Archive for September, 2017

The watchdog cometh

This could be the most important week of the year for the electricity supply industry – which is saying something, given what has gone before.

However, Wednesday’s publication of the interim report in to the affordability of electricity by the Australian Competition & Consumer Commission is at the very least highly important in the extraordinary political melee that has developed since the Prime Minister declared an “energy crisis” at the beginning of the year. It could prove seminal in the political pursuit of a fix for an issue that is engulfing the governments and their opponents at a time when elections loom.

In particular, the imminence of the Queensland election, in which electricity issues are set to play a large part, as well as the Victorian government’s push for re-regulation will see the ACCC report played up by all sides.

Last week’s National Press Club address by ACCC chairman Rod Sims has set the scene for Wednesday’s announcement.

Sims told the Press Club that the large increases in electricity prices over the past decade have not been matched “at all” by increases in other prices or wages. Industry players, he went on, routinely point to policy uncertainty and its impact on generation investment as the sole reason for today’s power affordability problem. “This ignores a lot.”

However, he pointed out, when you divide retailer revenue by all customer usage, you find that power prices have not doubled as politicians and media constantly say they have – they have risen by 50 per cent overall or, on average, in cents per kilowatt hour by 62 per cent for the mass market.

Sims sees three factors in this.

The first is that consumers are using less electricity. The second is that some are benefitting from solar panels “with generous subsidies.” The third is that the costs of so-called “standing offers” from retailers have doubled but many households have opted for cheaper market offers (as the suppliers and the federal government keep urging them to do).

A key part of the price surge has been network costs, accounting for 41 per cent of mass market bills. Sims points the finger at “particular” State governments who achieved, he says, looser regulation a decade ago to protect their revenues from publicly-owned assets. (This is going to be a leading debating point in the Queensland election, with the Liberal National Party already beating this drum vigorously.)

Sims also acknowledges that network prices have been pushed higher by government decisions to increase reliability standards. He thinks it “highly doubtful” that householders are willing to pay so much for “a very small” increase in reliability.

In the Press Club speech, Sims signaled that there is no way the ACCC is going to climb down from its hobby horse of attacking concentrated ownership of generation, an issue on which the courts have rebuffed its stance several times. The NEM rules, he asserts, did not envisage two or three generators controlling 70 per cent of market share in various States (which, having been on hand when the NEM was created, I can say is true although some observers at the time could see the writing on the wall).

Factors in the current investment drought, Sims says, include “high current profits” by the coal-burning generators and who will own the renewable generation now being built or proposed?

While noting that much higher gas prices in eastern Australia and tighter supply availability are impacting on wholesale power prices – some gas turbine plants have had their fuel bills treble – Sims is also pointing a finger at the renewables games politicians have played over the past decade. “We have had some stunningly generous green schemes,” he told the Press Club. And he added: “The cost of green schemes is not transparent; it is smeared over all electricity consumers” and it is “often inequitable” as the minority with solar panels are subsidized by the majority who don’t have them.

Generation costs and green scheme costs together account for 35 per cent of household bills.

And then, of course, there is the controversial issue of retailers’ profit margins – Sims is saving the full story, as the ACCC sees it, until the report appears this Wednesday.

The commission’s broad advice to governments, set out in last week’s talk, is interesting. First, says Sims, weigh carefully what is spent to improve reliability. Consumers will pay for these measures. Second, be careful with “new or enhanced ideas” incurring costs that end up being smeared across all customer bills. Third, think carefully about new retail regulations; “they can have unintended consequences.” Fourth, “realize that moves to re-regulate prices will see many consumers pay more” and may inhibit innovation. Fifth, look at market power in retail and generation in making new policies. (This is the one that the big gentailers will fret most about, I suspect.) And last, don’t muddle affordability with reliability and sustainability in making policy. “Beware of silver bullets that are said to address all three objectives.”

He finished up at the Press Club with this point: “We know we have an energy affordability problem and we have some things we can do to address it. But more steps, yet to be determined, will be needed. Some will be controversial – but the consequences of not acting are dire for many Australians.”

Expectations (and concerns) about this Wednesday’s ACCC report will have stakeholders across the energy spectrum, including governments, on edge. There is media anticipation that the review will not be kind to the Gladstone LNG producers – with Turnbull’s finger poised on the gas export restrictions trigger – and that,as well, to quote one story, the commission will “turn up the heat on the big power players.”

