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McKinsey report – and graph – says battery storage makes sense now for subset of commercial customers in "each of the four most important applications."

The events of July 7, and how we interpret them, will have ongoing implications for future business investment and how we meet the decarbonisation challenge.

A nonprofit organization is testing a solution that could be a model of how to bring electricity to 1.2 billion people still living in the dark.

The worst appears behind it, but Origin Energy is clearly two companies under one banner. A split appears inevitable, the only question is how it will happen.

There has been an incredible amount of nonsense published by media outlets purporting that there is a so called crisis unfolding in Australia’s electricity market.

Coag meeting will agree on a significant suite of reforms, federal energy and environment minister says

• If energy ministers bow to gas industry they’ll be deciding in the dark

A meeting of state and territory energy ministers will tackle secret long-term gas contracts in an effort to make the sector more competitive, the federal environment and energy minister has said.

Speaking to ABC’s AM on Friday, Josh Frydenberg took aim at the opaque contracts’ role in raising the price of domestic gas. Australia had a tight gas market because it was exporting liquid natural gas, he said, raising the domestic price to world levels.

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Coag meeting could spark a run on exploration and development – yet do nothing to increase competition

• Secret gas contracts hurting competition, Josh Frydenberg says

Friday’s meeting of every energy minister in Australia is looking to be at risk of bowing to gas industry demands and sparking a run on gas development around the country to head off a supposed shortage.

If they do that, it will be in the absence of any clear picture of actual gas supplies in Australia.

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The sunken wreck of a fishing trawler that swept for mines during World War One is given special protection by Historic England.

Better, cleaner buildings could deliver a quarter of Australia's greenhouse gas reductions. Buildings image from www.shutterstock.com

Energy upgrades in Australia’s buildings could deliver a quarter of Australia’s 2030 emissions reduction target. Improving energy performance through improved building design, heating and cooling systems, lighting and other equipment and appliances could also deliver more than half of our National Energy Productivity Target.

Progress has been slow, however, and our research shows that delay leads to lost opportunities and billions in wasted energy costs.

The new federal environment and energy minister, Josh Frydenberg, has an opportunity here to demonstrate the potential of his new merged role. Today in Canberra, Australia’s energy ministers are meeting for the first time since the election through the COAG Energy Council.

One item on the agenda will be the National Energy Productivity Plan (NEPP). It aims to improve energy productivity 40% by 2030. This involves increasing the economic value produced from each unit of energy consumed.

The NEPP contains a number of good measures relating to buildings. However, without stronger governance arrangements, more transparency and stronger and clearer public communication and engagement, there is a risk that these policy measures will simply slip between the cracks of multiple agencies, portfolios and jurisdictions in the building sector.

What can better buildings achieve?

Our research found buildings could help meet our climate and energy goals, as you can see in the charts below.

We found that improving energy efficiency in buildings could deliver 10% of our emissions target. Distributed energy (primarily rooftop solar) could achieve an extra 18%.

Potential contribution of built environment opportunities to 2030 national emissions target (MtCO2e) ClimateWorks Australia, May 2016

The energy efficiency improvements could reduce energy use by 202 petajoules, or half of what would be needed to achieve the energy productivity target.

Potential contribution of built environment energy efficiency opportunities to 2030 National Energy Productivity Target (PJ) ClimateWorks Australia, May 2016 The cost of delay

Despite the massive opportunity to reduce emissions from the building sector, overall progress to date has been slow.

Market leaders, particularly in the commercial office market, have achieved a radical change in their energy productivity and are recognised as global leaders in sustainable buildings. There are many examples of very high-performing or net-zero-emission buildings around Australia.

However, the market as a whole has improved its energy performance only 2% over the past decade for commercial buildings, and 5% for residential buildings. We are not currently on track.

Our report found that continuing to delay action to reduce emissions from buildings means we would lose a substantial amount of cost-effective options to improve energy performance. Many emissions reduction opportunities exist only for a certain period of time. For example, installing inefficient equipment instead of more efficient options effectively locks in excessive emissions for many decades into the future.

Just five years of delay could lead to A$24 billion in wasted energy costs and more than 170 million tonnes of lost emissions reductions by 2050. This is a very substantial loss, considering the current national emissions target aims to reduce emissions by 272 million tonnes by 2030.

Without additional action buildings would eventually consume more than half of Australia’s “carbon budget” by 2050. That would leave less than half for all other sectors of the economy, including emissions-intensive industries, transport, land and agriculture.

