Coolibah Commentary

Issue 202, February 2022

“Transition” is the most overworked word in the electricity debate, locally as well as globally. What it really means for markets and consumers is open to many questions. Is it an evolution or a revolution? Green activists know what they want it to be. Mainstream politicians in Australia are looking for an evolution (at least in the perceptions of voters) with its implicit promise of a soft landing for users, the economy and workers in the energy industry. The issue, while playing second or third fiddle to pandemic policies, promises and actual relief delivery, is sure to have a place in the federal election campaign now under way (even if the Prime Minister is carefully keeping the polling date to himself for the time being) but nowhere near as prominently as it did in 2016 and 2019. How a voting audience distracted (very understandably) by the stresses of the pandemic and fed hype by so many of the players in the “transition” games is expected to be able to come to an informed opinion on polling day about energy issues that will play such a large part in their future down this decade is really hard to say. Probably voters won’t and there may be a price to pay for that, literally and figuratively, in due course. An illustration of just how nasty the power market can become for consumers when management goes wrong is at hand in the UK at present but this scarcely gets mentioned in Australian media (crowded out, again understandably, by the pandemic).


“The electricity industry is going through an enormous transformation as it decarbonizes; it’s one of the key sectors of the economy and you need to have it firing on all cylinders” – Griffith Business School energy economist Paul Simshauser.

“We should be neither fearful nor complacent about accelerating carbon cuts; if emissions merely glide down now, they will need to power dive later” – Innes Willox, chief executive, Australian Industry Group.

“Expensive energy is baked in to Britain’s future; it’s not cheap being green” – The Economist newspaper.

“Australia is a world leader in renewable energy. The Morrison government is advancing its commitment to ultra-low cost as a priority technology to help to deliver lower emissions, lower energy costs and more jobs” – federal Industry & Energy Minister Angus Taylor.

“A new paradigm has emerged in the climate wars that will likely see a ceasefire between Labor and the government during the federal election campaign” – Sydney Morning Herald political commentary.

“The (east coast) electricity grid has been left dangerously neglected” – the Electrical Trades Union attacking decisions by the Australian Energy Regulator on network funding that it says has been cut by $10 billion over 10 years.


A major, 622-page new analysis of generation in the east coast electricity market contains three key messages: variability and uncertainty in the NEM are increasing and so are risks and complexity.

Published by Greenview Strategic Consulting and Global-Roam, “Generator Insights 2021” is presented as “an analytical deep dive in to historical generation performance in the NEM and what it means for future challenges.”

Paul McArdle, CEO of Global-Roam, says “the NEM transition is rocketing along but it is getting more complex and risky,” adding “the challenge of 100 per cent renewables is so much more complicated than simply generating energy from renewable sources.”

And he highlights that, while new minimum energy demand requirements in the market continue to tumble, peak demand needs have remained high and are now more challenging to meet.

McArdle adds that the continuation of significant incidents in the NEM “suggests that we are not yet fully on top of managing the variability, risks and complexity.”

Commenting on the report, David Leitch, principal of ITK Services and a leading Australian utility analyst, points to its finding that the market has become more reliant on forecasting, declaring “for many of us, the thought that keeping the lights on depends on forecasting is indeed a concern.”

GenInsights21 authors focus strongly on the level of risk inherent in the transition being large and increasing. They write: “Concerted, objective focus will be required for years to come to ensure the transition occurs as smoothly as possible.”

They add: “With growing risk comes increasing risk premiums. They take many forms. At a physical power system perspective, they result in additional headroom and safety margins. Within a market context, they result in safety nets and contingency measures. Either way, the risks materialize somewhere – but in complex systems it is often difficult to predict the impacts in advance.”

The publication also points out that the cost of carbon is not being well priced in to the NEM, “thereby distorting multiple levels of price signals – which is especially critical in a high-capex, low-opex electricity market.”

‘Where all this goes next’

Responding to the Australian Energy Market Operator’s latest quarterly NEM report with its upbeat messages about the role of renewable energy, Tony Wood, energy program director at the Grattan Institute, has commented to a newspaper that falling power prices, high levels of reliability and reduced carbon emissions are “positive takeaways” – but “the increasing risk of extreme market volatility is a cause for concern.”

Wood added: “You can’t have an industry where suppliers aren’t profitable.”

He argues: “Where all this goes next is the challenge. We are continuing to see lower prices, but how do we deal with the financial pressures this is going to put on early coal plant closures?

And how are we going to integrate more renewable in to the grid?”

Wood says: “The pathway through is not as clear as it needs to be.”


Federal Industry & Energy Minister Angus Taylor has seized on the AEMO December quarter report, released at the end of January, showing that average mainland power prices in the NEM fell 14 per cent to $57 per megawatt hour.

He acknowledges that having sufficient on-demand generation alongside weather-reliant renewable energy is “necessary to keeping prices low,” adding “where there is an imbalance or interruption in reliable supply, that can create challenges” and declaring “the Morrison government is focused on maintaining balance in the system by safeguarding the delivery of reliable generation alongside record-breaking levels of renewables.”

