Posted in Energy

Lower Costs, Greater Investment Produces Record Year for Australian Renewable Energy

Renewable energy produced a record share of Australia’s electricity in 2016, with a slew of new projects putting Australia on track to reach the 2020 Renewable Energy Target.

More than 17 per cent of Australia’s electricity came from renewable sources last year, up from 14.6 per cent in 2015, thanks to greater rainfall in key hydro catchments and a series of new wind and solar projects, according to a new report from the Clean Energy Council.

Photo: article supplied

Clean Energy Council Chief Executive Kane Thornton said the industry was set for another record year in 2017.

“Every month brings new project announcements. While total investment in large-scale renewable energy was $2.56 billion last year, $5.20 billion worth of projects have secured finance in just the first five months of 2017 and have either started construction or will begin this year,” Mr Thornton said in a statement.

Approximately 17,500 gigawatt-hours (GWh) of renewable energy was generated in 2016, accounting for just over half of the Renewable Energy Target (RET), which is set at 33,000 GWh for 2020.

Hydro generation was the greatest source of renewable energy, providing 42.3 per cent of the total, followed by wind and small-scale solar PV.

Tasmania remained the leader in renewable power generation among the states and territories, producing 93 per cent of its electricity from hydro.

The report released on Tuesday said investor confidence had recovered since the Abbott Government’s review of the RET and had been aided by the plunging costs of solar and wind technology.

This article was originally published by SBS.com.au.

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Is It Time We Upgrade Our Energy Network?

Australia is an exciting place to be right now – changes that previously took 25 years to happen are now happening in five years, and with a customer-led shift in the utility sector to a market in terms with transition.

In response, we must find ways to coordinate all the complexity in the market. On the generation side and on the low side, the grids are the glue behind it all. We need grid extension, transitional lines for power transfer, and examples of reinforcement of our distribution grids with a lot of the centralised generations embedded.

Increased efficiency in our conventional and renewable power plants will be another advantage, as the near future will see the accommodation of wind and photovoltaics, and energy storage.

Additionally, the role of utilities is transforming from a service to a solution company.  As utilities respond to market forces, they will increasingly need to be more agile and move from a poles-and-wires company to a service and solutions company.

Significantly, we’re also seeing digitalisation impact the market through Distributed Energy Systems (DES), a technology made up of distributed networks, embedded distribution, embedded generation, virtual power plants, microgrids, and smart metering.

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So how will we address these innovations via energy storage? The answer is that customers are now taking ownership of supply and demand. There is disruption to power generation and energy networks requiring innovation, and data- particularly data analytics will play an important role.

Ideally the government will facilitate this transformation through flexible regulation and government support, at both the state and national levels in Australia.

But Australia isn’t alone in this. A successful case study is Germany, which has been going through this change in the last 10 years: Energiewende is a new German word to describe the change in the energy landscape.

Like Australia, its energy is produced primarily in the north of the country while its solar energy is produced primarily in the south; and similarly, penetration used to be orientated towards consumption centres but today, nuclear energy is going offline step-by-step.

Consequently, there’s a rapid transition from coal to renewables. This is partly in response to the Paris climate agreement struck earlier this year and signed by 180 countries, with most states in Australia agreeing to reduce carbon emissions by 2020-2025.  It is also due to the declining global and local costs of generating electricity via wind and solar, also known as ‘grid parity or the ‘levelised cost of energy.’

The utilities are alarmed but not concerned as they begin modifying their business models to cater for the shift towards the new energy paradigm.  Consumers have also started this journey to embrace the change, with some customers even producing energy themselves and transferring excess energy to the grid.

So what will our future look like? We have come from a system with central power stations and integrated grids, and now we’re moving towards a more decentralised power generation dominated by shorter life cycles and disrupted change.

The energy industry is undergoing the same digital evolution as the telecommunications industry 10 years ago. Digitalisation is real, and it’s here and will support our transition to a sustainable energy future.

