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Episode 68
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Substantive Law
Rip, Reap… and Bury? The (Temporary) Resurgence of Carbon Intensive Fuels
Law as stated: 14 December 2022
What is this?
This episode was published and is accurate as at this date.
Professor Tina Soliman Hunter joins the podcast to examine the complex global resurgence of carbon intensive fuels - with insights on the future of energy production and regulation, the need for a National Electricity Market rethink, and that market suspension.
Substantive Law| What area(s) of law does this episode consider? | The future of energy production and regulation in Australia. Touching on; market conditions for oil and gas, renewables, and that National Electricity Market (NEM) suspension. |
| Why is this topic relevant? | Australia is one of the world’s largest exporters of coal, with that controversial fuel also our dominant energy source. According to the September 2021 edition of the Australian Energy Statistics 2021 Energy Update Report, 54% of our electricity is generated from the so-called “black diamond”. In July of 2022, the International Energy Agency found that demand for coal is set to return to an all time high off the back of complex gas market conditions following Russia’s invasion of Ukraine. Australia is not immune to these global market conditions – as the suspension of the NEM showed. Understanding the way electricity is generated, priced, and regulated is a key skill for legal advisors working on the front-line of energy. |
| What legislation is considered in this episode? | Offshore Electricity Infrastructure Act 2021 (Cth) |
| What cases are considered in this episode? | Re Fortescue Metals Group Ltd [2010] ACompT 2 Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal [2010] FCA 1118 Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal [2011] FCAFC 58 Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal [2012] HCA 36; 246 CLR 379
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| What are the main points? |
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| What are the practical takeaways? |
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| Show notes | Australian Energy Update 2021, Department of Climate Change, Energy, the Environment and Water (2021) Resources and Energy Quarterly – June 2022, Department of Industry, Science and Resources (2022) Electricity Market Report – July 2022, International Energy Agency (2022) GenCost 2020-21 Final Report, CSIRO 2021 The Superpower Transformation, Ross Garnaut (2022) The Prize: The Epic Quest for Oil, Money and Power, Daniel Yergin (2009) The Commanding Heights: The Battle for the World Economy, Daniel Yergin & Joseph Stanislaw (1998) |
| David Turner:
1:00
2:00 | Hello and welcome to Hearsay the Legal Podcast, a CPD podcast that allows Australian lawyers to earn their CPD points on the go and at a time that suits them. I’m your host David Turner. Hearsay the Legal Podcast is proudly supported by Lext Australia. Lext’s mission is to improve user experiences in the law and legal services and Hearsay the Legal Podcast is how we’re improving the experience of CPD. Given Australia’s status as one of the world’s largest exporters of coal, it’s no surprise that the controversial fuel is our dominant energy source. According to the September 2021 edition of the Australian Energy Statistics 2021 Energy Update Report, 54% of our electricity is generated from coal. Who could forget then-Treasurer Scott Morrison bringing a lump of it into parliament in 2017? Despite its reputation, coal is far from becoming the forgotten legacy fuel of a carbon intensive past. In its July 2022 market update, the International Energy Agency reported that demand is set to return to an all time high off the back of complex gas market conditions following Russia’s invasion of Ukraine. Yet renewables are also hitting their stride. That same Energy Update Report found a total of 24% of Australia’s electricity was generated from renewables in 2021, and between the 2018/19 report and the 2021 report solar generation grew a massive 42%. With the impacts of rapid climate change becoming readily apparent, is there a place in our future for coal, petroleum, and other carbon intensive fuels in our energy mix? And how should we go about regulating the future of energy production? With me today to talk about that future is Professor Tina Soliman Hunter, Professor of Energy and Resources Law at Macquarie University and the Director of the Centre for Energy and Natural Resources Innovation and Transformation. Tina; welcome to Hearsay the Legal Podcast. |
| Tina Soliman Hunter: | Thank you very much for having me. |
| DT: | Now, Tina, tell us a little bit about how you came to research and teach in energy and resources law. Have you always been interested in that field? Was it a gradual discovery? |
| TSH:
3:00 | It was gradual, but it wasn’t surprising. So, I actually trained in the 80s in earth sciences and geology and worked in that field but an accident forced me to actually leave the field and I became a librarian. Now, I’m a fairly chatty person. Librarianship wasn’t for me, possibly because I kept being told to shut up rather than me telling the library patrons to shut up. So, I went to law school and at law school I did a subject called Energy Law taught by a Norwegian professor. And it was in the early 2000s and I could see the writing on the wall in terms of Australia’s regulatory framework that we weren’t getting what we could get out of our resources, so both our oil and gas and our mining. You could also see that all of our mining was really towards this rip and reap economy. Let’s just take it out of the ground. Let’s send it away. We’d closed down all our refining and our steelworks. So, we had no manufacturing, and we were just selling off to our nearest neighbours. And surprise, surprise, COVID really showed that up. And I’ve had a bit of a long journey. So, I worked for Bond University for a number of years where I did my JD, I did my law degree, and I was an academic there while I was doing my PhD in Norway. And then after that, I went to University of Queensland, but ultimately what was the best in terms of being able to develop this area and my interest, was going overseas and working on the North Sea in the UK and continuing working in Norway. And in fact, I’ve worked all around the world. |
| DT: 4:00 | Now, I read a profile of you on the Macquarie University website. You sound a little bit like an energy Indiana Jones. I won’t spoil it for the listeners, tell us about your proudest achievement. |
| TSH:
