Issue 179, March 2020
Is it déjà vu all over again? Two months in to a new year and new decade and the Australian energy scene appears in rewind mode: swap “net zero by 2050” for the NEG. How does the current public debate (and political/activist blathering) differ from any of the past several years? And because a net zero target almost by definition necessitates embracing a carbon price, it is also likely to revive the biggest energy row of the past decade. The mainstream media believe public opinion on climate change has “clearly shifted” in the wake of the “Black Summer” bushfires. But has it in terms of affordability and supply security for electricity? As keeps being illustrated by voting in actual elections, opinion polls are not an infallible guide to voter intentions – and even 2030 commitments must survive at least three elections. Meanwhile, the March meeting of the CoAG Energy Council, only the second since December 2018 after six meetings that year, is set to be lively because of the net zero debate and not least because of Victoria’s manoeuvres to escape the consequences of its rush to renewable energy and baulking of new gas development.
“ It’s a (Labor) tactical gamble that the summer has shifted Australian values” – The Australian’s Paul Kelly.
“A net zero target should be as non-controversial in Australia as it is in most nations” – federal Labor leader Anthony Albanese.
“These things will be worked out on the way through” – Albanese responding to probing by the ABC’s David Speers on details of his approach.
“Anthony Albanese doesn’t have a plan to reach the target and can’t explain what his proposed energy transition will cost the nation” – Prime Minister Scott Morrison.
“Suddenly we’re back to where we were 12 months ago” – David Speers. “Labor has adopted an ambitious target which the government attacks as reckless and uncosted.”
“We have to do net zero by 2050,” Business Council CEO Jennifer Westacott, telling an ABC TV audience that legislating the target “would be a start.”
“The ‘how’ really matters; we have to get the ‘how’ right” – Westacott. “The simplest, most efficient method of achieving this transition is a price signal that places a value on lower emissions.”
“The net zero target is increasingly supported by Australian businesses, industry advocates, the wider community and governments of all complexions” – Australian Industry Group’s Innes Willox.
“The net zero emissions concept is fraught with scientific complexities and the potential for perverse outcomes and unethical government policies” – Australian National University professor Will Steffen.
“Political blame shifting never runs out of power” – Australian Financial Review columnist Jennifer Hewett.
The Energy Policy Institute has raised the prospect of the establishment of an innovation fund exclusive to the electricity industry with levies based on either supplier turnover or emissions “with the proceeds recycled in to technology-neutral emissions mitigation initiatives instead of disappearing in to general revenue.”
EPIA executive director Robert Pritchard says the move would be an alternative to an Australian emissions price. He says other funds could be developed for transport, manufacturing and agriculture based on the electricity sector experience.
Pritchard adds that the absence of a truly technology-neutral energy approach in Australia “has left a gaping hole in the electricity sector.”
He says the electricity market is failing to attract substantial investment from corporate and institutional investors. It has become a “no-go zone” for investors unless supported by government subsidies or power purchase agreements. “Money is lying idle and climate risk is not being addressed.”
The EPIA paper, published in mid-February, declares policymakers have only given lip service to technology neutrality, “preferring instead to pick winners such as variable renewable energy or more recently hydrogen.” It adds: “Governments should not be picking winners nor writing prescriptive emissions reduction technology roadmaps – this is not their forte.”
The annual Health of the National Electricity Market report prepared by the Energy Security Board says, in summary, that the NEM’s performance in 2019 was better than in 2018 – but the issue of grid security continues to be a key concern. And it underscores the need for substantial investment in transmission and new support technologies as the system penetration of weather-influenced wind and solar power reaches level that impact on the timing for closing ageing coal plants.
Security problems – the levels of frequency, voltage, inertia and system strength – required the market operator to intervene twice as much last financial year as in 2017-18, the ESB says. There were 75 interventions in the later period.
On reliability (having enough supply to meet demand), the ESB notes that it was “very tight” in Victoria, New South Wales and South Australia during summer peak periods as the impact of severe weather coincided with a less dependable coal-burning fleet.
ESB chair Kerry Schott told journalists NEM reliability now faces a “big challenge” when NSW, Victoria and SA have very hot days concurrently. Nonetheless, the board sees the longer-term outlook for NEM reliability improving from today’s “critical” to “moderate.”
