Brave new world

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Finding the goalposts

The promise by Premier Gladys Berejiklian that there will be a full-on New South Wales cabinet discussion about energy can only be welcomed, even if it is long overdue.

The political crowbar achieving this development is being wielded by the State’s Nationals, led by Deputy Premier John Barilaro, pushing to have funds from the Lands & Property Information Service privatization spent on a new, coal-fired power station, either built by the government or in a public-private partnership.

It’s not that power needs for NSW have been ignored lately but all the big focus earlier this year was on an attempt by the federal government, led by Malcolm Turnbull himself, to force AGL Energy to agree to extend the life of Liddell power station beyond 2022 or to sell it to an entity that will do so. The company seems to have been successful in fending off this pressure – with about a fortnight to go for CEO Andy Vesey to report back to Turnbull on its plans to replace Liddell.

Vesey told a newspaper forum in mid-November that post-Liddell about 1,000 megawatts of firm capacity – or an energy need of eight terawatt hours a year to avoid a projected market shortfall in supply — could be realized from an efficiency upgrade for Bayswater coal-burning power station (providing about an extra terawatt hour), up to 1,600 megawatts of variable renewable energy (delivering 6 TWh), a 250 MW storage battery, a new gas-fired plant and up to 100 MW of demand response. This was not new news; it had initially been shared with AGL shareholders at the AGM in September.

How much of this will form part of the NSW cabinet discussion is a good question.

Will the debate focus just on whether the State should be engaged in building a new coal plant, will it be broadened to canvass the state of play in NSW gas development and will it include a review of wind and solar power developments for the decade ahead and all the implications inherent in that?

The big context for all this is the dominant role of NSW in NEM electricity demand and supply. The huge amount of attention the situation in South Australia has received in the past year belies the fact that SA accounts for just six per cent of NEM demand – NSW’s share is 37 per cent (with Queenland at 28 per cent, Victoria 24 per cent and Tasmania five per cent). The economic and social impacts of getting NSW electricity supply wrong in the next decade would flow well beyond the State borders.

Earlier this year the NSW Energy Minister, Don Harwin, declared: “Ensuring the security of our energy supply is at the core of the NSW government’s energy policy and increasing the diversity of supply through renewable energy sources is key to our strategy.”

In round terms, the State government says the electricity mix at present is 79 per cent coal-fired, seven per cent gas-burning and 14 per cent renewables – of which almost a third is provided by Snowy Hydro. The third attributed to solar power by the government is substantially on household rooftops.

The actual 2016 numbers for generation to the grid in NSW were 54,271 gigawatt hours of coal-fired production, 2,604 GWh from gas turbines, 3,645 GWh from hydro systems, 2,030 GWh from wind farms and 492 GWh from utility-scale solar. That’s a coal share of 86 per cent (down 1.5 per cent on the 2015 power output mainly because the call on hydro almost doubled last year).

A statement from the Berejiklian cabinet after the foreshadowed discussion on how it sees the supply mix in, say, 2025 and 2030 and what needs to be done to deliver on this picture would be very useful – particularly if it is accompanied by some expert work on the total system cost of this transition and some idea of what this means for business and household users.

Most meaningful of all, perhaps, would be a clear statement of the role the government sees gas playing in the transition, bearing in mind the first half of the dictum from Harwin quoted above.

There’s a trenchant comment on today’s situation in the media at the moment from the federal Resources Minister, Matt Canavan, who is backing the Nationals’ push for a new coal power station: “Gas looks a non-starter in NSW given the (State) government’s on a go-slow on gas developments and the only other option appears to be coal. We hope the NSW government makes decisions to keep its electricity supplies strong so prices can be kept under control.”

When the Liddell controversy first blew up, one of our most senior political journalists commented that, in trying to grapple with energy issues, the Prime Minister is playing on the right field – “but being able to kick goals in another matter.”

It’s a thought that could be extended to the NSW government at present – and starting with defining the State energy playing field would be a good idea along with producing a clear sense of where the goalposts lie.

A quote from the Grattan Institute last week is also relevant: “Our politicians need to focus on the substance of this debate, rather than the headlines. Hitting each other over the head because there are too many – or too few – renewables in the policy basket is pointless and will ultimately prove self-defeating.”

Baby steps

How to assess where we now stand on a national (actually east coast) energy policy?

The beleaguered federal government, with fresh bruises after the Queensland State election, is claiming a win from Friday’s CoAG Energy Council meeting in Hobart – but it would say that, wouldn’t it.

Labor has sort of made it clear that the Finkel-designed clean energy target is still on the table – and its chances of being in government before 2018 is over can’t be ruled out.

Almost the only thing settled in Hobart was that the motley ministerial crew agreed that in future the Energy Security Board would take its instructions from the collective rather than Messrs Turnbull and Frydenberg.

Lurking somewhere in the wings is a federal government statement on climate change policy, promised for this year but I would have thought unlikely to materialize before the Bennelong by-election.

Should Annastacia Palaszczuk emerge from the Queensland election with a clear parliamentary majority (and there are 800,000 postal votes still to be counted), we will have two of the three dominant NEM regions (her State and Victoria) pursuing renewable energy targets of 40 to 50 per cent by 2030 – with New South Wales to go to the polls in March 2019 and Bill Shorten still seemingly holding to a national 50 per cent RET. (Labor’s political line is that “the Turnbull government’s NEG will strangle renewable energy.”)

We also have the the Coalition federally continuing to support feasibility work on “Snowy 2.0” pumped storage, Basslink 2 and a West/East gas pipeline – with AGL supposed to tell us relatively soon what it has decided about a LNG terminal on the south coast.

And, in the run-up to the current RET deadline of 2020, we have investors large and small en route to adding about 3,000 megawatts a year to the NEM, mostly wind and solar PVs.

