Links to customer value – Future Energy Supply Strategies

Regulatory tests and security of supply –Sounds so elegant so simple when it is a strategic position statement or statements. Queensland gives some very good examples in recent times.

The first being the effort Ergon Energy put into the work to secure power supply upgrades to the ‘Granite Belt’ and that process started in 2011. It was abandoned 17 September 2014. What changed?

Then there is biofuel potential in Queensland. Why the focus on non-fossil sourced fuel now?

Then there are the Coal industry woes – China does not want the Galilee Basin coal type – it is too dirty for its cities!

Back to Ergon: After the Warwick Daily News headlined its story, 15 September 2014, “ERGON pulls the plug” – The story was quoting the Qld Energy Minister – Mark McArdle, as announcing the end of duplication of the Warwick to Stanthorpe power line and the controversy over the routes being selected. Ergon Energy then in a letter 17 September 2014 wrote to the landholders that were to be affected by the proposed duplication of the power line and formally advised they will no longer be effected. Clearly indicated for making the decision were the outcomes of the regulatory test(s). How could the regulator test find as it did to stop the project, even sway the politics of the project? Well, the key findings were:

  • The reliability standards changed on 1 July 2014. There is a heightened need to weigh the costs against the value to customers.
  • Existing demand is slowing and the evidence future demand will continue that trend if not further reduce. Certainly not inside the regulatory forecast periods.
  • Rising costs can no longer be blamed on rising demand predictions, that waste and excess must now be addressed for efficiency dividends.
  • There was very little to be concerned about with the reliability of the network as it stands now.
  • There is an edit the focus should be on affordability. That capital expenditure must be justified as needed.

Another way of putting all this is – Ergon Energy or any other supplier cannot get away with gold plating and excessive redundant equipment and infrastructure just because it gives them comfort – it must give value. How can you get value? You can improve the technology offering better monitoring, performance and be ‘smart’. The later is as simple as balancing the demand supply equation with incentives and/or implementing demand management strategies.

And, yes there is more: alternative energy supply is opening being touted as ‘planned initiatives’ What alternative energy? Call it what you like – clean, green or whatever. But what will stick is not only ‘proven technology’ as the descriptors now includes ‘likely technology’ of distributed type and ‘battery’ storage.

As an aside did you know as ‘battery’ can be a physical volume exchange as well as an electron store!

Does this mean technology will save coal? It is possible – but at the end of the day it will get down to the economics and it is not looking all that bright for coal as sustaining its position even for baseload demand.  Even our world partners are turning their backs on coal – it is now seen as too expensive in terms of the outlook, and the economics, the environment and the cost of the process to make it ‘clean’. Recent Chinese regulatory changes are testimony to that issue. Then there is the story -AngloAmerican boss sees coal mines closing at a rate of one a fortnight http://www.goulburnpost.com.au/story/2569015/angloamerican-boss-sees-coal-mines-closing-at-a-rate-of-one-a-fortnight/ … – no a good look is it!

Yesterday, 22 September 2014, in Canberra the Minister for Industry Ian MacFarlane addressed a biofuel forum on the strategy for Queensland to take the lead on bio fuel production. This follows a paper released through the Queensland University of Technology prepared by Corelli and Deloitte Access Economics. The paper called “Economic impact of a future tropical bioenergy industry in Queensland”. It talks of the ‘potential’ of new manufacturing facilities, and how biofuels can be used as an area of increased focus in agricultural strategy.

What all this means is that traditional energy is heeding a need for a strategic change of heart. Despite what is being said about business as usual, that is not the behaviour behind the scenes and increasingly it is coming to the fore that change is inevitable. The EUAA calls it a paradigm for the industry. The question is what part of the pack are we to become. Australia has always been world renown for finding solutions. What we have not been good at is getting things done, besides talk about it that is.

And, there is more: some government facilitations would assist in industry establishment. Not our quote, it is taken straight from the above papers key findings.

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‘good faith’ – a legislative event or an earned value!

” Australia now has some of the highest electricity costs in the developed world” – the claim was part of a upcoming conference promotion. Why is this so? We can easily say the reason is a range of federal and state government policies. With some bemusement we could even say the amateurs must have been in charge when all this happened, and they could not help themselves but to make changes without understanding the consequences. Another way of saying it is they thought ‘good faith’ was a legislative event and not an earned value!

