Government-owned firms like Snowy Hydro can do better than building $600 million gas plants


Arjuna Dibley, The University of MelbourneThe Morrison government today announced it’s building a new gas power plant in the Hunter Valley, committing up to A$600 million for the government-owned corporation Snowy Hydro to construct the project.

Critics argue the plant is inconsistent with the latest climate science. And a new report by the International Energy Agency has warned no new fossil fuel projects should be funded if we’re to avoid catastrophic climate change.

The move is also inconsistent with research showing government-owned companies can help drive clean energy innovation. Such companies are often branded as uncompetitive, stuck in the past and unable to innovate. But in fact, they’re sometimes better suited than private firms to take investment risks and test speculative technologies.

And if the investments are successful, taxpayers, the private sector and consumers share the benefits.

Wind farm
If government-owned firms led the way in clean energy technologies, society would benefit.
Shutterstock

Lead, not limit

Federal energy minister Angus Taylor announced the funding on Wednesday. He said the 660-megawatt open-cycle gas turbine at Kurri Kurri will “create jobs, keep energy prices low, keep the lights on and help reduce emissions”.

Experts insist the plan doesn’t stack up economically and may operate at less than 2% capacity.

But missing from the public debate is the question of how government-owned companies such as Snowy Hydro might be used to accelerate the clean energy transition.

Australian governments (of all persuasions) have not often used the companies they own to lead in clean energy innovation. Many, such as Hydro Tasmania, still rely on decades-old hydroelectric technologies. And others, such as Queensland’s Stanwell Corporation and Western Australia’s Synergy, rely heavily on older coal and gas assets.

Asking Snowy Hydro to build a gas-fired power plant is yet another example – but it needn’t be this way.




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gas plant
Snowy Hydro has been funded to build a $600 million gas plant, but it could do better.
Shutterstock

The burning question

Globally, more than 60% of electricity comes from wholly or partially state-owned companies. In Australia, despite the 20-year trend towards electricity privatisation, government-owned companies remain important power generators.

At the Commonwealth level, Snowy Hydro provides around 20% of capacity to New South Wales and Victoria. And most electricity in Queensland, Tasmania and Western Australia is generated by state government-owned businesses.

But political considerations mean government-owned electricity companies can struggle to navigate the clean energy path.

For example in April this year, the chief executive of Stanwell Corporation, Richard Van Breda, suggested the firm would mothball its coal-powered generators before the end of their technical life, because cheap renewables were driving down power prices.

Queensland’s Labor government was reportedly unhappy with the announcement, fearing voter backlash in coal regions. Breda has since stepped down and Stanwell is reportedly backtracking on its transition plans.

Such examples beg the question: can government-owned companies ever innovate on clean energy? A growing literature in economics, as well as several real-world examples, suggest that under the right conditions, the answer is yes.




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desk showing Stanwell logo
State-owned Stanwell Corporation is reportedly back-tracking on plans to mothball its coal plants early.
Stanwell Corporation

Privatised is not always best

Economists have traditionally argued state-owned companies are not good innovators. As the argument goes, the absence of competitive market forces makes them less efficient than their private sector peers.

But recent research by academics and international policy institutions such as the OECD has shown government ownership in the electricity sector can be an asset, not a curse, for achieving technological change.

The reason runs contrary to orthodox economic thinking. While competition can lead to firm efficiency, some economists argue government-owned firms can take greater risks. Without the pressure for market-rate returns to shareholders, government enterprises may be freer to invest in more speculative technologies.

My ongoing research has shown the reality is even more complex. Whether state-owned electric companies can drive clean energy innovation depends a great deal on government interests and corporate governance rules.

For example, consider the New York Power Authority (NYPA) which, like Snowy Hydro, is wholly government owned.

New York Governor Andrew Cuomo has deliberately sought to use NYPA to decarbonise the state’s electricity grid. The government has managed the company in a way that enables it to take risks on new transmission and generation technologies that investor-owned peers cannot.

For instance, NYPA is investing in advanced sensors and computing systems so it can better manage distributed energy sources such as solar and wind. The technology will also simulate major catastrophic events, including those likely to ensue from climate change.

These investments are likely to contribute to greater grid stability and greater renewables use, benefiting not just NYPA but other electricity generators and ultimately, consumers.

Such innovation is nothing new. Also in the US, the state-owned Sacramento Municipal Utility District built one of the first utility-scale solar projects in the world in 1984.

