Wednesday, October 30, 2013

Renewable energy target looking  shaky

Festering just below the surface of the energy supply debate is the vexing question of the renewable energy target (RET).

While gas supply has grabbed headlines in recent weeks, the growing crisis around the RET cannot be ignored. Discussion around the problem got as least as much airplay as coal seam gas at energy conferences in Sydney this week.

The 2020 RET is almost unique in that it is a piece of energy legislation that has enjoyed bipartisan support for years. But the target is looking increasingly untenable in today’s climate of declining wholesale power demand, putting that broad political backing under strain.

The RET in its current form mandates 41,000 gigawatt hours of renewable energy supply by 2020.

When the policy was designed that fixed target was to account for 20 per cent of total electricity supply. It assumed continued growth in wholesale electricity demand, in parallel with economic growth, as had been the case for ever.

Fast forward to today and the picture is very different. Power demand on the National Electricity Market (NEM) hit a peak in 2008-09 and has been on the way down since.

On the current trend, the same 41,000 gigawatt hours is likely to be closer to 28 per cent of total supply.

Consultancy ACIL Allen calculates the decline of 6.7 per cent in NEM demand since the peak is the equivalent of taking an 1800-megawatt power plant running at 85 per cent capacity out of the market.

But no such plant has been removed. No plants closed under the Labor government’s failed “contracts for closure” scheme and meanwhile more renewable energy is being forced into the market when no new capacity is needed. Several plants have been mothballed, but none permanently closed.

The result is what Origin Energy’s head of energy markets Frank Calabria says is probably the worst case of surplus capacity the market has ever seen.

The consequences are being felt throughout the energy supply space. Wholesale prices, excluding carbon, are as low as they were 10 years ago. Natural gas demand, which only a few years ago was expected to enjoy a boost from increased use in power generation, is stalling as far as domestic use goes.

In 2010, ACIL Tasman, as it was then, was forecasting demand for gas for power generation in the eastern states could reach as high as 1000 petajoules by 2030, depending on policy settings, out of total demand for the region of 1800 petajoules. Now the firm reckons 650 petajoules is more likely for the whole eastern states market in 2030, leaving aside liquefied natural gas exports.

The Abbott government is set to review the RET next year. For many it can’t come too soon.

Arguments by the previous Labor government that modifying the target to a “real” 20 per cent of electricity demand would destabilise the industry seem to carry increasingly less weight when virtually the whole energy supply sector is suffering.

But the stakes are high should the target be modified. Numerous foreign investors, such as Spain’s Acciona and New Zealand’s Meridian Energy, are investing hundreds of millions of dollars in wind power projects that will help meet the target.

Local players such as Infigen Energy and Pacific Hydro are similarly exposed.

Even discussion around potential changes to the legislation are damaging when the heads of Australian project developers seek sanctions for funding from their boards.

AGL Energy’s Tim Nelson pointed out on Thursday that the 9000 megawatts oversupply currently calculated in the National Electricity Market matches up pretty well with the amount of generation capacity that has been built, thanks to subsidies such as the RET scheme over the past few years.

Remove it and the market would be back in balance.

No one is suggesting that is the answer, but it highlights the distortions in the market that have been created by such policy interventions, however worthwhile.


$790 million boost for Catholic and independent schools

Independent and Catholic schools sector set to receive an additional $790 million in funding over the next six years as part of a new system of schools funding.

Education Minister Adrian Piccoli will amend the NSW Education Act to allow it to comply with a new national agreement for funding non-government schools, with the sector set to receive $790 million over the next six years.

The existing legislation requires the state to provide non-government schools with 25 per cent of the per-student funding it gives to government schools, but this will be changed to herald in the new needs-based 'Gonski' system.

A spokesman for Mr Piccoli said all schools would receive extra funding under the National Education Reform Agreement, signed between former Prime Minister Julia Gillard and Premier Barry O'Farrell earlier this year.

"There will be an estimated additional $790 million provided to non-government schools in NSW from the state and Commonwealth over the period 2014 to 2019," he said.

"Funding to non-government schools will continue, but will be delivered according to an improved needs-based system, rather than being tied to the cost of education government school children."

"The requirement that non-government school per-capita grants be provided at a fixed level relative to Government schools does not allow the State to move over time to a more responsive funding system as agreed in the NERA."

Over the six years of the so-called Gonski agreement, during which time funding increases step-up over time, public schools are slated to receive an additional $4.2 billion in funding.

The NSW Government recently announced a new funding model for public schools in NSW in line with the NERA which delivered gains in the first year to 90 per cent of schools but resulted in funding cuts for more than 200 schools in 2014, many from low socio-economic areas.

NSW Greens MP John Kaye said it was "scandalous" for the government to increase funding for non-government schools.

"It's a scandalous increase to a sector that is already awash with cash. The O'Farrell government is making private schools even wealthier while cutting funds from more than 200 disadvantaged public schools,'' said Dr Kaye.

The Abbott federal government has so far only agreed to honouring the first four years of the six-year funding agreements reached between the former Gillard government and the NSW government.


NSW returns to surplus earlier than expected

After Labor party chaos

The surging Sydney property market has contributed to a turnaround of more than half a billion dollars in the state's finances, bringing the budget into surplus last financial year.

