Archive for August, 2016

Quest for good information

For the past two months gas has vied with electricity for attention in the public energy debate, with much fuel added by the South Australian “energy crisis” and then the noisy focus on the CoAG Energy Council meeting.

What’s lost to general view, but not to the eyes of Graeme Bethune’s EnergyQuest team, is the fact that there is a steady decline in gas demand on the mainland east coast.

In the latest edition of their excellent “Energy Quarterly Report,” Bethune & Co show that, leaving aside the needs of Gladstone LNG operations and the need to use gas for power generation in Tasmania during the absence of Basslink for six months, east coast electricity-making from the fuel has dropped steadily – and non-power demand has fallen sharply over the past nine months.

Overall there was an almost 10 petajoule fall in gas use in the four mainland east coast States in the June quarter (compared with the same period 2015), with much of the drop in Victoria and New South Wales.

The cost spikes as winter finally struck the southern States last month had multiple causes, as EnergyQuest shows, but they included baseload generation outages requiring use of gas turbines, low wind levels cutting back renewable generation, the well-publicized unavailability of the South Australia/Victoria high voltage link and, of course, the permanent removal of the Northern brown coal plant from the market, all impacting on constrained supply and therefore prices.

“Energy Quarterly Report” devotes pages to analyzing the quite complicated possibilities of supply changes and price swings – the point being, for the non-specialist audience, that this is a volatile market poorly represented in the popular media by reporting that is frequently more a caricature than a likeness.

The recent media carry-on about Australians paying more for gas than local product exported to Japan is a case in point, vigorously exposed by writer Angela Macdonald Smith in the “Australian Financial Review” in late August.

Using EnergyQuest data, Macdonald-Smith debunks the whole claim – Tokyo Gas, for example, charges industrial customers $10.45 per gigajoule for gas versus $6 to $8 for new industrial contracts here while South Korean firms face prices equivalent to $16.65 and more.

Bethune’s EnergyQuest also reminds us in the new report that the ACCC examined claims about domestic prices being higher than those paid by overseas users and found “the evidence does not support these claims – domestic prices in the east coast gas market are still generally lower than prices paid by overseas purchasers of LNG.”

This bit of information is in the public domain and has been for months but that didn’t give pause to News Limited tabloids and ABC journalists pushing the “shock” news.

Twisted claims and media beat-ups serve to detract from the real issues with which local industrial gas users are struggling, including rising prices and, they argue, inadequate offers of contract duration, and which can be alleviated by greater domestic gas supply – which is what the anti-fossil fuel lobby totally opposes.

This weekend’s Northern Territory election outcome – a wholly predictable hammering for the incumbent CLP government, pitching Labor back in to office – is another twist in the gas tale because of the NT ALP’s anti-fracking stance with potential implications for future southern gas supply.

All of which is grist to the prospect that the way out of the east coast problem could be, as first publicly raised by Shell Australia chairman Andrew Smith in June, the importation of LNG to a southern port, using a floating storage and regasification unit.

Why consider importing LNG cargoes rather than using a pipeline from Queensland?

“Because,” says the “Energy Quarterly” report, “Queensland gas is tied to oil prices and expensive to produce.”

FSRUs (one more acronym to remember) can be built for $US250 million or through modifying an existing LNG tanker for $US100 million – and “can be quickly deployed somewhere else if market circumstances change.”

Bethune’s report adds price calculations suggesting that this form of gas supply could be “quite competitive” for southern users.

Whether or not an FSRU solution is on the cards, its discussion illustrates something important: the resources sector will always look to a practical approach to overcome development hurdles unless the body politic has demonstrated it is hellbent on being impossible. When that happens, the industry will pursue ventures elsewhere.

Australia as a whole today is a very long way from this situation but that does not mean that the best interests of consumers are being pursued by policymakers regardless of their endless claims that they are.

Central to achieving both a good working environment for the gas industry and a good set of outcomes for gas consumers – predominantly reliability and affordability of supply – within the umbrella of good management of the natural environment is a genuine understanding of the sector.

And this understanding must be based on evidence – facts, if you like – and not on supposition, reaction to media coverage, views warped by ideology and/or deliberate information-bending by hardliners.

This is where products like “Energy Quarterly Report” are of considerable use – at least to those of us who want to see sensible outcomes pursued. The problem, of course, is it’s information that reaches relatively very few and the community at large continues to be fed a puree of confected “news” that contributes to our energy policymaking indigestion.

