Grattan on Friday: Labor’s energy policy is savvy – now is it scare-proof?


Michelle Grattan, University of Canberra

Hours before Bill Shorten delivered his energy policy on Thursday,
Scott Morrison’s office had circulated an attack.

Labor’s plan was for a “carbon tax”; the proposed subsidy for “pink
batteries” would leave households “$8000 out of pocket”.

It was a wild broadside that said much about how the government hopes
a massive scare campaign can be an effective front line weapon in next year’s election.

In 2016 Malcolm Turnbull declined to run a heavily negative campaign,
especially against Shorten personally. When things went pear-shaped he
was strongly criticised for his approach.

Tony Nutt, Liberal federal director at the time, speaking soon after
the election, defended the approach by saying research had confirmed
voters were sick of political aggression and wanted to see a positive
vision and plan. But others in the party were not convinced.

Labor, for its part, did very well with its “Mediscare”.

In more desperate circumstances and with a new leader, the Liberals at
the next election will go all out stoking fears. Morrison is a much
better negative campaigner than Turnbull ever could be: he delivers
lines sharply and is not troubled by inconvenient nuance.

The government, assisted by the cooling of the housing market, has
been stepping up its warnings about the effects on house prices of
ALP’s negative gearing plan. Labor’s proposed crackdown on cash
refunds from dividend imputation is also a ripe target, especially for
agitating retirees (although pensioners are exempt).




Read more:
Pensioners would retain cash refunds on franked dividends under Labor backdown


And now that Shorten has released the energy policy this week, the
Coalition is reaching back into the past for lines and spectres.

Labor’s promise to subsidise home batteries ($2000 for
households with incomes under $180,000) is dubbed “pink batts to pink batteries” to trigger memories of Kevin Rudd’s ill-prepared policy that cost several lives.

Energy Minister Angus Taylor went for the ultimate try-on, when he
posed outside the Tomago Aluminium Smelter in Newcastle and claimed
that “if all of Bill’s batteries were installed, it would keep this
smelter, this business, going for less than 15 minutes”. “Bill’s
batteries” are not, of course, aimed at powering Tomago.

The old line about the ALP putting a “wrecking ball” through the
economy with its policy is getting a fresh workout.




Read more:
Households to get $2000 subsidy for batteries under Shorten energy policy


In crafting its energy policy, Labor is drawing on different, more
recent history – the widespread support from the business community
and other stakeholders for the National Energy Guarantee that the
Coalition abandoned amid its leadership meltdown.

Shorten says a Labor government would try to get bipartisan agreement for a NEG, but not rely on doing so.

In an interventionist approach, Labor proposes an additional $10
billion for the Clean Energy Finance Corporation; its investments
would support large scale generation and storage projects.

Labor’s investment would be in renewables, pushing towards its target
of 50% of Australia’s energy coming from renewables by 2050. In
contrast, the government is planning early next year to have a “short
list” of dispatchable power projects, focusing on coal, gas and hydro,
that it will look at underwriting.

An ALP government would also provide $5 billion for “future-proofing”
the energy network – the transmission and distribution systems.

Labor’s energy policy is in the context of its commitment to a much
more ambitious emissions reduction target than the government has – a
45% economy-wide reduction by 2030 on 2005 levels, compared with the
Coalition’s 26%-28%.

This week’s announcement is about the energy
sector only – the opposition will release soon its climate change
policies to lower emissions in other sectors including
transport. The government, homing in on the 45% target, is conjuring up scares about the nation’s cattle herd and the like.

Labor claims its energy policy would drive power prices down; the
government says it would drive them up. In fact no one can be sure
what will happen in the next few years in a situation where we are
undergoing a major transition to a different energy mix.

Nor is it clear which side will win the coming debilitating round of the
energy-climate wars.

The ALP would be unwise to underestimate the power of the scare. On
the other hand, the government’s own policy looks like a
shredded garment now it has torn up the NEG. Its “big stick’,
including the threat of divestitures, and its promised “short list” of new
dispatchable power projects don’t really cut it.

Labor would be heartened by the early responses its policy is
receiving from business groups, despite their reservations.

In a crack at the government’s threat, the Business Council of
Australia welcomed “Labor’s commitment not to support heavy-handed,
intrusive changes into the energy sector such as forced divestiture”.

Most notable in the reaction of these groups, however, was their
hankering for the NEG.

The Ai Group said a revised NEG was “still achievable” and “would be
greatly preferable” to a government directly underwriting new
generation, versions of which were being proposed by both major
parties. The BCA was pleased Labor was taking the NEG to the election,
reiterating that it was “a credible, workable, market-based solution
to the trilemma of affordability, reliability and reducing our
emissions”. The Australian Chamber of Commerce and Industry was
likewise encouraged by the reference to the NEG.

This indicates that Labor’s decision to include the NEG in its plan is
not just sound on policy grounds but is politically savvy. By keeping
alive the NEG option, Labor has reached out to business.

Surely many Liberals are now starting to think that far from giving
themselves a break against Labor by rejecting the NEG, they may have
put themselves at a serious disadvantage which could be hard to
overcome even with a fierce scare campaign.

This also raises an interesting question for after the election, if
Labor wins. Given the widespread support for a NEG, would a Coalition
opposition persist in rejecting it? Much would depend on the factional
make up of the Liberal party of the day.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Advertisements

Households to get $2000 subsidy for batteries under Shorten energy policy


Michelle Grattan, University of Canberra

A Labor government would subsidise households to install batteries as part of the ALP’s energy policy to be unveiled by Bill Shorten on Thursday.

If Labor wins next year’s election, it would provide from 2020 a A$2000 rebate for 100,000 households, with annual incomes of less than $180,000, to buy and install battery systems. It would also provide low cost loans.

The ALP puts its emphasis on boosting the use of renewables, in a policy that keeps the National Energy Guarantee – abandoned by the government in the leadership meltdown – as an option on the table. The opposition indicates it is prepared to implement the NEG but its policy is providing for the future if agreement on it cannot be reached.

The ALP estimates the battery subsidy would triple the number of battery systems in Australian households. The policy sets a national target of one million household battery installations by 2025.

“The massive boost will also help manufacturers scale up production and reduce their costs”, Shorten and energy spokesman Mark Butler said in a statement.

