Archive for October, 2014
Just how muddied are the waters of Australia’s energy debate has been well illustrated by a number of things in the past 7-10 days, not least the ongoing saga of the decision by the Australian National University to divest Santos and Oil Search, among other resource firms, from its endowment activity.
It is worth reading an op-ed in today’s “Australian Financial Review” by former Labor minister Craig Emerson, who excoriates modern debate for tribalism and belief systems replacing logic and reason. Reading this against the behaviour of the Rudd and Gillard governments, of which he was part, does cause a certain raising of eyebrows, but the point he makes, having now escaped the political fray for life as a consultant, is valid.
I rather like his comment that to attempt to analyse issues above the raucous market of views is to be “rational, a term nowadays ranked somewhere between animal cruelty and a sexually transmitted disease.”
The ANU decision has been hailed and reviled, most recently lauded by Senator Christine Milne, who welcomes it as a “bellwether moment” in the war on fossil fuels. It is, she says, “democracy up against crony capitalism, science up against ideology and renewable energy against the old polluting industries.”
The Milne position is that none of Australia’s fossil fuels must be burned — “not by any country, not ever.”
How interesting, therefore, to read the evidence the ANU vice-chancellor, Ian Young, gave to a Senate estimates committee in recent days. Guess what? “The ANU has not divested all its oil, gas or coal equities.”
Young told the committee the university council has been “pressed over a considerable period of time” to drop fossil fuel stocks from its $1 billion portfolio and has decided that this is “not a practical or a wise thing to do.”
What’s more, he said, ‘although I and many other people believe the world is moving towards a period in which we will be less dependent on fossil fuels, the reality is that our economy — and,indeed, the world economy — is going to be dependent on fossil fuels for decades to come.”
Young also told the senators: “The university still has a share portfolio that includes many major Australian companies involved in the resources sector and, indeed, in fossil fuel activity.”
But the problem, you see, professor, is that your initial media statement on 3 October didn’t say a word to this effect. The somewhat defiant op-ed you provided to the Fairfax daily newspapers in Melbourne and Sydney didn’t make this clear either.
What’s more, in the op-ed you said you were “confident” Australia’s industries in 20-30 years time “will not be in producing fossil fuels.”
This is a somewhat confusing way to explain oneself, the more so, as Emerson points out, when the nickel miner the university so publicly dumped from its portfolio on “social harm” grounds produces a metal essential for solar energy activities.
What I would like professor Young to do is to expose to the rest of us the expert advice on which he and the university council rely to see natural gas activities — they dumped Santos and Oil Search from their portfolio (albeit while retaining Woodside and BHP Billiton shares) — as “contributing to social harm.”
I have no idea what Oil Search, a major contributor to Papua New Guinea wealth creation through its LNG activities, is considered to be doing to offend the ANU’s sensibilities — its managing director describes the “social harm” slur as “ignorant” and “deeply offensive” — but I suspect the antagonism to Santos to reflect the anti-coal seam gas activities of the radical environmentalists. (The “Financial Review,” for one, keeps drawing lines between the university’s advisers on this matter and said radicals.)
As an offering to the university of a different perspective, I could point to the most recent energy projections of the Bureau of Resources & Energy Economics, published in December 2012 and looking out to 2049-50, in which BREE forecast that gas would have a 36 per cent share of gas-fired electricity generation (which it projected to be 377 terawatt hours mid-century, 49 per cent higher than today) and that the fuel would hold a 34 per cent of the national’s total primary energy production.
The bureau foresees fossil-fuelled generation overall contributing 183 TWh to Australia’s electricity production in 2049-50 — compared with 219 TWh in 2012-13.
Does the professor’s confidence about the demise of fossil fuels in 20-30 years time take heed of such expert opinion? Can he share with us the basis on which he rejects it (or at least did so in his Fairfax op-ed as opposed to his Senate evidence).
For me, as I have written previously, some of the most sound thinking on the divestment issue has come from Robert Stavins, a professor at Harvard University, which has stoutly refused to cave in to the divestment campaigners, notwithstanding marches, campus opinion and blockades of administration buildings.
Stavins dismisses divestment as a “feel-good measure” and argues that going down this path is just a way for some people to fool themselves in to believing they are doing something meaningful about the carbon abatement challenge; treating the issue as a moral crusade only plays in to and exacerbates political polarisation, he says.
In his view, universities, apart from working to decrease their own carbon footprint, should focus on increasing and improving relevant research, teaching and outreach, the means by which, he adds, great universities have made a difference on other societal challenges over centuries.
Meanwhile, senior academics at the University of Glasgow, the latest to try to provide a sop to the many-headed campaign (by agreeing to divest itself of about $40 million in fossil fuel investments over the next 10 years, bringing to mind St Augustine’s youthful prayer “Oh Lord, make me pure but not just yet!), have reacted strongly against the decision. Paul Younger, an engineer who is professor of energy, says the move suggests “we are unaware of the context in which our research takes place,” arguing that the emissions issue is “far too complex and too important to be amendable to simple gesture politics.”
The Glasgow move, he adds, can’t be dismissed as “well-meaning naivety” but should properly be characterised as “an instance of collective intellectual dishonesty.”
Here, activists, having achieving what they think is a win at the ANU, now aim to pressure other universities to go down the fossil fuel divestment road.
It doesn’t seem to have dawned on them that the leadership of other Australian universities may look at the ANU controversy as raising important questions for them about how to be “practical and wise” in this situation.
For the University of New South Wales, under similar activist pressure, the reaction of the council led by retiring vice-chancellor Fred Hilmer, has been to decide “overwhelmingly” to retain its $50 million shares in companies with fossil fuel interests.
Sub-Saharan Africa is very much in the news again and once more for all the wrong reasons – this time the horrors of the Ebola epidemic.
