Issue 233, September 2024
Not to put too fine a point on it, as we enter the last third of 2024 and the start of a new election season across Australia, there’s a fair bit about the energy scene that’s more than a little depressing. (Not that energy is the only issue to induce that feeling in the current national and international environment.) On the electricity front, in the main power market, the operator’s latest overview, delivered in the last days of August, created a predictable rash of media coverage about the risks facing consumers in the coming summer and beyond – and a pushback from those politicians and others who are determined to play the “it’ll be right” card, pointing to growing investment in intermittent generation and storage and playing down the worrying portents for south-eastern Australia’s gas supply and costs. The Queensland and federal elections will no doubt see a lot more in this vein. The bottom line, as asserted by analysts Wood Mackenzie, is that the AEMO “integrated system plan,” which requires 4,000 megawatts of wind farm capacity – and, in all, nearly 7,000 MW of new renewable generation – to be installed annually until 2032, is “unlikely to be delivered in its entirety.” And, therefore, what?
“Despite more than three decades of climate action in Australia and policies taking centre stage in the political arena over the past decade, a recent report by Ipsos has found confusion and hesitation towards the transition is common among voters” – Australian Energy Council.
“Both Ipsos and SEC Newgate have found a large portion of Australians are either unaware about energy technology, energy policy or reasons why we need to transition our energy grid to renewables” – AEC.
“After more than three decades of striving and political manifesting to will the clean-energy transition into existence, fossil fuels still deliver the vast majority of primary energy for this country” – Ian Davies, Senex Energy CEO. “Like Groundhog Day, we have heard repeated warnings from the Australian Energy Market Operator calling for urgent investment in new supply. And like Groundhog Day, our government has buried their head in the sand, instead tying themselves – and our industry – in a monumental knot of intervention.”
“For much of the past 15 years the east coast gas market has been a disaster, prompting emergency market intervention from each of the Turnbull, Morrison and Albanese governments. Despite all the threats of wielding ‘a big stick’ right through to price caps, the cost of gas is prohibitive and forecast shortages will ensure electricity prices remain high” – Ian Verrender, ABC chief business correspondent.
“Regular reliance on voluntary cutbacks of power consumption by industry is evidence the NEM is failing consumers” – Andrew Richards, CEO, Energy Users Association.
“There will be serious power shortfalls this decade unless more supply projects are permitted and delivered” – Innes Willox, CEO, Australian Industry Group. “We are calling for a sustained national effort to speed up planning, approval and delivery of new energy infrastructure.”
“Higher global gas prices, volatile and intermittent renewables penetration, coal-fired plant outages and extreme weather are stoking increased fears of gas shortages, spiking power bills and rolling blackouts” – Peta Credlin, Sky News.
“Australia has been making the same big three energy policy blunders as Germany: encouraging over-reliance on wind and solar power, neglecting the importance of gas supply security and rejecting nuclear energy” – adjunct professor Stephen Wilson, University of Queensland.
“The government’s plan is working when it comes to energy reliability” – federal Climate & Energy Minister Chris Bowen in late August. “Renewable energy is coming online at the pace that is necessary to replace the old forms of energy as we undertake the transition.”
Schneider Electric says its 2024 Sustainability Index has revealed that many Australian businesses are struggling to decarbonize and are calling on government for support. Less than one in five companies surveyed have an over-arching decarbonization roadmap or strategy in place.
The report, now in its fourth year, investigated corporate Australia's position on sustainability and energy efficiency as well as the drivers and roadblocks to establishing net zero pathways.
Key findings of the report include that 40 per cent of companies are not acting to decarbonize and one in four have no intention of reaching net zero by 2050 “despite seven out of 10 business leaders agreeing that pursuing a sustainable transformation would give them a competitive edge and believing the benefits of adopting sustainable technology outweigh the costs.”
Schneider adds: “While 70 per cent of respondents are discussing their scope 1, 2 and 3 emissions, only 10 per cent have a strategy in place for managing scope 3 emissions. More than half of the businesses have not yet assessed climate risks and opportunities or developed a transition plan. Only 44 per cent of companies are actively managing energy volatility.”
Schneider adds: “With new climate-related financial disclosure regulations set to roll out next year, businesses will be required to reveal extensive information on climate-related issues.”
