Coolibah Commentary

Issue 174, October 2019

As we enter the final quarter of 2019, how much further forward, compared with a year ago, are we in addressing the Australian energy triangle: the desire for affordable electricity and gas, provision of reliable and secure supplies of power in the NEM and the need to reduce greenhouse gas emissions nationally to contribute to addressing global climate change? It would be a colossal understatement to say that opinions on progress differ across the spectrum of policymakers, suppliers and consumers. Left in its present state, the situation will be a political football at the next federal election – again. Which is why the onus falls on the CoAG leadership to assume control of the policy dialogue – and why the long hiatus in the activities of the CoAG Energy Council has been so concerning. (Angus Taylor has finally arranged a meeting for 22 November.) Meanwhile, in a reminder of the here-and-now world, the Australian Energy Market Commission is calling for a better approach to integrating rooftop solar power in to electricity grids to avoid a multi-billion dollar infrastructure cost that will flow through to consumers.

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Quotes

“Australia’s changing energy market has not lacked for blueprints. Rather, a growing set of previous reviews have been partially implemented, largely ignored or quietly superseded by new processes” – Energy Networks Australia commenting on the Energy Security Board’s post-2025 review.

“A cheap, clean, reliable electricity system is possible, but we can’t get there if we go on like this” – Innes Willox, Australian Industry Group.

“At a minimum, the post-2025 project will put in place a holistic view of future development of the market and avoid the risk of simply layering incremental changes and potentially producing an inefficient outcome” – the Energy Security Board.

“The energy-only market design is not necessarily the long-term answer for the NEM. In it, investors are heavily exposed to the market’s swings and roundabouts, including those created through various distortions such as subsidized competition and changes to government policy” – Australian Energy Council.

“Stark divisions have been exposed within the electricity industry, investors and politicians about the urgency and need for an overhaul of electricity market” – an Australian Financial Review news report.

“It is critical the work on market reforms is done quickly, given the risk that coal power plants are shut earlier than scheduled because they can no longer survive periods of low or negative prices” – Audrey Zibelman, Australian Energy Market Operator.

Crucial

Federal Energy Minister Angus Taylor says the CoAG Energy Council meeting he is convening in Perth on 22 November – the first since last December – is “crucial” in progressing “key priorities of accountability, transparency and reliability” for the NEM.

Addressing these issues together is “fundamental” to bring down power prices and ensure long-term energy supply security, he adds.

Taylor’s announcement of the meeting (which will take place six months after the federal election in May and 11 months after the last council gathering) follows prolonged criticism of his failure to bring energy ministers together under the CoAG banner.

In its new report on renewable energy projects, the Clean Energy Council has called on him to build stronger leadership and co-operation with State and Territory governments, saying more frequent meetings of the CoAG are “essential.”

Meanwhile the chair of the Energy Security Board, Kerry Schott, has said in a newspaper interview about a current ESB review of the NEM post-2025 that it is “crucial” to have a better approach to the transition of older coal-fired power stations out of the market. “The retirement process at the moment is a bit crude to say the least.”

Three ways

The Grattan Institute, in a new policy paper, is putting forward three initiatives to address provision of “a sound foundation” to support a long-term energy reform agenda.

The institute says the first step must be to integrate energy and emissions reduction policies – and to go beyond electricity to encompass transport, industrial and export energy. “Today’s focus on separate sectors reflects a forced truce that emerged from the climate wars and abandonment of first-best policy,” says energy program director Tony Wood.

The second step proffered is revision of the energy market agreement underpinning the NEM to clearly set out the responsibilities of federal, State and Territory governments and “must embody a commitment in which jurisdictional proposals for unilateral intervention are subject to an independent impact assessment.”

Wood says the third step involved reforming the model of the trio of market agencies – who he declares have been reactive rather than proactive “and usually too slow” – to strengthen them, including providing a statutory obligation for collaboration on common objectives and formalizing the role of the Energy Security Board.

