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Select Committee into the Resilience of Electricity Infrastructure in a Warming World
10/02/2017
Storage technologies and localised distributed generation in Australian electricity networks

BROOKER, Mr Simon, Executive Director, Clean Energy Finance Corporation

FRISCHKNECHT, Mr Ivor, Chief Executive Officer, Australian Renewable Energy Agency

GRAHAM, Mr Paul, Principal Research Scientist, Energy, CSIRO

JAMES, Dr Craig, Research Director, CSIRO

KAY, Mr Ian, Chief Finance Officer, Australian Renewable Energy Agency

RODRIGUES, Mr Karl, Acting Director, Energy, CSIRO

WANG, Dr Chi-Hsiang, Principal Research Scientist, CSIRO

YATES, Mr Oliver, Chief Executive Officer, Clean Energy Finance Corporation

[12:00]

CHAIR: Welcome. The committee has submissions from both ARENA and the CSIRO, which have been published on the website. Information on parliamentary privilege and the protection of witnesses and evidence has been provided to you. I remind witnesses that the Senate has resolved that an officer of a department of the Commonwealth or of a state shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to the minister themselves. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policy or factual questions about when and how policies were adopted.

Do any of you have anything to say about the capacity in which you appear? Then we can have some opening statements and move to questions.

Mr Graham : I am the Chief Economist of CSIRO Energy.

CHAIR: Mr Kay, would you like to give an opening statement?

Mr Kay : I will defer to Ivor.

Mr Frischknecht : Thank you. ARENA is a Commonwealth agency whose purpose is to accelerate Australia's shift to a reliable and affordable renewable energy future. Our No. 1 priority is to fund innovation for a reliable and secure electricity system. The agency has supported 54 projects with approximately $370 million in funding to develop or demonstrate how to implement flexible capacity in Australian networks. Flexible capacity includes storage such as battery and pumped hydro storage, concentrating solar thermal, biomass, power to gas, and demand response. Our funding covers both large-scale and distributed projects, and we think this funding will continue to show how to maintain an affordable and reliable energy system while increasing the renewable energy penetration.

CHAIR: Thank you. CSIRO?

Mr Rodrigues : Our opening statement is that there is a long-term trend over decades of increasing average temperatures with higher extremes. For this reason, there are likely to be significant benefits in directing investments towards improving infrastructure resilience. Backup systems are a key strategy for the electricity system to achieve resiliency. The electricity system ensures it has enough backup by building excess capacity in the generation, transmission and distribution systems. The strategy includes having a diverse electricity generation mix and transmission interconnection between state electricity systems. Due to the expected continuation of high average temperatures and extreme weather events along with expected closures of existing generation capacity due to ageing and through policy incentives directed at decarbonising electricity supply, the electricity system will need to build new capacity into the system and ensure that existing capacity is able to be used efficiently.

CSIRO has not examined market rules which govern how existing capacity is utilised. However, under the Electricity Network Transformation Roadmap, we have conducted new research which examines the role of electricity storage and distributed generation in supporting electricity system resilience. We found that, under a decarbonising electricity system, storage technologies positively contribute to providing system-balancing capacity but are most cost effective when combined with other existing strategies such as maintaining excess and diverse generation capacity.

Due to the lowering costs of battery storage, storage technologies will likely be invested in by households and commercial electricity customers without any changes in current incentives. Storage will be particularly useful as a sharer of variable renewable generation increases in Australia's electricity systems. However, additional technology such as gas turbines, synchronous condensers or advanced inverters will be required in addition to storage in order to provide system inertia, which is necessary for frequency control and is not provided by renewables.

Electricity resilience covers a number of topics. The team that we have assembled here is able to respond to questions around adaptation and resilience of the urban system as well as our research into the Electricity Network Transformation Roadmap. Thank you.

CHAIR: Thank you very much.

Mr Yates : We thank the committee for the invitation to attend to discuss resilience of Australia's electricity system. CEFC, as you know, invests to increase the flow of funds into the clean energy sector. Our mission is to accelerate Australia's transformation towards a more competitive economy in a carbon-constrained world. This week, we announced two more transactions, and last week we announced another series of transactions, so in the last two weeks we have committed approximately $250 million to other investments in the sector. Since inception, the CEFC have made investment commitments of over $3 billion, and we have a current portfolio of approximately $2.4 billion. Our forecast yield on our portfolio is approximately five per cent, and the government's cost of funds, or the government's current borrowing rate, for five years is around 2.23 per cent.

Although the CEFC do not have direct expertise in physical-infrastructure resilience, we recognise the importance and the effect that damaging winds, bushfires, floods and high temperatures have on the electricity network and how they could put upward pressure on prices and expose electricity consumers to great suffering and loss. As a clean-energy financier, the CEFC has a strong interest in system resilience.

Over time, to meet carbon reduction targets, our electricity system will see significant investments in the renewables space. We observe that the cost of producing electricity from renewable sources is continuing to decline, and, in recent years, we are seeing more and more investment in that space. But we recognise that the output from renewable energy can be variable, and that introduces complexities within the network system. We also observe that not enough investment is going into technologies and infrastructure, such as large-scale storage and transmission, to help balance that variability. Such assets face regulatory challenges in entering the market.

