Double Jeopardy – Meter confusion in NSW – end of premium solar then what!

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Last week we posted about the effects of Gross and Net metering, and changes to feed-in tariff in NSW. Since then Renew Economy posted another take on the meter confusion as NSW prepares for the end of premium solar tariffs. The quotes are attributed to Geoff Bragg of the Solar Energy Industry Association.

Co2Land org feels there is another problem and that is the apparent state government attitude that ‘play space’ is their domain and targeted solutions are too hard to achieve as ‘real’ outcomes. What worries even more is that the data collection can also lead to Solar customers being easily targeted for use of system charges to benefit network businesses – double jeopardy you could say. That being the case microgrids, community projects and other disruptive to business as usual energy companies will be in for a difficult time.

Quoted: “There is fear that solar households will be forced to adopt “smart meters”, and pay a hefty fee of up to $700 unless they sign on for a long-term contract with a retailer. There is confusion about what sort of metering can be adopted. The Level 2 “sparkies” are outraged that their investment in training has been undermined.

 

The issue will be raised at a meeting of the solar industry this Friday, under the auspices of the Solar Energy Industry Association.

 

Spokesman Geoff Bragg says it’s pretty clear that the NSW government is opting to bring forward the “market-led” rollout of smart meters in NSW by energy retailers, about 12 months earlier than the national plan to make metering an open market in 2017.

 

“This approach is intended to solve the problem that about 130,000 of the 160,000 Solar Bonus Scheme customers will want to have their solar system Net metered & billed rather than their current Gross metering, to gain the best advantage from their solar PV system when the scheme ends on December 31,” Bragg says.

 

“Their intent is also not to be seen forcing a smart meter, or even a meter change, on anyone. But there are a lot of unanswered questions.

 

The first is:  Do we need new meters?  Bragg says the answer is complicated:

 

“As some have suggested, we might not need to change meters at all – some gross and consumption meter combinations could in theory be netted off at billing stage, some not, and with varying degrees of accuracy.

 

“In some meters, the full data set is in the meter somewhere, but existing meter readers don’t collect the full interval data set, just billing period totals. It’s actually very difficult to get any solid answers about what is possible, and what is not, in each network in each metering combination.

 

“Some have suggested that the upgrade to smart meters will cost up to $700 each, and that consumers will have to foot the bill, either by an up-front charge for the metering, or by being locked into long-term contracts.

 

“We can assume that energy retailers will compete for customers offering low, or zero cost metering upgrades, but will regional & rural customers get the same offerings, be left waiting, or even have to pay additional charges? Regional & rural customers account for a significant proportion of the solar installed in NSW. Will the offered tariff structures discriminate against solar customers with “free” smart meters?”

 

The question over Data:

 

“Data is everything in the world of individual empowerment and disruptive technologies; If access to metering data is the right of the consumer, then having real-time access to both solar production & consumption, can assist households & businesses make smart decisions about when to run appliances.

 

“As any solar household in NSW with a simple NET meter installed will attest, it’s impossible to know how much of your solar is being self consumed on-site, or being exported, until you wait for the tally at the end of a billing period and try to work it out from inverter and meter readouts.

 

“There are external metering solutions available to give you this information, but none of them are cheap and require professional installation. It would make sense to have this information available to all solar PV owners. Assessing households & businesses for energy storage is a whole lot easier with accurate consumption & production data.

 

“There must be IT start-ups waiting in the wings for access to our energy profile data. Can we instruct our energy retailer to give our personal production and consumption data to third parties? The NSW government supports the new innovative sharing economy; they have an opportunity to mandate a data stream that could unlock unimagined economies.

 

“It is still unclear what the minimum standard for any metering equipment will be. Will the various smart meters offered by different retailers be required to collect a data stream for Gross solar generation, and a separate data stream for Consumption, netting off the 2 data streams for billing purposes? Will the NSW government allow energy retailers to just install smart meters that only record the NET energy data, effectively blind to solar production, short-changing consumers?”

 

The question of Accurate, Clear Information:

 

“What the solar industry & consumers need is some answers from the NSW government about what is going to happen & when. They’ve had 7 years to plan for the closure of the scheme.

 

“We are tired of waiting for accurate, clear information. The NSW Department of Trade & Investment called a workshop meeting for stakeholders on the 2nd November 2015 to discuss the closure of the Solar Bonus Scheme, stating its intent to send a letter with clear information to all SBS customers in Dec 2015 or Jan 2016.

 

“It’s now mid-March and we are told the draft letter is still waiting for ministerial approval, but should be arriving in households around NSW in a week or so. We hope it is packed with clear, accurate information on what consumers need to do at what cost, and by when.

 

“Apparently there are separate teams in the departments, one dealing with the closure of the NSW Solar Bonus Scheme, the other dealing with the “market-led” rollout of smart meters. One team doesn’t seem to answer questions about the other team’s project.

 

The SEIA NSW annual installers meeting will be held in Sydney on Friday, March 18. Bragg says it is a full day conference for members and guests, aimed at PV installers designers and suppliers and this issue will be one of many on the agenda. NSW government representatives have been invited and have agreed to present to the SEIA NSW meeting on Friday.” Unquote.

Gross and Net Metering, and Feed-in Tariff Changes

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In recent times, a number of people have asked for clarification about the effects of Gross and Net metering, and changes to feed-in tariff. This follows a number of reports in newspapers and information sources such as the RENEW ECONOMY of the effects of rules changes. Below is a simple take of the what.

 

In NSW, from 31 Dec 2016, around 160,000 electricity customers will be disadvantaged if they do not switch from gross to net energy metering, and it is estimated only around 85,000 would have switched in time. The question gets down to: What is driving the changes and what are the actual changes that need to take place too.

 

First thing to understand is on-site meter changes can take less than 1 hour. What complicates things is a new Chapter 7 of the National Electricity Rules, and the regulations for new metering businesses that will spring up as a result. Will the customer benefit or will it just cost them? The evidence is retailers will benefit from continuing to ‘own’ the customer, and the customer will pay for the ‘privilege’. So customers that own their Solar panels will be less disadvantaged than those still paying them off, etc. Chances are all will pay more.

