Grattan on Friday: King Coal is wearing big boots in the Turnbull government



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Labor mentioned Scott Morrison’s ‘pet rock’ during Question Time on Tuesday.
Lukas Coch/AAP

Michelle Grattan, University of Canberra

It took quite a while, but the Turnbull government this week finally “landed” its package for the biggest shake-up of media rules in decades.

The Senate deal was done thanks to a sprinkling of sugar for crossbenchers. Handouts for Nick Xenophon to help regional and small publishers, so he could say he was promoting “diversity”. Promises to Pauline Hanson to put some burdens on the ABC, so One Nation could brag it was chasing “the elephant in the room”.

The concessions don’t mean as much as the crossbenchers will claim, while the rule changes potentially mean a great deal. It might have seemed a tortuous process, but from the government’s point of view it has been a significant win at little cost.

If only the nation’s long-term energy policy could be “landed” as readily.

With the media changes, the industry stakeholders were united, in contrast to the vastly more complicated area of energy, as it transitions from fossil fuels to renewables, via a mixed system.

In another major difference with media policy, the most difficult negotiations on energy, at least imminently, are not with crossbenchers but within the government’s own ranks.

Just as it did in the dying days of his leadership in 2009, the coal cloud hangs darkly over Malcolm Turnbull. And once again, the Nationals are big players in the debate – and so is Tony Abbott.

But Turnbull’s own positions then and now are poles apart. In 2009, he famously championed the move to renewables, via a carbon price, which triggered his downfall. This time, bowing to the power of coal, he has increasingly become its vociferous public advocate.

When the government released the Finkel report on energy security in June, Turnbull made it clear he saw its centrepiece, a clean energy target (CET), as a torch to light the path to the future.

Chief Scientist Alan Finkel’s CET, with its particular focus on reducing emissions, was never going to be implemented in a pure form. Coal was always set for a larger role than Finkel would want, as Turnbull quickly made clear.

The CET debate should be seen as choosing a place on a spectrum rather than accepting or rejecting a single point. But at the start, even Nationals leader Barnaby Joyce was (sort of) on board for a CET, provided it allowed coal in.

Progressively, however, the Finkel blueprint has been pushed further and further on to the defensive.

The sharpest setback for it came last week, with the release of the report from the Australian Energy Market Operator (AEMO) warning of electricity shortages in coming years. The government had commissioned the report when it became panicky about so-called “dispatchable” power – power available whenever needed to meet demand – as the consequences of the closure of Hazelwood in Victoria sank in.

Energy Minister Josh Frydenberg said the AEMO report “reset the debate”. Joyce invoked John Maynard Keynes’ observation about changing his mind when he got new information – the report contained “new information”, Joyce said.

In fact the “resetting” had been creeping up well before the AEMO report. Abbott, especially, had been hard at work prosecuting the case against renewables.

Abbott – who was deposed two years ago this week – currently has two campaigns running: against the CET, and in opposition to same-sex marriage. He is highly energised and said to be enjoying himself.

On Thursday he was unequivocal. “We need to get right away from talking about renewable energy targets and clean energy targets and start talking about a 100% reliable energy target, ‘cause nothing else will do,” he said on 2GB.

“I welcome these signs that we are moving away from a clean energy target to a reliable energy target,” he said. Renewables always had to have a back-up “and if there’s got to be back-up you’ve got to ask the question, what useful purpose do they serve?

“Now there may well be some circumstances in which renewables in conjunction with back-up measures are economic, and if they’re economic and dependable, fair enough, but at the moment, they’re neither.”

The Nationals’ Matt Canavan, former resources minister who is on the backbench awaiting the citizenship case, has been a very loud voice for coal. The Nationals had the megaphone out at their weekend federal conference, calling for subsidies for renewables to be phased out.

As coal has muscled its way to the centre of the stage, we’ve seen the showdown between the government and AGL over the future of its Liddell coal-fired power station. This battle has a way to go.

At a trivial but symbolic level, there’s been the suggestion that whatever policy the government finally produces will avoid the sensitive “clean energy target” label. Maybe the focus groups are already at work on that one.

Despite the apparent mess, the government believes it can turn the energy debate to its political advantage. This is certainly the view among Nationals.

The strategy involves being seen to do a lot of things – Turnbull rehearses the check list of interventions on gas, power bills and the like – and demonising Labor’s attachment to renewables, with derision against “Blackout Bill”, “Brownout Butler” and “No Coal Joel [Fitzgibbon]”.

The government accuses Labor of selling out working-class people in favour of leftist, inner-city followers concerned about climate change. Turnbull is now emphasising the cost and reliability of power, with emissions reduction referred to sotto voce.

