For over a month now I’ve been trying to do two posts – one on climate as an existential threat, and another on whether 1.5ºC is at all still possible. I keep being diverted.
Malcolm Turnbull has been dithering for months over whether the government would accept the Finkel review recommendation for a Clean Energy Target. For some time now, it has been clear that the climate contrarians in his own party, and the Nationals starting with Barnaby Joyce, would not accept anything that is negative about coal. In the end they asked the brand new Security Energy Commission for advice, in terms that were severely constrained. They got their advice, faithful to the brief in an eight-page letter, and announced a “breakthrough” in the form of a National Energy Guarantee to deliver affordable, reliable electricity with industry and stakeholder consultations to follow, plus the necessary modelling to be undertaken only after the states have agreed. Therein lies the problem.
The attraction of the NEG to the contrarians and coal-lovers lies in this graph, which appeared on the front page of The Australian on Wednesday, and was repeated in the AFR the next day:
I’ll just highlight the second part of the graph with this one from the Oz:
There is going to be a lot more coal and gas around under the NEG than under Finkel’s CET, let alone Labor’s policy. It must be noted here that the states are mostly going a bit further than federal Labor.
Intermittent renewables will be restricted to 24 to 28% of the market, and that includes feed-ins from rooftop solar. If they produce more than that, they simply won’t be used. I’ll come back to how that seems to work, but Giles Parkinson reports that energy consultant David Leitch calculates that under NEG only around 4,000 MW of new large-scale renewables would be required between 2020 and 2030. That is not much.
The ESB advice makes clear that more renewables are only welcome if they are fully firmed and dispatchable. As such they would have to compete on price with existing coal, which as John Quiggin points out, is redefined as ‘dispatchable’. Perhaps they did not understand that Queensland lost 790 MW of coal-fired capacity in the heat last February, and reliability engineer Peter Todd explains that not-so-old coal-fired plants are not reliable:
- Manufactures of power stations rate the life of their plants at 20 years and the high temperature creep failure mechanism in steel pipework and pressure vessels is the reason for this rating.
Federal Labor’s reaction has been that they cannot seriously consider the scheme until modelling has been done. The ESB says they won’t start the modelling until the states agree.
In fact, the only element that requires Commonwealth legislation is the target of 26% reduction in emissions from 2005 levels. Labor and the Greens will never agree, but the Senate crossbench might. In any case, Turnbull wants to have a point of difference over electricity and climate going into the next election. We had a flavour of this when Barnaby Joyce talked to Patricia Karvelis on Tuesday evening.
Joyce said the government won’t cater to the “happy hippies” on energy. The choice is clear, he says. Either you get cheaper electricity with us or you become poor. He based the latter on the calculation that Labor’s policies would require $66 billion worth of subsidies over the next decade.
Giles Parkinson says $66 billion was a figure plucked out of the air that appeared on the front page of the Oz. By Wednesday the Oz was quoting Turnbull as saying that Labor’s policies were going to cost $66 billion.
That’s how fake news is made, gifting the government a scare campaign.
Turning to the states, the AFR reports that the Labor governments in South Australia, Queensland and Victoria have rejected the proposals put up by the Energy Security Board. Then this:
- SA Premier Jay Weatherill said the policy was “a complete victory for the coal industry” and demonstrated Prime Minister Malcolm Turnbull’s “complete inability to stand up to vested interests and act in the pubic interest”.
Mr Weatherill said the government had cycled through a series of policies that could be seen as a price on carbon but “it all depends on the price you put on it” and Mr Turnbull was more interested in propping up the coal industry than backing renewable energy.
Weatherill is adamant that there must be a penalty on the use of carbon-producing energy. In this regard I found the comments of Professor Samantha Hepburn, Director of the Centre for Energy and Natural Resources Law at Deakin Law School interesting (see comments by experts at Gizmodo). She believes that in a modern world, energy security is not just about reliability and affordability. It is also about sustainability across generations. She concludes:
- “Abandoning the CET on the basis of affordability and reliability ignores the fundamental importance, as articulated by the Finkel report, in promoting market and behavioural shift towards a cleaner and more sustainable energy future.”