In our view, there are probably about five things that are needed. We need diverse generation technologies within the system. We need geographical diversity of that so that we can draw on uncorrelated renewable resources right across Australia. We need a strong transmission interconnection between regions so we can move that power around Australia to balance supply and demand. We need large-scale storage, whether it be in batteries, solar-thermal-pump storage or even the coordination of small-scale batteries, to deliver storage solutions. And, importantly, we need the markets and a regulatory system that encourage all of those to occur at the same time. For us, these are the elements of a balanced residual electricity network. They must be planned and they must be achieved, and the CEFC is ready to facilitate investments in resilience to help balance the grid through a challenging transition. Thank you.

CHAIR: Thank you very much. Mr Yates, I might start with you. You have identified those five key action points in terms of how you see that the system needs to be fixed in order to meet the demands of the system but also the inevitability of what is clearly already emerging to be a diverse selection of various different types of energy generation. Who should be driving that? You have identified five points. You have said that your organisation is able to play some role in that, but who needs to be driving it?

Mr Yates : I think it will have to be a coordinated government response. The private market will not be able to make long-term investment decisions in a highly volatile situation. The market faces significant volatility. Whether it is right or it is wrong, it is volatile. People do not quite know the direction of government policy. People do not know the timing of the need to make adjustments in carbon emissions. People do not know the speed with which that may or may not have to be made. In that environment it is very hard for the private sector to make long-term investment decisions, which are necessary if you are going to move from one type of asset to another type of asset. It is incumbent on all governments to work together to come up with a pathway and a framework, which has to be bound around a long-term objective that is set around general scientific terms as to what we need to do, and then they need to build an investment climate that facilitates the market to go from A to B.

CHAIR: Do you agree with some of the commentary that AEMO is just not up to speed to be able to cope with the changing demands, with the level of diversity that is already being created within the system, and that their ability to regulate through the national energy market—they cannot do it because they are not up to speed?

Mr Yates : AEMO is an operator of a market. There are market rules under which they have to operate. I would suggest that part of the Finkel review will look very carefully at those market rules to see whether they are appropriate in the market in which we are entering into. It is, in my view, clear that the market rules were probably designed in a period where you did not have the level of variable generation coming into the system. Like everything, market rules will have to be adjusted based upon the environment in which you—

CHAIR: They are outdated, effectively?

Mr Yates : I do not think they are well designed for a volatile market, which not only can have volatility in generation but can also have solutions that actually balance that volatility. So if you are going to introduce a volatile generation, you need to encourage volatile alternatives to balance those two things. If the market does not have both, then it will not clear—like any other market.

CHAIR: The government recently flagged the idea of the CEFC funding new coal-fired power stations. What is your response to that?

Mr Yates : The government is at liberty to suggest whatever the government decides to suggest. That is up to the government of the day. We operate as a statutory authority underneath the terms of our act, and the act has some limitations on it. In certain circumstances we can invest in certain assets and in certain circumstances we cannot, but, regardless of the asset type, there is an overriding criteria, and one of them is that we have to operate sustainably and commercially. To be honest, in a market of such volatility it would be very difficult to find a private sector or a commercial investor making a decision to invest in a coal-fired power station in the Australian market today. So we, like a commercial investor, are very unlikely to find circumstances in which that would be an appropriate investment to expose the taxpayers to. Remember, we are investing the taxpayers' money. They are expecting us to operate commercially and carefully with that money, and we have to assess all of the investments appropriately.

CHAIR: Is there any work being done by CEFC in relation to a solar thermal plant in Port Augusta?

Mr Yates : There has been, and Simon you may want to—Mr Brooker may be able to comment on that.

Mr Brooker : Certainly we are aware of the Port Augusta proposal, and we have had engagement with proponents behind the proposal. I make two observations. Firstly, it is a very large investment, well over $700 million or thereabouts, to build that plant. Secondly, I think it is on the public record that they are seeking a power price of $150 megawatt hours. I guess the challenge is if the market is prepared to value that energy at $150, that plant will get built. The question is whether they will be able to secure the market contract they need to see it built.

CHAIR: Has anyone from state or federal government approached you specifically around that project?

Mr Yates : The government, whether they be state or federal, cannot direct us in relation to a specific investment—

CHAIR: No.

Mr Yates : but clearly they can point out areas of interest within their electorate. It is very common for members of parliament to talk about projects, whether it be a gas project or any project within their electorate, from time to time. Equally, they will all be assessed based upon their merits.

CHAIR: ARENA, what do you see as the barriers to investing in what we have heard we need in terms of diversifying the sector for large-scale or even small-scale storage options?

The technology seems to be there, but we do not have it rolled out in the levels that we need.

Mr Frischknecht : ARENA is very much focused on trying to show how these new technologies can be deployed. One of the challenges is the cost. Historically storage options have been very expensive—I am talking about battery storage here—but that cost is coming down. It has come down already; it is going to come down quite a lot further. We are now in the process of demonstrating a whole variety of different ways of deploying storage and, very importantly, getting value from storage. Ultimately, unless you can get enough value for it—to pay for it—it is not going to be deployed on a purely commercial basis. So that is starting to happen.

You asked me about the barriers. Cost is a very big one. As Mr Yates has already mentioned, there are not necessarily sufficient incentives in the market rules to have those deployed.

CHAIR: What would those incentives need to be? How should we change the rules?

