Coolibah Commentary

Issue 183, July 2020

Half a year ago the state of play in the NEM, as portrayed in the public arena, could be described as “frenetic,” but not now. The Covid-19 crisis has seen to that. While June skittered its way through the maze of an economy embroiled in a global health crisis, the debate about Australian (mainly east coast) energy issues sputtered along in the background, frequently featuring the manufacturing sector’s ongoing push for cheaper gas but also the ever-busy efforts of promoters of renewables to demand large amounts of support for their favored technologies. More of the same in July seems likely unless the depths of winter put too much pressure on either electricity or gas supply (or both). The federal government seems content at present to let its technology and emissions reviews continue their relatively low-key paths, relying for headlines in June on approval of the “wholesale demand response reform” (coming in to effect in October next year) that will see large users paid to reduce consumption when the NEM grid is under stress. One of the more interesting interventions came towards the end of June with Chief Scientist Alan Finkel, in his capacity as chair of a panel advising the federal government on the low emissions technology statement, chiding policymakers collectively for doing much too little over the past half-decade to promote energy productivity. Another was from the federal opposition leader, promoting the opportunity for (qualified) collaboration with the Morrison government on national energy policy. A political ploy or an indication that the long-toxic debate might shift towards rationality?

Quotes

“For a national consensus, we need a long-term vision. An uncontested target could become a new starting point to working towards effective policy” – Australian Energy Council CEO Sarah McNamara.

“What we are really wanting to support is an orderly transition to a low-carbon economy” – Debby Blakey, CEO, health industry super fund HESTA, which has a $52 billion investment portfolio.

“This isn’t about getting rid of all disagreement between the two parties” – federal ALP leader Anthony Albanese offering Prime Minister Scott Morrison an opportunity to pursue a bipartisan energy policy.

“It’s hard to know how serious Labor is. Our focus has always been on technology not taxes. Labor’s track record has been for higher taxes to reduce emissions” – Treasurer Josh Frydenberg reacting to Albanese’s offer.

“We need a balance of different fuel sources and technologies; we need a lot of horses in this race” – federal Energy Minister Angus Taylor.

“We recommend deep and ongoing government and private sector investment to support further R&D, production, storage and network integration of all low-cost and low-emissions energy sources” – Energy Forum of the Australian Academy of Technology & Engineering in a submission to the technology roadmap inquiry.

‘Not urgent’

Countering calls for large, immediate action to drive down carbon emissions, the Grattan Institute declares that “major changes in energy policy are not urgent over the next 12 months.”

In a 122-page book published in late June, the think tank says the priority for energy policy in the pandemic recovery phase should be to ignore calls for stimulus spending for infrastructure that is inconsistent with a low-emissions future.

One project that might provide effective stimulus spending in the short term, it argues, could be a mandatory roll-out of smart electricity meters and the parallel introduction of supporting tariff reform. “Smart meters deliver costs savings,” the institute says, “and more importantly facilitate the unwinding of unfair cross-subsidies (while) unlocking major benefits that flow from household batteries and electric vehicle charging.”

The “recovery book” says governments should embrace three energy sector principles: (1) accelerate market reforms or bypass barriers to investment where delivery of major economic value is being delayed; (2) establish criteria to support projects with clear economic value that could be brought forward in the first half of the ‘Twenties; and (3) not support or subsidize the introduction of more supply in markets where demand is already flat or falling.

This, the institute says, includes not introducing or extending subsidies for deploying solar panels, batteries and large-scale renewable energy projects or storage. On the other hand, Grattan supports the extension of underwriting for priority transmission upgrades and renewable energy zones. “This would be low-risk investment.”

Covid-19 impact

Origin Energy says the fall in power demand created by pandemic lockdown peaked at 10 per cent in the east coast market and recovered to seven per cent in June.

Speaking at a virtual conference, Origin executive Greg Jarvis said electricity requirements of large NEM commercial and industrial users have dropped between 10 and 15 per cent and have fallen 15 to 20 per cent for small and medium businesses. These cuts have been ameliorated in part by “robust” residential demand created by Australians working from home.

