Energy questions that beg for answer for our future security

CAPTAINS of industry answer the questions facing Australia on its energy needs in the future.

John Durie for the Deal Magazine.

Just how to power Australia, the subject of a special series in The Australian this year, is a vexed question and today’s exclusive survey of political and business leaders showcases diverse views on how to achieve aims.

Starting with the role of government, BlueScope chair Graham Kraehe sums up the view of many saying it should take a holistic approach aimed at ensuring the economy is competitive.

“The basic responsibility for government is to make sure the whole economy is as competitive as it can be so all sectors can achieve their potential,” he says in response to one of five questions put to the leaders in the Powering Australia survey.

Suncorp and NBN Co’s Ziggy Switkowski agrees, saying “the government should resist industry-specific advocacy in other than general terms”.

Instead he urges focus on investment in efficient infrastructure, being business friendly and avoid any policies that hint at any moral hazard or sovereign risk.

When it comes to energy policy that is sometimes easier said than done.

Take nuclear energy, which according to AGL economist Paul Simshauser has no real role today “because of the current oversupply of generation and the relatively high total average unit cost of nuclear power compared to alternatives available in Australia.”

Infigen’s Miles George agrees, but like Switkowski thinks we should keen an open mind because a new generation of smaller modular nuclear power plants may have an application.

GE’s Steve Sargent says Australia’s challenge “is to ensure we continue to develop (energy) reserves efficiently and maintain our global competitiveness.”

“In many regards Australia is at the forefront of resources operations with the adoption of new technologies which are enabling a shift from a break and fix model to a predict and prevent,” Sargent says

Kraehe notes: “Australia’s relative productivity has fallen while our unit labour costs have risen compared to our competitor countries.”

Gas reservation is a divisive issue with Kraehe saying we can have our cake and eat it too, “if we can establish a properly functioning domestic gas market”.

Switkowski says a reservation policy “is just another form of industry subsidy”.

The final word on the issues should go to Miles George at Infigen as someone whose sector in wind power has been at the centre of the debate for, seemingly, years.

He wants government to now accept the finding that the RET in its present form would result in lower consumer prices and “move to restore the policy stability and Australia’s place as a safe place to invest”.

IAN MACFARLANE
Minister for Industry

Question 1: What role should government play in promoting the resources and farm sectors of the Australian economy?
The government has a role in providing a framework that supports project development and investment in Australia’s resources sector over the long term. This includes a stable operating environment for companies that is underpinned by robust and efficient regulatory frameworks. We are working with industry on a range of measures to ensure the ongoing competitiveness of Australian projects. These include regulatory reform, streamlining environmental approvals, workforce productivity measures, and boosting skills. These measures seek to reduce business costs, ensure access to skilled labour and increase productivity and efficiency. The Industry Innovation and Competitiveness Agenda will enhance Australia’s international competitiveness. Two of the new Industry Growth Centres focused on oil, gas and energy resources, and mining equipment, technology and services will build upon our competitive advantages and keep us at the forefront of technological and productivity advances.

Question 2:Is there a role for nuclear energy and should Australia be used to store nuclear waste?
The Australian Government is preparing an Energy White Paper to set the long-term course for energy policy and energy security. The Energy Green Paper, which will guide the development of the White Paper, does not preclude any area of energy from discussion, but the government has no intention of actively pursuing a nuclear energy option in Australia for the short to medium term.

The Australian resources industry is broad and diverse. While some miners have experienced the productivity challenge more than others, some remain among the most efficient and low-cost producers in the world.

Australia is very well endowed with uranium and we look to be a safe and secure supplier of uranium, particularly to our Asian neighbours, well into the future. In Australia, the appetite for nuclear fuel has waned quite significantly since the Fukushima incident and that fact, combined with the fact that we are blessed with a range of energy options which include coal, gas and renewables, means the community has made it clear that nuclear energy is not an issue they wish to pursue at this time.

