In this exclusive interview with Father Christmas the common man asks the important questions and finds out what is in your 2016 Christmas energy security and price affordability stockings.
Let me welcome you Nick to this ongoing debate on “What a 21st Century Energy System” should look like, going forward. I know you are a busy man at this time of the year and energy lessons from a little backwater country like Australia are not a top priority on the global climate change league table.
Josh Frydenberg recently made the comment that closing Victoria’s Hazelwood coal fired power station is going to increase electricity prices. This surely must impact on your global business plans Nick?
It is not easy to spread good tidings and peace upon the world when you are dealing with self-interest, nepotism and people who manipulate the common good with opinions manufactured for a 30 second media grab. I have been watching Josh ever since he organized his energy security emergency in Adelaide. In my opinion it was another “ Jolly” step party to nowhere!
I don’t understand your answer Nick. Can you elaborate?
Look CM! Nothing is ever spoken or written without some kind of agenda. So the context and intent everything is said in or written for is really where my good and bad ledger begins. Let me share my dwarf’s research with you.
First of all, you have to understand that Josh’s comment was a coded message to the Victorian State government. The message confirmed that no federal funds would support the closure of the Hazelwood power station. Without a national energy security plan agreed to by all stakeholders the Turnbull federal government will consider the progressive closure of any coal fired power station premature. Mr. Frydenberg’s words where a specific warning to the Andrews government. Without a responsible fossil fuel to renewable energy transition policy that includes a targeted regional industry growth and development plan, the closure of Hazelwood or any other coal fired power station in the nation is ill considered and irresponsible.
So you are saying we should not close down Hazelwood or any coal fired power station?
Here you go again! The problem with trite populist journalism is the jump to conclusions based on assumptions. You got to stop ludicrous assertions that appear to be reasonable on the surface but really don’t muster up to close inspection. The devil is in the details! What I can tell you is what is in the Christmas ledger. I cannot tell you what is in the wish list for all state and federal energy ministers. That goes against my oath. I can say that the Christmas wish lists and the presents I have been asked to bring have not changed in the last 25 years. The emphasis has always been on ‘Policy’ and a large gift of ‘Courage’ to forge coherent national energy wholesale market reform among other things. Please understand! I don’t do miracles. That is not in my job description.
You are saying that political and economic policies have been out of touch with common sense for a long time?
What I am saying is that all the states have been waiting for some kind of federal leadership on an energy transition plan that includes a targeted industry plan in a logical urban and rural growth policy format. It only dawned on some people sometime during the sixties that you actually need all three to work in conjunction with an integrated environmental plan. The fact that the four policies have to be seamlessly integrated at the regional and national level has remained in the too hard basket for a very long time. Australia has struggled since 1901 with the notion of fully integrating multiple government departments across local, state and federal level that function with a common purpose and for the common good. Your constitution is specifically written to deny such co-operative value driven national objectives in favour of residual values that protect state parochialism.
It is not a question of not being able to come up with a coherent national energy transition plan. There have been plenty of ideas over the years. The problem is that it requires consideration for the natural advantages each state has to offer in respect to their existing and future industrial outlook. No such long term analysis has ever been carried out. Don’t get me wrong! We have seen plenty of population forecasts. We have had more than our fair share of industry specific papers, research analysis and a boat load of PHD’s on trees, water, health, cows, milk, beef, paper, clean coal, solar, wind, geo-thermal and who knows what else over the last 100 years. What we have not had is anyone with sufficient practical knowhow to make sense of it all. These academic papers and consultancy studies remain apparently unrelated without a single shred of courage for a coherent strategic plan for the La Trobe valley or any other Australian coal producing region.
The simple truth is that all states have been competing against each other to attract the same industries irrespective of whether their location and functional integration into the regional economy actually offers a long term competitive advantage without continuous subsidy relief. Since both affordable energy prices and high quality education and training form the backbone of any post-industrial economy, gutting an essential service infrastructure without an adequate contingency plan is economic suicide. What is clear is this! The Paris accord demands international compliance. It means that the smart money is divesting itself from much of the fossil fuel sectors whilst hedging its bets on viable alternative technologies. The new paradigm is distributed small scale self-generation interconnected in closed smart mini grids. Without a government agenda that sets out a clear road map for the future, any government that ignores the need for an alternative national energy security plan is likely to suffer no matter how many pretty words Lord Turnbull sooth says.