It is, however, also in the news, in a much lower key, completely ignored here, for another reason: the International Energy Agency has turned its focus on to the region’s energy needs between now and 2040.
Most of the things about sub-Saharan Africa that make Australians wince or shudder are rooted in one thing – serious poverty – and, in turn, this has much to do with the region’s lack of affordable, secure energy.
I have a particular interest in this area because I was born and brought up there and worked there for a bit more than a decade before emigrating to Australia.
A single statistic might convey the region’s energy hassles: most Australians individually consume more electricity, on average, than 16 people in Africa south of the Sahara.
Launching its new outlook report in London last week, the IEA also pointed out that only one country in the region, South Africa, consumes as much electricity as the UK capital.
In human terms, 620 million people in the region, two-thirds of its population, have no access to electricity at all. The use of “traditional fuels” – wood, charcoal, dung, agricultural waste – easily outweighs the consumption of all the fuels we take for granted here and the indoor pollution it causes kills 600,000 Africans a year, outdone only by Aids in terms of premature deaths.
This situation exists despite the Africans living in an area with more energy resources than they need themselves.
No doubt local green boosters will perk up at the IEA’s thought that renewable energy will account for 45 per cent of the region’s energy supply by 2040 as nearly a billion of these Africans gain access to electricity in the next 25 years; the bad news is that half a billion more will still be without such access at that point.
When you consider that the region will account for one in five of the global population in 2040, this is a highly dangerous as well as ethically unacceptable situation.
For those who want to make a fuss in the climate change space, there are a few awkward numbers, too.
With an outlay of $US46 billion a year, half of it on delivery systems, the region’s electricity capacity can be quadrupled to 385,000 megawatts by 2040, adding almost 200,000 MW, four times our present capacity here, to the world’s non-renewable energy fleet.
The big ticket economic developments are related to fossil fuels – with gas production hitting 230 billion cubic metres annually by 2040, serving east coast LNG exports to South Asia, especially India, as well as domestic needs, while coal supply grows 50 per cent to 325 million tonnes a year.
While exports will soar, gas is also expected to be a substantial fuel for regional electricity supply.
Interestingly, from our perspective here, the IEA predicts that sub-Saharan Africa’s gas production will well exceed Australia’s by 2040, rising towards 175 bcm versus about 110 bcm here and 240 bcm in the United States as well as some 80 bcm in North Africa and 125 bcm in Russia.
The agency also expects the region to maintain its production of five million barrels a day of oil, with the direction of consumption moving to Africa from the rest of the world as greater affluence promotes increased use of transportation. In the past five years, almost 30 per cent of global oil and gas discoveries were in sub-Saharan Africa.
(Looking at these numbers, one can’t help thinking about a certain local academic leader, much in the news at present, who has expressed the view that “I don’t think fossil fuels will be a big part of the world economy in 20 to 30 years’ time.”
(Which world did you have in mind, professor?)
As the IEA points out, the outcome of such sub-Saharan development is two-fold: a significant boost in the region’s economy and the provision of an energy system where uninterrupted supply becomes an expectation rather than the exception.
Every dollar spent on power supply, the agency says, will deliver $US15 in incremental GDP.
Even allowing for all this, the African energy challenge will be far from met by 2040, as illustrated by an IEA bar chart, which, using million tonnes of oil equivalent as a measure, shows that the use of biomass will grow to 450 Mt, oil consumption will push towards 200 Mt, coal to about 150 Mt and gas to about 120 Mt – with renewable energy accounting for a little more than gas.
The agency also presents a pie chart that gives an interesting portrait of the region’s 2040 electricity sources: about 84,000 MW of coal-burning generation, 95,000 MW of gas-fired plant and 26,000 MW burning oil versus 91,000 MW of hydro power (a lot of it in Ethiopia and all of it raising environmental issues relating to dams), 45,000 MW of solar power and 30,000 MW of wind, geothermal and bio-energy plants – plus some 7,500 MW of nuclear in South Africa.
This scenario involves the construction of some 70,000 MW of hydro-electric capacity; one can just imagine the amount of leaping up and down it will engender in the radical environmental movement.
I have been reading this IEA report at roughly the same time as I am looking at the latest newsletter of the University of Queensland’s Energy Initiative.
In it, director Chris Greig points to the challenge of meeting energy needs and maintaining economic competitiveness while minimizing environmental impacts.
“What,” he writes, “if fossil fuel use continues to grow, if the world avoids strong policy choices and waits for a miracle energy solution that is as reliable and affordable as coal with no adverse climate impacts and a scenario where a renewable energy transition (or more appropriately, a revolution) doesn’t eventuate? “ What if carbon capture and storage is not widely deployed due to issues relating to lack of storage resources, limited public acceptance or techno-economic constraints that simply can’t be overcome? “If nothing changes, what then?”
These are not idle questions.
We could do, I think, with more universities turning their attention to them rather than engaging in such dilettante pursuits as vainglorious announcements about fossil fuel disinvestment.
A country like Australia, which is big in fossil fuel use and export, needs to be thinking such thoughts.
In the context of the ANU imbroglio, I was struck by the view of professor Robert Stavins of Harvard, which has declined to be bullied in to divestment by campus campaigning.
Stavins writes: “Climate change is a scientific, economic and political challenge. Viewing it as a moral crusade will only play in to and exacerbate political polarization.”
The IEA sub-Saharan Africa outlook underlines the points being made by both Greig and Stavins.
Those who pine for the day when bicycles are made of hemp can see much to praise in the controversial Australian National University decision to make a public fuss over not holding shares in two gas producers and a small group of miners, one of whom is the most recent winner of the South Australian Premier’s award for environmental excellence.
Those who are anti-fossil fuels – but can see that the ANU has exposed itself to criticism for king-hitting the companies concerned (who were “named and shamed” without any prior discussion with them) and hiring its advice from consultants themselves under fire for claimed closeness to environmental lobbyists – are engaged now in dismissing the fuss on the basis that surely a shareholder can change a portfolio without invoking “hysteria.”
