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Kickstarting a conversation

A comment by Josh Frydenberg as the Coalition government surfs the new political waves created by the emergence on its backbench of the “Monash Forum” devoted to lobbying for investment in coal-fired power deserves to be highlighted but not for the reason he intended.

Interviewed on Sky News, Frydenberg, apart from emphasizing the ongoing role for existing coal-burning generation in the grid, declared “unless we capitalize on new innovations and technology we won’t be able to ensure a more reliable system.”

The federal Environment & Energy Minister, of course, is referring to a variety of renewables-related technologies, but the quote begs another question and one that is likely to be a bit more high profile before April is over.

That question is “why not nuclear?” (still a “prohibited technology” in this country) and the Energy Policy Institute of Australia is staging a forum in Sydney mid-month to promote a new approach – with the New South Wales Deputy Premier, John Barilaro, as the keynote speaker.

EPIA asks “can small modular nuclear reactors be a game-changer for our power system?” This is an issue that is also getting attention in North America, France, China and elsewhere as we travel in to the third decade of the century and along the energy transition brick road.

Barilaro is just back from a nuclear conference in Atlanta, Georgia. The event was notable for Canadian Nuclear Laboratories, Canada’s premier nuclear science and technology organization, announcing that it plans to be a world leader in advancing SMRs and to have at least one operating on a CNL site by 2026.

The organization sums up the SMR case in just two paragraphs:

“As a low-carbon source of energy, small modular reactors are well-aligned with global desire to reduce our carbon footprint; both smaller in size and in energy output. SMRs are considered ideal for deployment both on-grid and off-grid in remote locations such as mine sites as well as communities reliant on diesel-fueled generators for electricity. In addition, these technologies can be utilized in other industrial applications such as production of hydrogen, local area heating or process heating systems.

“Increasingly over the past decade, SMRs have also been recognized as a potential alternative to large-scale nuclear reactors. They offer several advantages over traditional technologies, including a reduced size and power output better suited for some applications; the ability to purchase and construct in a modular way, which decreases up-front capital costs; simpler, less complex plants; and a reduced staff complement. SMRs retain the positive attributes of traditional nuclear reactors, including the safe and reliable production of energy with limited emission of greenhouse gases. There are many different SMR concepts, ranging from technologically mature advancements of today’s water-cooled reactors to more advanced reactors based on Generation IV nuclear technologies.”

Put still more succinctly, the case for SMRs is that they offer carbon-free power 24/7 with a relatively tiny land footprint and can be operated safely and flexibly to integrate with weather-driven renewables.

Barilaro, who also visited the US Department of Energy on his trip and talked to American companies working on Generation IV technology, told the Atlanta meeting that Australia needs to have a new discussion about nuclear power “and we need to have it now.”

It won’t come as a huge surprise that NSW Labor see this as another opportunity for wedge politics, declaring a shift to nuclear “will tarnish the State’s clean and green image” and demanding Premier Gladys Berejiklian rule out recourse to the technology. As well, Federal Labor MP Joel Fitzgibbon contends that introducing a nuclear option in to the current debate “will only confuse and defer the policy settlement.”

The Minerals Council of Australia, meanwhile, is campaigning for the country to be open again to the use of nuclear power, arguing that a single amendment to federal legislation now banning it is all that is initially required – followed by work under our federated system on a regulatory pathway for adoption of the technology.  The MCA will be participating in the EPIA forum.

At the heart of the council’s approach is the principle that national energy and climate policy should deliver power at least cost in pursuing agreed abatement goals. “This means applying a technology-neutral approach to all energy sources while avoiding subsidies, quotas or other non-market-oriented interventions,” it told the Turnbull government as part of its submission on the 2018 federal budget.

Like everything else to do with electricity supply at present, discussion of prospects here for nuclear power (of the SMR variety) is mired in politics but I am ad idem with a friend with long experience in the energy sector at senior executive level who emailed me back in January on this particular issue: “I realize that any government with a one-seat majority does not have a lot of political capital it can put at risk but this is not about trying to fix immediate short-term issues such as the NEG, looming shortages in supply, etcetera – it is really about trying to remove an anti-science, anti-knowledge, authoritarian impediment to proper investigation of what just might turn out to be a vital part of our economic future. Many other countries, especially in the developing world are doing exactly this.”

Barilaro said something similar in a Facebook commentary last October when he declared that “fear of media backlash” is crippling political leaders’ capacity to have tough public conversations on big issues such as energy security and affordability. He called for governments to be prepared to discuss all solutions “without fear of political repercussions.”

There hasn’t been a public discussion that enables the community to be better aware of nuclear technology advancements, he added.

This month’s EPIA forum will be doing its bit, with Barilaro’s support, to kickstart a new conversation on the issue.

Playing games

Word and number games to bolster positions in our great energy debate are now common currency and it is hardly surprising that the community at large (which still seems to possess a well-functioning BS meter) mostly just ignores the noise and focuses on what really matters to it: the costs of service. However I see a report today in The Guardian that a group of anti-coal activists have conducted an online poll which purports to show that 60 per cent of Australians want to see coal-fired electricity phased out by 2030.

In reality, I think, most of Them Outdoors (aka Paul Keating’s “the mob”) have a dominant wish for electricity to perform a service when required and not to give them a budget headache down the road.

In this context, The Australian this week has quoted Rod Sims, chairman of the Australian Competition & Consumer Commission, as “declaring high energy prices to be the biggest crisis facing the nation” and warning that we should not “overdo the conversation about the reliability of electricity” for fear of replicating in generation the high network costs of the past decade.

It follows, it seems to me, that neither should the conversation on the grid “transition” be overdone in order to promote weather-driven power supply over conventional sources.

On the aspect of the games, one of the things I find highly irritating or just funny, depending on the side of my bed from which I have emerged, is the hocus-pocus of substituting generation capacity for actually electrons produced to bolster propaganda for the “energy revolution.” I find it rather less amusing that our mainstream media don’t seem much inclined to sieve this stuff to provide their readers/viewers/listeners with meaningful information on a consistent basis rather than just regurgitating whatever line activists are spinning on the day.

A case in point is the way capacity at work in the NEM at some selected time of day or season is used to boost the public sense of a “revolution” gathering pace.

What happened in the summer recently ended seems to be providing an opportunity just now for juggling numbers. A reality check can be found in the latest issue of EnergyQuarterly published by consultants EnergyQuest. It shows a NEM generation breakdown for the October to December quarter of 2017, a period including a rather early start to hot weather, from which it can be gleaned that black coal generation delivered 27,398 gigawatt hours, brown coal (sans Hazelwood) 8,388 GWh, gas turbines 5,461 GWh, hydro power 2,809 GWh, wind farms 2,896 GWh and all forms of solar photovoltaics 2,295 GWh.

