Archive for July, 2015

National interest

For the past year at least, one of the biggest concerns of the Australian upstream petroleum industry has been that the Labor Party would give in to union pressure and embrace a national gas reservation policy — now the industry and its lobbyists can breathe a bit easier because the ALP triennial national conference declined to do so.

However, because nothing is straightforward in the Byzantine world of politics, and even less so in the coils of Labor/union politicking, outright rejection of the reservation push couldn’t be countenanced. Instead, the ALP has embraced a vague commitment to a “national interest test” for all future LNG developments.

The petroleum industry’s long-term planning, as a result, will proceed (at least until 2016 and the next federal election) in the shadow of potential intervention by Canberra to require that future LNG projects can be approved only if domestic gas supply is deemed to be adequate.

Quite how this works in the overall national interest is a good question when we are also being told this month that, while coal and iron ore exports struggle in the new global commodities environment, tourism (now number three on the ladder of Australian earners of foreign revenue) and LNG sales are our big hopes for future wealth growth.

A recent commentary by ANZ Banking Group canvasses whether LNG could become this country’s biggest export earner by value in the decade ahead. It says that, when Asian demand for energy and the global push to reduce carbon emissions are taken in to account, “Australia’s LNG exports could more than triple over the next five years, substantially lifting GDP growth and playing a decisive role in restoring Australia’s trade balance to positive territory.”

Of course, in the Alice in Wonderland world of our politics, this is exactly the right moment for one of the mainstream parties, while rushing around talking about 50 per cent use of renewables to make domestic electricity for political advantage, to brush aside a significant potential national gain in order to pander to trade union interests and those of the nation’s struggling — would it be unkind to say floundering? — energy-intensive manufacturing sector.

The successful resolution on this issue at the ALP conference in Melbourne says future LNG exports (presumably from new projects) must “maximise the national interest.”  It refers to the benefits of gas resource development needing to be “shared equitably” between producers, users (pointing to the competitiveness of the manufacturing sector) and the community.

Some might think this a bit rich, coming from a party that campaigned in the nation’s biggest economic sub-region (New South Wales) in a State election only months ago against the development of coal seam gas resources that NSW manufacturers see as critical to their future.

(Ironically, the Australian Workers Union, Bill Shorten’s union, the principle proponent of the rejected reservation argument, for whom the “national interest” move is a face-saver, was in the forefront of the NSW gas debate only four years ago, warning that the State manufacturing sector, its workers and their families “faced serious consequences” if CSG resources inside its borders were not exploited.)

The LNG industry’s lobbyist, the Australian Petroleum Production & Exploration Association, not surprisingly has come out firmly against the new ALP view even as it welcomes the cremation of direct gas reservation policy.

Malcolm Roberts, APPEA’s chief executive, points to a “once-in-a-generation opportunity” to go on with LNG development and argues that the “national interest” test would “add a significant regulatory burden to (future) projects, duplicate existing processes and do nothing to increase domestic supply.”

As he notes, there are more than 20 other countries engaged in seeking advantage in the global LNG market for gas producers inside their borders.

Australian projects had to beat them all off to get the current round of $200 billion worth of development built and there is no guarantee that similar success can be achieved for our greenfield and brownfield prospects over the next 15 or so years. (You may have noticed that 2030 seems to have become an accepted time horizon in the energy policy debate in recent months rather than 2040 or 2050.)

Roberts argues that Australia can’t afford to increase both sovereign risk and project costs for gas exporters if it wants to convert resources in the ground in to national revenue, royalties and tax income and jobs.

One APPEA mantra is that “more gas, not more regulation” is what’s needed to expand domestic supply and put downward pressure on prices for households and businesses across Australia — and especially on the east coast.  The other is that the LNG business is a source of Australian comparative advantage that should be “harnessed not hindered,” a thought that the ANZ perspective supports.

By way of a last word, consider this: eastern Australia is estimated to have gas reserves and resources of more than 407,000 petajoules — and production of gas in 2013-14 was 700 PJ.  Which, no doubt, is one of the reasons why Labor’s federal resources minister, Gary Gray, said to the APPEA conference in May (in the same cavernous Melbourne conference centre that hosted the ALP national conference in July) that “properly executed and thoughtfully engaged, the gas industry is a massive benefit to Australia’s communities.”

 

 

Reforming reform

No-one really in the know about electricity supply in eastern Australia needs telling that this is a complex game.

Unfortunately, what gets communicated to consumers via mass market and social media tends to be mostly simplistic – and this can lead, in turn, to political knee-jerking that creates all sorts of consequences, frequently unintended, resulting rather too often in at least some people getting burned and, importantly, investors being spooked by uncertainty.

At one end of this state of affairs, despite all the rhetoric about cutting red tape and pursuing competitive markets, we continue to see governments picking winners, micro-managing the marketplace and building webs of regulation supposedly in the public interest.

This is made worse by our political leaders having a penchant to panic when some aspect of a new design throws up a consumer issue (which is then hyped for all its worth in the media), resulting in Bandaid further interventions that can also mess with what is working.

Inaction can be pernicious as well when politicians hesitate to implement reforms because they fear a backlash.

It’s true that there are people suffering disbenefits from electricity reform or, having been sooled on by a winner-picking government (eg solar “bonus” schemes), finding themselves threatened financially by rule changes (eg tariff reform) that may take away their lollies.

How such existing issues are managed in the next year or two by policymakers is critical to the health of the reform process at the end of the decade.

Caught in the middle of all this are the power suppliers, most of whom are eager for a genuinely competitive, technologically-neutral market although some see advantage in piggy-backing the political winner-pickers and creating media heat when their advantage is even lessened, let alone threatened.

And always down the bottom of this ladder are the (relatively few) consumers whose financial circumstances make them “vulnerable” in the social welfare jargon and the rather more who are just unable to wrestle with the steps needed to take advantage of what the market now allows (eg chasing the best retail deals) and therefore lose hundreds of dollars a year.

The past several years have demonstrated that gains from reform tend to be undersold to the community while every problem is extra grist to the mill for tabloid media and politicians on the make – seeking to “shame” suppliers and supporting yet more regulatory intervention.

