Archive for April, 2012
One of the more farcical soundbites in the current Australian carbon debate is “Losing the renewable energy race is not an option.”
What race is this? Against whom? To what end?
Even if we opted to close down all fossil fuel power production in Australia and bankrupted the nation by also abandoning fossil fuel exports, we would achieve no more in terms of global abatement than those poor sods who set themselves on fire to make a political point.
The Greens, who espouse the “race,” attract about one in eight votes across in Australia.
At the recent Queensland election, where they could offer themselves as an alternative to the Coalition in a seminal vote to throw out Labor, they achieved 7.52 per cent of the vote, down on their showing in 2009.
The false rhetoric used in this debate grows ever more shrill.
I see one Greens booster in the media today describing the annual investment in electricity networks as a multi-billion annual subsidy for the “public/private national energy market,a payment for upgrades of our last-century baseload grid of coal and gas generation,” hidden, it is alleged, from the view of consumers.
Given the vigorous public debate over network investment and the major “Power of Choice” inquiry being undertaken by the Australian Energy Market Commission as well as the AEMC consideration of proposals for changes to network capex and opex rules, this must set a new standard for hiding things in plain sight.
This is farcical and not least because the zero carbon mob have acknowledged themselves that junking the existing electricity system in favour of a wholly-renewable supply would involve $90 billion (their estimate in an overall costing that is widely considered to be much too low) for transmission expenditure.
Rather than be distracted by this Hyde Park Corner-style babbling, we could look at the fact that, against our own widely-supported desire to add renewable energy to the generation mix (the Renewable Energy Target), Australia has fallen short of its intentions in the past five years.
Among the many things to hold against Labor in its sometimes shambolic turn in federal office since late 2007, the poor showing of wind farm development is definitely one.
Start with the fact that it took Kevin Rudd’s government a long time to put the enlarged renewable energy target to the federal parliament, although this was policy on which it had Coalition support in the 2007 election.
Then shift to the way in which the government stuffed up the new RET by using the measure to push populist solar subsidies, ensuring a surplus of renewable energy certificates.
On current trends it will be 2014-15 before the REC surplus is washed out of the market, leaving little more than five years to chase the 2020 target, which may well not be met.
At the same time that a fuss was growing over coal seam gas developments in New South Wales and Queensland, the federal government totally ignored the pushback from rural and regional communities to wind farms encroaching on their living space.
Development of a standard set of rules, accepted by the States, for wind farm construction across the country would have been possibly one of the easier things to do in 2008-09, but it was never attempted.
Instead, Rudd, Wong and Garrett devoted some of their time to creating a mess in the RET market and, as a result, orderly development of wind power is well and truly lagging while new, Coalition State governments are buying rural popularity by imposing more strict conditions on wind sites, creating differing standards along the east coast.
As the Bureau of Resources & Energy Economics modelling demonstrates, the “clean energy future” postulated by the Gillard government requires the generation mix in 2035 – a quarter century from now – to include about 49,000 gigawatt hours annually of wind farm output, 12 times today’s supply from this source.
Getting to this point will require a substantial capital outlay on wind – perhaps $50 billion, although such calculations are fraught with difficulty because one cannot know the input costs over such a period of time.
The energy white paper also foresees some $26 billion being spent on transmission out to 2030 and a fair bit of this will be needed to connect remotely-sited renewable energy (mostly wind farms) to the main grid.
Meanwhile, the biggest single investment in renewables to serve the east coast market isn’t to happen inside Australia at all and its costs are not included in official calculations.
This is the Purari River hydro-electric project in Papua New Guinea, to be linked to Australia by undersea transmission cables, a project by Origin Energy for which there is no official capex estimate, but which analysts claim will cost at least $10 billion.
Origin Energy managing director Grant King was recently in the media arguing that the Purari River development could be the catalyst for a new manufacturing hub in northern Queensland.
Nuclear power proponents – of an approach that is anathema to the Greens and not likely to be taken on board the sinking ship that is the Gillard government – will look at all this and argue that the biggest single zero-emission step Australia could take over 25 years is to embrace the latest in reactor technology.
The federal government’s official view is that we should drive on with renewable energy and only consider nuclear if this falters.
The government’s view also, as modelled for Treasury in the “clean energy future” scenarios, is that the largest source of new electricity technology beyond 2035 will be coal power and gas power with carbon capture and storage, but it has banned support for CCS by the Clean Energy Finance Corporation under pressure from the Greens.
Go figure, as they say.
My Latin teacher, when I was a pimply schoolboy 55 years ago, used to make me write out “Quem deus vult perdere, dementat prius” over and over again on the blackboard as punishment for (not infrequent) misbehaviour.
It translates as “Those whom the gods wish to destroy, they first make mad.”
(By the way, average household electricity demand in Australia in 1955 was just two megawatt hours a year.
(By 1970 this had doubled and it has virtually doubled again now. To which, one can add that the number of households with air-conditioning has risen from 23 per cent in the 1970s to 72 per cent now, with half of us running two or more units, and continues to rise.
(As well, since the 1970s, manufacturing’s requirement for electricity and that of the commercial and public services sector have each risen more than three-fold.
(Much of the network system serving this demand was constructed 30 years ago and longer. Hence the current networks capex outlays.
(They are not a “subsidy” for fossil fuelled generators.
(They are the cost of the requirements we place on an essential service – one for which the vast majority of users have security, reliability and price as their highest concerns.)
Some idea of just how poorly rather too many in the media understand the carbon/energy issues can be found in this week’s ABC news report on a Standard & Poor’s/RepuTex review of the electricity market.
The ABC’s report starts like this: “Australia may still be dependent on coal-fired power stations at the end of the decade because of volatility in gas and carbon prices and a lack of infrastructure. Gas-fired power stations are not being built quickly enough to replace coal.”
What does it take to get the ABC and others in the media to understand that there is absolutely nothing in the federal government’s “clean energy future” approach that affects large-scale dependence on coal-fired generation this decade and a strong, if declining requirement for it over the next 25 years?
The current mix nationally is 70 per cent coal-fired power production plus 18 per cent gas.
The Bureau of Resources & Energy Economics 2034-35 report sees coal’s role at 57 per cent in 2020 and 38 per cent at 2035.
What this means in actual production terms is coal-fired generation declining from 182 terawatt hours to 178 TWh in 2020 and 134 TWh in 2035.
The BREE modelling sees gas-fired power rising to 21 per cent at the end of the decade and 36 per cent in 2035.
As I have pointed out several times before, this involves black coal miners providing more than a billion tonnes of their product to generators in New South Wales and Queensland over the next quarter century.
Why, given the ready availability of information, this outlook remains beyond the understanding of the ABC and others in the media is something of a mystery.
No doubt to the great surprise of the ABC, there never has been any “may” about dependency on coal power at the end of the decade, but the reporting does sustain the view that government spin – “clean energy future” – works with journalists unable or unwilling to undertake minimal analysis of information that is readily available.
