Issue 132, April 2016
With its year proceeding at a breakneck pace in a volatile business environment and with a federal election looming within 100 days, writes Keith Orchison, the energy industry is in uncertainty mode and likely to stay there well in to 2017. When the market will settle back to a “bankable” state is anyone’s guess. The only certainty seems that it won’t be any time soon.
Australia’s largest energy retailer is foretelling a “huge disruption” ahead for electricity supply.
Speaking at the “Australian Financial Review’s” business summit in Melbourne just before Easter, Stephen Mikkelson, executive general manager, energy markets at AGL Energy, said the company is focusing on a 2025 scenario “where there will be three million households with solar and two million batteries in households, which is going to be a huge disruption.”
There are currently about 1.5 million households with solar PVs installed and the Queensland Productivity Commission believes that State alone will reach a million rooftops by 2022.
Mikkelson added that AGL believes the bulk of Australian new car sales in 2025 will be electric vehicles “and every single EV parked in a garage overnight is a potential storage.”
He said: “I think AGL’s role is going to be a big part in this new world,” pointing to the need for future solar installation owners to make half-hour decisions to consume from their battery, put it back in to the grid, “do I go from the grid straight in to my house, do I go from solar to the battery?”
Even as someone engaged in the industry, Mikkelson observed, he had no interest in making decisions every 30 minutes on personal electricity supply.
The magic number for power generation in today’s national carbon debate is 55.3.
This is the percentage share of Australia’s so-called “scope one” greenhouse gas emissions (those directly emitted) for electricity supply, according to the latest report of the Clean Energy Regulator for 2014-15.
Total on-grid financial year generation emissions were 176 million tonnes of carbon dioxide equivalent, according to the CER, resulting from fossil fuelled plants having 85.4 per cent of power production.
The regulator says the 2014-15 supply mix was 48.4 per cent black coal generation, 23.2 per cent brown coal, 13.8 per cent gas and 11.1 per cent from all forms of renewables (including hydro power).
The number of people employed in the solar energy sector in Australia fell back to 8,310 in 2014-15 compared with 14,350 in the previous financial year.
A new Australian Bureau of Statistics survey finds that employment in all forms of the renewable energy industry has fallen from a peak of 19,210 in 2011-12 to 14,020 in the past financial year.
While the bureau attributes the change to policy switches by governments from federal to local, a solar industry CEO is quoted in the media as saying that increased efficiency is also a factor with the number of jobs per megawatt installed falling as companies “learn to do more with less.”
The ABS study finds that Queensland and South Australia (29 per cent each) have more than double the PV penetration on “suitable buildings” in Victoria and New South Wales (14 per cent each). A “suitable dwelling” is defined as a house or a semi-detached row or terrace houses.
The Turnbull government has stirred up the renewables industry with its new approach to clean energy investment.
Observers say that, in effect, the federal government’s latest decision, one of many zig-zags on the renewables road since the Rudd regime came to office in 2007, subsumes the Australian Renewable Energy Agency in to the Clean Energy Finance Corporation – while lifting the shadow of abolition that the Abbott administration placed over the CEFC and its $10 billion piggy bank.
ARENA, under the new arrangements announced by the Prime Minister and Environment Minister Greg Hunt, becomes administrator of a new Clean Energy Innovation Fund, a subsidiary of the CEFC, lending money from its allocation. The purpose of the fund is to make grants available to energy investors at a lower interest rate than provided by conventional lending institutions. The CEFC board will have the last word on allocations.
Malcolm Turnbull told media that, until now, the federal government has been “very much like an ATM” in this area, “making grants without, frankly, very much follow up as to whether they are effective.”
The Prime Minister added: “We believe the government should be a partner, an investor, seeking to get a return.”
The Clean Energy Council, the main lobby group for some 500 renewable energy businesses, accuses the government of “two steps forward, one step back.”
The CEC said the decision to retain the CEFC was “welcome” but the move to eliminate grants funding via ARENA was “disappointing.”