“Since when,” says The Australia Institute, which shares a building with the consultants on whom the ANU relied, “did big business have a problem with investors choosing how to invest their own money?”
The game here is rather given away by green activists describing the ANU decision as “fantastic for the anti-fossil fuel movement.”
The Wilderness Society has penned a national newspaper op-ed hailing the inclusion of Santos in the ANU list as “a body blow” to the Pilliga scrub coal seam gas development project.
Part of the problem for the university is that it chose to launch its decision in to the public arena by issuing a statement about what should have been an internal process as part of assessment of its $1 billion investment portfolio.
When it did so, it dared the lightning – and wide-eyed expressions of surprise at the reaction are disingenuous to put it mildly.
At least one of the “dirty seven” is now consulting its lawyers over the ANU saying that divestment is based on the companies being “not socially responsible and doing harm.” The Association of Mining & Exploration Companies claims that “there is no question the investment reputation of the companies involved has been tarnished.”
The university reportedly is now saying that it will reconsider its decision if it is presented with new information. This is lame beyond words for an institution that wants to be seen to be in the tertiary premier league, a pursuer of excellence in research.
Federal assistant infrastructure minister Jamie Briggs has written to ANU vice-chancellor Ian Young to criticize the university “making a simplistic moral judgement” on seven companies “without first providing (them) with the opportunity to respond to the allegations,” a point which those rushing to defend the decision seem disinclined to discuss when most of us would see it running counter to a national ethic of a “fair go.”
Young, by the way, has written a newspaper op-ed in which he says that the ANU has modelled its decision on similar moves by America’s Stanford University.
For the record, the Stanford decision is not “make direct investments of endowment funds in publicly traded companies whose principal business is the mining of coal for use in electricity generation.” So how does this lead the ANU to target gas producers Santos and Oil Search?
Those defending the ANU are naturally accusing the federal government of bullying, a charge they would have roundly rejected on behalf of the Rudd/Gillard regimes when they were publicly kicking power producers and energy-intensive manufacturers as “big polluters.”
I have yet to see any of them make the same accusation against centre-left SA Premier Jay Weatherill, who has also been a caustic critic of the university’s “strange” decision.
Prime Minister Tony Abbott has retorted that, of course, institutions like the ANU should be free to make their own investment choices, “but when they make stupid choices, we should be free to criticize them.”
“The Australian” newspaper has accused Young of responding to criticism with “a truck-load of tosh,” citing his claim that the ANU needs to “be confident that the sort of companies that we’re investing in are consistent with the broad themes that run this university” as an example of “faux moralism.”
The newspaper, however, could have gone a lot further.
Companies selling gas, oil and coal only exist because companies engaged in manufacturing, mining, agriculture and telecommunications (huge users of space cooling) – as well as households and small businesses – need their products to provide energy.
So, if investors have a moral imperative to bankrupt carbon energy production, they also should dump their holdings in these user businesses to drive them towards the light – that is the renewable energy light.
And companies that consume energy exist because consumers want their products and services. So, logically, the campaigners should be calling for policies that choke off access to affordable carbon energy.
Ah, but that’s what Gillard’s government set out to do, isn’t it, and Australians comprehensively threw it out of office a year and a month ago – while Bill Shorten is dancing today on political eggshells to say he will embrace emissions trading but not a carbon tax as he tries to reverse this political tide!
The American Enterprise Institute is excoriated by the greens in the same way they do our own Institute of Public Affairs, but they – and at the very least the philosophers on the ANU campus – should wrestle with the question the conservative US think tank raises: “If investments in the fossil fuel sectors engenders some form of moral quandary, does the same principle apply to industries that use energy?”
The “moral imperative” of the divestment campaign, the institute suggests, leads to ending investment in virtually all economic activities depending on secure, reliable, affordable carbon-based energy.
Of course, we are fortunate in the Australia that we can, if we must, turn to zero-emission nuclear power to meet our electricity needs……..ah, but the radical local campaigners are opposed to that, too, aren’t they?
Finally, the ANU, having made its brave stand, may also care, in the interests of transparency, to commission and publish a report on emissions from the amounts of fossil fuels the university consumes in heating and cooling its buildings, in powering its laboratories and computer networks, in maintenance and landscaping, in cooking food on campus and in lighting all those rooms.
It may care to throw in an estimate, too, of the amount of fossil fuel consumed by the many events to which its staff travel and one of how much is used by its students travelling to and from the ANU a number of times a year.
I will hazard a guess that the overall fossil fuel consumption of the ANU outweighs the impact of its foray in to gesture politics.
The Australian National University would like us to compare it with the more prestigious Stanford University when judging its fossil fuels disinvestment decision that has made headlines over the past week.
The ANU is just the latest to be swept up in an international campaign orchestrated by environmental advocacy groups and supported by green fellow travellers among professors, students and some institutional investment groups (who have a vested interest to put it mildly). But some universities have declined to be greenmailed.
My preference is to compare the ANU in this regard with two really big tertiary institution beasts, Harvard and Yale universities, and also with the University of California, which is another to make a decision on this issue recently.
Harvard and Yale manage the two largest university endowments in America and therefore the world.
Yale (which has a $US20.8 billion endowment) has asked its external investment managers to “avoid companies that refuse to acknowledge the social and financial costs of climate change and fail to take economically sensible to reduce greenhouse gas emissions” but will not divest its holdings in fossil fuel businesses.
Harvard (with an endowment now exceeding $US36 billion) has responded to considerable activist agitation by saying it does not believe “divestment from the fossil fuel industry is warranted or wise.”
The university leaders say it exists to serve an academic mission of carrying out the best possible programs of education and research and its holds its endowment funds in trust to advance this mission. It does not wish to be a political actor, they add.
