Archive for December, 2011
The anxiety the nation’s politicians feel about the cost of electricity for residential consumers (aka voters) has been well illustrated this month by delivery of a report commissioned by the nation’s nine energy ministers.
The ministers, who now meet, under Martin Ferguson’s chairmanship, as the CoAG Standing Council on Energy & Resources, have had the Australian Energy Market Commission look at possible power bill movements from last financial year (2010-11) to 2013-14, a politically fraught period, with two by-elections likely in South Australia in February, the Queensland election (where Anna Bligh is facing a heavy defeat) soon afterwards and elections scheduled in the ACT (October next year), Western Australia (February 2013) and in Victoria (late 2014) as well, of course, as the federal poll (most probably in 2012-13 financial year).
One sentence serves to deliver the AEMC message: “The report estimates a rise in residential prices of around 37 per cent nationally (from where they are now), including the impact of a carbon price.”
Without the carbon tax, the rise would still be 29 per cent.
Buried in the AEMC paper is the news that the combined impact of greenhouse gas abatement measures (the carbon price, the renewable energy target, solar schemes and other State-based measures) will contribute 14 per cent of the increase.
Looking at the report, energy retailers also should be prepared to gird their loins for criticism.
AEMC says the retail component will comprise 13 per cent of the total increase, not least because the firms will need to meet higher customer acquisition and retention costs amid bigger levels of churn.
The major influence on end-user bills, of course, will be network charges, forecast to contribute half the overall rise.
AEMC says it expects distribution charges to be responsible for 42 per cent of the total increase, pointing to the need to meet growing levels of peak demand and to replace aged assets as the key drivers.
The foreshadowed price rises vary from jurisdiction to jurisdiction, ranging from 20 per cent (Tasmania) to 33 per cent.
Where the blows fall hardest will continue to be in New South Wales and Queensland, which between them account for 4.5 million households, half the national total.
The predicted rises from now are 33 per cent in NSW and 32.3 per cent in Queensland, with the next big spurt of bad news coming in July 2012 when the former State’s new round of tariffs is due to kick in.
The draft proposals for new tariffs will be published by the NSW Independent Pricing & Regulatory Tribunal in April.
The bulk of the higher cost impacts, in fact, will be felt by the commercial, manufacturing and mining sectors, who make up more than two-thirds of electricity purchases versus under 29 per cent for householders.
Business chambers and energy-intensive users will make plenty of noise – and there is evidence from the past 12-18 months that they are being heard by policymakers and regulators – but it is the reaction from households (via the media) that creates the squeakiest wheel and attracts most political attention, all too often unfortunately in the form of really bad decisions.
The number of people suffering fuel poverty – ie those who actually can’t pay these and other utility bills on time, one in eight households according to an Australian Bureau of Statistics census – is undoubtedly rising but snarling against politicians (and suppliers) extends to many who are better off and just resent the power bill (especially when it arrives in a big quarterly lump).
As the ABS data show, fuel and power costs do not figure that highly in average national household expenditure each week, running now at $33, compared with $24 seven years ago, out of total goods and services expenditure of $1,236.
Households on average spend $45 a week on booze and fags and $161 a week on “recreation” – items on which outlays have risen $46 a week since 2003-04.
The average household is now also an investor in air-conditioning, which has the biggest single impact on network outlays and consequent charges.
There is a very big difference, however, in how the burden of energy costs affects the poor and the not-so-poor.
The ABS data show that domestic fuel and power make up between 3.4 and four per cent of the outlays on goods and services for the lowest income segments compared with two to 2.5 per cent for the highest.
In the “middle class” segments, the outlays on fuel and power are averaging $31 to $37 per week versus $46 to $55 for booze and fags and $147 to $203 for “recreation.”
(An interesting further stat is that the poorest two segments either don’t pay income tax or average $30 a week, while the middle two – of five – pay $141 to $311.)
Politically, all of this information and a couple of bucks will buy you a can of Coke.
Angry voters equal problem is the politicians’ equation.
And the AEMC report in that respect is a red flag for the elected representatives.
Watch Queensland between now and election day to see it all at work in a State where, according to the AEMC, average power bills that were $1,600 in 2010-11 and are around $1,750 at present are tracking towards $2,350 in 2013-14.
This represents a 42 per cent increase over the whole review period of four years.
Queensland is a good example of the rollercoaster ride politicians pursue trying to keep down power bills.
In the 1990s and into the early part of the past decade outlays on networks (government-owned) were held down until the inevitable happened and consumers reacted badly to increasing outages.
As a result of the Somerville review in 2004, the networks have spent $12 billion in seven years and reliability is greatly improved.
Now the pressure is on to ease the pain of paying for the service.
A new Somerville inquiry has identified a possible $1.5 billion in savings – ie deferred expenditure – and the State’s Competition Authority is now at work calculating how to factor this in to the mid-year tariff adjustments.
The political problem, of course, is that the outcome will not – cannot – be lower prices, just less sharp increases.
Someone said to me the other day that what is happening to demand on the east coast is the most interesting issue in energy supply.
To which I answered that what’s more interesting is why it is happening and whether it is a trend or a blip?
I came in to the electricity industry in the early 1990s (as manager of what was then the Electricity Supply Association of Australia) at a time when there was some softening of demand and a similar debate was under way.
Checking the ESAA yearbooks, I find that financial 1990-91 and 1992-93 were years where the effect was marked – New South Wales, Victoria and South Australia (then the interconnected bits) recorded rises of under one per cent.
Victoria in particular had six years (1991 to 1996) where demand grew by less than one per cent in four of them and was negative in one.
The then islanded Queensland ticked along at about five per cent growth, but this was sufficiently below expectations for the Stanwell power station’s construction to be delayed.
The current picture presents a fall in the rate of east coast demand increase since 2006-07 and an actual decrease in the past two financial years, although the most recent impact in Queensland is attributable to rotten weather and floods.
Victoria again is the leader of the pack, with four financial years (2006-07 to 2009-10, the latest ESAA yearbook data set) of flattened growth.
However, market watchers Global-Roam say that calendar 2010-11 demand on the east coast was just over 203,400 gigawatt hours.
ESAA reported 186,987 GWh for 2008-09 but only 185,793 GWh for 2009-10.
(Back in 2005-06, the ESAA tally was 179,991 GWh. A steady three per cent annual growth in demand from this point across the east coast over four years would have delivered pretty well what Global-Roam reports for 2010-11.)
To what extent does this situation reflect the local impacts of the global financial crisis?.
Do the numbers suggest the dip is a blip?
(And how long will the GFC continue to plague us?)
To what extent are we seeing the impact of the much-debated “two-speed economy” – where national economic growth is located in Western Australia and Queensland (including some areas not connected to the east coast grid)?
Note that commercial consumption plus metals processing plus aluminium operations plus general manufacturing account for 61 per cent of demand nationally, the bulk of it based on the east coast.
NSW, for example, has a third of energy-intensive industry in the country.
(Most of the rest of national demand is made up of residential use, accounting for 27.7 per cent, and mining, 9.4 per cent.)
With large end-user prices rises in the past four years, the question of residential (and smaller business) consumer response to bigger bills obviously has to be raised and this is going to be an ongoing issue, although I jib at attempts to say the carbon tax will exacerbate any response from householders when the Gillard government is seeking to shield as many of them as it can from the burden.
Is the take-up of rooftop solar power a factor?
