Issue 237 January 2025
The 2024 wrangles about energy, at federal and State levels, seem very likely to be pursued much more loudly in this new year, with a close-run national poll looming in the near future. As well, the election for Western Australia, where electricity issues are no sideshow, is fixed for 8 March. Acknowledging the challenges of the main power market, the NEM, the Albanese government has tasked an “expert panel” to address all the issues plaguing the market — and its main focus sums up three of the four problems that are so frequently in public debate focus: system reliability, how the grid interacts with renewable energy policies and how the system can be decarbonised to achieve emission reduction ambitions. Missing from the task is the public’s (and manufacturers’) main beef — the pain inflicted by power bills, which, it was notoriously promised in 2022, would fall under a new federal administration. The other big issue that will form part of the poll debates is the Coalition’s approach to nuclear generation and the frequently wild opposition to this from the ALP leadership.
"Australia’s energy debate has increasingly been dominated by faux economics that overlooks the complexity of a power system where basic physics dictates supply must meet demand in real time” — Patrick Gibbons of corporate advisory firm Orizontas. “All technologies should be on the table and subjected to proper economic analysis that reflects the real world, not politically driven technology constraints."
"What is being constructed is not the cheapest energy system for consumers, it’s the lowest-cost pathway to meet the government’s targets and objectives” — Jennie George, former senior Labor figure and now constant media critic of government energy policy.
“Energy and cost-of-living pressures will be key issues at the election, which could be held as soon as late February” — George, writing in The Australian newspaper.
“Political parties, like people, must beware the stories they tell themselves, the stories they weave and come to believe that just are not true. The not-true ones can get you in terrible trouble, especially the ones you use to justify your actions and that make poor personal motives seem noble” — leading US political commentator Peggy Noonan in the Wall Street Journal.
“The problem is that the energy debate in Australia is carried out in accounting costs pretending to be economic costs and none of it is serious. I think the lack of a proper economic analysis of what amounts to the transformation of our entire economy is the big story” — economist Alex Coram.
“A serious analysis should begin by identifying the mix of goals Australia wants to achieve, then consider the full costs of all feasible technological options and trajectories to get there. Then develop a transition plan that maximises the mix” — Coram.
“Our energy ministers and the uncountable legions of advisers, agencies and advocates responsible for the grid under construction, are inflicting the greatest act of self-harm in our nation’s history. They have set us on a pathway to poverty” — commentator Chris Uhlmann in The Australian.
“There are a lot of people out there who are heavily invested in renewables and they have made millions and millions off the back of taxpayer subsidies, so, of course, they want the party to continue on. But my job is to find a system which is going to deliver cheaper energy costs” — federal Coalition leader Peter Dutton.
"Unfortunately, the climate wars in Canberra have prevented the market from rationally determining the optimal mix of technologies to produce cleaner, reliable and affordable energy. Instead, both major parties’ energy policies involve government intervention” — the Australian Financial Review in an editorial.
"The truth about decarbonisation of the energy system and economy is that the further you go, the more difficult and expensive it becomes. The so-called last mile will always pose the most difficult and expensive challenge. This is why maintaining a component of always-ready electricity supply to maintain the integrity of the network at times of low production from renewables can present oversized savings” — The Australian in an editorial.
"One of the key benefits of having several nuclear plants in Australia is the saving on the renewable energy overbuild as well as the extremely expensive and relatively under-utilised infrastructure needed to connect the intermittent power to the grid. Network costs currently are the largest component of electricity prices; a future with nuclear would constrain their costs relatively to reliance on renewable energy” — economist Judith Sloan in a commentary in The Australian.
No sector other than electricity is doing anything to actually achieve Australia’s 2030 emissions reduction target.
This is the “sobering reality” to which a leading energy lobby body, the Australian Energy Council, is pointing in a year-end commentary published in mid-December. The association is the peak industry body for electricity and downstream natural gas businesses operating in competitive wholesale and retail energy markets.
AEC energy policy advisor Rhys Thomas, analysing the federal Climate Change & Energy Department’s latest report on abatement as well as the Climate Change Authority’s 2024 “annual progress report,” asks if “electricity decarbonisation is really the only ‘eggs in one basket’ viable pathway” to the end-of-decade target?"
Thomas notes that the department’s report issued by Chris Bowen claims Australia is “on track” to meet the government’s 43 per cent target — “a sizeable jump from the previous year” — based on the assumption that electricity supply will be 82 per cent sourced from renewables by 2030 and he points to the CCA “casting doubt on the realism” of this view.
Thomas writes: “Australia is currently deploying renewable energy infrastructure at about half the annual rate needed to reach the 2030 renewables target and, when accounting for projects in the pipeline that are also eligible for the capacity investment scheme, a gap of approximately eight gigawatts is projected to remain to reach the additional 33 GW the authority considers is necessary for the 82 per cent target."
