Archive for June, 2015

Last chance saloon

We are now entering in earnest the annual gabfest period on carbon abatement as we near the next United Nations inter-government meeting (in Paris in December).

Since 2001 this UN caravan has passed through Bonn, Marrakech, New Delhi, Milan, Buenos Aires, Montreal, Nairobi, Bali, Poznan, Copenhagen (notoriously for the Australian political scene), Cancun, Durban, Doha, Warsaw and Lima – and we are where we are in terms of global agreement.

In this time, according to Google Search, there have been 305,000 reports or public statements about each meeting being our “last chance” to make a plan to stay below a rise in global temperature of two degrees this century.

Despite all this talk, there has been construction of some 400,000 megawatts of new coal-burning plant around the world over about the past 10 years. There is now more than 1,627,000 MW of coal capacity overall with 62 per cent of the fleet in two countries.

Today 10 countries account for 85 per cent of carbon emissions from all coal-fired generation: led by China and the US with almost a million megawatts of capacity between them and followed at a distance by India, Germany, Russia, Japan, South Africa, us, South Korea and Poland, with about 370,000 MW collectively.

And here is another thought-provoking stat: almost 70 per cent of Chinese coal generation is less than 10 years old versus only five per cent of American plant being at this stage of its working life.

India has 37 per cent of its coal plant at or below the 10-year stage versus 13 per cent in Russia, 30 per cent in Japan and 40 per cent in South Korea. (The Australian figure is not much more than 10 per cent.)

When last thoroughly analyzed, the 10 main coal generation nations had plans to develop about a million megawatts of coal capacity by 2035, with China accounting for about half of this construction.

In the same period retirement of 500,000 MW of old coal plant is projected, mostly in Europe and the US.

All of which brings us to the issue of carbon capture and storage (or use), a topic that only gets substantial attention on page 115 (in a 200-page report) of the recent International Energy Agency paper on how the UN and its members can pursue greater abatement.

Perhaps this positioning helps to account for the fact that a focus on CCS doesn’t figure highly in media coverage of the publication despite the IEA averring that it can be a potentially important part of a forward strategy.

The core point is that the IEA envisages CCS being increasingly adopted from the middle of the next decade, with deployment accelerating in the 2030s and capturing 5.1 gigatonnes of CO2 emissions per year by 2040 – that’s nearly triple India’s energy sector emissions today.

This flies in the face of assertions that that we can only have a “climate-friendly future” – the current Greenpeace phrase of choice – if fossil fuels are phased out of the electricity generation picture as quickly as possible.

The IEA sees global investment in CCS (for coal and gas plants) averaging $US70 billion a year in the 2020s and $US110 billion annually in the ‘Thirties.

By contrast, it sees a need for investment in renewable energy to pursue its plan requiring an average $US470 billion annually from 2026 to 2040.

(Despite such numbers, a leading American political newsletter still managed to headline its report of the study “Saving the planet on the cheap.”)

Nowhere I can find does the IEA present any modelling on how much electricity can be produced from the mooted CCS-equipped fossil fuel plants versus the output of all the proposed renewable energy (although one must insert here that, although hardly ever mentioned in the media, a significant chunk of the green power envisaged by the agency will be large-scale, conventional hydro-power).

The IEA vision encompasses CCS accounting for 740,000 MW of global power capacity by 2040 or, it says, a fifth of all fossil-fuelled plant capacity at that time.

(At this point, under this scenario, the IEA expects coal plant to account for 12 per cent of total generation and gas turbines to deliver 16 per cent. Perhaps more relevant to many of us in terms of our lifespan, it also expects the coal share in 2030 to be 21 per cent and gas 24 per cent with nuclear and hydro-power contributing a collective extra 25 per cent.

(This is a darned long way from the brave new world of dominant wind and solar generation that media reports and activist propaganda have been painting for us since this publication appeared.)

By going down the CCS and high efficiency fossil fuel routes, the agency argues, we reach a point in 2040 where the average carbon dioxide intensity of all the world’s power production is just 85 grammes per kilowatt hour, less than a tenth of the coal generation average today.

There is an additional aspect of pursuing CCS – its adoption in manufacturing industry as well as power generation.

The IEA suggests that, under its scenario, industries like iron and steel and cement can help with abatement of some two billion tonnes of CO2 annually by 2040.

In this era of loud-mouthing about fossil fuel divestment, it is worth noting that the agency foresees, under its scenario, consumption of coal and gas as a result of CCS use being each worth $US1.3 trillion in aggregate between now and 2040.

Nobody in the media here or overseas seems to think this merits a mention. Mind you, the point is tucked away at the bottom of page 117 of the report.

Countries with big revenue streams today from the production and processing of coal and gas, the IEA points out, “have a clear interest in supporting the development and deployment of CCS.”

Now, you will have noticed over the past three weeks how Australian politicians, analysts, journalists and the commentariat more generally have seized on all these numbers to talk up the need for a far better policy approach to CCS in Australia than managed to date by successive governments. Not.

The key challenge in this regard, the agency says, is the need to do two things: bring down CCS costs to a level that sustains competition with other low-carbon technologies and to identify sites where CO2 storage is available and economic.

The driver, it adds, is that “there are currently no alternatives to reach the same level of abatement (as offered via CCS) as maximum fuel switching and energy efficiency measures could achieve only a fraction of the (storage) reductions.”

Can you imagine our Senate, as it is presently shaped, launching a committee inquiry off the back of the IEA study about how well Australian governments and companies are addressing this situation?

Would it be in the national interest for this to happen? I think so but I won’t hold my breath.

NEM Future Forum

I came away from the two-day NEM Future Forum in Sydney reinforced in my view that there is too much scramble and not enough plan in the policy process but conscious, too, that there are a lot of people thinking hard about how to make some progress in reform as quickly as possible while frustrated by the political goings-on across the board.

An audience of 120 registrants,18 speakers and four lively panel discussions involving some presenters and another 10 stakeholders threw up an awful lot of opinion but I was impressed that the event was notable for the lack of snarky comment that adorns so much social media, and green energy-related commentary in particular, and for the willingness of participants to engage in informed exchanges.

As he so often does in the wider debate, Grattan Institute’s Tony Wood contributed some significant cut-through comment.