The RepuTex research paper, co-published with S&P’s ratings, states the outlook quite straightforwardedly:
There will be a gradual transition to more gas generation. While many coal plants are ageing, they are well within the typical 40-50 year life span for such generation.
Despite its efficiency, gas plant is expensive to run. Even with the carbon price, conventional coal plant is relatively inexpensive.
The pace and scale of a transition depends partly on the rising price of gas and of carbon – and on what headroom is provided in the market by new demand.
“Medium to long term a soft baseload demand outlook is likely to result in few new plants being built,” say RepuTex.
They sum up their modelling by observing that, while gas is expected to be a winner under the existing carbon program, “the extent of the victory could be muted.”
The development of LNG projects on the east coast from 2014 is expected to push up gas prices and this, particularly if carbon costs stay low and construction capital costs continue to rise, “will preserve coal’s competitiveness.”
The analysts note that, with baseload demand remaining flat, investors are going to need to be convinced of returns from alternative power sources to drive large outlays and that investment in peaking plant is more likely – which is exactly what other analysts and industry executives have been saying for some time.
In the absence of substantial system demand, RepuTex add, wind farms could meet any supply shortfalls, further affecting the economics of building large-scale gas generation.
One of the conundrums of the times is whether advancements can be made in renewable technologies to make them more attractive to investors as a transitional fuel to a lower-carbon future, bypassing gas.
RepuTex suggest that by early next decade it may become difficult to convince lenders to take long term stand-alone exposure to new baseload power developments, including gas, but it also rightly points to the big, integrated suppliers (Origin Energy, AGL Energy and TRUenergy at present) having more ability to absorbed any stranded asset risk.
As for the outlook for renewable energy this decade, RepuTex say all three scenarios it has modelled forecast that the 2020 legislated target may not be met.
They point out that wind capacity will need to increase by between 4,750 MW and 5,000 MW to enable the RET to be achieved. If wholesale prices remain weak, as they are today, it may be cheaper for retailers to pay the market penalty under the RET legislation.
RepuTex suggest that the 2020 renewables market share could be 14 to 17 per cent rather than the desired 20 per cent.
“Judging by the current small size of the renewables pipeline, (reaching) the 2020 target could be a stretch.”
In sum,taking in to account the apparent impending Labor disaster in the next federal election and the views that gas prices on the east coast will rise, the direction of power generation investment is anything but straightforward – which, of course, BREE’s modelling made clear some months ago.
The alternative BREE scenario, based on a substantial hike in gas prices, sees three important trends:
First, demand out to 2020 is dampened – BREE suggests system energy needs will fall from 310 TWh to 288 TWh.
Second, output from coal plants stays pretty well where it is – at around 182 TWh.
Mind you, this is dependent on brown coal production remaining at present levels and the current federal government’s soon-to-be-announced decisions on buying the closure of 2,000 MW of coal generation is an important factor.
Third, gas generation’s share of system energy falls back from a projected 64 TWh in 2020 to 39 TWh, but this will depend on the plant closure outcome – it is a given that, if, for example, Hazelwood or Yallourn units are shut, the replacement will be combined cycle gas plant.
Whatever happens, BREE is looking to wind energy to build itself up to about 37 TWh of the national mix by 2020, but this, as RepuTex point out, requires the RET to be met.
While all this is of tremendous interest to the Greens and the environmental movement, politically, of course, the really big issue is what will happen to wholesale energy prices and therefore to the retail bills?
It seems likely to take 2-3 years for a new picture to emerge, including the fate of carbon pricing, and in the meantime the most likely outlook is for generation investors to continue to do what they have been doing for the past two years: sitting on their hands.
A fairly predictable return to hotter summers and colder winters in this period, with its implications for peak demand, is yet another factor in the mix.
There are lots more bumps to come!
In the final, shambolic years of Labor’s long reign in New South Wales, ending with massive defeat at the polls in March last year, the “solar bonus scheme” epitomised what was wrong with policymaking.
As part of a long report on the financial situation for the incoming O’Farrell government, Michael Lambert described it as “poor policy process that has proven very expensive for only minimal, highly inefficient outcomes.”
There is every chance that the Clean Energy Finance Corporation, soon to be put before federal parliament for approval, is of the same ilk.
When people like Richard Denniss of the Australia Institute (writing with Andrew Macintosh of the ANU Centre for Climate Law & Policy) can speak of the “great fear that the CEFC will prove to be yet another under-spent, under-performing renewable/climate slush fund,” then this exercise really is questionable.
Denniss and Mackintosh decry the CEFC on the grounds that there is significant risk it will duplicate other programs or disrupt their operation, potentially prematurely pushing technologies in to commercialisation.
“It could cannibalise the operation of the RET by pushing down the cost of RECs,” they say, “effectively punishing early movers.
“While the RET may not be the ideal vehicle for driving down renewable energy costs, we will now have two policy instruments potentially pulling in opposite directions.”
Then we have Tristan Edis, the editor of “Climate Spectator,” describing the CEFC as “the wrong answer,” earning him a rebuke from the Australian Conservation Foundation that he misunderstands the “clear strengths and purpose” of what the Coalition calls the “Bob Brown Bank.”
As the ACF sees it, this is much more than a renewable energy fund – it’s “a catalyst towards reaching our long-term emissions target of 80 per cent (below 2000 levels) by 2050 as its $10 billion is invested again and again over the coming decades, resulting in up to $100 billion of investment in clean energy.”
Contrast this with the views of Denniss and Mackintosh, who say that “in reality the CEFC is unlikely to materially affect the trajectory of Australia’s emissions and could ultimately increase the cost of transitioning to a low carbon economy.”
The Grattan Institute, in its submission to the panel chaired by Jillian Broadbent, quite neatly encapsulates the environment in to which the federal government is pushing the CEFC: “Clean energy projects are being financed in Australia. There is not essentially an endemic problem of capital availability, but of projects that meet the financial return hurdles of investors.”
The institute adds: “The clean energy sector has more than its fair share of companies and organisations seeking government subsidies for their models and this is very much complicated by the political overtones and influences that surround green, clean or renewable energy.”
It notes that politicians have delivered a plethora of policies, instruments and regulations, often with poorly-defined objectives and “unintended consequences are common.”
The CEFC, it warns, should not be a response to these problems and nor should it subsidise industries that are simply not commercially viable.
Coalition spokesman Greg Hunt put his finger on the big weakness of the proposal, I think, when he observed that the government, through the CEFC, “a giant slush fund,” is going to make taxpayers put their money on the line on projects the private sector declines to fund.
Edis has come up with a five-point plan he suggests even the Coalition could support as it intends to rescind the carbon price regime and abolish the CEFC on winning office.
