Archive for January, 2017

Looking out

For me, one of the most interesting tables in the ElectricityGasAustralia yearbook is the rolling 10-year load forecast, now extended to 2024-25.

Apart from anything else, the furthest peek at the horizon in this latest table is a mirror of how life has changed for suppliers (whose perspectives of the future provided to the publishing industry association, formerly the Electricity Supply Association and now both the Australian Energy Council and Energy Networks Australia, are the basis for the forecast).

Go back to the 2012 edition of the yearbook and you will see an industry expectation that the grid system energy requirement in 2020-21 for the whole country would be more than 275,000 gigawatt hours — and almost 248,000 GWh for the east coast’s NEM.

In the latest yearbook, published in December, the 2020-21 outlook is not quite 223,000 GWh for national grids and just under 200,000 GWh for the NEM.

That’s not just a helluva turnaround in demand perceptions, but it is a fair bump down from what the industry was expecting in 2014 — by which stage the new reality of post-GFC consumption plus the shift to rooftop PVs in reaction to those network-induced big retail price spikes was well and truly on every supplier’s radar. Back then, less than three years ago, a chastened industry had scaled down its 2020-21 expectation to 234,000 GWh nationally and 211,000 GWh for the NEM.

These numbers speak to a far less predictable business than electricity used to be. Back in the 1990s, when I served as CEO of the Electricity Supply Association, I frequently waved the load forecast chart at federal and State politicians, supporting the latest outlook by reference to how accurate these industry projections had been since the 1970s. It’s a very different landscape now.

As I mentioned above, the chart is a rolling 10-year forecast, so the 2016 yearbook, which reviews the 2014-15 financial year, has 2024-25 as its horizon — and the industry projects national, grid-connected system energy needs at that point at just over 229,000 GWh — with the NEM at a shade under 204,000 GWh. By comparison, the actual figures for 2014-15 are, respectively, just under 204,000 GWh and 183,376 GWh. (One has to bear in mind that the national figure does not include off-grid electricity supply — which boosts the total north of 250,000 GWh and is the relevant figure when greenhouse gas emissions are being tallied.)

Another interesting aspect of the new ElectricityGasAustralia chart is the difference between the outlook for New South Wales and Queensland on the one hand — the Big Two of the NEM today — and Victoria. The 2024-25 projection sees the latter adding just 4,200 GWh to its system energy requirement over 10 years to the mid-Twenties while it forecasts that NSW will add 8,430 GWh and Queensland 8,880 GWh — or, to put this another way, the growth in the Big Two will be the equivalent of adding another south-west grid of Western Australia (mainly Greater Perth) to the east coast system. By the way, growth in the SWIS will also exceed that in Victoria — being projected at more than 5,000 GWh. The outlook for Tasmania and South Australia, on the other hand, is negative — a fall of almost 600 GWh for the former and 340 GWh for SA.

Just looking at the Big Three, it’s probably also worth noting what the yearbook sees happening to system load between 2014-15 and 2024-25.

In the case of NSW, the projection is that the average system load will rise from 7,634 megawatts to 8,596MW. For Queensland, the rise is expected to be from 5,781 MW to 6,795 MW. And for Victoria, it is forecast to go up from 4,824 MW to 5,304 MW.

With summer peaks very much on our minds at the moment, the yearbook forecasts that the summer load in NSW will hit almost 14,100 MW in 2024-25 (it was 12,046 MW in 2014-15) and in Queensland it will exceed 10,600 MW (9,001 MW in 2014-15). For Victoria, the peak is projected to rise from 8,690 MW in 2014-15 to almost 9,300 MW.

Given the volatility we have seen in this forecast series in the past five years and all the other factors playing on power demand and generation investment in the rest of this decade, it’s a pretty fair bet that the projections in 2020 for 2025 and 2030 will show some substantial differences yet again, particularly in the NEM.

For sure, looking out now in power planning is more challenging than it was 10 or so years ago — and this makes it all the more important that policymakers try to make the playing fields as smooth as possible, the opposite of what they have been up to since about 2007.

