Issue 169, May 2019
As the Grattan Institute observes, things have not gone well on the energy scene since the last federal election 34 months ago, a period in which Australians have endured contention and angst about power supply security, electricity and gas costs and the management of carbon emissions. Most readings of the political tea leaves at April’s end suggest that the country will have an ALP government before May is out – very probably with yet another unwieldy Senate. Still, a fortnight is a long time in politics at the best of times and reportedly a quarter of voters leave their voting decisions until the last minute while pre-polling arrangements allow millions to cast their ballots much earlier than 18 May. One of the leading newspaper political reporters comments that “anger bubbles everywhere in this election,” seeing “high levels of voter disaffection.” How this plays out is still anyone’s guess, writes Keith Orchison. Oddly, given what has gone before, energy policies have not figured nearly as strongly in the first half of the election campaign as many predicted they would apart from a brief splutter about electric vehicles and rowing over the cost of higher levels of emissions abatement to our $1.9 trillion economy. What’s happened to the “white hot” community anger over power bills? However, should Labor win government, energy is likely to be quite prominent in the opening months of a new administration not least because Bill Shorten is committed to resurrecting the “national energy guarantee” while increasing electricity-related carbon abatement.
“Australians love renewable energy because it brings down power prices and cuts pollution” – ALP climate change and energy spokesman Mark Butler.
“They’re putting a Labor badge on the bonnet and they’re just proposing to drive it a bit faster” – Tony Wood, Grattan Institute, telling a radio station the ALP’s energy policy is very similar to the Coalition’s scrapped “national energy guarantee.”
“Grid-scale solar generation has contributed to renewables supplying monthly (in the NEM) 14-15 per cent of total generation (including rooftop solar) since last November. This is a dramatic increase over the average 10-11 per cent share this time last year” – Hugh Saddler in The Australia Institute’s National Energy Emissions Audit.
“Systems with lots of non-synchronous generation like wind and solar are weaker and harder to control, The grid is holding up but only because the system operator is intervening on a daily basis to keep the lights on” – Anne Pearson, CEO, Australian Energy Market Commission.
“A ‘dumb’ energy future, where there is high use of storage devices (which includes electric vehicles) but limited visibility of when batteries are charging and discharging, is one of unreliable power supply” – Andrew Dillion, CEO, Energy Networks Australia.
Labor leader Bill Shorten in an interview in late April with the Australian Financial Review: “On energy, we’re finally going to give you policy certainty and ultimately downward pressure on prices. We are going to put the gas genie back in the bottle by building the necessary infrastructure to extract gas to keep Australia’s manufacturing base alive.”
Australia faces a back to the future political prospect should Labor win this month’s federal poll. Leader Bill Shorten has committed in the election campaign to pursuing the “national energy guarantee” in government – with a higher emissions abatement target than the Coalition had on its agenda before the policy was derailed last year.
Shorten has told media: “We will use some of the Turnbull-Morrison-Frydenberg architecture and work with that the structure.”
The ALP’s climate change and energy spokesman, Mark Butler, says a Shorten government will “move quickly” to put in place its energy and abatement policies, consulting with industry, State governments, the market operator and other institutions on final designs.
The Energy Security Board has warned – in its discussion paper on a post-2025 NEM design – that, if changes are required to “deliver a long-term, fit-for-purpose market framework by the mid-2020s,” consideration should be completed by the end of next year to enable sufficient transition time.
Meanwhile, former Prime Minister Malcolm Turnbull intervened in the campaign at Easter to tweet that the NEG was only dropped as legislation because “a right-wing minority in the party room refused to accept the majority position and threatened to cross the floor and defeat their own government.”
This, Turnbull tweeted, foiled integration of energy policy, leading to uncertainty which continues to discourage investment – “with the consequence of both higher emissions and higher electricity prices.”
“The debate on climate change policy mistakenly focuses on the size of emission reduction targets. This is not the key issue. The key issue for climate policy is to reduce greenhouse gas emissions as much as possible (consistent with the body of science) at lowest economic cost.”
This is the view of Warwick McKibbin of the ANU Crawford School of Public Policy presented in an op-ed in the Australian Financial Review as the federal election kicked in to its final weeks.
