Powering Australia Vol. 5 by CommStrat

NAVIGATING A NEW ELECTRICITY SUPPLY ERA

n av i gat i n g a n e w e l e c t r i c i t y s u p p ly e r a

Contents

contents

Introduction

Pursuing a softer environmental footprint

Prepare yourself for a step-change in electricity supply and consumption in Australia.

on policy certainty and 12 Focusing a framework for investment Extract from a speech by the federal Minister for Resources and Energy Martin Ferguson.

major national 18 Ainfrastructure challenge

By 2020, coal will no longer be the overwhelmingly dominant source of fuel for electricity generation.

need for a national 36 The energy policy

More than $10 billion worth of electricity is traded every year in a market that operates 24 hours a day.

a national 44 Towards energy policy The governmentâ&#x20AC;&#x2122;s promise of an energy white paper has whetted the industryâ&#x20AC;&#x2122;s appetite.

52 Nuclear versus power poor

How and when is Australia going to decarbonise its electricity supply? Is nuclear power the answer?

POWERING AUSTRALIA VOLUME 5

poverty emerges 58 Fuel as a real issue End-user power prices in 2015 are likely to be twice what they were in 2008.

may brighten 58 Conditions for solar power CSIRO believes future advances will enable the sun to meet 30 per cent of our power needs.

stateâ&#x20AC;&#x2122;s prime 64 Premier supply challenge NSWâ&#x20AC;&#x2122;s population has more than doubled since the mid-1950s and is heading for 7.6 million by the end of the decade.

72 New energy vision for the West

Western Australia lacks a long-term energy plan. Its last comprehensive energy policy was developed in 1979.

big a boon is gas 80 How for generation? Once again gas appears ready to play a golden role in electricity production.

energy trading 84 Interstate on the rise How a $2 billion surge in investment transformed the future for wind generated energy.

88 The solar flagship program

Preparing to reduce future carbon dioxide emissions from power stations by 10.8 million tonnes.

Roll of honour

Roll of honour major Australian Coal Association GE IBM Siemens Ltd SMEC Australia Suntech Power Australia Pty Ltd Toshiba International Corporation TransGrid Key AGL Energy Limited Ausgrid ENERGEX Limited Gentrack Granite Power Limited Horizon Power Institute for Mineral and Energy Resources Vestas Western Power Wilson Transformer Company Pty Ltd

POWERING AUSTRALIA VOLUME 5

The future is electricity. It is unequalled in being able to transfer large amounts of energy at the speed of light and multiple fuel sources can be used to generate it. It will provide more and more of your energy needs in the future. It is simply the most exciting energy sector to be in.â&#x20AC;? Tony Concannon, Executive Director, International Power Australia

IntRodUCtIon

IntRodUCtIon PURsUInG A soFteR enVIRonMentAL FootPRInt

We are now beginning a decade in which policymakers are seeking to launch a step-change in electricity supply and consumption in Australia. the exercise is complicated by the fact that the availability of electricity over past decades has fostered a great dependency in modern society, making power the third fundamental need of communities, along with food and clean water. When the power supply falters today, countless activities in homes, industry, shops, offices and hospitals are put at risk â&#x20AC;&#x201C; and its growing cost affects both household and business budgets. Having come to depend on to a great extent in most parts of the country on comparatively cheap fossil-fuelled electricity, we are embarking on a process in which the carbon emissions intensity of the industry is expected to be significantly improved, the generation mix to be substantially different, networks to be greatly upgraded and expanded, smart meters with time-of-use tariffs to be standard for households and the cost of electricity to be much higher than today. In the decade ahead, the federal government (as explained in its energy resource assessment published in the past year) plans to move Australia on to a power path that, by 2030, will have reduced the role of coal-fired generation to supplying 43 per cent of demand, increased the contribution of gas-fired plant to 37 per cent and grown the renewable generatorsâ&#x20AC;&#x2122; share of consumption to 20 per cent. Pursuing this path will require a capital outlay of more than $20 million a day on network augmentation, about $6 million a day on building wind farms and other renewable plants, and about the same each day on providing gas-fired power stations. In total, it will require capital expenditure of more than $130 billion over the decade. Looking out to 2030, it is suggested that overall investment in the industry could amount to $220 billion. the role solar power (whether in residential rooftop arrays or in utility-scale developments) and geothermal energy will play in the 2030 electricity supply chain depends on both technological developments and the willingness of governments to provide subsidies considerably larger than those available today. the same may be said about the prospects for carbon capture and storage achieving a commercial breakthrough, which would open new opportunities for coal-fired generation and impose a new cost pressure on gas plants.

In the decade ahead, the federal government plans to move Australia on to a power path that, by 2030, will have reduced the role of coal-fired generation to supplying 43 per cent of demand, increased the contribution of gas-fired plant to 37 per cent and grown the renewable generatorsâ&#x20AC;&#x2122; share of consumption to 20 per cent.â&#x20AC;? Keith Orchison, Editor

IntRodUCtIon

Whether political and community sentiment about

on Australia’s east coast, while pursuit of a higher goal

any role for nuclear generation in Australia will change

would once again change the debate about nuclear

this decade, especially in the wake of the Fukushima

energy, drive more coal plant closures (many of them

crisis, can only be a matter for speculation.

owned by state governments) and see renewable energy

Whether the world’s governments can find a way to develop a new decarbonisation plan to succeed the Kyoto agreement, which expires next year, is equally speculative. this year’s United nations summit meeting in durban,

advocates intensifying their pressure for subsidies for zero-emission technologies. the degree of success achieved by the federal government in introducing a price on carbon emissions in

south Africa, will need to move far beyond the last two

the 2011–12 financial year will determine how the new

(Copenhagen and Cancun) to even begin the development

electricity path is pursued. the long debate on the issue

of a new treaty, an issue of major importance to Australia

over more than three years has created so much uncertainty

because success in this endeavour could lead to a

for private sector investors that actual generation

substantial change in the current commitment to drive

development is now at a low point after the development

down national greenhouse gas emissions to 5 per cent

of 10,000MW in the previous 10 years.

