New South Wales residents owe the 950 workers at the Tomago aluminium smelter, near Newcastle, a beer this week.
Over the weekend, the nation’s second biggest smelter, which consumes 10% of the state’s power, had the juice turned off by supplier AGL – for 200 minutes on Friday and it was about to happen again on Saturday before a last minute reprieve – to keep lights and air conditioners on elsewhere during the weekend’s heatwave.
The alternative was “load shedding” – the power industry’s euphemism for enforced blackouts when supply cannot meet demand – in Australia’s biggest state.
The 24/7 smelter wasn’t happy about it, but knew it was a possibility as part of a deal in place for 25 years, which in return has supplied them with vastly cheaper power on all but four occasions over that time.
Excess demand was a drama South Australia faced just a few days earlier, and when blackouts affected around 90,000 people, load shedding turned into another political slanging match between the state Labor and federal Coalition governments.
“Bill Shorten wants to adopt South Australia’s failed ideological experiment which will lead to even higher power bills and more blackouts,” prime minister Malcolm Turnbull said, accusing Labor of being “drunk on left ideology” by having a 50% renewable energy target by 2030.
In recent months the federal government has hammered ALP-run states over their renewable targets.
Victorian premier Daniel Andrews is aiming for zero emissions by 2050, hitting 20% by 2020 and then 40% by 2025.
“The result of unrealistic state-based targets has been huge power bills for families and businesses and unreliable supply,” Turnbull said.
Coincidentally, NSW has the same 2050 target, but seems to have escaped censure.
The federal government’s national renewable energy target is 23.5% by 2020, a figure it says its on track to achieve.
The continued bickering in Canberra over energy policy in the wake of South Australia’s blackouts have at least produced one major outcome — uniting an unlikely alliance of business, environmental and social groups and unions to upbraid politicians and urge them to stop partisan “antics” on energy policy.
To give you an idea of how Australia’s energy generation currently looks, here’s the mix according to the Australian Energy Market Operator:
CCGT stands for combined-cycle gas turbine, which produces up to 50% more electricity from the same fuel than a traditional OCGT (open-cycle) turbine.
Biomass is popular in Queensland, where sugarcane mills now built generators burning bagasse – the fibrous material from cane to power mills, exporting any excess power.
As you can see from the above chart, a key renewable, water, is second behind coal, which is a reminder that long-term vision is important. The 60-year-old Snowy Hydro-electric scheme has the capacity to produce 3.772 gigawatts of power which can be switched on in minutes. At 1,650 megawatts, Tumut 3 produces nearly as much renewable energy as Victoria’s Hazelwood coal-fired station (more on this later).
Yet it’s also worth remembering that extreme weather can make hydro generation fragile, something drought-stricken Tasmania discovered last year.
A rare show of unity from 18 peak bodies on Monday involved the chastising of politicians for “partisan antics” that have led to “enduring dysfunction in the electricity sector”. The group range from the Business Council of Australia, Australian Industry Group and energy intensive industries such as the Australian Aluminium Council and Cement Industry Federation, to the ACTU, Australian Conservation Foundation, St Vincent de Paul Society, WWF, Energy Efficiency Council and Investor Group on Climate Change.
They said (emphasis added):
There is simply no room for partisan politics when the reliability, affordability and sustainability of Australia’s energy system is at stake.
The status quo of policy uncertainty, lack of coordination and unreformed markets is increasing costs, undermining investment and worsening reliability risks. This impacts all Australians, including vulnerable low-income households, workers, regional communities and trade-exposed industries.
The finger pointing will not solve our energy challenges. More than a decade of this has made most energy investments impossibly risky. This has pushed prices higher while hindering transformational change of our energy system. The result is enduring dysfunction in the electricity sector.
When treasurer Scott Morrison broke parliamentary rules last week to brandish a lump of coal into Parliament during question time, accusing opponents of “coalaphobia”, he painted Australia’s energy challenges as a simplistic black-or-white, yes-or-no issue. Labor is all wind and no energy; it’s coal or an own goal in the government’s view.
The posturing does little to help a complex industry in the throes of dramatic transformation. And it isn’t just Byron Bay hippies saying this over chai lattes.
Investing in Australia’s future
Just last week, Energy Council CEO Matthew Warren called for his sector to be treated properly as a business.
“For the past decade this critical multi-billion dollar sector has been held hostage in an escalating ideological and political struggle over climate change,” he said.
Warren doesn’t point the finger at renewable versus coal. It’s places like Canberra causing the problem because business has no clear picture of where or how to invest in a sector with high capital costs and long time frames when it comes to the return on investment.
These are multi-billion dollar decisions that become impossible to make in the absence of policy clarity.
We now risk rolling into a second decade of energy policy uncertainty. This could be catastrophic for the cost and reliability of energy in Australia.
We are already experiencing the consequences of energy policy paralysis for the past decade. It’s not pretty. The “grid” as we know it is degrading in front of our eyes. Power stations are closing and not being replaced. Like the fleet of cars in Cuba, remaining owners are sweating remaining generators until and if the investment drought breaks.
