Issue 236, December 2024
The year now ending has provided little of material benefit for Australia’s energy prospects — instead the current outlook continues a worrying trend towards a reality that will bite consumers and taxpayers — and the year ahead has to pass through the gate of significant elections (federal and in Western Australia) before we can tell if the prospects are for more of the same, another period of muddling through or meaningful change. On the upside, elections bring the opportunity for debate with substance even amid the inevitable fog of misinformation — but it may be mid-2025 before it is clear whether this opportunity has been grasped. In Queensland, the November State poll saw government change hands, with the Australian Energy Council asserting that the incoming LNP regime’s approach holds both short-term appeal for electricity affordability and stability while creating potential friction with Australia’s broader renewable energy and emissions goals. Meanwhile, the NEM is to be subjected to yet another review…….
“Chris Bowen must think the voting members of Generation Z will not wake up that his proposed $660 billion outlay over 25 years to 2050 on a renewables-gas energy scheme will send power prices skyrocketing and keep the cost of living and interest rates high. And big slabs of that $660 billion Bowen investment must be replaced after about 20 years” – Robert Gottliebsen in an op-ed in The Australian newspaper.
“The fact that Australia is rejecting urgings to be part of carbon reducing nuclear power research illustrates that the Bowen plan is about politics, not seeking to reducing emissions in an economical way” – Gottliebsen.
“If the Coalition can show Generation Z that there is a better way to slash emissions, Peter Dutton might attract the intelligent youth vote at the next election. Obviously nuclear will be in the mix, but the Coalition proposal needs to be wider” – Gottliebsen.
“Australia is now facing a cost of living election that will have housing affordability at the centre of the campaign. Both major parties are claiming their energy policies will mean cheaper power prices” – the Australian Financial Review in an editorial.
“Polling on nuclear energy in Australia has produced varied results. A Lowy Institute poll in June found 61% strongly or somewhat supported its use alongside other sources of energy. A Guardian Essential poll was roughly split between people who considered it an attempt to extend the life of gas and limit investment in large-scale renewables and those who said it was serious, and should be considered as a part of the nation’s energy future” – climate & environment editor Andrew Morton in The Guardian newspaper.
“Renewables are the cheapest form of energy available. More renewables into the system makes energy bills lower than what they otherwise would be. It’s disingenuous when people say ‘if renewables are so cheap, why are energy bills going up?’ because we don’t yet have enough renewables in the system” – Energy Minister Chris Bowen in a newspaper interview.
“A problem the current Australian government has is they have ill-defined the challenge that needs to be met…not to maximise the use of renewable technology, but rather to reduce emissions. We need to learn from other nations who have adopted an all-of-the-above approach to meeting the challenge for emissions reduction and that requires an embrace of a balanced mix of technologies, not being wedded to favourites” – federal Coalition spokesman on energy Ted O’Brien.
“Time’s up for the opposition to provide details about its energy policies and the costs of its proposals. For its part, the government needs to be unequivocal about the 2035 targets, provide whole-of-system costings and make public the draft 2025-26 power price increases before the election, not after” – Jennie George, former ACTU president and MP, in a newspaper commentary.
The last days of Spring saw a furious debate erupt in both Canberra and New South Wales over the “premier State’s” electricity supply as consumers were told by the Minns government to dial back power use because of generation issues in hot weather.
With temperatures mostly in the mid-30s, a relatively mild “unseasonable” heatwave, the government urged householders to turn off or not use appliances to avert overloading the “tight” regional NEM reserve. The Energy Market Operator warned of the risk of an interrupted load for the State on the 39-degree last Wednesday of November.
The central issue was a number of coal-fired generators operating at reduced capacity to complete planned maintenance or to deal with unexpected equipment failures. It is estimated that more than 5,000 megawatts of generation capacity were out of action in NSW and Queensland at the point the Minns government and AEMO intervened – with about 3,000 MW being affected by unplanned outages.
The rowdy public debate ensuing quickly descended in to attacks on “unreliable” coal power, led by federal Minister Chris Bowen, and on “expensive, inadequate” solar and wind power from the federal Coalition, media commentators and some analysts, ricocheting in to the wider debates about the costs and adequacy of the “energy transition” and the need to lift the ban on the use of nuclear energy.
Even as fears of a supply crisis fell away amid cooler weather, the media delivered a number of commentaries of potential risks for the summer.
Economist Paul Broad, a former Snowy Hydro chief executive, told the Daily Telegraph in Sydney that the political race to pursue ambitious emissions reduction targets had left parts of the NEM with “third world” energy capabilities.
“We’ve had some really mild summers over the past three or four years,” Broad said, “and it’s hidden the precarious position that our energy sector has got itself into. It’s a reflection on some really ill-considered policies and the rush to close baseload power plants.”
