Coolibah Commentary

Issue 192, April 2021

A high point of the past month has been the return of the Australian Domestic Gas Outlook conference, in hiatus since 2019 because of the pandemic, re-enabling a conversation (often heated) between gas suppliers, users, regulators and analysts – a low point is the latest forum’s evidence that stakeholders are still too often talking past each other as the southern States shuffle towards shortfall territory. Or, in the case of Victoria, possibly guarantee it by putting the kibosh on an LNG importing terminal in Melbourne’s Western Port Bay in the face of strong local opposition on environmental grounds. The project rejection, says the Australian Industry Group, raises a critical question on energy developments for governments across the country. Meanwhile the federal government has launched yet another energy inquiry – this one by a House of Representatives committee in to the future need for power dispatchability for the east coast (among a range of issues). How many energy reviews have we now had since 2006? And how much real progress have they delivered? As the falling scaffold worker said in Australia’s most famous cartoon from almost 80 years ago, “For Gorsake, stop laughing; this is serious.”

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Quotes

“The main risk for Australia’s domestic gas industry isn’t that it can’t meet demand, it’s that demand will shrink enough that the industry doesn’t need to develop new resources” – Reuters’ columnist Clyde Russell.

“There is a risk of a shortfall for southern States as early as 2024 and for the east coast market as a whole in 2026. At the ACCC, we can see no end to the increasingly complex and difficult environment we are in unless we all work together” – commission chairman Rod Sims, addressing ADGO.

“Big users need to be realistic about demands for ever-cheaper gas supplies” – energy analyst Mark Samter.

“AEMO’s gas statement of opportunities confirms supply gaps in eastern and south-eastern States are imminent unless additional resources, or alternative infrastructure are developed” – AGL Energy in comments at the end of March after the Victorian government rejected its Crib Point LNG terminal proposal.

“Fears of intervention in Australia’s energy industry could spark a freeze of investment” – Perry Williams, a business writer at The Australian newspaper, reporting from ADGO.

“Make no mistake, this is a high-risk game for Australia” – Senex Energy CEO Ian Davies, who is also vice-chairman of the Australian Petroleum Production & Exploration Association, addressing ADGO. “More and more intervention in gas markets will result in less investment in gas supply and higher prices.”

“The botched transition to cleaner power is a political failure not a market failure” – the Australian Financial Review in a mid-March editorial.

“The reality is the transition to new technologies can’t happen in a policy vacuum” – former Australian chief scientist Alan Finkel in Quarterly Essay.

On the brink

Reuter’s resources columnist Clyde Russell, who chaired the opening day of the Australian Domestic Gas Outlook conference in Sydney, saw a “consistent message from speaker after speaker.”

In a widely-distributed media column after the event, Russell said the message is “there isn’t enough natural gas to meet domestic demand, what gas there is to be found and developed is likely to be considerably more expensive than the discoveries of the past – and what new gas can be brought to market can’t be delivered fast enough.”

Russell added: “The solutions proposed by industry and the federal government all seem possible but probably insufficient.”

Russell warned that “the elephant in the ADGO conference room” was speakers’ assumption that the gas demand forecast by the Australian Energy Market Operator out to 2040 – for annual total demand, including LNG requirements, to continue around 2,000 petajoules – “was somehow set in stone.”

He argued that the 27 per cent of demand for the domestic market is “under serious threat,” with industrial users switching to buying from overseas if local prices impact their competitiveness too far.

Rejected

Fierce local opposition on environmental grounds has seen Victoria’s Labor government reject what may have been the State’s best way to avoid a gas supply crisis later this decade.

AGL Energy’s proposal for a $250 million floating LNG receiving terminal at Crib Point was knocked back just before Easter, with the federal government warning this left the State vulnerable to a gas shortage.

The decision also came as the Australian Energy Market Operator, in its annual east coast outlook report, in effect declared that a similar LNG terminal planned for Port Kembla stood between New South Wales and Victoria and supply problems.