Australian businesses and households are now feeling the results of this dysfunction via higher prices and increased unreliability. Right now, there is no respite in sight.
That such a crucial sector has decided to sit on its hands and not invest because it is unable to assess where risk is coming from and how to manage it should be a national scandal.
But the sector is clear about one aspect of power: building new coal-fired generation is not an option.
Put simply, bankers already think they’re a dud investment. Ignore political accusations about which side of politics will or won’t build coal-fired plants, it’s academic.
The market has decided. The answer is no.
What’s happening in Australia’s energy industry is akin to the changes the internet wrought on print media, or Uber on the taxi industry. And yes, there will be pain for everyone.
Warren sees the industry stuck between a rock and a hard place, unable to finance coal-fired plants, with renewables not yet effective to maintain reliability on the grid.
Add the irony of an argument over how best to produce enough energy so householders can cope with extreme heat incidents many believe are the result of climate change for a laugh. But Warren views that issue as a serious economic risk.
“Climate change is not a belief. It’s a risk,” he says, pointing out that the views of the insurance industry in pricing in that risk subsequently flowed into banking and finance.
“Australia’s energy sector has been operating for the past decade with an implicit price on emissions. All Australia’s energy businesses have effectively shelved any plans they once had to build new coal fired generation. Holding aside all other considerations, they are 50-year assets with a material carbon risk. This is only marginally improved by new coal technologies, or in the case of carbon capture and storage, are still too expensive.”
While there’s been investment in renewables, which jumped 49% in 2016 to $4.29 billion last year after two weak years, it’s still well below the $5 billion-plus levels between 2010 and 2013.
Renewed debate over one thing helping to drive that investment – renewable energy target (RET) – will once again add to the uncertainty and risk that drags on investor decisions, Warren says.
“The difference between political window dressing and meaningful reform can be measured by the scale of the return of investors to the energy market. We need them back,” he says.
This shouldn’t be news to the government or anyone well versed in the sector. Observers have been warning of troubles ahead for some time.
Tony Wood, director of the energy program at think tank The Grattan Institute, argues South Australia is “a canary in the coalmine” and its travails point to two key problems that threaten to spread nationwide.
“First, the nation has no credible policy to reduce emissions in the power sector and enable Australia to meet its global climate change commitments,” he said.
“Second, the current design of the wholesale electricity market may not provide the secure and reliable power that Australians take for granted.”
Wood says the Commonwealth and state governments need to do three things to fix the situation:
- Use the 2017 Commonwealth review of climate change policy to develop a credible plan that all states support and that works with the electricity market.
- Review the market to ensure that power flows reliably and affordably.
- Explain that a transition to a low-emissions future will happen and that it will cost money.
Just a few years after a price on carbon was abolished by the Coalition government under Tony Abbott amid celebrations in Parliament and promises of lower power bills, the government is once again focusing on the rising cost of power as a potential vote winner.
It’s short-term political gain with the potential of severe, long-term consequences unless a more bipartisan solution is found.
Just over two years ago, the then federal industry minister, Ian Macfarlane was arguing for changes to Australia’s renewable energy target (RET) because the nation already had too much power.
“We have more than 15% overcapacity in generation in Australia,” he said.
Now it’s too little.
Next month, French energy giant ENGIE is closing Victoria’s Hazelwood power station, saying “difficult market conditions, with lower electricity prices and a surplus of electricity supply in Victoria” led to its decision. Hazelwood, one of the world’s worst polluters, could produce up to a quarter of Victoria’s energy.
Engie, a company with €162.3 billion ($AU226 bn) in assets and revenue of €69.9 billion ($AU97 bn), has been selling off coal-fired assets globally, to focus on LNG and renewable energy. Engie, incidentally, operated the gas-fired power station in South Australia that wasn’t switched on last week when the state had load shedding blackouts, provoking a fresh round of finger pointing among the political class about who was to blame.
Coal is still very much part of Australia’s energy mix, but some of its staunchest advocates are starting to sound like people on the deck of the Titanic selling it as unsinkable.
In a widely read piece in The Australian this week, Alan Kohler was scathing of what he called the government’s “coal hoax”. It points to a similar trend in India – the nation that’s supposed to be the key customer for the controversial Adani coal mine in Queensland.
“At about the same time as Scott Morrison was waving his ridiculous piece of coal about last week, the result of India’s first major solar auction for 2017 was announced, with record low prices. It’s part of India’s National Electricity Plan, released in December, which calls for a five-fold increase in renewable energy and a reduction in thermal power from 66 to 43% of total capacity,” Kohler wrote.
Even China is cracking down on coal-fired power, announcing last month it was cancelling 100 new plants, worth more than $AU80 billion, replacing that 100 gigawatts of generation with 130 GW of new renewable power by 2020 instead.
China wants to cap coal power generation at 1,100 GW. To put that in perspective. Australia’s entire generation capacity is around 50 GW.
There’s a perception that renewables are pushing up the cost of power, but Queensland, where coal delivers 70% of the state’s energy, offers one of the contradictions and paradoxes in this debate.
