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.

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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.

How do we transition Australia’s Energy Utilities?

For many years a quiet revolution has been sweeping across the globe. Individualized and personalized participatory democracy is a powerful driver of institutional and market change. Adding principles of personal motivation and inclusion makes this driver of social and economic change even more potent. With many people affiliating themselves to broad cause and effect issues the voices calling for reform are quietly seeking alternatives. Climate Change solutions that do not include appropriate risk assessment of ‘NATURAL’ and ‘SOCIAL’ capital are increasingly viewed as pandering to entrenched interest groups. This trend is the primary cause of the political, institutional and industrial crisis sweeping entrenched liberalism. Some have attempted to quantify and qualify this trend as a disruption to the business as usual model. Others have used this trend as a rallying cry for reform. In both cases the rhetoric stalls at the questions that ask simply. Where do we begin? How do we proceed and for whom? In all cases this is precisely where these simplistic debates cease to be of relevance. The real question is how do we change our institutions and our global market structures to include demands for individualized goods and services in a world where everyone wants personalized services and participation in decision making processes? These underlying motivations are visible at all levels of contemporary society regardless of race, ethnicity, sex, religion, sect, caste, class, as well as social and economic status. It is also a trend that identifies the basic contradiction in the social contract. How do we value and respect the wishes of the individual in a society organized on ‘Weberian’ principles supporting centralized monopolistic market behavior and principles of governance as the most rational and cost effective way of managing essential services. The issues of wealth distribution and market inclusiveness make the principles of liberalism a questionable precondition for the ethical values that underpin the notion of governance for the ‘Common Good’. The contradictions that all liberals and conservatives of any persuasion have to content with are the principles of fairness that underpin the modern ideals of participatory democracy and inclusive market participation for the benefit of all. There appears to be no obvious contradiction within the ideology of liberalism that some are more equal than others. Just as much as it is acceptable to pontificate the virtues of superior moral and ethical values in the name of and for the exclusive benefit of the good burgher.

The pathetic notions of team contributory ‘value add’ are simply stupid when individuals ask themselves, ‘for the benefit of whom’? Does the value I contribute to society and the   workplace align with my own understanding of the common good and the personal         expectations that reflect my estimation of my own individual worth? Is the economic return for my contribution enough to satisfy my wants, desires and needs, or do I feel alienated from the feast of benefits that are available for the few? These questions may be dismissed as the sociological pessimism of the time. A leftover aberration of the 60’s and 70’s that has come to haunt us in the form of a twisted world view serving the confused. These sad individuals may also be viewed as the new wave of mass psychosis sweeping the globe in ever growing spirals of radical political and social movements articulating extremist intolerance. However these conflicts are represented by established interest groups is beyond the question of mere tolerance of difference and exclusion. They strike at the heart of legitimacy by questioning the ethical and moral obligations of the ruling elite to the people they claim to represent and serve. In Australia this crisis of legitimacy is nowhere better represented then the hiatus that remains over the country’s national energy plan. Crowing about achieving a COAG consensus for the 49 of the 50 ‘Finkel Review’ recommendations can hardly be seen as a moral and political victory by the Turnbull government. Far from it! At best the ‘Finkel Review’ stated in simplistic terms the status quo that has existed for more than two decades as the consequence of a failure in governance. This failure to engage with the core issues has plagued the national energy sector. The subsequent flow on effects throughout the Australian economy continues to stifle national growth and remains a significant drag on national productivity. The responsibility for this national disgrace has to be laid squarely at the feet of all state and federal politicians and political parties both past and present.

The failure by our politicians to accept collective responsibility is perhaps best articulated in the Turnbull government view, that the adoption of the 50th recommendation is best achieved with due consideration for proper planning, mathematics, engineering and economics by 2020. No Mr. Turnbull! The adoption of the 50th recommendation is best achieved by the implementation of governance, planning, and engineering standards in conjunction with market regulatory, compliance and enforcement standards that meet community and industry expectations now. If it is the intention of the Turnbull government to drag out the core design requirements of the CET (Clean Energy Target) and the definition of a CEC (Clean Energy Credit) dollar value, the Turnbull government will stare into the abyss of its own relevance. Some of us would probably welcome this prospect. Others would argue that the nation can ill afford another stalling tactic by a federal government suffering from indecision and internal division.

Since the ‘Finkel Review’ has for now achieved some sense of broad census and perhaps, a limited spirit of collaboration among political parties, we should assume that the proper design of a CET mechanism is within reach sooner rather than later. The Chief Scientist made the point that the design of a CET should not be difficult since it can easily be modelled on the existing RET scheme. This simplistic analogy may be convenient for the consumption of the ignorant masses. It hardly satisfies the savvy Australian punter who has long regarded the RET as a means to preserve and service the bottom line of Energy and Utility cartels. Constructing a CET subsidy scheme along similar lines to the existing RET is clearly not an option for a responsible 21st century energy market system designed to underpin the future growth and productivity objectives of the Australian economy. What is at issue is whether the existing energy market bodies are able to serve the needs of Australia’s 21st century energy market. Since COAG has accepted that Australia’s energy market bodies must be reformed in order to be more responsive to Australia’s future energy market needs, we have to ask ourselves what is the nature of this reform in detail? Is it acceptable that Australia’s future prosperity is held to ransom by the gas cartels? Is it the view of the Turnbull government that gas is no longer a viable transition fuel? What is the future of Australia’s Energy Utility companies and will they continue to exist in their present form? To what extend will the design of the CET incorporate fundamental reforms to the Energy Utility market by encouraging the transition of Energy Utility companies to become responsible service corporations that place the consumer at the heart of the energy equation? Already we are witnessing dramatic changes in the European and US markets. New entrants to the Australian market are offering rooftop solar plus storage installation deals in return for a zero energy bill to consumers under specific usage guidelines calculated over a 10 to 15 period. At least one of the Utility companies is experimenting with a ‘SolarCoin’ crypto currency model. The growing acceptance of both financial models in the domestic and commercial energy space is likely to fundamentally change both the relevance of the existing energy market institutions and the manner in which Utilities relate to their customers.

 What is abundantly clear to anyone familiar with the energy market in Australia and around the world is that renewable energy technologies as well as the financial models that drive the industry are increasingly focused on servicing the customized energy needs of individual consumers. Smart grid / micro-grid equations that used to read rooftop solar plus storage connected block chains managed by Tag-e (Transactional grid elements) between ‘Prosumer’ groups now include ‘SolarCoin’ crypto currency payment systems. Do we need Utilities to manage our energy bills if community groups organized in local renewable energy zones can manage their own billing whilst owning their own billing data? If we add to this equation the desire by individual renewable energy clusters to achieve a closed renewable supply loop ( Net Zero Emissions ) by supplementing their own supply capacity with a direct power purchase agreement from large scale wind/ solar, hydro, wave, geothermal and tidal facilities via grid integrated battery or thermal storage or waste to energy conversion facilities we have to ask:

  • What is the role of gas as a transition fuel in the economy?
  • Has gas already priced itself out of the equation?
  • What is the role of the Energy Utility in this equation?
  • What is the relevance of the existing market institutions (AEMO, AEMC, AER, NEMO, etc) in this DER 21st century national energy market model?
  • How do we facilitate unrestricted market and grid access for 3rd parties to sharpen competition and provide real consumer value?
  • What is the role of state and local government?
  • How do we effectively manage and reform our institutions to facilitate a positive transition of our energy market to reflect the desire of the individual consumer to be the beneficiary of this new reality?
  • How will Australia’s federal and state governments address the need to transition our Energy and Utility cartels so that they act in the service of the national interest, whilst delivering real value to individual consumer?
  • How hard is it to calculate a Clean Energy Credit dollar value when the effective cost of doing nothing for the next two years is the equivalent of a carbon price above $55 per ton?