Australian Industry Group policy adviser Tennant Reed comments that there is “a real risk of supply falling short of demand” and adds that “significant uncertainty” about demand is making it hard for proponents of the LNG terminals and other petroleum developers to pursue financial planning.

Investors are also haunted by continuing concern that the federal government may impose controls on domestic gas prices as manufacturers continue to press for resolution of the years’ long issue.

Ready for big things?

Australian Industry Group CEO Innes Willox has used the rejection of the Crib Point LNG import terminal to challenge the mindset of the Victorian and other governments – and of communities where big development is mooted.

“Governments and stakeholders,” says Willox, “need to grapple with the scale of projects that will be needed for the transition to net-zero emissions.

“We are going to need new transmission lines, new renewable energy zones, new port facilities for hydrogen or other energy-intensive exports and new industrial sites for clean materials.

“The challenge for our planning systems is to resolve legitimate concerns while meeting strategic needs.”

Willox adds: “The scale of development needed across Victoria and the rest of Australia is bound to upset someone – and it is much easier to stop projects than to make them happen.”

The challenge for Victoria’s and other governments, he says, is “are they ready to do the big things?”

In a separate statement, relating to the decision involving the Victorian and federal governments to rescue the Portland aluminium smelter from closure because of electricity supply issues, Willox pointed out earlier in March that the challenges facing the operation are not unique.

“Aluminium is important to our economy, but so are steel, glass, bricks and many other energy-intensive materials and products.”

Power prices today are cheap as renewables boom, he said, but “could easily sawtooth from slump to surge” while gas prices are rebounding from 2020’s low levels and alternatives like hydrogen will need much more deployment to become affordable.

“Governments, regulators and industry need to redouble efforts to build a new energy advantage for a net-zero emissions world.”

April fuel

Possibly the biggest energy story of the new month will be whether or not the Morrison government makes good on its threat/promise to pursue new gas-fired generation in New South Wales itself if investors have not announced they will do so by the end of April.

Against the impending retirement of Liddell power station, the government says it intends to use Snowy Hydro to build a 1,000 megawatt gas power station at Kurri Kurri if the private sector doesn’t take the plunge. Squadron Energy and Energy Australia are each investigating gas developments at Port Kembla and Tallawarra respectively.

In March, Energy Minister Angus Taylor, speaking about the Liddell saga and the recent EA announcement that it will close its Yallourn plan in Victoria this decade, told Sky News: “We’re not going to stand by idly and watch a loss of reliability and affordability.”

Visiting the Kurri Kurri aluminium smelter, he added: “We’re ready to go if we have to.”

Taylor says: “We need an answer by April because otherwise we can’t meet the April 2023 deadline – that’s the critical deadline,” referring to the government’s determination to have sufficient firm generation available when Liddell is closed.

The Kurri Kurri decision, if one is forthcoming this month, has been under attack from green activists and market commentators alike since it was first mooted last year and the assault can be expected to intensify.

ITK analyst David Leitch, for example, argues that “attempts to force new gas generation in to NSW are a sign of just how badly the federal government is running energy policy.”

The Greens, meanwhile, have introduced in to the House of Representatives, supported by independent MP Zali Steggall, an attempt to legislate to prevent Snowy Hydro “developing or constructing new fossil-based electricity capacity.”

In other developments in the saga, Squadron Energy, which is considering a $1 billion power station adjacent to the LNG import terminal it is pursuing at Point Kembla, claims to be ”very close” to gaining government underwriting support for the project.

For its part, Energy Australia says it is “convinced that NSW requires fast-start gas to balance the energy system” in the State when Liddell is shut.

New review

The House of Representatives standing committee on the environment and energy has been asked by Angus Taylor to undertake another inquiry – this time in to dispatchable generation and storage capacity.

The committee, chaired by Liberal National Party MP Ted O’Brien, is required to look at the future dispatchability requirements of the NEM and also at export opportunities for zero-emissions power.

O’Brien says: “We’re at a turning point in how the market operates.”