If you carry over the ‘good faith’ argument as a legislative event, you can easily see how the intention could be manipulated according to the stronger lobbying power of the day. There does not need to be a business case for the policy, it just needs to be a positioning matter for what is ideal. In terms of positioning you might see how the carbon price became known as the carbon tax in the repeal legislation (the definition of ‘price’ was changed to reflect emotive wording ‘tax’), that the renewable energy target became a plaything for posturing the adverse effects and without evidence is said to have contributed to cause energy prices to rise.

It still happens, again and again. The driver – we need change to show we are positive about business. Business according to amateurs is ‘doing something’, and that so important! Think of these examples: Gas market reform needed, it will increase gas production and ease the pricing situation. Maybe it would – if you had a direct one on one relationship between the supply and demand. It is not that simple and business professional understand this, but a graduate and an evaluation team for a policy might not. With interest we note that the EUAA has an upcoming program based on New Energy Paradigm – Better Energy, Better Business. The word ‘better’ we assume means the amateurs will be kept away and only the business astute will be debating the program! The logic being a new paradigm forms the basis of something. But what if the carbon tax or RET can no longer be blamed for some of the highest electricity costs in the developed world. What do you blame then? What then would be the outstandingly clear or typical example or archetype of the cause? Again it would not be hard to consider the amateur was being too ready to expose a popular view without sufficient knowledge of the facts.

Pondering this issue along came a story about the Sydney Second airport and a mad bit of posturing by the small business Minister to an audience on how they will fix who ever gets in their way. The story:

Airport chief slams minister’s delay statement, 06 Sep 2014, Sydney Morning Herald, Sydney: Badgerys Creek Talk of ‘another partner’ –

“A key federal government minister has warned Sydney Airport that if it delays the process of building an airport at Badgerys Creek, the government will find another partner to help build the project.

But that warning immediately produced a backlash from the chairman of Sydney Airport Corporation, Max Moore-Wilton, who stressed that Sydney Airport retained the first right to build another airport in Sydney. He also questioned the seniority of the minister delivering the warning.

“This is not a game for talented amateurs,” Mr Moore-Wilton said. “This is business.””

The illustration here is a very important one. It is business that works to contain costs and it is opportunists that are the costs.

Possibly the more damming is when “Asked about Mr Briggs’ comments, Mr Moore-Wilton said: “We are following in good faith the provision of the legislation governing the process for considering a second Sydney Airport.

I imagine since it’s a legal obligation, Mr Briggs ought to consider his statements very carefully … we paid for the right to negotiate.”

It is all about the ‘right’ is it not?

For those that did not know Max Moore-Wilton, in the days before being Chair of Sydney Airport was secretary of the Department of Prime Minister and Cabinet. We guess he can see an amateur from a long way off and knows business very well.

Govtape – emissions, consequences affecting rational thinking

Wintelboff recently had a dilemma to resolve in a brokerage agreement – the best energy price was from a renewable sources retailer. The problem was the transition from the carbon price repeal might actually mean the supply would be from a brown coal generator. How could this happen? It happens when the market is artificially manipulated. When those that advocate and love liberal attitudes to the market it is very disappointing that intervention is done purely on the basis of lobbying and not on evidence.

Back to the outcome: The client decided a black coal generator was the better option, and that Gentailer made it very attractive in terms of an offset for their emissions. They carried no penalty for a solar array on the premises, as its purpose was to address the peak demand issues of the daytime energy use. On balance it was a good deal. Not perfect, however, much better than the attempts of interventionists.

We have found a story that backs up the recant above and tells a frightening story of how intervention brought on by ideology can have consequence – even after a very short time:

http://www.canberratimes.com.au/environment/climate-change/emissions-from-energy-generation-jump-most-in-eight-years-after-carbon-price-axed-20140903-10by8d.html

Emissions from energy generation jump most in eight years after carbon price axed

‘Carbon emissions from the country’s main electricity grid have risen since the end of the carbon tax by the largest amount in nearly eight years.

Data from the National Electricity Market, which covers about 80 per cent of Australia’s population, shows that emissions from the sector rose by about 1 million tonnes, or 0.8 per cent, at an annualised rate last month compared with June.

That is the biggest two-month increase since the end of 2006, and came as a result of an increase in overall demand and a rise in the share of coal-fired power in the market, according to Pitt & Sherry’s monthly Cedex emissions index.