Reforming reform has become a cottage industry with a growing number of people working in it, many of them with the best motives, but even their efforts cannot not guarantee outcomes that work for consumers overall.

An academic paper highlighting an emblematic problem has just appeared at the hands of Paul Simshauser and Patrick Whish-Wilson, economists at AGL Energy at the time it was written.

(Simshauser, as is well known, has been spun out of AGL in the re-ordering of the company’s affairs under a new chief executive; he starts a new job late this month as director-general of the Queensland Department of Energy & Water Supply and he continues to be professor of economics at Griffith University.)

The paper, published as the 49th in a series of applied economics and policy research reports from AGL, addresses how some vulnerable households find themselves disadvantaged even under NEM arrangements designed to help them.

(The 38-page paper is to be found on the AGL website.)

In it, Simshauser and Whish-Wilson identify 26,000 household account-holders in Victoria who have been placed on the so-called “standing offer” tariff intended to protect customers while the State rises to its current status as one of the world’s most competitive electricity retail markets – but who are actually somewhat further disadvantaged by this “help”.

Having investigated the issue, AGL, to overcome legal impediments to shifting the affected customers wholus-bolus to a better deal as well as the issue of customer apathy even when told how to improve their lot, will act soon to provide a 10 per cent en masse discount from the “standing offer” for these users.

The paper and the AGL move pose a challenge to the rest of the energy retailers to organize such vulnerable customers away from a too-expensive standing tariff to lower costs.

In passing, and illustrating the market complexities, there is still another tranche of customers formally identified as being in “financial hardship” who are treated differently and preferentially under legislation by energy retailers and who are provided with a range of support.

Beyond them, as Simshauser and Whish-Wilson write, there are the customers who need to be “nudged” – to use a word that came up in discussions with NGOs – to a better place where they can be prompted to engage more to their own advantage.

The paper serves to do several things.

Most importantly, in this particular situation, it underlines the need for governments to be wary of intervening to remedy a problem for a few – in the Victorian case that is the paper’s focus, perhaps five per cent of account-holders – and, by doing so, undermining benefits for the many.

The report certainly shows that a number of people can be “lost through the cracks” of this marketplace even when rules are introduced supposedly to help them.

As well, this paper illustrates that, despite the cacophony of noise from sections of the media and politicians on the make, the energy retailers – and AGL is not alone in working on such issues – are well aware that playing things by the book is not necessarily the best way to go.The suppliers’ need to be pro-active when issues arise is a constant challenge.

An over-arching point is that, in a power environment where “transition” is the word of the day, governments, regulators, suppliers and NGOs continue to find it a struggle to deliver the customer-centric marketplace the community is being promised.

The road forward has seemingly endless corrugations and potholes – fixing them without needlessly diverting the path is a key challenge.

Impatience, name-calling and jeering won’t smooth out this road – and, as this paper illustrates, the often-badmouthed suppliers have a real role as part of the solutions (the plural is deliberate).

RET-go-round 22

So, barely a month after a parliamentary agreement on the renewable energy target, we are back to a political debate about the measure’s future, once more over-shadowing the bigger picture in terms of a holistic, long-term plan to address carbon abatement in Australia efficiently. Just for good measure, we are demonstrating yet again that it is impossible here to have a sensible discussion about carbon pricing.

Even by our standards, that’s not bad going.

If you assume that, nation-wide, electricity consumption could be around the 230,000 gigawatt hours mark in 2030 — and you may assume anything you like because no-one has a firm handle on what it might be — then what Bill Shorten, Mark Butler & Co are now proposing is that sufficient generation capacity be built over the next 15 years to increase renewable capacity about seven times from its present level and about four times from the target recently legislated for 2020. Plus there would need to be a substantial amount of investment in network infrastructure.

We also (says Shorten) need to look at “assisting” unwanted fossil-fuelled capacity to leave the over-crowded east coast market.

And “there will be no carbon tax in a government I lead” (or words close to that).

All this, according to Shorten, Butler & Co, can be achieved while reducing community costs.

(“Round objects,” as Jim Hacker once wrote in the margin of a policy proposal.)

The Grattan Institute, in a newspaper commentary being published today, observes: “In the long run, it’s not the fuel cost but the total cost of renewables that counts. Even though the cost of solar photovoltaics and wind energy has come down significantly, it is still more expensive to produce electricity from these sources than it is from traditional fossil fuel sources. Replacing existing coal generation with new renewables will increase the financial cost of providing electricity.”

This point is also being communicated by the Energy Supply Association.

“If renewables were cheaper, we would not need targets or other incentive schemes,” says CEO Matthew Warren. “Increasing the proportion of higher-cost renewable energy in to the market will increase power prices. No ifs. No buts.”

And Warren adds this critical thought: “How do we finance new generation of any type? Australia’s generation sector remains unbankable for all technologies because of ongoing policy uncertainty and chronic oversupply. Until we resolve this with well-considered, bipartisan policy, no renewable goal, however ambitious, is going to work.”

Warren is calling for an “independent, non-political body” to consider the best carbon abatement options and make recommendations.

The problem with this is that, at the end, it will still be politicians who have to make decisions and we only have to look at the Henry tax review or Gonski education review (in another context) to see how well this works.

A political reporter on a major newspaper reacted yesterday to the new Labor line by suggesting that the federal opposition is “turning its back on household costs, manufacturing jobs and economic prosperity in order to appeal to the inner-city green Left.”

Butler, on Sky News, in effect responded “elect us (next year) and we’ll work out the policy in government.”  After the events of 2010-13, he may find this line a bit hard to sell to the electorate.

Jennifer Hewett in “The Australian Financial Review” adds the thought that Shorten is counting on Australians being extremely enthusiastic about the idea of renewable energy even if most don’t understand the intricacies of energy policy.

“Note the deliberate lack of details,” she says. “Shorten will keep repeating the mantra of more renewable energy and hope that his hot air balloon rises nicely in today’s political atmosphere.”