They said the ALP policy would “help Australians slash their power bills.”

“The Smart Energy Council estimates that new household solar and batteries would allow most homes to save more than 60 per cent off their power bills”, Shorten and Butler said.

“Australians love renewable energy because they know it saves them money and it’s good for the environment”, they said, pointing out that household solar installation had rising from 7000 homes in 2007 to 1.8 million today.

“Supporting the installation of more household battery systems is the next big step in helping families keep their energy bills lower. When the sun goes down, or when electricity usage is at its peak, consumers can draw on their own stored energy”, Shorten and Butler said.

They said this was good for both consumers and the environment. People gained more control over their power bills, and cheaper and cleaner energy would help Australia achieve 50% of power from renewables by 2030.

A Labor government would also invest $100 million in a Neighbourhood Renewables Program, so renters and people in social housing could benefit from cheaper and cleaner energy.

The cost of the battery subsidy and the neighbourhood scheme is estimated at $215.9 million over the current forward estimates. The costing has been done by the independent Parliamentary Budget Office.

Shorten and Butler said Labor would “establish community power hubs to support the development of renewables projects in local communities – such as solar gardens on apartment rooftops, community wind farms, energy efficiency upgrades for social housing and grants for community groups to pilot new projects.”

They said the new initiatives built on Labor’s commitments to crack down on price gouging by power companies.

Labor’s policy on energy would create thousands of jobs in the renewable industry, they said.

In a speech to be delivered on Thursday, Shorten stresses a Labor government would seek bipartisanship on the NEG.

“We want a meaningful NEG that actually lowers prices, reduces pollution, and boosts renewables” he says in an extract released ahead of delivery.

“If I am elected as prime minister, I will sit down with the new opposition leader and the crossbench to talk about a way we can move forward with this framework,”

“But let’s be clear: we will work with the Coalition – but we will not wait for them. Our willingness to cooperate on a market mechanism doesn’t mean everything else gets put on hold,” Shorten says.

He says a Labor government would be prepared to directly underwrite and invest in cleaner cheaper power.

“We will prioritise renewables and support firming technology power like storage and gas. Labor will invest in new generation, in better transmission and distribution – because we realize this vital nation-building work cannot be left up to the big power companies.” Labor’s plan would deliver affordability, reliability and sustainability, Shorten says.

Labor’s battery subsidy program would be reviewed after two years, in light of projected falls in battery costs and to assess progress towards the one million new battery installations by 2025 target.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

State governments can transform Australia’s energy policy from major fail to reliable success


Tony Wood, Grattan Institute and Guy Dundas, Grattan Institute

This week we’re exploring the state of nine different policy areas across Australia’s states, as detailed in Grattan Institute’s State Orange Book 2018. Read the other articles in the series here.


Energy policy in Australia is a major failure. The federal government has been unable to forge an effective policy to ensure affordable, reliable and low-emissions electricity. It’s time for the states to step up.

Internationally, responsibility for climate change policies rests with national governments. The federal government says it remains committed to Australia’s target under the Paris Agreement, but it has abandoned the emissions-reduction obligation of the National Energy Guarantee (NEG). This leaves Australia’s electricity sector, which is responsible for 34% of our overall emissions, with no credible policy to reduce those emissions.

The states should fill this policy vacuum if it persists. They should work together on a nationwide emissions reduction scheme through state-based legislation, independent of the federal government. A Commonwealth-led national policy would be best, but a state-based policy is far better than none.




Read more:
The too hard basket: a short history of Australia’s aborted climate policies


In October 2018 the COAG Energy Council agreed to continue work on the reliability element of the NEG. The states and territories should maintain this support and implement this policy with the Commonwealth government, and so support the reliability of the National Electricity Market during a challenging transition.

The Grattan Institute’s State Orange Book 2018 shows that there is also much the states can do to reduce energy prices. Consumers are understandably upset – household retail prices have increased by more than half in the past decade, according to the Australian Competition and Consumer Commission (see page 7 here).

How your state measures up on energy.
Grattan Institute State Orange Book 2018

The federal government is certainly focused on price – Prime Minister Scott Morrison has referred to Energy Minister Angus Taylor as the “minister for getting electricity prices down” – but many important pricing policies depend on state action.

Retail pricing is the obvious example. Poorly regulated retail electricity markets have not delivered for consumers. Retail margins are higher than would be expected in a truly competitive market. Many consumers find the market so complicated they give up trying to understand it.




Read more:
A high price for policy failure: the ten-year story of spiralling electricity bills


State governments should work alongside the federal government to help consumers navigate the retail “confusopoly”. Governments should require retailers to help consumers compare offers and get the best deal. They should also stop retailers using excessive pay-on-time discounts (which tend to confuse rather than help consumers and can trap lower-income households), and ensure vulnerable customers do not pay high prices.

However, governments should resist the temptation to use price caps as a quick fix. If set too low, price caps could reduce competition and drive longer-term price increases.




Read more:
Capping electricity prices: a quick fix with hidden risks


Western Australia, Tasmania and the Northern Territory, which have not yet adopted retail competition, should move in that direction – while learning from the mistakes of others.

Network costs make up the biggest share of the electricity bill for most households (see page 8 here) and some small businesses. This is particularly an issue in New South Wales, Queensland and Tasmania, where network values increased substantially under public ownership and those costs were passed on to consumers.

These states should write down the value of their overvalued networks or provide rebates to consumers, so the price of the networks is more closely aligned to the value they provide to consumers. Given the poor performance of publicly owned networks, any network businesses still in government hands should be privatised.

Responsibility for setting network reliability requirements should be transferred to the Australian Energy Regulator to prevent risk-averse state governments from imposing excessive reliability standards, which would drive up network costs again.




Read more:
Amid blackout scare stories, remember that a grid without power cuts is impossible… and expensive


Until recently, it seemed state governments had learned the lessons from the bad old days of excessively generous subsidies for rooftop solar. That was until August 2018, when the Victorian government committed more than A$1 billion to pay half the cost of solar panels for eligible households and provide an interest-free loan for the remainder. Most of these systems would pay for themselves without subsidy. The Victorian government should abandon this waste of taxpayers’ money.




