Coolibah Commentary

Issue 203, March 2022

Like it or lump it, federal politics is now fully in election mode and everything to MPs’ hands is being weaponized, precluding sober discussion about issues of importance to social and economic well-being. This is one of the reasons why the Australian Domestic Gas Outlook conference to be held in March is of value – its content is focused on key problems and prospects, starting out with the international perspective when the global energy crisis is of real local importance and drilling down to developments here and their implications for consumers, not least our manufacturers who are (yet again) decidedly edgy about the trajectory of fuel prices for their trade-exposed lives. The underlying question for the conference and more generally for energy debate remains whether the market-reform process (now in its fifth year in its present iteration) is fundamentally equipped to deal with challenges of the magnitude faced in 2022. Of course, this is not a new thought (as witness almost every issue of this newsletter in the decade since ADGO was launched) but every month now (and not least February) seems to add fresh fuel to the bonfire of “transition” management. When the federal election is over, assuming we don’t end up with a hung parliament (which is far from impossible on present indications), the issues being discussed at ADGO, as well as a number of others about NEM management, will still be shambling towards destinations that may be very undesirable. The Europeans can tell us all about this.


“The absence of a coherent national energy plan is making the transition away from coal more volatile than it needs to be” – Grattan Institute energy analyst Tony Wood. “It’s a bad way to do this.”

“The economics of coal-fired power stations are being put under increasing, unsustainable pressure by cleaner and lower-cost generation” – Frank Calabria, Origin Energy CEO.

“The energy transition is accelerating at a rate that is catching policymakers, regulators and the energy companies themselves on the hop” – Chanticleer column in the Australian Financial Review.

“We will look at all options to make sure we get enough dispatchable capacity in the NEM” – federal Energy & Industry Minister Angus Taylor. “What counts is that we’ve got affordable, reliable energy as we bring down our emissions.”

“Driving out dispatchable capacity is a significant risk to electricity consumers in terms of reliability of the grid and electricity price impacts” – Taylor.

“We need to ensure that our coal-fired generation runs to its life because, if it doesn’t, electricity prices go up” – Prime Minister Scott Morrison.

“Consumer rage should be directed at the political class which has spent the past 20 years weaponizing climate change. In doing so, it has destroyed every prospect of securing a sensible policy response to what is a serious challenge” – Joel Fitzgibbon, federal MP for Hunter.

“Hanging over all will be the near-certain implosion of the national grid as States move to – try to – keep the lights on inside their borders by keeping the power they generate within those borders” – economic commentator Terry McCrann. “The template has been established with Covid.”

Green grand plan

The Clean Energy Council wants the major political parties federally to commit to a 100 per cent renewable electricity grid on the east coast by 2030 – and to not approving construction of any further fossil-fuelled plants.

The lobby group, publishing its “roadmap” for the energy future ahead of the federal election, which must be held by May 21, also wants $26 billion committed to supporting its 2030 plan -- $20 billion to fast-track power network upgrades, $5 billion to set up “green hydrogen” plants and $1 billion to “transitioning coal communities.”

The “roadmap” complains that large-scale wind and solar development has “slowed dramatically” across Australia, partly because of the “inadequacy” of high voltage transmission infrastructure and “significant barriers to grid connection.”

NEM generation

Rolling 12-month data for the east coast market from the Open-NEM website highlights the continuing major role of fossil fuel generation to the grid and the challenges for a fast transition to mainly or all renewable supply.

The data for a year from late February 2021 to the same period 2022 show that large-scale generation despatched 188,533 gigawatt hours to the grid. In addition, the estimated use of rooftop PV installations was 16,889 GWh.

The largest contributors to grid dispatch were black coal-burning plants in NSW and Queensland (94,179 GWh) and the brown coal plants in Victoria (33,131 GWh).

Wind firms provided 23,334 GWh versus 15,990 GWh from hydro power.

Gas plants contributed 12,054 GWh with small additional amounts being sourced from biomass and diesel generation.

Big Connect

Construction has begun in South Australia on what ElectraNet CEO Rainer Korte describes as a “key project of national significance” – the $2.28 billion, 900 kilometre EnergyConnect transmission line which will link the grids of SA, New South Wales and Victoria.

The project is a joint venture between ElectraNet and Transgrid, which is carrying $1.83 billion of the capital cost.

The original estimate for the development was $1.5 billion but this has blown out by more than 50 per cent, partly due to social licence issues.

The line is the first new interconnector to be built between Australia States since the early years of this century and is planned for completion in 2025.

SA Premier Steve Marshall, currently campaigning for re-election, declares EnergyConnect to be “a freeway for renewable energy” that, he asserts will reduce power bills and fuel economic growth in his State and NSW.

Cost of complexity

The Australian Energy Market Operator is pushing for a 66 per cent increase in the funding it receives to oversee the integrated power grid in the south of Western Australia.

AEMO has asked the WA Economic Regulation Authority for permission to raise $156.2 million in revenue for the three years to 2025, saying the increase is needed to “help cope with the increasing complexity and volatility in the SWIS” as more renewable energy enters the system.

