Issue 82, February 2012


Welcome to the second issue of Coolibah’s newsletter for 2012. This month federal parliament resumes amid rising tensions within the minority Labor government and uncertainty about when an election could be called and the fate of the carbon price policy. This issue includes comment on what the Coalition is saying about greenhouse gas abatement and questions its stance raises. This edition also reveals the outcome of an important international comparison of Australian distribution network performance.

Big on coal

Analysis of the new official energy forecast reveals a very uncomfortable point for the Gillard government as it continues to promote its “clean energy future” policies: Australia is set to burn more than a billion tonnes of black coal over the next quarter century to fuel existing power stations – in addition to consumption of brown coal.

The source of this outlook is the energy projections to 2034-35 published by the Bureau of Resources & Energy Economics in December.

BREE sees black coal providing 125,000 gigawatt hours a year of electricity generation in 2019-20 and 114,000 GWh annually in 2034-35. If domestic gas prices spike to high levels, it forecasts black coal generation will remain at its 2008-09 level (of 129,000 GWh) at the end of this decade and rise higher in the ‘Twenties and early ‘Thirties, reaching 137,000 GWh in 2034-35.

The Energy Supply Association yearbook reports that black coal consumption by power stations in New South Wales, Queensland and Western Australia stood at 54.84 million tonnes in 2009-10.

Sustained at around this level over a quarter century, it would account for cumulative consumption between now and 2034-35 of 1.37 billion tonnes – and this during a period when, using BREE data calculated in 2009-10 dollars, the Gillard government carbon price will move from $21.05 in 2012-13 to $29.40 in 2019-20, to $52.60 in 2029-30 and to $69.90 by 2034-35.

In addition, BREE forecasts that, while generation from brown coal plants should halve under a more moderate gas price scenario, high prices flowing from domestic costs rising to export parity, would see coal-fired output in Victoria and South Australia sustained at 53,000 GWh (the 2008-09 level) at the end of this decade and still at 40,000 GWh in 2034-35.

ESAA’s yearbook shows brown coal generators consume more than 70 million tonnes of the fuel a year at present.

The tendency of the federal government leadership to run its propaganda on numbers that support its “clean energy future” spin – it points to the proportion of coal-fired production in the generation mix declining from 74 per cent to 38 per cent over 25 years – serves to hide the actual requirement for coal as an essential element in Australia’s electricity supply security in the long term.

BREE expects electricity generation to grow by a cumulative 42 per cent over the quarter century to reach 348,000 GWh annually in 2034-35. It also expects renewable generation’s contribution to grow at six per cent annually, with wind power representing the majority of this increase, reaching 14 per cent of total supply in 2034-35.

The share of gas in generation is projected to rise to 36 per cent from 16 per cent at present, but BREE warns that, under assumed higher gas prices, this could fall back to just 22 per cent in 25 years’ time.

BREE points out that its projections imply the partial or full closure of some coal-fired capacity over the review period, but “there are a number of factors that may reduce the effect of the implementation of carbon pricing at least over the medium term.”

A critical element in the “clean energy future” Julia Gillard and her ministers, notably Treasurer Wayne Swan and Climate Change Minister Greg Combet, published last year was the introduction of carbon capture and storage for both coal and gas generators.

However, neither of the Treasury’s consultants nor BREE expect CCS to be available before 2030.

The Bureau says in its 2034-35 outlook that “some coal-fired generation with CCS may emerge by the end of the projection period.”

The agency predicts that geothermal plants will be delivering 14,000 GWh a year of electricity by 2034-35, with just 4,000 GWh coming from solar power and 4,000 GWh from bio-energy, each only a third of Australia’s longest-running renewable source, hydro-electricity, which is forecast to continue delivering about 13,000 GWh annually across the projection period.

BREE expects wind farms to be delivering 37,000 GWh annually in 2019-20 and 49,000 GWh in 2034-35.

