Archive for September, 2010

Warning signals

In setting out its table for a proposed 1,800 megawatt hydro-electric development in Papua New Guinea, feeding electricity in to Australia, Origin Energy has provided a set of thoughts on the decarbonisation environment that is worth attention.

Both of the main political parties support a goal to reduce carbon emissions by five per cent from 2000 levels by 2020, Origin reminds us. “This is an ambitious target, particularly as emsisions trading has been delayed until at least 2013 and its future remains unclear.”

As the company says, without a price on carbon, there is no incentive to replace coal-fired power with lower-emitting gas plant. The energy sector contribution to the target therefore relies on renewables and end-use efficiency. “In these circumstances,” warns Origin, “the energy sector is unlikely to provide its ‘fair share’ of the reductions required.” The sector will also become increasingly reliant on intermittent wind and solar power, requiring back-up peaking plant at additional cost.

Richard McIndoe, the sometimes outspoken head of TRUenergy (owned by China Light & Power), has gone further. In an interview reported by the Bloomberg news agency, he has warned that the key issue is not about a price on carbon, but about “transitional assistance.”  Without it, and with decarbonisation policy remaining uncertain for four or five years, he warns, “nobody will build” and “then you will have power shortages and insufficient capacity.”

Michael Fraser, managing director of AGL Energy, adds that, while be believes a price on carbon is inevitable, it is going to be “very difficult” to achieve it in the “next two or three years.”

Like McIndoe, he warns that, if there isn’t legislative change, there will not be large-scale investments like replacing coal-fired power stations with gas.

Fraser is calling for a charge on carbon that applies only to power generation, excluding transport and agriculture. McIndoe says he agrees.

None of this resolves the dilemma that derailed the Rudd government earlier this year: a carbon tax, taken with the other rising electricity supply costs (much higher network charges and the cost of the renewable energy target prominent among them), will result in a large extra burden on both residential users and energy-intensive businesses. The focus groups, seemingly the wellspring of today’s policymaking (or at least politicking), feed back relentlessly advice that a substantial number of voters are strongly opposed to such imposts. Should the carbon burden trigger job losses over time, there will be an added voter reaction – and all this is a national electorate where the outcomes of elections in marginal seats has never been more important and where the number of marginal seats is continuously growing.

With the timing of the next federal election now a matter for constant conjecture – will it be in 2011 because the hung parliament is unworkable or in early 2012 – and with the hair’s-breadth Gillard government committed to despatching the issue to a parliamentary committee (a vast improvement on the truly appalling idea the Prime Minister floated of a “citizens’ assembly” on the issue, but still a talkfest with no decision-making capacity), the carbon tax issue cannot be resolved in the next 12-18 months, and this lends weight to the warnings from Origin Energy, AGL Energy and Trenergy, among others, that there is a price to be paid in terms of the affordability, reliability and security of power supply for this vacillation.

16 September 2010