Boom or Bust? Possible Future for Victorian Brown Coal in a carbon constrained world

Boom or Bust?

Possible futures for Victorian brown coal in a carbon constrained world

EARTH RESOURCES DEVELOPMENT COUNCIL

If you would like to receive this information/publication in an accessible format (such as large print or audio) please call the Customer service Centre on: 136 186, TTY: 1800 122 969, or email customer.service@dpi.vic.gov.au Published by the Earth Resources Development Council C/O 1 Spring Street MELBOURNE VIC 3000 Š The State of Victoria 2010.

This publication is copyright. No part may be reproduced by any process except in accordance with the provisions of the Copyright Act 1968.

Authorised by the Earth Resources Development Council ISBN: 978-1-74264-220-8 (print) ISBN: 978-1-74264-221-5 (online) Disclaimer This publication may be of assistance to you but the Earth Resources Development Council does not guarantee that the publication is without flaw of any kind or is wholly appropriate for your particular purposes and therefore disclaims all liability for any error, loss or other consequence which may arise from you relying on any information in this publication.

The Hon Peter Batchelor Minister for Energy and Resources Level 20, 1 Spring Street Melbourne VIC 3000

Dear Minister Batchelor, The Commonwealth Government’s climate change agenda offers challenges and opportunities for the energy and earth resources sectors in Victoria.

Significant uncertainty exists over the medium and longer term, including how brown coal will fit into Victoria’s future energy mix, along with gas and renewable energy sources. Moving to a low emissions future involves significant challenges, particularly for brown coal.

This uncertainty, when considered alongside the size, scale, and long horizons for investment in the brown coal sector, has significant implications for the earth resources industry and associated communities, predominantly in the Gippsland region where Victoria’s electricity generators and vast brown coal resources are located.

For these reasons, the Earth Resources Development Council decided in late 2008 to sponsor a scenario development program to see how the future may emerge for the brown coal industry in Victoria over the next thirty years.

The aim of this program has been not to make predictions, but to explore possibilities by developing plausible alternative stories - or “scenarios” - about the development of the brown coal industry and technologies such as carbon capture and storage.

More than eighty participants came together throughout this program to share their insights and views. As a result, strategic conversations have now been held amongst a broad range of key stakeholders to explore the “what if” and “how” around the future of brown coal in Victoria.

The four scenarios presented in this report are the joint creation of those who took part in the program and go beyond the assumptions and perspectives of any individual, interest group or organisation, including the Earth Resources Development Council and the Victorian Government.

Jerry Ellis Chair, Earth Resources Development Council

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The Earth Resources Development Council The Earth Resources Development Council The Earth Resources Development Council was established in 2006 by the Victorian Government to provide it with strategic advice on how to create investment, employment and wealth from earth resources in regional Victoria, whilst also meeting environmental and safety requirements.

Your questions and views on the following are welcomed and should be directed to: The Department of Primary Industries 1 Spring Street MELBOURNE VIC 3000 Customer Service Centre Phone: 136186

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Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

Table of Contents Introduction The four scenarios

3 11

Scenario one: Pathways Maze

15

Scenario two: Winds of Change

22

Scenario three: Powerhouse

30

Scenario four: Fuelling Growth

38

Scenario comparison graphs

46

Conclusions and observations

49

Acknowledgement

50

Glossary

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Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

Introduction Victoria’s energy mix is expected to change – perhaps dramatically - in the transition to a carbon constrained future.

The energy mix of the future is highly uncertain, owing to its dependency on such considerations as community acceptance, the availability of resources and technologies, and energy and climate change policies.

Victoria has centuries (at current usage levels) of low cost energy “feedstock” available through its large brown coal reserves. Around 90 per cent of Victoria’s electricity is currently generated from brown coal, which is high in carbon (CO2) emissions. The cost of producing electricity from brown coal will increase significantly when a cost is associated with these emissions.

The Earth Resources Development Council (ERDC) has used a scenario development approach to consider how the future of Victoria’s brown coal sector may develop over the next thirty years. The resulting scenarios accommodate a wide range of possible and plausible long term outcomes that take account of this highly uncertain environment.

