Issue 187, November 2020
Financial year 2019-20 brought Australia very bad fires, floods and the novel coronavirus. It didn’t bring any significant upside in management of domestic energy matters. As we approach the mid-point of 2020-21, there are strong hopes of an improvement in our Covid-19 situation but it really too early to be confident – while summer bushfires are an inevitability. How well the east coast power system will cope with demand and the impacts of summer weather on a lot of aged infrastructure is an open question. So is how far work on market reform is really progressing, with governments plodding on the reform process but keen to push purported clean, green projects like Snowy 2.0 (still the focus of considerable criticism) and renewable energy zones (without publicly-available attention to total system costs), relatively large transmission expansions (still without a clear expression of where the considerable operating costs will fall) and big-ticket (by global standards) green hydrogen projects. For those of the view that all (or most) of these are for the best in a greening world, this is very encouraging – for those who see Dr Pangloss as a quack, not so much. Meanwhile the decade-long saga of securing gas supply for the southern states rolls on……….
“Continued market transition, including challenges associated with minimum demand in the afternoon and high demand in the evening when the sun sets, highlight the need for increased power system agility and resilience” – departing Australian Energy Market Operator CEO Audrey Zibelman.
“Countries around the world are looking to pursue a path to low-emissions energy systems but face significant challenges in acquiring and applying the technical knowledge needed to operate and plan rapidly transforming power systems” – Zibelman.
“Increasing uptake of rooftop PV systems coupled with changes in energy use due to consumer habits and activity in the pandemic reduced visible electricity demand in multiple States in third quarter 2020” – AEMO.
“Renewable have increased total NEM generation capacity from 40 gigawatts to 60 GW since 2007 (and) more than 30 GW of renewables and 12 GW of energy storage are expected to come on line by 2040” – Grattan Institute energy program director Tony Wood.
“New interconnectors and opening up areas for renewable generation via new transmission need to be subject to detailed cost-benefit analysis to ensure our energy transition is made at the lowest cost” – Australian Energy Council.
“As the electricity transmission system is redesigned to address reliability and sustainability, we cannot lose sight of affordability as increased costs will be passed on to consumers” – Rod Sims, chairman, Australian Competition & Consumer Commission.
There can be no single answer about where the energy world goes from here (the state of the pandemic-ravaged global economy), the International Energy Agency has told governments in its new outlook publication.
This is a point universally missed by Australian media, focusing on IEA messages about the future of solar power (said to be bright) and coal (seen as diminishing).
The Paris-based agency itself says: “In an extraordinary year for the world and the energy sector, two questions stand out: what does the pandemic mean for the energy sector and what now are the prospects for an acceleration in clean energy transitions?” Both are, it declares, “opaque.”
The IEA makes a point of high relevance for the NEM: efficient and reliable electricity networks remain the cornerstone of robust and secure power systems – and its scenarios (not forecasts) suggest around $US450 billion needing to be spent globally on average each year to “modernize, upgrade and smarten” grids under a “sustainable recovery plan” it proposed earlier in the year.
The agency warns that “electricity grids could prove to be the weak link in the transformation of the power sector,” pointing out that, in the outlook scenario it has crafted around stated government policies, the global requirement for new grid lines is 80 per cent greater over the next decade than has been seen over the past 10 years.
It declares that the financial health of many network utilities has worsened as a result of the Covid crisis with a disparity between the grid spending required and the regulated revenue available.
It adds: “Revenue for many operators is set to decline in 2020 – which could present an electricity security risk if they do not recover quickly.”
Energy Networks Australia has taken a swipe at national ALP leader Anthony Albanese over his “Rewiring the Nation Corporation” remarks in federal Parliament in the Budget debate.
It appears, ENA says, that Labor believes returns to network company shareholders are too high. “The facts do not support this. In its most recent decision, the Australian Energy Regulator set a real return on equity at 2.2 per cent. This is hardly taking households and businesses for a ride.”
The association adds that the AER’s consultants, Brattle, say Australian network returns are much lower than comparable overseas results.
