Issue 230, June 2024
Here we are at the closing of one financial year and the opening of another in which two key elections (Queensland and the federal poll) will see energy issues a major debating factor before an audience of restive communities fed up with higher prices as a key part of the cost of living crisis. In May the federal government attempted to sooth voters with a $300 power bill rebate for all household users regardless of their wealth – and this was followed almost immediately by more hand-wringing on the part of the east coast market operator on the prospects of electricity blackouts next summer at peak periods because, to quote one newspaper, wind, solar and battery projects have struggled to get from promise to reality and “the grid is not designed for what it is increasingly being asked to do.” There will also be a need, the operator says, for investment in ancillary services to replace the benefits of large baseload plants in the NEM. All this is happening as warnings grow of an east coast natural gas supply shortage by 2028 – and amid ongoing rows in the political arena between the Albanese federal government and the Greens on a proposed “future gas strategy” that declares the fuel must remain affordable for users, domestic and business, throughout the national transition to net zero and that new sources of supply are integral to the controversial drive for high-tech manufacturing
“The struggle to keep the lights on is a consequence of incoherent energy policies for more than a decade failing to provide a predictable long-term investment environment for power companies to build the future energy system – be it coal, gas, renewables or nuclear-based” – John Kehoe, economics editor, Australian Financial review.
“Wishful thinking has guided nearly all the federal government’s energy policy” – Meg O’Neill, chief executive, Woodside Energy. “I firmly believe Australia needs a reset in the energy and climate conversation.”
“Switching Eraring off will tip the NEM in to a major and untested regime of grid management which will accelerate with every coal generator that closes thereafter” – Australian Financial Review commentator Matthew Warren.
“Australia needs decarbonization not de-fossilisation for a successful transition and new industries” – Kevin Gallagher, Santos chief executive.
“Pragmatic decisions need to be made in order to avoid blackouts” – Andrew Richards, CEO, Energy Users Association of Australia. “The outlook for Victoria and NSW is alarming. The roll-out of new generation is not happening fast enough. This should ring alarm bells for governments and the energy industry itself – it is a warning on what the future could look like should we choose to turn off existing assets if we do not have new ones ready to replace them.”
“Australia stands on the precipice of an impending power shortage crisis, set to hit households and business along its eastern coastline by 2027, with significant disruptions predicted across various sectors unless immediate action is taken” – consultant Paul Budde.
“A renewable energy superpower by 2030. That’s what I’m driving. That’s what gets me out of bed every day” – federal Energy & Climate Change Minister Chris Bowen.
“The previous federal Coalition government was all announcement, no delivery” – Bowen.
“While new generation and storage capacity continues to increase, project development and commissioning delays are impacting reliability” – Daniel Westerman, chief executive Energy Market Operator.
“AEMO estimates that 50 per cent of the transmission needed to deliver a clean, reliable, affordable energy supply in 2050 needs to be constructed in the next six years, but most of these lines are yet to be built” – Alison Reeve, Grattan Institute.
“Every State government on the east coast has a renewable energy target. So does the federal government. But these targets are set as arbitrary percentages linked to arbitrary dates, not chosen to deliver the cleanest, most reliable, cheapest energy system for consumers” – Reeve.
New investment in renewable energy across Australia fell by more than a third to $6.9 billion, according to global research firm Bloomberg New Energy Finance – with a particular decline in solar and onshore wind farms.
This, the researchers say, is “creating concerns about power reliability later this decade.”
The comments come as May saw another uptick in anxiety being expressed by business leaders over the pace of the “transition” embraced by the federal and State governments.
Jeff Dimery, chief executive of Alinta Energy, told the Australian Energy Producers annual conference in Perth – which attracted 2,800 to discuss current issues over three days – that government underwriting of renewable developments in the east coast market will undermine the price signal for gas generation and other sources. “The NEM as it stands will no longer be fit for purpose,” he declared. “Power shortages in New South Wales and Victoria are an immediate risk.”
Dimery said the energy system is “getting more fragile” as the addition of new clean sources of power fails to keep pace with retirement of coal-fired generation. He added that addition of ever more renewable generation to the NEM without capacity to back it up for days at a time is “fraught.”
His point was echoed at the AEP conference by Origin Energy chief executive Frank Calabria, who said it is “imperative” to ensure enough gas-fired generation is on hand to back up wind and solar supply and battery storage.
Dimery also warned the federal government that it will lose community support if the energy transition is not managed in a cost-efficient way. “There is ample evidence right now that this is not the case,” he said.
The conference discussion came on the back of the NSW government announcing a deal with Origin Energy to extend operation of its Eraring coal-burning plant in the Hunter Valley, the largest remaining in Australia, for two years beyond its original proposed closure date, keeping it in the NEM until August 2027 at least.