Noting that the lack of national direction on long-term energy policy is “keeping many of Australia’s chief executives awake at night,” Wood pithily summed up the federal energy white paper as (1) comprehensively describing the energy sector and the current policy agenda, (2) making a clear commitment to effective markets as the best answer to most problems, (3) expressing frustration with the States and Territories over failure to enact vital reforms and (4) failing to provide long-term policy direction to drive future investment.

Political commitment to “maintaining stable and predictable policy settings” is just not good enough, Wood added, arguing that the “big deal” going forward involves government resisting most of the self-serving loud calls to action while focusing on intervention to reinvigorate the reform agenda and to ensure lower power prices, protecting the primacy of markets and free trade and – “top of the list” – developing a credible climate change response.

He commented that effective reform via the CoAG ministerial Energy Council is hard due to politicization, governments’ conflicts of interest and the complexity of the EC’s  supporting organization, a view echoed in a number of other talks and lots of conversation in the conference breaks.

An interesting contribution that serves to spotlight the political challenges came from CSIRO’s Glenn Platt, director of the Energy Transformed Flagship, who focused on what research throws up about community attitudes.

Australians, he pointed out, are shown by these studies to be more concerned about potential losses than potential gains and, in the case of electricity tariff reform, for example, will be hard to woo with the prospect of immediate (and certain) costs versus future (and perhaps uncertain) benefits.

I am sympathetic to Platt’s point that message framing is crucial to a successful policy change, including depicting the desired behavior (such as shifting power demand from peak periods) as offering material incentives as well as altruistic motives because the former are shown in research as crowding out the latter.

One of the biggest barriers to reform’s acceptance among many people, he claims, is aversion to any kind of change or choice and he suggests governments opting for a voluntary shift on to new tariffs is unlikely to see take-up by more than 10 per cent of households.

The body politic, of course, looks at the bad reaction to the Bracks (and then Brumby) government in Victoria forcing the take-up of smart meters and shudders at the thought of any further mandatory forays of this sort.

In turn, this raises the real problem of what if governments throw the tariff reform party and way too few households accept the invitation – then there would be a real risk of both the desired solution being watered down to ineffectiveness and investment in network infrastructure having to continue at a level that adds to price pressures with all that entails.

As is being well demonstrated in other policy areas (eg superannuation reform), the communications hurdle is one of the highest facing politicians across the reform board and we can see every day how well they are pursuing this challenge in these, to quote the ABC’s beleaguered managing director,  “highly polarized and partisan times.”

This is an environment rather well characterized by one leading political commentator this week, with respect to a non-energy major issue, where the federal government has “accepted Labor support with all the ingratitude it can muster.”

In the energy space, this week’s passage of legislative change for the renewable energy target is a fine example of market untidiness and Bandaid policymaking that can be achieved when the political parties put self-interest ahead of the long-term interests of consumers.

The electricity networks businesses, whose activities and efforts to move in to a new working paradigm were among the key areas of focus of the NEM Future Forum, know all about the dangers of becoming a political football.

They also know that they are still a long way from the final whistle in this particular game – and the ongoing concerns and strongly-held views of consumers about desirable change, not all moving in the same direction, were well on display at the conference.

Senior federal public servant John Ryan, Associate Secretary of Industry & Science, made the point that it is essential for networks to grasp technological change – and I think it is true to say that the distribution businesses are violently in agreement with this.

Doing so in a way that is efficient (ie doesn’t add unacceptedly to costs while maintaining reliability and security of supply), delivers adequate returns to investors and satisfies a rather wide range of customer needs and/or opinions is the trick, not least in an environment where there are a lot of activists telling the community/consumers what to think while kicking their own cans.

For me, the NEM Future Forum highlighted both how much the reform path suffers from the loud interventions, replete with vulgar defamation of corporate players (the dirty three, gold-platers and all the rest of it) and how strongly most concerned people want to see a way out of the trap the NEM has become for many stakeholders.

Wood commented that “parochial interests are playing out in spades in this market.”

This is unarguable, I think, but the conference proceedings suggest there is room for better arrangements if political leadership can become more fit for energy policy purpose.

Without this, it is hard to see the NEM’s future being a sunny one.

Decoding the IEA 2

I chose in a post here (“Decoding the IEA”) last week to focus on the International Energy Agency analysis of the INDCs — the Intended Nationally Determined Contributions — world governments are submitting for the UN climate change discussions in Paris at the year’s end; this time I want to deal with the so-called “Bridge scenario” of the agency, the route it suggests should be pursued to avoid what is perceived as dangerous increases in the global average temperature.

My particular focus is on the claimed outcome of the “Bridge scenario” ( a phrase that appears 253 times in the IEA document) because a reading of media coverage (scores of green-hued reports) indicates that the Australian community and others in the G7 nations who tend not to go beyond headlines, pictures and a paragraph or two of stories are being somewhat misled by green boosters about what power supply could look like in 2030.

To cut to the chase, the impression delivered in more than a few mass media reports is that, by the end of the next decade, we will have seen the beginning of the back of fossil fuels with wind and solar power becoming dominant electricity suppliers. (Many of these stories are accompanied by fetching pictures of wind turbines, reinforcing the impression.)

The actual picture of electricity generation under the “Bridge scenario” the agency provides for 2030 (to be found on page 155 of a 200-page document) is quite a lot different  — and a critical point is that this is in terms of energy sent out by plants, not their capacity.

Capacity factor is a foreign country to most journalists and, apparently, more than a few green activists. It is the energy produced by fossil fuel plants, however, that is relevant to emissions.

In 2030, under its proposed scenario for consideration in Paris in December, the IEA says that 30,620 terawatt hours of global power production in 2030 will be divided like this:

  • Coal 7,478 TWh
  • Gas 7,223 TWh
  • Hydro-electric 5,607 TWh
  • Nuclear 4,005 TWh
  • Wind farms 2,870 TWh
  • Bio-energy (e.g. sugar cane) 1,288 TWh
  • Solar PV 1,136 TWh
  • Oil 487 TWh
  • Geothermal 280 TWh
  • Cogeneration 227 TWh
  • Marine power 17 TWh.

How does this square with the “renewables could overtake coal in 15 years” line being run in the media?

