Malcolm Turnbull has now, for reasons best known to himself, elevated “energy crisis” to a “national security” issue. Ben Potter puts the situation well:
A decade of fighting over renewable energy, carbon prices and fossil fuels has left Australia with some of the world’s dirtiest and costliest energy – a bitter yield from historical abundance.
Three years ago, manufacturers began complaining they couldn’t get gas, and 18 months ago the South Australian grid started to wobble.
Now, electricity and gas prices across the eastern states are two to three times their levels only a couple of years ago.
Gas exporters overcommitted to foreign buyers; the federal government mismanaged renewable energy and the regulatory apparatus – and politicians responsible for it – are frozen in the headlights.
With gas at $12-13 a gigajoule, two to three times the level only a few years ago, manufacturers are being slugged by power price hikes, a mothballed methanol plant is being pulled apart and shipped to the United States for reassembly and expansion. The 7.30 Report told us some rural businesses are turning to diesel generators, because they are cheaper and more reliable. The Australian Market Energy Operator (AEMO) warns that in a year or two we won’t have enough gas at any price.
Before we look at possible solutions, Phillip Coorey reminds us of Peta Credlin’s admission that they made the carbon price into a political game:
- “It wasn’t a carbon tax, as you know. It was many other things in nomenclature terms but we made it a carbon tax,” she said.
“We made it a fight about the hip pocket and not about the environment. That was brutal retail politics and it took Abbott about six months to cut through and, when he cut through, Gillard was gone.”
- Oh joy, stuff the entire energy sector for almost decade for personal political gain.
The lack of a policy is now seen by the industry as the largest factor affecting power prices.
Enter Elon Musk with his Tesla batteries. The stories are everywhere. Elon Musk says he can supply batteries to fix South Australia’s energy problem within 100 days, or he’ll give it free. Jay Weatherill and Malcolm Turnbull have been talking to the man.
Michael Cannon-Brookes, co-founder of software company Atlassian, said on Twitter that if Mr Musk could guarantee 100MW in 100 days, he could “make the $ happen”.
It’s a publicity stunt, of course. Tesla was in town launching its Tesla 2 Powerwall. Australia is a prime market for Tesla because of our high penetration of rooftop solar, as well as our concern about electricity prices.
At least three battery rivals have now piped up, saying they could do the same thing as Tesla.
ABC’s Michael Collett has the best explainer so far. Batteries can store energy generated at off-peak times at scale and despatch it instantly to meet peaks. However, he links to Roger Dargaville’s Despite the hype, batteries aren’t the cheapest way to store energy on the grid. He puts the cost of pumped hydro at around A$100 per kWh, which Ben Potter says is about a fifth of the price of batteries.
I hate to say it, but in my post Gas, pumped storage and energy futures of 7 February where I linked to an article by Andrew Blakers, Bin Lu, and Matthew Stocks of the ANU who looked at a 100% renewable energy supply using wind, solar and pumped hydro. They found:
Using 2016 prices prevailing in Australia, we estimate that the levelised cost of energy in a 100% renewable energy future, including the cost of hourly balancing, is A$93 per MWh. The cost of wind and PV continues to fall rapidly, and so after 2020 this price is likely to be around AU$75 per MWh.
So why don’t we head down that track?
Ben Potter says that Alan Finkel, chief scientist undertaking a review of the electricity system, is keen on the Irish system, where renewables are limited to 50% of the market to preserve grid security. Effectively there are two markets. A baseload of 50% is reserved for traditional suppliers – coal, gas, hydro and nuclear if you have it. The rest is open to competition from renewables. It guarantees a market so that the fossils can keep their plants running.
Yet Blakers et al at the ANU say that it is at the 50% point where the use of pumped hydro becomes relevant.
Finkel would then still have the problem of where he finds more gas, and a consistent supply of gas.
Ben Potter goes through some of the solutions that probably won’t happen.
We could keep Hazelwood open, but that would mean stumping up $400 million for maintenance and taking over closure costs from the owners – another $750 million. The Commonwealth Government could purloin some of the gas being exported through Gladstone. This would involve breaking contracts, incurring sovereign risk, which would jeopardise investment. It won’t happen, unless the PM can jawbone the companies into doing it themselves. This is the PM’s tack:
- …the government would consider “all measures” to ensure supply.
