Archive for October, 2015

Coal versus gas

Reading all the media stuff in this country about the “death of coal” and the incredible ever upwards spiral of renewables around the world, it is easy to overlook one of the more important energy developments of recent times, one of considerable interest to Australia.

The new executive director of the International Energy Agency, Fatih Birol, has summed it up in a speech.

“Today,” he said in Tokyo, “cheap coal and increasingly competitive renewables are squeezing out gas (in electricity production) – and at the same time reforms to inefficient LNG markets have lagged.”

Since then, in another speech in Singapore, Birol has commented that “only very competitively priced LNG has a chance to beat coal in power generation in Asia.”

He added: “Coal will not disappear quickly.”

In key regions of the world, including India and the ASEAN countries, Birol added, gas is losing out to coal as a power fuel.

Even major producers like Malaysia, he said, have decided that using coal to make electricity and exporting their gas is a good deal.

And in East Asia as a whole, Birol went on, the cost of a kilowatt hour of coal-based power production is half that of a gas-burning kWh.

In terms of the upcoming UN climate change summit and the very large amount of rhetoric we can expect to hear from Paris (not to mention the flood of alarmist stuff we get ritually before these meetings), Birol makes the obvious point that gas, specifically LNG, has an important role to play in reducing global carbon-intensity.

“But, for this to happen,” he said, consumers must come to perceive LNG as a secure, fairly-priced and cleaner energy source – and for LNG to achieve its potential we need well-functioning markets.”

A golden age for gas remains a possibility, he went on; arguably, it has arrived in the US – but, for it to be achieved in Asia, governments need to improve regulations and move faster and with more determination to develop infrastructure and markets. This, in turn, needs enhanced co-operation between producers and consumers.

Since Birol gave this speech, the IEA has released a report on ASEAN energy (see my “In the ‘hood” post on this site on 18 October) that projects a two-thirds rise in gas demand in the 10 member nations between now and 2040 – and an even larger growth in coal use, which the agency says will be the equal of today’s demand for the fuel in India by 2040.

Of course, the IEA really can only record, report, project and advise.

The marketplace decides and, when it comes to Asia, weakening economies, the need to lift many millions out of poverty, cheap coal and the return of nuclear power in Japan are key factors in the electricity mix at this juncture.

The prospects for additional Australian LNG projects, beyond those now going in to operation, being pursued up to at least 2020 are hardly high, but at least we have new ventures built (or being completed) – in North America and elsewhere the chances of much-hyped greenfield developments now appear low indeed.

This is fine with the anti-fossil fuel brigade obsessed with their hype of renewables – by which they mean solar and wind rather than the burgeoning hydro-electric development they also hate but allow to be factored in to data boosting renewables growth numbers.

However, the Asian emissions reduction tune isn’t really what green players highlighting renewables expenditure, and their following media, claim it to be. The dominant beat is still fossil fuelled and likely to remain so for a considerable time.

Anything that foretells ongoing use of these fuels is a cause, of course, for howls from the green corner.

Environmentalists are currently working themselves up in to a lather over the imminent publication by the Coal Industry Advisory Board, which is an international body providing the IEA with advice, of a report that apparently canvasses technological advances in burning coal to make electricity.

Green propagandists are labeling it “deeply misleading” before it actually appears.

The CIAB meme for some time has been that a continuing role for coal in the energy market is an inconvenient reality that has to be taken in to account in decarbonization discussions – and, therefore, the need for greater effort to bring on low-emissions technology such as carbon capture and storage.

As far as Australian interests are concerned – in terms of trade, jobs, government revenue from taxes and so on – the combined value of selling coal and gas to Asia is one of the biggest things in our economy but it gets little in the way of insightful public consideration as the green juggernaut (at least in the eyes of the media) rolls on.

In Asia, even with current economic issues, industry experts expect to see 2,000 gigawatts of new generation built in the region – that’s 40 times the existing Australian capacity – between now and 2030 and the “inconvenient reality” is that a lot of it will be fossil-fuelled.

(As I frequently point out, real appreciation of the contribution of new construction needs to focus on what each megawatt of capacity can actually produce rather than the “boiler plate” numbers.)

Fuel price, not climate concerns, will be a major factor in deciding how much of this development is coal-fired or gas-based.

Concern in countries like China about airshed pollution will also be a factor.

Bottom line? In the real power production world of Asia, the coal versus gas competition is being played out constantly.