Surely not to any great extent when it represents a small fraction of household supply and this segment is a bit over a quarter of total demand.
It is interesting to read Deloitte’s 2012 edition of its international “Energy & Resources Prediction.”
This includes a look at how the energy marketplace is changing due to the recession, something the consultants are studying in detail in the US.
This is work in progress and the 2012 report is no more than a dipstick look at some market research, but the question Deloitte poses resonates here: “In which direction is energy headed? What are consumers and businesses thinking and doing about energy efficiency and choice?”
(If you go to Martin Ferguson’s ministerial website, you can read his 15 December speech, another commentary on the recently-released draft energy white paper, that takes up this theme with special reference to peak demand – which still continues to rise.
(Ferguson says of the split between the rate of change in peak demand and average demand “over the coming years the upward trend (of peak needs) is set to continue.”
(This, of course, feeds strongly in to higher network charges and higher end-user prices and what does that do to average demand?
(Could we be encountering a householder mindset that pursues greater electricity use efficiency while still relying strongly on air-conditioning at times of extreme weather?
(Ferguson points out that 25 per cent of retail electricity costs are derived from peak events that occur over a period of less than 40 hours a year.)
Global-Roam make the good point that the key to evaluating the situation is to understand whether it is a transient occurrence or a more fundamental change – and, if the latter, is there not a greater level of uncertainty about what might unfold in the future?
Are there cost implications for this uncertainty, it asks?
Federal Treasury clearly believes there is a new dynamic at work and has based the Gillard’s government’s “clean energy future” forecasts of power demand out to 2030 and 2050 on this perspective.
The Australian Energy Regulator, which has provided an important insight in to its revised thinking about network outlays in its draft determination for Powerlink Queensland, slashing its capex bid by 13 per cent and opex proposals by eight per cent, appears to be buying the demand decline view.
The AER asserts that both electricity consumption and peak demand growth are falling in the east coast market, citing lobbying input from consumer groups attributing this to “consumers moderating their electricity usage due to higher prices and to improved insulation and other energy efficiency measures.”
The AER hops in to Powerlink for a “recent history of consistently over-forecasting demand,” a shot across the bows for other network operators bringing forward bids for determination in the 2014-19 regulatory cycle.
Of course, even if the regulator pursues a similar approach across the board, it is likely that the next round of capex will still be well north of $20 billion – the present round permits $35 billion – and, all told, we will see some $70 billion outlayed across the decade on capital works by the delivery utilities.
This must feed in to ongoing higher prices and, with other factors taken in to account, in to much higher bills in the second half of the decade than in the first – and what will this do to demand growth?
Consumption on the east coast in 1990-91 in that previous demand blip period was was just under 117,000 GWh.
Between then and now demand has risen 73 per cent.
Replicated over the next two decades, this level of growth would deliver east coast consumption of around 350,000 GWh a year, far beyond what the Treasury and others are anticipating.
The Treasury (and apparently AER) view is that the 2030 demand level will be reduced by the equivalent of the current NSW and SA use of power combined.
With draft energy white paper looking out to at least 2030 and investment decisions being made this decade that will impact on consumers and the economy at that point, this is not a minor issue.
Finally, some numbers from the Deloitte survey of US consumers are interesting: 87 per cent say they are looking at every spending category to see where they can save, 68 per cent have taken steps to reduce their electricity bill, 95 per cent say, even when the recession ends, they aim not to increase their power usage – and only 55 per cent are concerned about their personal carbon footprint.
Would that differ greatly here, do you think?
New South Wales is the most significant part of the east coast electricity supply system.
It has the largest number of residential customers (with the ACT included) at just over three million out of eight million across the region and the biggest number of business customers (371,500 out of just over a million).
The customer base includes the regional head offices of many Asia Pacific businesses in Sydney and a third of Australia’s energy-intensive manufacturing operations.
However, NSW is being outstripped by both Victoria and Queensland in residential customer growth – going up almost 139,000 accounts in five years compared with 210,700 in Victoria and 168,400 in Queensland.
Victoria is the frontrunner for adding business accounts (with 42,000 extra in five years) followed by NSW (28,000) and Queensland (up 5,000).
NSW has by far the largest electricity consumption – just over 71,000 gigawatt hours a year out of 185,600 GWh for the region (ie 39 per cent).
The total amount of electricity sent out by generators is much higher (77,720 GWh) than elsewhere and the State’s summer peak load (14,700MW) dwarfs those of Victoria and Queensland (each just over 10,000MW).
Looking down this decade, NSW can be expected to maintain its premier position while Queensland steadily catches up – the latter’s growth in system energy needs (averaging almost 2,500 GWh a year) is forecast to be double that of NSW.
The Energy Supply Association yearbook predicts the State’s system energy will be almost 91,000 GWh in 2019-20 (versus 75,600 GWh in Queensland and 52,500 GWh in Victoria) and its summer peak load will almost reach 18,000MW (versus a forecast 14,500MW in Queensland and 12,000MW in Victoria).
The State also has 38 per cent of both the east coast’s overhead lines and undergrounded cables (measured is circuit kilometres) and 33.5 per cent of the region’s transformers.
It has the largest high voltage transmission system in the country and the biggest distribution business.
Its capital outlays on networks for the current (2009-14) regulatory cycle are the biggest by several billion dollars.
NSW is home to the nation’s largest power station complex – the adjacent Bayswater and Liddell operations near Muswellbrook – with a capacity of 4,700MW and of the largest total installed capacity (16,335MW including the Snowy Hydro scheme).
The Bayswater/Liddell complex alone provides 14 per cent of all electricity generated on the east coast – and Liddell’s end-of-useful life deadline, without substantial engineering upgrades, is 2022.
State generators burn as much as 30 million tonnes of black coal a year(although this has fallen towards 27 million tonnes as electricity demand nationally has slumped since the GFC bit).
By comparison Queensland burns 22.5 million tonnes of black coal and Victoria 66.7 million tonnes of brown coal (to produce a lot less electricity).
NSW is also at present target for almost 14,000MW of development proposals for coal, gas, wind and other power plants, the largest collection in the country.
According to the Bureau of Resources & Energy Economics, it has 19 gas projects, 31 wind developments and seven solar projects in various stages of planning at present, more than a third of what is under consideration on the east coast.
In other words, no matter how you look at the State, it is the premier area for power supply.
Whether it will continue to be so in 2030-35 is open to question.
Sluggish long-term economic development could see the NSW tortoise overtaken by the resource boom-driven hare in the form of Queensland.
What is beyond debate is that the two north-of-the-Murray States (and the ACT) will be by far the largest power sector region in Australia in two decades and the area where the carbon policies will have most impact.
I have also had it put to me that, given the imperatives of cutting carbon emissions, NSW could see a large-scale investment in nuclear energy (a suggested 10,000MW) installed by the early 2030s.
The nuclear proponents suggest that an additional 15,000MW of reactors could be installed in Queensland between 2030 and 2050.
Inherent in this perspective is the view that none of geothermal energy, carbon capture and storage for coal- and gas-burning plants or large-scale solar power will be strong commercial prospects by 2030 when existing, large coal-burning power stations will be nearing the end of their normal working lives.
In the case of NSW, the argument goes, where exactly would the large volumes of carbon dioxide be sequestrated, assuming the CCS is viable?
Who holds political power in NSW and federally will play an important part in deciding the relevant policy issues.
The Coalition seems certain to retain NSW power until 2019 and further success in that election could see it holding office until at least 2023.
