Archive for July, 2012

The new BREE outlook

Martin Ferguson’s Bureau of Resources & Energy Economics has published a new review of Australia’s potential power production mix out beyond 2030.

This has immediately generated some excited reactions from the green side of the fence, with one early report claiming “Canberra concedes wind,solar to be cheapest energy by 2030.”

We also have the Clean Energy Council claiming tonight that the report highlights that “the way Australia generates and consumes energy is quickly changing.”

No, it isn’t – just look at the Energy Supply Association 2012 yearbook for both current production and the outlook.

And Canberra, in the shape of Ferguson, hasn’t conceded the impending cost conquest of wind and solar.

What he said in greeting the BREE report is that solar photovoltaic and onshore wind generation “could produce some of the lowest electricity costs by 2030, based on current policy settings.”

Note the qualifiers: “could” and “current policy” and “some.”

Critically, under current policy,the disliked Australian carbon price would be more than double its $23 per tonne starting level, using constant 2011 currency values and last year’s modelling by Federal Treasury.

Would be if Tony Abbott doesn’t junk it on winning office.

The carbon price in the mid-Thirties, under Julia Gillard’s policies, would be between $50 and $60 per tonne on Treasury modelling.

If you had to bet $10,000 today on a carbon price being, say, $60 in 2030 or stone dead by 2014, where would you put your money?

The BREE report has evaluated the most up-to-date cost estimates available for 40 generation technologies and looks out to 2050, which I have frequently pointed out is a couple of bridges too far at least, technologically and politically.

(Go back 38 years and find me the prognostications about the rise of coal seam methane and shale gas as major players on the Australian energy scene, let alone the international stage………….)

BREE has posed its publicity for the report in terms of “the mid 2030s,” which is not exactly the same as “by 2030.”

Furthermore, there are bits of the review that will not sound cheerily in green ears at all.

BREE executive director Quentin Grafton says combined-cycle gas – that’s baseload, fossil-fuelled generation and a key player in what the energy supply sector believes will be use in aggregate of 10,000 PJ of gas over the next two decades – offers the lowest levelised costs of generation (the least amount needed for a power plant to produce electricity and be commercially viable) among non-renewable sources for most of the report’s horizon.

It is seen as remaining cost-competitive with solar PV and onshore wind (allowing for a carbon price).

This is not an announcement of cheap as chips power in to the future, but of much more expensive electricity than today, a point likely to be lost on a layman (or woman) reading or hearing this stuff through the popular media – but not on manufacturers.

Of equally no cheer to the deeper green environmentalists is the observation that nuclear power could be a cost competitor with solar PV, wind and CCGT gas by the ‘Thirties.

(In passing, I wonder how pleased the Prime Minister will be to have Nine News – on the Olympic TV channel with several million viewers at present – running a story that the BREE report has “left the door open to re-ignite the nuclear debate”? An unintended consequence and awkward in the present febrile Labor/Green political relationship.)

Least popular of all, perhaps, with the green persons will be the projection that carbon capture and storage technologies could become commercially available from 2030.

The Greens moved heaven and earth to ensure that Gillard excluded CCS from the Clean Energy Finance Corporation’s purview.

The BREE development of the “Australian energy technology assessment” has been undertaken through consultation with WorleyParsons, the Australian Energy Market Operator, the CSIRO and a stakeholder reference group drawn from industry, the renewables sector, federal government departments, industry associations and academia across a wide spectrum – and including the International Energy Agency.

Ferguson has ensured a note of caution is injected in to the report’s birth.

“It does not seek to predict future market outcomes,” he says carefully. “Rather it provides an unbiased set of estimated technology generation costs incorporating key energy modelling, projections and planning.”

Bottom line?

This is a really interesting, wide-ranging go at providing new estimates of what future costs could be across the spectrum of power generation in about two decades and beyond.

It is not a forecast.

It is also not a concession from Canberra that fossil fuels have had their day and that solar and wind will take over.

It raises some interesting questions about the Treasury modelling backing the “clean energy future.”

Grafton says Australia’s energy future is likely to be very different to the present.

One rather imagines it will be.

But there are many possibilities beyond the nirvana imagined by the zero carbon mob.

In the ‘Thirties and ‘Forties, under certain conditions, it could be heavily nuclear, for example.

Or it could be strongly dependent on carbon capture and storage of emissions from burning our vast reserves of fossil fuels, not forgetting shale gas.

Or it could be taking up more and more geothermal power (which does not get a ringing endorsement from the report – and that reads interestingly against the modelling Treasury used only a year ago).

It is certainly not a statement that requires a declamation that “green peace is at hand.”.

And it is unlikely to give much consolation to worried energy-intensive, trade-exposed manufacturers – unless the rest of the world has embraced Dear Leader’s carbon price path.

As an aside, there are some in the rural community and some State governments likely to be less than chuffed to hear BREE observing that there is an increasing trend to build larger onshore wind projects in Australia. “It is expected that wind farms bigger than 100MW will become common with an ongoing trend to fewer, larger capacity machines.”

Finally, lest I be accused of being biased, here is what BREE sees for solar PV power production: “The cost is expected to decrease rapidly due to expanded manufacturing capacity and process and cell efficiencies.”

I wonder how this will affect the projections BREE produced last December in which it saw all forms of solar power delivering five per cent of power production – and all renewables, including hydro-electric systems, delivering 24 per cent?

We await the next iteration of the energy white paper.

Hype rules the waves

Just how daft the media coverage of energy issues can get was demonstrated in one sentence by ABC Lateline presenter Tony Jones last week.

