The National Electricity Market has served its purpose – it’s time to move on



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A single, national market that supplies all of Australia’s electricty is looking dangerously outdated – and politically impossible.
Shutterstock

Alan Pears, RMIT University

The Finkel Review was a valiant attempt to find a path towards a 21st century energy market model for Australia. But political infighting and powerful interests have blocked one of its core proposals, a Clean Energy Target (CET). Despite the creation of a new Energy Security Board to try to hold regulators and policy makers to account, the ability of the present structure to deliver is uncertain.

State energy ministers, who have gathered today for the COAG Energy Council meeting, are now threatening to go it alone if the Commonwealth government does not commit to a CET. But the problem and opportunity is much broader. It’s time to step back and rethink energy policy.

The national model is failing

The National Electricity Market (NEM) was established in a context of an energy system comprised of large generators and large energy utilities, with energy flowing in one direction: from power station to consumer. Things have moved on. Most of the activity now is behind the meter, local, or within regions, although interstate energy flows are still very important.

State governments now recognise that their voters will blame or reward them for “keeping the lights on”, and are not prepared to suffer to help supply other states. Forward-thinking politicians also know they will win votes, and create jobs, by driving clean energy solutions.

The NEM has failed. Its very narrow economic objective was to provide low prices, reliable and safe energy, and to act in the long term interests of consumers. Many would score it zero out of three.

Despite the government’s acceptance of 49 recommendations of the Finkel Review that aim to fix many of the problems, few observers are confident that the deep cultural problems and powerful vested interests can be overcome – let alone the impact of a small number of conservative politicians within the Commonwealth government, who are holding energy policy hostage.

The COAG Energy Council is unworkable. It requires consensus to act, but differing state-level agendas block this on key issues. Indeed, the government has just proposed to go over the heads of the Council, and COAG, to remove the right of energy businesses to appeal against regulatory decisions after years of internal disagreement. Overriding the COAG Energy Council is an extreme tactic that cannot work for many other problematic issues.

The “top-down” nature of the NEM is out of date. Repeated criticisms of the lack of discipline of state governments by federal energy minister Josh Frydenberg merely confirm that this model won’t work.

Importantly, a large proportion of the real energy industry is not acknowledged as a formal part of the NEM structure. The NEM framework defines the electricity industry as licensed generators, network operators and retailers. While NEM reports talk about consumer choice and rights, they ignore the emerging industries such as renewable energy, storage, demand management, energy efficiency, businesses with new financial models, and so on. These businesses simply do not have a seat at the table.

The scale of change needed to make the present NEM model work is simply beyond our political system. In any case, there is an emerging alternative that can evolve in parallel with the NEM.

A real 21st century energy model

In practice, the NEM has functioned in parallel with several other mechanisms for years.

The Renewable Energy Target has operated since 2001. It was introduced to address the failure of the NEM to support renewable energy development. This market is quite separate, and operates on an annual basis, using trading of certificates and obligations on energy retailers.

Several states and the ACT now operate energy efficiency obligation schemes. These also operate through obligations on energy retailers, and most use tradable certificates. These schemes drive the installation of a range of energy efficiency measures.

At the industrial level, increasing numbers of businesses are investing in large renewable energy systems “behind the meter”, so they can insulate themselves from the chaos of the NEM. They need the price stability and reliability the NEM can’t deliver.

Several states and the ACT now have aggressive renewable energy targets – which have repeatedly been criticised by Frydenberg. The ACT has demonstrated that these schemes can work very well. They can reduce electricity prices, create local jobs, reinvigorate rural and regional economies – and win votes.

Because they involve long term contracts, their output is predictable. Other states (and consortia of councils, businesses, universities and others) are copying this model.
State governments also still have significant powers to regulate network operators and retailers.

The future is distributed

If we look to the future, we see enormous growth in a diverse range of distributed energy solutions. These have many advantages over centralised solutions. Further, we see astounding diversity emerging in the energy system.

These trends cannot be managed by “command and control”, top-down mechanisms. Although national standards and coordination can be useful, they are not essential, and can easily block innovation.

Slide from ‘Our efficient, smart, flexible, distributed and diverse energy future’ presentation to APEC energy ministers conference.
Author provided, Author provided

A practical energy model involves states and territories working with businesses, councils and communities. They would use existing powers over network operators and energy retailers, and would implement their own strategies for security and emissions reduction.

