Issue 80, December 2011



Welcome to the final issue of this newsletter for 2011, a year in which, many things grabbed attention in electricity supply and energy policy. Reflecting this, readership of the Coolibah website, which includes this monthly newsletter and the This is Power blog, has doubled over the year, averaging 326 unique page views a day by end-November (9,786 for the past month). To all of you, best wishes for Christmas and New Year – a year that will be etched in local energy history for the introduction of a charge on carbon. And here is an easy prediction: like 2009, 2010 and 2011, the year ahead will feature growing concern about rising power prices! A second easy prediction is that the electricity sector in 2012 will continue to be subjected to some of the world’s most detailed regulatory scrutiny.

Long life coal

The federal government’s Bureau of Resources & Energy Economics forecasts that black coal generators will still be contributing 114,000 gigawatt hours a year to Australia’s electricity needs a quarter century from now, only 15,000 GWh below where it is today despite the huge “clean energy future” costs.

The latest BREE energy review, released in mid-December, sees electricity generation reaching 348,000 GWh in 2034-35 compared with 245,000 GWh at present, reflecting a belief that the combination of carbon charges and higher power bills will serve to depress demand growth significantly.

Its modelling shows that brown coal will still be providing 20,000 GWh a year and that gas-fired generation’s share will soar from 40,000 GWh now to 126,000 GWh in 2034-35.

This means that fossil fuels will account for three-quarters of electricity supply after more than 23 years of carbon charges, emissions trading and  subsidies for renewable energy.

These statistics reinforce the view of the federal government’s draft energy white paper, published on 13 December, that under a moderate carbon price scenario few existing generators will be forced out of the market, although the measure may hasten the retirement of some marginal plants.

BREE foresees hydro-electric generation providing a steady 13,000 GWh annually over the long time while wind power soars from 4,000 GWh today to 49,000 GWh in 2034-35.  The agency predicts solar power will supply 5,000 GWh a year and geothermal energy 13,000 GWh a year.

Despite all the hype about the golden future for solar, BREE believes that the resource will provide no more electric energy 25 years from now than oil-fired  plants, which are seen to contribute a consistent 5,000 GWh annually over the whole forecast period.

Nuclear option

The federal government has re-opened debate on nuclear power use in Australia.

As Greens deputy leader Christine Milne declaimed that the draft energy white paper put her party on a “collision course” with the Gillard government, national media started to run with the comments of Resources & Minister Martin Ferguson on possible use of reactors.

The white paper, in essence, notes that nuclear energy might have to be considered for Australia if low- and zero-emission technologies prove not to be cost-effective.

Ferguson says “If, some years in the future, we haven’t made the necessary break-through on clean energy at low cost, then nuclear is there for Australia to buy off the shelf.”

The Minerals Council of Australia has welcomed the white paper, including its recognition of the value of the coal and uranium industries, as a “sound basis for a much-needed national debate about the future of energy policy.”

Powerful blow

The federal government has dealt a blow to the Labor Party’s largest State branch by strongly embracing privatisation of taxpaper-owned assets – something the New South Wales ALP vehemently opposes – in the draft energy white paper published in mid-December.

The language of the paper appears to be a straightforward repudiation of the stance the State ALP has taken against the O”Farrell government’s decision to sell Macquarie Generation, Delta Electricity and Eraring Energy.

The Federal Government, of course, is a minority shareholder in Snowy Hydro, with the NSW and Victorian governments owning most of the business.

The white paper says the Gillard government supports “the fundamental role of the market in delivering Australia’s energy future.”  It adds: “In this context, all levels of government must seize the opportunity to set a clearer path for better-functioning energy markets.”

The first of the critical reform issues the paper identifies to deliver this path is privatising government-owned energy assets.

“Continued government ownership of energy businesses is impeding greater competition and efficiency and reducing market confidence by creating uncertainty and risk for private sector investors.’

The NSW ALP, crushed at the State election in March after it had embraced a part-privatisation process, including the notorious “gen-trader” sales and the disposal of network business energy retail businesses, has been vociferous in claiming that the sale of the generators will lead to higher power prices, a nonsensical assertion in the way it is presented as yet unchallenged by the mainstream media political commentators.

