Archive for July, 2011
Dear David Cameron, I read in the Fairfax media that you have written to “Dear Julia” in a letter “penned from the desk of 10 Downing Street” to congratulate her on pursuing a carbon tax.
This was kind of you.
She needs all the support she can get because “down here” her carbon policy is much disliked, in particular by the conservative side of politics.
The latest Essential Report, a weekly opinion poll, finds that half of those polled support your fellow conservative party leader, Tony Abbott, in his pledge to overturn the carbon tax if (on the latest numbers that should be when) he wins the next election.
Only two out of three of Prime Minister Gillard’s own Labor supporters are opposed to the tax being ditched at the first opportunity and less than half of them strongly oppose this step.
Your “Dear Julia” letter is especially interesting because your government is heavily reliant on nuclear power to pursue the abatement target you embrace.
Is it possible that your Sir Humphreys forgot to tell you that Ms Gillard and her government are viscerally opposed to nuclear?
You are being described by the Fairfax media and others who support the local policy as a “visionary on climate change.”
I wonder if “visionary” is the word being used by your own factory owners, who, according to a new report by your Energy & Climate Change department, are confronted by a 58 per cent increase in power bills, with the energy intensive users group accusing your government of massaging the data to make the flow-through impact of the tax and renewable energy subsidy costs look less severe.
I note also that your energy regulator, Ofgem, is estimating that consumers will be required to fork out an extra $600 million a year, in our money, just to enable the British electricity system to balance the load from intermittent supply when your renewables plan is in place.
Of course, your biggest problem is not abatement but replacing a quarter of the British generating capacity, which is judged to be obsolete, at a cost of around $166 billion (our money) over the next 10 years.
This doesn’t include a bill for nuclear, I understand, which produces one in six of your megawatt hours of power, with reactors also now nearing the replacement stage.
As in your country, the past couple of decades have been relatively easy for Australian energy policymakers.
Most of your power comes from coal (34 per cent), gas (38 per cent) and nuclear (18 per cent).
Most of ours (almost 90 per cent) comes from coal and gas.
In each case, consumers costs have been relatively low for a long time.
Your greenhouse gas emissions have gone down, too, because, since the days of your revered predecessor, Margaret Thatcher, Britain has shifted away from coal to gas, helping en passant to break the back of the coal mines unions.
As it happens, I have been reading a new KPMG report on your energy policy.
It sums up your “green transition” plan – Ms Gillard calls her’s “clean energy future,” a product of the ALP focus groups – as requiring the equivalent in capital outlays of funding 21 London Olympic Games or building 33 new Queen Elizabeth aircraft carriers.
KPMG says your policy may seem to be admirable, but it is conflicted – trying at the same time to meet an emission reduction target of 34 per cent (against a 1990 baseline), ensure security of supply and eradicate fuel poverty (which will be hard because household electricity prices are forecast to quadruple this decade).
KPMG make a point about your program that should resonate here.
Looking at your 2020 peak demand outlook and adding and subtracting new capacity and those plants that will shut, they conclude you can probably keep the lights on.
Then they add this: “The UK’s net population is set to rise, electricity cars will likely proliferate and domestic technology use increase. The (peak) prediction can only be reconciled on the basis of a massive assumption that planned energy efficiency measures will be effective.”
Like you, the Gillard government is basing its plans on a global agreement being reached by 2020 on climate change, dragging trade rivals in to imposing a carbon tax.
Good luck on that.
KPMG makes another point in an aside that resonates here: “Ask a dozen energy analysts about the costs and you are sure to get a dozen different forecasts, based on a variety of different assumptions (and in some cases big omissions).”
Here, Ms Gillard is relying on some big assumptions by Federal Treasury, about which the rest of us know much less than we would like to – but a central tenet of its advice is that we will be able to rely on a global emissions trading system.
The consultants sum up the situation at your end like this: “Power prices are almost certain to rise. The question is by how much and can we afford it?”
KPMG also say: “Energy intensive industries are already seeing increasing pressures associated with energy prices and any further rises could seriously impact the ability for this fragile market to maintain and grow its position.”
They end their review like this: “With a renewable roll-out on the scale the government has committed to, the risks are sizeable and costly. So we are paying a premium to massively increase our reliance on a risky and costly method of achieving our emissions targets. If asked, would consumers value the same priorities as those driving the current energy policy?”
Opinion polls here suggest the answer to this question for Australia is a resounding No.
They suggest that under “Dear Julia” the ALP is heading for an election train wreck almost as big as the one encountered by the party in New South Wales (our second largest economy, the one your forebears chose as a penal colony a couple of centuries ago) earlier this year.
Still, it was kind of you to write to her.
She obviously values your support – that’s why your letter has been leaked to the local media.
Your sentiments just need to be seen here in better context – hence this letter back to you.
Trevor St Baker’s company, ERM Power, has managed development of 29MW of every 100MW of new scheduled generation commissioned across Australia between 2006 and 2010.
It puts him in a powerful position (sorry) to comment on low emission technologies under the proposed federal carbon legislation.
I caught up with St Baker, chairman of the family business that successfully went public in the past year, at a Sydney commercial conference on energy and utilities this week.
He makes an important point about one of the critical issues for electricity supply over the next two decades.
As St Baker sees it, claims that finding ourselves faced with gas export parity pricing on the east coast in the wake of the major LNG developments will knock the fuel out of contention for new power development are wrong.
“A netback price of $10 per gigajoule landed cif East Asia,” he says, “translates to about $5 for feed gas at Gladstone and $4 in the Surat Basin.” Similar prices are already on offer in Queensland to local gas generation investors.
St Baker adds that, on present prospects for gas generation construction on the east coast, annual demand in 2030 of between 1,200 and 1,700 petajoules is as attractive a market for suppliers as the projected 1,360PJa sales of LNG.
As well, in his view, it is probable that the very high levels of overall Australian LNG exports currently being touted will not be achieved between 2020 and 2030 because of the fierce international competition and the volumes of gas available globally.
St Baker identifies seven challenges for gas suppliers in the domestic market.
The first is the timing of construction to meet demand growth and the retirement of some power plants over the next 10 years.