The Nationals are convinced their priority for coal will work well for them in the regions. They say it fits with the two issues that come at the top in their polling – jobs and cost of living.

When Abbott was fighting the Labor government, the carbon tax’s impact on the cost of living was an obvious plus for him. The question is whether power prices and cost of living can play for the Coalition when it is in office. The government and some observers suggest it will.

It does seem counterintuitive. Unless the voters are very gullible, you’d think they’d judge on results not rhetoric – that is, what their power bills are looking like when they get to the ballot box.

On the other hand, the government argues that if it can assert Labor’s policies would bring even higher bills, it can gain a tactical advantage.

Regardless of what the public are thinking, it’s clear that business – the constituency critical for future investment – remains deeply unimpressed with the politicking.

The ConversationUnless and until the government gets to grips with the substance of what needs to be done, the lack of a coherent energy policy will remain an indictment of the politicians and a burden on Australian families and enterprises.

https://www.podbean.com/media/player/fr3g9-72ed6d?from=site&skin=1&share=1&fonts=Helvetica&auto=0&download=0

Michelle Grattan, Professorial Fellow, University of Canberra

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

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Time for pragmatism, not panic, for the electricity market



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There are many viable options for Australia’s energy future.
Shutterstock

David Blowers, Grattan Institute

There was a familiar kneejerk reaction to last week’s announcement by the Australian Energy Market Operator (AEMO) that there are risks to our electricity supply after the scheduled closure of the Liddell coal-fired power station in New South Wales in 2022. The sight of the Prime Minister looking for options to keep Liddell open raises the spectre of further reflexive government intervention that can’t end well.

Governments, understandably, want to make sure the lights stay on. But now is the time for perspective, not panic. Because, as the latest Grattan Institute report – Next Generation: the long-term future of the National Electricity Market – shows, there are emerging challenges to the NEM that need dealing with. Make the right decisions now and a return to affordable and reliable electricity supply is on the cards.


Read more: The true cost of keeping the Liddell power plant open


The NEM is an energy-only market. This means that generators only get revenue when they sell their electricity into the market. All costs – including the capital costs of building the plant – need to be covered by the revenue they make when they sell electricity. Anyone who wants to build new generation capacity wants to be pretty certain that the market is going to deliver the revenue they need to cover their costs.

But right now no one is building any generation, unless it is government-backed renewables. This is despite a ripe environment for investment: high current and future prices in the wholesale market and the closure of old power stations. The result, as AEMO pointed out last week, is potential shortfalls in generation and potential blackouts in South Australia, Victoria and NSW over the next few years.

Much of the blame for this investment hiatus can be placed on politicians and the climate change policy mess that is creating so much uncertainty for potential investors.


Read more: Turnbull is pursuing ‘energy certainty’ but what does that actually mean?


But the rise of wind and solar power is also causing problems. Wind and solar energy have zero marginal cost: once the facility is built, the energy produced is essentially free. And they are intermittent suppliers: they don’t produce energy unless the wind is blowing or the sun is shining. So when wind and solar plants are operating, the wholesale price of electricity is forced down. This means there needs to be high prices – sometimes very high – when wind and solar are not operating. This price volatility makes investors nervous that they will not be able to cover the costs of building new generation.

Governments may be tempted to conclude that the market has failed. But intervention may be premature.

There are still five years until Liddell is scheduled to close. Just because a new coal-fired power station will not be built in time to fill the gap doesn’t mean the market cannot respond. Coal was never going to be the market response, given climate change risks. But new gas-fired generators, or batteries to store electricity, could be built in this time frame. Or the market could finally get its act together on what is called demand-response: that is, paying consumers to reduce their electricity consumption during periods of peak demand, so that less new generation is required.


Read more: Managing demand can save two power stations’ worth of energy at peak times


There are no guarantees for government, however. The risks that the market won’t deliver the new generation that is needed are increasing. If nothing changes, Australia will need, in the words of AEMO, “a longer-term approach to retain existing investment and incentivise new investment in flexible dispatchable capability in the NEM”.

Many countries have responded to these same pressures by introducing a capacity mechanism. A capacity mechanism pays generators for being available, regardless of whether they actually sell electricity. Payments for capacity provide extra income for generators, giving them greater assurance that they will make enough revenue to cover their costs.

Any new market-based mechanism in Australia is likely to be better than the scattergun approach of various governments in recent years. Building Snowy 2.0, extending Liddell’s life, or providing state-based backing for new renewable generation might deliver the results needed. But the lack of coordination, planning and strategic thought that sits behind these policies means they probably won’t.