“It is highly likely that the trend directions of electricity demand, generation and emissions seen in the last two months will become set in place,” the consultancy said, adding that the emissions intensity of the power industry was rising after six years of falls.

Environment Minister Greg Hunt did not comment on the rise in emissions when contacted on Wednesday.

Australia’s bipartisan goal is to cut greenhouse gas emissions by 5 per cent below 2000 levels by the year 2020. The government scrapped the two-year-old carbon price in July……..

The share of black and brown coal in the national market rose to 73.3 per cent from a historic low of 72.9 per cent in July, and will probably rise further as gas and hydro start to shrink.

The addition of new wind and solar energy capacity is also about to grind to a halt with the industry anticipating the Abbott government will take an axe to the Renewable Energy Target.

The latest emissions figures come as the 20-megawatt Royalla solar plant, the country’s largest solar farm to be added to the grid, was officially opened in the ACT on Wednesday.

About 370 megawatts of wind in NSW and Victoria and 170 megawatts of large-scale solar are under construction, but “after that, there’s very little in the pipeline”, Pitt & Sherry principal consultant Hugh Saddler said.

Emissions from the power sector account for the largest emissions share of any industry, making up about one-third of Australia’s total. The industry is expected to see a rise of millions of tonnes of emissions in coming months as gas in Queensland starts to be diverted to exports rather than domestic use and the main hydro plants scale back output.

If Hydro Tasmania’s production drops back to levels just after the last drought, output will be about 9 terawatt-hours a year – down from about 12TWh levels before the end of the carbon price.

“If that switches to brown coal, it will be nearly 4 million tonnes” of extra emissions annually, Dr Saddler said.

The share of gas in the market was little changed last month from July at 13 per cent, while hydro’s share dropped to 9.1 per cent from 9.3 per cent, Dr Saddler said.

Wind energy’s share last month eased to 4.6 per cent from 4.9 per cent a month earlier. A windy July saw record wind energy production in the country.”’

 

At the start of this post, we said: a dilemma existed, the client wanted to be progressive, was presented with regressive and it was difficulty to get through the govtape! That’s it – it is govtape not redtape or greentape in the way!

shallow and deeper sustainability – thinking in time frames

Something is sustainable, and you talk about it. You do not a thing about it, what is your problem? We believe the issue is the sustainable risk reward structure is viewed as competition against short-term profits and makes it a target of disquiet with investors not concerned with long-term benefits. This in turn can be used to promote discomfort with our personal circumstances and immediate security. We are saying ‘the bad for the economy tool’ is used to confuse and give the impression it is not worth the effort.

If we start with the definition – CO2Land org is a great believer in defining adequately before you say your piece. If you don’t you are a target for ‘weasel’ word artists that can then exercise ‘plausible denial’ when you rely on their support. By this we say they will rely on the term plausible deniability as a legal concept. They may even say there are a lack of evidence proving they did not say exactly the level of support they would provide and it is not true and a allegation of support. Standards might even be quoted and reference will be made of the need of proof and how that may vary in civil and criminal cases – for example. www.urbandictionary.com/define.php?term=plausible .

What is sustainable? It is actually dependent on the eye of the beholder. It can be many different things to many different people. To some it is measurable as a financial cost – an economic cost. To others it is the environmental cost and a moral issue of securing the future. How often have you heard it may be immoral, but it is not illegal as a justification for a short-term gain? It is even more complicated if you introduce policy to the argument. At a macro level it is about security, at a micro level the economics of being in business. Nevertheless it is all about efficiency, and that is the problem – the measure of performance!

So what will be done about it, and what will make social and environmental matters more important than just references to being significant to actually doing something about it? Co2LAND Org found the Economist recently published a story that would explain what is needed:

http://www.economist.com/news/business/21614152-few-pioneering-businesses-are-developing-sustainability-policies-worthy-name-new?utm_content=bufferbb375&utm_medium=social&utm_source=linkedin.com&utm_campaign=buffer

A new green wave – BILL MCKIBBEN, an American environmentalist, once dismissed sustainability as “a buzzless buzzword”. That seems about right. A survey of 2,000 companies by the MIT Sloan Management Review and the Boston Consulting Group found that two-thirds of businesspeople thought social and environmental matters were “significant” or “very significant” but that only 10% thought they themselves were doing enough about it.