Treasurer Mike Baird told parliament the actual budget result for 2012-13 was a $239 million surplus instead of the $374 million deficit announced in the June statement.

He said stamp duty revenue had jumped by $198 million, but a decision by the federal government to bring forward $123 million in grants and a $50 million reduction in expenses also contributed to the result.

Additionally, revenue was boosted by the lease of Port Botany and Port Kembla, which delivered a "one-off" $215 million in duty to the government.

Mr Baird said the result was "a good news story for the people of NSW" but warned the state had "a long way to go".

Last week the NSW government was warned there was a one-in-three chance it would lose its AAA credit rating in the next two years.

Ratings agency Standard & Poor's said this was because of anticipated increased debt levels to fund infrastructure plans.

On Tuesday Mr Baird said the government made "no apologies for undertaking an aggressive infrastructure program".

He also defended the size of the $613 million revision for the 2012-13 result, arguing that revisions were "inevitable".

"A revision of $613 million represents barely one per cent of the total Budget or less than four days' worth of spending," Mr Baird said.

Last year Mr Baird was embarrassed when the auditor-general discovered a so-called "billion dollar blunder" in the state budget due to 37 errors by agencies.

He has since enlisted the assistance of the auditor-general to prepare the budget.


Tony Abbott well short of wacky diplomatic highs of previous PMs

In the annals of Great Moments in Bunyip Diplomacy, Tony Abbott's use of the term "wacko" to describe, in an interview with the Washington Post, Labor's broadband policy, is a limp thing.

Consider Gough Whitlam's towering magnificence during a historic visit to the Soviet Union in 1975.

Whitlam and Labor minister Lionel Bowen were ushered through the halls of the Kremlin and into the presence of Alexei Gromyko, the chairman of the Council of Ministers and the second most powerful figure in the entire USSR.

The full splendour of what happened next was kept secret and only confided many years later by Bowen to the Labor Party's historian, Senator John Faulkner, who finally recounted it at Whitlam's 92nd birthday, five years ago.

"With the aid of a translator," Faulkner began, "Kosygin said 'I'm delighted to meet you. This is the first occasion an Australian prime minister has visited the Kremlin despite the fact we have fought alongside each other in two world wars. Now, let's do something big to honour the occasion, like a major trade announcement'."

Gromyko proposed that the USSR take large amounts of Australia's wheat and wool, and Australia could reciprocate with landing rights for Aeroflot and the purchase of minerals and ships from the Soviets.

Whitlam left Gromyko thunderstruck and Bowen aghast by responding, "Comrade, I don't want to talk with you about mundane things like trade!  "I want to know what happened to the Grand Duchess Anastasia in 1918!”

The grand duchess was the daughter of Russia's last Tsar, Nicholas II. In July, 1918, the Tsar and his whole family were murdered by the Bolshevik secret police, though rumours persisted that Anastasia may have been spared and spirited away, leading to one of the great romantic mysteries of the 20th century.

Unsurprisingly, no announcement of a trade deal between Australia and the USSR was forthcoming.

Prime Minister Paul Keating was another master of diplomacy. In 1995, with new opposition leader John Howard barking at his heels, Keating flew off on a grand tour to the reunited Germany and places between and beyond. Thanks to Keating advising Berlin's city fathers how to rebuild their city, it became known as the "Captain Wacky Goes to Berlin" tour.

On the way, he stopped into Singapore and was granted a meeting with the prime minister, Goh Chok Tong.

Keating was fuming about media baron Kerry Packer, back in Australia, having suggested that Howard might make a good prime minister. Keating hijacked a joint media conference with Goh Chok Tong at Singapore's presidential palace, wording up Australian journalists to ask him about Packer and Howard so he could rant, at great and colourful length, about both of them. The inscrutable Singaporean Prime Minister was left stranded like an unwanted guest at his own garden party as Keating seethed.

It was about as diplomatic as accusing Malaysia's Prime Minister, the prickly Dr Mahathir Mohamad, of being "recalcitrant" for not attending the Asia-Pacific Economic Co-operation Forum in 1993.

Keating's criticism - which sent a lot of observers scurrying for their dictionaries - was as welcome to Mahathir as Bob Hawke's thrust of 1986, when he described Malaysia's execution of two Australian drug traffickers as "barbaric". White Australians, Mahathir shot back, massacred Aborigines, so they had no right to tell Asians what to do.

John Howard was very pally with George W. Bush and the Republicans, but his great moment in diplomacy guaranteed his relationship with the US administration, had he survived as PM after 2007, would have been entertainingly toxic.

He outdid every leader before him in US-Australian relations by suggesting Barack Obama was a friend of terrorists because he wanted to pull troops out of Iraq.

"If I were running al Qaeda in Iraq, I would put a circle around March 2008, and pray, as many times as possible, for a victory not only for Obama, but also for the Democrats," Howard declared in February 2007.

Obama retorted that he was flattered that one of George W. Bush's allies had attacked him, adding that unless Howard was "ginned up" to send another 20,000 troops to Iraq, his offering was "just a bunch of empty rhetoric".


Tony Abbott's an amateur. He has a long distance to travel before he enters the big league of Bunyip Diplomats.  And no one has a hope of challenging Gough Whitlam.


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