Archive for July, 2013

The numbers game

We all know that Australian electricity generation is falling, don’t we?

Of course it is – screeds are written about this in the mainstream and sideshow media.

Except it isn’t.

Sez who? Sez BREE.

The federal Bureau of Resources & Energy Economics has not quite made its mark yet with the broader energy stakeholder group, although the professionals know all about it.

One of those folk who enjoy sharing their thoughts with the world via emailed snipes at electronic media commentaries responded today to a piece I have had published on “Business Spectator” quoting BREE data – see “The real green-black divide” on www.businessspectator.com.au – by saying tartly: “That would be ABARE?”

Sorry, friend, that it would not be.

BREE was spun off the old ABARE – which is now ABARES, the Australian Bureau of Agricultural & Resources Economics & Sciences – back in July 2011 by Martin Ferguson.

The bureau’s (ie BREE’s) energy publications are a little slice of heaven for people like me who spend far too much of their time playing with stats.

While I have my arguments with their crystal ball stuff – see past posts about their projections to 2034-35 and 2049-50 – I am an unabashed fan of their material recording where we have recently been.

The bureau has a new stash of stats about national energy matters on its website (see www.bree.gov.au) and, as the saying goes, it is chock full of nuts.

Acting executive director Bruce Wilson points out that overall energy production increased by five per cent in 2011-12 over the previous financial year thanks to strong growth in the natural gas (up eight per cent), black and brown coal (up five and six per cent) and uranium (up six per cent) production sectors and despite decreases in crude oil and LPG (down six per cent) and renewable energy (down seven per cent) sectors.

In energy content terms, adds Wilson, coal consumption fell five per cent due to the large dip in demand from the iron and steel making industries.

Why the clean energy drop?

It relates, says Wilson, to decreased hydro-electric generation associated with lower water flows in south-east Australia in 2011-12 compared with 2010-11.

Now, back to that bit about electricity generation: BREE says it rose by about half a per cent in 2011-12 over the previous financial year despite the continuing slippage in demand in the east coast market, the “NEM.”

Why?

Because off-grid generation, largely responding to growth in the mining industry, has been “increasing rapidly,” says BREE.

Now here’s the fun bit if your inclination is to poke sticks at political bloviators – no names but you may be interested to read some prime ministerial claims (both of them) about the wonderful benefits of carbon pricing.

In 2011-12, according to BREE, total generation output was 253,851 gigawatt hours – of which black coal delivered 120,302 GWh, brown coal 55,060 GWh and gas 48,892 GWh.

On the renewables side of the fence, wind farms provided 6,113 GWh and hydro-electricity 14,083 GWh.

In 2010-11, these numbers were 252,619 GWh overall production and 116,949 GWh from black coal plant, 55,298 GWh from brown coal, 48,996 GWh from gas, 5,807 GWh from wind farms and 16,807 GWh from hydro systems.

The total generation output figure for 2009-10, by the way, was 241,566 GWh, an outcome partially influenced by an unusually warm September quarter in that financial year.

If you do go back as far as 2009-10, it is notable that black coal generation delivered 124,428 GWh and brown coal 55,968 GWh.

When these stats are compared with 2011-12, brown coal output is virtually static, black coal generation is a bit down and gas-fired power (which was 36,223 GWh in 2009-10) has risen quite sharply.

The rise in output from gas generation is almost double the total production of wind farms.

How irritating that we will have to wait until well after the federal election for the official numbers for 2012-13 after the recent fuss over the alleged impact of the carbon price from 1 July last year.

From a carbon emissions point of view, you see, the number that matters is the total for the nation from grid-connected and non-grid generation.

Tapping US energy perspectives

Randa Fahmy Hudome is not a well-known name to most people in Australian energy supply circles, but that is not the story in Washington DC where she has built a government relations and strategic consulting firm on the back of her extensive Middle East knowledge, her years in George W. Bush’s administration as an associate deputy secretary in the Department of Energy and a six-year spell in the halls of the US Congress as a counsellor to Senator Spencer Abraham.

She was one of the authors of Bush’s energy policy and one of her other key roles was to serve as the DoE’s representative at the International Energy Agency in Paris – where, during her time in the Bush administration, she helped co-ordinate strategy for international oil emergencies.

Her appearances in the pages of the “Wall Street Journal” and as an expert analyst on NBC’s “Today Show”, MSNBC, Fox News, CNN and Al-Jazeera television programs ensure that she is regularly in the American public eye these days, not least in the past month when she was warning that the country could face $US4 per gallon petrol bills in the near future.

Few things capture the attention of ordinary Americans more than the thought of “expensive gas.”

Australians with an interest in energy are getting two opportunities to hear Fahmy Hudome’s views in early August – first at next Energy Exchange Series breakfast in Brisbane on 7 August and then, the following day, in Sydney, at an Energy Policy Institute of Australia lecture.

The details of the EPIA lecture are on its website at www.energypolicyinstitute.com.au.

Lyall Howard, policy director in New South Wales for the Australian Petroleum Production & Exploration Association, Sam Maresh, Rio Tinto’s NSW government relations manager, and your’s truly will provide a panel with Fahmy Hudome for a discussion after her lecture.

Her focus in Sydney will be on the geopolitics of American energy independence, what Australia can learn from the American experience in managing controversy over unconventional gas production, the implications of American LNG exports for Australia’s trade and how the US is managing integration of its energy security and climate policies.

The Energy Exchange Series breakfasts have become something of an institution in Brisbane since 2011.

Past keynote speakers have included the IEA’s Fatih Birol, Zhang Guobao, chairman of China’s National Energy Committee, and Eileen Claussen, president of the Centre for Climate and Energy Solutions in DC.