In this scenario, AEMO would monitor their policies and rates of implementation of demand-side and supply side energy services, and use its modelling capabilities to identify emerging imbalances. It would warn states where issues such as gaps between supply and demand and grid instability were emerging. Where states failed to act, AEMO would have power to intervene.

The NEM would continue to operate as a wholesale market for the “big guys” – large generators, industrial sites and transmission line operators. It would also provide performance information and advice to AEMO to inform its modelling and analysis.

The national RET effectively finishes in 2020: it can easily be replaced by state level strategies.

The ConversationThanks Dr Finkel. The reactions to your Review have demonstrated conclusively that we need a real 21st century energy system, and that a national approach based on the existing NEM simply won’t work.

Alan Pears, Senior Industry Fellow, RMIT University

This article was originally published on The Conversation. Read the original article.

Explainer: what can Tesla’s giant South Australian battery achieve?


Ariel Liebman, Monash University and Kaveh Rajab Khalilpour, Monash University

Last Friday, world-famous entrepreneur Elon Musk jetted into Adelaide to kick off Australia’s long-delayed battery revolution.

The Tesla founder joined South Australian Premier Jay Weatherill and the international chief executive of French windfarm developer Neoen, Romain Desrousseaux, to announce what will be the world’s largest battery installation.

The battery tender won by Tesla was a key measure enacted by the South Australian government in response to the statewide blackout in September 2016, together with the construction of a 250 megawatt gas-fired power station.

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The project will incorporate a 100MW peak output battery with 129 megawatt hours of storage alongside Neoen’s Hornsdale windfarm, near Jamestown. When fully charged, we estimate that this will be enough to power 8,000 homes for one full day, or more than 20,000 houses for a few hours at grid failure, but this is not the complete picture.

The battery will support grid stability, rather than simply power homes on its own. It’s the first step towards a future in which renewable energy and storage work together.

How Tesla’s Powerpacks work

Tesla’s Powerpacks are lithium-ion batteries, similar to a laptop or a mobile phone battery.

In a Tesla Powerpack, the base unit is the size of a large thick tray. Around sixteen of these are inserted into a fridge-sized cabinet to make a single Tesla “Powerpack”.

With 210 kilowatt-hour per Tesla Powerpack, the full South Australian installation is estimated to be made up of several hundred units.

To connect the battery to South Australia’s grid, its DC power needs to be converted to AC. This is done using similar inverter technology to that used in rooftop solar panels to connect them to the grid.

A control system will also be needed to dictate the battery’s charging and discharging. This is both for the longevity of battery as well to maximise its economic benefit.

For example, the deeper the regular discharge, the shorter the lifetime of the battery, which has a warranty period of 15 years. To maximise economic benefits, the battery should be charged during low wholesale market price periods and discharged when the price is high, but these times are not easy to predict.

More research is needed into better battery scheduling algorithms that can predict the best charging and discharging times. This work, which we are undertaking at Monash Energy Materials and Systems Institute (MEMSI), is one way to deal with unreliable price forecasts, grid demand and renewable generation uncertainty.

The battery and the windfarm

Tesla’s battery will be built next to the Hornsdale wind farm and will most likely be connected directly to South Australia’s AC transmission grid in parallel to the wind farm.

Its charging and discharging operation will be based on grid stabilisation requirements.

This can happen in several ways. During times with high wind output but low demand, the surplus energy can be stored in the battery instead of overloading the grid or going to waste.

Conversely, at peak demand times with low wind output or a generator failure, stored energy could be dispatched into the grid to meet demand and prevent problems with voltage or frequency. Likewise, when the wind doesn’t blow, the battery could be charged from the grid.

The battery and the grid – will it save us?

In combination with South Australia’s proposed gas station, the battery can help provide stability during extreme events such as a large generator failure or during more common occurrences, such as days with low wind output.

At this scale, it is unlikely to have a large impact on the average consumer power price in South Australia. But it can help reduce the incidence of very high prices during tight supply-demand periods, if managed optimally.

For instance, if a very hot day is forecast during summer, the battery can be fully charged in advance, and then discharged to the grid during that hot afternoon when air conditioning use is high, helping to meet demand and keep wholesale prices stable.

More importantly, Tesla’s battery is likely to be the first of many such storage installations. As more renewables enter the grid, more storage will be needed – otherwise the surplus energy will have to be curtailed to avoid network overloading.