McKibbin says Australia needs a comprehensive policy to deal with climate change. “Piecemeal symbolic announcements do not make a comprehensive policy. Piecemeal policy will collapse under pressure.”
He argues that the debate that should be the focus of the election campaign is not the size of an emissions target but the comprehensive set of policies that will be implemented.
The Grattan Institute, in a wide-ranging commentary on policies the next federal government should pursue, says businesses and households “want action on climate change” and proposes four priorities to “deliver the biggest results” over the next three years.
The institute says one priority is to implement the emissions obligation of the “national energy guarantee” for electricity, integrated with specific mechanisms in other sectors.
Another, it says, is to lead the CoAG Energy Council to implement the reliability obligation of the NEG.
It also calls for negotiation of a new agreement with the States and Territories that commits to national markets, the policymaking role of governments and the implementation role of market agencies.
The fourth priority proposed is for the development and delivery of “a clear, credible and compelling narrative” for an energy transition that will win public support. The institute says failure on this task “destroyed the prime ministerships of Kevin Rudd and Malcolm Turnbull” – and it adds “it will be a tough journey, weighed down by the baggage of the climate wars.”
The institute comments that multiple reports and reviews over the past three years have provided a multitude of recommendations to reduce costs and emissions and to increase supply reliability.
“Many of them are sensible and should be adopted,” it says, “but Australia does not have a cohesive plan for delivering a comprehensive market reform agenda based on tis work; governments seem to prefer intervening in the market and criticizing big energy companies.”
The momentum of renewable energy development in Australia is at risk, according to the Clean Energy Council.
In a political message on the eve of the general election, the CEC declares that the 2020 renewable energy target “has provided a precious four years for the industry to make informed investment decisions.”
This culminated in 2018 in a commitment to $20 billion worth of investment in wind and solar farms, it says.
But now, the lobby group argues, there is a need for a long-term commitment to clean energy at affordable prices.
The Clean Energy Regulator has affirmed that Australia’s large-scale renewable energy target (LRET) of 33,000 gigawatt hours will be met in 2020.
In its annual statement for federal parliament, CER says enough utility-scale renewables capacity was commissioned and generating or under construction to enable the target to be attained.
One of the effects of the investment is that the LRET certificate spot price has fallen from $85 per megawatt hour in January last year to $47.50 in December and to $31 by mid-March.
CER says the amount of constructed projects accredited under the LRET in 2018 was more than triple the outcome for 2017 – 3,455 MW versus 1,113 MW. It expects approximately 4,000 MW will be accredited in 2019 – and it expects similar levels of capacity commissioned in 2020 and 2021.
The regulator says it expects 2,500 MW of rooftop solar capacity to be installed across Australia in 2019 and this to be repeated in 2020 and 2021 as well.
While proponents of renewable energy are celebrating a 21.3 per cent share of electricity generation in the NEM and Western Australia’s SWIS in 2018, the penetration of fossil fuels in the markets remains at just under 79 per cent, according to the latest report of the Clean Energy Council.
The CEC includes 17,002 gigawatt hours of hydro power and 3,412 GWh of biomass in its report – the output of wind farms is set at 16,171 GWh, with solar farms at 1,875 GWh. The use of rooftop solar PVs is estimated at 9,452 GWh.
The report highlights that two million households, one in five, were using rooftop solar power by December 2018 – with 218,195 installations occurring during the calendar year. Installed capacity reached 8,312 MW – with more than half in two States (New South Wales and Queensland) and the ACT.
Meanwhile, in New South Wales, the transmission company, Transgrid, continues to express concern about grid congestion issues. A company spokesman told the Australian Financial Review in April that there is 20 times more capacity wanting to join the system in NSW than could be accommodated – arguing that regulatory change is needed to facilitate the transition away from coal-burning power.
Analysts Green Energy Markets claim that households and businesses could invest in 2,000 megawatts of rooftop solar nationally during 2019 in the face of “persistently high power prices.”
GEM say 480 MW of rooftop capacity was installed in the first quarter of this year, a 46 per cent increase on the same period in 2018. They report that 1,227 MW of residential solar capacity was installed last calendar year – versus 859 MW in in 2017.