Renewable energy (excluding hydro, a long-existing conventional power source against which the green movement has been known to rail rather hard) for this quarter was 5,191 GWh versus 29,646 GWh for coal and gas. Including hydro, the renewables tally was 8,000 GWh.

What this data set demonstrates is that, as has long been the case, coal, gas and hydro generation are still the backbone of power supply on the east coast – and especially so in New South Wales and Queensland, which make up two-thirds of the market. Which is not to overlook the fact that households and small businesses in these two States have taken up rooftop solar power with a fair bit of enthusiasm – so long as the relative size of the collective PV’s contribution is understood along with its capacity to serve depending on time and weather. Nor, with the same caveats, should it be overlooked that farming the wind is no longer experimental and will have an increasingly useful role in the NEM as a whole so long as the integration issues are handled efficiently.

Let’s also be clear that there is a lot of genuine information available via the Web and no one side of the debate has a monopoly on presenting facts rather than factoids.

Another useful source is the OpenNEM widget, a product of the Energy Transition Hub, a collaborative academic and research centre initiative. As I started to write this post, it was displaying a seven day report on NEM power production that graphically (sorry) illustrated where we easterners source our power. For the period from 21 to 28 March, the NEM saw output of 3,646 gigawatt hours, leaving aside estimated production from rooftop solar photovoltaics. Black coal generation accounts for 56.4 per cent of this, brown coal plant for 18.2 per cent and gas turbines 8.4 per cent – a fossil-fuelled generation contribution of 83 per cent. Hydro power provides 7.3 per cent and wind power 9.2 per cent.

When we can have a somewhat panicky debate about just closing Liddell power station in 2022, what would be the consequences — in terms of security of supply and affordability —  of pushing out this level of coal-burning generation by 2030 as is promoted in The Guardian today?

I am a regular reader of Hugh Saddler’s electricity analysis published on The Australia Institute’s website. Saddler provides a mine of careful and dispassionate information. His latest (February) offering observes that at present coal and gas generators provide 95 per cent of all electricity produced in Queensland, 90 per cent in New South Wales, 84 per cent in Victoria and 55 per cent in South Australia. In Tasmania, naturally, hydro, wind and a bit of rooftop solar supply 90 per cent of all electricity generated.

That the east coast power system is changing is beyond debate. The pace of this change, its direction and whether reliability and affordability of supply will be enhanced by developments driven by politics as much as technology are another matter.

Stakeholders are entitled to their views but the exchanges of opinion are not enhanced by attempts by ideologists to balance green angels on the heads of pins while juggling numbers. We are collectively better served if we genuinely know where we stand today and options for tomorrow are evaluated by technology-neutral experts, not obscured by emotionally-charged flag-waving.

Year past

It pays from time to time to pause and look back.  Unfortunately, too often in our current energy environment this involves looking back in anger or dismay and we couldn’t jump over the piles of angst created by this activity even in recent months.

My looking back today is courtesy of the excellent EnergyQuarterly publication produced by Graeme and Susan Bethune, the latest 156-page edition of which has recently reached me. The big focus of EnergyQuest, their consultancy firm, is gas and they do a useful job of keeping an eye on matters electric, too.

In the latest edition, their dissection of the ongoing imbroglio over gas supply in Victoria throws a harsh light on those proceedings, not least the recent Andrews government’s poor mouth assertions about onshore prospectivity to bolster its moratorium and ban approach. “The discovery of gas can only be made by drilling, not desktop studies,” EnergyQuarterly snaps. “Arguing that drilling is not needed is like saying pharmaceutical R&D is a waste of money because there are no new drugs left to be discovered.”

My own immediate interest lies in the publication’s power segment, containing a synthesis of calendar 2017 east coast market production — a year notable for the closure of Victoria’s Hazelwood power station.

In the EnergyQuest data I find something I had expected, more fodder for one of my hobby horses: the growing dominance of New South Wales and Queensland in the NEM and the need to separate the eastern market consisting of these two States from the southern market (Victoria, South Australia and Tasmania) when considering issues such as expanding weather-driven generation and the policy environment.

This EnergyQuarterly edition shows that, when rooftop solar PV is stripped from the NEM numbers, the system’s power production slid back in 2017 to 194,313 gigawatt hours compared with 195,441 GWh in 2016 — but the combined NSW and Queensland output rose from 124,704 GWh in 2016 to 129,255 GWh last calendar year. In other words, the eastern NEM’s generation accounted for 66.5 per cent of the whole market in 2017 compared with 63.8 per cent the previous year.

The dominant feature of this supply, of course, is black coal generation. In 2017 these power plants produced 110,018 GWh in the two eastern States versus 104,078 GWh in 2016 — a 4.7 per cent increase. (Meanwhile, not surprisingly, minus Hazelwood, brown coal generation in Victoria fell back from 45,713 GWh in 2016 to 38,316 GWh last calendar year.)

The other outcomes for the eastern NEM in 2017 were 9,624 GWh of gas-fired generation, 2,875 GWh from hydro systems, 1,879 GWh of wind power (NSW only, down from 2,029 GWh in 2016) and 525 kWh of utility-scale solar (essentially the Broken Hill projects of AGL Energy).

Moving to the southern NEM, leaving aside brown coal, generation production from gas turbines totalled 11,751 GWh along with 9,306 GWh from wind farms (half of it in South Australia) and 9,937 GWh from hydro systems (dominated naturally by Tasmania).

The combined power grid production of the southern NEM last year totalled 69,327 GWh, little more than half of the eastern market and dominated of course by Victoria with 47,489 GWh.

South Australia, about which there has been so much fuss over the past two years, accounted for just 6.1 per cent of all NEM generation in 2017. (Would it be unkind to mutter about too much roaring nationally about a power mouse?)

Another non-trivial aspect of the EnergyQuarterly data is the flow of electricity between the States. In 2017, Victoria, sans Hazelwood, exported less to NSW and imported more from South Australia. NSW took more from Queensland. The net flow from Queensland to NSW rose to 4,979 GWh while the flow from Victoria to NSW fell to 1,600 GWh (it was 5,664 GWh the previous year). The net Victoria/SA flow was just 455 GWh where it had been 2,441 GWh in 2016.

Then there is the matter of small-scale PVs. In NSW in 2017 output from panels on small business and household roofs was estimated to be 1,700 GWh (18.8 per cent up on the previous calendar year). In Queensland it was 2,568 GWh (up 20.5 per cent). In Victoria 1,369 GWh (also up 20 per cent) and in South Australia 1,020 GWh (up 12.7 percent). Altogether, rooftop PVs accounted for an estimated 6,793 GWh in the NEM or 3.3 per cent of all power output.