Read more:
Policy overload: why the ACCC says household solar subsidies should be abolished


Finally, Australia’s gas market is adding to the price pain of homes and businesses. As international prices rise, there is no easy way to avoid some painful decisions. But some state policies are making matters worse.

The Victorian and Tasmanian governments’ moratoria on gas exploration and development constrain supply and drive up prices. The moratoria should be lifted. Instead, these states should give case-by-case approval to gas development projects, with safeguards against specific risks.

Australia needs reliable, affordable electricity to underpin our 21st-century economic prosperity. That must be protected while we also decarbonise the energy sector.

Energy market reform was at the forefront of national competition policy in the mid to late 1990s. But reform has since slowed, and the states are partly responsible. The states can rekindle the fire by pursuing a clear, nationally consistent action plan for affordable, reliable and low-emissions electricity.

Australia’s households and businesses – and the environment – are relying on the states to step up.The Conversation

Tony Wood, Program Director, Energy, Grattan Institute and Guy Dundas, Energy Fellow, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.

At its current rate, Australia is on track for 50% renewable electricity in 2025


Ken Baldwin, Australian National University; Andrew Blakers, Australian National University, and Matthew Stocks, Australian National University

The Australian renewable energy industry will install more than 10 gigawatts of new solar and wind power during 2018 and 2019. If that rate is maintained, Australia would reach 50% renewables in 2025.

The recent demise of the National Energy Guarantee saw the end of the fourth-best option for aligning climate and energy policy, following earlier vetoes by the Coalition party room on carbon pricing, an emissions intensity scheme, and the clean energy target.




Read more:
The renewable energy train is unstoppable. The NEG needs to get on board


Yet despite the federal government’s policy paralysis, the renewable energy train just keeps on rolling.

Our analysis, released today by the ANU Energy Change Institute, shows that the Australian energy industry has now demonstrated the capacity to deliver 100% renewable electricity by the early 2030s, if the current rate of installations continues beyond the end of this decade.

Record-breaking pace

Last year was a record year for renewable energy in Australia, with 2,200 megawatts of capacity added. Based on data from the Clean Energy Regulator, during 2018 and 2019 Australia will install about 10,400MW of new renewable energy, comprising 7,200MW of large-scale renewables and 3,200MW of rooftop solar (see charts below). This new capacity is divided roughly equally between large-scale solar photovoltaics (PV), wind farms, and rooftop solar panels. This represents a per-capita rate of 224 watts per person per year, which is among the highest of any nation.

Actual and probable deployment of large-scale (more than 0.1MW) systems in Australia. About 4,000MW per year is currently being installed.
Clean Enegy Regulator/ANU, Author provided
Annual small-scale (less than 0.1MW) rooftop PV capacity additions including an estimate of 1,600MW for the whole of 2018 based on installations for the year to June.
Clean Energy Regulator/ANU, Author provided

If the current rate of renewable energy installation continues, Australia will eclipse the large-scale Renewable Energy Target (LRET), reaching 29% renewable electricity in 2020 and 50% in 2025. It may even surpass the original 41 terawatt-hour (TWh) target, which was downgraded by the Abbott government to the current 33 TWh.

Our projections are based on the following assumptions:

  • demand (including behind-the-meter demand) remains constant. Demand has changed little in the past decade

  • large- and small-scale solar PV and wind power continue to be deployed at their current rates of 2,000MW, 1,600MW and 2,000MW per year, respectively

  • large- and small-scale solar PV and wind continue to have capacity factors of 21%, 15% and 40%, respectively

  • existing hydro and bio generation remains constant at 20 terawatt-hours per year

  • fossil fuels meet the rapidly declining balance of demand.

No subsidies needed

Renewable energy developers are well aware of these projections, which indicate that they believe that little or no financial support is required for projects to be competitive in 2020 and beyond.

Indeed, the current price of carbon reduction from the government’s existing Emissions Reduction Fund (A$12 per tonne, equivalent to A$11 per MWh for a coal-fired power station (at 0.9 tonnes per MWh), would be sufficient to finance many more renewable energy projects.

The current deployment rate might continue because:

  • large-scale generation certificates will continue to be issued by the Clean Energy Regulator to accredited new renewables generators right up until 2030

  • renewable investment opportunities are broadening beyond the wholesale electricity market, as companies value the economic benefits and green profile of renewable energy supply contracts. For example, British steel magnate Sanjeev Gupta has announced plans to install more than 1GW of renewable energy at the Whyalla steelworks, and Sun Metals in Townsville has already installed 125MW of solar capacity

  • the price of wind and PV will continue to fall rapidly, opening up further market opportunities and putting downward pressure on electricity prices

  • increased use of electric vehicles and electric heat pumps for water and space heating are expected to increase electricity demand. This increased demand is expected to be met by wind and solar PV, which represent almost all new generation capacity in Australia

  • retiring existing coal power stations are being replaced by PV and wind.

A renewables-powered grid

As the electricity sector approaches and exceeds 50% renewables, more investment will be required in storage (like batteries and pumped hydro) and in high-voltage interconnections between regions to smooth out the effects of local weather and demand.

We have previously shown the hourly cost of this grid balancing is about A$5 per MWh for a renewable energy fraction of 50%, rising to A$25 per MWh at 100% renewables.

Modelled increase in annual PV and wind generation (TWh) and the consequent reduction in fossil generation based on extrapolation of current industry deployment rates for renewables.
ANU, Author provided

What do our projections mean for Australia’s greenhouse gas emissions? In 2017 these emissions were 534 megatonnes (MT). Under the Paris Agreement, Australia has undertaken to reduce greenhouse gas emissions by 26%, from 612MT per year in 2005 to 453MT per year by 2030. This is a reduction of 81MT per year from current emissions.

We assume that all emission reductions are obtained within the electricity system through progressive closure of black coal power stations, which emit an average of 0.9 tonnes of carbon dioxide per MWh of electricity.

On this basis, emissions in the electricity sector will decline by more than 26% in 2020-21, and will meet Australia’s entire Paris target of 26% reduction across all sectors of the economy (not just “electricity’s fair share”) in 2024-25.




Read more:
The government is right to fund energy storage: a 100% renewable grid is within reach


Our analysis shows Australia’s renewable energy industry has the capacity to deliver deep and rapid emissions reductions. Direct government support for renewables would help, but it is no longer vital.