Fallout from that meeting

So, what to make of the much-hyped CoAG Energy Council meeting in Canberra on Friday?

Tom Koutsantonis, the South Australian Treasurer and Energy Minister, is in no doubt. He tweeted: “Most decisive Energy CoAG in years. Climate policy integration with energy policy under way. New gas reforms top of the agenda! Very constructive.”

He went home and told Adelaide media that South Australia has “secured a comprehensive victory” in the Energy Council discussions with respect to gas policy reform and a decision to have power interconnection development regulation reviewed.

To which he added another tweet: “Energy CoAG unanimously agrees to expedite regulatory test for SA/NSW interconnection. CoAG has instructed AER and AEMO to act by December!”

What the Energy Council has actually agreed on power grid interconnection is “to review the regulatory test for investment on new assets to ensure it is effective in the current market environment,” having officials consulting stakeholders and reporting back “before the end of the year” – which is not exactly the same as “expediting the test” for a new SA/NSW link, but pollies will be pollies.

The meeting communiqué in full can be found here:

Chairman Josh Frydenberg, the federal Environment & Energy Minister, also came away upbeat. On his constituency blog, he has declared the gathering “agreed to significant reforms and a major new program of work to ensure the energy system remains affordable and reliable as we transition to a lower emissions future.”

For Frydenberg, the key take-home message is that the Energy Council has focused on increasing liquidity and transparency in gas markets, on empowering consumer choice and on “ensuring stability and connectivity” of the east coast electricity market.

The Energy Council, he claims, has “proved its ability to respond to current issues.”

The ACT Energy Minister, Simon Corbell, “greeted like a rock star” by a rent-a-crowd barracking for renewables outside the meeting place, tweeted afterwards: “Today’s meeting has committed to three things – affordable, reliable and sustainable energy” but the Climate Institute was unimpressed, tweeting: “Energy Council a missed opportunity; Oz Govt will need to step up on energy & climate reform.”

Victorian Energy Minister Lily D’Ambrosio also contributed a tweet applauding “encouraging signs for a unified path towards a sustainable and reliable market” and promptly got a green activist riposte demanding “Was climate added to the electricity and gas law objectives?” – to which she responded “Was discussed among ministers but no agreement.”

What D’Ambrosio most wants to convey to her Victorian audience (via a media statement she pushed out on Friday afternoon) is that the Energy Council has agreed to evaluate the system under which distribution networks can seek legal redress of Australian Energy Regulator decisions on their revenue-raising. She claims that $3.3 billion was added to network revenue between 2008 and 2012 via appeals against AER decisions.

Her government hasn’t won any plaudits from the upstream petroleum industry after she declined to join the rest of the Council members in agreeing to “adopt an implementation plan” for collaboration on the scientific and regulatory issues relating to gas development.

The essential ingredient for a gas market is gas, was the tart comment from Malcolm Roberts, CEO of the Australian Petroleum Production & Exploration Association, demanding “firm action” on new development from all States.

What the ministers have decided to do is appoint Michael Vertigan to chair a gas market reform group that will oversee implementation of a package including creating more trading hubs, pursuing better access to pipelines, delivering better information on gas prices and encouraging more supply.

Pipeliners are decidedly not happy. The Australian Pipelines & Gas Association says ministers are “either unwilling or unable with grapple with real gas market issues.” APGA declares that “setting regulation reform above all other aspects of the gas market” is “very disappointing,” pointing out that transport costs today are $1 per unit now – what they were six years ago – while the wholesale price has doubled to $6.

Koutsantonis also argues that the meeting has acknowledged gas prices – “rather than my State’s world-leading embrace of renewable energy” – were the key cause of the “SA energy crisis” last month and he sees his government’s exploration and development approach putting South Australia in “a prime position” to capitalize on the reform plan. “We want to be gas central,” he says.

The hype about the suite of issues, of course, almost has a life of its own, not least in the media.

For example,The Advertiser in Adelaide kicked off its report like this: “Cheaper electricity and more reliable supply is being predicted because of sweeping reforms thrashed out at a Canberra summit,” called, it added, “in the wake of SA’s power crisis.” And ministers had agreed to “slash red tape” for approving new grid interconnection.

What can actually be delivered and when as a result of Friday’s deliberations very much remains to be seen.