That sense of disappointment should be no surprise. Sustainability can refer to anything from building wind farms to combating social inequality. The idea crops up everywhere from Starbucks to the deliberations of the United Nations (whose governments are in the middle of working out a set of so-called Sustainable Development Goals for 2015-30). An ill-defined, controversial notion is no basis for coherent policy.

Many corporate “sustainability plans” are therefore modest. They focus on saving energy, cutting waste and streamlining logistics. Nothing wrong with that: these things reduce operating costs while benefiting the environment. They help explain why sustainability efforts tend to increase profits, not reduce them. A study by Robert Eccles and George Serafeim of the Harvard Business School (HBS) found that, between 1992 and 2010, companies which adopted what they call high-sustainability policies were more profitable and improved their stockmarket valuation more than those which did not (though this may just have been because high-sustainability firms happened to be better managed).

However, there are drawbacks to such plans. For one thing, they are misnamed: these are efficiency policies, not sustainability ones. Companies ought to want to save energy or cut waste anyway, regardless of the impact on the environment. And it turns out that many of the schemes do not in fact do that much for the environment or social equity. The majority of greenhouse-gas emissions associated with consumer goods, for example, are produced either in the supply chain or by shoppers. So there is only limited scope for such products’ makers to lessen their environmental footprints through green measures of their own.

As a result, most corporate sustainability plans rarely amount to more than cost-saving measures and compliance with government regulations, plus a few projects with a public-relations punch (say, reforesting parts of a cleared jungle). They fall well short of putting sustainability at the heart of what firms do.

For some companies, though, that is changing. Take SABMiller, the world’s second-largest brewer. The firm has been a pioneer in the field. But until recently its sustainability efforts consisted of a laundry list of targets (there used to be ten) aimed at reducing carbon emissions or water usage in its brewing operations. This summer it unveiled new, broader targets—only five this time—which apply to suppliers, sellers and customers, as well as to SABMiller itself. It is promising to teach basic business skills to 500,000 small enterprises, mostly shops which sell its beer. It is helping farmers use water more efficiently: in Rajasthan, in northern India, it is working with wheat farmers who have been depleting their aquifer to reduce water use by a quarter, to ensure it still has water to brew beer. And it is sponsoring anti-drunkenness and road-safety campaigns aimed at its own customers.

Jane Nelson, director of the Corporate Social Responsibility Initiative at the Harvard Kennedy School, says SABMiller’s efforts are characteristic of a new wave of sustainability plans. These set targets not only for the company but for the people it works with and sells to. The targets are not only about the environment but society at large. (In a spectacular example, Unilever, an Anglo-Dutch consumer-goods giant, says it aims to “help a billion people take steps to improve their health and well-being”.) They are supervised by the board, not left to specialists. Domtar, an American fibre company, created a sustainability committee but the vice-president for sustainability does not chair it; the chair rotates among other managers so as to involve the firm as a whole. In short, she argues, for some companies sustainability has become a core part of their strategy, not just a green way to cut costs.

Little green men

But why should firms make sustainability central to what they do? Environmentalists might reply that virtue is its own reward. But companies need more concrete returns—higher profits, say, or increased sales, or higher stockmarket valuations.

The first wave of sustainability policies provided those. The new wave may not: sustainability targets could raise costs, not cut them, making environmentally friendly consumer goods more expensive than the eco-hostile variety. Efforts to combat social inequality could boost wages. Training can be costly.

Paul Polman, the boss of Unilever, argues that good sustainability policies still improve the fundamentals of businesses in the long run. They change customers’ behaviour in beneficial ways—by, say, increasing demand for green products that the firm makes. They also please investors concerned about environmental threats. The trouble is that consumer behaviour is often slow to change and that, if green products are too expensive, the firm risks losing market share. Environmental investors are still a minority among shareholders, most of whom continue to be more concerned about quarterly earnings.

The first wave of sustainability rewarded itself. The new wave will not do that. It is more akin to investing now to have a licence to operate in future, when consumers, lobbyists and regulators will be ever more demanding about the way firms behave. That does not mean the new wave will not reward its adopters. But it will boost their long-term competitive position, rather than their short-term profits. Unlike the rewards of the superficial first wave, those of deeper sustainability could take years to sink in.

Economist.com/blogs/schumpeter

Co2Land org thinks the later point above is another way to think of sustainability – shallow and deeper sustainability when defining what it is to you. And, we say some ore thicker than others and it takes longer to sink in!