Issue 229, May 2024
As each month goes by at present we are confronted, both in Australia and elsewhere, by more evidence of the complexity of the “transition” and more controversy about its pace, cost and risks — especially, it seems, by the disparity between what boosters and governments are saying to the community and what common sense should dictate about the issues’ potential to run away from policymakers and regulators. Gary Banks, former head of the Productivity Commission, made a telling observation in mid-April that the energy sector, along with labour markets, is currently a particular casualty of “so-called reform.” He went on to declare: "In the case of energy, rather than leveraging the power of markets to discover least-cost means of reducing emissions Australia-wide, governments have opted for ad hoc subsidies and regulatory measures, without regard for their widely differing costs and significant distortionary effects on resource allocation. They have adopted targets for emissions and renewables without any clear idea of how to achieve them. And, in so doing, they have assisted technologies that cannot deliver reliable power, while suppressing those that could. The result of all this is an increasingly dysfunctional energy system requiring far more capital to produce far less reliable power.” No-one has said this better. There is evidence, via opinion polls, of growing concern in the community about this trajectory of the “transition” but where the present path delivers energy users, both households and businesses large and small, remains as unclear as it is worrisome. Perhaps the one clear thing is that this situation cannot end well as things stand today.
“Beware of the pitfalls of virtue signalling. When good intentions fail, credibility suffers and social licence erodes. It’s a predictable outcome if important decisions are driven by politics and perception, rather than based on sound economic judgment and the national interest” – Jennie George, former union leader and federal MP.
“Labor can’t guarantee industry a reliable and affordable source of baseload power all day, every day. Until this is resolved, Made in Australia will be on shifting sands” – George.
“The $16 billion a year in subsidies through regulations forcing the use of wind and solar and direct spending of taxpayer money is unlike other wasteful government spending. It is spending aimed at poisoning the once highly competitive low-cost electricity supply industry. It is akin to government forcing the nation to manufacture bombs to be dropped on the people financing them” – economics commentator Alan Moran.
“Energy and labour markets – two areas of crucial importance to Australia’s economic performance – have been particular casualties of so-called reform” – Gary Banks, former chairman of the Productivity Commission.
“Should we be subsidising new renewable-based industries as the likely future growth industries? No, would be my answer. We are better off ensuring that energy here is as cheap as possible, that our labour market is flexible, our skills base is high, and that our tax system is competitive for capital, labour and resources” – economist Ed Shann.
“Existing manufacturers can look forward to a continuation of rising energy costs and shortages of the cheap fuels that have long given Australia its competitive advantage. The focus of government will be on encouraging new industries the world has judged will only come about if they are part-funded by government” – The Australian newspaper’s Graham Lloyd.
“Economists well know it is not possible for a nation to subsidise its way to prosperity. The more likely outcome is crony capitalism that sucks scarce resources to industries and endeavours that otherwise could not compete. Add layers of bureaucracy and inefficient government delivery, which currently define the renewable energy transition, and the outcome is likely to be the worst of all possible worlds” – Lloyd.
“The government is responding to some substantial changes in the world, shifts in geopolitics and the need to decarbonise economies quickly” – Productivity Commission chair Danielle Wood. “But we shouldn’t pretend that this is going to be costless. We risk creating a class of businesses that is reliant on government subsidies and that can be very effective in coming back for more.”
“I am focussed on opportunities rather than risks” – Prime Minister Anthony Albanese responding to a radio interviewer’s questions on criticism of the government’s “Future Made in Australia” plan.
A public opinion poll of 6,700 people undertaken by CSIRO, published in April and claimed to be the most comprehensive one to date of the renewables transition, has found energy affordability to be a top community priority. Forty-one percent of respondents rated it highest of their concerns and the issue was in the top three of priorities for 82 percent of those surveyed.
Forty-seven percent of participants preferred a moderately-paced energy transition versus 40 per cent opting for a faster change. But reducing Australia’s carbon emissions to respond to global climate change was a top priority for only 26 per cent of respondents.
“Most people were unwilling to pay more or risk blackouts for a faster transition,” CSIRO reports. “Most Australians disagreed with the idea of paying more for electricity (64%), gas (62%) or risking more electricity blackouts (58%).”
Federal Climate & Energy Minister Chris Bowen seized on the report to declare: “CSIRO’s research finds that nearly 90 percent of Australians want a high or moderate transition to renewables. Labor’s energy plan is backed by Australian experts who understand what our energy system needs and we’re delivering cheap, clean, renewable energy in the grid, firmed by storage and gas right now.”
