Issue 215, March 2023
An important election (for the New South Wales parliament and also for commonwealth affairs) looms this month. What role will energy issues – in particular costs, security of supply and the “transition”– play in the State poll, with federal developments impacting on voters’ views as well as NSW politicking? Community concerns, apart from the all-embracing one of cost-of-living challenges, of which energy is an important factor but only one of a wide range of problems, tend to the superficial (“we must stop climate change”), thus playing in to the hands of politicians relying on “sound bites” for impact on polling day – while both on the east coast and in south-west Western Australia there are signs that the 2023-24 outlook is less than rosy, as witness the latest market operator comments about the risks of supply shortages. These highlight the prospect of looming shortfalls in electricity generation as coal-fired plants are squeezed out of the market before sufficient viable replacements can be ensured.
“There’s an urgent need for investment (in the NEM) in generation, long-duration storage and transmission to achieve reliability requirements over the next decade” – Australian Energy Market Operator.
“There is a strong pipeline of 209 gigawatts of committed, anticipated and proposed developments” – AEMO.
“What makes it difficult is whether these projects are possibles but not probables and what the likelihood is of them going ahead” – the Grattan Institute’s Tony Wood, pointing out that just 10 GW of new projects are considered committed. “There are some big gaps emerging here.”
“We are making a jump from coal to wind and solar, so we are in many senses charting new territory” – University of Melbourne professor Bruce Mountain.
“It’s a very important time in the transition where we have got to get it right” – Adam Watson, new chief executive of APA Group, warning of the perils of inadequate investment in new gas supplies given the “staggering” challenge of replace coal generation.
“We need an adult conversation about how gas can enable net zero emissions being reached” – energy consultant Matt Rennie.
“If we want a manufacturing industry in Australia, we need to provide it with a reliable, affordable supply of gas” – Daniel Walton, national secretary, Australian Workers Union. “Ask anyone who knows anything about manufacturing and they will tell you gas is 100 per cent necessary right now to keep factories working.”
Federal Resources Minister Madeleine King says the Australian east coast was “on track to see electricity costs increase by a further 36 per cent in 2023-24 and gas prices increase by up to 20 per cent” before her government intervened.
In a speech in Perth in late February, King added: “Clearly these increases were unsustainable.”
She said: “Faced with these rising cost of living pressures, the government made a decision to protect Australian households and businesses from the high energy prices we have seen in global energy markets. Working with the States and territories, our intervention has shown its worth. Our energy price relief plan, introduced in December, is already having a positive impact on wholesale energy prices. And we expect the plan to take some of the sting out of higher retail energy prices.”
Meanwhile, the Energy Users Association is accusing east coast gas companies of getting round the government’s controls by withholding supply. It declares the gas market is “highly dysfunctional.”
Australian Industry Group CEO Innes Willox says there is “enormous frustration” among AiG’s members “about how things have turned out.”
The Australian Petroleum Producers & Exploration Association says there is continuing “considerable uncertainty” for suppliers under the government’s intervention.
CEO Samantha McCulloch told media: “The industry wants to supply the gas, but we need to understand the rules of the game, particularly when there's a $50 million penalty hanging over the industry for failure to comply with rules that are still being defined. We need clarity on what that code will look like”
The Grattan Institute’s energy program director, Tony Wood, says it is clear from the latest Energy Market Operator report that battery storage alone is not enough to back up weather-affected renewable generation at peak electricity demand times.
In a newspaper interview, Wood says “they need gas” but argues it is too politically difficult for the operator or federal energy minister Chris Bowen to talk about gas as a firming back-up for renewables.
Wood also says emissions reductions can be pursued “without excluding gas from the equation,” adding “we are kidding ourselves if we think we can do this without gas.”
Sarah McNamara, CEO of the Australian Energy Council, says State-based restrictions on new gas development are “not helpful in tackling the energy transition.” She has told journalists “it is important not to rule out contributions from any technology, given the task at hand.”
Last year Bowen and State energy ministers ruled gas and coal generation out of consideration for a market capacity mechanism. At present the Greens in federal parliament are pressing the Albanese government to ban new gas field development as the price for their Senate vote on proposed carbon emissions reduction legislation.
