Lethal Heating: 09/12/17

12/09/2017

Energy Crisis Worsened By Rushed Government Interventions, Grattan Institute Warns

ABC News - Peter Ryan

AGL has committed to eventually dump coal-fired power generation entirely. (ABC News: Dean Faulkner)

Governments could be making the nation's energy security crisis worse through rushed interventions to soothe voter concerns about surging energy bills, the Grattan Institute warns.
The warning comes as the Prime Minister prepares to meet AGL chief executive Andy Vesey today over the planned closure of the Liddell power station in the NSW Hunter Valley by 2022.
The Grattan Institute's Tony Wood urged against the Government "arm twisting" Mr Vesey to keep Liddell open in the face of the company's commitment to eventually dump coal-fired power generation entirely.
"I think there's almost certainly a deal to be done there, but I think AGL would have a very strong view that their corporate position and their advertising says they're getting out of coal," Mr Wood said.

The Prime Minister will meet AGL chief executive Andy Vesey (L) later today. (ABC News: Nick Harmsen)

"It's quite possible that a commercial arrangement that suits AGL and satisfies the concerns the Government has is the way forward. But it's going to be a tricky pathway to follow."
Treasurer Scott Morrison said he was prepared to help AGL sell Liddell to a "responsible party" but repeated the importance of keeping it open to ensure future power supplies.
But Mr Wood counselled against any plan for the Government to intervene and possibly buy a guarantee to keep Liddell open, warning any perception of nationalisation would destabilise the market.
"I think it is always a bad idea for governments to intervene because then we're heading back towards re-nationalisation," he said.
"It is understandable that governments feel the need to do something, but the danger is they will rush in and make things worse. What Australia needs now is perspective, not panic."

Cost of energy security is higher prices: report
Instead, the Grattan Institute report said all sides of politics should work with energy companies and regulators on new ways to ensure reliable and affordable electricity supplies years ahead.
It suggests work needs to begin now on a "capacity mechanism" to encourage companies to invest in new power generation to reduce the growing threat of shortages and blackouts as early as this summer.
With such a mechanism, according to the report, energy companies could be paid for committing to providing power years into the future rather than only meeting the current demand.
However, the report warns the price of peace of mind for energy security would ultimately fall on consumers through higher energy prices.
"Eventually the customer pays for all of this. That's why it's very important to get this right to ensure we have the insurance we need to make sure we have the capacity in the future," Mr Wood said.
Last week, the Australian Energy Market Operator urged "a longer-term approach" in a bid to ensure electricity supplies.
The Grattan Institute report urged the Government to implement the recommendations of the Finkel Review, including a clean energy target to put a price on greenhouse gas emissions.
It also wants a more comprehensive assessment of future energy adequacy of generated supply and if capacity cannot be met, AEMO should introduce a new capacity mechanism.

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A Perfect Storm. An Insider's View Of Failure Of Climate Change Policy In Australia

Crikey - Peter Shaw*

It seems like a lifetime ago and I suppose it was. The year was 1989 and full of hope I joined the Australian Gas Light Company (AGL). In those distant, salad days AGL only sold gas (we will skate over a questionable foray into property development) and the electricity sector was still largely owned by state governments.
Things started to change with privatisation of the networks that kicked off in the 1990s and the election of the Howard Government in 1996. At that time electricity generation was dominated by coal fired power stations, especially the brown coal stations in the Latrobe Valley.
Not much has changed—coal fired power stations till dominate the electricity market—and the impending closure of Liddell coal fired power station in the Hunter Valley has brought the issue of electricity prices versus greenhouse gas emissions to the fore again. As a big energy company AGL dived into the newly privatised electricity sector in the early 2000s.
Good luck to them. The blame for the current policy vacuum lies elsewhere.
At the time of the Kyoto Protocol in 1997 AGL was still mainly a gas company and was supportive of the drive to limit Australia’s greenhouse gas emissions. AGL at that time saw natural gas as the bridging fuel from a high carbon to a low carbon economy. It was an exciting time to be AGL’s in-house climate change policy advisor.
In the early days the Howard government, despite their persistent skepticism about the science, showed real promise. They were active, albeit “hard ball”, participants in Kyoto. The deal they struck at Kyoto was a generous 1990 emission plus 8% but at least we were in the game. At about the same time Howard wanted to sell one third of Telstra and he struck a deal with the then Democrats in the Senate to use some of the money to address climate change by supporting emission reduction projects.
Bewdy!!
The reality was that the Howard government lacked the will power, ability and leadership to develop sensible policies to deal with Australia’s greenhouse gas emissions.
They let the Kyoto Protocol wither on the vine and as a result failed miserably when it came to energy policies needed to transition to a lower carbon future. The flip-flopping on an emissions trading scheme, killed off by Howard’s skepticism about the science and pressure from the coal lobby to the failure of the schemes established to support projects to reduce greenhouse gas emissions.
A perfect storm of a weak leader and strong vested coal interests.
Howard created a greenhouse gas emission policy vacuum. The energy companies were urging Howard to show leadership and introduce an emissions trading scheme but he squibbed it and when he did you can’t blame the companies for getting on the coal-fired wagon when it looked like the only game in town.
As the old saying goes, “You reap what you sow,” and future generations will be reaping the bitter fruits of the Howard government’s policy failures for many a long year.