5:00 | I probably would have to say it was surviving jumping out of a helicopter. Now, to be fair, the helicopter was only about five feet off the deck. And I won’t name the jurisdiction because I probably would get lots of people in trouble because I probably shouldn’t really have been there. But in any case, I was in a helicopter. It was a Eurocopter. Helicopters are not my favourite because they tend to have gearbox problems – anyway, we’re trying to come in to land on this petroleum platform in the middle of the North Sea, and the pilot informs us that we can’t land. I’m like, “what do you mean you can’t land?” He’s like, “there’s something wrong with the tail rotor gearbox, so you’re going to have to jump” upon which I looked at him and I said, “are you kidding? I am not jumping out of a perfectly good helicopter onto the deck of a oil rig in the middle of the North Sea“, and he’s like,”actually, I’ve done a risk assessment and if you stay on this helicopter, there’s a really good chance you’re going to die. But if you jump out, you’re going to get injured, but you’ll be fine. It’ll be okay.” And I thought, “okay, we’ve got risk assessment in our offshore petroleum legislation and it’s the fundamental basis, actually, of our safety regime. I can handle that.” So, I jumped out and I survived it, but I have to admit, I was very pathetic. The guy who jumped with me fractured his tibia and fibula and he had an open fracture and it was really disgusting. |
| DT: | Oh, wow. |
| TSH: | Yeah. I’m laying there screaming and they’re going, “are you injured?” I’m like “yeah. I’m injured. My knee is really sore, but that’s okay. Just move him away. I can’t stand him.” So the poor guy was treated like a leper. I felt really bad afterwards. I did apologise. And I survived. |
| DT: | And you survived. I sympathise with that. I imagine the open fracture was a pretty grisly sight. |
| TSH: | Oh, they’re disgusting. Yeah. I don’t recommend it. |
| DT: | And your research has taken you all around the Arctic Circle really? |
| TSH: | Yes. So, I specialise in Arctic, and you think, what would an Australian professor be doing working in the Arctic? |
| DT: | You picked the wrong hemisphere. |
| TSH: 6:00 | No, I didn’t, because the biggest threat to Australia’s gas exports into Asia is the Russian Arctic. And you go, “why? How is that possible?” And the reality is because when you export – so when you take it through the Northern Sea route from Western Russia, the Russian Arctic, down to say Japan and Taiwan, it’s quicker than Australia going from Western Australia through the Malacca Straits and that very congested area and into Japan and Taiwan. They’re a huge competition. And of course, look at what’s happening at the moment. |
| DT: | Yeah, absolutely. I mentioned in the intro the complex market conditions in the natural gas market as a consequence of the Russian invasion of Ukraine. What’s happening in the gas market as a consequence of that? |
| TSH: | This is the interesting thing, we’re going to talk about the energy transition today, but at the end of the day, the transition fuel, the bridging fuel, if you like, is gas. |
| DT: | Yeah. |
| TSH: 7:00 | We haven’t developed hydrogen. Renewables aren’t up there. We haven’t got our decentralised distribution through our National Electricity Network and the equivalent in other places like Europe. And so, as a result, we rely on gas. Now, the problem is that if you’re not getting Russian gas, where are you getting it from? So, you’ve got the closing down of Nord Stream, which was taking Arctic gas from the Yamal and all of that area that was coming down through sort of Northern Russia and, through the Baltic that’s basically closed off. And the other route, of course, was the old Soviet pipeline route through the Ukraine. So, if you’re not getting Russian gas, where are you getting your gas from if you’re Europe? And the answer is not Australia because it’s so far away. And most of Australian gas is on forward contracts, long term contracts. So, you’ve got the choice of US Gas or Qatari gas at the moment. And of course, Norwegian gas, which is pretty much at capacity. So, everyone’s scrambling to find gas. Great, if you’re a supplier. Not so great, if you’re a consumer. |
| DT: | And I suppose that might in part explain the resurgence in coal in Australia’s energy mix. |
| TSH: 8:00 | Yes. Australia is the most complex and I’ve written some papers and done some research on this, Australia is the most complex energy country in the world. That sounds really strange given we’ve got this abundance. But we wrote a paper, my colleague and I, called the Paradox of Plenty, and what we talked about is this idea: on our West coast, we’ve got heaps of gas, and on our East coast we’ve got a shortage of gas. Now, our generation at the moment, as you quite rightly pointed out, is 54% coal, but we’ve also got about another 25-30% is gas. So, altogether our generation is, by and large, more than three quarters fossil fuels. Now, we need to supply that, but we’ve also got these rapid closing down of generation facilities. So, at the moment we are dependent on fossil fuels and if we can’t get gas, we’re going to have to use coal, the dirtiest of them all. |
| DT: 9:00 | And that dependence on fossil fuels, I mean, it sounds like a lot of this is driven by some pretty restrictive market conditions at the moment whether in Europe or here in Australia. To what extent can lawmakers and policy makers really move the needle, change policy settings, in this area to change the way our generation mix is made up? |
| TSH:
10:00 | That’s a really interesting question and the answer is actually not simple. So, one of the complex things that we have here in Australia is this sort of differencing of views and this tyranny of distance, and you put those together and it creates this really difficult environment. Let me explain. So, we’ve got a Labor federal government, but not Labor in all of the states. Okay. But where you do have Labor federal government and state government, you’re seeing some real alignment. Look at Queensland. And maybe we’ll get a chance to talk about Queensland later. The states are trying, but there’s no driving force, or hasn’t been up until now at federal level, really. That’s very different to somewhere like the EU, which acts very similar to Australia. And of course, constitutionally, the Federal Government can’t actually just drive everything. Yeah, sure they can drive the National Electricity Market, but that generation belongs to the states. And don’t forget that our National Electricity Market and our national infrastructure, which is only confined to the east coast four states, is very much designed to take this centralised generation from coal and gas fired assets. So, you start putting into the mix renewables and you leave yourself open to some conditions that are very similar to the blackout that occurred in South Australia in 2016. And we know we’ve got to redesign the NEM and there’s been some reports, the ISP 2022 report and a few things like that, that talk about what’s the best way to get there. But getting there is going to be painful and we have to really work hard at it. And I think this is our most dangerous period now. |
