Twisting in the wind

I enjoy a challenge, so I rose to the bait when a lunch companion asserted that there is now nothing that can be said for certain about electricity supply.

Not so, I responded, here’s one solid fact on which you can rely: north of the Murray over the next decade we will have most of our electricity supplied by burning black coal.

It’s true that the ownership of the black coal generators in New South Wales is up for grabs, but that doesn’t infer – except for the madder version of anti-privatisation persons – that there will be any change in supply.

Given that the two States north of the Murray account for 4.8 million of the east coast’s 7.9 million residential power accounts and 587,000 of the region’s one million business customers – meaning 115 terawatt hours of annual consumption out of the “NEM’s” 192 TWh – this story of black coal supply is significant.

Viewed in terms of the energy content of fuel consumed in east coast power stations, measured in petajoules, black coal represented almost 52 per cent of the 2010-11 total. It is most unlikely, on the current demand and supply outlook, to represent very much less in 2020.

What this means is that about 415 million tonnes of black coal will fuel power generation in the two States over the rest of this decade.

To be sure, in NSW, there are issues towards the middle of the decade about coal contracts, prices and the availability of the Cobbora mine – a project embarked on by the Labor State government to address perceived future cost escalation – but not about fuel use, at least not in my book.

The two biggest fuel challenges NSW faces this decade are the availability of gas (and its price) and how the State can meet the promised substantial increase in domestic renewable energy generation (as per the new government plan announced last week).

Introducing a talk to its Sydney lunch on 25 September by NSW Resources & Energy Minister Chris Hartcher, the Committee for the Economic Development of Australia comments that the State “could face significant energy supply challenges, with gas contracts expiring at the end of 2017 resulting in more than a tripling of prices for more than a million NSW gas consumers.”

These cost projection may be a bridge too far, but directionally CEDA is right and I will be more than a little interested to hear how Hartcher handles this and other issues.

What is beyond debate, I’d suggest, is the need for the NSW government, and that in Queensland, to embark on production of a longer-term energy strategy.

Western Australia has recently published its version, looking out to 2031, although this product of a lengthy gestation period tends more towards rodent than elephant and shows signs of the Barnett government having both eyes fixed firmly on next year’s State election.

The O’Farrell and Newman governments notionally have the luxury, riding on gi-normous majorities from recent State elections, of expecting to be in office for the rest of the decade.

With this, I suggest, comes the responsibility to address a longer-term outlook and set of policies for energy supply and electricity supply in particular.

In the case of NSW, more than 4,000 MW of existing black coal generation starts closing on its use-by date in the ‘Twenties, beginning with the 2,060 MW Liddell power station, which will be 50 years old in 2022.

It is fanciful to see this level of capacity being all replaced by wind farms.

The policy Hartcher announced earlier this month focuses a bit on geothermal energy – but two critical factors are the current state of technological and commercial development of this source and the fact that likely supplies are separated from the eastern grid by the lack of about a billion dollars worth of high voltage transmission lines.

The O’Farrell government has the Legislative Assembly’s Public Accounts Committee looking at prospects for future generation, but the inquiry seems to have gone to ground and there is nothing on the website to suggest next steps.

The other inquiry currently under way – the review of the RET by the Climate Change Authority – has resonance for both Queensland and NSW and it will be the year’s end before we hear CCA’s verdict (and the Gillard government’s response).

The extent to which the O’Farrell government can deliver on any renewable energy ambitions will depend to a substantial extent on the future of the RET and also on whether the Clean Energy Finance Corporation can survive.

Given the strong reliance of both NSW and Queensland on black coal, the ongoing approach of the present federal government and of the Coalition to supporting carbon capture and storage will also be important to longer-term abatement ambitions.

We are awash in opinions at present on whether the RET should be retained in its present form, reduced to 20 per cent of a diminished power demand projection or closed down altogether.

It is hard to see the mainstream parties embracing the latter idea.

The latest contributor to the debate is AGL Energy.

Where the other two of the “big three” energy retailers, Origin Energy and TRUenergy, want to see the RET retracted to 20 per cent of whatever consumption actually is, AGL argues for its retention in its present form.

The company says (correctly) that investors in power generation capacity (of all kinds) and associated infrastructure require stable policy.

It asserts RET changes will not be welcome to investors.

“Constant review is not reform,” it adds, arguing that amendment to the RET aimed at alleviating today’s electricity price pressures will, in fact, be a more expensive option for consumers than leaving the policy in place.

All of which provides reasons for going along to hear Hartcher at CEDA and also to join me at the “Eastern Australia’s energy markets 2012-25” conference in Sydney on 17-18 October where a strong cast is being assembled to focus on managing rising uncertainty in the “NEM.”

(Adverts for the “uncertainty” conference are on this website.)

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