Another storage technology to watch is off-river pumped hydro energy storage (PHES), which we are modelling at the Australia-Indonesia Energy Cluster.

The ConversationThe South Australian Tesla-Neoen announcement is just the beginning. It is the first step of a significant journey towards meeting the Australian Climate Change Authority’s recommendation of zero emissions by at least 2050.

Ariel Liebman, Deputy Director, Monash Energy Materials and Systems Instutute, and Senior Lecturer, Faculty of Information Technology, Monash University and Kaveh Rajab Khalilpour, Senior Research Fellow, Caulfield School of Information Technology, Monash University

This article was originally published on The Conversation. Read the original article.

How hard will Tony Abbott run against the Finkel plan?



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The government faces a hard internal sell on the Finkel plan, not least to Tony Abbott.
Mick Tsikas/AAP

Michelle Grattan, University of Canberra

Bedding down an energy security policy based broadly on the Finkel model is now crucial for Malcolm Turnbull. But the issue will also test Tony Abbott’s judgement and influence, in what has long been a marquee area of difference between the two men.

Abbott is poking and prodding at the Finkel plan, raising questions and doubts about it.

He told 2GB’s Ray Hadley on Monday that two criteria were essential when judging the chief scientist’s proposal for a clean energy target (CET) that, his report says, “will encourage new low emissions generation [below a threshold level of carbon dioxide per megawatt hour] into the market in a technology neutral fashion”.

Abbott’s criteria were:

  • Did Finkel’s scheme take the pressure off power prices?

  • Did it allow coal to continue?

“My anxiety, listening to reports of the report and this statement that they’re going to reward clean or low emissions fuels while not punishing high emissions fuels, is that it’s going to be a magic pudding,” Abbott said.

“Now we all know that there is no such thing as a magic pudding. And if you are rewarding one type of energy, inevitably that money has got to come from somewhere – either from consumers or taxpayers”.

“And if it’s from consumers, well it’s effectively a tax on coal and that’s the last thing we want”.

For Abbott, the magic word “tax” conjures up his glory days of fighting the Labor government’s “carbon tax”.

Labels can make a lot of difference. As Abbott’s former chief-of-staff Peta Credlin said earlier this year of the carbon tax: “It wasn’t a carbon tax, as you know – it was many other things in nomenclature terms. We made it a carbon tax. We made it a fight about the hip pocket and not about the environment. That was brutal retail politics.”

The CET is not a “tax”, and Finkel argues that consumers will be better off than if the status quo continues – a status quo that businesses and most other stakeholders consider not to be an option.

But the scheme would disadvantage coal relative to renewables – and the extent of the disadvantage will be crucial in the debate within Coalition ranks.

In a softening up exercise, Energy Minister Josh Frydenberg lobbied backbenchers individually about the Finkel plan before Friday’s release. Government sources say the feedback is good and believe there is a strong majority that believes Finkel offers a potential way forward.

But the chairman of the government’s backbench environment and energy committee, Craig Kelly, a hardliner, wants more work done “by a couple of other independent organisations”.

In the end, the argument may come down to how “Finkel” is interpreted and the precise form in which it would be translated into practice.

Tuesday’s Coalition meeting is set to provide the first indication of whether the government’s optimism about the positive reception of the plan is solidly based.

The Nationals are vital, given their passion for coal and their original role in mobilising Coalition feeling against an emissions trading scheme. Their general position is they can live with the Finkel framework but it will be a matter of the detail, notably the threshold, with its implications for coal.

Deputy Prime Minister Barnaby Joyce is on board, based on his pragmatic assessment that this is better than possible future alternatives. He said on Friday: “I think that if we don’t bed this down, you can see what’s happening in England or anywhere else. If you lose the election, you’re going to get a worse outcome.

“So I’d rather bed down an outcome that secures coal miners, that secures coal-fired power, because I strongly believe in its capacity to provide baseload power that fulfils our obligations in international treaties.

“If we can do that and make sure Mr and Mrs Smith get cheaper power, then of course I’m going to consider that.”

Outspoken Nationals George Christensen is waiting on more information. “I’ve got some mixed thoughts,” he says of Finkel’s plan, and wants to talk further to Frydenberg.

“I’m comfortable with measures to bring down electricity prices. But I’m not comfortable with anything like an emissions trading scheme, or a derivative thereof” – and he is not sure whether this proposal is a “derivative”.