Barry O’Farrell has yet to express a view on the future of Snowy Hydro, which analysts estimate to be worth $5 billion with Macquarie Generation said to be worth $6 billion, but he has confirmed that his government will not sell the four network businesses – claimed by the market to be worth at least $20 billion and possibly as much as $28 billion.

Regular reviews

In launching the draft federal energy white paper, Resources & Energy Minister Martin Ferguson is proposing that a strategic review of policy be undertaken every four years supported by a national energy security review every two years.

Ferguson says Australia will need “massive investments” in electricity and gas infrastructure over the next two decades – about $240 billion in generation, transmission and distribution.

The white paper notes that an investigation of potential investment undertaken for the government indicates that some $24 billion will need to be spent on transmission between now and 2030 plus up to $120 billion in distribution business outlays.

The federal government will take submissions on the draft white paper until 16 March and aims to deliver a final policy paper in mid-2012.

Ferguson says the government recognises the need for greater consumer engagement to improve understanding of energy investment and end-user price drivers and lead to better consumption decisions.

He notes that Australia will require investment of some $240 billion over two decades in the electricity and domestic gas sectors.

Testing benchmarking

The federal government has launched a Productivity Commission review of benchmarking power network systems in an effort to pursue reductions in the cost of electricity supply.

Martin Ferguson says that a particular challenge for the power sector is the need for significant investment to replace and upgrade ageing assets to meet growing levels of demand reliability and to facilitate the transition towards lower-emitting generation technologies.

Ferguson says it is critical to ensure that network regulatory frameworks deliver efficient and reliable outcomes for consumers.

An important part of the Productivity Commission review, which will start in January and is required to report by March 2013, will be an examination of whether efficient transmission interconnectors are being delivered on the east coast.

The review will be undertaken when the Australian Energy Commission is already examining transmission development rules and the Australian Energy Regulator’s powers for determining capital works outlays by network businesses.

Going up

The Standing Council of Energy & Resources, the new name for the CoAG committee of energy ministers, has emerged from its first meeting brandishing an Australian Energy Market Commission forecast that residential electricity prices will rise by 37 per cent nationally between 2010-11 and 2013-14.

Residential consumption accounts for 29 per cent of electricity demand in Australia, most of the balance being used by the commercial, manufacturing and mining sectors.

AEMC says prices would rise about 29 per cent without the carbon charge to be imposed from next July.

This equates to a $66 per megawatt hour increase in residential power bills – with households averaging between five and 10 MWh consumption across the country, depending on location and climate.

AEMC says the increasing cost of distribution network services will contribute 42 per cent of the rise.  Higher transmission service charges will contribute a further eight per cent of the rise.

Changes in the generation mix, increasing gas prices and higher capital costs for power station operators will contribute to a rise in wholesale power prices, projected to comprise 24 per cent of the foreshadowed hike in bills.

Higher energy retailer charges will add a further 13 per cent to bills.

The balance of higher bills is attributable to renewable energy subsidies, State and federal.

AEMC adds that, when the carbon charge is factored in, the wholesale energy element of price rises increases to 40 per cent.

Renewables impact

The AEMC report says a price on carbon will facilitate the entry of new renewable generation in to the electricity markets, enabling investors to recover a greater proportion of their costs and placing counter-veiling downward pressure on the large-scale renewable energy target compliance costs for retailers.

“On the other hand,” it says, “the costs associated with compliance with the (federal) small-scale renewable energy system are likely to be higher under a carbon price. This is due to the SRES being untargeted, with retailers being obliged to buy all certificates created in a reporting year.


Highest in SA

The AEMC report predicts that South Australian householders will be paying the highest residential prices by 2013-14.

The commission’s modelling suggests that end-user charges will reach $314.70 per MWh in South Australia and $302.70 in New South Wales.

The highest-paying States today are Victoria ($228.60/MWh) and NSW ($227.50).

AEMC’s forecast sees end-user prices averaging $290.10 across Australia in 2013-14, ranging from $204.70 in the ACT to $288.70 in Victoria, $294.30 in Western Australia, $261.20 in the Northern Territory, $273.60 in Queensland and $248.20 in Tasmania.

