Monday, 17 August 2015
National Broadband Network
I rise to speak after that complete rewriting of history. This week the coalition announced its policy of CO2 reductions going forward to 2030. I thought it might be of benefit to the House to give a precis of my recent trip to Germany during the winter recess—a private trip—to, amongst other things, look at Energiewende, which is the German policy of transformation from fossil fuel to renewable energies. I met with a large range of government officials, industry groups, generators, regulators, green lobbyists, a parliamentary member and the Australian ambassador, David Ritchie, to discuss Germany's progress in its plans to make the country 80 per cent reliant on renewable energy by the middle of this century. Like most major issues facing governments worldwide, there is nothing simple and there are almost always responses to policy changes that are not necessarily predicted.
When it comes to electricity, one of the most salient points as far as Australia goes is understanding the interconnectivity of Germany to greater Europe and the opportunities this offers—and the negatives as well, but I will come to that later. The Germans' emissions trading authority is largely based in Dassel and, in combination with the Berlin contingency, they employ 1,500 to 1,600 people. Heavy industries using in excess of 20 megawatt hours per annum are exempt from the system and they are also eligible for low interest loans. In 2010 the German government set 12 goals to transition to renewable energy. Their policy of Energiewende—or, in English, energy transformation—plans a 20 per cent reduction of CO2 by 2020 and 50 per cent by 2050—not just electricity but the whole market. How they will achieve this outcome is not clear, but they do have the benefit of quickly evolving technologies.
Other events have driven their commitment to prematurely retire their nuclear power plants by 2022. They have eight left, totalling 20 megawatts of capacity. For my constituents, that is almost 20 times the size of the Alinta power station at Port Augusta, now scheduled for premature closure sometime in the next 18 months. Eighteen per cent of Germany's electricity comes from fermented agricultural products—ethanol—and it is of interest that the policy encouraging farmers to grow corn for this purpose is now being wound back because it was displacing food production. It reaffirms my thoughts that biofuels should be developed from agricultural waste products, not from food. This decision probably means there are no upsides left for the German energy market in biofuels.
Germany still consumes a significant amount of coal- and lignite-generated electricity, and two new coal power stations have been opened in the last few years. They have, though, now announced an intention to phase out hard coal, which is black coal, by 2018 and lignite by 2040. It is hard to believe that this will not lead to significant litigation from companies seeking compensation.
I met with E.ON, one of three major electricity producers in Germany. They have long-term gas contracts with Russia. However, political instability is a concern. Norway is a good, reliable supplier. A number of representatives I met with, including the head of the Australian-German parliamentary friendship group, Volkmar Klein, expressed a keen interest in Australian gas supplies to reduce their dependence on the Russian market. Sovereignty of supply is a very important issue in Germany. E.ON operate a number of nuclear facilities that will be forced to close by 2022, and at this stage they have not been offered any compensation, but it is difficult to see that this too will not become a major issue. It is of note, perhaps, for the South Australian Nuclear Fuel Cycle Royal Commission that they have 14 billion euros in reserve to deal with the clean-up and long-term storage of waste.
The very low price of the emissions trading scheme in Europe at the moment is a concern and is having mixed effects—so much so that they are actually mothballing a new, highly efficient gas-fired power station. Small solar and high feed-in tariffs are causing some issues as well, leading to a situation where more than 50 per cent of consumers' electricity bills are now taxes and subsidies.
There are concerns about how Germany will cope with the large amount of baseload electricity which will be removed in the near future—nuclear, lignite and hard coal. The effects of the policy mix are resulting in new investment in electricity all being renewable, which one would think is a good thing, but there is no clear plan on how to deal with the loss of baseload generators except by importing more nuclear power from France. I met with the department of economic and environmental affairs. They informed me that wind is now producing 38 gigawatt hours per annum, 20 to 25 per cent of which is coming from offshore facilities. Offshore it is windier and is achieving better than 50 per cent efficiency, which is very encouraging, with only 100 hours a year becalmed. So it is much more stable than onshore, but it is also much more expensive. The better sites on land are taken, and there is some resistance, particularly in the south, to more wind farms.
It is interesting to note that, while small business and household consumers have some of the dearest electricity in the world—about 50 per cent higher than here in Australia—their heavy industries are exempted from the system, have benefited from oversupply in the market and have access to cheap electricity driven by policies designed to promote investment in renewables. Like Australia, Germany has chosen a path where subsidised investment in renewables had led to an oversupply in the electricity market and depressed wholesale prices. The market, as I referred to in my opening comments, has a safety valve where they can export surplus electricity. However, this is relatively expensive electricity, with its price reduced by subsidies from German households and small to medium business. I said before that heavy industry, of course, is exempt. The German public have been very supportive of Energiewende, but it is unknown, as the price continues to rise, whether they will continue to tolerate this. One supplier told me that 30 per cent of their customers were under duress, meaning they needed assistance to meet their electricity bills.
I met with another energy company, Vattenfall. They informed me that they had made big advances in efficiency in their newest lignite power stations—43 to 45 per cent efficiency, or 930 kilograms of CO2 per megawatt hour. It is important to understand that Germany has a seemingly different disposition to lignite insomuch as they have domestic supplies as opposed to hard coal and gas, which is all important. Vattenfall claim the German electricity market is about 60 per cent oversupplied and are very concerned for new investment. At this stage, there is only subsidised investment in the pipeline, meaning wind and solar, and there are rising concerns as to what will replace the baseload generation. It is a very familiar issue to us here in Australia. Perhaps the conundrum of cheap, affordable storage for renewables will be met by the revolution in battery production, but it seems to me that at this stage they are just not sure.
Interestingly, in Northern Europe peak demand for energy is for heating in winter, not summertime air conditioning, as is the case here. Much of the energy required for heating is not provided by the electricity grid but by direct heating systems affecting total CO2 emissions but not those associated with electricity. It is just another of the idiosyncrasies to consider when comparing our system with theirs. The Danes have been held up as world leaders in the switch to renewables but have had to construct giant hot water tanks to facilitate the use of renewable energy in city heating systems. Germany is just beginning to follow that path. The Danes are seeing their generation industry being corrupted by cheap subsidised German electricity flooding their market in times of surplus. One would think they may be very happy with this outcome, but unfortunately this in turn is undermining their business models.
Vattenfall operate 40 per cent of the German hydro system, which for many years has operated as batteries by pumping water uphill at night on cheap energy to release in the afternoon market peaks. This is something we do in Australia too. It is the perfect battery. However, the advent of solar PV has curbed the afternoon peak, thus destroying the profit motive for water storage. In effect, a subsidised renewable source has replaced another unsubsidised and profitable renewable energy source. It is definitely one of those conundrums for policymakers and is one of the things we need to be very mindful of in Australia as we move forward in our energy transformation. We have all been in awe of the German economy, which to a large extent holds the EU together. It is worth noting that Deutsche Bank has reported that there has already been significant carbon leakage from the German economy, particularly in small to medium businesses which do not receive the exemptions from the ETS policy. They consider it to be a slow burn. Long-term investments are increasingly going somewhere else. The reduction in CO2for electricity, as opposed to total emissions, was to be 30 per cent by 2020, and then in 2010 the government decided to go for 40 per cent. It was at this time that it extended the nuclear envelope from 2020 to 2030. The Fukushima disaster occurred and within three weeks they had abandoned the 2030 time line and reverted to 2020, but did not review the 40 per cent target, which is likely to impact quite heavily. There are now concerns about the impact of the short-term targets. It is a bit of a perfect storm.
I have more to add to that at a later stage. It is valuable information, so I hope to come back to it.