Issue 221, September 2023
An ABC report in mid-August, sparked by the latest announcements of problems in Western Australia's south-west integrated electricity system, where 2025 may see supply shortages, talked about “the devilish challenges in the switch to green power” and of the prospect nationally of Australia “running out of runway” in making the transition to large-scale use of renewable energy by 2030, as targetted by the body politic. Such talk, and the late-August handwringing about NEM risks following a new report by the market operator, is in marked contrast to the super-optimistic views presented in much of the media and by most governments through the opening years of this decade and even the opening months of this year. Talk, however, is far removed from remedial action and the prospects of a major review of the issues in time for a Plan B to be addressed efficiently don’t look good. As September comes in, the new government of New South Wales is digesting a report it commissioned of the State’s power supply reliability prospects and this, when in the public arena, may help to accelerate forensic examination of the apparent mess looming over the east coast marketplace. Breath-holding is not recommended.
"The practice of Australian governments and public servants to ignore the truth if it does not fit their political ambitions or policies is starting to reach dangerous proportions” – business commentator Robert Gottliebsen in The Australian. “The current renewable strategies being embraced are going to cause great hardship for households and enterprises.”
"How have the costs and implications of policies designed to replace low-cost, controllable coal-generated electricity by high-cost intermittent wind and solar taken so long to be recognised and even now are officially judged to be affordable?” -- economist Alan Moran in a commentary in The Spectator Australia magazine.
“Australians deserve honesty and transparency when it comes to energy policy decisions. Regardless of what our energy future ultimately looks like, it needs to be built on a solid foundation of empirical rigour. What we are currently being offered, however, are the hollow bricks of a public relations campaign” – Claire Lehmann in The Australian.
“My take is that the CSIRO’s strategy on costing renewables is the equivalent to buying a new couch without first buying the house to put it in” – Ben Beattie, electrical engineer and commentator. “Does a low emissions electricity system cost more or less than the current system is one of the most important questions of our time.”
"GenCost ignores a host of massive investment costs up to 2030 necessary to integrate more renewables” – Beattie in a commentary in The Spectator.
“The global race to install renewables on immovable deadlines means the costs are only going to keep going up and will inevitably be passed on to consumers in the form of higher prices” – Tony Wood, energy program director, Grattan Institute.
“We’ve come a fair way down the road in our efforts to wean ourselves off coal, and, eventually, gas-fired electricity but it could all be for nought if we don’t get transmission sorted as soon as possible” – Wood.
"The Minns government’s electricity network review has raised concerns about whether the agency tasked with delivering NSW’s multibillion-dollar renewable energy zones is up to the job, finding there is 'significant risk' with the program in its current form” – a report in the Sydney Morning Herald.
“Spinning blades on giant wind turbines spreading out on farmland may look like an image of Australia’s renewable energy future but the latest brawl over even more visually intrusive transmission lines is closer to today’s reality” – Jennifer Hewett in the Australian Financial Review.
“The consensus is that Australia’s energy transition is in trouble and not running to timetable. The Albanese government’s ambitious target of 82 per cent renewable energy by 2030 has collided with the global energy transition supply chain crunch. The building of thousands of kilometres of new transmission lines to connect wind and solar projects is tangled in environmental approvals. State Labor governments have rejected gas-fired firming power to help the transition. The Snowy 2.0 pumped-hydro scheme is mired in delays and blowouts” – the Australian Financial Review in an editorial.
"AGL chief executive Damien Nicks agrees that Australia’s 2030 target provides critical certainty that will help drive the change and innovation required” – a report in the Sydney Morning Herald.
“I completely acknowledge it’s a big job with many road bumps on the way” -- federal Climate Change & Energy Minister Chris Bowen, spruiking the government’s energy transition to a business forum. “But it is very achievable.”
“It’s high time Labor came clean with the Australian people and explained the true cost of its radical energy experiment” – Ted O’Brien, federal Coalition energy spokesman.
