The Pathway to Energy Efficiency

As Australia’s Climate Wars near an end, Prime Minister Turnbull is sending smoke signals from his castle at Mole Hill to advise the tribal factions to unite behind a common cause. No one is entirely clear what has actually been achieved so far. Many remain sceptical and even fearful that the NEG bureaucratic jungle will never produce the desired results of energy affordability, equality of access and network reliability. Perhaps the creation of an unfathomable paper war has been at the heart of nullifying the conservative factions whilst mollifying key stakeholders. What is clear is that at the heart of the NEG is some type of capacity reserve that Australian consumers will pay for in the short term. This is no doubt good news for the Energy Cartel which has been fearful of asset write downs and market re-regulation. Declaring victory without a National Energy Policy that defines the role of the Australian electricity grid in the absence of a wholesale market competition policy remains a dangerous political gamble for the Turnbull government.

The recently published ACCC report  highlights that without a National Energy Market Competition Policy energy price affordability is unlikely to be achieved by the Turnbull government. The politics of this protracted and pointless wrestling match has always been about uniting the warring conservative tribes whilst peddling bullshit to the electorate. Many are under no illusion that further attacks on both the ‘LRET and SRET’ will achieve positive results as the states, industry and consumers alike are prepared to go it alone. Even though there seems to be some agreement that the old Large and Small Renewable Energy Targets are no longer fit for purpose, the design and planning for a new LRET and SRET scheme that includes integrated energy storage has not entered into the conversation.  What have been discussed are the emission exemptions that will significantly help the vertically integrated Utility sector.  This is despite claims by the Turnbull government that all subsidies will be eliminated under the NEG. The subsidy issue is however not a priority for the government.  Hiding subsidies under a different name is. The other priority is splitting the emissions requirement of the Commonwealth Government from those the Energy Security Board is responsible for. Since the Energy Security Board is also responsible for processing emission exemptions, Australia’s GHG emissions profile is beginning to look like a bureaucratic exercise in hiding the nation’s emissions under a carpet of statistical nonsense.

The national consensus that energy storage is imperative for achieving GHG emission targets as well as grid reliability and energy security has taken more than 10 years. Despite this we see no clear national policy on what the role of Australia’s transmission and distribution grid should like going forward. The Finkel report did suggest renewable energy zones without articulating what these might be in a realistic industry and consumer context. In the same token, we see no policy that identifies how to address the various state and NEM market competition hurdles that will tackle systemic issues of energy access, price affordability, ‘Pro/consumer’ participation and fairness.

Many are frustrated that the debate has simply achieved a holding pattern until the next election. There have been no tangible reforms that transition the Utility Cartel. Nothing has been done to alleviate the fears bankers express over the potential risks stranded assets pose as they make sense of the record low renewable energy wholesale PPA agreements. The fact that there may not be an expanded LRET and SRET scheme that will include energy storage seems counterproductive to the emission credit scheme. This is especially true when Bankers and the Energy Industry alike have settled on the idea that structuring energy project finance around ‘Proxy Rebates and Credits’ with direct supply PPA’s is a viable transition path forward. Why anyone would therefore propose shutting down the SRET is therefore mystifying unless the NEG requires retailers to sell rooftop solar panels and storage packages. This would consolidate the market control of the energy cartel and kill all competition and innovation permanently.

What appears to be at the heart of the problem is that the Turnbull government has once again taken its eye of the ball. Industry and community energy self-generation and storage projects have matured rapidly in the last five years. This has occurred largely in frustration to government policy ineptitude, negligence and regulatory incompetence. It has caused an albite late but welcome intellectual shift in Australia’s energy conversation. This conversation has already progressed a long way past the rudimentary and misleading conversation politicians and public servants are trying to engage the public in.

What has occurred during the last ten years is that the conversation has shifted from Climate Change to Climate Solutions. Climate Scientists are not required to act as the canary in the coal mine. They are required to provide viable Climate Solutions to identified issues of resilience and sustainability development that are environmentally, economically and socially responsible. This has highlighted the fact that what is needed is multi-disciplinary Higher Order Thinkers (HOT) rather than the narrow focus of specialists and experts. The consequence of this realization has been that multi-disciplinary HOT thinkers are in short supply in Australia’s public service, it’s institutions (including academia), as well as in industry management circles at all levels. The admission of this can be seen in a recent Brattle Group report that continues to flog the Capacity Supply side market formulas without comprehension of Bloomberg’s recent outlook for Australia’s energy market.

The second major shift in the conversation has been the realization that the debate to transition the fossil fuel industry to renewable energy has been a strategic waste of time. Focusing the discussion on the transition of government and financial institutions has pinpointed the relationships between investment risks and asset values of all stakeholders going forward. It has done this by shining the spotlight onto the effects of market concentration as the consequence of privatization without a proper market regulatory framework. Arguments about market efficiency and stifling energy industry innovation under excessive regulation persist. The evidence suggests that the industry is unwilling to innovate without additional enticements, discreet subsidies and capacity supply reserve agreements. Resistance to market regulation of income streams gained from market manipulation, ring fencing and gaming remain at the core of both the energy wholesale and retail markets.

At the consumer  demand side of the market this has given rise to a greater understanding of full circle value chain investments and how to better integrate energy generation with energy efficiency, higher productivity and lower risk to capital in a full circle value chain. (Please see the Universal Development Matrix Figure 1 by selecting the link ) How this relates to the Governments National Energy Guarantee remains problematic as innovation at the off-grid mini-grid and behind the meter grid connected community energy level has surpassed both the energy regulator and the design parameters of the National Energy Guarantee before the NEG becomes operational. Once again we come back to five central issues. These are:

  • Without a National Energy Policy you cannot design an energy transition framework.
  • Without a National Grid Policy you cannot design an energy reliability guarantee.
  • Without a National Energy Efficiency policy for industry that underpins self-generation, storage and alternative fuel usage ( e.g Transport ) under a viable tax credit mechanism you cannot have a national energy transition framework.
  • Without a National Energy Industry Competition policy ( anti-cartel regulations) you cannot design a market regulatory framework.
  • Without a comprehensive Energy Industry Regulatory framework you cannot have a reliable, secure national energy system, let alone an affordable energy retail price mechanism.

The other important change that has occurred during the last 10 years is that communities and industry consumers are no longer prepared to remain captured dependents of the Utility sector. The realization that the pathway to energy efficiency is neither a political nor an economic policy priority for state and federal governments is driving a new paradigm. The understanding that energy efficiency is treated as a separate issue to energy generation, transmission and distribution in all developed and developing nations is responsible for this phenomenon. The recognition that traditional pathways to energy security, access and affordability are entirely separate to energy ownership, equality of energy infrastructure access and economic self-determination continue to be ignored by Australian politicians at their peril.

The problem with much of the energy debate is that we think about energy in terms of a specific purpose commodity that is best supplied by a few stakeholders to all. Australia’s politicians as well as its entire energy bureaucracy continue to think of energy as a commodity that has to be supplied by a registered supplier. They fail to understand the ubiquitous nature of what energy is in the context of everything we know about it. We even project this level of narrow minded understanding into the phrase ‘Energy Efficiency’. Implied are such things as conservation, anticipatory capacity, reduction, adaptive systems capacity, absorptive systems adaptability and the reliability of transformative technology and its alternative use. There is simply no reason for anyone to be connected to a centralized energy service provider when the economics of going off-grid become increasingly attractive.

Perpetuating the idea that we must all buy a social commodity from a private supplier not bound by regulatory constraints of fair price is plain wrong. It is contrary to how the consumer sees both energy and energy efficiency in the 21st century. The consumer makes the distinction that the efficiency of energy supplies is directly related to the length of its supply chain and the final price paid for the commodity. Energy produced from fossil fuel requires that we dig up the coal and burn it to produce steam. The energy is then delivered through kilometres of cables, substations and transformers. Rooftop solar panels supplemented with battery storage eliminate the inefficient way energy companies deliver an inefficiently produced and expensive product through a defective supply chain to the consumer. In fact, if we all had our own affordable micro-wave size fusion reactor I doubt anyone would bother dealing with an energy company.

Bloomberg estimates that by 2050 43% of all Australian consumers will have their own rooftop solar and battery storage. If this conservative estimate is correct then we have to ask ourselves the following:

  • What is the role of the Energy Utility beyond 2050?
  • Why does the NEG design not include postcode based self-managed renewable energy zones?
  • Why does the NEG design not define the role of the national grid in context to self-generating and self-storage postcode based closed block chains operating behind the Utility owned meter?
  • Why does the NEG design stifle innovation and ignore regulations that mandate unrestricted 3rd party access to the grid so that community groups can engage in behind the meter peer to peer block chains without registration?
  • Why does the NEG slow innovation in community energy ownership models that will deliver greater market competition, energy security, affordability and reliability?
  • Why does the NEG not include fixed retail price daily pass through charges, grid connect charges and full retail billing transparency for daily pass through charges?
  • Why does the NEG not include a real time retail net-metering provision that includes billing transparency for all four daily supply periods as well as real time rebate and credit payments for rooftop solar and storage customers?

I suppose Mr. Frydenberg’s comments should be taken literally when he tells the Australian consumers that ‘under the NEG the states can go nuts’. What he did not say is that under the NEG the vertically integrated Energy Cartel can go nuts because the NEG mandates no obligation for  transparency and accountability.

What we can see from the current NEG design is that AEMO gets its forward capacity market reserve with a day ahead bidding process; as long as it can demonstrate that it is capable of doing a year ahead capacity supply projection. Formalizing the current FCAS and forward/ reserve capacity contracts does not guarantee lower retail energy prices or energy supply security. It does not even guarantee that lower PPA contract prices are passed onto the consumer. It doesn’t guarantee that negative wholesale prices reflect in lower consumer bills because there is no retail billing disclosure requirement under the NEG.

How does the NEG impact on the rooftop solar customer with self-storage? If we assume a standard rooftop customer who generates an average of three times more energy than h/her daily average usage and a battery storage reserve of 2 days average consumption, then the NEG provides no consumer advantages.

  • Under the NEG we don’t know if this customer is still charged the forward capacity supply reserve even when it is not used.
  • We don’t know if the customer is charged transmission charges as part of the daily pass through charge even when the customer does not require to draw additional power from the grid.
  • We don’t know whether the emission credits collected by the retailer are actually passed onto the consumer in full.
  • We have no idea whether the full wholesale value of the excess solar energy produced and stored by the customer is actually credited to the customer or whether the retailer only credits the portion of the energy it deems fit under some undisclosed energy export formula for small scale generators. The same applies under the current AEMO time based demand management scheme. Once again we question why there is no real time net metering provision under the NEG. Since there is no real time Net-metering disclosure process in place that is reflected under a mandatory minimum billing / data transparency requirement, consumers can have no confidence that the NEG has any impact on energy affordability.
  • Since the NEG ignores block chain peer to peer real time consumer data management and independent billing it makes no contribution to energy management, energy security or energy market innovation but instead; actively restricts it.

Is that what you mean when you say, ‘ they can go nuts under the NEG’, Mr. Frydenberg? Is the ‘National Energy Guarantee’ the guarantee to the energy cartel to ‘go forth and prosper’ as long as they are careful in hiding the profits delivered under the NEG?

Author Biography

SAngerer

Mr. Angerer has more than 30 years’ experience as a government adviser and senior consultant covering all aspects of Climate policy and context specific solutions for urban and rural development. Mr. Angerer has a multi-disciplinary background in Architecture, Engineering, ICT, GIS & Mapping, Urban and Rural Development, International Development Law, Transport Systems, Environmental Management, Business and Project Management, Risk Analysis, Change Management as well as E-Learning, Education Management and Training. Mr. Angerer has developed the UN compliant E-WASH system with a focus on poverty reduction, food and income security, whilst enabling positive investor returns at the lowest risk for developing nations. Mr. Angerer’s expertise is in strategic government and business policy and business development for all aspects of renewable energy and Blockchain peer to peer VPN managed community owned smart grids for integrated E-WASH grid connected and off grid system. Mr Angerer also has an extensive background in employment and training policies and curriculum design standards at national and international level.

 

 

 

 

 

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Is Demand Management a Scam?

Introduction

I am grateful for a fast and reliable internet connection in Asia. I did like to watch Josh Frydenberg in the Canberra Press Club on the 11/04/2018 without buffering.  I suppose I should expect a good network here since I trained a few of the people who built throughout Asia.

I don’t want you to regard this comment as a backhanded snipe at Malcom Turnbull’s inability to address standards, compliance, enforcement and governance in regard to the basic engineering design of a network infrastructure project Mr. Frydenberg. I do want to relate a few questions my friends from Singapore, Hong Kong, Kula Lumpur and Shanghai asked during your presentation.

