Archive for September, 2014

The RET-go-round 15

Whatever may be going on behind the scenes between the Abbott government and the Labor opposition over the renewable energy target, the general carry-on in the media continues unabated.

At the moment it is the turn of the South Australian government, lobbyists from the green end of the superannuation industry and a company with big plans for wind development on SA’s Yorke Peninsula to run with the “Leave the RET alone” ball.

This seems to me to be the least likely outcome of all. Even Labor is sending out signals that it is open to pushing back the target date for the existing RET to beyond 2020.

The federal government, which supposedly will publish its preferred position for amending the RET in October, is staying out of the limelight at the moment except for repeated responses to propaganda that it will “not make changes that will impact on those who have made investments — small or large — under the measure.”

One of the more interesting recent commentaries has been provided by Hydro Tasmania’s CEO, Stephen Davy, intially in an op-ed for “The Australian” and now on the 100-year-old business’s website.

Davy underlines one of the important areas that has become lost in the RET debate: “Environment policy and energy policy are inseparable; to believe they can be seen or designed in isolation from each other is to fail to contemplate the long-term challenge of moving to a low-emissions economy.”

Davy argues that the public debate really should be about when and how the oldest and most emissions-intensive power stations can be closed and what can replace them.

By 2025, he points out, 75 per cent of the existing thermal generation plant will be more than 35 years old. “With no economic signal, policy on reducing emissions or regulated closure date, these power stations are likely to limp on.”

He adds that the solution cannot be to replace these old coal plants with new coal generation “unless carbon dioxide is removed and sequestered.”

As he says, “new generation facilities require long planning and development timeframes and (we need) a policy framework designed for the long-term challenges we face.”

Without stable policy that recognizes both the need for additional zero or low emissions generation as well as the need for timely exit of the old coal plant, he adds, “Australia will not decarbonise its economy.”

This is sensible stuff. It stands in stark contrast to the rhetorical over-reach and shouting at cross-purposes that has characterized not just the RET debate but the entire carbon abatement discussion as well as the still-raging row over coal seam gas development in New South Wales.

Trying to get a hard-headed discussion going on the long-term replacement of the aged plant is not easy and the capacity of politicians to run scared in the face of loud dissent, or even the perception that it may occur, is illustrated by the Coalition’s unwillingness to engage on the nuclear power issue even though the new green paper says that reactor energy can be cost-competitive with renewables on a long-term, levelised cost basis.

Ian Macfarlane says he has no intention of initiating a new national debate on nuclear energy because of the lack of bipartisan political support and a lack of widespread public acceptance (which he suspects, without, he acknowledges, solid evidence, has eroded since Fukushima).

Hearing this, I was immediately reminded of the 2003 UK energy white paper that, essentially, said nuclear was irrelevant in forward strategising; renewables were the go. Blair and other pollies thought that British voters were at least 70 per cent anti-nukes and, as the people’s leaders, they must follow them (ta Jim Hacker).

It took not much more than half a decade for the Brits to wake up to the realisation that, allowing for their energy security situation as well as their abatement ambitions, nuclear actually is necessary.

At a minimum, the Coalition government here should be taking the stance that the nuclear option should be debated openly and factually as part of a genuine effort to address the issues Stephen Davy has highlighted.

This is, after all, a government that says it espouses technological neutrality as an energy policy principle.

It can start by ensuring that the nuclear option is included in the new national energy security assessment, due to be produced in 2015, by considering alternative electricity supply scenarios for the period 2020 to 2040 — and also by undertaking a review of the current policies that preclude the technology’s consideration in Australia.

Meanwhile, the federal and State governments, other politicians and the rest of the flock of players in the energy duckpond could do a great deal worse today than go to the University of Queensland Energy Initiative website and read the editorial (headlined “The energy, prosperity, climate dilemma) in its new newsletter.

One paragraph that jumps out for me reads, in part, like this:  “As the world avoids strong policy choices and waits for a (carbon abatement) miracle energy solution that is as reliable and affordable as coal but has no adverse environmental or climate impacts, how do we prepare for a scenario where a (global) renewable energy transition does not occur?”

 

Casting another shadow on solar

Few things have been handled less well in the energy space than policies affecting the introduction of solar supplies, whether for electricity production or water heating.

The problems thrown up by policies boosting rooftop solar PV electricity arrays is well documented.

The initial subsidies were ridiculous populist forays by State Labor governments made worse by the Rudd/Gillard regime’s meddling with the renewable energy target.

The resulting inequities in spreading the cost of this exercise continue to be a significant source of angst – for suppliers, for the vested interests in the solar business and for rulemakers and policymakers trying to find a new tariff policy.

Some aspects of this are dealt with interestingly in the “Australian Financial Review” today by Jennifer Hewett, who also appeared with Tony Wood last evening at a Grattan Institute forum in Sydney that canvassed equitable power pricing and the political pitfalls of pursuing change.

Today sees the Energy Networks Association enter the lists with a joust against the impact of solar hot water subsidies on gas customers.

ENA chief executive John Bradley says that government policy on solar technology is a key factor in price determination for 4.5 million Australian households and 120,000 business gas users.

Using analysis by Core Energy Group, the association seeks to address an issue obscured by the recent fuss over the renewable energy target and its impacts on electricity consumers (as well as the health of the east coast wholesale power market).

Bradley argues that “the small-scale renewable energy scheme distorts energy appliance choice by subsidizing solar hot water systems by up to 30 per cent with no recognition of the abatement achieved by gas hot water systems.”

Gas appliances, he adds, can achieve abatement equal to or greater than solar systems subsidized by SRES but appear more expensive to consumers.

