Issue 198, October 2021
So here we are: the month when the UN climate change summit in Glasgow kicks off and what crisis is hogging the international energy headlines? As one London newspaper puts it, “the political challenge is now to convince voters to back ambitious policy packages to deal with climate change – which will inevitably make fossil fuels costlier for users – just as they are smarting from soaring utility bills.” Europe is seriously under the pump, too, as the energy crisis bites home. And for Australian users, this is not a problem in far-off lands. As serious market analysts are pointing out, the impact of “a world of complications” may flow in to the domestic supply situation, causing more non-trivial issues for large energy users. The grown-up response is that current consumer pain may make climate policy action here and overseas more daunting, but it shouldn’t make it less necessary if done with real care rather than Pollyanna politics. And the most interesting Australian energy news of late September (when Covid, AUKUS and the footy finals allowed room in the media) has been both a shift (and then the inevitable conflict) in the federal government’s ranks on an appropriate approach to the issue of a net zero emissions plan as the business community’s support for this direction grows. Where this leads in the run-up to the next national election is at present anyone’s guess – and may reach a denouement in the Coalition’s party rooms before October runs its course. Meanwhile, the never-ending story of inter-government and inter-party footling with a worthwhile plan to deal with the NEM “trilemma” – to make electricity supply secure, reliable and affordable – meanders on.
“The experience of Europe and the UK says the transition away from fossil fuels is going to have to be carefully managed if the kind of destructive crises now being experienced is not to become an engrained feature of a low-carbon world” – leading Australian media business commentator Stephen Batholomeusz.
“A perfect storm of natural gas problems, geopolitics and unfavorable weather for renewables has combined with an unexpected pick-up in demand. The resulting price spikes have left politicians scrambling. The bigger political challenge runs deeper: it is to convince voters to back ambitious plans to deal with climate change” – editorial board of London’s Financial Times.
“For good reasons, global policymakers are determined to shift the world away from coal. But when energy supplies are tight, then coal is in demand again, playing an essential role in keeping the lights on” – global analysts Wood Mackenzie, adding that the current crisis is “a warning that the transition to low-carbon energy will not be smooth and seamless.”
“Any move towards a net zero environment has to involve a clear plan so that Australia does not follow the UK and Europe in to an energy crisis” – Deputy Prime Minister Barnaby Joyce.
The media headline was that a clear majority of Australians want the federal government to cut national greenhouse gas emissions to net zero by 2050. Barely mentioned was that the same public opinion poll has 51 per cent of respondents saying that they would accept the local use of nuclear power.
The survey was undertaken last month by Resolve Strategic for The Sydney Morning Herald and The Age and roughly coincided with Prime Minister Morrison announcing the AUKUS agreement for Australia to use nuclear submarines – but hastening to add that he was not pursuing domestic use of nuclear energy.
The polling company found that 16 per cent of respondents actively support use here of nuclear power and 35 per cent say it is “acceptable” – with just 29 per cent opposed and another 20 per cent indicating they are undecided.
This poll was followed by another published by Essential Report at September’s end again showing support for local use of nuclear reactors.
The Essential poll found that 50 per cent of respondents supported Australia introducing nuclear energy versus 32 per cent opposing it and 18 per cent “unsure.”
The AUKUS statement led the Minerals Council of Australia to declare that, “now Australia is acquiring submarines which use small nuclear reactors, there is no reason why small modular reactors should not be considered for civilian use.”
Also last month, Adi Paterson, who has recently stepped down after 12 years as CEO of the Australian Nuclear Science & Technology Organisation, told a House of Representatives committee energy inquiry that “we can have reliable and effective reactors operating with the lowest carbon footprint on the grid, anchoring intermittent renewables, which are not going to get better at delivering, and not spending a vast amount of money on batteries – which are not themselves power sources but literally just buckets of electricity.”
Whatever else is going on in Australian policy issues management in an environment distorted by the pandemic, the inability of energy ministers to come to a landing on key reforms for the east coast power market to make it fit for purpose in an era of decarbonization is an abiding feature.
Ministers serving on the “national cabinet” energy committee met in late September to wrestle with the latest report of the Energy Security Board, and notably its recommendations for a capacity mechanism to service reliable, affordable supply when the NEM is under stress. They agreed to keep playing with the issue.
The lead-up to the meeting saw three governments (Victoria, New South Wales and the ACT) declaring they are opposed to a mechanism assailed by activists as “Coalkeeper.”
Work going forward, the ministers said in a post-meeting statement, is to be “underpinned by principles that ensure the mechanism design delivers investment in an efficient mix of variable and firm capacity that meets reliability at lowest cost, enabling jurisdictions to meet their energy and emissions reductions objectives.”