Let me begin by saying that my friends from China thought you were either a comedian or a snake oil salesman selling sulfuric acid enemas as a herbal aphrodisiac. I had to assure my Asian colleagues that you are a serious politician trying to explain ‘a rules’ based energy market as a free market to a bunch of confused looking journalists. This naturally prompted a few questions from my Chinese friends well versed in state sponsored market capitalism ‘Under Heaven’. Perhaps you would like to clarify the same confusion we first encountered in the late 90’s when the US debate between energy market economists in favour of regulation and those advocating minimum market intervention raged from California throughout the other 51 States?

Can you please clarify these questions for the overseas shareholders of Australia’s electricity assets, Mr. Frydenberg?

The first and most obvious question is this!

Is a rules based market a free market? Correct me if I am wrong but my answer to this question was that this is Australian Liberal and National Party code for the following:

‘Even though I as energy minister acknowledge that the Australian energy market rules favour the coal and gas fired power stations; because both major parties agreed to a coal to gas power station transition approach during the Howard years; the aim of the NEG (National Energy Guarantee) is to convince the three largest energy retailers controlling more than 70% of Australia’s customer base, to abide by the market rules’. Do you think this is a fair summation of the basic wait and stall until the next election NEG strategy of the Turnbull government Mr. Frydenberg?

The second question I was asked is a little tricky and I wonder whether you can help me explain it better to the Asian shareholders concerned for the value of their shares in Australia’s big three energy companies.

Is Australia’s energy market a free market because the Federal government likes to maintain the current competition balance between the existing state sponsored energy cartel ( the big three), or is the government’s recent intervention  in the AGL decision not to sell the Liddell power station;

  • A signal to the energy market that the government’s intervention in the free market is not an undesirable contradiction to the government’s free market principles, or
  • A recognition that the government’s minimum intervention principles in the energy market is an unworkable free market policy, or
  • A recognition that Australia’s existing energy market rules are incompatible and stand in contradiction with the government’s national productivity, jobs and growth and competition agendas, or
  • All of the above.

The third and fourth questions are a little technical and I appreciate your guidance Mr. Frydenberg.

What is the wholesale electricity price cost impact of AEMO’s cross border coal and gas plant contracts that provide FCA (Frequency Control Ancillary) and VC (Voltage Control) services including idle, ride through and firming services?

What is the total wholesale electricity price impact for all NEM contracted FCA and VCA capacity supply backup that is the consequence of non-compliance with grid connect, grid code, maintenance, unscheduled outages, lower and raise voltage control failures, including transmission grid phase and sync issues attributable to the non-enforcement of EU and IEEE grid code standards for all NEM connected assets?

The fifth and sixth questions are from the economist in the group.

You mentioned that you expect that the full 7% of wholesale energy price savings that you claim are due to the Turnbull government’s intervention into Australia’s gas market to be passed onto consumers. We presume that the Australian gas market is also a rules based market and not a ‘Free market’. Therefore the Turnbull government’s intervention in the gas market is presumably justified under your party’s ‘Free market and non-interventionist’ doctrine. What we do not understand is how you arrived at the 7% saving when mandated annual electricity price rises for grid upgrades are set at a minimum of 10% annually? Do you mean that you expect the annual electricity price increase to be 3% not including additional state charges and inflation indexing from June 1 2018? How long do you expect this non-binding verbal accord to last? Do we regard this statement as a statement of faith or fact on your part Mr. Frydenberg?

You mentioned that it would probably cost $100 billion to fix the National Transmission grid if we installed batteries in every major substation and interconnector in the NEM and that Snowy 2.0 without transmission line connection costings is probably cheap by comparison. In 2008 the industry costings for connecting all states with HVDC cables was between $36-$58 billion depending on route and other upgrade options. The cost of running the NBN optic fibre to terabit exchanges around Australia alongside the HVDC to all state’s under a single national connection plan was calculated at approximately $100 billion for both projects combined. Given that I was involved in the purchase of UPS battery storage for several network upgrades I can say that the price of battery storage decreased by 1000% between 1995 and 2005. I can also confirm that the price of battery storage has dropped another 500% between 2005 and 2018. At present prices battery storage is cheaper then gas and our estimate is that battery storage at all major substations and interconnectors will cost less than a third of the total cost estimate of Snowy 2.0. Since the government must fix the national transmission grid irrespective of Snowy 2.0, is the Turnbull government telling the Australian consumer that the NEG can operate without a reliable National Transmission grid and without Snowy 2.0 connected to a reliable National Transmission grid? Is the Turnbull government NEG strategy for reliability and affordable electricity based on the assumption that non-compliance with basic network design standards that ignore IEEE grid code and grid connect standards will deliver an affordable and reliable national electricity network?

The 7th and 8th questions relate to Demand Management Mr. Frydenberg.

We know that the ‘Avoided cost’ of not generating or transmitting energy on 35 degree days by old and poorly maintained coal power stations and over faulty and poorly maintained transmission networks can indeed save money. So can the TELSA battery in South Australia where FCA cost savings are published. What we want to know is this. Given the cost of the AEMO contracted FCA and VCA services and the supply cost per MV in the hundreds of thousands of dollars annually under Australia’s discrete forward capacity market model, who pays grandma for not turning on her air conditioner? Is the electricity rebate for being a panting customer paid by the state from state revenue or is the rebate paid by the retailer from wholesale spot price savings? Perhaps a few pennies are returned to grandma by the retailer from the energy savings she created from the many thousands of dollars she saved the retailer through ‘Avoided cost principles’? What precisely is the rate of ‘Avoided cost’ return to grandma for the many hundreds of thousands of dollars many Australian grandma’s collectively save the retailer by suffering through an Australian heatwave?

Do high energy industry users who already have preferred supply guarantee status and are often operating under a state electricity price subsidy ( e.g. Alcoa ) receive this additional reverse subsidy on top of their existing state subsidies and supply guarantee, or is this time based and weather condition reverse subsidy subtracted from their existing subsidies? How does this reverse subsidy impact on companies with equipment and operational/ production and supply scheduling insurance contracts? Is this reverse subsidy an additional subsidy to either replace part of an existing subsidy or in addition to existing discrete payment agreements between the state and the company?

Questions 9 and 10 relate to subsidies Mr. Frydenberg.

In your Canberra Press Club address on the 11/04/2018 you told the gallery that the Turnbull government has eliminated all subsidies to the energy market. You also alluded to the fact that both the LRET and SRET schemes many no longer be fit for purpose for the Australian energy market. Is it not a fact that the primary beneficiaries of the LRET and SRET schemes are the big three energy companies? Is it not a fact that the primary beneficiaries of FCA and VCA contracts are the big three energy companies? Is it not a fact that the few pennies grandma gets back under AEMO’s Demand Management scheme is peanuts compared to the ‘Avoided Cost’ savings and forward supply guarantee contracts enjoyed by the big three energy companies controlling more than 70% of the consumers and the majority of the network and generation assets across the NEM? Since you claim that you have eliminated all subsidies does this claim include all contracted capacity payments, rooftop solar pricing advantages such as lower distribution and transmission cost savings and all related ancillary and cross state border anti-competition advantages enjoyed by the big three energy companies? When is a failure in market rules that your refuse to fix not a competitive advantage and therefore not a discrete subsidy?

The Australian Industry Group seems to be heavily influencing the Turnbull government position on anti-competition policy under the NEM. When is the failure to enforce compliance with grid connect and grid code standards that result in the deliberate gaming of the energy market rules not a discrete subsidy to coal and gas power station owners? At what point do we consider anti-competition  practices as either state sponsored capitalism ‘Under Heaven’, a failure of governance, or a discrete cartel subsidy scheme to preferred suppliers?

Asian and US investor groups would appreciate your response as quickly as possible to these questions Mr. Frydenberg. You can no doubt appreciate our dilemmas. Under the current NEG strategy the Turnbull government is proposing that many shareholders are likely to sit on lower dividend returns because of the stranded asset risk the NEG entails. This is particularly so as Australian consumers either decide to go off grid or opt into closed 40MVH behind the meter peer to peer connected Block Chain managed closed smart-grids.

Concluding Remarks

We are trying to decide whether we should recommend a strategy of leasing distribution grid assets to these communities or advise our clients towards a greater consumer service focus whilst outsourcing some of the more expensive and least reliable assets to third party management. We don’t expect any new coal fired power station construction contracts after 2025, nor any new gas power stations to be constructed after 2035. Our risk analysis does not forecast a significant increase in gas usage for electricity generation beyond 2025. We do however expect a dramatic use in hybrid electric / hydrogen vehicles for long haulage and public transportation. For this reason we believe that investment in hydrogen plants and in particular, dual purpose facilities in waste to energy with a hydrogen spin off to warrant greater investor attention for the Australian and Asian markets in general. A national energy policy beyond the current simplistic and confused ideals that comprise Australia’s coal to gas national energy transition political focus would be highly relevant to our portfolio risk management strategy.

The Turnbull government’s work on protecting existing financial institution assets by its refusal to reform the Australian energy market rules is a welcome high risk strategy by institutional shareholders. We do not expect GDP targets above 3% and unemployment targets of 3% to be achieved under either the Turnbull or Shorten government tenure. Subsequent low productivity and continued commodity market fluctuations are unlikely to reduce government debt in the anticipated time frames. This offers further opportunities for asset consolidation and foreign ownership opportunities as the decade progresses. Do you feel comfortable with this general risk assessment of the Australian economy going forward Mr. Frydenberg?

Do you want to save the NEG Mr. Turnbull?

Do you want to save the NEG Mr. Turnbull?

Warning! This article may cause political recriminations and finger pointing.

Introduction

Let me switch my hat into ‘Change Management’ and ‘Executive Training’ mode.
Governance

Standards inform policy. Policy does not inform standards. AEMO adopted the EU and IEEE grid connect and grid operational and maintenance standards about six years ago. The grid connect standards mandate a 96% reliability rating with a ± .5 hertz tolerance and, from memory, a ± .6% voltage tolerance. In 2013 the IEEE and EU grid connect standards for Wind Turbines was tightened further with additional turbine start up, grid disconnect, ride through and idle standards. I let you ponder the legal ramifications of this for a minute.

Note: I read the standards 6 years ago. Apologies if my memory is failing. The standards documents are freely available on the internet.

 

Grid connect compliance is the responsibility of the owner

We know that all wind and solar farms as well as rooftop solar and battery storage devices comply with IEEE and EU grid connect and disconnect standards. This includes all system controllers manufactured in the EU, UK and US after 2012. We know that all Chinese controllers manufactured under EU, US or UK license may fully comply. I will not discuss controller chips and firmware in this article.

So why does the Australian electricity grid not comply with EU and IEEE standards? The short answer is Coal power stations. The longer answer is lack of maintenance, training, government incompetence and a deliberate policy by the major Utilities to squeeze as much profit out of the taxpayer as possible. How does this impact on state government electricity supply guarantee contracts with the Utilities? I let you ponder the legal ramifications of this for a minute.

Considering these EU and IEEE grid standards I want you to turn your mind to the relevance of the Turnbull government energy policy in light of the’ Finkel Review’ and the ACCC inquiry. I also want you to think about all the other nonsense that has been concocted by the Abbott and Turnbull governments in regard to electricity reliability and price affordability in recent years. At the heart of the matter is that ‘grid connect’ standards demand system controller operational compliance in accordance with the adopted standards. For this reason grid connect compliance requirements are the exclusive responsibility of the commercial entity that owns the generator, substation or any other device that wants to connect to the grid for the supply, transmission, distribution, load control and load management of any part of the grid. I let you ponder the legal implications of this for a minute.

What’s dodgy on the grid?

Well! We have to ask AEMO. AEMO has had a list of dodgy electricity equipment for years. AEMO in conjunction with the other members of the electricity bureaucracy have been part of planning, approving and building the dodgy grid for years. We know that pretty much all the coal power station generators have issues. We know that the HVDC connection between Victoria and Tasmania has sync and phase problems. We know that a number of state interconnectors and substations have issues. We also know that transmission lines, rural distribution lines and related infrastructure are either substandard, suffer from lack of maintenance, poor design and safety compliance issues.

Who is responsible for this? I let you ponder the legal ramifications of this as you wonder why your computer hard disk, air conditioner and other white good manufacturing life time guarantee isn’t worth the paper it is printed on.

Where is the money?

There is a noticeable lack of glitter on Australia’s gold plated grid. I let you reach your own conclusions about where the money is. A more important question is what do we need to do to stop the ongoing Australian consumer and tax payer rip offs.