She believes that something like the CET is needed to compensate for the externalisation of environmental and ecological costs of fossil fuel production. The damage done by coal and gas must be turned into dollars and represented as cost at the production/consumption phase.
The NEG requires rule changes in the National Electricity Market (NEM). National Electricity Law is normally enacted in South Australia, and then applied in other states, The ESB saw rules being changed in 2018 and implemented from 2019. All three Labor states mentioned have elections by the end of 2018, Qld probably this year, SA early next year, and Victoria late in 2018. All are presently ahead in the polls, but Xenophon in SA and Pauline Hanson in Qld are a factor.
In SA Xenophon is predicted to hold the balance of power, so much depends on which way he would jump. He claims that the SA blackout first gave him the idea of heading back to SA because it symbolised the dire straits that had befallen the state. The NEG is also in large part an energy intensity scheme, which he had favoured long ago.
Somehow I can’t see him working with Weatherill.
In Queensland if the LNP wins it will be with One Nation holding the balance of power. The LNP has promissed to intitiate a coal-fired power station in North Queensland within 90 days and will certainly dismantle the Palaszczuk government’s climate initiatives.
Ben Potter, interviewing Roger Price:
chairman of Windlab, an ASX-listed developer of wind farms that financially committed to a $160 million wind, solar and battery farm in north Queensland the day after the Turnbull government announced the NEG, said renewable energy projects would continue to be driven by state-based renewable energy schemes, the retirement of older coal plant and the rapidly falling cost of the technology.
His project is part of a giant 1200 megawatt project at Kennedy Energy Park, 290 km south of Townsville and one of 11 renewable projects on the books in NQ. Price must be hoping for a continuing Labor government.
His substantive point is that according to Bloomberg energy firmed up solar and wind will be able to deliver power at less than the cost of upgraded existing coal plant by the mid 2020s. That’s about when a new coal plant in NQ would open for business.
Price says the NEG will not dramatically change outcomes:
- “What federal policy can do is give us a smooth transition or not – and at the moment unfortunately what we have got is ‘or not’,” he said.
He says nothing can change in the NEM unless all states agree, and he can’t see that happening.
The states have also asked advice from the ESB as to whether and they could implement a CET without Commonwealth involvement. The answer should surely be, yes.
There is unfinished business with the Commonwealth also. They asked for advice on a strategic reserve, but further work needs to be done.
I need to do another post to pick apart the scheme to see how it works. Opinions vary from Tony Wood of the Grattan Institute, who says that everyone should support it to Bruce Mountain, who says that it’s shambolic policy that plucks defeat out of the jaws of victory.
My broker distributed advice about the impact on AGL, which said the policy looks simple but would be very complicated to implement. Major retailers, especially those like AGL which have generation assets would be able to leverage their market power. Rod Sims at the ACCC must be having kittens, no doubt expressed behind the scene.
The policy is scalable, so Labor could agree, promising to raise the target if elected. This position has some attraction, because while this week’s Essential Report strongly backs Labor’s position, that may change now NEG has appeared on the scene and Labor could be seen as obstructionist. For the record, respondents backed the CET 65-15. They backed giving incentives for renewables 74-10. They backed the notion of a 50% RET 62-18. And only 15% thought the Government was doing enough about “affordable, reliable and clean energy” as against 61% who thought they weren’t. That may now change.
The scheme essentially provides for retailers to source enough clean energy to meet the 26% target over the period to 2030. The levels required, determined by AEMO, will vary in each participating state, with the whole to add up to 26%. At the same time standards will be set for retailers to acquire ‘dispatchable’ electricity, irrespective of source. By dispatchable, they mean electricity that runs 24 hours a day. These standards will follow usage for the day, and will be based on longer-term contracts. Seems they want to avoid floods of cheap intermittent energy undercutting the old baseload plants, so they remain turned on, chugging away.
Contra to what Turnbull said (ie he’s telling porkies), retailers will be able to meet their clean energy obligations by buying offshore credits. Giles Parkinson says so, Ben Potter in today’s AFR says the same. However, Potter says that with China entering the market and over 90 countries joining the fray, there is every reason to believe that these credits will no longer be cheap.