Issue 59, February 2010
Coal in the long run
The “intergenerational report” produced by the Federal Treasury,
and released by Treasurer Wayne Swan in February, shows government
expectations that, even with emissions trading, coal-fired plants will
still be delivering almost as much energy in 2030 as they do today.
While the report never quantifies the forecast in the text, it contains a chart illustrating expectations that, without emissions trading, coal-fired generation would be delivering 400,000 gigawatt hours a year of power in 2050 and more than 250,000 GWh in 2030. (According to the Energy Supply Association yearbook, black and brown coal plants delivered 193,000 GWh in 2007-08, the latest official data.)
With the ETS, the chart shows, Treasury expects coal-burning plants to be delivering 150,000 GWh in 2030 compared with 40,000 GWh from wind, geothermal and solar power. To this, although the report does not mention it, could be added another 15,000 GWh a year from hydro-electric generation.
In other words, the hugely expensive emissions scheme would deliver over a decade a cut in domestic coal-fired power production less than the existing output in Victoria.
With power demand by 2030, on the modelling undertaken by the Australian Bureau of Agricultural & Resource Economics (ABARE), forecast to exceed 400,000 GWh a year, the Treasury projection does not account for the sources of almost 200,000 GWh of demand. Will this be met by conventional natural gas and coal seam methane generators (both sources of fossil fuels) and partly by nuclear power, which Prime Minister Kevin Rudd has again rejected in February as a power source for Australia?
The chart projects no decline in the production of coal-fired power between 2020 and 2030
The information contained on the chart makes a nonsense for the
next two decades of a claim by Wayne Swan in launching the report at the
National Press Club in Canberra. The government’s emissions
trading scheme, Wayne claimed, “will allow us to replace
substantial amounts of coal-fired generation with renewable
sources.”
The Treasury projects Australia’s population will grow from 22 million today to just under 30 million in 2030, reaching almost 36 million in 2050. The “intergenerational report” process was launched by the Liberal Treasurer in 2007 ahead of the last election and is supposed to be delivered every five years under the “charter of budget honesty.” The Rudd government has delivered the second report two years early, a move widely seen in the media as a propaganda step ahead of the 2010 federal election.
Revelation of the official fossil-fuelled generation projections for the next 20 years is likely to cause fresh howls of protest from the environmental movement.
The Minerals Council of Australia says that it is worried by both the pace and extent of electricity supply market reform on the eastern seaboard.
In its submission to the Rudd government ahead of the 2010 federal budget, the MCA claims that the policy approaches of State governments in the NEM threatens efficient market operation and points to regulation of end-user prices and of transmission as key concerns.
Regulation of residential power bills covers 28 percent of electricity supply on the eastern seaboard, the MCA notes, and is “at or below” the cost of production in some States. “This raises the question,” it argues,” of possible cross-subsidies which could ultimately distort (electricity supply) expansion and upgrade decisions and represent a significant chill on (power) investment.”
The MCA points out that, on business as usual projections, Australia will need to increase its electricity generation by around 13,000 to 15,000 megawatts by 2020. (Current national capacity is 45,000 MW.) This will require an outlay of at least a billion dollars per 1,000 MW, it adds. “Yet the retail price structure for a significant share of the customer base is capped. It is difficult to see how the necessary investment will emerge without reforms to current arrangements.”
The MCA warns that, without substantial expansion, energy supply could become a major capacity constraint to the growth of the minerals sector in the next decade. It targets the “northern economic triangle” of Queensland (bordered by Mt Isa, Townsville and the Bowen basin), the central west and far west of New South Wales, South Australia, western Victoria and the Northern Territory as regions of special concern.
The Queensland NET, it says, is rich in copper, lead, zinc, silver and gold as well as coal – and a lack of competitively-priced power in the area is a big constraint to development.
In western Victorian, where several new gas-fired generation plants are under way or proposed, the issue, the MCA says, is that “planned upgrades of distribution and transmission networks have fallen behind schedule.”
The MCA also reports that Western Australia can expect to see power supply expand rapidly in the next 10 years, involving both network-connected and self-generated power. It expects supply to the Pilbara to more than triple by 2020 and coal-fired and gas-fuelled supply to the WA mid-west, a key growth area for the iron ore industry, to quadruple this decade.