Cost of delay (MtCO2e) ClimateWorks Australia, May 2016 Stronger policy

To realise the emissions reduction potential in the building sector, strong policy will be required to tackle the barriers to better energy performance for buildings. Our report recommended five key solutions as part of an integrated policy suite.

First, develop a national plan to co-ordinate policy and emissions-reductions measures to extend gains made by market leaders across the entire building sector.

Second, introduce mandatory minimum standards for buildings, equipment and appliances aligned with the long-term goal of net zero emissions.

Third, develop incentives and programs to motivate and support higher energy performance in the short to medium term.

Fourth, reform the energy market to ensure it supports cost-effective energy efficiency and distributed energy.

Finally, we need a range of supporting data, information, training and education measures to enable informed consumer choice and support innovation, commercialisation and deployment of new technologies and business models.

Implementing these policy measures would set Australia on a pathway to zero-carbon buildings and unlock the large potential for buildings to deliver improved health outcomes and more liveable and productive cities.

Unblocking barriers

Unfortunately, the opportunity to reduce emissions from buildings is blocked by strong barriers that require co-ordination between the Commonwealth, states and territories.

To address the complexity of this task, the NEPP needs stronger governance arrangements, including a specified target or targets for buildings, to complement the overall 40% NEPP target, and more regular public reporting (there is no public review until 2020).

Stronger and clearer communication and engagement around the target and buildings’ energy performance within it would also help provide confidence and drive innovation and activity among households and businesses.

In addition, we need better co-ordination between the members of the Energy Council, and between the council and other government forums and agencies.

For example, the National Construction Code, which regulates minimum standards for new buildings and major refurbishments, is a critical policy lever. However, the code is overseen by the Building Ministers Forum, not the Energy Council, while a range of different state and territory bodies oversee enforcement of the standards.

There are similar issues around harmonising of different energy performance ratings across jurisdictions, co-ordinating training and accreditation of professionals throughout the building design and construction sector, and energy market reform to establish a level playing field for energy efficiency and decentralised renewable energy.

Co-ordination of these issues should be a major focus for the Energy Council. The new minister for environment and energy – as the minister responsible for delivering on both our national emissions reduction targets and on the productivity plan – is now in a unique position to lead these efforts. We encourage the COAG Energy Council to support him in this.

Eli Court is Implementation Manager at ClimateWorks Australia which receives funding from philanthropy and project-based income from federal, state and local government and private sector organisations. ClimateWorks received funding from the Australian Sustainable Built Environment Council for the Low Carbon, High Performance report referenced in this article.

Researchers have combined satellite imagery with AI to predict areas of poverty across the world.

Tourists flock to Hawaii's Kilauea volcano after lava reached the sea for the first time in three years. Aerials - Lava Ocean Tours.

A global audience joins Prof Michael Sandel to discuss the world's response to climate change.

Australian researchers are investigating if the scent of giant sea snails could help repel millions of coral-eating starfish from the Great Barrier Reef.

A new analysis shows that Oetzi the Iceman's clothes came from at least five species of animal, including a hat of brown bear fur.

The gas industry profited enormously from electricity price spikes in South Australia. The media also played a role, using renewables as a scapegoat.

Developers hope the tool, that enables anyone with internet access to track fishing vessels worldwide, will create greater transparency in the oceans

Anyone with internet access and a passion for seafood will soon be able to track commercial fishing trawlers all over the world, with a new tool that its developers hope will help end the overfishing that has decimated the world’s fish stocks.

Millions of people depend on fish to survive, and fish will be vital to feeding the world’s growing population that is predicted to reach 9.7 billion people by 2050, the United Nations says.

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It's been a year since the Iranian nuclear deal was reached. Was it worth it? What if anything has changed in not only Iran but across the Middle East?

Mark July 7th as a red letter day in Australia’s tortuous path to decarbonisation - a day of special significance and opportunity.

The causes and consequences of the wild gyrations on the South Australian electricity wholesale market that day, will be scrutinised for months, worrying regulators, politicians, businesses and commentators alike. The events, and how we interpret them, will have ongoing implications for future business investment decisions, for the survival of struggling businesses such as Arrium, and for how we meet the challenge of decarbonisation.

