Coolibah Commentary

Issue 200, December 2021

Now that the dust has settled on Glasgow’s carbon summit, it’s time, most of the media feels, to move on to other things, but, in fact, there are barely 10 months before the next UN jamboree in Sharm El-Sheikh, Egypt. This will take place on the other side of an Australian federal election (and one in South Australia) and just ahead of one in Victoria – at all of which local energy-related arguments will be high on the agenda. In particular, the issues of costs as well as resilience of supply – for both electricity and gas – are not going away, internationally or here in Australia, and the need for hard facts to underpin debate and to lead to workable policy and investment decisions only increases in importance with the passage of time. As has been highlighted in this newsletter literally for years, as well as through the annual Australian Domestic Gas Outlook conferences, the problems of gas prices for local users, and the risk to the future of manufacturers, is real – and seems once more to be rising to the fore. The economic and social (and therefore political) impact of this is non-trivial. Meanwhile, NEM household users are being promised lower power bills.

Quotes

“$US90 trillion is needed for infrastructure to assist the global economy to decarbonize by 2030” – the World Bank.

“$90 trillion is probably an understatement” – Australian entrepreneur Mike Cannon-Brookes.

“The carbon crisis will be fixed by the power of incentive. CoP26 has shown there is plenty of global capital to be drawn and opportunities to exploit” – the Australian Financial Review in an editorial.

“Climate change conferences were once the domain of scientists and bureaucrats; now they are increasingly attended by big business delegations eyeing off the green dollar” – the ABC.

“It’s unrealistic and a bit naïve to expect all countries will move towards a zero-carbon economy at the same pace and with the same methods” – Prime Minister Scott Morrison.

“Australia has come through Covid-19 with fewer fatalities, less economic damage and higher rates of vaccination than many other comparable countries. But, alongside living with Covid-19, we must now deal with a raft of urgent new challenges from broken supply chains, labor shortages and mounting public debt to geopolitical tension and a global energy crunch” – the Australian Financial Review, promoting a conference.

‘Very,very nervous’

The domestic price threats for Australian manufacturers, who now employ one million people directly and indirectly, flowing from local impacts of the major gas supply problems being encountered around the world are making big users here “very concerned.”

The federal government itself has acknowledged that the threat of a supply shortfall in the mid-Twenties remains “a significant consideration.”

Andrew Richards, CEO of the Energy Users Association of Australia, is telling the media his members are “very, very nervous” about the prospects for domestic costs – translated via netback export-equivalent prices – pushing towards $30 per gigajoule.

“Every (industrial) customer goes out of business at that price,” Richards declares.

The reaction comes as a major fertilizer company, Incitec Pivot cites high gas prices for its decision to close its Gibson Island plant in Brisbane in December next year, saying it “could not reach a suitable supply agreement to continue operations.”

The Australian Petroleum Production & Exploration Association retorts that other companies have managed to reach agreements and declares that its members “will continue to provide gas at commercial prices and volumes to manufacturers.” It says 15 domestic gas supply contracts have been signed in Queensland alone this year.

Spending plans

Angus Taylor says the federal government plans to spend $21 billion this decade to drive up investment of $120 billion in low investment technologies by 2030.

He also points to $35 billion being invested in the renewables energy sector in Australia since 2017.

Speaking at an Energy Users Association of Australia conference in mid-November, the Minister for Industry, Energy & Emissions Reduction declared that entrepreneurs and innovators, not activists, bureaucrats and politicians, would solve the net-zero challenge for Australia.

“That’s why our plan has such a strong emphasis on technology, with an enabling role for government,” he added.

Taylor set out a five-principles approach that, he asserted, will see no new costs (taxes) for households or businesses, expand choice not mandates, drive down the cost of new technologies, “keep energy prices down with affordable and reliable power” – and a promise to be transparent about progress.

He told the EUAA members that the government’s ambitions included “ultra-low cost solar at less than $15 per megawatt hour” as well as energy storage at less than $100 per MWh “to firm wind and solar at today’s wholesale electricity prices or lower.”

Pipeline plan

The federal government has released a “national gas infrastructure plan” to help secure domestic supplies over the next 20 years.

In a statement at the end of November Energy Minister Angus Taylor says “at least one new gas basin “ will need to be brought online before 2030 to meet projected demand, pointing to the Narrabri (NSW), Beetaloo (Northern Territory) and the North Bowen and Galilee basins in Queensland as being “critical to unlock.”