The analysts assert that the overall solar sector, on expected investment in 2019 and 2020, could reach 19,000 gigawatt hours of power production a year.
The speed of structural change in the east coast market is putting growing pressure on power system security and reliability according to a new Australian Energy Market Commission report. It declares there is a “wholesale shift” going on in the structure and function of the NEM.
The latest review of market performance in the NEM, covering 2017-18, says that key issues for the market are the entry of significant levels of intermittent wind and solar power, the age of the thermal generation fleet and “massive growth” in rooftop PV capacity.
Most of the large amount of variable renewable generation entering the market is non-dispatchable in the absence of adequate storage capacity, the review notes, and the market operator cannot depend on it to ramp up supply when a shortage emerges because its availability depends on the weather.
“Unprecedented in their breadth and scope, these trends put extraordinary pressure on the security and reliability of the grid,” says the commission CEO, Anne Pearson. “Systems with lots of non-synchronous generation like wind and solar are weaker and harder to control, raising the risk of blackouts.”
The NEM is a system under increasing pressure, she adds.
Getting more firming generation capacity in to the system will help, Pearson says. “That’s why it is important for the CoAG Energy Council to implement the retailer reliability obligation so that retailers and large users get incentives to invest in dispatchable generation and demand response.”
In its report on 2018 NEM performance, the commission’s reliability panel comments that operator market interventions to maintain system security and reliability are part of the market’s emergency backstop design – but they come at considerable cost to consumers “and can have unintended consequences.”
Australian Pipelines and Gas Association CEO Steve Davies is speaking up for gas generation in the wake of a series of media stories about its declining role in summer.
Davies says that, while there was a decrease in gas-based electricity output in summer 2018-19 versus 2017-18, “every day, and especially on hot days, when it matters, it is gas-fired power that is making sure there is enough energy in the system to meet all demand.”
Gas-fired plant provided eight per cent of NEM electricity over the past 12 months, he points out, “and on some of the hottest days, such as 24 January (when there were rolling brownouts in Victoria), gas-fired power jumped to 20 per cent for the day – with many days when it provided 10 per cent or more.”
Davies says: “There were a couple of instances over summer when gas-fired peaking plants maintained more than 100 hours of continuous operation, a capability crucial to the ongoing reliability of the system.”
The Open NEM widget, looking at a rolling 12 month period to 21 April this year, reports that gas generation contributed 16,021 gigawatt hours to the east coast grid out of 191,905 GWh (which doesn’t include estimated use of rooftop solar power). This exceeded the supply from both hydro systems (15,513 GWh) and wind farms (14,650 GWh). The dominant supply in this period was coal – with black coal generation contributing 107,863 GWh and Victoria’s brown coal 34,731 GWh.
The first east coast LNG import terminal looks a big step closer to realization after the New South Wales government granted planning approval for the Australian Industrial Energy project proposed for Port Kembla.
The plant is one of five mooted for the east coast in response to deepening concerns about the region’s domestic gas supply security and price implications for manufacturers in particular.
It is claimed that the $250 million Port Kembla terminal and pipeline could deliver 100 petajoules of gas a year, 70 per cent of NSW needs. The State obtains 95 per cent of its gas needs interstate at present.
The Energy Users Association of Australia, which represents many of the country’s largest gas consumers, has declared the east coast market faces a “tipping point” within 12 to 18 months “with many commercial and industrial (companies) facing an uncertain future.”
EUAA, which foresees gas prices rising from $10.50 a gigajoule next year to $15 if the present environment continues, says many companies will “close or reduce production” if they are not able to pass these costs on to customers in sectors such as processed food, dairy products, building supplies, glass and paper products.
The association says the winner of May’s election “must make solving the gas crisis a priority before we run out of time and options.” It argues that “some different thinking is required – given the gravity of the situation, we need a step change in policy, not more incremental changes.”
EUAA says: “Big solutions are required to solve big problems, including the potential of governments stepping in for a period of time to ensure the viability of many gas intensive industries such as food processing and building products manufacturing.”
The agricultural sector claims to have one of Australia’s largest investments in solar power but its members are still very unhappy about energy costs.
A paper prepared by the Ag Energy Taskforce for the federal election declares that rapidly rising costs impacting on irrigation, storage cooling and processing and packaging are having a serious impact on farmers’ ability to produce food and fibre.
