Issue 238 February 2025
While election date speculation continues to pinball around Australia’s political playing field, investors in energy must struggle with plans for the 2025-26 financial year and with major confusion on the international scene flowing from Donald Trump’s all-action ascension to the American presidency. For many business leaders, the mid-January observations by energy guru Daniel Yergin of S&P Global will be ringing in their ears: “The energy transition is now colliding with geopolitical rivalry and tension. This means jarring adjustments to changing situations and higher costs. We see people struggling with the reality of the shift. It’s a more perilous time for companies, which can be caught up in turmoil that has nothing to do with their business plans or their strategies but the rivalries of countries.” These thoughts are as true for Australia as they are elsewhere. More so in some cases. As for governments (and would-be governments), their local leaders could do with reading the mid-January opining of Oxford University’s Sir Dieter Helm: “Almost all governments want to promote economic growth. What gets lost in the spin is a reality check of the evidence. Governments aren’t very good at causing growth. They are much better at getting in the way. In consequence, the most successful growth policies start with the maxim 'Do no harm' before moving on to examine what actually causes economic growth and what obstructs it.” Helm adds: "Put aside the fact that the output from renewables is very volatile, the claim about net zero being cheaper comes down to a bet on the future costs of oil and especially gas.” And he warns: "Things may get worse before they get better and a fundamental re-set is forced upon us.” How many of those vying for national office in Australia this year will have these thoughts high in their minds as the amble to the polls becomes a scramble?
“Reducing a continent as richly endowed as ours to the point where it is about to import gas on the east coast is no mean feat. It has taken many years of patient activism, weak-kneed government, pusillanimous journalism and dumbed-down policy discussion to get us to this point. It will take years to reverse the momentum and establish a reliable energy network if we ever do, which for the moment is an open question” – Nick Cater, Menzies Research Centre.
"Australian politicians now almost universally favour continued market interventions. For some this is out of a conviction that the future demands emission-free supplies which require subsidies. Others consider political intervention is necessary because regulations favouring renewables and demonising coal and nuclear now prevent a true market from operating. Australian policy will inevitably be conditioned by global changes” – economist Alan Moran in an op-ed in The Australian newspaper.
"Australians once enjoyed some of the world’s lowest gas and electricity prices thanks to our abundance of coal and gas. This advantage has been given away by policy failure, which now sees Australians paying some of the world’s highest energy costs despite being the world’s largest coal exporter and the second-largest natural gas exporter” — Leith van Onselen in the Macrobusiness newsletter.
“The transition to net zero can’t be done without gas, that is the truth of it” -- federal Resources Minister Madeleine King in a mid-January newspaper interview.
“Currently, there are significant barriers to new domestic gas supply becoming available due to lengthy regulatory approval processes, large upfront capital costs, an uncertain policy environment and a lack of competition in upstream gas markets” — Anna Brakey, Australian Competition & Consumer Commission, in a quarterly report released in early January. “Our current projections indicate the potential for structural gas shortfalls on the east coast from 2027 unless supply increases or demand decreases.”
"The government must stare down noisy opposition from academic and protest groups to its gas ambitions and get things done. Getting results for the long-delayed Narrabri project in NSW and removing the Victorian government’s chokehold on onshore gas exploration and production would be a good start” — The Australian newspaper in a mid-January editorial commentary.
"As Labor doubles down on pressing ahead with making Australia a green superpower, our opinion poll suggests its climate-related priorities and election strategy risk appearing out of touch with voters’ major concerns” — the Australian Financial Review in an editorial.
“I’m not about to walk away, and the government is not about to walk away, from our ambitions to make energy as cheap as possible for Australians and that includes getting more renewable energy, which is the cheapest form of energy available” – federal Climate Change & Energy Minister Chris Bowen at a January media conference in Sydney.
A leading energy analyst and commentator has called for the resignation of federal Climate & Energy Minister Chris Bowen.
