Five things we learned last week ….

Utilities play their book

Over the last few weeks, Australia’s energy utilities have had the opportunity to present a vision of the future and instead have decided to bury their business plans in the past. TRUenergy hit the panic button last week when it presented and endorsed an ACIL Tasman analysis that suggested Australia was best placed with a policy that allowed some wind and solar to be built over the next few years, as a token gesture to a much reduced renewable energy target, but then suggests that the country turns to gas as the fuel of the future. It even painted a scenario where no wind or solar was built in the following decade.

To present this as a serious policy position in these time is extraordinary – if not just for climate and other environmental issues – for the simple fact – acknowledged by the government’s own conservative forecaster, that wind and solar will present the cheapest options for the future. But Australian utilities are simply playing their book and the two principal anti-LRET protagonists, Origin Energy and TRUenergy, have a lot invested in fossil fuels and the status quo, and the status quo was reinforced significantly when the government canned the cash-for-clunkers buyout of ageing coal fired generation.

Origin Energy has made a huge commitment to gas, both in local generation and its LNG export project, while TRUenergy has a lot of coal, particularly with Yallourn staying online, and wants to produce even more gas. Its plans for a 1500MW of gas generation Queensland, announced just 12 months ago, are more or less redundant if the LRET is maintained. AGL has the biggest pipeline of renewables so is happy to support the RET. But, as its boss Michael Fraser pointed out, it doesn’t want to see the ambition of the LRET increased.

Three steps backward, one step forward

But a step was made in the right direction with the release of the Australian Energy Market Commission’s Power of Choice report, which is being billed as the biggest energy market reform in more than a decade, and could pave the way an increased focus on energy efficiency and demand management, rather than simply building bigger and more expensive networks to cope with rising peak demand.

The devil, however, will be in the detail. While the utilities are promoting initiatives such as time of use pricing as a means for consumers to control their usage, or even reduce their electricity bills, they are still keen for the electricity system to be driven by top-down supply. This is key, because technologies such as rooftop PV and battery storage will increasingly offer opportunities for the consumer to play an active role in the market. It is not yet clear that the regulations will follow suit.

 State by state

The problem is that their positions are being more or less supported by the various conservative state governments – most of whom have their own vested interests to protect, or just have an underlying antipathy to green energy. Victoria’s Ted Bailllieu brought an end to his state’s solar feed in tariffs, bringing him in line with his counterparts in Queensland and NSW, while Queensland’s Campbell Newman launched an extraordinary attack on the renewable energy target, based on a heap of wrong assumptions, lousy maths, and a refusal to believe that renewables can serve any purpose.

NSW Premier Barry O’Farrell is also not a fan of wind or solar energy, and also has some state-owned coal assets to protect, but his state’s draft renewable action plan released on Friday at least recognizes the opportunity for billions of dollars of investment and thousands of jobs that will come from the renewable energy target, and at relatively little cost to the consumer, particularly if Queensland and Victoria bury their heads in the sand. It also accepts the recent forecasts by the Bureau of Resource and Energy Economics that wind and solar technologies will deliver the cheapest energy options.

Wind and solar

Ironically, the potential of large scale renewable energy developments in Australia had been underlined earlier in the week with a flurry of activity on large scale wind and solar investments. TRUenergy, which is the worst placed of all three major utilities in terms of meeting the LRET, signed contracts to buy the energy produced from two new wind farms – the 108MW Taralga wind farm and the 107MW Boco Rocks project in NSW. The Taralga development is notable for bringing in the world’s biggest financier of renewable energy developments, Banco Santander, of Spain, as the major partner with local firm CBD Energy. In South Australia on Tuesday and Wednesday, more than 55 per cent of the days’ energy demand was met by wind.

However, the announcement with even greater implications was the awarding of a contract to build a 20MW solar farm – the country’s largest – to another Spanish group FRV, as the result of its ground-breaking reverse tender. FRV will receive a fixed price of $186/MWh over 20 years for its output. If it can deliver, it will cause a complete reassessment of solar technology costs in this country, and their short to medium potential – with implications for not just the fossil fuel incumbents, but the wind energy brigade as well. (It was interesting to note that the Sunpower 100MW solar PV facility in California last week signed a power purchase agreement for $US104/MWh, which even with a tax credit is an extraordinary number).

All talk and hot air at climate talks

You won’t have read much about it in the Australian media, but an important round of climate change negotiations concluded in Bangkok and ….. well, not a lot happened. HSBC Bank gave a particularly downbeat appraisal of the talks, and the chances of much happening at the annual talk fest, which this year will be held in Doha, Qatar – the world’s most emissions-intensive country, according to some estimates.

HSBC said even though emissions trading schemes were being put in place, they were being constructed on a “bottom up” approach rather than a top down approach based on what is actually needed. It was possible that a “symbolic political compromise” could be reached in Doha on the future of Kyoto Protocol, but it was likely to be neutered by the grandfathering of excess permits awarded to the likes of Russia and other eastern European countries in the first phase, and these would cancel out any further emissions reductions that were negotiate.

“Without an ambitious global framework, these schemes will tread water, suffering from bloated ‘hot air’ of excess permits chasing diminishing demand,“ it said. Which means that Australia’s decision to throw in its carbon pricing lot with the EU, and link to its imperfect scheme, might have been smart domestic politics, but it could be signing up for a lot of hot air and not a lot of action – quite literally.