AUSTRALIA’s ENERGY CRISIS April 2018

AUSTRALIA’s ENERGY CRISIS April 2018

THE PROBLEM

COAL
COAL FIRED POWER STATIONS – USE BY DATES          (AEC– PWC)

The image is a snapshot of the use-by-date of Australia’s Power Stations – in other words, the fiftieth year and the final period of their economic life.  For example, Lidell NSW, will reach this critical situation in 2021-2022. The Power Station has been in the news as  the Government has requested that this ageing behemoth continue electricity generation to slow down Australia’s looming power crisis. The image clearly illustrates Australia’s declining dispatchable power in the coming decades. The need for dispatchable energy needs to be augmented by new hydro, coal or gas power stations.

From the early 1990s, a succession of Liberal and Labor governments have failed the Australian people by ignoring this unfolding energy crisis.  Within our political elite there is a culture of evading responsibility, best illustrated with politicians consistently blaming the other Party for the current situation. The Three Year cycle impedes forward thinking.

THE NATIONAL ENERGY GUARANTEE
To solve the urgent problem of the declining power supply in south-eastern Australia, (NT and WA excluded), the government has proposed a National Energy Guarantee that has yet to be unconditionally approved by the States and the Labor Party.  A sticking point is that the States are running their own emission reduction programs and have raised the concept of ‘additionality’ whereby they be credited with lowering emissions within the 26% envelope set by the Federal Government; this the Government refuses to do. Tasmania has opted out as the State Government wants no part of mainland high energy prices. Any Parliamentary legislation must be supported by both political Parties otherwise Australia’s long term energy policy remains in chaos.

In October 2017, the Government announced a new National Energy Policy. The Government has scrapped the Clean Energy Target proposed by the Chief Scientist, Dr Finkel, and has replaced it by the National Energy Guarantee for ideological reasons. The Clean Energy Target provided an incentive for new low emission forms of energy generation to enter the market. The National Energy Guarantee, unfortunately, entrenches the power of the big three retailers, AGL, Origin Energy and Energy Australia.

So, summarising the National Energy Guarantee:

  • The Government will scrap the Clean Energy Target based on science and will not extend the Renewable Energy Target beyond 2020. The Renewable Energy Target was intended to encourage electricity generation from renewable resources to meet a 20% share in the national power supply by 2020.
  • The Government will attempt to legislate a National Energy Guarantee which requires retailers to meet two targets:
  1.  The Reliability Guarantee.  This requires retailers to supply electricity from dispatchable sources which including batteries, hydro, gas and coal.
  2.  The Emissions Guarantee.  Retailers will be given targets to drive down the power sector’s green house gas emissions by 26% of 2005 levels by 2030. This is consistent with commitments made at the 2015 Paris Climate Treaty.

By 2030, the Government forecasts {hopes) that 28%–36%  of electricity generation will be from renewables of which 24% will be from wind/solar and by inference 8% from dispatchable pumped hydro, which explains why Snowy 2 has recently splashed onto media pages. Again, by inference, 68% of energy must still come  from coal/gas-fired power stations, hence the Government’s attempt to seduce AGL over Lidell. In a bizarre twist, a Hong Kong company, Chow Toi Fook Enterprises, has expressed an interest in Lidell, not for energy production but for its ‘poles and wires’, worth billions.

AND YET MORE PROBLEMS
Regarding solar power development, Australia lags well behind European nations who have a fraction of sunlight hours that Australia wastes. Why?

