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Finkel’s fine line through Australia’s testy power politics

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It now seems certain that chief scientist Dr Alan Finkel will deliver a range of options for government policy makers when presenting his review to the COAG ministers and leaders this Friday.

There will be mention of the emissions intensity scheme, but because a carbon price of any form is not on the menu of this Coalition government, other more “palatable” alternatives will be on offer, including a low emissions target, an option on pairing new renewables with storage or back-up and, possibly, a pathway for regulation.

Australia's Chief Scientist Alan Finkel. Photo: Mark Graham

Australia’s Chief Scientist Alan Finkel. Photo: Mark Graham

All have their merits. But as in any policy, the devil will be in the detail and the way these schemes are designed – for the future or the past. And it is going to be interesting to see how Finkel presents his case. Will it be his view of what should be done? Or will it be focused on what can be managed in the current political environment?

Certainly, there is a growing chorus among politicians and the mainstream media that something should be done. But there is not a lot of thought into what these policies can actually achieve, even though they should obviously seek to meet climate targets and manage the energy transition efficiently and at lowest cost.

And already we are running into problems. Two significant reports from three leading institutions were delivered to the Australian government last Friday that show that wind and solar is the cheapest avenue to a decarbonised grid.

The problem was that none of the institutions could bring themselves to actually say it: that wind and solar are by far cheaper than coal and gas and any “other low-carbon technologies”.

The Australian Energy Markets Commission and the Climate Change Authority reinforced their support for an emissions intensity scheme (EIS), and only saw a low emissions target (LET) as a second-best measure. Once again, those recommendations simply reinforce preconceived ideas, and lousy modelling.

Both institutions came out strongly in support of an EIS last year, but as we pointed out at the time, here and here, these positions were based on hopelessly pessimistic modelling inputs on the cost of solar and wind.

The AEMC said, then, that an EIS would be $15 billion cheaper for consumers than other options, but this was based on ridiculous assumptions, on the cost of solar energy in particular, as we highlighted in this story: Australia’s energy rule-maker hasn’t a clue about renewable energy.

Even a minor adjustment to their absurdly high forecast of solar costs showed that a high renewable energy target would deliver $15 billion in cost savings to consumers. But that conclusion, included in their own report, wasn’t highlighted.

If realistic costs of renewables and gas had been used, then it is safe to assume that the results would have shown that a high renewables policy would deliver significantly more savings than a gas-focused policy.

The tragedy is that the AEMC and CCA have now released data that confirms that those modelling assumptions were completely out of whack, but they have done nothing about it.

The independent assessment from the Centre of International Economics confirms RenewEconomy‘s observations that their modelling for both the AEMC and the CCA report used renewable energy prices (way too high) and gas prices (way too low) that were well out of the ball park.

CIA

But you had to go to the very last page of the addendum to the addendum to find this out. This table, which has no other commentary attached to it, shows that wind and solar are far cheaper than gas or coal.

Even the gas and coal estimates are generous because they assume a 40-year life of the assets, when it is clear that the world will have to decarbonise the electricity sector well before 2050.

But could either the CCA or the AEMC be bothered to put the more accurate low wind and solar costs into the modelling to see if it still came up with an EIS, or even an LET as the most effective solution?

No, they could not. And you can imagine that the reason they didn’t is because the answer would have shown that a high RET – aiming for 90 per cent renewables by 2050 – would be the cheapest option. Instead, they stood by their support for an EIS.

This is not energy economics. It is energy ideology, and energy consumers deserve better.

As the AEMC and CCA reveal, they want to remove barriers to the use of gas because it is “important for transitioning to a lower emissions electricity sector in a cost effective way while maintaining system security.”

They have even failed to understand that renewables and storage already beats gas on costs. The AEMC insists that having more wind and solar puts energy reliability at risk.