below 2000 levels by 2020. this target is now estimated to require annual abatement

All states (and both territories) have substantial skin in this game and none more so than the largest electricity

by 2020 of 160 million tonnes – equivalent to closing

supply/demand region, new south Wales, where the

Hazelwood power station 10 times over. just meeting it will

emphatic change of government in March 2011 means that

require the closure of a number of coal-fired power stations

almost every aspect of the local electricity industry is now in

PoWeRInG AUstRALIA VoLUMe 5

play. How the new nsW government acts on electricity

this year and in final form in 2012. this paper – and the

policy in the year ahead will be an important factor, both

resolution of key issues such as placing a price on carbon

on the east coast and for the nation, especially in terms of

and settling the emissions target – is central to success in

decarbonisation developments.

ensuring a secure and affordable power system with a softer

Politics has been a factor in electricity supply for at least the six decades of the modern era and they will be a major

environmental footprint at the decade’s end. Far from being the end of the process, what we achieve

one in the decade ahead. At least three federal elections

by 2020 will only represent the start of a great shift to a

and two each in nsW, queensland and Victoria – the areas

decarbonised economy.

containing 80 per cent of national demand and supply capacity – will take place between now and 2020. Power prices, electricity reliability and security, plus the decarbonisation debate, clearly will be major political issues over the decade. the current investor uncertainty, if allowed to continue, will be a cancer eating at the ambitions of policymakers for a new model power sector. A major step in providing the roadmap, not just for the decade ahead but also for the years to 2030, will be production by the federal government of the much-delayed

Keith orchison

energy White Paper, now promised for delivery in draft late

editor

CoMPAny PRoFILe

AGL

aGL is one of Australia’s leading renewable energy companies and is Australia’s largest private owner, operator and developer of renewable generation assets. AGL has major investments in hydro and wind, as well as ongoing developments in key renewable areas, including solar, geothermal, biomass, bagasse and landfill gas. AGL also operates retail, merchant energy and upstream gas businesses and has over three million customer accounts. As a company that was founded in 1837, AGL understands the importance of taking a long-term view. At AGL, sustainability is about recognising that if we want our business to continue to be successful and respected, we need to do the right thing by our shareholders, employees, customers, the broader community and the environment now. AGL’s sustainability performance has been recognised internationally by independent experts. It is the only Australian integrated energy company included on the dow jones sustainability World Index 2010/11 and is a constituent of the Ftse4Good Index.

AGL owns and/or operates more than 3700MW of generation capacity across base, peaking and intermediate plants. More than one quarter of this is renewable generation sourced from hydro, wind, landfill, biomass, bagasse and solar sources. the remainder of our portfolio is predominantly gas-fired generation. AGL also owns and/or operates coal seam gas exploration and production in five petroleum basins across new south Wales, queensland and south Australia. AGL’s ownership of 2P coal seam gas reserves has grown rapidly to 2029Pj. AGL is committed to leading Australia in minimising the effects of climate change, investing in sustainable energy businesses and working on innovative environmentally friendly projects. AGL’s power generation portfolio includes more than 1100MW of renewable energy. A further 670MW of renewable generation is currently under construction. AGL’s Bogong Hydro Power Project was named Most outstanding Clean energy Project at the ecogen 2010 Clean www.agl.com.au | see page 96 for details

energy Awards.

PoWeRInG AUstRALIA VoLUMe 5

RedUCInG CoAL-BAsed GReenHoUse eMIssIons

austraLia is a world leader in exporting coal. It’s also set to be a world leader in reducing greenhouse emissions from coal. Carbon capture and storage (CCs) is a necessary part of the global response to climate change. deployed at scale, CCs will reduce carbon emissions from coal- and gas-fired power stations and other industrial processes by up to 90 per cent. With more than $36 billion in exports in 2009–10, coal is Australia’s largest export commodity. the coal industry directly employs some 40,000 Australians and another 100,000 indirectly. Black coal is used to generate more than half of Australia’s electricity and the royalties from coal currently underpin state government budgets in nsW and queensland.

the Australian coal industry has already committed more than $1 billion through the CoAL21 Fund to developing and trialling carbon capture and storage projects across Australia. developing low emissions technologies for coal is important because coal will continue to produce significant amounts of the world’s energy for decades to come. the United states and major developing economies like India and China will continue to burn their own massive coal reserves. that’s also why japan (Australia’s largest export market for coal), the United states, the european Union and China are all investing in the development of CCs technologies. Around the world there are at least 234 CCs projects at various stages of development. twelve of them are in Australia. We are already demonstrating Co2 storage at the Co2CRC otway Project, and soon the Gorgon LnG Project in Western Australia will be the largest Co2 storage project in the world, storing up to 3.5 million tonnes per annum. Responding to climate change ultimately depends on developing and using low emission technologies such as CCs. Australia is leading the world in many aspects of developing and demonstrating this important technology, including through the $1.68 billion CCs Flagships Program and the coal industry’s $1 billion CoAL21 Fund. www.australiancoal.com.au | see page 96 for details

CHAPTER 01

01 FOCUSING ON POLICY CERTAINTY AND A FRAMEWORK FOR INVESTMENT

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In teRMs oF HoUseHoLds, InCReAsed eneRGy UsAGe HAs Been VeRy MUCH A syMPtoM oF oUR CHAnGInG LIFestyLe.” tHe Hon MARtIn FeRGUson, FedeRAL MInIsteR FoR ResoURCes And eneRGy

enerGy is something that is more and more the subject

had doubled to 4 MWh per annum. It was an era where

of public debate. Public discussion is very much focused on

people were buying more appliances – electric kettles

increases in electricity prices and the pressures they place

replaced kettles that were heated on the stove, hair dryers

on household budgets. What is often missing from this

and hair curlers were common and people were starting

picture, however, is the immense changes we have seen in

to add a second bathroom to their homes.