The Australian Industry Group’s Innes Willox is noting that abatement policy is not just about renewables.

It’s also about other generation technologies (e.g. nuclear, I’d suggest), energy efficiency, the land sector, industry and international arrangements (i.e. carbon trading).

In this, Willox is echoing the International Energy Agency — whose executive director last month made the point in Paris that (a) there are no quick fixes for long-term energy challenges and (b) energy efficiency, renewables, carbon capture and storage, nuclear power and new transport technologies all have a crucial role to play to achieve strong abatement.

(The Greens, by the way, say Shorten’s new move is “in the right direction” but their goal of 90 per cent renewable electricity supply is what is really needed. All care and no responsibility………..)

Finally, on this issue of power costs, Shorten is not the first Labor cab off the rank with a 50 per cent target.

The Queensland government — which surprised itself by winning office in January and, not expecting to win, loaded its election manifesto with populist thought bubbles — is also committed to this target.

ESAA has estimated that Queensland will need 44 per cent of all centralised generation output to come from renewables to achieve this goal.

To be viable, the association claims, these renewable projects are likely to require a wholesale power price between $80 and $140 per megawatt hour.

The current, regulated Queensland power bill allows for just under $64 per MWh in 2015-16.

In the policy timeframe the extra cost could be about a billion dollars a year — and that’s just in one State.

And it doesn’t include the subsidies the non-PV Queensland households are paying to the solar owners through Anna Bligh’s FiT — which runs to 2028 and, in aggregate, will exceed $3 billion.

Looking at all this (and more), one is reminded of what Talleyrand in another age said of the Bourbon kings of France: they forgot nothing but they learned nothing.

When it comes to energy and carbon policies, today’s national politicians here seem increasingly to fit this bill and none more so than Labor under Shorten’s leadership.

 

 

 

Scoping the future

The phrase “Kodak moment” in another age related to photographic opportunities, often funny ones. Today it is a Greens favorite as an epithet to hurl at at power networks businesses.

It was being run out in the West last week as the environmental movement urged Western Power to “embrace disruptive innovations” — i.e. solar power and battery storage — “or go the way of other outdated failed technology.”

Meanwhile on the opposite coast in more ways than one, a forum was held in Brisbane this week to launch an exercise designed to help grid managers pursue a future that will be different from today and yesterday.

The “Electricity Network Transformation Roadmap” is a joint venture between CSIRO and the Energy Networks Association. It seeks to enable the electricity grid to adapt to a fast-changing world of new technology and rules while strongly embracing the wishes and needs of consumers.

Industry & Science Minister Ian Macfarlane was on hand at the forum to announce the roadmap project, speaking to more than 120 people in Energex’s offices, including a fair number from across the country.

“By mapping the ways in which Australian homes and businesses are likely to use power in the future as well as the way power will be delivered through networks, the electricity sector will be more flexible and more responsive to consumer needs,” Macfarlane said. “We once relied on a highly-centralized system to deliver electricity to our homes and businesses. We now see one size no longer fits all.”

He is a keen protagonist of “getting stakeholders in the same room” — across the spectrum of industry, consumers, regulators and governments — to talk about change.

(One of his personal challenges is getting the CoAG Energy Council, which he chairs, to be a genuinely pro-active player in reform rather than a set of rhetorical flag-wavers. With the interregnum of the Rudd-Gillard years, where the role was mostly held by Martin Ferguson and briefly by Gary Gray in 2013, Macfarlane has presided over this forum since November 2001 — and, as he commented at the Brisbane meeting yesterday, herding these ministerial cats has never been easy.)

Actually, we still rely to a very large extent on the conventional grid and large generation sites. A big question for current power suppliers, would-be investors and governments across Australia’s jurisdictions is to what extent this will change between now and 2025, the sensible horizon for the roadmap?

Sweeping aside the massive machine that is today’s NEM power system in one great October Revolution (the ideological pipe dream that gets so much media play) is a nonsense. On the other hand, as both the householders’ reaction to soaring retail prices and their take-up of rooftop PVs has illustrated over the past five years, standing still is no option either. The huge test for getting change right lies in sensible planning and efficient implementation.

As I pointed out, in chairing a Q&A session involving Ergon CEO Ian McLeod, Energy Consumers Australia CEO Rosemary Sinclair and CSIRO Energy Flagship director Peter Mayfield at the Brisbane forum, the next Australian Energy Regulator determination of east coast network revenue will need to start in three to four years to deal with the 2019-2024 period. That’s really just around the corner for a business like power supply.

ENA chief executive John Bradley sees a “clear window of opportunity” here to reshape the supply system to “enable customer-driven take-up of new services such as renewable and low-emission generation, home automation, battery storage and electric vehicles.”

The transition away from a scenario in which, as the Greens see it, the grid has a Kodak moment, Bradley argues, is already under way, pointing to 1.4 million household generators (solar PVs on roofs), “significantly greater” customer engagement, falling per capita consumption and technologies already enabling better services.

CSIRO chief economist Paul Graham adds that the changes now taking place are not only challenging traditional grid business models but creating opportunities for new services to unlock additional value for both householders and businesses.

Australia, he asserts, is an ideal place to launch this collaboration. “There is enormous potential to replace the conventional model of supply bulk power to largely passive consumers and we are well-placed to explore them.”

The timeline for the roadmap is for an interim report to be delivered this November and then a final document in October next year.

This relatively fast process will be aided by the work already done via the CSIRO Future Grid Forum that delivered a report in 2013 looking out to 2050, in which scenarios were scanned in which on-site generation providing as little as 19 per cent and as much as 45 per cent of energy customer needs.

Speaking over in Perth at a forum last week, CSIRO Smart Grid Partnerships manager Mark Paterson ventured the thought that two words could describe the decade ahead (2015-2025) for electricity supply: “profound transition.”

By and large, I agree, although it is easier to talk about transition than to implement it and we have had ample demonstration in the past 10 years (2005 to 2015) of just how far political intervention can muddy these waters — and, in the case of the east coast wholesale electricity market, produce an environment of chronic over-supply and scare away investors.