And the tabloid Telegraph opined: “NSW faces a summer of blackout warnings amid fears that our fragile grid will fall over as temperatures soar until gas comes to the rescue to deliver more power on demand.”
Saul Kavonic, head of energy research at Credit Suisse in Australia, also told journalists of “the potential for much bigger blackouts.”
He said: “We’re seeing coal being shut down, gas capacity and gas investment dropping – and even renewables growth has dropped to record lows in the past two years.
“Every single part of the NEM is a loser now.”
He declared that “the Albanese government’s meddling in the market is coming home to roost,” arguing that the government’s “multi-pronged approach” has impacted on redundancy in electricity supply and warning the situation “will also be felt in manufacturing.”
Analyst Dylan McConnell of the University of NSW said that “the very tight nature of the grid coupled with warmer temperatures means that there is not much room for error” in power supply. “Even if there are no forced blackouts, there could be other impacts on consumers and industry from higher prices.”
Victoria Energy Policy Centre director Bruce Mountain pointed out that the NSW “supply crunch” came when the State “was outside the window of peak summer demand.” Why, he asked, “can’t the power system handle pretty moderate conditions?” He asserted that the transition to renewable energy in NSW, Victoria and Queensland “is not progressing well,” adding “I think it will be a nerve-wracking summer in NSW and Victoria.”
Andrew Richards, CEO of Australian Energy Users lobby group, complained that “consumers are being asked to bail out the electricity system.” He said: “The market is supposed to be working for consumers and it’s not. The NEM is really tight. There is no fat in the system.”
As the November supply mini-crisis waned, the Australian Financial Review commented: “New South Wales has survived the biggest test of its power system since the closure of AGL’s Liddell power station,” adding that government “now faces a delicate task to ensure power reliability over the summer amid heightened worries about disruption and spiking prices.”
According to media reports, the 660 megawatt Hunter gas-fired plant being built by Snowy Hydro near Newcastle will not have its first unit operating until April – instead of January as most recently targeted – and not have its second available until June.
The Morrison federal government said, when the project was announced, that the plant would be operating from 2021. When approved, the Hunter station was intended to be on line before the closure of the Liddell coal generator – which shut down in April 2023.
The pipeline bringing gas to the new power station is now reported to be on track to be completed in February.
The project began with a budgeted capital cost of $610 million, increased to $950 million in 2023 and is now said by Snowy Hydro to be “slightly higher.”
Australian Energy Producers lobby group has attacked the rushed end-of-parliament deal between the Albanese government and the Greens to exclude gas from the “Future Made in Australia” legislation.
AEP chief executive Samantha McCulloch says Labor’s “capitulation to the Greens ignores the critical role of gas” for the manufacturing and mining sectors, declaring “long-term energy reliability and affordability requires continuing investment in new gas supply.”
McCulloch says her industry is not looking for subsidies “but needs stable policy settings.” The move, she adds, is at odds with the government’s own future gas strategy – which declares gas critical to Australia’s energy needs to 2050 and beyond.
At present gas provides some 40 per cent of energy used in Australian manufacturing and 46 per cent for the mining sctor.
AEP points to a report by analysts EnergyQuest finding that a halt to investment in new gas exploration and production, as proposed by the Greens, will “trigger major economic disruption on both coasts and lead to a high risk of power blackouts, widespread job losses and inevitably higher energy prices.”
Back in May, when announcing the strategy, federal Resources Minister Madeleine King declared gas to be “crucial” to the government’s “Future Made in Australia” policy. “It is clear,” she said, “that we will need continued exploration, investment and development in the sector to support the path to net zero for Australia and our export partners and to avoid a shortfall in gas supplies.”
The federal government has tasked a panel headed by professor Tim Nelson, who has just retired as head of energy markets at Iberdrola Australia, to work through 2025 – and make recommendations to all governments by the end of the year – on a review of how the NEM is functioning.
Nelson told the Australian Financial Review that “nothing will be off the table” in the panel’s work and suggested a reserve of generation capacity operating outside the wholesale market could be considered.
As the AFR commented, the panel will pick up a task previously undertaken by the Energy Security Board set up by the Turnbull federal government “which floundered over whether a so-called capacity mechanism should include gas and coal.”
Nelson said the Energy Market Commission, the Energy Market Operator, the Australian Energy Regulator and the Productivity Commission “are going to be on speed dial” for the panel, whose members include a former AER chair, Paula Conboy.
The Climateworks Centre says the review is welcome, “getting this right is important” and urges for it to consider “all the issues plaguing the electricity system.” It adds: “The current rules for the NEM are ill-suited to a system where energy is generated and stored in diverse locations.”
The centre calls for the panel to be “allowed to fully consider how best to align the system with Australia’s renewable energy and climate ambitions.”