“Conceiving of the endowment, which provides a third of our annual funds, as a tool to inject the university in to the political process or as a lever to exert economic pressure for social purposes can entail serious risks to the independence of academic enterprise. The endowment is a resource not an instrument to impel social or political change.”
They go on: “Universities own a very small fraction of the market capitalization of fossil fuel companies. If we sell our shares, they will no doubt find other willing buyers. And such a strategy will diminish the influence or voice we might have with the industry.”
Drew Faust, Lincoln professor of history and president of the university, also said: “I find a troubling inconsistency in the notion that, as an investor, we should boycott a whole class of companies at the same time that we are extensively relying on their products and services for what we do every day.”
She said the university should favor engagement over withdrawal and should encourage fossil fuel companies to both meet society’s energy needs and address environmental imperatives.
The fevered reaction from divestment campaigners at the university, including blockades of her office, has since led to her writing to them to call for the debate to carried on “with civility and fairness,” rejecting their assertion that fossil fuel companies are disrupting Harvard’s capacity to implement programs of research in to climate change and renewable energy.
The debate, she added, needs to be “rooted in reason, rigor, respect and truth.”
One of the commentators on Faust’s approach is professor Robert Stavins, director of the Harvard environmental economic program and an IPCC author.
He says universities should “focus on actions that can make a real difference rather than those that may feel good or look good but have relatively little impact.”
Stavins adds: “The real contribution of universities to fighting climate change and promoting sound policies will be through their products: research, teaching and outreach.”
This, he says, is “how great universities have made a difference on other societal challenges for decades and centuries and, in my view, how they will make a real difference on this one.”
He makes another point that, I think, deserves a hearing in the local context, where the ANU has attacked gas producers Santos and Oil Search in its greenstanding exercise.
“Natural gas is the crucial transition fuel to address climate change,” says Stavins. “A major reason for the recent drop in US carbon emissions is the increased use of gas to generate electricity.”
Thirdly, he addresses something that seems to pass by the radicals: if divestment really succeeds in reducing the financial resources of coal, oil and gas companies, they will need to cut back on research and development of technological breakthroughs such as carbon capture and storage and reduce the development of renewable energy that an increasing number of them are pursuing as part of their “financially rational diversification strategies.”
Meanwhile, the University of California voted in mid-September to reject a student and external activist campaign for it to embrace divestment in its $US91 billion endowment and retirement funds.
The university said it sought to balance supporting the cause of dealing with climate change with the need to earn strong financial returns for funds that support academic pensions, faculty chairs and scholarships.
Here, RMIT University professor Sinclair Davidson, in a commentary on the ABC’s “The Drum” website, sums up the ANU’s action as a failure to undertake sufficient due diligence, playing politics with its investments and, in the case of Santos, badmouthing a company that is on the Dow Jones Global Sustainability leaders’ index.
“Australian universities do not have the social licence to trash the domestic economy or place the livelihoods of thousands of people at risk on a whim,” he asserts.
“Participating in international campaigns to undermine local industry and trash corporate reputations is not appropriate behavior for publicly-funded institutions.”
In a summary sentence, it seems to me, the “Australian Financial Review” is on the money when, in an editorial, it condemns the ANU for “an exercise in moral vanity.”
Finally, contemplate this thought: the vice-chancellor of the ANU is “confident” that Australian industries in 20 or 30 years’ time “will not be producing fossil fuels.”
What rigorous academic research can he advance to support this view, I wonder?
A key aspect of the Australian Energy Market Commission’s thinking about electricity, as chairman John Pierce explained to the “NEM Future Forum” I chaired last month, is how to facilitate consumers moving from the back seat to the drivers’ seat.
“Will they find it a pleasant seat and a comfortable experience?” he wondered, suggesting that consumers need to be as comfortable making choices about energy as they are picking items off a supermarket shelf.
The only conclusion one can draw from a new Ernst & Young report (“Voice of the customer is getting louder”) released this morning is that power customers right now see themselves as being in the hot seat and find it far from comfortable.
This situation comes 26 months after Prime Minister Julia Gillard delivered a headline-hunting rant in Sydney about power bills and promised that Council of Australian Governments’ steps she would drive would deliver results in 2014.
The focus of the EY paper is on how suppliers, gentailers and other retailers, can work to improve this situation, but, of course, the task is equally one for regulators and policymakers.
In a reaction to the EY report, Claire Petre, who is retiring as New South Wales energy ombudsman, told the “Sydney Morning Herald” today that, although deregulation of energy pricing means customers can pursue saving hundreds of dollars a year, the market is “too confusing and intimidating.” Regulators and government need to address this, she said.
For me, the entity really in the hot seat here is the CoAG Energy Council, which next meets late this year.
In his Sydney speech, Pierce summed up the consumer requirements like this:
“People need information. They need tools. They need to be engaged. They need a reason to be engaged.
“And they need the price they pay for energy to reflect the cost of supplying them as individuals.”
The desired end point, he said, is a market where “consumers’ choices are the driving force behind development and investment – and provide the conditions for a more effective and competitive market.”
The EY report, released today, is going to get most media coverage for its revelation that “nearly one in three Australians missed a payment on an electricity bill in the past 12 months while more than one in 10 have missed three or more payments.”
One in eight customers missed a payment because they didn’t have the ready money while the proportion of customers often or occasionally worried about being able to pay their power bill is 70 per cent, unchanged from the 2013 EY survey.
Of the people who missed an electricity payment, 32 per cent forgot to pay it and five per cent claimed not to have received it. Sixty per cent said they couldn’t afford to pay.
Buried in the report is an interesting broader question.
“What is causing you’re the most stress at the moment?” EY asked its respondents.
Thirty per cent said the general cost of living, 12 per cent said personal or family health issues, 10 per cent said their job (the same level for electricity bills) and nine per cent said personal finances.