He adds: “These concerns are not new. The AEC presented to the CCA back in mid-2023 that 82 per cent faces severe supply-side challenges that make a 2030 deadline appear overwhelming.”
And he says: "While the capacity investment scheme has helped create new demand signals to incentivise renewable build, many of these supply-side constraints still remain.”
In the Energy Council’s view, "The challenge facing the Federal Government is that there is nothing scientific about the 82 per cent target – it is a policy target (and) an arbitrary one at that. This makes planning an electricity system around it extremely difficult, especially while balancing reliability and affordability."
Thomas says: "This all invites a very obvious question: what happens if the electricity sector is not 82 per cent renewables by 2030?” And he adds: “If the electricity sector is 78 per cent in 2030, then we need to abate around 8 Mt CO2-e across the other sectors to cover the difference.”
He comments: "Whether the electricity sector is 82, 72, or 62 per cent renewables by 2030, it will still do most of the heavy lifting to decarbonise Australia’s economy. But it is also a reality that accelerated renewable deployment is not simply a matter of will – there are many supply side barriers that the AEC, CCA, AEMO and many other stakeholders understand must be overcome in a very short space of time.
"In this environment, it seems ambitious at this stage to assume 82 per cent renewables by 2030 and highly ambitious to have it as essentially the only policy assumption for reaching the 43 per cent target.
The Australian Energy Regulator, in a new biennial report, says the east coast energy market “remains unpredictable,” with generation outages, weather unpredictability and high demand contributing to wholesale electricity price spikes.
Despite this, the AER reports, spot prices have fallen since late 2022 thanks to lower fuel costs, increased renewable energy and government actions.
It points out that greater spot price volatility can flow through to higher forward contract prices that then impact consumer bills.
The regulator notes that renewable sources delivered 32 per cent of electricity flowing in to the NEM in the most recent year covered by its review. "During the day they are increasingly setting prices and leading to negative price periods — but, during evening peaks when prices are at their highest, traditional generators still set the price over 90 per cent of the time.”
In this period the NEM experienced record low electricity demand in New South Wales, Victoria, South Australia and Tasmania as well as record high demand in Queensland.
AER chair Clare Savage said in a statement that “structural reforms and timely investments in dispatchable and renewable capacity are needed to address price volatility, market stability and competition to ensure lower costs for consumers and to maintain investment that is essential for the energy transition.”
Savage said that, with the electricity sector changing so fast, "the importance of efficiency in the energy system has never been more critical."
The new study includes a “deeper dive” in to the South Australia market where 70 per cent of electricity supply is from wind and solar power generation. Savage noted that “while increased renewable generation has sometimes lowered prices, factors like fuel costs, network congestion and bidding strategies have kept prices high and volatile, with fewer mid-priced offers and incentives for limiting supply further driving instability.
“These factors,” she said, "have led to new inefficiencies, challenges to competition and costs that should be addressed in market design reviews.”
The regulator’s report comments that, in the NEM as a whole, intermittent renewables are increasingly setting daytime wholesale prices — and “significant new investment in wind, solar, batteries, pumped hydro, gas-fired generation and the transmission network is needed over the next decade to replace aging coal and gas plants”.
It says that, over 2022–23 and 2023–24, 4.5 gigawatts of new large-scale generation entered the market. “This was 22 per cent lower than in the two previous financial years.”
In media interviews just before Christmas, Savage said NEM consumers may be paying more than they should for electricity because major coal and gas generators dominate the market at peak times despite the influx of new wind, solar and battery projects over the past two years.
In a separate report published in December, the AER declared that “affordability and energy debt remains challenging for consumers” in the eastern States system. It said that, while the proportion of customers in debt remained stable, the average amount of debt per customer increased in 2023–24. "Rebate assistance from governments has helped offset energy price increases, however broader economic conditions have continued to impact consumers.”
Australian Competition & Consumer Commissioner Anna Brakey says more than 80 per cent of households in the eastern States electricity system are paying higher power bills than necessary — and many small businesses are doing so, too — through failing to pursue new purchase plans with retailers.
She says this “loyalty penalty” could cost households $238 a year more if they had not obtained a new deal in 2024.
She notes that pricing in the retail electricity market has become more complex with many customers on time-of-use or demand tariffs, adding “the increasing complexity in pricing as the smart meter rollout continues presents a real challenge to consumers who are trying to reduce their bills."
The ACCC says that, overall, it has found that, on average, residential customers across the NEM on flat rate offers have experienced a four per cent reduction in energy prices.
The Clean Energy Regulator says there were more than 267,000 small-scale rooftop solar installations across Australia in 2024 — and the total installed is soon to pass four million.