Meanwhile energy efficiency consultants Energetics claim that the mining industry is overlooking the opportunity to use wind power in remote areas.
Consultant David Mitchell says mines operating away from high voltage grid connections are paying around $200 per megawatt hour for diesel-fuelled power. “There is a compelling case for installing wind generation at these remote mines,” he claims.
Mitchell says two 2MW wind turbines in an area with good resources can contribute 12,000 MWh a year to a mine’s requirements and provide a payback period of eight years in terms of avoided costs. The miner would also receive benefits from the RET scheme. The critical problem, he adds, is lack of mining industry familiarity with the option.
The new year is shaping up as another where the debate on Australia’s role in nuclear power is going to be in the spotlight, both in terms of greater domestic uranium mining and potential use here of nuclear power.
Prime Minister Kevin Rudd, questioned on President Barack Obama’s support for nuclear power to address decarbonisation, reiterated in February that his government would not support local nuclear plants – and then came under attack from the Citizens Electoral Council for denying the benefits locally that are being gained overseas from Australian uranium oxide exports. The CEC chairman Craig Insherwood claimed that the 10,000 tonnes of annual exports could provide $12 billion worth of Australian electricity at $30 per megawatt hour.
Michael Angwin, CEO of the Australian Uranium Association, will canvass the nuclear issues when he speaks at the Energy Alliance’s “Energy State of the Nation 2010” conference in Brisbane on 25 March.
The Alliance has lined up executive speakers from nine industry associations and the CSIRO Energy Transformed Flagship for the conference and has invited Barry Worthington, executive director of the US Energy Association, as a keynote speaker. Details of the conference are available at www.energyalliance.com.au .
February turned in to a horror month for federal Environment Minister Peter Garrett and the Rudd government , culminating in a decision to axe its $2.45 billion home insulation rebate scheme after faulty workmanship was linked to four deaths and 87 house fires.
Under strong Coalition pressure to resign, Garrett announced that both the insulation rebate and the solar hot water rebate schemes, introduced as part of last year’s economic stimulus measures, would be immediately closed and replaced with a new “renewable energy bonus scheme” from June. The government then announced that it would allocate $10 million to retrain 2,000 insulation workers who will lose their jobs as a result of decision. The insulation industry claims the sackings will exceed this level.
It is suggested that as many as 400,000 Australian homes may be affected by installation of below-grade insulation imported from China, Malaysia and Thailand, but the Insulation Council asserts this is a “gross exaggeration.” The scheme has been beset by other problems, too, with media inundated with claims of dodgy installers, existing insulation being removed in order to claim the subsidy and failure to follow standards.
Media reports claim that as many as 45,000 homes may be “potential firetraps.”
Pressure on Garrett to resign has been increased by claims that he was warned last year of the inherent dangers of inappropriate installation of insulation.
Garrett says that a million homes have had insulation fitted under the scheme.
Meanwhile, the solar photovoltaics industry has been dragged in to the debacle with claims, supported by the Electrical Trades Union, that badly-installed rooftop panels could cause fires.
The Clean Energy Council has moved swiftly to rebut the PVs claim, although it was one of its own spokesmen who ignited this part of the debate. CEO Matthew Warren says 100,000 homes have installed rooftop solar systems in 30 years and the CEC knows of no homes fires resulting from the process.
Earlier the ABC Lateline television program had claimed that three percent of 200 rooftop systems inspected posed a fire risk. Rooftop PV installation for homes and schools, encouraged by Rudd government incentives, jumped 50,000 last year.
Leading media political commentator Laurie Oakes, writing in the Herald Sun newspaper, says the home insulation scheme is a “disaster” for the federal government, which has “poured huge amounts of money into the program with minimum supervision.”
Jennifer Hewitt, national affairs correspodent of The Australian, summed up reaction to the issue by commenting that “the fiasco of Canberra’s attempt to encourage households to go green will only accelerate broader public scepticism about what good intentions on climate change policy actually produce.”
The government is also wrestling with reports of an $850 million blow-out in the costs of its solar power rebate scheme – and with complaints from the wind farm sector that the RET market has been flooded with certificates from the rush to take up the solar subsidies, slashing their value in half and baulking development of large-scale projects.
