Coolibah Commentary

Issue 171, July 2019

And so we come in to a new financial year with just as many questions requiring answers as 12 months ago, writes Keith Orchison, and with the value of the CoAG Energy Council, due to meet this month for the first time in 2019, once again under the microscope. What’s of most interest, perhaps, is that this time a federal Coalition government may be as much challenged by State Coalition regimes (New South Wales, South Australia) as those run by its opponents. The NSW energy minister, for example, will go to the meeting talking about the need for “ideological indulgences” to stop being pursued – while the market agencies and the Energy Security Board are sounding off more loudly about system security, with ESB chair Kerry Schott fretting about this having got worse since the end of 2018. How far the “national energy guarantee,” killed by Liberals last year as part of their internecine strife, can be resurrected (under whatever guise) now appears to be a live issue. Meanwhile, essential reading for all concerned is a new review of power supply issues from the superannuation industry.


“Last December we though market governance was pretty dreadful but getting better, but now………” – Energy Security Board chair Kerry Schott, addressing Australian Energy Week.

“Australia is blessed with world class renewable energy resources which could provide us with a competitive advantage in a decarbonized global environment. However, over the past 20 years we have been making a world class mess of integrating wind and solar projects in to our grid and putting building blocks in place to accelerate in to the future” – Paul McArdle of Global-ROAM, introducing its Generator Report Card

“A decade ago, the challenge was to decarbonize a reliable grid despite the economics. Today, the economics are decarbonizing the grid. The challenge is to ensure the grid stays affordable and reliable” – NSW Energy Minister Matt Kean, speaking to the Committee for the Economic Development of Australia.

“Our goal is that in the 2030s South Australia (will be) generating more clean power than is needed for our domestic use” – SA Minister for Energy & Mining, Dan van Holst Pellekaan, addressing Energy Week.

“Australia’s deployment of wind and solar has been driven by political targets, not technical assessment; only now is AEMO undertaking an assessment of how to integrate VREs” – Greg Everett, MD, Delta Electricity, speaking at Energy Week

“Forced penetration of renewables to a high level is destabilizing the entire power system” – Robert Pritchard, Energy Policy Institute executive director, in a radio interview advocating that a “systems approach” needs to be pursued embracing renewables, coal, gas and nuclear power. “All have a part to play. You’ve got to take a holistic approach.

At crossroad

Paula Conboy, chair of the Australian Energy Regulator, says the market is at a crossroad of either embracing market concepts to deliver energy or moving towards a more interventionist approach for the supply system.

She told the Australian Energy Week conference in Melbourne that trying to lock in requirements looking out 30 years is a risky proposition and fit-for-purpose regulation needs to be sufficiently flexible to evolve with the market drive benefits for consumers.

The need for customers to have confidence in regulation has never been more important, she said, “and we need more effective penalties to enforce market rules.”

“To be blunt,” she added, “the AER’s power and penalties are simply not comparable with those available to other sector-specific or economy-wide regulators and are therefore not in line with community expectations.”

Who pays?

The present NEM generation access and transmission pricing arrangements presume the system is built for, and in effect used by, consumers, so they pay for transmission – but, with arguments now that transmission needs to be built for generators, it’s reasonable to ask what high voltage investments should be funded by them and how?

John Pierce, chairman of the Australian Energy Market Commission, raised this issue with 370 delegates attending the Energy Week conference in Melbourne in mid-June.

Pierce said: “If we don’t reform access arrangements, then consumers or taxpayers may end up footing the bill for transitioning towards the grid of the future.” The commission, he added, is going to give priority to addressing the issue.

He also told the conference that “the deterioration in system security keeps me awake at night” as the type of power capacity now being introduced to the market has different technical characteristics to the types being retired.

“There needs to be incentive for participants to invest in the sort of technology and kit that provides (system security). There always needs to be the right amount of frequency control, voltage management, inertia and system strength.”

The commission, Pierce said, is also giving priority to rule changes to reform the way system security is maintained in future.