 

What is the difference between gross and net metering?

 

The gross-metered scheme means the entire output of the inverter is metered, and the total energy consumption at the premises is metered by the flat-rate or time-of-use meter.

 

With net metering, the output of the inverter is combined with the general load of the premises, ‘behind’ the consumption meter. This meter now needs to measure both energy import (consumption) and export (feed-in) in separate registers.

 

Some meters already the capability, and do net metering now, or can be reprogrammed. Some meters need to be replaced, as they are not capable of measuring power flows separately.

 

You now know meters and there capability is one thing. But, there is more:

 

To change from a gross feed-in tariff to a net scheme, three things need to be addressed: switchboard and general wiring, a potential meter change and ‘the’ tariff change.

 

You need to pay an electrician to look at the wiring in the switchboard, and the wiring change is generally straightforward. Budget the work to cost from $200. The wiring change likely is to disconnect the power from the inverter to the gross meter and move the wire to the part of the switchboard that feeds the general light and power circuits. This then becomes a ‘behind’ the existing consumption meter connection. The meter now functions as the net energy import and export meter.

Also at this point, after a final meter reading the old meter is removed from the meter panel and returned to the network distributor company, or whoever owned the meter.

 

The metering rules and regulations

 

In most cases it only takes minutes to physically remove, change or reprogram a meter.

However, the rules and regulations have changed. With change comes with it complications that include who owns the meter, who can do the work and what type of net-meter is used.

No longer do network businesses exclusively own the meter of residential and small business connections. No longer are Accredited Service Providers (ASPs), authorised by the distributors to install and change the meters. The former system was efficient and effective for the installation of the gross meter when all that needed was a contractor to make the wiring change and change the meter all in one visit with one authorisation.

Chapter 7 of the National Electricity Rules changes (the chapter concerned with the metering) guides that the electricity retailers have a lot more involvement in who supplies and reads the meters on a small customer’s premises. The change also has lead to a number of retailers now owning metering businesses themselves. The world of metering for small customers is no longer the exclusive realm of the distributor.

Also complicating things is that the vast majority of the existing meters out on smaller sites are the ‘accumulation’ meters (flat rate and time-of-use metering that is generally read quarterly) will stay with the distributor. However many of the new ‘smart’ meters will come those retailers with close links to the new meter companies. Also complicating the situation is those retailers that do not own metering businesses will continue to rely on the distributors or other accredited meter providers to carry out the metering work.

 

The tariff change

 

The change is due to the closure of the solar bonus scheme, under which households with solar panels can sell electricity back to the grid at a rate of either 60¢ or 20¢ per kilowatt hour.

From December 31, that amount is set to plummet to around 6¢ per kilowatt-hour as the scheme closes ‘as planned’.

This leaves the households potentially selling electricity to the grid for 6¢ per kilowatt hour but being forced to buy it from their retailer for around 30¢ kWh

Smart meters are required for customers to switch from gross metering – the current situation – to net metering, so they can potentially power their households with solar panels and sell any excess back to the grid.

 

How the meters are read

 

All meters are read, either manually or remotely (smart meters can be read remotely) by a meter data agency, the readings are then published to the Australian Energy Market Operator (AEMO). From there, both the distributor and the retailer can access the readings for writing up your bill. Some bills are bundled (a lump sum covers the retail and network transport cost), some unbundled (all costs are transparent).

What is different in a net-metered bill is there are two main line items:

The energy consumed over the billing period based on the reading of the ‘import’ register on the meter; and

The energy exported over the billing period based on the reading of the ‘export’ register on the meter.

 

Why you can’t keep the old gross energy meter to give you generation data

 

The gross generation meter most likely belongs to and is registered to the distributor, and for as long as it is in use it is their responsibility to read it and maintain it. The customer could ask to buy it from the distributor, but at the very least they will need to come out and remove their nameplate and delete it from their system. A call to the distributor is helpful here to see what their policy is.

A gross meter is made redundant when most inverters have been fitted as the inverters have an ‘energy generated’ readout on them anyway. It is just not part of the register.

Can’t you leave the metering as it is, and just subtract the generation reading from the consumption reading ?

No, and the reason is that the energy sharing changes moment by moment, and is charged at different rates. So the net off is also at intervals.

 

The process that kicks off a change of meter

 

It starts with a call to your electricity retailer.

When you call a retailer to request a swap from gross to net metering will most likely be speaking to a sales representative and they will take this opportunity to renew and recontract their arrangements with the customer. If you are out of contract expect them to be really nice with a special offer.

It is very likely the offer will include an upgrade to a smart meter (known as a type 4 or interval meter). It is very likely the meter will have a value to be passed on of around $600.

The benefit of the new smart digital meters is you can be offered more and newer services, such as monthly billing and access to energy use and energy out (feed-in) data through a retailer’s web services (where they offer the service).

 

So you know your rights

 

It is the customer’s choice whether to continue to use accumulation metering or upgrade to a digital (smart) meter.

There is no obligation for the customer to move to a smart meter (type 4), as quarterly manually-read (known as a type 5 or type 6) meter reading and billing will support net metering and provide the same net-metering benefit. So long as you do not export energy (and expect a feed-in rate.)

If a customer is not contracted to a retailer, then the field is open. Shopping around for the best deal is useful, as some retailers may offer a free upgrade to a digital meter or a more attractive energy supply contract.

 

Some important questions to ask of yourself and the retailer

 

How much will the process to change from gross to net metering cost me ?

You should be aware there are a number of steps in the changeover that may or may not be included in the discussion with the retailer.

Firstly, the visit from the electrician to change the wiring will generally cost a standard callout fee plus hourly rate – it could be a couple of hundred dollars if the switchboard is not well set up.

Secondly, the actual meter change or reprogramming is likely to attract a charge of between $50 and $600. That work is likely to be carried out by an ASP, and the fees listed in the distributors’ pricing information on their websites.

