Archive for February, 2012
Despite all the pious words she has uttered since trampling Kevin Rudd’s hopes of a comeback to government leadership, Prime Minister Julia Gillard still presides over a regime in spin mode.
We are told endlessly that she aims to deliver a “clean energy future.” It was top billing in her morning after “going forward” interview with ABC Radio current affairs. But, as the sudden chop for the household rebate scheme for solar hot water systems demonstrates, the rhetoric constantly over-runs reality.
As it happens, I was in the New South Wales Southern Highlands speaking to a company’s senior management retreat on the day parliamentary secretary Mark Dreyfus announced the scheme’s closure.
My theme at the forum, in looking at electricity policy, was illustrated by a version of some lines from T.S.Eliot’s famous poem, The Hollow Men: “Between the dream and the reality falls the shadow.”
This sums up the whole “clean energy future” proposition.
For the solar sector, the shadows have been lengthening locally for some time.
The fact is that the Rudd government and then Gillard’s administration have been in a muddle with the solar hot water scheme from the get-go.
The most important failure is that it has contributed over two years to undermining the headline policy aim of delivering 20 per cent renewable electricity by 2020 because it created a glut of trading certificates in the RET market through its (separate) small-scale subsidy scheme.
It is reckoned to be 2014-15 before this problem washes through the market.
And the small-scale RET arrangements continue unaffected by the Dreyfus announcement.
The second important failure is that Rudd, Penny Wong & Co, in their eagerness to demonstrate being green, ignored the benefits to be had from high efficiency gas water heaters – just as they sidelined the Australian-designed BlueGen fuel cell, which is substantially more efficient than rooftop solar panels in reducing greenhouse gas emissions.
Meanwhile, as things have turned out, the high value of the Aussie dollar has made importing gas hot water systems much cheaper, undermining the solar offerings despite the subsidy.
The federal government led a CoAG decision to phase out electric resistance water heaters, used in most homes, but ignored the fact that the decision will increase householders’ costs, not least the upfront capital cost they will be asked to bear. No compensation here.
Meanwhile the government has thrown $320 million in taxpayer funds at the solar hot water scheme – under which households got a $1,000 rebate for installing a PV system or $600 for a heat pump system, an opportunity taken up by 250,000 out of nine million residential account holders – and the industry built around the subsidy was hanging out, with Greens support, of course, for an extension of the hand-outs beyond June this year.
Instead, it got 59 minutes’ notice of the scheme’s closure.
Not surprisingly, there are howls of protest from manufacturers and installers.
Rheem says the crash stop has left “tens of millions of dollars” worth of solar systems sitting in warehouses and, in its business, threatens 400 jobs.
This, as the federal opposition was quick to point out, is a reprise of the pink batts shemozzle, which left warehouses around the country stocked to the roof with unwanted insulation.
This incident is just a tiny aspect of a much bigger “falls the shadow” issue with the Gillard government at home and others arounds the western world.
The divide between the “clean energy” rhetoric and the reality of energy markets could hardly be larger.
Driving down the Hume Highway to the Southern Highlands on Tuesday I picked up a phone call – my mobile is hands-free, built in to my Honda Prelude 13 years ago – to ask if I had read the new BP “Energy Outlook 2030”?
I hadn’t, but I have scanned it now and what BP is spruiking underlines the Eliot thesis.
First, on BP’s outlook, global energy demand will rise 40 per cent by 2030 – the equivalent to adding another China and another America to consumption.
Second, 96 per cent of this growth will come from emerging economies, half of it from China and India.
Third, fossil fuels will supply roughly 80 per cent of demand in 2030.
Fourth, global carbon dioxide emissions will rise by almost 30 per cent.
Fifth, new energy supply technologies are by no means just the realm of renewables – with natural gas being a very big feature of the energy world two decades from now.
However, as the company’s chief economist, Christof Ruhl, points out, in 2030, for the first time since the industrial revolution, there will be no single dominant fuel
BP is especially interesting in its outlook on renewable energy.
This is a company that has spent $US7 billion since 2005 on renewable ventures, says its aim is to create large-scale commercial businesses not dependent on subsidies and has not been shy of walking away from developments, the embattled Moree solar farm project being a case.
Its outlook says that just 11 per cent of global power generation in 2030 will come from renewable energy.
(And it is worth bearing in mind that the biggest single renewable energy supply effort in the world today is China’s 220,000MW of hydro-electric capacity, a long way ahead of its 40,000MW of intermittent wind capacity. But the greens hate hydro.)
Read the BP projection against the endless boosterism of green advocates and rent-seeking renewables wannabees – or vote-seeking politicians.
The rather desperate Bligh government is running at polls with a claim that “Queensland is set to become a major force in Australian renewable energy,” asserting that sufficient green power will be built in the next eight years to deliver 9,000 gigawatt hours a year at the decade’s end.
Read the State government statement more carefully and it is signalling that, like others around the country, it will slash the feed-in tariff in the unlikely event it is re-elected.
Its numbers indicate installation of PVs will fall dramatically from the 2010 and 2011 levels achieved with subsidies. There’s only one reason for that.
This, of course, opens the door to Campbell Newman and the Liberal National Party to take similar action.
The Bligh government propaganda also doesn’t highlight that the 2012 version of its 2009 policy has given away the idea of having 250MW of geothermal power in the State by 2020. It now predicts 5MW.
Read this stuff against the green arguments to us here to follow the European example, with, they say, renewables sure to account for half the EU’s power by 2030.
BP sees 26 per cent of EU demand coming from renewables in two decades – and, in fact, how far the enormous subsidies that have been on offer for the past 12 years will be extended remains to be seen as Europe writhes in the thrall of its economic crisis and a political backlash from workers and families told to bear a large part of the belt-tightening burden.
Or perhaps you could read it against the comments of Zhang Guobao, the top Chinese energy figure, chairman of the advisory board of China’s National Energy Committee, who told a Rio Tinto/Energy Policy Institute breakfast in Brisbane on Tuesday, that his country expects to use four billion tonnes of coal in 2015, more than half the world’s total consumption – and will need to treble its nuclear capacity to 40,000MW by the middle of the decade to ensure that it doesn’t find itself scrabbling to locate much,much more in the way of fossil fuels.
As I have written here and in the Coolibah newsletter, parsing the Bureau of Resources & Energy Economics projections to 2034-35 suggests that Australia will consume more than one billion tonnes of coal over the next quarter century – versus four billion tonnes annually in China.
Eliot’s poem is famous for how its finishes: “This is how the world ends – not with a bang but a whimper.”
Perhaps the new model “real Julia” could give us a real perspective on her “clean energy future” but then her leadership may well be consigned to the whimper basket before we get back to the polls federally.
For investors, the really big question is when might they actually see an Australian energy policy that is practical, durable and not chasing shadows?
