Archive for February, 2017

The big picture

Some of International Energy Agency CEO Fatih Birol’s comments in Brisbane at the University of Queensland Energy Initiative “Energy Breakfast” provided the grist for my last post (“Not football,” 25 February) but this was only a small part of his presentation.

The bigger picture Birol presented is worth close local scrutiny across the spectrum of Australian interested parties, not least I think because it paints a different perspective to the one green activists, politicians on the make and their local media fellow travellers try continuously to foist on the community.

Perhaps the most important aspect of this is the picture Birol offers of worldwide electricity supply out to 2040.

We are all familiar with the propaganda: coal is toast, fossil fuels are on their way out, invest in them at your peril, nuclear is non-viable and the globe’s electrons in the near future will flow mostly from wind, solar, waves and other green goodies.

Birol’s presentation told the 300 attendees at the UQ breakfast that the IEA foresees wind and solar strongly supporting the renewables sector to make up 37 per cent of the world’s power production in 2040 under the plans governments took to the 2015 Paris summit – the agreement there always presented now by activists with a capital “A,” like religious folk speak of the Christian bible with a capital “B” – and to achieve 60 per cent under a proposal the agency put to world leaders (but which has no official standing) to pursue limiting global warming to two degrees Celsius.

One needs to know the arithmetic a bit better to appreciate this picture, a bit like finding the right place to stand in an art gallery to appreciate what the artist saw.

The IEA believes global electricity generation under the policies presented by governments in Paris will reach more than 27,240 terawatt hours in 2020 and more than 42,500 TWh in 2040.

It offers an aspirational scenario in which electricity demand is curbed to contribute to the global warming target through significant energy efficiency, total production falling back 2,000 TWh by 2020 and a huge 8,400 TWh by 2040.

To put this in context, power production from coal alone under the official policies is expected to be 10,275 TWh in 2020.

As Birol told the Brisbane breakfast, the IEA sees solar PV generation at 2,000 TWh in 2040 under policies taken to Paris and exceeding 3,000 TWh under the agency’s “450 scenario.” It sees wind power exceeding 3,000 TWh under the Paris policies and at more than 6,000 TWh under the “450 scenario.”

This is a very big change in the power production mix, no question, but it needs to be seen against the other IEA projections.

Under the policies taken to Paris by governments, the agency expects coal generation to deliver some 15,300 TWh in 2040 and gas about 10,300 TWh with nuclear contributing almost 4,000 TWh and hydro power almost 6,000 TWh.

Under the “450 scenario” the agency advocates, the much-reduced 2040 power mix would still include about 2,500 TWh of coal generation, almost 5,400 TWh from gas turbines, nearly 6,900 TWh from hydro systems and just over 6,100 TWh from nuclear reactors.

In other words, conventional generation (coal, gas, hydro and nuclear) may be expected to deliver more than 83 per cent of global electricity production in 2040 under what governments say they will do and could provide 61 per cent under what the IEA says they should do. Wind power and all forms of solar would contribute just over 30 per cent in the latter case.

Translated to the Australian scene, can I suggest one might foresee (under the IEA “dream scheme”) a 2040 mix that could be roughly a quarter each of coal, gas, variable renewables (backed by energy storage) and nuclear (assuming our politicians and the community come to their senses about the value of this energy source and that the promise of small modular reactors is realized) with an ongoing role via Snowy Hydro and the Tasmanian system for hydro power?

This isn’t a “target,” just an idea of what might be workable for Australia in a sane approach to the much-touted “transition.” Technology change could vary this in any number of ways.

I appreciate it is a scenario likely to have the green activists jumping up and down on their hats or headscarves, but the name of the game really should be delivering what consumers need and can afford (and what will sustain our manufacturing, mining, agricultural and commercial sectors) rather than this mad-cap notion of “showing an example to the world.”

To pick up Birol’s sporting metaphor (see my last post – “energy policy is not a football match”), our sensible ambition surely is not to win the Gaian Bledisloe Cup but to deliver secure, affordable power to a substantially larger Australian population in 2040 while contributing our portion of the electricity share of the global “450 scenario”? Bearing in mind that our generation portion then might be 400 TWh out of the world’s 34,000 TWh.

And, of course, as Birol said in winding up his UQ “energy breakfast” talk, “the Paris agreement is a framework; its impact on energy depends on how its goals are translated in to real government policy actions,” adding that energy security “remains a major concern” for the world’s governments with both vulnerabilities and the tools able to address them subject to significant change.

