Issue 168, April 2019
Well, that’s a quarter of 2019 gone and absolutely nothing extra since 2018 resolved in the energy policy area. Politically, voters have opted in New South Wales to return the Berejiklian/Barilaro Coalition government, which might now take a moment to let us know its actual plan to promote “net zero emissions by 2050” as airily promised in its manifesto, a concept it actually announced in late 2016 – and, as well as how it proposes to develop the “pipeline” of 19,000 megawatts of renewable power about which it talked during the campaign while maintaining affordability and reliability of electricity supply. In practical terms, the government has no policy of substance to fill the electricity supply gap when Liddell is retired in 2022 (not long before the next State election). Still more urgently, State users need to know what the government proposes to do about NSW gas supply after literally years of dithering and obfuscating over the Narrabri project, the largest known source of undeveloped gas in south-east Australia, given that the Australian Energy Market Operator is highlighting the “tight” supply/demand balance. Post-election commentary suggests a winning voter sentiment for the NSW Coalition was “At least they’re doing stuff.” This badly now needs to be extended to the energy policy area. More broadly, the focus shifts to the federal arena and a national election (where the result will have many implications for energy policy) in the first half of May.
“FactCheck examined NSW Labor’s campaign claim that (State) power prices are the most expensive in the developed world (and) found no evidence to support the claim” – Australian Associated Press.
“FactCheck examined Gladys Berejiklian’s claim that NSW has the lowest energy bills in Australia and found no evidence to support it” – Australian Associated Press.
“What am I? I am used in soap, aspirins, solvents, dyes, plastics, rayon and nylon. I am one of the most high-tech industries in Australia, paying corresponding high wages. I am a major pastoral holder, a regional employer and investor, our principal source of electricity, a key input to iron, steel and cement – and Australia’s largest export earner. I am coal” – Tania Constable, chief executive, Minerals Council of Australia.
“NSW relies heavily on a sustainable, affordable supply of natural gas. You’d think the State’s politicians would spend some time trying to get their gas policies right but, instead, they have ducked for cover, cowering from radio shock jocks, the inner-urban elites, environmental activists and sea-changers and the tree-changers on the northern coast” – Martin Ferguson, former federal resources and energy minister.
“The Western Australia domestic gas market is in good shape. The State domestic gas price is about $5 per gigajoule – versus $10 to $12 in eastern Australia” – Ben Wilson, CEO, Australian Gas Infrastructure Group.
“We continue to urge State governments to adopt policies that consider and manage the risks of individual gas development projects rather than implementing blanket moratoria and regulatory restrictions” – Rod Sims, chairman, Australian Competition & Consumer Commission, speaking at the Domestic Gas Outlook conference in March.
“Australians rightfully expect their elected leaders to pursue policies and bring jobs and maintain global competitiveness (but) we have yet to see a focused delivery of a holistic national energy policy that could enable the economy to soar” – Louis Vega, Dow Chemical Australian president, speaking at the ADGO conference.
The confidence evinced by Australian Industrial Energy at the Domestic Gas Outlook conference at the start of March in advancement of its LNG import terminal proposed for Port Kembla has been bolstered by Gladys Berejiklian’s victory in the NSW election.
At the conference, the company expressed hope that government consent would be received before NSW went in to caretaker mode ahead of the poll. This didn’t happen, but AIE chief executive Stuart Johnston is now telling media consent is “imminent.”
The gas power plant mooted as part of the project is included by Prime Minister Scott Morrison on the list of 12 proposed NEM generation units to be considered for federal government support to “deliver reliable and affordable power”.
Meanwhile the Australian Energy Market Operator, in its new “gas statement of opportunities” report points to southern States production continuing to decline and supplies from Queensland being limited by pipeline capacity.
AEMO says “supply from existing and committed gas developments is forecast to meet demand until 2023 – however, risks remain.” This includes coping with cold weather peak demands, especially if there is an increased requirement for gas-fuelled electricity.
AEMO’s Alex Wonhas says “southern Australia’s overall supply/demand balance for 2021-23 remains very finely balanced.”
The Australian Competition & Consumer Commission has pinged the New South Wales, Queensland and Tasmanian governments for failing to move on network asset valuations.
Residential customers in the three States continue to pay an average of $100 a year too much because the governments have not acted on the commission’s proposal that network asset values be written down,” says commission chairman Rod Sims.