As agreed in Hobart, the ESB is now embarking on further “national energy guarantee” design – with South Australia and the ACT declaring they will commission their own research on modeling the NEG against the Finkel CET and an emissions intensity scheme, having been thwarted in this aim at the Energy Council by Victoria’s Labor government voting against the idea

The CoAG communiqué from Hobart tells us as the main take-away message in the communique that what they did all agree on is that their top priority is “ensuring reliable and affordable electricity supply whilst working towards a lower emissions future.”  Fine words.

Where all this leaves consumers, mass market, small business, industrial and large commercial, right now is also relatively clear: they remain piggy in the middle, dependent in the near term on their own capacity to chase lower costs either through new contracts or reducing their demand for power, or both.

How many in the community understand the implications of the NEG is debatable but it will not be a high number. How many trust the body politic to deliver lower energy prices is not really debatable – polling suggests less than a third. (By the way, on the numbers available to date, little more than 60 per cent of Queensland voters gave their primary support to Labor on the Coalition on Saturday………)

On the eve of the CoAG meeting, 16 bodies representing business, farmers, NGOs, environmental groups, energy associations and the ACTU published a plea for governments in the federation to work “in a spirit of compromise” to make further development of the NEG a priority. It appears, they declared, “there are no alternatives at present that are both potentially functional and potentially acceptable to all sides of politics.”

Collectively, the 16 bodies called for the political focus to be on:

  • Competitive, transparent and liquid electricity markets and efficient investment to deliver the lowest sustainable costs to energy users
  • A credible, scalable and enduring settlement of climate policy for the electricity sector
  • Confidence to support investment in the full range of energy services as old generators retire
  • Comfort that any impacts on industry and the community are understood, equitable and well managed.

They want to see a “fully-fledged” NEG design ready “as soon as possible” for agreement and implementation. Without timely progress, they add, “Australia will see energy costs and emissions increase.”

The Hobart meeting won’t have given them even a half full cup and then only if they are feeling especially optimistic. After the ministerial get-together, one of the industry association CEOs opined that “”We’re taking baby steps forward, but that’s far better than giant steps backwards.”

Before the meeting, David Blowers of the Grattan Institute wrote: “Our politicians need to focus on the substance of this debate, rather than the headlines. Hitting each other over the head because there are too many – or too few – renewables in the policy basket is pointless and will ultimately prove self-defeating. Instead, how about finding an actual policy solution?”

After Hobart, this still holds good. Whether the meeting outcome is really positive is in the lap of the political gods.

Storage under scrutiny

The opening paragraph sets the big picture: “Australia is undergoing an energy transformation that promises to intensify over the coming decades. In the electricity generation sector this transformation involves: a greater reliance on renewable energy in response to climate mitigation policies; relocation of where energy is generated and distributed as a result of changing economics of energy costs and technological developments; and how and when energy is consumed with the advent of prosumers.”

Thus begins the report on The role of energy storage in Australia’s future energy supply mix, published today by the Australian Council of Learned Academies working in tandem with Chief Scientist Alan Finkel, a commentary bringing energy back in to the media headlines.

The sum of the report’s message is quite neatly conveyed in the opening sentences of the media statement heralding its publication: “The report shows that Australia has a wealth of natural advantages (in developing large and home-scale energy storage systems) that could aid the development of new industries, exports and create jobs in mining and manufacturing. It also warns that, without proper planning and investment in energy storage, electricity costs in Australia will continue to rise and electricity supply will become less reliable.”

And this, in part, is how the 158-page report concludes: “There is a near-term requirement to strengthen Australia’s energy security in NEM jurisdictions and maintaining acceptable energy security levels for customers will dominate over energy reliability requirements until well in excess of 50 per cent renewable energy penetration.”

It also observes elsewhere: “Australians are deeply concerned by the sharp rise in electricity prices and affordability and hold governments and energy providers responsible for the perceived lack of affordability. Energy storage is not a well-known concept in the community and concerns exist at the lack of suitable standards at the household level. Australians favour a higher renewables mix by 2030 – particularly PV and wind, with significant energy storage deployed to manage grid security.”

The never-ending political problem is Australians want to feel good about the environment but don’t want to pay the butcher’s bill for going green.

The ACOLA panel says that further work is needed to establish “the optimum balance of generation, storage and interconnection, taking into account both cost optimisation and the long-term strategic opportunities for Australia.” It recommends “a deeper analysis of opportunities for growth of a substantial energy storage industry in Australia.”

Among the threats to a brave new world of storage seen by the panel are policy and regulatory risk (caused by “unsupportive energy policy or inadequate safety or environmental standards”) and market development risk (“distortions promoting an inefficient storage mix”) as well as “land use issues and resource availability limiting certain technologies.”

The panel says public opinion research it has had undertaken demonstrates that “there is low (community) trust in the Australian energy system’s capacity to deliver consistent and efficient electricity provision at reasonable prices” and “deregulation of the electricity market, changes in feed-in-tariff schemes and other time of use tariffs have led to an underlying general mistrust of the government and energy providers.”

It adds: “The majority of those surveyed suggested they would look to government to play a role in the future energy mix, but lacked confidence that their preference for higher renewables would be achieved without consistent energy policies.”

The panel reinforces public scepticism by warning that “without effective planning, appropriate investment and also incentives to develop and deploy energy storage technologies, the costs of electricity in Australia will continue to increase and there will be less reliable (adequate and secure) electricity supply,” threatening “large negative implications on the Australian economy.”

One of the panel’s more telling observations, it seems to me, is: “The availability of private sector risk capital and profitable revenue streams for Australian energy storage start-ups and projects is a challenge for new ventures, as is policy uncertainty. Profitable revenue streams from energy markets together with consistent, stable and integrated energy and climate policies will be essential to drive investment in energy storage and other technology solutions that support decarbonization of the electricity system while ensuring system security and consumer equity. Technology-neutral market-based reforms will be required to address these challenges at least cost.”

Note the last sentence – what could be further from the minds of the green boosters and a great many politicians ever on the hunt for (vote) winners to pick?