Rob Murray-Leach, CEO of the Energy Efficiency Council, says the sad truth about the industry is that it is not sexy enough.
Giving evidence to the Senate Economics committee in Melbourne in February, Murray-Leach, who was previously lead author of the Garnaut Report segment dealing with energy efficiency, contrasted energy efficiency projects with the appeal of wind farms – where politicians can cut a ribbon and get media coverage.
Rejecting a comment from ALP Senator Doug Cameron that he was being cynical, Murray-Leach pointed out that every tonne of carbon abatement in the building sector delivered a cost saving of $130 versus a cost of about $35 for every tonne saved through operation of a wind farm.
Murray-Leach argued that energy efficiency represented the biggest single source of carbon abatement available in Australia between now and 2020. “It is billions of dollars of investment to save billions more. It is good business sense. Even in the absence of climate change we should really be pushing it.”
He claimed that Australian industries were among “the most energy inefficient in the world,” pointing out that over the past 25 years Australia’s overall energy efficiency performance had been at half the rate of the average in the International Energy Agency’s member nations. “We are literally wasting billions of dollars in unused energy every single year.”
Murray-Leach also claimed that retrofitting existing Australian buildings to make them energy efficient could create 25,000 new jobs this decade – and he cited research by the Centre for International Economics demonstrating that a focus on national energy efficiency in buildings could save $38 billion by 2050. “So, if you just had a carbon pollution reduction scheme, you would be wasting $38 billion a year because you would be investing in reall expensive abatement but missing all the energy efficiency.”
The Beyond Zero Emissions advocacy group has called on policymakers to introduce a scheme to spend $30 billion a year on cutting-edge solar thermal and wind technology to stop electricity generation emissions by the end of this decade.
The BZE paper was launched in Melbourne in February by the Victorian Governor, David de Kretser, who said Australia had a responsibility to act to cut emissions.
Matthew Wright, BZE executive director, said failure to implement the program would mean Australia “would remain stuck in the coal pit while the world benefits from the renewable energy boom.”
The BZE reports calls for the construction of almost 47,000 MW of concentrating solar power capacity at 12 sites across Australia and 61,000 MW of wind capacity at another 12 regions. The concept would involve building 7,600 MW of wind farms every year from 2013 to 2020.
The scheme would also require the construction of 11,027 kilometres of new transmission lines to link the renewable generation sites to the load centres.
BZE says the total cost of investing in its program would be $300 billion.
Big users’ cost concerns
The Energy Users Association of Australia is calling on
manufacturers and their lobbying organisations to launch a campaign to
persuade the Australian Energy regulator and federal and State members
of parliament that impending power price increases are a cause of major
concern.
The EUAA says that energy network charges will “rise significantly” over the next five years and will be in addition to costs from the proposed emissions trading scheme and the enlarged renewable energy target.
EUAA has 100 members who are large users of electricity and gas.
The association says the proposed energy network charges are “very large and unprecedented” – New South Wales electricity network charges increased by an average of 30 to 40 percent last July, it says, and will rise again by 19 percent this July. “There will be additional increases in each of the three years after that, adding a further 36 percent by the end of 2013-14.”
The association estimates that the AER’s draft decision on Queensland network charges will see prices rise in Ergon’s and Energex’s franchise areas by 87 percent and 64 percent over the next five years. The increases in South Australia will reach 35 percent in June 2015. The regulator is due to hand down final decisions in late April for these States.
The AER has also embarked on a review of Victorian network capital and operating expenditures and the association claims that the proposals by the operating companies will result in average price increases of 21 percent next January and 57 percent over five years.
EUAA argues that the regulator is failing to protect its members and other energy users from “inefficient overspending” by the networks. The AER, it adds, has not benchmarked the networks to determine an efficient level of costs as it is obliged to do under the National Electricity Rules.
ETS ‘crash setting’
International Power Australia says the Rudd government emissions
legislation, which is due to be considered again by the Senate after
being passed through the House of Representatives in February for the
third time, is “dialling in a crash setting” for the power industry.