“The ACCC accepts that this proposal would involve a potentially large one-off cost to governments, as significant micro-economic reform often does,” says Sims,” but we urge them to continuing benefit to consumers and the economy.”
The ACCC cites a Grattan Institute estimate of a $18.5 billion over-expenditure on regulated networks in NSW and Queensland.
The criticism is included in the commission’s new electricity monitoring report, a six-monthly exercise for the next seven years.
The new report also reiterates the ACCC recommendation that the federal government abolish the small-scale renewable energy scheme by 2021.
Sims says the dramatic fall in rooftop solar costs since 2011 means the subsidy is not needed.
In the wake of last year’s political debacle in Canberra and the crash-landing of the “national energy guarantee,” the work of the Energy Security Board has slipped beneath the public radar – but it is still pursuing a range of activities, most importantly preparing advice for the CoAG Energy Council on post-2025 design for the east coast electricity market.
On top of this list, in terms of timing, is the need to report to the energy ministers by August on “the full range of services required to deliver a secure, reliable and lower emissions system.”
This is to be followed by stakeholder consultation on the issue during the rest of this year.
In a preliminary paper, the ESB comments that “without a holistic assessment of the most efficient way to deliver the full range of services required to deliver a secure, reliable and lower emissions electricity system at least cost to customers, we risk layering change upon change with the expectation that this will enable these objectives to all be met.”
The federal government has awarded an exploration licence for the Star of the South offshore wind farm in Bass Strait waters just before it enters caretaker mode ahead of the May election.
The permit allows assessment of wind resources and seabed conditions for the proposed 2,000 megawatt wind farm of 250 turbines 10 to 25 kilometres south of Port Albert, Gippsland, which has an estimated $8 billion development cost and whose proponents claim it could deliver a fifth of Victoria’s power supply needs.
The project will need both State and federal approvals to proceed.
Federal Energy Minister Angus Taylor says “the old paradigm of transmission does not work in the world of increased inter-connectivity, reverse auctions and distributed generation.”
Writing in a trade magazine, Taylor declares work must be pursued on two core transmission issues: all new reverse auctions conducted by government must consider the impact on networks and “we must acknowledge that interconnection is a strategic asset that must be managed differently.”
Taylor adds that actioning a long-term plan for the NEM transmission in the new environment is “crucial.”
The Morrison federal government, which is rated by bookmakers as having an 80 per cent chance of losing next month’s federal election to Bill Shorten and Labor, is targeting “a 25 to 30 per cent reduction in NEM wholesale prices by 2021.”
The government has nominated 12 “flexible baseload” generation projects on a short list for support, including five gas-fired plants and six pumped hydro storage developments, having received 66 submissions for support.
Controversially, it has also committed to a feasibility study for generation development in north and central Queensland to “address a very specific problem” in the region and to include the possibility of a new HELE coal plant, reacting to agitation for the step from within Coalition ranks.
Resources Minister Matt Canavan told journalists “I think perhaps the best time to start building a coal-fired power station was 10 years ago – and the second best time is now.”
Canavan added: “We have some of the best coal in the world in north Queensland and we should use it to lower power prices for Australians,” declaring “prices are too high” in North Queensland and supply needs to be increased there.
The Clean Energy Council declares the move to pursue a feasibility study in to more coal-fired power for Queensland is “baffling” and such a development would “not make commercial sense.”
Western Australia’s Regional Development Minister, Alannah MacTiernan, says coal-fired power stations’ “days are numbered’ in the State’s south-west system.
She asserts WA’s coal generators “will start to be wound down by as early as 2025” because their economics are being “rapidly eroded” by the encroachment of renewable energy. The State government, she adds, is “not desperately trying to divest ourselves of coal but we acknowledge this is going to happen.”
The West Australian newspapers reports that none of three coal-burning plants in the SWIS owned by the government’s Synergy ran at “anywhere near” capacity during the summer despite demand peaking.
In calendar 2018, SWIS supply from coal plants fell back to 8,362 GWh from 8,891 GWh in 2017. Supply from gas-fired generation rose from 7,552 GWh in 2017 to 7,618 GWh last year – while wind farm output was marginally higher at 1,594 GWh. The estimated use of rooftop solar power from some 1,000 megawatts of installed capacity in the region was 1,443 GWh.
