Archive for May, 2016

RET-go-round 23

It’s eight months since I last wrote a commentary in my RET-go-round series but the renewables carousel has been whirling all that time and it is speeding up now with the federal election almost upon us.

Just in the past few weeks we have had:

• The Energy Networks Association arguing the case for technology-neutral policy to allow all low-emission technologies to play a role in meeting national abatement targets.

• The ALP launching its climate change prospectus for the federal election, promising a 50 per cent RET by 2030.

• The Clean Energy Council releasing its “Power Shift” paper arguing for “strong and long-term” RETs that “ensure the steady and continued” deployment of wind and solar power.

• BIS Shrapnel reported in the media as being “highly doubtful” that the current RET can be met by 2020 – with $10 billion of investment (others say $12 billion) needed in an environment where lenders are wary because the policy keeps changing.

• The Greens wanting to see $2.9 billion spent in subsidies over five years to drive take-up of electricity battery storage. The Greens’ target, of course, is 90 per cent renewables by 2030

• The Grattan Institute publishing a “roadmap” for climate change policy and arguing in it that, while existing RET-led investment should be protected, the scheme should not be extended if a “robust intensity baseline scheme” for power generation is put in place.

• The Australian Forest Products Association calling for the RET to be amended to allow wood waste to help “plug the gap” in investment.

David Blowers of Grattan Institute has an interesting commentary, published in mid-April on “The Conversation,” explaining the “roadmap” with a headline that states “One day we won’t need a RET because we’ll have good climate policy.”

Meanwhile the South Australian Labor government, wrestling with the market impacts that the large amount of wind and solar power policy has delivered in the State, is kicking a can down the road for much more investment on the east coast in high voltage transmission – and the Coalition federally, in what is an obvious poll ploy, has agreed to subsidize a feasibility study for a second Basslink in an environment where the failure of the existing link has Tasmanians more than a little unhappy.

The study will be overseen by a former federal minister, Warwick Smith, MHR for Bass for a time, and the Clean Energy Finance Corporation, with a preliminary report to be delivered next month and a final one at the year’s end.

Malcolm Turnbull told a media scrum in Hobart that “there is potential for enormous additional investment in renewable energy in Tasmania.” He asserted that the new link would be commercially viable with private sector support because of the opportunity to sell hydro and wind power to the mainland.

It is less than two years since Hydro Tasmania killed off a project to build a 600 MW wind farm on King Island and link it to Victoria with a new connection because the concept was not commercially viable.

In March this year consultants Pitt & Sherry told media that it would be difficult to demonstrate net market benefit (required by NEM regulations) for Basslink 2 and suggested that the estimated $1 billion price tag would be better spent building more wind farms to complement the State’s hydro-power system.

With respect to the grander scheme of things, Grattan Institute’s Tony Wood told “The Australian” a few days ago that Labor’s plan for half Australia’s electricity to be based on renewable energy by 2030 would require more than 25,000 megawatts of capacity and about $48 billion of capital. If the whole task was dependent on wind power, he added, between 7,000 and 10,000 turbines would need to be installed.

The RET debate revolves endlessly around cost – capital outlays, the wide-ranging non-generation expenses of a major transition (like the cost for land acquisition) and impacts on consumer bills for the mass market and large and small business, a matter of constant controversy – but this is not the only issue.

As the Australian Energy Council puts it: “The integration of high levels of renewable energy into the power grid is a major technical challenge that is still to be solved.”

And, as the Energy Networks Association says, we need a policy framework that doesn’t change every election and can deliver carbon abatement at least cost for consumers while managing energy safety, security and reliability.

ENA rightly adds that renewable energy will play a key role in electricity supply’s transformation “but it’s just one tool in the toolbox (which should also include) demand management, carbon capture and storage and low emission fuels such as gas and carbon capture and storage.”

(As well, the coal industry keeps pointing out that a country with our resources shouldn’t ignore the potential of high efficiency, low emissions plants capable of delivering baseload power with 50 per cent less emissions than the conventional units dominating supply today – and the nuclear advocates keep reminding us of the potential of small modular systems.)

The impending delivery of reports by the South Australian nuclear royal commission and the Queensland Productivity Commission (two reports – one on solar power and the other on electricity pricing) will provide more grist to this mill.

The one certainty is that the RET-go-round is nowhere near running its course – which I suppose is good for commentators like me but hardly much fun for investors and, in the long run, for all of us as consumers.