The breakfasts are always sold out, attracting 280 to 350 attendees.

They are now co-hosted by Rio Tinto and the University of Queensland via the UQ Energy Initiative.

Fahmy Hudome’s theme for the breakfast on 7 August will be “US energy independence:successes, challenges and opportunities for global energy trends.”

Both events are worthwhile additions to the efforts being made on a number of fronts to analyse and place in context the transformative energy journey on which we are engaged in Australia.

Fission for solutions

In policymaking terms, the nuclear debate in Australia goes round and round and comes out…….nowhere.

Nothing that was said in the past two days at the “Nuclear Energy for Australia?” conference staged in Sydney by the Australian Academy of Technological Sciences & Engineering is going to change this in the short term, but some of the take-out thoughts from the forum may help as time goes by.

ATSE itself wants to be clear that it was not staging a pro-nuclear event, but rather one where speakers and an audience of 200 could explore a variety of views about the prospects and need for nuclear energy and, in particular, community concerns.

The Academy is to issue a communique about the proceedings. My own brief thoughts are as follows:

Above all, I remain of the view that we should have nuclear power in the Australian generation mix but unconvinced that the long list of actions needed to bring this about will see much happen this decade or reactors on the ground before 2030.

The special usefulness of this conference is the hole that some contributors drove below the waterline of the good ship “One Hundred Per Cent Renewables.”

Put succinctly, it is clear that, if we really are to pursue 100 per cent zero emissions, we will need a goodly chunk of nuclear power as well as wind and solar power — while the jury remains out on the contributions of geothermal energy and new fossil-fuelled plants with carbon capture and storage.

The Christine Milne/Greens push for 100 per cent renewables runs well aground on some straightforward numbers, provided for the ATSE by my old friend John Sligar, once chief scientist of Pacific Power, parent of the disaggregated New South Wales generation and transmission sector.

Put simply, today we benefit from security of supply on the east coast from 50 large generators of 100 to 750 megawatts capacity, producing most of our power needs at a wholesale price of $55 per megawatt hour.

Under the Milne/Greens concept — for what Sligar called “Twenty Exty,” that is 20X0 — we would have some 10,000 generators of capacity from one megawatt to five megawatts and a wholesale cost of around $110/MWh, with the aluminium smelters (and their interruptible load, a very useful balance today) departed and other manufacturing dependent on cheap energy also gone.

We would also need about a dozen new high voltage transmission lines, but we would have hardly any carbon emissions.

“We’d go from what the critics call a gold-plated network,” said Sligar wryly, “to a platinum one.”

And we would have the cost to taxpayers of dealing with a large number of stranded assets.

The other presentation that particularly caught my attention came from Ron Cameron, the Australian who heads the development division of the OECD Nuclear Energy Agency.

“Not enough attention has been given to the longer-term costs to the total electricity system of different technologies,” said Cameron.

In fact, the Milne-led Greens, other radicals and the greenwash media give no attention to this aspect at all as they prate numbers from modelling about long-run marginal costs. (Ironically, a staple of their defence of the RET is to point to its cost in today’s power bills compared to the network charges.)

For my money, I think we may get all the way to 2020 before — in the policymaking sense — we start having a serious revision of electricity supply.

At that point, according to numbers I have elicited from the Bureau of Resources & Energy Economics, we will have what you might describe as the same but different power mix.

(BREE irritated me by leaving out the 2020 data from the power projections it published last December, opting to put up 2034-35 and 2049-50. I have badgered the agency to get the 2020 numbers and it has finally come good.)

BREE’s view of 2020 (this for generation, not consumption, remember, and nationally, not just the east coast) is as follows:

Black coal 99.5 terawatt hours, brown coal 51.2 TWh and gas 56.7 TWh.

In other words, fossil fuels will still contribute 68.6 per cent of what BREE expects output to be.

Wind power will contribute 43.9 TWh, the long-term workhorse hydro-power 17.1 TWh (which assumes Tim Flannery’s perpetual drought hasn’t happened) and rooftop solar 6.7 TWh.

Geothermal will contribute zip, bio-energy 1.7 TWh, big stand-alone solar PV 0.8 TWh and solar/gas hybrid generation 7.3 TWh.

What these BREE numbers tell me is that we will still be fishing for a radically-different approach seven years from now and I suspect that, by then, there will be enough happening globally in terms of nuclear development for fission to start being taken seriously here, too.

Cameron’s summation at ATSE appeals to me: “Nuclear energy remains the only large dispatchable source of low-carbon electricity other than hydro-power. We can expect to see increased use of nuclear power globally coupled with falling subsidies and moves away from specific binding targets for renewables.”

To which one should add the caveat that this assumes CCS won’t achieve a commercial breakthrough.

One of the ATSE speakers lamented “the lack of a quality debate based on good information.”

That has been my mantra for a long time and ATSE deserves credit for providing a forum for a quality debate — but the simple fact is that we will have much more of the same in actual power supply for the rest of this decade despite the best efforts of the wild-eyed ranters.

(The necessary caveat here is that we may still have an east coast market with depressed demand, especially if the manufacturing sector continues to have the wobbles.)

In the meantime, let us not forget, in the context of all the fretting about global warming, as the ATSE discussion threw up, that power demand in China will grow inexorably — by 2034 it will be, on current projections, higher than today’s combined demand in the US and Japan.

And they won’t be going for 100 per cent renewables.

A greener shade of black

Chance’d be a fine thing, as the idiom goes, but wouldn’t it be nice if providing context in media energy stories became the norm rather than a rarity?

There’s a good example of this in the recent media coverage of the World Bank paper on energy financing and the so-called greening of the bank that it is seen to symbolise.

