Archive for November, 2016

A climate of insecurity

In the great scheme of things, 2016 is going to be remembered for Brexit, Donald Trump and, closer to home, a federal election in which the Coalition came within a whisker of losing office after a crushing victory over Labor in 2013. It is also, for those of us fixated on electricity and gas matters, the year in which energy security flared in to the headlines in a big way.

The thing we call “year” is just a matter of convenience; in reality, issues flow regardless of calendar boundaries and “energy security” is an issue that is going to flow on in to 2017 (and no doubt longer) without checking in with Old Man Time.

However the time available to deal with Australia’s energy security problems without damage to the economy is not open-ended and one could make an argument that we are well over time in setting in train a “fix it” program in order to avoid painful consequences.

This is quite aptly illustrated by a speech the federal Industry, Innovation & Science Minister, Greg Hunt, gave to an Australian Industry Group dinner this week – not least because he declared that we live in “a climate of energy insecurity” in which “the key input for many businesses, reliable and affordable electricity, cannot be taken for granted.”

This is major statement by a senior minister, but it has seemingly been ignored by the mass media – with the exception of today’s “Weekend Australian,” where one of this country’s most senior political journalists, Dennis Shanahan, is looking at our energy security issues against the priority promises of the incoming US president.

Shanahan’s key assertion is that “Australia is in serious danger of losing the advantage of its plentiful energy resources.”

Hunt focused on the fact that “power prices, gas shortages and a hostile attitude to industry from some in the political sphere have combined to make the job of manufacturing even harder.”

He said an increasing number of firms are raising with him the issue of our electricity prices relative to those paid by their competitors and he went on to accuse Labor of willfully ignoring these concerns with its renewable energy targets “that only do one thing – further increase the cost of energy.”

Hunt’s speech then segued to the gas sector and he laid in to State policies “that don’t just threaten future investment, but, increasingly, existing investments.”

I find it more than a little interesting that a ministerial declaration that “describing this as a looming crisis is not too strong a term” can be let through to the ‘keeper by a mass media that can produce strident headlines for many things less serious.

Messing with gas exploration and development is a Coalition sin (New South Wales) as well as a Labor one, but Hunt’s special focus at the AiG dinner was this week’s introduction of Victorian legislation to ban onshore gas exploration and development, “a more short-sighted, self-destructive policy is difficult to imagine.”

The Andrews government’s move, he said, places at risk thousands of well-paying industrial and manufacturing jobs in Melbourne and other parts of Victoria while driving up costs for State households.

Nationally, he added, we need to understand that “future and ongoing investment in manufacturing will be driven by access to reliable and affordable energy, particularly natural gas.”

This, he said, is “a major policy challenge confronting the country.”

Welcome commonsense – and echoing the previous warnings of Martin Ferguson and Ian Macfarlane, an indication of how long the point has been of concern – but how it resonates with the hoi polloi if the mass media collectively don’t report it, as they haven’t, is a big point.

There are, of course, as many points merely in the discussion of factories and energy security (which can be described as two sides of the transition trilemma – price and reliable availability, the third being carbon abatement) as can be found on an echidna.

Just one is something I spotted in the submission by Major Energy Users Inc to the ongoing Senate inquiry in to the closure of coal-fired power stations: “The largest 10 electricity consumers in South Australia might use in excess of 250 gigawatt hours annually (each). The difference in cost to a user of this size between prices available in Victoria and those in SA is more than $10 million a year (each) – the cost equivalent (in total) of employing more than 1,000 employees.”

The MEU, a lobbyist for 20 of our major industrial businesses, goes on to comment: “High (energy) prices place increased pressures on industry to remain competitive and, in some cases, force the early closure of large operations in once stable industries. These closures lead to an increase in unemployment which leads to a myriad of social issues, and places further pressure on government and social services.”

Clearly, this is the messaging reaching Hunt, previously national Environment Minister, as he deals with his new role in the Industry portfolio, but how far, via social and mainstream media, it is from reaching the population at large is probably not open to question: the answer is not much. Read the opinion polls.

