Boardroom Energy

This week:

  • Big battery, big fire

  • The Economist strikes back

  • Labor pains on climate

  • Chart of the week: Q3 Cap prices

In brief

Apparently there have been 38 large lithium-ion battery fires around the world since 2018. In April two firefighters died in Beijing when a 25MW battery exploded while they were trying to extinguish it. And yet we have installed only a fraction of the batteries that are likely to be needed to support high levels of renewables in a decarbonised grid. We take a closer look at the fire in Victoria’s Big Battery that took three days to put out.

The Australian Gas Infrastructure Group is doing a terrific job trying to protect the value of its gas distribution assets. It’s now promising to deliver 100 per cent green hydrogen to new housing developments by 2025. It’s a big call. Based on the cost of the electrolysers it recently had subsidized by ARENA the hydrogen is unlikely to be remotely cost competitive with gas by then, there are no hydrogen-ready appliances available and hydrogen burns at a higher temperature, which according to science means higher indoor NOx emissions.

Labor is trying to work out what climate and energy issues it campaigns on at the next federal election. Having quietly abandoned carbon pricing, its struggling to find a unity ticket on more pedestrian issues, like the funding scope of ARENA and even kicking the tyres on nuclear power, which one of its key unions, the Australian Workers Union, supports.

EnergyAustralia and Origin have both followed AGL into the commercial pit that is soft wholesale prices, rising fuel costs, low retail margins and yet being forced to keep generating to ensure system reliability. Origin announced $2.25 billion in write downs while EnergyAustralia dropped first half earnings by a third. Gas prices have recovered in 2021 while thermal coal prices are surging. Morgan Stanley warned campaigns to block new fossil fuels projects are just shorting supply and pushing up prices for existing suppliers.

Its unsurprising then that the owners of most of these keep-the-lights-on coal generators are backing the introduction of capacity payments flagged by the Energy Security Board.

Twiggy Watch: This week Andrew “Twiggy” Forrest told the media he was thinking about making green hydrogen in New Zealand.

Big battery, big fire

Australia had its first big battery fire this week. There have been 38 big battery fires around the world since 2018, and batteries are still only serving their apprenticeship. Given the technology is projected to play a major role in the future energy system, we should assume there will be more days and days like this.

Neoen’s imaginatively named Victorian Big Battery caught fire over the weekend and it took four days to get under control, partly because the approach was to isolate the burning battery packs and let them burn out. Importantly, there were no injuries. There have been conflicting reports on the extent of the air pollution caused but it is not expected to be significant. There will undoubtedly be some kind of inquiry to determine the precise cause.

The battery packs were supplied by Tesla, which has also had to deal with issues relating to battery fires in its cars. This is not to suggest a particular flaw with Tesla’s batteries – other manufacturers are grappling with the same problem – but as the market leader, Tesla fires often get more publicity.

The issues stems form the lithium ion battery chemistry. Various defects (due to design, manufacture, misuse, electrical shorting etc.) can cause the battery to overheat, leading to what is called thermal runaway. This is like a virus, but for batteries. One cell overheats enough to ignite, which in turn “infects” its neighbours with excess heat and so on.

It doesn’t matter how small the lithium-ion batteries are – remember the infamous exploding Samsung Galaxies? Even aside from particular models that may need to be recalled due to flaws, London Fire Brigades attend 24 incidents every week due to fires in home appliance batteries and chargers. Warehouses that store electronic goods may need advanced fire suppression systems that drop foam fire retardants from the ceiling.

Unlike the response to the last fire at an electricity supply centre – the Callide C coal plant in Queensland – no-one is reading the last rites for the technology, or saying we need to “diversify away” from batteries. The central scenario of AEMO’s integrated system plan (ISP) for 2020 expects around 11GW of dispatchable storage in the NEM by 2042. After deducting known pumped hydro projects this leaves around 8GW likely to come from Lithium-ion batteries as the most cost-effective technology of that type. This is around 27 Victorian Big batteries. So, it will be a case of how we manage the risk. It won’t be just at big generation/transmission sites either, AEMO also expects almost 2GW of storage behind the meter. The standards for home batteries were almost derailed a couple of years ago due to what the industry saw as excessive installation requirements aimed at mitigating fire risk. As discarded batteries in waste facilities are a significant hazard, recycling processes will be as important as installation and management during the operating life of the battery.

The Economist strikes back

Is the case for a price on emissions dead, or just resting? Former reserve Bank Board member and long-standing advocate for global carbon pricing, Professor Warwick McKibbin, is hoping the latter.

McKibbin was a vocal supporter of a hybrid model of pricing and trading emissions when the idea surged to political prominence in the lead up to the 2007 Federal election. He argued that the cost of abatement should drive the target setting, not the other way around. McKibbin warned that ambitious but unrealistic emissions reductions targets could backfire politically later on if the economic cost of compliance became too great.

When a carbon price was finally introduced by the Gillard Government in 2012, McKibbin was critical of the approach taken, warning its poor design risked the entire policy canon self-destructing because of the costs it imposed.

He was proved right, albeit long before the economic consequences had time to make a meaningful impact. The political consequences of the tax were more than enough to ensure its repeal two years later.

In the past two years Labor has been moonwalking away from its once ideological support for a carbon price, and the national political debate has deflated, while state governments have basically trashed the National Electricity Market and are increasingly going it alone. The Morrison Government has no intention any time soon to go near the idea.