Tucked away in the report is the observation that the different types of energy storage “have varying costs and other characteristics,” so determining the “best” form (the panel’s inverted commas) depends on where it is needed, for what purpose, the nature of the electricity grid and current and future types of generation.

There is also this not-minor thought: “Unless planned for and managed appropriately, batteries present a future waste management challenge.” Someone will have to pay for that, too.

The paper is not exactly a slam dunk for energy batteries, then, a point that might be missed by casual readers of the media.

None of the forays in to storage – and there is near universal agreement among the more educated scanners of the power market scene that this technology in a number of forms must have a role in the transition taking place – will come cheaply.

Modeling for the ACOLA panel suggests that storage investment for the current approach to renewable energy would be $3.6 billion (in what the modelers assume will be 2030 money values), $11 billion for the RET Labor is pushing and $22 billion under the target green activists want pursued.

The report is upbeat about opportunities for Australian innovation as well as energy storage intellectual property and for value-adding for beneficiation of our mineral resources such as lithium – it would be very surprising if such a panel did not take this view but this aging sceptic thinks Us Outdoors should be mindful of all the promises of a decade ago about local manufacturing of wind and solar gear and the fact that local energy investors most frequently pick up technology from the best overseas sources while our politicians keep veering off in to the interventionist bushes for their venal reasons as well as hacking at subsidies when the consumer cost heat gets too much to bear.

In the best of all worlds, Australian opportunities are exceptional but we will have to lift our collective game a long way to pursue optimal outcomes.

Finkel, talking to the media at the report’s unveiling in Canberra today, said “We have a long way to go and the best thing to do is to start now.” There’s a lot more to that statement than the glib “Bill Shorten is right” (about a 50 per cent RET) being picked up in media headlines as I write this.

Rather in context, I feel, the Energy Security Board chair, Kerry Schott, was telling a Melbourne conference at roughly the same time that most Australians – “apart from a hard core few” – want to see continuous greenhouse gas reductions but “at the moment all we are doing is throwing grenades at each other which is not very helpful.” Quite.

 

 

 

 

 

 

Scene-setting

To state the bleeding obvious, it is not becoming any easier to have a satisfactory conversation about where energy demand and supply is heading, still more so when cutting carbon emissions is thrown in, whether one is talking about Australia or the world as a whole.

The noises coming from Bonn, where the latest United Nations gabfest on climate change is winding towards an end, illustrates this in any number of ways.

Here, for example, is Angela Merkel, still wrestling as I write this with the challenge of forming a new German government 54 days after the national poll, talking to the CoP23 audience about the Energiewende. “Now, at the end of 2017, we know that we’re still lagging quite a bit,” she said, acknowledging the country’s abatement ambitions are playing a significant role in the talks to form the next governing coalition.

“These talks,” she said, “are about fulfilling the existing pledges, but also about social questions and jobs – for example when talking about reducing [the role of] coal – and about profitability and the affordability of energy.

“Even in a rich country like ours, there are significant conflicts about this in society – and we have to solve them.”

Coal, she said, has to “significantly contribute” to reaching the German emissions target – “but how exactly; that’s what we will have to discuss very precisely in coming days.”

Goodness, and here were we thinking (because the activists constantly tell us so) that all we have to do is follow the German approach and our own “Energiekrise” will be over.

I referred in my previous post on this site to the International Energy Agency’s latest Outlook publication – which, contrary to what can be read in various bits of the media, is not a set of predictions but of scenarios – and overnight I have been looking at an IEA table that seeks to encapsulate our possible global futures out to 2025 and 2040 using millions of tonnes of oil equivalent as a common denominator.

The agency splits its current scenarios in to three: one extrapolates from existing national policies, a second takes up the pledges the world’s governments took to Paris and which form the backdrop for the Bonn discussions and a third is based on what IEA analysts suggest could be the picture if a far more major effort should be made to pursue the goal of limiting climate change.

To continue as we are at present, the IEA suggests will see oil usage at 4,815 mtoe in 2025 and 5,477 mtoe in 2040 – staying ahead of coal (4,165 and 5,045 mtoe) and gas (3,514 and 4,682 mtoe). In this scenario, nuclear’s share of demand is 839 mtoe in 2025 and 997 mtoe in 2040. The renewable segments are hydro power, bio-energy (both traditional and modern usage) and non-hydro resources, mostly wind and solar power. The IEA postulates these at 409 and 511 mtoe for hydro, 1,507 and 1,728 mtoe for bio-energy and 441 and 856 mtoe for wind, solar and so forth.

In this context, we can expect (says the agency) around a 23 per cent rise in energy demand between 2025 and 2040 and the dominance of fossil fuels (coal, oil and gas) to continue – amounting to some 79 per cent of the total a quarter century from now.

Of course, we have the word of governments at Paris that business as usual is just not on, so the outcome of pursuit of their announced commitments is important.

Under “new policies,” which the IEA puts forward as its “main scenario,” the agency projects a situation in 2025 where the coal share is 3,642 mtoe, oil is 4,633 and gas 3,436 mtoe. The nuclear share is 839 mtoe and hydro 411 mtoe – with bio-energy at 1,530 mtoe and wind, solar etcetera at 490 mtoe.

Looking out to 2040 in this scenario, the agency suggests the breakdown could look like this: coal 3,929, oil 4,830, gas 4,356 (overtaking coal), nuclear 1,002 and hydro 511 – with bio-energy up to 3,801 mtoe and wind, solar etcetera surging to 1,133 mtoe (nearly triple what it was in 2025). The fossil fuels share of this outlook is 75 per cent.

The critical factor is the global output of carbon dioxide emissions, which the agency sees falling from 42.7 gigatonnes annually in 2040 under business as usual to 35.7 Gt under “new policies.”