The situation is not at all helped by the volatile state of politics and the capacity of ideologues (from left and right) to push interventions that do nothing but cause further trouble and confusion.

The Energy Supply Association’s CEO, Matthew Warren, growled yesterday that, in the area of climate policy, Australia has had a decade of stopping and starting, back room design and political populism. Climate policy, he rightly averred, should be seen in the same light as responsible monetary or fiscal policy and not as a political popularity contest.

Exactly the same thing could be said about electricity network policy — and the two are closely inter-connected.

A great danger, Warren pointed out, is that, because of the political turmoil, we could find ourselves repeating some of the mistakes of the past decade. This, too, is as true for network policy as it is for climate measures.

There are many angles to the new roadmap process but one of them I will be watching with much interest is how the pursuit of electric vehicles is canvassed.

Australia may be a world leader in adopting rooftop PV, shading Germany on a per capita basis, but we are laggards in taking up EVs; it is estimated about 1,500 vehicles were sold here in the past year compared with 275,000 in the US, 108,00o in Japan and 83,000 in China (where they also have a mind-boggling 230 million electric bicycles).

There is wide agreement in the electricity supply sector that EV technology could be a game-changer for both the power system — by contributing to energy storage and network efficiency — and a big dip in national carbon emissions; the emphasis, of course, is on that little word “could.”

RET-go-round 21

There is a serious point behind the political handbagging, media carry-on, activist agitation and general to-do over whether or not the Clean Energy Finance Corporation can or should support development of wind farms.

The entity is mandated to “assist change and ensure that Australia’s transition to a low-carbon economy is achieved at the lowest cost to the nation.”

The corporation argues this, as written, allows it to support suppliers to the wind sector and to related transmission and connection activities.

Let’s start by stripping away the yahooing over Tony Abbott’s or Joe Hockey’s opinion about the aesthetics of a wind turbine — a damned-fool intervention politically by people who have plenty of serious things to occupy their time, thoughts and mouths — and coming down to whether or not the CEFC should be in the conventional wind energy support business.

The federal government takes the view that the “original policy intent” — of the Gillard government, one should note — was for the CEFC to invest in new and emerging technologies and “not in established, mature technologies which have got access to mainstream finance.”

(Labor, you may note, doesn’t have a single sensible word to say in the current imbroglio — it is focused on turning the political heat off Bill Shorten after a week that did him no personal good at all. The opposition leader’s own attempt at a cutting soundbite — that, at this rate, the entity is going to be left “financing flying saucers”  — says a lot more about him than it does about the issue.)  Since I wrote this post, I have had my attention drawn to an ABC interview given by Labor environment spokesman Mark Butler. See my note at the bottom of this post.

The Abbott government declares it is now engaged in “consultation” with the CEFC board — who exactly turned this process in to a public screaming match is an interesting question — ahead of issuing a directive banning further funds going to wind farms. There are lawyers offering advice, of course.

How far political players should intervene in a quasi-independent body once it has been set up is a reasonable question.

But so should be the question of whether a decent job was done in laying down the rules of engagement for the body in the first place? And beyond that the quality of policy thought that led to this development.

Back in May, Oliver Yates, the CEFC chief executive, told a conference in Melbourne that the organisation is “here to help the wind power industry get deals done” and noted that it was “currently examining the investment potential of a number of wind projects.”

(He used the adjective “significant” for the projects — which is a common mistake when people mean “substantial” (ie large). I don’t see how any wind farm counts as “significant” in the east coast or SWIS (Western Australia) markets.)

Acting on its perception of its mandate, the CEFC has handed out $154 million in support to three wind projects.

This includes $50 million two years ago to help refinance the Macarthur wind farm’s debt at a time when co-owner Meridien Energy (then wholly-owned by the New Zealand government and in partnership in this venture with AGL Energy) was making itself neat and tidy ahead of an IPO. (The NZ government now owns 51 per cent of the company and it shed the Macarthur investment after the asset sale, reaping a $NZ101 million profit before tax. AGL has signalled that it, too, is looking to sell out of the venture after its re-assessment of its activities under a new managing director.)

The energy policy and carbon environment since the political events of 2013 means that banks are continuing to be a bit leery about lending to any form of generation and the gentailers have not been rushing to offer new renewables projects PPAs.

Wind developers, confronted by the recent RET saga, spotted that CEFC could help and have chased the opportunity.

In the case of the Taralga project near Goulburn, for example, CEFC has tossed in $37.5 million of the $280 million needed to build 107 megawatts of capacity. This, of course, is a loan, not a subsidy — the subsidy comes from consumers via the RET. Underpinning this development is a PPA with EnergyAustralia.

Now green boosters are rushing from media interview to interview screaming that this new government move will make Australia a no-go area for wind development which is a position almost impossible to defend rationally, I think, except to the extent the new fuss reminds lenders that the energy policy environment here overall is a dog’s breakfast.

The RET, as now legislated, requires $10 billion worth of infrastructure spending by 2020, we are told repeatedly, and the gentailers will impose nasty price increases on customers (via RET penalties) if they don’t meet their share of the target.

If there is a problem here — one commentator accuses gentailers of still being “on strike” with respect to new wind PPAs — then the CEFC is not the vehicle to resolve it and yet this is the implicit argument being advanced by various green persons.

Finance Minister Matthias Cormann has been out today explaining that (1) the government would really like to abolish the CEFC but is baulked by the Senate and (2) given this, it doesn’t want the corporation competing with the private sector in financing mature technologies.

He adds that the Labor government had borrowed $10 billion on the taxpayer credit card to set up the CEFC and his government wants these funds placed where “the private sector doesn’t spontaneously invest,” for example in large-scale solar power and energy storage related to it.

Just how loopy the debate can get can be gleaned by an ABC reporter asking him this morning if the CEFC move threatens household rooftop solar investments. “Will people have to pay more?” she asked.

The patient Cormann replied no, there are established programs supporting residential PVs and the bit of the RET related to this is unchanged.

