Archive for June, 2016

After the ball is over

There was a popular 1890s song that still used to be played on radio when I was a kid (six decades ago).

The lines everyone knew went like this: “After the ball is over, after the break of morn/After the dancers’ leaving, after the stars are gone/Many a heart is aching/Many the hopes that have vanished after the ball.”

Following the aftermath of the Brexit vote, it seems an appropriate dirge for the times — unless you are Malcolm Turnbull and the Coalition, who are inclined clearly to think the British upheaval provides the perfect stake in the heart of Labor hopes in the run-up to 2 July.

As is only too obvious, the politicians of Britain have no follow-up plan to the “leave” vote and I suspect that, long after they have blundered their way to what they hope is a safe harbour after the shipwreck, one of the prices they will pay is terminal (further) damage to their standing with their electorate.

It has been interesting (to me) over the past two days to follow the reaction to Brexit from energy stakeholders over there, not the least of which has been opinion in some quarters that the development could throw a spanner in the works of European efforts to pursue the Paris climate accord.

Britain, for example, has the world’s largest offshore wind industry and many of its projects are funded by big European utilities, aided by EU support.

The country is also a key part of the effort to create an internal energy market in western Europe, a project that has looked in better shape recently after almost 20 years of tortoise-like progress. An EU-wide grid is critical to the market and Europe without its third-largest energy market is a different set-up.

Angus MacNeil MP, chair of the House of Commons energy and climate change committee, says what Brexit means for the UK energy industry is an open question because the “Leave” campaigners have no idea, not even the skeleton of a plan. The UK has managed to look small-minded and distrustful of others, he adds, and this may prove quite a deterrent for future investment in the sector — with consequences for energy prices.

One of the biggest of those investors, Electricite de France (EdF), has produced a Gallic shrug and a comment that, really, whoever turns out to be in charge in the UK, the decarbonisation plan has to be pursued and the nuclear option is the only viable card on the table. (EdF is building a major new nuclear power station at Hinkley Point in Somerset.)

Needless to say, there are all sorts of other energy-related views being thrown up in the wake of the Brexit vote.

Leaving the single market could open the UK to new import taxes, adding cost to equipment such as foundations for offshore wind farms or parts for the Hinkley Point project, some suggest. But it would also eliminate the EU’s trade duties on Chinese solar equipment imports, exposing domestic companies to much cheaper panels and modules, according to Bloomberg New Energy Finance.

Richard Black, director of the Energy & Climate Intelligence Unit in London, echoes the view that Brexit poses an early challenge to energy prices due to reduced investor confidence. Affordability and security of supply, he adds, have been enhanced for Britain by increasing gas and power connections with the EU.

On the perceived threat to climate change policy, with some already arguing that the green agenda needs to be deprioritized while UK business “goes in to fire-fighting mode,” Black is dismissive: there would be a strong cross-party majority in the Commons and the Lords defending existing legislation, he argues.

Others fret that the UK leaving the EU will mean the pro-market voice in the climate change discussions in Brussels will be weakened and the proponents of statist schemes will get a boost.

Questions are also being raised about how a Euro-sceptic government in London will approach the commitments made at the UN’s Paris summit on climate change.

One possibility is that a new British government could promise a post-Brexit elimination of the 15 per cent GST required by EU membership, allowing a solid cut in gas and electricity bills.

The requirement to pursue 20 per cent renewable energy in the UK by 2020, another product of EU membership, claimed by its critics to be likely to cost Britons almost five billion pounds a year next decade, could also be in play

Rather a lot depends on who the Conservatives choose to be Prime Minister following the self-defenestration of David Cameron.

The widespread supposition in the media that it is likely to be Boris Johnson — “Donald Trump with a Thesaurus,” one of his political critics called him in the Brexit campaign — may turn out to be wide of the mark. Whoever it is will probably need to call a new general election, which could well coincide with the American presidential election.

Given what else has gone on in the first six months of 2016, you would have to think hard about a year of more geo-political uncertainty in the world post the fall of the Soviet Union.

Locally, we have to get over the hump of 2 July’s double dissolution election and an ensuing joint sitting of Parliament (assuming a Coalition victory, which I believe is probable) before things settle down here.

The future for Australian energy policy is going to be a work in progress for a fair while yet — with all that implies for local investor confidence.

Verily, we live in interesting times.

We need leadership

Ian Hunter put his finger on the core issue when he spoke on the closing day of Australian Energy Week in Melbourne.

Hunter, South Australia’s Minister for Sustainability, Environment and Conservation, said: “Regardless of who wins (federal) government on 2 July, Australia needs national leadership on climate change and energy policy. We also need long-term policy stability.”

How far this thought will be on the table in a practical sense when the nation’s energy ministers meet in Darwin soon after the election under the umbrella of the CoAG Energy Council remains to be seen.

Their pledge at the previous meeting on 4 December on working to integrate energy and climate policy was immediately followed by Victoria going it alone in embracing a State-oriented, much higher RET approach, whereas Queensland Productivity Commission for one — its chair, Kim Wood, spoke at Energy Week yesterday, too — is urging jurisdictions to act nationally rather than regionally.

Wood’s commission, by the way, delivered its final report on electricity pricing to the Queensland’s Treasurer, Curtis Pitt, on 31 May. Pitt could take until almost the year-end to release the report to public scrutiny under the enabling legislation for the commission but I suggest that it is in the interests of both his own constituency and the broader national one to put this document in the public arena asap.