Bowen told journalists after the AEMO report appeared that the federal government is working “fast” to ensure that there will be adequate renewable energy to fill the gaps left by shuttered coal generation.
On ABC radio, he said: “AEMO is correctly pointing out that there is still much, much more work to do. I mean, in nine months have we fixed every single reliability gap for the next decade? No, there’s more work to do.”
He added that the report “does not suggest Australians should be expecting blackouts.”
Meanwhile Nationals senator Matt Canavan declared that the thrust of the AEMO report “should be eye-watering” for consumers.
On the other hand, Dylan McConnell of the University of New South Wales comments: “While AEMO’s assessment sees supply gaps appearing from 2026 onwards, as various projects and other initiatives progress we can expect this outlook to continue to improve. This is, after all, how it’s supposed to work. The market operator highlights emerging gaps, and various actors respond to prevent those gaps becoming reality.”
McConnell adds: “This is certainly not to say everything is fine. There are some significant risks and challenges on the horizon.
“The potential closure of Eraring power station in just two-and-a-half years is a key risk to reliability in NSW in particular. In the shorter term, a return to hot summers in 2023-24 could give the system its harshest test in years.”
Kerry Schott, the original chair of the Energy Security Board and now an AGL Energy director, has used a newspaper interview at the end of February to take issue with governments on their management of net zero policies.
In an interview with the Australian Financial Review, Schott said the transition to net zero by 2050 will be “bumpy” and the quick exit of coal plants from the market could risk reliable firming capacity unless gas was allowed to play its role as a significant transition fuel.
Government ministers, she added “have dropped the ball on firming capacity because it’s become so non-politically correct to talk about gas,” declaring “I’m perplexed how you can run a system on renewables and batteries when you could have weeks of rain and can’t recharge your batteries and wind droughts.”
Schott also told the newspaper energy ministers were wrong to reject a NEM congestion charge to deal with the proposed large-scale influx of new wind and solar farms.
“Quite a lot of people like building renewable energy plants and don’t care whether they dispatched or not. They just sell the bloody things,” she said. “They have fought tooth and nail not to have some sort of congestion charge.”
The UNSW’s Dylan McConnell says his research shows Australia’s output from renewable energy sources has been rising at an average rate of 7.5 terawatt hours a year.
But he warns that this production needs to double to 15.7 TWh by the end of this decade to match the energy market’s operator’s central planning scenario.
Green-leaning Internet media and unquestioning mainstream journalists are increasingly pushing wind and solar power as now exceeding coal generation in the NEM.
But the measure being used is capacity and the measure often ignored is capacity factor.
The OpenNEM site’s latest 12-month data (from 14 February last year to 18 February this year) shows the breakdown in the market’s supply in terms of generation output: 89,362 gigawatt hours from black coal plant, 31,881 GWh from Victoria’s brown coal stations, 13,295 GWh from gas plants, 16,589 GWh from hydro power, 26,059 GWh from wind power and 11,825 GWh from large-scale solar power.
Estimated use of rooftop solar power in this period was 19,325 GWh.
Years of consultation and analysis by the Energy Security Board have been rebuffed by commonwealth energy ministers at their meeting in late February.
The ministers have told the ESB they will not agree to introduce a NEM capacity mechanism or proposed locational marginal pricing affecting grid connections for wind farms and large solar power.
Instead, they want the board to work with federal and State officials to bring forward a “more orderly” mechanism by mid-2023.
Among the “strategic priorities” on which the ministerial meeting agreed is the need to accelerate delivery of dispatchable renewable energy, electricity storage and major new transmission developments.
Shorn of politics, the Queensland government, via its public service, has revealed a “prudent and practical” approach to the energy transition in the State.
Paul Martyn, director-general of the Department of Energy & Public Works, told an energy conference in Brisbane in late February that the Palaszczuk government’s approach is “ambitious” and he is “acutely aware that we need to deliver this transformation on a low-cost pathway.”
Martyn said State ownership of most coal-fired generation in Queensland will help progress the government’s plan to embark on shutdowns from 2027. And he acknowledged that, if the replacement development of 2,200 megawatts of wind and solar power plus storage could not be delivered by 2035, as proposed, “coal power stations will stay in the system as long as needed.”
