A CountryMinded Energy Solution
Stable society is a function of a stable economy and adequate distribution of wealth, goods and opportunity to satisfy human needs and social expectations. The supply of affordable energy is absolutely fundamental to this and Government is beholden to ensure it.
There is no doubt that Australia has ample resources to meet its energy requirements. The solutions to our current and emerging problems in the energy matrix are already available. Technological advances will provide more efficient and cheaper options with time.
The challenge is not that we face a crisis in the means of meeting the domestic demand. The challenge is that we face a crisis in timely and sensible policy and the delivery of a coherent plan that brings certainty and confidence to the market and the population.
Australia’s energy crisis is the manifestation of a leadership crisis. Solving the current problem and managing the energy market effectively into the future requires courage and vision today and is simply too important to trust to the current dysfunctional partisan politics.
CountryMinded was founded in response to broad dissatisfaction with the current political system and CountryMinded’s response to the energy issue considers the current fundamental leadership problem.
CountryMinded does not pretend to be the expert authority in any policy area, energy included. However, we are committed to addressing problems through coherent and orderly processes. We look to identify areas of concern, identify the underlying causes and then develop genuine solutions to what is actually causing the problem without being distracted by the symptoms.
Often the problems we face as a society are contextual. In this we mean that it is more often how we think about problems that prevents workable solutions rather than the problems being unsolvable.
The energy problem is not an issue of resource or technology; it is a problem of the current political process.
We commend to you the Australian Energy Authority (AEA) concept as the best means of managing the political dysfunction that is crippling our energy future.
Why we need to act on energy
We are sleepwalking our way into an energy crisis. Australia is vulnerable to disruptions in supply and price of energy now more than ever. It is essential that the energy debate is not limited to electricity, but encompasses all forms of energy requirements in electricity generation, transport, industry and heating.
Some key issues that need to be resolved include:
- Electricity supply and price volatility
- “Just in time” supply chain vulnerability
- Fuel price volatility
- Increased dependence on offshore product for gas and liquids.
- Over-commitment of domestic resources to export markets.
- Requirement to reduce emissions
- Generation capacity as traditional generation assets approaching end of life
- Threats to industry viability with increasing volatility in cost and supply
Why we need an AEA
Government appointed energy regulators, advisors and operators are failing to provide adequate strategic direction for the sake of the nation and are currently captured by the political process.
Currently there are a range of bodies operating to poor effect and with highly questionable independence and or accountability. For example:
AEMC - Australian Electicity Market Commission
- Reports to the Minister and is captured politically
- The Chair and Commissioners are political appointments
- Advisory body with no real ability to act
AEMO - Australian Electricity Market Operator
- Tactical focus no real strategic capacity particularly in the context of intergenerational equity
- Vision to provide energy security for all Australians, but clearly ineffectual
- Short term and reactive structure.
- Constrained by legislation and function of the AER and AEMC
AER - Australian Electricity Regulator
- Enforces rules and legislation established by others subject to direct political interference
- Board members are statutory appointees
- Ultimately captured by the political process
These bodies have failed to provide long term energy security and clearly have no ability to manage the partisan politicisation of the energy debate in Australia.
The AEMO is itself heavily implicated in the recent SA blackouts because they themselves prescribed the safety settings that tripped wind generators and caused them to drop out of the grid. AEMO was warned of the possibility of the SA blackout nearly a decade ago and failed to act. The AEMO also ignored Bureau of Meteorology temperature forecasts, underestimated demand and failed to bring gas fired generators online ahead of the event. The SA blackout did not need to be so disruptive and the cost of the added disruption rests almost entirely with AEMO.
The AEMC, AEMO and AER have overseen energy rules that have resulted in overselling of our gas resources, underinvestment in new generation capacity and overinvestment in poles and wires in the national grid (that has driven up energy prices).
The overinvestment in poles and wires due to energy market rules has arguably been one of the single biggest contributors to energy price rises in recent years and very much larger than the impact of the carbon tax at any point. At the same time these investments have delivered little to no net improvement in supply efficiency or supply.
The current public energy debate is poorly informed and subject to extreme pressure from vested political and commercial interests. Neither side of Government is seriously considering impartial and credible information if it strays from their ideological or policy leanings.
It is critical now to establish a suitable vehicle to develop a long term strategic energy policy. It is essential that the vehicle and policy are not captured or corrupted by short term partisan politics or vested interests including bureaucratic interests.