Three centre on the renewables sector: the prospect of the mandated target outstripping energy demand growth in the southern States and New South Wales this decade, the uncertainty over whether the 20 per cent RET can actually be achieved and the fact that the RET is currently displacing lower-cost gas generation.
He warns that there is a diminishing commercial incentive for gas-fired power station owners to sign long-term supply contracts and he points to the very much lower marginal running costs for coal plants over gas turbines.
The seventh issue is community-related: the increasing rural public unrest over the scale of groundwater extractions from coal seam developments.
St Baker points to recent estimates by the Australian Energy Market Operator that only about 6,400MW of new scheduled generation is needed on the east coast – beyond plants already under construction – between now and 2020. This breaks down to 1,700MW to serve Victoria and South Australia, 1,600MW for NSW and 3,100MW for Queensland.
These estimates reflect AEMO’s forecasts that electricity production will need to grow only 6,800 gigawatt hours a year in Victoria and SA between now and 2020 – and that requirements in NSW will rise by 15,540 GWh a year by 2020. The projection for Queensland is 26,100 GWh more by 2020.
One of the big issues, he points out, is that the RET requires the east coast market to have 28,700 GWh delivered by wind power (mostly) by 2020 against an AEMO forecast of a demand growth of 22,340 GWh annually.
Even the retirement of 2,000MW of aged coal-burning generation in Victoria and SA may not trigger additional long-term contracts for gas suppliers, he suggests.
In the southern States, St Baker says, the over-supply of renewables looks to be the equivalent of the annual output of a 900MW coal-fired power station.
In his book, gas offers “hugely better value for money” than renewables in meeting the carbon reduction challenges Australia has set itself.
“Gas power can deliver five times more greenhouse gas abatement than wind for the same dollar outlays,” he says. “It can deliver 10 times more than solar – and 100 times more than the same money spent on a carbon tax or an emissions cap-and-trade scheme.”
St Baker is a vocal proponent of extending the Queensland government’s mandated gas energy certificate scheme nationally.
He says the abatement it could achieve would be “a fraction” of the cost of a carbon tax or permit auctioning scheme – and he warns that the federal proposals, by curtailing the successful existing gas and GHG abatement in Queensland and NSW, will disincentivise even existing gas contracting by present power stations in these two States.
He also points out that pushing the national abatement target beyond five per cent below 2000 by 2020 would be far more economically achieved by allowing some 12,000MW of new gas plant (mostly combined cycle) to replace retiring coal generators rather by resort to renewables – in a marketplace where use of nuclear is banned, I add.
St Baker sums up Gillard’s “clean energy policy” in two words: “totally impractical.”
I couldn’t make the annual conference of the Australian Petroleum Production & Exploration Association in Perth in May for family reasons – my daughter was on a R&R visit from South Sudan where she is a humanitiarian aid worker — and I have finally caught up with the talk Joe Stanislaw of Deloitte delivered to some 3,000 delegates.
Better late than never.
Stanislaw is one of the world’s leading energy commentators and this talk, just released in brochure form by Deloitte, is vintage stuff – and highly relevant to where we find ourselves here.
Australia, he told APPEA, is an energy super-power, but Australians don’t realise it.
He confessed that he chose the title of his talk – “The world turned upside down” – in a facetious moment because he was coming Down Under.
We can forgive him because the content is well worth having – still.
But, he added, the title is true anyway because five years ago the world was going to be short of gas and our developments plus what has happened in America are reasons this is no longer true.
However, Stanislaw pointed out, the world remains in a state of massive uncertainty – and he wondered: “Will we really wake up and develop energy policies in a comprehensive sense that says consumers and producers are in the game together?”
Now, there’s a question for suppliers and policymakers in Australia to ponder.
The Stranislaw thesis is that energy is the single most importaant issue in the world today. It is the driving force for a new dynamic for economic development and growth.
Every major transformation in history, in his terms, has been driven by an energy source change, starting with fire, then water, then steam, then electricity, then oil and, now, probably gas.
However, he points out, we need to factor in information technology. “As yet unrealised, IT’s impact on energy will be enormous.”
And, in a message that could not be more pointed for our politicians today as we wrestle here with decarbonisation, he highlights that transformations don’t take years or decades – they take multiple generations and even a century.
In Stanislaw’s mind, energy is not a raw material business, but a technology business.
The issue is how we produce and use energy, not how we supply it.
The issue, he asserts, is the “energy of geopolitics” and not the “geopolitics of energy.”
Every international issue has energy central to its solution.
(This resonates with me at a personal level – my daughter, Marion, has been explaining to me the problems when one new country, South Sudan, has the oil and another, the original Muslim Sudan, has the refining capacity. More people than live in Australia have their very existence hung on this hook in Sudan.)
Stanislaw argues that the energy world is now being defined by a new geography, a new technology and a new roadmap – and, he says, Australia is at the centre of how the world is changing.
The technologer enablers, he says, are IT, smart technology and clean energy – and “we are sitting in Clean Tech 1.0.”
Clean energy is in the driver’s seat, providing we understand that it goes beyond renewables and includes carbon-scrubbed, carbon-neutral and carbon-zero forms which include gas, oil and coal.
And here, one must add, nuclear – because in Stanislaw’s America that is a given.
The APPEA audience must have loved his adding that the oil and gas business should call itself a high-tech industry because it is probably the most technologically advanced in the world today.
It develops, adapts and uses more high tech than any other industry.
The other leg of the Stanislaw thesis goes to the heart of an issue with which we are wrestling here – how we use energy.
Most companies,” says Stanislaw, “don’t have an energy strategy – they just buy it.
“Most don’t know what they are buying – they just pay the bill at the end of the month.
“It’s like going to the supermarket and putting items in to a grocery cart. You have no idea what things cost until you reach the cash register.”
Most companies, he says, do not know how they use electricity – or that with new technoligy they can be more efficient, save money and reduce emissions.
The Stanislaw thesis is that we need to accept that the energy transformation has just started and that there are a couple of generations to go.
Put Stanislaw’s name and “The world turned upside down” in to Google Search and you will find the paper.
In my book, it is well worth the effort.