He added: “If reliability means we can’t take the coal out, we won’t take the coal out.”
Martyn also told the conference the State government sees gas generation as “crucial” in supporting the transition process.
Alinta Energy says the south-west integrated system in Western Australia, based on Perth and Fremantle, “desperately needs” a new gas-fuelled power station in the face of plans to shut most of the system’s coal plants this decade.
CEO Jeff Dimery says gas-based power will be needed in the SWIS “for years, if not decades” to keep the system stable as the role of wind and solar generation grows.
This reflects the Australian Energy Market Operator’s view.
AEMO says it expects SWIS demand to generate electricity to more than double between 2023 and 2034, rising from 127 terajoules a day now to 304 TJ in the middle of the next decade.
The Australian Industry Group, representing 60,000 businesses, says this country’s “journey” to net zero is achievable “but will be much more challenging without a clear eye to economic efficiency.”
In a submission to the Albanese government on the emissions safeguard mechanism now being argued on the political front ahead of a parliamentary vote, AiG says that, overall, the reforms proposed “constitute a solid design in the face of complex conditions.”
It adds: “Our concern is to avoid carbon leakage – the exit of industry and emissions from Australia to elsewhere, driven not by underlying economics but by the uneven international application of climate policies.
“The global context has developed dramatically over the past 15 years, with climate action wider and deeper than ever before. However this action remains messy and multi-speed, with those nations acting most ambitiously also ensuring that in the process they do not lose competitiveness in trade exposed industries.
“Our challenge is to ensure that industries with a bright future in a net zero emissions world are able to pursue that future in Australia. There are risks both in a lack of policy and in a policy that ignores competitiveness.”
Meanwhile, looking at the political rowing over the issue, the Grattan Institute’s Tony Wood declares that a “fresh outbreak of the climate wars is threatening.”
He adds that, apart from the demands being made by the Greens for their Senate support of the reform, “any expectations of a new era of climate policy peace have been firmly dashed (because) the federal opposition refuses to support the proposal – even though it is based on its own policy.”
Wood asserts that concerns about the revised measure’s impacts on household expenses are “likely to be vastly overstated”.
Energy Minister Chris Bowen says the federal government “will not budge” from its refusal to consider the Greens’ demand to ban new coal and gas developments as the price for its Senate support.
“It does not make sense to ban coal and gas with Australia still in the midst of its renewables transition”.
He adds: “We are taking our national energy market to 82 per cent renewables by 2030. That’s a big lift from where we are – roughly around 30 per cent in 83 months, that’s a huge task, but it still means that 18 per cent will come from non-renewables inevitably.
“Eventually we’ll build from that 82 but, in the medium term, we are still going to have 18 per cent of our energy grid coming from non-renewables and increasingly that’ll be gas.”
The Tasmanian government says a final investment decision will be made in December this year on the proposed Marinus Link development across Bass Strait.
State Energy Minister Guy Barnett says the government expects the development to attract billions of dollars in investment across Tasmania’s regional areas.
Meanwhile, in New South Wales, a proposal has been announced for a 1,725 megawatt floating wind farm adjacent to Nelson Bay in the Hunter Valley. The Albanese government has said it intends the area off the Hunter as Australia’s second offshore wind generation zone.
And in the latest foray in to offshore prospects by international interests, the giant French company EDF has acquired the Newcastle offshore wind (NOWE) venture which notionally could see up to 10,000 MW of developments over a long period. EDF today operates seven offshore wind farms globally.
AGL Energy chair Patricia McKenzie says the company’s development goal is to introduce up to 12,000 megawatts of renewable and firming capacity in the NEM by 2036, estimated to require a $20 billion investment.
McKenzie told an Australian Institute of Company Directors conference that the AGL board is “very conscious our plan must have a realistic delivery route.”
AGL will close its Liddell coal-fired power station in the Hunter Valley next month.
Energy Consumers Australia has welcomed a decision by energy and climate change ministers in late February to explore an energy literacy program.