Politicians may (and do) complain that implementation of the recent upgrade for the SA/Victoria high voltage link has taken too long but the project approvals process and the time required to actually construct complex infrastructure is inherently not fast – one wonders why some reporter doesn’t ask Koutsantonis when, if absolutely everything about the project runs on rails (so to speak), a new link between his State and New South Wales might be operational?

Those interested in the interconnection issue should read the PricewaterhouseCoopers’ review of the proposed new link between SA and NSW for Transgrid. It can be found here:

Apart from anything else, the PwC 30-page paper provides a useful helicopter view of the east coast electricity transition situation.

This opening paragraph gives some of the flavor: “One of the challenges of markets in transition is that outcomes can be less predictable. We are seeing this in electricity markets across the globe. There are multiple drivers for this including the introduction of renewable generation (eg wind and solar), the closure of fossil fuel generators (eg coal-fired) and movements in commodity prices (eg oil, gas and coal) which are increasingly volatile. In a number of markets we are seeing dramatic and sudden impacts as a result of these drivers. The Australian electricity market is starting to see these impacts and it appears that South Australia is perhaps seeing this most acutely at this point in time. We hypothesize that South Australia is ‘the canary in the coalmine’ as there are early indications of other stresses across other Australian States and Territories.”

The next Energy Council meeting is scheduled for December and it is going to be more than a little interesting to see what has developed in five months’ time.

As the Energy Networks Association CEO, John Bradley, observes in a media statement on Friday’s meeting results: “ (It) is a step in the right direction, but the test will be on-ground outcomes. We have seen agreements before to integrate carbon policy, unlock gas supply and reform tariffs. Australia is running out of time to deliver for customers in a rapidly changing market.”

Quite so.


Many years ago – about 34 in fact – I used to think the incumbent Secretary of the Treasury in Canberra an awful cynic because of his frequent, scathing references in meetings to the “meretricious players” among the resources and energy companies lobbying the federal government. (He caused quite a stir late in his public service career when he publicly threw the same stone at some of his government’s hired advisers for sustaining ministers’ political prejudices.)

I was reminded of the “meretricious players” jibe by this week’s sudden flurry of media stories claiming to out the major energy retailers for allegedly using their market power to take a too-high proportion of end-users’ bills. (“Shocking charges of big power players revealed,” said one TV news report.)

The new fuss is based on a consultant’s report claiming that “in those parts of the NEM where retail markets have been fully opened to competition charges for retailing electricity to households have grown to be a far bigger portion of the bill than the cost of producing (what they) consume.” This is part of the ongoing argument that “Australia has the world’s most over-priced electricity” when tax is not taken in to account, an assertion that has been challenged when purchasing power is the yardstick.

The fact that the political lobbying organization commissioning the consultant’s report is running a campaign to get consumers to switch away from the “Big Three” suppliers to one that it and other environmental activists support as “the greenest retailer” and the coincidence of causing waves in the media just days before the CoAG Energy Council meeting are fuel for my cynicism, I’m afraid.

The Australian Energy Council, lobbyist for the gentailers, has riposted that electricity markets are complex and critics can cherrypick data and draw conclusions that suit them but the carry-home message from the media coverage, especially on TV, for consumers is that, yet again, they are being “ripped off.”

Hearing and reading this stuff sent me back to the Australian Energy Market Commission review of power bills for the CoAG Energy Council last December.

The AEMC told ministers then that there is significant difficulty in quantifying the retail cost segment of end-user bills and the task is “highly sensitive to assumptions.”

The commission pointed out that this component of the bill is made up, in particular, of retailer operating costs (which include billing and customer service expenses, management of bad debts and financial contracts and the costs of meeting obligations imposed by governments) plus customer acquisition and retention costs (including marketing) as well as provision for a return on investment. Some of these, it said, can be estimated but the RoI assessment requires a detailed knowledge of a company’s capital, risks, revenue and costs by jurisdiction, not information readily in the public domain.

This assessment would be “extremely difficult and costly to undertake,” the AEMC declared, “and highly sensitive to assumptions,” limiting its value.

It also pointed to a litany of reasons why RoI for retailers can vary “significantly” over time, including spending on innovation or developing and marketing higher value products.