Taylor references the “major energy shock” this year in Britain and the European Union – “with price increases over 400 per cent due to gas shortages” – and says “the government cannot sit back and allow that to happen here.”

The plan says supply over the next two decades will come from a combination of existing fields currently in production, new fields in existing producing basins and fields in new basins. It adds the geology and reservoir characteristics for new fields and “frontier” basins are still not well understood. It notes that new supply is “highly dependent” on exploration and appraisal of prospective fields.

Solar ambition

A $15 per megawatt hour ambition for solar power – about a third of today’s costs – is a key feature of the “technology roadmap” published by the federal government in November.

“Achieving $15 per MWh could help deliver the world’s lowest-cost clean electricity, the publication declares, “enabling Australian manufacturers and businesses to stay competitive.”

It adds that this achievement would “fast-track Australia ability to meet a clean hydrogen stretch goal of production under $2 per kilogram.”

Solar charge

In 2001 Australia had just three rooftop solar installations. In 2021 it has three million – and the number has increased 10-fold since 2011 with a 30 per cent year-on-year rise since 2017.

According to the Clean Energy Regulator, the current capacity allows for an estimated electricity use of 18.9 terawatt hours a year, reckoned to be be seven per cent of all power produced across the country – 265 TWh.

Industry analysts SunWiz report that the leading State for rooftop solar PV is Queensland (almost 837,000 households and business) followed by New South Wales (nearing 740,000) and Victoria (just under 587,000). Between the three States, rooftop capacity exceeds 11,000 megawatts and for Australia as a whole totals more than 15,800 MW.

Green energy protagonists assert that, even allowing for the impact of the pandemic on installation trends, Australia will be heading towards double the technology’s present capacity by the second half of this decade.

The Clean Energy Council reports that there were 369,000 installations in 2020. It adds that the average household system now costs between $3,000 and $4,000. However, it acknowledges that there are still only 100,000 homes equipped with energy storage batteries because of the additional cost.

Another big battery

The demerging AGL is taking another step down its path to source a bit more than a third of its electricity capacity from renewables and storage by mid-decade with the development of a 200 megawatts (four-hour duration, 800 MWh) battery energy storage system on the site of its 2,250 MW Loy Yang brown coal power station in the Latrobe Valley.

Having received Victorian government approval for the project in late November, AGL says it is now assessing the commercial viability of the system – which will be owned and operated by Accel Energy when the corporate split is completed.

AGL is currently about to start construction of a bigger battery (of 250 MW and 1,000 MWh storage) at Torrens Island in South Australia. It is also pursuing storage projects at Broken Hill and the Hunter Valley in New South Wales.

The Loy Yang announcement comes as analysts Cornwall Insight Australia report there are now more than 26,000 MW of battery storage projects at some point of planning (from consideration to construction) across Australia.

Meanwhile market research group BloombergNEF has declared the 2020s to the global “energy storage decade,” claiming there will $US262 billion invested in the technology worldwide between now and 2030.

‘Wild winds’

Victorian Premier Dan Andrews has lauded the “wild winds” off the State’s coastline in announcing $38 million in public funding for three offshore wind projects.

The government is giving $19.5 million to the developers of the 2,200 MW Star of the South wind farm off Gippsland, described as Australia’s most advanced offshore wind development, as well as $16.1 million to Macquarie Group, which is planning a 1,000 MW development off the Bass coast. A further $2.3 million is going to a Scottish company for scoping studies for a 1,500 MW wind farm off Ninety Mile Beach in Gippsland.

Andrews says the wind resource offshore Victoria is “among the best in the world” and harnessing it for power generation can play a key role in the State’s economic development, its progress towards a goal of 50 per cent renewable electricity supply and the phasing out of brown coal generation.

The capital cost of developing the Star of the South project has been estimated at between $8 billion and $10 billion.

One of its key attractions, apart from wind quality, is its proximity to the Latrobe Valley transmission grid. The project is claimed to be capable of providing 20 per cent of Victoria’s electricity needs and mooted to involve as many as 200 turbines sited seven to 25 kilometres off the Gippsland coast, sending power via undersea cables to the grid..

The prospects for offshore wind development were also boosted in November when the federal parliament passed legislation to allow offshore electricity infrastructure after years of advocacy from the renewables industry and requests from State governments for faster action.