Here are some suggestions:

  • Give notice by July 1 2019 that all FAC ( Frequency Ancillary Control ) service payments to any contracted supplier of these services will cease on that day. I let you ponder the question of how the tax payers and consumers will be compensated.
  • Give notice that all annual mandatory 10% electricity price increases negotiated by AEMO and agreed to by the all responsible parties will terminate with immediate effect. I let you ponder the question of how the tax payers and consumers will be compensated.
  • Sack the ESB immediately. We don’t need useless bureaucratic window dressing.
  • Cancel AEMO’s US style ‘Demand Management’ program in favour of a national energy efficiency program and corporate clean energy self-generation investment friendly tax credit scheme.
  • Close all tax loopholes.
  • Legislate the day ahead bidding process immediately.
  • Legislate a 2 minute settlement period immediately.
  • Legislate minimum 40 MVH self-managed Block chain renewable energy zones and remove all Utility and Grid owner grid connect and grid sub-lease restrictions.
  • Legislate sensible self-supply and self-manage energy and water storage by implementing uniform building, planning and building management and health codes for all state and local government jurisdictions.
  • Reform and restructure the entire electricity bureaucracy into 1 Virtual Power Station and Grid Security Company fully owned by the Federal Government with offices in Queensland, NSW, ACT, Victoria, Tasmania and South Australia.
The story behind Australia’s Electricity Prices

The story behind Australia’s Electricity Prices

Introduction

We are a few month down the track from the Turnbull government’s involvement into Australia’s national electricity market. If the results of the South Australian election was truly a referendum about the veracity of Mr. Turnbull’s NEG ( National Energy Guarantee ) strategy then one thing is clear. The Turnbull government’s NEG is very similar to the policy position of the Rann government in 2010, minus the ‘Finkel Review’ recommendations. What is interesting about the South Australian election is that Jay Weatherill’s renewable energy policy during the recent election campaign closely mirrored the advice I gave the Rann DPC ( Department of Premiere and Cabinet )in the same year. So perhaps we should ponder the ongoing electricity pricing debate with this retrospective in mind.

In 2018 the position of both the Turnbull federal government and the new Premier for South Australia, Steven Marshall, is very similar to the Rann government position of 2010. Jay Weatherill fought the election, without knowing it, on almost the identical advice I gave Mike Rann’s DPC. Does this mean that the NEG strategy is almost 10 years behind current best practice? No! My advice to the Rann government was tailored to the needs of the South Australian government at the time. It was advice tendered in good faith and following talks with Unions and Wind farm operators. Most of us knew that the compromise advice I tendered to the Rann government was 10 years behind best practice EU grid code standards. The key points of difference between stakeholders were that South Australia urgently needed to build an embedded storage network to achieve electricity supply independence from the National Energy Market (NEM). AGL immediately recognized that this would undermine its contractual agreement with the South Australian government. AGL saw that integrated DER ( Distributed Energy Resource) zones incorporating DES (Distributed Energy Storage) systems would pave the way for independent renewable distribution zones ( hubs ) supplemented by direct wind and solar farm PPA’s  (Power Purchase Agreements). To stall this debate AGL placed immense pressure on individual communities, Unions and the South Australian Energy Regulator. The push for a ‘Green HVDC Power Transmission line’ and a second interconnector from the Great Australian Bight to NSW was not my preferred solution to the problem because I could not see how a federal Labor Industry Minister rusted onto a gas transition program could possibly approve this multi-billion dollar project. The Green Transmission line was rejected by the federal Labor government. Subsequently South Australia’s energy independence from the NEM with the help of a DES policy was shelved until 2016.

Does this mean that the Turnbull government will approve the second interconnector and the HVDC green transmission line from the Great Australian Bight to NSW? It might ensure that the Snowy 2.0 project may become commercially viable? Don’t get me wrong! I like  pumped Hydro projects. I like them especially if they stack up commercially against other DES solutions. I like them even more if they enhance Australia’s water security whilst promoting the sustainable economic future of regional towns. This implies a considerable amount of detailed cooperative planning and higher order project management skill in both state and federal bureaucracies. Neither government has demonstrated this level of cooperation since 1901 except when the country was on war time footing. Neither has demonstrated the ability to operate at current international best practice standard when it comes to major national infrastructure projects in recent times.

What does this have to do with electricity prices?

No doubt many of the eastern states are just as confused today as they were ten years ago. Is the purpose of the NEG to build a resilient NEM with an emphasis on state energy supply independence, or is the purpose of the NEM to build a resilient national transmission network with a guaranteed 15-18% capacity supply reserve? The Snowy 2.0 project seems to favour the latter. Perhaps the purpose of the NEG is to build a series of large scale wind and solar farms connected to government and Utility owned DES solutions that are supplemented by gas and coal power stations? In all cases we have to ask whether Mr. Turnbull’s assertion that Australia’s Energy Crisis is a crisis of economics and engineering was a perverse Freudian slip for a government unable to accept its own managerial accountability over a dysfunctional energy bureaucracy sadly out of its depth.

In the absence of a clear definition of what a ‘Renewable Energy Zone’ actually is, the ‘Finkel Review’ has left the door open for continued delay in the formulation of a viable Utilities transition policy that will have a genuine impact on electricity prices. This was clearly articulated by US investors during Mr. Turnbull’s recent visit to Washington. What is even more perplexing is that the Turnbull government’s commitment to corporate tax cuts includes no targeted tax measures to underpin the creation of renewable energy zones that would positively impact on lower power prices. This threat to the current and future profitability and international competitiveness of high electricity user SME’s  ( Small to Medium Enterprises ), continues to drag on Australia’s productivity, jobs creation and GDP growth projections. The Trump government’s recent tariff bombshell tends to indicate that much of the Turnbull government’s economic policy is based on prayers and assumptions of friendship rather than sound policy. National debt sustainability through a resilient and self-sufficient industry policy is clearly desirable. Reliance on growing a military manufacturing sector and the vagaries of the commodity markets are speculative strategies for a country in need of a competitive and clearly articulated industry policy. Perhaps we can pin our Westminster ideals to the Dutton Plan and flog goats to South Africa in a giant prepacked Biryani to pay for the Turnbull government’s corporate tax agenda?

The political party Hat trick

We have already been told that Mr. Turnbull and Mr. Frydenberg have worked hard to solve Australia’s electricity crisis. The question on everyone’s lips is a little predictable! What has changed? When I re-started the prosecution for the case of energy industry reform in 2016 the prospect for real change seemed more promising then in 2007. After all, at what point will a politician realize that the uncontrolled cost blowout of a core social service will start costing votes and drive industry and investment offshore? We are lucky that economics is an applied social science rather than a real science. Like ‘politics’, the practice of ‘economics’ is about shaping opinions and managing stakeholder influence by manipulating statistics and cherry picking data to serve an ideological construct. In a western liberal democracy this translates to powerful interest groups having disproportionally greater representation then the citizen paying the bills. Australian’s are pretty basic meat and three vegetables sort people in this respect. They like the idea of kicking the tyres and checking under the hood of their Australian made ‘Holden Ute’. It is great to put the foot to the pedal and listen to those dual exhaust notes. Those twin blowers sound exactly like the noise that comes out of Canberra.

There is no conversation with voters because politicians, public servants, institutional and industry leaders have mastered the ability to talk at you rather then holding a meaningful conversation with you. It’s a lot easier to presume what people want to hear instead of addressing the real issues at the heart of the matter. Everything is just fine ‘under heaven’ when the share of the economic spoils is relatively evenly spread throughout the economy! The problem with this interpretation of the Über economy is the dichotomy between the applications of Taoism and the neo-liberal corporate state in the grip of grey ghost serenity asserting objectives only non-accountable mandarins can call unquestionable truth. It was no surprise that the head of the ACCC recently announced that greater data sharing was inevitable without mentioning the need for consumers to own their electricity data. What was not talked about was data sharing between whom, for what and at whom’s expense and for whose benefit? It was even less of a surprise when the ‘Chief Scientist’ declared that Australia’s electricity mandarins are not accountable for Australia’s electricity crisis. No one doubts that serenity ‘Under Heaven’ must be preserved for all grey ghosts in the machine. The proposition that for over 20 years Australia’s smartest people in charge of the NEM had neither the power nor the tools to enforce grid standards and regulatory compliance to ensure electricity reliability and price affordability requires balls of steel. Not even Pinocchio could have carried those ‘cajones’ without some red faced embarrassment.

This is precisely where the Howard government policies are coming home to roost. The consequence of privatization in conjunction with generous tax and investment allowances are dragging the national economy into debt. Instead of comprehensive taxation reform the Turnbull government has no problem continuing the rapid shift towards a user pays economy. There is nothing wrong with the user pays principle if the accounting practices that underpin it are both fair and equitable. This is where another caution I raised ten years ago comes into play. In all service sectors of the economy the concept of independent data validation and verification must guide the compliance and enforcement mechanisms that inform fair consumer prices. We know that the ACCC, until recently, has been excluded from inquiring into the electricity sector by law. We also know that AEMO and the AEMC have been complaining for years about inadequate and timely access to accurate electricity data. In short, if we are to transition to a user pays economy for all socialised services then at the very least we have to ensure that regulatory and compliance frameworks reflect community standards and do not allow for the deliberate exploitation of users for the benefit of privatized cartel and government sanctioned operators. This includes the privatization / outsourcing of government services to preferred contractors without any quality assurance oversight and regulatory control for the accountability of these services. Once again we come back to three core policies I have been hammering for more than 10 years.

  • Define a DER (Distributed Energy Resource) and DES ( Distributed Energy Storage ) for a renewable energy zone/ hub for consumer groups. Define a standard renewable zone / hub as a minimum 40 MVH independent capacity supply zone that can be grid disconnected during emergencies and supplemented with private PPA wind and solar farm agreements without Utility approval and function independently from the electricity distribution company.
  • Ensure that consumer data ownership policy enables independent 40 MVH Blockchain networks supplemented by transmission and distribution grid embedded DES services that are free from electricity distribution company data interference and data privacy manipulations and data mining.
  • Ensure that each state has sufficient electricity generation and reliable grid capacity to meet is own demand under peak conditions.

What politicians and free market economic theorists don’t want to comprehend is that in respect to socialized services the idea of spreading the cost of socialized services to all users simply doesn’t stack up in the 21st century Über economy. You either retain electricity, water, gas, health, aged care and education as a fully government owned service and spread the cost evenly, or you implement a just in time service that allows the consumer to pick and choose when and what part of the service they wish to use and pay for. You simply can’t privatize a socialized service and then mandate a minimum socialized payment obligation onto all users regardless of their use of the service. This is the very same argument the LNP uses when it wants to attack the legitimate right of Unions to participate in Australia’s industrial process. This hypocritical double standard is why the Australian electorate is so angry. Electricity users pay a daily grid connection charge without knowing exactly what components make up this charge. Now they pay a Carbon charge even though the Abbott government abolished the fixed Carbon price system introduced under the Gillard government. When Mr. Turnbull and Mr. Frydenberg recently announced that they had fixed the Australian energy crisis, by tackling price affordability and grid reliability, the electricity prices promptly increased as the grid struggled under repeated coal power plant failures.

Despite this obvious contradiction Mr. Turnbull and Mr. Frydenbergy stoically maintained that without their intervention in the gas market electricity prices would have been even higher. To the average voter this is about as informative as the dual exhaust on the V8 Holden Ute droning at full pelt. Mr. Turnbull and Mr. Frydenberg are counting on the fact that the average punter has no idea about the difference between Pool prices, Capacity Reserve Prices and L & R Frequency Ancillary Control Prices and how they interact with the Wholesale electricity price.