Power emissions down

Prime Minister Scott Morrison, in a forceful speech to the United Nations general assembly in late September defending Australia’s environmental policies, declares that emissions from the national electricity sector will be 15.7 per cent lower this year than a decade ago.

Morrison added that $13.2 billion was invested in clean energy technologies in Australia in 2018.

Meanwhile Australian National University researchers, in a commentary on The Conversation, say use of renewable energy in Australia is growing at a per capita rate 10 times faster than the world average. “Between 2018 and 2020, Australia will install more than 15 gigawatts of wind and solar, an average of 220 watts per person per year. This is nearly three times faster than the next country, Germany.”

Gridlock

The Australian Energy Market Commission is warning that rooftop solar penetration of electricity systems has reached the point where a choice needs to be made between distribution networks spending billions of dollars to cope “or starting to deliver the grid of the future so customers aren’t landed with unnecessary costs.”

AEMC chairman John Pierce says “urgent major reforms” are needed to avoid the need for “significant” new network investment. He says networks are increasingly cutting off solar PV flows from the grid because of the system’s inability to connect new technologies.

“More than two million homes are now energy producers as well as consumers. Unfortunately, networks still largely charge for energy consumed and not the services consumers require.”

Pierce adds: “Escalating penetration of rooftop solar, industry-wide failure to comprehensively introduce cost-reflective customer reward pricing, lack of network visibility of low voltage constraints and inadequate technical standards and compliance are combining to reduce system security and efficiency.” He claims that networks have not moved sufficiently quickly to realize the value of rooftop generation.

Failure to act “now,” he warns, “will mean fewer people will be able to export solar to the grid or all consumers will pay more to build new substations, poles and wires that will be rarely needed.”

Pierce says that “at a high level, the AEMC is recommending that the electricity network be fundamentally re-oriented away from a one-way supply chain model to a platform for energy production, consumption, storage and trading.”

Energy Networks Australia CEO Andrew Dillon has responded to the new AEMC report in a cross tweet that says: “It’s a bit rich to be told distribution networks are not moving quickly enough by the AEMC, the body whose rulings ensured we are having a super-slow rollout of smart meters across most of the NEM.”

Separately, the South Australian Energy Minister, Dan van Holst Pellekaan, has commented that the State is confronted by a “serious challenge” because of the uptake of rooftop solar – “which is setting new records for low net system demand; our ability to manage voltage and frequency and to ride through shocks is being tested.” He adds: “This requires demand to be much smarter and more flexible and new loads such as batteries and electric cars to soak up supply at the right times.”

Energy use trends up

The federal government’s latest national statistics show that energy consumption rose by just under one per cent in financial year 2017-18 compared with an average annual rise of 0.6 per cent over 10 years.

Energy productivity, according to the report published by the Department of the Environment & Energy, improved by 20 per cent over the decade – a trend considered inadequate by critics.

Most of the 2017-18 rise in energy use occurred in the resources sector, with “mining” demand going up nine per cent, mostly through increased natural gas and electricity consumption to support LNG exports.

More than half total energy use in 2017-18 occurred in two States (New South Wales and Queensland) and almost 72 per cent in these two States plus Victoria.

The report notes that the energy needs of electricity generation fell four per cent in 2017-18 even with a slight increase in power output – reflecting reduced brown coal-based generation and a rise in renewable power. Total electricity generation across Australia in 2017-18 was 261 terawatt hours, including estimated use of rooftop solar and off-grid power production.

Coal accounted for 60 per cent of national generation, down from 80 per cent at the beginning of the century. Coal power output in the financial year was 121.7 TWh (black) and 36 TWh (brown). By comparison, wind power provided 15.1 TWh and large solar plants just over 1 TWh.

The report also records that, despite multi-billion dollar outlays over the past decade, renewables’ share of energy consumption was just 6.2 per cent in 2017-18 and included firewood burned by households and bagasse use in manufacturing – versus 38.7 per cent for oil, 29.9 per cent for coal and 25.2 per cent for gas. Around 37 per cent of the gas consumption was by power generators.

