Building the Superpower of the Low Carbon World Economy - Q&A
The history of Australia's development suggests the greatest value of wool, mining etc are concentrated in urban areas or export markets. How can regional Australia best retain the potential value of a renewable energy boom?
The jobs and economic activity are in energy-intensive industries rather than renewables electricity generation. The economically natural locations of the new industries are near high quality renewable energy resources or the hubs of the old transmission systems from the coal generators, especially where there are established port and industrial activities. This makes provincial Australia the natural home of much of the new activity: the Collie-Bunbury, Mid-West and Pilbara regions in WA; the Upper Spencer Gulf in SA; Portland and the Latrobe Valley in Victoria; Newcastle in NSW; Townsville and Gladstone in Queensland.
Other regions with some established infrastructure and some combination of good solar, wind, biomass and pumped hydro sites can also play important roles. Barcaldine in the central west of Queensland has some of these attributes.
What do you think about the federal government's COVID recovery board being composed of gas industry reps? Does this mean Australia may see publicly funded gas peaking plants rather than large scale wind and solar?
The early focus on gas alone rather than gas peaking as a support for lower cost renewable energy is not easily understood, but we haven’t yet seen formal recommendations or reports. Here’s hoping the COVID Commission will be realistic in its final recommendations.
Superpower assumes we can rely 100 percent on renewables for electricity. There is no evidence that this is economically the best trajectory for a zero emissions system and a lot of argument that it is not (the IPCC, MIT etc.). The question: is it good economics to ignore the risk of committing development to a sub-optimal trajectory? In other words, is it good economics to ignore the costs of risk and the options values of alternative trajectories?
Superpower is based on comprehensive comparisons of alternative means of achieving zero emissions. Superpower is an Australian story, and costs of zero emissions energy are higher in other countries (cf IPCC and MIT). If we are focused on the imperative of climate stability, we will be focusing on comparisons between zero emissions technologies—including fossil carbon combustion with sequestration and offsets as a zero emissions technology. Assessment of risk is crucial—including carbon and climate risks.
Shouldn't the substantial fall in oil prices benefit manufacturing and various users of energy? Why then does lower oil prices appear to negatively affect share prices when intuitively you would think it would increase value in the market due to lower production and transportation costs?
It is the fall in demand in the Pandemic Recession, including expectations about future demand, that has lowered most share prices. This has outweighed any benefit from lower input prices.
Despite a fall in exploration, the stock of fossil fuels in the Middle East, US, Canada and Russia is very large. Could fossil fuel prices in future still be very low? UK economist Deiter Helm suggests this scenario.
I will look for the Deiter Helm reference. It is impossible that rapid progress in decarbonisation of electricity, industry and transport could create a surplus of coal, energy and gas despite the reduction in investment in exploration and mine development. That would be a world in which reduction in emissions was more influential than price in resource allocation decisions affecting fossil carbon—in which we would not be seeing investment in new energy-intensive plants based on combustion of fossil carbon.
How can the NEM rules be changed to encourage investment millisecond (battery) to hour (pumped hydro) grid balancing services rather than the poor substitute of FCAS?
By a decision of the Australian Energy Market Commission. The Commission took that decision a few years ago but decided to delay implementation until 2022. Now they have decided to postpone it further because of COVID.
With regards to the saw-tooth in the wholesale cost of renewables, isn't the expectation of this saw-tooth to continue based on the assumption of the same market we currently have going forward into the future?
Yes, to some extent. A fundamental change in market rules could change the pattern. It was a saw-tooth in wholesale cost of power not cost of renewables that I was describing.
Gas price is domestic price or export price?
In my graph, domestic.
Your proposed stimulatory transition to renewables would bring down generation costs of electricity but the regulated network costs (and associated revenue guarantees) would remain, or arguably increase (if renewable generation becomes more localised). Network costs are a large percentage of the final cost the consumer pays. What can be done about these regulated networks in context of the transition to renewables?
All too true. The ACCC in its report on energy competition talked about writing down redundant assets so no allowance for a return from redundant assets appeared in prices. That would require new ways of relating prices to capital expenditure in future. The big question: how would the loss be allocated amongst affected parties?
If openness to Asian trade in particular is crucial, does this imply a broader shift in Australian foreign policy?
Australian policy for several decades has supported open trade with Asia and the world. There are some suggestions doing the rounds that we would be better off with “sovereign self sufficiency”, or autarky, or less reliance on global supply chains. I think we should analyse proposals for restricting trade with great care and caution, as they could lead to a large reduction in the Australian standard of living.
Do you see other additional renewables in the form of bioenergy (including sequestration through associated Negative Emissions Technologies) playing an important role toward Net Zero 2050?
Yes. My two “Post-Pandemic” new policies would help that. Combine carefully managed reforestation, bioenergy and bio-industry with capture and sequestration of carbon dioxide could contribute large negative emissions. We have good prospects in Australia. I would start in Portland and the Latrobe Valley/Gippsland in Victoria and Collie/Harvey Basin in WA. I would like to see research and development efforts continuing on wave and tidal and safer forms of nuclear energy as well.
How much serious interest have the ideas in Superpower raised with political groups?
A lot with Governments, in all States and Territories. A lot with communities.
When will your new book be available online?
Early November, print and online at the same time. Black Inc as with Superpower.