Let’s look at that again

Here’s a question: which global power generation technologies had the largest capacity expansion between 2004 and 2014?

A casual reader of energy news in the media is likely, I think, influenced by the huge amount of propaganda generated by the green industry and its fellow travellers, to say “Well, wind and solar power, of course.”

To pick on an example outside our shores for a change, this is America’s CNBC headlining coverage of a new report from the World Energy Council: “Wind and solar power enjoy a decade of massive growth.” Plenty in similar vein can be presented from other sources.

But here’s the thing: In the 10 years chosen by WEC for its review, installed capacity around the world increased by 2,380 gigawatts, rising by an annual average of five per cent from 3,800 GW in 2004. Of this increase, coal, gas, oil and nuclear contributed 1,480 GW.

The WEC chooses to label these “conventional” generation, but for my money there is nothing more conventional than hydro-electric power and, when you lump it in with the others so labeled, the increase is 1,820 GW.

With hydro excluded, the growth of other renewables amounted to 898 GW. Of this, the wind and solar increase accounted for 500 GW (wind 322 GW, solar 178 GW).

Now this is not to discount the substantial percentage rise of wind and solar over this period (from a low base) – by 23 per cent for the former and 51 per cent for the latter compared with four per cent for coal, gas, oil and nuclear combined – nor the prospect, indeed the certainty, that this trajectory will accelerate later this present decade.

But it’s the imagery that impacts on the unlettered (in energy literacy terms) and the way this stuff is reported creates at the very least a misleading picture for the Averages, who then convey messages to politicians via opinion polls about pushing harder down this path — leading to the sort of policy malarkey we are currently witnessing in Victoria, for example.

I would bet heavily that, when asked which technology had grown more globally in the 2004-2014 period, a local Average would say wind and/or solar – but, on the WEC numbers, hydro rose 340 GW between 2004 and 2014 versus 322 GW for wind and 178 GW for solar.

The other thing the Averages (and not a few journalists reporting in this space) don’t comprehend is the contribution these technology forms make to actual power production, which in terms of both consumer needs and carbon emissions is what matters.

According to the WEC, coal, gas, oil and nuclear provided 18,127 terawatt hours in 2014 or 77.2 per cent of the total. Add, as I argue one should, hydro power to this, and “conventional” generation delivered 22,025 TWh – or 88.8 per cent of the total.

You’ll notice that nuclear is tossed in with fossil fuels in this WEC reporting – but, if hydro, which emits no carbon dioxide, is on the other side of the ledger, so surely should nuclear be. The latter accounts for some 2,480 TWh annually at present and, when taken with hydro, non-carbon emitting conventional generation in 2014 delivered almost 6,380 TWh versus 1,455 TWh for all the other renewables.

The other aspect of this debate relates to the issue of a technology’s ability to respond when system dispatchers want energy versus variable renewables delivering production when nature permits. (Which is why there is so much fuss in green quarters about energy storage and about great expectations that it will soon be a less costly option.)

Rather buried in the WEC report, and not dug up by the truffle hounds of the media (whose noses are trained to a different scent), are these comments: “Renewable energy sources (RES) offer many benefits, including CO2 emissions mitigation, fossil fuels import requirement reduction and job creation.

“At the same time, the findings of this study indicate that the total cost and the overall impact of RES (by which, I interpolate, they actually mean VREs) on national electricity systems is often underestimated by consumers and policy makers.

“In general, (our knowledge network drawn from industry in 32 countries has) found that the rapid growth of (wind and solar) renewables together with their priority of dispatch status has led to price reductions but also price increases for some electricity consumers.

“Final bills do not usually display itemized costs of the direct incentives and additional measures required to accommodate the increasing share of (variable) RES. The bills would look significantly different if these costs were itemized. The additional measures are necessary to keep the system running and they include backup/reserve capacity, system balancing costs, additional network investments and other similar outlays.

“In addition, in some countries, “state-of-the-art”, high efficiency gas-fired generation units are being used less and less frequently and utilities have to write off these stranded assets (see case studies for Germany and Italy); the introduction of a capacity market is being examined in several EU countries.”

And the WEC sums this up in its report’s executive summary – although I can’t find any popular media reference to it – via the salutary point that “a real challenge for variable renewables integration is to rapidly manage the implications of the variable nature of wind and sun.”

The organisation also points out that “each country’s power is unique depending on its primary energy sources, location and size of power plants, transmission and distribution systems, financial conditions, costs and consumer behaviour.” Yes, quite, and that is the answer to all the guff about why can’t we (Australia) be like “X” (insert your country of choice for pejorative comment designed to portray us baddies or laggards or whatever)?

In this context, the Energy Policy Institute, in publishing a new commentary in the past few days, has emphasized that increasing intermittent renewable generation in a power system has a “pressure cooker” effect and can involve an unaffordably high level of integration costs.

EPIA adds: 
“(Our) paper underscores the importance of sound and technology-neutral policies to ensure it remains safe to make long-term investments in Australian energy infrastructure.”

To which I’d append the critical importance of both energy literacy and intestinal fortitude over populist impulses among those making decisions – requiring an understanding of information being put out in the public arena well beyond what media outlets may choose to highlight.

Tangled web

Of all the meandering pathways of east coast electricity supply management none is more tangled than the regulation of the NEM’s distribution businesses, none is more likely to lead to emotive (and frequently misleading) media coverage and none (not even the carbon shouting match) is more likely to trip up politicians over time.

We are now embarked on yet another review of the tangled web of network distribution at the behest of the CoAG Energy Council, whose chair, Josh Frydenberg, flagged the politics of it all in a statement that said: “Energy networks who have appealed (current Australian Energy Regulator) determinations stand to earn an extra $7 billion over the next five years if their appeals are upheld.” (Some at this point may wish to quote the Roman satirist Juvenal – Quis custodiet ipsos custodies? or “who will guard the guards?” – but that’s just nitpicking, isn’t it?)

Frydenberg told a Sydney tabloid newspaper “Our goal is to put consumers first and ensure they pay no more for electricity than necessary. The regulator does a good job in holding the networks to account as the primary decisionmaker on pricing and this position should be respected.”

The paper, in a fine example of the tabloid genre, headlined its report: “NSW ratepayers spared price rises as energy company bandits brought to heel.”

