Laugh of the week
In the end you just had to laugh. There were so many dramatic statements made last week about electricity it really was a cluster f***. I’ll get into some of them in a minute, more for what they say about agenda driven forecasting, rather than anything else. However, the article that really made me choke on my Saturday breakfast was an interview with Matt Howell , CEO of the Tomago aluminum smelter, as quoted in the AFR.
“With this announcement very clearly we can say, look, the smelter has got a long term future because the closure of Liddell will not impact reliability of power supply”
At least we don’t have to pay attention any more when the industry claims it pays sky high prices and is uncompetitive in a world context. And of course it would be great to keep the aluminum industry going. The irony is that no one tries harder than the renewable energy industry to work with the aluminum industry. We try much harder than the coal generators. An aluminum smelter itself can be a source of firming power. And yet the aluminum industry owners just throw the work back into the industry’s face.
Aluminium still consumes about 10% of Australia’s operational demand and by turning the smelters down the industry could significantly reduce operational demand. It’s true that Boyne Island provides more opportunities than Tomago because at Boyne Island Rio has equity in the Gladstone power station. whereas at Tomago things are different.
Is RIO the most backwards looking resources company out there?
But so far Rio, the largest investor in Australia’s aluminum, has done absolutely nothing to show any support for any form of decarbonisation. And that’s despite selling their global coal interests. Rio is not even prepared to discuss the topic and it still seems as if, despite the fact that Tomago’s future is now assured, Boyne Island at least will be closed along with Gladstone power station about 2030.
The intransience of Rio, at least in public and who knows what happens behind closed doors in far away London, is frustrating in many ways. But we do know that chasing a gas rat up a drainhole is not going to be the answer. The irritating thing is we strongly suspect Tomago management understand that all too well, but support for gas does play well to the Federal Govt cheer squad.
Electricity prices are below their long term averages in Australia and low by world standards
Does industry pay sky high prices? In our view the answer is clearly no. But don’t take our word for it. Here’s a graph that I’ve recreated from Powerlink’s new CEO, Paul Simshauser. One of Paul’s strengths is his knowledge of the history of electricity prices in Australia. These prices include transmission but not distribution. Powerlink is the Qld transmission operator.
As you would expect, wholesale prices are cyclical and in my view are lower than in China and lower than most regions in the US.
The gas announcement and Tomago illustrate that denial is still the preferred option. And that’s the problem
The problems with the Govt’s gas announcement and Tomago’s public stance that only baseload power is relevant to aluminum mainly boils down to the signal it sends that neither party gets it. Both the Government and Rio are stuck in the past, act as if they are completely ignorant of where the electricity system is going.
Australians could be working together to provide a better future for our children and grand children. My grandkids will be alive in the next century with luck and will have to live with the consequences of global warming imposed on them by politicians and business people that won’t make the effort. The Government as ever is more interested in short term politics than protecting the future. If you want to kill Tomago, then promoting gas and coal is the way to do it.
A gas pivot is a positive move, but still dumb
As several commentators have noted you can see the Federal Govt pivot to gas as just that: a pivot. It’s not coal anymore, it’s gas. It’s a slow and steady pivot that was signaled early in the year. So, observing the signal as far back as early February we looked at gas from a global perspective, admittedly pre pandemic. I don’t write the headlines for my contributions but in this case the headline was right on. Let’s talk about gas: It’s expensive, dirty and struggling to compete with batteries.
That article looked at gas fuelled electricity in a global context and I don’t propose to repeat it here. But this chart extracted from the article purports to show that if CO2 emissions from gas grow at a 2.5% compound pace for 20 years they will be just about as large as emissions from coal are today:
There just isn’t any room for gas to be a transition fuel. The article also pointed out that by and large oil and gas share prices around the world have been in the toilet for a decade. And of course have done worse since. Just like Chinese coal generators. If there’s one thing the Federal Govt excels at, its supporting loser industries.
Once you move from coal to gas the job is mostly done
Still when you look at it from the Government’s point of view, the fact that there is no plan, no chance of gas taking over, is irrelevant. It’s even good. The point is moving away from coal, not the move to gas. From the Government’s point of view it’s a fantastic climate success to move from coal to gas. Only possible probably because Matt Canavan shot himself in both knee caps supporting his buddy Barnaby Joyce and because Tony Abbott is off fixing up the UK after having done such a great job in Australia. Nevertheless, for those more interested in face value than the underlying Machiavellian approach:
So the problems with the Govt announcement are:
- Gas is expensive for electricity;
- Gas emissions are already bad and if gas grows will be as big a problem as coal today;
- Snowy Hydro is turning from a well run, very well regarded, profitable peak energy supplier into a tool of Government policy, seemingly with the willing acceptance of its CEO. Must be nice running a company when most of the job is working out what the Government of the day wants you to do next.
- One thing totally missing from the Government’s announcement was anything about Snowy making a profit on its investment. But the problem is not Snowy it’s the Government’s clear signal its prepared to intervene in the market for political purposes. The Coalition is now no better than the ALP in its disregard of markets.
