Archive for October, 2013
Yesterday in “The ‘NEM’ at 15” I canvassed the electricity-related discussion at the eastern Australia energy market outlook conference last week. This time round I would like to deal with the gas aspects.
Not surprisingly, more than half the conference’s presentations and discussion were devoted to gas issues, with the embattled New South Wales Resources & Energy Minister, Chris Hartcher, a leading participant.
The last day of the three-day event was devoted to a review of NSW issues.
For me, there were two stand-out interventions on Friday – one at the conference by trade union leader Paul Howes and the other a coincident commentary in “The Australian” by Matthew Warren, chief executive of the Energy Supply Association.
Warren, who had spoken the previous day at the conference on the travails of the national electricity market, let himself go in the newspaper op-ed (see “Hot air fuels gas threat” on “The Australian” website).
“Gas policy in Australia,” he wrote,”is quickly descending in to farce. A conga line of opinions based on hand-picked factoids is filling the debate with clueless self interest.
“We have calls for reservation of gas supplies that don’t exist,” he went on, “and an orchestrated ‘grassroots’ campaign against development of gas reserves in NSW. The beleagured manufacturing sector is seeking impossible intervention in energy markets to save their businesses when what they are really seeking is some kind of intervention via an uncomfortable debate about industry policy.
“We have seen voodoo economics feigning outrage that increased gas development isn’t bringing prices down………that concerns about a gas shortage in NSW are simply a conspiracy between State and federal governments, gas suppliers and gas customers to jack up prices.
“Confused?” asked Warren. “Get in the queue.”
Howes, who leads the Australian Workers Union, spared neither side of politics in an address to the EAEMO conference.
How, he asked, has the debate in NSW managed to allow “gas” to become synonymous with “environmental destruction”?
The answer, he asserted, lies in the community being badly let down by the body politic.
Life in a democracy, Howes said, inevitably involves extremists from the left and right holding fringe views – often the same views if from different sides, eg fluoride in tap water – but the evidence-based mainstream tends to hold the course.
“But in NSW something odd has happened – the extreme right led by (radio’s) Alan Jones and the extreme left led by the Greens are screaming their usual doomsday theories – but no-one is pushing back.”
He accused the Coalition and his own Labor party of “resembling a couple of eager potential inheritors trying to humor a mad aunt.”
Their policy approaches on coal seam gas, he said, are not about improving rigorous environmental safeguards – but about “piling up messy legislative hurdles until nothing can happen and investors get fed up and leave.”
“NSW,” said Howes, “is creating sovereign risk and chasing away critically needed investment with a big book of statutes.”
He accused the mainstream parties of “straight-up cowardice” and described the situation on the Labor side as “tragic.”
“There’s something incredibly depressing about (a party) taking the populist low road and still polling 27 per cent,” he added.
Howes’s argument is that Labor should stop trying to “out-fringe” the Coalition and “move forcefully to occupy the rational middle ground, which has been left wide open.”
He was equally condemnatory of both sides of politics at the federal level, giving a serve to former Environment Minister Tony Burke for adding a water trigger to the Environment Protection & Biodiversity Conservation Act in an effort to further head off CSG development and to current Industry Minister, Ian Macfarlane, whom he accused of “incredible inconsistency” before and after the federal election.
Howes’s core message for mainstream politicians is that “we will never get anywhere close to where we need to be on gas so long as we remain conflicted and yielding to fringe interests.”
The Australian Industry Group, meanwhile, has been out and about calling on governments to do more to support manufacturers in a high gas price environment – although the lobbyist’s messaging is somewhat confused.
AiG was widely reported last week as advocating temporary support for manufacturing from taxpayers if the drive to export CSG puts them at competitive disadvantage by pushing up gas prices.
However, the mainstream media then missed CEO Innes Willox’s concession on ABC Radio that handouts should be “the very last resort and not something we are advocating.”
His point, he claimed, is that, “if this issue is not resolved,” State and federal governments will find industry “having to come to them asking for temporary and targetted support to get through the price hump.”
This has also been a month where the Australian Petroleum Production & Exploration Association and the Australia Institute have been clashing over community views on the CSG issue.
The institute’s target is the $5 million APPEA campaign on CSG during the federal election and its comments keep pushing the point that “many” Australians surveyed hold strong views against CSG – to which APPEA has riposted that, on 15 issues raised in the institute survey, only two per cent of respondents ranked CSG as a “top concern” versus 18 per cent rating “economic growth and development” as their top-of-mind issue for action by politicians.
The institute’s accusation is that the gas industry has chosen to “almost completely ignore the public’s concerns about CSG” and, when it has engaged, “it has simply dismissed (the concerns) without supplying any real evidence.”
It accuses the industry of “at times exaggerating” potential economic benefits, not a prospect that Paul Howes, for example, sees as valid.
Part of Howes’s EAEMO presentation was devoted to criticising the Napthine government in Victoria, which is sitting on a report on CSG from former federal politician Peter Reith at present. He accused Premier Dennis Napthine of “running scared” of the Greens and failing to follow through on “a sector that could provide a much-needed lifeline to the State’s ailing manufacturing industry.”
Some of the most sobering stuff I heard at EAEMO last week came from Paul Balfe, executive director of consultants ACIL Allen.
“There was great uncertainty about gas supply in NSW two years ago,” Balfe told us, “but the passage of time has narrowed the options.”
The east coast is now a sellers’ market for gas, he pointed out, and, as the existing NSW supply contracts roll off, the immediate lifeline outside the State borders, the Bass Strait resources, are linked to it by inadequate pipeline capacity (in terms of peak demand) and inadequate processing capacity in the Latrobe Valley.
Meanwhile the Cooper Basin producers are unlikely to deliver significant volumes to fill the market window emerging.
The CSG industry in NSW, Balfe said, is now “in a state of near paralysis,” gas retailers will make whatever deals they can to fill their State sales arrangements and the most likely outcome is a “hybrid response” bringing with it higher long-term prices, probably in the range of $6 to $9 per gigajoule.
The issue at the other end of the pipeline, Balfe pointed out, is what happens to industrial users in a high price environment (the AiG concern).
Balfe suggested that the NSW market for gas may fall from a bit more than 140 petajoules a year now to about 120 PJ by 2020.
NSW, Santos’s James Baulderstone told Friday’s forum, is “in a very precarious position. (Howes called it a “very awkward position.”)
Half of the new gas the State needs can come from the Narrabri development Santos proposes, bringing with it $80 million a year in royalties for the State government’s stressed budget – but when can work begin to deliver this resource?
I came home thinking that Kafka could have made much of this surreal environment, but the problem for people living in NSW is that this is not a novel — and a mugging by reality, on the evidence of the conference, looms ever closer.
It’s not the easiest trick to compress a three-day energy conference in to 1,200 words – which is my task for today after the past week’s eastern Australia energy market outlook forum.