Elsewhere Environment Minister Greg Hunt denied the government “plans to starve wind and small-scale solar of investment,” pointing out that the revised RET will see a doubling of large-scale renewables capacity and that it and other schemes will see rooftop solar PV installations “two or three times larger than planned” when the target was initially legislated in 2010.

The ABC question flows from solar lobbyists throwing themselves in to the current street theatre to claim that any change will disadvantage “low-income families, renters, small businesses and community groups such as churches” in installing PVs, “which are currently viable only for better-off owner/occupiers.”

One could spend some time dwelling on the thoughts this language evinces, but let’s move on.

Recently CEFC has lent Origin Energy $100 million to launch a scheme allowing customers to go solar without investing in arrays — they get solar panels owned by the gentailer on their roofs and buy output under little PPAs.

It seems to me that this latter venture is exactly the kind of innovation CEFC is set up to support. (Let’s leave aside whether you believe the organisation should exist at all and deal with what is.)

Did those in the federal government responsible for the past week’s intervention even focus on this solar deal when they cobbled together their missive to the CEFC?

Far too often we find ourselves wondering just what this government was thinking, and how well-informed the thinkers were, when contemplating their moves.

How different is this from the G-R period (which you realise you can pronounce as “grrr”)?

Finally, just where the CEFC has directed money overall to date seems to be lost in the current noise.

The break-up of $900 million in lending is 24 per cent to wind energy, 26 per cent to solar activities, 10 per cent on bio-energy, 18 per cent on cogeneration and other generation and distribution projects, two per cent on ocean energy, 15 per cent on lighting, heating, ventilation etc projects and five per cent on industrial process improvement and refrigeration.

The organisation says that its present intent is to lend 50 per cent of its funds by 2018 to development of wind, solar PV, solar thermal, concentrated solar power, biomass, tidal and other generation — and 50 per cent to energy efficiency and low emission schemes for manufacturing, transport, commercial buildings, retail, mining and agriculture.

The not-on-wind intervention by the government doesn’t cut the funds available, although it should be noted that energy efficiency investments and conversion of landfill waste to electricity also fit the bill as “mature” activities.

The really serious point, therefore, is what is the CEFC for?

The Gillard government, in thrall to the Greens, obviously didn’t address this adequately.

The Coalition, in thrall to a desire to kill the agency but unable to marshall the parliamentary votes to do so, is not helping to address this point.

And part of any such approach also needs to include the role of the Australian Renewable Energy Agency, another agency the Abbott government wants to kick in to touch but can’t.

Above and beyond all this is the need for whatever arrangements are put in place to be energy neutral and part of a broad, long-lasting policy that embraces all supply and carbon abatement, a core element of a successful approach that keeps getting completely overlooked in the public “debate.”

Footnote: Since I wrote this post I have had my attention drawn to comments by the Labor environment spokesman Mark Butler which go beyond the soundbites covered in other media. 

Butler said to the ABC: “The focus of this corporation is not whether a particular technology is mature but whether the lending markets for the technology are mature.What the CEFC is designed to do is to provide finance, usually in partnership with private sector institutions, to technology which is starting to become an increasingly central part of our electricity industry.”

A problem is that this is not how his party in government explained the CEFC mandate and absolutely no attempt was made then to “reach across the aisle” to ensure that there was broad-based support for the entity.

Butler & Co played hard politics with this issue as have Abbott & Co. Butler is still doing so, witness his weekend claim to Fairfax Media that the government is “putting thousands of Australian jobs and billions of dollars in investment at further risk” by taking this tack with CEFC.

Moreover, his explanation above, which is rather more rational than what we have been getting from the political class until now (and light years on from what his leader has been mouthing), still does not resolve the issue of technology neutrality — to cite just one example, what about Ceramic Fuel Cells BlueGen product, badmouthed by the greenies and cruelled for domestic development by a weak-kneed Gillard regime because it relies on gas despite its abatement credentials?

 

 

Gas numbers

I have a small piece of advice for the estimable Hugh Saddler at analysts Pitt & Sherry: buy a copy of the Energy Supply Association yearbook.

This is not a snipe at Saddler and his colleagues; I have a high regard for his/their research and their Cedex (carbon emissions index) monthly publication is required reading — but my point does illustrate the challenge of gathering and analysing information in our complex energy environment.

(Saddler, by the way, has just published, through The Australia Institute, the second edition of his “Power Down” review, scrutinising the factors affecting NEM electricity demand in recent years. The first was excellent reading and I am looking forward to going through this follow-up over the weekend. I see from the executive summary that his most important conclusion is that increased energy efficiency has been the key contributor in the reduction in electricity demand growth and he is concerned that further improvements in efficiency are now “in serious jeopardy.”  You can find this commentary on www.tai.org.au.)

In the June Cedex issue, Saddler writes that it is hard to gain a clear picture of what is driving the fall in natural gas consumption — he is focusing on the east coast — because publicly-available data do not explicitly separate residential customers from others.

Well, ESAA does in the “EnergyGasAustralia” yearbook (if, like me, you have the back issues as well as the 2015 edition released mid-year).

The ESAA data are national and show that domestic gas consumption stood at 1,128 petajoules in 2010-11 and the breakdown was like this: manufacturing 368 PJ, electricity generation 343 PJ, mining 202 PJ, residential 145 PJ, commercial 48 PJ, transport and storage 21 PJ and a small amount for agriculture.

The association’s data for 2013-14 show that gas consumption across the country has drifted down to 1,098 PJ and the breakdown is manufacturing 352 PJ, electricity generation 341 PJ, mining 174 PJ, residential 155 PJ, commercial 48 PJ, transport and storage 24 PJ plus what ESAA now chooses to lump together as “other” (to include agriculture and construction) almost 4 PJ.

As I have pointed out here, in Coolibah’s monthly newsletter and in “Business Spectator” on a number of occasions, the more striking data are the forecasts that ESAA provides.

This projecting is tends on a rolling forward basis, so the 2012 yearbook was looking at 2025-26 while the 2015 issue goes for 2023-24. There is a remarkable disparity between the projections. Back in 2012, ESAA saw domestic gas consumption reaching 1,827 PJ by the middle of the next decade. The latest yearbook forecasts just 952 PJ for 2023-24.