A notable feature of the data is the 32 per cent rise in gas generation in 2017 compared with 2016 (with 21,375 GWh of production last year, 11 per cent of the total NEM grid’s output). In terms of gas sales, 2017 saw power stations buy 196,167 terajoules compared with 151,943 TJ in calendar 2016.

With companies now considering whether it is worth their while to build more gas generation in New South Wales — EnergyAustralia, in the context of the rolling row between the Turnbull government and AGL Energy about the fate of Liddell power station and the State’s need for new dispatchable capacity, is pointing to its plans for Tallawarra (near Wollongong) and Marulan (near Goulburn) that could involve adding 1,000 MW — it is increasingly likely that the role of this sector will grow over the next several years.

This, in turn, of course, underscores the need to resolve the mess that is gas exploration and development policy in the southern States.

EnergyQuest observes that recent federal agency analysis “paints a picture of unavoidable shocks” in the supply and cost of offshore gas in Australia’s south-east. A “supply crunch is inevitable” from offshore fields, it says, given current rates of depletion and the time it would take to bring gas to market from new field discoveries. Meanwhile, it adds, even while the potential for resources from onshore Gippsland and Otway basins is smaller than offshore plays, the costs of exploration and development are possibly only 10 per cent of the marine efforts. There is “plenty of promise” in the onshore south-east, the firm opines, and more drilling is needed to establish its real potential.

How to cut the political Gordian Knot to make this happen remains the enduring question with no answer readily in sight. Meanwhile the unadorned power data tells its own story and, in the eastern NEM, it is not the “death of coal.”

Addressing a growing problem

Look at the media today and you will find a raft of stories about the Australian Energy Market Commission’s new analysis taking stock of the east coast power system’s ability to deliver on demand.

Inevitably the media coverage is flavored by the “sinner or saint” view of intermittent renewable energy which is a constant current focus of political argument and side-taking commentary – and by an interpretation of the commission’s work to the effect that the NEM is growing more unstable.

The commission is actually quite clear on its perspective: right now, it says, there is enough power capacity to sustain reliable supply “but we have a growing problem (in) management of the system and more action needs to be taken to integrate weather-driven generation with the grid.” Keeping things like frequency and voltage within technical limits is becoming “more challenging.”

This is rather more moderate language than the Energy Security Board’s description late last year of the NEM’s health – “in intensive care” was the phrase that hit the headlines.

The AEMC this week is at pains to point out how much is being done to address the integration issue – which became joint top of mind nationally (along with angst about energy costs) when the lights went out in South Australia 18 months ago after a big storm. The commission says 10 major steps have been taken to tighten NEM security arrangements and others are coming up in 2018 after four further review processes are completed.

And it also makes a point that should not be overlooked in all the public fuss: “We are focused on addressing the problems we have today as well as looking to what is required for the future.”

Anne Pearson, the commission CEO, notes “it is not well understood that we (currently) have a good supply of available power which makes the system reliable (but) there is a separate problem of maintaining the stability of the system when unexpected breakdowns happen.” In short, she says, the NEM grid has to be managed differently to respond to a changing generation mix.

Writing an op-ed in the Australian today, Pearson adds that the system frequency issues now confronting the grid are “eye-glazing” (for us laymen) but essentially the changed mix is making this aspect harder to control, with less time for the market operator to recover the network from equipment failures before bad things happen.

The big complicating factor, of course, is that all the market changes being pursued, including the “national energy guarantee,” have to implemented without adding to consumer costs – especially for households in the present fevered political environment – and even in a way that enables charges to fall. This is a feat that even Jack of serial fame couldn’t achieve with one bound and, I suspect, it is unlikely to be achieved during the current political season (which runs until after the Victorian, New South Wales and federal elections).

If politicians did not fully appreciate this particular risk, they should be better informed now following publication of a NEG submission to the Energy Security Board from the Australian Competition & Consumer Commission.

In it, Rod Sims, the ACCC chairman, poses a number of questions, including this: “how will the trade-off between reliability and affordability be determined (via the NEG) to ensure that end-users pay no more than the value to them of increased reliability?”

As last weekend’s Batman and SA polls demonstrate, the judgement of the people is not to be taken for granted by politicians and the community is looking at political conjuring tricks with increasingly beady eyes.

The rift between soundbites from politicians and the complexities of power system management, including its interaction with gas supply, is wide and growing wider.

Here, for example, is Sims again in his letter to ESB chair Kerry Schott: “How can the NEG be designed in such a way that it does not impose significant regulatory costs and burden on retailers? Additional regulatory costs ultimately result in higher prices for consumers.”

And again: “If the current contracting instruments in the market need to be redesigned to incorporate emissions and reliability metrics, there is a risk that a series of smaller, less liquid markets (will) develop in place of existing arrangements. Such an arrangement would expose both retailers and generators to more risk and result in higher prices.”

All this stuff, to quote Pearson, is “eye-glazing” for what Prime Minister Paul Keating used to describe as “the mob” – ie us.

The sort of work that the AEMC has undertaken and is continuing to pursue is essential to the efficient functioning of the NEM but it is way too complicated for “the mob” – and it is only part of the interventions being eyed by political leaders and their advisers across a federated government system.

We all know that the NEM cart has flirted with the edge of the ditch a number of times in recent months; keeping it on the road towards a genuinely affordable as well as secure and technically reliable future (let alone a greener one) is a Herculean task and the heavy lifting is far from over.

In closing, the AEMC analysis points to modeling that burgeoning solar PV uptake and more energy end-use efficiency should see NEM power demand stay flat for a while longer before falling by 1.6 per cent by 2026-27.

PS: You may be interested to know that in the seven days from the middle of last Wednesday to the middle of today, including an awfully hot Sunday in New South Wales, the total input of electricity on the east coast (including an estimate of rooftop solar PV) was 3,913 gigawatt hours – of which black coal contributed 2,201 GWh, brown coal 590 GWh, gas plants 396 GWh, hydro systems 288 GWh, wind power 259 GWh, rooftop solar 158 GWh and utility-scale solar 17 GWh. (Source: the OpenNEM widget)

The wheel turns

Josh Frydenberg would be less than human if he did not permit himself a quiet chuckle at the failure of the garage warrior, Jay Weatherill, to win re-election in South Australia yesterday.

At a far more serious level, Frydenberg and Malcolm Turnbull will now be seeing a better prospect for the “national energy guarantee” to be advanced this year because South Australia is the lead State in the legislative process for the NEM and because Weatherill (to quote The Guardian newspaper) was “an implacable, one-man road block to the NEG on the basis that the scheme is not sufficiently friendly to renewables.”