Energy analyst Hugh Saddler reports that February marked three years during which there has been no systemic or sustained change in total electricity demand in the east coast market and in both New South Wales and Victoria.
The level of demand has also become stable over the past year in Queensland, South Australia and Tasmania, he says in a new edition of The Australia Institute’s National Energy Emissions Audit.
However, he adds, when rooftop solar generation is added to grid demand, there has been a small but steady increase in power consumption across the NEM.
The latest electricity statistics published by analysts EnergyQuest show that total electricity production in the NEM in calendar year 2018 was slightly higher (at 202,373 gigawatt hours) than in 2017 (when it was 201,172 GWh).
The Australian Energy Market Operator projects installation of 790 megawatts of utility-scale renewable energy capacity in Western Australia’s south-west integrated system over the next five years. The operator also expects another 1,400 MW of rooftop solar PVs to be installed over 20 years.
AEMO says three out of five households in the SWIS now have rooftop power, claiming that this, taken collectively, makes it the largest energy source in the system.
The operator is now working with WA’s Economic Regulation Authority, government-owned Western Power and industry to pursue regulatory reform and rule changes to enable registration, connection and operation of energy storage systems for the south-west grid.
The WA government has announced its intention to develop a “whole of system” plan for the grid by mid-2020.
Overall electricity generation across all Australia has grown slightly in each of the past four calendar years, according to federal government data.
Total generation was 255,143 gigawatt hours in calendar 2015 and 261,405 GWh in 2018.
Of this, 120,600 GWh came from black coal plant and 35,962 GWh from brown coal units – representing a fall in brown coal output of 28.8 per cent over four years and a rise in black coal power of eight per cent.
The data show natural gas-fuelled generation has rollercoastered over this period from 50,876 GWh in 2015 to 55,176 GWh in 2017 and back down to 50,255 GWh last year.
Over the four years wind farm generation has risen 37.4 per cent to 16,266 GWh in 2018 and solar farm output has jumped from 283 GWh in 2015 to 2,139 GWh last year.
Estimated rooftop solar power use in this period has risen from 5,923 GWh in 2015 to 9,942 GWh last year.
The data show that fossil fuels’ share of power production across Australia in 2018 was 81.1 per cent versus 85.8 per cent in 2015.
Australian Competition & Consumer Commission chairman Rod Sims, speaking at the Domestic Gas Outlook conference, identified a trio of industrial gas users most affected by high supply prices. They are those who use gas intensively and are incurring significant increases in input costs, those who are substantially trade-exposed and limited in their ability to pass on higher costs – and those with technologies dedicated to gas and unable to switch to other energy sources.
Sims told 400 ADGO attendees “ C&I gas users have been telling us for some time that, at current wholesale prices, their operations are not sustainable in the medium to longer terms.
“They are increasingly likely to relocate from the east coast or wind up their operations.”
He warned that “many manufacturers are close to making critical decisions on future operations – if wholesale gas prices do not soften from their current levels, it is just a matter of time before they follow Remapak and Coogee out the door.” (Remapak, a Sydney producer of polystyrene coffee cups, went in to administration in January and Coogee Chemicals in Victoria closed down in 2016.)
Sims said the recent escalation in the cost of energy has made the east coast an increasingly unattractive venue for manufacturing investment, adding “the main reason we are yet to see businesses on the east coast relocate or close is likely because they are continuing to operate while their capital costs are sunk.”
He warned “the crunch time will come when material capital re-investment in maintenance, replacement or upgrade of their plants is required” and that “these key investment decisions are coming and for some they are just around the corner.”
ACCC chairman Rod Sims went on Radio 2GB after his ADGO address to say “I probably hit them (gas producers) very hard today – just to jolt them.”
He claimed that producers are “still taking complete advantage of the situation,” saying the way they had raised prices for industry is “causing major problems.”
Meanwhile the Australian Industry Group has spoken of “dire portents” for the future of gas-intensive manufacturers, especially those who use the fuel as feedstock in the basic chemicals, fertilizer and explosives industries.
Mark Goodsell, head of the organization in NSW, acknowledges that community concern about unconventional gas production is “real” and needs to be addressed but he says independent reviews have shown that risks to water resources are “manageable with firm regulation, “ accusing the just-re-elected Berejiklian government of “introducing a de facto ban through external approval processes.”