As with the Finkel report, politicians will flick the switch to politics (or vaudeville, as Paul Keating would have it) immediately the report becomes public – it’s what they do – and media coverage will slavishly follow the “biff.” But, as Sims signaled last week, there are deep, serious issues that need to be addressed and the CoAG members have a collective responsibility to take up the overall challenge, not an easy task in an election atmosphere.

Expectations in the commentariat (as well as in business, I suspect) of an adequate response by policymakers are not high. Ross Gittins in the Sydney Morning Herald today declares: “The electricity market is such a mare’s nest of stuff-ups and problems it’s impossible to see the deeply divided Turnbull government making much progress in fixing it.” A really important point is that it is not Turnbull’s problem alone; all east coast governments share the blame and the burden of providing a fix. What suppliers, whether electricity or gas, have to fear is that, for these governments, the quick fix lies in beating up on them.

Doing it by numbers

As always, the International Energy Agency’s annual Key World Energy Statistics is a cornucopia of data, ripe for cherrypicking to suit anyone’s interests or need to make a point.

Something that catches my attention each year is the comparison the agency draws with the 1970s (which were a time of major geopolitical turbulence created by energy issues). In the case of coal use, for example, the IEA reports that last year saw 7,269 million tonnes produced — compared with 3,074 Mt in 1973. The part of the pie-chart on this aspect that immediately draws my eye is how the Chinese share has soared from 13.6 per cent to 44.5 per cent while the overall OECD share has fallen away from 55.6 per cent to 23.7 per cent. All sorts of angles strike me in looking at this — like the fact that the greet green exemplar to us all, Germany, last year produced 176 Mt of coal and was still a net importer of 53 Mt.

The Germans have spent $US780 billion on subsidies for green electricity in the past decade with the aim of cutting their carbon emissions in 2020 by 40 per cent below the 1990 level. Thanks in no small measure to forcing out nuclear power and having to rely on 140 coal-fired power stations, the outlook is that Germany will achieve no more than a 30 per cent cut at the decade’s end — but this is not creating a screaming political row there in the elections that reach their denouement on Saturday. This may change if Angela Merkel is forced to pursue the so-called “Jamaica coalition” — with the Greens and Free Democrats — because the Greens are demanding the closure of 20 coal plants as the price for their support.

Coming back to the IEA document, another segment that interests me is the breakdown of global electricity consumption by sector. The agency chooses to render this in millions of tonnes of oil equivalent and in this issue compares 1973 and 2015 (it is notoriously hard to round up all the data for the immediate past year, so this stuff always lags — something journalists here seizing on the power price data in this publication should bear in mind; the Australian figures are not current). The agency pie-chart shows that global power demand has soared from 440 mtoe in 1973 to 1,737 mtoe in 2015 — and in this time heavy industry’s share of consumption has fallen from 53.5 per cent to 42 per cent while residential, public service and commercial consumption has gone from 38.2 per cent to 49.3 per cent.

With the endless focus in our local public debate on the role of coal, and especially its use for power generation, it is worth noting the global shares of coal use in 2015: iron and steel 29.3 per cent (a big rise from 17.5 per cent in 1973), chemicals and petrochemicals 10.5 per cent (a tripling of the 1973 share) and non-metallic minerals 22.2 per cent (a five-fold increase). Prating about the “death of coal” in this context is pretty silly, really. (It’s also worth noting, I suggest, a commentary in this week’s London Financial Times pointing out that the IEA seems to be now predicting “a long plateau” in coal use, with demand stable at around today’s level of 160 quadrillion BTU out to 2050. Very sensibly, the writer goes on to comment that “no one should put too much faith in (such) long-term projections.” I wish his peers here could show more understanding of this point.)

Elsewhere in the IEA publication, I see its calculation that the latest (2015) estimate of global electricity consumption is 24,255 terawatt hours (our Australian total is 250 TWh, less than half of what is used each by the South Koreans, French, Brazilians, Germans and Canadians and a fifth of the Japanese and Russian totals). The share of electricity regionally has changed very markedly since 1973 — when the OECD countries dominated with 72.8 per cent and now have 44.7 per cent. China accounted for just 2.9 per cent then and now uses 24.3 per cent of all electricity. Non-OECD Asia’s share has jumped from 2.7 per cent to 11.3 per cent.