This, it points out, will not deliver a desirable outcome in managing climate change, which is why it postulates a “sustainable development” scenario in which coal plunges to 1,777 mtoe in 2040, oil is at 3,306 mtoe and gas at 3,458 mtoe while nuclear’s share rises to 1,393 mtoe, hydro power is at 595 mtoe, bio-energy is 1,551 mtoe and wind, solar etcetera soars to 1,955 mtoe.

In this scenario, global energy demand has fallen to 14,084 mtoe (on the back of a major energy efficiency drive) and global annual carbon dioxide emissions are down to 18.3 gigatonnes.

However, even this is still a world in which fossil fuels deliver 61 per cent of energy needs to a population now pushing towards 10 billion people.

Green activists claim to like this scenario (which they treat as a prediction) because, as one local booster put it this week, it shows coal to be “dead and buried” as a source for electricity – which it doesn’t. But the big issue (in terms of managing greenhouse gas emissions) is the whole global energy scene and, even after what would need to be a Herculean investment effort, coal, oil and gas would be a significant part of meeting the needs of the world’s community if this scenario came to fruition.

It’s worth noting also that this “sustainable” model sees nuclear and hydro power together – both technologies the darker greens strongly oppose – making a contribution bigger than bio-energy and roughly as big as wind, solar etcetera.

Earlier this month I saw a major newspaper here headlining our “torturous” path to the energy future. “Torturous” is characterized by pain and suffering; but, perhaps inadvertently, the paper has it right, I think. Our local debate would be a tad less torturing if more of it could focus on real analysis rather than guff, emotion and wishful thinking. As one of my distinguished (and exasperated) colleagues put it in an email exchange this afternoon “sound energy policy has become perverted by unfiltered tripe,” calling for more sagacity in assessing the situation.

Such times!

There is so much on the menu, both officially and unofficially, at the UN’s gabfest about climate change (“CoP 23”) in Bonn that it is inevitable media coverage amounts mostly to “snatch and grab” as I recently saw one journalist say when she meant “smash and grab.”

Between the activists, who treat the UN meetings as an opportunity for headline-grabbing and ritual defenestration of anyone speaking up for fossil fuels, and the politicians (from Angela Merkel to people whose names you won’t remember beyond your next sleep) hunting domestic kudos for virtue-seeking (eg Canada’s environment minister “declaring war” on coal for a country that has 10 per cent of the fuel in its power mix and nevertheless is struggling to meet the promises it made in Paris in 2015), the flow of information is pretty indigestible.

When it’s all done there hopefully will be a set of rules for carbon mitigation and keeping track of the Paris commitments thanks to hard work in back rooms but the visible process is living down to past standards.

Meanwhile, by way of an essential backdrop (for the few looking beyond Bonn’s funny business), there is the carefully coincident publication of the International Energy Agency’s latest World Energy Outlook.

Just one aspect of this should represent rather grim news for the shoals of government officials and ministers swimming through CoP23’s waters. Oil, says the IEA, will continue to grow as a source of global energy over the next two decades, driven by continuing demand growth in the large communities of what we used to call the “developing world,” quite a lot of its in our own Asian backyard.

The much-hyped take-up of electric cars forecast for the years from now to 2040 will not serve to consign oil to the scrapheap of history, opines the IEA. This inconvenient indicator, along with a predicted 45 per cent increase in demand for natural gas and continuing substantial use of coal, makes a mockery of the “death of fossil fuels” mantra that crops up practically weekly in public debate.

The IEA attributes the ongoing major growth in energy demand (rising 3.4 per cent a year) in the main to “a population that expands from 7.4 billion today to more than 9 billion in 2040 and a process of urbanization that adds a city the size of Shanghai to the world’s urban population every four months.” (That’s 12 Sydneys a year if you do the maths.)

As I have said here on more than a few occasions, I have problems with the language the agency employs as in its public statements in playing to the renewables gallery. In this new report, for example, it includes as a headline in its media briefing “coal strikes out” – and then tells us that, after adding 900,000 megawatts of coal-burning capacity to the global generation mix between 2000 and now, there will “only” be a net addition of 400,000 MW to this part of the world’s power supply between 2017 and 2040. Howzat?

Moving on, our local upstream petroleum producers see the IEA’s new report as an early Christmas present.

In a new media statement, Malcolm Roberts, CEO of the Australian Petroleum Production & Exploration Association, explains why “the IEA forecast of an increase in the share of gas in global energy demand is great news.”

Roberts says: “Our $200 billion investment in LNG projects will supply a growing global market over the next 25 years.  This means Australians will see a steady stream of high paying jobs, export dollars and revenue for governments for decades to come.

“Most of the growing demand for natural gas is expected to come from China, India and other countries in Asia that have significant concerns over air quality. Our proximity and reputation for reliable supply make us well-placed to capitalise on this growing opportunity.”

He adds: “The World Energy Outlook also highlights the environmental credentials of gas as a cleaner-burning power source and a key part of moves to reduce carbon emissions in Australia and around the world.”

And, of course this news is another peg on which APPEA can hang its constant message to our policymakers, federal, State and Territory, and to voters (supposing they ever get this point). “The IEA report,” says Roberts, “also highlights a major challenge for Australia, with the United States expected to become the world’s leading LNG exporter by the mid 2020s. The opportunity (for us) is huge but our competitors are hungry. In an extremely competitive global market, we cannot be complacent.

“If Australia is to capture further investment in LNG production, it is vital we get the policy settings right by maintaining a stable and competitive tax regime and reducing regulatory costs.”

Despite the value of the existing gas industry (serving export and domestic markets) for our economy – via jobs and local industry expenditure – and for government income via taxes and royalties, I fear our community in the eastern States (making up 86 per cent of the population) just now doesn’t give a hoot for the global opportunities; the focus here is on current domestic needs in terms of adequate supply and prices well below today’s levels.