The media shorthand for this paper is “World Bank cuts off funding for coal” or, as “our” ABC put it in a lengthy radio current affairs report: “World Bank to stop funding coal-fired power stations in developing countries.”

(Eventually the ABC report gets round to a caveat or two, but its main thrust is as set out above and this is what will resonate with casual listeners.)

And, of course, our greener friends see things clearly: “World Bank abandons coal: green light for clean micro-grids,” says one report.

So what’s the broader story?

Well, the bank, for a start, makes it clear it will continue to fund coal plants in countries where there is no better alternative – possibly starting with Kosovo – and it certainly not shunning fossil fuels.

Most immediately, the bank is considering a request to finance a 600 megawatt Kosovo brown coal project and its president, Jim Yong Kim, says: “The people of Kosovo face freezing to death if we don’t (do this).”

The not-to-be-ignored point (unless you have a green axe to grind) is that the World Bank’s core clientele are the 82 countries that are both poor and energy poor, home to 1.8 billion people, two-thirds of whom have little or no access to electricity.

As one US think tank, the Centre on Global Development, has put it, in commenting on the bank’s position, there are, in fact, two big issues for these countries: their health problems and the economic benefits provided by access to electricity.

Milton Catelin, CEO of the London-based World Coal Association, has harked hard on this, pointing out to America’s Fox News that the raison d’etre of the World Bank is supposed to be working towards eradicating global poverty rather than “jumping on the climate change bandwagon.”

Catelin argues that it is ridiculous to think the bank today “has anything to do with poverty eradication – it has become nothing more than another international body.”

The bank, which annually funds $US50 billion worth of infrastructure around the globe, has actually lent just $US5 billion over the past five years for coal-fired generation developments. Of this, $3 billion has gone to one project in South Africa.

While it has been loudly yelled at by green advocates for doing so, this aspect of its lending is minor when its own budgets and the overall global outlays on coal and gas plants are taken in to account.

Also germane is the fact that the bank has outlayed $US49.2 billion to support energy projects between 2007 and 2012, of which a quarter has been spent on renewable energy developments, including hydro-electric plants and biomass.

Part of the broader context in considering what the bank is saying is that there are reportedly 1,199 new coal-fired plants (with a total proposed capacity of 1,401 gigawatts) under consideration around the world at present, 75 per cent of them in China and India – and the former definitely isn’t looking for World Bank help to build its projects.

Apart from these two, the top 10 countries on the list of coal developments being planned are Russia (48 GW), Turkey (36 GW), Vietnam (34 GW), South Africa (22 GW), the US (20 GW), Ukraine (14 GW), Poland and Germany (each 12 GW).

Taken together, what this second-tier group is considering amounts to almost 10 times the existing coal generation fleet in Australia and most are not seeking bank aid.

To circle back to what I consider to be the really big issue, as the World Bank itself sets out up front in its paper, one fifth of the world’s population – 1.25 billion people or 60 times the Australian population – lives today without any access to electricity and two-fifths of the world’s population rely on solid fuels (eg wood, charcoal,dung and coal) for cooking and heating, resulting in 3.5 million people (almost the population of Melbourne) dying annually from the effects of indoor air pollution.

This is not something that gets called to mind when our Prime Minister postures for the media in North Queensland on the urgent need to ensure our children and grandchildren have access to the wonders of the Great Barrier Reef by our embracing an emissions trading scheme.

World Bank officials, briefing journalists, concede that there are “a certain amount of countries” who can’t be told they will have to wait 15 years for new renewable forms of power generation to become viable.

Their paper also indicates that a large part of the bank’s renewables focus will be on hydro-electric developments – which led “our” ABC to devote almost half of its radio report to the deep unhappiness of the more radical with large-scale hydro power.

And, yes, of course, the bank is supporting other renewable energy projects – and makes a fair bit of this in its report, pointing to wind farms in Turkey, concentrating solar power plants in North Africa and so forth.

However, the bank also says rather clearly that it will “scale up its (financing) engagement with natural gas,” committing to assisting developing countries to address barriers to on the supply chain from exploration to pipelines to power plants.

(The World Coal Association also has the irrits with the bank’s emphasis on gas at the expense of more-affordable coal when, it says, the criteria should be reducing poverty and supporting development.)

If your sole perspective as a media outlet is the need to boost the rush to certain kinds of renewable energy to “save the planet,” some of the bank paper is heresy, but, having spent the first 30 years of my life in Africa and having first-hand knowledge of the horrors of poverty for large numbers of people, it seems to me that much more context and balance are needed in assessing what the bank is really saying even as it works to paint itself a greener shade of black for political reasons in the Western developed countries.

Perhaps it also says something that the Chinese government has waved the bank paper through the consultation process; after all, what difference does it really make to what’s happening on their ground?

Behold the elephant

The more shrill the Greens and Christine Milne get in the run-up to the federal election about embracing renewable energy for most electricity production, the harder it becomes to ignore the real elephant in the halls of power: nuclear generation.

Reactors now provide 11 per cent of the world’s electricity and Australia’s sales of uranium result in some 400 million tonnes a year of carbon abatement overseas – but we still eschew this power source here for purely political reasons.

The Australian Academy of Technological Sciences & Engineering, for one, thinks it is time that we had another hard look at the nuclear issue and it is convening a two-day forum in Sydney next week to do this.

Martin Thomas, one of the organisers and the deputy chairman of the nuclear inquiry John Howard set up in the waning stages of his prime ministership, says the forum will try to provide answers to a host of questions that crop up whenever nukes are on the menu.

These include:

To what extent (and at what cost, I’d add) can nuclear plants reduce Australia’s carbon emissions?

Can nuclear power stations provide low-cost baseload electricity to charge low-emission electric vehicles at night?

Is there a role for small modular reactors in our regional and remote areas?

