Coolibah Commentary

Issue 208, August 2022

The Governor-General, opening federal parliament after the 21 May election, has highlighted the economy’s need for cheaper energy among a swathe of major challenges facing Albanese government ministers listening to him. He referred to measures being taken to “shore up” the eastern energy markets and, of course, to the government’s carbon emissions ambitions, now being pursued as part of its “hitting the road running” attitudes. In another context, he referred to the “safety of words” versus the “bravery of action”– and it’s only too obvious that the energy issues attract politicians to rhetoric as a shield as they march towards a murky future. There’s nothing new in this and the eastern markets, to use another of the G-G’s terms, are in “choppy waters” and likely to stay there down the rest of this decade. What challenges will next summer bring to a strained eastern Australian system? Perhaps most importantly politically, how will the community react to their energy bills – and how will governments, federal and State, react to the community reaction? Not least in Victoria and New South Wales, where elections loom.

Quotes

“Ideology needs to be taken out of the debate about how to solve the problems affecting the NEM” – Greg Combet, former ALP federal minister.

“Climate change policy needs to get more predictable, disciplined and transparent” – Australian Industry Group CEO Innes Willox.

“What is needed is governing competence” – Paul Kelly, editor-at-large of The Australian.

“It’s rich to expect the gas export market to bail out State governments that have sanctimoniously, and unscientifically, refused to develop their own resources” – Australian Financial Review editorial.

“Victoria’s position appears to be motivated as much by politics as good policy” – Grattan Institute’s Tony Wood.

“At AEMO, I feel like we’ve been standing in the eye of the storm recently. Our staff have felt constant stress as we work to keep the lights on and the gas flowing around the country and around the clock. The situation in both gas and electricity remains fragile, and many risk factors still persist” – Daniel Westerman, Energy Market Operator CEO.

“Legislating the 2030 emissions reduction target will send the message that this country now has a government and parliament that wants Australia to be a renewables powerhouse” – Chris Bowen, federal minister for climate change and energy.

“Australia remains a leading global energy generator and retains its status as a reliable supplier” – Geoscience Australia in a new report that says we are the largest exporter of LNG, the seventh largest gas producer, the largest exporter of metallurgical coal, the second largest exporter of thermal coal and the second largest exporter of uranium.

“The world cannot afford to follow the IEA’s call for no new coal, oil or gas projects when greater importance is being placed on energy security” – Regina Mayor, KPMG global head of energy, visiting Australia. “The world needs to juggle energy affordability with security, reliability and sustainability.”

‘Make or break’

As renewables boosters continue to talk up huge developments with major spatial footprints across rural Australia, a new body representing Aboriginal and Torres Strait Islands people is warning that consultation with the First Nations communities must be central to planning.

Yorta Yorta woman Karrina Nolan, CEO of the First Nations Clean Energy Network, established late last year, says: “It's our lands and borders that will be impacted and the consent and involvement of our traditional owners are going to make or break the renewables transition.

"The response that we've had so far from the Albanese government is that they understand the need to transition fast but that First Nations communities must be central," Nolan told Australian Associated Press.

“We want to be active participants in the economy of renewable energy as owners of projects, technology and distribution and power distribution,” added Chris Coker, a member of the network steering group, at a symposium held in Melbourne in July.

Meanwhile, Bruce Mountain, director of the Victoria Energy Policy Centre, has warned of the risks to timely development of new high voltage lines needed for wind and solar farm regional zones from “fierce” rural community opposition on environmental and other grounds. “The social impact of transmission projects needs to be considered,” he told the ABC.

His comments echoed warning in a new report published by The Australia Institute and the Sydney Environment Institute that renewable energy projects will be at risk unless governments and companies “conduct proper consultation with regional communities and provide local benefits.”

The report argues that the shift to renewable energy is not just economic and technological but also spatial.

‘Tremendous challenge’

While the late-July mind games between the Greens and the federal Labor government in parliament over emissions target legislation hogged a fair amount of media attention, the key decision to be made for electricity supply before the year is out is the shape of the NEM capacity mechanism proposed by the Energy Security Board.

The importance of the issue was captured by Grattan Institute in a newspaper interview. Energy program director Tony Wood warned that the urge to expedite the measure’s implementation by 2025 through compromises could deliver a “complex and potentially flawed scheme.”

The Grattan pose is echoed by the Australian Energy Council, representing large electricity and gas suppliers – telling the ESB in a submission that “this is a tremendously challenging task.”

The capacity mechanism is intended to pay NEM generators to have capacity available at designated times to ward off supply shortfalls, but is under fire from activists, renewables developers and the Victorian government for its need to include coal and gas power units.

The Energy Users Association of Australia, whose members employ more than a million people, is warning that a State-by-State approach to the issue risks exposing customers to further cost inflation. “We must strive for a nationally consistent approach to energy market reform to avoid unnecessary, inefficient investment and duplication of consumer costs,” says chief executive Andrew Richards. He urges ministers to be wary of those suggesting that deploying more renewable energy could “somehow fix the issues created by increasing levels of variable renewable energy technology”.