A moral of all this is that the world is a very big place and that, in our own power consumption, we play a pretty small role — while at the same time, of course, playing a pretty big one in terms of our coal, gas and uranium exports to help the international community with their energy requirements.

There’s another set of data in this agency publication that is worth focus: of the 24,255 TWh consumption of electricity, 9,538 TWh is sourced from coal plants, 5,543 TWh comes from gas plants and all forms of renewable generation contribute 5,534 TWh. In a pie chart, the agency points out that in 2015, coal generation met 39.3 per cent of power production, gas 22.9 per cent, hydro power 16 per cent and nuclear 10.6 per cent, leaving a share of 7.1 per cent for non-hydro renewables and waste.

In this great scheme of things, solar PVs contributed 247 TWh (of which 6 TWh was generated here in Australia) from an estimated 220,000 megawatts of capacity.

Wind power delivered 838 TWh in 2015 from 414,000 MW of capacity.

By comparison, hydro-electric power delivered 3,978 TWh from 1,205 MW, of which a quarter of the dams systems are to be found in China.

(By the way, what’s the country with the largest hydro share of domestic electricity generation?  The answer is Norway — 95.9 per cent — with Brazil at almost 62 per cent and Canada at almost 57 per cent. The latter number is worth bearing in mind when local media, as The Australian has done today, make a fuss that our electricity bills are double what Canadians pay.)

My nuclear friends would not be happy if I failed to also point out that their favorite generation source accounted for 2,571 TWh of global production in 2015 from 383,000 MW of capacity. (The reactors’ share of Canadian supply was 15 per cent, giving that country 72 per cent of non-carbon power from dispatchable sources versus 3.9 per cent from wind turbines. The Canadians got 26 TWh from 11,200 MW of wind capacity in 2015. The neighbouring US got 193 TWh from 72,600 MW of wind farms in 2015 compared with 830 TWh from 99,000 MW of nuclear plants.)

And finally, it always interests me to see how the IEA slants its media commentary when it publishes this stuff. The lead sentence for its media statement about the Statistics publication says: “China is the world’s largest consumer of coal, but it also has more wind and solar generation than any other country.” I could think of five or six other ways to introduce this document that might convey a rather more balanced view of the big energy picture. From the agency’s membership perspective, for example, it might  have highlighted somewhere that these 35 nations (including us) accounting for well more than four in every 10 electrons produced around the world have a generation mix that now stands at 28 per cent for each of coal and gas, 18 per cent for nuclear, 13 per cent for hydro and 11 per cent for all the forms of non-hydro renewables.



Liddell manoeuvres

In a month in which the editor-in-chief of The Australian Financial Review has declared the “energy crisis” to be “the biggest national and business story of the year,” the speed with which the fate of Liddell power station has gone from being fait accompli in the much-discussed decarbonizing transition of the NEM over the next decade to an overnight cause celebre in the political power game is eye-opening (and pretty depressing).

In the past week’s political and media wildfire, Liddell’s owners, AGL Energy, are being presented as having caught off guard.

Whether this furore should have done so, and the impact of the past few days’ headline-hogging fuss on AGL Energy’s reputation with the community, is a matter for private reflection by the company’s board at some point – but its here-and-now task is how to manage its very public confrontation with the Coalition government leadership. More broadly, the energy supply industry’s task is to campaign against yet more ad hoc policymaking.

In the latter context, I think the most helpful thing politicians and others could do this weekend is to sit down for 15 minutes to watch a televised interview between the ABC’s Elysse Morgan and EnergyAustralia’s energy executive Mark Colette on The Business program. Put to air on Wednesday this week and still readily accessible on the ABC website, it is the most sensible and clear exposition of supply options available, covering not just the Liddell fracas but also the threat via green activism to EnergyAustralia’s 1,400 MW Mt Piper power station in the upper Hunter Valley, a generator of 12,000 gigawatt hours a year — an issue Colette points out for which there is a ready-made technical solution and more urgency for it to be pursued because the plant could be driven to close far sooner than Liddell.

It should be noted that the politically-contrived Liddell “crisis” may not have found AGL as flatfooted as some journalists obviously assume. The reason for saying so lies in the company’s recently-published annual report via opening comments from CEO Andy Vesey.