The events of July 7th will, no doubt, sharpen the minds of our energy ministers who are meeting Friday (18th August) in Canberra at the COAG Energy Council. Thankfully, recent statements by the Federal Minister Josh Frydenberg lend hope to the idea that rationality will trump ideology in any COAG outcome. However recent history suggests it will take some time before the bipartisanship emerges essential to realising the opportunity of our red letter day. Ever the optimist, I remain hopeful.

And in that hope, Dylan McConnell and I have prepared a rather lengthy analysis of those events in a report titled Winds of Change - An analysis of recent changes in the South Australian electricity market, available at this link. Here I summarise some key points we consider in that analysis.

What happened July 7th

July 7th was a calm, cold winter day across South Australia, as it was exactly one year before.

Demand for electricity reached a high of over 2183 megawatts in the early evening well above the typical South Australian average of around 1300-1400 megawatts. The calm conditions meant the output of the 1575 megawatts of installed wind capacity fell to almost zero by mid afternoon and contributed no more than 13 megawatts throughout the high demand evening period. With upgrades on the Heywood interconnecter into Victoria severely limiting the ability to import power, gas generators and a little bit of diesel were all that were available. With Engie’s Pelican Point station effectively mothballed (having earlier on-sold its gas supply into the gas market), AGL (Torrens A an Torrens B) and, to a lesser extent, Origin (Osborne and Quarantine stations) were in a pivotal supplier positions at various stages across the day, meaning they were needed to meet demand. The capacity bid into to the market topped out at 2413 megawatts.

The relevant data is captured in the images below. The first shows the dispatch by fuel type over the period 6th July through to 8th July. The second shows the dispatch by generator/wind farm averaged across 7th July. The third shows the contributions made by interconnector, and different fuels, along with wholesale prices for the period midday through to 11 pm on 7th July.

South Australian electricity market dispatch coloured by fuel type for the period 6th July - 8th July, 2016.

Dispatch by power station and fuel type averaged across the day for July 7th 2016 in South Australia. Stations dispatching less that 10 megawatts are not shown. Other is distillate.

Time series for South Australia on July 7th 2016 from midday onwards. The top panel shows shows the 5-minute dispatch price (note logarithmic scale). Panel b show interconnector flows, with V-SA representing Heywood and V-S-MNSP1 representing Murraylink. The dark line and shaded region shows the net imports, which averaged 151 MW over the period. Panels c, d and e show the output of gas-fired generators, wind and distillate generation during this period. In all panels, vertical tick marks at the top of each panel show period where the 5-minute price exceeded $9,000/MWh

Across the day, SA dispatch prices (that are resolved at the 5-minute interval) exceeded $10,000 per megawatt hour (MWh) on 24 occasions, and the volume weighted price price for the day was just above $1400/MWh. The peak settlement price (resolved at the 30-minute interval) of just below $9,000/MWh occurred between 7:00pm and 7:30pm. For reference the average wholesale price in South Australia is about $60/MWh

Settlement prices were above $2000/MWh for most of the afternoon and evening. In the extreme trading interval between 7:00pm and 7:30pm wind was dispatching only 13.5 megawatts and other generators displayed erratic dispatch patterns. For example, the output from the AGL Torrens Island plants reduced by 90 megawatts soon after 7 pm while the prices remained near the price cap of $14,000/MWh.

To provide a reference frame, it is useful to compare the events of this year, with the same period of last year, as shown below. The comparison is made all the more useful because July 7th in both years were similarly calm, with negligible wind generation, and a very similar demand profile since both were weekdays (peak demand on July 7th 2015 of 2133 megawatts). However, in 2015, Alinta’s brown coal Northern Power Station in Point Augusta was still operating, contributing around 300 megawatts, and the Heywood interconnect was fully operational allowing imports to average around 530 megawatts, and up to 620 megawatts at peak. Together, they meant that for what were essentially equivalent conditions, some 600 megawatts less gas was needed on July 7th in 2015, compared to the same day a year later.

For the period midday through 11:00pm prices on July 7th 2015 averaged only $112/Mwh, with only one 5 minute price spike reaching above $500/MWh

South Australian electricity market dispatch coloured by fuel type for the period 6th July - 8th July, 2015. Dispatch by power station and fuel type averaged across the day for July 7th 2016 in South Australia.

Time series for South Australia on July 7th 2015 from midday onwards. The top panel shows shows the 5-minute dispatch price (note logarithmic scale). Panel b show interconnector flows, with V-SA representing Heywood and V-S-MNSP1 representing Murraylink. The dark line and shaded region shows the net imports, which averaged 151 MW over the period. Panels c, d and e show the output of gas-fired generators, wind and distillate generation during this period.

