Issue 8 August 2005

Think broader, PC told

As it prepares to release its final report on energy efficiency policy on 31 August, the Productivity Commission has been told by the South Australian Government that it is taking "a very narrow" view and needs to consider economic, social and environmental issues as well as cost-effectiveness. SA Energy Minister Patrick Conlon says in a letter to the Commission that his government is a strong supporter of energy efficiency measures as a cost-effective method of reducing greenhouse gas emissions.

Meanwhile the Energy Users Association (EUAA) has told the Commission that a key energy efficiency problem is the lack of co-ordination between jurisdictions, with lack of integration of programs frequently resulting in the multiplication of administrative effort by business, imposing unnecessary cost.
The EUAA also points out that the largest energy losses are on the supply side and effort needs to be made to improve the efficiency of the supply chain. It concedes, however, that end users can influence the efficiency of distribution of energy by altering their usage patterns away from peak periods.

Tax is big gas-for-power hurdle

ExxonMobil Australia's gas marketing director, Nick Heath, says taxation is one of the biggest hurdles to substantial growth in natural gas usage for power generation.

Speaking at an energy discussion at the Melbourne offices of law firm Madgwicks, Heath has pointed out that natural gas producers in offshore areas attract marginal secondary tax (through the petroleum resource rent tax imposed by the Hawke Government in the early 1980s) of well over $1 per gigajoule compared 6 or 7 cents for coal under State royalty schemes and less than 30 cents for onshore gas. "When you consider that gas is being sold for about $3 a gigajoule," he adds, "a marginal secondary tax of $1 per GJ is quite a cost burden."

Heath says recent exploration activity has resulted in "a healthy increase" in the level of remaining gas reserves in the Gippsland Basin in addition to discovery of new fields in the Otway Basin and development of a number of areas in this region.

The potential for significant new gas demand in south-eastern Australia is likely to be in baseload power generation, he goes on, with opportunities opening up in New South Wales, Tasmania and South Australia.

"However, based on the conversations I have had with generators,it seems there are serious market structural issues in NSW," Heath says. "With the State Government influencing the market dynamics and owning incumbent businesses, it seems private investors are not confident enough to invest there on today's rules."

Less than booze and fags

There isn't a capital city in Australia where households are not spending more each week on beer, wines and cigarettes than on electricity, according to the latest Australian Bureau of Statistics survey of the community's spending habits.
The ABS survey for 2003-04 shows that Brisbane households on average spend the least on electricity each week -- outlaying $15.19 followed by Perth ($15.27), Melbourne ($16.20), Sydney ($16.35), Canberra ($19.99), Adelaide ($20.75), Hobart ($25.33) and Darwin ($27.94).

By comparison, the household outlays on booze and fags in the capital cities is as low as $23.06 a week in Brisbane and as high as $36.25 in Darwin and $34.75 in Hobart.

The ABS data show that the average Australian capital city outlay on electricity is $16.78 with $26.40 spent weekly on liquor and cigarettes.

Wind power 'standstill' predicted

The newly-launched Global Wind Energy Council claims that Australian wind farm development will be brought to a standstill in less than two years if the Federal Government's mandatory renewable energy target provisions remain unchanged.

However, there seems little prospect of the Federal Government being moved to change its stance on MRET. Speaking to the Auswind Conference dinner in Sydney in August, Environment Parliamentary Secretary Greg Hunt has said the purpose of the measure was "to kick start the industry -- and this has worked." The Federal energy white paper process, he adds, looked at the option of increasing MRET and rejected it "because of the dead weight cost to the economy as a whole."

The Federal ALP position, set out to the conference by Environment Shadow Minister Anthony Albanese, is also to support MRET -- "it is right and it works" -- but to choose a "(more) ambitious target." However, Albanese says the ALP will not to announce the size of the target until closer to the next Federal election (due in late 2007). The party's Shadow Energy Minister Martin Ferguson, meanwhile, has told Energy Supply Magazine that Labor continues to support increasing MRET to 5 percent of consumption by 2010. He says the ALP will also introduce a national emissions trading scheme "but not at the expense of initiatives like MRET."

100 million in the dark

About 100 million Indonesians on the main island of Java and on Bali were left without electricity on 18 August for the second time in three years after a mid-morning failure of the Java-Madura-Bali high voltage interconnection system. The capital Jakarta was blacked out for several hours, with 18,000 police called out to secure the city of 10 million people. Perusahaan Listrik Negara CEO Eddie Widiono says the blackout highlights the "fragile" state of the interconnector and the need for Indonesia to spend the equivalent of $US30 billion between now and 2010 to meet power consumption growth. Attracting private investment is a high priority for the Indonesia Government, but this is currently hampered by the country's Constitutional Court having struck down a new electricity law that would have opened the sector to competition in 2004. The Yudhoyono Government says it is working on a new law.

NEM 'not nuclear ready'

Ken Thompson, general manager of Loy Yang Marketing Management Company (LYMMCo) has thrown cold water on the debate about the introduction of nuclear power in Australia by pointing out that the current energy-only national electricity market is not suited to deliver the revenue outcomes needed to underpin such development.

Writing in LYMMCo's newsletter, Thompson says: "In comparison to existing baseload generation, a nuclear plant would be much worse off (in the NEM) as it would have much higher fixed costs and far lower short run marginal costs. It is hard to see how nuclear plant would ever make an adequate return on funds invested without modification to the current NEM arrangements."

He adds that the risk for current market incumbents -- mostly owned by State governments in Queensland, New South Wales and Tasmania -- is that, if there was a political desire to introduce nuclear energy, it might require some form of subsidy program similar to MRET or be granted special treatment under the current NEM rules due to greenhouse environmental benefits.

Thompson also comments that the NEM is not a real market when supply scarcity is not a permissible outcome, a position enshrined in reserve margins and reserve powers as well as government intervention on the demand side, in new investment and in supply of renewable energy. He says the generators' lobby group, the National Generator Forum, has identified as its number one issue the reconciliation of political needs and economically rational development.

Keith Orchison

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