Archive for December, 2010

On the state of NSW

For most of us who live in Australia’s largest State (and biggest electricity market), 26 March 2011 will be a red-letter day: marking an anticipated huge drubbing for what may qualify as the worst government to hold office in this country in the past quarter-century.

Unless the Liberal/National coalition stuffs up in the campaign, the outcome may well mean that the ALP will find it hard to get within striking range of government in the State again until Easter 2019.

The politics of power supply is destined to figure highly in the run-up to the 2011 poll because the Keneally government has managed to comprehensively mis-manage public perception of important aspects of its electricity privatisation arrangements. While sale of the energy retail arms of the three distribution businesses has garnered an impressive $3.8 billion, this success has been overshadowed by the fuss over the “gentrader” deals — a shadow that will extend to election day, helped by the decision of most Delta Electricity and Eraring Energy directors to quit rather than rubber stamp the sale engineered by State Treasurer Eric Roozendaal. Premier Keneally’s panic attack decision to close down parliament to prevent a Legislative Council inquiry in to the “gentrader” sales has served only to reinforce the view of her political opponents, the media and any voters paying attention that there is something fishy about the deal.

For many Greens, an equally potent reason to see off the Keneally government may be the belief that it is moving towards a decision to approve construction of a 2,000 MW coal-fired power station at Bayswater alongside the existing Macquarie Generation operations. The government retains ownership of the physical assets of Bayswater A and other MacGen operations, but intends to sell the site and leave the private sector to build a plant. Roozendaal has yet to announce any privatisation arrangements for the MacGen elements.

Environmentalists camped at Bayswater in December and clashed with police in protest at what they said was an impending announcement of the development.

For the bulk of NSW voters more concerned about end-user electricity prices and power supply security, the bigger issue, and one the Coalition will need to address urgently, is the development of new baseload capacity.

While the Greens and others have used GFC-depressed demand in 2009 to argue that new capacity isn’t needed, the conventional industry perspective is that there could be a supply shortfall by 2016-17, requiring development to be set in train as soon as possible.

Five years from now the existing fossil-fuelled generators in NSW will be operating at historically high levels of sustained production and a number of them are sufficiently old for this to represent a risk to supply. Even a serious breakdown of one plant would jeopardise State supply security.

The sticking point for environmentalists is that Bayswater B will add almost 13 million tonnes a year to NSW carbon emissions if coal-fired and more than six million tonnes if fuelled by natural gas. Current power sector emissions in NSW are about 85 million tonnes a year. One of the design requirements for Bayswater B is that it should be ready to be retrofitted for carbon capture and sequestration, but there is no telling at present whether or when CCS will be commercially available — and the NSW government has no idea where the emissions might be buried.

How well prepared the Coalition is to explain its electricity policy position in the run-up to the election could be an important factor in the size of its apparently-inevitable victory and, therefore, its longevity in office.

Fossil fuel + hydro domination

Australia’s power generators produced 251,000 gigawatt hours of electricity in the 12 months from September 2009 to October this year, according to a new report by the Clean Energy Council.

It says that 91.33 per cent of production was fossil-fuelled and the bulk of the balance generated by the hydro-electric sector, boosted by increased rainfall in key catchment areas.

The CEC reports that hydro-power contributed 13,793 GWh to production versus 4,985 GWh for wind farms and 2,500 GWh for bio-energy.

Rooftop solar power, the energy headline-hogger in the mainstream media, contributed 464 GWh and was hailed by the CEC in a media statement for becoming “the Hills Hoist of the 21st Century.”

New renewable development had a modest year, with just 210 MW of capacity being added compared with 993 MW in the previous 12 months. Three wind farms contributed most of the 2009-10 additions, all in south Australia: Hallett 2, Clements Gap and Lake Bonney 3 added 168 MW.

Looking forward, the CEC points to 11 new projects under construction, seven of them wind farms, expected to add 1,045 MW of capacity during 2011. The largest is the 420 MW Macarthur wind farm in Victoria, followed by the 168 MW Musselroe project in Tasmania, and two wind developments in South Australia — Hallet 4 (132 MW) and Waterloo (111 MW).

The CEC’s list of installed renewable capacity by State demonstrates the dominance of hydro-electric power in the sector on the eastern seaboard. In NSW hydro accounts for 4,544 MW out of 4,992 MW, in Tasmania for 2,316 MW out of 2,468 MW, and in Victoria for 828 MW out of 1,417 MW.