Wholesale prices have jumped there too. In part because of the energy demands of the booming LNG export industry. Putting aside the debate over CSG on farms, Australia’s LNG export volumes are expected to increase by another 40% in FY17 to 51 million tonnes, making it the world’s biggest exporter. And that’s starving the domestic market.
AGL revealed at an investor presentation last year it was looking at importing gas from lower-cost countries to meet local demand.
What science says
Last year, Australia’s chief scientist, Dr Alan Finkel, released the Preliminary Report of the Independent Review into the Future Security of the National Electricity Market (NEM).
The report points out that Australia has “the longest geographically connected power system in the world”.
“It was designed for a world that was less complex than today, in which traditional generation (coal, gas and hydro) provided all of our electricity needs. Since then, the parameters have changed,” the report says.
A whole bunch of factors are coming into play right now to completely change the game.
Alongside generation, storage is an new possibility. Think those Tesla batteries – an iPod moment for electricity – and local players such as Simon Hackett’s Redflow, and Sydney-based Mojo Power, which wants to become a distributed generation company, creating a network of homes whose batteries feed into the grid to power other homes.
The debate right now needs to focus on how we design the grid for a new era of energy generation. The old network is like a bicycle wheel with routes out from the hub of the power station. Companies like Mojo Power are thinking about the network more like grid computing, with help from the internet and technology, and in time, batteries to capture and release renewables on demand.
Contrary to last week’s heat-related problems, demand for electricity from the NEM has declined. Finkel found industrial, commercial and residential consumers are helping drive the transformation as new technologies reduce their costs and emissions. Renewables are not the be-all and end-all at this point, Finkel says, but “solutions are available to effectively integrate variable renewable electricity generators into the electricity grid”.
He adds, though, that “we will have to change the way we operate”.
The Finkel report says we have a “once-in-a-generation opportunity to reform the NEM to make it more resilient to the challenges of change”.
The trends transforming energy systems are irreversible, Finkel says, but as many have already pointed out, Australia’s political fight over energy policy has now been going for more than a decade.
The 18 peak bodies who called for “mature, considered debate” were no doubt listening to ABC Radio’s AM program on Monday when federal energy and environment minister Josh Frydenberg was interviewed about what they’d said.
Here’s what happened:
INTERVIEWER SABRA LANE: Now, a high-powered alliance says the political games over energy need to end. Will you make sure that happens?
MINISTER JOSH FRYDENBERG: Well, less than 18 months ago there was bipartisanship in the parliament around a 23.5% renewable energy target.
Obviously that wasn’t good enough for the Labor factions and for Bill Shorten, who became too hairy-chested and decided he wanted to take on a 50% renewable energy target.
LANE: So, there you go again. You’ve slipped straight into it.
FRYDENBERG: Well, that’s, but that’s the point, Sabra.
We’re talking about Labor’s policy of a 50% renewable energy target, a 45% emissions reduction target under Paris… an enforced closure of coal-fired power stations and emissions intensity scheme.
They are not Coalition policies, and won’t be.
Frydenberg then lauded his Liberal and National party colleagues in Victoria, South Australian and Queensland for pledging to scrap the “very high, unrealistic renewable energy targets” in those states.
The disappointing aspect is that the minister talks about the need up rethink the grid, but spends most of his time in attacks on Labor states for their RETs.
Meanwhile, the BCA’s CEO Jennifer Westacott was also on AM, pleading the case for certainty.
“What matters here is business. The only people who are going to make the investments are business, and they need that sense of certainty that’s only going to come from bipartisanship,” she said.
In Canberra yesterday, the government attacks on state Labor governments and Bill Shorten continued.
“[Shorten] is more concerned about kale than he is about coal,” was trade minister Steve Ciobo’s quip.
Earlier on Monday, a freedom of information request revealed that early advice about last September’s total blackout in South Australia, when several transmission tower were blown down, told the prime minister’s office that renewables were not to blame, although arguments over South Australia’s wind power were part of what has been a concerted campaign by the federal government against the state Labor government’s policies since.
Prime minister Malcolm Turnbull denied blaming renewables, saying: “The blackout, as I’ve said many times was caused by a storm breaching transmission lines, that’s perfectly obvious, that’s the only point that was made,” before adding that wind energy “made the South Australian grid very vulnerable, very, very vulnerable indeed”.
And when Labor tried to press for its own political advantage on the issue during question time, Turnbull rounded on the party and its policies.
“What happened was typical of the lazy, negligent, complacent Labor government, they introduced more and more variable renewables into the mix, increasing the vulnerability of the transmission network,” he said.
So renewables are to blame. Not that the prime minister said that.
When Malcolm Turnbull and Bill Shorten look at recent opinion polls and wonder why they both rank among the least-preferred leaders of all time, with the primary votes for both parties continuing to plummet as voters look elsewhere, perhaps they’re both metaphors for Australia’s energy policy.
They may change direction with the wind, but right now, any energy they generate falls well short of what the electorate demands. Canberra’s lights are on, but nobody’s home.
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