He argues for (1) an emissions trigger to be inserted in the Environment Protection & Heritage Act for evaluating generation proposals, (2) the establishment of an independent authority of engineers with 10 years of block funding to evaluate and develop carbon emissions best practice standards for industrial facilities, buildings and appliances, (3) imposing a greenhouse gas intensity limit of 0.5 tonnes of CO2 per megawatt hour on new power stations, (4) the insertion of environmental criteria in to the national energy market objectives, and (5) extending and increasing the RET to 2030 and dividing it in to sub-targets to support a portfolio of low-emission technology options.
These are steps that would help the Coalition drive its “direct action” approach, he says.
There is logic to this approach – except for the very last bit.
Why on Earth should the RET be sliced and diced to allow niche rent-seekers to claim their share?
Why further distort the RET to make room for technologies that have been unsuccessful in reducing their costs to a point where they can take advantage of the legislation?
The RET is already under fierce fire from big business over its impact on their input costs — why opt for an approach that would guarantee higher costs and a much stronger pushback from consumers?
The whole point of the RET is that it provides a market in which the most cost-efficient renewable technologies are taken up.
None of them are cheaper than coal or gas, which is why the government is also opting for a carbon price.
The RET has already been impacted by the federal government choosing to use it to boost household solar PVs and solar hot water units, creating a large glut in renewable energy certificates that has frustrated investment of several billion dollars in wind farms.
Because CEFC-funded projects will also be eligible for inclusion under the RET umbrella, there is now concern that the target program will be further distorted.
It seems logical that financial institutions are more likely to be attracted to CEFC-backed projects than other renewable ventures, inevitably further crowding out wind power.
Wind equipment manufacturer Vestas in its submission to the Broadbent panel warned against the CEFC frustrating, delaying, deferring or displacing investments in wind farms.
As Edis points out in his “wrong answer” commentary, the reason only a small number of wind farm projects have proceeded in the past two years has nothing to do with financial market failures and everything to do with the market (including the RECs) setting prices around $70 per megawatt hour when wind generation needs $90 to $110 to be commercially viable.
This situation could be expected to change between now and 2014 because the mandated target for 2016 will be sufficiently high to drive new investment – except that the CEFC is now introducing a new “bugger factor.”
As the Grattan Institute observes in its submission to Broadbent & Co, “By definition, government intervention means that something will be impacted and many attempts by governments to intervene in markets, often for well-argued reasons, end up with unintended consequences.
“The proposition that intervention in a financial market by government has no impact on the private sector is simply wrong.”
More front than the QVB is a very Sydney expression.
Apart from egregious cheek, it refers to the wide Queen Victoria Building on George Street.
It will be known to the federal Industry & Climate Change Minister Greg Combet, being a New South Welshman, and his latest foray in to the electricity price debate epitomises it.
Defending the additional cost imposed by the carbon price he is helping to introduce, Combet was asked by a helpful journalist “Do you feel the O’Farrell government is trying to deflect from its own failings in terms of infrastructure and the costs of that by blaming you?”
Combet responded: “Of course they are. The fundamental drivers of electricity price increases in recent years are the poles and wires, the transmission grids, and these are all things within the government’s jurisdiction and that is what they should be attending to.”
Item the first, the O’Farrell government has been in office a little more than a year and the regime that presided over the previous 16 years was from Combet’s side, led for most of by his new colleague, the Minister for Foreign Affairs, previously Premier Bob Carr, and then by Morris Iemma, Nathan Rees and Kristinia Keneally.
The bills currently reaching householders for electricity relate to capital works approved while Labor was in power – and, indeed, boasted about in years gone by.
Item the second, as Combet also well knows, the NSW and Queensland network businesses may be State-owned, but their capital expenditure is overseen and approved by a national regulator, the Australian Energy Regulator, which imposes the charges the distributors may apply.
Item the third, as Combet also knows, the AER has applied for rule changes that are awaiting a decision by the Australian Energy Market Commission.
It is not down to the NSW, or any other State, government to take action.
Finally, as he also must know, the State regulator, the NSW Independent Pricing & Regulatory Tribunal, has found that nine per cent of the 16.4 per cent increase to apply from 1 July comes from the carbon price – and, although the federal government is offering compensation to householders, there will be none for small businesses, including small manufacturers, hit by the cost.
Nor is there any compensation for the costs of the federal renewable energy target, heavily criticised by IPART in its latest determination.
This sort of stuff would be pathetic but for the fact, as Combet well knows and is relying on for effect, all most householders will hear about the issue is a television or radio soundbite in which he accuses the O’Farrell government of blame for the latest price rises.
It is not known in the trade as a “30-second grab” for nothing, but how many members of the community know how much effort goes in to contriving these “grabs” to lead them down the garden path?
In the same spinning vein, Combet, announcing the release of the Clean Energy Finance Corporation review, declaims that “The Gillard government is building a clean energy future.”
In fact, as his own government’s Bureau of Resources & Energy Economics has identified in modelling of electricity production to 2034-35, the Gillard/Combet “clean energy future” plan will involve the burning of a billion tonnes (and more) of black coal in NSW and Queensland in the next quarter century plus a three-fold increase in burning natural gas and coal seam methane.
The fossil-fuelled share of electricity supply in 2008-09 (the high water mark of recent demand because of the impact of the global economic crisis) was 92.6 per cent or 227,000 gigawatt hours.
After 25 years of the Gillard government’s “clean energy future” program, including a mooted rise in the carbon price to $60 per tonne by 2030, on the BREE modelling, fossil-fuelled generation will provide 265,000 gigawatt hours annually or 76 per cent.
Come in, spinner!
As for the CEFC, it is interesting to see Tristan Edis, describe it as “the wrong answer to the right question” in “Climate Spectator” – see www.climatespectator.com.au.
Edis, the “Climate Spectator” editor and previously at the Grattan Institute, argues that the “Brown Bank,” as the Opposition have labelled it, doesn’t address the fundamental problems of delivering affordable energy needs with much-reduced emissions.
He is hardly the “conservative side of Australian politics and fossil fuel lobby” as one renewables company executive has labelled the critics.
“The reason renewable energy projects aren’t being progressed in Australia at the scale required,” Edis says, “has very little to do with the inadequacies of the financial markets or the absence of a carbon price.”
He then dissects the various reasons why wind, solar PV, solar thermal, geothermal and bio-energy projects are not being developed as far and as fast as he and others would prefer. It’s a commentary worth reading.
Just on geothermal, he says that its problem is that there is too much uncertainty around the cost-effectiveness and reliability of the underground heat extraction process.
“Giving geothermal proponents a loan is not going to help them much – because they have no way of knowing when and how much electricity they will generate and therefore their capacity to pay back the loan.”
His point about geothermal is especially apposite because the Gillard/Combet “clean energy future” perspective for 2050 includes modelling asserting that the technology will meet between 13 and 23 per cent of supply mid-century.