If your retailer wants to be really nice they will be offering attractive pricing to customers who sign a new energy retail contract or elect to take on a smart meter, perhaps to the point where the change from gross to net is ‘free’. But beware of the ‘free lunch’!

 

So you know more

Can I change early without losing any money?

No. The power flows through the meters change as soon as the switchboard wiring is altered.

A list of accredited metering providers is on the AEMO website, at

http://www.aemo.com.au/Electricity/Retail-and-Metering/Metering-Services/Accredited-Metering-Providers-National-Electricity-Market-MP-cat-A-and-B-services

 

Brought down on the side of ‘creative’ people – Caveat Emptor – the budget

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The Government has not yet explained some Budget proposals in detail. Caveat Emptor: a principle in commerce: without a warranty the buyer takes the risk. The excitement is the budget will allow small business to get a tax advantage for spending, and being creative. The carrot is to encourage you to be a start-up. The beware warning is because; generally the announcements made, as part of the Budget will have to pass as legislation before they take effect. Therefore, Budget proposals should not be taken as fact yet, even if a starting date is proposed.

It is right to get excited, it is a policy turnaround with promise. A promise you will be rewarded for being creative. Now comes another issue: While it helps start-up, being creative just does not cut it at all when it comes to describing what you do (why you are a desirable product). You see a well thought out plan is more than a document; it is the display of your method to success.

As a small business owner you realize the measure of your worth is how you can innovate and compete. There is even a separate government program designed for that purpose. The necessary step is you must have a plan that is focused on an idea and method. If you think about this you realize a politician emphasizing ‘creative’ might be silly. Our PM has repeated wailed the word on the media as describing the primary need for being successful and rewarded by the budget.

What is wrong with the word ‘creative’ you ask? The word ‘creative’ may mean “deceptive in presenting financial information”. The dictionary tells us so, and it seems a poor choice of word to be used in the Budget meant to build confidence.

Maybe the Treasurer is doing a better job of showing an understanding of language – of the budgets intended purpose, and I quote: “If small business people are investing in innovation and job creation, we should be celebrating. That’s fantastic and that’s how you grow an economy.” Then we take notice the PM was reluctant to use the word ‘innovation’ in his address; he preferred to embellish ‘creative’.

Continuing with the Treasurer’s words: “We focused on continuing with our economic plan which is built on last year’s budget, is built on a number of decisions we have made since we came to government.

We are continuing with that economic plan”.

The above comments while confusing are at least reflective of a change to the mindset, or at least, a thought – Start-ups will save us?

Where did that idea come from? A recent start-up economy study undertaken by PwC and commissioned by Google Australia forecasts high-growth technology companies could contribute four per cent of gross domestic product (or $109 billion) and add 540,000 jobs by 2033 from a base of about 0.2 per cent of GDP today.

However, they also warn of market failure and the reason why it is likely.

Then comes the worrying bit of all this enthusiasm. According to a World Economic Forum report, “Australia’s start-up ecosystem is already lagging behind those of many other developed nations due to a lack of emphasis on entrepreneurship education, limited engagement with universities and poor cultural support for entrepreneurs.”

Back to more worry: Treasury makes no forecasts beyond 2016-17. After that, it only makes a technical assumption that all will be well over the following five years. In other words the assumption we will able to achieve nirvana. To this point we read one media report even said :It’s what Happy Joe’s Fairy Godmother might deliver for him, if he had one. It’s not what you would want to base our economic policy settings on.”

To recap earlier in the blog. The risk of being creative is the creator may be seen as deceptive in presenting financial information. The risk of presenting innovation is that might be seen as coincident and opposed to the purpose for the statement.  The case for the cost benefit for the policy would have to ask and answer: Is this idea creative or innovative. It cannot be both otherwise you might be opening for a consensus. Consensus has a habit of finding a rule against the ideals. If you have had policy training, you might be saying – bloody ‘creative’ budget got me going. If we play semantics with the wording, and the PM can spin this morning as encouraging ‘creative’ small – to mean what he did not intend? Did he intend to omit to say innovative small business to be encourage, the day after the budget?

We tested that thought, and to paraphrase some of the responses:

  • We need local employment opportunity to go along with the incentive, something we often see social planners forget about.
  • We to be producers too, not just service providers.
  • We see a different economic reason altogether, the incentive increases our reliance on imports. We have had our manufacturing sector stripped of its ability to compete.
  • Startups are not just IT companies. Real innovators make things, not just create.
  • They don’t get the supply demand balance!
  • Does anyone have a spare $200million laying around, we have a outstanding start-up ready to go. But we have no government support! That got our attention. It is real and the problem policy does not want to know.

Think again if you think they got. Than listen to this game of semantics, on ABC TV: Interviewer Leigh Sales (LS) and Interviewee Joe Hockey (JH) –

LS – The Government’s spending as a percentage of GDP is 25.9 per cent. That is the same as the previous Labor Government (was) spending at the height of the global financial crisis.

JH – Not true. They got to 26 per cent.

LS – You’re at 25.9 per cent?

Another commentator of the semantics, said:

Maybe Australians are thought they don’t know when their legs are being pulled!

Now the dust has started to settle on the hype of the budget. There is a realisation that the accelerated depreciation schedule that was announced for those nice to have tools of trade (sometimes called big boys toys) is not gifts. The scheme is designed to offset your tax liability when you earn enough money to pay for them. The issue them is one of equity. A positive of this is that the plumber or electrician is now fully aware that a market is supply and demand. Albeit the new measure makes them aware they do need to make enough money to pay for the toys. The story continues as we received a plumbing quote a week before the accelerated depreciation for small business was announced – it was $1,700. A few days after the announcement – it was changed to $2,400. Why, the reply to pay for items I need to buy? Why, do you need to buy them? Because I realised I had to earn more money to have a liability to pay tax and that tax is what I can claim from what I buy? And, we were to be a willing to pay for that purpose? Yes. We did not find that equitable – so we put off our purchase.

So the problem is ‘start-up’ are not stand-ups or creative types on how to make money. A genuine start-up is backed by a method that will create money and not just redirect money from old to new etc. We think – nay – still confused!