Pierce’s grid comments follow Energy Minister Angus Taylor, writing in a trade magazine, declaring that “the old paradigm of transmission does not work in a world of increased interconnectivity, revenue auctions and distributed generation.”

Taylor said: “We must work on two core transmission areas. We must ensure that all new government reverse auctions consider the impacts on transmission systems when they are designed (and) we must acknowledge that interconnection is a strategic asset that should be managed differently.”

Taylor added that there are numerous international models, such as those in Europe, that are “appealing” because they are “fairer and more efficient at building and maintaining (high voltage) networks.” Australia needs to investigate them further, he said.

‘Leave dogma at door’

Research and advocacy body Industry Super Australia, in a new discussion paper for industry superannuation funds on the uncertainty affecting electricity investment, says the “major undermining factor” is the lack of a “genuine long-term technology-neutral energy policy.”

ISA adds that “a rough summation of our technical analysis is that there is no simple solution to Australia’s energy trilemma right now.”

ISA warns: “The problem in taking the low reform road, or failing to reform at all, is that bad policies may steer investment towards long-lived infrastructure solutions that only survive because of subsidies and special deals.” And it adds: “Realistically, the low road may be the norm over the next one or two decades.”

The paper released at the end of June says that, even without climate change, the existing fleet of baseload generators needs replacing. “AEMO expects about 60 per cent of current coal-fired generation capacity will retire by 2040. In the normal course, portfolio investors would be lining up to fund long-term solutions – but so far the silence is deafening.”

It comments: “Investors looking for longer-term solutions such as possible clean coal technologies or gas-fired baseload and especially (small or large-scale) nuclear could be placed in an extremely risky position.

“Right now, the only politically acceptable investments appear to be relatively small scale, quickly deployed wind or solar projects. It is far from certain that this is a complete solution or puts us on the optimal trajectory.”

ISA also declares: “The idea of leaving the transition to a modern electricity grid to the market and short-term profit considerations is misguided in a situation where the market is clearly imperfect and cannot deal with uncertainties or externalities.”

ISA advocates “leaving dogma at the door.”

The researchers say their preferred macro-policy approach would involve “some form of carbon price” together with long-term contracts with energy market participants to replace capacity “about to go out of business.” They call for a “genuinely technologically neutral discovery process” guided by a panel of scientists and policy experts, “unencumbered by pre-existing taboos.”

ISA adds: “The question should not be renewables or coal. The focus should be on the best strategy to reduce emissions. The NEM should be focused on creating competition for long-term supply of capacity and energy at given emissions targets.”

Turning point

The Australian Energy Market Operator forecasts that electricity supply from the grid to businesses and households in south-western Australia will fall by up to four per cent between the new financial year and 2027-28 because of WA’s uptake of solar power, driving a “paradigm shift” in the market.

The operator has reversed its 2018 prediction that system demand would rise by nine per cent over the next decade.

In its latest outlook for the West, AEMO sees rooftop solar capacity in the SWIS reaching 2,500 megawatts towards the end of the ‘Twenties from 1,100 MW now. It also expects large-scale variable renewable capacity to rise from 670 Mw now to 1,215 MW by 2021.

It predicts there will be times from 2024 when weather-driven power will account for as much as 65 per cent of SWIS capacity on-line on some days.

The forecast comes at a point when Synergy, the WA government-owned supplier, is warning it faces net losses of $180 million over the next three years because its income from declining consumer demand can’t match its operating costs – and it will also need to spend $140 million on capital outlays to maintain its supply system. The situation will impact on dividends the State government currently draws from its utility ownership.

Synergy chairman Robert Cole says major growth in renewable power in the SWIS “has profound consequences for the dispatch profile of our fleet and our cost of generation as well as our revenue base.”

AEMO notes that the Labor State government has indicated it recognizes the need to makes changes to the south-western market structure to deal with the transformation, notably to deal with new pressures on the market’s frequency control, system strength and voltage control as dispatchable generation is displaced.

EnergyQuarterly reports that generation sent to the SWIS grid in the 12 months to March this year fell by 2.6 per cent compared with the same period in 2017-18.