 These are the core questions at the heart of the CET design. These are the core questions the Turnbull government and all state and federal politicians have to address in a comprehensive and inclusive national debate if Australia wishes to have an affordable and reliable 21st century national energy system. It is a debate that goes to the very heart of liberal values that Mr. Turnbull’s pragmatic centrist vision of liberalism wishes us to believe in. Yet we see no evidence of his commitment to address the values that underpin our earnest desire for the respect we deserve. What we see is the Energy and Utility cartels ring fencing their existing market shares and manipulating market access in collusion with state governments and existing stakeholders. We see no evidence any comprehensive reform agenda because it would require a fundamental intervention in the market. The level and type of market intervention required is contrary to liberal economic dogma. This is the contradiction in Mr. Turnbull’s liberal party that will play out for the remainder of his tenancy. It is also the real reason why there is no urgency for the design of the CET or setting a realistic CEC dollar value. Planning to release the CET as an election manifesto is not proactive politics that places the issues of electricity price affordability, consumer hardship and the state of the national economy front and center. It is a political game to stall for time and perhaps fool the Australian voter into believing that Mr. Turnbull is not quite the ‘Tin Man’ but instead, a gambler playing the Australian people for mugs.

Decoding the Finkel Review for the ‘Common Man’

Following the ‘Finkel Review’ into Australia’s electricity market we are witnessing reviews of a ‘Review’, unsolicited and uninformed opinions, as well as party political and industry motivated brain farts. Let us debunk these first. The ‘Finkel Review’ of the Australian electricity market is a ‘Review’. It was not an Inquiry. The ‘Finkel Review’ is essentially a report card on the current state of the electricity sector. The ‘Finkel Review’ ‘Recommendations’ are a list of market failures that Alan Finkel advises should be addressed if Australia wishes to have:

  • A secure, reliable and affordable energy system for the 21st century
  • A properly functioning and responsive ‘Energy only Market’

The Finkel ‘Review’ documented a variety of governance, regulatory and market mechanism failures. These issues have been long standing; are a function of both state and federal government failures, market body infighting, overlapping responsibilities, incompetence, poor planning and the lack of a national strategic vision. There is simply nothing new about this. For most of us who are even vaguely familiar with the issues, the call for a ‘National Strategic Policy Vision’ followed by a ‘National Energy Framework’ that clearly articulates energy supply priorities for a ‘National Energy Policy’ has been a long standing battle. Despite stating that a ‘Business as usual approach’ is no longer acceptable, the Finkel Review contains several contradictions without offering any real solutions. To be fair, the purpose of a ‘Review’ is to review the current state of play. By definition a review is not a document aimed at delivering solutions beyond the provision of a list of recommendations under the defined terms of reference.

This is precisely what the ‘Finkel Review’ is. The shortcomings of the ‘Finkel Review’ are the assumptions that underpin it and a failure to detail the CET / EIS modelling methodology used. Let’s consider the first of these failures. Finkel clearly worked under very specific political constraints. Even though I consider the notification of a generator closure period to be a reasonable recommendation under a German targeted capacity market model, Finkel rejects the German model in favour of the current ‘Energy only Market’ model operating in Australia. In the same vain the chapter on Australia’s gas market recommends a limited regulatory intervention response with a preferred option of securing new conventional and unconventional gas supplies as critical. With the Howard government ignoring the need for regulating a domestic gas supply, despite Labour calling for it at the time, the subsequent neglect by the Rudd / Gillard years to secure a national gas reserve remains a missed opportunity.

This policy vacuum was identified by overseas and domestic bankers as a risk management strategy against the closure of existing coal fired power stations. As far back as 2012 I discussed this issue with two Bankers who attended one of the conferences I was hosting. Both maintained that their current risk exposure into coal is best served by a transition into gas fired power stations. ( Either new or as a coal to gas conversion) The reasoning was surprisingly simple. The projected domestic gas price increase can be leveraged against international forward contract risk under current state and federal regulatory arrangements. For this reason I must question the Chief Scientist’s reasoning that any future expansion of gas generation in order to meet supply shortages, black start, frequency and voltage system stability with some type of ‘Target Capacity’ supply reserve under an ‘Energy only Market’ model is actually possible? You just can’t have it both ways. You cannot categorically rule out the need for an energy reserve to meet supply shortages, black start, frequency and voltage system stability needs under an ‘Energy only Market’ system whilst advocating it as an urgent recommendation for consideration. This fundamental confusion in the ‘Finkel Review’ may have a lot to do with the terms of reference, the political imperatives and the position the Chief Scientist took on reforming the energy market bodies controlling the NEM. Others factors that might have contributed to the Chief Scientist’s thinking on this matter might have been the Western Australian Review into its capacity market model as well as the ‘Vertigan and Harper Reviews’. Alan Finkel does acknowledge that both the ‘Vertigan and Harper Reviews’ are gathering dust in Canberra. Pretty much like my own ‘Energy Efficiency’ recommendations to the Rudd government that eventually and perhaps bizarrely informed India’s ‘Renewable Energy Policy’ (MNRE). On the flip side, the Western Australian capacity market model has been roundly criticized as the most shambolic and incompetent energy market model anywhere in the world.

Perhaps the other key consideration was the need to balance ‘Transmission and Distribution Network’ costs with the need for an affordable energy price going forward. Even though the Chief Scientist makes some very good points here, the fundamental contradictions remain. If Australia’s future energy system will contain substantial gas fired power stations in order to meet energy demand, supply security, network stability standards and emissions reductions targets, then pegging the future on gas will not reduce the consumer energy price. Alan Finkel acknowledges that current market spot prices as well as future prices in the FCM and VCM markets going forward; are determined by the gas generators. This simply makes a mockery of the idea that we can contain electricity price increases within a reasonable margin when only days after the release of the ‘Finkel Review’ various Utilities in three state jurisdictions announced price increases in multiples higher than the Chief Scientists CET model projects by 2030. The key failure of the ‘Finkel Review’ in this respect is that he did not recommend an Electricity Pricing Commission with the authority to restrain price increases to the CPI and the means to hold proper evidence based market inquires. Australia has a Wage Commission system. Why not an Electricity Price Commission? Is this a function of the AEMC, AEMO, AEMR, or who? Perhaps neglecting the very concept of an Energy Price Commission is partly due to a reluctance to tinker with a failed market model and an ideologically abhorrence to acknowledge government responsibility for this failure. No doubt the omission of such a key recommendation was calculated not to offend the far right of the LNP. It didn’t really make any difference because we were still bombarded by the ‘No Energy Future without Coal’ and the ‘Over my Dead Body’ simpleton positions splashed across the media.

To Alan Finkel’s cedit, he did at least imply in his report that Australia’s energy future could be achieved without excessive reliance on gas and coal. He discussed storage at some length but without any real rigor. We all agree that hydro storage is a good long term opportunity after 2025 when the various options proposed by the Turnbull government are likely to be commissioned. Hydro doesn’t solve the issues facing various state jurisdictions in 2018. Very few options will! Biogas generated from sewage sludge could be implemented relatively quickly and at a relatively low cost. This generation option is not enough to replace a coal fired power station. The best solutions mentioned in passing by the Finkel Review are ‘Renewable Energy Zones’, embedded Mini/Micro/ Smart-grids, Grid embedded storage ( other than hydro) and adding storage to new and existing wind and solar farms. By now you are wondering why you need to read the Finkel Review because it is beginning to sound like my Blog without the acid lampooning of our political elite. Well! Alan Finkel did not go into any details about what he meant by a ‘Renewable Energy Zone’ so let me assume this privilege.

Let’s assume that Victoria’s Regional Towns along the NSW boarder all agree that they wish to become independent grid connected renewable energy zones. In accordance with the local council objective to reach a zero carbon target by 2050, each will implement a strategy of rooftop solar with either an on-premises installed or a zone collective storage hub. These regional renewable zones will be an autonomous DER using TAG-e technology in a block chain connecting each household and small industry customer into the embedded mini/micro/ smart-grid zone. The management authority of each mini/micro/smart-grid will in turn enter a clean energy supply agreement with any of the wind and solar farm operators in the region. There are a few of them. Since all energy markets are ‘Capacity Markets’ this localized supply agreement would form a target capacity market system under the existing ‘Energy only Market’. In essence, a decentralized time base energy dispatch model, to be more accurate. If the wind/solar farm operators agree to install their own storage and the Victorian government approves a third party grid embedded storage solution between the wind/ solar farms and the regional smart-grid ( renewable zones ) we solve:

  • energy supply security,
  • price affordability,
  • black start,
  • FFR under an internationally compliant FCM, VC stability standards model,
  • spot market volatility and market gaming,
  • transmission and distribution grid investment,
  • bushfire and storm risk
  • Future investment in renewable energy capacity as the localized clean energy supply guarantee acts as a default PPA with a known capacity

We can solve all issues identified by the ‘Finkel Review’ and acknowledged as the lowest long term cost solution in the review without bothering to invest excessively in new gas or CCS compliant coal technology. This would solve the problem of over investment and misdirected investment in transmission and distribution lines. It would solve all data collection and forecasting issues. It would even create NZE ( NET Zero Emission ) zones that can earn multiple credits under the ‘Finkel Review’ CET system. It would do all that at the lowest cost to the government and prosumers long term whilst it would send a serious spot price and FCM signal to the Utilities. Unfortunately Alan Finkel did not even bother to model this solution. Offering a sensible solution was clearly outside the terms of reference of a review.