Mainly this is based on capacity — the agency scenario foresees 396 terawatts of coal plant in 2030 versus 588 TW of wind turbines and 366 TW of solar PV arrays.

(In this regard, those who favour nuclear will leap on the fact that the forecast shows an expected production of 4,005 TWh from 311 TW of reactors versus 1,537 TWh from 588 TW of wind turbines.)

If you run together IEA-projected output in this scenario from hydro power, wind power, solar PVs, geothermal and marine power, it collectively exceeds coal plant production (9,910 TWh to 7,478 TWh) but the driver is hydro generation led by China, which doubled its capacity in this sector from 110,000 megawatts (110 TW) in 2005 to approaching 260,000 MW (260 TW) this year. (By comparison Australia has 17,700 MW of this form of generation.)

To put things another way, standard forms of power generation (coal, gas, hydro, nuclear, bio-energy, oil, geothermal and cogeneration) in the IEA’s brave new world will provide almost 89 per cent of electricity needs in 2030.

Generation from fossil fuels will be just over 50 per cent, indeed a fall from where it is today but still (marginally) the largest source of electricity.

Renewables (including hydro power) will account for almost 36 per cent.  Wind, solar and marine power will represent 13 per cent.

There will still be a lot more coal-fired energy sent out (7,478 TWh) than wind and solar combined (4,006 TWh) even after another 15 years of subsidies and regulation.

As I mentioned in my previous post on this issue, a key green factor not being given nearly enough media attention is that the IEA wants to see a massive improvement in energy efficiency, not just for electricity use but also in the building sector and in transport (an area where fossil fuel subsidies are an important aspect).

In the IEA’s scenario energy efficiency is the largest single source of reducing the level of greenhouse gas emissions projected from countries’ INDC submissions.

Coming back to the generation output numbers in the “Bridge scenario,” trawling through them throws up some interesting facts:

The IEA believes adoption of its perspective will see OECD generation of electricity from coal tumble from 3,526 TWh annually in 2013 to 1,303 TWh in 2030 with wind output more than trebling to 1,537 TWh and solar PV quadrupling to 461 TWh.

However, the rise in nuclear plant output, notwithstanding Germany’s energiewende, will be about the same as the increase for solar power, with the latter needing investment in some 140 TW of PV capacity to deliver a similar level of production.

That’s a very large amount of subsidy-driven capex in markets where the agency believes power production will be less than 700 TWh higher at the end of the next decade than it was in 2013.

Meanwhile, the agency sees Chinese electricity output jumping almost 3,000 TWh in 17 years, with coal plant production plateauing around 4,000 TWh, gas generation quadrupling to almost 600 TWh, nuclear production rising nearly eight-fold to almost 850 TWh and hydro power rising more than 450 TWh to 1,431 TWh. The IEA projects Chinese wind farms and solar PVs between them will send out just on 1,100 TWh in 2030, nearly 10 times the 2013 level but representing only 13.4 per cent of total Chinese power production.

Is this the Chinese picture green boosters are trying to portray. I think not. As T.S.Eliot sort-of wrote, between the idea and the reality falls the shadow.

In this scenario, the IEA projects Chinese generation output at 8,330 TWh versus 11,453 TWh for the whole of the OECD — of which the American share is 4,467 TWh.

Bear in mind that none of the above is a prediction — it’s a modelling exercise indicating directionally what might be if the nations of the world adopt an IEA perspective of what they could do instead of the plans they are actually submitting to the UN for the Paris convention.

The really big point is that this stuff is not a requiem for coal or fossil fuels or conventional (including hydro and nuclear) generation as wind and solar power soar to meet our needs — but that’s the propaganda line being fed to the community and, in turn, it colors what Australians tell politicians via opinion polls that they would like to see happen. In a society where focus groups drive so much political thinking, this matters.

 

 

Consumer voice

Preparing for the week ahead’s NEM Future Forum, which starts on Wednesday, I am conscious that a critical angle for assessing the future of the east coast electricity market is what consumers are thinking and doing.

We are a long way from the 1990s birth of the NEM where the views of the mass market (householders and a myriad of small businesses) were not exactly top of mind for the engineers, lawyers and bureaucrats planning what was a feat of international interest: the creation of a fully competitive wholesale power market via one of the world’s largest interconnected grids (key elements of which still had to be built).

We are now at a juncture where the Public Interest Advocacy Centre, in a submission to the federal review of the governance of Australian energy markets, can declare that the NEM is seriously marred because it is “fragmented, overly complex, not sufficiently focused on competition and lacking in meaningful consumer representation.”

PIAC wants more than consumer consultation.

It calls for consumer engagement in actual NEM decision-making.

As well, the consumer body says, the “National Energy Objective,” the legislative underpinning for the market, is defective — “no longer appropriate and in need of reform.”

Among the legislative changes it seeks is inclusion of emissions reduction as a market objective along with a focus on the total cost of energy services, not just the price per unit of energy.

PIAC complains that, due to regulatory and market failures, NEM consumers are now paying much more for the same electricity service they received a decade ago.

Across the market, it says, average households now use seven per cent less power than in 2006 but their bills have risen 85 per cent.

More broadly, it adds, the economy is suffering a “large dead weight loss” because it has to pay some of the highest electricity bills in the developed world.

“The loss of competitiveness is significant and strategic, given the decline in the manufacturing sector.”

PIAC is especially concerned about the consequences of high power prices for low income consumers, “many of whom simply cannot afford continuous access to energy,” claiming that about 130 account-holders are being cut off per weekday in New South Wales alone.

The centre condemns the NEM set-up as “an inconsistent mix of roles and responsibilities” across federal and State governments, involving federal and State laws and regulations, public and private operators of generation, networks and retailing — with different levels of accountability and customer participation across the board.

The core issue, the centre declares, is not that the arrangements are complex, but that they are so fragmented and lacking in coherence — and that “customers are disenfranchised in almost every aspect.”

They are particularly disenfranchised, PIAC argues, in the Council of Australian Governments’ energy processes, having no seat at the Energy Council table and being further excluded through the lack of transparency of the EC operations and its derogations to standing committees of officials.

It complains that there is very little co-operative federalism at work in the CoAG Energy Council, with ministers leaving a large part of policy to the rule-makers. “And what policy-making there is has been extra-ordinary slow,” it adds.