Solar Power
LOSING THE SOLAR RACE (REN 21))

The Snowy 2 pumped hydro scheme has become a common phrase in recent months; the Government is actively considering a major new power generator in the Snowy Mountains. It is hoped this facility will assist in providing the 8% of dispatchable power for the National Energy Guarantee plan within a decade. The objective is to supply power to 50,000 homes. A $29 million feasibility study has been completed which indicates a construction cost round $4 billion and transmission costs to New South Wales and Victoria of $2 billion. Engineering studies suggest that, as configured, it will increase electricity demand, increase carbon dioxide emissions and in fact, may require coal to generate the water supply. The project could not operate in a normal commercial market as it may not produce an acceptable rate of return and would require government subsidy. (Cost Blow out. New Economy, 21 Dec, 2017: The Guardian, 20 Dec 2017 )

The National Energy Guarantee will only apply to members of the National Energy Market. This excludes WA and NT since there are no transmission lines to the Eastern States. Also, Tasmania  has withdrawn as there is no wish to be lumbered with mainland high power prices. Thus, from 2020, these markets might not be subject to a Federal emissions reduction policy.

The Government has further indicated that when (if) COAG approves the National Energy Guarantee, (meeting on  20 April 2018) the average Australian household will save between $110-$115 per year between 2020 and 2030 – equivalent to   thirty three coffees or four smashed avocado breakfasts. (The Conversation, October 2017)
Post Script: the States will continue towards an Agreement.

Adding to this largess, the Shadow Minister for Energy, Mark Butler, at a media address on 8 February, 2018 stated the National Energy Market will increase electricity prices by $430 in NSW and $250 in  Victoria from 2019 due to Government inability to address the gas supply crisis. Large reserves are locked up in both States for political reasons.  The question may now be ventured – are the  States, ossified in1901, now approaching their use by date?

Gas
COAL SEAM GAS CRISIS IN NSW (Australian Mining – Economic Scenario

THE RELIABILITY GUARANTEE
The Australian Energy Market Operator (AEMO) has stated “Australia’s energy resources have reduced to the extent that there is heightened risk of significant unserviced energy requirement  over the next ten years compared with recent levels. The age of the coal-generation fleet is expected to result in the closure of plant over the next decade”. In plebeian speak, that is ‘Houston we have a real problem” which will lead to a surge in the birthrate. In plain English, in the next ten years there will be an electricity shortage and the lights will go out.

Despite the three-year advice required before closure recommended by the Chief Scientist, feasibility, planning approvals and construction will take a decade but large-scale renewable resources will take less time to bring on stream. The problem now for investors is that technology is improving and costs are reducing so rapidly that investors will be reluctant to make long-term strategic decisions on power generation. Under the Reliability Guarantee, generators/retailers may try to drive their equipment past use-by-date to meet near-term obligations rather than embarking on new generator capacity – this will favour existing generator-mix without improving it.

Also, overly risk-averse reliability guarantees may lead to excessive obligations placed on retailers and thus drive up costs for consumers. Similarly, uncertainty in demand caused by unforeseen events, (for example – a smelter closure), will encourage retailers to write  short-term contracts.

On an optimistic note, the imposition of a Reliability Guarantee may have the potential to open new markets powered by renewables that can dispatch on demand.

THE EMISSIONS GUARANTEE
Under the 2015 Paris Climate Agreement, Australia committed to reduce carbon dioxide emissions by 26% below 2005 levels by 2030. The scientifically generated Finkel Climate Report recommended a 42%  reduction. The Government has opted for an ideological target which is politically acceptable but not in the national interest.

Emission data for Australia, after Origin Energy are:

  • 2005 emission level – 610 Mt carbon-dioxide equivalent
  • 2017 emission level – 550 Mt
  • 26% of 2005 level of 610Mt –159 Mt
  • Australia’s reduction of 2017 level – 610-159 = 451Mt
  • Australia must reduce 2017 level by 550-451 = 99 Mt
  • 2017 level must therefore be reduced to 451 Mt by 2030
  • Australia must therefore reduce emissions by 99 Mt by 2030

The Emissions Guarantee generates two questions;

  1.  What is the percentage of the portfolio that must come from renewable resources?
  2.  Should the portfolio as a whole have a carbon intensity below an agreed threshold assigned to an energy production company?