In Conclusion

What new information or great insight did the Finkel Review deliver to the ‘Common Man’s’ understanding of the Australian Energy Market? Not much, really! None of the recommendations can be described as visionary, radical, exceptional or outstanding. On hind sight though! I will reconsider my call to get rid of the Energy Market Quangos and start from scratch. I agree with the Chief Scientist’s view that it would be too expensive and at the cost of lost institutional knowledge would be too great. To be honest! My gut tells me different. Let’s see if the politicians in Canberra actually read the ‘Finkel, Vertigan and Harper Review’ and stop talking nonsense.

Closing Hazelwood is good for the Victorian Latrobe Valley

In my previous article I returned to a now familiar theme. Australian politicians need to allow ‘The Standards’ to define policy. Nothing demonstrates this further then the ‘Energy Efficiency Policy’ outlined last week. The current IEEE standards for high efficiency domestic and commercial white goods and appliances can easily reduce international carbon emissions by half. In Australia’s case, a policy shift towards a 12 volt / low energy and high efficiency white goods and appliance phase out by 2030, can spawn an entirely new manufacturing sector.

Let us now look at why the closure of Hazelwood is good for Victoria and the Latrobe Valley. Once again I will not stray far from the basic theme of ‘Standards’. I will assume that policy makers and experts reading my ‘Saturday Night Brain Dumps’ are sufficiently familiar with IEEE, EU US and UN standards and procedures as well as industry trends to follow the conversation.

Some basic facts:

The previous owner of the Hazelwood coal fired power station was a company called Engie. Prior to closing Hazelwood, Engie announced its intention to concentrate on solar energy. Engie also purchased a controlling stake in a Californian company called Green Charge. Green Charge is a major manufacturer of DER technologies, Controllers, Battery storage and TAG-e technologies for community owned micro-grids / smart-grids. Tag- e devices record transactions in a ‘Blockchain’. Prosumers in a micro-grid are connected to each other.  This is what a block chain connection is. The software controllers negotiate demand and supply between all block chain customers in real time. The software also allows Prosumers to interactively participate in the energy market outside the micro-grid in real time. This is typically done through a mobile app. Transactional behaviour can also be pre-programmed ( set to automatic) using user defined rules based engagement principles.

There are several advantages to DER and Tag-e integrated technology deployment and community micro-grid / smart-grid integration.

  • Both DER and Tag-e technologies minimize the risk of load shedding whilst optimizing renewable integration both at the local as well as the transmission grid level.
  • As Utilities revise their business model they are looking closely at hybrid technologies that lower their own costs and business risks whilst offering scalability in the form of community micro-grid clusters. Recent announcements by AGL, Origin, AusNet and others stand in evidence of this. In fact, AusNet has indicated a $400 million grid upgrade and expansion program for Victoria. (Make a mental note of this!)
  • Unfortunately Australia has a political policy and regulatory framework that fails everyone in the value chain. It particularly fails consumers and prosumers, workers and business owners as they are treated like dumb cash cows. (How about some recognition and some respect for the common man, please!)

I am not certain whether the Victorian government has put these dots together. However, as Engie is grappling with the money it needs to spend on the Hazelwood closure, there is a very clear and present opportunity for the Andrews government to turn the Latrobe Valley into an international energy technology ‘Hot Zone’. What do I mean?

Well! Has anyone wondered what the impact of a series of community owned micro-grids / smart-grids stretching from Moe to Sale will do for the economic, jobs and growth potential of Gippsland? We know the Victorian government is trying to revitalize the region. We also know that we have a lot of manpower with electrical and technical training and experience in Gippsland. In addition, we have 2 energy companies indicating a future business direction and articulating strategic future business plans for their industry.

I am not sure whether anyone at the La Trobe Valley Authority recently sat down and had a good chat with Engie, AusNet and Lily de Ambrosio? However, it seems to me that the stars are aligning in a symphony of opportunities for the La Trobe Valley that we should not ignore. So let’s get Engie, AusNet and the Victorian government to the same table. A series of autonomous community owned smart-grids / micro-grids from Moe to Sale can do a lot for the Victorian manufacturing sector. They can also unlock lucrative export, research and training markets in the Asia Pacific. But hell, why am I telling you guys this? You already know this! Right! That’s why the Victorian government has its ‘Energy policy framework’ and the ‘Future of the La Trobe Valley’ glossy brochures printed and ready for distribution. 🙂

Australia’s Energy Efficiency Policy

The other day I was asked three questions I thought I had answered several times in previous posts. These questions are:

  • What is the role of technological disruptors in the creation of a coherent national energy policy?
  • What is the role of energy efficiency in the creation of a coherent national energy policy?

And

  • What is the role of gas as a transition fuel in the national energy policy Roadmap 2030 / 2050?

Let’s consider these questions.

During a wind conference in 2016 I shocked some of the delegates by telling them that technology is a facilitator for change. It is not a business disruptor. It may only be seen as a disruptor by businesses operating under a government sanctioned preferred trading status. In all developed and emerging nations the business disruptors are inconsistent and contradictory government policy, regulatory failure and an inability to articulate national business and industrial priorities that align with a national energy policy framework. Australia has no coherent national energy policy framework. It has no national energy policy. It does not even have a national industry policy that articulates industry priorities. Australia has operated on a set of assumptions for over 100 years. These assumptions simply state:

  • Australia’s mineral wealth will provide sufficient export income and generate real economic growth indefinitely.
  • Australia’s land mass and low population density will generate enough agricultural export opportunity and real economic growth indefinitely.
  • Australia’s position in the Asia Pacific will ensure relative competitive advantages compared to the EU and US economies for ever.

All three assumptions are wrong. Nothing demonstrates this more vividly than the Queensland’s government dealings with Adani coal. If the mine becomes operational the jobs it will bring to Queensland will be the most heavily subsidized job creation scheme in Australian mining history. Even if the mine goes ahead there is no guarantee that the mine will ever be profitable without ongoing Australian and India government support. This is true if the international coal price remains relatively stable. If international coal prices remain at current levels the question is whether the Indian government is prepared to subsidize Australian coal imports. Why is this so? Notwithstanding the approval of several super massive coal plants by several Indian states in the last 12 month, not one of these coal plants can be built without the Modi government digging deep into the national budget. Apart from the cost of the new coal plants the Modi government will have to spend somewhere between 10 -25 billion USD in national transmission grid infrastructure. It will have to maintain its state based energy subsidy program for poor and marginal households, agriculture and small business. It will have to address the massive problem of energy theft and look at reforming all state based energy markets into one national market. India’s unwieldly post-colonial bureaucratic structure, unpredictable electoral system and endemic corruption, make these reforms unlikely in the next 2 years. Now that several Indian states are offering 100% rooftop solar rebates, the economic viability of Australian coal is put further into question. At current Indian state solar rebate rates, Adani coal would have to be priced at less than $30 USD per tonne in India. Even at this price Australian coal would not be competitive with Indian rooftop solar rebates, or local Indian coal. This market reality has not escaped the international bankers. So why is the Queensland and to some extend the Turnbull Federal Government flogging a dead horse?