The CEC says there are approximately 10,000 MW of clean energy projects in some form of development, including going through approvals processes, across Australia. To this can be added the work of the “hot rock” geothermal industry, which is expected to spend more than $2.1 billion on exploration and “proof of concept” activity by 2014.

A more rounded perspective on new generation activity across Australia can be found in the ABARE report on resource developments published last month.

ABARE reports that, in the six months to October 2010, four generation projects were completed: two wind farms with a total capacity of 140 MW and two gas-fired power stations, the 630 MW Darling Downs plant in Queensland and a 120 MW plant at Kwinana in Western Australia.

The federal agency adds that there are 16 generation projects at an advanced stage of development: five of them gas-fired, one an extension of a long-established coal plant, eight wind farms and two augmentation projects in the Snowy Mountains Scheme. The largest of them is the 550 MW Mortlake gas generator in western Victoria, due for completion in 2011, followed by the 240 MW expansion of the NSW government’s Eraring coal-fired power station and a 200 MW refurbishment of the WA government’s gas-fired Kwinana operation. The fossil-fuelled developments add up to 1,473 MW.

On the renewables side, reports ABARE, the 10 projects, including the Macarthur wind farm, amount to 1,154 MW.

Looking further ahead, ABARE says it can find 148 generation development proposals nationally, of which 49 are fossil-fuelled and account for just over 21,000MW of capacity — while 79 are wind farms, with a total capacity of 11,488 MW.

This list includes the mooted 2,000 MW baseload development for NSW, burning either coal or gas, two coal seam-gas fired developments in southern Queensland of 1,510 MW and the 840 MW gas-fired Tarrone project for western Victoria.

Many factors will influence the prospects of the less-advanced projects. One, for example, is a 1,000 MW gas-fired power station TRUenergy proposes to build at Yallourn in Victoria’s Latrobe Valley — a development reliant on major changes in carbon policy, including introduction of a carbon price and satisfactory resolution of the argument between the federal government and Valley power producers over compensation for brown coal plants forced to close.

What’s clear from viewing the full picture is that fossil fuels will continue to dominate the generation scene in the decade ahead, supported by hydro-electric power, while renewable energy news will continue to win the media limelight.

Bridge to future

Having already seen the important national energy resource assessment delivered, although not the essential federal energy white paper, 2010 is now also marked as the year the electricity industry came to grips with its high voltage network needs for the next two decades and came up with a potentially game-changing development in power supply for the major regions of demand.

The transmission network development plan, launched this week by Energy Minister Martin Ferguson and produced by the Australian Energy Market Operator, is a critically important contribution to further development of the eastern seaboard power supply chain and the future decarbonised economy. The effort to produce it has been hard-headed enough to encompass what happens if carbon abatement doesn’t achieve the Pollyanna levels to which some ascribe or if the new decade plunges us and the rest of the world in to another oil crisis.

The complexity of the way forward, and its uncertainty, is highlighted by AEMO working with scenarios that foresee power demand rising between 30 and 70 per cent over 20 years, requiring, it says, capital outlays on generation and transmission needing to be between $40 billion and $130 billion.

Possibly the biggest single issue raised by the review is the prospect of Australia building a majo new inter-regional transmission system — christened NEMLink by AEMO — which would extend from Queensland, through New South Wales and Victoria to South Australia, with a second DC link to Tasmania. (West Australian and Northern Territory residents may or may not forgive a newspaper for describing this as “a bid to create a truly national power grid.”)

AEMO has set a price tag on NEMLink of $8.3 billion, but that is in 2010 dollar values for a development it suggests will not be completed until 2021. The deliverable, the agency avers, will be “a largely unconstrained and reliable interchange of energy” across the entire eastern seaboard market, providing greater operational flexibility, an ability to locate new generation more effectively and enhanced opportunities for sharing reserve capacity.

An example of what NEMLink could achieve is the capacity to balance the variability of wind or solar generation in one part of the market with hydro-power in the centre of the east coast and in Tasmania.

This is literally a bridge to the energy future for eastern Australia and a major infrastructure development — and therefore has been largely ignored by the national media, a marked contrast with how journalists have gorged themselves on the national broadband issue.