The underwriting arrangement was immediately denounced by the conservation movement and renewable energy advocates as a “waste of money” and an “environmental disaster.” The Clean Energy Council called on the NSW government to “double down” on the development of renewable energy zones.
The major national employer lobby group, the Australian Industry Group, welcoming the NSW government deal to extend Eraring operations, says it provides “a critical window” for governments, regulators and energy suppliers to get new assets built.
Chief executive Innes Willox says the decision “buys some time, but not much.”
He adds: “Transmission lines, wind and solar farms, storage batteries, pumped hydro and back-up gas peakers are planned across the NEM but too few have been approved or built at the pace required. Reforms, announcements and interventions have been feverish but concrete delivery has lagged.”
In another statement in mid-May, Willox warned: “There is an energy reliability chasm in front of us. We can either build a bridge over it or argue all the way to the bottom.”
AiGroup estimates that, on the current trend, NSW and Victorian energy consumers will see three to 10 times more unreliability than government standards targets – “meaning hundreds of millions of dollars a year of lost value to businesses and households.”
Willox adds: “If we can’t build new transmission, generation and storage fast enough, the inevitable conclusion must be to delay the retirement of coal-fired power stations.”
He says: “We have to get our act together. Time is not on our side.”
The Clean Energy Council, in an annual report, says financial commitments to utility-scale renewable energy developments fell to $1.5 billion in 2023, significantly down on $6.5 billion in 2022.
The lobby group attributes the large drop to “a more complex and challenging landscape for new investment decisions,” which it says includes a constrained network system, slow planning and environmental assessment processes in some jurisdictions plus higher costs and tighter markets for equipment and labor.
“The policy environment has also been uncertain,” it adds.
The CEC notes AEMO wants to see 6,000 megawatts of utility-scale generation added to the NEM each year to meet the federal government’s target of having 82 per cent of electricity supplied by renewable energy by 2030. The addition in 2023 was 2,800 megawatts.
The association also notes that coal-fired generation contributed 52.7 per cent of Australian power supply in 2023, down from 54.6 per cent in 2022, with gas plants providing 7.3 per cent, down from 8.9 per cent the previous year.
It says the total national total of power sources amounted to 236,270 gigawatt hours in 2023 – including 26,553 GWh from rooftop solar. Of the rest, black coal plants provided 92,843 GWh, brown coal 31,682 GWh and gas units 17,267 GWh.
From the renewables sector, wind farms provided 31,559 GWh – followed by utility solar with 16,478 GWh, hydro power with 15,306 GWh and bio-energy with 3,248 GWh.
In the latest move in its clean energy charge, the Labor federal government is allocating more than half a billion dollars to promote battery manufacturing opportunities in Australia.
In an announcement in late May, Prime Minister Anthony Albanese said that, with global demand for batteries to support a massive switch to renewables-based electricity supply predicted to quadruple by the end of this decade, “Australia must be a player in this field.”
Albanese said: “Batteries are a critical ingredient in Australia’s clean energy mix.” Industry & Science Minister Ed Husic added: “Australia provides around half the world’s lithium supply but produces less than one per cent of the world’s processed battery components.”
The move is part of the government’s flagship “Future Made in Australia” campaign as it approaches the next federal election – due in May next year but being increasingly predicted in the media to be called before the end of 2024.
The FMA program is costed by the government at $22.7 billion, of which $523 million is earmarked for the “battery breakthrough” plan.
The strategy has been hailed by the Australian Academy of Technology & Engineering as “a welcome opportunity to shift our focus from simply exporting minerals to adding value through advanced manufacturing capabilities.”
In the latest iteration of its controversial GenCost publication, CSIRO says it has included large-scale nuclear power stations for the first time at the request of a majority of “the highest volume of feedback” to its consultations on the project.
The latest study says it estimates that the capital costs of onshore wind generation technology have risen by another eight per cent while solar farm costs have fallen to the same extent. Gas turbine technologies are now experiencing cost increases of 14 per cent, it reports.
With respect to large nuclear power stations, CSIRO declares “there is no known technical constraint” to their deployment in Australia, but, “due to the current state of the development pipeline here, the earliest deployment could be from 2040.”
The organisation’s methodology for estimating the possible costs of small modular nuclear reactors in Australia continues to be strongly contested by proponents and by the federal Opposition.
Its latest nuclear modelling is also under attack. Coalition energy spokesman Ted O’Brien says the new publication’s analysis of nuclear costs is “shallow” and “ignores important evidence.”
On the new GenCost modelling, wind and solar power are still declared to be the cheapest generation options, although, CSIRO says, “ cost reductions for wind energy are now not expected to take place until the mid-2030s.”
