Issue 62, May 2010


Welcome to the fifth edition for 2010.  This issue covers the change in public opinion on willingness to pay significant costs to achieve carbon abatement,  an official revelation that the national transport fuels trade gap has widened substantially and will get worse, reports of key issues raised at the upstream petroleum industry annual conference, more concern at the impact of wind farm development on the gas sector’s potential market share and reactions to the Queensland electricity price hike.

Opinion cooling

Despite the massive media coverage of the past four years, including the Copenhagen conference coverage (or perhaps because of it), Australian public opinion appears to have cooled on the global warming issue.

The latest Lowy Institute poll shows that support for the proposition that global warming is a serious and pressing problem on which Australia should begin taking steps now even if this involves significant costs has fallen 12 percent since 2008 and 20 percent since 2006.  Just 48 percent of respondents supported this view, the first time the Lowy Institute has recorded a response below half those polled.

The poll also sought response to the view that “the problem of global warming should be addressed, but its effects will be gradual so we can deal with the problem gradually by taking steps that are low in cost.”  This received 39 percent support, up seven percent from 2008 and 15 percent from 2006.

The poll appeared as Essential Research polling showed that the number of respondents placing “addressing climate change” in the three most important issues deciding how they will vote at the federal election has fallen from 16 percent in January to 12 percent in May. The top three issues highlighted in the Essential Research poll were management of the economy (62 percent), the quality of the health system (48 percent) and Australian jobs and protection of local industries (29 percent). Political leadership fell in the poll as an influencing factor on votes from 23 percent in January to 12 percent in May.

Widening gap

Federal Resources & Energy Minister Martin Ferguson revealed at the 50th Australian Petroleum Production & Exploration Association conference in Brisbane in mid-May that the national trade deficit in transport fuels is now expected to reach $30 billion in 2015. This is $5 billion a year more than the $25 billion gap he predicted at the 48th APPEA conference in Perth two years ago.

Ferguson’s announcement comes as Australian production of oil reaches its lowest levels in four decades. In 2000 Australia was more than self-sufficient in oil supply and now production is just over half national needs. On current estimates, self-sufficiency will fall to barely 20 percent in 2030.

Ferguson also revealed that the current trade deficit in transport fuels is $16 billion, up from $12.6 billion three years ago.

Economic forecaster ACIL Tasman has predicted that it could cost between $92 billion and $128 billion to import transport fuel needs each year by 2030.

Meanwhile, an opinion poll by Woolcott Research, commissioned by Queensland Energy Resources, which is pursuing a $5 billion shale oil development in Queensland, found that 86 percent of respondent felt Australia should develop its own oil resources rather than import transport fuels – and 62 percent agreed that “Australia should start developing its shale oil resources in an environmentally responsible manner.”

QER hailed Martin Ferguson’s APPEA comments as a “timely heads up” for Australians on liquid fuel security.


Australia is “underweight” in its domestic use of natural gas, David Knox, chief executive of Santos, told the APPEA conference. He pointed out that local gas penetration of the power generation market was only nine percent compared with more than 60 percent in Thailand and Malaysia, 54 percent in California and 20 percent overall in the US, 35 percent in Britain and 23 percent in Japan, to which this country is a substantial supplier of LNG.

“When gas is a way of life in so many comparable countries, why does it not do better here?” he asked. “ The simple answer is that Australia also has an abundance of cheap coal, which has powered the nation for decades but is now becoming constrained by its heavy carbon emissions.”

Knox told the 2,500 conference delegates: “We see renewable energy getting a helping hand (from government), but gas generally has been left to stand on its own except for the Queensland mandatory target for gas-fired generation that was the catalyst for development of the coal seam methane resource.”

Government across Australia should be supporting gas and renewables, he argued, saying that replacing South Australia’s two aged coal-fired power stations with gas plants would see the State’s emissions intensity from electricity production halved. “Similar reductions could be achieved right across the country if coal-fired power stations are replaced with natural gas on reaching their normal plant life and if renewable energy is given a greater role.”