Getting it right

Our report suggests a better way. First, governments should give the market a chance. This means sorting out climate change policy, and quickly. Dithering about a Clean Energy Target, or arriving at a solution that cannot be supported across the political spectrum, will guarantee that investors’ hands remain firmly in their pockets.

Second, work should begin immediately on an additional capacity mechanism, so it is ready if needed. Capacity mechanisms are complex and take a long time to design and implement. There is no one-size-fits-all approach, so careful consideration needs to be given to how one would work in the Australian context.

Finally, AEMO should be asked to provide a more robust assessment of the future adequacy of generation supply. On the basis of this information, the newly formed Energy Security Board should make the judgement on whether an additional capacity mechanism is needed to make sure enough new generation is built.

The ConversationIt is understandable that politicians feel the need to act when faced with the threat of blackouts. After all, they are the ones who get the blame when the lights go out. But caution is needed. Capacity mechanisms are expensive; the peace of mind they bring comes at a price. A pragmatic and planned approach is the best way to ensure that, if a decision is made to redesign our electricity market, that decision is the right one.

David Blowers, Energy Fellow, Grattan Institute

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

What about the people missing out on renewables? Here’s what planners can do about energy justice



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Solar panels are integrated into a block of flats in the Viikki area of Helsinki, Finland.
Pöllö/Wikimedia, CC BY

Jason Byrne, Griffith University and Tony Matthews, Griffith University

The rapid shift to new energy sources is outpacing land use planning in cities. As interest in renewable energy burgeons, another concern has emerged – energy justice.

Improvements in renewable energy generation, energy efficiency and storage technology benefit more advantaged populations like homeowners. These innovations are generally beyond the reach of more disadvantaged groups like renters, pensioners, students and the working poor. Researchers see this as an emerging energy justice concern.

Energy costs hit the poor harder

Rising power bills hit lower-income households particularly hard.
shutterstock

A recent report, prepared by the Australian Council of Social Service, The Climate Institute and the Brotherhood of St Laurence, highlighted the disproportionate impacts of energy poverty. Current policy settings and energy price rises make life even more difficult for people who are already struggling to pay their power bills.

Energy price rises can affect residents’ ability to cool or heat their homes, cook food and get hot water. Ultimately, this can have dire consequences for people’s health and wellbeing.

Attention has been drawn to the inability of such households to tap into renewable energy in Western Australia and the Northern Territory. Less well known are the emerging opportunities to reduce energy poverty. These include solar leasing, energy co-operatives and landlord incentives.

Solar leasing

Solar leasing is a strategy where a homeowner signs an agreement with a company to install solar panels. Up-front costs are limited and the system is paid back incrementally over its lifespan. In theory, this could enable landlords and low-income owners to gain access to cheaper solar energy.

There are many variations on such leases. One involves the owner buying power back from the leasing company, which sells surplus power to the grid. Another is where the owner obtains a low-cost loan, such as those offered by the Fannie Mae foundation in the US.

Some caution is warranted before entering such agreements, not least because leases can make homes harder to sell.

The relative vacuum of Commonwealth energy policy in Australia is prompting some local governments to step in. The City of Darebin in Melbourne is an example. Its Solar Saver Program aims to help pensioners and other low-income earners get solar panels on rooftops. The panels are installed up-front and paid back through rates.

Some councils are helping pensioners and other low-income earners to install solar panels to cut their energy bills.
Michael Coghlan, CC BY-SA

Community renewable energy co-operatives

A second idea is to increase competition in the energy market by enabling communities to generate their own energy. Community renewable energy projects are an example.

But such projects need not be market-based. A recent innovation in New South Wales has been the development of an energy co-operative in Stucco apartments, a non-profit, student housing complex. This small-scale co-operative generates solar energy and stores it in batteries, selling it to tenants in the building, who are low-income students.

Larger versions exist in Germany. There whole villages have become energy co-operatives of sorts, achieving energy self-sufficiency.

Landlord incentives

A landlord who makes improvements such as double glazing should be able to claim these as a tax deduction.
Paul Flint/flickr, CC BY-SA

Several commentators have identified the need for better incentives and penalties to encourage landlords to retrofit properties to make them more energy-efficient.

This includes changing the tax system. If rental properties are upgraded – with insulation, more efficient hot water systems, energy-efficient stoves or windows – these costs should count as legitimate tax deductions. Currently, these improvements are not treated as repairs and instead are depreciated over time.

Similarly, new minimum standards for energy efficiency in rental properties are needed. The NSW BASIX system is a step in this direction.

