Issue 143, March 2017
Welcome to the third issue of this newsletter for 2017, writes Keith Orchison, as the pitch of the national energy debate keeps reaching new fevered heights (a catastrophe looms, says one senior business figure) and new depths of political rhetoric while the federal government treads water, waiting for the Finkel task force to report – and the community displays growing restlessness about the situation.
So much of the political approach to Australian energy change is pitched to perceptions of popular community attitudes that it pays to keep a close eye on opinion polls.
A new Essential Report poll at the end of February reports that 65 per cent of those participating support federal Labor’s proposal to set a target of 50 per cent for renewable energy by 2030, with 18 per cent disapproving and 16 per cent saying “don’t know.”
A feature of this poll is that 55 per cent of respondents claiming to vote for the Liberals or Nationals say they approve of the target.
(Thirty-six per cent of those polled express intent to support the Coalition at the next election, 34 per cent support Labor with 30 per cent supporting the minor parties – the Greens and One Nation each garnering 10 per cent.)
Answering another Essential question, 64 per cent said “yes” to renewable energy being “the solution to our future energy needs” with 22 per cent in the “don’t know” category.
Seventy-one per cent of those polled said they didn’t think the Turnbull government was doing enough to “ensure affordable, reliable and clean energy for Australian households and businesses.” This included 62 per cent of those who say they support the Coalition.
Forty-five per cent of respondents said they oppose the building of new coal-fired power stations in Australia – while 35 per cent expressed support (with a 24 per cent “don’t know” return.)
The chief executive of Alumina, the company partnering Alcoa in the Portland smelter, says that, if Australia “can’t break the stranglehold that subsidized renewables have on the (east coast) market,” he doesn’t see how electricity can be generated reliably or affordably within four years.
Peter Wasow also told media that, “unless the political will exists to combat unreasonable moratoriums on onshore drilling for gas,” the fuel will “be very expensive” on the east coast and “we will be short of it.”
Meanwhile federal Resources Minister Matt Canavan has told media that South Australia must “get serious” about drilling for oil and gas in the Great Australian Bight because resources there could turn the State in to “a cheap energy powerhouse and a cheap energy exporter.”
Last year BP ditched its plan to explore the Bight in the face of vociferous protests by environmental activists. Chevron is now looking at tackling the task.
The war of words between the South Australian and federal governments over the electricity market and regulation rolls on.
SA Treasurer and Energy Minister Tom Koutsantonis has told the State parliament that his government intends to “retake control” of the power network “so blackouts do not happen again.”
“We are going to use every inch of our authority, everything we can, to retake our sovereignty,” he said. “We have to take matters in to our own hands.”
Federal Environment & Energy Minister Josh Frydenberg has responded that his government is “in the dark” about what the South Australians mean to do. “The State relies so much on the interconnector with Victoria, I don’t they know what they are going to do,” he added. “The reality is that a lack of planning and over-reliance on intermittent sources of power has led to high (SA) prices and a more vulnerable electricity system.”
Frydenberg has also attacked the SA government for seeking to blame the Australian Energy Market Operator for the State’s latest blackout problems. The SA government had mistakenly claimed it does not have the power to declare an emergency and direct AEMO’s actions.
The slanging match between federal Labor and the Coalition government is escalating over the cost of an emissions intensity scheme for the NEM – which the former promises to introduce if it wins the next election.
The row revolves around how Labor would pursue its goal of 50 per cent Australian power generation from renewables by 2030 after Bill Shorten indicated in a speech in late February it would be driven by embracing the EIS.
The Turnbull government has leapt on modeling by analysts Jacobs commissioned by the Climate Change Authority – in which it is claimed that the EIS could add an extra $128 billion to power bills over the next decade. This represents more than $36 billion in decade-long charges for households and more than $91 billion for business consumers.
The EIS is essentially an emissions trading scheme applied only to electricity generation.
Shorten claims that, without the EIS, electricity supply will be “stuck in purgatory” with “rising pollution, rising prices and rising energy insecurity.”
Meanwhile the renewables lobby is confused by Shorten saying that the 50 per cent RET would not be legislated. It argues that this would leave the RET at the existing level after 2020 and relying on State-based schemes for growth. It is also upset that an EIS would encourage gas generation development.
The Clean Energy Council says it is unclear whether an EIS alone would be sufficient to deliver strong investment in variable renewable energy after 2020. “Additional policy support for renewable energy may still be required to achieve Labor’s commitment to 50 per cent renewable energy by 2030.”
The CEC wants politicians to “remain focused on a goal of replacing old coal power plants with renewable energy at the lowest possible cost rather than becoming obsessed with ruling particular policies in or out,” arguing that, despite an expected continuation in capital cost reductions for renewables, “some form of policy will likely to be necessary” after the end of the decade “due to the energy market being dominated by old coal-fired power stations which were built using taxpayer funds many decades ago and now just have to pay for fuel and maintenance.”
The New South Wales government has set up an “energy security task force” to be chaired by State chief scientist Mary O’Kane to assess the risks to its electricity system from extreme weather.