Government support for stronger high-voltage interstate interconnectors and large-scale storage projects (like the Snowy 2.0 pumped hydro proposal) will allow 50-100% renewables to be smoothly integrated into the Australian grid. What is crucial is government policy certainty that will enable the renewable industry to realise its potential to deliver deep emissions cuts.The Conversation

Ken Baldwin, Director, Energy Change Institute, Australian National University; Andrew Blakers, Professor of Engineering, Australian National University, and Matthew Stocks, Research Fellow, ANU College of Engineering and Computer Science, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Explainer: what is energy security, and how has it changed?


Samantha Hepburn, Deakin University

The idea of energy security has been at the centre of much policy debate recently. The federal government defines energy security as the adequate supply of energy across the electricity, gas and liquid fuel sectors.

But this notion has become outdated, following the spate of electricity blackouts that have occurred in the past few years. The concept of energy security is now increasingly synonymous with resilience: responding to problems quickly and avoiding power outages.




Read more:
Trust Me I’m An Expert: Why February is the real danger month for power blackouts


To be secure, the national energy market must ensure a sufficient supply of electricity at an affordable price and be able to respond to major disruptions. Being “energy secure” in this context now means having a backup plan. Unfortunately, Australia doesn’t.

All about oil

Historically, energy security was purely about oil supply. It evolved as a policy response to the 1973 Arab oil embargo. At the time, the aim was to coordinate among the industrialised countries if supply was disrupted, to avoid future supply problems and to deter exporters from using resources as a strategic weapon. Four key developments emerged from the embargo:

  • the International Energy Agency (IEA), whose members are the industrialised countries;

  • strategic stockpiles of oil, including the US Strategic Petroleum Reserve;

  • continued monitoring and analysis of energy markets and policies; and

  • energy conservation and coordinated emergency sharing of supplies in the event of a disruption.

Australia is not ‘secure’

When Australia joined the IEA in 1979, it was a net exporter of oil and was therefore exempt from the requirement to stockpile liquid fuel. Since this time, however, Australia’s oil production has peaked and is now in decline.

Reasons for this are various but include the reduction in oil refining capacity and significant increases in reliance on imported oil products.

In 2012 Australia became non-complaint with the IEA requirement that all members maintain oil stocks equivalent to at least 90 days of the previous year’s daily net oil imports.

In contrast with many other IEA members, Australia does not have a public (or government-owned) stockpile of oil and has instead relied on commercially held stocks. Currently, Australia has an aggregated fuel reserve of roughly 48 days, including about 22 days’ supply of crude oil, 59 days of LPG, 20 days of petrol, 19 days of aviation fuel, and 21 days of diesel.




Read more:
Australia’s fuel stockpile is perilously low, and it may be too late for a refill


This lack makes Australia very vulnerable in a crisis – 98% of our transportation relies on liquid fuel, as do all of our major defence platforms. An extended disruption means our economy, policy force and army could cease to function.

While the federal government intends to return to compliance by 2026, our ongoing failure to understand and respond to a changing environment has resulted in us becoming, at least in the context of liquid fuel, energy “insecure”.

Are we ready for a new approach?

The modern energy landscape is complex, and energy security is a much broader and more dynamic concept than it was thirty years ago. Public expectations have also evolved. Australia must address a multitude of new challenges that include: climate change, integrating renewable energy, rising peak demand, rising domestic gas prices and a raft of new geopolitical rivalries.

In many parts of the world, mechanical and analogue systems traditionally powered by oil-products, have been replaced with automated and networked systems that run on electricity. As a result, the number of digitally connected devices has grown from 400 million in 2001 to in excess of 25 billion in 2018.

These changes make electricity and natural gas, in addition to oil, key supports of many facets of society. They ensure that the modern world is completely dependent on energy generation. Within this context, resilience is a critically important requirement.

Future energy systems, responsive to this enlarged concept of energy security will therefore look very differently. Large fossil fuel and synchronous generators will be replaced by a clean electricity system composed of small-scale, clean asynchronous generators. It will mix large renewable projects (which will mean extending the physical transmission network) with distributed energy generation (for example, from rooftop solar), and the network will require new systems to ensure coordination and stability.

Renewable energy is an important component of energy security but it works differently to fossil fuels. For example, inertia functions differently. Inertia is the capacity of a power system to respond to unexpected shocks, and its ability to react and stabilise the system’s balance.

Inertia slows down the rate at which frequency changes after a disruption in the grid, such as the failure of a power plant or a transmission line. Inertia has traditionally been provided by fossil fuel generators. However, within a mixed energy framework, renewables will provide synthetic inertia. For example, modern wind turbines can use the kinetic energy stored in the generator and blades to be responsive during grid stress. This can provide an efficient injection of power into the grid where it is required, and the delivery can be flexibly controlled to suit regional grid conditions. New storage technologies will, however, need to be incorporated into networks early so their application in practice can be understood.

These are all responses to a new understanding of energy security. Today, what is essential to the definition of energy security is not just an adequate supply of energy at an appropriate price but an adequate supply of sustainable, resilient energy at an appropriate price, which is responsive to the demands of a decarbonising economy.




Read more:
At its current rate, Australia is on track for 50% renewable electricity in 2025


In light of this, energy security is perhaps even more crucial in our modern world than it was back in 1973. Understanding the evolving meaning of energy security means we are better equipped to comprehend the different ways in which our global interconnection can make us vulnerable.

We need to minimise risk and reduce exposure. We need to imagine what a secure energy framework of the future looks like. We need energy policy that is more responsive to the social, economic and environmental demands of modern Australia.The Conversation

Samantha Hepburn, Director of the Centre for Energy and Natural Resources Law, Deakin Law School, Deakin University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Coal does not have an economic future in Australia


Frank Jotzo, Crawford School of Public Policy, Australian National University and Salim Mazouz, Australian National University

Renewables are stealing the march over coal in Australia, and the international outlook is for lower coal demand. Today the international Coal Transitions project released its findings, based on global coal scenarios and detailed case studies by teams in China, India, South Africa, Australia, Poland and Germany.

Our research on Australian coal transition – based on contributions by researchers at the Australian National University and the University of Melbourne – looks into the prospects for coal use in Australia and for exports, and the experiences with local transition in the case of the Hazelwood power station closure.