Falling bills

The Australian Energy Market Commission says cheaper renewable energy in the NEM should see household power bills fall to their lowest level since 2017 by 2024.

There is a warning note, however – the commission points to rising network investments and says “this is likely to accelerate over the next decade” to connect dispersed renewable energy to the main grid.

The new AEMC residential electricity price trends report identifies the drivers for reductions as lower wholesale power costs and reduced environmental costs. “Integrating renewables in a smart way makes it possible to have both lower emissions and lower consumer costs,” says Anna Collyer, the AEMC chair.

She adds that the fall in costs will happen despite the closure of Liddell power station in New South Wales between 2022 and 2023 as well as gas plants in South Australia and Queensland. “While we have just under 2,500 megawatts of generation expected to exit the grid over three years, there are almost 5,500 MW of committed new large-scale generating and storage projects coming on line.”

Collyer says that, in addition, the commission expects another 4,130 MW of solar capacity will be added to rooftops.

“The diversity of generation and storage puts us in a strong position.”

However, in a newspaper op-ed subsequent to the AEMC statement, Collyer underlines the issue of network costs, which make up between a third and half of power bills,

“These prices are going up and are expected to accelerate over the years ahead as significant investments are needed to connect new renewables,” she writes.

“There are too many unknowns yet for us to model what this will mean for prices beyond 2024,” she adds, pointing to a $13 billion addition to the value of transmission links from projects most likely to go ahead on top of the $21.7 billion networks are worth today.

“That money must come from somewhere,” she says, “and, given the long-lived nature of the assets, the costs will be recovered for many decades to come.”

The commission reports that developers have committed to 2,671 megawatts of large-scale solar capacity and 1,393 MW of new wind plant plus 470 MW of large battery storage. In addition, there are commitments to 904 MW of gas-fired plant.

The sort-term price falls projection will be welcome news for the Morrison government as it prepares for the next federal election in the first half of 2022. Industry & Energy Minister Angus Taylor was swift to seize on the announcement, saying falling household costs are “critical for families” after the Covid-19 economic downturn.

‘Done better’

The Governor of the Reserve Bank, Phillip Lowe, says Australia has done better than other advanced economies on power price rises.

“A number of other advanced economies have experienced very large increases in electricity prices as their power systems struggle to meet demand,” Lowe comments. “In Australia prices have been trending lower for a number of years after earlier large prices increases.”

Big picture

At a time when the issue of carbon emissions and pursuit of net-zero is large in Australian public debate, the Bureau of Statistics has provided a snapshot (for 2019-20) of national energy supply.

Australia, the bureau says, extracted 23,534 petajoules of energy from the local environment and imported another 2,180 PJ in that financial year. The local figure includes energy exported.

Local sourcing is dominated by fossil fuels: 12,317 PJ of black coal, 425 PJ of brown coal, 5,945 PJ of gas, 798 PJ of crude oil and 175 PJ of LPG.

Uranium extraction totals 3,454 PJ.

In renewable energy, wind power (73 PJ) now exceeds hydro (55 PJ) and solar power is bigger than both at 94 PJ. Bagasse accounts for 84 PJ and wood and waste 90 PJ.

Meanwhile the Queensland Audit Office, in a report to State parliament, says that while coal-fired generation still meets 68 per cent of State power needs, there is a long list of renewable projects and by 2025 around 35 per cent all energy consumed in the region will be from non-fossil fuels, effectively double the 2019-20 level. However, it wants the State government to be more open with the community about its pursuit of a 50 per cent target by 2030, calling for publication of a “roadmap.”

Public mood

After a month of media hoopla over carbon emissions leading up to and through the Glasgow UN summit, a major public opinion poll shows just 16 per cent of respondents strongly support cessation of coal mining and exports in Australia by 2030.

The survey by Resolve Political Monitor for the Sydney Morning Herald and The Age newspapers found another 22 per cent agreed with the 2030 shutdown proposal – while 13 per cent strongly oppose it and 15 per cent disagree with it. Thirty-three per cent declared themselves “neutral” or undecided on the issue.

The survey also found that 16 per cent of respondents strongly agreed that Australian coal mining and exporting should continue while there is international demand, with 26 per cent agreeing with the point – and 27 per cent disagreeing. The “undecided” response was 30 per cent.