The energy justice challenge for planners

Land use planning systems are typically future-oriented. But most of the buildings that will exist in the middle of this century are already built.

We need to update planning systems to better manage systemic changes in existing built environments. These changes include the transition to renewable energy and associated energy justice concerns.

There are possibilities for improvement. For example, planners can learn from early innovations like the Stucco model. Working proactively with community energy co-operatives could reduce uncertainty for all stakeholders, minimise time wasted and maximise returns for participants.

Planners can also develop new policies and processes – such as model town planning schemes – to work with communities in delivering other small-scale renewable energy projects such as community solar farms and microgrids. Another possibility is to alter strata title laws to make it easier to install solar in apartment buildings.

The ConversationModern land use planning was driven in large part by a desire to improve public health and social justice by regulating development. Today’s planners should regard efforts to improve energy justice as a new but entirely appropriate professional responsibility.

Jason Byrne, Associate Professor of Environmental Planning, Griffith University and Tony Matthews, Lecturer in Urban and Environmental Planning, Griffith University

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

Coal and the Coalition: the policy knot that still won’t untie


Marc Hudson, University of Manchester

As the Turnbull government ties itself in yet more knots over the future of coal-fired power, it’s worth reflecting that climate and energy policy have been a bloody business for almost a decade now.

There was a brief period of consensus ushered in by John Howard’s belated realisation in 2006 that a price had to be put on carbon dioxide emissions. But by December 2009 the Nationals, and enough Liberals, had decided that this was a mistake, and have opposed explicit carbon pricing ever since.


Read more: Ten years of backflips over emissions trading leave climate policy in the lurch.


The resulting policy uncertainty has caused an investment drought which has contributed to higher energy prices. Now, with prices a hot potato, there are thought bubbles about extending the life of coal-fired power stations and a new effort to set up a Conservatives for Conservation group.

But the Liberal Party’s tussles over climate and energy policy (as distinct from denying the science itself) go back even further – some 30 years.

Early days and ‘early’ action

It’s hard to believe it now, but the Liberal Party took a stronger emissions target than Labor to the 1990 Federal election. Yet green-minded voters were not persuaded, and Labor squeaked home with their support. After that episode the Liberals largely gave on courting green voters, and under new leader John Hewson the party tacked right. Ironically, considering Hewson’s climate advocacy today, back then his Fightback! policy was as silent on climate change as it was on the price of birthday cakes.

In his excellent 2007 book High and Dry, former Liberal speech writer Guy Pearse recounts how in the mid-1990s he contacted the Australian Conservation Foundation, offering to to canvass Coalition MPs to “find the most promising areas of common ground” on which to work when the party returned to government. The ACF was “enthusiastic, if a little bemused at the novelty of a Liberal wanting to work with them”. Most Liberal MPs – including future environment minister Robert Hill and future prime minister Tony Abbott – were “strongly supportive” of the idea. But others (Pearse names Eric Abetz and Peter McGauran) were “paranoid that some kind of trap was being laid”. Nothing came of it.

Elected in 1996, Howard continued the staunch hostility to the United Nations climate negotiations that his Labor predecessor Paul Keating had begun. Not all businessmen were happy. Leading up to the crucial Kyoto summit in 1997, the Sydney Morning Herald reported how a “delegation of scientists and financiers” led by Howard’s local party branch manager Robert Vincin and Liberal Party grandee Sir John Carrick lobbied the prime minister to take a more progressive approach. Howard did not bend.

Howard stayed unmoved until 2006 when, facing a perfect storm of rising public climate awareness and spiralling poll numbers, he finally relented. Earlier that year a group of businesses convened by the Australian Conservation Foundation produced a report titled The Early Case for Business Action. “Early” is debatable, given that climate change had already been a political issue since 1988, but more saliently the report tentatively suggested introducing a carbon price. And Howard finally relented.

The carbon wars

The ensuing ten years after Kevin Rudd’s defeat of Howard don’t need much recapping here (go here for all the details). But one interesting phenomenon that has emerged from the policy wreckage is the emergence of some very unusual coalitions to beg for certainty.

In 2015, in the leadup to the crucial Paris climate talks, an “unprecedented alliance” of business, union, environmental, investor and welfare groups called the Australian Climate Roundtable sprang briefly into life to make the case for action.

Then, after the seminal South Australia blackout last September, a surprisingly diverse group of industry and consumer bodies – the Australian Energy Council, Australian Industry Group, Business Council of Australia, Clean Energy Council, Energy Users Association, Energy Consumers Australia, Energy Networks Association and Energy Efficiency Council – called on federal and state energy ministers to “work together to craft a cooperative and strategic response to the transformation underway in Australia’s energy system”.