In chairing the final day’s forum at Energy Week, I made the point that such discussions constantly raise new issues or cast existing ones in a different light, but the “trilemma” facing our national leadership remains the same: deliver all of a low-carbon economy, continuing security and quality of electricity supply and lowest-possible total system costs.

Hunter told the final day’s audience that his government continues to support a market mechanism at the national level to reduce power sector emissions and will continue to “advocate for a plan to modernize our electricity sector.”

Another speaker, AGL Energy’s Fiona Orton, argued that we must redesign our 20th Century electricity market regulatory system to match 21st Century technology.

The Centre for International Economics’ Saleem Mazouz  provided a strong articulation of the need for a market mechanism to facilitate the exit of the highest-emitting generation plant.

South Australia’s Hunter again spoke out on the importance of a new inter-government focus on east coast electricity interconnection.

“Energy generation should occur where the best resources are located,” he said, pointing out that his State has large, high-quality renewable energy resources (ie wind and solar) that exceed local needs and can meet requirements for zero carbon power resources in neighboring jurisdictions (ie Victoria and New South Wales).

“But what’s the point of growing our (SA’s) renewable energy output if we can’t export the excess to the rest of the NEM?”

He told us that the SA Premier has written to both Malcolm Turnbull and Bill Shorten seeking support for a plan to increase high voltage links between the State and its neighbors, arguing that this will put downward pressure of prices — by which, of course, he means reducing the expense of recourse to wind and solar as low-cost brown coal plant in particular is squeezed out by climate change policy — and improve security of supply.

South Australia, as I have reported on this blog previously, is putting funds in to a exercise by private sector ElectraNet to explore options for greater interconnection with the eastern States while Turnbull has the federal government engaged in reviewing the case for Basslink 2.

Hunter’s argument at Energy Week was that the NEM “was an excellent piece of market reform in the 1990s, but its rules and design reflect that time — not the world of today or the world of tomorrow.”

This, he added, is not to suggest dismantling the NEM, but improving it.

In particular, and the self-interest of South Australia is obvious here, his government wants market rules changed to enable power to be traded across country “more flexibly” and to allow States to “develop and leverage renewable resources.”

It also seeks a change to the market objectives to insert the aim of pursuing net zero emissions — Hunter arguing that Australia’s electricity sector must (his emphasis) be “decarbonized by the middle of this century.”

It wasn’t really surprising that both he and Mazouz encountered audience questions about who bears the cost of (a) strong expansion of links and (b) any scheme to ease higher-emitting coal plant out of the east coast market.

Ultimately, I suggest, it has to be either the consumers (75 per cent of whom by volume of consumption are businesses) or the taxpayers.

All of which is reinforcement of the case being put forward by Hunter — and many others at Australian Energy Week and elsewhere — for national leadership in this broad arena.

It was Keating, Goss and Greiner who came together, despite their political differences (two Labor, one Liberal), to drive CoAG’s predecessor to grasp the market reform nettles of the 1990s. They didn’t leave this to their energy ministers.

Will 2016-17 be the (financial) year where, after 2 July, the Prime Minister — and I still see persuasive (to me) evidence this will be Turnbull although one can argue endlessly about the margin of victory — turns to his State counterparts and pursues the leadership needed?

Meanwhile, I can tell you, pursuing our “energy outlook” agenda, Quest Events and I are now aiming to present a “Re-powering New South Wales” conference in Sydney in October.

As the saying goes, there’s no show without Punch, and the size of this State’s economy and electricity sector, as well as size of the decarbonization challenge in NSW, make such a forum an obvious next step in facilitating the national discussion. The last such focus was a “NSW Energy Summit” called by the Coalition government in late 2011 and it is fair to say that there is a lot of unfinished business flowing from that talkfest.

Australian Energy Week

From a mainstream media perspective, the big news from this week’s Australian Energy Week conference (see that I am co-chairing in (cold,wet, windy) Melbourne — where at mid-afternoon today brown coal generation was contributing 4,725 megawatts of supply capacity and hydro 568 MW versus 83 MW for rooftop solar and 783 MW for wind — has been Andy Vesey’s announcement that, from November, his AGL Energy will offer customers owning electric cars a $365-a-year deal for unlimited charging.

This was just one of a large range of interesting contributions canvassed in more than 40 keynote presentations and 10 panel discussions for some 400 attendees in the opening two days — a veritable waterfall of information illustrating the considerable range of current Australian energy (especially electricity) issues and contention.

From the perspective of long-term impact on energy demand, I think probably one the mores  important contribution has come from federal Resources & Energy Minister, Josh Frydenberg, who has committed the Coalition, if re-elected on 2 July, to further steps to promote the energy efficiency of commercial buildings.

The changes will add another 1,000 buildings to the list of those needing to report energy performance when they are sold or leased — currently there are about 5,000 — and Frydenberg claims this will deliver $50 million in bill savings and  3.5 million tonnes of abatement over five years. Not a huge step, but another necessary to pursue energy productivity in a country that is at best rather a plodder in this regard by international standards.  More than 60 per cent of our commercial buildings today have B,C or D efficiency ratings.

Not surprisingly, quite a lot of the conference discussion flowed around the elephant in the NEM — the large amount of over-capacity in the east coast market — and the threats this poses  to generation business operations.