“The net-zero chickens are coming home to roost” – the Institute of Public Affairs commenting on controversy over the impending closure of Australia’s biggest coal-fired power plant.
The new electricity statement of opportunities issued by the Australian Energy Market Operator at the end of August has provoked a storm of alarmed reaction in the media – but not from the federal Climate & Energy Minister Chris Bowen.
AEMO’s latest 10-year outlook for NEM power supply and demand indicates that much of the market faces substantial reliability issues over the decade, and possibly as soon as the coming summer.
“We’re expecting an elevated level of risk compared to recent years, mostly due to hotter and drier conditions and coal generation reliability at historic lows,” the operator’s CEO, Daniel Westerman, says.
The market operator says its new SOO review is a call for “imminent and urgent” investment in the face of falling coal plant reliability and approaching decommissioning as well as the prospect of extreme heat via El Nino driving up consumer peak demand in summer.
This is a more dire outlook than in the 2022 SOO or its February updating.
AEMO suggests it will seek regulatory approval to trigger retailer reliability mechanisms in New South Wales and Victoria requiring the contracting of dispatchable power sufficient to ensure enough electricity capacity.
Bowen has responded that “the government is aware of the challenges ahead and is preparing to meet them,” an attempt at soothing the electorate besieged by adverse media comment – for example “Grid on knife edge as project delays risk blackouts” in the Sydney Morning Herald and “the real and pressing dangers presented by the failure to deliver new supply in a timely and efficient way,” according to The Australian newspaper.
Bowen says the federal government “is working to ensure that the power grid is as stable as it can be.”
Concern was exacerbated in the last week of August by the announcement of a cost blowout for the Marinus transmission project from Tasmania to the eastern mainland and a revelation that the cost of the Snowy 2.0 development may now be as much as $12 billion with a delay to its completion to 2029.
When first announced in 2017, the Snowy project had a deadline of 2021 and an estimated cost of $2 billion.
In Victoria, State Energy Minister Lily D’Ambrosio has reportedly refused to rule out blackouts or power bill increases in the light of the new SOO report.
The Energy Users Association declares the new AEMO report “a sobering read” for consumers.
EUAA chief executive Andrew Richards comments: “AEMO has finally said what many have been talking about for some time.
“The transition to net zero is hard and expensive and we have reached a critical point in the journey with the path to success appearing to become narrower with every year that passes.”
He adds: “Reaching net zero will take unprecedented investment, better coordination between state and federal governments, enhanced supply chain and work force resilience, a fair response to impacted communities and, above all, a dispassionate conversation with Australian energy users about the challenges ahead.
“Business needs energy 24/7 and needs it to be affordable. An energy system that does not meet the needs of energy consumers is an energy system that has failed the most basic of tests.”
The Australian Renewable Energy Agency has published a “white paper” calling for “urgent action to accelerate progress towards 43 per cent emissions reduction by 2030 and net zero emissions by 2050,” declaring that a “step change” is needed in solar technology costs.
ARENA says “ultra-low cost” solar PVs are needed to deliver “much cheaper electricity for Australians” and to produce solar-related export opportunities.
The agency says it has a “30-30-30 vision” for Australia – to achieve 30 per cent solar module efficiency and an installed cost of 30 cents per watt of installed capacity by 2030.
This, it adds, “requires a step change from where we are today” – with 22 to 23 per cent module efficiency and more than $1 per watt installed cost.
ARENA calls for Australian governments, market bodies, developers, investors and innovators “to commit to the task of dramatically driving down the cost of solar PV.”
Debate about when Eraring power station, the largest coal-burning plant in the country and producer of a quarter of New South Wales electricity, can be shut down is accelerating, with global consultants Rystad Energy saying any dispatchable capacity to replace it “realistically needs to have started construction by now.”
Rystad’s Australian senior analyst, David Dixon, in an interview mid-August with the Australian Financial Review, declared that the consequences of closing Eraring before critical replacement capacity is in place are “massive, massive volatility” in NEM wholesale power prices “while blackouts could not be ruled out.”