“While the growing level of variable renewables is helping the system transition to clean, low-cost generation, it can pose operational challenges,” the operator said in its submission. “The upfront costs of delivering reform are substantial.”

The bid follows the Australian Energy Regulator noting in a NEM review that AEMO is spending tens of millions of dollars on contingency measures to ensure the eastern grid maintains supply at vulnerable times.

The operator reports that large-scale solar power connecting to the SWIS has more than doubled since 2018 while rooftop solar installations have risen 51 per cent.

A missing word

Mainstream media mostly missed a key word in the Origin Energy statement about the 2,880 megawatt Eraring power station in mid-February.

In it, Origin CEO Frank Calabria said the company had submitted notice to the Australian Energy Market Operator of “the potential early retirement” of Eraring in August 2025 rather than 2032.

Drawing attention to this, Global-Roam CEO Paul McArdle commented on the WattClarity website that “too many people seem to assume the retirement is now locked in at 2025, but is this actually the case?”

McArdle also pointed to the recent AGL Energy statement that it would retire Bayswater and Loy Yang A power stations earlier than scheduled – but “it has only moved the closure dates by a relatively small amount.”

Meanwhile Calabria in the Origin media statement noted that the company is at present providing for $240 million to be spent on restoring and rehabilitating the Eraring site and said these outlays “will continue to be reviewed.”

High finance

AGL Energy suddenly found itself at the centre of an international financial play in mid-February when Australian technology entrepreneur Mike Cannon-Brookes (through his company Grok Ventures) and Canadian asset manager Brookfield jointly launched a multi-billion dollar take-over bid that included a plan to close the gentailer’s coal-fired generation by 2030.

AGL is today responsible for roughly a sixth of NEM power generation sales and has 4.5 million customers in the market, predominantly householders and small businesses.

AGL board, which itself is working on a demerger of the company in to a pair engaged in energy retailing and power generation, has rejected the bid, which is almost certain to be reworked and resubmitted.

Cannon-Brookes told journalists that the consortium’s plan envisaged spending up to $20 billion beyond the purchase price of the company to shut down Bayswater and Loy Yang A power stations by 2030 and to provide 8,000 MW of renewable energy and storage to replace them.

He said AGL did not have the money to finance bringing forward the closure of the plants at a faster pace than initially scheduled and has challenged Prime Minister Scott Morrison to explain why sweating ageing coal generation for the rest of their currently scheduled lives will add to NEM reliability and keep down market prices for consumers.

Reacting to the bid, AGL’s chief operating officer, Marcus Brokhof, told journalists that Cannon-Brookes’s plan to shut the coal generators by 2030 was “unrealistic.”

The take-over, 80 per cent funded by Brookfield, would require federal government foreign investment approval.

It would also need to be authorized by the Australian Energy Regulator and the Australian Competition & Consumer Commission, which has already raised the issue that Brookfield already owns the AusNet network business.

Up and up

The CEO of Australia’s biggest steelmaker is not alone in being nervous about electricity supply; an Australian Industry Group survey of member company leadership shows that 59 per cent of respondents expect to pay more for energy in 2022 – after 60 per cent encountered higher bills last year.

BlueScope chief executive Mark Vassella has told journalists that, on the one hand, the company profits are benefitting from the expansion of steel demand in Australia and North America and, on the other hand, he is “nervous” about the long-term stability of the east coast electricity grid.

“It’s crucial for Australian manufacturing that cheap, reliable electricity is available,” he said.

The AiG survey also showed that four per cent of respondents expected their energy bills to drop.

Meanwhile the Energy Users Association reacted with concern in mid-February to media reports of an earlier closure for Origin Energy’s Eraring power plant. CEO Andrew Richards said more large generation assets leaving the market is likely to push up wholesale generation costs while transmission expansion across the NEM (to serve large amounts of new renewable energy developments) will also be likely to result in “a much higher electricity bill for all consumers.”

He called on governments and energy suppliers to work together to do more to protect consumers from adverse impacts of the market transition.

The association’s statement came a day after it had responded to the latest gas report from the Australian Competition & Consumer Commission – which, Richards said, “identifies a very real prospect of near-term supply shortfalls, especially in the southern States.”

He added that, after a brief period of stability, EUAA members (who employ a million people) “can see that prices are again on the move.”

The ACCC’s report says there is potential in the southern States for a shortfall to emerge in 2023 – two years earlier than suggested in its previous annual review.

“Additional supplies from an LNG import terminal in the south or more domestic supply from the north will be required to address the shortfall,” the commission added. “It may also be necessary to divert some gas in to the domestic market that would otherwise be exported.”

ACCC chairman Rod Sims said: “People’s gas prices have already gone up significantly.”

Producers’ perspective

The Australian Petroleum Production & Exploration Association has seized on the ACCC report’s reference to the need for more gas investment.

APPEA chief executive Andrew McConville claims the latest gas inquiry outcome shows the market is working. His member companies are spending billions of dollars to bring more supplies to the domestic market, he adds.

McConville also points to the ACCC finding that average price agreed with users for delivery in the southern States in 2022 decreased under contracts executed between March and August last year.

