Issue 131, March 2016
This issue of the newsletter appears, writes Keith Orchison, as Australia starts to shrug off an especially trying summer in which electricity supply was under reliability pressure and as there is a lull in political hostilities on energy before the federal election – which may occur as early as July.
While the operators of the Basslink interconnector continue to struggle to locate the cause of the 290 kilometre line’s failure, the Tasmanian government says its contingency planning plus voluntary load reductions by major industrial customers now “substantially exceeds” import capacity from the mainland.
The source of the fault is thought to lie 80 metres under water 100 kilometres north of Tasmania in seabed conditions the operator describes as “bad.” It is believed to lie in a segment of the cable three to four kilometres long.
State Energy Minister Matthew Groom says the Tamar gas-fired generation has been built up to nearly 290 megawatts and another 100 MW capacity is being created. In addition the State is importing 200 MW of containerized diesel generation at a cost of $44 million.
Almost 60 per cent of Tasmania’s annual power consumption of 10,000 GWh is accounted for by five industrial customers.
Hydro Tasmania says it is now clear that Basslink will be closed for longer than initially expected (February).
Meanwhile the State’s Greens have rejected suggestions that a second Basslink should be built, calling for more wind farm development on the island to help free Tasmania “from the mainland’s grubby energy apron strings.”
The huge benefits flowing from the major investment in LNG exports is brought home by a new publication from the Australian Petroleum Production & Exploration Association which says the market for the industry’s services and supply companies was worth $29 billion in 2014.
APPEA points out that the LNG business has grown from one project exporting 2.5 million tonnes in 1989 to 30.4 million tonnes last year – and it forecasts that the 10 projects, some now being completed, will have collective sales of 85 million tonnes in 2020.
The association adds that LNG is now Australia’s third-largest export sector, still behind coal and iron ore but ahead of education.
In the new “Energy in Australia” report published in February by the Department of Industry, Innovation & Science, the federal government says this country’s total energy exports in 2014-15 were worth $67 billion – versus $34 billion in energy imports (crude oil and refined petroleum products).
The Office of the Chief Economist in the Department of Industry new report on energy in Australia says the electricity supply business contributed $26.4 billion in gross value added to the national economy in 2014-15.
The publication says the sector employs 65,100 people in 2014-15, had 63,000 megawatts of installed generation capacity.
Data for 2013-14 (latest available) showed plants produced 248,000 gigawatt hours of electricity (12 per cent of it off-grid) of which 61 per cent involved burning coal and 15 per cent was provided by renewables (including hydro-electric systems). However, coal’s share was the lowest since 1996-97 when it was 79 per cent.
The reports adds that 26 per cent of electricity was used by manufacturers (versus 23.4 per cent for households) but the factory volume used was down three per cent.
The east coast NEM accounted for 83.8 per cent of demand.
The Minerals Council of Australia is lamenting the erosion of Australia’s access to reliable, cost-effective energy.
In its submission to the federal government for the 2016-17 budget, the MCA points to Australia’s power cost rating among OECD countries tumbling from the cheapest in 2000 to 27th in 2014 after rising by 42 per cent between 2007 and 2014, “the seventh highest rate of growth across the OECD.” By contrast, it says, prices in Canada, a global competitor, rose only 21 per cent in the same period.
While network charge spikes played a significant role, the MCA adds, government intervention has also affected prices. For large business, it says, the cost of all government schemes can be as much as 20 per cent of the final bill.
“Australia’s competitors do not face the same policy-induced distortions in their energy markets.”
The future of network charges in New South Wales for the rest of the decade remains murky after the Australian Competition Tribunal overturned the Australian Energy Regulator’s determinations of almost a year ago, leaving the regulator to rework its revenue decisions.
The April 2015 determination reduced the five-year revenues of the three State-owned network businesses by between 22 and 24 per cent, worth $5.7 billion in all.
The appeal by the DBs is the first legal test of the NEM regulatory arrangements since they were reformed in 2012-13. The tribunal, part of the Federal Court system, has found conflict in the national electricity objective between pricing and service quality, reliability and security of supply.
The tribunal has found the DBs’ complaint that the AER had relied too much on an experimental benchmarking model in reaching its decisions is “cogent,” ruling the costs data set used was “immature.”
The tribunal said the regulator had “placed undue faith in the ability of it, and its advisers, to develop a single benchmarking model that can capture very well relative inefficiency.”
AER chairman Paula Conboy said at the end of February that it was too early to estimate the impact of the tribunal’s decision on consumer power bills – despite widespread media reports telling the community to “brace for a shock.”
Meanwhile the Grattan Institute says the situation “throws in to question the whole (regulatory) process.”