“Australian producers are being forced off the grid or out of business,” complains the task force (representing 13 agricultural lobby groups led by the National Irrigators Council). “We are losing our ability to compete globally and seeing significant job losses.”
It says farmers have taken up loan incentives offered by the Clean Energy Finance Corporation over the past three years to support spending more than $100 million on 417 on-grid and 20 off-grid solar power projects – but they are also turning increasingly to diesel generation because of lack of viable renewable power options.
The paper calls for a price ceiling of 16 cents a kilowatt hour to be imposed on electricity supply – eight cents for electrons and eight cents for networks – and also a $250 million water and energy productivity program to support efficient practices in irrigation.
It also argues that the NEM does not operate in the national interest “and is certainly not genuinely competitive.”
Ag Force declares that “in every section of the electricity market charges being passed on to consumers exceed the economically efficient cost of supply” and it claims annual energy company profits are more than $2.6 billion higher than they should be.
Eighty-three per cent of members of the Australian Institute of Company Directors rate public policy debate as “poor.”
Responding to a survey undertaken by Ipsos Connect, the organization’s members rank climate change as the number one issue for governments to address in the long term and energy policy in the short term -- with 51 per cent of respondents rating renewable energy as the top area for importance for infrastructure investment. They say they are are “frustrated” by the lack of bipartisan support for climate change initiatives.
Twenty per cent rate high energy prices among the top three challenges currently facing Australian business.
The AICD says overall director sentiment has fallen sharply in the past six months, pessimism it attributes largely to a lack of confidence in the health of the Australian economy and of those in Asia, the US and Europe for the next year.
The latest survey of Australian community views on climate change-related issues by Ipsos Connect shows that 64 per cent of those interviewed think increasing the amount of power generated from renewable energy should be an essential or high priority part of policymaking.
Thirty-nine per cent of respondents feel that a shift to renewables will positively impact Australian economic growth – versus 22 per cent who believe it would have a negative effect.
As well, 38 per cent of those taking part in the survey believe household power bills will be more affordable with a greater share of renewables in the generation mix – versus 34 per cent who think their household energy bill would be impacted negatively and 16 per cent who believe there would be no impact.
Ipsos Connect comment that, while concerns about financial costs and supply reliability are certainly present in their polling, the desire for government to address climate change and optimism about moving to more use of renewables “present a growing mandate” for policymakers to pursue climate change mitigation strategies.
“As both sides of politics continue to fight a battle on the best way to meet energy needs and emissions targets, Australians are getting behind renewable energy.”
The firm’s polling found 40 per cent of respondents believe Australia setting an emissions reduction target beyond the current 28 per cent by 2030 policy is a high priority for government versus 24 per cent thinking it a low priority and a 12 per cent “don’t know” response.
Andrew Dillon, CEO of Energy Networks Australia, says that, done well, a program to drive the use of electric vehicles much harder can help significantly increase the utilization of power grid infrastructure.
“If we can encourage the EVs’ charging load to off-peak times,” he says, “that will increase the amount of electrons flowing through the same assets and that will be good news for consumers as higher (network) use will push prices down for everyone.”
However, he acknowledges that an increase in demand from EVs will have “major implications” for design and management of the east coast system. Reform is needed, he says, to ensure that plugging more household solar, batteries and electric vehicles can be done safely and affordably.
Dillon adds that “a ‘dumb’ energy future, where there is high use of storage devices but limited visibility when batteries are charging and discharging is one of unreliable power supply,” pointing out that this could lead to voltage and frequency problems and localized power outages.
The good news, he asserts, is “this shouldn’t be too hard – we need a combination of sensible pricing and smart charging infrastructure.”
Meanwhile, as a pointer to the challenge faced by grid operators, the ENA warns that, with an even faster rooftop solar uptake, around a quarter of zone substations will reach threshold penetration by 2025.
One of the best lines from the Australian Domestic Gas Outlook conference that gained no media traction at the time but is still highly relevant today came from Steve Davies, CEO of the Australian Pipeline & Gas Association.
Davies told attendees that “national energy policy is suffering from an over-application of cure without an accurate diagnosis of th disease.”
