Issue 178, February 2020
Transmission storm damage islanding South Australia at the very end of January has again brought home the fragile state of southern parts of the NEM. Until then, despite generation glitches as well as damage to distribution via bushfires, the power supply system appeared to be roughly half way through a tough summer without a major interruption albeit there having been several occasions where large users cut in to operations to avoid nasty wholesale price spikes – and despite capacity demand on 31 January being the highest in the market in more than a decade. Meanwhile the severity of the fires, although hardly “unprecedented,” has sparked an intensified national debate about climate change policies as well as fire risk reduction strategies – and underscored division between the federal government and State governments, most of which have embraced zero-carbon by 2050 ambitions, although without any clear idea of how to make the journey. As noted by an American academic observer of January’s Davos talkfest (where climate change dominated media interest), the massive gap between rhetoric on emissions abatement and realistic action to materially change the global carbon trajectory remains glaring.
“It has been an unsettling summer of smoke haze and dust storms, firestorms and tragic deaths, uncommon valour and desperate evacuations, hot winds and thunderstorms, dashed hopes and rescued koalas, rounded off with hailstone maelstroms, tantalizing teases of an end to drought and brutal reminders the fire season has a long way yet to run. No wonder we looks for answers” – Chris Kenny, columnist on The Australian.
“The summer has made climate change a thing of the present, not just the future” – Laura Tingle, Australian Financial Review columnist.
“Bold climate action will require a new kind of political approach. The situation calls for a grand coalition encompassing governments, investors, companies and everyone else who is genuinely committed to taking concrete measures to reduce global emissions” – IEA executive director Fatih Birol at Davos.
“In the wake of the bushfire crisis and adoption of carbon mitigation strategies by the private sector, it is inevitable the (federal) government will soon take a tougher position on climate and energy policy” – Terry Moran, chairman, Centre for Policy Development. “There is now a significant constituency for government action.”
“The bushfires may be the historic shock that will eventually set Australia on a new course in climate change and energy policy. But it won’t be easy or cheap” – editorial opinion in the Australian Financial Review.
“Prime Minister Scott Morrison (has) committed to revisit climate policy but only if it does not destroy jobs and regional communities or push up electricity prices. It’s a promise he can’t keep” – Matthew Warren, former Australian Energy Council CEO and author, in a newspaper op-ed.
“A decade of climate wars and ad hoc market intervention has created such uncertainty that the private sector is unwilling to invest in new generation, sustain old generation or invest in necessary new infrastructure” – former State premier Jay Weatherill and consultant Danny Price in a newspaper op-ed.
“We’re not in the peak demand period so what’s it going to look like in February when we have a heatwave? Where will the energy come from? – Tomago Aluminium CEO Matt Howell reacting to being forced to shut part of his NSW smelter to avoid paying $70,000 a minute for power.
Woodside CEO Peter Coleman told an international petroleum conference in Saudi Arabia in mid-January that the carbon debate in Australia has “amped up” as a result of significant bushfire problems this summer – and the issue has risen to the top of his company’s risk register with the potential to impact on future investment.
Woodside, he said, needs to demonstrate it is serious about action on climate change. It needs to “make sure it has the most climate-friendly product it can possibly produce.”
Speaking to journalists, Coleman added that climate change five years was not the biggest issue on Woodside’s agenda “but today it is by far the biggest issue.” He acknowledged LNG is a fossil fuel, but argued it emits significantly less than alternatives. “It really is the only fuel where you have got a large supply in the timeframe that’s required to meet the Paris agreement.”
The Australian Energy Regulator, approving a procedural step in a proposal by ElectraNet and TransGrid to build a new power link between South Australia and New South Wales, to be completed by 2024 at an estimated cost of $1.53 billion, has noted uncertainty in the eastern market about future electricity demand, gas prices, emissions targets and generator capital costs – and has required the network pair to scale down their estimates of consumer benefits from the project.
ElectraNet CEO Steve Masters, welcoming the AER approval, declares the regulator has found the business case for the project is “robust” and regulatory tick is “a milestone” in the link’s development. TransGrid CEO Paul Italiano says the new link is “critical” to enabling the sharing of renewable and baseload generation in the NEM. The companies claim nearly 5,300 megawatts of new wind and solar farms planned for SA, Victoria and NSW will benefit from the line.