The back story here is that NSW, ACT and South Australian network businesses, along with the Public Interest Advocacy Council, challenged the 2015 AER determinations before the Australian Competition Tribunal – one wanting higher allowances, the other urging they be further cut – and the tribunal found against the regulator in some areas (upholding it in others), requiring further watchdog work, still ongoing, while the regulator itself has appealed aspects of the tribunal decision to the Federal Court.

Or, as the Energy Council’s notes for the review of the appeals system put it, legal challenges mean that revenue decisions made by the AER in April last year will “likely remain uncertain until at least early 2017.”

The Energy Network Association, speaking for the “bandits,” who are critically important in maintaining the quality and reliability of power delivery to some nine million households and million business customers on the east coast, has declared that removing the appeals system is the equivalent of “sending an umpire off the field for blowing his whistle” and argues that the tribunal can uphold grid appeals only where outcomes provide a better result for users.

This is a reminder that the grounds for the latest network appeals were that they could not maintain safety and reliability of supply under the proposed determinations. (The flipside of this coin is that the AER used benchmarking, its method also challenged by the networks, to assert significant business inefficiencies.)

Frydenberg’s take on all this is that consumers are being “short-changed” by long-drawn-out legal processes. He says the Energy Council ministers are “firmly of the view” that there is “a case for change” because the system is “not working in the way intended.”

Buried in the consultation paper the Energy Council has now released, canvassing various options for remedial action, is what may well turn out to be the politically-acceptable solution: removal of access to a limited merits review but leaving access to a judicial review. “Judicial review,” says the paper, “is not the rehearing of the merits of a case (but rather reviewing) a decision to make sure the decisionmaker has applied the relevant law correctly and reached a decision not unreasonable in the final result and arrived at by following the correct legal procedures.”

The line of attack, as represented elsewhere in the paper, is that the present set-up allows “cherry-picking” of issues and a focus on correcting individual errors “without sufficient consideration of whether a different decision would lead to a materially preferable decision that is in the long-term interests of consumers.”

To which, not unreasonably I suggest, the network lobby is already firing a warning shot about the need to bear in mind the interests of investors, a large number of whom are domiciled offshore in the case of privatized networks but in NSW (at present), Queensland, Tasmania and, in part, the Capital Territory, are taxpayers represented through government ownership.

If, like me, you have been observing this scene since the early 1990s, it is not hard to discern another loop in a rollercoaster ride that has seen politicians suppress network spending, freak out at ensuing supply blackouts and breakdowns with their inevitable community backlash, encourage major new investment — $35 billion of it, boasted about by government leaders of the day, that helped increase power bills by up to 80 per cent over their 2008 levels – and now seek to stamp on the regulatory brakes because of the latest consumer (and media) outcry.

In passing, the main focus of the legal hoo-ha of recent months has been the ACT and NSW businesses and the initial AER determination of some $16 billion in revenue raising affecting their four million household and business customers over five years from 2016. (That’s about 40 per cent of the east coast customer base.) Tabloid readers in the region may be surprised to know that $16 billion in charges is what they will be copping in their bills even if the political magic wand can make the extra revenue the networks are seeking go away.

As well, that $7 billion number being bandied around applies more widely than NSW and the ACT. In fact, if you bring this down to Greater Western Sydney, a key political “battleground” for State and federal elections where who governs can be materially affected, it’s about a fifth of the headline sum or maybe a couple of hundred dollars annually per household from now to 2019.

Frydenberg, it should be noted, harps on costs in talking to the media but does not address the questions of safety (which include fire hazards) and reliability.

North Americans are more familiar than we are with the expression “shell game” – the old three thimbles or shells and a pea trick – but it can be applied locally, I suggest, to this long-running networks saga and it is awfully hard to follow by ordinary folks. Politically, that’s the intention. A cynic might even suggest that the review of the merits review, politically at least, is a shell game within a shell game.

Consumers, on the other hand, really don’t care about the flim-flam; they want lower bills and ongoing reliability of supply, a dichotomy which today’s political players are not really any better at handling than their predecessors.

A loonie power lesson

There is so much complexity in the transformation of electricity supply to a lower-carbon but still secure and affordable system that one cannot blame the energy illiterate (more than a few of the population) for having little idea of the ramifications of changes opinion polls represent them as holding dear.

The problem for governments is that meeting what opinion polls identify as popular desires – doing more about climate change and pursuing greater use of renewable energy, for example – almost inevitably delivers clashes with other strong community wants (eg lowering power prices).

News out of Toronto, Ontario, this week exemplifies the dilemma. The incumbent Liberal (ie Labor in our terms) government is confronted by substantial antipathy in the provincial electorate to rising power bills – up 80 per cent since 2006. The backlash has included loss of a supposedly safe Toronto seat in a by-election this month. The political (ie kneejerk) solution has been to announce an eight per cent rebate on charges for five million residential and small business customers.

The spin is that this will save households $130 (Canadian money) a year. Now that works out to little more than two loonies a week – “loonie” being the nickname for the country’s $1 coin (which has a waterbird, the loon, on one side) – but what the move will cost taxpayers is being carefully skirted: about $C650 million annually or $6.5 billion over the next decade.

This, in fact, is not much more than the $C4.6 billion the province’s auditor-general says will be the burden on customers over the next 10 years from Ontario’s subsidies for wind and solar power – spun by the government as the cost of removing coal-fired generation from Ontario’s power system.

What has actually happened since 2006 is that Ontario has shut down 7,546 megawatts of coal generation and added 13,595 MW of renewables, 5,674 MW of gas plant and 1,341 MW of nuclear power. The current intention is to have a 2032 generation mix that consists of 9,850 MW of nuclear plant plus 9,300 MW of hydro-power, 9,900 MW of gas, 6,450 MW of wind farms and 3,350 MW of solar power.

At present wind and solar contribute 9.6 terawatt hours of annual Ontarian power production versus 37.9 TWh for hydro, 94.9 TWh for nuclear and 14 TWh for gas, with as much as 19 TWh being exported in to the United States (because the province has a large generation surplus).

Now here’s the kicker: the auditor-general declares that Ontario’s power planning process has “essentially broken down” and the province has not had a technical plan in place for 10 years. The result is “significant cost” for customers (and now for taxpayers, as the new rebate take effect).