As I understand it, a preliminary commentary from Alan Finkel and his taskforce is to be provided to Malcolm Turnbull and the State and Territory leaders when they meet under the Council of Australian Governments umbrella in Canberra in early December.

Will the CoAG discussion take in to account the serious analysis from the federal Industry Minister?

Federal Treasurer Scott Morrison commented earlier this month that his government is “very much focused” on “a more stable, more secure long-term energy market for Australia” (this in the wake of the SA blackout and the more recent Hazelwood closure announcement).

As we shift (drift, lurch?) in to 2017, it is not unreasonable, I think, to ask in response what these fine words mean?

Is the energy security climate still going to be deeply concerning this time next year?

The real big picture

In my previous post (“But wait,there’s more”) on this site I focused on the electricity aspects of the International Energy Agency’s 2016 World Energy Outlook publication — but, as we all know, this is only part of the big picture and that canvas deals not only with mitigating climate change but also in alleviating widespread global energy poverty and in underpinning the world economy across the spectrum of energy use.

There’s a multitude of commentary about the Outlook report now on the Web and, in scanning it, I have focused on one table in the IEA document that encapsulates the whole picture. For those who can access the agency’s paywalled full report, it is to be found in table 2.2: world primary energy demand. For those who can’t, put “IEA in the Age of Trump” in to Google search and read the Energy Collective website commentary under this headline.

As I commented yesterday, a critical aspect of assessing this document is understanding that the IEA is offering three scenarios: where business as usual will take us, what the pledges the world’s governments took to Paris last year will mean and, the one that the greens in particular are now seizing on to boost their arguments, a model of how the 450 parts per million carbon plan might be pursued. The latter is not a forecast; it is a modelling concept based on the agency’s wide-ranging handle on data, policies, markets and prices.

The mechanism the IEA uses for this task in table 2.2 is rendering all technology contributions in terms of millions of tonnes of oil equivalent (mtoe).

The story starts in 2000 when primary energy demand was 10,042 mtoe and the fossil fuels (coal, oil and gas) provided 80 per cent with oil out in front by the length of the straight (3,699 mtoe) and non-hydro renewables contributing 60 mtoe (to which one could add 1,026 mtoe for bio-energy and 225 mtoe for hydro power, in all 13 per cent for green energy).

By 2014 there had certainly been change (with demand jumping to 13,684 mtoe and hydro, bio-energy and other renewables providing 1,937 mtoe, now just over 14 per cent) but the fossil fuel share had risen to 81 per cent, with coal in particular growing sharply (now holding 28 per cent up from 23 per cent at the turn of the century) but with oil still leading the pack.

This table looks at 2025 in two ways: where business as usual will take us and where we’ll be if the world’s governments stick to their Paris pledges. (Of course, there is the issue of the Trump presidency in the US — which has descend on us since the agency completed this report).

Under BAU, the agency forecasts global primary energy demand will reach almost 16,000 mtoe in 2025, not all that much different from the product of the pledges being met  (giving demand of 15,340 mtoe).

BAU, it says, will keep fossil fuel’s share at 79 per cent while the pledges will cause this to fall back to 74 per cent. In this latter perspective there is a minor fall in the gas share, a similar decline in oil and a bit more substantial reduction in coal versus BAU. Their combined fall amounts to 698 mtoe while the combined growth of green energy is just 78 mtoe; it’s energy productivity that contributes almost 600 mtoe to the climate task in this modelling.

One shouldn’t lose sight of nuclear power in all this: its contribution has fallen back slightly from 2000 — when it was 676 mtoe — to 662 mtoe in 2014 (the influence of Energiewende and the Japanese issues) but the IEA is predicting it will rise to 865 mtoe under BAU by 2025 or to 888 mtoe under the Paris commitment scenario. In this modelling, its input a decade hence still well outweighs “other” renewables (478 mtoe under the Paris scenario).

