Archive for August, 2017

Where do we want to be?

Glencore is a big player on Australia’s energy scene – not just as a significant miner and exporter of coal but as a user through its metals, minerals and agricultural activities; it spends around $400 million a year on electricity, consuming 3,207 gigawatt hours.

Its senior executive Peter Freyberg, head of its global coal assets, could point to plenty of local skin in the game when he spoke to an Australian British Chamber of Commerce lunch in Sydney today.

The talk’s peg was the future of coal nationally and internationally, but it was what Freyberg had to say about the recently-delivered Finkel report that attracted my attention.

The review, he said, sets out one possible pathway for the NEM, “but it does very little to provide investors with any confidence for future investment” – and he posed a set of “unanswered questions” in terms of the report’s modeling and analysis.

For a start, he asked, what is the assumed make-up and nature of Australia’s industrial base and “just as importantly, what are the policy recommendations around future energy affordability?”

Where do we want to be, he went on, declaring two of the “clear priorities” for the NEM should be addressing the current energy crisis and “putting Australia on a sustainable and least-cost pathway to reduce emissions without sacrificing economic growth and (our) standard of living.”

From a Glencore perspective, two market priorities have to be (a) supporting baseload power generation and (b) replacing the RET and State-based renewables targets.

“I want to be clear on one point,” Fryberg told the large ABCC audience. “Renewable energy has a role to play in Australia’s energy mix – but not at any cost and not at the expense of grid stability and reliability.”

Other market priorities, Freyberg added, need to be establishing dispatch protocols for variable renewables, differentiating between household and heavy industry users and “imposing heavy penalties on generators guilty of uncompetitive behavior.”

If heavy industry is to continue operating here, he said, the energy cost burden it is now bearing has to be alleviated.

Freyberg is calling for more work to be undertake to test the impacts of the Finkel-proposed clean energy target on Australia’s industrial base, particularly on energy-intensive, heavy industrial processing plants.

Controversially, he told the forum “if Australia needs to consider a possible delay in meetings its emission reduction targets under the Paris agreement in order to prioritize energy security and economic prosperity, then it is worthy of further discussion.”

He declared “we tell it as we see it.” Glencore, he said, has a stake in future energy policy reform here and “we are willing to talk to and work with all sides of politics.”

There should be, he added, “a formal business dialogue similar to the CoAG model” as part of plotting a “measured” path forward to secure, reliable and affordable energy while delivering carbon abatement.

The present debate, Freyberg said, is “divisive, massively misinformed and more focused on declaring heroes, victims and villains than actually solving any problem.”

More generally, he said, “policy paralysis on energy, carbon, economic reform and workplace relations reform coupled with increasing costs and regulatory red tape have seriously eroded investor confidence in this country.”

A decade of poorly designed and uncoordinated energy policy in Australia has lead to the energy crisis, he argued. “Failure to adequately plan for and replace baseload capacity combined with changing climate change policies and increasingly disproportionate subsidies for renewable energy has weakened grid stability and increased volatility and costs in the energy market.

“Despite Australia being the world’s largest exporter of coal, the second-largest exporter of gas and a major exporter of uranium, at home electricity costs have been skyrocketing and we have major gas supply challenges. For many households, the current increasing cost of electricity is unsustainable. For business it is the same and, if we don’t find solutions fast, Australian businesses, job numbers and living standards will fall.”

The public debate, Freyberg said, “tends to go straight to how to reduce both emissions and electricity prices — but there’s a fundamental step before that: ensuring the long term stability and security of the energy market.”

If this isn’t done first, he told the lunch, “we won’t have to worry about reducing emissions because the industrial base of the economy will be in terminal decline.”

And he accused both federal and State governments of not only being the font of “ongoing political uncertainty” about energy policy options but also of failing to inform the community of the costs and benefits of the choices with which we are confronted. It is irresponsible of State governments, he said, to announce emission reduction and renewables targets “without first disclosing the true costs and impacts” on households and industry.

“We urge policymakers to be honest about policy costs and to carefully consider the consequences of all available options because the flow-on impact on future investment is very real.”

In particular, he said, there is a need to differentiate between mining and energy intensive heavy industry assets such as smelters and refineries which operate 24 hours a day, 365 days a year and rely on affordable, secure and reliable electricity.

“A number of heavy industry players, including our own copper processing business, have been clear about the need to consider their future in Australia in light of the current high energy prices and uncertainty around future supply,” adding that “unless something happens quickly” such businesses will shut.

In answer to an audience question, he said “if there has to be something ultimately that gives, let’s get energy and affordability right and then work emissions reductions in to this in an orderly way.”