Archive for July, 2017

New normal

What constitutes the “new normal” in Australian electricity supply makes for a good debate.

The phrase in its current usage derives from the argument that renewable energy is today the cheapest type of new power generation that can be built in Australia – which isn’t the same thing at all as cheap power and doesn’t address the issue of total system cost of supply.

The “new normal,” green power boosters argue, is a growing dominance of wind and solar energy in the generation development market.

Another perspective of our situation, I suggest, is that the “new normal” is a highly politicized energy arena where government intervention is not just growing but is being demanded from various quarters or is perceived by politicians as the only means of escape from a threatening (for them) situation.

The long-term implications of this for all electricity investment, and ultimately for users, are (or should be) troublesome.

Another version of the “new normal” is that both households and businesses, hard-pressed by their budget circumstances due to a range of factors (for example, the size of rental and mortgage payments in the residential sector), are pursuing lower demand (which for companies can include closing down).

How this pans out over a number of years, intermingled as these demand developments will be with the aforesaid political interventions, is simply beyond reckoning at this point.

There are dire warnings about the “hollowing out” of the national industry base that, if borne out, may have a profound impact on our society – or industrial users may come up with new approaches.

In this context, I was interested to see (in the latest issue of the excellent EnergyQuarterly publication produced by consultants EnergyQuest) a suggestion from Graeme Bethune that, rather than going west in the colloquial sense, big gas users may consider going West.

Bethune comments: “There is currently a massive difference between gas market conditions on the east and west coasts. The east coast has a tight market with double-digit prices. The west coast has a depressed domestic market with plentiful supply and prices half those in the east. The WA challenge is to bring big fields to market.”

Instead of building an expensive west/east gas pipeline, he suggests, “why not lure (eastern) industry to WA and then transport finished product overseas (from there) or to the eastern markets?” Western Australia, he adds, has good port, road and rail infrastructure already in place.

The implications for Victoria and New South Wales, if this should come to pass, are, to put it mildly, significant. What would the “new normal” then be for the economies and social life of these States?

One of the points here is that striking Australia-wide poses has its limitations. There are lots of differences between the States.

While all this is going on, the intervention that is the renewable energy target (in its iteration established by the Abbott government) gives the appearance of being met by its due date, 2020. Reporting by the Clean Energy Council (via its Clean Energy Australia 2016 publication) sets RET-certificated electricity output last calendar year at 17,500 gigawatt hours – and identifies $6.9 billion worth of current investment in 3,150 MW of new projects, roughly half what is still needed to achieve the 33,000 GWh target at the end of this decade. Green investors seem confident the rest of the necessary building program will be achieved.

Nationally in 2016, according to the CEC, renewable generation accounted for 17.3 per cent of supply – but more than 42 per cent of this was long-established hydro plant production. Wind power accounted for almost 31 per cent and small-scale solar PV for another 16 per cent.

In the three States that dominate demand and supply – Victoria, NSW and Queensland, with a combined power production last calendar year of 180,342 GWh, almost 89 per cent of the NEM total – all renewable generation, including hydro, amounted to 18,912 GWh.

(As an aside, there is an interesting breakdown in the CEC publication – on an Australia-wide basis – of the components of household power bills, data readers of the media don’t get to see.

(The breakdown shows a rise from an average household annual bill of $1,296 in 2015-16 to $1,353 in the current financial year and projects that this will grow again to $1,390 in 2017-18 and $1,422 in 2018-19. That’s a rise of 9.7 per cent over four years.

(Put another way, at present the average Australian residential account-holder is spending $3.70 a day on electricity supply, up from $3.55 last financial year, in round terms the price of a cup of coffee a day. Smokers with a 40-a-week habit spend about $5.25 a day. On the above projections, in 2018-19 the average household power expense will be $3.90 a day.

(The CEC chart also shows that the current components of the bill amount to $114 a year for various green schemes, $114 for transmission charges, $519 for distribution network charges and $606 for wholesale and retail costs.)

Moving on from this digression – and remembering old Pontius Pilate, who asked “what is truth?” as he wrestled with every political leader’s quandary: to do the right thing or the popular thing – this “new normal” meme comes with many angles and, like so much else thrown around in common discussion, bears careful analysis.

I see the recommendations from the Finkel task force now being pared down to four key outcomes – increased security of supply, future system reliability, rewards for consumers and lower carbon emissions – delivered through three key mechanisms: an orderly transition of the supply system from where it is today to one with lower abatement, enhanced system planning and stronger governance.

The view of a rush to wind, solar and batteries as the “new normal” seems to me to require a lot more thought under this template.

The week ahead sees the CoAG Energy Council wrestling with the Finkel report. The chances of a “new normal” emerging from the meeting in the form of bipartisan political agreement on the path forward are what? And this is before we contemplate whether the federal Coalition can even agree within its own ranks on next steps.