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SA’s energy policy: five steps forward, two steps back

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InDaily

The State Government’s energy security target could increase South Australia’s electricity prices while providing an incentive for power companies to pump out more carbon emissions, writes Nicky Ison.

Premier Jay Weatherill and Energy Minister Tom Koutsantonis announcing their electricity plan. Photo: Tony Lewis/InDaily

Premier Jay Weatherill and Energy Minister Tom Koutsantonis announcing their electricity plan. Photo: Tony Lewis/InDaily

When it comes to energy it feels like things are moving at lightning speed, and nowhere more so than in South Australia. This state is fast becoming a global leader in the race to renewables.

However, when it comes to State Government energy policy it’s a case of five steps forward, two steps back.

No doubt building the world’s biggest battery was a big step forward. However, the proposed energy security target is a step in the opposite direction.

The Government has released the details of its proposed energy security target policy,  with the laudable aims of increasing security, reducing prices, and stimulating new “on-demand” sources of electricity.

Unfortunately, it was actually designed to incentivise gas plants to generate more often.

At first glance this sounds like it could increase energy security, but it’s actually a regressive idea, which consumers will pay for, if it goes badly – to the tune of $225 million per year.

So, what’s wrong with it?

Firstly, the companies which run these gas plants are the same companies which are being called to Canberra by the Prime Minister this week to explain what they’re doing to curb rising electricity bills. These gentailers – businesses which both generate and retail electricity – have a track record of bad behaviour.

For example, last July when South Australia experienced some of the highest wholesale electricity prices ever, a report by Melbourne University found companies running gas plants were withholding supply (instead of generating) to drive up prices, leading to windfall profits of $40-60 million in just two months.

“Clearly, any policy needs to reduce South Australia’s reliance on gas, not extend the life of old, polluting gas generators such as Torrens Island.”

Just a few players dominate both the retail and generation markets in South Australia. So, providing a great big carrot in the form of the energy security target is unlikely to do anything to increase market competition.

Indeed it is possible that this scheme will make it easier for players like AGL and Engie to game the system, providing an incentive to generate more, but not necessarily at the times of high demand. Thus, they will be able to earn additional revenue from energy security certificates, but still be able to withhold generation when it suits them.

Secondly, gas is expensive. Gas companies decided exporting Australian gas would lead to bigger bucks than selling it domestically. So now South Australian gas generators have to compete with international contracts, which significantly increases the price we pay.

Analysis by IEEFA (Institute for Energy Economics and Financial Analysis) shows new unconventional gas is much more expensive to procure than conventional gas, not to mention highly polluting to water supplies.

Wind and solar combined with storage are currently and will continue to be the cheapest form of generation. Other synchronous renewables like pumped hydro and bioenergy will also become competitive. Even AGL, in its submission suggests an Energy Security Target is unlikely to reduce wholesale prices.

Finally, gas is a fossil fuel so when you burn it, greenhouse gas emissions are released.  A report by the Climate Council found reliance on gas in Australia must be reduced to play our part in limiting global temperatures below 2°C. Clearly, any policy needs to reduce South Australia’s reliance on gas, not extend the life of old, polluting gas generators such as Torrens Island.

South Australia’s energy system certainly faces challenges. Interventions are needed to secure energy supply this summer and increase competition in generation, while continuing to lower emissions. However, the proposed Energy Security Target is not an effective or efficient policy for achieving either of these outcomes and is likely to have significant unintended consequences for which South Australian consumers will ultimately pay.

So, what should we do?

Between the Australian Energy Market Operator (AEMO) and the SA Government significant progress has been made on addressing the question of energy supply this summer. Between the big battery, short-term deployment of diesel back-up generators, ministerial emergency powers and new short-term generator requirements from AEMO, we should be covered.

A power plant using the GE TM2500 hybrid turbine generators that the State Government will install by summer. Image: supplied

A power plant using the GE TM2500 hybrid turbine generators that the State Government will install by summer. Image: supplied

In the medium term, the main way to increase competition – and lower prices – is to encourage new generation from low cost renewables and storage and reduce reliance on expensive gas.

Specifically, we need on-demand or dispatchable renewables and storage, such as concentrating solar thermal, sustainable bioenergy, more batteries, pumped hydro etc. The government has responded to one of the biggest criticisms of the energy security target – previously only synchronous generators were eligible. In its high-level feedback to the consultation on Friday, the Government indicated non-synchronous generators such as wind and solar PV coupled with batteries will also be eligible.

However, the energy security target is enacted through regulation and as such can be changed at any time, which means it’s unlikely to be bankable – the main thing that new generators need is certainty and the energy security target is far from certain.

If the South Australian Government was really serious about on-demand clean energy, it wouldn’t be handicapping itself with an energy security target which could increase prices without improving energy security. It would instead extend its public ownership program or run reverse auctions like the Victorian Government plans to – an approach which Finkel modeling found to be the cheapest option.