The looming energy crisis impacts on:
- Cost of living
- Cost of doing business
- Job security and business confidence
- Continued supply of goods, services and amenities
Simply our entire economy and lifestyle are under serious threat now from poor preparation for an evolving energy future.
What is CountryMinded proposing?
CountryMinded has proposed that Australia should establish an independent energy Authority (AEA) to replace the AER, AEMC and AEMO that is not captured by partisan politics and vested interests.
It is essential that the AEA is independent of Ministerial interference and electoral cycles to provide certainty to the development of energy policies and market rules.
The AEA will be responsible for developing a whole of nation energy strategy and market aimed at ensuring a resilient nation over the long term with a specific view to intergenerational equity.
The AEA would be responsible for all aspects of the energy sector including all solid, liquid and gaseous fuels for industry, transport, heating and generation.
The AEA will provide market signals to ensure that infrastructure is delivered as it is required on a generational timeframe. In turn this means meeting current and future demand with an evolving energy matrix that satisfies socio economic and environmental concerns. Despite the current rhetoric this is achievable, but relies on policy and market certainty for investment and development.
CountryMinded is proposing that the charter, function and mission of the AEA would resemble the energy equivalent of the Reserve Bank of Australia. In this the AEA would possess similar political and commercial independence. Functionally the AEA would have a role in balancing the impacts of variations in fiscal policies of successive Governments through manipulation of the energy market policy and rules to maintain a consistent adherence to target range tolerances in suitable long term energy security indices.
The AEA would establish national frameworks that incentivise statutory as well as commercial investment in strategic infrastructure and resources to ensure the energy security of the nation.
It is clear that the decline in political leadership and political statesmanship in Australian politics has now resulted in an inability for any major party to rise above partisan political gameplay. As a result, essential legislation and nation building policies are not emerging to meet the real needs of the nation.
It is therefore clear that issues such as energy policy must be structurally safeguarded from the political nonsense and prioritised and managed as a national priority in the same way we do the monetary system.
Ongoing destabilisation of the energy market in Australia will ultimately impact small business, regional communities and the vulnerable most profoundly. It is essential that we address the leadership void for the energy sector immediately.
Australian Energy Sector Snapshot
Australia uses approximately six thousand petajoules (6 000 000 000 000 000 000 joules) of energy per year. One petajoule would power about nineteen thousand homes for a year.
It is very important to note the spread of generation and consumption. The current energy debate remains focused on electricity supply and gas more generally, but the reality is that the entire energy matrix is in crisis as the political obfuscation continues to breed uncertainty.
Table 1. Energy Consumption by Industry
This table outlines the major consumers of energy in the economy. Many people do not consider the non-electricity elements of the energy market and so do not understand the scope of the energy crisis facing the nation.
It is important to consider the impacts of rising energy costs on key industries and the impact they potentially have on regional communities. While this briefing is not intended to preempt to specific solutions and AEA may provide, it is important to highlight a few of the regional issues, particularly for transport, agriculture, manufacturing and mining.
Australia is a large country and heavily reliant on transport of people and goods locally, interstate and internationally. Our just in time culture is completely dependent on prompt transport services that are almost exclusively dependent on internal combustion engines.
There are six hundred and fifty thousand registered trucks and buses in Australia. The ABS indicates there are nearly sixteen million registered passenger and light commercial vehicles in Australia and Australians buy approximately one million new cars per year.
As an island nation that is highly engaged in trade through exports and imports, Australia is vulnerable to any volatility in supply or price of transport fuels for freight of goods. This impacts exporters and importers equally.
The quantity of goods moved on Australian roads annually is staggering and this sector is almost exclusively run on diesel power. Australia sources diesel fuel stocks almost exclusively from Singapore. There are no public fuel reserves and commercial stocks would be unlikely to last more a few weeks and less in regional areas.
Any disruption to transport systems will impact on the entire population as the supply of food, fuel, medicines etc are all governed by a just in time supply chain culture. This supply chain management is completely reliant on diesel powered freight runs.
Figure 1. Australia’s estimate stockholdings at point of sale
The implications of rising fuels costs threaten the viability of the current supply chain and in turn threatens the value of the transport assets and infrastructure in the longer term.
Ultimately consumers will carry the added freight costs and regional communities will suffer most profoundly as centralised packing and handling facilities undermine the independence of regional centres.