In South Korea, for example, one of the three OECD countries in Asia (the others being Japan and Taiwan), about 10,000 megawatts (10 GW) of additional coal capacity are under current development in a country where 66 per cent of power production (522 terawatt hours a year in total) is from fossil fuels (and 30 per cent from nuclear reactors).

And the newest Korean-financed project is for a 1,600 MW power station in Vietnam’s Mekong Delta province — fuelled by coal bought from Australia or Indonesia.

Meanwhile Japan’s Marubeni Corp plans to build a 1,000 MW ultra-supercritical coal plant in Cirebon, Indonesia.

In India, according to the IEA, 20,000 megawatts (20 GW) of recently-built gas-fired generation is hardly used (despite severe national power shortages) because the LNG price prevents plants recovering their costs in a market of ultra-low electricity user charges (for a country that has the most poor people in the world.)

The Indians are building or planning to build 113 GW of new coal-burning capacity – which must use supercritical technology in new plants from 2017.

(India’s national carbon emissions are forecast to rise three-fold to 5.3 billion tonnes annually by 2030.)

By the way, Turkey doesn’t often get a mention in discussing Asia despite it being a bridge between the region and Europe, but it is relevant in this context because the Turks are en route to doubling their coal-fired power capacity (via 80 new plants) over the next 8-10 years.

The IEA argument is that gas should be seen by governments as an ally in the battle to limit climate change and should be viewed as complementary with renewables in the decarbonization approach.

That’s not what the radical environmental movement wants to embrace – and, broadly, it’s not what the Australian community is hearing because of hyperbole, irrelevancy and unbalanced reporting in media coverage of the energy situation.

Coal and gas are realistically still mainstays of Asian power production and can be expected to remain so until the ‘Thirties and well beyond, which is Birol’s point (see above).

All the implications of this for a country that is big as an exporter of both fuels should be prominent in our debate but, instead, we are treated to postcards from the carbon wars.

Changing times

Bob Dylan’s song “The Times They Are A-Changing” was a big hit when Justin Trudeau’s daddy, Pierre, became Canada’s previous populist prime minister and, so far as energy is concerned, the tune could be resurrected for T2’s first term of office almost a half century later.

Barely two years ago, there was fretting in the Australian LNG industry that proposed western Canadian developments could undermine our own ambitions to build still more gas export projects beyond 2020; now, while the Australian prospects are considered pretty slim, the Canadian chances look less than zero — and not because of the victory of Trudeau the Younger.

We are still in a position here for politicians to parrot the “Australia is an energy super power” line — new Resources & Energy Minister Josh Frydenberg is doing so frequently — and, despite the commodities boom being off the boil, we are still an important player in international gas, coal and uranium trade.

The Canadians, however, went in to this week’s federal election feeling despondent about their energy prospects and pundits there don’t see the new regime offering a resurgence.  One of the challenges they see facing Trudeau’s government is initiating something to replace oil and gas as Canada’s economic growth engine.

An accusations thrown at outgoing PM Stephen Harper is that he made too big a bet on oil and gas in his final term at the expense of other industries and helped to fuel an economic recession.

Already under Harper, and perhaps even more so under Justin Trudeau, what ails Canadian petroleum development as much as the current state of international oil prices is the inability of provincial governments to overcome the opposition of environmental and Aboriginal groups to new infrastructure.

To quote the Canadian equivalent of our “Financial Review,” frustrated investors have already moved on.

“New technology,” says the “Financial Post, ” has unlocked massive deposits of of shale gas and tight oil (elsewhere) that are better suited to respond to increased pricing volatility than Canada’s expensive oil sands or LNG projects that need everyone’s permission to get done.”

The paper quotes a leading money management executive as declaring that “The Canadian energy business has nowhere to go.”

A synthesis of opinion might be that a partial recovery for Canada’s energy operators will depend on some luck with oil prices recovering, considerably more smarts than have been shown to date in overcoming barriers to development, a revised approach to taxes and royalties and a tough one to industrial cost-cutting. Sound familiar?

To add to all the above, the Canadian resources sector is now faced with a Trudeau regime pursuing carbon pricing, not as a national scheme but through getting the provinces to take up measures designed for their own circumstances. What sort of miss-mash this will produce is anyone’s guess but the uncertainty the approach will throw up for the next few years is clear enough.

