Issue 172, August 2019
Failure to call a CoAG Energy Council meeting in July (as State governments expected the federal government to do), and a strong possibility that the first gathering for 2019 may not take place in August either, is creating another febrile east coast electricity supply atmosphere in to which all and sundry are tipping their opinions and concerns. More fuel can be expected to be added when the Climate Change Authority delivers an updated suite of recommendations to the Morrison administration on steps needed to enable Australia to meet its Paris Agreement commitments. The government’s perceived dodging and weaving has been called out, in effect, by the Energy Security Board chair, Kerry Schott, who told media in July there is an urgent need for progress on important energy policies. “There are a lot of governments sitting at the (Energy Council) table and, while the Commonwealth chairs the meetings, the role of the States are almost more important,” she declared. Meanwhile the east coast gas imbroglio continues with explorers, producers and manufacturers waiting to see whether the federal government opts for further intervention in the sector – and a fresh public debate about nuclear power grows in momentum.
“The solution to excessively high (eastern Australian) domestic gas prices is a full domestic gas reservation policy fixing prices at $5/gigajoule on existing and future production” – Institute of Energy Economics & Financial Analysis.
“An attempt to lower gas prices through government intervention is an ultimately short-term and short-sighted solution; if Australian gas prices are to return to acceptable levels, additional gas must be brought to market” – Frank Tudor, managing director, Jemena.
“A domestic gas reservation policy would act as an implicit tax on Australian production, diminishing incentives in future exploration and production; the best way to put downward pressure on gas prices is more gas not more regulation” – Andrew McConville, CEO of the Australian Petroleum Production & Exploration Association.
“We shouldn’t abandon hard-fought principles that the best outcomes for consumers are delivered through competitive markets, functioning effectively – interventions should be temporary, carefully considered and intended to get markets back on track, not to replace them” – Ben Eade, chief executive, Manufacturing Australia.
“Today manufacturers in Australia pay, on average, 150 per cent more for gas and 175 per cent more for electricity than they did a decade ago” – Ben Eade.
“If manufacturing is really important to Australia, there is no doubt that the lowest cost option to the economy is to provide a government subsidy to those C&I customers who truly need it” – Mark Samter, MST Marquee analyst.
Departing British prime minister Theresa May, in her final big speech, has pointed to an issue that is as pertinent for Australia as it is for Britain (and elsewhere in western democracies). She declared: “Today, an inability to combine principles with pragmatism and make a compromise when required seems to have driven our whole political discourse down the wrong path. It has led to what is, in effect, a form of ‘absolutism’ – one which believes that if you simply assert your view loud enough and long enough you will get your way in the end. Or that mobilizing your faction is more important than bringing others with you. This is coarsening our public debate. Some are losing the ability to disagree without demeaning the views of others.”
Paula Conboy, who is soon to step down as chair of the Australian Energy Regulator, has told energy companies to play by the rules set out in the national energy laws or be prepared to face the consequences.
Conboy says that “for the most part” companies do follow the rules “but there is room for improvement and companies that fail to comply should be held to account.”
The regulator, she adds, “will be coming down hard” on companies that breach the new rules designed to help people struggling to pay their bills.
Another AER focus, she says, is the requirement for companies to provide the market operator with accurate and timely information affecting power system security and the effective operation of the wholesale market.
Conboy told a conference that stronger powers and penalties to support AER’s compliance and enforcement role “couldn’t come soon enough.”
AGL Energy says its has spent $900 million on Loy Yang A power station in Victoria since acquiring it in 2012 “to ensure it remains reliable.”
The leading gentailer is now pushing to bring back the broken-down 550 megawatt LY unit two by mid-December, budgeting $57 million on repairs and upgrades.
The company’s efforts to play its part in averting southern States’ power shortfalls next summer include holding off plans to shut parts of its 52-years-old gas generator at Torrens Island in Adelaide. It also plans to open the new Barker Inlet gas plant in South Australia by the year’s end.
