Issue 2 February 2005

Aging workforce, aging assets

Significant staff poaching is going on across the electricity industry as companies try to cope with an aging workforce, says Shane Breheny, chief executive of Victoria's Powercor and Citipower Australia distribution network service businesses. The issue is a world-wide problem, he adds, and attention is needed to changing the way the industry is serviced through technology and innovation rather than relying on old solutions such as increasing apprentice programs. Breheny was a participant in a CEO roundtable at Terrapinn's 2005 Victoria Power conference in Melbourne. On network assets, he says current life extension programs are "running out of legs." Opportunities to defer investments in replacement infrastructure are rapidly diminishing, he comments, and regulatory performance penalties are forcing network owners towards replacing aging assets sooner rather than later. Breheny's concerns were echoed at the roundtable by SPI PowerNet managing director Nino Ficca, who says that the skills shortage in technical areas -- for engineers and linesmen -- is now a critical issue for networks. A third participant, Yallourn Energy CEO Andrew Pickering, whose generation operation is a subsidiary of China Light & Power, says the emerging problem for power stations is the age of the workforce. Turnover, he adds, is very low, so graduate engineers or newly-trained personnel are finding it tough to break in to a workforce.

State-owned new generation presents problems

Investment in new generation capacity by State-owned corporations presents a hurdle to private power station investors, says Tony Concannon, chief executive of International Power in Australia.

Speaking at the Victoria Power conference, Concannon has said that State government investment in generation capacity increased the risk for existing power station operators, raising the prospect that their investment could be left stranded. State developments also distort price signals to the market, he says. Concannon adds that one of the Australian national electricity market's ongoing problems is that customers want to see a robust reserve generation margin, but do not necessarily want to pay for it.

Frequent public criticism of volatility in NEM wholesale prices is "hysteria," Concannon comments. It is nonsensical to expect that there will not be price spikes in an energy-only market. The issue of placing a value on reserve capacity needs new attention, he adds.

ABARE points to higher Vic gas demand

The Australian Bureau of Agricultural and Resource Economics expects Victoria's demand for natural gas in 2010 to be 26 percent higher than in 2001, increasing from 244 petajoules to 308 PJ. The Bureau's forecast includes allowance for a 23 percent rise in residential demand for gas and a 19 percent increase in manufacturing consumption.

Speaking at the Victoria Power conference in Melbourne ABARE principal economist (energy and mineral economics) Graham Love says new gasfield resources being developed in the Bass, Otway and Gippsland basins should ensure that the State has adequate supplies until 2015 as well as allowing export of gas to New South Wales, South Australia and Tasmania.

Exporting wind power

South Australia has the opportunity to become a large exporter of wind power interstate if transmission problems can be resolved, according to Ian Lloyd-Besson, president of the Australian Wind Energy Association.

Speaking at the Victoria Power conference in Melbourne, Lloyd-Besson has called on the Federal and State governments to address constraints in electricity transmission. South Australia, he says, has excellent wind resources and many locations suitable for wind farm development, but its grid links to eastern States are insufficient.

Lloyd-Besson says 379 megawatts of wind generation had been installed in Australia by the end of 2004, double the capacity at the end of 2003, with a further 628 MW of wind farms either being built or under tender. Sites with capacity for a further 5,000 MW of wind power and under evaluation, he says.

Carbon dioxide value certainty

Speaking at a Melbourne conference in February, Tony Concannon, regional managing director of International Power plc and a member of its main board in London, was straightforward about the greenhouse gas policy issue in Australia going forward. There is an uncertain value for carbon dioxide, he says, with the consequence that investors are likely to be wary about new developments until clarity is provided.

This is a growing theme in some Australian business quarters, including parts of the energy sector, and is likely to be heard on a rising note now that the Kyoto Treaty has come in to effect. (Thirty industrialised nations, excluding Australia and the USA, are among the 141 countries that have signed the treaty.)

For the Federal Government's part, the messages are equally clear: the Americans under George W.Bush won't ratify the treaty, many developed country ratifiers won't meet their volunteered targets and Australia is not going to adopt measures that will damage the country's international competitiveness. The Government in Canberra is also concerned about, and keen to minimise, the greenhouse gas policy measures being pursued at State levels.

Some substantial parts of the energy sector and energy-intensive industries are urging the Federal Government to maintain its focus on investments in technology to lay the ground for longer-term reductions in Australia's carbon dioxide intensity, supporting the national involvement in the multi-nation Carbon Sequestration Leadership Forum, the International Partnership for the Hydrogen Economy and the Methane-to-Markets Partnership and re-iterating their interest in the Government's Low Emissions Technology Fund, announced as part of the white paper released in mid-2004.

The (Labor) State governments for their part remain keen to be seen to be green, promoting new local initiatives and continuing, at least in the southern States, to urge a move to emissions trading.

The Energy Supply Association (ESAA), responding to a greenhouse discussion paper issued by the Victorian Government, says suppliers are concerned about "the lack of a clear national greenhouse policy." ESAA chief executive Brad Page says only the Federal Government can determine an appropriate long-term, single and national greenhouse gas emission target for 2050 for the whole of the economy. ESAA says the current fragmentation of greenhouse policy across jurisdictions in Australia is contributing to investor uncertainty.

Meanwhile AGL, in a submission to the Productivity Commission review of Australian energy efficiency, has argued that policy settings that impact on energy consumption, through energy efficiency initiatives and greenhouse gas measures, are inextricably linked. "It is important," says AGL, "that governments recognise that differing or competing State initiatives dilute the effectiveness of policy and impose additional compliance costs." AGL supports the view that the Federal Government should set a single greenhouse gas emissions target for 2050 that has milestones along the way.

The Plastics and Chemical Industries Association (PACIA) is typical of many business sectors in complaining about lack of co-ordination between the Federal and State governments over greenhouse policy. PACIA points out that, for example, the Victorian Government's protocol for environmental management on emissions sets different reporting requirements to that of the Federal Government's Greenhouse Challenge program.

PACIA sums up the key business concern about greenhouse policy in telling the Productivity Commission inquiry that "policies which encourage or demand energy efficiency or involve specific requirements in relation to greenhouse gas reductions will inevitably involve costs and will require that these costs are incurred at the expense of other options which improve (business) efficiency, particularly increased production and sales or lower unit production costs)."

While the situation appears relatively unknown in Australia, events unfolding in Ontario, Canada, provide a model for what happens when a government launches itself down a radical path to deal with climate change. The Ontario Liberal (or Labor in Australian terms) Government has decreed that 7,300 MW of province-based coal-fired power plant must cease operating by March 2008. This represents 25 percent of the province's power production. Given the lead time needed to construct new plant in a difficult regulatory regime for development, Ontario is probably going to have to rely on electricity imports to meet the shortfall -- and this, says the province's industrial sector, is "sure to see power prices rise sharply, causing hardship for the population in general and industry in particular."

Keith Orchison

Previous issues

| to top of page |