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The gas industry needs a carbon price to compete with coal

Putting a price on carbon would benefit the Australian gas industry, at least in the short term. It is therefore in the interests of gas producers to lobby for the emissions trading scheme proposed for the electricity industry by the Climate Change Authority.

At first a sight this might seem a paradoxical suggestion. Isn’t carbon pricing meant to reduce our reliance on fossil fuels after all?

But with gas prices high, coal-fired generation has been increasing. Coal produces about twice as much carbon dioxide as gas when it is used to generate electricity. This is bad news for our emissions, which have increased in the electricity sector recently.

A price on carbon would help to reverse this trend and enable gas to play the role it sees for itself as a stepping stone to a decarbonised future. So how might this work in practice?

In Australia, electricity demand is relatively flat, so we are not likely to see an increase in the number of fossil fuel power stations. Nor are we likely to see new gas-fired power stations built to replace existing coal-fired power stations – that makes little economic sense at the moment.

This is where the current price of gas is important. Because the newly-completed liquid natural gas (LNG) terminals in Queensland are sucking up so much gas for export, the domestic price for gas has risen to the point that gas-fired power stations in the eastern states are increasingly unable to compete with coal.

As a result the amount of coal-fired generation has been steadily increasing over the last couple of years while gas-fired generation has been cut back “very substantially”. Some gas-fired power stations have been mothballed. So there is now considerable, unused gas-fired generation capacity.

From the point of view of gas producers, this is therefore a perfect time to introduce a price on carbon, since it will drive up the price of coal-fired power, relative to gas. This will slow to decline in gas use and ultimately reverse it. Gas-fired generators will be able to meet this increased demand from existing, under-used capacity.

The government’s Climate Change Authority recently proposed a carbon-pricing scheme for the electricity industry, known as an emissions-intensity scheme. It is designed to be as palatable as possible to both sides of politics, so that if implemented it would not suffer the fate of the Labor government’s carbon tax, which the Liberal opposition abhorred and abolished as soon as it gained power in 2014.

One of the features of the Authority’s proposal is that it is not a tax paid to government. Rather it involves a subsidy paid by high-emissions, low-cost generators, such as coal-fired power stations, to low-emissions, higher-cost generators such as gas-fired power stations. This means that gas-fired generators will not need to pass on their full production costs to consumers. This will minimise the impact on electricity prices.

Australia’s LNG exports have driven domestic gas prices higher. AAP Image/Origin Energy

Australia’s LNG exports have driven domestic gas prices higher. AAP Image/Origin Energy

Exported LNG would not be subject to any carbon price in Australia because it is not consumed here. However, converting natural gas to its liquid form consumes a large amount of energy. Indeed, 8% of the gas supplied to LNG terminals is used in the production process. This makes LNG an emissions-intensive industry.

Any price imposed on such emissions would drive up the price of Australian LNG relative to countries with no similar carbon price, to the detriment of Australia’s producers. In short, LNG is a “trade-exposed industry”. In particular, in the language of policy makers, it is an EITE (emissions-intensive and trade-exposed) industry.

The Authority considered the case of EITE industries carefully and expressed sympathy with the submission on this point made by the peak oil and gas producers association – APPEA.

It recommended that policy for EITE industries should include a suite of measures designed to protect them from this kind of competition. The LNG industry therefore has little to fear from the implementation of the Authority’s recommendations in this respect.

The Climate Change Authority did not recommend that existing polices be dismantled and replaced with a single coherent, economy-wide policy. Instead it recommended additions to the patchwork of existing polices, with a particular focus on the electricity sector.

This was criticised in some quarters as unprincipled, but defended by the Authority on the grounds that it was vital that we find a way forward that was as bipartisan as possible, so as to provide maximum certainty for investors. APPEA’s submission to the Authority was clearly against this “hotchpotch” approach.

But the Authority’s proposals offer the best chance for achieving bipartisan support. The government intends to review its climate policies in the coming year. APPEA should be lobbying the government to implement the Authority’s proposals, both in its own interests and in the interest of reducing our greenhouse gas emissions.