What is the Wholesale electricity price

Under Australia’s broken electricity market the wholesale electricity is a calculated average price for each state. The Pool price is the contracted supply price. For example:

A state government releases a competitive tender for the supply of ‘X’ MVH of electricity generation. Under the tender the state government will specify whether the tender is for renewable energy or some other generation fuel option. Even though the lowest bidder is not guaranteed to win the tender, recent history suggests that wind and solar farm prices of $60 – $80 per MVH are competitive choices against gas hovering at $110-$150 MVH. The state electricity Pool price is the average of all generators in the state. So if a state has two coal plants with high maintenance and low reliability cost, one gas plant and several wind and solar farms the average Pool price is calculated by adding up the total contracted price for each generator and dividing the total by the number of generators in the state. When Mr. Turnbull and Mr. Frydenberg crowed about fixing the electricity price affordability in 2017 they used the electricity Pool price to claim that power prices would reduce by approximately $100 per consumer per annum. This is serious ‘Pinocchio-nomics’!  Something Mr. Scott Morrison is very familiar with. What we witnessed instead was that Utility companies immediately applied for their annual mandated price increase in daily connection charges to recover the shortfall. This provided Mr. Turnbull with the ‘Pinocchio-politico’ excuse that under Australia’s ‘free market system’ electricity companies are entitled to apply for reasonable and fair price increases under the Energy Market Rules. What Mr. Turnbull neglected to tell the voter and the Media was that the Market Rules don’t work. The Market Rules allow the energy cartels to manipulate the wholesale ‘Spot’ price. We can only presume what was agreed between Mr. Turnbull and the energy cartel bosses. The following is an approximation to what is likely to have happened. Because we ( The Government ) are legislating the ‘day ahead market bidding process’, the government requires that you don’t game the short term electricity wholesale ‘Spot’ price to drive up prices in 2017 and 2018 beyond what is agreed. In turn the government will ignore the gauging of the retail daily pass through charges. Wink, Wink! Nudge, Nudge! Oink, Oink!

We know that the wholesale ‘Pool’ price is notoriously unreliable as an indicator of wholesale electricity prices. Perhaps this is the reason why politicians like using them. Industry never uses the ‘Pool’ price other than as a base indicator for investment return. The industry prefers to use the long term projected ‘Spot’ price in conjunction with future usage analytics and marginal returns offered by ancillary supply services. The latter is based on private industry owned data about grid integrity and generator resilience under optimum demand conditions. The industry knows exactly what part of the NEM and which generators are likely to fall over under high demand conditions. AEMO has known this as well for many years. This is of course where the energy market cartel makes its money in collusion with the grey ghosts of the energy bureaucracy. We know that Frequency Ancillary Services are contracted at serval hundred thousand dollars per MV supplied into the NEM annually. For this reason any coal or gas fired power station contracted to provide Frequency or Voltage control services can show a profit even though the generator might run at a loss for most of the year. Even though the electricity ‘Spot’ price is capped at $14,200 per MV, this price simply does not apply to capacity reserve markets. The South Australian Tesla battery impact on the NEM in 2017 reduced the cost for FCAS from over $250,000 to about $50,000. This should have had an impact on consumer prices in South Australia if the government had passed these savings onto the consumer. Since the South Australian government also contracted a high cost gas power station the Tesla battery cost savings simply subsidized the gas power stations in this incidence. The reason is twofold! The Tesla battery is not contracted by AEMO to provide short term FCAS into the NEM. The regulation that mandates a 5 or even 2 minute settlement period for fast response storage and ramp up technology doesn’t even exist and its introduction will be resisted by the large energy cartels until at least 2021 or beyond. In other words, South Australia didn’t get paid for the intervention of its battery into the NEM because the battery is not contracted by AEMO to provide this service to AEMO. Since the CAPex for the new gas plant and the battery still needs to be paid for the South Australian government budget would have struggled to lower energy retail prices even if it wanted to.

Once again we witness Mr. Turnbull and Mr. Frydenberg engaging in nothing short of political thuggery by claiming that South Australia’s irresponsible renewable energy policy is entirely the fault of its own making. I don’t know whether this was a deliberate political strategy to influence the outcome of the recent South Australian election. Perhaps the motivation is the perverted aim of slowing Australia’s renewable energy transition in order to buy time until the Turnbull government finds a Clean Energy Policy prior to the next federal election. We do know that any federal Clean Energy Policy on similar lines to the Rann policy of 2010 is not enough to address our international obligations. What I can say with certainty is that the Rann government renewable policy in 2010 was already 10 years behind best international practice. Implementing a NEM strategy with a ‘Finkel’ bolt on would effectively consign Australia’s Clean Energy Transition program to being 20 years out of date. It is not surprising that US investors simply scoffed at the industry and super fund heads who accompanied Mr. Turnbull on his recent visit to Washington. Australia still has no renewable energy transition policy worth investing in. This is the energy reliability crisis the Turnbull government has engineered for Australia under a fake energy price affordability caveat.

How is the Retail Electricity Price Calculated?

We know that the state wholesale electricity is the spot price + the contracted frequency and voltage control prices + any unforeseen contingencies. Generator companies can make profits by exporting any excess capacity to other states + any carbon credits this might entail. It was the Clean Energy carbon credits the Rann policy was banking on through the Victorian and South Australian interconnector. Since Victorian customers are also paying for the HVDC underwater connection with Tasmania the net dividend to South Australia was never going to eventuate unless Victoria closed the majority of its coal generators. It was the Victorian coal generators supporting a South Australian grid built without a mandatory storage requirement that supplied the power when the wind wasn’t blowing. It did this at enormous cost to the South Australian consumer. In turn, Victorian customers benefited greatly when the ‘Roaring Fourties’ made the wind turbines go like the clappers because the wholesale electricity price dropped like a stone. Once again the lower costs where not passed onto the consumers in either Victoria or in South Australia because the minimum Pool price came into effect. Even then the extra cash disappeared into the Cartel coffers as South Australia tried to balance its energy revenue against an excessive interstate energy import bill during the lean times and a low Pool price in the good times. This sort of ‘Pinocchio- nomics’ only has one outcome as the Weatherill government discovered in 2016.

If there is any legitimate criticism to be levelled onto South Australia, then the failure to listen to my 2010 DPC advice is it. Recently I listened to a boffin from some right wing industry group who claimed that South Australia purchased 60 million dollars’ worth of Victorian coal power annually to keep the lights on. If we assume that this is the gross subsidy that the South Australian government was channelling into its own energy market in order to balance the books I can understand why the Weatherill government was sorely disappointed at the blatant rip off from the other states in the NEM and AGL. This however does not explain why Victorian, NSW, Tasmanian and Queensland customers are facing the same rip off.

We know that wholesale prices plus transmission charges, substation and interconnector charges as well as distribution costs, state taxes, GST, data metering charges, billing charges and carbon charges make up the retail electricity price. We also know that the vast majority of these fees and charges are undisclosed and agreed to behind closed doors between state government ministers and the Utilities. Transmission charges are levied on distance. No one knows what the interconnector and substation charges are. I do know that the Tasmanian interconnector costs Victorian electricity consumers about $1million every year in maintenance alone. We know that distribution charges are agreed behind closed doors and take into account grid integrity, terrain, maintenance, insurance, bush fires and climate impact, street lighting discounts for local councils and the elderly etc. We also know that electricity company employees never pay more than half the recommended retail price.  Built into the retail energy price are a raft of hidden cross subsidies and concessions that everyone else pays for. Don’t get me wrong! I am fully in favour of concession prices for anyone on welfare. I am fully in favour of concession prices for anyone suffering serious hardship and illness through no fault of their own. That’s what an equitable socialized service should do. What I am against is this piecemeal attempt to wrangle concessions for those who can’t pay their power prices ordinarily when the legitimate retail price should be between 30% – 50% lower for all. I am against corporate welfare disguised as a legitimate service charge.

We are not just dealing with a broken electricity market in one state. We are dealing with a broken market and pathetic government in all Australian states. It is simply unacceptable that local councils negotiate a new rate for their street lighting without making a real effort to replace their ML 40’s with smart LEAD street lights. Last time I looked the replacement cost was $5000 per light with battery backup in the pole. $50 from 1000 rate payers can pay for 1 smart Lead street. $50 from 20,000 rate payers every year can replace the majority of all ML 40’s in a local council jurisdiction quick smart. So what is local government doing with all the rates we pay?

The future of Australia’s reliable and affordable energy market

The federal ‘Ministerium’ of population and liveable resilient communities is fully aware that Australian cities are facing a massive infrastructure crisis. No doubt age old concepts of increased urban densities and linear rapid transport corridors to regional towns will feature heavily in the deliberations of urban planners and designers in the future. We might even see the revival of the 19th century ‘Garden City’ and the German idea of designated green belts between cities and regional towns. What we haven’t seen from urban planners and politician is common sense. If we assume that high rise apartment living will become the norm in Australia’s major cities, then we should seriously think about the impact these energy guzzling shoe boxes have on Australia’s national electricity grid. Until we can include reasonably priced and efficient transparent solar glass in the design of the next high rise apartment block we should think about retrofitting all apartments and office blocks with energy storage batteries. I favour a planning and building code amendment that specifies a 1:4 consumption to storage ratio for all apartments and office blocks. This national mandated amendment to local council planning and building codes could not only turn each high rise apartment and city office block into a giant ‘Tesla Power Wall’, but it could form a significant storage hub for each 40 MVH renewable energy zone postulated under the ‘Finkel Review’. Funded through a Green Bond and a targeted Tax credit mechanism the energy storage of each city high rise can cement grid resilience, lower ‘Spot’ prices and reduce FACS costs in one elegant low cost solution. So why don’t we have such a national policy?

Australia’s politicians don’t think elegant solutions. They are enthralled with a user pays philosophy where consumers pay private companies a premium for a social service that could easily pay for itself in most circumstances. What is wrong with this simple idea in a user pays democracy like Australia? What is wrong with the user pays principle is that those on higher incomes spend disproportionately less of that income on basic social services such as electricity, water and sewage. They also pay a lower proportion of their income on food, rent, house repayments, council rates, health and education. Australian federal governments have spent years talking about tax reform without doing anything. The Turnbull government is prosecuting the case for lower corporate taxes in readiness for the next election without any reciprocal obligations on Australia’s corporate citizens. What is not discussed is the simple concept that lower tax revenue under continuous public service growth requires that revenue to pay for public servants and social services must come from somewhere. Only a few people are talking targeted tax reform that addresses the social inequalities the corporate welfare system has created in the last 30 years. No one is talking about smarter government policies that target the scourge of government and private business fees and charges that have replaced tax revenue over the years. Oh yes! Direct user pays principles are fairer and more equitable the liberal think tanks maintain. Bollocks! Look at the electricity market and tell that to the pensioner with rooftop solar paying 1000 Kwh of solar generation per billing cycle to cover daily pass through grid connection charges. The perverse thing about this is that same power is resold by the electricity distribution company at 3 times the retail price as the pensioner pays GST for the privilege of trying to live sustainably on a pension.

What we have seen over the last 30 years is a steady increase of cost recovery by all three tranches of government in Australia. Increases in fees and charges under the user pays principle have reached the point where base service charges predominate at all levels of government regardless of usage or equity. As a tax replacement this method of cost recovery simply does not stack up. At no point in this discussion do we see targeted tax and service fee charges that actually reflect real time usage. At no point do we discuss the undue influences of powerful stakeholder groups and perverse ideologies that benefit the top 10% at the expense of everyone else. This is particularly true when more intelligent solutions are starring Malcom, Scott and Josh in the face!

We don’t even discuss the concept of leveraging ever rising social service costs against intelligent service provisions that can generate their own income and lower the burden on all community members fairly. We don’t do that because we have privatized and outsourced essential public services to private business without any effective checks and balances. This is precisely what is wrong with neo-classical economic theory in the 21st century Über economy. Users demand to pay only for what they use. They expect that service providers are capable of providing a just in time affordable service tailored to the needs of the customer. Customers do not expect to pay a socialized service fee for an essential service to a private company. This is especially true when the private company can earn additional revenue from other sources and maintain profit margins through more intelligent management of their existing revenue streams whilst it minimizes its tax obligations through offshore accounts. Customers do not expect to subsidize the corporate bottom line because of governance, regulatory compliance, standards and enforcement failures that are the responsibility of the government. Customers demand integrated and customized services that demonstrate that both governments and corporates are fully engaged responsible citizens of the national economy.

At what point do politicians finally work out that the Australian Energy Crisis is not a crisis of reliability and affordability but a crisis created specifically by government to benefit the few. It is the sole responsibility of governments to work cooperatively on smart integrated solutions that benefit the community. It is not the government’s responsibility to work for the express benefit of the top 10% income earners and private corporations who minimize their social and tax obligations to the national economy. But of course you say! As long as we ignore the failures of western liberal democracy in Australia, all must be well ‘Under heaven’.

