Coolibah Commentary

Issue 130, February 2016

Welcome to the second issue of the newsletter for the new year, writes Keith Orchison. There are many energy balls in the air at present: from Tasmanian travail with a busted Basslink and low dam storage to key reviews in Queensland to the much-awaited tribunal judgment on network revenues to the important dissection of east coast gas market reform – and this is all before we get to the hurly-burly of a federal election where energy and carbon policies will be on or near the front line.


Coal and gas continued their domination of NEM power generation in calendar 2015.

Analysis of Australian Energy Market Operator data by consultants Green Energy Markets shows that the dominant NEM electricity source by far last year was again black coal generation in New South Wales and Queensland, amounting to more than 100,000 gigawatt hours, 51.5 per cent of power sent out.

This was followed by brown coal generation in Victoria and South Australia with just over 50,400 GWh (roughly a quarter of the market) and gas generation in all eastern States with almost 20,600 GWh (a little more than an eighth share).

Hydro power continued its steady contribution to the NEM and remained the leading form of the market’s renewable energy with almost 13,400 GWh, slightly down on calendar 2014.

Wind farms’ share of the mix rose to just on 10,000 GWh (three-quarters of it in Victoria and South Australia), a five per cent NEM contribution.  Large-scale solar, still in its infancy, contributed 184 GWh.

Green Energy Markets calculates that rooftop solar power supported by the RET and energy efficiency activities contributed 1,712 GWh in 2015.

The analysts report NEM generation’s greenhouse gas emissions in 2015 at 159.8 million tonnes, a 3.4 Mt increase over 2014 resulting from a declining gas plant contribution and the gap being filled by coal-burning power stations.

The data again throws up the very large challenge faced by proponents of replacing coal plant by renewables. In NSW, for example, closing the existing coal generation over the next decade (a plan advanced by the Greens) would require wind farm production to rise more than 32 times (on 2015 output).

Meanwhile, the Minerals Council, highlighting the capacity delivered by black and brown coal on the east coast as summer heatwaves struck in January, has argued that the fuel “will remain the mainstay of our electricity generation; reducing our reliance on coal will have negative consequences on the reliability and cost of supply.”

The MCA adds: “Alternative energy sources have a role to play (but) they need to be cost competitive, subsidy free and reliable for households and industry.”

Broken Basslink

Between bushfires and a bust high voltage connection with the mainland, summer has not been much fun in Tasmania.

The cause of the failure of the Basslink line still remains a mystery – it lies under water in Bass Strait -- and declining hydro dam water levels have ratcheted up a State debate on the risk of power rationing.

The situation, says Energy Minister Matthew Groom, is “very difficult, extraordinary, unprecedented and seriously challenging.”

State-owned generator Hydro Tasmania is using 280 MW of gas turbine capacity to support supply and an addition 58 MW turbine, in Abu Dhabi for maintenance, is being rushed back to service.

Basslink CEO Malcolm Eccles says the “anticipated” date for the link to return to service is 19 March but acknowledges the company has yet to determine the location and cause of the fault.


Reform essential

AGL Energy has told the Australian Energy Regulator in January, in a submission relating to Victorian network tariff structures, that existing volumetric charges for residential and small business customers provide “no useful or effective” time signals for the take-up of new technologies. Network tariff reform is “essential,” the company argues.

The policy challenge, AGL says, is to make better use of existing network infrastructure and give customers more control over their energy use.

Queensland queries

A year after its upset defeat of the Newman Coalition government, the administration of Premier Anastasia Palaszczuk is gearing up for a key report on electricity pricing.

The new Queensland Productivity Commission set up by the State government is due to deliver the report in May and is now preparing to pursue consultations after garnering stakeholder submissions.

The State Chamber of Commerce & Industry, representing 25,000 of Queensland’s 427,000 small businesses, employers in total of a million people, has told the government that power price rises since 2007 have “taken a toll.”

However, the chamber has welcomed the most recent Queensland Competition Authority tariff ruling that will cut small business bills between 1.7 and 3.5 per cent. Nonetheless, CCIQ points out, small business electricity costs are now double what they were in 2007 and 40 per cent of its members attribute decreased profitability and investment to this problem.

Like the chamber, gentailer EnergyAustralia points to the impact of major network capital outlays in its submission.

The company says network costs have escalated 243 per cent in real terms in Queensland in a decade and now account for 45 per cent of a typical household bill.

It calls again for battery technology and other contestable services to be subject to competitive market forces. It also counsels against the proposed merger of government-owned generation assets in Queensland.

