Archive for October, 2018

Wrong place, wrong time

It must have been obvious to Australia’s energy retailers for at least the past year, and perhaps rather longer, that the game is up with “standing offers” for households in an environment where power prices are rising towards the top of the political agenda.

The companies’ position has been that the remedy is in the hands of the customers remaining on these “offers” when all they have to do is find a market deal that will save them money. But suddenly, confronted by a desperate federal government in the wake of the Wentworth by-election, the retailers are right under “big stick” politics with, in some cases, their very structures under threat if they do not accept fast-tracking destruction of what the Morrison government is labeling their “loyalty tax.”

The industry’s leadership is summoned to a November “roundtable” meeting with Energy Minister Angus Taylor where it will be pressured to implement reductions in “standing offers” by New Year’s Day rather than waiting for the “default tariff” decisions of the Australian Energy Regulator which the government has now also set in train – and which are intended, if pursued, to take effect on 1 July.

It is reported in the media today that the retailers are “frustrated” they are being singled out for attention when the focus should also be falling on rooftop PV subsidies and network costs. Well, that’s politics, folks.

Taylor has signaled that a move to abolish solar subsidies – raised by the Australian Competition & Consumer Commission – is not going to be pursued. In an interview with The Guardian newspaper, he says the government has “no plan” to change the small-scale renewable energy scheme (or the RET for that matter), a tacit acknowledgement that any such step is in the “too hard” basket ahead of a federal election the bookies and the pundits say Scott Morrison can’t win.

(In passing, the bookies and the pundits are probably right, but a glance at the history of federal politics since 1993 should remind all concerned that no election is in the bag until the votes are counted. In a box in a cupboard somewhere I still have The Bulletin’s infamous cover asking “Why does this man bother?” some time before the 1996 poll delivered John Howard to the prime ministership for 11 years – in marked contrast to John Hewson, seen by the pundits as a shoe-in in 1993, or Mark Latham in the run-up to the 2004 election.)

Meanwhile one retailer source, who declined to be named in the newspaper interview, has declared overnight “They are demonizing the retailers because we are an easy target.”  That’s exactly right but surely this was foreseeable?

The underlying point is well illustrated by comments from Rosemary Sinclair, CEO of Energy Consumers Australia, who was on radio on Tuesday accusing the retailers of creating a “confusopoly” of offers and discounts that has left customers who, for whatever reason, don’t choose to play in the market “worse off for too long.”

She added: “Over the past three or four years, the standing offer has just risen and risen to the point where it is no longer providing the safety net it should be providing.”

The 3AW radio station promptly labeled the interview in its web publicity “Confusopoly of energy markets leaving Australian households in the dark.”

And the ACCC chair, Rod Sims, was also right on hand to tell media that the Morrison government’s proposal will save small businesses “at least $1,000 a year” and households on “standing offers” between $200 and $300 annually. That small business point is not trivial when you consider where the Coalition must pitch its pleas for re-election.

“Consumers are completely confused now,” Sims added, echoed by Angus Taylor declaring “We need to get the energy companies under control to stop the rip-offs; for too long consumers have been getting a raw deal.”

Here’s Sinclair again on the ABC: “It will be very, very worthwhile because the consumers affected most by this are those most vulnerable to energy prices.”

Of course the Australian Energy Council is out and about saying on behalf of the gentailers that price re-regulation “is not the answer” and casting doubt on how many householders will benefit and how much they will save. (It uses ACCC data to suggest $105 to $165 annually, far below the $832 figure waved around by the Prime Minister – which is at the top end of the scale in one State only). But this horse has bolted for the retailers and, however grumpily, they will have to accept political reality.

The lesson here for the supply business is that it is better to do these things yourself rather than having them done unto you by politicians; the “national energy guarantee” was seemingly seen as an umbrella to avoid too much rain on this profitable patch but once Turnbull collapsed under pressure (taking Wentworth with him) there was nowhere left to hide. And the pain is now being reflected on the stock market, too.

All of the above is not to deny that the Business Council has it right when it warns that “ad hoc intervention in the energy market, such as underwriting generation investment or forced divestment, is sending a signal to the world that investing in Australia comes with considerable risks.”