Another problem for Victorian generation emerged in July when Origin Energy’s Mortlake gas-fired peaking power station (which has a 292 MW capacity) lost one of its two units because an electrical fault led to an explosion. The company says the unit could be out of operation until December.
Meanwhile forward prices for electricity supply to Victoria in the peak summer demand period at the start of 2020 now stand at $151.50 per megawatt hour.
Shell’s global chief executive, Ben van Beurden, on a visit to Australia, has urged the federal government not to further intervene in east coast gas supply through a domestic reservation policy.
Van Beurden, speaking to journalists before meeting Prime Minister Scott Morrison, said existing arrangements are working – despite ongoing pressure on the government from manufacturers deeply unhappy with eastern Australia gas prices – and warned against major policy changes after companies have already made major investments.
Centre Alliance senator Rex Patrick, a key player in the government succeeding in passing its major tax cuts legislation after the May election, has told media a national reservation policy could be part of action to bring down domestic gas prices on the east coast.
Meanwhile consumers and policymakers are waiting on Shell to make a decision to develop Queensland’s Arrow gas resources, the largest undeveloped gas field on the east coast. The project is said to be capable of bringing 5,000 petajoules of gas to market over a quarter century. Arrow was acquired by Shell and PetroChina 10 years ago.
The upstream petroleum sector has hit back at assertions that high gas prices are the principal cause of high east coast power bills.
Responding to a widely-publicized report by the Institute for Energy Economics & Financial Analysis, Andrew McConville, CEO of the Australian Petroleum Production & Exploration Association, says: “Gas does not set the price of electricity in the NEM. There are many reasons why Australia has electricity affordability issues, including (the fact that) wholesale markets are too concentrated. Poorly-designed regulation and policy have added significant costs to electricity bills.”
McConville argues that, while prices for new gas contracts in eastern Australia have risen, the average price of the fuel across the national economy is now about 50 cents more (at $4.50 per MMBTU) than in 2014. Rising production costs and supply restrictions created by the impact of bans and moratoriums in the southern States are the cause of higher new supply charges, he says.
APPEA strenuously rejects IEEFA’s claim that Australian gas prices are substantially higher than those in South-East Assia. “This is nonsense,” McConville says. “Average gas prices here are among the lowest in the Asia-Pacific.”
The Australian Energy Market Operator has put a price tag of $370 million on transmission augmentation in western Victoria to support an estimated 6,000 megawatts of wind and solar development in the region by 2030.
The outlays would cover both upgrades to existing parts of the network and new transmission lines.
The head of AEMO’s system design and engineering office, Alex Wonhas, said the plan sought to make the most of existing infrastructure to support the development of variable renewable energy hubs in western Victoria.
Some 2,000 MW of wind and solar projects are under way in the region at present with another 3,000 MW of developments by 2025 on the cards.
Wonhas notes that the generation capacity of Victoria is now spreading away from the Latrobe Valley in to areas where the power grid is less developed.
Federal Energy Minister Angus Taylor has welcomed the AEMO announcement but criticized the Labor Victorian government for “throwing taxpayer dollars” at renewable energy “with no thought as to how they will properly connect in to the grid.”
Taylor says western Victoria is “experiencing an influx of wind and solar connections without sufficient planning by the Victorian government – the generation is being curtailed and stress is being put on the grid.” The situation may be exacerbated by development plans in the region, he adds. The federal government, he says, is “concerned that the reckless Andrews Labor government’s actions are hurting Victorian, Tasmanian and South Australian consumers and adding hundreds of millions of dollars in cost.”
Victorian Energy Minister Lily d’Ambrosio has told journalists in reaction to Taylor’s comments “we don’t shy away from the fact that our ambitious renewable energy targets will require changes and upgrades to the transmission network.”
Meanwhile Energy Networks Australia says the logical response to growing levels of renewable generation is to create a more connected grid system. Acting CEO Tamatha Smith says co-ordinated investment in transmission and interconnections between the east coast States will ensure that power from new generation can be shared across the NEM.
