Download the printable 13-page PDF (includes appendix) here.
By Peter Lang. Peter is a retired geologist and engineer with 40 years experience on a wide range of energy projects throughout the world, including managing energy R&D and providing policy advice for government and opposition. His experience includes: coal, oil, gas, hydro, geothermal, nuclear power plants, nuclear waste disposal, and a wide range of energy end use management projects.
Introduction
The Australian Bureau of Agricultural and Resource Economics (ABARE) is an Australian government economic research agency that provides analysis and forecasting of, among other things, our energy production and usage. ABARE’s projections have been criticized by some hoping for large scale changes in our energy sector as unreliable, biased towards the fossil fuel industry, and as underestimating the contributions that will be achieved in the future by renewable energy, energy efficiency, smart grids and the like.
To test these criticisms I have compared ABARE’s projections [1] for the year 2004-05 with the actual figures for 2004-05 [2] [3] [4] [5] [6]. I have compared the following: primary energy production, electricity consumption, resource reserves, and CO2 emissions. I also comment on what was being advocated by green energy proponents in 1990, and point out how little has changed. The same arguments are being repeated again now by the same sorts of groups with similar beliefs and agendas.
The reason I’ve used the year 2004-05 for the comparison is because ABARE’s 1991 projections were for the period 1990-91 to 2004-05. I have my own hard copies of that and earlier reports but not of later reports so I used this readily available source.
I make two points:
- ABARE’s projections are the best we have to work with. We can’t do better than follow their projections.
- The arguments about what can really be achieved with renewable energy, energy efficiency improvements, smart grids and the like, have all been had before. Twenty years later, nothing has changed.
These ideas proved excessively optimistic in the past, as shown here, and people with sound engineering judgement and experience are warning against repeating the same mistakes. The effective solution is not to try to apply draconian methods. The priority should be on developing rational policies, largely aimed at facilitating rational fuel switching.
Primary energy production
Table 1 compares ABARE’s 1991 projection of Australia’s 2004-05 primary energy production with the actual production in 2004-05.
Points to note:
ABARE’s 1991 projections of Australia’s primary energy production in 2004-05:
- underestimated total energy production by 22%
- significantly underestimated the 2004-05 production of fossil fuels except oil. It overestimated the production of oil by 8%, which most would consider good forecasting for a 15-year projection.
- underestimated uranium production by 11%
- overestimated the hydro-electricity production by 18%
Electricity generation
Table 2 compares ABARE’s 1991 projection of Australia’s 2004-05 electricity generation with the actual generation in 2004-05.
Points to note: ABARE’s 1991 projections of the electricity demand in 2004-05
- underestimated the electricity demand in 2004-05
- overestimated the amount by which energy efficiency improvements would reduce demand growth.
- underestimated the fossil fuel generated electricity by 12%
- overestimated hydro-electricity generation by 18%
Resource reserves
Table 3 compares our known economically recoverable energy resources in 1989 and 2009. This is not a comparison of ABARE’s projections but is interesting to see how our estimated energy resources have changed over that 20 year period.
Points to note:
- ABARE’s figures for known mineral and energy reserves in 1989 were based on reports by the Bureau of Mineral Resources (BMR) and Department of Primary Industries and Energy (DPIE). Now they come from Geoscience Australia (formerly BMR). ABARE does not undertake its own estimates of resource reserves, so are not accountable for errors.
- Over the intervening 20 years, our estimates of known economically recoverable resources have been revised. Coal has been revised down and oil, natural gas and uranium have been revised up by 39%, 220% and 145% respectively.
- Known uranium resources have increased by a factor of nearly 2.5 in 20 years and we’ve hardly even looked. There is little activity in uranium exploration being undertaken. Most of Australia is locked up against uranium exploration.
CO2 emissions
Table 4 compares ABARE’s 1991 projection with the actual CO2 emissions from Australian energy consumption for the year 2004-05. ABARE’s 1991 projection of 379 Mt is for the ‘Business as Usual’ (BAU) case. ABARE also defined what we’d have to do to achieve the government’s target (20% below 1988 levels by 2005) and what would be needed to achieve a ‘half way’ target.
Points to note:
- ABARE underestimated by 4% (based on BAU). This is excellent given the state of knowledge 20 years ago.
- The government set an extremely low target but made it impossible to achieve by banning nuclear power from being an option. Nuclear was not even to be considered in analyses by government departments.
- There was strong pressure by the green lobby groups at the time to set lower targets and for governments to mandate stringent regulations for energy efficiency improvements and renewable energy, but no nuclear.
- The same groups are still advocating the same failed policies now.
- Some people never learn!
See Attachment 1, an extract from the 1991 ABARE report. It is fascinating to be reminded how much we knew, the policies, the CO2 emissions reduction targets, and the realities. It demonstrates little has changed in 20 years.