Bradley says SRES directly contributes to inflating retail gas prices by pushing up the unit price of the fuel – because the network costs are met by a smaller demand base in a solar-imbalanced market.

The association uses the Core Energy analysis to warn that extending the solar subsidy program could see gas bills more than eight per cent higher than current prices by 2034.

The bottom line here, as in the electricity debate, is whether solar needs a leg-up from governments through subsidies.

Bradley argues that the recent “Smart Grid, Smart City” report from the federal government shows that the solar industry “has a big future” but it should stand on its own feet.

“It is absurd,” he says, “for Australians to keep subsidizing a proven technology at a cost of up to $200 per tonne of emissions abatement” and the more so when it adds to consumer bills at a time when they are grappling with our transition to internationally-linked wholesale gas prices.

Bradley calls for a “leveling of the playing field” in the energy sector either through abolition of SRES or by making it technology neutral.

ENA points out that output from solar PV units already exceeds the 4,000 gigawatt hours goal set for 2020 under the RET policy and is set to more than double by the decade’s end.

“Solar PV is a mature technology,” it adds, “and is cost-effective without any support. Government-mandated subsidies should be removed in competitive markets where a scheme has demonstrably achieved its purpose.”

The context for all of this is that water heating is the largest single source of greenhouse gas emissions from the average Australian home and accounts for about 25 per cent of residential energy use.

About half of Australian homes use electric resistance hot water heaters – which contribute up to six times as much in emissions as their competitors.

ENA claims that, over its lifetime, a five-star gas instantaneous water heater is less costly to purchase, install and operate than any other alternatives.

In an environment where so much attention is on mass market energy bills, the association seems on strong ground when it argues that the federal (and any other) government should remove measures that are distortionary and push up costs.

In the broader context of gas policy, it is interesting to see Core Energy, in its analysis for ENA, characterize the national gas sector like this:

Tightening of supply available to domestic customers due to the large-scale demand for LNG, (2) increased supply risk as exploration and development focuses increasingly on less certain unconventional resources, (3) softer demand due to lower demand, not least by industry, (4) an expected doubling of east coast wholesale gas prices over the next four years, and (5) a policy environment which continues to favor alternative energy sources over gas.

The researchers expect domestic demand for gas to fall from 1,041 petajoules in 2013 towards 944 PJ in 2020 before returning to a flat to modest growth trend.

Electricity & emissions

Completely lost to public view in this week’s media rush to cover (and in some cases conflate) the release of Australia’s energy green paper and the UN gabfest on carbon abatement policies is the latest report of the National Greenhouse Gas Inventory — which, as the Energy Supply Association points out, reveals the lowest level of emissions from our energy sector this century.

As well, few members of the broader community would be aware that Julie Bishop (subbing for Tony Abbott at the UN meeting which attracted 120 out of 180 countries, giving Barack Obama a chance to grandstand but not including Angela Merkel or the leaders of China, India, Canada and Russia) confirmed our national commitment to reducing emissions to five per cent below 2000 levels by 2020.

Fewer still, I guess, would be aware that the Abbott government has committed to reviewing the target between now and next March as part of the preparatory work for the UN’s Paris summit at the end of 2015.

The criticism I would level at the present green/white paper process is that, just as with the Rudd and Gillard governments, work on energy and climate policies is taking place in a number of areas rather than being integrated, laying down the markers for yet more imbalance and uncertainty as we proceed down this decade — and it is doing nowhere near enough to provide a genuine, comprehensible context for the community.

This should start with explaining where we are as well as attempting to say where we are going.

How many “vox populi” streetside interviews, do you suppose, would elicit an understanding that power emissions have fallen and why?

As ESAA says, the main driver of the Australian decline in emissions recorded by the inventory is the drop in demand for electricity since 2008, a trend now averaging about 2.5 per cent a year and created by falling industrial power consumption, better energy efficiency and lower residential consumption in an environment of doubled retail bills.

The inventory’s latest report is current as of March this year and therefore doesn’t include the impact of the closure last month of Victoria’s Point Henry smelter, which by itself accounted for 1.6 per cent of power demand on the east coast.

ESAA’s Matthew Warren suggests that the outlook is for power generation emissions to be more than five per cent below 2000 levels by 2020 and for this goal to be reached as early as next financial year.

As I never tire of pointing out, if we expect the community to be more energy literate, it is essential that they are provided with real context and not fed whatever tendentious lines the media (and especially the ABC and Fairfax) choose to run.

The latest inventory says that annual national emissions from power generation fell 3.9 per cent when you compare the year to March 2014 with the same period in 2012-13, a time when electricity demand dropped 2.8 per cent on the east coast, registering the lowest consumption level since 2006.

Over the year to March 2014, power production from black coal plants fell 3.3 per cent, brown coal generation dropped 4.3 per cent and gas-fired output declined by 9.1 per cent — as hydro-electric production jumped 6.3 per cent.

As well, analysts Pitt & Sherry, in their latest “Cedex” report covering the 12 months to June this year, estimate that (using 2008 as a base) there has been a cut of 33.6 million tonnes of emissions from electricity generation and of 2.7 million tonnes from gas production — while petroleum fuel emissions have risen 12.3 million tonnes.

Pitt & Sherry, supporters of the present RET and holders of the opinion that the national emissions target is “very modest,” are of the view that we could see electricity emissions intensity starting to rise again if there are cutbacks to the renewables measure following the axing of the carbon tax, not least because the surge in hydro production in Tasmania to send to the mainland will fall back, but this all remains to be seen.

Looking at the longer term, the green paper, while winning plaudits (at least in some quarters) for its stance on driving further electricity supply reform and on removing impediments to further gas development, is (not surprisingly) getting little applause for its perspective on pursuing affordable and reliable power production over the longer term in tandem with a credible abatement policy.