The board notes that the capacity of utility-scale wind and solar power rose by 3,184 megawatts in 2019. It sees 15,000 megawatts of coal-fired generation being shuttered over the next 20 years and a need for 30,000 MW of renewable capacity to be installed in its place. However, it says, coal generation will still be providing about a third of NEM supply in 2040.
In a comment on east coast electricity prices – which rose 80 per cent between 2004 and 2019 – the Energy Security Board’s Health report says the unpalatable change was “largely driven by overbuilt networks in Queensland and New South Wales, rising wholesale fuel cost, retail market inefficiencies and the cost of a range of renewables subsidies.”
Looking forward, the ESB projects that retail prices will fall by about 7.1 per cent between now and 2021-22, largely because of decreasing wholesale prices.
Energy & Emissions Reductions Minister Angus Taylor has told a Sydney forum of the Committee for the Economic Development of Australia that the government’s 2020 climate change “pathway” will focus on technology, not taxes. The debate, he adds, “has got to be balanced, sensible and sober in its approach.”
“Australians,” he declared to journalists afterwards, “want to know we are not going to raise their electricity bills, that we’re not going to raise the cost of gas and that we’re not going to destroy jobs in energy-intensive industries.
“We won’t set some target and then throw a whole lot of money at it, hoping some will land in the right place,” he said, contrasting the Coalition approach to Labor’s “we’ll work it out as we go.”
Taylor announced that chief scientist Alan Finkel will chair a reference group to advise the government on its “emissions reduction journey,” setting the scene for Australia’s stance at the 2020 UN climate summit in Glasgow in November.
He emphasized to the CEDA audience that Australia will “meet and beat” its 2020 carbon reduction target “by almost a year’s worth of emissions” despite sharply-increased emissions-intensive exports and a fast-rising population. “Emissions per capita have fallen 40 per cent and the emissions intensity of the economy has fallen 62 per cent since 1990.”
Taylor said the government will release a “technology investment roadmap” consultation paper “in due course” and he promised an annual “clean technology statement” to provide an update on global technology developments and to “fine tune and prioritize our portfolio.”
The Construction, Forestry, Maritime, Mining and Energy Union says it is “sheer madness” not to include nuclear power in Victoria’s energy mix as the State pursues the “very challenging” target of net zero emissions by 2050 set by the Andrews Labor government.
In a submission to a State parliamentary inquiry in to prohibitions against the use of nuclear energy, the CFMMEU declares a “disastrous transition” of Victorian electricity supply can only be avoided by deploying dispatchable power supplemented by renewable energy rather than relying on renewables alone. It says: “CFMMEU believes that a zero emissions transition of the national energy market is technically feasible without economic harm only if current coal and gas generators are replaced by nuclear power or HELE coal-fired power stations fitted with 100 per cent carbon capture and storage.”
The submission adds: “Proponents of wind and solar tend to ignore all the additional overall system costs but make no mistake they will be passed fully on to Victorian electricity customers.”
In another trade union indication of support for the technology, Daniel Walton, national secretary of the Australian Workers Union, has declared in a national newspaper opinion column that “it is no longer defensible” for the ALP to “keep offering a reflexive ‘no’ to nuclear power.”
However, Chris Bowen, Labor’s former federal treasury spokesman and now its shadow minister for health, has told journalists that even considering nuclear power in Australia’s future energy mix is “a fantasy and a furphy.” He declared: “The economics of nuclear power don’t stack up.”
On the Coalition side, Liberal MP Ted O’Brien, who chaired a recent federal parliamentary committee inquiry on nuclear power, is urging Energy Minister Angus Taylor to include the technology in the long-term national plan to address carbon emissions that he is currently preparing. “Nuclear isn’t necessarily the answer,” O’Brien told a newspaper, “but it should be on the table to be assessed.
The federal ALP energy spokesman, Mark Butler, says he and his colleagues “will work out how to get to net zero by 2050 over the course of the current parliament” and will have a detailed policy “well before” the next national election.
In a radio interview after leader Anthony Albanese committed the party to the net zero path, now adopted by 80 countries around the world, Butler asserted that a carbon price is “not as important now” as it was when Labor under PM Julia Gillard introduced it a decade ago.
Butler claims “renewable energy doesn’t need a price on carbon to compete with and beat fossil fuel electricity.”
