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Coolibah Commentary

Issue 157, May 2018

With a federal election possibly less than a year away, energy issues – and most importantly concerns about electricity and gas affordability – remain a hot button topic for eastern Australia, writes Keith Orchison. The ongoing saga of the “national energy guarantee” does not seem to be convincing households and businesses that actual bill relief is at hand even as politicians and activists continue to argue about greater pursuit of emissions abatement while the issue of substantial transmission augmentation and who bears its costs looms larger. Whether proponents of nuclear power – in the form of small modular reactors – can gain any traction in this environment is another debatable point.

Green bid

The Coalition government in New South Wales – which faces the polls next March – is making a bid to be seen as a promoter of wind and solar power.

In a submission to the Australian Energy Market Operator, which is looking at the role of renewable energy zones, the Berejiklian government declares it has resources relatively close to existing network infrastructure to enable the State to contribute strongly to the NEM’s future needs while offsetting the closure of “traditional” energy generation.

The government says three “priority” energy zones in NSW could enable the development of 77,000 megawatts of wind and solar capacity. Locating energy zones within the State, it adds would take advantage of NSW’s central location in the NEM and connection to other States. “Complemented by emerging technologies, energy efficiency and demand response, this would be more than enough to meet future needs.”

The government, however, emphasizes the need for strong intrastate transmission augmentation, pointing out that the existing NSW high voltage network will reach its capacity to connect new renewable projects by 2020.

The submission points to New England (where it says there are resources for 4,000 MW of wind and 12,000 MW of solar), the Central-West area north of Dubbo (potential capacities of 15,000 MW solar and 3,000 MW wind) and South-West (40,000 MW solar and 3,000 MW wind) as major areas for attention, noting the latter is close to the Snowy Hydro scheme and opportunities for new interconnection with Victoria and South Australia.

Energy Minister Don Harwin claims in the submission that promotion of these zones for renewable energy will place downward pressure on wholesale electricity prices and support regional development.

Unprecedented

TransGrid has told the AEMO renewable energy zones inquiry that “only a fraction” of the 30,000 MW of wind, solar and pumped hydro projects currently under consideration in New South Wales – leading to “unprecedented volumes” of connection enquiries – can be accommodated in its current network.

TransGrid says there is a misalignment of incentives between generation and transmission. “Generators are currently incentivized to develop renewable projects near existing lines where connection costs are lowest despite (these) often not being areas with highest-quality resources.”  The system cost of inefficiently locating renewable investments, it adds, are ultimately borne by consumers.

It also points out that transmission systems in many areas are becoming increasingly congested, with new and existing generators facing growing risks of being constrained at certain times.

Quotes of the month

Greens’ MHR Adam Bandt: “The NEG is a dog. It locks in coal, locks out renewables and puts an impossible burden on agriculture and transport to cut their pollution.” (Greens Australia policy includes “a strong, effective price on carbon” and pursuit of “zero emissions vehicles.”)

Katharine Murphy of The Guardian: “The NEG is entirely a creature of its circumstances. The (federal) government isn’t in a position to argue for a carbon price or an emissions trading scheme, or for a continuation of the renewable energy target after 2020 as a re-badged clean energy target – which was an idea put forward by Alan Finkel. Because of the great, persistent internal unreason that descends within the Coalition whenever the word ‘carbon abatement’ are uttered, the government has had to conjure up something entirely new.”

Paula Matthewson in The New Daily: “The NEG is by no means a perfect policy – it’s more like a camel created by a committee that was trying to build a racehorse. But it’s better than nothing because doing nothing will continue the uncertainty in the energy market that has prevented investors from building projects needed to bring electricity prices down.”

Josh Frydenberg, Minister for the Environment & Energy: “Energy policy in Australia is no longer simply an economic issue. It has also become a cultural one.”

Taking higher road

The CoAG Energy Council decision in April to press on with design of a “national energy guarantee” for the NEM has been greeted with relief by industry after weeks of uncertainty over how State jurisdictions and the ACT would react to the measure.

