Australia's energy challenge  

Platts has a report on the new Australian energy white paper - Australia needs $243 bil invested in gas, electricity sectors: minister.

Australia needs around A$240 billion ($243 billion) invested in the next two decades in the gas and electricity sectors for generation, transmission and distribution to meet future energy demand requirements, Minister for Resources and Energy Martin Ferguson said Tuesday, as he released a draft of a "white paper" on energy policy.

"Over the next two decades, Australia will require massive investment in the gas and electricity sectors," Ferguson said. "We need sound regulatory frameworks and confidence from investors to ensure that the necessary investment is delivered, and the white paper seeks to deliver this stable framework."

The draft will now go through a period of public consultation running to mid-March, with the government intending to release the final energy white paper around the middle of 2012.

Along with the draft on the nation's new energy policy, the government also released the 2011 National Energy Security Assessment and its Strategic Framework for Alternative Transport Fuels.

The government is also proposing that a strategic review of national energy policy be undertaken every four years, with a review of national energy security every two years.

The previous energy policy paper was released seven years ago, and since then Australia's energy exports have increased from A$24 billion a year to around A$69 billion, Ferguson said. He also noted that investments in the energy export sector have grown "at an unprecedented scale in the last seven years, with over A$140 billion committed to LNG projects alone since 2007."

That along with developments in the coal and uranium sectors, as well as increased investments in electricity networks that have resulted in rising electricity costs, all point to the need for a new national energy policy and procedures to keep it resilient and up-to-date, he said.

Along with the policy papers, the government also said it would no longer proceed with the introduction of emissions standards or carbon capture and storage requirements for new coal-fired power stations.

The SMH has a look at the relaxation of emissions standards - Dirty power plant rules abandoned.

THE Gillard government has dumped an election promise to introduce rules to limit greenhouse gas emissions from new power plants. Launching a long-awaited energy policy paper, Energy Minister Martin Ferguson said the proposed emissions standards - which Prime Minister Julia Gillard said would mean an end to the building of ''dirty'' coal power plants - had become redundant, given Australia was introducing a carbon price. ...

Climate Institute chief executive John Connor called the decision to dump the emissions standard ''short-sighted.''
Energy Supply Association of Australia acting chief Clare Savage welcomed the focus on encouraging the states to deregulate retail prices.

The energy road map came as the owners of the Latrobe Valley based brown-coal fired Yallourn power station wrote down the generator's value by $350 million as a result of Labor's carbon price. Yallourn - previously valued at $1.7 billion - has been put forward for the first stage of the scheme to pay to shut heavy-emitting power plants.

The SMH also has a more generalised look at the white paper - Energy privatisation back on the agenda as demand rises.

The federal government will lead a renewed push for the privatisation of state electricity assets after warning the country urgently needed energy market reform and huge investment to meet power demand at home and abroad.

Energy Minister Martin Ferguson, unveiling a draft energy paper, said the government would also focus on developing the country's vast energy resources - particularly gas - and speeding clean energy projects after the recent passage of the largest carbon price scheme outside Europe. "Over the next two decades, Australia will require massive investment in the gas and electricity sectors, around $240 billion in generation, transmission and distribution," Mr Ferguson said today.

"The White Paper also focuses on the next round of energy market reform, including further privatisation of energy assets and the removal of retail price regulation to increase efficiencies and remove distortions in markets that deter private sector investment."

To help drive fresh investment to replace Australia's ageing coal-fired power stations - many of which date back to the 1960s - Ferguson also announced the government would no longer apply emissions standards for new coal power stations following the passing of carbon price laws last month.

Australia is one of the world's worst per capita polluters, due to its reliance on coal-fired power for 80 percent of its electricity needs. Privatisation efforts have stalled in the face of resistance from consumers and state governments.

The conservative government in New South Wales state, which has an economy larger than South Africa and Thailand and is responsible for a third of the country's GDP, said last month it would proceed with a controversial privatisation of power assets expected to reap $5 billion, but would retain ownership of the transmission network.

Ferguson complained ahead of the white paper that construction of new power stations had plunged, blaming investment uncertainty on threats by resurgent conservative rivals to unravel the carbon scheme if they won 2013 elections.

Bureau of Resources and Energy Economics figures show just two wind projects worth $488 million have been completed in the past year. In 2009, 17 projects worth almost 10 times that amount were finalised.

Ferguson ruled out domestic development of nuclear power, although he said the debate would continue as long as Australia remained committed to reducing carbon emissions.

The ABC reports that the Greens don't think much of the paper or Ferguson's constant pushing of fossil fuels and nuclear power (not matter what the cost) over renewable energy - Government pushes states to privatise power.

Prime Minister Julia Gillard has consistently said the Government would not embrace nuclear power, but Mr Ferguson continues to argue Australia may one day need to consider it. "Nuclear for Australia is always there as an option. We don't have to invest in research and development and innovation on that front, other nations are the specialists," he said.

Greens senator Christine Milne says she is not surprised but is disappointed by Mr Ferguson's stance.