It also says that 37 per cent of respondents to its survey cite a lack of financial resources as a barrier to adopting sustainable solutions, 36 per cent say the issue is not seen as urgent for their businesses and 33 per cent cite a lack of government incentives as affecting their approach to the issue.
The Grattan Institute is calling for a “major credible review” of eastern Australia electricity market, declaring the need urgent and that “it must start now.”
The institute’s energy program director, Tony Wood, argues that there is “mounting evidence” the current NEM design will not deliver enough investment in “affordable, reliable, low emission generation, storage and transmission when and where it is needed.”
He says the political debate has delivered “a mess of industry development policies and subsidies to support renewable electricity.”
Wood adds that “an effective NEM review must look beyond the focus on closing and replacing coal generation, transmission delays and government interventions in the market, the latter including various forms of nationalisation.” He says it looks as if the Productivity Commission will review “the 1990s-era market design” and that “the key to this succeeding is making sure governments stick to an agreed fix.”
Ideally, he says, a review should result in a new federal/State Australian market agreement, the formal umbrella for the NEM, and, if governments want to impose constraints on the process, they should make this clear from the start. If the commission is given the task, it will require a wide consultation mandate and additional resources because many of the key issues are outside its experience, he asserts.
Any new design, Wood declares, will “fail spectacularly” without addressing key issues.
“Once the policies and the core structure of the market have been decided, the technical detail of designing rules and operating procedures that reflect these decisions should be passed to the market bodies to develop,” he says. “The first-best outcome would be a well-regulated, optimised energy market that meets the long-term needs of consumers.”
Meanwhile, in a newspaper op-ed, energy commentator Matthew Warren warns that the longer it takes to reform the NEM, the riskier and more expensive decarbonizing electricity will become. He points out that ‘the value of hundreds of billions of dollars of energy assets are leveraged to the current design – the political and commercial inertia on this scale of reform is immense.”
The latest official data for Australian electricity generation – covering calendar year 2023 – shows that coal continues to dominate power supply in three of the four largest States by demand – New South Wales, Victoria and Queensland – making up more than 57 per cent of overall output in all three last year.
The federal government report, released at the end of August, says however that coal now meets less than 50 per cent of generation across the whole country – with gas the source of 60 per cent of supply in Western Australia, 83 per cent in the Northern Territory and 24 per cent in South Australia (where it records 74 per cent of output). Tasmania, which is highly dependent on hydro-electricity, gets 98 per cent of its electricity from renewables.
The office of the chief economist in Chris Bowen’s Climate & Energy Department says total electricity generation in Australia last year amounted to 274 terawatt hours. This includes industrial onsite power production, rooftop solar PV and off-grid generation.
All renewable generation totalled 93 TWh, with wind power providing 12 per cent of the national total and solar 16 per cent.
Focussing on 2022-23, the report records that black coal generation in the financial year amounted to 96,174 gigawatt hours and brown coal units delivered 31,459 GWh with gas providing 48,865 GWh.
Solar farms, it says, delivered 16,060 GWh and wind farms 31,385 GWh, with hydro-electric systems contributing 16,666 GWh.
“Coal,” the report adds, “remained the predominant source for electricity
generation. However, its share in the fuel mix continued to fall, to about 47 per cent of total generation in 2022–23.”
The report notes that about 20 per cent of Australia’s electricity was generated by households and businesses outside the power grid sectors.
It also records that about 76 per cent of supply nationally was metered generation in the eastern States’ market, the NEM. As it says, the NEM covers much of the populated area of the south and east of Australia, stretching from Port Douglas in Queensland to Port Lincoln in South Australia, and also extending to Tasmania, physically linked by a network of transmission lines and high voltage direct current links.
It notes that “metered electricity generation in the NEM has remained fairly steady in recent years, sitting between 202 and 207 terawatt hours since 2016–17 and growing to 209 terawatt hours in 2022–23.”
It adds: “Renewables generation increased 12 per cent in the NEM in 2022–23, largely driven by increases in capacity from recently connected generators. Fossil fuel generation fell 4 per cent, driven by increased renewable generation and market conditions. Over the past five years, renewable generation in the NEM grew an average of 16 per cent per year while fossil fuel generation fell five per cent per year.”