The ALP’s federal agriculture spokesman, Joel Fitzgibbon, says in a newspaper op-ed that “our communities, rightly, expect each of Australia’s political parties to have a plan to reduce greenhouse gas emissions while providing guarantees on jobs and also affordable and reliable energy security.” He argues the aspiration of carbon neutrality by 2050 is a “conservative and low-risk path.”
Meanwhile Finance Minister Mathias Cormann promises the Coalition government will finalize its “longer-term emissions reduction target” in time for the 2020 United Nations climate change summit in Glasgow in November.
The Australian Greens are arguing net zero by 2050 isn’t good enough and the target date should be 2040.
Declaring that there is a “growing consensus” on the goal of net zero emissions by 2050, the Australian Industry Group has also warned “the challenge should not be underestimated.”
The association’s CEO, Innes Willox, says the net zero concept is “increasingly widely supported” by Australian businesses and the wider community but discipline is needed to develop “efficient, trade neutral and fair” policies to pursue it.
Willox adds: “The challenge goes well beyond generating cleaner electricity (and) we shouldn’t be hung up on economic projections that are about as reliable as trying in 1990 to estimate the cost and value of smartphones in 2020.”
He says that at a national level Australian politics has been “riven by climate policy for too long.”
Earlier in February, in a newspaper op-ed criticizing comments by the new Greens leader, Adam Bandt, Willox declared that a 10-year time frame to phase out fossil fuels across the economy is “staggeringly unachievable” because it would “cause economic disruption and alienate significant sectors of our community.”
He adds: “Ten years to complete the transition is a slogan not a plan.”
An Essential Report poll taken at the end of January found that 71 per cent of respondents supported the net zero by 2050 concept. The poll’s breakdown of supporters of the target found that 56 per cent of those who identified as Liberal or National voters were among them.
Meanwhile, new polling published by JSW Research at the end of February, shows the cost of living leading respondents’ top five most important issues for government (59 per cent) followed by health care (53 per cent), employment (42 per cent) and the environment and climate change (also 42 per cent). Energy issues received 27 per cent response.
Australia media covering the renewables energy scene are awash with complaints as 2020 begins about the problems being encountered in developing new wind and solar projects.
CleanTechnica website, for example, says “there is trouble on the horizon – a lack of clear (national) policies and difficulty getting Australian Energy Market Operator approval to connect new projects to the grid have many developers ready to pull the plug on new investments.”
The Smart Energy Council’s Wayne Smith is reported in PV Magazine as saying “the sovereign risk in Australia is too great.”
In February contractor Downer Group announced it will no longer bid to build solar farms in Australia, pointing to the new investment pipeline falling to $1.2 billion 2019 after a record $3 billion in 2018. CEO Grant Fenn told journalists the solar farm market is “dire” with developers, contractors and bankers “trying to wrap their minds around grid stability issues, risks associated with transmission losses, equipment performance and connection problems.”
Clean Energy Council CEO Kane Thornton claims the NEM transmission network is “simply not keeping pace with the transition to a 21st century energy system and is causing major concerns for clean energy investors.” The association says there was a 50 per cent drop in overall utility-scale project proposals between 2018 and 2019.
The CEC is supporting a decision by the Andrews Labor government in Victoria to go it alone in approving upgrades to the transmission network through changing its version of the national electricity act – joint legislation with other governments – to over-ride the “complex and outdated” NEM regulatory regime.
The State government complains that transmission upgrade efforts have been “bogged down for years” in some cases in Australian Energy Market Commission processes.
Federal Energy Minister Angus Taylor has retorted that the Victorian government has failed to plan adequately for the roll-out of renewable energy in the State. “If you have a very aggressive renewables target and don’t have a clear plan for matching dispatchable generation, you’re heading for trouble,” he says.
The Australian Energy Council has criticized the Victorian move, saying there has been no consultation with industry and warning the intervention will add to instability for would-be investors.
Labeling the legislation “audacious,” the AEC says “the construction of networks by ministerial decree represents a major departure from the basis for planning and regulation of energy infrastructure.” It adds that the bill “turns the regime on its head.”
The Energy Users Association voiced similar concerns, with CEO Andrew Richards saying “while there is certainly potential to improve the rules governing the energy market, they are in place to protect consumers from poor decisions.”
Energy Networks Australia says that how the Victorian approach will play out remains to be seen, given that half the interconnector between the State and New South Wales lies outside its jurisdiction.