*Peter Shaw has five years’ experience as a greenhouse gas emissions modelling consultant, including the development of a new methodology for estimating cradle to grave emissions from the production of ethanol and biodiesel for use as transport fuels and emissions from the manufacture of building materials. He has eight years’ experience in a key role of formulating and implementing greenhouse policy for a major Australian corporate. These activities included the development and sale of a Greenhouse Friendly product, the development of measurement and verification procedures for greenhouse gas abatement credits in Chile.

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The True Cost Of Keeping The Liddell Power Plant Open

The Conversation - Frank Jotzo | Zeba Anjum

The Liddell power station in the Hunter Valley near Newcastle. AAP Image/Dean Sewell/Greenpeace

For a long time, Australian governments have believed that the private sector should run the electricity sector. And successive governments have used market instruments to incentivise reducing emissions, by supporting renewables, discouraging coal use, or both.
Now things seem inside out: uncertainty about energy policy mechanisms is pervasive, and the federal government is attempting to broker a deal for the ageing Liddell coal plant to stay open past its planned decommissioning date. It’s possible the plan will require government payments – amounting to a carbon subsidy.
Fear of supply shortages and an appetite for coal have combined with an inability to resolve the political side of energy and climate policy.
Power companies see coal as a technology of the past, but the government seems unready to accept that wind and solar technologies (already the cheapest option for new capacity in Australia) are the future of Australia’s power.
The latest suggestion amounts to deferring serious investment in renewables for a while, fixing up some of the old coal plants up so they can run a few more years, and buying time in the hope of keeping power prices down. Chief Scientist Alan Finkel has backed the idea, at least in principle.

The cost of delaying the inevitable
Commissioned in 1972, the Liddell power plant is the oldest of Australia’s large coal-fired stations (after the closure of the Hazelwood station). The New South Wales government sold it to AGL in 2014, at an effective price of zero dollars.
AGL announced some time ago that it will close the plant in 2022 and has considerable financial incentive to do so. This week AGL reiterated this. The latest suggestion is that Delta Electricity might buy and continue to operate Liddell.
What might be the benefits and costs of keeping Liddell running for, say, another decade? We do not know the plant-level technical and economic parameters, but let’s look at the principles and rough magnitudes.
Keeping the plant running longer will require refurbishments, defer the investment costs in renewables, and result in additional emissions, both in carbon dioxide and local air pollutants.
Refurbishment is costly. Finkel put refurbishment costs at A$500-600 million for a 10-year extension. Such refurbishment might achieve an increase in efficiency – as GE, a maker of power station equipment, recently argued – but perhaps not by much for a very old plant like Liddell.
And refurbishment might not work so well, as the experience with the Muja plant in Western Australia shows: A$300 million was spent on refurbishment that ultimately failed. Spending big money on outdated equipment is not a particularly attractive option for energy companies, as AGL’s CEO recently pointed out.
Liddell’s power output during 2015-16 was around 8 terawatt hours – about 10% of present NSW power supply (it was more in 2016-17, and less in previous years). It might well be lower as the plant ages.
Ironically, the reduction in the Renewable Energy Target, from 41 to 33 terawatt hours per year, almost exactly matches Liddell’s present power output. With the original RET target, new renewables would have covered Liddell’s output by 2020.
Liddell emitted around 7.5 million tonnes of carbon dioxide per year in 2015-2016. With the assumed reduction in output and some improvement in CO₂ emissions intensity, the carbon dioxide output might be in the order of 5-6 million tonnes per year, or 50-60 million tonnes over ten years.
If the government were to pay for the refurbishment, as has been suggested, this would equate to subsidising CO₂ emissions at a rate of perhaps $10 per tonne, compared to the alternative of replacing Liddell with renewable power.
At the same time, the government is paying for projects to reduce emissions, at average prices of around $12 per tonne of carbon dioxide, under the Emissions Reduction Fund. The contradiction is self-evident. Furthermore, keeping more coal plants operational deters commercial investment in any kind of new plants.
Of course this needs to be seen in the context of supply security, any subsidies that might be paid in future to renewable energy generators, and the possibility that a Clean Energy Target will determine overall emissions from electricity production irrespective of whether Liddell operates or not. It’s complicated. But the fundamental point is clear: paying for an old coal plant to operate for longer means spending money to lock things in, and delay the needed transition to clean power.
A possible compromise might be to mothball the Liddell plant, to use if supply shortages loom, for example, on hot summer days. But such a “reserve” model could mean very high costs per unit of electricity produced.
It is not clear that it would be cheaper than a combination of energy storage and flexible demand-side responses. And it may be unreliable, especially as the plant ages further. During the NSW heatwave last summer Liddell was not able to run full tilt because of technical problems.
A market model to pay for reserve capacity would surely do better than government direction.
Australia’s energy companies have been calling for a mechanism to support new clean investment, such as the Clean Energy Target. And many would no doubt be content to simply see a broad-based, long-term carbon price, which remains the best economic option. If the policy framework was stable, private companies would go ahead with required investment in new capacity.
Meanwhile, federal and state governments are intervening ad-hoc in the market – making a deal to keep an old plant open here, building and owning new equipment there. It is the worst of all worlds: a market-based system but with extensive and unpredictable intervention by governments that tend to undermine investor confidence.

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