Issue 60, March 2010



Welcome to the third  edition for 2010.  This issue ranges across a number of factors affecting Australian greenhouse gas emissions, a key regulator’s perspective on smart grids, the Federal Government’s important national energy resource assessment out to 2030 and a US energy expert’s view that the American version of emissions trading will be lucky to clear the US Congress by 2013.

Heading for 670 Mt

Without an emissions trading scheme, Australia’s output of greenhouse gases will reach 670 million tonnes a year in 2020 – compared with 570 million tonnes today. With the ETS in place, emissions will be cut by 144 million tonnes.

This is the perspective outlined by Martin Parkinson, secretary of Penny Wong’s Department of Climate Change & Energy Efficiency, in a talk at the end of March. He said 144 Mt is roughly two-thirds Australia’s current greenhouse gas emissions from electricity generation or twice the road transport emissions.

Parkinson debunked the potential for household rooftop solar power to make a meaningful contribution to the pursuit of abatement. “If all households were to install a 1.5 kW PV panel overnight,” he said, “this would save 13 Mt a year in 2020 at an astronomical upfront cost of $200 billion.”  The capital cost could be halved over 10 years, he added, “but this is still hugely expensive abatement.”

Parkinson revealed that the Howard Government’s program to purchase abatement from willing suppliers – the greenhouse gas abatement program (GGAP) – achieved a reduction in emissions of 3.8 million tonnes at a cost of about $7 per tonne. Less than one third of the $400 million budgetted for GGAP was paid out, he said, because of tough crieria to avoid funding projects that companies would have pursued anyway.
Meanwhile, the Federal Government has established a task group on energy efficiency to report to Prime Minister Kevin Rudd by mid-year on options to “deliver a step change improvement” in use of energy by 2020. The Government has set 3 May as the closing date for submissions to the review, which will be managed by Wong’s department.

In a discussion paper released with the announcement, the Government says Australian energy consumption per unit of outcome is high by OECD standards, largely due to relatively cheap fuel prices, long transport distances and the country’s energy-intensive industrial structure. Recent calculations by the Bureau of Agricultural & Resource Economics (ABARE) indicate that energy efficiency steps cut consumption by six percent between 1989-90 and 2006-07, a period in which consumption grew by 45 percent. The Government says it has more than $5 billion provided for energy efficiency support and expects them to achieve annual abatement of 38 Mt by 2020.

It also estimates that more than $42 billion in electricity supply infrastructure has been approved or proposed for the next five years to meet growing demand for power.

The Government’s move coincides with a claim by an NGO, the Energy Efficiency Council, that analysis of the first Energy Efficiency Opportunities report – a project set up by the Howard Government in 2006 – shows that 199 major companies could cut their costs by $736 million a year and reduce national emissions by 6.4 million tonnes through undertaking identified savings programs. The council claims that setting a target of a 15 percent improvement in the energy efficiency of these businesses could cut national emissions by more than 30 Mt.

Federal Energy Minister Martin Ferguson said the report showed the companies had already made changes that would save them more than $500 million a year and achieve abatement of nearly four million tonnes annually.

Finally, a paper

The Federal Government has conceded that it will not deliver on one of its major resource sector promises for its first term – production of an energy white paper. In its place Energy Minister Martin Ferguson has released the 350-page Australian Energy Resource Assessment, already dubbed AREA in the acronym-obsessed industry.

The Rudd Government promised in September 2008 to produce a white paper, saying at the time that major changes in the energy supply environment required a review of this kind. Previously, the Howard Government delivered a policy paper on energy security in the early years of the past decade, the first since the Hawke Government produced the now-forgotten “Energy 2000” review in the late 1980s.

The Opposition, via Senator Nick Minchin, criticised the Rudd Government’s concession over the new white paper, arguing that Labor had “dropped the ball” in failing to provide strategic leadership for the energy sector when it was required.  Chistine Milne, deputy leader of the Greens, added that it was “nonsense” to suggest that continuing uncertainty over the emissions trading scheme made finalising a white paper a difficult task.