This can be read against the latest “Essential Report” public opinion poll where 57 per cent of respondents say they are “very concerned” about the cost of electricity and gas and 28 per cent are “somewhat concerned” compared with 49 per cent and 33 percent for the cost of petrol and 45 and 37 per cent for the cost of food and groceries.
(This poll a week earlier showed 50 per cent of respondents wanting more incentives for renewable energy versus only 12 per cent supporting an emissions trading scheme – and an earlier one in September found 45 per cent believed renewables are better for electricity costs.)
The other general EY point I thought interesting (arising from the customer experience series the company pursues) is that 50 per cent of consumers say they are willing to pay more for a better service and 55 per cent say they pay a premium for a product or service from a company they trust.
Sixty-eight per cent of EY respondents say they sever relationships with businesses when treated poorly by staff.
The EY thesis – and they are not alone in putting it forward; their rivals PricewaterhouseCoopers have published similar material recently – is that retailers have a critical need to pay attention to how they will provide energy management services to a much-changed market and to what their business might look like in the future.
I think it is worth making the point that I do not know a major electricity business – gentailer, network operator or energy retailer – that is not focused on these issues, one might say obsessing about them. Which is not to argue that reports such as EY’s are not valuable; every reinforcement of the need for suppliers to provide a better consumer environment should be welcomed.
However, there is risk, I fear, that politicians can seize on this stuff to dodge their own responsibilities.
The undoubted fact that suppliers, and, in this context, specifically retailers, must provide better service, make it easier for customers to switch around by offering more understandable contracts, should be transparent about their offers and ought to pursue consumer-oriented innovation still more strongly, does not excuse policymakers from the over-arching and paramount responsibility to deliver a much-improved marketplace.
John Pierce inserted in his NEM Forum talk the very important point that we won’t have a market system able to respond to the increasingly sophisticated and diverse demands of consumers if, among other things, there are policy interventions that undermine its operation and the ability of price to reflect underlying demand and supply conditions.
EnergyAustralia, in its quite trenchant submission to Ian Harper’s ongoing review of national competition policy, made a further point that resonates with me: in recent years energy market reform has stalled and suffered from a political unwillingness to complete the process that began in the wake of Fred Hilmer’s review 20 years ago.
The company argued that inconsistency across Australian jurisdictions in pursuing reform increased costs for electricity suppliers and reduced consumer benefits.
It added that steps taken by some governments have tied up corporate resources that could be used to develop innovative products and services and help make the market more competitive while operating under adequate consumer protection arrangements.
Like Churchill, John F. Kennedy gets over-quoted and not always appropriately, but his exhortation to Americans when promoting space exploration a half century ago has some point here: we should choose to tackle this, he said, not because it is easy but because it is hard.
Perhaps we could scrawl this on the wall in the room where the CoAG Energy Council will meet in December.
Ian Macfarlane said in his foreword to the energy green paper that “sound energy policy development means working with the States and Territories to improve the cost effectiveness of electricity supply and increasing (the) momentum for productivity-enhancing market reforms.”
As the EY report and public polling suggest, public patience with the present situation is wearing rather thin.
The Coalition axing of the carbon tax has contributed to an easing of power bills, but the overall malady lingers on and its resolution is as much in the hands of State governments as the federal regime.
For the Coalition governments in New South Wales and Queensland, who are staking so much on winning voter support for power privatisation at State elections next year, electricity costs are an issue that could prove fatal to their hopes in this regard.
I wrote in my last post about Europe and renewables, and in particular about the Italian government’s efforts to wrestle the cost of green energy under control, but this is far from the largest issue on the EU policymakers’ agenda.
You might think, if all you read is the propaganda masquerading as news on the ABC and in Fairfax media, that the big ticket question for the world is how can solar and wind power be driven harder and faster.
The truth is that what really bugs the Europeans at present can be summed up in two words: “Russia” and “gas.”
Perhaps, more importantly in two other words: “energy security.”
Hanging over a lot of the European Union is this smug thought from Vladimir Putin: “Can Europe stop buying Russian gas? In my opinion, it is impossible.”
The International Energy Union expects the EU to be importing 80 per cent of its gas needs within 15 years but it is aiming to cut its reliance on the Russians with a special focus on securing LNG from the Americans, taking advantage of shale gas developments the European hypocritically shy from encouraging on their home turf.
Since 2009, when it was hit by a previous Russian-created gas crisis, union countries have spent almost 23 billion euros on LNG receiving capacity, storage and transmission pipelines.
Twenty-two LNG terminals are now in operation, six are under current construction and there are plans to build another 32, mostly in southern and eastern Europe. This being Europe, the LNG investors are being handed 40 million euros of “aid” to get on with the job.
Despite all this there is a lot of attention also being given to coal.
As one observer has put it, this because “Europe has a century’s supply of coal and 12 years of its own gas resources.”
No doubt, more renewables-based electricity will play a role – as the “Wall Street Journal” says, the EU prides itself as being the world’s green crusader – but it’s a fact that the union is doing a fair bit of coal burning.
Not least in this respect is Germany, where, despite all the fuss and cost involved in renewables development, national annual power production from cheap lignite now stands at 162 terawatt hours, the highest since the days of the Soviet-run East Germany.
(Which makes the recent Fairfax fuss about a visiting former Merkel advisor’s opinion that the Abbott government’s attitude to coal is “an economic suicide strategy” rather macabre.
(The more so when viewed against yesterday’s London “Financial Times” characterization of Merkel’s energy policy as a “costly muddle,” pointing to energiewende having delivered Germans household power bills 48 per cent higher than the European average and business bills that are twice those paid by their American rivals.