Australian history tells us that even if an industry is critical for a regional economy there is no guarantee it will be supported by a logical industry policy. The failure of continuous, coordinated and integrated research and investment support undermine the long term viability of any regional economy and their communities. Under such political and bureaucratic paralysis it is easy to put your head in the sand and hope that the good times roll on. The recent mining boom shock is part of the boom and bust anthem that Australia has been playing for a very long time. Hoping for a miracle does not lessen the obligation of planning for a responsible future for all citizens in any country. Perhaps that is something that has somehow been forgotten in Australian politics. Perhaps it is something relegated to an ancient past when folklore and urban myths informed the natural order of things!
So you are saying the problems are both historical and systemic. You are saying that the real problems rest within the structural and functional characteristics of our political system.
Let me give you several historical examples. Many years ago Siemens attempted to locate a wind turbine blade manufacturing and advanced materials research division in the La Trobe valley. Even though this industry would have been a small step towards an industry lead energy transition plan, the inability of the then state government to come to terms with this Union supported initiative resulted in its loss to New Zealand. The same can be said for a plan to clean up the Hazelwood cooling ponds or the urgent need to deal with the fly ash that is costing Victorian electricity consumers $100 per ton.
Let me illustrate the point! The fly ash industry is controlled by a monopoly. Fly ash is used in the concrete, brick and asphalt industries. It can also be used as an agricultural soil conditioner and fertilizer. However, the fact that the entire industry is controlled by a monopoly has restricted the establishment of new industries for many years. What the common man does not know is that Australia’s coal fired power stations produce more than 10 million tons of fly ash every year. The vast majority is managed as toxic waste despite its potential in the paint, aeronautic, ship building, electronic, plastics, and fire retardant industries. Advanced materials research and the formation of new industries built around a toxic waste product make a lot of sense in any coal producing region. That fact that these industries have had no investment support despite the enormous cost of managing this waste resource remains simply staggering.
So here is perhaps the first of the many wonderful contradictions that are simply ignored as lost opportunities. The Australian tax payer pays an export coal subsidy price to the industry of almost $5.20 per ton. In addition, the electricity consumer pays an annual levy of over a billion dollars to manage the fly ash residue. If both these subsidies would have been offered as targeted payments for the establishment of new industries that can utilize the dumped minerals when coal is heated above 900 degrees, several advanced materials manufacturing industries and associated research institutions could have been operating in the La Trobe valley today. Instead, nothing has been done. This situation is so insane that the cost blow out of the Adelaide desalination plant can be directly attributed to the Boral monopoly.
Instead of using fly ash from the South Australian coal fire plant, Boral shipped the fly ash for the Adelaide desalination plant from New South Wales. Apparently it was the only shipping terminal that could handle the order. Trucking it a few miles from the South Australian thermal coal facility to Adelaide obviously never entered into the equation here. There was some argument that the quality of the NSW fly ash was more suitable. However this is simply rubbish. The truth is that Boral manipulated the fly ash supply chain to maximize its profits and to cut independent South Australian concrete suppliers out of the deal. The resultant South Australian fly ash shortage meant that small independent local concrete companies were stock piling South Australian fly ash in disused grain silos in order to keep their own operations viable.
What is perhaps even more mind boggling is that no state or federal government has ever considered a policy that mandates a subsidy program that would pay for cleaning up the environment whilst growing new businesses from existing ones. The idea of generating secondary income streams for the coal generators is either so novel that no government official or minister can understand it or it is so intelligent that no one can grasp the concept. This type of “smart.gov.au” policy approach seems entirely alien at all levels of government. It is a policy approach that is fundamentally foreign to the manner in which our state and federal bureaucrats think about key industries. What we can conclude from this is that there is a disconnect between the purpose of a subsidy and the need to make a public gratuity a self-funding regional industry growth and jobs security policy priority. It seems easier to grant a subsidy for keeping existing coal fired power station in ramp up or idle mode for up to 10 month of the year whilst charging consumers for the privilege of what is in essence an unproductive subsidy investment to an industry that is both an essential service and in need of being shut down.