The AREA report has been produced by two Federal Government agencies, Geoscience Australia and ABARE. The study examines identified and potential energy resources, including renewable energy. Assumptions on which it is based include eventual agreement to introduce an emissions trading scheme, still stuck in the Senate, the retention of a policy not to use nuclear power and the roll-out of generation to meet the recently legislated renewable energy target of 20 percent of consumption by 2020.

Sorting out the RET

If the new legislation to amend the renewable energy target passes the Senate, the original objective of the scheme can be restored says Miles George, CEO of Infigen Energy, the largest owner of wind farms in the country.

Speaking to the JP Morgan renewable energy conference in March after the Rudd Government had finally conceded that it needed to change the RET to overcome the stultifing effect of support for household solar systems, George said the temoval of solar water heaters and PVs from the mainstream scheme is expected to reduce the renewable energy certificate surplus from 13 million this year to three million in 2012.  The huge oversupply of RECs brought about an investment strike by large wind farm developers over the past year.

George argues that wind farms are in pole position to take advantage of the revised RET, assuming the Government can get amending legislation passed before the next federal election, due later this year, because hot rocks geothermal technologies are not proven in utility scale and are likely to suffer remote location disadvantages in Australia.

He expects wind farm capacity in Australia to increase to 11,000 MW by 2020 from less than 2,000 MW at present.

George adds that four large energy retailers will be responsible for taking the lions’ share of the mandatory RET requirement served by wind – AGL Energy will need to acquire 5,355 GWh a year by 2020, Origin Energy and Energy Australia (4,725 GWh each) and Western Australia'’ Synergy (2,520 GWh). By the end of the decade, he says, the total RET supply from wind will be 31,500 GWh – more than double the current major renewables source, hydro-power.

Meanwhile, the Western Australian Government has approved construction of a 206 MW wind farm near Merredin in the State’s wheatbelt, 260 kilometres east of Perth, at a cost of $750 million.  The project is supported by a contract with the government-owned energy retailer, Synergy, to buy $1.5 billion worth of electricity from it over 15 years.

US ETS stalled

The American version of the emissions trading scheme is in limbo until at least after the 2010 US mid-term congressional elections and, probably, until after the next presidential election,says Barry Worthington, one of the most knowledgeable observers of the American energy scene.

Worthington is executive director of the US Energy Association, a think tank on energy issues affiliated to the World Energy Council.  In March he was in Brisbane for the annual forum of the Energy Alliance, the local entity with the same role.

An intriguing part of his talk related to the huge new potential in America for domestic natural gas production, following technical breakthroughs in accessing shale gas, which has turned the US view of gas on its head.  So much so that the five large LNG-receiving terminals in America are now wondering if they may end up in the exporting business. America’s accessible resources of gas have jumped from barely 30 years to more than 100 years supply in less than a decade, and this doesn’t include what can be delivered from Alaska or Canada.

Coming back to climate change policy, Worthington says the most likely scenario now is that legislation will not emerge from Congress, assuming enough support among legislators, until 2013.  Conventional wisdom in DC and elsewhere, he adds, is that the bill now stuck in the Senate is not viable in any form before November’s mid-term election and that it will then be too difficult to pass before the 2012 presidential and Congressional elections.

The “800 pound gorilla” in the American political house at the moment, he says, is the move by the US Environmental Protection Agency to regulate carbon dioxide emissions. Nobody likes this idea, he claims, including President Obama and Congress. It is possible that legislation can be passed directing the EPA not to pursue this approach (foisted on it by court decisions) but this “is as questionable as getting the climate change bills through Congress.”

The wider issue, Worthington says, is that the impact of the financial meltdown has made the whole idea of a cap-and-trade approach to abatement in America decidedly dodgy.  There is a growing sense, he feels, that a carbon tax may be the way to go – and even that focussing just on the electricity industry may be a good first step.