Introducing a story that had caught the media’s attention on Wednesday, Jones said: “With households keeping a close eye on power bills, the CSIRO is casting its gaze to the sea and says wave power could provide 10 per cent of Australia’s power by 2050.”

As non-sequiturs go, you can’t do much better than that, as Jones himself then illustrated in the next sentence: “But there are huge barriers to overcome before that can become a reality, including price, reliability and the ocean itself.”

The reporter later explained that last bit as referring to the technical problems of maintaining generators in rough seas and the potential environmental impacts.

Using federal government modelling, CSIRO says 10 per cent of national, grid-based production in 2050 would amount to 46,000 GWh.

To get this in context, it is the equivalent of the total amount of electric power sent out today by generators in Western Australia, South Australia and Tasmania put together – or about 68 per cent of the electricity despatched in New South Wales at present.

Given that the top of mind future for most of us is not 2050, it is worth noting that, under the existing carbon price regime, CSIRO thinks wave energy could contribute one per cent of total power production by 2038.

By comparison,the modelling that consultants undertook for the federal Treasury last year suggested that existing hydro-power, from long-established systems, would continue to provide five to six per cent of 2030 power delivery.

They saw wind providing 10 to 16 per cent and geothermal, still struggling with its own exploration and development challenges, delivering three to eight per cent.

In this context, the media excitement over wave power – it was very prominent on the ABC website and airwaves for most of Wednesday, for example – might be a teensy over-exaggeration perhaps?

“Waves could power Melbourne by 2050” for example in one media story I saw.

But since when did context mean much to a rather large part of our media?

Given how much jumping up and down goes on over the impact on the environment of, say, coal seam gas development, it is notable, but not reported in any way that a reader, viewer or listener would note, that CSIRO observes: “In areas that rely on fishing, boating and environmental quality to attract tourists, it is likely that very large offshore installations are problematic.”

Then there is the small matter of the technology’s potential interaction with the commercial fishing industry, which employs 16,000 people today and has a production value of $2 billion annually, half of which is for high value exports.

CSIRO explains that wave power’s impacts include a reduction in sea lanes available to fishing boats, alteration of fishery habitats and prey and interference with fish behaviour.

It’s worth mentioning here that a 250 MW wave farm, designed to extract 20 per cent of available energy, would occupy an area of 50 square kilometres.

For the purposes of its research, CSIRO identified seven areas, each traversing about 50 kilometres of the southern coastline, as being needed to deliver its mooted 46,000 GWh.

Now not to be picky, but providing high voltage lines to serve this fleet of farms would mean that they could not be offshore marine parks or urban areas.

Just cast your minds back a decade to the fuss that was created over the Basslink path through Gippsland and its alleged undersea issues for Bass Strait fishing folk.

By now you get my point I’m sure.

Wave energy, which has been struggling to find its technological feet over the past 10-15 years, a period during which wind power has surged ahead and is probably entitled to claim that it is part of mainstream electricity supply, is yet another one of those interesting ideas that are likely to still be interesting a decade from now and so on.

It will probably have its niche opportunities, but to portray it as being an electricity source that could power Melbourne is fanciful indeed – and that’s before we return to Mr Jones’s households keeping a close eye on power bills.

What level of carbon price do you suppose we would need to have us surfing wave power for mainstream supply?

Recent modelling in Britain set the cost of wave power at more than six times the current average wholesale market price for electricity – and this in a country with a carbon price.

Sticking with Melbourne, and Victoria, what effect do you think high-priced wave power would have on energy-intensive, trade-exposed industries like the fertiliser, plastics, chemicals, paper-making and automotive sectors, all having strong presences in that State?

My problem with this stuff is that a large segment of the media have a goldfish in a bowl attitude – “Look, there’s a rock” – towards reporting statements boosting such technologies when they are not making hay covering the public outrage over the current costs of conventionally-sourced power.

As a result we get polls like the one published in the past week by the Climate Institute.

Australians, it says, demonstrate a “passion” for solar energy. Solar was among the top three energy options of 81 per cent of respondents. Seventy-six per cent of those polled see increasing the amount of renewable energy as the most effective carbon abatement measure.

How does one square this with repeated major opinion poll outcomes showing that well over 60 per cent of respondents are opposed to the carbon tax because of its impact on costs and jobs?

Even the Climate Institute’s poll found that only 28 per cent of respondents supported carbon pricing when first asked – and, when prodded by being told that “all the revenue raised goes to renewable energy development, households and business” (a very curious order in this list), support rose to 47 per cent.

The last Essential Report poll I saw on the carbon pricing scheme showed 54 per cent opposed versus 35 per cent supporting it.

On the skids?

How you diagnose the present state of electricity sales depends on where you stand or sit.

For example, a commentary in “Climate Spectator” this week poses the headline question “Electricity demand on the skids?”

To which the short answer is that it depends where you are looking and what sort of eye glasses you are using.

It certainly isn’t true of the resources boom States of Western Australia and Queensland.

Take the latter:

The Australian Energy Market Operator’s latest planning report shows that, in the five financial years from 2005-06 to 2009-10, Queensland sales averaged 47,300 gigawatt hours and peaked at just over 49,000 GWh in 2009-10.

The State’s average for 2010 to 2013, as forecast by AEMO, is expected to be almost 47,900 GWh, the floods playing a role in this decline.

AEMO is predicting that in the following five financial years (out to 2017-18), the Queensland average for power sales will be 55,500 GWh, peaking at 59,700 GWh and continuing to rise out to the end of the decade.

No skidding there.