Most of the almost 200 attendees, including more than 40 speakers, will have their own views of the key take-away thoughts.
These are mine, today relating to electricity – the conference equally took a very detailed look at gas supply.
I thought Ed Willett, former ACCC and AER commissioner, who chaired the event’s second day, put his finger on an important point when he said that the national electricity market, which turns 15 in December, has turned out to be one of the best electricity pools in the world and today’s challenge is not just to improve it but to avoid letting it go backwards – noting that the UK market, which was a model for the local one in the 1990s, is now an example of a compromised set-up.
Matthew Warren, CEO of the Energy Supply Association, followed up by posing a critical question: can the NEM cope with the modern era?
Are its core objectives – affordable prices and supply reliability – at risk of being compromised, he asked?
Warren pointed to key factors in play today: falling power demand, an over-supply of generation with more capacity being forced in by regulation, weak wholesale prices, a shifting despatch order, a rising amount of distributed generation outside the “NEM” and the “shadow price” of carbon influencing the market (not just the official carbon price but the attitude of money lenders to fossil-fuelled project proposals).
He noted that eastern Australia is not alone in dealing with such issues.
There is a similar story in all developed economies, with energy shifting from being being a utility product to a consumer one.
In the European Union, Warren added, 51,000 megawatts of gas-fired generation have been mothballed and the top 20 energy utilities have lost a trillion euros in value since 2008.
He spoke of the call by the Magritte Group of 10 major EU utilities, owners of half Europe’s generation capacity and so-called because their first meeting was in an art gallery, for a cut in support for renewable energy.
I have been waiting for a peg on which to hang this recent news from Europe, waiting to see how the greenwashed local writers on energy treat it.
The answer, I am not surprised to tell you, is “with ignore,” as they say in some quarters – while they have been all clubbing together to build up an atmosphere of criticism for the new Abbott government because of what it may do to the Australian RET and other green programs.
International consultants Capgemini have described the EU markets as “chaotic,” warning that “the present situation poses a clear threat to security of supply as gas plants close quickly and buffer fuel, such as gas stored for the winter in underground reservoirs, reaches significantly low levels.”
The Magritte Group says that the EU’s rising electricity bills are the fault of “political charges and misguided subsidies” for solar and wind as well as feed-in tariffs that have distorted markets, leading to the supply sector becoming “unworthy of investment.”
The utility CEOs point to major users in the EU now paying three times as much for gas as their American counterparts and twice as much for electricity.
“How can we dream of a European manufacturing renaissance with such a differential,” they ask.
Against this backdrop, Matthew Warren points out that the “NEM” faces a problem in enabling the exit of redundant generation in an environment of shrinking demand, a major change from around 2007 when market signals triggered investment in new gas-fuelled capacity.
Drawing together points made by various speakers, the current “NEM” situation has seen demand fall by the equivalent of the annual output of 1,800 MW of baseload generation.
Meanwhile some 2,500 MW of wind capacity has been added since 2003 and investment in household rooftop solar PVs has run at 800 MW annually over the past two years and is expected, even with a sharp cut in subsidies, to average 600 MW annually over the next decade (driven in part by take-up by home-owners nearing retirement for reasons dictated by superannuation management not a devotion to warding off climate change).
In addition, there will need to be investment in another 12,000 MW – mostly wind power – by 2020 to meet the current RET, decried at the conference by an economist from the Australian Chamber of Commerce & Industry, the most hard line of the critics of the measure, as “the ugly baby” of energy policy.
My personal take on all this is that there needs to be serious consideration, and soon, of what the “NEM” will look like by the time it is 25 years old in 2023, at which point one of the largest New South Wales baseload plants will be 50 and several others older than 40.
As a point of reference, I have been asking people what they think could be built on the Bayswater B site, approved for new generation development, in the Hunter Valley?
One of the key points in this consideration is that, apart from wind and solar capacity, we need not expect to see any new generation investment on the southern coast between now and the end of the decade.
What “transformational policy” – to take up a term used by AGL Energy economist Tim Nelson, one of the conference presenters – can be pursued to remedy the present challenges to the “NEM” continuing to be a model market?
Not the least of the factors at play here is where “NEM” power demand is heading.
It was obvious from presentations and talk on the conference sidelines that virtually no-one has a handle on this critical aspect – for example, there is much uncertainty about the future of large industrial users’ requirements and in particular about the fate of east coast aluminium smelters, the second smallest of which, Kurri Kurri, took 2,800 gigawatt hours of annual demand out of the market when it closed recently.
The remaining five smelters in the “NEM” have an aggregate load of some 2,750 megawatts. (Kurri Kurri was 300 MW.)
Say “manufacturing” and “energy” in the same sentence today and you are probably discussing the east coast gas supply situation, but the fate of factories (and of the companies that provide goods and services to them) over the rest of the decade is a big issue for electricity suppliers.
On the other hand, what would happen to demand, and especially peak demand, if the latter years of this decade see electric vehicles suddenly bursting in to the automotive mainstream?
Not likely to happen? Sez who?
For all the points canvassed above and a number of others, the eastern Australia energy market outlook conference was timely in providing an opportunity for reflection on the “NEM.”
If nothing else, the event has underlined the importance, in terms of the electricity market, of the new energy white paper process the Abbott government is about to launch, the review of the RET that is imminent, the retail deregulation issue, the prospects for government-owned asset privatisation and the agenda for pursuing new metering technology and tariff reform.
Borrowing from an expression used in the gas debate at the conference, the answer to the question posed by Willett and Warren is that the future of the “NEM” is in a precarious state at present.
The brazen attempts by the Greens, aided and abetted by “our” ABC and the “The Age” and the “Sydney Morning Herald,” to politicise the Blue Mountains bushfires, is now being supported by the bureaucrat managing the UN’s Framework Convention on Climate Change process – which has been running in to dead ends for a decade no matter how strident the hype produced in advance of each annual conference, the next of which is in Poland in December.
Christiana Figueres, daughter of a former president of Costa Rica and appointed to the UN role in 2010 after the Copenhagen conference fiasco (which helped to undo Kevin Rudd’s prime ministership first time round), claims the fires “prove the world is already paying the price of carbon.”
This she promptly qualifies by adding “The World Meteorological Organisation has not established the direct link between this wildfire and climate change YET.”
The question I would like to pose to the Greens’ Adam Bandt and Christine Milne, the doom-mongers of the green media and Senora Figueres is how they would react to a fire that claimed five million hectares, 12 lives, a million sheep and thousands of cattle?
(The Blue Mountains fires so far have turned 86,000 hectares to ash.)
Or one five times as big as the the current conflagration that claimed another 12 lives and 2,000 buildings?
Or one that destroyed two million hectares and 3,700 buildings, taking 71 lives?