In that time we could see four or more federal elections and one can go on at great length about what the national polls outcomes could be.
A triumvirate of power by the conservatives in Canberra, Sydney and Brisbane over the next decade, you would think, ought to have significant implications for the electricity sector.
Not the least of these will be who owns the assets.
We can expect to see NSW generation owned by government sold off in the next 18 or so months. Will Queensland follow under a Coalition government?
A set of large private sector gen-traders meeting power requirements north of the Murray from the middle of this decade, or thereabouts, would change the supply dynamics rather a lot.
Despite the current focus on which old,somewhat inefficient brown coal plants may close in Victoria, ground zero for Australia’s abatement ambitions will be NSW and Queensland.
How federal governments try to manage this over the next 10-15 years and what the State governments (and their voters) will be prepared to wear will dictate a large part of energy-related abatement, the flow-on costs and the amount of money spent abroad buying emissions credits.
A serious change in the national peak power problem will require results to be achieved in NSW and Queensland.
But how will consumers/voters react to attempts to impose time-of-use charges (aka dynamic pricing)?
The whole situation is made the more complicated by so many factors impacting on end-user prices – which, as I have reported before, Port Jackson Partners forecast will rise substantially in NSW (and elsewhere on the east coast) over the next 5-6 years.
While PJP is predicting that the 2017 residential price in NSW will include $169 per MWh for network charges (standing at $97 now versus $75 in 2007), it is also pointing towards the likelihood that wholesale energy costs will reach $149 per MWh (versus $74 now and $71 four years ago).
(What this means in layman’s language is that the average NSW householder will be paying out about $2,500 on power bills in 2017 versus about $1,400 now. That’s a 78 per cent increase to add to the 40 per cent rise of the past four years.)
The list of issues affecting NSW supply and politics, therefore, isn’t short, but, apart from the power price pain, the one that keeps bugging the policymakers is ensuring adequate generation capacity.
Their response is not decisions, but more and more reviews.
The latest inquiry is just being set up – a review by the State Parliament’s Public Accounts Committee of the “comparative economics of energy generation,” established at the request of NSW Resources & Energy Minister Chris Hartcher.
It is taking submissions until 10 February and will then hold public hearings.
This follows the failed attempt at a white paper by the Carr government (2005), the first Owen inquiry under the Iemma government (2007) and the second Owen review embedded in this year’s Tamberlin report.
Plus the extensive commentaries that were published as part of the major projects approval process for the mooted 2,000MW (each) Bayswater B and Mt Piper 2 developments (2009).
The Mt Piper material included a warning that, if large new capacity was not available by mid-decade, the existing baseload generators would need to operate at 83 per cent capacity factor (versus 70 per cent today) and “this is very unlikely to be reliable.”
This tends to be glossed over in the public discussion, but it is not a minor issue.
Just what electricity will be available to the NSW from interstate is subject to all sorts of variables, too – including the impact of environmental flows on supply from the Snowy Hydro scheme, domestic requirements in Victoria, South Australia and Tasmania, and the available of power from Queensland as supply becomes tighter in that booming market.
Net interstate imports make up about seven per cent of NSW supply at the moment.
In reality, little has changed since ABARE produced a report in 2006 – it was looking at gas needs for generation on the east coast – and suggested NSW needed 420MW of extra baseload about now and some 700MW by 2019-20, using gas that could be sourced from the Gippsland and Cooper basins.
Build a pipeline from Queensland and another 1,000MW capacity could be fuelled.
Timing is critical in all this.
The Delta Mt Piper 2 paper (2009) summed up the issue thus: “The consequence of a lack of timely investment (in baseload generation) is likely to be a rising wholesale price as peaking and intermediate generators with higher variable operating costs start to run for longer hours to meet increasing (non-peak) demand.”
If, for one reason or another, NSW finds itself in a situation where, say, 1,500MW of capacity that should be baseload is actually being met by peaking and intermediate open-cycle gas plant, a possible $45 per MWh increase in wholesale energy costs would translate to another $250 or so on the average residential bill.
Given the ongoing uncertainty about carbon pricing, the question marks over what wind power will be built when (and where) under the RET (bearing in mind REC glut issues and siting problems) and the uncertainty that will exist until the generation privatisation issue is settled and the sales made, it might be 2013 or even 2014 before additional capacity starts to be constructed in the State.
I reckon Barry O’Farrell and Hartcher don’t actually need to wait on another inquiry to report next year – their public servants could give them an aide memoire on the generation situation in five minutes flat (so to speak) using existing information.
But life just doesn’t seem to be that simple, does it?
Having been a member of Martin Ferguson’s 25-member energy white paper reference group for a number of months, it was not the content of the long-awaited draft, published on Tuesday, that interested me so much as the reactions to it.
And I was not at all surprised by the responses of the environmental movement, led by Senator Christine Milne.
The Greens deputy leader is demanding that the white paper be “totally rewritten” because it will keep Australia on a “backward and risky business-as-usual path of coal, gas and uranium.”
More difficult for Prime Minister Julia Gillard is Milne’s claim that the draft white paper is on a “collision course” with the carbon package she and Bob Brown negotiated to enable the minority ALP government to exist.
Do we know all we should know about the Brown/Gillard pact?
Perhaps what infuriates Milne, the Greens and the greenies most of all is Ferguson’s frank acknowledgement after a Committee for the Economic Development of Australia breakfast – at which he publicly launched the white paper – that, while the government will not embrace the domestic use of nuclear power, it is “always there” as an alternative if the current drive towards cleaner energy for power generation doesn’t work out.
In a commentary in the Australian Financial Review on Wednesday, Stephen Martin, Ferguson’s former parliamentary colleague and a former Speaker of the House of Representatives, now the CEDA chief executive, admirably summed up the alternative view:
“Setting targets and spending billions on renewable energy research and programs may contribute to a cleaner, greener future,” he wrote, “but, as we move in to a carbon-constrained economy, nuclear must be recognised as a viable option. Tough decisions need to be made in the national interest. Nuclear energy provides a proven, low-emission, low-cost technological option at a time when there appears to be no others.”
From my perspective, one of the important features of the draft white paper is that it lays out for Australians the scale of investment needed to maintain electricity supply security over 20 years.
Just for new generation, this is forecast to be $80 billion (in today’s money values). By comparison, the power station outlay since 1998 has been $12 billion (in dollars of the day).
Today’s most sensitive issue for the community is the cost to them of electricity and both the white paper and Ferguson’s CEDA speech drive home the point that end-user bills will continue to rise.
Because network charges are half the final power bill, the foreshadowed $24 billion over 20 years on transmission capex and $120 billion on distribution infrastructure development is the most critical factor in the rise and rise of end-user costs.
(What the paper is saying is that, overall, we are considering outlaying $12 billion annually – in today’s values – every year for two decades, which sounds staggering until you understand that the sector has been investing $10 billion a year since 2007.
(We are already well and truly launched on this path – the paper could have easily commented that we are going to spend $300 billion over 25 years, starting five years ago.
(If the government and its modellers are under-estimating what demand will be in 2030-35, the outlays will be even higher.)
How efficiently this capital investment effort is pursued is a critical issue – and the problems poor planning and implementation can inflict are on display in Victoria this week where there is a new furore over the costs of installing smart meters, an exercise badly handled by the past Labor government.