Opportunity threatened

Origin Energy managing director Grant King, speaking at the APPEA conference, has warned the gas supply industry that, having lost the “golden age” for domestic consumption predicted in the late 1990s for the past decade, primarily to new coal-fired generation being developed in Queensland, it is again in danger of missing out because of the combination of the renewable energy target and the failure of the emissions trading legislation.

Bringing in a carbon charge in 2013 may be too late to influence baseload capacity decisions, he said, because by then development to meet 2020 demand will be under way. “Investment in baseload thermal generation will be deferred while policy uncertainty exists.”

It is possible that there will now be “no material investment” in baseload power in Australia this decade, he added, because investors will pursue wind farm development and constructing open-cycle gas plants to serve peaking and intermediate requirements.

The large availability of wind power capacity – he expects about 7,000 MW to be built to meet the renewable energy target – will create a market situation where the frequency of negative wholesale price bids would make life difficult for conventional baseload operators.

In the absence of an emissions trading scheme and with large-scale wind power expansion, it is possible that LNG development on the east coast will “overwhelm” domestic gas supply, he said.

It is wrong, however, to argue that the situation will see eastern Australia running out of power, King added. “Companies will invest, but in the least-risk options. Renewables and open-cycle gas will be part of that least-risk approach.”

Looking at the “huge challenge” of the Federal Government’s emissions abatement goal – intended to cut greenhouse gases to 20 percent below 2000 levels by 2020 –  it was apparent that a renewable energy target without emissions trading “did not make sense,” he said.

He warned that the cost of reducing carbon emissions through deployment of wind farms and peaking gas plants will be about $40 per tonne more expensive than substituting gas for baseload use of coal. A carbon price of $40 per tonne, he said, would enable gas to become the lowest-cost fuel for new baseload generation.

Tilted field

The enlarged renewable energy target creates an unequal playing field in the eastern seaboard electricity market at the expense of contributions from gas-fired generation, says a new report on the industry commissioned by APPEA from consultants KPMG and launched at the association’s 50th conference in Brisbane in May.

KPMG argue that a carbon price should be sufficient to dictate when renewable technologies are commercially viable without the need for a RET. “The enhanced RET effectively forces higher cost renewable energy in to the electricity generation mix,” they say. “This is at the expense of available lower cost emissions abatement.”

Nonetheless, the consultants acknowledge, while the enhanced RET may act to remove up to 20 percent of the opportunities for gas generation investors, it will also foster gas as the fuel of choice for backing up wind farm power purchase agreements vulnerable to intermittent supply.

“However,” they say, “such benefit must be weighed against the potential loss of market share for gas-fired generation.”

Going up

The Queensland Energy Minister, Stephen Robertson, has deplored a 13.29 percent increase in the State’s retail electricity prices, but declined to over-rule the Queensland Competition Authority.

Robertson described the decision as “disappointing” and said the Bligh government had challenged the draft decision without success because the QCA believes the rise is necessary to meet the demands on power networks.

The Queensland Chamber of Commerce & Industry reacted to the regulatory decision by calling on the State government to address the performance standards of the network businesses it owns and to build more power stations.  CCIQ president David Goodwin said the State had now seen four consecutive energy price increases, adding up to a rise of nearly 50 percent. He added that a recent chamber survey showed that 60 percent of responding member businesses thought the State’s energy infrastructure was inadequate.

The QCA said the increase had been caused by rises of 17.4 percent in transmission and distribution costs, 8.7 percent in wholesale energy costs and 13.7 percent in retailer customer acquisition and retention costs. It said the split in the retailer bills is now 49 percent network charges, 42 percent energy costs and nine percent retailer costs.

Energy security tops

Paul Simshauser, chief economist and group head of corporate affairs at AGL Energy, says the main driver for Western governments in the energy area is security of supply “and everything else is a very distant second.”