The council has agreed to hold a teleconference in June to discuss Energy Security Board progress with the NEG and is scheduled to meet in August to finalize a decision.

Malcolm Roberts, chief executive of the Australian Petroleum Production & Exploration Association, which is holding its 2018 annual conference in Adelaide in mid-May, says “the alternative to this decision would have been yet another round of political deadlock and blame-shifting – it’s a relief that the council has avoided the low road.”

The Clean Energy Council says the stage is now set for “a more extensive and detailed consultation and design process,” adding that the CEC’s acceptance of the mechanism will depend on the level of emissions reduction it supports.

Matthew Warren, CEO of the Australian Energy Council, says federal and NEM jurisdiction ministers have demonstrated they are willing to work together “to finally united climate and energy policy.” He describes the decision as “an important injection of confidence” for investors.

Australian Industry Group CEO Innes Willox says the CoAG Energy Council has listened to a clear message from industry and the community that governments need to work together to put downward pressure on electricity prices that are “intolerably high for businesses and households alike.”

Also welcoming the meeting outcome, the Minerals Council urges the ESB to focus on “how to reduce power prices by ensuring sufficient levels of lowest-cost dispatchable energy supplies are available 24/7.”

The MCA adds that there needs to be recognition the current national abatement target of 26 to 28 per cent below 2005 levels by 2030 “represents one of the largest per capita reductions among G20 nations.” This target, it says, is compatible “in absolute terms” with those being pursued by Japan, New Zealand, Canada and the United States. “Pressures to increase (our) target amount to pressures to impose additional costs on Australian households and industry.”

James Pearson, CEO of the Australian Chamber of Commerce & Industry, says that waiting until August for a final NEG decision is “a long time for business and households.” He has called for the final decision to be brought forward. The federal government and the NEM jurisdictions should be “working round the clock” on it, he urges.

ACCI wants priority attention also given to reducing “excessive” network costs, reducing the levels of concentration in generation and retail markets and encouraging access to, and development of, gas resources to “prevent business closures and job losses.”

Put all cards on table

Queensland’s Energy Minister, Anthony Lynham, says his State government’s final backing of the national energy guarantee depends on the Turnbull government “putting all its cards on the table” – including analysis of detailed impacts on power prices and carbon emissions.

Lynham adds that the Palaszczuk Labor government sees Queensland being in a stronger position than other NEM jurisdictions, “with Australia’s youngest coal-fired power generators delivering reliable baseload power and more than $4 billion worth of renewable power projects financially committed or under construction." The State has had the lowest wholesale prices on the east coast for the past five months, he says.

Meanwhile federal Labor has attacked the NEG on the grounds that, as proposed, it will “mean that not a single new renewable energy project will be built in Australia from 2020 to 2030.” Energy spokesman Mark Butler says the measure will call cause investment in renewables to “fall off a cliff” and power prices rise for households and businesses.

NEG trajectory

Modelling undertaken for the Energy Security Board suggests that implementation of the “national energy guarantee” will see a lowering of fossil-fuelled generation in the NEM between 2020 and 2030.

The model for “business as usual” sees a coal-fired share of power production in 2030 of 64 per cent supported by five per cent from gas turbines. Under the NEG, it is claimed, this will fall to 60 per cent for coal plants and four per cent for gas units.

The model sees a rise in production under the NEG via wind power from 11 per cent to 15 per cent and an increase in solar photovoltaic output (including rooftop arrays) from seven to 13 per cent. Net hydro output is expected to remain steady at eight per cent.

ESB’s case

The Energy Security Board has pitched its case to energy ministers for the “national energy guarantee” on the basis that it will “produce a clear investment signal so the cleanest, cheapest and most reliable generation can be built in the right place at the right time.”

In a letter to the CoAG Energy Council ahead of its critical meeting in Melbourne on 20 April, ESB chair Kerry Schott has said the measure seeks to impose a requirement on retailers to do two things – to make sure the energy they are purchasing meets dispatchability requirements in each region of the NEM and to meet emission reduction targets for the electricity sector.