Rather than spend any further time this Sunday night on contemplating what one of my friends, with long experience of Canberra, has described as “the corpse that is now a government beyond revival,” let me take you on a trip across the Tasman.
The New Zealand electricity scene is always interesting.
(The market is much smaller than Australia’s, of course. It is a little smaller than Victoria’s – last year generation sent out measured some 43,400 GWh and consumption about 38,000 GWh.
(The other big difference is that hydro makes up 56 per cent of supply.)
I started looking at it in late 1991, soon after I became chief executive of the Electricity Supply Association of Australia, and the NZ approach to a competitive market, to dealing with generation and transmission hassles (sometimes related to weather problems) plus the debates (still going on) over who should own the assets and where power projects could be built offered plenty to chew on.
The network regulatory debate over there has often been similar to our own.
The massive Auckland blackout of the late 1990s remains to this day an internationally awful warning of how badly network planning and management can go wrong – and was being used late last year by Ausgrid managing director George Maltabarow in the local debate over network regulation.
The National Party government is engaged at present in the start of a sell-off of assets, opting to put 49 per cent of each of them on the market, but it is prices rather than privatisation that caught my eye when I went looking this weekend for a distraction from the antics of our federal Labor Party, which have moved through the past week from amusing to disturbing, then appalling and finally just depressing.
The Kiwis, according to their media, have discovered they pay “far more” for electricity as householders than we do and don’t find it amusing.
The claim is that (in NZ cents) they are paying between 22.7 and 24.97 cents per kilowatt hour compared with 14.83c here.
However, according to my Port Jackson Partners notes from a presentation last September, the figure was 15 cents (Oz) per kWh in 2008, rising to 21 cents in 2011, so these comparisons across the Ditch are a bit skewed, I think.
Anyway, Statistics NZ is pointing out that retail electricity prices dropped 0.5 per cent in the December quarter after a 0.3 per cent decrease the previous quarter.
What are these guys moaning about?
Well, there as here, it’s how people feel that counts for a lot, at least politically.
Consumers NZ ‘s spokeswoman says: “Over the past decade New Zealanders have seen a consistent rise in household bills – and, with their energy bills being a large part of this, they have a sense of helplessness.”
They’re not feeling that helpless.
More than 244,000 Kiwis changed electricity retail supplier in the last six months of 2011, thereby saving money.
Householders are facing a 5.8 per cent rise on average in power bills from April Fool’s Day.
This has promptly got the moaners claiming that the NZ government is “grooming” the supply balance sheets ahead of the privatisation process.
In an echo of what we hear here, some consumer advocates are also complaining that Transpower – their version of TransGrid or Powerlink Queensland – is building more infrastructure than New Zealand needs.
Where Kiwi power bills will go over time is an interesting question as the current government, following in the shoes of its Labor predecessor, pursues a higher level of renewable generation.
New Zealand power is already more than 73 per cent renewable because of its use of run-of-river hydro-electric power and some geothermal energy. The rest is gas and coal.
The government’s new outlook report says it expects wind power to meet 10 per cent of demand by 2030, requiring current investment in wind farms to double – which will be fun because there are always groups in the shaky isles who fight each wind (or hydro) project tooth and nail.
The NZ Wind Energy Association, of course, has a more upbeat outlook – the 2030 target, it says, should be 20 per cent of supply.
Producing this level of energy would require constructing about a thousand wind turbines across New Zealand – it would be interesting to see how well this was received by the community and the NIMBY types.
The government report expects overall demand to increase by 25 per cent by 2030.
The report acknowledges that wholesale electricity costs have increased substantially in recent years to reflect higher costs of operating gas power plants and the costs of building new wind and geothermal generation, the latter not the “hot rock” variety with which various Australian investors are wrestling.
New Zealand has a large number of potential wind farm sites and, with the economics of the technology sitting between hydro and geothermal power, wind is seen as having strong prospects.
The modelling is hopeful that conventional geothermal development could also add 850MW to the generation mix by 2030, with another 750MW available thereafter.
It sees about 390MW of gas-fired generation being built,too.
The conventional form of geothermal is calculated to have a long-run marginal cost of $NZ90 per megawatt hour with wind coming in at between $NZ90 and $NZ110 per MWh.
Not surprisingly, the report sees the emissions trading scheme, which the current government also inherited from NZ Labor, as playing a big role.
With no emissions scheme, a 560MW coal-burning plant could be built in the ‘Twenties.
With the permit price being driven up to $100 per tonne from $25, electricity prices go up, electric vehicle demand rises from very little to about 13 per cent of the passenger fleet, wind generation development goes up 80 per cent and coal power falls back 36 per cent.
Aluminium and steel production have a big role in electricity consumption in New Zealand – acounting for 45 per cent of industrial demand – and the government modelling assumes this need will remain at present levels while residential demand grows by 1.4 per cent annually and commercial needs by 1.8 per cent.
The mindset of the greener side of things is well on display in a commentary I read from an activist, pointing out that closing the Tiwai aluminium smelter (which use 5,600 GWh annually) would make moving NZ to using wholly renewable power “ludicrously easy” – given the local fuss about even the possibility of closing the Point Henry operations, you might expect a bow to the economic implications of the Tiwai move.
Or would you?
The week’s best story is the one about the cat-sized horses that roamed the forests 50 millions year when things warmed up a fair bit.
The scientists concerned, of course, want to make a point about their concerns over future global warming, but kids all over the place will react to the idea of kitty-sized ponies with “cool!”
Meanwhile, back in the “real” world, the headlines are being hogged by the stoush between Kevin Rudd and Julia Gillard, watched by a certain Mr Abbott who can scarcely believe his luck and a Ms Bligh, who can’t believe her’s.
Just what sort of federal government will emerge from the smouldering ruins of the Labor caucus is anyone’s guess – as is who will be in the ministry given what has been said by its various members in the past two days.
What all this means for the timing of the next election is anyone’s guess as well – with big implications for the carbon pricing regime.
If investors in the power sector thought their environment was deeply uncertain last week, how would they describe it today?
It is a mistake, of course, to think that government just stops while the Labor family feud rocks the nation.
Public servants and agency managers are getting on with their jobs and they will deal with whatever regime emerges when it does — while knowing that they may also have to deal with an entirely different political set-up in the next 12-18 months.
One such area that is proceeding on its way is the second leg – actually the third leg because one attempt floundered during the Rudd term as PM – of the energy white paper.
Submissions on the draft published by Martin Ferguson in December are due mid-March and, to put it mildly, it is important that a final document, setting out a policy agenda, can be available by mid-year or soon thereafter.
The public service is going to need the full attention of the energy minister and federal cabinet on this issue after Easter – and one of the big question marks over Monday’s ballot, if one occurs, is what shape the Julia Gillard regime will be in, assuming as most in the media do, that she wins.
