Archive for November, 2011
At Copenhagen at this time in 2009 many politicians and carbon activists were sucked in by their own hope and hysteria – none more so than Kevin Rudd, aided and abetted by Penny Wong.
The failure of “Hopenhagen” to achieve anything meaningful in terms of an agreement on carbon abatement policies helped to destroy Rudd’s prime ministership, but the global caravan pursuing radical change has rolled on.
It emerged from Cancun in December 2010 undeterred by failure to even get close to concocting a replacement agreement for the Kyoto treaty, which expires at the end of 2012.
The sales pitch for the past year has been that Cancun wasn’t a failure because “the world agreed to keep global warming below two degrees Celsius.”
In Cancun, we are told, governments agreed to put in place “the global architecture” to monitor greenhouse gas emissions and to “support” developing countries in tackling climate change.
Now the government teams and summit hangers-on – they’ll number 20,000 this year, 10,000 of them politicians and bureaucrats – are meeting again in South Africa.
(In passing, it intrigues me that so many journalists write “almost 200 countries” when the number attending is 194 – trivial, but a symbol of the genre.)
The United Nations is rolling in to eThekwini, which is what the indigenous Zulu call Durban, the busiest container port in Africa and somewhere I spent childhood holidays in the 1950s and sometimes worked in the 1960s. (Alas, the area of play I remember is better known for grime and crime today.)
Ironically, just two hours drive up the Zululand coast (that’s Sydney to Newcastle in our terms) is Richards Bay, the world’s largest coal export terminal, capable of shipping more than 90 million tonnes a year although South Africa is only the fifth biggest trader, way behind us.
Richards Bay also features two BHP Billiton aluminium smelters and woodchip plants.
Just the place for Bob Brown to take a holiday.
(Durban by the way was named in an obsequious gesture by mid-19th Century British troops, whose commander in the Cape Colony was Sir Benjamin D’Urban. The more prosaic Zulu name means “the bay.”
(If the politically correct now insist on Mumbai for Bombay or Kolkata for Calcutta, why do they cling to Durban for eThekwini?)
Again, the climate change campaigners are engaged in explaining to us why this summit is where the seemingly impossible starts to become achievable.
“Our basic function,” says Britain’s energy and climate change minister Chris Huhne, “is to keep the good ideas alive. As long as we are talking, there are options. A global deal covering all major economies is a necessity. Durban must finish what Kyoto began.”
Well, “alles van die beste” with that one, Chris. (That’s Afrikaans, the second most spoken language in eThekwini.)
The Atlantic magazine of the US is reporting this weekend that “privately, the leaders of major established and emerging economies concede that no new treaty containing binding reductions will be negotiated before 2016 – and, even if such an agreement is reached, it could not come in to force until 2020.”
Read this against the International Energy Agency chief economist, Dr Fatih Birol, who will be in Australia in mid-December, saying: “If we do not have an international agreement whose effect is put in to place by 2017, then the door is closed forever (on stopping the worldwide mean temperature increasing 2 degrees Celsius).”
The South African meeting, which will include Greg Combet, triumphantly waving our “clean energy future” legislation, will begin with the realisation that the US has signalled that it won’t sign up for the “Green Climate Fund,” the $US100 billion a year scheme “wealthy” countries supposedly agreed at Cancun to have in place by 2020 to channel abatement dollars to the developing nations.
The initial down payment of $US30 billion (including one assumes about a half billion from us) is due at the end of next year.
Will there be an allocation in Wayne Swan’s next budget in May 2012? Will “second PM” Bob Brown allow him not to include it?
At present, however, there isn’t even international agreement on the eligibility criteria for tapping the “Green Climate Fund.”
US special envoy Todd Stern says the fund’s design is “a little bit problematic.”
There is also a proposal floating around this week’s summit sidelines for a tax “of just 7.5 cents” on every $US100 in currency trades around the world.
The proposers say it would raise $US500 billion a year, “a very small tax.”
They want the money spent on subsidising renewable energy in developing countries.
“Alles van die beste” with that one, too.
The meeting will also have as background a report that global energy-related emissions increased by more than 5 per cent in 2010 in the depths of the banking and economic crisis.
Global emissions in 2010 reached 33.5 billion tonnes of which China contributed 8.15 billion tonnes.
And the summiteers will have at hand the International Energy Agency’s new outlook to 2035 – which predicts that India and China will lead growth in energy consumption of a third, a large part of it fossil-fuelled, over the next quarter century.
When the present round of UN talks began in 2006, global primary energy derived from coal amounted to 25 per cent. It is now 30 per cent.
The summiteers will know, too, about a new article in the journal Science saying it is “virtually impossible” for eight to 10 degree Celsius temperature rises, as the dire forecasts have it, to accompany a doubling of carbon emissions, robbing Doomsday predictions of their oomph.
And they will meet against a background of a fresh batch of email leaks in Britain – dubbed ClimateGate 2.0 – that purport to show the thoughts and actions of scientists and bureaucrats in a poor light. Their objectivity went out the window, it would seem, for the sake of the cause.
At a minimum, the 5,000 hacked emails show a lack of willingness among some University of East Anglia scientists to engage constructively with critics.
As a conservative American commentator says, if climate scientists are perceived to be colluding to arrive at a result designed to drive public opinion, the process is in trouble.