Conclusions
ABARE’s projections are good. I am not aware of any organisation that has made consistently better forecasts of Australia’s energy demand and supply.
I believe the consistently optimistic pressure from green advocacy groups, pushing for projections that align with their beliefs of what governments should do, influenced ABARE to underestimate energy demand, underestimate fossil fuel demand, overestimate renewable energy contribution and over-estimate how much energy efficiency improvement can be achieved over the projection period.
References
[1] ABARE (1991) Projections of Energy Demand and Supply; Australia 1990-91 to 2004-05, ISBN: 0 664 13716 9
[2] ABARE (2006) energy update
http://www.abare.gov.au/publications_html/energy/energy_06/energyupdate_06.pdf
[3] ABARE (2006), Australian energy: national and state projections to 2029-30
http://www.abare.gov.au/publications_html/energy/energy_06/nrg_projections06.pdf
[4] ABARE (2007), Table A Update 07, Table A1 Australian energy supply and disposal, 2004-05 – energy units,
http://www.abare.gov.au/interactive/energy_july07/excel/Table_A_update_07.xls
[5] ABARE (2009), Energy in Australia 2009
http://www.abareconomics.com/publications_html/energy/energy_09/auEnergy09.pdf
[6] ABARE (2010), Energy in Australia 2010
http://www.abare.gov.au/publications_html/energy/energy_10/energyAUS2010.pdf
Attachment 1
(Download the 8-page PDF of the ABARE extract here)
Extract from: ABARE (1991)
Projections of Energy Demand and Supply: 1990-91 to 2004-05, pp 31-37.
“4. Greenhouse gas reduction: an illustrative scenario”
Here I attach a chapter “Greenhouse gas reductions: an illustrative scenario” extracted from the 1991 ABARE report. It makes fascinating reading. It shows:
1. how much we knew back then;
2. how little has changed;
3. we knew the targets were impossible given the policies being advocated;
4. we knew that renewable energy and energy efficiency could not make significant improvement over and above what was already included in the Business as Usual (BAU) projections;
5. we knew then that if we wanted to really cut GHG emissions we had to go nuclear.
But politics dictated nuclear could not be on the agenda. The reason was Labor needed the Green vote to hold onto power.
Many conclude the Greens have been the cause of the delay all along!!
Brave New Climate 
229 replies on “Accuracy of ABARE Energy Projections”
Peter, I agree with everything you said in your reply to me above, up to this point:
This I don’t follow.
I take it the impediments you refer to are a crippling regulatory regime, a risk premium to be carried by the nuclear industry far beyond what we require of other generators and industries, and of course the present legislative injunction.
If so, I do not see why a carbon price should entrench these impediments. We need to repeal the antinuclear legislation – a carbon price could apply pressure in the right direction. A regulatory framework would need to be constructed – again, I don’t see how the presence or absence of a carbon price plays into the design of the regulatory framework. I don’t see why it would act in the direction of stricter legislation.
I also don’t see the connection between a carbon price and any decision we might make about the risk premium the industry might need to cover.
If I recall the argument you were making to Ewen Laver around Easter, another concern you had was a carbon price could lead to Australia being viewed as a poor sovereign risk, putting the frighteners on the investors needed for the capital to build the plants.
I think the idea here is that the risk arises from unpredictable changes in regulation that affect the value of investments, and that if we can devalue our coal plants on a whim be enacting a carbon price, we might equally choose to tighten the regulatory screws on nuclear operators.
If so, I don’t find that idea compelling. Many industries are regulated. The regulations change. What matters is the process – is it rational, is it transparent, is it evidence based, is the information used by the regulator available to the industry, are the factors driving regulation visible and forseeable to the industry, is there a working dialogue between the industry and the regulator, etc. The fact of changing regulations that may prejudice existing investment does not necessarily indicate sovereign risk. An unpredictable and high handed approach does.
Does enacting a carbon price indicate sovereign risk to an investor in an unrelated industry? It need not, provided its implementation is based in rational decision making. If done responsibly, it could equally demonstrate low sovereign risk, if it demonstrates the ‘sovereign’ is a rational actor responding to publicly available information.
So I don’t understand why a carbon price need reinforce the existing impediments to nuclear power.
To reiterate, without nuclear power I don’t think a carbon price can do much to help, and I don’t believe we’d vote for a burdensome carbon price anyway. But I don’t see a carbon price inhibiting our adoption of nuclear power either, and it would shift the economics in the right direction.
LikeLike
Tom Keen,
Yes, I paraphrased your two premises to feed them back to you in the way I interpreted them from what you had written. You didn’t actually state specific premises so I had to extract them. I still think you are saying the same thing, even if the words are different. I hope you are not saying that carbon tax and climate change are synonymous. Many people seem to think that, but they are not. Price on Carbon is one of many possible policy interventions to attempt to reduce GHG emissions. It may or may not work and may or may not have the desired economic and environmental effects. So carbon tax and climate change should not be used as synonymous.