Andrew Cuomo in front of flag
NY Governor Andrew Cuomo is using a state-owned company to aid the clean energy transition.
Mary Altaffer/AP

The way forward

More could be done to ensure Australian government-owned corporations are clean energy catalysts.

Clean energy technologies can struggle to bridge the gap from invention to widespread adoption. Public investment can bring down the price of such technologies or demonstrate their efficacy.

In this regard, government-owned companies could work with private technology firms to invest in technologies in the early stages of development, and which could have significant public benefits. For instance, in 2020, the Western Australian government-owned company Synergy sought to build a 100 megawatt battery with private sector partners.

But many problems facing state-owned companies are the result of ever-changing government policy priorities. The firms should be reformed so they are owned by government, but operated at arm’s length and with other partners. This might better enable clean energy investment without the politics.




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The Conversation


Arjuna Dibley, Visiting Researcher, Climate and Energy College, The University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Morrison government threatens to use Snowy Hydro to build gas generator, as it outlines ‘gas-fired recovery’ plan


Michelle Grattan, University of Canberra

The Morrison government has threatened to use Snowy Hydro to build a gas generator in the Hunter Valley if the electricity sector fails to fill the gap left by the scheduled closure of the Liddell power plant in 2023.

The threat comes as the government released its plan to place gas at the centre of Australia’s economic recovery, with a package of measures to “reset” the east coast market and “unlock” supply.

Scott Morrison and Energy Minister Angus Taylor said the electricity sector had to deliver 1,000 megawatts of new dispatchable energy to replace the Liddell power station before it closed.

“The Government will step up and back a new gas power plant in the Hunter Valley if the sector doesn’t replace Liddell’s capacity,” they said in an ultimatum to the sector.

“Snowy Hydro Limited is developing options to build a gas generator in the Hunter Valley at Kurri Kurri should the market not deliver what consumers need.”

The government had a long running battle with AGL over its determination to close the Liddell coal-fired power station, trying unsuccessfully to force it to abandon the decision.

Morrison and Taylor said the government’s Liddell taskforce had found closing the plant without adequate dispatchable replacement capacity could mean a 30% price rise over two years, or $20 per megawatt hour to $80 in 2024 and up to $105 per MWH by 2030.

Morrison said such rises were unacceptable – they would be a huge hit to families, businesses and job creating industries in NSW if the energy generated by Liddell wasn’t replaced.

“We won’t risk the affordability and reliability of the NSW energy system and will step in unless the industry steps up.

“To ensure we do not have a scenario without replacement, the government is giving the private sector until the end of April 2021 to reach final investment decisions on 1000 MW of dispatchable capacity, with a commitment for generation in time for summer 2023-24.”

In its announcement of its gas plan, the government says its proposed multiple initiatives will deliver affordable and reliable energy for households, business and industry, and shore up the energy grid’s reliability as renewables form an increasingly larger part of the energy market.

One part of the plan is the creation of an Australian Gas Hub at Wallumbilla in Queensland to bring users and suppliers closer together, delivering a transparent liquid gas trading system.

This is modelled on the Henry Hub located in Louisiana which is a distribution point on a natural gas pipeline system. It serves as the official delivery location for futures contracts.

The concept of a gas-led recovery is highly controversial. It has been strongly pushed by the chair of the government’s national COVID-19 commission Nev Power, and the government argues that gas is much lower in emissions than coal fired power.

But the promotion of gas is resisted by environmentalists, given it is a fossil fuel, and questioned by some in the investment community who doubt it will be possible to achieve gas prices low enough to make a major economic difference.

Outlining the “gas-fired recovery” plan Morrison, Taylor and Resources Minister Keith Pitt said: “The government wants the private sector to step-up and make timely investments in the gas market.”

But “if the private sector fails to act, the government will step in – as it has done for electricity transmission – to back these nation building projects. This may include through streamlining approvals, underwriting projects or the establishment of a special purpose vehicle with a capped government contribution”.

The government says the east coast market needs change because it is not delivering internationally competitive prices for Australian businesses and households.

International prices have fallen but this has not been reflected in lower long term contract offers for Australian customers.
There are also fears of a supply shortfall in the medium term.

Under the measures, new gas supply targets will be set with states and territories and a potential “use it or lose it” requirement will be enforced on gas licences.