At the same time the failure of the much-hyped Nick Xenephon thrust to be the big influence in the next State parliament will bring some relief to energy retailers, who would not have been looking forward to the wider implications of his populist plan to create the “Community Electricity Trust of SA” to provide electricity to households with an income below $75,000 a year and to small businesses. (Even so, the issue of gentailer market power in the NEM, and not least in South Australia, is not going to go away.)

More broadly, last night threw a bucket of water over the Greens, who were hoping for a boost for their radical policies from the by-election in the federal seat of Batman in Melbourne. The Greens also picked up just 6.6 per cent of the primary vote in South Australia on Saturday, well down on the previous election and half of what Xenephon’s SA Best garnered at its first showing. Victory in Batman would have given the Greens a new launching pad to promote their energy spiel and, inevitably, would have seen federal Labor under Bill Shorten trying again to play catch-up.

It will be a mistake to see the SA poll outcome as being all about energy – Reuters, for example, in its report today asserts the result is “a blow to national renewable energy plans” and bizarrely “the vote was seen as a choice between solar and wind energy, pushed by Labor, and coal, backed by Turnbull’s conservative government” — although the issue obviously played a prominent role in the election campaign.

Perhaps the most significant influence of all on the outcome is that the Electoral Commission’s reworking of State seat boundaries required Weatherill and Labor to win seats to hold office – and that was always a bridge too far, given the baggage he and his government were carrying. Steven Marshall led the Liberals in 2014 to victory in the popular vote but couldn’t muster enough seats to take office.

It seems Marshall and the Liberals will have a clear majority in the new parliament, enabling them, depending on the outcome in the State’s upper house, to wield their new broom rather than just wave it.

Whatever this means for policies within the State, the big national implication of the poll result is that Frydenberg and Turnbull now have a better opportunity to use the rest of this year to advance the NEG in an environment where there is some chance that the wildly unpopular upward trend in energy prices in eastern Australia will be depressed and just possibly reversed.

From an industry perspective, the bugger factor remains that this is still likely to be a work in progress at the time of the next federal election (which realistically needs to be before May next year) and Shorten frequently gives the impression on this issue of being Weatherill writ large. There can be no investor confidence about a NEM built around a NEG until the federal poll is out of the way.

Meanwhile,to counter the green boosters, who can be relied on to describe the SA election outcome as a version of the invasion of the Daleks for renewables, it is worth recording what the incoming Liberal government actually said during the campaign: “The State Liberals fully support renewable energy, but there must be a sensible transition to renewable sources which does not compromise the integrity of the grid and leave South Australians vulnerable to blackouts and massive prices.”

The SA Liberals have a three-cornered energy plan: to achieve greater security of supply for the State, to lower its power bills and to be part of the push to meet a national renewable energy target.

Marshall declared: “Our energy policy will be practical, not ideological.” He added: “A Liberal government’s discussions with the energy supply industry will not have a bias towards any particular technology. All options must be on the table if we are to resolve the current crisis in reliability and affordability of electricity supply.”

High on the list of a Marshall government’s desires is a new high voltage transmission line linking SA and New South Wales – which would allow the former to better export its excess wind generation and to rely on access to black coal generation when there is a lack of wind.

Nonetheless, the practicalities of politics in a State with a community that likes renewable energy (despite their fortunes in the past having been built to a not inconsiderable extent on Cooper Basin gas) dictated a Liberal election promise to subsidize battery installation in 40,000 homes and provision of a $50 million fund towards the development of new storage technologies. (Why a small State in Australia wants to throw money at storage R,R&D given what is going on in the world to drive this technology beats me, but that’s politics.)

Now that this election’s done and dusted (more or less, counting continues), attention will turn to the 20 April meeting of the CoAG Energy Council in Melbourne, with Energy Security Board chair Kerry Schott telling a forum last week “I really do believe the worst is over on the (electricity) price front.”

Game-changing or game?

April 20 is now an important date on the Australian energy calendar for 2018. It is when the CoAG Energy Council, following the South Australian election on Saturday, will meet in Melbourne to next consider the “national energy guarantee,” which Josh Frydenberg described in the past week as a “critical component” of future policy.

The next card to be played in this process, due in the near future, will be the Australian Energy Market Operator’s evaluation for the federal government of AGL’s post-Liddell plan.

And not unimportant to the discussion will be a report the Australian Energy Regulator is to publish at the end of this month on the impact on the NEM supply/demand balance of the closure of Hazelwood power station.

Both reviews, one imagines, will feature in the Energy Security Board advice to the ministerial council as will the board’s reporting of its latest consultations on the NEG that finished last week.

What follows?  Providing that CoAG agrees to direct the ESB to continue its NEG work, a high-level design paper will need to be produced and then papers on specific elements over the next few months. The federal government’s aim is to finalise the design of the NEG before the end of the year to enable drafting of legislation and rules to begin.

In an op-ed in the Australian Financial Review, Environment & Energy Minister Frydenberg has continued his dogged advocacy for the measure. Its implementation, he says, “will have a significant impact on the wholesale market.” By integrating energy and climate policy, “we will have a mechanism that will bring more certainty for investment and at the same time put a premium on reliability which is needed to address the volatility plaguing South Australian and Victoria.”

In continuing to needle South Australia’s and Victoria’s Labor regimes over their renewables approach, he points out that “alarmingly” wholesale prices have spiked above $5,000 per megawatt hour nine times in the former State and six times in the latter – “and nowhere else in the NEM” – so far this financial year.

Responses to the ESB’s consultation paper are now starting to emerge: green-related interests continue to leap up and down about the NEG’s perceived support for coal power and others are fretting about the future state of competition in the east coast market.

A collective of 10 retailers representing 10 per cent of the NEM’s sales have voiced concerns about making “significant, costly changes that (may) have dire consequences.” Given the track record of intervention in the market over the past decade, this is a not unreasonable point.

The retail group sums up the challenge like this: “The problem policymakers are working to solve is the imbalance between electricity supply and demand, particularly diminishing reliable (firm or dispatchable) power over the next five years due to displacement of large, dispatchable, carbon-intensive power plants. This, and poor policy and planning, have led to market concentration in firm generation and price increases, exacerbated by gas availability and cost.”

The nub of their worries emerges as “(holding) retailers responsible for generator reliability, emissions and investment is a misplaced risk (with) a range of market implications.” One outcome they fear is that the NEG will see even more market power in the hands of the “big three” NEM gentailers.

ERM Power’s Jon Stretch offers their alternative view “We suggest a lighter touch safety net model which would ensure the benefits that liquid markets bring to price transparency and hedging efficiency remain for competition and consumer outcomes. It would avoid the risks and costs associated with change in law complexities to existing retail and wholesale electricity contract arrangements. Our model requires no penalties or costly compliance mechanism.”