PIAC especially has its knife out for the Australian Energy Market Commission, picking up a Productivity Commission snipe that it can be “a graveyard for reform proposals.”

The centre complains the AEMC is too focused on supply-side investment and lacks accountability.  It asserts that consumers are disenfranchised in the the rule-making activities of the commission and that challenging decisions in the courts is effectively impossible.

PIAC argues that the AEMC was set up to ensure that national regulation did not prevent necessary infrastructure — it puts “necessary” in quotation marks — and points to two Senate inquiries castigating this perceived industry bias.

The AEMC, it says, “appears to have have interpreted the NEO as meaning that incentives for investment must take precedence over any or all other consumer priorities.”

The centre takes up another Productivity Commission point (in its 2013 network review during the era of the Gillard government) that, “while the objective of the National Electricity Law is to meet the long-term interests of consumers, (their) involvement in the processes of the NEM has been partial and intermittent.”

It also argues that consumer interests are adversely affected by representational issues and the “extra-ordinary complexity” of the Australian Energy Regulator’s present processes — and says much the same problem exists with the Australian Energy Market Operator.

Overall, there seems to be not much that the centre sees in today’s NEM that it likes.

It points to a “major failure of national consistency” in retail regulation, which “barely exists” given derogations from the National Energy Consumer Framework and Victoria going it alone. And it is unhappy about the reduced competition it feels is created by the presence of large gentraders.

A strong concern is that energy market institutions and governance are seen to favor NEM incumbents at the expense of emerging players and PIAC worries about the “lock-in” of outdated systems and business models.

The centre is impatient about incremental and partial change.

It wants a “fresh,streamlined approach,” especially to the setting of market rules.

There is, it says,an urgent need to deregulate, consolidate and reduce complexity to enhance competition.

It wants enhanced consumer representation and more “democratic, transparent and accountable” governance.

It also wants executives of the market institutions to include people with consumer protection knowledge and experience.

This is a shorthand version of a 61-page submission from PIAC.

A 30-second “grab” about the document is that the centre is concerned not only about the systemic weaknesses it perceives to be making the NEM inefficient but also that they have created barriers to innovation and competition to the long-term detriment of consumers.

It certainly provides more fodder for discussion at the two-day NEM Future Forum, which, on the present, count will involve some 160 speakers and registrants.

 

 

 

Decoding the IEA

For a couple of days earlier this month the Australian and G7 media were agog over a study published by the International Energy Agency that apparently predicted the demise of fossil fuels in producing electricity, leading a headline writer on a major national newspaper to declaim “Renewables could overtake coal in producing electricity by 2030 if climate pledges are met.”

Reminiscent of one of my bawdy Irish uncles telling me when I was a small boy that my aunt would be an uncle, too, if she was otherwise equipped.

As is the nature of media coverage, the IEA paper has already faded from the news but the thought bubble no doubt lingers on in the public memory. Opinion polls, reflecting past media activity, suggest this is so.

Some decoding is needed.

First, and most importantly, the agency predicted nothing in the perspective getting all the publicity — it presented a scenario: what it believes should occur to pursue the perception of what it could take to limit global warming to two degrees Celsius by 2100.

Second, and also highly important, the bit of the new paper that got mostly ignored was analysis by the IEA of what countries are saying to the UN ahead of the Paris climate change meeting at the year’s end.

These, in the jargon of the UN circus, are INDCs — Intended Nationally Determined Contributions.

No-one loves acronyms more than the climate change mafia (who will gather in their thousands in Paris in late November).

The commitments nations are taking to Paris, according to the IEA, would indeed see the share of fossil fuels in the world energy mix decline by 2030 — to 75 per cent.

It is roughly 80 per cent today.

Under the INDC, primary energy demand will be 20 per cent higher in 2030 than 2013 and the global economy will be 88 per cent bigger.

This delivers far greater prosperity to perhaps 75 per cent of the global population, leaving a quarter still in dire poverty, and also global carbon emissions far short of the “budget” the climate change theorists present for the two degree scenario.

In fact, in 2030, on these commitments, emissions will be eight per cent higher than in 2013.

It is also worth noting here, in a media world obsessed with the role of coal, sooled on by the corporate outcry at the recent World Gas Conference, that, under the INDC, global oil demand will be nine per cent higher than today, reaching 99 million barrels a day.

In the INDC world, coal will account for 41 per cent of energy-related CO2 emissions in 2030, oil for 34 per cent and gas for 25 per cent.

All low-carbon energy sources in 2030 — that includes nuclear, large hydro-electric power and wind, solar and other fashionable “green” resources” — will meet a quarter of primary energy demand.

Please bear in mind here that these numbers are not a theory about a better, greener world produced by economic and scientific modellers sitting comfortably in Parisian offices — that’s where the IEA is based — but their analysis of what the nations gathering in the French capital at the year-end are actually offering to do.

Under the INDC proposals, there is indeed a significant improvement in the CO2 standards of the world’s electricity sector: emissions intensity drops from 528 grammes of carbon dioxide per kilowatt hour of power sent out to 370g by 2030.

Decoded, this is “Nations propose 30 per cent drop in electricity emissions intensity in 17 years.”

That’s not minor news, but did you see that in any media headline or even report?

No, of course you didn’t — journalists would need to read to page 39 of the IEA document to find it. Which raises the interesting question of why the agency did not give it much more prominence?

The IEA also reports that, under the INDCs, global investment in fossil-fuelled electricity generation will still be $US100 billion a year in 2030 versus an estimated $US260 billion annually on renewable forms of energy.

You need to understand generation capacity factors — and the media here and elsewhere demonstrate virtually every day that most reporters don’t know the difference between a megawatt and a megawatt hour — to appreciate what this means in terms of electricity sent out.

There is yet another huge number tucked away in the report: $US8 trillion dollars.

This is what the IEA reckons the INDC proposals — that is, I emphasize, what countries’ commitments imply rather than what green-eyed modellers conjure up about what could or should happen — mean in terms of energy efficiency investment.

This vast sum will go, the agency says, on more efficient cars (a third), improved building efficiency (another third) with the balance of spending split between efficiency in factories and mines and in road freight.

Did you see the Australian media headline “World to spend $4.5 trillion (our money today) on energy efficiency over 17 years” ?