The Australian Solar Council complains that “this looks, feels and smells like a cost-cutting measure
The Australian Energy Council, representing 22 major electricity and gas businesses in the competitive market, has also welcomed the government’s move, but urges policymakers to understand that “the challenge of delivering reliable, affordable and low-emissions energy is broader than new sources of clean energy funding.”
Matthew Warren, the association CEO, says: “We do not want the transformation of the energy system to be undermined by compromised reliability or unnecessary price increases.”
The AEC points out that clean energy investment in Australia is slowing, not increasing, despite introduction of a range of support steps since 2009.
One welcoming voice for the federal government’s $1 billion Clean Energy Innovation Fund is the Energy Networks Association.
“It’s great to see a focus on smart grids in the fund, given that electricity and gas networks will be a critical platform for Australia’s low emission future,” says ENA chief executive John Bradley.
He has called on the fund to leverage the innovation database of renewable energy grid integration projects hosted by ENA members in partnership with the Australian Renewable Energy Agency.
“The integration of renewables is one of Australia’s greatest strengths and challenges,” Bradley asserts. “An increasing fleet of intermittent generators and lower levels of conventional generation will stretch our energy resilience. Australia is at the frontier of managing these issues and there is a lot more to learn in the transition.”
There is growing speculation that the revised renewable energy target – requiring 33,000 gigawatt hours a year from 2020 – will not be met because of lack of investment in new projects, concern enhanced by Bloomberg New Energy Finance declaring “this year is make or break” for the controversial scheme.
BNEF says 532 megawatts of wind and solar projects are currently under development but 3,100 MW of new capacity needs to be commissioned by 2018 to meet the target.
Analysts at UBS argue that RET development is stalled because energy retailers will suffer no financial disadvantage if the target is not met; they will pass the penalty costs on to consumers.
Meanwhile the largest retailer, AGL Energy, has said that it plans to proceed with building the $500 million Silverton wind farm on the Barrier Range north-west of Broken Hill. Regulatory approval for the 200 MW project expires in May and the company is seeking a five-year extension of the deadline.
AGL has also “reaffirmed commitment” to a 350 MW wind farm at Coopers Gap in southern Queensland to be funded via the “Powering Australian Renewables Fund” the company has launched with, it says, the aim of bringing on about 20 per cent of capacity needed for the RET – which it at 1,000 MW.
Origin Energy, the country’s other major retailer, says it is “well-placed to accelerate a more renewable future,” adding it is “actively pursuing a number of utility-scale solar and wind opportunities,” including via off-take opportunities.
In its quarterly report to shareholders, the company says falling costs make utility-scale solar and wind generation “more attractive than ever.”
It also notes that the 13 terawatt hours of “must run” energy the next tranche of the RET will insert in to the electricity market will displace more baseload production and increase NEM volatility.
The Energy Network Association is arguing for the controversial renewable energy target to be replaced with a “technology neutral” scheme.
Releasing consultants’ modeling undertaken for it, the association says a low emissions target would be a more economical approach to reaching the federal government’s goal of reducing national emissions between 26 and 28 per cent (of 2005 levels) by 2030.
The federal Environment Minister, Greg Hunt, immediately reacted by telling media the Turnbull government has no intention of changing the RET. “It is rock solid,” he declared.
Speaking at the “Australian Domestic Gas Outlook” conference in Sydney in March, ENA’s chief executive, John Bradley, said shifting to a “technology neutral” target could save a typical residential customer $234 a year and the national economy some $600 million by 2030.
“Australia’s carbon policy is at a crossroads,” Bradley said. “The next federal government will determine how efficiently we meet the Paris climate change commitments.”
Left as they are, Australian abatement programs, according to the modeling undertaken for ENA, will push residential power bills 15 per cent higher than they need be to achieve abatement goals.
“Our current policy settings squeeze out low emissions fuels like gas that can have one quarter to one sixth the carbon intensity of mains electricity,” Bradley said. “The modeling shows that, if policies focus on least-cost abatement, Australia will see a surge in renewables generation but will also make use of high quality gas resources and save customers more than $2,500 by 2030.”
The Energy Networks Association says there is “strong evidence” that the federal small-scale renewable energy scheme is no longer required because solar PV panels are a mature technology.