She says the white paper focuses too much on coal and gas and not enough on renewables. "Martin Ferguson is a big supporter of nuclear, he's the one who's pushed the ALP to change its policy on uranium exports to India," she said. "He keeps saying that if renewable energy was to fail then we'd need nuclear and we need to make that decision in the coming decade, but the fact of the matter is he talks down renewables at every turn."

Giles Parkinson at The Climate Spectator has some thoughts on the white paper (unlike the rest of the media, the CS actually interprets the announcement and makes some sensible commentary) - Australia's great big energy challenge.

The biggest weakness of the draft energy white paper released this morning by the federal government is not immediately obvious – it’s found on page 269 of the 291-page report. It reveals that the data used by the Department of Resources and Energy for its energy modelling is already out of date.

In a world that is preparing for a dramatic shift in energy sources, a transformation to renewables, smart grids and electric cars – scenarios not invented by green-spinning NGOs, but by the International Energy Agency and the world’s leading industrial groups – Australia’s energy bodies cling grimly to the belief that not much will change, that fossil fuel and its attendees (carbon capture and storage) will continue to dominate.

The white paper acknowledges the existence of the IEA and other international reports, but relies on modeling provided by the likes of Treasury, the Australian Energy Market Operator and its own Bureau of Resource and Energy Economics, which predicts that Australia will have between 20.5 per cent and 22.2 per cent of renewables by the year 2030, barely more than its 20 per cent target in 2020.

How does it get this so wrong? By relying on modeling that predicts technologies such as solar PV will fall to a cost of around $220/MWh by 2035. Little wonder, then, that it thinks that solar will account for just 1.3 per cent of generation by 2030. The IEA, however, notes that the cost of solar PV has already fallen to between $160-$230/MWh, and will fall to $50-$100 by 2035, when it expects solar to be producing one fifth of the world’s energy. China thinks solar PV will be as cheap as coal by 2021 and its growth will boom. Australia’s white paper predicts small-scale solar PV will cease to grow after 2030.

This is important, because the inability to get a grip on the rapidly changing price of technology and their developments has been at the core of some of the lousiest energy policy decisions in this country in recent years – notably the NSW solar feed-in tariff, and the structure of the solar multiplier by the federal government. Given that these cost declines are accelerating, and now reaching a point where they compete with other technologies, it seems that there is a huge risk of more blunders when planning for the future. Given that minister Martin Ferguson says that more than $200 billion will be spent in the next two decades on Australia’s energy needs, there is much at stake.

That’s the negative part of the white paper – so just ignore their forecasts. However, it's the assessment of the current state of the energy industry which is more interesting, and has the potential to change the nature of the energy debate in this country, which it clearly seeks to do: for the first time the government has put together a significant document that underlines some of the home truths about the energy industry that many in the sector try to hide and many in the media choose to ignore.
The most significant of these statements, particularly in the context of the current popular debate, is that the cost of cleaner energy will impose only “marginally” higher energy costs on consumers in the short to medium term. And, it says, the industry will create jobs, offer commercial opportunities for Australian researchers and support our export industries. As Ferguson repeated on several occasions, Australia will never compete in clean energy manufacturing, but it has the potential to be among the world leaders in developing new technology and exporting that knowledge and IP.

The second important point is that the cost of network upgrades are underpinning the rise in retail costs, particularly in meeting peak demand, and Ferguson made a point of emphasising the cost of Australia’s growing dependence on air conditioning. He noted that for each $1,500 air conditioner (2kW) that was installed, a cost of $7,000 is imposed on to the electricity system which has to be cross-subsidised by other users. This subsidy is at a scale far beyond anything that exists for renewables, yet it is rarely mentioned.

The white paper also recognises the growing importance of distributed generation – such as solar PV – that is located close to demand and will have an impact on the local grid management and require greater flexibility in the distribution network. And Ferguson says demand management, the ability to shave the tops off peak load, will be a critical component of future energy requirements.

Indeed, one of the big themes of this paper, and a welcome one, is the attempt to switch the focus from energy supply to energy demand. That will require much greater focus on energy efficiency, and customer education and engagement, particularly as network upgrades impose significantly higher costs, and consumers have greater exposure to rooftop solar, smart meters, and even electric vehicles.

The white paper talks of the “significant long-term transformation” that needs to occur in the way Australia produces and consumes energy. “This transformation will be a massive challenge,” it writes, and adds that this transformation could also be dramatic. Although it relies on forecasts a coal and gas based future, it canvasses the potential for significant changes to the way energy is produced and the fundamental building blocks of the grid. “We cannot predict with any certainty future cost reductions and technical breakthroughs, or even how the market may ultimately deploy technologies,” the paper says. But it emphasises that this uncertainty needs to be managed with a flexible approach.

The Climate Spectator also has a summary of the paper - Energy white paper: the highlights package.

