‘It’s not a simple choice’

As we move in to the last days of 2017, the federal government, via the publication of its climate change policy paper, has summed up the electricity supply challenge just at the point when early summer heatwaves have been testing southern State supply resilience.

Simultaneously and coincidentally, I guess, the Energy Security Board has put out a paper that underscores the fragile state of things.

The ESB’s “health of the NEM” diagnosis is that the market is unwell but hopefully on the mend. The three worrying symptoms, it finds, are

▪ electricity bills are not affordable

▪ reliability risks in the system are increasing; and

▪ future carbon emissions policy is uncertain.

To manage a recovery, says the board, “we need governance that is fit for purpose.”

In the policy paper released yesterday, the government says: “Australia’s energy market is undergoing the largest transition since the creation of the NEM. The same transition is happening across the world, driven by retirement of ageing thermal generation, flattening demand for electricity and rapid growth in renewable energy resources. The costs of intermittent generation from wind and solar, once prohibitively expensive, have plummeted in the past decade. At the same time, electricity prices for households, business and industry have increased, and investment has dried up for the kind of dispatchable generation needed to stabilise the grid, such as ready-to-use sources like coal, gas, pumped hydro and batteries. The government’s priority is to deliver a more affordable, more reliable and cleaner electricity supply for all Australians.”

Public sentiment on this, as I indicated in my previous post, using the latest Essential Report poll, is that about one in five of us believes all three goals should be given the policymaking priority and 15 per cent think it should be abatement of emissions. More than a third want energy costs to be the priority and 18 per cent say it should be supply reliability.

In the new paper, the federal government asserts that the “national energy guarantee,” which it and the eight State and Territory governments will again debate at CoAG Energy Council in April, will:

  • incentivize the right investment in the right place at the right time
  • lower wholesale prices and reduce spot price volatility
  • improve reliability, and
  • reduce emissions at lowest cost.

It adds that its policy will level the playing field and be technology neutral. “It will provide an incentive for every single technology to perform within the two constraints of meeting international commitments and maintaining reliability.”

For those in the community wanting cheaper power and hanging out for large cuts in their bills, it would be as well to understand the fine print of the government promise: “Modelling estimates that the (policy) will result in wholesale electricity prices beingan average of 23 per cent lower than without the guarantee over the period 2020 to 2030. The lower wholesale prices drive a reduction in retail prices, with the average household expected to save around $120 compared to business as usual on its electricity bill each year from 2020 to 2030.”

Then they need to appreciate what the Australian Energy Market Commission is saying in its new report – the topic of my post on Monday – to the effect that “without investment in replacement dispatchable capacity, wholesale prices will remain volatile and the (end-user price) rollercoaster will be repeated.”

Unfortunately, of course, the community has its head around very little of this except what its gleans from media soundbites.

For the more engaged stakeholders, there is a need to take the reality pill, too.

“Technology neutrality” has become a catchphrase but what it actually means for the NEM, bearing in mind this version of “neutrality” continues to eschew nuclear energy, is highly debatable.

One of my interlocutors complained to me in an email yesterday with respect to other just-published material about “the sheer lack of understanding of the dearth of system security features of non-synchronous, intermittent, weather-dependent generation technologies,” adding that “the huge costs of add-ons required to go close to accounting for this continues to be under-appreciated.”

So it is time to trot out one more time the wisdom of the admiral – royal commissioner Kevin Scarce in his report to the South Australian government. Scarce, former senior navy officer and former State governor, said 19 months ago that “identifying whether a particular generation portfolio would deliver electricity at the lowest possible cost requires an analysis of the future cost of the system as a whole, that is the total costs of generation, transmission and distribution.” And he added: “For those planning a future electricity system (and the market in which it will operate) the relevant issue is total system cost (including) inter- and intra-regional expansion of networks and grid support costs.” And also, essentially reacting to the “go for renewables” lobbying he received, “it is not a simple choice.”

You won’t find a mention of total system cost in the spruiking pursued by either the federal government or the Labor party (whether federally or in the States).

Here, for example, in the new climate policy document is the Turnbull regime’s hype for the NEG: “The guarantee is a credible, workable, pro-market policy that does not involve subsidies, taxes, or trading schemes. It will lower electricity prices, make the system more reliable, encourage the right investment and reduce emissions. Importantly it is technology-neutral, offering a future for investment in whatever technology the market needs – solar, wind, hydro, coal, gas, batteries or pumped hydro storage.”

I missed a commentary in The Conversation on the NEG by the Grattan Institute’s Tony Wood in late November; reading it today, I am struck by his observation that this may be the first example in the world where policy seeks to integrate emissions reduction and energy security. It’s the design that matters, he adds, and the hard work on this has yet to be done. He declares: “The fundamental elements of the proposal provide a workable framework, its key elements will have to be part of any effective solution, and a credible alternative does not currently exist. The next best step would be for all parties to commit to making the NEG a workable solution to a serious national problem.”

As has been the case for at least a decade, the critical factor with new energy policy development is politics, bearing in mind that today almost a quarter of the actual federal votes cast go to populist parties and independents (and about five per cent of any voting doesn’t count because it is “informal”).

No objective spectator of our political scene can avoid the notion that we could have a different federal government in 12 to 18 months and the big “what if” has to be the make-up of this administration. Will it be a different coalition? Does it necessarily follow that this would headed by Labor? Which leads to the obvious thought: if it is anything other than some form of the present regime, what is the fate of the NEG?

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