A wide range of stakeholders were involved in a series of workshops during which the scenarios were developed. The initial focus was on identifying the main factors that could influence the future of Victoria’s brown coal. After lengthy debate, the principle factors were found to be: • t he emerging international commitment for action on climate change; • t he quantity, accessibility and viability of Victoria’s brown coal; • the viability of geological carbon storage resources; and • p otential energy market developments within Australia and overseas.

An outline of each of these factors is detailed here.

Action on climate change There is a growing world consensus that increased carbon dioxide emissions are a direct result of an increased rate of economic development, and that these emissions make major contributions to global warming through the greenhouse effect.

Significant temperature increases are also projected to trigger additional changes in the global climate system, which may further reinforce or mitigate climate change.

The impact of these feedback systems and thresholds is also unknown.

With varying levels of commitment, governments of many developed and developing nations world-wide are taking action or have signalled their intent to reduce greenhouse gas emissions. The United Nations Climate Change Conference held in Copenhagen in December 2009 saw broad agreement from participant nations on the need to act to reduce greenhouse gas emissions. However, reaching global consensus on targets is expected to be a protracted process. Irrespective of the broader climate change debate, actions of nations will impel significant change within the fossil fuel and renewable energy sectors.

A number of policy measures are currently being undertaken at both the Commonwealth and State level to mitigate the effects of climate change, reduce carbon dioxide emissions, and facilitate the transition to a low-carbon economy. These include the proposed introduction of a national Emissions Trading Scheme (ETS).

Adoption of a specific emissions reduction target is dependant upon global agreement to substantially constrain emissions, and commitment by advanced economies to reduction targets comparable to Australia.

The Commonwealth has also introduced an expanded Renewable Energy Target (eRET), which is intended to support the growth of renewable energy generation. The eRET requires Australia to produce 20 per cent of electricity generation from renewable energy sources by 2020.

In 2007, Victoria produced approximately 20 per cent of Australia’s carbon dioxide emissions with 67 per cent of the State’s total emissions stemming from the stationary energy sector.1 The stationary energy sector consists mainly of greenhouse gas emissions from the production of electricity

1 Department of Climate Change, Australian National Greenhouse Accounts, State and Territory Greenhouse Gas Inventories 2007, Table 3, p. 16.

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and other direct combustion of fossil fuels in industries such as manufacturing and construction.

Electricity generation produces about 78 per cent2 of the State’s stationary (non-transport) energy sector emissions.

Brown coal-fired power comprises over 90 per cent3 of this figure.

In a carbon constrained world, Victoria faces major challenges in maintaining economic prosperity while significantly reducing its carbon footprint. Many options exist for climate change abatement, each with its associated impacts, costs and benefits.

Figure 1

Mix of electricity generation4

The Commonwealth and State Governments are faced with multiple and sometimes competing policy objectives, including emissions reduction, investment certainty, regional development, the security and availability of electricity, and the maintenance of economic prosperity and current living standards.

Carbon capture and storage (CCS), a suite of technologies by which carbon dioxide is captured at the source and stored in geological formations, and/or other forms of sequestration, is a carbon abatement mechanism with the potential to underpin large cuts in emissions from the stationary energy sector.

Figure 2

Electricity generation emissions: source of CO25

2 Department of Climate Change, Australian National Greenhouse Accounts, State and Territory Greenhouse Gas Inventories 2007, Table 3, p. 16.

3 ibid. and The Climate Group, Greenhouse Indicator 2008, Annual Report, Appendix 1, p.9.

4 Electricity supplied to the National Electricity Market (NEM) by Victorian generators.

5 Net of CCS.

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Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

Victorian brown coal – quantity, accessibility and viability With an estimated potential economic resource of 33 billion tonnes located south east of Melbourne in the Latrobe Valley, Victoria has one of the world’s largest brown coal deposits. This is equivalent to around 500 years of supply at current usage rates.

Victoria’s four existing major power plants are located in the Latrobe Valley and mine over 65 million tonnes of brown coal annually. The coal-fired power plants generate around 90 per cent of the State’s electricity requirements, with gas and renewable energy sources comprising around six and four per cent respectively.

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For nearly a century, Victoria’s abundant brown coal resource has provided a low cost and readily available energy source that has underpinned the growth and competitiveness of the State’s economy, particularly in manufacturing.