References:

Powering our future Inquiry into modernizing Australia’s electricity grid, House of Representatives Standing Committee on the Environment and Energy. Canberra 2017

Fact Sheet The National Electricity Market

Regulated Electricty Prices 101115 PDF document – How are Electricity Prices Set in Australia

IBISWorld Industry Report D2630 Electricity Distribution in Australia, 2014

State of the Energy Market , AER publication May 2017

Essential Services Commission Report RPT-2014-15 Comparative Performance Report Customer Services 20160502 PDF

Electricity Prices and network costs 2, Energy Networks Association, 2014 Report

2017 Review of Climate Change Policies, Australian Government, Department of the Environment and Energy

Independent Review into the Future Security of the National Electricity Market – Blueprint for the Future, June 2017

New business models in the electricity sector, Jake Brooks, July 26, 2016

Roadmap 2030 Financing and implementing the Global Goals in Human Settlements and City-Regions, World Urban Campaign, the ecological sequestration trust

Competition Policy Review Final Report, March 2015

Author Biography

SAngerer

Mr. Angerer has more than 30 years’ experience as a government adviser and senior consultant covering all aspects of Climate policy and context specific solutions for urban and rural development. Mr. Angerer has a multi-disciplinary background in Architecture, Engineering, ICT, GIS & Mapping, Urban and Rural Development, International Development Law, Transport Systems, Environmental Management, Business and Project Management, Risk Analysis, Change Management as well as E-Learning, Education Management and Training. Mr. Angerer has developed the UN compliant E-WASH system with a focus on poverty reduction, food and income security, whilst enabling positive investor returns at the lowest risk for developing nations. Mr. Angerer’s expertise is in strategic government and business policy and business development for all aspects of renewable energy and Blockchain peer to peer VPN managed community owned smart grids for integrated E-WASH grid connected and off grid system. Mr Angerer also has an extensive background in employment and training policies and curriculum design standards at national and international level.

 

 

 

 

The National Energy Guarantee needs a Tax Plan

Since the announcement of the NEG (National Energy Guarantee) many commentators have analysed its intent and impact on Australia’s ‘Energy Only Market’. Few have bothered to explain this clever pre-election marketing phrase in terms of Mr. Turnbull’s declared engineering and economics objectives. This might very well be because details of what this fossil fuel power generation asset revaluation scheme actually is are yet to be announced in greater detail. Despite this, the federal government has not been averse to making a series of unsubstantiated claims about the efficacy of the scheme to Australia’s long suffering consumers. This ‘elegant solution’ to a tricky political problem will by some accounts reduce energy bills and ensure that customers will be spared from future brown outs and black outs.

Preliminary modelling by a carefully selected and cartel approved consultancy firm reveals that Australia’s coal fired power station operators have been declared National Treasures. Indications are that in addition to an asset revaluation they are to receive a discrete reserve margin administrative allowance. Most of us capable of reading the tea leaves have a fair idea where this subsidy train is going. So far the modelling has not defined ‘dispatchable capacity’, nor bothered with recent data on wind and solar CONE ( Cost of New Entry ) value with integrated storage costs. The preliminary modelling ignores all industry storage and hybrid self-generation and self-storage projects currently in the pipeline. Any idea that this will be an authoritative or independent modelling exercise was never on the Turnbull government agenda. What we do know already is that the veracity of the governments claims on reliability and affordability rest somewhere between economic ‘La La Land’ and the highway to paradise.

There has been none of the regular trolling out of academics prepared to eulogize a scheme designed to underwrite energy cartel balance sheets and executive bonuses. The poignant poetry of Jim Morrison reverberates in Australia’s sacred chambers as the ATO shakes it’s booty to the allure of the back door man. We are assured that our national energy experts appointed to the new ‘ESB’ (National Energy Security Board) will eventually come up with a policy somewhere in the range of a forward capacity multi-tranche bidding market with perhaps a day ahead bidding process and a bi-annual capacity reserve auction.  The battle front will be the aggregated demand side policy measures as the 5 minute settling period is pounded out over the next two or three years. Modelling this mess will demonstrate the financial and engineering sanity of a proposal that kicks the prospect of stranded asset write downs a little further down the road. The NEG carrot has always been about fixing the debt to asset ratio for the large energy cartels first. What will remain in the coming years will be an unconvincing taxpayer subsidy scheme to soften the battle ground over market rules whilst addressing the market dominance of vertically integrated large generators. For now the large cartel owners know that their status as a preferred taxpayer dependent is guaranteed. Even the Bankers are breathing easier as the executive piss ups on the Rutherglen Red begin in earnest. Since no one has any clear understanding about the actual policy design of the NEG, we can assume that any future ‘ESB’ /AEMO modelling will remain firmly within the confines of magic pudding economics.

The elegant accounting of the energy magic pudding

There is little doubt that the NEG is an elegant solution for those who are benefiting from it. Few believe that the NEG will in fact reduce energy bills and even fewer agree that the NEG will spare retail customers from electricity brown outs and black outs in the future. As usual, the devil is in the detail. With the LRET (Large Renewable Energy Target) quotas almost filled for the year, the prospect of no new wind and solar farm approvals elicit a collective sigh of relieve for the owners of inflexible coal generators. Not that this actually matters much since administrative payments from retail outlets in the form of daily charges keep ticking over in excess of $3.6 billion very nicely every year. What is clearly more valuable to the large vertically integrated cartel owners is the implied guarantee that enables a discrete default reserve margin for balancing / ancillary services to be implemented at the ESB/AEMO/ AEMC market management level. Under the NEG proposal this would require a RES (Renewable Energy Supply) curtailment of typically 5%. The net effect of this is the systemic undermining of decarbonisation and state renewable targets at higher consumer energy prices. This will be true even if wind and solar farm operators integrate their operations with grid embedded storage and localized community / large consumer owned demand side response smart-grid operations, managed under a third party behind the meter Blockchain.

What will be of particular interest to all is whether the state ministers at the upcoming 2017 November COAG Energy summit will point out to Josh, Mal, ScoMo and the Belgian waffle, that any NEG without substantial market rule reform is worthless. A dud NEG not only limits, but actively prevents participation of demand side resources and response aggregators ( third party service providers )  in the NEM ( National Energy Market). Large pools of aggregated response resources arranged in smart-grids and Blockchain systems combined with energy storage provide low cost bi-directional flexibility that is invaluable when it is integrated with wind and solar energy. The 2014-15 US figures for the Pennsylvania –New Jersey –Maryland Interconnection demonstrate that demand side market participation saved customers 10%-20% in reliability costs and 30% in constrained power zones culminating in total consumer savings of $1.2 billion. In a market growing only at 2% per annum owning customer data and controlling rooftop solar and customer storage assets remains the cheapest way for larger energy cartels to earn a dollar.

I am certain that state energy ministers will have been briefed about this before the November meeting. They will also know that any talk of demand side aggregated response and integrated bi-directional flexibility will raise the meeting temperature. The cartel will fight tooth and nail against third party demand response and reject any foray into behind the meter technology. They know full well that any third party competition not owned or controlled by them is simply not in their interest. That’s because not one of these dummies has done the math on the profit margins that can be achieved under avoided cost conditions. What will be of serious interest to all of us is whether the state energy ministers will agree to buy into a federal money deal for new state interconnectors in return for ‘X’. Ignoring an uncompetitive and dysfunctional market owned and controlled by a handful of large energy companies, knowingly and deliberately stealing from the Australian taxpayer, will never be forgotten by the Australian people. Any COAG energy deal between states and the federal government will need to pass a stringent pub test.

We all love a deceptive and meaningless marketing phrase

If you look at the official peak demand data for each state you will notice that projected electricity shortages for the NEM member states amount to less than 20 days per year from 2018 to 2025. Projected shortages in a market averaging a 2% annual demand increase are likely to occur in New South Wales and Victoria until new wind, solar and grid embedded storage solutions are completed. This does not include the installation of any state or industry commissioned demand aggregate response resources. It must be remembered that AEMO predictions have never been reliable and have generally trended towards the alarmist. Some would argue that it is normal for energy market authorities to remain on the conservative side of any prediction. Australia’s energy Quango’s have always been the patsies of the large generators. The dominance of AGL in the South Australian market stands as a clear warning to anyone thinking about creating a privatized taxpayer dependency. Finding a way around a 200 year contract using corporate anti-cartel and competition laws is likely to be a protracted legal smorgasbord.

South Australia, Tasmania and Queensland are likely to be net energy exporters for the 2018-2025 forecast periods. South Australian wind contributions to the NEM will continue to drive energy wholesale prices into negative territory for an average of 3 weeks every year if the interconnector doesn’t melt down again. This benefit is unlikely to be passed onto consumers as energy cartels leverage profits across generation platforms as well as transmission, distribution and retail assets beyond state borders. Within their elaborate matrix of parent and child companies a fair share of profits will continue to be siphoned into tax heavens via offshore marketing companies and overseas loan arrangements. These arrangements have matured during the last ten years with the willing assistance of the ATO (Australian Taxation Office). Why the Australian treasurer continues to prosecute the case for an untargeted corporate tax reform agenda given that the last effort produced zero results, continues to stun the punters. Surely, a smart tax package with a targeted micro-economic reform agenda would make a lot more sense.

South Australia, the ACT and Tasmania are well on the way to becoming 100% renewable by 2050. Significant wholesale price stabilization will come into effect with new grid embedded storage construction leveraging lower retail electricity prices by 2030. New South Wales and Victorian state energy policy settings appear to be marching towards a substantial renewable energy transformation with some grid embedded storage. Advice on coherent demand side policy options that would drastically reduce retail energy prices and infuse much needed wholesale market competition are blowing in the wind.

This leaves the rouge state of Queensland. No one is certain whether there is something in the northern waters that consistently drives state energy policy to excessive and unrepentant consumer filching and unrealistic fossil fuel mania. Perhaps this irrational behaviour is a hangover from the Joh Bjelke-Pertsen’s era. Those who have had dealings with some of the senior public servants doubt that the peculiarities of the state bureaucracy demonstrate any capacity for lateral thinking. Then again, I seem to have experienced the same myopic and self-serving stupidity in most Australian state public service venues during the last ten years. Perhaps it is my passionate approach to German demand side energy diplomacy! Perhaps it is my low tolerance for corruption, bullshit and the self-serving sycophants who run these government departments! It makes no difference to the basic premise that the NEG will have absolutely no impact on the reliability of flexible energy generation, or the capacity of transmission and distribution assets to withstand maintenance outages, bush fires and storm damage. All we have is Mr. Turnbull’s silky smooth assurance that the ‘ESB’; our smartest energy experts, are on the job and working on the best solution the federal government can hope for. For me, trust needs to be earned. To be honest with you, I don’t trust any of these dodgy buggers.

Is the ESB some type of Stalinist command economy joke?

The ESB! Wow! Sounds like something from a 007 movie! Do these super smart beings come with their own uniforms? Maybe the Dutton plan can include something chic. I like the red Star Trek jumpsuits.

Irrespective of Mr. Turnbull’s glittering report card for the incompetent lot that has been running Australia’s energy Quango’s on behalf of the cartel, the political reality is far more basic. In times of policy confusion and political chaos the practice of every Australian state and federal government has always been to create another semi-autonomous department and charge the unelected grey ghosts with the responsibility of burying uncomfortable truths deep under a public service rug of colourful marketing hype and bullshit. We have a public service code of conduct. We don’t have a specific public charter for the energy Quango’s that requires adherence to the highest standards of social and corporate responsibility. Consumed by process and itemized tasks these people have no obligations for the welfare of the Australian community and the overall health of the economy. This also includes the individual decisions and choices these people make during the course of their work and the downstream consequences that may result. There is no charter for any of the energy Quango’s to serve the national energy security interest and make decisions for the economic benefit of the nation. We just assume that these people come with the moral and ethical stuff to do the right thing by the rest of us. That’s probably why we are all so bitterly disappointed and disillusioned with the Australian political process.

Without any accountability to the Australian people these bureaucrats come fully operational without a public charter that defines their responsibilities to the community. Well, not quite! In the case of the ‘ESB’ we are fully aware that its responsibilities are to the energy cartel it is charged with managing under an as yet undisclosed service agreement. Do you trust them?  We are already witnessing a raft of stupid ideas dribbling out of the mouths of these ‘ESB’ members. You might remember the recommendation to increase administrative charges by a 10% annual minimum in order to cover expenditure for poles and wires. How about the need for a half hourly $0.001 smart meter service charge buried deep in your daily electricity network connection fee? Yep! You probably didn’t know that smart meters are four times more expensive to run and manage then the old guy who used to come around and read your meter every 3 month. Here are a couple of new ideas from these super brain energy heroes running around in their new ‘ESB’ Star Trek uniforms.

  • Let’s vary the voltage by 3% so the energy companies can save money.

