Issue 206, June 202
All change – that’s the watch cry in the wake of the 21 May federal election, but what this political shift means, and not least for energy policy, remains to be seen. There’s more than one immediate, pressing issue for the new Albanese government, with its slender House of Representatives majority and a Senate minority, but the energy problems are surely in the top four. From the community’s perspective, one of the biggest ones is onerous, higher electricity prices and perhaps gas ones, too, already a troubling perspective for manufacturers, other large users and a multitude of businesses. For the government, the imminence of the CoP27 meeting in Egypt later this year and the pressure on it from an emboldened Greens party as well as “teal” independents means that climate policy requires a lot of attention with plenty of scope for missteps. The defeated Liberal and National coalition, on the other hand, has the short-term luxury of time to re-organize itself under new leadership while carping at whatever the government chooses to do. Business leaders, whether in energy supply or as consumers, have no such luxury – the current and prospective electricity and gas environments are a headache and, in more than a few cases, a threat. As the saying goes, in several respects, the more things change, the more they stay the same.
“Voters have delivered a realignment of politics as well as power” – the Australian Strategic Policy Institute.
“The message from the ballot box is clear: Australians want politics to be done differently” – new independent MHR for North Sydney Kylea Tink.
“The message from this election is that pro-business and pro-climate policies can co-exist” an editorial in the London Financial Times.
“The federal election result is a resounding victory for climate populism over policy” – Matthew Warren, writing in the Australian Financial Review. “Talking big targets is easy; it’s how you deliver them that matters.”
“It’s very easy to throw around competing targets, but how are you actually going to get to these targets, what industries are going to be impacted, what is the impact on electricity prices and which towns and regions are going to suffer the most?” – defeated Liberal MP Dave Sharma.
“We don’t have enough renewables in the system nor enough transmission to link up the cheapest forms of electricity to the grid” – incoming ALP energy minister Chris Bowen.
“It’s only a week since the election and the NEM’s throwing up reminders of the challenges that will need to be navigated if PM Albanese is going to deliver on his promise to end the climate wars while also keeping a keen focus on electricity prices and security of supply” – Global-Roam CEO Paul McArdle.
“Australia has wasted almost two decades to resolve its energy policy and still has no plan for the transition away from fossil fuels” – Origin Energy director and former APA Group chief executive Mick McCormack.
“Energy intensive sectors such as manufacturing will be harshly affected by rising electricity and gas prices while petrol prices, which have jumped up again, are driving up freight and input costs” – Andrew McKellar, CEO, Australian Chamber of Commerce & Industry.
On the eve of the federal election, speaking at the close of the Australian Petroleum Production & Exploration Association annual conference in Brisbane, new APPEA chairman Ian Davies urged members “to stand up for our industry,” declaring gas to be “on the front line” of decarbonization.
Against a background of The Greens, holding their election campaign launch in Brisbane with a call for a Labor government to ban new oil and gas developments, Davies said the gas sector will have a much greater firming role in electricity supply by 2050 to back up wind and solar power – and would also supply the feedstock for delivering hydrogen “sooner and cheaper.”
Davies added that carbon capture and storage will be vital for the petroleum industry in the energy transition.
APPEA has appointed Samantha McCulloch, head of the International Energy Agency’s CCUS unit since 2018, as its new chief executive.
Madeleine King, Resources Minister in the new Albanese government, told the conference attendees that the ALP is “enthusiastic for this industry.” She said: “We support the gas industry, the coal industry and the iron ore industry as well as all the new metals we have that will decarbonize the world.”
By contrast, The Greens declare that opening up new gasfields will be “a climate crime.”
Anthony Albanese and his ALP team have landed in government in Canberra at a point in the domestic and international energy price cycle that wasn’t – and perhaps couldn’t be – envisaged a year ago.
Innes Willox, CEO of Australian Industry Group, was telling media as May ended and the new administration was being sworn in that energy prices had reached an “apocalyptic” point and posed the “threat of chaos” for industry and “pain” for households. He warned that affected businesses could be forced to cut production or staff.
Willox spoke as east coast gas prices surged following large rises in the electricity market wholesale prices.
The gas price problem is particularly nasty for large gas users unable to secure contracts at affordable rates and therefore dependent on the spot market.
“More pain is coming for all,” Willox said.
At the end of May three of the east coast’s four gas sub-markets were being administered by the Australian Energy Market Operator, which imposed price caps.
