South Australians got a glimpse of the future this week. Electricity prices are coming down.
The news came in the form of an announcement from that state’s electricity price-setting agency, the Essential Services Commission of South Australia, or ESCOSA.
"About a quarter of South Australian electricity customers will pay a lower rate for their power next year, with expected annual savings of around $160 for an average household, under a draft determination," the Commission announced. Bills are expected to drop around 8 per cent for those on so-called standing contracts.
The reason? Demand is falling. ECOSA says the cost of wholesale electricity is lower than expected. According to Paul Kerin, ECOSA’s chief executive, "we have done this because the estimate of wholesale costs now is lower than the current wholesale cost allowance".
"One of the key reasons is that demand and demand projections have fallen significantly over the past year," he said in a media release (pdf).
If you want to examine what the future of Australian energy might look like, South Australia is a good place to start. The state has Australia’s largest concentration of renewable generation, having aggressively deployed wind power over the past decade. About a quarter of the electricity in the state comes from wind turbines; in a really windy weather this can rise above 50 per cent.
In early September, for instance, a series of frontal systems moved across the Great Australian Bight, driving stiff winds before them. In the early hours of 5 September, wind power was generating fully 80 per cent of South Australia’s electricity supply. According to the Clean Energy Council’s Russell Marsh, this electricity was so cheap that South Australia exported about a quarter of its load to Victoria.
The extra wind power is achieving one of the main goals of renewable energy policy: reducing emissions. Marsh calculates that coal use in South Australia dropped by 9 per cent in 2011-12; emissions in South Australia have dropped by 27 per over the last five years.
There’s little doubt what’s driven the deployment of wind in the Festival State. Yes, South Australia has some high-quality wind resources along its coastline. But the real heavy lifting has been provided by a combination of government policies, particularly the federal Renewable Energy Target in sync with liberal state planning laws for wind farm development.
Of course, governments can change and not every jurisdiction is as friendly towards renewable energy. Victoria, for instance, also has lots of windy locations that would be perfect for wind farms. But as we’ve seen in this series, that state’s restrictive new planning laws for wind have stifled new wind developments. A recent Friends of the Earth report (pdf) calculates that 10 separate wind projects have been blocked or abandoned in Victoria since the Ballieu government passed its new wind regulations, with a total investment value of $887 million.
The growth of wind in South Australia and the accompanying debacle in Victoria highlight the complexity of the energy debate. Given that this is the final article in this series on the future of energy in Australia, what have we learned?
In researching this series, I talked to analysts, academics, politicians and journalists across the sector, many more than I can quote here. Three main trends emerged. These are critical to Australia’s energy future: the interaction of technological change, government policy and industry lobbying. We’ve seen all three pop up repeatedly in this series.
Rapid technological change, particularly in solar PV, is pushing the cost of renewable energy down. This is classic disruptive innovation that threatens to upend the entrenched structure of the Australian energy industry.
Government policy is a more complex trend. While some policy is geared to reducing emissions and encouraging renewable energy, there is also plenty of assistance for the dirty and the old, notably in the form of fossil fuel subsidies for things like diesel fuel used in mining, as well as in pro-mining planning regimes in most of the state governments. Governments also have a nasty tendency to change their minds, as solar installers have found to their cost this year with the sudden removal of most of the state-based solar feed-in tariffs.
Industry lobbying will always be with us. The entrenched power of vested interests are nowhere more powerful than in energy, where the vast sums of money involved pays for thousands of lobbyists and sophisticated public propaganda campaigns. The power of the status quo also branches out into many regulatory bodies, as we’ve seen in the doleful influence that electricity generators have exercised over Australia’s electricity market.
There’s not too much that ordinary citizens can do to stop giant energy corporations whispering in the ears of energy ministers. But one positive development in recent years has been an emerging specialist media that covers energy and climate, exerting the sort of scrutiny on this policy area that in previous decades has been sadly lacking. In publications like Climate Spectator, Renew Economy and here at New Matilda, along with sites that publish academics such as The Conversation, energy policy and the decisions of regulators are receiving a surprising amount of attention. These publications have allowed ordinary punters to get a glimpse of the bizarre internal logic of government "determinations" — and many of us have not been impressed by what we’ve seen.