You asked two questions:
I’ve written more on this elsewhere, but here is a short answer.
Getting electricity to all peoples is one of the best things we can do for humanity.
The cheaper electricity is the faster it will be rolled out to all peoples.
If clean electricity is cheaper than dirty electricity, clean electricity will be rolled out instead of dirty electricity.
The developing countries are going to roll out electricity to all peoples just as China, India, Brazil, South Africa etc are doing now.
These and other developing countries will roll out dirty electricity if it is cheaper than clean electricity.
If they roll out dirty electricity their emissions will swamp anything we do to try to reduce emission in Australia.
So all developed nations, including us, should be cutting the cost of clean electricity.
Raising the cost of dirty electricity (with carbon prices) does not address the fundamental problem that we need to make clean electricity cheaper than dirty electricity. We can do it, but we have to first confront what is blocking it. Otherwise, we avoid the problem. The result of doing that is we raise the cost of electricity in the developed countries, and it will take longer to roll out clean electricity to the world.
The world will build more dirty electricity generation plants in the meantime.
We could roll out small nuclear power plants like Hyperion and PRISM. http://www.nrc.gov/reactors/advanced/4s.html
We could roll them off the production lines like tanks or cars. The cost would reduce. We could do it here in Australia, in Africa, in Thailand and Indonesia and Malaysia, etc.
There is another string to this argument. If clean electricity is cheap, electricity will more quickly displace fossil fuels for heating (gas) and for road transport (oil). So low cost, clean electricity will more quickly reduce emissions from heating and land transport.
Every way I look at it I am convinced that we should not raise the cost of electricity (yet!). I say yet, because I do agree that we should and will raise put a price on carbon when there is international agreement to do so and once we have removed the impediments to clean electricity (nuclear).
Lastly on this question, appeasement with the Greens and Labor on nuclear has never worked and wont work now. Just listen to what Bob Brown and Senator Milne are saying and what Kevin Rudd was saying. That is unchanged since Bob Hawke and Paul Keating. I realise many of the contributors on BNC don’t like hearing this, and I am a lone voice, but I do believe it needs to be recognised and not avoided.
Your second question was:
My answer to this question is:
1. The highest priority is energy because it is 70% of the problem. We should put most of our resources into tackling energy first and ensure we can tackle it in an effective way, rather than risk all by trying to take on too much. I am not saying we mustn’t also tackle the other sources, but we can do that without an overarching carbon price that might have the wrong effect on electricity.
2. I don’t agree that energy sector is not sufficient as a really good start. We can potentially cut Australia’s emissions by 50% by making electricity emissions-free and by largely displacing the fossil fuels used in heat and transport by clean electricity. This will happen faster if electricity is cheap. We keep coming back to that!
3. We can move on to implementing a price on carbon, if that is thought to be the best way forward, after we’ve addressed getting clean, cheap electricity.
If the Federal and state major political parties and environmental NGO’s were to say, with one voice, “all new baseload and intermediate electricity generation shall emit less than 50kgCO2-e/MWh”*, I would strongly support a price on carbon. It is the order of raising the cost of electricity before we tackle the problem of the anti nuclear policies that I want to see fixed. I do not believe, for one minute, this problem will gfo away if we don’t confront it. And I believe the contributors here are making a mistake by trying to avoid it. Because of the political allegiances of the contributors here I feel they do not want to confront the real problem. They want to argue the party line.
* of course there are many caveats associated with this. We need to replace existing power stations, we’ll need to keep building gas power stations until nuclear can be built fast enough, etc. I can’t cover it all here but a lot is covered on the “Emission Cuts Realities” thread and the “Alternative to the CPRS” thread.
LikeLike
JeremyC
I agree that my statement is contradictory, unsupported, and accept the criticism.
My statement was based on my experience in the meetings with ABARE and others at the time. At the meetings in ABARE, who were modeliing the energy and CO2 emissions and with numerous other government departments involved in preparing the “Ecologicall Sustainable Development – Energy Production” reports, the renewable energy and energy efficiency advocates were by far the loudest and most vociferous in advocating their postions. It seemed like the meetings were overrun by these people. Mark Diesendorf was one of them as were Greene, Wilkenfeld and others. Conversely, the people who were trying to provide the ‘real world’ information to ABARE were much quieter. Luckily, ABARE knew what they were about. But it was clear to me that ABARE did bend slightly to the political and advocacy pressure at the time.
I agree it is an enormoulsy complex area. I don’t want to try to get into the detail of this and I am not a specialist anyway. ABARE explained in one of the meetings at the time that the energy efficiency advocates can see the technology at the time and see how we could replace it with better, more efficient technology. That would provide savings. What the advocates do not take into account is that other new demands keep arising that are unforseen. ABARE’s macro approach says we can’t forsee the new demands for energy that will appear in the sytem, so instead they use trends of historically how it all balances out. Now if the government imposes some policy interventions, ABATRE can project the effect. That is how they approached it. They ran many scenarios. Their best guess was not the one the RE and efficiency advocates wanted ABARE to adopt for the central projection. ABARE made their own decision and history shows they did well, but over estimated a little, the energy efficency improvements that could be achieved.