Mr Frischknecht : One thing that would benefit battery storage, for example, is payment for very short-term storage and discharge, which would add stability to the network. You could imagine a change to the market rules that would incentivise that sort of thing. AEMO could also simply request it and require it within a particular part of the network. It is not our job to decide whether or not that is necessary in a particular location; that is up to either the local distribution network or AEMO to decide whether it is needed. Our job is to make sure that those technology options are available and known, in terms of having some experience with them, and that the business models exist for them, so that they can be deployed and paid for and that the economics work out.

Mr Yates : The key criteria from our side is to make them financeable. They need to have a revenue model that works. Ivor was talking about a change in timing pricing. Currently you only get paid on 30-minute interval pricing. Five-minute interval pricing, from our own analysis on battery projects, would change the revenue profile significantly and would then encourage batteries to come into the market and be available for short-term supply. This is exactly what you want: a very fast response. Unfortunately, clouds come over solar systems, and that will change their generation. That is a different development, so you need a responsive asset in the market to be able to respond to that.

CHAIR: Some of the evidence we were given earlier this morning was that the ability to change that time interval, from 30 minutes to, say, five minutes, actually suits battery technology because it is so much more instant.

Mr Yates : Absolutely. Yes.

CHAIR: What about the overall lack of planning? We heard Mr Yates talk about the issues in relation to not having a cohesive plan or blueprint. Is that ARENA's perception of the current situation?

Mr Frischknecht : We are certainly contributing. We look at the world from the perspective of renewables, because our mandate is focused on renewables, and it would certainly help the renewables industry to have a stable investment environment. At the detail level, we are providing input and feedback to various reviews—and there are a variety of government efforts underway to make sure that the regulatory environment is fit for purpose.

Senator McALLISTER: I want to ask the representatives from CSIRO about the technical issues associated with integrating renewables into the grid. Mr Yates made reference to the intermittent nature of both solar and wind, and this is sometimes posed in the public debate, for lay people, as being an insurmountable barrier to higher levels of reliance on renewable energy. I wondered what your research tells us about the viability or otherwise of renewable energy in the electricity grid.

Mr Rodrigues : As a mix of generation technologies, renewable energy is part of that mix. As a balance across a number of different technologies, including fossil generation, I think that there is a pathway there for renewables to be integrated. Much of our research has been included on the various technology options that could be used, such as battery technologies and solar technologies.

In terms of the modelling of the mix, or commentary on the various options and potential different mixes of renewable energy into the grid, we did some modelling of those and of the options within the network transformation road map that we mentioned prior. Paul, would you like to comment on anything in that space?

Mr Graham : We could probably add that introducing renewables at a share of 10, 20 or 30 per cent is fairly trivial on the basis that the existing generation capacity has a lot of flexibility to deal with the variability. Traditional approaches around peaking gas, using the dispatchability of coal and the interconnection between states allow renewables to contribute to the system. That has generally been the approach in most states.

When we do modelling where we increase the renewable penetration above around 40 per cent of the energy delivered, that starts to force out some of that existing dispatchable generation, and then we find that you need to add other technologies to support renewables. That can include storage, as we have been talking about, and there are a number of different storage technologies. It can also mean adding other dispatchable renewables. We often think about solar thermal as a dispatchable renewable, and there are geothermal technologies.

When we have done modelling that goes to very high renewable penetration, getting close to or up to 100 per cent, we have done calculations of very, very high battery deployment to achieve that, and we are also using technologies like biogas, which is dispatchable, and dispatchable biomass. But I should add that that takes care of the sort of energy balancing on a half-hour basis. There are also other issues around the need for frequency control and so forth, where you need additional technologies that provide inertia. That could include things like synchronous condensers and more advanced inverters for the battery technologies, and so forth.

So generally there appear to be engineering solutions for lots of different levels of renewable penetration. The only uncertainty is that we have not actually seen them deployed, but, in theory and in simulation and modelling, there do appear to be solutions going forward to achieve whatever is desirable.

Senator McALLISTER: So technical capability is not the issue. However—and I welcome comments from any of the witnesses around this—the evidence we have heard this morning is that the regulatory frameworks and, in particular, the market design features as yet do not support the full range of technologies that might be necessary to produce some of the outcomes that your evidence suggests are technically possible.

Mr Rodrigues : I am not too sure that we can comment on the regulatory policies there that would include or exclude a mix. In terms of our research, we have essentially just modelled a number of different mix options working through. Was that the question?

Senator McALLISTER: Yes. The conclusion I draw is, if there are no engineering barriers to the integration of these technologies, it nonetheless remains possible that there might be regulatory barriers associated with the market design, because we are dealing with a market with monopolistic characteristics in part, and it is highly regulated.

Mr Graham : Yes, that is correct. There are some aspects of that that we have not explored and some aspects that we have. A lot of that is outlined in the recent work with the Energy Networks Australia report around the Electricity Network Transformation Roadmap, where we have highlighted things such as that it would be useful if we had price signalling and communication between technologies down at the distribution end of the market and up into the wholesale market. There are number of barriers that could be removed that would support a higher penetration of renewables. I will not try to list them all, but certainly I take the direction of your question, and the answer is yes.

Senator McALLISTER: Thank you. Chair, Senator Urquhart has a couple of questions.

Senator URQUHART: I just have a few for the CEFC. We know that the government has been talking up the ultra-supercritical coal plants as 'clean coal'—I will put that in inverted commas. Is that what you would traditionally know as or understand to be clean coal?