She says the priority for network businesses is to keep costs as low as possible as integration is pursued. “A more connected system is a more competitive system – this will put downward pressure on consumer power prices.”
Federal Minister for Energy & Emissions Reduction, Angus Taylor, hopped off his bike in the “pollie pedal” for charity in mid-July to tell a regional radio station that managing the “very, very high levels” of wind and solar power coming in to the NEM is “proving to be a significant challenge” that “we have got to get right.”
Taylor told the radio station: “We spend a lot of money dealing with our toughest day of the year (in terms of peak demand) and, if we can manage this better, we can reduce costs and improve reliability for everyone.”
Meanwhile the government’s Clean Energy Regulator, in a new reports, predicts that 40,000 gigawatt hours of renewable energy above 1997 levels will be generated in 2020, well above the RET target of 33,000 GWh. The CER reports that 3.5 gigawatts of renewable energy was installed in 2018 in addition to 1.5 GWh of rooftop solar.
According to a Green Energy Markets study, South Australia needs only another 1,300 megawatts of generation capacity to reach the Liberal government’s goal of meeting 100 per cent of State power supply from renewables by 2030 – but the State government says it has 10,000 MW of wind and solar developments “on the drawing board” to support its ambition for SA to be “an energy powerhouse.”
Energy Minister Dan van Holst Pellekaan cited the “unrivalled portfolio” of renewable energy projects in an Adelaide media interview in which he pressed the economic and environmental credentials of the Electranet proposal for a $1.5 billion interconnector between SA and New South Wales.
“Everything has its limits,” says Bob Brown, the former Australian Greens leader, whose opposition to a large Tasmanian wind farm intended to be part of the State’s “Battery of the Nation” project to supply renewable power to the mainland has drawn media attention.
Brown says the proposed $1.6 billion wind development on Robbins Island in northern Tasmania is “a step too far,” criticizing its scale, claimed impact on birds and disruption “through wild and scenic countryside” of a 170 kilometre transmission line.
“The world needs energy efficiency and renewable energy to replace fossil fuels,” he adds, “but the Robbins Island wind farm is an aileron too far.” He attacks the project also as “a huge resource extraction venture which will be lighting up no Tasmanian homes” and the developer, UPC Renewables, as “a profit-seeking multinational.”
More broadly, Brown says he is opposed to the “Battery of the Nation” concept because “it will not help the State and there are better solutions to meeting Australia’s energy needs, including energy efficiency.”
Tasmanian Energy Minister Guy Barnett accuses Brown of “breathtaking hypocrisy” in opposing the 1,000 MW project. “He and the Greens have campaigned for the shutdown of the entire Australian coal industry and demand we turn to renewables to deal with climate change.”
And the leader of the State Labor Party, Rebecca White, says the Robbins Island project “should be allowed to go through the normal planning processes without being attacked by Bob Brown,” declaring his views are “extreme.” Brown has retorted that “any form of industrial production has its limits.”
Current Australian Greens leader, Richard Di Natale, says “I will not tell Bob to shut up,” declaring “there might be very good reasons” why the Robbins Island development is inappropriate.
The Tasmanian Greens leader, Cassie O’Connor, says “of course we have concerns about the Robbins Island wind farm – it’s likely to impact on a wind range of threatened and endangered species as well as forest areas and private land.”
O’Connor added that there needs to be standards set to “mitigate negative outcomes and deliver any wind farm proposal the social licence it needs.”
In New South Wales, the State Planning & Environment department has referred a $200 million wind farm and associated transmission line proposal to the NSW Independent Planning Commission after declining to approve it.
The Crookwell development would hold 23 turbines, the third stage of a project with 40 turbines already built or being built. Residents in the area complain that there are already 296 wind turbines operating in Upper Lachlan shire, touted as “the wind farm capital of Australia” because of the strength of the resource. The State’s largest solar farm is also being proposed for the shire.