The DE&E publication shows that, in calendar 2018, when estimated use of rooftop solar (9.9 TWh) is excluded, large plant power production was 120.6 TWh black coal, 35.9 TWh brown coal, 50.2 TWh gas and 5.2 TWh diesel – a fossil fuel total of 212 TWh – as well as 17.4 TWh hydro, 16.2 TWh wind, 3.5 TWh bio-energy and 2.1 TWh utility-scale solar, a renewables total of 49.3 TWh.

No one can deny

Federal Labor energy spokesman Mark Butler declares that “no one can deny the severity of the energy crisis gripping Australia,” arguing that “since 2015, when we entered the greatest energy crisis since the 1970s, wholesale power prices have risen 158 per cent, reliability has suffered, gas prices have tripled and carbon pollution continues to rise.”

In a newspaper op-ed, Butler asserts “this crisis is of Canberra’s making and needs to be fixed by Canberra.” Expert advice, he says, is that “a key driver of the energy crisis is a lack of national policy to support new investment in electricity generation.” He adds: “Australia also needs to modernize and expand our energy networks (and) we need policies to support the integration of new technologies and distributed generation. We need to address a gas supply and price crisis.”

Butler complains that “leadership is lacking in Canberra” and has been “replaced by wedge politics.”

Pig-headedness

The Australian Workers Union says it is “ludicrous” for this country to export uranium but not benefit from the fuel domestically.

AWU national secretary Dan Walton declares “most of our energy crisis is due to partisan pig-headedness,” adding “those of us on the progressive side of politics can’t continue to reflexively reject zero-emission compromise options.”

The local approach to nuclear power is “stuck in a time warp,” he adds. “Continuing to adopt a position of ideological extremism on nuclear technology is an economic own goal we can’t afford to keep kicking. If industry sees value in the Australian (nuclear) market, it should be free to invest without being blocked by outdated fears.”

As well, the Minerals Council of Australia has told a federal inquiry in to the nuclear issue that the technology should be explored as part of the “worsening problem of rising power prices and deteriorating energy grid reliability.”

MCA chief executive Tania Constable says: “Nuclear power – especially small modular reactors – will go a long way to provide clean, reliable and low-cost electricity.”

Resistance

AGL Energy shareholders have resisted a push by activists for the company to close all its coal-fired power stations by 2030 – 20 years before its own target.

The activist group Market Forces told the AGL annual general meeting that the company needs to “get ahead of the market and regulatory changes” as global efforts to decarbonize gathered strength.

Company chairman Graeme Hunt responded that AGL is focused on “a stable and sustainable transition towards a cleaner, reliable and affordable supply system.”

‘Here to stay’

New South Wales Energy & Environment Minister Matt Kean says the Berejiklian government is preparing legislation to prolong the life of the State’s coal-fired power stations and to support new mines.

“Coal is here to stay for decades to come,” Kean told 2GB radio station in an interview in mid-September. “My priority is securing supply. All my decisions will be driven by two objectives – keeping the lights on and driving power prices down.”

Kean added that the State government will not build new generation itself. “We’re not going to pick a winner. There are plenty of opportunities for the market to decide these things.”

The interview followed three days after Kean told journalists the government intends to set an interim carbon reduction target to guide the NSW economy to a net-zero emissions by mid-century.

‘Dramatic’ slowing

The Clean Energy Council says that, after two years of record investment in Australian wind and large-scale solar projects, the pace of developments reaching financial close has “slowed dramatically” in the first half of 2019.

Investment commitments, it says, “collapsed” to less than 800 MW in each of the first quarters of this year.

The CEC says that investment confidence in large-scale renewable energy and accompanying storage has become “fragile” because of a lack of federal energy policy combined with a range of regulatory challenges.

The lobby group says 15,700 MW of utility-scale renewables generation was given financial commitment in the previous two years. It adds that “while it is not clear whether the drop in the flow of projects will be sustained, (this) has the potential to leave Australia exposed to higher power prices and risks system reliability.”