McKibbin has continued to prosecute the case for a carbon price, co-authoring a new paper for the International Monetary Fund (IMF) which warns that the current approach of all technology carrot, no price stick might work politically, but it has no chance of actually delivering the abatement needed to get to net zero emissions by 2050.

McKibbin argues new modelling shows that a combination of substantive and economy wide low carbon fiscal policy coupled with long term and escalating price signals remains the optimal way to deliver significant emissions reductions. And this needs to be rolled out across both developed and developing economies to have a meaningful change of avoiding dangerous climate change.

The fiscal stimulus is important not just to accelerate technology development and investment, but to offset the economic contraction caused by carbon pricing.

The challenge with ell economic modelling of the costs and impacts of abatement is how to estimate the future cost and availability of new and developing technologies like CCS, electric cars and low carbon transport, hydrogen and energy efficiency.

McKibbin’s model identifies a short term increase in employment driven by increased investment in more labour intensive sectors like renewables, building retrofitting and services but this is offset by declining employment in carbon intensive sectors.

It’s useful to see continued work on carbon pricing even if it is not politically popular at the moment. That could change quickly if the political dynamic in the US pivots, leaving economies like Australia scrambling to catch up.

Labor pains on climate

Climate policy played a big role – according to political pundits anyway – in two of Labor’s last three federal election defeats. Tony Abbott’s ferocious scare campaign against the Carbon Pollution Reduction Scheme (CPRS) helped unseat Rudd (who had offed Gillard not long before the election) in 2013. $50 lamb roasts and wiping Whyalla off the map featured heavily in this rhetoric. Later, in 2019 Morrison’s relentless attack on Bill Shorten included the claim that he was cancelling the weekend because of a revised policy package that included an ambitious Electric Vehicle target.

None of these claims were true, but truth is often the first victim of politics.

While multiple state and territory ALP governments have successfully been re-elected after enacting far-reaching climate policies, at the federal level, Labor struggles. This week saw a couple more pieces of evidence of the party’s internal struggle. Several unions and MPs from industrial and energy heartlands are pushing a heavily pragmatic line, while inner-city MPs looking over their shoulders at the Green Party are adopting a purist line that only allows a narrow selection of technologies.

Exhibit A: the old chestnut of nuclear power. While few MPs are keen to directly tackle the current legal prohibition on nuclear power, AWU head Daniel Walton backed in Energy Minister Angus Taylor’s deal with his UK counterpart to carry out joint research on a range of emissions reduction technologies including next generation nuclear. This is pretty low-key stuff and yet a couple of federal Labor MPs jumped on it with dire predictions of “covering WA with nuclear power plants” and calling the Coalition “deeply moronic” for contemplating the same kind of technology that the fairly patently not-moronic Bill Gates is sponsoring. The antipathy is all the more surprising given the last serious look at nuclear power issues in Australia was commissioned by a state Labor government.

Exhibit B: The Coalition’s tweaking of ARENA and CEFC’s mandate to move beyond renewables. Putting aside the semantics about what is “renewable energy” – the RE in ARENA or “clean energy” – the CE in CEFC, these agencies faced a problem. Two key renewables technologies – solar PV and wind farms had been successfully supported through the development and demonstration phase and were now being commercially deployed. So, there was no real need for these agencies to continue to fund them. But there was nothing else strictly renewable that was coming up behind them – other possible technologies were stuck in the R&D phase. So, the Coalition took the pragmatic step of seeking to expanding their mandate to allow them to financially assist any project that controls or prevents the emission of greenhouse gases, including non-renewable energy projects. This could include energy storage, hydrogen, carbon capture and storage, and potentially certain gas projects that supported an overall reduction in greenhouse gases such as a gas peaker to firm renewables.

In June, Labor and the Greens got One Nation onside to stymie this change in the agencies’ remit. Hunter Valley Joel Fitzgibbon vocally criticized this tactic, and the issue re-emerged this week as the government sought to bypass the senate with newly drafted regulations. Fitzgibbon again counselled his party to let the changes through.

Fitzgibbon’s seat in NSW is somewhat similar to the regional Queensland seats that have become a bastion for the federal Coalition in recent elections and that ALP will probably need to wrest back. Lots of workers either directly or indirectly involved in the fossil fuel sector. In the long run these workers will probably benefit from a federal government that comes clean about which way the wind is blowing and can start planning for helping them to transition, and that ain’t the Coalition. Still, this bet each way – that we can have lots of coal mining and power station jobs and lots of new technology jobs too – seems to be working for the Queensland Labor government with its insistence on both a 50 per cent renewable energy target and that no coal plant closures will occur on the way.

Climate policy is not likely to be a major topic in the next election, with the management of the COVID crisis and the economy likely to dominate. But it could be lost on energy, especially if there are wholesale price spikes or reliability issues in the run-up. The ALP has shown recent signs of pragmatism by dropping its unpopular policies on negative gearing and imputation tax credits. Do they have the discipline to get more pragmatic on climate too?

Chart of the week: Q3 cap prices


The caps market is an insurance product that protects buyers of wholesale electricity from very high prices (above $300/MWh). The price of caps reflects the love of risk in any jurisdiction. Caps prices have been soft in Victoria and South Australia in Q3 2021, reflecting low prices risk after the scare with the Yallourn power station potentially flooding in June. Caps prices have been much hotter in Queensland and NSW following the protracted closure of the Callide C power station after an explosion at the plant in May. caps are now starting to ease with one unit at the plant coming back on line.