SA Energy & Mining Minister Dan van Holst Pellekaan notes the project will provide the first power interconnector built in Australia for 15 years. The State government, he adds, sees “real risk” in SA just being linked with Victoria.
A target for the project is to be in operation by the time the Liddell power station in NSW is closed by AGL Energy. The broader picture, as envisaged by the Australian Energy Market Commission is that 6,000 megawatts of dispatchable generation in the NEM will be shuttered by 2030 and replaced by 22,000 MW of intermittent power and 6,000 MW of storage.
The Australian Energy Market Operator has estimated that between $6 billion and $9 billion of transmission investment will be needed to support the transition.
The Energy Users Association, noting that this summer’s bushfires have brought fresh calls to expand eastern Australia’s network system, is calling for investment to be “rigorously evaluated” and says it should not be seen as a “silver bullet.”
EUAA, representing large retail, manufacturing and materials processing industries “paying billions in energy bills every year,” argues that recent bushfire experience demonstrates that two geographically-separated high voltage lines can be made inoperable as easily as one. Having multiple lines simultaneously out of services “does not necessarily result in automatic collapse of the power system.”
The association adds that “in our experience, customers are understanding of supply interruptions caused by natural disasters – for example, we don’t think consumers in north Queensland are willing to pay for the investment required for them to have no interruptions when a category 5 cyclone passes across the coast.”
WattClarity CEO Paul McArdle has seized on the events of the first weekend in February to reiterate a view, first expressed in his company’s Generator Report Card of 2018, that the level of risk in the NEM is rising.
Looking at the storm damage to transmission pylons in western Victoria that have again islanded South Australia, McArdle has also suggested that the actual failure rate of high voltage towers needs consideration – and asked whether a case can be made for questioning pylon design standards.
There needs, he says, to be a rational look at data to avoid any risk of “gold plating” transmission infrastructure.
Energy Security Board chair Kerry Schott has said in a mid-January newspaper interview that more hydro-electric and gas generation and battery storage is needed to manage the security and reliability of the NEM.
Not having co-ordinated national energy policy is making management “very difficult,” she said, adding that a policy such as the “national energy guarantee,” dumped by the Coalition in its previous term, linking emissions reduction to reliability would be “a good option.”
Her comments came when former prime minister Malcolm Turnbull, in a newspaper op-ed contribution, was calling on the Morrison government to “reinstate the NEG with higher targets.”
In another commentary – for the American Time magazine – Turnbull asserted that the NEG was “sabotaged in order to bring down my government.”
The Canberra Times has claimed in an editorial that, if Morrison is willing to put the NEG back on the table, “it will likely attract bipartisan support from the ALP and break the energy policy deadlock.”
Energy Networks Australia is warning that longer and more intense fire seasons in east Australia could see higher industry insurance premiums impacting on consumer bills.
ENA chief executive Andrew Dillon says fire damage to lines, substations and power poles means that “it is almost undoubted” that networks’ insurance costs “are going to head north.”
The Australian Energy Council, representing gentailers, has acknowledged that regulatory-approved additional network costs flowing from the impacts of fires “will ultimately be reflected in customer bills.”
Essential Energy, the New South Wales government-owned rural network business, has told media that so far this fire season it has had 1,900 power poles destroyed – and the distribution sector estimates that 5,000 poles have been lost across the NEM.
Both the federal government and the Labor opposition are supporting the Australian coal export sector in the face of environmental activist pressure against the sector.
Home Affairs Minister Peter Dutton, a Queenslander, argues stopping or reducing coal exports to China and India will only see their needs sourced from elsewhere, impacting on $70 billion in trade – and, he claims, will result in carbon emissions rising in buyer nations.
Opposition leader Anthony Albanese, whose Sydney seat has large support for the Greens, agrees, declaring to journalists that “stopping exporting coal immediately will not reduce global emissions because there’s enough (available) from other countries.”
Thermal coal exports (for power generation) are expected to make up $26 billion of $281 billion in Australian resources and energy trade in the current financial year – while metallurgical coal (a key ingredient in steel manufacture) will account for $44 billion.
Prime Minister Scott Morrison told journalists that coal exports are “so important to say many communities” and said his government’s plan is to “meet and beat” its emissions reduction targets “without putting higher taxes on people, without putting up electricity prices and not pulling the rug from under regional communities.”