Network and environmental costs in the final bill can be directly observed, the AEMC added, as they are passed straight on to customers but wholesale energy costs will vary considerably and factors affecting them will include whether or not a retail activity is vertically integrated with generation and how it then operates its plants to meet its load – as well as how it hedges its exposure to the spot market.

Unfortunately, caveats like these induce MEGO (“my eyes glaze over”) among journalists and politicians — if any of it is reported as background, which it has not been this time, the same would apply to the relatively few consumers who get past “gouged again” headlines and opening “shock” paragraphs of media stories.

One of the arguments being tossed around in this latest electrical storm is that it was “never intended” in the 1990s push towards deregulation for generators and retailers to be integrated. Having been on the ground during the reform process, managing AEC’s predecessor, the Electricity Supply Association, when it represented the full extent of the supply chain, I can tell you that it was quite widely recognized in the industry at the time that an inevitable consequence of the transition (that word again) would be businesses making power as well as selling it to end-users.

I think it is fair to say it was less well appreciated that at least some of these companies would also be in the gas business – the “gas versus electricity” rivalry was a strong feature of the 1980s and 1990s – but, looking back, I’m not sure why this development wasn’t more obvious.

Today, of course, kicking big business players in energy, banking, insurance, telecommunications, groceries, petrol services and so on is a factor of life because markets have evolved to feature a few of them and a larger number of smaller ones hungry to snatch even a relative few of their customers (and only too willing to play to the political and media galleries in the “rip-off” games).

There is an old joke, you know, about how pygmies eat elephants – the punchline is one bite at a time.

This is the raison d’etre of media and political fusses of the sort confected this week about electricity retailing (there are actually 22 retailers in the market on the east coast, not that anyone in media I saw thought to mention this).

Whatever rhetoric the CoAG Energy Council cobbles together to get it through this fuss, I’ll have a little wager that the next effort by the aforesaid MPs (the players, not the pollies) will be to agitate for yet another Senate inquiry and that they’ll find very willing takers in Labor and cross-bench senators.

The consultant’s report, by the way, observes “A rush to intervene may make matters worse. But this cannot be an excuse to do nothing.”

It goes on to say: “Deeper economic analysis of the retail market is needed to understand the distribution of costs and profits between engaged and disengaged customers and between incumbent and new entrant retailers. With insights gained from this, the question of whether intervention of some form might improve outcomes should be considered.”

But this didn’t make the “gouging” media reports.

In transit

This is a week when we can expect to hear a lot more about our desired transition to a lower-carbon economy as it features the CoAG Energy Council meeting to be held in Canberra on Friday (a routine forum, shifted from last month because of the intrusion of the federal election, not a “crisis meeting,” as it has been hyped).

Many engaged in this debate across Australia have their own peculiar views of the transition – the most radical being the perspective that we have to be rid of fossil fuels by 2030.

Here-in lies the core issue: free markets are always in some form of transition but the lower-carbon shift, the activists argue, must be forced.

One of the latest media reports refers to this Friday’s Council meeting considering “rebooting” the east coast power market to accommodate more wind and solar power without “extreme prices.”

Set against this, one must applaud Josh Frydenberg, in a media interview, making the rational point: “You can’t talk about transition to a low emissions future without taking into account the considerations related to a reliable, affordable and accessible energy supply.” The federal Environment & Energy Minister perhaps should have said “you shouldn’t” rather than “you can’t” because more than a few can and do.

As an example, the Victorian Greens State spokesperson on energy sees the key to avoiding incidents such as the South Australian “crisis” in this light: (We need) a national renewable distribution scheme. If you distribute renewables across Australia then you won’t have the SA problem. The wind, she reminds us, “is always blowing somewhere and the sun is always shining somewhere.”

All this is bolstered by the view of the Greens and others that “renewable storage is just around the corner, subject to government investment.”

How far perspectives like this are also held by the representatives of Victoria and Queensland who will be at the CoAG meeting table this week is a thought-provoking point, given their governments are pursuing policies driving renewables investment way beyond the RET arrangement agreed by the federal Coalition and Labor less than two years ago.

(Amid the hype there are warning voices too: the University of Queensland’s professor Paul Meredith, for example, saying that adding grid-scale battery storage to the NEM will be “highly complex” and there are risks in rushing the process that could “embed new inefficiencies in to the grid.”)

The here-and-now too often gets lost in this debate.

