Coolibah Commentary

Issue 182, June 2020

Little more than four months in to the year of Covid-19 (where some have characterized the local governments’ approach as “go big, act fast and keep the lights on”), Australia’s promoters of energy change (“the transition”) are in rising cry that “we must not squander this opportunity,” with activists especially promoting their versions of new green deals. Meanwhile the national Covid commission set up by the federal government is working away on recovery proposals that include energy and it has upset promoters of renewable power by declaring the key to “kick-starting the economy and manufacturing” is increasing the supply of natural gas and bringing its domestic price down to internationally competitive levels for manufacturing. As well, the federal government has published a discussion paper in its technology investment roadmap exercise that includes acknowledgement both carbon capture and storage and small nuclear reactors could have a transition role. Perhaps the past month’s biggest energy development is the New South Wales government’s approval of the main works for the controversial Snowy 2.0 project. Final approval by Canberra is still down the line but the brainchild of former prime minister Malcolm Turnbull now looks set to be a major part of Australia’s post-pandemic recovery program. Almost lost to view against this backdrop, the Tasmanian government has published its own draft renewable energy action plan for the next 20 years constructed around the “Battery of the Nation” concept and a proposal to see a second Bass Strait transmission line constructed this decade. How all this will play out as the pandemic recovery gets under way (itself still subject to much conjecture) is as clear as mud, but at least the future of energy supply is still high on the public agenda – and the possibility exists for Labor and the Coalition to find middle ground after a 12-year “barney” over the issue.

Quotes

“The Covid-19 pandemic has massively disrupted the global economy and created the largest shock to the global energy system in more than seven decades” – International Energy Agency.

“Accelerating the clean energy transition remains the major challenge of our times” – Clean Energy Council.

“The pandemic will not miraculously invigorate climate action. To be clear, we do not propose adding climate change to the daunting list of concerns motivating the current stimulus packages. The first order of business is surviving the coronavirus, and that leaves few resources and policy attention for anything else” – MIT Sloan School of Management professor Henry D.Jacoby.

“As we rebound from the Covid-19 crisis, incentivizing projects that create jobs, enabling new industries and supporting our manufacturers to grow and invest will be vital, with the community expecting us to reduce emissions at the same time” – Santos CEO Kevin Gallagher.

“A technology-neutral approach and adoption of the best available technology will help Australia play its part in reducing emissions while providing energy security so key industries remain internationally competitive” – Minerals Council of Australia CEO Tania Constable.

“A senior federal government source says the economic catastrophe caused by the pandemic has strengthened its resolve to maintain low gas prices on the east coast” – Australian Financial Review political editor Phillip Coorey.

“We have an opportunity now to set right the ship of state by being highly analytical, ruthless in our judgment and focused always on better outcomes for the future” – Chris Barrie, former Australian defence forces chief.

Going up

New South Wales users of electricity distribution services all face higher prices in the financial year beginning 1 July as a result of the latest determinations of the Australian Energy Regulator.

AER has announced that Ausgrid, Endeavour Energy and Essential Energy households will pay between $13 and $22 more in 2020-21 and small businesses between $34 and $87 more.

The drivers of the increases, according to the regulator, include rising transmission charges and “adjustments made to reflect the estimated of Covid-19 on consumption.”

The AER’s determinations will allow Ausgrid, the largest network business in the country, to recover $7,703 million from customers in the five years from July 2020 to June 2024. The decision includes approval for $2,638 million in capital expenditure over five years.

Endeavour Energy has approval to recover $4,201 million in revenue over this period and to outlay $1,715 million in capex. For Essential Energy, revenue-raising will be $5,079 million with a capex approval of $2,081 million.

The determinations mean that NSW households and small businesses are expected pay the service providers just under $17 billion over five years to mid-2024.

The regulator says it is “making important decisions in an unprecedented economic environment” and is taking steps “to ensure our decisions best support consumers and the market.”