The conditions for the eThekwini meeting, in the words of the Ernst & Young expert on the topic, “could not be more challenging.”
The HSBC is just as downbeat. “Ambition levels are low and policy differences remain acute,” its spokesman says.
Greenpeace says the situation is a plot by “a handful of multinational corporations.”
The biggest harbinger of failure is that eThekwini will not feature the global leaders – Obama and the rest – who adorned Copenhagen’s talkfest two years ago.
Heading in to the US presidential election year, there’s no political mileage for Julia Gillard’s good friend in posturing at a carbon summit.
The US Congress will not entertain the idea of legally enforceable limits on carbon emissions.
There is no burning ambition among ordinary Americans to pursue this.
A new Pew Research Centre poll of Americans lists climate 21st out of their 22 “top policy priorities.”
One of the most distinguished media commentators on greenhouse issues, New Scientist magazine’s Fred Pearce, says even optimists don’t think a positive carbon move is possible in the US Congress before 2016.
Without America, say Russia, China, India and Japan, they won’t play either.
Meanwhile Combet won’t be seeking a photo opportunity with the leaders of the “Basic” group delegations – Brazil, South Africa, India and China having declared this month that unilateral measures such as the European Union emissions trading scheme (and by extension our policy) “jeopardise the effort of international co-operation in addressing climate change.”
The real problem for Gillard, Combet and the optimistic bureaucrats in our federal Treasury is that, quoting Fred Pearce, without legal limits on emissions, there is no way to enforce an emissions trading scheme “so the voluntary system could be prone to collapse.”
Where does that leave the “clean energy future” approach after 2015?
The real weather forecast for eThekwini for the opening week of the summit, by the way, is for rain – lots of it.
An omen, perhaps.
I have a suggestion to make to governments across the eastern seaboard and in Western Australia.
Get a staffer to collect a copy of George Maltabarow’s talk to an Australian Energy Market Commission forum in Brisbane last Wednesday (23 November). And read it – then read it again slowly.
The message it contains is important and goes well beyond the summary most politicians may have seen in their newspapers in the past week, ecapsulated by the Fairfax broadsheets as: “Electricity distributors are fighting moves to limit further their spending plans, arguing it may result in rising power disruptions.”
Maltabarow is the chief executive of the New South Wales government-owned distribution business Ausgrid (formerly Energy Australia until that name and its energy retail activity were sold to the private sector).
Ausgrid is the largest distribution network service provider in the country.
It has been on the front line of accusations from the media and from Ross Garnaut, Rod Sims and others about network gold-plating and price gouging over the flow-through of end-user costs from its record current capital outlay program.
It and the other network businesses on the eastern seaboard and out West are engaged in one of the biggest non-export-oriented infrastructure activities in modern Australian history.
Their outlays between 2009 and 2014 are of the order of $35 billion.
The Australian Energy Regulator, which oversees the east coast activities, is in the process of asking the AEMC to approve a series of rule changes in response to the “gold plating” complaints.
The AER argues that the changes to the rules governments agreed in the middle of the past decade shifted the balance too far in favour of regulated businesses.
Even with rule changes, it is impossible to see how the capex to be approved for the next determination period (2014-19) can be cut to a huge extent and the flow-through stemmed of higher network charges, which make up half of the end-user bill.
Maltabarow took the opportunity of the AEMC forum in Brisbane to come back at the barrackers with all guns firing.
Having been the chief executive of the Electricity Supply Association from 1991 to 2003, I have a particular empathy with the key points he made. Through the late 1990s the networks sector struggled to deliver the current Maltabarow message to politicians and their watchdogs.
The present mood, Maltabarow says, in essence is that, if more power is now given to the regulator, network charges will go down and the bill shock problem will be solved.
His retort begins by pointing out that the previous regulatory arrangements enabled the earlier State agencies to make decisions that were focused on providing low consumer prices at the expense of “prudent, gradual and timely investment” – and, as a result, delivered “significant under-investment.”
Ausgrid pointed out in 2008 when the current capex was under consideration that keeping prices artificially low through the 1990s and the first half of the past decade meant its charges had to go up 20 per cent in 2009 to make them cost-reflective.
A “rude shock,” as Maltabarow says.
Even though the regulatory approvals for the current five-year program have not yet run their course, he adds, there is evidence that they are working.
In the case of Ausgrid, this includes a four per cent cut in maintenance costs, a 12 per cent reduction in equipment failure, a halving of blackouts on rural power lines and a reduction in the number of 11 kilovolt feeder lines overloaded in Sydney and the Central Coast from 108 in 2005 to 44 now.
Maltabarow has delivered a stern warning to the NSW government.
Ausgrid, he says, still needs to invest heavily in the replacement of oil-filled and gas-filled cables feeding the Sydney CBD, the country’s most important urban economic hub.
The cables serving this area are 40 to 50 years old.
He says the program to replace them will not be completed until 2024.
“If we are forced to put off decisions to replace the cables that feed Sydney,” he claims, “we are at risk of creating another Auckland.”
Now 1998 is a relatively long time ago, especially for those of a political mindset and most in the media, but few in the electricity supply business have forgotten the Auckland crisis.
Its business district was served then by 40-year-old, oil-filled power cables.
They failed and the CBD lost power for five weeks.
