AEMO’s update – opportunities for investors or warnings of blackouts?

In just the last few months there have been significant developments in Australia’s electricity supply, prompting the Australian Energy Market Operator (AEMO) to issue an update to its Statement of Opportunities. The closure of another major power station – South Australia’s Torrens Island B – has been brought forward, and Snowy 2.0 has been subject to another year’s delay. Offsetting these shortages are a number of extended or new renewable and gas-fired projects and a committed very large battery project in New South Wales which will allow for firming of renewable energy sources.

Dutton thinks you’ll need one of these

The report has drawn media attention because of its state-by-state assessment of reliability risks in coming years. As the large old coal-fired power stations come to the end of their lives there has to be new capacity, mainly in renewable energy, to compensate for their closure. It’s not a like-for-like replacement: renewable energy has to be accompanied by firming capacity (pumped hydro or batteries) and new transmission lines have to be built to take advantage of renewable hotspots and to allow supply and demand to be balanced across the National Electricity Market states. These wider system needs are the subject of AEMO’s Integrated System Plan.

AEMO’s update can be read as an assurance that there is plenty of existing and committed capacity for the next two years, and that there is an opportunity for investors to bring on line at least another 5 terawatts of new supply by 2030, mainly in New South Wales and Victoria. Or naysayers, who have no faith in renewable energy, can use it to warn that by 2025 the lights will start going out in Victoria and New South Wales. (Why do they talk about “lights going out” when heating, cooling and industrial processes are the main uses of electricity?)

Daniel Westerman, CEO of AEMO, describes the context of the report on the ABC’s Breakfast program, in a segment bearing the scary title AEMO warns of energy shortage risk. He stresses that it’s a conservative statement of committed projects. (8 minutes) Also on ABC Breakfast Energy Minister Chris Bowen discusses the report from the government perspective. He does not understate the urgency of the task, in view of the government’s commitment to see 82 percent of electricity being supplied from renewable resources by 2030. This segment too has a scary title: Energy Minister on the potential energy shortfall. (12 minutes)

Westerman and Bowen have their own organizational and political perspectives. Giles Parkinson, writing in Renew Economy, summarizes the report with a title that covers at least its short-term outlook: Snowy delays add supply tensions to grid, but new big batteries ease short term worries. The trouble with Snowy 2.0 is that its sheer size has sidelined many smaller projects that would otherwise have gone ahead. This has added to uncertainty and risk in the New South Wales market in particular in the years past 2025. One virtue of renewable energy is its distributed nature: it should be less vulnerable to breakdowns, fires, terrorism and other disruptions than big coal or nuclear generators. Perhaps Snowy 2.0 will come to be seen as a worthwhile project, but influenced by big-system thinking of past days.

It is notable that it is hard to find any mention of the influence of a rising cost of capital on our energy investments. Most discussion about the Reserve Bank’s crusade against inflation has been about the effect of higher interest rates on households, but higher interest rates also have a chilling effect on business investment. Because renewable energy projects are long-term investments, in theory the RBA’s short-term interest rate movements should have little influence on private or government investors, but financial markets are dominated by short-term thinking, and over the last year there has been a significant rise in long-term bond yields.

Our future pattern of energy use

Politicians prattle on about “keeping the lights on”, and planners are very concerned about coping with the evening surges in household electricity demand. But overall, households take only about a quarter of all electricity produced. Another quarter is used in the commercial sector (shops, hotels, office buildings) and the remaining half is spread widely across the whole economy.

This pattern could change, particularly with the uptake of electric vehicles. It could also change if, in certain industries, there is a continuing trend to working from our homes.

Kari Dahlgren and Yolanda Strengers of Monash University have modelled two paths of how we use energy: Future home havens: Australians likely to use more energy to stay in and save money, published in The Conversation. One path, which they model for 2030 and 2050, is where households hunker down into islands of individualistic self-sufficiency. The other path, modelled for the same years, is more community-based, and shares the costs and benefits of new energy technologies more equitably.

Their work is a useful reminder that among the possibilities presented by small-scale renewable and storage technologies is the development of more private, isolated patterns of living.  

Worldwide energy costs

The ABC draws our attention to a briefing by Nature Energy on the burden of the global energy price crisis on households. The analysis, prompted by Russia’s invasion of Ukraine, considers both the direct effect on households of higher coal, oil and gas prices, and the indirect effects as these fuel prices flow into the prices of household goods and services, including food.

They estimate that under cost-of-living pressures generated by the recent rise in energy prices, an additional 78 million to 141 million people will be driven into severe poverty.

Their analysis by region and sector contains few surprises: the burden of high energy costs falls most heavily on low-income countries, and on poor households in rich countries. It concludes with a warning about the global cost of reliance on fossil fuels – a reliance lengthened by countries’ response to Russia’s actions:

This unprecedented global energy crisis should come as a reminder that an energy system highly reliant on fossil fuels perpetuates energy-security risks and accelerates climate change. In particular, existing high energy prices and recent Organization of Petroleum Exporting Countries limits on oil exports have further pushed prices higher. These emphasize the urgency to realize diversified energy sources and develop a more secure, diverse, reliable and independent energy system by accelerating the clean energy transition for all countries.

Russia is to blame for the world’s immediate problems, but had we heeded the warnings at the 1992 Rio Earth Summit, by now we would be shaking off our dependence on Big Oil and the authoritarian regimes of other oil producers.

The report itself is difficult to follow (a consequence of having been written by 12 authors?) ABC’s Daniel Mercer has a short and readable summary: Study reveals toll of global energy crisis as 'total' energy costs spike.