Saul Kavonic, head of energy research at MST Marquee, writing in The Australian newspaper, said: "Under Labor’s rule, prices are higher, breaking its promise of lower bills. Energy security risks are rising, with three near misses in as many years. Renewables growth has collapsed to near record lows, while fossil fuel investment has also fallen. Energy intensive manufacturing has been shutting down, shedding blue-collar jobs. Our reputation for investment has been decimated. The government has lost control, despite assuming ever-expanding market powers. There is no confidence left, and new energy leadership is needed to move forward.”
Kavonic added: "Energy consumers are worse off facing higher bills; taxpayers are worse off as they fund uneconomic policies and subsidies; renewable companies are worse off, struggling to gain approvals and grid connections; fossil fuel companies are worse off amid approvals challenges and higher taxes, and; decarbonisation ambitions are worse off as Labor subsidises old coal generation.”
And he declared: "Australia has had some pretty ordinary energy ministers from both sides of politics over the past couple of decades – no political party has clean hands in our energy mess. But Bowen stands out for the sheer scale of the damage and apparent lack of self-awareness to acknowledge the problem, let alone fix it.
"He has been duped into green hydrogen hype, become hostile to gas, while leaving the renewables rollout bogged down by endless approvals problems and infrastructure logjams.”
The Australian Energy Market Commission says power supply reliability risks in South Australia have worsened for the summer.
It has “processed urgently” to issue a temporary rule change allowing two currently mothballed diesel generation plants owned by Engie to be made available if needed.
The commission says: "Without sufficient backup reserves South Australia could face potential load shedding during severe cases of reliability shortfalls, particularly during extreme weather events. Such an outcome could severely impact households and businesses.”
In reaction, SA Energy Minister Tom Koutsantonis said: “The strong intent is that this safety-net need never be used. This is simply common sense to ensure we have every available lever to pull in the event of a gas shortage.”
The federal government is to give the Clean Energy Finance Commission an extra $2 billion to “help turbocharge the clean energy transition.”
Announcing the step as the government gears up for the 2025 federal election, Climate Change & Energy Minister Chris Bowen said there are “big opportunities and big benefits” through global pursuit of net zero emissions.
Established by a Labor government in 2010, the CEFC says it expects the extra funds to facilitate "increased investment in much-needed renewable energy generation and storage which are central to reducing emissions and reaching 2030 climate targets.” To date the commission has committed almost $18 billion to funding support for green investments and it says that more than $5.4 billion of its capital loans have been repaid.
Meanwhile, the government’s fanfared mid-January handout of another $2 billion in a fund to help aluminium producers to switch to using renewable energy was promptly greeted by a leading lobbyist, the Australian Industry Group, with a call for more support.
AiG chief executive Innes Willox responded to the announcement by declaring: "There will be a lot of interest in comparable policies from sectors that are not part of the announcement.” He added: “We expect to see more, most obviously for iron and steel (with) policies tailored to each sector.
The Productivity Commission and some private sector economists have expressed concern about the policy, warning of significant costs for taxpayers and the creation of manufacturing industry reliance on subsidies.
The Australian Conservation Foundation says the aluminium announcement is good news. “We welcome the Albanese government’s decision to back this vision for an aluminium sector powered by the wind and the sun through a strategic investment to support the industry’s shift to renewable-powered processes.”
Opposition Leader Peter Dutton says the Coalition opposes the plan, claiming it will push up electricity prices for householders.
At a time when voter concerns with cost-of-living issues are expected to figure prominently at the federal election, Energy Consumers Australia, representing household and small business electricity users, has again drawn attention to problems reportedly being created by complex new power pricing arrangements.
In its latest survey, published in January, ECA, which has been vocal about the issue over the past two years, canvasses the difficulties facing low-income, poorly-insulated homes because of limited ability to benefit from such offerings.
The new report echoes concern expressed in New South Wales by the State’s Independent Pricing & Regulatory Tribunal that new-style demand tariffs are leaving householders, especially those without rooftop solar systems, between $200 and $300 a year worse off than past flat-rate price arrangements.
The Australian Competition & Consumer Commission has also declared that the growing complexity of pricing is making it difficult for many households “to make head or tail of the power market.” In late December, it urged some seven million households to be aware they are paying more for electricity than they need to by sticking with existing deals.