The government aims to unlock five new gas basins beginning with the Beetaloo Basin in the Northern Territory and the North Bowen and Galilee Basis in Queensland. This will cost $28.3 million for the plans.

To avoid supply shortfalls, there will be new agreements with the three east coast LNG exporters with strengthened commitments on price.

The government will also “explore options” for a prospective gas reservation scheme “to ensure Australian gas users get the energy they need at a reasonable price”.

To improve the gas transport network the government will identify priority pipelines and critical infrastructure for a National Gas Infrastructure Plan (NGIP) worth $10.9 million . This will also highlight where the government will step in if private investors do not.

The regulations on pipeline infrastructure will be reformed to increase competition and transparency; competition will be further promoted by kick starting work on a secondary pipeline capacity market.

The government will work with the Australian Competition and Consumer Commission to review the calculation of the LNG netback price which provides a guide on the export parity prices.

It will also use the NGIP to develop customer hubs to boost competition and transparency for customers.

HERE ARE THE GOVERNMENT’S DETAILED MEASURES.

It will get more gas into the market by:

  • Setting new gas supply targets with states and territories and enforce potential “use-it or lose-it” requirements on gas licenses

  • Unlocking five key gas basins starting with the Beetaloo Basin in the NT and the North Bowen and Galilee Basin in Queensland, at a cost of $28.3 million for the plans

  • Avoiding any supply shortfall in the gas market with new agreements with the three east coast LNG exporters that will also strengthen price commitments

  • Supporting CSIRO’s Gas Industry Social and Environmental Research Alliance with $13.7 million

  • Exploring options for a prospective gas reservation scheme to ensure Australian gas users get the energy they need at a reasonable price.

It will boost the gas transport network by:

  • Identifying priority pipelines and critical infrastructure as part of an inaugural National Gas Infrastructure Plan (NGIP) worth $10.9 million that will also highlight where the government will step in if the private sector doesn’t invest

  • Reforming the regulations on pipeline infrastructure to promote competition and transparency

  • Improving pipeline access and competition by kick-starting work on a dynamic secondary pipeline capacity market.

To better empower gas consumers, it will:

  • Establish an Australian Gas Hub at our most strategically located and connected gas trading hub at Wallumbilla in Queensland to deliver an open, transparent and liquid gas trading system

  • Level the negotiating playing field for gas producers and consumers through a voluntary industry-led code of conduct, to be delivered by February 2021

  • Ensure Australians are paying the right price for their gas by working with the ACCC to review the calculation of the LNG netback price which provides a guide on the export parity prices

  • Use the NGIP to develop customer hubs or a book-build program that will give gas customers a more transparent and competitive process for meeting their needs.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Snowy hydro scheme will be left high and dry unless we look after the mountains


Adrienne Nicotra, Australian National University; David Freudenberger, Australian National University; Geoff Cary, Australian National University; Geoffrey Hope, Australian National University; Graeme Worboys, Australian National University; Sam Banks, Australian National University, and Susanna Venn, Australian National University

Prime Minister Malcolm Turnbull’s plan for a A$2 billion upgrade and expansion of the Snowy Mountains Hydroelectric Scheme, announced last week, will be an impressive engineering achievement. Snowy Hydro 2.0 will increase the scheme’s capacity by 50%. The Conversation

Meeting this extra capacity will depend entirely on the natural water supply available in the Snowy Mountains. But the current environmental conditions of these mountains, and the Australian Alps where they are located, are compromising both water delivery and water quality.

The only way to maintain water flow is to control the threats that are actively degrading the high country catchments. These include introduced animals, wetland loss, and climate change.

Restoration and management

The remarkable Snowy Hydro Scheme was developed over 25 years from the 1940s. During this period the NSW Soil Conservation Service and later NSW National Parks effectively managed soil and restored areas damaged by grazing.

Conservation efforts focused on looking after topsoil, stabilising wetlands, and restoring vegetation after decades of grazing. This ensured good amounts of high-quality water for both hydro power and irrigation downstream.

More recent efforts have focused on the impacts of building the original Snowy scheme. This includes restoring areas cleared for roads and construction sites, and areas where rock and soil from blasting and cutting were dumped.

Before and after revegetation works in the 1970s, following the removal of cattle. Current ecological change is likely to be far more significant and could require new types of intervention.
Image courtesy of Roger Good

Threats to mountain catchments

The Australian Alps are the nation’s water towers. They provide water for growing food and hydroelectricity, but face several threats.

