Energy prices

Energy prices

In the mid-1990’s energy prices in Australia were some of the lowest in the OECD.

I distinctly remember the politicians of the day boasting about how good this was for industry and business and I have to say I bought the argument. Utilities that people have to have should be affordable. The marketing men can persuade me that a Mercedes is so much better than a Hyundai and well worth the price tag because it is a discretionary spend on my part, but water, power and waste removal I must have or we are back in the dark ages.

Twenty years later, the current government has announced a new energy policy that they claim will save the average family $100 a year on their energy bill. This new policy is supposedly a response to the problem that domestic energy prices have risen by 67% in the last decade, and with supply shortages forecast regularly, the medium term economics suggest this annual rate of increase will persist. Energy costs in Australia are now at the top end of the OECD ranks.


Australia is also going to struggle to meet emission reduction targets it promised in Paris in part because this cost pressure from energy has become an excuse not to focus on renewables and to continue with power generation with a heavy emission profile.

Oops again.

Lots of rant and rave opportunities here, classic Muppetville. The one I want to unpack is that cost saving, $100 a year for the average family.

Median annual income in Australia is around $81,000 and has been increasing steadily at around 3.5% more than doubling since 1990’s when energy was cheap.

An income of roughly $220 per day is right up there with the highest in the world. Savings on the energy bill proposed by the government is 27c per day, not even the price of a coffee and cookie in a month.

The average household energy bill, on the other hand, is around $4.20 per day and currently increasing at close to 7% or roughly 29c per day.

Phew, that’s a relief. The government policy is going to save the average household most of the money they would have to spend to on the price rises. Superb.

Should average annual income continue to rise at 3.5% the 29c cost saving on energy is further compensated by an additional $7.70 per day in extra income.

This explains why economic growth is so important to governments. Despite inevitable difficulty around the margins, on average it puts money in voters pockets.

It also makes that first ‘oops’ identified earlier a huge blunder.

Energy is literally the engine of economies so to let its costs spiral and allow the security of supply to lapse is stupid however you spin it.

A post revisited — Investment in energy research

A post revisited — Investment in energy research

This post on the remarkable level of investment in energy R&D in the US was written in September 2011. It is not my intent in these retrospectives to play the ‘I told you so’ card but given the egg on the faces of the current and recent Australian governments over energy security, it is pretty hard not to.

Did politicians really think that we have coal, oil and gas and so the job was done?

Emission notwithstanding, did they just sit back and let the end of life for major coal-fired power stations be someone else’ problem?

Well in Australia they did. In America too I suspect. Trump is not pulling the Paris pin because he is a climate sceptic, he’s keeping coal going so that, at least on his watch, the lights stay on across America. Nothing will kill your voter base faster than blackouts attributed to poor planning.

So here is what Alloporus thought in 2011 about energy R&D…

Investment in energy research

In the US Federal research funding into energy is $3 billion. This figure includes investment into oil, coal and gas as well as solar and other alternative energies.

Then there is a further $5 billion invested by the private sector for a total of $8 billion in an industry worth $1 trillion a year; making investment in R&D only 0.8% of revenues.

Apparently $8 billion pays for about 9 days of military involvement in Iraq – pretty scary and perhaps something they might look at when considering reducing budget deficit, but I digress.

The point here is that 0.8% is woeful. Any company that spent less than 1% of revenue on R&D would not last long. Given that energy is so critical to economic performance and given that we have reached peak oil and will eventually run out of coal and gas too, 0.8% seems irresponsible.

And then there is a huge global movement that believes we must tackle climate change by reducing emissions from greenhouse gases.

What should the investment be? In successful economies upwards of 3% of GDP is allocated to R&D, which is roughly $430 billion. This amount must cover many sectors but energy security should be worth at least 5% of the available budget or an order of magnitude more than the current allocation.

We are kidding ourselves if we think that energy security can be achieved when we invest peanuts.

There is money to be made from energy. There always has been. I bet that the first hunter-gatherers who figured out through trial and error how to transport fire with them as they wandered were revered and feared. The thinking and testing that went into creating and catching a spark to start fires was, well, gold to the people who mastered it.