I don’t know whether you have read the warranty agreement on some of the electrical devices you have bought. Every one of them includes words to the effect: ‘Frequent voltage variation due to unreliable electricity supplies /electricity supply faults, may result in your device operating unpredictably. Unreliable electricity supplies may reduce the normal operating life of your device by half. In severe circumstances your device or some of its constituent parts may fail. The company takes no responsibility etc…..’ In short, the electricity distribution companies who have been experimenting with a voltage reduction strategy for the last 12 – 18 month have effectively voided every warranty for every electrical device you own. Can anyone tell me what happens when your house burns down because of a faulty device caused by the distributor stuffing around with the voltage to your property?

  • How about the other great idea of paying people to turn off their appliances?

This demand management idea is straight out of the US. I presume that people with medical conditions are excluded from this brain wave for now. As a demand response management tool this silly idea will only work if consumers actually adhere to their voluntary decision to curb demand during peak periods. This makes voluntary demand reduction not only unreliable but an utterly useless management tool because supply will still have to be forward contracted from some kind of capacity reserve. A far more useful tool for consumer participation in the market is a system where consumers can actually see the real price of energy at any given moment in time. I am not suggesting that consumers sit in front of their computers and monitor the energy market. I am suggesting that large pools of aggregated response resources are arranged in smart-grids and Blockchain systems combined with energy storage to provide low cost bi-directional flexibility. Let the smart-grid manage localized energy generation and storage distribution as well as excess energy sales into the wider grid automatically. This will eliminate forecasting uncertainty and deliver an integrated grid management response solution for wind and solar farm resources at significantly lower cost with greater network reliability. You definitely won’t need ‘Hele’ coal technology some of the LNP nutbags want the taxpayer to fund. You also won’t need a fair chunk of these ‘ESB’ people as we replace them with intelligent energy demand management software over time.

Transitioning the Cartel

In a mature energy market controlled by a small number of vertically integrated cartel players competition policy is a tuff ask. This is especially true in Australia where everything always seems to happen backwards. There are a few reasons for this. Much of the historically and culturally embedded stupidity is related to a British convict legacy. Let’s not talk about Brexit for now. British deaf dumb and blind is a story for another day.

Large vertically integrated generators with their own transmission, distribution and retail assets will always favour minimum market rule intrusion and a traditional forward capacity mechanism. It is only in this sense that we can interpret the NEG coal fired generation asset elevation to the status of priceless National Treasures. This is no doubt an elegant accounting solution to a tricky investment problem. In truth, there has never been a problem with investment in new renewable energy capacity when the states have tendered for projects. What has always been the problem is the lack of policy direction that will facilitate decarbonisation and a responsible renewable energy transition whilst maintaining a reliable, affordable and flexible national energy network. Knowing what to invest in has been the problem during the last ten years of political paralysis. Allowing the large generators and vertically integrated cartel interests to run the energy market at their leisure has been a bigger problem for the last ten years. This is the negligence and utter stupidity we are confronting today.

No ETS, CET, ARENA, CEFC or fixed carbon price transition mechanism can resolve a fundamental lack of clear bi-partisan political leadership in this regard. It doesn’t matter that we have argued for a responsible grid embedded energy storage plan for the last ten years. I think this message has finally been received by the political elite. It doesn’t matter that we advised against the ETS and a temporary fixed carbon price because Australia was not ready for it. Australia has always needed clear wholesale and retail market rules that would protect consumers and infuse much needed market competition first. Australia has always needed a demand side aggregate resource response policy to balance centralized capacity supply market manipulation, gaming and ring fencing by the large generators. I don’t know if that message has finally been understood by everyone in the political and bureaucratic elite. If the next COAG energy summit doesn’t demonstrate that this understanding Australia will most certainly deserve its status as a banana republic.

If the NEG is a political re-boot designed to buy time for a government in disarray and haemorrhaging in electoral crisis, then we still have to ask ourselves, where is the policy? Where is the 5 minute settlement rule? Where is the multi-tranche bidding process? Where is the demand management aggregated response resource policy? We are still waiting Mr. Turnbull. Your time is running out. Perhaps we should consider a policy reboot that would suit our federal treasurer Mr. Morrison before we tackle the more thorny issues of market regulation and competition rules?

How about a Company Tax cut with an Energy Policy twist?

Let’s assume that the Turnbull government will want to take a corporate tax cut to the next election. Let’s assume that Mr. Morrison wants a highly targeted and effective tax policy that will deliver real jobs and real growth. Mr Morrison has plenty of experience with tailored tax reform. He also knows from the last round of company tax cuts that a dumb sledge hammer approach delivers no measurable economic benefit.

For this reason I will assume that the Turnbull government will commit to a policy that will reduce unemployment to 3% and increase economic growth above 3% by 2020. The genius behind aligning a surgically targeted company tax cut with an anti-pollution and decarbonisation policy will make Mr. Morrison the envy of every economist in the Asia Pacific, Africa and throughout Latin America.

Let’s call this policy a targeted Green Bond sliding scale tax dividend investment initiative, ‘GBSDI’. We can also call it Power UP Australia, ‘PUA’ or anything else you like.

Let us assume:

Four types of Green Investment Bonds:

  • A built environment infrastructure bond for Urban and Regional cities and towns;
  • A managed environment bond for farming, land, water, forestry and oceans;
  • A transport and communications infrastructure bond and;
  • An industry bond that includes all mining and heavy industry;

A 20% pollution reduction target covering decarbonisation, waste management and all types of human activity caused environmental degradation. This 20% reduction target is set in line with:

  • Australia’s international  emission obligations;
  • The overall 100% reduction target agreed to by all stakeholders by ‘Year X’ (e.g. 2050);
  • The 20% pollution/ carbon reduction target is a one fifth increment of the agreed final ‘Year X’ carbon/ pollution reduction plan and equal to the Green Bond maturation period for each 20% increment;
  • The fixed bond maturation period for each 20% pollution / carbon reduction increment is approved by the Australian Tax Office and ARENA for project implementation.

How does it work?

Tax dividends are assigned to each project on the basis of a sliding scale. The sliding points scale is defined by a set of project criteria that score the intrinsic net worth of the project to the community and the economy as a whole. In the energy sector ‘Avoided’ cost of transmission and distribution as well as grid embedded storage and renewable energy generation attract a high score. E.g. A flat 15% corporate tax rate for the duration of the project. If the project integrates localized pooled smart-grid Blockchain operations with rooftop solar and customer storage the same project might attract a flat 12% corporate tax rate for the duration of the project. ( Please note: These examples are for demonstration purpose only)

Example 1:

A demand management aggregated response resource demonstrating localized community self-generation with localized energy storage fully integrated with wind and solar farms would attract a very high tax dividend. (E.g. 12 cents in the dollar) Why? The localized integrated smart-grid and Blockchain solution delivers substantial transmission and centralized coal fired power generation cost savings to the consumer and the taxpayer. It also delivers community health benefits whilst providing essential energy market competition. For this reason a tax rate of e.g. 12 cents in the dollar may not be unreasonable.

Example 2:

This example follows our campaign in India. I am glad to see that an Indian steel mill owner has brought it back home to Australia. Let’s ScoMo-nize it with a tax dividend add on.

A steel manufacturing company proposing to reduce its reliance on external electricity supply provides its own localized self-generation and storage capacity. Grid integration service addition and seaweed growth tanks feeding on steel furnace carbon fumes would also qualify for the lowest tax threshold under this scheme.

In both cases the low tax threshold is available for the approved project to attract large institutional investors.

All Green Bonds are assigned to the approved project and are not transferable between projects even if a company decides to apply for a 40% reduction in the same time frame. There is no reason to disallow greater investment and faster decarbonisation as long as the ATO approves the low tax rate for both project components and any combination of leveraging projects for the maturation period of the Bond.

Example 3

A centralized coal, nuclear, gas power station without storage or a wind or solar farm without storage may only qualify for a tax rate of e.g. 25 cents in the dollar because the project does not avoid transmission costs nor leverage grid embedded storage or localized customer based storage options in the project design. In short, poorly integrated and dumb design will not attract maximum tax advantages.

Conclusion

A smart corporate tax plan can easily integrate into a responsible decarbonisation and renewable energy transition policy. It can operate independently of any wholesale and retail energy market reform whilst turbo charging both the Australian economy and the decarbonisation of it. This proposal addresses Australia’s low growth and high unemployment issues. It also addresses the problem of Australia’s uneven economic development by delivering targeted corporate tax relief where it can make a measurable difference. This tax dividend and Green Bond development option can easily be applied to any emerging economy in the Asia Pacific.

If lower corporate taxes are on your horizon Mr. Morrison, then why not make your tax package a surgical micro-economic reform instrument that delivers real benefits to the Australian economy. The design of a responsible, resilient and affordable energy system can begin with a Green Bond tax dividend mechanism that lowers corporate taxes in a targeted manner. You might find that a good tax design can eliminate a lot of really stupid ideas later.

Does Australia need a forward capacity market?

This report by Australia’s Cyber Dream Time and Thought Monitoring Agency (ACDMA) is classified above Top Secret!

Authorization: Alpha, Zulu, Lucy

Classification: Random white fella dream time story recording

Purpose: To monitor thought manipulation by foreign agencies and subversive individuals intent on damaging Australia’s national security.

Security Alias Protocol: Spoof

Dream Time Subject: Malcom Turnbull, PM

Dream Time Scan: 2 am – 3 am EST

In a previous article I hinted that the Turnbull government would not go ahead with the implementation of a CET (Clean Energy Target) or even an ETS. This anticipated outcome was predicated on the assumption that there is little appetite for a clean energy subsidy scheme supporting Australia’s energy cartel. Then another obtuse idea thundered through the corridors of power from the opsimath of public persuasion squatting in the bureaucratic recesses of panopticism. Let’s persuade Australian consumers to agree to an agnostic energy technology subsidy for the benefit of Australia’s energy cartel. The gods of thunder and lightning could be forgiven for misunderstanding the true intent from the Abbott of wrath and retribution. Claims of sabotage and even disloyalty have hounded the broad church as its hall of mirrors collapsed into chards of indecision and vailed acrimony. Amidst this pantomime nearly everyone forgot the one question few have dared to ask. How does a political marketing gimmick birthed by the peon of energy policy stack up against the weight of national interest and national security? Hang on! Wait a minute here! Do we need someone in a uniform to stand around in the background before we can answer this? Perhaps this is not even the right question to ask in Australia’s current political climate. Maybe a more appropriate question to ask is this. How does a political party nurtured on free market ideals reconcile its moral and ethical obligations to the nation whilst engaged in the self-interested pursuit of power for the benefit of a convenience deal?

Everyone agrees that Australia urgently needs a national energy framework that outlines a coherent national energy market master plan. What is perhaps less clear are the discussions around what a national Clean Energy mechanism looks like in a poorly regulated market controlled by less than a dozen companies protected by state self-interest. At the political level Australia’s free market emperor remains hidden behind the security fence that surrounds his Canberra castle at ‘Mole Hill’. In this obvious predicament, this ‘Top Cat in a Top Hat’, has chosen to be more concerned about asking his tailor to market his conservative brand of clothing and apparel wear, instead of tackling the fundamental contradictions that govern the rules of a broken energy cartel market. During this apparent confusion the robber stoats and their henchmen are lying prostrate in front of the security fence surrounding ‘Mole Hill’ praying for leadership. These guys actually want greater regulatory control in the national interest! The cynicism of those who understand the stakes of this enormous game of chicken played out on the national stage knows no boundaries. Few could have predicted that emperor ‘Top Cat’ is now actively pursuing his own political survival as the robber stoats eye the gold in the treasury under his hill. A few months ago the smiling confidence of the emperor promised a national energy blue print. A new suit of clothes fit for a new age conservative who is both a queen’s man and a staunch republican. The appointment of professor ‘Underhill’ emerged as a critical mission in the education of a struggling seething Canberra mass in their quest to understand how individual state owned enterprises morphed into a privatized cartel operated for the express benefit of the bothers ‘OFI’ (Overseas financial interests) and ‘Sloth’ ( Government sanctioned siphoning of Australian tax dollars into legal overseas tax heavens). How such a transition is explained within the ideological precepts of a conservative political party wedded to the free market remains a conundrum the ‘Cat in the Top Hat’ has so far failed to explain.