PS: And just another reminder: 2040 is as far from us today as is 1994. We didn’t anticipate today’s energy environment in 1994 even after publishing our first energy white paper in April 1988. (The chief commitment of that “Energy 2000” paper, by the way, was to “maintaining Australia’s energy security, maximising the export performance of Australia’s energy industries and achieving an efficient domestic energy sector.” The more things change………)

Not football

The head of the International Energy Agency has delivered a salutary message to the Prime Minister and to other players in Australia’s roiling electricity debate.

Speaking at the University of Queensland Energy Initiative’s latest “energy breakfast” forum in Brisbane – and attracting 300 people at seven in the morning – Fatih Birol repeated to the audience what he told Malcolm Turnbull in Sydney a day earlier: “Energy policy is not a football match.”

In other words, this is not about barracking for your team (eg the side in green, yellow or red shirts) but about developing a policy that works for investors, consumers and economies – as well as for the concerted effort to reduce the trend of global warming.

It’s about using your head than relying on your heart.

It was a point clearly appreciated by the knowledgeable Brisbane audience – to whom UQ’s professor Chris Grieg pointed out that Birol was making a return visit to the event; he was the first speaker for the “energy breakfast” five years ago when he was IEA chief economist.

Flying back to Sydney afterwards, I spotted a quote in a newspaper from Ken Henry, former senior federal bureaucrat and now National Australia Bank chairman, that dovetails neatly with Birol’s message. In a headline-grabbing address to the Committee for the Economic Development of Australia in Melbourne, Henry declared: “Our politicians have dug themselves in to deep trenches from which they fire insults designed merely to cause political embarrassment. Populism supplies the munitions. And the whole spectacle is broadcast live via multimedia 24/7.”  A different analogy, but the thrust is the same.

I also find (unintended) reinforcement of both points in reading a transcript on Bill Shorten’s website of a speech he delivered to a Bloomberg New Energy Finance forum on Thursday.

I’m not going to waste time here parsing it, but it should be read because it highlights exactly what is wrong with the Labor leader’s approach to this issue. In passing, I particularly like Shorten’s claim that his and Labor’s pursuit of a 50 per cent renewable energy target while simultaneously introducing an emissions intensity scheme is “practical not ideological.” What it really is, of course, is populist and designed to fend off the Greens who are treading on Labor’s tail in marginal metropolitan seats.

How pursuing both measures together will deliver a secure east coast electricity system at an affordable cost for consumers – mass market and business, especially manufacturing – when Labor is cutting off access to new gas in Victoria (and the Coalition is doing hardly anything to achieve this in New South Wales with Labor’s tacit support) is for Shorten to explain.

And yet again he has made no effort to reveal the costs for consumers (ie the total system costs) of his 50 per cent renewables plan despite Labor claiming at the last federal election that it had “expert advice.”

Lastly, I’m surprised the 24/7 media hasn’t pounced on Shorten’s BNEF claim that Australia can be “the energy capital of Asia” in the context of driving take-up of renewables.

Really? Right now, we are a major Asian source of energy through coal exports (which his left wing along with the Greens want thwarted), gas (which his Labor colleagues in Victoria want to cut off in terms of future development and he wants curtailed through a domestic gas reservation policy) and uranium. Some millions more rooftops with solar and scores more wind and solar farms would hardly place us at the pinnacle of Asian energy development. South Australia-style blackouts in Victoria and NSW, on the other hand, would certainly bring us Asian media headlines.

Coming back to Birol at the UQ “energy breakfast,” where he sees an opportunity for Australia in international energy leadership is in doing a lot more to promote the commercial development of carbon capture and storage.  Australia, he asserts, “is a good candidate to provide momentum” to efforts to bring down CCS costs and make the technology more accessible. This, along with the need for a much stronger focus on electricity efficiency in pursuit of the global warming push, were significant parts of his Brisbane talk.

Environment & Energy Minister Josh Frydenberg, who also met with Birol this week, has told media that the Coalition is “still looking at its options” for supporting new energy development, asserting that the government is “very clear” it wants to be “technologically neutral” when it comes to emissions abatement.

Basically, the Coalition is treading water at the moment, holding up a placard that says “Waiting for Finkel,” and, of course, like Labor and the Greens, playing the football game Birol decries for all its worth. This might be interesting as a circus trick, but it is doing little just now to soothe the frustration of key electricity and gas market stakeholders or the growing (if incoherent) concerns of the public at large.

BlueScope Steel’s CEO, Paul O’Malley, also has been out in the media this week, highlighting large differences in industrial power costs between Australia and the US, and asserting that the Finkel report is “the best hope in a decade” for a better domestic debate on energy policy and “some sensible decisions.”