Of course, just about the whole gang of stakeholders want to talk about 2040, the IEA’s further horizon. Readers will know my reservations about predictions for a quarter century from now (as I said previously, go back to 1992 and see how much was right for the outlook to 2016 or 2020). However the agency’s modelling for that horizon is important because it plays to the policy debate (international and locally).

The IEA projects global primary energy demand at that point ranging from 19,636 mtoe (business as usual) to 17,866 (Paris pledges) to 14,878 mtoe under the steps it urges on governments. The fossil fuel share ranges from 79 per cent (BAU) to 74 per cent (Paris) to 58 per cent (the IEA’s grand plan). Energy productivity plays a big role — the IEA believes world energy demand can be cut by nearly 3,000 mtoe annually (equal to roughly a third of all demand at the start of this century).

The other big change factors are a diminished role for coal, a big rise in the use of bio-energy, solid growth in nuclear power and a rush to “other” renewables.

The agency suggests coal’s contribution could be down to 2,000 mtoe in 2040 (not much less than it was in 2000), exceeded by bio-energy at 2,310 mtoe and chased by nuclear at 1,590 mtoe — with “other” (i.e. non-hydro) renewables delivering more than 1,750 mtoe. The two stats that will make dark greenies’ eyes water are that, even in this scenario, gas is delivering 3,300 mtoe and oil 3,325 mtoe — between them 44.5% of the world’s energy needs.

It’s notable that the IEA did not choose to share table 2.2 with the media in London on 16 November when it launched the new Outlook.

It could find room for “greater policy support boosts prospects for solar PV and wind” — arguing that “the next chapter in the rise of renewables requires policies to push their role in heat and transport and changes in power market design” — and for “Coal: a rock in a hard place” among its power points but not to share an excellent capsule of both where it thinks things are going out to 2025 on the basis of governments’ promises and where it suggests things may be in 2040 with a carefully managed decarbonization plan. It does not include the table in the 13-page summary made freely available on its website either.

How many members of the current Australian body politic across nine jurisdictions would be gobsmacked to discover the IEA’s reporting of an ongoing strong role for fossil fuels on the global primary energy scene? As I wrote in a commentary on LinkedIn yesterday, the outlook for coal, nuclear and gas has significant ramifications for this country as a big trader in energy.

It’s also not a message reaching our voters or today’s high school kids (major users of the Internet and wholly dependent on our economic strength between 2025 and 2040).

But wait, there’s more

The International Energy Agency’s annual World Energy Outlook is fertile ground for anyone wanting to make a point and that certainly includes those boosting the credentials of variable renewable energy – although running a headline, as one booster here in Australia has done, declaring “IEA says wind, solar to provide 60% global electricity by 2040” is more than a bridge too far.

Central to the giant Outlook document (more than 650 pages) this year is two pieces of modeling – one extrapolates the abatement pledges nations took to Paris last December and the other reprises and updates modeling the agency itself took to Paris at end-2015 to suggest how countries could pursue the desired level of carbon in the atmosphere (450 ppm) in the second half of this century.

The latter is not a prediction; it is a scenario based on input chosen by the IEA modellers.

It is a very interesting perception of what might be and (though this is largely ignored by those wanting to boost the role of wind and solar) relies strongly on the belief that energy productivity can claw back power requirements from the 42,000 terawatt hour annual level towards which we are currently heading (ie “business as usual”) to where we would like to be in terms of abatement. In the agency scenario, generation sent out is reduced to just over 34,000 TWh.

The “450” scenario is obviously about a lot more than electricity and the IEA canvasses this at considerable length. One statistic I rather like as an example of the scope of the challenge is that the agency posits 700 million electric cars on the world’s roads by 2040 to reduce the demand for oil by billions of barrels.

And here’s the point at which in any such conversation, as I did at the ATSE “Beyond coal” symposium, I draw attention to the fact that viewing 2040 from 2016 is the same as viewing 2016 from 1992 – and didn’t we get that right!

For me, the more relevant IEA modeling is based on so-called “new policies” – the national plans the governments of the world presented in Paris – and this sees power generation rising from almost 24,000 TWh in 2014 to 29,500 TWh in 2025 and 39,000 TWh in 2040.

