Issue 53, July 2009
The Australian mining industry is maintaining its call on the Senate to “set aside” the emission trading scheme to allow “fundamental flaws” in it to be remedied. The Senate, meanwhile, has agreed to debate the suite of bills to establish the carbon scheme in the second week of August.
Political analysts believe that, if the legislation is rejected in August, it will not be possible for the Rudd government to time a second debate to enable it to establish grounds for a double dissolution election before the year-end. Pundits suggest that an election in February or March 2010 is becoming more likely.
The Minerals Council of Australia argues that, if the UN summit in Copenhagen in December fails to produce a global agreement on abatement, domestic business will be faced with a $30 billion burden in the first four years of the scheme while overseas competitors will not have to cope with similar costs.
The Queensland Resources Council CEO, Michael Roche, claims that “there will not be a major mining or minerals processing activity” in the state that will not be significantly worse off in 10 and 20 years’ time under the proposed ETS.
Roche says the scheme will result in the transfer of coal exports from Queensland to South Africa, Indonesia and Colombia without any appreciable reduction in global emissions.
The minerals industry says it employs about 360,000 Australians directly and indirectly, many in remote and regional areas.
The Minerals Council has come under fire in the carbon debate for publishing a claim that more than 23,000 jobs would “disappear” by 2020 if the ETS is introduced in its present form. Critics point out that modelling for the lobbying group actually shows substantial jobs growth over the decade, but that the increase would be lower under the scheme than under a scenario of “business as usual.”
Labor senators, contributing to the report on ETS by the Senate select committee on climate policy, accused the Minerals Council of “alarmism” and playing down the fact that modelling done for it showed that, allowing for the legislation, there would be jobs growth of some 60,000 people rather than 86,000 under the “BAU” scenario.
Claims by the Climate Institute of more than 26,000 new “green” jobs being created if the ETS bills go through has also been criticised on the grounds that only 2,500 of them are permanent positions and another 8,600 indirect employment, the rest being workers employed in constructing wind farms and other renewable developments.
Meanwhile leading economist Warwick McKibbin, a Reserve Bank board member, has told the ABC that the proposed ETS is driven more by politics than credible economics. He has re-iterated his call, given in an appearance before Senate committees scrutinising the legislation, that the bills be delayed until after the Copenhagen summit.
McKibbin says that the emissions trading schemes proposed by the Rudd government and the Democrats in the US Congress “suffer from the same basic problem – they are focussed on getting a political solution.”
The Rudd government has again warned the business community that, if its ETS legislation fails to win parliamentary approval, the alternative is a range of “unfriendly” measures. In their minority commentary on the Senate select committee on climate policy report on the bills, Labor senators repeat an admonition that, without the ETS, the government will look at “complex additional project approval processes or regulation of emission levels industry-by-industry,” raising the cost of abatement.
Meanwhile management consultants PricewaterhouseCoopers, in a report on interviews with 151 large Australian businesses, found that 68 percent of the firms preferred the ETS to a non-market-based regime or carbon tax.
Parts of the environmental movement – including Greenpeace, Friends of the Earth, the Wilderness Society and state-based conservation concils – have broken ranks with the Australian Conservation Foundation and dismissed the Rudd government’s amended emissions trading scheme as “a dud” and “dangerously inadequate.”
They are calling for adoption of a Plan B that involves a rapid phasing-out of coal-fired power stations, mandatory fuel efficiency standards for cars and a RET that has a target of 90,000 gigawatt hours – the Rudd scheme is for 60,000 GWh – by 2020.
The 2020 overall target, they argue, should be to halve Australian greenhouse gas emissions in the next decade.
Meanwhile green groups generally and renewable energy investors have expressed anger and frustration that the Rudd government failed to achieve passage of its RET scheme in the autumn session of federal parliament after linking it to the approval of the emissions trading legislation. “Our question is why is this so difficult?” said Matthew Warren, CEO of the Clean Energy Council. “It is time to stop treating renewable energy as a political football.”
Large-scale investor Pacific Hydro says that companies cannot secure finance for new projects from banks until the RET legislation is passed. It adds that $500 million worth of wind farm developments in south-west Victoria are in limbo until the RET is approved.
The American version of the ETS legislation has just cleared its first major parliamentary hurdle, but a bigger one awaits in the upper house of Congress.
The legislation was approved in the House of Representatives by 219 votes to 212 with 44 Democrats voting against it, eight Republications giving support and three members of Congress not voting. Many of the opposing Democrats were elected on Obama’s coat-tails in traditionally Republican seats and others represent seats relying on coal-burning for electricity supply and/or on energy-intensive manufacturing.