The committee’s deputy chair, Labor’s Josh Wilson, says the opposition wants the review focus on “Australia’s potential as a renewable energy superpower.”

March power

March was one of the wettest months in NSW’s recent history, with flood damage bedeviling residents well in to April. So how did the State’s power generation fare?

According to the Open NEM widget, the grid received 4,880 gigawatt hours from in-State generation (not including estimated use of rooftop solar) from the last days of February when the rains started until the last weekend of March when sunny weather returned. In addition, 479 GWh was imported.

The breakdown of in-State generation was 3,927 GWh (80.4 per cent) from black coal plants, 463 GWh from wind farms, 264 GWh from solar farms, 195 GWh from hydro power and 35 GWh from gas. Rooftop solar use was estimated at 361 GWh.

Meanwhile, the past month brought a small spurt of handwaving from the Victorian government and green energy supporters over the State (to quote one newspaper chain) “powering its electricity grid with 50 per cent renewable energy for the first time.”

Described by the State Labor government as a “historic breakthrough showing Victoria is well on the way to replacing brown generators,” the cause of elation was a claim that on 12 occasions between November and January daily supply was more than 50 per cent renewable – a view that includes estimated use of rooftop solar power.

The Open NEM tracker of east coast supply shows that for the 12 months from late March 2020 until almost the end of March 2021 power sent to the Victorian grid from in-State generation (not including rooftop solar) was just over 46,000 gigawatt hours – of which almost 34,500 GWh was from brown coal plants. The balance was made up of just over 6,800 GWh of wind power, some 1,000 GWh of large-scale solar power, almost 2,700 GWh from hydro sources and a little over 1,000 GWh from gas-fuelled plant.

In this period rooftop solar use was estimated at 2,850 GWh and the State imported 1,000 GWh.

The brown coal share of in-State generation to the grid was 75 per cent.

Clean energy boom

The latest report from the Clean Energy Regulator shows that, Australia-wide, 2020 saw development of 4,000 megawatts of large-scale variable power capacity – 2,300 MW wind and 1,700 MW solar.

The year also saw 3,000 MW of rooftop solar capacity installed across the country. “Sustained low technology costs together with increased work-from-home arrangements and a shift in household spending to home improvements during Covid-19 contributed to this growth,” the regulator says.

The CER adds that it expects between 2,000 and 2,500 MW of large-scale renewable capacity to be delivered in 2021 along with up to 4,000 MW of household and commercial rooftop solar capacity. The regulator believes more of the large-scale development this year will be solar projects.

CER comments: “Analysts and market commentators have been citing a collapse in renewable investment for several years. This has not eventuated.”

It estimates that all capital investment in the sector in 2020 totalled $9.7 billion, up from $8.9 billion in 2019. And, it adds, investment over five years has totalled $33.8 billion – including $10.5 billion in rooftop PV systems. Most of the money has been spent on the east coast: Victoria $9.7 billion, NSW $8.7 billion and Queensland $8 billion.

In another report, the Clean Energy Council calculates that, Australia-wide in 2020, wind farms generated 22,605 GWh in 2020 versus 14,638 GWh for hydro power, 6,835 GWh from large-scale solar systems and 3,164 GWh from plants using biomass. The association says fossil-fuelled generation provided 164,469 GWh across the country. It also records an estimated use of 14,807 GWh of rooftop solar PV.

Solar jam

In an effort to address the market “traffic jam” caused by the huge east coast influx of rooftop solar power, the Australian Energy Market Commission is proposing to impose a relatively small charge on households and commercial installations exporting excess generation to the grid.

The AEMC suggests a charge of two cents per kilowatt hour for power exports in the middle of the day, with its modelling indicating this would cost an average of about $100 a year for a typical five kilowatt system.

The rule change is now open to stakeholder comment ahead of a final determination in June and will need to be approved by State governments.

There was an immediate outcry against a “solar tax” from green activists, briefly providing social and mainstream media with a new ranting bone, while Energy Networks Australia welcomed the proposal as helping its members to support the rising number of customers wanting to export from their rooftop system.