As Tony Wood of the Grattan Institute says in his latest critique, the policy landscape is already “littered with the poor outcomes of badly designed and poorly implemented policies and programs that confuse climate change and technology development and deployment” and the green paper does not offer a better way.

That Australia is not alone in this messiness is no excuse — and, let’s face it, the United Nations is not helping the production of a better global approach by its own version of grandstanding and stunts (eg Ban Ki-moon joining a New York street march at the weekend).

Of course, the geopolitics of energy alone are very complex.

When they combine (as they must) with the geopolitics of carbon abatement, the task tends to the perception that Sisyphus  had (or should that be has?) it easy.

Confused thinking abounds.

To take just one example, the green paper has been greeted here by the usual suspects ranting about the federal government wanting to perpetuate the use of fossil fuels — while the European Union nations are beavering away on pipeline deals to bring them gas from Central Asia and North Africa as well as Russia.

The EU is on its way to having a large-scale gas (and oil) pipeline capacity to serve hydrocarbon consumption far in excess of what demand can be if the union’s 2050 emissions commitments are to be met.

Energy security, better-informed European commentators point out, is now very much a matter of a switch to gas, with the fuel seen as a means of reducing the cost of meeting abatement targets against backdrop of huge subsidies plowed in to promoting wind and solar energy.

In our own case, we need Abbott and his cabinet to present a case for melding energy and abatement policies that makes it decidedly difficult for Shorten and his frontbench to wriggle out of being equally responsible.

Rudd and Gillard failed miserably in this regard. Why, right now, should we feel any confidence that things will be different this time round?

From green paper to blueprint

What can one say about the federal government’s energy green paper, released this week, four months’ behind the original schedule?

The Clean Energy Council notes that anything contributing towards a mature discussion of energy policy is a good thing before promoting one more time the merits of the existing renewable energy target – about which the paper says little because the government is still trying to negotiate with Labor on a bipartisan reaction to the Warburton panel review.

(It is also accusing Labor of “trying to straddle both sides of the fence” on the RET, pushing it to say whether it supports a 20 per cent target, delivering 26,000 gigawatt hours of power in 2020, or the current 41,000 GWh.)

The Business Council, too, welcomes another prop for a discussion on development of Australian energy, saying the paper has focused on options to bring on new investment, to reduce the upward pressure on electricity prices, to improve market efficiency while securing reliable and affordable energy and to lower greenhouse gas emissions in a technologically-neutral way.

The Energy Supply Association says the fact that key issues canvassed in the green paper have been on the policy radar since the Labor government released its white paper 23 months ago underscores the difficulty of prosecuting market reform, “especially when the States and Territories are often the parties with the powers to pursue national priorities.”

The Australian Industry Group says a lot of work needs to be done, starting immediately, both at State and federal level, to ensure industry and the community at large can access reliable and affordable energy. It strongly supports the broad green paper view that all energy technology options should compete on their own merits for investment.

The Australian Chamber of Commerce & Industry welcomes the focus of the paper on market-based reform and greater participation in energy supply by the private sector. Seventy-four per cent of electricity network assets and a third of generation capacity on the east coast is still in government hands, it points out.

ACCI is also supportive of the government view that reservation of gas for domestic supply is not on. It would rather see a focus on stimulating gas development and improving the market.

The Grattan Institute says the green paper is “convincing and comprehensive” on the gas market and “workmanlike” on the electricity market but it has “gone missing” on providing a credible direction for climate change policy beyond 2020.

The institute’s Tony Wood accuses the government of taking a 20-year view on the challenges and risks for power networks but only a six-year view on power generation, where action on climate change, he says, is a central issue.

The environmental movement, naturally, finds little to like. The Australian Conservation Foundation rails against a “quarry mentality” and wants a focus on “clean energy” – so long, of course, that this doesn’t mean nuclear power.

One of the greener media commentators is miffed that gas, he says, gets mentioned 434 times in the 78-page green paper versus 26 times for solar and 13 times for wind.

The Australian Petroleum Production & Exploration Association, on the other hand, is well pleased that the government has recognized the importance of natural gas in terms of exports and domestic supply and that it is focusing on a stable and predictable policy environment and appropriate taxes and regulation to encourage investment.

It’s not so happy, however, that the green paper, like the Harper competition policy draft review, wants a review of the competitiveness and transparency of the east coast gas market. APPEA points out that 19 major domestic supply contracts (or other commercial arrangements) have been negotiated since Martin Ferguson released his white paper in November 2012.

As for Industry Minister Ian Macfarlane, who used a conference speech in Melbourne to release the paper, the government’s focus will be on enhancing competition, innovation and productivity in the energy sector and on continuing to build trade in gas, uranium and coal with our energy hungry neighbors.

On the electricity market, Macfarlane says the government’s imperative is to “make customers the boss” – to give the mass market the power to decide how they use electricity to suit their needs and the means to ensure they “pay a fair cost.”

The CoAG Energy Council, he says, will be the main forum to pursue further market deregulation, flexible tariffs and better information for consumers.

Interviewed by the ABC, Macfarlane opined that “an element of realism” has come in to the whole energy debate, a view that may surprise some of us

He has set a deadline of 4 November for submissions to the government on the green paper but has not provided a target date for publishing the white paper.

The Business Council is calling for the white paper to “set a clear road map of policy directions and decisions to free-up new energy supplies, release the shackles on delivering major projects and deliver competitively-priced energy to households and businesses while managing environmental issues at lowest cost.”

As for the RET, the Australian Industry Group argues that the government “should take a pragmatic approach” and pursue a variation of the 20 per cent target.