On the separate question of the storage of nuclear waste, Australia has a role to play in storing waste that is generated in Australia, primarily as a result of medical procedures. Currently, this waste is being stored securely, but in an ad hoc manner in temporary sites around Australia. The government is proceeding with the construction of a national radioactive waste management facility to store low and medium-level waste.

Question 3:How does Australia rate on the global resources productivity scale?
The Australian mining industry has been challenged by declining productivity during the investment phase of the mining boom. However, Australia has not been alone in experiencing declining mining productivity and the mining sectors in many countries have experienced similar productivity losses as they sought to increase output to meet the rapidly growing demand for resources in emerging economies.

In Australia the investment phase of the mining boom delivered a substantial expansion in the number of operating mines and also in the size of the industry workforce, both of which require some time to reach optimal efficiency levels.

Now that commodity prices have come off their record high levels there is a renewed industry focus on improving productivity. That is already evident in the production reports of many Australian mining companies that are showing increased production and lower operating costs.

The Australian resources industry is broad and diverse. While some miners have experienced the productivity challenge more than others, some remain among the most efficient and low-cost producers in the world. For example, Australia’s iron ore miners in the Pilbara are world leaders in adopting innovative technologies, such as driverless trucks, and operate integrated infrastructure networks that are among the most productive in the world.

While productivity in the Australian mining industry has slipped, it is still high relative to many producers around the world and Australia remains an appealing location for mining investment.However it is essential that Australia doesn’t fall into complacency. Given our higher cost base, productivity gains are essential, as well as capitalising on other advantages that can boost productivity.

Question 4: Is the answer to energy prices more supply or reservation policies to keep local industry running?
The Australian Government does not consider that a mandatory domestic gas reservation policy will sustainably change the outlook for our domestic gas market. Rather, the best way to address issues of energy supply and pricing is to ensure Australia makes full use of our own gas assets, through exploration and development of new gas fields – both onshore and offshore. The Government has recently released the Energy Green Paper which discusses a range of gas issues including ways to bring on extra supply, reduce unnecessary market entry barriers and encourage new entrants and competition to support future growth. It may be the case that state governments wish to consider proposals whereby some gas from future projects, not existing projects, could be used in the domestic market.

Question 5: What future role should solar and wind power have in Australia and what support if any should government provide?
One of Australia’s great advantages is the diversity of our energy mix. This includes both traditional sources of electricity such as coal and gas, as well as renewables including solar and wind power. The Australian Government believes it’s in the nation’s best interests to maintain that diversity of energy supply. Renewable energy has a significant role in the future and the Government will continue to support its development through the Renewable Energy Target. We are committed to a Renewable Energy Target that represents a real 20% of electricity production in Australia, as was the original intent supported by Labor.

JAMES BAULDERSTONE
Vice-President Eastern Australia, Santos

Question 1: What role should government play in promoting the resources and farm sectors of the Australian economy?
Governments have a critical role in the facilitation of the development of a thriving resources sector. First, they have a role to work with industry and communities to ensure that this country’s resources are developed in a way that minimises our impact on the environment and that communities are engaged in a fair and respectful manner. It is also critical that governments continue to work to build trust among our communities in the regulatory regimes that work to ensure this.

Second, having designed robust regulatory regimes, government must ensure that they are appropriately enforced. And while regulation must be robust and enforced, it is critical that this regulation is streamlined and efficient to ensure that costs are minimised for meeting the regulatory burden.

Question 2: Is there a role for nuclear energy and should Australia be used to store nuclear waste?
By 2030 the world is going to need 50% more energy. All forms of energy including nuclear power will continue to have a role to play in the global energy market to help meet that growing demand. It is not for Santos to comment on nuclear waste storage.

In many situations coal will continue to provide the cheapest energy and oil will likely remain the largest part of the global energy mix for some time.

Question 3: How does Australia rate on the global resources productivity scale?
Santos’ growth and the continued growth of Australia’s gas industry is reliant on access to export markets, and our ability to remain competitive in global energy markets. Productivity remains a key issue in keeping down the costs of development, and improvements in this space should be a focus of governments and industry.