In round terms, this is equal, on the basis of the expected system energy levels in 2050, to between all the power produced in Queensland now and all the power produced in NSW and Tasmania combined today – that is, 50,000 to 90,000 GWh.
As various commentators, including the Coalition’s Greg Hunt, are pointing out, the RET before the CEFC was 20 per cent and after the introduction of the bank it remains 20 per cent. $10 billion of taxpayers’ funds is not aimed at increasing renewable energy.
As Edis notes, if the federal government wants projects with electricity prices too high for the market to be brought in to operation,it will need to either gift them capital or buy their power output at a price above what the RET fetches and way above what the wholesale market is delivering – which, of course, will flow back in to consumer costs.
I recall one of Combet’s predecessors as a prominent Labor minister in a 1980s government saying wryly over a debacle he had initiated: “But it seemed such a good idea at the time.”
It’s been another noisy week in the energy supply arena.
It’s been a busy month, in fact, as the new issue of the Coolibah newsletter (which is now available on this website) illustrates.
The stand-out event this week because it affects the most people, is the announcement by the New South Wales Independent Pricing & Regulatory Tribunal of the power prices that will be imposed on roughly half of the State’s residential and small business customers from 1 July.
(It’s half because the balance of these customers have taken out supply contracts with energy retailers – but it needs to be borne in mind that those with market-based prices are also influenced by IPART decisions because the retailers usually increase their rates in line with the regulator’s decisions.)
IPART chairman Peter Boxall makes the point that, with this increase, regulated prices will have risen 70 per cent (in inflation-adjusted terms) in the past five years and network charges, which are set for the east coast businesses by the Australian Energy Regulator, will have gone up 90 per cent (real) in the same period.
The ensuing political debate, not surprisingly, has been about the impact on prices of the federal carbon charge, which also comes in to play on 1 July.
The Coalition at State and federal levels and the Gillard government have traded blows over the role of the carbon price, with Greg Combet pointing to the compensation package included in the legislation.
(Before I go any further, let me point you towards something Bruce Macfarlane of Exigency sent me this week.
(The poster is entitled “Grounds for alarm” – which is a terrible pun – and presents a decade-long comparison of national average residential electricity costs per day and the price of a good cup of coffee.
(The comparison, which can be found on Exigency’s website at www.exigency.com.au, reveals that in 2003 the daily household cost of power averaged $3.01 versus $2.49 for a cappuccino.
(Today, Macfarlane says, the cost is $5.55 versus $3.35.
(The coffee cost has gone up 35 per cent and the power price has risen 85 per cent.
(Of course, every network engineer in the country reading this is now spluttering in to his or her beverage of choice that this demonstrates just what a good deal the power service is when you consider what lies behind the delivery of the coffee and of the electrons.)
Coming back to the IPART announcement, somewhat lost to view in the initial media coverage has been the unhappiness of small manufacturing businesses in NSW.
They are already struggling because of the high value of our dollar and they will not get any of the compensation the Gillard government will provide for the carbon price.
You would have to be a political mug to ignore the ripple effect of this problem.
The IPART report is quite clear about how the 16.4 per cent price for average NSW residential customers is made up – the carbon charge will contribute nine per cent while network charges will add 8.4 per cent and retail costs and margins contribute 1.2 per cent.
The blow is less than what these add up to because the year’s softer wholesale energy market means a 2.3 per cent fall in power generation costs has been factored in.
Leaving aside rural and regional customers, who pay more because it costs more to transport electricity across country to them, IPART estimates that households in the heavily-populated area from Wollongong and the Southern Highlands, including urban Sydney and stretching up to the Central Coast and the Hunter Valley (including Newcastle) will face average power bills between $1,946 and $2,101.
The biggest contributor to these costs is network charges, which in 2012-13 will account for $860 to $1,042 annually, followed by wholesale energy ($526 to $565), retail costs and margins ($211 to $227), the federal carbon price ($168) and other “green costs” (including the renewable energy target) of $139 to $142.
As IPART notes, the actual impact of the price increase depends on where you live and how much electricity you use.
The regulator says bills will be $400 higher for about 20 per cent of households.
Median spending on electricity in Sydney households, which the regulator has been modelling, is now about four per cent of disposable income – but it is likely to be almost eight per cent for median households in the lowest income category, of whom there are said to be about 900,000.
IPART also notes that its analysis indicates that the federal carbon package will compensate “the large majority” of low-income households for its impact on their bills.
All the stakeholders have views about what should or shouldn’t happen to network capex and opex regulation.
IPART takes every opportunity to press its opinions (similar to those of the AER) in favour of rule change.
The Australian Energy Market Commission will make a call on the rules before the year’s end and the AER will then have its hands full making determinations about network outlays from 2014 onwards.
The AER’s current set of determinations will still be impacting on consumer costs on the east coast in 2014-15, something that tends to be overlooked in the public fusses about the issue.
What also tends to be lost to view in all the kerfuffle is that decisions by the AER and its State-based predecessors have authorised $55.3 billion to east coast network capital expenditure between 2002-03 and 2011-12, of which $34.6 billion occurred in the latter five years.
If you were to average this out and cut it by a quarter for the five years from 2014-15, you would still be looking at nearly $20 billion in outlays for the next determinations.
(Remember that the aged assets are getting older, there will be more households to service, the economy may even start improving, pushing up commercial and industrial demand, and the community will still be buying more air-conditioners. That leaves lots of room for taking an axe to network capex and opex doesn’t it?)
Factor in higher wholesale prices, a slightly higher RET cost, higher retail costs and margins and a higher carbon price (if the existing scheme survives the political process) plus the costs of rolling out smart meters across NSW (which IPART advocates) and tell me how this translates in to a lessening of the “power pain” problem this decade?
Perhaps the real grounds for alarm are that the body politics is all at sea in dealing with power prices – and has been for more than three years.
The key ingredient in Australia’s energy future is investment.
Whether we are looking at domestic energy needs or the important contribution of energy exports to the national economy, the level of investment is the make-or-break issue.
Whether we are concerned about keeping the lights on, creating new jobs, building the economy or reaping rewards for Australia’s mineral wealth through taxation, securing what we want depends absolutely on attracting sufficient investment.
On both government and independent analysis, Australia will need about threequarters of a trillion dollars of investment in energy and mining developments for domestic and export purposes over the next 20-25 years.
That’s seventy-five followed by ten zeroes.
It is ten million times more than the average value of a large family home in, say, the affluent outer suburbs of Sydney.
It’s a lot of money – and it has to be raised from people, mostly located overseas, who have opportunities to send it elsewhere around the world in to many activities, not just energy.
As large as this figure may seem, it is only a relatively small part of a much bigger, global picture
The need for governments in Australia to focus on the I-word has been explained well in a submission management consultants KPMG have made to the federal energy white paper process.
The consultants quote Infrastructure Partnerships Australia and the Business Council as estimating that this country currently faces an infrastructure deficit requiring investment of $450 billion to $700 billion (in today’s dollar values) to rectify.