The key notable difference between the winters of 2015 and 2016 was the price of gas, which had literally gone through the roof, by 375% for the day of July 7th (335% for the week). But that was nothing compared to the wholesale electricity price outcomes which had gone stratospheric, rising some 2000% over the intervals considered here.

Market power

Our wholesale energy-only market is deliberately structured so that scarcity events are valued way above the cost of fuel, which typically would amount to only a few $‘00/MWh for even the most expensive diesel or gas generator. This ensures that enough generation capacity is available to meet scarce high demand periods. For example a gas peaking generator may be needed only a few days a year, and so needs to recoup prices in the $'000’s/MWh for the times it is dispatching in order to cover its long run costs.

To avert risks and ensure supply, participants normally engage via the contract market, rather than directly through wholesale market. A variety of standard contracting arrangements are available. The one that reduces risks of extreme price spikes is the cap contract typically set with a strike price of $300/MWh. The cap contract provides a form of insurance to mitigate exposure to high price events, where the buyer pays a contract price to the supplier independent of the wholesale price outcome, and in return gets refunded for any wholesale price events above $300/MWh.

The importance is that it is rumoured that some large energy users in South Australia were either uncontracted or under-contracted on their supply this year. Any energy intensive business exposed to the wholesale market on July 7th would have been in for one almighty shock.

The extent of contracting varies across the regions that make up the National Electricity Market (NEM), with South Australia reportedly with lower liquidity than other regions. That is consistent with issues to do with market power, or perceptions thereof, and there are certainly strong indications that market power is becoming a big problem in South Australia.

As noted above, key generators were in the positions of pivotal supply on July 7th - by our estimates, AGL for around 87% of the day and Origin for 11%.

There are very good reasons for prices to rise during scarcity events, but how much they rise is dependent on competition. Pivotal suppliers are able to exercise market power to extract so called monopoly rents, and there is certainly some circumstantial evidence that suggests as much, perhaps partly motivated by a desire to force buyers back onto the contract market. Who knows?

A useful index for market concentration is the Herfindahl-Hirschman index (HHI). As the sum of the squares of the market percentage shares, it can rise to 10,000 for 100% concentration. The ACCC sets an HHI index at 2000 to flag competition concerns. The UK’s Office of Gas and Electricity Markets (OFGEM) regards an HHI exceeding 1000 in an electricity market as concentrated and above 2000 as very concentrated. With a current HHI value of 1243, the OFGEM considers the UK wholesale electricity market somewhat concentrated. According to the Australian Energy Regulator, the regional NEM markets had HHI indices in the range 1700-2000 in 2015. With the closure of Alinta’s Northern and the mothballing of Engie’s Pelican Point station, the effective HHI index in South Australia in July this year was probably around 3300-3400, making it exceedingly concentrated.

It is important to note that the market concentration in South Australia is consequence of a sequence of events, some dating back as far back as 2000 when the state government put its generation assets up for sale. Then minister Rob Lucas refused a request from Origin to split the two gas fired generating stations at Torrens Island (Torrens A and Torrens B), on advice from Morgan Stanley deciding to sell them as a bundle to TXU. One can only surmise the combination was worth more than the sum of the parts, presumably because it would give its new owner greater power. South Australians may now be paying the dues owed on that decision.

But other factors have also conspired. AGL, who acquired Torrens island from TXU in 2007, was not responsible for Alinta’s decision to close Northern in May, or Engie’s mothballing of Pelican Point earlier in the year.

However, by virtue of these events AGL has found itself in a position of unprecedented market power. How it and other participants responded will no doubt be examined in exruciating detail in coming months, not in the least because AGL could find itself with similar power if Hazelwood or Yallourn were to exit Victoria.

What we can see is that margins on South Australian gas generation units have increased dramatically in recent times rising from about $17/MWhr to two to three times that, in a measure called the spark spread. As the figure below shows despite the gas market price rises affecting all regions, South Australia was the only region to show an anomalous rise in the gas margin. A rise in margins with a rise in volumes, is not the trade off one expects in an efficient market.