By the way, quite a lot was being attempted at the time. I could go through lots of it, but not on a comment site here. One area I was involved in was trying to improve the energy efficency of existing commercial buildings. It proved to be much more costly than originally thought. Most of what had been proposed turned out to be not economic.
LikeLike
John Morgan,
It could, but history strongly suggests it won’t. Just look at the rhetoric coming out of Bob Brown, Senator Milne, ACF, Greenpeace, WWF, FoE, Kevin Rudd and all the other people that should be advocating cheap clean electricity. The strong anti-nuclear advocacy and the advocacy of RE and energy efficiency as the solution is unchanged in 20 years. We are not progressing as long as we keep trying to appease the anti-nuclear people.
The probability is that if we muck around with a carbon price the impediments to nuclear will remain (at least many of them: see list here: https://bravenewclimate.com/2010/01/31/alternative-to-cprs/#comment-86256 ). For the next few years we’d be focused on RE and energy efficiency (like the Pink Bats home insulation program and the ZCA2020 plan or similar advocacy). The RE industry has enormous support across the country. It has been supported and built up by 20+ years of government funding and advocacy brainwashing by everyone including the national broadcaster (the ABC).
No, that is a misunderstanding of what I was saying. The carbon price has nothing to do with the sovereign risk. The sovereign risk is higher than it should be because of what has happened with the mining tax, Telstra, NBN, and governments reneging on private public partnership deals such as the Sydney Tunnel. These are the sorts of government interventions that scare investors. Many BNC contributors advocated that the government should shut down Hazelwood and other power stations without compensating the investors. They argued this was fair because the investors should have seen it coming and they are just “Robber Barons” anyway. Who will invest in a nuclear power plant with a 60 year life with this sort of attitude rife in the community and fanned by the environmental NGO’s and two of the three major political parties? To overcome this we need a clear, unequivocal retraction of all anti-nuclear policies by the main political parties and the environmental NGOs. And there is more. We’d need to entrench in legislation the changed policies. And we’d need to entrench in legislation that if any future government reneges on agreements, the investors would be compensated fairly. There is no point mucking around with carbon price signals (signals for RE and gas industry) until we’ve addressed these fundamental issues.
You might not, but I do. The fact that nuclear in the USA and EU is at least twice the cost of similar plants in Korea and China (and local labour cost account for only a small component of the difference) is compelling evidence that the regulatory regime you seem to be advocating will still be a very high cost one – like USA and EU or perhaps even higher.
But what you describe is not the case. And industry knows it. Just look at the decisions that the government is making about renewable energy. Can you seriously argue that those decisions are rational and fact based?
As I mentioned above, I am not arguing that adding a carbon price adds to sovereign risk. The other points you summarised very well are, IMHO. But I do not agree with your comment that sovereign risk in one industry does not imply sovereign risk on another. Sovereign risk relates to the country not the industry. Sovereign risk for Australia was ramped up when the government announced the mining tax without effective consultation. That scared of international investors. It is a signal that Australia’s governments are not immune to such actions. (also NBN, Telstra, Sydney Tunnel, Tasmanian Pulp Mill, and many more). This is far more significant for an investment in a plant that has a 60 year life expectancy that for one with a 20 or 30 year life expectancy.
Once we vote for any carbon price, it will be ratcheted up from then on in just about every budget. And surely you don’t believe that governments, of all persuasions, won’t use it as a milch cow from than on. Just look at how the government committed (pork-barrelled) during the recent election campaign billions of dollars of the projected future revenue from the mining tax that hasn’t even been legislated yet! I am sure you do not believe that once implemented, the tax would not be ratcheted up in each budget from then on. ACIL-Tasman assumed the carbon price would grow from $23.38 in 2011 to $55.26 in 2030 (based on Treasury forecasts, for a 5% abatement scenario, which used highly optimistic assumptions).
I do. It will divert attention from addressing the real problem. It will mask the real problem. It will not shift the economics in the right drection because it will allow the impediments to remain. We need to focus on removing the impediments – all of them – not just some of them.
LikeLike
John Morgan,
I wonder when the vast majority of the contributors on BNC say they want a carbon tax to cut CO2 emissions, yet they vote for the political parties that are anti-nuclear.
What sort of message does that send?
The message it sends to me is that they are not really genuine. It makes the whole argument seem as if it has more to do with ideology than anything else. I expect many people out in the community get the same impression.
LikeLike
Peter Lang, you should take a Bex and a cup of tea, have a good lie down and then re-read your comments of the past several days.