Albanese told the House of Representatives that keeping the Rewiring Corporation in public hands while partnering with industry on upgrades will “ensure the grid is rebuilt at the best price possible.” To which ENA retorts: “Policymakers need to choose: it’s minimize costs or mandate local supply and labor. You can’t have both.”
The association also asks: “What is the actual deal for taxpayers and customers? Would the RNC be an equity investor or only debt? What risks and costs would government be taking on and what benefits would customers see?”
It adds that Albanese’s plan “raises more questions than it answers – and, given that the federal government appears to have no interest in it, we are unlikely to see the corporation implemented any time soon.”
The association says the fact that the RNC concept was developed at all is “a symptom of the underlying problem: our current regulatory framework is not delivering the transmission investment our transforming electricity system needs.”
However, the Energy Users Association of Australia has a different take on the ALP’s “Rewiring the Nation” proposal. EUAA chief executive Andrew Richards says it has “the potential to help shield consumers from some of the costs and risks associated with the transition under way in energy markets and warrants consideration.”
How much will “Project EnergyConnect” – the transmission line to link South Australia and New South Wales to meet the challenges of burgeoning wind and solar power – finally cost?
When approved by the Australian Energy Regulator, the estimated capex of the 900 kilometre line was $1.5 billion. The market operator’s most recent estimation was between $1.39 billion and $2.58 billion. Media report current industry estimates are $2.4 billion.
The need for the link in the pell-mell push towards high levels of intermittent renewable energy has been underlined by TransGrid, whose CEO, Paul Italiano, says “Recent modelling by AEMO has shown SA faces a very serious risk of system instability as a result of high renewable penetration and low grid roads.”
A Sunday in October in South Australia has seen much excitement among green activists and promoters of renewables.
“This is truly a phenomenon in the global energy landscape,” declared departing Australian Energy Market Operator CEO Audrey Zibelman.
The cause of the excitement? “For just over an hour on 11 October 100 per cent of State energy demand was provided by solar panels alone,” exulted one newspaper.
Leaving aside that it meant electricity not energy – there’s a fair bit of direct gas use in SA as well as other petroleum products – the
paper told its readers: “The State once known for not having enough power has become the first major jurisdiction in the world to be powered entirely by solar energy.”
AEMO reports that South Australians drew 77 per cent of power needs for the sunny Sunday hour from rooftop solar PV with another 23 per cent from three utility-scale solar developments. Estimated use of rooftop PVs was 992 megawatts.
Excess power generated for the hour by wind farms and gas plants, the State’s major electricity sources, was exported to Victoria via the interstate transmission line.
For context, overall on this exciting Sunday, power sent to the State grid (not including estimated use of rooftop PVs of 7.7 GWh) totalled 21.5 GWh – which comprised 15.5 GWh from gas plants, 2.5 GWh from wind farms and 2.9 GWh from solar farms. A further 2.8 GWh was imported from Victoria.
NEM-wide on this Sunday, power dispatched to the grid totalled 432 GWh – of which 305 GWh was from coal units, 42 GWh from hydro plants, 41.8 GWh from gas units and 25.6 GWh from wind farms. The market-wide estimated use of rooftop PVs was 50 GWh.
The SA share of the east coast market was 4.9 per cent.
In the run-up to its “NEM Future Forum” on 5 November, with its spotlight on the controversial NEM integrated system plan, Quest Events has run a Q&A on “Is the ISP up to the job?”
Participant Ben Skinner, general manager policy & research, Australian Energy Council, argued in it that “while a deep national transmission grid is a legitimate path to a secure and low carbon energy supply, it is most certainly not the only way.”
He said this goal can be equally achieved through local options such as storage, controllable demand and peaking generation back-up. “It is simply a question of what is cheapest.”
Skinner added that, for transmission costs, “it has become something of an industry trope that you should double the ISP estimates.” And since the market operator’s plan usually predicts only small net savings, he said, “this is something we really need to get on top of.”
Skinner commented that “it is natural that every entrepreneur will want the ISP to recommend the building of social assets that add value to their investments.”