For example, playing with the data presented by Hugh Saddler and his team in the always-interesting monthly Cedex review of the NEM for Pitt & Sherry, I work out that the east coast market in the 12 months ending July saw black coal generation contributed 94 terawatt hours, brown coal 39 TWh and gas 24 TWh versus all renewable generation of 26 TWh, of which wind farms contributed some 11 TWh and most of the rest came from long-standing hydro-electric systems.

The coal share of the NEM supply in those 12 months, says the Cedex report, was 75.6 per cent (versus 6.1 per cent for wind and 14.7 per cent for all renewables). This indicates that Frydenberg needs to review his oft-repeated comment that coal’s share of power supply is down to 60 per cent and still falling. That number is a national profile, including non-grid supply to mining areas and remote communities – but the major market is on the eastern coast where the bulk of demand and consumers reside, with coal remaining the dominant fuel source for electricity.

The mooted transition is unarguably one of the most important issues for Australia in the first half of this century – but, as Matthew Warren, CEO of the Australian Energy Council, points out: “It’s all fun and games until someone gets hurt.”

Warren argues that South Australia has become “an accidental experiment” in how far technologies like wind and solar can be pushed in to a market (and, by extension, coal and gas plants pushed out) “before something breaks.” He urges recognition of a “simple reality”: increasing variable renewable energy at scale reduces carbon emissions but eventually leads to higher prices and greater reliability risk.

However, this is clearly not something that is obvious to the Greens, a swag of self-interested investors, many politicians and quite a lot of our media.

Warren and the Australian Energy Council do concede that the electricity system, as currently configured, is “demonstrably not delivering against its three basic objectives: keep the lights on, remain affordable, reduce greenhouse emissions.” But, the AEC argues, this is not the failure of the design of the NEM in the 1990s. “It is the result of a decade of State and federal government meddling with an extremely complex system. Good policy has succumbed to bad politics on energy.”

In a newspaper op-ed this week, Warren asserts: “A decade of political tinkering has left us with an electricity system that doesn’t work. It doesn’t deliver the right investment in the right place, it doesn’t signal a reliable and efficient transformation from high to low emissions generation, it does nothing to enable greater demand flexibility by empowering consumers to consume energy when it is abundant and conserve when it is more scarce.”

What the CoAG Energy Council agreed when it last met is that the transformation of Australia’s energy system to a lower-carbon future must be managed as an integrated, national policy process. As I have repeatedly asked, did the ministers who made this commitment actually understand what they were saying? Is there buy-in for this goal at the highest levels of their governments? And perhaps what is the impact of the dog’s breakfast of a federal election for the approach to this?

One big problem is that some of the Energy Council members are still pursuing arbitrary targets and intrusive regulation at their jurisdictional levels – and another is the ever-present political urge to pursue the quick fix.

Come Friday, will we get more rhetoric while the steamroller of populism-fuelled intervention meanders on?

Will we get more pushing on further high voltage interconnection for the east coast market without deep analysis of the impacts and the costs?

And then there is the ongoing activism for rewriting of the National Electricity Law to give greater force to attaining the green dream.

Frydenderg has told a newspaper over the weekend: “I’m hopeful of some significant reforms coming out of the meeting. The NEM has to reflect realities.”

Back in the early 1990s, Keating, Goss and Greiner, realizing the risks, came to the conclusion that creating the NEM should not be left to politicians like themselves, so they pushed in to being the National Grid Management Council to make the east coast market. One is tempted to ask do we need another NGMC to frame a comprehensive national energy strategy?

What we manifestly don’t need is more of the same populism, knee-jerking and groping-in-the-dark intervention of the past several years – but how hopeful can we be that the Energy Council on Friday will deliver understanding of this, let alone effective communication of it to the public at large?

Curiouser & curiouser

One of the strange things about the past week is that the mainstream media chose to wholly ignore an announcement about Australia’s largest electricity region attempting to develop a new energy strategy.

New South Wales is not small beer on the national power scene: with some three million residential customers, another 300,000 business accountholders, more than 66,000 gigawatt hours of consumption and more than 10,000 megawatts of operating black coal generation, it stands above all the rest in the east coast market – and, taken with Queensland, “black coal country” accounts for some 64 per cent of NEM supply and demand.

One would assume, then, that a decision to “develop a roadmap for NSW to transition to a clean, affordable and reliable energy future,” to quote from the statement on 3 August by Industry, Resources & Energy Minister Anthony Roberts ( would be a non-trivial issue for newspapers, TV and radio. One would be wrong.