In global terms, Victoria’s brown coal is very ‘clean’, in terms of contaminants. It has low levels of ash, sulphur and nitrogen oxides, heavy metals and other contaminants. It is also highly reactive which makes it suitable for extensive processing into fuels, syngas and other high value-added products, most of which are yet to be exploited.

However, Victorian brown coal has a high moisture content of between 48 to 70 per cent by weight.6 This results in very inefficient combustion and high levels of carbon dioxide emissions when used to generate electricity or processed for other products.

The challenge of achieving low emissions from brown coal utilisation requires the coordinated development and commercialisation of three groups of technologies: • efficient brown coal drying and dewatering, • combustion/gasification technologies, and • CCS technologies.

Geological carbon storage resources – viability Bass Strait features some of the world’s most suitable geological formations for the permanent underground storage of carbon dioxide emissions. A Commonwealth initiative, the national Carbon Storage Taskforce, has confirmed the State’s unique natural geological attributes for source-sink matching for CCS, and world class geological structures.8 Analysis to date has concluded that geological storage is the most viable option, with mineral and biological storage only viable in small applications where geological storage is limited. However, technology is evolving rapidly in these areas, and comparative costs and commercial feasibility may change.

Together, Victoria’s brown coal assets and geological storage potential offer an opportunity for the State to identify and pursue a course of action that could provide a strong competitive advantage in a low carbon economy.

See next page for further information on these three options for carbon storage (ie geological, mineral and biological).

Although renewable energy sources have a large role to play in Victoria’s low emissions future, limitations exist around their ability to provide sufficient reliable continuous electricity. These issues, and those associated with the costs and capabilities of transmission systems in handling intermittent loads, are likely to persist for many years.

The International Energy Agency has stated that coal will continue to be a significant source of energy generation globally for the foreseeable future.7 Nuclear power is currently prohibited by Victorian law.

Therefore, brown coal and gas-fired generation are the only established commercial options providing a largescale continuous energy supply to meet baseload electricity demand.

6 Department of Primary Industries, Victoria, Australia: A principal brown coal province, August 2008, p. 3.

7 International Energy Agency: World Energy Outlook 2009, p. 98.

8 National Carbon Mapping and Infrastructure Plan-Australia, Carbon Storage Taskforce, September 2009, p. 14.

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Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

How does carbon capture and storage work?

Geological sequestration Carbon capture and storage can be broken down to three stages. First the carbon dioxide needs to be collected at its source. It is then pumped through a pipeline to a suitable storage site, where it is injected into secure natural rock formations deep underground for permanent storage.

Figure 4: The geological carbon capture and storage process

Separating CO2 The first part of the process involves capturing carbon dioxide in large quantities from electricity plants or other major emitters. These capture technologies are being developed in Victoria and around the world, and while many are well tested, challenges remain to reduce costs and to integrate these technologies with power generation.

Transporting CO2

Source: Coopertive Research Centre for Greenhouse Gas Technologies (CO2CRC) After collecting the carbon dioxide gas, it is transported under high-pressure in a liquid-like state, travelling through a pipeline to reach a carefully selected storage site. Pipeline technologies are well established, applying extensive expertise already in use to transport carbon dioxide as well as natural gas and oil across long distances. Being non-flammable, carbon dioxide is also the safest of these to transport.

Storing CO2 Nature offers some lessons on how to store volatile liquids such as oil and natural gas securely underground, and scientists will look to mirror these conditions to safely store carbon dioxide.

This will involve injecting the carbon dioxide several hundred metres underground into carefully chosen natural rock formations, trapping the fluid below a layer of impervious stone, so it can be slowly absorbed into the porous rock below. This process is also known as geosequestration.

Other forms of sequestration: Mineral sequestration This form of carbon storage involves the uptake of carbon dioxide into basic oxide minerals present in natural silicate rocks, of which large quantities are distributed throughout the earth. The process would require mining and processing of the rocks, transport of carbon dioxide to the mine location, and the subsequent storage of the final product. The carbon dioxide is permanently locked up as a mineral and the residue can be stored with minimal monitoring. While the process is feasible, it occurs very slowly. Increasing the speed of the process requires grinding the basic mineral prior to reaction with the carbon dioxide. This would require significant investment in mines for the base mineral, a processing facility and the storage site.9 This process is also known as mineralisation.