In the year I became chief executive of the Electricity Supply Association, 1990-91, Queensland electricity customers consumed just over 22,000 gigawatt hours, less than half of demand in New South Wales.
At this time the two States north of the Murray together accounted for 53 per cent of total Australian power demand and burned 31 million tonnes of coal in meeting this need.
In the financial year 2009-10, using the latest data from the Energy Supply Association, the “old ESAA’s” successor, Queensland customers consumed 47,400 GWh, equal to almost 68 per cent of demand in NSW.
The two States combined accounted for 57.5 per cent of national power demand and burned almost 50 million tonnes of coal to deliver it.
In 2019-20, as forecast by the new Energy Supply Association yearbook, system energy requirements, which are a couple of thousand gigawatt hours above consumption due to power station use and line losses, will reach 75,600 GWh in Queensland and almost 100,000 GWh in NSW. Between them, the two States are predicted to account for almost 61 per cent of national power output.
These statistics show why two States dominate the challenge policymakers face in trying to cut greenhouse gas emissions below 2000 levels in 2020 and they are a pointer to why Federal Treasury suggests the answer is to seek 60 per cent of emissions credits overseas.
If you assume on these trends that the two States between them will account for about 238,000 GWh of demand in 2030 – by which time Queensland may even have overtaken NSW as the leading power consumer – and allow that only 20 per cent of this supply will be met from renewable energy, as forecast in the federal energy resource assessment, you have a situation where almost as much power will be provided north of the Murray from fossil fuels as is being consumed from all sources in Australia today.
To which you can add Victoria.
When I took up the reins at ESAA in 1991, Victoria far outstripped Queensland as an electricity consumer, using a third more. Today, the roles have been reversed and Queensland uses eight per cent more electricity. By the end of the decade, on current forecasts, Queensland will be using almost 44 per cent more power than Victoria.
By the decade’s end, the three States will account for 80 per cent of power sent out and what fuels they are using will be the dominant electricity-based emissions issue, with generators nationally accounting for almost 40 per cent of Australian emissions.
Push this out to 2030 and the dominance of the three States in the power sector will be greater still.
Now this is where the rubber really hits the road in the power-related emissions debate – all the rest is wheel-spinning. And the media focus on what may or may not shut in Victoria (and perhaps South Australia) can be seen to be rather less than the main game.
Eighteen months ago when the Queensland government thought that 2020 demand would be 69,000 GWh – about 4,000 GWh out on the latest ESAA forecasts – it was predicting that 9,000 GWh would be met from renewable energy by the decade’s end.
That already left 12,000 GWh of new supply to be met from fossil fuels and it is apparent that this number now will be higher still.
Look at the power station developments proposed in Queensland, as listed by ESAA, and you will find that 7,170MW of new capacity is intended to be gas-fired along with 1,700MW burning coal.
The proposals for renewable energy total 574MW.
To which, if one wishes to be fair, could be added the 1,500MW of capacity Origin Energy wants to build in Papua New Guinea and link to northern Queensland by a very long transmission system – and whatever capacity might eventuate in the Julia Creek area in Queensland if the CopperString transmission line is built.
And then there is the “Solar Dawn” subsidised project at Chinchilla. About 20 of these projects could deliver the sent-out energy of a Kogan Creek coal station – at about 20 times the capital cost.
Even with these included, the dominant outlook in Queensland this decade and a bit beyond is to source more electricity from fossil fuels.
(Playing with estimates provided nationally by the federal Department of Climate Change, putting a 1.5kW solar array on every household rooftop in Queensland would cost about $40 billion at present prices and deliver about three million tonnes of abatement in 2020. Even if you halve the capital cost, that is not cheap abatement. On the other hand, building eight nuclear power plants in the three States at a capex cost of about $40 billion would deliver most of the higher demand.)
What becomes blindingly obvious from this sort of number-crunching is that it is essential for the Gillard government to be working closely with the regimes in Sydney and Brisbane, as well as Melbourne, to plan towards a lower-emissions environment in 2020 and 2030 – never mind 2050, which has suddenly become attractive to the Prime Minister as a planning horizon as the numbers for nearer years look less and less rosy in terms of her climate spin.
Equally obvious is the fact that this isn’t happening – and wasn’t occurring even when Labor governed in all three States, instead of just clinging by its political toe nails to power in Queensland.
An energy security strategy and abatement plan that doesn’t involve all four governments in a tight accord is not a way forward at all.
The $12 million being spent on carbon price advertisments that hardly anyone is watching would be better outlayed on funding a detailed examination of these critical regions for electricity and abatement.
The political commentariat, here and overseas, was only too happy to portray it at the time as one of the dumbest things ever said by a modern senior political figure.
It didn’t seem dumb to me then and, in the domestic context of our carbon debate, it appears today to be highly to the point.
I am referring to a famous – the commentariat would insist it is notorious – comment by US Secretary of Defence Donald Rumsfeld in February 2002.
Rumsfeld said: “There are known knowns, things we know we know. There are also known unknowns — some things we know we don’t know. And there are unknown unknowns – the ones we don’t know we don’t know.”
Two of the known knowns in our carbon debate are that we have a commitment to cut national emissions by at least 160 million tonnes annually by 2020 and that the federal government now concedes its carbon policy will not deliver more than a third of this abatement domestically through the measures it proposes.
The known unknowns are more than two.
For example, the government has not undertaken, or at least not published, what this target actually will be in 2020, given the current trends in energy demand. As previously stated, my personal view is that it will exceed 200 million tonnes a year.
In this context, we know we don’t know what the economic impacts would be of our having to find the full 2020 target wholly from domestic abatement, absent a global trading system, using realistic cost estimates for alternative electricity technologies.
This is hardly a minor issue.
Don’t hold your breathe waiting for the Gillard government to address the point, but it is critical in assessing what we are being hustled towards accepting.
(Federal Treasury assumes that 60 per cent of the desired abatement will come through overseas emissions trading. Under the government’s allegedly informed guess about obtaining credits abroad, we will need to spend an estimated $5 billion a year by 2020 and $15 billion by 2030. As one of my economist friends says, the government assumes we can buy permits at a very favourable price in a very deep global market, created by prodigious action in the US and China as well as the European Union and elsewhere. That’s some assumption, akin to pursuing a black cat in a darkened room.)