The government says the review will complement the work of the Finkel task force examining NEM security.
O’Kane adds that it is “critical that households and industry have a resilient electricity system.”
The Energy Policy Institute of Australia is proposing that the Australian Energy Market Operator consider “whole of system” impacts before granting any new applications for NEM generation licences.
In a submission to the Australian Energy Market Commission’s review of system security frameworks, EPIA says that, where AEMO thinks a new connection could materially increase the level of risk, an application should be refused or granted with conditions aimed at ensuring the potential problem can be materially managed.
The institute says the move should not require any amendment of the national electricity law.
EPIA comments that the NEM was established on the assumption that price signals would incentivize investment in new generation in a timely manner – but this may no longer be valid because government subsidies are driving investment and because of “inadequate market disciplines for system security services.
While waiting for submissions to the Finkel NEM task force to be revealed, stakeholders can read the views of some interested parties through their input to a Senate select committee looking at “the resilience of electricity infrastructure in a warming world.”
The committee, chaired by Greens senator Sarah Hanson-Young, has been told by the Australian Energy Council that it should explore all options to deliver resilience and not just the role of distributed generation and storage technologies.
Origin Energy says it believes the introduction of a well-designed emissions intensity scheme is the key to helping to balance power sector emissions reduction and retention of reliable supply at an affordable cost.
Energy Networks Australia says that, without a well-planned approach with timely action by governments to create policy and regulatory cohesion, the energy system is unlikely to efficiently and securely integrate diverse technologies, large-scale renewable energy sources and customer owned distributed energy resources.
It argues that the CoAG Energy Council is not working effectively in delivering the necessary cohesion. It adds that the Finkel review needs to focus on outcomes rather than trying to pick technology winners.
AusNet Services says planning needs to take in to account that customers will use their energy assets in ways that have the most value to them. For example, assuming that electric vehicles may be enlisted to help network loads by charging during off-peak periods may run up against users recharging as soon as they get home, adding to evening demand spikes, without incentives not to do so.
The Australian Academy of Technology & Engineering points out that there is potential to exclude key social groups from access to new technology if only the wealthy can afford energy storage. “Government should consider the potential for perverse outcomes, including increased costs for those unable to afford storage.”
The Electrical Trades Union wants to see a national energy storage target established.
The Australian Energy Council, representing 21 power generators and energy retailers, says the market operator’s report in to electricity load shedding in South Australia in February highlights the fragility of the State’s grid.
CEO Matthew Warren says: “South Australia’s grid regularly operates on a knife edge and requires everything to go right to avoid blackouts. When a high proportion of your generation comes from wind, accurate weather forecasting becomes increasingly critical.”
He adds that the load shedding report by the Australian Energy Market Operator emphasizes “the very real challenges” of accurately forecasting supply and demand at times of extreme weather for a power system with high levels of intermittent generation and “wafer thin” levels of reserve margins.
Power generator Engie has dismissed political claims that the national electricity market is broken.
Answering questions at a hearing in Adelaide of the Senate inquiry in to the resilience of power supply infrastructure, Engie executive Jim Kouts rejected suggestions that generators are gaming the system, adding “The market is not broken. Power is on.”
Engie is the operator of the partially mothballed Pelican Point gas-fuelled power station in South Australia which has been the centre of debate over the causes of load-shedding affecting 90,000 Adelaide households and businesses during one of February’s heatwaves.
The Australian Petroleum Production & Exploration Association says there is a “generally accepted” forecast of a gas shortfall on the east coast by 2019 but it rejects the new calls from some manufacturers for introduction of a supply reservation policy.
CEO Malcolm Roberts says the upstream petroleum is “very frustrated” by its inability to bring new gas resources to the market.
He says the only significant way to put downward pressure on gas costs for east coast industrial users is more supply. Gas reservation is “not a solution,” adding “it is a very strange idea to think that the way to get more of a product is to increase regulation and increase the cost of development.”
Roberts says: “Rather than thinking in terms of redistributing a shrinking cake, we should be working on policy and regulatory reforms that support more gas being brought to the (domestic) market.”
He has also accused both main parties in Victoria, where legislation to permanently ban hydraulic fracturing is being passed through the State parliament, of “ignoring facts about the gas industry to play politics.”
Roberts says Victoria is “throwing away” an opportunity to create local gas supply via onshore exploration and development.
In a modern version of carrying coal to Newcastle, AGL Energy is pressing ahead with examining importing LNG to the east coast market.
The company says a feasibility study is “well under way” and it expects to select a terminal site by the middle of the year with a view to having the project operational by 2020 – a year after Australia is expected to become the world’s largest exporter of LNG. A final investment decision could be made in June next year.
The study is reported to be looking at either a floating or onshore terminal in New South Wales, Victoria or South Australia.
AGL’s chief executive, Andy Vesey, has told media that there was “a lot of skepticism” when the concept was first publicly mooted but the company is seeing “building positive support” for it.
If the energy resources sector is unable to revitalise its productivity and competitiveness - and governments fail to set nationally coherent and stable policy - Australia will lose out to international competitors, according to a report published by National Energy Resources Australia.