The CER expects the installed capacity for 2024 will amount to 3.15 gigawatts, close to the record of 3.19 GW set in 2021. It says that, incentivised by the federal small-scale renewable energy scheme, more than 300,000 systems have been installed annually since 2020. It estimates that user households are reducing their annual electricity bills by average of $1,500, adding that it is now taking participants in the SRES scheme 3.5 years to pay off their investment.
It also reports that the capacity of individual installation is trending higher – reaching on average 9.9 kilowatts in the third quarter of 2024 compared with 9.4 kW in the same period of 2023.
The CER estimates that rooftop solar generated more than 12 per cent of power provided in the NEM in the 12 months to August 2024.
The year 2024 ended with a bang so far as energy is concerned, ignited by twin Frontier Economics modelling exercises on the “transition” and on the Coalition approach to use in Australia of nuclear generation.
There is no reason to suppose the fuss will subside before the 2025 federal election is held.
Barge-loads of commentary, some interesting, a lot vacuous ranting, have been floated past us in the past few weeks since Frontier Economics published their work and it’s racing certainty we’ll be subjected to a lot more now that the election campaign has kicked off (which it has even if Albanese at my time of writing is still playing coy about an official announcement).
Amongst the interesting stuff in December was a commentary published in the Australian Financial Review by Michael Wu and Zoe Hilton of the Centre for Independent Studies.
Its punchline was “reality is dawning on Australians that we don’t have any energy plan remotely close to showing us an honest picture of our future power prices,” and — rightly in my book — focusses on the role of energy costs for consumers as they decide their votes in the federal election.
Wu and Hilton celebrate that Frontier Economics have “unwound the real cost” of the AEMO integrated system plan “which has become de facto policy for Labor,” assessing it at $600 billion rather than the $122 billion touted by Climate & Energy Minister Chris Bowen using discounted “present value” conjuring.
If the Frontier modelling has flaws, Wu and Hilton add, they arise from the analysts’ deliberate use of the government’s “own fatally-flawed plan.” The CIS view of the two Frontier analyses is that "it has made a transparent comparison that is almost certainly directionally correct: a system with nuclear will cost much less.”
But, the duo add that, “because the (ISP) baseline is so far out to sea,” the dollar figures presented for either system are close to meaningless.
It was also interesting in December to see Bruce Mountain, director of the Victoria Energy Policy Centre, react to the argy-bargy about Frontier’s work by declaring that AEMO was “being hoisted by its own petard”. He added: “Least-cost modellers can get these sorts of models to tell them whatever they want to hear. If it really is the case that policymakers think they can rely on this sort of thing, then why do we bother with an electricity market?”
Of course, there is, and will continue to be, volleys fired in the opposite direction on this battlefield, a lot of them relying on CSIRO’s recurringly controversial GenCost work, which constantly disses the economic case for nuclear generation in the Australian context.
One such this time round has come from the Institute for Energy Economics & Financial Analysis, itself no stranger to controversy.
IEEFA declares: "The Coalition’s forecast of energy system costs with nuclear is unrealistic as it contains under-estimations and unclear costs. There are a number of areas in which the nuclear costs appear underestimated, including construction costs, fuel and operations & maintenance (O&M) costs, and construction timelines.”
Whatever (as the young folk are wont to say), and partly quoting a Grattan Institute podcast commentary by Tony Wood, the core here is that there is now an alternative way forward to the Labor all-the-way-with renewables approach and the two alternatives are not really easily comparable at all.
From my perspective, the whole debate comes down to a two-way split (or it should).
Part one is whether there is any sense, from a national interest perspective, in clinging to the local ban on use of nuclear power?
In my view, the answer is no and the very well-regarded Lowy Institute annual poll of Australian attitudes demonstrated in 2024 that the majority of the community agrees.
(The poll threw up that 61 per cent of respondents said they were "somewhat" or "strongly" supportive of Australia using nuclear power to generate electricity, while 37 per cent said they opposed this.)
Part two is getting genuine attention to the large risks Australia is now running in pursuing over-deployment of wind and solar generation, and the massive investment in transmission and battery storage this requires.
Back in August last year economist Alex Coram wrote in an op-ed in The Australian newspaper that "The textbook approach to transforming our energy system would be to determine the best policy settings in terms of an optimal economic path. The first step would be to determine the mix of things such as welfare, emissions reductions, economic and technological development, environmental impact and so on that are to be considered. Next, consider the full economic costs of all feasible technological options and trajectories. Then develop a transition plan that maximises across this mix. This is basic economics. But there is no evidence that any of it is being done.”
And he trenchantly added "what the Prime Minister and Energy Minister are telling us has no basis in any coherent economic analysis.”
What Australian voters think of all this will soon be put to the test at the ballot box.
Keith Orchison
31 December 2024.