Issue 25  January 2007

Global meeting/domestic challenge

The prospect that the UN will call a meeting of world leaders to discuss climate change in the wake of the latest report by the Inter-governmental Panel on Climate Change poses a threat and a challenge for Prime Minister John Howard in the run-up to the federal election.

The new UN Secretary-General, Ban Ki-moon, has been holding talks in Nairobi, Kenya, with Achim Steiner, the German head of the UN environment program (parent body of the IPCC) on the possibility of holding the meeting after the G8 summit in June. With betting in Australia that Howard will probably go to the polls after the APEC summit in Sydney in September, the UN meeting would provide a strong focus for domestic attention at a politically crucial time.

Such a meeting, providing the Howard Government can seize the opportunity, will play more strongly in favour of the incumbent than the challenger, the ALP's Kevin Rudd, in the public mind -- with the APEC meeting then offering still more opportunity for Howard to show off on the world stage before the election.

Don't fence us in

The key advice to governments and political parties from the new Energy Supply Association study on control of Australian power stations' greenhouse gas emissions is that constraints on what generation technology can be used will make the job much harder.

"The greater the targeted emission reduction, and the narrower the range of technologies available to meet a target, the greater the cost will be," says the commentary, which focuses significantly on stabilising emissions in 2030 at 2000 levels.

The main ESAA points are:

Billions for networks

The wildfire damage to Victorian powerlines in January highlights both the physical fragility of the national electricity delivery system and the increasingly huge sums needing to be spent to enable it to cope with consumer demand.

Regulatory approvals for capital spending on networks in the four mainland States of south-eastern Australia over the next five years amounts to $21.2 billion, with the bulk of the outlays going on government-owned systems in Queensland and New South Wales ($16.7 billion between them).

This massive capex outlay reflects the predicted increase in summer load for the four States over the next five years -- forecast to be more than 5,000 MW -- but also, and this is consistently overlooked in media reports, the solid rise in overall consumption of recent years.

Data for the six financial years from 1999-2000 to 2004-05 published by the Energy Supply Association show a rise of 9.6 per cent in electricity customers and 20.6 per cent in power demand.

The key figure within that data set is the increase in business demand -- up 23.5 per cent in the six fiscal years, reflecting the strength of the economy.

While residential power requirements in this period have risen 17.2 per cent to almost 50 TWh, business demand in the four States (and the ACT) has shot up to almost 118 TWh. Residential demand as a percentage of total consumption has fallen from 30.8 per cent to 29.7 per cent.

While media focus in the south-eastern States, therefore, tends to be on McMansions and the growth in residential air-conditioning usage, the data demonstrate that the bulk of the network (and generation) capital outlays required are going to service business demand.

Watts on the table

The sale by the Queensland Government of the retail arm of Energex -- labeled Sun Retail -- for $1.2 billion late last year must surely have sparked some deep thinking in the New South Wales Treasury and the premier's office.

Confronted with a range of intractable NSW infrastructure investment issues, including the growing inevitability of a major outlay on a desalination plant, why not sell off the retail arms of EnergyAustralia, Integral Energy and Country Energy?

Unlike previous plans in the late 1990s by former premier Carr and treasurer Egan to sell generation and network assets, which ended in humiliation for them at the hands of the trade union movement and an abject abandonment of the idea, the unions have little or no interest in the sale of retail activities, as witness the recent lack of angst in Queensland.

In a new report, global bankers Merril Lynch & Co are floating the thought that EnergyAustralia's retail business could be worth between $1.4 billion and $2 billion -- which suggests that the total government-owned retail operation, with more than 2.5 million customers in the state, could bring something like $4 billion, a handy get out of jail card to carry to the 24 March poll.

Voters presumably are awake enough to work out that the same option is available to the Coalition to fund its proposed expenditures.

Meters to bring price reality closer

The willingness of politicians to admit that anything they propose will lead to higher energy prices is not recognisably high, so the new Ministerial Council on Energy information paper on "smart" electricity meters is couched in suitably smooth words about efficiency, with the implication that clever consumers will devote themselves to carefully watching the addition to their household appliances and shifting their use of power to a less costly time.

Assuming that they, in fact, don't do this, the introduction of time-of-use pricing to accompany the meter roll-out, supposed to start in 2007, could produce some interesting residential power bills before the decade is out.

How long it will take to agree national technical standards for the new meters and nationally implement the roll-out is anyone's guess.  The MCE points out that trials of technologies are already underway in four states (NSW, Queensland, Western Australia and South Australia) while Victoria is further down the road. These activities, says the MCE, should see three million meter installed.

The list of objectives for the smart meter roll-out makes interesting reading. Apart from "enabling consumers to make informed choices" and "promoting energy efficiency objectives," the MCE's goals are to reduce demand for peak power and save on network and generation investments, to "drive" efficiency and innovation in electricity business operations, to promote retail competition, to "improve the price signals for energy investors" and to "provide a potential platform for other demand-side response measures."

