‘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.

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.

 

 

Ironic RET – the sum is bigger than the whole.

The conversation was fluid, and as the Renewable Energy Forum wound down to its closing stages. What was obvious was we all shared a concern that what is policy is not what was understood as the intention of the policy. If we make example of the Renewable Energy Target (RET): After a review of the 2001 target set under the Mandatory Renewable Energy Target (MRET), the Australian Federal Government in August 2009 committed to the RET and it was designed to ensure that 20 per cent of Australia’s electricity supply will come from renewable sources by 2020.  Then in June 2010, the Federal Parliament passed legislation to separate the RET into two parts to commence on 1 January 2011 – the Large scale Renewable Energy Target (LRET) and the Small scale Renewable Energy Scheme (SRES). These changes are in order to provide greater certainty for households, large-scale renewable energy projects and installers of small-scale renewable energy systems.

What has happened since is the 20% Australian Federal policy changed to GWh available targets.

What is wrong with that you say? Well previously 20% meant 20% no matter how much the demand for electricity grew. In other words the renewable energy requirement will grow to ever-higher numbers as electricity demand grew at approximately 5% per year. This suggested traditional generators would lose market share to new renewable starters. To get accord on the issue, the setting was then addressed as a Gigawatt target that said 20% was desired but was ‘real’ in that it actually reduced the % of the renewable energy production each time total energy demand increased. What now worries the traditional generators that agreed to the accord is that demand is reducing at around 2% pa and that it is trend, ironically because of the policies of the new Australian Government towards manufacturing and innovation. So at the time of change to Gigawatt target until demand actually dropped we saw the actual % of the target drop to about 13% and now it will rise on predictions to have demand reduce we will find the target will again be closer to 20%. It even affects the Energy Retailer in that the risk of being caught ‘short’ or ‘long’ in the market is a much bigger risk.

Another issue is that states and territories always need to do more, and they have set their own targets. The Australian Capital Territory (ACT) recently amended its 25% target to reflect 90% by 2020.  ACT have even introduced a 20 cents per kWh feed in tariff (FIT) to encourage large scale renewable to supply business and industrial needs in the region. What they have effectively done is create a capacity market inside a Spot Market for electricity.

So – If you studied my phone records, what would you unearth about me and my intentions, seriously? The irony is metadata collection on individuals might give you the wrong conclusion. Why is that so? I am a collaborator and a competitor, the cluster I might frequent will change according to the clients needs. Imagine this I am at the Renewable Energy Forum, I tell all about the wonderful deal I have done based on coal fired generation, that it was a wonderful outcome – and all agree they needed to know that outcome. They now knew what tactics they needed to counter those arrangements. But as metadata it might read or profile, they are here, they are everywhere, what are they up to – must be no good!

Oh dear, getting paranoid about the RET review are we? No actually feeling very positive. Why? CO2Land org can remember at least 7 reviews of different sorts on the matter. Yes, something will change, and distortion in the market place will be adjusted. Maybe even new models for the industry will be mandated to accommodate change or the transition strategies for the inevitable continued growth will be clearer.

Why be so confident? The Abbott government largely is a carbon copy of the Howard era. Even when Howard introduced the Mandatory Renewable Energy Target (MRET) it was not his preferred vehicle to protect the environment, but it was a means, through pluralism to remain in power.   In this case to appease the Democrat Party faithful (sorry Green Party faithful but that is a fact). Abbott is a former Howard Minister, as is many of the Abbott cabinet, and the difference is, in Abbott’s case, is the need to appease right wing entity(s). The problem with the right wing groups is they tend to be Elitist and leaning toward returning to feudalistic ideals.  Howard tended to favour Roman times, and you must suspect Abbott does too.

So CO2Land org does not believe that Abbott, who previously endorsed Carbon, is doing anything other than adjust the rules to appease concerns and continue with what China is doing – encourage continued renewable uptake.

What if Turnbull takes over as Prime Minister, would it be better? By degrees we suspect rather than radical. We can be encouraged that Turnbull does continue to support the ideals of sustainable business.  In our opinion he had one fault, too honest in his previous stint of party leader. Maybe he did learn that lesson – don’t be too visible in setting your agenda.

Don’t give up on renewables surviving the RET review  is our advice. If you note the style of the current executive it is similar to neurolinguistic programming, that in effect means we just give up trying to comprehend meaning. More proof listen to the language being used; ever changing degrees of view point and you might even notice yourself saying: Did he not say something else yesterday – I give up!

Don’t give up because the Pollyanna moment is to come, suddenly, Abbott will say I always supported the environment, I was waiting for the right moment and mechanism. It is about how a relevant government can govern to maintain a community obligation. NOTE: All weasel words have been carefully chosen so no disclaimer is required!

RET designs – Abbotititis or Rudasinus.