Top panel - illustrates the spark spread for gas generation in South Australia. The margins for Queensland, New South Wales and South Australia are compared in the bottom panel, since February 2015. Prior to June 2016, the spark spread was relative constant and broadly consistent across the three regions, with the exception of the late summer and early autumn period when Queensland spark spread was elevated by a factor of about four. Prior to June 2016, the South Australian spark spread averaged $17/MWhr. That value is comparable to the spark spread in other, completely unrelated jurisdictions such as the United Kingdom. We assume a typical Combined Cycle Gas Turbine with an assumed thermal efficiency of 50%, analysis by Dylan McConnell.

So what should we make of this?

A number of interdependent factors are playing out in the evolving South Australian electricity sector. The aggregate effect manifest dramatically on July 7th reflects a complex interplay between legacy issues (including existing asset ownership), the increasing penetration of wind generation, competing developments in the gas market, and the absence of coordination of transitional arrangements.

The rise in wind generation in South Australia since 2006 has impacted in several ways. It has put downward pressure on wholesale prices, which declined in real terms in the period 2008 through 2015 (while also generating net Large-scale Renewable Energy Target certificates to the annual value of about $120 million). It is of note that over the last five years the wholesale market prices in South Australia have been pretty much on par with those in Queensland, which has no wind assets.

However, in so doing, wind generation has contributed to decisions to close brown coal generators, and increased South Australian dependence on imports and, in times of low wind output, gas. As one of the largest stations on the NEM in terms of its capacity relative to regional demand, the closure of Northern Power Station in May, 2016, has tightened the demand-supply settings, and that has reset the wholesale price clock upwards.

The dramatic increases in gas prices in the winter of 2016, driven by dynamics in the export market have added at least $140-$200 million to the annual cost of South Australian electricity supply. It is important to note however, due to its historic reliance on gas generation, South Australia has always been exposed to movements in gas prices even without the investment in wind. In pure energy terms, gas generation has been declining over the last decade, due in significant part to the addition of wind to the generation mix.

Despite the closure of the Northern Power station, gas dispatch has remained at near record low levels in seasonally-adjusted terms. What has changed dramatically since Northern’s closure is the concentration of market power. While there are legitimate reasons for power station owners to increase prices to reflect scarcity value, our analysis suggests that recent increases in wholesale prices have been well in excess of the reasonable market response, and reflect the extraction of monopoly rents. Such ‘opportunism’ has been encouraged by poor coordination of the system adjustments, such as mid-winter upgrades to Heywood interconnector.

Multiple options exist that address both of these issues to greater or lesser extent. OCGT is a cheap option to increase capacity and supply in peak periods, but does not improve competition or supply outside these periods and is still partially dependent on gas prices. Storage options can both increase capacity in peak periods, and increase competition through daily arbitrage opportunities. CST further reduces the consumption and reliance on gas, while providing capacity. Additional interconnection (above and beyond the current 190 MW expansion of Heywood) may also prove to be a viable solution.

In the longer term, South Australian experience points to the need to diversify low emissions generation and storage portfolios. As we necessarily decarbonise the national electricity system and increase renewable energy penetration, technologies such as storage and solar thermal will become increasingly necessary to provide for both peak capacity and reliability of supply.

The South Australian experience provides a salutary forewarning of the havoc that can ensue from lack of coordinated system planning in times of transition. It bears on the question of disorderly exit that will be faced in all markets requiring substantial decarbonisation, in part because of the scale of the fossil power stations that are displaced.

Finally, South Australia highlights the potential benefits for system wide oversight of transitional arrangements to avoid market power issues. The recent price rises in South Australia would have been much less extreme had Northern’s closure not occurred prior to completion of the upgrade to the Heywood interconnect at a time when Pelican Point was effectively mothballed, and demand was rising to meet the winter peak. As it transpired, the coincidence of all these factors contributed to a rapid and unprecedented rise in the concentration of market power.

And for the COAG meeting need we emphasize that the benefits of market competition can only be realised if markets are competitive.

For the full details see our report “Winds of Change - An analysis of recent changes in the South Australian electricity market” available here, for which any credit should go to coauthor Dylan McConnell.

Disclosure

Mike Sandiford receives funding from the Australian Research Council for geological work.

Origin Energy says growth in energy markets will lie "beyond the grid" in the transition to low-carbon economy, but it doesn't expect consumers to leave the grid in large numbers. Its solar sales doubled, but remain a small fraction of the overall market, while storage uptake is slow.

Origin Energy says recent price spikes in South Australia were predictable and "perfectly normal". It has advised energy ministers not to be "spooked".