Coolibah Commentary

Issue 212, December 2022

Stakeholders in Australia’s electricity and gas supply sectors have lived in “interesting times” in 2022 and can go to their Christmas/New Year break certain only that the tumult can be expected to continue in to 2023 as the federal government enters summer apparently preparing to impose “temporary” price caps. Intervention, strongly opposed by coal and gas producers, seems inevitable – and who knows what the flow-on effects of that will be? For consumers in particular, the problem of affordability, a worry through most of the year now ending, can be expected to be still a headache. And the issue will continue to weigh heavily on the Albanese government, with Labor’s infamous federal election promise earlier this year of power price cuts proving to be an ongoing political albatross. As spring ended, energy suppliers warned the federal government there is no easy fix for the power bill problems and the Queensland government reinforced the point by shouting at Canberra over any attempt to cap domestic coal prices.


“Anthony Albanese knows that whatever lever he pulls to solve the energy crisis, there could be unintended consequences. It is now a case of the least-worst option for the government. Hence the delay in landing a solution and getting the relevant cabinet ministers to all agree” – The Australian newspaper’s political editor Simon Benson.

“No approach is straightforward or without negative consequences, so governments should carefully weigh their options when deciding whether or not to intervene in the market” – Sarah McNamara of the Australian Energy Council.

“Australians are going to be ‘doing it tough for a while’, the government has conceded, as the Prime Minister’s plan to ease soaring energy bills edges closer to being finalised” – The Australian newspaper, anticipating early December decisions.

“We are interested in a temporary, meaningful, responsible, sensible intervention in the energy market to help to take the sting out of some of these high energy prices” – Federal Treasurer Jim Chalmers.

“Increased energy prices are a huge pressure on Australian families and businesses. We are very focussed on making sure that the prices associated with energy for households (and) for businesses in Australia are brought down” – Deputy Prime Minister Richard Marles. “There is a sense across the country that action is needed.”

“Energy price increases are leading to a reduction in the real incomes of many people, with the most severely affected being lower income working households” – Federal Treasury in a submission to a Senate estimates committee hearing. “The increases are also significantly reducing the profits of many businesses and raising questions about their viability.”

“Reform is hard. Australians deserve an honest conversation on improving the operation, transparency and fairness of our energy markets, not glib mud-throwing” – Ian Davies, outgoing chairman of the Australian Petroleum Production & Exploration Association.

“Increased supply of gas and electricity in the domestic market would be helpful” – Philip Lowe, Reserve Bank governor.

“Our latest 10-year reliability forecast reiterates the urgent need to progress generation, storage and transmission developments to maintain a secure, reliable and affordable supply of electricity to homes and businesses.” – the Australian Energy Market Operator.

“Truly staggering” – Origin Energy CEO Frank Calabria on the task of pursuing the 2030 emissions target.

“The leading narrative in the international energy sector has shifted from a sole focus on net-zero goals to transforming the energy system to provide secure, affordable, and cleaner energy. That’s the energy trilemma that needs to be solved” -- BP’s chief executive Bernard Looney.  ”An energy system that works is an energy system that provides secure energy, affordable energy and cleaner energy.”

Hard road ahead

A new publication from the Australian Energy Regulator notes that east coast gas prices doubled in the September quarter compared with the same period last year and electricity charges reached their second highest level on record.

The report also underscores that the problem for consumers and governments (and therefore suppliers as politicians grow more frantic about the issue) will run on in to mid-decade.

In its latest wholesale markets quarterly review, the regulator warns that forward energy contracts “indicate high domestic prices will continue in to 2023 and 2024.”

This trend is politically dangerous for the Albanese government because it has to go back to the polls in the first half of 2025.

The AER report says the key drivers for continued high price expectations “are varied” but include expected high international gas and coal prices, uncertainty around reliability of baseload coal generation, local coal supply issues, forecast La Niña weather conditions and the closure of the final three units at Liddell power station on 1 April, tightening supply. 

The regulator also points to something of a drought in new generating and storage capacity. It says: “New capacity has slowed in 2022 and (this year) is expected to have the lowest volume of new entry in five years.”

It adds: “Looking forward, anticipated new entry in 2023 is not very high, especially if the planned completion of Kurri Kurri and Tallawarra B gas power stations are delayed.

“While at least six new batteries (totalling 700 megawatts) are anticipated next year, bringing system strength, solar-soaking and firming capacity, the last 1,500 MW of the Liddell station will close in April and Osborne gas power station (180MW) is expected to close in December.