(Whether having 36 or 37 of your colleagues vote against you continuing in the job, which is perhaps the high point of the Rudd tide on the basis of what is being said in the media, is a “win” is debatable.)
One of the key issues on which the final version of the white paper has to make a landing is what is really its time horizon.
This 2050 stuff, picked by Gillard and her spinners for the “clean energy future,” is more than a bridge too far.
For my money, the Bureau of Resources & Energy Economics (BREE) has lit on a sensible horizon with its “Australian energy projections 2034-35” report which followed the white paper in to print.
BREE’s modelling, as I have written here previously, makes important points about potential demand in 2034-35, about the generation mix – and by implication the level of emissions from generation – and about the impact of a high gas price on the east coast.
The other document that followed the white paper in to public view is the Ernst & Young consultancy report to the Australian Energy Market Commission “Power of Choice” inquiry,
If the consultants are right in suggesting that we face east coast peak demand rising to 61,000MW by 2030 – from just under 40,000MW now – then this is a major issue for management with serious implications for end-user power prices.
It cannot be treated as a sideshow. Well, not responsibly.
In their summing up of the situation, Ernst & Young make some important points:
Since the 1970s Australia has been a very high user of energy relative to its OECD peers, with this demand predominently within the industrial sector.
Australian energy use has grown at a faster rate than its peers on both a per capita basis and per dollar of GDP.
Peak demand growth, driven largely by the residential sector, is not a factor of population growth, changes in household incomes or household size, but appears to be driven by the penetration of energy-intensity appliances – in short, driven by affluence.
All this raises important issues for new metering of consumption and a new approach to tariffs – and this cannot be left to individual States to pursue as and when they see fit, that is how it fits their political agendas.
There is a major need for the federal government to corral the State (and ACT) governments and to ensure there is a co-ordinated east coast approach.
In turn, this requires Canberra and the States to accept that there are major social welfare issues involved and to be well-prepared to manage them – or the public backlash will be large.
None of this stuff can wait on a Labor government carrying on doing its version of the sabre dance for months or for whoever wins to be constantly trying to keep the independent MPs and the Greens on side with twists and turns in its policy approach.
Without endorsing anything they are saying, you may find it interesting to read a piece entitled “The perils of Aussie parochialism” in “Climate Spectator” by its new editor, Tristan Edis, and a piece entitled “Why our cheap grid is letting us down” by his predecessor, Giles Parkinson, on his website RenewEconomy, along with a piece called “Renewables on a hope and a promise” by him that appeared on his site, then in “Crikey” and then in “Business Spectator.”
There are numerous issues that I could pursue about what Edis and Parkinson have had to say, but this is a debate where it pays to hear what others are saying – too many, and notably the Zero Emissions Australia mob, are talking straight past everyone else.
It’s the federal government’s job to hold the ring and to produce a guide to where it wishes to take us in energy policy.
This is a task which has already been drawn out rather further than is in the national interest.
Whatever happen in the Gillard versus Rudd brawl, it is not an issue that should be shoved to the sidelines.
The past week probably wasn’t the best one to suggest to me, as an acquaintance did, that I really should read a new commentary which includes “Choosing between progress and planet” in its title.
The strident Beyond Zero Emissions replies (yes, plural – lots of them) to the Grattan Institute “No easy choice” report has brought about sensory overload in the green corner for at least one energy commentator.
What’s more, this effort in “Quarterly Essay” is selling at $19.95 – not cheap.
Anyway, I stood in my newsagent and read the first half dozen pages, then bought the issue because it is well worth having.
The title of the “Quarterly Essay” 44 commentary is actually “Man-made World: Choosing between progress and planet.”
What you need to know about the author, Andrew Charlton, is that (a) he is an economist (with a PhD) who can write rather well, (b) he was economics adviser to Kevin Rudd during his abbreviated stint as Prime Minister and is described by one leading Canberra Press Gallery denizen as having been Rudd’s “muse,” (c) he has spent time at the climate change coal face, notably the disastrous Copenhagen summit and G8 meetings, discussing the issue and has seen the inter-government tussles at close range, and (d) he may be a “warmist,” as one right-wing review of the essay describes him, but he is not a one-eyed greenie.
Charlton, whose offering appeared in December as the UN was setting up its hyped but essentially hapless last summit in Durban, covers a lot of ground in his 66-page commentary.
Synthesizing his views in a few sentences will not really do them much justice.
However, there are several that are germane to the present debate about Julia Gillard’s policies (and her future, judging by this weekend’s media reports).
There is always the possibility that Charlton will be back in the corridors of power before we reach the Ides of March.
One Charlton view is that carbon pricing by itself can’t deliver the huge infrastructure investment or technology development required to achieve the UN abatement target, or for that matter the Australian 2020 target established by his former (and future?) boss.
Another is that the Kyoto treaty is a failure and it is time to find a “Plan B.”
Importantly, he derides Gillard’s partners in government and in shaping the “clean energy future” policies, the Greens, as “misguided” in their opposition to both carbon capture and sequestration and nuclear power.
Equally, he derides the spin from Gillard, Wayne Swan and Greg Combet that the carbon price plan can unlock investment in key new technologies.
“Emissions trading schemes,” he says, may find the most efficient way to reduce greenhouse gases from existing technologies, “but they are not particularly effective in bringing forward the technologies of the future.”
Charlton makes an interesting point, too, about the objective of international climate policy.
It needs to be “turned on its head,” he writes. “Our goal should not be to raise the cost of energy, but to reduce it.
“Instead of seeking to make fossil fuels expensive, we should focus on making clean power cheap.
“And instead of trying to reduce energy use, we should be trying to increase it in (poor) countries.”
He has not endeared himself to the Beyond Zero Emissions mob by saying: “In Australia the objective of transferring to 100 per cent renewable energy in the near future is a pipedream.”
He also says: “Green campaigners who insist that deep near-term emission cuts can be achieved with a mix of conservation, wind and solar are wrong – they haven’t done the maths.”
Charlton makes an interesting point, too, when he observes that the answer to developing a national political consensus on this issue is not providing people with more information to achieve greater understanding.
“Research,” he says, “shows that the more information we have, the more polarised people become.”
There are so many facts out here, he adds, that anyone can pick and choose to align them with their ideological position.
This fits with my own view that we need an energy position from the federal government — and Abbott’s government-in-waiting — that states what will be done and why in terms of policy, based on reality and not populist spin and political self-seeking.
Charlton wants us to recognise the environmental problems without losing sight of the need for economic growth and for techological innovation to drive both goals.
I would find it very hard — no, impossible — to argue with that perspective.
As I saw someone say in a newspaper the other day, there are few things more dangerous than bad policy built on good intentions.