In percentage terms, it lists the biggest increase in prices as 33 per cent in NSW followed by  32.2 in Queensland, 31.2  in SA, 26.4 in the ACT, 26.3 in Victoria, 22.6 in WA, 19.6 in Tasmania and 9.9 in the Northern Territory.

Government-owned distribution businesses will lead the network charge increases, featuring a 58.2 per cent rise in WA, 51.9 per cent in Queensland and 45.7 per cent in NSW.

Cost of ageing

The AEMC highlights the impact of replacing ageing network assets in its report.

The commission says the proportion of capital expenditure to be spent on replacing worn-out infrastructure will range between 20 and 35 per cent for most networks over the next three to four years.

“However,” it points out, “for some networks, such as Ausgrid’s (the largest in Australia), capital expenditure for replacement of assets will be far higher and comprise almost half of forecast capex over the next two years.”

Examining reliability

As part of a raft of inquiries into electricity network operations, the Australian Energy Market Commission is examining reliability-related expenditure for government-owned distribution businesses in New South Wales.

The review was initiated by the former CoAG Ministerial Council of Energy with the agreement of the NSW government.

In its issues paper, the AEMC notes that the three NSW government-owned distributors – now called Ausgrid, Endeavour Energy and Essential Energy since their original names and retail businesses were sold by the Keneally government – are pursuing $14.38 billion worth of capital outlays between 2009 and 2015.

Distribution reliability requirements imposed by past NSW governments are one of the key factors driving this level of investment.

Strongest growth

A review chaired by consultant Darryl Somerville for the Queensland government says the State is expected to maintain the strongest electricity demand growth on the east coast.

Somerville, who also chaired a review undertaken by the State’s Beattie government in 2004, says that Queensland’s peak demand is expected to average 500MW annually over the next decade – compared with a total annual growth on the rest of the east coast of another 610MW.

“Demand is one of the key drivers of capital expenditure,” says the review committee, “particularly as increasing the capacity of the network must be done ahead of time to ensure that peak demand can be met.”

The panel points out that Queensland electricity consumption is expected to grow at an annual average rate of 4.1 per cent between now and 2020-21.

It urges caution in assuming that the recent slowdown in demand “gives reason to temper forecasts” – especially for peak demand – citing recent milder weather conditions.

“Network expenditure will continue to be driven by peak demand and there is every indication that peak growth will remain strong.

It also notes that tranmission business Powerlink Queensland is fielding inquiries about a total generation capacity increase of 3,900MW – of which 1,600MW is associated with the giant LNG export developments and 1,600MW with the growth of the State’s mining industry.

More than $12 billion has been invested in network development in Queensland since the first Somerville report called for a strengthening of upgrading to overcome blackouts plaguing the State’s south-east. The new review finds that network reliability has been improved 40 per cent by the investments.

However, the panel has suggested that the distribution businesses could ease up on the current development program, identifying about $1.5 billion in outlays that can be delayed.

Capex bid slashed

In its first major network review since calling for the determination rules to be amended substantially, the Australian Energy Regulator has proposed a large cut to Powerlink Queensland’s proposed capital outlays from 2012 to 2017 and a reduction in its planned operational expenditure.

The AER says it is relying on independent analysis which asserts that peak demand in Queensland during the capex period will be about 10 per cent lower than estimated by Powerlink.

It rejects the Powerlink estimate as “unrealistic” and accuses the government-owned business of “consistently over-forecasting demand,” an assertion leapt on by Brisbane media.

While acknowledging that 76 per cent of Queensland homes now have air-conditioning, the regulator points to “declining air conditioner growth against a backdrop of lower summer temperatures” as grounds for a lower peak power growth trajectory.

The AER claims Powerlinkl could have deferred $700 million in capex over the current regulatory period.

The AER says electricity consumption and peak demand growth in the east coast market has been falling since 2007-08. “Our examination of the long-term trend in Queensland energy consumption suggests a changing relationship between energy and drivers may have occurred during the past 10 years and that this may continue in the future.”

The regulator proposes – it is a draft determination with a final decision to be made in the second quarter of next year – to reduce the Powerlink capex bid by $1,128 million down to $2,360 million, a reduction of 32 per cent.

Half the proposed reduction relates to work driven by power demand.