Federal measures to drive renewable generation and energy efficiency – as we have done with the enlarged RET here – are becoming more attractive options.

How this situation may impact on the debate about the ETS here is an intriguing question.  What will Obama say when he visits in mid-year, by which stage it will be abundantly clear that the current cap-and-trade proposals are going nowhere in the Congress?

Demand unpredictability

One of the biggest areas of unpredictability for investors in power supply in Australia is what demand will actually be in 2020 and 2030, the latter now seemingly the accepted Rudd Government time horizon for considering energy issues (as per the assessment of energy resources it has just published).

The AREA assessment picks a demand for electricity of about 360,000 gigawatt hours a year in 2030 – up from around 257,000 GWh now.

The agencies claim that about 150,000 GWh will come from burning coal plant, 60,000 GWh from hydro-electric, wind and other renewables, and the balance largely from gas-fuelled generation.

It’s what that gap will be that is the key, unpredictable factor – will it be much less as a result of a major end-user efficiency drive or a fair bit more as a result of even higher than predicted population growth and economic development?

The forecast in the AREA report is 40,000 GWh a year less in 2030 than the earlier ABARE modelling outcomes – this is attributed, according to the Department of Resources and Energy, to the inclusion in the latest work of allowance for the impact of the emissions trading scheme and the renewable energy target.

Solar in the shade

The Federal Government’s energy resource assessment does not hold good news for investors in solar power, even allowing for the attempts by the Government to kick-start $3 billion in development via a $1 billion subsidy handed out in two phases, starting in the second half of the year.

The AREA report projects that supply from solar power will reach just 4,000 gigawatt hours in 2030, a rise of 17 percent a year over two decades, but still representing only one percent of production at that point.

The largest renewable energy supplier in 2030 will be wind power, the study projects, with production of 44,000 GWh followed by hydro-electric power, still providing 13,000 GWh and then geothermal energy, with 6,000 GWh, or 1.5 percent of production.

What is not factored in to the Geoscience Australia and ABARE modelling is any new policy developments to promote renewable energy.  The Rudd Government has indicated that it will review the RET again in 2014.  Most industry observers expect there to be several increases in the mandatory target over two decades unless there is a fully functioning international emissions trading scheme.

The AREA forecast, as it stands, is for renewable energy supply to reach 45,000 GWh in 2020 and 69,000 GWh in 2030.

Meanwhile, Cobra Energy, a subsidiary of Spain’s Actividades de Construccion y Servicios (ACS), has announced that it is looking at three possible Australian sites for what could become one of the world’s biggest solar thermal generation plants.

Cobra is in talks with the Victorian and Queensland governments on a development that would seek to take advantage of the Federal Government’s $1.5 billion solar flagship program.  The ACS technology is already being used in plants constructed in Andalucia and Extramadura in Spain.  Its Andosal generators, with a combined capacity of 100 MW, are the largest in Europe and include molten salt storage facilities that enable generation more than seven hours after sunset.  The proposed Australian project would see construction of a 250 MW power station at a cost of $1 billion.  Two other Spanish companies are thought to be among the bidders for support under the solar flagships program.

Swanbank B to close

Queensland Government-owned CS Energy has announced that it will close its 40-year-old, coal-burning Swanbank B power station, one of the oldest in the country, in 2012.

The 480 MW plant, built in 1971 on the outskirts of Ipswich, has not been operated at full load for some time, says CS Energy CEO David Brown, because of its high operating costs and competition from newer, cleaner generation. $40 million was spent in the late 1990s to refurbish it.  In 2008-09 the power station emitted 1.7 million tonnes of carbon dioxide.

The company plans to build another power station – gas-fired – on the site to complement the 385 MW Swanbank E combined cycle plant that was commissioned in 2002.