“We are undertaking a detailed State-by-State assessment, starting with New South Wales and Victoria, of Australia’s potential energy generation supply and capacity requirements from now to 2025,” he wrote. “This will pay particular attention to replacing energy and capacity currently supplied by Liddell, which will reach the end of its life in 2022.”

Vesey added: “Our assessment will inform the nature and scale of AGL’s future investment in low emissions generation and storage technologies. It will also offer insight in to how AGL should make those investments to ensure we deploy shareholders’ capital responsibly in the context of the significant uncertainties we face in both regulation and technology.”

What has also been lost to sight in the past week’s politics/media frenzy is the mindset AGL brought to the purchase of Liddell in the first place. Here is what the chairman, Jerry Maycock, now retiring from the board, told the company AGM in October 2014: “In our (purchase) valuation model, we assumed Liddell would close in 2017 because of the possibility that one of (our) major customers, Tomago aluminium smelter, may close. If the smelter remains open, Liddell will continue to operate.”

Tomago, one of the more cost-efficient smelters around the world, has so far remained open. Aluminium prices are not at the dire levels they were a few years ago – but the very high local wholesale power prices pose an ongoing threat to its viability.

At the AGM in 2015 Maycock directly addressed a point that is now being used by some politicians and some in the media to howl “hypocrite” at his company. “The profits and cash flow from (our) coal-powered generators will enable us to continue to invest in renewable assets if and when the investment climate improves (and) as well (is) funding investment in new digital technology and energy storage products.”

From all this it is not unreasonable to assume that AGL’s board and top management have been walking in the storm-tossed transition woods with their eyes open although perhaps they could not have foreseen themselves in today’s melee, a sudden product of Malcolm Turnbull’s rather desperate political needs.

(Commenting on the situation, EnergyAustralia chairman Graham Bradley says: “The Prime Minister is having to turn over every rock he possibly can to find the best solution to what is a terrible policy mess that has been created by a decade of bad decisions by both State and federal governments.”)

One can also see a certain irony, given current events, in a comment by Maycock to AGL shareholders at last year’s AGM: “It is necessary to ensure that the transition to a low-emissions electricity system occurs in an orderly rather than disorderly way.”

Whatever, as my grandchildren say. AGL’s board and MD now find themselves caught in the horrid glare of media and political attention with a 90-day deadline to come up with a game plan for delivering a path forward on generation capacity that fits with their future planning and their shareholder interests —  and doesn’t leave Turnbull further exposed politically because that will only put the company more in harm’s way.

The company’s preferred approach, as recently again outlined by Vesey before the current game kicked off, is not to go for a new coal plant or baseload gas to replace Liddell “but a mix of energy from wind and solar, along with load shaping and firming capacity from sources including battery storage, pumped hydro, demand response mechanisms and gas peaking plants.”

In this regard, Colette’s lucid explanation in his The Business interview of the wide-ranging options available and being pursued, especially by the big gentailers, is strong reinforcement for a more rational approach to the situation by policymakers.

Pared down, Turnbull’s political need should be to demonstrate that there is a viable plan for the NEM to have available by the decade’s end 8,000 gigawatt hours of dispatchable electricity (Liddell’s annual output) to ensure that the market’s security is not impaired by losing this level of non-intermittent production in addition to the 12,000 GWh foregone when Victoria’s Hazelwood shut in March this year.

(As it happens, AGL has on its files a fully-fledged plan to build a 2,000 megawatt power station on the Bayswater B site, approved by the last NSW Labor government in 2010 for Macquarie Generation, which it then owned, to burn either coal or gas. This project was designed to produce about 20 per cent of the State’s power needs and intended to be in operation by the end of this decade at the latest. In its gas-fired mode, the development would feature five 400 MW units. If coal-fired, it would involve two 1,000 MW units. This project design work, of course, was undertaken well before the current HELE coal technology was in commercial vogue or battery storage possibilities became top of mind.)

Over the early weeks of spring ahead of us the political heat, thanks to the government’s Liddell manoeuvres, seemingly falls on AGL. (“The ball is in their court,” said Josh Frydenberg, an accomplished tennis player, even as his leader was accusing the company of greed in parliamentary question time.)