Question 4: Is the answer to energy prices more supply or reservation policies to keep local industry running?
Domestic gas reservation only ensures that gas stays in the ground. There are some claims that a domestic gas reservation policy will reduce prices, however this will do the opposite. Increased production and therefore supply will keep downward pressure on costs – which we can achieve through an open and competitive market, innovation and collaboration. It is important to note the recent report by the independent think tank, The Grattan Institute, which identified that “reserving or subsiding gas for domestic use will add more costs than benefits and do nothing to increase supply. And in the long run, protection harms everyone”.

Question 5: What future role should solar and wind power have in Australia and what support if any should government provide?
The global energy mix will be diverse. Renewables must continue to grow. Nuclear power will continue to have its place. In many situations coal will continue to provide the cheapest energy and oil will likely remain the largest part of the global energy mix for some time.

Government needs to provide the regulation and facilitation of a robust energy market that works to the benefit of all Australians in a carbon-constrained future.

GRAHAM KRAEHE
Chairman, Bluescope

Question 1: What role should government play in promoting the resources and farm sectors of the Australian economy?
Additional focus on growth sectors such as agriculture and resources is fine but it is not a substitute for a competitive economy. The basic responsibility for government is to make sure the whole economy is as competitive as it can be, so all sectors can achieve their potential. This requires a combination of micro-economic reform, labour market reform, energy policy etc. Then all sectors have the chance to thrive (rather than a government picking winners).

Question 2: Is there a role for nuclear energy and should Australia be used to store nuclear waste?
Yes of course nuclear has a role, especially in the pursuit of a reduction of CO2 emissions from our energy profile. It should be up to the market to decide. If it stacks up financially, it should be a valuable part of our energy mix, operating with appropriate regulations.

Australia’s relative productivity has fallen while our unit labour costs have risen compared to competitors like the US, Canada, Germany and Scandinavia.

Question 3: How does Australia rate on the global resources productivity scale?
Australia’s relative productivity has fallen while our unit labour costs have risen compared to competitors like the US, Canada, Germany and Scandinavia. If Australia is to maintain high wages it must achieve higher productivity.

Question 4: Is the answer to energy prices more supply or reservation policies to keep local industry running?
The answer is we can have our cake and eat it -- that is, more energy supply to boost our export income and national wealth. If we establish a properly functioning domestic gas market, we can ensure our domestic industry and households are not penalised by the export boom.

Question 5: What future role should solar and wind power have in Australia and what support if any should government provide?
Like any technology -- if it’s viable it will make its own market and grow. But taxpayer-subsidised energy is a flawed policy when we have massive cheaper resources at hand.

PAUL SIMSHAUSER
Chief Economist & Group Head of Corporate Affairs, AGL

Question 1: What role should government play in promoting the resources and farm sectors of the Australian economy?
Government has a role to play in supporting and promoting Australian industry in international markets through the negotiation of trade agreements and the provision of a stable policy environment to attract investment and limit sovereign risk. The development of new energy and resource industries requires a balanced regulatory framework that addresses economic opportunities and community concerns.

Question 2: Is there a role for nuclear energy and should Australia be used to store nuclear waste?
In a very practical sense, the answer is no for the foreseeable future because of the current oversupply of generation and the relatively high total average unit cost of nuclear power compared to alternatives available in Australia. That said, energy policy should be stable and technology neutral so that demand for energy, and any other policy objectives (e.g. energy-related environmental objectives) can be met at least cost. Nuclear plants are among the most capital-intensive of all generating equipment, albeit with very low marginal running costs. They have particularly long construction times, and are prone to non-trivial cost over-runs.

Given the scale at which the current generation III plant are being built (e.g. typically 2 x 800+MW configurations), the construction and price risk is so large and difficult to manage that such projects could prove too financially risky for even the largest energy utilities in Australia. If ultimately successful, the development of smaller modular and lower-cost nuclear power plants could change the nature of these risks. But until a sizeable fleet of such generators exists with a proven track record of reliability, financing will remain problematic.