Read more: Who tilts at windmills? Explaining hostility to renewables.


It’s in this light that the new Conseratives for Conservation lobbying effort should be seen. Its spearhead Kristina Photios surely knows she has no chance of converting the committed denialists, but she can chip away at the waverers currently giving them comfort and power.

Questions on notice

Of course, there are always cultural (or even psychological) issues, but you’d think that conservation would be a no-brainer for conservatives (the clue should be in the name).

There are a few questions, of course (with my answers in brackets).

  • Where were all the people who are now calling for policy certainty back in 2011 when Tony Abbott was declaring his oath to kill off the carbon tax? (They were AWOL.)

  • Will any business show any interest in building a new coal-fired power station? (No.)

  • Is renewable energy technology now advanced enough for them to make serious money? (We shall see.)

  • Can we make up for lost time in our emissions reductions? (No, and we have already ensured more climate misery than there would have been with genuinely early climate action.)

  • Will the Liberals further water down the Clean Energy Target proposal? (Probably.)

  • What will Tony Abbott say to UK climate sceptic think tank the Global Warming Policy Foundation when he gives a speech on October 6? (Who knows –
    grab your popcorn!).

  • What will happen to the Liberals in the medium term? (Who knows, but Michelle Grattan of this parish has some intriguing ideas.)

  • Are there reasons to be cheerful? (Renewable energy journalist Ketan Joshi thinks so.)

Perhaps the last word on this issue should go to John Hewson, who noted last year:

The ConversationThe “right” love to speak of the debt and deficit problem as a form of “intergenerational theft”, yet they fail to see the climate challenge in the same terms, even though the consequences of failing to address it substantively, and as a matter of urgency, would dwarf that of the debt problem. The “right” is simply “wrong”. It’s political opportunism of the worst sort, and their children and grandchildren will pay the price.

Marc Hudson, PhD Candidate, Sustainable Consumption Institute, University of Manchester

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

Turnbull is pursuing ‘energy certainty’ but what does that actually mean?


Alan Pears, RMIT University

Today Malcolm Turnbull met with energy retailers to discuss high power prices, for the second time this month. The retailers agreed to try even harder to inform their customers of cheaper contracts, but they also took the opportunity to call yet again for urgent commitment to a Clean Energy Target (CET).

The prime minister hopes to deliver a CET by Christmas, but has not indicated what the target would actually be.

This is just one more step towards the elusive goal of certainty in the energy market, which politicians, the energy industry and businesses have been calling for with increasing frequency. But underlying the ongoing political scrimmage is the reality that certainty means something very different to each player. It’s particularly difficult to achieve in a time of disruptive change.


Read more: Turnbull to tell power companies: do better by customers


What is certainty?

For politicians, certainty means getting energy prices and policy out of the media, ensuring construction of a new coal-fired power station, or both.

On the other hand, incumbent energy companies want to protect profits by blocking emerging competitors and guaranteeing their revenue.

For emerging energy businesses that sell renewable energy, batteries and smart energy solutions, it’s about opening markets to fair competition and finding a role in a rapidly changing environment.

For business and industry, it’s about access to stable, reliable, reasonably priced energy, so they can get on with their core business.

Households (and voters) also want affordable and reliable energy bills (and some basic respect from energy companies and politicians) but that doesn’t necessarily mean low prices: it can mean low fixed charges, access to energy efficiency programs, and finance for rooftop solar and batteries. Then they can buy less energy while living in comfortable homes with efficient appliances.

The traditional energy system involves large capital investments and long timeframes. This doesn’t sit comfortably with the agendas of many of the people described above, who want quick solutions – which can be delivered by emerging alternatives.

New solutions create new challenges

Any inflexible baseload power station faces the growing problem of the “duck curve”. That is, solar power is reducing baseload demand for energy during the day, but leaving the evening peak-time demand untouched – creating an exaggerated upswing in demand after about 4pm.


Read more: Slash Australians’ power bills by beheading a duck at night


This reduced daytime power use deprives a baseload plant of the demand it needs to keep running continuously. Excess electricity during the day also drives wholesale electricity prices down from traditionally high levels. Daytime sales have comprised a large proportion of revenue for base load generators.

Large scale wind and solar without storage are price takers: they’re paid the going wholesale price at the time they generate. They have benefited from the high daytime prices that solar is now undermining, and from high prices on tradeable certificates for renewable energy, driven by shortages caused by Tony Abbott’s “war on renewables”.