In Victoria, the State government is confronted by controversy over plans to develop three solar farms in the Goulburn Valley on land that is described as prime irrigation land that should be reserved for food production.
The Senate has initiated an Environment & Communications Legislation committee inquiry in to a proposal by the Greens for a law to ban the federal government from funding the refurbishment, building or purchase of coal-fired power stations. The committee is due to report on the inquiry, a reaction to the Morrison government’s “underwriting new generation investment” program, in December.
According to Greens MP Adam Bandt, who put a private member’s bill to the House of Representatives on the issue, it is “utter madness” to use public funds to support coal-fired power.
A cold front and strong winds that plagued the southern States in mid-July were good news for wind farm operators.
The front drove wind farm capacity in the NEM to a record 4,624 MW, according to the OpenNEM widget. This was 200 MW more than the record created by a similar front in May. The capacity available included 1,707 MW based in South Australia.
While wind power reached 12.6 per cent of power supply in the NEM in the week ending 14 July, the backbone of the market remained provided by fossil fuels – 64.3 per cent from coal-fired power stations in Victoria, New South Wales and Queensland plus 9.1 per cent from the market’s gas generation plants.
The Climate Change Authority, which is preparing another commentary on Australia’s carbon abatement challenge for the federal government, says in a consultation paper that most countries need to do more if the world is to meet the Paris Agreement goals. It asserts Australia must also position itself to meet more stringent targets.
The CCA is taking submissions on its new, self-imposed task until 23 August and aims to produce a paper by the year’s end.
Meanwhile the retiring Secretary of the Department of Prime Minister & Cabinet, Martin Parkinson, has said in media interviews that electricity and gas prices in Australia are higher than they need to be because of long-running ineffective climate change policy.
“Until the nation has a sensible set of policies that can be sustained in the long run,” Parkinson said, “Australians will continue paying too much for energy. Whatever you do, renewable energy target or anything else, they can be no cheaper than putting an explicit price on carbon.”
Australia’s upstream petroleum industry has hailed an International Energy Agency report declaring that international switching from coal to gas has saved some 500 million tonnes of carbon dioxide since 2010.
The Australian Petroleum Production & Exploration Association says this country’s LNG industry does not receive enough credit for “its important role in reducing global greenhouse gas emissions, particularly in Asian nations.”
APPEA cites federal government estimates that Australian LNG exports are cutting emissions in customer nations by 148 million tonnes, “equivalent to more than a quarter of our domestic emissions.”
The IEA report says the global power sector can cut CO2 emissions by 1.2 gigatonnes by switching from coal-fired generation to existing gas-fuelled power stations where prices and regulation support the move. This would be enough, the agency says, to bring global emissions back to where they were in 2013.
The Public Interest Advocacy Centre is arguing that the “landmark” draft decision by the Australian Energy Market Commission to introduce a wholesale demand response mechanism in the NEM, while a “big win” for consumers, doesn’t go far enough – because the proposal is restricted to commercial and industrial users.
This restriction, PIAC says, is also a big win for retailers, “who have fought to retain control of the demand response market.”
The AEMC decision, the centre comments, means that, while all consumers will see benefits from falling wholesale energy prices, only large-scale users will be able to be paid directly to cut consumption.
Research, says PIAC, shows that a large number of households would be prepared to lower usage at peak times if they had a financial incentive to do so.
In NSW at present, the centre points out, only one of 23 retailers offers demand response to residential customers – “so, even if a household is aware of demand response, they are unlikely to find a retailer willing to do it.”
PIAC notes that the AEMC’s reason for preserving the status quo is that new consumer protection arrangements need to be established before demand response service providers can be allowed to operate in the household market – but, it argues, existing consumer law already provides the protection needed.
Most of the residential protection issues, it says, “can be resolved easily” and the there should not be a delay in delivering benefits from the step to all users.
“A blanket exclusion to households accessing demand response is unnecessary. It excludes people who need it most. In the coming months the AEMC should develop a plan to make this good reform a great reform.