O’Malley flicked the switch to hyperbole when he told journalists that Australia is “heading for an energy catastrophe.”  More prosaically, he argues that, if this country doesn’t address energy security (electricity and gas) today, it will be very difficult for Australian manufacturing to maintain cost competitiveness – and that has big implications for employment.  This is not a new thought. It has been pointed out to the body politic in many forums (some of which I have helped organize) and many ways for at least the past five years. Two national energy white papers have recognized the risks.

And still the football games go on.

(By the way, Shorten’s BNEF speech this week appears to argue that a focus on renewables is an employment panacea – as Pauline Hanson was wont to say in a previous incarnation, “please explain.”)

In conclusion, and in context of this post, a comment by Frydenberg in a speech to energy consumers in Sydney on Monday should not be overlooked: “The Finkel review and the review of climate change policies—both of which are under way—will set a clear, long‑term strategy for ensuring that in the transition to a lower emissions economy, we are only paying as much as necessary for safe, reliable and secure energy supply.”

Significant pressure

I don’t know about you, but I can do without the rhetoric about eastern Australia being a “third world” country in terms of electricity supply or being in danger of this happening soon.

This is hyperbole on steroids. Anyone familiar with the supply problem of a lot of Africa, parts of South America and the ASEAN states must know that there is no similarity with the current Australian situation.  And would anyone suggest that the major power crisis of the turn of the century made California a “third world” country – did any of the massive past blackouts on the east coast of Canada and the US have this effect?

There is an increasing penchant for this sort of florid language in our neighborhood. For example, around 2013 we were deluged with pontification in the media and the commentariat about electricity network “gold-plating” and “gouging” because the billions spent on grid refurbishment (and their end-user price consequences) coincided with the post-GFC decline in power demand as well as a sharp rise in purchases of rooftop solar PVs. Labor in federal office, led by Julia Gillard, was particularly keen to bang this drum. The Greens even more so as they danced with PV glee. Editors loved it; the networks were a fish in a barrel.

Just one of many commentaries then declared “peak demand hit its peak a couple of years ago and now exists only in the minds of the networks.” It added “the party is over.”

And now? Peak demand manifestly isn’t over as recent heatwave experiences attest in New South Wales and Queensland, 60 per cent of the east coast market (versus South Australia’s six per cent).

Energy Networks Australia has just published a commentary on its website asserting that “the death of peak demand has been greatly exaggerated.”

It adds: “It is widely recognised that Australian energy consumption ‘decoupled’ from its lock-step relationship with economic growth in 2008.  Aggregate NEM operational consumption fell by almost eight per cent in the five years to 2015 because of energy efficiency, community response to electricity prices and industry restructuring.  Peak demand remains difficult to forecast and patchy between jurisdictions and grid locations over time (but) it continues to be a significant pressure on future network capacity requirements.”

In the case of Queensland, for example, the transmission system on 18 January had to cope with five new peaks in one day, eventually hitting 9,357 MW. By comparison, the State’s 2014-15 summer peak was 9,001 MW. And then a week ago (12 February) the new record was broken with a peak of 9,369 MW.

In New South Wales (and the ACT) on 10 February demand reached 14,100 MW, just short of the State record of 14,649 MW.  This was a day when the Ausgrid network serving Sydney hit a record of 4,640 MW – and this summer has also seen the Endeavour Energy grid serving Western Sydney reach a new record of 4,084 MW.

On 11 February, NSW experienced the highest demand for a Saturday (13,500 MW) since 2011.

ENA comments: “What is particularly notable about these (recent) events is that demand peaks occurred on the weekend.   Households using air conditioners to escape the heat were a big factor. Seventy-six per cent of homes in South East Queensland now have air conditioning compared with 45 percent in 2004. In NSW, more than 80 per cent of homes in Greater Western Sydney now have air conditioning. They create huge demand and strain on the network as households and businesses use air conditioners to escape the heat.”

We’ve been having a long-running discussion about how these challenges can be better met through tariff reform and “smart” metering as well as better public education about more efficiency in use of cooling systems (eg you don’t need the air-con set at 16 degrees and it’s costing you a motza when 24 degrees is comfortable enough).   Some of the push for sensible management obviously percolated through to the community in SEQ and NSW in the recent heatwaves because the mass market response was one of the factors that helped us to dodge load problems. Nonetheless, a much better consumer environment seems still to be a long way off, not least because of political inability to push reform for fear of voter backlash.