It argues that the CoAG Energy Council “should question whether we have the right approach.”
The trio of State-owned distribution businesses in New South Wales say they have saved more than $6.8 billion from their capital and operating budgets since 2012 and reduced their workforce by more than 25 per cent.
Ausgrid, Endeavour Energy and Essential Energy say they aim to “keep working on our plans to make our businesses more efficient.”
Meanwhile NSW Treasurer Gladys Berejiklian says that the State government has received “strong” indicative bids from investors interested in the sale of a 50.4 per cent stake in Ausgrid.
Media reports claim the partial sale could raise another $7 billion for the government – earmarked to pay for NSW capital works.
The east coast heatwave helped drive demand on the Queensland transmission section to a record 9,097 MW at the start of February, surpassing the previous peak set in January 2010.
The State-owned transmission company, Powerlink Queensland, says the 2010 record was 8,891 MW and it attributes the new peak to a combination of high heat and humidity and the demand for electricity from the LNG export developments at Gladstone.
Powerlink CEO Merryn York says the timing of the 2016 peak is also noteworthy: coming at 5.30 pm. This is due to the strong uptake of rooftop solar systems by Queensland householders, she says – PV installations have risen from 140 MW in January 2010 to 1,400 MW today.
John Pierce, chairman of the Australian Energy Market Commission, says emerging new technologies require re-drawing the line between what is subject to regulation in energy supply and what should be determined by market competition.
Pierce told the Electricity Storage Future Forum in Sydney that the scope and pace of change “seems to be accelerating.”
This, he observed wryly, leads some to prophesy that Australia is “on the verge of energy Armageddon” while others declare “the imminent arrival of an energy Nirvana.”
The AEMC’s perspective, he said, is that new technologies and supply business models coupled with consumer-led developments mean the biggest gains will come from network tariff reform and a new approach to what should be regulated.
Pierce added that the commission’s objective is to deliver “a resilient energy market,” flexible and able to adapt to “whatever the future may bring” while keeping prices as low as possible for customers.
Network businesses, he said, need to demonstrate how “they’re going to partner with people competing in the energy services space to respond effectively to consumer demands.”
One of the issues to be resolved, he said, is who should control energy storage devices “behind the meter” – consumers, energy service providers, retailers or network businesses?
Gavin Dufty of St Vincent de Paul Society says the cost of electricity batteries must fall by 25 per cent to give householders a positive return on investment in them.
Speaking to the Electricity Storage Future Forum in Sydney, Dufty said research in Australia had shown that none of 300 households studied would have received a positive return from storage systems at present costs.
He argued for work to be undertaken to resolve pricing signals (through tariff reform), consumer protection issues and equity issues created by cross-subsidization between households.
The new federal government analysis of greenhouse gas emissions reports that electricity generation accounted for 55.3 per cent of the national carbon budget in 2014-15.
The Clean Energy Regulator says mining (21 per cent) and manufacturing (16.6 per cent) made up a large share of the balance.
The CER notes that 19 of Australia’s 20 largest power plants are coal fired, five of them burning brown coal, which emits the most emissions per megawatt hour.
The Australian Conservation Foundation has used the news to drive home the fact that national emissions are rising even as the federal government has undertaken a larger abatement target.
Emissions rose 1.3 per cent (7.2 million tonnes) in 2014-15 over the previous financial year.
Speaking in Dubai, federal Environment Minister Greg Hunt declared the take-up of solar PVs on household rooftops a plus in the government’s approach to abatement.
Meanwhile the Clean Energy Council holds up South Australia as an example of how to navigate the transition to a low-emissions economy, arguing that wind and solar can be integrated with the existing electricity grid to supply reliable energy.
South Australia is now sourcing 41 per cent of its State electricity supply from intermittent generation.
The Energy Networks Association, on the other hand, uses the South Australian experience as showing that high penetration of renewable energy is “stretching Australia’s energy system resilience.”
The Australian Energy Council (formerly ESAA) says the SA situation “highlights the growing challenge of providing a reliable and affordable electricity system if we continue to increase supply from renewable sources.”
Australia’s new chief scientist, Alan Finkel, speaking at the National Press Club in Canberra at the start of March, said one solution to the South Australian issue is to invest in better grid connections between the State power systems.
A new study of the take-up electric vehicles by consultants Energeia shows that Australia is “still in first gear,” says the Australian Energy Council (formerly ESAA).
Despite local sales quadrupling in 2014, the study reports, Australian EVs represent only one-tenth of a percent of vehicle sales here.