They are committed to “further design work to specifically value capacity in the NEM.”
The next policymakers’ step is for a report by the energy ministers committee to be considered by “national cabinet” this month.
The committee has also agreed on including an “environment element” in management of the market.
Meanwhile the Energy Security Board is being reshaped to include only the market operator, the rule maker and the energy regulator, with inaugural chair Kerry Schott stepping down along with deputy chair David Swift.
In one of her last public appearances for the board, Schott told a Clean Energy Council forum that the ESB proposals were not an attempt to keep fossil-fuelled power in the NEM “one minute longer than needed.”
She also told a newspaper she was “very pleased” to be going from the ESB. “It’s been pretty, pretty hard yakka,” she said.
While the federal Coalition government’s MPs are yet again wrangling over climate change policy – ahead of the CoP 26 meeting in Glasgow starting on 31 October and a national election that has to be held by May – and specifically over whether it should adopt a net-zero ambition, the Liberal and National coalition governing New South Wales has embraced new emission reduction curbs with a fanfare.
Before quitting the leadership of the Liberals on 1 October Premier Gladys Berejiklian said the State government, which will be back at the polls in March 2023, would now have a goal of curbing carbon emissions to 50 per cent below 2005 levels by 2030.
Berejiklian declared that the new policy is setting out to attract at least $37 billion in private sector energy investment in NSW “to future-proof our prosperity.”
Environment & Energy Minister Matt Kean said the government has used peer-reviewed modelling to establish that the policy steps it is pursuing will see a fall in emissions of between 47 and 52 per cent below 2005 levels, with the use of coal-fired generation phased out by 2030.
The State is now joining the two Labor jurisdictions of Victoria and Queensland in pursuing large 2030 abatement goals – Victoria of 45-to-50 per cent and Queensland of 30 per cent – by the end of this decade. South Australia, governed by the Liberals, is aiming for net zero by 2050 and claims to be more than halfway towards the target.
A key part of the NSW approach is the establishment of renewable energy zones in rural areas that Kean expects to attract $32 billion in private sector investment in wind and solar farms and electricity storage.
He claims that NSW is “now on track to be one of the first to cut its emissions in half and to do so while growing the economy.”
Meanwhile the plan to link the NSW and South Australian grids for the first time is a step nearer realization after the former government’s approval of the first stage of Energy Connect transmission line.
When completed, the link from Wagga Wagga to Robertstown in South Australia – 900 kilometres – is budgeted to cost $2.3 billion in a joint venture between TransGrid and ElectraNet.
TransGrid acting CEO Brian Salter says it is “one of the largest projects ever proposed for the NEM” and NSW Planning Minister Rob Stokes adds that it is “the largest energy transmission project in Australia in 30 years.”
In what is seen as another building block for Australia’s message to be taken to the CoP26 carbon summit in Glasgow as well as a carrot for the Nationals to go along with a federal net zero position, the Morrison government announced at the end of September that it will allocate $250 million to a program to develop commercial-scale carbon capture, use and storage technology for application in regional Australia.
The scheme will contain $100 million for design of carbon capture hubs and shared infrastructure and $150 million for research and commercialization of technologies plus locating viable storage sites.
The government says its wants CCUS projects operating by 2029 and will seek co-investment from State and Territory governments as well as international investors.
While the announcement has been immediately attacked by the Australian Conservation Foundation as a “pipedream,” federal Industry, Energy & Emissions Reduction Minister Angus Taylor points out that both the IPCC and the International Energy Agency regard carbon capture technologies as essential to achieving the goals of the Paris agreement on decarbonization.
Reacting to the announcement, the Minerals Council of Australia says CCS will be essential for the mining sector to achieve carbon neutrality by 2050.
The federal Department of Industry, Science, Energy & Resources says that – Australia-wide – fossil fuels provided 76 per cent of electricity last year.
The department reports that coal power stations hold a 54 per cent share of the Australia-wide market, gas 20 per cent and oil two per cent.
The department notes a sharp decline in the black coal share of the Australia market over 25 years from 1994-95 – dropping from 59.3 per cent to 41 per cent.
In this period the brown coal share has fallen back from 20.7 per cent to just under 13 per cent – while the gas share has risen from 8.6 per cent to 20 per cent.
Use of renewables has risen over a quarter century from just under 10 per cent (and mostly hydro) to 24.4 per cent in calendar 2020 with solar and wind power each holding nine per cent.
The department estimates total generation in 2020 was just over 265 terawatt hours, with thermal sources providing 200.5 TWh.
