WAKE UP AUSTRALIA: Rethink energy now
Policymakers haven't grasped that the nation is on a journey to a low-carbon economy - first in electricity generation, then in transport.
To see all articles from Business Spectator's 'Wake Up Australia' campaign, click here.
The Copenhagen forum may not have been the defining planetary event many hoped for, and the uncertainty surrounding the government's CPRS legislation requires scenario planning by business with excessively broad assumptions. Yet, near term drivers of energy strategies are clear:
– Costs for energy, and all utilities, will increase by multiples of CPI – especially for consumers with low bargaining power such as SMEs and retail customers. Large corporate customers may be locking in energy contracts on currently favourable terms, but the outlook is for sharp cost increases in the future.
– The nation is on the journey to a low carbon economy, initially in electricity generation, eventually in transport. A cocktail of public policies such as an emissions trading scheme, mandated renewable energy use, feed-in tariffs, other financial subsidies to stimulate good environmental behaviours, and government funded research and development and demonstration projects now define the initial stages.
– The regulatory and compliance burden will grow – something to do with the second law of (corporate) thermodynamics about regulatory entropy always increasing.
– The climate change debate will become more divisive as climate science is increasingly challenged, but the conviction of the young and of many company employees, together with customer encouragement, will keep the environmental agenda foremost in many firms' plans.
Of course, the umbrella policy challenge is the form of new energy capacity – it's timing, funding, and technology.
If Australia's population is to grow by more than 50 per cent by 2050, and if the government's laudable agenda promoting improved productivity from all of us is successful, we can expect a period ahead of surging economic growth. There is a near universal connection between GDP and energy demand which suggests Australia's total energy needs will more than double by 2050 along with our economy – a conclusion which applies equally to the rest of the world.
Current national electricity generating capacity approaches 50GWe, with more than 90 per cent delivered by fossil fuelled power stations. We'll need another 50GWe of new capacity while managing the asset lives of existing energy infrastructure.
These investment decisions – at $1 billion or more per GWe – will be made by energy utilities and state governments which will try to optimize returns from existing facilities while responding to various demand scenarios, to government policy settings (such as a carbon price), and to judgements about the merits of competing technologies.
Lack of policy certainty at both federal and state levels continues to build the risk of energy shortages over the next decade, especially as economic growth and energy demand rebound in states such as Queensland and NSW (see WAKE UP AUSTRALIA: Misguided power, January 28).
A number of commentators, including, most recently, the Bill and Melinda Gates Foundation, have made the point that setting energy policy with 2020 as a target date avoids confronting the challenge of creating a near zero carbon economy by 2050 in wealthy nations.
Yet connecting the dots between now and 2050 for electricity is, at least conceptually, fairly clear. The widespread use of coal makes way for gas as the primary fuel in Australia, after which nuclear power becomes the load bearing girder for baseload electricity generation (including that required to power an electric vehicle and hydrogen economy) by mid century. Yes, use of fossil fuels will persist but carbon capture and storage technology must become ubiquitous. And renewable energy mainly in the form of wind and solar will make important, but subordinate, contributions.
However, government policy at present does not support nuclear power for Australia. In my opinion and that of other countries around the world, this eliminates a critical element of a successful clean energy strategy. Public opinion is, however, moving in favour of nuclear energy.
While debate around energy technologies preoccupies us, distribution systems will need attention to cope with the growth in demand and the formidable challenge of coupling to intermittent sources such as wind. On the other hand, the extensive transmission network covering the state of Victoria suggests that geothermal energy may find earliest opportunity in that state as critical transmission costs may be lowest.
At present, Australia has a world class energy generation and transmission system. Costs are low, industry is confident of supply integrity, power outages are rare, energy utilities are capably managed and the industry is well regulated.