International energy investors hardly need to be told this – it has been apparent now for quite a while –  and the ensuing risks for our economy are real, but they still keep investing here where they can see the potential for gains (eg in renewables thanks to the RET and other State and Territory interventions to boost wind and solar) and the “big stick” of divestment is mostly (right now) a threat to the “big three” retailers.

Of course, the bigger picture will still be there when Morrison, Frydenberg and Taylor have wrung whatever they can get out of the retailers in the days and weeks ahead. In this context, I recommend going on to the EnergyAustralia website and reading CEO Catherine Tanna’s address to the Financial Review’s energy conference earlier this month. I think she did a pretty good job of talking about the overall issue in plain language.

Her comments include this: “Remember the trilemma? Affordable, reliable and cleaner energy….. it’s like a three-legged stool. Balance on just one of those legs for too long and eventually the stool topples over. The energy system breaks and it breaks badly.”

The talk needs to be read as a whole but in it Tanna acknowledges that “the entire electricity chain, including retailers, is culpable in a failure to provide affordable, reliable and cleaner energy – we’ve let down families and businesses across the country.”

She naturally gives the body politic a tongue-lashing for a collective failure to come up with a workable policy and she then adds: “No one’s hands are clean. There is more than enough blame to go round.”

The problem for her company and other retailers is that right here and now the federal government needs a scapegoat for the populist barbecue – and, by not resolving the “standing offer” shambles long since, the suppliers find themselves today in the wrong place at the wrong time.

Many decades ago my granny used to tell me “you remember, there are always consequences – not only for what you do but for what you don’t do.” Retailers today are confronted by the truth of this.

It’s time for rational debate on nuclear

Prime Minister Scott Morrison started a hare running a week ago with his comment that he has “no issue” with nuclear power for Australia – but, in the same breath, he tripped it up by adding that the technology “doesn’t stack up” as an investment compared with Hydro Tasmania’s “battery of the nation” concept.

Morrison, in effect, says that the test for nuclear generation here is “will it lower household bills,” begging a heap of questions, not the least of which is that neither he nor anyone else can predict consumer power prices a decade from now. Too many moving parts. However, an important aspect of nuclear power is that it is capital-intensive to build but relatively low-cost to operate.

Most of the ensuing noise flowing from his comments (including a particularly inane contribution from Bill Shorten, dragging in Chernobyl) was just that – noise – but Ziggy Switkowski, who chaired a 2006-7 nuclear inquiry for John Howard, provided the proper framework: the answers, he said, to what technologies can meet Australia’s future power needs should be pursued in terms of cost, reliability and market resilience (ie economics and risk), not on the basis of ideology.

To which an op-ed this week in the Australian Financial Review by Coalition senator Amanda Stoker has rightly added that “For too long we have allowed nuclear energy to remain off-limits in the discussion about the security of Australia’s energy supply. What we need is an informed and rational debate that isn’t driven by fear.”

Stoker is a fan of small modular reactors (SMRs), emerging technology with capacity between 50 and 300 megawatts compared with 1,000 MW or more for conventional nuclear plants – its proponents argue it will be far cheaper and safer and capable of competing with wind and solar farms when all issues (including capacity factors and the costs of network support, storage and other “firming” needs and land use charges) are taken in to account.

Even more than in other technology areas, much of the nuclear debate is powered by opinion but this a poor substitute for expert, whole-of-system analysis.

The challenge for Morrison and his cabinet is not to pick generation winners for the decade ahead (which is essentially what Labor, with the Greens breathing down their neck in marginal seats, want to do with their renewables approach) but to ensure that the public interest is served by efficient investment.

This goal can in part be achieved by proposing to lift the legislative ban on use of nuclear energy and initiating an expert inquiry in to the costs, risks and benefits of the technology, taking the scaremongers head on with the argument that this is acting in the best, long-term interests of the country without committing to guessing how investors, confronted eventually with a sensible, stable and all-embracing policy, will choose to spend their funds – or, worse, by trying to buy their investment with subsidies of one sort or another.

Of course, this approach comes with political risk – but, let’s face it, getting out of bed each morning comes with risk for the federal Coalition in the present environment and the looming Wentworth by-election may add to, or marginally ease, the pressure.