The smart individuals who put a wheel into running water or threw a lump of coal onto the campfire might also have made a relative bob or two.

So it’s not about the returns. It is that it is future money. The power stations cornered the market for a period long enough to scorch the space for new investment. If end of life is 30 or 50 years away there is no market for anything else until then. There is no need to look forward as energy is secure.

This lack of foresight might just be our undoing.

Is the world changing?

Is the world changing?

Love him or loath him, infamous climate scientist Dr Michael Mann recently made an important point about Donald Trump’s rhetoric on bringing manufacturing industry back to make the US great again.

On the America Adapts podcast Mann suggests that to achieve such a goal, manufacturing in the US must embrace the energy revolution. Implying factories running on fossil fuel energy will not be competitive in a global market.

The only way a fossil fuel based industry would be competitive is if there were trade restrictions and tariffs to keep them competitive. This makes Trump’s anti-trade agreement gambit a typical business bully approach to finding a competitive edge that, in this case, US manufacturers would not have.

The evidence is that the energy revolution is well advanced. All over the world technologies are maturing rapidly to deliver distributed clean energy. It is realistic to believe the many mayors and governors that claim carbon neutrality for their towns and jurisdictions when their constituents are all up for a Tesla wall.

Today’s first graders, who will consume a fair amount of electricity in their lifetimes, may not know or care, but most of that energy will not come from a coal-fired power station.

This change from fossil fuel to alternative energy and the accompanying shift from centralised to distributed generation is exactly the one that was needed to tackle the climate issues Michael Mann is so passionate about. Only it is happening because it makes economic sense and not because of a limp international agreement made in a Japanese city or from late night breakthroughs in Paris.

Let’s not kid ourselves. The change is happening certainly. Only it is happening because the technology is becoming commercially competitive. So competitive in fact, that a US president is elected on the back of rhetoric to prop up his countries uncompetitive energy system and hold on to the past.

Does all this mean that the world is changing? Not really. Those first graders, who will spend more of their lives looking at a screen than the trees, may notice more wind farms and will drive an electric car they plug into ports on the street to share the energy captured from the roof at home. But they will also be fiercely competitive and, just like their parents and grand pappy, rely on markets to deliver their lifestyle.

They will work, eat, sleep, and procreate with their mobile device never more than an arm’s length away. They will earn money and use it to pay for their data plans. Not much will be different…

Unless, just maybe, perhaps, possibly…

All this distributed energy makes everything easier, and the system changes. If stuff gets cheaper and cheaper, maybe value is recognised in what people do and not what they have.

Here’s hoping.

Tatenda Tuku

OliverMtukudziMangwanani, mararasei?

Excuse the apparent jibberish but I am still in the joyous grip of a surreal experience for last Friday I was transported to Zimbabwe the country of my son’s birth without leaving Australia.

How was this possible to be an ocean away not just in my imagination but actually there really and truly, feeling the pulse of that great and troubled nation?

Well it was quite a surprise.

All I had to do was follow my instinct and purchase online tickets from an unheard of website to a gig by the African guitar legend and true poet Oliver ‘Tuku’ Mutukudzi.

It sounded too good to be true scheduled as it was for an obscure venue in downtown Parramatta, the Roxy.

I had hesitated of course as one does when the internet throws up such a rare gem of uncertain truth.  It took me a few days to commit my credit card digits to the ether except that Mutserendende, one of the great mans songs, is the ring tone on my mobile — how could I not trust to fate?

Satisfied by a phone call to the venue that confirmed that ‘yes, Tuku would be playing on Friday’ the bargain was accepted.

Now when overseas artists play in Sydney that for all of them is very far away from home they will have their hard-core fans who flock to fill the mosh pit or at worst pay the big bucks for front row seats. Elsewhere the auditorium will be sprinkled with all kinds of folk: the young ones who only just discovered Tori Amos, the middle aged who are just amazed that Sade is just as stunning today as she was in 1980, a few old folk who have always known good music when they hear it, and the ‘be seen’ folk who needed somewhere to go that night. In short, an eclectic mix.

Not so Tuku.