Going to the  forecast in the 2015 yearbook, ESAA foresees manufacturing demand a bit down (322 PJ in 2023-24 against 352 PJ actual in 2013-14), power generation demand crashing (150 PJ below the 2013-14 financial year outcome, standing at 191 PJ), mining consumption recovering (up more than 20 PJ to 195 PJ), residential demand continuing its rise (forecast to be 165 PJ), commercial continuing a slow climb (now 51 PJ) and both transport and storage and “other” steady at current levels.

The question mark when one looks at these numbers is the residential projection because it is unknown today whether much higher east coast wholesale gas prices will translate in to householders switching to electricity. The topic is talked about — for example at last month’s NEM Future Forum — but no-one has a handle on what will happen.

Saddler & Co comment in the June issue of Cedex (available on the Pitt & Sherry website) that there is “considerable anecdotal evidence” of households shifting away from gas use, especially for space heating with high-efficiency reverse cycle air-conditioners “now a very strong competitor.”

They add: “More efficient equipment, notably high efficiency instantaneous gas water heater, and changes in energy-using behaviour, including reduced consumption of hot water and reduced space heating use, (are) also likely (to be playing) a part.”

Saddler and his colleagues look at the electricity scene and say the data here show unequivocally that residential customers are responsible for most of the fall in consumption over the past 5-6 years with (they argue) both improved appliance efficiency and behavioural changes being “important drivers.”

They pose the question whether what is true for electricity may turn out to be true for gas.

The ESAA forecasts in the association’s 2015 yearbook suggest maybe not, but events of the past 5-6 years are a salutary reminder to us all about being careful in making future projections.

The latest (July issue, just published) Cedex (which operates on a rolling monthly basis and so is now measuring the 12 months to June 2015) throws up some interesting numbers:

Pitt & Sherry calculate that in the 2014-15 financial year black coal generation (electricity sent out before line losses) accounted for 51.5 per cent of NEM power while brown coal delivered 23.4 per cent. Gas turbine share was 11.9 per cent and wind farms 5.9 per cent. The balance came mainly from hydro-electric plants.

Put another way, the NEM (supplying the residential needs of 19 million people plus another million commercial and industrial account-holders) remains almost 87 per cent fossil-fuelled and is likely to stay this way through the rest of the decade. By comparison, modelling done for the Gillard government term projected that the decade-end power supply contribution of fossil fuels would be about 78 per cent on the back of a carbon tax.

Looking forward, the Pitt & Sherry team notes that the commissioning of the Gladstone LNG projects is expected by the market operator to require an extra 9.4 terawatt hours of grid-based electricity supply by 2018-19. This is equal to about five per cent of current NEM demand and it is not the LNG plants own use (which will be generated by gas turbines not connected to the NEM grid) but what is needed to gather and transport coal seam gas to Gladstone.

Taking this and other factors in to account, Saddler and his colleagues suggest that “the historically-unprecedented era of falling electricity demand, having lasted for four and half years, is now coming to an end.”

Nordic perspective

Perspective is a fine thing, except where the viewer is one-eyed or standing on his or her head.

In the run-up to the UN climate conference in Paris at the year’s end we are being deluged with perspectives, from Pope Francis to President Francois (Hollande, desperate to have his party not become another Copenhagen) to the many ideologues from the left and right of the greenhouse gas spectrum.

One of the more interesting — and, so far as I can see, of no interest to Australian media — comes for the Nordic energy giant Statoil.

The company — described in another time as turning Norwegians in to “blue-eyed Arabs” and a conduit for rivers of gold for its government and community over decades — produces an annual “Energy Perspectives” publication via its team of analysts, making the point that the product is independent of the company’s strategic and commercial decisions.

The latest 60-page offering appeared in June (and can be found at www.statoil.com). It is well worth reading and contains far more fact and opinion than can be canvassed in a single blog post.

My particular interest at the moment lies in how “Energy Perspectives” treats energy efficiency, by and large the missing element in our local debate where the media at least are dominated by the head-hunters of the ideological Left for whom killing fossil fuels is the only thing worth discussing.

Statoil’s analysts, led by chief economist Eirik Waerness, make the point that global energy demand growth no longer tracks economic growth one-to-one. “Today a one per cent increase in value added typically generates only a fraction of a per cent growth in demand for coal, oil products, gas and electricity — or no growth at all.”

They point to the OECD — where a four per cent growth in GDP between 2007 and 2013 was accompanied by a five per cent decline in energy demand.

“This,” they say, “is partly because of energy efficiency improvements and partly because of the change in the structure of economies, with an increasing share of value creation taking place in low energy-intensive economic sectors. Mounting concerns about energy security, local air quality and global warming have accentuated this trend.”

One wonders how Pope Francis and his green advisors managed to completely overlook this in his jeremiad against the “filth” of Western development.

Looked at globally and over a longer term, Statoil points out, between 1992 and 2012 primary energy consumption increased 51 per cent while world GDP rose 71 per cent. This can be interpreted as global energy intensity declining at an average of 0.7 per cent per year. The only area where this trend is absent is the Middle East. China achieved a fall of 3.6 per cent in energy intensity in these 20 years.

Where this trend will head between now and 2040, which seems to be the point on which much focus is now falling in projections, is anyone’s guess.

It could go faster or slower, Statoil muses, depending on whether only costly options are left to make cars or buildings more efficient or whether some hitherto unsolved technology challenges are cracked.

“Policy attention towards energy efficiency could fluctuate in the future as it has done in the past.”

Nowhere is this thought more relevant than in Australia — where the now virtually-ignored energy white paper from the Abbott government offers a somewhat half-hearted promise to pursue improvements.

The Norwegians observe that there is no reason to expect a levelling out in energy intensities around the world. There are large gaps, they point out, between the performance of the best technologies and those of average technologies is the use of vehicles, buildings, heating and lighting systems, refrigerators, air-conditioners and so forth.