But other players are jostling to get on the court, not least the Australian Competition & Consumer Commission. Its chairman, Rod Sims, is due to make a speech in the week ahead that is being anticipated in the media as a blast for vertically-integrated supply (generation and retail) and this will be followed by the ACCC’s interim report to the federal government on 27 September on the competitiveness of NEM retail power prices.

From above the arena, however, the most immediate community challenge – even though the one politically for Turnbull is now the self-imposed Liddell problem plus settling the Coalition’s internal shenanigans on energy policy – can be seen to be security and pricing of supply in the NEM this summer, especially in Victoria, NSW and South Australia.

Whatever AGL puts on the table with respect to Liddell (or alternatives to its share of supply) and however Turnbull & Co react to it, the issue with biggest near-term ramifications for consumers, governments, the Australian Energy Market Operator and the generators is how the production and delivery system deals with the inevitable summer heatwaves that lie just ahead.

Postscript: The latest opinion poll in Essential Report shows that 35 per cent of respondents think neither the Coalition nor Labor can deliver lower energy prices – and another 18 per cent don’t know what to think. Only 19 per cent of those polled believe the Turnbull government can provide lower bills – versus 28 per cent for Labor. Alarmingly for the gentailers, 86 per cent of those polled think electricity and gas prices should be regulated. Naively, 56 per cent favor government (which ones?) buying back coal-burning power stations from the private sector and 51 per cent want to “stop coal-fired power stations from closing down” while 81 per cent want to “increase investment in renewable energy and storage.” The degree of community energy illiteracy this represents is quite something, don’t you think — and it feeds in to a political fire that could run out of control in the opening months of 2018.

Big stick & big picture

I attended the business forum lunch in Sydney in August 2012 when Julia Gillard, in political strife over power prices (conflated by her opponents with her carbon tax), threatened to “take a big stick” to the electricity networks.

Five years later Malcolm Turnbull is wielding the prime ministerial stick with vim in an environment where power prices are much higher than they were in 2012 while his opponents and many in industry pursue him to introduce a carbon energy target.

Just how dangerous it is for political leaders to make promises about electricity bills can be demonstrated by a reminder: in December 2012, Gillard told Australians (after a much-hyped CoAG leaders’ discussion on energy) that a NEM-wide pursuit of household smart meters and time-of-use charges plus a national standard for network reliability would save the mass market $250 a year for each home – a headline promise that has failed to deliver to the tune of billions of dollars for households in aggregate over the past five years.

Five winters of discontent later, Turnbull’s own big stick approach embraces:

  • A legislated ban on networks challenging regulatory revenue decisions through the courts
  • Sooling the Australian Competition & Consumer Commission on to major energy retailers (the villains du jour) for examination of how they frame their charges – and personally hauling retail leaders in twice to demand action to herd householders towards taking up cheaper contracts
  • Running a major review via Alan Finkel’s task force which has seen CoAG commit to 49 recommendations for market change
  • Floating a proposal for the federal government to acquire the assets of Snowy Hydro from Victoria and New South Wales plus making qualified commitment to build “Snowy 2.0”
  • Leading a move to interfere in LNG exports in an effort to force more gas in to the east coast domestic market
  • Taking the most recent headline-hitting step in the form of pressuring AGL Energy to continue operating Liddell power station beyond its closure point of 2022 or to sell it to someone who will.

The mind boggles at what could eventuate politically if this summer does bring further supply problems, especially in Victoria and New South Wales.

Meanwhile Turnbull points to “10 years of colossal policy failure” and adds that the stability and security of east coast electricity supply has been reduced by pursuit of intermittent renewable energy at the expense of 24/7 dispatchable power “without very much thought,” denouncing the “ideology and idiocy” that has brought us to this point.

“There has been too much energy policy debate,” the Prime Minister declared at a mining industry dinner in Canberra, “built on glib slogans, on ideology, with political arguments with no basis in fact or reality.”

His government, he avers, is determined to base its approach on economics and engineering and to pursue a “policy trifecta” of affordable, reliable energy able to meet national carbon emissions reduction goals, embracing solar, wind, gas, hydro power “and, of course, coal.”

Lost in the wash of political brawling and media hyperbole in the past week has been a careful assessment of the wholesale power market situation and the latest Turnbull government thrust on generation by the Australian Energy Council CEO, Matthew Warren, representing generators and energy retailers.

