Global challenge reflected in Australia's pursuit of a secure, sustainable energy future

By Keith Orchison
(Written in mid-2004)

I recall reading somewhere that there are no short cuts to any place worth going; that pretty well sums up the Australian situation with respect to sustainable energy policy and covers the ground for other countries, too.

In Australia, other than for improved efficiency and the introduction of a competitive market -- both highly important developments -- not much has fundamentally changed in energy supply in the past three decades.

The fuel mix remains today essentially as it was in the 1970s. Coal and oil were the main Australian energy fuels 30 years ago, as they are today. Fossil fuels dominate its energy consumption now, as they did 30 years ago, underpinning a strong economy and what is generally recognised around the world as one of the best lifestyles.

Nothing in train in technology globally or policy development domestically suggests that the Australian supply mix will be very different in 20 years from today, but there are some significant pointers to how the overall Australian economic situation could be very different by 2020

For one thing -- and perhaps most importantly -- failure to come to terms with the pressures of a carbon-constrained global environment because of climate change policies could wreck the international competitiveness of Australia's traded goods sector. For another, high dependency on imported oil (which already provides 40 percent of Australia's oil product needs with domestic supplies forecast to diminish rapidly over the next two decades) could be a substantial economic minus by 2020.

The third critical energy challenge facing Australia in this time frame is the need to ensure ongoing security of supply of competitively-priced electricity. Some $Aust 37 billion (in today's money values) needs to be invested over the next two decades to sustain this considerable advantage.

A large part of this capital outlay will be spent on infrastructure to meet new demand, but a substantial amount is also required to replace ageing equipment, some of which has already been at work in the power networks for 40-50 years. Australian electricity demand has consistently grown at 3 to 4 percent a year on average over several decades and is projected to grow at around 3 percent a year out to 2020.

Gross generation of electricity is projected to increase by more than 50 percent from 2000 to 2020, reaching 344 terawatt hours. Allowing for a substantial increase in the use of gas for generation and also for the growth of renewable energy under a subsidised scheme, this means that greenhouse gas emissions from electricity production are expected to rise from about 180 million tonnes a year today to 240 million tonnes in 2020.

The growth in gas-fired generation, however, is not going to be spectacular by, say, British or American standards. Australia has very large reserves of both black and brown coal and the forecasts of a decade and more ago that gas would make large inroads in to Australian power generation in a competitive market have not been borne out; nor have the great expectations for wind power been realised and it is unlikely to supply any more than 5 percent of electricity generation even by 2020, while fuel cells (despite an internationally-recognised innovative edge in Australian-designed technology) and hydrogen energy are still in the research laboratories rather than the marketplace and are unlikely to make a significant impact on energy consumption for many years.

Australia is a strong exporter of uranium, but the political environment militates against any prospect in the foreseeable future of a turn to nuclear power, even allowing for the confident predictions by the nuclear industry of a brighter future built on new, cost-competitive technology.

One of the Australian sustainability problems is that, while it is true that each dollar of gross domestic product in Australia today requires less energy than 30 years, the country does not have an especially flash end-use energy efficiency record. Through using new and improved technologies and equipment, Australians have improved their technical energy efficiency by 3 per cent since 1973-74 -- but this is less than half the rate achieved on average by the other members of the International Energy Agency. This weakness is now being addressed more strongly by the Federal and State governments. The country's Productivity Commission is to produce a report in 2005 on how to improve end-use energy efficiency and the governments collectively have agreed that they will adopt an energy purchasing policy with a national standard of one watt for power appliances in stand-by mode. Most appliances today consume 30 to 40 watts in stand-by mode. The governments believe that the standard, adopted nationally, can reduce electricity consumption by 2.5 percent a year.

In summary, in Australian electricity supply, allowing for nuclear energy being in a permanent sin bin, competition over the past 30 years has been between energy sources that are abundant, concentrated and cheap and those that are disbursed, sometimes intermittent and consequently more expensive. Even with the policy intervention of carbon charges, it is hard to see how things will change dramatically over the next 20 years -- unless the intervention creates a massive increase in the price of fossil-fuelled power generation.

Those who advocate such a change to the present cost structures in Australia may not care to confront the critical importance of relatively low-priced power to the country's energy-intensive manufacturing sector, which employs a million people and contributes $230 billion to national gross domestic product -- but its Federal and six State governments have to do so.