He concedes that “like the current NEG, our alternative involves a degree of centralist planning and procurement that isn’t ideal” but argues “our proposal addresses the fact that loss of market liquidity and market power abuse are greater risks under the current option than is the risk of (generation) over-build.”

The Academy of Technology & Engineering (ATSE) says there are numerous design challenges facing the NEG, including minimizing the complexity of its mechanisms and their associated compliance costs and dealing with the “high risk” of increasing the power of the incumbent,vertically-integrated gentailers.

“It is important,” the academy adds, “to ensure that emerging technology-based solutions will be able to contribute to reducing prices through effective competition.”

One of the “big three” gentailers, AGL Energy, includes competition in its submission to the ESB, listing five principal design points it believes the measure must manage:

  1. The greatest regulatory efficiency possible, which consists of minimal disruption to existing markets at the lowest net cost to customers.
  2. Ensuring the NEM achieves its pro-rata share of Australia’s international commitment for emissions reductions with a view to ramping up to a potential of net zero emissions by 2050.
  3. Providing direction on the appropriate mechanisms by which market reliability can be maintained as a result of increasing amounts of intermittent generation.
  4. Enhancing existing operation of the market and also considering other market reforms and reviews.
  5. Delivering a competitive, transparent, efficient, and liquid market.

The company’s chief economist, Tim Nelson, in sending its submission to the ESB, writes that “in our view, there may not be a compelling need to make significant structural changes to the existing operation of the NEM to drive better reliability outcomes.”  He adds: “The best way of reducing wholesale prices over time is by increasing supply through policy certainty on emissions reductions, which may necessitate a further refinement of the existing market settings to ensure market reliability. In meeting these objectives, consideration of a lowest cost approach that utilizes improved market settings and existing market infrastructure should be a genuine option for policymakers to consider.”

For its part, Origin Energy, while saying the overall objectives of the NEG are “sound,” says that “placing the point of liability at the retail level for the reliability and emissions obligations adds a layer of complexity to the design which is unnecessary.”

And EnergyAustralia, declaring “we favor simplicity,” urges that the NEG should put the emissions guarantee on generators, not retailers; doing it the other way round will “threaten liquidity in the financial markets.”

Standing back and looking at what’s going on, it seems obvious that, while consumers are obsessed by the cost of their power – Energy Consumers Australia says the NEG “must be about delivering the transition in a way that lowers bills” – and environmentalists are obsessed about using the electricity market to meet a high level of carbon abatement, the chief issues for progressing the measure are complexity, time and politics.

With respect to the latter, it is interesting to see the Property Council, representing owners and investors in a $670 billion sector, expressing the view in its submission that the NEG is an opportunity to depoliticize energy policy in Australia. Seriously? Almost four decades of being involved in energy issues tells me that there is fat chance of this happening, no matter how right it is to wish it would.

As the council itself says in the same breath: “In the past decade Australia has lost its advantage in reliable and competitively priced energy due to the ongoing and highly partisan debate on energy and climate change policy.”

The national interest, for example, will not stop Labor working to thwart a win on energy for the federal government, so the immediate elections that matter are in South Australia next weekend and in Victoria in November while the standing of Turnbull’s administration (including public faith in its ability to cut energy costs) is being weakened opinion poll by opinion poll.

The NEG’s complexity plays in to this situation: the ESB has 79 questions in its discussion paper. Working through them in a way acceptable to all east coast governments by August (the Frydenberg/Turnbull aim) and capable of delivery through legislation before next summer (and the arrival of the campaign season for the New South Wales election) seems a tall order.

(As an indicator of public sentiment, a recent Essential Report opinion poll shows 73 per cent of respondents believe their cost of living has worsened in the past 12 months and 75 per cent say this is true of their electricity prices.)

Above all, with the NEG,  are politicians seeking a game-changer or continuing to play games?

Assessing ADGO

Last week was a pretty big one in the energy arena, starting with the surprise announcement by newly-formed Australian Industrial Energy of its LNG import plan, encompassing the many aspects of the Australian Domestic Gas Outlook conference and ending with the federal government cutting a deal to buy all of Snowy Hydro from Victoria and New South Wales for $6 billion.

It also was a week that saw a former State premier, Colin Barnett, single-handedly lift the issue of a west/east gas pipeline back in to the mainstream debate through his engagement at ADGO.

It was a week in which the Australian Competition & Consumer Commission signalled, both via ADGO and in an appearance at Senate Estimates hearings, that it sees the east coast market as still being “incredible tight” and posing a threat to the operations of manufacturers.

And it was a week in which the Victorian government, facing an election in November, signalled (via an address to ADGO by State Treasurer Tim Pallas) that it will defy pressure to pursue onshore gas developments as the east coast’s biggest offshore gas production area, the Gippsland basin, reaches the end of its existing operations.

(The other State government facing widespread pressure over its handling of gas developments is New South Wales and its Energy Minister, Don Harwin, given a prime speaking slot at ADGO, pulled out on 24 hours’ notice, claiming other commitments. He later tweeted about a visit to a wind farm near Goulburn that day.)

The core message from the ACCC’s chairman, Rod Sims, is “the fundamental problem of a lack of both sufficient and divergent sources of gas supply, particularly in the south, needs to be addressed and this needs to happen soon, given the lags in bringing supply to market.”

“Soon” looks different to a factory owner confronted with “now” decisions about business viability and gas suppliers confronted with all the requirements of development.

It is apparent from ADGO that “soon” in terms of supply is most likely to be the LNG import projects of AIE and AGL Energy, the former focused on Newcastle, the latter on Victoria, should they proceed.

As a mark of how times and circumstances can change, veteran manufacturing executive Peter Dobney of Orora Group, a frequent speaker at ADGO, wryly complained in a panel session this week that he was mocked at the event five years ago when he raised recourse to importing LNG to NSW………

This, it seems to me, should be borne in mind when dissing the pipeline from Western Australia to Moomba about which former WA leader Barnett is so passionate. The Australian Financial Review, which along with The Australian provided extensive ADGO coverage, sees the west/east pipeline as a threat to the LNG import plan, but a case can be made, looking out to 2030, for “all hands on deck” for eastern domestic gas supply, never forgetting the ongoing critical role for the fuel in power supply to the dominant demand areas of the country (NSW, Queensland and NSW).

A thread running through all this is the need for greater competition on the east coast energy scene, a strong pursuit of the ACCC’s Sims but also a topic that comes up continuously now in the general debate and which was well-canvassed at ADGO.