If you come south of the Tweed and look at States (and this includes the ACT in the case of New South Wales numbers) where manufacturing is a dominant economic factor, this is what you can see in the AEMO data:

First, for NSW (and the ACT), demand for the period 2006-07 to 2008-09 averaged 73,590 GWh, then fell away, with AEMO predicting it will be 68,337 this financial year.

Looking further forward, the market operator sees the region’s power sales averaging 71,500 GWh over five financial years to 2017-18.

AEMO predicts that NSW (plus ACT) sales will be 73,250 GWh in 2017-18 and pushing over 75,000 GWh by 2020-21.

I at least find it notable that at the dawn of the new decade, on AEMO numbers, consumption in NSW will be just 13,000 GWh ahead of sales in Queensland.

If you go back to 1996-97, the gap was 25,000 GWh.

Combined, the two States (and the Territory) – black coal country, as I am wont to point out – will account for 64 per cent of east coast demand as we move in to the ‘Twenties.

Go to Victoria: there, demand, having peaked in 2007-08 at 47,084 GWh, bottomed last financial year, on AEMO’s reckoning, at 45,531 GWh.

A rise is expected this financial year and AEMO projects that Victoria’s demand for the five financial years from 2013 to 2018 will average a little over 48,000 GWh.

If you take the AEMO outlook for Victoria at 2020-21 and add it to those for north of the Murray, you find that this region accounts for more than 88 per cent of forecast east coast demand – and that AEMO expects power sales in the dominant trio to be about 13.5 per cent higher at the decade’s end than it was in 2006-07.

Now this is far from phenomenal growth.

The increase in sales from 1996-97 to 2006-07 in these three States (and the ACT) taken together was 40 per cent, but bear in mind that Queensland consumption in this time frame rose nearly 62 per cent versus 36 per cent in Victoria and 31 per cent in NSW (and the ACT).

What does it all mean?

Clearly, first, that economic pressures, a rising standard of living and population numbers are having an impact, pushing Queensland ahead, not having the same impact in NSW and Victoria.

Second, of course sharply higher power prices also are having an effect, less noticeable in Queensland because the big demand factors will be the LNG trains and new mines, but obvious in NSW and Victoria because cost spikes will be hitting on manufacturing as well as householders and small business.

The extent to which the carbon tax will add to this pressure is a big debating topic, complicated by the subsidies the Gillard government is handing out.

How will it effect householders? Is it actually possible to say at this time? I doubt it somehow.

The tax’s impact, taken with other factors, on the very existence of small businesses, who receive no compensation, may become more clear in 2012-14, assuming it will be at least the second half of 2014 before an Abbott government’s carbon policy rescission legislation takes effect.

As we see almost daily now in the media, it is the combined impact of other costs and the very high Aussie dollar that is hurting larger businesses and, although this point seems to be ignored in the popular papers and on tabloid radio and TV,there is a flow-on effect for small and medium businesses supplying goods and services.

And yes, third, the surge in solar rooftop systems on the back of absurd subsidies is a contributing factor, too, in terms of household demand growth, although I expect we need a decade to fully understand how this has worked out.

Improved appliance energy efficiency has to be a factor, but we lack any significant sense of the degree, especially for households and small businesses.

On the other hand, purchases of millions more air-conditioners, refrigerators and plasma TV sets – the Ernst & Young consultancy report to the “Power of Choice” inquiry contains interesting forecasts in this respect – must add to household demand.

Bottom line?

If you look at almost 90 per cent of the east coast market – the three major demand States and the ACT – the AEMO planning scenario clearly shows how power sales have fallen away from the high rise trend of the national boom pre-2008.

Now we have a two-paced power demand set-up, with WA and Queensland at a different level from the rest.

This will play out in new investment in generation – affected also by the renewable energy target – and will lay down speed bumps for recently-runaway network expenditure.

We could be heading in to a period where ongoing network charge rises plus higher wholesale prices, driven by fuel costs as well as maintenance costs for increasingly ageing generation, plus a pushback from gas users (when the expected much higher prices hit direct customers) all interact with broader economic developments – and land us where?

The crystal ball is far from clear, but, from where I am sitting, if demand is significantly affected in the non-boom States, it is going to be substantially because of what happens to manufacturers and to their local goods and services suppliers, therefore to employment and therefore to disposable household income.

Trying to turn all this is to a “clean energy future” paradigm shift doesn’t engage my gears.

Leave goalposts alone

In a political environment where there is no certainty about the fate of carbon pricing and its associated programs – although some would argue it is a doomed as the dodo once Captain Abbott sails to inevitable victory at the next election – the renewable energy target is remarkable for being a policy on which both Labor and the Coalition agree.

In a strong riposte to those who would like to see the RET changed, AGL Energy chief executive Michael Fraser has delivered a talk to the Clean Energy Council conference this week urging the status quo.

“It is extra-ordinarily disappointing,” he told the forum, “that there are some out there who want, yet again, to move the goalposts, the consequences of which would be disastrous for investors in this sector.”

Fraser, who announced that AGL would move ahead with the $1 billion Macarthur wind farm in Victoria, the largest in the country at 420 MW capacity, as soon as the present RET legislation passed federal parliament, argues that the issue has been considered four times so far – when it was introduced by the Howard government in 2001, in a review by Grant Tambling’s panel in 2003-04, after the election of the Rudd government and finally two years ago.

His main point is to defend the fixed target of 41,000 GWh in 2020 – which was established when the federal government still expected demand at the decade’s end to be about 300,000 GWh a year.

Fraser’s rival, Grant King of Origin Energy, is among those who have proposed that, given the forecast decline in demand to around 250,000 GWh in 2020, the main RET should be whittled back to around 27,000 GWh.