Ongoing gas production developments targeting the overseas market — Chevron’s 8.9 million tonnes a year Wheatstone project is in its commissioning phase while the 3.6 million tonne capacity Prelude floating LNG facility, operated by Shell, and the 8.9 million tonne Ichthys venture by Japan’s Inpex are due to start production next year – just don’t get the popular media attention of yesteryear and may even rub salt in the pain of consumers in the mass market, farming and manufacturing because they underscore that half of our gas production goes abroad (and it will be more by 2020).

The contrast with America is stark: despite expected rapid LNG export capacity growth, the US Energy Information Administration’s Annual Energy Outlook 2017 projects their trade to amount to only about nine per cent of total domestic natural gas production by 2020. And US domestic gas prices are far lower than they are here.

It’s not surprising in this environment that our West Australian friends see opportunity – with an “O” – in the east or that the Turnbull government (struggling critter that it is) sees value in a feasibility study in to a $5 billion pipeline serving the five mainland States on this side of the Nullabor. Even if this goes ahead (and when might it be operational?), the price problem remains, something the Finkel report saw fit to point out, warning that the benefits of supply security need to be weighed against consumer costs.

All of which brings us around to the prospect of some of the West’s LNG being shipped to Melbourne or Newcastle.

Analysts UBS painted a rather dark summary of the situation in an October review. “Key conclusions,” they said, “are: 1, the east coast will remain reliant on diverted Qld LNG supplies for at least the next five years (and most likely longer), as alternate gas supplies of any size are still a few years away; 2, (project) cost and distance of new supply from markets means that (new) development is unlikely to exert material downward pressure on east coast gas prices any time soon; 3, declining Victorian supplies mean that South Australia and New South Wales will become increasingly reliant on alternate sources; 4, the largest sources of potentially lower cost supplies (NSW, Northern Territory shale) face regulatory issues; 5, there is room for LNG imports, but landed price is a key challenge; and 6, the elephant in the room is the Gippsland Basin JV – just how much additional gas is it able to bring to the market and at what price?”

APPEA’s Roberts acknowledges that “west coast gas is likely to be an expensive solution to east coast supply concerns,” urging political acceptance that “the reality is local gas will always be cheaper gas.” It is, he adds, “incredible” that Victoria and NSW, home to the biggest problems, are determined to rely on other States to save them.

Of course it’s incredible but, as you may have noticed, the incredible is becoming normal in our politics across a wider spectrum than the “energy crisis.”

It’s hard to go past Dickens in our present state. Remember? “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity” etcetera.

Carrying power fears to polls

If you wanted to come up with a core perception about energy among the mass of our population as 2017 winds down, it might be that, to quote a letter writer to a regional newspaper this week, “there shouldn’t be an energy crisis in Australia.”

This comes with the community-wide understanding that 20 years ago we had some of the world’s cheapest electricity prices for consumers large and small and now we don’t.

Analysis of public opinion published by Roy Morgan Research this weekend shows that the “energy crisis” is now the single biggest domestic issue on the minds of Australians, attracting 14.2 per cent of reactions versus, for example, 7.5 per cent for unemployment.

I suspect all the rhetoric about this from politicians and key players washes right over the broad community; “just fix it” is the mindset of the masses. (And Roy Morgan finds “lack of vision” by politicians is the biggest worry for 5.5 per cent of respondents.)

Regrettably, the cliché of choice for those charged with dealing with energy matters is correct: there is no silver bullet – still less so when the actual challenge is to make energy not only more affordable but also reliable and there is a further political necessity to apply greenwash. As I saw a lawyer write in the past week, “The energy mix is a policy decision but, regardless, what everyone needs is reliability at a reasonable price.”

Right now the federal theatre is consumed by the drama of the right of a raft of MPs to sit in Parliament House, Canberra, an issue that has morphed in to debate about Malcolm Turnbull’s capacity to stay Prime Minister and could, it seems, take us to a point where the Coalition loses government next year. This leaves the “energy crisis” caravan suddenly parked at the pavement, a situation that could change again if summer brings a threat to power supplies in the eastern States.

In the meantime the citizens of Queensland are at the polls, two months before they expected to be (because the timing suited Premier Annastacia Palaszczuk), the first major election to be held since “energy” and “crisis” became joined in politics and the media.

The State election outcome is anyone’s guess, in part because of the possible impact of One Nation and other minor parties. What is obvious some two weeks before Queenslanders vote is that quite a large number of them, significantly those in the State’s central and northern regions, especially farmers and small business people, are fed up with (and, in some cases, frightened by) their power bills.

The attitude is summed up by the head of the peak sugarcane growers’ association, who declared this week that “farmers are desperate to find a solution to the rising costs and unsustainable electricity prices.”

Dan Galligan says: “This is becoming a real crisis moment for people in business in Queensland, not just irrigators, but anyone who relies on electricity which is almost every business. For us, as an exporting industry trying to compete with overseas countries that are often under subsidized pricing regimes for the products they grow, we really have to manage costs.”

Queensland Farmers’ Federation president Stuart Armitage, while noting that it is “encouraging” that the contending State political parties are all releasing energy policies and making positive commitments, says what is needed is a “holistic solution” and that the next government must be willing to look beyond one or two areas and commit to a longer-term agenda for an electricity “fix.”

As well, the Chamber of Commerce & Industry Queensland is expressing concern that this month could see a demand peak similar to last February’s heatwave requirement when the State capacity reserve got uncomfortably tight. The Palaszczuk government is promising that it will have the mothballed Swanbank E power station (gas-fuelled) back online by New Year’s Day but CCIQ is fretting that the weather could bite supply before then.

The business association asserts also that 170,000 State jobs are at stake if the energy price problems are not addressed.

The Liberal National Party is promising to restructure the government-owned supply sector yet again, to write down the network asset base by $2 billion and to back construction of a new, 750 megawatt coal-burning power plant in North Queensland – while Labor opposes the FNQ plant and spruiks its plan to have 50 per cent of Queensland electricity supply from renewables by 2030. It is also offering to give households and small business a $300 million discount on power bills while the LNP offers a rebate to farmers.