As well, Martin Ferguson, chair of the Australian Petroleum Production & Exploration Association, says that the lack of support for new gas projects in New South Wales is “putting thousands of jobs in the State at serious risk.” He adds: “We are facing the absurd situation that the States with the greatest need for gas are also the States that have killed local onshore development. NSW and Victoria have chosen to abdicate their responsibilities (and) they offer no solutions to the mounting pressures on gas customers in their States.”
An Essential Report public opinion pollfinds that one in five of respondents worry about the impact of climate change “all the time” versus 30 per cent who worry about it “often” and 28 per cent “sometimes.” Twenty-one per cent of those polled said the issue is “not something I worry about.”
Somewhat surprisingly, the poll also found that just 42 per cent of people who say they will vote for the Greens at the upcoming federal election are worrying about the issue “all the time” – versus 14 per cent who plan to vote for the Coalition parties and 24 per cent who intend to vote Labor.
By comparison, the poll found 27 per cent of correspondents worry “all the time” about two issues – family health and their ability to pay for basics.
The poll, taken in late March, also found 37 per cent of respondents indicating they intend to vote for the Liberals or the Nationals at the May election versus 38 per cent for Labor and eight per cent for the Greens – while 17 per cent say they will vote for One Nation or other minor parties or independents.
In another poll focusing on the federal budget, 48 per cent of respondents said they wanted the government to spend more on renewable energy (versus 67 per cent for more on health care and 59 per cent for greater support for each of education and the aged pension.)
The four major Australian banks and three large insurance companies are among leading financial sector companies who have signed up for the “Australian Sustainable Finance Initiative” – aimed at producing a “roadmap” to recommend how the sector mobilize capital to deliver on national and global climate goals while “delivering a financial system that meets community expectations around sustainability.”
The group aims to produce the “roadmap” in the next 18 months.
The federal government’s “big stick” bill to enable large energy retailers to be broken up in pursuit of lower consumer power bills has received a predictably mixed reception in the Senate Economics Committee to which it was referred.
The majority of Liberal senators on the committee find that “the energy market is not acting in the best interests of consumers” and assert that the “robust regulatory framework” contained in the bill will “provide a powerful disincentive” for anti-competitive conduct in the electricity market.
In a dissenting report, Labor senators argue the proposed legislation “will drive down investment in the energy sector and drive up electricity prices.” The “rushed” process for the bill, they say, is a sign that it is “more about politics and policy.” They add that “it is clear the government has not followed the normal process of seeking market reforms through the CoAG Energy Council.
The Greens oppose the legislation on the grounds that “the real reasons for the bill are to try to force the sale of the Liddell coal-fired power station to keep it open beyond 2022.”
The Australian Energy Council has responded to the report by saying it “fails to dispel widespread concerns about both its over-reach and the risk it poses to both investment and energy prices.”
AEC chief executive Sarah McNamara argues that 75 per cent of submissions to the committee raised serious concerns about the bill while only six supported it “and none of those were able to identify how it would lower consumer prices.”
One of ‘Big Three’ energy retailers, EnergyAustralia, has reacted fast and hard to accusations that consumers have been ripped off in the wake of the Hazelwood power station closure through generation market manipulation.
“Manipulating wholesale electricity prices to ‘gouge’ customers is wrong. It does not happen at EnergyAustralia,” the company says in a statement, pointing to four independent reports from late 2017 to September 2018 that, it argues, were “expert, thorough and publicly available.” None, it declares, “called out inappropriate behavior” in the NEM by generators.
The company highlights a key observation by the Australian Energy Regulator: “The exit of Hazelwood removed a significant low fuel cost generator which was largely replaced by higher cost black coal and gas plant at a time when the input costs of (these plants) were increasing.”
EnergyAustralia executive Mark Collette told the ABC that “when Hazelwood closed with no time to respond, the issue was not competition (but) a lack of supply.” He said he thought the market “did everything it could to replace that energy as cheaply as possible but there was no source of cheap energy available in the time frame.”
AGL Energy has also responded to the “gouging” accusations by pointing to reports by the AER and the ACCC and saying it has not been accused in them of misusing its market power “or of behaving in a way that’s within the rules but harmful for the market.”