No, of course, you didn’t. Which again raises the interesting question, for me, of why it was not up front in the IEA media statement?

However, the agency deserves full credit for a report full of interesting information if one has the time to devote to scanning it.

For example, the Americans, under INDC, will spend $US255 billion annually between now and 2030 on energy supply investment, $US86 billion a year of it on a shift from old, inefficient coal-burning power stations to gas-fired plant and renewable power.

The Europeans (in the EU) will spend $US70 billion annually on new power generation, 70 per cent of it on renewables, mostly wind power. And they have to spend $US30 billion a year on electricity transmission and distribution to cope with the green transition’s impact on the grid, growth in demand and replacement of aged assets.

And then there is China.

Under the INDC arrangements, according to the agency, the Chinese will increase electricity supply 75 per cent and, by 2030, will have twice the level of power demand of the Americans.

In this situation, says the IEA, 95 per cent of China’s existing coal-fired power stations will still be operating and it will have added 345,000 megawatts (that’s almost 12 Australias in terms of coal power capacity) in new installations.

In 2030 the Chinese will have half the world’s coal-fired power stations and they will be emitting almost five billion tonnes of CO2 a year. A quarter of this will involve plants yet to be built or presently under construction.

Now there’s the “death of coal” writ large. Not.

True, they will also have built another 220,000 MW of wind farms and 155,000 MW of solar power arrays by 2030 but, all up, 80 per cent of Chinese primary energy use at the end of the next decade will be from fossil fuels.

How’s that for context for the emotion-charged debate about “saving the planet” in Australian households and cafes within four kilometres of capital city GPOs — which is mainly what we see reflected in mass and green social media here?

But let’s not stop here.

Move on to India.

The IEA says that Indian electricity consumption will more than double between now and 2030. Investment in power supply will average $US85 billion annually to 2022 and be near $US120 billion a year by 2030.

Indian investment in solar and wind power is expected to be at $US28 billion annually by 2022 “but investment in coal does not cease and could grow if strong policy signals for low-carbon policy were to fade.”

In the INDC scenario, the agency expects coal to account for 51 per cent of (a much larger) Indian power consumption in 2030 with gas, nuclear and hydro dominating the rest of the mix.

One could go on — but let me end with this point about our neighborhood: in South-East Asia, says the agency, carbon emissions will rise 20 per cent from today’s levels to reach two billion tonnes annually (or, I estimate, between four and five times Australia’s level) in 2030, with Indonesia accounting for just over a third of the total.

“The largest increase in emissions (will) come from the power sector as a result of rapid growth in demand for electricity and coal becoming the dominant fuel in the mix.”

The point of all the above is that we were deluged last week by the media, local and international, with what might be if the world embraced a theory held by the IEA bureaucrats and scientists about what could be done — but we have been seriously under-informed about what the agency says nations actually intend to do (based on submissions to the year-end Paris meeting).

There surely needs to be attention to the many worthwhile points the IEA raises in its scenario for how the world can tackle abatement with greater speed and rigor, but that should not be to the complete exclusion of information (presented in a fashion comprehensible to the community) about what appears to be actually happening.

 

Book of a bellwether year

One of the work-related high points of my year is the arrival of the Energy Supply Association yearbook, ElectricityGas Australia.

In one form of another, this publication is entering its seventh decade.

As CEO of the Electricity Supply Association from 1991, I helped to rescue it from a long time of roneo-ed, dull-presented numbers churned out by utility clerks, turning it in to a highly readable (I think) and rigorously checked digest of electricity data.

The Energy Supply Association, which I helped to create in 2003 to bring together gas and electricity lobbying, has gone several steps further and the current publication is a star example of how an industry can maintain a statistical record of its activities in a very readable and usable form.

Running to 114 pages, ElectricityGas Australia 2015 (go to www.esaa.com.au to find out how to acquire it) is a capsule of financial year 2013-14 in what the association describes as “a challenging period of transformation and uncertainty.”

With the NEM Future Forum in mind – Robert Pritchard and I are co-chairing this in Sydney on 24-25 June (see www.questevents.com.au), bringing together some 160 people with a strong interest in east coast power issues (which are many and complex) – my eye has immediately fallen on the opening encapsulation by the yearbook of the state of play.

ESAA lists 10 key facets:

  • Steep price rises: retail bills rose between 70 and 100 per cent in five years to 2013-14.
  • Falling demand: a steady decline since 2009, driven by de-industrialization, greater energy efficiency and “aggressive” solar PV investment.
  • Greenhouse policy flip-flops: emissions trading giving way to “Direct Action.”
  • Distributed solar: more than 14 per cent of households were using PVs in 2013-14, with penetration in the outer suburbs of Brisbane and Adelaide reaching 40 per cent.
  • High renewables penetration: parts of the grid now see renewables exceeding 30 per cent of total generation, raising concerns for system security.
  • Chronic oversupply: a combination of falling demand, regulated new generation and policy uncertainty has delivered a wholesale market with about 20 per cent excess capacity.
  • Investment gridlock: chronic oversupply, regulatory, market and technology uncertainty and weak wholesale prices have stopped new investment (although the somewhat shaky RET détente between the federal Coalition and Labor will see perhaps 5,000 MW of new wind farms built in the rest of the decade).
  • Worsening load factors: aggregate demand has been hollowed out but weather-driven peaks continue in some regions, with poor load factors deteriorating further.
  • Privatization and deregulation: the book was written before the NSW asset sales issue was resolved in parliament, but, apart from the ongoing row over the value of privatisation, ESAA notes that deregulation of retail markets still only applies in three of six States.
  • Meter roll-out stalled: Politicized energy policy hampers the roll-out of smart meters beyond Victoria (where it was government-mandated and highly controversial).

Looking again at this list as I write, one point that strikes me strongly is the state of retail deregulation: how can politicians in 2015 justify denying their voters the right to shop around for power supply and to pursue demonstrable costs cuts? Why don’t the mass media in the deprived States press hard for this to happen?

ESAA sees 2013-14 as a “bellwether year” for our stationary energy industry, marked by falling demand, soft prices, a south-east heat wave that drove more peak demand, the steady rise of PV installations, the second and last year of the carbon tax and flat domestic gas consumption.

