Under what's known as the Chatham House rule, on Tuesday March 23, a Sydney University room full of chairmen, some chief executives and directors of electricity generation and distribution corporations, energy analysts and economists, investment bankers and scientists heard expert presentations on the future of the electricity industry in Australia.

Some presenters flew from the United Kingdom and the United States to take part.

(The Chatham House rule is an accepted form of limited confidentiality to encourage open discussion by the participants: you can use the information derived but without attribution to the source. I jumped at the invitation to facilitate this forum, directing questions from the floor to the panellists and asking supplementary questions).

After the failure of the Copenhagen climate change summit to adopt global, legally binding greenhouse gas reduction targets, the electricity generation industry is in a state of uncertainty. The accord which did emerge from Copenhagen, however, appeared to be politically binding.

Countries which failed to deliver on their greenhouse gas reduction commitments would be named and shamed in future years. Canada was already named and shamed. It was in clear breach of its Kyoto target. Kyoto was legally binding but obviously there was no capacity for enforcement as things currently stand. Just look at Canada, the room was told. Perhaps a system of 'green tariffs' penalising the exports of those countries ignoring their carbon reduction obligations would evolve in future years. But there was nothing like an enforcement regime at this stage.

So it was up to each Copenhagen signatory to determine the levers and policy mechanisms to be applied country by country. Japan had just passed its own emissions trading scheme. But neither president Barack Obama nor Prime Minister Kevin Rudd had been able to move on a cap and trade market mechanism to effectively put a price on carbon dioxide emissions. The United States economy was still struggling to recover from the GFC and an ETS there was considered too costly economy-wide at this stage. A US Senate bill jointly sponsored by John Kerry, Joe Liberman and Lindsey Graham to establish an ETS, limited at this stage, to electricity utilities in the US was now in play. Senator Graham has warned that unless the United States moved its economy to carbon trading it risked handing the global 'green economy' - the manufacture and export of carbon reduction technology - to China. The US would lose the technological race. China was already well advanced on this.

It remained to be seen if Kevin Rudd would pull a double dissolution trigger to make the 2010 federal election in Australia a 'climate change' election. Although a double dissolution was on the cards, it now seemed doubtful that it would be fought on an ETS. A wave of scepticism post-Copenhagen had taken hold and Mr Rudd obviously did not want to take the domestic political risk, hence his effort to create pre-election momentum over public health reform.

Gas and wind

So what was the future of the electricity industry to, say, 2050? With no certainty about that future, it has become something of a punt for any investment in this sector which, everyone agreed, faced the greatest challenge in its history. There was little doubt that investment in coal-fired generation was problematic and high risk given the capital required, construction lead times, and projected returns over 15 to 25 years. This was something of a tragedy for Australia whose post-war economic growth had benefited significantly from about the cheapest (coal-fired) electricity in the world. Coal had helped build the Australian economy to its current domestic and international trading strength. Being required to make the transition to more expensive energy was like having to pick up a fork and poke yourself in the eye. (Coal exports, alternatively, remained a good investment. Hungry for royalty revenue the big coal states of New South Wales and Queensland were ramping up coal mining and export as fast as their port conveyor belts could go).

Gas and wind were considered the most 'bankable' over the next 15 years. Coal seam gas for electricity generation was rapidly replacing coal itself as a fuel source for future economic growth. It produced only half the greenhouse gas emissions when compared to coal-fired generation and with easily discoverable/extractable and plentiful supplies would dominate the sector ... going forward. In the United States coal seam gas or shale gas had been described as a 'game changer' in that country as an alternative to coal for future electricity generation investment. While the United States was moving to renew the development of nuclear-fuelled electricity generation and some entrepreneurs were in R and D on micro-nuclear generation, coal seam gas was immediately available and obviously cheaper.

With plentiful identifiable sites across the Australian continent, wind turbine generation was now becoming price competitive and therefore investment grade technology. While coal seam gas was marketable for 'peaking' purposes, wind power in Australia was in a rapid growth phase, assisted by the legislated renewable energy target and the G-Gas abatement scheme in New South Wales and its equivalent in other states.

The forum was told of another technology which could be installed in sub-stations across the country to be deployed in times of peak electricity demand - container-sized battery storage systems. Recharged off-peak, the batteries had great potential as a price containment mechanism for electricity distributors forced to very high costs to maintain supply at peak times on Australia's competitive electricity grid.

And what about that other technology: geo-sequestration or CCS - carbon capture and storage? One international industry senior executive asserted through a slide-show examination of CCS trials and new pre-combustion technologies worldwide, that CCS would be 'competitive with wind' by 2015. Under questioning later the executive indicated that to prove this, more rigour and accuracy was needed in assessing the true cost effectiveness of wind versus CCS power. Nevertheless he stood by his declaration. If this claim is confirmed, coal-fired power will have a more certain future for capital investment.

(One generation technology not discussed in detail at the forum was solar thermal, now being deployed in Spain as a baseload power source. The Spanish solar thermal power stations heat water to create steam to drive electricity generators. Cleverly the turbines can run 24/7 even when the sun does not shine, by holding the required steam in the industrial equivalent of a Thermos. It would now be helpful to compare with wind and gas the cost competitiveness of this technology in sunburnt Australia. Solar thermal is operational in Australia but remains at the margins in the debate at the moment).

In summary then: while a cap and trade market mechanism to put a price on carbon remains the most favoured global system to actually reach targeted reductions in greenhouse gas emissions by 2050, the momentum for its introduction is stalled in Australia and the US. A carbon tax is equally politically problematic. And many argue that such a tax, resented but nevertheless paid by carbon dioxide polluters and their customers, does not guarantee greenhouse gas reductions, which is meant to be the imperative to mitigate global warming. Given the investment uncertainty in the electricity generation sector many supported more abatement technology without, or, preferably with, incentives.

Under what must have been a symptom of industry group think, energy efficiency or demand management was not high on the agenda for discussion. In fact there was no discussion. This was revealing.

It was, after all, a futures forum on electricity generation.

So gas and wind it is then?

Quentin Dempster presents Stateline NSW on ABC1.

An item arising from the electricity futures forum was broadcast on Friday, March 26, 2010. The video is available here.