The economic cost was of the order of $NZ6 billion, some businesses went bankrupt and 6,000 residents had to leave their homes.
It was a story that went around the world.
“Today,” says Maltabarow, “the cables that feed Sydney are oil-filled and 40 years old.”
His AEMC talk dissects in some detail the challenge facing the AER in terms of changing the network rules.
It is very much worth reading in full.
But his core message is short and to the point: “The current price shocks are the cruel result of poor past regulatory regimes which resulted in under-investment.
“Under the previous regimes, the pendulum swung too far in one direction – it didn’t allow for gradual, efficient investment.
“It was a false economy, but no doubt politically convenient.”
Maltabarow’s question for the policymakers is equally straightforward: “Are we going back to the previous framework where we allow the regulator to step in to the shoes of management – effectively becoming the asset manager and deferring expenditure once again?
“Will this change favor the long-term interests of customers?”
He argues that, while there are opportunities for fine-tuning the regulatory arrangements, the case for wholesale change has not been made.
In this context, it will be interesting to hear what Somerville redux has to say.
Consultant Darryl Somerville, who chaired a seminal review of network expenditure for the Beattie government in Queensland seven years ago, has been recommissioned to exam the capital infrastructure programs of ENERGEX, Ergon Energy and Powerlink Queensland.
He is due to report again in the near future.
The Queensland network businesses came under heavy fire in the early part of the past decade because of service failures, especially in the State’s south-east.
As Energy Minister Stephen Robertson points out, the original Somerville review advice has led to $12 billion being spent on upgrading and expanding the networks in seven years.
Politicians far too often say some really weird things – and journalists far too often let them get away with it.
A case in point is the response of the New South Wales opposition leader, John Robertson, to the NSW government announcement that it will sell its power generation assets and the Cobbora mine.
“Barry O’Farrell,” Robertson told journalists in search of a soundbite, “is set to slug households more than $550 a year on their electricity bills.”
As another of his ilk once said, please explain?
To get things in perspective, NSW households on average consume about seven megawatt hours of electricity per year.
They are currently forking out about $1,428 a year for this of which about $518 is the cost of wholesale power – generation output bought by retailers in the competitive east coast market.
Robertson is asserting that privatisation will double the wholesale price of electricity in NSW.
When Robertson’s party colleague, Prime Minister Julia Gillard, imposes her carbon price and it reaches about $27 per tonne in mid-decade, coal-fired generation costs will rise by around $26 per MWh – this represents an extra $182 per year for the average householder.
When the existing coal contracts run out for the NSW generators, supposing a conservative $1.5 per gigajoule increase in fuel prices resulting from the exposure of deals to international prices, generation prices could rise about $14 per MWh – or an extra $98 for the average householder.
These are costs that will occur regardless of whether the State’s generators are owned by the taxpayer, private investors or Sinbad the Sailor.
Privatisation will not drive them up nor drive them down.
The two charges together do not add up to $550. Where does Robertson get this number?
Why did no reporter think to ask him?
O’Farrell’s decision not to try to sell the State-owned networks – which is where the real value for the government lies – is driven by a commitment at the March election and a thoroughly ambivalent piece of advice from former judge Brian Tamberlin in his report on the NSW electricity sector at the end of October.
Tamberlin, on the other hand, was quite clear about the generation assets – those left in State hands after the Keneally (and Robertson) government’s gen-trader sale.
“The objectives of a competitive electricity market and reliability of supply are not advanced by maintaining the status quo – that is, continued State ownership of more than half of NSW generation capacity or by continuation of the gen-trader agreements,” he wrote.
“However, to unravel the sales would be costly and not in the interest of the State’s reputation.”
Tamberlin’s advice is that it is consistent with a competitive electricity market for the energy retail businesses and the wholesale generation businesses to be privatised.
He added: “The sale of the generation trading rights was not expected to, and probably did not, achieve the consideration that the sale of the generators would have been expected to receive. It was a second-best option.”
“Legislation be enacted to enable the government to offer for sale or long-term lease the Eraring and Delta West generators (caught up in the gen-trader deal) and the Macquarie Generation and Delta Coastal generators.”
Sell the development sites for new power stations and sell Cobbora mine, too, he said.
Did Robertson put it to the Tamberlin inquiry that such a sale would add $550 a year to householder power bills?
If not, why not?
Would the former judge have ignored such an extra-ordinary rise in user costs?
Of course, he wouldn’t.
The assertion is soundbite silliness of the first order – but did any reporter ask Robertson to explain himself?
Nor did they test the Greens about also asserting that the sale will increase end-user power bills.
Lord no – let’s just put the soundbites to air.
Pathetic would not even begin to describe the “journalism” at work here. Nor Robertson’s mindset when he makes such an assertion.
Transition is a word that gets used a lot in the energy debate these days.
We are regularly informed that the transition from a fossil-fuelled economy to one with zero carbon emissions is inevitable.
Our Prime Minister and her Treasurer and Climate Change Minister want us to understand that their carbon policy has launched us on a transition to a “clean energy future.”
Natural gas has been talked up for at least a decade as Australia’s transition fuel for electricity on the path from coal to zero carbon – but now the upstream petroleum industry is concerned to make the point that gas is not just a bridging fuel, but a long-term solution in itself.
