Powering Australia



Issue 81, January 2012


Welcome to the first issue of Coolibah’s monthly newsletter in what will be another momentous year for electricity supply. This edition includes a look at the growing controversy over the proposed $10 billion Clean Energy Finance Corporation, which is due to go before federal Parliament in the first half of 2012, and reports a new State inquiry in to generation. It also canvasses federal government support for time-of-use pricing to help attack the rising problem of peak power demand.

Keeping cool

A study delivered to the Australian Energy Market Commission by consultants Ernst & Young at the end of December forecasts that there will be a 97 per cent increase in national purchases of air-conditioning units this decade.

The report predicts that the stock of air-conditioners will be 12.9 million in 2020 compared with 6.5 million in 2009.

While Tasmania is set to see the largest percentage increase (276 per cent), the biggest impact will be in Queensland where 2020 stock – at 4.7 million units – will be 177 per cent higher than in 2000.

Ernst & Young estimates that use of air-conditioners will make up about two per cent of total east coast electricity consumption at the end of the decade.

Most alarmingly for federal and State governments wrestling with the political pain of ever-rising electricity bills for households and other consumers, the Ernst & Young study signals that, if present trends continue, east coast peak power demand by 2029-30 will have shot up from 38,225MW in 2010-11 to beyond 61,000MW.

The AEMC is conducting a “power of choice” inquiry looking at actions that are available to consumers or third parties to manage electricity use. It is due to be finalised in 2012.

Unproductive stalemate

Federal Resources & Energy Minister Martin Ferguson says the draft energy white paper recognises that one of Australia’s chief priorities is to manage growth in peak power demand while accelerating “clean energy outcomes.”

The draft white paper, he says, recognises the tension between energy prices and greenhouse gas reductions – an “unproductive stalemate.”

Ferguson was speaking a week before the Ernst & Young peak power predictions were delivered to the AEMC.

Peak demand is rising faster than average power demand, he notes, and the trend is set to continue as Australians take up the range of modern, energy-hungry appliances now on the market. In particular, the widespread and prolonged use of air-conditioners is increasing network capacity requirements significantly to meet demand that occurs on only a handful of days a year.

In Sydney, for example, suburban demand for electricity nearly doubles as the temperature rises from 29 degrees to 44 degrees Celsius.

Ferguson argues that “empowering consumers to manage energy is a critical part of any potential solution.”

Consumers, he says, need “greater engagement” in how they use energy.

Achieving this, he proposes, means introducing “more equitable and efficient pricing” so that customers who use substantially more energy at peak times pay the true cost of production and delivery.

Time-of-use pricing, he says, is the key way to deliver this. ToU can only be fully realised with the adoption of smart meters.

“Ensuring consumers are able to realise the benefits of smart meters will be essential over time to change the tide of public opinion towards them.”

The Ernst & Young study for the AEMC, however, offers a caveat to the federal perspective.

“Time-of-use tariffs and demand-based charges are capable of sending price signals (that) can affect peak demand growth,” the consultants say. “However, these tariffs are not widely adopted across all (consumer) sectors and across all States. Where they are offered, there is insufficient data available to allow for meaningful analysis of their impact on peak demand growth.”

Not so easy

Another report for the AEMC “power of choice” inquiry – by consultants PricewaterhouseCoopers – says that, while prices can play an important role in signalling to consumers when and how they can benefit from shifting or reducing their electricity consumption, the majority of householders and small businesses are unlikely to face tariffs that reflect the costs of producing power because they do not have interval meters.

What’s more, according to PwC, there are behavioural factors that inhibit efficient decision making by consumers: even when faced with an efficient price, “they may not respond in an economically rational way.

PwC suggest that options to improve consumer efficiency may including providing rebates rather than imposing price increases, having them opt out of technology options (rather than opt in) and comparing consumption performance between consumers to create social pressure for changed behaviour.
The situation is made still less easy, the consultants say, because both energy retailers and electricity distributors have limited incentives to roll out time-of-use meters to consumers.

New generation inquiry

The O’Farrell government in New South Wales has launched a parliamentary inquiry in to generation economics.

Chaired by Liberal MP Jonathan O’Dea, the Parliament Public Accounts Committee is charged with “examining the current mix of energy sources used in NSW (to make electricity), making comparisons with other jurisdictions and the possibility of sourcing power interstate.”

The inquiry will also examine the potential for, and barriers to, alternative forms of generation and best practice in this area elsewhere in the country.