Is today’s regulatory environment adequate to handle nuclear energy?

Can we provide the workers skilled in engineering and technology that a nuclear power fleet will need?

One of the speakers ATSE has lined up is Ron Cameron, head of the nuclear development division of the OECD Nuclear Energy Agency, whose line of argument is that nukes remains the only large dispatchable source of low-carbon electricity, other than hydro-electric schemes, which are not readily available (including on Australia’s east coast).

However, asks Cameron, do the economics of nuclear make sense in Australia and can proponents overcome long-held public concerns?

His paper will address one of the more irritating habits of arguers for large-scale use of renewable energy: the tendency to play with plant-level costs while skipping over the costs to the electricity supply system as a whole.

As his abstract for the ATSE forum says, these impacts have become an issue of major concern due to the introduction of significant amounts of wind and solar power (eg in Germany) whose intermittency fundamentally affects the structure and the working of the power system.

Tony Owen, now a professor of energy economics in the Internation Energy Policy Institute, UCL Australia, and author of a report on the generation issues for New South Wales for the now-departed state Labor regime, is being wheeled in to talk about the fundamental question of whether federal governments should go on adding targeted measures to drive renewable investments or whether the so-called national energy market – the east coast system – needs to be reformed to allow the technology-neutral competition to decide what happens.

“Failure to do so,” his abstract warns,”may delay investment in low-carbon technology and raise the cost of decarbonising the electricity sector.”

Inherent in this approach, of course, is need for a carbon price to be part of the system, an issue Kevin Rudd is well and truly dragging back in to the election debate.

One of the more interesting ATSE papers, I think, will come from Ben Heard, who is director of ThinkClimate Consulting.

He says that it is commonly assumed Australians are anti-nuclear and therefore that achieving community support for a switch to nuclear power is perhaps unachievable.

This perception, he argues, “is substantially out of step with reality,” claiming that majority community support is “well within reach.”

In a session that I am chairing for ATSE, Michael Angwin, CEO of the Australian Uranium Association, will make a fundamental point that it is highly unlikely a nuclear power industry can emerge here unless we unscramble the mess that has been made of constraining uranium mining in a country that has some of the world’s lowest-cost deposits.

Australia, as is often asserted out by nuclear advocates, is the Saudi Arabia of uranium, with more than double the resource of the next player, Kazakhstan, and 2.6 times the deposits in Canada, number three on the ladder.

The first step to use of nuclear power, Angwin argues, is normalisation of Australian uranium mining.

Also on the speaking list is engineer and author Martin Nicholson, an indefatigable critic of the “zero carbon” campaigners, who will present a paper arguing that, by taking up the nuclear option rather than an all-out dash for renewables, capital investment out to 2050 can be reduced by $50 billion, decarbonisation can be delivered with less expensive wholesale and retail bills and 29,000 jobs can be created in the nuclear sector.

He’s not a speaker at this ATSE forum, but I think that Stephen Martin, the ex-politician who now leads the Committee for the Economic Development of Australia, has done the best recent job of setting the scene for a proper policy debate on the issue.

“If Australia is serious about mitigating the effects of climate change,” says Martin, “then nuclear power must be on the table. If we want to improve environmental outcomes, if we want to lower emissions, nuclear energy is a no-brainer.”

Maybe so, but most policymakers from all mainstream sides of politics over almost a decade since John Howard tried to bring the issue back in to the room have done their best (at least publicly) to ignore the elephant.

ATSE, to its credit, wants to change this.

More questions than answers

First an apology: This is Power blog has been off air since last Friday thanks to a problem at the IT company that is the server for this website, a substantial glitch that occurred while it was upgrading part of its system.

As a result, neither you nor I could access “TiP” until yesterday.

Meanwhile the turbulent state of the energy debate has been churning away.

Most of the current attention, quite reasonably, has been on resurrected Prime Minister Rudd’s decision to can the carbon price a year earlier than Julia Gillard planned, but I would like to go back to his National Press Club speech in Canberra and the bits in it about energy.

First of all what did Rudd actually say?

In the context of reporting on four (separate) meetings with the Business Council and the ACTU in a fortnight, he listed “seven broad areas of necessary policy work,” the first of which was energy policy.

“Australian electricity prices are too high by global standards,” he said. “This affects the competitiveness of all firms large and small. Of course, it also affects individual consumers.”

(As it happens, Energy Minister Gary Gray released in May the latest energy review of the Bureau of Resources & Energy Economics, which, using purchasing power parity modelling, shows that Australian average household electricity prices are still in the lowest quartile of a 30-nation OECD ladder. The average, of course, includes Western Australia – where prices are still well below being cost-reflective.

(The Productivity Commission, in its report on networks tabled in federal parliament in late June, see page 231, makes the point that comparisons are “somewhat sensitive” to the use of exchange rates – with one parameter {used by the major users in their lobbying efforts} they are 33 per cent higher than the EU average and with another they are on a par with the European average.)

Rudd added then that the carbon price represented less than 10 per cent of these bills but he is now spruiking a $380 savings for householders resulting from his switch to emissions trading.

This is for 2014-15 only, his Treasurer (Chris Bowen) has had to point out and it represents more than the impact of the tax on energy bills.

The tax has added about $3 a week to residential bills (just over $150 a year) and $1.10 a week to gas bills ($57).

The costs of the RET and of over-the-top rooftop solar PV “bonus schemes” remain in place.

At the Press Club Rudd also said: “The primary reason for the hike in electricity prices appears to be the current system of national electricity regulation which has allowed excessive rates of return for publicly-owned transmission and distribution utilities, which have become cash cows for various State and Territory governments.”