In a move that will alarm all network businesses across eastern Australia, the regulator has also rejected a Powerlink proposal of 10.3 per cent for the weighted average cost of capital, replacing it withone of 8.31 per cent.

Powerlink Queensland chief executive Merryn York says the business has “significant concerns” about the AER’s findings and in the second stage of the review will urge the regulator to recognise that the State is “on the edge of unprecedented expansion.”

She says the Powerlink plans are “essential to maintaining reliable supply to more than two million customers and to underpinning State economic development.”

NEMLink ‘not probable’

In bringing down its draft determination on Powerlink Queensland’s capital works program, the Australian Energy regulator has poured cold water on the prospects of NEMLink, the major congestion-removing augmentation of the east coast transmission system proposed by the Australian Energy Market Operator.

“The AER does not accept that the NEMLink project is probable in the next regulatory control period and therefore has not accepted (it) as a contingent project” for Powerlink planning purposes.

The Queensland transmission business wants to earmark $140 million for its share of the initial steps to development NEMLink, which is estimated to cost more than $8 billion in total and to need almost a decade to build

Outrunning CPI

The Energy Users Association says the year to September saw consumer electricity prices rise by 10 to more than 20 per cent in most capital cities. For manufacturing, adds EUAA, power bills rose by 10 per cent nationally with gas prices going up by 6.3 per cent.

The lobby group for major industrial energy consumers points out that the increases far exceeded CPI rises for 2011 – which ranged between 2.8 per cent in Perth, 3.6 per cent in Melbourne and Sydney and four per cent in Adelaide. The national CPI increase was 3.5 per cent.

EUAA describes the level of electricity price rises as “a major concern,” pointing out that this is the third year in a row they have gone up. Nationally, power bills have risen by 24 per cent in three years, it adds.

The association complains that federal and State renewable energy policies are a major contributor to price rises, arguing they “probably” account for a third of the increases.

EUAA argues with the federal government modelling of the incoming carbon price – pointing to Deloitte Access Economics modelling it commissioned showing that the measure will drive up wholesale power costs by as much as $51 per MWh by 2020.

Butting heads

Government anxiety about the clashes between rural communities, aided and abetted by the environmental movement anf fuelled by strident media coverage,and the coal seam gas industry is reflected in the Standing Council on Energy Resources communique on its first meeting.

“Despite the extensive regulation of the sector,” says the SCER communique, “and the community’s growing dependence on gas within Australia’s energy mix, there is mounting public concern about the safety and environmental impacts of coal seam gas.”

It says governments are responding by strengthening regulatory frameworks for unconventional gas and “significantly enhancing community engagement processes.”

The energy ministers promise more work will be done by governments and industry to respond to “genuine community concerns” regarding co-existence, management of water systems, chemicals use, well integrity and hydraulic fracturing and rehabilitation.

Coal seams gas, the ministers point out, is important because it already provides 32 per cent of the eastern States’ domestic gas needs, is assisting in containing power prices is a carbon-constrained economy and is a substantial proposed source of export income as well as domestic employment.

Hammering ABC

The upstream petroleum industry is pursuing the ABC with vigor over its “data journalism” website entitled “Coal Seam Gas: By the Numbers,” claiming it has identified 37 factual errors in the material published.

David Byers, chief executive of the Australian Petroleum Production & Exploration Association, argues that, while some errors are “simply due to carelessness,” others “display a bias that misleads and misinforms the ABC audience.”

APPEA’s list of faults on the website includes the ABC wrongly attributing carbon emissions from the nickel, coal and steel industries and the railways to the CSG sector, running salt production figures three times the industry’s estimate, incorrectly locating wells (including one in the middle of a river), repeated “improper” use of the word “toxic,” and identifying Roma as being “located on prime agricultural land on Queensland’s Darling Downs” when it is neither on the Downs nor the centre of prime farming country.

Byers accuses the ABC of a “persistent pattern of bias by ignoring facts that place the CSG industry in a good light.”

Twice the price

Gas prices in Western Australia are now two to three times as high as they are in Victoria or the United States, according to the DomGas Alliance.

The Perth-based major users lobby group says WA prices have risen from $2.50 a gigajoule in 2005 to average between $7 and $8 and have reached as high as $10 and $12/GJ.