(Something else worth a mention with respect to demand peaks is that quite a large share of the air-con fleet in current use on the east coast was bought years ago and doesn’t meet today’s efficiency standards for new appliances. What would the carbon abatement impact be of facilitating their replacement compared with other measures beloved of activists?)

Given that the death of peak demand was common rhetoric just three years ago, it is interesting to see what ENA and the Australian Energy Council are forecasting in the yearbook they now jointly publish for the electricity and gas sectors.

A little research will show that the industry has significantly moderated its views on the rise of peak demand. For example, in 2010 (after demand in NSW, Victoria and Queensland in 2008-09 had hit peaks of 14,514 MW, 10,505 MW and 8,812 MW respectively) the yearbook foresaw that these numbers would jump in 2018-19 to 17,452 MW, 11,609 MW and 13,204 MW. Come forward to the current edition, published in mid-December, and peak projections for 2018-19 are 13,039 MW, 8,866 MW and 10,063 MW. That’s a pretty darned big difference but it still represents sustained pressure on the power system. The potential value of the recent heatwave experience could (and should) be a timely reminder that managing generation and the networks to cope (in all respects) with such nasty events continues to be a big part of this game.

Network capital expenditure and spikes in end-user bills are inextricably linked, as every petshop galah now knows, and the current political “debate” – read shouting match – tends to confuse far more than educate as both the Coalition and Labor play with cost relating to higher levels of renewable power and vie to predict new dire or utopian consequences.

Some plain, unemotional, fact-based language accessible for the mass market would be a very good idea.

Having been brain-washed by politicians on the make, vested interests, activists and the media in the recent past on the “death of peak demand,” the community needs to get its collective head around the fact that this assertion was a furphy and to understand what the implications are of this being so.

In particular,as I keep pointing out, total system cost should be a key area for attention, especially when one is debating a 2030 grid that may have loads more variable renewable energy, substantially less coal-fired power and an insufficiency of gas generation while continuing to need to cope weather-driven demand spikes.



Answer answerless

Any assertion about our political swamp is risky business – even the variables have variables – but it is possible that Bill Shorten’s performance on ABC Radio this week, when he failed four times to answer a straightforward question about the cost to consumers of Labor’s proposal for 50 per cent renewables by 2030, may be a seminal point in the current energy debate.

Attempts by Labor to brazen this out could run aground on the rocks of community scepticism; politicians in both main parties are acutely vulnerable to the public’s rejection of their sophistry, as the opinion polls kept underscoring.

Certainly, Malcolm Turnbull will be hoping that Shorten’s “answer answerless” will work for his government in the weeks and months ahead.

The basic issue Shorten squibbed is not the utility of variable renewable energy in the NEM (the east coast market) and also the SWIS (the Western Australian grid centred on Perth) but how the Labor proposal plays in the context of the core requirement of the national electricity legislation that gave birth to the NEM.

That requirement is “to promote efficient investment in, and efficient operation and use of, electricity services for the long term interests of consumers of electricity with respect to price, quality, safety, reliability and security of supply of electricity; and the reliability, safety and security of the national electricity system.”

The fact that the NEM has, since 2008, been a plaything for politicians pandering to what they see as popular opinion (ie vote-catching) about the climate issue and power bill costs should not obscure what bipartisan policymakers (led by Paul Keating, Wayne Goss and Nick Greiner and subsequently supported by John Howard, in office when the electricity legislation was passed) laid down as the market’s raison d’etre in the 1990s.

The intent of those policymakers from the get-go in the mid-1990s was to improve the electricity lot of household and business consumers by capturing the collective resources of the east coast to general benefit, hence the focus on a “national” grid with a carefully crafted set of rules.

The reason today’s crop of politicians have sought to throw themselves a lifeline in the form of the Finkel task force is that recent events have made it obvious political interventions since 2008 have made delivery of the central objective really difficult.

The task force report is going to be of little value if political leaders carry on their games regardless (eg Turnbull’s kneejerk reaction to even the possibility Finkel might recommend an emissions intensity measure and Shorten’s 2030 RET proposal).

In the case of Shorten’s stumble, two conclusions can be drawn: either Labor hasn’t bothered to get independent expert advice on costs or it has and party leaders think they can brazen out carrying on regardless of what they have been told, treating the community like mushrooms. Either is beyond the pale.

The real issues with proposals to deliver any and all new generation (not just variable renewables) in the next 13 years are, first, the total system cost of a reconfigured NEM and, second, the credibility of a changed marketplace for investors called on to spend tens of billions of dollars on which they need at least 15-20 years to reap the necessary returns (or government subsidies).