Yield expectation – NSW Poles and Wires – for sale.

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Ok, the NSW poles and wires lease sale is now into the detail phase. Well actually that detail is reported to be already decided. What are not known are what will be said to the public, and that should be not too far away from being known. In fact the Premier has not wasted any time in encouraging ‘mums and dads’ investors to take out shares. As with all investments the price must be attractive to encourage you to buy. But there is another side of the coin. The institutional buyer must know the price to the user is higher enough to guarantee a return before they buy into the infrastructure. How is that done?

In the case of the energy utilities: It is the federal body, the Australian Energy Regulator (AER). It happens that the AER, and very shortly after the NSW Election where the mandate has been won to sell off the 99 year lease of the ‘Poles and Wires’ to highest bidder, will be setting the price for the future with an interim decision by April 2015 or very near to that date. That decision would determine network prices for the next five years.

So if you think about that you can see that the NSW Premier is technically right – no price movements will be because of the ‘sale’. You might also see why the oversea of the ‘sale’, the former ACCC chair, can say prices will not be greater than the regulator (AER as it turns out) determines. You could find it argued you will pay more, but it is not the sale process that increased the prices. That may be a slight of hand from the politics, but it is still a fact.

Then to put a balance on what an investment might be expected to return, we have a story – Is the search for yield becoming unsustainable?

By business reporter Stephen Letts, 30 March 2015. “The rotation out of investing in high-yield dividend companies into ‘growth’-focused enterprises is gaining momentum. The past month has been particularly striking. One of the key engines of the yield story – the utilities sector – has gone into reverse, falling on average 1.5 per cent this month after a solid 12 months of outperformance.

At the same time, investors exiting the yield play are piling into information technology and industrial stocks hoping for more exciting returns.”

Co2land org now considers: Is the NSW Government too late in getting the float of the poles and wires to market. We use the story above again to quote: “Manufactured yield is not sustainable.” Also quoted is: “Goldman Sachs says the low risk approach is to avoid companies that have been “manufacturing yield” by relying on debt, assets sales and underinvestment in their businesses. Interestingly many of the companies with the largest “cash shortfalls” are the utilities that have been at the forefront for the search for yield. Leading the pack is the power utility and network operator, AusNet Services. Goldman Sachs has found AusNet Services experienced at a $2.2 billion cash shortfall over the past five years, which represents about 62 per cent of its average market capitalisation over the period.

Duet and APA – who are in the same line of business – have shortfalls of $1.1 billion and $650 million respectively.”

Therefore we see an ominous gathering of indicators that suggest the NSW float might not be the good it is promoted as being.

We think the ‘real’ issue will be the pressure to reduce the price by the user. The providers for a ‘demand response’ should also be persuasive to avoid prices rising by virtue they can determine the demand needs for energy. Why the later because, they have the power to defer capital investment needs assuming the network growth need dictate investment in the failings of the system.

The ‘elephant in the room’ is there too! It is of course the remodeling of the energy networks business model and the rise of cheaper embedded energy networks with renewable energy sources.

Tis interesting times!

Poles and Wires Apart – NSW style

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Being it is an election issue – What do you think about privatisation of the electricity assets? A fair question we said, but the wrong one! We feel the ‘real’ question is will the price of supply go down either way? Then it becomes obvious if you use the word ‘redundancy’. In the Queensland election the word was replaced with an emotive ‘gold plated’. In the coming NSW Election there is no mention of either term. The political sides prefer to attack and defend on diverting money streams that would flow onto ‘infrastructure’ projects.

Our point here is that ‘poles and wires’ are infrastructure and there is a level of build required to a) Meet demand. B) Provide reliable pathways. The c) route is actually the political risk to an incumbent that makes the decision to support or reject a build decision and that might not have any basis of a) or b). So c) can be why redundancy is so important when they build.

It is time for a new incumbent politician to be elected. Both sides understand the previous administration built into the system excessive redundancy. This equates to – those assets offered for sale or lease will be attractive as very little needs to be done for another 5 years before meeting demand and system reliability becomes an issue (a and b).

If the current state government is re-elected they can honour their pledge that in 2019 no price rises will occur because of the assets passing into private hands. The potential buyer will find the ‘redundancy factor’ attractive in guaranteeing a profit.

If a new government is voted in they will ‘protect you’ from price rises and continue a revenue stream for the infrastructure needs of the state. They will simply have a different emphasis on what infrastructure to spend. For example less will be spent on Roads and Rail and more on other social needs. The new will be able to do this by avoiding spending as redundancy is built into the system.

How much redundancy is built into the NSW System? The question is not so easy to answer. Because Transgrid the transmission network had something like $15b to spend a couple of years back and the Distribution network companies spend considerable amounts on their needs. The ugly ducky in terms of the need to spend is still looking to be Essential Energy by virtue of the area and geographical spread of its territory. Essential is essentially regional NSW.

What neither party is telling you are what Essential Energy will do to address a new business model to meet the challenges in the next three years.

The question is really, will history repeat itself and will the need to further build after the redundancy period morphs into a massive rebuild program. Building program cost money and in any user pays system you will pay for the need to supply. You will pay either as a taxpayer or a direct cost. The politicization factor will decide what the koala will bear. Koala in this sense is the voter.

To back this up we read with interest the writings of Keith Orchison, 9 March 2015, ‘Who’s telling porkies about NSW’s poles and wires?’ You will find the story in the Business Spectator. He says, “Where the wheels fall off the propaganda cart, is when you look forward and also when you bear in mind what Mike Baird wants to flog. The Premier plans to sell half of Ausgrid and Endeavour Energy, the two largest earners, all of TransGrid, the high voltage business, and none of Essential Energy, which delivers power to 95 per cent of the state and has been declared untouchable by Baird’s National partners.

Broadly speaking, any loss of revenue will be about half the total networks income for the government. Then the question is how much income is that likely going to be?”

“You can then halve these numbers for ‘lost revenue’ because Baird proposes to hang on to half the distribution duo that delivers most of the moolah.