In the surreal surroundings of an ancient cinema with its high ornate ceiling, overused seats, and flaking paint the audience was almost entirely Shona. It was as if all the Zimbabweans from that most populous tribe who were living within travel distance had come together for a party.

And what a pleasure it was — for if there is one thing that Africa does it is party. Smiles everywhere big enough to save the world, warmth to melt the coldest heart and, of course, everyone dances.

It is one of life’s true experiences to be in an African nightclub when the latest popular number is spun. A cheer greets the first chord and by the second the room is heaving. There is no need for a dance floor because everyone is on their feet where they are, instantly transported by the rhythm and moves to a very happy place

Now I had been telling my wife about this phenomenon of nature for years and had promised it would be high on the itinerary of our long planned Africa trip for she had not witnessed it for herself — until last Friday.

In that cinema now comfortably full with well dressed Africans showing off their unique style the DJ was warming the room for the support act and chose a track popular all over southern Africa in the 1990’s that brought back a memory rush of balmy nights in the silky dust of the Kalahari.

And there it was, instant recognition, a cheer, and joyous movement.

I looked at Milena and she felt it too for there is great power in such collective spontaneity. And that energy grew through the unknown yet lively support act and then with fervor for the legend himself

Despite only having his voice, guitar a bass player, drummer and percussionist, Tuku worked through, with genius that only few have, two hours of his layered songs selected seemingly at random from his vast catalogue.

The people danced, laughed, sang, chatted and most of all smiled.

They adored the performer without any thought for the performance or sound that the critic would have panned for its lack of second guitar, keyboard and female chorus for these give so much depth to his studio tracks.

It was a party you see.

And it was a chance to be back in Zimbabwe without paying the prohibitive airfare and everyone was grateful for it, me especially.

You see I lived in Harare for two years from 1987 in a country still basking in the glow of independence if wary of its future. Career blinkers meant that I did not see all that I should have back then, but Africa is too infectious not to seep into your pores for even in adversity the people smile. And they dance whenever the music moves them with an optimism that is infectious. You carry that joy away with you, hidden perhaps and clouded by the travails of the west, but it is always there somewhere deep within, an unconcerned syncopation that can catch you unawares.

So you can see why I have Oliver Mutukudzi as my ringtone, play his playlists often, and have wept at his lyrics that speak of suffering, courage and humanity even though I cannot translate the words.

And now I also have the privileged memory of dancing with his countrymen for two sacred hours far away from Africa, in the Roxy, Parramatta.

$6 a gallon, heck no!

I came across this quote in a biofuels newsletter

Mad as heck about $5 gasoline? According to new research from Iowa State, the price would have hit $6 per gallon, if the US had not had its ethanol supply

And next to it was a picture of a dude in a white T-shirt with the slogan

“I saved you $1220 last year, ask me how”

in green letters.

Research is suggesting that ethanol production saved US householders $143 billion, or roughly $1220 per household in 2011. And for the headline, a dollar a gallon.

No doubt the transition away from fossil fuels will have to be as gentle as possible. There will be any number of tactics to ease the system through to avoid cost and supply discomfort.

At the same time the oil people will want to keep selling every last barrel at top prices. The dance to oil at $200+ a barrel will be interesting to watch.

So here is the thought.

If we measure the success of our economic system on wealth and lifestyle it generally stacks up. Measure it on the number of people it sustains and its performance is stellar.

And so far that system has been supported by ancient fossilized energy. Power that the sun sent to earth millions of years ago that was captured by plants and stored by quirks of decomposition and sedimentology.

Ethanol is power from today’s sunshine that is captured by plants and converted to a liquid fuel.

Seems like a very clunky way to do things. Why not just harness the power directly?

I am sure you know the answer.


Preparation for change

Solar panels, BavariaThere were times during the recent debate in the Australian parliament on the clean energy futures legislation when leader of the opposition Tony Abbot was sounding forth his hip pocket rhetoric to an empty lower house. The green leather on the government benches was unmoved.

“This is a toxic tax,” he kept saying, “that on the governments own figures will cost the average Australian a years salary by 2020.”

As the benches were unable to respond, his words echoed round the chamber and into the television cameras.