The IEA has been vociferous in pointing out that “new policies” will not deliver the 21st Century carbon target, but nonetheless it is what nations (including the US under Obama’s leadership) say they are going to do.

The “new policies” model for 2040 has coal-fired generation delivering some 10,800 TWh, gas units providing 8,900 TWh, hydro power more than 6,000 TWh and nuclear energy 4,500 TWh. In other words, based on what governments are committed to doing, the IEA sees 80 per cent of 2040 electricity coming from conventional sources (including of course new technologies in coal, gas and nuclear).

This model allocates just over 8,000 TWh to non-hydro renewable energy – which is not only wind and solar but also bio-energy, geothermal and marine power. Hydro-electric systems are the dominant source of renewable energy in this perspective, almost doubling the output of wind farms.

The big issue in discussing the role of technologies is actual generation output rather than plant capacity – gigawatt or megawatt hours rather than gigawatts and megawatts. It is only too obvious from the media that capacity factor is wholly lost on most reporters – and energetically ignored by those wanting to boost wind and solar.

Which brings us to the IEA modeling of its “450″ scenario.

The agency model (or should I say its advocacy) – again, I emphasize, it’s not a forecast – is that the contribution of coal to making power in 2040 should be clawed back to barely 2,500 terawatt hours while that of gas plant should be about 5,400 TWh.  Nuclear power in this model delivers more than 6,100 TWh, hydro nearly 7,000 TWh and “other renewables” (dominantly wind and solar) almost 13,000 TWh.

The boosters chose to focus on wind/solar rather than hydro even though the mooted contributions are roughly the same.

Getting from the “commitments” scenario to the “450” scenario in roughly a quarter century would be a gargantuan task, the scale of which is underscored by the IEA also offering an outlook for 2025. This envisages power generation output under “commitments” at 29,540 TWh (about a fifth more than now) and at almost 27,700 TWh under the “450” model, allowing strong productivity efforts to start to bite.

It sees the contribution from coal plant rise from 9,700 TWh now to almost 10,000 TWh in 2025 and fall back to little more than 7,000 TWh in the “450” model – and the output from gas power stations (just over 5,100 TWh now) staying virtually stable at 6,500 TWh in both scenarios.

Also modeled is a steady expansion for nuclear (from 2,535 TWh now to 3,405 TWh under the “commitment” and 3,685 TWh under the “450” model) and for hydro electricity – from almost 3,900 TWh now to nearly 4,900 TWh or almost 5,000 TWh.

The actual output of “other” renewables is seen as almost trebling (1,490 TWh now to 4,074 TWh in 2025) under the nations’ pledges or getting close to 5,000 TWh under the agency’s “450” scenario. This is substantial growth – the contribution from wind, solar and so forth shifting from six per cent at present to 14 or 18 per cent. I can understand that it’s cause for green celebration, but it’s hardly the “death of fossil fuels” so desired by ideologists.

Another point worth underscoring about the Outlook report is that the issue of reliability of supply (now high on the agenda here after the events in South Australia) is a global one: the IEA observes (deep in to its report) that the deployment of wind and solar at levels consistent with its “450” scenario, as well in some cases in the “commitment” scenario, “requires a significant upgrade in technical, institutional, policy and market design.”  Any system, the agency says, in which variable renewables face a regular risk of having their production curtailed “is taking an expensive and inefficient route to decarbonization.”

It acknowledges that its “450” scenario will require a massive re-allocation of global capital and this can’t be taken for granted.

There’s a salient sentence buried in the commentary: “In most countries (variable) renewables-based producers do not recover their investment from wholesale markets and, since their production depresses wholesale prices, they cut in to the investment recovering of existing conventional plants and can deter investment in new capacity.” Unless, of course, governments are forcing more capacity in to over-supplied markets willy-nilly through devices like the RET. Down this route, to quote the maps of a bygone age, there be dragons.

A report this size offers a multitude of avenues for thought (and game-playing).