These, and other factors, it says, point to long-term technological and social forces combining with economic factors and policy changes to create what, it describes in a media statement issued late last week, as an energy transformation that can’t be painless, as illustrated by the Alinta Energy decision to close South Australia’s two old brown coal power stations with the loss of 400 jobs.

The yearbook adds that chronic policy uncertainty continues to act as a barrier to more substantial disinvestment in power generation.

One of the values of the publication is to flesh out the public energy perceptions, often based on misunderstandings or ideological pursuits, through publication of hard numbers and their interpretation.

As an example, here is the national breakdown of electricity generation by source between 2010-11 (the year when the big transition started being really noted, given first below) and 2013-14 (ESAA’s latest data):

  • Steam (ie coal): 174,297 gigawatt hours vs 154,704 GWh now
  • Gas: 35,425 GWh versus 31,763 GWh now
  • Hydro: 15,859 GWh vs 17,748 GWh now
  • Wind: 5,848 GWh vs 10,237 GWh now
  • Oil: 147 GWh vs 161 GWh now
  • Residential PVs: not reported for 2010-11 (but I estimate it to have been 2,000 GWh) and 4,800 GWh for 2013-14.

That the nation is still dominantly reliant on power from conventional sources, notwithstanding changes in demand and increases in solar and wind contributions (which are heavily hyped in the mass media and raved about in social media), is only too obvious.

Fossil fuels accounted for 86.9 per cent of supply in 2013-14.

Toss in large-scale hydro generation (which dark greens hate) and 95 per cent of this essential service is from conventional sources of supply.

 

One wonders how close Joe and Jo Public, informed by mass and social media, would come to knowing even the broad direction of this data — let alone the implications of the sort of radical shift the Greens and their fellow-travellers trumpet at every opportunity?

Final point (for the moment ‘cos there’s lots of stuff worth attention in the yearbook) is that ESAA’s members (who are the sources for the data) are continuing to vigorously downgrade the electricity sales outlook to the turn of the decade.

The bullish 2012 yearbook projection was for national energy sent out by power stations (before line losses in delivery) to pass 275,000 GWh in 2020-21.

Last year the association projected almost 236,000 GWh.

The latest forecast is not quite 213,000 GWh.

That’s a pretty big correction, with the major slump in the largest States (New South Wales, Victoria and Queensland) – a 51,740 GWh reduction.

No, Prime Minister

There are days when, if I wore a hat, I would throw it to the ground and stamp on it.

Yesterday was one – and no less than our Prime Minister was the source of my frustration.

The tenor of his “awful looking and noisy” comments about wind farms on Radio 2GB in an interview with Alan Jones has the renewables boosters up in arms, but it is the bigger picture that offends me.

Like Kevin Rudd and Julia Gillard before him, Tony Abbott has a tin ear when it comes to what really matters in energy policy: technological neutrality in pursuing reliable, affordable electricity supply with a reducing environmental footprint.

Oh, the rhetoric is there. You can find it in the latest federal government effort at a white paper. But meaningful delivery is something else.

All three PMs – and John Howard before them in his latter years in the job – have used energy policy as a political football and, by doing so, have lost federal government control of the agenda to a point where the national interest is at stake.

The result today is an energy sector overwhelmed by uncertainty, lobbying and environmental activism run wild, politicians picking market winners via short-sighted interventions and government flip-flops when things go wrong (as they always do).

Where we need leadership, we get soundbites; where we need decision-making, we get yet more reviews; where we need a cohesive mainstream approach to underpin energy investment, we get excessive politicking and mostly meaningless word-smithing.

As the Energy Policy Institute commented recently, we need a playing field where investors can operate without fear of being interrupted by pitch invasions from politicians and others with their self-interested or ideological agendas.

Energy technologies should be allowed to compete under the scrutiny of independent regulators within market rules that are directed to the long-term interests of consumers (which includes ensuring the resilience of the supply systems).

Under the leadership of Rudd, Gillard and now Abbott, energy policy, or the lack of it, has delivered what the Energy Supply Association describes as a “systemic and worsening dysfunction of energy markets.”

The level of doubt in the supply industry about the capacity of governments, federal and State, to resolve current issues contributing to market uncertainty (and costing consumers large amounts of money in aggregate) has not been higher in the four decades I have been engaged with the energy sector in one way or another.

This is not only about electricity, of course; the domestic gas situation is no less messy.

The nation was promised an integrated, coherent national energy policy as far back as 2008.

As far back as 2004, we were given a white paper dedicated to “securing Australia’s energy future.”

Despite the best efforts of a few policymakers, this promise remains poorly delivered because of the lack of quality of political leadership over almost a decade.

This is true not only for the here-and-now issues but also with respect to national efforts to deliver future improvements.

Australian energy innovation policy is a confused cat’s cradle; our national approach to energy productivity is half-hearted at best.

Every federal budget seems to add to the problems rather than improve the forward path.

Hanging over all this, although not unique to energy policy, is the obvious weakness of what is supposed to be a national strength: co-operative federalism.

This last is very much the bailiwick of prime ministers and, with respect to energy, the trio of leaders for the past eight years have fallen well short of doing a good job.

While the task is far from easy, the responsibilities of the Prime Minister with respect to energy can be readily stated: they are to lead the national government and the country to ensure we have a resilient domestic system, a strong export sector, a lower-carbon society over time without unnecessary economic damage and efficient  innovation in supply and use.

Prime Minister Abbott is leading a government deficient in addressing these goals in a timely, efficient fashion that builds public confidence.

This is not just my opinion. It is a view expressed widely among energy stakeholders.

Abbott’s performance on Radio 2GB this week will do nothing to persuade the energy industry that he understands the over-arching leadership challenge and is capable of attracting broad industry and community support for the task.

It is only one radio interview, but its symbolism, allied to so much that has gone before, is stark.

And let’s be clear: the leader of the opposition has said and done nothing to support a view that he would do any better.

The country at large, the energy investment community (which includes a large number of superannuation stakeholders) and the nation’s residential and business consumers deserve much, much better than this.

Beyond hype

My favorite among last year’s mad statements on energy was, by the length of the straight, a declaration from Christine Milne (since defenestrated as Greens leader): “Do you want death or do you want coal?”

It’s only June, so we have a distance to go to pick an equally bizarre utterance for 2015, but there are a few already around.