This applies equally in the east coast market, home to nine-tenths of demand, and in the fast-growing south-west Western Australian system, riding the resources boom – and will depend strongly on how good the suppliers are at their work as well as on the impositions of politics and regulation.
Perhaps surprisingly, Ferguson has taken the government and the draft white paper out on a political limb by stating without equivocation that the task is best managed by the private sector.
The paper says: “Continued government ownership of energy businesses is impeding greater competition and efficiency and reduces market confidence by creating uncertainty and risk for private sector investors.”
In saying this, the federal government depth-charges the New South Wales ALP, which is campaigning along with the unions, against the O’Farrell proposal to sell the NSW generators – and it also rattles the bars of governments in Queensland (facing a March State election), Tasmania (where the ALP is in formal coalition with the Greens), NSW (where O’Farrell clings to ownership of the networks because of a foolish election pledge) and Western Australia.
Of course, the first casualty in a renewed debate on this issue is realism on costs.
Contrary to what is already being portrayed in the media, Ferguson is not asserting that handing the job to the private sector will lower costs, but that the absolutely inevitable rises in bills will be somewhat more constrained if doing the building and supplying is left to private investors.
I can see no way, other than very dangerous interventions by politicians or equally dangerous clamps on upgrades and refurbishment by regulators, that we can avoid end-use electricity bills being double in 2020 what they are today, especially when you factor in carbon charges and the costs of green energy subsidies.
Decoded, that’s what Ferguson means when he says the era of cheap energy is over.
The political difficulty involved in privatisation is demonstrated by the immediate kneejerk reactions at State level from conservative and ALP governments alike, but it is an issue that, like the nuclear option, will not go away.
One of the best early reactions to the white paper can be found on Business Spectator under the byline of Stephen Bartholomeusz (see ‘Averting an energy policy crisis” on their website).
It’s worth reading in full.
In context here, I note Bartholomeusz’s comments that: “(The paper) depicts in some detail the ad-hocery that characterises energy policy and the urgency to develop more coherent approaches to tackling energy costs and security.”
The incoherence is especially well illustrated in the reaction by the Greens and their camp followers to the role for carbon-based fuels that the draft white paper foreshadows.
The paper’s appearance has co-incided with publication by the Bureau of Resources & Energy Economics – part of Ferguson’s portfolio – of the generation outlook to 2035.
(I have written a commentary on this in Business Spectator, published on Tuesday under the heading “Australia’s clean energy dawdle,” which challenges Greg Combet to defend his post-Durban spin in the context of the BREE data.)
Far from “not concentrating enough on renewables,” as Milne charges, the white paper, looking out to 2050 and using the Treasury modelling, notes that some 260,000 gigawatt hours of new energy supply will be needed annually by mid-century, representing up to $225 billion (in today’s money values) of generation investment, almost half of which would be in renewable generation.
(The balance would be in gas-fired and coal-fired plant equipped with carbon capture and storage technology.)
In this scenario, geothermal power would deliver 50,000 to 80,000 GWh a year, wind farms 45,000 to 60,000 GWh and large-scale solar 10,000 GWh.
“To get a sense of the effort required to reach such levels,” says the white paper,”there is currently no significant Australian CCS, large-scale solar or geothermal capacity in operation today and wind power contributes 6,500 GWh a year.”
Elsewhere, I see another respected commentator putting words in to Ferguson’s mouth – what he is saying, he opined, is that government needs to get out of the way.
Well, only up to a point (re privatisation).
Reality for the electricity supply sector is that it is in a very political business.
The context in which it will work over the decades ahead will still be very political because of carbon policy and community and business attitudes to the reliability, security and cost of power.
As I have commented here and elsewhere, even the directions of electricity demand are now politicised and heavily influenced by subjective views on what a carbon price can achieve.
Like its predecessors in 1988 (the “Energy 2000” white paper of the Hawke government) and 2004 (“Securing Australia’s energy future” issued by the Howard government), the draft white paper is a snapshot (or rather a whole barrage of snapshots across energy sectors).
Its purpose is both to inform – and this week’s wide-ranging coverage in the media is a plus in this respect – and to signal the intent of the government of the day.
Christine Milne and the Greens want this intent to be much, much greener and hang the costs.
Martin Ferguson is pursuing balance in the national interest.
The biggest influences on what happens next are probably the forthcoming elections in Queensland (2012) and federally (2012-13).
One of the enduring things Ferguson is seeking to achieve is that, instead of ad hoc approaches in the future, there will be an energy review every four years, which supposes the next one will be in 2016.
Just thinking about how far that may differ from the paper now going in to its last stages highlights the uncertainties of the current environment.
It will be published, for example, the year after the deadline is reached for the brave new accord on global abatement with which Combet claims to have returned from Durban.
As of dawn Monday there were 3,496 media reports world-wide on the UN climate policy debate in Durban.
The prize for the oddest reaction surely must go to the Merrill Lynch banker who describes the Durban outcome as “like a Viagra shot for the flailing carbon markets.”
With the help of the ABC, our Climate Change Minister Greg Combet comes home with what he and Julia Gillard wanted from the conference: a “30-second grab” for media use that asserts: “Combet says climate pact validates carbon tax.”
This will vie with the Opposition view, presented by a heading in The Australian newspaper: “Durban deal isolates Gillard.”
(This is because the Australian carbon tax, to be introduced on 1 July, will be implemented years before an international agreement can be struck and its effects are modelling on an agreement being in place in 2016
(The Durban deal, says Tim Wilson of the Institute of Public Affairs, “is a platform to continue debating the details of an agreement where countries disagree on most of the substantive matters.)
The reality is perhaps summed up best in The New York Times by correspondent John M.Broder: “Every year (delegates to the UN conference) leave a trail of disillusion and discontent, particularly among the poorest nations and those most vulnerable to rising seas and spreading deserts. Every year they fail significantly to advance their own stated goal of keeping average global temperatures from rising by more than two degrees above pre-industrial levels. This was the case again this year.”
A London Financial Times reporter notes that the legal nature of whatever the “Durban platform” purports to be is “so vague that it is primed to be the catalyst of future battles.”
In trying to sift the grains of wheat from the silos of chaff in the initial media reactions, it seems the following can be said:
First, the Kyoto Treaty is not dead, but placed on life support.
However Canada, Japan and Russia do not support its extension for another five years.
The official media statement says governments have agreed at Durban to “adopt a universal legal agreement on climate change as soon as possible, but not later than 2015.”
Second, politicians (including the Gillard government) and environmentalists will insist Durban has delivered a critical milestone by getting China and India to support a plan for reaching a legally binding agreement to curb emissions.
Worth what exactly?
Third, Durban’s contribution to make work for climate bureaucrats is the “Ad Hoc Working Group on the Durban Platform for Enhanced Action” to begin discussing a new agreement.
Fourth, the new-ish Green Climate Fund continues to shuffle towards establishment.
The official media statement says: “Countries have already started to pledge to contribute to start-up costs, meaning it can be made ready in 2012.”
As I said in my initial reaction yesterday (see “Ho ho ho”), an important domestic issue is what Australia will contribute to this scheme.
The fund is intended to raise $100 billion annually from 2020 with “immediate” input of lesser sums.
What has the Gillard government committed to contributing?
IPA’s Tim Wilson asserts the cost for Australia could be $2 billion to $3 billion annually once the fund is fully set up.
(In this context, it is worth noting the brief media debate last Friday on the need for Australia to find up to $6 billion a year to ensure good dental health in this country and the fact that this was claimed to be beyond the budget reach of government.)