Nuclear plants are among the most capital-intensive of all generating equipment, albeit with very low marginal running costs.

Question 4: Is the answer to energy prices more supply or reservation policies to keep local industry running?
The development of new LNG export demand for natural gas will produce substantial net economic benefits for Australia. However, it is also placing upward pressure on Australian gas prices, as east coast gas markets are for the first time linked internationally. A reservation policy to redirect LNG gas into the domestic market is unlikely to be effective in reducing prices because the problem with gas prices has to do with a tight supply/demand balance for natural gas. Such a policy, applied retrospectively, would have the effect of introducing significant sovereign risk in the sector and would represent “time inconsistency” of policy, which has the effect of adversely affecting future (and evidently, necessary) investment.

Sufficient additional gas supplies on the other hand will eventually place downward pressure on gas prices because, on the east coast, the construction of additional LNG terminals in the short-to-medium term appears unlikely given revised construction and feedstock cost bases facing marginal developments. The development of new gas supplies requires a supportive regulatory framework which gives due consideration to energy security, energy prices, environmental and community issues.

Question 5: What future role should solar and wind power have in Australia and what support if any should government provide?
AGL is a strong supporter of renewable energy. As the largest ASX listed owner, operator and developer of renewable energy generation in the country, we support increasing the proportion of renewables in Australia’s energy mix and have invested over $3 billion in renewables in Australia. AGL is also currently building Australia’s largest utility-scale solar plant at Nyngan in NSW plus another solar plant at Broken Hill.

However, given the current oversupply in generation capacity in the national energy market and the WA energy market, and stagnant or declining electricity demand forecasts, AGL does not consider the Renewable Energy Target to be achievable at any level currently envisaged by policymakers – at least not without complementary policies aimed at restoring the relevant market signals. Current spot prices for electricity and for renewable certificates are sending a clear signal to participants that the market is heavily oversupplied. Unless investors perceive that revenues for new renewable projects will exceed their cost of construction and operation, it is difficult to imagine new projects being banked any time soon.

Complementary policies therefore need to be considered to address the policy-induced oversupply in the national energy market, and the apparent barriers to exit that seem to exist at present. Finally, household solar PV no longer requires subsidies to be an attractive proposition and so the Federal Government’s SRES Scheme, which is funded by electricity consumers through a synthetic tax and levied by energy retailers, should be phased out.

STEVE SARGENT
President and CEO, GE Mining

Question 1: What role should government play in promoting the resources and farm sectors of the Australian economy?
Agriculture and resources are and will remain important pillars for our nation. These industries have coexisted in the past and we must continue to ensure they coexist into the future. At GE, we argued for, and the Australian Government has responded to, one mechanism to maximise the benefit for primary producers from the expansion of energy and resources sector. GE argued the non-farm income threshold for the Farm Management Deposit Scheme should be increased from $65,000 per annum, because many landholders were now able to access payments as hosts of wind turbines and CSG-extraction wellheads. The FMD Scheme is important because it allows farmers to build up financial reserves from good years for the bad, when seasons or commodity prices are down or if there are natural disasters. From July 1, the non-farm income threshold has been increased to $100,000. The Agricultural Competitiveness White Paper is seeking views on whether it should be increased further.

Question 2: Is there a role for nuclear energy and should Australia be used to store nuclear waste?
Nuclear is one option in the world’s energy mix. Its role in Australia as both a fuel and in regard to storage needs to be considered amid a raft of suitability, viability and social factors. The Australian Government’s Energy White Paper is an important opportunity to look at the fuel and technology mix for our nation’s energy.