(The measure allows for both the 15,000 GWh a year produced by long-established hydro-electric power stations and the small-scale scheme to support rooftop solar systems.)

Fraser asserts that a fixed target has “always been regarded as essential,given the large-scale, long-term nature of the investment required to meet the target.”

Actually, this isn’t the case.

Howard and his environment minister Robert Hill wanted a two per cent target. I was one of the leaders of the industry association pack that persuaded the Coalition at the start of the past decade to settle for 9,500 GWh by 2010 as the initial target.

As things have turned out, wind power delivered 6,174 GWh in 2009-10 and, in a year where demand declined, 5,848 GWh in 2010-11.

A joint study by Standard & Poor’s Ratings and clean energy/carbon analytics firm RepuTex suggests that, on the present outlook, it is likely that between 14 and 17 per cent of electricity will be fuelled by renewables in 2020, a shortfall that can be sheeted home to the REC market glut created by the federal government’s efforts to boost solar rooftop power under the scheme.

Fraser’s argument today is that, if certainty of policy is maintained, “I am very confident we will see an investment boom in renewables.”

On RepuTex’s modelling this would require investment over the next 7-8 years on between 4,750MW and 5,000MW to reach the 2020 target.

Fraser also proffers a broader warning: In the current political environment, Australia is at risk of losing its reputation as a stable investment environment.

“Continually changing the rules creates sovereign risk issues and regulatory risk issues,” he says.

Debt and equity markets dislike both forms of risk “and they have choices as to where they place their funds.”

Banks are prescribing higher risk premiums to energy projects in Australia than elsewhere in the world because policy here is uncertain.

In this respect, he adds, the current RET review by the Climate Change Authority, and the Gillard government’s plan to institute biennial reviews, are “unhelpful.”

Fraser asserts he is far from alone in the energy industry on the RET.

The Clean Energy Council and the “overwhelming majority” of Energy Supply Association members want the target left “exactly where it is for now.”

The debate on increasing the target beyond 2020, he says, should be “left for another day.”

East coast power pressure

Back in 1996-97, when John Howard’s prime ministership was just beginning, system average load on the still-fragmented east coast power supply networks totalled 17,610 megawatts and (winter) peak loads had just exceeded 25,100 MW.

By 2003-04, when the media were getting excited about the prospect of a Mark Latham-led administration, system average load on the now linked “national electricity market,” at 5,000 kilometres the longest high voltage system in the world, was 20,800 MW. Summer-dominating peak load, after a strong surge in air-conditioning installations, had reached 32,760 MW.

We come to the end of the financial year 2009-10, with Julia Gillard about to amaze the country with her coup over Kevin Rudd and the Coalition with its third leader since John Howard’s defeat in 2007. System average load on the east coast has risen to 22,484 MW and summer peak load has passed 37,000 MW.

The Energy Supply Association, from whose yearbook these data are drawn, projects that east coast system average load in 2012-13 will be 24,660 MW and that system peak load will exceed 42,300 MW.

Looking out to 2016-17, at which point, on the present opinion polls, a Coalition federal government could be entering its second term, ESAA forecasts that system energy load will reach 26,700 MW and system peak load will pass 47,000 MW.

For 2020-21, ESAA is expecting that the “NEM” system average load will exceed 28,000 MW and system peak load will reach a record 50,000 MW.

Amid all the talk about what has happened to demand recently and what generation sources may be constructed this decade, these data are a critical framework for policymakers, regulators and investors.

The peak demand numbers in particular will give pause for thought all round, surely not least to those “NEM” State governments, other than Victoria, that are squibbing taking a decision on the roll-out of smart meters and the introduction of tariffs to discourage consumption at high usage times.

The ESAA yearbook highlights that the need to address the peak demand issue is urgent.

There is another point worth making about these numbers.

Breaking them down shows a “two-speed” market now and even more so in the future.

Two sets of data will suffice to make the point.

ESAA estimates that 2011-12 returns (which will be formally reported next winter) will show that the two States north of the Murray have had an average system load of 14,633 MW and a combined peak demand of 24,512 MW – while the trio of southern States (Victoria, Tasmania and South Australia) have an average system load of 8,432 MW and peak demand of 15,331 MW.

Looking out to 2020-21, the association forecasts that system average load north of the Murray will exceed 18, 600 MW versus 9,700 MW in the trio of southern States. ESAA predicts peak demand in NSW and Queensland will be higher than 32,800 MW versus 18,300 MW in Victoria, South Australia and Tasmania.

By comparison, back in 2003 when John Howard was ordering work on the previous federal energy white paper, the north of the Murray average load was not yet 12,000 MW versus 7,500 MW in the southern trio and the NSW/Queensland peak requirement was 18,300 MW versus almost 12,000 MW in the southern trio.

The gaps have widened a lot in just under 10 years and will be significantly wider by this decade’s end.

This raises two other issues.

One is the need for investment in high voltage interconnection, on the one hand between NSW and Queensland and on the other between the trio of southern States and possibly also from SA in to NSW.

How much electricity NSW will be able to import from Queensland later this decade, as the latter’s resources boom develops a much greater power thirst, is an open, and important, question.

The other, related, issue for NSW goes to the reliability of existing and relatively aged coal-fired generation and also to the price of gas, which is expected to fuel a large part of the State’s new capacity.

The possible price of gas is a key focus of the lobby group DomGas Alliance in its new submission to the Queensland government’s gas market review.