If South Australia wants to hold onto its world leading position on clean renewable energy, the government needs to go back to the drawing board on this one.

Nicky Ison is a research associate at the University of Technology Sydney and founding director of the Community Power Agency. For more analysis on the Energy Security Target, see her submission here.

Source: InDaily. Reproduced with permission.

  

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  • Thanks Nicky. In relation to the SA Energy Security Target Regulations, I’m on the record as saying I would move to disallow them in Parliament if they continued to discriminate against renewables and in favour of gas. Hopefully, the next iteration of the Regs will be better. However, they have been postponed to 1st January, which means that if they are still problematic, industry will not know until May or June 2018 whether there is appetite for disallowance in Parliament. Only one House is required to disallow Regs, not both Houses. The SA Parliament will rise at the end of November this year and won’t sit again until May 2018 after the March state election. You are correct that this uncertainty is troubling for business, but even more troubling is the prospect of laws that entrench more fossil fuel use and disadvantage renewables and storage. Mark Parnell MLC, Parliamentary Leader, Greens SA

    • Nicky Ison

      Thanks Mark – that is really useful intel. Have you let the good folks at CCSA and Solar Citizens know this?

  • Peter Kretschmer

    An interesting article. I’d like to see an argument for the EST as well to weigh up the points of view. Despite the sub-heading the article didn’t actually suggest a better way to incentivise low/no-carbon dispatchable energy with spinning reserve. Current AEMO regs in SA are a defacto EST, and a very expensive and high-polluting one at that because open-cycle gas generators are being run to create system security. How would a solar thermal plant bid into the market against wind farms that don’t supply certain grid services?

    • Mike Westerman

      Peter the marginal costs for solar thermal are quite high for a RE technology: molten salt is very aggressive, steam cycles involve water demin and treatment, disposal of blow down, multiple mirrors require cleaning and refocussing. So the marginal cost of CST with storage is not going to compete with either wind or solar, or either of these with pumped hydro. The latter of course can supply all the auxiliary services CST does plus fast reserve – 10s start time compared to many minutes from cold/standstill.

  • Andrew Scott

    It may be helpful to compare the performance of Premier Weatherill and Minister Koutsantonis in relation to our Energy Future, with the performance of the previous SA Premier Mike Rann.

    Rann demonstrated initiative and ongoing practical commitment in this area of Public Policy. The first 15 of SA’s wind farms were established during his term as Premier (March 2002 to October 2011).

    In 2009 he established RENEWABLES SA with an initial budget of $10m and appointed a Renewable Energy Commissioner (Tim O’Loughlin). He provided a further $10m in the following year. The objective was to research opportunities and challenges and devise ways to facilitate Renewable Energy systems development.

    One of the studies commissioned by this body identified wind farm potential of the order of 10,000 MW on Eyre Peninsula – unable to be harnessed until HV transmission infrastructure is extended westward to the area.

    2 months into Weatherill’s Premiership (December 2011) Renewables SA was defunded, ostensibly as a cost saving measure. The Renewable Energy Commissioner disappeared.

    Gov’t attention turned back to GAS.
    By July 2012 a Roadmap for Unconventional Gas had been developed and it has been promoted by Weatherill and Koutsantonis from that time.
    PACE GAS Grants totalling about $22m were announced in March of this year to assist Santos and Beach Energy with their Gas ventures.

    More than five years into Weatherill’s term as Premier, just four more wind farms have been established in the mid north of SA. There is still no HV Transmission infrastructure to the enormous wind resources that blow across Eyre Peninsula.
    Eyre Peninsula continues to be plagued by frequent failures in its frail transmission link.

    Weatherill and Koutsantonis have initiated some battery storage for short term power quality management.
    However they appear to have decided to take no action in relation to the potential for very much larger energy storages in the form of Pumped Hydro ponds on the Plateau between Port Augusta and Whyalla.

    They bear a great deal of responsibility for the widespread angst that now exists about the electrical energy situation in SA

    • Mike Westerman

      And the alternative is….step into the abyss with Marshall? Just as we see Palaszczuk doing a dance for Adani in Qld, Weatherall has no doubt been badgered by Santos to support what was once, before being flogged off for export, the lifeline for a traditional energy industry. Remember that just 12months ago the orthodoxy was that gas was the “transition” fuel from coal to renewable, with no interest in pumped hydro at all. Our pollies are catching up, probably ahead of the general populace, but way behind where they need to be.

    • Rod

      I was not aware of that. However, there is a SA strategic plan that has exceeded and increased the RE percentage targets.
      The irony is, the great unwashed blame “GreenJay” for blowing up power stations and encouraging wind which they believe is the source of their energy woes.