The “NTDNP” report — one more acronym for the electricity industry’s alphabet soup — not surprisingly sees wind power as being the major alternative power technology in the next decade, but it suggests 2020 to 2030 will see the commercial emergence of geothermal and solar thermal. Gas-fired capacity obviously is the big-ticket mainstream investment and, given current policy, nuclear power is ignored, although one wonders whether AEMO should not have at least raised the network issues involved if the political wind changes (not least if there is another oil crisis, with its concomitant big spike in gas prices).

AEMO use five scenarios to sketch possible futures. One suggests that, by 2030, the east coast generation mix could have 16,000 MW of baseload gas generation, 13,000 MW of open-cycle gas power and 8,000 MW of wind farms, an outlook that seems to me to fit with the federal government’s resource assessment perspective.

As can be expected, a carbon price regime is a substantial uncertainty factor in this modelling, but AEMO holds the view that, even in a medium growth scenario, there will be a five-fold increase is the use of gas for electricity generation.

Given the amount of hype surrounding wind prospects in South Australia, AEMO’s suggestion that Tasmania might provide up to 2,050 MW of wind capacity, based in the State’s north-east, north-west and Midlands areas, is worth mention.

This is a very important addition to the power debate, including the ongoing fracas over decarbonisation. Given the federal political situation, one wonders whether it will get the whole-of-government attention in Canberra that it merits?

Game on

Even using the circus atmosphere of the Oprah Winfrey visit as cover, the NSW government could not avoid controversy in releasing its power privatisation news. First it was gazumphed by The Australian newspaper discovering the details 24 hours early and then the majority of the Eraring Energy and Delta Electricity directors resigned from their government-appointed posts after refusing to approve the gentrader sales because they believe the prices are too low.

The government is certain to remain under fire over the process right up until next March’s state election. While picking up $5.3 billion in income, it appears to have failed to find a buyer for the output of its largest generator, Macquarie Generation, or for Delta Electricity’s central coast power station production. Both the Coalition and the Greens attacked the outcome.

There is expectation in the industry that there could be a second sale announcement soon after Christmas, involving MacGen and the rest of the Delta output. This could see a new entrant, possibly from Asia, in the east coast market.

The surprise of the sale was that AGL Energy, which spent $13 million on participating in the process, lost out to Origin Energy (which acquired the Country Energy and Integral Energy retail arms and the Eraring output rights) and TRUenergy (picking up Energy Australia’s retail operations and the Delta West trading rights), but the aftermath may turn out to be as interesting as the sale.

AGL, which already has a million energy retail customers in NSW, can be expected to be aggressive in pursuing Origin’s and TRUenergy’s State customers, having lost its title of the biggest retailer in the country to Grant King’s business.

In a statement to the ASX, the company said its plans to build a gas-fired plant in NSW are “well-advanced.” This is a reference to its proposal to construct a peaking plant of between 250 MW and 780 MW at Dalton, near Goulburn. Ultimately, says AGL, it could increase the capacity of the power station to 1,500 MW. It says the cost will be about $1 million per megawatt.

In its Dalton environmental approval paperwork, AGL points out that NSW will be confronted with the need to improve power supply reliability in 2015-16.

According to the industry’s estimates, peaking demand in NSW should rise to almost 17,500 MW by the end of the new decade from around 14,700 MW at present.

Power price pain

The electricity bill spin goes on.

More than a year after the Business Council of Australia, using modelling by Port Jackson Partners, warned that end-user prices will double by 2015 under the impact of carbon charges, network costs and other factors, the Prime Minister is still pushing a line that introduction of a carbon charge “can stop power pain,” to quote the headline over a Sunday tabloid newspaper interview.

Julia Gillard characterised the decade now ending, one in which her Labor party ruled federally for more than three years and in every State in the Commonwealth for most of the 10 years, as being marked by “uncertainty, under-investment, rising prices and risks of blackouts” in electricity supply.

The facts are rather different: in the past decade some 15,000 MW of fossil-fuelled generation has been added to national capacity, three-quarters of it on the east coast. More than three-quarters of this construction has been gas-fired plant. This represents around a half billion dollars a year of investment.
In addition there has been some $2 billion invested in wind farm construction and half a billion committed for spending on pursuing geothermal prospects.