He said: “Vested interests, and also political interests, abound in promoting exciting regional development. The renewable energy zones concept in particular seems subject to such interests.
“It would be safer for customers and taxpayers to lose this moniker and go back to the much more boring sense of co-ordinated transmission planning on a sound, independent economic basis and always acting at the last possible moment to minimize the risk of regretted spend.”
He noted that “there are enthusiastic supporters of ‘step-change’ – however, I would be very cautious of committing real money now to such a Panglossian world view.”
A report by the Australian Competition & Consumer Commission says overall demand in the east coast electricity market in the second quarter of 2020 was two per cent below the same period last year – but jumped for residential consumers.
In Victoria, as an example, the ACCC found that residential demand rose between 10 and 30 per cent in April and May as winter arrived and many people were working from home. Consumption by small and medium enterprises, on the other hand, fell between 10 and 20 per cent in this period.
The commission points to an emerging issue: much higher power bills for residential users. ACCC chairman Rod Sims warns that one of the effects of the pandemic is power affordability problems for householders where they have reduced incomes and bigger energy use.
(The Australian Energy Regulator says 200,000 customers across six States are on bill payment plans or have deferred paying their bills.)
The ACCC has again niggled rooftop solar boosters by noting that the situation has seen a rise in installations of domestic PV systems but arguing, as it has in the past, that non-solar households should not have to shoulder the cost of subsidy schemes. The ACCC has been pushing since last year for the solar rebate scheme to be ended in 2021 rather than slowly wound down by 2030.
Federal Energy Minister Angus Taylor has seized on the latest market operator report on wholesale prices in the NEM to demonstrate government policy is “having the desired effect.” He points to 13 months of wholesale prices being lower than in the previous year “since the government’s big stick legislation was introduced to parliament.”
An Australian Energy Market Operator survey for the third quarter of this year shows NEM generation costs have “dropped to levels not seen since 2014” and fell 48 per cent from the same period in 2019.
Taylor says key drivers for the decline are improved output from coal-fired generators and a rise in wind and solar power provided to the market.
Wholesale generation makes up around a third of the end-use bill for residential and small business customers.
Taylor has also used the latest government energy data – albeit for 2018-19 fiscal year – to promote its ongoing support for gas.
He says that, in the national recovery from the Covid-19 pandemic, “reliable and affordable gas is more important than ever to keep the lights on and businesses open, especially in the manufacturing sector – which relies on gas for more than 40 per cent of its energy needs.”
Taylor adds: “We know that gas is flexible and provides the dispatchable power capacity needed when the sun isn’t shining and the wind isn’t blowing.” The fuel, he argues, should be seen as complementary to renewables, not a competitor.”
Taylor says the year-old, pre-pandemic statistics also show the importance of electricity generation from coal (which provided 58 per cent of national power production in 2018-19 versus 20 per cent from gas stations).
Graeme Bethune’s latest “EnergyQuarterly” statistics, published in September, showed that in 2019-20 financial year in the east coast market gas-fired generation was four per cent higher than in 2018-19 while coal-based generation fell 5.9 per cent. The two sources still account for three-quarter of generation sent to the NEM grid.
The long-running debate over the costs of gas for east coast industrial users is showing few signs of coming to an end.
The saga pits under-pressure manufacturers against gas suppliers with policymakers in the middle and environmental activists opposed to any expansion of fossil fuel use running high-profile media interference.
In October, the often-repeated manufacturers’ demand for gas to be available at $4 per gigajoule (or less) was described at a Citibank conference as “insane” by a consultant for one set of supply investors and “ridiculous” by Santos chief executive Kevin Gallagher.
At the Origin Energy annual general meeting, CEO Frank Calabria told shareholders the company “continues to caution against arbitrary or unrealistic gas price expectations, noting that the cost of domestic gas must reflect the life-cycle cost of production.”
Producers, Calabria added, “should be able to earn a return on the significant capital required to bring gas supply to market.”
The federal government is again examining options for a national gas reservation scheme.
In a joint statement in October Energy Minister Angus Taylor and Resources Minister Keith Pitt released an issues paper on the costs and possible benefits of the scheme. They flag a decision in the first half of 2021.