Major supplier EnergyAustralia has called in its submission to the ESB for independent qualitative analysis to be commissioned to address the risks of the mechanism rewarding and prolonging the lives of fossil fuel generation.

Another major supplier, Origin Energy, said in its submission that “the capacity mechanism should be about “getting the investment needed to safeguard NEM reliability at least cost” during the transition to a lower-emissions grid.

The Australian Energy Council says it wants “to dispel stakeholder confusion linking the existing NEM design to the energy crisis of winter 2022.” It asserts: “that crisis relates to a sudden escalation in the cost of energy rather than capacity, which a different market design would not have averted.”

It adds: “The challenges that Australian energy markets have experienced in winter 2022 in rationing gas and electricity when subject to administrative price caps remind us of the many serious unintended consequences of not allowing the value of energy to reach its natural value, even for short periods.”

Meanwhile the new federal Climate Change & Energy minister, Chris Bowen, declares that design of a capacity market is “far from settled.” However, he acknowledges “we need a well-designed mechanism asap.”

Bowen adds that the Morrison government defeated on 21 May has left Labor with “a bin fire” in energy policy.

Anna Collyer, chair of the ESB and of the Australian Energy Market Commission, says a capacity mechanism is not a new idea. “Most places in the world already operate markets that explicitly value capacity and most use the tool to help manage the transition to lower emissions.”

Not over

The Australian Industry Group says the acute phase of the east coast’s energy crisis is not over.

Speaking at a mid-July business forum, the organisation’s CEO, Innes Willox, warned that “it could get worse at any time this winter.”

He added that most energy users have not yet felt the cost impact of emergency measures taken by the Australian Energy Market Operator – “nor of the less dramatic but more sustained rise in electricity and gas wholesale prices.”

Willox declared: “Serious pain is coming for industrial energy users and their customers.”

He said: "We are also again seeing the unintended consequences and trade-offs involved in our best efforts to manage the situation. Gas demand is higher than expected due to the call on gas generation to substitute for coal. An additional reason for the drain on Victorian storages may be that in Victoria the gas price is currently capped – at an eye-watering $40 per gigajoule, ten times the historic average and four times the level of a year ago. The cap is important to protect energy users from vastly higher prices in a tight market. Meanwhile the currently uncapped prices in other states are $50/GJ or more, and gas has been flowing to where prices are highest.

"The corollary of price controls is thus some degree of rationing. We should all hope this does not need to go further before spring comes.”

Trust problem

A half-yearly “sentiment survey” undertaken by Energy Consumers Australia, which lobbies for households and small business customers, finds that faith in the electricity system is “collapsing”.

Lynne Gallagher, chief executive of ECA, says consumers value affordability and reliability above all else, but recent failures in the eastern Australia market mean they can take neither for granted. "We've got a trust problem.”

The latest ECA survey finds that just four in 10 respondents had confidence that the NEM is working in their interests. Eighty-eight per cent of them were concerned or “highly concerned” that power bills “could become unaffordable over the next three years.” The number of people participating in the poll who think their electricity service represents value for money has fallen from 70 per cent in June last year to 63 per cent.

The responses also indicate that nine in 10 of those surveyed were worried that the power system will not be sufficiently resilient in the next three years and that there will be more supply outages as a result.

Fifty-seven per cent of respondents now rank power bills as one of their top three household budget concerns, equal highest with petrol prices and higher than the ratings for grocery bills and mortgage payments.

Gallagher declares that the survey results, released at the beginning of July, “should serve as a wake-up call” for those overseeing the NEM and policymakers.

Emissions challenge

The size of the challenge of tackling carbon emissions from energy sources in eastern Australia, including petroleum fuels, is vividly portrayed in the latest Australian Energy Emissions Monitor published at the Australian National University and authored by Hugh Saddler. The task, he says, is “huge.”

In the 12 months to May, Saddler writes, grid-scale renewable generation provided 27.7 per cent of NEM electricity with 19.2 per cent coming from wind and solar farms.

The parallel challenge is curbing energy supply costs – and Saddler points out that, in the review period compared with the same months of 2020-21, monthly median spot wholesale prices increased by more than five times in Victoria and South Australia, six times in Tasmania and New South Wales and seven times in Queensland.

“Average prices rose steadily for the whole period up to March 2021 and have increased drastically since then.”

Saddler also records that the volume-weighted monthly availability of coal-fired generation in the NEM averaged between 70 and 80 per cent for most of the two years between January 2020 and January 2022 and has fallen this year from 79 per cent in January to 65 per cent in May.

Looking at energy emissions overall, including transport fuels, he notes they have dropped by only 4.9 per cent over eight and a half years.

‘Handbrake’

The Clean Energy Investor Group, lobbying for 18 owners and developers of 70 renewable energy assets, is urging federal and State governments to speed up NEM reform to overcome congestion in the eastern grid.

CEIG complains of curtailment of renewable generation “across the market” and says “grid congestion is a handbrake to investment that must be fixed urgently.”