Biological sequestration This form of carbon storage can occur in any plant matter: most commonly trees and fast growing micro-algae. These processes use photosynthesis to convert water and carbon dioxide into biomass. Where that biomass is subsequently used – for example, as biofuel – the carbon dioxide is released and the impact on carbon dioxide mitigation would need to be considered on a life cycle basis.10 This process is also known as biosequestration.

9 Department of Primary Industries, Strategic Policy Framework for Near Zero Emissions from Victoria’s Fossil Fuels, Position Paper October 2008, pp. 49-50.

10 ibid.

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Energy market developments The International Energy Agency ‘World Energy Outlook 2009’ states that by 2030 coal will still account for more than 40 per cent of the world’s fuel needs for power generation, and that although oil will remain the dominant fuel, demand for coal will rise more than for any other fuel source in absolute terms.11 Projected demand growth for energy world-wide will require an increase in energy supply. In developed countries like Australia, potential market developments such as the widespread take-up of electric vehicles also have the potential to significantly impact future electricity demand.

Global economic growth through a smaller carbon footprint therefore requires a portfolio of low emissions technologies to be developed, including new, cleaner coal technologies for electricity generation.

Combined with higher electricity prices from raw fuel price increases and climate change policies, energy efficiency and demand management measures may curb the growth in demand domestically and in other advanced economies.

Energy supply: Oil markets

Victoria’s population is predicted to increase from 5.1 million in 2006 to 7.4 million in 2036 - an increase of 44.2 per cent. However, household growth with its associated implications for energy use is expected to increase significantly faster, with energy use in the State’s residential sector predicted to grow by 54 per cent over the same period.12

Countries such as Saudi Arabia and post-Soviet nations have vast oil reserves and provide much of the world’s oil supply. Currently, member countries of the Organisation of Petroleum Exporting Countries (OPEC) account for more than three quarters of the world’s oil reserves and produce almost 40 per cent of global oil production. The political instability and policy orientation of many of these regimes has generated uncertainty of supply.

There is a widespread view that oil prices will rise significantly in the future due to the instability of many oil-producing nations and dwindling, easily-extractable, fossil fuel supplies. Gas prices on the Australian east coast are also projected to rise as a result of a shift toward world parity pricing with oil.

Driven by the United States of America and China in particular, demand for oil has continued to grow.

Over recent times, oil has been easily accessible and available. In the future, instability in the Middle East and supply shortages may result in significant price increases, which may affect consumer demand.

A significant and sustained increase in the pricing of fossil fuels is expected to shift demand towards alternative energy sources. Additionally the relative cost and development of various fuel sources, particularly storage technologies for intermittent energy supplies, will have vast impacts on the take-up of competing renewable options.

Energy market developments will therefore play a key role in the relative viabilities of different energy supply options and be a key determinant of Australia’s future energy supply mix.

Globally, electricity demand is projected to grow at an annual average rate of at least 2.5 per cent per annum over the next two decades.13 Currently, more than 68 per cent of electricity production world-wide comes from carbon-based products, with nuclear and hydro sources accounting for a further 29 per cent.14

Energy supply: Gas markets Australia has vast gas reserves. There is a commonlyheld view that gas is potentially lower in emissions than coal (depending on the technology), and that it therefore could provide the transition fuel to a future in which renewable energy features heavily.

Historically, Victoria has been able to access these reserves at very low cost because the domestic gas price has been insulated from global price trends.

In the future, Australia is likely to face increasing price parity between gas and oil, which will cause gas prices to rise. Much of the growth in gas and LNG is being driven by the need for clean fuel and the substitution effect due to the high price of oil (primarily in electricity generation and heating).

11 International Energy Agency, World Energy Outlook 2009, p. 42.

12 Department of Planning and Community Development, Victoria in Future 2008, Second release: September 2009, p. 1.

13 International Energy Agency, World Energy Outlook 2009, p. 42.

14 International Energy Agency, World Energy Outlook 2009, Annexes, p. 623.

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Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

The key issues

The program

There is currently a great deal of uncertainty in the energy and investment communities about the longer term implications of key government environmental policy platforms including the Emissions Trading Scheme (ETS) and expanded Renewable Energy Target scheme (eRET).