DomGas claims domestic prices in the “NEM” have already doubled from around $3 per gigajoule to $6. It says east coast gas producers are now talking publicly of prices up to $9 per GJ – and it expresses alarm at a scenario in the State government’s consultation draft paper which canvasses a $12 price.

It will be interesting to see how the federal government handles these issues in the final version of its energy white paper.

Observers anticipated that the white paper would appear in mid-September, but it is now being suggested that it will be published later than this.

A zig-zag trail

As some of you may have noticed, I have a bent towards collecting statistics and playing around with them.

As an example, between 1996 and 2006, east coast electricity demand rose from 137 TWh to 186 TWh.

That was an increase of almost 36 per cent – while the latest Australian Energy Market Operator projections claim that between 2006 and 2016 demand in the so-called national electricity market will rise by only another 17.6 TWh or 9.5 per cent.

We are being regularly informed at present by various media scribes that this depressed trend is the new black in electricity supply.

Place your bets!

It is, after all, not much more than a year since AEMO published an outlook for “NEM” demand of 248 TWh in 2020-21 – whereas it is now forecasting 215 TWh.

That consumption has zigged in a relatively short time is undeniable; that it could zag in the next 3-5 years is not beyond the bounds of possibility.

AEMO after all is prepared to publish a “fast global recovery” scenario which envisages a different trend to the present one being used for planning.

There is no doubt, however, today’s situation has well and truly interrupted the “NEM’s” power supply development pattern.

It is very clear the dominant downbeat forecast is having an impact on wannabe investors but I think it is less well appreciated in the public arena that, if there is little commissioning of new plant, later this decade we may see the older coal-fired capacity, especially in New South Wales, under some reliability pressure should the demand pattern again change.

Driving down this trail using the rearview mirror is no less hazardous than it has ever been.

One fact to bear in mind is that by 2020 there will be about 18,500 MW of conventional generation in the east coast market more than 35 years old if all existing plants are still operating.

I still have at hand the 2009 Bayswater B project assessment undertaken by AECOM in which, promoting the Macquarie Generation case for a large new power station, the consultants warned that asking the existing NSW coal-burning gencos to sustain an increased ouput of 10,000 GWh a year later this decade “has implications for maintaining supply reliability.”

The same report warned of the potential for energy exports from Queensland to NSW to decline as home State demand goes up.

The issue in these circumstances is not the lights going out, in tabloid parlance, but the wholesale market price of keeping them on using other than baseload plant – and, politically, the eventual impact on retail power bills.

The east coast’s generation investment numbers look like this:

Capacity back in 1996 was 34,700 MW.

By 2006, riding the higher trends for demand, it reached 39,000 MW and by 2011 (the new Energy Supply Association yearbook tally) it stood at 47,680 MW. It is now heading towards 50,000 MW.

On the new AEMO demand projections and the state of wholesale power prices, we needn’t expect to see much more being built over the next five years apart from some wind capacity (because of the renewable energy target) and additions to rooftop solar systems as the current “sun rush” brought on by State and federal government intervention comes in to play.

Except, of course, in Queensland where the LNG trains and, later, new coal mines will require substantial power supply investment.

About $12 billion has been spent on new generation since the “NEM” was inaugurated a dozen years ago.

AEMO has published estimates of investment on generation out to 2030 that range from $40 billion to $130 billion and you would have to say, looking at the near-term demand profile, that little of this will be spent in the next while – except in Queensland and also on wind power.

Nonetheless, it needs to be noted that there is no shortage of investors considering building power plants, although their level of interest right how is barely lukewarm and in some cases not even that.

The ESAA yearbook includes no less than 53,985 MW of capacity being considered for development on the east coast.

The association’s list shows 20,244 MW of proposed capacity in NSW, 11,335 MW in Victoria, 13,312 MW in Queensland, 7,729 MW in South Australia and 1,365 MW in Tasmania.

More than 17,800 MW of these projects are wind farms.

Very little of all this is going to be built any time soon.

To get things in current perspective, the ESAA yearbook reports that 343 MW of generation capacity was commissioned between June last year and March this year.

It further reports 3,452 MW of capacity is under construction – mostly wind power (1,709 MW) and gas plant (1,291 MW).

ESAA places 2,584 MW of other projects in the “advanced planning” category and says a further 15,500 MW of capacity has received government planning approval, half of it gas plant and a third wind farms.

Having a regulatory tick doesn’t mean a project is going ahead, of course, just that the developers are serious enough to have spent money on jumping through the planning hoops.

The more immediate focus is actually on mergers and acquisitions, the biggest of which recently was the one that got the least publicity – the Bligh government folding Tarong Energy in to CS Energy and Stanwell Corporation.

The other big development was AGL’s acquisition of Loy Yang Power.

Beyond our borders, but with local impact, a substantial acquisition was GDF Suez’s take-over of International Power (and with it Loy Yang B and Hazelwood).

Lying ahead is the sale of the NSW government’s remaining generation assets, of which the pea in the pack is Macquarie Generation but Delta Electricity’s 660 MW Colongra peaking power station is not to be overlooked.

Colongra is the largest gas plant in the State and can bring its turbines up to full capacity in 30 minutes at the click of a computer mouse.

A very experienced executive in the national industry suggested to me recently that the assets the O’Farrell government is selling could fetch nearer $5 billion than the $3 billion being mooted in the media.

As well, we should discover some time before Christmas what the federal government is prepared to spend to close some brown coal units in Victoria and South Australia as well as the timetable for such closures.

This could drive more investment in gas plant and reduce the extent of old-aged capacity in the “NEM.”

But this is a trail with many twists and turns.