Eraring’s owner, Origin Energy, has committed to closing the 2,880 megawatt power station in August 2025, bringing the deadline forward from an earlier decision to shut it in 2032. In July federal Energy Minister Chris Bowen acknowledged that the plant may need to run for longer than 2025 but claimed an extension “will be a matter of months, not years.”
Rystad says it will be needed until 2027-29.
Meanwhile the Sydney Morning Herald claims to have had sight of a confidential New South Wales government document from consultants reviewing electricity supply and reliability in the State that includes a recommendation Eraring should stay open beyond 2025. The newspaper points to expert advice that extending the life of Eraring would cost between $200 million and $400 million a year.
The Institute of Public Affairs says the reported recommendation is “a rational first step in shoring up energy security.” IPA labels the former NSW Coalition government “economic vandals” for allowing AGL to close Liddell power station and “capitulating” to the 2025 closure of Eraring. The institute says “no baseload power station should be allowed to close unless and until a like-for-like baseload replacement is ready to come on line.”
From the green side of the debate, a group of activist organisations, including the Smart Energy Council and the Clean Energy Investor Group, have published a statement that “recommended taxpayer subsidies to extend the life of Eraring will be a massive retrograde step.”
They call on the NSW government to “flood the market with distributed energy and utility-scale renewables firmed by accelerated deployment of batteries.”
They add that the State needs “at least” 1,200 megawatts of wind and solar farms developed annually from now to 2030.
While the NSW government mulls the Eraring issue, the Labor regime in neighbouring Victoria has decided to provide financial support to keep Loy Yang A brown coal power station open until 2035.
Victorian Energy Minister Lily D’Ambrosio says the government “is acting to prevent a disorderly transition.”
The deal with AGL, the Loy Yang A owner, follows another two years ago with Energy Australia to keep the Yallourn power station, also in the Latrobe valley, open until 2028.
There is now speculation about whether the Andrews government will make a similar arrangement with Alinta Energy, owners of Loy Yang B plant.
Angst about the problems arising from closing coal-fired power plant is not confined to the east coast market – in Western Australia’s south-west integrated system the State government has now decided to delay shutdown of its Muja 6 power station from October next year until April 2025 in the face of warnings from the Australian Energy Market Operator that rising demand could lead to a shortfall in supply.
The plant will not be fully closed in 2025 but, the government says, will “go in to reserve outage mode.” As well, the government says it will not rule out construction of new gas-fired peaking plant for the SWIS.
AEMO says that peak demand in the SWIS could grow by about a third over the next decade because of population increases and growth in large industrial needs.
The operator has made a major change to its projection of peak demand. It now forecasts a need for 945 megawatts of additional capacity reserves for 2025-26 financial year and as much as 4,000 MW by 2032-33.
The WA government’s initial decision to shut off coal-based power by 2030 will strip about 1,366 MW from available capacity. Its plans will also require construction of an extra 4,000 kilometres of high voltage power links to transmit energy from new wind and solar generation to the market centred by Perth.
The federal government’s latest quarterly update of greenhouse gas emissions, covering the year to March, says ongoing substitution of fossil fuel power sources in Australia with renewable energy saw a 3.9 per cent decline in the electricity sector’s CO2 output compared with the previous year.
The report records a 4.7 per cent decline in coal-fired generation compared with the year to March 2022 and an 18.6 per cent rise in renewables power production – “partially offset by a 7.1 per cent increase in gas generation.”
For the year to March 2023, it adds, contributions to east coast electricity production – through the NEM – were 65 per cent for coal plant, 39 per cent for renewables and seven per cent for gas plant. The report includes the estimated use of rooftop solar not just power sent to the grid.
Jim Snow, executive director of consultants Oakley Greenwood and an adjunct professor of the University of Queensland, is warning that net zero emissions interventions by governments in the energy markets involve a risky return to central planning and politicians picking winners.
