Issue 223, November 2023
With the start of summer looming, the chances of electricity supply staying out of the domestic Australian headlines are not high, as underlined by a global analyst’s report in late October that this country has “the world’s most volatile electricity market,” attributable to large and still rising solar power penetration, unplanned coal plant outages and high voltage transmission issues. Even at the height of the controversy over the Voice referendum, some electricity news remained prominent in the news agenda, with any number of media political commentators attributing the Albanese government’s catastrophic defeat at least in part to the electorate’s need for greater focus on cost-of-living concerns, among which the bills for vehicle fuels and household power have unwelcome prominence for voters. Where all this will end in the rest of this decade is not a minor question for federal and State governments, with The Economist international news magazine opining that “it is hard to match Australia’s ambitions on the energy transition with its progress.”
“I don’t think anyone appreciated how difficult this would be” – Grattan Institute’s Tony Wood. “We are in a hard place. Naïve optimism about an easy, cheap transition to net zero is at risk of giving way to brutal negativity that it’s all just too hard.”
“We’ve been fiddling around for a decade or so in Australia with renewable energy (and) we’ve come in determined to get on with the job” – federal Climate & Energy Minister Chris Bowen.
“We’re all in favor of renewable energy, but not at any cost and not where you’re destroying jobs and livelihoods and the environment” – federal Opposition leader Peter Dutton.
“The failure of the Voice suggests Australians have limited bandwidth for big aspirational ideas at the moment. People are head down in life – expensive mortgages, high power and petrol prices, big grocery bills. The government wants to pick up the pace of the transition. But if reforms run too hard and fast, and the lights go off, Dutton and his naysaying agenda prospers” – Katharine Murphy, The Guardian newspaper.
“Unplanned coal plant outages, the impact of natural disasters on transmission lines and huge deployments of rooftop solar have made Australia the world’s most volatile power market” – Bloomberg news agency.
“Australia’s accelerating shift from coal-fired power to clean energy is stoking volatility in its power markets and raising concerns for large businesses” – Huw McKay, chief economist, BHP Group.
“It requires significant extra costs to firm and integrate variable renewable energy supply in to our electricity system” – CSIRO in its latest promotion of its controversial GenCost research.
“To be a successful electro-state exporting embodied-hydrogen decarbonized products, we need a skilled workforce, targetted investments, government support to get us over the start-up hump, gumption, good science, good engineering and good project management” – former federal chief scientist Alan Finkel.
On the sports front it could be hailed, but for the economy it’s not good news: a report by international research firm Rystad Energy finds that the five Australian States making up the NEM show “a higher degree of price volatility by far” in an assessment of 39 electricity markets around the world.
The analysts declare the NEM well ahead of Japan, the Philippines, California and Texas, the other leaders in daily power price fluctuations.
Rystad says there is “a pressing need” to increase NEM storage capacity to deal with the issue, estimating the market will need 46 gigawatts and 640 gigawatt hours of pumped hydro and utility-scale battery storage by 2050 – a long leap from 2.8 GW today.
Rystad’s Australian senior analyst David Dixon comments “volatility can be unsettling for retailers who lack proper hedging strategies and for consumers who bear the brunt of result cost fluctuations.”
Dixon adds that Australia also needs to prioritize the enhancement of transmission infrastructure.
Rystad notes that, despite mild weather and reduced demand in September, New South Wales ($69 per MWh) and Queensland ($56) recorded much higher wholesale power prices than South Australia ($44), Victoria ($34) and Tasmania ($32). During the month NSW had the highest solar farm production (650 GWh) as well as 456 GWh of wind generation.
The Rystad Energy report also lists Australia and Japan at the top of a table of average electricity tariffs for households in the Asia-Pacific.
Using US currency, the analysts provide a list of 21 nations – with the top five being Japan (24.7 cents per 100 kilowatt hours consumed), Australia (23.8), Singapore (23.7), Hong Kong (18.3) and the Philippines (17.7). South Korea comes in with 10.9 cents, India with 7.8, China at 7.6 and Malaysia with 4.7 cents.
On the same basis, the average tariff for businesses in Australia was the second-highest in the Asia-Pacific at 30.2 cents, slightly behind Singapore and triple that in South Korea, which is the most expensive of eight low-tariff countries.
The Reuters news agency also reports an Australian Energy Regulator official telling it that efforts here to increase renewable energy supply through power transmission system upgrades and other measures to stabilize the NEM “will result in higher tariffs.”
The agency quotes AER board member Justin Oliver, speaking to a reporter on the sidelines of Singapore’s International Energy Week conference, as saying "If you put aside sort of short-term global conditions, you'd expect to see prices start to rise for a period of time because of the increase in network investment that's going to be needed,"
Oliver added: “I don’t know if we are going to get to a situation where electricity is much, much cheaper than it is today but we do hope to get back to a position where people are paying roughly what they were a few years ago.”
Federal Climate & Energy Minister Chris Bowen is boasting that a 31 per cent rise in NEM rooftop solar output over the past 12 months has helped cause a 71 per cent fall in NEM wholesale prices during this period by easing grid demand in daytime.