It will deliver further determinations for SA Power and Queensland distributors Ergon Energy and Energex early in June.

In mid-May the regulator announced that wholesale electricity prices across the NEM this year dropped to their lowest first quarter level since 2015. Claire Savage, AER chair, said factors behind falling wholesale prices included generally mild weather from January to March and reduced fuel costs for gas and coal generators as well as increasing amounts of low-priced renewable energy coming in to the market.

Gas fires

The leaking of an interim report by the manufacturing task force of the National Covid Co-ordination Commission (set up by the Prime Minister to help shape the economic recovery) with advocacy for government support for the natural gas sector to boost manufacturing industries sparked controversy at May’s end.

Tim Buckley of the Institute for Energy Economics & Financial Analysis attacked the draft report (leaked to the ABC and Guardian Australia) for calling on taxpayers to underwrite the rescue of a sector (gas) “that has absolutely decimated and undermined our manufacturing base” through high prices.

The Australian Petroleum Production & Exploration Association said the draft “included ideas that just won’t work” and asked “what problem are we trying to solve?”

The Australian Energy Council said many proposals – including a focus on support for carbon capture and storage and on hydrogen development rather than retro-fitting coal power stations – were sensible but “arbitrary government intervention” was not.

Queensland University professor John Quiggin declared the “most significant failure” was not recognizing that “gas-fired generation is increasingly being supplanted by renewable energy backed by battery storage.”

The task force’s proposals include that the federal government take “a non-operating equity position, minority share or underwriting position” to help develop gas projects and pipelines.

‘Quickest way’

Chief Scientist Alan Finkel has told an ABC Q&A audience that using gas in the short to medium term is Australia’s most efficient pathway to pursuing net zero emissions.

Finkel said: “Gas has much, much more scale than batteries. Gas is effectively the perfect complement to solar and wind. The quickest way to develop our renewable electricity system is to support it with gas.”

He added: “In my opinion, it is not about building the gas industry for the sake of the gas industry – it’s gas as an enabler.”

Priority

The federal government has declared investment in low emissions energy technologies that “strengthen the economy and support jobs and businesses” are a priority for it in pursuing recovery from the pandemic’s impacts.

Federal Energy Minister Angus Taylor, releasing a discussion paper for its “technology investment roadmap” project, says the government sees “enormous potential” in hydrogen, carbon capture and storage, soil carbon sequestration, biofuels and exports that support carbon abatement.

Taylor adds that “at core this is about technology not taxes,” saying the government is committed to abatement without imposing new costs on households.

In a radio interview, he said “there is no worst time you could be talking about taxing and carbon prices than (when) we are coming out of Covid-19.”

Pressed on a net zero by 2050 emissions target, Taylor responded: “We are not going to commit to a target without a plan; we are not going to commit to a blank cheque for a big carbon tax.”

In later media comment Taylor declared the federal government “believes a gas-fired recovery will drive jobs and economic. He added: “We need State and Territory governments to do their part to unlock more gas for the domestic market to encourage investment in reliable generation which will put downward pressure on wholesale (power) prices.”

The 74-page discussion paper includes a commitment to monitor technologies emerging overseas (among them small modular nuclear reactors – which the government says “have potential but require R&D and identified deployment pathways”). It adds that the social acceptability of nuclear power in Australia “will be a key determinant.”

‘Unrealistic’

Senex Energy chief executive Ian Davies says proposals to pursue new east coast gas supplies at $4 per gigajoule are “out of whack” with the cost realities of development.

Davies says $4/GJ gas in southern Australia, source of factory demand, is “impossible” because “all new gas is in the north” and requires $7 to $10.

Senex has operations in the Surat basin in Queensland and South Australia’s Cooper basin.

Leading question

Ted O’Brien, Liberal chairman of the House of Representatives standing committee on the environment and energy, has declared Australia’s nuclear power debate a leadership test for the Opposition’s Anthony Albanese.