Without going in to all the tangled web of arrangements Ontario politicians have imposed to cope with the raft of energy problems the province has (including financing debt incurred by the nuclear sector and not least paying new generators over market price to build plants there), let’s just note that, according to the auditor-general, the total bill for consumers above and beyond actual supply costs will amount to $C133 billion between now and 2032 – on top of $C37 billion incurred over the past eight years.

This is not a banana republic we have in view but a sophisticated economy a bit bigger than that of New South Wales – and the lesson for us here to draw from all this is that modern governments can tie themselves and their communities in costly knots if they allow populism and politics to run roughshod over good planning.

As it happens, I have been following developments in Ontario for a quarter century (initially because of my work as MD of the Electricity Supply Association) and I can see all sorts of resonance for our east coast power market, even though the technology set-up is quite different and the weather, too.

What’s not much different is the politics and here, as there, politicking with power is a slippery dip.

To quote, the auditor-general of Ontario again, “an enormous amount” of technical planning for the province is now needed to determine how to meet future electricity needs efficiently. Same here.

Apart from the well-canvassed (if not always properly understood) issues in South Australia, the big ticket focus here is on Victoria, New South Wales and Queensland, focus of most demand and supply, where State governments are all engaged in thinking about future power supply (or, in the case of Victoria and Queensland, pushing populist expansion of renewables).

The “Re-powering NSW” conference I am co-chairing in late October in Sydney (see http://www.questevents.com.au/re-powering-nsw-2016) provides an opportunity for stakeholders to canvass this State’s electricity future and the Baird government has launched an energy strategy review, but there is little in the public debate so far to suggest that the east coast’s official power planning processes are in much better shape than Ontario’s.

The central criticism of the Ontario situation certainly resonates here: how is the community interest represented when governments ignore the long-term impact on consumers for their own short-term political gain?

Threading the needle

A bane of efforts to have a commonsense discussion in this country about energy and carbon abatement is the endless bludgeoning of Australia with the per capita emissions stick.

Grant King, whose distinguished role as CEO of Origin Energy is about to end, did the best job of rubbishing the concept last year when he spoke at a Committee for the Economic Development of Australia forum. The per capita yardstick, declared King, is “mathematically true and completely misrepresents, in fact ignores, the balance we should seek between economic development and environmental outcomes.”

King, who has argued for us to come to terms between the benefits of increased energy use here and elsewhere and the consequences that come with this, with the punchline that our society “will not give up economic gains solely for the purpose of environmental outcomes,” told the CEDA audience that a more useful measure of Australia’s performance would be to assess how it is achieving the trifecta of simultaneous economic growth, reduction in absolute carbon emissions and a reduction of carbon intensity. He claimed that only Australia, the US and Canada have recorded this achievement and that we are leaders in doing so.

While I wrote about his comments at the time, the media essentially ignored them and little effort has been made by business to run with the trifecta concept over the past year.

King’s point came to mind this weekend both in reflecting on his retirement from Origin – he is lauded by the Australia Energy Council for not only building a leading integrated energy business but also for his role as “a strong advocate of energy policy reform” – and on the ongoing, although relatively low-key, rumbling about the Climate Change Authority’s latest report for the federal government.

The trifecta point also resonates with a submission I have been reading from the Minerals Council of Australia to the Victorian government, underscoring the administration’s own declaration last year that the State’s key objectives in energy policy are an efficient and secure system to provide for social and economic wellbeing as cost-effectively as possible and the safe and reliable delivery of energy supplies.

The CCA, for its part, has put out a tart statement rejecting the much-publicized criticism by two of its members (former Greens election candidate Clive Hamilton and fellow academic David Karoly) that its report is motivated by political considerations and re-asserting the need for this country to “chart a sustainable, durable and scalable (national) climate change response in the years and decades ahead.”

It’s interesting to see even The Australia Institute’s Richard Denniss canvassing the view (which he attributes to the CCA majority) that “giving the Coalition (government) a way out of the climate change cul-de-sac it is in is worth the effort.” The important question, says Denniss, is whether or not a majority in Parliament agree that “climate progress is more important than protest.”

To which the Fairfax Media’s Ross Gittins has added that he has “never believed that, if you can’t have it all, you’re better off having nothing.”

Gittins argues that the Turnbull government “must know its present arrangements are insufficient to meet its international commitments without hugely increased cost.” What the CCA has done, he suggests, is show the government how to build on existing policies to strengthen its efforts.

Some members of the left-leaning commentariat are eager to use the CCA document as another means of adding fuel to the perceived feud between Turnbull and his supporters and the “old guard” among the Liberals but others in the media are suggesting that it could grease the wheels for another meeting in the middle between the Coalition and Labor. (The first, of course, was the compromise on the RET.)

Is this perhaps what is exercising the criticisms of the CCA approach from both the green left and hard right of our political spectrum?

I thought it interesting to hear Hamilton on ABC Radio responding to the compere’s question “Isn’t this about doing what is politically possible?” by contending it is not the Authority’s role “to try to thread the political needle.”

At least some of us think that facilitating a pragmatic outcome is much to be desired. Some others, obviously, fit the Gittins’ description of “if you can’t have it all” and some no doubt have radical political games to play.

When all this is said and done, this political ball now is where it belongs – at the feet of the Prime Minister, his cabinet and especially Environment and Energy Minister Josh Frydenberg. The latter gives me the impression of treading water until the cabinet (and perhaps the party room) have had an opportunity to think their way through the opportunity the CCA has handed them.

Politics being what it is, however, one should not lose sight of a message running through the CCA’s material: there’s no escaping electricity price rises in tackling stronger abatement action. Given the poisonous use of power costs in the public debate of recent years, this represents a challenge to a pragmatic outcome not to be under-estimated.

A case of “watch this space,” methinks.

The pragmatism test

The problem with getting any sort of pragmatic tone to the climate change debate (now 20 years old) is that so many protagonists hate pragmatism; for them, this is either about imminent doom or a giant hoax.

Salt this situation with a desire to attack capitalism or socialism, depending on bent, and you have the perfect whirlpool, with the rest of us, hopefully the majority in what I see Prime Minister Turnbull calling the “sensible centre,” at rising risk of being sucked down the policy plughole.