Writing in the Australian Financial Review, Jacob Greber says that, while the “dramatic surge” in consumer solar and battery installations is helping reduce household power bills, such calculations do not account for the thousands of dollars – “and in some cases tens of thousands of dollars” – they are spending on buying and installing PV panels and energy storage.
Bowen told journalists “whether solar is on people’s roofs or in renewable energy zones, it’s cleaner, cheaper and reduces energy prices.”
Meanwhile, the media are highlighting that, despite the fall in wholesale prices, consumers’ charges are still high. Victoria University’s Bruce Mountain points out that the lag flows from retailer purchases on fixed contracts.
The Australian Energy Regulator approved 2023-24 household and small business price rises of up to 25 per cent from 1 July this year. The AER noted at the time that it was wrestling with “a difficult balance” between allowing retailers to recoup their costs and protecting consumers.
American Australian engineering company Worley says a “radical reimagining” is required of how to achieve the federal government’s target of 82 percent NEM renewable energy by the start of the ‘Thirties.
Speaking at the Australian Financial Review’s energy and climate conference, Worley chief executive Chris Ashton said “while we’re moving in the right direction, there is a long way to go to close the gap.”
He declares that the traditional approach to project feasibility studies, sourcing and delivery “will not work” for the scale of change required.
It was the second time in two months that Ashton had given this warning. Earlier he had told another conference: “We are fast approaching an inflection point if Australia is to deliver 43 percent emissions reduction by 2030.”
Commenting on the AFR event at its end, reporters Angela Macdonald-Smith and Mark Ludlow wrote “only the most optimistic still insist Australia can reach the 2030 targets.” This, they said, is a turn-around from 12 months ago when to suggest it “was almost regarded as heresy.”
The newspaper reports that only four renewable energy projects reached financial close in the NEM in the June quarter this year.
Former Australian Energy Council CEO Matthew Warren told the AFR conference that the 82 per cent target “just isn’t possible.” Former Snowy Hydro chief executive Paul Broad said there was “zero chance” of reaching the target.
Federal Energy Minister Chris Bowen told the conference “it’s now crunch time,” acknowledging that meeting the aim “is a challenge” and declaring “I’m focussed on getting it done. I’m going to keep driving.”
Brent Redman, Transgrid CEO, said: “We must make the (NEM) grid fit for renewables as quickly as possible.” He insisted that the market target is achievable provided planned transmission lines are built in time.
Adela Smith, a partner of lawyers Gilbert+Tobin, told the conference: “The reason that greenfield projects have ground to a halt has less to do with the availability of capital and investor appetite and more to do with the permitting, the licensing, labor force issues, high costs of inputs and supply chain issues.”
Federal Opposition energy spokesman Ted O’Brien declared at the forum “we need more gas and lots of it” and said emissions could not be cut to net zero by 2050 without the use of nuclear power in Australia.
Meanwhile the Sydney Morning Herald reports the Coalition has internal polling that shows 52 per cent of respondents now support the use of small modular reactors as part of the solution for cutting Australian emissions, “a big increase from earlier support levels in the 30 per cent range.”
Boosters of renewable energy are urging the federal government to spend about $100 billion more on the sector in addition to the current large outlays.
The Clean Energy Council, in its “Power Playbook” paper released in the week before October’s referendum, calls for “a dramatic increase in investment.” It proposes the government invest “around $10 billion a year for the next 10 years” in order to “put Australia back on track” to achieve 82 per cent renewable capacity in the NEM by 2030. “If we move boldly and swiftly,” it adds, ”we can position our economy to navigate the disruptive energy transition.”
The CEC calls for the government to produce a “renewable energy superpower masterplan.”
It wants to see annual financial commitments “in the order of six to seven gigawatts a year” of large-scale renewable projects from 2024 as well the installation of about 3.5 GW of rooftop solar a year until 2030.
It adds that “completing the decarbonization task,” including replacing LNG and coal exports, will require “$7 trillion to $9 trillion, a skilled workforce in the order of 700,000 to 800,000 people and an electricity system in the order of 40 times the size of today’s.”
The lobby group says Australia “needs to signal as quickly as possible that it intends to be a leader in clean energy and green commodities markets.”
In a paper issued in late October, Careers for Net Zero, a campaign jointly run by the Clean Energy Council and the Energy Efficiency Council, is calling for Australia to “urgently upskill its workforce to achieve its clean energy ambitions.”
EEC chief executive Luke Menzel says “immediate action” is needed because “the current talent pool isn’t matching up with demand and many of the roles desperately needed by 2030 already face major shortages at a national level.”
The CEC adds that Australia’s energy workforce needs to be doubled by 2030 “and doubled again by 2035.”
The campaign wants to shift 100,000 Australian workers in to “clean economy roles” by 2027.
