Tracing Australia's true energy outlook

Like witnesses to a crime, stakeholders in the production of Australia's electricity have all given their own interpretation on Canberra's latest official energy report.

A half century ago I worked as a courts and crime reporter for a daily newspaper. Apart from impressing on me how nasty we humans can be to each other, my courtroom experience taught me a lesson that has endured: what you see of an event depends very much on perspective, both physical and mental.
Differing witness perceptions are the bane of most trials.

Thus it is this week with the reactions to the new federal government report on electricity generation costs.

The report from the Bureau of Resources and Energy Economics was barely out the door in Canberra before green boosters were hailing it as signalling the dawn of a new power supply age.

For the Clean Energy Council, for example, the study confirms that the way Australia is generating and consuming energy is "quickly changing”.

The Australian headlined a report "Wind, solar to eclipse coal-fired electricity” and Climate Spectator contributed "Solar PV, wind to be cheapest electricity by 2030".

Of course, what the BREE report actually means is that, while the cost of new-build renewables may be competitive against new-build coal in a decade or so, this does not knock out current generation capacity, which remains dominant in the east coast and Western Australian markets.

What’s more the current trend to lower consumer demand for power, also hailed in some quarters as the dawn of a new age but possibly more a reaction to current economic pressures, means that there will be little call for new generation capacity until about 2025 – apart from wind farms built under the demands of the renewable energy target legislation and solar farms subsidised to the tune of hundreds of millions of dollars by taxpayers.

On all the available information, other than when viewed through green-tinted goggles, Australian power supply in 2030-35 will still be three-quarters fossil-fuelled.

One of the under-appreciated hassles our heirs and successors may face is that a lot of the gas generation we build in the next five to eight years may be open cycle, intended to take advantage of higher-priced market opportunities when the wind isn’t blowing and peak demand is rather high.

Not only is this not cheap power but open cycle gas turbine tends to be substantially higher-emitting than its cousin, baseload combined-cycle gas.

The new BREE report, in fact, is a mixed bag for those of a green persuasion, most especially because it talks up the prospects for nuclear.

(I wonder if our holidaying prime minister winced when she found that Nine News, with millions of Australians tuned to its TV station for the Olympic broadcasts, was reporting that "Energy cost report opens nuclear door", arguing that BREE is "leaving the door open to reignite the nuclear debate”.)

What too few of the media latched on to is the fact that a core element of the wide-ranging BREE study – it looked at 40 technologies and enlists advice from consultants WorleyParsons, CSIRO, a broad spectrum of energy stakeholders and even the International Energy Agency – is that the carbon price regime will stay in place and, on Treasury modelling, will be more than double its $23 entry level by 2030.

This report is not a signal of a new clean and low-cost energy future but of an increasingly expensive one with greener edges.

The other element to set green teeth on edge is that BREE finds combined cycle gas generation joins nuclear power in its modelling as lower-cost supply – but not low-cost – to rival renewables "and remains cost-competitive out to 2050".

Say after me slowly: this means lots of coal seam methane and shale gas and lots of fracking, all anathema to the Greens and their fellow travellers.

Indeed, the earlier BREE projections to 2034-45, published last December, see black coal and gas level-pegging as the dominant power supply fuels with wind farms and hydro-electric power contributing a substantial, but much smaller, share.

It is hard to see how this new report changes that outlook in any material way.

A downward shift in the costs of renewable power does not signal wholesale rejection of existing generation capacity – unless taxpayers and consumers want to wear considerable expense.

For the environmentalists and investors in the sector, one of the disappointments of the BREE report is that it is rather downbeat about the prospects for geothermal energy.

This should be a worry for Julia Gillard, Wayne Swan and the Treasury boffins because they have in part hung their "clean energy future” hat on a large take-up of geothermal power from the mid- to late-twenties.

On the other hand, but not pleasurable for the Greens, who hate the idea, BREE is rather upbeat about the future of carbon capture and storage, which is critical to the Gillard government’s 2050 power vision.

The agency is of the view that CCS will become commercially available from 2030 – a key contribution to a government mid-century perspective that roughly half electricity supply will then be met by fossil-fuelled plants able to capture and find a burial site for carbon dioxide.

The nuclear lobby is not unhappy about this attitude because it tends to doubt that CCS will succeed and is quietly confident that, when it is recognised as not being available, reactors will be the obvious "go to” alternative.

Releasing the BREE study, Energy Minister Martin Ferguson was concerned to emphasise that it "does not seek to predict future market outcomes” – which made it rather cheeky of him to headline his statement "Renewable energy to shine by 2030” – but that, of course, is just what the media and the green lobby wants to see.

Other witnesses have different perceptions.

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.