Thus the new Climate Change Authority report is being assailed from both ends of the commentariat spectrum: it’s a “cop out” and/or “inadequate,” a “gamble” with our future and more “garbage” (that’s from the far right). Titillating the media is the fact that two CCA members, one a former Greens election candidate, have now come out with their own report lambasting the main one.

Emblematic of the times, federal Environment & Energy Minister Josh Frydenberg has responded to the formal report’s release by declaring that the government has no plans to revisit its abatement measures and that his job requires him to “get affordable energy.” His Labor opposite number, Mark Butler, offered no comment at all.

For the record, as well represented by the South Australian royal commission report, the collective job of our governments is to pursue, in the case of electricity, reliable, secure supply at the lowest possible cost while transitioning us to a lower-emissions economy. All of this, not the parts that suit an agenda at a particular time (subject to change to fit an altered political wind or set of opinion polls or an election outcome).

The CCA chair, Wendy Craik, in releasing the report, made a point that seems sensible to me in this context: “The Authority found that one size cannot fit all of the many opportunities that exist to reduce emissions across our economy.” Australia, she said, “needs a policy toolkit calibrated to capture reductions in different sectors.”

What we most need, she added, is a “durable solution” for decarbonizing the economy. To the CCA, this can be tackled in particular by (a) an emissions intensity scheme for electricity generation, (b) establishing or strengthening energy efficiency standards for buildings, including houses, and vehicles, and (c) a better, voluntary approach for the land sector.

Tucked away in my files, waiting for this report to be released, are copies of submissions made to the Authority earlier this year.

In one, EnergyAustralia observed that “even an astutely-designed emissions reduction policy” will struggle to draw the substantial re-allocation of private investment required to achieve just the current 2030 abatement target unless it seen by investors to be “politically secure and robust at the outset.”

Our national track record over the past decade decade, EA added, “unfortunately has fostered a perception of instability and unreliability” while the emissions performance of electricity generation “is being inhibited by the substantial over-supply of capacity in the market” with new investment in low and renewable generation plant “crowded out.”

In another, Origin Energy supported the “toolkit” approach and urged appreciation that it is “crucial” the transformation of the electricity sector be sustained over time to keep the impact on investors and consumers to a minimum.

The company pointed out that, if the 2030 target is quantified as cutting back national emissions by 100 million tonnes annually, the power generation share is 33 Mt – which is the equivalent of closing two of the most carbon-intensive Victorian brown coal plants plus one or two more on the east coast and replacing them completely with renewable energy.

Going for a much higher 2030 abatement target, as proposed by Labor and others, needless (but necessary) to say, requires much more (including a great deal more money).

Given the recent experience in South Australia, what either step implies for quality, security and cost of supply needs forensic scrutiny – and this is still the missing link in the ongoing public melee.

In addition to its 219-page main paper, the Authority has also published a “special review electricity research report” running to 109 pages and drawing from input by 65 individuals and organizations as well as modeling by consultants Jacobs.

Brought down to a core view after this work, CCA believes that “the most prospective type of market mechanism for the electricity sector is an emissions intensity scheme.”  This, it asserts, will increase electricity prices less than a cap and trade scheme, while delivering significant emissions reductions that can be scaled up over time.  “Smaller increases in prices,” it adds,” may result in greater community acceptance, making it more stable. Further, the smaller price impacts on low-income households and other groups of particular concern can achieve a balance between cost effectiveness and equity.”

The political poison here, of course, is that the proposal acknowledges power bills need to rise to pursue even the relatively modest current national target. This hardly news to those of us who follow the abatement issue closely, but the public has been conditioned by the media and some politicians to howl at any mention of price rises.

In other news, although the casual media reader wouldn’t know it, the CCA has recommended that the renewable energy target carry through unchanged to 2030 – which is a rejection of the policy for a big increase Labor took to the recent federal election – and it adds this comment: “Given the importance of investor confidence to making the transition to a low-emissions electricity sector and the uncertainty that has characterized policy in the past decade or so, the Authority considered whether additional electricity sector policies (beyond the RET) might be warranted to support the emissions intensity scheme. The Authority reached the view that investor confidence is best met by introducing a scalable, cost-effective policy which remains stable and adding further policies in the electricity generation sector risks policy interactions that could undermine this key objective of policy stability.”

(The minority report wants a major boost to the RET, pushing it up to 65 per cent of power consumption by 2030.)

Looking at the past 7-10 days’ coverage, it strikes me that media denizens are incapable of just telling their readers (listeners, viewers) the facts without the embroidery provided by all the meretricious players, as I called them the other day – players that include opinionated “reporters” for whom it is more important to convey their own interpretations than an unadorned view of an independent entity that has spent months both consulting and cogitating. By all means allow the various noisy players room to express themselves, but get facts about the report in clear public view.

Perhaps one should be most concerned that the relevant minister, Frydenberg, sprang in to the media to belt the report in to the long grass within hours of it becoming public. Pragmatic? Not so much. But very typical of the current environment.

Playing with fire

In thinking about the Victorian government’s controversial moves against the natural gas industry (banning hydraulic fracturing out of hand and extending a moratorium on conventional gas developments onshore to 2020), I’d like to toss a quote in to the debate from Rod Sims, chairman of the Australian Competition & Consumer Commission.

It’s taken from his participation in a forum in Melbourne in May and he was referring to the ACCC’s inquiry in to the competitiveness of wholesale gas in eastern Australia: “I hadn’t really realised how many manufacturing plants we have that use gas. I was very surprised how many there are, how big they are and how many people they employ; they’re making plastics, fertilizers, glass and a whole range of (other) things. So, if you think we don’t have much manufacturing in Australia, we have a hell of a lot of it and gas is pretty important to a lot of it.”

Nowhere is this more true than in Victoria and yet, in throwing a big political wrench in to the future gas market only days after the CoAG Energy Council emoted on how important it is to provide greater east coast supply, the Victorian Premier, Daniel Andrews, could not find one word to say about manufacturing — which contributes almost 11 per cent ($31 billion) of gross State product and is the largest employer of full-time jobs (295,100 people at last count) in his State.

These days politicians take to Twitter to get across their key messages. What Andrews tweeted was “In a national first, the Andrews Labor government today announced a permanent ban on the exploration and development of all onshore unconventional gas.”