The position of the Liberal critics will be much weakened if the Nationals get behind the Finkel plan.

Abbott will have to make a call about the mood of his colleagues and decide how hard to go on this issue in coming weeks. This area has been a signature one for him and his weakness would be highlighted if he could only attract a handful of naysayers.

The ConversationObviously, the stakes are a great deal higher for Turnbull. If things went badly for Turnbull in his pursuit of the Finkel option, it would be a major disaster for him and his government. When it comes to emissions policy, Turnbull is always walking on the edge of a sinkhole.

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Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Politicians: please ease off on ‘announceables’ until after the electricity market review



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Current political intervention in the energy market is haphazard and disconnected.
chriscrowder_4/Flickr, CC BY-NC-SA

David Blowers, Grattan Institute and Kate Griffiths, Grattan Institute

A series of dramatic events over the past year, most notably the September statewide blackout in South Australia, have revealed an electricity system under strain, and left many Australians worried about the reliability of their power supply. The Conversation

In response, state and federal politicians have announced a series of uncoordinated and potentially expensive interventions, most notably the Turnbull government’s Snowy Hydro 2.0 proposal and the South Australian government’s go-it-alone power plan.

Yet all of these plans pre-empt the Finkel Review, to be released early next month. Commissioned by state and federal governments and led by Australia’s chief scientist Alan Finkel, the review is expected to provide a new blueprint for the National Electricity Market (NEM).

Clearly, Australia is struggling to manage the transition to a zero- or low-emission electricity grid, and some commentators have concluded that the NEM is broken.

In our report Powering Through, released today, we argue that it is too early to give up on the market. But what we really need is substantial market reforms, rather than piecemeal government investments in various energy projects.

Australia’s troubled transition

The problems are everywhere. Consumers have been hit with a 70% hike in real-terms electricity bills over the past decade, and there is more to come. Wholesale prices for electricity in most eastern states were twice as high last summer as the one before.

New vulnerabilities continue to emerge. The headline-grabber was South Australia’s blackout – the first statewide blackout since the NEM was formed in 1998 – but there have been other smaller blackouts and incidents too.

Poisonous politics means Australia is also failing to stay on track to hit its 2030 climate targets. The mixed messages on climate policy; the seemingly ad hoc public investment announcements; the threat of direct intervention in the activities of the market operator – all of this has created enormous uncertainty for private investors.

Meanwhile, the clock is ticking: Australia has enough electricity generation capacity for now, but more will be needed in the decade ahead.

The energy market is in a difficult transition.
georg_neu/Flickr, CC BY-NC

First, do no harm

There is currently an acute danger of politicians panicking and rushing into decisions that will only push electricity prices higher, and make the task of reducing Australia’s emissions harder.

Already, federal and state governments are committing taxpayers’ money to new energy investments. This is premature, with the Finkel Review’s recommendations not yet released. Stampeding white elephants loom ominously on the horizon.

Given the current uncertainties, it is vital not to grasp for expensive “solutions” or to lock in plans too soon. We do not yet know what technology mix will be needed in the future. Maintaining flexibility through the transition will ensure we can take advantage of the best solutions as they emerge.

‘No regrets’ short-term reforms

There are some “no regrets” moves that can and should be made, to address the short-term risks to the electricity system and buy time to resolve the longer-term ones. Australia should build on existing low-cost mechanisms before making major capital investments or redesigning the market.

The immediate challenge is to reduce the risk of blackouts next summer, in South Australia and Victoria especially. Most blackouts happen because something in the system breaks. Some simple changes to the market rules, like the recent AEMO and ARENA announcement to pay consumers to cut their electricity use, would make a big difference to managing equipment failures when they inevitably arise.

To ensure reserves are on hand, some mothballed generators should be recalled to service. Pleasingly, Origin Energy and Engie have already struck a deal to enable the restart of the second turbine of the Pelican Point generator in South Australia.

The longer-term task

The cheapest and most effective way to reduce long-term risks is to rebuild investor confidence. That requires Australia to agree, finally, on a credible climate policy. A carbon price is the best such policy, but any bipartisan policy that works with the electricity market and is capable of hitting Australia’s emissions targets will be a vast improvement on what we have now.

The transition to a zero-emissions electricity sector will be difficult. Even given a credible climate policy, there are still questions as to whether the current electricity market will be able to meet our future needs. And that’s without even mentioning the gas market, which is frankly a mess.