While, in Australia as in New Zealand, Canada, Britain and the US, the media get excited today over power price increases for residential customers worth not much more than the cost of a can of Coke a week, one has only to note the amount of national publicity (and political attention) given to a long-running saga concerning the future of one motor manufacturer in South Australia to appreciate the furore that would arise over a threat to the entire Australian energy-intensive manufacturing sector.

The dominating factor in this debate is that demand for cost-competitive energy continues unabated.

In considering this environment, it is worth pausing to make the point that electricity is the dominant energy form of world society because it is versatile, clean to use (leaving aside the issue of the fuels used to make it), relatively easy to distribute, fully controllable by the users -- and the misery endured by the 1.6 billion people around the globe who do not have ready access to electric power simply serves to emphasize its value and importance.

Electricity is essential for living and business. Its interruption causes can create major problems in urban centres. Its longer disruption -- as in New Zealand's main city Auckland over a number of weeks in 1998 as a result of catastrophic transmission failure -- causes tremendous inconvenience and economic loss. The recent problems in Florida caused by hurricanes are both another example of the value of the product and its vulnerability to physical supply disruption.

For these reasons, the electric power service is a highly political issue -- hence the strong (and often fevered) debate and the perceived threat to the tenure of governments when the system fails to deliver the expected secure, reliable, safe and affordable supply. The fate of the deposed Governor of California, Gray Davis, is never far from the minds of government leaders and ministers these days when confronted with supply problems, and in Australia at present at least two, perhaps three, State governments are in considerable trouble over power supply and price problems. The New Zealand Government, confronted both by a North Sea-like rundown of offshore gas supplies and the problems that dry seasons create for a substantially hydro-electric-based system, is another that finds power problems on the front pages of newspapers far too often. It is a situation that administrations in California, Ontario (Canada), Italy, China and England and Wales understand only too well at present.

In the context of long-term success in electricity supply, two developments in Australia this year stand out:

Neither development can be described as of proven value at this stage -- substantial question markets still hang over the regulatory regime being proposed by the collective council of Australian governments and the degree of certainty over long-term greenhouse gas policy demanded by investors is not met by the white paper.

Just how much "certainty" investors can expect is a question in itself. In Britain, for example, the Government has committed to reducing greenhouse gas emissions by 60 percent by 2050 -- but the medium-term outlook for security of electricity and gas supply is in serious question and price shocks are starting to be experienced.

The current national election -- for a poll on 9 October -- is a watershed point in this situation in Australia: under the present Federal Government, the Kyoto Protocol will not be ratified, emissions trading will not be introduced and the drive towards a secure, sustainable electricity supply will be managed through a focus on long-term technological development. Under the Australian Labor Party, the Kyoto Protocol will be ratified, there will be a large increase in the mandatory renewable energy target (bringing considerable cost for energy-intensive manufacturers) and steps will be taken towards introduction of emissions trading by about 2010. The ALP has also committed to retaining the $500 million Low Emissions Technology Fund announced in the white paper, a step that has been immediately challenged by the Greens as "bowing to the influence of the coal lobby."

Australia's program of co-operative research centres provides an important pathway towards development of some of these technologies, not least in the black and brown coal area where three CRCs are working on advanced combustion technologies and the means to capture and store greenhouse emissions from power stations.

Federal Government spending on energy technology includes the LTEF scheme to which I have referred -- and where the Government expects its half billion dollar contribution to be matched by $Aust 1 billion outlays by industry -- as well as provision of $Aust 75 million for the so-called Solar Cities trials in urban areas of photovoltaic products and a $Aust 134 million fund to promote removal of impediments to the commercial development of renewable energy products.

Most controversially, the Federal Government has refused to expand its mandatory renewable energy target program, introduced in 2000 and aimed at creating 9,500 gigawatt hours of new renewable energy production in 2010. Under its present arrangements, the so-called MRET scheme will see some $Aust 2-3 billion worth of renewable projects developed, mainly wind farms -- but the Federal Opposition, a number of State governments and the renewable energy industry fervently believe must be substantially enlarged.

As in Scotland, England's west or a number of states in America, large-scale development of wind power in Australia is popular in metropolitan areas (where the community may never encounter a wind turbine) and with farmers (who have realised wind farming can be a new "crop"), but highly controversial in rural areas where the locals increasingly resent the visual and noise intrusion and often fear its impact on tourism.