| DT: 11:00 | I suppose the uncomfortable truth of that energy transition is that it comes at a cost, doesn’t it? |
| TSH: | Yes, and not only a cost in terms of different types of generation, but also a cost of trying to actually fund all of this. But there are some players that are going to be some winners and there are some players that are going to be some losers. And it’s shifting the whole dynamic away from the fossil fuel, big mining, intensive to sort of smaller players. We’re going to depend more and more on our farmland to put solar panels and to put wind turbines and these sorts of things. That’s going to then impact agricultural land. There’s a greater impact on our indigenous peoples and our First Nations. And our native title system is really not set up so well for when we’re not sort of ripping and reaping and there’s an obvious financial gain to be had for each of the parties. So, there’s a lot of things at play. |
| DT: 12:00 | It’s certainly not a simple answer and it sounds like there are a great many policy settings outside of the immediate sphere of energy law that really need to be adjusted to make way for that renewable energy transition. |
| TSH:
13:00
14:00
15:00 | Yes, sometimes it’s as fundamental as things like competition law. We saw, a few years ago, a case in the Federal Court in relation to access to railways. Now, of course, that was about iron ore, but the point remains about third-party access to facilities. TIP: The case that Tina just mentioned has a long procedural history. Fortescue Metals Group Ltd and certain of its subsidiaries (which together we will call Fortescue) sought to have private railway lines belonging to BHP and Rio Tinto and their subsidiaries declared under the national access regime to enable it to run its own iron ore freight shipments on the rail lines. Fortescue argued that the rail lines were the only “viable means of transporting iron ore for most junior miners in the Pilbara”. Many smaller miners could not afford to build necessary rail lines and, even if they could, it was argued that to do so would be wasteful. BHP and Rio Tinto argued that “the way they use rail as part of an integrated mine-rail-port production system requires absolute flexibility and exclusive use of the line”. While it was in the Trade Practices Act then, the national access regime can currently be found Part IIIA of the Competition and Consumer Act 2010 (Cth). The part sets out the pathways parties can use to gain a legally enforceable right to access services, in this case, the private rail lines. The ACCC notes of the regime that: the national access regime is limited to the services of nationally significant infrastructure facilities where: ● It’s not economic to develop another facility to provide the service. ● Access would promote competition in the market. After the relevant decisions by the Minister in respect of each of the lines, the Australian Competition Tribunal was variously engaged by each of the parties to review the decisions. That Tribunal accepted that for many miners, rail may be the only viable, or at least the most cost effective, means of transporting iron ore and that it was “very capital-intensive to build a railway’”. They also accepted that the operating companies required significant flexibility in using their lines, because they operate on a “run when ready” rather than a scheduled basis. What followed the Tribunal’s decision was years of complex and expensive litigation – which, in the result, ended up in the High Court with Fortescue losing out on use of the rail line which it most wanted access to. For Fortescue, the commercial result of its legal failure was that it constructed its own railway line in the Pilbara – extending from Port Hedland through to its Cloudbreak mine – at a cost of $2.5 billion. If you happen to look at a map of railways in the Pilbara, the Fortescue Railway runs parallel to the Goldsworthy and Mt Newman rail lines owned by Rio and BHP. Subsequently these were joined by another parallel railway, the Roy Hill Railway owned by Hancock Prospecting. As Tina will touch on in a moment, this situation can be quite different in other comparable jurisdictions… Other jurisdictions, places like Norway, places like Europe, you have forced access. Everyone gets paid and everyone benefits, but nobody is restricted from using a pipeline or something. |
| DT: | We’re talking about monopoly infrastructure here, things like private rail lines through Queensland. |
| TSH:
16:00 | Absolutely, and while you’ve got the capacity to control your private railway or non-sharing, then these sorts of things will continue. And one of the observations that I’ve made is that, oil and gas and coal is very much premised on the idea of the market. That we just let the market grow up and the market control the conditions. And we saw that when we were developing coal seam gas in Queensland in the 2000s. What we see with renewable energy, and the shift to the energy that is low carbon, is that there’s a large role for the state. Not the state as in, each of our states, but the state as in the government. The government needs to play a coordinating role in a way that you didn’t need in fossil fuels. |
| DT: | And why is that? Why was that coordinating role not needed in the fossil fuel market but is so critical to the renewables market. |
| TSH:
17:00 | Because in fossil fuel, everything was premised on this idea of “we produce and then it all flows into the area that’s used.” So, it’s a centralised system, and it’s an integrated system. And that’s the fundamental way we’ve always done things. We produce electricity, it’s transmitted to a certain place, it’s then distributed, and it comes from five or six big generation centres. Of course, renewables is different. It’s generated everywhere, and it’s decentralised. Now, without coordination – somebody’s got to coordinate that – without coordination, how are we going to get that into the right places at the right times? Hence the reason we need this sort of NEM 2.0 because the NEM was set up, the National Electricity Market was set up and its market rules were set up for this centralised system. One of the things that ARENA’s working on and AEMO, the market operator, and all of the things to do with the National Electricity Market is that they’re trying to work out how to set up a system that takes a look out all of these decentralised and how we coordinate all of that to be able to get a efficient market. |