Not so fast

If you want to find another pointer to the actual impact of the present weakening in electricity demand, go to table 5.2 buried deep in the Energy Supply Association’s yearbook.

This is where ESAA reflects its members’ views on the demand for gas for power generation – all the way out to the end of the ‘Twenties.

Three years ago, in the 2010 yearbook, the association reported consumption of gas by power stations at 420.2 petajoules for 2008-09 financial year.

It expected generator needs to be around 450 PJ by now, a rise of just over seven per cent..

However, the 2012 yearbook says that 2010-11 demand was 343.2 PJ, a fall of 18.3 per cent.

In its 2010 yearbook, ESAA expected to see power station consumption of gas galloping past 560 PJ annually by mid-decade.

In the new book, it projects demand at 446 PJ by 2015-16, a 20 per cent reduction over the earlier outlook.

Where the 2010 forecast was for gas demand by generators to be almost 630 PJ at the decade’s end, now ESAA projects 558 PJ in 2020-21.

All of this is in keeping with a situation where electricity consumption, previously growing at a long-term average of 3.5 per cent a year, has reduced to a 1.6 per cent average over the past 10 years, flattening and falling since 2008.

However, it is also necessary to factor in the impact of wind power on the market.

Energy economics analysts EnergyQuest pointed out at the end of May that gas use in generation on the east coast was 13 per cent down in the March quarter (which, of course, is outside the ESAA yearbook’s current focus).

Gas generation output was 5,677 gigawatt hours, down from 6,404 GWh in the 2011 first quarter, reducing power station consumption by 5.9 PJ.

The fall would have been higher but the Darling Downs and Braemar plants in Queensland bucked the trend.

EnergyQuest attributed the fall to lower demand and to growth in wind power production, not least where the consultants are based, South Australia.

It will be interesting to see the 2013 ESAA yearbook in this respect because a comparison between the 2010 and 2012 editions shows that gas-based power station output nationally rose more than 26 per cent to 35,423 GWh while wind generation increased 70 per cent to 5,848 GWh.

ESAA’s longer-term outlook for the role of gas in generation is quite upbeat.

The 2012 yearbook sees power stations using almost 700 PJ in 2025-26 (versus 666 PJ in the 2010 book) and burning close to 800 PJ in 2030-31 (versus 724 PJ projected in 2010).

This is in keeping with the forecast made last December by the federal Bureau of Resources & Energy Economics that gas-fired generation’s share of the power production mix will treble by 2035 (unless gas prices really take off and stay high, in which case the rise will be almost double).

A factor in this perspective is the present federal government policy to cause some coal-fired plant to close through negotiated contracts.

Finally, in the context of today’s debate about the economy, overall gas demand is a useful dipstick for the state of the national engine.

For example, the 2010 ESAA yearbook reported 2008-09 manufacturing demand at 377.4 PJ and expected it to push up towards 478 PJ by mid-decade.

Now ESAA reports 2010-11 demand at 368.3 PJ and expects it to reach 411 PJ in mid-decade.

Consumption by commerce has continued to grow: from 41.6 PJ in 2009-09 to 47.9 PJ in 2010-11. ESAA sees it increasing to more than 51 PJ at the end of the decade and to about 60 PJ in 2030.

Unlike electricity demand, residential gas use has kept on rising – up from 129.3 PJ in 2008-09 to 145.3 PJ in 2010-11, with ESAA projecting that it will be more than 156 PJ at the decade’s end and more than 180 PJ by 2030.

Not surprisingly, mining has muscled up its gas requirements as the boom marches on.

Miners’ demand stood at 157.5 PJ in 2008-09 and reached 201.9 PJ in 2010-11.

ESAA expects it be 254 PJ by mid-decade and 320 PJ at the decade’s end, heading for 514 PJ by the end of the ‘Twenties, at which stage it will have overtaken manufacturing as the second largest consumption sector.

The association’s yearbook reports overall domestic gas demand in 2010-11 at 1,128 PJ, of which 759 PJ was on the east coast. This is down on 2008-09 when national domestic demand was 1,160 PJ, of which the east coast’s share was 680 PJ.

(Western Australia is the biggest regional consumer of gas, partly because it relies more on the fuel for power station operations than elsewhere.)

One thing is for sure: there is no shortage of investors thinking about building gas-fired generation for peaking, intermediate and baseload use.

The ESAA yearbook lists 22,915 MW of capacity under consideration on the east coast – almost 36 per cent of it for NSW, nearly 39 per cent for Queensland and 17 per cent for Victoria.

In addition, investors have 1,483 MW of gas capacity in prospect for Western Australia.

(To provide some context, a 1,000 megawatt CCGT power station consumes around 70 PJ a year.)

How much of this capacity will be built, where and when is the multi-billion dollar question.

Set against the predictions towards the end of the past decade of a quite rapid boom in gas use for power supply, perhaps the only safe thing to say at the moment is that the roll-out of gas turbines will not be nearly as fast as was first thought.

Ferguson’s focus

The Energy Policy Institute has achieved a small coup in setting up a lunch-time address in Sydney on August 7 by Resources & Energy Minister Martin Ferguson.

Robert Pritchard, the EPIA executive director, says Ferguson will focus on domestic energy market reform and the story behind rising energy costs.

Ferguson, of course, is sweating on publication of the final version of the federal government’s energy white paper. The betting at present is that it will appear in mid-September.

Much of the debate to date about power prices has focussed on three points: the rise and rise of network charges, the impact of the carbon tax and the lesser, but frequently demonised, impact of other green charges flowing from the renewable energy target and solar schemes.

The Gillard government likes to play up network charges in the political point-scoring game with the Abbott Coalition and to play down the other two.