The CSIRO fell into a similar trap on costings. Last year, it produced an excellent report that showed Australia could decarbonise the grid with mostly wind and solar and storage well before 2050 and save $100 billion from business-as-usual. It provided a clear path on how to get there.

But when asked by the federal government to model various scenarios, it came up with something completely different. It found that the Coalition’s preferred scenario, of putting a cap on wind and solar (in this case 45 per cent) and relying on gas for the rest, would be the cheapest option.

But this is only because this gas scenario assumed ambitious energy efficiency and energy productivity targets, which meant that the high wind and solar (90 per cent) scenario, paired with battery and other storage, assumed that 386TWh of electricity would need to be delivered, compared to 236TWh in the high gas scenario.

As we wrote on Friday in our story, little wonder the gas option proved cheaper.

When the CSIRO modelled an “all-in” option, with efficiency and productivity gains taken into consideration, it somehow managed to jam significant amounts of gas and carbon capture and storage into its modelling, so of course it came out as more expensive.

This is the challenge that Finkel faces. Australia’s energy institutions now know that wind and solar are the cheapest option, but can’t bring themselves to say it, so compromised are they by their ideological preferences and their desire to protect incumbents.

The low emissions target, along with AGL’s proposed “pairing” of new renewables with new or existing dispatchable generation, has merit.

But this is only the case if the policy is designed to manage the transition in the most cost-effective way – not to protect various incumbent interests, which has sadly been the motivation behind much of Australia’s climate and energy policy making in the past decade.

An effective low emissions target ensures any scheme accelerates the transition away from coal and does not lock in support for fossil fuel generators, particularly gas. Will it only be set for new generators, or designed to protect existing generators, as South Australia’s proposed energy security target appears designed to do?

The suggested “high emissions” target of 0.7tC02e/MWh does not bode well, if correct. Former prime minister John Howard reportedly discussed a low intensity cap of O.2t/MWh way back in 2007. The current Australian average of 0.81 t/MWh is 66 per cent above the global average, and 91 per cent above the US.

It will also be critical that Finkel addresses the demand-side equation, as well. There is real doubt about whether Australia needs any new thermal generation, and both the CSIRO reports and the CCA acknowledge the benefits of behind the meter solar and storage and demand management.

This is a theme taken up with gusto by new Australian Energy Market Operator boss Audrey Zibelman, who rightly argues that it is ridiculous to encourage new high-cost peaking plants when low-cost demand management and energy efficiency can do the same job.

That relies, however, on people thinking about different business models, and different ways to manage the electricity system; and different policies – something that the AEMC has shown itself to be completely incapable of doing, hence the AEMO’s push for more rule-making powers of its own.

Every lobby group has their own preference for the future. The networks are attached to the idea that most of the generation by 2050 will come from homes and businesses. That gives networks the primacy over generation companies, as long as they can figure out a way to keep most consumers on the grid.

AGL predicts that gas will be bypassed as a transition fuel in the shift from coal-fired power to large-scale renewables, but it somehow imagines that it can go on burning coal at Loy Yang until 2028. The gas industry, of course, wants its commodity to be centre stage.

Others, like BHP, simply can’t see beyond the past. CEO Andrew McKenzie told ABC TV’s 7.30 that the system still had to be based around “baseload” and peak load. Even Glencore, ignoring the pathway forged by zinc refiner Sun Metals, and the soaring energy costs for Mt Isa caused by its choice of gas over renewables, refuses to look at solar because of the ‘need’ for baseload.

The future is going to be based around what Michael Liebrich calls “base cost” renewables, with other dispatchable generation and storage filling in the gaps at the cheapest cost possible. The CSIRO and the ENA have given an indication of what that might look like.

This should be the standard set for Finkel, which will likely shape the energy debate in the near future. One suspects that he understands where the industry is heading, and that it is futile to stand in the road of the technological change. Better to embrace it.  

