Coolibah Commentary

Issue 191, March 2021

It’s somewhat amazing that in the midst of a pandemic our politicians can still find the time to pursue routine argy-bargy about climate and energy policies, but that is what’s happening in the tag-end of Australia’s summer, suggesting this marathon political row will be revving up again by the end of next spring thanks to the November UN summit and local election politicking. Meanwhile one of the late summer’s biggest power talking points here and internationally has been the Texas snowstorm debacle involving a massive blackout and soaring prices for what electricity was available, calling in to question the broader issue of the resilience of grids in extreme weather, not least in a “transition.” On the home front, the financial viability of some coal-fired generation in the changing NEM has become a talking point again after a mild summer when falling wholesale prices foot-faulted the large gentailers. At the same time more support is emerging for the role of gas – and there are even tentative signs of more acceptance on the political front for use of nuclear power. Could we, at long last, be on the cusp of recognizing that a policy of diversity, not exclusion, is what is needed in the sector?

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Quotes

“Grids are complex and the problems they face are complex; they face problems that don’t have a single causal factor” – Grattan Institute’s Tony Wood in a newspaper comment on the Texas blackout.

“We need to revisit our outdated assumptions about resilient grid planning in Texas and places such as Australia” – US-based energy author Fereidoon Sioshansi.

“To prevent extreme weather from becoming a bigger problem, it’s critical Australia implements an enduring policy to reduce greenhouse gas emissions. The simplest way of doing this would be transitioning the existing renewable energy target in to an emissions intensity scheme” – Griffith University associate professors Tim Nelson and Joel Gilmore.

“Australia’s electricity market is unsustainable. Texas shows us why. In the event of a catastrophe, it could still send retailers broke” – Bruce Mountain, Victoria Energy Policy Centre.

“Events in Texas show why Australia’s record level of investment in intermittent renewables needs to be balanced with new dispatchable generation like gas, pumped hydro and, as we look to the future, hydrogen” – federal Energy Minister Angus Taylor.

“It is likely that a diverse mix of technologies will be required to support the NEM” – Infrastructure Australia in its 2021 priorities report.

Open to discussion

Federal Energy Minister Angus Taylor says the Coalition is “open to discussion” with the ALP on changing the moratorium on the use of nuclear energy in Australia.

In a radio interview, Taylor stressed that lifting the present ban on nuclear power “requires bipartisanship.” He added the snipe that Labor leader Anthony Albanese has “shown absolutely no interest” to date in a change.

The comments followed a revelation that two-thirds of Coalition backbench federal MPs, answering a newspaper canvass of their views, support lifting the ban – 48 out of 71 contacted. Of the rest, 22 were undecided or did not respond to the newspaper’s questions and one, a Queensland senator, was opposed to change.

There is speculation that the nuclear issue will be raised at the ALP national policy conference on 30 March.

Reacting to the current upswing in interest in the role of the technology, the Minerals Council of Australia has issued a statement declaring “it is time to bring nuclear in to the mix for Australia’s zero-emissions future.”

CEO Tania Constable is calling for all policy options, including small modular reactors, advanced coal generation with carbon capture, use and storage, gas and renewables, to be considered. Australian adoption of SMRs could power a wide range of options ranging from remote mining sites to large-scale industrial use, she says, including the provision of hydrogen.

The hydrogen issue has also been taken up by SMR Nuclear Technology in a new submission to the NSW Legislative Council’s standing committee on State development. The company asserts that SMRs offer the State an opportunity to produce hydrogen at competitive costs, pointing to a rising number of demonstration projects overseas using nuclear technologies to pursue the latest low-emissions pathway.

FFS call

The federal government has launched a national “future fuels strategy” discussion with a paper addressing low-emitting road transport technology and calling for comment.

Federal Energy Minister Angus Taylor says the FFS’s approach is rooted in the principle that “Australians should be able to choose the type of car they drive.”

In a joint statement with Deputy Prime Minister Michael McCormack, he says the government’s aim is to enable consumer choice, stimulate industry development and reduce transport-related carbon emissions.