KPMG’s focus in the submission is on the domestic scene but it applies equally to export-oriented energy investment.
The consultants warn: “The investment environment is uncertain and potentially problematic in important respects.”
KPMG comment that there seems to be an assumption in the draft energy white paper that the investment to secure Australia’s many and varied energy needs will automatically materialise as and when needed.
The reality, they say, is that decisions about investment are complex and subject to considerable uncertainty. They cannot be taken for granted.
It will be a serious oversight for policymakers and the community to under-estimate the difficulty of funding the necessary level of investment to realise our energy-related ambitions.
KPMG call on the federal government, in finalising the energy white paper, to recognise the globally competitive nature of capital markets and the need to establish an attractive investment environment in Australia.
They point out that we are competing in a global environment where, just for electricity projects, investors will need to find $US17 trillion between now and 2035.
KPMG say it is questionable whether the world’s capital markets will be able to fund this – and $US21 trillion more for non-electricity energy projects – in the time frame envisaged – and they remind the writers of the energy white paper that Australian projects will also be competing for their share of available intellectual capital and other scarce human resources.
The attractiveness of these projects, they point out, are threatened today by rising input costs, regulatory uncertaintities, complex approval processes and skills shortages compounded by restrictive labour arrangements.
Governments and the community tend to be star-struck by Australia’s physical resources: a huge amount of mineral wealth and geographic proximity to the 21st century’s major markets in Asia.
But, KPMG point out, the litany of negative factors may negate our advantages and “leave huge potential gains on the table for others to claim.”
As they say, if Australia is unable to rise to its investment challenge, our trading partners will pursue other supply relationships for the resources on which they depend while, at home, we struggle to ensure domestic energy security.
Here’s a powerful message for journalists trying to compare electricity bills between householders in different States: stop wasting your and your readers’/viewers’ time.
I am drawing the admonition from the expert panel that has been looking in to Tasmanian electricity supply for the State government.
Chaired by Australian Energy Market Commission chairman John Pierce and including his predecessor, John Tamblyn, the panel has been inundated with the views of people who can point to friends or family on the mainland whose bills are lower than “typical” Tasmanian ones.
Their argument is that Tasmanian residential prices are substantially high, but, in fact, says the panel, they are “somewhere in the middle of the pack.”
And the State government is not using residential charges to cross-subsidise large industrial users, another favourite conspiracy theory.
The Pierce panel, in its report to the Tasmanian government, says: “Arriving at meaningful generalisations about relative electricity prices between States for different classes of customers with different usage profiles is a difficult, if not impossible, process.”
In Victoria, across Bass Strait, the panel points out, where customers have access to up to 12 energy retailers, tariffs vary from as little as 19.4 cents per kilowatt hour to 27.8c – with “Greenpower” users paying 30c – compared with the 25.1c flat rate in Tasmania.
Media reporting generally of power bills is getting worse, I think.
Two weekends ago, when I saw “splashed” in a weekend Sydney tabloid newspaper a claim that the average NSW residential bill is $2,484 per year – which the reporter saw as “startling” and compared with South Australia, which she said had average bills “closer to $1,600.” – I thought it another example of poor reporting and said so in passing in one of my “This is Power” posts.
Now I have seen the number repeated in one of our major daily newspapers with the writer clearly borrowing from the tabloid story. This “fact” i on its way to becoming received wisdom in the media — and of course, as a result, in the suburbs.
Well, the comparison would be startling if it were true, but it is not – by a long way.
No-one has to guess about average electricity bills in the States.
They have been set out the report the AEMC under Pierce compiled for the energy ministers’ committee of the Council of Australian Governments and published last December.
They are starting to change already, of course, as new regulatory determinations begin to emerge, but, for my purposes here, let’s stick with the published numbers.
The NSW average residential price for 2011-12 is $1,672 and AEMC expects it to rise to $1,809 in 2012-13.
South Australia, as that was the tabloid reporter’s comparison of choice, is $1,304, rising to $1,376.
Queensland is $1,544, rising to $1,691, although that is likely to change because the new Newman government intends to intervene to freeze the standard tariff.
Victoria is $1,499, rising to $1,580.
Tasmania is $1,620, rising to $1,675. The bills have doubled since 2000.
Western Australian, where residential prices, as the State regulator has just pointed out, are still far from being cost-reflective despite a rise of 57 per cent over three years, is $1,621, rising to $1,844.
While it is the cost of the actual bill that hits home to a householder, these vary a lot depending on location.
Victorians, for example, use less electricity than those who live in NSW because a long period of cheap gas prices has seen most Victorian homes (81.1 per cent) connected to the fuel compared with 37.5 per cent in NSW.
The comparative use of gas is greater when only Melbourne (92.4 per cent of homes connected to mains gas) and Sydney (45.7 per cent) are taken in to account.
South Australia also has a higher usage of gas – because it has long had a pipeline bringing the fuel to the Adelaide/Elizabeth main load centre from the Cooper Basin.
The AEMC comparisons show that tariffs in 2012-13 are expected to average 25.22 cents per kilowatt hour nationally (and will shift with political decisions).
WA will have the highest tariff at 30.39c (well up on 20.96c in 2009-10).
On the east coast, South Australia will be the highest at 27.53c (up from 20.98c in 2009-10), followed by NSW (25.86c up from 18.55c), Victoria (24.32c up from 19.2c), Queensland (24.16c up from 18.26c) and Tasmania (22.76c up from 18.17c).
Rural prices are above the average because the regions get charged more for network services (longer distances).
Thus, as AEMC reports, Essential Energy (Country Energy until the Keneally government sold its retail arm) has had an average residential tariff in 2011-12 of 27.32c compared with 23.9 for Endeavour Energy (the former Integral Energy serving western Sydney, the Blue Mountains and the Illawarra) and 22.23c for Ausgrid (the former EnergyAustralia, servicing the heavily urbanised suburbs of central and north Sydney and the Central Coast).
South-east Queenslanders subsidise their rural and regional cousins in the other 97 per cent of the State and West Australians served by the south-west integrated system (SWIS) subsidise regional prices too.
The AEMC breakdown of the percentage cost of various parts of the supply chain shows that transmission and distribution contribute 10.39c of the national average residential tariff of 23.75c in 2011-12.
In Queensland networks in 2011-12 make up 12.24c of 22.06c State average while in NSW it is 11.67c out of 23.9c and in Victoria (a much smaller area to service) it is 7.07c out of 24.32c plus an extra 1.57c for metering as the State rolls out smart meters.
In South Australia the networks figure is 11.15c out of 26.09c.
Tasmania (also a small area) has a networks tariff in 2011-12 of 10.98c out of an average household charge of 22.01c.