| DT: 18:00 | And that makes a lot of sense because in the fossil fuel market, each individual sort of step in that value chain is connected by a single large enterprise. We have a coal mine operated by a large player. We have all of the transport infrastructure provided by another single private enterprise to provide that to a generator. And then that’s distributed through our distribution networks. Whereas with renewables, we’re talking about rooftop solar. We’re talking about solar and wind turbines in paddocks. |
| TSH: | That’s right, and they can be anywhere from, the north in Innisfail down to Tasmania. That’s all part of the same National Electricity Market. And so we’ve got to be able to sort of get all these and get them together and dispatch them. And one of the interesting issues is, of course, when we talk about dispatch is that there is a lot of fluctuation in the megahertz of the renewables. So, renewables don’t produce electricity at the same frequency. If you get electricity from coal or gas coming out of a generation facility, it comes out at a certain, say it’s 50 Mhz, it’s always at 50 Mhz. |
| DT: | Stable generation. |
| TSH: 19:00 | Very stable. Of course, the wind doesn’t blow stably, we don’t produce electricity stably. So that’s all got to be sort of modulated. We need other forms of energy storage, and that’s why we’re having this discussion as well on energy storage. We talk about batteries, but batteries are not always batteries that we know it. You’re going to be hearing batteries and then Snowy Hydroelectric Scheme in the same sentence. And some of your listeners might be going, “I’m sorry, how does that work?” But we use water as a battery in order to be able to provide that gap in the electricity – in the frequency – to be able to make it all nice and even, and also to fill in when the wind’s not blowing and the sun’s not shining. So, we need all of this battery or energy storage, which was originally when we first produced electricity, was sitting there in the lumps of coal and the gas in the pipeline. But if we take them out, we need some sort of backup. |
| DT: 20:00 | Now, I’m going to put you on the spot a little bit, but we were talking about this just before we started recording, and it’s something that I don’t know very much about but find very interesting is nuclear power as that intermediary or transitive step between renewables and fossil fuels. It’s a low carbon highly stable source of generation. We mentioned just before the show that nuclear power generation facilities in Europe are their closure is being delayed or they’re being returned to active use. I remember hearing recently that nuclear power has the lowest injury and casualty rate of all forms of generation, lower than wind, lower than solar. And here in Australia we export uranium. Is nuclear power a possible source of generation for the Australian market? |
| TSH: 21:00 | That’s a very interesting question, and I have a confession to make, in that I have sat on the fence for a long time about whether we need nuclear or whether nuclear should actually be employed. But if we looked at our past, and we look at the accidents we’ve had, the Three Mile Islands, that was a bit of a regulatory/technology thing, I think we can put that one to bed. |
| DT: | It’s sort of the same dosage of radiation as a dental X-ray, wasn’t it? |
| TSH:
22:00 | Yeah, something like that. And then if we look at Chernobyl yeah, it’s just, the Soviet system gone bad. I probably won’t give my 2 cents worth on that, their third gen reactors, bad technology – that’s not going to happen again. And then if we look at Fukushima, it was a problem with the cooling. Okay. If that cooling hadn’t been knocked out, we wouldn’t have had a problem. So, where does that leave us? It leaves us with; nuclear would be safe if we used good technology and cooling was not threatened. So, the good news is that we have these small modular reactors, a bit like what you would call Lego reactors. And they can sort of, be used, their cooling system is sort of in situ they don’t rely on outside, and they can be used to generate. They’re cheaper. They’re not cheap, but they’re cheaper. And I think they have a place. They have a place if you need baseload power, they have a place in the transition. I think if Australia cannot get a decentralised system up and running, we’re going to have to go to nuclear. And Ziggy Switkowski would be quite happy about that. I think, in Europe it’s absolutely necessary to collect the nuclear assets going, and in fact, Germany has just said that. And the biggest shock of all I think is Greta Thunberg, the young climate activist, who came out earlier this week and actually said, there is a place for nuclear in the energy transition. Because we’ve got to go back to why are we having this energy transition? Are we doing this because we’re bored and we’ve got nothing better to do? No, we’re doing this because if we keep burning fossil fuels: A) we’re going to run out, eventually, long way away. But more importantly, we’re all going to overheat and we’re basically going to destroy the planet. So, that brings us back to the helicopter, that risk analysis. |
| DT: | And harm reduction. |
| TSH: 23:00
24:00 | And harm reduction. And the big thing about risk, or our entire safety system, which actually came from the nuclear industry. Our safety system in petroleum is this, let’s reduce the risk to as low as reasonably practicable, the concept of ALARP in the safety case. And how do we do that? We do that by assessing the risk. What is the risk? So, we identify the risk, then we mitigate the risk to reduce the risk to as low as reasonably practicable. That came from the nuclear industry. We use it in petroleum. If I had my way, we’d use offshore wind as well. Some more areas of research but hasn’t been included in the new Offshore Electricity Infrastructure Act for a whole range of reasons. But what we are seeing is that there is a way that you can do this and do it very safely. Now, the risk of a nuclear accident and the harm from that, versus the harm coming from climate change is very similar to if you jump out of a helicopter, you are going to do something to your legs, but you’ll be fine in the long run. Versus if you stay in the helicopter, there’s a good chance you’re going to be dead at the bottom of the North Sea. For what it’s worth, I completely ruptured my anterior collateral ligament, but, as you can see, I’m walking today. It did take seven months, but I’m walking, so I’d rather that than being dead forever. |