Nuclear in focus

An inquiry in to nuclear power has been launched by the NSW Legislative Council with public hearings scheduled for September following production of an issues paper by the parliamentary research service this month.

The move has give fresh hope to proponents of nuclear power for Australia that pressure can be brought to bear on the federal government to repeal the current national legislative bar to use of the technology.

It comes as Industry Super Australia, in an influential paper on energy policy, declares that it is difficult to see how the problems confronting the NEM ‘can be resolved without some nuclear in the mix.”

The ISA research paper adds: “The principles of optimality, fairness and merit suggest (nuclear) should not be discounted.”

There has also been a push by some members of the National Party for a Senate inquiry in to the issue while the Australian Institute of Mining & Metallurgy president, Janine Herzig, told an international uranium conference in Adelaide in June that “the time has come to discuss the opportunities afforded by (our) nuclear potential.”

AusIMM chief executive Stephen Durkin added “we should at least be capable of having a conversation” about the issue.

The Guardian newspaper says a new public opinion survey by Essential Report has found that 54 per cent of respondents believe nuclear energy here would be a reliable source of future energy (versus 28 per cent who don’t) and 47 per cent think nuclear would be better for the environment than coal-fired generation.

The survey also found that 44 per cent of respondents support the introduction of nuclear energy in Australia versus 40 per cent who oppose it.

The Australian Nuclear Association, in a statement published in June, has called on the community to accept that nuclear energy is “ready to make a valuable contribution to low emission, dispatchable generation.”

‘Twelve precious months’

South Australia’s Energy & Mining Minister, Dan van Holst Pellekaan, says there are “12 precious months” post the federal election and before the next State poll (in Queensland on 31 October next year), for policymakers to “enjoy some clean air” and “build common purpose” at the CoAG Energy Council.

The council meets this month for the first time in 2019 after elections in Victoria, New South Wales and nationally disrupted proceedings.

Speaking at Australian Energy Week in Melbourne, van Holst Pellekaan suggested governments should use this time to pursue one of the key recommendations of the Finkel report – to develop a long-term energy policy trajectory – “providing flags within which it’s safe for market participants to swim.”

He said the council should be “overwhelmingly on the side of consumers” while also ensuring that energy suppliers have attractive and long-term opportunities. “Without suppliers, consumers have nothing.”

He added: “By focusing on the enablers of an orderly transition and sharing their pathways (governments can enable the market) to adopt more renewables and deliver emissions reductions while, most importantly, not losing sight of the very high priority consumers place on affordability and reliability.”

In South Australia, van Holst Pellekaan said, the Liberal State government is aiming for almost 100 per cent renewable electricity generation by 2030, producing more clean power than it consumes for export over interconnectors, “but our focus is on delivering an orderly transition rather than trying to lead the world.”

Energy Networks Australia has hailed the minister’s comments for its “positive and forward-looking” tone and absence of “inflammatory, politically-charged language that has characterized most public debate for too long.”

Fall of coal

A new international power forecasting effort by Bloomberg New Energy Finance includes an assertion that coal-fired generation’s share of Australian energy supply capacity will drop from 25,000 megawatts now to 23 gigawatts in 2025 and 18 GW in 2030.

The BNEF claims, which also embrace 2040 and 2050, the equivalent of trying to foresee today’s system from the late 1990s and 1980s, see the renewable energy share of Australian generation reaching “at least 45 per cent” by 2030.

Role of coal

The contribution of black and brown coal-burning plant to the east coast market fell marginally in the 12 months to March compared with the same period of 2017-18, according to the latest EnergyQuarterly publication.

The EnergyQuest journal reports that coal plant produced 145,845 gigawatt hours in the year to March against 146,939 GWh in the previous period – taking a market share of 74.9 per cent, down from 75.9 per cent.

Bigger shifts in generation sent to the grid in the latest survey were seen in gas-fired power (down 4,906 GWh), hydro (up 2,504 GWh) and wind (up 2,992 GWh).

In addition, the estimated use of rooftop solar power (mostly be households) was 8,822 GWh compared with 7,068 GWh in the previous 12 months.