The poll canvassed 1,606 people in mid-November.

It also showed a marked decline in support for more ambitious Australian abatement targets in the wake of CoP26 – down to 49 per cent of poll respondents from 57 per cent in the run-up to the Glasgow meeting and 52 per cent in September.

Earlier in November, while CoP26 was still underway and at the height of the coverage of the international debate, the Essential Report poll published reaction to the Morrison government’s plan to reach net zero emissions by 2050 – with 37 per cent of respondents saying this was “enough” action and 43 per cent believing “more needs to be done,” leaving a fifth of those polled “unsure” of what should be done.

However, answering another question, only 21 per cent of this Essential Poll’s respondents felt the Morrison government had provided a clear target and provided a credible way for achieving it – versus 36 per cent who thought the goal was clear but the plan was not credible.

Carbon price deadlock

A commentary from the Grattan Institute points out that, on current closure schedules, Australia will still have coal-fired power stations operating after 2040 – “and this is incompatible with pursuing the Paris agreement.”

The institute re-asserts its view that “a mostly renewable (east coast) system with no coal and only a limited role for gas can maintain a reliable electricity supply while slashing emissions cheaply.”

It adds that “achieving this outcome by 2040 or earlier will require significant, timely investment in the transmission network within and between States” and adds that “keeping a lid on the costs of transmission projects is crucial.”

It says that one approach to pursuing an orderly, earlier closure of coal-fired power plants would be to establish an emissions standard for the NEM with tradeable certificates – “but neither side of politics wants to be seen to support any policy resembling a carbon price even though (this) has the overwhelming support of Australian economists and the business community.”

Last word

The row about Australia’s carbon emissions commitments to the end of this decade is not going to go away in the wake of the less-than-impressive debate in Glasgow in November. In fact, just enough was achieved there to encourage a continuing pile-on here as we wobble towards a federal election in the first half of 2022 and head towards the Red Sea resort town of Sharm El-Sheikh for the next UN climate talkfest.

The Morrison government’s need to hold together a fractious parliamentary coalition and retain a thin majority in the House of Representatives has dictated much of what has gone on lately on the home front.

Trying to predict the outcome of the 2022 poll is a mug’s game, especially with the complication of pandemic-related politics, but, when the ball is over and the jeers, tears and cheers are shed, whoever is in office will still need to face CoP27 (apart from Covid-19 and a few other small things like the economic, health and social stresses the pandemic has imposed on us).

In comments last month that received not-much media attention, Innes Willox, CEO of the Australian Industry Group, put the challenge succinctly: “Australia will have no choice but to go to Egypt with beefed-up targets.”

As he points out, the Glasgow meeting agreed UN members should come to CoP27 with stronger 2030 abatement commitments and updated strategies on how to reach whatever targets they set.

Willox asserts: “There is no magic ideal number for 2030 (for Australia), but roughly halving our emissions would put us in the mainstream of advanced economies.”

And, I’ll point out, the impacts of doing so will resonate through the federal elections be held in 2025 and 2028.

This isn’t just an issue for the Liberal/National coalition, of course; Anthony Albanese and Labor, with the Greens treading on their tails and their standing in Queensland wobbly at best, are faced with the same problems. Desperate to avoid being beaten-up by Prime Minister Morrison all the way to the polling booths in March or May next year, they, too, are mouthing their way forward without really saying anything of genuine note.

For all of them – well, perhaps not those of deep green persuasion – the size of the task ahead and the global implications (which matter a great deal to a trading nation) may be beginning to dawn as the current “energy crunch” affecting many developed countries is hitting home.

For a handle on what this means, I strongly recommend reading an essay by Daniel Yergin – and, surely, there are no readers of this newsletter who have to ask “Who is he?” – in The Atlantic magazine at the end of November. It is headlined “Why the energy transition will be so complicated.”

Every word of it is worth thought. The critical point is “The term energy transition somehow sounds like it is a well-lubricated slide from one reality to another. In fact, it will be far more complex.”

One value from Glasgow CoP is that the stern visage of complexity started to emerge there from the clouds of verbiage. This may prove in coming months to be even true for the next round of debate here (but I remain to be convinced of that).

Like it or not, as with the pandemic, this complexity will not permit us to treat it with ignore……….

Keith Orchison

1 December 2021

adgo ad