Read more:
Hazelwood closure: what it means for electricity prices and blackouts


Coal exports

Coal production in Australia is likely to be on a long term declining trajectory. Almost all coking coal (coal used for making steel) mined in Australia is exported, as is around 70% of steam coal (for electricity generation). Australia supplies about a fifth of the global steam coal trade.

A question mark hangs over the future of steam coal exports. Economic, technological and policy developments in other countries all point to likely falling coal use over time. The international coal transitions synthesis report expects that global coal consumption will go into reverse by the early 2020s.

In most industrialising countries, there are big concerns about local air pollution, and renewable power alternatives are becoming cost-competitive with coal. Add to that the pressure to meet Paris emissions targets.

China and India, on which much of the hopes of Australia’s coal export industry are pinned, mine coal themselves. When overall coal use in these countries falls, imports may be curbed, if only because of pressures to prop up domestic coal mining.

Coal in Australia’s power sector

Most coal used in Australia is for power generation. We are at the start of a fundamental change in the system, where coal power will be replaced by renewables, with energy storage and flexible demand-side response to firm up the system.




Read more:
Want energy storage? Here are 22,000 sites for pumped hydro across Australia


This change now reflects market economics. New wind farms and solar parks can now provide energy at much lower cost than any new fossil fuel powered generators. A new coal fired power plant would need subsidies, take a long time to build, and suffer exposure to future carbon policy.

The competition is now between renewables and existing coal fired power stations. Wind and solar power cost next to nothing to run once built, so they are dispatched first on the grid and tend to bring wholesale market prices down. In turn, the economics of coal power plants deteriorates. They will not be able to sell as much power, and get lower prices on average for every megawatt-hour of electricity produced. New wind and solar is now contracted at prices close to the operating cost of some existing coal plants, and renewables costs are falling further.

Coal plants will be less and less profitable. They will tend to be shut down earlier, typically when major repairs or overhauls are due. Major refurbishments will tend to become unattractive. And the system does not need coal plants to run reliably. A combination of regionally dispersed renewables, pumped hydro and battery storage, gas plants and demand response will do the job.

It is difficult to predict just when coal plants will shut down. The following graphic illustrates the difference between a flat 50-year retirement pattern (as used for example by the Australian Energy Market Operator), with plants retiring at 40 years of age, in line with the average retirement age of plants over the past decade, and two illustrative scenarios that capture the fact that coal plants will come under increasing economic pressure.

In our “moderate” scenario, remaining coal plants retire at 55 years in 2017 and progressively retire younger until they exit at age 30 by 2050. In our “faster” scenario, plants exit at 50 years now, then progressively younger until they exit at age 30 by 2030.

Coal closure scenarios from Coal Transitions Australia report.

Even more rapid closure scenarios are plausible if the cost of renewables and storage continue on their recent trends. We do not present them here, instead opting for relatively conservative assumptions.

The pace of closure makes a big difference to emissions. In the “moderate” scenario, cumulative emissions from coal use are around 2.6 gigatonnes of carbon dioxide (GtCO₂) during 2020-50, and in the “faster” scenario around 1.8 GtCO₂.

As a reference point, a “2 degree compatible” emissions budget for Australia proposed by Australia’s Climate Change Authority has a total national emissions budget of around 5.8 GtCO₂ from 2020-50. Our “moderate” scenario has coal emissions take up around 44% of that cumulative emissions budget, while the “faster” scenario takes up around 32%. By comparison, coal currently makes up around 30% of Australia’s annual net emissions.

It is no longer true that reducing emissions in the electricity sector necessarily means higher prices. These days, and in the future, having policy to guide the replacement of ageing coal capacity with cheap renewables is a win-win for consumers and the environment.

We had better get ready

We better put our efforts in preparing for the transition, rather than trying to stem the tide. That includes a meaningful policy treatment of carbon emissions, and mechanisms to allow more predictable exit pathways. The relatively sudden closures of the Hazelwood power station is an example of how not to manage the transition.

Wholesale prices jumped up because the replacement investment takes time, and governments scrambled to provide support to the local community after the fact.

We can do much better. Australia is well placed for a future built on renewable energy. The change can be painful if it’s not well managed, but the future looks bright.




Read more:
Australia is not on track to reach 2030 Paris target (but the potential is there)


The Conversation


Frank Jotzo, Director, Centre for Climate Economics and Policy, Crawford School of Public Policy, Australian National University and Salim Mazouz, Research Manager, Crawford School of Public Policy; and Principal at NCEconomics, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

If the NBN and Snowy Hydro 2.0 were value for money, would we know?


Rosalind Dixon, UNSW and Richard Holden, UNSW

When Malcolm Turnbull wrote to his electorate last week outlining his
achievements he listed economic growth, jobs, same-sex marriage and a number of really big construction projects including the Western Sydney airport, Melbourne to Brisbane inland rail, and Snowy Hydro 2.0.

Some people will like those and other big projects, some will not. But, combined, they are going to cost more than $75 billion over the next ten years, so it is worth asking as a separate (threshold) question whether they are likely to be value for money.

For some of them, such as the National Broadband Network or the Gonski education
reforms, its worth asking whether we might get better value if we spent even more. Turnbull’s downsizing of Labor’s original NBN plan made it cheaper, but not necessarily better.

For goods provided for a social purpose, value for money is about more than profit. But social returns often get left out of the equations because they are harder to measure. In a paper to be launched on Monday night as part of the University of NSW Grand Challenge on Inequality, we put forward a mechanism for considering both together.

How it’s done in the private sector

In the private sector any significant investment decision requires a summation of future costs and benefits discounted (cut) by a few per cent each year to accord with the reality that future costs and benefits matter less to us than immediate payoffs or costs.

If the project makes sense when the discount rate is set at or above the firm’s cost of capital (or hurdle rate of return) it is worth agreeing to. If its benefits are so far into the future that they only make sense with a very low discount rate it is said to be not worth proceeding with.




Read more:
The NBN: how a national infrastructure dream fell short


There is no reason why we can’t do the same for public sector projects as well, although assessing the benefits is complicated.

This is where the revolution in empirical economics and social science over the last two decades comes in.

