Brave new world

It was inevitable that the media would leap on AGL Energy’s Liddell announcement at the weekend to the disadvantage of the federal government and of Malcolm Turnbull in particular as he led the charge to bully the company in to not shutting the plant.

Needless to say, the ALP has leapt on the company announcement, too, with Labor’s Mark Butler taking the hyperbole prize for declaring “Turnbull ends 2017 with his vision for the future of Australian energy in tatters.”

Lord alone knows what was going through the minds of the Prime Minister and others when they pulled this stunt; the proverbial petshop galah could have told them it wouldn’t fly. Their immediate reaction ploy now is to flick what AGL says it plans to do to the Australia Energy Market Operator for assessment – with a response required in February.

Josh Frydenberg, however, is pushing the point that should be uppermost in the minds of all concerned. “We are technology agnostic when it comes to generation,” he’s telling the media. “Our priority is the stability and affordability of power to Australian households and businesses.”

Here on the other hand is Bill Shorten, while campaigning in the seat of Bennelong with Kristina Keneally: “We need more renewables in our energy mix. We need to reform the national energy markets. We need to also make sure that we’re getting the gas that is produced in Australia prioritized to be sold to Australian industry first. Labor is for certainty. This will deliver new jobs in renewables. It will deliver fair dinkum action on climate change. And the fact of the matter is that good energy policy is good environment policy and vice versa. We are determined to make sure that Australians get lower energy prices and we’re going to do it by encouraging investment in renewable energy.”

In all the fuss, it would probably be as well to remind the community how New South Wales gets its power before greenwash wholly obscures the picture. Unfortunately, they seldom get this information – the Punch & Judy show that is our politics is of far more media interest.

Electricity generators in the NEM’s biggest region (accounting for 37 per cent of the market’s power) provide a “baseload” of 5,500 megawatts and are challenged to meet up to 14,000 MW when summer demand is at its peak.

The NSW market is currently serviced in the main by 10,160 MW of black coal-fuelled plant and 4,803 MW of gas and hydro capacity (of which 4,236 MW is of the “quick start” mode).

To which must be added supply vulnerable to the weather and time of day: some 1,200 MW of household rooftop solar power, 155 MW of utility-scale PV at Broken Hill and 660 MW of wind farm capacity.

And, not to be overlooked, NSW relies also on what capacity is available over the NEM interconnectors (critically from Queensland during a south-east heatwave, that is from more black coal and gas plants).

One of the core facts to be found in AEMO’s modeling is that it expects a small decline in NSW overall power needs between now and 2022 – reaching just under 66,000 gigawatt hours that year (2,000 GWh less than the power industry was forecasting in 2015) – but it can’t see a fall in peak requirements and perhaps there will be a rise.

As Tim Nelson, AGL’s chief economist, puts it, “the (NSW) market will require less energy but the same or more capacity.”

Explaining the thinking behind the company’s life-after-Liddell approach, Nelson says: “The combination of stable or rising peak demand, declining underlying energy demand and increased output from variable renewable generators has distinct implications for the type of investment required to replace Liddell. The amount of energy served by ‘dispatchable’ generation is decreasing as a result of falling energy demand and increased output from variable renewable resources. Given the same (or even an increase in) capacity is required but the amount of energy needed from ‘dispatchable’ generation is lower, the type of complementary plant is likely to shift from inflexible coal plant to more flexible gas-fired plant, better suited to operating at a lower capacity factor. This is reinforced by the increasing need for plant to complement variable renewable resources when they are not producing due to a temporary lack of wind or solar resources.”

On balance, the company’s case is that optimal investment now needs to be in peaking generation and it sees about 1,000 MW of new fast-start capacity being required – while still sending out some 15,000 GWh a year from Bayswater power station.

Nelson adds this: “While climate change and the need to reduce greenhouse gas emissions has been one major issue being discussed within the context of Liddell, it is clear that changing technology costs and the nature of electricity demand have also been key factors. Longer term, it may be that energy storage (through batteries, pumped hydro or production of hydrogen utilising renewable energy) is a better option than new gas-fired generation. But given renewable penetration in the NSW market is not sufficient to meet minimum demand, there is little benefit to deploying energy storage. This may change as greater levels of investment in renewable energy may see renewable production capacity exceed minimum demand at some point in the future. At that time, storage would be a direct substitute for gas-fired generation.”

Whatever the longer term may hold – and let’s not forget that nuclear advocates strongly believe a genuine technology-neutral approach would open the door to small modular reactors in the NEM in the next decade or that there are a number of other players whose plans could impact on AGL’s aims – it ought to be obvious to all but the blinkered that the backbone of NSW supply is going to continue to be fossil fuels for years to come, subject, of course, to what policy machinations come from the body politic, bearing in mind there will be three State elections and probably three federal polls between now and the mid-Twenties.

What seems unarguable is that one of the keys to avoiding landing eastern Australia (and not least NSW) still further in the energy mire is an adequate and workable plan to ensure there is sufficient gas supply to support “flexible” power generation.

Self interest for AGL, having been frustrated in pursuing gas development in NSW, dictates the LNG importing scheme it now has under consideration. The broader consumer interest should require a major shift in jurisdictional attitudes, in NSW, Victoria and the Northern Territory in particular, towards encouraging unconventional gas development to serve south-east Australia.

The Australian Petroleum Production & Exploration Association points to the Narrabri project being capable of supplying 50 per cent of New South Wales needs, to “significant” resources in Victoria’s onshore Gippsland and Otway basins and to “promising” resources in South Australia – apart from what the Northern Territory onshore prospects could deliver.

Whether what has gone on at official levels in 2017, via the CoAG Energy Council and so on, is a harbinger for progress in this regard in 2018 is an open question.

A pessimist would say not but the Turnbull government can’t afford to be pessimistic.

Speaking to journalists late last month, the Prime Minister declared that, by the time the Energy Council meets in April, we can expect to see the “national energy guarantee” fully fleshed out and in a position where it can take the energy market “into a new world where we have reliable, affordable energy and meet our emissions reduction targets.”

I’m tempted to say “Yes, Prime Minister” but that would be naughty and I don’t want Santa to just give me a lump of coal — and I’d like Turnbull to be right.

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