The real cure, he said, would be to neutralize politics in the energy debate, arguing that the intense political focus on energy prices has “short-circuited” the governance arrangements on the east coast – where the establishment of a separate rule maker (AEMC) and operator (AEMO) was intended to “avoid some of the pitfalls that accompany knee-jerk political responses to issues.”
Governments, he noted, ‘don’t have a lot of incentive to create the kind of policies we need to encourage investment; after all, these policies may not realize their aims for more than five years – which could mean political rivals get credit for them.”
Davies added that gas provides about as much energy to Australian end-users as electricity and “it is just not feasible to replace it with electricity.”
Democracy is a curious beast and not infrequently startles even those who know quite a lot about voting patterns with the vagaries of what can happen when people reach the polling booth.
Probably the most vivid recent examples of this internationally have been the election of Donald Trump and the outcome of the Brexit referendum, but there have been a few in Australia over recent history (ie the past 20-30 years) that induced a bit of mental whiplash in observers.
What will happen in Australia on 18 May, if you scan the local media, should be straightforward enough: the defeat of a Coalition government that has spent too long fighting within its own ranks and the election of a Labor administration with, perhaps, a sufficient majority to govern for six or more years.
We’ll know soon enough whether this will be how things pan out but there are often twists in this tale – and the international eruption of social media, allied with their use by activists (and mis-use, as we have seen overseas and here, by malicious players), is a factor that can no longer be discounted.
The 16.3 million or so Australian voters – there are 16.8 million eligible to vote, the Electoral Commission says, but almost half a million have chosen not to enrol – will not surprise us at all in many constituencies where people have a long record of support for one or other of the major parties but may well produce some unexpected outcomes elsewhere. (A not insubstantial number – it was 721,000 in the 2016 federal election – will attend a polling booth, as the law here requires us to do, but choose to vote “informal,” which I always interpret not as an indication of stupidity by fellow citizens but a gesture of disdain for the body politic.)
As we know, voting for the Senate has become something of a magical mystery tour in recent years and current circumstances may see an even larger vote for independents and minor parties than in the past – with consequences for the passage of legislation in the upper house down the track, not least for bills affecting energy supply.
Conventional wisdom (at least in the media) has it that public attitudes to climate change will be a strong influence on voters at this poll and it is at least possible that the arrival of a large number of so-called Generation Z people will bolster this trend.
One of my perennial interests is the primary vote The Greens get notwithstanding the many opinion polls supporting greater action on climate change and governments doing more to support renewable energy. In 2016 the party achieved 10.3 per cent of the House of Representatives primary vote, up from 8.7 per cent in 2013 and still well below the 12 per cent of 2010. Will it rise or fall in 2019?
Among other things, the party is running on a platform of Australian electricity supply being 100 per cent renewable by 2030, described by one local energy newsletter as being “closer to mainstream policies being promoted in Europe and the US.”
How much of this stuff is swallowed by Generation Z and others remains to be tested on 18 May, but my response to such talk is to quote Dieter Helm, the Oxford professor widely regarded as a leading global authority on energy policy. In particular, to quote this recent observation:
“The claim that global decarbonization can be done at little or no cost is nonsense. On the contrary, switching from an overwhelmingly carbon to a non-carbon-based economy in the space of two or three decades is really expensive. The political fact is that, while voters tell us they care about the climate, their concern fades quickly when they are told it is going to increase their electricity bills. There is no government in any of the major emitters that could maintain popular support on the basis of a carbon tax necessary to meet the 1.5 degree target – and that is the cheapest way of achieving it. The real challenge is to persuade the public that they should take a hit now – and hence spend less to make way for investment – for a benefit after 2050.
“A credible climate action plan needs several things. It needs the truth, not spin, about costs. It needs to recognize that top-down approaches are not going to work. Most of all it needs to make sure that the very limited amount of money that current customers and voters are actually prepared to pay is spent wisely. The money needs to go on those things that might actually make a difference, Instead of putting all the money in the conventional wind and solar boxes, some of it should go on research and development.”
Thinking that any of this would actually impact on The Greens and others of their ilk is to imagine a vain thing; but more importantly, is it a message that those who may be governing in a relatively few days can hear and appreciate?
Keith Orchison
30 April 2019