Energy crisis will be worse than expected, with costly blackouts coming

The looming crisis is much worse than expected, after three state governments vandalised our energy system.

The Prime Minister’s Snowy scheme will go only part way to alleviating the looming energy crisis. Picture: AFP

I have moved around the country to find out exactly how bad is the Australian energy crisis. I located people who, unlike the government officials who advise politicians, actually know what is happening and are anxious that I pass on the information to my readers, and therefore the nation.

The looming crisis is much worse than I expected. Three state governments, Victoria NSW and South Australia, have vandalised our total energy system. The Premiers of each state clearly had no idea what they were doing and did not sit down with top engineers outside the government advisers to work out the best way to achieve their objectives — whether that be an increase in renewables or gas restrictions.

Not until Josh Frydenberg came to be energy minister did the Commonwealth start to understand the extent of the disaster. Prime Minister Turnbull and Frydenberg have taken the first step in overcoming the problem with the Snowy pump hydro scheme, but it is only a small step and will take two or three years to be effective.

Here is what some of the best energy engineers in the country tell me:

• Without urgent action residents of NSW, Victoria and South Australia have a 75 per cent chance of blackouts next summer if the Hazelwood power station shuts on April 2. Those blackouts will cost the nation tens and tens of billions of dollars in the food, medicine and processing industries.

• Without government action gas supply might, repeat might, be sufficient in this year’s (2017) winter but there is no doubt there will be major shortfalls in the 2018 and 2019 winters;

• The Gladstone venture, in particular the Santos consortium, in effect “shorted gas” — i.e. signed contracts to sell gas they did not have while Shell has gas in the Bowen Basin but it is proving more costly to extract than expected Australia’s energy mess to spark our own Trump revolt.

• All industries and consumers will experience much larger energy costs from the network — but to be safe must also consider spending vast sums to be prepared for the power and gas shortages. This is third world.

• We have a power grid that has not been engineered for the decentralised sources of power that we are now generating led by renewables; many billions must be invested to make it efficient and that will have to be paid for by power users. The knowledge of how best do this is not held within the state or federal governments.

• The Snowy will help longer term but it won’t overcome the short-term crisis and many more Snowys are required.

So let’s go through some of those conclusions step by step and look at the causes and options

Blackouts are coming

Residents of NSW, Victoria and South Australia have a 75 per cent chance of blackouts next summer.

In the summer just past it was very hot in NSW and Northern Victoria, but cooler in Melbourne. We had blackouts in South Australia and went close to blackouts in Victoria/NSW when several NSW generators hit technical problems. If the wind and solar generation units installed to replace coal fail, as occurred in South Australia, there is not sufficient backup both in raw capacity and in network design.

To lock in the likelihood of blackouts for next summer the Victorian government is encouraging and allowing the closure of Australian’s largest generator: Hazelwood. Without Hazelwood, if it is simultaneously hot in Sydney and Melbourne blackouts are certain unless there is also a lot of wind in the right places and the network can get the power to the capitals. Answer: subsidise Hazelwood’s continuation at least until a clear plan is engineered to replace it (maybe NSW generators need to be boosted; certainly totally new back-up systems to solar and wind must be devised and implemented).

The problem with back-up gas (or any other sort) is that if you are producing large amounts of electricity from wind and solar then these back-up plants are only required for, say, 10 or 20 days a year. It makes them very high cost and totally uneconomic.

That’s why Engie’s Point Pelican gas plant in South Australia was shut during the crisis. The cost of erecting and running uneconomic back up plants to wind and solar must be costed into the renewables projects. It has not been.

Without government action gas supply might be insufficient in the coming 2017 winter and shortages are certain in the 2018 and 2019 winters

Victorian and to some extent NSW gas is stored at the Iona and Longford gas storage facilities during summer so there is gas available in peak times during winter. Unfortunately this summer extra gas was used for power generation while the Gladstone LNG plants sucked gas from Victoria to LNG export which means that its going to be close as to whether there is enough gas available this winter in Melbourne and Sydney. Without government action there is no chance of there being enough gas in the 2018 winter. Current prices are twice the old domestic price might double again as shortages kick in.

The Herald Sun’s view of the gas crisis. Illustration: Mark Knight

Santos in effect ‘shorted gas’

The energy market says Santos and Origin consortiums in Gladstone “shorted” gas by signing contracts to export gas they did not have. The Origin consortium denies this (and I accept the denial) and says it has plenty of gas. It says that Santos is the only consortium shorting gas (my words). But it is very tangled. Shell has enough gas via its British Gas acquisition but it was expected to have Bowen Basin gas available to cover the net “shorts” of Gladstone.

In the early days of Gladstone saga, Origin and Santos had reserves as a joint venture and Santos did not dream Origin would set up a rival LNG plant partly using Origin’s share of the jointly owned gas. Origin left Santos in the cold to thwart a British Gas takeover bid (BG is now part of Shell). Again, it’s a very messy web.

Meanwhile, leaving aside individual consortium guilt or innocence, Gladstone in total is draining gas from Bass Strait and the Cooper Basin, offering much higher prices. There is available gas in Victoria and NSW but former NSW premier Mike Baird and Victorian Premier Daniel Andrews have stopped development.

Solution: People who short shares or commodities usually are aware of the dangers of such practices. Malcolm Turnbull and Josh Frydenberg need to teach the shorters the danger of such practices.

As I understand it, some 5 per cent of the Gladstone exports need to be diverted to the local market. That might be organised on a voluntary basis. If that can’t be done, the Commonwealth needs to use emergency powers to divert 5 per cent of the total Gladstone output to local use. Normally I would oppose such an action but we face an emergency, albeit partly brought on by Messrs Baird and Andrews.

National Party leader Barnaby Joyce needs to convince farmers that the Queensland scheme, which sees farmers enriched if gas is found on their land, will be implemented in Victoria and NSW via a condition in environmental approvals or some other mechanism. He also needs to convince them that fracking is safe although Victoria can cover the shortfall without fracking, an easy fix for our east coast gas mess. There is also gas that can be piped from Northern Territory and/or the Bowen Basin gas. But both deposits require time and money to produce and pipe the gas. Gas prices will stay high.

We have a power grid that has not been engineered for the decentralised sources of power that we are now generating.

A decade or so ago we had a centralised power grid where large amounts of power was generated from concentrated sources and was distributed to the retail network. Now power comes from a vast variety of sources that are geographically dispersed. Many industrial users have their own power and, of course, households have solar panels. All these power sources seek to export power via a grid that was not designed this way.

At present the system is an inefficient mess. The state decisions to install solar and wind power should have been accompanied by a very detailed plan to change the distribution system. This is the job for skilled engineers rather than by public servants and ministerial advisers seeking Green votes.

In the old days payment for investment in the grid was charged on the basis of power used. Many users with their own power generation capacity would like that to continue. But that means those in apartments without access to their own power generation will receive huge bills. The cost impost may therefore be imposed via a grid access change. To avoid it people will gave to go completely off the grid. Again as in back up power the extra investment in networks is part of the cost of going green

Its not that the solar and wind decisions were wrong but communities needed to be told the whole picture. The trouble was most politicians either did not know or did not want to know. They were after support from Green voters and the media.