The BREE report will provide an important backdrop to this year’s parliamentary debate on the Gillard government’s Clean Energy Finance Corporation, which the Coalition is pledged to ditch along with the carbon price when it wins office.

Coalition plans

The Leader of the Opposition, Tony Abbott, in his scene-setting speech for 2012 to the National Press Club at the start of February re-inforced the Liberal National support for reducing Australian emissions by 2020, but has left the way open to questions about how this will be achieved.

The federal government’s commitment to the five per cent target, initially made by Kevin Rudd and since reinforced by Julia Gillard, does not actually aim to achieve the necessary 160 million tonnes of abatement domestically – rather it pursues about 60Mt through local abatement and the rest through buying credits via the emissions trading scheme.

Almost half the actual domestic 2020 abatement  – about 28 million tonnes – is supposed to be achieved through the renewable energy target. The Gillard government’s $2 billion scheme to buy closure of old, emissions-intensive coal plants might deliver another 8Mt (say half of Hazelwood’s emissions).

The carbon tax and emissions trading is supposed to drive the rest of the commitment.

Tony Abbott has reconfirmed that a re-elected Coalition will abandon Labor’s carbon pricing policies, claiming doing so will save $31 billion in compensation outlays over the forward estimates.

He told the Press Club: “No-one should be fooled by Labor’s carbon tax, which is socialism masquerading as environmentalism and won’t actually start to reduce domestic emissions until the carbon tax is well over $100 per tonne. The best way to reduce emissions is to invest intelligently in the changes that cost-conscious enterprises are already making to become more energy efficient.

“That’s what our $10 billion emissions reduction fund is for: reducing emissions by five per cent by 2020 by re-inforcing what businesses are already doing.”

It’s a certainty that, as the political dramas of 2012 unfold and the country draws nearer a defining federal election, Abbott, environment spokesman Greg Hunt and the Coalition will be closely challenged over what abatement their policy will deliver when and at what cost.

What target?

There appears to be a major discrepancy in the 2020 greenhouse gas abatement targets undertaken by the Gillard government and the Coalition.

The government’s official position is to cut emissions by five per cent below 2000 levels in 2020.  The Coalition, as set out in an early December speech by the shadow environment minister, Greg Hunt, available on his website, is committed to delivering a five per cent cut below 1990 levels. Hunt appears to think that this is the same as the government’s commitment.

The 2000-base target requires abatement of 160Mt a year by 2020. The 1990-base goal will require vastly more.

Thinking big

Opposition environment spokesman Greg Hunt told the Australian Solar Energy Society in December that the Coalition will allocate $100 million to a solar town and solar schools initiative aimed at producing “a minimum of 25 new solar towns and 100 new solar schools.”  He said the Coalition would also outlay $50 million to create “at least 25 new geothermal and tidal towns.”

Rudd’s plans

If Kevin Rudd succeeds in over-turning Julia Gillard, he will not abandon the carbon tax or make an early rush to the polls, according to the Sydney Morning Herald’s political commentators. Returned to the  leadership, Rudd might amend the carbon policy to lessen its impact until other countries take effective action. As speculation about a challenge to Gillard’s leadership continues to mount, newspapers are talking about a caucus vote after the 24 March Queensland election and before federal parliament rises in May for the winter recess. A federal election held in 2012 could only be for the House of Representatives, requiring a half-Senate election in 2013 – unless the Coalition, if it won a Representatives poll, then sought a double dissolution next year.

Feeling the heat

After having to cope with a new record peak demand in late January, Western Australia’s electricity supply sector is in turmoil following the sudden departure of Western Power managing director Doug Aberle in the wake of publication of a WA Legislative Council committee report strongly criticising the utility’s management and also the State Auditor-General for failing to adequately audit the network’s performance.

Responding to the parliamentary committee’s criticisms before he brought forward his retirement, originally planned for later this year, Aberle said Western Power is now “unrecognisable from its 2006 incarnation” – when the State-owned electricity system was restructured – and the organisation’s chairman, Mark Barnaba, said safety performance had improved four-fold under Aberle’s leadership while customer complaints to the organisation had been halved.