One example is the headline in today’s “Sydney Morning Herald,” which asserts “$10 billion coal dump as world’s biggest sovereign fund turns green.”

The facts, of course, are that the suddenly-green $US880 billion Norwegian fund is built on the country’s oil and gas revenue, which it has every intention of keeping on tapping, and the new decision only affects holdings in companies with coal interests if these are more than 30 per cent of corporate earnings.

But, says the “Herald”, at some indefinable future stage the Norwegian move may be seen as a “tipping point” in the green fight against coal………..

Pause here to note that the same Norwegian politicians who imposed this decision have also recently voted to gift some $US63 million to rescue a financially-strapped company mining coal on the Svalbard archipelago in the Arctic. The subsidy, of course, coming from the sovereign fund. How’s that for green symbolism?

As for quotes, one declaring that the media-hyped Norwegian decision “shows coal’s days are numbered” (from Greenpeace, of course) should be noted.

There’s no doubt that energy is a fertile field for ranting, rumor and really big, loose statements about what is going on, especially if you are a warrior against fossil fuels (or a media green spear-carrier).

Separating what is worth further thought from merely noise is not easy.

The vast majority of Australians have neither the time nor the inclination.

They tend to be influenced by headlines, attention-seeking opening paragraphs of stories and “30-second grabs” on radio and television.

Plus, of course, we now have Twitter and other social media.

This combines to overwhelm the casual reader/listener with anti-fossil fuel propaganda and the number of genuinely analytical media reports can be counted on two hands in any given year. The community impact can be roughly measured through opinion polls (on which many politicians then graze).

By way of a different perspective of coal’s contribution, try this:

The G7 countries, which have just been meeting in Germany, between them have 452,000 megawatts of coal-fired power generation capacity. (This total is dominated by the US, which has 320,000 MW of coal plant.)

Germany, the poster child of Australian green romantics, has 49,000 megawatts of coal-burning capacity, contributing 44 per cent of the country’s electricity mix in 2014. (Use of coal has increased since 2009 when the energiewende program was launched with the aim of ridding the country of zero-emission nuclear power.)

Overall, in Europe, 28 per cent of electricity consumed last year was coal-fired, a figure that would be rather higher if France was not almost totally reliant on nuclear power.

The real EU energy story, I feel, is that, despite the region having had an emissions trading scheme for many years and despite serious money being thrown at renewables in the form of subsidies, the role of coal has grown in the union’s power market since the turn of the decade. How many politicians here, let alone members of the Australian community at large, would know this, do you think?

Worldwide, the magic number for coal is 42 per cent (of the power mix) – and this may rise somewhat over the rest of this decade as countries like China invest heavily in new coal plant.

This is all about generation, but there is also the little point that coal is an indispensable raw material for the production of steel and cement – and has a large international role in production of fertllizers.

It’s not hard to see, when such data are contemplated, why the international gas industry, with a fuel producing a lot less carbon dioxide emissions than coal burning, has its marketing eyes on its rival (see my last post here, “Fossil family feud”) – although analysis flowing from the International Energy Agency and elsewhere suggests energy demand growth represents its best hope for higher sales in the foreseeable future.

The IEA has just produced a new report on gas, projecting that demand for the fuel will grow by two per cent a year on average from now to 2020, a lower level than in the past 10 years, strongly influenced by the nuclear energy comeback in Japan.

The agency makes a salient point. The past two years, it says, have delivered a “harsh reality” for gas producers: in a world of relatively cheap coal and falling renewable energy costs, competition is hard and getting harder. The challenge for producers, says the IEA, is to deliver gas, especially in to Asia, at prices substantially below those prevailing in the recent past.

This is a flashing red light for the Australian LNG industry, whose costs are notoriously high.

International projects (many here) currently under construction, the IEA adds, are “set to come on stream broadly as planned” because the large upfront capital costs have already been incurred – but, it warns, new LNG plants “will struggle to get off the ground” because the buyers won’t pay prices that will cover capital costs.

My broad point, dear reader, is that the real world is much different from the one portrayed in the Australian mass media, but only a tiny fraction of our community is aware of this.

The need for the mainstream energy industry to make a more concerted effort to overcome this weakness is not the least of its current challenges.

Internecine fossil fuel squabbling, I suggest, is a distraction.

Labor’s energy spokesman, Gary Gray, seems to think so too.

Fossil family feud

Reading the comments made by Woodside’s Peter Coleman and some other CEOs in the international gas industry this past week has caused my eyebrows to rise and perhaps those of more than a few others.

Coleman, speaking at the World Gas Conference in Paris, opined that the gas sector has been too timid in addressing the shortcomings of another of fossil fuel family, coal.

“Now,” he said, ”is the time to stand up.”

The sector, he declared, should “aggressively” address the shortcomings of coal in power generation.

This thought, along with a coincident one in an Australian speech from Glencore Coal’s Peter Freyburg (to the effect that governments need to understand that coal use can’t be “wished away”), has been parlayed in the media in to the two sectors “going to war.”

While the “war” imagery seems over the top, it is true that a conga-line of industry executives – including those from Shell, BP and Total – formed at the Paris event to push for a greater global role for gas to reduce greenhouse gas emissions and reduce air pollution, especially in the mega-cities of China and India, and en passant to badmouth coal.

In using the negative emissions profile of coal to advance the sales profile of gas, they could be playing with fire when what they seem to be inviting is the use of further regulatory and/or tax burdens to reduce coal’s cost advantage over gas.  How far this approach actually works to the benefit of the gas business in an environment where radical climate change advocates want governments to lash out at all fossil fuels is a good question.

BP’s Bob Dudley may have had this in mind in telling the Paris conference audience that the gas sector “needs to explain more clearly that we are not so much part of the problem as part of the solution.”

It was critical, he asserted, for the sector to explain that fuel-switching did not only mean moving from fossil fuels to non-fossil fuels but from coal to gas.

This use-more-gas-less-coal approach is actually not new (if you trawl the websites of companies) but now being expressed with greater emphasis ahead of the year-end UN climate change meeting, also in Paris.

It does nothing to support the emphatic view some hold, after years of government intervention here and elsewhere at high cost and much market disruption, that policymakers should accept technology neutrality and diversity in the power generation mix must be a fundamental principle of the way forward.