The closing date for submissions to the PAC is 10 February.

Meanwhile the Ernst & Young report on power demand trends for the AEMC forecasts that, if the current direction of consumption in NSW is maintained, State peak demand will reach 20,380MW in 2029-30, having been 14,595MW in 2010-11.

A critical factor in considering future supply is the consultants’ view that the other major demand region on the east coast, Queensland, will see peak demand, on present trends, rise to 19,043MW in 2029-30. It stands at 8,836MW at present.

NZ sales

The re-elected New Zealand government could garner more than $NZ6 billion through its proposed sale of 49 per cent of four energy companies.

John Key’s government has opted to first sell shares in Might River Power (which trades as Mercury Energy). The deal is estimated to raise NZ1.8 billion.

The government will legislate to prevent any shareholder, other than itself, from holding more than 10 per cent of the businesses.

Mighty River’s generation portfolio includes 1,040MW of run-of-river hydro-electric power, 175MW of gas plant and 386MW of conventional geothermal power.

Mortlake delay

Origin Energy says one of two 275MW units at its Mortlake power station in south-west Victoria is available to dispatch electricity, but completion of the second has been delayed by a switchyard fault. The Mortlake gas-fired plant was initially intended to be commissioned in late 2010 and then in the first half of 2011.

Still high cost

Under attack from the environmental movement, the Productivity Commission has scaled back its estimate of the costs of the solar feed-in tariff schemes, but still maintains that they (and the federal government’s small-scale component of the renewable energy target) are “relatively high cost policies achieving little abatement.”

The commission, taking in to account alternative parameters it found to be valid, now says the cost of solar FiT schemes in 2010 was between $107 million and $162 million (instead of $149 million to $194 million). It adds that the federal government’s solar RET segment cost between $44 million and $100 million (rather than $52 million to $98 million).

The commission says the revised abatement cost equates to $177 to $497 per tonne of carbon dioxide.

It adds “the benefits of solar PV for the minority of households that have installed systems are offset by the higher electricity bills faced by other consumers to pay for the subsidies.”

Power pain

The Queensland Labor government is heading in to a State election faced with bad news about power prices for the next three years as it struggles to ward off a heavy defeat at the hands of a resurgent Liberal National Party.

A report on the national trends in electricity costs prepared by the Australian Energy Market Commission for the energy ministers committee of the Council of Australian Governments says the average growth of Queensland’s residential bills will be 10 per cent a year.

The State’s householders now paying on average $1,500 a year for electricity in 2010-11 are heading towards handing over more than $2,350 in 2013-14.

The main driver of the projected 32 per cent increase will be higher network costs.

The AEMC breakdown of the State’s end-user bill for householders shows transmission and distribution charges rising from just over $900 annually on average in 2010-11 to more than $1,225 by 2013-14.

When the federal carbon price is included in bills, according to AEMC, the wholesale cost of energy will increase from $450 on average in 2010-11 to nearing $760 in 2013-14. 

By that point the cumulative burden for the average residential account of other greenhouse gas abatement measures will be around another $60.

When the carbon price is factored in, according to the AEMC, Queensland residential customers will be paying about $292.80 per megawatt hour for electricity in 2013-14 compared with $206.90 in 2010-11.

WA line supported

Facing an election in March 2013, Western Australian Premier Colin Barnett has acknowledged that electricity prices – which he has put up 57 per cent in three years after Labor froze them for a decade – are a potential threat at the polls.  He says that the State-owned utilities had $1 billion in debt when he came to office and increasing power bills was necessary.

Meanwhile, Barnett has said work will start this year on the $383 million high voltage line to link Perth and the State’s Midwest mining region. So far the government has allocated $314 million to the project.

Tax pledge

Federal Opposition leader Tony Abbott has begun 2012 repeating his vow that the Gillard government carbon tax will be “rescinded in its entirety” when he wins office. Abbott pledges to “scrap the tax and everything associated with it.”

Better off

Treasurer Wayne Swan claims that more than four million Australian households – almost half – will be “better off” after mid-2012’s introduction of the federal government’s “clean energy future” policies, including the carbon price, because of tax cuts and compensation. Swan also says that national resources investment in 2011-12 will reach $87 billion compared with $47 billion in 2010-11.

Tax flow

The National Generators Forum says the Gillard government’s initial $23 per tonne carbon price will add $25 per megawatt hour to the cost of electricity produced by burning brown coal, more than $20 per MWh to black coal output and $10 to gas-fired generation.