Mr Yates : By the sound of it, that is a rhetorical question, I think. I think you can answer that for yourself. It depends on whether you consider—

Senator URQUHART: I am not asking me, though, Mr Yates.

Mr Yates : It depends on whether the emissions of carbon dioxide into the atmosphere are considered a dirty product or not.

Senator URQUHART: How clean are the USC plants compared to other alternatives?

Mr Yates : Other alternatives, of course—renewables—have zero emissions. If you go through the pecking order, you probably get traditional coal; you can get your 'clean' coal, which may be 30 per cent less than traditional coal; and then you will get around to gas, which might be 50 per cent less. I am sure the CSIRO can go through the tiers of this. Obviously, you get around to a stage where you have zero emissions when you come around towards a whole variety of renewable technologies.

Senator URQUHART: Compared to gas, solar and wind, how expensive are they? Also, going forward—say in five or 10 years time—how do you see that cost?

Mr Yates : I think the CSIRO may be able to answer that because they were involved in the—

Senator URQUHART: I am happy for the panel to—

Mr Yates : They were involved in the CRC for CO2's data.

Mr Rodrigues : I think there was some information that came through in some of the modelling of the different pricing options. Again, I will defer to Paul.

Mr Graham : Could you just give me the question again specifically?

Senator URQUHART: It was really about: how expensive are the USC plants compared to, say, gas, solar or wind? And then, moving forward into, say, five or 10 years time, what is that comparison?

Mr Graham : The last piece of work we did on projecting technology costs was in partnership with the CRC for CO2. That was done using a combination of stakeholder engagement, looking at the cost of existing plants and also some projection models. That reported costs for 2015 and also for 2030. What that showed, using the common methodology of levelised cost of electricity, is that there is a projected convergence between the cost of efficient coal plant and renewables such as solar and wind over time. I should provide a caveat, though, that there are a lot of people in the electricity industry who recognise the limitations of the levelised cost of electricity as a comparative measure because it does not include the cost of integrating technologies. The concern is particularly that renewables have a greater cost of integration because of their variability.

Senator URQUHART: So is that information available?

Mr Graham : Yes, that is a public report from the CO2 CRC.

Senator URQUHART: If I understood you correctly, Mr Yates—I think it was a question from Senator Hanson-Young. In terms of the administrative or legislative, would there need to be any changes for you as an organisation to invest in USC?

Mr Yates : Currently the way it stands is that, if there were an economic project which could be economic and generate emissions 50 per cent less than the grid without using carbon capture and storage, technically it might be able to fit within the definitions. But, again, we would not be able to invest in a project like that on commercial terms without indemnities from the federal government for future carbon price. We would not be able to invest in it unless we had full indemnities from the federal government, unless they were willing to take the risk that construction could be delayed as a result of activist intervention. And we would not be able to invest in it unless they provided a very long term power price curve and a contract, because we are seeing renewable prices continuing to decline, and there is no point investing in an asset which is going to produce electricity at a higher price. So commercially it is seriously challenged.

Senator URQUHART: Yes, but you do not need legislative or administrative changes to allow that to occur, to invest in USC?

Mr Yates : Technically, it is very clear underneath. It is clear from the way the CEFC Act was designed that it was not contemplated—just like we would not be financing gas, we would not necessarily be financing relatively high-emitting coal-fired power stations. If there was a technology—if coal-fired power stations could be made to be very low in their carbon emissions then, rationally, we would all be saying, 'This is fantastic.' But until such time as they are able to demonstrate much lower emissions, it is not really a technology that would be likely to have a long-term path. Therefore, it would again be very risky for the taxpayer to invest in.

Senator URQUHART: I guess that sort of answers my next question, which is: as the CEFC, would you currently recommend public investment into the USC plants as suitable replacement for old, closing coal plants and, more broadly, meeting our energy needs?

Mr Yates : The answer would be simple. It would be no.

Senator URQUHART: Thank you.

Senator BACK: Thank you all very much—it is most interesting. Mr Yates, Do you think is there an economic case for carbon capture and storage to drive the net cost down so that generation of electricity from coal sources—particularly high-quality, lower emissions coal—is likely to be an economically feasible proposition?

Mr Yates : Again, I could pass it to the CSIRO for a technical comment on the costs of carbon capture and storage but, from the financability point of view, I think it will be challenged.

Mr Rodrigues : From a carbon capture and storage point of view, there is a number of projects that are underway at the moment in terms of, essentially, qualifying those particular costs. One of the issues that we have not seen, though, is the widespread adoption of carbon capture and storage in the power generation sector. There are international examples of facilities that are actually doing that, but we do not have them here. The Otway Basin is one of the projects here, as well as the South West Hub. They are being supported by the government.

In terms of the comparative costs for carbon capture and storage, I think that, because of the lack of demonstration sites in power generation, it is difficult to come up with a commentary on that at the moment. As a final comment here, carbon capture and storage is used quite extensively in oil recovery and gas recovery at the moment. For example, Gorgon is one of the—

Senator BACK: We might have to get you to speak up a bit, Mr Rodrigues.

Mr Rodrigues : Sorry—apologies. The final comment there is that I think carbon capture and storage is used quite extensively in the oil recovery sector and Gorgon is an example of that, or will be an example of that.