The parliamentary committee was highly critical of Western Power’s management of its 600,000 wooden poles, but Aberle in a statement in January said the utility had spent $450 million on the poles in six years and had plans to outlay another $800 million over the next five years to replace or reinforce at least 164,000 poles.

Western Power is seeking regulatory approval for a capital outlay of $5.81 billion over five years from 1 July 2012 for its network serving 840,000 customers. This includes $1.22 billion on safety programs, $1.21 billion on sustaining reliability and $3.37 billion on meeting demand growth and better protecting its network against outages.

Max Trenorden, chairman of the Legislative Council committee, accused Western Power of failing to recognise the dire state of its wood poles system, claiming that this put public safety at risk.

WA Energy Minister Peter Collier described Aberle’s decision to retire as “courageous” and lauded him for tackling “enormous challenges” in modernising Western Power and securing a network that had been “neglected for far too long.”

Brattle review

American consultants The Brattle Group have been hired by the Australian Energy Market Commission to study electricity distribution regulatory practices in North America, Europe and New Zealand and to compare them with domestic rules as well as to recommend “best practices.”

The London office of the Cambridge, Massachusetts, company says high levels of reliability come at a cost and are reflected in power bills. The Australian regulators, it adds, are concerned to achieve the right trade-off between cost and reliability.

The Brattle study, the consultants say, finds that inclusion of a financial incentive mechanism aimed at reliability is perhaps the single most significant differentiator between regulatory approaches. “Distributors with the strongest financial incentives tend to comply more closely with reliability standards.”

The consultants, in a finding certain to stir further controversy here unless the qualifications are understood, having closely examined 14 jurisdictions in Australia and overseas, assert that, at a national level, this country has the lowest level of reliability of those studied.

This, Brattle add, is explained in part by low customer density and the challenging terrain and system topology in Australia.

“High costs and low levels of reliability in rural areas contrast with the performance in the country’s urban areas – where costs are lower and levels of reliability are generally as good or even better than realised by the most reliable European distributors.”

This finding resonates strongly with the counter-argument put by networks here when attacked over comparative performance by customer groups and their consultants.

The consultants add: “Australia’s unique situation is the primary determinant of what can be accomplished through regulation.

“Our analysis suggests that, whilst regulation may be able to influence the trade-offs distributors make between costs and reliability, the costs of low customer density distribution systems will remain high compared to more urban systems and the levels of reliability lower."

Brattle recommend that regulation of reliability in Australia should require distribution networks to provide detailed reporting on reliability performance, disaggregated so that trends and variations across a system can be assessed.

Performance targets should be set at “a reasonably aggregate level, considerably less detailed than that required under reporting.”

The consultants add: “Reliability performance standards should be set at realistic and achievable levels. (They) need to be set in a transparent and
predictable fashion.”

The ensuing structure should include bonuses and penalties.

Echoing concerns expressed by network executives in Australia, Brattle caution against regulators “becoming overly involved in distribution planning processes.”

End windfall gains

The national welfare agency Brotherhood of St Laurence is accusing power distribution businesses of over-investing in networks and then claiming all the costs back from consumers.

In a submission to the Australian Energy Market Commission, which is considering an application by the Australian Energy Regulator for determination rule changes, the Brotherhood says households on low incomes are being hardest hit by “dramatic increases” in electricity prices because they spend a bigger proportion of their income on power than other residential sectors.

Households in the bottom 20 per cent of incomes spend twice as much proportionately than those in the top 20 per cent, it claims.

Former Victorian Deputy Premier John Thwaites, now chairman of the organisation’s equity and climate change advisory committee,  says the current rules encourage networks to spend more than they need on infrastructure.

“The costs are passed on to consumers, who are paying more than they should for electricity while the companies enjoy windfall gains.”

Thwaites argues that the networks are also benefitting because the present rules allow them to estimate a cost of borrowing funds that is higher than what they actually pay.

