Fossil fuels and nuclear: counting the wrong costs

Alan Pears gives us his round-up of energy and sustainability issues this quarter.

The fossil fuel dissonance—environment, value and economics

Fossil fuels generate around 80 percent of Australia’s carbon emissions. Electricity and other forms of stationary energy, mainly gas and coal, produce around 57 percent of Australia’s emissions. In 2021, emissions from exported fossil fuels more than doubled Australia’s domestic output.

But electricity and gas make up a small fraction of household and business costs. It’s not surprising that most retail consumers don’t understand the complexities of the energy space or invest much in energy efficiency or demand management.

If we want energy consumers to cut energy-related carbon emissions, we need policies and programs that emphasise benefits beyond energy costs. Risks of energy shortages and blackouts, disadvantage of renters and low-income households, health impacts, improvement in business opportunity, failings in energy markets and the lived experience of climate change are beginning to drive change.

But change is much too slow. Politics and business cultures are difficult to shift, especially when ‘rational’ financial behaviour, focused on short-term energy costs and issues, dominates policy, the implementation of programs and consumer decision-making.

Consider some relevant facts.

According to the Australian Bureau of Statistics, electricity and gas comprise only about one percent of Australian business input costs. This reflects the dominance in our economy of the services sector (about two-thirds of our gross domestic product), which generates high economic value per unit of energy consumption.

The ABS also shows gas and electricity supply industries deliver just over three percent of Australia’s Gross Domestic Product. Not a lot. Energy is an essential service, but how much is really needed, and from what sources?

According to energy policy makers AEMC, the average household spends around $2500 each year on gas and electricity—that’s about $7 per day per household, around three percent of annual household expenditure and not even equivalent to a couple of takeaway coffees per day. Of course, many households spend a lot more, but many spend less.

A carbon price of $35/tonne of carbon dioxide would add only about five percent to a base energy cost of $2815. Even a carbon price of $100 would add only around $350 to an average annual household energy cost. However, it would provide a useful source of revenue to fund equitable change.

What does all this mean? Basically, for most households and small-to-medium businesses, energy costs are ‘in the financial noise’. We complain when we get a big winter or summer energy bill, but complaints don’t often turn into action unless there are other behavioural drivers. We respond to tangible options like rooftop solar which are visible, make a big and immediate impact on energy bills, and provide some sense of empowerment.

A recent Domain report found that home buyers were prepared to pay substantial premiums for homes with ‘green’ features. ‘Solar’ dominated in both keywords and observed features (see diagram opposite). However, insulation and airtightness, key factors, were not frequently used keywords.

High fixed or unavoidable charges in retail electricity and gas contracts also dilute the impact of attempts to use energy pricing (and carbon pricing) to influence energy use and emission reduction. Fixed charges shift cost and risk onto consumers while reducing the incentive to save energy at the margin.

If we are to seriously address climate change, we have to mobilise energy consumers, big and small. That requires deep institutional and policy change supported by strong communication and addressing complex cultural and institutional barriers as well as business and technology innovation.

We’ve started, but we need to do much more—and much faster.

Nuclear energy, Australia and the USA
Australia’s toxic nuclear debate continues to undermine our energy transition. We need urgent climate action: about a third of the carbon dioxide we emit today will still be heating the planet a century from today.

Climate Change Authority chair Matt Kean provided an interesting perspective in a speech at UNSW:

“The US recently completed its latest nuclear power plant, Vogtle, that took more than a decade to build just over 2 gigawatts of capacity. The cost of two reactors was $35 billion US dollars, or about $A53 billion, drawing criticism that Americans would be supplied with the most expensive energy in the world. By contrast, the US last year added almost 50 gigawatts of solar—a record (though one China is matching roughly every seven weeks).”

I recently recorded a podcast on cities and energy that included a US nuclear enthusiast. I think I now better understand the basis for our government Opposition’s misguided focus on nuclear.

The US situation is very different from Australia. They have quite a lot of existing nuclear generators. Extending their lives doesn’t face much community opposition and seems less expensive than building new nuclear power stations. Building more nuclear plants, especially where some already exist, is politically easier and less expensive than starting from scratch, though it still looks expensive. When you have large generation units you also need more backup capacity in case of a failure. Nuclear would also need lots of energy storage to supply peak demand.

In the US, renewables are much more expensive than in Australia because regulatory and other barriers are more effectively blocking renewables, while low gas prices are also limiting focus on energy efficiency. The ‘Trump effect’ is not helping! Matt Kean’s comments also reflect the US reality.

The US is home to some big businesses that would profit from a nuclear renaissance, and they are very influential. Just look at how Australia’s coal and gas industries distort perceptions of reality to understand what the US nuclear industry can do.

Key elements of the US case for nuclear include heavy reliance on batteries and other energy storage to cope with peak demand and outages of big generators, which I suspect are not usually factored into costings of nuclear. France, which has high dependence on nuclear generation, faces this issue at peak times and when its nuclear plant output is constrained by lack of water from rivers in hot summers. France has a lot of long duration storage, such as the La Rance tidal system, to manage peaks. CSIRO publishes cost estimates for ‘firmed renewables’.

In Australia, most energy storage is focused on filling gaps when variable renewable generation is low and demand is high. Mainstream Australian policymakers are slow to focus on targeted end use efficiency and smart integration of distributed batteries and existing generation to limit system peaks, maximise value of supply infrastructure and limit fixed charges for under-utilised supply infrastructure. I should be used to that by now.

A fundamental challenge for anyone in Australia wanting to build a large, relatively inflexible generator of any kind is that it would require substantial backup generation or storage to be in place in case of failure. That involves investment with limited revenue potential.