Will the ALP leader “tip his hat” in favor of a sensible national conversation on the issue, O’Brien asks in a newspaper commentary at the end of May, or will he run a “not in my backyard” campaign?

O’Brien’s challenge has been sparked by the inclusion of small nuclear reactors in the discussion paper the government has published on its “technology investment roadmap.” Last year he chaired a House inquiry in to nuclear energy.

He is now calling for a shift in the energy debate away from framing climate change as a fight between believers and sceptics and policy as a battle between fossil fuels and renewables. There is an opportunity created by the pandemic impact, he asserts, to “capitalize on the spirit of the times and reset the public conversation on energy.”

Nuclear energy, O’Brien argues, is a barometer for “testing if people are genuine in their desire for a pragmatic and evidence-based debate” on Australia’s future energy mix “because no alternative technology carries so much emotional baggage while offering such substantial value.”

‘End barney’

Federal Labor’s Treasury spokesman, Jim Chalmers, seen as a candidate for the ALP leadership if Anthony Albanese’s poll fortunes don’t improve, has called on the Morrison government to seek bipartisan agreement on energy policy.

In an interview with The Guardian in mid-May, Chalmers asserted Labor is “prepared to end the decade-long barney” on policy by supporting the national energy guarantee (abandoned by the Coalition in the political shambles that saw Malcolm Turnbull lose the prime ministership), claiming the NEG can allow the major parties to bridge their long disagreement about how quickly Australia should reduce carbon ambitions.

“Business can’t understand why we can’t get a resolution on energy,” he said.

Chalmers’ comments reprise those he made last September after the ALP’s shock election loss when he declared “the most important thing is actually to settle something that is certain.”

‘Map without road’

The Grattan Institute initially knocked the federal government’s first iteration of its new energy plan. Energy program director Tony Wood told a newspaper that “it’s like a map without a road.”

Wood asked: “Where’s it all going?”

He told the Australian Financial Review: “Giving early stage technology a bit of a prod is a good idea, but the role of government is to say here’s what needs to be done and let the market sort out the lowest cost of doing things.”

In another, later interview, Wood added “the process of evaluating technological options can play an important role in determining the road ahead to a cleaner energy system.” What’s less clear, he said, “is what happens after that and how we deploy technologies in the lowest-cost way to reduce emissions – the role of government in that process is still a major challenge to our political sphere.”

Subsequently, in an op-ed in the Financial Review, Wood opined “there are grounds to be optimistic; the roadmap suggests the Morrison government is committed to finding a way out of the climate wars that have been a plague on our house for well over a decade.”

Jobs & opportunities

The Grattan Institute’s new “green steel” report includes a commentary on job opportunities in the “energy transition.”

It says: “Simply producing clean energy does not create many jobs, even if the energy is exported. It takes only 10-to-20 full-time staff to manage a 400 megawatt wind farm compared with hundreds of short-term jobs involved in construction. Building enough renewable generation to meet demand in the NEM while reducing emissions in line with the Paris target would require thousands – but not tens of thousands – of ongoing wind and solar jobs. And, on average, these jobs do not pay as well as current fossil-fuel electricity generation jobs. Many more jobs are likely to come from Australia using its energy cost advantage to produce low-emissions, energy-intensive commodities for export.

“Manufacturing activities are typically more labor-intensive than renewable energy operations and are likely to have conditions and pay more like today’s jobs in smelting and coal power stations.”

The institute says Australia’s clean energy opportunities are “large but far from certain” and warns governments cannot single-handedly drive creation of new industries requiring hundreds of billions of dollars in investment.

It proposes the federal government should help Australian steel-making move to lower-emissions technologies over the next decade while also pursuing hydrogen industries. It says a “green steel” industry, built on Australia’s role as an iron ore superpower, offers the best opportunity for exports and regional job creation.