To an outsider, this issue may seem more of a problem for Alberta (the oil sands province) and British Columbia (the wannabe LNG province) than Ottawa, but the Canadian arrangement to transfer resources benefits around the country (like we do with GST revenue) means that Ontario and Quebec, the Trudeau/Liberals heartland, have received $C200 billion over the past 20 years and this well is going to be running low in the next few years.

Of course, there as here, the links between the health of the resources sector and social benefits is not well understood.

I very much doubt that one in 100 Australians could tell you the level of  the national annual benefit here from just upstream petroleum activity — it is about $9 billion at present and was touted to be $13 billion a year by the decade’s end before the oil price problems struck.

Canadians are in the same boat. There, like here, there is little appreciation that rivers of gold flow in to government coffers from the resource sector to support outlays on hospitals, help for the homeless, education, healthcare, police and emergency services etcetera. And this is before one gets on to community benefits from job formation and so forth.

A symbol for Canadians of the changing times is s camp for oil sands workers near Fort McMurray, Alberta.  A year ago it housed 2,000 workers in 16 three-storey buildings. Now they are empty and the surrounding car parks contain many abandoned cars. In all, Alberta has seen the loss of 35,000 energy industry-related jobs in less than two years.

Nonetheless, there is a lot of work still going on in Alberta to complete projects that were under way when the change came.

Investors, as they do here with LNG developments, manage 30 to 40 year project lives and they are gritting their teeth and working through the slump with the Canadian upstream petroleum lobbying group saying it expects the tough times to last four or five years.

Our investment of some $200 billion in new LNG projects in the past decade mirrors the Canadian outlay of about $C200 billion in oil sands development. In both countries navigation of the present situation is a big challenge for operators of existing developments — and in British Columbia, as here, the prospects for new green fields LNG developments are dim.

One of the early tasks for Justin Trudeau is to deal with the matter of the controversial Keystone pipeline from Alberta in to the US.

This is hugely unpopular with North American environmentalists. Harper and Barack Obama have spent the past four years going round in circles on the development, helping to create an awkward relationship that apparently was among the issues troubling Canadian voters this week.

How Trudeau, as a poster child for the environmental movement, handles this will be interesting, to put it mildly.

The rather left-wing provincial government that ousted the Conservatives recently in Alberta after decades in power, a change now seen as a harbinger of the still bigger one nationally,  would prefer the oil to be refined in the province rather than despatched in to the US as crude. Bagging much more in royalties is high on the provincial regime’s agenda, needless to say.

The bottom line is that Trudeau is becoming Canadian PM at a crucial time for his country’s energy industry.

His father produced a heavy-handed national energy policy 35 years ago that divided the country and led to his defeat at the polls.

Earlier this year, Trudeau Junior stood before the Petroleum Club in Calgary and acknowledged that legacy.

He also said something that has resonance here.

Dealing with greenhouse gas emissions abatement, he declared: “What we need is not ambitious political targets. We need an ambitious plan.”

 

 

 

 

In the ‘hood

One of the oddest things about the carbon/energy debate in Australia is the inability of most of our protagonists of radical decarbonization to see beyond the end of their noses.  One can produce many examples.

Today I’d like to point to something newly published that seemingly has passed the mainstream media by.

This one is geographical; like it or lump it, Australasia (us and the Kiwis) is part of an entity one can loosely describe as South-East Asia (although, whenever it is used, it refers to Them, not Us).

A new publication from the International Energy Agency focuses, of course, on the 10 non-Australasian countries of South-East Asia.

By the way, can you name them off the top of your head?

Alphabetically, they are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Together they have a population today of 616 million. By 2040, on the IEA modelling (the agency always says rather crossly that it doesn’t do forecasts, just scenarios), they can be expected (in the review’s central scenario) to be home to 760 million people.

Focusing just on electricity, although pretty interesting energy issues can also be raised with respect to transport, these nations are expected triple their requirements in 25 years, carrying them towards 2,000 terawatt hours in 2040. (You can’t find a local scenario player willing to suggest more than 300 TWh for Australia at that point after the demand decline experience of recent years.)

This means, the agency says, the need for an extra 400,000 megawatts of S-E Asian generation capacity – and here’s the rub, carbon-wise, about 160,000 MW of this will be coal-fired.

To put it another way, the environmental movement here wants all 30,000 MW of Australian coal generation phased out by 2030 – and Labor is promising, when re-elected, to go a long way towards this via an enlarged RET by 2030 – but the S-E Asians are going to invest in 13 times as much new coal plant.