Promoters of variable renewable energy are in a huff because the Australian Energy Market Commission, in its first major rules decision of 2020, has rejected a plea to change how generators’ transmission losses are calculated.
The green generation movement argues that marginal loss factors, taken with extra firming required by regulators to maintain system security, and the delays in connecting wind and solar farms to the NEM grid are “major hurdles” for new development.
The AEMC has refused a transmission losses rule change on the grounds that consumers would bear the extra costs involved.
Commission chairman John Pierce says “the rapid pace of renewable investment has meant that generation has got ahead of transmission.
The Clean Energy Council has reacted by declaring the existing MLF regime “no longer fit for purpose” and warning that the AEMC decision “will further undermine investor confidence and the energy transition.”
The Queensland government, which faces the polls in October, has given development approval to a 226-turbine wind farm to be built on State forest land in the Wide Bay area between Gympie and Maryborough.
The $2 billion project with an intended capacity of 1,200 megawatts is being pursued by the joint venture Forest Wind Holdings involving turbine manufacturer Siemens and renewables company CleanSight. It is intended to have the wind farm constructed by 2022.
Energy Networks Australia has published a factsheet to help householders understand what each dollar they spend on electricity delivers.
It includes, the association says,160 slices of toasted bread, two to three days running a fridge, 20 hours of television watching, a year of smartphone charging, three dishwasher loads and 15 minutes in the shower.
ENA chief executive Andrew Dillon says the point of the exercise is to make householders more aware of their energy use. “The type of appliance you use and how you use it can have a significant impact on power bills.”
The 2020 supply and demand outlook in the east coast gas market has improved and LNG netback prices have fallen, but domestic prices remain high and there is “significant uncertainty” about future supplies, according to the Australian Competition & Consumer Commission.
Releasing a new report on the gas market, ACCC chairman Rod Sims says southern States risk facing a shortfall in the medium term unless there is more exploration and development in their jurisdictions or more infrastructure to bring gas to them from beyond their borders.
Sims says commercial and industrial customers are continuing to try to reduce their overall gas costs but most report to the commission that they have exhausted all opportunities to achieve energy efficiency improvements. Closure of regional manufacturing plants that are unprofitable because of high gas prices continues, he warns.
The latest ACCC report, its eighth since the federal government declared gas supply a “crisis,” projects 2020 domestic gas supply on the east coast will be 2,025 petajoules versus 1,831 PJ demand. It says the supply outlook from 2021 to 2030 “remains uncertain.”
Meanwhile the Victorian Coalition opposition is calling on the State government in Melbourne to accept bipartisan support for a lifting on the freeze on conventional natural gas exploration. The current moratorium is due to expire on 30 June.
Victoria is Australia’s biggest user of domestic gas and the petroleum sector says the move can be a first step towards accessing “significant potential unconventional resources” in a situation where the Australian Energy Market Operator foresees a 34 per cent fall in State winter gas production by 2023 because of dwindling Bass Strait supplies.
Despite this precarious position, wrangling also still rolls on in the State over the fastest possible new source of supply: AGL’s proposed LNG import terminal at Cribb Point. “The project seemed simple but it has turned out to be far more complex” because of community attitudes, an AGL executive lamented to a CEDA forum in February. Operations that were supposed to start in the first half of 2020 and now considered by the company to take until the second half of 2022 – assuming the development can overcome regulatory hurdles.
Saul Kavonic, head of energy, oil and gas research for Credit Suisse’s Australian activities, suggests that 2020 “may be as good as it gets” for gas buyers, warning that domestic prices are likely to rise again soon.
Kavonic was interviewed by Quest Events as part of its promotion of the Australian Domestic Gas Outlook conference to be held in Sydney in mid-March. The event is expected to attract more than 300 participants.
Kavonic’s view is similar to that of Strike Energy CEO Stuart Nicholls, who thinks the current easing of supply costs may be short-lived and LNG prices rise later in the decade.
Asked how federal and State government can try to improve outcomes, Kavonic said: “Free markets may be a great starting point – but, unfortunately, they don’t have many defenders these days.”
He added that the amount of new supply needed to make a big change to gas prices “doesn’t look like happening any time soon.”
Graeme Bethune, CEO of EnergyQuest, who like Kavonic and Nicholls, is a keynote speaker at the ADGO conference, argues that “there is no silver bullet” for the gas market situation on the east coast. “We need multiple things to happen at the same time to address shortfalls.”