Australian farmers are regarded as the most efficient in the world. Australian agricultural efficiency is completely dependent on energy intensive mechanization, both in on farm activities and in the transport and distribution of goods produced.
Production, packing and distribution of fresh produce is heavily reliant on refrigeration. These costs are not discretionary in terms of production and or food safety.
It is essential to the future prosperity of the nation to mitigate the exposure of Australian agriculture to the looming increase in volatility of price and supply of the current fuel stock. Agricultural supply chains do not provide any capacity for producers to set prices to recoup costs associated with rising energy input costs.
Australian agriculture currently relies on diesel powered farm equipment. The equipment has an estimated value in excess of fifty billion dollars. These assets are at risk of becoming stranded in the event of rising fuel costs.
If diesel prices continue to rise, the existing economic commitment to existing plant, equipment and infrastructure becomes unmanageable. There is an urgent need to create diesel alternatives at an affordable price and to mitigate the potential capital write downs of existing plant and equipment.
Agricultural production is increasingly reliant on fertilisers. Fertiliser production has already been moved off shore due to rising gas domestic gas costs. This exposes production indirectly to rising energy costs.
Regional Australia is heavily reliant on viable agricultural sectors and these in turn are unavoidably captured by the energy market.
Australian agriculture is an essential industry. The contribution of agriculture to the Australian economy belies the largely unrewarded and unrecognised social and environmental contribution to the nation.
The outcomes of rising energy costs will be diabolical for agriculture and all who rely upon its viability in the service sectors.
While mining has a considerably different social foot print, much of the same arguments apply for mining as they do for agriculture.
There is a high reliance on energy intensive mechanisation in extraction, processing and distribution processes with limited opportunity to manipulate the global pricing systems to accommodate disproportionately high energy costs in Australia.
One additional issue is the power requirement for mines that are often isolated. Remote power generation is often diesel or gas powered. In the face of softening commodity prices and rising energy costs, these methods are unlikely to be economically sustainable.
The lack of infrastructure in key mineral precincts has seen delays in development of these resources and ongoing energy cost increases may see perpetual under development of these assets.
Mining is an important component of the economy and it is essential that the energy investment and development is optimised to ensure the sector is fully utilising the resources that are available.
Manufacturing in Australia is under siege in the global context. We endure a highly regulated and comparatively expensive labour market. Government compliance costs are significantly higher than for our competitors and successive Government policies have eroded support and the trade balance to undermine domestic manufacturing.
Energy has been one of the few comparative advantages that Australian manufacturing enjoyed. This has now been completely eroded and rising costs and decreasing reliability in supply will be unmanageable imposts.
We have seen a constant shift of manufacturing processes offshore. Decisions are now being directly influenced by energy cost. Fertiliser manufacture is linked to gas availability and domestic production has now been shifted off shore.
We have seen steel works and aluminium smelters shut down, with cost of energy a major concern.
The Australian manufacturing sector is vitally important in value adding and capturing more of the inherent value of what we produce. It is a key employer and its viability is a significant economic driver for the wealth retention and creation for the nation.
Energy is derived from a range of sources and it is important to consider the sources of energy in the current matrix. Table 2 outlines this current sources of energy, buy this matrix is constantly evolving and new technologies will have a massive bearing on how this changes.
It is important in shaping energy strategies to understand both what is desirable and what is achievable. Much of the current rhetoric in the debate is not based in fact, further confusing the debate.
Australia has so far failed to understand the opportunity to proactively shape our energy future and set about implementing policies to make it happen. Too much of the debate is focused on preconceived notions of what is unachievable based on outdated knowledge in a sector that is changing rapidly.
Table 2. Energy Consumption by Fuel Type
Australia has abundant supplies of coal of varying quality including vast deposits as yet unmined. Australia currently exports ninety percent of its coal production.
Coal is unsuitable as an internal combustion engine fuel and increasingly unpopular/undesirable as a fuel stock due to the comparative inefficiency of single cycle steam turbine power generation.
Australia’s coal fired power generator fleet is nearing its end of life. While the fuel stock is comparatively cheap, the amortised cost of constructing coal fired generators is now higher than alternative generations methods including large scale solar.
Overlaying the economic considerations of construction with the increasing environmental and climatic concerns associated with the inefficient nature of burning coal to heat steam as a generator suggests coal is highly questionable in the future power matrix.