You have consistently shown yourself to be an irrational, aggressive, posturing, anti-democratic nincompoop, a single talent person, chanting a single undemonstrated theme.
In short, you are an embarrassment to yourself and to this site.
Barry Brook, if you value this site and read this, I suggest that you take the time to communicate privately with this dolt before he explodes in your face.
As I have explained elsewhere, the repetitive bleatings of this single contributor stand unsupported by any other contributor. There is a significant risk that real damage can and will be done.
LikeLike
John Bennetts
Despite Peter Lang’s “take no prisoners” approach, he offers many educational, thoughtful, and thought provoking posts. One can argue with Peter’s politics (go ahead) but it’s hard to argue with the sheer logic of many of his posts, even though he regularly risks offending.
To quote Thomas Paine “He who dares not offend cannot be honest.”
LikeLike
Graham,
I welcome your comment, although I stand by my submission. I argue not so much with Peter’s politics, as his assumptions regarding the politics of those who disagree with him. From the “knowledge” thus obtained, he regularly smears and derides me and others, when in fact he knows far less of my (our) politics than he shows of his own.
All this when, in fact, politics per se are not at issue – the future of the world may well be.
Peter has yet to actually demonstrate logically that his Holy Grail, the absolute abandonment of all else except pushing the cause of NPP right now, is sufficient or adequate for the task. I happen to disagree and, with others, have argued that the FF industry should quite reasonably and fairly be required to contribute financially towards the cost of cleaning up after themselves. Peter will have none of this and has offered only political argument as justification.
I do argue with the lack of logic of his posts – you state that I cannot. Why is this?
I do argue with his abuse of others on this site. This is not “take no prisoners”. In a workplace this type of tosh would be actionable due to the strength of the personal abuse and clear and arrogant discrimination against other contributors on the basis of political belief – belief which he, Peter, has assumed and about which he perhaps is terribly incorrect.
This is not the acceptable rough and tumble of a positive, yet fiesty, contributor. It is a display of repeated, unacceptably brutish and brutal prejudice-driven public denigration and attempted humiliation of an aggressive repeat offender with a single agenda.
Even that single agenda has not been rationally defended – only asserted.
Were this my site, I would actively seek to moderate such behaviour. However this is not my site, so that option is closed to me. I am currently reconsidering my previous attachment to BNC, as no doubt many others also are due to the actions of this single issue, lone campaigner.
I do argue with his abuse mistreatment of this site for his own hobbyhorse antics.
LikeLike
Peter has yet to actually demonstrate logically that his Holy Grail, the absolute abandonment of all else except pushing the cause of NPP right now, is sufficient or adequate for the task. I happen to disagree and, with others, have argued that the FF industry should quite reasonably and fairly be required to contribute financially towards the cost of cleaning up after themselves. Peter will have none of this and has offered only political argument as justification.
Oh, I don’t know about that. I think his economic argument concerning investor risk has virtue, and shouldn’t be lightly set aside.
LikeLike
OK, Finrod, there are several views about investor risk. I pwersonally shy away from presentations of investor risk which contend that recent Australian events have increased “sovereign risk”, when this is clearly not true. It is my experience that those who have chosen to sling this term around have ignored its meaning and have adopted it as a slogan.
As has Peter Lang.
I will perhaps review his views of investor risk again, but do not see this as an urgent necessity. What follows is sufficiently close to a commentary on the economic reality for the time being.
Here is a bit of a mash-up of quotes taken from a 2009 report from the Australian Academy of Technology, Science and Engineering (AATSE). The above link will yield a full copy of the report.
THE HIDDEN COSTS OF ELECTRICITY:
Externalities of Power Generation in Australia
2009
Click to access ATSEHiddenCostsElecreport.pdf
”Combining greenhouse and health damage costs for Australia gives representative total external costs of $A19/MWh for natural gas, $A42/MWh for black coal and $A52/MWh for brown coal.“
“Nuclear power stations emit no greenhouse gases. However when the life-cycle costs of the associated mining, construction and decommissioning processes are counted, the external costs of nuclear generation amount to around $A7/MWh.“
“RECOMMENDATION 4: Establish broadly based public communication. The Australian community is entitled to reliable and factual information on the social and environmental externalities of its electricity generation technology options, especially in regard to climate change, health and safety. A comprehensive public communication plan should be developed and implemented.“
These quotes are from this 103 page report which is available from various sites on the Web, for example via the link at the head of these quotes.
At the very least, I believe that this report eloquently and authoritatively provides strong argument for a price on carbon. Peter disagrees with me, but at least there is evidence available to support my side of the debate.
I still believe that a strong case can be made for an environmental tax on coal fired generation, in the indicative range $20+ per MWH. This would add 2+ cents per kWh to the cost of electricity from these sources at current retail rates, which is much less than the current annual increases due to other causes, and that these environmental taxes be permanent and subject to review in the same manner as other taxes.