It says the impact on retail energy prices can be expected to be about $20 per megawatt hour.

Meanwhile Climate Change Minister Greg Combet has conceded that businesses using a large amount of electricity face a higher percentage impact from the carbon price because they pay substantially less per kilowatt hour than householders.

The government argues that electricity bills only represent a small part of input costs for businesses not eligible for trade-exposed compensation.

Many businesses other than energy-intensive users such as aluminium pay between 12 cents and 17 cents per kWh for electricity compared with the current (and rising) residential average tariff of about 21 cents.

Queensland’s Senator Ron Boswell claims that most of them are unaware of the higher carbon effect and that, with the impact of renewable energy costs, abatement-related charges could push up some business costs by 30 per cent.

Abatement push

Watch the Greens and fellow environmental travellers push in 2012 for Australia to adopt a higher 2020 greenhouse gas abatement target than the current bipartisan level of five per cent below 2000 emissions.

The lever is agreement when Malcolm Turnbull was Coalition leader and Kevin Rudd was Prime Minister that, if there was a “globally ambitious” successor to the Kyoto treaty, Australia would embrace abatement of 15 to 25 per cent by 2020.

Allowing for a fall-off in demand for electricity as a result of the global financial crisis, Australia’s current target requires an annual reduction of about 150 million tonnes of carbon dioxide in 2020 from present levels – of which the Gillard government’s “clean energy future” policy claims to be able to deliver 60Mt domestically.  The balance will need to be found through buying emissions credits overseas.

The launch pad for the move towards a higher target is the supposed breakthrough at the Durban UN climate policy talks in December resulting in an agreement to pursue a binding plan of action by 2015 by all countries to introduce a new compact to replace the Kyoto treaty by 2020.

The domestic environmental movement catchcry post-Durban is that retaining Australia’s present target will be “a global embarrassment.”

The Greens will pursue this line in to the next federal election, which is likely to be held during the 2012-13 financial year.

Fuming over fund

One of the key energy developments the Gillard government has to put to bed in 2012 is its $10 billion Clean Energy Finance Corporation, dubbed by a former Labor leader, Mark Latham, as “the greatest waste of money in the history of the Commonwealth.”

More soberly, the Energy Supply Association is still warning the government that “there is a real risk the CEFC will end up distorting existing energy and financial markets.” 

The introduction of a carbon price and retention of the federal renewable energy target means there is “little rationale” for the fund, the association says.

It wants the fund’s focus to be kept to supporting research and development and not to be on deployment of projects.

The Coalition has promised to scrap the CEFC if it wins office at the next election.

The federal government, which aims to have Parliament pass CEFC legislation by April, wants to have it in operation in 2013-14.

The environmental movement claims the fund has “the potential to leverage up to $100 billion in private investment to build new energy projects, including big solar projects, across Australia.”

The fund falls in the portfolio of recently-promoted Greg Combet – now the Minister for Climate Change, Energy Efficiency and Industry and Innovation.
Combet’s portfolio also includes the $3.2 billion Australian Renewable Energy Agency and the $200 million Clean Technology Innovation Fund.

He says the CEFC will be used to “remove barriers to the financing of large-scale energy projects” but insists it will be run as a commercially-oriented body. Critics respond that it is a new government bank trying to pick winners in renewable energy development.

The CEFC was the key demand of the Greens in exchange for support for the $23 per tonne carbon tax to be introduced in mid-2012.

In an editorial on 23 December, The Australian newspaper calls the CEFC a “large mistake,” included in the Gillard government “clean energy future” legislation at the behest of the Greens “despite warnings from the Productivity Commission and economists about the folly of government intervention.”

Interviewed on Sky Television, Mark Latham derided the fund as likely to “end up as the greatest waste of money in the history of the Commonwealth – it will make Building the Education Revolution and the pink batts program look like a Sunday picnic.” 

He said the CEFC is the “biggest industry slush fund in the history of the nation.”

Greens deputy leader Christine Milne has retorted that “it is fascinating that attempts to level the playing field are now seen as distorting the market.”
In its submission to the CEFC panel, the Energy Supply Association comments that “the energy sector as a whole, regardless of fuel source, faces challenges accessing finance due to a range of commercial and policy reasons.

“This does not necessarily mean that there are capital market barriers and that the government should intervene to provide financing.”