In Australia, where all the adult population is required to vote and where elections are decided on preferential voting rather than first-past-the-post, governments that attempt to run roughshod over local communities can suffer setbacks at the polls -- especially as preferential voting involving the entire community tends to throw up many governments having to rely on small majorities in marginal seats.

The biggest change in electricity supply in Australia in the period to 2020, however, is not expected to come from any of these areas but, as indicated above, from considerable expansion of gas-fired generation.

The Australian Bureau of Agricultural & Resources Economics is forecasting "particularly strong" growth in gas-fired power generation out to 2020. It projects the development of some $Aust5 billion (in today's money values) worth of gas-fired plants and a rise in output from gas-fuelled generation to almost 70 terawatt hours a year. This is an important change, so long as it is not forgotten that the output will be 70 TWh out of more than 340 TWh by 2020, with the bulk of supply coming from coal-fired plants, almost all of which are already in operation.

This latter point is important: rather too few people appreciate that the major focus now emerging on carbon dioxide capture and sequestration will be directed to new coal plants in the future -- retro-fitting existing ones is not considered commercially viable.

A significant focus for electricity supply engineers, therefore, is going to be the achievement of incremental improvements in the efficiency of conventional power plants

Any sensible consideration of the task of maintaining a secure, sustainable electricity supply for Australia must come to the conclusion that this is an incremental, continuous process. There are no silver bullets. Energy Jack cannot spring from the toils of the greenhouse issue with any one bound -- and in industrialised nations like Australia, the cost of supply is a critical issue.

I am indebted to the Electric Power Institute of Palo Alto, California, for the following five objectives (which I have paraphrased) that electric power capabilities of the future will have to satisfy:

A further goal that I would include is the need to deal with Australia's looming shortage of qualified power engineers. A recent University of Wollongong survey commissioned by the Electric Energy Society of Australia has highlighted the problem by reporting that 73 per cent of electricity employers are currently having difficulties finding suitably qualified engineers. The problem can't be remedied by importing engineers from overseas because a similar problem existing in most developed countries -- it is a product of the reform of the electricity industry in the past 10-15 years, which has included substantial reductions in utility staff in pursuit of productivity.

All of these approaches need to be addressed against the understanding that energy security has returned to the top of the policy agenda, driven by a multitude of issues -- including the need to deal with terrorism, increases in oil prices, supply shortages in places such as California, Ontario and China, and system failures in New Zealand, North America, Italy and Britain -- and that local communities are quickly and quite comprehensively exposed to events far away through modern communication systems. The 14 August 2003 blackout that struck Ontario and a large part of the US north-east was headline news in Australia, too, and quickly had government leaders assuring their communities that a similar massive problem couldn't occur in their area. (Not all of those who rushed out this assurance are feeling quite so comfortable in Australia at present as a result of a series of energy supply problems.)

All of which brings me to what I consider to be one of the big lies of the past decade's energy and the environment debate: that countries like Australia can pursue environmentally sustainable development without being overly focused on energy security. Events here and overseas have exposed that assertion for the fake that it is. Environmental advocates argue still that sustainable development should not be allowed to be trampled by energy security rhetoric -- I agree, but let's be clear that energy security is, in fact, a pre-requisite of sustainable development.

Pursuing environmental excellence, reducing greenhouse gas emissions and sustaining cost-effective, secure electricity supplies are indivisible goals. The need in Australia -- as elsewhere -- for a uniform, national approach to all the elements that underpin the achievement of these goals is important today and will be equally so in 2020, or 2040 for that matter.

As the past few decades have shown, and as I have canvassed here, two of the constants in Australia's way of business and way of life are change and the need for a reliable, sustainable, cost -effective energy supply system.

Reform fatigue is a common current issue in the public debate. Australians have had so much change in the past decade, it is argued, that the community is sick of it and negative towards the concept of still more reform. Unfortunately that path is a dead end. The rest of the world will not stand still while Australia takes a breather. The fundamental challenge facing Australian electricity supply -- and energy supply more generally -- is to take the reforms of the past decade to higher ground, not to run away from the pricing, investment, environmental and social pressures they have brought in their train.

Meeting the existing and potential demand for electricity -- indeed, for energy generally -- will be a primary driving in shaping the Australian economic landscape, and therefore the way Australians live, as far forward as I can see. Where, globally, will this be different?

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