Issue 199, November 2021
As they say, shift happens. It has certainly taken on new momentum with respect to Australian decarbonization in the past month as the UN’s CoP26 meeting in Glasgow looms – with the local business community leading the way and the Liberal Party now pushing and pulling its federal government partners towards a changed stance. However, it is one thing to embrace a new emissions trajectory and another to reach a safe landing (not least over a decade in which there will be four federal elections). This is being graphically demonstrated in Britain and Europe at present and is on display in California. The degree of difficulty in this exercise is also being underscored in China, where not even official obfuscation can hide that the country has significant energy supply issues making its “transition” promises seem quite hollow. With an Australian national poll to be called in the next few months, and with the ongoing stresses being imposed on all jurisdictions, on the economy and on the community by the persistence of pandemic problems, our energy policy debate is unlikely to be much less fogged in this financial year than in the recent past – but it is now at least possible, when it comes to emissions policy, that the “where” may be more clear from here on even if the “how” of handling multiple risks for stakeholders remains shrouded in confusion. If Australians want to better understand the challenges they are embracing so enthusiastically in opinion polls, they need only look around the world in which we live and trade – and our key source of information, the mainstream media, has a substantial task, going forward, to rise above much of its past performance to ensure the community really appreciates the difficulty of the carbon transition in terms of engineering tasks, economics and social impacts. Of course, the situation is not helped by the egregious behavior of so many in the social media – but even there lies an opportunity for people with genuine expertise to communicate useful information rather than leaving this influential arena to catcallers. It will not be a new world after the Glasgow meeting – how could it be? – but, for Australians, it can be one where efforts to make domestic energy supply fit for future purpose can take on a new (and improved) approach. However, it should be a sobering thought for voters that changing the shape of supply is only a part of the “net zero” journey towards 2030 and 2050 – and, bearing in mind the importance of our international trade in fuels and commodities where local costs are a critical export issue, may not be the biggest one.
“A new energy economy is emerging” – International Energy Agency’s Fatih Birol.
“The global economy and the energy sector are undergoing an unstoppable structural change away from fossil fuels; it won’t happen tomorrow but it is happening” – Paul Kelly, editor-at-large, The Australian newspaper.
“At the very moment that Australia’s political class is gripped by a dramatic shift in climate change ambition, the world has been seized by a countervailing reality; global energy markets are in chaos” – Graham Lloyd, environmental commentator of The Australian.
“Our current predicament of high energy prices is a sobering warning,” says Marcus Wolff in the London Financial Times and Australian Financial Review. “If this energy revolution is to happen, it must be planned and executed with an understanding of both the many complexities and the risks of a political backlash should it go wrong.”
“If Australia doesn’t get a stable energy policy and remains mired in investment-killing climate brawls it may not have either the political or financial capital to make the best out of all those bright chances” – editorial in the Australian Financial Review. “The right energy mix is an all-of-the-above approach.”
“Decarbonization challenges should not be underestimated” – Energy Security Board chair Kerry Schott. “The change is happening very quickly and, not surprisingly, there are a few hiccups. (But) nothing is going to stop this.”
“Now that Australia has committed to building nuclear-powered submarines, (it) will need to develop the skills and expertise to support the new fleet. This capacity could also support the deployment of SMRs” – consultant Ben Heard in a report for the Minerals Council of Australia.
Adelaide-based global energy analysts EnergyQuest, in a mid-October review of the current crises around the world, says they represent the first big energy shock of the green era.
It says the surge in global prices reflects a mismatch between the winding down of fossil fuel demand and supply – “with supply being much easier to cut than demand.”
Its comments reflect a view from London’s The Economist newspaper that the much-promoted and publicized “transition” to a low-carbon future is also playing a role in the present crunch. The paper points out that legal threats, investor pressure and concern about more onerous regulations have led to a 40 per cent global slump in fossil fuels investment since 2015.
“Stopping investment by companies in fossil fuel projects is more popular politically than trying to convince people to consume less energy,” EnergyQuest says. “And, if investments in new clean energy do not match the wind-down in fossil fuel supply, spikes in energy prices are inevitable.”
It adds that, in some ways, the situation is similar to the OPEC oil embargoes of the 1970s “but this time it is the energy consumers imposing an embargo on themselves.”