Politicians should begin by adopting pragmatic market reforms and giving clear direction on climate and energy policy. At the very least, they should wait until Finkel delivers his recommendations.

Hopefully the Finkel Review will define Australia’s energy security and emissions reduction needs, and provide a strong platform for politicians to work from. If so, a competitive market will find the cheapest path to a reliable and low-emissions electricity future.

The danger is that partisan politics will make the best policies untenable. If that happens, we can expect the blame to be shifted onto the market, which will be described as having “failed” – but the truth is that it will have been systematically (if not quite intentionally) destroyed.

More likely still is that governments give up on the market without giving it a chance. Scott Morrison’s budget promise of new federally owned power generation set a worrying precedent. If recent announcements deter private investors, still more government investment will be needed, which will shift yet more risk and cost onto taxpayers.

There’s a real danger of politicians focusing on “announceables” and shying away from the market reforms that will make the biggest difference to the affordability, reliability and sustainability of our electricity supply.

David Blowers, Energy Fellow, Grattan Institute and Kate Griffiths, Associate, Grattan Institute

This article was originally published on The Conversation. Read the original article.

We don’t have a gas shortfall worth worrying about


Dylan McConnell, University of Melbourne

Australia was warned earlier this year that a shortage of gas could create an energy crisis. A report from the Australian Energy Market Operator (AEMO) suggested a shortfall could occur in 3 of the next 13 years. The Conversation

This report was widely reported in the national media, with sensational headlines like “AEMO warns of blackouts as gas runs out”.

A couple of weeks ago, in a dramatic intervention, Prime Minister Malcolm Turnbull declared that there was a shortage of gas supplies for eastern Australia and that certain restrictions may be placed on gas exports.

But do we really need “more gas supply and more gas suppliers”? In a report published today, my colleague Tim Forcey and I review AEMO’s initial report and its results and recommendations. Our work finds there is a shortage of “cheap” gas, but not a gas supply “shortfall”. Moreover, high gas prices combined with falling renewable and storage costs mean that there are cheaper options than developing new gas resources.

What gas shortfall?

AEMO forecast of electricity generated by fuel source, showing AEMO’s forecast supply gap as a thin red line at the top of the stack.
Author

The AEMO report suggests that eastern Australia face a shortfall in 3 of the next 13 financial years – 2018-19, 2020-21 and 2021-22. The largest gap modelled by AEMO is equal to only 0.19% of the annual electricity supply, or 363 gigawatt hours.

In gas supply terms, this is equivalent to only 0.2% of the annual gas supply. But AEMO’s modelling considers a range of possible scenarios, with a variation of roughly plus or minus 5%, far larger than the possible shortfall.

Just 11 days after the report warning of a supply gap, AEMO published updated electricity demand forecasts. In this update, AEMO reduced its forecast electricity demand by roughly 1%. This reduction in demand is more than four times greater than the largest forecast shortfall.

A day later, Shell announced it would proceed with Project Ruby, a gas field with 161 new wells. This was not included in the AEMO modelling process.

Alternatives to gas

Gas has historically been characterised as a transition fuel on the pathway to a zero-emissions power system. The falling costs of renewable energy and storage technologies combined with rising gas costs means this pathway and may indeed be a detour, particularly when taking into account Australia’s climate commitments.

This is also a sentiment increasingly reflected by the industry, with gas producer AGL suggesting that:

the National Electricity Market […] here in Australia could transition
directly from being dominated by coal-fired baseload to being dominated by storable renewables.

Gas generation generally falls into two categories: open cycle gas turbines (OCGT) and combined cycle gas turbines (CCGT). These two technologies effectively play different roles in the energy sector. Open cycle turbines are highly flexible, and are used occasionally over the year to provide peak capacity. Combined cycle turbines, on the other hand, operate continuously and provide large amounts of energy over a year.

Each of these technologies is now under competitive threat from renewable generation and storage. Flexible capacity can also be provided by energy storage technologies, while bulk energy can be provided by renewable energy. These are compared below.

Energy: renewables vs gas

The chart below compares the cost of providing bulk energy with gas and renewable technologies. We’ve represented the price of new CCGT, PV (which stands for photovoltic solar) and wind as the cost of providing energy over the lifetime of the plant.