A spokesman for Origin Energy told media his company did not gouge customers and there had been “very forensic reviews by both the ACCC and Grattan Institute that found no evidence.”
ACCC chairman Rod Sims asserted to journalists that the wholesale price rises following the loss of Hazelwood “were the result of market power.” He added “we don’t think there was a breach of the law; we think this was an exercise of market power that should never have existed in the first place.”
Sims said: “Unquestionably power prices are too high. Consumers are clearly paying more than they should be.”
In his book on the electricity situation (Blackout: How is energy-rich Australia running out of electricity?), Matthew Warren calls for solar generation to be “encouraged where it is most valuable and constrained where it imposes greater costs than benefits.
Warren, former CEO of both the Clean Energy Council and the Australian Energy Council, warns that “continued solar under-regulation just accelerates us towards an electricity grid that is out of control – a runaway train powered by a heady mixture of populism, ignorance, self-interest, good intentions and political expedience.”
He says that, to date, solar households have been largely indulged without consideration of what impacts their rapid and widespread take-up will have on the grid. All electricity customers now face additional costs because of a lack of planning of distributed generation. “This approach is becoming unsustainable.”
Warren adds: “Solar PV is a mature technology that will continue to grow. It, and technologies like it, are part of the grid and need to be treated as such. They need to work for the system as a whole, not just their owners.”
At present, he says, every town and major city has “a rooftop black-ops power station that continues to expand but can be neither monitored nor controlled……taking some parts of the grid far in to uncharted waters.”
Looking at the NEM situation overall, Warren sees it as “being in a slow-moving crisis,” warning that the grid is “slowly degrading.”
The challenge, he says, is “what we do (now) with this crazy set of accidental experiments that have defined 21st Century electricity in Australia.”
He advocates three steps for addressing the situation: “First, admit we have an electricity problem. Second, make a credible plan that incorporates climate risk and stick to it. Third, create the right political and commercial conditions that enable investment to proceed and allow governments to stop trying to design and then build the grid themselves.”
Unless the approach change, Warren says, “an electricity grid designed by politics will be less efficient, more expensive and will divert billions of dollars of government funding from other services.”
Innes Willox, CEO of the Australian Industry Group, has managed to sum up in a relatively few words the sentiment that I know is shared by a great many stakeholders in the energy sector, views I had reinforced for me by talking to participants (there were 400 in all) at the Australian Domestic Gas Outlook conference I co-chaired in Sydney in early March.
In releasing an AiG statement on energy ahead of the federal election, Willox said: “It is imperative that the next government develop credible, durable and well-integrated climate and energy policies. If we continue with a succession of rapidly-reversed policies or no policy at all, at best we will see a costly patchwork of State and localized interventions – and, at worst, see our current energy disadvantage cemented an a receding ability to meet our emissions targets.”
He went to lament the serious barriers to energy investment required by major technological and market changes presented by “deep conflict,” particularly at federal level, and, rightly, declared it the present environment “a glaring source of uncertainty” inhibiting investors. “This situation needs to stop,” Willox demanded – echoing the collective view from ADGO.
The deep question is “How?” because we are seeing no convincing sign of the politicians being willing to step up to the mark, as evidenced by the campaigning in last November’s Victorian election, in the poll just completed in New South Wales and in proceedings to date in the run-up to the national vote next month.
In what may qualify for the understatement of the year, the Australian Energy Market Commission told a Senate committee in March that “the energy debate is currently suffering from a focus on short-term issues and reactive policy responses.” Just so – and the prospects of this changing significantly in the current environment are what?
So, is it time to again raise the concept (as put forward by the Energy Policy Institute of Australia) of a national energy commission? Matthew Warren, in his just-published book on our power problems, suggests beefing up the Energy Security Board to oversight the reform process.
Whatever path is pursued, it should now be manifest to all concerned that the present process is worse than inadequate; it is dangerous for consumers and the economy.
Calling for a bipartisan approach involving the major political parties is unarguably right in principle – but it is also baying at the moon. There is no sign this is going to happen.
This raises the question of how, or if, public sentiment can be marshalled to pressure the main parties to support what amounts to a national energy commission? Using the ESB as a platform, given it is already there, makes some sense, not least because of the critical element of the time bind energy policymaking is now in.
Keith Orchison
31 March 2019