Yet another take-away thought is this: the IEA sees very little growth in OECD demand for power from 2020 to 2040 – just over 10,000 terawatt hours a year to under 11,400 TWh – but its modeling indicates that the non-OECD consumption will rise from just over 13,100 TWh in 2020 to almost 23,000 TWh on present government plans. That’s growth equivalent to the current consumption of the US, the EU and Japan put together.  (For context, Australia’s current annual generation requirement is 25 terawatt hours and the pundits think it might be 30 TWh in 2040.)

Blind Freddy, alerted to these non-OECD numbers, must appreciate that the fate of international carbon abatement hopes rests squarely on what these countries require in the way of power and how they source it – which will not be through 60 per cent wind and solar.

Finally, I find it interesting, given the importance of natural gas in Australia’s trading life, that there has been little local media interest in the fact that the IEA sees the fuel playing an increasingly important role in the global energy mix over the next 24 years, being described by the agency executive director as “one of the big winners” along with wind and solar. From a national perspective, the ongoing call for gas, uranium and coal inherent in the IEA data should be of great significance – but focusing on this wouldn’t fit with the current social “vibe,” would it?

Message for Finkel

It’s hard to focus on bread-and-butter stuff when the meringue is hitting the fan.

A couple of hundred people crammed in to the Customs House hall in sultry Brisbane yesterday morning for the latest energy breakfast symposium were all talking on arrival about Trump’s American revolution rather than the matter at hand: “Is Australia heading in the right direction in energy and environment policy?”

It’s a credit to the panel addressing the question that the exit conversations two hours later seemed to be all about the local issue.

The “Energy Exchange” series, put on by the University of Queensland and the Energy Policy Institute of Australia, is an excellent forum that has maintained its standard over some five years, often featuring overseas experts.

The panel for the latest event, moderated by Origin Energy’s Heidi Cooper, comprised EPIA’s Bob Pritchard, consultant Jim Snow, UQ professor Simon Bartlett, one of Australia’s leading figures in power transmission, and Phil Richardson, a senior officer of the State Department of Energy & Water Supply, most recently engaged with the somewhat controversial Queensland government panel looking at renewable energy.

The discussion, including a wide-ranging Q&A with a knowledgeable audience, canvassed much of the ground covered by the recent “Re-powering NSW” conference and this week’s earlier symposium presented by the Australian Academy of Technology & Engineering, both in Sydney. The ATSE event was the focus of my “Watch the time” post on Wednesday.

A summation of all these discussions, in response to the question posed by the UQ breakfast, would roughly be that we are heading in the right general direction but management of the process leaves a very great deal to be desired – and the possibility of more shocks like the recent South Australian blackout is not to be discounted.

My own take is that (a) we have a national carbon abatement target (albeit one to be reviewed in mid-2017) that requires a reduction in power station carbon intensity of about a third by 2030, (b) this goal is constantly rubbing up against an obsession to drive variable renewable energy and battery storage rather than focus on the main game of cutting emissions at the lowest possible cost, (c) the investment climate created by the political melee is not conducive to pursuing the goal efficiently and (d) the risks in terms of rising power costs and supply security issues are real and need attention right now.

In this context, Simon Bartlett made an observation yesterday that the bulk of variable renewables the Queensland government wants to see developed will be in the State’s north while 60 per cent of the load is in the south-east corner, posing interesting engineering (and cost) challenges in terms of security of supply.

Also in context, the EPIA has despatched a letter about the review of NEM energy security to Chief Scientist Alan Finkel, suggesting he and his panel will be unable to avoid reaching five conclusions:

  • Energy security is paramount and, having ensured the lights stay on, the market can then optimize for price and emissions.
  • CoAG “has only ever paid lip service” to the principle of energy security and the need to base the supply system on technology neutrality and diversity.
  • CoAG “must take collective responsibility for weakening of system security in South Australia” by “allowing it to build up excessive dependence on intermittent energy.”
  • Our energy generation governance system is “at risk of becoming even more dysfunctional” without efficient and enduring climate policy.
  • CoAG “has known of these fundamental concerns for years and has been ineffective in addressing them.”