The situation was made the more acute for households by winter arriving with a headline-making “polar surge” of cold, wet and windy weather and the Australian Energy Regulator announcing new default electricity prices between 7.2 and 11.3 per cent higher from mid-year, depending on State. The pain extends to small businesses, for whom the power rises are higher.
New Deputy Prime Minister Richard Marles is warning that “there is no overnight fix” for the pricing problems. This is echoed by the new Treasurer, Jim Chalmers, who says “we shouldn’t pretend that there is a quick fix.”
Meanwhile AER chair Claire Savage notes that, if a large number of energy retailers are unable to recover their costs and are forced to exit the NEM, there will be even higher costs for consumers.
The head of the Grattan Institute energy program, Tony Wood, agrees there is little the federal government can do in the short term to force down energy prices. The “rewiring the nation” policy will take years to have an effect, he adds. And, even if the government opts to impose gas export curbs, there might not be a significant impact on user prices.
As May ended, rattled large users were once again trying to push a federal government towards a gas reservation policy for the east coast – Western Australia has had one for years.
The mechanism is available – legislated by the Coalition government to force gas suppliers as a last resort to divert more supply in to the domestic market, a step steadfastly opposed by producers.
Treasurer Jim Chalmers says the move will be discussed with regulators and his ministerial colleagues, Resources Minister Madeleine King and Energy Minister Chris Bowen, but he told media at the start of June that the issue is “complex” and there was no simple solution to “a perfect storm of problems.”
Bowen points out that the “trigger” applies to supply not prices – and, under the rules, could not be initiated before next January.
Manufacturing Australia argues back that the current situation is exactly what the domestic gas security mechanism was designed to address.
The Australian Petroleum Production & Production Association, in turn, retorts that domestic supply is secure and at near record levels. It says the vast majority of manufacturers are either on long-term, lower price contracts “or are not materially affected by gas prices.”
Sarah McNamara, CEO of the Australian Energy Council, says “the situation we are in is not because of the LNG producers, no not at all – it is due to a range of factors, many of them beyond our control.”
Federal and State energy ministers are due to meet the energy market operator and the energy regulator early in June “to consider every available option.”
Meanwhile new Liberal leader Peter Dutton says “Australia’s energy predicament has nothing to with renewables and everything to do with the war in Ukraine.”
The Santos coal seam gas development at Narrabri in New South Wales, which was originally intended to be on stream by now and alleviating supply problems but has been held up by environmental controversy, can “at best” be available in 2025.
Santos CEO Kevin Gallagher told media at the start of June that “if you want more gas, you have got to develop more gas; you can’t conjure it up magically when coal-fired power stations turn off and renewables aren’t performing.”
Narrabri, he added, is a prime example of “what happens if the transition is focused on stopping new oil and gas projects.”
Santos has spent $1.5 billion over 10 years on pursuing development at Narrabri, which it is claimed could meet half NSW’s gas needs, but has been hampered by environmental legal challenges.
Amid the alarm over fast-rising energy prices, large users are calling for consumers to be put at the centre of the net-zero transition.
Andrew Richards, CEO of the Energy Users’ Association of Australia, advocate for large commercial and industrial businesses, says the policy approach to energy issues must be more consumer-centric.
“The path to net zero needs to be pursued at least cost, not at any cost,” he adds. “We often see a narrative that achieving net zero will somehow be easy and cheap. The lived experience of many energy users to date is that it is hard and potentially very expensive. We need to have our eyes open to the challenges.”
Meanwhile Andrew Wheals, chief executive of APA Group, told a Sydney conference that the transition task is akin to rebuilding the NEM and is going to “require a system-wide view to balance security, affordability and lower emissions.
“And critically we have to take the community with us on this journey or we are bound to fall short.”
Melbourne University’s Victoria Energy Policy Centre is urging the new federal government to pursue growing energy storage rather than its “Rewiring the Nation” approach – involving spending $20 billion to help fund new transmission lines.
A study by the centre argues that setting a renewable energy storage target (“REST”) will be a better priority for the government, enabling high levels of wind and solar power to be integrated in to the NEM while insulating customers from energy price shocks.
The report focusses on Australian Energy Market Operator modelling indicating that 59,000 megawatts of storage will be needed to enable 204,000 MW of variable power to be installed in the system by 2050.
The new leader of the National Party, David Littleproud, has invited Prime Minister Anthony Albanese to help “lead a conversation” on the future use of nuclear power in Australia.