Certificate prices should moderate as more renewable energy capacity is built. Future investment depends heavily on decisions regarding national and state clean energy targets beyond 2020.

Batteries, pumped hydro and other storage rely on the gap between the lowest and highest price each day. Solar is reducing, and even reversing, this price gap in the daytime. But morning and evening demand offers some opportunity, as long as excess storage capacity doesn’t flood the market with electricity and depress prices at those times. In future, they will store cheap daytime excess power for use at other times. And storage will be increasingly important as variable renewable energy capacity grows.

Improving efficiency is ‘the first fuel’

Demand response, where consumers are paid to reduce demand at times of high wholesale electricity prices, is a serious threat to revenue for generators and energy storage. It usually involves smart management of consumption or use of existing backup generators, with little capital cost.

As the Australian Renewable Energy Agency has found, there is a lot of latent capacity. Its call for bids in May for its pilot scheme – originally aiming to provide 160 megawatts (MW) of reserve capacity – has unearthed almost 700MW available by December this year, and over 1900 MW by December 2018.

Our failure to properly manage demand for decades, despite the recommendations of many inquiries, has led to wasteful overinvestment in network and generation capacity that is now exposed to market forces. Now someone will pay for this policy failure: will it be shareholders or consumers?

Energy efficiency improvement adds another unpredictable factor. As shadow environment and energy minister Mark Butler commented at a recent conference, Australian governments have not performed well in this area. But the Finkel Review highlighted its substantial potential and called for governments to do better. The International Energy Agency calls energy efficiency “the first fuel” because it is so big and so cheap.

Our failure to capture energy efficiency is costly for the economy and consumers. When energy suppliers are prepared to invest in projects with risky annual rates of return of 8-15%, energy efficiency opportunities with returns of 20-100% are ignored.

Another complicating element is consumers, many of whom are no longer passively accepting energy market volatility and increasing prices. “Behind the meter” investment in energy efficiency, demand management, storage, on-site renewables and even diesel generators is making increasing sense. Indeed, social justice campaigners are increasingly calling for action to help vulnerable households be part of the future, not victims.

Lastly, there is the elephant in the room: climate change. Fossil-fuel-sourced electricity generation produces around a third of Australia’s emissions. And there is much more scope to cut emissions from electricity than from many other parts of our economy.

Where to now?

No government can provide certainty for all these competing players. Each face their own risks and opportunities, and powerful disruptive forces are at work. Trying to provide certainty for some involves propping up declining business models, at the expense of positioning the Australian economy for the future.

Despite criticism from the federal energy minister states are likely to continue setting their own clean energy targets.

Businesses and households are investing to insure themselves against the policy mess and, in doing so, are transforming the energy system. Local councils and community groups are coordinating action. Emerging businesses are taking risks to capture opportunities. Existing energy businesses are trying to juggle their existing assets while transforming. State governments are trying to win votes and capture jobs in emerging industries. Meanwhile, the federal government’s party room is split over a clean energy target.

The ConversationThe challenge for governments is to nudge this chaotic system in ways that deliver equitable, affordable and reliable energy services.

Alan Pears, Senior Industry Fellow, RMIT University

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

FactCheck Q&A: is coal still cheaper than renewables as an energy source?


Ken Baldwin, Australian National University

The Conversation fact-checks claims made on Q&A, broadcast Mondays on the ABC at 9.35pm. Thank you to everyone who sent us quotes for checking via Twitter using hashtags #FactCheck and #QandA, on Facebook or by email.


Excerpt from Q&A, July 17, 2017.

Q&A AUDIENCE MEMBER: Hi. Renewable energy is more carbon-efficient, and now cheaper, than coal and other fossil fuels …

MATT CANAVAN: Thanks, James. Look, I don’t accept that renewables are, at the moment, cheaper than coal.

– Excerpt from a question posed by Q&A audience member James Newbold to then-Resources Minister Senator Matt Canavan on Q&A, July 17, 2017.

One of the biggest debates underway in Australia (and around the world) is about electricity, and how it should be generated. One of the major pressure points is prices.

During an episode of Q&A, audience member James Newbold said renewable energy is “now cheaper than coal and other fossil fuels”. Senator Matt Canavan (then-Resources Minister) disagreed, saying: “I don’t accept that renewables are, at the moment, cheaper than coal.”

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Let’s look at the numbers.

Checking the sources

The Conversation contacted Matt Canavan’s spokesperson for sources to support his statement but did not hear back before deadline. Nonetheless, we can test his statement against publicly available data.

What do the data show?