EPIA argues that the inability of the CoAG Energy Council and its advisers to act in a timely manner “has become a significant policy issue.”

It also argues that the national electricity objective set out in the law that governs the NEM – a target for green demands for a rewrite favoring their technology views – “remains fundamentally sound” and its aim to promote efficient investment for the long-term interests of consumers, having regard to the security of the supply system, should be left undisturbed.

In the institute’s view, the key problem is that the national energy governance system has not been designed for today’s more complex tasks dictated by climate goals and “there is an urgent need for a national vision to guide this work.”

As several people have pointed out to me in the past fortnight, our politicians (whether in government today or striving to be there tomorrow) have to come to terms with a basically quite simple proposition: if sacrificing power system reliability is unacceptable to the community (and it is), then we need to know now what level of investment is needed – very large, I’d argue – to maintain resilience and security in a system dominated by variable renewable energy?

In a phrase: total system cost and who pays it.

This brings us to the issue of whether the community will accept the cost in their power bills and as reflected by the impact on trade-exposed industry and on jobs? They demonstrated in 2013 that they did not like the relatively mild imposition of the Gillard/Swan carbon price. Should that rejection dictate the way ahead as the Paris agreement?

The contortions the Victorian and Queensland governments are going through at present to assert that the cost of their big renewables policies will be very little and that there is no cause for community alarm merely serve to demonstrate (to me at least) that this is eventually one of the bigger over-riding issues of the market transition.

Setting up Finkel’s panel is a rather desperate throw of the dice from politicians thoroughly spooked by the South Australian event. Are governments no longer capable of taking responsible decisions on issues of national interest without an inquiry to hold their hands? As this is apparently the case, the extent to which the review can speak truth to (political) power is now the single biggest immediate question for our local energy debate.

Watch the time

A four-letter word kept coming to mind as I participated in the “Beyond coal — what will power NSW?” symposium the Australian Academy of Technology & Engineering staged in Sydney this week.

No, it was not any of the vulgar ones — although, as a paid-up grumpy old man, they, too, spring to mind increasingly often as I listen to people parading their wishes and hope-over-expectation notions in the public debate.

On this occasion the four-letter word was “time.”

Listening to a quite wide spectrum of ATSE forum speakers and panellists, I kept on being mentally nudged by the thought that our east coast gas and electricity market is in a constant state of flirtation with the risk that what needs to be done to deliver reliable, secure energy in pursuit of carbon abatement goals in the new decade at the least possible system cost will run hard against the anything-that-can-go-wrong-will-go wrong prospect. This has been already demonstrated to general dissatisfaction in South Australia, the possibility that it may be happening in Victoria can’t be ignored and the challenges faced in New South Wales (as trotted out through the day at the ATSE forum and late last month at the Quest Events’ “Re-powering NSW” conference I co-chaired) are not trivial.

The Baird government is now promising that its “advanced energy strategy” preliminary review will be available for stakeholder reaction “early next year” and this exercise interacts with the Finkel review for the Council of Australian Governments and the Energy Council’s need to respond to the Australian Competition & Consumer Commission report on east coast gas supply.

A scenario offered to the ATSE event by power plant engineer David Tanner — that NSW in 2030 could have an electricity generation requirement of about 73,000 gigawatt hours to be met by a mix of 55 per cent coal (down from more than 70 per cent today), 25 per cent renewables (which would include a contribution from the Snowy Scheme) and most of the balance from gas plant (perhaps 5,000 MW versus about 6,800 MW for coal units and about three times today’s State capacity for variable renewable energy) at that point –exemplifies, for me, the time issue.

Fourteen years is a long time when you look at it from a personal level, but not from a planning, resourcing and development perspective. You only have to look at how the locusts have devoured the past five years since the Coalition swept back to office in NSW with respect to the State’s overall gas needs. Where things are today was being readily predicted in 2011-12 and it would be a brave person (and certainly no-one in manufacturing) who could profess to be sanguine about the state of play as we enter 2017. Still more so about the State having access (given the prevailing environment) to sufficient gas to meet both direct use requirements and the needs of a substantial generation sector by the middle of the next decade (no-one will plan a new gas generation development unless the fuel is demonstrably available at the start of project thinking).