This single example demonstrates why the common man wonders why federal and state governments repeatedly fail to connect the obvious dots. It matters little which of the two major parties is actually in power at either state or federal level. The same disconnect is apparent with both of them. Whether this is ideological or part and parcel of the poor advice politicians receive from their respective departments is difficult to ascertain. What is certain is that the influence of stakeholder groups and powerful sectional interests are flavouring the policy broth to suit their own commercial interests. In the wake of the Boral fly ash monopoly example I ask you this. Is the concern with the ABCC legislation and the supposed irregularities in the building industry a primary concern, or is the real issue that a monopoly / cartel is manipulating supply and artificially pushing up costs? These costs are paid for by the taxpayer and consumers alike? Is it not the federal government who has the power to legislate the activities of monopolies? Maybe that is a state matter as well? Is it not the federal government’s own failure to control key monopolies and cartel behaviour in key industries that are the real reasons for sector wide cost over runs and supply distortions, inefficiencies and price gauging activities. Lord Turnbull’s willingness to demonize unions for demanding fair wages and a safe working environment is obviously an easier target than tackling the real failures in Australia’s free market economy.
What I am saying is that the common man is tired of watching an ideological political pantomime more concerned with building a corporate welfare state at the expense of ordinary people. Even though the masters and servants act is part of Australia’s legislative and historical heritage there is no justification in resurrecting its modern equivalent. There is simply no justification in destroying a regional economy in the hope of resurrecting the Victorian charity system as a viable replacement for the social welfare safety net. The question is how long we can stall the inevitability of these long term consequences whilst our leaders engage in their “Punch and Judy” side show.
Neglecting the most basic aspects of a long term integrated energy transitions policy is simply not good economics. There was a need for a regional industry growth plan that is connected with a rational energy transition plan before any of the states decided to privatize their electricity generation and supply networks. This simple fact was ignored in favour of a short term financial gain for a very small number of beneficiaries. Confidential sale contracts for public assets never seem to disclose the cost of ongoing subsidies and future taxpayer bail outs and grants. They do not disclose the anticipated consumer price impact down track. The impact of future insurance, public health and other liabilities are never analysed or disclosed to the common man. These costs surface years later when the public is presented with a bill. The Hazelwood mine fire and its ongoing health costs alone amount to more than a billion dollars. If we add the cost of successive bush fires and the rehabilitation of the Hazelwood site, legal and insurance bills as well as the need to support La Trobe valley workers and their families, the Victorian taxpayer must surely wonder when this managerial incompetence will actually stop.
What is certain is that we have all known the answers for a very a long time. Let’s consider the clean-up of the Hazelwood cooling ponds. We have known for a long time that the establishment of a combined solar and wind facility on or near the Hazelwood site would provide the energy to clean up the cooling ponds. By combining this with a methane co-generation system that deals with the sewage from regional towns in the La Trobe valley several income streams could easily have been developed during the last 10 years. One of the most obvious examples is a hydrogen production facility. With a global hydrogen price hovering around the $3.60 – $4.00 USD per kg and bio-gas / bio-mass co-generation delivering energy at around 2.5 cents per kwh over ten years, a large scale hydrogen production facility makes a lot of economic sense. This is particularly true since many of our Asian neighbours are in the process of formulating a hydrogen based public transport policy. At least two of our major Asian trading partners have viable space industries whilst Virgin, NASA, SpaceX, Russia and the European Space Industry are actively seeking hydrogen on the international market. Instead of targeting our coal industry subsidies to support future industries and regional growth opportunities, our federal politicians are actively engaged in vacillating over the size of a renewable energy target to facilitate investment. The lack of any coherent industry plan that facilitates the transition from a fossil fuel based economy to a renewable smart and agile economy has never been more urgent. Whereas India is forging a hydrogen public transport policy our state and federal politicians ignore it. Gambling on a coal and LNG led export recovery is not a policy. It is a plan that will consign Australia to a backward economic basket case in the Asian century.
Isn’t the Renewable Energy Target ( RET ) supposed to be the market driven transition to renewables?