electricity usage – both at an industry and household level. In terms of households, increased energy usage has

jump forward 38 years to 2008 and hair straighteners had replaced hair rollers, and a living room was not

been very much a symptom of our changing lifestyle.

complete without a six-appliance power board. Multiple

Let me illustrate this in the context of my own lifetime.

televisions and dVd players were to be found throughout

I was born in 1953. two years later, Australia’s

the house, along with computers, printers, playstations,

population was around 9 million and the median house

mobile phone chargers and a myriad of other electrical

cost approximately $8000. At this time average household

gadgets. In the meantime, air conditioner use had grown

energy consumption in new south Wales and queensland

almost exponentially, car use had grown significantly and

was 2 MWh per annum. this was an era when outside

air travel had gone from being the domain of the rich to

toilets and laundries were still very common, but it

being accessible to almost everyone.

preceded the introduction of clothes dryers and television, which came in 1956. By 1970 Australia’s population had grown to around

By this stage, the Australia population had grown to almost 22 million, median house prices were around $450,000 and average household energy consumption

12.5 million and the average house price had increased to

had reached 7.9 MWh per annum. People were using

around $12,000. Average household energy consumption

more electricity than ever before.

CHAPteR 01

We ARe CURRentLy LIVInG tHRoUGH An eXtReMeLy stRonG PICK UP In GLoBAL deMAnd FoR eneRGy. tHe sIMPLe FACt Is tHAt tHe eRA oF CHeAP eneRGy HAs PAssed.â&#x20AC;? tHe Hon MARtIn FeRGUson, FedeRAL MInIsteR FoR ResoURCes And eneRGy

over the period 1998 to 2010, Brisbane saw a 35 per cent

We are currently living through an extremely strong pick

increase in the number of households. At the same time peak

up in global demand for energy. the simple fact is that the

electricity demand increased by 104 per cent, and the

era of cheap energy has passed.

number of households with an air conditioner installed

In the long run, the most effective way to minimise

increased from 23 per cent to 72 per cent, with 34 per cent

price rises will be to make energy markets as efficient as

of homes running two or more air conditioners.

possible. Reform is key to delivering this efficiency. the

Clearly, reducing or moderating the increase in peak

last 20 years have been a period of continuous bipartisan

demand is an important national objective. one way to limit

micro-economic reform in our domestic energy markets.

it is to introduce time-of-use pricing, so that consumers will

We have seen the creation of the national electricity market

face higher costs in times of higher demand.

and over time previously state-owned assets have

yet in an environment where we are at near full employment and our economy, our population and our

been privatised. today, our electricity market leads the world in terms

energy exports are all growing, there is no quick fix to

of efficiency, reliability and in facilitating competition â&#x20AC;&#x201C; a fact

artificially hold electricity prices below where they need to

acknowledged by the International energy Agency. yet our

be to maintain reliability. tempting as it may be, suppressing

economy relies more than ever on secure, accessible energy.

prices through regulation or market barriers would create

the future investment challenge is significant. the

even more pain in the longer term by delivering inefficient

Australian energy Market operator last year forecast that

investment outcomes which, in turn, would either mean

between $72 billion and $82 billion will be needed for new

higher bills for consumers or reduced reliability.

electricity generation and transmission by 2030. Add to this

PoWeRInG AUstRALIA VoLUMe 5

left Constructing and maintaining distribution network lines will remain one of the major cost issues in electricity supply this decade.

further investment in distribution networks, gas pipelines and

Major reform requires proper planning and that is why

associated infrastructure and overall investment in the sector

my department is continuing work on an energy White Paper,

to 2030 could exceed $220 billion.

looking at a range of plausible future energy and greenhouse

thatâ&#x20AC;&#x2122;s why the government is focused on providing

gas-related scenarios. I intend to release a draft energy White

policy certainty and putting in place the frameworks to

Paper by the end of this year before finalisation next year.

enable investment decisions to go ahead sooner rather

While the white paper will help us understand and plan for

than later. We also want to see this investment directed

the future, it is not about predicting or mandating outcomes.

towards an energy mix that will help reduce our greenhouse

In my view, an effective energy policy framework should

gas emissions â&#x20AC;&#x201C; but this must occur in a way that stacks

provide accessible, reliable and competitively priced energy

up commercially and is determined by market forces.

for all Australians. At the same time it should maximise

Government policies, such as the renewable energy

opportunities for economic and social growth and

target and a carbon price, fit with this market-based

encourage ongoing investment and development, including

approach. It means new technologies will be market

in sustainable and clean energy.

tested and only the best and most viable will be deployed at scale. the efficiencies the market drives are critical to

the white paper will provide a long-term strategic framework intended to give investors, consumers and planners confidence in our energy future.

managing cost pressures, but the government also has a role in supporting research and development, addressing

An edited extract from a speech by the federal Minister for

market gaps and bringing on innovation.

Resources and Energy Martin Ferguson to CEDA

CoMPAny PRoFILe

AUsGRId eLeCtRICIty netWoRK

ausGrid supplies electricity to 1.6 million homes and businesses via a network that spans more than 22,000 square kilometres, and includes 1.4 million small household customers and around 200,000 small business and large industrial customers. the network comprises 50,000 kilometres of above and below ground cables, 500,000 power poles, 30,000 distribution substations and 200 zone and sub-transmission substations. Ausgrid is the only electricity provider in Australia to run both a transmission and distribution electricity network. the network supplies one quarter of the customers in the entire national electricity Market.