Energy modeling: The white paper acknowledged the work done by the International Energy Agency on technology and policy scenarios, and future cost curves, and then ignores them. The three scenarios relied on by RET are based on data that is at least two years old, and ignores the huge declines achieved in solar PV, for instance, in that time frame. According to the Bureau of Resource and Energy Economics, more than half of the country’s brown coal generators, and two thirds of the black coal generators would still be in operation by 2030 – with no carbon capture and storage. No model predicts solar at more than 1.3 per cent by that date, or 3.3 per cent by 2050. (Most industry modeling puts it at least one third by then). One model has geothermal at 8.4 per cent by 2030 and 22.9 per cent by 2050. The final version of the white paper is due in 2012, and will then be repeated every four years: let's update the technology costs, it might change the picture.

Feed-in tariffs: Ferguson again railed at the “dog’s breakfast” of state-based feed-in tariffs, but would not bite at the prospect of a national tariff, preferring instead to see some “harmonisation” of state-based schemes. He said state and territory governments would be held accountable for the rises in electricity costs that overly generous schemes produce. He was particularly scathing of NSW and the ACT. This latter is a little ironic, as it is just about to hold its first tender for a large-scale solar tariff, allowing the market to set the lowest possible price. That may prove embarrassing to the federal government’s own stalled schemes.

Clean energy costs: One important aspect of the white paper was its statement on the costs of clean energy. The Australian government acknowledges that cleaner energy will impose marginally higher energy costs on consumers in the short to medium term. However, it will also offer commercial opportunities for innovative Australian researchers and businesses through the creation of new jobs and skills and regional development opportunities, and potentially support our export industries. It said this was the case for CCS, as well as large-scale solar, geothermal and energy storage technologies.

Electric Vehicles: The white paper predicts only a "modest" uptake of EVs, particularly in the short to medium term, due to cost and the relatively slow speed of fleet turnover. But it recognises that it has the potential to be a "disruptive" technology if current barriers can be addressed, including limitations in battery technology, establishing charging and battery infrastructure, managing impacts from recharging on the grids, and increasing consumer awareness. It says, however, that even a high level of EVs would result in only a moderate increase in energy demand, and with new metering and pricing structures could reduce the need for more expensive peak generating capacity.

Privatisation: Ferguson is not in a position to impose electricity privatisation on the remaining states, but he says the experience in Victoria, which has had demonstrably lower increases in network tariffs, has proved their worth. This goes back to the “gold plating” argument, raised by Professor Ross Garnaut, that so upset some of the utilities. Privatisation, however, is not the only answer; regulatory change is also key. The Australian Energy Regulator is seeking to have its power boosted so it has the ability to resist the bullying tactics of the network operators. Right now, it says it is not a fair contest. Regulations that govern the deployment of distributed energy are also needed, as they are for interconnectors.

Peak demand: There have been numerous estimates of the cost impact on the electricity network from the widespread deployment of air conditioners, but Ferguson has produced the highest figure yet: $7000 of costs for each $1,500 air-con unit. This is based on new Queensland government data that estimates it costs $3.5 million for each megawatt of incremental network and generation capacity to meet peak demand growth. A 2kW unit therefore adds $7,000 to the cost. Demand swings can range as high as 65 per cent from day to day in the Brisbane area, and network operators are obliged to build infrastructure to meet that demand, even if it is only used for a few days, or even hours, a year.

Energy efficiency: The easiest and cheapest response to peak demand increases. The white paper says measures such as energy efficiency regulation on appliances will save 19.5 million tonnes of Co2e at a negative cost to the community of $56/tonne (That is, it saves money). It also speaks of the importance of incorporating distributed generation and direct load management, and forcing networks to seek demand-side alternatives, rather than just erecting more poles and wires.

Will the lights go out? As part of the white paper, the government released an update of its National Resource Security Assessment. One of the scenarios it considered was a sudden loss of capacity from Australia’s largest coal-fired generator, the Loy Yang A power station. What would happen? Well, not a lot actually. Australia has an excess of baseload capacity, and if Loy Yang went offline, other generators would come online. The lights wouldn’t go out, although prices would, inevitably, rise. This would even be the case after the proposed buyout of 2000MW of capacity (but expect even higher prices). The closure of Loy Yang may actually reduce network constraints, the study concluded.

Gas: Ferguson is firmly convinced about the “golden age” of gas, even in the IEAs grim 450 scenario when I posed the question to him. Indeed, the government appears poised to release a significant upgrade of Australian gas reserves following a new survey by Geoscience Australia – presumably, this is centred around the potential of shale gas, which in the US has proved even more contested than coal-seam gas in this country.

Nuclear: The support for nuclear in Australia is based on the premise that renewables, or other clean energy technologies such as carbon capture and storage, cannot deliver. Ferguson, possibly thanks to ALP politics, is obliged at least to give renewables a go at proving their worth, and the white paper notes that there is no compelling energy security argument now in support of nuclear, given Australia’s diverse energy resource base. However, the white paper says a future government may wish to review the nuclear question, if technologies such as “low emissions base-load” energy or energy storage cannot deliver by 2025. But it says a decision may need to be taken earlier, because deployment would be required by 2030-35 and it would take 10-15 years to roll out, even if, as Ferguson suggested, Australia could buy “off the shelf” nuclear technology.