Climate change and energy policy go hand in hand. The biggest source of greenhouse gases, and the easiest to change, is electricity generation. Of course we need to reduce emissions in other areas too but the electricity system, as a unified system relying on a relatively small number of large scale generators, is an ideal place to make a big impact. No surprise, then, that in Australia this is the policy area that is most fraught, as politicians and industry players jostle for position and advantage while trying to deflect blame for things that go wrong. Sometimes it seems impossible to get at the truth in the cacophony of mutually incompatible assertions and accusations.
I've recently been trying to get more of a handle on this subject and among other things have just finished reading Matthew Warren's new book, Black Out: How is Energy-Rich Australia Running Out of Electricity?
Warren is an energy economist who has worked for the Minerals Council of NSW, the Australian Energy Council and the Clean Energy Council and has served as environment writer for The Australian. As this CV suggests, he is hardly a left-wing ideologue. He is a fairly orthodox economist, believing in the power of markets and a limited role for government. He longs for the days before climate politics took over the running of the electricity grid, when the major decisions were made by engineers and it worked without fuss.
However, he is also a respecter of facts. He accepts the science of climate change, and the consequent need to decarbonise our electricity industry. What he wants to know is, why are we making such a hash of it? His answer is, politics.
Most economists will agree that if you want to reduce carbon emissions in your economy, the most efficient and effective way to do this is to put a price on them. If the price is set at the right level, this will provide the economic incentive for businesses, particularly power generation companies, to reduce emissions and shift to low- or no-emission means of generation. The caveat is that, particularly in the energy sector where investments have a 50-year life cycle, this price (or at least, the mechanism by which it is set) needs to be stable over a long period.
There was a moment in Australian politics where it looked like this could be achieved. In 2008, Kevin Rudd was Prime Minister and Malcolm Turnbull was Opposition Leader. Since Labor did not control the Senate, they needed the backing of the Coalition to get much of their legislation through the parliament. Both parties supported implementing an Emissions Trading Scheme, their differences were only about the details. They haggled over the scheme and came close to sealing a deal before a revolt within the Liberal Party deposed Turnbull and elected Tony Abbot as Opposition Leader with a mandate to firmly oppose any carbon price.
From then on, the game was over. Even though the Gillard Government implemented a Carbon Tax in 2011, it never had bipartisan support so it was ineffective as an investment signal. Instead, energy policy was driven by sub-optimal policies. The two main ones were the Renewable Energy Target (RET) and the subsidies for household solar. These were highly effective in their own terms. The relative cost of solar and wind generation, both domestic and industrial, has fallen so rapidly in the past decade that domestic solar is now competitive without subsidy and commercial scale solar and wind are the cheapest forms of generation on the grid. Virtually all the new investment in electricity is now in renewables. Even the government's recent Expression of Interest process for government-guaranteed investment in 'firm power' led to the tentative acceptance of only one fossil fuel project.
The problem is that instead of focusing on the grid as a whole, these policies focus exclusively on particular technologies. They flood into the system in an unplanned way, and have impacts which no-one is quite prepared to manage. As a result the transformation of the grid is poorly planned and starting to show signs of strain. For Warren this is not a problem of too much renewables; it is a problem of not enough planning.
The key problem is this: our electricity grid has been designed around coal power. Coal-fired power stations are designed to be always on, or at least only turned off at planned times for maintenance. They burn away 24 hours a day, seven days a week, producing a constant stream of electricity. This can be turned up to maximum at periods of high demand, or down to its lowest feasible level (the actual meaning of the term 'baseload') when demand is low. However, it is always on.
Solar and wind power, on the other hand, are constantly fluctuating. It's not just that solar doesn't generate at night, or that wind doesn't generate on still days. Even when they are working, the amount of power goes up and down - a short lull in the wind will reduce the output of a windmill, or a gust will temporarily boost it; a cloud blowing overhead will reduce the output of a solar farm for a few minutes, then the sun will re-emerge and the power will increase again.
This means that a significant amount of cheap solar and wind power plays havoc with coal generation. When they are generating, they can outbid coal stations in selling electricity to the grid, forcing the coal off the market. Then when their output drops away, the grid goes looking for something to rapidly replace it - but the words 'rapid' and 'coal' don't go in the same sentence. The income of coal generators drops through the floor.
As a result, no-one wants to invest in coal generators any more. We have no new coal-fired power stations under construction or on the drawing-board, and a number of our existing coal fired stations are reaching the end of their life and at risk of being retired early because they are losing money.
These closures should not be a problem in a well-run system - replacements would arrive in good time. However, in the political and policy chaos that surrounds energy policy at the moment, this hasn't happened, and the result is a more fragile system, exemplified by the 'system black' in South Australia in 2016. The result has been a number of 'ad hoc' policy announcements which allow political leaders to sound like they are 'doing something' but which do not actually address the problem.