Either way, the Emissions Guarantee must encourage investment in renewables. The Emissions Guarantee will be assisted by:

  • Reducing fossil fuel generation; however, existing generators will soon be closing down anyway, around the time of their 50 year use-by-date.
  • Increasing output from lower emission renewable resources and reducing emissions from fossil fuel generators – but, the double whammy is that renewables must replace ailing generators while, at the same time, providing additional sustainable energy above the existing fossil fuel generators.The magnitude of the current energy replacement problem in Australia is reflected in the energy production from various sources:
  1.  86%    fossil fuels –  coal and gas
  2.   7%      renewables –  wind and solar
  3.   7%       hydro

The irony of this situation is that renewable projects, either existing, under construction or planned, are expected to meet the Renewable Energy Target of 20% of the National Energy output by 2020, and contribute about 23% of generated output to the National Energy Market. This therefore requires 77% from the fossil fuel generators.
From the data above this will not happen.
(National Energy Guarantee, PriceWaterhouseCoopers, Oct,2017)

NOT THE LAST WORD
PriceWaterhouseCoopers have concluded the rationale for the National Energy Guarantee is sound. However, the guarantee thresholds need to be defined so that investors can assess commercial impacts of the legislation. With the  imposition of more regulations the main energy retailers can act as a barrier to new entrants into the market.

In a radio interview on 12 April 2018, the Shadow Minister for Energy indicated that there are design flaws in the proposed National Energy Guarantee which the Australian Competition and Consumer Commission wish to see amended. Currently, the three big retailers, AGL, Energy Australia and Origin Energy, will obtain too much power causing power prices to rise. The big three will effectively act as ‘gate keepers’ that will keep new investors out. This will disrupt contract markets which tend to stabilise power prices. There are also competition and transparency issues which will harm the economy if not fixed.

The position with Labor, should it win office, is that the reduction target for emissions will rise from 26% to 42% by 2030 in line with the Finkel Climate Review. This will, hopefully,  ensure global warming does not rise above 2ºC.

FINALE
On the national energy front, Australia is facing three power supply problems that have combined to produce a ‘perfect storm’.

  1.  As early as 2000, Australian politicians should have considered the use-by-dates of the nation’s coal-fired power stations and now it is too late. Australia’s dispatchable energy within a decade now runs the risk of decreasing by one third unless the power stations are flogged to death. Sustainable energy, on current progress,  is presently 7- 8% and the industry will be hard pressed to make up the short fall.
  2.  The domestic gas industry is in crisis. Victoria and New South Wales have abundant gas reserves but State Governments have refused to grant extraction permits. The Northern Territory has just lifted its embargo. The Australian Government has effectively excluded citizens from using Australian gas before export to east Asia.
NO GAS FOR THE BARBIE – ONLY FOR EXPORT (theaustralian.com)

3. The 2015 Paris Climate Conference has forced Australia into a commitment to reduce emissions to 26% below its 2005 levels. This is a problem due to Government inertia and little positive encouragement to industry.

AUSTRALIA”S FUTURE PROBLEMS

POWER – JOBS – HOUSING – EDUCATION

Power
“LET THERE BE LIGHT” (WTF+WIDE+2)   POWER  +  JOBS  + HOUSING  +  EDUCATION 

Voices within Government once proclaimed  ”COAL IS KING”.

HABEAS CORPUS
(A writ requiring a person under arrest to be brought
before a judge).


JOHN H HILL
   lurgashall@westnet.com.au
Current Affairs Flash Points   towardsthefinalhour.com.au

References                                                                                                                    Clean Energy Regulator, Australian Government                                Origin Energy, 22June 2015, Energy Distribution                              National Energy Guarantee, Oct. 2017, PriceWaterhouseCoopers      National Energy Guarantee, 17Oct, 2017, TheConversation Australian Energy, 20 Dec 2017, The Guardian                                    Snowy 2 Cost Blowout, 21 Dec, 2017, New Economy                Australian Energy, 21 Dec 2017, Aust. Renewable Energy Agency National Energy Markets, 5 Feb 2018, Shadow Energy Minister National Energy Guarantee, 12 April 2018, Shadow Energy Minister