The recent statement from 18 stakeholder bodies – representing suppliers, users, the trade union movement, environmental activists and consumer organizations – that “there is no room for partisan politics when the reliability, affordability and sustainability of the energy system is at stake” is manifestly wrong in the sense that the body politic obviously believes there is heaps of room and the “finger pointing” the groups say has “made most energy investments impossibly risky” is, if anything, revving up at present.

The “considered debate” these groups are demanding can only be effective if it focuses on a big main point: in developing Australia’s future electricity system there is a need to analyze the elements and operation of the system as a whole and not any single element in isolation.

Beyond this lies the obvious thought that the present considerable optimism about the future cost of renewable generation and storage does not ensure certainty about these outcomes.

Which means Shorten, Turnbull and all the rest need to remind themselves that energy policy should enable all available technologies to contribute to reliable lower-carbon supply at the lowest possible system cost.

Long-term decision-making should not rely on what is presently popular.

And, if readers of this commentary think this all sounds somewhat familiar, it should: these are all quotes from royal commissioner Kevin Scarce in his report that has been available to the body politic since last May.

I might add that some 18 months ago the Potsdam Institute for Climate Impact Research (not a “denier” organization) noted, on international experience, that integration costs in systems with high levels of intermittent renewable energy can be up to 50 per cent of generation costs – and that the largest single factor is the cost of back-up power.

By what magic would Australia be exempt from this?

Institute deputy director Ottmar Edenhofer, a prominent figure in IPCC work over a decade, said when in Brisbane in mid-2016 that “there are no riskless options in this game” – and he queried how well politicians everywhere understand the risks inherent in transitioning electricity markets to pursue environmental objectives?

Observing Shorten, and not just this week, he seems to have no real idea about these risks – and that, in my book, is pretty big weakness in someone striving to be our next Prime Minister.

Meanwhile, the challenge for the present incumbent is to lift the national debate to a much higher plane and perforce to carry Labor upwards with him so that the Finkel exercise does not turn out to be a waste of time and effort.

Turnbull has given some indication in recent weeks that he appreciates this to a certain extent – but he has miles to go and he in particular (because he is the PM) needs (in the national interest rather than in the Coalition interest) to do the heavy lifting required to carry the debate above the Punch and Judy show that exists today.

Shifting sands

It was quite hard to see energy as a top-of-mind issue when the last federal election was held in 2016.

Apart from Bill Shorten and Labor running the “50 per cent renewable energy by 2030” line, a blatant pitch to shore up votes in a number of metropolitan seats where its MPs (including two senior shadow ministers) were under threat from the Greens, energy security and, to a large extent, energy prices were not big frontline issues.

What a difference today, as exemplified by a commentary in the News Ltd tabloids this weekend by Peta Credlin, former chief of staff to Prime Minister Tony Abbott.

Forget Cory Bernardi or Malcolm Turnbull’s parliamentary spray at Shorten, Credlin declares, “the standout political event” of the past week was the national focus on the threat of power failures and the cost of supply. The next federal election, she claims, will “turn on who will keep the lights on and the power bills down.”

Whatever you think of how she and Abbott ran the Prime Minister’s office in the first half of the Coalition’s present term in government, Credlin knows politics as well as anyone in the country, so her view is hardly to be brushed aside.

That said, we don’t know when the next election will be and what other issues will rise up to occupy the attention of fevered media with short attention spans and fickle voters — but, as I pointed out yesterday, the ball is at the feet of Turnbull and his new cabinet committee on energy.

Industry purists may groan, but the fact is that success for Turnbull & Co will not only be represented by the new policies they devise, but how they shepherd implementation and how they sell change to take the advantage over Labor that Credlin suggests they can gain. This is not a sprint, but a marathon, not least because said implementation depends on how State governments (three of them presently Labor-run) behave.

Just how fickle the States can be is well illustrated by this: South Australian Treasurer and Energy Minister Tom Koutsantonis told a parliamentary hearing in 2015 that the NEM had delivered high levels of reliability to his State. In mid-2016 he told his parliament: “We have designed it, we have built it and it’s worked and served us well.” (SA is the lead legislator for the national electricity law.) Now he says “My government has lost faith in the NEM.” SA Premier Jay Weatherill says the NEM is “clearly broken.”

And what will they be saying in, say, a year’s time — when the current Finkel task force has reported, CoAG has engaged in its usual bear pit behaviour and the Australian Energy Market Commission, the rule maker, has produced proposals for change?