The paper was immediately attacked by the ALP and the Greens for failing to boost the uptake of electric vehicle by aggressive government intervention, a concept that was part of Labor’s failed bid to win government at the 2019 national election.

The critics point to a annual EV market share locally of 0.7 per cent of a million cars bought compared with an average of 4.2 per cent globally.

Meanwhile the government’s latest quarterly report on Australia’s greenhouse gas emissions notes that, in the September quarter 2020, they were at their lowest level in 25 years.

Taylor says the outcome is due to long-term structural change in the electricity and farming sectors plus a decline in the transport sector produced by pandemic impacts as well as the impact of drought on agriculture.

He adds that in the last calendar year emissions in the NEM were “at a record low,” attributing this to $35 billion spent nationally since 2017 on renewable energy. He claims that planned $18 billion in government spending under its “technology investment roadmap” will promote a further $70 billion in low-emissions outlays by 2030.

Unviable?

Publication of modelling by Green Energy Markets and the Institute for Energy Economics & Financial Analysis has stirred the push by Australian environmental activists for the Morrison government to embrace a net-zero-by-2050 target ahead of the Glasgow UN conference in November.

The GEM and IEEFA paper asserts that the ongoing influx of large-scale solar and wind farm capacity in to the east coast electricity market, as well as greater use of rooftop solar power, will make five of the NEM’s coal-fired power stations “financially unviable” by 2025.

The publication forecasts that there could be 8,000 megawatts of utility-scale solar plant in the NEM by 2025 and 12,000 MW of wind power. It allows for 21,000 MW of coal plant at this point as well as 11,000 MW of gas and liquids and 4,000 MW of hydro power, pumped hydro, bio-energy and battery storage.

The modelling pair claim existing renewables capacity plus projects under development and those in planning stages could add 70,000 gigawatt hours of annual power production from these technologies in the market by mid-decade.

Their paper shows just over 20,200 GWh of large-scale solar supply and 45,000 GWh of wind power in 2025.

They say this would force a 28 per cent fall in NEM coal plant output at that point and they target Eraring, Mt Piper and Vales Point power stations in New South Wales, Yallourn in Victoria and Gladstone in Queensland for closure before their currently scheduled dates between 2029 and 2043.

The report says: “Electricity sector investors are recognizing that the plunging cost of solar, its rapid speed to deploy and its vast popularity with investors and households has led to irrevocable change in the shape of the electricity supply/demand curve and market that leaves inflexible and high fixed cost baseload coal plants ill-suited to the future grid.”

Data provided by analysts EnergyQuest shows that wind farms contributed 17,819 GWh to the NEM grid in calendar 2020 with solar farms providing 6,465 GWh. The estimated use of rooftop solar PV was 13,043 GWh.

Coal plant output in the period was 133,926 GWh (down from 130,401 GWh in calendar 2018).

Commenting on the “collapse of coal” media coverage of the GEM/IEEFA paper, consultant Steph Byrom of Gemma Energy Technology says that “timing and logistics will always get in the way of a good story.”

Byrom adds that “we can’t build enough synchronous capacity quickly (in the NEM) to replace the vast coal fleet.”

She calls, in a Linkedin commentary, for recognition that delivering a net zero NEM “cannot be achieved by using one or two technologies” and “requires all the tools in a low-emissions toolkit” as well as an appreciation of total system costs.

Step change

Energy Security Board chair Kerry Schott, whose committee is due to deliver a key report on NEM reform by mid-year, says that, under the market’s current format, the economics of coal-burning power generation is being put under “step change” pressure because of faster-than-expected variable renewable energy investment.

Speaking at the Quest Events Generation 2.0 virtual forum in February, Schott, whose “health of the NEM” report issued at the turn of the year warned the market’s design is no longer fit for purpose in the transition, said the situation is “making it very difficult” for companies running older coal-based plants to justify maintenance and ultimately to keep them running as long as was being forecast even two years ago.

“It’s a very difficult juggling act. It is not just the plants going because they are old, they are going because they are commercially unviable and can become so reasonably quickly,” she said.

Talking about some generators bidding in to the market at negative prices, Schott said the practice is “not helpful for anybody” and “probably not sustainable.”