Again we are told that “smart meters” are the transition to an all-singing, all-dancing “smart grid” future of energy efficient consumers operating in distributed generation systems.
The current insult du jour from the environmental movement is “status quoist.” A neologism to note, but what it means is anyone’s guess.
The fact is that human use of energy has been in transition for millennia.
It began with a shift from animal energy to using wind (especially at sea) and water-mills and from burning wood and animal waste for warmth to coal. Then also to oil. And so on. It is a well-known story.
In each transition, of course, the older forms of energy continue to get used as new ones are taken up. Consider the number of Africans and Asians still using animal power to transport goods and themselves in the 21st century.
Millions still roam the African veldt today to collect wood and dried animal dung for fuel. (Cow poo burns well if briefly and smells okay – it is essentially grass, after all.)
For all its propaganda, the federal government is not claiming Australia will abandon fossil fuels over the next 40 years.
Modelling undertaken for the Treasury asserts that conventional coal and gas-fired generation will account for a quarter to a third of production in 2050.
It also asserts that a further quarter to a third of supply will come from coal and gas plants using carbon capture and storage, a process still to become commercial.
The official outlook, therefore, is for 28 per cent to 31.5 per cent of power supply in mid-century to be from conventional black coal and gas supply – and for 25.7 per cent and 32.4 per cent from these fuels with CCS.
To which can be added just over four per cent from hydro-electric production
The Treasury’s consultants see solar (about 3.3 per cent) and biomass (as much as 2.7 per cent) making relatively minor contributions.
They see wind farms providing between 12.5 and 15 per cent.
A bit controversially, they see geothermal energy delivering between 12.7 and 22.9 per cent.
Thus, in these scenarios, new and old renewable energy could contribute between a third and just under half of the demand.
Is this a transition? Of course.
Is it a radical shift to a “clean energy future”?
No (unless you are in the brown coal generation business, which the consultants believe will crash from 20 per cent of supply today to as low as 6.6 per cent in 2030 to zero by mid-century.)
Does this outlook make the Prime Minister and her government “status quoists”?
I’d say a qualified No,given that they officially bar the use of nuclear, but if you are of the Zero Carbon Australia/Greens persuasion, presumably it does.
One of the problems with trying to get the media to discuss all this sensibly is the way reporters read data.
Thus the Bureau of Resources & Energy Economics report this month on generation development persuaded one major newspaper group to assert that Australia’s gradual shift away from coal has begun “with nearly half of new energy investment being in wind, hydro and solar projects.”
What BREE actually reports in its list of $4.84 billion “advanced” generation projects is that 1,435MW of the proposed capacity is fossil-fuelled and 1,233MW is renewable, mainly wind.
Looking at the “less advanced” proposals – more than a few of which may never happen – BREE reports 53 fossil-fuelled plants (42 of them gas-fired) and 114 renewables developments of which 92 are wind farms and 57 of them are located in Victoria and New South Wales, where planning for the sector is becoming harder.
Translated in to ability to actually produce electricity, of course,it is not the number of projects that is important but their capacity.
Thus, out of the 38 new projects added to BREE’s list in the year to October, the largest is a proposal by Origin Energy to build a 1,000MW baseload gas plant at Kerrawary, 60km from Goulburn. It would supply about the same amount of electricity as the 3,543MW of new wind farms on the list for NSW.
A really major change in the “status quo,” of course would be a decision in, say, 2020 to allow the use of nuclear reactors, leading to, say, 10,000MW being in operation by about 2030 and perhaps a third of supply coming from reactors by mid-century.
But this isn’t what the Greens and their fellow travellers consider a transition.
Does that also make them “status quoists”?
Something important to us in American policy happened in the past week, but I’ll bet you have no idea what it is!
Read this and you will find out.
At the outset it is worth noting that of the millions of words written and spoken about Barack Obama’s brief visit to Australia, the bulk of them by local journalists eager to sound portentous while playing up just how luvvy-duvvy he is with “Our Julia,” the most wicked were just 13 from a Chinese writer: “They are two losers holding on to each other and making a show.”
Scanning the US media, one gets the impression that the most Americans will have gained from the fleeting visit, if they could spare the time to look up from their train-wreck economy, may have been that the Australians bought Obama $50,000 worth of crocodile insurance.
It got hundreds of reports and enabled TV broadcasts to include some snappy pix of the crocs down here.
Politically, Obama, presiding over $US15 trillion in debt, much of it held by the Chinese, wanted his home audience to hear just one thing: he had told off the Chinese over their behaviour impacting on American business and jobs.
It was the theme running through his public remarks from the earlier summit in Honolulu onwards: China is deliberately keeping its currency undervalued to boost exports and it is allowing the pillaging of the intellectual property of US high-tech firms.
It has also made it hard for foreign companies, for example wind power manufacturers, to pursue a Chinese market through restrictions on foreign-made goods.
The key message for Obama’s constituency from his nine-day trip to the Asia Pacific is that the region offers jobs back home for Americans – and the sharpening of his tone towards China is as much as anything positioning to deal with his most likely Republican opponent in the 2012 presidential election, Mitt Romney, who keeps accusing him of only being “willing to whisper” to Beijing about US trade concerns.
Other than talk, however, and rattling the odd sabre, there is very little Obama can do about hastening reform in China.