The other two gas generation costs illustrated, CCGT and Steam, represent the cost of energy from existing plants, at their respective thermal efficiencies. The steam thermal efficiency is similar to that of a highly flexible open cycle gas turbine.

Surprisingly – and depending somewhat on gas price and capital cost assumptions – new renewable energy projects provide cheaper energy than existing gas generators.

Comparison of energy cost from new and existing gas with new renewable energy generation. The range of solar (PV) and wind costs reflect different capital cost assumptions, while the range of gas costs reflects gas price assumptions. CCGT refers to Combined Cycle Gas Turbine.
Author

Flexible capacity: storage vs gas

The next chart compares the cost of providing flexible capacity from gas and storage technologies (again, taking the cost over the lifetime of the plant).

In this analysis we compare the cost of capacity from OCGT with that from diesel and various storage technologies, including battery and Pumped Hydro Energy Storage (PHES). As can be seen, storage technologies can compete with OCGT in providing flexible capacity, depending on technology and capital cost.

Comparison of flexible capacity cost from gas (OCGT), diesel and storage technologies generation, including battery and Pumped Hydro Energy Storage (PHES) . The range of costs reflect different capital cost assumptions.
Author

Another option, not shown here, is demand response. This is the strategy of giving consumers incentives to reduce their energy use during critical times, and is cheaper again.

What is clear is AEMO’s forecast gas shortfall is very small, and that it may have already been made up by revised demand forecasts and new gas field developments. But the question of how Australia should deal with any future shortfall invites a larger debate, including the role of gas in our electricity system, and whether the falling costs of renewable energy and storage technology mean we’ve outgrown gas.


The short-lived gas shortfall: A review of AEMOs warning of gas-supply ‘shortfalls’ was prepared by Tim Forcey and Dylan McConnell.

Dylan McConnell, Researcher at the Australian German Climate and Energy College, University of Melbourne

This article was originally published on The Conversation. Read the original article.

Budget 2017: government goes hard on gas and hydro in bid for energy security


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Gas infrastructure and exploration attracted the lion’s share of new energy announcements in the 2017 federal budget.
Sean Heatley/Shutterstock.com

Hugh Saddler, Australian National University; Alan Pears, RMIT University; Roger Dargaville, University of Melbourne, and Tony Wood, Grattan Institute

The budget contains several measures designed to boost energy security, including: The Conversation

  • A$90 million to expand gas supplies, partly through increased unconventional gas exploration

  • a potential Commonwealth buyout of an expanded Snowy Hydro scheme

  • up to A$110 million for a solar thermal plant at Port Augusta

  • monitoring of gas and electricity prices by the Australian Competition and Consumer Commission.

Below, our experts react to the measures.

Gas price problem far from solved

Roger Dargaville, Deputy Director, Melbourne Energy Institute, University of Melbourne

The budget contains a broad range of funding in energy-related areas, with a significant focus on gas resources, making A$78 million available for onshore unconventional gas exploration and reform in the gas markets, and A$7 million for studies into new gas pipelines to South Australia, from both Western Australia and the Northern Territory.

Interestingly, there is A$110 million in equity available (but not guaranteed) for a solar thermal plant in Port Augusta. And most notably, the government has proposed purchasing the Snowy Hydro Scheme from the New South Wales and Victorian governments, ensuring that the scheme stays in public hands.

The budget also includes A$13 million for CSIRO to improve energy forecasting tools, and A$8 million for the ACCC to investigate consumer energy pricing issues.

Overall, the budget highlights the government’s desire to do something about gas prices, but offers little to make a significant difference to a very difficult problem. Gas market reform and new pipelines are unlikely to reduce the exposure of the domestic market to price rises driven by international exports.

Importantly, there is little new funding in the budget directly relating to reducing carbon emissions and meeting the pledges made in the Paris Agreement (a 26-28% emission reduction relative to 2005 levels by 2030). Also noteworthy is the fact that funding for the carbon capture and storage flagship ceases in 2018-19.

‘On energy this budget is small fry’

Tony Wood, Energy Program Director, Grattan Institute

The budget does little more on energy than endorse the government’s deal with Senator Nick Xenophon on corporate tax cuts, complemented by modest commitments to energy security, more gas and better regulation.

Government facilitation of gas development and beefing up the energy capability of the Australian Energy Regulator and the ACCC are simple logic, and the one- off payment to pensioners to help with electricity bills will be welcomed by them.