Or one that destroyed a million hectares and 500 houses and took 20 lives?
None of these examples is hypothetical.
In order, they occurred in Victoria in 1851, 1898, 1926, 1939 and 1944.
To which you could add the Tasmanian “Black Tuesday” fires of 1967 that covered 264,000 hectares, burned down 1,293 properties and took 62 lives?
And the Ash Wednesday bushfires of 1983 in South Australia and Victoria that burned out 418,000 hectares and 2,400 houses, taking 75 lives.
Are these attributable to global warming?
One only has to say this to highlight the fact that, in pursuit of their cause, these green ideologues will use anything that comes to hand.
The ABC’s 7.30 Report followed up Bandt’s egregious attack on Tony Abbott by finding, to quote its own subsequent news story, “several climate scientists who told the ABC the link between global warming and bushfires has been established and it is time for action.”
Figueres says the footage of the Blue Mountains fires “should prompt international concern on climate.”
It is, she asserts, “an introduction to the doom and gloom that we COULD be facing.”
Note the weasel word.
The climate change doom-mongers are slick at slipping in “might” or “could” to provide what they hope is a veneer of respectability for their assertions, which are based on the most alarmist of the models with which the UN is playing.
It seems to me that the best local evidence that the Greens and the rest of their herd have overplayed their hand with the Australian community can be found in the outcome of the recent federal election: despite a decade of increasingly shrill rhetoric about the perils we face, despite the willingness of so many in the media to play along with the alarmism, despite the strident attempts to paint Abbott as a climate criminal, less than a million voters out of 14 million eligible to vote were prepared to support the Greens.
The Coalition in its various forms outpolled the Greens and Labor together – and who will know how many of the latter’s rusted-on supporters held their noses while they voted as they have always voted?
The media political commentariat tells us that a key to Abbott’s success was his campaigning against the carbon tax – which stands today at $25 per tonne and was about to be abandoned at that level if Rudd had been re-elected.
Given this, I do wonder how the voters would have reacted if the media had played up the fact that the Greens, in pursuing their campaign for 100 per cent renewable energy to make electricity in Australia, are relying on academic research that says it will take a carbon price of $50 to $100 – and you can forget about the lower end of this scale – to achieve this aim?
None of the pollsters have gone out and asked Australians, for example, “Are you prepared to have a carbon price up to $100 to support Australia making its contribution to the global climate change abatement attempts?”
None of the media have gone out and asked manufacturers, direct employers of almost a million Australians, “what will happen to your business with a carbon price of $50 to $100?”
Bear in mind that we have the Manufacturing Australia lobby group currently declaiming that an increase of gas prices on the east coast to global parity – delivering a price here of perhaps $10 per gigajoule, double what it has been recently – will result in the loss of a quarter of a million jobs.
There is nothing new in the Greens leaping on the Blue Mountains fires to push their points about global warming.
This is standard practice for the environmental movement worldwide and not least in the United States.
After the last outburst in America over some vicious storms, I saw one website correspondent ask “So did global warming cause the fires that killed 2,500 people in the US in 1871? Was it responsible for 400 deaths in the Great Blizzard of 1888? Did it cause 2.5 million Chinese deaths in the floods of 1931?”
We are far from having a commonsense debate about the global warming issue here and overseas because the high ground has been seized by those with the loudest voices and the most alarming views.
Here in Australia, the core point is that we have mainstream political parties committed to reducing our emissions to five per cent below 2000 levels by 2020.
There is a legitimate debate to be had about whether this target should be increased when Christiana Figueres’ set-up achieves a new international accord.
There is a legitimate debate to be had about pursuing the current target and any future one in the least cost and most reliable way in terms of electricity generation.
There is a legitimate debate to be had about whether Abbott’s “Direct Action” can do the job?
The Coalition has done well over several years in fleshing out its approach and it shouldn’t be surprised at being beaten up about this in the media at present.
(Mind you, to steal an American joke, if Abbott’s dog could walk on water, the Fairfax papers and “our” ABC would still run a headline saying “Tony Abbott’s dog can’t swim.”)
Any honest abatement debate would have to open the door to use of nuclear power and to our accelerating R&D on carbon capture and storage, given our national role as an exporter of fossil fuels to the world.
That the Abbott government, in its own thinking (as revealed to date), is a long way from offering this honest debate is also a fact.
The same was true of the Rudd-Gillard-Rudd regime.
However, we will not get anywhere near having this debate, let alone coming to a sensible landing on a strategy, while the howlers on the Greens side, and their media PR team, persist in seizing everything they can find – and now the Blue Mountains fires – to try to frighten the country in to accepting their version of what should happen.
Judging by what they have been writing, they see this as a way to “put the heat on Abbott.”
The run they are getting from the media – here and overseas – may make them think this ploy is working.
They should go back to the outcome of the recent election and look again at the numbers.
If algebra is not your thing, and it isn’t mine, then you probably should steer clear of the latest AGL Energy economic working paper produced by chief economist Paul Simshauser and Jude Ariyaratnam, one of the company’s financial analysts.
There is a veritable blizzard of mathematical equations in the paper entitled “What is normal profit for power generation?”
The authors’ target is those who accuse participants in the “NEM” energy-only wholesale electricity pool of abusing market power.
As they say, price spikes in the pool typically trigger regulatory inquiries (and large black tabloid headlines).
Their point is that, in an environment where underlying prices are driving merchant generators to a state of financial distress, episodes of transient price spikes should not automatically trigger such inquiries.
For me, the paper reinforces what I have thought virtually from the start of the “NEM” – that it is a bastard of a market in which to pursue a buck for shareholders given the number of factors that can derail even well-run businesses.
Simshauser and Ariyaratnam point to Loy Yang Power and the Hazelwood operations of GDF Suez as examples of generation that can get in to strife.
Loy Yang, which AGL acquired in mid-2012, needed an emergency recapitalisation of $1.2 billion last year while Hazelwood needed an injection of $650 million.
Without this, the pair say, both plants would have suffered financial collapse.
And this was despite the federal government providing structural adjustment assistance packages to brown coal generators in an attempt to moderate the effects of the carbon tax.
These problems, and difficulties for China Light & Power’s Yallourn as well, came as no surprise to the power industry, the authors point out.
Many plants around the “NEM” were in strife because of the low wholesale prices of 2010-11 and 2011-12.
“That the plants lasted almost two years without defaulting on project debt,” say Simshauser and Ariyaratnam, “was due to commodity hedge contracts signed in prior years under considerably more favourable market circumstances.
“However, as the hedge contracts progressively matured and were replaced with lower-value arrangements, emergency recapitalisation became essential.”
The pair comment that policymakers and regulators governing competitive power markets – especially gross pool, energy only ones such as the NEM and the markets in Texas, Alberta, Singapore and New Zealand, among others – “face an interesting dilemma.”