Regardless of the Coalition rhetoric, it is unlikely any bank will finance a new coal fired power station because they are no longer economically competitive as a power source.
If coal is to have a future in our energy matrix, Australia needs to invest in technology that can elevate coal to be suitable for internal combustion engine to increase its energy yield efficiency and compete with oil and gas.
Virtually all of the liquid fuels consumed in Australia are produced off-shore, with the remaining oil refineries scheduled for closure in the near future.
The majority of Australian liquid fuels are produced and supplied by one, off-shore supplier that wholesales to Shell, BP, Mobil etc. for retailing throughout Australia.
Australia does not have any public fuel reserve policy in play and commercial operators do not carry significant stocks in the event of any disruption to supply.
Figure 2. Australian fuel production and stockholding
Australia has oil resources including shale oil reserves that are as yet undeveloped. The decline in refining capacity and distribution is an added impediment to the development of Australian oil reserves.
Gas is one of the most versatile fuels in our economy. It is used in electricity generation, manufacturing, domestic heating and transport applications. It burns relatively cleanly with no particulate or gas pollutants other than carbon dioxide.
Combined cycle gas turbine generators provide twice the energy efficiency of coal generators and are more responsive to fluctuating demand.
Australia has considerable natural gas deposits that should adequately supply the Australian industrial and consumer markets.
Unfortunately, Australia has no resource reserve policy in place and gas resources have been oversold to foreign entities with no caveat to supply Australian domestic needs.
Australia consumers are now paying more for Australian gas in the domestic market than consumers using Australian gas in overseas markets.
Current (2017) indicative gas prices are above $10/gigajoule. In 2013 gas was $6/gigajoule. In 2009 gas cost $4/gigajoule.
The result of the global gas rush has seen the proliferation of unconventional gas extraction in many parts of the world with alarming consequences. Australia is now wrangling with Coal Seam Gas development that should not be necessary to meet domestic gas needs.
In recent years it appears gas generators have been implicated in the high wholesale electricity prices because they have been gaming the system and causing price spikes.
There are a range of renewable energy sources, but the top four in order of their current utilisation are plant products (bagasse and timber products), hydro, wind and solar.
Much focus is being applied to wind and solar as the debate rages about reliability and intermittent production and the range of renewable energy targets that should be applied to the energy matrix in the future.
The reality is that the technology is evolving at an increasing pace. Proactive energy markets, including highly industrialised economies like Germany, elsewhere in the world are now incorporating over 50% renewable sources cost effectively and without disruption.
Australia has some of the best wind and solar resources in the world and we are underutilising these resources, particularly in regional areas.
Australia has excellent nuclear fuel resources.
Nuclear energy suffers greatly from social stigma and the “not in my back yard” (NIMBY) attitude where people recognise the validity of the technology, but don’t want it near them. Largely this is born from concerns about waste and potential for failures.
The evolution of the technology has addressed these concerns so that modern reactor waste is genuinely benign and building standards accommodate most construction risk.
Australia has sufficiently abundant energy alternatives to not require the development of large scale nuclear generators at this stage. However, some options may exist for smaller mobile nuclear generators for rapid deployment or remote applications.
CountryMinded is responding to the current energy debate proactively. Consistent with current policy this document seeks to clarify the proposal to establish an independent energy authority hereafter referred to as the Australian Energy Authority (AEA).
Energy security is critically important to our economic and social stability. No sector of the economy is free from reliance on energy, be it in form of electricity, transport fuel or heating fuel. Due to the sheer size of Australia and the nature of regional industry generally, rural and regional Australia is the most exposed to supply and price shocks in the energy markets.
The ongoing shambles that is the energy debate demonstrates the lack of political leadership capacity and courage to develop and implement long term energy policies that will provide generational certainty in energy security.
Our entire way of life has been developed and is critically dependent upon an abundant supply of affordable energy. Our reliance on domestic and international trade and just in time supply chains makes transport fuel security as important an issue as power generation and gas.
Access to affordable energy in all its forms is under threat and this raises serious questions about what we can expect of the future.
When the Deputy Prime Minister declares any aspect of energy policy aspiration is “bat poo mad” based solely on an ideological opposition to the proponents, the debate is in crisis. Australia deserves and desperately needs better leadership and management of the debate in all its detail.
The challenge is immense, but there are solutions to every challenge if we can put aside partisan and combatant politics.