EnergyQuarterly also reports a fall in the use of coal power in Western Australia’s south-west integrated system – where it contributed 8,110 GWh or 46.3 per cent of power sent to the grid versus 49.5 per cent in the previous period – while gas-fired generation rose to a 43.7 per cent market share.

Rooftop solar PV use continues to rise in WA, too. Its estimated use in the SWIS in the latest 12-month period was 1,573 GWh, up almost 28 per cent on the previous term.

Meanwhile the latest federal government energy statistics digest shows that electricity supply across Australia from all sources (including rooftops) reached 261,405 GWh in calendar 2018 – up from 255,143 GWh in 2015.

Over these four years, according to the digest, black coal generation has risen eight per cent while brown coal power production has fallen 28.8 per cent (following the closure of Hazelwood and other plant).

Gas plant production has been on a rollercoaster: 50,875 GWh in 2015, down to 48,521 GWh the following year, sharply up to 55,176 GWh in 2017 and down again last year to 50, 244 GWh.
Over this period, wind farm output has risen from 11,838 GWh in 2015 to 16,266 GWh last year – and large-scale solar farms, with only 283 GWh in 2015, provided 2,139 GWh last year.
Small-scale solar’s estimated use rose from 5,923 GWh in 2015 to 9,941 GWh last year.

EnergyQuest comments that the growth in renewable energy in the NEM is illustrated by the rise of capital expenditure on electricity, downstream gas and water – which has increased from an average of $1.2 billion per quarter to $2.2 billion in the March 2019 quarter. In the first quarter this year, it adds, six new solar farms were added to the supply mix – five of them in Queensland.


EnergyAustralia is downplaying Melbourne newspaper reports that its Yallourn power station in the Latrobe Valley, supplier of more than 20 per cent of Victoria’s electricity, could be shut by 2025.

The company has previously said it will operate Yallourn until 2032. It now says this is still its intention “as long as policy and regulation permit and there is not a substantial change in the market” and it is continuing to work on improving the plant’s efficiency.

Latrobe City mayor Graeme Middlemiss says the company has confirmed in a meeting that its aim is to “go right to 2032.” He said an earlier closure “will hit the Valley hard” with a large impact on employment.

Another media report claims the Yallourn shutdown will begin in 2029 and run, unit by unit, until 2032.


Electricity supply in Australia accounted for 33.2 per cent of the national carbon emissions total last year.

The latest report from the federal government (for calendar 2018) records that electricity-related emissions were 178.9 millions tonnes CO2-e, down from 185.5 Mt in 2017. It says that, even as national emissions overall have fallen by 9.5 per cent (56.2 Mt) since 1990, power generation’s output stands 48.2 Mt higher for the period – but it is also 15.5 per cent (32.8 Mt) lower than the peak recorded in the year to June 2009.

The government says the latest data reflect a strong rise in the use of solar power and falls in brown coal and gas-fired generation.

It adds that emissions in the NEM in the 12 months to March this year were 2.1 per cent lower than in the same period of 2017-18, during which demand remained flat. The east coast market accounts for 85 per cent of electricity-based emissions in Australia.

Staying upbeat

At a time when energy retailers are taking a hammering in the public debate – Energy Security Board chair Kerry Schott told Australian Energy Week in June that they should read the Hayne report on banks because “what they are doing doesn’t pass muster” – and the impact of the pricing code changes from 1 July are starting to become apparent, the major companies are staying upbeat.

Jon Briskin, executive general manager (retail) of Origin Energy, acknowledged at Energy Week that “the industry is facing significant headwinds, trust in our sector is low” – but, he said, “the reputation of individual retailers remains higher than the reputation of the sector as a whole.”

Briskin noted the industry’s lower levels of community trust could be attributed to higher bills, the difficulty customers encounter in comparing price offerings and “unpopular sales practices.”

He added: “The political environment has also made sure that energy policy, energy prices and the conduct of energy retailers has been front and centre and constantly in the media.”

Origin, he asserted, has been “trying to make it easier for customers,” but, “with the lack of a consistent approach across the sector, it is easy to see how they can get frustrated and lose confidence.”