| DT: | I’m glad we came back to that story as a very apt analogy. I thought that was quite illustrative. Thank you. |
| TSH: | Let’s go to the Russian Arctic just for a moment. |
| DT: | Sure. |
| TSH:
25:00 | So, as everybody knows, Russia’s trying to develop all of their oil and gas in the north, and part of their strategy for the north is also to get lots of communities. Communities need power, and of course communities need power both to establish new communities and to grow. So, Russia has deployed a whole ship that’s got these LEGO nuclear reactors on them and they go and provide electricity in establishing or building up Arctic communities. And Rosatom, who arguably is probably one of the best atomic agencies in the world, the Russian state, and again we need the state to, to push this along. Rosatom has really made great strides in this area. But that’s how they’re developing their north, is with nuclear power because renewables don’t work. We know that black carbon comes from the use of diesel generators, which accelerates the melting of the ice and snow up there. So nuclear is perfect for that. |
| DT: | And now we’ve talked a bit earlier in the episode about how our federal system means that the approach to electricity generation policy in Australia really varies between the states and varies depending on the government of the day in those states and why that makes Australia quite a good analogy or vice versa for the European Union as a kind of federation of energy dependent states. In Australia though, which state would you say is leading the pack in decarbonising its electricity generation? |
| TSH: 26:00
27:00 | My gosh. If we had done this interview, when we first talked, a month ago, I would’ve said everyone but Queensland. But of course, Queensland in the last week or two has come out with this extraordinary plan to decarbonise. And in fact, I was speaking to some high up people in the Queensland government yesterday, and Queensland’s plans are nothing short of amazing. TIP: In September this year, the Premier of Queensland announced the state would be converting its coal-fired power plants to renewable hubs by 2035 under a $62 billion clean energy plan. Under the plan, Queensland would source 70% of its energy needs from renewables by 2032 and 80% by 2035. This idea of having really good batteries through the use of what we call pumped hydro energy storage. And that is basically they’re going to use old pits from mining, one at a higher elevation, one at a lower elevation. You drop the water, create hydroelectricity, the water collects in the lower pool, and then when there’s abundant amounts of energy, so when the sun’s shining and the wind’s blowing, you pump it back up when it’s cheap and it’s a closed loop. |
| DT: | Right. |
| TSH:
28:00 | Aside from evaporation. Brilliant idea. And we’re doing that, the Snowy Hydro 2.0, Tasmania is doing that with their Battery of the Nation. And these are certainly helping, but you’ve got to remember that you’ve got to build infrastructure on top of that. These transmission lines. So, we’re going to have centralised as well as decentralised, but they’ve got plans in terms of, all of their increased solar, increased wind, all of these things which are tried and true technologies. But Queensland’s a big state, and so what you’ve got then is the cost of transmission, which is quite expensive. These facilities themselves, so solar farms, wind farms are relatively cheap forms of energy, but we’re going to have to build transmission from places where we haven’t transmitted before. Coming back to that centralised versus decentralised. |
| DT: | Yeah. |
| TSH:
29:00
30:00 | So, is solar and wind cheaper. Yes, until you start factoring in your transmission. TIP: If you want to follow the latest data on the costs of various types of energy generation, a good source to start with is the CSIRO’s series of GenCost Reports – the latest of which is its 2021/2022 report. It provides multiple different scenarios for various technologies and the costs associated with each generation type in those scenarios. The generation type with consistently high costs across GenCost reports is nuclear, which is unsurprising given Australia’s immature nuclear industry. The other great players are, of course, South Australia’s always been a leader. Victoria is looking offshore, so getting their wind farms, which has always been quite controversial because it’s a bit of a crowded state. They’re getting them all offshore. I think that’s going to be great. The Offshore Energy Infrastructure Act needs a bit of tinkering. A lot of the safety stuff is not so good. There’s been a lot of controversy about that. New South Wales has got great plans. They’ve got their sort of decarbonisation plan and Macquarie Uni was part of a bid to apply for some funding, and we’ve got a lot of research going. We’ve got hydrogen on the agenda in New South Wales. Probably the losers and not that they’re losers, but the less likely is the Territory. And the reason for that is the Territory’s still very much wet on gas. They’re developing a lot of fields offshore. They’ve just announced this week the big infrastructure funding, $2.5 billion to the Territory to develop the Middle Arm Precinct, which is all about gas processing. And that is going to be very interesting, but probably necessary because we need that gas and they can get it to the East coast electricity market. So, in the short term you can understand why they would do that, but in terms of renewables, the Territory has got Sun Cable, but that’s going to be exported to Singapore. So, it’s not going to be contributed into the national. And that’s because we don’t have a national grid. Our National Electricity Market is only South Australia, Tasmania, Queensland, and New South Wales. Western Australia has their own and they’re developing theirs very nicely. And the Northern Territory just uses some gas from Blacktip to make electricity for the 200,000 people that live there in an area twice the size of France. The Territory are probably the lone stragglers. And every other state to a greater or lesser degree is really moving along. Having a Commonwealth government that has a good focus on energy does help enormously. |
| DT: | To what extent – let’s not use the term winners and losers – let’s use the term leaders and laggards… |
| TSH: | Okay, that’s a good idea. |