In addition to serving a diverse customer base – which includes Australia’s largest and oldest city via transmission cables that cross sydney Harbour, Botany Bay and White Bay – the network crosses dense and rugged bushland to supply the fast growing regions of the Central Coast and Lower Hunter, through to major coalmines and isolated rural areas. When electricity use is at its peak, the Ausgrid network transports more electricity than tasmania and south Australia combined. About half of Ausgrid’s major substations were built in the 1960s and 1970s. this equipment has performed well over the years, but the time has come to replace it. so Ausgrid has commenced one of Australia’s largest infrastructure programs – the $8 billion replacement and renewal of its electricity network. Based on world-leading technology, the network will include the nation’s first commercial-scale smart grid, after being chosen to deliver the Australian Government’s Smart Grid, Smart City program. Ausgrid is also one of the largest employers of apprentices in nsW, each of whom will play a vital role in the realisation of Ausgrid’s essential infrastructure plans. www.ausgrid.com.au | see page 96 for details

PoWeRInG AUstRALIA VoLUMe 5

eneRGeX

enerGeX provides the electricity for everything that’s happening in south east queensland. the electricity distributor supplies power to around 1.3 million homes and businesses and is one of queensland’s largest and fastest growing organisations. At the core of the business are distribution assets worth more than $8.8 billion and 3800 skilled and committed staff working to keep the power flowing. In addition to electricity, eneRGeX delivers high levels of network performance and customer service. However, a dynamically growing distribution area and rising energy demands are making the task of supplying electricity more challenging. safety is a key priority of eneRGeX. Field crew and support staff are on standby throughout the year to respond to emergency situations, particularly during severe weather events. the january 2011 flood event challenged eneRGeX’s emergency response capability, devastating areas of eneRGeX’s south east queensland distribution area. some 300,000 homes and businesses lost power as substations were immersed in water and power poles displaced.

“Just three days after flood levels peaked 100,000 homes had power restored.”

Power restoration is integral to recovery and the process was driven by eneRGeX’s commitment to its values and a

Four hundred crews and many support staff worked

methodical approach to planning and assessment. As safety

tirelessly throughout the preparation and restoration

was the number one driver in the flood response, pre-emptive

process, and just three days after flood levels peaked

steps were taken and electrical assets de-energised before

100,000 homes had power restored.

water approached.

the future remains bright in south east queensland. eneRGeX is planning and building the electricity network via a $5 billion-plus five-year capital expenditure program to ensure the network will meet the increasing demand for electricity and provide safe, efficient and reliable power to all customers.

www.energex.com.au | see page 96 for details

CHAPTER 02

02 A major national infrastructure investment challenge

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Game chanGinG is an overworked expression, but

60 years ago. It is now increasingly accepted that power

it is hard not to use it about electricity supply in the new

bills by mid-decade will be double what they were in 2008.

decade. By 2020 the Australian power industry, on current

Change in the industry seldom occurs rapidly. It takes

indications, will have undergone significant renewal and

place over decades, as was the case with the 1990s

will be approaching the point where coal will no longer

reforms to disaggregate the sector and introduce

be overwhelmingly dominant in fuelling generation.

competition. As consultants Port jackson Partners

en route the industry will spend tens of billions of dollars

point out, two decades after these changes began to

– on building renewable energy generation, on construction

revolutionise the industry, whether they will deliver lasting

of peaking and base-load gas generation, on upgrading

benefits in Australia is yet to be determined.

and augmenting networks, probably on new transmission links and probably on rolling out smart meters. the latest estimates suggest that capital outlays

the underlying issue is not the plant and equipment being introduced at a cost of billions, but the east coast market in which they and their owners have to operate –

could exceed $130 billion in 10 years and $220 billion

the so-called national electricity Market, which does not

over 20 years, many times the size of the national

include Western Australia or the northern territory.

broadband network. As is now well demonstrated in public debate, what

to date what has been created is not a single east coast market, as intended by prime minister Paul Keating and state

happens to electricity supply this decade is important to

premiers like nick Greiner and Wayne Goss. “In many

all Australians. Low-cost electricity has been underpinning

respects,” say Port jackson Partners, “we have five markets

of our lifestyle, economic growth and international

not one and the current and potential benefits from the 1990s

competitiveness since the end of World War II, more than

reforms are therefore much less than they can or should be.”

CHAPteR 02

this said, the expenditure proposed for even the first half of this new decade is considerable. Credit ratings agency Fitch Ratings, in its 2011 review of Australian power and utilities, has estimated that verticallyintegrated energy businesses will spend up to $25 billion on low carbon emission and renewable energy generation in the period to 2016, assuming the introduction of a carbon price. In the absence of the carbon charge, Fitch says that generation outlays could be about $7 billion lower. to this can be added tens of billions of dollars to be spent on networks. Fitch Ratings points out that, on current regulatory determinations, capital outlays on distribution systems will exceed $6 billion in a year for the first time in 2010â&#x20AC;&#x201C;11 and pass $7 billion next financial year. It sees expenditure on distribution being above $6 billion per year from 2010â&#x20AC;&#x201C;11 to 2013â&#x20AC;&#x201C;14 and the capital outlays for transmission exceeding $2 billion annually for all this period. In addition, Fitch says, consideration must now be given to capital expenditure by the gas supply industry to deliver fuel to electricity generators in a decarbonising environment. It expects that the increased demand for gas by power stations will require new investment in gas storage capacity. even so, the ongoing need for coal supplies by existing generation will also drive capital investment, with the major play in the next few years being the new Cobbora mine in new south Wales, critical to the fuel supply and budget management of the three state-owned generators, Macquarie Generation, delta electricity and eraring energy. Under existing nsW government policy, the mine, estimated to cost $1.5 billion, will be commissioned in 2015 and will enter long-term supply contracts at prices intended to be below the current coal market levels. While developments such as Cobbora will continue to excite political and media attention, the major wave of capital expenditure this decade is still likely to be in the network sector. some believe it may exceed $90 billion by 2020, more than double the projected outlay on the national broadband network, although the scale of expenditure is now under attack from critics of the regulatory regime. the increased electricity network capex requirement has three main causes: 1. the continuing need to serve high energy and maximum

Above Australia is burning more than 50 million tonnes of black

demand growth as a result of a rising population and

coal and over 70 million tonnes of brown coal a year. deciding

increases in average household electricity consumption

which power stations to close this decade is critically import..

from energy-intensive consumer products.