Based on the electricity generated now by old coal-fired power stations with sunk costs (meaning money that has already been spent and cannot be recovered), Matt Canavan was right to say: “I don’t accept that renewables are, at the moment, cheaper than coal.”

In 2017, the marginal cost of generating power from an already existing coal station is less than $40/MWh, while wind power is $60-70/MWh (explained below). So why do people say renewables are now cheaper than coal?

Well, they’re often talking about what would be the cheaper option if old coal-fired power stations were replaced today – in other words, the new-build price.

Making the distinction between the cost of existing energy generation, and the cost of new-build energy generation in this debate is very important. Comparing the two is like comparing apples and oranges.

Current prices are based on existing installations, while new-build prices compare the costs of different technologies if their operating lives started today. This matters because Australia’s existing coal-fired power stations are ageing and will need to be replaced.

Comparing new-build prices is more complicated than comparing current costs, as I’ll discuss later in this FactCheck.

How do we measure the cost of electrical power?

Let’s cover the basic terminology first.

Electrical energy is measured in kilowatt-hours – the units generally used for metering and charging residential electricity use. One kilowatt-hour represents the amount of energy a device that draws one kilowatt of power (like a household heater, for example) would use in one hour.

A megawatt-hour is 1,000 times larger, and it’s what we typically use to measure large electricity loads or generators. So when we’re comparing the cost of electrical energy generated by different sources, we’ll be talking about Australian dollars per megawatt-hour ($/MWh).

Comparing prices for different sources of electricity

There are a few things we need to take into account when we’re calculating the cost of electricity created by different technologies.

First, we need to factor in how much it costs to establish the source in the first place – whether that’s a coal-fired power station, a wind farm or a hydro-power plant. Then we need to factor in how much it costs to operate, fuel and maintain that facility over its lifetime.

These factors and the cost of capital (like the interest rate) are commonly combined into a metric called the “levelised cost of electricity” (or the LCOE). This provides a measure of the total cost in current dollars per unit of electrical energy generated ($/MWh) over the lifetime of the facility.

We also need to know the time frame in question. A coal-fired power station that’s nearing the end of its operating life may have recovered its original capital investment. So the marginal cost of coal-fired electricity may be low, compared to the levelised cost of a new wind farm that’s yet to recoup its initial capital cost.

Using the levelised costs of electricity created by different technologies does always not provide a perfect comparison. Comparing such different technologies will never be comparing apples with apples. But it’s the best measure we’ve got for a simple “plug-and-play” replacement of a single generating source.

Current prices for coal-fired and wind power

Today, most of Australia’s electricity is sourced from coal-fired power stations. In their discussion on Q&A, Newbold and Canavan referred broadly to “renewables”. Currently, wind power is the cheapest form of renewable energy. So we’ll use that as the basis for comparison with coal-fired energy.

In 2017, the marginal cost of generating power from an already existing black coal-fired station is less than $40/MWh. Brown coal-fired power is even cheaper.

To establish the current price of wind power, we can look at the announcement in May 2017 by Origin Energy, when the company agreed to buy all the power to be generated by the Stockyard Hill Wind Farm in Victoria between 2019 and 2030 for less than $60/MWh.

A similar price was struck in March 2016 when the Australian Capital Territory government conducted its second “wind auction”. The government uses wind auctions to buy contracts for future energy supplies. The lowest price in the 2016 auction yielded around $60/MWh in current prices. This figure is based on a flat rate of $77/MWh for 20 years and assuming around 3% inflation, which is the upper end of Australia’s inflation rate target of 2-3%.

Combining the total price range for that auction with this inflation range gives around $60-$70/MWh in current prices, with wind farms currently operating in that adjusted range.

So, based on the marginal cost of energy generated by existing coal-fired power stations with sunk costs, Canavan is correct in saying that renewables are not “at the moment, cheaper than coal”.

However, the story is different if we are talking about new-build electricity prices. And this is often where conversations and debates become confused.

Why new-build electricity prices matter

Coal-fired power stations in Australia have operating lives of around 50 years. As can be seen from the table below, nine of Australia’s 12 biggest operating coal-fired power stations are more than 30 years old.

In preparation for the retirement of those older coal-fired stations, policymakers, energy companies and other investors are debating whether to replace them with new coal-fired power stations, or other types of energy generation. This is where the comparison of new-build costs comes into play.

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New-build prices for coal-fired and wind power

FactChecks rely on data from events that have already occurred. So we can’t say with factual certainty whether or not renewables would be cheaper than coal as a new-build energy source, because no coal-fired power stations have been built recently.

But we do have recent prices for the cheapest form of new-build renewable energy, which is newly-installed wind power.