Charlton is right when he talks about “the wide gap between rhetoric and reality” and he raises some interesting questions about how Australia and others can drive the R&D needed to make the plans to cut emissions, including CCS, actually viable.
Not least, his views support a new, serious look at the prospects for nuclear – something that the Committee for the Economic Development of Australia intends to tackle in a research paper later this year.
In an environment where so much of the opinion being flung about fits with the Melbourne rag trade joke I recalled in my last “This is Power” post – “never mind the quality, feel the width” – Charlton’s essay is a stand-out contribution to the debate, well worth your $20 note and important to our thinking because he is a commentator who has sat close to the apex of domestic and international consideration of the issue and may do so again if we are going to get Rudd Redux, as more of the commentariat are coming round to thinking may happen.
As Rudd is reported to support running this parliament to its full term, that means that we could have our effing former and future PM (and his close adviser) until some time next year.
What advice will Rudd get about how to manage the carbon issue(s)?
And, of course, remembering his past form, will he listen?
I’m looking forward to the “Energy State of the Nation” forum that Robert Pritchard’s Energy Policy Institute of Australia is planning to stage in Sydney on 23 March, not least because it will focus on the federal energy white paper and star Resources & Energy Minister Martin Ferguson as a keynote speaker.
Meanwhile the institute hosted a closed-door workshop in Canberra last month to enable energy producers and energy-dependent industries to discuss the white paper and its impact on them. Bob has been kind enough to shoot me a copy of his notes on the discussions.
Managers from coal, oil and gas, electricity, mining, rail transport, aluminium and the plastics and chemicals industries participated and some of the issues on which they focused resonate with my own concerns about the current situation and some of the commentaries I have published in this blog, on the adjacent Coolibah newsletter and in “Business Spectator.”
One of my hobby horses, as readers will know, is the lack of transparency in the Federal Treasury modelling supporting the Gillard government’s “clean energy future” policies – a set of projections the energy white paper, of course, has also picked up.
Workshop participants reportedly expressed considerable concern that the draft white paper accepts without questioning the Treasury position that growth in emissions-intensive, trade-exposed industries will slow.
I think the answer so far as the white paper drafters is concerned, is how could they do otherwise?
The problem lies with the opaque Treasury modelling.
Wayne Swan and his department have resisted all requests to provide the assumptions on which the modelling was based.
Personally, as I have explained here and elsewhere, I have difficulty with the Treasury belief about the low overall growth in electricity generation out to the ‘Thirties, never mind mid-century, given that we are expecting to see a substantial increase in population (and therefore households), a concomitant rise in commercial demand and the continuation of the mining boom.
The manufacturing sector, which accounted for 28 per cent of total power consumption when demand peaked in 2008-09 before the global financial crisis, was then using almost 67,000 giagwatt hours a year.
It would be simple – although political dynamite – for Treasury to reveal its modelling of what manufacturing demand for power will be in 2020, 2030 and (because this is the time horizon now used by the Bureau of Resources & Energy Economics) 2034-35.
With 992,000 jobs provided at present by manufacturing – less those losses recently announced and causing the government such angst – a model that suggests a sharp decline in the industrial sector would cause a large amount of new shouting and political explosions.
How – or whether – government policies which erode the competititiveness of energy-intensive industries will be mitigated over the longer term is of national importance.
At least some of the hollering once the obvious decline in manufacturing contained in the government/Treasury assumptions was revealed would, as workshop participants point out, be the official view that a co-ordinated global response to greenhouse gas abatement will be in place by 2016.
Few things are more certain than that it won’t be.
One of the problems for the workshop participants is that the draft white paper focuses as much on the export of energy resources for transformation overseas as on the transformation of energy in Australia.
They see a need for the paper to be much stronger in acknowledging the economic benefits of domestic value-adding.
Many of those participating are concerned about the level of ongoing government participation in the domestic energy sector – think Clean Energy Finance Corporation – and the level of market distortion created by inefficient regulation, including schemes such as the renewable energy target, which of course is one aspect of policy that has bipartisan support.
They took the opportunity again to make the point that their burden of regulated costs is exacerbated by those imposed on them for clean energy schemes they cannot use.
“Aluminium smelters, for example,” the institute records, “pay a very significant subsidy towards the renewable energy sector through the RET for absolutely no return.”
Unlike the Greens, the workshop participants want a reduction in regulation to optimise energy security and minimise end-user costs – and for rent-seeking behaviour by market participants to be diminished.
Given the people involved in the forum, it is also not surprising that they are bothered by perceived over-investment in electricity networks and resulting “unnecessary and inefficient” increases in power prices.
One of the stand-out factors of the current energy debate is the way networks, consumers, regulators and politicians are talking past each other on this issue – in some cases, and especially in the body politic, out of both sides of their mouths.
The forum members do praise the white paper for recognising the need to develop alternative retail pricing options such as the promotion of interruptibility across networks.
“Some,” the notes say, “will welcome retailers selling both firm and non-firm interuptible capabilities for lower energy costs.”
While noting the draft white paper comment that the era of cheap energy is over – which it certainly is – and the government’s commitment to pursue competitively-priced energy, the workshop attendees are concerned that the “clean energy future” plan in fact represents the end of the age of energy supplies that are affordable and uninterruptible
They make another good point, I think: end-user companies cannot hedge against the long-term risk inherent in politically-controlled costs such as the carbon price; nor can they include transmission and distribution costs in long-term contracts – but these unhedgeable costs are a significant and growing proportion of the final bill.
I will be interested to hear how Martin Ferguson tackles this and other white paper issues when he comes to the ESON forum on 23 March.
You can find the program on www.energyalliance.com.au.
On Valentine’s Day, while the ABC was querying the value of the Kevin Rudd-invented, Canberra-based Global Carbon Capture & Storage Institute, Barack Obama and China’s next president, Xi Jinping, were having a robust discussion on energy issues (among other things) at the White House which included at least one area of potential amity: how the two countries can work together on advancing CCS technology.
American commentators on the energy industry agree that the world is not going to achieve substantial advances in carbon capture and storage unless America and China can meld the long history of research on the topic in the US with the heavy investment the Chinese have been pursuing recently to drive down its costs.
The Chinese are now spending more than anyone on CCS. Projects costing $US1 billion to $2 billion are “just noise” in China, says one American proponent of CCS partnerships.
“US research could live off the table scraps” of what is being done in China – which, of course, has been attracting much more publicity because it is head-to-head with America over its subsidies of solar manufacturing and the way they are undercutting US plants and jobs.
The ABC’s focus on an essentially negative local story and the White House discussions on possible solutions underline the topsy-turvey nature of the CCS debate overseas and especially here in Australia..