POWERING AUSTRALIA VOLUME 5

Fitch Ratings Credit Ratings Agency

The ongoing need for coal supplies by existing generation will also drive capital investment, with the major play in the next few years being the new Cobbora mine in New South Wales.â&#x20AC;?

CHAPteR 02

2. the need to continuously reinforce and upgrade

should a carbon price be introduced, Fitch says,

transmission capacity to transfer energy from new

generators could seek up to $13 billion in new debt this

generation developments to load centres.

decade. this will leave the private sector seeking to raise a

3. the now urgent requirement to replace ageing and obsolete network assets in an environment where many of them are 50 to 60 years old. the issue of aged assets was highlighted in south

similar amount in equity, an onerous task in the current global economic environment. there will be an early credit focus on Victorian merchant generators, which are mostly project-financed and run on

Australia on the last day of january this year when, with

brown coal. they face significant refinancing next year, Fitch

temperatures at extreme summer levels, Adelaide’s eastern

Ratings points out. “Refinancing will be tough should capital

suburbs suffered substantial blackouts.

markets conclude that a carbon price will result in stranded,

etsA Utilities, the provider of power distribution services

or economically-impaired, plant.” Fitch estimates that these

in south Australia, explained the problem thus: “state-wide,

generators collectively have $2.4 billion in project finance

consumption from 820,000 residential and business

bank debt maturing in 2012.

customers peaked at 3399MW at 5pm and stayed there

In this situation, as the agency says, federal government

as people returned home to evening temperatures above

compensation for generators that experience losses from the

39 degrees.

introduction of a carbon price will be a key factor.

“eighty of the 40,000 transformers in the Adelaide metropolitan area suffered fuse failure. “the main contributor to the fuse issue is changes in

somewhat lost in the broad view of the industry, but still important to how it functions this decade, is the queensland government’s plan, announced late in 2010, to restructure

localised demand patterns in the past few years as people

its state-owned generation sector, creating two businesses

have installed new air-conditioning, extended their homes

instead of the three that exist today with the aim of improving

and bought new electrical equipment. the changes only

operating synergies and the enterprises’ economics.

become apparent in extreme conditions, requiring load re-balancing on the transformers.” electricity demand in Adelaide, mirroring the situation in

the state government has transferred some of stanwell Corporation’s assets to Cs energy and combined the remainder with the existing tarong energy portfolio, but it

other mainland capital cities, is rising at 2.2 per cent a year,

has ruled out following up the restructuring with any further

with the increase in some suburbs exceeding 5 per cent

privatisation of the industry.

annually. the Australian energy Regulator, although it

As management consultants deloitte have pointed out in

denied 28 per cent of etsA Utilities’ bid for capital spending

a review of the Australian generation sector, one of the major

between 2011 and 2015, has approved a capex outlay of

factors now influencing generation is the unwillingness of

$1.7 billion (58 per cent more than in the five years to 2010)

east coast governments to further invest in power stations,

for the first half of this decade.

owing to the budget pressures on them in other areas such

With network charges contributing about 45 per cent of end-user power bills, the outlays approved for etsA

as health and education. since World War II the industry has been dominated by

and other network service providers nationally represent

the construction of taxpayer-owned power plant such as the

the spearhead of a politically charged electricity price

queensland government-commissioned Kogan Creek power

environment that is already making headlines in the media

station (2007), but governments expect the private sector to

across Australia.

augment supply capacity in the future.

In new south Wales, for example, according to the

In turn, as deloitte says, this makes investor confidence

AGL energy economics unit, media coverage of the industry

in the national and state policy regimes a critical factor in

rose 140 per cent in the last two years of the past decade.

decisions on what power plant is built, using what fuel, where

While business ownership and the cost of power remain dominant in the media’s perception of the industry, the ability of participants to finance their massive outlays is an

and in what time frame. Assuming a carbon price, Fitch Ratings has estimated that wind farm development and construction of combined-

important issue and will, according to Fitch Ratings, rise in

cycle gas turbine (CCGt) plants for use in base-load

prominence early in the new decade.

generation will dominate the generation capital outlays.

PoWeRInG AUstRALIA VoLUMe 5

AssUMInG A CARBon PRICe, FItCH RAtInGs HAs estIMAted tHAt WInd FARM deVeLoPMent And ConstRUCtIon oF CoMBInedCyCLe GAs tURBIne (CCGt) PLAnts FoR Use In BAse-LoAd GeneRAtIon WILL doMInAte CAPItAL oUtLAys.” KeItH oRCHIson, edItoR

It sees the federal government’s renewable

undersea cables, each equivalent to tasmania’s Basslink,

energy target, which requires 20 per cent of national

crossing torres strait, and 800 kilometres of line from near

consumption to be provided by renewable power at

Weipa to the main transmission grid outside townsville.

the decade’s end, as driving $10.5 billion investment in

to date, origin has only said the Purani River scheme

wind farms by 2015 while investors will spend $11.4 billion

cost will run to “many billions of dollars”, but analysts have

on CCGt generation.

claimed that an outlay of about $8 billion is in prospect.

the balance of expenditure on power plant, according

the project’s tentative commissioning date is 2018 and,

to Fitch, will be invested in open-cycle gas turbine (oCGt)

|if it eventuates, will make a substantial contribution to

plants for meeting peak demands and also to provide

the queensland government’s ability to meet its goal

back up for intermittent wind power.

of providing 9000GWh a year of renewable energy

not included in these estimates is the proposed capital expenditure on large-scale solar generation. the federal

by 2020. Another aspect outside the radar of current electricity

government plans to provide $1.5 billion in support to solar

capital outlays is the proposed Copperstring transmission

investors and expects the grants to leverage about another

link between Mt Isa and townsville.