And we do have recent levelised price projections for the cheapest new-build fossil fuel energy, which is supercritical coal power.

The projected price for new supercritical coal power comes in at around $75/MWh from the recent Finkel review of the National Electricity Market, based on data produced by Jacobs Consultancy. That is consistent with the price of $80/MWh from the 2016 report from the CO2 Cooperative Research Centre, and less than the $84-94/MWh from the 2012/3 Australian Energy Technology Assessment .

These projections for new supercritical coal power are higher than the recent prices for newly-installed wind power (outlined earlier in the FactCheck) at around $60-70/MWh in current prices over the 20-year contract period (which is similar to a levelised cost).

So, if we look at recent wind power prices and recent price projections for new supercritical coal power, it’s reasonable to say that – as things stand today – wind power would be the cheaper new-build source of electricity.

Future prices

There are important additional factors that need to be taken into account when considering the costs of new-build coal-fired electricity and new-build renewable electricity as we look further into the future. Three of the main considerations are:

  • upgrades to the energy grid (including energy storage) to balance the use of intermittent renewables, especially once renewable energy exceeds around 50% of all energy supply (this would increase the price of renewables)
  • the introduction of a price on carbon emissions (this would increase the price of coal), and
  • improvements in technology (this is expected to reduce the price of renewables more so than coal).

It is possible to make educated assumptions about how these factors would affect prices in the future. But I won’t include those projections in this FactCheck, for two reasons:

  • firstly, we are yet to see the outcomes, and
  • secondly, the Q&A audience member and Canavan were discussing prices as they are “now” and “at the moment”.

So that’s what I’ve addressed in this FactCheck.

Verdict

Based on the electricity generated now by old coal-fired power stations with sunk costs, Matt Canavan was right to say: “I don’t accept that renewables are, at the moment, cheaper than coal”. In 2017, the marginal cost of generating power from an already existing coal station is less than $40/MWh, while wind power is $60-70/MWh.

The Q&A audience member may have been talking about new-build prices.

Based on recent prices for newly-installed wind power of around $60-70/MWh, and recent price projections for new supercritical coal power at around $75/MWh, it is reasonable to say that – as things stand today – wind power would be cheaper than coal as a new-build source of electricity. – Ken Baldwin

Review

The author has provided a sound FactCheck that covers a lot of the complexities around a challenging issue. I would add one remark which doesn’t detract from the author’s verdict.

The cost of new-build coal is likely to be higher than reported in the FactCheck.

The author was correct to point out that the introduction of a price on carbon emissions would increase the cost of new-build coal-fired electricity.

The mere possibility of the introduction of a price on carbon or carbon regulation in the future actually affects the costs of new-build coal-fired electricity today. The risk of increased costs or regulation for emission intensive generators manifests itself as a higher “risk premium” applied to current financing costs. The overall effect is a higher weighted average cost of capital (basically, a higher average interest rate) for emission intensive generation.

In the Finkel review, the weighted average cost of capital for coal is projected to be 14.9%, compared to 7.1% for renewables. Risk adjusted financing costs would result in the levelised cost of new coal being higher than the figures presented in the FactCheck. – Dylan McConnell

Review

The cost of electricity produced from a new wind farm is competitive with the best estimates for the cost of electricity produced from a new coal station, and cheaper than the cost of new coal quoted in very reputable analyses (CO2CRC 2015 and CSIRO 2017).

As noted by the author, the comparison in this FactCheck does not include the cost of intermittency for renewables. Recognising that no technology runs 100% of the time, there is a backup cost to be added to wind to make it as firm (or stable) as a fuel-based plant. Available costs for such backup, such as large scale battery or pumped storage, are based on estimates and are the subject of much current study.

New wind with backup could very well be very competitive with new coal, particularly if the cost of emissions is recognised. However, at present, the contention either way is unproven. – Tony Wood


The Conversation FactCheck is accredited by the International Fact-Checking Network.

The Conversation’s FactCheck unit is the first fact-checking team in Australia and one of the first worldwide to be accredited by the International Fact-Checking Network, an alliance of fact-checkers hosted at the Poynter Institute in the US. Read more here.

The ConversationHave you seen a “fact” worth checking? The Conversation’s FactCheck asks academic experts to test claims and see how true they are. We then ask a second academic to review an anonymous copy of the article. You can request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.

Ken Baldwin, Director, Energy Change Institute, Australian National 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.

https://www.podbean.com/media/player/icjdu-6b9a25?from=site&skin=1&share=1&fonts=Helvetica&auto=0&download=0

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.