Being seen by supporters and potential supporters living in the “sensible middle” of the national electorate as seeking to act in an adult fashion in two areas of public concern – energy affordability and reliability as well as underpinning on-going carbon abatement – may actually be a plus.

Leaving aside political hysteria on the nuclear issue, what is the downside to proposing to change the law to overthrow this ban?

It can be presented – honestly – as an enabling action to allow Australia to take advantage of important technology innovation, specifically via SMRs if they fulfil their promise. After all, if this technology does achieve a breakthrough, it’s a pretty good bet it will be adopted in many other countries, including our trade competitors.

PS: Many of the “pathways” in the latest IPCC climate change report – about which there has been so much media fuss in recent days – allow for an increased role for nuclear power (while, of course, talking up solar and wind power big time). One of these “pathways” actually sees global nuclear power production five times above its 2010 level in 2050 (where, in turn, electricity use is expected to be far higher than now).  Of course, the report also includes a ritual nod to the claimed risks of nuclear energy with respect to proliferation and health – but the anti-nuke brigade (who have leapt on this) can’t escape the fact that in the past decade the IPCC has gone from minimizing the abatement role of nuclear power to including it as a key element in climate change mitigation.

One of the perennial problems with these reports is that the activists wave the bits they like as proof “top scientists” want us to adopt their eco-socialist agenda while ignoring anything that doesn’t suit their propaganda. This is happening again now when, in fact, the 2018 document strongly talks to private investment and innovation, including non-trivial spending on nuclear generation. In this context, I rather like a comment in Canada’s Globe & Mail newspaper in the past week that “good climate policy pleases no crowds; there are no raucous rallies in its name.” Worth remembering in Canberra.

PPS: Former Pancontinental Mining chief Tony Grey has an op-ed on the nuclear issue worth reading in today’s The Australian.

Round & round the carousel goes

Technically, I guess the Prime Minister is right. He reportedly differs strongly with Kerry Schott, chair of the Energy Security Board, over whether energy planning has descended in to “anarchy.”

Scott Morrison has told a radio station “I don’t agree with that at all. I think it is rubbish.”

Now the definition of anarchy is “a state of disorder due to absence or non-recognition of authority or other controlling systems” and, on this basis, Morrison is correct. But, when you consider that synonyms for anarchy include disorder, disorganization, chaos, tumult and pandemonium, it may be that Schott has a point.

Morrison insists the federal government is still engaged in pursuing a NEM reliability guarantee with the market’s other governments – which is true; the next discussion is scheduled for late this month. Energy Minister Angus Taylor says NEM governments will be asked on 26 October to have a market reliability obligation in place by the end of 2018.

Morrison also rejects the idea that “anarchy” could be applied to his government’s emissions abatement plan – which is also true; there is a lot of noise about Australia pursuing a larger target but one certainly exists.

Schott, on the other hand, is entitled to be angry, as she says she is, that the Liberals’ inability to manage themselves has undermined a year’s careful work on the “national energy guarantee” which included wide-ranging consultation and a series of CoAG Energy Council meetings. (Schott will be participating in this month’s CoAG meeting.)

Quibbling about the use of a word really isn’t the point. As EnergyAustralia’s Catherine Tanna said this week, we have now had “years of policy paralysis interspersed with intense bursts of market intervention.” She rightly argues that the stakes (for consumers and the economy) are too high for these political games.

And Origin Energy’s Frank Calabria says that investors have had to cope not just with years of an absence of policy certainty but also an absence of policy consistency. Whatever you choose to label this situation, acceptable it certainly isn’t.

The Australian Financial Review, in an editorial set against the background of its conference on energy, avers that “everybody has some energy policy explaining to do.” I am inclined to the view that we have heard more than enough noise masquerading as explaining in the first nine months of this year – what we need right now is the federal government and the CoAG members collectively to settle on key policy and regulatory steps.

That said, it also needs to be accepted that we are going to have to wait on the next federal election to deliver an administration able to pursue an abatement approach investors will (or will try to) regard as settled rather than (to quote the Financial Review) just “piling more half-baked interventions on top of the others.”

