Australia’s energy transition
What “Drill baby, drill” means for renewables
Trump will pull America out of the Paris Agreement on climate change, and will try to withdraw from the United Nations Framework Convention on Climate Change, explains Gautam Jain of Columbia University, writing in The Conversation: What Trump can do to reverse US climate policy − and what he probably can’t change.
He will also try to roll back provisions in the Biden Administration’s Inflation Reduction Act, and in related legislation, Jain explains. That will be difficult politically, because many millions of investment funds from those programs have flown into states that voted for Trump. He will probably have more success in repealing laws relating to emissions, however.
Then there are complications around the way he wants to deal with China, explained by Martijn Wilder on the ABC’s Global Roaming last weekend: Is China winning and Trump losing on climate?. Although China is still the world’s largest source of CO2 emissions (ask any Australian coal miner), it is also the world’s leader in clean energy investment. Can America’s MAGA man, who sees international relations only in win-lose terms, bear to see his country overtaken in this latter race, even if he doesn’t want to be in it?
Then there is the complication of Trump’s close relationship with Elon Musk. Musk has obvious reasons to support Trump’s 60 percent tariff on Chinese electric vehicles, but does he go along with the rest of his anti-renewable agenda? Musk likes big showy high-tech projects and there are many such possibilities in renewable energy.
All of Trump’s bluster is in a world where the cost of clean energy goes on falling. Investment finance is flowing into wind, solar, storage, and transmission lines to distribute renewable energy. Writing in Open Forum – A golden opportunity [for Australia] – Wesley Morgan of the University of the South Pacific makes this point:
Investment is shifting inexorably from fossil fuels to clean energy technologies. A Trump presidency means Australia, and other responsible nations, will need to respond by doubling down on global climate cooperation.
During the Radio National interview Wilder mentions that nuclear power is part of the clean energy mix, but this isn’t to suggest Australia should do likewise. Those countries with nuclear power plants can keep them running at low cost, and if they happen to lie in the far north latitudes, new nuclear plants may be the only option, even though they’re costly. But Australia’s path to net zero lies in renewables, with gas supplementation to deal with peak demand, until enough storage is developed.
Jain also points out that Trump’s and other governments turning their back on reducing emissions cannot ignore the dislocations and other disruptions caused by global heating. Parts of the world, including parts of Australia, are becoming uninhabitable for humans and unsuitable for growing food.
Albanese has reminded the world’s financiers that if Trump does manage to put investors off putting their money in American renewable energy projects, Australia offers promising returns, as the ABC’s Brett Worthington reported from Peru: Anthony Albanese seeks to exploit Donald Trump's climate plans in the hope billions will flow to Australia.
Sophie Vorrath of Renew Economy, referring to a recently-released report by the Superpower Institute – The New Energy Trade: Harnessing Australian renewables for global development – presents the opportunity for the government: Renewables superpower or climate coward? Albanese needs to make a choice before election.
The Coalition’s nuclear campaign – fool the public with bad mathematics
The Coalition, with help from the Murdoch media, is on a campaign to make renewable energy look unaffordable, regardless of the evidence. The headline in The Australian last Monday read “Bowen, others, should be ashamed of our $650 bn renewables disaster”. “Labor's renewables-only grid will cost at least $642 billion, not $122 bn as claimed, new report says” was the headline in The Advertiser.
The Economist this week has a short article The energy transition will be much cheaper than you think. It’s paywalled, but its main point is that most analysts overestimate energy demand and underestimate the cost reductions resulting from technological advances. AEMO’s ISP seems to fit this pattern, which means it is probably overestimating the cost of the ISP.
The Coalition is not revealing any cost estimates for their nuclear proposals. Rather, they claim the government’s Integrated System Plan to supply electricity in the National Electricity Market, calculated by the Australian Energy Operator to cost $122 billion, will actually cost $642 billion.
If the ISP renewable path can be made to look expensive enough, then it should be possible to develop a cost for nuclear energy that beats it.
The “new report” referred to in the Murdoch media is a report by Frontier Economics: Developing a base case to assess the relative costs of nuclear power in the NEM.
In fact that report comes up with figures that are close to those calculated by AEMO. It suggests that about another $120 billion of costs should be included in the AEMO base case, these being mainly fuel use (the ISP relies on peak supplementation with gas), emissions associated with that fuel, and maintenance. That’s all fair enough, provided those same maintenance costs are included in the nuclear comparison.
These figures – $122 billion or $242 billion, are all in terms of net present value – a standard, and long-practiced accounting technique to account for the opportunity cost of funds – or the cost of capital as another way of seeing it. Any investment proposal, in the private or public sector, should be presented in terms of its net present value – also known as the “discounted cash flow”.
So where does that $642 billion come from?
That figure, in bold type in the summary, is the undiscounted figure, which takes no account of the time value of money. Conceptally it’s junk, and you can make it any number you like by extending a project’s life long enough. It’s a mystery why a reputable consulting firm should produce such a figure – except, perhaps, in a spreadsheet showing how the net present value is calculated. Possibly the firm’s client insisted it be included so that it could be used for propaganda purposes.