Australians have been warned they can’t be insulated against the energy crunches wracking the rest of the world.
Alinta CEO Jeff Dimery, in an interview with the ABC, says electricity prices “inevitably” will rise because of the soaring cost of natural gas internationally.
Dimery, whose company is supplier to more than a million Australian users, says consumers are not immune to movements in global markets and higher prices will “eventually” reach here.
His comments echo a warning from the CEO of the Australian Energy Market Operator, Daniel Westerman, and another from Graeme Hunt, CEO of AGL Energy.
Meanwhile the energy crises in Europe and China in particular are reported to be delivering windfall profits for Australia’s LNG producers although other observers point out that most of the export trade is pursued on long-term contracts at much lower prices than currently high-spiking spot market values.
Angus Taylor, Minister for Industry, Energy & Emissions Reductions, says more than $35 billion has now been invested in the Australian renewable energy sector since 2017.
While this has brought 13,300 megawatts of new renewables to the NEM, he points out, only 235 MW of new dispatchable capacity has come on line. “A ratio of 56 to 1.”
Taylor told the Australian Financial Review energy and climate conference that the east coast market operator estimates up to 19,000 MW of on-demand, dispatchable power will be needed in the NEM by 2040 to support the amount of renewables then in the system. “And we are a long way from seeing enough of the investment in firm power that we need to keep the grid affordable and secure.”
Speaking of the NEM reform proposals that have aroused controversy and disputes with State and Territory jurisdictions, Taylor said the most critical measure “agreed to by all” is to deliver a detailed design for a capacity mechanism “in a technology-neutral way” to incentivize private sector investment in dispatchable generation.
He promised: “This won’t come at the expense of getting more renewables in to the grid.”
On the net-zero issue, he also told the conference that Australia “is already more than 20 per cent on the way – and we have reduced emissions faster than any other major commodity exporting country.”
He said the export sector accounts for some 40 per cent of Australia’s carbon emissions – “and technological solutions to reduce emissions from our agricultural, energy and manufacturing sectors are either expensive to deploy or, in many cases, still in their research phase.”
Taylor added: “It is important to remember that electricity is now only a third of our total emissions and falling rapidly.”
Data released in October by the federal government shows that gas use increased the most of all energy types in Australia in 2019-20, rising four per cent over the previous financial year.
The Department of Industry says gas provided 27 per cent of national energy demand in 2019-20 and, for manufacturers, increased to 42 per cent of their needs.
The government notes that renewable energy consumption rose to 24 per cent of total power generation in calendar 2020, up from 21 per cent in 2019.
However, as a result of the Covid pandemic, overall Australian energy use fell by 2.9 per cent in 2019-20 compared with average annual growth of 0.7 per cent over the previous decade. The department says this was largely due to a nine per cent fall in transport energy demand because of less air and road travel. Residential energy use in the year rose three per cent and commercial demand fell three per cent.
About half of all Australian energy demand, the data shows, is concentrated in two States: New South Wales and Queensland. When Victoria is included, the three States account for more than 70 per cent of national use.
Coal is the source fuel for 76 per cent of NSW power generation, 68 per cent in Queensland and 69 per cent in Victoria. Overall, across Australia, coal fuels 54 per cent of electricity supply.
There was a small media hubbub in mid-October over the Australian Energy Market Operator declaring a NEM record for supply of power: renewables penetration, it says, reached a high of 61.4 per cent in the grid on 24 September…….for half an hour.
Over the whole September quarter, AEMO reports, the role of renewables in the market mix averaged 31 per cent, also a record.
The market operator attributes the quarter’s outcome to more wind and solar farms entering the supply sector, a season of weather favoring wind power, the ongoing rise in the use of rooftop solar and higher-than-average rainfall in Tasmania, boosting the availability of hydro power.
Green activists the Climate Council are seeking to focus community and policymaking attention on the low levels of energy efficiency in the Australian housing sector as an important part of the revived national debate on decarbonization.
“This country’s homes as ‘glorified tents’ due to low levels of energy efficiency,” the Climate Council asserts, urging recognition of the impact on both emissions in a heavily fossil-fuelled economy and on costs to householders.
It says efficiency requirements for Australian homes built after 2005, when new standards were introduced, are 40 per cent less stringent than in other developed countries with similar climates -- and the 9.5 million homes built before then “expose Australians to discomfort, high bills and health risks.”