He did want to talk about jobs, claiming in his media statement that his move will “protect the clean, green reputation” of State agriculture, employing more than 190,000 people” — who, may I point out, depend on fertilizers in a substantial way and on food processing plants, both significant users of gas.

Agriculture, by the way, contributes $11.6 billion to Victoria’s GSP.

Andrews’ Industry Minister, Wade Noonan, also wasn’t interested in the anti-gas move’s impact on manufacturing. His tweet declared “Victorians have made it clear they don’t support tracking.”

Contrast all this, then, with the reaction to the Victorian step by the South Australian Treasurer and Energy Minister, Tom Koutsantonis, who urged gas companies to come to his State “where the assessment and approval of projects is left to expert regulators, not politicians,” adding that this country has “the best regulatory systems in the world” and they should be trusted to protect the environment, agriculture and communities.

What’s more, Koutsantonis pointed out, the Victorian decision is “bad news for the NEM” because the availability of gas for generation will continue to be constrained and for the environment because gas is “a much cleaner form of generation than coal and an essential component in the transition to a low-carbon future.”

And he’s a senior Labor figure.

The Shell Australia chairman, Andrew Smith, nailed the egregiousness of the Andrews’ announcement pretty well, too. “Today’s move,” he said, “means every Victorian household and business will pay higher energy prices moving forward. In a State that depends most on gas, this means fewer jobs, lower growth, less investment and a higher cost of living.”

It was, he added, a decision made without any scientific basis — noting that bad policy can be rewritten but, “once manufacturing jobs are lost, they rarely come back.”

The Australian Energy Council CEO, Matthew Warren, who told a newspaper the Victorian government had “succumbed to populist sentiment on fracking,” said in a statement that the move was shortsighted for an administration wanting to pursue a large-scale increase in use of renewable energy for power production. “The plan to install more than 5,000 megawatts of wind generation means that Victoria’s electricity system needs to be increasingly reliant on gas as a flexible back-up fuel.”

Malcolm Roberts, CEO of the Australian Petroleum Production & Exploration Association, pointed out that Victoria has benefited from decades of conventional local gas production and accused Andrews of “playing politics” with the State’s energy future, reminding the government that, apart from the use of gas in 80 per cent of the State households, 27 per cent of the fuel consumed by local industry is used as feedstock for such essential products as glass, bricks and fertilizers.

And, he added, the dairying and food processing industries are heavy users of gas.

Now can one for a moment believe that the Andrews government does not know about all these values? Of course it does, but it has a higher priority — looking after its own political hide at a time when it is not exactly popular with a great chunk of the Victorian community. Kicking the gas sector is applauded by inner-city post-modern materialists and rural activists, the foot soldiers of the Victorian Labor faction on which Andrews & Co depend for support.

A senior political writer on “The Age” newspaper in Melbourne summed it all up as “easy politics,” going on to prate the conventional anti-fossil fuel lines of the Fairfax mass media and to claim that this was a decision with no “big, near-term economic implications.” Even he, however, could not fathom why the fracking ban had been twinned with the conventional gas moratorium, settling for it to have been pursued to deliver a simple “clean, green” message.  And, he declared, “the constituency in favour of gas development is small.”

If this is representative of the mindset in Spring Street, Melbourne, then Andrews is playing with fire in more senses than one.

Even the Australian Workers’ Union, a stalwart of the Labor movement, is tipping a bucket on the moratorium, arguing it “threatens industry, jobs and job creation while deflecting investment from the State.” Its spokesman declared: “We cannot keep on closing doors and expecting jobs to magically appear from nowhere.”

Not related to this issue but worth quoting in this context is a thought from the maiden speech in Federal Parliament this week by Tim Wilson, the new MHR for the blue-ribbon Liberal seat of Goldstein in Melbourne (vacated at the last poll by the retiring Andrew Robb). Wilson declared “cynicism pervades modern political life.” He’s not wrong.  But real life has a way of re-asserting itself — as recent other developments have reminded us.

Quest for good information

For the past two months gas has vied with electricity for attention in the public energy debate, with much fuel added by the South Australian “energy crisis” and then the noisy focus on the CoAG Energy Council meeting.

What’s lost to general view, but not to the eyes of Graeme Bethune’s EnergyQuest team, is the fact that there is a steady decline in gas demand on the mainland east coast.

In the latest edition of their excellent “Energy Quarterly Report,” Bethune & Co show that, leaving aside the needs of Gladstone LNG operations and the need to use gas for power generation in Tasmania during the absence of Basslink for six months, east coast electricity-making from the fuel has dropped steadily – and non-power demand has fallen sharply over the past nine months.

Overall there was an almost 10 petajoule fall in gas use in the four mainland east coast States in the June quarter (compared with the same period 2015), with much of the drop in Victoria and New South Wales.

The cost spikes as winter finally struck the southern States last month had multiple causes, as EnergyQuest shows, but they included baseload generation outages requiring use of gas turbines, low wind levels cutting back renewable generation, the well-publicized unavailability of the South Australia/Victoria high voltage link and, of course, the permanent removal of the Northern brown coal plant from the market, all impacting on constrained supply and therefore prices.

“Energy Quarterly Report” devotes pages to analyzing the quite complicated possibilities of supply changes and price swings – the point being, for the non-specialist audience, that this is a volatile market poorly represented in the popular media by reporting that is frequently more a caricature than a likeness.

The recent media carry-on about Australians paying more for gas than local product exported to Japan is a case in point, vigorously exposed by writer Angela Macdonald Smith in the “Australian Financial Review” in late August.

Using EnergyQuest data, Macdonald-Smith debunks the whole claim – Tokyo Gas, for example, charges industrial customers $10.45 per gigajoule for gas versus $6 to $8 for new industrial contracts here while South Korean firms face prices equivalent to $16.65 and more.

Bethune’s EnergyQuest also reminds us in the new report that the ACCC examined claims about domestic prices being higher than those paid by overseas users and found “the evidence does not support these claims – domestic prices in the east coast gas market are still generally lower than prices paid by overseas purchasers of LNG.”

This bit of information is in the public domain and has been for months but that didn’t give pause to News Limited tabloids and ABC journalists pushing the “shock” news.