In short, the comparison used by the Coalition and the Murdoch media is blatantly deceitful. Peter Hannan, writing in The Guardian, compares it to subtracting apples from oranges. (At least apples and oranges are both fruit: comparing discounted and undiscounted cash flows is more like comparing gold bars with play money.)
The Frontier Economics report itself does not draw that comparison: rather it’s in the Murdoch media and in the Liberal Party’s statements. Journalists who write headlines can be forgiven for not having studied finance, but surely there is someone in the Liberal Party secretariat who understands basic business finance? Perhaps there isn’t – maybe they are as clueless in business finance as they are in fiscal management —or maybe they are just plain deceitful.
Regional consultations on nuclear power – new concerns, old distractions
Jasmine Hines and Vanessa Jarrett of ABC Queensland report on the first regional consultation on nuclear power, held by the House Select Committee on Nuclear Power: First regional public hearing on nuclear power in Biloela, central Queensland, with locals divided.
An issue that arose in this consultation is the demand nuclear power stations make on scarce water resources, a matter of concern to local farmers. Just as in coal-fired power stations, they use water for driving turbines and for cooling. (Think of the steam coming off cooling towers). Their water requirements are about the same as for a coal-fired power station generating the same amount of electricity.
This means the Coalition’s proposed nuclear power stations would not make additional demands on water, because most of them would be built on the site of existing coal-fired stations.
But it is worthwhile pointing out that wind and solar plants use virtually no water, which means replacing coal or gas-fired plants frees up scarce water for agriculture and for environmental restoration. Also, one undesirable by-product of thermal plants is the discharge of warmed water, which upsets local ecosystems.
Other concerns at the Biloela gathering were about the safety of nuclear power and the disposal of waste.
The failures at Three Mile Island, Chernobyl and Fukushima have obviously captured people’s attention. But in reality nuclear power has an outstandingly good safety record.
There is a risk that the Coalition will want to keep objections to nuclear power focussed on safety, because such objections are easily dismissed by reference to evidence. In this task they will probably be aided by uninformed “environmentalists”.
The issue that should sink the Coalition’s ideas is the cost of reactors, and the delay before they can be built, during which time old coal-fired plants will have to be sustained, and some may even have to be recommissioned or rebuilt. When the nuclear plants come on stream many years from now, they will have to be paid for – through taxes, forgone government services, or electricity prices that would be very much higher than we are now paying.
That’s where the debate needs to be focussed.
Progress in the electricity sector
There is strong progress towards rebuilding Australia’s electricity sector around renewable energy. In 2015, 15 percent of the grid was powered by renewable energy. By 2023 its contribution had risen to 40 percent and by next year will reach 48 percent. Projections of present trends suggests we could fall short of our 2030 target of 82 percent, but there is a strong possibility that an increase in clean energy investment will help us achieve that goal.
That is a summary of the Clean Energy Council’s report Emissions reductions delivered by renewable energy 2015 to 2025.
You can hear Kane Thornton of the Clean Energy Council on Radio National summarizing the Council’s report: Renewable sector hails “quiet revolution”. (8 minutes)
He explains that investment in renewable energy has been slower than planners had expected, but there has been a recent pickup in investment and some blockages have been cleared.
Re-writing the rules around electricity
The Grattan Institute calls for a re-design of the economic rules governing the National Electricity Market.
That call is in a submission to the Senate Select Committee on Energy Planning and Regulation: Preparing for the energy transition.
The submission’s summary suggests that it’s about tying up some loose regulatory ends. It starts:
… a system designed in the 1990s is now creaking under strain. The key assumptions that underpinned that design – generators that consume fuel, slow and predictable demand patterns, and passive consumers – have been invalidated by technology change.
But its argument for change is actually quite basic, challenging some of the fundamental assumptions of microeconomics upon which the NEM is based. To quote:
Three underpinning assumptions no longer hold.
The rise of wind and solar generation has challenged three assumptions that underpinned the original design of the NEM. Firstly, that all generators have a marginal cost of production based on their fuel consumption, and that therefore the way to keep prices low is to dispatch generators in order of lowest to highest marginal cost, until demand is met. Secondly, that demand changes slowly and predictably during the day, allowing generators to ramp up and down gradually in response. And thirdly, that consumers are passive recipients of energy, not producers.
These changes have major consequences for the NEM. It now needs to:
Plan and build new transmission at a scale and pace not seen before.
Ensure that the market provides pricing or other financial signals for investment in dispatchable supply capacity to support a system largely built on weather-dependent wind and solar generation.
Effectively and efficiently integrate the energy resources (solar and batteries) that consumers are installing behind the meters.
In terms of economic dogma that’s all heresy, but it’s all directed at achieving a better and faster allocation of resources to deal with climate change.
One implication is that we will need to pay for generating or storage plants that will seldom or never be used – such as peaking gas plants. This may be through mechanisms other than payment per kWh despatched.
The idea that the NEM needs to be re-designed is supported by Origin Energy CEO Frank Calabria, who, in an interview on Radio National, emphasises the need for a way to pay for backup: Origin boss says the energy market is no longer fit-for-purpose and needs an overhaul. (8 minutes)