Politically for Australians, although you would barely know it from the media coverage, and especially the TV coverage, the really notable aspect of Obama’s comments while in Australia related to carbon policy.
Notable by their virtual absence, that is.
He never mentioned the issue in his set-piece speech in Federal Parliament.
At a media conference with Gillard, he lauded her “bold move” locally and talked up the US investment under his government in energy efficiency, research and improved fuel standards for cars – which are actually programs started by Bill Clinton and moved on by “Dubya” Bush which he has continued to support.
Well away from the limelight, his main man at the UN climate policy summit about to start in Durban, Todd Stern, was being far more forthright.
Stern said it is impossible for Obama to go to the US Congress and declare America must pledge to firm emissions reductions and other abatement measures if China and other emerging economies will not do so.
Stern told journalists at a briefing in Arlington, Virginia, as Obama was jetting out of Australia that the Durban communique may be “completely silent” about how to combat global warming after 2020.
The fall-back position for climate policy action is to get the Kyoto treaty, which expires next year, to be extended to 2020.
The European Union is trying to get envoys at Durban to agree on a “road map” leading to a new treaty with mandatory cuts in 2015.
Japan, Russia and Canada are resisting extending Kyoto targets in to a second period.
If the Durban meeting “does a Copenhagen,” it will be anything but good news for Gillard.
Now, about that surprise………….
One of the curiosities of Obama’s big speech here is that he did not bother to mention that the US State Department, under Hillary Clinton, opened a new Bureau of Energy Resources as he jetted in to Australia.
One of the bureau’s top goals is the promotion of greater gas-fired generation around the world, an issue, of course, of only marginal interest to us Australians!
One of the points made by the bureau’s first head, former ambassador Carlos Pascual, it that it will work closely with Todd Stern, who is also in the State Department, to “provide a reality check on climate change negotiations, on how they translate in to energy sources and their market viabilities.”
The Australian Foreign Affairs Department – via the embassy in Washington – and the Prime Minister’s Department, if they were really on the ball, would have briefed Gillard to jump in and congratulate Obama on the initiative and to work in a few choice comments about our own activities to export gas and contribute to reducing power generation emissions growth.
Our own dear ABC, you might think, could have picked the story up and run with it – it didn’t even have to rely on its reporters in America because Reuters and United Press International wrote about it on 16 November.
They picked up the story in Azerbaijan, but not here.
An opportunity missed all round.
How statistical reports are read depends to a great extent, if not entirely, on the readers’ perceptions.
The appearance of the new report of the Bureau of Resources & Energy Economics on electricity generation projects has been so greeted.
The media-attracting point is that just two projects, both wind farms, were commissioned in the 12 months to October this year at a cost of $488 million.
Cue headlines about “falling energy investment” – although one report rather bizarrely begins “BREE has revealed that energy producers have already begun moving towards renewable energy sources.” Say again?
Politically, the “falling” line has enabled the federal government and the Coalition to engage in another small joust, altogether overshadowed by the Obama visit.
Resources & Energy Minister Martin Ferguson claims the opposition’s threat to repeal the carbon price legislation is causing investor uncertainty and his rival, Ian Macfarlane, argues that introduction of the measure is the problem.
For me, the most interesting piece of data is the calculation of annual electricity consumption – BREE having taken over the energy review task from the Bureau of Agricultural & Resource Economics & Sciences.
According to BREE, the figure for power demand (this is all consumption) in 2009-10 is 242,000 gigawatt hours. The ABARES number for 2008-09 was 260,965 GWh.
On the surface, this is a seven per cent fall in one year, an unprecedented number for modern Australian electricity supply.
What the heck’s going on? Well, mostly it seems a different approach to calculating demand coinciding with the switch-over between bureaucracies — aided and abetted by the impact of the GFC.
As BREE explains in another paper, energy consumption is now being calculated using data sourced from the national greenhouse and energy reporting information supplemented by a whole raft of other sources. It gives a somewhat different result.
What I found interesting when I went digging in to the spreadsheets provided by BREE is that the fall in demand is still there – it’s just been shifted a year by the new approach.
The spreadsheets show that electricity demand peaked in 2007-08 at 257,998GWh, slid markedly down to 244,414 GWh in 2008-09 and dipped a little further to 241,586 GWh in 2009-10.
That’s a 6.3 per cent fall spread over three years – thank you, global financial crisis, with a little help more recently from what BREE describes as “unseasonable weather patterns, which may have temporarily reduced demand.”
Stopping to think about all the goings on, you could come to the conclusion that the recent drought in generation investment can be attributed to (1) yes, the political uncertainty of the past two years allied with increasing power prices, (2) the fact that negotiating fuel contracts for new gas plants and getting the lenders to part with money for any form of generation has not been easy in the past 18 months, (3) reaction to the weaker demand signals coming out of the market and (4) the stuff-up in the renewable energy target market because of the flood of certificates created by the subsidy schemes for solar power.
Reading the BREE report in detail, you find that there is a considerable amount of generation development waiting in the wings. When it gets on stage depends on all the above factors.
Projects that BREE describes as “advanced” number 19, with a total capacity of 2,668MW and a projected capital cost of $4.8 billion.
A few are moving towards completion.
Origin Energy’s Mortlake power station in western Victoria is one.