The purpose of the RET is to manage the energy capacity market from the large cartel electricity producer and distributor / supply side. Any government that aims to rely on a mandated target without a commitment to a strong regulatory wholesale market mechanism is inviting cartels to manipulate prices. Most economists in Australia would probably shrug their shoulders at this and simply argue that these types of market irregularities are a necessary temporary manifestation that must be tolerated in a privatized free market. I am not sure what the justification for this ideologically driven nonsense actually is? Perhaps it is a carefully calculated apology for regulatory incompetence. What is clear is that it remains an excuse not to regulate the wholesale electricity market because the various stakeholders, which include the states, need to maintain their relative financial stakes at the expense of transparency. Just as much as the South Australian taxpayer was burdened with the undisclosed cost overruns for the Adelaide desalination plant, electricity consumers pay the cost of generator supply manipulation and distributor price gauging practices throughout the national electricity network.
Setting a renewable energy target to manage transition has absolutely nothing to do with managing the transition process. They are two very distinct things. The issue in Australia is the systemic failure of managing the transition process at both state and federal level. Once again I repeat that the failures are at the regulatory and legislative level. When these failures are combined with an inadequate energy demand side policy and compounded by a non-existing regional industry growth policy the common man is right to question both the competence and the sanity of political leadership. Without a vision for investing in targeted industry support we can feel the depth of despair in our regional economies running like a cancer throughout this country. Every Gippsland dairy farmer could benefit from a wind turbine or two to supplement their income. They would welcome targeted investment that would establish bio-gas co-generation on their properties. Many would welcome the establishment of regional farming energy co-operatives and subsidized organic fertilizers produced from sewage and fly ash. Instead we have a federal agricultural minister vexing lyric over ugly wind turbines. Rather than engaging in the debate at an appropriate level that focuses on real solutions for farming communities we get a deputy PM who claims he represents rural interests.
So if you really want an answer about the RET there is only one conclusion that makes sense. The RET is a fossil fuel industry protection policy designed to prolong an unsustainable and entirely inappropriate subsidy scheme. Unless our scientists manage to deliver fusion technology tomorrow there is only one RET. That RET is 100% renewable energy. Anything less is a stalling tactic that will see Australia sink in its own morass of indecision and poorly articulated excuses. Amid the politically confused pandering to vested old industry interests the common man is desperate for some transparency.
Despite all these feisty words Nick, I have to conclude that you basically agree with Josh Frydenberg. The closure of the Hazelwood coal fired power station will increase retail electricity prices. There is simply no other way I can interpret this.
You have to consider everything that is said by anyone in the context in which it is said in and the reason for which the comment is made. Retail electricity will increase regardless of whether Hazelwood closes or not. AMEO’s own wholesale price projection on a 1.2% annual demand increase over the next 10 years project a minimum 20% price increase. This factors into the equation the closing down of coal fired power stations and the changeover to LNG ramping generators. There are of course state variations in this projection but the overall national trend for wholesale prices under the current electricity policy regime remains clear. What is conveniently ignored is that all AEMO pricing projections assume policy as usual. That is to say, the only thing that really matters is a statistical analysis from the capacity market supply side of the equation. It is true that the AEMO analysis does include some basic assumptions about the uptake of solar, solar hot water and efficiency gains made from consumer white goods and battery storage. This is how AEMO arrives at a national energy demand increase of 1.2%. This analysis is however fundamentally flawed. It assumes a basic business as usual policy approach that AEMO has recommended from day dot to any state or federal government. That is to say, AEMO recommends that the only viable way to deliver electricity in Australia is to use a supplementary centralized capacity supply market approach. There is simply no policy for switching to an augmented capacity demand side self-generation program. Let me explain the concept of an augmented capacity demand side approach.
Let us assume that Australia’s state and federal governments are actually interested in controlling retail energy prices because they recognize that energy prices are a fundamental drag on national productivity. Let us further assume that state governments have actually worked out that one of the main drivers for maintaining and attracting new industries to their states is more than a slick marketing campaign and a few overseas trade jaunts. Let us assume that state governments agree to unilaterally support a minimum 20% energy efficiency requirement for all government buildings and for all industries generating revenue in excess of $1 million dollars per annum. Much of this could easily be paid for by the current coal and fossil fuel subsidies as well as a levy on mining exports. After all, it makes no sense that India charges a $1 per ton Australian coal import tax that is paid directly into its own renewable energy fund. Let me further assume that the Victorian government has worked out that 400 solar panels on each of its 3000 plus public school roofs can generate at least 3000 MV of clean energy per annum. Since the closure of Hazelwood requires the state to commission at least 12,000 MV of new renewables the questions the common man would have to ask the minister are:
a.) What is cheaper?
b.) What reduces the state’s carbon liability faster?
c.) What delivers a better investment return and stabilizes energy retail prices faster?
