Energy transition has winners and losers along the journey

Contrary to popular opinion, snafus and delays in meeting national energy market targets do not doom the fundamentals but are the inevitable symptoms of the transition.

The daily headlines signalling faults are signs of the journey.

Granted, governments from both sides at state and federal level have fundamentally failed the leadership test and the absence of clear signals has left the market often uncertain creating investment delays.

But the transition is ongoing and just as smart retail consumers, who can afford it, have already jumped into solar panels and batteries taking advantage of government subsidies, so is business.

The emission reduction focus has centred on electricity with the theory being convert everything and the rest falls into place.

It hasn’t quite worked that way yet and the tough part is still to come with the hard to abate industries like aviation still fiddling around the edges.

The big end of town makes the most noise which too often gets rewarded with government hand-outs, as is being demonstrated with talks over the Tomago aluminium smelter.

But small-to-medium companies miss out.

The market gap is filled by the likes of Gareth Mann and James Groombridge’s MTA Energy which advises companies on how to make best use of the system.

This works by understanding customer needs matched by access to a more transparent wholesale market.

Transition has winners and losers along the way which is why so much noise is created.

Reported federal government moves to demand domestic reservations on new gas fields makes eminent sense.

Putting the government in the middle as a broker taking on the market risk is not so smart.

Domestic reservation comes some 20 years after former West Australian Labor premier Alan Carpenter demanded the same from Woodside in the west.

More supply should cut costs and other things being equal, help sustain competitive industry.

Delays create more issues like the present negotiation with Origin over its ageing Eraring power station.

A traditional stable grid uses spinning generators at its source but these can be replaced by synchronised condensers at the transmission end, which effectively helps ride through short term bumps.

The big machines adjust voltage and let in more renewable energy into the grid .

Estimates say 40 condensers costing around $140m each will be required once the transition is complete.

Brett Redman’s Transgrid was supposed to have some ready for the revised Eraring closure due in 2027 but can’t get them until 2028.

This is one reason why the NSW government is negotiating with Frank Calabria at Origin about re-phasing the aged Eraring closure.

This will cost someone something and it shouldn’t be Origin.

Given Transgrid is slow maybe it should be the one that compensates Origin but it’s a bit more complex and suffice it to say not the main game.

Meanwhile the show goes on.

Origin, AGL, Energy Australia, Alinta are among the big players in both manufacturing and retailing but at the smaller end there are the likes of MTA which support businesses including Best & Less, Team Global Express and Coco Republic.

MTA is a minnow with annual turnover of about $25m and 20 customers but its work highlights how better energy management helps cut costs and provides more sustainable power.

Others in game include Flow Power and Amber.

Access to the wholesale market and more transparent markets mean it can provide flexible energy supply which means lower bills, for the grid it means smoother peaks and more efficient use of renewables and for the nation a scalable platform to unlock demand side flexibility.

Industrial peak hours between seven and nine in the morning and then between 4pm-8pm are unhappily outside solar peaks.

But it helps by operating heating, ventilation and air conditioning (HVAC) more effectively, recharging commercial vehicles at night after 8pm and using battery energy storage.

In simple terms a coal fired power source takes 15 to 30 minutes to warm up, gas five to 10 minutes and hydro and batteries seconds which is why the latter are valuable back-ups.

The middle of the day is when electricity ism cheapest and between four and 8pm when it is the most expensive, so it’s better for everyone to avoid the evening peak.

For all the noise about renewables fact is NSW (68 per cent) and Victoria (60 per cent) over the last 12 months still rely heavily on coal.

The percentage varies and this week by way of example the coal percentage in NSW fell to 50 per cent solar stood at 40 per cent.

Victoria has generated 26 per cent of its power from wind and 5 per cent from solar while in NSW it’s 13 per cent from solar and 12 per cent from wind.

More transparency helps end users know when best to tap into the system.

More on merger rules

Treasurer Jim Chalmers talks a big game on de-regulation but lawyers approaching the new mandatory disclosure merger rules question his delivery.

Under the new mandatory regime all mergers must be notified and if you seek a waiver on the grounds the deal won’t trouble the regulatory scorer it will cost you $8300.

That is, you pay the federal government $8300 for something that it didn’t need to worry about in the first place.

That’s a good deal for the government, not so much for the company making the deal and certainly not for a well functioned regulatory system.

A merger requiring some scrutiny will cost $56,800, one requiring extra work (phase 2) will cost you $1.6m for deals above $1bn and if you want to claim public benefits that will cost you $401,000.

Small beer compared to investment banking fees on the deal but unlike banker fees, at least they are disclosed. They can also be justified under the user pays system but not charges for doing nothing.

A recent OECD study on anti-trust regulation showed the new compulsory notification regime, as claimed conforms with global trends.

The study noted anti-trust enforcement activity has declined over the last decade but merger interventions before a deal occurs have increased.

Globally interventions are between four and seven per cent of all deals and on a per capita basis mergers blocked in Australia rank highly.

Overall the US has blocked the most mergers (51) followed by the UK at 18, Israel at 15, Australia at 11 and Mexico at 9.

The ACCC has blocked just one merger in the last two years - a beer keg pooling merger between Kegstar and Convoy last month, following the December 2023 intervention to stock Australian Clinical Labs buying Healius.

This week the ACCC cleared the deal hungry private equity firm, Igneo Infrastructure, to buy industrial waste processor, Benedict.

But the green light only flashed when Igneo scrapped the inclusion of the Newcastle and Bowral sites in the deal.

Next week the ACCC opines on IAG’s acquisition of the WA insurer, RAC and by December 18 a decision is due on Yamaha’s purchase of Telwater.

The latter, with the ACCC since July, has been delayed again suggesting a deal being sought.

Correction in AI spend

An item last week on the Australian Academy of Technological Sciences and Engineering/Kearney report on artificial intelligence misstated Australia’s spending on AI which should have read $300m against the world’s $3 trillion.

The government this week reacted with hallmark caution not taking up the Kearney recommendation of a $5bn investment now to boost the economy by $200bn through a whole of government response.

Come to think of it, it’s hard to know just what the federal government is up to, but maybe that is the game.

But the good news is deals are happening as evidenced by this week’s Open AI deal as the Microsoft offshoot comes to hoover up more Australian data.