Senator BACK: Staying with you for a moment, Mr Yates, you were talking about the cost of electricity storage. Have you done any modelling or any cost-benefit analyses to date on what the cost of the storage capacity is? Or perhaps Mr Brooker could answer.

Mr Brooker : It would depend on the sort of storage that we are talking about; I guess that is the first clarification to make. To give you a sense of it, if you looked at battery storage systems for the home, for example, and you looked at typical household, there are five kilowatt systems with 13 kilowatt hours of battery storage on the market today that would be enough to run your home without reliance on the grid for a period of time. If you were to install those systems you would be looking at a levelised cost at the cheapest end of the market, even today, of somewhere around 20c to 22c per kilowatt hour, and more expensive systems may be 30c per kilowatt hour. In terms of the economics for the household—and this is why you heard submissions from ENA and others about the penetration of behind-the-meter storage—the economics, regardless of anything else, are certainly moving in that technology's favour.

In terms of large-scale storage, it depends on what you are trying to do. If you want to firm the despatch of renewables, it might add $20 to $25 a megawatt hour; if you wanted to provide baseload energy time shifting with technologies such as solar thermal, you heard me say before that that would require a price of around $150 per megawatt hour. Of course, there is work going on in pump storage as well, which is potentially a very interesting technology, at least from an economic perspective. You get a range of price points, and it really depends on whether you are looking to provide system resilience security or whether you are trying to provide an economic outcome of shifting, say, solar from one time of the day to another time of the day.

Senator BACK: Going to your CSIRO submission, you are talking in terms of desired level of disaster resilience and you have mentioned redundancy, rapidity, robustness, resourcefulness. Then you have mentioned that:

In light of these properties, localised, distributed electricity storage and generation play a pivotal role in systems that possess stand-by capacities that can: be quickly mobilised when needed; limit flow-on economic losses due to prolonged system recovery period; lessen the initial loss by reducing the degree of system degradation; and aid the communication and emergency mobilisation needed for disaster response and recovery.

We want to address ourselves to both shorter- and longer-term issues, but I want to concentrate for a moment on the shorter-term issues. You have probably heard me say that, contrary to it being a national electricity market, my state of Western Australia does not have a great big cable. Yet, because some of the players here in the eastern states are also generators in the West, I have come to learn that we are actually paying some of those penalties. But I will put that to one side.

We have a circumstance in South Australia which is immediate. Yesterday wind was contributing 2½ per cent—

CHAIR: Wednesday.

Senator BACK: Whichever. Having first made the prediction in June of what was going to happen in South Australia, I would probably claim a bit of high moral ground because I was right, but this is a concerning issue to this committee and to this parliament, and to yourselves. There was then reliance on coal-fired power from Victoria across the interconnector. Victoria is moving to a situation where they are going to turn off their coal-fired power stations. Neither state is entertaining the possibility of gas exploration—so, therefore, exploitation. I have not yet heard of the likelihood of a pipeline either south from the Territory or east from Western Australia.

Victoria and South Australia then both find themselves in a circumstance where they have lost the reliance of coal-fired power, but they have the ongoing challenge. A responsibility rests with everyone. In this committee I do not want to, nor intend to, allow a circumstance in which we put one government up but we do not put the other one up. That is not helpful. I am not interested in that nonsense. I go in to committees with the objective of coming out with recommendations to the parliament that actually fix problems.

What I am saying to you is: are you addressing yourselves to what I see as a train wreck that is happening very quickly—not when we have got thousands of houses with solar panels on their rooves, but in the next 18 months to two years to 2½ years, when coal is no longer supplying power in Victoria, when coal has already ceased providing power in South Australia? Where are your solutions, please? The consumer wants to know that they can turn the lights on in their home, in their hospitals, at their airports et cetera.

Mr Rodrigues : Who is that question directed at?

Senator BACK: I guess it is directed at yourselves, but I introduced it by quoting from your submission, Mr Rodrigues, so I would be very interested to know where CSIRO's thinking is in this space.

Mr Rodrigues : Without obviously commenting on different states' policies or regulations—

Senator BACK: Correct. It is not your role to do that.

Mr Rodrigues : In terms of research across the energy spectrum, CSIRO is performing and conducting a number of research projects across all energy generation projects, energy storage types. We are directed as much by the states and the government policy as well as industry, and our strategic research will be exploring some of those options that could become available under commercial circumstances or commercial operators that choose to take some of those forward once they progress through research.

Senator BACK: I want to go to what I see as being the anomaly in Australia, unlike the situation in the United States of America. I am going to speak about wind-generated power. In America, a generator of wind power is contractually obliged to provide the energy that they say they will provide to a retailer under a power purchase agreement. In Australia, the act of parliament was so structured that, whilst there is an encouragement to enter into power purchase agreements, the retailer knows that the wind generator is what is called a semi-scheduled generator. That is a quaint way of saying. 'I'm going to contract to sell you my power but I'm under no obligation to sell it to you.'

Mr Rodrigues : But you will get payment.

Senator BACK: No. You only get payment if I provide the power. It just seems to me that is where a very major deficiency occurs. If I am a retailer and I say to somebody else who has wind generators, 'Yes, I'm going to buy my power off you because I'm going to participate in renewable energy certificates and I'm going to surrender them back'—and I will get onto that soon. Both of you are or have been associated with, I think, the funding of industrial wind turbines. It is a fundamental error of any supply and purchase arrangement that one party says, 'I will sell you a product,' and the other party thinks it can rely on the supply of that product to meet its obligations only to find out that it does not have to, because the wind didn't blow.