However, we are moving, seemingly inexorably, to a stage where another large issue will raise its head: the cost of gas.

In recent days, releasing the new review of the gas market by his Bureau of Resources & Energy Economics agency, Ferguson pointed carefully to the flipside of Australia’s ability to take advantage of the international demand for LNG: the domestic impact of global pricing.

“BREE predicts Australian gas markets will change significantly in the short and long term as the result of rising LNG production, especially in eastern States,” Ferguson said. “There are currently seven LNG projects under construction, including three at Gladstone, which will see competition for domestically-produced gas increase.

“Importantly, BREE finds that, while the eastern gas market is likely to tighten over the next five years, overall gas availability does not appear to be the issue. Rather, it appears to be a question of price.

“While a tightening eastern market is likely in the short to medium term, increased access to international markets and higher prices are likely to encourage the further development of resources and increased production over the medium to longer term.

“This should moderate gas prices as supplies increase.”

All of which may be cold comfort for the NSW government of Barry O’Farrell as it contemplates the next 4-5 years, including a 2015 State election, and the prospect of (a) facing the ending of existing contracts for interstate supply of 95 per cent of its gas needs, (b) substantial difficulties in getting a coal seam methane industry fully in to operation in the State’s north and (c) the impact of higher gas prices on 1.1 million direct household and business customers as well as on investors thinking about building new gas power stations.

The 2012 Energy Supply Association yearbook, just published, lists no fewer than 18 gas-fired plants under some form of consideration for NSW.

This includes the big one – the possibility of building 2,000 MW of baseload gas capacity on the Bayswater B site in the Hunter Valley, a Macquarie Generation project that will fall to private investors when MacGen is sold.

Of the rest, just three are CCGT prospects – Infratil Energy’s 450 MW project near Nowra, TRUenergy’s part 2 Marulan 450 MW project on the Hume Highway (to follow an open-cycle part one) and the company’s 450 MW Tallawarra B project, a second stage at its power complex near Wollongong.

To put the gas supply issue in context, a 1,000 MW CCGT plant requires about 70 petajoules of fuel a year. Total consumption in NSW and the ACT in 2010-11, according to ESAA, was 159 PJ.

There are another 14 open cycle gas plants in play, with a total capacity of more than 4,900 MW. Some are already tagged as “on hold” and most others have notional commissioning dates that, in the present market, are just that.

What happens with wind farm development and with peak power demand will dictate how many of the open cycle gas plants are built.

The ESAA yearbook now forecasts that peak demand in NSW and the ACT will jump from 14,721 MW in 2011-12 to 17,524 MW in 2020-21, a challenging outlook for all sorts of people, but attractive to investors in “peakers.”

There’s plenty of grist in this mill for Ferguson’s Energy Policy Institute address. If you want to find out more about the event, go to the EPIA website – it is www.energyalliance.com.au. Maybe I’ll see you there!

Mendicant mindset

The stand-out statistic for me in the new Australian Industry Group business survey on energy costs and use is not that three-quarters of those polled are now taking or planning actions to improve their efficiency.

The real shock – the AiG report is entitled “Energy shock:pressure mounts for efficiency action” – is that in 2012 a quarter of businesses, although they report a rise of 10 per cent in their energy costs as a percentage of turnover before the latest round of increases, are still not taking action.

The rather lame excuse offered by the AiG is that, for these businesses, the intensity of other costs and pressures, especially for those “on the wrong side of the mining boom,” make it hard to devote time and capital to energy issues.

The situation has at least improved.

A previous poll by AiG, covering five years to 2010, including the opening 2-3 years of the Labor federal government with the huge publicity around impending carbon taxes, showed that only a third of those canvassed had moved to make any improvement in their energy efficiency.

Given that 70 per cent of Australian electricity use, and therefore of emissions resulting from electricity generation, is by industry and commerce, this is still not an especially happy state of affairs from an environmental perspective.

Nor is it especially encouraging in terms of every effort being made to improve the economy.

AiG clearly feels that the cost of electricity for most businesses is an issue – but in their not getting terribly excited about greater efficiency.

It says 73 per cent of the companies interviewed in its poll report that they spend two per cent or less of their sales revenue on energy and just seven per cent spend more than five per cent of their sales in this area.

It needs to be pointed out here, of course, that almost a third of Australian electricity consumption is by energy-intensive companies and they would be the leaders in finding ways to improve their efficiency, but that still leaves a lot of room for business to take action.

AiG acknowledges this.

“Many businesses,” it says, “can make even greater efficiency gains.” (Or any at all in the case of a quarter of them.)

Then the weasel words: “However, this is easier said than done. In many businesses the necessary capital is either not available or reserved for other purposes.”

AiG poses an obvious question: “Will a change (in approach to energy efficiency) happen fast enough and be substantial enough to ensure that the competitiveness of Australian industry is preserved?”

Of course, this being Australia, this thought process immediately leads on to “What can the government do for us?”

AiG claims there is “intense interest” among manufacturers in the $1 billion in capital grants – ie taxpayer money – the federal government is making available through its clean technology program.

However, the association wants to see current and potential support programs improved. They should be better tailored to suit business requirements, it says.

Many businesses, according to AiG, feel they lack the information, resources and capabilities to pursue energy efficiency improvments.

There needs, it says, to be a concerted effort to lift industry awareness of the importance of this issue and to ensure that businesses are appropriately skilled.

As a taxpayer and a business person (albeit a very little one), I find myself confused as to why others who see value in being more productive and cutting their costs actually need a government leg-up and hand-out to pursue these ends.