This, along with uses of other fossil fuels across the spectrum of energy consumption, says the agency, will see carbon emissions in S-E Asia double from 1.2 billion tonnes a year now to 2.4 billion tonnes.

If we put a stop to all Australian carbon emissions over a quarter century, those from our neighborhood alone will be almost five times as much in 2040 as we emit today.

This is not an argument for our sitting on our decaronizing hands here, just, I suggest, a reality check against the shrill cries for radical local action regardless of economic consequences, to “save the planet.”

The broader IEA breakdown of the S-E Asian generation mix is interesting, too.

At present, according to the agency, just on 650 TWh of a total of almost 800 TWh of the region’s power production comes from fossil fuels (coal 255, oil 45 and gas 350). The dominant current renewable source is hydro-electricity, contributing 110 TWh.

In 2040, the IEA’s modelling suggests, the mix will be 1,700 TWh from fossil fuels (1,097 coal, 578 gas and the rest oil) and more than three times as much output from renewables as today – with hydro contributing 255 TWh and sources such as wind and solar 93 TWh.

The region, notably Indonesia and the Philippines, also intends to treble its use of geothermal energy, reaching 58 TWh in 2040.

The other new contributor, says the agency, will be nuclear power, delivering 32 TWh annually.

The three big players in the expansion of coal generation will be Indonesia, Thailand and Malaysia.

Of course, we read almost every month about some new step (by entities such as the World Bank, for example) to eschew financing coal power and each such move is greeted here with much media noise, especially on the websites heavily colored green. But, as the IEA quietly observes, Chinese banks and equipment manufacturers are a key source of funding for S-E Asian coal-burning developments.

Do you recall presidents Obama and Xi touching on this in their latest climate change love-in?

One of the common games played in renewables propaganda is to focus on the capacity of new developments rather than the capacity factor, in other words the plants’ annual production potential.

So, one can highlight the fact that renewables generation capacity in S-E Asia, on IEA modelling, is going to more than treble in 25 years (to 170,000 MW) and its output is going to more than treble, too – but the growth in production from fossil fuels (1,050 TWh) will well and truly exceed the rise in renewables output (340 TWh).

The projected growth in coal-burning production alone is 610 TWh.

The IEA review includes an interesting bar chart showing, first, the anticipated capacity factors (in 2030 in this case) of supercritical coal, CCGT gas, large hydro, geothermal, wind and solar – respectively 75 per cent, 60, 33, 75, 27 and 17.5 – and, second, their fixed costs per kilowatt hour in $US (in the same order 64, 25, 55, 64, 43 and 24).

The all-up investment over 25 years in electricity kit, by the way, is expected to be $US1.3 trillion of which more than half will need to be in transmission and distribution.

And let’s not overlook the fact that the delivery lines are just as necessary for wind farms, hydro power and geothermal systems as for fossil fuel plants, something I note that our Greens do not seem to appreciate.

As well, here’s a point of more than passing interest to the Australian-based LNG industry: the IEA foresees that S-E Asian domestic demand is going to outgrow regional gas production over this quarter century, requiring the 10 countries to import about 10 billion cubic metres annually by 2040 – and, of course, largely removing the region as a competitor in international trade.

Now any petshop galah should be able to tell you that the only certainty about this sort of modelling over an extended time frame is that it is highly unlikely to be especially correct – but, given where we are today, it is the direction that is so interesting along with the additional context it provides for debate in Australian, always supposing anyone is paying attention.

I have yet to see this review reported in the Australian media. How can ordinary Australians understand the context of the exhortations being hurled at them in this debate if the media don’t impart information of this kind?

The empowerment game

Reading issues papers, responses to them and institutional reports, it’s clear that rule-makers, regulators, power suppliers and consumer NGOs are wrestling seriously with the multiple questions of new relationships in electricity markets even as the mass media (newspaper, TV and radio) insist on continuing to treat the situation as a Punch & Judy show.

The “Business Spectator” headline writers today have captured the essence of what I have been saying about this here and elsewhere lately by tagging my latest commentary there (www.businessspectator.com.au) “Enough of the energy melodrama.”  The point extends beyond consumer relations, of course, in to other areas such as the energy/carbon debate and the ongoing radical rage about gas exploration and development.

A touchstone for the consumer-related discussion is the current Australian Energy Market Commission project on strategic directions for market development, a report due to be on the table in front of new federal Resources & Energy Minister Josh Frydenberg (in the chair) and his State and Territory counterparts when they meet in Canberra in December as the CoAG Energy Council.