And this is not only about generation, despite the fact that most of the debate focuses there.

Andrew Dillon, the Energy Networks Australia CEO, told the Financial Review conference: “we can’t sit around and wait for carbon and energy policy to be integrated on the generation side before we turn our attention to transmission: we will simply be too slow and that will cause significant upheaval.” To which I’d add that, without expert advice on total system costs, decisions made on new infrastructure (whether pushing for more variable renewable generation or for investment in fossil-fuelled plant or to continue banning the use of nuclear) in the present environment all bear the risk of unintended consequences in terms of consumer bills.

The ignorance constantly being displayed – eg Morrison opining that nuclear power costs too much or Shorten claiming that lots more wind and solar will push down prices – flows from a wilful avoidance of advice about the importance and urgency of seeking total system cost estimates almost four years after a royal commissioner (Kevin Scarce) told us that they were a crucial part of future power market planning.

(This week the Financial Review pointed an editorial finger at Labor spokesman Mark Butler, who, it said, could not convincingly explain how an already-stressed network could deal with Labor’s extra emissions requirement while also reducing prices.)

If there is one lesson to be learned from the NEM experience since the South Australian debacle delivered a wake-up call in September three years ago, it is that energy supply should not be an ideological plaything – but who, apart from some of the political players when it suits them, can argue this learning is now an inherent part of our national approach to this sector?

Apparently, business leaders are now sufficiently teed off about the situation that, via the Business Council of Australia’s energy and climate committee, they are examining creation of a self-regulating system to reduce greenhouse gas emissions, restore energy reliability and improve the environment for investors.

This has drawn a retort from federal Resources Minister Matt Canavan – who was asked from the floor of the Financial Reviewconference if the BCA move “will shame the government in to action” – that business heads need to exercise humility. Consensus, claims Canavan, is not a guarantee of correctness.

And he adds: “We have a way of resolving fraught political dispute in Australia – it’s called democracy and I don’t think the corporate sector is a replacement for democracy. I don’t think some kind of corporatocracy or technocracy is a better outcome than democracy.”

Neither do I, minister, but how can you claim that “democracy” as it has been practised at the federal level since 2010 is delivering a “clear, co-ordinated, consistent signal” – which is what Shell’s Zoe Yujnovich says energy investors have to have?

Needless to say, Labor’s Butler (representing a party that trampled on energy-intensive industry interests in 2010-11) has leapt on Canavan’s comments, which he describes as “unhinged.”

Round and round the carousel goes; where (and when) it will stop nobody knows.

PS: A week such as this would not be complete without the Greens hurling themselves towards the headlines, this time in the shape of MP Adam Bandt, who told the AFR conference that, if his party found itself in a governing coalition in Victoria after next month’s State election, a not-impossible outlook, it would push for closure of the Latrobe Valley brown coal generators as part of any political deal. This drew an editorial rebuke from the Financial Review that “for the past decade, the Greens have terrorized attempts by Australia’s political system to come up with a stable, market-based policy framework that would reduce carbon emissions, maintain the reliability of power supplies and keep a lid on energy costs.”  In the 2014 Victorian election, the Greens picked up 385,240 votes (11.48 per cent of the primary poll) versus 1.27 million for Labor (38.1 per cent) and 1.4 million for the Liberals and Nationals (42 per cent). It was preference votes that carried the Andrew government in to office without needing to be in a coalition. What will 24 November bring? And what would a Greens/Labor government in Victoria mean for the management of the NEM?

Coming together again — to what end?

A (very welcome) wet three days in Sydney and a large part of New South Wales provides an interesting window on the State’s ability to meet its power needs outside of sunny and/or windy periods.

The Open NEM widget is the data source for Thursday through Saturday.

It’s notable for a start that NSW imports (mainly from Queensland) provided 38 gigawatt hours, as much as in-State wind and solar put together (22 GWh from wind farms, 4.5 GWh from solar farms, 11.3 GWh via rooftop PVs). Gas plants (11.2 GWh) and hydro systems (13.2 GWh) came in handy – but by far the largest contribution (82.5 per cent) came from NSW’s black coal generation, which delivered 475.4 GWh.