IPRA executive director Tony Concannon, speaking at the opening of a $350 million project to move a 10 kilometre section of the Morwell River in Gippsland to gain access to sufficient brown coal reserves to extend the life of the 1,600 MW Hazelwood plant for another 21 years, says the ETS could force the power station’s closure by mid-2016.
Hazelwood emits about 17.6 million tonnes of greenhouse gases a year and provides 22 percent of Victoria’s electricity supply.
Concannon, who says he supports a well-designed ETS, claims the scheme before the Senate is “carefully crafted to destroy equity value for coal-fired plants (both modern and old).” He adds that sovereign risk is at “an all time high” for the industry and lenders are “clammering to recover their loans.”
Concannon estimates that the current version of the ETS will destroy $7 billion worth of shareholder value in the coal generation sector. He complains that the government has ignored a proposal IPRA put forward to the ETS green paper process offering to reach an agreement for closure of high-emission plants “in an orderly and agreed manner.”
Meanwhile, Richard McIndoe, managing director of TRUenergy, told Alan Kohler on a February edition of the ABC-TV Inside Business program that it would take two to three gas-fired power plants like the 450 MW unit built at Tallawarra in NSW to replace the company’s Yallourn brown coal station. The cost, he said, would be around $2 billion to $2.5 billion.
The existing power station’s life expectancy is about 25 years, McIndoe said, and TRUenergy, owned by Hong Kong-based China Light & Power, would require compensation for closing it down in phases over 10 years.
McIndoe added that using gas instead of brown coal as a fuel would see a 20 percent increase in the wholesale price of electricity generated at the site.
He said the ETS proposed by the Rudd government at the end of 2009 was “wholly unacceptable” to electricity generators. It was a scheme “fraught with inefficiencies.”
McIndoe said the government should “look at direct action” in the wake of the failure of the Copenhagen conference and “see if they can get some good, early, big winds in terms of carbon dioxide reduction to prepare Australia for what is inevitably going to be a global emissions trading scheme at some point in the future.”
A New South Wales Legislative Council inquiry in to development of rural wind farms has called for a better project approvals process.
The chair of the committee that undertook the review, the Greens’ Ian Cohen, says that there is “significant community angst and concern” in rural areas about the planning process, project design and noise monitoring of wind farms.
“ Wind power is a proven technology that can help to reduce greenhouse gas emissions in NSW,” he adds, “but the development of wind farms needs to better balance the needs of all stakeholders. Local communities feel disenfranchised and uncertain about what they can expect from a wind farm development in their area. Local communities have expressed a particular concern that the current community consultation process for wind farms is not adequate.”
The committee says the NSW Department of Planning has “a critical role to balance the commercial interests of developers, the greenhouse focus of the government and the legitimate needs of communities.” It is vital, it adds, that the department give adequate weight to local concerns.
It warns that “the received wisdom of most people and most areas of government is that wind turbines are an effective and cost-free way of reducing greenhouse gas emissions. Those making the assessment are typically not exposed to the adverse effects of the technology, rarely question its effectiveness and do not see the community impact.”
The committee has reported that 170 MW of wind generation is installed or under construction in NSW. In addition the State government has approved or is considering proposals for 3,200 MW of further wind development in 15 projects, including the Epuron plan to install 598 turbines, with a capacity of 1,000 MW, at Silverton near Broken Hill.
The committee noted that, while the best wind resources in NSW are along the Great Dividing Range and not on the coast, as in other States, there are “a number of significant sites with better resources than some European countries with extensive and well-established wind power generation.”
The Organisation for Economic Development has slapped the New South Wales government’s approach to electricity supply in a report calling on Australia to streamline its regulatory framework.
Australia needs to boost productivity to return to long-term sustained growth, the OECD says, and an efficiency regulatory system is needed to achieve this goal.
The report says considerable progress has been made towards setting up a competitive market for electricity on the eastern seaboard, but “continued public ownership and retail price control may be hindering competition.” Further privatisation in the sector and removal of the ceiling on retail prices in States outside Victoria and South Australia – where there is now “adequate competition” – should be considered.
The OECD says that power prices have risen faster in NSW since the establishment of the NEM than in other States, “yet productivity gains have been smaller.”
It adds that, as the eastern seaboard regional markets increasingly connect and competition expands, the need for retail price regulation to control market power “should decline.”