Meanwhile, to widen the picture, as Ban Ki-moon, refreshed by marching with demonstrators in the streets of New York, battles on the larger stage to come up with a global approach to carbon abatement, unkind European commentators are again highlighting the perils of interventionist government policies, using Germany as the example.

It is being pointed out this week that Germany is on course to miss its 2020 abatement targets, with emissions from power plants virtually unchanged since 2000 and use of coal reaching 45 per cent, its highest level since 2007.  Despite this, Germany’s 40 million households now pay more for electricity than any other country in Europe except Denmark, another poster child for the environmental movement.

The renewables sector, however, has no cause to complain: consumers paid green generators 100 billion euros between 2000 and 2013.

For those demanding the “death of coal,” there is a salutary comment on the German government’s own website. “The ‘black gold’ is still an important factor in the energy generation mix,” it says – while the formal agreement Angela Merkel has written to bring the Social Democratic Party in to her current coalition includes the recognition that fossil-fuelled power plants are “indispensable for the foreseeable future.”

All of which serves to underline what a minefield we have to traverse between our green paper and an energy blueprint. A one-liner response to the paper could be “can do better.”

Get on with the job

The message about electricity and gas in the draft report on Australian competition policy from a panel chaired by professor Ian Harper is straightforward: “reforms begun (in these sectors) need to be finalized.”

The panel, which is due to deliver a final report to the Abbott government in March next year, covers a lot of ground in its 315-page review and energy issues occupy just eight pages. The gist is as follows:

Competition reforms have been a success in electricity and gas, but they have slowed and the benefits are yet to be fully realized.

Commitments made by the Council of Australian Governments in December 2012 remain uncompleted.

In particular, the previously-agreed national energy retail law (designed to harmonize regulations for sale and supply) should be adopted and States should not make changes that detract from the intended benefits.

Functions such as reliability standards and licensing arrangements should be transferred from the States to a national regime.

Deregulation of retail costs should be completed to end distortion of price signals and to support timely investment in infrastructure.

A more detailed review of competition in the east coast domestic gas market is needed.

None of this is rocket science; the value in the Harper panel’s comments is that they underscore the need for efficient implementation of reform in the energy market and they hold up a mirror to the frustration felt in a number of quarters about the pace of change.

This was highlighted at last week’s Eastern Australia’s Energy Market Outlook conference by Mark McArdle, Queensland’s Energy Minister, who lashed out at the CoAG process for being “stagnant” and complained that not enough was being done to resolve the tough questions.

United Energy CEO Hugh Gleeson added to this by calling on governments and their advisors to do more on tariff reform and to “move as quickly as we practically can.”

Gleeson told the conference audience that the step change in tariff policy needs to be implemented in three to five years not 10, as presently envisaged by governments and regulators.

Energy Supply Association CEO Matthew Warren challenged political leaders to carry us out of the “energy triangle of pain,” the endless shifting of public debate noise from sustainability to affordability to reliability, calling for a “material game change” that places emphasis on making the power market “investible” above all else.

The question he posed – “What do we want from the 21st century market that we are not getting now?” – is well worth asking.

It will be interesting to see whether and to what extent the imminent Federal Government energy green paper addresses these issues and especially the core one of improving the reform process.

The Harper panel in its draft report makes the point that reform of the energy sector remains important because energy is a key input to other sectors of the economy and increasing competition will help place downward pressure on electricity and gas prices.

Inherent in the report is the view that keeping reform steps in the hands of State government is not a recipe for faster improvements.

“Further benefits,” it says, “may be realized from the transfer of more functions to the national regime,” even suggesting that there is value in the Western Australian and Northern Territory regulatory arrangements being brought under the national legislative and institutional umbrella despite the lack of physical connections.

Part of the political barrier to completing the unfinished reform business is the fact that a fair few think privatization and competition policy is part of the problem.

The Harper report says stakeholders making submissions to its review “often” feel price rises are attributable to privatization and “many” feel a cause is competition policy, views it seeks to dispel.

This debate keeps circling back to the need for a bipartisan approach to reform as well as to better alignment of climate and energy policies, a holy grail that continuously shimmers on the fringe of the market but repeatedly seems a mirage as Labor and Coalition players snipe at each other while the Greens and other fringe dwellers peddle their wares and receive heaps of media attention.

Robert Pritchard makes the valid point that achieving real progress towards flexible, innovative and affordable energy market solutions is impeded by the number and volatility of the “variables at work” and the difficulty this presents for political leaders in achieving real understanding of their task.

Like him, I believe we need a long-term commitment to a bipartisan approach federally and a much higher level of collaboration between Canberra and the States.

As he says, energy policy is too often hostage to the electoral cycle (at federal and State levels).

How much help the energy green paper will provide remains to be seen.

The more potent question is whether the subsequent white paper process can actually carry us forward in a meaningful way?

People and power

I don’t suppose I am alone in noting a stand-out point from both the Scottish referendum and the New Zealand general election: contests that the media and the opinion polls told us were going to be desperately near-run affairs each resulted in victory in a canter for the conservative forces, unionists in Scotland and Prime Minister John Key’s National Party across the Ditch.

This goes again to a point I make frequently on this blog: the thrust of media coverage is sometimes a long distance from the mark when it purports to present the public mood and, in turn, when it pursues what it thinks is a bandwagon.

An example this weekend is the reporting across the media spectrum of Tony Abbott not attending Ban Ki-moon’s UN summit gabfest on climate change policy in New York on Tuesday.

Abbott is opting to remain in Canberra for the Spring restart of Parliament before going to New York for talks on international security issues later in the week.