Manufacturing accounts for 22 per cent of normal NEM demand and commercial services 28 per cent.

Gaining momentum

A new research report by US-based consultants Wood Mackenzie supports claims by local renewables advocates that investment in energy storage is gaining momentum in Australia.

The report forecasts that cumulative investment in storage in Australia will reach $US6 billion ($A5.34 billion) by 2025 despite the uncertainties caused by the pandemic, the resulting economic downturn and local grid connection issues for large projects.

WoodMac analyst Le Xu expects cumulative storage capacity here to reach 4.2 gigawatt hours by 2025 on the back of a 27 per cent decline in costs. “By 2025,” she claims, “the levelized cost of electricity of both solar-plus-storage and solar-and-wind-plus-storage will be cheaper than gas plants.”

Stressful

The Australian Energy Market Operator says its need to intervene to relieve stress in the NEM grid soared 10-fold in the 2019-20 summer (defined as 1 November to 15 March) compared with the previous hot season and $38 million needed to be spent to buy reserve power on eight occasions when “system critical” problems posed a threat to supply.

AEMO’s latest annual summer review reports that physical infrastructure was “increasingly challenged” by high heat and bushfires, especially affecting temperature tolerances for coal-fired generators. It declares the avoidance of major blackouts was a “key achievement” of the season, not least in dealing with bushfire threats to transmission lines. There were 95 unplanned transmission outages during the summer, a three-fold increase over 2018-19.

The operator says that it needed to issue 178 directions to deal with actual or potential supply or system security problems during the summer.

AEMO adds: “System security was maintained through having sufficient reserves available through the summer and a great deal of hard work across the industry to manage through a number of very complex and challenging climate-related events.”

Last summer set a record for the largest underlying demand capacity – 38,055 megawatts on 31 January.

The report says solar farms in the NEM were “materially affected” by smoke and dust in December and January, “causing challenges in forecasting generation,” and there were similar impacts on rooftop PV systems.

For wind farms, “extreme temperature turbine cut-out” was “experienced at a large scale” across South Australia and Victoria a number of times when temperatures exceeded 40 degrees.

NEM generation

In the 30 days from the end of May to the closing week of June, grid-connected NEM generation totalled 16,469 gigawatt hours.

This did not include 677 GWh of estimated use of rooftop solar power.

Generation sources contributing to grid-connected supply included 8,418 GWh of black coal plant, 3,151 GWh of brown coal, 1,521 GWh of gas plant, 1,538 GWh wind power, 1,470 GWh hydro power and 354 GWh from large-scale solar plants.

The fossil-fuelled share of supply totalled 79.4 per cent with variable renewable energy contributing 11.4 per cent.

Unsustainable?

The eye-watering cost of the Covid-19 recovery plan for the global energy sector outlined by the International Energy Agency in late June – requiring spending $US1 trillion annually for three years – is starting to raise questions overseas about the proposal’s sustainability but so far not in Australia.

The plan envisages $US330 billion a year being spent on worldwide electricity developments and even more ($US440 billion) on boosting energy productivity.

For electricity supply, the IEA is calling for a focus on bolstering power security, enhancing reliability, efficiency and flexibility and modernizing transmission systems, all issues on the Australian policy agenda that have been debated for the past several years.

The IEA plan was barely published when it came under criticism from left and right – from the international renewables movement for being “too limited” because it focuses on recovery from the impacts of the Covid-19 virus rather than pursuit of the “Paris target” and from conservative economists for failing to encompass the hidden costs of weather-dependent generation and for glossing over the fact that a large part of the electricity outlays will be in Asia, including ongoing robust development of coal-burning generation.

Pursue productivity

Chief Scientist Alan Finkel, who is chairing a federal government advisory panel on the forthcoming low emissions technology statement, is urging a much stronger focus by federation policymakers on energy efficiency and productivity.