Thwaites says electricity prices have risen 35 per cent between 2007 and 2011 and there are increasing signs of household energy hardship. There was an 18 per cent rise in disconnections in NSW in 2010-11 and a 38 per cent increase in Queensland.

Also in Victoria, St Vincent de Paul Society claims that some State families have been forced to send children to school at the start of the first term without new books and uniforms “because of sky-rocketing power bills.”

The organisation estimates State households will pay up to $155 extra for electricity and gas in 2012.

A spokesman said: “When a $400 bill lands in January with two weeks to pay, people can’t afford the school book list because they can’t live in the dark.”

Victorian Energy Minister Michael O’Brien said up to one in four families paid too much for their power and should visit the government’s independent cost comparison site to search for a better deal.

Malcolm Roberts, chief executive of the Energy networks Association, says network businesses understand community concern about electricity prices and that the sector’s component is significant and rising, but there is “no evidence” to prove that the perceived flaws in the regulatory rules are the cause.

Roberts asserts the rules changes proposed by the AER will not alleviate rising network costs.

Air-con costs

Running air-conditioning accounts for as much as 40 per cent of summer residential power bills in Queensland, according to State-owned network business Ergon Energy.

The organisation, which covers 97 per cent of Queensland (with the populous south-eastern region served by Energex), says it can cost a household $530 a year just to run a typical lounge room cooler. (An increasing number of Queensland homes have three or four air-conditioning units.)

The network warns that many customers do not understand the impact of air-conditioning on their bills or that a unit can cost 10 to 25 times more than a ceiling fan.

The network is one of a number of distribution businesses across Australia urging customers through the summer not to leave air-conditioning operating at home when their homes are empty during the day.

Air-conditioning is a major factor in higher network capital works spending and the two Queensland government-owned distributors are outlaying $15.6 billion on infrastructure between 2010 and 2015, having spent $5 billion between 2005 and 2010.

Only a quarter of houses in the State were air-conditioned a decade ago and there are now 1.6 million units installed in 74 per cent of homes.

Energex estimates that up to 1,500 air-conditioning units are being fitted in homes and apartments every week. Eighty thousand homes in its franchise area have four or more units. The network says it expects 86 per cent of homes to have air-conditioning by 2016.

An Origin Energy representative in Brisbane told local media that average quarterly electricity bills in the State’s south-east tended to jump from $400 to $450 per quarter to between $900 and $1,200 in summer because of cooling demand.

Ironically, this information tends to be hidden away in media reports while newspapers splash the prospect of rises due to higher  network costs.

In December the “Courier Mail” newspaper highlighted an Australian Energy Regulator draft report suggesting Powerlink Queensland, the high voltage supplier, could have deferred $700 million worth of capex between 2007 and 2012 and saved consumers money.  The $4.5 billion capex and opex costs the AER has provisionally approved for Powerlink for 2012 to 2017 will result in $1.40 a year extra cost to consumers.

The Australian Energy Market Commission is forecasting that residential electricity prices in Queensland will increase by 32 per cent between 2009-10 and 2012-13, with half the extra cost attributable to distribution charges.

Queensland has the largest electricity demand growth on the eastern seaboard.

South-east Queensland reached a near-record peak demand of 4,332MW on 9 January as Brisbane recorded some of its highest temperatures in eight year.

How demand has risen

Electricity consumption in Australia increased from 70,000 gigawatt hours a year in 1973-74 to 242,000 GWh in 2009-10, according to Ernst & Young in a report for the Australian Energy Market Commission.

The highest increase in demand was in the manufacturing sector, the consultants say, with consumption rising over a quarter century from 24,300 GWh annually to 66,900 GWh. The manufacturing sector now comprises 28 per cent of total electricity consumption.

Ernst & Young say that residential demand was just behind manufacturing, rising from 19,080 GWh in 1973-4 to 61,100 GWh. Residential consumption is 26 per cent of total demand.