Schott argues that the NEG makes sense to investors because its requirements will be reflected in a single wholesale market price and points out that the guarantee itself will collect no revenue. And, she adds, there is no new trading scheme needed.

Schott says the NEG is “technology neutral to allow for the greatest number of options in the market” and designed to increase competition in the NEM while minimizing costs.

Spruik nukes

New South Wales Deputy Premier John Barilaro is urging proponents of nuclear power in Australia to lift their game to promote removal of the ban on the technology and enable use of small modular reactors in the next decade.

Supporters need to overcome the “ignorant 1970s thinking” on the issue in the community, he told an Energy Policy Institute forum in Sydney in April. “There has never been a better time to change the conversation – but don’t expect politicians to make the running.”

EPIA forum participants expressed concern that many MPs seem trapped by political boundaries and are unwilling to engage in open discussion about nuclear power – but noted that some, in private, have indicated their support for the technology and called for proponents to do more to prove community acceptability.

Meanwhile, in Adelaide, new State Premier Steven Marshall says nuclear generation in South Australia is “not on the government’s short-term radar” but declares it “could come on the agenda down the track” because “every option needs to be considered to ensure we have lower energy prices.”

Poll perspective

Thirty-five per cent of respondents to an Essential Report opinion poll in mid-April said policymakers should treat the renewable energy and coal-fired generation sectors equally – and increase of seven per cent in this perspective since the question was previously posed in July 2015.

Thirty-seven per cent of respondents to the April poll said government should prioritize support for renewables – down from 50 per cent holding this view in the 2015 survey.

Thirteen per cent agreed that support for coal generation should be prioritized – up from six per cent in 2015.

Respondents who “don’t know” remain stable on 15 per cent.

Liddell or links

As the debate about the future of Liddell power station rumbles on (with Alinta Energy expected to make a bid for the plant owned by AGL Energy) via continuing intervention by the Turnbull government (which is now wedged between some of its own MPs, the anti-coal forces and an owner determined to shut down the operation), the New South Wales transmission company, TransGrid, has suggested an answer lies in augmenting interconnection between NSW and Queensland.

TransGrid argues that the enhanced link would enable access to cheap and reliable power in Queensland, including some of Australia’s youngest coal-burning plants.

CEO Paul Italiano says augmented transmission could give access to at least 650 megawatts of the 850 MW shortfall that might arise (depending on investments in NSW by AGL and others) after Liddell shuts in 2022 under the owner’s present plans. He says a link of this capacity would cost $880 million.

The proposal brings to four the number of new high voltage transmission lines being mooted for the NEM. The others are another Basslink between Tasmania and Victoria, a line between South Australia and NSW and augmentation of links between NSW and Victoria that will be required if the Snowy 2.0 project is pursued.

Writing in a trade magazine, Robert Barr, president of the Electric Energy Society of Australia, observes that “we are gearing up for very major increases in transmission capability at a time when customers are suffering historically high costs.” He says the costs and benefits that will accrue to customers from such expansion and investment “need to be scrutinized very carefully.”

Barr adds: “In the NEM we have a very sophisticated ‘return on investment test’ for transmission works. (It) is there for a very good reason – to protect customers from unnecessary high costs. Where transmission investments do not meet the required rate of return, we need to scrap them or have them at least partially funded by generators who wish to take advantage of the investments.”

He says: “This is basic commonsense economics that can be easily overlooked in the enthusiasm to connect more renewable generation, spending other people’s money.”

Only connect

Andrew Dillon, chief executive of Energy Networks Australia, declares that “the only electricity future that makes sense is a more connected future.”

In a newspaper op-ed, Dillon points to a recent federal Parliament committee report as a “welcome exercise in bipartisanship” in recommending that the Australian Electricity Market Operator ascertain whether new interconnectors or additional transmission is needed to support mooted renewable energy zones.

He says new network development will come at a cost and should only occur where it is essential to ensure safe and reliable supply and where benefits outweigh costs.

Dillon adds that network prices have been falling across Australia for three years “but this is no comfort to those who have experienced increases in their bills.”