The point, of course, is that household prices don’t lend themselves to simplistic comparisons across State borders, let alone inaccurate ones – and there really is no excuse for inaccuracy when the AEMC’s data are available on its website for all to see.
As I have reported before, modelling compiled by Ausgrid (and to be found on its website) shows that NSW and Queensland homes have the highest use of electricity on average in the land (more than 7,000 kilowatt hours a year) and, of the mainland States, Victoria has the least (5,700 kWh) with South Australia a shade over 6,000 kWh.
On Ausgrid’s numbers, medium-sized energy households in Sydney and Melbourne, where people have access to both gas and electricity, shell out an average of $2,264 and $2,373 a year respectively for domestic energy.
This is a comparison of a Sydney home using 5,900 kWh of electricity and 20,000 megajoules of gas with a Melbourne home using 5,100 kWh of electricity and 52,000 MJ of gas.
The problem, of course, is that the space-poor tabloid writer wants to convey an impression in a single “startling” sentence where a good job of putting all this together requires about 1,200 words.
The fact that the “startling” comparison is in essence invalid is not going to get in the way of a “good story.”
And the “shock” report resonates with Sydney readers of the tabloid because householders are wrestling with paying for energy, petrol, telecoms, council rates and so forth and finding it all a bit of a struggle, as the public polls are throwing up in focussing on “cost of living” as a major political issue.
Way back in December 2004 the New South Wales government (under Bob Carr) published an “energy directions green paper” which stated that a conservative estimate of the State’s gas needs in 2030 was 200 petajoules a year – against 140PJ at that time.
The green paper also acknowledged that the supply of natural gas from the the Cooper Basin in South Australia, today still delivering 68 PJ annually, would “fall significantly in the next three to five years.”
This came back to mind when I read in the “Australian Financial Review” last week that “NSW faces a potential crisis in gas supply in the next three years,” based on a projection by Wood Mackenzie that the east coast gas market will be undersupplied from 2016 – notwithstanding the consultants’ projection that gas production will increase eight-fold by the end of the decade.
About 90 per cent of the new gas supply is destined for sale overseas as LNG.
Wood Mackenzie’s Craig McMahon said the greatest challenge to securing new gas supplies for the east coast was not technical or commercial, but rather the growing environmental and rural community opposition to coal seam gas developments and the uncertainty created by the heavier regulatory burden, a reaction to the pushback.
Piggy-in-the-middle of this situation is NSW where factors are increasingly aligning to present a bigger challenge than the one envisaged in Carr’s green paper, a situation exacerbated by lack of action by him and his successors, Iemma, Rees and Keneally.
It was still possible, of course, in 2004 to envisage building large new conventional coal-fired baseload generation plants.
It had worked for Neville Wran two decades earlier when he inherited a troubled power supply situation from the Liberals.
Government-owned generation businesses Macquarie Generation and Delta Electricity each obtained regulatory approval for 2,000 MW of new coal plant – at Bayswater and Mt Piper respectively – under the Rees/Keneally regimes but a combination of the current national political environment for carbon emissions, the O’Farrell government’s plans to sell its generation operations and a (very) different financing environment make it unlikely that these projects will go ahead.
The alternative is gas-fuelled baseload power, but there are a raft of issues to be confronted here, too. None of them is straightforward and locating adequate gas supply is now probably top of the policy tree.
It needs to be said that the mindset of just building what is needed inside NSW shouldn’t be the only option..
Substantial upgrading of interconnection with Queensland could actually see a larger supply of electricity coming from across the bordee.
On the other hand, a substantial pipeline from Queensland to the Hunter Valley would enable power stations to be built nearer to the main load centre (the Newcastle/Sydney/Wollongong conurbation).
Today NSW obtains 11 per cent of its power needs from interstate, most of it from Queensland, but congestion on the QNI interconnector combined with faster rising demand in the north raise a question mark over what may be available for import later this decade, let alone in the ‘Twenties.
The government-owned transmission businesses in both States are jointly working up a proposal to increase the capacity of the main interconnector by 25 per cent, but this is only one aspect of what should be under consideration as an energy strategy for the whole region north of the Murray.
The new Newman government in Queensland and still newish O’Farrell government in NSW might want to think about what can be done in co-operation rather than separately.
Meanwhile it needs to be borne in mind that the volume of gas NSW will need for power supply will not only be driven by baseload generation.
A large-scale development of intermittent renewable generation as well as a continuing sharp rise in peaking power needs will require a lot of extra open-cycle gas imvestment later this decade and through the ‘Twenties.
At present gas demand in NSW, 90 per cent of it coming across its borders, runs at 150 PJ a year.
About 18 per cent of this is used by the power sector.
These are ACIL Tasman numbers in a new report for Santos, which argues that billions of dollars can be added to NSW gross state product over 25 years if coal seam gas development is encouraged.
In this modelling, NSW’s requirements of gas for power supply are seen as rising to 151 PJ by 2030 – a five-fold increase in round terms.
Nor will NSW be R.Crusoe in this respect.
The Energy Supply Association submission to the federal government for the energy white paper claims that aggregate east coast consumption of gas by the generation sector could be 10,000 PJ by 2030 and that total cumulative east coast demand could reach 21,000 PJ over two decades.
This perspective is supported by the federal Bureau of Resources & Energy Economics’ projections that national gas generation output will rise from 40 terawatt hours in 2008-09 to 64 TWh in 2019-20 and 126 TWh in 2034-35, most of this on the east coast.
This outlook raises critical questions about where such a large volume of gas will be sourced, what issues will arise in transporting it from wellhead to load centres and what it will cost.
ACIL Tasman says that, in the absence of an adequate coal seam gas supply, NSW would need to source 50 PJ a year from other new sources – a gap that would be larger if the availability of supply from Bass Strait and central Australia was constrained.
Most importantly in the nearer-term, warns ACIL Tasman, NSW is “materially uncontracted” for gas post 2017, with deals starting to expire in 2015.
In the light of competing demands, say the consultants, there is no guarantee that contracts will be renewed – and a greenfields CSG project could take four to seven years to be commissioned.
Just one example of the potential contractual hassles is the question of what will happen in Victoria, currently supply 77 PJ a year to NSW, if the “clean energy future” policies do result in closure of a significant amount of brown coal generation in the Latrobe Valley?
ESAA, in its submission to the NSW Legislative Assembly Public Accounts Committee, which is examining power generation issues, calls for policymakers to appreciate not only the implications for the State of limited access to its northern coal seam gas resources, but also the ramifications for the east coast of a whole if the anti-CSG campaigns north of the Murray have a significant impact on gas availability.
Even with a supportive environment for gas extraction, questions will continue to be asked about what the fuel will cost.
Consultants Port Jackson Partners are among those who expect east LNG net back prices will send local costs to international parity levels.
What global prices will be is open to debate, too, in the wake of the emergence of the US shale gas revolution.