In conjunction with Scott Morrison’s federal budget several confusing announcements were recently made by the Turnbull government. The expansion of the Snowy Hydro and the Tasmanian Hydro projects are welcome by the electorate. In reality, neither of these projects addresses Australia’s energy security or price affordability problem. Australia’s current energy price needs to be between $36-$40 per MWH if we are going to tackle the jobs, growth and national productivity crisis. The current energy price hovers around $155 per MWH. The most conservative futures analysts have no alternative but to conclude that current commodity exports, including mining revenues, would have to be somewhere in the miracle range, if the projected budget surplus is going to eventuate. We can reach no alternative conclusions under the current federal government ‘National Energy Plan’. We cannot even reach a conclusion under the current federal government ‘National Industry Plan’, or the much talked about ‘Jobs, Growth and National Productivity Agenda’. The federal government subsidized gas pipelines from the Northern Territory and Western Australia to South Australia will have no impact on future energy prices and energy security. The assertion that the Northern Territory has enough gas to supply Australia’s needs for the next 200 years is an irrelevant side show. It is just as irrelevant as the Gillard Labour government announcement that Australia has enough gas in the ground to last the country for a thousand years. The reality is that Australia has enough solar, wind, tidal, wave and geothermal potential to power Australia for ever. So why does any government minister spruik our gas and coal potential? It is clear that the two gas pipelines announced in the Turnbull budget will assist Arium and the South Australian navy defence contracts. The announcement will reassure international gas industry investors that their long term profits in Australian gas exports are guaranteed by high domestic gas prices. This guarantee comes at a high cost to Australia. High domestic energy prices have a negative impact on all other industries relying on low cost energy inputs in order to remain internationally competitive.

So here we have the triple threat. Australia has no national energy policy framework. It has no national energy plan and it has no industry policy that is fully integrated with a national energy policy. I predict that sometime between now and 2030 Australian voters will be shocked by the election of truly intelligent governments at both state and federal level. They will be shocked by intelligent energy policies that will be integrated with a targeted national industry program, backed by state and regional development priorities. Such a program might focus on energy efficiency including storage and heat exchange technologies. Such a program might begin with a simple ‘ Zero’ budget impact policy statement that states:

‘In accordance with Australia’s international obligations and under its 2030 and 2050 Energy Roadmap, Australia will phase out the sale and importation of all 240 volt white goods and appliances by 2030. Australian manufacturing and research into 12 volt white goods and appliances will receive state and federal government support under a new export guarantee. The reason for this policy is that the government recognizes that the domestic manufacture of 12 volt and all related high efficiency low energy consumer and commercial products for the Asia Pacific, African and South American markets is potentially unlimited’.

Let me give you a simple example. Australia’s domestic refrigerators and freezers consume approximately 10 million KWH of energy every day. There are more than 1 billion people living in the Asia Pacific region. Many of them will be purchasing domestic refrigerators in the next 30 years. With most Asia Pacific countries struggling with an unmet energy demand averaging 20% per year under persistent brown out and black out conditions, both the potential for low energy products as well as their commercial application, can only be described as staggering. Despite this Australia has no industry policy that targets this market. Australia has no energy efficiency policy that addresses either the domestic, or the export market opportunities such a simple energy efficiency plan promotes. We have a government in Queensland promising to give away our coal to India. We have a federal government trying to buy back its stake in the Snowy Hydro while it shores up the profits of the gas companies who are busy exporting Australian gas overseas. We have a federal government waiting for the outcome of various enquiries into the Australian Electricity market, whilst it refuses to deliver a National Energy Plan that authorizes the creation of autonomous regional smart-grids. So what do you think about ‘Smartgov.au’ now? Are you depressed yet or simply disappointed in our politicians? After all, they have refused to get themselves up to speed with Australian Energy market policies for the last 30 years. Perhaps you are wondering what Mr. Turnbull means when he talks about smart manufacturing, innovation and high technology industry becoming the corner stone for the smart economy of the future? I know what you are thinking! Mr Turnbull is actually the Prime Minister for some other mythical nation that we are all waiting discover one day!

Inquiry into modernizing Australia’s electricity grid

Preamble

Note: if you want to submit to the Senate you must register first.  There are only a few days left.

Here is the web site. http://www.aph.gov.au/Parliamentary_Business/Committees#fndtn-tabSenate_Committees

Nearly ten years ago I tried to steer Australia’s renewable energy conversation towards an integrated ‘Climate Change’ and ‘Energy Security’ solution. In 2016 I revisited this conversation. Australia needs a zero carbon economy ‘Roadmap 2050’. There has never been any question about it. Australia’s ‘Roadmap 2050’ requires a ‘National Energy Master Plan’ that models itself on a 21st energy system. This 21st century energy system must be modelled along different lines to its European counterpart. Australia is a country of vast geographical distance and widely dispersed low population densities.

During the last 150 years the nation’s major infrastructure development focus has been on a few sprawling population centres along the east coast. Even though Australia is advantaged by vast natural wealth, the critical economy of energy infrastructure is determined by the cost of the resource and a per capita capacity to pay for it. As a consequence, Australia’s centralized fossil fuel based energy industry has concentrated on servicing the eastern states.  Vast subsidies have been squandered on remote mining centres and isolated high energy use industry without any attempt at designing an efficient energy transmission infrastructure. Much of our resource wealth has been shipped overseas with little or no real long term benefit to the people of this continent. Even now we are focused on delivering cheaper gas to Asia and Europe then we can buy for our own needs. This policy approach has evolved into a state based energy market characterized by transmission inefficiency, aging infrastructure and poor national service integration.

As the distance from the point of generation increases to the consumer, transmission line energy loss increases. For decades we have tolerated average transmission loss ratios of 18 to 26%. In Queensland, Western Australia and the Northern Territory transmission line inefficiency exceeds that of India in some cases. Cheap coal and the lack of investment in remote areas, has allowed us to ignore transmission line inefficiencies and remote region diesel dependence. We have needed centralized base load power to overcome transmission line energy loss, energy waste, and related transmission line inefficiencies. Generating more energy than we needed to produce has always been at enormous cost to consumers. Some people have formed an almost religious fixation on base load power, not because it is actually needed in a 21st century energy system, but because they believe it is necessary to get ripped off by the energy cartels. We have burnt more coal and pumped more hydro at relatively low marginal cost because no one bothered to price the cost of pollution, human health and the environment. Why does the consumer have to pay for the generation of excess energy that will never be consumed? No one has ever provided an intelligent answer to this simple question?

Professional opinions changed during the 1970’s. Expert opinions changed again with the privatization of state electricity assets during the 1990’s. Perhaps we can argue that; without the price shock of privatization; no one would have noticed the benefit of distributed renewable generation and grid embedded energy storage. When AEMO adopted the 95% EU transmission grid efficiency standards six years ago no one noticed that it was an unachievable standard without serious transmission grid investment. Imposing an energy wholesale market onto an ancient and inefficient energy transmission infrastructure during the late 1990’s was the routine creation of yet another semi-autonomous government authority for a private business interest group. No one bothered to ask why consumers are paying for energy they would never consume. No one seriously considered the need for planned energy transition. The unshakeable faith in the artificial wholesale and retail markets we created assumed that energy companies would act rationally. Acting in the best interest of consumers has never been a strong point in a substantially unregulated market owned by overseas interests. Why should we assume rational market behaviour? Twenty years ago no one gave the idea of building a fully integrated HVDC national energy transition network any thought. No one in Australia had even heard of HVDC technology. Twenty years ago only a few thought of electricity as a basic public good and its supply an essential public service.

Constructing a NEM with this level of inherent political bias under the pressures of ill-considered long term state privatization plans demonstrate the most basic of truth’s. The national electricity system is broken. It has always been broken because it was designed for a 19th century technology without any consideration for consumers. The NEM was designed for electricity cartels and state governments to sell excess energy across state borders. No one ever thought that all states must build a state electricity network that will meet all of their own energy needs first. There has never been any consideration for transmission efficiency, let alone technical proficiency and standards compliance for any privatized transmission asset. It is true that the later has involved its share of wishful thinking. For twenty years the discussion between NEM partners has been about state interconnectors. Even here the squabbles have been more about who pays. The discussion has never been about how best to achieve high quality service integration or designing a NEM for international double redundancy engineering standards. Pursuing a vague policy hope that the private sector would invest in the transmission grid must have involved hours of prayer to the god’s of miracles. Hoping that the private sector would invest in state based distribution networks from efficiency dividend gains proved another privatization myth. For the last few years we have seen interconnectors between Tasmania and South Australia fail repeatedly. We have witnessed numerous transmission line failures from Queensland to South Australia. We have seen gas power stations, substations and distribution line failures at such alarming rates and frequency, that we have to ask; where have all the taxpayer subsidies, grants and ex-gratia payments gone? Surely, we have paid for those privatized state electricity assets twice over by now?