The Australian Industry Group points out that the demand response rule change now proposed by the AEMC – and scheduled for introduction in July 2022 – was “all but agreed by the CoAG Energy Council in 2012 but by 2015 had fizzled out.”
AiG chief executive Innes Willox says the new proposal “could be a win for all energy users.” He sees the move as having the potential to “shake up the electricity market and turbocharge” energy users working with third party aggregators.
A report released in late July highlights the challenges continuing to affect the household power supply system in a fast-changing environment as well as the benefits of getting things right.
The “energy reform blueprint” published jointly by the Australian Energy Market Operator and Energy Networks Australia deals with the integration of customer solar, battery and controllable devices in to the east coast grid safely, reliably and at lowest cost.
ENA chief executive Andrew Dillon says the grid is not built to deal with large amounts of reverse electricity flows – but getting the integration right can “deliver more than $1 billion in benefits to customers by 2030.” Australia’s world-leading investment in rooftop solar power “creates both significant problems and great opportunities,” he adds.
AEMO’s chief executive, Audrey Zibelman, says the market operator “can see a future where customers’ controllable devices will have a marketplace to supply not just energy but system and network services that reduce overall costs and help maintain system security.”
The federal government is keen to talk up the future of a hydrogen industry in Australia.
Resources Minister Matt Canavan, commenting on the release of nine discussion papers as part of the CoAG Energy Council national hydrogen strategy project, has declared the industry has “significant potential” for Australia.
“The development of our hydrogen resources,” he says, “will create new Australian jobs and an export industry valued in billions. Key export markets such as Japan and Korea are shifting their energy consumption towards hydrogen and we need to be ready to grasp the opportunity.”
Energy Minister Angus Taylor says the government has invested more than $100 million in supporting hydrogen projects across Australia. “Hydrogen is uniquely placed to provide reliable power through storage and transport of energy,” he says.
In Victoria, construction has begun on a $500 million project testing the conversion of brown coal to hydrogen for liquefaction and export to Japan. Canavan says it is “crucial towards making the vision a reality.”
At the launch of the development, federal Trade Minister Simon Birmingham said: “This pilot project is the first step in creating a commercial-scale hydrogen supply chain which could lead to billions of dollars in export earnings and help Japan meet its strategic energy targets for 2030 and beyond. There is no doubt Australia is uniquely placed to become a hydrogen powerhouse.”
The Latrobe Valley project is scheduled for completion by next July.
Chief Scientist Alan Finkel, who sparked the CoAG initiative, says Australia is well placed to produce and export hydrogen at scale due to its abundance of wind, solar and fossil fuels as well as its proximity to Asian markets that could be major importers. “This not something that can happen overnight,” he cautions.
A recent paper published by the International Energy Agency notes that there have been false starts for hydrogen as a major energy fuel in the past. This time could be different, the agency says, because global efforts to reduce carbon emissions will outlast fluctuations in commodity prices for conventional fuels.
“Planning for New South Wales’ energy future is critical,” says the chairman of a State parliamentary committee embarking on an inquiry in to resources issues.
“We must take a holistic approach to energy,” says Alex Greenwich, the independent MP who chairs the NSW Legislative Assembly’s environment and planning committee, now looking at sustainability of energy supply and resources in Australia’s largest regional market.
Top of the list for the committee’s inquiry is “the capacity and economic opportunities of renewable energy” along with “emerging trends in energy supply and exports.”
Meanwhile a NSW Legislative Council committee is undertaking an inquiry in to nuclear power issues.
One of the first submissions it has received is from SMR Nuclear Technology, a Sydney company, that begins by warning “it would be suicidal” for the State economy to close down the NSW coal-fired fleet prematurely – and then goes on to propose that small modular reactors can be a game-changer over the next 30 years as obsolete generation is replaced.
The company says that SMRs of between 60 and 720 megawatts “would be particularly suitable for the NSW system” with features that enables them to work effectively with variable renewables.