White-out

The massive loss of energy supply in Texas as a result of a major American snowstorm has drawn Australian debate about local implications.

Bruce Mountain of the Victoria Energy Policy Centre argues that the Texan debacle “shows why Australia’s electricity market is unsustainable.”

Apart from the physical hardship imposed by the event, he says, the Texas market wholesale electricity price reached its maximum of $US9,000 per megawatt hour – 300 times its normal level – for almost four days.

The NEM, he comments, relies on the same market theory of allowing for the possibility of an enormous price spike to underpin investment in the system. “Australia’s market has the additional protection of a cap on cumulative prices but, in the event of a Texas-style catastrophe, it could still send retailers broke. The smallest retailers are most at risk.”

He says it is time locally for reconsideration of the NEM “article of faith” – that “prices are the right solution for everything.”

Meanwhile Griffith University associate professors Tim Nelson and Joel Gilmore, who are also Infigen executives, in a commentary on The Conversation, argue that Australian electricity systems need to be made more resilient to extreme weather.

They also declare that assertions the NEM and Texas need to introduce a capacity market – where generators get paid for the capacity they make available – are “misguided.”

“A capacity market in Australia is likely to be used to support existing, ageing, unreliable coal-fired plants because they are already in the electricity system,” they say. ”We need flexible options that respond much faster to high demand – flexibility that isn’t rewarded by a capacity market (which) would pay irrespective of whether production can be turned on quickly or not.”

A better option, Nelson and Gilmore opine, would be to create an “operating reserve” market in which customers are given incentives to reduce use at short notice,” a move that is currently being considered for introduction in the NEM.

A nod to gas

The federal Labor Party seems set to embrace a role for gas in the energy transition after years of flirting with the political value in joining activist opposition to the fuel under the “climate emergency” banner.

The draft national policy platform to be discussed at the ALP’s online conference for 400 delegates in late March accepts that gas is “critical to achieving net zero emissions by 2050 by acting as a firming fuel for renewables to ensure NEM reliability and price affordability.” This is a rejection of the “keep gas in the ground” movement within the party and more broadly in the activist community.

The shift in stance follows strong pressure on the party leadership from within the union movement, and especially the Australian Workers Union, towards the end of 2020 for a more supportive approach to gas supply. This push included a meeting between union officials and more than 30 Labor MPs in Canberra where they were told “it is not possible to move to 100 per cent renewables overnight,” according to media reports at the time.

The draft policy also endorses the intensive use of gas by the chemicals and fertilizer production industries.

The federal government has already made clear its intentions regarding gas as a NEM transition fuel while continuing to push for more action at State level to ensure an adequate supply of the fuel for manufacturers and other users.

However, it still faces opposition from Labor to its plan to legislate for a $1 billion “grid reliability fund” via the Clean Energy Finance Corporation to enable the “firming fuel” role for gas; the ALP asserts gas should not be underwritten by taxpayers.

Labor’s draft policy also include acceptance of coal seam gas projects “subject to independent approval processes to ensure legitimate community concerns are heard and addressed.”

This step comes as there are more warnings of gas supply shortages on the east coast by mid-decade.

The Australian Competition & Consumer Commission is pushing for “decisive action” to bring forward new supply projects over the next two years.

It says: “We are one year closer to a potential shortfall.” It adds that there could be as much as 30 petajoules too little supply in southern States “as early as 2024.”

CCS boost

The federal government is to spend $50 million on trying to accelerate carbon capture technologies.

Energy Minister Angus Taylor and Resources Minister Keith Pitt have announced the establishment of a Carbon Capture, Use and Storage Development Fund, saying the technology is one of five priority areas for attention under the government’s technology investment roadmap.

Taylor adds that Australia has the potential to be a world leader in geo-sequestration of carbon emissions. “We have the right geology and storage basins.”

The fund is part of the government’s $1.9 billion “new energy technologies package” in its 2020-21 budget.

The government also announced in February that it has appointed former chief scientist Alan Finkel as its special advisor on low emissions technology.

Pushing for more

Infrastructure Australia in a new report is pushing for renewable energy zones to be given a higher priority, declaring that the NEM requires “significant” extra grid-scale wind and solar power to replace thermal generation exiting the market.