“It is important to bear in mind that the capacity factor of Liddell is many times that of new wind and solar and, as such, its closure has impacted forward prices in NSW.”

Meanwhile, Frank Calabria, CEO of Origin Energy, has emphasized to a forum of the Committee for the Economic Development of Australia that rising power bills over the decade could “erode community support for the transition.”

Calabria told CEDA “delivering the energy transition, given the scale of investment required, will undoubtedly create upwards pressure on energy bills.” He also cautioned that the scale of coal generation retirements envisaged out to 2035 may require some shutdown timing decisions to be changed. “There may be a requirement to delay the exit of some of these units for as long as needed to maintain the security and reliability of the NEM,” he said.

Calabria pointed out that the market currently has three gigawatts of renewable capacity slated to come online. “We’ll need much more – 28 gigawatts by 2030.”

RBA view

Philip Lowe, governor of the Reserve Bank, sounded a sombre note about electricity supply late November in a talk to the Committee for the Economic Development of Australia.

“There is very significant investment in renewable energy around the world as we transition to green energy,” he told CEDA. “But, at the same time, the existing capital stock that is used to produce energy is depreciating quickly, through decommissioning or lower levels of sustaining investment. It is difficult to make predictions here, but it’s probable that the global capital stock that is used to produce energy will come under recurring pressure in the years ahead. If so, we could expect higher and more volatile energy prices during the transition to a more renewables-based energy supply.”

Lowe warned that the renewable energy transition, along with reverse globalisation, fewer working age people and more extreme climate shocks could coalesce to make inflation and interest rates more volatile.

Promoting nuclear

The Prime Minister needs to be better informed about new nuclear generation technology as efforts to set up a national debate on lifting Australia’s ban are growing, says Adi Paterson, the former CEO of the Australian Nuclear Science & Technology Organisation.

He has told Anthony Albanese in a letter obtained by The Australian newspaper that his government is not fully informed about the best science, engineering and economic information for small modular nuclear reactors.

The letter was revealed as a late-November two-day forum on nuclear energy was organised in Parliament House, Canberra, through the auspices of the federal Opposition.

Paterson wrote that “a growing number of engineers and scientists are deeply concerned about the current activities and plans for deep penetration of intermittent renewable sources in the eastern grid”.

The approach, he said, is “deeply flawed” and is locking in “near-term and future impacts” on industry, millions of consumers and essential public services.

In a Sky TV news interview during the forum, Paterson added that the nuclear debate in Australia “needs to move from fear to facts” and from “the fable about renewables” being able to replace existing baseload power.

“People are coming to the realisation that intermittent renewables are completely at odds with how we want to have our power,” he said.

Nationals MP David Gillespie, convenor of the Parliament House forum, has said in a newspaper op-ed that “it is a huge, complicated, expensive process when any grid is dominated by renewables and (it) introduces huge reliability risk and rising costs.”

Gillespie says he is growing confident that the Federal Opposition will adopt a nuclear energy policy.

A private member’s bill on the issue, sponsored by Nationals senator Matt Canavan, is currently before the Senate.

Professor Stephen Wilson of Queensland University told the Parliament House forum that, with a lot of preparation work starting now, small nuclear plants could be operating in Australia from the 2030s.

Meanwhile South Australian Premier Peter Malinauskas has said nuclear power “does have a role to play” globally in cutting carbon emissions but “it is not economically viable” for his State.

Malinsauskas has also warned against a “reckless transition” involving moving SA away from gas generation.

Blame game

An opinion poll published at the end of November indicates that voters are now almost as likely to blame the Albanese government for high, and rising, electricity prices as the defeated Coalition administration of Scott Morrison.

While 73 per cent of respondents to the poll now attribute blame to the incumbent government (versus 77 per cent to the Morrison government), only 24 per cent are prepared to support a view that no direct action should be taken on the issue for fear that it will increase debt and inflation and/or interfere with resource sector investment certainty.

The SEC Newgate Mood of the Nation monthly tracking survey also shows that 53 per cent of respondents think the power market transition to renewables is moving too slowly versus 17 per cent who believe it is going too fast.

The highest level of support for government intervention – 74 per cent – in the poll is given to price caps on bills for gas and electricity customers.

SEC Newgate says the survey indicates that one of the top community cost of living concerns is power prices.

Federal Treasurer Jim Chalmers has told journalists that the government will have more to say on the energy prices issue “by the end of the year.”

Speaking to an Australian Industry Group forum in late November, Chalmers said the government “will not allow high gas prices to hollow out the manufacturing sector.” But, he added, “finding a solution is complicated.”