Assuming a rise of $4 per gigajoule in east coast domestic prices, PJP estimate that wholesale electricity prices for gas-fuelled generation could increase by $28 per megawatt hour late this decade – to which, they say, a carbon price at $27 per tonne would add another $14/MWh.
It is this sort of figuring that casts a shadow over the efforts by Julia Gillard, Wayne Swan, Greg Combet and others to wave away concerns about the carbon tax and point to electricity network charges as being the big issue.
Unfortunately for them, the PJP modelling of residential electricity prices in NSW in 2017 shows that wholesale costs (allowing for high gas prices and the carbon tax) could go from around 7.4c per kWh today to 14.9c in five years’ time.
Throw in the cost of the renewable energy target and the generation part of the bill will be 15.5c – by comparison PJP see the network charges rising from 9.7c now to 16.9c in 2017.
In looking at this situation, one needs to not lose sight of prospects for supply of shale gas from the Cooper Basin in the ‘Twenties and of natural gas from deeper resources in Bass Strait. (ESAA point out that production costs for some new fields in the Gippsland Basin could be about $7.20/GJ.)
None of this makes for easy planning by policymakers, but the need for a strategy could hardly be more clear.
It is also clear that New South Wales would be a great deal better off today if Bob Carr had followed through in 2005 with an energy white paper.
Seven years later the questions he should have addressed now urgently need a policy perspective for the medium and long terms.
Actually, the policy timeline goes back further than this.
I still have a 2001 publication from what was then the NSW Department of Mineral Energy Resources in the Carr Ministry of Energy and Utilities – it’s entitled “Electricity Reserves and Generation Options.”
This predates the shift in NSW from winter power peaking to summer as the air-conditioning rush took effect.
It also predates the emergence of coal seam gas as a major east coast fuel. The report barely canvasses the CSG issues.
A lot can change in a decade, but there is no escaping the fact that, by late 2004, the Carr government was aware of a looming State gas supply issue – nor the fact that, as he now jets around the world as Foreign Minister, the rest of us in NSW are confronted by hassles he could have addressed years ago.
Before I launch in to this tale of woe, some good news (at least from my perspective).
My son Kay, whose IT expertise is the reason this stuff sees the light of day, reports that the Coolibah website recorded 13,197 unique page views in the merry month of March (well not for Anna Bligh, but you can’t have everything).
This is almost three times the Coolibah readership in March 2011 and nearly five times what it was in March 2010.
Thank you, one and all, for your interest.
Now to the gory stuff.
Western Australia’s Economic Regulation Authority has recommended that power bills from Synergy, the WA government-owned retail business, should rise 23.1 per cent to achieve cost-reflective pricing and take in to account Ms J.Gillard’s carbon tax.
This follows a 57 per cent increase in tariffs since the Coalition came to office in the West and found that its Labor predecessor had left it the most poisoned of chalices with respect to electricity supply.
Under WA Labor over a decade, the only time the power bills went up was to include John Howard’s GST.
As a result, by the time Colin Barnett’s team took office, taxpayers, who own most of the State power system, were faced with a billion dollar debt on its way to about $3 billion by mid-decade.
Even after the price rises to date and without the increases proposed, the State government is confronted with subsidy of $1,064 million between 2011-12 and 2014-15
The ERA chairman Lyndon Rowe sums it up like this: “At the moment there is (still) a significant subsidy. I think it is in the order of $350 million to $400 million that the government pays Synergy because we don’t have cost-reflective tariffs and that’s paid for by the taxpayers.”
Rowe says an increase of level the regulator proposes will undoubtedly be unpopular but “it is important that customers pay the full cost of generating, distributing and retailing power.”
This is certainly true in a State where, according to the Energy Supply Association yearbook, electric energy passed through the SWIS will rise from about 19,000 gigawatt hours annually now to 24,630 GWh in 2019-20 – and peak demand will require almost 6,000 MW capacity compared with 4,400 MW now.
The pressure is the greater because the regulator is intent on slashing the capex bids from Western Power, the government-owned transmission and distribution business, for the next tranche of investment.
What the Barnett government will do about the next round of power prices is another matter.
Its current plan is to increase them by five per cent in the new financial year rather than the recommended 23.1 per cent, which will shove bills for householders up $353 annually for the typical home.
Barnett has publicly acknowledged that keeping on with the power tariff increases could cost him the 2013 State election – although the opinion polls tend to suggest that, overall, the Coalition is head and shoulders ahead of Labor.
The ERA says that 12.2 per cent of the proposed increase will cover the difference remaining between what it costs to produce and deliver electricity and how much householders pay today.
It claims that another 8.4 per cent will be needed if the full cost of the federal carbon price is passed on (which it should be because the Gillard government is handing out compensation for the impact from 1 July).
Barnett has said he will have the carbon burden passed through, a politically sensible approach.
SWIS customers – those served by the south-west integrated system which covers Kalgoorlie to Perth/Fremantle and south to Albany – also hand over a subsidy for customers in the north-west and south-east of the State.
It is currently $200 and the ERA says that, unless the levy is scrapped and the government meets its cost out of consolidated revenue, SWIS power prices should rise $103 a year for the grant to reflect the true cost of supply.
The State’s economic watchdog is clear about the price consumers need to pay for the long freeze on tariffs under Labor: full catch-up for the 10-year populist trick equates to another 5.1 per cent rise in prices, it says.
Of course, there are always efficiences to be found along the power supply chain.
For example,the ERA says that Synergy can reduce its retail charges by $15 per household per year if it is more efficient.
The Energy Supply Association has tackled the cost-reflective issue in its submission to Martin Ferguson’s national energy white paper process.
It acknowledges that energy prices rises, increasing faster than inflation in WA, are unpopular.
“There is rising public discontent,” the association notes.
The answer, says ESAA, is to separate the price of energy and the government support for customers suffering hardship.
At present, it points out, all WA residential customers are still being subsidised regardless of their needs.
It has taken up a hard-nosed point being made by Barnett: only 2.4 per cent of the average household expenditure in the West is on electricity and gas, says ESAA.
This is a smaller share of other essential items like food and accommodation – although it wasn’t wise, I suggest, to put “essential” in the submission in inverted commas; food and accomodation are about as essential as it gets.
The power costs are also less than the Sandgropers are paying on average for recreation, booze and tobacco.
Looking nationally, ESAA makes the point that, although energy costs play a small part in most household budgets, price rises and changes to tariff structures do have a substantial impact on vulnerable households.
This, it says, is not a reason to avoid carrying out reform – rather, it highlights the need for governments to provide support to the genuinely needy and to clearly identify it in their annual budgets.
The cost of living issue is seen now as a crucial factor in State and federal politics – every petshop galah in the media commentariat has discovered it since the crushing Labor defeat in Queensland last month although it seemingly escaped many of them before the poll, given the stuff they wrote or put to air.
However, the facts of power supply life really need some serious attention by policymakers rather than the handwringing, “we feel your pain” spin that is today’s common currency.