Twisted claims and media beat-ups serve to detract from the real issues with which local industrial gas users are struggling, including rising prices and, they argue, inadequate offers of contract duration, and which can be alleviated by greater domestic gas supply – which is what the anti-fossil fuel lobby totally opposes.

This weekend’s Northern Territory election outcome – a wholly predictable hammering for the incumbent CLP government, pitching Labor back in to office – is another twist in the gas tale because of the NT ALP’s anti-fracking stance with potential implications for future southern gas supply.

All of which is grist to the prospect that the way out of the east coast problem could be, as first publicly raised by Shell Australia chairman Andrew Smith in June, the importation of LNG to a southern port, using a floating storage and regasification unit.

Why consider importing LNG cargoes rather than using a pipeline from Queensland?

“Because,” says the “Energy Quarterly” report, “Queensland gas is tied to oil prices and expensive to produce.”

FSRUs (one more acronym to remember) can be built for $US250 million or through modifying an existing LNG tanker for $US100 million – and “can be quickly deployed somewhere else if market circumstances change.”

Bethune’s report adds price calculations suggesting that this form of gas supply could be “quite competitive” for southern users.

Whether or not an FSRU solution is on the cards, its discussion illustrates something important: the resources sector will always look to a practical approach to overcome development hurdles unless the body politic has demonstrated it is hellbent on being impossible. When that happens, the industry will pursue ventures elsewhere.

Australia as a whole today is a very long way from this situation but that does not mean that the best interests of consumers are being pursued by policymakers regardless of their endless claims that they are.

Central to achieving both a good working environment for the gas industry and a good set of outcomes for gas consumers – predominantly reliability and affordability of supply – within the umbrella of good management of the natural environment is a genuine understanding of the sector.

And this understanding must be based on evidence – facts, if you like – and not on supposition, reaction to media coverage, views warped by ideology and/or deliberate information-bending by hardliners.

This is where products like “Energy Quarterly Report” are of considerable use – at least to those of us who want to see sensible outcomes pursued. The problem, of course, is it’s information that reaches relatively very few and the community at large continues to be fed a puree of confected “news” that contributes to our energy policymaking indigestion.

Fallout from that meeting

So, what to make of the much-hyped CoAG Energy Council meeting in Canberra on Friday?

Tom Koutsantonis, the South Australian Treasurer and Energy Minister, is in no doubt. He tweeted: “Most decisive Energy CoAG in years. Climate policy integration with energy policy under way. New gas reforms top of the agenda! Very constructive.”

He went home and told Adelaide media that South Australia has “secured a comprehensive victory” in the Energy Council discussions with respect to gas policy reform and a decision to have power interconnection development regulation reviewed.

To which he added another tweet: “Energy CoAG unanimously agrees to expedite regulatory test for SA/NSW interconnection. CoAG has instructed AER and AEMO to act by December!”

What the Energy Council has actually agreed on power grid interconnection is “to review the regulatory test for investment on new assets to ensure it is effective in the current market environment,” having officials consulting stakeholders and reporting back “before the end of the year” – which is not exactly the same as “expediting the test” for a new SA/NSW link, but pollies will be pollies.

The meeting communiqué in full can be found here: http://www.scer.gov.au/publications/5th-coag-energy-council-meeting-communique-19-august-2016.

Chairman Josh Frydenberg, the federal Environment & Energy Minister, also came away upbeat. On his constituency blog, he has declared the gathering “agreed to significant reforms and a major new program of work to ensure the energy system remains affordable and reliable as we transition to a lower emissions future.”

For Frydenberg, the key take-home message is that the Energy Council has focused on increasing liquidity and transparency in gas markets, on empowering consumer choice and on “ensuring stability and connectivity” of the east coast electricity market.

The Energy Council, he claims, has “proved its ability to respond to current issues.”

The ACT Energy Minister, Simon Corbell, “greeted like a rock star” by a rent-a-crowd barracking for renewables outside the meeting place, tweeted afterwards: “Today’s meeting has committed to three things – affordable, reliable and sustainable energy” but the Climate Institute was unimpressed, tweeting: “Energy Council a missed opportunity; Oz Govt will need to step up on energy & climate reform.”

Victorian Energy Minister Lily D’Ambrosio also contributed a tweet applauding “encouraging signs for a unified path towards a sustainable and reliable market” and promptly got a green activist riposte demanding “Was climate added to the electricity and gas law objectives?” – to which she responded “Was discussed among ministers but no agreement.”

What D’Ambrosio most wants to convey to her Victorian audience (via a media statement she pushed out on Friday afternoon) is that the Energy Council has agreed to evaluate the system under which distribution networks can seek legal redress of Australian Energy Regulator decisions on their revenue-raising. She claims that $3.3 billion was added to network revenue between 2008 and 2012 via appeals against AER decisions.

Her government hasn’t won any plaudits from the upstream petroleum industry after she declined to join the rest of the Council members in agreeing to “adopt an implementation plan” for collaboration on the scientific and regulatory issues relating to gas development.

The essential ingredient for a gas market is gas, was the tart comment from Malcolm Roberts, CEO of the Australian Petroleum Production & Exploration Association, demanding “firm action” on new development from all States.

What the ministers have decided to do is appoint Michael Vertigan to chair a gas market reform group that will oversee implementation of a package including creating more trading hubs, pursuing better access to pipelines, delivering better information on gas prices and encouraging more supply.

Pipeliners are decidedly not happy. The Australian Pipelines & Gas Association says ministers are “either unwilling or unable with grapple with real gas market issues.” APGA declares that “setting regulation reform above all other aspects of the gas market” is “very disappointing,” pointing out that transport costs today are $1 per unit now – what they were six years ago – while the wholesale price has doubled to $6.

Koutsantonis also argues that the meeting has acknowledged gas prices – “rather than my State’s world-leading embrace of renewable energy” – were the key cause of the “SA energy crisis” last month and he sees his government’s exploration and development approach putting South Australia in “a prime position” to capitalize on the reform plan. “We want to be gas central,” he says.

The hype about the suite of issues, of course, almost has a life of its own, not least in the media.

For example,The Advertiser in Adelaide kicked off its report like this: “Cheaper electricity and more reliable supply is being predicted because of sweeping reforms thrashed out at a Canberra summit,” called, it added, “in the wake of SA’s power crisis.” And ministers had agreed to “slash red tape” for approving new grid interconnection.

