Origin throws a carbon curve ball

Grant King's views on electricity demand carry weight in Canberra, and his latest numbers – the equivalent of yanking Victorian consumption from alternative forecasts – impose new challenges on both sides of politics.

One of the certainties of the Australian energy supply debate is that Origin Energy’s Grant King does not deliver boring talks.

He doesn’t deliver many each year, but they tend to be chock full of nuts.

While his latest effort has some greenies hopping up and down about his comments on the federal renewable energy target, the really interesting aspect is Origin Energy’s perception that Australia is heading towards a 2020 power consumption level of 250,000 gigawatt hours.

This – viewed against a slew of other models of recent times – is the equivalent of yanking Victoria out of the mix.

Conventional wisdom two to three years ago was that the national electricity demand level at the end of the decade would be around 300,000 GWh – and that it would rise to about 366,000 GWh annually by 2030.

Origin’s new numbers are even lower than the Australian Energy Market Operator forecasts of a few months ago that raised eyebrows.

I wasn’t the only one at the time to ask whether the reported decline in demand since 2008-09 was a blip (driven by a combination of the global economic crisis local impacts and our higher power prices) or a trend.

The Origin Energy numbers say it’s a trend – and that, of course, raises questions about where we will be in 2030, which is more or less the time horizon of the federal energy white paper now being pulled together for cabinet consideration early in the new financial year.

As King points out, a demand level of 250,000 GWh in 2020 also raises some questions about recovery of fixed and regulated electricity supply costs as well as highlighting an issue for the fixed RET.

This forecast also signals that it is highly unlikely we will see new east coast baseload generation construction this decade – apart from what may be required in Queensland to serve the LNG trains and in Victoria to replace carbon-intensive brown coal capacity closed by the Gillard government or an Abbott regime.

King got some media coverage – and inevitable environmentalist yodelling – by pointing out that today’s RET is based on 20 per cent of a higher level of consumption in 2020 and should therefore now be cut back.

The target at present is fixed at 45,000 GWh in 2020, in addition to the existing 15,000 GWh of hydro-electric power supply.

Under the Origin Energy scenario, King says, the RET could be pulled back to 27,000 GWh and this would contribute to reduced consumer costs through less capital outlays on expensive generation, lower network capex and a smaller need for gas-fired peaking plant to support intermittent wind.

Lowering the capacity needed, the renewables mob promptly shot back, would create all sorts of uncertainty for its investors.

Electricity demand in 2020 "can’t actually be predicted,” said the Clean Energy Council, so let’s just keep the 41,000 GWh large-scale RET.

King also noted that the small-scale RET – the one promoting solar PVs – was intended to involve eight million renewable certificates in 2011, but in fact it will account for 45 million RECs in 2012 at a cost to consumers of $1.8 billion.

However, as he said, this cost should fall 75 per cent over the next two years as the federal subsidy is cut back and the the reduction in the over-generous state feed-in tariffs take effect.

The curve ball for the Coalition that Origin Energy's boss included in his pitch was to make the point that retention of the carbon price will enable rationalisation of state-based energy efficiency schemes and the abolition of some state carbon programs.

But, given Tony Abbott’s promises to voters and given the likely outcome of the next federal election, the carbon price is more dead than John Cleese’s famous parrot.

This imposes two needs on Abbott.

One is to demonstrate how he can deliver on his promise to match the Labor commitment to reduce national emissions to five per cent below 2000 levels by 2020 – something the elements of his 'Direct Action' policies revealed to date will not achieve.

The other is to engage with the planning directions to be set out in the federal government’s energy white paper, now expected to appear early-ish in the new financial year.

The government received 279 submissions reacting to the draft white paper it published last December.

Several dozen were from an environmental campaigning group calling itself the Black Finger Prints and predictably out on the edge of real life, but plenty called for Canberra to engage with other jurisdictions to create a stable national basis for investment and to reduce the impact of rising energy costs.

There is strong support in the submissions for an energy reform agenda that includes a detailed implementation plan involving the states and territories.

There is a widespread view that the current energy efficiency programs across all levels of government are poorly targeted and create additional costs for householders and businesses. More than a few, especially from business, are calling for energy measures to be implemented only where market failure can be demonstrated and the proposed approaches can be shown to provide benefits.

The business sector is surely also telling the Coalition, as it is hammering home to the Gillard government, that policies must improve the relative competitiveness of Australian energy prices – and the welfare sector will be in the Coalition’s ear right after it wins the election, calling for a co-ordinated approach to addressing energy cost impacts on vulnerable customers.

It may annoy the hell out of all sorts of lobbyists, but the views of Grant King carry a fair amount of weight with mainstream political leadership – and, in particular, his view of where electricity demand is going to catch serious attention.

You can bet that it will have Martin Ferguson’s Bureau of Resources & Energy Economics peering anew in to the entrails of its forecasting chickens and considering the implications of low demand growth over the decade for projections out to 2034-35.

Keith Orchison, director of consultancy Coolibah Pty Ltd and editor of Powering Australia yearbook, was chief executive of two national energy associations from 1980 to 2003. He was made a Member of the Order of Australia for services to the energy industry in 2004.

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