Major public funding for further feasibility studies is a little more questionable. If the gas crisis can’t galvanise support from pipeline companies and gas consumers for pipelines, why would governments reach a different conclusion?

And finally, one can only speculate as to why the federal government is contemplating buying out the NSW and Victorian governments’ share of Snowy Hydro. Presumably it is because the feds are concerned about securing support for the proposed expansion.

In summary, on energy this budget is small fry ahead of major policy decisions that rest on the forthcoming Finkel Review of the National Electricity Market next month, and the climate change policy review later in the year.

A step towards radical energy reform?

Hugh Saddler, Honorary Associate Professor, Centre for Climate Economics and Policy, Australian National University

Few announcements in the budget speech are more emblematic of complete policy reversal than the announcement that the Commonwealth would buy the shareholdings in Snowy Hydro Limited of the governments of NSW (58%) and Victoria (29%), to add to the 13% currently owned by the Commonwealth. This comes almost exactly 11 years after Prime Minister John Howard, responding to vociferous public opposition, pulled the plug on plans by all three governments for a public float of their entire shareholdings. What is more, Treasurer Scott Morrison has now announced that, once owned by the Commonwealth, Snowy Hydro would remain in public ownership.

This announcement of course accompanies the government’s Snowy 2.0 proposal, for a fivefold increase in the Snowy scheme’s current 500 megawatt pumped storage capacity (at Talbingo). This was used, after commissioning in 1974, to allow inflexible coal fired power stations to operate with constant output levels day and night, but is now almost never used. This presumably reflects commercial decisions by Snowy Hydro, as it trades in the National Electricity Market.

The rationale for Snowy Hydro 2.0 is to facilitate operation of a grid with a high share of renewable generation, by smoothing out variations in wind and solar supply. Does this announcement mean that the government envisages moving away from a strictly commercial approach to using the assets of the Snowy scheme? Is this a first step towards radical restructuring, or even dismantling, of the National Electricity Market?

Stronger legislation needed

Alan Pears, Senior Industry Fellow, RMIT University

The detailed A$265 million energy package includes a number of useful measures to strengthen the weak regulatory culture of the energy sector that has allowed our energy crisis to evolve. But it is still limited: strong legislative reform and active support of emerging competitors will also be needed. It is a modest investment compared with recent multibillion-dollar energy cost increases. If it is successful, it will deliver vary large net benefits to the economy by limiting energy price increases. Unfortunately, past efforts to fix the energy situation have largely failed to deliver real outcomes: we need clear objectives for outcomes, and a mechanism to implement contingency strategies if they are not achieved.

In a context of increasing urgency for stronger action on climate, and the reality that the global “burnable carbon” budget is very limited, investment to encourage more gas development seems misplaced. More emphasis on energy efficiency, renewables and smart energy systems would make much more sense. Energy efficiency already saves billions on energy costs and could save much more, while renewable energy is becoming cheaper than fossil fuel alternatives. They also help to achieve our climate targets. And fossil fuels are responsible for almost three-quarters of Australian emissions, so we need strong action to meet our international obligations.

The extension of the A$20,000 tax write-off for small business spending on equipment is a measure that, at least for small businesses, offsets a significant barrier to investment in energy efficiency. Firms will also be able to continue to claim the write-off to improve the economics of investments in on-site renewable energy and storage. Of course, the problem still remains for spending over A$20,000 by small businesses, and for larger businesses.

The energy security plan, which includes funding for ACCC to police energy industry behaviour is only a small step towards fixing the disastrous failures of energy policy and a transition to a 21st century energy policy framework. Much more will need to be done.

Hugh Saddler, Honorary Associate Professor, Centre for Climate Economics and Policy, Australian National University; Alan Pears, Senior Industry Fellow, RMIT University; Roger Dargaville, Deputy Director, Melbourne Energy Institute, University of Melbourne, and Tony Wood, Program Director, Energy, Grattan Institute

This article was originally published on The Conversation. Read the original article.

Three charts on: the incredible shrinking renewable energy job market


Paul Burke, Australian National University

This is the first piece in our new Three Charts series, in which we aim to highlight interesting trends in three simple charts. The Conversation

Australia is embarking on a transition from an electricity system that relies largely on coal to one that may one day be 100% renewable. Last week’s closure of the Hazelwood coal-fired generator was an important milestone on this path.