Scenarios are not projections, predictions or preferences but are credible alternative stories of how the world may develop. Their purpose is not to pinpoint future events - but to consider the forces which may push the future along different paths.

When considered alongside the size, scale and long horizons for investment in this sector, this uncertainty has significant implications for the earth resources industry and associated communities, particularly in the Gippsland region where most of Victoria’s coal resources and electricity generators are located.

Specifically, uncertainty is likely to persist for some years around issues such as: • the commercial viability of coal utilisation in Victoria; • t he design of carbon trading, how Australian carbon trading will work in practice, and where the baseline will emerge for carbon pricing; • h ow industries, commercial entities and communities will be affected over the short, medium and longer terms; • t he impact of water, climate change, regional planning and infrastructure issues on coal development; • h ow and when new technologies might be available to reduce carbon emissions and the commercial viability of such technologies; and • the complexity and systemic nature of these issues.

It is difficult to anticipate how the future may emerge for brown coal in Victoria over the next thirty or so years, and what this might mean for industry, the community and governments. Yet understanding how the future may possibly unfold is vitally important for all stakeholders.

Shell Scenarios to 205015 The ERDC facilitated the development of the four scenarios presented in this document to stimulate thinking around possible futures for Victoria’s brown coal industry and to penetrate the complexity shrouding climate change and energy market issues associated with these futures, including CCS technologies.

The primary objectives of the scenario development program were to: 1. understand the key change drivers which might impact Victoria and its brown coal industry, the relationships between these drivers and their implications; 2. develop insights into the key challenges over the next thirty years or so for the Victorian brown coal industry, CCS and key stakeholders; 3. develop a shared, holistic and integrated view of plausible alternative futures for Victoria’s brown coal industry, CCS and the Gippsland region, and how these might develop over the next thirty years or so; 4. form a view shared by all stakeholders which has the ability to inform policy makers on how to position the State for a low carbon future; and 5. provide a possible foundation for continuing conversations between stakeholders about the scenarios.

The scenarios also create the potential for the Victorian community, including townships and regional areas with strong links to existing brown coal electricity generation, to engage in debate around the future of brown coal in this State.

The purpose of the four scenarios is not to forecast the future but to present alternative possible futures. By highlighting risks, impacts and opportunities, they are designed to provoke discussion and thinking which challenges existing assumptions.

15 Shell International, Energy Needs, Choices and Possibilities, Scenarios to 2050, 2001, p. 6.

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The process The scenario development program utilised scenario development techniques pioneered by the Shell Oil Company in the 1970s, since refined and used extensively by many groups around the world, to understand and prepare for alternative futures in highly complex and dynamic environments.

The ERDC engaged an international scenario planning expert, Mr Gerald Davis, to facilitate the scenario development workshops. Mr Davis spent thirty years with Royal Dutch Shell, and in 1999 was appointed Vice President of Global Business Environment for Shell International in London and head of Shell’s scenario planning team.

Mr Davis has led a large number of scenario projects during his career, including the multi-year, multi-stakeholder scenarios on the future of sustainability for the World Business Council for Sustainable Development.

The planning approach and contextual information around climate change drew on scenario development work that Mr Davis had previously completed for the Intergovernmental Panel on Climate Change (IPCC), including his facilitation of the IPCC’s most recent greenhouse gas emissions scenarios.

The program followed a three phase process, depicted in the illustration below, with each phase culminating in a robust stakeholder workshop.

The program brought together leaders from Victoria’s energy sector, including energy suppliers and industry peak bodies, as well as environmental groups, non-government organisations, unions, technology developers, financiers and government.

The four scenarios were developed over seven months.

Supporting analysis from multiple disciplines including economics, technology and resources added further insights and synthesised conflicting viewpoints.

Note about graphs The graphs presented in this report were prepared on the basis of modelling undertaken by McLennan Magasanik Associates to “stress test” the scenarios for internal consistency, as part of the quality assurance process.