Miles George of Infigen Energy, the wind farm developer, proposed that government should impose a plan to reduce over-capacity by 1,500 megawatts a year of energy-intensive, ageing coal plant. Vesey urged “an ongoing conversation” between industry and government to produce an orderly culling arrangement. Jon Stretch of ERM Power expressed concern that another review process is not the answer. Greg Everett of Delta Electricity commented that there is “a rough ride” ahead before the market finds “a safe harbor.” Paul Broad of Snowy Hydro opined that the east coast wholesale market is a “shadow” of what was envisaged in the 1990s when it was set up and called for an “adult debate” about over-supply and the over-arching issue of government intervention in the NEM. Industry, he said, needs to “step up and state strongly what it needs.”

The long and short of this situation is that there is no obvious solution to shifting the elephant — or its twin, the ongoing penchant of politicians to pick winners in electricity supply.

One wonders what the CoAG Energy Council might be saying on all this when it meets next month. I hear that it has yet another working group poring over its promise from 4 December to integrate carbon and energy policies. Much more, I have suggested before, could be achieved by first ministers specifically discussing this pledge and ordering ways to pursue it.

Quite a lot of discussion has focused on the South Australian situation and whether or not it is a harbinger of wonderful things to come in the NEM as a whole or an indication of substantial issues in both energy security and power quality maintenance.

In a forum where so much has been said about the future for renewables, the Minerals Council’s Greg Evans stood out in urging consideration of upgrading existing coal-burning plants to higher-effeciency, lower-emissions standards on energy security and reliability grounds.

He also suggested a further iteration of the energy white paper process — which has irritated and frustrated so many stakeholders in its past two federal attempts (2012 and 2014). A new version, he said, should engaged the States and Territories in the process.

The Australian Energy Council’s Matthew Warren observed that, overall, the policy process remains “in dangerous territory.” Governments need a “considered, strategic approach,” he said, but their cabinets tended to be obsessed with constraining consumer prices, keeping the lights on and being seen to be green.

We’re not done yet. Thursday I get to chair a policy forum which will include a focus on the role of market regulation, Ian Hunter, South Australia’s Environment Minister, on the role of State governments in climate change policy and security of power supply, reviews of what is happening in New South Wales, Queensland and Western Australia — and discussion of ways to facilitate the integration of renewables in to electricity supply.

The conference isn’t about to — and never was going to — solve the problems of our local energy world but, as an exercise in sharing opinions and concerns from a number of corners of the ring and enlightening stakeholders about other perspectives, I think it has been quite useful.

The big question hanging over an event like this, and over the whole debate, is whether, once the federal election is done and dusted, the “safe harbor” to which Greg Everett refers can at least be identified and a course laid to reach it?

What’s the real question?

News that yet another study is being launched in to high voltage network augmentation to cope with the growing involvement of intermittent renewables in the east coast market is not a surprise and it is a further indicator that simplistic attempts to sell the costs of wind and solar power need to be called out.

The South Australian government is supporting work by ElectraNet to examine a new link to the eastern States to cope with the ongoing expansion of its renewables sector. At present SA is connected to Victoria by two lines allowing it to source a maximum of 23 per cent of its peak load needs, potentially not enough when the variability of its wind capacity is an issue, especially during heatwaves.

I saw this news just as my attention was being drawn to a report by J.P.Morgan, using Germany and California as examples, analyzing at the challenges of fitting together conventional generation, new renewables and energy storage.

The commentary (which was published towards the end of 2015) makes this primary point: a critical part of any analysis of high-renewable systems is the cost of back-up thermal power and/or storage needed to meet demand during periods when the wind is not blowing or the sun is not shining.

“These costs,” say J.P.Morgan, “are substantial” – and, as a result, levelized costs of wind and solar, a plaything for those wanting to boost the technologies here and everywhere, are not the right tools to use in assessing the total cost of a “revolutionary” system.

This, of course, is exactly the message delivered recently by the SA nuclear royal commission. That report’s urging on policymakers and officialdom of the need to focus on total system costs to deliver a low-carbon economy via the energy sector may not have fallen on deaf ears but the silence of commentary on this point in the media or among analysts since it appeared in May has been, well, deafening.

A similar point is made by Vaclav Smil, a leading environmental academic in Canada and an auditor of the J.P.Morgan annual energy paper. He has contributed this to the introduction of the Morgan paper: “While our computer models are not good enough to offer reliable predictions of many possible environmental, health, economic and political effects of global warming by 2050 (and even less so by 2100), we know that energy transitions are inherently protracted affairs and hence, as risk minimizers, we should proceed with the decarbonization of our overwhelmingly carbon-based electricity supply – but we must also appraise the real costs of this shift.”

As well, the J.P.Morgan commentary points to a paper last year from the Potsdam Institute for Climate Impact Research noting that integration costs in systems with high levels of intermittent renewable energy can be up to 50 per cent of generation costs – and that the largest single factor is the cost of back-up thermal power.

And then there is this comment from a recent paper co-authored by members of the Argonne National Laboratory and Massachusetts Institute of Technology (examining the potential role of energy storage): “There is no silver bullet to decarbonize the electricity sector – the least-cost generation mix includes diverse resources and technologies to co-exist in an optimal low-carbon generation portfolio.”

Against this background, one can only stare in dismay at Australian politicians from the Labor side, affected by their fears of the Greens eating their electoral lunch, embracing renewables targets without any noticeable attention to the “least-cost (low carbon) generation mix.”