One way of looking at this is that there is about a $3bn to $4bn hole in the ‘anti’ brigade’s bucket on this issue over the remainder of this decade.

These campaigners have not been too fussed about accuracy in other respects, either.

For example, the $1m worth of advertising currently running on NSW television screens is supported by an assertion that power prices in Victoria have risen 60 to 70 per cent since electricity privatisation, but this ignores the fact that network charges in that state have fallen during this period.

Work done for the NSW Treasury by Ernst & Young shows that Victoria’s network charges fell 18 per cent in inflation-adjusted terms between 1996 and 2013. Over the same period, they rose 122 per cent in NSW.

Now the voters of New South Wales can’t be expected to go out and research all this stuff for themselves, so what is the role of the Electoral Commission in vetting the integrity of the campaign?”

We say no more – it has been said! Now you vote – clear as mud is it not!

The year of the Global Social License – 2015 Carbon Economy

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The ‘social license’ is behind the shift to a carbon economy and the shift from the petro-chemical industries. The discussion moved from the automotive industry and how consumers willingly take up the new products that promote better environmental outcomes. It was further discussed that a similar change is influencing the other industries. The shift in the valuer attitudes is remarkable in that whatever economic theory you are predisposed to, or learnt in school, you will in all likelihood find value by participating in the carbon economy.

History has a way of repeating itself, and Adam Smith as the ‘father of capitalism’ described the ‘guiding hand’, which can be interpreted as a ‘social license’ that is part of 2015 regulatory thinking. Even those that follow Karl Marx writings will find a ‘social license’ forms a valuable and insightful regard to the specific mechanisms of an economic system.

We find that Marx and Smith diverged drastically in their political ideologies (not unlike the Labor and Liberal parties in Australia). However, their economic theories were similar in that both hold the labour theory of value as a core belief. Each believed that the number of labour hours put into an object created the value and thus the worth of the object. This is where the carbon economy differs in that the value is clearly in the hands of the valuer and not the politic as our government would like. It could explain why the traditional control mechanisms are not working, there is a disquiet in the community, and effectively communicating the political message ‘of value’ is seemingly on an uncomfortable setting.

The Austrian school of economics espoused its theory of subjectivity. From this theory, it follows that a product possesses value only if there exists a valuer. They say the object must be useful to a consumer in some way; if it is not, it is not valuable. The consumer’s feelings or subjective analysis give the object its value. Because of the laws of supply and demand, if the subject warrants a high value it will be commensurable with a high value.

The carbon economy can already show subjectivity of the price sets its value without regard to your politics. We say this as the carbon economy is already seen that the more desirable or valuable object on our connection to the trinity of human existence, with heaven and earth. The trinity concept is as much eastern as it is western in its connection. How high a price we are prepared to pay is to be proven. But, there is a universal willingness to try and it indicates this is the most logical reason for its value.

The carbon economy also indicates that the labour theory of value is incorrect because even though hours of labour might have gone into building an object, if no one wishes to purchase it, it has no worth and cannot be made commensurable with anything else. That not us saying that it is the indications of commercial reality that includes the need for sustainable outcomes to be demonstrated through the money practices of today and it strongly appears the social license is driving this trend.

For the success of the carbon economy lessons, from history you cannot ignore Marx and Smith. They still influence our current economy and we will still be affected by their ideas. Albeit these times do indicate a leaning to Smith is more fashionable. That said, Marx had brilliant insights into the workings of an economy and thought extensively about the mathematical side of economics. Political theory aside, Marx’s writings are valuable and insightful in regard to the specific mechanisms of an economic system. Smith is not called the “father of modern economics” for naught. The idea of the laws of supply and demand and the invisible hand can be found in high school and college economics teachings around the globe. Aside from the mistaken labor theory of value, Smith’s economic and moral theories are respected and employed in modern free trade economic systems today.

There is much debate about whether or not the so-called “moral Adam Smith” is compatible with the “economic Adam Smith.” Some believe there is a discrepancy between his discussion of morality and virtue and his thoughts on capitalism fueled by self-interest; Others brush off this claim as mere misunderstanding and say Smith’s “virtue” consisted of at least three major elements: prudence, justice, and benevolence. Prudence – a characteristic of self-interested conduct and economic pursuits. Justice (described as a ‘negative virtue’) – conduct in accord with public laws meant to restrain excessive self-interest. Benevolence (the highest form of virtue) – featured through private relationships.

Where carbon economics will not agree with Smith is that one may choose to relish only their commercial virtues; the person may become successful in business, but not be a completely moral being and have a place in our society. Carbon Economics would say they have no social license.

Adam Smith began writing on the importance of a free-trade economic system while he lived in mercantilist England. Smith had the foresight to realize that the mercantilist system was flawed. Mercantilism stressed the need for “large reserves of bullion” to reap economic benefits. Smith disagreed with mercantilist theories and expounded on the importance of free trade. The Wealth of Nations sought to discuss just that, the wealth of the nation as a whole. Rather than focusing on how much land the rich had or what the king acquired, Smith discussed how each individual person could successfully reap his or her own economic benefits and thus add to the nation’s wealth. He cited that in a free trade economy, a person has the ability to earn money and should then use it to purchase other goods (or capital to create their own business) which will then lead to growth in the economy. Smith believed that by earning and spending money, the economy would be stimulated and thus grow.

Smith wrote The Wealth of Nations during the late 1700s, during which a mercantilist society still existed. He realized the need for a better and more efficient economy that would benefit each citizen and the entire nation at the same time. What you may not know is that Smith merely envisioned the free society, he did not actually live it.

Marx wrote in the late 1800s, when the industrial revolution was in full swing. He personally saw and studied the filthy and dehumanizing conditions in which British factory workers labored. That experience led him to think capitalism was the source of every ill in society. He was only exposed to the exploitation of workers who labored long hours for meager wages while rich factory owners’ reaped benefits. In addition to his geographical and historical background, there are two key reasons as to why Marx indicted capitalism for all the problems in the world, these also exemplify his error: He believed that the class in which a person is born is the one in which he or she will remain. He blames capitalism for entrapping human beings

The beauty of a capitalist system is that it is free—we can own property, start a business, and live our lives as we so desire, provided we are not harming anyone.