What local media coverage of this decision universally has failed to mention this weekend is that the leaders of India, China and Russia, as well as Canada, are also giving Bank Ki-moon’s talks (on the “defining issue of our time,” he says) a miss; Australia will be represented by Julie Bishop.

The tenor of the local coverage of the point plays to the popular perception of Tony Abbott being an ultra-conservative on climate change in the context of the ongoing row over the renewable energy target.

This can be considered in an environment where, according to recent Essential Report polling, a cross-section of Australians favouring alternatives to coal as a fuel for electricity — on the basis of supporting “more emphasis” or “some emphasis” —  throws up 91 per cent supporting solar, 86 per cent in favour of wind, 85 per cent for hydro-electricity, 70 per cent for gas turbines and 44 per cent for nuclear reactors versus 40 per cent for coal.

My point, really, is that we need to look beyond what we see, read and hear in the media — and the “will of the people” is not always what it is claimed to be.

The issue of what people want in power supply is on my mind after three days of the Eastern Australian Energy Market Outlook conference, with its associated “NEM Future Forum,” in Sydney in the past week.

As you would expect, the points discussed at the event, with attendance at its peak close to 200 people, were many and varied and presented from the perspectives of a wide range of interests, but a broad under-current was that consumers are going to drive much of the change we will experience in the energy market in coming years and that suppliers (and policymakers) need to gear themselves to manage these decisions.

I came away from the conference, which I co-chaired with Robert Pritchard, thinking to myself that this perception is not necessarily as useful as it sounds — that what the community will get in power supply is surely influenced by not just how many in the mass market opt to have part of their electricity self-generated but also by decisions policymakers take or fail to take and by how far investors (among power producers, deliverers and major users) are willing or able to go along with the market environment.

One of the many points made in presentations is the fact that public focus is strongly on affordability and sustainability until reliability of supply is suddenly called in to question — as it was in last summer’s heatwave in Victoria and South Australia — at which point there is only one concern.

Something similar can be said about gas supply and attitudes towards gas exploitation in New South Wales in particular. It became apparent at the EAEMO conference that the NSW government is hanging its hat here on the prospect that supply shortfalls in winter will not really bite until 2018, leaving time to find some way out of the present predicament — but this does not gel with industry views that the shortfalls will start occurring in winter 2016, bringing with them substantial factory jobs issues.

One of the key aspects of the public debate is the cost of electricity and the capacity of some in the community to afford their present bills.

This got quite a lot of attention at the EAEMO event, being interwoven with the need to make significant changes to the tariff structures to deal with the inequitable sharing of costs that today favor users of air-conditioning and solar power at the expense of those who don’t use them.

Dissecting the discussion, it seems to me that the key issues are the willingness and the competence of governments under the Council of Australian Governments umbrella to make decisions about tariff structures and the roll-out of metering technology across the whole east coast, the communications challenge in ensuring the community at large understands both what is happening and how they can benefit from it, how all this fits with what is actually happening to end-user prices (which in part depends on the state of demand — and that depends on the state of manufacturing later this decade as much as residential preferences) and the capacity of retailers to present bills and supply contracts to householders in a far more clear way.

John Pierce, the Australian Energy Market Commission chairman, who fought off flu to make the NEM forum keynote address, told us that research throws up a picture of 90 per cent of consumers now being aware that they can choose their retail electricity supplier, up to 40 per cent actively looking at their options (in 2013) and 28 per cent actually switching to secure a better deal.

How far an increasingly literate (in one respect) energy community can handle the complexities of dealing with other supply issues — the RET, steps needed to deal with the over-supply capacity in the NEM, tariff structures and decarbonisation — is another question, as is whether our mainstream politicians want to be leaders or followers. ( “I am the people’s leader; I must follow them,” said Jim Hacker.)

You cannot meaningfully discuss people and (electric) power without considering populism and its twin, the pursuit of vested interest in business and politics, all of which is playing out in a media theatre where ideologues and fanatics get equal time with people with serious points to make and many commentators pick and choose what they think will excite public interest or promote a view they share.

What I find interesting is how often, in the real democracies, when people retire in to the peace of the polling booth, the decisions made are in favour of common sense. The challenge, for those who desire to see efficient energy markets delivering reliable, cost-efficient supply as well as a lower environmental footprint, is how to promote similar sensible thinking among key policymakers.

What do we want?

It is easy to come to the conclusion that the electricity supply debate is overwhelmed by bluff, bluster and boosterism if all one does is read the mainstream media and the fringe electronic media focusing on the sector (and especially on the renewable energy target right now).

Both here and overseas, however, there are a number of commentators who work away at better understanding of the issues and the markets, striving to dissect developments dispassionately and to communicate their perceptions clearly.

They deserve praise and thanks for their efforts in lifting our thoughts to the uplands of electricity supply as opposed to the swamp of dissent and disrespect that seems to dominate the debate.

While I tend to avoid the emailed comments that get appended to media commentaries – so much of this stuff is void of sense, vituperative and inclined to violent exclamations of ideology and unreason – not all of it is a waste of space.

I regularly read Watt Clarity, which is commentary on the east coast power market published by Paul McArdle and his team of consultants and analysts at GLOBAL ROAM (see www.wattclarity.com.au), and frequently find food for thought not only in their observations but also in the contributions from the readership sidelines.

One such from another reader of Watt Clarity last month has ended up in the book of notes I keep of stuff that I should not forget.

She observed that the national electricity objective (which is the template for market rules and regulation) does not adequately define what Australia needs from the power sector; we need to recognise, she said, that carbon emissions reduction is central to electricity policy and can’t be ignored if we want long-term policy stability.

“The question that needs to be answered, or at least discussed more fully,” said the writer, ” is how much carbon reduction do we need from electricity? And then when, how and who pays?”