In this context, it is notable that Shell’s Ben van Beurden reminded the Paris audience three things are critical for a sustainable global energy future: (1) fewer emissions from the energy mix overall, including gas, (2) better energy and environmental policies, and (3) the industry driving down the costs of gas developments.

At the same time, Total’s new CEO, Patrick Pouyanne, whose predecessor was killed in an air crash, was arguing the importance of gas and renewable energy in power generation to replace coal and contribute “at a low cost” to carbon abatement.

However, two of the biggest American businesses (who are also big in Australia) – ExxonMobil and Chevron – adopted a more moderate tone, choosing to focus on the need for even greater gas investment and significant policy/regulatory improvements to help address mounting global energy demand.

ExxonMobil’s Rex Tillerson called on European governments to be more open to hydraulic fracturing, pointing out that the conference host nation, France, has a potentially large shale reserve but has banned fracking, an argument with more potency now that the US Environmental Protection Agency, after years of research, involving 950 sources of information, has concluded that the technology poses minimal risk to groundwater resources.

This trans-Atlantic split wasn’t lost on the “Wall Street Journal,” which underlined that Europe’s largest oil companies had “come out forcefully” against a competing fossil fuel ahead of the climate change talks.

As the newspaper points out, the conference comments follow a joint letter Shell, BP and other big European petroleum companies have sent to the UN calling for measures to push up the costs of burning coal to make power.

Not surprisingly, the World Coal Association has shot back against “flawed thinking” in ignoring that new technology for coal-fired power plants is claimed to reduce carbon dioxide emissions by more than 30 per cent and also in side-stepping the fact that China and India, consumers of most of the world’s coal, will continue to rely on the fuel “for decades.”

This is grist to the “war” rhetoric and how all this helps the gas industry’s case as it wrestles with radicals over unconventional gas development is debatable.

ExxonMobil’s Tillerson perhaps put his finger on the real challenge when he exhorted the Paris conference audience to embrace the view that the (fossil fuel) energy industry needs to better engage both the public and policymakers to explain how it is “leading many of the most promising efforts to pioneer technologies and techniques” to address demand with a lower environmental footprint.

Pursuit of sustainability, he added, requires sustainable investment and this requires sound, stable policies.

Too often today, Tillerson said, regulatory complexity and duplication delay development and encourage litigation.

Regulation, he argued, must strike a balance between proper risk management and countries’ economic viability.

This is a message, of course, completely lost to the view of the public and politicians as the media (understandably) focuses on the fossil family feud.

As old Cicero used to ask, cui bono?

Seriously, let’s talk about transition

It seems a given in the electricity supply business, here and elsewhere in the developed world, that we are going to be surprised by how much the picture will change by the middle of the next decade.

Inherent in this outlook is the perception that things will change for the better – but, as the recent Grattan Institute paper on solar power demonstrates, the transition can be a mess, not least when ideologues and political populists get to call the tunes.

Some core messages from the institute paper are that shift will continue to happen but big mistakes have been made in Australia already in managing our “journey to a new model of electricity delivery” and there has been much waste of money.

“If we manage the (further) transformation poorly, consumers will pay again,” the paper warns. “If we do it well, everyone can benefit from a more efficient, sustainable and affordable electricity system.”

It’s coincidence that the paper has appeared just as preparation of the NEM Future Forum conference is being completed.

(The event is to be held in Sydney on 24-25 June and will be followed by the next edition of the Eastern Australia’s Energy Market Outlook conference in mid-September. Details are to be found at www.questevents.com.au.)

The central theme for both events, which I will be co-chairing, is the implications for the marketplace of new technologies, shifting consumer behavior and continuing policy uncertainty.

The need for serious talk about where we are going in energy supply has never been more important – and we don’t get it in much of the mainstream and social media coverage.

With the political debate feeding on the media coverage, we get shibboleths taking the form of substance (as witness the “death of the grid” talk that permeates commentary today, something the institute paper does a good job of debunking) and skewing policymaking.

An example of the genre is the comment in an American newspaper this past month by a leading US green campaigner, who was boosting solar power and talking up home construction with solar panels automatically included, to the effect that “buying a house with no electric bill is kind of neat.”

This, of course, is a complete furphy.

The arithmetic of investment in solar power contained in the Grattan Institute report makes this only too obvious.

Most homes, in America and here, will remain tethered to the power grid and there is no such thing as free electricity.

(Is it sheer ignorance that enables the mindset that, if you unhook from the grid, your budget is enhanced? All the promotions of solar PVs rely for their pitch on householders being able to sell surplus power back in to the service network……………)

The problem is that (a) too much of this trash gets through to the public and (b) dealing with it is a distraction from the main game: the cost-effective transition of the power system in the long-term interest of consumers.

The agenda for the NEM Future Forum, which I will co-chair with Robert Pritchard, executive director of the Energy Policy Institute of Australia, is aimed squarely at the serious conversation about electricity supply change that we, as a nation, have to have and which too many of those engaged in politics (joined at the hip to policymaking) seem incapable of leading.

The forum’s program and presentations will cover a wide ground and, because so much related to it is top of mind at present, a considerable focus will be on electricity networks.

Tony Pfeiffer, a senior manager at Ergon Energy and a speaker, acknowledges in the conference program that electricity networks are struggling to remain relevant to their customers as the pace of change picks up.

The importance of the NEM to the east coast, and by extension the national, economy is hard to understate. There are darned good social, economic and investment reasons for taking a serious approach to the transition issues.

The wholesale market alone is a $10 billion a year machine. You can more than double this value to cover transactions across the supply chain between energy suppliers and with consumers in 10 million homes and businesses – and the network costs are notoriously a big part of current contention.

There is a view that we are in the relatively early stages of compressing a half-century of change in energy supply in to as little as a decade.

When you think about where we are in the NEM in 2015 from the vantage point of, say, 2005, this is both potentially true and, to an extent, also hyperbole.

It’s easy to get carried away, especially if you have a green axe to grind or some other vested interest.

Argument about the speed of the transition is not the real point: where the market will end up is what matters rather than the journey itself.

One of the evocative sayings of the Second World War was “loose lips sink ships.”

It’s not a bad thought to bear in mind when looking at the present NEM situation in an environment where loose talk is regrettably too much the order of the day in public debate.