Finkel told a seminar in June that, despite a national energy productivity plan agreed between federal and State ministers in 2015, the issue is not “anywhere close to being nailed.”

Reacting to Finkel’s comments, the Australian National University’s Hugh Saddler adds that the 2015 national plan has “gone nowhere.” He says it set a goal of a 40 per cent improvement in Australian energy productivity by 2030 but in the three years to 2017-18 the actual outcome had been “a mere 1.1 per cent” for final usage even though primary productivity rose 3.5 per cent, mostly due to increases in wind and solar generation.

Governments, Saddler declares, “have shown very little interest in the issue.” He points out that the 2015 plan made no reference to similar agreements in 2004 and 2009 to accelerate energy efficiency with regulatory and financial incentives.

Luke Menzel, CEO of the Energy Efficiency Council, says the improvement in energy productivity highlighted by Saddler is “embarrassing.” He argues that a major drive to improve efficiency could create 120,000 job years of employment while reducing business costs and costs-of-living for householders. “It’s a key stimulus measure because projects can be rolled out rapidly that deliver a long-term productivity dividend and are highly job intensive.”

‘Vision to reality’

A $16.2 million study is about to get under way to establish the technical and commercial viability of Australia’s first planned renewable energy zone.

The Australian Renewable Energy Agency will put up $5 million of the cost of a feasibility study by TransGrid for the REZ in the central west of New South Wales near Dubbo. The work will investigate all aspects of delivering a REZ and is intended to provide a template for a NEM-wide approach.

NSW Energy Minister Matt Kean, whose government is contributing $9 million to the study and a further $31.2 million to support the zone’s development, says the steps will enable the central west region concept to be taken “from vision to reality.”

The government’s goal is to see 3,000 megawatts of renewable generation developed in the area by the middle of the decade. It has announced that 113 businesses have registered interest in pursuing developments in the region, involving 27,000 MW of wind, solar and battery storage capacity and $38 billion in outlays – nine times what is expected to be built in the central west.

The government also intends to pursue renewables zones in the New England and the south-west regions near Hay.

Kean asserts the State government is “grabbing the opportunity” to not only deliver “cheap, clean energy” but to also establish a NSW advantage in low-cost electricity. “It means we can potentially re-industrialize our State. But we have to move quickly.”

Deputy Premier John Barilaro declares the initial industry response “phenomenal.”

Grid stability

Energy Networks Australia CEO Andrew Dillon says power supply security is no longer about producing enough electricity for consumers. “With the surge of solar, we are now facing the challenge of having too much electricity for the system to cope.”

He was commenting on the South Australian government committing $10 million to help fund a voltage management system for networks that will enable disconnection of solar power from the State grid to ward off system instability and the threat of blackouts.

SA Energy Minister Dan van Holst Pellekaan said the State system is now having to cope “with an enormous amount of rooftop solar going in to the grid in the middle of the day.” Thirty-five per cent of SA homes now have rooftop PV systems installed.

An even larger focus for the State is pursuing an 800 MW high voltage interconnector with New South Wales. Van Holst Pellekaan says this is “critical” to long-term security of the SA electricity system.

The Australian Energy Market Operator says it has begun analysis of the effects of the rapid take-up of solar PV in the States, anticipating that by the mid-2020s there will be times when the combination of rooftop systems and wind and solar farms could provide up to 75 per cent of the cheapest available electricity in regions.

Net zero

The debate about the federal government’s attitude to the “net zero by 2050” approach to emissions management has been re-invigorated by opposition leader Anthony Albanese making an overture about an armistice in the long-running “climate wars.” The Morrison government’s initial response was less than encouraging. At the same time it is becoming clear that the business community is not united in embracing the goal.

The latest ALP move saw the Australian Energy Council, representing 24 electricity and gas supply businesses, declaring that the first bipartisan step should be setting an economy-wide net emissions target, saying “Australian want action on climate change as well as affordable, reliable energy.”