Another known unknown is what level of compensation for carbon action will really be needed to sustain the promises the Gillard government is making the community.
As just one example, how will householders and small businesses be impacted by the cost of the renewable energy target and what will that target be in 2020 and 2030?
(Remember the Prime Minister is now promising a very much higher use of renewable energy by mid-century than is envisaged in the current RET, which is due for review in 2014.)
Another known unknown is what the subsidy will need to be for large-scale solar power, rooftop solar power and geothermal energy when, under the agreement with the Greens, the government starts pushing these technologies on us from a federal level.
(The complete stuff-up of the New South Wales solar bonus scheme by the Keneally government tells us all we need to know about how much effort is put in to assessing these measures when a desperate regime is pursuing what it believes to be a popular solution.)
Yet another known unknown is whether and when carbon capture and storage will be commercially available for use here, where the captured carbon dioxide will be buried and what this will cost?
For those who like to dismiss CCS as irrelevant, I point to the Prime Minister’s new 2050 pledge, which I revealed in the my last post headlined “Spinning, spinning.”
The implication of her promise made on ABC Radio that 40 per cent of 2050 demand will be from renewable energy is that 60 per cent of it will be from fossil fuels (given she opposes nuclear power).
What this means is that Australia will be provided with 330,000 gigawatt hours of fossil-fuelled electricity in 2050 compared with about 180,000 GWh now. Delivering this and keeping to her pledge to cut emissions by 80 per cent below 2000 levels by 2050 is impossible without CCS.
Another known unknown is whether, when and how the global community will find a replacement for the Kyoto treaty.
It will not happen at Durban at the summit beginning on 28 November, that’s for sure, but, if and when it does happen, the federal government has promised a much higher 2020 domestic emissions abatement target than the present one.
(One of my informants tells me that even the arch-priestess of climate negotiation optimism, Denmark’s Connie Hedegaard, European Commissioner for Climate Action, is already conceding privately that the Durban talks will fail.)
I am taken with the observation of Yugoslav philosopher Slavoj Zizek, who pointed out last decade that there is a fourth dimension to Rumsfeld’s thesis, the “unknown knowns” – the things we pretend not to know about.
Rumsfeld didn’t invent the “known” idea, by the way.
Carl Philipp Gottfried von Clausewitz, the Prussian military theorist, is the modern coiner.
And it is suspected that Von Clausewitz pinched the idea from a 14th century Persian poet, whose definition included “one who knows but doesn’t know that he knows” and “one who doesn’t know and doesn’t know that he doesn’t know.”
Of the latter, the poet said: “This is a stupid man who will be stupid forever.”
Relevant to our situation? You bet!
Having been in the public relations and issues management business from 1972 to 2003, I am as capable as anyone of appreciating a senior executive who sticks on message in launching or opening something.
So full credit to Prime Minister Julia Gillard for sticking relentlessly to the focus group-inspired theme when she opened Acciona’s wind farm at Gunning, near Canberra..
She and her minders would have been pleased with the Fairfax newspapers headline on the report covering the event: “PM sees smiles in wind turbines.”
A well-rugged-up Gillard – Gunning on a winter morning is somewhat chilly – joked, it is reported, that there should be smiley faces at the centre of the wind turbine propellers.
Certainly Gillard was determined to put a smiley face on the day’s carbon message, even if the polls are telling her she is riding a lost cause in the arena of public opinion.
In her eight opening sentences delivered for the benefit of television cameras against a backdrop of wind turbines, the Prime Minister managed to say “clean energy future” or “clean energy” no fewer than 12 times. Now that is sticking to the message. The issue, of course, is who is listening to the spin?
Her minders also sought an interview with ABC Riverina – the compere making the point, which has been cut from the transcript on the Prime Minister’s website, that her office had pushed for the opportunity – in which Gillard made an interesting prediction.
By 2020, she said, 20 per cent of our energy (she means electricity) will come from clean energy sources, which, of course, is the intended product of the renewable energy target – and 40 per cent will do so by 2050.
The latter number is new. On what is is based, one wonders?
By clean, the Prime Minister does not mean nuclear.
On some private sector modelling I have seen for the east coast market, which predicts that power demand mid-century will be more than 550,000 gigawatt hours a year, she has therefore predicted that supply from wind, solar and so forth will exceed 200,000 GWh annually.
To which one may add whatever Western Australia’s demand will be in 2050. (ESAA forecasts that it will rise from 17,500 GWh annually now to 24,600 GWh in 2018-19, so it is not unreasonable to assume that it could be about 50,000 GWh mid-century – on Gillard’s claim, that would add another 20,000 GWh to the annual renewable supply.)
The overall generation output would be higher in fact because system energy will be about 10 per cent more — and it is this that counts for emissions.
Given that Gillard’s own national energy resource assessment sees renewable supply at about 75,000 GWh a year in 2030, this anticipates a huge rise in non-nuclear, zero-emission sector in the ‘thirties and ‘forties.
The modelling I have seen suggests that just delivering a 25 per cent abatement target mid-century will require a carbon price around $50 a tonne in the middle of this decade, rising to more than $100 by 2030 and to about $220 by 2050.
The newly-revealed Gillard perspective, of course, raises a host of questions, not least of which is why not change the policy on nuclear power?
One must also question what is going to drive such a major take-up of non-nuclear, zero-emission technologies?
If the whole renewable side was met by wind farms – other than the existing hydro-power plants – the Gillard 2050 outlook would require a capital investment of about $125 billion. It would be more for solar. It would be less than either for nuclear.
The Prime Minister’s own policies will not deliver this radical shift and substantial investment – because she manifestly does not see a startling change to the generation mix (beyond gas power challenging coal’s domination) between now and 2020.
And she is certainly not about to tell us that she is launching Australia on a path down which the carbon price will be about 10 times higher in 2050 than it will be in 2013.
In the context of renewables investment, this blog’s readers – who I am pleased to report increased again in June to more than 6,200 for the month, more than double the readership a year ago – will find it interesting to scan Climate Spectator’s interview with Jose Manuel Entrecanales, chief executive of Acciona, builders of the Gunning wind farm and now the largest independent renewable company in the world (in the sense that it is not engaged in conventional forms of energy supply).