Hated by the Greens, who have forced the federal government to keep CCS out of the $10 billion Clean Energy Finance Corporation legislation due to be debated in federal parliament sometime this year, the technology figures very prominently in the modelling released to promote the long-term “clean energy future” Julia Gillard, Wayne Swan and Greg Combet have been spruiking as part of their sales pitch for the incoming carbon price.
The Federal Treasury’s models assert that coal and gas generation using CCS could account for 40 per cent of the national generation mix by mid-century – but none at all by 2030.
This raises all sorts of questions about priorities.
Is it more important, for example, to pitch $1.5 billion at large-scale solar thermal, as the government is doing, rather than ramp up spending on CCS support when Team Gillard’s own modelling says the latter will be 10 times more important to mid-century power supply than the former?
The answer, of course, is all about politics and the art of survival by a minority government.
As an illustration of potentially how important CCS could be much sooner than 2050, I recently saw modelling by a leading consultancy – the material is not in the public arena – canvassing, among a range of scenarios, that, if the technology was viable, investors could install 10,000MW of new black coal plant and 4,000MW of baseload gas plant fitted with it in Queensland between 2020 and 2030.
With an additional interconnector of 1,500MW capacity between the State and New South Wales, the consultants said, these developments could enable the retirement of a substantial amount of old NSW coal power and meet a lot of the extra needs of the southern State as its demand grows.
(The Bureau of Resources & Energy Economics sees generation output in NSW rising from 75,000 gigawatt hours in 2008-09 to 96,000 GWh in 2019-20 and 110,000 GWh in 2034-35 versus Queensland production rising from 56,000 GWh in 2008-09 to 76,000 GWh in 2034-35.
(There is no law of nature, of course, that insists generation must take place in a State to meet its local demand. That’s a hangover from a century of State politicking. At what point does the federal government orchestrate a meeting of minds among State governments about the most efficient way to pursue supply, making the best use of transmission?)
I don’t mention the consultants’ views here as anything other than another example of why we should take CCS seriously and pursue its earliest possible commercial deployment – not through stand-alone Australian projects but in an internationally co-operative approach, which, of course, is what Kevin Rudd had in mind.
This is anything but easy, however.
As the Grattan Institute has observed in recent days, early-mover CCS projects here and elsewhere in the world have not advanced at the speed or scale envisaged at the time Rudd was putting the Global CCS Institute on to the world stage ahead of the much-hyped and failed Copenhagen climate change summit.
As the institute adds, integration of capture with transport and storage introduces a high degree of complexity for CCS projects.
The commercial business models for such integration has yet to be developed.
As it also says, insufficient information about global storage options for carbon dioxide is another important barrier – not least in NSW, I’d add.
However, the institute says the east of Australia is estimated to have aquifer storage capacity for carbon dioxide for 70 to 450 years at an injection rate of 200 million tonnes annually – while Western Australia has capacity for 1,000 years at an injection rate of 100Mt annually.
Like the Gillard government, the International Energy Agency sees a significant role for CCS, but this assumes the availability of commercial plants using the technology in the second half of this decade.
The agency says the next 10 years are “critical” for the future of CCS.
According to the Global CCS Institute, there are 74 large-scale projects at various stages of planning and implementation around the world, of which just eight are in operation.
There are a raft of factors impacting on this technology’s development – not the least of which is how politicians choose to play the energy game.
I thought the draft energy white paper, released by Martin Ferguson in mid-December, made a good point in saying that the pace and shape of Australia’s future electricity supply system will depend on the trajectory and predictability of carbon prices (here and overseas), gas prices, improvements in the costs and risks associated with new technologies and investor confidence.
The paper’s comment about the broad picture can be equally well applied to the specific carbon capture and storage situation: “Efforts by governments, the research community and business to accelerate commercialisation will play an important part in providing the market with earlier and lower-cost deployment options.”
The two Valentine’s Day events serve to remind us – via the ABC’s focus on the rather lame current approach to CCS here and the White House conversation about how the technology can be driven by big players in partnership – that there’s a lot to be gained if policymakers can get their act together.
The Gillard government’s problem is that its leader has it running in a three-legged race with the Greens, who have no interest in seeing CCS achieving the prominence the administration believes it should have down the track and on which it is basing a lot of its “clean energy future” selling proposition to voters.
The nation’s problem is that, given the opinion polls, there is every likelihood there will be a different federal government pursuing a “not invented here” agenda by the end of 2013, costing us another two years at least of focussed action.
Meanwhile the Rudd versus Gillard situation has reached such intensity in the past few weeks that I would not be surprised to see the Prime Minister call a leadership spill to “clear the air.”
Should she do so and lose, the national political outlook will twist again, creating even more uncertainty over carbon policies.
Where will it all end?
When Kevin Rudd welched on his commitment to introduce carbon pricing, the Brumby government in Victoria, with its eyes on the green vote in the pending election, leapt in and passed State legislation committing to a 20 per cut in greenhouse gas emissions below 2000 levels by 2020.
Its plan included shutting two units of Hazelwood power station, a major increase in household energy efficiency and delivery of five per cent of the State’s electricity from solar power, backed by spending $650 million of taxpayers’ money.
(The 2000 baseline was 120 million tonnes of carbon dioxide, so Brumby’s target requires Victoria’s emissions to be reduced to 96Mt in 2020. They currently exceed 131Mt a year and are en route to about 143Mt on a business-as-usual basis.)
Brumby and the ALP crashed and burned at the subsequent poll, of course, and the Baillieu government now finds itself revisiting the Climate Change Act 2010 because the legislation includes a review clause once Federal Parliament passed a carbon price.
Given the impacts of the global economic environment on such industries as automotive manufacturing and aluminium, business is not surprisingly suggesting to the Victorian government that shedding the extra weight of State carbon policy on top of federal programs is not a bad idea.
Alcoa, which is front and centre in the present national debate about manufacturing jobs and employs 2,000 people in Victoria, has told the Climate Change Act review that it is “less certain” that State abatement targets are necessary or desirable when Australia has a national goal, which it supports.
In its submission to the review, the Minerals Council of Australia asks why Victorian industry should continue to have a larger abatement target burden imposed on it than the rest of the country?
It says that the potential impact of the Brumby target on electricity prices in Victoria is “worrying,” repeating its earlier contention (based on modelling by consultants) that the Gillard/Brown carbon regime could see east coast wholesale electricity prices rise between 90 and 156 per cent in the second half of this decade.
The environmental movement is keen to avoid the symbolism of a government walking away from carbon legislation that it was hailing only two years ago.
Meanwhile, the federal government is currently considering buying the retirement of 2,000MW of brown coal-fired generation.
Shutting Hazelwood, for example, would deliver abatement of 16 million tonnes a year, equal to 13 per cent of Victoria’s current total emissions.
The Hazelwood electricity output would have to be replaced and doing so through construction of combined cycle gas plant would reduce the abatement to about 12.5Mt.