However, the AEC chief executive, Sarah McNamara, adds: “The net zero, economy-wide target does not imply that electricity emissions must necessarily fall to zero by 2050; depending on technological developments, it may prove cost-effective to have a small level of emissions offset by carbon sinks elsewhere.”

Meanwhile Delta Electricity CEO Greg Everett (who is deputy chairman of the Energy Council) has told the media that his company does not endorse the target and there is “no understanding of how the electricity sector could reach it.”

Delta, says Everett, believes the focus should be on the federal government’s existing 2030 emissions reduction target along with sustaining system security and the cost of supply for consumers.

Everett added that the AEC “is a broad church” and there are “significant reservations” in it about embracing a 2050 target without a clear plan to achieve this goal.

How far Albanese’s offer has support in his own party ranks is also open to some question.

The Canberra Times in an editorial quoted an unnamed Labor federal MP as saying “We’ve taken ourselves hostage and now we are sending the Prime Minister a surrender note.” The paper added that, while Albanese has reaffirmed the ALP’s commitment to a net zero carbon emissions target for 2050, the new intervention does not re-commit the party to Bill Shorten’s promise of a 45 per cent abatement target at last year’s federal election.

Earlier in June the Minerals Council of Australia endorsed a national goal of pursuing net zero emissions “as fast as possible.” MCA chief executive Tania Constable said it is possible for the coal industry to achieve near-zero or net zero emissions by using carbon offsets and carbon capture and storage technology.

‘Shopping list’

Jim Chalmers, Labor’s Treasury spokesman, says the Coalition federal government has produced a “shopping list of known technologies” in its roadmap “but not a framework for cheaper and cleaner energy.”

A shopping list, he declares, “won’t be enough to make Australia a clean energy super power or build new sources of (economic) growth.”

Chalmers says “we must do better to get the Parliament, employers and employees on to the same page to put in place a settled framework for cheaper and cleaner energy.”

Labor, he asserts, is willing to “meet and agree across party lines” with the Morrison government on an approach “to modernize our energy system and build confidence in the investor community.”

‘Never nuclear’

Federal Labor’s approach to new thinking about Australian energy policy will not include nuclear. Anthony Albanese claims the ALP “will never back nuclear power.”

Federal Energy Minister Angus Taylor says the government’s technology roadmap plan includes “watching very closely” the development of small modular reactors.

He told a radio interviewer: “They’re an emerging technology around the world. We’re going to see them built in the developed world in coming years.”

The Minerals Council of Australia has called for SMRs to be given greater priority in the roadmap. MCA chief executive Tania Constable says they will be commercially available in less than a decade and should not be listed as a technology for consideration post-2030 as suggested in the draft.

Capture boost

The upstream petroleum industry is applauding Anthony Albanese’s support for carbon capture and storage in his offer to the Morrison government of a new, bipartisan approach to energy policy.

Australian Petroleum Production & Exploration Association CEO Andrew McConville says the national oil and gas sector has been at the global leading edge of researching and deploying carbon dioxide capture technologies.

Australia’s stable geology, he adds, means this country is well placed to benefit from CCS and accelerated roll-out of capture projects can assist the reduction of emissions from the energy, industrial and power generation sectors.

Former federal energy minister Martin Ferguson, chairman of the CO2 CRC, has also welcomed Labor’s support as “a clear step forward,” saying the technology “offers large emissions reduction which is an order of magnitude greater than many other abatement options.”

Globally, there are now 51 large-scale carbon capture, utilization and storage projects, 21 operational, two in construction and 28 under development.

Solar growth in WA

The Australian Energy Market Operator says it expects more than 2,600 megawatts of rooftop solar capacity to be installed in Western Australia’s south-west integrated grid by the end of this decade – double the current level (1,329 MW). This would lead to residential power consumption from the power grid falling below 4,000 gigawatt hours a year from 4,600 GWh in 2018-19.