Energeia’s initial report in 2013 forecast that Australian EV sales would reach 6.5 per cent of the total by 2022 and the consultants are still bullish about the future: asserting that 2022 sales now will be 7.7 per cent in 2022 and reach 300,000 a year by 2030.
The association points out that greenhouse gas emissions from transport are second behind power generation in Australia’s challenge to transition to a low-carbon society and represent an urban pollution issue, too.
The Energy Council notes that government subsidies for EVs here are under $1,000 per vehicle – by comparison, they are up to $30,000 per car in Norway and the Netherlands. EV uptake here, it adds, will depend on how the energy industry, manufacturers, governments and providers of charging services work together.
Removing barriers to EVs entering Australia and providing better charging options will also help, it says.
The Australian Industry Group has called on the federal government to pay special attention in its next budget to cementing and strengthening energy innovation initiatives to pursue carbon emissions reductions.
AiG says: “Innovation and commercialization of new technologies will be crucial to creating a new energy advantage for Australia.”
The lobby group tells the government it should “cement and strengthen” its existing energy innovation initiatives by committing to retain the Australian Renewable Energy Agency and the Clean Energy Finance Corporation.
The CEFC, it adds, needs “an achievable investment mandate that allows it to maintain a portfolio of higher and lower-risk allocations.”
Finance for industrial energy efficiency and established renewables should be used to “reliably balance riskier or more concessional elements of CEFC’s portfolio.”
Given the CEFC’s financial performance to date, AiG says, it will “credibly be able to maintain itself as an ongoing fund when currently planned budget contributions are complete and its additional returns could also support ARENA activity.”
The group declares it supports an expansion in ARENA’s remit to enable it to fund innovative industrial energy efficiency demonstration projects with good potential for replicability.
“While ARENA’s core business is renewables, energy efficiency plays a key role in making greater use of renewables more manageable and less costly to energy users.”
The Minerals Council of Australia is calling for national energy policy to be technology neutral and urging that all low-emissions options be treated equally by policymakers.
In its 2016-17 budget submission to the federal government, the MCA approves the new 26 to 28 per cent carbon emissions reduction target by 2030 as “credible and appropriate” but warns that implies an economic burden greater than that being assumed by other developed countries.
Australia, it says, faces a more intensive emissions reduction effort because it has different characteristics to other developed countries and plays a different role in the global economy.
“Australia has a growing population with a low geographic density and provides food, energy and resources security for dozens of nations.”
The association also points out that Asian economies, Australia’s near neighbours, are investing heavily in high-efficiency, low-emissions coal-fired generation. As well, it adds, nuclear power will be a growing part of the international generation mix, rising from 392,000 megawatts today to 614,000 megawatts in 2040.
The MCA speaks up for small modular nuclear reactors as a part of a future Australian power production mix, saying they have “much potential” and “could offer long-term, stable electricity supply to underpin household and industrial use in mining and other remote towns.”
It calls for the ban on the use of nuclear power to be lifted.
Praising developments in energy productivity in Australia, the MCA says there have been “significant gains” and the national energy productivity plan (released late last year) should stay focused on enabling business to apply innovation and technology to deliver more output for each unit of energy consumed.
In the case of mining, the association adds, energy consumption grew by 6.9 per cent a year over the decade to 2013-14 – but output from mines rose by an average of 22 per cent annually. “Mining is using more energy, but it is doing so efficiently.”
“Co-operation” and “reform” and “easing price pressures” are the messages federal Energy Minister Josh Frydenberg has sought to convey in a media statement welcoming the augmentation of the Eastern Gas Pipeline by Jemena at a cost of $150 million, increasing capacity by 20 per cent in to New South Wales where adequate, cost-effective supply remains a key challenge.
The EGP supplies half the use used in NSW.
Frydenberg says the federal government seeks to lead work by State and Territory governments to deliver “co-operative energy market reform” with the aim of “easing energy price pressures” while ensuring a reliable gas supply.
On a visit to the US in the last week of February, Frydenberg told a Brookings Institute forum in Washington DC that the government expects Australia’s gas exports to triple in value to $49 billion annually by 2019-20.
This year’s “Energy State of the Nation” conference presented by the Energy Policy Institute of Australia – to be staged in Sydney on 18 March – will focus on construction of a long-term vision and how to accelerate all forms of low-emissions innovation.
EPIA says the aim of the energy vision in the wake of the UN climate change conference in Paris last December should be to optimise reliable and affordable supply in an environmentally acceptable way – while providing this country’s trading partners with the energy security they need.
One of the features of the conference will be a presentation on the future cost of Australian electricity by Tania Constable, chief executive of the CO2CRC, which has just overseen publication of a power generation technology report.
The Australian Conservation Foundation is calling on the federal government to establish an advisory group to work on a national energy transition plan that has the phasing out of coal generation as its key focus.