Stakeholder submissions reacting to the review issues paper are now appearing on the AEMC website (www.aemc.gov.au).

In one of these, speaking up for competitive markets, AGL Energy’s Tim Nelson (head of the gentailer’s policy and sustainability unit) makes a good in-principle point, I think, when he writes: “Customers need to be empowered to make informed choices about the way they use energy and (they) are best placed to select products and services that suit their circumstances and avoid ones that do not.”

One needs to interpolate “should be” ahead of “best placed,” I suggest.

Just how many are in this positive situation in the east coast electricity market right now is a good question. Suppliers and their lobbying bodies tend to point to the retail “churn” rate to indicate the exertion of such consumer power, but I am not convinced yet that many of the end-users actually have an adequate energy literacy to genuinely empower them even as they gain benefits (provided they stick to the terms of contracts) in shopping around.

Earlier AEMC-commisioned polling indicated around half of respondents (people who are actually accountable for making electricity decisions in their homes as opposed to the broader mob who tend to be canvassed by political polls) are satisfied that they are getting value for money. Is this good enough?

Nelson goes on in the AGL submission to say the company agrees the market needs to both facilitate consumer engagement and to ensure that vulnerable customers in particular are supported.

Looking at media coverage and NGO commentaries in this space, it is obvious (and understandable) that rather a lot of focus is on the confused and the lower income consumers, not to mention those swimming sharkily through the pool looking for a feed at the expense of the vulnerable.

My criticism here and in Business Spectator this week of the media coverage of the St Vinnies’ research is not of the problems thrown up but of the media inflation of the review in to wholesale “gouging” and “swindling” of customers, which is both untrue and involves games being played with data.

Is there are marketplace where shit doesn’t happen? I doubt it and the businesses who are law-abiding are always tarnished by the relatively few on the make, much to the joy of the tabloid media, a pretty shark-like crew themselves. That rather rough (and not new) newspaper joke that “If it bleeds, it leads” is still a substantial driving force in what dares to call itself journalism.

The issue is not that bad things happen or that perpetrators should not be exposed, but problems are beaten up far beyond honest, evidence-based reporting. And that such coverage is used to badmouth electricity market competition and to demand more regulation.

It is entirely understandable that companies like AGL, to quote the Nelson-signed submission, want a regulatory framework that is “flexible and customer-focused” so that consumer preference for supplier offerings drive things.

Politicians, too often a pusillanimous crew when they are not leaping blindly on to bandwagons (confer federal Environment Minister Greg Hunt sharing with us his belief that “significant numbers of consumers will leave the (power) grid in coming years” because battery storage is the key to this “inevitability”), need to be game in pushing forward with completing east coast retail deregulation, pursuing an efficient roll-out of smart meters and embracing cost-reflective network tariffs rather than pursuing market interventions because they are apparently popular.

Given that these things can be achieved, consumer preference is indeed the way to go — but we also need both governments and suppliers do a much better job of providing really useful, digestible information for users.

Nelson points out in the AGL submission to the AEMC strategic directions review that the provision of “high quality and meaningful information” is critical to genuine customer engagement and says his company “welcomes initiatives to educate customers about their options.”

AGL raises another issue in this submission that I think also needs a lot more thought: today’s regulatory settings, Nelson writes, were developed for a fundamentally centralized energy system with clearly defined market participants. More or less, they are now a decade-plus old. What needs to be done to make them suitable for the anticipated future (let alone the one where more technology will come out of left field and blindside players)?

AGL suggests there need to be (a) good standards to ensure that new technologies in homes are safe, fit-for-purpose and of high quality, (b) provision of demand-side services on a competitive basis with regulated revenues not used to support business activities in contestable markets, (c) ring-fencing to separate the monopoly activities of networks from the new, contestable services and (d) of course, network tariff reform “to ensure that those with and without solar PVs and other technologies (such as air conditioning) contribute equitably to the cost of providing shared network services.”

Just getting the CoAG Energy Council to commit to actually delivering these four initiatives when would be a huge step forward — but don’t hold your breath. Political maps, like those from medieval times, are only too often marked “here be dragons” unless the “picking winners” gang are having their day and embracing “soundbite solutions.”

Sadly, not even the better elements of newspapers — I regard mass market radio and TV “journalism” as mostly a lost cause in the energy environment — seem to see the AEMC strategic directions exercise as worth attention. (Put the topic in to Google News — there’s not a single entry.)