The forecast is contained in AEMO’s basic scenario in its new 10-year outlook for the SWIS, one of the world’s largest islanded systems. A “high” scenario suggests installation of rooftop solar could exceed 3,600 MW by 2029-30.

The market operator notes that one of the most significant impacts on the WA grid from this level of PV investment is that minimum demand in the region could be cut on occasions to a point where there could be system security issues.

The WA government is currently working on a roadmap for the uptake of distributed energy in the SWIS.

Marinus boost

The Marinus Link transmission line mooted as the second high voltage connection between Tasmania and Victoria is among 15 projects the Morrison government has listed to be fast-tracked in its JobMaker scheme.

The link is vital to the Tasmanian government’s “battery of the nation” plan initially aimed to be operational around 2027 – and development could be substantially expedited under JobMaker, a key part of the federal government’s Covid-19 recovery arrangements.

The Marinus project is currently estimated to need $3.5 billion in capital investment and there is no clarity at present over the sources for these funds – with some Tasmanian critics starting to grumble that the bill will fall to State taxpayers when the project’s main attraction is helping to resolve mainland electricity supply problems.

State Energy Minister Guy Barnett responds that Marinus “has a strong business case” and “Tasmania will only pay its fair share.”

Meanwhile former Greens national leader Bob Brown is continuing to voice opposition to the “battery” concept on the basis that proposed wind turbines will kill eagles and other endangered birds and they and onshore HV lines will “spoil the natural beauty of the island.” Brown complains that Tasmania “has enough renewable energy already” and that the development will enable profiteering by interstate and overseas companies.

The $4 debate

It started in May and rolled on through June: a call by manufacturers, coming out of work by the National Covid-19 Co-ordination Commission, for government intervention to set an east coast wholesale gas price of $4 per gigajoule and a pushback by producers, who say that the idea is unworkable.

Stephen Bell, CEO of Melbourne-based petrochemical company Qenos, has been a leader of demands to “urgently fix Australia’s gas market failures,” warning that “if we don’t secure a cheaper, more accessible gas supply immediately, many of the energy-intensive industries government hopes will supercharge the economy will be sidelined.”

As June wound down, the head of ExxonMobil in Australia, Nathan Fay, said in newspaper interviews that the idea is “dangerous,” accusing its proponents of “ignoring the realities of gas production.”

Fay told the Credit Suisse annual Australian energy conference that “the days of $4 gas are unfortunately behind us,” arguing against creation of artificial market conditions as a deterrent to petroleum industry investment.

The upstream petroleum lobby group, APPEA, adds that it is important to debunk the notion that any industry can survive when selling its product at prices lower than the cost of production.

From the manufacturers’ side, leading figures reinforce the industry argument that the east coast gas market is not working for them.

Where manufacturers and producers have common cause is that both believe the best way to put downward pressure on gas prices for consumers in Victoria and New South Wales, the key eastern industrial States, is to develop new supplies close to the demand centres. APPEA declares: “It ought to be self-evident that gas produced close to market than supply shipped or piped large distances.”

Graeme Bethune, CEO of consultants EnergyQuest, says the cheapest new long-term gas for manufacturers is likely to be onshore and close to market, minimizing transport costs. “On the east coast this is likely to be in Queensland where the State government is releasing exploration acreage with any gas found reserved for the domestic market.”

Bethune adds that there is potential for manufacturers to effectively get this gas at cost by taking an equity interest in exploration and development projects in Queensland.

Bethune rejects the Covid-19 commission’s claim, in a draft report leaked to the media, that high domestic gas prices have failed to promote new east coast supply, citing this as a “clear indication of market failure.”

He points to the Cooper Basin achieving the highest level of production in nearly a decade in the March quarter, the $400 million development of the West Barracouta field in the offshore Gippsland basin and of the Sole field in the same area plus the $10 billion Surat gas development in Queensland and other projects.

And, as he says, Santos is still waiting for NSW approval of its Narrabri gas project, which has been in the bureaucratic works of the State government since 2015.