I think you can see where this simple shift in government policy will take the entire demand side equation for the national electricity capacity market. The real question is this. How much energy can be self- generated by all government buildings, hospitals, nursing homes, kindergartens, schools, sewerage farms, supermarkets, industrial estates, warehouses, Universities etc, etc? Now that I have your attention let me expand this simple proposal into a national energy security policy. Let us assume that all states agree to make all regional towns with less than 60,000 inhabitant’s energy self-reliant. We know that a simple formula of 1 daily consumption to 4+ 1 daily energy self-generation + a minimum of 2* daily energy storage can make any community virtually energy independent from the grid. We also know that if we combine a variety of self-generation methods that include rooftop solar, distributed wind ( including small rooftop wind ), small hydro, with a sewage / bio-gas / bio-mas co-generation facility and storage, we can not only eliminate grid reliance, but we can actually export surplus energy into the grid. This is particularly true if we combine our community self-generation with compressed air, flow battery ( hydro) and standard domestic battery storage. Let’s run the numbers for the economists among you.
a.) Solar comes in between 4 – 5 cents per kwh wholesale.
b.) Wind comes in between 4-5 cents per kwh wholesale.
c.) Biogas/ bio-mas cogeneration comes in at 2.5- 5 cents per kwh wholesale over ten years
d.) Compressed air and flow battery ( hydro) storage comes in at 2.5 cents per kwh over 10 years.
e.) Small hydro generation comes in at 5-8 cents per kwh depending on water flow rate
f.) Standard domestic battery storage comes in at between $300 – $500 per kwh and reducing.
What these figures indicate is that any regional town can easily become entirely grid independent as well as a net electricity exporter for less than the annual national fossil fuel subsidy. What is required, is a state government policy and a national energy efficiency plan that mandates that all regional towns with a population of 60,000 or less are to be turned into self-generating closed smart-grid energy hubs.
What are the pros and cons of such a policy? Well, for one thing, all state governments have to acknowledge that all consumer data including utility data is actually owned by the consumer / prosumer. That means that all regional towns that own and run a self-generating closed smart-grid are not required to install any smart meters on any domestic or commercial premise. Smart-grids are by definition a self-managing electricity network. This means that any Utility owned device is by definition an illegal 3rd party device inside a privately owned smart-grid. The only smart meter should exist at the edge of the closed smart gird. The purpose of this single meter is to manage all electricity sold by the community into the grid and for any supplement to be drawn from it.
It doesn’t really take an economist with a triple PHD cluster on his shoulder pads to work out what the impact of this policy on national energy prices and national energy security would be. In fact, the policy would allow for a dual retail pricing policy. A standard inflation and CPI protected retail energy price can exist within the closed smart-grid whilst another external price can exist for the Utility owned part of the grid. This would protect regional communities against future energy retail price fluctuations; attract new industry and jobs. If this approach is supplemented with a hydrogen production and a large scale heat exchange hot water facility the community could establish an undercover year round food production industry growing anything from strawberries to fresh lettuce and tomatoes. The hydrogen facility could deliver a lucrative energy export industry for the state.
What is far more important is the impact this policy will have on Australia’s international carbon obligations and the future of rural economies. In addition, we can argue that the impact of closing Hazelwood, or any other coal fired power station, would in fact be irrelevant.
Hasn’t the Victorian government just announced its intention to fast track the development of wind and solar farms in order to address the projected 12,000MV energy shortfall the closure of Hazelwood means to the state’s energy supply?
I am entirely supportive of renewable energy CM. What I don’t support is stupid policy that will make no impact on energy security or retail price affordability. The knee jerk policy of the Andrews government to rapidly expand concentrated wind and solar generation in rural Victoria is politically driven. It has nothing to do with smart.gov.au. I am saying this for the following reasons.