Canada’s environment minister has sent a message home from Durban that his country “will not devote scarce dollars to capitalise the Green Climate Fund” until all major emitters accept legally binding reduction targets and transparent accounting for greenhouse gas emissions.
It is incumbent on Combet, surely, to favour us with as clear a statement on the commitment he has made on our behalf at Durban.
There is another immediate task for Combet (or whoever will be Climate Change Minister this week following Gillard’s shuffle of ministerial deck chairs): governments agreed in Durban that the 35 nations supporting the “second commitment period of the Kyoto protocol” will “turn their economy-wide targets in to quantified emission-limitation or reduction objectives and submit them for review by May 2012.”
Combet said in Durban: “Australia will cut its carbon output by at least five per cent by 2020, but could increase the cuts if other nations agree to a binding deal in 2015.”
Now that is a “courageous” statement, minister.
Just for the record, your present policy does not cut domestic carbon emissions by “at least five per cent” by 2020. That would require a cut of 160 million tonnes. Your policy is designed to deliver less than 60Mt and to source the balance from overseas by buying emissions credits.
By May next year, this will be brought back to haunt your government.
A leading Indian media commentator on carbon policy development noted on Sunday: “When negotiations began 20 years ago, it was well understood that the industrialised world had to vacate (emissions) space for the emerging world to grow. Money and technology transfer would enable emerging countries to avoid future emissions growth. But none of this happened. Meagre targets were set. The US and other big polluters walked out of the agreement. The funds never came.”
This was the real point of biff in the Durban debate.
India and others see the Western nations surreptitiously trying to change this understanding in order to create a single, legally binding agreement on all countries, removing the differentiation between the historical contributors to the problem and the rest.
This, they argue, will “freeze inequity” and compromise the right to development of the emerging nations.
No matter how the “Durban platform” is nuanced in the weeks and months ahead, this sore point will be available for rubbing again in Qatar in 12 months time – and on down the decade.
The domestic issue for Australia is what will our share of the ointment cost?
Anyone who believes the federal government’s spin that the “deal” reached in Durban at the weekend is “a significant breakthrough tackling global warming” may line up on my left to open negotiations about a bridge I have for sale.
While I appreciate that references to a period of trauma in the middle of the past century are frowned upon in this PC decade, the blunt truth is that this “deal” is no more to be accepted as valid than the one struck by Messrs N.Chamberlain and A.Hitler is a German city in the 1930s.
Nothing exemplifies the bogus nature of the “Durban declaration” better than the form of words produced by a Brazilian linguistic conjuror – who successfully proposed substituting “an agreed outcome with legal force” for “legal outcome.”
This said, a European Union lawyer, effectively means “a legally binding agreement.”
Ho, ho, ho, said the fella in a red suit.
The media just love the concept of the Durban conference being “brought back from the brink of disaster by three women politicians in a 20-minute huddle to save the planet.”
“Yes, yes, yes” cried the delegates around them as they unhuddled.
Gaia help us, are we so reduced in our intellects to buy this sort of horse manure?
Yup, say the media, virtually en masse.
The Indian environment minister got rather more near the truth when she snarled that developing countries are being asked to sign up for a deal before they know what is in the proposed treaty to replace the Kyoto agreement.
The Chinese chief negotiator growled to the remaining, allegedly exhausted negotiators: “Who gives the European Union the right to tell us what to do?”
All parties, we are told, have accepted the concept of “binding emissions cuts” by 2020.
Ho,ho, ho indeed.
Our own dear Greg Combet says the “new legal architecture” will “allow the world to move on from the Kyoto protocol’s unsustainable division between developed an developing countries to ensure that all nations do their fair share.”
His reward, the Australia media are telling us, is to be promoted in the ministerial reshuffle which is pre-occupying Julia Gillard before she opens her pressies. (Will there be one from K.Rudd, one wonders, and will it be wise to open it?)
Combet, whose bucket for Tony Abbott was carefully included in the main Saturday night radio news story by a grateful ABC – if you don’t know why it should be grateful, you haven’t been following the domestic news, tells us that the Durban decision “will complement Australia’s carbon price mechanism by boosting confidence in global mitigation efforts.”
Please explain, as someone used to say.
Combet has been joined by the British environment minister, Chris Huhne, who says the decision is a “huge step forward.”
Or sideways. Or round and round. Whatever.
Please keep this claim to hand and refer to it when the Qatar summit gets under way this time next year and for whatever follows it in 2013,2014 and 2015 – which is three years after the Kyoto treaty will be stone-cold dead.
Todd Stern, the US envoy to Durban, notes that “there is plenty the US is not pleased about.”
Well, guess where that will lead his country in negotiations in the year ahead, which will see a presidential election – followed by critical Congressional elections in 2014?
The New York Times newspaper meanwhile sees the Durban outcome as “a tentative but important step” towards dismantling the current (Kyoto) system that requires industrialised (ie OECD) nations to cut emissions while allowing developing nations (including China, India and Brazil) to escape binding commitments.
You believe this? Please see me re the bridge.
In fairness, the Times also observes that the outcome is “muddled and unsatisfying.”
Well, it is the silly season media-wise.
Perhaps the issue of most immediate interest to Australia – as opposed to the issue of most immediate interest to the Gillard government, which is to bucket the Coalition and claim that the Durban decision verifies the wisdom of its “clean energy future” legislation – is that the fund for climate aid to developing countries is apparently alive and moving forward.
Will one of Gillard, Wayne Swan and Combet please tell us what Australia will need to contribute over the next three years or so?
Will anyone in the Canberra Press Gallery ask them this question?
Can the Coalition muster the wit to do so?
(My guess is that the immediate bill for us is about $400 million. With a lot more to follow when we get to 2020 – when, of course, our budgets will be in permanent surplus. Ho ho ho.)
I don’t often cite the WWF with approval, but their leading participant in Durban got it just about right I’d suggest: “The bottom line is that governments got practically nothing done here.”
If I understand all the blather correctly, the target now is to compose a new treaty by 2015 to replace the one that will expire at the end of 2012.
Perhaps they can hold the 2014 UN meeting in Copenhagen again.
Ho ho ho.
A lot has happened in Queensland electricity supply since a hassled Premier Peter Beattie, confronted by angry community reactions to power failures, commissioned consultant Darryl Somerville to examine the activities of the State’s network businesses.
That was in 2004 and Somerville found that consistent under-investment was the cause of the blackouts common at the time.
Seven years later Queensland Energy Minister Stephen Robertson – his government hassled by consumers dealing with ever-rising power bills – has strapped Somerville back in harness along with Jack Camp, the State’s Commissioner for Electrical Safety, and Steve Blanch, a 50-year veteran of the utility business here and overseas. Blanch was part of the 2004 review team, too.
While the government, with a State election looming, gave the trio little time to undertake the new review, its 72 pages will be read in the power sector more widely than just in Queensland.
Its initial impact, however, will be very much at home where power prices are a key issue in the State election after five years of increases and with average household bills expected to reach $1,900 in 2011-12.
(Ergon Energy, which provides distribution services to 97 per cent of Queensland, popped up last month to remind its franchise area that use of air-conditioning in the State’s steamy summer could account for up to 40 per cent of the bill, adding as much as $530 to the annual charge.)