Gas consumption in the West is running at 354 million gigajoules a year, delivering an annual bill $2.8 billion at $8/GJ.  If the price rises to above $10, says the DomGas Alliance, the collective annual bill will exceed $4 billion.

It claims that there is little evidence the sharply rising gas prices in WA are due to increased producer costs. It cites the Woodside annual report as showing that gas lifting costs (the charges for extracting gas and delivering it to a processing plant) were 55 cents per GJ in 2010.

DomGas Alliance rejects upstream petroleum industry arguments that the State government’s policy on domestic gas reservation will deter exploration and investment in WA. Exploration outlays have increased significantly since the policy was announced in 2006, it says.

DomGas Alliance says that there has been more short-term gas trading in the State in the recent past as well as more market participants and enhanced gas transport and storage capacity. Despite this, it claims, WA “still faces a significant domestic gas shortfall and rising prices” unless the 15 per cent reservation policy is applied to all new LNG projects, the State enforces its rights under the North-West Shelf agreement to prioritise domestic supply over new export contracts and joint selling of domestic gas by the Gorgon and NWS partners ceases in 2015.

Chasing 20 per cent

The Clean Energy Council claims that Australia is “well on its way” to achieving the renewables energy target requiring 20 per cent of power consumption to be met by the sector’s generators by 2020.

CEC’s 2011 “Clean Energy Australia” report says renewable energy delivered 9.6 per cent of national electricity supply in the year to September.

While the council has talked up solar power in its media statement announcing the report, its review shows that solar generation contributed just 684.4 gigawatt hours of electricity in the 12 months period – compared with 19,685 GWh of hydro-electric output and 6,432 GWh of wind energy. Total renewable supply was 29,302 GWh.

CEC says that there are 10 renewable energy projects currently under construction with a total capacity of 1,073MW, all but 20MW being wind development.

It adds that a report produced for it this year by consultants Garrad Hassan estimates that 6,900MW of wind power power, involving between 2,000 and 2,500 turbines, will need to be built to deliver the 2020 RET.

Views of Durban

“Almost useless” is the perspective of German media commentators on this month’s United Nations talks on climate change policy in the South African seaport of Durban.

While Australian reporters covering the event sought in mid-December to see the bright side of the discussions – “Durban delivers on climate pact” was a typical local headline – and to accept Climate Change Minister Greg Combet’s view that the outcome validated the Gillard government decision to introduce carbon price,  it is instructive to go to a country at the heart of the European Union, the biggest supporter of decarbonisation and itself a flourishing haven for investment in renewable energy, for another perspective.

Most German journalists returning from Durban have argued that the best that can be said of the talks is that they kept the talking alive.

Typical of their comments is this view in the Frankfurt daily newspaper Frankfurter Allgemeine Zeitung: “The results are meagre. They have kept the sluggish process of negotiations alive. The agreement doesn’t look bad on paper, but it is watered down in the small print. It makes no mention of a legally binding agreement (to be negotiated by 2015). The talk is of an agreed outcome with legal force.”

Another newspaper, Suddeutsche Zeitung, commented: “Durban hasn’t solved any problems. It has merely offered the prospect of a solution.”

The business daily newspaper Handelsblatt added: “What has been decided in Durban is no more than one of the typical compromise formulas one gets at the end of negotiations organised by the UN. Anyone who believes that the formula of the agreement amounts to a future commitment by the US, China, India and other big emitters to cut emissions is naïve.”

Media commentary in a number of other countries, including Australia, that the Durban talks “saved” the Kyoto Treaty looked threadbare within 72 hours when Canada announced it would withdraw from the protocol because continuing would “force us to take radical and irresponsible choices.”

Meanwhile the influential environment writer of the New York Times, John M, Broder, has written that what was really in play at the Durban talks was politics reflecting the relations between the European Union, the US, Canada, Japan and the three rapidly rising economic powers, China, India and Brazil. These relations, he says, are driven in turn by each country’s (and the EU’s) domestic politics and the strains imposed on them by the global financial crisis.

He observes that the Durban conference has resisted American attempts to work towards a system where all countries are bound by the same rules.