Perhaps it is worth interpolating here that we are not helped in calm consideration of these very valid points by the tendency of the Greens and fellow travellers to label Australia as a carbon pariah and to demand in ever-more-shrill tones that we immediately mend our ways no matter the cost.

Australia is far from alone in finding an energy transition hard going and the cost involved a problem.

To consider just the European Union, it is obvious to any serious observer that 15 years of political activism has left its members with a situation where the EU’s energy and climate change policies are increasingly in conflict.

Like here, the EU set out to create a competitive electricity market where price signals drive innovation and investment choices, where competition holds down costs and where customers choose their suppliers.

Like here, politicians have intervened over and over again, promoting policies that decide which power technologies to subsidize or suppress, damaging the resilience of the supply system and, in the case of Germany, for example, creating power prices that threaten economy viability while hurting many mass market consumers. A typical German household now contributes the equivalent of $280 annually in renewables surcharges.

In Australia, as in the EU, the outcome is a market that, if not sick, is no longer in robust good health, with the distortions from intervention creating conditions that look likely to require still more intervention, not least because components important to maintaining reliability of supply have been weakened, in some cases possibly dangerously so.

Here and over there, public debate about the impact of all this on consumers and national economies seems endless, with most protagonists talking past each other in an atmosphere that more resembles 18th Century bare-knuckle pugilism than 21st century rational thinking.

Coping with the transition, in reality, imposes serious challenges.

As a commentator from the Oxford Institute for Energy Studies has observed recently, the EU situation now dictates that the union’s wholesale electricity markets need to be redesigned to reflect the growing role of renewables and to allow for appropriate cost recovery by conventional generators providing essential back-up for the supply system.

So, too, here. To requote the Watt Clarity reader: how much carbon reduction do we need (actually this should be “want” because the issue of need is another subjective debate), over what time should our abatement target be pursued, what will this cost and on whom should these costs fall?

Here and in the European Union, the situation is not helped by members (countries there, states and territories here) diving off down their jurisdictional rabbit holes, navigating by ideology and political knee-jerking rather than being influenced by a desire to pursue efficient, affordable and sustainable markets.

The Oxford Institute commentator urges “more effective governance arrangements for EU energy and climate change policies.”

We, too, need to pursue this path.

And he makes another observation that resonates here: the present policy approach is “unsustainably expensive.”

He argues that finding an EU remedy is hindered by politicians being “reluctant to pass on costs to customers and taxpayers” whereas here, I’d suggest, the body politic is only to willing to do both and then to argue either that it hasn’t or that the impacts are relatively small and wholly justified to demonstrate that we, too, are striving to “save the planet.”

The EU, the institute commentator says, has made the situation much worse by governments picking winners, designing regulations badly, inadequate integration of policies, inability to require customers to pay their appropriate share of costs and reluctance to officially recognize the full costs of policy decisions over time.

It’s the same here.

The Oxford Institute analyst considers the EU electricity market “obsolete.”

Is this also true here?

AGL Energy, for example, has recently raised the question of whether local policymakers should reconsider the design of the east coast electricity market.

It believes the design does require rethinking.

One of the authors of a new AGL paper on the topic will be speaking at the “NEM Future Forum” forming part of the Eastern Australia’s Energy Market Outlook conference that I am co-chairing over three days from Wednesday this week.

This paper makes the salient point that the necessary market change requires one, or more, of these stakeholders to incur costs: governments (ie taxpayers), consumers or investors.

This is the real world that the current RET row glosses over and it isn’t going to go away, whatever the final outcome of the Warburton review.

How many policymakers, pot-stirrers and members of the broad community understand this, do you suppose?

Which is why that Watt Clarity reader’s question is so important — but are we likely to see it taken up in the energy white paper and via the Council of Australian Governments? Can we hope for a more intelligent media debate?

Reboot ‘skewed’ debate

Reading a really good speech about energy once in a while is a treat; encountering three of them in the same week is rather a surprise, to say the least.

The trio that have caught my attention have been delivered by Ben van Beurden, global CEO of Royal Dutch Shell, Harry Kenyon-Slaney, chief executive (energy) of Rio Tinto and Robert Bryce, an American author visiting Australia as the guest of the Minerals Council.

Van Beurden, speaking at Columbia University, struck the strongest chord: he is calling for an urgent rebooting of the debate around energy and climate change to pave the way for a pragmatic and collaborative approach to building a lower carbon, higher energy future globally.

What could be more appropriate for us locally where the public debate, centred around renewables and the further development of gas, could scarcely be at a lower point – and where one critic has labeled Ian Macfarlane as “ridiculous” for suggesting that the Coalition and Labor should negotiate a new approach to the RET.

Van Beurden says he and Shell are concerned that the international debate is “skewed” and its terms have become entrenched, with the assumptions too simplistic and sometimes flawed.

For the global energy system to be truly “sustainable,” he argues, it needs to provide more than lower carbon; it needs to deliver more energy.

He deplores the tendency to assume that a combination of renewables and energy efficiency will be enough to meet the world’s growing demand for energy.

Shell believes that renewable resources can lift the green share of global supply from 11 per cent today to about 25 per cent by mid-century – but this, Van Beurden points out, still leaves 75 per cent of requirements to be met from traditional sources (ie coal, oil, gas and nuclear).

To the fore in the Van Beurden speech is an argument for greater use of natural gas for power generation, for an increased focus on carbon capture and storage and for a widening of the use of carbon pricing.

The thrust of Kenyon-Slaney’s speech in Sydney this week is broadly similar, with its key focus on the role coal can continue to play in delivering global political and economic stability. He, too, deplores the activities of “climate warriors” book-ending the heated debate.