Resources Minister Matt Canavan added: “The International Energy Agency predicts that coal will continue to be the single biggest source of electricity in the Asia Pacific region for decades. We are lucky Australian coal is the highest quality in the world and it will remain in strong demand for a long time to come.”
Speaking at the World Economic Forum in Davos, Finance Minister Mathias Cormann called for “cool heads to prevail” in the international debate on climate change policy. “If we had a mature global conversation on this,” he said, “we wouldn’t be doing constant finger-pointing and we would actually be looking at how each country could best contribute, given its natural attributes.”
Cormann told a Davos forum audience that his government is “guided by a desire to pursue policies that are environmentally effective and economically responsible.”
The federal government is claiming to be a “world leader” in renewable energy after, says Energy Minister Angus Taylor, “setting new records in 2019 for renewable capacity installation and total electricity generated.”
Taylor points to a report from the Clean Energy Regulator estimating that 6,300 megawatts of new renewable capacity was developed last year, 24 per cent higher than in 2018. And he says 2020 will be “the biggest year yet” for renewables generation.
Taylor says $7.7 billion was invested in Australia in 2019 on renewables capacity, using per capita expenditure to claim this put the country ahead of the US, Japan, Britain, Denmark, France and Germany.
Business intelligence company Rystad Energy says 3,600 megawatts of new wind and solar capacity will be added in Australia in 2020, up from 2,600 GW last year.
Rystad says 1,960 MW of these developments will be utility-scale photovoltaic projects, with 1,570 MW of new wind farms – and there will also be 100 MW of new battery storage.
The company’s Gero Farruggio says the “bounce back” in investment mainly flows from projects with power purchase agreements and winners of government auction schemes and grants.
In 30 days in the east coast market from the eve of the new year to towards the close of January, coal-fired generation in Queensland, NSW and Victoria sent 12,083 gigawatt hours of electricity to the grid – 74.8 per cent of supply – versus 1,968 GWh from wind and solar farms (12.2 per cent). In addition, the estimated use of rooftop solar PV was 1,177 GWh. Other main suppliers to the grid were gas power stations (1,170 GWh) and hydro power (896 GWh). The bulk of coal-fired generation (9,150 GWh) came from stations fuelled by black coal. Two thirds of the NEM’s whole grid-connected electricity production occurred in two States (NSW and Queensland) and black coal generation contributed 85.9 per cent of output in the former and 82.8 per cent in the latter.
Energy Networks Australia says “we don’t use electricity in the same way any more, both in terms of how we use it and when we use it.”
The association’s CEO, Andrew Dillon, asserts that “electric vehicles, household PV solar and battery storage are tipping the system on its head.”
Dillon adds that “whereas demand was high in the middle of the day, it’s now low – and where we had steady generation from coal, we now have variable renewables.”
The situation, he argues, makes innovation essential in power delivery to ensure reliable supply “as affordable as possible.”
Commentator speculation is growing that the federal government is seeking to expedite production of its “technology investment roadmap” to get back on the front foot after its emissions reduction hassles of the summer.
Observers point to Energy Minister Angus Taylor’s comment that “the best way to deliver on and beat our international commitments is through new, productive technologies and practices that reduce emissions while maintaining or strengthening economic growth.”
A similar exercise was commissioned from the CSIRO by the Turnbull government in 2016 and delivered in 2017. The new version is reported to rely on advice from industry, the finance sector and the research community on short, medium and long-term investment opportunities – focusing on 2022, 2030 and beyond.
One of Australia’s longest-running energy disputes – over the use of a domestic reservation gas policy – is back in the media headlines with federal Resources Minister Matt Canavan disclosing he is working on a national mechanism for implementation in 2021.
The Queensland Resources Council has reacted by saying there is an “ample” current gas supply for eastern Australia and the policy is “unnecessary.”
The Australian Industry Group is expressing doubts that the policy will have short-term benefits. CEO Innes Willox has told journalists that “reservation might give gas users greater security or inadvertently undermine them.”
Manufacturing Australia, on the other hand, declares a reserve scheme is “in the national interest” and argues it is “already happening in Western Australia and Queensland, where it is working for producers and customers.”