And as a postcript, there is an interesting number in the AGL submission — the company says east coast residential customers are now using 17 per cent less grid electricity than they did in 2009. No, it’s not a harbinger of the “death of the grid,” but it’s a jolly good indicator of why “it’s all about consumers” is a slogan the AEMC has embraced and that the supply industry has no difficulty in agreeing.

 

Are you being ‘gouged’?

Not for the first time, the media are telling mass market consumers they are being ripped off – “swindled” said one, ”gouged” said another – over their power bills.

Not surprisingly, this translates in to public opinion that has the cost of electricity and gas (via an Essential Report opinion poll) as top of a list of issues about which Us Outdoors are “very concerned” – 52 per cent of those polled versus, for example, 42 per cent for each of the cost of petrol and the cost of food and groceries.

By contrast, as I have pointed out here before, polling for the Australian Energy Market Commission that focused on people who actually pay household electricity bills found 40 to 50 per cent of them think they are getting value for money in power supply (sentiment varies by jurisdiction).

The latest media fuss centres around claims that the retail component of end-user bills in the mass market is too high.

As is the way with journalism – I am sorely tempted to put that word in inverted commas – the line in the stories reaching casual readers/viewers/listeners is that “half” power bills is now made up of retail charges and the retailers are allegedly playing murky profiteering games.

What the research on which the review on which the media reports are based actually says (with respect to the major markets – New South Wales, Victoria and Queenland, home to 78 per cent of residential consumers nationally and a still higher percentage in the NEM) – is that retail charges are as high as 45 per cent in Victoria (they actually vary between 39 and 45 per cent, depending on the network franchise area), range between 31 and 35 per cent in NSW and are as low as 21 per cent in populous south-east Queensland.

There is a table in the review, produced by consultants for St Vincent de Paul, showing, for the most populated areas of NSW and Queensland, that the retail bill (when fixed use of service and GST charges are removed along with the wholesale price of power) is $597 out of $1,737 (the average power bill for a 6,000 kWh-a-year home) for the former and $558 out of $1,934 for the latter.

The Victorian numbers are all substantially higher (the largest being $1,166 out of a $2,141 bill) but, for some five million of roughly eight million east coast homes, the “retail swallows half your bill” line is simply wrong.

Yet this is what in essence these people have heard from media reports – along with calls for retail charges to be regulated to save consumers from this “rip-off.”

In Victoria, by the way, when you exclude the GST, fixed use of service charges, the cost of “green schemes” and the burden of the State’s smart meter roll-out charges, retail charges range between $703 and $833 or roughly two dollars per day.

You can read all this stuff on the St Vinnies’ website by looking for “National Energy Market – Still Winging It” at www.vinnies.org.au.

The Energy Supply Association, not surprisingly, is incensed that the media reports state or imply the competitive market and retail deregulation are not working.

ESAA chief executive Matthew Warren says: “Competition is working as shown by the number of competitors and the range of discounts and deals.”

He argues that the report getting all the media attention does not include some of the discounts available to customers, “which can reduce bills by more than 20 per cent.”

The situation, he adds, is like claiming milk prices should be regulated because the local convenience store price is too high even though everyone knows cheaper prices are readily available in the supermarket down the street.

ESAA, says Warren, would welcome a review if it covered the full range of energy services available to customers, including solar power, storage and other new technologies.

Such new services, he comments, increase competition among retailers.

“We (would) welcome an overhaul of regulation that recognizes the full range of ways households can access electricity supply and (leads to) smart regulation to allow even greater diversity in the services offered.”

Warren declares that this outcome for most consumers would mean “governments getting out of the way to allow all suppliers and customers to search freely for the best ways to package up electricity supply services.”

Energy, he argues, is no longer just about the price in cents per kilowatt hour – it’s about the end services people want and their total cost.

The real points at issue here, I argue, are that (a) the system doesn’t work for all householders, especially those who find pursuing deals hard, (b) the very large price rises of recent year still ricochet through public sentiment, (c) help for those in genuine hardship remains a significant issue that governments are not handling at all well and (d) a much better effort needs to be made by government and industry to educate consumers (for whom the energy bill is just one hassle among many) about how to help themselves.

Absolutely none of the above is helped along by the “gouging” and “swindling” notes being played by the massed bands of the media.