“We must understand,” the Rio executive says, “that the world needs big increases in energy generation – and that, without it, political, social and economic stability will evaporate with consequences that don’t bear contemplation.”

This requires acceptance, he argues, that coal will remain a mainstay of supply and he highlights the importance of carbon capture and storage.

Bryce, in a talk to the Sydney Institute that is now being widely circulated among interested parties, declares himself “optimistic to the point of idiocy” about our energy future, arguing that the technological advances in nuclear energy, in solar power, in energy storage and in hydrocarbon production and use can all be “extremely positive.”

He notes that there is a bias in the media and among politicians and pundits towards innovation in solar, wind energy, batteries and “other so-called clean energy sources.”  This, he says, ignores the “enormous amount of capital and momentum” behind hydrocarbons.

As an example, he cites the much-touted estimate that 2013 global spending on renewable energy was $US254 billion – and the lack of appreciation that spending around the world on oil and gas exploration and production is running at $US1.3 trillion annually.

As a result, he adds, innovation has been fostered and upstream petroleum drilling is now more akin to the precision manufacturing that dominates aerospace and automobiles.

Bryce points out that today we get about 40 times as much energy from hydrocarbons “as we do from all the political darlings of the moment: solar, wind, geothermal and biomass.”

The hard reality, he says, is that renewable energy, whatever its merits, cannot even keep pace with the growth in global hydrocarbon production.

And he throws in a figure I haven’t seen before: between 1990 and 2010, he says, about 1.7 billion people gained access to electricity – and 800 million owe this to coal compared with 65 million benefitting from solar and wind power.  “Put another way,” adds Bryce, quoting from research he is doing for the US Manhatten Institute, ”for every one person who has gained access to power from solar and wind energy, four have done so due to hydro, six due to natural gas and 13 due to coal.”

You need to read his talk in full to follow his argument (it’s on the Minerals Council website) but, as a paraphrase here, I think it interesting that he is pro-nuclear (while describing the pace of innovation in the sector as “woeful” and claiming that, without significant improvement, it will be a “spectator” over the next two decades as global energy demand rises rapidly) and also “bullish” about solar power.

He argues that cheaper solar systems twinned with commercially viable storage will enable “a transformation of electricity grids around the world,” especially in rural areas and island economies.

Bryce has an eye and an ear for analogies. He deals cleverly with the challenges facing electricity storage, which he describes as currently “laughably small” compared with our ability to store coal, oil and natural gas. There are roughly a billion cars in the world, he says. String all their batteries together and today they can hold about a half hour of our global electricity consumption.

As we emerge from a southern winter in which the Australian debate about energy has been on a par with the weather, it is uplifting to an extent to read the thoughts of people who have a good grip on context and reality.

The downside is that far too few of our community will be exposed to them. (I take it as a given that the ideologues will dismiss them.)

The upside is that, with a little effort, we can get the people who matter in policymaking to read and comprehend the messages from Van Beurden, Kenyon-Slaney and Bryce.

The public “debate” here seems to me to be a lost cause, but the situation can be rescued by serious people in the Coalition and Labor coming to grips with their responsibilities and acting in the national interest.

This, I suspect, is the nightmare for the radicals, vested interests and other meretricious players in the RET row – and it is the reason they are so keen to howl down any suggestion of a bipartisan approach to the measure except on their terms.

 

The sobering thought for the rest of us is that the RET is but one step on the ladder we must climb towards a sustainable national energy policy.

Macfarlane at CEDA

Anyone who went to the Committee for the Economic Development of Australia lunch in Sydney on Wednesday expecting revelations from Industry Minister Ian Macfarlane was doomed to disappointment.

The timing of the CEDA lunch was just not right.

The Abbott government is not yet ready to publish its energy green paper and it is still getting its RET ducks in a row within the ministry and the Coalition backbench before moving out in to negotiation with the Senate crossbench and the Labor opposition.

So far as the renewable energy target is concerned, Macfarlane’s task for the day was mostly to counter Labor’s propaganda that the Coalition is planning to ditch the measure, putting jobs and investment in jeopardy.

Paraphrased, the salient points Macfarlane made to CEDA are as follows:

First, the energy green paper will be released “soon.” The energy white paper will be produced “in a few months’ time.”

Second, despite the “hubbub, murmurings and wild speculation” about the renewable energy target, “no one is advocating the end of renewable energy in Australia.” The government will announce its response to the Warburton panel report “in the coming weeks.”

Third, however, the government “will not make changes that will impact those who have already made an investment, small or large, under the RET.”

Fourth, the federal Opposition can choose to “play politics” with the renewables issue, choosing to be “obstructionist,” or it can sit down and negotiate on a new arrangement.

Fifth, if the RET status quo remains, having cost consumers $9.4 billion in direct costs so far, the measure will add another $22 billion to user bills over its life.

Sixth, the context for considering the RET must include the environment of over-capacity in the east coast market, with no new generation needed to meet system reliability standards until 2023-24 thanks to energy efficiency impacts, strong growth in rooftop PV installations, a decline in energy-intensive industry needs and new generation being pushed on to the market by policy.

Seventh, securing long-term gas supply for New South Wales remains “one of the most pressing energy issues facing Australia.” The upstream petroleum industry “has social licence issues to resolve” but State government actions have made investment “all but impossible.”

Eighth, if NSW wants gas, it needs to compete for it in the east coast market.

There is nothing new in any of this.

What was missing I think is a statement of the obvious: the body politic can make any decision it likes about the RET, but it can’t build wind farms.

They get constructed when investors can find energy retailers to accept power purchase agreements for the farms’ output and bankers to finance development on the strength of the contracts.