Across the Alps, despite well-informed and committed control programs, feral horses, pigs and deer are destroying wetlands, degrading streamside vegetation, and causing moisture-holding peat soils and stream channels to erode. This leads to more evaporation, more rapid runoff and erosion, less water flow, and lower water quality.

There is currently no effective response to this damage. We estimate that more than 35% of the high mountains’ wetlands have been affected, and the problem is getting worse.

The Alps are also recognised as extremely vulnerable to climate change. Climate models suggest that alpine areas that currently receive at least 60 days of snow cover will shrink by 18-60% by 2020.

Temperatures in the alps are already increasing by 0.4℃ per decade, an increase of 1.79℃ since records began. Climate change projections for the Australian Alps indicate the hottest summer days will be around 5°C warmer in 2100, minimum temperatures will rise by 3-6℃, and precipitation (rain and snow) will decrease by up to 20%, with less falling as snow. These changes are already putting pressure on iconic mountain ecosystems including the peatlands, snowgum woodlands and alpine ash forests.

The Australian Alps are also likely to experience more extreme events such as heatwaves, storms, fires and severe frosts. All of these affect high mountain ecosystems, making the environment more vulnerable to disturbances such as more fires, weeds and disease outbreaks.

For example, the root-rot fungus, Phytophora cambivora, recently appeared in the alps. The fungus killed large areas of shrubs following unusually warm springtime soil temperatures.

New weeds are an additional concern for the alps as these may compromise the existing plant communities and their ability to deliver services such as water. Alpine peat soils, which build up over thousands of years, can also burn in drought.

Reliable water depends on functioning ecosystems

A stable water supply from the Alps is crucial for energy and food production. This relies on intact vegetation.

Back in the 1950s, it became clear to the researchers at the Soil Conservation Service that hard-hooved animals, in this case domestic cattle, were severely damaging the alpine catchments.

The success of the original Snowy scheme depended on removing cattle from alpine areas, controlling soil erosion that resulted from prior grazing and hydro works, and carrying out extensive revegetation works across the whole of the nearby mountain ranges.

However, land managers to this day are still controlling a legacy of disturbance and weed invasions from both the Snowy scheme itself and years of previous grazing. Snowy 2.0 must consider these lessons from the past, and work to improve mountain catchments.

Alpine plants and animals often live close to their environmental tolerances, meaning they are not necessarily able to cope with change. For some species, climate change is likely to exceed these thresholds. Vegetation communities will change as current populations decline and colonisers from different species move in to occupy the gaps, including invasive species.

Feral horses make it even more difficult for native species to respond to a changing climate, by exacerbating environmental degradation and impacts on water.

Part of the solution is restoring and re-vegetating degraded high country landscapes. For example, restoring snowgum communities, which were severely affected by burning and grazing, may lead to increases in the amount of water trapped as drifting fog.

But climate change will demand new research and management partnerships to find species that will survive well into the future and to develop adaptation pathways to respond to uncertain conditions.

This will be a new and different world. We are currently ill-prepared to maintain high-quality water yield in the future, to predict the impacts of climate change, or to effectively protect our alps for future generations.

But we are confident these questions can be answered with adequate investment in the environmental infrastructure needed to underpin the engineering. We estimate that between A$5 million and A$7 million per year is needed to research and develop new management structures. You could see this investment as royalties returned to the system that provides the water and power.

Turnbull’s plan may deliver more power, but only if the environment is carefully managed. Otherwise Snowy Hydro 2.0 may be left high and dry.

Adrienne Nicotra, Professor Research School of Biology, the Australian National University, Australian National University; David Freudenberger, Senior Lecturer Environmental Management, Australian National University; Geoff Cary, Associate Professor, Bushfire Science, Fenner School of Environment and Society, Australian National University; Geoffrey Hope, Emeritus Professor, Department of Archaeology and Natural History; Visiting Fellow, Fenner Fenner School of Environment and Society, Australian National University; Graeme Worboys, Associate professor, Fenner School of Environment and Society, Australian National University; Sam Banks, ARC Future Fellow, Fenner School of Environment and Society, Australian National University, and Susanna Venn, ARC DECRA Fellow, Australian National University

This article was originally published on The Conversation. Read the original article.