- The Government is working at cross purposes to the ISP (integrated system plan) and to COAG. This is really dumb. Imagine running a football team where the manager has one plan and the players are working to different one. Enuff said.
Where’s the transport policy?
The way to decarbonize the economy is reasonably well understood. You start with the energy system, and go onto the built environment. You use your planned decarbonized electricity to get rid of oil, the second largest contributor to fossil fuel CO2 emissions by switching to electric vehicles.
Switching to electric vehicles increases demand for electricity which provides an easier environment to force in your new wind and solar plants and firming capacity. In Australia’s case EVs can get rid of our suicidal dependence on imported oil. How the Government can stand up with a straight face and talk about energy security needing subsidized gas power while at the same time doing nothing about imported oil is absolutely beyond me.
This utter and complete feckless stupidity is further highlighted by the way Europe is rapidly moving to electric cars and almost equally the export industries like lithium, nickel, and rare earths that play to Australia’s greatest strengths.
Speaking of electric cars – why is Australia obsessed with hydrogen?
Hydrogen may one day be wonderful, but electric cars are wonderful right now, just about everywhere except in Australian politics. It’s easy to run down the Federal Govt, but equally the Federal opposition, if you can call it that, other than Mark Butler, wouldn’t have a clue on this topic.
State Govts are also pretty useless in regard to EVs. Even in NSW where Matt Kean, the Energy Minister, drives a Tesla, the actual policy incentives are nowhere to be found. Dumb, dumb, dumb. Mindlessly pursuing hydrogen pots of gold at the end of the rainbow and ignoring a simple technology immediately available. Did I say dumb?
Meanwhile: Tesla has 750,000 deposits, admittedly small in dollar size, for its Cybertruck, and have a look at three slides I have taken from RK Equity’s July presentation on the incredible growth we are likely to see in lithium.
Not all of the capacity in the figure below may be built and some already exists but that there is a lot of capacity being built is not in doubt, and this is just Europe.
Demand for lithium hydroxide, at least some of which will be sourced from “spodumene” ore mined in Australia is expected to grow about 9 times over the next five years. And yet Governments in Australia act just like ostriches and put their heads in the sand. Where is Scotty from Marketing when you really need a marketer?
Alumina – Alcoa demonstrates a way forward
Once you have your transport strategy progressed you move to carbon farming and decarbonization of heat processes. Heat process is tough but after the rest of the world has done some of the technology development a way forward can be seen.
For instance the best presentation, in my opinion, at the recent renewable energy and Mines conference was by Ray Chatfield from Alcoa discussing how new Alumina refineries could likely be made much less carbon intensive using “Mechanical Vapour Recompression” [MVR]. I include two slides from Ray’s excellent presentation:
I might add that at least Alcoa makes an effort, RIO appears more interested in blowing up aboriginal monuments than doing anything about renewable energy or supporting the aluminium industry in Australia
BP changes CEO and, hey presto, changes forecasts
Globally the mainstream media was mostly focused on BP’s new forecasts for oil, gas and coal. After seeing this year’s forecasts compared to those of past years I now expect to see the IEA forecasting more growth in Solar. That’s an inside joke that refers to the IEA’s 15 year failure to understand solar.
I don’t necessarily blame the IEA for getting it so wrong so often, because it’s a prime example of agenda driven forecasting. The IEA didn’t want solar to grow, it didn’t suit their lobby group. This brings us to BP. BP’s global energy stats are very highly regarded and used by many and this meant its forecast were also taken seriously.
Now BP has a CEO who seems as if he’s going to walk the walk then so it is that BP forecasts are going to have to change. The change in the forecasts is amazing. Who knew the world had changed so much in one year. The following figure looks at the total growth for various fuels between 2020 and 2050. Actually the 2019 forecast was 2018 to 2040. Every year prior to this year had oil and gas growing strongly and coal essentially flat. Now with the new CEO the forecasts are different. Incredible isn’t it.
Getting shot down by friendly fire – long term storage
The next thing that made me laugh were statements made in Australia by the “only perfection will do lobby” to the effect that seasonal storage is unimportant and therefore batteries are all you need. Noone is more in favour of batteries than me. Well maybe Tesla and Fluence are, but I have been presenting on batteries to my ex institutional clients years before Tesla had any household batteries.
Nevertheless, we at ITK have come to think that, at high VRE penetration, long duration storage is very important and I presented so at the SmartEnergyConference and then wrote it up for WattClarity http://www.wattclarity.com.au/articles/2020/09/seasonality-and-deep-storage-in-a-highly-decarbonized-nem/. This was a subset of some work my colleague Ben Willacy and I did for a client and we are quite proud of it, as simple as it is. But more to the point shortly after publishing that note I was sent this proper academic article. Its on the USA market and not Australia but it was very much in tune with my way of thinking.
I won’t say much more on the topic, but if you need long duration storage you are likely to be more supportive of Snowy 2.0, Basslink, Hydrogen and or gas. I don’t want to get into the Snowy/Basslink debate because its hard enough dealing with the coal lobby without getting shot by friendly fire, so I’ll content myself with saying that if you don’t want Snowy/Basslink and you don’t want gas you’d better hope hydrogen lives up to its hype.