Former federal Energy Minister Ian Macfarlane, now heading the Queensland Resources Council, argues that building the coal plant will (eventually) “bring down prices for everyone” because of its impact on wholesale costs.

Entirely predictably, Labor has tossed the power privatization card on the table despite the LNP swearing blind it won’t contemplate the move again after doing so helped sweep it from office in January 2015.

(In passing, in the process of pushing State Labor to rule out gas exploration and production bans in the Cooper Basin, the Australian Petroleum Production & Exploration Association has provided some interesting numbers on the contribution of the upstream petroleum industry to Queensland. APPEA says this amounts to 60,582 jobs in 2016, generating $12.8 billion in State economic activity and, in 2017-18, contributing an estimated $885 million in State royalties.)

Come what may in Queensland on 25 November and what may in federal politics between now and about Easter, the energy policy choice (to quote the Grattan Institute) remains between a rare outbreak of bipartisanship or a depressing continuation of current trends delivering the worst outcomes for, in particular, eastern Australia.

For the mass markets and consumers like manufacturers and farmers, the prime focus remains on what they are paying – with new UBS analysis forecasting wholesale power prices will remain relatively high out to 2020 on the back of $8 to $10 per gigajoule gas prices.

Why they have the irrits

I was unwell at the start of this week and unable to attend the Quest Events NEM Future Forum conference in Sydney or to chair the second day that featured Mark Butler, federal Labor’s spokesman on climate change and energy.

At first impression, he couldn’t have said anything of importance because the mainstream media ignored the talk, but I have now had the chance to read it – Butler has made it available via Twitter – and there are a number of points that deserve wider attention.

Not least, it is an explanation of why there has been a negative reaction from Labor to the federal government’s “national energy guarantee” proposal and why the States are unhappy.

Given that this step really requires endorsement by the Council of Australian Governments’ Energy Council, which is at present scheduled to meet on 24 November, there is value in understanding Labor’s initial response – and in obtaining it outside the prism of the House of Representatives question time, which, whether watched live or seen through Press Gallery coverage, is more a schoolyard biff session than a sober debate between our country’s leaders.

The federal government line is that their opponents have been caught “flatfooted” (says Josh Frydenberg) by the new approach and that the States will see its value (says Malcolm Turnbull) despite what Labor premiers have been saying to the media.

Butler told the NEM Future Forum that there are more questions than answers available from what the Turnbull government has provided, including the eight-page Energy Security Board response to Frydenberg’s request for an alternative to the Finkel task force’s “clean energy target” proposal.

The NEG, Butler argues, is “an incredibly rushed job.”

He compares it with the “emissions intensity scheme” approach that was outlined by the Australian Energy Market Commission in 2015, subjected to “a whole lot of different pieces of work” over some 18 months ahead of the scheduled CoAG leaders meeting in December 2016 (lost when Turnbull called a federal election) and taken to that poll by Labor.

“We had consensus by and large (on the EIS) across the system by last December,” says Butler, “but (the measure) was junked as a result of internal turmoil in the Coalition party room.”

Subsequently, he points out, the CET that emerged from the Finkel task force process had a similar level of across-the-board support and was junked again because of Coalition internal turmoil.

Now, he argues, the NEG “has not been subject to anything like the EIS and CET processes.” And, he adds, “it is quite clear” from evidence given the recent Senate estimates hearings that “the Department of Environment & Energy has done no analysis of the reliability or emissions reduction components of the NEG before it was released as new policy – and it is quite clear that there was no consultation with other departments.”

Nor, he declares, was there consultation with industry – but, most importantly, there was none with the States and Territories.

The Energy Security Board, he notes, is not a creature of the Prime Minister or his government. It was appointed by CoAG, with its chair and deputy chair nominated by State governments.

“The States,” Butler told the NEM Future Forum, “woke up to newspaper headlines, and then a press conference by the Prime Minister and the board, announcing what the States would be expected to implement – because the NEG would be implemented in South Australian legislation, and reflected throughout the other NEM jurisdictions.This process has given the States and Territories the irrits, I think it’s fair to say.”

The real dispute, Butler argues, “that confronts us now is not so much about whether an EIS or a CET, or even a more developed NEG, is the right mechanism to meet the challenge of stability and certainty – it is more fundamentally about where we want to take this system (the NEM). That has not been resolved by the announcement of the NEG. If anything, what little we know about the NEG – or the assumptions that underpin the NEG – deepens the dispute about where we want to take the system.”

The market, in his view, faces two challenges: generation renewal and carbon abatement. Over the next 15 years “we are going to lose a whole lot of our generating infrastructure and we need to build new kit.”

Butler’s perspective is that the big issue is whether Australia embraces a future that “is renewables.” (That sound offstage is the nuclear lobby grinding its teeth.)

And, he adds, the Queensland election “will be significantly fought on whether the State government should drive the building of a new coal-fired power station in FNQ or whether to continue with the (Palaszczuk) government’s 50 per cent renewable energy target.”

His political argument is that “strangling renewables” is crucial to the Turnbull government’s NEG approach “and if you are looking for certainty and stability, you are not going to get it from a mechanism whose political underpinning is an ambition to strangle (this) investment.”

He asserts that the NEG, as set out, would see only about 250 megawatts of renewable capacity added annually to the power supply system from 2020 to 2030, including rooftop PVs (currently running at 750 MW a year).

As well, Butler takes up the issue that electricity suppliers should be required to do a heavier share of abatement than generation’s current proportion of national emissions. Its ability to do so, he claims, is “clearly demonstrated” and not requiring this has “extra-ordinary implications” for other sectors of the economy such as agriculture and heavy industry.

Butler’s paper needs to be read in full to get the Labor take on the NEG and the broader NEM implications, but, in keeping with a point I have pushed several times in these posts lately, his comments on the political environment also need attention. (Butler’s other hat is as national president of the Labor party.)