The review also appears at a time when the industry watchdog, the Australian Energy Regulator, is pitching for a change in its rules structure to deal with alleged “gold plating” by networks on the east coast, an allegation vehemently rejected by the sector.
It appears also as the AER starts publishing draft determinations on network capex bids running to 2017, with the initial responses on two businesses (Aurora Energy in Tasmania and Powerlink Queensland) proposing to slash more than $1.5 billion from desired spending and to impose a drastic reduction in what can be recovered for the cost of capital borrowings.
Immediate media reaction to the new Somerville report understandably focuses on the issue du jour – power prices. The ABC News website gives the flavour with “Minister flags possible power bill savings.” The Brisbane Courier-Mail newspaper headlines “Infrastructure and service cuts aimed at tackling skyrocketing household electricity bills.”
The Fairfax media are making the point that “Queensland’s energy minister can’t guarantee potential savings for power companies will lead to cheaper electricity.”
(This begs the question of how could he?
(End-user bills are the product of wholesale energy costs set in a competitive market, independently regulated network charges, renewable energy subsidies (increasingly federal), retail charges and,soon, the Gillard government’s carbon price.)
Stephen Robertson was at pains in his statement on the report to make the point that Somerville & Co found the networks had improved security and reliability of supply “significantly” since 2004.
Reliability is 40 per cent better following $12 billion being outlayed in under seven years for network capital investments.
A core issue here and elsewhere is just how much reliability do the consumers want? Higher standards require higher charges.
The regulator has approved more than $11 billion in capital outlays by the two Queensland government-owned distribution businesses for the period 2010-11 to 2014-15, of which $5.8 billion is earmarked for the south-east corner, three per cent of the area of the State.
Powerlink has regulatory approval to spend $2.85 billion on new assets between 2007-08 and 2011-12. It has sought to spend another $3.5 billion between 2013 and 2017 but the AER has just pegged this back by more than $1 billion in its draft determination.
Robertson notes that the Somerville review has found $1.5 billion in savings distributors Energex and Ergon Energy could implement before the end of the current regulatory period.
The rest of the national industry will be particularly focussed on the fact that the Somerville committee has scruitinised how well the networks are forecasting future demand.
This is one of the key features of the AER draft determination for Powerlink, just released.
The regulator (echoing the energy-intensive users) claims the networks are over-egging the pudding.
The debate about demand spreads wider than regulatory arm-wrestling.
How far the recent reductions in consumption recorded in much of Australia reflect the temporary impact of the economic crisis and how far they represent a new paradigm with consumers reacting to higher prices and stronger marketing of energy efficiency options is central to the “clean energy future” arguments being mounted by the Prime Minister and Federal Treasurer, leading to forecasts of national consumption in 2030 that are way below what was in the government’s national energy resource assessment released in March 2010.
Somerville writes that “underlying energy demand growth (in Queensland) has weakened considerably since 2008” in response to the global financial shemozzle and consumer reactions to energy efficiency.
The panel finds that consumers are more conservation aware, due to both price elasticity effects and rising general awareness of environmental issues, but it notes that “these considerations are more likely to take effect outside peak times.”
Other factors include increased use of gas and solar water heating and increased use of rooftop solar PV systems.
Another important feature is the fall-off in approvals to build new homes. The implication, according to the report, is that extra electricity requirements in the next year or two will be lower than historic trends.
(Lower homes construction is hardly a feature that Treasurer Wayne Swan would desire to see embedded in the Australian landscape in the years ahead.)
The current demand pattern leads to two key findings: in the medium term significant capital savings can be obtained because of the weakening of demand growth and the networks’ ability to manage peak demand issues is even more important now than in 2004.
The panel finds that Queensland can be expected to maintain the strongest demand growth on the east coast.
It defends the demand forecasting by the networks, describing it as “robust.”
This is an “inherently difficult process,” it observes, and it is “vital that demands are not under-estimated on a sustained basis.
“A return to growth (in Queensland) will largely be driven by the strengthened industrial and mining sectors,” Somerville says.
The panel notes that Powerlink is dealing with new generation development inquiries for 3,900MW of capacity – 1,900MW related to the LNG export projects and 1,600MW related to new mining developments.
To state the blindingly obvious – and the panel does because it must – critical factors in future power demand growth are the rate of recovery of the State economy and the continuing impact of global events.
(Nationally, I’d interpolate here, this encapsulates the modelling problem for Swan and his Treasury people: high economic growth over the next few decades, which is an article of faith for them, surely cannot deliver a low trend in new electricity requirements because 72 per cent of power demand is non-residential. Although, of course, it can if the effect of your policies is to push a chunk of energy-intensive industrial activity out of Australia.)
The Somerville panel points out that peak demand is driving Queensland network outlays.
In south-east Queensland it is estimated that every one degree Celsius increase in temperature leads to a 200MW rise in demand.
The past couple of summers have been quite mild, but that isn’t likely to continue forever.
Queensland’s average annual increase in peak demand over the next decade, the panel says, is expected to be 500MW compared with an annual increase on all the rest of the east coast of 610MW.
As the panel says, the question of what level of security and reliability customers are willing to accept to minimise increases to their power bills is an important debate for the whole country, not just Queensland.
There’s a lot of food for thought in this “quickie” report – and not just for Queensland politicians as they head to the polls.
It certainly has resonance for NSW – with the two States (and the ACT) accounting for 58 per cent of national electricity consumption at present.
Every time I see another piece of hype for the rooftop solar business I think of Martin Parkinson.
What brings our Secretary for the Treasury to mind?
It is a point he made repeatedly while Secretary for Climate Change.
If, said Parkinson, you could impose a requirement to install a 1.5kW photovoltaic system on every household rooftop in Australia, it would cost $200 billion – and remove about 13 million tonnes a year of greenhouse gases from our emissions.
Allow for the costs to be halved over the decade, he added, and this was still “astronomically” expensive abatement.
Parkinson has come to mind again this week because the media have picked up a report on Australian renewable energy that our Clean Energy Council chose to release at the UN summit on climate change policies in South Africa.
What the CEC wanted the media here to run is the news that there are now more than 500,000 households in Australia with rooftop solar PV – an increase of 35-fold over 2008 when various State governments started a small gold rush with feed-in tariff schemes that varied from the generous to the barking mad.
“Solar power has come of age and is now a real part of Australia’s energy sector,” said the CEC.
Mainstream journalists know an easy cue when they see one.
“Solar panel users climb through the roof,” headlined the Sydney Morning Herald. “PV raises the roof,” said Climate Spectator. And so on.
Now there are two points about this.
The first is to what end?
See Parkinson above.
Even allowing for a halving of the solar PV capital costs, this involves buying abatement at about $3,500 per tonne – versus Australia’s world-leading carbon price in the $20-30 range for this decade.
The second is, what exactly is solar PV contributing to today’s electricity supply?
The real story from the CEC report, you see, is that Australia’s renewable electricity sector continues to be propped up by old-fashioned hydro-power.
As the CEC acknowledges, the past year’s heavier rainfall has enabled the hydro systems to increase production, contributing 19,685 gigawatt hours between October last year and the end of September this year.
This is 67.2 per cent of the total renewable energy provided.
The CEC report contains a picture of a beaming Julia Gillard bestowing her blessings on a wind turbine – not much chance, I suppose, of getting her to go to a Hydro Tasmania or Snowy Hydro power station to give thanks for the contributions that keep our renewable numbers somewhat respectable in the international tables.
Now here’s something interesting .