The West Australian government has given environmental approval for the first stage of what the State government describes as a “globally significant renewable energy project” – a proposed 15,000 megawatt wind and solar complex in a 6,500 square kilometre development intended to be the basis for a “green hydrogen” export industry.
The McGowan government says that 3,000 MW of the capacity – which will be 10 gigawatts of wind power and 5 GW solar – will be used to provide energy for consumers in the Pilbara region.
Support is expected shortly from the federal government as well in keeping with its national hydrogen strategy.
The consortium planning the hub declares it is aiming for a 2025 final investment decision and first hydrogen exports in 2028. The total capital cost is claimed to be $36 billion.
The Australian Petroleum Production & Exploration Association has welcomed the new IEA world outlook as highlighting that, while the global energy market is being reshaped in the pandemic, natural gas “remains an important part of a cleaner energy future.”
APPEA chief executive Andrew McConville says that, in particular, the fast-growing Asian market continues to provide an opportunity for LNG sales from Australia. If Australia is to attract further investment in LNG, he adds, “it is vital to have policy settings – maintaining a stable and competitive tax regime, resisting calls for interventions in gas markets and reducing red tape – that are supportive.”
In a new effort at drafting a blueprint for power generation in Western Australia’s south-west region, the State government has published modelling in four scenarios covering 20 years which foresees a strong uptake of wind generation, potentially rising to 3,000 megawatts in the highest-demand profile by 2030.
Releasing the “whole of system” report, Energy Minister Bill Johnston notes that under all scenarios more than 70 per cent of SWIS generation capacity and 60 per cent of production would be renewable by 2040. “No-one doubts renewables will become the mainstay of the grid,” he adds, ”but it is vital the switch away from traditional sources does not compromise system security.”
Johnston says the plan requires little investment in new network resources provided new renewable generation is built south of Perth in an area where there is spare transmission capacity.
The report records that by the end of 2020 there will 1,291 megawatts of rooftop solar in the system and 2,494 MW in all. The bulk of supply to the SWIS grid, however, is from fossil fuels – 44 per cent from each of coal and gas units in the 2019-20 financial year.
It highlights ongoing economic pressure on coal-fired generation, which has been in decline in the West for most of the past decade, but says there will still be a role for the technology because the marginal cost of existing units is low. However, under some scenarios, more than half of coal capacity could be shut by the mid-Twenties. On the other hand, under the high-growth modelling there is likely to be a need for as much as 867 MW of new, flexible gas capacity installed by 2030.
The Australian Petroleum Production & Exploration has been quick to point out the modelling sees gas playing an important role in WA low-emission electricity future while enabling renewable generation to grow.
Green activists have also been quick to complain that, while the modelling shows that renewable energy and batteries “are the future” for the State, WA is “the only State without a clear policy framework to accelerate the transition to cleaner, lower-cost energy.”
Tony Grey, Pancontinental Mining founder and former CEO, says small modular nuclear reactors would be ‘ideal’ for Australia.
Writing in The Australian newspaper, Grey declares “Australia sits paralysed with no baseload power options for the future” while “the world is moving quickly towards development of SMRs.”
In Australia, he says, the reactors would be “ideal” for regional areas and can be placed on sites where coal plants are decommissioned, connected to the existing transmission grid.
Meanwhile the New South Wales Productivity Commission, in a report published in October, urges the State government to “maintain a technology-neutral playing field in generation.” Doing so, it says, would let investors determine with confidence which projects meet supply and environmental objectives. “This could include emerging technologies such as small-scale nuclear reactors and green hydrogen-fired power plants.”
The report recommends that the NSW government adopt “an integrated, market-oriented climate change and energy policy.”
The annual world outlook published by the Paris-based International Energy Agency is a cut-and-come-again cake for the large global family of energy analysts and always contains lots of opportunities for juggling statistics and mounting arguments by all corners of the climate change debate.