ERM Power is another that warns that the mooted merger is a bad idea, arguing it will lead to higher prices for business and residential customers, pointing out that the present State generation competition is “compromised” because of the regional market dominance of CS Energy and Stanwell.

Yet another study

The Queensland government is to run a renewable energy study, including, says Energy Minister Mark Bailey, an independent public inquiry in to its proposal to have half the State’s electricity sourced from renewables by 2030.

Bailey, writing to the Queensland Productivity Commission, says the government will engage “a panel of experts drawn from the renewable energy and broader energy industries” in the inquiry.

He says the government is focused on balancing cost with economic and environmental outcomes. The impact on electricity prices will be studied as well as the “broader economic benefits, including job creation and skills development.”

The facilitator

High voltage power transmission is set to play an important role in facilitating the evolving generation mix, according to the Australian Energy Market Operator.

With greater inclusion of renewable generation, transmission will need to provide critical support services to maintain system security and reliability.

AEMO’s planning manager Nicola Falcon says today’s transmission network has sufficient capacity to integrate growing levels of renewables along some corridors – however, it is ageing and investment in asset replacement is required.

She points to the grid spending only 15 per cent of its capital outlay on asset replacement in 2008-09 and says this area required 85 per cent of spending in 2014-15.

She adds that the grid is now required to increasingly transfer energy from both ends of the supply chain because of investment in rooftop PV – “expected to make up the largest form of generation across the NEM” – and this adds weight to the need for investment in support services.

Falcon says there is a potential risk of grid congestion if a large amount of new generation is added and connected to the network within a small area, resulting in local limitations.

CCS gamble

Carbon capture and storage remains the only credible technology for realizing deep reductions in emissions arising from fossil fuel use in power generation and industrial process, the University of Queensland Energy Initiative says.

Writing in the UQEI newsletter, director Chris Greig and Princeton University’s Robert Williams declare that, despite high costs for early movers, it is “critical” that CCS investments proceed to “facilitate learning doing, cost reductions and knowledge sharing.”

The pair express a “high degree of confidence” that carbon dioxide can be effectively and safely stored in underground reservoirs with appropriate regulations.  They call for strong government, multi-industry and NGO leadership, collaboration and support for the technology’s development.

Meanwhile green activists, such as Greenpeace, push the view that the CCS initiative has “run out of steam” and “continues to move at a snail’s pace.”

Some leading proponents of the technology, notably in Europe, are acknowledging that mistakes have been made in selling CCS “as a way to green-wash coal generation” when equal weight should be focused on its industrial applications.

Britain’s influential parliamentary Committee on Climate Change, reacting to the Cameron government’s decision to scrap a billion pound support program for CCS, says the administration needs to “urgently” find ways to encourage the technology, an announcement Friends of the Earth labels “desperately disappointing.”

David Reiner of Britain’s Cambridge Judge Business School argues that the “only way” to affordably pursue aggressive abatement targets is to advance CCS development.

“Scaling up any new technology is difficult,” Reiner says, “but it is that much harder if you are working in billion dollar chunks.

“Being serious about CCS means allocating very large sums (to it) at a time when government budgets are still under stress as a result of the global financial crisis.”

He adds that there is an “inherent tension” in developing CCS. “It’s not a single technology but a whole suite and, if there are six CCS paths we can go down, it’s almost impossible to know, sitting where we are now, which is the right one.” These, he says, are “high cost gambles.”

Solar begging bowl

Victorian promoters of rooftop solar power are striving to initiate a social media campaign to persuade the State’s Essential Services Commission to advise the Labor government to reverse a cut in PV feed-in tariff (imposed by the previous Coalition regime) that took effect from New Year’s Day.

The FiT has been cut back from 6.2 cents per kilowatt hour to five cents.

The proponents of the campaign argue that Victorians with rooftop solar should be paid a “fair price,” equal to what householders pay to buy energy conventionally.

The ESC has been requested by the Labor government to investigate “the true value of distributed generation” – a similar exercise is underway (via the State Productivity Commission) in Queensland.

Victorian Energy Minister Lily D’Ambrosio has also asked the ESC to establish whether current compensation arrangements are adequate.

As elsewhere, the Victorian solar promotion activity has been messy.

At least 88,000 households are beneficiaries of a “premium FiT,” started in 2009 and closed in 2011, that pays 60 cents per kilowatt hour. Others took up a “transitional FiT” offered in 2011-12 of 25 cents. Then there is the current FiT, started in January 2013 and running until at least the end of this year.

In all, there are 245,000 solar PV installations on household and business rooftops in Victoria.

$3bn on PV

Households and businesses in New South Wales have now spent $3 billion investing in solar PV arrays, according to the State government.