Yet the future will stress each of these elements. Investment in environmentally compliant new capacity is costly, current hesitation to make the financial commitments exposes us to blackouts in the future, retail prices must be allowed to rise substantially. Closing the gap between politically correct rhetoric and actual practise will test the resolve of state governments, company boards and managements.
The year ahead should demonstrate the strength of our convictions and the credibility of our strategies.
– Costs for energy, and all utilities, will increase by multiples of CPI – especially for consumers with low bargaining power such as SMEs and retail customers. Large corporate customers may be locking in energy contracts on currently favourable terms, but the outlook is for sharp cost increases in the future.
– The nation is on the journey to a low carbon economy, initially in electricity generation, eventually in transport. A cocktail of public policies such as an emissions trading scheme, mandated renewable energy use, feed-in tariffs, other financial subsidies to stimulate good environmental behaviours, and government funded research and development and demonstration projects now define the initial stages.
– The regulatory and compliance burden will grow – something to do with the second law of (corporate) thermodynamics about regulatory entropy always increasing.
– The climate change debate will become more divisive as climate science is increasingly challenged, but the conviction of the young and of many company employees, together with customer encouragement, will keep the environmental agenda foremost in many firms' plans.
Of course, the umbrella policy challenge is the form of new energy capacity – it's timing, funding, and technology.
If Australia's population is to grow by more than 50 per cent by 2050, and if the government's laudable agenda promoting improved productivity from all of us is successful, we can expect a period ahead of surging economic growth. There is a near universal connection between GDP and energy demand which suggests Australia's total energy needs will more than double by 2050 along with our economy – a conclusion which applies equally to the rest of the world.
Current national electricity generating capacity approaches 50GWe, with more than 90 per cent delivered by fossil fuelled power stations. We'll need another 50GWe of new capacity while managing the asset lives of existing energy infrastructure.
These investment decisions – at $1 billion or more per GWe – will be made by energy utilities and state governments which will try to optimize returns from existing facilities while responding to various demand scenarios, to government policy settings (such as a carbon price), and to judgements about the merits of competing technologies.
Lack of policy certainty at both federal and state levels continues to build the risk of energy shortages over the next decade, especially as economic growth and energy demand rebound in states such as Queensland and NSW (see WAKE UP AUSTRALIA: Misguided power, January 28).
A number of commentators, including, most recently, the Bill and Melinda Gates Foundation, have made the point that setting energy policy with 2020 as a target date avoids confronting the challenge of creating a near zero carbon economy by 2050 in wealthy nations.
Yet connecting the dots between now and 2050 for electricity is, at least conceptually, fairly clear. The widespread use of coal makes way for gas as the primary fuel in Australia, after which nuclear power becomes the load bearing girder for baseload electricity generation (including that required to power an electric vehicle and hydrogen economy) by mid century. Yes, use of fossil fuels will persist but carbon capture and storage technology must become ubiquitous. And renewable energy mainly in the form of wind and solar will make important, but subordinate, contributions.
However, government policy at present does not support nuclear power for Australia. In my opinion and that of other countries around the world, this eliminates a critical element of a successful clean energy strategy. Public opinion is, however, moving in favour of nuclear energy.
While debate around energy technologies preoccupies us, distribution systems will need attention to cope with the growth in demand and the formidable challenge of coupling to intermittent sources such as wind. On the other hand, the extensive transmission network covering the state of Victoria suggests that geothermal energy may find earliest opportunity in that state as critical transmission costs may be lowest.
At present, Australia has a world class energy generation and transmission system. Costs are low, industry is confident of supply integrity, power outages are rare, energy utilities are capably managed and the industry is well regulated.
Yet the future will stress each of these elements. Investment in environmentally compliant new capacity is costly, current hesitation to make the financial commitments exposes us to blackouts in the future, retail prices must be allowed to rise substantially. Closing the gap between politically correct rhetoric and actual practise will test the resolve of state governments, company boards and managements.
The year ahead should demonstrate the strength of our convictions and the credibility of our strategies.
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