The ESAA argument that cost-reflective energy tariffs are a “fundamental building block” of an efficient market is exactly right.
We do need price-based solution to runaway peak demand, for example, and it has an an important role to play in changing consumer behaviour overall.
Getting politicians to bite the bullet on this topic should be higher on the national agenda than it is – and the media, especially the tabloid/populist newspapers, radio and commercial television, are doing next door to nothing to help encourage a new sense of realism about power prices.
Editors and commentators are forever calling on politicians to be more responsible.
Well, here is an area where they can lead the way.
Just getting the facts straight would help.
I groaned when I read a Sydney tabloid story last weekend asserting that the city’s average residential power bill is $2,484, contrasting this with Adelaide, where, the reporter claimed, average bills were only $1,600.
“A startling difference,” she claimed.
Well, on the Ausgrid report that I recently covered here and in “Business Spectator,” the average cost for a “medium” use electricity-only home in Sydney is $1,860 a year compared with $1,961 in Melbourne.
The ABC’s “7.30 Report” of all programs has run a segment querying whether the Gillard government’s $10 billion Clean Energy Finance Corporation is worthwhile or “just a half-baked scheme.”
Some will see the debate as moot because Tony Abbott and the Liberal/National federal coalition have every intention of killing the CEFC when (as seems increasingly likely, viewing the opinion polls) they seize power some time in 2013.
For the moment the debate about the CEFC is veering all over the political paddock, engaging some strange grazers as it goes.
One such is New South Wales Premier Barry O’Farrell, who was delighted to welcome Julia Gillard’s announcement that the CEFC’s offices will be in Sydney.
O’Farrell was promptly branded a hypocrite by the State Labor Party, who pointed out, not unreasonably, that he is committed to seeing the “clean energy future” package crushed under an Abbott government.
Former federal Liberal finance minister Nick Minchin came to the rescue with the quirky observation that, if the Gillard government wanted to waste taxpayers’ money, O’Farrell was wise to allow them to waste it in Sydney!
The national mining industry is on the other side of the fence.
In a joint submission to Martin Ferguson on the draft energy white paper, a coalition of nine national and State industry associations, including the Minerals Council of Australia, the Australian Coal Association and the Australian Uranium Council, has called on the federal government to “reconsider” the CEFC, pointing out that its establishment contradicts the principle that energy investments should be made on a technology neutral basis.
The group want the renewable energy target “reconsidered” as well, but this, of course, is a policy to which the Coalition is as committed as the government.
Meanwhile the Clean Energy Council, which has yet to appoint a new chief executive following Matthew Warren’s move to the Energy Supply Association, where he has been since 16 January, insists that the CEFC “makes good sense” and says the Australian finance sector agrees the corporation “can be a catalyst to give renewable technologies the leg-up they need.”
This is in addition to the leg-up provided by the carbon price and a mandatory sourcing requirement for renewables in 2020 (and on to 2030) of a fifth of power consumption plus the “solar flagships” program and so forth.
The CEC claims the corporation “can drive some $30 billion in to clean energy investment over the next decade” and asserts that “no new energy technology has ever been developed (here) without the support of governments.”
This, of course, is a complete misunderstanding of the past.
The technology used here in coal-fired plants and hydro-electric projects over 50 years was not developed by our governments, but by international engineering companies – and the renewable generation that is being pursued here (eg wind farms) is being built under the umbrella of the RET by the private sector and not with “government-supported” technology.
The main thing holding up the bigger roll-out of wind is not a lack of investment funds but the fact that the federal government’s small-scale RET (for solar PVs) has glutted the REC market until 2014.
And, if we take the CEFC rationale at its face value, one of its biggest flaws is the fact that Julia Gillard caved in to the Greens and excluded support for local demonstration of carbon capture and sequestration technology from its purview.
Given that the 2050 “clean energy future” Gillard has been spruiking requires between a quarter and a third of mid-century generation output to be coal-fired and gas-fired using CCS, this is quirky too, to put it mildly.
The cave-in to the Greens sits oddly with the advice her government has just received advice from CSIRO that research the agency has undertaken at Munmorah (NSW) and Tarong (Queensland) power stations demonstrates that CCS technically could capture more than 85 per cent of carbon dioxide emissions from coal plants.
(Abbott incidentally was down in the Latrobe Valley in the last days of March vowing that his government would not close down its brown coal power stations and being just a little delphic when asked by local journalists if he would commit significant funds to support CCS development. “Certainly in government we were committed to clean coal technologies,” he said, pointing to “Bob Brown’s bank” excluding them.)
The federal government might like to cast an eye over the EU attempt to boost Europe’s wave and tidal power technologies. The politicians there have an ambition for $US11.3 billion worth of investment and 3,600 MW of capacity by 2020.
The technologies, to quote Britain’s Carbon Trust, “need government financing help to reach commercial scale and then subsidies to grow to be cost efficient.”
Now the Trust is conceding that, at most, because of pressures on Europe’s government and investor budgets as a result of the GFC and development costs that are far higher than initial optimistic predictions, wave and tidal generation will be lucky to reach a few hundred megawatts at the end of the decade.
The Trust says that wave energy needs more than four times as much income per unit of energy than nuclear or offshore wind generation to break even and tidal energy about three times as much.
One of the biggest targets for the technologies is Portugal – but they would need about $US4 billion to $US5 billion in subsidies by Lisbon to achieve 3,000 MW of capacity by 2020. The cash-strapped Portuguese are in no position to oblige.
Meanwhile, the cost to British consumers of the subsidy for renewable energy has doubled in five years and the (additional) feed-in tariff costs will treble in the next three years. The number of British customers having trouble paying their power bills has trebled in recent years, too.
Perhaps most seriously in the longer term for the EU, the huge splurge on subsidised renewable energy is shrinking the contestable wholesale power market and with it the incentive for investors to build gas power with its uncertain returns rather than just ride along on the gravy train.
The implications for consumer power bills down the track are not minor.
A further very interesting statistic (to me) is an estimate by the European Network of Transmission System Operators that $US137 billion will be needed to add 48,000 kilometres of high-voltage lines to meet the EU target for 20 per cent renewable energy in 2020.
Here in Australia we now have a number of independent reports castigating governments for embarking on energy schemes in pursuit of green votes without adequate cost-benefit analysis or exit strategies for situations that go bad (like the NSW “solar bonus scheme”.)
As the surprisingly acerbic ABC “7.30 Report” feature (the transcript is up on their website under the heading “Clean energy finance faces a murky future”)
comments, the “hastily hatched” Clean Energy Finance Corporation has yet to demonstrate whether it is “a recipe for success or just a half-baked scheme.”
Greg Combet wouldn’t come on air to discuss the issue but volunteered through one of his staff that the CEFC will “maximise the long-term benefits of a clean energy economy, overcome market failures and drive innovation.”