The other thing I find curious is that Roberts managed to make this statement without even mentioning the role of coal or fossil fuels.

A glance at some snapshots of the State power load on Sunday illustrates how odd this is. Through the course of the first day of this week, at 8.45 am coal generation met 7,097 MW of load, at 1.10pm it was 5,745 MW and at 10.05 pm 7,078 MW. This meant that coal plants accounted for 95.5 per cent, 96.2 per cent and again 96.2 per cent respectively of State load at these three points, picked at random.

Of course, the relative contributions of coal, gas, hydro, wind and solar power fluctuate all the time, changing over the year according to the hour, the day, the weather and the levels of demand – but the coal share, even on the sunniest and windiest days, is still by a long way the “big beast” of NSW generation.

How this situation can be changed, with what generation and network resources, at what total system cost to maintain security and reliability of supply and at what cost to end-users is one of the half dozen biggest issues in NSW’s future out to 2030 (and, of course, beyond).

Now the government get-out-of-jail card for the way it framed this statement is presumably that the exercise is about “advanced energy strategy” and about a “smooth transition” to a “clean, affordable and reliable” energy future, but any view that this can be achieved without fossil fuels at all, and without coal in the next 10-15 years, is fanciful.

The risks involved in racing without due care down the power transition path surely can now be seen to be well-represented by the experience in South Australia. As Australian Energy Council CEO Matthew Warren has emphasized, the SA situation is not a renewables problem, it’s a policy and planning problem.

Anthony Roberts’ media statement seems to me yet another exercise in energy policy sophistry that is now only too common across much of Australian politics – designed to paint governments or parties a greener shade while talking up concern for consumers and assuring them they are being “empowered.” How many in South Australia, and especially among the State’s 100,000 business customers, feel “empowered” right now, I wonder?

While speaking up for his own industry, Malcolm Roberts, CEO of the Australian Petroleum Production & Exploration Association, put his finger on the core point in reacting to his namesake’s statement: “Experience around Australia has shown that proper planning is essential to a smooth transition to a cleaner energy future,” he said. “NSW, like other states, needs a diverse, responsive generation sector that can maximize the use of renewables without jeopardizing energy supply.”

I’d amend this only slightly – to read “optimize the use of cleaner energy sources without jeopardizing supply.”

Malcolm Roberts, of course, is focused on the need for politicians to accept that the State should have access to sufficient gas-fired generation capacity to underpin electricity security. The NSW strategy, he said, “should step on the gas.”

He looks to next week’s CoAG Energy Council meeting to initiate action to actually start increasing eastern Australia’s gas supply.

Shortly before Anthony Roberts’ statement appeared, the Minerals Council put out a statement urging federal, State and Territory governments to take a technology-neutral approach to future generation, pointing to coal-fired plant still providing three-quarters of the NEM’s power and arguing that future strategy shouldn’t rule out a role for low-emission, high-efficiency coal technology.

For my part, I think governments in NSW and elsewhere need now to be fully focused on avoiding the trap of ricocheting from reliable and cheap power to patchy and expensive (to quote the Grattan Institute).

The institute accuses governments collectively of “a systemic failure to understand and address the consequences of poorly-considered policy.”

And the SA Treasurer is on the record as warning that South Australia’s woes today, may (he said “will”) affect other States tomorrow.

There are a heap of us on the sidelines harping on the fact that the cornerstone of good strategy has to be durable, effective, national carbon policy integrated with energy plans – but, as the States (SA, Victoria and Queensland in the current van) keep demonstrating, jurisdictions are hell-bent on going their own way on supply strategy for political reasons.

This new statement from the NSW Energy Minister does not come close to signalling that his government wants to repower the State in a pragmatic, pain-free way rather than pursue populist paths.

But how a government can be held to account in the public debate when a potentially important policy move is not even reported, let alone analyzed, in the mainstream media is not just a good question, but a critical one.

At least, in this case, I can point to the NSW re-powering issue getting a big airing in late October when a Quest Events conference in Sydney focuses on exactly this issue over two days (

I thought this conference, which I am co-chairing, to have the potential to be a valuable contribution to the wide-ranging discussion of the east coast’s power rollercoaster ride before the NSW government’s statement appeared; given the tone of this release, I feel the event has taken on even more importance.

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.