Divesting itself from a perceived distribution grid maintenance problem remains a popular state government priority. We still have the same toxic right wing economic theorists influencing conservative business groups and government policy. Ongoing privatization debates in New South Wales and Western Australia stand in testimony to this failed policy agenda. The pro-privatization lobby for essential services remains brazenly oblivious to the utter failure of their agenda and the policy mess they refuse to take any responsibility for. There is only one thing that is clear about the electricity privatization experiment. Keeping the NEM going through storms and bushfires; on taxpayer grants, subsidies and emergency cash handouts for the last 25 years; is a miracle of emergency bush engineering. This has nothing to do with good policy or intelligent economic planning. It has more to do with dumb luck! It is too late to acknowledge that public ownership of key national assets are sacred and immutable government trusts. Few would dare to follow the Greens down that political path, because wishing for the ’good ‘ol days’ is a luxury only minor parties can afford.

How do we fix the mess we have created at the most cost effective and in the most efficient way possible? Technically it is too late for a national gas energy transition consensus. It is regrettable that such a plan was not developed during the Howard government era when the principle of reserving sufficient domestic supply would have made good political sense. This would have at least addressed the problem of how we retire aging coal plants without significant generation loss.  In a few months Australia will face a 1600 MWH minimum energy shortage. Building 1600 MWH’s of new gas power plants in 12 month is simply not going to happen. Victoria’s idea of bringing on line at least 1200 MWH of wind and solar ignores the question of grid embedded storage once again. Even Mr. Turnbull’s 2000 MWH Snowy Mountain Hydro extension is unlikely to address the short term energy price affordability and security question in time. Everyone agrees that pumped Hydro is a good long term solution. Introducing a Snowy Hydro plan at 5 minutes to midnight has the desperate ring of a knee jerk political reaction by a Prime Minister facing electoral irrelevance. Neither the South Australian government, nor the Turnbull federal government are thinking clearly about the problem. They are both thinking elections. To put it simply! The problem is fixing the transmission grid and creating a minimum of 1600 MWH of new generation, whilst putting downward pressure on both the wholesale spot price and the average retail price. Everything else that politicians, the energy industry lobby, the Chief Scientist, or any other lobby group are trying to sell, is either complete rubbish, or self-interested hog wash.  So how do we fix the problem? The answer is surprisingly simple.

Every building in Australia is a potential energy generator and self-storage facility. Every government building, school, crèche and hospital has the capacity to at least generate some of its own operating expenses, as the buildings reduce state electricity demand and contribute to Australia’s emission target. What is perhaps even more perverse to Scott Morrison’s Neo-classical accounting practices is the simple truth that long term budget savings are achievable as growth in employment and GDP filter through the economy. Let’s agree on a national 20% government building energy self-generation and energy storage minimum.  Let’s agree on a 20% industry self-generation and energy storage minimum for all companies earning over $10 million per annum. This simple policy would fix our perceived energy shortage. This single policy would make the gas transition debate irrelevant. This policy would buy Australia time to fix our transmission network and build the Snowy Hydro project. This policy would also fix our wholesale energy spot price and put downward pressure on retail energy prices. Let me give you one simple example:

Australia has approximately 16000 government schools. 400 solar panels on each of them would produce 16000 GWH’s of energy per annum. It would deliver this at about the same price as Mr. Turnbull’s Snowy Hydro project. The difference is that we could install 16000 GWH of school rooftop solar in less than half the time of a Snowy Hydro. With an ROI of 4 years and a 15 cent per KWH FIT this program can be supplemented with both grid embedded and private energy storage. Not only will this simple policy reduce state energy demand and put downward pressure on prices, it will also stabilize the grid and add additional generation capacity. It also adds up to one hell of a ‘Gonski’ down payment. So why does the South Australian government bother with a Gas power station option? Why does the federal government think that a Snowy Hyrdo extension plan is a quick and cheap fix? Neither option is cheap or quick. Neither option addresses the critical issue of fixing the transmission grid or addresses the critical issue of energy price affordability. A 20% government building self-generation and energy storage solution reduces transmission failure risk through a localized self-generation policy. No insurance company can deny that the risk of storms, bush fires and floods are lower under a local self-generation and energy storage policy. No rational government can deny the long term cost savings this simple policy brings to the table. So why is no state or federal politician even talking about this simple, cost effective and highly desirable energy policy? The energy companies themselves are now adopting my 2012 proposal. They have worked out that higher profit margins and lower operating costs add significantly to their bottom line under the existing market regulatory environment. Once again we have a federal government offering grants for what is sold to the public as a world first virtual power station. How gullible is Josh Frydenberg? Truly frightening! Let us all join in prayer for the arrival of ‘smartgov.au’ sometime in our life time.

Executive Summary

Australia’s 21st century National Energy Plan recognizes that the vast majority of the energy we consume will be generated a few hundred meters from the point of generation. As every building becomes both a small scale distributed power plant and an energy storage facility, Australia’s international emission obligations will become a past memory. Embedded grid storage at substation level will be supplemented by mandated wind farm storage. Even the idea of separate wind and solar farm facilities will become redundant, as Australia adopts India’s policy of building combined solar and wind farm facilities with mandated molten silicon or other suitable storage options on site. A national pumped hydro scheme will provide the backup electricity supply for power hungry manufacturing plants. The transmission grid will be extended to cover all states and territories with a mandatory high efficiency HVDC or other suitable transmission network technology. Far from being an essential supply aspect, the 2050 transmission network will perform the function of supplementing local state supply. Energy routing and load shifting between smaller localized grid embedded smart-grids will become the norm rather than the exception. Load sheading will be confined to the annals of history as energy companies recognize their expensive and inefficient past. Energy security and price affordability will be defined by a dual pricing system. This pricing system will differentiate between the lower cost of local smart-grid generation and storage, and compare it to long haul transmission from remote distributed generators. This dual pricing system will force high energy users to enter into local renewable supply purchases or invest in self-generation and off peak storage supplements. A gas to renewables transition policy will become evidently redundant as demand side electricity capacity markets fully integrate with Australia’s 100% emission reductions policy under a full national energy security and price affordability market framework. Breaking up the existing state owned cartels into smaller self-generating smart-grids produces no market losers, as energy companies reap the profits from lower operating expenses and lower market volatility.

The notion that an ETS (Emission Trading Scheme), EIS (Emission Intensity Scheme),  FCP ( Fixed Carbon Price), LET ( Low Emission Trading) scheme, C&T ( Cap and Trade ) scheme to facilitate a coal and gas transition will be relegated to outmoded economic thinking. Much has been said about the need to provide national investment clarity through some type of artificial subsidy scheme. Any type of reverse subsidy is only necessary if we are considering a coal to gas and gas to renewable transition policy. Jumping across the gas transition gap directly to a distributed localized self-generating smart-grid option makes these types of schemes largely irrelevant. It makes them irrelevant because local smart-grid ‘prosumers’ will deal directly with their respective energy distributors. This will eliminate the entire retail end of the market and force down prices by up to one third immediately. The practice of supplementing smart-grid self-storage with cheap off peak grid supply further reduces costs to consumers and ads to energy security. The introduction of a NZE ( NET Zero Emission ) scheme for industry and a NCE ( Negative Carbon Emission ) scheme for self-generating localized smart-grids, is a far smarter policy then any ETS, EIS, LET, Fixed Carbon, Cap & Trade or any other reverse subsidy scheme. This is especially true when the NZE and NCE schemes are structured under a low interest Green Bond as well as a federal tax credit that rewards emission reductions under a recognized fixed term project maturation plan. Industry benefits are clear. Lower electricity costs combine with additional income streams that deliver gains under properly managed international carbon market obligations for developed nations. As existing fossil fuel subsidies are transferred into the NZE business market, large institutional investors and insurance companies will rapidly scale up their valuations of Net Zero Emission businesses. Institutional investors have no appetite for future stranded assets. They do have an appetite for companies that offer better returns by reducing risk and lower operating cost. In the same token, they have an interest in community smart-grids because they are Negative Carbon Emission projects. It doesn’t even matter whether these Negative Carbon projects are jointly owned between community groups, private investors and energy companies under a national rule based market regulatory framework. What is important is that each closed self-generating smart-grid offers a secure long term return on investment as each delivers multiple value add benefits to communities and the nation as a whole.