In a new paper for the Energy Policy Institute of Australia, Snow writes that “they smack of electoral anxiety or even panic and the need to be seen to ‘do something’ to avoid or lessen the inevitable pain of the transition.”
Snow adds: “Developing a cult fervor around select fuels and technologies, and spending large amounts of community money on them, is highly fraught and likely to neither deliver the reductions in emissions being sought economically nor sustainable energy pricing.”
He urges governments to expeditiously consider returning to the use of well-designed and implemented market-based instruments that provide an underlying incentive or investment signal for any fuel or technology that can achieve decarbonisation targets.
Snow says that many of the current problems in price rises and reliability concerns are directly attributable to policy implementation decisions.
“There needs to be a rethink.”
There is still no public explanation available of why the Callide C4 generation unit exploded in May 2021 and no firm indication of when the resulting outage will end.
The latest official suggestion is that the 466 megawatt plant may be fully operational next July.
The return to service of other units at the Central Queensland power station, for which new cooling infrastructure is needed, has also been pushed back in to the opening months of 2024.
The State government is still waiting on a forensic engineering investigation of the C4 situation, with the Energy Minister, Mick de Brenni, telling media it is “crucial” a thorough review be undertaken.
A Senate committee dominated by Labor and Greens members has predictably rejected a private member’s bill put forward by Queensland senator Matt Canavan to overturn the long-standing ban on use of nuclear power in Australia.
In a mid-August decision the committee’s majority view was that there is no basis for lifting the legislative prohibitions on nuclear energy for electricity generation.
This view held that, even if the ban was overturned, there is not enough time to develop nuclear power in Australia to help reach the national transition target in 2030, saying it would take 10 to 15 years to have an operational nuclear power plant in this country. Apart from safety issues, the committee majority said there was also no social licence for building nuclear reactors in Australia.
In a dissenting opinion, Coalition senators said a refusal to even consider nuclear power as a technology could risk Australia failing to reach net zero by 2050 by relying solely on renewable energy such as wind and solar. “Whatever the final judgement on the balance between the costs of nuclear and other technologies, an outright ban on nuclear energy can only risk higher electricity costs,” they said.
Meanwhile leading miner Gina Rinehart, speaking at a forum in Perth in mid-August, declared that nuclear power is “an efficient and practical option for Australia.”
Elsewhere, former chief scientist Alan Finkel asserted “it will take decades to develop a local nuclear industry.”
In a media interview in August he acknowledged “there are a lot of very attractive things about nuclear energy for our clean energy transition” but asserted “the problem is timing and cost.” Finkel added that, “from a purely engineering perspective,” nuclear technology is appealing, “with zero emissions, a continuous supply of baseload power and a small mining footprint for fuel.”
Alison Reeve from the Grattan Institute climate and energy program told the Sydney Morning Herald that investors could not start to investigate a nuclear project in Australia until the moratorium is lifted by federal Parliament, adding “it will probably take years after that for the States to pass their own laws and for a regulatory framework to be developed.”
The highly hyped Marinus transmission link between Tasmania and the mainland suddenly became a problem child in August – with State Premier declaring that the latest much-inflated cost estimates create funding problems and he cannot support it “at any cost.”
First announced in 2017 and put forward as crucial to Australia's energy future, allowing Tasmania to export greater green electricity to the national market, the Marinus project involves construction of two 750 megawatt undersea cables between Tasmania and Victoria. The cost was initially estimated at between just over $3 billion and almost $4 billion – and the capex is now being seen as around $5.5 billion.
The Tasmanian, Victorian and federal governments have an agreement to equally contribute to 20 per cent of development outlays, giving them collectively a fifth of the project’s equity, with the balance to come from a loan scheme. Now the State’s Premier, Jeremy Rockliff, says there is a limit to what Tasmania is able to pay.
Critics have been quick to pile on to the project’s backers and boosters in the wake of the news.