ECA chief executive Lynne Gallagher says this can play a valuable role in helping households and small businesses to shield themselves from price rises.
‘With retail energy prices rising and likely to stay rising,” Gallagher says, ”action is needed now to shield consumers from bill shock.”
She has also welcomed ministerial commitment to further progress on longer-term reform to protect consumers from the risks of gold plating – or over-investing in – the transmission system and to making greater effective use of this capacity, interconnectors and new storage investment.
“There is a lot of investment going into transmission, new generation and storage at the moment, which is necessary to secure supply with planned exit of emissions intensive generators, but we need to remember all of this investment ends up on consumers’ bills,” she says.
“Progress with transmission access reform and the orderly exit management framework will help ensure sufficient generation is there to replace emissions intensive generators while protecting consumers from potential gold plating of the grid.
“These reforms are urgent.”
Hopes that 2023 would see a less fevered energy scene across Australia – not held, I’d say, by many, if any, of those with long experience of electricity and gas matters – have evaporated less than two months in to the year.
Despite platitudes from the likes of Chris Bowen and Matt Kean, there is a lot going on that could make matters worse in the critical areas of affordability of supply and reliability of energy systems.
For a majority of consumers, whether in households or in small and large business, the cost situation is the most worrying but, from where I sit, the risks of significant supply problems are much less than trivial.
This not just an old geezer doing his impersonation of Hanrahan.
The Australian Energy Market Operator clearly now feels the need to protect its posterior by pointing to the number and scale of problems littering the landscape.
It was interesting to watch Bowen scuttling to assure voters (and perhaps himself) that the operator’s latest report does not mean power blackouts are “inevitable”. The old journo in me longed for just one of the media throng to whom he spoke to ask the obvious question – “But are they more likely now, minister?” They didn’t and he got away with it.
What AEMO said was that the reliability of the east coast power system is in doubt over the next 10 years – and this is true for Western Australia’s SWIS, too. CEO Daniel Westerman warned “reliability gaps” could emerge from 2025 onwards.
Bowen’s other escape hole is “it’s all the other mob’s fault – we’ve been in the job less than a year.” In one respect, that’s true but more importantly it is his and the Albanese government’s watch now and a big question is are they making things worse already?
The fundamental point is that 13 per cent of coal-fired generation in the NEM – and an important chunk in the SWIS – are going to be shuttered well before the decade’s end. Also, there are important parts of new developments that are less than well set up (and perhaps worse than that) to step efficiently in to the breach.
Bowen tells us that the “transition” needs to be much faster than it has been over the past decade “and more orderly and reliable.” Did I miss the reference to ensuring “much more affordable” in that sound bite? Nope, he’s been well and truly bitten by his rhetoric on prices in the 2022 election campaign – and, again, most of the listening journalists are not really pressing him on this.
As I have written before here, and elsewhere, the critical issues are time, cost and risk – and total system cost arising from the billions being thrown at generation, transmission and storage needs expert, independent analysis, not soothing noises from fellow travellers on this gambol.
Leaving aside the ritual references to the green dream, what AEMO has just said is that “there remains an urgent need (for steps) to satisfy reliability requirements over the next 10 years.” And it emphasized the need for “firm, dispatchable and continuously available capacity” to provide reliable supply.
In this context, it was interesting recently – as in “may you live in interesting times” – to see economist and media commentator Judith Sloan railing against the logic-defying (okay, gob-smacking, she interpolated) decision to exclude fossil fuels from steps to ensure adequate future capacity in the eastern market.
“Weather-dependent intermittent renewable energy will be backed up by more weather-dependent intermittent energy plus a batch of batteries providing power for a few hours and possibly some pumped hydro (because Snowy 2.0 has been going so well),” she said, throwing in the gibe that it’s the equivalent of having a leaky bucket and thinking that another one will be helpful.
And there we have it. There’s a hole in your bucket, dear Chris – and dear Matt (Kean) and dear Lily (D’Ambrosio) among other policymakers – and, to partly quote consultant Matt Rennie, it is critical to have an adult conversation (in full public sight) on the posse of problems that are spurring down the green brick road.
Keith Orchison
28 February 2023