Go back to 1991 (using the Energy Supply Association yearbook data) and hydro produced 15,289 GWh.
Or go to 2005 and the hydro contribution was 15,280 GWh.
Not just old faithful, but actually increasing its contribution – on these numbers, hydro-power has increased its share of our renewable electricity by 28.6 per cent over two decades.
And wait, there’s more.
Look at the Federal Treasury modelling and its consultant SKM MMA is forecasting that the hydro systems will contribute 6.2 per cent of total generation sent out in 2030 – that works out at 17,400 GWh.
At present, the national hydro contribution is 6.5 per cent.
Politicians, public servants and others who contribute to the national benefit for a long, long time frequently get made members of the Order of Australia.
Perhaps we should find a way to give a gong to the hydro-electric industry. (After all the Brits gave Malta the George Cross for sitting there and taking everything German bombers could throw at it in World War 2.)
You see, I think the real story from the new CEC report is that egregiously-overpriced solar rooftop systems and a stuffed-up renewable energy target scheme (thanks to the federal government getting on the solar bandwagon,too) have not done a heck of a lot to increase our national effort to deliver cleaner electric power.
That mad rush at solar PV is delivering 680 GWh a year, 2.3 per cent of the total for renewables and so small in the overall scheme of things it is barely visible.
Despite this, in New South Wales alone, consumers have been landed with a bill between $1.4 billion and $1.9 billion (they are still debating the actual cost) to support the Keneally government’s “solar bonus scheme.”
Development of wind power has stalled as a result of the impact on the RECs of the rush on solar give-aways, but it contributed 6,432 GWh in the year being measured.
In round terms, this is near what business customers alone consume in Tasmania, the smallest State in terms of power demand.
(The hydro contribution is roughly equal to what everyone in Western Australia uses annually.)
The CEC says: “The (renewables) industry is hopeful that the federal government’s carbon price package will signal the beginning of a new era of policy stability to act as a catalyst for a wave of major investment in clean energy power plants.”
A report prepared for the association by Garrad Hansen earlier this year predicts that 6,900 meagwatts of wind capacity will be built under the RET by 2020.
Wind capacity at the moment stands at 2,175MW.
(Hydro-electric capacity, grid-connected and stand-alone, is just over 7,240MW at present. Solar capacity is nine megawatts.)
Something else the media pack did not bother to cover in reporting the CEC paper is that the association predicts that a typical NSW residential customer in 2020 will be paying $2,005 for power compared with $1,594 this year.
(This is a lot lower than Port Jackson Partners is forecasting for a NSW bill in just 2017, as I have reported here several times recently.)
The CEC estimate, broken down, sees wholesale power costs rising from $331 to $616 (the carbon price at work), network charges going up from $753 to $883, retail and other costs static at $396 (which I take leave to doubt) and a trio of charges related to susbidising renewables – claiming that the federal small-scale renewable scheme cost will fall from $43 to $11, the big RET will rise from $35 to $62 and the feed-in solar PV subsidy will go up a dollar to $37.
Or to put it another way, every household in NSW in 2020 will be forking out $110 annually (in addition to what it is paying under the carbon price – and what will compensation for that be at the end of the decade?) to subsidise renewable energy.
Today there are almost three million NSW household accounts – the number may be 3.5 million in 2020.
That’s a cumulative cost, just in NSW, of $3.3 billion or thereabouts over the decade.
Extrapolating nationally, in round terms, a cost for residential customers for supporting green power (but not hydro) of about $10 billion over the decade – in addition to whatever burden we get to bear of the federal carbon price.
There was one other thing I noticed in the CEC report: an Auspoll survey undertaken for the association in June found that 95 per cent of the people polled were “concerned or very concerned about rising energy costs.”
Half of the respondents knew “little or nothing” about their energy use.
Three-quarters of them thought their energy retailers should be responsible for ensuring that they used their power more efficiently!
When one considers the shambles of the New South Wales “solar bonus scheme” introduced by the Keneally government but still nowhere near put to bed by Team O’Farrell, it may seem, taken with such problems as the federal “Battgate” fiasco, that we Australians are particularly inept in pursuing greener energy policy.
This really isn’t so and information coming in this week from Toronto, Ontario (a Canadian province with quite a few similarities, apart from a big weather difference, to NSW), provides a cautionary tale that local politicians could take to heart.
I have long had an interest in Ontario and its electricity sector because my Electricity Supply Association work took me to Canada, and Toronto in particular, a number of times in years past.
(More than a decade after the event I have still not erased from my memory the shock of flying out of Sydney in 35 degree February heat and humidity and landing in Toronto in minus 35 degree winter. A change of 70 degrees in a day is not a kind thing to do to one’s body.)
This week, the Ontario auditor-general’s annual report has taken a long hard look at the way the Liberal (ie is Labor in the Canadian context) provincial government has gone about attempting to green the local power scene (heavily reliant for many years on nuclear and coal-based energy).
As high-ranking Canadian political commentator Terence Corcoran observes, this is an especially egregious example of how renewable energy has become “the playpen of politicians” there and elsewhere in the world.
The auditor-general is pointing out to Ontarians, who returned the government in provincial elections in October, that most of the $370 per year extra they will find on their power bills over the next four years is down to renewable developments that the Liberals pursued without cost-benefit analysis or business plans.
While coming up with average household consumption in the province is not straightforward (for reasons I won’t bore you with here), it is possible that this represents something like an extra $C7 billion in costs for residential customers over this time frame.
In initially selling the renewables scheme to the community, the provincial government claimed power bills would rise one per cent. Reality is that 56 per cent of the 7.9 per cent annual rise now projected for the next 4-5 years will come from the green energy program impacts.
(Ontarian household power bills rose 26 per cent between 2008 and 2010 and the government, contemplating the election ahead, threw in a 10 per cent reduction at taxpayer expense earlier this year.)
The auditor-general comments acidly that the renewables program, which is intended to deliver 10,700MW of wind and solar power by 2018, involved “no comprehensive business-case evaluation.
“The government,” he adds,” was well aware that its initiatives meant higher costs but felt this was a more-than-acceptable trade-off (for perceived environmental and other benefits).”
Opinion polls, he notes, showed that consumers, while generally supporting the idea of renewable energy, “were for the most part unaware of its impact on prices.”
Only 27 per cent of those polled were prepared to see their bills rise above five per cent to green the supply system.
There is another cost as well.
Ontario is an exporter of power to the United States and it is sold too cheaply, the report says, with exports between 2005 and 2011 actually bringing in $C1.8 billion less than it cost to generate the electricity.
This goes on the provincial consumers’ bills, too.
While the large-scale investment in renewables will add to the Ontario generation surplus, there may not be a market for it.
The review notes that, unfortunately, wind generation output drops to its lowest levels in the provincial environment at dawn just as demand is ramping up and rises to its highest levels after 8pm as demand falls away.
Last year 86 per cent of wind energy produced in Ontario was provided when the province already had surplus supply.
But the feed-in tariff contracts are written so that the green generators get paid even if they are told by the market operator to shut down in a surplus situation.
Eventually – in 2014, according to the government – the province’s 7,500MW of coal-burning generation will be closed but the main replacements will be baseload nuclear energy from existing reactors, now being refurbished, and 5,000MW of peaking and intermediate gas-fired generation, needed to ensure supply security.
The auditor-general observes that consumers end up paying twice for intermittent renewable energy – through the impact of the cost of building it and again through the flow-through of the costs of back-up generation. “However, no cost analysis has been done.”
