Day 72: Price talk
An introductory weekday newsletter from Schwartz Media. Counting the days since Australia had an energy policy.
Good morning and welcome to day 72.
Today in summary: wholesale energy prices are trending upwards, setting up the government for some uncomfortable explaining in 2019; new US data show emissions from electricity generation fell last year to their lowest level since 1987, and it’s primarily not because of renewables, or the shift away from coal; and New Zealand hastens its push to ban offshore oil exploration.
— Charis
Today’s policy spin level: 💨
Please don’t keep Australian Energy Daily to yourself. Forward this email to your colleagues and encourage them to sign up for free here.
A growing group of factors are pointing to record wholesale electricity prices in NSW, Victoria and South Australia next year, at the very time the government will be stepping up its pressure on retailers to cut them. Some futures prices in Victoria and NSW are up a third since the start of July. Higher gas prices, lower water levels in the Snowy scheme, outages in the ageing NSW coal-fired power fleet, and the threat of a long, dry summer are all reasons given for the futures spike. And talk of renewables projects being delayed due to connection issues also isn’t helping. Renewables may be booming now, but there are signs investment may soon dry up.
Carbon emissions from the US power sector have declined 28% since 2005, according to a new report from the US Energy Information Administration. The US is transitioning away from high-emitting energy, but a bigger driver was the ongoing declines in industrial energy demand.
"U.S. electricity demand has decreased in 6 of the past 10 years, as industrial demand has declined and residential and commercial demand has remained relatively flat."
The New Zealand government is being accused of rushing legislation which would ban offshore oil exploration through parliament without proper discussion. In April, Prime Minister Jacinda Ardern, who leads the Labour Party, announced that no new oil and gas permits would be given out from 2019, though the existing 22 permits remain in place. The National Party has criticised the fast progression of the bill through public consultation and select committee consideration, though Ardern says it’s the speed necessary to make progress this year. The bill will have its second reading on Thursday.
Geopolitics
India, China and Turkey are resisting the Trump administration’s renewed oil sanctions on Iran, Reuters reports. The sanctions will kick in on Nov. 5, and the three countries - which are among Iran’s five largest oil customers - say there isn’t enough worldwide supply to replace the oil. Washington has already admitted it’s considering waivers for Iran while Saudi Arabia and Russia add supply, to avoid prices spiking.
The Commentariat
The shift away from the Turnbull government’s moves to cut emissions became even more pronounced last week when Scott Morrison and Angus Taylor announced their “big stick” energy policies, writes the AFR’s Ben Potter. The announced plans to underwrite power generation go beyond what the ACCC recommended and are “exacerbating fears that they could have a chilling effect on stand-alone investment in new generation”, Potter says.
“They propose to back by a variety of means any firm technology, including upgrades and "life extensions" to existing generation, without necessarily limiting the support in price or duration… That – and Taylor musing about indemnifying coal plant against a future carbon price – deepened suspicion that Taylor and Morrison are bent on boosting coal power.”
Three more things
Climate-change think tank Carbon Tracker says up to US$60 billion in coal assets in Southeast Asia could be stranded in the next decade as wind and solar become cheaper. Coal is the fastest-growing energy source in the region through 2040 due to low costs, but Carbon Tracker says new solar may become cheaper than existing coal by 2027 in Vietnam, 2028 in Indonesia and 2029 in the Philippines.
Senex Energy will spend up to A$250 million on two natural gas projects in Queensland, drilling about 110 wells which will supply about 48 terajoules per day once up and running. Two-thirds of that gas is reserved for the domestic market, though the total extra volume only equates to about 1% of expected demand from the east coast next year.
The British Treasury says the carbon tax should be cut for power generators in 2021 if the total carbon price remains high. The carbon tax will remain steady at 18 pounds per ton until then, but a further tax of 16 pounds per ton could be imposed from April 2019 if a no-deal Brexit occurs next March.
This is an introductory service while we’re building a comprehensive daily paid online publication, coming in early 2019.
We’re not here to take sides, simply to cut through the noise, and help you make sense of the emerging policy and market trends you need to be across. We call it pure intel. You can read more about us here.