How to measure what’s hard to measure

Consider a proposal to lengthen the school day by two hours. The costs are relatively easy to calculate: some more teacher time, slightly larger utility bills. Maybe some more pencils.

The benefits are more complex. Does a longer school day lead to better educational outcomes? What does that lead to late in life? How can we tell?

Modern social science has a well-refined method for answering these questions – the randomised controlled trial. Take 50 randomly selected schools and lengthen their school day, then compare the outcomes on standardised tests to a group of control schools. This reveals the true, causal impact of a longer school day on test scores.

Test scores are obviously not an end in themselves, but these can then be mapped all the way through into high school and post-secondary outcomes, and then into labour market and later life outcomes. This would naturally involve understanding the impact on earnings, but also outcomes such as crime and physical and mental health.

Answering these questions persuasively is what modern social science, armed with amazing data and great computing power, does extremely well. Just as a pharmaceutical trial gives one group, say, heart medication and another group a placebo, randomised trials can increasingly guide public policy.

Trying it out

Our study includes a demonstration of that sort of analysis on the money that will spent on the National Broadband Network and the National Disability Insurance Scheme.

We find that, taking into account social benefits such as telemedicine and the expansion of skills, the money being spent on the NBN will make sense even at a very high discount rate of 15.2%. Labor’s original more expensive fibre-to-the-premises model would have made sense at an even higher discount rate of 21.1%.




Read more:
Explainer: how much does the NDIS cost and where does this money come from?


The benefits of the National Disability Insurance System are harder to measure. But, when account is taken of the value of reducing stress in carers and value of independence to those being cared for, it too becomes worthwhile at reasonable discount rates.

Politics, and political debate, will still need ultimately to control these sorts of investment decisions.

But the debate would be far better if we had a common language for assessing the relevant costs and benefits, and a more principled way of prioritising the competing demands on the public purse.The Conversation

Rosalind Dixon, Professor of Law, UNSW and Richard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Capping electricity prices: a quick fix with hidden risks


Guy Dundas, Grattan Institute

Governments have got the message: Australians are angry about electricity prices. On Monday, Prime Minister Malcolm Turnbull announced a decisive shift away from reducing emissions to reducing prices.

This move means that both the federal government and the opposition have adopted an Australian Competition and Consumer Commission (ACCC) recommendation to cap electricity prices through a regulated “default offer”, although whether the states and territories will support this approach is unclear.

The good news is that price caps will probably work as advertised. That is, they will reduce prices for a relatively small number of customers who are currently on bad deals.

The bad news is that capping prices could also have unintended consequences.




Read more:
A high price for policy failure: the ten-year story of spiralling electricity bills


Electricity prices have risen much faster than inflation for more than a decade. From around 2005 to 2014 the cost of the electricity network (the “poles and wires”) increased substantially, mainly through over-investment by various state government owners, and highly prescriptive (and expensive) reliability standards.

Since 2016, wholesale electricity prices have increased rapidly as gas prices have risen and as old coal-fired power stations were retired at the end of their life, reducing supply. During the same period governments required prices to rise to pay for renewable energy subsidies, particularly for rooftop solar systems.

Together, these three factors account for about 80% of the increase in household electricity prices over the past decade. Bashing big companies is the flavour of the month, but there was not a lot that energy companies such as AGL, Origin and EnergyAustralia could realistically have done to mitigate any of this.

Change in average residential customer effective prices (c/kWh) from 2007–08 to 2017–18 across the National Electricity Market (prices in real 2016–17 dollars, excluding GST).
ACCC

But several other factors have driven prices still higher, including the substantial profit margins charged by the big energy retailers. This prompted the ACCC’s recommendation of a “default offer”, to ensure that a customer who does not sign up to a market contract pays no more than a regulated price.

Household savings?

Both sides of politics say that this policy will save some households more than A$100 a year. But this is only true of the relatively small number of households who have not signed a contract with a retailer and so are on a “standing offer”.

In Victoria, the state with the most developed retail market, this is only 7% of households. That figure is higher where price controls have been removed more recently (around 19% in Southeast Queensland), but it is declining rapidly (see page 244 here).

So there will be large savings, but only for a small proportion of households. What’s more, the ACCC’s analysis suggests that the measure will not particularly benefit lower-income households, because those on hardship payment programs are less likely to be on a standing offer (see page 245 here). Think beach houses, not working families.

A quick fix

The danger is that politicians may be tempted to use price caps as a quick fix to reduce prices across the board. Given the many factors that have pushed up electricity prices in recent years, this approach is likely to be counterproductive.

It is likely to damage competition and inadvertently benefit the biggest power companies. An aggressively low price cap would make it impossible for many retailers to recover their genuine costs of supplying electricity. Fewer retailers would mean increased market concentration. And because most power companies are both retailers and generators, a small saving for consumers from lower retail margins could be more than offset by price increases resulting from a less competitive wholesale market.

Now is not the time to abandon market-based competition, given the rapid change in Australian and global energy markets. International companies such as Neoen, SIMEC ZEN, Total Eren and BayWa r.e. are investing in renewable generation and battery storage, and increasingly selling power directly to commercial and industrial customers. It is only a matter of time before these players begin to compete in the wider retail market.

What’s more, while product innovation in retailing has been limited to date (indeed, one of the critiques of a competitive electricity retail market is that they are all supplying the same electrons through the same wires), the prospects for future innovation are good. Rooftop solar panels and batteries provide a new way to supply power, and companies can increasingly use data from smart meters to inform and empower consumers.




Read more:
The solar panel and battery revolution: how will your state measure up?


It is understandable that governments want to protect consumers from high electricity prices. A modest price cap through a default offer, implemented cautiously, might be analogous to existing measures under Australian consumer law that limit excessive credit card payment surcharges. But the ACCC does not directly regulate credit card fees, and nor should governments directly regulate electricity prices, the drivers of which are complex and constantly changing. Rather, the focus should be on helping consumers to navigate a competitive electricity market.

<!– Below is The Conversation's page counter tag. Please DO NOT REMOVE. –>
The Conversation

The ACCC’s default offer recommendation is not just about capping prices for a small number of disengaged customers. It is also intended to provide a clear benchmark against which all customers can compare offers and get a fair deal. Both major federal parties have indicated their support for a range of ACCC proposals to help consumers understand electricity prices. The government should implement the full package, with price caps playing a limited role, if any. Price caps are a seductive short-term solution with dangerous longer-term consequences.