Will the issues of energy security and power prices be still higher up the national agenda after a winter and another summer — or back in the pack again?

We are faced here not just with the shifting sands of politics but also the vagaries of Australian weather (of which this summer’s heat waves are a stand-out example) and the difficulties of operating the NEM under stress, as witness the furore over the SA blackouts and the high state of government and media angst over the potential for load-shedding in NSW during Friday and Saturday (10-11 February).

As not too much of an aside, yesterday’s extreme heat after Friday’s high temperatures delivered the largest Saturday power demand in NSW in six years (I’m using WattClarity website as a resource) and saw the State load at 13,402 megawatts just before 5pm, leaving 1,352 MW of available spare capacity. This, to quote the Duke of Wellington in an entirely different context, was a “damn’d near-run thing” as it also was on Friday.

I have been mildly amused to note assertions about what power source “saved NSW,” the Clean Energy Council claiming in a tweet yesterday that on Friday it was solar power.

Paul McArdle of WattClarity, in a post on Saturday, provided this breakdown of Friday’s actual NSW power production: out of a total of 243,870 megawatt hours, coal generation, even though hampered by two units of the Liddell power station being out of service with boiler problems, contributed 179,724 MWh versus 27,369 MWh from hydro and 21,2013 MWh from gas. The input from all solar was 8,661 MWh and wind 6,797 MWh. This comes out as 73.7 per cent coal-fired power, 11.2 per cent hydro and 8.7 per cent gas, a total of 93 per cent of the load from conventional generation.

One must not forget that the State also needed to access the interconnectors with Victoria and Queensland over the weekend (as it does most of the time) — with the Queensland Energy Minister claiming that his State “saved NSW” on Friday because there was 1,100 MW of QNI capacity available at the critical time.

McArdle, sounding rather exasperated with the “saved” claims, rightly opines that “every megawatt hour of generation mattered and every kilowatt hours of conservation and demand response mattered” in keeping NSW lights on. “None were more important than others.”

Coming back to the broader picture, we constantly run the risk (to quote a political journalist this weekend) of the energy debate “drifting off in to a Trump-like universe where truth belongs to whoever has the best poll-driven lines” — or, I’d add, poll-driving lines — and of failing to face up to the real challenges of maintaining system security and keeping prices affordable (not “cheap”) in a market designed for coal, hydro and gas generation that continues to be force-fed variable renewables. This is the main game.

One of the twists that needs recognition is that, while SA events have encouraged much comment that the NEM is “badly broken and in need of urgent attention,” developments in NSW over the past two days indicate that the system (with its many components) still works under great stress.

This isn’t to argue that there should not be change but that great care needs to be taken not to throw away what manifestly works (in keeping the lights on in the biggest sub-market in the country) in favour of further experimentation. And this lesson should take in current experience in Queensland, too. The community there is enduring weather not much less hellish than in NSW and its coal/gas power backbone plus another relatively-recently refurbished network system is standing up to near-record demand, especially in the populous SEQ while feeding power across the border.

In a submission to a Senate select committee that is looking at the resilience of electricity infrastructure, Origin Energy has spoken for more than itself in arguing a “strong preference” for policy being made at national level to balance emissions reduction with retaining reliable supply at an affordable cost. Ongoing events in NSW at present, as well as those in Queensland, between them representing 60 per cent of the NEM’s power production, highlight the importance of this wish — while ongoing political and lobbying noises underscore the degree of difficulty in its fulfilment.

Whether this can translate in to a definitive issue for the next federal election remains, I suggest, an open question.

Reality check

Well, if there is one thing this shocker of a summer is achieving, it is under-scoring the pecking order for today’s electricity supply: (1) system security, (2) supply affordability and (3) pursuit of carbon emissions abatement.

We have gone years with the meretricious players, politicians and activists, insisting that (3) is utterly dominant and offering sophistry about (2). The big flaw of the electricity supply approach since 2008 has been the focus on driving renewable energy for political purposes without adequate understanding of the implications for total system costs and grid security. Now, if the Grattan Institute’s Tony Wood is right – “Turnbull is seeking to reset the energy debate,” he wrote in a newspaper op-ed – the Prime Minister’s objective (as set out in his National Press Club speech) is clear: secure and affordable power while meeting national carbon emission abatement commitments. By extension, this has to include a workable domestic gas supply system for the east coast because gas is an integral part of the power game.

