Rock and Hardplace – RET and DAP predictions

Let us now predict: Soon after the RET review the fossil fuel generators will celebrate with a short-term price relief. It is a two edged sword, as they will discover the relief may be temporary. Partly because large-scale renewables facilities are likely to continue to experience cost reductions, and the Federal government’s Direct Action Plan may further dampen electricity demand – not a good outlook for coal fired generation known for its baseload dependability to be profitable.

It is scheduled for the Australian government’s Direct Action Plan (DAP) to release its white paper -Emissions Reduction Fund, this month April 2014. Also scheduled for mid-2014, the Government’s Renewable Energy Target (RET) Review expert panel will report to the Prime Minister. We might even guesstimate that the PM will find DAP will be unlikely to be a benefit or too expensive for the resources sector, and simply drop it. It could be easier than you think, why because it is not yet funded!

Apart from funding, the Governments’ own wording suggests the final design of the government’s Direct Action Plan will be critical for coal generators, and their survival, with potential for emissions baselines and penalties to curb potential growth prospects. Add to this that individual states do more and encourage energy efficiency, and other large-scale efforts to improve energy efficiency via the Emissions Reduction Fund will be a terrible place for coal fired generators to be if the predicted demand for electricity continues to decline. This will put significant pressure on profit margins of these generators.

CO2Land org feels the PM is in a rock and hard place, by his own doing. Come July he will have no choice but to continue with the threat to repeal the Carbon Price Mechanism (which he refers to as the Carbon Tax) – Which results in a short term gain for coal fired generation. Even if RET is reduced or halved, the long term trend for coal output is still dependent on the price effectiveness of that form of supply – it might even need a ‘subsidy’ to continue supply.

That said, if energy security is the stated reason for a subsidy, it is likely the penetration of renewable energy will continue because it will continue to be subject to falling prices to its advantage, and those prices are dropping because of efficiencies in the way it can deliver. Let us not forget – business too will be more efficient, and in order to survive will factor in the need to reduce energy demands, or at least be more efficient in the use of energy.

Lastly, if the PM were thinking of killing off the Direct Action Plan (DAP) it would be unwise. It is the only mechanism the government has to show they care, or are earth aware. Even South Africa has come to recognize a price on carbon + Renewable Energy + Energy Efficiency + Land use change = business success. We don’t want to appear dumb do we!

 

 

Inverted J Curve – Gas, and RET recommendation predictions

Time to make predictions: Gas prices will rise through an ‘inverted J curve’ response and world political pressures – antidote – devalue our Dollar. The outcome of the Australian Renewable Energy Target Review will recommend ‘constraint payments’ to be paid to renewable sources such as wind farms.

Gas prices will rise very soon, but not because of domestic pressure, but more because we will ‘promise’ it to be exported. Japan says thank you, as will others. This prediction is not new and it may have been part of the detail not yet released to the public over our new trade agreement. But the actual more recent driver is energy security concerns because of the Russian threats to gas supplies.

The evidence comes from Russia itself and the letter released by the Kremlin says that ‘if Ukraine does not settle its energy bill, Gazprom will be “compelled” to switch over to advance payment, and if those payments are not made, it “will completely or partially cease gas deliveries”. Mr Putin added that Russia was “prepared to participate in the effort to stabilise and restore Ukraine’s economy” but only on “equal terms” with the EU”.

Why is that so scary? Nearly one-third of the EU’s natural gas comes from Russia.

Co2Land org previously said we tend to borrow policy from overseas and then rebadge as a new idea here. Our Eastern seaboard National Electricity Market is a prime example. It should follow then what is happening in the UK will happen here (albeit the gas supply market is their greater influence and here we have the coal supply as the influence).

You might note that also recently posted by CO2Land org was that our Conservative brigade finds it ‘unpopular’ for wind farms to be ‘forced’ onto local rural communities. They will find it reassuring that the UK are it is “Long unpopular among some Conservative MPs from rural constituencies, onshore wind turbines appear to have incurred the wrath of the Prime Minister as well”. We do not have to be a guru to work out that this tactic will be mimicked in Australia, anytime soon.

There is the pointer to this likely development? Plans to restrict wind farms to seas around Britain will need much larger subsidies from consumers, experts say.

Newspaper reports suggest that the Conservative Party will include a pledge to limit onshore turbines in next year’s election manifesto.

But a member of a working group reviewing UK wind energy said this would require increased subsidies of around £300,000 per turbine per year.

Prof Richard Green said this would have a knock-on effect on electricity bills.

The dilemma for our politics is, just as they in UK promised the next few years will be difficult for the better good – they limit subsidies and toughen planning laws to make wind farms unviable in the countryside. The issue will be that to do so will make alternative energy more expensive to build and run. Why? As the UK report points out that “onshore wind energy is more expensive than electricity from coal or gas, but wind is one of the cheapest sources of low carbon power”. It is going to be very difficult to eliminate a energy source with a low carbon benefit! Forget arguments about Carbon Price (Carbon Tax sometimes called for emotive responses), this is about the need to respond to business pressures for them to be competitive, and like it or not gas prices are going up and wind is looking good in terms of low carbon benefit. Add to that the energy storage capability being developed and game set and match.

In the mean time (interim) constraints being put on renewable generation may well include payments to not participate in the market. This would allow traditional coal fired generators to at least run until the end of their economic life.

Is this fair? Glass half full or half empty – depends on your view.