The Clean Energy Council has called for the fund to limit its support for any project to 50 per cent of needed investment.

The Australian Coal Association has strongly criticised the decision to exclude carbon capture and storage from CEFC funding, saying the approach will handicap the development of a key low-emission technology that the federal government acknowledges is needed to meet long-term abatement.

The National Generators Forum, which has been in a process of reformation and now represents 12 generation businesses, nine of them owned by State governments, is calling for a commitment that the CEFC will only support projects that can substantially advance technology development and not become the majority owner of any project.

The NGF describes the announcement that the federal government will fund public investment in private, commercial projects as “surprising.”
It adds: “There is no indication of what public benefit returns are expected from this investment.”

The NGF says the generation sector is perplexed as to why a major initiative, which will impact on investment and production decisions, is “going ahead with no prior discussion, analysis or any real explanation as to the motives and impacts of the program."

The NGF warns that direct government intervention of this kind in the market will create a new source of investor uncertainty. The federal government’s decision to become an active investor in the generation sector winds back a 20-year trend in State governments to wind back their direct commercial involvement in the market through privatisation and corporatisation.

The association says that the CEFC duplicates other government initiatives. “With a mandated market for renewable energy and a carbon price, there is no need whatsoever for the CEFC.”

The Australian Industry Group, however, argues that the CEFC has the potential to accelerate developments that can lower energy and abatement costs. The corporation needs full autonomy, it adds, and the federal government should have no role in selection or approval of investments.

Fire protection

The Baillieu government in Victoria wants the federal government to contribute $250 million to a billion dollar plan to reduce powerline-related bushfire risk in the State’s rural areas.

The Victorian government itself intends to contribute $250 million and will require the investor-owned network businesses to spend $500 million, an outlay that will go on to the customer tariff base.

The proposal is for work over 10 years, adding $13 a year to an average residential bill by the time it is completed.

It will focus on a mix of aerial bundled cables and some undergrounding of lines as well as providing safety switch technology at some sub-stations.

State Energy Minister Michael O’Brien claims that the proposed work program will reduce rural bushfire risks by 64 per cent. Supply, safety and affordability are competing tensions, he adds.  Powercor and SP Ausnet, whose networks provide rural Victorian delivery services, have both welcomed the announcement.

The plan is a response for findings of the royal commission in to the February 2009 bushfires in Victoria in which 173 people died. The commission ruled that five of 11 fires were caused by electricity faults or failings.

A task force set up by the Brumby Labor government to guide the response said full implementation of the commission’s recommendations about powerlines could cost $10 billion in capital spending and add as much as $247 a year to householder bills.

It recommended expenditures of between $500 million and $3 billion.
The report estimated the cost of undergrounding powerlines in all non-urban areas in the State at $40 billion and of insulating all non-urban lines at $20 billion.

No going back

The Victorian government will press on with the smart meter roll-out initiated by its Labor predecessor because the cost to consumers of stopping the program would be higher than going on. The Bracks/Brumby government originally estimated the roll-out cost at $800 million, but latest estimates put it at $2.3 billion.  The roll-out is due for completion in 2013-13 but only 75 per cent of those installed so far will be set up for remote reading by April.

Power snapshot

The Ernst & Young report to the AEMC says Australia is the developed world’s eighth most energy-intensive nation, but it is about five per cent less energy intensive than the world average.

In 2008-09, says the report, the electricity supply sector added $17.8 billion to national gross value and employed 48,000 people.  In 2011, power generation contributed 0.5 per cent of national GDP, transmission provided 0.2 per cent and distribution 1.1 per cent.

The reports says electricity consumption per head of population has increased from 3.86 MWh annually in 1973 to 9.68 MWh in 2009. Annual average per capita growth at 4.1 per cent far exceeds the OECD average of 2.1 per cent.

Electricity consumption on a per dollar of GDP basis has risen 36 per cent in 26 years – or by one per cent annually – compared with a fall for the OECD as a whole averaging 0.1 per cent annually.

While annual average growth in residential demand, along with Canada’s, leads the OECD, averaging six per cent per year, Australia leads in average industrial growth (eight per cent versus one per cent for the OECD as a whole).