Verve’s $263 million refurbishment of its Kwinana gas is another.
The Collgar wind farm in WA (206MW at a cost of $750 million) is almost ready to generate.
The Macarthur wind farm AGL Energy and Meridian Energy are building in Victoria (420MW capacity and a $1 billion bill) is expected to be commissioned in 2013 as is stage two of TrustPower’s Snowtown wind farm (250MW and $550 million).
AL’s chief executive, Michael Fraser, has made the point that it could be 2014-15 before the REC surplus washes out of the market, opening the way for more wind farms to go ahead.
Looking out beyond the near future, BREE’s report throws up some interesting information.
In the category where projects are still undergoing feasibility studies or where developers are still thinking about a feasibility study or where decisions have not been made yet after a study, the bureau finds that most of the investment is focused on wind and gas.
Here there are 42 gas projects with a capacity of 19,330MW, including the pair of TRUenergy developments recently announced for Queensland – to which can be added substantial ERM Power and Origin Energy plants for the same region.
There are also 92 wind farms with a total capacity of 17,698MW.
There are no surprises in where the investors want to build either.
They go where the demand is and where the resources are.
So 17 of the proposed gas plants and 28 wind farms are intended for New South Wales.
Thirteen gas plants are proposed for Queensland but just seven wind farms.
Six gas plants and 29 wind farms are proposed for Victoria – and one gas plant and 19 wind farms for South Australia.
The isolated WA system has five gas plants (and three black coal developments) in train along with six wind farms.
It all adds up to 167 development projects across Australia in this “less-advanced” category but how many will actually get commissioned and in what time frame is anyone’s guess.
Perhaps the biggest question mark hangs over the NSW Bayswater B development site, still in the hands of State-owned Macquarie Generation.
There is 2,000MW of capacity (or more) that could be coal-fired or gas-fired proposed for this site. What actually happens rests on so many factors, including whether or not MacGen will be sold by the O’Farrell government.
With local demand still in a small slump, the international economic scene in a funk, borrowing not easy, question marks over gas availability and price, the ongoing hassles over regulatory approvals, the continuing dogfight at the federal level over carbon policy, a big election coming up in Queensland and big decisions needed in NSW, the outlook is for power developments to remain sparse for some time – but at least we know that the wings are well populated with plans and planners.
The bluntest response to the Greens new push for Australia to go 100 per cent renewable in electricity supply comes from Richard Jones, the deputy CEO of the International Energy Agency.
It wasn’t said here or about Australia, but it applies all the same.
Reacting to a Greenpeace accusation that the International Energy Agency is “intellectually and morally inconsistent” in supporting elements of fossil fuel development while scolding world leaders for inadequate action on greenhouse gas abatement, Jones said detractors “must be smoking dope” if they thought a massive investment in renewables would solve the sustainable supply issue.
The world, added Jones, an American talking to Canadians, needs energy from all sources.
Our own Energy Minister, Martin Ferguson, who happens to be the current chairman of the IEA ministerial council, was a little more polite in reacting to the Australian Greens’ claim that we could shift to a zero carbon electricity system with a decade.
“They are living in fantasy land,” he said.
The Greens leadership has sought to retreat a little from the outburst from its environmental spokeswomen, Senator Larissa Waters, in the euphoric wake of the “clean energy future” legislation being passed.
Since then the Greens have been backgrounding journalists that it is not party policy to pursue the 100 per cent renewables goal by 2020. Waters was just “stating what is possible.”
(In passing, Bob Brown wins the 2011 crown for political hyperbole hands down. No matter that we have six weeks to go – no-one will beat this effort. “Australia has legislated to hold back the great Nemesis of climate change for the whole future of humanity and indeed of our millions of fellow species on this planet.” That’s in a class all of its own — on a different planet, one might think.)
Obviously the party that has helped to land us with the world’s most expensive carbon price regime at one of the most dire global economic moments in the past half-century in order to achieve a marginal level of domestic abatement and bear a near trillion dollar deadweight loss importing permits over the next four decades hasn’t learnt very much from months of being engaged in talks with the Gillard government.
Waters is a Queensland senator and her State alone, if resource development and population inflow continue to belt along at the current pace, will see a more than 75 per cent rise in its power needs by 2030.
By then it could be consuming about 90,000 GWh a year – versus 52,000 GWh now – and possibly have passed New South Wales as the largest electricity demand State.
The two States – with the ACT embedded within NSW – could be consuming about 170,000 GWh annually by then (out of perhaps 335,000 GWh being used nationally) and will be hugely reliant on continuing coal-fired generation and a large increase in gas-fired power to meet demand.
There is a lot of debate behind the scenes about just what level of power demand Australia will have in 2030.
When ABARE undertook its routine modelling in November 2009, looking at business as usual, it forecast consumption nationally would be 406,000 GWh.
By the time ABARE and Geoscience Australia delivered the national energy resource assessment – published by Ferguson in March 2010 – the outlook had been cut back to 366,000 GWh, allowing for the impact of Rudd’s CPRS scheme and the enlarged renewable energy target.
Julia Gillard’s “clean energy future” policy is running on Treasury claims that 2030 demand will be between 281,000 GWh and 293,000 GWh.
This is the equivalent of losing Victoria from the supply mix and I have been a constant critic of this outlook – not least because Wayne Swan will not release the Treasury modelling details.