This is Australia’s Roadmap 2050. It is a roadmap for a sensible lower cost renewables transition plan then any state or federal government option on the table right now. It is the best solution for a sensible and inevitable 21st century energy system that takes into consideration national productivity, jobs and growth. It is the only National Energy Plan that will deliver long term energy security and price affordability now.

Submission assumptions

This submission to the ‘Senate Inquiry into modernizing Australia’s electricity grid’ will focus on providing coherent and economically responsible solutions to the problems of energy security, price affordability and grid integrity within a national investment, growth and jobs framework. Several assumptions underpin this submission.

  • Regardless of whether the Turnbull government achieves some type of industry consensus on LNG supply security; any agreements on new gas exploration, subsidies, or state government by-back of previously nationalized generation infrastructure; will not impact on transmission and distribution grid integrity. Any expenditure on coal to gas conversion generation or securing new sources of CSG or LNG supply does not solve the integrity and energy security issues facing the transmission and distribution grids in the NEM, Western Australia, the Northern Territory or remote areas in Australia. No new clean coal construction projects will impact on transmission and distribution grid integrity. This submission assumes that irrespective of whatever coal or gas transition strategy is adopted, both options will force up energy prices without any impact on supply security.
  • The practice of re-commissioning or purchasing new diesel generation by farmers and industry as a means to address supply and price affordability issues will not be sustainable in the long run. This strategy will undermine Australia’s international emissions obligations and leave regional Australia vulnerable to international petroleum market fluctuations. This submission assumes that Australia will attempt to buy international carbon credits in order to meet its international obligations to offset unmet emissions targets. It is further assumed that neither state or federal governments will be able to address the regional energy supply and price affordability issues using the existing AEMO ‘steady as she goes’ energy supply side strategy that AEMO promotes for the benefit of its own energy cartel stakeholders. This submission assumes that all government attempts to deal only with the energy cartels to address supply security will fail unless a comprehensive wholesale and retail energy market regulatory framework is put in place with the support of all state governments.
  • State governments aiming to meet coal power station supply shortages by ramping up large scale wind and solar farm approval without mandating an energy storage policy for new and existing wind and solar farms will find themselves locked into long term PPA agreements that are payable under load shedding conditions during transmission network failures and technical outages. PPA agreements are forward purchasing contracts payable regardless of whether the energy produced is supplied to customers. The inefficient and costly Western Australian market example stands in testimony of this. In a marginal energy growth market these PPA agreements can see wind farms idle and solar farms wondering where to sell their energy as state inter-connectors fail or are offline for maintenance. Since PPA contracts still require to be paid regardless, NEM states can face the prospect of paying wind and solar farm operators for energy that is not produced because it simply can’t be sold. Without a national plan to upgrade and maintain a national transmission network that complements the roll out of distributed wind and solar farms, there is no supply or price affordability guarantee. Without mandating grid embedded energy storage to strengthen national transmission networks there is no energy supply guarantee. There is only a guaranteed energy price increase without energy security. This submission assumes that no agreement on upgrading the NEM or extending it to Western Australia and the Northern Territory will be reached during the Turnbull government tenure.
  • This submission assumes that state governments will be reluctant to support any reform of the energy markets under their jurisdiction. In particular, reforms that impact on the revenue they are collecting in the form of taxes, royalties and hidden fees and charges. This includes all daily charges and supply charges currently levied to domestic and industrial customers. This submission assumes that state governments will only agree to wholesale and retail market reforms that will not threaten their current energy income streams.
  • This submission assumes that energy companies will be reluctant to offer solar rooftop customers a better return on their investment. This includes any changes to retail market conditions that will lower energy costs and allow for greater market competition through a mandated unrestricted 3rd party grid access policy. Both federal and state governments will be reluctant to enforce anti-cartel and anti-competition policies in the fear of a mining and energy company electoral scare campaign; or worse, a Californian style denial of service campaign.
  • This submission assumes that a federal government clean coal energy security option will fail. The cost of clean coal technology and the public’s unwillingness to accept outdated generation solutions that do not address energy price affordability and supply security will remain a ball and chain around the Turnbull government’s neck unless the national LNP coalition can silence its ultra-conservative right wing. We assume that the Turnbull government national executive will attempt to grasp at partial compromise solutions without addressing the core of the energy price affordability and supply security problems as key industry lobby groups will flex their muscle behind closed Canberra doors.
  • This submission will assume that a federal government Hydro energy security option will remain a long term investment solution that will not fix Australia’s 2018 energy security and price affordability issues.

 

Recommendations to the Senate Inquiry

It is recognized that some of the recommendations below will be harder to implement then others. States that have entered into long term energy supply agreements, following the privatization of their electricity networks, may find considerable resistance under existing contract restraints. This is despite the fact that all recommendations are designed to provide electricity companies with substantial lower operating cost advantages and new business opportunities. Investment clarity arising from the recommendations outlined below is no threat to individual Utility company market share and underlying profitability.

Changes to COAG renewable energy rules

Current COAG rules restricting private solar installations to 100 KWH’s and small wind to 10 KWH’s. Both rules should be scrapped because they are irrelevant. These rules enforce electricity company cartel behaviour including the implied restriction to network access. Rule interpretation by state public servants and energy executive insistence on the grounds of network instability are nonsense. A COAG rule that provides unrestricted grid access to any 3rd party proposing a distributed hybrid self-generation and storage solution in an urban or rural smart-grid setting should replace the existing COAG rules. This policy would reduce overall Utility company cost structures without restricting market share. The removal of these COAG rules do not reduce or threaten market share because excess domestic rooftop solar and small wind generators would still be supplied to distribution companies even if returns for domestic ‘prosumers’ are increased to 15 cents per KWH. Reduced transmission costs and energy purchases from remote generators will deliver enormous cost savings to energy distribution companies even if they purchase locally produced power at a higher price. The increased availability of domestically produced power under lower transmission cost conditions will put downward pressure on the wholesale energy spot price, increase energy forecasting reliability and stabilize the energy market during high demand periods. US and the EU modelling demonstrate that short term extreme wholesale spot price volatility produce lower profit returns to Utility companies in the long term even under extreme short term spot price conditions. The reverse is true under stable long term energy supply conditions. The greater availability of locally produced renewable power eliminates the outmoded practice of load shedding. Better grid management practices such as load shifting, load sharing and load routing are available with the addition of grid embedded storage as distribution companies manage supply between closed smart-grids over shorter distances. The inclusion of smart-grids and embedded storage facilitate improve grid managed practices whilst demonstrating higher long term marginal returns to Utility companies. This is achieved by enabling enhanced supply security under intelligent distribution grid integrity standards. The outmoded practice of load shedding common in Australia is a low long term profit option for Utility companies. It is also unacceptable, entirely unnecessary and very costly to consumers and business. The fact that AEMO continues to use this method as a means to protect grid infrastructure, merely highlights AEMO’s culpability and the utter failure of responsible energy policy at all levels of the national energy market.