What can actually be delivered and when as a result of Friday’s deliberations very much remains to be seen.

Politicians may (and do) complain that implementation of the recent upgrade for the SA/Victoria high voltage link has taken too long but the project approvals process and the time required to actually construct complex infrastructure is inherently not fast – one wonders why some reporter doesn’t ask Koutsantonis when, if absolutely everything about the project runs on rails (so to speak), a new link between his State and New South Wales might be operational?

Those interested in the interconnection issue should read the PricewaterhouseCoopers’ review of the proposed new link between SA and NSW for Transgrid. It can be found here: https://www.transgrid.com.au/news-views/news/2016/Documents/TransGrid%20SA-NSW%20Interconnector%20Report%20(Final).pdf

Apart from anything else, the PwC 30-page paper provides a useful helicopter view of the east coast electricity transition situation.

This opening paragraph gives some of the flavor: “One of the challenges of markets in transition is that outcomes can be less predictable. We are seeing this in electricity markets across the globe. There are multiple drivers for this including the introduction of renewable generation (eg wind and solar), the closure of fossil fuel generators (eg coal-fired) and movements in commodity prices (eg oil, gas and coal) which are increasingly volatile. In a number of markets we are seeing dramatic and sudden impacts as a result of these drivers. The Australian electricity market is starting to see these impacts and it appears that South Australia is perhaps seeing this most acutely at this point in time. We hypothesize that South Australia is ‘the canary in the coalmine’ as there are early indications of other stresses across other Australian States and Territories.”

The next Energy Council meeting is scheduled for December and it is going to be more than a little interesting to see what has developed in five months’ time.

As the Energy Networks Association CEO, John Bradley, observes in a media statement on Friday’s meeting results: “ (It) is a step in the right direction, but the test will be on-ground outcomes. We have seen agreements before to integrate carbon policy, unlock gas supply and reform tariffs. Australia is running out of time to deliver for customers in a rapidly changing market.”

Quite so.


Many years ago – about 34 in fact – I used to think the incumbent Secretary of the Treasury in Canberra an awful cynic because of his frequent, scathing references in meetings to the “meretricious players” among the resources and energy companies lobbying the federal government. (He caused quite a stir late in his public service career when he publicly threw the same stone at some of his government’s hired advisers for sustaining ministers’ political prejudices.)

I was reminded of the “meretricious players” jibe by this week’s sudden flurry of media stories claiming to out the major energy retailers for allegedly using their market power to take a too-high proportion of end-users’ bills. (“Shocking charges of big power players revealed,” said one TV news report.)

The new fuss is based on a consultant’s report claiming that “in those parts of the NEM where retail markets have been fully opened to competition charges for retailing electricity to households have grown to be a far bigger portion of the bill than the cost of producing (what they) consume.” This is part of the ongoing argument that “Australia has the world’s most over-priced electricity” when tax is not taken in to account, an assertion that has been challenged when purchasing power is the yardstick.

The fact that the political lobbying organization commissioning the consultant’s report is running a campaign to get consumers to switch away from the “Big Three” suppliers to one that it and other environmental activists support as “the greenest retailer” and the coincidence of causing waves in the media just days before the CoAG Energy Council meeting are fuel for my cynicism, I’m afraid.

The Australian Energy Council, lobbyist for the gentailers, has riposted that electricity markets are complex and critics can cherrypick data and draw conclusions that suit them but the carry-home message from the media coverage, especially on TV, for consumers is that, yet again, they are being “ripped off.”

Hearing and reading this stuff sent me back to the Australian Energy Market Commission review of power bills for the CoAG Energy Council last December.

The AEMC told ministers then that there is significant difficulty in quantifying the retail cost segment of end-user bills and the task is “highly sensitive to assumptions.”

The commission pointed out that this component of the bill is made up, in particular, of retailer operating costs (which include billing and customer service expenses, management of bad debts and financial contracts and the costs of meeting obligations imposed by governments) plus customer acquisition and retention costs (including marketing) as well as provision for a return on investment. Some of these, it said, can be estimated but the RoI assessment requires a detailed knowledge of a company’s capital, risks, revenue and costs by jurisdiction, not information readily in the public domain.

This assessment would be “extremely difficult and costly to undertake,” the AEMC declared, “and highly sensitive to assumptions,” limiting its value.

It also pointed to a litany of reasons why RoI for retailers can vary “significantly” over time, including spending on innovation or developing and marketing higher value products.

Network and environmental costs in the final bill can be directly observed, the AEMC added, as they are passed straight on to customers but wholesale energy costs will vary considerably and factors affecting them will include whether or not a retail activity is vertically integrated with generation and how it then operates its plants to meet its load – as well as how it hedges its exposure to the spot market.

Unfortunately, caveats like these induce MEGO (“my eyes glaze over”) among journalists and politicians — if any of it is reported as background, which it has not been this time, the same would apply to the relatively few consumers who get past “gouged again” headlines and opening “shock” paragraphs of media stories.

One of the arguments being tossed around in this latest electrical storm is that it was “never intended” in the 1990s push towards deregulation for generators and retailers to be integrated. Having been on the ground during the reform process, managing AEC’s predecessor, the Electricity Supply Association, when it represented the full extent of the supply chain, I can tell you that it was quite widely recognized in the industry at the time that an inevitable consequence of the transition (that word again) would be businesses making power as well as selling it to end-users.

I think it is fair to say it was less well appreciated that at least some of these companies would also be in the gas business – the “gas versus electricity” rivalry was a strong feature of the 1980s and 1990s – but, looking back, I’m not sure why this development wasn’t more obvious.

Today, of course, kicking big business players in energy, banking, insurance, telecommunications, groceries, petrol services and so on is a factor of life because markets have evolved to feature a few of them and a larger number of smaller ones hungry to snatch even a relative few of their customers (and only too willing to play to the political and media galleries in the “rip-off” games).

There is an old joke, you know, about how pygmies eat elephants – the punchline is one bite at a time.

This is the raison d’etre of media and political fusses of the sort confected this week about electricity retailing (there are actually 22 retailers in the market on the east coast, not that anyone in media I saw thought to mention this).