The list of what needs to happen to deliver on Tanner’s scenario (not a prediction) is not short, the politics hanging over it are murky indeed, there are State elections in 2019 and 2023 that could be of critical importance and at least three federal elections between now and the middle of the decade that could be important to NSW’s prospects of being in a good energy place between 2025 and 2030.

The importance of policy is exemplified by a point made to the ATSE forum by AGL Energy’s Tim Nelson. He said that the national abatement plan being pursued by the Turnbull government — and when will that be back at the polls and what will its chances be of retaining office? —  requires the carbon intensity of east coast generation to be reduced by more than a third (down from 0.92 tonnes per megawatt hour to 0.66 tonnes).

There are lots of ways this can be pursued for NSW — efficiency upgrades on some existing large coal units and the closure of others, a much stronger effort on energy productivity,  a larger investment in utility-scale solar and wind farms, gas generation and (as was pushed by some participating in the ATSE forum) recourse to nuclear energy, especially small modular reactors. An obvious point is that a pragmatic answer lies in all or most of the above. But it surely is obvious — except to the naive and the ideologically bent — that the time required to pursue any such path if really long, especially when one takes in to account environmental development regulation.

Nelson made another good point at the forum: “Why should anyone (among investors) do anything?” he asked, given current policy uncertainty.

Which brings me to the contribution to the symposium by the Grattan Institute’s Tony Wood.

Paraphrased, Wood told the meeting it should be obvious to us all that a fundamental transformation of the energy system is happening. “A realignment is under way.”

But, he emphasized, what we need is “credible, scalable policy that builds on current policies while pursuing a longer-term carbon target.”  And “our physical and financial systems need to be both reliable and affordable.”

He was not feeling kindly towards the CoAG Energy Council, slamming it as “probably one of the most dysfunctional bodies in the country,” declaring its member ministers to be “conflicted all over the place,” pointing to State governments “crawling over each other in competition for renewables” under a RET scheme he dismissed as “one of the worst pieces of public policy” — and saying that one of (federal Environment & Energy Minister) Josh Frydenberg’s biggest challenges is to get the States to stop acting parochially while they talk nationally.

“Neither doomsaying nor magic pudding thinking,” he added, “is an effective basis for policymaking.”

And he warned that the energy transformation is going to be “harder, messier, more disruptive and more expensive than has been communicated.” The public, he added, needs “the cost and the pain” of the transition properly communicated.

Wood is not the only one to raise the question of whether the “national” (that is east coast) electricity market is dead or just becoming irrelevant. I have heard a senior public servant at State level describe it as “antiquated and ripe for change.”

Now dealing effectively with all this is a pretty big ask — and has been literally for years. Yet here we are — and the jawboning just at governments’ level is seemingly endless.

My perception is that, if we continue to have governments and political leaders more generally pursue the transition on the basis of what is popular with an often energy-illiterate population and/or on what they think are technology winners, we are collectively going to end up in 2030 in as much trouble as a fish at a cats’ picnic.

Which is why that four-letter word — time — preys on my mind when I participate in these discussions.

 

Hazelwood & hyperbole

Few things were more predictable than that Engie making public its decision to shutter Hazelwood power station would trigger bursts of hyperbole from the usual suspects.

It’s all there on the Internet and it would be tiresome indeed to call out even some of the “beginning of the end for coal” commentary, although “coal is over” from the Greens’ Adam Bandt is worth a mention. What does he make, I wonder, of three plants of similar total capacity to Hazelwood currently being built in Brazil, among 2,400 coal-fuelled generation units under construction or being planned around the world?

The local hard coal fact is that brown and black versions of the fuel provided 75.9 per cent of NEM electricity production in the 12 months to September; Hazelwood’s share of the market is about five per cent.