Tuned for the times

One of the biggest annual conferences in Australia is now only a few weeks away – and events are conspiring to make it highly important in the energy debate.

The forum is the APPEA conference, now in its 56th year and which I oversaw for 11 years last century as executive director of what is now the Australian Petroleum Production & Exploration Association. I will be attending it next month for the 31st time.

The current turbulent state of the petroleum industry and the stringent budget management of stakeholders poses a marketing challenge for the conference managers this year, but the focus the event brings to key issues is still, as it has been over five decades, central to the Australian energy debate.

APPEA chairman Bruce Lake makes an interesting point in the 2016 conference brochure (which you can find at www.appeaconference.com.au), noting that the meeting in Brisbane comes 110 years since the Australia gas industry kicked off with a field discovered at Roma. Today, as he says, Queensland leads the world in coal seam gas production and hosts three substantial LNG projects, the first ever to use CSG as a feedstock.

What this and the resource sector as a whole means for the State is highlighted in the brochure by Premier Annastacia Palaszczuk, who says minerals and energy has contributed $32.9 billion to the Queensland economy last year.

The government, she adds, is keen to work with the resources sector to attract still more investment – a perspective that runs directly counter to the campaigns by activists bedeviling gas activities in neighboring New South Wales and in Victoria.

APPEA chief executive Malcolm Roberts asserts the conference is “tuned for the times.”

As an example of what he means, one of the big ticket plenary segments will see a focus on the future of energy featuring Peter Hartley, who holds chairs in economics at Rice University in Texas and the University of Western Australia, Regina Mayor, the KPMG energy leader in the Americas, John Lyden, managing partner in Australasia for McKinsey & Co, and Peter Coleman, CEO of Woodside Energy.

In the wake of the Paris climate change agreement, this segment alone is worth attendance in my book — although 100 speeches and presentations on the program provide a pretty wide choice.

Coleman made a challenging point at a recent forum in New York when he argued both that renewable energy and gas should be seen as complementary fuel sources and that our federal government should be taking on a greater role in encouraging a sensible policy debate internationally, given this country’s status as a major exporter of energy.

As APPEA observes laconically in the program brochure, “not all see an ongoing role for natural gas in a clean energy future” and a fair bit of this year’s conference is devoted to tackling the ongoing communications challenge the upstream petroleum industry faces.

One of the highlights for me of this part of the program will be an address by Cameron Hepburn, who is professor of environmental economics at Oxford’s Smith School of Enterprise and Environment.

In this context, the event winds up with an interesting focus on stakeholder engagement, to be facilitated by journalist Ellen Fanning, and including Peter Botten, whose leadership of Oil Search Ltd in pursuing petroleum development in Papua New Guinea has been one of the success stories of the past three decades, John Cotter, chairman of the GasFields Commission in Queensland (an agency I have argued for ages should be replicated in NSW), and Seiya Ito, the Australian boss of Japan’s INPEX, which has developed an LNG project on the doorstep of a capital city (Darwin).

Also, with the federal election looming within a month of the conference, a lot of attention is going to be on the three politicians performing at it – federal Energy Minister Josh Frydenberg, his Labor counterpart, Gary Gray, who is retiring from Parliament, and the Queensland Treasurer, Curtis Pitt, who has declared his (and the State government’s) ambition to deliver a “cleaner, greener energy future” for the State.

No doubt Frydenberg will ride hard on the recent east coast gas market report by the ACCC (which APPEA sees as confirming the industry view that more gas and more suppliers are the answer to consumer needs, not moratoriums and domestic gas reservation) but I wonder whether he will also take the opportunity to speak up for the CoAG Energy Council pledge to do a better job of integrating energy and carbon policies?

His leader, Prime Minister Malcolm Turnbull, ignored this important issue when he spoke at the LNG 18 conference in Perth a month ago.

Gray, of course, in his contribution has to carry federal Labor’s climate change policy for the election in to the fossil fuel lion’s den – including its commitment to drive a far higher national abatement target by 2030, a proposal criticized for being made without full understanding of the cost.

His past pragmatism as energy minister for a relatively short time and as an Opposition energy spokesman who has supported gas development have won him resource sector regard. It will be interesting to see how he handles this gig.

The APPEA conference doesn’t do boring – one of the more entertaining tasks of my quarter century as an energy sector lobbyist was overseeing the 1983 event that started a day after the Fraser government was defeated by Bob Hawke – and I have no doubt this one will live up to that reputation for the 2,000 or so attendees at the Brisbane Convention Centre early in June.