It also complains that introduction of what the Energy Security Board proposes to address NEM congestion “will lead to a significant slowdown in new generation and transmission investment.”

‘Not afraid’

New federal Opposition leader Peter Dutton told ABC Radio in an interview in July that he is “not afraid of a nuclear debate,” adding that “ideas should not be ruled out simply because it is unfashionable to talk about them.”

He noted work being done on small nuclear reactors internationally. “If we want to have legitimate emissions reduction, if we want to lower electricity prices, that (SMRs) is exactly the path President Macron has embarked on in France.”

He told the ABC: “I don’t think we should be afraid to talk about any technology that’s going to have the ability to reduce emissions and electricity prices. It’s something we can consider in time.”

His comments come after he told journalists in May that nuclear power use in Australia is “not on the table for the Liberal Party” following supportive remarks for “a mature conversation” about the technology from the new National Party leader, David Littleproud.

Earlier, Littleproud had written to Prime Minister Anthony Albanese to propose convening of a national energy summit that would include discussion of lifting the 1990s ban on use of nuclear power in Australia.

In a letter in response published by The Australian newspaper in mid-July, Albanese rejected the summit suggestion, adding that “nuclear power is not currently a viable energy source for Australia,” citing the recent CSIRO GenCost report.

The CSIRO view, in turn, has been criticized.

In a newspaper letter in July, Tony Irwin, technical director of SMR Nuclear Technology, said its small nuclear costings were “inaccurate” and “based on a 2018 discredited study” by consultants. “It’s time for CSIRO to admit its SMR figures are inaccurate and to update its advice to government,” he said.

The 2022 CSIRO report said its findings “do not see any prospect of domestic SMR projects this decade, given the technology’s commercial immaturity and high cost”. CSIRO added: “Future cost reductions are possible but depend on its successful commercial deployment overseas.”

While the political debate on the issue rumbles on, there is growing evidence of positive community attitudes towards consideration of the use of nuclear power in Australia. In the latest opinion poll, undertaken by Dynata for the Institute of Public Affairs just before the May election, 53 per cent of 1,000 respondents gave local use of the technology a tick versus 23 per cent in opposition.

IPA has highlighted that there is support across party lines for nuclear use in Australia. It says the poll showed 70 per cent of Coalition voters surveyed were favourable to this (13 per cent opposed) while 52 per cent of Labor voters were supportive (27 per cent opposed). The poll also threw up that 44 per cent of Greens voters were supportive versus 30 per cent opposed.

Last word

Well inside its first 100 days in office, it is notable that the Albanese government is determined to run hard with its renewables and climate target plans.

Here is Chris Bowen, the Climate Change & Energy minister, asked by a journalist how important it is for the government to keep its nerve and champion its renewables game plan: “This is extremely important. It is what every sensible government is now saying around the world. Yes, we have some short-term challenges – but renewable energy is more secure, there is no geostrategic crisis that can impact on the supply of sun to our land and wind to our shores.”

One could have a certain amount of fun unpicking this declaration against what is happening in the real world and against what people with a serious experience and understanding of power supply have been pointing out for a number of years, but the government, for its own reasons (including the selfish one of holding off the Greens and perhaps more teals in vulnerable seats), is not in listening mode.

What may give it pause for thought in the cabinet room before its first year is done, however, is how the community responds to developments in the energy markets and how the rural community reacts to the spatial intrusions of the transition.

Pointers to these rocky outcrops in the path of the ALP are to be found in this issue of the newsletter in the form of Energy Consumers Australia’s most recent survey of user sentiment and in the rumblings from the agriculture sector about spatial intrusion as well as the beginning of an organized First Nations’ push back on the same issue.

Long term – that is out to 2050, the horizon of choice for the activists – the costs involved are seemingly eye-watering (of the order of $320 billion in today’s money in one estimate), the impacts on consumer costs and on the economy a matter of much controversy but no independent, genuinely expert assessment and the demands on land use still not well appreciated.

But for the present government that horizon is far way, the chickens that will come home to roost as a result of present-day steps are not even a speck in the roosters’ eyes and what matters now (being defined as the 2025 election) are the vibe in electorates where swings could decide who governs.

Which is why just how spooked the community is about present-day energy market happenings is politically important.

If the Energy Consumers Association poll findings are a valid pointer and if the near-term negative products of past policy failings, already apparent, become even harder for users to bear, then the Albanese government may need to think very carefully.

The federal government is, of course, not playing a lone hand in these matters. What the eastern State governments have got up to in the past 5-7 years since Turnbull failed to corral them into an effective force in NEM affairs is starting to spook the business community, as is again referenced in this issue of the newsletter. This extends in the southern States to gross ineptitude in natural gas policy, too.

The Governor-General said in opening federal parliament’s new session in late July that there are choppy waters ahead -- although, for my money, “choppy” is a euphemism for the state of our economic and cost of living issues. More like Bass Strait in a bad mood, I’d suggest.

Keith Orchison
30 July 2022

 

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