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  • DJR96

    Sums up the state of play here doesn’t it? The the energy industry is regulated by the incumbents for the incumbents. Makes it a closed shop and hard to change. Needs busting open and purging of the dinosaurs out of the decision making processes.

    I live in hope that the politicians will have the spine to support Finkels recommendations.

    • solarguy

      I’m sure the kick backs from the FF industry will keep their spines, soft like jelly. We need to get rid of the bastards at the next election.

  • Malcolm M

    Table B1 doesn’t seem to reflect recent experience in capacity factors for the generation of wind with higher hub heights, and solar with tracking. RenewEconomy has reported a capacity factor of 41% for the Hornsdale wind farm, compared with 35% listed in the Table. This would bring the levelised cost of energy down from $67.60 to 57.70/MWh at the 8% discount rate. In the same way, solar farms in good locations with tracking can typically achieve capacity factors of 31%, compared with 25% here. Again this brings the levelised cost of energy down from $88.50 to $71.37/MWh.

    • Quite so!

    • David leitch

      Infigen’s opex is over A$20 MWh based on their actual numbers for the past five years both in Australia and the USA rather than the $8 shown in the table. Coal capacity factors in Australia can easily be 75% as opposed to the 50% used in the table although in China they are less than 50%. I guess this is the point of a market. Entrepreneurs can make their own calculations. We also need to allow for the balancing costs.

      • Mike Shackleton

        You’d have to assume though in a grid where renewables have a higher penetration, there are going to be periods where coal fired plants have to go on standby due to lack of demand. It won’t be just maintenance schedules that reduce their capacity factors.

        • Alastair Leith

          Al la South Australia, no place for coal to go except out of the market.

  • Chris Fraser

    It seems all this discussion about ‘intermittency’ in high energy consumption industry is at the core of the ‘baseload’ bed-wetters concerns about renewable investment. It seems fair enough as even Sun Metals is sourcing, for the moment, only a third of its energy requirement from its solar project. But the antagonistic baseloaders should really consider the cost trajectory of storage and what it would mean in the medium to long term, before giving vent to their concerns.

  • Ian

    I hope Mr Finkel takes a support person with him when he does his address. Sounds like he will be facing a very hostile anti-renewables crowd

  • Joe

    …and the option that Turnbull will implement will be the one that gives continuing life to Big Fossil Fuel. No doubt he will talk the talk that RE is important but he will do very little to boost RE ahead of Fossil Fuel.

  • Robin_Harrison

    We know who owns our chief scientific institution, the CSIRO. Now we will find out if they own our chief scientist Finkel.

  • Don McMillan

    The common message this website propagates is that governments are pro-fossil fuels. In practice, there is no evidence. I work in the natural gas industry and getting government approvals for projects is close to impossible. E.G STO, MEL DRT AGL etc. Investors are eager to invest but government delays and moratoriums have scared them off. Coal is the same. Renewables on the other hand have a free run..

    • Colin

      Hi Don.

      Propagates is a strong word.

      Any evidence you’d like to share to back up that statement?

      • Don McMillan

        NSW has not allowed any Natural Gas / CSG projects to proceed. NSW = Dart E NewCastle, Mel NthRiver, STO’s Narrabri, AGL’s Gloucester & Camden, Northern Territory all projects have been haltered [Origins, Centrals, Pangaea, all US companies have left etc]; In Victoria, GreenEnergy, Lake Oil and a few others. I personally have a gas company KEL which is mothballed. If you want gas love to get it up and running. This is the first time in history where gas prices have risen which is not followed by investment. The Gas crisis we are experiencing is a manmade event.

        • Alastair Leith

          The people are strongly against unconventional gas, with good reason. They care about their health, land and water resources. In addition to that if fugitive emissions are greater than 3% then burning the fossil gas to boil water and generate electricity is worse than burning coal in terms of GHG emissions. Clearly our govts don’t really care much about CC or we’d be in a climate emergency mobilisation in every state in the nation, but they do care about how the people will vote at the next election and fracking raises huge opposition. Just ask Colin Barnett and his ministers who lost their seats in the WA election with Fracking a major player in that conversation in some fringe-suburband and rural seats.