Some greens argue that Victoria could replace half the CCGT production with renewable energy, pushing abatement back up to 15Mt annually and delivering 11 per cent of the 20 per cent Brumby target.
The greens always have a tendentious comparison or two at hand and the Baillieu government is being told that Victoria’s current emissions, with a population of five million, are poor compared with Sweden, which has nine million people and emissions of 65Mt a year.
This omits the small fact, of course, that the Swedes obtain half their electricity from 10 nuclear power stations and most of the rest from one of Europe’s largest hydro-electric systems.
Nuclear power alone delivers 77,500 gigawatt hours a year to the Swedes compared with Victoria’s total annual system energy of 50,000 GWh.
As that Melbourne rag trade joke from the 19th century goes, “never mind the quality, feel the width!”
The Coalition did not oppose the State 2020 target when Labor introduced it – having its eyes also on the upcoming election in which it scored a narrow victory – and has described the goal as “aspirational” since winning office.
The Environment Defenders Office lobby group wants the Baillieu government to impose a performance standard that would allow only the most modern of baseload gas plants to be constructed and would ensure that the HRL “Dual Fuel” plan for the Latrobe Valley falls over.
The 600MW HRL project, which would combine the use of brown coal and natural gas, is one of the greens’ pet hates – they point to it emitting four million tonnes of carbon dioxide a year when fully commissioned – and they had a petition against the project signed by 11,916 camp followers tabled in Federal Parliament earlier this month.
The project is at present being reviewed by Victoria’s Civil & Administrative Tribunal with both proponents and opponents seeking to change a State Environment Protection Authority decision to approve a 300MW development.
Martin Ferguson has just extended the deadline for the project to receive a $100 million federal grant, originally provided by the Howard government in 2007, to enable the court case to be completed. (There is also $50 million on offer to HRL as a State subsidy.)
Ferguson’s move prompted howls of rage from the environmentalists, who are now accusing Julia Gillard of another broken promise – she told them before the last federal election that “no new dirty coal-fired power stations” would be built in Australia under a government she led.
Ferguson probably didn’t please the greens either by also granting $70 million – to go with $30 million from the Baillieu government – to the CarbonNet project in the Latrobe Valley aimed at building a $1 billion facility to capture and sequester carbon dioxide emissions from generators and industrial plants.
The politics of this situation are a pain for the Baillieu government, conscious that it will be defending the slimmest of majorities at the next State poll.
There are 300,000 manufacturing jobs in Victoria – where the sector’s contribution to GSP slipped from 15 per cent to 11 per cent under the Bracks and Brumby regimes – and Baillieu will have the pressure of the current economic environment at the top of his agenda although most of the factors pushing business closures and cutbacks are well out of his hands.
Which way will his political knee jerk on the Climate Change Act?
His government is already under fire from the greens for its reduction of Labor’s local ‘solar bonus” scheme and its move to tighten development rules for wind farms, allegedly baulking $3 billion worth of wind projects in Victoria.
Simon Holmes a Court, chairman of a small, community-based wind farm supplying electricity to Daylesford, is pushing the Baillieu government to remember that, with 25 per cent of east coast power consumption, Victoria needs to source a large chunk of energy to meet the national renewable energy target requirements by 2020 – although why he feels that the energy retailers must do this from plants built in Victoria escapes me.
“Victorians have a right to expect that no less than 25 per cent of future investment in renewable energy occurs in Victoria,” he says.
Well, no – the RET requires that the retailers source 20 per cent of their supply to State consumers from renewables by the end of the decade and, for example, that could come from wind farms on South Australia’s Eyre Peninsula (assuming there is transmission to transport it).
Meanwhile, Baillieu’s Liberal colleagues in Tasmania are calling for a new look at construction of a second Basslink transmission line.
A consultant’s report to the Tasmanian government last August said that, without a national carbon price, the line would be economically viable before the end of the decade.
To state the bleeding obvious, it would be really good to see some co-ordination across the States so that we end up with a genuine strategic energy plan for the east coast.
Don’t hold your breath.
In the latest issue of my Coolibah monthly newsletter (click “News” on the toolbar to see the 82nd issue), I reveal the uncomfortable truth for the Gillard government that its own research (undertaken by the Bureau of Resources & Energy Economics, looking out to 2034-35) shows that more than 1,000 million tonnes of black coal will be burned in New South Wales, Queensland and Western Australian over the next quarter century to make electricity.
Far from making Australia some rogue state, this trend is in line with current international research about coal usage.
In a nutshell, coal has met almost half the increase in overall energy demand globally in the past decade and, with current policies, is on track for a 65 per cent rise in consumption by 2035, at which point it will have overtaken oil as the biggest contributor to the international energy mix.
By comparison, the United Nations’ push for carbon constraints – limiting carbon dioxide in the atmosphere to 450 parts per million, well above today’s levels – requires emissions from coal use to peak by 2020 and then be steadily lowered.
Note how I worded that point – not consumption of coal to be lowered, but emissions from coal burning going to the atmosphere to be cut back.
This highlights the importance of carbon capture and storage in any international grand plan for abatement, doubly so because it would need to be fitted to gas-burning power plant as well to achieve the desired emissions reductions.
If CCS doesn’t make the commercial grade, the UN goals are not going to be achieved – and especially so if the present political pushback against nuclear power in the wake of the Fukushima crisis is maintained to 2020 and beyond.
The environmental movement sees a future in which no new nuclear plants are built in the OECD countries, the life span of existing reactors is curtailed and non-OECD countries build far fewer plants than they now plan.
(Ninety per cent of global energy demand growth is expected to take place in non-OECD countries over the next quarter century, according to the International Energy Agency.)
If this greenie dream is realised, there undoubtedly will be greater opportunities for renewable energy, but a low-nuclear future will also boost demand for fossil fuels, with unconventional gas taking an increasingly important role – a development the greens view with horror because it comes with greatly increased use of fracking technology.
As it is, the IEA sees global trade in LNG doubling by 2035 – with Australia a big player, of course – and China alone requiring one third of the increase in demand.
It is this view of the world that places such a large strain on Martin Ferguson and his Resources & Energy department in producing an energy white paper – for which submissions on the draft, published in December, are due next month.
It places even more strain on the credibility of the “clean energy future” touted by Julia Gillard, Wayne Swan and Greg Combet and would be already stretching its seams in public view if the Coalition and the mainstream political commentariat were capable of looking beyond the government’s spin and doing some relatively simple calculations based on its published information.
We are going to hear a lot more spin as we near mid-year.
The UN has declared 2012 “International Year of Sustainable Energy for All” and the upcoming summit in Rio de Janeiro (20 years after the meeting that launched the greenhouse gas abatement efforts) will see the Gillard government and others in full hyperbole mode.