(To which one should respond that, yes, almost the last act of Julia Gillard’s regime was to table the very large PC report – plus a 66-page government commentary – which identifies (a) what all governments collectively did wrong with the last round of regulatory reforms that took effect as Rudd’s first government came to office, (b) the steps now being taken to ensure that future regulatory determinations deliver “moderate” price increases and (c) the gains that can be made through rolling out smart meters, introducing time-of-use charges and deregulating retail prices.

(Smart meters and ToU charges are tricky political territory – which is why Julia Gillard was never prepared to speak up strongly for them even as she attempted to pinch the cost benefits promised by the Productivity Commission post their introduction as a promise for 2014.)

Finally, Rudd said: “Reforms are needed for the supply of competitively-priced gas for Australian businesses and households.

(Two days earlier his Energy Minister had told the Committee for the Economic Development of Australia that “We know that gas prices on the east coast would be going up irrespective of the development of the LNG industry. This is due to the increasing costs of developing natural gas, whether that be onshore or offshore. A gas reservation policy could not lead to lower gas prices or more gas. Calls for intervention in the market only serve to dampen any appetite for the very investment needed to bring on new supplies. What is needed is not intervention but the removal of impediments to getting gas out of the ground.”)

Looking at media coverage of the speech, I see the chief political correspondent of the “Australian Financial Review” believes that “the push to boost coal seam gas” will include “less environmental regulation, pushing New South Wales to fast-track approval of two major projects and leaning on the Victorian government to lift a CSG exploration moratorium.”

One doesn’t have to wonder how the Greens will react to this.

Pushing NSW and Queensland Coalition governments to privatise their networks is also being touted as step along the path to lowering prices – and both governments have made it clear that they will not act in this area without a mandate from their voters at the next State elections.

The Energy Supply Association bobbed up to remind the Rudd government – and, one would think, specifically the reincarnated Prime Minister – that “the ultimate solution to lower energy bills is continued reform of markets to increase competition and empower consumers with more choice and better incentives to be smarter in the way they use energy.”

This is true, but it won’t alter the fact that there is an ongoing need for the replacement of ageing network infrastructure – outbursts on prices are nothing compared to outbursts on blackouts – and that no government is going to leap to undo reliability standards, even though the ones now in place are though to be more than is really required.

As for “gouging” of customers by NSW and Queensland taking about $2 billion a year in tax equivalent payments and dividends from networks, what is the Prime Minister’s solution for income to be foregone?

The money is spent on other community services – and, in the case of Queensland, partly in funding the expensive arrangement to keep power bills the same in the rural and regional areas of his home State as they are in the south-east corner where he lives.

The Queensland outlay on this will cost about $2 billion cumulatively from this financial year to 2015-16.

The Press Club speech raises an interesting question: is Rudd prepared to step up to the plate laid down by the Productivity Commission and commit to working with the States to drive the east coast roll-out of new metering technology, new tariffs, the necessary assistance for low-income people who will be hurt by ToU arrangements and full-scale retail price deregulation?

If not, he lays himself open to the Coalition’s charge that his Press Club appearance was “more flim-flam.”

As for coal seam gas development, Gary Gray has already provided the government’s get-out-of-jail card for the election campaign in the shape of the BREE report on east coast gas that is not required to be delivered until the year-end.

All in all, it seems to me that Rudd at the Press Club raised far more questions on energy issues than he provided answers, even taking in to account his subsequent step on the carbon price.

Doing it by numbers

One of the more eagerly awaited business happenings of my year is the appearance of “Electricity Gas Australia,” the yearbook of the Energy Supply Association – and the new version was published late today.

Now call it cupboard love – I was responsible for the Electricity Supply Association version from 1991 to 2003 – but I think this volume is in a league of its own when it comes to energy data, and each year’s issue is never far from my elbow as I write for the Coolibah website, the OnPower website and “Business Spectator.”

The key message that ESAA wants to convey this year – the media statement is on their website – is that a shift in greenhouse gas emissions from power generation began as far away as 2007.

Chief executive Matthew Warren also wants to drive home the point that a substantial increase in renewable generation in an east coast market where demand has been steadily diminishing has shrunk sales values by 40 per cent in four years – to the tune of $4 billion.

However, he warns, low wholesale electricity prices are not necessarily a good thing. “They make life tougher for all suppliers,” he says,” including renewable energy generators – and they could have long-term effects on reliability and stability in the NEM.”

My first port of call in the yearbook is almost always the rolling 10 year load forecast. This has proved to be remarkably accurate over a period of at least 25 years but it has never had to cope with a down-trending demand line in the past.

One snapshot will suffice to show how the ESAA members’ mindset has changed over the past year as it has become only too apparent that the slide is a trend not a blip.

Last year, looking to 2015-16, the yearbook forecast that east coast market system energy (that’s the electricity sent out from power stations, not consumption) would reach 225,589 gigawatt hours.

This year, the annual’s projection for 2015-16 is for 205,053 GWh – that’s a nine per cent reduction in the outlook.

The other numbers I have seized on tonight with a certain amount of amusement are the data for consumption of black coal in New South Wales and Queensland.

Now you can hardly have missed the federal government and various persons of green persuasion carolling in the recent days about how the implementation of Julia Gillard’s carbon price on 1 July 2012 has led to an impressive decline in greenhouse gas emissions.

The rather large fly in this ointment is to be found in the fact that coal-burning in the two States peaked at more than 52 million tonnes a year in 2007-08 and 2008-09 and had dropped, according to ESAA, to just over 46 million tonnes in 2011-12. It’s a remarkable tax measure that can have such an effect before it is even applied.

The brown coal numbers (for Victoria and South Australia) went the other way: up from just over 69 million tonnes in 2007-08 to almost 72 million tonnes in 2011-12. One will expect to see them lower for 2012-13.