Survival, where clearing prices are not economically viable over the long run, means that bidding in to the market “must deviate from strict short-run marginal costs at some stage.”
Problems arise when watchdogs and external critics (eg those representing major users with an axe to grind over rising retail bills) “ignore the essential time dimension” in making judgements about spikes in bidding.
This is a thoroughly complex topic, and one where the regulators, the vested-interest critics and the generators are endlessly circling each other, putting forward concerns, accusations and explanations.
The end-users and their hired experts have a media advantage in that they only need to holler “bad habits” to get another negative thought about power suppliers in the minds of the community at large – who are generally fed up with their more expensive power bills and a public debate that is noisy but apparently does nothing to ease their pain.
The regulators and the politicians sitting behind them are caught on a fork where proof of market misbehaviour is exceptionally hard to present but voter annoyance is a pessure hard to ignore.
The situation is not really a lot different in terms of mood from the endless argument over petrol prices and their mysterious fluctuations at the bowser.
Simshauser and Ariyaratnam, 26 pages in to their argument, sum up like this: “If (generator) profit benchmarks are set to sub-optimal levels, neither incumbents nor prospective new entrants will find (operating in the market) profitable in the long-run and this has implications for reliability and an inevitable (and typically unwelcome) price correction of significance over time.”
They urge the overseers of the market to be pragmatic about profit-making, not only with respect to the cost of generators’ capital, but also about what funds need to be deployed to meet incremental demand and/or replace retiring plant.
To put it mildly, it’s a very abstruse debate for the non-economists, full of mysterious maths, but with real consequences if those charged with regulation head off down the wrong path.
The corollary point is that, when things do go wrong (eg half of Victoria’s generation capacity suffering a financial meltdown), the outcome for those of us Outdoors who don’t know maths from a Mazda can be a nasty shock – and one that isn’t easily put right either.
I must tell you sometime about the strife that eventuated in Ontario in the 1990s over mismanagement of their nuclear power operations and the local selling arrangements – suffice to say here that, a decade later, Ontarian consumers and taxpayers are still stuck with a multi-billion dollar debt.
One lesson to draw from the AGL paper and other experience, I suggest, is that it literally pays to ensure that the regulators have the knowledge, the experience and the clout to really get a handle on claimed market abuse in the “NEM.”
Read properly, annual reports can be a good dipstick in to the engine of energy businesses and followers of the industry now have a full set of reviews for 2012-13 available from the utilities owned by the Queensland government.
Former federal Energy Minister Warwick Parer is chairman of Stanwell Corporation and he says “From a wholesale generator perspective, the past year will undoubtedly be recognised as one of the most difficult since the inception of the ‘NEM’ in 1997.”
Parer’s point is that factors outside the generator’s control, including market over-supply, heavily subsidised renewable energy schemes, the carbon tax and “the increasing dominance of vertically-integrated operators,” have imposed substantial costs and significant pressures.
He sees market conditions “remaining difficult for at least the next few years.”
His CEO, Richard van Breda, adds that the Queensland electricity market, on average, had a surplus of 60 per cent in annual generation capacity compared with electricity demand in 2012-13.
Van Breda also reports that the carbon tax imposed the company’s largest cost: $355 million in the reporting year.
Over at CS Energy, chairman Ross Rolfe puts the cost of the tax at almost $245 million.
The generators says total installed capacity in Queensland is 12,798 megawatts – while the maximum load in 2013 summer was 8,453 MW.
The backbone of the Queensland grid is high voltage transmission business Powerlink, which has a system stretching 1,700 kilometres from north of Cairns to the New South Wales border and attributes the lack of growth in energy consumption and maximum demand in 2012-13 to a slowed-down State economy, mild weather, the uptake of rooftop solar PVs and consumer reaction to price spikes.
The upside is that there is a 10-year outlook for Queensland of sustained economic growth and Powerlink is doing its planning on increases averaging three per cent a year for maximum demand and 3.3 per cent for energy.
The business, which spent $558 million on capex in 2012-13, expects to outlay $2.7 billion over the five years to 2017-18. Almost 60 per cent of its regulated capital works program will be devoted to replacing assets.
The two power entities most in the public eye in Queensland are distributors Energex, which has 1.3 million customers crowded in to the State’s south-east corner, and Ergon Energy, which has 710,000 customers sprawled across the remaining 97 per cent of the State, requiring it to maintain 160,000 kilometres of power lines and a million poles.
Energex chairman Shane Stone, reflecting the Newman government’s focus on reining in power price rises, highlights the business chopping $452 million from its capex and opex budgets for the financial years 2012-13 and 2013-14.
“This is not to say,” he notes, “that we have been able to immediately reduce power bills but rather we have moved to lay the ground work for more affordable power in the time ahead.”
This is, he adds, “quite a challenge,” given that Energex is confronted by a reduced use of energy (via budgetting consumers’ reduction in demand plus the impact of the local rush to solar) which means charging its fixed costs over a smaller base.
The utility’s residential energy demand fell 3.8 per cent in 2012-13 (a downturn of 10.4 per cent since 2008-09) while industrial and commercial consumption rose 1.1 per cent.
There are 221,000 homes in Energex’s franchise area with rooftop solar systems now – there were less than 2,000 in 2009.
As CEO Terry Effeney points out, the large sums the business invested in infrastructure over the past decade have resulted in a 50 per cent improvement in network reliability.
The significance of this may be lost on the 24/7 media, but those with longer memories will not have forgotten the political storms over the state of the system in Peter Beattie’s reign after earlier years of under-spending.
The hassle getting closer to the political surface today is that Energex now has many households operating at “zero net energy,” which means that they are using the network services without contributing to its costs – an issue that can’t be hidden when the solar take-up is running at 74,000 homes a year (2012-13 level).
Ergon Energy CEO Ian McLeod chooses to kick off his annual report commentary with a reference to Bob Dylan’s “The Times They are A-Changing,” which could be the anthem for the industry on the east coast.
He points out that the take-up of solar by householders, supported by taxpayer subsidies and high feed-in tariffs (paid by consumers not using PVs), suggests the network’s role is transitioning from a transporter of electricity to a market enabler.
Fourteen per cent of his residential customer base now uses solar power.
Data like this get the green ideologues very excited, so it is as well to point out that the total PV capacity in the franchise area is 255 megawatts – and the peak demand in 2012-13 was 2,380 MW.
That said, McLeod adds that even a cut in the FiT from the extra-ordinary 44 cents/kWh initially provided by the Bligh government to eight cents has not disrupted the solar take-up because, he says, “customers are looking for certainty and control of their costs” in an environment were this financial year’s price spike (2013-14) is 22.6 per cent.
One of the consequences, as he diplomatically puts it, is that Ergon “needs to optimise our current assets and investments by developing a more efficient load profile through appropriate tariff and price signals.”