If the said politicians want a fresh warning of the dangers of the energy and carbon games they are playing, they need look no further than an interview with ACCC chairman Rod Sims by Matthew Stevens published in today’s Australian Financial Review (headlined “Rod Sims says energy crisis could push industry to the wall”). It includes this quote from Sims: “Many aspects of Australia’s energy policies seem to give little thought to the impact on our otherwise efficient and globally competitive industries. In the case of gas, in particular, the market desperately needs more gas and in addition more gas suppliers.”  A further aspect of this is what level of gas the market can make available affordably for power generation in the environment portrayed by ElectricityGasAustralia?

Stevens appends this thought to the Sims interview: “This intellectual disconnect between government policy thought bubbles and the real economy has emerged as a pivotal challenge for our investment times.”

A matter of resilience

The value of electricity in our society is never better illustrated than when the weather turns nasty and peak power demand takes off.

The eastern seaboard heat and humidity horror show on Tuesday (17 January) is a strong case in point.

While the media emoted about the community’s exodus to the beach (even in the middle of the night) in New South Wales, especially Sydney, a great many more were at home or at work striving to cope with the inclemency of nature – and, of course, the factory holidays were over.

At 7am on Tuesday, load requirements in the whole east coast power market were 23,718 megawatts. Five hours later the load had exceeded 30,000 MW for the first time this summer – and by late afternoon it peaked at 34,396 MW.

The high point, as Paul McArdle points out on his WattClarity blog (my source for this data) was just 1,000 megawatts below the NEM record of 29 January 2009, three day’s before “Black Saturday” – a day that lives in our bushfire infamy when 173 people died in Victoria.

A thought that keeps popping up in my mind is what next summer (or equally an especially bitter winter) could bring in terms of system resilience when Victoria’s Hazelwood power station (1,600 MW) is closed (in little more than two months)?

As McArdle points out in WattClarity, during Tuesday’s peak the NEM (including Hazelwood) had 4,400 MW of spare capacity at the height of demand – or 13 per cent of what AEMO calls instantaneous reserve plant margin.

McArdle observes that there is much uncertainty about both future market security and also about price outcomes in a peak environment. “Any politician, consultant, investor or other telling you otherwise is talking their book,” he adds.

As I mentioned in a recent post here, a lot of my focus tends to be on the Big Two (New South Wales and Queensland, especially SEQ) and Big Three (add Victoria) of the NEM, home to 90 per cent of the market’s supply and demand.

Last Tuesday at 7am the Big Two accounted for 66.5 per cent of the NEM load and still did so in mid-afternoon – only now their requirement was 4,000 MW higher. By late afternoon, the two-State load was another 2,700 MW higher – and more than 43 per cent above its early morning level.

If you toss Victoria in to this equation, at the height of the community need the Big Three load was 89 per cent of required NEM capacity.

Despite the strain, power plants (mostly coal with the bulk of support from gas and hydro) sustained supply and the grid sustained delivery. (The ongoing problems in South Australia are another story, but my focus here is on the Big Three.)

One of the curiosities of the way the media cover the energy scene is that we get loud and long reporting when there are failures, with the ongoing Finkel review being the response of current political kneejerking to recent massively-publicized unhappy SA events, and a certain amount of dancing on the spot when NEM spot prices soar as suppliers struggle to fulfill all demand (not least because they have to resource energy from high-priced gas) – but we get virtually no coverage of the far more common occurrence: the power system, including the networks, coping with extreme pressure without drama.

This is what happens just about all of the time – and that’s my point: the community and the media take this for granted when it is, in fact, quite a herculean effort in investment, engineering and system management in a tough climate.

The issue going forward – not a small one – is what could happen, especially in the Big Three region but also in Tasmania and South Australia, who each depend on interconnection with Victoria, in the not-very-distant future?  What are the key resilience questions affecting more than seven million households and about a million businesses and what needs to be done to address them?