| DT: 31:00 | … to what extent are the leaders relying on infrastructure investment in the state budget or in the Commonwealth budget on the one hand. And to what extent are they relying on regulatory change, like tax incentives for renewables on the other? Because it sounds like if we look at that Queensland example, that sounds like a real infrastructure spending heavy plan to switch to renewables. |
| TSH:
32:00
33:00 | Yeah. Yes, you’re right. And this is the interesting thing, 10-15 years ago when Queensland was faced with this development of coal seam gas it was, “we’re not getting involved in the infrastructure” and then suddenly the state, the government, is heavily involved in infrastructure. And this goes to what I was saying before, you’re not going to be able to do the transition without a high level of state participation. There’s these theories about participation, levels of participation. There’s sort of like minimal participation, which is what Australia does in our petroleum. It’s like we make the laws, we set it and we forget it. And there’s like regulatory participation, which is like, we heavily make the laws. We really control things and we make sure it works for us. Whereas minimal is more about, let the market win. And then there’s participatory intervention. Now, if we talk about petroleum, We’re talking about here, like Norway with their oil company and all of this. But we are doing that here in Australia. Snowy Hydro 2.0 is owned by the federal government. So, the state’s intervention is participatory, in this instance. This is something we haven’t seen in Australia for 70 years, 80 years. Probably the last time was, you know, we started thinking about getting rid of this in the 80s under Hawke and then under Keating. Swings and roundabouts, where the pendulum is swinging. It went from state intervention to the market and in order to affect the energy transition. There is a consensus, although we don’t talk about it, but there is largely a consensus by the actions of all of our governments that says the state has to intervene again. And this is where we are at. We have come full circle, and this is actually a very good thing for Australia because if you remember when I talked about this in the introduction, I talked about the loss of manufacturing. And of course, now we’ve got this manufacturing resurgence. And why have we got it? Because the government is intervening. So, intervention is the way that we put ourselves back on the path, and that’s because of COVID. COVID has taught us that without some sort of intervention, we are probably not going to get to where we need to be. And this is the irony, markets are great until markets either fail or are inadequate and then the state must step in. |
| DT: | Speaking of that market focused approach, the last time we spoke about energy law and policy on the show we spoke a fair bit about the tax incentives for renewable generation and the effect that was having on the price for carbon intensive energy generation. Are those tax incentives still front and centre for energy policy, or have those sort of, fallen by the wayside? |
| TSH: 34:00
35:00
36:00 | I think energy policy is now moving towards this thing called ACCUs, Australian Carbon Credit Units, which is really about, rather than getting a tax incentive to go and build it, it’s now about, because we are in this energy transition about reducing and this is really linked to the Climate Change Act. It’s about now net zero. So, net zero doesn’t mean we’re all going to go out and not produce any carbon. It means, in the end, carbon will be produced and carbon will be taken out, and in the end it’s got an equal naught. And one of the biggest tools, the tool, that the Commonwealth has is this ACCUs – Australian Carbon Credit Units. And the idea is for every ton of carbon you remove from the environment, you get one ACCU, and so the shift is towards removing carbon. So, a new wind project won’t necessarily won’t generate an ACCU because it’s about removing carbon from now. So, to give you an example, things like savanna lands, if you leave savanna lands in Northern Australian scrub and you generate certain carbon use. They’re called methods. They’re all different methods. Things like intertidal zones. So, if you can have a project that allows an intertidal zone to become intertidal again, so you might have blocked off the mangroves, but now you let the mangroves be free again, you can get ACCUs. If you are developing a gas field and you store the carbon, you take the carbon out, the CO2 out, and you store it in carbon capture and storage, you get an ACCU. And of course, that’s what they used on Barrow Island for the Gorgon Project. So, this is the new way, because it’s now shifted from the technology to develop what we would now call mainstream technologies, wind and solar to now getting the carbon out of the environment and incentivising that. We don’t have a carbon market yet, an ACCU market, but we will. There are great hopes to do that. And some of the methods need refining, so there’s quite a few gaps in them, but there’s an inquiry into that. It’s looking good. |
| DT: | And really focused around that net zero goal. |
| TSH:
37:00 | Very much and if I may venture into that net zero goal. It’s my view that we cannot actually achieve that without carbon capture and storage in this country. But I have good news, and this is the geologist side of me, and that is Australia’s got awesome geology, some of the best in the world for capturing carbon and for sequestering carbon underground. To sequester carbon underground, you really need old, stable, geology that’s got lots of nice layers and lots of nice caps. And we have that. So, the closer you get to Central Australia, the better it is. So, there’s some basins in the Northern Territory – one’s called the Pedirka. Then there’s Cooper-Eromanga, which is where we get our gas from the Moomba gas field. Santos has now got a new project where they’re actually putting carbon into the ground. So, the idea is to make carbon capture an exceptionally good tool for taking carbon out of the environment and helping us achieve net zero. |
| DT: | Now, we’ve been alluding to this throughout the episode. Let’s talk now about the suspension of the National Electricity Market earlier this year in June which was effectively a market failure. It was a suspension of the spot market. It was no longer possible for the spot market to operate while ensuring supply. Tell us a little bit about AEMO, the Australian Energy Market Operator and its powers to suspend the market and how they were exercised in this case. |
| TSH:
38:00