Guy Dundas, Energy Fellow, Grattan Institute

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

View from The Hill: Energy policy and Turnbull’s leadership plunge into debilitating uncertainty


Michelle Grattan, University of Canberra

The most fraught day of his prime ministership has seen the implosion of one of Malcolm Turnbull’s key policy pledges – to deliver certainty on energy policy – that only weeks ago seemed on course.

As Turnbull threw everything at shoring up his leadership, business critics denounced the compromise he unveiled to appease rebellious backbenchers.

His energy policy rework placated some internal dissidents, but the capitulation has left his authority weakened and the issue itself back in confusion. Stakeholders have been left dismayed and bewildered.

After the announcement, the government was insisting the National Energy Guarantee policy was alive, as some of its backbench critics were pronouncing its demise.

Asked “is the National Energy Guarantee dead?” Treasurer Scott Morrison said on Sky, “No, not at all. It remains government policy.” He told the ABC: “The policy remains as we took it to the party room with improvements.”

But Kevin Andrews, one of Tony Abbott’s close allies, told Sky: “The reality is that the NEG, for at least the term of this parliament, is dead in the water. There is more chance of seeing a Tyrannosaurus in the local suburban street than seeing this legislation come into the parliament.”

Turnbull’s energy compromise has two parts.

First, legislation to set the 26% emissions reduction target has been shelved, on the ground that a bunch of Coalition MPs would cross the floor.

Turnbull didn’t dare to risk the hazardous route of negotiating the legislation’s passage with Labor, which might have come to nothing but an embarrassing failure, and anyway would have incited the hardliners in his ranks. And a brief flirtation with implementing the target by regulation was abandoned after that caused its own backbench backlash.

Second, a set of highly interventionist measures will be rolled out for use against recalcitrant power companies, including the possibility of breaking up those which abuse their market power.

The initiatives are based on the recent report from the Australian Competition and Consumer Commission, but even the ACCC didn’t support divestiture.

“Requiring the divestiture of privately owned assets is an extreme measure to take in any market, including the electricity market,” it said.

It is certainly an extraordinary course for a pro-market Liberal prime minister to contemplate.

Notably, the Nationals were happy – they had been pressing for the government to take this route. As former deputy prime minister Barnaby Joyce said with enthusiasm, it means “if you play up, we can break you up”.

So where is the great NEG adventure left?

Battered by political bastardy, with months of good work by Energy Minister Josh Frydenberg trashed. Without a legislated target. With less chance of an agreement with the states, which need to tick off on the mechanism. Throwing up fresh problems for investors and promising a continuation of the political climate wars.

As Innes Willox, chief executive of the Australian Industry Group put it succinctly: “Long-term investment certainty in the energy sector remains further away than ever. Despite the best efforts and goodwill of many, energy policy has again fallen victim to short-term political gamesmanship”.

And where is Turnbull’s leadership left, as backbenchers contemplate whether they would be better off under a Peter Dutton prime ministership?

No one quite knows.

Morrison told the ABC: “I spoke to Peter today in Question Time and he said his position hadn’t changed and he was fully supportive of the Prime Minster and the government’s policies.”

Just think about that. The Treasurer is asking (in question time no less) a senior cabinet colleague about his intentions.

Basically anything could happen, anytime.

On Tuesday morning, as chance has it, there is a separate Liberal party meeting, before the joint Coalition parties meeting. At the very least, it will be an interesting discussion. Whether more occurs, who knows?

On Monday night Dutton, the man on the leadership stair, was reportedly very angry after the Ten Network ran a story raising a question about his eligibility for parliament under section 44’s pecuniary interest provision.

Ten has said the story was not political leak, and the timing coincidental. But Dutton would naturally see it as a strike from the Turnbull camp.

If the next few days go quietly, Turnbull will live now from poll to poll, with enemies circling like crows over a weakened animal.

Those enemies could hardly have anticipated they would be able to do so much damage to him, in just a week, after a Coalition parties meeting that actually strongly endorsed the original NEG policy.

<!– Below is The Conversation's page counter tag. Please DO NOT REMOVE. –>
The Conversation

They’re watching, waiting. If, or when they judge Turnbull is vulnerable – that he has lost his numbers – they are ready to strike. Now or later.

Michelle Grattan, Professorial Fellow, University of Canberra

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

Malcolm Turnbull shelves emissions reduction target as leadership speculation mounts


File 20180820 30593 87nest.jpg?ixlib=rb 1.1
The government has shelved any move to implement the 26% reduction in emissions because it cannot get the numbers to pass legislation in the House of Representatives.
AAP/Mick Tsikas

Michelle Grattan, University of Canberra

Malcolm Turnbull has announced the government will shelve any move to implement the 26% reduction in emissions because it cannot get the numbers to pass legislation in the House of Representatives.

The desperate attempt to quell the rebellion in his ranks comes as Turnbull’s leadership is under mounting pressure, with speculation about a leadership bid sooner or later from Home Affairs Minister Peter Dutton.




Read more:
View from The Hill – It’s time for Turnbull to put his authority on the line


But Turnbull told a news conference that Dutton had been at Monday morning’s leadership meeting and “has given me his absolute support”.

“I enjoy the confidence of cabinet and of my party,” he declared.

In a package of changes to the National Energy Guarantee, Turnbull announced the government would move for extraordinarily strong measures to be available against companies that do not give consumers a fair deal, including ultimate divestment.

The government has retreated from Turnbull’s Friday compromise move of implementing the 26% reduction target by regulation. That idea, aimed at denying critics the opportunity to cross the floor, sparked a fresh backlash from Coalition MPs who thought it would make it easier for a Labor government to increase the target.

“Our policy remains to have the emissions intensity standard in the legislation,” Turnbull said at a news conference.

But “as John Howard said, politics is governed by the iron laws of arithmetic and in a House of Representatives with a one seat majority, even with strong support in the party room, if a small number of people are not prepared to vote with the government on a measure then it won’t get passed. So that’s the reality.”

He said the government would bring the target legislation forward “where and when we believe there would be sufficient support in the House of Representatives and obviously in our party room to progress this component of the scheme”.