“To manage system reliability and affordability, the market operator may want to buy some time and seek to extend the life of some (coal) generators,” Warren writes on the AEC website. “That may be a sensible and cost-effective solution.”

But, he goes on, “each power station is different – some will be better suited to this (life extension) option than others.” Decisions about whether or not to extend the life of any existing generator will need to be made on a case-by-case basis and as part of a national energy strategy.

Warren adds: “The cost of extending the life of old coal and the terms under which (such plant) would run need to stack up against competing technology solutions to do the same job. The whole system would need to reflect the emissions reductions targets agreed by successive governments.

“If it is not commercially prudent for the owner of a power station to re-invest millions of dollars to extend its life, then who should pay for it? How do we make sure this is the most efficient investment? What are the other options and what would they cost? Would (these extended-life plants) remain in the market or form part of a strategic reserve? In this case, how would (such) plant remain viable?”

These are questions the federal government should address and quite quickly because waving big sticks is not a solution, only a gesture. They are questions that need to be initially considered by economists and engineers before political decisions are made.

However, the space available for decisionmaking is shrinking, given the lead times power projects require (including upgrading existing plants). As the market operator says in its latest review of the NEM, noting the proposed Liddell closure in 2022, “time is of the essence to obtain the appropriate level of resources to support overall system reliability.”

Which raises another question: do the federal government and the CoAG Energy Council believe they have been fully and properly briefed on the complexities of the relationship between adequate system strength and the combination of synchronous and non-synchronous generation in the NEM, and especially the three southern mainland States? Back in April I recall CSIRO making the point that effective market-based approaches need to be developed to provide assurance of capacity, balancing and ancillary services important to system security. This is an issue that extends to the meshing of high voltage transmission and generation across the NEM, bringing in the links with Tasmania and Queensland.

Can CoAG be sure that what is being pursued politically (in Canberra and the States) will provide the right underpinning for the strength of the grid (and therefore ultimately the cost of the power supply)? Is this a task for the new Energy Security Board, a product of the Finkel review, and when might governments have advice?

The challenge here is particularly potent for the federal government. Its task is to hold the ring that is the NEM for the benefit of the community and the economy as a whole. States, as they keep demonstrating, will always pursue their self interest regardless of what Paul Keating dubbed “the big picture.” As the gas imbroglio, a core part of the issues of power security and cost, continues to demonstrate, State (and territory) political leaders will also ditch the interests of their own communities to maintain a grip on government in an environment where green activism and the social media carry so much clout in key seats, as witness the unscientific bans on new gas development.

Turnbull is right to say that a problem – the “energy crisis” – years in the making will take years to resolve but there also needs to be recognition that each additional misstep now further erodes our capacity to climb out of the power pit we are in.

The Australian’s Paul Kelly may well be right to say this past weekend that it is the credibility of Turnbull’s energy policy for the long run that will decide whether the issue can work to the Coalition’s advantage at the next federal election – but the temptation is always there for leaders to reach for the “big stick” for political gain rather than to ensure their policy’s foundations are strong.

Watch this space

Whether you are Malcolm Turnbull or Joe Citizen, fitting the gallons of energy stuff going on in to the pint pots of time we have available, to use the pre-metric lingo (it really loses its impact if you have to refer to 3.78 litres in to 0.47 litre pots!), is a constant challenge.

This is especially true for the electricity scene. Most consumers, I suspect, just let 99 per cent of the goings-on wash over them and focus on what they don’t like (prices); those of us dealing with the bigger picture find it an increasingly large ask to give meaningful attention to all the useful information (while ignoring the huge amount of dross available in mainstream and social media).

I’ve always liked the metaphor of trying to get a drink under a waterfall while holding a tin cup.

In getting my act together in the past week for the September issue of Coolibah Commentary – just published on this website – I have finally focused on TransGrid’s 2017 annual planning report, a document I have followed with close interest for most of the past quarter century but have not visited except in passing this year and then only through one of the company’s presentations at Australian Energy Week conference in July.

As always, the report contains a wealth of information about the largest electricity supply region in the country (home to 3.6 million customers, large and small, or 38 per cent of the NEM). And it is a timely reminder, to anyone knuckling down to read it, of the many troubling facets of just the generation and delivery aspects of the market.