The interview appeared on 21 July. It includes the point that the tanking of the European economy has sent companies like Acciona looking for places, like Australia, where there is economic strength and a will to pursue green energy.
In Europe, says Entrecanales, financing is hard and the politicians are in survival mode, not focussed on long-term concepts. Here, he says, it will be smart for Australia to “take the big positions” at a moment of economic health.
He cites Mexico and South American countries like Chile as offering interesting prospects at present, too.
Spain, by the way, had the ninth most expensive residential electricity prices out of 25 OECD countries two years ago (latest comparative numbers), driven in part by renewable subsidies. Australia had the fourth cheapest. Spain had the 10th highest industrial power bills. Australia had the seventh lowest and was effectively in a bracket with four other countries (Thailand,Taipei, the US and New Zealand) above Norway and South Korea.
Adopting the “big position” approach is fine, providing that it is realistically based on the needs of our community and our economy. This is the case that the PM has yet to make to the satisfaction of voters.
In The Australian on 21 July former Labor minister Gary Johns urged her to make a U-turn on the tax before it is too late for her and the party. In the same edition former NSW Premier Morris Iemma warned in an interview that the carbon tax is “likely to lead Labor to an historic electoral train wreck.”
Iemma argues that the NSW greenhouse gas reduction scheme Bob Carr introduced and he extended is a far more practical, efficient and reasonable way to go. He claims that the scheme has cut emissions by 80 million tonnes to date without economic dislocation.
The 188 responses to Ziggy Switkowski’s latest commentary on the ABC’s The Drum website – in which he poses the question: do you support nuclear in Australia if it is the lowest cost, cleanest and safest option for electricity supply – started out stridently negative, laced with the usual vituperation to be expected from the green-leaning element of the national broadcaster’s following.
But as the day wore on, more measured views started to appear, supporting Switkowski’s belief that many in the community are not now impulsively against nuclear power.
On the other hand, some of the responses again demonstrate the deep-seated ignorance about electricity issues in the community.
My favourite is one “Anton” who is “really impressed” with the proposed Chinchilla solar farm, which will deliver 550 gigawatt hours a year at a capital cost of $1.2 billion “comprehensively cheaper than any nuclear plant.” He goes on to suggest replacing Eraring power station (18,500 GWh output annually) in New South Wales with solar. “We will only need 34 of these solar plants,” he says. “At an all up cost of only $41 billion, that’s not too difficult.”
I will leave my row of exclamation marks to your imagination.
In the real world, the greens and the federal government are pushing things uphill at present, as the latest Essential Report shows.
The 18 July issue of the weekly opinion poll is devoted to the carbon issue and does not make good reading for the government.
Those supporting its policy have risen only a little since “Carbon Sunday” and those opposed remain ascendant by 49 to 39 per cent.
Sixty-nine per cent of those polled believe they will be worse off under the policy versus only 10 per cent who believe they will be better off.
What’s more, 51 per cent of respondents don’t believe the policy will reduce emissions.
Interestingly, 59 per cent of respondents still want politicians to “do something about climate change” and only 28 per cent of them are attracted to the Coalition’s approach.
As it happens, immediately before I saw Switkowski’s piece, I had been reading an Op-Ed in a Texas newspaper by Patrick Moore, the co-founder of Greenpeace and co-chair of the American Clean & Safe Energy Coalition.
Like others, Texans, in the wake of Fukushima, have been debating the use of nuclear power.
Texas is home to one of the 10 largest nuclear fleets in the US, producing 10 per cent of its electricity.
It is also a state confronting the need to supply demand that is projected to rise by almost 50 per cent between now and 2030.
(By comparison, electricity production in Australia is predicted by the federal government, via the national energy resource assessment, to rise by 60 per cent in two decades.)
Moore’s advice is that Texans should seek a diverse power supply that is clean, cost-effective, reliable and safe.
One of the best ways to mitigate supply risks, he argues, is to build a strong portfolio of balanced alternatives, including nuclear and renewable energy.
This seems to me to be good advice also for Australians trying to fashion an energy policy for at least the next two decades – with the resource assessment predicting supply will still be 80 per cent fossil-fuelled in 2030 (43 per cent coal, 37 per cent gas).
As Moore sees it, by providing emissions-free, affordable power round-the-clock, nuclear energy has helped Texas incorporate substantial wind power in to the state’s mix without sacrificing reliability or household budgets.
Texas, which has a population of 25 million and no transmission interconnections, is not only America’s leading oil-producing state but also the leading US region for building wind farms, having developed 9,700MW of capacity (about four times what we have in Australia) and with plans to build the wind fleet to 38,000MW by 2025 (versus about 10,000MW here).
Looking at America as a whole, Moore points out that there are 100 reactors in 31 states producing 20 per cent of the country’s electric energy – a dominant feature in low-carbon power production, which accounts for a third of US generation.
Here in Australia, as we contemplate another substantial capacity-building task and share with the Texans fairly strong public support for reducing emissions cost-effectively, the Moore perspective of a diverse generation portfolio that efficiently delivers our 2030 requirements makes more sense than the many kneejerk reactions I read on the ABC website to Switkowski’s commentary.
Let’s suppose that the national abatement target is extended to 15 per cent by 2030 rather than five per cent by 2020.
This would need to take in to account the likelihood that, on present demand and supply trends, Australian generation emissions will peak at about 250 million tonnes a year two decades from now – about 25 per cent higher than they are today.
With power-related greenhouse gases making up more than a third of the national total, this is an important point.
Suppose that we want 10 per cent of the 370,000 GWh of production in 2030 to be low-carbon baseload in addition to the RET contribution: this would imply, in effect, production almost equivalent to today’s Victorian output from nuclear or coal and/or gas with carbon capture and sequestration.
Whether the geothermal sector can contribute to this remains in the realm of speculation – as does commercially viable CCS for power plants.
How far gas-based fuel cells can contribute to household power consumption (more than a quarter of demand) remains almost unexamined, too.
Two of the market factors that can be expected to be in play in 2030 will be the cost of gas and the size of the carbon price.