(Just in passing, 1.3 billion people today, one in five of the global population, do not have electricity and 2.7 billion people burn biomass – that’s wood or cow dung – to meet their cooking needs. Think of that this weekend as you settle in front of the plasma TV to watch the cricket and turn on the air-conditioning before collecting a beer from the second fridge.)
This is an international environment in which the IEA sees the share of renewable energy in the mix growing five-fold – from three per cent today to 15 per cent in 2035 – and subsidies for this form of supply rising to $US180 billion a year. What would they need to be to give green power a greater share of supply?
The agency believes that, even though the costs of renewable energy such as solar power will decline, these sources will need big continued support over the next 25 years.
With the Clean Energy Finance Corporation legislation to come before Federal Parliament in the present sitting, this raises an important question: just how much will Australians get in renewable energy from the initial $10 billion of taxpayers’ funds the Gillard government wants to spend on Bob Brown’s Green Bank and, since the government is working to a 25-year time horizon at the least, what is the aggregate amount it expects to see invested by the bank between now and 2035?
Would $100 billion (more than twice the outlay on the national broadband network) be a fanciful number?
I don’t think so – and,when you take in to account that this will be an additional cost to the Renewable Energy Target burden (the current RET runs to 2030) and to emissions trading (expected to be costing $60 per tonne of carbon dioxide by then), there is a case for Gillard & Co being put on the spot to give consumers and taxpayers a genuine look at the total bill.
At present, we are in a position akin to going to a restaurant for a meal with only the price of the first course and the coffee on the menu.
The Coalition has been less than impressive to date in applying forensic skills to the “clean energy future” policies, relying instead on chanting “kill the tax,” which may carry it to an election victory but will not resolve the national issue.
The CEFC, of course, thanks to the insistence of Brown & Co, will not be supporting carbon capture and sequestration, but it is perfectly clear that large-scale government support for CCS will be needed.
Gillard, Swan and Combet have sought to duck this issue through the “clean energy future” plans – see the Treasury “strong growth,low pollution” papers – by not envisaging CCS being in large-scale use until 2050.
However, it is surely obvious that the heavy lifting in R&D for the technology has to take place in the next 10-15 years to enable electricity suppliers to include it in their infrastructure plans and to build the plants.
Equally obviously, the Gillard has a tiger by the tail in its energy planning – of course, an Abbott government will be in the same position, but without a carbon price – and the welter of reports now appearing (such as the draft white paper, the Ernst & Young paper on peak power demand and the Grattan Institute energy review about which I have been writing in the past week) only serves to highlight the size of the beast.
Not so much your every-day tiger as a sabre-tooth version and they are only cute and cuddly in the “Ice Age” DVDs that so amuse my grandsons.
In a speech last year Martin Ferguson made the point that “on the journey to a low-carbon future, only market-based approaches will deliver the most cost-effective solutions.”
He’s right, but the government in which he serves is embarked on a process of subsidisation about which we (the taxpayers and energy consumers) know far too little.
It’s not only the known unknown of the CEFC’s costs, but, for example, how long it will be before the embattled Julia Gillard bows to the Greens and launches a large-scale solar feed-in tariff to support the flailing “solar flagship” program?
To pinch and twist a line from that Frank Sinatra song, oh the tiger has pretty teeth, dear, and he shows ‘em pearly white.
Our problem is that, despite millions of words of spin and that not-so-well-managed $20 million advertising campaign, we still have no true idea about the size of the bite.
To say that the Beyond Zero Emissions lobby group is unhappy with the Grattan Institute policy think tank this week would be an under-statement.
The institute’s new report “No easy choices: Which way to Australia’s energy future,” on which I wrote on this site on Monday, has been greeted with this spray from BZE: “It contains misleading comparisons, flawed analysis and glaring omissions on vital energy issues.”
It accuses the institute of pandering to the interests of companies like Origin Energy and BHP Billiton.
The lobbyists’ fulminations might carry a little more weight, although not much, if they haven’t appeared in the same week as official news that the Gillard government’s “solar flagship” program is floundering in the market place.
A lot of the research Beyond Zero Emissions has undertaken in the past 2-3 years is quite interesting, although the manner in which the group allows emotion and idealism to dominate pragmatism about energy supply is well illustrated by its own description of its goal: “To transform Australia from a 19th century fossil fuel-fuelled economy to a 21st century renewable-powered clean tech economy.”
A loaded view, one might say. One that tends to see a renewables supply future through glasses of a particular tint.
Apart from jumping up and down about its disagreements with the Grattan Institute over the costs of solar power, BZE has also dissed the hot rock geothermal industry, on which Julia Gillard and Wayne Swan, the Treasury and their consultants are basing high hopes for the “clean energy future.”
BZE snaps that “enhanced geothermal resources such as those found in Australia are currently highly speculative, achieving no serious projects anywhere the world over.”
More in the green mainstream, BZE is also not happy at Grattan Institute’s dissection of nuclear prospects for Australia. “For the institute to suggest nuclear power as being viable in this country is ridiculous, to say the least.”
It is indeed a week for greens going ga-ga.
Bob Brown is in a class of his own, and not for the first time, with his claim that criticism of Julia Gillard and her policies and actions is sexist, but his party also has had Martin Ferguson in its sights, accusing the Energy Minister of “mismanaging the (solar flagship) process from start to finish, helping to keep renewable energy from challenging coal’s dominance.”
Ferguson, who gives the impression of wearing abuse from the Greens (and the greenies) as a badge of honour, has reacted to the problems the initial “solar flagship” grant winners are encountering in two ways – apart from dismissing the Greens’ criticism as “dishonest,” pointing to the government’s lengthy consultations with the solar sector before making decisions.
The awarding of the two grants, he points out, included taking advice from an advisory group of solar experts operating at arm’s length from the political process.
(All this can be expected to get another airing when the Senate estimates review process calls in the Department of Resources & Energy next week.)
Meanwhile, Ferguson has extended the deadline for the $1.2 billion Solar Dawn project at Chinchilla from December 2011 until 30 June to enable it to see if it can reach financial close.
This is politically wise in the context of the Queensland election, apart from anything else.
In the case of the Moree solar farm in New South Wales, Ferguson has thrown open the bidding process again to all four consortia that were in direct competition.
This gives AGL Energy, Infigen-Suntech and TRUenergy an opportunity to update their applications as well as allowing the Moree joint venture to compete again.
There is $306 million in federal grants in play here.
Pacific Hydro, the leader of the Moree project following BP’s withdrawal from the solar game, says it is “disappointed” by Ferguson’s decision but TRUenergy has been quick to say it is ready to put forward its Victorian solar proposition (at Mildura) again.
The sticking point in the market has been the unwillingness of energy retailers to ink a power purchase agreement with the Moree JV, reflecting the overall difficulty of getting renewable energy projects off the ground in an environment where the Rudd/Gillard governments initially stuffed up the RECs through pandering to the rooftop solar brigade for political gain.