I further believe that, if the Federal government does not take this step, the State Governments should levy an environmental licence fee equal to the above, for the same purpose but by another name.
I also disagree with the present loading of the cost of subsidies for the solar PV industry being charged against Consolidated Revenue (Federal) or loaded onto other users via a levy or price loading (State) as at present.
If my position differs from Peter Lang’s, then that does not justify the type of aggressive nonsense which I and others have suffered at his hand. Polite and rational discourse will suffice.
LikeLike
Thanks Peter,
An interesting post and a reminder of the difficult job that government agencies have in dealing with competing demands from the community on their remit and scope of activity.
LikeLike
John Bennets:
Don’t go. Your comments are appreciated. We temporarily lost DV8etc, a very valuable commentator, due in part to list serv dynamics. (we all look forward to his return)
Peter Lang does actually on occasion accept criticism with some grace (as long as it doesn’t involve the topics of “the free market,” “government intervention,” and
“green agendas”).
LikeLike
Jereme C,
I agree.
LikeLike
Greg Meyerson,
I am open to be persuaded that the “free market” is not the best way to deliver essential services like electricity and water. There are strong arguments both ways. Over two decades the western democracies have moved to open up the electricity and other essential service industries to competition and privatisation. But they retained a lot of command and control. Now we are in a half way house which is the worst of all options. We need either one of the other as this article made so clear:
Click to access 16899_0610pp_grimston.pdf
For Australia to go back to government owned and operated electricity industry would take at least a decade and the tax payer would have to buy the industry from the investors at a cost over $120 billion. Then we’d need to set up the government bureaucracies to run the system and try to do so in such a way it doesn’t get hamstrung by the unions – as is the case in the government owned NSW electricity industry. How could we do that? How could we ensure it will be run by engineers, instead of lawyers and spin merchants, and remain that way for the next 60 odd years? How could we avoid it being run by politically driven organisations like the AWEA and the guys with arts degrees who write well but can’t add up and don’t understand energy units.
LikeLike
Peter Lang, thanks for the Chatham House reference. It is a very good read, from a respected source. It is also written in language which is accessible to the lay person.
The Chatham House study distinguishes carefully between the natural monopolies within an electricity system, ie the transmission and distribution systems; and those elements which are able to be liberalised, such as retailing and generation.
It also clarifies and defines the need for a regulator to ensure that the market operates successfully in a social environment.
I have been involved in both construction and operation of power stations for over three decades, mainly in NSW.
During this time, the former Electricity Commission of NSW has shrunk from 12,000 employees to now consist of four State-Owned Corporations responsible for generation (3 of) and transmission (1 of). TransGrid operates, as recommended by Chatham House, as a regulated monopoly. Who owns TransGrid, State or private, is somewhat beside the point.
The three generators are competing in the market covering Qld, NSW, Vic, SA and Tas. They compete against all comers on equal terms, bound by the transmission constraints of the network and the rules of the marketplace.
The total workforce of all 4 NSW state owned corporations is now about one third of the former ECNSW and I know from personal experience that the primary drivers of the generators are pretty much the same as those of privately owned generators or Qld’s remaining state-owned generators, etc.
In other words, I am convinced that the transition from a state monopoly to a liberated market for non-monopoly services is virtually complete.
This is on the way to becoming further achieved by the sale of the NSW retailers, including EnergyAustralia and Country Energy. These have been packaged with the wholesale capacity of the three state owned generators, thus limiting the exposure of the NSW taxpayers to market forces whilst opening to the marketplace those aspects of the industry which can, within political bounds, be so treated.
I have spent this long on this subject to indicate, especially to those who are not familiar with the NSW power system, that the government no longer actively controls a vertically integrated power industry within NSW – it is subject to the same rules and conditions as any other region within the East Australian market.
Further, concern that NSW (or any other) power generation segment is controlled by the power of unions is unsupportable. These generators have reduced their workforce, over time, by at least 50% and in places, by 75% in order to remain competitive in the marketplace. Labour is the main variable available to improve efficiency and this input has been reduced very substantially. I may be wrong, but my feeling is that only minor further reductions in workforce will be productive, beyond which there would remain insufficient plant knowledge and operational skill to be able to maintain reliability.
To lay my cards on the table:
(1) I am not in favour of any return to state owned vertically integrated electricity systems in Eastern Australia.
(2) I am happy to note that there is no significant effort to move in this direction, either in NSW or elsewhere.
(3) Future construction of power stations within NSW, as elsewhere, should be left to market forces.
(4) For the market to work satisfactorily for society and for the corporations which supply and distribute and market electricity in eastern Australia, a strong regulator, as currently exists, is necessary.
(5) MOST SIGNIFICANTLY, for all of the above are now givens, The electricity marketplace must be orderly and predictable in order for capital to be attracted to it. That means long term government policy settings and minimal bureaucratic or ministerial interference. We need a boringly predictable marketplace.