A lower gas price means the need for a higher carbon price to enable nuclear to compete with gas.
What so many of the debaters forget is that the east coast wholesale market is competitive.
There are many other factors that will need to be taken in to account in including nuclear in the Australian generation mix by 2030, then increasing it up 2050, which is the energy policy time horizon du jour.
This is also true of the pursuit of a viable CCS option.
But it seems to me that we are approaching the supply and abatement issues at present as if they are a sack race, handicapping a number of options from gas-fired fuel cells to nuclear power because of the reaction of the greens and their fellow-travellers, including a cold-blooded leadership decision in the ALP to surf on the populist opposition to nuclear, rather than allowing them to run on their merits.
One of the features of a sack race, of course, is the amount of falling over involved. This is not an attribute conducive to delivering efficient power supply.
Well, it didn’t take long.
One of the things on which I have been prepared to bet is that, as soon as the Greens and their fellow travellers got a carbon price supported, they would go after gas.
To quote Paddy Manning in the Sydney Morning Herald (16 July): “The unnerving prospect is that the world turns to gas only to find that we have constructed an expensive new fleet of long-lived power stations that scarcely help tackle climate change and soon become an obstacle to more rapid decarbonisation.”
Manning, like the Greens, wants to see “renewables ramped up as fast and hard as possible.”
What he and they don’t say is that this step would also come with power prices being ramped up to wholly unacceptable levels.
The Beyond Zero Emissions group acknowledges that moving to 100 per cent renewable generation today would cost $37 billion a year for 10 years – and critics of their ideas claim that this calculation is threefold and more too small.
The purists will not even wear the idea of solar/gas hybrid power plants, attacking the Gillard government’s decision to contribute $464 million towards the $1.2 billion cost of the Chinchilla “Solar Dawn” development.
The language of the attack was interesting, too, criticising a decision to pick “a French state-owned nuclear giant to build a solar plant based on outdated technology.”
A real world view of the next 20 years is somewhat different.
By 2030-31 it is expected that demand for electricity in Australia will be about 370,000 gigawatt hours a year, representing a reduction brought about by a carbon price of about 40,000 GWh – or roughly cutting Victoria’s demand out of national consumption. This, in itself, is quite a big assumption.
The official view – as provided in the federal government’s national energy resource assessment published last year – is that 43 per cent of this supply will still be met by coal plant, 37 per cent by gas plant and 20 per cent by wind farms, existing hydro-electric power and whatever else, like geothermal and solar, has been brought in to the mix.
Nuclear proponents argue that, by 2030, we could have 15,000 megawatts of their favoured power stations at a cost of about $40 billion.
All of this is moot, of course, unless we have a firm political view – which means bipartisan between the major parties – about an emissions abatement target out to 2030. The fact is that 2020 is too near and 2050 too far to be meaningful for investors.
As we know, the Gillard government has decided that its proposed carbon policy cannot deliver the five per cent below 2000 by 2020 target through domestic abatement. It is relying on the emissions scheme with which it hopes to replace the initial carbon tax to deliver two-thirds of abatement in 2020 by emitters buying credits overseas.
Economist Henry Ergas slammed this approach in an Op-Ed article in The Australian in the past week, arguing that the whole Gillard edifice is based on the Federal Treasury’s assumption that “there will be a fully-functioning world market for emission permits,” relying on the Pollyanna approach that “a co-ordinated international policy framework is in all countries’ best interests.”
The Ergas argument that the policy should be designed to achieve whatever target Australia undertakes at the least cost goes to the heart of the generation technology issue.
Simply put, if we deny ourselves the opportunity to pursue nuclear generation, then the only viable “at least cost” alternative to burning coal for baseload power in the next quarter century is gas.
This will require very large capital outlays on new power stations and gas pipelines as well as a considerable upstream effort to produce an adequate supply of the fuel.
I recently saw some modelling, which is not in the public arena at this stage, suggesting that the east coast could require double its present generation capacity by 2030-31 to meet demand. Assuming current costs for plant construction (gas and wind farms), this will require an outlay of about $80 to $100 billion or about $4-5 billion a year on average for two decades.
There’s no shortage of corporate interest in developing new gas generation, not least in New South Wales, where about 2,000MW of new baseload power needs to be brought on stream this decade, in Victoria, where the carbon policy is aimed at shutting down Hazelwood and Yallourn power stations, and in Queensland, where consumption continues to grow at a rate of knots – and is now forecast by the Energy Supply Association to reach today’s NSW levels by the end of the decade.
These States comprise the bulk of Australian demand and supply.
The latest ESAA yearbook identifies many gas projects that are either already under construction (eg Origin Energy’s Mortlake project) or under advanced planning (eg ERM Power’s Wellington project in NSW) or under active consideration (eg AGL Energy’s Dalton project, TRUenergy’s Tallawarra B development, both in NSW, Santos’ Shaw River development and AGL’s Tarrone project, both in western Victoria, plus Origin’s Spring Gully plant and ERM’s Braemar 3 development in Queensland). And many more.
Large-scale use of gas for generation inevitably will impact on end-user prices – there are issues about the east coast price of gas moving towards international parity for a start – and then we need to factor in carbon capture and storage, which will be required for future gas generation as much as for any new coal plants.
From about 2025, provided the technology is then commercially available, it is hard to see new gas plant being given environmental approval without CCS.
The technological state of solar/gas hybrid power along with the political state of nuclear power will be important factors by the middle of the next decade, too.
The prospects for unconventional gas in Australia are also a significant factor in a scenario like this.
Will shale gas in the Cooper Basin become a major new development? Will NSW coal seam methane become a large supply source? Will higher prices for gas spark new developments in the Gippsland Basin?
The “what if” list goes on and on.
One should not, for example, ignore the impact of the development of the “NEMlink” transmission plan (estimated cost $8.3 billion for commissioning early in the next decade) or the opportunity this would open for large-scale wind farm development on South Australia’s Eyre peninsula. Even this came about, it is still a change in generation capacity at the margins rather than the herald of a new, green paradigm.
Politics loom large in trying to evaluate where supply arrangements will go.