It is an irony that has not escaped the robber stoats. Sending their loyal servant AEMO of NEM to do battle with the power hungry overlord of AEMC in the den of royal penance was a sign of true genius. To the administrators of panopticism it was a clear message about who intends to be in charge. Naturally the soothing crooning harmony for a better world had the emperor’s tailors and royal attendants crowing in delirious bliss. The announcement that all interested parties and  robber stoats associates would welcome Australia’s gas addiction, if they are allowed to design and control a forward capacity market mechanism for the benefit of national energy security and affordability, was almost a side line medley. After all, the NEM was created as an artificial wholesale and retail market from a privatized state owned monopoly under specific contractual agreements to absolve the states of ‘Tedium’ from any ownership responsibilities of their people’s assets. No responsibility and all the benefit has been the creed of ‘Friedmanites’ pursuing the blood oath of monetarism since the dawn of time. The fact that state and federal jurisdictions ignored the regulatory environment of these artificially created markets cannot be blamed on the cartel of stoats managing these assets for the express benefit of the states who are ultimately liable for the provision of reliable, secure and affordable energy for their own regional economies under their jurisdiction. Plausible deniability was a contractual commitment agreed to by all parties and guaranteed in some cases for the next 99 years or more. State governments have long benefited from favourable tax, royalty and related administrative arrangements in return for unfettered interference in the daily operation of a business dependent on continued taxpayer support. In this business discrete administrative fees and charges, for auxiliary services as well as other related undisclosed service payments, are important traditions in a brown paper bag system of finance. As such, it is entirely conceivable that a trade-off for greater market intervention and industry transparency should entail a subsidy of perhaps $60 per MWh in an effort to maintain the competitive integrity of an Australian energy market in transition.

There is little doubt that the nature of this absurdity has not escaped the emperor in the ‘Top Hat’. For those of us with a longer political memory then the goldfish under the hill, the epic sagas of the countries of the West, North and the Queen’s wood are lore of legend and awe. Resource export trade deals remain a permanent reminder of the ethical and moral fibre that characterizes the true nature of the servants under the hill. No one can claim particular pride in the royalties for regions epic, or the international laughing stock concocted by the administrators of the West Australian capacity market model. Even though the current iteration of this concoction deserves another year of observation, there is little doubt that the debt laden legacy of a morally bankrupt Western Australian LNP government leaves little to be admired. In stoic reflection of their cousin in the West, the greedy administrators of the Northern Territory and Queensland have little to be proud of either. Few would question the prevailing winds of self-interest that howl around the stench of the Northern Development Corporation and the Adani Carmichael mine. Those with better memories then most wince over the organized resource theft of Timor-Leste by the Howard government. No realist is under any illusions about the motivations behind the government commanded by the emperor in the ‘Top Hat’. The enormous game of chicken playing out on the national stage between the robber stoats and the peons of panopticism has always been about favours owed and favours earned. The mug in the middle simply pays the bills as the straw man theorists compete for the rich waters of the billabong the rest of us need to parch our thirst. We can take little comfort from the lessons we should have learnt from the Texas energy regulator or the various European capacity market model iterations. Australia’s political establishment will continue to hammer out its ideological irrelevancies in a disgusting competitive pissing contest regardless.

So what is the answer? Some kind of weird religiously inspired technological agnosticism? In a stroke of pure ‘Bright Spark’ the emperor charged his tailor with the quest for the perfect suit of clothing. This ‘Top Cat’ is no hollow man vainly trying to tap dance to an outdated conservative ideology. No way; old man! In a particularly humorous twist the emperor of swing caught sight of the tailor ‘ScoMo’ who enterprisingly advertised himself as the best in town. With the silk sold for trinkets and the waters of the billabong used for dying cloth contaminated with flies and maggots; tailor ‘ScoMo’ set about convincing the emperor that he could spin cloth so sheer it would make him glow like twin rainbows over the plains of plenty. In the mean time! The rest of the LNP hierarchy realized that the ideological hallmark of its founders had no place in a market owned and controlled by the cartel they had created. So they set about rebranding the true conservative vision as the enemy of treacherous security threats hatched by radical right wing economists and their left wing LGBIT followers. How could this fake news have happened? The LNP and every institution of the nation has slavishly served the same agenda for so long that this level of betrayal must have seemed like discovering that god has always been a transvestite. What a bitter pill to swallow! Oblivious to this crisis of faith and the carnage on the floor of the house of penance, ‘ScoMo’ the tailor, continued spinning the emperor’s new suit. Scheming in his swimwear, the Abbott of agnosticism called for a return to the religious roots of conservative values in true self-serving fashion. These are values the high lords from the minor kingdoms of Oz cherish in their own way as they rushed to congratulate professor ‘Underhill’ for his earnest efforts to unite the tribes. One was not amused when the emperor regaled the world in his new suit! Amidst the merriment, the high lords of Oz declared their undying commitment to serve the gas addictions of the people of the East in return for much gold, tax concessions and federally funded gas pipelines.

No one should be more agnostic to the fervour of the contradictions inherent in the LNP diatribe then the burghers suffering these daily brain farts. What is at issue and what has always been at the core of the national energy crisis is the lack of specific focus on a national energy market regulatory framework. To this end we can all agree with AEMO the loyal servant of NEM acting in the name of the cartel.  I have long maintained that the ordered implementation of a national market regulatory compliance, standards and market rule enforcement mechanism is a precursor to a flexible, competitive and low cost energy transition market that maximizes system resilience within a responsibly planned investment environment. Whether these objectives eventually create a CET (Clean Energy Target mechanism), an ETS (Emissions Trading System), a forward capacity market subsidy system, or all of the above, is not even an issue until we have designed a viable and fully transparent market regulatory framework. This is not a question of engineering but entirely a question of market transparency, market competition and stakeholder compliance and market rule enforcement. Fixing the energy market regulatory framework is a mandatory requirement for a national energy market master plan. I will go as far as to say that Australia cannot have one without the other. This is true irrespective of the political twists and turns executed at both state and federal level of government. We cannot escape the need to fix Australia’s broken energy market regulatory framework first. Even the stoats lying prostrate at the gates of mole hill know with certainty and with a glint in their eye; that the doors to the castle treasury must eventually open. It was not their fault that the lords of the land had given away their silk and the gold under their lands whilst draining the sacred billabongs of their forefathers in exchange for worthless beads and trinkets.

What if there is a third way? A way that goes ‘Beyond’ forward capacity markets! A way that integrates better market rules and a clean energy target with the LNP religion of technological agnosticism left intact for the true believers! What does this new way look like?

It starts with taking responsibility for the duties of governance instead of outsourcing them to a marketing company. It begins with some basic honesty. The Australian people have a right to know who has got their hands in their pockets and for how much. Malcom, mate! Wake up from your dream time delirium! Buddy, we need you to make some decisions right here and now!

No business let alone a government can afford to be indifferent to its future strategic direction. The purpose of any responsible management team is to chart the future profitability and long term sustainability of the business. The objective is to minimize costs and to pick winners. No rational business leader, let alone a national political leader, can claim ambivalence in relation to the necessary governance matters including the strategic business decisions relevant to the future profitability of the business. This is especially true when both the nature and meaning of technological agnosticism, let alone the levels of energy affordability and reliability, remain undefined within the context of a national energy security framework. At a serious strategic policy level we must ask what the precise definitions of energy affordability and reliability are to the Australian consumer. So far the Turnbull government has not delivered a clear definition. What has been stated categorically is that Australian consumers are unlikely to enjoy neither affordability nor reliability in the foreseeable future unless we accept energy technology agnosticism as a policy option. To any punter engaged in charting the progress of national productivity, employment and growth, this absurdity is little comfort going forward. It is also a self-reinforcing circular argument containing several assumptions and undefined assertions that have never been tested against any serious factual analysis. It is a rank populist argument that calls for faith in a government gambling its managerial credentials on a critical national infrastructure issue at the expense of a key national productivity input.

So far we have witnessed announcements for major hydro storage as well as ongoing negotiations to secure a short term gas reserve. We have witnessed state based initiatives in the development of battery storage and auctions for new wind and solar farms. The recent discussion over an AGL owned NSW coal fired power station indicate that technological agnosticism is not a consideration in the Turnbull government’s approach to fixing Australia’s energy crisis.  A creeping sense of desperation and the inability to find agreement between the various stakeholder groups is. This sense of desperation is clearly at odds with the religious fanaticism that is characterized by the hard right of the LNP. These people are steadfastly advocating the virtues of a cartel operated centralized energy capacity market owned by the brothers ‘OFI’ and ‘SLOTH’. How a political party committed to the principles of free market competition is able to reconcile these apparent ideological differences in its own conservative platform is a pantomime of breath taking scope and exceptional oral gymnastics. Is the Turnbull government committed to increased energy market competition and improved energy affordability and reliability; or is the Turnbull government committed to subsidizing the existing energy cartel? No one seems to know! Those who are clearly in the dark about any of this are the loyal members of the LNP stalwart who don’t seem to be able to grasp the inherent contradictions between these publically stated positions and the conservative values they claim to hold dear to their bleeding hearts.

The conundrum is that old centralized coal fired power stations supplying baseload power are neither viable, reliable nor affordable in an energy market transitioning to DER ( distributed energy resources ). Australian renewables are experiencing a rapidly decreasing marginal cost curve comparable to the rest of the world. With a CONE ( cost of new entry ) value for new coal hovering at $200 and gas cycle power stations between $110-$150, the very notion that Australia’s energy affordability crisis can be avoided by a series of piece meal measures designed to manage transition via a short term gas forward capacity market supported by a regime of managed coal plant closures is nonsense. Even if we consider a $60 per MWh forward capacity market subsidy for all existing and new generators, the cost of new gas exploration, including unconventional gas supplies, will increase the burden on an already out of control national budget. It will not provide any assurance for lower energy prices nor increased capacity supply reliability. Existing gas power station costs hover at $94 with imminent increases forecast for new exploration. The members of Australia’s gas cartel are fully aware of this because the easy access reserves are almost depleted. For this reason Mr. Turnbull’s repeated efforts to bully the states into releasing new exploration licenses is both perplexing and confusing. Why would anyone claim that opening new exploration leases will somehow result in lower energy prices and greater energy reliability when the exploration costs and forward export contract deferment costs would make both propositions unlikely?

Negotiating a temporary export moratorium to increase national gas reserves for domestic use can hardly be described as a major policy success when the cost of this short term forward capacity reserve has not yet been revealed to the Australian consumer. Everyone presumes that this cost is calculated at the current international export price. No one knows what the dollar value for contract default, legal and other costs relating to the voided export gas contracts now reserved for the domestic market actually is. Unless the government can somehow contract the import of cheap overseas gas for the domestic market we can safely say that non-subsidized gas has priced itself out of the Australian energy market in this renewable transition phase.

This forecast does not help heavy energy users and those industries who gambled their profitability on shifting their energy reliance towards gas. It does make it clear that the AEMO proposal for a forward capacity market with a 10-15% 6 month capacity reserve under a day ahead bidding system bolted onto the existing energy only market is likely to be a very costly subsidy scheme. A cost effective alternative to a flat rate undifferentiated capacity market subsidy scheme is a variable rate targeted scheme punctuated by bi-annual capacity supply auctions contracting guaranteed peak load supply. Australia’s energy capacity supply problem is not a baseload power issue. Australia’s energy capacity supply crisis is a peak load net demand shortfall exasperated by asset retirement and insufficient generation flexibility to address that shortfall. This suggests that a properly designed targeted capacity market can contain an embedded clean energy transition mechanism without compromising the Turnbull government’s commitment to technological agnosticism. We are witnessing considerable religious tolerance by the LNP government towards long term large scale hydro storage. The combined cost of both solar and wind farms plus storage is currently on a decreasing marginal cost trajectory of approximately $80 per MWh. A national energy storage mandate for all existing and future solar and wind farms might be a very bankable alternative if it was agreed at the next COAG energy summit. Not only would such a national policy address generation flexibility, grid stability and energy reliability under long term cost efficiency gains, it would also offer attractive auxiliary market returns. The assumption is that traditional financial leakages in the form of administrative and auxiliary service payments are retained by the energy cartel operators in the short term, in return for the following agreements:

  • That new market players specifically focusing on customer and grid embedded storage and self-generation are allowed to operate behind the meter as a block chain customer focused
  • That all customer focused block chain systems are allowed to enter into forward supply  supplement agreements with suppliers of renewable energy under fixed price transmission  and distribution agreements between 12 midnight and 6 am.
  • That all customer lead block chain systems are allowed to export and import any excess energy, or supplement any local supply shortages through local distribution and                       transmission networks at a fixed price set by a national energy pricing commission.
  • That reviews of national transmission and distribution prices are fixed by the commission subject to regular evidence based reviews required under formal submission by stakeholders
  • That regular bi-annual auctions are to be held for forecast supply capacity shortfalls three years in advance of the expected shortfall.
  • That an independent energy authority regularly report on anticipated supply capacity shortfalls for each state and territory for up to ten years in advance.
  • That medium and long term energy capacity supply shortfalls are expected under normal market conditions and that this does not by itself warrant unreasonable panic, political                rashness, nor policy stupidity.

