So many moving parts

Is the NEG dead or merely resting?

Rather opportunistic comments by Labor spokesman Mark Butler in recent days suggest that the government-in-waiting could pursue some version of the “energy guarantee,” using the Coalition government’s own recent rhetoric – failure to pursue the NEG would push consumer power bills up by $300 rather than down by $150 – to rattle the Liberals’ bars.

Butler is promising that Labor will put out its own energy proposals – a “very detailed policy” – by next May (the last point for a combined election for the House of Representatives and half the Senate), declaring it will be a sector-based approach with each industry to be given different obligations.

The current Labor policy on electricity (published on the party website) commits it to “at least” 50 per cent of national (note not NEM) electricity being provided by renewable energy by 2030. This approach, the ALP asserts, “will drive jobs creation, drive manufacturing investment and put downward pressure on power prices for families and small businesses”.

There is also a commitment, which tends to be wholly ignored by the media, that the ALP will push to double Australia’s energy productivity by 2030. This, the policy declares, is “the key to decarbonizing Australia’s economy while maintaining economic growth.”

Most of the energy “debate” – it’s a shouting match, really – tends to be focused on the east coast. So what are the electricity figures for the country as a whole?  According to the Department of Environment & Energy, in calendar 2017 the national output of electricity was 259,445.7 gigawatt hours.

This includes 8,082 GWh of rooftop solar power, leaving despatch to the various grids (mostly the NEM and the SWIS in Western Australia) but also including use by mining projects, at 251,363.7 GWh.

The breakdown of this supply in 2017 included 120,831.9 GWh from black coal generation, 38,312.7 GWh from brown coal plants, 54,929.2 GWh from gas turbines and 6,285.4 GWh from units running on diesel. This represents an 87.7 per cent contribution from fossil fuels Australia-wide. Reducing this to 50 per cent by 2030 would require increasing renewable energy’s total contribution to some 125,000 GWh annually.

What was it in calendar 2017? According to DE&E, and again leaving aside rooftop solar PVs, it was 31,004.5 GWh – of which hydro power contributed 13,933.2 GWh, wind 12,668.1 GWh, biomass 3,636.9 GWh and utility-scale solar 765.9 GWh.

The challenge in scaling this up to Labor’s 50 per cent target in 10 years, in terms of capital costs for generation and transmission plus back-up services for such a large variable capacity hardly needs highlighting. Nor does the flow-on cost to customers, even allowing for success in driving greater energy productivity. (Once more for the dummies: what matters is total sector costs.)

And it shouldn’t be overlooked that a substantial part of this burden will fall on consumers in New South Wales and Queensland – home for 109,890 GWh of black coal generation and of 2,211 GWh of wind and large solar generation in calendar 2017.

Perhaps all of this, and more, will be taken in to account as Labor follows through on this week’s promise that it will consult “all stakeholders” before making a final decision on the policy to take to the polls. “We won’t be rushed,” said a curiously anonymous spokesperson to the Australian Financial Review yesterday.

 The Grattan Institute’s Tony Wood spoke for a lot of people when he told the AFR overnight that “there are so many moving parts and we don’t know what is going to happen.” (The same story quotes an anonymous energy executive as saying the industry right now is “beside itself.”)

The Clean Energy Council, meanwhile, is saying its clientele “does not need a new subsidy” but does need policy certainty –  but how in this environment, until at least after the next federal election, could anyone, Coalition or Labor, offer that?

It seems to me that the nearest horizon for policy “certainty” will be some time in the second half of 2019 and then only if whoever is in power in Canberra has support from a Senate in which half of today’s sitting members have to pass through the next poll, too.

How can this situation contribute to lower NEM electricity future prices until way in to 2019 and probably in to 2020? As Global-ROAM’s Paul McArdle says, future contracts represent the market’s consensus on where prices are heading and they started rising last month as the ground opened under the NEG.

EnergyQuest’s Graeme Bethune perhaps sums up the situation best in his latest quarterly review published today: “So, what do business and investors do now? Probably nothing. The east coast needs substantial investment in electricity and gas supply, but — without an emissions policy — what should anyone invest in? And what should energy buyers do, with uncertainty about future prices? The situation isn’t helped by widely varying forecasts of energy supply and demand, when AEMO says Victoria won’t be able to meet its own gas needs from 2022 and then three months later says everything will be fine until 2030. (The federal government hasn’t produced any Australian energy projections since 2014, probably for political reasons.)”

Bethune quotes a foreign investor as telling EnergyQuarterly that “the NEG was a hope for us, a potential investor in power generation, to get a clear and stable view on energy policy, but the current political situation is somewhat disappointing.” That, with months to go to New Year’s Eve, is absolutely my pick for understatement of 2018.

And, in viewing all this, let’s not forget that a desperate Morrison government may yet opt for an energy royal commission, which, once launched, as the banks one demonstrates, is an unguided missile.

One prospect of any such inquiry is reinforcement for a statement by the ACCC’s Rod Sims: “The national electricity market is largely broken and needs to be reset.”

A commission finding of that nature really would open Pandora’s box and deliver the likelihood of a re-run of the whole NEG saga, plus perhaps a shake-up of the market operating and regulatory entities, through until the end of the decade. Feed that in to your electricity prices crystal ball……….

 

 

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