“Most Australians will neither know nor care what proportion of their electricity bill comes from generators, networks or retailers. They just want reliable power at an affordable price.”

He says: “The NEM has been described as the world’s biggest machine. We will all be worse off if wind farm after wind farm is unable to connect to it due to capacity constraints. It will (also) be an inefficient and costly outcome if network congestion means solar generators large and small are blocked from injecting in to the grid.”

‘Bribed’ to save

The Victorian Coalition is accusing the Andrews Labor government of “bribing” State households by offering a $50 reward for using the Energy Compare website between July and December to find the best tariffs for electricity and gas based on their usage patterns.

The government is to budget $48 million for the new financial year – which is punctuated by a State election in November – to support the offer. Premier Daniel Andrews says a typical household using the website to find its best tariff deal will save $330 a year and he accuses “so many” energy retailers of “banking on consumers not having the time or know-how” to shop around for the best deals.

The Energy Compare site is reported to have had 700,000 visits in the three years it has been available.

Most benefit, least cost

The Australian Energy Market Commission has launched a review on how to deliver long-term electricity supply reliability at least consumer cost. It is the latest in the efforts to follow up the Finkel panel report.

The focus of the new work will embrace demand response (“our future,” says the commission), improving system forecasts, improvement to provision of NEM day-ahead information and the design of a strategic reserve for the market.

The commission will report on the review in mid-2018.

EVs & infrastructure

The Electric Vehicle Council wants net investment of $3.2 billion over 12 years to enable three million EVs to be on Australian roads by 2030 (treble the number currently predicted by the federal government) and to eliminate imports of 16 million barrels of oil annually.

The lobby group says net investment refers to increased spending on EV infrastructure and reduced spending on fuel and its supply infrastructure. Targeting the transport sector, it argues, represents an effective way to pursue Australia’s abatement goals as it contributes 18 per cent of carbon emissions and is one of the strongest areas of growth in them.

The council says the electricity needs of fast-charging infrastructure for vehicles should not be overlooking in energy planning; some fast chargers require on-demand power similar to a factory when in use.

Gas saga shift

The decision by the Northern Territory Labor government to lift its moratorium on hydraulic fracturing, subject to extensive regulation, opens the gate to pursuit of the development of the Betaloo basin, which Origin Energy says could contain a large shale gas resource, raising hopes of a change in south-eastern Australia domestic supply early in the next decade.

The company believes its licence area in the basin, 500 kilometres south-east of Darwin, contains a “contingent resource” of some 7,000 petajoules.

The Australian Petroleum Production & Exploration Association has reacted to the NT decision by asserting that it will enable “the creation of thousands of jobs in the Territory, billions of dollars of government revenue and delivery of much-needed energy.”

APPEA warns, however, that the manner and time frame for NT regulation will be a key factor in determining whether exploration crews can be on the ground in the 2019 dry season.

Gas & gold

Australia’s export earnings from liquid natural gas will reach $30.4 billion in 2017-18 – up from $22.8 billion in 2016-17 – and are forecast to be $38.8 billion in 2022-23, latest federal government resources analysis shows.

LNG is predicted to overtake metallurgical coal as Australia’s second largest resources and energy export next financial year.

The Reserve Bank says that LNG exports can be expected to add about a quarter of a percentage point annually to national GDP growth after current projects come in to production in 2018 and 2019.

A new report by the federal Department of Industry says world LNG imports are expected to shoot up from 250 million tonnes in 2016 to 378 Mt in 2023, driven by demand in Asia and especially China. However purchases by Japan, the world’s largest current buyer of LNG, are expected to fall back to 76 Mt (a drop of 10 Mt annually) as direct use of gas comes under pressure from electricity production and more nuclear reactors restart operations while use of wind and solar power increases. Forty-eight per cent of Australia’s current LNG exports go to Japan.

Worldwide, the government analysis says, gas is expected to record the strongest growth of fossil fuels between now and 2023, assisted by its role in reducing air pollution and carbon emissions.