(“The paradoxes of German’s energy policy are impossible to ignore,” opines the FT, an infinitely more respected newspaper than “The Age” or “The Sydney Morning Herald” in their modern guises. “This is a country committed to reducing carbon emissions that is building more coal power stations – (one that) is closing down its well-run nuclear power plants (and) yet relies on nuclear imports from neighboring France.”
(One of the big paradoxes of the German transition is that it is driving out nuclear power to bring in green electricity but advancing coal use. The German energy ministry responds to this by saying “you can’t simultanously exit nuclear and coal.”
(In the interests of balance, it should also be noted that, while German power prices are seriously high, the country’s energy efficiency efforts mean that its households actually pay roughly the same as Americans spend each month. How the Germans manage efficiency is a far more important lesson for us in Australia than its renewables policy but it barely gets a mention from the propaganda machine of the Left and the Greens.)
Coming back to fossil fuels, apart from lignite (similar to Victoria’s brown coal), Europeans are feeding supplies of black coal in to power plants from Colombia, the US, Australia, South Africa and Indonesia – plus, of course, the pesky Russians, who currently also provide a quarter of the EU’s coal imports.
The EU has some 21,000 megawatts of coal-fired generation capacity currently shuttered but under active consideration for recommissioning at the expense of gas-fired plants in particular.
Germany, the UK, Holland, France, Italy and Spain all have this coal resource readily available although they will need to be retrofitted with sox and nox controls to meet environmental requirements at an outlay of about $US10 billion, which really is peanuts.
They could all be reintroduced to the market between 2016 and 2020.
Not to put to fine a point on it, this makes a fair nonsense of all the green hoopla here about the critical importance of our RET as a contribution to global carbon abatement – as it does of the campaign to suppress Australian coal seam gas development, and as does European carrying-on against unconventional gas (in their case shale) and the use of hydraulic fracturing.
And, of course, this fossil fuel activity in the EU highlights yet again the case for the Europeans to think seriously about new nuclear power development.
As well, say some in the European energy business, sight must not be lost of the potential to produce gas from coal, hardly an attraction here, but interesting to the EU when it considers ways and means of driving reliance on Russian gas below 30 per cent of its needs by the middle of the next decade.
The focus on fossil fuels also further underlines the need for us in Australia, as well as coal and gas-burning countries around the world, to spend more effort on driving development of carbon capture and storage.
Finally, what all of the above serves to demonstrate is that the much-trumpeted “death of fossil fuels” is a pipedream and this is true for coal as well as gas.
In Europe as well as here, the current public cacophony about green energy really needs to be heard against the whole energy security orchestra and we both need far more hard-headed conductors.
(In a postscript, the US Energy Information Agency’s latest prediction is that American reliance on coal will indeed fall. It will stand at 32 per cent of power production in 2040 versus 42 per cent now, and this will be of a higher level of electricity consumption.)
One of the key pieces of green propaganda with respect to the renewable energy target is that Australia’s federal government is badly out of step with the rest of the world in attempting to wind back subsidies.
Which makes the case of Italy rather interesting.
The greens like to talk up some aspects of Italian activity. Solar PV, for example, provided more than nine per cent of power consumption in the first eight months of the year, helped by output in the northern summer when the contribution pushed up towards 13 per cent this year.
But the overall Italian situation is not what this data in isolation might suggest.
Surprise number one for some, viewed from here, may be that Italian generation is around 300 terawatt hours a year, not much more than Australia’s although serving a much bigger population and market. Why? The Italians also import about 45 TWh a year.
Surprise number two may be that most of the imports are nuclear despite Italians in a 2011 plebiscite rejecting any thought of building a new fleet of reactors at home, having closed their own nuke plants, some of the world’s first, in the late 1980s after Chernobyl. This electricity is imported from France, a lot of it via Switzerland.
Surprise number three may be that, despite the chatter about Italians and renewables, two-thirds of Italy’s domestic electricity supply is from fossil fuels (gas, coal and oil in that order).
As for renewables, like Australia, Italy has a solid hydro-electric supply (it delivers 15 per cent of domestic generation) and its non-hydro zero emissions power (solar and wind) is pushing towards another 15 per cent of domestic production (but not of consumption).
The rub comes with the cost.
Italian electricity prices are among the highest in Europe (and therefore the world), fuelled in part by more than 10 billion euros of annual renewables subsidies.
This, the current Italian government acknowledges, is harming business, especially small and medium firms, so it is imposing retroactive subsidy reductions to PV systems over 200 kW.
The renewables industry complains that this will slash three billion euros from investor piggy-banks and the move has triggered legal challenges.
Meanwhile, management consultants Ernst & Young, in their new review of global renewable energy released last month, are urging the European Union to “take a step back and examine the path its on.”
The consultants say: “The region’s longstanding reliance on an array of support mechanisms (for renewables) has been both a blessing and a curse.”
Not only have policymakers galvanized green power investment, achieving some of the world’s highest levels of renewables market penetration, E&Y argue, but they have also locked themselves in to a cycle of lobbying to continue or restore levels of support.
Ernst & Young also call for the renewables industry to “throw off the shackles of the past” and focus its effort not on maintaining subsidies but on “enabling grid parity by leveraging the region’s inherent competitive advantages.”
They argue for “a level playing field across all energy sources to foster greater cost transparency.”
A contributed paper in the annual report challenges the European renewables sector to be forward thinking “and to aggressively jump forward to a time when it stands on its own feet.”
The paper adds that the renewables industry needs to be “remorseless in getting its cost base right” and urges it to “not lose connection with communities that give it planning and political support,” something it says that “tariff chasing” puts at risk.
It argues for the renewables investors to “have due regard to the absolute price of electricity” and not to “rely on the carbon card alone.”
At present, it adds, reverting to fossil fuels is a tenable choice for European legislators, with Britain, Spain and Poland keen to promote fracking in pursuit of new gas resources and others “showing a quiet affinity for coal.”