No one is interested in suffering the indignity of the ‘Cat in a Top Hat’ parading before the world in a rainbow coloured birthday suit. No one is interested in the game of chicken Canberra wants to play with the cartel bosses. Let’s call the bluff! Let’s implement a highly targeted forward capacity market with a reducing marginal cost curve below average gas operating cost rates and we shall see the robber stoats fall in line. We might just get greater competition and a more transparent consumer focused energy market in the bargain. What do you think?

Please Note:

Development Bank members reading this in the context of ‘Active’ renewable energy loans for the Asia Pacific and beyond should be aware. Current project planning and risk assessment that includes gas generators must be urgently re-evaluated. This covers all active ADB and Australian supported DFAT projects in the Pacific, Indonesia etc. The CONE value of these projects will demand ongoing subsidies of between $57-$65 per MWh making loan repayment and local consumer energy affordability (per population density equation) high risk.

Designing a National Clean Energy Master Plan

Every development professional knows the ‘Universal Development Matrix’. This is true whether you are working in the field of integrated ‘E-WASH-E P’ (Energy, Water, Sanitation, Health, Education & Poverty reduction) or advising governments on ‘FAC & LGD’ (Forestry, Agri-business, Aquaculture, Coastal & Land remediation and Demographic sustainability solutions). The application of the ‘Universal Development Matrix’ always conforms to the desired government, community and business project outcomes relevant to the socio-cultural, ethnic and economic context of the project analysis. As a methodological framework this is true, irrespective of whether you are empowering women, addressing child trafficking, designing green liveable cities or fighting corruption. I am certain that the world would be a better place if the ‘Universal Development Matrix’ became a pre-requisite knowledge tool for politicians, bureaucrats and business leaders. ( See Figure 1)

Development-Map

The ‘Universal Development Matrix is relevant to developing and developed nation. It can be readily deployed to address a range of local community, national and business project development targets and issues. It is highly relevant in the design, development and deployment of Australia’s National Clean Energy Master Plan.

 

Finkel’s Time of Future Past

The ‘Finkel Review’ published in 2017 advocated a technology neutral CET (Clean Energy Target) mechanism. On balance, this statement is nonsense! It is nonsense because any renewable energy target requires the setting of basic industry and market rules. These rules must describe the following in some detail:

  • The CET must be cheaper than any none renewable generation option.
  • The CET generation option mix must be acceptable to the electorate, e.g. not nuclear if the electorate does not agree to a nuclear option.
  • The CET is always a 100% renewable energy target achievable in a defined and agreed time frame.
  • The CET is always a 100% renewable energy generation protocol under an agreed fixed price energy transmission and distribution capacity supply reliability guarantee.
  • The CET is always a 100% renewable energy generation protocol that will not increase a nation’s international emission obligations during the transition phase.
  • The CET is always a 100% renewable energy generation protocol that will not cause hardship to any citizen irrespective of the mix of energy generation chosen.
  • The CET does not favour any stakeholder or allow the manipulation of energy market mechanisms to promote anti-competitive behaviour and entrench cartel control of the market in part or its entirety.
  • The CET has a strong and independent regulatory framework that includes an Electricity Pricing Commission that save guards the market from arbitrary price increase, ambit claims, hidden fees and pass through charges.

The responsible design of any CEC (Clean Energy Credit) mechanism within a time specific CET ( Clean Energy Target) framework requires the articulation of a defined set of policy priorities. These policy priorities are defined in a ‘National Energy Master Plan Development Framework’. The ‘National Energy Master Plan’ clearly describes energy supply and demand constraints. The inclusion of governance matters relevant to market regulatory, compliance, standards and enforcement are always a necessary precursor to the development of a workable ‘National Energy Master Plan’. The job of the ‘Finkel Review’ was always to educate Australia’s politicians, its public servants and the media. It was in political terms, an attempt to reset a hysterical national political debate going nowhere and running out of time and options. Avoiding the prospect of political irrelevance is no longer an option for a federal government afraid of demonstrating its commitment to political leadership. This boat left the harbour a long time ago! With 49 out of 50 ‘Finkel Review’ recommendations adopted, pushing the CET and CEC $ value debate to the year 2020 is not doing Australia’s international climate credentials any favours.

What the ‘Finkel Review’ neglected to tell us is that the current wholesale energy price including the fossil fuel subsidy program puts an effective price on carbon above $55 per ton. The Chief Scientist failed to point out that Australia is paying a very high price for allowing the gas market to set the electricity spot price. The emergency use of gas fired power stations in the NEM (National Electricity Market) is less than 30 days per year. So the claim that Australia needs to drill new wells for conventional and unconventional gas is at best misleading. A survey of national gas reserves earmarked for energy generation predict an average shortage of 1 day per year. This is significantly less than the crisis scenario presented by the industry to hysterical politicians and paranoid punters. In terms of the national clean energy roadmap 2050, the consensus is that the domestic gas sector has effectively priced itself out of the market. The industry should really focus on consolidating its export markets. North African competition and the emergence of the Indian gas market by 2030 will put significant pressure on international gas prices and Australian market influence.

The argument that the CET must be technology neutral is one of those dumb political statements that really should be shoved where it belongs. At best we could justify the political dumbness as an olive branch to the LNP right wing extremists. At worst it is a confused utterance that ignores price realities with a warped idea of risk management and the dreams of another time and place. A good design uses the most price competitive and best technology of the time. A great design adjusts to future technologies without any changes to the original design. All Australians are well aware of the NBN farce. It is not what I call a great design or indeed a rational project management outcome. Knowing how incompetent government is in the area of managing large scale complex technology based projects we have to ask ourselves a simple question. Should anyone trust our politicians to design, manage and build a ’21st Century Clean Energy System’ without reference to the best practice universal development methodology, engineering and governance standards? In my opinion, no!

Filling the Leadership Vacuum

If you run the numbers on the CET the LNP is prepared to accept under the Paris accord and the target the state and federal labour party are promising there is very little difference. Whether we are talking about a RET or a CET makes no difference. In both cases the target is 100%. There has always been only one 100% target. The difference is whether we get there by 2050, 2065 or 2070. Assuming we start in 2020 the effective target is 20% every five to seven years. This is irrespective of whether you believe the LNP, Labour or the Greens . Australia has to reduce its emissions by 20% every five to seven years from 2020 to meet its international obligations and raise its national productivity. Doing both of these things at the same time is clearly not in the political innovation vocabulary of the Turnbull government. Reducing emissions by 20% every five to seven years was clearly beyond the ‘Finkel Review’. It doesn’t seem to fit into the jobs and growth agenda because in order to achieve both, the government has to involve itself in a very messy wealth distribution and wide ranging inequality debate. Detailed forensics and inclusive public debate are definitely not something a modern politician wants to engage the electorate in. Mimicry, party tricks and cheap one liners are all the go these days! Someone told me that politicians don’t want us to panic. Oh yeah! Is that why the Turnbull government places no necessary urgency on defining a credible CET and CEC mechanism? After all, the mad monk and his jack boot extremists would have us believe that this is a socialist conspiracy hatched by crazy heathens and homeless LGBTI nut bags intent on bringing back the carbon tax. Since our current energy policy has created an effective carbon price above $55 per ton, any return to a fixed price carbon mechanism will only be as a compliance and enforcement tool. Do we need to worry about any of the old school right wing political hacks testing our patience with their drivel? In a future NZE energy market operating in a NZB consumer driven environment the actual question is, how do we transitioning the Utilities?

NZE-Model-Fig2

Australia is an island of dispersed demographic centres. The majority of us live on or near the coast. The location and distribution of our regional towns and major cities make the entire country absolutely perfect for the implementation of a ‘Just in Time’ DER ( Distributed Energy Resource ) management model. As the energy market moves beyond the dumb shunting of electrons from A to B we are appreciating the integration of a ‘Just in Time’ demand management model within a delayed capacity supply market. This allows us to consider an entirely new energy market that will force existing stakeholders to adapt to new competition conditions. The CET and CEC $ value model suited to Australian conditions incorporates both a NZE (Net Zero Emission) design and a NZB (Net Zero Billing) consumer outcome. This is demonstrated in figure 2. A critical design element is the decision for a CET or similar clean energy transition mechanism. I have already said that irrespective of which party is in government at either state or federal level, the interim target is a combined 20% clean energy generation, energy efficiency and energy storage gain every five to seven years from 2017 – 2020 onwards. This CET is set by Australia’s international obligations and by the commitments both major parties have expressed. These commitments leave very little time for sorting out the design and project management details of ‘How’ this is to be achieved.

As you can see in the NZE model (figure 2), the most effective manner of achieving this mandatory 20% target every five to seven years is the deployment of a closed loop energy management platform. Each urban and rural clean energy development zone is both a net zero emissions zone as well as a net zero billing precinct. Grid embedded energy storage is supplemented by additional storage options for each renewable energy generation zone with localized storage in the closed urban and rural renewable precinct. This maximizes the grid management impact of the FCM (Frequency Control Market) and VCM (Voltage Control Market) in a net zero consumer billing environment, whilst distributing CEC’s throughout the model at the lowest cost. If we add additional storage and localized self-generation into the industry segment identified as the Clean Energy Credit Zone at a 20% level every five to seven years, the entire model would require minimum reliance on gas or coal generation over the projected CET time frame. Thus, allowing the orderly retirement of aging coal plants without the construction of new gas power stations during the transition phase. The progressive quarantining of gas fired power stations in this model will put further downward pressure on the wholesale spot market with no impact on grid stability and energy supply reliability. A key risk management function of the model is the achievement of critical self-generation and storage reliability and the progressive phase out of all fossil fuel subsidies.

A comprehensive national building efficiency, self-generation and storage requirement in addition to the model will impact positively on the capacity demand side of the energy market. Incremental efficiency targets for new and existing buildings of 20% every five to seven years can easily be legislated for all government, commercial and domestic buildings. A similar regime for public transport and all commercial and government fleet vehicles can merry with the plans of car manufacturers to progressively switch to the manufacture of clean emission vehicles. A simple 240 volt white goods and appliances phase out by 2030 and a switch to high efficiency 12 volt devices would side step the current aggregate demand management debate. The impact of behind the meter technology has the Utilities petrified. The only reason Utilities are pushing their right to access behind the meter peer to peer data management technology is because their entire business model is predicated on the privilege of owning consumer energy data. It is this same privilege that underpins the Utility right of charging consumers hidden fees and passing on unspecified charges without having to justify price gauging to a strong and independent Energy Pricing Commission. All these privileges are eliminated as peer to peer data management, customer self-generation, storage and consumer data ownership provide greater competition and market transparency.

NZB

Figure 3 clearly show the inequality in the current energy market. Rooftop solar customers in Australia must generate an additional four daily units ( 4 UFC) of energy to achieve a net zero energy bill without storage.

The Utility proposed aggregated demand management model would provide the Utility with unprecedented access to any smart appliance, including any home automation and energy storage devices. It would also allow the Utility to profit from this activity without any guarantee of a fair return to the consumer. Utility ownership of consumer energy consumption data as well as all self-generation and stored energy data and any functions associated with this data belong to the consumer / prosumer. Without legislation that provides binding protection to consumer/ prosumer energy data from Utilities any CET design will fail. Without national consumer energy data validation and verification requirements that are binding and enforceable on Utilities any CET will fail. Figure 3 shows that consumers are already struggling to gain transparency of existing Utility fees and charges because of Australia’s weak regulatory, consumer protection and privacy laws. There is simply no guarantee that this will change under the Turnbull government. The resolution of this matter is essential before Australia implements a national CET and CEC mechanism.

Whether consumers / prosumers agree to a NET Zero Energy Billing contract in return for 3rd party access to their rooftop solar and battery is an entirely different matter. Most Australians would see little fault with an agreed trade off under a zero privacy intrusion provision with a 100% behind the meter energy data transparency and data ownership guarantee. This is however not the Utility aggregate demand management model recently tabled in Brisbane. A simple piece of legislation that phases out all 240 white goods and appliances and mandates high efficiency 12 volt devices would eliminate the Utilities demand for behind the meter access. It would also sharpen the focus of discussion on consumer rights and privacy. This is the legitimate debate we must have. No one is interested in wasting time on closed door lobbying and dodgy car park dealings designed to hobble outcomes in favour of existing market participants. It is time Minister Frydenberg rolls up his sleeves and draws a line in the sand.  No more claim fencing and pissing on consumer rights. We all want an affordable, reliable and clean 21st century energy system. Here is your model, drawn and illustrated in plain text Mr. Turnbull. There are no more excuses.