Transmission investment has almost trebled — from about $750 million in 2005 to about $2 billion annually now. In New South Wales and Queensland alone, representing some 55 per cent of the market, combined transmission and distribution investment between 2001 and today has totalled $27 billion (and will be $31 billion in the next five years).

The key issue to be borne in mind with respect to generation capacity is that Australia has had an extended period of surplus, enabling the east coast market (80 per cent of demand) to cope with consumption rises from 2.6 per cent (NSW) to 4 per cent (Qld) annually.

The biggest pointer of all to why the PM’s badmouthing is inappropriate is that the electricity supply chain has maintained Australia’s status over the past decade as one of the lowest retail price markets in the IEA — from second-lowest in 2002 to fifth-lowest now — while dealing with one of the fastest-growing rates of consumption.

The biggest issue for a decade has been the sharp increase in peak power demand as Australian households embrace air-conditioning, plasma TVs and other electrical appliances during the long economic boom. Investors have responded to the incentives created when market prices are high due to peak demand by investing mainly in peaking capacity.

The uncertainty about investment in the past two years relates to the Rudd/Gillard government’s inability to deliver a decarbonisation regime, leading to reserve plant margins declining. After 10 years of over-supply, the east coast market is now balanced and any risk to power production is wholly down to the federal government’s policy paralysis.

Resolution of this issue by introducing a carbon charge — and one large enough to deliver the government’s 2020 abatement target — will not “stop the power pain.” It will contribute, along with the cost impacts of the renewable energy target, state-based solar programs and the surge in network expenditure, to much high consumer bills, with important implications for householders (including several hundred thousand unable to meet the costs), small businesses and energy-intensive manufacturers, who are large employers.

The process failure of the Rudd/Gillard government to produce an energy white paper underpins all the other problems. The political issue of the unwillingness of the government — to quote the Prime Minister in her tabloid interview — “to be really honest with people about prices” exacerbates the situation.

With a major election coming up in March in New South Wales, with the Greens pressing for a larger commitment to 2020 abatement (an issue that will loom larger after the UN Cancun meeting) and with the Federal Opposition playing up the “carbon tax on everything” line, the Gillard government is in a fix — and this does not bode well for sensible, firm, long-term planning.

All too hard

A few in Australia’s media wrestled last week with the complex report on new electricity generation technology options issued by the Academy of Technological Sciences & Engineering and then moved on; the study just does not lend itself to catchy headlines and 30-second TV or radio “grabs.” However, as Energy Minister Martin Ferguson said in launching the ATSE report, this is core business in the ongoing effort to introduce low-carbon energy technologies “in a manner that does not impose an unreasonable burden on the community or industry.”

Media coverage of this kind of report is not helped by its focus on 20, 30 and 40 year horizons — in the 24/7 world of media, now is what matters and the hot story about electricity today is that the end-user prices are shooting up, along with the end-user tempers.

The value of the ATSE report for policymakers rests on a new economic method for calculating which of a suite of low-carbon energy sources might meet the national goal of decarbonising without beggaring the economy between now and 2050. Unfortunately net present option valuation (NPOV) is guaranteed to induce MEGO in media observers and many others. (MEGO stands for “My eyes glaze over.”)

The bottom line from the study for those with both eyes fixed firmly on 2020, the political horizon of choice, is that there are only two currently operational generation technologies of any real value to the decarbonising effort: combined cycle gas and wind power. Geothermal is included by ATSE on the assumption that the technological hurdles with which it is wrestling at present can be overcome. Looking out to 2030, ATSE says, gas-fired generation with carbon capture becomes important and wind power plus nuclear energy are now in the picture.

Personally, I stop reading when anyone talks about 2040 and 2050; trying to discern the technology developments then from here is a bridge too far and making policies to achieve them is a fool’s errand, except with respect to supporting R&D. The scientists at ATSE reckon that $10 billion should be spent on pursuing new technology between now and 2030 — a sum I find surprisingly modest. Given the importance of decarbonisation, is $2 billion a year beyond our reach over the next two decades?

ATSE’s 2020 modelling assumes a renewable energy certificate price of $50 per MWh and a carbon price of $43 a tonne. It uses the Federal Treasury’s modelling of a $72 per MWh wholesale electricity price.