Anti-Cartel and Competition Reform

  1. The wholesale spot price bidding process time period should be reduced from half an hour to 5 minutes. The most critical change is the wholesale spot price payment authorization period. This time interval should be reduced to five minutes. This will restrict spot price market manipulation and open the market to a variety of energy storage solutions such as battery, heat exchange or other rapid ramp up technologies.
  2. Unrestricted 3rd party distribution grid access will allow community groups and local councils to put downward pressure on spot prices by lowering the daily energy demand extremes whilst providing an energy storage reserve for high demand periods. Self-generating and self-managed smart grids with embedded storage will not only increase grid integrity and supply security; they will also address issues of cyber security, transmission and distribution outages due to maintenance, storm failure, spot price manipulation and other reasons. Unrestricted 3rd party grid access guarantees will provide federal and state governments with the necessary time to upgrade and extend Australia’s aging transmission networks. This will allow for proper long term investment planning without undue stress on current state and federal budgets.
  3. Regulating 3rd party distribution grid access will require independent oversight of grid usage and data rules. A distribution grid leasing price scheme for all 3rd party smart-grid users should be mandated under a new independent federal energy security and pricing commission. Current state regulations are inadequate and subject to undue AEMO and NEM (NEO) stakeholder influence. Removing the influence of energy company influence on these semi-autonomous government departments is a fundamental regulatory reform requirement.
  4. Even though it is recognized that some self-generating smart-grid communities may wish to make a management agreement with their respective distribution company, rules that protect smart-grid communities from stored energy syphoning must be mandated. This includes a national guaranteed minimum return for all excess energy sold to energy distribution companies. A separate pricing arrangement that more closely reflects spot price reality should be mandated for Utility access to all storage energy reserves so that energy storage owners receive a fair return on their investment.
  5. Smart-grid management software by definition manages supply and demand within a closed mini grid. The removal of all smart-meters from inside closed smart-grid communities will ensure data integrity, privacy and billing data ownership for all smart-grid customers. A Utility owned smart-meter should only exist at the edge of the closed smart-grid to allow communities to export excess energy to supplement supply during self-generation and storage shortages. This will allow communities to charge batteries and other storage devices from the grid during low demand / off peak periods, whilst maximizing their energy export during peak demand times. This will enable more efficient distribution grid management and lower consumer electricity charges.
  6. Limiting smart-meter location to the edge of a closed smart-grid will dramatically reduce data management and data warehousing costs for Utility companies. This will further enforce electricity price stabilization trends and lower Utility company costs.
  7. Community owned smart-grids will eliminate the fake energy retail market. Smart-grid customers will negotiate directly with distribution companies. This will make the current retail market irrelevant. This will immediately reduce energy prices by up to one third.
  8. Fundamental reform of the Australian electricity market and competition review must precede the introduction of any emissions subsidy scheme regardless of the form it takes. Introducing an emissions subsidy program of any type without reforming both the wholesale and retail electricity markets first is simply nuts.

Consumer Affairs Laws

Smart-meters have nothing to do with smart-grids. Smart meters are designed as a billing leakage device. They are also not very smart. Smart meters do not adjust for summer daylight savings periods. This robs customers of an additional 8-14 cents per day without their knowledge for approximately 100 days every year (US data). In a closed smart-grid environment they are regarded as an illegal and entirely unnecessary third party device. Smart- meters are also a cyber security risk. There are several existing devices that can be plugged directly into any power point that can detect smart-meters within a 1 km radius. In fact, two weeks ago I was offered an Australian device that can be embedded into a distribution grid by attaching it to existing power polls. The vast majority of smart-meters installed in Australian domestic and commercial premises are manufactured in India for less than $80 USD. Their Australian installation costs, not including ongoing charges, often exceed $500 AU per premise. The ICE-group in association with an Indian University conducted a student research project in 2012 -1014. Undergraduate electrical engineering students produced a simple device that can not only detect any grid connected device within a 1 km radius, but they discovered a relatively simple procedure to hack smart-meter firmware. Even though it is unlikely that we are likely to gain an import license for this device; for which we own an Indian patent; the exercise demonstrated the cyber security threat smart-meters pose to Australia’s electricity grid.

Smart-grid management software manages all data and electricity demand between all smart-grid members in real time. Typically smart-grids are firewalled from the wider distribution grid by a variety of security precautions.  As a consequence, smart-grid members own their billing data. Joint cyber security tests conducted by Indian, EU and US/ Canadian Smart Grid Inter-operability panels in 2016 demonstrated no cyber security threat to current smart-grid software and hardware despite a substantial prize offered to international and Indian hacker groups.

Under current Utility billing arrangements customers do not own their billing data. This makes billing dispute resolution problematic. This is particularly true when customers require fully itemized billing information. At present, Utilities issue bills that contain daily charges, connection and supply charges as well as half hourly usage charges. However, the cost for these daily charges as well as connection charges etc., are never itemized. As a consequence, consumers are left in the dark about what these charges are and their true amounts. Issuing bills that contain undisclosed billing items is contrary to Consumer Affairs best practice. Concatenating multiple hidden billing items under a common billing label without itemized clarification of what constitutes these billing items is misleading. It is a practice that must stop. Consumers have no guarantee under the present billing practices that labelled billing items are not duplicated under separate charge categories.

  1. It is recommended that that Utility customers own their own billing data.
  2. It is recommended that Utilities fully itemize their bills including all daily charges, connection charges and all other hidden fees and charges currently unspecified on Utility bills issued to customers.

In fact, the immediate authorization of independent community and council owned smart-grid implementation would automatically solve both these problems. It would also reduce Utility data management and data warehousing costs whilst enabling the establishment of new services. For example:

Utilities could offer E-credits for excess ‘E’nergy sold to the grid. These E-credits could be used for a variety of new services. These services can include the payment of council rates, water and gas bills, aged care and home services. The implementation of an integrated E-credit banking service would not only assist our most vulnerable community members by reducing billing stress, it would also provide councils with a better way to managed aged, disability and home care services through a guaranteed payment services. Other examples for an integrated E-credit banking facility are shopping and petrol vouchers among many others.

The Turnbull government is currently implementing a budget strategy that rips the heart out of essential services. The implementation of an E-credit banking facility can easily provide a better value proposition for future federal social service expenditure, whilst addressing the needs of the working poor and Australia’s most marginalized community groups. Better and more efficient management of federal and state budgets are the current Federal Treasurer’s mantra. Thinking, innovatively and delivering sustainable budget solutions must be a necessary part of this paradigm shift in intellectual sophistication. Self-managed and self-generating smart-grids with energy storage can deliver a 2050 Roadmap to better services and lower emissions now. It can be delivered with existing technology much faster and at a lower cost than all other alternatives. Australian’s are in desperate need for a ‘smartgov. au’ National Energy Master Plan that makes sense. We need long term investment certainty, energy security and price affordability. What is the problem? We know what needs to be done. Why is it not getting done?

Transmission Grid Upgrade

Despite adopting EU transmission grid standards, years of neglect and poor redundancy planning leave many Australian’s wondering what happened to all the money we have spent on gold plating the NEM. There is little doubt that a second inter-connector between Victoria and Tasmania is badly needed. The same can be said for an inter-connector between South Australia and New South Wales. Extending the NEM from South Australia to Western Australia would further enhance South Australia’s energy security as the difference in time zones between the two states brings online cheap solar and wind power. By 2050 the NEM will encompass the Northern Territory and remote Queensland Aboriginal communities. This long term HVDC 2050 Roadmap for Australia’s transmission grid will provide necessary connection capacity for conventional wind and solar farm and hydro projects. It will replace our ancient centralized coal and gas facilities as the national transmission grid assumes its proper role as a national electricity supply backup service.

It is not a question as to whether this will happen.  It is more a question of how to plan the staggered investment over time to make it happen. It is a question of taking care of the most urgent upgrade tasks first, before committing taxpayer resources to secure the long term vision of the national NEM. We can buy time by dividing the various state based grids into smaller self-generating and self-managed smart-grids. This will allow Australia time to stagger both the cost of transmission grid embedded energy storage solutions as well as key upgrade options, whilst stabilizing energy supply security and price affordability. Stressed state and federal budgets require intelligent and responsible infrastructure investment decisions. All energy infrastructure planning is by necessity long term. Strained government budgets demand responsible budget management. Western Australia’s royalty for regions program clearly is not a good example of responsible budget management. In the same token, federal fossil fuel subsidies, state government red tape and waste, need urgent attention. The endemic state practice of using energy infrastructure as a cash cow will simply not cut it. Running cap in hand to the federal government to fund transmission grid upgrades is simply poor policy planning. Even the idea of re-nationalizing key generation and grid infrastructure is a laughable option. How often does the Australian taxpayer have to bail out privatized state electricity suppliers, when these same companies repeatedly demonstrate no commitment to maintaining a quality infrastructure standard? AEMO has adopted an EU transmission standard without any commitment to enforcement or compliance. Which government has allowed this irresponsible and incompetent organization to flourish? Under these circumstances it is understandable that the federal government is reluctant to provide funds for transmission grid upgrades.