Do you have Abbotititis or Rudasinus. Bored with the election being in your face yet not meaning a thing.  Then there is ‘real’ again – It just means it will be reviewed and in the mean time your asset is at risk of being stranded because of the ‘Election’. You are told any decisions will need to be taken with a view of caretaker convention and then we will wait until the ‘dust settles’ and the view of the incoming Government is known.  Can you understand the frustration? Promises are being made yet we are told they are real until after the election!

Now lets look at the promised policy positions:

The Coalition talks of ‘real’ abatement in terms of energy efficiency. The flagstone is the Direct Action Plan. This plan will or may impact your business. We say this because the White Paper consultative process that the Coalition will initiate will only be known should they win office. Yes the ‘real’ is it will be a consultative process expressed as the opportunity for your business to provide input into the design of this ‘potential’ new policy framework. In more simple terms it means the details are not yet developed. However, the Renewable Energy Target (RET) has a commitment from the Coalition to retain a 5% to 25% reduction of emissions by 2020 compared with 2000 levels, but will review this commitment in 2015 (then other statements say 2014). That said they intend to wind back many of the provisions of the Clean Energy Future Plan including abolishing the carbon price and disbanding the Clean Energy Finance Corporation, the Climate Change Authority, the Climate Commission and the Energy Security Fund. Then we should note the Coalition intends to expand the existing Emissions Reduction Fund to introduce a buyback, and also plans to expand the Carbon Farming Initiative to achieve emissions reductions in the absence of an explicit carbon price – but the reductions must be ‘real’ against baselines ‘to be advised’.

It is most likely the Coalition’s plans to meet emissions commitments will be more disruptive to electricity supply industries and their downstream industries than labor’s.

Labor (why is it called Labor?) – Reported is among other things, this name makes it easier to distinguish references to the Party from the labour movement in general. Source(s): http://www.alp.org.au/australian-labor/l…

Maybe that is ‘unreal’!

 

Labor has two major policies for abatement changes. Continuing of the Clean Energy Future Plan, and the review of the Renewable Energy Target (RET).  The current RET compels large energy users to invest in renewable energy. This is to the benefit of industries such as wind and, up to an including hydro-electricity. The RET purpose is to introduce more capacity into electricity markets and push down wholesale electricity prices. Therefore the RET is challenging for fossil fuel electricity generators, and the changes will affect them directly and the upstream industries, including oil and gas extraction, brown coal mining and black coal mining, indirectly.

 

That said, Labor is committed to a 5% to 25% reduction of emissions by 2020 compared with 2000 levels, and an 80% reduction on 2000 levels by 2050. Labor has also taken the position and made an announcement of an early transition from the carbon tax to an emissions trading scheme in July 2014, bringing it forward from the previous announcement of 2015. Under the scheme the carbon dioxide equivalent would have a floating price linked to the prices of the EU’s emissions trading scheme. Under this policy, the price per tonne for carbon dioxide is likely to be discounted. The impact uncertainty is what will be the effect on the industry assistance packages included within the Clean Energy Future Plan.

Co2Land org said Labor supports the current 20% RET. This still holds true, as the responsible Department (name too long to mention) and advised work on the review of RET is suspended until further notice, and Labor has made a commitment to not review the target until 2016.

Labor’s changes to the Clean Energy Future Plan will create new winners and losers across energy-intensive industries. Labor’s changes maintain a pricing mechanism as a strategy to reduce carbon dioxide equivalent emissions.

 

Co2Land org has noted IBISWorld’s August 2013 Report has a more detailed outline of the positions taken by the Labor and Coalition parties on major issues impacting Australian industry including workplace reform, energy, resources, broadband network, transport infrastructure, manufacturing and education. They write:

“The 2013 Federal Government election will be dominated by concerns about the economy. The end of the mining investment boom and the continued decline of the manufacturing sector have set a pessimistic tone among Australian businesses.

The Labor Government has taken a ‘glass half full’ approach, pointing out Australia’s strong economic position relative to other advanced economies and successful economic guidance during the global financial crisis.

In contrast, the Coalition points out a widening Federal Budget deficit, a declining economic growth rate, low business confidence and a weak economic performance relative to neighbouring countries.

The winner of the election will have to balance the government’s role to provide fiscal stimulus and counter-cyclical spending with budget responsibility and a plan to reduce government debt.

The Productivity Commission has estimated that there are $12 billion worth of cost-cutting and efficiency savings available to the Federal Government.

The Coalition has backed away from providing a date for a return to surplus, but asserts it will be sooner than a Labor surplus.

Labor forecasts a return to budget surplus in 2016-17, driven by savings made during 2015-16 and 2016-17 when the economy is expected to be in a healthier state than it is presently.”

 

Wait a minute, recently the coalition did say they aim to save $31B – now we are confused – will the ‘real’ number please stand?

Please note: No Green was hurt in this discussion.