The development of the renewables sector has not, however, been a smooth ride.

Estimates released by the Australian Bureau of Statistics suggest that the number of direct full-time equivalent jobs in renewable energy activities has continued to fall from its 2011-12 peak. Over a period in which the Australian economy saw around 600,000 additional people get jobs, employment in the renewables sector has been going backwards.

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A small employer

The renewables sector is estimated to have directly provided only 11,150 full-time equivalent jobs in 2015-16. The Australian labour force exceeds 12.6 million people. The sector thus makes a small contribution to national employment, although one that is quite important in some local economies.

Around half of the jobs in renewables in 2015-16 were in installing (and maintaining) rooftop solar systems. Hydroelectricity generation provides 1,840 full-time equivalent jobs, a number that is likely to increase if pumped storage is to make a larger contribution to smoothing Australia’s electricity supply. Biomass provides 1,430 full-time jobs, and the wind industry around 620.

The fact that renewables is a small employer – especially once installations are up and running – is not a bad thing. If renewables were labour-intensive, they would be expensive.

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Up then down

The rise and then fall in renewables jobs is primarily a result of what has happened to installations of rooftop solar. The annual number of small-scale solar installations (PV and solar water heaters) skyrocketed over the four years to 2011. This rapid growth was spurred by generous feed-in-tariffs, rebates, and rules for federal government solar credits. There was also a national program to install solar panels on schools.

When these arrangements were curtailed, uptake fell. Annual installations of small-scale solar PV and water heaters are down by more than 60% from their peak. We are still installing a lot of new systems (more than 183,000 in 2016), but fewer than before. Employment estimates for small-scale solar closely track installation rates. The decline in employment in the wind energy sector is also worth noting.

The largest fall in renewables jobs has been in Queensland, a state that substantially tightened its feed-in-tariff scheme for rooftop solar in several steps from 2011 on. Queensland also holds the title of having Australia’s highest residential rooftop solar PV penetration rate (32%). South Australia is not far behind, at 31%.

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Ramping up large-scale renewables

Recent years of policy uncertainty and backtracking have not helped the rollout of large-scale renewables. The termination of Australia’s carbon price and downwards renegotiation of the Renewable Energy Target had chilling effects on investment.

Those events are now behind us. With continued reductions in the cost of renewables, brighter days for the sector appear to be ahead, especially if our governments get policy settings right.

We can expect particularly rapid growth in jobs installing large-scale solar PV. Just last week, for example, it was announced that South Australia is to have a large new solar farm.

Paul Burke, Fellow, Crawford School, Australian National University

This article was originally published on The Conversation. Read the original article.

With battery storage to the rescue, the Kodak moment for renewables has finally arrived


Kevin's Walk on the Wild Side

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AAP/Lukas Coch

David Holmes, Monash University

Who would have thought that, scarcely five weeks after Treasurer Scott Morrison, paraded a chunk of coal in parliament, planning for Australia’s energy needs would be dominated by renewables, batteries and hydro? The Conversation

For months now, the Coalition has been talking down renewables, blaming them for power failures, blackouts, and an unreliable energy network.

South Australia was bearing the brunt of this campaign. The state that couldn’t keep its lights on had Coalition politicians and mainstream journalists vexatiously attributing the blame to its high density of renewables.

But this sustained campaign, which would eventually hail “clean coal” as Australia’s salvation, all came unstuck when tech entrepreneur Elon Musk came out with a brilliant stunt: to install a massive battery storage system in South Australia “in 100 days, or it’s free”.

The genius of the stunt was not to win an instant contract to…

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Gas crisis? Energy crisis? The real problem is lack of long-term planning


Kevin's Walk on the Wild Side

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The long view: energy policy needs to stay firmly focused on the horizon.
Mattinbgn/Wikimedia Commons, CC BY-SA

Alan Pears, RMIT University

If you’ve been watching the news in recent days, you’ll know we have an energy crisis, partly due to a gas crisis, which in turn has triggered a political crisis. The Conversation

That’s a lot of crises to handle at once, so lots of solutions are being put forward. But what do people and businesses actually need? Do they need more gas, or cheaper prices, or more investment certainty, or all or none of the above? How do we cut through to what is really important, rather than side details?

The first thing to note is that what people really care about is their energy costs, not energy prices. This might seem like a pedantic distinction, but if homes and businesses can be helped…

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