Archive for August, 2016

Joining the dots

Whatever else the nation’s energy ministers discuss when they gather in Canberra on 19 August under the CoAG Energy Council umbrella, it’s pretty certain they will focus on greater interconnection for the east coast electricity market.

Two problems – the six-month failure of Basslink with ensuing strife for Tasmania and the high profile “South Australian energy crisis” – have raised the profile of the NEM grid this year, not only for two shaken State governments but also for the federal Coalition, which sought to boost the chances of its three Tasmanian MHRs (who all lost, depriving Malcolm Turnbull of a majority as they fell) by running hard locally on support for Basslink 2.

Enhanced links between SA and both Victoria and New South Wales are now live discussion points in the media and elsewhere.

The Tasmanian and federal governments are armed with a preliminary report on the feasibility of Basslink 2, commissioned jointly by Hobart and Canberra and written in quick time by Warwick Smith. (Smith’s initial effort can be found on the federal Department of Industry website and more quickly by putting his name, Basslink 2 and “report” in to Google Search. He is now working with the two governments, the Australian Energy Market Operator and the CEFC on “credible scenarios” of how Basslink 2 could be developed.)

As SA Treasurer Tom Koutsantonis, who is also State Energy Minister, no doubt will make clear to the CoAG meeting, an interconnection discussion needs to range wider than Tasmania’s needs and desires – and one imagines that the Andrews government in Victoria, seeking to emulate SA’s rush in to the renewables woods, is more than a little interested in this supply security insurance aspect, too.

However ministers should bear in mind a warning from the Australian Energy Council: “Greater imports via new interconnectors may in turn impact the economics of existing dispatchable generators based in South Australia. This would leave SA particularly vulnerable to the implications of Victoria and NSW moving towards a similar plant mix (wind, solar, gas back up) as those regions decarbonize under State or national policy drivers.”

Not for the first time in the history of NEM development, a tangle exacerbated by the “toxic” rows over decarbonization policy, CoAG ministers would do well to pause and ask themselves what exactly they are trying to achieve? In this vein, I recall someone asking in the recent past “If the RET is the answer, what is the question?”

The risk today is that, confronted by the latest iteration of energy supply complexity, pursued by the hounds of populism and under media pressure to “do something,” our ratty crew of governments will rush in directions that seem a good idea to them at the time only to find us all enmeshed in new hassles because of “unintended consequences.”  (The current fuss over the end of some OTT rooftop solar subsidies is a case in point. There are any number of others.)

One of the themes of my This is Power and other commentaries is the strong tendency (and not only in this country) of politics to run ahead of good design – far from exclusively an energy issue.

However, let’s not get too high and mighty about politics: the South Australians, for example, have had two “crises” in less than a year – the much-publicized recent one (which posed the prospect of large manufacturers temporarily shutting operations) and last November’s State blackout (also caused by an interconnector failure) that saw 20 per cent of the population without electricity. Imagine a problem that cuts power to a million people in Sydney or Melbourne and the resulting furore (not least in the media) and you can perhaps appreciate why SA’s Weatherill, Koutsantonis & Co are a touch fevered just now in their approach to their issue. “Politics” and “policy” are joined at the hip, whether we like it or not.

And let’s also not forget that a decade ago it was a panicking Queensland Premier – trying to dodge a growing political storm over recurring power cuts in the State’s south-east corner (where most of the voters live) – who spooked the Energy Council as a whole in to approving new network regulation, which eventually delivered $35 billion in NEM capital outlays in five years, causing a near-doubling of grid charges for consumers. Of course, understanding why the politicians behave like fleas on the energy griddle is one thing, condoning their behavior is another.

In our particular east coast energy circumstances today, there are not only electricity challenges but also gas supply policy problems and they run together.

In both Tasmania and South Australia, gas has been a significant issue this year – the islanders would have had far less of a hassle if they had managed their gas set-up better in order to support power supply and the SA situation, as aggrieved renewables boosters keep hollering, was hardly helped by the east coast gas development imbroglio that is now in to year five.

The challenge for the Energy Council on 19 August is not to provide a sop to the multi-headed hound of 24/7 politics or a Bandaid for current hurt but to set in train a process that will articulate the over-arching market challenge and identify key steps to address it as soon as possible. A different sort of interconnection.

A popular refrain running through public power debate at present is that the framework of the NEM must be reworked – Koutsantonis is declaiming, for example, that he wants to “smash the NEM in to a thousand pieces” – and there can be no doubt, I think, that 18 years after the market’s debut, carbon policy and fast-changing technology circumstances are eating at its foundations. But this is not a task for amateurs, however well-intentioned, and still less for ideologues; it is not, I suggest, even a task initially for energy ministers.  A genuinely effective NEM resolution requires buy-in by government leaders and a change mechanism that can deliver durable, efficient market reform – which can only work if there is also a durable, national carbon abatement policy. More interconnection.

Make our energy plan national is a very substantial hurdle. To quote one recent commentator, the South Australian power system has been “flying on a wing and prayer” for a number of years. We have the Victorian government appearing to want to adopt the same approach and questions have to be asked about just where Queensland will go (with the Palaszczuk government sitting on two important Productivity Commission reports).

Of course, the situation is not helped by the final outcome of the House of Representatives election. How a hamstrung central government is supposed to exert authority in a federal system is a good question.

Whether the 19 August meeting is “crucial,” as some are suggesting, also remains to be seen but it is certainly important as a vane for the current energy policy weather on the east coast. What’s most important is that ministers shouldn’t end up spinning round and round, but produce an outcome that at least points in a viable transition direction, building on their “integration” pledge at their previous meeting in December, and makes some progress in joining the dots.