Question 3: How does Australia rate on the global resources productivity scale?
Australia is a critical source of energy for the world. Within five years, Australia will be the world’s biggest LNG exporter and we are a major exporter of coal, iron ore and uranium. The challenge for Australia is to ensure we continue to develop these reserves efficiently and maintain our global competitiveness. Globally, resources companies are struggling with declining

The development and utilisation of Australia’s reserves will continue to depend on foreign investment and a clear regulatory framework is vital to securing future investment and encouraging new technology innovation and adoption.

productivity, rising operating costs and falling prices of what they sell. But it is during times of cyclical downturn that companies can seize the opportunity to make changes to become more productive and more competitive.

Technology has a huge role to play in enhancing our competitiveness across current operations and for future projects. In many regards, Australia is at the forefront of resources operations with the adoption of new technologies which are enabling a shift from a “break and fix” model to one of “predict and prevent”. The result is a reduction in unplanned down time and an improvement in asset management.

Question 4: Is the answer to energy prices more supply or reservation policies to keep local industry running?
The answer to energy prices is the sustainable development of competitively priced sources - coal, gas, wind, solar. The development and utilisation of Australia’s reserves will continue to depend on foreign investment and a clear regulatory framework is vital to securing future investment and encouraging new technology innovation and adoption. GE supports free markets and free trade. While governments have been working toward providing more transparency in domestic gas, the imposition of measures, such as reserving gas for domestic consumers, could dissuade that investment. Australia has an opportunity to set and harmonise the policy framework for the development of gas reserves, providing gas for domestic and export consumers. Government must balance this framework to support both global investment and opportunities for domestic industry, while meeting the needs of the broader community and stakeholders.

Question 5: What future role should solar and wind power have in Australia and what support if any should government provide?
Renewables, as with coal and gas, will have an important role in our energy mix. As indicated in a recent Newspoll (for the Powering Australia series), the Australian public also believes a greater commitment needs to be made to non-fossil fuel energy sources. Stable policy is critical for all forms of energy, so stability on the Renewable Energy Target through a restated bipartisan agreement will be essential. The adoption of technologies beyond renewable energy generation, including other fuel sources, transmission and distribution should also be among the objectives of any successful government. Renewable energy can provide a hedge to volatile domestic gas prices and with many projects developed in regional areas, they are so important to boosting regional and rural economies with improved power supply and reliability. The role of government and regulators must be measured in line with the need to ensure the safe, efficient and reliable support of energy infrastructure, while also allowing enough freedom for the viability of private participants.

ZIGGY SWITKOWSKI
Chairman, SuncorpMetway
Chairman, NBN Co
Chancellor, RMIT University

Question 1: What role should government play in promoting the resources and farm sectors of the Australian economy?
The government should resist industry-specific advocacy in other than general terms. It should focus upon three themes : 1) investment in efficient infrastructure; 2) being business-friendly; and 3) avoid policies that hint at any moral hazard or sovereign risk -- always.

Question 2: Is there a role for nuclear energy and should Australia be used to store nuclear waste?
Nuclear energy must be in the energy mix as Australia moves to a lower carbon future. Post-Fukushima, the entry strategy is likely to be via small modular reactors in support of regional centres and industrial sites. Any nuclear deployment will require enabling legislation and some level of direct government support. The market opportunity for storage of other country’s nuclear waste is probably overstated and Australia’s endless fumbling of the issue of storage of low level radioactive waste is discouraging.

The US has been very effective by doing two things: 1) mandating auto fuel efficiency targets; and 2) shifting to shale gas.

Question 3: How does Australia rate on the global resources productivity scale?
I don’t have any data to comment but, in general, productivity per unit of labour is competitive, but per unit of labour cost, we are getting worse and worse (before the recent $ devaluation).

Question 4: Is the answer to energy prices more supply or reservation policies to keep local industry running?
No, that’s just another form of industry subsidy.

Question 5: What future role should solar and wind power have in Australia and what support if any should government provide?
Climate change is real and minimising emissions should be a national strategy. But given our small contribution to global carbon emissions, we have time to introduce thoughtful policies.