Firstly, the Victorian minister is poorly advised by her own department. There is simply no justification to lock Victorian energy consumers into fixed price PPA energy agreements with any wind or solar firm wanting to meet the 12,000 MV annual short fall anticipated under a Hazelwood closure agenda. In this sense I have to agree with Josh Freydenberg. The closure of Hazelwood will increase wholesale energy prices. If we consider that the AGL owned Loy Yang A power station has already been converted to gas, the Victorian retail energy price has simply no other short term option. Even though a flattening out of wholesale prices is predicted after the new wind and solar resources have been constructed, the short term prognosis of this policy is both risky and irresponsible whilst locking consumers into long term PPA agreements. This is simply stupid policy because all Victorian tax payers are still paying a subsidy for Loy Yang B as well as an LNG export price subsidy because we have no domestic LNG price cap. The reason I call this policy approach stupid is because the entire basis of the policy advice the minister is receiving is predicated from the industry capacity market supply side of the equation. There is no intelligent approach that tempers this policy with appropriate demand side self-generation and a state wide energy efficiency program that addresses the regional growth opportunities of the state’s rural towns.
Secondly, the lack of a regional industry policy that is seamlessly integrated with a responsible energy transition plan relegates the people of the La Trobe valley to become a national dessert for misery and human despair. The cost of rehabilitating the communities of the La Trobe valley and paying for all the ongoing Hazelwood closure costs will remain an additional burden for all Victorian taxpayers for the next decade. These facts are privately acknowledged by the senior department officials that have actually formulated the Andrews government renewable energy plan. What I find ironic is that the same people are selling this policy as “entirely within AMEO predicted wholesale price forecasts”. At issue is not energy security or indeed energy price affordability. At issue is the need to factor into the equation a GST, royalty and related state government revenue grab that is relatively guaranteed over the next 10 to 20 years. This is the basis of the Andrew’s government renewable energy policy. It has been the basis of every state government energy policy since the privatization of the state energy network. Actually coming up with an intelligent energy transition and regional industry growth policy is simply not a priority for the Andrews government. It has not been a priority for any Victorian state government from the day the electricity network was privatized. The only thing that counts is state revenue and paying for the state bureaucracy to give bad advice to successive governments.
But hasn’t the Victorian minister just announced a 20% domestic solar feed in tariff increase to be phased in over 2 years from July 2017?
That is true! The annual minimum 10% increase in energy distribution and related fee charges makes a mockery of the freeze in domestic solar tariffs. That is in effect what the proposed phase in policy proposal is. Increasing the average feed in tariff from 6.5 cents per kwh to 8 cents per kwh is hardly a gift. The AMEO and NEMO negotiated minimum annual domestic transmission and distribution fee increases agreed to several years ago have reduced domestic solar viability to the point where a pensioner with a daily consumption profile of 2.2 kwh has to install 6.5 kwh on his/her roof in order to break even. Utility charges for high efficient domestic energy users are on average four times greater than their actual consumption costs. This discrepancy makes a mockery of this policy reform attempt. In fact, you would need a domestic feed in tariff above 12 cents to reverse the damage the annual minimum mandated price increase has done to retail energy prices during the last 6 years. Perhaps most curious about this entire saga is that the RBA agreed to this annual increase. Excluding the increase from the CPI is nothing short of collusion in my books. So here you have it. The basic rational of the 10% annual energy price increase is all about a state revenue and GST bracket creep. Even though all increases above 10% are included in annual CPI calculations, the basic 10% annual increase is not. In other words! The pathetic gesture to increase domestic solar feed in tariffs by 20% over 2 years is a slight of hand. All it will do is maintain overall feed in tariff values at 2016 levels for 2 years. Naturally this is sold as an effective price freeze. In fact, it is nothing of the sort for anyone with or without rooftop solar. Even those with rooftop solar are unlikely to applaud. The AEMO forecast minimum wholesale price increase of 20% over the next 10 years stands in stark contrast to an effective 2 year feed in tariff freeze without any relief from the annual connection, supply or hidden fee increases. The devil as always is in the detail my friend! If the government was serious about making a difference it would have mandated a solar FIT increase of 50% and capped the annual network and hidden fees to the CPI.
Thank you very much for your time Father Christmas. I know you are busy at this time of year when children everywhere worry about whether their parents can keep their Christmas lights on. I know that all children are secretly grateful that Rudolf’s nose isn’t owned by an energy company or subject to political backdoor deals.
Ho, Ho, Ho! Merry Christmas and Peace to the world.
You know I recently had a Utility executive offer me a 40% reduction on my energy bill if he could plug Rudolf into the grid and shove a smart meter up his proverbial. I declined because the sums didn’t add up.