The commercial and public services sector grew from 9,400 GWh in 1973-4 to 57,200 GWh, the highest rate of increase.  Ernst & Young say demand in this sector rose by 38 per cent between 2000-01 and 2009-10 compared with a 21 per cent increase in household consumption.

The consultants add that the manufacturing sector’s share of electricity consumption declined markedly in 2008-09 as a result of the global financial crisis.

The recent decline in the residential portion of energy use, they say, could be attributed to the impact of improved efficiency of household appliances.

However, they note the impact of television on household consumption. TV consumption accounted for about 525 GWh a year in 1986, they say, and is forecast to reach 7,884 GWh by the end of this decade. By 2020 there will be an average of 2.1 TV sets in Australian households compared with 1.5 a quarter century ago.

Meanwhile, the National Generators Forum points out on its re-invigorated website, which was closed for most of 2011, that electricity demand since 1990 has outstripped population growth in Australia.

The NGF notes that power demand has risen by an average of 2.8 per cent a year, less than economic growth (3.2 per cent) but at twice the rate of population growth (1.4 per cent).

Green deal

Acciona Energy says that it has received final Victorian government planning approval to proceed with its 189MW wind farm, a $400 million development 25 kilometres from Colac.

The Mt Gellibrand project has up to 10 of its 63 turbines within two kilometres of local homes but escapes the Baillieu government new restrictions because it was initially approved in 2006 under the Labor administration. 

The initial proposal (by German company Pro Ventum) was for 116 smaller turbines. It was lauded by then-Planning Minister Rob Hulls as a major achievement for the renewable energy sector.

Construction will start in March.

Acciona already operates the Waubra wind farm in Victoria and the Gunning project in New South Wales.

Meanwhile the Energy Users Association has complained that the federal government’s twin renewable energy target schemes (one for small systems and the other for large) will add $13 per megawatt hour to wholesale electricity prices in 2012.

EUAA says this will increase retail bills by eight per cent. It claims the two measures will add $2.3 billion to consumer costs in 2012 and, unlike the carbon tax, energy users will not receive compensation from the federal government for the added burden.

The association has published a study by consultants Carbon Market Economics claiming that the accumulated cost of the renewable energy target to consumers between 2001 and the end of 2010 was $12 billion and that this represented a cost per tonne of greenhouse gas abatement of $76 or more than three times the carbon tax to be introduced this year.

EUAA says that about 30 per cent of the renewables subsidy between 2001 and 2010 was allocated to support rooftop solar photovoltaics – which, it asserts, will over their lifetime deliver less than five per cent of the renewable energy produced by generation commissioned in this period.

The consultants estimate that another 9,950MW of wind generation will need to be installed to meet the large-scale RET 2020 goal at a capital cost of $30 billion.

The CSIRO has also created controversy with a study claiming that negative media reporting of wind farm issues does not correlate with positive community views in areas where projects are already operating.

The findings have been questioned by Moorabool mayor Pat Griffin in Victoria, Senator John Madigan, State MP Simon Ramsay and the Federal Opposition environment spokesman Greg Hunt.

The study looked at 49 stories and letters in 19 newspapers over six months and polled opinion in 10 communities where there are wind farms in four States.

Critics point out that none of the articles assessed were from newspapers in Gippsland and central Victoria, where wind developments are controversial and that community interviews were by telephone – which skews the proportion of people available to give opinions.

What has not been reported by mainstream media covering the CSIRO review is that 27 per cent of respondents in communities contacted supported development of coal-fired power stations and 58 per cent supported gas-fired plants versus 83 per cent in favour of wind farms.

In NSW, where the issue of what form of new baseload plant should be built is a live policy issue and where the State Parliament’s Public Accounts Committee is currently undertaking an inquiry in to generation, 65 per cent of respondents supported wind farms (which cannot supply baseload power), 28 per cent supported gas development and seven per cent were in favour of coal plants.

Health hazard not proven

Research commissioned by the Massachusetts state government in the US has found “insufficient evidence” to support claims that noise from wind farms can directly cause health problems.