Wind developments, it adds, have been “the slowest to recover from the global inflationary pressures associated with the Covid pandemic.”
In an interview with the ABC, Paul Graham, chief economist of CSIRO’s energy business unit, acknowledged that offshore wind development costs “are likely to be about twice as expensive as onshore wind.”
Victoria’s Energy Minister, Lily D’Ambrosio, is reported as saying in a green website webinar that federal spending is “critical” to her State’s plans for an offshore wind industry.
The Victorian government has targetted having available 2,000 megawatts of offshore wind generation capacity by 2032, rising to 4,000 MW in 2035 and 9,000 MW by 2040 as part of its renewable energy ambition of 95 per cent by 2035.
In the podcast, D’Ambrosio complained that there was “still no commitment from the Commonwealth, to work with the State for the financing part of getting these projects actually built”.
“No other country that has built offshore wind energy has relied solely on a subnational government to get these projects built, so the Commonwealth government needs a plan that includes financing,” she said.
“We’ve done the groundwork to set up the country’s first offshore wind industry here in Victoria, with global renewable energy companies lining up to invest in our State,” she asserted.
Energy Consumers Australia says there has been a marked increase in strain among people in higher income-earning brackets over paying energy bills.
Brendan French, the lobby body’s CEO, reports a survey it has just undertaken shows that, where three years ago just two per cent of respondents earning more than $150,000 annually said they were under financial pressure, in May that number had risen to 12 per cent, “by far the largest percentage since we started tracking this figure in 2016”.
He added that 34 per cent of small business operators are reporting they suffered financial hardship last year and 21 per cent said they had difficulty in paying 2023 energy bills on time and in full.
It is clear, he said, that “cost pressures haven’t really abated for energy customers” – “the federal Budget will provide some very welcome relief for both households and small businesses, but the underlying challenges remain.”
Among the things now clear from the political debate and media commentary as we close on the end of financial year 2023-24 is that community concern about cost of living and housing issues will vie with the federal government’s near desperation to retain voting support by boosting its green credentials, notably in the energy field, as Prime Minister Albanese and his cabinet wrestle with when to go to the polls.
The media’s politics commentariat, quite a large number of whom have 10-20 years’ experience in the game, seem increasingly convinced that Albanese will opt to go sooner rather than later – which some believe points to a December election following the Queensland State election (where the serving Labor government is seen to be in danger of defeat).
The federal government’s flagship as it sails in to this battle seems certain to be its $22.7 billion “Future Made in Australia” plan, a dominant feature of the recently-delivered Budget.
The arguments for and against this approach, including whether or not the ban on nuclear power’s use in Australia should be lifted, are likely to be fully on show in the weeks and months ahead as legislation to support the “Future Made in Australia” policy is debated in Parliament House, Canberra.
In this context, I note a website commentator posing the question “What are we to make of the increasing volume and intensity of competing ‘facts’ about Australia’s green energy transition, how to achieve it and at what cost?” She adds: “I mean other than the reality that political narrative and ideology too easily trumps engineering and economic rigor in the age of net zero targets and mandates.” That seems very fair point to me.
At the recent Australian Energy Producers’ annual conference in Perth, association chair Meg O’Neill, CEO of Woodside Energy, made comments that build on this aspect.
She said: “With a federal election and various State polls on the horizon, I encourage all sides of politics to remain focused on the longer-term benefits of addressing the complex, global nature of the climate challenge.
“I firmly believe we need a reset in the (Australian) energy and climate conversation.
“Ensuring our industry can continue to supply safe, reliable and affordable energy is not just in our interest – it is in the national interest.”
While declaring my interest here as a former CEO of AEP’s predecessor, the Australian Petroleum Exploration Association, and subsequently of the Electricity Supply Association of Australia, in all for 24 years, I reckon O’Neill’s emphasis is wholly right. There are a myriad of reasons why the energy producers’ continuing success is of value to the community at large, acknowledging the need for them to properly address environmental issues and consumer needs. A candid look at the past decade’s political goings-on begs the question of how far policymaking has lost sight of this essential requirement?
Consultants EY declare in a current issues paper that “the clean energy transition is one of the biggest and most complex challenges Australia has faced” – and that’s a fair point, too.
A key question for voters at State and federal levels in the months ahead is (or should be) how well contenders for government have been or are capable of being on top of this challenge?
And, in closing, a telling comments at the AEP conference came from Santos CEO Kevin Gallagher, who opined that one of the big mistakes of governments here and overseas in this area has been relying on advice from non-energy producers on what the energy future should look like.
“When you sit back and think about that, you couldn’t script the ludicrousness of that type of approach,” he said.
Quite.
Keith Orchison
2 June 2024