In a media background note, CS Energy observes that the Australian electricity industry has entered a period of significant change, experiencing increased operating costs, lower market prices and carbon constraints. Financial analysis has indicated that keeping Swanbank B going for another decade would cost more than $220 million.

Apart from Swanbank B, CS Energy owns capacity of more than 2,700 MW, including the new 750 MW Kogan Creek power station and plants at Callide and Mica Creek.

The company’s current capital works program includes spending $206 million on retrofitting its 120 MW Callide A unit with oxyfuel technology to enable carbon dioxide to be captured and stored.

AER on smart grids

Speaking to the international energy forum of the Academy of Technological Sciences & Engineering in Sydney during March, Steve Edwell, chairman of the Australian Energy Regulator, observed that smart grids “mean different things to different people.”

Edwell said he ascribed to the view that smart grids have two time perspectives: in the medium term, the concept is about employing enhanced communications technology throughout a network to provide for more consumer inter-action in the supply or electricity – but, over a long timeframe, the rationale is to support the eventual mass role of new generation developments in “price listening” appliances, embedded generation and plug-in electric vehicles.

Edwell said: “I think there is clear merit in the vision that electricity customers in the future will be more empowered to exercise choice over their pattern of energy usage.  There is also early evidence of the two-way flow of electricity from subsidized photovoltaic systems and feed-in tariffs to accommodate export of excess energy back in to a network. However, to me, the more futuristic scenario is still highly uncertain. It proposes to respond to technologies that are still in early stages of development and, if available over the longer term, could result in a paradigm shift in the nature of the electricity network.”

Questions for the AER, he added, included whether the industry is dealing with a business as usual situation or looking at a fundamental shift in the nature of the grid? “If so, over what time frame? The AER will need to develop a view on the efficiency implications of that vision and the associated investment for which users will be asked to pay.”

Edwell said the mature electricity network now in operation should be sufficiently flexibile to respond to the smart grid challenge, but “for the NEM, it is very early days – and we are not seeing in business expenditure proposals much evidence of a technology shift.”

Meanwhile the Victorian Government, clearing the political decks ahead of a State election later this year, has announced an “indefinite moratorium” on the roll-out of smart meters after being warned by social groups that the costs could hurt aged people on pensions, the unemployed and sole parents. The State Opposition had called for a halt to the program in February, accusing the Brumby Government of bungling the project.

Victorian Energy Minister Peter Batchelor told the media that the roll-out – intended to provide smart meters to 2.5 million homes and small businesses over four years – would go ahead after cost issues “had been ironed out.”

‘Tell truth on prices’

Federal Energy Minister Martin Ferguson says “it is high time” that the community was told the truth about electricity prices.

Speaking to an Energy Supply Association CEOs meeting, Ferguson added: “We simply cannot maintain supply reliability for households and businesses if we don’t invest in infrastructure – and that investment can only be paid for with higher electricity prices.”

The eastern seaboard national electricity market took place in the past decade when surplus capacity existed, but power demand and supply are “finely balanced” in 2010, he said. “Our ultimate challenge is to ensure that we get the investment we need in networks and generation over the next decade to guarantee the high supply reliability the community expects.”

In the past three years, Ferguson pointed out, Australian power prices had risen by about 35 percent, mainly because of  network investment.  He acknowledged that carbon price impacts on end-user costs were still to come.

Ferguson was reacting to an announcement by the New South Wales pricing regulator of electricity tariffs that would rise 50 percent over three years, partly because of increased network capex requirements and partly because of assumptions about higher wholesale costs flowing from the Rudd Government’s emissions trading scheme, which remains stuck in the Senate.

Earlier Climate Change Minister Penny Wong had thrown the onus for the NSW price rises squarely on the State government, arguing that that they were “driven” by network investment.  However, analysts argue that the regulatory decision indicates that average household bills will rise by $80 to $105 more per year than the Federal Government has planned in its ETS compensation package, with home-owners not covered by subsidies having to pay an extra $300 a year.