The bill requires a 17 percent emissions reduction from 2005 levels by 2020 compared with Obama’s proposal of a 14 percent cut – neither comes anywhere near the level of abatement China, India and other developing nations are demanding of industrialised countries in the UN climate policy negotiations in Bonn.
The legislation also demands that suppliers of power source 20 percent of their sales from renewable energy by 2020. While this mirrors the Rudd RET, the penalty for non compliance is set at $US25,000 per GWh, well below the Australian subsidy.
The ETS proposed by the House also is much less demanding than in Australia: 85 percent of the permits (covering two billion tonnes of emissions a year) will allocated to industry at no cost and 15 percent will be auctioned.
The fate of the legislation in the US Senate will rest on the capacity of the minority Republicans to sustain a filibuster, a tactic not available to them in the House. The Democrats will need 60 votes to overcome it.
A critical element of the Senate debate will be the cost of the legislation for consumers. By not involving even Republicans in the House in favour of global warming policy, the Democrats have not established a platform for bipartisan support necessary to get the bill through the Senate.
At present the Waxman-Markey proponents rely on government agency modelling claiming that the consumer costs will be less than $US200 per person on average. Conservative critics, led by The Heartland Foundation, counter that the cost – compared with “business as usual” – will be $US1,870 per family of four and that overall it cost the economy $US161 billion in 2020.
The new financial year sees end-user power bills rising in New South Wales (around 20 percent), Queensland (15.7 percent), the Northern Territory (18 percent), Western Australia (10 percent after 15 percent last year), Tasmania (seven percent for households and 15 percent for businesses) and the Capital Territory (6.4 percent).
ACT regulator Paul Baxter points out that Canberra residents are now paying on average $1,470 a year for electricity, but up the road in Queanbeyan, part of New South Wales, the annual average bill will be $2,070.
Delivering the bad news in Brisbane, Queensland Energy Minister Stephen Robertson pointed out that the price rises reflect the true cost of delivering reliable supply and ensuring the networks can keep up with demand. State network operators will have invested almost $9 billion between 2005 and 2010 on transmission and distribution system improvements, he added. The rising cost of fuel was also adding to end-use prices.
The Queensland government-owned distribution business, ENERGEX, says it spent $830 million on upgrading its network in the state’s south-east in 2008-09 plus more than $340 million on maintenance and operating costs. The network says it its current capital works program will run to a record $4 billion over five years.
ENERGEX adds that power usage has continued to rise steadily on the back of the installation of affordable home air-conditioning and other energy-intensive consumer equipment. Average homes, it claims, now use 70 percent more electricity than a decade ago and the figure is likely to rise another 10 percent over the next five years.
In just one sector, the Sunshine Coast, population is predicted to rise by 170,000 in two decades and electricity demand to increase by 40 percent in just the next six years. ENERGEX has spent $250 million on its network in the area in the past four years and plans to invest $110 million in 20099-10.
The ENERGEX franchise area covers 25,000 square kilometres, including the growth hot spots of Brisbane, Ipswich, the Gold Coast and the Sunshine Coast. There has been a 30 percent rise in customer numbers in these areas in a decade.
In an attempt to curb the growth of residential demand, Premier Anna Bligh has decreed that about 40 percent of the most popular air-conditioning systems – units with les than four-star efficiency ratings – will not be able to be sold or legally installed after September. Home owners, she says, are installing 220,000 air-conditioners a year and each one costs $5,000 in government-owned network capital investment to meet demand. The ban will be in place for a year while the Bligh government seeks agreement for a federal scheme.
Powerlink Queensland, the government-owned transmission business, says electricity demand is expected to rise by 4.2 percent a year in the state’s south-east over the next decade.
The customer and political outrage caused by recent power outages in Sydney highlights the “total disconnect” between what consumers now expect as normal service and what electricity systems can deliver, says Robert Barr, president of the Electric Energy Society of Australia (EESA).
“Our systems have been so reliable for so long,” he adds, writing in the EESA newsletter, “that near-perfect reliability performance is now considered normal. (But), by their very nature, modern power systems are fragile and always vulnerable to outages.”
Common mode failures, protection malfunction, adverse weather, natural distasters and simple human errors are constant threats to supply, he points out.
Barr suggests that a substantial community threat is not failure in power delivery, but failure to understand that outages are inevitable in a society that becomes more dependent every year on reliable supply. Communities, he says, need to be able to deal with interruptions without loss of life, personal injury, major pollution events or large economic loss.
Most parts of Australia, he asserts, are overdue for a large-scale power system failure and suppliers have a responsibility to help customers plan for it. He proposes that suppliers make a habit of asking customers how they will cope with a 24-hour loss of electricity.
The Queensland government is hoping a million dollar outlay on a feasibility study will help attract $3.5 billion in new renewable energy investment – provided the Rudd federal government gets up its legislation to require retailers to source 20 percent of their power sales from zero-emission generators by 2020.