The Australian Energy Market Operator has told a federal parliamentary inquiry that a key current risk to electricity supply in Victoria is the vulnerability of Yallourn power station to a “catastrophic rainfall event.” The station provides a fifth of the State’s electricity.
The Victorian government declared an emergency last June after a severe storm and ensuing floods caused the Yallourn mine wall to crack, requiring repair work expected to cost the owners, Energy Australia, tens of millions of dollars.
Giving evidence to the House of Representatives committee on the environment and energy, which is undertaking an inquiry in to dispatchable energy generation and storage capability, AEMO’s chief executive, David Westerman, said EnergyAustralia are “working hard” to prevent future flooding problems at the Latrobe Valley site.
Westerman also told the committee AEMO expected another 8,900 megawatts of rooftop solar will be installed in NEM areas by householders and commercial buildings by 2025.
Answering questions, he added that the market operator’s latest modelling shows that more than 26,000 megawatts of grid-scale renewable energy will be required to replace 15,000 MW of retiring coal plants.
AEMO has reported that the NEM currently has 14,000 MW of rooftop solar installations.
The deadline for revival of the Callide C power unit, destroyed in an explosion in May, keeps getting pushed out.
The hoped-for return to service date of the Biloela, Queensland, plant – previously December next year – is now being set at February 2023.
Five years on from a notorious power blackout, South Australia “has the best-performing electricity grid in the nation,” according to the State’s Energy Minister, Dan van Holst Pellekaan.
In 2016, SA was “plunged in to a State-wide blackout that put lives at risk, inflicted immense damage on our economy and made us the laughing stock of the country,” van Holst Pellekaan says.
Since then, having come to office in the wake of the blackout, the Marshall Liberal government has strengthened “what was a fragile, unstable and highly vulnerable network,” he adds, saying this has involved “over two dozen substantive interventions to get energy security back under control.”
What’s more, he declares, after average household power bills went up by $477 annually in the last two years of the previous Labor government, they are now $303 cheaper.
Van Holst Pellekaan says SA is “the only State in the country to avoid forced power outages since 2018.”
According to the OpenNEM website, South Australia, in the 12 months to late September, saw just over 11,400 gigawatt hours of electricity sent to the grid from State-based power units. In addition, estimated use of rooftop solar power was almost 2,100 GWh and the State imported 1,300 GWh over the interconnector with Victoria.
Of the electricity sent to the grid by SA units, just on 5,860 GWh was provided by wind farms and just over 670 GWh by solar farms. Its gas-fired plants delivered almost 4,780 GWh in this period.
Meanwhile, a proposal for a 600 megawatt offshore wind farm to serve the SA market has been put forward by UK-based Australis Energy. The project will have between 40 and 75 turbines to be sited 230 kilometres south of Adelaide and the company says it aims to have it operational by the summer of 2026-27.
Australis has filed environmental impact statements with the State and federal governments.
After a lengthy process, federal Energy Minister Angus Taylor (now also Industry Minister) has tabled a bill in federal parliament to provide a regulatory framework for the offshore wind industry.
Renewable energy investors and green energy advocates are increasingly winning government interest and media headlines with promises of a brave new decarbonized world of exports.
The boldest of these claims has been put forward in September by the think tank Beyond Zero Emissions, which has presented analysis asserting Australia has the potential to earn $333 billion a year – almost triple the value of current fossil fuel exports of $128 billion – by mid-century from new industries meeting global demand for green steel and aluminium, hydrogen and ammonia and minerals needed to support non-carbon energy supply.
The Beyond Zero Emissions paper declares there is a need for rapid investment to “avoid a valley of death in Australia’s export profile” when trading partners implement their net zero policies.
To “seize the opportunity” the organization wants policymakers to set a national “clean commodity target” of $100 billion annually for 2035 and to set up a “supergrid deployment authority” with a $20 billion lending facility to strengthen the power grid.
It urges political and community understanding that “the global race has started” with competitor countries “already moving fast to attract investment and secure market share.”
Beyond Zero Emissions cites the iron industry as an example of recent experience in pursuing large new export opportunities, pointing out that it has been grown from achieving $5 billion in trade at the turn of the century to $100 billion annually today.
The BZE study follows a report by the Grattan Institute in August urging Australian governments to focus on global changes affecting exports. The institute pointed out that 85 per cent of Australia’s LNG exports, 74 per cent of thermal coal trade and 54 per cent of metallurgical coal exports are to countries that have already adopted net zero emissions targets – although critics point out that many nations touting their goals do not have robust measures in place to ensure they are met.