Canavan, publishing a review of the “gas security mechanism” imposed in 2017 when major users’ concerns about fuel costs were at a peak, has told journalists “we can’t repeat mistakes of the past in just letting our gas be shipped overseas with no thought to domestic requirements.”
He says the ADGSM review shows it has helped stabilize the east coast market and is “keeping a lid on prices.” The report says supplier offers are now about half the $20 per gigajoule peak they reached in 2017. The government intends to keep the measure in place until its scheduled end in 2023.
However, he says the review also shows that major users are still finding it difficult to get long-term offers of gas supply and some prices put forward by suppliers “remain higher than they should be.”
Among large users complaining about current prices is explosives maker Orica, which says current supplier offers are being priced “well above $10 per gigajoule, several dollars above (international) spot prices.” The company declares the prices “unsustainable” and warns that, if left unaddressed, “they will deliver a structural loss of manufacturing scale and complexity across the economy.”
Prominent gas industry figure Richard Cottee, one of the leaders of the Queensland coal seam gas boom of the past decade, says the national reservation proposal is “perverse” and will reward Victoria and New South Wales for locking up reserves.
Victoria has a moratorium on onshore gas exploration and the NSW Coalition government has been dragging its feet for years on development of a large resource at Narrabri.
The Australian Petroleum Production & Exploration Association says that, while it considers market interventions can adversely affect oil and gas sector confidence, it will “work constructively” on the issue.
APPEA argues that new data published by the Australian Energy Market Operator shows “there is enough supply in the east coast market, so there is no need for interventions.” Federal and State government focus should be on increasing supply, it adds.
However, the Australian Competition & Consumer Commission continues to press east coast gas producers on prices, with chairman Rod Sims saying in mid-January that “there appears to be an unreasonable gap” between what large users are being asked to pay and current international rates.
Local prices seem “increasingly out of kilter” with international ones, Sims adds, “and, if that is the case, there are some questions to be answered.”
Meanwhile the Prime Minister has spoken out strongly on the role of gas domestically, telling the National Press Club in Canberra in late January that it has “a critical role to play as a back-stop to record investment in renewable energy generation.”
Scott Morrison said “we need to get the gas from under our feet; there is no credible energy transition plan for an economy like Australia’s the greater use of gas.”
Premier Gladys Berejiklian has re-iterated a promise that the Narrabri gas development arrangements, proposed to add 70 petajoules a year to NSW needs, will be finalized in the first half of 2020.
Speaking on 31 January at a joint media conference with the Prime Minister on energy co-operation, Berejiklian said the State is “going through the last stages” of the long-drawn-out planning processes. And she hedged her bets by telling journalists that, if the Santos project fails to get a regulatory tick, “we have other options through Port Kembla and Newcastle,” – a reference to proposals for terminals to import LNG – and she added: “One of these three things will satisfy our arrangements.”
Berejiklian stressed that gas is “critical” in NSW activities to achieve a “very smooth transition” in State electricity supply. “If you want more renewables, you need more gas.”
The development at Narribri has been stalled for years by a government-engineered lengthy assessment process in reaction to activist and community opposition.
The joint statement of co-operation signed by Japan and Australia on hydrogen and fuels helps to answer a significant question, say lawyers King & Wood Mallesons.
It helps to address a “chicken and egg” conundrum, according to the firm: which should come first, the supply or the market? The answer is both, addressed in tandem.
The sheer diversity of the cooperation listed in the statement, the lawyers add, highlights the scale of tasks to be addressed to achieve a global liquid hydrogen market – and it provides impetus for shifting from the idea phase to the design phase.
That it’s pretty damned hard to have a sensible discussion about an issue in the middle of an emotionally-jarring emergency is surely self-evident – and is being well demonstrated at present by the goings on in the social and mainstream media about policymaking when southern Australia is wracked by the effects of large fires.
The current major conflagrations are the fourteenth of their kind since I came to Australia from South Africa at the end of 1970, starting in 1974 with an area equivalent to France, Spain and Portugal combined being burned, the worst outbreak in 30 years.
Each and every one of them over a near half-century, if occurring today, would have led to the outpourings we have seen on the political scene and in the media – which isn’t to downplay the current one or talk up the respective physical impacts of any of the others.