One of the best-known observers of this evolving landscape is Renew Economy’s Giles Parkinson. Parkinson is a former deputy editor at the Australian Financial Review, who moved into full-time energy reporting at Climate Spectator, and more recently launched his own start-up Renew Economy.
"I’ve always been a business journalist," he told New Matilda in a phone interview in August. "That’s what I was at AAP, that what I was at the Fin Review." Parkinson started covering renewable energy while at The Bulletin. "I got commissioned to write a piece about what happened to the renewable energy industry after the Howard government made that decision to pull back on the MRET." At the time, the industry had expected Howard to expand the target, but instead he decided to do nothing. This was the decision that led Vestas to shut down its wind manufacturing operations in Australia, as Keppel Prince’s Steve Garner lamented to me when I travelled to Portland.
"I just saw it as a big business story, and a fascinating one that no-one was really reporting on," Parkinson continues. "There’s this wonderful mixture of a really big business story — you’re talking about a trillion dollar industry about to be tuned on its head, upside down — you’ve got these new technologies which are really interesting, you’ve got the politics of the whole thing, plus the environmental issue, and a whole bunch of wingnuts," he quips.
"And vested interests. This is right at the heart of the vested interests, this is people talking about how their wealth lies in the ground, and unless they dig it up they ain’t got nothing."
"It’s pretty clear that by the end of this decade, the cheapest new capacity that you will be able to build will be solar and wind, so those are the big things. You’ve got the three things there: you’ve got the retail costs, if we can find a way to provide our own electricity we will do that, and we’ve got the wherewithal to do that; you’ve got the market impact of renewables; and then there’s the fact that within a decade renewables are going to be cheaper to build new plant."
Parkinson says the energy industry is unprepared for the coming technological disruptions.
"It’s a bit like the newspaper industry really, you sort of see the internet coming but you don’t know how bad it’s going to hit you until it actually does. The energy industry is exactly the same."
Politicians and governments are similarly unaware.
"The state governments, for a start, in Queensland and New South Wales — they’ve got dud assets, their networks are basically basket cases, and in the case of the coal-fired power generation, they want to sell them but no-one will buy them, and those networks are going to have make that transition eventually to what’s called this smart grid, which also changes the nature of everything."
Parkinson argues that the energy debate has "moved beyond" climate change. "At the moment we see energy as a big thing between the green movement and the fossil fuel industry. I actually think it’ll become a consumer versus provider rhetoric, and that’ll make it more powerful, but with the way the media works at the moment, you just can’t judge how that’ll play out."
"The big fight will between the solar industry — if it can get it act together — and consumers, and the gentailers … what Garnaut noted in his various pieces, the thing that was spot on was the degree of regulatory capture by the industry." Parkinson argues that government regulators are so completely enmeshed with the energy industry itself, it’s very hard for new players or consumers to get their voices heard. "They’ve got these teams of people that just swarm all over the government, they’ve got them pretty much under control — nothing happens without their say-so," he laughs.
Mark Diesendorf from the University if New South Wales is one of the most experienced and highly-credentialed observers of the Australian energy scene. "Things are going to have to change," he told me bluntly. "The existing system is not working." Diesendorf argues that the new trends of falling electricity demand are going to change everything. "In the past, electricity utilities basically just projected demand growth into the future forever and forever. What’s happening is that as a result of increased energy efficiency and the huge purchases of solar PV — and increasing electricity prices — that combination is actually reducing demand."
The result, he says, is that "there have been big reductions in the average demand." This in turn is destroying the business model of Big Energy. "The presence of energy efficiency and solar PV is also undermining the profits of the coal-fired generators, because the daily peak is being reduced."
Diesendorf has done "very extensive modelling" that he says proves Australian energy can be completely renewable within a couple of decades. "For me that is the future of electricity in Australia, it’s 100 per cent renewable, mostly solar, with wind together, with some biomass gas turbines — that’s renewable gas — dealing with the fluctuations, and also demand management dealing with the fluctuations."