The commission is seeking to sell the rule change as helping to smooth the path to greater use of renewables. CEO Ben Barr has told media: “Setting incentives to use the network system better means supply and demand can be smoothed out over the course of the day. (The charge) will help address the large amounts of solar being exported in the middle of the day when it benefits the system least.”

Barr adds that continuing to allow the present free-for-all will see recourse to building more network infrastructure. “The sun may be free but the poles and wires are not, so we think the key is to avoid costly over-investment that will end up on all energy bills.”

Committed

The federal government declares that it is “absolutely committed” to supporting Tasmania’s $3.5 billion Marinus high voltage transmission link to the mainland.

On a visit to Burnie, Energy Minister Angus Taylor said Marinus is “an important project because it’s necessary to get extra firming power in to the grid, particularly in Victoria.”

The federal government provided $94 million towards planning of the link late last year, adding to $56 million it contributed two years ago.

‘Nuclear roadmap’

South Australia’s Chamber of Mines & Energy has called for nuclear energy to be added to the State’s future electricity resources in addition to renewables, gas and hydrogen.

SACOME says there should be a “nuclear energy roadmap” developed and now is the time for community discussion of the issue to enable use of small modular reactors from 2028 onwards.

Meanwhile the ALP blocked a discussion at its national conference at the end of March – proposed by two trade unions – on a change to the Australia-wide legislated ban on nuclear power.

This occurred as the Menzies Research Institute published polling research it had commissioned on the issue, saying a survey of 500 people showed “about half” of left-of-centre voters canvassed are “open to the introduction of nuclear energy.” Total support for the technology in the poll was 55 per cent.

‘Fundamentally different’

The Grattan Institute’s energy policy director, Tony Wood, says governments need to understand that Australia’s energy system is “going to be fundamentally different in future” and they need to co-operate to remedy the current piecemeal approach.

In a newspaper interview, Wood declares that “unfortunately, the policy situation is likely to get worse before it gets better.” He opines that federal and State governments are “both doing the wrong thing when it comes to energy policy” – but the reason the States are going it alone is because “no sensible policy is coming from the Feds.”

Investment funding is available, he adds, but policy uncertainty is driving investors away from big infrastructure projects.

Meanwhile federal Energy & Emissions Reduction Minister Angus Taylor, in a late-March newspaper op-ed, has acknowledged that, in the longer term, small modular nuclear reactors “may offer a strong grid baseload solution – but it is early days yet.”

Taylor accuses critics arguing there is not enough grid investment or carbon emissions reduction in electricity supply of being “out of touch with reality.”

He says there is “an urgent need for more investment in dispatchable capacity and to avoid premature and unanticipated closure of thermal generators.”

Taylor claims his government is “strengthening incentives for the private sector to invest in dispatchable generation.”

He argues that “balance will remain a crucial part of a strong energy system that provides affordability and reliability as emissions comes down” and declares that “fanatics who think one option is the entire solution have usually been wrong in the past and will be wrong in the future.”

‘Positive’

Investors are “positive” about the outlook for Australian renewable energy development, according to a survey undertaken for lawyers MinterEllison.

The firm says nearly two-thirds of 100 local and overseas respondents to the poll claim they will increase project spending in the next 12-24 months while another 20 per cent indicate their current level of investment will remain unchanged.

Half of the respondents also say that the Covid pandemic is having “no impact” on their investment strategy.

MinterEllison say that renewable energy targets are a key factor in this investment approach to Australia – which “ranks high among the countries offering the most supportive financing environment for renewables,” according to partner Joel Reid, who adds that 87 per cent of survey respondents believe Australia will have the most supportive environment in a year’s time. “Confidence is strong but continues to face challenges over grid access,” he says.

The top challenges for investors thrown up by the survey, according to the firm, are policy uncertainty, clarity around incentives and regulatory complexity.

