability for the greatest number of Australians.
As an addendum, bearing in mind the fuss made about investment in networks to meet peak demand — claimed two years ago to be a waste of money — I see Paul McArdle’s WattClarity website reporting that on Friday the 13th Queensland’s maximum need hit 9,088 megawatts, only 70 MW short of the record set in February last year. McArdle says that, with the growth in compression load needed by the LNG export operations, he won’t be surprised to see a new Queensland peak record before the summer is over. As he mentions, on the 13th, after a “pretty unpleasant night temperatures,” the State’s demand was nudging 8,000 MW at 9am.
Popular media commentator Annabel Crabb no doubt struck a chord with a few people by providing in the Fairfax papers this epitaph for the Old Year: “careening to a conclusion with all the elegance of a golf buggy captained by a sleep-deprived ice freak in a Santa suit.”
As for the energy sector, it ended 2016 with South Australia’s Eyre Peninsula suffering its fourth prolonged power failure in a few months, 155,000 households and businesses in the State more generally (about 20 per cent of the SA market) being blacked out by storm impacts for up to another two days, the media nationally in a froth over predictable NEM electricity price rises, politicians trying to muscle AGL in to giving the Portland aluminium smelter in Victoria cheap supply as it apparently teeters on the brink of closure – and manufacturers across the east coast warning that 2017 is likely to see a “crunch point” in gas supply with a number of major users struggling to obtain long-term contracts. (About 225,000 people work in Australian manufacturing businesses reliant on gas.)
The year also ended with the upstream petroleum lobby trying yet again to get across the point (to quote Malcolm Roberts, CEO of the Australian Petroleum Production & Exploration Association) that the national pursuit of a transition to cleaner energy is at risk because of a shortage of a fossil fuel, natural gas – that gas-fired generation is “the only technology capable of delivering balance” in a market adding large amounts of variable renewable power.
And 2017 has begun with federal Resources Minister, Matt Canavan, “going on the offensive against conservationists who want to end the use of coal in power supply” (to quote “The Australian” newspaper) by arguing for a focus on ultra-supercritical coal-burning generation here and for ongoing exports of the mineral to Asia – and being shouted at by the Australian Conservation Foundation.
Meanwhile, ABC Rural radio has presented a report – you can find it by putting “Government accused of policy paralysis while uncertainty reigns over renewable energy targets” in to Google – in which David Blowers of the Grattan Institute asserts that “investors, utilities, industry and householders are in the dark about what to expect in 2017,” adding that “the only certainty is electricity prices will rise for everyone.”
In this, Blowers tells the ABC’s Babs McHugh that tackling a new energy system makes power price rises “inevitable” because “replacing a lot of generation stock and infrastructure with a whole lot of new stuff is expensive.”
Blowers adds: “What we’ll see, if there is no agreement around Australia’s climate change policy, is that – for the foreseeable future price increases – will be greater than they need to be.” This, he says, may be unpalatable but it is what you get when, at the federal level, the Coalition and Labor continue battling over policy and, at State level, jurisdictions go their own way on renewable energy.
Blowers touches on a point that I think gets far too little attention in the carbon debate. There’s too much focus on electricity, he says, when it only accounts for a third of Australia’s emissions. “It’s the biggest, but we’ve still got (another) two-thirds of our emissions to (also) deal with.”
McHugh’s report also includes the CSIRO’s chief energy economist, Paul Graham, declaring policy certainty, with a price on carbon emissions, is needed urgently. Meeting the national abatement target for 2030, Graham says, “means shifting to using a lot of low emissions electricity – but (it) costs more (and) electricity bills will rise because of the deep decarbonization trend and we want to make sure we don’t spend more than we have to.”
Can the Prime Minister, I wonder, feel the political ground shifting under his feet when his attention is drawn (as it surely must be) to stuff like this about prices?
In the broader context, APPEA’s Roberts argues that “there is a compelling environmental case” as well as a reliability argument for gas-fired generation. “In August the Climate Change Authority firmly supported fuel switching as the most efficient way to cut emissions from generation (and) rejected higher renewable energy targets and other regulatory interventions as costly and risky.”
Some State governments, Roberts adds, “seem to have missed this advice.”
The arithmetic here is that, on the CCA perspective, output from gas generation would have to at least double and perhaps triple to help attainment of the national abatement target for 2030 – it accounts for 10.5 per cent of supply today.
Another relevant report, delivered in December to energy ministers but already lost to view publicly in the whirligig of media coverage of energy matters, is from the Australian Energy Market Commission, which has told CoAG that its analysis shows “an emissions intensity target delivers the best outcomes for (electricity) consumers in terms of price, power system security and certainty of meeting the emissions target.”
As a summary of the overall situation facing us in 2017, this comment from Roberts needs emphasis, I think: “The stakes for Australia could hardly be greater – a least-cost transition to cleaner energy and energy security for local industry or continuing inconsistent policies that destroy jobs, push up prices and perpetuate higher emissions.”
To which one could append a point from a year-end op-ed in “The Australian” by energy lawyer Chris Flynn: “Energy security is not a buzzword, trend or meme. It is the comfort of knowing that energy consumers have reliable access to affordable and quality energy from diverse sources. As such, it goes to the very heart of our economic and political bottom line.”
Standing back, any objective observer can see that there is little about our continuing political adventure with energy to make stakeholders comfortable about the journey – and said observer surely must recall the biblical admonition that we reap what we sow.