Turnbull has been frantically seeking any means to pacify his critics, as Tony Abbott and other hardliners are determined to use the energy issue to try to bring him down.

However, it is unlikely his latest move will satisfy his most trenchant opponents. Critics such as Eric Abetz are broadening their attacks on Turnbull to call for government policy changes in other areas, including immigration.

Turnbull admitted he had not personally spoken to Labor to determine whether it would support the emissions legislation, which would give it the numbers in the House.

The shelving of the emissions legislation could cause the Labor states – yet to sign off on the National Energy Guarantee – to walk away from the broad NEG scheme.

Under the initiatives to try to drive down electricity prices announced by Turnbull, a “default market offer” would be set, from which all discounts would be calculated.

“Consumers will be able easily to compare offers from different companies and recognise when they’re being ripped off or when they’re getting a fair deal,” Turnbull said.

He said the Australian Competition and Consumer Commission estimated that for average customers on an inflated standing offer, the savings on moving to a new default market offer could range between $183 and $416 a year. For the average small to medium business the move could save between $561 and $1457.

Turnbuil said the ACCC would be given new powers to “step in where there has been abuse or misuse of market power.

“In the most egregious cases of abuse, additional powers will be conferred on government to issue directions on operations, functional separation and even, as a last resort, divestiture of parts of the big power companies,” Turnbull said.

At his news conference, where he was flanked by Treasurer Scott Morrison and Energy Minister Josh Frydenberg, Turnbull rejected a reporter’s suggestion that he had just delivered Tony Abbott’s policy. Abbott has wanted the emission target dropped and Australia to walk away from the Paris climate agreement.

“Our energy policy remains the same, but we are not going to present a bill into the House of Representatives until we believe it will be carried,” Turnbull said.

“We obviously need the support of sufficient of our colleagues to get it passed and that means, you know, substantially all of them.”

On Paris, he said: “We are parties to the Paris Agreement and the government has committed to that”.

The president of the Queensland Liberal National Party, Gary Spence, is urging MPs from Queensland – a vital state at the election – to replace Turnbull with Dutton.

Meanwhile, Western Australian Liberal senator Linda Reynolds strongly backed Turnbull, telling Sky she “absolutely” believed he would be prime minister at the election.

Former deputy prime minister Barnaby Joyce welcomed the government’s crackdown on power companies saying it was a good outcome. He was particularly pleased with the divesture power, which meant “if you play up, we can break you up”. Turnbull had shown his “capacity to listen”.

Throwing his weight behind the revised package, Joyce said “it’s a great move today.” Asked on Sky about the leadership, he said “I don’t think changing prime ministers looks good.” He also dismmissed Spence’s call for a move to Dutton saying the parliamentary wing should not be confused with the branch members.

Monday 2:33pm

UPDATE: Nationals enthusiastic about revisions but energy industry is critical

The Nationals have swung in strongly behind the revised package.

Deputy Prime Minister Michael McCormack and his senior ministerial colleagues held a joint news conference to back the enhanced measures to attack high prices.

Nationals who previously had been dissidents, including former prime minister Barnaby Joyce, made separate supportive comments.

The fact the backbench Nationals have been brought back into the tent is important for Turnbull, because it leaves the Liberal hardliners more isolated.

The Nationals are particularly enthusiastic about the commitment to embrace the ACCC recommendation for the government to underwrite investment in projects for new dispatchable power undertaken by new players.

Although the recommendation is technology-neutral, the Nationals see this as a pathway for new coal projects. Nationals deputy leader Bridget McKenzie said: “I’m not afraid to say the C-word: coal, coal, coal is going to be one of the areas we invest in.”

Queensland Nationals backbencher George Christensen, said: “We have a new energy policy thanks to a band of ‘Liberal National rebels’ who stood firm and fought for common sense.”

Christensen said: “What has been announced this morning puts price reductions first and foremost, so pensioners struggling to pay their power bills come before the ‘feel good’ Paris Agreement.”

Another Nationals backbencher, Andrew Gee, welcomed “plans to abandon the National Energy Guarantee”. “It shows that if you stand up and be counted you can actually make a difference, but it’s disappointing that it took this long”.

Opposition leader Bill Shorten labelled Turnbull “truly a white flag prime minister”. “Every day it is a new policy
from the government, a new policy not designed to lower energy prices but just for Mr Turnbull to keep his job from his enemies,”

“Mr Turnbull has demonstrated that he is not the leader this nation needs. Real leadership is about fighting
for the principles you believe in. Real leadership is about not always giving in to your enemies every time they disagree with you,” Shorten said.

Labor states and the ACT were scathing.

Victorian Energy Minister Lily D’Ambrosio said: “I’m not sure Malcolm Turnbull knows what the NEG is anymore – or if it still exists.”

“We’ll carefully consider whatever energy policy emerges out of the infighting going on up in Canberra.”

Queensland premier Annastacia Palaszczuk said “what we are seeing today is energy policy in free fall”.

The ACT minister for Climate Change, Shane Rattenbury said the federal government had now completely capitulated on emissions and climate change, and abandoned the Paris Climate Change commitments.

“The NEG is dead. It was hailed as a policy to address the ‘trilemma’ of prices, reliability and emissions reduction. Instead, Federal energy policy is being determined by the worst, climate change denying elements of the Liberal Party,” Rattenbury said.

The Australian Energy Council’s chief executive, Sarah McNamara, criticised the government’s announcement, saying it “has left the most critical policy, the National Energy Guarantee, in limbo.

“Re-regulation of electricity prices and aggressive market interventions are not the long-term answer to high energy prices,” she said.

“The NEG and policy stability remain the long-term solution to bringing down prices.”

McNamara said that “replacement investment demands bipartisan policy and the lack of it remains the biggest drag on the energy market.”

“This is policy with no consultation,” she said.
“Re-regulation has the very real potential to damage competition and confidence.”

McNamara said increasing the ACCC’s powers to allow divestment of private assets was not supported by the ACCC’s own report.

<!– Below is The Conversation's page counter tag. Please DO NOT REMOVE. –>
The Conversation

The Council represents 21 major electricity and downstream natural gas businesses operating in competitive wholesale and retail energy markets. They collectively generate the overwhelming majority of electricity in Australia.

Michelle Grattan, Professorial Fellow, University of Canberra

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