Ernst & Young say total electricity consumption in Australia has risen from 70,000 GWh in 1973-74 to 242,000 GWh in 2009-10, an annual average rise of 3.6 per cent. The biggest rise in power consumption has taken place in manufacturing (up from 24,300 GWh to 66,900 GWh) followed by residential demand (up from 19,080 GWh to 60,100 GWh.  Consumption in the commercial and public sector has risen from 9,400 GWh in 1973-74 to 57,200 GWh in 2009-10.

The electricity sector is estimated to have contributed 194 million tonnes of carbon dioxide (or 36 per cent of the total) to national greenhouse gas emissions in 201-11.

Retailers support AER

The Energy Retailers Association says it “broadly supports” the bid by the Australian Energy regulator to change the rules under which it determines network capex and opex expenditure, a move the network operators have strongly criticised.

The ERAA says “it is unacceptable that customers should have to pay for the inflated forecasts of monopoly network providers.”

The association, with members providing 98 per cent of the electricity sales on the east coast, says retailers believe network revenues under the current framework have not consistently reflected efficient costs. Network service providers, it asserts, taking up the point made by the AER, are currently incentivised to inflate forecasts by the existing regulatory regime.

Decoding Durban

Opinions abound as to the real outcomes of the latest UN climate policy talkfest held in Durban, South Africa, held in the early weeks of December.

Some, including Australia’s Climate Change Minister, Greg Combet, have hailed the Durban result as a “breakthrough”  that validates the local carbon tax decision.  Others see it more sceptically, including ABC environment report Sara Phillips, who has labelled it “more of a win for geopolitics than the environment.”

While Associated Press, in a widely-reported summary, branded the outcome a “landmark deal,” Reuters and the New York Times called it “modest.”

The UN’s own senior officer at the meeting, Christiana Figuerres, asked to explain the legal form for the proposed new agreement, told media: “What it means has yet to be decided.”

Asked by a journalist on his return to Australia whether the new deal is to be legally binding and involve all countries accepting uniform cuts to emissions, Combet said: “The exact nature of the longer-term agreement will be subject to negotiations over the next couple of years.”

Michael A. Levi, a fellow of the Council on Foreign Relations in New York, says: “The reality is that there is no more agreement on the future of the climate talks than there was (before negotiators convened in Durban). Europe will continue to insist on a full-blown, legally binding agreement (to replace the Kyoto treaty), China and India will continue to oppose one and the US, while leaving the door open to an agreement that is binding for all, will continue to be unenthusiastic as well.”

Andrew Light, a senior fellow at Centre for American Progress, on the other hand, argues that “those who claim Durban is a failure are missing the big picture – (the “Durban Platform”) emerged out of an incredibly hard process with multiple trip wires."

Light sees the Durban talks as an essential step in achieving an international agreement or a cluster of them.

It seems the Durban discussions actually led to three agreements.

In the first, the abatement commitment period under the Kyoto protocol, due to expire at the end of 2012, will be extended to 2017 or 2020, but with fewer developed nations participating.

Canada withdrew in the week the Durban talks ended and Russia and Japan say they will not make further commitments.

In the second, Durban delegates made some progress on the so-called Cancun Agreement, itself a successor to the Copenhagen Accord, involving abatement steps involving some developing countries and, perhaps most importantly, on keeping alive the proposed Green Climate Fund.

(The fund, which is supposed to involve contributions of $US100 billion a year from developed to developing nations from 2020, is due to have an opening contribution of $US30 billion.  How much Australia would have to contribute – some have estimated it at $400 million – to the opening fund has not been revealed by the Gillard government.)

The third Durban outcome was the one that attracted most attention: an agreement to start negotiations on a post-2020 climate pact, with a committee tasked to report by the end of 2015.

Yvo de Boer of KPMG, previously executive secretary of the UN Framework Convention on Climate Change, perhaps sums up the optimists’ view when he writes: “With a pinch of luck, by 2015 the current economic crisis will be behind us, creating a more benign climate for governments to make commitments to tackle climate change effectively.”

American author and commentator Ronald Bailey offers a more cynical perspective: “The only Durban breakthrough is that 20 years of climate change diplomacy did not totally implode. What was achieved was not much more than an agreement among countries to continue talking about the things (on which) they disagree.”

Next stop: Qatar at the end of 2012.

Big smoke

Amid the hype about emissions abatement prospects in the wake of the Durban UN conference, China’s Shenhua Group has announced that it will build Asia’s largest coal-fired power station in the southern port city of Beihai.

Coal for the eight-unit, 8,000MW complex will be imported from Shenhua’s mines in Australia and Indonesia, with four loading docks, each able to handle 100,000 tonnes a year, being built at Beihai.