The issue remains highly controversial in rural Australia and the American report is couched in terms that probably will only encourage local opponents of wind developments to press their case and the Victorian and NSW governments to stick by their decisions to prevent new wind farms from being built closer than two kilometres from houses.

Massachusetts wants to have 2,000MW of wind power installed by 2020, following the example of neighbouring Maine. A panel of seven scientists has told the state government that “there is insufficient evidence that wind turbines directly – i.e., independent of effects on annoyance or sleep – cause health problems or disease.”

The panel says there is no evidence for “wind turbine syndrome,” the name coined by wind farm opponents.

It found no evidence in science literature to support claims that infrasound, low frequency pressure waves caused by huge wind turbine blades, affects balance and spatial orientation, but acknowledges that the effects of infrasound on the human inner ear are not fully understood.

The panel also acknowledges that noise from wind farms can disrupt sleep, but says that the impacts have not been sufficiently quantified.

The panel has recommended that the Massachusetts government adopt setback standards and regulate turbine decibel levels.

CEFC saga

How will legislating the Clean Energy Finance Corporation play in federal parliament between now and the winter recess as the minority Gillard government strives to manage shifting allegiances?

The CEFC expert committee is sifting a large number of submissions despatched to it before Christmas varying from the openly antagonistic to the fervently supportive.

In a trade magazine interview, Julian Turecek of the Macquarie University Applied Finance Centre, says the CEFC should be able to function as a co-investor alongside private capital for projects that have sound business cases but have not been able to secure market support. The corporation will be able to invest through loan guarantees, first loss loans or a variety of debt instruments, he says.

He warns against the government requiring the CEFC to obtain a certain number of private dollars for each dollar of its capital injection, saying this will restrict its mandate too much.

Matthew Warren, who became chief executive of the Energy Supply Association on 16 January, said in his farewell interview as CEO of the Clean Energy Council, that the CEFC “has a lot of potential if it works.”  He added: “Getting it right is really crucial.”

The Australian Industry Group has told the CEFC expert review panel that its success is “far from guaranteed.” The corporation needs clear goals and broad autonomy and must adopt a commercial approach to be effective, it cautions.

The AiG also warns that the potential scope of CEFC investments is “already broad to the point of vagueness.” It says there is no point in tying the entity’s hands from the outset with excessively prescriptive directions about favoured targets for investment. Despite the government’s contrary policy decision, the corporation should be able to support carbon capture and storage technologies.

The AiG warns that the CEFC “could easily default to a grants program mindset.”

AGL Energy, which claims to be Australia’s largest private owner, operator and developer of renewable generation, says investments made by the CEFC must not distort the existing markets. “Projects financed by the corporation should be price takers not price makers in wholesale energy markets and in the large-scale RET.”  It adds that funding should not be made available on preferential terms to companies because of their unique circumstances, with all market participants able to have access to CEFC funding.

Chasing the sun

The ACT government is seeking tenders to construct 40MW of large-scale solar generation in the Territory, with the first winning bid scheduled to be announced in July. The developments will be supported by a feed-in tariff for large solar, the first in Australia. The Territory government claims that, when the program reaches its target, large-scale solar will account for about two per cent of ACT power needs.  Peak demand in the ACT in 2010-11 was 614MW.

Despite the strong support in the Territory for environmental policies demonstrated by opinion polls and election outcomes, ActewAGL, which dominates the Territory retail sector and provides network services, reports that only 19,896 households had taken up its accredited GreenPower program by the end of the 2010-11 financial year.

CS Energy quits solar project

Queensland government-owned generator CS Energy has walked away from the $1.2 billion Chinchilla Solar Dawn development only months after Premier Anna Bligh and Prime Minister Julia Gillard celebrated its launching.

This leaves the French company Areva Solar as the sole operator of the proposed 250MW project  in a consortium that includes Wind Prospect.

The development has $464 million federal government support under the “solar flagship” program plus another $75 million subsidy from the Queensland government – but the grants are conditional on the rest of the costs being raised from the finance sector.