The Australian Energy Council, the peak lobby group for electricity and gas suppliers, says “it is crucial the panel focuses on market principles and a fit-for-purpose design.” It adds that “a successful outcome will allow the energy industry and consumers to decarbonise the energy system at least cost while ensuring energy continues to be reliable and secure.”
At the start of November, Frank Calabria, CEO of Origin Energy, told a Committee for the Economic Development of Australia forum that “the NEM is infinitely more complex now than it was for the first two-and-a-half decades – and is no longer fit for purpose.”
Calabria called for “options that facilitate market-led investment, while providing governments with sufficient confidence around reliability and carbon abatement goals, to be prioritised.”
He added: “Directions by AEMO, which were only ever intended to be used infrequently, are disruptive and can undermine the efficient operation and value of generation assets. To minimise the reliance on such interventions, it is crucial that markets and price signals are developed for the delivery of the required system services in the most efficient manner.”
Analysts Frontier Economics threw a hand grenade in to the already loud national debate about the cost of the net zero energy transition in the middle of November with the release of a study claiming that the replacement of coal-fired generation in the NEM by mostly solar and wind power by 2050 would cost $642 billion rather than $122 billion calculated by the Energy Market Operator and cited by the federal government.
The study reaches this conclusion by using real costs over time rather than the net present value capital costs estimated by AEMO.
Frontier argues consumers don’t pay the NPV, they pay the real costs. The report also comments that the concept of NPV is confusing and people would prefer to understand the total costs. Furthermore, it says, when governments announce projects, they quote the costs not the NPV as it is the costs that appear in budgets.
In presenting its analysis, Frontier has also estimated transition transmission development costs for the NEM that form part of the market operator’s “integrated system plan”. It notes most of these costs are treated by AEMO and governments as “sunk”, even though the majority of the projects are still to be developed. Frontier asserts network project cost estimates are “highly unreliable” but says that “at the very least” currently approved and planned projects are expected to cost $62 billion.
The Coalition’s energy spokesman, Ted O’Brien, seized on the Frontier analysis to accuse the federal government of “concealing significant costs.”
He added that the government has “imposed a carbon price by stealth” to further its net zero transition aims through its “value of emissions reduction” charge, which starts at $70 per tonne and rises to $420 by 2050. “This shadow carbon price is used to force in their renewables only mix. The cost of this will be borne by Australians,” he said.
Back in the day, as the chief executive of national energy sector associations, I used to frequently promote to conference audiences the thought that the crux of our electricity supply management rests on three four-letter words — time, cost and risk.
Now, in my ninth decade and on the back of almost four decades of engagement with energy affairs, I see no need to change my tune. Indeed, events of the Twenties just reinforce my view.
The closing weeks and days of 2024 seem to me to be especially proving the point.
In this context, I thought Chris Uhlmann’s Sky television documentary, entitled “The Real Cost of Net Zero," which went to air in mid-November and is now available on YouTube, canvassed the issues very well to demonstrate why he thinks "politicians and governments pushing ambitious renewables targets are breathtakingly, stunningly energy illiterate."
The documentary appeared a week after Bob Pritchard pulled me out of the shadows to participate in an Energy Policy Institute of Australia forum where the main speakers were professors Ron Loveland, visiting from Wales, and Stephen Wilson of the University of Queensland. The professors did a sterling job of delving into the challenges and opportunities facing the energy sector, exploring how innovation can drive progress while navigating the political landscape.
Loveland, recently retired as a long-time advisor to the government of Wales and participant in UK-wide official wrestling with the British energy transition, shared some sharp insights, notably that (1) when developing new energy systems with real-world constraints, physics, politics and economics are often not good bedfellows, (2) geopolitics as well as supply chain and financing challenges really do matter, and (3) innovation needs a whole of system approach.
Wilson pointed to the huge total system cost of renewables and the need to lift our nuclear ban to ensure energy security for Australia and to leverage the uranium resource at our disposal.
As the EPIA noted in a social media post on the event, the speakers' consensus was that Australia has been sold a pup with the renewables transition, that the community needs to be aware of the very large and ongoing replacement cost of renewable energy infrastructure, and that the rest of the world is moving increasingly to nuclear energy.
That these views are controversial goes without saying and arguments to the contrary based on perceptions of facts are a good thing for the debate -- but far too much of the public and political counter-punching is sophistry, arm-waving and three-eyed frog-style ranting.
In this regard, the Uhlmann documentary, which has been already viewed by a large audience, is a useful dose of salts for the debate.
For my part, I told attendees at the EPIA forum that, in my book, the greatest sin of Chris Bowen and his ilk is to sell Australians the notion that we can have the “renewables transition” and “cheap power” — and to go on with this pose when all the sensible advice they are getting is that they are wrong.
I added that I don’t think where we are today with respect to energy supply is a comfortable or safe place to be and, if I was to offer today’s governing breed, federal and State, two words of advice, they would be “Reality bites.”
Keith Orchison
1 December 2024