In a tweet, he added: “The Albanese government's plan to bring more reliable renewables into the grid, firmed with storage and gas, is working. “
Commenting on the poll, The Australian newspaper said in an editorial that it “confirms what should be already well known about the much- trumpeted renewable energy transition – ordinary Australians will support change as long as it doesn’t involve personal inconvenience or increased costs.”
The Australian Energy Market Operator is claiming that the growth of solar and wind energy in the east coast’s power grid can bring down electricity prices “to record lows.”
Violette Mouchaileh, the operator’s executive general manager of reform delivery, told media in late April that "the move to renewables over traditional coal-fired power generation is well and truly under way and is happening at record pace.” She added: "We are increasingly seeing renewable energy records being set which is a good thing for Australian consumers as it is key in driving prices down and NEM emissions intensity to new record lows."
She was addressing AEMO’s latest market report – for the March quarter – which records that renewables accounted for 39 per cent of NEM supply, a rise of just under two percent over the same period in 2023.
“While heat?wave conditions and extreme weather events increased the strain on the grid, wholesale spot prices were down by 8 per cent, to $76 per megawatt hour,” she said.
The OpenNEM website shows that generation delivered to the market in the first quarter was, as usual, dominated by coal-fired power plants, with black coal units providing 23,178 gigawatt hours and brown coal 8,027 GWh. Gas generation accounted for 1,646 GWh in the quarter and hydro power 2,936 GWh. Wind farms provided 6,490 GWh and large-scale solar generation 4,729 GWh.
Estimated use of rooftop solar PV in the NEM in the March quarter amounted to 7,143 GWh.
Leading global analysts Wood Mackenzie say that “Australia’s oil and gas landscape has experienced a turbulent 12 months – seeing the most unstable legal and fiscal environment for over a decade.”
How, WoodMac asks, will the country “ride this rollercoaster” and remain committed to its net-zero target?
One of the key questions the firm will address at the annual conference of Australian Energy Producers (formerly APPEA) in Perth in May is how leading exploration and production businesses manage rising complexity and uncertainty in making long-term investment decisions?
The WoodMac focus echoes what will be a key issue at the AEP conference: forecasts by the Australian Energy Market Operator that the eastern States face potential gas supply shortfalls on peak demand days from next year and possible seasonal supply gaps from 2026.
Meanwhile, in Western Australia, there is concern about adequate gas generation being available as the “transition” sees coal-fired power plants closing. The need to replace diesel generation at WA mines and processing plants is also an issue.
AEP chief executive Samantha McCulloch says “governments must recognise the critical role of gas in keeping the lights on as we transform the economy to net zero – but there is only so much the sector can do by itself.” She adds that Australia has abundant gas reserves but needs governments to act urgently to show the political will to restore investment confidence and ensure timely approvals for new supply.
The Clean Energy Council says more than 314,000 rooftop solar units were installed across Australia in 2023, just under the 315,000 achieved in 2022.
In a new report, the lobby group records that total national rooftop capacity has reached 20,000 megawatts.
It adds that 2023’s installations were led by New South Wales with 970 MW – while Queensland has become the first State to have a million units installed.
Meanwhile Bloomberg NEF reports that 444 gigawatts of new solar PV capacity was installed globally in 2023. It expects the 2024 total to reach 627 GW and annual growth to reach 830 GWh by 2030.
Bloomberg says PV panel prices internationally are now at record low levels. “Manufacturers are struggling to make a profit,” it adds.
The news comes as former ACCC chairman Rod Sims, speaking at a forum in Melbourne as chair of the Superpower Institute, warned that it is unclear how the federal government’s new “Made in Australia” policy will work.
Sims said he has “grave concerns” that “simply throwing money at any green energy project will destroy the superpower opportunity,” adding “without a clear framework, Australia will take a series of ad hoc measures that invite rent-seeking by businesses, raise Australia’s cost structure and lower our productivity.”
He posed the question “how can the nation achieve low-cost renewable energy if we are saddled with high-cost solar panels, wind farms and electrolysers through a ‘buy local’ imperative?”
Grattan Institute energy program director Tony Wood says Australia needs “a grown-up discussion” about the future role of nuclear power.
He told ABC News in April that he doesn’t believe the continuing federal ban on the technology will help bring this about.
However, he adds that “right now the economics for nuclear here are terrible.” But, he says as a technology agnostic, it will be wise to consider a “Plan B” for the future.”
"There are some significant unknowns about nuclear, but the promise of small modular reactors is quite attractive to Australia because, if you could dramatically drive down the cost, then that could be interesting in the future and so we should watch that," he told the ABC.