The original deadline for raising investor support for Solar Dawn and the 150MW solar photovoltaic project at Moree in New South Wales, supported by BP Solar, Pacific Hydro and Fotowatio Renewable Ventures of Spain, was mid-December and this was not met due to problems signing power purchase agreements.

A federal Department of Resources & Energy spokesman is quoted in the media as saying the government intends to make further announcements about the “solar flagship” program “in the near future.”

CS Energy chief executive David Brown says the government generator has withdrawn from the Solar Dawn project to concentrate on investment in its own operations and the maintenance of existing assets and projects rather than committing to new capital outlays.

Brown says CS Energy continues to work with Areva Solar on the $104 million solar power extension to its Kogan Creek coal-fired power station. He expects the 44MW solar thermal addition to Kogan Creek, which operates Australia’s largest single power unit of 750MW, to be operational next year.

The Solar Dawn consortium says it is continuing to progress the development towards commercial operation in December 2015. “Finalising all commercial aspects is taking some time,” says project director Anthony Wiseman.

The consortium has decided to defer installation of gas infrastructure and to operate Solar Dawn as a stand-alone solar facility rather than a hybrid plant. The option to add gas plant will be built in to the system.

FiTs and a fair return

The Victorian government is setting up an inquiry by the State’s Competition & Efficiency Commission in to solar feed-in tariffs, aiming for a mid-2012 report.

The VCEC is also being asked to look at the regulatory barriers to distributed generation.

The move follows a decision by the Baillieu government in September to cut the subsidy initiated by the previous Labor regime for power fed in to the grid from rooftop PV panels, reducing it from 60 cents per kilowatt hour to 25c.

While the State government is running its inquiry, the federal government through the draft energy white paper is calling for an agreement among all jurisdictions to rationalise this and more than 200 other emissions-reduction measures.

Recent months have seen State governments move to downscale solar FiTs in the face of rising costs that end up being passed on to all consumers.

The New South Wales government has encountered an environmental backlash to its proposals to further reduce the subsidy, already slashed by its originators, the Keneally Labor government. Queensland government has capped the size of the systems eligible for its subsidy and the West Australian government has halved the tariff provided by its predecessor.

Boost for BlueGen

Essentially ignored by the Gillard government for all its talk of promoting a “clean energy future,” Australia’s ground-breaking fuel cell technology is continuing to make progress.

Ceramic Fuel Cells’ BlueGen product converts natural gas in to electricity and heat for hot water for homes and other buildings. CFCL claims it operates at 60 per cent efficiency, the highest in the world, and at 85 per cent when hot water production is included.

While it can’t get a look-in from governments offering feed-in tariffs here, CFCL is the only fuel cell-based micro-heat and power system approved for FiT treatment in the British electricity market.

After a six-week marketing campaign, the company’s German sales partner, Sanevo Blue Energy, has achieved orders for 100 units from utilities as well as residential and commercial customers. Sanevo is targeting selling 500 BlueGen units in its second year and 2,000  more over years three and four of the campaign.

CFCL has also sold units in Switzerland, the Netherlands, Italy and the US while winning an order in Australia from Ausgrid for 25 units for the network’s $100 million “smart grid, smart city” project in Newcastle, supported by federal government subsidies. It also has 30 units being used in a trial by Victoria’s Office of Housing.

Another “smart home” project by Ausgrid in Sydney, testing a BlueGen unit in a house over 18 months, saw the system produce 28 kilowatt hours of electricity a day and achieve 6.9 tonnes of carbon dioxide abatement over the trial period.

The fuel cell emitted 65 per cent less greenhouse gas than power sourced from the NSW grid.

As part of its international promotion for BlueGen, CDCL has visited China in a clean energy delegation and has hosted return visits by Chinese companies to its operations in Melbourne.

Last word

You can divide Australians who actually think about electricity supply – and what percentage is that, I wonder – in to three camps: those concerned about an affordable power (probably the majority), those who just want a low-carbon supply (a vocal minority) and those who have concerns about reliability (probably mostly business people and those living in rural areas).

