Queensland Energy Forum

Yesterday I attended the Queensland Energy Forum, held at Stamford Plaza in Brisbane.  There was a long list of interesting speakers which included:

• Michael Choi, MP
• Simon Bartlett (Powerlink)
• Mark White (ERM)
• Carl Daley (Creative Energy)
• Chris Arnold (Energex)
• Roman Domanski (EUAA)
• Grant Raja (Energetics)
• Peter Dobney (AMCOR)
• Bruce Mountain (Carbon Market Economics)
• Bob Patton (APA)
• Greg Nielsen (Office of Clean Energy)
• James Gillard (Arcadia)

Broadly speaking there were a few major areas that were discussed during the conference.

Increasing Distribution Network Charges

As was mentioned in a previous post the topic which was most topical was the topic of increasing distribution network charges.  The Queensland price increase proposals have not been approved yet, but based on the history of New South Wales, there is a widespread expectation that they will get approved.  Similar points were made from both points of view – energy user advocates talked about the lack of benchmarking performed by the AER and the DNSPs talked about the aging network and rapidly growing peak demand.  In addition to this there was mention by Roman Domanski that the privatised distribution networks received lesser price increases than the public ones, suggesting that part of the price rises may be indirect revenue raising by the state governments.  There was also a link drawn between these price rises and CPI increases.  Finally, there was some questioning of the value of the actual process used for price change approval with the AER.

Chris Arnold highlighted that there were a number of significant factors that had changed the load profile over the last ten years – consumer adoption of air conditioners had raised the percentage of homes with air conditioners from 23% to 70%, households with PCs had increased from 48% to 98% and the average number of televisions had risen from 1.5 per house to 3 per house.  He also highlighted that the top 1% of peak demand costs $7 520 / MWh in network costs.  To me this suggests that there should be some form of extra financial incentives for demand side response during these peak load times.  Users can already save 10-20% on the energy component of their costs by curtailing demand for 20 hours a year.  Offering a financial incentive on the network costs may provide a new win-win scenario with tangible economic benefits.

Future Queensland Energy Mix

One of the implicit themes of the conference was the future energy mix of Queensland.  Michael Choi highlighted that Queensland’s energy use is growing faster and already has the highest proportion of energy use per dollar of GDP than any of the other states.  It is projected that there will be a 35% growth in demand and a supply deficit of 1500 MW by 2019 without additional new power infrastructure investment.  Demand side management centered around air conditioners and pool pumps is also being investigated and trialed by the state government.  This is projected to provide 40MW of load reduction in peak times (which is of the same order of magnitude as the average deSide user’s level of curtailment during peak price periods).

There was also some talk of renewable technologies by both Michael Choi and Greg Nielsen, the most promising of which is the currently not-yet-invented deep hot rock geothermal technology.  Michael Choi went as far as saying as geothermal is potentially Queensland’s largest baseload power source.

Gas

In addition to renewables, gas (in particular coal seam gas) was talked about as being a large part of Queensland’s energy mix moving into the future.  Huge investment by Petronas, BG, Conocco-Phillips and Shell (among others and already in excess of $11bn) will see the development of a number of Queensland gas resources.  Still, there is some uncertainty as to the future of gas in Queensland as a power source due to the reluctance of gas producers to currently offer long term gas supply contracts of greater than five years.  In addition to this there are some constraints in the gas pipeline network that need to be addressed.

Bob Paton from APA made specific mention of their great desire to see that the proposed electricity transmission line from Townsville to Mount Isa never gets built and an expansion of Micah Creek is performed instead.  However, as indicated in a previous blog post, there may be some reluctance for this solution unless long term gas supplies are guaranteed.

Legislative risk, the CPRS and MRET

The final major theme of the forum centered around climate change regulation and the uncertainty surrounding it at the moment.  With the change in political climate over the last few months, climate change legislation has suffered an indefinite postponement.  The general feeling at the conference was that despite this, there would one day be a carbon price of some kind, even under a Coallition government.  I have, for a number of years privately and publicly advocated that such a measure, ahead of the rest of the world would be at the very best foolhardy and potentially disastrous to the Australian economy (though I would like to point out that this is my own personal view and is one of a plurality of viewpoints within global-roam).  Electricity futures markets now appear to be in a downtrend, strongly suggesting that the market does not believe that the CPRS now cannot begin until at least 2012.

The implications of issuing five times the number of Renewable Energy Credits for solar systems than any other form of renewable technology is now being recognised by the government, which is proposing a new scheme to replace the old MRET scheme.  Large scale renewable generation was being priced out of the market by the drop in REC prices caused by the over-allocation of RECs to solar systems.  James Gillard explained the new RET scheme proposal that will see the expanded MRET divided into two components:

1. The LRET (Large scale Renewable Energy Target), which will have a slightly smaller (4 million RECs smaller) target.  It will only incorporate RECs generated from large scale generation and any previously banked RECs.  It will closely resemble the old MRET.
2. The SRES (Small scale Renewable Energy Scheme), which will see liable entities (probably wholesale electricity purchasers) required to purchase all SRES-generated RECs at $40/REC.  These RECs cannot be acquitted against the LRET.

These proposed changes have several implications and raises a number of questions.  Firstly, in what proportions are the liable entities required to purchase the SRES RECs?  Secondly, if these changes go ahead, it is quite likely that this will force the LRET REC price to the price of penalty – $65 as there is currently insufficient renewable investment planned to meet the demand.  Even with $40 REC and $40-45 energy prices (which is currently the case) large scale renewable generation is not viable (however wind may become viable with RECs priced at $65).

The point was highlighted a number of times that legislative risk is currently the biggest danger to power prices in the medium term.  Nobody can forsee what will happen to the CPRS following the next election and it is difficult to see what the consequences of the new RET will be, or how much the scheme will change before it goes ahead.

In all, the forum was very informative.  Especially good were the pens that Powerlink provided to attendees, which had a laser pointer and torch built into them.  I would highly recommend attending future conferences.