Much as the Greens and others, including many in the media, try to avert their eyes from the prospect, the opinion polls suggest we are heading towards a repeat of 1975 or 1978 or 1996 – a crushing Labor loss at the next federal election.
(Preceded, on present indicators, by a crushing Labor loss in Queensland next year – a situation that would given us Coalition government in the two major east coast States for power purposes until near 2020 at least.)
An almost inevitable result of a federal landslide or even just a Coalition victory, if attempts to undo the carbon policy then couldn’t succeed because of the Senate numbers, would be a double dissolution of federal parliament.
This presages an enormous degree of turmoil for investors in energy until at least mid-decade.
This should work to the advantage of gas development because uncertainty will breed more open-cycle projects, milking the profits of the keep-the-lights-on need, and their eventual conversion to CCGT – except in Victoria where there is a more-or-less bipartisan approach to closure of the old, emissions-inefficient plant and their replacement by CCGT is a rolled gold certainty. When is the bigger question there.
Meanwhile, we will have to put up with GBH of our earholes from the Greens and their co-travellers on how terrible this all is.
For them, the paradox is that the long-term outcome may be a switch to nuclear energy as the commercially sensible zero emissions choice.
In the meantime, take it as a given that the dashers for gas are under starters’ orders.
How many Australians do you think have now switched off?
Not switched off their power appliances, but tuned out the political argy-bargy over the carbon policy?
My guess is that it is a large proportion. The public notoriously gets fed up really quickly with the sort of debate now being inflicted on us.
Meanwhile the latest Newspoll says that 60 per cent of respondents are against a carbon price versus 30 per cent in favour.
A Galaxy poll says 68 per cent of respondents believe they will be worse off when it is introduced.
The Newspoll opposition includes 29 per cent of people who says they will vote Labor – another 16 per cent of these voters are “uncommitted,” which I suspect means unwilling to say, given their leanings, that they are against the government’s policy.
Some of the polling seems to indicate that about two out three voters want an election on the issue – not much different from the number who don’t like the tax. However, as one commentator has said, a federal election now is the only thing less likely than a sudden Labor recovery in the polls – which makes the forthcoming Queensland election at least in part a litmus test on the issue.
Having switched off the carbon campaign, what will make people refocus on the issue?
It won’t be the sort of performance the Prime Minister delivered on the ABC’s Q&A television program, when a number of attempts to explain the abatement purpose of the policy obviously failed to win over the audience – some of whom clapped when a questioner asked how so much compensation could deliver behavioural change.
Given the leanings of Q&A audiences, this does not bode well for Gillard’s carbon campaign.
Nor will $12 million worth of proposed Labor advertising, I suggest. The money would be much better spent on a campaign promoting end-use energy efficiency.
Mall walks, on the evidence of the TV news, are a hazard because of little old ladies wandering up to grab their 15 seconds of fame and call the PM a liar to her face.
What is the PM going to do when some little kid on one of her kindergarten jaunts lisps “My daddy says you tell lies”?
The real next big spark in the carbon debate, I think, will be the arrival of the power bills at the end of winter.
In 2010 in New South Wales they were 30 per cent higher quarter on quarter as a result of tariff rises and of increased use of heating in a very cold season – and so it will go this year and in 2012 and 2013.
In the run-up to the federal election, the carbon price will add to the inevitable higher bills. And the number of households in “fuel poverty” north of the Murray alone will advance in to the hundreds of thousands.
Meanwhile, the chances are less than zero of the Durban UN summit on global warming, starting on 28 November, providing a genuine breakthrough towards a new international approach to decarbonisation,thus vindicating Gillard’s stance just as Copehagen wrecked Rudd’s pose, no matter what rhetoric is served up to justify the expensive global outing to Zululand.
Part of Gillard’s problem is that she has few domestic rabbits to pull out of her hat to demonstrate how good her policy is.
The punters will pocket the bribes – those that benefit from them anyway.
A couple of million households will not do so to any great extent or at all.
Most voters, I suspect, will go right on sharpening their grudges as the bills roll in.
Cutting a deal to close a couple of brown coal power stations in Victoria and/or South Australia may help Gillard – or it may not when the inevitable xenophobia about handing out some two billion dollars to foreign-owned businesses kicks in.
Also, the closures can’t happen in any time cycle that helps her politically, anyway.
None of Hazelwood, Yallourn or Playford at Port Augusta in South Australia can be shut without combined cycle gas plant being built to replace their baseload contributions to supply – a swap, given development timelines, that could take place early in the second half of the decade at best.
One of the things to bear in mind is that whatever deal Gillard achieves over closures with whichever power stations owners will set a benchmark price for “direct action” – and the Coalition will then be able to calculate the cost of achieving the 30 million tonnes of domestic abatement Gillard’s tax is forecast (by her) to deliver and set it against what more “direct action” would achieve.
In this respect “direct action” must be cheaper.
(Hang on, I hear you say, the government’s new 2020 domestic abatement number is 59 million tonnes annually. Yup, but 29Mt of it comes from the renewable energy target, already in place and delivering an extra cost for householders that Gillard’s compensation does not cover. I have seen modelling suggesting that the RET will carry a carbon price of about $76 a tonne by 2020.)
Meanwhile, by 2015 the Gillard carbon tax and the RET, but mostly higher network costs, will have helped household power bills to be double what they were in 2008.
Well before 2015 decisions need to be made to add to New South Wales baseload capacity and, in fact, building will need to have begun – this is a rolled-gold certainty to be more fossil-fuelled supply, highly likely to be gas-fuelled and perhaps from a pipeline bringing coal seam methane south.
Queensland, too, will need to have more baseload supply under way by then – also gas-fired – amid the ongoing drumbeat of farm community opposition to coal seam methane extraction on the Darling Downs and neighbouring areas.
By 2015, peak capacity requirements in NSW will be about 1,400MW higher than now. They will be about 2,000MW higher in Queensland and also up in Victoria and SA.
Gas-fired electricity will not be as cheap as existing coal power – and the “NEM” works to charge the highest cost bid in each unit of time for sufficient capacity to meet that demand.
By 2015, after all the yelling and regulatory wriggling, the network capital outlays for the second half of the decade will be decided and also under way, adding billions of dollars more in capex spending and leading to still higher power bills.