The CEC says it urges the federal government to proceed with a version of the “national energy guarantee” – abandoned by Malcolm Turnbull in the dying days of his prime ministership – to “provide much-needed investment certainty.” It argues that the government’s “underwriting new generation investment” scheme has the potential to support a wave of new projects, but a higher level of support transparency is needed to deliver investor confidence.

The CEC claims that “political distractions” such as the House of Representatives nuclear power inquiry and establishment of a task force to consider extending the life of Liddell power station are undermining confidence in “sensible” policy oversight of the market transition. It calls for “clear” emissions reduction targets “to ensure decarbonization of the energy sector well before 2050.”

RET met

The Clean Energy Regulator has announced that it has approved sufficient renewable energy capacity and enough has been built or committed to construction to guarantee the federal renewable energy target of 33,000 gigawatt hours of electricity production a year will be met in 2020.

The tipping point was the Cattle Hill wind project in Tasmania, bringing the total amount of wind, solar and other certificate-earning investments to 6,400 megawatts.

The regulator says another 6,410 MW of project proposals is under consideration for the new decade.

Federal Energy Minister Angus Taylor says the Morrison government will not extend the RET.

The EnergyQuarterly publication reports that wind farm output reached 15,694 GWh in the NEM in the 12 months to June this year, with solar farms contributing another 3,184 GWh. In Western Australia’s SWIS grid, wind farms delivered 1,842 GWh in this period and a solar farm another 36 GWh.

Write down

The Australian Competition & Consumer Commission is continuing its push to get three State governments to write down the asset values of the power networks they own.

In its latest report on NEM prices, the commission says that, while network costs are forecast to be lower in future years, pushed down in part by the Australian Energy Regulator’s decisions to reduce the costs grid owners can recover from customers, governments in New South Wales, Queensland and Tasmania should write down asset values or, where operations have been privatized, provide users with rebates.

The ACCC also continues to push for the abolition of “green schemes,” declaring that there are opportunities for all governments to lower consumer costs in this area.

For example, it says, the subsidy for the installation of small-scale renewable energy systems is no long needed because of the “dramatic fall” in solar costs. The Queensland government, it points out, has included $247.9 million in its 2019-20 budget to cover the cost of premium feed-in tariffs.

The commission reports that the average electricity bill for NEM households in 2017-18 was $1,549 with green schemes accounting for eight per cent – while network costs make up 42 per cent and wholesale costs 33 per cent.

Energy affordability, it adds, continues to be a key concern for Australians.

Wrong track

The Australian Industry Group has lashed out at the federal government over its “big stick” legislation.

The lobby group says the proposed law “goes well beyond” recommendations on energy affordability put forward by the ACCC last year and accuses the government of “trying to make up for inaction in other areas of energy policy” by proposing “a set of a excessive, dangerous and counter-productive measures.”

The AiG says the “big stick” aspects of the bill “have the potential to put at risk not only much-needed investment in the energy sector but also the jobs and wages of ordinary Australians.” The divestment measures, it adds, “will create considerable uncertainty and set a dangerous precedent that could bear on investors in all sectors of the economy.”

The government proposal could enable energy companies to be forced to break up if found to have engaged in anti-competitive conduct.

Critics argue that the Coalition emphasis is more on the narrative of power costs and reliability to counter Labor’s ongoing accusations about lack of action on climate change policy.

The Australian Energy Council, representing major gentailers, argues the bill “will not lower prices, will not increase reliability and will clearly discourage new investment the electricity sector desperately needs.”

The Senate is expected to consider the bill when Parliament resumes after the current recess.

Federal Energy Minister Angus Taylor says the aim of the legislation is to “provide short-term as the market moves back to a more competitive footing in coming years.” The bill proposes a 2025 sunset clause for the “big stick.”

Taylor says the government expects new competition and supply to emerge, eliminating distortions.

Energy Australia executive Mark Collette says the NEM is “finally” moving in the right direction, with some consumers saving hundreds of dollars a year.