(6) Those who agree with me that tackling GHG induced climate change is important must work towards removing all types of bars to entry to the competing energy options, eg non-nuclear policies and subsidies. Further, market distortions must also be removed, such as policies which avoid charging generators the true costs of their operations, including environmental and social costs associated with renewables and coal. If this leads to, at the hands of the politicians, a CO2 or carbon levy, then so be it. Something is much better than nothing. If, until the dust settles, we must put up with coal, at least let it pay its way.
Incidentally, I am not implacably oipposed to new coal fired generation, because If I argue that coal is ruled out then this adds to the strength of arguments that NPP’s may also be ruled out on philosophical grounds. Coal will probably die at its own hands, once it faces its physical, medical and environmental costs in full.
LikeLike
I get your argument Peter: only competitive markets insure you get the best people for the job, or insure against fraud.
I don’t think that’s true but this, I have learned, is not the place for that argument.
It is the important question though: what institutional set ups are most conducive to the sharing/spread of best practices?
LikeLike
Greg Meyerson,
I agree this is probably not the place to discuss this issue, but I can’t let pass that you seem to have missed my main points.
1. It would take a decade or more to turn around the direction we are heading (opening up the industry to competition and priviatisation, which was started by Hawke-Keating);
2. the taxpayer would have to pay for a buy back of the industry at a cost greater than $120 billion; and
3. which alternative provides the lowest cost over the long term (and is best able to respond to the ever changing needs/requirements).
You said:
I think that is putting the ‘cart before the horse’. We can’t share or spread best practices until they are developed. It is competition that causes innovation and drives development of best practice. That is human nature. On the other hand, government run bureaucracies are controlled by the idelogical beliefs of the government in power. They suffer from group think and innovation is stifled, not encouraged.
LikeLike
I tend to think that all large organisations suffer from group-think and stifling of iniative, not just government-owned ones.
Think: BHP, Exxon, James Hardie, Post-privatisation Telstra.
Compare with: Pre-privatisation Commonwealth Serum Laboratories, now CSL; CSIRO; even the Commonwealth Electoral Office, which is hailed as a world leader despite its current difficulties due to a close result.
It is too simplistic to say Public=Bad; Private=Good.
The trick may well be corporate focus Vs corporate drift.
Having said that, where true and fair competition can exist in an industry, that is the way to go, every time.
Back to topic, remember that state-owned electricity generators are competing fairly with private generators and under the same rules of the market, including (in NSW at least) the same accounting rules. They are not going to exist in their same form for much longer and really are not causing structural deformities. Part of me even wishes that NSW or Vic bit the bullet 40 years back and went nuclear. If they had, then we would have some local knowledge and less unfounded fear campaigns.
LikeLike
Hi, I’m new here, have read a fair bit of the site, but not yet enough to know if there are posts here covering the following.
I’m convinced that cheap clean electricity is needed, that renewables are a diversion from that, and that a carbon tax will not magically produce cheap clean electricity.
Not convinced that the problem is as urgent as portrayed by “climate alarmists”. Would agree that switch to nuclear would be urgent, despite being more expensive than coal, if I thought temperatures rising by a fraction of a degree per decade was urgent, but see climate change as a problem to be addressed over the next century or so, with the technology available then rather than the technology available now.
Can anyone point me to a case here (or elsewhere) against Bjorn Lomborg’s proposition that funds should go into research and development to achieve cheaper clean electricity than coal for at least a couple of decades and not into any actual deployment replacing existing cheap dirty coal. If accelerated R&D results in cheaper nuclear fission than dirty coal, fine. If it results in some types of renewables that are cheaper than coal, fine. If it results in nuclear fusion cheaper than coal, fine. But don’t try to replace dirty coal with anything (including nuclear) until you can actually do it cheaper or at least at very close to coal costs, which may still be decades away.
Implicit in above is that (massive) R&D costs may have to be paid by government programs in developed countries that can afford it with no certain prospect of “returns” on this as an “investment” since selling the technological improvements developed for royalties added on to costs could inhibit deployment and public domain “fundamental” R&D without commercial secrecy could deliver faster.
Also implicit is that as a precaution some R&D work should be done to reduce the difficulties of emergency geoengineering in the event that things suddenly (ie over a decade or two) become more alarming re “tipping points” than at present.
A more accurate and detailed account of those propositions can be found at http://www.fixtheclimate.com
Any links here specifically responding to that position?
LikeLike
@Arthur,
You misunderstand the nature of the climate problem. There are a couple of critical issues to keep in mind
1. Excess atmospheric CO2 is a cumulative “poison”. Natural processes will require decades to millenia draw down excess CO2. It follows that there are huge gains in mitigating CO2 emissions at the earliest opportunity even if done with less than perfect technology.