The body also says the market needs “significant investment” in energy storage to enable dispatchable generation, citing the Australian Energy Market Operator’s call for between 6,000 and 19,000 megawatts of storage to be installed by 2040.

It says that, without this investment, “there is a risk of power outages and load shedding in the NEM.”

The report follows recent statements by the Energy Security Board that security of the transitioning east coast system remains its single most concerning issue for the NEM.

Net-zero & petroleum

The Australian Petroleum Production & Exploration Association says it supports the upstream oil and gas industry playing a role in helping the country to pursue net-zero carbon emissions by 2050 as part of a global effort.

In a new edition of its policy principles, APPEA says it backs “a cleaner energy future” while calling for government environmental policies to be “efficient, enduring and integrated with economic, social, technology and energy policies.”

The association adds that a national climate policy needs to enhance Australia’s global competitiveness overall and particularly for trade-exposed industries, including LNG exporters.

Diversity ‘indispensable’

In a paper issued at the start of March, the Energy Policy Institute of Australia declares that the net-zero emissions goal cannot be addressed by “a narrow policy response – nor by a series of narrow responses.”

EPIA says energy diversity is “more than ever indispensable.” It adds that diversity requires collaboration – “and collaboration requires orchestration.”

Missing out

St Vincent de Paul Society has drawn attention to one of the quirks of the national electricity debate: in environment where the size of power bills is highly politically charged, with governments and regulators driven by negative community views, some six million people in four States are still on more expensive contracts than they need to be.

The charity highlights failure to shop around by householders in Victoria, New South Wales, Queensland and South Australia after power bills started falling in mid-2020.

St Vincent de Paul says these households are paying up to $200 a year more than they would be on less expensive contracts, adding up to an extra $500 million annually.

Its policy and research manager, Gavin Dufty, comments that it is “frustrating” to see the situation, urging householders to “call your retailer and make sure you are on the best deal.”

Last word

Where are we? How did we get here? More importantly, where are we going?

These may seem flippant questions, but pose them to 100 people interested in, or players in, the Australian energy scene and you will be lucky if you get only 50 answers.

And then there are the politicians……….

I remember years and years ago seeing a plaque outside Union Station, Los Angeles, reading “Vision to see/Faith to believe/Courage to do.”

Leaving aside the middle bit, it seems to me that, for our energy needs, we desperately need our policymakers to have a vision grounded in reality, not sentiment, of what our situation requires and the courage to rise above the political swamp “It is likely that a diverse mix of technologies will be required to support the NEM” – Infrastructure Australia in its 2021 priorities report to do see things through to a genuinely good outcome.

In this issue of the newsletter, I record a new Energy Policy Institute paper that presses the need for diversity in energy technology to manage the NEM “transition.”

In it, EPIA executive director Robert Pritchard makes the point that the transformation is more difficult than meets the eye – through the lens of the mainstream and social media, I add – and he poses two questions: what have we learned from short-term piecemeal market reform solutions and what have we learned from the push to invest in weather-dependent renewables as a substitute for fossil fuels in the market’s generation?

Short answer: nowhere near enough to provide a genuine vision for the transition path.

And, as virtually every issue of this newsletter for the 15 years I have published it demonstrates, our policymakers have never done enough to support the courage needed to pursue a truly workable, durable pathway – as witness the performances over our gas needs and the unnecessary ongoing ban on nuclear power.

That the melding of climate change and energy supply policy is a “wicked problem” – that is, highly complex and hard to resolve – is undeniable for a country like Australia but this isn’t an excuse for our politicians taking a quarter century dancing around it.

The lesson out of Texas this past month is that, sooner or later, failings in electricity (and more generally energy) planning will come home to bite jurisdictions.

Texans, having had the fright of their lives, presumably will now set out to deal with their energy management flaws.

We, having observed a relatively minor hiccup in the form of the 2016 South Australian blackout, are apparently still not sufficiently incentivized to pursue the NEM’s overall needs and contribution to lower carbon emissions with realistic vision and courage even though we seem to have lots more information about system impacts than the frozen Americans.

Keith Orchison
3 March 2021

 

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