An upbeat view

The Australian Energy Market Commission is marching towards summer — and an important CoAG Energy Council meeting in December — on what might be described as a cautiously upbeat note. The future may be hard to predict, it says, “but this should not be a cause for alarm” if there are sound framework policies and governance is good enough to enable “the orderly and evidence-based” review of market requirements.

In its short overview of east coast energy markets for 2014-15, the commission — under the slogan “It’s all about consumers” — says a theme in much of its work (making the market rules and advising the nation’s energy ministers)  is how best to manage uncertainty and it acknowledges this exists in particular about how fast some technologies may be adopted, about future investment and about how consumer responses in a “carbon-sensitive world” may affect the nature and level of demand.

Despite all this, the commission chairman, John Pierce, and departing chief executive, Paul Smith, say they are “optimistic” that collaboration between governments, industry, consumer groups and market institutions will enable Australia to harness the benefits of “this new era of (energy market) transformation.”

It has to be noted that this is not an optimism fully shared among stakeholders and observers of the marketplace and 2014-15 in particular has seen a high level of criticism of the state of the electricity and gas marketplaces, the standard of NEM governance and the ability of politicians to steer the energy ship.

The new financial year (2015-16) has also begun with a full-on clash between the electricity network businesses and the Australian Energy Regulator over the new grid revenue determinations with the Australian Competition Tribunal now in the umpire’s seat and distribution employees in New South Wales in turmoil over large-scale redundancies being pursued and threatened.

One could argue that it is not “all” about consumers; some of it is about several thousand employees whose jobs are on the line across the supply chain — roughly the same number as affected by the decline and fall of the automotive sector — and some of it is about investors in the private sector players, not many of whom would be feeling relaxed and comfortable at present.

Pierce and Smith observe that households, businesses, industry participants and investors must have confidence that the regulatory framework can adapt to the “accelerating change in energy market dynamics.”

Their perspective is that “more than ever, we need competitive efficient markets to keep the cost of energy supply as low as possible.”

The commission takes the view that the markets will operate responsively if incentives for investment are sound and all consumers, big and small,can see the costs and benefits of emerging energy choices.

For its part, Pierce and Smith say, a series of arrangements the AEMC is putting in place “will see see more efficiency price signals emerge, remove cross-subsidisation and give users information they need to manage usage and best reduce their costs.”

The issue of price signals is “becoming more important day by day,” they add — to which said observers might add “and so is the willingness of politicians to take ‘courageous’ action” to implement the widest possible roll-out of smart meters, the introduction of  cost-reflective prices and full retail deregulation, not to mention the  policymakers’ capacity to pursue integration of their energy and carbon abatement management.

Tucked away in the smaller print of the colorful brochure the AEMC has produced as its “Driving change in the energy market” report is the observation that the annual competition review, published back in June, called for consumers to be given better information so they can benefit from greater competition, for greater awareness to be created of government-run comparison websites and for steps to make switching between retailers faster and easier. These are not unimportant in the context of “It’s all about consumers” and the Energy Council meeting could reasonably be expected to get on the front foot in this regard.

The ministers no doubt will be much exercised in looking at the final report on market governance by the Vertigan panel and submissions were still flowing in to it in early September, notably from the Australian Energy Regulator.

The AER reminds Vertigan and his colleagues that what is going on in governance now flows from the key 2012 AEMC “Power of Choice” review.

The reforms flowing from that report, it says, “are designed to increase the responsiveness of the demand side to to evolving market, technological developments and changing consumer interests over 15 to 20 year” and they are “in the process of being implemented.” Governance, the regulator insists, is “resilient” and “able to accommodate market change.”  And, it adds, “works well in delivering outcomes in the long-term interests of consumers.”

The AER is all for the panel’s view that the way forward lies in the AEMC advising the Energy Council on strategic direction and guiding it on market priorities, with the regulator and the Australian Energy Market Operator “engaged” in this work and an “open door” for other stakeholders “to get innovative thinking on the agenda.”

How far this will go to satisfy the strong theme in submissions to the Vertigan panel that there is a “strategic policy deficit” which has led ministers in to a quagmire of “diminished clarity and focus” and “a diminished sense of common purpose” waits to be answered.

 

Power of coal

The comments to shareholders by AGL Energy chairman Jerry Maycock at yesterday’s company annual general meeting in Melbourne make interesting reading — not just for current investors but for those of us more generally who are concerned about Australia’s energy policy.