Who knows?

Graeme Bethune, principal of analysts EnergyQuest, poses a question in the latest issue of its EnergyQuarterly publication: “Who knows how much gas might be found within 300 kilometres of Sydney and Melbourne if only companies were able to explore?”

The point is provoked, he says, by the “exciting” West Erregulla discovery by Strike Energy within 300 km of Perth – in the Perth basin that the petroleum industry broadly thought to be mature but has been proved wrong by this and the earlier Waitsia discovery. “This is not small stuff,” says Bethune. “Waitsia is 820 petajoules and the pre-drill estimate for West Erregulla was 966 PJ.”

Bethune notes that domestic gas in Western Australia is comparable in price to the US Henry Hub pipeline. “This is partly due to the WA domestic gas reservation policy but also due to successful exploration that has found numerous domestic gas fields both offshore and onshore.”

According to the WA government, State gas prices averaged $4.11 per gigajoule in 2018 – versus, Bethune says, a median global price (54 countries) of $6.33/GJ and an average on the Australian east coast (ACCC report) of close to $10.

Phase out

Energy Networks Australia says the ACT government appears to have decided to phase out the use of gas by households in the capital territory without considering the impact on power bills in any detail.

ENA chief executive Andrew Dillon says that gas provides more than three times the energy of electricity in the ACT during winter. “Phasing out gas means you need the electricity system to deliver up to four times the electrons currently provided in winter. This is expensive. Really expensive.”

Eight-five per cent of ACT households are on the gas network at present, with connections growing at two per cent annually, according to ENA. Turning off gas, says Dillon, will “require a significant build-out of new electricity infrastructure” when the gas grid is relatively new “and has many years of life left in it.”

Dillon derides the claim by the Labor/Greens ACT government that it is going to “Copenhagenise” Canberra.

“Copenhagen,” he says, “has done the opposite of phasing out gas. It is (aiming to) upgrade to 100 per cent carbon-neutral biogas by 2025.” The smarter approach, he argues, would be for the ACT to look at alternatives such as hydrogen and biogas.

Vast

Geoscience Australia has published a report for the federal government pointing to “vast physical resources” that could support a large-scale hydrogen industry.

The agency says there are extensive regions with the base elements and infrastructure to support both renewable and CCS hydrogen.

“Most coastal areas,” it says, “have elevated potential for hydrogen production,” pointing to an unlimited supply of desalinated seawater.

The report observes Australia’s extensive fossil fuel resources can be used with CCS to produce hydrogen with low carbon emissions.

It notes that countries like Japan and South Korea, currently highly dependent on fossil fuels, are working on plans to transition to hydrogen-intensive economies.

The report appears as the South Australian government declares its “enormous” wind and solar resources mean “there is nowhere else in the world as well positioned” as the State to develop a hydrogen economy – and as federal Resources Minister Matt Canavan visits South Korea to sign a letter of intent to develop a joint action plan for the technology.

Federal Energy Minister Angus Taylor adds that hydrogen could support a major new Australian industry in “coming decades, similar to the scale of the LNG industry.” He says the government has invested $140 million to date to support companies pursuing hydrogen plans.

‘Not a panacea’

Federal Resources Minister Matt Canavan has been quick to warn that hydrogen production “is not a panacea that will replace our coal industry any time soon.”

Canavan says chief scientist Alan Finkel sees Australia being able to achieve around 500,000 tonnes of hydrogen exports annually within a decade – and contrasts this with 200 million tonnes of coal exports and 100 million tonnes of LNG trade.

However, he adds, hydrogen has the potential to reach a similar scale to the LNG industry “over coming decades.”

The government plans to publish a national hydrogen stategy by the end of 2019.

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Last word

In democracies, countries are not governed by the number of chanting people with posters who attend public rallies but by the votes cast in a general election.

Four months ago, in the Australian election, the various entities of the Coalition drew 7,344,813 primary votes in the House of Representatives contest that decides who governs. The Greens, whose policies most reflect the “climate strike” placards on display across Australia in late September, drew 1,482,923 votes.