          • Don McMillan

            People are opposed to unconventional gas for actually no good reason. What they fear is what they do not understand
            – that is Fracking. This technology is 150 years old [1865 Col Roberts exploding torpedo] and no aquifers has ever
            been damaged by fracturing rock technology. The proof is that all scientific studies have OK’ed the technology and
            NO LITIGATION. I can assure you lawyers love to sue petroleum companies. Ironically fracking has improved aquifer quality as everyone now monitors aquifer quality – The main chemicals in aquifers are agricultural and
            industry [ especially the defence], not fracking. Litigation has forced many practices to stop. Here in OZ the litigation against our defence department has commenced – Oaky {Surat basin – frack since 1960’s} and Catherine NT.

            Fugitive emissions: Relative to the Agricultural and Mining
            industries the Petroleum industry comes a distant 3rd. If you are concerned about the water resources look at water bores. When drilling a water bore there is no requirement to identify or isolate gas and water reservoirs. This is why you see on TV farmers igniting their kitchen tap. If this was a result of the petroleum industry litigation would be relentless. Water bores with gas just vent – some NSW waterbores have been venting for over 50 years.

            Here is my submission to the NT Frack Inquiry -> Published in the NT News. https://www.linkedin.com/pulse/letter-northern-territory-fracture-stimulation-inquiry-don-mcmillan

            I hope you insist your local government to test their aquifers. Hope this helps

          • Alastair Leith

            Where to start with your sweeping generalisations, contradictions and outright rubbish?!

            Let’s start with the big contradiction which shows how motivated your rhetoric is consider these statements:
            “The proof is that all scientific studies have OK’ed the technology and NO LITIGATION.” and “If this was a result of the petroleum industry litigation would be relentless.”, “Litigation has forced many practices to stop.” well which is it Don, has there been litigation or not, you seem very confused? Having spoken to a rancher in the middle of Gasland I can tell you there has been litigation, but the system is rigged against them.

            In USA there has been extensive litigation by ranchers and farmers but they always have to settle out of court to even get 10% of the prior value of their land. When frackers destroy their water supply or even just commence operations next door, their land becomes unsellable. Entire districts become worthless as farming land overnight. A great many farm businesses have been destroyed with only potable water for humans being trucked in by frackers not water for animals and to run farm operations.

            So they are beggars in the court system. The frackers — who Dick Cheney passed federal legislation for exempting them from most environmental law overseen by the EPA — always insist on any settlement agreement on a non-disclosure clause that prohibits not just the property owners from talking to anybody, the media, their doctor or even their neighbors and children but even their children may never ever speak about the damage to their land and water — ever. But seeing as their livelihood, drinking and animal water has been destroyed in many cases, they’ll take whatever they can get and sign whatever NDA they must to get it. That is NOT the same thing as no litigation, that is no court convictions, because a) Dick Cheney and b) civil courts can be tied up for decades so the farmers take shitty offers before trial is concluded (they usually can’t afford lawyers for a protracted battle, justice costs money especially in USA — the land of the free).

            As for the science that’s also untrue. In fact I know a woman writing a Masters who used industry software and was assisted by an industry expert, one of the software developers I believe, and she’s shown that no well ever is safe because over time they all will have casing failure, it’s just a matter of when. This is already documented in the Marcellus shale region with a great many well casing failures.

            “Fugitive emissions: Relative to the Agricultural and Mining
            industries the Petroleum industry comes a distant 3rd.”
            Anthropogenic methane has contributed one third of current anthropogenic global warming, and it’s rising fast already more than three times the pre-industrial level.