The editors of the international Bloomberg news agency say the Durban debate “ended in what negotiators agreed to call a success.” However, they add, the promise (of a new global abatement approach to succeed the Kyoto Treaty) has uncertain legal force, the form of any new regime is unclear and the meeting failed to set any new binding targets.

Bloomberg’s editors argue that what is really needed is a framework that allows governments to build on efforts they are already making – and to extend, co-ordinate and accelerate these initiatives.

The Globe & Mail newspaper in Canada adds that China and India spent the conference fighting to avoid any legal limits on their fast-rising emissions – and they seem to have succeeded for the next decade at least.

“While politicians claimed the Durban deal as a victory,” the newspaper said, “the reality is that the agreement is riddled with loopholes, delays and uncertainties.”

All of this contrasts sharply with Combet’s media message on his return from Durban. The outcome of the talks, he said, was a “spectacular result – we now have a mandate to negotiate an agreement.”

His portfolio opponent, the Liberal Party’s Greg Hunt, retorted that the Durban deal  “is not a treaty or even an agreement for a treaty but an agreement for possible negotiation of an agreement.”

What will we pay?

The Durban UN conference is being portrayed as bolstering moves begun in Cancun in 2010 to set up a “Green Climate Fund” to channel $US100 billion a year in to “developing” nations to support abatement. However, negotiators have left for another day the precise arrangements for funding – which leaves the Gillard government some wriggle room about what it needs to spend at a time of federal budget problems. It has been suggested that Australia’s share of the initial funding to bring the GCF in to being could be $400 million and that this could rise to about $3 billion a year from 2020.

Last word

I have been trying to establish a top 10 list for domestic electricity developments this year.

Looking at the year slipping away from us, the first on a list, obviously, must be the passage of the Gillard government’s “clean energy future” legislation through federal parliament, although how much certainty this has delivered for investors is open to considerable doubt, given national politics and the indications of voter opposition.

An important adjunct to this has been the unwillingness of Treasurer Wayne Swan to be transparent and allow Treasury to release all the modelling information related to the costs of the carbon price and the government’s projections of future demand – which differ from outlooks published by other government agencies.

A particular problem is that the longer-term emissions trading policy depends so much on America and other large energy users (and emitters) embracing their own such carbon schemes.

While claiming to take heart from December’s UN climate policy summit in Durban, the Gillard government will know that it is now highly unlikely that it will be able to rely on a worldwide emissions trading scheme later this decade.

Second on my list is the Tamberlin report on the New South Wales electricity sector because of its influence on substantial changes in the biggest regional market in the country.

The subsequent O’Farrell government’s response – a decision to sell the remaining generation holdings and the Cobbora mine while retaining the network businesses for purely political reasons – highlights the report’s importance.

The federal government’s intervention late in the year through the long-awaited draft energy white paper (see above) to argue that privatisation of electricity assets is a “critical issue” is an important addition to this debate.

Third is the NSW Auditor-General’s review of the State’s “solar bonus” scheme, because it highlights just how poor policy and program governance can be. 

Is this a worst-possible example or an indicator of a poor standard of management that stretches beyond NSW – as evidenced by the Victorian Auditor-General’s review of the “smart meters” scheme in that State?

Fourth, because of its potential long-term impact, is the move by the Australian Energy Regulator to seek Australian Energy Market Commission approval for changes to the process through which it determines how much network service providers can spend on new infastructure and what they can charge end-users as a result.

The present process, which is permitting some $34 billion to be spent between 2009 and 2015 and which cut about $5 billion from what networks proposed spending, has come under attack from large consumers, Ross Garnaut and the new ACCC chairman, Rod Sims.

The dangers involved in suppressing necessary investment were highlighted in my “Remember Auckland” post on the This is Power blog in November.

Fifth, I think, should be the rising importance of retail power price problems, including political hints at action to interfere further in the market and ongoing retailer concern that failure to deregulate prices may end up causing market harm, continuous “shock jock” media coverage of the rises and a growth in warnings from ombudsmen and community organisations about the number of households suffering “fuel stress.”

The forecast in September by Port Jackson Partners that retail prices may double between 2011 and 2017 is a very big straw in this wind. The recent forecast that east coast gas prices for use in power generation could increase to $6 to $8 per gigajoule is another.