 

Last word

Having frittered away more than a decade on inept energy policy management, our leaders are trying to frame key steps forward in the midst of a pandemic that will batter the economy and society for years to come even if an effective vaccine is introduced rather faster than health hardheads expect.

In short, this is a very unstable time nationally and internationally. Predictions about recovery from the plague that has descended on us – even in a country that, so far, is dealing with the impacts rather better than most around the world – are so much guesswork even when politics (the bane of our planning) and the influence of vested interests are not taken in to account.

Clear thinking about energy supply and consumption – across the economy, not just in the electricity sector – is not helped by the alarmists (and their mainstream and social media fellow travellers) trying to rush policymaking to suit their world view. (“World has six months to avert climate crisis” says one newspaper headline in the past month – and another declares “2020 is our last chance to avert climate catastrophe.”)

The International Energy Agency, in a paper on planning produced for world governments, is arguing for global policymakers to aim at both overall economic recovery and moving on to a track towards lower growth in carbon emissions. The critical words here are “lower growth” because the Paris-based agency recognizes that for more than a few nations, notably those in Asia and most importantly China and India, the recovery road will rely heavily on fossil fuels.

To drive this point home, the IEA acknowledges (although hardly anyone in the popular media has reported this) that the planning it advocates is “highly dependent on China’s future policy direction and its recovery path in the post-crisis environment.”

And the latest statistical review of world energy published annually by BP shows that threequarters of the world’s consumption growth in 2019 was in China, India and Indonesia.

What this information means is not that countries like Australia should shy away from greater emissions abatement but that our contribution should be commensurate with our national interest and our means.

Arching over this approach needs to be the recognition that our relative size (other than geographical) is not an impediment to contributing to emissions abatement because we have opportunities and skills that can be put to good (and much improved) use.

This includes delivering resources to the rest of the world, and especially our Asian neighbours, that will help the pursuit of lower emissions (LNG, uranium, lithium and possibly hydrogen, for example) as well as boxing above our weight in, say, promoting development of carbon capture and storage. It certainly means, as Australia’s Chief Scientist is urging, that all the governments of federation must make a really serious effort to promote national energy productivity rather than giving the concept lip service as has been the case for a decade.

In our own interests, it also means putting an end to the convoluted and often contradictory messing about with the east coast electricity market – can it be argued that we still have a genuine market in the NEM after a decade of interventions? – and setting in place a refined arrangement relying on technology neutrality and aimed at ensuring system security and power affordability.

One of the many aspects of this latter effort is that we are well and truly overdue a new approach to domestic use of nuclear power – and this, in turn, bearing in the mind the issue of social acceptance, means pursuing the new technology of small modular reactors.

We could take a leaf out of the Saskatchewan book.

Now many, perhaps most, Australians will be challenged to find the Canadian province on a mental map, but the similarities between here and there are interesting: large in area, relatively small in population, home to a strong coal-based industry, rich in uranium, already pursuing power supply transition via wind, solar and more gas generation. And now, in the case of Saskatchewan, committed to the adoption of nuclear power via use of SMRs with its environment minister to the fore in promoting the economic and abatement contribution they can make.

In this context, I participated in recent days in an Energy Policy Institute webinar on Australia’s proposed low emissions technology roadmap. (You can find a report of the discussion on the EPIA website.) One of the thoughts from this event that struck home for me is that the federal government in reality is barely a third through the thinking that needs to go in to this effort – but it has committed to producing a roadmap by around October. The other is that government does not have enough money by itself to deal with the roadmap challenge. There has to be mobilization of a massive amount of private sector capital – and this requires policymakers to stop behaving like market players.

A critical step this year, I reckon, should be Australia embracing technological neutrality for domestic energy supply and facing up to the need to remove the blanket ban on nuclear power from the Commonwealth statute books. Is the Morrison government up for being brave in this area? Is pursuit of the neutrality principle a task for the National Cabinet to pursue? As they say, watch this space.

Keith Orchison

30 June 2020