$3 billion in private sector investment. the first announcements of the federal government grants have now been made. Also not included in forecasts of expenditure is origin energy’s bold plan to bring electricity to Australia from offshore for the first time in the nation’s history. the company, in a joint venture with a business owned

substantial augmentation of interconnectors between south Australia, Victoria and nsW may enable the eyre Peninsula, which has a world-class wind resource, to become a “green hub” for east coast generation. these network additions would form important segments in the $8.3 billion “neMlink” transmission development mooted by the Australian energy Market

by the Papua new Guinea government, has announced

operator in its strategic review for this decade, a series of

that it wants to build a 1800MW hydro-electric power

projects that would include doubling the Basslink system

station on the Purani River in PnG and bring the bulk of

between tasmania and Victoria and strengthening the

the power to northern Australia via a series of transmission

nsW high voltage assets.

systems – a 100-kilometre onshore line in PnG, two

overall, game-changing? Most certainly.

dIReCtoRy

siemens Ltd A: 885 Mountain Highway, Bayswater Vic 3153 P: 137 222

F: 1300 360 222

e: siemensptd.au@siemens.com W: www.siemens.com.au/energy

sMeC Australia A: 76 Berry street, north sydney nsW 2060 P: 02 9925 5555 F: 02 9925 5564 e: john.wagstaff@smec.com W: www.smec.com

suntech Power Australia Pty Ltd A: 82-86 Bay st, Botany nsW 2019 P: 02 9695 8180 F: 02 9316 5270 e: sales@suntech-power.com.au W: www.suntech-power.com

toshiba International Corporation A: 2 Morton street, Parramatta nsW 2150 P: 02 9768 6600 F: 02 9890 7542 e: sales@tic.toshiba.com.au W: www.toshiba.com.au

transGrid A: Level 9, 201 elizabeth street, sydney nsW 2000 P: 02 9284 3000 or toll free 1800 222 537 e: web@transgrid.com.au W: www.transgrid.com.au

F: 02 9284 3456

PoWeRInG AUstRALIA VoLUMe 5

Institute for Mineral and energy Resources Institute for Mineral and Energy Resources

A: the University of Adelaide, sA 5005 P: 08 8313 1448 e: imer@adelaide.edu.au W: www.adelaide.edu.au/imer/

Vestas Australian Wind technology Pty Ltd A: Level 4, 312 st Kilda Road, Melbourne Vic 3004 P: 03 8698 7300 F: 03 9645 0111 e: vestas-australia@vestas.com W: www.vestas.com

western power A: 363 Wellington street, Perth WA 6000 P: (08) 13 10 87 e: enquiry@westernpower.com.au W: www.westernpower.com.au

WILson tRAnsFoRMeR CoMPAny Pty Ltd A: 310 springvale Road, Glen Waverley Vic 3150 P: 03 9560 0411 F: 03 9560 0499 e: sales@wtc.com.au W: www.wtc.com.au

100

index

index A ABARE, 42 Acciona Energy, 86 ACIL Tasman, 27 AECOM, 66 aeroderivative gas turbines, 32–33 aged assets, 22 AGL Energy, 22 Bogong Hydro Power Project, 10 customer hardship programs, 55 air-conditioning impact on energy consumption, 66, 75 APPEA, 83 Areva Solar, 90 Ausgrid, 16 Ausra, 90 Australia Pacific Liquefied Natural Gas (APLNG), 43 Australian Bureau of Statistics, 65 Australian Coal Association, 11 Australian Energy Market Commission, 86 Australian Energy Market Commission (AEMC), 28 Australian Energy Market Operator, 15, 23, 65 Australian Energy Regulator, 22, 66 Australian Industry Group (AIG), 28 Australian National University, 28 Australian Petroleum Exploration & Production Association, 75, 81

B Baker & McKenzie, 86 Barnett, Colin, 73 base-load plants, new, 40 Bass Strait, 66 Bayswater B environmental assessments, 66 black coal, 11 Bogong Hydro Power Project, 10, 62 Boorowa River Recovery program, 71 BP Solar, 89 brown coal projects, 22 Bureau of Agricultural & Resource Economics and Sciences, 60

C carbon capture storage (CCS), 11, 38 British commercial scale projects, 39 pricing, 47 Carbon Pollution Reduction Scheme (CPRS), 35 carbon price announcement of, 35 impact on base-load generation, 82 impact on refinancing projects, 22 impact on vertically-integrated businesses, 20 Centre for Climate Economics and Politics, 28 Chamber of Mines and Energy, 76 Chernobyl, 49 clean coal technology development, 47 Clean Energy Council, 42 CLFR technology, 89, 90 CO2CRC Otway Project, 11 coal power conventional plants, 66 share of electricity generation by 2030, 60

coal seam methane deposits, 83 COAL21 Fund, 11 coal-fired power stations, 22, 89 Cobbora mine, 20 Collier, Peter, 73, 77 combined-cycle gas turbine (CCGT) generation, 40 carbon footprint and pricing, 45–46 investment in, 23 Committee for the Economic Development of Australia, 77 compact linear fresnel reflector (CLRF) technology, 89, 90 concentrating solar power (CSP) collectors, 61 Contact Energy, 32 conventional organic rankine cycle technology, 35 Cooper Basin, 66, 83 CopperString transmission link, 23 Council of Australian Governments, 28 Crawford School of Economics and Government, 28 CS Energy, 22 Kogan Creek power station, 89 CSIRO, 42, 60, 61