I make a point at conferences of reminding audiences that power supply is a chain and every link is important – but it is undeniable that production and delivery of electrons to the load centres is the sine qua non of the process.

How interesting it is, then, to read some of the core comments in this year’s report.

TransGrid (which is now in private hands under a 99-year lease from the New South Wales government) kicks off by reminding us that last summer was the first time in 12 years that the State’s maximum demand could be met only by curtailing the load, an “issue of significant concern,” and it makes the big call that, with respect to maintaining reliable, affordable energy, the NEM as a whole has “clearly failed those it is meant to serve, all consumers.”

I am looking forward to hearing this issue of whether or not the 20-year-old east coast market has failed discussed at the NEM Future Forum I am co-chairing for Quest Events in Sydney at the end of next month.

In NSW, TransGrid goes on, energy consumption and maximum demand are expected to grow further after rising for each of the past three years. And here’s the rub: “Retirement of baseload power stations will reduce firm generation capacity in NSW and put the power system under pressure to reliably meet the State’s maximum demand.” As the company says, new generation, greater interconnection, storage and demand management will all be needed to provide additional capacity to assist to meet the peaks – and, one must add, to help put downward pressure on a significant component of mass market bills.

There are several time frames to consider in this context. One obviously is the summer ahead – where maximum demand may lie between 12,600 megawatts (which it did in the summers of 2014 and 2015) and 13,900 MW (last summer) or 14,200 MW (where it hasn’t been since 2011).

Another is the next couple of years because any adverse events (whether related to security or affordability of supply) will play in to the next federal and NSW elections (the latter falling just after summer 2019).

The longer horizon is out to the middle of the next decade – which is the one used in TransGrid’s planning review and which is expected to see the closure of the 2,000 MW Liddell power station in 2022 perhaps followed by the 1,320 MW Vales Point plant, which reaches its 50th birthday in 2028.

The challenge, succinctly put by the company, is that, “when replacing baseload generation with variable generation, around two to three times the installed capacity is required due to the variability of wind and solar resources.” This, it says, means around 10,000 MW of new renewable generation will be required over the next 10 years – the assumption obviously being that no new fossil-fuelled baseload will be constructed and that the residual coal-burning plants will not be upgraded.

The Australian Energy Market Operator in its “stocktake” of the NEM delivered to the government this week notes that the supply shortfall risk in NSW increases when Liddell closes and asserts this can be mitigated by development of more renewable generation – the issues being, of course, the impacts on reliability, security and cost of supply.

The AEMO report notes that there is currently 16,193 MW of generation capacity in the State – of which 10,160 MW is coal-burning, 2,121 MW uses gas, hydro accounts for 2,706 MW, wind 665 MW and large-scale solar 254 MW.

The operator says it is aware of 5,834 MW of proposed capacity development – of which 4,466 MW are wind farms and 837 MW utility-scale PVs. This does not include the $2 billion(?) Snowy 2.0 project towards which Turnbull last week threw $8 million in feasibility funding.

It’s worth tossing in here a warning from TransGrid: “the best (intermittent) renewable resources (in NSW) are in areas with limited transmission capacity.”

(It also should be well noted, I think, that AEMO acknowledges “uncertainty in all NEM forecasts remains extremely high, so all estimates of reserve requirements must be regarded as subject to progressive refinement.” Quite so.)

Meanwhile, as Turnbull has revealed in federal parliament today, the federal government is in talks with AGL Energy about what it would take to fend off the company’s plan to shut Liddell in 2022 and keep it operating “for at least another five years.”

As well, in a contribution to lobbying on the State situation, the NSW Minerals Council has released details of an opinion poll in the Upper Hunter region (the heartland of the State’s power supply) that shows 67 per cent of respondents would support construction of a new low-emissions coal plant in the area. The council’s CEO, Stephen Galilee, argues that a new HELE generator in the region “would lock in NSW energy needs for decades” while producing power with 25 per cent lower emissions than Liddell.

I suppose that, if you wanted a catchcry for this situation, and for the NEM as a whole, it should be “watch this space” – but, as the TransGrid planning report underscores, the need for policymakers (and, surely, especially the State ones) to genuinely resolve the future framework for supply in NSW could hardly be more pressing. Throw in South Australia and Victoria, where the supply problems are no less worrying, and there are some 6.4 million mass market accountholders alone who are caught up in the present ride on the edge.