James Baulderstone, who is fronting the Australian Industrial Energy import project, argued  at the conference that the mooted AGL development will entrench a market incumbent while AIL is “a completely new entrant with a focus on the forgotten sector of commercial gas buyers suffering from sky-high prices.”

Users, whether representing manufacturing or power generation, were vocal at ADGO on the issue of prices and the fact that more supply without shifting costs down will not alleviate their problems.

Baulderstone told ADGO that his project (offering 40 petajoules of gas a year to the 140 PJ New South Wales market) will be the equivalent of discovering a large new field right off the coast of Greater Sydney, a point that could also be made about the AGL import plan focused on Victoria. This focus raises in my mind just how many other such deals could be pursued as others view the AIE/AGL game plans? In practical terms, it would seem perhaps another two.

Again, to come back to Dobney’s point, how fascinating that this stuff can now be discussed without suggestions about loss of mental marbles.

Their potential doesn’t change the fact, as Malcolm Roberts, CEO of the Australian Petroleum Production & Exploration Association declared at ADGO, that the policy approach to the gas supply issue in southern States represents “failure on a grand scale.”

Not surprisingly, the States deny this. Pallas was at pains to point to the Andrews Labor government’s support for new exploration offshore Victoria. Harwin emerged from his wind farm foray to tell Fairfax Media that “there is no moratorium in NSW; we have a Gas Plan with science-based regulation – we are taking a sensible approach.” Which, of course, is cold comfort to 500 large industrial users and 33,000 small businesses in NSW freaking out about their gas contract problems or the million household customers considering their much higher bills.

The approaches by the Andrews and Berejiklian governments, both described by Malcolm Turnbull last September as “comprehensive failures” in this respect, sees gas reaching their States from Queensland carrying a transport price tag of $2 to $4 per gigajoule. That’s not a “Gas Plan” for today’s consumers – it is a dog’s breakfast. As the Energy Users Association’s Andrew Richards said in an ADGO panel discussion: “There is a great level of frustration and desperation (among industrial consumers). We need a price correction, not a softening of high costs. Too many (factories) are concerned about whether they can survive long enough to enjoy (mooted) future benefits.”

And, in terms of end-supply costs, the continuing strong efforts by governments of both stripes in Queensland, is not really a solution for southern consumers. (Queensland Natural Resources Minister Anthony Lynham gave an ebullient talk, back to back with Pallas, announcing new acreage releases with any gas found earmarked for domestic use – “further demonstrating we are a reliable and affordable gas producer” – which both in terms of time and final price prospects does not cut today’s mustard in Melbourne and Sydney.)

Pallas declared his government, in imposing onshore gas project bans, was looking out environmentally for the State’s $13 billion food and fibre industry with its 190,000 employees – which drew a riposte later from a Victorian manufacturing executive in the audience that the food and fibre businesses badly needed an adequate supply of competitively-priced gas.

The C-word (as in “cost”) was again perhaps the most used one at ADGO.

The harsh reality was summed up by EnergyAustralia’s Mark Collette. “After 30 year of an ubiquitous resource with constant availability and stable prices, the golden age of gas is over, “ he told attendees. “Cheap gas has gone.”

Collette and his colleagues have since announced plans to evaluate new gas-fired generation, as well as energy storage, in Victoria.

Not surprisingly, a fair bit of discussion at ADGO revolved round the impact of gas availability and cost for generators in a market environment where increased investment in intermittent renewables and impending further closure of coal plants creates opportunities for the “bridge” technology – and the determination of the Turnbull government to forge ahead with “Snowy 2.0” raises issues about its role.

The conventional outlook is for NEM generation use of gas in 2020 to be half what it was (200 petajoules) in 2010 and then to rebound to this level by the mid-Twenties.

The advent of LNG imports could change this trajectory – AIE’s thinking encompasses feeding gas to generation in NSW, including possibly new plant – and how this plays out seems very likely to be a topic high on the agenda of future ADGOs.


Big week in gas

The upstream petroleum industry was quick to seize on the International Energy Agency’s report on Australia last week.

The message to policymakers from the IEA executive director, Fatih Birol, “could not be clearer,” declared Malcolm Roberts, chief executive of the Australian Petroleum Production & Exploration Association. “The number one step Australia can take to deliver secure and affordable energy is to remove bans on unconventional gas projects.”

Later this week – from Wednesday to Friday – Roberts and a slew of other key stakeholders in the gas imbroglio will have an opportunity to review where things stand at the Australian Domestic Gas Outlook conference on Sydney. Speakers will include the federal Resources Minister, Matt Canavan, the New South Wales Minister for Resources, Energy & Utilities, Don Harwin, the Queensland Minister for Natural Resources, Mines & Energy, Anthony Lynham, the Victorian Treasurer and Minister for Resources, Tim Pallas, and the former federal energy minister Ian Macfarlane, now chief executive of the Queensland Resources Council.

Canavan has been pushing the point this month that the Turnbull government has delivered on its quest to reduce domestic gas prices, declaring that the threat of export controls has seen them fall from as much as $20 per gigajoule to $8 to $9 since April, “a fair level, a level that reflects the world price.”

He told media the government reserves the right to use the “gas security mechanism” to trigger action next year if these prices do not hold.

More exact numbers for gas charges were provided late last month by consultants Oakley Greenwood in a report to the CoAG Energy Council. They said the average delivered price for large industrial customers, a key part of the economy and large direct and indirect employers, is $10.08 per GJ, with the wholesale segment $9.19.

Both Canavan and APPEA keep pointing out that the size of bills being paid by consumers in southern States would be lower if their governments removed impediments to local production.

Roberts says the governments in Victoria and NSW “should squirm” when faced with the Oakley Greenwood data. “Victoria now has the most expensive wholesale gas in the market and NSW is almost entirely reliant on inter-state supplies.”

All of which makes the announcement overnight by a joint venture, Australian Industrial Energy (helmed by Andrew Forrest with former Santos executive James Baulderstone as the management leader), to bring LNG to a NSW regasification site rather interesting. I see it reported that the project aims to be provide 100 petajoules a year to the southern market, equal to about 75 per cent of the NSW demand.

A key question will be “at what price?”

There can be no return to the era of $3 to $4 per GJ prices because of the costs involved in bringing new resources, including those in Victoria and NSW, to market. The petroleum industry argument is that between $7 and $9 is the price manufacturers should expect to be the new normal if adequate resources can be made available.

Another key question is whether or not such fuel availability as presaged by the Australian Industrial Energy concept could spark investment in a new gas-fired power station and, if so, where? And by whom?

Such a development would wipe the smiles off faces of green activists who have seen baulking gas development as a strong ploy in promoting wind and solar (and now batteries) in Victoria and NSW.