Chalmers said: “The government is a reluctant intervenor but whatever we decide will be temporary, meaningful, worth the effort, sensible and responsible.”

‘Huge challenge’

The Australian Energy Council, lobby group for the country’s largest generators and energy retailers, says “a huge challenge” for governments considering intervention in wholesale markets is that consumer prices lag many months, if not years, behind wholesale spot and forward prices.

“Customers are only just starting to feel the effects of events that happened some time ago,” it declares in a website commentary.

The AEC adds that “gas, coal and electricity prices in Australia and across the world have taken a major correction downwards from historically high levels” in the past quarter, “a trend that could well continue.”

And it argues that “regardless of views on the merits of intervention, it seems the time for it is now behind us and the best thing now would be to wait and watch how this correction pans out.”

It says “certainly, the government should not take any irreversible decisions whilst markets are moving favourably.” 

‘Don’t retire too early’

One of Australia’s largest gentailers, CLP-owned EnergyAustralia, is warning governments against retiring fossil-fuelled power stations in the NEM too early.

Mark Collette, the company’s managing director, has told the Australian Financial Review in a late-November interview that renewable assets are not being installed fast enough to compensate for the loss of coal plants.

He is urging the adoption of closure contracts, which are currently being explored by the Energy Security Board, to ensure fossil-fuelled generation does not exit the market until sufficient new capacity is ready to replace it. (His company cut a deal with the Victorian government last year to keep its Yallourn brown coal station open until 2028; the financial arrangements have not been divulged.)

Collette is also calling for work to be accelerated on a controversial capacity mechanism for the NEM to reward infrastructure developers for maintaining fall-back services for the market.

Torrens closing

AGL Energy, which has been under siege this year from shareholder activists pursuing closure of its fossil-fuelled plants, has announced it will shut South Australia’s largest power station, the 600 megawatts Torrens B gas-fired plant, by 2026, citing development of a new transmission line between the State and New South Wales providing greater access to renewable energy.

The State government will pay the company $19.5 million to keep the plant maintained for another four years.

The energy market operator has had Torrens B in its integrated system plan as closing by 2035.

SA Energy Minister Tom Koutsantonis has assured the State’s consumers they will have access to “plenty” of power when Torrens closes through the long-existing link to Victoria and the new Energy Connect transmission line to New South Wales.

AGL points out that it has spent $475 million at Torrens island over the past four years – on the adjacent fast-start 210 MW Barker Inlet gas plant and on a 250 MW battery.

Rooftop solar

The Clean Energy Regulator says there are now 18,200 megawatts of rooftop solar installations across Australia – and estimates their annual use amounts to 24,000 gigawatts hours.

The regulator adds that there have been 3.3 million installations to date and claims that one in three suitable households is now using the technology, reinforcing Australia’s standing as having the world’s largest per capita deployment of PVs.

CER says the impact of the Covid pandemic and relatively cheap borrowing available to households helped a record 3,200 MW installation in 2021 – and it expects the total for 2022 will be 2,700 MW, driven in part by rising electricity bills despite loans becoming more expensive. There were 729 MW of small-scale solar units installed in the third quarter.

On present trends, the national installation total will be near 20,000 MW by the end of 2022, it estimates.

Queensland is the State with the largest number of small solar installations (some 907,000 at last count), followed by New South Wales (almost 825,000) and then Victoria (645,000).

The federal government’s energy statistics for calendar 2021 show that, across the country, small-scale solar photovoltaics had an estimated use of 20,223 gigawatt hours. Large-scale solar plants provided 10,971 GWh. Wind power delivered 26,796 GWh, hydro 16,182 GWh and bio-energy 3,344 GWh.

By comparison, black and brown coal generation sent 137,398 GWh to grids. Natural gas plants provided 47,631 GWh and diesel generation 4,707 GWh.

Boost smart meters

The Australian Energy Market Commission, the NEM rule-maker, is proposing pursuit of 100 per cent take up of smart meters by east coast households and businesses by the decade’s end – a move welcomed by the Energy Networks Australia, the distribution sector lobby group.

The proposal is now out for stakeholder comment.

AEMC chair Anna Collyer says the meter roll-out will support the energy transition, help build a “smarter grid” and enable consumers to better manage their power use. “The electricity market needs a critical mass of smart meters across households and businesses before we can introduce other significant advances necessary to reach net zero,” she asserts.

“You can’t run a smart system on the old, ‘dumb’ technology like traditional accumulation meters,” she adds.

The AEMC will publish a final report on the issue in the first half of next year.