Participating in a forum arranged by The Deal Magazine, a component of The Australian newspaper, Simshauser , who is also chairman of Loy Yang Power, said a policy priority as soon as the next federal election is over is to obtain “some sort of bipartisan position” on carbon emissions pricing in order to deal with baseload power needs in five years’ time.

Simshauser added that analysis of what most developed country economies were doing in carbon policy identified four key approaches: placing a price on carbon, a renewable energy target, promoting energy efficiency and supporting research and development. “You will get much better energy efficiency outcomes if you get the carbon price right.”

Energy efficiency challenge

Consultants Energetics have told the Rudd government’s task group on energy efficiency that, without substantial investment in both both generation and end-use efficiency, substantial increases in energy commodity prices will flow through industry, commercial and transportation businesses, neutralising the country’s traditional competitive advantage in low-cost supply.

However, the consultants assert, the introduction of a carbon price will “further expose Australian energy-intensive businesses who have failed to position themselves effectively for enhanced competitiveness in a low-carbon economy.”

Energetics has called on the Federal government to mandate that network businesses invest in demand management and demand reduction programs, to remove the barriers to trigeneration and cogeneration, to ensure that all major new infrastructure and industry developments undertake a best practice energy and carbon review with public disclosure, to promote energy efficiency to business and to tighten minimum energy performance standards for appliances, industrial equipment and buildings.

Energetics said that by 2020 Australia should be able to generate about 16 percent of its power needs from cogeneration or trigeneration, 10 percent more than today. By 2050 the majority of electricity production could come from these sources.

Cleantech funding ‘sub-optimal’

The Clean Energy Council says the level of private investment in renewable and emerging technologies is “sub-optimal” in Australia. It cites analysis at the University of Sydney that nominates three key market failures preventing greater investment: private firms are unlikely to capture the full benefit generated by such investments, there is an inherent second mover advantage in R&D leading to firms preferring to imitate rather than innovate, and the price of energy does not reflect the full cost to society. Underpricing, says the CEC, means the traditional energy price is artificially held below the clean energy price, substantially reducing the incentive to invest in alternative clean technologies.

While the renewable energy target is effective in developing a market for mature renewable technology, the CEC says, on its own it will not be sufficient to accelerate development of technologies that are now in the research, development and demonstration stages. “Current State and Federal government policies supporting emerging technologies are still varied and patchy.”

Wind up

The Victorian opposition has caused a ruckus in the wind farm industry and drawn derision from the Brumby state government by proposing to hand full control of wind power development approvals to local councils.

The announcement by opposition leader Ted Baillieu ahead of November’s State election led to criticism from the wind industry that the policy has “come out of the blue” and will “shut down further development”.

Vestas policy director Ken McAlpine accused the opposition of “caving in to NIMBY protestors.” Clean Energy Council chief executive Matthew Warren said the move would make it harder to put up a wind turbine in Victoria than to dig a coal mine. He claimed Victoria already has the most rigorous standards for wind farm development in the world.

State Energy Minister Peter Batchelor said the proposal will cost investment and jobs as well as leading to more greenhouse gas emissions. He claimed it will cut in half the number of wind farms being proposed for Victoria. Planning Minister Justin Madden said the “bizarre” decision runs contrary to the wishes of most local government bodies in the State.

Baillieu retorted that wind farms should go where local communities want them and not in sensitive landscape areas. The State government had allowed communities to be divided by wind farm plans, he added. 

Smart meters ‘key role’

The Energy Networks Association says the roll out of smart meters across Victoria is essential for the State to manage its future energy use.

ENA chairman Shane Breheny, who is chief executive of two Victorian privatised distribution businesses, says that current criticism of the smart meter program overlooks the size and complexity of the energy and environmental issues that have to be tackled.

In 20 years smart meters will be standard equipment around the world, he adds. “Victoria is leading this reform in Australia.”