The environmental movement, and especially the solar system providers, of course, are hoping to scare governments away from any such adjustment by calling ever-more-loudly for the same sauce for householders who have invested big in air-conditioning.
This is far from being just a Queensland issue and the inevitable change to tariffs might cause less political pain, and happen a lot sooner, if governments across Australia, working through CoAG, could agree on a new approach.
One more for federal Industry Minister Ian Macfarlane’s to-do list.
McLeod is also interesting on the issue of the network’s involvement in the big price spikes of the past 6-7 years.
Costs relating to generation, solar, federal green initiatives and retailing are outside distributors’ control, he says, “but our decisions have had a significant impact,” with about half the end-user bill in Queensland associated with the capex and opex of networks, including transmission.
“The pre-GFC economic boom, sea change and record immigration,” he adds, “resulted in significant growth in peak electricity demand. This, combined with an ageing asset and higher security and reliability standards (leading to the 2004 inquiry in to networks in Queensland) led to record growth in network investment.”
This and higher post-GFC funding costs, he goes on, imposed the pressure on end-user prices – and has led to Ergon’s customers using less power for the first time in its history.
After canvassing what the business is doing and the “NEM” reform process now under way, McLeod says the benefits can be expected to flow in to network prices from the new regulatory period beginning in 2015 – which, of course, I point out, means that the 2014-15 regulated price outcomes for the State, due to be finalised in May next year, will bring more bad news for politicians and consumers in the shape of more price rises.
Ergon, too, uses its report to send a careful message to government and the community that a pathway to a better bill outlook has to be paved with tariff reform delivering charges based on the capacity customers require at a particular time rather than on the amount of electricity used.
The challenge for the Queensland networks, and for others beyond the State borders, is that they are required to focus on both electricity affordability and maintaining service levels – which in the case of Ergon in 2012-13 included a massive effort to bring power back to 90,000 customers who were victims of Cyclone Oswald.
The added twist in Queensland is the long-established practice of taxpayer subsidies for customers in Ergon’s franchise in order to have uniform State tariffs.
The Newman government came under immediate media attack when the annual reports revealed that Energex and Ergon chalked up almost $800 million in profits in 2012-13 – to which State Treasurer Tim Nicholls snapped back that $650 million is going out again to subsidise regional electricity prices, a point the “Courier-Mail” managed to bury as sentence 11 in a 14-sentence story playing up the shocking news about profits.
Hovering over the network scene is the Newman government’s examination of whether it should merge Ergon and Energex in pursuit of savings.
An objective observer might say that there are a number of other things that should be given priority and, when they are done, the government’s focus should be on getting out of the business, not stuffing it in to another bureaucratic shape.
This is the thrust of the “Powering Queensland” report issued by Infrastructure Partnerships Australia, which argues that selling all the electricity assets could reap Newman’s government up to $48 billion.
The government at present is only prepared to ask the electorate at the next election if it can sell the generation businesses; as far as Premier Campbell Newman is concerned the “poles and wires” sales are not on the table.
The said objective observer might say that, if a government with a majority of 74 in a single-chamber parliament can’t work up the guts and the wit to pursue privatisation, then who will?
New South Wales Premier Barry O’Farrell is playing a two-sided game in the State’s coal seam gas imbroglio.
In the wake of his government’s “energy summit” at the end of September, he has Resources & Energy Minister Chris Hartcher out and about explaining how barriers to resource development in the State are being removed — but, via his parliamentary secretary,Marie Ficarra, he is also writing to people concerned about the issue to boast of his regulatory steps to bar CSG activity from a widening area of the State.
Hartcher’s next opportunity to explain how the State government is addressing what federal Industry Minister Ian Macfarlane describes as “a looming gas crisis in 2016″ will come on Thursday when he speaks at the Eastern Australia’s Energy Market Outlook conference in Sydney — and on Friday I will chair a half-day forum on NSW gas supply at the end of the conference which will include AWU national secretary Paul Howes and Manufacturing Australia chairperson Sue Morphett as speakers.
The forum is being held just as the Business Council of Australia is illustrating its concerns by pulling together 16 CEOs of its leading company membership, drawn from users and energy suppliers, to consider the current issues, not least the CSG impasse.
One of the council’s prominent CEOs, BlueScope chief executive Paul O’Malley, has described the gas situation as “a looming train wreck” and Macfarlane is telling media that he wants the NSW problems resolved by the year end.
Macfarlane thinks the situation sufficiently serious to warrant holding a meeting of State and Territory governments “before Christmas” to seek a solution.
Meanwhile, O’Farrell, via Ficarra, in a message that does not contain a single syllable on the high and rising concerns about delivery of an adequate gas supply to the NSW economy, is telling the community that his government “has introduced the toughest CSG laws in Australia” to balance the land use needs of “our important farming and resource industries.”
The letter’s main thrust is to explain that the government has already barred 2.3 million hectares of the State to CSG activities, is looking at excluding another half million hectares and is considering, under its “gateway” regime, steps to strongly regulate CSG intrusions on a further three million hectares of agricultural land.
“These proposals demonstrate that the State government is resolved to strike a balance so that agriculture, communities and resource development can co-exist,” Ficarra writes.
While this is going on, the NSW Labor opposition is seeking from its position of extreme parliamentary weakness to push legislation to ban CSG activity is areas around the State’s water storages for Sydney, the Illawarra, the Blue Mountains, the Southern Highlands and the Shoalhaven — some 371,000 hectares.
The upstream petroleum industry, meanwhile, is pointing out that, even where, eventually, the State government approves a CSG project, the “merit” appeals process in the regulatory regime means that third parties can tie up companies in protracted court battles.
Santos’s James Baulderstone, who is spearheading the company’s $2 billion attempt to extract CSG from the Pillaga area, says the appeal set-up “makes investment almost impossible.”
However frustrating it may be for wannabe suppliers and worried consumers, politics is now the key to this situation.
As we go in to 2014, we can be certain that Premier O’Farrell is increasingly focussed on the State election of March 2015. Ficarra’s communication highlights this.
O’Farrell’s dilemma is that almost nothing his government can now do will ward off substantial further wholesale price rises for gas, feeding in to retail bill spikes that a million households and a large number of businesses will find unpalatable.
This is an east coast situation, not just one for NSW. Origin Energy, in its latest roadshow for stock market analysts, is pointing to eastern Australia’s wholesale gas prices rising from just under $6 per gigajoule now to around $10/GJ by 2017. They were under $4 less than three years ago.
How could a Pillaga development approval at some point in 2014 see a significant gas flow for New South Wales by 2016 or even 2017?
The environmental movement views this outlook as a plus in its campaigning against CSG in NSW.
Its line of chat is that exposure to global prices via the Gladstone LNG developments will see wholesale prices increase substantially regardless of these developments “so why put a lot of wells all over the State and endanger the water supply and productive farming land just to give the gas industry profits?”