Energy Networks Australia CEO Andrew Dillon says the current smart meter program “has not delivered for customers” and a new approach is needed.

Gas plea

The upstream petroleum industry has appealed to the victorious Victorian government to rethink its opposition to exploration for natural gas.

Responding to the State election outcome, Samantha McCulloch, CEO of the Australian Petroleum Production & Exploration Association, urged the Andrews government to bring on new gas supply in the face of impending shortages.

McCulloch said: “Victoria is facing significant energy challenges during this term: its population is a large user of gas but the State is not producing needed new supply and regulators forecast production to decline 43 per cent by 2025 – only three years away.

“The State is outsourcing its energy security to Queensland and South Australia. This is putting pressure on the east coast energy market and costing Victoria’s two million domestic and 65,000 business users at least an extra $2 a gigajoule whenever they need to transport gas from Queensland. With natural gas enabling about $107 billion of Victorian economic activity annually and employing almost 29,000 workers, the industry stands ready to invest if the policy settings are right.”

Last word

As the federal government’s main energy website says, Australia’s energy system is undergoing its greatest transformation since the 1950s, driven by economic, engineering and environmental factors – something Origin Energy CEO Frank Calabria describes as “a multi-decade, large-scale, global transformation that will fundamentally change every aspect of our energy system – the way we source, produce, supply, distribute and use energy.”

The core problem is that the process, as it has gained momentum here since the turn of the century, has become a political mess in most Commonwealth jurisdictions.

The seriousness of this was underlined in November by Calabria, who told the Committee for the Economic Development of Australia that “as each day passes, not only does the urgency and complexity of the challenge increase, so too does the cost.”

Calabria’s warning sparked an interesting reaction in a letter to the Australian Financial Review by engineer and commentator Phil Kreveld: “Ad hoc engineering in the south-eastern grid is the primary reason for uncontrolled costs,” he wrote. “AEMO’s integrated systems plan is not an engineering plan – it is a set of scenarios. An overarching, national engineering planning authority is overdue – and it’s high time the federal government set it up.”

This echoes a concern I frequently hear expressed by experienced people whose views I respect that it is well past time that management of the “transition” came out of the hands of populist politicians, wealthy activists and the whole messy gang with their hands on or near the levers of the east coast market before the momentum towards a really major crisis becomes unstoppable.

Some think this time may be already passed.

Reinforcement for “turbulence” in the energy transition process (but it seems to me to be now rather more serious than that) can be found in Calabria’s remarks at the CEDA forum.

The scale of change needed over the rest of this decade (because politicians have arbitrarily chosen 2030 as a target, I point out) is “truly staggering,” he said, noting that some $76 billion needs to be spent on new energy infrastructure and adding “this is about three per cent of GDP and, with inflationary pressures, many believe this to be a conservative estimate.”

In passing, the Weld Australia industry group says we will need 70,000 more welders to successfully pursue the 2030 renewables infrastructure building target.

Coming back to Calabria’s talk, he told CEDA: “I’ve often talked about what customers stand to gain from a future energy system more aligned to a 1.5-degree future. But right now those benefits feel out of reach and out of step with what many customers are experiencing.

“With 4.5 million customer accounts, Origin hears every day how customers large and small are managing their energy costs and many are concerned about the rising cost of living – not just energy prices, but mortgages and rent, fuel, groceries and a range of other household staples. 

“A future built on renewable energy with new technology such as electric vehicles, is something to look forward to. But delivering the energy transition, given the scale of investment required, will undoubtedly create upwards pressure on energy bills.”

The future politics of this should be scaring the pants off our political leaders, but this doesn’t seem to be the case for those in power today as they ride the populist path (not least Dan Andrews, whose activity in Victoria apparently has contributed to another victory at the polls).

Calabria’s plea is for an honest dialogue with the community that amounts to much more than virtue signalling, but this seems as remote at present as it did at the start of the decade.

As reported elsewhere in this newsletter, Adi Paterson, promoting the need to consider new nuclear technology in Australia’s power mix, has written to the Prime Minister to warn about today’s “transition” path.

Paterson said a growing number of engineers and scientists were “deeply concerned about the current activities and plans for deep penetration of intermittent renewable sources in the eastern grid.

“It is demonstrably true that successive federal and State governments have been badly advised in relation to our critical national infrastructure, that is deep reliance on non-dispatchable wind and solar. The near-term and future impact on millions of consumers, industry and essential public services is being locked in with this flawed approach.”

Unfortunately, this circus shows no sign of folding its tents.

Keith Orchison
30 November 2022