The green boosters tend to play games with capacity because it often makes their love objects appear shinier to the public at large, so it is also interesting to look at the load requirement at 6.30pm on Friday: nowt from solar after dusk and 294 megawatts on line from wind, with 668 MW from hydro and 726 MW from gas plants – while the State’s coal generators provided 7,265 MW and imports (mainly more coal power from Queensland) access to another 527 MW.

The supply picture shifts shape all the time, of course, depending on the weather, time of day and the availability and cost of generation resources, but it is handy to keep in mind the production statistics above when considering that NSW is destined, in strategy being envisaged by the Australian Energy Market Operator for a mooted big shift from conventional resources to wind, solar and storage, to be the NEM region subjected to greatest change.

One wonders how much appreciation (beyond the industry’s technical experts) there is that the system will need a lot more generation capacity to deliver the same amount of product when variable renewables replace today’s major supply sources? And the issue is not just generation.

In this context, I see the Energy Networks Association, in a submission on rule changes to the Australian Energy Market Commission, making the point that, while three years’ notice of mainstream generation closures may be adequate for investors looking at building wind or solar farms, it is not likely to be for infrastructure such as new transmission lines, including interconnectors.

Transmission planners, ENA points out, work on 10-year horizons and have to take in to account long lead times on such issues as corridor and site selection, stakeholder and landholder engagement, acquisition of easements and environmental approvals.

How much of this stuff weighs on the minds of the federation’s energy ministers and their office advisors, not to mention their political colleagues looking for angles to impress voters, is something I also often wonder about. (For example, this one-liner from Premier Daniel Andrews last month: “It’s simple — greater supply of renewable energy means lower prices.” An echo of Jay Weatherill’s claim in Adelaide last February that “(lots) more renewable energy means cheaper power for South Australians.”  That played well with SA voters as we know.)

The transition challenges, for the NEM as a whole and for the large-demand States (Victoria, NSW and Queensland) in particular, are dealt with far too airily in the public debate for my liking.

Now, we are about to witness another ministerial gathering – it is reported this weekend that the CoAG Energy Council is to meet again in Sydney on 26 October. (This will be the fourteenth such chinwag in the wild gyrations of current policy contention over the past three years.)

For one government (Victoria’s), participation will be on the eve of a challenging election campaign – and it will also be in the week after the Wentworth by-election with all its portents for Scott Morrison’s federal government.

What will be on the council’s agenda apart from updating reports by AEMO, the ACCC, the AEMC and the Energy Security Board?

The ministers got some advice from the ACCC’s Rod Sims in a conference speech in the past week. The best way to move the policy process forward, he said, is to separate out affordability, reliability and emissions reduction for attention rather than trying to address all three in a single package. Australia’s political parties, he observed, right now have seemingly “irreconcilable differences” on carbon abatement.

Is the most appropriate game plan, then, to press on with actions that will have an impact on power bills in the relatively short term while pursuing consensus on measures that will sustain downward price pressures beyond the decade’s end through underpinning supply reliability?

One path ministers could choose to take is to focus more strongly on energy productivity, bearing in mind that there is momentum in this direction from consumers, especially those in commerce and industry (responsible for 60 per cent of consumption), as a defence against painful present prices and the ongoing high level of policy uncertainty.

Meanwhile, federal Energy Minister Angus Taylor is still taking the Morrison government’s price-oriented energy messages to consumers via radio interviews. Here’s the thrust of one he had with an Adelaide radio station late in September: “There are three parts to what we are doing. The first is stopping the rip-offs by big energy companies. (The second is) a default market offer so that, if you don’t have time to negotiate (a contract), you still get a fair deal. The third is (to) make sure there is enough investment in generation capacity in the market. Through these three areas we are (aiming to) drive down prices while keeping the lights on. That’s energy policy.”

It will be interesting to hear what he has to say after he has chaired the next Energy Council meeting. And to discover what the ministers have found to agree on.

PS: Here’s the key statement from the 7 October 2016 council communiqué: “Ministers agreed that their primary responsibility is to ensure the security, reliability and affordability of the energy system for all Australians.”

Trouble in transition

Is it “Huhner kommen nach Hause, um zu schlafen” time for Germany’s Angela Merkel?