On the solar front, the office notes that: “New South Wales and Queensland were the main producers of large-scale solar electricity with 39 and 37 per cent of Australia’s utility scale solar power respectively. They were also the leading producers of small-scale solar electricity (29 and 28 per cent respectively).”
The Australian Energy Market Operator asserts that “despite concerns about grid reliability in 2027-28, following the closure of the 2.8GWh Eraring coal-fired power station in New South Wales, energy storage will help alleviate the (NEM) pressure.”
In its newly-released “2024 statement of opportunities,” AEMO says that current energy storage projects alongside the HumeLink transmission project will partially mitigate some of the risk from 2027 onwards, noting that 13.5 GWh of battery storage has been connected to the NEM in the past 12 months.
Meanwhile, in a new discussion paper, the Australian Energy Council, representing large producers and suppliers of electricity, says that the national overall storage capacity at present is three gigawatts – and, under AEMO’s planning, this will need to rise to 49 GW by 2050, including pumped hydro, virtual power plant and batteries.
The NEM, the association adds, is forecast to need 36 GW or 522 GWh of storage capacity in 2034-35, rising to 56 GW/660 GWh in 2049/50.
The Clean Energy Council reports that 2023 was a record-breaking year for new financial commitments to large-scale storage. In the second quarter, it says, investment in big batteries broke the billion-dollar mark during a quarter for the first time, and by Q4 that record had been broken. Total investment in large-scale storage stood at $4.9 billion by the end of 2023, it adds, up from $1.9 billion in 2022. The combined capacity of the large-scale storage projects reaching financial commitment in 2023 totalled 3,949 MW / 9,905 MWh.
Australian media, especially in the country’s east, are swirling with opinion and speculation over whether and when there may be domestic gas supply shortages – and the potential solutions.
The need to import LNG is again rising in media coverage as the Bass Strait fields slide towards cutbacks and shutdown. Three units of the Longford plant processing offshore gas in Victoria are now expected to close in October. Longford typically supplies 40 per cent of east coast gas needs.
The Grattan Institute’s Tony Wood says: “In gas-dependent Victoria, the risk of shortages is very real. That’s because the State’s offshore gas wells are running out and governments and industry haven’t acted to boost supplies until renewables can cover the gap.”
He told a newspaper: “There is a serious problem here (that) has been coming for more than 10 years.”
Wood adds: “We’re not talking about no gas, but about some seasonal shortfalls. The worst risk is that you could end up having to ration supplies and that could be the most economic thing to do.”
Frank Calabria, CEO of Origin Energy, has told media that “east coast supplies are depleting quickly and imports shape as the viable solution.”
Samantha McCulloch, chief executive of Australian Energy Producers, says that “without immediate action to bring on new gas supply, Australia faces economy-destroying gas shortages”.
The Australian Financial Review reported in mid-August that a major issue with LNG imports is their price for users, quoting MST Marquee analyst Saul Kavonic as estimating that they will be “at least $1 per gigajoule higher on average over the long term” than current east coast charges and pointing out that today they stand at 30 per cent more on spot markets.
The Australian newspaper quotes Adam Watson, chief executive of APA Group, a major energy supplier, as declaring that “it is likely” that imports will be needed. “It looks like LNG is the only alternative,” he told the paper in early September.
Looking at the broader situation, including the troubled “energy transition,” Andrew Richards, CEO of Energy Users Association of Australia, says: “We need a comprehensive plan to ensure we can extract more gas for domestic purposes from a broader group of producers so we can improve competition and deliver lower-cost energy for Australian households and business.
“The independent market operator has highlighted the need to develop new gas supplies to keep families warm in winter.
“This will also ensure manufacturers can continue to make the many things we take for granted like food, building materials, steel and glass, and ensure gas can play its role in the transition to a low-emissions energy sector.”
Energy Consumers Australia is complaining that complex power price rates at peak times of use don’t work “and may only hurt average people.”
The lobby group says higher peak prices “may do little or nothing to curb network upgrades,” arguing that the issue is household need for electricity in extreme cold or heat.