The Australian Energy Council regularly offers concerned comments about what’s happening but I don’t see this gaining any real traction in an environment where the public debate seemingly is dominated by those who can trumpet most flamboyantly about not just a “revolution” but one that must happen the day after tomorrow.

The AEC argues that there is inadequate attention being paid to the risks inherent in displacing firm, high-emissions generation with intermittent, low-emissions technologies because “this is not a like-for-like transformation.”

In the federal election campaign, the Coalition has made a commitment, if re-elected (which leading media political pundits seem to think is increasingly likely), to engage the CSIRO in developing a “low emissions technology roadmap” by the end of this year.

Meanwhile the Labor governments in Victoria and Queensland are lolloping on their merry way towards 2030 renewables targets that, to quote the AEC, are “big on ambition and short on detail.”

Assuming the Coalition is returned federally, the “roadmap” task awaiting the CSIRO is worthwhile but one wonders whether it would not be better performed by the Productivity Commission in liaison with the scientists, allowing the wide range of interested parties to make input and paying full attention to the issue of total system costs and not just how to drive greater use of wind and solar (or other new technologies)?

One also wonders how a federal roadmap gets implemented while key jurisdictions are determinedly ignoring what the royal commission has called a “trilemma” – low carbon power supply that is highly reliable at the lowest possible system cost – for political gain?

RET-go-round 24

To say that the Australian Energy Council is less than impressed with the new foray in to the electricity market by the Andrews Labor government in Victoria would seem an understatement.

“Victoria’s renewable target big on ambition, short on detail” is the headline on the media release the association (previously the Electricity Supply Association) has published.

The Clean Energy Council, on the other hand, is ecstatic, although perhaps in need of someone to read its media statements more carefully. “The Victorian government’s new targets,” it says, “will drive investment and jobs for the State at a time when the whole of Australia is clambering for a share of the renewable energy pie.”

While “clamouring” is what the CEC probably means, “clambering” – as in politicians pursuing votes and, in the case of Daniel Andrews’ government, desperate to distract attention from a joint assault with the union movement on the Country Fire Authority which is wildly and widely unpopular – is an interesting reflection on our times.

(CFA firefighters circled the Ararat wind farm in Victoria’s west chosen as the backdrop for Andrews’ announcement in silent protest and locals scrawled messages on a turbine blade to signal their displeasure.)

Before I get on to the AEC criticisms, I’d like to address the propaganda voiced by Andrews and the CEC about the government move creating “thousands of jobs.”

Let’s see the Melbourne government provide an independent assessment of just how many jobs over how long will be created by pursuit of the new target.

Construction jobs come and go for such projects – as with LNG developments – but the actual management of a wind farm requires a couple of dozen people at most.

(The CEC’s latest Clean Energy Report puts employment in 2014-15 in the whole country’s wind farms at 1,230 and in utility-scale solar, then still building, at 830 – compared with 7,480 claimed to be selling and installing rooftop PVs.)

What will the net employment effect of this move be for the State, given closure of fossil fuel plants and impacts on energy-intensive consumers?

Also, if the real benefit of this move is greenhouse gas emission abatement, what is the value of each tonne of mitigation from annual power production?

Unlike the Victorian exercise, the proposal for a similar lunge towards greater use of renewables in Queensland has been evaluated (via the State’s Productivity Commission in a draft report on electricity pricing earlier this year) and found by independent consultants to involve a subsidy of $10.8 billion (in inflation-adjusted money) between now and 2030.

The final report of the QPC inquiry was handed to the Palaszczuk government on 31 May but remains hidden from public gaze. One assumes that if it said things the government liked, it would have been rushed in to the public domain. Cynical? Moi?

Among the things the commission said is that there are benefits in all level of governments co-operating on an emissions reduction approach on the basis of least economic cost, noting that a State-based policy would concentrate abatement and its costs in Queensland and negatively impact its economy in the absence of similar policies in other States or nationally.

The proposed QRET, the commission added, by pursuing a renewables target rather than an emissions reduction target, was not necessarily the least-cost way of achieving abatement.

Despite having months of being able to peruse the draft QPC advice, the Victorian government has plunged ahead with its own version of picking winners.

The Australian Energy Council statement says the Victorian target proposes 5,400 megawatts of new, large-scale generation to be built in the State within 10 years. This is more than the current capacity of large-scale renewables on the whole east coast.

The AEC declares “You cannot expect to build the equivalent of more than 50 new wind farms – 1,400 turbines – in Victoria in eight years without significant impacts on energy costs and reliability for consumers.”

Like the Queensland Productivity Commission, the AEC is at pains to emphasize that, in the NEM, decisions made in one State affect the rest. “That’s why major policy measures to reduce emissions should be implemented at a national level,” adds the AEC.

And, “as the industry which will make the vast majority of investment and manage customer impacts,” the association complains, it is “concerned and disappointed that the Victorian government has not consulted” with it on development of the policy.

To which, I think, needs to be added a question about how the Victorian government believes this move contributes to the CoAG Energy Council pledge, to which it is party, to “a national, co-operative effort to better integrate energy and climate policy, with a clear focus on ensuring that consumers and industry have access to low-cost, reliable energy as Australia moves towards a lower-emissions economy.”

Back on 4 December, Victorian and other ministers from across the country committed to developing “a national approach to connect environmental outcomes and energy policy in the interests of consumers.”

How does this latest populist lunge in to NEM intervention fit with that decision?