It should be pretty sobering that the Australian Energy Council can declare “the grid is degrading in front of our eyes.” Nonetheless, as the past few days following the latest South Australian blackout have demonstrated, the political finger-pointing continues and some of the rhetoric has been bizarre (e.g. the SA Premier threatening to “renationalize” the State power system, whatever that means).

Perhaps the single most important development from a policy perspective this summer is Malcolm Turnbull deciding to create a cabinet sub-committee to focus on national energy policy with a membership that includes his deputy, Barnaby Joyce, Foreign Minister Julie Bishop, Treasurer Scott Morrison, Finance Minister Mathias Cormann, Environment & Energy Minister Josh Frydenberg, Industry Minister Arthur Sinodinos and Resources Minister Matt Canavan. After what the Australian Financial Review has characterized in an editorial as “a long period of (energy) policy missteps,” this is a much-needed move and lifts energy back to where it should be for a country like ours: a major focus of key policymakers’ attention.

The cabinet committee’s challenge in 2017, informed one hopes by a Finkel task force that keeps its feet on the ground  and  the climate policy review that is also under way, is to lead reconfiguration of the NEM to make it workable for a quarter century ahead in which investment of $180 billion or more is thought to be needed in power production alone. Central to this task are the concepts of energy security and total system cost (on which it is fair to say that Australia has no handle at this point in time).

The whole “out with old, in with the new” mindset that has dominated the debate for years gets a full-on reality check on days like yesterday (Friday, 10 February) when the largest sub-section of the NEM — the New South Wales market of three million households and a million businesses — is taken for a white knuckle ride over supply security on a working day of 40-plus degree heat. With two Liddell power units out for repairs and with supply over interconnectors to Victoria and Queensland constrained by those States’ needs as the heatwave struck eastern Australia, the prospect of load-shedding for NSW at the late-afternoon peak was real.

That it was avoided when demand didn’t quite reach record proportions — peaking at 14,108 megawatts, 500 MW below the highest-ever requirement — is a tribute to the power system’s backbone (coal, hydro and gas generation) as well as the resilience of the transmission and distribution networks (expensively refurbished earlier this decade amid howls of anger about the alleged “gold-plating.”). Conventional generation delivered 95.5 per cent of State production at the height of the late afternoon peak, led by coal plant with 65.5 per cent, hydro with 20 per cent and gas turbines with almost 10 per cent.

The hullabaloo about South Australia’s issues should not obscure the fact that, when demand is high and indeed when it is just normal, NSW is by far the bigger market; about five times bigger, in fact. The economic and community ramifications of things going badly wrong in the State are very considerable. The obvious point is that, if SA can get in to its present mess through driving without due care in the “transition,” what are the risks for NSW, Victoria and Queensland, representing some 90 per cent of the NEM?

The issue is not how to manage “the influx of clean energy,” as one newspaper put it yesterday, but to deliver change in a system that gives full weight to security and cost as well as due regard to the power sector’s role in meeting our national 2030 carbon abatement role. The test here and now is whether a group of senior politicians, represented by the cabinet sub-committee, can give genuine meaning to Turnbull’s rhetoric about technologically agnostic policy.

This raises another critical aspect: cost. I shudder every time I see “cheap” in a headline related to new energy policy. There can be nothing cheap about the transition. A moment’s thought will bring that home. What Turnbull appears to be trying to convey in recent comments is that the Coalition’s approach (as yet undefined) will be less expensive than Labor’s  – but the impression delivered in the media is a promise that consumer costs will drop.  They won’t. They can’t. The acid test is secure supply at the least possible cost. Education of the community on this point continues to be lost in the fog created by political wrangling and the shallow approach of the mass media.

It also needs to be understood that part of the cost challenge can only be met through more efficient use rather than just embracing solar PVs and energy storage. This is a very large topic in its own right, and the sins of planning and regulation causing today’s inadequate end-use efficiency are large indeed. In my book one of the priorities for Turnbull’s cabinet sub-committee is to get its head around this aspect quick smart before the mouthing about “cheap” comes back to bite the Coalition.

In sum, a reality check should give due credit to the existing pillars of power supply that are again called on today to support most of the market (in NSW, Victoria and Queensland) through another big stress test with relatively few “hiccups,” should fully embrace the issue of total system cost for steering a 20-year refreshment of generation (and not just pursuit of 40-50 per cent use of renewables) and should get to proper grips with the fact that power supply is a chain (including market structure, regulation and efficient use) that requires overall excellence in planning and management.

The sum of all parts

It is hardly a surprise that the holiday season saw a resurrection of the row over the renewable energy target. This is an issue that is not going to go way until there is a settled national approach to both climate change and energy policies — and we seem to be as far from this in 2017 as we were in 2007.