In a new commentary, the ECA calls for a re-evaluation of the supply industry assumption that there is a strong and necessary case for transferring all households and small businesses to cost-reflective tariffs.
“In very hot and very cold conditions,” it argues, “consumers will prioritize comfort over cost savings.”
It adds that many Australian homes were built before construction energy standards were introduced “and, as a result, are highly inefficient.”
The ECA claims that network businesses are having to spend far less on grid upgrades now than a decade ago as a result of the take-up of rooftop solar systems and their impact on demand.
“Networks now have significant amounts of spare capacity,” it declares. “Distribution systems are now highly under-utilized.”
In a submission in August to the Australian Energy Market Commission, the group supports a proposed AEMC review of network tariff and retail pricing arrangements. “The current state is leading to poor consumer outcomes and is unlikely to remain fit for purpose moving forward,” ECA says.
It adds: “The wholesale electricity market is also undergoing a rapid transformation. Wind and solar electricity generators are high capital cost generating resources with little or no marginal cost. This could mean that the energy future of the system is characterised as having low marginal costs and high fixed infrastructure costs.
“Currently, most energy system costs are recovered from consumers via usage charges. With a high fixed cost energy system, recovering costs via usage charges may not actually reflect the true underlying nature of system costs in the future.”
Meanwhile Energy Networks Australia in claiming in a media statement that governments need to “look beyond the traditional role of networks as just poles and wires.”
CEO Dom van den Berg says a revised approach to the grid could see customers save around $160 per year and avoid $7 billion in overall system costs in 2030 alone. She adds: “There is a clear opportunity to get the local grid doing more of the heavy lifting in the energy transition and achieve greater savings for customers by 2030, but that window of opportunity is closing.”
The likes of Chris Bowen and Anthony Albanese and more than a few others in their federal ALP partyroom in Canberra must grit their teeth every time another Jennie George op-ed appears in The Australian newspaper.
George, an officer of the Order of Australia (OA), is a former ACTU president and former federal Labor MP, now retired, who feels sufficiently strongly about the current state of energy policy that from time to time she takes to writing strongly-worded commentaries.
The latest appeared in the newspaper in mid-August under the heading “Energy transition powered by wishful thinking.” I commend it and its predecessors to newsletter readers.
In her new op-ed, George makes these points:
First, the government has failed to balance the objectives of affordability and reliability as it pursues its decarbonization strategy.
Second, as the paper’s headline indicates, “any serious analysis of the energy transition should be grounded in fact, not wishful thinking.”
Third, it is folly to believe we can rely on a predominantly renewables grid to power the Australian economy.
Fourth, “our power prices are among the world’s highest” and “energy poverty will continue growing as the costs of 10,000 kilometres of new transmission are passed on in power bills.”
Fifth, she raises the huge outlay on public funds through Bowen’s energy plans: “His capacity investment scheme is based on taxpayers underwriting a vast expansion of 32 gigawatts of renewable energy. Future risk will be transferred from investors in renewables to the taxpayer in secret contracts for difference. If revenues fall below the floor, taxpayers will fund the difference.”
George points to something that troubles a lot of observers of the current capers: “We’re still in the dark about the total system costs of the transition, with estimates ranging from hundreds of billions into the trillions. What are the aggregate costs from the public purse? Labor’s promise of transparency and accountability is undermined by non-disclosure and secrecy.”
Sixth, she writes: “There’s a lot at stake in this energy transition, so it’s necessary to see through the spin. According to reputable experts, the 2030 targets won’t be met. Despite this, the government is considering raising the 2035 emissions target to between 65 per cent and 75 per cent.”
And she winds up: “If we’re to avoid the pathway to economic calamity it’s surely time for a plan B informed by independent energy experts. The country needs an orderly energy transition plan that’s grounded in reality, not wishful thinking.”
Now, if anyone else was publishing this tongue-lashing, you could lay money on the Member for McMahon putting on one of his displays of verbal pyrotechnics, proclaiming how right he really is. Well, whatever he says in private, taking on George in public is apparently not on Bowen’s agenda.
Which leaves her “j’accuse” views unchallenged. George herself writes that she would like to see the Senate take steps to get the issues she raises answered in the public interest.
Keith Orchison
3 September 2024