Market numbers

The flow of mainstream media reports (and the torrent of social media comments) about the rise of renewable energy in Australian power markets has been sidelined somewhat by coverage of pandemic issues, but the community is still hearing continuously about the change – without getting to see the key data about the shape of power supply.

The latest factual data on generation has been published in the past month by analysts EnergyQuest in a new issue of its “EnergyQuarterly” publication.

The statistics cover 12 months to the end of last September.

Given the ongoing fuss about the role of renewables in the South Australian market, it is interesting to see the hard numbers for the State for this period.

Apart from the estimated use of rooftop solar power (2,092 gigawatt hours for the period), SA supply came mostly from 4,767 GWh provided by gas-fired plants and 5,822 GWh from wind farms – with solar farms providing another 670 GWh. In addition, there was a net flow of 490 GWh from Victoria in to SA.

For the NEM as a whole in the 12 months to end-September, by far the dominant power source remained brown and black coal-powered plants, which sent out 129,881 GWh with gas units dispatching another 11,857 GWh. On the renewables side, wind farms are now the dominant supplier (22,335 GWh), well ahead of hydro power (14,654 GWh) and large-scale solar power (8,010 GWh). Estimated use of rooftop solar power in this period was 15,139 GWh.

Leaving aside rooftop solar, total generation to the east coast grid in the period was 186,823 GWh – compared with 189,492 GWh in the same period of 2019-20 when the Covid pandemic struck Australia. Coal’s share of power to the grid in the 12 months to September last year was 69.5 per cent.

EnergyQuest comments that, in this period, adjusting for interstate electricity transfers, consumption was flat in New South Wales and South Australia, up by four per cent in each of Queensland and Tasmania and up by two per cent in Victoria.

The “EnergyQuarterly” coverage also includes the south-west integrated market system in Western Australia. For the 12 months to September last year, the SWIS sourced 7,452 GWh of power from coal generation and 6,216 GWh from gas plants. Consumers also took 3,340 GWh from wind farms and 330 GWh from solar farms. Estimated use of rooftop solar power was 2,137 GWh.

Victoria ahead

Consultants Rystad Energy, in a LinkedIn post at the end of January, report that utility-scale wind and solar generation for 2021 totalled 35,564 gigawatt hours across Australia’s electricity markets.

David Dixon, a senior analyst in renewables research, says this was a 22 per cent increase over 2020 – when the total was 29,052 GWh.

Dixon adds Australian wind generation in 2021 totalled 26,380 GWh, with solar farms contributing 9,184 GWh.

He also reports that the region with the largest production for the two technologies was Victoria (9,767 GWh) followed by New South Wales (8,819 GWh) and South Australia 6,396 GWh).

Dixon says utility PV generation in Australia reached a milestone in December, passing 1,000 GWh for the first time. The total despatched was 1,263 GWh, with 577 GWh provided by farms in NSW.

‘Solar tax’

The new year will see the east coast “solar tax” argument roll on after the Australian Energy Regulator published a set of draft guidelines on how network businesses can impose two-way grid distribution charges. The proposed rules include requiring networks to justify the introduction of an export charge in a particular area and to explain how they reached it.

This follows the Australian Energy Market Commission deciding last year that the NEM rules should change to accept that distribution services involve two-way flows of electricity following the rapid take-up of rooftop solar power.

In its explanatory note for the draft guidelines, the AER emphasizes “enabling two-way pricing does not mean that rooftop solar owners will be forced to pay to export solar at all times or, indeed, at all.” It says there will need to be a basic level for exports, a threshold below which power can be sold without additional charges.

The AER adds that distribution businesses will need to demonstrate that their support of solar exports is increasing the costs of operating the network generally or at certain times of day.

The regulator also proposes that introduction of the new approach will not take place until July 2025.

Last year there was a heated public debate about the justification for imposing a “solar tax” and its impact on the rooftop PV installation market. Among the loudest critics was the Andrews government in Victoria.

The AER proposes to publish a final version of the new rules in May.

32 and counting

The federal government’s Clean Energy Finance Corporation has provided financial support to 32 solar farms since 2012, the latest being a 200 megawatt development on Queensland’s Western Downs designed to produce 420 gigawatt hours annually.

CEFC has proffered a $37 million loan for the $190 million project to be site near Chinchilla.

The corporation’s CEO, Ian Learmonth, says: “We have stood by the industry during challenging economic times such as Covid-19, delivering substantial investment and jobs to regional Australia.”

CEFC reports making renewable energy investments of $810 million in 2020-21 – up from $529 million the previous year.

Last year the federal government made a commitment to fast-track “ultra-low-cost” solar power as a key plank of its low emissions technology strategy. Learmonth says the CEFC is focused on using its capital and expertise to support ongoing evolution of the solar sector.