In passing, the Gillard government is quite keen to point to the soaring outlays on electricity networks and their impact on prices, but its keeps schtum on what its own advisers (Treasury) say about its own carbon price policy — that this will lead to wholesale energy prices doubling this decade if the 2020 target of a cut in annual emissions of 144 million tonnes is to be achieved. If one takes this figuring plus the trend of network charges in to account, along with not unimportant issues like the cost of the smart meters roll-out and the increase in retailer costs to deal with a new market environment once smart meters are in operation,then a doubling of end-user power bills by 2015 and a trebling by 2020 is hardly fanciful.

ATSE saves one of the more important points of the 41-page report for the end. Summing up, it says: “It is important to emphasise that (these) analyses and conclusions apply to the individual technologies. When it comes to their combined application in a portfolio of technologies in real power systems and networks, a new set of issues arises to do with the size of generating units, intermittent availability of outputs from some renewable energy sources and additional transmission costs due to the remote locations for wind, solar and geothermal. Supply/demand economics also come in to play in terms of electricity and natural gas prices. Ongoing security and stability of the power system will also be of primary concern when intermittent technologies are involved.” As T.S.Eliot, paraphrased, put it: “Between the dream and the reality falls the shadow.”

What the ATSE report boils down to — so far as short/medium-term policymaking is concerned — seems to be this: (1) We are going to need a lot of CCGT installed before and beyond 2020, so the policy to attract this investment is important; (2) in the context of the carbon target, making sure the necessary wind power is built is important and the RET market is still a bit of a mess; (3) pouring taxpayers’ and consumers’ funds in to forcing solar power in to today’s market is a mug’s game and the current mish-mash of approaches is not helping one bit; (4) carbon capture and storage is nowhere near being commercially available and, given its importance to the Australian scene, needs more effort; and (5) when it comes to use of nuclear power, the politicians may run, but they can’t hide: in our decarbonising environment, given the equally important goal of “not imposing an unreasonable burden on the community and industry,” the nuclear option needs urgent attention if it is to be part of the mix beyond 2020.

All of which leads one to say yet again that the failure of the Rudd government to produce an energy white paper was one of its biggest failures and it is beyond time that the Prime Minister who pushed Rudd out told us in words of one syllable that she understands this need and will deliver on it in 2011.

Sydney’s grand plan

Widespread publicity about the Sydney trigeneration proposal may confuse more than a few who do not appreciate that, should it ever go ahead, it will apply only to the 26 square kilometres that make up the Sydney City Council area — the CBD and a dozen nearby surburbs — not the sprawling metropolitan area.

Comprehension will not be aided by Lord Mayor Clover Moore conflating her green plan with the need to spend $17.4 billion in New South Wales on network augmentation between now and 2015 and, she claims, $7 billion on power plant construction. Nothing proposed by the City of Sydney will save a dollar of the network expenditure now approved by the regulator. Because Moore’s trigeneration timeline has a 2030 target, it won’t affect any conventional power station development this decade — which most probably will be new CCGT plant, costing rather less than $7 billion, instead of large-scale coal developments anyway.

Many billions of dollars more than the currently-approved $17.4 billion capex will be spent on the State’s networks between now and 2030, not least as a result of soaring demand in Western Sydney, where the population is now two million.

Moore’s grand plan also can’t work without her municipality being granted an exemption from the requirement to hold an energy retailing licence in order to sell power to third parties.

The real electricity it may be designed to generate may be to power her prospects in the March 2011 New South Wales election, a task that it is doing well judging by the welter of media publicity following the announcement of the project.

There are already other Australian buildings using trigeneration — one is in downtown Brisbane. The 36-storey Santos building has invested $4.5 million in a system that meets about half of daily requirements and is estimated to save emissions of 3,000 tonnes a year. It spends $350,000 a year buying natural gas to feed the system and another $30,000 annually to monitor the urban airshed emissions. Burning a fossil fuel to create electricity locally rather than several hundred kilometres from the CBD adds to urban air quality problems.

Santos says that one of the issues the project has encountered is that it needs a gas price of $16 per gigajoule to make the tri-gen system commercially viable against conventional electricity supply at 12 cents per kilowatt hour — and the gas price in Brisbane is higher than this.

Moore’s plan, of course, also requires a national carbon price. Any talk of saving Sydney CBD consumers money is pollie-speak: end-user power prices in NSW are expected to double by 2015 as a result of the impact of much higher network charges, the renewable energy target, the NSW solar feed-in tariff and whatever carbon price is imposed during the life of the present Federal Parliament.