Tony Irwin, technical director of the company, adds “modern SMRS could be the lowest-cost generation available in Australia because of their contribution to power system reliability.With the legislation banning nuclear energy in Australia repealed, he says, “it should be feasible (for NSW) to develop an initial 360 MW SMR generator by 2030 and up to 3,000 MW by 2040.”
Irwin argues that electricity infrastructure is arguably more valuable to the State than transport infrastructure because of its flow-on benefits to the rest of the economy.
In Canberra, the Australian Greens are pushing for a reinforcement of the long-standing legislative ban on nuclear power.
However, Kevin Scarce, a former South Australian governor who chaired an SA royal commission on the nuclear fuel cycle, has told The Australian that there is a need for a “mature and bipartisan national discussion” about the industry. Scarce, now chancellor of Adelaide University, said it is possible nuclear power could provide more reliable and affordable baseload power than renewables with zero emissions. “We have to find a way to restart the discussion,” he said.
Whatever the federal government’s reasons for delaying holding a meeting of the CoAG Energy Council, they are wrong-headed and the Prime Minister should take personal responsibility for seeing a schedule is established for 2019-20 financial year that ensures the group meets on pre-determined dates, not those that suit the convenience, or whim, of his Energy Minister.
Is there anywhere else in the responsibilities of the national government where leadership is more required than in dealing with the electricity and gas problems, given the number of Australians affected by them and the threat they pose to the economy? If the answer to this is “No,” then why is Scott Morrison turning an apparent blind eye to the Energy Council being sidelined?
In the circumstances of ongoing energy policy disarray, and given the importance of the issue to consumers and the economy as a whole, it is quite surprising that this point even has to be made.
As others have said, the utility of the east coast electricity sector has deteriorated markedly through the first two decades of this century on the watch of the Howard, Rudd, Gillard, Abbott and Turnbull regimes. The collective end result is both deep concerns now about the security and reliability of the NEM and a significant change in eastern Australia’s supply costs on a comparative international basis – an issue of major concern for this country’s industrial base.
This strongly suggests that the Energy Council should be right on the reform case all the time, not in fits and starts – and the fact that various NEM bodies are continuing their reform/transition tasks does not excuse the umbrella body from its over-arching governance role.
The situation is made worse by the State and Territory members of the council apparently being entirely willing to meet on a regular basis but the federal government, which chairs the entity, is not.
The chair of the Energy Security Board, Kerry Schott, summed up concerns clearly when she said in mid-July “we do need to have these meetings regularly and, given there is so much change going on, we need to meet more frequently than normal.” There is, she said, “an urgent need for progress.”
To which the Australian Financial Review added in an editorial about resurrected concerns over the risk of summer blackouts and higher prices: “This reality is now uncorking tensions that have been bubbling away behind closed doors ever since the collapse of the national energy guarantee.”
The newspaper asserted that the sentiment in the energy industry is that the federal minister is avoiding a meeting “because he doesn’t want to talk about the elephant in the room: an emissions reduction target.”
Put plainly, the current Energy Council meeting imbroglio is a dereliction of the re-elected Morrison government’s duties and it should be loudly called out in the public debate.
Politicians, as we all know, are driven by politics – and the politics here are that the media portrayal of the Prime Morrison following his quite surprising success in the federal election (“Gone from accidental PM to homespun hero,” declared the ABC) will not carry over in to a return of the “energy crisis” declared by his predecessor if NEM security and affordability go back to one of the top issues for the country next summer and the government is seen to have failed to do its utmost to avoid this happening.
As the Energy Users Association says, large consumers are “very concerned not only around the strength of the system but about what energy prices will do in during summer.”
The election, to quote the ABC again, has given Morrison “once-in-a-generation authority.”
In the energy space, he apparently needs reminding that, despite how badly the issue tripped up Malcolm Turnbull, he should be exercising such authority now in the national interest.
27 July 2019