The institute’s Tony Wood, writing in the Australian Financial Review, declares: “Green steel combines minerals and energy resources in an eyes-wide-open opportunity based on credible underlying economics in a changing world.” Acknowledging

that “such opportunities do not come along every day and are hard to realize,” Wood argues “this one is worth effort.”

Commenting on the Grattan report, Australian Financial Review journalist Aaron Patrick retorts: “If Australia is serious about using its abundant natural resources to produce low-emissions energy for industry, it has another option based on technology that has proven itself over decades – nuclear.”

Meanwhile former federal resources minister Matt Canavan has argued in a newspaper commentary at the end of May that the key political battle should be about how to recover from the shrinking of Australian manufacturing jobs (by 10 per cent) over the past decade. Senator Canavan is calling for policymakers to “get serious” about reducing energy costs, saying Australia should rule out moves towards net zero emissions until other, larger, countries demonstrate much larger carbon abatement.

‘Needs to change’

The Australian Industry Group says the nation’s approach to energy needs to change.

AiG chief executive Innes Willox declares Australia can build a more durable “energy advantage” by “reforming and investing now” to pursue lasting low prices and lower emissions. He says a radical improvement is needed for national energy productivity.

Meanwhile a new paper published by the Centre for Future Work at the Australia Institute says national manufacturers spent $5.4 billion on electricity in 2017-18 (using more than 52,400 gigawatt hours) – and argues that replacing the current fossil-fuelled generation fleet with renewable energy could cut this bill by 23 per cent. It claims that by 2050 a transition to a renewables system “would save $2.2 billion (in constant dollar terms) or 33 per cent of these bills.”

Destination Dubbo

The New South Wales government wants the State to have “some of the cheapest, most reliable and cleanest electricity in the world,” according to its Energy Minister, Matt Kean, and is launching itself at this goal by calling for bids to develop at least 3,000 megawatts of wind and solar power plus battery storage in the central west region centred on Dubbo.

This area will be the pilot for a renewable energy zone, the first of three the Berejiklian Coalition government wants to see created across the State. According to Kean, the Dubbo initiative will see about $4.4 billion spent on developments by the mid-Twenties, with construction starting in 2022.

The other two zones are intended to be in the State’s south-west and in New England, eventually attracting up to 17,700 MW of electricity capacity involving $23 billion in investment.

‘Serious challenge’

Bill Johnston, Western Australian Energy Minister, says the speed and scale of rooftop solar uptake in the State’s south-west “presents a serious challenge to the system” as well as opportunities to change the way electricity is produced, managed and consumed.

Johnston points to a warning from the Australian Energy Market Operator that, if no remedial action is taken, system reliability in the SWIS could be comprised as early as 2022.

A year in generation

Using the Open NEM website as a source, 12 months of power supply data for the period to late May 2020 demonstrates once again that the east coast market remains dependent in a major way on fossil fuels.

According to this data, leaving aside 11,645 gigawatts hours of estimated use of rooftop solar power, electricity sent to the NEM grid over the period totalled 192,248 GWh – and 153,593 GWh of this was provided by generation fuelled by coal or gas.

Supply breaks down to 102,854 GWh from black coal plants in New South Wales and Queensland, 33,583 GWh from brown coal generation in Victoria, 17,156 GWh from the NEM’s gas units, 18,075 GWh from wind farms, 14,587 GWh or hydro power and 5,697 GWh from solar farms.

Meanwhile data for 2019 in Australia as a whole was released by the federal government at the end of May.

Australian Energy Statistics reports that national electricity generation other than rooftop PVs was 252,662 GWh. Of this coal accounted for 149,495 GWh (brown coal 33,136 GWh), natural gas plants 54,357 GWh and diesel generation 5,782 GWh. On this basis, fossil-fuelled electricity provided 82.9 per cent of power despatched to grid systems or to isolated consumption such as mine sites.

The report also shows that estimated use of rooftop solar across Australia in calendar 2019 was 12,455 GWh, a sharp rise from 2018 and more than double what it was in 2015.