Breheny says that more than 100,000 smart meters have been installed in the State so far and are ready to be activated as interval meters in the future. “The meters being exchanged are 30 years old on average,” he says, “and many would have had to be replaced.”

Breheny warns that major delays or cancellation of the program will limit the industry’s ability to introduce service improvements. “The industry has invested large amounts of time and money to establish the smart meter program in accordance with Victorian policy,” he says. “Energy ministers have confirmed that energy costs are going up and so is the environmental impact of power consumption. It is more important than ever to put in place tools that allow effective measuremend of consumption.”

More green funds

The Rudd government used the May Budget to announce that it would commit a further $652.5 million over four years to establish a “Renewable Energy Future Fund” to support decarbonisation.  The fund will provide additional support for the development and deployment of renewable and low carbon energy projects and will also be used to support the take-up of industrial, commercial and residential energy efficiency.ABARE reports that energy consumption in Australia has more than doubled in the 35 years between 1974-75 and 2007-08, rising from 2,695 petajoules to 5,772 PJ.

The cost of the fund will be met from savings gained by deferring the emissions trading scheme until the end of 2012. The Federal government says the expenditure will bring its total committed outlays to renewable and clean energy developments to more than $10 billion.

Federal Energy Minister Martin Ferguson also announced a further $110.5 million in grants from existing renewable energy programs, including $32 million to CS Energy to build a 23 MW solar boost to its coal-fired power station at Kogan Creek and $60 million to the Whyalla Solar Oasis consortium to build a 60 MW concentrating solar thermal demonstration plan in South Australia.

Solar support

Martin Ferguson has shortlisted eight projects for consideration in round one of the Federal government’s $1.35 billion solar flagships program. They will share up to $15 million in feasibility funding.

Four solar PV projects shortlisted are put forward by AGL Energy, TRUenergy, Infigen and Suntech, and BP Solar. The four solar thermal developments under consideration have been proposed by Acciona Energy, Parsons Brinckerhoff, Wind Prospect and Transfield. The solar thermal projects range in size from 150 MW to 250 MW.

Green jobs bonanza

The trade union movement joined forces with the Australian Conservation Foundation in May to assert that strong action on decarbonisation could produce 3.7 million new jobs nationally between now and 2030.

The ACTU/ACF claims are based on modelling done by the National Institute of Economic & Industry Research, which defined strong action as including introduction of an emissions trading scheme, stronger renewable energy investment, greater energy efficiency measures and steps to ensure a cleaner transport system.  The approach is based on a 25 percent cut in Australian emissions and claims that households would be 10 percent better off in 2030 under this approach.

The biggest gains, according to NIEIR, would be achieved in Queensland (with a 45 percent rise in employment) followed by Western Australia (34 percent).

NIEIR asserts that six market sectors currently employing 112,000 people and valued at $15.5 billion would grow under a different set of policy settings to a value of $243 billion in 20 years, with employment rising to 847,000 people. The sectors are renewable energy, end-use energy efficiency, sustainable water systems, bio-materials, green buildings and waste management and recycling.

The ACTU and ACF said they had commissioned the study to “explode the myth that strong action on climate change will destroy industries and jobs.”

In the renewable energy generation industry, the report claims expenditure of $25 billion to $50 billion per year – half a trillion dollars to a trillion dollars over two decades – would create up to 500,000 jobs.

The report does not canvass the impact of such policies on existing, energy-intensive manufacturing, minerals extraction and other industries that currently account for employment of about 1.2 million Australians, many members of the trade union movement.

Yes they can

The US ambassador to Australia claims that the Obama government can win passage for its climate change legislation, “although not until the end of this year at the earliest.”

Ambassador Jeffrey Bleich, an Obama confidant, told an environmental business conference in Canberra that the bill remained high on the US President’s agenda, but he acknowledged that it still faced stiff resistance in the US Senate and that the massive oil spill in the Gulf of Mexico had complicated the debate.