There is the issue: providing we are not harming anyone. This where the social license is best measured. It is the measure of the carbon economy. What we can hope is that we will live to see the carbon economy proven – those actions are not harming anyone!

Environmental Project risk – 2015, no option to do nothing

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There is a rise of project risk if you ignore sustainable practices. Banks are introducing the need to consider that you be aware of that responsibility. 2015 is shaping itself as the review year of regulatory response and licenses to assign risk. It follows that we are on track to the need to focus on compliance action verses the risk of no action being greater. The evidence is you are endangered as a species or at best targeted by Australian jurisdictions if you ignore what your facility or business might do to reduce the risk. For instance environmental licensing regimes are being reworked so that compliance activity can be aligned with actual facility risks. These checked activities take into account the operator history and what is a nearby sensitive environment.

You may not be aware of AELERT – their website says:“We are a collective of environmental regulators from all levels of government across Australia and New Zealand.  We create a platform for environmental regulators to connect and collaborate in their work.

Member officers connect through AELERT to exchange resources, knowledge and experience about environmental regulatory practice and work together to drive continuous improvement and new approaches to the ‘regulatory craft’.”

What is growing from this collaboration is NSW will launch its risk-based licensing scheme on July 1, 2015, and Victoria’s three-year roll-out of its Licensed Operator Risk Assessment scheme will be completed in 2015, while Queensland is also well into a process of risk-profiling the sites it regulates.

The other issue is that compliance to regulatory needs has another element in 2015: It is called ‘social licence’ and is likely to be the dominant phase of 2015. Our opening paragraph referred to banks, and this form of license, and we quote:

“And it’s no good having the official go-ahead to build a coal port or mine if activists have made sure that no financial institution will back it (see related article).

Many environmental groups have become so dismayed at what they perceive to be a large-scale wind-back of environmental legislation that they no longer consider official processes capable of delivering a fair result. Their concerns have been magnified by the de-funding of public interest environmental lawyers (see related article), new restrictions in Queensland on rights to appeal decisions or even be notified about projects (see related article), and Tasmania’s new law cracking down on rights to protest (see related article).

For many groups, that means strategic community campaigning – ranging from blockades to shareholder activism – is now often seen as the best option.”

To Co2land org these license events are the equivalent to the actions of the political pendulum and as history displays no matter what the swing the middle is where it will travel.

The pendulum for carbon pricing was set in 2014 with the repeal of the Carbon Tax, and the reliance on the Emission Reduction Fund to take the battle over the policies of what Australia should use to reduce emissions. To again to use out quoted source:

“But 2015 will mostly be about how deeply the nation should cut them. In Australia, one legacy of the 2014 struggle over carbon policy is that we will have two major reviews of suitable targets – one led by Prime Minister and Cabinet (see related article) and another by the Climate Change Authority (see related article).

Both will be important. Although the PMC review will represent Australia’s official position, other governments are likely to judge the Government harshly if its proposals fall far short of what the Climate Change Authority suggests. Meanwhile, businesses themselves will come under increasing pressure to set corporate emissions reduction targets that are based on climate science.

There is now an international campaign – with high-profile backers including CDP, the World Resources Institute and WWF – urging companies to do so.”

Our current Government has introduced an emission reduction scheme – albeit with a $0 baseline and it is called Direct Action Plan. The Senate referred to the Environment and Communications References Committee for inquiry and report on the matter on 10 December 2013. All good to go now and you expect no problems!

Then SAI GLOBAL, 2 February 2015 reports in the Carbon + Environment Daily that in the climate change arena, “nervousness about the capacity of Direct Action to deliver emission cuts and about the Federal Government’s commitment to renewable energy will lead to growing pressure for states to pick up the perceived slack.

The actions of the NSW, ACT and South Australian governments show they already consider they have a major role to play in helping their citizens deal with climate change, and the newly-elected Andrews Labor Government in Victoria has indicated it shares this view.

As well, both NSW and Victoria are reviewing coastal legislation in 2015, a task that will inevitably have a strong focus on climate change adaptation.”

Co2land org is taken back to the Howard years of government and recalls the shift from Greenhouse Gas Abatement Actions to Climate Change Adaptation strategies. So if this all sounds back to the future it really only means the makeup of our current government is recycling its policies as business as usual. A rebadge of funding here and there of course. If you think this is cynical it is not meant to be it is a concern that we are seeing the continuing rise of risk and that even the most strident of climate change deniers are acknowledging risk is risk, and exposure to risk requires assessment to minimize the fallout. That is a fact it is not a political position and it is common to survival.

An excellent example of taking risk seriously is Cotton Australia where in their periodical Cotton Matters, 28 January 2015 they write:

“The Australian cotton industry supports programs to reduce emissions through improving efficiencies and a first assessment indicates the draft method is technically sound. However, Cotton Australia considers that at this stage it could be challenging to garner involvement due to a potentially inadequate benefit:cost. Implementing a project involves administrative obligations and costs (e.g. for independent audits) as well as the need to manage financial risk.

Nevertheless, businesses in the carbon market are working to develop smarter services and products to help manage complexity, risk and reduce project costs. A sufficient price for carbon would help overcome these.

For these reasons, the researchers, economists and technical specialists at CottonInfo eagerly await the results of the first Emissions Reduction Fund reverse auction the coming months of this year to firm up the likely carbon price and revenue potential for future projects.”

From this Co2Land org finds the price of carbon will prevail, and the mid point of the pendulum will not be $0. There will be ‘degrees’ of difference that will set the price and price has the capacity to reduce greenhouse gas emissions adequately and effectively.