He pointed out that the company is moving more than a half million businesses and households across Queensland, NSW and South Australia to lower prices on 1 July – when the “default market offer” requirement takes effect.

In the future energy market – which will be more decentralized, decarbonizing and “digitized” – “customers will have more power, more control and more visibility than ever before,” Briskin said.

He added that the lesson Origin had learned from recent experience was to make it easier for customers to see how to get lower costs “and not make them work hard for it.”

‘No justification’

The upstream petroleum industry has lashed out at the surprise decision by the Queensland government to increase royalties on the sector by 25 per cent.

State Treasurer Jackie Trad has shifted the royalty rate from 10 per cent to 12.5 per cent.

The Australian Petroleum & Production Association has declared there is “no justification” for the move. CEO Andrew McConville says it will have a flow-on effect to the domestic gas market by putting in doubt future investment.

Trad, who expects the royalty rise to garner her government an extra $476 million over four years, rejects assertions she has “blindsided” the State industry by acting without consultation but Queensland Resources Council CEO Ian Macfarlane, a former federal minister, says “a tax hike out of the blue doesn’t pass muster.” He adds that “at the very least, there should be an exemption for gas sold on the domestic market.”

Trad says the Queensland LNG export industry “has been created by the government” and needs to pay back the support after overseas sales have reached record levels.

Gas price pain

The Australian Competition & Consumer Commission warns that high prices remain a critical issue for east coast gas users. Most of commercial and industrial consumers will pay between $9 and $11 per gigajoule this year, it says.

“The fact that prices are staying so high means many manufacturers are struggling to compete internationally,” says ACCC chairman Rod Sims. “Commercial and industrial users have been telling us for some time their operations are no sustainable in the medium to longer term.”

He adds that businesses relying heavily on gas are “increasingly likely” to relocate from the east coast or wind up their operations. “If wholesale prices do not soften, it is just a matter of time.”

More than 200,000 people are employed by Australian manufacturers heavily reliant on gas supply.

The Australian Petroleum Production & Exploration Association has responded that “the real answer to getting gas prices down is to support safe and responsible development of resources.”

Last word

About the last thing we need moving in to the 11th financial year since Kevid Rudd started running national energy policy off the rails is those in power entrenching their pet dogmas, but at State and federal levels this is always a prospect.

This why a research paper just published by the superannuation industry (and canvassed elsewhere in this newsletter) deserves prominence in the public debate – which means it needs to be taken up widely in the mainstream media.

Robert Gottliebsen, writing in The Australian about the paper, titled Modernizing Electricity Sectors, suggests the researchers for Industry Super Australia, the advocacy body for funds with $678 billion under management, including $40 billion in the energy sector, anticipated Labor would win the May federal election (and therefore I imagine expected a new effort to pick up the “national energy guarantee” and run with it more strongly). If so, the paper’s messages are even more deserving of close attention because I doubt if the re-elected Coalition government can even convince itself that it has a fully-formed energy plan for the future and the “fall in and follow me” stance evinced by federal Energy & Emissions Reduction Minister Angus at Australian Energy Week had a noticeably cool reception from his audience.

A rough summation of what the ISA paper says (in 103 pages) includes these points:

Given the jumping up and down evident in the anti-nuclear corner at present (an indication, I believe, the antagonists suddenly see that a change could be in the wind), it is worth stressing this quotation from the ISA paper (I am paraphrasing): “Australia currently runs the risk of being trapped by a lack of (energy) flexibility. It is far from obvious that solar and wind can provide all primary energy in any feasible combination. (We) should not fall prey to hysteria.”

And I should include at this point something salient from one of my widely-experienced colleagues with whom I have been sharing views on the ISA paper: “Technological neutrality is a great policy principle but we should remember that making it work in practice is extremely difficult – with the devil always in the detail of any set of market rules.”

Which, to my mind, raises yet again the problem that relying on politicians for decisions on the detail of reform in a complex marketplace is dangerous.

Keith Orchison
30 June 2019