Economist Ross Garnaut, in a newspaper op-ed writes that “a pall has hung over south-eastern Australia since the untimely fires in New South Wales and Queensland late last winter.” He adds: “It will lift to reveal a diminished natural and human heritage. Beautiful parts of Australia have been disfigured.” Quite right and also true of the previous 13 major fires.
Such stuff goes to the emotional fragility of today’s international climate change debate, not least in Australia – and to the reach of today’s media and the hyperbole that is now their common métier (consider, at the other end of the spectrum, the coverage of the Harry & Meghan affair in recent days – one commentator called her a “world leader”!).
The real policy issue here and now is not the continuous pressing of the public panic button by the media and politicians over the fires – in marked contrast to the stoic on-the-ground approach of several thousand people directly affected by the blazes and of the many who have stepped in to help them -- but what will happen when this dies down and federal and State governments have to establish the core facts of the emergency, what needs to be done to mitigate against the next fire season (that we will have one is a rolled gold certainty) being as devastating as this one and, like it or not, what practical additional steps Australia can take in the climate change policy arena.
The latter naturally rolls in to domestic energy strategy, which is not just about power supply in the NEM, embracing also transport and the broad role of gas in this market and nationally – and as well, if there is any sense, to the interaction of electricity and water supply (which in turn is not just desalination).
In the case of power supply, especially in the NEM, this is not only about wind power and solar power but also, again if there is any sense, about a change-around in this country’s attitude towards nuclear energy.
What’s more, it should include more focus on the role of carbon capture, use and storage for both power generation and large-scale industrial use of energy.
Writing in the Australian Financial Review, the former Australian Energy Council CEO Matthew Warren has asserted “Climate change will require two separate but related policy responses: how we adapt to rising temperatures and how we mitigate greenhouse emissions. Adaptation is easier and inside the federal government’s comfort zone. The government is already moving to increase its emergency response powers; reform of backburning practices and increased resources for emergency services will inevitably follow. Policies to mitigate emissions are harder. There are only two ways of reducing Australia’s emissions – de-industrialisation or investment.”
He adds: “Decarbonising the economy will require replacing high-emissions capital with lower and eventually zero-emissions alternatives.” And he points out: “The European Union estimates it will need to invest $420 billion every year until 2050 to decarbonise its economy. On a per capita basis, that translates to around $22 billion every year in Australia.”
The newspaper itself, in an editorial, has acknowledged that setting Australia on a new course in climate change and energy policy “won’t be cheap or easy.” It adds that it is “wishful in the extreme” to believe that the current catch-cry of full decarbonisation by 2050 (taken up, for example, by the government of New South Wales) can be met without pain.
My friends who are arguing for new nuclear technology, especially small modular reactors, to be included in a credible decarbonisation policy framework will have been cheered by the paper’s declaration that the current nuclear ban in this country is “a useless relic of 1970s protest politics and an abundance of coal.”
Sensible participants in this debate appreciate that there is no silver bullet – eastern Australia will need to call on the resources of gas, small nuclear, new coal technology, hydro, solar and wind power (possibly larger-scale offshore wind to deal with a still small, but growing rural backlash against the intrusion of onshore renewables) as well as getting much more serious about energy productivity in homes and in commerce and industry. There obviously is no instant fix – although this seems a point lost on the chanting demonstrators. This is long-haul territory. And emphatically there is no “cheap” way to go – both consumers and taxpayers are going to bear real cost burdens.
At the heart of this is the need for a plan – more realistically, a series of inter-linking plans – and it (they) require agreement across the governments of the Commonwealth. Which is where the need for Scott Morrison to be a statesman is critical. He now has the best part of two years before he has to focus on the next federal election, time enough to achieve what Rudd, Gillard, Abbott and Turnbull all failed to do over the past 12 years: create a workable approach to energy for the ‘Twenties within a practical carbon emissions reduction umbrella.
This needs to be done despite, not because of, the tenor of public debate, which continues to rumble along like a washing machine on spin cycle. (Witness the current hyperbole of choice: for example, the fires are Australia’s Port Arthur moment. You what? A tragedy that invited, and got, a relatively simple policy decision on gun control supported by most of the nation and capable of being imposed from Canberra versus a multi-pronged issue that has defied a workable solution over more than a decade because of its many impacts on the economy and differences in public attitudes?)
30 January 2020