Grattan Institute energy program director Tony Wood says the Marinus concept “has been a dog’s breakfast for a long time” – while former Australian Greens leader Christine Milne, now secretary of the Bob Brown Foundation, has re-ignited her attack on the project’s value to Tasmanians. Her loud criticism now embraces federal Energy Minister Chris Bowen for being “uncritically evangelical” about the link.
Meanwhile, the Tasmanian Chamber of Commerce & Industry says the State is “entering a generation crisis” as electricity demand approaches outstripping supply.
At what point will be penny drop with those in government that the grand plans for an electricity transition of the past 5-8 years are not pursuing an orderly path to completion but are heading in quite another direction?
Items in this issue of the newsletter are pointers to the plan’s troubles – and when The Guardian newspaper, easily the greenest of Australia’s mainstream press, reports that “the rewiring and renewable energy rollout is struggling” it is not just the more conservative of us opining this.
The Guardian adds: “Analyses suggest the pace of construction and connection will need to at least double if the country is to get near the 2030 target and political debate has turned to whether the life of some coal plants should be extended.”
The recently-emerged cost problems of the much-hyped Marinus link are a bellwether for this situation, but they are far from the only such indicator.
In this context, it was interesting to read a Grattan Institute op-ed published in the Australian Financial Review early in August and republished on the organisation’s website.
Tony Wood’s own summary on the institute website captures the message: “Australia’s energy system is at a critical juncture. Continuation of current trends will mean missing our 2030 emissions reduction targets, risking electricity system reliability and failing to deliver the federal government’s election promise of cheaper electricity. Change is urgently required on all three fronts.”
As Jim Snow of Oakley Greenwood points out in a commentary he has written for the Energy Policy Institute, the hassles with the transition come “in an environment of increasing cost of living stress on the community driven in no small part by higher energy pricing, high levels of inflation and interest rates, very tight supply constraints and with business facing the massive hurdles of decarbonising their energy use in total by 2050 while staying competitive.”
Snow writes, “The history of governments directly selecting and driving specific energy sector investments where markets could have made those investment decisions has not been very pretty and this remains glaringly the case. Where the outcomes are totally focussed on the success of a government-preferred fuel or technology option, the original policy imperative to drive emission reductions at the least cost is invariably lost – at the expense of the community and business.”
If you doubt this, and some, including federal Energy Minister Chris Bowen, still cling to the view that the reverse is possible, just look around you.
There is another political factor emerging ever more strongly on this scene: the unhappiness of large swathes of people with the intrusion of transition infrastructure on their environment.
This is described by The Spectator Australia magazine in these terms: “The fight facing both coastal communities and regional areas to protect their homes and natural landscape from renewable energy is shocking.
“The disregard toward private property rights and Australia’s pristine environment shown by the Labor Party – and in particular Chris Bowen – has astounded desperate residents who feel powerless and, dare we say it, voiceless. Whether it is 10,000 kilometres of transmissions lines or 190 metre high turbines protruding from the ocean horizon – renewable energy is ugly up close, but can anyone stop it?”
In summary, there’s no argument, except from the radically conservative for whom anything about climate change is a red rag, that Australia needs an efficient decarbonisation policy but the big issue is that what has been delivered so far by our governments, State and federal, is not it and another is how can the situation be corrected?
The answer to my when will the penny drop question may not be next week or next month, but the odds on it being next year seem to me to be shortening as the complexity of the process grows ever more obvious, the costs ever higher, the risks more apparent and the willingness of the electorate to bear the resulting pain, current and prospective, weakens.
In a late-August op-ed in The Australian, Alex Coram, an emeritus professor of the University of Western Australia who held chairs in economics at Aberdeen and Massachusetts, declared: “To get a sensible energy policy, a serious economic study is required as a matter of urgency. It should be undertaken by economists and engineers outside the existing policy network and with wide-ranging theoretical and analytical capabilities.”
My reaction to that, in a word, is “Yes.”
2 September 2023