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Does rapid renewables expansion mean higher electricity prices?

Perhaps one of the many points coming out of the Grattan Institute’s latest report is the idea that rapid expansion of renewable capacity must necessarily mean higher electricity prices. But what has been the experience in Europe over the last five years during which there has been a rapid expansion of renewable capacity in most European countries?

The Council of European Regulators compiles useful information on retail and wholesale electricity prices. Here is a table compiled from their data, which shows their estimate of average wholesale electricity prices (in Euros per MWh) in 2008/9 and 2014 in various European countries.

energy-price-declines

The table above show substantial price declines. It might be argued in response that since gas is the marginal fuel in most countries, this is reflecting the impact of lower gas prices over this period. Maybe, but that is not the whole story. The rapid expansion of renewables has also driven declines in wholesale prices.

This is well documented and the last few years has seen many venerable European power houses split themselves into the energy equivalent of a “good bank” and a “bad bank”, with the carbon-intensive generators sequestrated in the “bad bank” to manage their decline, and the “good bank” freed of the dead-weight to capitalise on the huge opportunities in renewables.

The rapid expansion of renewables in Australia may, as in Europe, not necessarily translate into higher electricity prices. Instead the expansion of renewables may be funded in large part by the wealth rushing out from carbon intensive electricity production. Carbon intensive producers will of course not like this, but reducing emissions must mean that it is not profitable to produce them, there can be no two ways about it.  In fact, to the extent that it does not occur this way in Australia, policy makers, consumers and the community might ask why.

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Move to clean energy requires smart policy

The phrase “sovereign risk” is used liberally in Australian public debate, most often in relation to established industries that may be affected by change in federal and state policy. But few have suffered as much as the still-establishing renewable energy sector, which has had to deal with constant chopping and changing in government thinking since the turn of the century.

This has particularly been the case since the election of the Abbott Coalition government in 2013. With an axe hanging over the renewable energy target and the abolition of the Labor-Greens carbon pricing scheme, there was a 70 per cent decline in clean energy investment.

In a welcome development, this is beginning to change. Both Prime Minister Malcolm Turnbull and Energy and Environment Minister Josh Frydenberg have strongly backed the existing target, roughly equivalent to 23 per cent of clean energy by 2020, and the long-term growth of the sector. But this should just be the start. Australia’s energy system is badly in need of an overhaul. The decentralised system has served the country well, driving the development of the prosperous economy we have enjoyed for generations and now take for granted. But it is a system designed for the last century, and in recent years its limitations have been exposed.

In terms of electricity, nearly half the amount consumers pay on their inflated quarterly bills covers the costs of extraordinary spending on networks over the past decade. Much of this investment was not needed: the poles and wires of the national electricity grid have been gold-plated far beyond what is required to ensure our lights stay on.

The system is also highly damaging to the planet. Burning cheap, wet brown coal for electricity in Victoria’s power plants comes at a vast indirect cost in the damage caused by the heat-trapping greenhouse gas they emit.

There are valid arguments for the government to intervene to ensure an orderly closure of coal plants, but the biggest shift is likely to be forced by allowing and encouraging the growth of a revamped system that is increasingly decentralised. With the rapidly falling cost of solar power and improvements in battery storage, this is now within grasp. This is a future in which households become “prosumers” – both producers and consumers. It requires changes to the national grid to become a much more fluid market, favouring consumers as much as energy companies. Households and businesses should be able to buy and sell electricity on the national grid at the best prices.

The benefits: the system becomes more efficient, with less energy wasted in transmission; the cost of infrastructure is low; and there is a greater incentive to reduce energy wastage.

There is a role for governments in driving this change. Other nations are far ahead of Australia – witness Denmark where, since the 1980s, public policy has encouraged cogeneration of electricity and heat for apartment buildings and businesses, producing an efficient decentralised system.

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