In context, here, the apparent inevitability, based on current projects, that the 2020 federal renewable energy target of 33,000 gigawatt hours annually will be met is a factor no-one contemplating a new fossil-fuelled power station can ignore.

Whatever flows from the AIE announcement, I imagine it will be the talk of the coffee breaks at ADGO this week.

Meanwhile, with energy costs now recognized as a major impediment to manufacturing competitiveness (a theme that has run through the previous five ADGO forums since 2013), another key question is what level of “demand destruction” – that is consumer companies closing down activities – will be seen between now and 2020? The Australian Financial Review, which has broken the Australian Industrial Energy news this morning, reckons recent Australian Energy Market Operator modeling suggests a loss of demand equal to 22 small manufacturers.

Overshadowing all of the above is the issue of global oil prices – to which gas prices are linked. If they rise, our gas prices will rise – that’s the petroleum merry-go-round for you.

Canavan’s case if that his government’s actions over the past year have helped prevent domestic gas prices here being higher than they were overseas (a comparison that carries its own contention). The government, of course, has the added challenge of supporting Australia’s strong position in the international LNG trade – a significant economic factor now – while being seen to ensure domestic supply.

And through it all endures the issue of finding an acceptable political solution to the highly-charged issue of regulating access to new gas resources across the country.

It’s going to be a lively three days at ADGO, I imagine.

Golden opportunity

Experts among stakeholders will pore over the Energy Security Board consultation paper on the “national energy guarantee” in the next three weeks; what interests me right now is the commentary with which the famous five – Kerry Schott, Claire Savage, Paula Conboy, John Pierce and Audrey Zibelman – open the exercise.

They cut straight to the chase: the NEG is an opportunity to resolve some of the most vexing issues bedeviling the NEM, but it “cannot solve all of these issues alone.”

This brings us back to a point that has been made over and over again during the past five years – there is no silver bullet to address Australia’s energy and climate policy mess but there is probably a fair bit of silver buckshot and, even then, some solutions will come with their own baggage.

As the ESB says, “15 years of policy instability have complicated long-term investment decisions and required responses (the paper says “requited,” typos creep in everywhere) for (power) system reliability and security have not been forthcoming.”

This, the five add, “has left our energy system vulnerable to escalating prices while being both less reliable and secure.”

That “15 years” says such a lot about how we have institutionalized ineptitude in energy management across the political system (we are talking late-term Howard through Rudd, Gillard and Abbott to Turnbull here and that’s just the federal scene; the States are as much to blame as anyone for today’s situation). Turnbull and Frydenberg are entitled to say they are trying hard to address the “crisis” they have inherited but, even so, the Coalition government is as riven by dissension on energy and climate issues as CoAG itself.

The five’s claim for the NEG is that, if CoAG backs the plan, it “will provide a clear investment signal so the cleanest, cheapest and most reliable generation gets built in the right place at the right time.” That’s really a huge statement, given the source (ie it’s not pollie-speak) and that delivery of such a promise requires years, not months, and expenditure of many billions of dollars (when support infrastructure is taken in to account, as it must be) in a political environment that shows signs of being even messier than in the past 15 years.

Another important point is also set out in the ESB’s opening salvo: “Over the past decade policymakers have attempted to design the perfect emissions trading scheme and every attempt has failed.”

Let’s not loose sight of the fact that those who failed are not just politicians but the Treasury, Prime Minister & Cabinet Department and the various contortions of the environment and energy bureaucracies plus assorted expert advisers.

The five assert that their NEG is just a requirement on retailers to ensure that what they buy is in line with the abatement target politicians agree to set for power generation.

How hard is it for CoAG first ministers to agree such a target? Answer so far: apparently much too hard.

Perhaps we should force them to listen to the tale of how Alexander dealt with the impossibility of unraveling the Gordian Knot – he took his sword and sliced through it.

For me, what this passage in the paper highlights is (a) the critical need for the CoAG leaders to take the high ground on this key point and (b) just how hard this is going to be in a period of four State elections, and very possibly a federal one, in barely a year.

Moving along, the ESB is attempting to create a framework of eight steps for the NEM. They are:

  1. Forecasting the reliability gap: AEMO forecasts whether the reliability standard is likely to be met (or not) in any NEM region over a forecast period.
  2. Updating the reliability gap: AEMO updates the forecasts of any reliability gap over time, as the market changes, for example to reflect a notification of retirement of a particular generator.
  3. Triggering the requirement: If a reliability gap has been identified, the market would be expected to react and start to invest in new capacity or offer additional existing capacity to the market to close the gap. When a gap persists, there will be a point in time in advance of any forecast reliability gap at which the reliability requirement is ‘triggered’ and retailers are then expected to respond.
  4. Qualifying instruments: Retailers will be incentivized to make investments or enter into contracts that underpin new investment that can alleviate the identified gap. Participants will need to know what instruments will ‘qualify’ for meeting the reliability requirement. Retailers will be required to demonstrate that they have entered sufficient eligible contracts to cover their share of the peak demand requirement at the time of the reliability gap.
  5. Allocating the requirement: If there is an identified gap and the obligation has been triggered, there will be a defined process for filling or allocating the gap to retailers.
  6. Compliance: At the compliance date, the AER will need to assess whether retailers have met their reliability requirement.
  7. Procurer of last resort: If retailers do not meet the requirement by the compliance date, AEMO will need to procure resources to fill any remaining gap.
  8. Penalties: Penalties will need to be assigned to retailers that have fallen short of their reliability requirement.

Of course, the imps of detail will immediately start to nip at this approach – just wait for the submissions – but, as a bridge across the market swamp, it makes broad sense to me.

The ESB devotes most of the 58 pages of the discussion paper to addressing NEG detail with a broad brush, but the five rightly make the point that a key element is the capacity of governments to work together in a federal system, which has been the great big failure through this century to date.

Fatih Birol of the International Energy Agency, on his brief visit to Australia, told the politicians that the NEG, at least conceptually, represents a “golden opportunity.” Given what else was going on last week, was anyone in federal parliament alone even listening?

Reading the coverage of the ESB statement in the mainstream and greenstream media in the past several days, I doubt that anyone in the community other than energy nerds will have got anything they can understand from it – and therefore there is no community pressure on governments in eastern Australia and in Canberra to knuckle down and create the environment for the “golden opportunity” to be seized.

What we need is a modern Paul Keating, modern Wayne Goss and modern Nick Greiner, at the pinnacle of power and public influence, to run with this – and we don’t have them, do we?

Review reaction

It depends where you stand.