            Yes agriculture, (90% of which associated with ruminant livestock production) is the largest source in Australia (56% AWG20, 44% AWG100 bze.org.au/landuse) and globally, and that needs to be eliminated as best as possible, but how does that make fugitive emissions from fracking ok in a zero emissions economy? You do realise developed nations need to be at zero emissions economy wide by 2030 to have even a 33% of staying below the “2.0º C guardrail for catastrophic climate change”, right? You’re sounding awfully like the oil industry pointing to the coal industry saying “those guys need to be regulated for emissions”.

            Why impose emissions restrictions or carbon pricing on coal but not gas when burning unconventional gas to make electricity is actually worse than burning coal?! The dodgy self-assement of F.E. by industry of 1% has been proven to be a ghastly lie in the Marcellus shale region and probably most other places fracking occurs. Half the F.E. in a fracking rig can occur in the first day after the drill has been sunk and before capping and fracking occur.

          • Alastair Leith

            “Water bores with gas just vent – some NSW waterbores have been venting for over 50 years.”

            Are you suggesting that drilling tens of thousands of new deep bores well below water table is not going to be a magnitude greater than this? Are you suggesting fracking doesn’t unlock way more gas than a drill can access, otherwise why the hell would they be doing it?

          • Alastair Leith

            “This technology is 150 years old [1865 Col Roberts exploding torpedo] and no aquifers has ever
            been damaged by fracturing rock technology.”

            Modern fracking is not comparable with that process and if you don’t know that you don’t know much. Otherwise why did the unconventional gas and oil boom in Marcellus shale etc wait until 1990s to get started? Why is the inventor of modern day fracking a multi-millionaire?

            No aquifers damaged? Then why do gas companies have to truck potable water into people’s farms after destroying their water supply (even though it’s only for humans not animals so their livelihood is destroyed all the same, and the land can no longer be sold because it’s worthless)

          • Don McMillan

            Aquifers are damaged via the surface operations, agriculture, manufacturing and petroleum companies. We’re no better or worse than the other uses – except the defence. The actual Fracking operation causes no harm farmland. If Farms become unusable or people lost there value it always end up in court – E.G Queensland Oaky region – Defence dept. If it is widespread as you say then the frack companies would be out of business.

            Recent peer review study conducted by Duke University and partially funded by “Natural Resources Defense Council”
            an anti frack activists. Check out the result of their funded study.

            https://nicholas.duke.edu/about/news/west-virginia-groundwater-not-affected-fracking-surface-water

          • Alastair Leith

            You’re dreaming, Don. I’ve seen the damage done and heard from the victims. I’ve also spoken to academic researchers directly. The courts you say, have you forgotten Dick Cheney and his infamous legislation to exempt fracking industry from the EPA Clean Air and Water Act?

          • Don McMillan

            I know a lot about fracking as I have designed and implemented many. 1860’s to the 1940’s explosives like nitro-glycerine was used [killed hundreds] – total uncontrollable and difficult to design. From about 1944 high pressure water was used as it was a lot safer, can you have control and design it. N2 fracs also was developed. The technology was only feasible in vertical wells until the 1990’s. Do not underestimate the technology required to enable fracking in a horizontal well. The advantage of fracking in a vertical well is that you do a lot of small fracs instead of a massive big frac in a vertical well. Fracking vertical wells is harder to control height growth as the fracs are generally larger.
            If the inventor is a multi-million air then no one has sued them. In reality the technology has evolve – thousands of engineers & geoscientists have contributed to this science. Even I have written a peer reviewed paper. Made no money from it.
            There has been some cases the aquifers been damaged and portable water trucked in. The case you are thinking of was due to poor cement behind casing. It has been repaired and aquifer cleaned up.

  • DogzOwn

    Fee and dividend, so simple, transparent, easily delivered, difficult to fudge, makes cash flow and motivates action from extraction to users… @AlanFinkel please include

  • Robert Comerford

    I turn on the ABC at lunch and the first news headline I get is that the ACT bills will rise by $600 next financial year…. true??