The ACCC said that, while “time of day” offers were cheaper on average than traditional flat-rate offers, plans where pricing fluctuated with demand were 13.7 per cent more expensive than flat-rate deals.
ECA says the issue is being exacerbated by households being automatically enrolled in time-of-use or demand tariff arrangements when issued with smart meters.
The Australian Energy Market Commission announced in December that energy retailers will be banned from switching consumers to surge prices without prior permission for two years after the installation of smart meters.
ECA says its latest survey indicates that both suppliers and regulators have greatly over-estimated the level of energy market understanding of as much as 82 per cent of consumers. Just over half of survey respondents said they had not willingly signed up for new arrangements.
The association points out: "Lower income households face barriers to investing in automation technologies for their homes (either because of lack of disposable income or because they rent). As a result, time-of-use tariffs are more likely to force lower income people to cut their energy use when they really need it, such as heating or cooling in the evenings."
As we rolled up to Christmas – now a month in the rear view mirror! – I came upon a commentary on the Australian Strategic Policy Institute website that gave pause for thought and continues to have some resonance (for me) with the next federal election drawing closer by the day (although unannounced officially as I write this).
It was produced by two American academics, Richard Haass and Carolyn Kissane.
They argue that “a transition from the (overwhelming focus on) 'energy transition' would be a good first step” on the path towards better management of the big issue. A new paradigm is needed, they say: energy co-existence.
They explain: "The paradigm of energy co-existence requires targetted investments and policy reforms. Modernising energy grids to accommodate diverse energy sources and increase efficiency is critical, as is scaling (abatement) technologies to mitigate emissions."
And they add: "Some will object that energy co-existence is a rejection of much-needed policies to address climate change. But addressing climate change cannot come at the cost of energy sufficiency or security. Nor will it, given the politics.”
I found it curious that they didn’t really canvass nuclear technology in their comments, but, rather than going down that debating path, I am attracted to their broad point (energy co-existence) — which here in Australia could and should, in my view, include nuclear with natural gas and renewables in the market mix on the way towards 2050. (I’m afraid I consider the current 2030 or even 2035 Australian target rather daft and, as almost every week draws to our attention, mind-blowingly expensive.)
Let me pause here to note the Haass and Kissane points about the transition’s problems:
"The goal of the transition is to achieve net-zero emissions (ideally by 2050) by phasing out fossil fuels and replacing them with renewables, including solar, wind and nuclear power. This is not occurring. Nor is de-fossilisation. Fossil fuels—oil, gas and coal—still supply over 80 percent of global energy. Since 2013, global oil and gas consumption has risen by 14 percent, owing to a 25 percent increase in developing economies. Coal consumption remains indispensable in powering China, India and other developing countries, and reached record highs in 2023. Renewables, while growing rapidly, are not displacing hydrocarbons, at least for now.
"The reason is straightforward: energy demand is increasing at an annual rate of 2-3 percent, and technological advances such as hydraulic fracturing have made hydrocarbons cheaper and more abundant. The United States, already the world’s biggest oil producer, will produce even more during Donald Trump’s presidency and growing populations and economies in the Global South will sustain robust demand.
"Emerging technologies, such as artificial intelligence, electrified transport and hyperscale data centres, are also driving energy demand—which renewables alone cannot reliably meet, reinforcing the role of fossil fuels. Fossil fuels likewise remain indispensable for energy-intensive industries such as aviation, shipping and heavy manufacturing. Renewables, while effective for electricity generation, struggle to meet these sectors’ needs.
"Regulatory considerations and politics have also contributed to foiling the energy transition by slowing the permitting process for both nuclear power and wind. And many countries have not overhauled their tax systems to steer consumers and businesses away from fossil fuels.
“Energy consumption will continue to rise for the foreseeable future, with fossil fuels and renewables both playing a larger role.”
This, it seems to me, is a pretty interesting perspective of the real world — and could be a useful backdrop for discussion in the impending Australian election debate. It won’t be, of course — there are too many politicians (and a majority of the media) playing to the transition gallery.
But when the local poll is done and dusted, the global transition situation will still be pretty well as Haass and Kissane describe it.
Keith Orchison
26 January 2025