The NSW Business Chamber said small businesses in the State would pay an extra $1,433 a year on average as a result of the regulatory approval for network charges to be increased – with carbon costs to add more if Federal Parliament approves the ETS.

Production up in Victoria

Analaysis undertaken for Environment Victoriua by consultants Green Energy Markets shows that power generation in the State rose by 11.5 percent between 2000 and 2009, with brown coal-fired production increasing by 9.4 percent.

The four Latrobe Valley generators put out 51,697 GWh of electricity in 2009 compared with 47,242 GWh in 2000, the report says.  Gas-fired generation rose sharply from a low base during the period of extreme drought -–reaching 3,545 GWh in 2007 – then fell back to less than half this level last year. Renewable generation has ranged between 2,300 GWh annually and 3,100 GWh over the decade.

Green Energy Markets says that Victorian carbon dioxide emissions from power generation have risen by 10.1 percent over the decade, with coal-based emissions rising 9.6 percent.


Coolibah’s Keith Orchison has a blog, entitled PowerLine, on the BusinessSpectator website at


Somewhere over the rainbow – the words of the Judy Garland song suddenly came to mind in Brisbane  as I sat in a forum and listened to a bunch of young enthusiasts emote about all the clean, green things that could carry us down a new electricity yellow brick road.

Two days earlier I had been in a forum in Sydney where the New South Wales Energy Minister John Robertson made it clear that his government was not going to express a preference against new coal power stations for the State.  Back in November some major newspapers were under the impression that Nathan Rees, just before he was ousted as premier, was doing just that behind the scenes – but Robertson said: “I never heard former Premier Rees express that view.”

During the month I also established why there is a difference between the demand projection the Australian Bureau of Agricultural & Resource Economics (ABARE) has used for a number of years – forecasting consumption of 406 terawatt hours in 2030 – and the new ABARE/Geoscience Australia assessment released by Martin Ferguson in mid-month.  The new survey forecasts demand at 366 TWh – a difference almost equivalent to the current usage in Victoria.

The answer is that the two agencies now factor in the emissions trading scheme and the renewable energy target.  That the RET, requiring $20 billion in investment over the next decade, and the ETS, proposing to churn at least a quarter trillion dollars in charges and compensation through the economy over two decades, will succeed in reducing national power demand growth from 1.9 percent per year to 1.8 percent is a sobering thought, or should be.

The yellow brick roaders come in all forms, of course – I might be inclined to nominate Energy Minister Robertson for the path, too.  He was ever-so-sanguine at the Committee for the Economic Development of Australia (CEDA) lunch in Sydney about security of supply in NSW.

Recent construction of 2,000 MW of gas plants and wind farms in the State, he averred, along with a large amount of generation proposals on the planning table gave grounds for confidence that the foreshadowed mid-decade tightening between NSW supply and demand could be managed.

As a NSW resident, I might sleep better if, unlike 99.99 percent of my fellow citizens, I hadn’t read the AECOM consultancy report accompanying Macquarie Generation’s bid for a Bayswater B development.

In my short-hand, the consultants point out that the bunch of 660 MW coal-burning units at Bayswater, Mt Piper and Eraring, which provide more than 80 percent of current State needs, are getting old and will need “increasing time out of service for repairs which will directly and adversely impact on availabilities.”  Reduced availability, they observe, means reduced energy production.

However, without substantial new baseload capacity being available by 2015-16, these units, some of them by then 45 years old, are going to be required to perform at 17 percent increased output to meet higher demand.

And this yellow brick road narrows somewhat when you read that the time needed to develop and construct a big new power plant can be six to 10 years.  And you can take it as a given that no fossil-fuelled generation investor is going to be mad enough to take the plunge in NSW before the State election in March next year. They and their bankers may be a tad influenced, too, by what happens in the federal arena to charges on carbon.

Somewhere, over the rainbow……………

Keith Orchison

31 March  2010


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