The US has been very effective by doing two things: 1) mandating auto fuel efficiency targets; and 2) shifting to shale gas. In Australia, solar will grow in importance, wind may not, and nuclear is over the planning horizon. What is required of government is consistency, clarity and continuity of goals and policy. And to align with the UK and US view: in any contest between climate change and the economy, the economy wins.

PHIL BLYTHE
Managing director, Greensync

Question 1: What role should government play in promoting the resources and farm sectors of the Australian economy?
Australia has attracted every major resource company from around the world, and billions of dollars in investment into the resources industry each year. With or without government help, the resources sector will grow and flourish (or decline) in line with global commodity prices. The government’s role is to regulate where required to collect appropriate income (tax), and ensure that the social and environmental impacts of the mining sector do not have adverse effects on the rest of society. The farming sector is more complex. A changing climate, an ageing workforce, and an influx of overseas ownership are all complex issues that need careful and well-crafted policy to ensure that the farm sector - and all of its associated supply chain - remains strong.

Question 2: Is there a role for nuclear energy and should Australia be used to store nuclear waste?
The learning curve for Australia to invest in nuclear technology will take 10-15 years before we can safely own and operate nuclear plants. This requires huge financial investments, and huge risks for underwriters of such asset investments. Given that there is such vigorous debate over relatively modest solar and wind contributions under the Renewable Energy Target, it is hard to imagine how large contributions will be accepted by ratepayers to subsidise the rollout of these nuclear power plants.

The Australian market does not require more energy supply to tackle energy prices. In fact, it needs the opposite -- generators to be retired -- to remain viable in the coming years.

Question 3: How does Australia rate on the global resources productivity scale?
Clearly, our labour costs are well beyond many other countries, pushing up our costs in the resources sector beyond where they need to be. Australia has not managed these issues through the boom period - the shortage of skilled workers, and the two-speed economy that has emerged from highly inflated labour costs in some parts of Australia.

Question 4: Is the answer to energy prices more supply or reservation policies to keep local industry running?
The Australian market does not require more energy supply to tackle energy prices. In fact, it needs the opposite -- generators to be retired -- to remain viable in the coming years. Reservation policies for gas, and other sensible forms of regulation should be immediately implemented to prevent sudden price shocks to industries currently reliant on gas (this is already happening), which will have a dire and irreversible effect on our manufacturing sector.

Question 5: What future role should solar and wind power have in Australia and what support if any should government provide?
Wind power is being overtaken by solar as the most cost efficient renewable energy for Australia in the medium and long term. However, it is likely that both wind and solar will make up part of our energy portfolio in the longer term. Beyond the next 5-6 years, one should expect that both technologies will be at or below price parity with coal-based fuel, and all subsidies should be phased out over the next few years.

MILES GEORGE
Managing director, Infigen Energy

Question 1: What role should government play in promoting the resources and farm sectors of the Australian economy?
Government should promote those sectors where we have natural advantages and that provide the opportunity to achieve industry excellence. Australia has exceptional solar and wind resources. Acknowledging that strength we have been able to achieve world leadership in renewable energy technology research and development, particularly in solar PV technology, and this was perhaps indirectly due to government promotion through various R&D funding initiatives. But we have failed to develop a broader vibrant renewable energy industry while other nations with weaker renewable energy resources, such as Denmark, have succeeded. A stable policy environment that transcends short-term political cycles is required to facilitate the long-term investment needed in capital intensive industries such as power generation.

Question 2: Is there a role for nuclear energy and should Australia be used to store nuclear waste?
Conventional nuclear energy requires large-scale development, proximity to the load, and access to substantial water resources. Securing an acceptable location for such a plant close to major load centres on the east coast of Australia is highly problematic. In addition the cost of electricity generated from conventional nuclear plant, including the hidden costs such as government-backed insurance to underwrite debt financing will exceed the cost of available renewable energy technologies. A new generation of smaller modular nuclear power plants is under development and may have application for distributed generation solutions in the long term. Cost competitiveness is unknown. I think Australia should store only its own nuclear waste.