Statoil notes that the world’s energy intensity is likely to decline by an average of 1.8 per cent annually out to 2040 on present trends.  This is not all that different from the ExxonMobil view in its energy outlook (1.9 per cent) or of BP (two per cent).

In this scenario, carbon emissions continue to rise from almost 32 billion tonnes in 2012 to 38 billion tonnes in 2030 before falling to 34 billion tonnes in 2040.

The Norwegians offer a quite lengthy dissertation on a scenario they have devised in which global energy intensity accelerates to average 2.7 per cent annually (and there is a substantial shift in the fuel mix towards electricity and use of renewables). I want to come back to some of their views in another post but my focus here is on the emphasis in the study on how a radical improvement in energy efficiency can be a critical factor in emissions management — but also of course for economic management.

In all the arty-bargy of the Australian debate, this is mostly ignored or, where it is raised, quickly shoved to the sidelines in the rush to be angry about coal and gas production. I find it beyond comprehension that successive local federal governments (Howard, Rudd, Gillard and Abbott), all of them eager to be seen as good economic managers, have failed to really run with the energy efficiency issue.

A few months ago the Australian Academy of Technological Sciences & Engineering, focussing on the white paper debate, urged the federal government to “develop a comprehensive roadmap to more than double Australian energy productivity by 2030.”  The subsequent EWP offered a rather weak-kneed suggestion of pursuing a 40 per cent improvement — and this for a country that has ranked at or below the OECD average for energy productivity over two decades.

Energy intensity should be a key plank in any forward strategy for Australia dealing with the economy, trade competitiveness and carbon emissions control.

The Statoil “Energy Perspectives” paper highlights yet again why this should be so — and yet the issue is kept in the shadows here, an exercise in wilful apathy that is hard to credit and that makes the national effort in emissions management just that much harder.

Perhaps the ABC should think about a Q&A session on the topic………..

Satisfied?

Follow the popular media, especially what I choose to dub “tabloid television,” and you will know that Australia’s east coast mass electricity market — holding some nine million residential and small business accountholders —  is in a constant state of irritation, if not outrage.

But is this a true picture?

An interesting new publication is the latest Australian Energy Market Commission annual review of the effectiveness of competition, in both power and gas supply, in the NEM, a requirement of the CoAG Energy Council.

The AEMC comments up front in the latest review that the entry of new retailers and falls in market share concentration suggest that consumers are getting more opportunities to choose suppliers and to plan how best to meet their needs.

About three out of 10 mass market customers interviewed are pursuing these opportunities each year at present.

More Australians choose to switch electricity supplier each year than they do in mobile phone, banking and insurance services.

Energy competition, the AEMC economists and engineers add drily, is a “continuous iterative process that does not always happen smoothly.”

Quite.

Now here’s the key point, at least in my perception: Sixty-nine per cent of NEM residential electricity customers are, on the basis of the AEMC poll, currently satisfied with their retailer, the level of service they are getting and with the value received.

Nine per cent are dissatisfied. “The remainder are mainly neutral.”

(Let’s face it, Tony Abbott and Bill Shorten would kill to have satisfaction/dissatisfaction ratings half as good as this.)

Is this state of the electricity market the impression you get from following the media coverage of the industry?  Ninety-one per cent of us aren’t in a lather over our electricity service? Of course it isn’t because nine per cent of nine million is a lot of Aussies and a fertile field for the media outrage-mongers.

In particular, there is lots of room for such coverage among the 0.1 per cent to three per cent of customers (depending on State jurisdiction) who are sufficiently upset by their electricity experience to seek aid from ombudsmen.

This isn’t to downplay the unhappy experiences of these folk, and in many cases their need for special help, but to suggest (not for the first time) that a large dose of context would be a good idea.

The commission also notes that residential customers who have shopped around for good supply deals are more likely to satisfied with their retailers — those who have not gone hunting for savings tend to be numbered among the unhappy.

Depending on the State, between 10 and 30 per cent of mass market customers are still on generally higher-priced “standing offers.”

(Curiously, the AEMC research throws up that, in Melbourne and Sydney, higher-income customers are strongly represented among those staying on standing offers. In regional areas, it is mostly people on lower incomes who are not pursuing switching.)

One of the AEMC Post-it notes for the politicians sitting on the ministerial Energy Council is that it is a good idea to raise community awareness of websites and phone services as a means of simplifying the process of shopping around. One would think that political self-interest, given the reputed “hot button” nature of energy issues, would dictate a greater government effort to highlight the availability of such free services.

In the satisfaction stakes, the breakdown, according to the commission’s work, goes like this:In south-east Queensland 62 per cent of residential customers say they are satisfied versus 11 per cent who aren’t. In New South Wales, where the “Big Three” retailers hold 94 per cent of the mass market, 74 per cent of householders are satisfied versus six per cent who are unhappy. In Victoria the ratio is 67:8 and in South Australia it is 69:6 as it is in Tasmania, where large numbers of residential and small business account-holders are reportedly fed-up that they have poor retail choice.

The AEMC report runs to more than 300 pages and is chock-full of information — pity the poor public servant told to cover the ground in two pages for a busy minister.

Something that caught my eye because South Australia was used as an alleged example of the badness of privatisation in this year’s angry New South Wales election debate is what the survey throws up about this State.

In the 2014 research NEM-wide residential customer satisfaction (“quite” or “very”) with value for money stood at 50 per cent and it was 49 per cent in South Australia.

In the 2015 survey, the NEM number rose to 54 per cent — and the SA return to 58 per cent.

Taking in the “fairly” satisfied responses, early nine out of 10 residential customers in the State held up to the New South Welsh as an example of the horrors of private sector management of power supply think they are getting a reasonable deal.

The other “shock, horror” State held up to NSW voters in March as an awful warning by the trade unions and the left-leaning Labor-ites was Victoria — where the AEMC research shows that  57 per cent of respondents in 2015 believe they are getting good value for money and another 29 per cent think the value is “fair.”

It should also be said here that the AEMC study reports that 56 per cent of NSW residential customers are well-satisfied they are getting value for money this year (a six per cent rise on 2014) and only eight per cent are not at all happy, a reflection perhaps of the reduction in the rate of increase of power bills seen last year.