This, it seems to me, is a particular challenge for Finkel and his task force: not settling the dispute about how South Australia came to have a State-wide blackout last year but making it impossible for politicians (both energy ministers and first ministers) to avoid the challenge presented by less coal-fired generation in the Big Three States, a proposed lot more variable renewables and gas generation hampered by the fuel’s supply and price problems.

This is not a debate for 2030 – when Andrews, Palaszczuk and Co know their tenure will be over and others will be carrying the accountability can – but for here-and-now (or at the very least the summers of 2017-18, 2018-19 and 2019-20).  The time to consider this stuff is not when the ordure is hitting the fan (except the fan will be immobile if there is no power) but when there is still room to prepare and to plan.

The Prime Minister keeps assuring us he understand the importance of energy costs and energy security; what he and others need to grasp is that the latter is by far the predominant issue for the community (including business) when the system in unable to deliver. Tasmania and SA provided lessons in this during 2016, but, in terms of the scale of impact, they are small fish in the NEM pool.

And furthermore: While January 18 did not see overall NEM requirements getting near Tuesday’s load (they seem to have peaked at around 28,360 MW), capacity needs in Queensland were actually higher than the day before – setting, according to WattClarity, an all-time record of 9,477 MW.

And we are not done with the heatwaves.

The role of coal

One of the problems about having a meaningful discussion on the ongoing role of coal in this country is that the howling of the “death to fossil fuels” brigade tends to overwhelm public perceptions of the larger scene.

This has been brought home to me yet again over the holiday season by reading a new report from the Oxford Institute for Energy Studies think tank on coal use in South-east Asian power stations.

Geographically, of course, this is our neighborhood, although local media coverage of the region tends to lean towards food, tourism and terrible tales of unpleasant events rather than much analysis of socio-economic issues relevant to our own interests.

First, about the neighborhood: “South-east Asia is one of the most dynamic regions in the world,” says the Oxford study. “It was home to 633 million people in 2015 and is continuing to experience high economic growth, robust population increase and rapid urbanization.”

Second, about energy: “Reflecting the economic growth and demographic development of the region, energy demand in South-east Asia has increased by over 150 per cent since 1990, from 233 million tons of oil equivalent (Mtoe) in 1990 to 624 mtoe in 2014.”

Third, about electricity: “Since 1990, electricity generation in South-east Asia has increased faster than economic growth rates.”

Between 1990 and 2014, the regional economy grew by 5 per cent per year on average, while electricity generation grew at 7.4 per cent and reached about 843 terawatt hours (TWh) in 2014. “Demand growth has been driven by rising population, the rapid pace of urbanization, enormous increases in industrial production, and the progressive extension of access to modern electricity to larger segments of rural populations.”

For context, generation in Australia’s NEM, a region of declining power demand this decade, is around 195 TWh annually.

Five SEA countries – Indonesia, Thailand, Malaysia, Vietnam and the Philippines – account for 90 per cent of the region’s power demand and fossil fuels account for 78 per cent of supply. Hydro tends to dominate the 17 per cent of electricity coming from renewables.

And now the bit about coal. The Oxford report says: “The shift to coal has accelerated since 2010. The share of gas in electricity generation has decreased from 49 per cent in 2010 to 44 per cent in 2014 while that of coal has surged from 27 per cent to 34 per cent. The continued ramp-up of coal-fired generation is underpinned by coal’s price advantage and availability relative to natural gas and other fuel sources, and the demand for widespread and rapid electrification.”

The region now has 205,000 megawatts of generation capacity – 62 per cent of it in three countries, Indonesia, Vietnam and Thailand – with coal accounting for 62,000 MW. Again, for context, all the NEM capacity adds up to less than 50,000 MW with a bit more than half coal plants.

As to what comes next, the Oxford study points out that “At the beginning of 2016 there were about 29 GW of coal-fired capacity under construction to be completed by around 2020, most of them in Vietnam (12.8 GW), Indonesia (6 GW), the Philippines (4.7 GW), and Malaysia (4.6 GW). Beyond plants under construction, the capacity of permitted, pre-permitted, and announced coal-fired power plants amounted to 113 GW at the beginning of 2016, making South-east Asia the third-highest region for coal proposals after East and South Asia.”