The Queensland feasibility study will be undertaken by The Clinton Foundation – set up by the former US president – to examine the prospects for a 500 MW to 750 MW solar thermal power station. It would be sited near the North Queensland coast.
Global demand for liquefied natural gas will remain steady in 2009 at 171 million tonnes, despite the worldwide financial crisis, and will rise by 10 million tonnes next year, according to the Australian Bureau of Agricultural & Resource Economics.
Consumption remains well below the estimated production capacity of 202 million tonnes. ABARE predicts that capacity will pass the 250 million tonne mark by the end of this year, assuming projects currently being developed will be completed on schedule, and will lift by another 12 million tonnes next year, including output from the Australia Pluto project (4.3 million tonnes).
Operators of some of the older LNG developments – including Brunei, Malaysia, Nigeria, Indonesia and Oman – may cut output in this environment, ABARE says.
Falling demand in northern Asia this year under pressure from the economic downturn is being balanced this year by European Union buyers seizing the opportunity of lower LNG prices to fill their storage tanks, ABARE adds.
Japan, a key export market for Australian LNG, cut its imports by six percent in the first quarter of this year, the agency says, and, with the economy expected to contract six percent this year, will see ongoing cuts in demand by power stations and industry. ABARE also points out that an increase in nuclear power available capacity, which fell to less than 50 percent last year as the generators grappled with regulatory and maintenance problems, will put further downward pressure on Japan’s LNG demand.
The big hope for LNG exporters here and overseas, the agency adds, is that the gas needs of China and India will take up the next year’s slack in the global market.
This month’s meeting of the Group of Eight major economies is seen as the best hope of rescuing the UN climate summit in Copenhagen in December after a series of debates between environment ministers and envoys in the first half of 2009 has seen little progress in the talks.
The G8 meeting in Italy will be followed by a roundtable discussion between the 15 largest emitting nations, called by Barack Obama.
However, the key points of contention – the extent to which developed nations will agree to cut emissions, the commitments developing countries, including China and India, will make and the willingness of the “haves” to fund technology transfer – remain nowhere near agreement.
Observers agree that a mountain of work remains if any result is to come out of the Copenhagen summit other than the high-flying talk of the “Bali Road Map” kind. Most troubling of all, they suggest, is that there is at present no clear view of the legal status to be accorded to an agreement – and critically how non-compliance with targets will be handled under the successor to the Kyoto treaty. They point out that the framework agreement for that treaty was reached in 1997, but it was 2001 before the rules were finalised and 2005 before a footdragging Russia agreed to ratify, allowing the treaty to take effect.
Pressure -- by environmental groups and the leaders of the scientific push for action -- for recognition that a target of a 40 percent cut in emissions below 2000 levels by 2020 is required to avoid the worst effects of global warming is seen as making it all the harder for the major developed economies to agree a deal. The US and other industrialised nations say this target is politically out of reach domestically.
BHP Billiton expects the proposed expansion of its giant Olympic Dam uranium and copper mine at South Australia’s Roxby Downs will be fuelled by gas-fired generation after holding discussions with companies promoting geothermal, wind and solar power.
No commercially viable solar or wind generation development is available on the supply scale required, the company adds, and it notes that investigation in to the potential of using geothermal energy is continuing but awaits the ability of proponents to demonstrate the feasibility of baseload supply.
The power load for the mine is expected to approach 700 MW when it is developed to its full production scope in about 10 years. The present load, being met by Babcock & Brown Power under a new contract which took effect this month, is 105 MW.
Part of the long-term load will be a 60 MW generation system to power the large desalination plant to be built on Upper Spencer Gulf to deliver water 320 kilometres to the mine.
California may make the most noise in the US about going green, but America’s renewable energy king, in fact, is Republican-run Texas, with 8,000 MW of wind power, quadruple what it had at the start of the decade. Wind farm production last year totalled 14,600 GWh compared with 8,200 GWh in 2007 – and this occurred while overall electricity supply in the state fell by some 2,900 GWh due to the economic situation.
The state’s ability to push wind development is helped by its high availability of gas-fired generation, which is more easily ramped up or down than coal or nuclear plants. Gas generation makes up almost half of Texas capacity and coal-burning plants provide another 37 percent.
The state may become home to the world’s biggest wind development. Eighty-year-old T. Boone Pickens, a legendary oilman turned wind power devotee, who believes the US can fuel more than 20 percent of its electricity needs from this resource, is evaluating the development of a 2,700 turbine project.