39:00 | So, AEMO has this ability, or this right, to regulate the market. The rules for electricity into the National Electricity Market and how it’s dispatched and how it’s received from the producers and taken by the consumers under the AEMO rules and those rules, which is part of the National Electricity (South Australia) Act. It’s one of just one of the schedules in there. And what it does is it says, what are the obligations and what are the rights and abilities of AEMO. And effectively, AEMO has one job and that’s make sure that we have electricity. It’s not hard, you would think. But their job actually relies on all of the generators, dispatching electricity into the market so that they can then apply the rules to send it out to the people who are going to use it. It’s essentially electricity in, electricity out. The generators make enough electricity to send it to the consumers. Now, how much electricity you generate depends on how much is needed and also how many people are making electricity. Now, at the time when we had that market go down, we had a problem. It got really cold, uncharacteristically cold very quickly, and we had a number of unplanned outages and AEMO was unable to guarantee supply, and so they had to effectively suspend the market in order to ensure that there was electricity. But here’s the kicker. Normally, when we have the market operating, the price of electricity is anywhere between a $1,000 and $15,000 per megawatt hour. And so, our generators bid into the system, and of course, the more demand there is for electricity, the higher the price. TIP: If you’re interested in the structure of the NEM, the jurisdictions involved, and the structure and powers of AEMO, or just generally interested in the future of renewable energy, check out episode 33: A shock to the system: How renewables are changing the energy regulation landscape with Catriona Webster. |
| DT: | And these prices are bid on an almost minute by minute basis. |
| TSH: 40:00 | So, you have 30 minute intervals and five minute spot prices. So yes, but when we had all these outages and unprecedented demand. We found we didn’t have enough generators to put into the system, and so therefore, we couldn’t guarantee that we were going to get electricity. So, the market was suspended under the National Electricity (South Australia) Act, the AEMO rules in that act. And here’s the kicker when as soon as you suspend the market, the price of generation is $300. |
| DT: | Wow. So, $300, that’s actually quite low compared to the normal market floor of a $1,000 per megawatt hour. |
| TSH: | Yeah, and not only is it lower than the market floor, but it’s actually lower than the cost of generation. |
| DT: | It’s, on a per unit basis, loss making for the generators. |
| TSH: | Yes, and they will get compensated. But at the time, when the decision was made to suspend the market, they were essentially producing electricity at a loss. |
| DT: | Yeah. Wow. |
| TSH: | And so, for them it’s like, I’m not going to put any electricity into the market. So, it actually made it worse. |
| DT: 41:00 | So, I imagine you still have some generation, even in that environment because the alternative is to just have an asset sitting there producing nothing at all. But what was the consequence of fixing the price of supply at that incredibly low price because this lasted about nine days. |
| TSH:
42:00 | Yes, it did. By going into this emergency provision essentially what happened was we actually got less generation. I can remember the first night that they did this. It’s another story. My husband’s not traditionally from Australia. He’s from another area of the world. And I’m going around, turning off all the electricity, of things that we weren’t using. He’s like, “what are you doing?” “Turning the electricity off because the government asked us to.” He’s like, “that’s like something in a third world country.” I’m like, “no, this is because we don’t have any generation“. He’s like, “why not? I thought they suspended the market, so it’d be okay.” I’m like, “yes but in doing so, market generators decided not to generate and go into the market because it wasn’t worth their effort” and I think that epitomises it all. Is that because it wasn’t worth their effort and they weren’t compelled, then they didn’t contribute electricity into the market and they couldn’t bid for prices to make a profit. So, their point was, “why bother?” And this is why we need changes to the NEM, the National Electricity Market. |
| DT:
43:00 | Now, I can imagine in the long term as we move towards that more diffuse distributed generation profile from renewables where we are distributing all over the country, as you described earlier, that we experience these sorts of suspensions less. But as we transition to that profile of electricity generation, do you predict that we’ll see more events like this where the National Electricity Market and its design, the design that’s really been built for a small number of very large generators. Do you think we’ll see more events like this as we make that uncomfortable transition? |
| TSH:
44:00
45:00
46:00 | I think we have the potential. What is going to really govern whether that happens or not is how we manage the transition from this really centralised system to decentralised. And we’ve got some examples to follow. People might remember in 2021 when there was a terribly cold winter in Texas and then Texas lost electricity. It was a very similar circumstance. What’s happened was, they didn’t have the gas generation, they relied on the wind because Texas actually has a lot of wind generation and that was a dispatch problem. ERCOT is the dispatcher. So, they say, “oh, we’ve got this coming in, we’ll send it out to here” but that kind of got all messed up. And because the dispatch wasn’t working and they didn’t have some of their big generators, they effectively lost power. And because of that, we have a view of to what it could be like – and that’s something we need to avoid for obvious reasons. The good news is that the person in charge of AEMO is actually an American who I think is looking to avoid that ever happening and has experience of that. And so what we need to see is a rethinking. Now, there has been some commentary that says while we’re looking for the perfect market for the National Electricity Market, that we are going to miss an opportunity to create an effective system. So, then this raises a question, and I don’t have an answer for this, is the market system the most effective system and what changes can we bring in? Now, there’s things like you can have a reserve capacity market, which is, you’ve always got this baseline generation. And that would be, having your nuclear to have a