The Oxford report foresees the likelihood that there will be 134,000 megawatts of coal generation in the SEA region by 2030 – but the future is not all plain sailing for the coal sector. The institute points out that “across South-east Asia there is increasing political will to implement policies aimed at meeting electricity needs in a more sustainable manner” and suggests there are “major uncertainties” about ongoing coal plant development beyond 2020.

An important issue is the region’s contribution to curbing global warming, but the critical issue affecting energy investment is cost. The institute comments: “As a significant portion of the ASEAN population is within the lower-income consumer category, the lowest electricity supply costs are often favored by decisionmakers to reduce the financial burden on consumers. Despite efforts to increase the role of renewable energy, natural gas and coal will dominate the future electricity mix of the region and the relative generation cost will remain a fundamental factor in deciding between gas and coal.”

A critical factor is energy poverty; some 103 million people in the region have no access to electricity at all. As the Oxford study says, “A priority for South-east Asian countries is to increase power capacity to complete the electrification of the region and to meet rising electricity demand.” The political risks of failure to deliver on this are not trivial.

Given this situation, it isn’t surprising that one of the major areas of power development focus across the region is on deploying more efficient coal technology rather than relying on subcritical units that today meet 90 per cent of coal-burning output. New plants are increasingly ultra-supercritical, in the generation engineers’ jargon, targeting a reduction in emissions of about 30 per cent per unit.

The role of China and Japan in providing such technology is going to be hugely important (and builds on their home experience; China now has 86 ultra-supercritical power stations with a unit size of 1,000 megawatts.)

All of which underscores a point currently being made by Benjamin Sporton, CEO of the World Coal Association. “Coal is not the problem,” he asserts. “Emissions are.”

Noting that across Asia coal is the preferred generation fuel because of low costs and easy accessibility, Sporton sees “HELE” (high efficiency, low emissions) technology as an important player, especially if it can be combined with carbon capture and storage.

The challenges CCS continues to face are whole another story, but the new Oxford report highlights the fact that, while activists on our turf hog public attention with their campaigns against coal, out in the neighborhood the fuel is on a roll as a stable source of generation at an affordable cost. A similar point can be made about gas for power generation.

And, when one talks about renewable energy development in South-east Asia, it is as well to note that, while wind and solar projects there will triple present capacity levels by 2025, the larger endeavor is adding hydro capacity, which will double in a decade.

Whatever the technology, the big picture is that South-east Asia is on its way to being a global powerhouse led by fossil fuel use and there are a host of implications this trajectory has for the world’s energy and climate change outlook over the longer term.

Where the load lies

Talking about electricity in the context of Australia as a whole or even the eastern market tends to mask a big point: the bulk of demand and supply lies in three States — Victoria, New South Wales (including the ACT) and Queensland (especially the south-east corner).

While events like those in South Australia in the second half of last year can hog the media headlines and excite political reaction on a broader scale than that State, the Big Three are where most of the market action is by far. This applies to a substantial degree in the political arena, too. How voters react to the issues of big concern to them (including energy security and costs as well as climate change policies) will decide who governs Queensland, Victoria and NSW between now and 2019 and will have a significant impact on who governs Australia (with the timing of the next national poll, officially due in mid-2019, very much up in the air — I’d not be surprised to see us voting again in 2018).

I find few people outside the electricity business are conscious of just how much power demand and supply is weighted towards the Big Three and, increasingly the Big Two (NSW and Queensland).