The key regulatory determinations will appear in 2013 – not timing to please the Prime Minister.
In 2009-10 utility costs collectively rose 15 per cent in eastern Australia, the highest jump since 1983 – that’s the year Hawke pulled down Fraser – and they are forecast to have risen by 12 per cent in the financial year just ended.
What will these increases be in 2011-12 and 2012-13?
Where will petrol prices be in 2012-13?
Where will mortgage rates be?
What will have happened to water bills and council rates?
That voters will be as switched on to overall cost of living pressures in 2012-13 as they are today seems one of the few certainties of the present situation. That they will have tired of “we feel your pain” political spin is another certainty. That they will have worked out that the bribes are not enough is a possibility. That they will be barraged with new warnings about higher post-2015 prices is pretty certain.
So we are in for lots of spin and smoke and mirrors from the federal government in the next two financial years and an especially large dose in the run-up to legislating the carbon price and its related policies – but who’s listening?
As Julia Gillard set out on the selling job of her political career, Essential Media published a new poll showing just how hard the task is.
The total of respondents opposing the carbon pricing measure has risen to a record 53 per cent versus 35 per cent supporting it and the “don’t know” component down to 12 per cent.
This poll was taken before the policy was announced.
Those opposing the proposal include 20 per cent of respondents saying they would vote for Labor and 21 per cent leaning to the Greens.
Obviously reacting to polling feedback, Greg Hunt, the opposition spokesman on climate action, appeared at the Lowy Institute on ‘Carbon Monday” to declare that electricity is “singularly unsuited” to a major tax.
“Electricity,” he said, “historically has been the largest source of social progress and of emissions growth, but it is also an essential service.”
It is, he argued, not very susceptible to pricing, pointing out that IPART in New South Wales had found that a 50 per cent price rise over five years had resulted only in a six per cent decrease in per capita consumption.
He accused the Prime Minister of resisting the logic of the argument that you can drive up power prices with very little environmental gain, but a great deal of pain for users.
“If the carbon tax won’t work on petrol,” Hunt said, “it sure as heck won’t work on electricity demand.”
And Hunt argued that the Gillard government has secretly embraced the opposition’s direct action approach by negotiating behind the scenes with brown coal generators to pay for the closure of some to enable their replacement with baseload gas, a switch that only cuts part of the coal plants’ emissions.
When Julia Gillard brings her “Securing a clean energy future for Australia” caravan – a clear reaction to focus group rejection of Rudd’s “carbon pollution reduction scheme” – to NSW she will run headlong in to the fact that the State’s three coal-fired generation businesses, all owned by the government and not slated to get compensation or help to close, will be hit by more than a billion dollars a year in carbon costs.
The media are already reporting, for example, that Macquarie Generation, the second largest of the trio, marginally behind Delta Electricity in capacity, faces a $580 million annual bill and may have to absorb up to $230 million of this cost while the profit it declares is only $125 million.
This fits with Loy Yang Power in the Latrobe Valley declaring that it faces a $450 million a year emissions bill and the expectation that it can only recover a portion of the burden in the wholesale east coast market.
More than half the national power supply is provided by government-owned generators in NSW and Queensland; it will not take long for critics to latch on to the hit taxpayers will take as the Gillard tax eats their gencos’ payments to State revenue.
The point will resonate in Western Australia, too, where State-owned Verve Energy has said it will have to pay out some $200 million a year and has no hope this decade of walking away from its coal-fired production.
The biggest ticket issue for the Prime Minister, however, may be that the policy she has announced will not result in domestic abatement of 160 million tonnes annually by 2020, which is what the government emissions target now requires.
At circa $25 per tonne, the carbon price will not significantly alter coal’s role as the most cost-effective generation fuel in the short to medium term – it will take $50 per tonne to start driving black coal generation out of the marketplace.
The proposed scheme, the government acknowledges, will deliver only 59 million tonnes a year of abatement by 2020 inside Australia – the rest will need to be pursued through buying emissions credits overseas.
This assumes the availability of international credits – beyond New Zealand, which Climate Change Minister Greg Combet is flagging as a potential partner with Australia in a trans-Tasman trading scheme.
It is, as one senior economist pointed out to me on “Carbon Sunday,” a very big assumption. We have no idea if the necessary international market will develop in the next few years.
Already the overseas trading concept is being skewered by economists of note pointing out that there are big dangers in the credits turning out to not produce emissions abatement in their home countries – dodgy trading, in other words – and/or that the volatility of overseas markets may skittle the domestic carbon price.
What’s missing at present in the debate is the realisation that the 160Mt national target in 2020 is almost certainly too low. It has already been increased from the 144Mt Rudd claimed when he introduced the target and continuing growth in energy use is likely, I think, to push it towards 200Mt annually at the decade’s end.
This would mean that the $3.7 billion in annual transfer payments from Australian emitters to international holders of emissions credits, as claimed at the Lowy by Hunt, is more likely to be north of $5 billion.
A trenchant letter in today’s edition of The Australian by Ziggy Switkowski winds up: “Why are we being led down this path at this time by such an extra-ordinarily complex program?”
Adele Ferguson, writing in The Age, comes up with the likely answer: “Julia Gillard is positioning herself as the Mary Poppins of politics – she has given two spoons of sugar to the majority of the electorate to boost her standing in the polls and dropped the medicine on the top tax bracket and on businesses that won’t come back to bite her.”
That, however, remains to be seen – as the Essential Report poll indicates and as the Coalition is betting as it harps on the policy impact on electricity prices and on the cost of living generally. And, as a leading energy commentator pointed out to me today, when the analysis gets more forensic and starts to overwhelm the spin. Not to mention when the miners, who are claiming they face a $25 billion extra cost this decade, start another advertising campaign.
One such piece of analysis is the claim by the Real Estate Institute that the policy will add $5,000 to the cost of a new home. That will work a treat, for example, in western Sydney, a critical election battleground and where a fair few of those who will get less than two spoons of Gillard sugar are located.
Giles Parkinson, writing in Climate Spectator, argues that one of the biggest imperatives of the Labor package is to make the government as small a target as possible.
That may be Mission Impossible – even for Julia Poppins.