The large-scale renewable energy industry has ground to a halt in Australia due to uncertainty created by the current government’s ad-hoc review of the RET

Question 3: How does Australia rate on the global resources productivity scale?
Capital and operating costs for large-scale renewable energy facilities in Australia are high by world standards. A strong Australian dollar in recent years has helped with the cost of imported components, representing about half the cost of a typical large-scale wind farm. But the balance of plant capital costs and operating costs are significantly higher than for our US operations.

Question 4: Is the answer to energy prices more supply or reservation policies to keep local industry running?
Australia has now linked its east coast gas market to export parity pricing in much the same way as Western Australia did many years ago. Domestic gas prices on the east coast will be much higher than they were previously. Increases in local supply will do little to change this scenario because the scale of the export market and the quantum of our gas exports far exceed domestic demand for gas. Reservation policies may assist local industrial gas users to secure supply but prices will not be materially lower without additional interventions.

Question 5: What future role should solar and wind power have in Australia and what support if any should government provide?
Australia has some of the best wind and solar resources in the world and we should exploit that natural advantage in much the same way as we exploit our mineral and other natural resources. Government should support solar and wind power by providing a stable and consistent policy environment. The large-scale renewable energy industry has ground to a halt in Australia due to uncertainty created by the current government’s ad-hoc review of the RET. As a direct consequence large-scale renewables capital investment in 2014 is down to one-tenth of that achieved in recent years and the industry is shrinking – including shedding jobs in regional areas. Yet the government’s review found that maintaining the RET in its current form will result in the lowest power prices for consumers compared to the options of cutting or shutting the RET. Government should now accept that finding and move to restore policy stability and Australia’s reputation as a safe place to invest as previously existed for well over a decade under previous Labor and Coalition governments.

MATTHEW RENNIE
Leader, power and utilities, Ernst & Young

Question 2: Is there a role for nuclear energy and should Australia be used to store nuclear waste?
Nuclear energy is, in most parts of the world, a conventional and stable source of generation, operating in around 30 countries with over 400 nuclear reactors. The Nuclear Energy Institute reports there are 72 new plants under construction in 15 countries and I’m aware from my travels to China that there are almost 30 projects there, alone. The issue with developing new nuclear power projects is twofold. First, there is the issue of scale. The majority of new nuclear power stations are over 1000 MW which is a lot of capacity to bring online in a system such as the national electricity market, let alone in an environment where new generation is not forecast to be required for the next 10 years. Second, financing these types of projects requires long-term power purchase agreements to be entered into with retailers, which are sufficiently credit worthy to have the confidence of financiers, which would in turn require those retailers to be able to forecast prices over a very long term. The difficulty in doing this would necessitate some role for government, perhaps as a contractual intermediary. Waste storage would be only one of a large number of issues to be thought through, and overcome, during the development and government approvals processes.

Nuclear energy is, in most parts of the world, a conventional and stable source of generation, operating in around 30 countries with over 400 nuclear reactors.

Question 5: What future role should solar and wind power have in Australia and what support if any should government provide?
There are two aspects to renewable energy which are complex for policy makers to think through. First, renewable energy is, in the main, more expensive than conventional (coal and gas) power to generate. This means that, at the margin, policies which provide incentives or subsidise renewable energy will incur cost to taxpayers for the subsidy itself, and will increase the overall total cost of all electricity generation to the extent it displaces cheaper coal-fired power. Second, however, is the fact that current market pricing, in the absence of a carbon tax or similar intervention, assumes that non-renewable generation is neutral to the environment, and therefore conventional generators bear no additional cost. The outcome of the pure market process is therefore that renewable energy will be less attractive to consumers and to investors. Working through this requires government to weigh up these objectives – higher prices (including taxes and subsidies) and more renewable generators, versus lower prices and conventional generation. These are complicated objectives, and explains somewhat why the RET process is as emotionally and politically charged as it is.