Terminal row

Environmental activists in Geelong are opposing a proposal to build an LNG import terminal at the oil refinery site in Corio Bay.

Proponents Viva Energy points to forecasts of gas shortfalls in Victoria as early as winter next year. The company’s business development manager Lachlan Pfeiffer says LNG can be sourced from offshore Western Australia and overseas. “This is not about renewables versus gas. Victoria will need both.”

Subject to environmental regulation approval, the company is aiming to make a final investment decision on the project in the third quarter of this year.

Graeme Bethune, CEO of analysts Energy Quest and chairman of the Australian Gas Industry Trust, has told Victorian media that a considerable amount of gas will be needed in the State up to and beyond 2030.

Activism against gas development in Australia onshore and offshore is not just local, it often sees international environmental pressure groups chiming in.

The latest, in the closing days of February, has been the US-based Global Energy Monitor. In a new commentary, GEM asserts that Australia “risks locking in decades of fossil fuel dependency” because of plans to build new gas pipelines – which the group estimates to involve more than 12,000 kilometres of pipes involving a capital cost of $US18.6 billion, asserting this to be the fourth-highest capex plan in this sector worldwide.

Steve Davies, CEO of the Australian Pipelines & Gas Association, has responded that GEM appears to have included any possible project being considered. “Many such projects are competing with each other; some will not go ahead,” he told the ABC.

Last word

Writing about the pandemic almost two years ago, the political scientist Francis Fukuyama opined that the most significant factor in handling it is whether citizens trust their leaders and those leaders preside over a competent and effective state.

This doesn’t only apply to Covid; for one, the same can be said about an issue like energy policy and particularly electricity policy — and this applies right now in eastern Australia, Texas, California and large parts of Europe, including Germany and France, as well as the UK post-Brexit.

Over the past 10 and more years in Australia energy-related trust has taken a battering because of views on climate change, soured by the inability of the political class to even come close to settling the issue and by the ravings of activists, as well as of consumer experience with respect to both costs and security of supply. Much the same can be said about attitudes towards the companies providing this supply.

That all this will play out in the State and federal elections just ahead of us is a given — but whether the polling outcomes will offer any realistic hope of better outcomes is open to serious question. I am afraid, in this respect, I am a born-again pessimist.

It will be interesting to see what the next “State of the energy market” report from the Australian Energy Regulator has to say when it appears in June. The last one said "Assessing whether the energy market is operating efficiently as it transitions to a lower emissions generation mix is difficult” — which I thought at the time was rather a cop-out.

I lean towards agreeing with a PricewaterhouseCoopers comment that is as true today as it was when made about two years ago: “There is a roadblock hindering agreement on the energy future and the policy choices needed to get us there — our public discourse.”

It went on: “The debate is mired in claims that green (renewables) is good and black (coal) is bad or vice versa. Numerous analyses show that all types of power generation are the cheapest sources and many would be considered correct — in isolation. But such conclusions are irrelevant to the debate if they don’t consider their impact on the entire energy system and the economy.”

And it added: “In all cases the energy system must satisfy reliability standards.”

There is another aspect to all this and the Australian Financial Review touched on it in an editorial in the midst of all the hoo-ha late February over the attempt to take over AGL and rush forward closure of its coal generation The editors commented: "Given the cost and complexity of the transition, the Financial Review maintains that the zero-emissions nuclear energy option must be on the table for the market to judge whether it could lower the costs of the national carbon challenge.”

The unwillingness of our federal government and the alternative government to have a serious debate on the floor of parliament about this issue, and that they have maintained their craven pose over several years in the face of major technological developments (SMRs), is simply despicable. How Australian voters will view this in, say, 2030 when the rest of the world is embracing SMRs and using them to escape the toils of going too far and too fast down the roads of investment in wind and solar, is not a small question.

The core issue in this respect today is not for Australia to hurl itself in to the arms of the conventional nuclear industry right now but to remove the barriers to national participation in a technology development of real potential just as we did with wind and solar at the beginning of this century.

(The last time I saw an opinion poll specifically about the nuclear issue was back in October by Essential Report. It then found that 20 per cent of respondents strongly supported the use of nuclear power here and 30 per cent “somewhat” supported it versus 17 per cent strongly opposed, 15 per cent somewhat opposed and 18 per cent “unsure.”  I wonder what the numbers would be if the question was not posed as “or renewables” but “with renewables”?  The sensible private debate to which I am exposed is that, while clearly the generation mix needs to move efficiently towards removing coal, ensuring that all the low/no emissions technologies are used to best effect is the optimum way forward.)

To circle round to where I began: a very important aspect of the future direction of energy investment is trust and that sentiment generally seems to be on shaky ground in this country now.

The new “Trust barometer” report by communications firm Edelman asserts that, after a rise in community trust levels in 2020-21 as the pandemic struck, the “bubble has well and truly burst.”  

Edelman say: “Australian society is now operating on a default of distrust unless proven otherwise, as cited by 55 per cent of respondents.” 

More than half those polled see both government and media as dividing forces in our society.

Trust in the energy sector is among the lowest in business — exceeded negatively only by financial services and social media (lowest of all).

Keith Orchison
26 February 2022