What a pity no-one in the mainstream media has thought to ask Andrews about this.

A (very) different perspective

It’s not often in our local environment of “toxic politics” (the apt Grattan Institute phrase) over climate change policy that one gets to hear a genuinely insightful perspective on the issue delivered with great calm as well as compelling clarity.

Thanks to the good offices of the University of Queensland Energy Initiative, the Energy Policy Institute of Australia and Rio Tinto, via the Brisbane Energy Exchange breakfasts, I have now had this opportunity twice in 2016: first from Princeton University professor Robert Socolow in February (a televised interview with him is on my On Power website) and this week from the urbane Ottmar Edenhofer, deputy director, chief economist and professor of the Potsdam Institute for Climate Impact Research in Germany and, until recently, a co-chair of one of the UN’s IPCC panels.

Each has made the point to us that, welcome as the Paris Agreement last December is, the “intended national determined contributions” nations took to the UN summit in the French capital are nowhere near good enough to achieve the desired global temperature target.

Edenhofer told this week’s Brisbane breakfast that a particular issue is what he describes as the “coal renaissance” – investment in a large volume of new coal-burning plants in his native Germany, home of the much-boosted Energiewende, in India and China and very likely in the rapidly-developing economies in Africa and South-East Asia.

Despite the worldwide technological progress, and expansion of investment, in renewables, he asserts, the emissions implications of the “coal renaissance” are serious because, once built, these plants will operate for decades (making a nonsense of the line fed to our credulous public of the imminent “death of coal”) and threaten the achievement of climate change mitigation goals.

High on Edenhofer’s list of steps to deal with this issue are (1) a much stronger focus on carbon capture and storage, (2) introduction of a meaningful carbon price nation-by-nation across the world and (3) a substantially stronger approach to research and development.

You don’t have to be a guru squatting on a mountain to appreciate that, despite all the rhetoric from our two main political parties, this trifecta is not being pursued locally with anything remotely like the vigor needed (and that’s being charitable).

Broadly speaking, Edenhofer, I think, is of the opinion that this applies to the rest of the G20 countries, too.

As readers of this blog will be well aware, I have taken a jaundiced view of the pledge made by our CoAG Energy Council back in December to integrate energy and carbon policies to achieve meaningful local progress towards a low-emissions economy while delivering power and gas at the lowest possible cost for consumers – not least because I don’t see our national leaders, Messrs Turnbull and Shorten, talking up this pledge at all in the current election campaign despite both their political organizations (through being in government across the jurisdictions) being party to the pledge.

Having dined with Edenhofer and others, as guests of UQ and EPIA, and listened to his talk at Brisbane’s Customs House to an appreciative audience of some 200 people from across the east coast, my take-away is that he believes we have an international problem with the mispricing of fossil fuels because the window of opportunity for reform is closing – “rapidly,” he argues.

Getting a carbon price right before these new coal plants are built is the major step, he declares, because, otherwise, once operating, they will lock in carbon-intensive infrastructure and this will increase the cost of future abatement substantially.

My interpretation of his message is that he thinks delivery of the intent of the Paris Agreement is in peril if the opportunity to create a meaningful carbon price in the near future is missed.

The other leg of Edenhofer’s stance, which resonates strongly with me because of my African background, is that an effective carbon price could contribute to delivering revenue garnered in the developed countries that could help fund the “fundamental infrastructure challenges” of today’s many poor nations – not as charity but targeted to actual building of water, electricity, transportation and telecommunications capital works.

Incidentally, it is well worth inserting here that he also emphasizes the need to address land-based emissions, not just the decarbonization of the power sector.

I also think Edenhofer is arguing that the ball is very much in the G20’s court. That includes Australia, of course.

As well, and I emphasize I am paraphrasing, in speaking to the Brisbane audience, Edenhofer raised a very salient point: how well do political leaders (everywhere) understand risk?

There are, he said over dinner, no riskless options in this game.

Carbon mitigation is risky business – and failing to achieve the target for limiting global warming comes with well-documented risks for all of us.

A crucial question, he says, is whether uncertainty about the impacts of climate change is a reason for acting or for waiting.

In his view, it is a reason for acting and taking key steps to pursue the double game of mitigation and delivering significant social justice to those suffering infrastructure poverty.

Listening to him, it is hard not to feel a pang about the lost opportunities of the local debate over more than a decade – and also, on the upside, to feel that, if such advice is pursued by our own and other G20 leaders, there is a considerable amount of scope for positive action.

Of course that requires a maturity of approach that, if you look around you, is not exactly strongly in evidence in this neck of the woods (or in a number of others).

PS: If you go on to “The Conversation” via Google and put in Edenhofer’s name and “The Paris Climate Agreement needs coordinated carbon prices to be successful,” you will find a commentary he and two colleagues at the Mercator Institute on Global Commons and Climate Change (of which he is also director) have contributed to mark his visit to Australia.

Perception & reality

As the third choice for the local Labor speaker at the APPEA conference just ended – and the only Labor contributor because his federal colleagues were not interested in (literally) taking a few steps to participate (see my previous post “Lack of ticker?”) – Anthony Lynham actually had something to say that was worth hearing beyond the cavernous Brisbane Convention Centre.

The upstream petroleum association’s obvious first choice for a State government speaker on the conference opening day was Premier Annastacia Palaszczuk but she would not make herself available, so the gig went to Treasurer Curtin Pitt, who withdrew shortly before the event.