The other early data to which I gravitate are the figures for consumption.

What the new yearbook shows, in brief, is this:

East coast residential demand in 2011-12 was 6.9 per cent down on the total for the previous financial year – 50,028 gigawatt hours versus 53,745 GWh – with the big drop in Queensland, home of the biggest rush to rooftop solar power, where household consumption fell 10.3 per cent.

Business demand overall, on the other hand, was slightly higher in 2011-12 compared with the previous financial year, although it dropped in NSW.

The “NEM” totals are 128,857 GWh (2011-12) versus 127,908 GWh.

Demand dropped only in NSW (down more than two per cent) and Tasmania (down 2.6 per cent). In Queensland, the rise was 5.5 per cent, reflecting perhaps an improvement after the floods.

Finally, here’s a set of numbers from this preliminary surf through the statistics that’s rather interesting.

A year ago, ESAA was still forecasting that national power generation demand for gas would rise from 343 petajoules in 2010-11 to 446 PJ in 2015-16 and 558 PJ at the decade’s end.

The new yearbook forecasts a reduction in generation demand for gas Australia-wide from 332 PJ in 2011-12 to 260 PJ in 2016-17 and only 271 PJ at the decade’s end.

Faced by forced use of renewable energy (mostly wind power) through the RET, a continuing rise of solar PV use, projections of significantly higher east coast prices and an overall slump in “NEM” demand, the dash for gas has run out of puff.

What will make a lot of politicians frown is that these projections also show a marked decline in manufacturing demand for gas – tumbling from 368 PJ in 2010-11 to a projected 300 PJ in 2016-17 and 271 PJ in 2020-21.

‘Fracktivists’ & real life

Given that I am co-chairing the Quest Events’ “Fracking and our Gas Future” conference in Sydney next week – along with Stefaan Simon, director of the UCL Australia International Energy Policy Institute in Adelaide – I went on to Google this weekend in search of current news on the topic and came up with a new word, an acerbic whack at the anti-fracking celebrity activists and a new American report talking up gas as a substitute for coal in power generation.

The new word is “fracktivist.”

You can find it and the commentary by putting “Fracktivists for Global Warming: How celebrity NIMBYism turned environmentalism against natural gas” in to Google Search.

The report is from the American ecologically-minded Breakthrough Institute and is rather emotively titled “Coal Killer: how natural gas fuels the clean energy revolution.”

In this country the competition between coal and natural gas for the power generation market has been rather buried by the activists shouting for renewable energy over coal-fired power as well as by the state of east coast electricity demand and the local price of gas.

In America, the “shale gale” is chewing steadily in to coal’s share of power generation and has the support of President Barack Obama.

Between 2007 and 2012 coal’s share of the US power mix has fallen from half to 37 per cent.

Needless to say, the gas versus coal story in the US is far more complicated than a snappy headline or two and will be played out in Congress, the White House and the multitude of American regional markets for electricity over the decade ahead.

Just as here, the likelihood that coal will disappear from the US power mix in the next couple of decades is remote indeed.

Here, the advice the federal government has from its Bureau of Resources & Energy Economics is that electricity production in 2035 is likely to be split between black coal (about a third), gas (about a quarter) and renewables, provided geothermal and solar power can cut the mustard.

What interests me about the US stuff I found at the weekend is its focus on how celebrity activism has reversed the American environmental movement’s long-standing support of gas as a bridge over time to zero-carbon energy.

In particular it is bound up with the frenzied efforts of the green glitterati to keep shale gas development out of New York State.

The “Huffington Post” no less has published a go at the actors, artists and the rest who rail against NY shale activity even while their lives are centred in New York City, where gourmet chefs (including some on the front line of the anti-fracking movement) cook with natural gas and most wealthy people use gas to heat their homes.

One of the major celebrity chef opponents of NY development has 16 restaurants in New York, the rest of the US and overseas, all cooking with gas.

The celebrity assault on New York State gas development took off last year when Yoko Ono and her son found their family farm is near gas reserves in their state.

Ono told the media: “Fracking kills – us, the land, nature and the planet.”

And off the glitterati “fracktivists” went, picking up followers by the hundred thousand. Such is American celebrity status.

A central thrust of the current attempts to get the debate on a better keel in New York is expressed by Daniel Schrag of Harvard University’s Centre for the Environment, who argues that “with proper regulation and enforcement, gas provides a very substantial health benefit (in NY) in reducing air pollution from coal plants.”

Proponents of greater gas use point to how the “shale gale” has created American jobs, reduced the country’s imports of energy, delivered billions of dollars in royalties to rural communities and lowered the nation’s bills – but the “fracktivists” can’t hear a word.

The Breakthrough Institute’s “Coal Killer” report argues that the rapid displacement of elderly coal generation with new gas plant in recent years has “allowed the US to achieve the largest recent carbon emissions reduction of any country in the world.”

The institute also offers a sop to the green Cerberus, pointing out that cheap, flexible gas generation will become more and more essential as variable renewable technologies like wind and solar achieve greater penetration in electricity grids.

The institute claims that the advent of shale gas to displace coal generation has so far provided $US100 billion in economic benefits in America. The gas boom, it says, delivered $US31 billion in state and federal revenue just in 2012. These revenues are expected to grow to $US55 billion by 2025.

Interestingly, it adds that “By 2015, the wealth added to the US economy by the shale revolution will alone exceed the cost of all federal energy subsidies between 1950 and 2012.”

There is a paragraph in the report that is worth underlining, I think: “ Energy transitions are not step-wise, perfectly sequential or spontaneous. From whale oil, wood and kerosene to coal, petroleum and natural gas to renewables and nuclear, the evolutionary process from higher carbon to lower carbon has been accelerated by government policy. The American shale revolution offers vital lessons not just for the promise of investments in energy innovation but for the nature of decarbonisation and how best to target energy and climate policies.”