Meanwhile, the latest Essential Report public opinion poll published by The Guardian newspaper shows that 52 per cent of respondents now support the use of nuclear energy in Australia, up two points from October last year. Essential Report found 31 per cent of respondents opposed the use of nuclear – down two points from October. The number of those “unsure” about the issue dropped slightly below the October poll, being now at 17 per cent.
The survey marked a substantial shift in community opinion over five years – in 1919, when the issue was receiving relatively little media attention, Essential found 39 per cent of respondents favoured the use of nuclear technology in Australia.
The Guardian also reports: “noting the Albanese government’s commitment to reaching net zero emissions by 2050, half of respondents (50 percent) believed it was ‘not likely’ to reach the target, down seven points since October 2023, while those who said it was likely (38 per cent) was up six points.”
Who are “we”?
It is a question worth asking in the context of the ongoing “net zero transition” debate and needs to be accompanied by others like “how much cost?” and “where?” and “over what time?”
I raise this because I keep reading comments like this one in The Conversation by a panel of Monash University academics: "Whether or not we fully understand the ways climate change is impacting our society, most Australians realise it’s only going to get worse unless we do something about it. We’ve now moved into the implementation phase of the net zero transition, but many doubt that we’ll achieve it in time. The new Guardian Essential poll showed just 31 percent of respondents felt it was ‘very’ or ‘quite’ likely Australia would achieve its net zero target. Therefore, it’s crucial we ramp up action towards transforming our energy sector, but it’s equally important that communities be part of deciding how this is achieved. In doing so, we can improve public support and bring net zero within reach.”
I constantly read "unless we do something about it” against media reports about ongoing investment in fossil fuels, eg: "Last year, global operating coal capacity increased by two percent as the world added a total of 69.5 gigawatts of coal fired power. Worldwide, coal-fired power plant retirements were only 21.1 GW in 2023—the lowest capacity retired since 2011. “
And also there is a new annual report by Global Energy Monitors that shows coal’s role in generation has doubled in Central Asia over the past decade. And: "China aims to have 300 million metric tons of annual ‘dispatchable’ coal production by 2030.”
Against the incontrovertible fact that climate change is a global issue and it is what countries collectively do to change carbon emissions that matters, local (and frequently strident) demands for a headlong pace of change in Australia, often regardless of its impact on consumers, taxpayers, businesses large and small, trade and employment, as well as what resources governments have available for funding health, welfare and other core community needs, sound increasingly risky, not to say dangerous, to me.
Anticipating the cacophony of reaction such sentiment is guaranteed to evoke from the usual suspects, who include individuals and businesses pursuing green cash (often in government subsidies and often by riding on the backs of rent-seekers), I want to state quite clearly that (a) I believe climate change is an issue for the world at large, (b) Australia must have an efficient plan to contribute its share to decarbonisation through both domestic activities and our export trade, and (c) as has been amply demonstrated over the past two decades, populist politicking and inept policy management are two of the greatest threats to our national well-being (and not just in energy policymaking).
Against this background, it is interesting to read comments in recent days by Greg Combet, who is designing the “Net Zero Economic Agency” for the Albanese government and is soon to become Australia’s $212 billion sovereign wealth fund chairman.
The former Gillard government minister told a National Press Club audience in early April that “Australia faces a postwar-scale reconstruction costing hundreds of billions of dollars in private and public investment to reach net zero emissions by mid-century” and to make this country a “renewables superpower,” a term that economist Judith Sloan has described (perhaps too kindly) as “having zero analytical content.”
Statements like Combet’s make me want to scream “Context” very loudly.
Such spending (and its consequences) will not happen in a vacuum.
What does this grand plan imply for national economic and social wellbeing over the next 25 years?
What does it mean for energy security – which, as some few keep pointing out, is also national security?
A journalist said in an op-ed in The Australian newspaper at the same time Combet was addressing the Press Club that “the Albanese government has embarked on creating the Great Green Society, where a renewable energy superpower is also a nation that makes things.”
Australia, he went on, will face “a heavy, ongoing price for sub-optimal policy.”
The “we” confronted by this is us and our children and grandchildren.
And it is policy, as things stand today, with no national consensus and no clear perspective of the costs or the net benefits, let alone the risks.
What could possibly go wrong?
Well, late last year McKinseys summed it up like this: “A successful net-zero transition will require achieving not one objective but four interdependent ones: emissions reduction, affordability, reliability and industrial competitiveness. A poorly executed transition could make energy, materials and other products less affordable, compromising economic empowerment. It could also make the supply of energy and materials less secure and resilient, and it could render some countries and companies less competitive.”
A question for us all – the great Australian “we” – is how confident are we feeling as we plunge further on this ride?
Keith Orchison
27 April 2024