The numbers are like this:

  • There are 7.5 million household accountholders in the Big Three compared with 9.5 million nationally (of whom a million are in the south-west corner of Western Australia)
  • There are 945,000 business customers in the Big Three compared with 1.22 million nationally (including 125,000 in WA)
  • The Big Three households required 42,648 gigawatt hours of power in 2014-15 compared with 54,200 GWh nationally and 48,311 GWh in the NEM as a whole
  • The Big Three business community needed 111,078 GWh in 2014-15 compared with 142,136 GWh nationally and 127,466 GWh in the NEM as a whole.
  • Generation of power in Victoria, Queensland and NSW totalled 174,226 GWh in 2014-15 compared with 195,567 GWh in the NEM as a whole. The lead generator was Queensland, with 59,969 GWh versus 59,252 GWh for NSW, the first time the “premier State” has not led the supply ladder.
  • The other stat catching my eye is that in 2014-15 black coal generation contributed 97,301 GWh in NSW and Queensland, brown coal in Victoria delivered 48,493 GWh and gas generation in the Big Three accounted for 19,736 GWh — that’s a 95 per cent fossil fuel share of output in the Big Three.

(All the information is drawn from the excellent 2016 edition of ElectricityGas Australia yearbook published jointly by the Australian Energy Council and Energy Networks Australia — see their websites for access details.)

I made the point above about how the Big Two (NSW and Queensland) are now the dominant States in electricity production (NSW and Victoria having held this position for decades) — and a snapshot from Friday, 13 January, a horribly hot and humid day (as an example, the temperature stuck on 42 degrees where I live in Sydney’s Hill District for four hours and was still 36 degrees at midnight) illustrates this.

In the middle of Friday afternoon, the horrid peak, the NSW/Queensland load was 22,229 megawatts out of 31,877 MW in the NEM as a whole (that’s almost 70 per cent to save you the mental arithmetic) — of which 68 per cent was being served by the two States’ black coal generation and 15 per cent by gas turbines. (There was also 570 MW of wind in the mix at this point plus 172 MW of utility scale solar at Broken Hill and 1,593 MW of rooftop solar PV with hydro power, mainly the Snowy, contributing 1,078 MW).

Lobbyists will point to such numbers to illustrate the critical importance of coal generation and the valuable input of conventional renewables (hydro) and gas generation; they will ask, not without reason, just what level of variable renewables (solar and wind) would be needed to replace even a quarter of the fossil fuel contribution, let alone 40 or 50 per cent, and at what overall system cost (capital and retail)? The purveyors of VREs will look at the same data and see opportunity with a capital “O” — not of the ideological version (I note the “death of fossil fuels” brigade tend to keep their heads down on these occasions) but because even 10 per cent more of this market, especially if backed by government intervention, represents many tins of bikkies to them.

Regardless of all this, the fact that the main game in electricity supply is in the three States, and in particular in NSW and Queensland, needs more appreciation, especially when considering system security and supply affordability for the greatest number of Australians.

As an addendum, bearing in mind the fuss made about investment in networks to meet peak demand — claimed two years ago to be a waste of money — I see Paul McArdle’s WattClarity website reporting that on Friday the 13th Queensland’s maximum need hit 9,088 megawatts, only 70 MW short of the record set in February last year. McArdle says that, with the growth in compression load needed by the LNG export operations, he won’t be surprised to see a new Queensland peak record before the summer is over. As he mentions, on the 13th, after a “pretty unpleasant night temperatures,” the State’s demand was nudging 8,000 MW at 9am.

 

The adventure continues

Popular media commentator Annabel Crabb no doubt struck a chord with a few people by providing in the Fairfax papers this epitaph for the Old Year: “careening to a conclusion with all the elegance of a golf buggy captained by a sleep-deprived ice freak in a Santa suit.”

As for the energy sector, it ended 2016 with South Australia’s Eyre Peninsula suffering its fourth prolonged power failure in a few months, 155,000 households and businesses in the State more generally (about 20 per cent of the SA market) being blacked out by storm impacts for up to another two days, the media nationally in a froth over predictable NEM electricity price rises, politicians trying to muscle AGL in to giving the Portland aluminium smelter in Victoria cheap supply as it apparently teeters on the brink of closure – and manufacturers across the east coast warning that 2017 is likely to see a “crunch point” in gas supply with a number of major users struggling to obtain long-term contracts. (About 225,000 people work in Australian manufacturing businesses reliant on gas.)