And, when the green power legislation was introduced in 2009, the government undertook no examination of how much back-up capacity would need to be built.
(The government’s response to this part of the report: “Without renewable energy, gas-fired generation would run more frequently, resulting in higher greenhouse gas emissions.”)
Of particular interest, when looked at from Down Under, the Ontario auditor-general has concluded that the government’s claim to be creating 40,000 new jobs through its green plans is misleading.
“Thirty thousand of these are (short-term) construction jobs with another 10,000 long-term in manufacturing, operations, maintenance and engineering.”
(Earlier this year, I queried job creation numbers being used locally for wind farm development with an industry body and never got a response to my challenge that many of the thousands claimed also were short-term construction positions.)
The Ontario auditor-general goes on: “Experience in other jurisdictions suggests that jobs created in the renewable energy sector are often offset by jobs lost as a result of the impact of higher electricity prices on consumers.”
In Germany, for example, says the watchdog, “impressive prospects of gross job growth omitted such offsetting impacts as jobs lost in other energy sectors and the drain on economic activity caused by higher prices.”
In Spain, for each job created in a renewable energy program, two were lost in other sectors. In Denmark “a job created in the renewables sector comes at the expense of a job lost in another sector.”
A study in Britain this year, says the auditor-general, has found that “four jobs were lost elsewhere in the economy for every one new job in renewable energy, primarily because of higher electricity prices.”
And here are the weasel words used by the provincial government in reply: “Lessons learned from other jurisdictions will be taken in to account where they may be comparable or instructive to Ontario.”
As Corcoran points out, problems of this kind are “the logical outcome when governments are allowing to run free with green policies that are aimed at overthrowing basic economic realities.”
That’s true here as well as there.
As the grate and the not-so-good bewilder the Zulus with their conflicting views of greenhouse gas policy, we have received a serious warning about the fate of the planet.
Scientists at the University of Washington say that we face the certainty of extinction of all animal life.
Earth, warns astronomer Donald Brownlee, can expect to have such life for only one billion years – and we are already past the half-way mark.
The problem? We will run out of carbon dioxide.
The impact here of an ageing Sun getting brighter and a cooling Earth core, leading to declining volcanic activity, will result in insufficient carbon dioxide to support photosynthesis.
Saturday’s New York Times newspaper carries the dire news.
You can read about it on their website under the heading “Hot on Trail of Just Right Far-Off Planet” – they love headline capitals on the “grey lady.”
It is a five-page weekend essay on the quest to find another “lukewarm planet” with Earth-like characteristics and well worth reading.
Meanwhile, there is news from eThekwini (that’s Zulu for Durban as I have told you before; if you have come in late it means “the bay”) – apart from the fact that 6,500 greenies in a rent-a-crowd have stuffed up the locals’ weekend shopping by stageing a Saturday-morning march through the CBD.
(“Civil society organisations” from around the world, it is reported, participated in the demonstration.
(There were juggling clowns, protestors who rolled along the grimy streets, topless women, unicycle riders, giant puppets, young people in dreadlocks blowing bubbles and an articulated octopus wearing an “Uncle Sam” hat. There were also riot police backed up by water cannon.
(And, in keeping with my previous weather prediction for eThekwini, the rain continued to fall.
(And, no, in answer to a correspondent, I have not seen any indication so far of the carbon footprint of the clowns, jugglers and 15,000 others who have travelled to eThekwini for two weeks of discussions and demonstrations. The electricity they are using is almost totally coal-fired.)
However, the important thing is that I can now tell Wayne Swan he needs to find about $1.2 billion over three years to sustain his government’s “good global citizen” stance – a bit tough, given the budget problems the Treasurer faces, but I am sure he can locate programs to slash to enable us to give the money away.
How many public service jobs does he need to eliminate to come up with $400 million a year in savings?
Bearing in mind that this is just the starting figure. The contributions will rise and continue well beyond the life-expectancy of the Gillard government.
Where in the world do I get this number?
Well, you see, Canada, which won’t have a bar of signing up for another Kyoto treaty, is not all bad (even though the South Africans have accused it of being a “bully”).
It has arrived in the Natal capital with a pledge to contribute $1.2 billion over three years to kick-start the green fund to help developing countries tackle the causes and impacts of global warming.
This is the $100 billion a year fund to which the Gillard government committed us at the last UN meeting in Cancun, Mexico.
Ensuring it goes ahead is widely seen as the likely face-saving outcome of the Durban talks.
And will anyone seriously suggest that we should contribute a dollar less than the Canadians?
For us, clearly, $1.2 billion is the benchmark.
Now that the ALP has dealt with gay marriage at its own big conference, perhaps the excitable media pack could return to ground level long enough to ask Julia Gillard and Swan if Greg Combet has been sent to Durban with instructions to match the Canadian offer?
If not, why not?
Surely we are not going to take the attitude of Saudi Arabia?
The world’s richest oil state arrived in eThekwini declaring that it “will never contribute” to the green climate fund.
“It is the responsibility of developing countries,” its representative declared. “Saudi Arabia should receive compensation from the fund as climate policies may lead to a loss in oil income.”
(In passing, I wonder how that thought will play at the Australian service stations in election year 2013 as rising oil prices push up our weekly petrol bill. But then I remember that it is only the 500 “big polluters” who are paying our new carbon bills, of course.)
South African President Jacob Zuma, who is hosting the UN summit, has told us and other Western industrialised nations that we cannot avoid contributing to the fund.
Bloomberg news agency reports this weekend that Zuma has “brushed aside concerns” about the money being found in the depths of the global economic crisis.
“It’s the poorest countries that are expecting to feel the most impact from climate change,” he declared at a “World Climate Business” conference in eThekwini. “We are already facing rising food prices, youth unemployment, poverty and extreme weather patterns. New models for driving investment are urgently needed.”
Pursuing a renewable energy target in South Africa alone, according to Zuma, will add $660 million a year to his country’s annual power bill.
Zuma’s need to make the summit a success, claims the London Financial Times newspaper, requires agreement to be achieved at least on the fund – there being near-universal acceptance that progress on extending the dying Kyoto treaty is out of reach.
The other comforting news from the Natal talks is that oil-rich Venezuela and other Latin American countries won’t have a bar of the World Bank being the green climate fund’s trustee.
And another oil producer, Nigeria, is leading a group of nations that reject a requirement by some of the “rich” West for the private sector to be involved in the fund’s projects – on the grounds that this will limit local government control over how the money is spent.
(Sometime I must tell you about how a corrupt Nigerian prime minister almost sent to the wall a company for which I worked in the 1960s only for him to end up against a wall being shot in one of the many West African revolutions.)
Greg Combet, now en route to Durban/eThekwini, will have missed all the fun of the weekend’s street party because of his need to attend the ALP conference here, but I reckon he can be sure of a gay time on the summit floor in the week ahead dealing with the fund-raisers.
Surely, for a start, he will get a standing ovation for helping to introduce the world’s most expensive emissions trading scheme with its arrangement for us to buy three-quarters of a trillion dollars worth of credits from Nigeria, South Africa and wherever between now and mid-century?
Then he can come back and confer with Swanny on how to factor in to the slashed federal budget what he has further given away on our behalf as a contribution to the green climate fund.
Is to laugh, as Bugs Bunny used to say. (Did the vegetarian Wabbit get a go in the parade, I wonder?)