Politically, the O’Farrell government has spent the best part of three years putting itself in a lose/lose position on this issue and, reading the Ficarra missive, one wonders if a cold-blooded decision has been made at the top to “save the furniture” in rural and regional seats and leave the hard CSG development decisions to be made in a full-blown crisis post-poll?
Just how reckless this would be in terms of economic and social disruption, and not only in NSW, given the prospect of “gas outs” in the State during peak demand, may explain Macfarlane’s “we’re running out of time” statements and pressure for yet another summit meeting with the federal government in the chair.
How more jaw-boning can save the day in the relatively short term for the east coast manufacturing sector and thousands of employees in high gas-use industries is hard to see.
In a month in which the Germans are being reminded sharply of the cost of eschewing nuclear power and pursuing renewable energy — three weeks after the German federal election the consumer power surcharge that subsidises wind and solar energy is being shoved up 18.4 per cent — we have an opportunity to debate whether, now that we have changed national government, nuclear energy can be part of Australia’s clean energy future.
Next week at the Eastern Australia’s Energy Markets Outlook conference in Sydney (see www.questevents.com.au),a very interesting panel discussion is being convened on this topic.
It will be chaired by Ed Willett, a recently-retired commissioner of the Australian Competition & Consumer Commission, and will feature Jon Stanford, director of Insight Economics, Tony Irwin, chairman of the nuclear engineering panel of Engineers Australia, and Tony Owen, professor of energy economics at the UCL International Energy Policy Institute and author of a past report for the New South Wales government of generation prospects for the State.
Four questions are being posed to the panel next Thursday — what market conditions need to exist to enable economically-viable nuclear production here, what regulatory environment will be needed, what is the safety status of the modern nuclear industry and how can we, here, balance the benefits and risks of embracing nuclear energy?
With an audience of more than 150 energy stakeholders drawn from across the spectrum of interests in the industry, this is going to be a rather lively discussion, I expect.
The debate will take place against a background of the CSIRO Energy Transformed Flagship having released a review of nuclear costs, using the organisation’s eFuture modelling tools.
Written by Paul Graham, Thomas Brinsmead and Peter Marendy, the paper picks up from the federal government’s Australian Energy Technology Assessment 2012 where, as it says, there were estimates that “nuclear power could be very cost competitive” for Australia.
Trying to look down the road to 2040 or 2050 is fascinating for modellers but, as I have made clear more than once or twice before, I think it is an horizon that is several bridges too far if only because of the political vagaries — 2040, to pick the nearer date, is nine federal elections away!
Go back nine elections and we were in the midst of the Hawke era.
The other side of the coin is that large generation plant constructed over the next seven to 15 years will almost certainly still be operating in 2040.
To name just two of the technological vagaries, how viable will be geothermal energy and coal or gas-fuelled generation using carbon capture and storage in 2040.
The previous federal government believed both would play an important role by then but I can find you more than a few people who will argue that neither will.
The EAEMO conference, in fact, follows up the nuclear segment by presenting papers on geothermal (by Terry Kallis, chairman of the Australian Geothermal Energy Association) and CCS (by Brad Page, CEO of the Global Carbon Capture & Storage Institute).
It is nuclear power that is the pachyderm in the Australian front garden, however.
(By the way pachyderms are not just elephants — they include rhinos and hippos.)
The YIMBYs for nuclear (Yes in My Back Yard, in case you’re wondering) have thick skins indeed and no amount of stridency about Fukushima, Chernobyl or Three Mile Island deters them from arguing that, if you are really serious about clean energy in the context of global warming concerns, then reactors are the right way forward.
Just this month you can read a commentary headlined “Why we should listen to pro-nuclear environmentalists” by Daniela Strube of the Lowy Institute on “The Interpreter” website and “Pro-nuclear greenies? Thinking outside the box with Pandora’s Promise” by Ben Heard and Corey Bradshaw on the “Mining Australia” website.
“Pandora’s Promise” is a documentary film touring Australia at present that aims to spark a debate about whether one can be pro-nuclear and an environmentalists.
Its maker, Robert Stone, published a commentary headlined “Promise of nuclear energy deserves fresh scrutiny” in the Fairfax Media last week.
Strube’s article includes this comment: “Our prosperity is built on dirty energy and we are now asking the developing world to refrain from using this path because we are worried about the climate. Instead of reducing fossil energy (here) in favor of a perfectly viable low-carbon alternative such as nuclear, we would rather keep nuclear plants out of our yards and opt to wait for a renewables miracle.”
Heard and Bradshaw toss in that only three countries in the OECD have all but eliminated fossil fuels for electricity supply and they have all done it by embracing nuclear power.
(Which three? France, Switzerland and Sweden. And France has the cheapest electricity in western Europe.)
Which country has the most expensive power supply in western Europe?
In fact, only yesterday I was looking at an interesting commentary on “The Energy Collective” website in which an American writer (converting costs to US cents) points out that, in a survey of 17 economies, the big two of green energy, Germany and Spain, are out in front in terms of prices relative to purchasing power, with Denmark in fourth place.
(It’s a sad thought that the third spot is held by Nigeria.)
On this list (you can find it in “The average price of electricity, country by country” on http://theenergycollective.com), Australia lies sixth, just ahead of the UK and Japan. (The cheapest are Canada, China and the US.)
This reinforces the concerns being expressed by the Business Council, ACCI and the Plastics & Chemicals Industry Association that Australia’s competitive advantage in cheap energy is being eroded to the detriment of manufacturing.
But, I digress: the issue at hand is whether we should get serious about nuclear power here?
Ben Heard claims that nearly two-fifths of Australians think we should versus two-fifths who think we shouldn’t, so the pollies keep walking on egg shells on the issue.
I’m looking forward to another opportunity next week at the energy markets outlook conference to getting the topic out on the table along with the geothermal and carbon capture issues.
If Australia is to have natural gas leading the set of “super growth” sectors of the next 20 years that have been identified by Deloitte Access Economics, there is a lot of work to be done, not least in getting community acceptance of what the consultancy’s Mike McNulty describes as “one of the most exciting developments we have had in this country for a very, very long time.”
The Australian Petroleum Production & Exploration Association, quick to jump on the bandwagon prospect held up by Deloitte, is emphasizing that there needs to be “a new period of policy clarity” in the wake of the federal election.
There certainly isn’t community clarity of the fact that what has been already invested is going to see the return to the nation via royalties and taxes jump from $8 billion a year now to $13 billion by 2020 – you only have to read the myriad of oddball reader comments on mainstream media website stories about the industry to understand this.
(The stuff on the fringe-dwelling sites from the green quarter, which shrunk substantially in the recent national election, is still more strident in its anti-capitalism and xenophobia as well as its views on environmental issues.)