However, he says, the energy transition is not happening fast enough. “Decarbonization requires a much faster pace than we are currently achieving. One of the most effective ways to do this is to fortify the renewable energy sector and reduce the cost of solar PV generation to help stretch targets for technologies such as green hydrogen, low-emissions steel and aluminium.”

‘No tricks’

Federal opposition leader Anthony Albanese has used a National Press Club address at the end of January to, in effect, kick off the 2022 election debate and included an assurance to Australians that the ALP’s “Powering Australia” plan won’t contain “the fine print tricks” that he claims is in the Morrison government approach to pursuing carbon emissions abatement.

Albanese declared the Labor approach is “fully modelled” and gave an assurance that it “has not been designed to accelerate the closure of coal-fired power stations which are market-driven.” He said: “Our plan is underpinned by the most extensive independent expert modelling ever done for any policy by an opposition”

The ALP policy includes a commitment to a 43 per cent Australian emissions reduction target by 2030 and assumes there will be more than 80 per cent renewable energy used in the NEM by the start of the new decade.

Nuclear after coal

Could the sites of eastern Australia’s retiring coal plants be re-purposed with nuclear energy? Sydney-based SMR Nuclear Technology thinks so and published a report at the end of January to support debate of the prospect.

The report advocates that governments not rely on finding replacement low-emissions technology by desk top studies but pay attention to repowering existing generation sites “preserving local and regional communities” and retaining jobs in areas affected by the energy transition.

The 16 sites of the remaining coal generators have valuable infrastructure, especially transmission connections, that can provide “reliable, low-emissions power independent of the weather just where it is needed,” the company says, if small modular reactors are embraced. The extra advantage, it points out, would be the avoidance of investment in expensive additional transmission lines.

It adds that the next step in Australian consideration of a shift to nuclear energy needs to go beyond public acceptance in to community involvement – and suggests federal and State government could finance community exploration of the options.

Last word

It’s a bit early in the year to declare a publication you have been sent to be the most interesting for 2022, but others will have to go some to outdo the “GenInsights21” research Paul McArdle mailed me in mid-January for its relevance to one of Australia’s most pressing issues down this decade: maintaining electricity supply to ensure social and economic well-being while running headlong towards the “transition.”

One side of this perpective can be neatly represented by a comment by Alan Kohler in The New Daily newspaper a few days ago: “Australia is sprinting towards 100 per cent renewable energy, 24/7, 365 days a year (and), once the dispatchable power work of coal and gas-fired power stations is low, they will all promptly close.”

A different perspective would be that those talking up 100 per cent renewables in the NEM give much too little credence to the engineering challenges (and concomitant economic costs) of this pursuit.

The value of “GenInsights21” – produced by McArdle’s Global-Roam business in collaboration with Greenview Strategic Consulting—is that it takes the deepest of dives (over more than 450 pages of analysis and 169 pages of commentary, the bit I have spent the past weeks reading) in order, as the authors say, not to attempt to stop the market future but to be a reference point for serious consideration of the significant challenges lying ahead, about which, I add, there is far too much insouciance in the mainstream media.

One of the exceptions to this criticism is the op-ed work in the Australian Financial Review by Matthew Warren. One of his (numerous) pointed remarks that I filed away last year for future reference (like now) was “Australia has become a continental renewables test lab,” adding “the NEM going big on renewables is literally off the technical charts.”

The considerable merit of “GenInsights21” is that it tackles a swathe of the challenges without emotional and/or political baggage.

The authors observe, in their own summary of their book, “the level of variability and uncertainty is increasing across multiple aspects of both the market and the market arrangements, as well as across the power system itself.”

They say: “With increasing variability, the level of risk inherent in this energy transition is large and increasing – which means that concerted, objective focus will be required for years to come to ensure that the transition occurs as smoothly as possible.”

And they add, referring to new renewables: “Countless times we see discussion and commentary on the number of megawatts installed, total percentage used at a particular point in time (but) without reference or understanding to price, price signal or financial outcome.”

Their call is “we want the industry to respond (to the many challenges) without the baggage of the past or unbridled hype for the future – let’s keep it based in reality.”

And, they observe, the key problem with increasing risk premiums is that someone must pay for them – “and it is generally the energy user at the end of the day.”

In the context of the upcoming federal election and this Last Word, there is another comment from Matthew Warren that is worth adding here: “The difference between considered analysis and campaigning is that analysis explores multiple options in detail and draws conclusions by comparing them. Sometimes the results will be surprising or counter intuitive. Campaigning uses data to justify a pre-determined answer.”

How high up the list of hot topics energy policy will be in the 2022 election – whereas it was close to joint top in 2019 and 2016 – is an open question. The pandemic and its many tentacles in to our lives is almost certainly going to dominate the upcoming poll. But there will be life beyond Covid, hard as that may be to accept right now, and I am sure of one thing: the issues canvassed in GenInsights 21 will still be there on the other side, socially and economically, along with a new one – how to make up for the time wasted in rambling down the green brick road without looking seriously at where we are going?

Keith Orchison
28 January 2022