The big picture here is not that all is just peachy in electricity-land.

For a start, there are a lot of Australians living in hardship for whom power bills are too often a straw to break their budget’s back. They are, however, a minority.

The bigger point is that a large number of Australians are not puce with rage over what they are being charged for an essential service — and the more choice they get in shopping around, the more satisfied they are.

There are a myriad of things needing to be done to improve the NEM — the Future Forum I co-chaired last month canvassed many of them and the Eastern Australia’s Energy Market Outlook conference in mid-September will address the broader canvass of gas and electricity — but the tabloid media carry-on about consumer outrage is not supported by independent research and the AEMC report has been comprehensively ignored by newspapers, radio and television news since its publication.

To which one must add that being pro-active in helping the still substantial number of consumers not taking advantage of better retail deals in a competitive market — and making this market available through deregulation — is so obviously a smart thing to do that one can only wonder at politicians dragging their feet over the issue.

Go figure, as they say.

 

 

 

 

 

 

 

 

 

 

The carbon task

I conducted a small experiment in the past week, asking people without connection to the energy supply industry what share of Australian carbon emissions they thought comes from electricity generation?

Not one in 31 asked came even close. Answers ranged from “most” to “half” and variations thereof.

The actual position is that fossil fuel power stations contribute almost 180 million tonnes of carbon dioxide annually at present, equating to 33.1 per cent of the national total. Non-electricity stationary energy contributes another 93 Mt (17.2 per cent). This may account for why half the people I asked about electricity said “half.”

Two other activities deliver another third — transport (our cars as well as our trucks, trains and buses) emits 92 Mt or 17 per cent and our farms account for almost 88 Mt or 16.2 per cent.

The rest of the total comes from factories (nearly 32 Mt and 5.8 per cent), waste 13 Mt and 2.4 per cent and so-called fugitive emissions (eg mining) 45 Mt and 8.3 per cent.

The vast bulk of the public discourse, however, is focused on power stations.

When media persons want to illustrate a story or commentary about greenhouse gases, they reach for pictures of “smoking” coal-fired power stations; actually, of course, what all these illustrations show is water vapor rising from giant cooling towers.

Context may not be everything, but it gets darned close in my opinion and there are two aspects of context worth attention here.

The first is that we are using less coal to make electricity now than in the past seven years.

Black coal consumption has fallen 17.7 per cent since 2007-08 and brown coal use has dropped 14.6 per cent since 2008-09.

These declines represent a reduction of almost nine million tonnes a year in black coal use and just over 10 million tonnes annually in brown coal use.

Only seven of the 31 people to whom I spoke about the carbon issue knew we are now using less coal than before; another seven believed we are using more — and three of them volunteered that this is why the Great Barrier Reef “is in trouble,” a view not shared by the UNESCO World Heritage Committee this week despite a massive attempt by the radical environment movement to brainwash them in to so believing.

The second bit of context is how dependent we are in eastern Australia on fossil  fuels for our power supply.

In  2013-14 the coal and gas plants contributed 86 per cent of energy sent out (the source of emissions) of which gas turbines accounted for 11 per cent.

Looked at in terms of plant capacity, in the three States where the majority of demand and supply is to be found, black coal accounts for 87 per cent in New South Wales and 75 per cent in Queensland while brown coal is 86 per cent in Victoria.

(Capacity, blog readers will know but few in a wider Australian audience comprehend, does not equate to energy production.)

As every petshop galah does know, our role in fossil fuels does not end there.

Radical greens are desperate in  their efforts to change this, but today we are a source for the rest of the world of 10 per cent of its coal and two per cent of its gas — and our share (as well as our export revenues) will rise when the $60 billion coal seam gas to LNG developments in Queensland start production in the financial year now beginning.

Minerals Council of Australia data show that, in the case of black coal (in all its forms), exports in 2013-14 delivered $40 billion in revenue and the mining industry paid out $3.6 billion in royalties to host State governments.

Despite the current state of global markets, the MCA is projecting — I’m using a presentation to last month’s NEM Future Forum — that our thermal coal exports will rise in volume from around 200 Mt a year now to north of about 230 Mt by 2019-20. To which you can add a small-ish increase in metallurgical coal to around 200 Mt by the decade’s end.

The MCA mantra,looking forward is: (1) the outlook for coal use remains strong, (2) coal will “continue to underpin Australia’s economic comparative advantage and energy security,” and (3) emerging low-emission technologies (both carbon capture and storage and new high-efficiency power station technology) mean that “Australia does not have to choose between coal and a low-emissions future.”

I think I would probably render that last point “lower emissions” but the general thrust of the miners’ perspective is clear albeit contested (hysterically so in some quarters).

Looked at more pragmatically than the ideologues choose to do, what’s the way forward to the desired lower-emissions future?

Speaking to the NEM Future Forum, AGL Energy’s Tim Nelson made some interesting suggestions.

Accepting, he told an audience of about 150 in Sydney in late June, that carbon pricing is a politically contentious topic, could we look at a three-legged attempt to address our situation.

First, he suggested, introduce emissions standards for all new power stations.

Second, bring in regulations that drive the progressive closure of older emissions-intensive generators or their retrofitting with CCS.

Third, increase the scope of incentives for new technology (confined in the main to the RET today) to include all zero and near-zero emissions power sources.

As Nelson explained in his presentation, this needs to be viewed against today’s chronically-imbalanced NEM where, on AGL’s estimates, the market 10,162 megawatts “overweight” in baseload capacity, 2,379 MW “overweight” in intermediate capacity and 5,807 MW “underweight” in peaking power.

To state the blindingly obvious, at least to some of us, what’s not needed are more patchwork fixes in policy but a well-crafted approach (accepted by at least the two major political forces) that can disentangle the mess that is now the NEM, resolve the mess that is now domestic east coast gas policy and set in place a credible plan for economic (not just electricity) decarbonization over a realistic time frame.

One of the key factors in pursuing this approach is a far better informed community and, unfortunately, this is an environment that really is worsening.