The gas industry is now seeing how, when powerful interests block action, it can hurt a ‘transition option’.
As climate science provides increasingly dire warnings, more people now say we can’t afford to just reduce emissions through use of gas and other weak strategies such as marginally more energy efficient buildings. We have delayed action for too long. Now we need to jump to zero emission and beyond zero emission solutions.
As electricity consumption continues to decline, Origin Energy has realised this has big implications for its gas-fired power generation strategy. It is also a game changer for electricity networks. So the opposition to policies such as the Renewable Energy Target is not surprising.
This is not a new phenomenon. I recall talking to a representative of a building industry association who was complaining about the varying state-level building energy requirements and the rapid rate of change. I pointed out to him that his association was to blame for the mess. They were so effective at blocking change at a national level that the community was left with no option but to drive change at the local level where they had sufficient influence.
Going back a hundred years, the gas industry tried to block the introduction of the much more efficient mantle gas light from Germany: at that time gas lights were just like kerosene lamps, and relied on the luminosity of the flame to produce light. A local hardware shop began importing the mantles, and the gas industry lost its battle. However, this had a silver lining for the gas industry. It was losing market share to the electric light for street lighting. But the new mantle light reduced gas light running costs and provided a brighter light.
The roll-out of electric street lighting was delayed by decades, and the gas industry was saved. We live in a complicated world! And many powerful industries just don’t seem to learn from history. They need to ride the wave, not try to block or ignore it.
Smart consumers that could interact with dumb grids
I and others have been advocating for smart demand-side systems that integrate storage, renewables and smart, efficient equipment. These could manage a consumer’s interaction with existing ‘dumb’ grids and save a lot of money. Yet, in Australia, there has been little interest from the energy industry or researchers.
Enormous amounts of money are being thrown at ‘smart’ grids by the federal government, for example the $100 million Smart Grids Smart City project. Little is spent on ‘smart’ consumers, however. I must be naive, because I haven’t been able to work this out.
But recent discussions about drivers of over-investment in networks have made sense of this.
Network owners get paid based on investment in their networks, not investment on the customer side of the meter. So they focus on expensive ‘smart’ grids. Energy policy people are largely captive to the world view of the electricity supply industry, so they allocate money where they’re told it’s needed.
Variable demand is apparently a ‘problem’ that has to be dealt with by supply-side measures. So it’s left to international businesses, like Samsung, and renewable energy firms selling distributed energy solutions to develop consumer-side solutions.
Yet again, energy policymakers will be surprised when these demand-side solutions take off, as consumers yet again act to protect themselves from the disempowering, costly strategies of the existing supply industry and policy makers focused on maintaining a welfare system for the industry.
Let’s hope that the inquiry into electricity pricing can expose this bizarre situation and change it.
The global contradiction
Eminent scientists such as James Hansen have pointed out that, to limit climate change, we cannot afford to burn more than a small proportion of the fossil fuels that businesses already ‘own’. Yet the search for more continues – with public subsidies.
Governments need to phase out incentives to search for more fossil fuel resources, and shift those funds to driving energy efficiency, renewables and innovation. Of course, it is difficult to do this when those industries are so powerful. But we are tipping money down the drain and making our future challenges even more difficult.
The expansion of Australia’s coal industry is another example. Our industry is investing record amounts in expansion. Yet the International Energy Agency forecasts that, for a global 450 ppm CO2 path – with around a 2 degree Celsius temperature rise – global coal demand would decline by a third from today’s level. Further, New Scientist (11/10/12) points out that US coal producers, who face declining local demand, are gearing up to export coal. Is our coal industry digging a hole for itself, as well as the climate?
PM Julia Gillard has finally taken the action that governments since the mid 1990s have failed to take. She has exposed the energy ‘club’ to public scrutiny by establishing a senate inquiry with wide-ranging terms of reference. Unfortunately the timeframe of the inquiry is short, because CoAG must move quickly to influence the next round of price setting for network and transmission funding. But at least it’s happening.
Hopefully the inquiry will take the opportunity to review the fundamentals of energy markets, such as the objective of the National Electricity Market, and put in place ongoing mechanisms to refocus the electricity industry – and its policymakers. My submission is on the inquiry website.
The Hansard records of the inquiry’s hearings are very illuminating. The energy sector’s position is “we’re working on this, so leave us alone and we’ll sort it out”. Everyone else, from business to social justice advocates, says major changes are needed. Of particular concern is the admission by energy policy makers (e.g. Department of Resources, Energy and Tourism, DRET), industry participants (e.g. National Generators Forum) and industry lobbyists (e.g. Energy Supply Association of Australia) that no one really understands the drivers of falling demand.
I know of no other industry with an annual turnover of tens of billions of dollars that knows so little about how its customers behave and think. How can the Australian Energy Market Operator (AEMO) sensibly forecast electricity demand? How can DRET publish its imminent Energy White Paper? How much could this lack of data cost the economy through poor investment decisions?
In September, Myer commented that it would be closing down some stores due to the increase in online shopping. In South Korea, global supermarket chain Tesco has been trialling virtual supermarkets on underground railway stations. Think of the energy saving potential and the implications for the real estate and building industries. And the time saved by consumers!
Virtualisation is certainly a big player in the journey towards a sustainable world.
The challenges of setting targets
Most policymakers love the idea of creating market mechanisms with caps or targets, to allow the market to pursue ‘least cost’ solutions. However, if the target is too easy, this elegant policy approach becomes a boom and bust nightmare.
Almost every trading scheme seems to suffer this problem. The original MRET target was met several years before its deadline. Australia’s carbon trading scheme requires the regulator to set the cap five years ahead, so it can’t respond to unexpectedly low or high prices. The world is awash with cheap Certified Emission Reduction credits. Even the original NOx trading scheme in the US suffered from much lower than expected prices.
You would think policymakers would have realised that any cap or target scheme needs a mechanism to automatically revise the target if prices fall outside a specified band for more than a set period. This would certainly help to avoid the politics and uncertainties caused by reviews of targets, like the present RET review. Then participants could be more confident of future prices and more stable market conditions.
Why is this so hard?
Alan Pears has worked in the energy efficiency field for over 20 years as an engineer and educator. He is Adjunct Professor at RMIT University and is co-director of environmental consultancy Sustainable Solutions.