That’s “the chickens come home to roost” – and, in the case of Merkel’s signature Energiewende policy, still being lauded by green boosters as “paving the way for the world,” to quote one just last month, the portents from independent analysis are not too good.

Apart from the well-publicized political problems being encountered by a committee appointed by the Berlin government in the wake of its last federal election to advise on an exit from coal power, the independent body that audits the German budget, the Bundersrechnungshof (BRH), has just declared that at least 160 billions euros have been spent on the program over the past five years alone, costs are continuing to rise and the abatement targets remain out of reach.

The BRH points out that Merkel has 26 laws, 33 regulations, 72 indicators and 675 bureaucrats engaged in the Energiewende program but “there is no place where everything comes together, no place that assumes overall responsibility.”

In particular, BRH says, there are no quantified targets and no measurable indicators for energy affordability and security of supply.

The auditors’ proposed solution: scrap the whole bureaucratic shebang and rely on “simple and transparent CO2 pricing.”

And the German government response? It got the report a month in advance of it becoming public and whipped out a retort last week that Energiewende is “effectively and efficiently co-ordinated.”

Perhaps the best (or worst) aspect of the government reaction is the bald-faced effrontery of cost denial. The multi-billion euro levy that supports the German version of the RET, says the economics ministry, “should not be counted as a cost of the transition.” And the billions of euros in relief payments to German manufacturers to compensate for higher energy bills are “measures of industrial policy that cannot be attributed to Energiewende.”

The regime also offers a marvelous Sir Humphrey response to demands for an independent cost-benefit analysis of the policy: this could only be done by comparing a world with and a world without Energiewende, the government declares– and this could not be achieved because of the large number of uncertain basic assumptions that would be involved!

This stance has its foundation in the fact that, since 2000, four different political parties have been in power in Germany in three coalitions and all have supported the policy – and opinion polls still show that 90 per cent of Germans see Energiewende as vital to the country’s future.

This is despite the fact that German household energy prices (the trigger down here for political upheaval) have risen to 308 euros a megawatt hour compared with an average of $205 in the European Union as a whole – and the RET subsidy is now double the level that Merkel & Co in 2011 promised it would not exceed in 2020. (Non-energy intensive industry in Germany pays 96.5 euros per MWh for power against the EU average of 85.)

In the context of all the boosting here of the need for an integrated system plan to support much larger levels of wind, solar and hydro power in the NEM, it should be noted that, while the German target for high voltage transmission to support Energiewende is construction of 3,582 kilometres of lines by 2020, to date less than 900 km have been built.)

Allow me a digression, although it is not really out of context: the summer just ended in Europe was, by their standards, a scorcher and notable for weeks of heatwaves with barely a breeze. As a result in Germany, where there are 30,000 wind turbines, capacity on line on some days was just 1,300 megawatts – against a total installed of 58,000 MW. Ironically, the supply security savior was Germany’s brown coal (lignite) power stations, which rely on mine water for cooling, versus the black coal and nuclear plants that also had to reduce capacity because of the high water temperatures at their sources.

(For the record, power generation in Germany for the first nine months of 2018 has been provided by 101 terawatt hours of brown coal plant, 56 TWh from black coal, 53 TWh from nuclear plants, 28 TWh gas, 15 TWh hydro, 34 TWh biomass, 74 TWh wind power and 40 TWh solar power. That’s a fossil-fuelled share of 46 per cent plus 13 per cent for nuclear versus under 29 per cent for wind and solar.)

One last thing: back in 2004 the federal German environment minister was Jurgen Trittin. He was a Green, part of chancellor Gerhard Schroder’s “red-green” coalition and led the policy decision to phase out German nuclear power by 2020 (you can see from the data above how successful that has been). Trittin famously (that should probably now be infamously) told German householders in 2004 that support for renewable energy to achieve the transition would “cost no more than a scoop of ice cream a month.”  And here is the president of the BRH today: “The expenditure for the ecological restructuring of energy supply is in blatant disproportion to the hitherto poor yield.”

Do bear this in mind when observing our home-grown Greens going on about big Australian renewables targets and how they will help cut the price of our power.