Mr Yates : Senator, I will comment on that. That is a well-known situation in every commodity market around the world. If I am at a supermarket and I say, 'I'm going to provide you with biscuits,' then the question is: if you are not selling enough biscuits, I might store those biscuits. I might be making them and storing them in my warehouse, or they might have to go to your warehouse and be stored until such time as they are used. The concept of a market where it is produced and sold immediately, absolutely perfectly matching demand, does not exist in many markets around the world. In many markets, there is always a period where demand does not equal supply, and it is important that it is balanced out.

I think the issue that you should be potentially focusing on is looking back at the previous decisions and saying: why are we in this position today? If you look at why we are in this position today, in my view it is potentially because you cannot move commodities between markets. When South Australia's electricity price was at $14,000 a megawatt hour, Victoria's was about $200 a megawatt hour? Why is it not able to be balanced? It is because I cannot deliver my goods from one state to another state. That is happening all around the eastern energy markets, as you call it, rather than the NEM, because you do not have the ability to shift power between locations, and that is a fact of long-term investment decisions and decisions that were made quite a period ago. You should go back and have a look and say, 'Why did we not put in a larger interconnect with South Australia when we last upgraded the grid? Why did we put in 190 megawatts when we could have put in a proper interconnect?

Senator BACK: So do you share my pessimism then that, in terms of the Victoria-South Australia situation, coal-fired reliable power has been forsaken or is about to be? Do you share that pessimism at this point in time?

Mr Yates : I share optimism. We are a big promoter of both trying to get the Basslink second cable in place and seeing South Australia put another cable in, because we believe that increasing the size of the market, which is what will happen if you allow commodities to be moved between markets efficiently, will drive down prices and will allow energy to be generated where it is cheapest. At the moment, we have a funny market. We are not allowing energy to be generated in the best place because we are not prepared to provide a road to enable the goods to be delivered across our nation.

Senator BACK: Yet, it is my belief that the Basslink was lost because it was cooked. There was too much of an effort to try and sell excess power from Tasmania up to Victoria at a time when they actually did not have sufficient hydro capacity to meet their own needs. Am I wrong in that assumption?

Mr Yates : That is a technical question about what happened—

Senator BACK: Okay. I'm sorry. That is fair enough if you don't answer.

Mr Yates : Tasmania is quite an interesting state. It is actually a power storage state.

Senator BACK: It might not be.

Mr Yates : It can be a power storage state—

Senator BACK: It can be. It hasn't been.

Mr Yates : but we are not able to plug it in effectively.

Senator BACK: It has the potential to be. I will accept that.

Mr Yates : That is right. It has the potential to be.

Senator BACK: For reasons I will not go into in this discussion, it has not been. I know there are others who want to ask questions. Your biscuit analogy is all right until such time as we speak of the need rather than the want to eat biscuits. So we will agree to disagree on the analogy that you have given me there. Time does not permit—I really wanted to go through with these witnesses the whole question of the renewable energy certificates and how many we have stored et cetera.

CHAIR: Do you want to put some questions on notice?

Senator BACK: I might do, and I will pick it up with other witnesses this afternoon. My prediction is that the store of, let's say, currently available renewable energy certificates is going to exhaust, probably in 2018-19. My concern is that at that stage we are going to see a dramatic increase. It is probably going to answer some of the points that you have quite rightly made, Mr Rodrigues, in terms of your submission, but I am not satisfied. If I was an eastern states consumer, I would not be satisfied that we actually are where we need to be.

Senator ROBERTS: Taxpayers pay my salary. That makes me a servant to the people of Queensland and Australia, so I try to do my due diligence. My first question is to ARENA. A very simple question: why do we need to increase renewable energy?

Mr Frischknecht : ARENA is a statutory authority and we have been set up for that express purpose.

Senator ROBERTS: Who are you funded by?

Mr Frischknecht : Taxpayers.

Senator ROBERTS: Mr Rodrigues, you stated that there is a long-term trend of increasing temperature. For the last 21 years the most accurate temperature measurement of the troposphere, by far, has been NASA satellites. They have shown no temperature trend other than flat for 21 years. The longest temperature trend in the last 120 years of climate records was 40 years of cooling—from the 1930s to 1976—at a time when human production of carbon dioxide increased dramatically. In the 1880s and the 1890s, temperatures were warmer than they are today. If we restrict ourselves to the period that the bureau keeps putting out publicly—from 1910 onwards—then there has been an increasing trend, and some cooling trends, and some increasing trends, and some cooling trends. On whose evidence do you base your statement that there is a long-term, implicitly ongoing trend of increasing temperature in the atmosphere?

Mr Rodrigues : My comments were based on the reports and the discussions from our climate scientists. I am not—

Senator ROBERTS: Could you be specific?

Mr Rodrigues : I am not a climate scientist. We could provide some of those names on notice, if you would like.

Senator ROBERTS: If you could tell me on whose advice you based that statement—not now. Send it to me, that is fine.

Mr Rodrigues : To the committee.

Senator ROBERTS: To the committee, yes.

Dr James : We are happy to refer you to the sequence of reports that CSIRO has done with the Bureau of Meteorology, which document the question you are asking.