So we can go 100 per cent renewable if we really want to — at a reasonable cost, too. But will the political environment allow that? Or will falling costs simply blow past political opposition to renewable power?
Another observer well placed to see the broader trends is Kobad Bhavnagri, an analyst at Bloomberg New Energy Finance. Just like Parkinson, Bhavnagri’s analysis is as much political as it is economic.
"We’re not going to need any more baseload for the next 10 years, and that already looks to be pretty certain," he explains. "What that means is that the pressure that renewables are going to put on conventional power generators is going to be exacerbated."
"If demand is flat, than renewables will squeeze out existing generation," Bhavnagri argues, "and that’s to cause a lot of people to be upset and that’s going to mean increasing dissent against renewables."
"It’s going to get worse, I don’t think there’s any question," he says bluntly.
"We’ll expect that vested interests will publicly lobby against renewables and we can also expect that there’ll be a growing amount of funding for grass-roots anti-renewables campaigns, like campaigns against the suspected health effects of wind farms, we’ll see more attention paid to the side-effects of solar PV installations, there’ll be a move to demonise renewables."
Bhavnagri says that while renewables will eventually be cheaper than fossil fuels, that moment is still sometime away, which gives Big Energy an opening. "It’s still five years at best, 10 years more probably, before renewables will be cheaper than fossil fuels, and that’s a long time to wage a fear campaign." He points out that no-one would have predicted just how successful the campaign against peer-reviewed climate science has been. "I remember in 2009 it had had become heresy to speak out against the science of climate change, and no-one had the guts to do it except really right-wing loonies, but then it really started to gain momentum and became very effective."
In the medium-term, therefore, Bhavnagri sees a rocky road ahead for the renewables industry as the fossil fuel lobby gears up to wage an existential battle for its very existence. "I’m certainly not pessimistic about the future of renewables, but it would be naive to believe that a wholesale adjustment of the energy sector where there are billions of dollars of assets and vested interests [won’t provoke criticism] . Now that the carbon pricing debate has died down, the blowtorch will turn to renewables themselves."
In the end, perhaps the dominant theme to emerge from this series has been the intertwining of political, economic and environmental imperatives in the race towards our energy future. Renewable energy came to prominence largely for environmental reasons, but it is quickly assuming an economic importance because of rapid technological improvements. Now it is essentially the politics of energy that are retarding renewable energy’s seemingly unstoppable march to dominance.
And that’s where we return to electricity prices. In the course of this research, I repeatedly approached the key spokespeople for energy from the government, the opposition and the Greens. The Opposition’s Ian Macfarlane declined my request for an interview. Martin Ferguson’s office simply never got back to me, despite more than dozen separate inquiries. But Greens leader Christine Milne did speak with me, in an interview we’ll carry next week.
Alone amongst the politicians — and indeed the industry — Milne seems to have an intuitive understanding of the political opportunities represented by renewable energy. And that opportunity can be expressed very simply: renewable energy is not only cleaner, it’s cheaper.
"This comes back to the interminable debate we have in Australia about baseload. I’m sick of hearing form people that renewable power can’t provide baseload, because its so last century. What We need to be looking at brining down people’s energy bills, and the best way to do that is shaving off the peak" she says.
"If you shaved off the peak bringing on renewables and efficiency, then you massively cut power bills."
It’s a message the government could be selling, if it wanted to. But it doesn’t want to: Energy Minister Martin Ferguson is correctly seen as pro-fossil fuel, and reflexively anti-renewables.
As a result, the political debate in Australia is at something of an impasse, with the renewables industry too small to make a meaningful case for itself, and Labor seemingly conflicted about whether it believes in an ambitious program of decarbonisation, or simply moving on from the bitter debate about carbon pricing.
And it’s in the electorate that the coming battle over Australia’s energy future will be fought: not just at the ballot box, but also around the kitchen table when the power bill arrives.
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