Lynham, Queensland’s Minister for Natural Resources and State Development, used his opportunity to speak to 2,000 APPEA delegates, including attendees from 15 other countries, to do two main things.

First, he unequivocally re-committed Queensland Labor to the coal seam gas-based, LNG export-oriented industry.

The government, he said, “remained steadfast in (its) belief that the industry has been State-building. Jobs, economic growth and prosperity (created by it) by have benefited families in this State.”

Second, he spoke straightforwardly about the atmospherical change that confronts both politicians and business people today.

“The political landscape has changed over the past four years and will continue to change,” Lynham declared. “The old command politics of a decade ago did not work and (today offering) the choice between jobs and the environment does not work.”

He added: “The past was wells and engineering. The future is production and social licence.”

The Queensland government, he said, wanted the petroleum industry to continue to explore and to produce more gas.

“But this directly depends on your ability to take the community with you. We (the government) support you but you have not convinced the community.”

The challenge for industry and government, he said, is to ensure the sector “operates in a way that means you are beyond criticism.”

There was a sharp contrast between the views of Lynham, a surgeon and an academic turned MP, and the advice proferred to some conference attendees by the Coalition Mining & Energy Minister of the Northern Territory, speaking to a by-invitation breakfast at the Convention Centre.

“You’re under attack. Get out there and take up the fight,” declared David Tollner. “You have a bunch of people out there twisting and contorting information to stop your industry dead in its tracks.”

Tollner urged companies to “start putting the facts out there,” especially via social media, to deal with “the army of people fighting against you.”

Amita Riksen of PricewaterhouseCoopers Asia-Pacific energy consultancy, put another gloss on this topic when she spoke at a conference session.

The use of online marketing and of social media “disruptors,” she said, have made the community more aware of the oil and gas industry. “As they become more aware, they are challenging what (the industry) does after many years when (it) could operate under the (public) radar.”

Perceptions, not reality, impact the industry’s reputation, she said.

As for its part, APPEA – via an address by chairman Bruce Lake – made it clear that it is looking to the CoAG Energy Council for “collective, bipartisan leadership” to avert “a race to the bottom” for gas development.

“Somehow,” Lake told delegates, “people of good will across industry and politics must rebuild the consensus that Australia needs a responsible, growing resources sector. Public policy must be based on public interest.” He appealed to governments to “help keep the debate factual.”

For me, the key takeaway from the conference, is the mutual frustration of pro-industry politicians and industry senior executives that the past 4-5 years has seen the “social licence” issue becoming more of a problem despite major development progress and considerable business efforts to argue down activists and their media fellow-travellers.

Lake complained in his chairman’s address that “much of the media implies or even baldly states that gas is unnecessary and dangerous.”

Rebalancing the public debate, let alone winning it, has proved beyond the industry’s ability this decade.

Oil Search chief executive Peter Botten, whose company has built a success story in Papua New Guinea development, said this week that he thought the Australian industry has been too slow to realize the level of engagement needed here to win community support.

“And it is (still more) difficult when the horse has bolted,” he added.

The fact is that, however difficult remedial action may be, however dishonest some of the orchestrated campaign against gas development may be, the upstream petroleum industry has no alternative but to lift its “engagement” game significantly – and to bear in mind another Tollner observation. Politicians, he told his conference breakfast audience, are “puppets of the population” and it is in their nature to do what is seen as popular with the majority of the community.

Which is a reprise of the axiom of tele-fictional PM Jim Hacker, quoted on this blog several times in recent years: “I am the people’s leader. I must follow them.” What is hardly known is that this is a real-life quote – based on a comment by a French political leader in the 19th century.

Perhaps the industry needs to remember another French quote sauve qui peut – literally “every man for himself” – and find a better route forward by its own efforts to avoid a rout of its collective hopes and plans to take further advantage of some of the world’s best gas resources.

Lack of ticker?

Quite the strangest thing about the Australian Petroleum Production & Exploration Association annual conference, just ended, is that federal Labor could not or would not provide a speaker despite both Bill Shorten and Treasury spokesman Chris Bowen actually being at the Brisbane Convention Centre, venue for the event, on the morning of its final day.

Shorten and Bowen were there to promote the ALP approach to managing the economy at a party event literally metres away from where Labor had been asked to provide a speaker to discuss energy policy at the APPEA conference.

The petroleum people, of course, are deeply unhappy about Labor’s union-driven embracing of a “national interest test” for gas development — code for imposing restrictions on further LNG project expansion — but running away from an opportunity to explain and defend the policy is not a good look.

There is a boxing adage that, in the ring, you can run but you can’t hide — and the Coalition’s Energy Minister, Josh Frydenberg, who was the first keynote speaker at the conference last Monday, naturally grabbed the opportunity to question Shorten & Co’s courage.

As it happens, Labor had long ago accepted a Wednesday speaking slot at APPEA — the presentation was to have been given by Gary Gray, who retired from Parliament when the election was called. Gray, of course, is an outspoken opponent of the reservation ploy — a perspective recently validated by the Australian Competition & Consumer Commission dissing the concept in its report on the east coast gas market.

APPEA told the “Australian Financial Review,” which broke the “no show” story late Wednesday, that, on Gray’s retirement, it offered the slot to Jason Clare, now the ALP’s energy spokesman. He declined, citing other election commitments — but this excuse disappeared in a puff of smoke on Wednesday morning when both Shorten and Bowen appeared at the Convention Centre to talk up their approach to Budget management.