Europe, it must be noted, has a carbon price, but the E&Y report commentary says this is “not a silver bullet” and the European emissions trading scheme “remains in disarray.
When you read this stuff, it becomes apparent that the Abbott government is not wildly at odds with at least some international sentiment in seeking to examine the RET, even if it has not helped itself with parts of its rhetoric.
The tenor of a lot of the loud Australian criticism is “how dare you do this, you luddites” when an objective look at Europe at least suggests that a careful examination of what we have been doing here, how we have been doing it and the benefits and costs is quite sensible.
Readers might care to go to a commentary entitled “How Green is Europe?” by writer Vaclav Smil (let Google News do the work) for a decidedly interesting review of what, he says, are superficially great EU renewables achievements but which don’t look quite so shiny on closer examination.
The point, for us here, is that the local politics of the RET review are, to be polite, messy but the need for tougher scrutiny than the Climate Change Authority was willing to provide in 2012 is real.
What remains to be seen is whether anything sensible can come out of recent efforts as the Coalition and Labor try – how hard, one wonders? – to find common ground on the RET’s future.
A visiting German renewables advocate, a former advisor to Angela Merkel, has been given prominence in Fairfax media this week to attack the “ridiculous” Abbott government energy green paper for talking about greater international coal use in the years ahead.
I saw this at the same time I was encountering a report by California-based international consulting firm Grand View Research which notes that Germany is looking at opening 10 new coal-fired power stations in the next 2-3 years as the world’s coal-burning capacity moves up to 2,072 gigawatts by 2020.
To get this in local context, Australia’s coal-fired capacity is just under 30 gigawatts and a key issue here is how we close old coal plants and how they are replaced in an environment where we are pricing lower-emitting gas generation out of the market.
The Grand View research paper says: “The availability of, and low cost of, the fuel in coal-rich Asian countries will be the key driver for the global (coal capacity) market while rising electricity consumption, especially in emerging markets, is also expected to have a positive impact on (capacity) demand.”
The paper points out that coal is now accountable for 41 per cent of worldwide electricity generation – which also happens to be the number for the fuel’s contribution to Germany’s power demand despite a decade of very expensive energiewende.
You might be interested to know the batting order for big use of coal in power supply around the world today: South Africa (93 per cent), Poland (87), China (79), us with 78 per cent (which is falling at present), Kazakhstan (75), India (68), Israel (58), Greece (54), Czech Republic and Morocco (each 51 per cent), USA (45) and our German friends.
The Asia Pacific, Grand View adds, accounted for just over 55 per cent of new installed coal capacity in 2013.
I note this comment in its report, too: “Major participants operating in the global (generation) market are involved in exhaustive R&D to improve the efficiency of conventional pulverized coal combustion power station designs as new technologies are expected to evolve over the next few years.”
Of course, there are examples around the world where the role of coal in power supply is going backwards.
Britain is a case in point: 20 years ago, when I was visiting there to look at the privatization process, the Brits relied on coal for 59 per cent of their electricity with 12 per cent coming from gas and 18 per cent from nuclear.
Today, after their generation capacity has risen from 77 GW to 93 GW, they rely on gas for 34 per cent of power needs, on coal for 25 per cent and on nuclear for nine per cent. New renewables account for 15 per cent.
(By the way, Britain cut its carbon intensity in 2013 by 4.8 per cent – over the level in 2012 – which was the largest gain for any of the G20 except Australia; our fall was 7.2 per cent. The global reduction, according to PricewaterhouseCoopers, was 1.2 per cent. Is it perhaps ridiculous that this doesn’t get up in the public debate here?)
The British government’s plan is to build a new generation fleet with a large amount of renewable capacity, some new nuclear plants, coal and gas plants with carbon capture and storage plus reliance on a substantial amount of conventional gas units to cover peak demand and the intermittency of wind power.
Readers will not be surprised to learn that all this intervention by the UK politicians has created a situation where there is a potential for a capacity crisis before 2020 because policy and regulations are driving out fossil fuel plant but the pace of investments in alternatives is far too slow.
The strategy includes building eight large new nuclear power stations as, in a 2008 change of heart, the government decided that reactors, after all, needed to play a key role in the country’s energy mix.
Another side of the coin is that the Brits are seized by the opportunity to use CCS because research has shown they have enough offshore sequestration resources to take a century’s worth of their carbon emissions.
Full-throttle pursuit of CCS, it is claimed, could deliver 100,000 UK jobs by 2030 and, if the country is among the first to successfully implement the technology, the economic benefit could be as big as the North Sea oil industry.
In this regard, perhaps the biggest energy news of the week is that government-owned SaskPower, Saskatchewan, has commissioned a $US1.2 billion, 110 MW coal plant that will bury its emissions, a development that has given the International Energy Agency’s Maria van der Hoeven something to talk about other than solar power.
She calls the SaskPower development a “historic milestone” and a “momentous point” in the development of CCS.
I can’t find anything about this in either “The Age” or the “Sydney Morning Herald” even though success in CCS could be “momentous” for Victoria (brown coal) and New South Wales (black coal) and open up fresh avenues for local low-emissions energy development.
Our energy green paper notes that the federal government is spending $247 million on supporting CCS locally (inherited policy), describing it as an important part of a portfolio of technologies needed to reduce emissions from power generation and industrial processes.
It is worth pointing out here that the 2012 energy white paper included an estimate that 29 per cent of national electricity supply in 2050 could involve coal and gas plants with CCS, making it (in this scenario) the largest “clean energy” technology ahead of 16 per cent from large-scale solar (and of course about 10 per cent from the ever-present hydro-electric production).
In that white paper we were promised a CCS roadmap to 2030. What, I wonder, has happened to this idea in the 12 months since Labor gave way to the Coalition?
The other thing is that the Labor paper, while eschewing nuclear energy, noted that the technology is the logical fallback if CCS isn’t commercially viable here. It also suggested a decision to adopt nuclear required a 10 to 15-year implementation period.