Senator ROBERTS: My next question is going to be very interesting for you as well, Dr James. Mr Rodrigues, are you aware of my response to the chief executive of the CSIRO? I have tabled it here today but I am happy to send you a copy if you want.

CHAIR: We will have to have a discussion as a committee as to whether we accept a tabled document. We have not actually agreed on that.

Senator ROBERTS: The first item of my work, after I was sworn in, was to ask the chief executive of your organisation for a presentation on the empirical evidence that he shows proves carbon dioxide from human activity affects global climate. We received that presentation—after some chasing—and there is no evidence anywhere in the CSIRO's presentation that carbon dioxide from human activity affects climate. I have since responded to the chief executive and shown him, using around 50 databases of evidence around the world, that carbon dioxide from human activity not only is not affecting global climate, it cannot affect global climate. So I would ask you please to take note of that. Would you like me to send you a copy of my response?

Mr Rodrigues : I will certainly take note of that, Senator. If the senator pleases, he can send me a copy of the response.

Senator ROBERTS: What do you mean by the term 'decarbonising'?

Mr Rodrigues : That is referring to the overall targets that the nation has set for itself in terms of reducing carbon dioxide emissions over time towards a goal of 26 per cent to 28 per cent, as our COP21 submissions indicate.

Senator ROBERTS: In effect then you are really 'decarbon-dioxidasing'.

Mr Rodrigues : If that is the term of preference.

Senator ROBERTS: I am getting quite annoyed with the use of the word 'carbon' in reference to carbon dioxide. Carbon is a solid and carbon dioxide is a gas. So that means that what you want to do is to reduce the use of hydrocarbon fuels.

Mr Rodrigues : Carbon dioxide emissions.

Senator ROBERTS: Yes. So that means to do that we need to reduce the use of hydrocarbon fuels.

Mr Rodrigues : I think there is, obviously, an increase in renewables that would come through. And, within that mix, hydrocarbon fuels also provide a pathway through renewable generation of hydrocarbon fuels.

Senator ROBERTS: But to reduce carbon dioxide output you need to cut the use of hydrocarbons.

Mr Rodrigues : I would confer with my colleagues and I would suggest that that is correct, but I am just unsure—

Senator ROBERTS: It is correct. I just wanted confirmation.

Mr Rodrigues : in terms of the specifics—

Senator ROBERTS: So that means we are really 'decarbon-dioxidasing' and we are 'dehydrogenising'.

Mr Graham : There are lots of different strategies for changing the balance of the net greenhouse gas emissions of Australia. Some of those involve reducing the combustion of fossil fuels and some of those involve—

Senator ROBERTS: Hydrocarbons.

Mr Graham : Some of those involve growing more trees—forestation. In terms of the role of hydrogen, I think you are getting at—

Senator ROBERTS: When we cut the use of hydrocarbons we cut the use of hydrogen and carbon.

Mr Graham : Well, there are pathways to produce hydrogen that do not start with a fossil fuel. You could create hydrogen from a renewable source of energy and create hydrogen and use more hydrogen.

Senator ROBERTS: I accept that in the use of hydrogen fuels. But when we cut hydrocarbons we cut both carbon and hydrogen.

Mr Graham : If the carbon necessarily includes hydrogen, then, yes, that—

Mr Rodrigues : Chemically speaking.

Senator ROBERTS: That is correct. What kind of carbon goes into making photovoltaic cells and wind turbines?

Mr Rodrigues : I am unfamiliar with that area.

Senator ROBERTS: Well, as I understand it, Ian Plimer, who is a world renowned scientist and who has won awards internationally, has done an analysis of the carbon dioxide that is emitted in the production of a wind turbine, because coal is needed for the creation of steel and other metals and the energy that goes into making a wind turbine. According to Ian Plimer, as I understand it, the carbon dioxide emitted from the production of a wind turbine is greater than the carbon dioxide saved from the use of a wind turbine. My point is, though, carbon dioxide is also produced from everything that we see around us now in its manufacture because steel is used in that. So it is very loose to talk about 'decarbonising' in terms of both the language and also the actual content.

Mr Frischknecht : I can comment on that point with respect to solar cells. That simply does not hold true for solar cells.

Senator ROBERTS: Thank you. It does for wind. I wonder if it holds true if we consider the energy that goes into producing a solar cell.

Mr Frischknecht : It does hold true because the amount of energy that it takes to produce a solar cell is about the amount of energy that is produced in a year of production from the solar cell. They last for 25 or 30 years.

Senator ROBERTS: So then we gain from then on?

Mr Frischknecht : Yes.

Senator ROBERTS: Thank you.

Mr Frischknecht : But even the energy going in could be renewable.

Senator ROBERTS: Yes.

Mr Frischknecht : Because it is just electricity.

Senator ROBERTS: It started somewhere though. China is going to increase its carbon dioxide output every year by an amount that is greater than our total current production of carbon dioxide. What effects will the CSIRO be researching in ways to 'decarbonise', to use your term, China?

Mr Rodrigues : There are a number of research projects that we are working on internationally. In terms of our technology research that is adopted or applied through Chinese organisations, that could be seen to be some of those efforts. Broadly speaking, we are also working with Chinese institutions on emissions research. So we will be assisting where possible.

Senator ROBERTS: And will you be 'decarbonising' America and Europe?