The EEC’s head of strategy, Holly Taylor, told Channel 9 News: “The whole point is that we don’t just need electricians and engineers. Of course, we definitely need them – but we also need project managers, investment analysts, insulation installers, net zero business advisors, blade technicians and the list goes on.”
In another GenCost commentary issued at the beginning of October, the CSIRO poses the question “Are renewables the cheapest form of energy?” and answers itself: “Yes. The 2022-23 GenCost report found renewables have the lowest LCOE of any new-build electricity generation technology when we consider them as stand-alone technologies without any additional costs.”
However, CSIRO qualifies “we know variable renewable energy like wind and solar generates intermittently – it requires significant extra costs to firm and integrate supply in to our electricity system.”
And it adds: “VRE costs increase when it represents more than 50 per cent of the electricity system because we need to construct purpose-built firming technologies and new transmission infrastructure to access the significant addition RE farms needed.”
Federal Energy Minister Chris Bowen declares that an important part of Australia’s renewables future is offshore wind.
Speaking in October in Tasmania on the Bass Strait offshore wind zone consultation the government has launched, Bowen said it will cover 10,000 square kilometres and, at its closest, will be 20 km from the coast. He claims it will have a capacity of 20,000 megawatts from up to 14 wind farms if fully utilized..
He told journalists he hoped for first power production from the zone in “2030-ish.”
Bowen said the government aimed to create six zones around Australia – off the Hunter Valley and Gippsland, already declared, off Wollongong and Portland (now open for consultation) and with the sixth off Bunbury in Western Australia. “This new industry has the capacity to boost energy security and reduce volatile prices due to its power capacity and availability at times when solar power and onshore wind are not available,” he added.
“Bass Strait is renowned for its offshore wind resource – and this potential zone could transform Tasmania into a new clean energy powerhouse, spurring investment in Tasmanian communities, providing energy security for decarbonising heavy industry and creating thousands of jobs,” Bowen said.
The government announcement comes at a time when international media are reporting that surging costs, supply chain bottlenecks and rising interest rates have caused significant problems for the offshore wind industry in the US and Europe.
“The industry is at an inflection point,” says Søren Lassen, Wood Mackenzie’s head of offshore wind research. “Will politicians be willing to provide the support that offshore wind needs? If they are, the industry could be in a stronger place than ever. If not, it’s going to be in a very tight spot.”
How many Australians focussed in early October on fairly-buried media reports of the latest “State of the energy market” report, I wonder. Short answer, not many given what else – from the latest conflict in and around Israel to the Voice referendum locally, not to mention major sporting events – occupied media time and space at that time.
The authors of the report, the Australian Energy Regulator, summed things up as “better outcomes but challenges remain” – which doesn’t work well as a newspaper headline in terms of attention-grabbing, especially with what else was going on around us.
The West Australian newspaper, in this regard, did much better: “Regulator sounds alarm over power bill pain with fears over energy transition.”
This was shorthand for the summing up provided by AER chair Clare Savage, who told journalists: “Work still remains to address energy affordability for consumers, co-ordinate the entry and exit of generation sources and ensure the timely and least-cost delivery of major transmission projects. These projects face challenges including escalating costs, slower than planned progress and the need to address the concerns of the communities that host them.”
Which I suggest adds up, more pithily, to “Your energy security is at risk.”
The regulator also provides a useful definition of such security: “A reliable power system has enough generation, demand response and network capacity to supply customers with the energy that they demand with a very high degree of confidence.”
This point is underlined by the AER saying in its report that there are “a range of vulnerabilities to the reliability of energy supply” as coal generation ages and exits the market, adding that, in particular, they highlight “the sensitivity of the market to outages, challenges accessing fuel, exposure to international fuel prices and interconnections between electricity and gas markets in which there are related reliability challenges.”
Bringing home the message, literally, Clare Savage notes that “the number of household customers in energy debt has been rising across most jurisdictions since mid-2022” – and, for every consumer actually unable to pay the bill, there are, I’d suggest, four or five struggling to do so, juggling their spending to cope and suffering all the impacts of stress brought on by this, a belief validated by Energy Consumers Australia’s latest “sentiment survey” which claims 52 per cent of households are more concerned about paying energy bills than a year ago. (The ECA poll number for this in 2022 was 15 per cent.)
Or, as the AER says in the preface to this year’s 269-page tome: “Increasing concerns about energy affordability present the backdrop to this report.”
Moreover, it notes, low-income customers bear a higher cost burden for energy than other consumers, firstly, because they have less income and also because their power bills are at least double the proportion of income for those better off.
And elsewhere in the document, the AER says: “In coming years, multiple factors risk putting upward pressure on costs – inflation outcomes (annual network tariffs), global supply chain disruptions, labour shortages, potential uplifts in the cost of capital and other adjustments relating to maintaining social licence.”
At the start of this newsletter issue I quote the London Economist, which is no-one’s idea of a deeply conservative publication. It opines that “it is hard to match Australia’s ambitions on the energy transition with its progress.”
That seems very to the point as we near the end of 2023 and 2030 looms closer.
Keith Orchison
31 October 2023