Meanwhile, a proposal for a $30 billion project to sell electricity to Singapore from solar farms of up to 20,000 megawatts capacity in the Northern Territory along with “the world’s biggest battery” and “the world’s longest subsea transmission line” was winning media attention in September.
The Australia Asia Powerlink project would cover 12,000 hectares of land 800 kilometres south of Darwin with solar panels and need 4,200 kilometres of transmission lines to send enough electricity to Singapore to meet 15 per cent of the island nation’s needs.
The Australian Petroleum Production & Exploration Association says a report it has commissioned demonstrates that oil and gas development has the potential to “turbocharge” the Queensland economy.
APPEA chief executive Andrew McConville says the study by consultants EY, which expects continuing high demand in Asia for gas, shows that the industry has added $106 billion to the State economy over the past decade and could spend $30 billion on development, producing 7,000 petajoules of gas, over the next 20 years.
The industry has paid $13 billion in taxes in 10 years as a result of Queensland activity driven by the emergence of the coal seam gas industry. APPEA says proposed new gas developments could deliver between $13.9 billion and $27.6 billion in taxes.
EY’s modelling foresees more than $129 billion being added to Queensland GSP by 2040 if the industry can follow a “high growth” scenario. “Even under a low growth scenario, it would be $64 billion,” says McConville.
A saying attributed to Otto von Bismarck is that laws are like sausages; it is better not to see them being made.
Times move on, and modern sausage makers resent the slur, but for Australians the lingering validity of this quip has been on display through the travails of the Covid pandemic, allowing for much media hoopla but not doing a lot to inspire respect for more than a few of those engaged in making the regulations and management plans.
For many involved in one form or another with the energy sector, there has been a much longer exposure to the Bismarck aphorism as our policymakers have struggled with the twin problems of reducing carbon emissions and delivering a supply system able to provide reliable and affordable power and gas.
Way back in December 2013, I wrote this in my regular commentaries for the Business Spectator website (and Alan Kohler reprinted it in his other venture, Eureka Report): “It’s arguable that the biggest single problem with electricity supply in Australia is the way people talk about it. Politicians on the make, regulators walking on eggshells, lobbyists of every hue, investors chasing a buck and journalists in need of a ‘wham, bam” headline spend their time giving us grievous bodily harm of the earhole on this issue.”
I suggested: “What’s really needed is genuine clarity on the costs and consequences of implementing a transformative energy policy.” That was eight years ago.
I also in a subsequent commentary in those publications in late 2014 posed this question: “When will Australians have a fully thought through, integrated policy and approach to climate change not aimed at the next opinion poll?” If I had gone on to suggest this would still not be the case in late 2021, my readers would have thought I’d finally lost it – and I didn’t expect this to be so myself.
But here we are.
Matthew Warren, writing in the Australian Financial Review a few days ago about the energy crisis now wracking Europe (and rippling out across the Atlantic while the Asian market has its own problems and Xi’s China is literally paying a harsh price for his geopolitical tactics), commented that “Europe’s crisis has exposed the interdependence of all energy commodities. Given this, policymakers need more pragmatism, less absolutism.”
And he added: “Energy (supply) is not a moral contest between good and evil. It’s a complex engineering problem where we cut total system emissions while (supply) remains reliable and affordable.”
In 10-15 years time will someone dredge out the observations here – being now 79, I am not wholly confident it will be me – and lament that we in Australia, as well as markets elsewhere, have failed at all three of these goals?
I sincerely hope not, but, if the past is prelude, as they say, there this a real risk of this happening.
In that context, it has been interesting to say the least, to scan the end-September edition of the Essential Report poll and see three things.
First, asked which of the Liberals or Labor they trusted to address climate change policy, only 26 per cent of respondents said the former and 39 per cent the ALP.
Second, asked to what extent they would support or oppose the use of nuclear power here, 48 per cent said they would be supportive and 24 per cent said they wouldn’t. (This was a different question to the one reported at the start of this newsletter.)
Third, asked which technology they supported to replace retiring coal power, a question most I believe would have interpreted as referring to government intervention, 65 per cent said wind and solar and 19 per cent said nuclear with other alternatives far back in the field.
The real issue, I’d argue, is that we need our political leaders to expend the time and effort asap to realistically assess where we stand with energy and the three goals Warren identifies and to (1) give the community an informed opportunity to indicate its views, (2) give investors the opportunity to make decisions that will support pursuit of those goals and (3) enable a market that works in the best interests of users and the economy rather than relying on political intervention and spending large amounts of taxpayers’ money.
This won’t obviate the need for said leaders to make the best decisions in our collective interests, but it will substantially reduce the opportunity for meretricious players to go on muddying the waters.
Keith Orchison
1 October 2021