Environment & Heritage Minister Mark Speakman says that more than 320,000 households and small businesses are now using PVs.

Speakman adds that the share of generation from solar, wind and bio-energy in the State has more than doubled since 2010.

The Energy Supply Association 2015 yearbook shows that power sent out by large generation in the 2013-14 financial year was 55,806 gigawatt hours for coal, 4,486 GWh for gas plant, 2,580 GWh for hydro and 847 GWh for wind.

Cost of uncertainty

Australia’s 4.5 million gas customers continue to face unnecessary supply uncertainty due to a lack of clarity about unconventional resource development, says the Energy Networks Association.

Reacting to a Victorian Parliament committee report about onshore unconventional gas exploration and production in the State, ENA says removal of the current barriers to domestic market supply is “vital.”

ENA chief executive John Bradley says gas must be developed in a timely way under robust regulations.

Policy certainty and regulatory predictability will put downward pressure on the cost of gas in Victoria, he adds. The State’s two million gas customers are more reliant on the fuel for their household needs than anywhere else in the country.

The State parliamentary committee was unable to come to a position on two proposals: an outright ban on developing unconventional gas or extension of the present five-year moratorium.

The Australian Petroleum Production & Exploration Association has also sharply criticized the committee’s indecision.

CEO Malcolm Roberts says its attitude stands in sharp contrast to the findings of numerous independent and expert inquiries in Australia and overseas that unconventional gas can be produced safely with appropriate regulation.

An obvious start for Victoria, APPEA argues, is to lift the current “inexplicable” ban on conventional gas activity onshore. Roberts points out that the industry has been exploring and developing gas onshore in the State for more than 50 years.

Apart from the widespread use of gas by Victorian households, APPEA underscores that a large part of the State’s manufacturing needs gas “as an irreplaceable feedstock” in production of products such as fertilizers, textiles, paints and pharmaceuticals.

Home and away

A trio of national industry associations – APPEA, the Energy Networks Association and the Australian Pipelines and Gas Association – have issued a new publication in January focusing on the fact that, while this country is emerging as a world leader in the export of LNG, “outdated policies are preventing this low-emissions fuel meeting our needs at home.”

They want a fresh look at the domestic situation.

APGA chief executive Cheryl Cartwright says Australia has more than 100,000 kilometres of distribution pipelines and more than 35,000 km of transmission links, supporting peak demand in winter and summer and averting the need for further investment in electricity networks.

“In Europe,” she adds, “gas is recognized as playing a key role in supporting intermittent renewable power generation, providing flexibility when energy demand changes rapidly.”

The associations say the domestic gas sector contributed almost $3 billion to the national GDP in 2013 and deliver the fuel to 113,000 commercial and industrial customers.

Top End cut

Northern Territory households will pay an average $155 a year less for electricity in 2016 and small businesses will typically save about $200.

The Territory government says its reform of the power sector is now delivering an efficiency dividend.

Because of the climate, NT households are big electricity users; an average household consumes some 12,000 kilowatt hours a year, roughly double the demand in, say, New South Wales. Quarterly residential bills in 2015 were about $1,000.

Essential Services Minister Willem Westra van Holthe says planned construction of the north-east gas interconnector pipeline, to be commissioned in 2019, and extra competition thereby encouraged in power generation, will also deliver further energy cost cuts for consumers.

Fire bill

The West Australian government estimates the electricity network cost of devastating summer fires in the south-west of the State at $26 million.

State Treasurer and Energy Minister Mike Nahan says the fires damaged or destroyed 950 network poles, 44 transformers and up to 50 kilometres of overhead cables.

The area affected by the fires is the size of metropolitan Perth and network business Western Power says restoration will be a task triple the scope of any previous effort.

Competition failure?

The Sydney-based Public Interest Advocacy Centre is challenging whether energy competition is working in the best interest of consumers in New South Wales.

In a submission to the Independent Pricing & Regulatory Tribunal, which is continuing to review gas retail prices and tariffs in a State where the three biggest retailers still have 90 per cent of the market, the centre is querying whether the deregulation being introduced (with controls to go by mid next year) is adequate?

PIAC claims that debt, disconnections and hardship are on the rise for NSW householders, that their fuel costs as a proportion of home income are rising and that low-income residential users are being “hit hard.”

The centre asserts that gas competition in the State has “stalled” and light regulation does not protect customers effectively. 
It’s not enough to have a high degree of choice, PIAC argues, “They need to be quality choices (and) customers need (enough information) to make meaningful decisions.”

It says there are more than 48,000 customers in the State who own money to their gas suppliers and it wonders how many of them also have an electricity debt.