It has also empowered various politicians to call for the government to intervene and build or guarantee new coal fired power stations. This is silly not only because of the need to decarbonise but because they won't help. A renewables-based system needs back-up that can match the fluctuations seamlessly. In the terminology currently fashionable you don't need 'baseload' - something that's always on - you need 'firm' or 'dispatchable' power. This is a source you can turn on and off at will and which will power up immediately to smooth the fluctuations. Clunky old coal can't do that, so it is useless. Nor, incidentally, can nuclear.
The good news is that there are power sources that can do this job - pumped hydro, batteries, peaking gas generators, even diesel generators - and others that are at least under development although not yet widely deployed, like flywheels and molten salt. There are, however, two problems. Firstly, all of them require a lot more capacity than we have now, and we don't have a clear pathway to attain that capacity. Batteries would need to be at an exponentially greater scale than we currently have. Hydro would need new dams and facilities, and potential sites are strictly limited in our dry, flat country. Even gas, aside from the fact that it is still a fossil fuel (albeit generating less emissions than coal) has problems with the supply and price of gas in a competitive global market.
The second problem is that it is not clear that our grid (the poles, wires, transformers etc that get the electricity from the generator to the home or commercial customer) is properly designed for this new world. For instance, to make the best possible use of household or business solar and battery installations it would be handy to have smart meters installed at each location, so the grid operator can remotely control the amount of power flowing in and out of what are in effect mini-power stations. However, most homes don't have these, and the Victorian Government frightened the horses by initiating a compulsory roll-out that generated a loud consumer backlash. Other aspects of network design need to be adjusted to enable the transition.
There's no technical reason we can't meet these challenges - the technologies are all available. In Warren's view, the barriers are political and the solution is for governments to de-escalate the conflict, develop a bipartisan framework that specifies what governments want in terms of reliability and decarbonisation, and let the technicians and boffins and the market get on with solving it in the best way they can.
Personally, I'm not so sure about this techno-utopia. I don't doubt that our boffins could solve the technical problems, but I'm less sanguine about the power of markets. Warren skips rapidly over the fact that the system which worked so well through the 20th century was largely created and run by government entities. At the end of the century substantial parts of it were sold off in the name of efficiency, but as a consumer it is hard to see the benefits of this, and this privatised system is clearly beginning to fail now. For better or worse, we have to rely on our politicians, if not to come up with the solutions (since these involve technical issues that are beyond them) but at least to back the solutions on offer.
Sadly, one of the outcomes of our most recent election is to drive our politicians, both LNP and Labor, more firmly into the hands of the coal industry. The last thing our coal barons want is a solution to these problems, because they know it won't involve them. Until we can break this relationship, we can expect further political obfuscation and technical claptrap. Much as Warren sees environmental activists as part of the problem, it is only our ongoing vigilance that can keep us focused on solving the problem instead of just kicking it a little further down the road while the coal industry continues to cash in.
I've recently been trying to get more of a handle on this subject and among other things have just finished reading Matthew Warren's new book, Black Out: How is Energy-Rich Australia Running Out of Electricity?Warren is an energy economist who has worked for the Minerals Council of NSW, the Australian Energy Council and the Clean Energy Council and has served as environment writer for The Australian. As this CV suggests, he is hardly a left-wing ideologue. He is a fairly orthodox economist, believing in the power of markets and a limited role for government. He longs for the days before climate politics took over the running of the electricity grid, when the major decisions were made by engineers and it worked without fuss.
However, he is also a respecter of facts. He accepts the science of climate change, and the consequent need to decarbonise our electricity industry. What he wants to know is, why are we making such a hash of it? His answer is, politics.
Most economists will agree that if you want to reduce carbon emissions in your economy, the most efficient and effective way to do this is to put a price on them. If the price is set at the right level, this will provide the economic incentive for businesses, particularly power generation companies, to reduce emissions and shift to low- or no-emission means of generation. The caveat is that, particularly in the energy sector where investments have a 50-year life cycle, this price (or at least, the mechanism by which it is set) needs to be stable over a long period.
There was a moment in Australian politics where it looked like this could be achieved. In 2008, Kevin Rudd was Prime Minister and Malcolm Turnbull was Opposition Leader. Since Labor did not control the Senate, they needed the backing of the Coalition to get much of their legislation through the parliament. Both parties supported implementing an Emissions Trading Scheme, their differences were only about the details. They haggled over the scheme and came close to sealing a deal before a revolt within the Liberal Party deposed Turnbull and elected Tony Abbot as Opposition Leader with a mandate to firmly oppose any carbon price.
From then on, the game was over. Even though the Gillard Government implemented a Carbon Tax in 2011, it never had bipartisan support so it was ineffective as an investment signal. Instead, energy policy was driven by sub-optimal policies. The two main ones were the Renewable Energy Target (RET) and the subsidies for household solar. These were highly effective in their own terms. The relative cost of solar and wind generation, both domestic and industrial, has fallen so rapidly in the past decade that domestic solar is now competitive without subsidy and commercial scale solar and wind are the cheapest forms of generation on the grid. Virtually all the new investment in electricity is now in renewables. Even the government's recent Expression of Interest process for government-guaranteed investment in 'firm power' led to the tentative acceptance of only one fossil fuel project.