Observers of the federal large-scale solar program thought from the get-go that having a retailer tied in to a bid was a necessity for success.
In this context, it is interesting to see the “Australian Financial Review” reporting yesterday that the Commonwealth Bank, which supported one of the unsuccessful “solar flagship” bidders, is wondering aloud whether it is possible for solar projects to get off the ground here under the current low REC prices.
This situation has given Beyond Zero Emissions another opportunity to sound off.
It is critical of the Gillard government for “picking losers” through a grants system.
It wants a national feed-in tariff to “provide a level playing field” for investors and to “break the control of monopoly power generators Origin Energy, TRUenergy and AGL Energy.”
This, says, BZE will enable “any business, community or individual investor to start a wind farm or solar plant.”
There would be no real delay in commissioning wind farms at present, of course, if it were not for the afore-mentioned REC stuff-up.
(The Greens, by the way, see the whole affair as more reason for their current pet project, the Clean Energy Finance Corporation, to be launched in to life by federal parliament. It’s only $10 billion of taxpayers’ money, after all.)
As for large-scale solar power, Grattin Institute says this: “The cost of generating systems is the most important barrier to PV deployment today. Even over coming years, as a carbon price increases the cost of electricity from fossil fuels, the cost from PV systems will remain high among existing low-emission options.”
I don’t have the space here to do any form of justice to the institute’s detailed analysis of seven future electricity supply options – it runs to 177 pages.
This is available on the institute’s website and is well worth reading.
And, while all and sundry are peering darkly through their glass, it is important not to lose sight of the main message from this report: a carbon price alone will not be enough for Australia to meet the mid-century abatement target Julia Gillard has set.
This has major implications for end-users and taxpayers as well as for the economy, which Gillard and Tony Abbott now proclaim themselves so eager to debate.
Suppose that Labor’s carbon price regime survives the current leadership arm-wrestling inside the caucus – described by one commentator today as a “Mexican stand-off” – and that it does prove too hard for the Coalition to abandon in late 2013 when it wins office.
(At the weekend Fairfax political commentators were claiming that a revived Kevin Rudd prime ministership would see him retain the carbon policy but put it on hold until there is an international abatement decision.)
Where, if the policy comes in to play as planned today, will carbon prices be in 2020 and beyond and what will this mean?
An answer to the first part of the question is provided by the Bureau of Resources & Energy Economics (BREE) in its still-new projections of power generation out to 2034-35.
Using 2009-10 dollar values, BREE says the opening carbon price in 2012-13 will be $21.05 per tonne, rising to $29.40 at the end of the decade, $52.60 at the end of the ‘Twenties and reaching $69.90 by 2034-35.
In practice, under the Gillard government’s approach, the carbon price after 2015 will be determined by the world market with which Australia is intended to trade permits.
The reason I raise this today is that my early morning reading has been the new Grattan Institute’s report called “No easy choices: which way to Australia’s energy future?” – it is to be found on their website and is a recommended read.
The Institute’s argument is directly counter to that of large energy consumers and plain Jane economists, who assert that, once a carbon price is in place, the raft of other zero carbon subsidies should be phased out – or just dropped, as some would have it.
The Institute tells us that carbon pricing will not be enough to make new low-emission technologies competitive.
This is a fundamentally important point in the energy policy debate. The Institute describes it as “an acute intellectual and policy challenge.”
The new Institute paper goes on to evaluate seven technologies that have prospects of deployment at scale by mid-century.
They are wind power, solar PV power, concentrating solar thermal energy, geothermal generation, bio-energy, nuclear power and carbon capture and storage.
The Institute caused me a moment of amusement this morning when I noted it calling for a “level playing field” for all power-generating technologies.
This language always immediately takes me back to sharing a platform in Toronto in the late 1990s with the great Professor Alfred Kahn, now dead, who, in response to the point being raised from the audience intoned in a voice of doom: “The only level playing field is in the grave,” stretching out the last word to great effect.
The Grattan Institute’s smoothed-out field of play would see the removal of barriers to wind and geothermal being connected to power grids – a requirement that would entail multi-billion dollar construction on the east coast of new transmission lines, with all consumers to share the ensuing charges.
It would involve reducing the present difficulties low-emission technology investors face in overcoming market barriers and obtaining finance – proposed to be attacked by the Gillard government by the $10 billion Clean Energy Finance Corporation at taxpayers’ expense and at this point with no indication of how many billions would be needed until we reach the present horizon of choice (BREE) of 2034-35.
Will it be $50 billion or $100 billion?
Pick a number.
It would also include ongoing backing (the Institute’s word) for R&D and sponsorship of exploration, demonstration and early-stage deployment of battling technologies.
So add more billions of dollars of taxpayer funds on top of the carbon price and extra transmission charges as well as the costs flowing from the renewable energy target, which the Energy Users Association claims has added $12 billion to consumers’ bills between its introduction in 2001 and 2010 – when the policy decision was taken to greatly enlarge the target.
Some idea of the future awaiting power consumers can be gained from the Institute testing the commercial feasibility of these technologies against future wholesale electricity prices of $100 to $150 per megawatt hour – that’s compared with present east coast market prices ranging between $30 and $40 per MWh.
Set this in the public debate du jour about power (of the electric kind): when, to use the tabloid media slang, will the stings and the slugs and the hits of rising bills stop?
Well, the answer staring the headline writers and consumers in the face from the Institute’s new paper, is never.
In the environment conceived by the Institute’s perspective – and by the modelling of carbon prices by the Treasury, BREE and others – the price rises are a never-ending story, moving next, as I have frequently quoted Port Jackson Partners as predicting, towards being double in 2017 what they are today.
The particular favour the Grattan Institute does us here, I think, is bringing the power price reality out of the political closet.
Read carefully, the new report hurls cold water over Gillard’s “clean energy future” jargon, spin and propaganda.
(I am adding my tuppence worth this week through publication of the February issue of the Coolibah newsletter on this website, up later today or tomorrow if my son Kay is doing his stuff – the design and operation of this website is Kay’s work.
(The lead story in the February newsletter is my calculation that, based on the BREE modelling of the generation mix in 2020 and 2034-35, we are on a course to see more than a billion tonnes of black coal burned in our power stations over the next 25 years.
(That’s not a thought that Ms Gillard has used, or intends to use, as she spins her “clean energy future” web.)
The Institute is quite right to say, as it does in the new report’s introduction, that Australia has no quick fix or easy choices in contemplating its path(s) in the first half of the new century towards securing affordable electricity supply with a very much lower environmental footprint.
Which is perhaps the best reason for contemplating the introduction of nuclear power here – something that the Committee for the Economic Development of Australia (of which I am a trustee) intends to do in a new research paper in 2012.