Who will pay for installation of the meters?  "The costs of the roll-out," says the MCE, "should be apportioned across the supply chain in accordance with where the benefits accrue and having regard to the timeframes in which those benefits are realised."  Analysis undertaken for ministers covers a cost range from $200 to $700 per installed meter.

One of the more interesting aspects of the plan from a consumer perspective is that the metering arrangements will allow suppliers to use remote control to cut off power and restore it to premises.

Ah, so!

The Australian purveyors of panic over global warming -- ALP environment spokesman Peter Garrett described the national situation as "an emergency" in late January -- should perhaps pause and contemplate the latest numbers out of China.  Shanghai-based analysts are currently estimating that consumption of thermal coal in Chinese power stations will rise 8.5 per cent in 2007 and by between 14 and 16 per cent per year later in the decade.

Australia currently burns 55 million tonnes of black coal a year to make electricity and about 70 million tonnes of brown coal. The official Chinese energy plan for 2006-2010 envisages coal consumption there will rise from 2,100 million tonnes annually to 2,400 million tonnes. Coal demand in China rose 57 per cent between 1994 and 2004 and fuels 80 per cent of electricity supply.

Chinese cement manufacturers alone consume more than 100 million tonnes of coal a year, almost equivalent to Australia's total national consumption.

Meanwhile the Chinese government and state-owned businesses are reported to have projects under development or in the planning stage that will involve spending $US128 billion on gasifying and liquefying coal -- turning it in to diesel transport fuel, methane for electricity production and dimethyl ether for home cooking and heating.

However, the difficulties of getting the Chinese to agree to a global emissions reduction scheme were highlighted at the IPCC meeting in Paris at the end of January, with the 17-strong delegation from China reported to have taken an "aggressive" approach to watering down the report. One of the lead authors of the report, Britain's Philip Jones, described the Chinese attitude as "obstructive."

Kiwis to build wind farm in SA

New Zealand's TrustPower has announced that will build a $200 million wind farm at Snowtown, 170 kilometres north of Adelaide, and have it in operation next year. The development will have a capacity of 88 MW, using 42 turbines, and is stage one of a project that TrustPower says should eventually involve 130 turbines.

TrustPower chief executive Keith Tempest says the company initially planned to build a 260 MW wind farm at Snowtown, but strict technical requirements brought in by the South Australian government for high voltage connections scuttled this proposal. A bigger wind farm would have required a new transmission line, while the scaled-down development can be linked to ElectraNet's existing network.

Tempest says the company has sold power production from the 88 MW project for the next 10 years. The Australian MRET subsidy scheme has made the development viable, he adds, and will contribute about half the farm's revenue.

TrustPower is also in the process of completing New Zealand's largest wind farm -- the 160 MW development at Tararua.


The political tide has turned in Australia on climate change in the past six months, driven to a large extent by concern about the long-running drought and fuelled by first the Stern Report and now the new IPCC report.  Whether a more angst-ridden community attitude is wrong-headed or not, in an election year it is the reality that will drive national policymaking.

The strong steps the Howard Government has announced on water management  probably can be seen as a precursor to more  announcements about greenhouse gas emissions management following on last year's low emissions technology and "Solar Cities" grants.

The core challenge for both John Howard and his rival Kevin Rudd is to come up with a set of pledges that sufficient numbers of voters will buy to either deflect the climate change issue from impacting significantly on the poll outcome or to turn it in to a big plank in an election-winning portfolio.

Environmentalists and those in business who see considerable advantage in Australian embracing a European Union-style stance on climate change policy are hugging themselves at present as they watch the opinion polls predicting a comfortable Rudd victory in the election. They have short memories. Their similar perceptions in 2001 and 2004 were brought brutally undone at the real poll, on both occasions to their great surprise and disappointment.

It can be expected that John Howard will take most of 2007 to lay the ground for an election. It is unlikely to be called until after the September APEC summit in Sydney -- unless the ALP stumbles very badly and opportunity suddenly beckons the PM. As reported above, the calling of a meeting of world government leaders to discuss climate change will be another important event calling for his administration to show deft footwork.

Trying to assess the Prime Minister's mood on climate change policy is not aided by two things: lack of public access to his party's  private polling and a lack of clarity in media reporting of what he is actually saying on the climate change issue. Looking through the verbatim notes on his speeches and interviews, the following of his thoughts come up fairly prominently:

How this translates in to his election pitch remains to be seen.

Not withstanding the wild rhetoric of environmental lobbyists and some in the media, the most global political leaders can realistically agree on in a 2007 summit would be to establish a clear target for stabilizing carbon dioxide emissions. This would enable policymakers to determine the technological pathway their countries will need to -- and are capable of -- following, as well as allowing a firm value for CO2 to begin to be established. In the words of one leading researcher, policymakers have to demonstrate an ability to go beyond "sandpapering the edge off a catastrophe."

The point here for politicians, including those in Australian federal politics, is not whether a catastrophe is in the making, be its timing ever so distant, but that the community now wants to see what it will consider to be meaningful action. The challenge for Howard and more so for Rudd is that most of the Australian community are equally unwilling to have the national economy, and their lifestyles, up-ended.

Keith Orchison

31 January 2007

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