Mr Rodrigues : In terms of our technology penetration—if our research moves in to those areas—of course we are working with European and US organisations and research institutions on common goals and common projects in this area. So, loosely speaking, you could suggest that we are all working on those goals.

Senator ROBERTS: So you are working with Donald Trump , too?

Mr Rodrigues : I think that we are working on a global scale.

Senator ROBERTS: Good luck with Donald Trump. Who provides your funding?

Mr Rodrigues : It is a combination of taxpayer dollars and industry funding.

Senator ROBERTS: Have you done your due diligence into the science on climate change upon which the CSIRO relies?

Mr Rodrigues : Personally, I have not. I am not a climate scientist.

Senator ROBERTS: Are you aware that one of the organisations that the CSIRO relies upon is the Goddard Institute for Space Studies, which is a part of NASA? So when we see the term NASA on climate, it is really the Goddard Institute for Space Studies. The Goddard Institute for Space Studies has never provided any empirical evidence of human causation of global climate change. The Goddard Institute for Space Studies is often cited as one of four databases for temperature records—that you opened your presentation with.

In my letters to the Goddard Institute for Space Studies' director, Gavin Schmidt, in his response he confirmed what many people now know—that those four databases are, in a sense, one and that database is corrupted, both unintentionally through sloppiness and intentionally through fabricating of data. So I would ask you to question your first opening statement about temperature trends.

Dr James : Our opening statement about temperature trends referred to the Australian database of temperatures, not global temperatures. We were referring to the Bureau of Meteorology's reports on temperature trends.

Senator ROBERTS: The Bureau of Meteorology is part of that Global Historical Climatology Network database that is fundamental to NASA's Goddard Institute for Space Studies and the National Oceanic and Atmospheric Administration. The Bureau of Meteorology has also been exposed for corrupting the data.

CHAIR: Senator Roberts, we are going to be finishing right on one o'clock so I suggest that you get to some questions.

Senator ROBERTS: I will. Mr Yates, your mission, your organisation's mission, is to accelerate the transition to a low-carbon world. Who funds your organisation?

Mr Yates : Actually, we are funded by the federal government.

Senator ROBERTS: Thank you. The taxpayers. You mentioned weather issues: fires; storms. If we blame them on our carbon dioxide, even though Dorothea McKellar—'I love a sunburnt country'—shows that those extreme events have been going for time immemorial, if we blame them on our carbon dioxide, implicitly or directly, doesn't that take us off focusing on the real issues that drive fires and storms?

Mr Yates : What—climate?

Senator ROBERTS: Natural weather.

Mr Yates : That is what drives fires and storms: climate. Should we not bother with climate?

Senator ROBERTS: No, what I am saying is we need to know the cause of those storms.

Mr Yates : There are a lot of scientists who are indicating that the intensity of those storms and the frequency of those storms is changing as a result of a change in climate patterns.

Senator ROBERTS: The empirical evidence shows otherwise. The number of storms in North America, for example, is now at a low.

Mr Yates : Regardless of whatever you may or may not think, the market is the market. You will not find people financing a whole variety of transactions, because of a view of future risks.

Senator ROBERTS: That leads me to my next question. There is now far more complexity in our energy markets—and that is why Senator Back, I think, is happy that he's in Western Australia—and that is being driven by climate fraud.

I want to thank you for acknowledging the increased volatility in our energy supplies and our energy market, which has been distorted by government regulation. Is there anyone here, among you eight gentlemen, whose position does not rely upon the claim that carbon dioxide from human activity is affecting global climate?

Mr Yates : Sorry? Do you want to go through that again? We are all here as individuals. Do you—

CHAIR: You do not have to answer that question.

Mr Yates : Okay, fine. I think most people, here, are doing their job for the benefit of the nation and we take a view—

Senator ROBERTS: Your job, specifically, has been created by the carbon dioxide claim that it is affecting climate.

Mr Yates : No.

Senator ROBERTS: So you are one that is not. Okay, thank you. Mr Yates, I have one more question.

CHAIR: Hang on—point of order. Senator McAllister?

Senator McALLISTER: I simply wanted to note that I do have to finish up at the scheduled finish time.

Senator ROBERTS: I have one more question, Senator McAllister. Mr Yates, you mentioned the greater cost of integrating solar and wind into the grid. How much greater? And are these costs included in the price of renewables or are other sources of energy carrying those costs?

Mr Yates : Those costs are going to come into the grid like the costs of the replacement of fossil fuels even if you did actually change fossil fuels and replace them with fossil fuels. So as you are replacing an old system with a new system, there are new costs. It is like when you upgrade your household—

Senator ROBERTS: So everything is carrying those costs.

Mr Yates : There is a cost in operating. There is a cost in doing business. There is a cost in living. This is a transition that we need to make, and we want to try and make that cost and that transition as cheaply as possible. A path is a path.

Senator ROBERTS: My understanding is that the increased volatility makes it more expensive.

CHAIR: Senator Roberts, let the witness finish the question.

Mr Yates : That is all right, I have finished. Thank you, Senator.

Senator ROBERTS: That is why I jumped in. Are there wind turbines that are paid regardless of how much power they produce, Mr Yates?

CHAIR: Senator Roberts, we have got to time now, thank you. Thank you everybody for participating in this discussion this afternoon. We appreciate all of the evidence, and if there is anything you need to correct on the Hansard record please contact the secretariat.

Proceedings suspended from 13:00 to 13:36