The OECD is concerned that some States and Territories may be using their price control powers to support other policy objectives. “As the retail market becomes competitive, these other objectives should be achieved by less inefficient means.”
Meanwhile the NSW government has dismayed the private energy sector by yet again delaying progress towards privatisation of the retail arms of its distribution businesses plus the output of its trio of generation businesses.
The NSW Treasurer, Eric Roozendaal, now says that due diligence for the sales will commence “towards the middle of this year.” He claims that the government remains “strongly committed” to the process and “confident of achieving a good outcome for taxpayers.”
Roozendaal says the government has a “strong field” of domestic and international bidders for the assets.
Analysts now believe that the earliest the sales could go through is about September and there is concern that this will be too close to the State election, which has to take place in March 2011.
The State Opposition energy spokesman, Duncan Gay, says: “The process is flawed, the timing is wrong.” Greens MP John Kaye argues that the “due diligence yarn” is an excuse to hide a plan that has “foundered on the hard, cold realities of the energy marketplace.”
Kaye says political uncertainty in the run-up to the election will frighten potential investors and depress the prices they offer.
Coolibah’s Keith Orchison has a blog, entitled PowerLine, on the BusinessSpectator website at www.businessspectator.com.au.
In researching smart grids for the 2010 edition of the Powering Australia yearbook, I have come across a really bold statement about electricity supply this decade.
“The energy sector is entering an era of unprecedented transformation. Energy producers, utilities and consumers have to ask some searching questions about the future. Many agree that what is required is a fundamental remodelling of the way that energy energy production, distribution, trading and supply is funded and structured. The energy sector cannot remain focused solely on day-to-day operational performance.”
The source is IT company Logica Australia, promoting the need to pursue the smart grid, but they are not alone in talking up this development.
In the same week, I also noted a senior executive of the global engineering conglomerate Siemens predicting that the world market for intelligent electricity networks will double to about $US41 billion by 2014. The company already has a world-wide annual income of more than $US1.3 billion from smart grids – networks that embrace information and communications technology.
In Australia, the networks are embarking on a regulator-approved $33 billion outlay on mostly conventional capital works over the next five years, roughly the same price tag as the Rudd government’s proposed broadband roll-out. Quite a lot of the existing infrastructure is 40 years old and the network organisations (seven of them in Australia owned by state governments) are eager to embrace smart meters and more broadly smart grids in the next tranche of infrastructure development.
Interviews with industry executives last year by Logica highlighted three key areas for attention. First cab off the rank, they say, must be a new regulatory framework, requiring both direction and flexibility by the watchdogs. Next is the need for a new approach by the wires organisations, with 25 percent having so far developed a smart grid plan. Not surprisingly, the third big issue is what the new approach is going to cost and how it is going to be funded.
The more prosaic issue of course is to what extent customers – business and residential accountholders (of whom there are 9.4 million, according to the Energy Supply Association) – will be asked to foot the bill at a time when they are also being asked to pay for decarbonisation.
Given the amount of angst currently around the country over the large increases in power bills flowing, mostly, from the network capex programs and the increasingly heated debate between the ALP and the Coalition federally over the impact of the ETS, adding another large cost to end-user tariffs is a real political issue. The Business Council/Port Jackson Partners’ forecast late last year that consumer electricity bills will double by 2015 does not take in to account the smart grid revolution.
The first steps in Australia to pursue the smart grid concept – the roll-out of smart meters to 2.2 million homes and 300,000 small businesses in Victoria that began last year – is now under review by the Brumby government’s Essential Services Commission after the state Auditor-General criticised the initial costings. A study by the University of Melbourne claims that the innovation will lead to time-of-use pricing systems adding $300 a year to power bills for low-income families.
The smart meter roll-out is intended to be extended next to another 2.6 million householders and small businesses in New South Wales between now and the middle of the decade – and eventually nationally.
Looking at smart meter projects around the world, international consultants Datamonitor have warned that roll-out efforts to date have been plagued by inadequate regulation, issues with standards, “inadequate industry processes,” important privacy and security issues and poor communication with end-customers.
That’s a heads-up that shouldn’t be ignored here because bailing out of the energy revolution is not an option.
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