Apart from IPART’s activities, there are two major east coast gas reviews under way at present.

The federal Minister for Small Business has tasked the Australian Competition & Consumer Commission with undertaking an extensive review of the east coast market. The ACCC’s report is due in April.

Meanwhile the CoAG Energy Council has the Australian Energy Market Commission undertaking a review of the same market and pipeline framework.

Power deals

A review by PricewaterhouseCoopers shows that the New South Wales government’s long lease of Transgrid in November was the world’s third-largest power deal in 2015.

However, Mark Coughlin, leader of the management consultants’ energy, utilities and mining activities in Australia, says that, while corporate restructuring and network privatization will keep deal activity high here this year, there is a drought ahead.

Coughlin says a “perfect storm” of economic decarbonization, technological disruption, changing customer behavior and government policy makes for a subdued deals outlook beyond 2016. “Most Australian power and renewable assets are in the hands of long-term players.”


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Last word

Of all the issues that vex today’s mainstream participants in electricity supply, the most irritating is the seemingly unbreakable addiction of politicians to picking winners – or at least what seems to them to be winners in the unending pursuit of votes.

If this approach was pursued via a rational, national, fuel neutral, economically sound and durable path, with as much attention to the affordability and reliability needs of consumers as to carbon abatement, shorn of politicking, it could work, but the reality is scatter-shot intervention, back-tracking and weaving when ill-considered programs cause new problems and a desperate political need to hail every small step as a watershed.

In Australia today the example par excellence is solar power – and the seemingly unending stream of government-initiated inquiries about the technology are testament to why such intervention literally comes at a price.

As reported in this newsletter, both Queensland and Victoria (where past State Labor governments went over the top in providing inducements for household PV investment) are engaged at present in having others work out for them what is the best way to continue financial support after messing up the first attempts.

What is “fair” for the community as a whole (across the spectrum of supply) and for taxpayers seems to enter these political equations far too seldom.

In New South Wales, where the “solar bonus scheme” of the failing Labor regime earlier this decade was particularly egregious, and quickly capped when the Keneally government realized what it had done, subsidized tariffs will end on 31 December this year.

In a ruling about feed-in tariffs last October, the State’s Independent Pricing & Regulatory Tribunal said firmly it did not believe in mandated minimum FiTs; any retailer has the incentive, it observed, to obtain wholesale electricity at the best possible price and therefore has an incentive to offer a fair deal to household mini-generators.

In Queensland, the Energy Networks Association is arguing to the State Productivity Commission that support for solar PVs should be funded by taxpayers and not loaded on to consumer electricity bills.

Let’s note here that, overall, it has been estimated, when all the nation’s feed-in schemes and other PV support, including tariff structures, have run their allotted course, Australian households and businesses not taking up the technology will have subsidized those who have by some $14 billion.

ENA declares that, with as many as a further seven million Australian mass market customers projected to install solar panels by 2034, the situation is “both an opportunity and a threat” for fair and efficient pricing.

The association adds that, if tariffs are not reworked to deal with the situation efficiently, there is likely to be a national over-investment in distributed energy resources and higher community costs of the order of $17.7 billion by 2034.

In another submission to the Queensland Productivity Commission, gentailer EnergyAustralia pushes a broader point relating to the Palaszczuk government’s pledge to have the State’s power supply 50 per cent renewable by 2030. (It is five per cent renewable today.)

Pursuing this will require significant thermal baseload generation to be shut down, the company says.  Replacing these plants with solar will be “difficult” without storage and greater gas-fired generation.

Deployment of renewables, it adds, should be balanced with the requirement to provide reliable and cost-effective supply of electricity.

The bottom line for serious people engaged in the electricity business is that renewable energy targets are best set at the national level, allowing investment to flow to the most cost-effective and efficient supply locations. Policy decisions should not distort the marketplace and impose “solutions” that are about promoting political parties rather than consumer best interests.

All this talk against the present messy “strategy” is anathema to green activists, of course; they want a command-and-control approach that is subservient to their ideological perception of carbon abatement at all costs so long as it does not involve technologies they also hate like nuclear energy and carbon capture and storage.

In the broadest sense, their attitude is anti-social and elitist – and yet their unremitting propaganda, aided by the mindset of many in the media, spread through considerable use of social media, influences what mainstream politicians do because, in a country with our democratic system, the marginal vote is frequently king.

It’s not a pretty picture. It’s not really improving despite a number of efforts – but work to bring more sense to the situation can’t be allowed to flag and certainly not in an election year where, if not closely watched, mainstream political parties are capable of all sorts of mischief, even if at least some of it is inadvertent.

Keith Orchison
1 February 2016


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