Sixth has to be the continuing drought in investment in new renewable energy projects, particularly wind farms, with warnings that it may be 2014-15 before the surplus of RET certificates created by solar subsidies is washed out of the market and that the 2020 target may not be reached.

Seventh, and related to the sixth item, is the unravelling of the CopperString concept for northern Queensland, which would have involved a very substantial federal government subsidy for transmission and, by extension, further subsidies for renewable energy. 

It stands as a signal that governments are a long way from resolving critical issues affecting transmission development on the east coast despite the “clean energy future” policies being dependent on this happening.

A simple decision by AGL Energy to build a new gas-fired power station to serve demand in the Mt Isa region at a fifth of the projected capital cost scuttled the much-hyped CopperString proposal to the chagrin of Bob Katter, Anna Bligh and Wayne Swan as well as the environmental movement.

Eighth, I believe, has to be the way in which the furore over coal seam gas development in Queensland and NSW rural areas has “gone viral” this year.

Most of the focus is on the possible impact of the situation on LNG projects, but failure to resolve the issue satisfactorily is also a threat to generation investment north of the Murray – which is the major demand area in all Australia and currently dominated by production from black coal-fuelled power stations.

A lot of the media coverage has been the usual “he said, they said” reporting that adds heat but little light – an honorable exception is the two-page special report on the issue by Angela Macdonald-Smith in the 19-20 November edition of The Australian Financial Review. 

At the other end of the spectrum is the creation by an ABC unit of the “Coal seam gas: by the numbers” site which is under assault from the upstream petroleum industry as an exercise in misinformation.

Ninth on my list is the Gillard government’s decision in June to commit $750 million towards construction of solar power stations at Moree (NSW) and Chinchilla (Queensland). 

In her announcement the Prime Minister talked of the “solar flagships” program making “industrial-scale solar power more feasible, affordable and viable” – but it is notable that the two consultants’ reports published by Treasury to support the “clean energy future” legislation perceive that solar will contribute only 0.9 per cent of generation capacity in 2030.

Australia is a very long way from resolving how, or even whether, to incorporate large-scale solar power in its electricity generation mix despite years of hype by proponents and politicians.

Tenth has to be the failure of the ZeroGen “clean coal” project in Queensland, which was put in to liquidation in October.

Set up by the State government to develop carbon capture and sequestration technology, its ultimate aim was establishment of a $4.3 billion power plant by 2015.

It is reported that the State government’s investment in the project ran to $108 million, with contributions of $43 million from the federal government and about $50 million from the coal industry.

While the collapse of the ZeroGen project is a distinct negative for “clean coal” proponents, they are quick to point out that there are 14 other projects around the world at present operating or under construction.

It is obvious from the Federal Treasury’s modelling for the “clean energy future” policies that the Gillard government is relying on CCS being available in a big way post-2030 and this raises questions about the current technology development programs that need more urgent attention in 2012.

Drawing up a list of domestic electricity developments for the year with a fortnight to go requires acknowledgement that there are events in train that could require a re-think before 2011 is finished.

One is the delivery of the Federal Government’s draft energy white paper in mid-December.  The final version, due some time next year, could be an important stepping stone – or not.

Meanwhile, when you consider the list, it has not been a particularly strong year for electricity supply and for generation investors in particular.

The “unprecedented uncertainty” that economist Jon Stanford and I wrote and talked about in 2010 has not dissipated.

Perhaps the most positive thing about 2011 – and it may turn out to be true of 2012 as well – is that the ongoing global economic crisis is serving to hold Australian electricity demand below the peak achieved in 2007-08.

The current near-hiatus in generation development would be a real problem if consumption growth was scooting ahead.

The problem, of course, is that a return to faster demand growth later this decade will highlight the fact that 2010 and 2011 have been lost years for strengthening power generation.

I considered including in the “top 10” list the emergence of a mindset that there has been a sea change in electricity consumption trends in Australia, a view pushed by the environmental movement and embraced by federal Treasury in its “clean energy future” modelling.

It may, however, take another couple of years to identify whether the change in demand trends is permanent or a blip.

Keith Orchison
13 December 2011

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