The 2020 edition published in October is once again providing fodder for many in the media, not least social media, and the commentariat as the agency wrestles with understanding the economic and other impacts of the pandemic as well as maintaining an influential role in high-level discussions on cutting carbon emissions.
The IEA publication does not aim to provide predictions, although many treat the outlook as if this is the case, but offers scenarios and its own opinions of what they indicate is to be found on the “transition” road (or roads).
This year the agency’s main focus is on offering two scenarios: one where the pandemic is soon brought under a semblance of control and another where virus outbreaks continue. The first posits a recovery of sorts by 2023 and the second has Covid-19 as a demon king for much of the decade.
As Bloomberg have been pointing out, just for electricity, the pessimistic scenario has global demand 27,000 terawatt hours lower in the Twenties than the “quick” recovery one – that’s equivalent to twice the consumption of Japan.
Both the “stated policies” scenario (reflecting current national policy intentions and carbon abatement targets) and the “delayed recovery” one give starring roles to renewable energy, with executive director Fatih Birol going so far as to declare “I see solar becoming the new king of the world’s electricity.”
Add to this the view that coal demand in the overall scene is on a path to being just 20 per cent of the global energy mix by 2040 and the green boosters’ cups runneth over (a big change from past years where the agency has frequently been a flogged by activists because it has been, in their view, a tool of the fossil fuels industries).
There are so many angles and issues in the IEA outlook that one could write another book dissecting them; in the short space available here, I’d like to focus on just some aspects of electricity supply and use, sticking mainly to the “stated policies” scenario.
In this, the IEA posits a global electricity generation trajectory that goes from close to 27,000 terawatt hours in 2019 to just under 33,000 TWh in 2030 and 40,000 TWh in 2040.
The scenario tracks coal-fired generation from a peak of 10,160 TWh in 2018 to just under 9,000 TWh (or 22 per cent of the mix) in 2040. The coal sector’s nearest rival in this scenario is not solar but gas – rising from some 6,300 TWh last year to almost 8,400 TWh in 2040.
Bracketed behind them in the renewables stable are four main sectors: hydro power (almost 6,000 TWh), wind and solar PV (each almost 5,500 TWh) and bio-energy (just over 1,400 TWh).
Nuclear power is modelled as rising from 2,789 TWh last year to just over 3,400 TWh in 2040.
Broadly, the IEA in this outlook sees renewable energy rising from 27 per cent of the global power mix last year to 38 per cent in 2030 and 47 per cent in 2040 – while fossil fuels fall from 63 per cent last year to 52 per cent at the end of this decade and 44 per cent in 2040.
This path, of course, is anathema to the green activists and, increasingly, to politicians in (or seeking to be in) government and hitching their current political ride on the net-zero wagon.
An important factor in the international political approach will be who wins the US presidential election in the first week of November – if the polls are right and it is Joe Biden, the US will return to a leadership role in pursuit of a much-improved global warming outlook and in partnership with other leading energy players. If we are faced with four more years of Trump………well, let’s not make ourselves more miserable in the short time before we know the poll outcome.
By way of context, the IEA “sustainable development” scenario points towards a 2040 electricity situation where greater energy end-use efficiency has pulled requirements down under 39,000 TWh and is being met by a mix of just five per cent coal-fired generation, 23 per cent from gas plants, 11 per cent from nuclear energy and a renewables basket of 17 per cent hydro, 22 per cent wind, 23 per cent solar and six per cent bio-energy.
Also, in terms of context, global warming is not just about power supply – and the IEA in its “sustainable development” scenario posits the need for the world to leap from a 2030 mix that is still 72 per cent fossil fuels (with oil and natural gas joint “kings” with 55 per cent) to a 2040 position of “only” 56 per cent, with nine per cent nuclear and 35 per cent renewables.
Just getting there will require a stupendous outlay of capital and a massive economic shift. Pressing on to net zero by 2050 (and the agency provides such a scenario) is a lot more than a moonshot endeavor and more akin to a Space Odyssey.
(Do you remember David Bowie’s lyric? “Ground Control to Major Tom/Take your protein pills and put your helmet on………….”)
Keith Orchison
28 October 2020