Meanwhile American transmission companies have produced modelling demonstrating that there will need to be about $US80 billion spent between now and 2024 on augmenting the high voltage grids if the 20 percent wind target is to be achieved. Wind still only delivers one percent of American annual power demand and the transcos say increasing this to five percent will require a $US50 billion grid outlay.
Coolibah’s Keith Orchison now has a blog, entitled PowerLine, on the Business Spectator website at www.businessspectator.com.au.
Thomas Alva Edison meet the Internet. How I wish I was the first to come up with that line, but the honour belongs to an unnamed reporter of The Associated Press. In an article published last month, she or he makes the point that, more than a century after Edison invented a reliable light bulb, the “ageing spider web of power lines is poised to move in to the digital age.”
There are plenty of people I know in the electricity wires business who will bridle at the the suggestions that the existing supply network is on its last legs and that they are only just waking up to the potential of the Internet, but the need for a “smart grid” is a major current topic in the industry, here and overseas.
There are going to be a great many words spoken on this topic in Melbourne early in September when the energy networks industry holds its biennial “Energy 21C” conference. Back when I ran the Electricity Supply Association in the 1990s, this event, which ESAA part-owned, was known as “Distribution 2000” but time caught up with that title.
Today’s organisers, the Energy Networks Association, a spin-off of the old ESAA, and the Australian Industry Group, hope to attract 2,000 attendees to the southern swine flu capital to focus on new solutions in a world where customers expectations for reliable, high quality and cost-effective power have never been higher.
On hand, too, will be more than 100 companies offering services to the energy networks sector – and the reason is not hard to find: Australian electricity transmission and distribution companies will be spending about $35 billion in the next five years upgrading and expanding their assets. That is an awful lot of new business in the environment of the Global Financial Crisis. The spend for the next decade could be about $60 billion.
What’s more, this massive outlay doesn’t include what will need to be spent on rolling out “smart meters” – the gizmos that are marketed publicly as giving residential customers a better handle on their use of electricity, encouraging them to change their consumption habits, but have their major attraction for suppliers in providing access to information about which appliances are being used at what time of time, enabling retailers eventually to set prices based on daily and seasonal cycles. It has been estimated that the Australian roll-out could involve several billion in capital outlays, including the IT in which the suppliers need to invest to make the most of the technology.
Victoria is the lead state in this venture and there has been an announcement in the past week that distributor Jemena, aided by consultants Accenture, will spend $327 million over the next four years installing “smart meters” there in homes and small businesses.
Mike Griffin, program co-ordinator for “E21C,” says the headline feature of the Melbourne conference debate will be the interaction between electricity and communications networks to deliver more efficient operation and better customer service.
The speakers will include Guido Bartels, a senior executive of IBM’s global operations and chair of the Gridwise Alliance, which lobbies on the “national imperative” of modernising the US network system. His organisation reckons that the “smart grid revolution” could drive $US64 billion in American investment and create 280,000 direct and indirect jobs.
There is no doubt that the marriage of information technology and automation technology with the power grid system is an essential element both economically and environmentally for the new model electricity industry.
The need to reduce the extra-ordinary amounts being spent on Australian infrastructure – including billions of dollars for assets that may get used only a month a year but are critical to ensure reliable supply at peak periods – and the need to drive end-use efficiency to achieve greenhouse gas emission reductions are “must have” aspects of the national, and international, sustainability programs.
They also come with a level of political risk. Few Australian consumers understand that what is involved ultimately is their power suppliers being able, in effect, to peer in to their homes and businesses from long distance to automatically adjust power use, depending on demand and contract agreements.
“This is the energy Internet,” says Bob Gilligan, a senior execuitive of America’s GE Energy, one of the most aggressive pursuers of this innovation, “and there are going to be applications 10 years from now that will be essential to our lives, but which we don’t yet know we are going to want or need.” And, say it quietly, they are going to cost an arm and a leg in power tariffs – the pain ameliorated, so the theory goes, by consumers using the product far more efficiently.
The big, big secret of the energy policy debate, dear readers, is that we consumers have adopted The Boiling Frog position both through our demands that governments “do something” about the perceived threat of global warming and through the extra-ordinary increase in our use of electricity – ever so slowly, the temperature is going up, cost-wise, and there is no going back.
(I strongly approve of this – the best way to ensure an efficient power system is to get us to pay what it really costs to deliver the service and, if we want it clean and green, to pay that full cost, too. My beef is the way the pollies and the greenie advocates try to pretend this isn’t going to happen and that it doesn’t have consequences in some business sectors.)
An instalment comes due on 1 July when power bills rise in Queensland (15.7 percent), New South Wales (19 percent), Western Australia (10 percent on top of 15 percent in the past year), the Northern Territory (18 percent) and the ACT (6.4 percent). There’s a lot more to come.
Keith Orchison
1 July 2009
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