Meanwhile, the Clean Energy Council, publishing its annual report, asserts that “it is increasingly clear the (east coast) market is no longer fit for purpose.” The association argues that rules and regulations designed to distribute electricity from large, centralized generation are now “wholly unsuitable” for a system that involves increasing levels of large-scale wind and solar plants as well as widespread use of rooftop solar power.

Last word

In the Christian tradition, Easter is the celebration of a new beginning – but, as sure as Hell, this isn’t true for the energy debate in Australia in this 2021 holiday season.

Like Sisyphus and his rock in another tradition, the local energy sector is condemned to trudge up and down the same ground because of the inability of politicians and other stakeholders to bend their minds and wills to the real tasks we face and have faced for two decades.

It might not seems this way amid a deluge of boosterism about renewable energy zones and so forth, but in terms of the hard issues confronting supply, both electricity and gas, it’s hard to see real progress.

Part of my Easter 2021 has been taken up with reading Alan Finkel’s latest energy commentary, published in Quarterly Essay under the title “Getting to Zero: Australia’s energy transition.”

I wish I could greet it as a new light on the path, but I can’t. Rather, it is a regurgitation of much he has said and written over his recently-ended spell as national chief scientist, very well written, making some good points but, overall, rather too much like the traditional utterances of church leaders at times like this.

I particularly jibbed at his wind-up line: “My personal vision for a future, net-zero-emissions Australian society is one in which technology is rapidly advancing to the point of our being able to have our cake and eat it too.”

His advice: “Be ambitious; be patient.”

Deep breath.

The facts of the current Australian energy scene, really, are this: the clean, green gambol on which we are constantly urged to embark is a slippery slope offering multiple opportunities for crash landings. The road to economic hell is paved with good intentions and far too many of our travellers on its energy route veer round or skip over inconvenient hurdles. Our collection of governments have been mostly doing this for a decade and more.

The path is made the more treacherous when political leaders are too craven to wrestle with technology options that are undoubtedly hard sells but need to be part of the supply jigsaw in 2040 or earlier.

Witness the ongoing unwillingness of both the Coalition and the Labor Party – because (no matter what they say) the politics is difficult for their leaders – to take up the challenge of starting now to pursue the opportunities of new nuclear technology that will become available, on present indications, in the second half of this decade.

Finkel, in his essay, actually makes an important point pretty well before he skips off down the green brick road: “The (transition) plan must be ambitious but not naïve, must start by acknowledging how difficult decarbonization will be, and must keep costs for the consumer as low as possible and ensure service remains reliable.”

Despite this, while dismissing nuclear as a “non-starter” in two paragraphs of a 97-page essay, he skips over in a single sentence the genuinely interesting prospects for small modular nuclear reactors in a country like this, acknowledging “there is a chance” they could be useful – but “the first approved SMR will not be built in the US until the end of this decade, which would push any conceivable adoption in Australia in to the next decade.”

No recognition here of the International Energy Agency repeatedly declaring that SMRs are “a very important option” in pursuing the transition to cleaner energy and of a size that can more easily attract investment.

One of the leading energy minds in the US is Arun Majumbar of Stanford University’s Precourt Institute for Energy – and a member of Joe Biden’s administration transition team. His view is: “We should look at all options; there is no silver bullet. SMRs are the way to move on nuclear energy; I think we (the US) should move forward very aggressively on this.”

Put simply, Australia needs to be in the room where the SMR revolution is happening – and to do so this country needs to reconfigure its stance on nuclear energy. Finkel could have said this – or at least spent time on discussing the merits of the position.

Interestingly, although out of sight to Australians because of no local media interest, there is vigorous debate about nuclear power, going on in Scandinavia.

In Finland, where the Greens are in coalition government, the party leader is pushing consideration of SMRs on the basis “the economy should make use of all sustainable solutions” – while in Sweden, where the Greens are also in (minority) coalition government, the party is still running the big N (for No) argument against nuclear (in a country that relies on 40 per cent each from nuclear and hydro plants for its electricity).

A Gothenburg University opinion poll finds that public support in Sweden for more investment is rising amid the political debate.

Keith Orchison

6 April 2021

 

 

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