As Ausgrid chief executive George Maltabarow points out, the problem for electricity suppliers is that they are expected to pursue all three aims and to ensure they get the balance right.  This was difficult enough when there was general agreement that power demand was going to continue on a rising curve for years to come, but there is now a growing debate about consumption trends and increasing uncertainty, which will do nothing for planners.

Both Martin Ferguson’s draft energy white paper and the new national energy security assessment he has launched are trying to get to grips with the issue.

The assessment (NESA in the energy industry alphabet soup) argues that demand – and supply to meet it – will be “profoundly influenced” over the next two decades by the federal government’s carbon pricing policies.

The problem with this view is that Tony Abbott has every intention of ditching said policies asap and the opinion polls suggest that this will be as soon as Labor (under Julia Gillard or another leader) cares to head to the polls. The more uncertainty, the less investment in generation and the greater room for the Australian Energy Regulator to monster the networks over their ability to predict demand and to slash billions of dollars off their capex proposals.

Ferguson wants a national commitment to conduct an energy policy review every four years. Our track record in this regard is patchy, No federal attempts at a strategy at all up until the mid-1980s and three goes since 1986-88. If this quadrennial idea takes off, the next review would be 2016 – under what government?  Perhaps it is even more pertinent to ask under what circumstances?

It seems likely that east coast electricity prices will be double their present levels by mid-decade, that a large chunk of generation ownership (New South Wales) will have shifted to the private sector, that new coal contracts will be biting whoever runs the power stations, that some Victorian brown coal generation units will be shutting down and that gas prices will be starting to move towards LNG netback levels (i.e. nearly double what they are domestically today).

In a client advisory note late last year, investment bankers J.P.Morgan warned that, should gas prices move towards $6 to $8 per gigajoule, baseload electricity prices could rise to well over $100 per megawatt hour – 200 per cent above present levels.

It is arguable that, even if Prime Minister Tony Abbott has deep-sixed carbon pricing by then, much higher end-user prices will be having a dampening effect on power consumption – and who knows where we will be in the Global Economic Correction?

Then there is the small matter that, building on what is claimed to be the outcome of the UN climate change summit in Durban, the world’s nations may have agreed on some form of daughter-of-Kyoto treaty to implement in 2020, requiring Australia to address a higher level of domestic carbon abatement than the five per cent below 2000 target.

Also not to be forgotten is the fact that, under present arrangements, we are stuck with biennial reviews of the renewable energy target, starting this year, and it is surely a given that the Greens will be pressing Julia Gillard to pursue a higher goal than the current 20 per cent by 2020.  Twenty-five per cent by 2025, perhaps?  Grant King of Origin Energy has already suggested this.

The point here is that a higher RET has implications for gas-fired generation. More wind farms to eat the baseload generators’ lunch and a greater requirement for peaking plant to deal with intermittent renewable supply.

According to the Australian Energy Market Commission, under the present policy environment we need 2,500 megawatts of non-intermittent new capacity to be installed on the east coast by mid-decade.

The current problems with fully commissioning Origin Energy’s Mortlake gas-fired plant in south-west Victoria – now half ready to supply and running about 18 months behind the initial commissioning target – is a reminder that building this capacity is not a Lego game.

On the point of reliability, NESA quietly notes that, on the east coast, not only is there some risk under the new carbon regime that emissions-intensive generation could close without substantial notice but “in addition, if operational management of the generators and ongoing investment in their maintenance is affected by financial insecurity, a risk emerges that there might be an inappropriately low focus on plant condition, leading in turn to a reduction in system reliability.”

The broad thrust of NESA with respect to electricity is “no cause for alarm,” but it is hard to avoid the thought that the prospects for electric shocks for the community down the track this decade are far from zero.

Maintaining our power supply balance has never been easy and there is no reason to believe it is about to get easier.

Keith Orchison
5 February 2012


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