Engie’s senior manager in Australia, Alex Keisser, nailed things yesterday when he commented that “the historical direction is to go to less coal” but a transition will be the work of “a few decades” and “needs to be done in a very considered manner.”

The Hazelwood decision is a great deal about economics despite Victorian Premier Daniel Andrews (who tripled the State’s brown coal royalty in his last budget) insisting yesterday that it is “simply” about Engie wanting to get out of coal generation globally.

Keisser says Engie has considered a range of options to revamp the power station, including switching to natural gas, “and the power price today didn’t make these options viable.”  His boss, Isabelle Kocher, has put out a media statement in France observing that the planned closure of Hazelwood in March is in line with the company’s global strategy to gradually end its coal activities, concentrating on low-carbon power generation, including gas, but adding: “Hazelwood has been operating in difficult market conditions, with low market prices and a surplus of supply.”

The company is also going to put up its other Victorian brown coal plant, Loy Yang B, for sale,  and there could be quite a lot of investor interest in this 953 MW operation with its ability to offer lower wholesale prices than black coal operators in New South Wales. It’s half the age of Hazelwood.

Beyond the deep green flag waving, the key issue on the east coast is really not hard to see — the power market is bulging with capacity (with more to come in a short period through the requirements of the RET) and there is deep uncertainty about where supply is heading in terms of price, reliability and security.

In a properly planned environment, the Australian Energy Council CEO Matthew Warren points out, investors would already be well advanced in delivering the right mix of lower-emitting generation to replace Hazelwood’s 1,600 megawatt capacity. “Instead everyone is asking ‘what happens next?’ because there is no national plan.”

The result, Warren says, is “investment gridlock” and growing uncertainty for the business community and the mass market.

This perspective is reinforced by Mark Collette, head of energy markets at EnergyAustralia, who comments that the NEM “is in a very uncertain place” because there is not enough confidence to invest in refurbishing other old plants or “reliable, despatchable new plants.”

Malcolm Roberts, CEO of the Australian Petroleum Production & Exploration Association, chimed in yesterday to urge the federal and State governments to use the Hazelwood decision as further impetus for development of a “national electricity blueprint.”

The NEM, Roberts adds, was established nearly 20 years ago “to eliminate the waste and political games of separate State systems” and governments need again to commit to co-ordinated action. “There can be a healthy debate about the size of the national renewable energy target but few would argue that a patchwork of State targets is efficient,” he says.

Not surprisingly, APPEA wants Victoria in particular to focus on developing a new electricity supply mix including both gas and renewables.  “With gas the only option for reliable back-up to intermittent renewable sources,” Roberts declares, ” Victoria’s ban on onshore gas development makes no environmental or energy policy sense.  This is especially true for the political moratorium on conventional gas developments.

I thought it interesting yesterday that a solemn Josh Frydenberg, federal Environment & Energy Minister, listed three key points in his media conference: first, looking after the Hazelwood workers and the Latrobe Valley community more generally, second energy security and third electricity costs.

And Tom Koutsantonis, South Australia’s Treasurer and Energy Minister, writing in an Adelaide newspaper, comments that “the NEM is extremely complex and will take time to adjust to the withdrawal of Hazelwood.”  Koutsantonis also notes that Engie has a contracted position in the market that it will need to cover and, he says hopefully, this may mean that “the nation’s most efficient gas generator (Pelican Point in SA), which is currently running at only 50 per cent of capacity, may be required to help cover that position.”  And, one adds, to help cover South Australia from the problems in to which it has plunged this year.

In passing, it is worth noting that Australian energy veteran Trevor St Baker has signalled that he could be interested in buying Hazelwood through his Sunset Power International business. Sunset acquired the languishing Vales Point black coal power station in the Hunter Valley from the New South Wales government last November. St Baker told a newspaper he thought half the Hazelwood units could be “kept in fairly good service.”

So ranting  about Hazelwood’s fate signalling the “end of coal” may be a bit misplaced. Or, to quote the Minerals Council of Australia yesterday, “brown coal should not be written off.”