There are options:

Instead of nationalizing the transmission grid, any future state and federal government transmission infrastructure funding agreement might focus on retaining key transmission grid elements in public hands. These are:

  • Inter-connectors and

By retaining overall ownership / management of both inter-connectors and substations, government effectively controls the national electricity market. This will provide considerable regulatory leverage in the management of the electricity market. If the federal government considers a joint private and state investment transmission grid infrastructure upgrade plan, retention of strict audit oversight conditions should be mandated as part of any joint investment proposal. This option is more palatable if all smart-grid recommendations proposed in this submission are implemented. The reasons for this should be obvious by now. The weakness of the entire Australian electricity market is that all state and federal governments have done nothing in addressing the demand management side of the electricity market. Assuming that energy companies are capable of self-regulating without exploiting market loopholes is a pipe dream. Allowing state governments to set their own market regulatory standards when they are beneficiaries of market manipulation practices; as well as constrained by long term electricity privatization contract agreements; is not only a conflict of interest, but a legal nightmare. The most efficient compromise that offers a wining solution to all stakeholders at the lowest cost is dividing state grids into smaller smart-grid units and installing grid embedded energy storage at the transmission / substation level.

How do we pay for it all

The Federal Treasurer appears to have ruled out a 30% tax reduction in return for a 20% renewable self-generation, energy storage / industry and community smart-grid energy demand management program. It is uncertain whether the Federal Treasurer has also ruled out the introduction of a green bond infrastructure scheme. There are rumours that a social housing bond scheme will be introduced during the first quarter of the 2017 budget period. Whether the federal government is thinking that this bond scheme can be extended to include a community owned energy self-generation smart-grid program is unclear. It certainly seems stupid not to mandate a zero carbon housing option if the government intends to introduce a government housing bond scheme. Anecdotal evidence suggest that governments of any persuasion or not very good at delivering integrated solutions that offer multiple outcomes to multiple portfolio problems. It is simply a no brainer to mandate that all new housing built under a proposed government bond market scheme must also deliver a substantial Climate Change, energy security and price affordability benefit. However, I may be wishing for too much here!

Nevertheless, there are several other funding options that can accelerate the above outlined solutions. These are:

  • Progressively shifting/ phasing out existing fossil fuel subsidies.
  • Implementing a green bond infrastructure scheme to pay for electricity transmission grid upgrades under market price conditions instead of a government low interest guarantee.
  • Implementing a green community smart-grid bond scheme that will allow local governments and community groups to build their own smart-grids through a state managed bond market scheme.
  • Encouraging institutional investors to invest in regional and urban smart-grid projects secured by council rates and existing housing stock values under market bond rates and a state green bond scheme
  • Introducing a carbon export levy on all coal, gas and related mining exports. It makes no sense that Australia should subsidize these exports so that international customers ( eg. India ) can impose a carbon import levy on Australian commodities. Exporting Australian subsidies simply makes no sense at all. (Note: This option would probably cause the mineral council to go into an apoplectic fit. So I don’t think it will ever be considered.)
  • The implementation of some type of ETS or EIS emissions liability program should be considered after all of the above mentioned regulatory loopholes have been fixed. The difference between an ETS and an EIS compliance mechanism is marginal. An EIS scheme is a compliance penalty. An ETS scheme is a liability deferment method. Introducing an ETS or EIS scheme without fixing the wholesale or retail market regulatory loopholes is stupid. It will not work. It will only increase energy prices. It will reward energy companies for doing nothing about energy security and price affordability because neither is measured as an emission liability. It is therefore bad policy. Neither scheme should be considered until a comprehensive wholesale and retail national energy regulatory framework has been implemented. However, if the Turnbull government implements all of the above recommendations, there is no reason why an ETS scheme cannot be front loaded onto these recommendations. There is also no reason why an EIS scheme cannot be loaded to the backend of the above recommendations as a compliance and emissions enforcement penalty. If the government would include a 20% self-generation carrot in return for a 30% tax deduction, front loading an ETS emissions deferment scheme would automatically entail an EIS penalty. Thus, nullifying the 30% tax credit. In the same token, EIS none compliance would force an automatic loss of the 30% tax credit as well as incur an additional non-compliance penalty. In short, the system would be self-reinforcing as each 20% self-generation project period set for e.g. a 4, 6, 10, 15 or 20 year bond maturation term, entails the mandatory emissions target obligations defined under the contracted green bond investment mechanism. Since the Federal Treasurer has ruled out a 20% self-generation option in return for a 30% tax deduction, we can only assume that the government may be thinking about a government guaranteed low interest bond scheme similar to the muted social housing investment idea. Implementing an ETS, EIS /fixed carbon pricing (any other scheme) under a subsided bond scheme amounts to little more than a subsidy merry go round without any real investment teeth. Emission compliance has to contain some type of enforcement option in order to be effective. A government subsidized low interest green bond scheme could run the risk of attracting projects that are eligible for a federal low interest loan, whilst duplicating emission reductions targets subsidized under an ETS or EIS (or other arrangement). For example: A company eligible under a state based scheme qualifying for an additional federal subsidy under the Gillard government fixed price carbon was a subsidy duplication across two jurisdictions.  It was therefore an inefficient, ineffective waste of money. Another example would be a mining company proposing an emission reductions program. This program could attract a state electricity subsidy, a federal low interest green bond as well as an EIS kick back whilst the company sells its ETS liability into an offshore forestry project. This makes a low interest federal bond scheme not very smart economics. A low interest government guaranteed green bond scheme on top of a 30% tax break is also not smart economics.  A low interest loan scheme without a self-regulating emissions compliance mechanism is an unworkable joke because there is no compliance or emission enforcement mechanism. A 30% tax rebate option linked to a market based bond rate would provide a more realistic indication of the market viability of the project under standard investment risk analysis. Why? Because institutional investors could make a realistic risk assessment of the project by factoring into the equation the tax deduction for the bond maturation period at market bond price value.  This method of funding would also have a lower overall federal budget impact.
  • A mandatory 20% self-generation, energy storage or clean energy purchase policy would demonstrate the government’s renewable energy commitment to the markets. The program must cover all federal, state and local owned buildings in the first instance. For this policy initiative a government low interest backed green bond scheme may be more appropriate then a market rate bond option. The benefits of the emission reductions, energy savings and new clean energy income stream impact on future reductions in federal budget expenditure as well as government efficiency and productivity gains. Let me give you an example: 11 years ago the department of education conducted a carbon impact audit. The department assume a $10 per ton carbon price and estimated its total national carbon liability in excess of $50 billion per annum. A simple round number calculation that assumes the installation of 400 rooftop solar panels per government school with 15 cents per KWH FIT on a four year ROI delivers an annual income of $75,000 per school. This does not include energy savings, carbon credits or asset repayments. However, this simple example is sufficient to demonstrate the point I am trying to make. The state of Victoria has roughly 3000 public schools. There are approximately 16,000 public schools nationally. The national projection of this simple example produces an annual energy self-generation output of 16,000 GWH and a total education department income over 1 billion dollars per year every year. Naturally I don’t want to wake the pink batts and school hall ghosts. Careful planning and appropriate checks and balances coupled with clear project management oversight should leave those skeletons well and truly in the cupboard. What is far more important is that this simple example represents a substantial annual ‘Gonski’ down payment. The plan has additional Climate Change, jobs, growth and national productivity implications whilst lowering electricity demand, increasing energy security and tackling price affordability. Mandating a 20% self-generation, energy storage or clean energy purchase mix for all local, state and federally owned government buildings, represents a serious shot in the arm for the Australian economy. It also demonstrates Australia’s international carbon commitment.
  • A mandatory 20% industry self-generation, energy storage and green energy purchase policy in return for a 30% tax cut for the duration of the green bond term under both an industry and a government building self-generation and storage policy mandate can deliver real options for Australia’s energy security and price affordability mix. This is especially true if we implement a state wide smart-grid program. Call it a virtual power station or embedded mini-grid program. No one cares what we call it as long as we implement a demand side capacity market mechanism that works in the interest of consumers. Perhaps an NZE ( Net Zero Emission )industry and a NCE ( Negative Carbon Emission ) community scheme will become the options of choice sooner rather then later?