Although a degree of judgement has been used to illustrate the scenarios, the graphs are broadly consistent with the outcomes of the modelling.

All of the graphs in this report apply to Victoria only.

Figure 5: The scenario development process Initial Framing ERDC Framing Session

Selected stakeholder interviews

Framing Workshop Introduce scenario building process

Indentify key scenario elements & material needed for nextworkshop

Frame scenarios

Scenario Building Workshop Input to scenarios process (expert panels)

Deepening each scenario

Present, critique and affirm scenarios

Building ‘scenario sets’

Assess and strengthen scenarios

Examine strategic implication.

Areanychanges needed in scenarios?

Research papers on key scenario uncertainties, economy, climate change severity, energy markets devellopment, global & Australian response, and technological development and options

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Confirmation Workshop

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

Next steps

Scenarios analysis, draft document and presentation.

Identify all work to end of process and elements of outreach program

Quality assurance & scenario products.

Inputs to strategy process, public release & government response.

The four scenarios Scenario logic The four scenarios developed through this process – Pathways Maze, Winds of Change, Powerhouse and Fuelling Growth – illustrate the three fundamental drivers of change found to be decisive in determining the future of local energy markets: • resource availability; • technology development; and • social priorities.

The same change drivers were identified in the Shell 2050 scenarios developed in 2001, which explored ‘what energy choices, needs and possibilities will shape a global energy system which halts the rise in human-induced carbon dioxide emissions in the next 50 years?’15 At the scenario development workshops, participants identified different possible energy futures and development pathways for Victorian brown coal, based on the timing, development and impact of these change drivers.

Key issues explored include: • How will social preferences shape energy demand in the future and how might competing priorities such as economic growth and reduced fossil fuel usage, be resolved?

• What fuel sources, technology or infrastructure developments will provide for large-scale, continuous and stable electricity supply to meet baseload demand?

• If oil and gas struggle to meet rising demand, how might the brown coal industry meet transportation fuel requirements?

• What policies and technology developments are necessary to support the growth and lower the cost of low-emission energy sources?

• How can Victoria’s unique natural resources, including world-class brown coal assets and geological formations for carbon storage, best provide a strategic advantage for the State’s future development in a low-carbon economy?

• How will the significant industry change and infrastructure development required for transition to a low-emission electricity generation sector be funded and fostered?

The scenarios were created jointly by all those who took part in the project and do not represent the interests of any particular individual, interest group or organisation, including the ERDC and the Victorian Government. No one set of scenarios can claim to represent all possible futures. Nor can they encompass all individual stakeholder opinions and perspectives while also maintaining a compelling, consistent and credible storyline.

16 Shell International, Energy Needs, Choices and Possibilities, Scenarios to 2050, 2001, p. 8.

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Decision point 1: Strong international response to climate change?

ecision point 2: D Carbon capture and geosequestration for brown coal viable?

Decision point 3: Coal conversion for fuels and other high-value products viable?

YES

Scenario 4: FUELLING GROWTH

NO

POWERHOUSE

YES YES NO NO

Scenario 3:

Scenario 2:

WINDS OF CHANGE

Scenario 1:

PATHWAYS MAZE

Figure 6: Scenario Logic Map

Scenario overview Participants identified three key junctures - shaped by at least one of the three change drivers - where events and decisions would dramatically affect the future of brown coal in Victoria.

The relationship between these decision points and the scenarios is illustrated by the “scenario logic map” (see figure 6) and then explained subsequently with an overview of each scenario (in italics).

The first decision point is the extent of the international response to climate change.

A weak or ambivalent response gives rise to Pathways Maze, with the move to a low-carbon economy stymied by conflicting social priorities including local community opposition to the construction of large-scale renewable energy generators.

Pathways Maze is a world characterised by muted and in consistent regulatory responses to greenhouse gas emissions by both industrialised and developing nations.

Public support for action on climate change is divided and, although pressure increases to use energy in a more sustainable way, many communities continue to resist the construction of large-scale alternative energy generators either because of where they are in their locality or their perceived impact on the economy.

Victoria’s foreshadowed move to a low-carbon economy in the early part of the century is stymied by conflicting economic and

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Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

social priorities and the absence of commercial drivers sufficient to propel significant market investment in low-emission technologies.