Hydrogen

The federal and Victorian governments are each contributing $50 million to a demonstration plant in the Latrobe Valley to produce hydrogen from brown coal for export to Japan – where it is seen a strong prospect for future decarbonization of the economy as a replacement for fossil fuels and a source of long-term storage for grids dependent on wind and solar power.

The project, launched by the Prime Minister in April, will be also supported by $166 million from the Japanese government and $230 million from business partners, including AGL Energy. The “world first” initiative is based on the Loy Yang coalfield.

The project has been attacked by the activist Environment Victoria group, which says it is “very disappointing” to see the federal and Victorian governments embarking on “a misguided attempt to do something with the coal under the Latrobe Valley.”

Green power

Data published by consultants Green Energy Markets show that 3,543 gigawatt hours of renewable energy were provided to Australia’s main power grids in March this year.

This input was made up of 1,182 GWh of wind energy, 1,140 GWh of hydro power, 935 GWh of rooftop solar power, 72 GWh from large solar units and 214 GWh of bio-energy.

GEM say renewables made up 19.7 per cent of total power sent to grids across the country in March – of which weather-driven generation (wind and solar) contributed just under 62 per cent or 12.2 per cent of the total power provided to the systems.

Last word

A fair bit of the debate around the electricity sector and carbon emissions management is an amalgam of emotional and ideological claptrap, political gamesmanship and self-interested boosterism – but there is a genuine discussion to be had about what share of the Australian abatement commitment via the Paris climate change agreement should be borne by power generation between now and 2030.

Regrettably, the Turnbull government has so far squibbed opportunities to be on the front foot in the abatement discussion, mostly it seems because of ongoing ructions within the Coalition on carbon policy and the media’s fascination with playing up the white-anting role of former prime minister Tony Abbott and his fellow travellers. On the other side of the political aisle, federal Labor led by Bill Shorten is shameless in using the issue to pursue votes in electorates where it is in competition with the Greens by always hitching its carbon skirts higher than the Coalition will go without discussing cost impacts.

The size of abatement burden that can be borne by the electricity sector while still delivering reliable and affordable supply (for businesses exposed to trade competition as well as households) needs to be clarified via independent, expert analysis. Despite the green activists, it is not about the “death of coal” or the baulking of gas or trench warfare against a nuclear option.

The serious issue of a technology-neutral approach to this national challenge keeps being derailed in the public debate by what a former Secretary of the Treasury in Canberra used to call the “meretricious players” and this will continue so long as many political leaders are incapable of statesmanship and consumed with point scoring over their rivals.
It also needs to be said that the various bureaucratic exercises in the abatement arena over the past decade have not been especially helpful because they have too often acted as spear carriers for politicians in power at the time. As a result, advisers keep on being asked to have another go. Perhaps they should remember that, in Greek mythology, the punishment for Sisyphus being too clever by half was to roll an enormous boulder up a high mountain over and over again.

Most importantly, the emissions abatement issue is not just about electricity although, because of the demonization of coal power, this has been the primary focus of the debate for a decade and more.

Figures published by the federal government show that last year power sector emissions were 190 million tonnes, down 7 Mt from 2005 and are projected to fall to 175 Mt by 2020 and 173 Mt by 2030.

By comparison, in three other key areas the trend is upward: transport from 82 Mt in 2005 to 96 Mt now and 112 Mt in 2030, direct combustion (factories etc) from 82 Mt to 97 Mt to 103 Mt and agriculture from 76 Mt in 2005 to 82 Mt in 2030.

The activist argument is that electricity suppliers should be forced to deliver more because it is too hard for these other sectors to lift their abatement game. The short answer to this is an eight letter word beginning with “b” and ending with “s.”

This attitude is cover for the ongoing ideological attack on fossil-fuelled power and boosting of wind and solar. It is particularly egregious when applied to the transport sector where an opportunity exists to accelerate a shift from petrol and diesel vehicles to electric ones but requires significant attention by policymakers. Similarly, a genuine effort to drive Australia’s overall energy productivity substantially higher continues to sit in the “too hard” basket.

Keith Orchison
28 April 2018