What matters in our national two-party preference system is that, at the end of the last election, when collective voting against the Coalition’s policy stance was counted to decide seat winners, the flow of votes to the Labor Party totalled 6,908,580, leaving the Morrison government with 51.83 per cent of the ballots cast – and just enough seats to govern, doing so more comfortably when cross-benchers provide support in the House and the Senate.

The Greens continue to live in hope that the emerging times, reflected in public rallies and opinion polls, will suit them more than the mainstream parties and that their big political breakthrough, if not to govern then to be in coalition with Labor in office (as they are in the ACT, the smallest government in the country), is just around the corner. The outcomes of federal and State elections over the past decade suggest the most appropriate response to this is “dream on.”

This perception, however, does not excuse the coalition of the Liberal and National parties or the federal ALP from addressing the “energy triangle” challenges – with their implications for the economy overall – a lot better than in the past dozen or so years and especially in the past 12 months.

The partisan divide over carbon abatement, just one arm of the triangle, began here, as in other democracies, in the late 1990s and in Australia it has widened over time – to the point where faith in the body politic being able to manage next steps is probably now at its weakest level, a trust failure that is an important part of the problem.

(To quote the Australian Petroleum Production & Exploration Association: “Too often the debate about energy and emissions descends in to an ideological, binary argument between advocates for fossil fuels and renewables which prevents us moving forward with pragmatic and achievable solutions.” Or to quote EnergyQuest’s Graeme Bethune: “Unfortunately the political discussion in Australia is dumbed down to the level of a pub argument.”)

Anthony Albanese is right in saying a lot of the Australian community is suffering “conflict fatigue” after the past several years’ political Punch & Judy show (in which the “energy war” played a leading role) but whether both mainstream sides of politics can summon the gumption to do better between now and the next federal election remains to be seen.

Leading journalist Alan Kohler is suggesting that what is needed is a royal commission in to climate change to provide “a final, believable public debate where the issue can be tested judicially and agreement reached.”

I fear the realistic response to this is also “dream on” because, unlike the banking royal commission, which Kohler references in putting forward his argument, the issue here is not calling out corporate wrongdoing and proposing steps to prevent it continuing. Like it or lump it, this is at heart about policymaking on three interlinked issues and that requires political parties to achieve consensus on some key directions.

How far this policymaking should be influenced by growing anxiety in some areas of the community, not least among current high school kids, over scientific studies claiming that we may have as little as 10-15 years to cut globally greenhouse gas emissions sufficiently to allow humanity to avoid serious harm from the effects of a warming planet is not a trivial question.

But the judgment needs to be political and ultimately made by a party (or coalition) that can govern. It also needs to represent a broad consensus so that we don’t continue sudden shifts in direction when government changes hands.

In the Australian system, this is complicated by the roles of the State governments.

My personal choice is for the “energy triangle” issue to be addressed by the Council of Australian Governments at leadership level, requiring the Prime Minister and the premiers to negotiate a meaningful path forward – something they have singularly failed to do this decade, opting instead to send a lot of hot air in to the atmosphere without any significant progress on energy affordability, grid system security and greater carbon emissions abatement.

Some may argue that trying to get nine governments to agree on anything is a fool’s errand but the counter-argument is that this is the democratic reality in Australia today and avoiding, evading or undermining it may have consequences beyond our current imaginings.

Whether the world can transition to sustainability, a work of decades not years embracing a lot more than electricity supply, is, of course, the even bigger question. How Australia can contribute to the global approach is another. But unless we can demonstrate that we can really manage our domestic situation, how can Australians make demands on the governments of the world to manage the over-arching challenge?

And, as a last word, an Essential Report poll on the eve of the latest “climate strike” in Australia found that 55 per cent of respondents (in the words of the pollsters) “support using strike action to push for governments to act on climate change and move towards renewable energy” versus 30 per cent opposing this and 14 per cent “unsure.”

Keith Orchison
27 September 2019