The report adds: “Energy transitions typically take many decades to occur and the evidence suggests that the gas revolution is still in its infancy.”

And also: “The successful combination of new drilling trechnologies, hydraulic fracturing and underground mapping technologies to cheaply extract gas from shale and other unconventional rock formations has the potential to be as disruptive as past energy revolutions and as beneficial to humans and the natural environment.”

The report argues that similar efforts to exploit unconventional gas resources around the world, including in China, India, South Africa and other developing nations, will help meet rising energy demand, reduce pollution and cut some of the geopolitical risks associated with geographically disproportionate energy reserves.

Not a word of which, of course, will have any impact on the celebrity “fracktivists” going out for gas-cooked dinner in New York City tonight (or for that matter in downtown Sydney).

Getting a balance in to this debate is as important here, I think, as it is in America.

The “fracktivists” can never be won over, but the broader community needs convincing of the fact that there are real opportunities to address our energy needs, our desire to reduce carbon emissions and our concerns about the cost of power and gas other than a madcap dash for renewables.

That’s why I’m supporting next week’s “Fracking and our Gas Future” conference – it’s content is designed to explain and explore a critical aspect of future local energy supply not to further fan the flames of controversy.

Why gas supply needs unlocking

The fundamental disagreement that has emerged between mainstream politics and energy suppliers, on the one hand, and the more radical environmental movement, spearheaded by the Greens and including some parts of the renewable energy sector, on the other is whether Australian benefits from producing more gas.

For the Greens, the answer is to brush aside the fossil-fuelled electricity industry, leave gas (and coal) in the ground and rush headlong for a wholly renewable power generation sector.

This has been condemned as unrealistic and uneconomic by Labor, the Coalition and industry generally – the most recent contribution to the debate coming from the Australian Pipeline Industry Association in a 125-page treatise arguing for greater certainty over the long term for gas supply.

What’s not at issue is whether the gas is there – one way of looking at it is that there is a large enough resource in just Queensland and News South Wales to meet the needs of a city the size of Sydney for 1,000 years.

Leaving aside the Greens’ “lock up the gas” view, the broader debate revolves around how best to meet domestic needs as well as LNG export commitments.

The APIA presentation argues for the establishment of a new investment approach to replace the renewable energy target and sundy other programs picking renewable winners that, it says, would allow low-emission technologies to compete for support.

It also wants to see a technology-neutral policy to force down the electricity supply sector’s emissions, which are a little more than a third of total national emissions.

A big part of the suggested new direction is the reinvigoration of investment in gas-fired generation on the east coast – which has effectively halted under the impacts of slacked power demand, the RET and the outlook for much higher gas prices.

The APIA target is as much coal as renewables, pointing out that baseload gas generation offers 70 per cent less emissions than brown coal power production and 61 per cent less than black coal.

It adds that placing CCGT plants close to load areas has the further benefit that gas transmission efficiency is better than that of high voltage electricity networks.

“If conditions are set appropriately to encourage projects to provide energy with lower emissions intensity,” says APIA chief executive Cheryl Cartwright,”the increase in costs would be a lot less than just funding renewables.”

Interestingly, the initial adverse reactions to the APIA views have come from the association with a similar sounding acronym, APPEA – the Australian Petroleum Production & Exploration Association.

While APPEA agrees with APIA that there is sufficient gas in Australia to meet domestic and export markets and that concerns regarding availability and price can only be met by producing more gas, the former isn’t buying the latter’s prescription for the way forward.

APPEA chief executive David Byers says: “Recommendations that propose a total restructuring of the exploration acreage release regime across all jurisdictions or seek wholesale changes to the entire fiscal system are implausible, highly theoretical and (if implemented) would damage investor confidence.”

The APPEA attitude is that “the answer does not lie in new interventions that will worsen the effects of existing regulations.”

The best response to rising gas prices, says Byers, is not more regulation – it’s more gas. “Green tape, regulatory and fiscal uncertainty and threats of market intervention compound undermining the confidence needed to deliver the next wave of development.”

Talking to ABC Rural, APPEA’s Rick Wilkinson, chief operating officer for the east coast, also argued that it is wrong to claim the opening of the eastern Australian CSG business is the cause of current domestic gas price rises.

The primary driver, according to Wilkinson, is the cost of gas extraction.

“It’s very costly to develop coal seam gas,” he told the ABC. “There’s no $3 (per gigajoule) gas left in Australia. We have produced it, it’s been contracted and now we are moving to the next tranches of gas.”

These exchanges come ahead of the inquiry in to the east coast gas market launched at the APPEA conference in Brisbane in May by federal Resources & Energy Minister Gary Gray. The review report – by the federal Bureau of Resources & Energy Economics – is required by the year’s end and will be an important policy contribution for whichever federal government is then in office.

One of the major themes of the APIA presentation is the need for the CoAG Standing Council on Energy & Resources (chaired by Gray) to urgently identify what policies should be pursued if there is a short-term gas supply shortfall on the east coast – a prospect some see as almost inevitable because of the inability of investors to develop CSG resources in New South Wales in time to meet the critical mid-decade point of current contracts closing.

In the world of gas, the present is prologue to the longer-term future as well as the immediate horizons.

Part of the APIA report consists of presentation of modelling work by ACIL Allen Consulting suggesting that policies resulting in accelerated development of shale gas on the east coast could lower long-term gas prices by more than 20 per cent, but this is not a panacea for the looming problems this decade on the east coast.