Construction of the project in the power-starved autonomous region of Guangxi Zhuang, where several years of drought have reduced supply from hydro-electric systems, will take five years.

The China Electricity Council, meanwhile, has forecast that the country’s 710,000MW of thermal capacity (out of a national total of 966,000MW), will be increased by another 257,000MW by the end of 2015.

Wind buy

Guohua Energy Investment, a subsidiary of China’s Shinhua Group, is paying $88.6 million to acquire a 75 per cent interest in Hydro Tasmania’s Bluff Point and Studland Bay wind farms (with a total capacity of 140MW) at Woolnorth in the State’s north-west. The deal is subject to approval by the federal Foreign Investment Review Board.

Hydro Tasmania was previously in partnership with Hong Kong-based China Light & Power in building the projects. The Roaring 40s joint venture broke up in September.

Hydro Tasmania chairman David Crean says the proceeds of the sale will help finance the $400 million Musselroe wind farm – and Guohua will also be considering involvement in this north-east project.

Guohua already owns 20 wind farm projects with a combined construction value of $3 billion and is engaged in building another 1,500MW of wind developments.

SA blowing hard

The Clean Energy Council claims that South Australia has $3 billion worth of investment in wind farms in the pipeline. CEC has reacted strongly against a proposal by the State Opposition to ban wind projects within two kilometers of homes and 5km of townships. Any such move, it says, will turn the State in to a “no go zone” for wind development.

Intermittency ‘debunked’

Infigen Energy managing director Miles George claims that assertions the variability of wind farm supply is a barrier to much larger deployment of the technology in Australia has been “debunked.”

Writing in The Australian Financial Review in late December, George claims wind turbines “typically operate more than 80 per cent of the time” and that their output can be forecast with “97 per cent accuracy one hour ahead of time.”

George says rural Australia can benefit significantly from more investment in wind energy.

Meanwhile the NSW Coalition government is proposing new wind farm development guidelines that it describes as “possibly some of the toughest in the world” while the Labor opposition rails at a move to “decimate” the wind industry and the Greens say it is a move that must mean greater use of coal seam gas.

The NSW government is also investigating new guidelines for coal seam gas exploration and production in the State.

The key change to wind development rules for NSW proposed by the government is the power granted to communities to resist construction close to them. State Energy Minister Brad Hazzard says it is meant to encourage developers to consult more actively with affected communities.

There are 17 proposals for wind farms currently in the NSW planning process.

Solar burn

The global economic crisis creating a tighter loans environment, the need for governments to reduce outlays and consumer pushback against rising energy costs are all factors in what is developing in to a stressful financial year for the solar photovoltaic business in the western world.

Solar PV expectations towards the end of 2010-11 were sky high, now the market internationally, including Australia, is suffering sunburn.

Solar companies and industry analysts are saying that they expect calendar 2012 to be a flat year, although this will still involve installation globally of some 25,000MW of capacity.

This sounds large until it is appreciated that the dash for solar power has spawned global solar cell production capacity of 80,000MW.

Researchers in Europe predict that there will be a decline of 3,000MW in 2012 installations in Germany and Italy, which became two of the largest markets over the past decade on the back of substantial subsidies, now being cut. 

German feed-in tariffs, slashed 13 per cent a year ago, were cut another 15 per cent on New Year’s Day and will be reduced by a further nine per cent in mid-2012.  The Economy Ministry has proposed measures to reduce the growth of PV installations to 1,000MW a year.

The Germans still had a record year for rooftop solar in 2011 – with installations last year reaching 7,500MW, a rise of 100MW over 2010.

Nonetheless, the sector only contributes three per cent of German electricity consumption.

Hopes that the Merkel government’s decision to abandon nuclear power will re-ignite the PV sector are being discounted as energy suppliers turn to coal and gas generation to meet demand at acceptable prices.

As a result PV company share prices have crashed – one major supplier has seen its price plummet from 70 euros in 2007 to three euros towards the end of 2011.

The German solar manufacturing sector, which peaked with 150,000 jobs in 2010-11 and has been held up as a model for governments around the world by green activists, is expected to shed 30,000 people in 2011-12.

Reuters report that 5,000 German companies involved in solar activities shut down in calendar 2011, shedding 20,000 jobs.

The Czech Republic, Slovakia, France and Britain have also cut feed-in tariffs with Greece expected to follow in 2012.