What’s notable about the current ruckus is that neither the Andrews government in Victoria nor federal opposition leader Bill Shorten is prepared to address the real issue of the cost of a much larger RET — while the Palaszczuk government in Queensland has so fudged the discussion as to defy rational appreciation of their Shorten-esque ambitions.

It is a bit early in the new year to be handing out awards for egregious political behaviour, but the effort by Victorian Energy Minister Lily D’Ambrosio, who has cited “cabinet confidentiality” for refusing to release detailed costings of the State’s 40 per cent by 2025 renewable energy target, deserves note. Why she isn’t being mauled by the Victorian parliamentary opposition and the State’s media for this dismissal of the community’s right to be fully informed is a good question? The ABC and the Fairfax Media, for two, wouldn’t rest for a moment if this boot was on the Coalition foot.

What’s at stake, to quote Malcolm Turnbull in another context, is accountability, transparency and integrity. D’Ambrosio’s stance fails on all counts and she (and her leader) should be called out on it.

One of my friends and co-travellers in this energy vale of tears makes the absolutely correct point that “it is the system costs that are all-important and grid systems have to be designed to provide secure power in extreme weather conditions.” In a nutshell, this is where the Finkel task force’s close attention should be focused and to where policymakers’ next best efforts should be directed for the regions of the NEM as well as the SWIS in Western Australia.

The political problem is that the idea of energy from the wind and sun (and other such sources) is highly popular in a naive, general way with the Australian community — and ideologically popular in many parliamentary seats, most of them in inner metropolitan areas, that are continuously up for grabs — so offering large targets seems great politics. It is not great policy, however, which is why we are where we are right now in the goings-on encapsulated by the collective decision (via CoAG) to farm out the issue of energy security to Finkel & Co.

It is timely, I think, to remind all concerned of a fundamental part of the “national electricity objective” that is the guiding spirit for the NEM. It commits the jurisdictions to “promote efficient investment in, and efficient operation and use of, electricity services for the long-term interests of consumers with respect to price, quality, safety, reliability and security of supply.

If you lay down the green-tinted glasses through which so many (and especially so many political figures) view the power issue, this remains what consumers — whether householders, commercial businesses, public institutions or manufacturers — expect of the grid-connected service and what a considerable number of them, I imagine, don’t believe they are necessarily getting now or can be sure they will get in the foreseeable future.

The current chapter of the RET saga, sparked by Tony Abbott and happily kicked along by Labor, in both cases seeking to jostle Malcolm Turnbull, as well as carried forward by media like The Australian, is focused on the simple premise that killing the measure (to the extent possible given existing investment) will change the game — which is probably true, but the bigger question is “to what end?” closely followed by “what comes next?”

Only in La La Land is it not necessary to look to the guiding principle of the market (see above).

Only in la La Land, too, will we all live happily ever after in a market that has embraced 40 per cent, 50 per cent or more of variable renewable energy without due care and attention to total system costs and the delivery of affordable, secure supply while pursuing efficient carbon abatement against a national target. (And if I hear emoting on “net-zero emissions by 2050” one more time I am going to have to go out and buy a hat so I can jump up and down on it — as I keep saying, projecting 2050 from here is the same as trying to project 2017 from 1984.)

Fundamentally, the issue is not the RET; effective policy needs durable climate change directions and full acknowledgement of the realities of electricity supply in markets for the gamut of consumers — users like those in New South Wales in the case of the past two day’s horrible weather (just as an example) who ramped their needs up from 6,770 megawatts at dawn to 11,400 MW five hours later and beyond to almost 13,000 MW in mid-afternoon before, after the semi-relief of a cool change at least on the coast (which didn’t do much for residual heat indoors), taking them down to 9,900 MW in mid-evening. Through this roller-coaster of a regional market, black coal plant shouldered 88-plus per cent of the load both early and late in the day and around 73 per cent in the middle of it, mainly supported by gas turbines and hydro power. What would the picture be, in a policy environment of a much higher RET, in terms of the total system cost of ensuring system security in such conditions?

Bill Shorten, speaking to National Press Club, was quizzed in question time about what modelling Labor has done on its proposed 50 per cent RET? He ducked, dodged and weaved, providing an answer answerless. Ditto D’Ambrosio in Victoria, who offered a relatively meaningless response about “modest” cost while refusing to display her government’s modelling advice.

How will the Finkel task force deal with the role of the RET, the realities of total system costs and the broader issue of the national electricity objective? It may be the single most important aspect of their work.