Why would anyone vote for losing 5% of his or her salary? There has to be a good reason. So what is it? Why should there be a surcharge on a gas that is plant food?

As John Mathews puts it in an online article

“The $25 billion charge on the major carbon polluters is really no more than a signal that they represent the old, brown economy, and will have to start to upgrade their activities if they wish to join the green future. The rest of the world, notably China, Japan, Germany, Spain are all putting huge investments into such a green future. It is long overdue that Australia joins them.”

There it is. The answer is that there will be a green future.

In fact it will not be called green, but normal. Future goods and services will be made possible from what are currently alternative fuels, resource conservation will be the norm, and production efficiency will be an industry mantra because consumers will demand it. The Marks & Spencer Plan A will be copied by everyone.

The chatter about the clean energy futures legislation is about the cost of the tax and the slugging of industry with an emissions obligation but the real guts of the policy is preparation for change that is as inevitable as the weather but not about the weather. It is preparation for an economy  that runs without fossil fuels.

Again quoting Mathews,

Everyone knows that what goes into the atmosphere over the next 20 years will be the result of investment decisions taken in Beijing and New Delhi, not in Canberra.”

But also the decisions made in the US, Europe, and yes Australia too, on the speed of the transition away from our fossil fuel dependency. Remember folks, this is really what it is all about.

So it was a great shame that those leather benches weren’t warmed by government MPs countering the toxic tax rhetoric with passionate explanation of how this legislation is a historic step on the road to changing the way things are done… to avoid being left behind.

Maybe they just didn’t believe it.

Size of the task

Opera House, Sydney HarbourIt is desirable to reduce greenhouse gas emissions so that the greenhouse effect doesn’t get out of hand and warm the world by amounts not seen for millions of years.

And should this warming happen too fast for our production systems to adjust, then desire must become an imperative.

Fair enough.

Now let’s consider the size of the task.

If we convert the current global energy use into oil equivalents – that is combine all the coal, oil, gas, hydroelectricity, nuclear and alternative sources and convert the energy we gain from them into the energy we get from a barrel of oil – we use the equivalent of 10 million barrels of oil an hour.

Or, if you prefer, 1,590 million litres an hour.

That’s enough to liquid to fill over 15,000 Olympic sized swimming pools every 24 hours or in less than two weeks fill Sydney Harbour, onE of the largest natural harbours in the world.

Plus this number is, believe it or not, getting larger by the day thanks to more people and rapid growth in demand from emerging economies.

10 million barrels an hour is colossal demand. No wonder superannuation funds invest in fossil fuel energy.

Perhaps the next time you lounge with a G&T by a swimming pool, imagine the pool, and a few thousand more, full of oil, and you may glimpse the size of the task.

Our energy demand is simply vast. And thanks to availability, some legacy issues and economics, most of this demand comes from fossil fuels. Partly because of the volume and locked in infrastructure for generation and delivery energy generation is a tough thing to shift, requiring huge investment in alternative sources, a clunky transition period, and unbridled commitment to change.

And because it will take time, any shift will require great tenacity.

It is a big ask and very unlikely that we will take on this transition voluntarily. It will be both difficult and costly. The engineering task alone is staggering: reworking energy grids, distributed generation, engine conversions and replacement. Even the decision to keep the grid or move to a distributed model is a big one.

Then there is the economics. New monies must be found to develop alternatives at scale and monies found to support uptake of what will initially be more expensive energy sources. Then those who have already invested heavily in fossil fuel power risk lost dividends, losing out to new investors. And more of us have invested than we might realize. Superannuation funds that will pay out for many a retirement, like the low risk of traditional energy investments.

The US and Europe are oil and coal dependent because their entrepreneurs and investors backed fossil fuels. New wealth in China, India and South America can be more flexible. They will invest for the far side of the transition, in the new technologies, not the status quo. In 100 years time it is unlikely that the old west will hold the purse strings, which is actually ok, if a little scary for those who have already invested.

Sydney Harbour

So the size of the task is huge, not just because we gobble 10 million barrels an hour, but also because we are not nimble enough economically to act swiftly.

So when the debate on a carbon price uses hip pocket rhetoric, remember the size of the task and know that change to something this big it is not going to be cheap