The Nationals say they promoted the issue in the Coalition party room while in government with the Liberals and claim this led to small modular nuclear reactors being included on the so-called technology investment roadmap. Now Littleproud wants the ALP to “help create a mature conversation for Australians to actually consider what SMRs can contribute to being reliable and also affordable and reducing emissions.”
A domestic nuclear industry in Australia is currently banned by legislation introduced by the Howard government to help get the GST passed by the Senate crossbench of the time.
In comments after his ousting as Nationals leader following the election, Barnaby Joyce also called for the moratorium to be lifted.
In an environment where Liddell power station is soon to close, the early shutdown of Eraring is under consideration and embattled AGL Energy is being pushed in its investor ranks to bring forward closure of Bayswater, the Australian Energy Market Operator remains sanguine about security of supply in New South Wales.
In an interview with the international Bloomberg media service in late May, AEMO’s executive general manager of system design, Merryn York, has declared that plans to add new transmission and renewable energy resources, including 1,700 megawatts of wind and large-scale solar power, in NSW mean the State is likely to meet or exceed its reliability standard even without coal-based generation.
Bloomberg says Australia is a “global test case” for the net-zero transition for power grids that today remain dominated by coal-burning plants.
The Open NEM website shows that in the 12 months to the end of May, NSW received 47,825 gigawatt hours of electricity from black coal-fired generation within its borders versus 5,733 GWh from wind farms, 4,158 GWh from solar farms, 2,813 GWh from hydro power and 1,959 GWh from gas plants. NSW imported 5,386 GWh from other States. Open NEM also reported estimated use of rooftop solar power in the State for this period amounted to 5,266 GWh.
The Clean Energy Council wants the new government to give priority to reforming the east coast power market.
The CEC warns that, without federal intervention, each regional government could build separate infrastructure in pursuit of decarbonization.
“This scenario is basically unavoidable at present due to the absence of a federal plan,” the lobby group says, warning the outcome will be a loss of key benefits the NEM was designed to deliver.
The CEC proposes creation of a national authority to oversee a transition from coal generation.
In its annual clean energy report, the CEC says there are 66 large-scale wind and solar projects across Australia under development or with financial commitments, representing more than 7,000 megawatts of new capacity.
Meanwhile the Australian Energy Market Commission says it has drafted new rules to require thermal power generators to provide the market operator with more clarity about anticipated plant outages. The commission says it is concerned by current trends for shutter units for maintenance or to avoid having them operating in periods of low wholesale prices.
The chickens have come home to roost.
Years of messing around with energy policy and, in particular in New South Wales, pusillanimous dodging and weaving over natural gas development, have delivered what the new federal Labor government is describing as “a perfect storm” as winter descends on the east coast.
As the Australian Financial Review noted in a “mugged by reality” editorial early in June, old energy can’t be dumped before new supply is ready to pick up the load.
The paper opines that almost all sides of Australia’s “climate wars” share some of the blame for the serious present problems, and it is right.
The present winter shemozzle flows from an early cold snap, a sharp reduction in solar power supply and disruptions to coal-fired generation, partly because of a lack of readily-available coal and partly because of maintenance issues at power plants and mines – but most of all because the political system has proved incompetent over bringing on new east coast gas developments, a failure that would be no surprise to attendees at the past decade’s Australian Domestic Gas Outlook conferences.
(There has been hardly any media coverage of the fact that, according to analysts EnergyQuest, the recent east coast weather caused solar power production to drop by 27 per cent in May compared with April and wind generation almost two per cent.)
Dealing with the present multi-faceted crisis is obviously the national priority but can it be a wake-up call to policymakers that more, and potentially worse, problems could occur before the decade is out?
In this respect, the need to have all options for reliable, affordable electricity supply readily available is surely bleeding obvious – and the nuclear lobby (with its desire to see small modular reactor technology as part of the reliable future power mix) is anxious to get Canberra’s attention because the need to efficiently replace ageing coal plants is a decade-long task at least and, by 2030, more than variable renewables and storage are going to be needed.
The National Party, under new leadership after the election, is flying the SMR flag – but, as has been pointed out time and again, this is another aspect of energy management that requires agreement and co-operation across the main parties, with the parliamentary situation now made more complex by the election’s outcome in the Senate.
A newspaper columnist asserted this month that upward pressure on electricity prices in the NEM “will be with us for months, if not years.”
This a mongrel with many fathers and there is no sign, other than new-minister rhetoric, that Australia is anywhere near ready to get it on a leash. Quite the contrary, in fact.
3 June 2022