The problem is that instead of focusing on the grid as a whole, these policies focus exclusively on particular technologies. They flood into the system in an unplanned way, and have impacts which no-one is quite prepared to manage. As a result the transformation of the grid is poorly planned and starting to show signs of strain. For Warren this is not a problem of too much renewables; it is a problem of not enough planning.The key problem is this: our electricity grid has been designed around coal power. Coal-fired power stations are designed to be always on, or at least only turned off at planned times for maintenance. They burn away 24 hours a day, seven days a week, producing a constant stream of electricity. This can be turned up to maximum at periods of high demand, or down to its lowest feasible level (the actual meaning of the term 'baseload') when demand is low. However, it is always on.
Solar and wind power, on the other hand, are constantly fluctuating. It's not just that solar doesn't generate at night, or that wind doesn't generate on still days. Even when they are working, the amount of power goes up and down - a short lull in the wind will reduce the output of a windmill, or a gust will temporarily boost it; a cloud blowing overhead will reduce the output of a solar farm for a few minutes, then the sun will re-emerge and the power will increase again.
This means that a significant amount of cheap solar and wind power plays havoc with coal generation. When they are generating, they can outbid coal stations in selling electricity to the grid, forcing the coal off the market. Then when their output drops away, the grid goes looking for something to rapidly replace it - but the words 'rapid' and 'coal' don't go in the same sentence. The income of coal generators drops through the floor.
As a result, no-one wants to invest in coal generators any more. We have no new coal-fired power stations under construction or on the drawing-board, and a number of our existing coal fired stations are reaching the end of their life and at risk of being retired early because they are losing money.
These closures should not be a problem in a well-run system - replacements would arrive in good time. However, in the political and policy chaos that surrounds energy policy at the moment, this hasn't happened, and the result is a more fragile system, exemplified by the 'system black' in South Australia in 2016. The result has been a number of 'ad hoc' policy announcements which allow political leaders to sound like they are 'doing something' but which do not actually address the problem.
It has also empowered various politicians to call for the government to intervene and build or guarantee new coal fired power stations. This is silly not only because of the need to decarbonise but because they won't help. A renewables-based system needs back-up that can match the fluctuations seamlessly. In the terminology currently fashionable you don't need 'baseload' - something that's always on - you need 'firm' or 'dispatchable' power. This is a source you can turn on and off at will and which will power up immediately to smooth the fluctuations. Clunky old coal can't do that, so it is useless. Nor, incidentally, can nuclear.
The good news is that there are power sources that can do this job - pumped hydro, batteries, peaking gas generators, even diesel generators - and others that are at least under development although not yet widely deployed, like flywheels and molten salt. There are, however, two problems. Firstly, all of them require a lot more capacity than we have now, and we don't have a clear pathway to attain that capacity. Batteries would need to be at an exponentially greater scale than we currently have. Hydro would need new dams and facilities, and potential sites are strictly limited in our dry, flat country. Even gas, aside from the fact that it is still a fossil fuel (albeit generating less emissions than coal) has problems with the supply and price of gas in a competitive global market.
The second problem is that it is not clear that our grid (the poles, wires, transformers etc that get the electricity from the generator to the home or commercial customer) is properly designed for this new world. For instance, to make the best possible use of household or business solar and battery installations it would be handy to have smart meters installed at each location, so the grid operator can remotely control the amount of power flowing in and out of what are in effect mini-power stations. However, most homes don't have these, and the Victorian Government frightened the horses by initiating a compulsory roll-out that generated a loud consumer backlash. Other aspects of network design need to be adjusted to enable the transition.
There's no technical reason we can't meet these challenges - the technologies are all available. In Warren's view, the barriers are political and the solution is for governments to de-escalate the conflict, develop a bipartisan framework that specifies what governments want in terms of reliability and decarbonisation, and let the technicians and boffins and the market get on with solving it in the best way they can.
Personally, I'm not so sure about this techno-utopia. I don't doubt that our boffins could solve the technical problems, but I'm less sanguine about the power of markets. Warren skips rapidly over the fact that the system which worked so well through the 20th century was largely created and run by government entities. At the end of the century substantial parts of it were sold off in the name of efficiency, but as a consumer it is hard to see the benefits of this, and this privatised system is clearly beginning to fail now. For better or worse, we have to rely on our politicians, if not to come up with the solutions (since these involve technical issues that are beyond them) but at least to back the solutions on offer.
Sadly, one of the outcomes of our most recent election is to drive our politicians, both LNP and Labor, more firmly into the hands of the coal industry. The last thing our coal barons want is a solution to these problems, because they know it won't involve them. Until we can break this relationship, we can expect further political obfuscation and technical claptrap. Much as Warren sees environmental activists as part of the problem, it is only our ongoing vigilance that can keep us focused on solving the problem instead of just kicking it a little further down the road while the coal industry continues to cash in.
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