Meanwhile the Climate Institute, releasing a Bloomberg New Energy Finance report modelling renewable energy development in Australia to 2020, has said that this country will not be competitive in a global low-carbon economy and will not meet its abatement targets without imposing a carbon price to drive medium and long-term investments.

Bloomberg comment that a business as usual scenario, which excludes the RET, would see Australian greenhouse gas outputs increase from 581 million tonnes in 2008 under Kyoto accounting rules to 720 million tonnes in 2020. To achieve the Rudd government’s target of a five percent cut below 2000 levels by the end of the decade, they point out, will require finding 195 million tonnes from this trajectory per year by 2020.

The RET as designed will achieve only 23 million tonnes of abatement by 2020.


Any chance for an early resolution of decarbonisation policy  via the next federal election campaign went out the window when the Rudd government launched the so-called “mining super profits tax.”

The row over this issue will subsume most other debates in the forthcoming election, which Canberra political class believes could take place between August and November.

The make-up of the Senate following the election is an increasingly open question as opinion polls indicate marginal voter disenchantment with both the Coalition and the ALP. Where the Rudd government could look at being returned comfortably towards the end of December last year, the House election may turn out now to be one of the tightest races in modern history.

Assuming that the Coalition is actually capable of mounting a coherent policy campaign, and there are too many days at present when this seems like a very big assumption, the election debate should be about the principle that Australia must remain internationally competitive as a place to invest and that it has to continue to attract foreign capital to enable the large-scale developments required to sustain our standard of living.

Just how vulnerable we are in this respect is highlighted by the report (above) that the transport fuels deficit has blown out to $16 billion a year on its way to $30 billion by 2015 – and to what by 2020?

Polling commissioned by the shale oil industry (see above) suggests a large number of Australians would be concerned about this situation if properly informed about it but other polling shows a great dichotomony between a national obsession in the past decade with perceived human impacts on the climate and the rejection of the concept that both large-scale abatement and ongoing large increases in energy demand have substantial cost implications for the community.

It is obvious from polling that few in the community have a realistic understanding of the cost implications of their lifestyles in terms of electricity supply and still less fully appreciate that achieving the national carbon abatement target will send large cost signals to their bank accounts.

Having contributed substantially to development of a swamp of misinformation and misunderstanding about the energy/carbon equation in the past 10-15 years, populist politicians at state and federal levels are now scrambling for higher ground to escape the rising tide of concern and annoyance among voters while the environmental movement builds opportunistic islands of voting support from the still-substantial numbers of idealists in the community.

In this environment, the result of the next election is looking increasingly likely to be a continuation of the situation where the main contenders are hostage in the upper house to strong minority views while trying to hold on to the more conservatist mainstream of their support.

With the “super tax” issue inevitably going to roll on in to the next federal parliamentary term and the ALP facing a crushing defeat in New South Wales, its main bastion, at the state level next March, the chances of decarbonisation policy being clarified before the 2012-13 federal election are not looking good.

Probably the best that can be hoped for in the short term is a “clearing the decks” approach in Canberra to the renewable energy target legislation amendments – needed to sort out yet another Rudd government policy implementation muck-up – to allow the $20 billion or more of wind farm development to proceed over the next several years.

But, as the Bloomberg New Energy Finance report recently released (see above) demonstrates, the RET as presently configured will make a very small inroad in to the large level of abatement required this decade to achieve the 2020 greenhouse gas emissions target embraced by both the Rudd government and the Coalition, a target that Origin Energy’s Grant King has rightly described as a “huge challenge.”

For gas suppliers, as King points out (see above) the present situation does not offer the sort of yellow brick road to domestic market bliss that they have been anticipating since the carbon pricing debate began in earnest almost four years ago. Taken with the prospect that Rudd’s “super tax” may impact negatively on their plans to develop LNG exports based on coal seam methane in Queensland, 2010 is not turning in to a happy experience for this sector.

Keith Orchison
31 May 2010

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