“We are now into State election season,” he told NEM Future Forum. “We have three NEM regions that have State elections over the next five months. That means that there is not any real likelihood of COAG progress here.”

I find it remarkable that this speech has been almost literally ignored by the mainstream media and its political commentariat, given the huge amount of coverage of the “energy crisis” this year. As a dissection of the state of play from the alternative national government, it requires some attention, I’d suggest.

And one thing more: it is also remarkable to me that Butler could deliver this speech without once – not once – addressing the issue of electricity prices and the future affordability of supply. He even went round it in identifying the energy question in the Queensland election stoush – yet the coverage coming out of the State this weekend reinforces the view that power bills (for households, farmers and factory managers) is a major issue.

In this context, let me refer you to a commentary from Energy Networks Australia, published this weekend, that canvasses “how electricity became a headline CPI act.”

The ENA’s acting CEO, Andrew Dillon, rounds it off by writing: “As review after review into the energy sector has found, there’s no silver bullet to fixing rising power prices. However, these reviews also consistently point to a common opportunity – the implementation of nationally consistent energy and climate policy that lasts beyond a single election cycle.”

PC idea worth some thought

An interesting proposition from the Productivity Commission that goes to the heart of the east coast “energy crisis” is, rather surprisingly I think, getting no attention at all.

Last week the commission released its five-yearly review of the nation’s productivity (“Shifting the Dial,” available on its website, something all thinking Australians should read) and a number of the topics on which it has made critical comments, including energy, have received a lot of media attention (and rightly so).

A particular commission perspective on better managing the gas problem has met with less interest.

This is part of what the review says about the issue: “Removing the moratoria on gas exploration and development in New South Wales, Victoria, Tasmania and the Northern Territory, which have slowed the growth in supply, are one place to start (to ensure adequate domestic supply).

“There are more effective models of community engagement which exploration firms can, and should, seek to apply if given the opportunity.

“Local employment and investment should be upfront considerations, not left to others to guess at. Royalty regimes may need review.

“Bans are unlikely to be lifted simply because of pricing concerns. The decision (by the federal government – which the commission labels ‘undesirable’) to intervene in exports may actually relieve a pressure on States with bans.

“A voluntary industry-wide code of practice might help the gas industry improve their relationship with the community, but must be accompanied by moves of substance.

“None of this is intended to question the science and the efforts of chief scientists to establish safer practice. But, as is often the case, the science is not enough to carry the policy debate.

“To build community confidence in gas exploration and production a code must go beyond other desirable aspects of gas exploration — safety regulation, sound scientific evidence, and monitoring and enforcement of compliance — and include clear guidelines and arrangements to manage community impacts and support landholders in negotiating land access agreements.”

So far as I can see, this advice has been allowed through to the keeper since the report appeared.

There has been no reaction from the federal Environment & Energy Minister, Josh Frydenberg. In fact, the Sydney Morning Herald reports that his office “declined to comment on the report” – but this, I don’t doubt, was wholly about the PC embracing the carbon pricing at exactly the time the Turnbull government announced a policy (the “national energy guarantee”) in effect eschewing it, something the media pack have seized on eagerly (and who can blame them?)

There’s no reaction to the PC proposition on a code from the moratorium ringleader, the Victorian government.

No comment from the New South Wales government, which has been meandering for many months on a path to who knows where when it comes to addressing the State’s pressing gas needs issue. (The Australian Petroleum Production & Exploration Association CEO, Malcolm Roberts, slammed it earlier this month: “The NSW government has a Yes-No approach.  It claims to be open to business, but boasts of closing nearly all the State to exploration. And it seems to be in no hurry to release new acreage or to approve the only live project in the State.”)

But even the upstream petroleum industry has not reacted so far to the commission’s suggestion about a positive new approach to gasfield access. And neither have any farmers’ organizations.

Perhaps few have read to page 161 of a 255-page report, perhaps there is so much else in the document to attract attention – but I think this commission view deserves some reflection where it matters.

The core reasons why this is so have been canvassed widely many times, not least the fact that the gas imbroglio is a fundamental part of the electricity market mess now labelled a national crisis.

As the commission points out in its new report: “The difficulty for generators in accessing long‑term supply contracts at acceptable prices, coupled with uncertainty in carbon pricing, (has) reduced the viability of investment in gas-fired generation — the natural complement to renewables. The significant increases in the domestic price of gas have been a key factor in the rising wholesale electricity prices.”

Does the PC perspective also not fit with the gas industry view that the States could (I’d say should) take up the Queensland approach to having development facilitated independently?

As the Australian Pipeline & Gas Association president at the time, Shaun Reardon, put it at the organization’s annual conference in Cairns this month: “The Queensland experience – which empowers the State gas commissioner to consider developments on a case-by-case basis while also taking in to account community and other issues – presents an enviable model. State and Territory governments could do well to look to it for inspiration. This model strikes the right balance and will enable additional gas to be made available for market, bring jobs, investment and other opportunities to local communities, support local industry and avoid demand destruction through high prices or uncertain supply, enable gas to act as an important partner to renewable technologies and, importantly help to solve the east-coast gas crisis.”

If not elsewhere earlier, I think you can expect to hear more about the PC’s proposal when the Quest Events’ Australian Domestic Gas Outlook conference is held in Sydney at the end of February. (Preliminary details of the conference are on the Quest website.) It’s not an idea that should be just left to fizzle.

Present tense

This weekend I have been reading an English newspaper report on a leading football club manager complaining about “the knee-jerk British society in which the heat of the moment is all-consuming, the weight of the present is the only thing that matters and longer-term consequences are an afterthought.” How apt that is as a description of Australian society, too, and how often this effect plays out in our policymaking, fuelled by the popular media and, of course, social media – not least in recent times for energy,

In this “heat of the moment” environment the quite important latest report of the Productivity Commission has flickered briefly in our public discourse and then focus rushed on to other matters.