Still less is there general community understanding that, allowed to have its head and develop projects now on the drawing board, the upstream petroleum sector’s contribution to the community through taxes could be $18 billion in 2020.
In an environment where the media are also filled with stories about community services governments can’t provide because they are short of revenue, this would be major addition to public welfare – but (just check Google News) two out of three media stories about the industry are negative (fuelled to a large extent by “our” ABC and the green-tinged Fairfax media, honorably excepting “The Australian Financial Review.”)
I suppose I will go to my grave growling about “context,” but, as someone who has been involved with the media for over 50 years here and overseas, I find it shameful that so much of what is published fails to communicate what is at stake for the community if, as Deloitte will have it, Australia cannot catch the next wave of gas development as well as the views of those who opposed to such investment.
In this environment, it is interesting to see the Australian Pipeline Industry Association, which is holding its annual conference in Adelaide this week, stressing the point that the current gas security and price issues on the east coast “can only be addressed by increasing supply – not by simply focussing on gas market operations and marginal efficiency improvements.”
The holders of the bottom line in this debate are the politicians in government, increasingly the Liberals and their National Party allies, so it is also interesting to note that the present poster child for how to manage resource development is a State with a long-standing Labor government, South Australia.
Here is Tom Koutsantonis, the SA Minister for Mineral Resources & Energy, opening the APIA conference:
The State government, he says, clearly recognises the dangers of shifting policy and regulatory goalposts and understands the need to de-risk investment for the resources industry.
This, of course, is a government that the green-tinged ones love to hold up as their poster child for encouraging renewable energy, in the shape of wind and solar power and the ever-hopeful pursuit of a substantial geothermal energy industry.
Koutsantonis boasts that the combined production value from SA’s minerals and energy sectors has risen over a decade from $1.7 billion in 2001 to $6.3 billion last year – which also saw aggregate exploration outlays hit a record $602 million.
Here is a minister – a Labor minister – happy to declaim that “exploration activity for oil and gas represents an enormous boon.”
I am not holding my breath waiting for his Coalition opposite numbers to say the same in New South Wales and Victoria.
The ground under exploration licences or applications for them, adds Koutsantonis, has almost doubled in SA in seven years.
Last year 33 petroleum wells were drilled in the State – by 2020, he says, this should be 200 wells.
To his east, two governments are turning themselves in to political pretzels to avoid giving outright support for development of unconventional gas but Koutsantonis is only too pleased to talk up SA’s “deep unconventional gas potential” and to point to Santos, Beach Energy, Senex, Chevron, BP, Statoil and others “lining up to expand their commitments” onshore and offshore.
“Billions of dollars are to be invested,” he has told the APIA conference, with the veteran petroleum-producing Cooper Basin “going through a renaissance that, quite frankly, I find exciting.”
His government thinks it is being conservative in predicting that $3.5 billion will be spent on exploration alone in the Cooper and Eromanga basins of South Australia in the next seven years – and that’s before the offshore search outlays are counted.
The State’s 2012-13 petroleum expenditure was $386 million.
Koutsantonis doesn’t miss making the point that the Cooper Basin ignores State borders.
The fact that the investment is happening in SA and not other States, he says, “is no accident” because his government has deliberately set out to “create an investment environment that inspires confidence.”
And he celebrates SA having a regulatory set-up that is recognised internationally – although it should be said that Western Australia outranks it in the Fraser Institute global ladder for desirability as a resource investor destination (20th out of 96 jurisdictions versus WA’s 15th.)
Koutsantonis highlights also that public confidence is a key ingredient in the success of the State government’s approach to the petroleum industry (although it again has to be noted that the opinion polls are not being kind to SA Labor over a raft of issues, none of which seem to be caused by its resources policies).
Also noteworthy, because the original suggestion from Northern Territory Chief Minister Adam Giles has been pooh-poohed in some quarters, Koutsantonis has talked up the proposal to create a pipeline link between the NT gas resources and the eastern Australian market.
“The SA government is supportive of a proposition with significant (possible) benefits, including security of gas supply where it is needed most,” he says.
Of course, there are always other points of view and “our” ABC at the weekend in a broadcast about the Cooper Basin’s potential gave over part of the segment to the Greens saying that there may not be prime farmland in central Australia but there should still be a moratorium on gas activities using hydraulic fracturing for fear of water contamination.
To which Santos’s James Baulderstone retorts that a ban on fracking would shut down Moomba instantly because every single gas well delivering to the hub uses the technology.
The Greens have Buckley’s chance of getting their way in SA, but the impact they and their cronies are having in Victoria and NSW ironically makes the “renaissance” of the Cooper Basin all the more necessary both to fill southern gas needs and to despatch resources to Gladstone for export, helping to fuel Deloitte’s mooted extra wave of national prosperity.
It’s time for a rethink about energy, according to the Business Council.
You can find what the BCA believes about this thought process both in this weekend’s edition of “The Australian” and also on the council’s website.
As someone who will be co-chairing the second Eastern Australian Energy Market Outlook conference in 10 days — you can find out all about this at www.questevents.com.au — I have read the council’s views with close attention and it is good to see, although hardly surprising, that the BCA’s burning issues are aligned with the conference agenda.
It’s not surprising either that the BCA focus is on energy prices rather than carbon abatement, which tends to be the almost sole interest of much of the electronic armchair commentariat.
The council feels bold enough in the new political environment to assert that “for too long energy policy has taken a back seat to emissions reductions policy.”
(Even so, it shies away from the brutal demands of its rival for the role of chief business voice, the Australian Chamber of Commerce & Industry, which is calling for the abolition of the carbon tax, the renewable energy target and green schemes generally because they contribute to an energy cost environment that is “de-industrializing the economy.”)
The BCA wants energy policy rethought in four key ways.
First, it says we need a coherent, comprehensive and integrated plan that “responds to changes, maintains Australia’s competitive advantages and ensures a stable environment for new energy investment.”
Cat sat on mat stuff, really, but the mere fact that it has to be stressed highlights what hasn’t gone right over the past six years (and longer in some cases).
There is also the risk, I think, that in trying to come up with a “coherent” policy we end up with a “one size fits all” approach that doesn’t deal adequately with the specific actions that are now urgent.
Second, and in tune with this sentiment, the BCA is pushing for completion of current energy reforms and sees key factors as privatisation of assets still held by government and removal of controls on prices.
Personally, I’d like to see several of the urgent reforms brought to fruition before we throw ourselves in to the inevitable political brawl on the east coast over privatising networks and generation (including the Snowy Hydro company).
I don’t think government has a role in running power businesses in Australia in the 21st century, but right now some other matters are much higher on the “to do” list.
Third, the BCA calls for reductions in the cost of delivering new energy projects — with the approval processes streamlined and business itself lifting its game in terms of project management.