In a submission to the Climate Change Authority, which is undertaking a “special review” of Australia’s global warming policy options, ENA points to commentaries by the Productivity Commission and others asserting that PVs are a relatively costly way of achieving abatement.
In a “dynamic technological and market environment,” the association argues, “maintaining the currency of policy intervention (is) critical to efficient outcomes for taxpayers and consumers.” Subsidies should be considered only for immature technologies, it adds, and should be removed or reduced over time, leaving mature ones to compete in the marketplace on their merits.
The Australian Petroleum Production & Exploration Association is calling on east coast governments to “pull out all stops” to encourage investment in gas supply in the wake of a warning about possible shortages from the Australian Energy Market Operator.
APPEA chief executive Malcolm Roberts says the latest AEMO review of the gas market points out developed gas reserves in eastern and south-eastern Australia can only meet forecast demand until 2019.
This, he says, is “a sobering reminder” that the east coast needs rapid development of new reserves to guarantee longer-term gas supply.
Roberts says “a mix of policy indecision, restrictive regulations and politically-motivated moratoriums, particularly in Victoria, has stymied exploration and development of abundant resources.”
He adds that the commercial climate for exploration and development in Australia is now “extremely difficult” with fewer onshore wells drilled in 2015 than at any other time in the past 20 years.
Energy Policy Institute executive director Robert Pritchard says Australia’s energy industry seems “caught in a rip” with so many players involved in the policy debate that governments are “getting very fragmented messages.”
Pritchard was summing up EPIA’s “Energy State of the Nation” annual forum – which was held in Sydney in late March for the 10th year – at which speakers talked of a “foggy future” and the capacity of the CoAG Energy Council to deliver much-needed collaborative federalism in the energy area was called in to question.
CO2CRC chief executive Tania Constable told ESON that the key message from a major review of electricity generation technologies recently completed – with a 2030 horizon – is that there can be no “winner takes all” in the transition process.
“All new technologies will cost more and all have strengths and constraints.”
The Minerals Council has called on the federal government to remove the ban on use of nuclear power in Australia.
In its submission to the Climate Change Authority’s review of climate change policies, MCA says that, if the government considers deployment of a nuclear power program could be a future option, it should recognize that developing the sector here will take a decade or more.
Nuclear plants take several years to build, the association says, and establishment of a regulatory regime as well as construction and operating capability (which would need to be in place before building plants could even be considered) would also take several years.
Origin Energy has launched what it says is Australia’s first fixed-cost energy plan, “providing relief for customers who feel anxious about their bills.”
The company says its “predictable plan” will enable consumers to pay the same amount each month regardless of what they actually used.
Origin says research shows only 13 per cent of Australians find their energy bills predictable versus Internet charges (50 per cent) and phone accounts (40 per cent). A poll in January found that 70 per cent of respondents felt anxious about unexpectedly high energy bills.
The company promises that customers signing up for the plan will not be confronted by higher prices during the year of their contract.
Any layman trying to understand where Australian electricity is sourced is going to struggle with the many and varied data presentations that are around.
Very few among the Averages, I imagine, are really concerned about the statistics and close their eyes and ears when they are being hurled about.
The end-result is that community impressions are all over the place and come down a lot of the time to the public absorbing slogans and soundbites thrown about by those trying to sell a perspective -- and what folk perceive also depends on their broad mindsets.
When all this is boiled down, you get public opinion like that that to be found in the Lowy Institute annual poll of Australian attitudes.
If you look at last year’s poll (the latest), you should start with the perceptions that “global warming is a serious and pressing problem and we should be taking steps now even if this involves significant costs,” a view reportedly held by 50 per cent of those polled.
On the other hand, the poll throws up another view that global warming should be addressed but its effects will be gradual, so “we can deal with the problem gradually by taking steps that are low in cost,” the view reportedly held by a bit under 40 per cent of respondents.
Looking at a chart Lowy publishes, it is interesting to note that the percentage of the former plunged in the Rudd/Gillard years while the percentage of the latter rose.