Whatever rhetoric the CoAG Energy Council cobbles together to get it through this fuss, I’ll have a little wager that the next effort by the aforesaid MPs (the players, not the pollies) will be to agitate for yet another Senate inquiry and that they’ll find very willing takers in Labor and cross-bench senators.

The consultant’s report, by the way, observes “A rush to intervene may make matters worse. But this cannot be an excuse to do nothing.”

It goes on to say: “Deeper economic analysis of the retail market is needed to understand the distribution of costs and profits between engaged and disengaged customers and between incumbent and new entrant retailers. With insights gained from this, the question of whether intervention of some form might improve outcomes should be considered.”

But this didn’t make the “gouging” media reports.

In transit

This is a week when we can expect to hear a lot more about our desired transition to a lower-carbon economy as it features the CoAG Energy Council meeting to be held in Canberra on Friday (a routine forum, shifted from last month because of the intrusion of the federal election, not a “crisis meeting,” as it has been hyped).

Many engaged in this debate across Australia have their own peculiar views of the transition – the most radical being the perspective that we have to be rid of fossil fuels by 2030.

Here-in lies the core issue: free markets are always in some form of transition but the lower-carbon shift, the activists argue, must be forced.

One of the latest media reports refers to this Friday’s Council meeting considering “rebooting” the east coast power market to accommodate more wind and solar power without “extreme prices.”

Set against this, one must applaud Josh Frydenberg, in a media interview, making the rational point: “You can’t talk about transition to a low emissions future without taking into account the considerations related to a reliable, affordable and accessible energy supply.” The federal Environment & Energy Minister perhaps should have said “you shouldn’t” rather than “you can’t” because more than a few can and do.

As an example, the Victorian Greens State spokesperson on energy sees the key to avoiding incidents such as the South Australian “crisis” in this light: (We need) a national renewable distribution scheme. If you distribute renewables across Australia then you won’t have the SA problem. The wind, she reminds us, “is always blowing somewhere and the sun is always shining somewhere.”

All this is bolstered by the view of the Greens and others that “renewable storage is just around the corner, subject to government investment.”

How far perspectives like this are also held by the representatives of Victoria and Queensland who will be at the CoAG meeting table this week is a thought-provoking point, given their governments are pursuing policies driving renewables investment way beyond the RET arrangement agreed by the federal Coalition and Labor less than two years ago.

(Amid the hype there are warning voices too: the University of Queensland’s professor Paul Meredith, for example, saying that adding grid-scale battery storage to the NEM will be “highly complex” and there are risks in rushing the process that could “embed new inefficiencies in to the grid.”)

The here-and-now too often gets lost in this debate.

For example, playing with the data presented by Hugh Saddler and his team in the always-interesting monthly Cedex review of the NEM for Pitt & Sherry, I work out that the east coast market in the 12 months ending July saw black coal generation contributed 94 terawatt hours, brown coal 39 TWh and gas 24 TWh versus all renewable generation of 26 TWh, of which wind farms contributed some 11 TWh and most of the rest came from long-standing hydro-electric systems.

The coal share of the NEM supply in those 12 months, says the Cedex report, was 75.6 per cent (versus 6.1 per cent for wind and 14.7 per cent for all renewables). This indicates that Frydenberg needs to review his oft-repeated comment that coal’s share of power supply is down to 60 per cent and still falling. That number is a national profile, including non-grid supply to mining areas and remote communities – but the major market is on the eastern coast where the bulk of demand and consumers reside, with coal remaining the dominant fuel source for electricity.

The mooted transition is unarguably one of the most important issues for Australia in the first half of this century – but, as Matthew Warren, CEO of the Australian Energy Council, points out: “It’s all fun and games until someone gets hurt.”

Warren argues that South Australia has become “an accidental experiment” in how far technologies like wind and solar can be pushed in to a market (and, by extension, coal and gas plants pushed out) “before something breaks.” He urges recognition of a “simple reality”: increasing variable renewable energy at scale reduces carbon emissions but eventually leads to higher prices and greater reliability risk.

However, this is clearly not something that is obvious to the Greens, a swag of self-interested investors, many politicians and quite a lot of our media.

Warren and the Australian Energy Council do concede that the electricity system, as currently configured, is “demonstrably not delivering against its three basic objectives: keep the lights on, remain affordable, reduce greenhouse emissions.” But, the AEC argues, this is not the failure of the design of the NEM in the 1990s. “It is the result of a decade of State and federal government meddling with an extremely complex system. Good policy has succumbed to bad politics on energy.”

In a newspaper op-ed this week, Warren asserts: “A decade of political tinkering has left us with an electricity system that doesn’t work. It doesn’t deliver the right investment in the right place, it doesn’t signal a reliable and efficient transformation from high to low emissions generation, it does nothing to enable greater demand flexibility by empowering consumers to consume energy when it is abundant and conserve when it is more scarce.”

What the CoAG Energy Council agreed when it last met is that the transformation of Australia’s energy system to a lower-carbon future must be managed as an integrated, national policy process. As I have repeatedly asked, did the ministers who made this commitment actually understand what they were saying? Is there buy-in for this goal at the highest levels of their governments? And perhaps what is the impact of the dog’s breakfast of a federal election for the approach to this?

One big problem is that some of the Energy Council members are still pursuing arbitrary targets and intrusive regulation at their jurisdictional levels – and another is the ever-present political urge to pursue the quick fix.

Come Friday, will we get more rhetoric while the steamroller of populism-fuelled intervention meanders on?

Will we get more pushing on further high voltage interconnection for the east coast market without deep analysis of the impacts and the costs?

And then there is the ongoing activism for rewriting of the National Electricity Law to give greater force to attaining the green dream.

Frydenderg has told a newspaper over the weekend: “I’m hopeful of some significant reforms coming out of the meeting. The NEM has to reflect realities.”

Back in the early 1990s, Keating, Goss and Greiner, realizing the risks, came to the conclusion that creating the NEM should not be left to politicians like themselves, so they pushed in to being the National Grid Management Council to make the east coast market. One is tempted to ask do we need another NGMC to frame a comprehensive national energy strategy?

What we manifestly don’t need is more of the same populism, knee-jerking and groping-in-the-dark intervention of the past several years – but how hopeful can we be that the Energy Council on Friday will deliver understanding of this, let alone effective communication of it to the public at large?