Given the importance of the resources sector to federal and State revenue-raising — not least in the form of the golden goose that is the LNG export business — and of gas security and affordability to the manufacturing sector in particular, this behavior is certainly silly, to be polite, and gives the appearance of being craven.

In a federal election in the past decade, the Coalition caused an uproar by questioning the “ticker” of the then Leader of the Opposition. What can one say about Shorten, who could not summon the will or the wit to walk a few metres to explain his gas policy to more than 2,000 people from 15 countries and before some three dozen media people attending the event?

Central Petroleum CEO Richard Cottee told the “Financial Review” that this behavior was “bizarre,” which seems reasonable to me.

As for APPEA, it departs Brisbane well pleased by the turn-out for the industry’s 56th annual conference at a time the association described on opening day as “brutal” for the industry and by the quality of presentations — keynote addresses and some 100 management, technical and scientific papers — showcasing the resilience of the business, hard lessons learned and opportunities to pursue new exploration, new development prospects and better management along the operational chain.

One of the worrying portents for the industry, brought home in the presentations, is that the current global oil turmoil, and its flow-through impact to the gas sector, has seen a major slump in exploration in Australia. The local outlay on the oil and gas search was $2.7 billion in 2015, down 44 per cent on 2014 for offshore and 38 per cent for onshore exploration. The 2016 spending is going to be a lot lower again.

Exploration is the essential precursor to oil and gas development. There is always a price to pay in terms of future production for a slump in the search effort. In the past, governments have moved to encourage and boost the explorers when the market went pear-shaped (with the big exception of the Whitlam period). This year, a prospective federal government, the ALP, has seen fit to propose kicking them in the shins via its mooted gas policy at a time when Labor (in Victoria and the Northern Territory) is also playing to the NIMBY gallery with a negative stance on onshore activities at a time when there is a strong case for pursuing new supplies.

APPEA CEO Malcolm Roberts told media at the Brisbane conference that the latest decision by the Victorian Labor government this week to again delay its decision on future onshore gas activity (currently under a moratorium) leaves more than 1.8 million customers in the State exposed to higher fuel prices. The association keeps pointing to the ACCC finding that “allowing new sources of gas supply to be developed is likely to put downward pressure on domestic prices.”

The industry can’t argue with imposition of a rigorous regulatory regime for onshore gas exploration and development — indeed, it says it welcomes it — but how a reservation policy can be applied to gas it is not allowed to seek and develop is something Labor (and others) have yet to explain.

In Brisbane on Wednesday morning, Shorten or Bowen had a matchless opportunity to set out the values of their party’s approach; was it lack of “ticker” or sheer ineptitude that led to them failing to take the opportunity?

When I was an energy lobbyist (which included 11 years as CEO of APPEA), a very senior federal politician once told me that “in politics, when faced with the choice between a conspiracy and a cock-up, go for the cock-up every time.” Whether one can be so charitable in this case is a moot point.

A non-trivial matter

A McKinsey & Co report tabled at the APPEA conference in Brisbane this week is titled “The role of natural gas in Australia’s future energy mix” but it’s what’s in it about electricity supply out to 2030 that has caught my eye.

The review adopts a “business as usual” perspective in looking at the power sector, assuming current trends continue with no radical changes, an approach that may annoy ideologues but provides a template for contemplating future directions without contentious assumptions.

As the McKinsey Australia authors say, there are many alternatives that could be used to think about the national energy mix out to the end of the next decade.

Tub-thumping to insist that one particular path is unarguably the only way to go may still attract media attention but it lacks “bottom,” as they say in Yorkshire.

The McKinsey BAU approach assumes a population 25 per cent larger than today and an economy 55 per cent bigger.

The authors choose to view the power sector over three five-year periods, each with a distinct dynamic.

Before 2020, they say, power capacity additions are driven by the RET in their modeling, adding 7,000 megawatts in the NEM and Western Australia’s SWIS. This requires 30 per cent of projects currently undergoing feasibility assessment to be built.

For the period 2020 to 2025, they have assumed that decommissioning of some older plants will be delayed.

In the period from 2025 to 2030, they see consumption growth and decommissioning leading to new capacity being built – and express the view that all grid-connected additions will be utility-scale solar because they believe it will have become the lowest-cost technology.

This is set in an environment over 15 years in which they see gas-fuelled power generation falling back from 54 terawatt hours in 2014 to 41 TWh in 2030, a drop in share to 15 per cent – while the role of renewables in the national mix rises from 14 per cent to 37 per cent. The overall size of power output, they suggest, will go up from 248 TWh in 2014 to 282 TWh at the end of the ‘Twenties – with consumption (remember the role of line losses and self-use by power stations) reaching 267 TWh.

Capacity retirements in the McKinsey assumptions totals 12,000 megawatts over the 16 years from 2014 to 2030, including 9,300 MW in the east coast market.

The authors see 17,000 megawatts of new large solar capacity being built in addition to the 7,000 MW of renewables added under the RET from now to 2020.

In the McKinsey model, coal’s share of NEM production drops to 58 per cent, gas declines to eight per cent, hydro stays at eight per cent and non-hydro renewables shoot up to 26 per cent.

Looking at capacity, McKinsey suggest that in the NEM of 2030 it would total 61,000 megawatts, with all renewables holding 50 per cent, coal 37 per cent and gas 12 per cent.