One risk for the Emissions Reduction Fund (ERF) is as the federal government’s centrepiece for emissions reduction, and it relying on being used to purchase lowest cost abatement, and participation in the ERF is voluntary and open to everyone is that it may be window dressing.  The key is the reference of being ‘open to everyone’. The issue is that interested parties must establish a project, which must follow the rules outlined in a ‘method’. What is not well know is that a minimum block of emissions reduction from the method exists and set by an arbitrary decision process. In short individuals may not particulate without complexity. Complexity by virtue of the need to be fully aware, upfront behaviour of how the detail and requirements in undertaking a project: the risks, costs as well as the benefits are presented. That said the other aspect is the market is immature and finding who to trust as having your interests as a ’license’ is a risk.

clueless, naive and dangerous in its understanding of its responsibility – what is the legacy?

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The NSW and Queensland Government have a plan. If they sell off the assets they will be no longer responsible if things go wrong. This does leave a fundamental problem in terms of legacy – A number of problems actually.

Starting with: Will corporate simply view governments as irrelevant in the near future. They already do think that, and as an example when the Queensland Transport Department set traps to catch UBER drivers employed by Google and Goldman Sacks. The corporate told the drivers to continue business as usual and ignore the Department. Google even then disabled the Government ‘s capability to track the drivers. How could they do that – they are quoted nationally as saying the conglomerate has deeper pockets than the government.

Both NSW and Queensland seem to have suitors for the Energy Networks Companies they have on offer. Even the relevant Ministers’ seem confused as to what and how much is for sale.   What the public know is that it is very likely two Asian based corporations will be in the front seat for the assets purchase. Both with deep pockets, and both with a high probability on controlling the total business in both states.

Can we have confidence wise decisions will be made? Maybe time will tell. But in NSW at least a very worrying case indicates the Government is more interesting in avoiding responsibility for its choices.

If you follow this story you may feel as apprehensive as we do: Wind farm at Gullen Range a ‘mess’ as matter heads back to court , January 26, 2015. http://www.canberratimes.com.au/act-news/wind-farm-at-gullen-range-a-mess-as-matter-heads-back-to-court-20150126-12ygnn.html

“”The scene is set for a right royal mess with no one happy. It follows the protestors, the complainants, the Developers, are all challenging the Minister over who is responsible for a litany of ‘mistakes’. s clueless, naive and dangerous in its understanding of national security. Suggesting the department is clueless, naive and dangerous in its understanding of its responsibility. To quote directly from the story: the Department – and therefore Ms Goward – had taken three different positions on the wind farm, which would be difficult to defend.

Firstly, the Department recommended conditional approval of the turbine changes to the PAC. In turn, this body refused the DA but along the way, the Department had recommended that just nine turbines be moved.

“So if it all goes to court, which position will she defend?” Mr Brooks asked.

“The whole thing is a colossal mess.”

Complicating matters is the Department’s oversight role earlier in the development. The company appointed an independent environmental monitor to oversee turbine placement and report to government planners. However, the Landscape Guardians alleged he had a conflict of interest as director of a consultancy firm that worked on the wind farm.

A Department spokesman told the Goulburn Post that this person was employed by a consultant and not by the government.

“[He] was not involved with the design, construction or operation of the project, having worked as a consultant preparing the environmental assessment for the application.

“Appointing [him] as the project’s environmental representative is in line with the project’s approval conditions and the Department’s procedures at the time.

“The Department has since improved requirements further to require wind farm consultants have an even greater level of independence.”

Adding to an “invidious” position, the Department allowed turbine construction to continue for a year after residents alerted it to their “incorrect” placement, Mr Brooks said.

“My [legal] advice is that the Minister will be obliged to defend the [Land and Environment Court] action seriously because her authority is at stake,” he told the Post.

“I hope the court throws it out, but that would throw up the situation where the PAC has rejected it, and we still have a wind farm of 69 turbines that are not in their approved locations. What happens next?”

A Department spokesman said the appeal was not about the merits of the modification, such as whether any turbines should be moved, but the process the PAC followed to make its decision.

“If the appeal is successful, then the modification application will need to be re-determined: at this stage the merits will be considered again,” he said.

“It would be highly unusual for a court to require new evidence from any party regarding an appeal of this nature,” he said.

Late last year, Mr Brooks lodged a complaint with the NSW Ombudsman about the Department’s handling of the project.

The Ombudsman was currently investigating, he said.

He’s not stopping there. Mr Brooks is also writing a submission for a Senate select committee’s inquiry into governance and the economic impact of wind turbines. He is not only highlighting the Gullen Range wind farm and the Department’s “incompetence” but the fact the developer collected renewable energy certificates, despite alleged “noncompliance” with state and federal regulations, as required.””

Co2Land org therefore must conclude a captains call will be required – then confuse you even more. But in all seriousness – you will note someone will have to pay. Guess who! Hint – you because no one else will be responsible.

Killing off domestic low cost energy mix – Queensland style

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co2land.org

It was some surprise amongst friends that Angus Taylor (thought to be the rising star of the Liberal Party) said gas was the future of a low-cost energy mix. This seemed at odds with Tony Abbott’s (the Prime Minister’s) view that coal is the key. Some react to that story as an OMG moment. We take the story as one that is a design to disguise and deflect on what is actually happening and lead the consumer to a path to pay more. Some might even say it is a centrifuge of fluid appeal. The opening line story is from:

http://www.goulburnpost.com.au/story/2791033/angus-at-odds-with-abbott-over-coal/?cs=181

So there is no confusion as to what we believe: Lets us declare we are pro-market. What we question is whether pro-business rent-seekers are slewing benefits for the rent-seekers at the expense of the consumer. After reading the article immediately below, the story should unfold as to why the…

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Killing off domestic low cost energy mix – Queensland style

Posted on Posted in Carbon Risk, Hot airTagged , , , , , , , 1 Comment

It was some surprise amongst friends that Angus Taylor (thought to be the rising star of the Liberal Party) said gas was the future of a low-cost energy mix. This seemed at odds with Tony Abbott’s (the Prime Minister’s) view that coal is the key. Some react to that story as an OMG moment. We take the story as one that is a design to disguise and deflect on what is actually happening and lead the consumer to a path to pay more. Some might even say it is a centrifuge of fluid appeal. The opening line story is from:

http://www.goulburnpost.com.au/story/2791033/angus-at-odds-with-abbott-over-coal/?cs=181

So there is no confusion as to what we believe: Lets us declare we are pro-market. What we question is whether pro-business rent-seekers are slewing benefits for the rent-seekers at the expense of the consumer. After reading the article immediately below, the story should unfold as to why the opening paragraph was so well linked:

Will Queensland defy the trend of declining demand? By Paul McArdle Wed, 24 December 2014 | Topic Summer 2014-15 in the NEM –

“As early as 2011 and perhaps earlier, we’ve been posting commentary about how growth in electricity demand was slowing, and then began to decline.  Across the NEM this trend does not appear to be slowing (and there are a number of reasons for this).