The year also ended with the upstream petroleum lobby trying yet again to get across the point (to quote Malcolm Roberts, CEO of the Australian Petroleum Production & Exploration Association) that the national pursuit of a transition to cleaner energy is at risk because of a shortage of a fossil fuel, natural gas – that gas-fired generation is “the only technology capable of delivering balance” in a market adding large amounts of variable renewable power.

And 2017 has begun with federal Resources Minister, Matt Canavan, “going on the offensive against conservationists who want to end the use of coal in power supply” (to quote “The Australian” newspaper) by arguing for a focus on ultra-supercritical coal-burning generation here and for ongoing exports of the mineral to Asia – and being shouted at by the Australian Conservation Foundation.

Meanwhile, ABC Rural radio has presented a report – you can find it by putting “Government accused of policy paralysis while uncertainty reigns over renewable energy targets” in to Google – in which David Blowers of the Grattan Institute asserts that “investors, utilities, industry and householders are in the dark about what to expect in 2017,” adding that “the only certainty is electricity prices will rise for everyone.”

In this, Blowers tells the ABC’s Babs McHugh that tackling a new energy system makes power price rises “inevitable” because “replacing a lot of generation stock and infrastructure with a whole lot of new stuff is expensive.”

Blowers adds: “What we’ll see, if there is no agreement around Australia’s climate change policy, is that – for the foreseeable future price increases – will be greater than they need to be.” This, he says, may be unpalatable but it is what you get when, at the federal level, the Coalition and Labor continue battling over policy and, at State level, jurisdictions go their own way on renewable energy.

Blowers touches on a point that I think gets far too little attention in the carbon debate. There’s too much focus on electricity, he says, when it only accounts for a third of Australia’s emissions. “It’s the biggest, but we’ve still got (another) two-thirds of our emissions to (also) deal with.”

McHugh’s report also includes the CSIRO’s chief energy economist, Paul Graham, declaring policy certainty, with a price on carbon emissions, is needed urgently. Meeting the national abatement target for 2030, Graham says, “means shifting to using a lot of low emissions electricity – but (it) costs more (and) electricity bills will rise because of the deep decarbonization trend and we want to make sure we don’t spend more than we have to.”

Can the Prime Minister, I wonder, feel the political ground shifting under his feet when his attention is drawn (as it surely must be) to stuff like this about prices?

In the broader context, APPEA’s Roberts argues that “there is a compelling environmental case” as well as a reliability argument for gas-fired generation. “In August the Climate Change Authority firmly supported fuel switching as the most efficient way to cut emissions from generation (and) rejected higher renewable energy targets and other regulatory interventions as costly and risky.”

Some State governments, Roberts adds, “seem to have missed this advice.”

The arithmetic here is that, on the CCA perspective, output from gas generation would have to at least double and perhaps triple to help attainment of the national abatement target for 2030 – it accounts for 10.5 per cent of supply today.

Another relevant report, delivered in December to energy ministers but already lost to view publicly in the whirligig of media coverage of energy matters, is from the Australian Energy Market Commission, which has told CoAG that its analysis shows “an emissions intensity target delivers the best outcomes for (electricity) consumers in terms of price, power system security and certainty of meeting the emissions target.”

As a summary of the overall situation facing us in 2017, this comment from Roberts needs emphasis, I think: “The stakes for Australia could hardly be greater – a least-cost transition to cleaner energy and energy security for local industry or continuing inconsistent policies that destroy jobs, push up prices and perpetuate higher emissions.”

To which one could append a point from a year-end op-ed in “The Australian” by energy lawyer Chris Flynn: “Energy security is not a buzzword, trend or meme. It is the comfort of knowing that energy consumers have reliable access to affordable and quality energy from diverse sources. As such, it goes to the very heart of our economic and political bottom line.”

Standing back, any objective observer can see that there is little about our continuing political adventure with energy to make stakeholders comfortable about the journey – and said observer surely must recall the biblical admonition that we reap what we sow.