The organization is calling for a particular focus on “strategic investment” to improve efficiency in social and low-income housing “to reduce energy poverty and the burdens it places on families.”
It adds that “shifting the housing market towards affordable, clean and efficient homes” can be “a real Covid recovery Australians deserve.”
Modelling indicates that household energy use contributes 10 per cent of Australian greenhouse gas emissions.
Major eastern Australian networks company Transgrid, partnering with CSIRO, think tank ClimateWorks and consultants The Brattle Group, has published a report exploring possible future directions for the NEM that include the departure of some 7,000 megawatts of coal-fired power from the market by 2030 – up to 2,000 MW more than currently expected.
Declaring the rise and rise of renewable energy “unstoppable,” Transgrid’s six scenarios canvass possible outcomes from now to 2050 – and includes one in which the State governments in the NEM decide to go it alone, a “siloed” approach in which they establish their own local energy solutions, leading to a regulatory impasse that prevents new interstate transmission developments from going ahead.
Transgrid says that all six scenarios see renewables supplying the major share of power by 2050, including one positing a 70 per cent share by 2035. It adds: “There is a high likelihood of early coal withdrawal across the range of scenarios.”
The report declares that “the likely early retirement of coal generation highlights the critical need for orderly planning” to ensure NEM system supply remains reliable, secure and affordable.
In a foreword to the report, Transgrid chairman Jerry Maycock calls for the pace of change towards decarbonization to accelerate.
The company’s “vision” report appeared soon after Energy Security Board chair Kerry Schott told a conference that NEM coal plants could be forced out of the market a decade earlier than previously anticipated.
The Northern Territory government has declared it aims to increase the renewable energy share of the Darwin/Katherine power system from 12 per cent now to 50 per cent in 2030.
Territory Environment Minister Eva Lawler says the plan to use solar power and battery storage will reduce the annual cost of the system’s power generation from $346 million now to $316 million at the end of this decade.
The government aims to retire the system’s gas-fired generation units at Channel Island by 2027.
In a report, part of a series on decarbonization, the Grattan Institute argues that Australia needs more policy focus on offsetting emissions.
The institute acknowledges that offsetting is controversial because some see it as an excuse for delaying abatement and “there is much uncertainty about its real potential.”
But, says the institute’s energy and climate change program director, Tony Wood, “none of this changes the reality – in pursuit of net zero, offsetting will be required because there will be emissions we cannot eliminate and some where we will not be willing to pay the price to do so.”
He asserts that “net zero without offsetting makes no sense” because it would leave no room for any activity that produces emissions.
Wood says government should set clear rules, maintain high integrity standards and step back from being the main buyers of offsetting units once policies begin to drive demand. At that point, he adds, they should focus on underwriting the development of technologies and practices to remove carbon dioxide from the atmosphere.
Meanwhile the federal government has announced rules that will enable projects using carbon capture and storage to earn one Australian carbon credit unit per tonne. ACCU prices reached $26 a tonne in transactions in September.
The government expects the move to benefit energy-intensive sectors, including LNG production, which accounts for 10 per cent of national emissions. It also sees the arrangement supporting future hydrogen production from coal and gas.
Santos followed up the announcement by saying it would now apply to register its proposed Moomba CCS project for ACCUs before making a final decision on proceeding with a $210 million development at the remote South Australian gas hub to store carbon dioxide in depleted petroleum reservoirs.
Australia is well-placed to serve the needs of energy supply to the “epicentre of global economic growth” but should not take anything for granted, according to international consultants Wood Mackenzie.
Speaking to an end-October forum run by the Australian Petroleum Production & Exploration Association, Chris Graham, a Woodmac vice-president, said that by 2025 more than half the world’s population will be living in Asian cities – and in the next 15 years there would be 11 megacities (with populations of more than 10 million) in the region out of 48 in the world.
Graham said Australia is well-placed to meet the needs of Asian energy supply, with the region providing a “premier customer base” with few domestic alternatives available to provide supply.
However, he added, if suppliers here do not take advantage of the situation, their competitors are ready to do so.
A Newspoll public opinion survey published in October underlines the shift in community attitudes towards the use of nuclear energy in Australia in the past 2-3 years.