Finally, it wants increased gas supply to ensure reliable and competitively-priced fuel — a step that is a product of the third point, I’d suggest.
All of this is no more than what a whole raft of people, including your humble scribe, have been urging for a fair time — while others, whose ilk had the ear of the last federal government, have been mostly calling for the opposite and getting heard by decisionmakers.
In this respect, it was interesting to see Anthony Albanese, one of the high priests of the Gillard regime, easily out-vote Bill Shorten in the poll of Labor membership for the federal leadership — and indication that the rump of MPs returned to parliament, whose vote got Shorten home, better understand what has teed off the community-at-large than the rusted-on Labor supporters.
How far is Shorten prepared to support a vigorous CoAG energy agenda — to which Julia Gillard gave lip service?
This said, the capacity of the Abbott government to lead all jurisdictions through the CoAG process towards achieving the BCA wish list (and more besides) is an open question.
Not its desire — its capacity.
I would have liked to see the Business Council set out quite specifically the decisions Abbott needs to get from CoAG in the next 6-12 months to improve the energy scene. (This is one of the aspects of the forthcoming EAEMO conference program that I feel is really good value.)
In his election manifesto, Tony Abbott committed to ”significantly increase co-operation with State and Territory governments by reforming COAG rather than using it as a parking lot for tough decisions which are sidelined by political grandstanding.”
Virtually none of the BCA’s burning energy issues can be resolved unless the Prime Minister can deliver on this.
(The CoAG agenda is a lot wider than energy, but no issue is more important than resolving the catalogue of electricity and gas problems. )
The core point is that, thanks to the ineptitude of most of the last lot in power in Canberra, we are in a serious time bind in this space — and, in this regard, I am quite taken with a speech the BCA president, Tony Shepherd, gave to a University of Wollongong forum on 30 September in which he declaimed: “Let’s get on with it. Let’s make decisions. No more task forces. No more time wasting.”
(Shepherd’s speech is also on the BCA website.)
All of which makes me look at the program for the Eastern Australia’s Energy Markets Outlook conference and think that, in terms of topic and speakers, it is right on the money.
There is a fair bit in the speakers’ proposed contributions about the risks of not getting this stuff right, too.
In another era, Paul Keating galvanised the nation by speaking about the dangers of our becoming a banana republic.
Most Australians today would think this risk is well behind us but all could do with having some of the banana skins lying around at present pointed out to them more clearly– along with the way in which we can sweep them in to the garbage.
In this respect, I thought the Business Council commentary this weekend — especially given that it was targetted on the the community through “The Weekend Australian” — was less than compelling.
More in the voice of the Shepherd speech in Wollongong is needed and less in the somewhat pompous tones for which the BCA has been known for a rather long time.
The audience is not only the Canberra bureaucracy and ministerial advisors — in fact, the audience today is crucially the wider community in order to gee Abbott & Co on to getting things done (as per Shepherd’s injunction).
The core message is that steps to sort out our energy issues have limped along since 2007. If they are still doing so in 2016, we are in heaps of trouble.
Three weeks since the new federal government was sworn it, we have got our first set-piece perspective on its plans from Environment Minister Greg Hunt, addressing a Sustainable Business Australia forum.
Hunt has reinforced the Abbott government’s intention to pursue the national carbon emissions abatement target for 2020 — five per cent below 2000 levels (an error in a Coalition policy piece a while back said below 1990 levels).
And, of course, he has reinforced the government’s intention to scrap the carbon tax.
He told the forum: “Under the carbon tax, in order to have any hope of reaching the target by 2020, business will be forced to spend billions of dollars on overseas credits. The Coalition’s direct action policy will achieve the reduction by investing in projects that directly reduce emissions not by imposing an eceonomy-wide, ever-increasing electricity tax.”
He confirmed that a bill to repeal the Gillard government’s tax will be the first legislation introduced to the new parliament. “Abolishing the tax should benefit businesses by reducing input costs and households by reducing energy bills and prices for (other) items. We will also eliminate an administrative and compliance burden on business (of) millions of dollars every year.
Hunt said the legislation will target 30 June next year for the repeal to go in to effect.
He added that the Emissions Reduction Fund the government will set up will have a budget of $1,550 million over three years. This will be used to buy back abatement via a reverse auction. “By buying up the abatement cost curve, we will provide the right incentives for businesses to bring forward the lowest cost abatement opportunities. (This) may involve projects to clean up waste coal mine gas, clean up power stations or capture landfill gas. It may be energy efficiency improvements in households, commercial buildings and industrial facilities.”
Hunt promised he “will have much more to say on the Emissions Reduction Fund” over coming weeks and he plans a white paper on the process. The target date for its operation is 1 July next year.
His speech also talked up the new government’s commitment to a “one stop shop” project approval process, something that will be strongly welcomed by energy investors. His is not the first government to commit to ending duplication in federal and State environmental assessments — it remains to be seen how and how fast the talk converts to action.
Hunt claims, on the basis of discussions he has already had with other jurisdictions, that the States are “receptive to this change because they are also frustrated by delays in decision-making and the lack of clarity of the process.”
His talk was also notable for the topic it didn’t canvass: the fate of the renewable energy target.
Hunt, not Ian Macfarlane,who said last week that he wants the scheme put “on a sustainable basis,” is responsible for the RET and the entire east coast wholesale electricity market is anxious to know what comes next.
The industry view is that pursuing generation investment plans in the present circumstances is not on.
Even if the RET is retained in its present form, the chances of the industry lashing out on up to 2,000 megawatts of wind investment annually from now until the end of the decade is remote. The recent annual average has been barely 1,000 MW.
Changes to the RET require amending legislation, too, and that raises the issue of timing. Labor and the Greens capitulating on this issue before the Senate composition changes on 1 July next year is not especially likely.
The new government said in opposition that it would review the RET — Macfarlane said so frequently — but how this review will be undertaken and when remains to be seen.
Resolving the market impasse will also require some of the surplus coal-fired generation in the mix today to be retired, so there is going to be no quick fix on this issue.
AGL Energy managing director Michael Fraser, writing in the company’s new annual report, pretty well summed up the state of play: “Current market and political conditions are not conducive to building new generation assets. A reduction in total demand for energy has led to an over-supply of electricity generation. Wholesale prices are at levels below those required to provide a satisfactory return on investment for new plant. Ongoing uncertainty about the future of the RET is also a key factor in investment decisions.”
So we have some enlightenment via Hunt’s speech, but not a lot.
In the real world, the “difficult trading conditions affecting all participants in the energy industry” — that’s the AGL annual report again — will require new ground rules imposed through legislation as well as an end to the softening in energy demand to return to a new normal.
Energy executives’ brows will remain furrowed for a fair few months yet — while the hills will be alive with the sound of chin-music from those of greenish persuasions and those with vested interests.