The ACF declares that energy companies, superannuation funds, financial services companies and investors have “all called for the early closure of coal-fired power stations.”
The working group’s report should be followed by federal and State governments committing to funding the transition and making plans for future budgets to fund it, the ACF says.
In a reaction to the draft findings of the South Australian royal commission on nuclear issues, the Australian Energy Council (formerly ESAA) said “it is important to consider rationally all technologies that may be required to the challenge of supplying clean, affordable and reliable electricity.”
Chief executive Matthew Warren said “it would be wise to plan now to ensure that nuclear power can be available should it be required.”
Warren added that the commission is right to take the view that is not commercially viable in the present market environment to build a nuclear plant.
“We have an over-supplied market and tough investment conditions that make any new generation investment virtually unbankable – but conditions change. It’s sensible to keep all options open, including nuclear power.”
According to the last Lowy Institute attitudes poll, 43 per cent of respondents believed that solar energy will be Australia’s primary source of electricity by 2025.
The poll also threw up 13 per cent who thought it would be nuclear power, six per cent hydro-electricity, two per cent oil, 10 per cent natural gas and 17 per cent coal.
To me, this speaks more to the energy illiteracy of many of the 2,400 people the institute had pollsters contact in the first quarter of last year than to the democratic will of the nation – and still less to the practical challenges of providing the power system consumers and the economy must have.
I would be interested to know how many of those Lowy polled knew the actual technology shares of generation at the time – according to the federal government, it was 64 per cent coal, 21 per cent natural gas, seven per cent hydro power, seven per cent wind and two per cent each for solar power and oil.
One of the problems of attaining well-informed public understanding is that technology in the generation mix varies substantially by geography and not many seem to really know the local sources of electricity.
To illustrate, this is a load snapshot (the capacity of plant feeding power in to the market) for the three main sub-markets at midday, mid-week on one of the recent very hot and humid east coast summer days:
This trio of States make up 91 per cent of the east coast load and 85 per cent of the national grid-connected load.
The load mix shifts continuously throughout any day, with intermittent renewables as well as gas and hydro shape-shifting almost every hour, but at no stage does the conventional plant contribution in the three States (coal, gas and hydro) fall below 80 per cent of load and at all times coal is the backbone of supply.
Weather patterns and the time of day dictate the contribution of solar and wind.
It’s a nonsense to think this structure can convert to have solar power as the “primary source” of electricity by 2025, especially taking in to account the 76 per cent of consumer share required by small business, large commercial businesses, public services (hospitals, schools etc), manufacturing and mining and they’re not going to get by via PVs on their roofs.
Moreover, envisaging that rooftop PVs (plus battery storage) could be the primary power source for even households in 10 years’ time is an impractical stretch.
The problem here is that even policymakers rather too often demonstrate their inability to appreciate the current generation roles and the issues involved in a seismic shift – and frequently are most interested in producing “soundbites” and photo opportunities to capture media (and voter) attention, thereby contributing to public misapprehension of a practical path forward for power supply.
Appreciation of this situation may lie behind the South Australian royal commissioner (overseeing the nuclear issues inquiry in that State) declaring (a) there are many possible combinations of generation technologies for a future east coast low-carbon electricity system and (b) it is essential that we (sooner rather than later) undertake independent analysis of the costs of a credible future system delivering the low-carbon transformation, reliable supply and the lowest consumer prices possible.
Those of us who travel by train are familiar with the exhortation to passengers at every railway station to “mind the gap” between platforms and carriages.
The Australian community and our body politic also need to mind the gap between popular power supply perceptions and the rational prospects of adopting technologies that will deliver high volumes of reliable power supply at the times consumers (residential, business and public services) need them and at costs that are affordable and, for trade-exposed sectors, supportive of international competition.
At a forum in Washington DC at the end of last month, federal Energy Minister John Frydenberg spoke of the need to “question traditional energy supply.” Battery storage, carbon capture and storage, high-efficiency, low-emissions coal plants and large-scale solar are all likely to feature going forward, he said.
The trouble is that the multi-pronged approach he canvassed in DC gets hardly any mention back home by his government or anyone else – and, as a result, the community is forming a view that the answer is solar and wind.
If it is, what is the question?
Personally, I much prefer the one posed by the South Australian royal commissioner last month: how do we establish a range of credible options for the NEM that will be low-carbon and able to be delivered to consumers at the lowest possible system cost?
Not surprisingly, absolutely no-one in the media or politics took up the commissioner’s point – how do we get there from here if the topic is apparently taboo for opinion-makers?
Keith Orchison
4 March 2016
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