D Deloitte, 22 Delta Electricity, 20, 65, 66 Denmark and wind generation, 85 Department of Climate Change, 61 distribution systems capital expenditures, 20 Western Australia, 75 Doan, Thao, Dr, 53, 54 Docking, James, 34 Domanski, Roman, 28 domestic energy markets reform, 14 DomGas Alliance, 75 Dow Jones Sustainability World Index 2010/11, 10 Dynamic Ratings, 93

E east coast energy market, 19, 65 green hubs, 23 residential growth and demand, 94 Ecogen 2010 Clean Energy Awards, 10 electricity supply impact of politics on, 9 end-user power bills, 28, 66 Energex, 17 Energy 2031, 73 energy markets distortions, 36, 38 energy power industry media coverage, 22, 28 political impact on, 36, 66 private investment prospects, 36 privatisation of, 66–68 energy pricing poor households priced out, 53–55 Energy Retailers Association, 30 energy security issues, 36 Energy Supply Association of Australia (ESAA), 30–31 energy usage increase in households, 13–14

POWERING AUSTRALIA VOLUME 5

Energy Users Association of Australia, 28, 30 Energy White Paper, 9, 15, 35–39, 40 Engineers Australia, 77 Eraring Energy, 20, 65, 66 ETSA Utilities, 22 Eyre Peninsula, 23, 85–86 drawbacks for development, 87

F fault current limiters, 93 federal government Energy White Paper, 9, 15 greenhouse gas emissions target, 61 market-friendly policies for energy mix, 15 projected capital expenditure on energy resources, 6, 19 renewable energy target (RET), 60, 61 Smart Grid, Smart City program, 16 Solar Flagships program, 60, 89 solar investment support, 23 Ferguson, Martin, 13–15, 35, 90 Fitch Ratings, 20, 22, 66, 85 Fotowatio Renewable Ventures, 89 FTSE4Good Index, 10 fuel poverty, 53–54 alleviating, 55 Fukushima Daiichi power plant, 36, 49 accident, 8, 45 Future Energy Alliance, 79

G gas hybrid power stations, 89 gas power, 81–83 carbon footprint, 82 interrelationship with wind power, 83 rise in electricity generation, 81 share of electricity generation by 2030, 60 gas reserves, 83 gas supply industries capital expenditures, 20 GE, 32–33 Gentrack, 34 Gentrack Velocity, 34 Geoscience Australia, 60 geothermal energy, 51 pricing, 46 role in 2030 electricity supply chain, 6 TeMihi project (NZ), 63 Gillard government’s position on nuclear power, 47 Global CCS Institute, 47 Gorgon LNG Project, 11 Goss, Wayne, 19 Government Trading Enterprise, 50 GRANEX, 35 Granite Power, 35 green grid, 87 GreenGrid, 71 Greening Australia, 71 Greiner, Nick, 19 GridON, 93

H Hartcher, Chris, 89 Hazelwood power station, 8, 61 Horizon Power, 50 households feed-in tariffs for solar power, 60 history of energy usage in, 13–14 low-income households and access to electricity, 53–55 Western Australian energy consumption, 75 hydro power, 51 Bogong Hydro Power Project, 10, 62 share of electricity generation by 2030, 60 hydro-electric power stations, 23

I IBM, 25 Independent Market Operator, 76 Independent Pricing & Regulatory Tribunal, 55 Institute for Mineral and Energy Resource, 78 intelligent utility systems, 25 interim technologies, 46 International Energy Agency, 15, 30, 49, 60 investors and lack of clear market signals, 40

K Keating, Paul, 19 Kikiwa substation, 43 Kina Biopower, 51 King, Grant, 81, 82 Knox, David, 82 Kogan Creek power station, 22, 89

L Lake Cargelligo solar thermal plant, 51 Lihir Gold, 51 lobby groups, 30 low-cost electricity, 19, 53 low-income households electricity usage, 53–54 unaffordable electricity pricing, 53 Loy Yang Power, 39, 42

M Macquarie Bank, 69, 86 Macquarie Capital Advisers, 86 Macquarie Generation, 20, 41, 65 McCallum, Mark, 83 mDATA21, 34 media coverage of energy industry, 22, 28 meter data management software, 34 Minister for Resources and Energy, 13–15, 35 Ministerial Council on Energy, 28 Monbiot, George, 49

101

102

index

N Nahan, Mike, Dr, 75 national decarbonisation policy impact on state energy generation, 68–69 national demand and supply states with majority, 9 National Electricity Law, 30 National Electricity Market, 14–15, 19, 70, 87 infrastructure, 27 objectives of, 28, 30 reforms within, 28, 31 National Generators Forum, 28, 31 national greenhouse gas emissions reduction target, 8 natural gas Western Australian dependence on, 74 Nelson, Tim, 53, 54 network sector capital expenditure main reasons for, 20, 22 New South Wales 1970s energy requirements, 53 Cobbora mine, 20 forms of base-load projects, 65, 68 gas-fired power stations, 83 impact of national decarbonisation policy, 68–69 Keneally government, 60, 66 Moree solar photovoltaic development, 89 new base-load projects, 65 O’Farrell government, 60, 65 peak demand period, 66 power consumption, 66 privatisation of energy industry, 66, 68 QNI interconnector, 65 state-owned generation businesses, 65 state-owned generators, 20 subsidised rooftop solar power scheme, 66 New Zealand geothermal developments, 63 wind farm projects, 43 nuclear power accidents, 8, 36, 43, 49 nuclear power plants, 47, 49 arguments for, 49 global projects under construction, 47