To state the blindingly obvious, this outlook is not a projection of what the situation will be in 2030 but a model of what it could be under certain assumptions – it certainly doesn’t represent what the ideologues want to see or some vote-seeking politicians are promising.

It does, however, provide a benchmark for considering some of the other, fruitier proposals and raises questions about just what needs to be spent to drive us towards a low-emissions economy with reliable supply – both in terms of total system costs (because it is not just about the capital cost of generation) and end-user bills?

There are many factors that can impact on what will really play out – not just even greater subsidization of renewables, but also the possibility of a technology-neutral approach rewarding abatement which, who knows, might also allow smaller-scale nuclear plants to be brought in to the mix as well as high-efficiency, low-emissions coal with capture and storage technology.

As Peter Hartley, a professor at both the University of Western Australia and America’s Rice University, put it in an APPEA conference talk this week, “a decision to artificially accelerate the switch to alternative energy sources is not a trivial matter with no serious consequences.”

This, of course, is a contradiction of the claim now being made on the hustings by the federal Labor leader that his 50 per cent renewables target by 2030 can be delivered “at no net cost.” The Coalition’s Greg Hunt counters by claiming his Department of the Environment has costed Labor’s 50 per cent RET “and found it will cost a whopping $85 billion (cumulatively) by 2030.”

Such claims are symptomatic of the stuff thrown at us by all sides of politics when a poll is looming but the McKinsey modeling provides a useful way to judge the broad shape of the power sector’s transition while bearing in mind that this is “not a trivial matter.”

Chasm of understanding

Hard on the heels of the call by Shell Australia’s Andrew Smith (see my previous post) for the upstream petroleum industry to do better in coping with “well-coordinated, well-funded, misleading and often dishonest” campaigning against gas projects, the Australian Petroleum Production & Exploration Association chairman, Bruce Lake, has produced a fierce, from-the-heart speech extolling its “powerful” story.

Lake, managing director of Vermilion Oil & Gas, speaking at the 2016 APPEA conference in Brisbane, has told delegates that the gas business has never been more important to Australian prosperity and never so aggressively challenged.

There is, he said, “a chasm of understanding” between the “objective facts” and so many media stories. “Much of the media imply or even baldly state that gas is unnecessary and dangerous (but) the truth is more complicated than some want to recognize.”

Despite scare campaigns, Lake asserted, every genuinely independent expert inquiry has concluded that environmental risks relating to gas exploration and development can be managed safely through good practice and effective regulation.

“It may seem strange,” he said, that the industry needs to explain its economic importance, but the “raw statistics” demonstrate why: the value-add for the industry is far higher than for most others, the sector’s wages and salaries are also high and the LNG business is already producing $17 billion in annual export value.

“And we are not just a resource industry,” Lake declared. “We are also a sophisticated manufacturing and services industry.”

He pointed out that APPEA’s members are now contributing $35 billion annually to the national economy and that this is forecast to reach $67 billion by 2030.

The second prong of Lake’s talk focused on the climate change debate, arguing (like Smith before him in addressing 2,000 conference attendees) that gas is “ideally suited” to complement renewable energy in repowering Australia to pursue carbon abatement targets. “Unfortunately,” he added, “this, too, is not widely understood. Gas can respond quickly to changes in (intermittent) renewables output (and) increasing the proportion of gas-fired generation in the (electricity) mix is an important step to a cleaner but still secure supply.”

However, he noted, gas is actually being squeezed out of east coast power generation today. It’s share of the mix has fallen to just 12 per cent thanks to cheaper coal-burning plant and renewable subsidies. This, he averred, “seems perverse.”

The third prong of Lake’s argument is that gas is not just a fuel — it’s also a feedstock for manufacturing glass, fertilizers, packaging, chemicals and plastics.

Taking on the ubiquitious New South Wales bumper sticker proclaiming “You can’t eat gas,” he noted it would be difficult to grow food without fertilizers or to sell it safely without packaging.

Public policy affecting gas, Lake declared, must be based on what is really the public interest and, he told governments, this won’t be achieved by launching further studies — “to evade making decisions” — but by respecting advice from independent experts, working with the industry to minimize environmental risks and helping to keep the debate factual.

He called on the CoAG Energy Council — whose chair, Josh Frydenberg, was sitting in the audience, having delivered the federal government’s address to the conference — to show leadership in resolving the present imbroglio. The alternative, he said, is a “race to the bottom” as States opt out of their responsibilities to support local industries and consumers.

(In his turn, Frydenberg said “legitimate concerns have been raised in the broader community about unconventional gas extraction, particularly impacts on water and prime agricultural land, and (they) need to be heard.” He added that the recent ACCC report on the east coast gas market had “made it very clear” blanket moratoriums on unconventional gas development “have no basis in science and are not the best way forward.”)

The challenge, of course, for Smith, Lake and the other leaders of the gas industry and its lobbying organization is to tackle the problems they are identifying effectively in a narrowing time frame. Another 4-5 years like the past five will create an environment working against energy security, economic growth, integrating energy and abatement management and eventually the interests of both manufacturers and electricity suppliers, with flow-on effects for workers and the community at large.

The nature of the problem has been well-articulated on the opening day of the APPEA conference in Brisbane; the “how” of resolving the situation is another matter.

Ahead looms federal polling day and quite a lot of the gas industry’s future prospects will depend on its outcome and on the path policymakers then take over the rest of the decade.