There are a number of areas where the commission’s review of Australian productivity deserves close attention. Energy is one of them. The PC’s acerbic perspective on the topic received brief media mention and is already seemingly lost under the “weight of the present.” After all, it is already almost week-old news………

The commission, warning that “the costs of getting the energy system wrong are just too large to contemplate,” calls for government co-operation on reforming the NEM to be a priority and sums up its recommendations like this:

Australian governments must:

› stop the piecemeal and stop-start approach to emission reduction and adopt a proper vehicle for reducing carbon emissions that puts a single effective price on carbon

› clearly articulate the acceptable trade-off between reliability and cost

› achieve more efficient pricing, by ensuring that prices paid to producers reflect any additional costs they impose on the system (such as frequency management), that access to the grid, rather than just use, can be priced (so people using the grid as a back-up pay for this service) and that prices to consumers reflect the nature of the demand that they require from the system

› provide clear strategic direction to the expert bodies and a clearer accountability for outcomes

› let the market regulators and participants get on with their work, holding them to account for the outcomes

› ensure that short-term fixes are technologically neutral and move the system toward a sustainable long-run outcome.

What prospect is there that CoAG leaders meeting next month will embrace this advice in full and set in train steps to implement it? In a word, zero.

Federal, State and Territory governments are deep in their energy/carbon war bunkers and “longer-term consequences are an afterthought.”

As Peter Harris, the PC chairman, puts it (I’m quoting from a report in The Australian), CoAG is “the place where good policy goes to die.”

In its commentary on energy (at page 159 of a 255-page review), the Productivity Commission says: “With electricity and gas making up 2.5 per cent of GDP, and being an essential input for all industries, the cost of failure to resolve the problems will only rise in the future. It is too difficult to put a price tag on getting energy policy right, in large part as the counterfactual — what would happen if we continue to try to muddle through without clarity on carbon pricing — is impossible to define. Nonetheless, the returns from (our proposed) reforms would be worth many billions.”

With a nod to the Finkel report, the commission adds “The issues affecting the sector are complex and their solution requires considerable technical expertise as well as good regulatory and institutional design. This requires solving the immediate problems, but also needs to be mindful of transforming the energy system so that it will deliver for consumers in the long as well as the short run.”

The PC calls on governments (ie CoAG) to: “restore national agreement on simple, clear objectives — that recognise the inherent tensions between prices (costs), reliability and emissions and provide guidance on acceptable trade-offs — then leave the field to expert implementation.” It adds: “determine which institutions do what — then let them get on with their work, holding them to account for their stated responsibilities.”

With respect to the last point, it also says: “The core of the regulatory architecture is three expert bodies — the Australian Energy Market Commission, the Australian Energy Regulator and the Australian Energy Market Operator. They respectively develop policy with governments, regulate and run the system. In theory, such institutions have the advantage for governments that they can moderate the inevitable political pressures governments face to act spontaneously given popular concerns. But in practice, insufficient use has been made of the independent expertise and public explanations of those three bodies when forming energy policy.”

Meanwhile, the media, having seized briefly in the past week on what is the most political of the commission’s energy comments (pricing carbon), have skittered away to other, momentarily more juicy topics.

Included in what the PC says is an observation that government agreement on 49 of Finkel’s 50 recommendations “is not a pass mark.” – and I add that between the CoAG Energy Council lip service and implementation of the 49 steps still falls a very large shadow.

The commission also declares: “A broadly accepted commitment on emission reduction targets over the investment profile for electricity assets is essential to give firms sufficient confidence to make the investments needed to deliver electricity at the lowest possible cost and the right levels of reliability for users over the next few decades.”

It says: ” It is a principle of every properly-designed pricing system that the charge should reflect its harms. Thus carbon emission intensity is necessarily a matter to be reflected in the regulated pricing system. The compromises necessary to do this are much-debated, but what should be accepted is that low carbon technologies (such as solar and wind generation) are inherently part of the properly-priced future.”

It buys in to the seemingly endless political fighting over a renewable energy target in this way: “The Commission has previously criticised the use of renewable energy targets (RET) on the basis that they are not technology neutral, and so are distortionary compared with the policy of putting a price on carbon. But we have also acknowledged they have been an important tool in delivering on emissions reduction commitments.

“Finkel’s recommendation for a low emission energy target (LET) would be an improvement on the RET. It would better reward lower emitters, and depending on its detailed design, would move Australia’s energy market closer to the outcomes that would arise from full carbon pricing.

“The critical point is that while there are various ways of placing prices on carbon, establishing an agreement on one of them, even if not perfect, provides a guide for investment toward the lowest cost emission reduction options. These costs must include any additional cost imposed on the network by choice of any particular technology.

“The RET is specified in terms of gigawatt hours of renewable electricity and not in terms of emissions. It was formulated and operates independently of wholesale electricity markets and is not explicitly incorporated into the spot price. This has created problems as it effectively pushes the cost of intermittency and frequency management onto the purchasers of electricity rather than onto the producers of renewable energy.

“While the low marginal cost of renewable generation means that these producers can sell into the grid when they were producing (as they would have the lowest priced bid), they do not have to pay for the reserve capacity of other generators that are needed when renewable production falls relative to demand. This may be a problem with any certificate-based scheme based on the production rather than the delivery of electricity. Prices need to be able to be based on not just when the electricity is delivered (by bidding into the spot market for five minute contracts), but also its availability.”

Coincidently, the commission’s review has paralleled delivery of a draft electricity market report to the UK government by Oxford professor Dieter Helm (their version of the Finkel report). In it, Helm comments: “The scale of multiple interventions in the electricity market is now so great that few if any could even list them all and their interactions are poorly understood. Complexity is itself a major cause of rising costs and tinkering with policies and regulations is unlikely to reduce costs. Indeed, each successive intervention layers on new costs and unintended consequences. It should be a central aim of government to radically simplify the interventions and to get government back out of many of its current detailed roles.”

Quite so.