Newspoll asked 1,545 voters, against the background of the AUKUS arrangement to supply nuclear-powered submarines to the Royal Australian Navy, whether respondents thought this country should develop it own domestic civil nuclear industry, including using nuclear reactors to generate electricity?
Twenty-five per cent of respondents said “definitely” and 36 per cent said the use of nuclear energy should be considered. Only 27 per cent said “No” – a sharp fall from negative attitudes in other polls – and 12 per cent were in the “don’t know” category.
Interestingly, 18 per cent of respondents who said they voted Labor responded “definitely” to the question and another 38 per cent said the technology should be considered – versus 34 per cent who said “No.” And, of respondents who vote for the Greens, 47 per cent gave a positive reaction versus 47 per cent negative.
Meanwhile, the Minerals Council of Australia has published a report on small modular reactors by consultant Ben Heard focusing on their potential role in this country and likely operating costs.
MCA chief executive Tania Constable says the publication demonstrates that it is time to seriously consider a role for advanced nuclear technologies in Australia. “Changes in the economic, trade, security, policy and technology environments in which Australia operates mean that all options for low carbon energy sources must be considered,” she adds. Bans on nuclear’s use are outdated.
Coming from someone who prides himself on his command of English, it was surprising in October to hear Bob Carr describe nuclear power as “absolutely moribund” – that is in terminal decline, lacking vitality or vigor.
In reality, news of the technology’s imminent death is not just exaggerated but a nonsense.
The current state of nuclear power globally can be described like this:
In 2020 the world’s fleet of nuclear reactors provided more than 2,550 terawatt hours of electricity, 10 per cent of global supply and 10 times the grid-connected power produced across Australia. This came from almost 393 gigawatts of generation capacity – that’s roughly eight times the capacity of all electricity units generating in to eastern Australia’s grid. Another 60 GW of capacity is under construction, mostly on order for development in Asia, home to the fastest-growing economies, rapidly rising power demand and a contribution to global carbon emissions that has to be curbed significantly if the net-zero push is to make any sense.
The International Energy Agency has made itself a poster child in the long run up to the Glasgow UN summit for action in pursuit of net-zero emissions and the core scenario of its modelling envisages a 15 per cent growth in nuclear capacity between 2019 and 2040.
Thirty countries are considering, planning or starting new nuclear power programs and another 20 have expressed at least an interest in exploring use of the technology.
Current predictions vary, but there is a broad expert view that, by 2040, worldwide nuclear capacity could exceed 600 gigawatts.
And by the way, because an understanding of capacity factor is limited in public discourse on power generation, in 2020 there were just over 740 GW of wind farms and they supplied 1,591 TWh of electricity.
Against this background, as is now well-publicized, a game-changer for the nuclear industry may be the commercial pursuit of small modular reactors. These can be described as being at the development stage today that large-scale wind and solar generation were 20 years ago.
To quote the International Atomic Energy Agency, SMRs offer significant potential for nuclear power thanks to their shorter construction timelines, greater adaptability and inherent safety features. The capital costs associated with them are considerably less than large-scale reactors or equivalent energy production methods, the agency says.
About 70 countries are working on SMR technology. One of the investors is Bill Gates, who asserts they will be among the major technology breakthroughs the world needs to replace, and eventually remove, the climate change problem now seen as a threat.
As most energy engineers will tell you, the other significant problem of the “transition” is power grid reliability in grids using large amounts of variable technology – and this will be a greater issue for affordable, reliable supply if, as forecast, electricity consumption rises by 50 per cent (or more) over the next three decades.
Total system costs of meeting this challenge are a major factor, not least for the viability of private sector’s energy-intensive industries.
It is at the very least arguable that Europe at the moment is providing a case study in why over-reliance on boom-and-bust variable renewable power supply is a non-trivial issue for economies, providing far more electricity than grids need at some points and far too little at others when the weather is unfavorable.
For a country like Australia, going forward, a good case can be made for the potential role of SMRs as they can continuously operate at full power or follow supply swings in the NEM as it shifts to large-scale reliance on wind and solar farms as well as rooftop PVs.
In this environment, grandiloquent games with words like “moribund” are worse than of no value. They are an unhelpful contribution to the debate about how Australia copes with the decarbonization issue out to the middle of the century.
Keith Orchison
24 October 2021