2. The current rate of temperature increase, which will in all likelihood accelerate, is but part of the story. What really matters most is the ultimate equilibrium rise in temperature. Even if we hit zero emissions tomorrow, further increase is almost certain for decades. From the best estimates of climate sensitivity to CO2 we are already committed to ~1.5C. Even if emissions stay constant we will hit a 2C commitment in the 2020s and 3C by around 2050. By then things are starting to get really scary.
3. There is a very real risk that matters may be worse than these projections if for example, the oceans lose their ability to sequester carbon faster than expected, methane starts venting from the sea floors at a high rate or more CO2 is released by melting permafrost or ……
Lomberg’s stuff is just more do nothing nonsense. It’s the equivalent of never buying a computer because next years model will be cheaper and faster. I’m all for every R&D cent that can be had for clean energy research, land use research etc for mitigating emissions. But I am dead against technological cargo cults praying for salvation and treating science as magic.
Geoengineering to reduce solar irradience is a very risky business
1. It is very unlikely that there will be sufficient confidence in climate models to be certain of the outcome. What is certain is that a world with a large excess of atmospheric CO2 AND a large excess of for example SO2 will not be the same as a world with natural CO2 levels.
2. If unintended consequences of geoengineering proved to be unacceptable, stopping it would cause a catastrophic rapid rise in temperatures.
3. There are HUGE barriers to establishing international agreement to any such program.
4. It does not solve the ocean acidification problem.
LikeLike
Thanks quokka. None of that changes the fact that coal will continue to be used until something cheaper is available.
Nor have far more extravagant expressions of alarm about a committed temperature rise of 3C in 4 decades resulted in most of those professing to be most greatly alarmed about it accepting nuclear instead of continuing to push for a less industrialized society (sometimes expressed as faith in renewables).
Lomborg proposes a modest $100 billion per year for global R&D. Say 4 trillion by 2050. That isn’t “more do nothing nonsense”.
Nor is it “the equivalent of never buying a computer because next years model will be cheaper and faster.”
Nor is it” technological cargo cults praying for salvation and treating science as magic.”
Those responses seem to express a basic hostility to fundamental R&D and lack of recognition that it is the ultimate source of modern technology and productivity growth. Most of the benefits can’t be captured as profits on investment so there isn’t much of a vested interest promoting it and it has tended to be accelerated only by world wars and the Cold War. Changing that underinvestment in R&D seems difficult but possible.
If you are more alarmed about the consequences of not having technology cheaper than coal than Lomborg is, then it would be logical to go for more than $100 billion per year.
It is not logical to continue pushing for greater alarm instead, We already know that hasn’t worked.
Given that the developing world will continue industrializing with coal until something cheaper is available and that the committed temperature rise will continue to increase until something cheaper is available, you are effectively proposing to get more alarmed rather than to actually do anything that could work.
Re geoengineering, its difficulties are all the more reason for urgent R&D to reduce those difficulties in case we have to resort to it as a result of things getting worse faster.
BTW there will be a debate in Melbourne this Thursday 9 September which readers here might find worth attending.
I would still welcome any links on these issues.
LikeLike
@Arthur
Your selection of adjectives belies your true position. Science is not “extravagant”.
Utter rubbish. My response is about leopards of the Lomborg sub-species not changing their spots. I could wave around figures of $200 billion per year and become “twice” as concerned as Lomborg and equally irrelevant.
And given the fact that the IEA in it’s 2010 report on costs of electricity generation finds that with a $30 per tonne carbon price, existing Gen III+ light water reactors are price competitive in all regions and significantly cheaper than anything else in Asia, I would suggest that you do not have a clue about the current realities of nuclear power. China is building these for a cost of around $1.5 to $1.7 billion per GWe. By far the best thing that could be done to mitigate carbon emissions in the energy sector is to start deploying these things ASAP.
Development of Gen IV reactors deserves any amount of research funding, but even an extreme optimist would have trouble with commencement of build on a large scale by 2020 with 2030 being more realistic, though probably still optimistic. What’s going to happen to CO2 emissions in the interim? The window of opportunity to avoid dangerous climate change is right now and over the next two decades. Anybody that has nothing to say other than spend more on R&D (gee why didn’t I think of that!) is not worth the time of day.
LikeLike
Arthur,
Welcome and thank you for your contribution. You said:
I am with you on that. I totally agree.
This video was sent to me today. http://www.youtube.com/watch?v=VgKfS74hVvQ&feature=channel
The first 16 minutes make the case why we need to offer a clean electricity solution that is cheaper than coal, not raise the cost of coal fired electricity – yet!. I say “yet” because I mean until we have removed the impediments to nuclear and until there is international agreement as to how a carbon price will work internationally. There is no point chucking away our wealth for no real gain. If we continually chuck away our wealth on =symbolic gestures, we defeat the purpose because we are then less able to implement the solutions that could make a real difference. I am against wasting the country’s wealth.
So thank you for your comment. I agree.
LikeLike
Where is that $40 a barrel ABARE used to predict we’d see about now?
LikeLike