Treasury believes that growth in electricity demand will be substantially lowered because of more efficient consumption choices and production processes in the wake of the carbon regime, but I think the department has over-egged its pudding in no small way.
Alternatively, of course, Treasury has factored in the exodus of a substantial part of energy-intensive industry (which uses a third of electricity supply) and Swan doesn’t want to ‘fess up to this.
Whatever the demand number is, the best guess that Treasury consultants can offer is that fossil fuels will be delivering between 65 and 80 per cent of the electricity required in 2030 – and the lower contribution requires wind farms to deliver 16.6 per cent, geothermal 8.4 per cent, biomass 3.5 per cent and solar less than one per cent. The balance is provided by long-serving hydro at just over six per cent.
Even getting to this stage, with renewables delivering a third of our power requirement, will necessitate green generation investment of tens of billions of dollars and a rather large investment in transmission.
Some elements of the environment movement claim zero carbon supply could be achieved for $370 billion but this has been challenged strongly and others argue the cost estimates are wrong by a factor of two to four.
Regardless of the actual number, the view that this goal can be delivered at any time in the next 30-40 years at a cost Australians could afford is up there with Bob Brown “holding back the great Nemesis” outburst – or attributable to the Richard Jones perspective.
Jones says there is no realistic way renewable energy sources can expand so dramatically in the next quarter century.
Speaking at a conference in Singapore recently, Professor Ferdinand E. Banks, a highly regarded author of books on energy and economics who has often been a visiting professor at Australian universities, commented: “The most important project in energy economics at the present time is understanding that optimal national energy structures of the future will be a mix of all sorts of items – including nuclear, fossil fuels and renewables.”
This is certainly true here but getting public discussion on this track has still got a long way to go.
The November issue of the monthly Coolibah Commentary newsletter is now published on the website (look under “News”).
Among 20 items it covers are a new paper on geothermal, with a warning that investors are concerned about its high cost and the level of development risk involved, and three looking at issues affecting New South Wales, including the O’Farrell government’s first perspective on the outlook for State energy supply and the large problems posed by the Cobbora mine development.
The newsletter also includes a report on a paper that estimates investment in electricity assets reached almost $260 billion between 1955 and 2006 when calculated in 2011 dollar values.
It also highlights the “core question” for electricity network development as identified by the Australian Energy Market Commission.
I don’t know how many east coast politicians watch Alan Kohler’s “Inside Business” program on ABC-TV on a Sunday morning, but they wouldn’t have been wasting their time viewing yesterday’s edition (13 November) and they would be well advised to go on to the ABC’s website to read the transcript of an interview with AGL Energy managing director Michael Fraser.
The critical statement is Fraser’s “absolute” conviction that east coast gas prices are heading for $6 to $8 per gigajoule compared with the long-term trend of $4.
In an environment where the use of a lot more gas to fuel east coast power stations is a racing certainty, this is a serious thought.
Bear in mind that the likely outcome over the next decade is that there will be more gas plants developed in both South Australia and Victoria to replace brown coal generators closed under the Gillard government’s carbon regime, that gas is the only realistic option for mainstream new capacity in New South Wales and that Queensland has some 5,000MW of gas-fired generation being planned.
Fraser made two other points that require NSW politicians in particular to pay attention.
First, “all of the debate around coal seam gas at the moment is simply going to put further upward pressure on prices.”
And “there is a real question about where NSW is going to get its gas.”
This latter point isn’t new.
It was first raised publicly in a green paper Bob Carr’s government published in 2005, but neither he nor his successors ever went on with a white paper and the question has been left hanging.
The supposition for the past several years has been that the answer is coal seam gas from the State’s north, but the current furore over CSG exploration and development in NSW and Queensland raises big questions about when this gas could be available.
In the context of Fraser’s Sunday comments, it isn’t really the source of the gas that’s the big issue – because, for example, there is still a lot of natural gas in the Gippsland Basin offshore Victoria, and the Cooper Basin shale gas reserves are potentially large – but the cost of the fuel when it reaches power stations.
This was one of the points Edwin O’Young of Port Jackson Partners emphasised when he spoke at the “Powering Australia” conference at the end of September. I wrote about it here at the time.
O’Young sees domestic gas prices rising by “up to $4/GJ or maybe more” between 2011 and 2017.
A $4 rise in gas prices will add $28 to the wholesale price of electricity generated by the fuel – to which you can add around $14 per MWh for the Gillard government’s carbon price. (Compared with the tax’s burden on coal-fired production of $26.)
For NSW end-users, the problem is exacerbated by what may happen to coal prices when the State generators’ contracts expire in 2017 – and whether or not the badly-conceived Cobbora mine gets to be commissioned.
In addition, end-users across the country will also bear the rising burden of renewable energy subsidies.
The flow-on costs from the large-scale end of the RET could go up by about 12 per cent in mid-decade – and it is anyone’s else what the small-scale part of the scheme will cost if the federal government doesn’t wind it up.
In his interview with Kohler, Michael Fraser says he expects to see the price of RET certificates “rising quite significantly” by around 2014-15 when those created by the over-subsidisation of rooftop solar power are washed out of the market.