ACIL Allen say that “there is now a real risk that the emergence of the coal seam gas LNG industry will cause a transient gas price spike arising from a delay or shortfall in the ramp-up of production needed to supply the plants. If production capacity is initially unable to keep pace with demand, gas prices could be pushed to levels above long-run LNG netback prices.

“The severity and timing of any such gas price spike is uncertain, but it could persist for some years.

“The risk is that gas-consuming industry that would be economically viable in the long term could be lost in this transition period, resulting in avoidable, unncessary economic waste.”

Part of the answer, the consultants suggest, could be the provision of temporary, variable, targetted assistance to those affected, funded by the royalty and tax revenue windfalls from the gas price spike.

Included in the ACIL Allen presentation is an outline of its current “base supply scenario” – in which eastern Australian domestic gas consumption remains relatively steady at 700 to 730 petajoules a year until 2020, then grows steadily to about 825 PJ/a by 2030.

In this scenario, the consultants see average wholesale prices spike up to around $8/GJ in 2014, retreating to $6 in 2015 as supply catches up to LNG requirements and then rising steadily to an average $8 (in inflation-adjusted terms) by 2030.

This is a perspective that requires the NSW resources to be unlocked and the investment environment enable some 75 PJ/a of shale gas to come on the market from the Cooper Basin within 10 years.

In no shape or form does it envisage a return to the “good old days” of cheap east coast domestic gas but even this higher-priced outlook critically depends on policymakers getting their act together asap.

Shades of Gray

Most of the publicity gleaned by federal Minister for Resources & Energy Gary Gray is recent days has related to either his mistake in saying at the Minerals Council annual dinner that Nelson Mandela was dead or his willingness to remain a minister after Julia Gillard’s fall despite having been a strident critic of Kevin Rudd’s attempts to make a comeback.

Gray, however, has also been out and about speaking about his portfolio and this stuff has been ignored by the mainstream media – who, in fairness, are spoiled for choice at the moment in what to cover.

My particular interest is in what Gray had to say to the Committee for Economic Development of Australia “State of the Nation” conference in Canberra on the eve of Gillard’s ejection from the top job.

He kicked off by reminding the CEDA audience of the four priorities of the energy white paper, delivered by his predecessor, Martin Ferguson, back in December – which now seems half a lifetime ago, given recent developments.

The white paper, Gray pointed out, highlights four policy priorities: (1) delivering better energy market outcomes for consumers, (2) accelerating the use of clean energy, (3) developing critical resources, especially gas, and (4) strengthening the policy framework.

The reform agenda being pursued under the CoAG umbrella,he added, aims to strengthen network regulation, promote demand-side participation, progress retail price deregulation and enhance competition and consumer engagement and protection.

This is the process the Productivity Commission has chided for being “tardy.”

Gray released the PC report the day after he spoke at CEDA.

At CEDA, he pointed to the most recent meeting of the Standing Council on Energy & Resources in Brisbane and its agreement to change the network regulations appeals framework to require the review tribunal to use the long-term interests of consumers to guide decisions as a step in the right direction.

Looking at renewable energy, Gray asserted that, under current policy, it may account for 40 per cent of power generation by 2035 – this of course is far removed from the present Greens’ campaign for 90 per cent by 2030 — and, on the advice he has from the Bureau of Resources & Energy Economics, requires extensive development of large-scale solar power and geothermal energy, neither of which have made particularly strong strides since 2007.

He is also at odds with the Greens, of course, on the role of gas.

“The challenge,” he told CEDA,”is getting the gas out of the ground and in to the market.”

The radical arm of the environmental movement, as we all know, will say and do almost anything to promote keeping coal seam gas in the ground.

Without more supplies, Gray said, there will be unrestrained upward pressure on gas prices, hurting households, business and industry.

Nonetheless, he noted, users must accept higher prices as developments become increasingly expensive – while producers have got to do more to address their “social licence.”

He also put an interesting twist on the federal government’s continuing opposition to domestic gas reservation.

Without adequate access to gas for domestic users, he acknowledged, governments will face increasing pressure to use the “the stick of regulation.”

This, he said, “is not a stick we want to use – the best solution is to be found in the markeplace – but it is there if we cannot find an amicable solution.”

However, he added, the government did not believe that a domestic gas reservation policy will keep down prices.

Gray shared the CEDA platform with the Coalition resources and energy spokesman, Ian Macfarlane, who said that, while the Opposition is opposed to a “mandatory blanket ban gas reservation policy,” it is open to investigating alternative ideas.

“Instead of a gas reservation policy applying retrospectively to existing projects,” Macfarlane said, “it would be far more effective and less destructive to the upstream petroleum industry to promote the idea of acreage reservation – where certain areas are set aside wholly or in part for the domestic gas market.”

Gray’s other contribution to the energy debate at this time has been in a commentary for a special report on the topic published in “The Australian.”

For some reason, “The Australian” editors chose to headline his contribution “The answer is blowing in the wind,” which is hardly a reflection of what he actually wrote.

“The coming years,” he said, “will see a changing profile of where our energy comes from. In the future we expect to see an increase in the use of more unconventional sources of energy. While coal, petroleum products and natural gas will continue to meet the majority of our energy needs for some time to come, renewable energies have a bright future in our energy mix.”

The government, he said, is working with other jurisdictions to “address community concerns about coal seam gas and to ensure our ability to continue to use this plentiful resources is undertaken responsibly and sustainably” – while also, he asserted, seeking to help overcome obstacles facing new and innovative low-emissions technologies, including carbon capture and storage, another Greens’ bane.

In the present rather wild political environment, it is worth remembering, I think, that the mainstream debate on energy issues continues on a steady course (apart from the carbon tax row).

This is not what the Greens and their camp followers want — and the amount of coverage given to more radical views could easily give the impression it is gaining policy ground.