In this context, one also notes that the latest crop of interviewees reveal a curious view of which energy sources will be the “primary source of electricity” 10 years from now.
Forty-three per cent chose solar power versus 17 per cent for coal, 10 per cent for natural gas, just seven per cent for wind power and six per cent for hydro power – while 13 per cent said nuclear (which is legally impossible today).
As well, expanding large-scale hydro is constrained by our geography and by politics – not to mention, as one would have thought those polled might realize, by the more frequent droughts the climate doomsayers are telling us to expect.
Now the vast majority of Australians are living on, and sourcing their electricity from plants on, the east coast – the “national electricity market,” stretching 4,500 kilometres from north Queensland to the South Australian western border and Tasmania (when Basslink is operating, which it hasn’t since late December).
Looking at the Lowy numbers, I get the impression that many of the Averages have interpreted the relatively small amount of energy being obtained from rooftop solar power in a much greater light than reality; how else to explain their large opting for solar as the “primary source” of near-future electricity?
One of the problems in interpreting the real electricity world for laymen is that the data is presented in ways that just confuses them – which is why the “Review of the NEM” for calendar years published by consultants Green Energy Markets is useful, I think.
Take the 2015 report they put out in January. It boils down to this: out of a total of a little over 195,000 gigawatt hours produced in the NEM by generators registered with the Australian Energy Market Operator (which rooftop PVs are not), the key source by a long way was coal – black coal and lignite.
The 2015 mix was 51.5 per cent black coal, 25.8 per cent lignite, 10.5 per cent gas – which gives us 87.8 per cent fossil-fuelled power – and 11.9 per cent “mainstream” renewables (hydro and wind).
Thus, though wind farm output in New South Wales rose 582 per cent between 2012 and 2015, last year it represent just 2.7 per cent of State power production metered by AEMO.
Again, even doubling the number of households opting for rooftop solar between now and 2025 – a fairly likely prospect on present trends, with the Queensland Productivity Commission, for example, expecting a million homes to be embracing PVs by 2022 – is not going to make a huge difference to this mix.
Neither will pushing NEM wind generation up to more than 20,000 GWh annually (double what it was in 2015), a likely outcome of the revised RET.
Why then, if the Lowy poll is a guide, do so many of our fellow citizens expect that renewables will dominate supply by 2025?
It is easy to point a finger at the mainstream media for failing to deliver their readers, listeners and viewers information that is in context – and, as readers know, I frequently do so here, on my On Power website and on Business Spectator – but they are not solely at fault.
A core problem, I feel, is that we have allowed a couple of generations of kids to pass through school without teaching them the basics about energy in society – as opposed to just boosting the wonders of (some) renewable energy – even though their lives would be turned upside down without the reliable, still-affordable supply chain of mostly fossil-fuelled electricity as well as gas and transport fuels, an environment we all take for granted even while carping about prices.
Many of those kids are now voting adults (and respondents to polls like the one Lowy runs); boys and girls now 16 will be eligible to vote at the 2019 federal election and those now on the brink of becoming teenagers at the 2022 election (and the elections in their States, eg New South Wales in 2019 and 2023).
There are, as my mother’s mother dinned in to me when I was a small boy 60-plus years ago, consequences for what we do and what we don’t do.
Are the consequences of our neglecting energy literacy since the 1970s (which is when environmentalism took off and became included in what kids are taught) starting to haunt our present-day society?
Given the too-frequent inclination of politicians to follow the community rather than lead it – “I am the people’s leader, I must follow them,” said Jim Hacker – are we in a fit state to manage our energy affairs to achieve what has been defined by royal commissioner Kevin Scarce as our desirable goal: reliable, low-carbon electricity at the lowest overall cost based on realistic prospects of technology uptake?
PS: An Essential Report poll in mid-March found 57 per cent of its respondents think Australia is not doing enough to address climate change – versus 29 per cent who think we are doing enough or too much and 13 per cent who “don’t know.” Which reminds me of my favorite summing-up question as a lobbyist when debating issues situations with my stakeholders: “And, therefore, what?”
Keith Orchison
1 April 2016
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