O O’Farrell government, 60 open-cycle gas turbine (OCGT) generation, 36 investment in, 23 Orchison, Keith, 6–9 Origin Energy, 66, 86 offshore joint ventures, 23 Owen Inquiry, 65

P Pacific Hydro, 86, 89 Papua New Guinea joint venture projects, 23 Parkinson, Martin, 61 peak demand, meeting, 66 peak demand pricing, 14, 54 Port Jackson Partners, 19 Porter, Christian, 77

power energy industry smart billing systems, 34 privatisation of energy industry, 66, 68 Purani River hydro-electric power station (Papua New Guinea), 23

Q Queensland 1970s energy requirements, 53 Chinchilla solar photovoltaic development, 89 future renewable energy projects, 23 post-flood power restoration process, 17 QNI interconnector, 65 Solar Flagships program, 89 state-owned generation sectors, 22

R Rann, Mike, 85, 87 renewable energy least competitive options, 40 renewable energy growth market, 43, 51

S SA Green Grid, 87 Saddler, Hugh, Dr, 28, 30 Santos, 82 Shi, Zhengrong, Dr, 56 Siemens Picture the Future research, 42–43 Simshauser, Paul, Dr, 28, 31, 53, 54, 55, 66 single-staged pumped turbines, 62 Smart Grid, Smart City program, 16 smart grids, 43 smart meters, 19 Smart Utilities Australia and New Zealand 2011, 25 SMEC, 51 Snowy Mountains Hydroelectric Scheme, 51 Solar Dawn solar thermal power station, 89 Solar Flagships program, 60, 89 Solar Heat & Power, 90 solar power, 51 challenges for, 60 concentrating solar power (CSP), 61 federal government schemes, 60 feed-in tariffs, 60, 66 as interim solution, 46 joint ventures, 90 Moree solar photovoltaic development, 89 photovoltaic development, 56–57 role in 2030 electricity supply chain, 6 rooftop solar photovoltaics (PVs), 56–57 share of electricity generation by 2030, 60 subsidised rooftop solar power scheme, 66 viability of, 56–57 Son La Hydro Power Plant, 51 South Australia mineral and energy resources expansion, 78 natural gas supplies, 66, 83 power blackouts, 22

POWERING AUSTRALIA VOLUME 5

power distribution services, 22 SA Green Grid consortium, 86–87 wind power generation, 85 South West Interconnected System (SWIS), 79 spot market prices, 30–31 Stanwell Corporation, 22, 53 Stratford Power Station (NZ), 32 Suntech, 56–57 Synergy, 76

T Tarong Energy, 22 Tasmania Basslink project, 23 Te Uku Wind Farm, 43 The Boomerang Paradox, 53 time-of-use pricing, 14 TJ|H2b Analytical Services, 93 Toshiba International Corporation, 62–63 Transfield Services, 86 TransGrid, 65, 68, 70–71 transmission network capital expenditure, 27 Western Australia, 75 transmission network service providers, 70–71 TRUenergy, 66

U United Kingdom commercial scale CCS projects, 39 United Nations South Africa summit, 8 University of Adelaide, 78 utility-scale developments, 61 challenges for, 60

103

V vertically-integrated energy business expenditure on renewable energy, 20 Verve Energy, 76 Vestas Asia Pacific, 92 Victoria emissions targets, 36 merchant generators, 22

W WA Legislative Assembly Economics and Industry, 75 Western Australia, 73–75 carbon capture storage (CCS) projects, 11 peak demand period, 75 Perth Solar city program, 79 regional and remote power supplier, 50 regulatory and pricing structures, 77 reliance on natural gas, 74 state government’s Energy 2031 paper, 73, 79 Western Power, 78 Wilson, Jack, 93 Wilson, Robert, 93 Wilson Transformer Company, 93 wind farm development, 66 wind farm generation investment in, 22–23 wind power Eyre Peninsula, 85–86 interrelationship with gas power, 83 reliability of supply, 83 share of electricity generation by 2030, 60 South Australian investment in, 85 Wind Prospect CWR, 90 Worley Parsons, 86

photo credits Cover iStockphoto; pp.2-5 Commstock; p.7 Snowy Hydro; pp.8-9 Horizon Power; pp.14-15 ENERGEX; p.19 ETSA; pp.20-21 Loy Yang Power; p.23 Verve Energy; p.27 Commstock; p.29 Transend Networks; pp.30-31 CS Energy; p.37 Commstock; p.39 Loy Yang Power; p.40 International Power Australia; p.41 TransGrid; p.45 ANSTO www.ansto.gov.au; pp.46-47 ERM Power; p.48 ANSTO; pp.53-54 iStockphoto; pp.59-61 Horizon Power; p.65 Ausgrid; p.67 Macquarie Generation; p.69 Ausgrid; p.73 iStockphoto; pp.74-75 Western Power; pp.76-77 Verve Energy; p.81 ERM Power; p.82 Delta Electricity; p.85 Origin; p.86 Western Power; p.89 SMA Solar Technology courtesy Bill Parker; p.91 AREVA Solar; p.95 Hydro Tasmania

104

PoWeRInG AUstRALIA VoLUMe 5

ABoUt tHe AUtHoRs KeItH oRCHIson Keith orchison was managing director of the electricity supply Association of Australia from 1991 to 2003 and, before that,

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Policy makers are seeking to launch a step-change in electricity supply and consumption in Australia. The federal government plans to reduce coal-fired power stations’ role to meeting 43 per cent of demand by 2020. This will mark the nation’s first major step toward a decarbonised economy.

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