An Australian Associated Press report declares the International Energy Agency review of Australia, released in Canberra last week, is a criticism of this country’s lack of a long-term climate policy and a call for “a swift embrace of electricity market reform.” This echoes Labor’s Mark Butler, who says the agency’s 244-page paper highlights the federal government’s energy and climate policies’ failures.

Environment & Energy Minister Josh Frydenberg, however, sees the report as aligning with the reforms the Turnbull government has under way. He also told the House of Representatives, in a week the body politic was deeply distracted by the Barnaby Joyce affair and coverage of the energy report was minimal, the IEA supported his view that “the States should lift their mindless bans and moratoriums on gas development.”

The Greens, you won’t be surprised to know, believe the IEA “has made it clear that the overwhelming majority of pollution cuts will come from renewables and energy efficiency and this is where the federal government should be spending its money.”

The Energy Efficiency Council also heralds a focus on the need for the government “to ramp up its ambition on energy efficiency across all economic sectors including building, industry and transport.” It adds: “The global experts have run the ruler over Australia’s policy settings and found that our current effort on energy efficiency is not up to snuff.”

The Minerals Council welcomes acknowledgement by the agency that Australia is a “cornerstone” of global energy markets and sees the review as consistent with its stance that technology neutrality should underpin national energy policy.

According to The Australian newspaper, which stole a march on its peers through a day-before interview with IEA executive director Fatih Birol, the agency sees the “national energy guarantee” as “a promising opportunity to integrate reliability, affordability and climate policies” in electricity supply.

As for the IEA itself, the agency media statement on its paper diplomatically has praise for the way the federal government is emphasizing the need for energy security and resilience in its policy approach. (PV Magazine, reporting on the review, accuses the agency of being “adept at framing its analyses in terms that are palatable to political interests and incumbent energy market players.”)

You probably need to go to page 191 of the report to gain a straightforward insight in to what the IEA really thinks. But, en route there, it is worth alighting briefly on an earlier sentence that is no less true because it is a statement of the bleeding obvious: “Energy policy governance in Australia is very complex and fragmented; it suffers from frequent changes of policy and institutions at (a national) level.” In this assessment summary, the IEA opines that current national policies, with respect to the power sector, are unlikely to help achieve the carbon abatement goals to which the federal government committed in the Paris agreement. It goes on: “While the current trends point in the right direction, the sector is not sustainable in terms of affordability and security.”

The IEA says: “Policy uncertainty drives the fast retirement of coal capacity and equally undermines future investment in any low carbon technology. Emissions reduction policy in Australia has been marked by fast and frequent U-turns and uncertainty, notably around carbon pricing. Many attribute the high electricity prices in Australia to this uncertainty and it is clear that the closure of old coal plants can lead to higher prices and windfall profits for remaining plants.”

It also asserts that “an emissions reduction goal for the power sector and a related mechanism are critical” and it believes that “such a mechanism should provide clarity for the exit of capacity but that it could be combined with low-carbon capacity auctions and demand response to encourage the entry of new capacity on the basis of locational signals in the NEM.”

Then the agency adds: “The NEG can be an effective market-based mechanism if the government can ensure more competition, better interconnections among the NEM regions and stringent rules for the integration of renewable energy capacity in to the system. The NEG cannot solve all issues and it could create new barriers and windfall profits if those elements are not considered.”

Importantly, if rather lost in the argy-bargy of reactions, the IEA points out that, to accommodate higher shares of variable renewables in the NEM, governments overseeing the market must prioritize measures to safeguard system stability, enhance grid infrastructure, including interconnections and regularly upgrade technical standards

The agency also asserts what we all know to be true but locally mostly despair of its achievement: joint CoAG leadership is required to achieve the integration of energy and climate/environment policies both nationally and in the NEM. In the absence of a federal political consensus on how to address these issues, it says, “policies at the levels of the States/Territories are evolving in an unco-ordinated manner leading to fragmented markets and sub-optimal outcomes.”

Specifically, the IEA recommends that a “national, stable and integrated energy and climate policy framework” should be designed for 2030 via collaboration between the nine governments with integrated policy packages for energy efficiency and renewable energy. It also calls for work to “ensure that low-emission technology support is market-based and guided by energy system-wide network planning and locational signals.”

Elsewhere in the document, it comments that “a more flexible (market) system with new system services, updated technical standards and grid codes and appropriate network investments, including new interconnectors, remains critical to ensuring stability.” There is nothing here, however, about the fact that we can’t have this on the cheap.

Meanwhile Mark Butler apparently can’t see the irony in Labor’s continuing obfuscation about its RET plans and the comment in his media statement highlighting the IEA pointing out “there is a lack of visibility for business, consumers and policymakers alike with regard to the pace and magnitude” of the energy transformation. Nor does he highlight the agency observation that “markets can most effectively deliver desired investments and outcomes when investors have visibility” of what politicians really intend to do and all the implications – which isn’t surprising, I suppose, given the carry-on by the left of politics about undoing utility privisatization.

Frydenberg,for his part, ignores in his media statement the warning that the NEG “is not a silver bullet and could create new (market) barriers and windfall profits.”

There are two other points from this review that that I think should be underscored – and both have been completely ignored by the media to date.

First, the IEA comments: “Australian States and Territories have large subsidy schemes for households to support their energy bills, notably vulnerable consumers. However, such subsidies are often not well targeted and can fail to encourage consumers to save energy. Government aid programs should be reformed to support consumers’ action on energy efficiency (including renovation or fuel switching as well as flexible tariffs and metering).”

Second, it observes: “Tariffs for grid use will need to evolve. Payments should not only be based on how many kilowatt hours are drawn from the grid. Rather, these should reflect the costs that consumers cause to the grid. For example, consuming electricity during times of peak demand in distribution grids should be more costly than during times when there is much spare capacity. Such an approach will also help limiting financial transfers between customers with and without residential PV systems. Under current arrangements, there is a risk that the cost of the grid has to be allocated to less and less energy, in turn increasing grid charges and further encouraging customers to displace grid consumption.”

Why are these not news?

FOOTNOTE: For the statistically minded, it is interesting to see in the IEA report’s data a comparison between 1990 and 2016 in terms of electricity generation shares. With output going up from 154.3 terawatt hours to 257.5 TWh (this is national, not just the NEM), coal plants’ share has fallen from 78.7 per cent to 63.4, oil is unchanged at 2.3 per cent, natural gas more than doubled (9.3 per cent to 19.6), hydro is well down – from 9.2 per cent to 5.9 – and wind power up from zero to 4.7 per cent with solar PV up from zero to 2.7 per cent. What will it be in 2025, let alone 2030? This period (1990 to 2016), by the way, is when Australia’s population rose from 17.17 million to 24.37 million and GDP, says the IEA, rose from $US673 billion in constant value dollars to $US1,521 billion.