He said while gas companies would resist any change to the ground rules governing existing projects that could place constraints on exports, “security is the first responsibility of every government”.
“That is, national security and energy security,” he said.
Mr Turnbull will seek assurances on supply when he meets the big gas producers on Wednesday next week in Canberra.
“They’ve been put on notice. I’ll be demanding from them their explanation as to how they’re going to deliver security for their customers,” he said.
The government is expected to demand answers on why fields such as Shell’s Arrow venture and Origin Energy’s Ironbark lie fallow in Queensland, while Santos’ $2 billion Narrabri venture in NSW is crawling towards development years behind schedule.
AGL Energy has already walked away from its Gloucester coal seam gas project in the Hunter region; Gloucester together with Narrabri could meet most of NSW’s demand for gas.
My bet is that the gas-producing CEO’s won’t budge, and we’ll get more finger-pointing at NSW and Victoria about coal seam gas bans. Effectively the companies have lost their social licence. For now Lock the Gate has won.
The 7.30 Report told of Queensland granting exploration licences on condition that the gas be available for local use. From memory that was 57 square kilometres, anyway a patch about 6 x 10km. However:
- Queensland Energy Minister Mark Bailey said he would be willing to talk to the Turnbull government about further opening up the state’s significant gas reserves to deal with the gas shortage, as well as expand the domestic gas reservation pilot project.
There are two problems here. First, gas producers don’t know how long local gas will be required for power generation. They need to plan over decades. Secondly I understand there is a bit of a glut on the world market at present.
Ben Potter does talk about a second great wave of disruption of the energy market, wind and solar being the first. Now we have digital disruption:
- This wave is made up mainly of so-called “behind the meter” or distributed energy resources – storage batteries, smart thermometers for airconditioners, refrigerators and pool pumps, electric vehicle chargers, and smart software – in people’s homes and business premises.
Software helps households and firms get the most out of their energy resources and pricing incentives encourage them to give back to the grid when shortages loom to help to prevent blackouts.
No-one knows how all this will work out, but he cites BNEF as saying behind the meter energy resources will account for more than a fifth of power system capacity in a decade and a whopping 35 per cent by 2040.
And talks about smart grids.
All good to see in the AFR.
Potter didn’t mention demand management, essentially paying consumers to turn off the power to solve peaks.
He did mention AGL’s proposal to set up LNG import terminals off the coast of one or more of SA, Victoria or NSW at $300 million a go. For some reason here it would take until 2020-21 although Egypt got one up and running in three months.
Ben Potter said it wouldn’t pass the pub test, but today in the AFR Angela Macdonald-Smith says that grown-up countries like the US, the Netherlands and Indonesia already import as well as export gas. Floating terminals are not a new idea. 19 exist and 20 more are being built. Gas could be landed at $11 per gigajoule. Not cheap, but many now face the prospect of paying more.
Worth a go, I think, but the AGL plans are “tentative”. That’s the problem with everyone except Elon Musk at present. Squarely the blame for that lies with Malcolm Turnbull and his gang.
Rock solid, steadfast and slow to change is the Australian Energy Market Commission. Giles Parkinson tells how they have been so slow to change that AEMO, the market operator has complained about them to the Finkel review. They appear to be in the thrall of the fossil fuel industry. The Commission is set up under COAG (the Council of Australian Governments) with
- two roles in relation to the National Electricity Market – as rule maker and as a provider of advice to Ministers on how best to develop energy markets over time. The AEMC actively considers market development when it considers rule change proposals, policy advice and energy market reviews. These rules are binding on the Australian energy market and enforced by the Australian Energy Regulator.
Clearly these fossils need to be swept away and banished to a Pacific island with a peak two metres above sea level.
Parkinson says that tweeting billionaires signal the end of the road for fossil fuel dinosaurs.
However, it really depends on Turnbull actually doing something, rather than talking, and for the present that seems beyond him.