Issue 3 March 2005

Differing prayers

Two distinctly different prayers will be ascending from Victoria as 2005 wears on -- one from the State Government for another cool summer in 2006 and the other from baseload power generators for an exceptionally hot one. The prayers arise from the same event -- the delay of the $780 million Basslink project, on which the Victorian Government was counting to alleviate peak State electricity demand in the hottest months with energy from Tasmania. Absent Basslink, and in the event of a severe summer, the generators on the other hand can look forward to a substantially higher wholesale electricity price.

The Basslink project has been set back as a result of severe damage to six transformers being shipped from Germany to Australia and the equipment supplier, Siemens, says they will have to be replaced by entirely new units. Siemens says the damage was sustained when the ship carrying the transformers lost its rudder in a storm.

Victorian Energy Industries Minister Theo Theophanous says that the project, originally scheduled to be commissioned in November this year, is now going to be delayed "until at least April 2006." Theophanous says he will seek advice from the National Electricity Market Management Company (NEMMCo) on the implications of the delay for Victoria's security of supply.

Words of comfort for wind farmers

With the mandatory renewable energy target fixed at its current 9,500 gigawatt hours annual level as a result of the Federal Government's rejection of proposals for change, wind farmers are conscious that 2008 will bring up the "house full" signs for renewable energy certificates, a barrier that is already driving on short-term development plans and consideration of ways to cut wind system capital costs.

The abuse heaped on the Howard Government prior to the 2004 election by some elements of the renewable energy lobby -- driven no doubt by the mistaken belief that the Government was about to fall -- has not left much room for efforts to bring about a change of heart on MRET, at least in this term of office, which can run until late 2007.

However, wind farmers may take some little comfort from one corner of the Coalition, an indication that some in the National Party are onside. In the recent Western Australian State election, the National Party went to the polls on a platform supporting the building of wind farms in regional WA "which we believe will assist in the development of rural job opportunities across the State." National Party State leader Max Trenorden commented: "There are people coming and saying what a fantastic tourist opportunity these towers are, but there are other people saying they are eyesores, and that's human nature -- but the issue here is that if we want renewables, these are some of the best ways to produce renewable power."

Meanwhile the State Government has confirmed that developer Wind Power Pty Ltd has cancelled plans to construct wind farms near Ballarat and Mt Macedon after community consultation as well as testing of the wind resource. State Energy Industries Minister Theo Theophanous says the company still has plans to invest more than $400 million in Victoria on renewable energy projects. "It's important that wind energy developments occur in appropriate locations," he adds, "and the decision by Wind Power to drop the Ballarat and Mt Macedon proposals will boost public support for wind developments.

Victorians embrace competition

The introduction of electricity competition for small consumers was a popular topic of media coverage 2-3 years ago when a slow take-up of the opportunity to switch supplier was held up to be evidence of market failure. There isn't much in the way of media coverage now when consumers are demonstrating substantial support for their competition opportunities.

Victorian Energy Industries Minister Theo Theophanous has just released data showing that almost one in three of the State's small energy consumers -- 750,000 households and small businesses -- have taken up their right to choose their electricity retailer. Theophanous says that 19 percent of Victorian households and small businesses switched between privately-owned retailers in 2004, treble the switching rate in New South Wales, where the State Government continues to own the main retailers.

Theophanous says private sector retailers in Victoria are offering cash rebates of up to $100 a year to small customers to switch supplier along with offers of equal monthly payments to avoid big bills in the periods of larger consumption, discounts for paying early and even discounts on football club membership.

Exporting wind power

South Australia has the opportunity to become a large exporter of wind power interstate if transmission problems can be resolved, according to Ian Lloyd-Besson, president of the Australian Wind Energy Association.

Speaking at the Victoria Power conference in Melbourne, Lloyd-Besson has called on the Federal and State governments to address constraints in electricity transmission. South Australia, he says, has excellent wind resources and many locations suitable for wind farm development, but its grid links to eastern States are insufficient.

Lloyd-Besson says 379 megawatts of wind generation had been installed in Australia by the end of 2004, double the capacity at the end of 2003, with a further 628 MW of wind farms either being built or under tender. Sites with capacity for a further 5,000 MW of wind power and under evaluation, he says.

Energy efficiency report due – in draft

Potentially one of the most important energy sector reports of the past five years -- a period which has a welter of energy-related reviews and policy announcements by governments -- is about to appear, at least in draft. The Productivity Commission, having received 80 public submissions to its inquiry in to the economic and environmental potential of energy efficiency, commissioned by the Federal Government, is committed to delivering the draft report by commissioners Neil Byron and Mike Woods in early April.

In preparing the draft report, Byron and Woods have received input from only four governments -- the Federal Government (through the Department of Environment and Heritage) and the South Australian, Queensland and Western Australian State governments. (The South Australian Government has argued that there is a strong case for government intervention to encourage energy efficiency. It notes that modelling undertaken through the Sustainable Energy Authority of Victoria indicates that setting a one percent national energy efficiency target would result in a $1.57 billion increase in GDP in 10 years and says it supports investigation in to the establishment of a NEET.)

The Productivity Commission website covering the inquiry includes the transcripts of evidence given to public hearings in Sydney, Melbourne, Canberra and Brisbane and, through the commissioners' questions and comments, provides some insight in to their thinking.

For example, Neil Byron, commenting during the evidence of the Australian Greenhouse Office, asserts that government failure is a factor in the market availability of appropriate signals for efficient energy use. "It is State governments in every case," he says, "that are distorting the final price that the end-user sees and holding it down to prices that nowhere near reflect the full cost. They don't even reflect the fluctuating wholesale prices that vary on a half-hour basis.

"We've got a system set up by governments," he continues, "to deliberately mask the real cost of using energy, so how can we be surprised when energy users make wrong decisions?"

He also comments that Australia has been using regulatory and educative/persuasive instruments a great deal in this area, but "price signals are going in the opposite direction -- it's hard to get people to make decisions and behave as if energy is very scarce and becoming more scarce, when in fact the price signal in the marketplace is that it is not." There seems to be a policy co-ordination problem, he adds.

He points, too, to a Housing Industry Association report that, in an answer to a survey question to first home buyers as to whether they would spend an extra $1,000 on wall insulation or a marble top bench in the kitchen, consistently over 5-6 years the answer from 92 to 95 percent of respondents has been to choose the marble-top bench.

Elsewhere, Byron observes that one of the most critical questions the review has to try to answer is, if there are huge potential savings (from energy efficiency) that companies and households are not picking up, "why on earth aren't they and how might they be persuaded or encouraged or compelled to do so?"

The assertion has been made repeatedly to the review, he says, that there are billions of dollars of savings (to be achieved) -- from actions that are cost-effective today on a commercial basis, using proven technologies -- but businesses and households are not doing things that seem to be in their own best interest.

He also comments: "The conundrum is, if there are things that could be done immediately today and, even with today's relatively low energy prices in Australia, that are low risk, high reward and low cost to implement, why on earth aren't they already happening?"

Mike Woods, in a session with the Australian Consumers' Association, also makes the point that the commissioners are "particularly conscious" that, if demand management is to be pursued through pricing, there has to be an awareness of the overall economic consequences, not only in terms of consumer response but also of cost to industry, "the whole flow through the economy." He adds: "At some point you might grind the economy to a halt and end up being more energy efficient, but is that the net outcome we want to achieve?"

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