This is the point that boosters of the current RET are avoiding for all they are worth.

Where the market environment does not facilitate new development – and one of the key players, AGL Energy, says in its latest economic research paper that new renewable projects are not economic and it is “perfectly rational” for retailers to decline to write PPAs – then the RET scheme as legislated will throw up prices moving to the penalty level (around $92 per megawatt hour), adding hundreds of millions of dollars to consumer costs and, argues the company, triggering political intervention.

Why the federal government chooses not to lay this threat right on Labor, given the opinion polls show clearly that support for renewables by a majority of Australians comes with the wish not to pay more for power, is something of a mystery.

Perhaps it needs to be explained slowly and carefully to the relevant people in the Prime Minister’s office who are widely believed to be closely engaged with RET decision-making.

It’s not rocket science.

Even the tabloids should be able to understand the point.

AGL Energy in its new commentary describes the RET investment situation as “intractable,” that is “out of control, out of hand, impossible to cope with.”

When applied to people, the epithet means “recalcitrant, pigheaded or willful” – perhaps the Abbott government needs to be considering how to press forward on both these fronts before publicizing its RET decision and running in to more “hubbub, murmurings and wild speculation.”

From where I am sitting, it is the point that will resonate most strongly with the “sensible middle” of Australian voters – and it will present an interesting communications challenge for Bill Shorten and his environment spokesman, Mark Butler, who is most vocal in attacking the government on the issue,alleging broken election promises.

Macfarlane: we want to negotiate

Industry Minister Ian Macfarlane, who is delivering a keynote speech to the Committee for the Economic Development of Australia in Sydney today, is sending clear signals to the federal Labor Party that the Coalition wants to negotiate a new approach to the renewable energy target to ensure green generation continues to be added to the power supply mix while giving recognition to the heavily-overloaded east coast capacity situation.

In an interview with ABC Radio National, Macfarlane set out the Abbott government path in the wake of the Warburton panel report: (1) discuss the review in Cabinet, (2) take the outcome of the discussion to the Coalition party room and (3) ask Labor to sit down and negotiate “in good faith” to ensure that a bipartisan approach to the RET is continued.

Macfarlane, who negotiated as the Howard government energy minister with Labor in 2001 along with environment minister Robert Hill to establish the initial RET and again, as shadow minister, with the Rudd government in 2009 to fix a new 20 per cent by 2020 target, is calling on the federal Opposition not to “blindly continue” to support its subsequent (under Julia Gillard) embrace of a 41,000 megawatt large RET.

“in the end, if Labor is not prepared to negotiate,” he adds, “it will be the renewables industry that loses.”

To which, I suggest, he needs to add that ultimately consumers will lose heavily.

What’s missing in the current media reporting (although I canvassed this in a commentary in “Business Spectator” yesterday headlined “Waiting for sense to return to the RET debate”) is the fact that, if the measure is left unchanged and if, as experienced NEM participants say, it proves impossible to build 8,000 megawatts of wind farms to deliver the 41,000 GWh target by the decade’s end, the RET penalty provisions will kick in and a cost of about $93 per MWh will be imposed on retailers, who will pass it straight on to consumers.

This is the big, underplayed point of the RET debate and it is only now beginning to emerge from the ruck of heated words of this debate.

The present outlook is for this penalty to kick in from about 2018 under the existing market and investment environments.

By 2020 it could be imposing a burden of around $600 million a year on consumers. Labor and the Senate crossbench need to be faced with the prospect that following the “easy route” (as one promoter from the wind power business put it yesterday) will confront consumers with a multi-billion dollar burden in aggregate from late this decade and in to the early years of the ‘Twenties.

In passing, this situation is a challenge to the Baird government in New South Wales, which is home to more than three million residential and business customers, in round terms a third of the country’s power consumers.  The State government has been vocal in wanting the present RET retained but it has not addressed the looming cost burden for its consumers if the target can’t be met — a burden that, if Baird is re-elected in March, will starting hitting these consumers before his next term is completed.

Yesterday, Macfarlane was asserting that there is “no suggestion” the government will seek to scrap the target and arguing that “none of the existing investments in large-scale renewable energy will be impacted by any change.”

But, he added, negotiations  must take in to account that the NEM has 9,000 megawatts of surplus capacity.

How far Labor is prepared to go in negotiations is open to question, with environment spokesman Mark Butler both supporting an ongoing bipartisan approach to the issue and accusing the Abbott government of “blind ideological opposition” to renewable energy. Butler claims the Coalition has “walked away” from a commitment before last year’s election to keep the target.

Meanwhile the Business Council has returned to the fray, in an intervention that Macfarlane told ABC Radio “has merit,” to argue that the renewables industry faces a “grim investment environment” if it insists on the RET status quo and calling for “an agreement across political parties to guarantee a modest amount of future investment” in the sector.

The BCA favors a “true 20 per cent” target, which Macfarlane says would represent 25,000 to 26,000 GWh in 2020, to “minimise the risk of higher costs being lumped on consumers” when investment fails to reach the current goal and the penalty price kicks in to impose “an effective $93 (per MWh) tax” without the benefits of extra energy or abatement.

The Energy Supply Association has also bought back in to the RET debate, saying that the present row “completely misses the point.”

ESAA argues that meeting the “unprecedented” challenge of transforming the energy system requires “thinking far beyond the design of the current RET.”

The Clean Energy Council, on the other hand, is maintaining its argument for the RET to be “left alone,” asserting that New South Wales and Queensland have “the most to lose” if the target is amended. The lobby group does not address the issue of the level of penalty to be imposed if the “left alone” measure cannot deliver the current target.