NERA was established last year as an independent, not for profit company for the energy resources sector, specifically oil and gas, uranium and coal.
Chief executive Miranda Taylor says policymakers and industry “need to think outside the box.” Without this, Australia will fail to realise substantial social and economic benefits from the huge investment in resource projects over the past decade.
She says the report aims to assist local industry to transition from massive project construction and expansion activity to operating and maintaining these projects and to address the “perfect storm” of challenge facing the industry today from increasing global competition, volatile commodity prices, a changing energy market and the pace of technology development.
“After decades of sustained economic growth, Australia is now experiencing a serious decline in productivity while technological change and disruption is accelerating. As a country, we cannot keep doing what we have always done or we will stagnate – we need to urgently find different ways to do things,” Taylor adds.
The International Energy Agency has declared New Zealand to a “world-leading example of a well functioning electricity market.”
In a review of the New Zealand energy situation published in mid-February, the IEA says the NZ electricity system is “a world class success story.”
Thanks to its access to hydro-electric and geothermal power, as well as the take-up of wind farms and solar PV systems, New Zealand now has more than 80 per cent renewable generation in its power system and is pushing for 90 per cent by 2025 – which the IEA says can be achieved without threat to system reliability if the main reliance is on hydro and geothermal power.
A problem for the run-of-river hydro system, mainly located in the NZ South island, is drought and the IEA notes that, because of low storage facilities, New Zealand has narrowly avoided power shortages several times in the past decade.
The Minerals Council of Australia has welcomed an independent report commissioned by government, industry and research organizations that it says has laid down a comprehensive plan for carbon capture and storage (CCS) deployment in Australia.
The review was led by University of Queensland professor Chris Greig. He says: “Australia’s continued economic prosperity and competitiveness depends on access to all forms of energy and strong industries. We need to deal with the mitigation of greenhouse emissions from these activities and prudent early planning relating to CCS deployment is a priority.”
Another of the review participants, Tania Constable, chief executive of the CO2CRC, says: “A technology neutral policy approach is necessary to achieve reliable, available 24/7, clean energy in Australia. We would like to see ARENA and the Clean Energy Finance Corporation’s mandate opened up to include a range of carbon reduction technologies including carbon capture and storage.”
Another, Peter Mayfield of CSIRO, adds: “The transition to a low carbon energy system is a significant and delicate challenge that will require the full range of options to achieve a sustainable future energy mix that also meets the standards of reliability, stability and affordability required. We see CCS as one of a number of key technologies required to meet that challenge during the transition and into the future“.
The report has appeared as the International Energy Agency’s chief executive, Fatih Birol, visiting Australia, has called on this country to become a world leader in CCS technology.
After a meeting in Canberra with federal Environment & Energy Minister Josh Frydenberg, Paris-based Birol said that CCS and renewable energy have strong roles to play in the global transition to reliable, affordable and cleaner energy.
Birol added that the high-level interest in CCS around the world is insufficiently matched by investment. “Australia is a good candidate for international leadership in order to provide momentum.” Government support could be through regulation as well as funding, he said.
Frydenberg says the Coalition federal government is “still considering options” for CCS support.
Former Prime Minister Kevin Rudd, to quote The Australian newspaper, “breezed in to the Sky News Canberra studio” last month and declared that “the message for coal, long term globally, is down and out.”
There is no doubt that this is what Rudd and a great many Australians of his mindset want to be the case, but it is not what is happening globally.
As witness whereof, here is what the latest BP world energy outlook (which looks forward 20 years) is saying: “Growth in global coal demand slows sharply relative to the past (0.2 per cent per year versus 2.7 per cent over the past 20 years); global coal consumption peaks in the mid-2020s.”
There is a darned big difference between growth almost flat-lining, peaking in the next decade and being “down and out.”
It’s true that coal consumption in OECD is in decline – BP forecasts it will fall by more than 40 per cent in 20 years – as natural gas and renewable energy crowd it out of the power sector. But the picture is different in Asia. BP sees China accounting for almost half of global coal consumption in 2035 with India then taking a 20 per cent share.
An important part of the reason for the broad change in coal’s status is the growth of natural gas use (forecast to rise 1.6 per cent a year between 2015 and 2035). Slightly more than a third of the new gas consumption will be in the world’s power stations – a contrast to the way gas generation is struggling in Australia, one of the world’s major suppliers of the fuel.
One of the issues in projecting future power market shares is the shape and pace of technological development.
The coal sector, not least in Australia, is talking up the prospects for high efficiency, low emissions (HELE) generation. The development of carbon capture and storage is an ongoing point of contention. The prospects for energy storage are a source of much optimism – and, as BP points out, “there is considerable scope to improve the performance of wind turbines in harvesting the wind.”
This stuff, as I often argue here and in conferences, is the reason that fixing on a 2050 horizon is bunk; the developments, technically, scientifically and socially, over the next three decades can be as scene-shifting as they have been since 1984.
1 March 2017
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