Spain has already ditched its massive 12.5 billion euros annual subsidy for renewable energy because, simply, the country is broke.

The clouded market conditions have seen four large American PV businesses and three in western Europe falling in to insolvency while a number more in the US and Europe as a whole are announcing production cutbacks and laying off staff.

Ongoing efforts by the US PV industry to prove that dumping of low-priced Chinese production is harming it and breaching trade laws will be a dominant feature of 2012, with China retaliating by launching a national inquiry in to American renewable energy imports and India signalling it may initiate trade cases against both China and the US.

In Australia, Sydney-based solar cell manufacturer Silex closed down in late 2011, blaming its demise on the reduction in government support for subsidies, the global glut and the impact of a high Australian dollar.

However, this development was followed soon afterwards by the opening of the Tindo Solar plant in Adelaide, aiming to produce 300,000 solar panels a year.  The company claims it can match the cost of cheap, imported Chinese panels through automation and efficiency.

Last word

Nothing better illustrates the dichotomy between politics and strategy in Australia’s energy development than the fact that, at the Greens’ behest, carbon capture and storage is to be excluded from Clean Energy Finance Corporation funding while the Gillard government’s “clean energy future” approach highlights the importance of CCS in national abatement between 2030 and 2050.

The government is going to be publicly confronted by this contradiction in 2012 when it seeks to pass the CEFC legislation and to finalise the energy white paper.

The ban on the CEFC supporting carbon capture investment, of course, is a straighforward political fix. Caving in to the Greens was seen as the only way to advance the carbon price regime.  Julia Gillard could not afford a re-run of the situation that brought Kevin Rudd undone when the Greens refused to vote for his carbon policy in the Senate in 2009-10.

The strategic problem is that this stance conflicts absolutely with the “clean energy future” modelling provided by two lots of consultants for the Treasury.

They assert that by 2050 between a quarter and a third of generation output – electricity sent out by power stations as opposed to consumed by users, the former being the relevant emissions point – will be met by coal-fired and gas-fired plants using CCS.

This, it is claimed, will cut annual emissions by 25 million tonnes.

On the Treasury’s version of demand by mid-century, which may turn out to be well off the mark, according to the draft white paper,  the CCS-equipped fossil fuel plant will produce between 90,000 and 125,000 gigawatt hours of electricity per year by mid-century.

To put this in context, it is the equivalent to the amount of power generated today by New South Wales and Western Australia combined at the lower level and by NSW and Queensland combined at the upper level. It would require a generation capital outlay of tens of billions of dollars.
Again, to provide context, the capex for generation on the east coast since 1998 stands at $12 billion.

Not unimportantly, both Treasury consultants and the new Bureau of Resources & Energy Economics agree that, at the present rate of development, CCS will not be in use in 2030 and between 45 and 55 per cent of a larger amount of electricity than is generated today will still be supplied by conventional black and brown coal-fired plants.

Some senior industry managers believe that CCS can be commercially viable by 2024 with the right amount of R,D&D support here and overseas.

Not surprisingly, the coal miners are yelling at the government about its CEFC approach.

Their argument is that Australia has a clear strategic and economic interest in pushing along carbon capture because of both its domestic needs and its plans to grow its coal and LNG export industries.

Apart from the publication of the draft energy white paper, December was also notable for the appearance of BREE’s first “Australian Energy Projections,” focussed on 2034-35.

Demand for electricity is expected to increase by nearly 42 per cent between now and then on BREE’s modelling, with gross generation rising from 245,000 gigawatt hours to 348,000 GWh.  If only 38 per cent of the 2034-35 power is coming from conventional black coal and brown coal, as BREE forecasts, this would represent output of 132,000 GWh, which would be only a quarter less than today.

Given that the federal government will not have a bar of a nuclear power option, it surely follows that a harder run at making CCS viable is in the national interest because, if introduced in the middle of the ‘Twenties, it would reduce the huge amount of emissions credits Australia will need to buy overseas each year.

The Australian Coal Association argues that the CEFC support for renewable energy will come on top of the $3.2 billion in funding managed by the Australian Renewable Energy Agency and what is claims to be $20 billion in indirect support through the renewable energy target. CCS funding at present is $2 billion, half of it supposed to come from the miners.

What we have at present is a gap the size of the Great Rift Valley between short-term politicking and long-term strategic planning.  

Keith Orchison
10 January 2012

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