Translated, if we don’t have viable CCS activity, nuclear deployment in 2030 or 2035 requires decisions by 2020.
What is really ridiculous is for us to continue to roll around in the mud, so to speak, on energy strategy, allowing kneejerk politics and media reporting to dictate the state of play, using visiting firemen to make tendentious “news,” when what we need is a mature, bipartisan approach to a holistic policy.
I think it would have been really smart for the Coalition to have taken up the 2012 white paper on coming to office, made a decent job of cherry-picking the key stuff, placed its spin on the strategy, including a change to the RET and serious thought on gas, nuclear and CCS, and put the wholes shebang in the public arena six months ago for debate.
What they have actually done simply isn’t good enough — so far.
The big, big question is can they yet rescue the situation or must we continue to wallow in simplistic and ridiculous claims and counter-claims?
There is a world of difference between “could” and “will” but not when green boosters are trying to make a point.
Thus, we are being told, following a new International Energy Agency report, that solar power “will” become the world’s largest source of electricity by 2050.
Even a major news agency talks of “how solar will achieve dominance.”
One widely read international green newsletter goes even further. “Solar to be primary energy source by 2050,” it proclaims.
Another here says “solar to be the world’s main energy source by 2050.”
Well, no, the IEA is talking just about electricity and there are some other energy sectors (like transport).
And then there is this caveat to the new modelling highlighted by the IEA executive director Maria van der Hoeven in her introductory talk: “Let me be clear about one thing – the visions are based on a high renewables scenario. This is not a forecast. It is not what will happen, but rather what should happen if nuclear power and carbon capture and storage cannot be deployed on a massive scale and we are serious about limiting climate change.”
Van der Hoeven also included this warning to governments in her comments: “Clear, credible and consistent signals from policymakers will lower risks to investors. Where there is a record of policy incoherence, confusing signals or stop-and-go policy cycles, investors end up paying more for their investment, consumers pay more for their energy and some projects simply will not go ahead.”
Now that applies across the spectrum of electricity development, not just to the sunny side of the street.
So what does the IEA actually say in its new papers?
Its modelling claims solar PVs “could supply as much as” 16 per cent of global electricity by mid-century and concentrating
solar thermal power “could” account for 11 per cent.
This needs to be seen in context.
Start with the agency expecting electricity demand to push up from around 20,000 terawatt hours at present to some 30,000 TWh in 2030 and around 44,000 TWh in mid-century.
Peering at IEA bar charts in its roadmap series, it appears the optimistic scenario getting the greens excited sees about 15,000 TWh of solar and wind versus about 10,000 TWh of each of hydro and nuclear and about 9,000 TWh of fossil fuels (versus around 15,000 TWh now).
The current situation is that fossil fuels provide 65 per cent of global electricity and all renewables 20 per cent.
I have a fairly derisive view of attempts to see so far ahead as 2050 and note that the IEA perspective for 2035 is that the breakdown could be coal 33 per cent and natural gas 22 per cent versus 31 per cent for all renewables.
Back in May the agency made the point that “no single technology” can take the world down an adequate power decarbonizing path, saying in a nuclear energy perspective that its roadmap process suggested reactors could meet 18 per cent of supply by 2050.
At least part of the problem in making long-term projections is that none of competing technologies can be expected to stay as they are today and the political environment can be expected to change more than a few times.
Let’s be clear, too, that these modelling exercises keep changing depending on what parameters are used by the modellers.
For sure, we can expect considerable advances in renewable technology in the next three decades, but the same applies to other power sources, including nuclear, gas and coal (with carbon capture and storage potentially important to both the latter two).
Just today the IEA is out and about talking up CCS, “the only known technology that will enable us to continue to use fossil fuels and to decarbonize the energy sector.
Part of the perception problem, I think, is that the IEA has also developed a habit of talking from different sides of its mouth depending on the audience.
Green boosters seize (loudly) on anything encouraging for their cause and the media tend to let a lot of the rest go through to the keeper.
Less than a month ago Van der Hoeven was in Beijing telling Asian energy leaders that “natural gas has the potential for improving energy security and yielding economic and environmental benefits in Asian-Pacific countries.”
On this occasion, she added “energy security is more than oil, more than gas – just think about the increasingly important role of renewables and energy efficiency.”
In Norway in August, for an audience in a country with a big interest in petroleum development, she talked of the need for global upstream oil and gas spending to rise by a quarter to reach $US850 million a year by 2035 to meet demand.
And in Washington DC in July she warned that “energy security requires diversity; you do not want too many eggs in the same basket.”
Every country, she added, must put in place policies that work best based on their individual circumstances.
And she said this: “Renewables and energy efficiency may take centre stage but real action is required on CCS and other low carbon technologies to pave the way for oil, gas and coal to play a full role in a secure global energy system for decades to come.”
In Paris in February, she acknowledged that there is a huge challenge for developed countries (like us) – not only building a new, lower-emitting power system and its grid but also scaling down part of the old generation system.
This, she said, raises tough policy questions.
“How will governments handle the distribution effects when infrastructure retirements are necessary? Who pays for stranded assets?”
And in Paris again last December, she said this: “Like it or not, coal is here to stay for a long time to come. The challenge is to make it cleaner.”
In its latest magazine, the IEA notes that “Our scenarios do not necessarily reflect the lowest-cost approach (and they are) not always suitable for end-use sectors such as buildings, transport and industry.”
In closing, let’s be clear, too, that substantial increases in solar capacity are not the same as rises in output; coal, gas, nuclear and hydro-power have significantly better capacity factors than solar and wind. Green boosting often seems to lose sight of this.
Finally, let’s not lose sight of the fact that 2050 is the same distance from us today as 1978; how much of what we have happening economically and in energy technology today was predictable more than three decades ago?