The big ticket point (for policy hounds), interpreted somewhat differently today by the “Australian Financial Review” and the “The Australian” (which, incredibly, has a photograph of Maycock and previous CEO Michael Fraser rather than the current one, Andy Vesey, adorning its report) is is the need for a national policy to facilitate the removal of coal generation from (in particular) the east coast marketplace.

For the “Fin,” this indicates a revival of talk of government support for closure of coal-burning plants in the NEM. Questioned after the AGM by media, Vesey is reported to have argued that AGL has “never advocated” taxpayers supporting closures, saying the company wanted “market fundamentals and regulation” to drive any such shift.  The “regulation” bit raises the question of whether the company’s board would favour an Obama-style regulation to put a limit on emissions per megawatt hour, effectively pushing less efficient coal-burning plant to close?

When I see this sort of stuff in the media, I immediately head for the source and, in this case, Maycock’s speech is on the AGL website.

With respect to coal generation and carbon abatement, it is well worth reading.

AGL, of course, has ventured in to building wind and solar farms (spending about $3 billion) in recent years — but the capacity involved and the power able to be produced from such renewables is outweighed by a very long way by its acquisition of Loy Yang A power station in Victoria and the associated brown coal mine producing 30 million tonnes a year plus the Macquarie Generation plants (black coal, delivering an eighth of electricity consumed in eastern Australia) in the New South Wales Hunter Valley.

(The Latrobe and Hunter valley operations together involve 6,850 megawatts of capacity. By comparison, all AGL’s renewables activities in 2014-15, including hydro power, added up to 1,700 MW.)

The business reason for doing so is made clear by Maycock: “Both these businesses were acquired on attractive terms and are producing significant profits and cash flow.”

Maycock tackled the issue of how AGL squares its much-publicised support for renewable generation with these purchases (apart from the obvious point that the coal plants are real money makers) and he explained this way: “AGL explicitly supports global action to progressively transition away from fossil fuel generation. We have set out our intention not to construct further coal-fired generation in the absence of (mitigation) technology such as carbon capture and storage.

“Given our baseload capacity is now adequate to meet our needs, we will not acquire any further coal plants nor will we extend the technical lives of our existing coal generators.”

He went on: “While we hold the view that the need for purposeful plan to decarbonise Australia’s power generation is clear, this requires the introduction of a coherent national plan and support of relevant government policies. Realistically, this will take several decades if we are to avoid immense and unaffordable cost impacts on consumers and the economy.”

Maycock’s third point in defence of his board’s approach is “the profits and cash flow from (our) coal-fired generators will help us to continue to invest in renewable assets if and when the (market) climate improves as well as funding investment in new technology (such as) energy storage.”

(What a nonsense this last statement makes of a national newspaper headline only last April — when Vesey said Liddell would close in 2022 — reading “AGL turns its back on coal-fired power.”)

The bottom line, said the AGL chairman yesterday, is the company is trying to play its part in supporting Australian carbon reduction “while taking care of our obligations to our shareholders” and while “providing secure, reliable and affordable electricity and gas” to its 3.8 million customers.

All this is worth reading in conjunction with Maycock’s opening comments in the company’s 2015 annual report (also on its website).

” The realities in Australia are that fossil-fuelled electricity generation accounts for more than 80 per cent of the market and, in the medium term, is critical to maintaining a secure, reliable and affordable supply. It is important to manage the transition away from fossil fuel dependency over a period of time that balances the need for change with these realities.”

It isn’t hard to throw green rocks at the corporate stance — I see one such commenting that “while AGL thinks climate change is a really serious problem, (it) thinks the profitability of existing generation capacity is a higher priority” and you can find 444 Google News current entries combining “dirty” and the company name — but AGL’s efforts to cope with its responsibility to shareholders now and in the future as well as with the social and political need to be on the front foot with respect to sustainability are on public display. Only the naive, the facile and ideological warriors think or claim the choices are easy and capable of swift resolution.

The annual report also makes the point that “complementary policies” will be needed (beyond the RET, a measure still burdened with uncertainty) to “address barriers to exit for ageing emissions-intensive power stations.”

What stands out if you try to be objective is that the power of coal in Australian electricity supply is not just high right now but is going to remain so for years ahead. Moving towards a lower emissions mix requires a lot of time, as the AGL chairman is clearly saying, and progress isn’t helped by our national inability to forge a durable, clear and efficient melding of energy and carbon abatement policies — or the national inability to have a literate discussion about energy supply.