He believes the market’s future will come to resemble that in Europe, with local gas, long-distance pipelines and LNG import terminals all needed to meet demand.
Asked if he thought the local situation could be nearing a more settled position, Bethune responded: “Just the opposite – this is the calm before the storm. We are now just five years away from east coast gas shortages (and) it may be a year or two earlier for peak day events. The gas market will be short of supply and infrastructure to optimize supply in just a few years.
He added: “The uncertainty for investors in infrastructure is being made worse by erratic government policies and uncertainty on where (new) gas will come from. We also need more open and transparent markets with good information.”
Chief Scientist Alan Finkel has stressed in a National Press Club address that natural gas must play a critical enabling role on Australia’s path to sustainable low-emissions energy.
Finkel, who completes his term as Chief Scientist this year, told the Press Club it will be decades before renewable energy alone can power modern society. “While these technologies are being scaled up, we need an energy companion today that can react rapidly to changes in wind and solar output – an energy companion that is itself relatively low in emissions and only operates when needed. Natural gas will play this critical role.”
Finkel said the role of gas is already on display in South Australia and Britain “where a shift from coal to gas has enabled a more rapid take-up of renewable energy.”
The Australian Petroleum Production & Exploration Association has been quick to welcome Finkel’s commendation. CEO Andrew McConville says: “It is important for the gas industry, including Australia’s growing gas exports sector, to be recognized for the positive role it can play. As the global appetite for energy continues to grow, the process of substituting gas for more emissions-intensive fuels allows importing countries to satisfy demand and reduce CO2.” This, he adds, is a “critical and valuable” Australian contribution to a global challenge.
The febrile state of today’s climate change/energy debate in Australia can be illustrated by one fact: the Business Council, which last year lambasted a Labor plan for a 45 per cent cut in national carbon emissions by 2030 as economy wrecking, is now promoting legislating a net zero by 2050 approach.
This is just the latest twist in a 25-year saga and it is still quite unclear where policy will land – or even if it will land. Multiple attempts to land the “NEG” saw it crash and burn.
It is even more unclear what will be realistically required to meet the net zero goal. To quote the Rio Tinto chief executive, Jean-Sebastian Jacques, ”there is no clear pathway right now for the world to get to net zero emissions by 2050” – this despite the giant resources company saying it aims to hit this mark for its own operations. Further, as a BBC commentator put it in February, talking about Britain, “there’s no denying the painful nature of many of the changes we need to make to get to zero carbon.”
Here in Australia, where the “painful nature” of any policy tends to be political poison at the next poll, politicians in particular have given little thought – at least visible to the public – to how net zero carbon might be achieved and at what economic cost.
Perhaps this is the point to remind them of Bill Clinton’s critical campaigning thought: “It’s the economy, stupid.”
The effort required to pursue net zero must go well beyond the electricity sector and, there alone, the costs are going to be far from trivial.
Here is Infrastructure Australia, in a new report, on just the power point: “The national electricity market is undergoing a once-in-a-lifetime transition from thermal generation to intermittent renewables. Over the next 15 years significant investment will be needed in renewable and firming generation and associated transmission to continue to provide affordable, reliable and secure energy.
“By 2040 an estimated 30,000 megawatts of large-scale renewable energy, backed by 21,000 MW of new dispatchable resources, will be required to replace retiring coal generation. At present there is only 13,000 MW of transmission connection capacity for renewable energy zones, less than half of what is required by 2040.”
We have had a five-year tutorial in the southern States on the hazards of just starting on this power transition and the ensuing problems are literally never out of the media headlines. This is only the tip of what an economy-wide net zero effort would entail.
As one local commentator has put it, the more detail politicians are able to tell voters about tough choices, and the earlier they do so, the better. “Nasty surprises are, well, nasty. It isn’t practical to plan a social and economic revolution without bringing people with you.”
In the case of electricity supply, as the Energy Policy Institute has underscored, a national vision should strive for integration and consistency across all jurisdictions; it should drive competition within transparent markets to ensure efficiency and lowest possible costs – and should steer clear from promoting or ruling out particular technologies over others.
The amount of time that has been frittered away in Australia on energy and climate issues without establishing a stable, long-term approach is a disgrace. Against that background, a leap in to the dark on net zero by 2050 could be a disaster.
28 February 2020