AiG says that its survey demonstrates that “effective government energy efficiency requires a greater understanding of the factors that are motivating businesses to improve their energy efficiency and the factors that are holding them back.”

Well, duh, as my grandkids seem to say only too often; isn’t the fact that the cost of electricity has risen sharply in the past five years and will continue to increase, with or without the carbon tax, a reason for business people to get their acts together and pursue every efficiency they can achieve?

If your power bill was $25,000 a year four years ago and is going to be $50,000 this year – and perhaps $75,000 by mid-decade – why wouldn’t you be looking at how you could cut this by, say, 10 to 20 per cent?

I can understand business knees jerking when government intervenes to add to energy costs – for example, through the carbon tax or the renewable energy target – and I can understand business insisting that suppliers, such as networks, have to be seen to be efficient, but anyone who thinks a change of government and changes to regulatory rules are going to cut power bills back to the halcyon days of yore is having themselves on.

Power costs will continue to rise because of the need to expand and upgrade delivery networks.

They are quite likely to rise because of the feedback in to Australia of international prices for coal and gas.

If emissions abatement continues to be a focus of national policy – and how will it not even under a Coalition government? – there will be extra costs.

In this environment, being really frugal with your use of energy is an imperative for business, large, medium and small.

What’s with the mendicant mindset?

Forecasting power load

Mid-winter can be dreary, but mine is brightened around this time by the arrival of the Energy Supply Association’s yearbook.

In its modern form, it has now been tracking electricity supply for four decades and has taken on gas as well in the past eight years as a result of the transformation of the Electricity Supply Association in to its present guise.

From 1991 to 2003, production of “Electricity Australia” was one of my key tasks as managing director of ESAA and the current “Electricity Gas Australia” has maintained the high standard we sought then and improved on it.

The latest issue landed on my doorstep at breakfast on Friday morning and I am still exploring its many facets, but my immediate attention has been on one of the book’s most interesting features: its rolling 10-year national power load forecast.

This table has proved highly prescient over a long period, but it has always dealt with an environment in which demand for electricity is on a rising trend.

Right now, every galah in the petshop is eager to explain to us the implications of a perceived sudden shift in direction for power demand.

Of course, there is no arguing with the fact that, under a range of influences, including international economic disruption and substantial domestic power price rises, demand for electricity has fallen back from the peak it reached in 2008-09.

(An indication of the trend can be found in the Australian Energy regulator’s weekly market analysis. In 2010-11, the year on which the ESAA report is focussed, AER says the “national” – ie east coast – market had a wholesale turnover of $7.445 billion for 204 terawatt hours of sales. By comparison, the 2009-10 market had a turnover of $9.643 billion for 206 TWh and the 2011-12 market, with a month to go at the time of the report, had sold 187 TWh with a value of $5.534 billion.)

The new ESAA yearbook reports that Australia-wide demand, having been very nearly static in 2009-10, fell back in 2010-11 by 0.6 per cent, a year in which the floods in particular saw consumption in Queensland drop 7.5 per cent.

This weekend, among other tasks, I have been looking at ESAA’s load forecasts over three issues of the yearbook, starting with the 2010 edition.

The furthest horizon consistently available in all three perspectives is 2018-19, with the forecast shifting out to 2020-21 in the latest edition.

The forecasts are pitched as system energy – the electricity sent out by power stations.

The Australian Energy Market Operator’s forecasts, which have been the subject of much recent publicity and have changed dramatically in the past two years, are focussed on the east coast. The ESAA data is national.

For the purposes of this comparison, I will look at two ESAA forecasts – one for the so-called NEM (the interconnected east coast market) and the other for the SWIS (the Western Australian integrated system in the State’s south-west).

First, the east coast:

In 2010, ESAA forecast that NEM system energy in 2018-19 would be 235,378 gigawatt hours.

In 2011, the forecast for that financial year rose to 241,841 GWh.

In the new yearbook the forecast has changed direction – it now sees 2018-19 east coast system energy at 237,873 GWh.

If realised, this would still represent an almost 22 per cent in the NEM load over a decade, not quite what the doomsayers and the environmental chorus have been suggesting lately.

Now, so that you may judge for yourselves how close this load forecasting exercise, which involves very considerable consultation by ESAA with its members plus access to external planning reports, can be, here is the version for 2009-10 published in the 2000 edition of “Electricity Australia.”

It said east coast system energy in that year would be 198,503 GWh. The actual result was 196,958 GWh.

So, no, given the uncertain economic and political environment in which we are living today, I would not be prepared to wager my hard-earned superannuation funds on ESAA being right about 2018-19 — but I am prepared to say that this industry forecast has a darned good track record and should be taken seriously.

The table, by the way, expects 2012-13 system energy on the east coast to be 209,529 GWh.

This is a little under 2,000 GWh below what it was predicting just two years ago for the NEM load this financial term.

Looking at Western Australia, where energy sent out by power stations has risen almost 10 per cent in five years (compared with an almost eight per cent fall in NSW since the 2008-09 peak and an almost static situation in Queensland), ESAA forecasts that there will be a 26.3 per cent rise between 2010-11 and 2018-19.

However, this is not the biggest system energy increase the association foresees this decade.

It estimates the Queensland load will rise by 35 per cent between 2010-11 and 2018-19, reflecting the expected requirements of the LNG trains and some new coal mines.

There are a multitude of commentaries to be made about the new ESAA yearbook.

I intend to embark on a number more in the in next 2-3 weeks, taking time out to deal with whatever else comes whirling past on this extra-ordinary energy carousel ride on which we are embarked at present.