baseline. ARENA’s ideas that we don’t have a baseline, that we have all these just renewable generating assets and then we use battery storage. I think I’m a Luddite. I’m not sure that’s going to work, but maybe that’s just because I’m just tuned to this idea of big generators and the old system, if you like. But to be fair, I also travel a lot and see a lot, and perhaps the most advanced is the European Union. And of course, this week they’ve put out things like, how to get emergency supplies of gas, how to make sure that we can transport it. Really going back to this reliance on the centralised system. So, this raises the question that you really led with: was that, are we going to have more of these events? And the answer is, I don’t know, but if we do, what is going to be our reaction? What are we going to do about it? Are we going to do like the EU is doing at the moment, going back to the old system, or let’s just make sure we can guarantee gas and all of this, or are we going to go to hydrogen? There’s lots of debate about hydrogen. Saul Griffith says, don’t pin your hopes on that. Whereas ARENA and others are saying Australia’s going to be a hydrogen superpower or ammonia that’s made from hydrogen. And look at what Fortescue Future Industries are doing. They’re saying essentially that green hydrogen is the way of the country. The answer is probably much more complicated than that, but I think a decision has to be made. Are we going to go for centralised or this decentralised? And then we have to commit. And if there’s one thing that Australian governments don’t do well is, certainly at federal level, is commit. |
| DT:
47:00 | And it sounds almost to me a bit like an energy market version of Maslow’s hierarchy of needs. When you have a generation in abundance and generation assets in abundance, you think about things like competitive markets for energy and finding the best spot price in a five-minute window. But when generation assets are running at lower-than-expected capacity when they’re being retired, when renewable generation assets aren’t performing at the level they need to be. When there’s scarcity, we start returning to more baseline needs, like ensuring supply for the critical uses of electricity that we see in our communities. |
| TSH:
48:00
49:00 | Exactly, and think about those businesses that rely on electricity. When we closed down the market in June, there was some huge impacts on some manufacturing. They had to close because they couldn’t get enough electricity. Heavy users – things like aluminium making. These things are very energy intensive. So, on one hand we’re saying we want to rebuild our manufacturing, and on the other hand we’re saying we’re also redesigning our energy system, and we’re not sure that we can guarantee this abundance. But we have to guarantee this abundance because otherwise we have to keep suspending the market. So, we’ve got a long – an interesting – road ahead of us. We need to make some decisions. One of the things we certainly have made very clear is that it’s going to be technology driven. The very famous Scott Morrison quote, I think is quite apt here, and it’s “technology, not taxes“, which also answers your question from earlier in this session. Technology, not taxes. We said that at the press club at the beginning of 2021. And that’s our way forward, in net zero. And for me, I think that’s very practical because I think technological development is the way that we can respond. The question is, will it be fast enough? How will it be deployed? How will it be organised? And that’s going to be down to the regulation and the regulatory framework about how we integrate all of this and how this is all worked in a way that may not necessarily rely just on the market, but we get together a system that works most effectively for our unique situation in Australia. |
| DT: | Difficult questions to answer, but ones that we all have an interest in the answer to. We’re nearly out of time, but before we go, I wanted to ask you if any of our listeners, whether they’re lawyers or law students, wanted to know more about energy and resources law, is there any further reading you could recommend to them? |
| TSH:
50:00 | That’s interesting. So, I think, Ross Garnaut’s series of books. He’s just got a new one out called Superpower Transformed. So, he did one, two years ago, Superpower. Now, it’s Superpower Transformed. I think Ross Garnaut has some very good ideas. Anything by Alan Finkel, who was the former chief scientist is fabulous. But funnily enough, the most important thing is to understand the history of deregulation in Australia and deregulation in general. And I’m going to leave you with the best book that you could possibly read, and it’s book by Daniel Yergin who wrote The Prize, which is the most famous book on petroleum. And he’s a very famous political scientist. Him and a guy called Joseph Stanislaw wrote a book called Commanding Heights, and that book talks about there are some parts of the economy that are so critical that should never be privatised and energy and water, but energy we’re talking about here is one of them. It’s from the eighties, but hindsight, 2020 hindsight is a wonderful vision, and I think it’s a book that everybody should read. |
| DT: | Great recommendation. Professor Tina Soliman Hunter, thanks so much for joining me today on Hearsay. |
| TSH: | Thank you for having me. |
| Ross Davis:
51:00 | As always, you’ve been listening to Hearsay the Legal Podcast. I’d like to thank our guest today, Tina Soliman Hunter from Macquarie University, for coming on the show. If you enjoyed today’s episode and are looking for more information about the environment or renewables, then check out episodes 33 and 56 with Catriona Webster and Annika Reynolds. If you’re an Australian legal practitioner, you can claim one Continuing Professional Development point for listening to this episode. Now, whether an activity entitles you to claim a CPD unit is, as you well know, self assessed, but we suggest this episode entitles you to claim a substantive law point. More information on claiming and tracking your points on Hearsay can be found on our website. Hearsay the Legal Podcast is brought to you by Lext Australia, a legal innovation company that’s out to change how you experience the law and legal services, and that includes CPD. I’d like to ask you a favour before we go. If you like Hearsay the Legal Podcast, please leave us a Google review. It helps other listeners find us and that keeps us creating your favourite content. Thanks for listening and weI’ll see you on the next episode of Hearsay. |
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