Fraser semi-dodged Kohler’s question on where consumers’ electricity prices could go, settling for “the one thing we can say for certain is that they will continue to rise throughout the decade.”
Which point, known to be right by anyone who actually understands the power business, makes a complete nonsense, of course, of the propaganda against NSW generation privatisation now being run by the unions and others on the grounds that the O’Farrell government can’t guarantee the sale will keep prices down.
Given the factors in play, and that wholesale energy is a fully competitive market, the only thing that could keep end-user prices down is government intervention through regulation – a populist move with potentially dangerous consequences.
Fraser, by the way, indicated that he expects the generation businesses to be sold and that AGL will be a bidder.
The core message from the Kohler interview, however, and an especially potent one for politicians federal and State, is that, allowing for their anti-nuclear stance, the only viable alternatives to the present generation mix are renewables at much higher cost or gas at a sharply rising cost.
To which you can add rising network charges no matter what fiddling is imposed on the regulatory arrangements in the next 12 months.
If, as O’Young has predicted and Fraser’s gas price forecast indicates, we can expect east coast end-user prices in 2017 to be approaching double what they are today, it is “tears before bedtime” for the politicians for sure.
Electricity suppliers, and the private sector in particular, should be asking themselves what this outlook means for them in terms of issues management given the political penchant for panic.
Let’s face it, 2017 is hardly any further away from us today than 2007 – and how many things would business do differently in terms of issues management, if it had its time again, to deal with what has come down the pike since 2007?
Some of the participants in the media can be dumber than Winnie the Pooh when it comes to looking at energy data.
At least the bear knows honey when it smells it.
Exhibit A in my case today is a new Reuters story doing the rounds about the outlook for electricity supply, taken from a draft copy the agency has acquired of the International Energy Agency’s “World Energy Outlook” annual survey – which is to be officially released on Wednesday.
“Exclusive,” shouts the agency. “Nuclear to fall as power demand rises.”
No matter the old saying, perception is not always, or even often, reality.
On the data provided by Reuters, the real story in the IEA report is that there is going to be a substantial increase in the use of coal to make electricity around the world over the next 25 years despite all the hype and hoopla about carbon abatement.
Stop and say that slowly: over the quarter century ahead, notwithstanding all the carbon fuss, the world is going to burn more coal to make electricity – if that isn’t news, it’s time for me to call it quits.
The numbers (says Reuters) go like this:
The IEA expects electricity demand to rise from 17,200 terawatt hours in 2009 to 31,500 TWh in 2035.
It also expects coal-fired generation to fall by eight per cent down to 33 per cent.
What does this mean?
It indicates that coal-fired output will rise from 7,050 TWh now to almost 10,400 TWh in 2035.
This is a 47 per cent increase in coal burning – and it is going to happen when everyone from the UN to our own dear Prime Minister is carrying on about a “clean energy future.”
As well, according to Reuters, the IEA predicts that non-hydro renewable generation will capture 16 per cent of the 2035 market compared with three per cent today.
Yes, a huge increase – but what it means is that wind, solar, geothermal and so forth will be providing 5,500 TWh in 2035 compared with twice this volume from the much demonised coal industry.
The IEA got lots of publicity early last month when one of its senior analysts predicted that solar power would become a dominant feature of electricity generation “from 2060” – but that’s way out beyond the timeline for a sea change in the fuels we use in order to avert the threatened rise in global temperatures.
The 450ppm “carbon budget” that gets talked about at UN summits – like the next one in Durban later this month – does not envisage coal-fired generation rising to the levels now being modelled by the IEA.
The need for Australia to do its share in keeping to this “carbon budget” was pressed on legislators and the community earlier this year, but the real thing is going to be a very different set of numbers on the basis of this IEA data.
There’s another aspect to the Reuters report that ought to make the coal miners smile, if only in private, and that is the IEA modelling oil prices rising to $US115 a barrel in 2015 and $US212 in 2035.
Now the modellers have no more idea what oil prices will be 25 years from now than you or I. That’s been proven many times in the past 25-40 years. But an oil price trending in this direction can be expected to feed in to sustained high prices for coal, too.
Quite an outlook and, from where I am sitting, rather more important than the “nuclear to fall” headline with which Reuters chose to run. But then, post-Fukushima, forecasts of the decline of nuclear are all the go with the media.
What does the IEA draft show in this respect? It does model nuclear’s contribution falling from 13 per cent today to seven per cent in 2035. That’s a drop from 2,250 TWh to 2,205 TWh.
That’s right 55 TWh – this is the equivalent of Queensland’s current consumption. Some slump.
However (and there is always a “however”), and Reuters does report this, there is another IEA scenario.
This is one in which the capacity of reactors in the world generation mix does not fall back to 339,000 megawatts in 2035 – it is around 393,000 MW at present – but rises to 638,000 MW.
So many things can and will happen over a quarter century that all of these models are just guesswork, albeit, in the case of the IEA, well-informed by input from the current governments.
(Having written this, I pause and think about what the Gillard government, using Treasury models, may be saying to the IEA………..)
This is why stories headlining “nuclear to fall” or “coal to rise steadily,” which would have been the more accurate one in this case, are really just straws in the wind.
Interesting, but not a reason to reach for the cut-throat razor or the champagne.
I reckon even Winnie the Pooh could work this out although it neither shaves nor boozes – so far as I know.