Generated renewables were again dominated by wind and hydro power, with the former delivering 19,524 GWh and the latter 14,429 GWh.

The statistics underline the strong growth of large-scale solar power in the last years of the decade – output rising from less than 600 GWh in 2016 to 5,495 GWh last year.

Biomass also contributed 3,575 GWh in 2019.

Grid-connected variable renewables provided 9.9 per cent of national generation last year.

A feature of the statistics is the large decline of brown coal generation following power station closures in South Australia and Victoria last decade. The sector’s contribution to the NEM has fallen from 50,547 GWh in 2015 to 33,136 GWh in 2019. In the same time frame black coal generation in Queensland has risen from 46,370 GWh in 2015 – peaking at 52,968 GWh in 2018 and falling back to 50,000 GWh last year.

Release of the statistics sparked federal Energy Minister Angus Taylor to declare Australia “a world leader in renewable energy.”

 

Last word

Having frittered away more than a decade on inept energy policymaking efforts, the depths of a pandemic may seem a peculiar time for Australia to be making a whole new lunge at an effective strategy, but things are what they are and many of the thought bubbles of the recent past are being refloated along with some new (or new-ish) thinking using the crisis as a prop to promote action.

Viewed from one small corner, it seems the most valuable thing that could be achieved would be to pare down what’s needed for the NEM to first principles, but perhaps there are too many horses (and zebras and the odd donkey) in this race for that to happen.

It is easier politically, it seems, for many to float with rhetoric about “net zero by 2050” or “clean new deal” or “meeting the Paris target” than to focus on laying down foundations on which investors could build the power supply system of the next 10, 20 and 30 years in the knowledge that populism will not kick them where it hurts.

It also seems both green activists and those of a more practical bent see these parlous times as possibly the best opportunity in years to influence the course of future policy.

Both, from what I have seen, are not especially impressed with the “roadmap” discussion paper the federal government published in May.

Personally I find it more of a broadbrush canvass of the technological landscape than an indicator from the Morrison government of its bent; politics being what it, that’s very likely deliberate.

Where there may be across-the-board agreement is that a major goal for energy policy now should be to pursue economic growth for the period beyond the pandemic – the radicals, of course, couple this with insisting that the goal is emissions abatement and they have no interest in technology neutrality.

It seems to me that there is no harm in Australia supporting in principle global efforts to pursue net zero emissions by mid-century but this need to take in to account the Asian dragons on the international roadmap. Shooting this country in its economic feet to present us as holier than them certainly doesn’t fit with my impression of the national interest.

One of the key messages that has to be taken on board here is that international capital availability is no longer anything like it was perceived to be even a year ago.

As I write this, the International Energy Agency is publishing a new report driving home the harsh truth of a worldwide decline in capital access across the energy board that is “staggering in both its scale and swiftness.” The 20 per cent fall in capex on offer that is now foreseen for 2020 represents the biggest fall in modern history, the agency points out. In the power sector, the fall is forecast to be 10 per cent and this, it adds, must have knock-on effects for the “transition” with the renewables sector taking a 13 per cent hit.

At home, the Energy Policy Institute has just posted on its website a submission it has sent the national commission tackling advice to government on a post-Covid recovery plan. EPIA makes the point that enabling technologies are not commercially available to allow the world to achieve net zero emissions by 2050 – and Australia should not lock itself in to a particular technology plan for which it does not have predictable costs.

EPIA suggests that renewable energy, hydrogen, fossil fuels and nuclear power should all be in the Australian mix. “None should be arbitrarily promoted or discarded.”

It winds up the submission with a point that should be writ large for policymakers and their advisers: “All facets of energy policy should be based on science, technology neutrality, industry best practice and cost-benefit analysis – never on ideology nor on politics alone.”

That is sound advice for a very unstable time.

Keith Orchison

30 May 2020