However, within Queensland we wonder whether what we’ll see this summer and next will buck this trend?

Earlier this week we noted articles (Gladstone Observer, Courier Mail and SMH) about the arrival of the first LNG export tanker in Gladstone.  Billions of dollars of investment have been sunk into this new east-coast industry, a fair percentage of which being focused on the upstream tasks of releasing the coal-seam gas and delivering it to Gladstone.  With the three projects each opting for electric compression of gas delivery to Gladstone, we’re looking to see a sizeable increase in demand for electricity as a result.”

Good stuff, hey! Can you see that only a few benefit? We cannot save you, but we can make you aware!

Lets us look at some of those linked ‘demand risers’ in more detail:

The $170m Bauhinia rail electrification project has just been completed and is a spur line to link with the Blackwater System in Central Queensland. The Blackwater system too was upgraded to double its electrical capacity, so rather than using diesel trains carrying coal from the Rolleston mine all the way to the coast it will be all electric powered haulers, which will no doubt further increase electricity demand. Queensland now has electric locomotives rated to 4,000 kW each as opposed to the previous 3000kW. So this means each locomotives at 100% load factor it would be 4 GW of demand! For more information go to –

http://www.aurizon.com.au/projects/bauhinia-electrification-project

Therefore you can expect: Each new coal train is likely to have three locomotives and each locomotive is about 4 megawatts load rated and drawing current directly from the overhead wires. This is and 12MW additional load on the network for each new train. This load was not required before.

We then read the Queensland people and business in general will pay more for gas than other states in Australia. Despite that state having more than enough gas for domestic purposes. Our Queensland contact said it has something to do with the resources rent policy of the state government. We noted that the quoted price, last week, from traders is Brisbane trades for gas in the order of $4.21 per GJ. This was an increase, which was coincident on the arrival of the first LNG tanker in Gladstone to export gas. At that same time Sydney prices rose to $4.00 per GJ. However Victorian prices remained at around $3.50 per GJ.

Now, 13 January 2015, Paul McArdle reported Brisbane hub for gas trades had reached $8.69 per GJ, Sydney $4.52 and Victoria 3.75 per GJ. While we could argue Sydney and Victoria are merely movements in the market, it is obvious Brisbane is a seismic like demand wave pushing up prices.

We no longer need to speculate that higher Queensland gas prices will mean gas for electricity peaking generation plants will be a higher price. Being that the energy market is a spot market the higher bidder sets the price. In short, as electricity demand increases so does price. What this means for electricity generators is higher demand, higher Queensland gas prices, and the market rewarding them because the higher bidder sets the electricity price for them to benefit. How much higher Queensland gas prices will go will be interesting to follow. We no longer speculate as 13 January also see Queensland peak electricity prices running as much as 300 precent plus higher than the remainder of the eastern seaboard on that day.

A short while a go the Federal Government with the Queensland Government’s endorsing repealed the carbon tax (the inception program was called the Carbon Price) as it was claimed it was to blame for higher energy prices! But now those bodies welcome higher prices, and the investor rent seekers want to hear this glorious venture has raised higher revenues from higher prices. It may be immoral but it is not illegal they say.

We are told gas prices must increase to match world demand and the price continuum. But that is seeming a hollow argument as even Japan now appear to be reluctant to source or pay for our LNG. This is a shift from their previous willingness to pay high prices for gas. Why this shift? Because, new low-cost LNG producers elsewhere are joining the supply side, and Japanese LNG demand is moderating to lower levels of need. Other factors to indicate a lower LNG demand is lower oil prices, and alternate energy sources coming in lower priced too.

Why will the demand increase in Queensland, the key to this is three projects each opting for electric compression of gas delivery to Gladstone, and therefore an increase in demand for electricity as a result.

The confidence trick here is QCLNG and APLNG are electrified using electricity from the NEM, and the GLNG upstream project has gas turbine driven hub compressors and electric driven nodal compressors supplied by open cycle gas turbine generators. Therefore it is the gas prices that is be the price setters for the electricity price, not any increase electricity demand on the NEM. Good double talk is it not?

Then Hugh Saddler said, 7 January 2015, via WattClarity: “The excellent data available through NEM-Review tells me that a large new continuous load of around 400 MW came on line in Queensland on 27 October last. This suggests that the 2014-15 summer peak is likely to be considerably higher, for equivalent weather, than in recent years; this has already happened on 9 and 17 December. However, without knowing what the load is, it is difficult to be certain with such a prediction.”

The later we find most interesting and it is the unknown that is more to worry about. About what price you will end up paying.

Now back to Paul McArdle he continued to say:

“1)  We can see that, in summer 2014-15, we have already experienced a higher demand in Queensland than was the case in the whole of summer 2013-14 .

2)  Queensland demand (with respect to the competition) has already peaked to the level of 8,472.23MW

3)  That demand peak occurred as late as 17:15 on that day (hence as the effect of solar PV injections into the grid had receded).  This is something we would not have seen several years previously!

4)  We also see that price volatility is starting to look as something like what happened in summer 2012-13 as well.”

Co2land org concluded it will continue to be a good time for ole king coal generators in Queensland and those state consumers will pay the price. A price that will lead to other east coast states rising their prices too. However, it will not the market causing the rise it will be rent seekers and their influence on the policy makers.

The ray of sunshine is it may become too expensive for policy makers to bear!