Mirroring international developments and defying negative public sentiment, the Commonwealth and State Governments seek to insure long-term against the future impacts of climate change by assuming most of the risks and costs associated with deploying carbon capture and storage for the coal energy sector.

The investment of significant public funds is also motivated by several top-order policy objectives: maximising the value of the nation’s natural resources, including coal (particularly via downstream processing rather than raw material exports), promoting regional development and encouraging manufacturing export sector growth.

Alternatively, a strong international response to climate change spurs the world of Winds of Change.

Winds of Change is a world in which the energy sector is dominated by renewable energy technologies and the use of coal, although an abundant natural resource, is in rapid decline.

Brown coal has been relegated to a supporting role in Victorian electricity generation and the State’s energy supply is extensively diversified through large-scale wind, distributed solar photovoltaics, large-scale solar, geothermal, emerging wave generation and natural gas.

This revolution in supply is driven by society’s prioritisation of clean and sustainable energy, which is reflected in global agreements mandating significant reductions in greenhouse gas emissions. As initial investments deliver cost breakthroughs and

other benefits for consumers, market forces sustain the penetration of renewable technologies.

The second decision point hinges on the success or failure of economically viable, commercial-scale, geosequestration and carbon capture technologies for brown coal electricity generation.

In the Powerhouse world, Victoria’s vast and easily accessible brown coal assets, unique off-shore geological formations for carbon storage and key renewable energy resources position the State at the centre of a revolution in low-emission electricity generation.

Against heavy international competition, Victoria seizes a strategic advantage through significant investment in the early commercialisation of carbon capture and storage (CCS).

Easy access to low cost geosequestration and infrastructure for transporting carbon dioxide attracts new manufacturers to the Gippsland region and fuels further investment in CCS. By 2040, the State is a net exporter of generated electricity to other states participating in the National Electricity Market with Victorian electricity net exports expected to grow to nine per cent of total generation within the next five years.

The third decision point, which assumes both a strong international response to climate change and the commercial success of CCS, is dependant on the economic viability of coal conversion for liquid fuels and other high value commodities.

While coal conversion makes a contribution to energy security for Australia’s petroleum-based transportation system, there is increasing broad-based industry and political pressure for Victoria to substantially increase its coal reservations for electricity generation. Advocates say the move is necessary to safeguard relatively low electricity prices into the future.

The second and third decision points illustrate that combining technology development with Victoria’s unparalleled resource attributes has the ability to drive significant change in the energy sector.

While the three decision points inform the possible development pathways, each scenario also recognises a host of critical uncertainties with the potential to impact or substantially alter the progression of these alternative futures.

For example, transformation of the energy generation sector in Winds of Change is underpinned by a rapidly falling cost of core renewable technologies and consumer acceptance of slightly higher electricity prices as a result of the shift to renewables. Meanwhile, Powerhouse and Fuelling Growth foresee a significant increase in coal being mined16 in order to enable the export of low-emission electricity generation interstate and/or the development of a valuable coal conversion market.

Fuelling Growth is a world beyond electricity generation for Victorian brown coal. In the wake of a significant and sustained escalation in oil and gas prices, the conversion of coal to liquids (CTL) and other high-value commodities establishes a valuable new market for the State’s vast coal resource.

Building on its strategic advantage in the early commercialisation of geological sequestration for carbon dioxide emissions, Victoria is a world-leader in fostering the development of high-value applications for brown coal and the State soon becomes an attractive manufacturing base for a broad range of new industries and exports.

However the rapidly expanding, high-value coal conversion (CTX) market spurs a substantial increase in the price of the raw material and threatens to progressively outprice coal as an energy source for the next generation of domestic power production .

16 Coal consumption would possibly exceed levels in Pathways Maze from around 2050.

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Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

Scenario one: ‘Pathways Maze’ Decision point 1: Strong international response to climate change?

ecision point 2: D Carbon capture and geosequestration for brown coal viable?

Decision point 3: Coal conversion for fuels and other high-value products viable?

YES

Scenario 4: FUELLING GROWTH

NO

POWERHOUSE

YES YES NO NO

Scenario 3:

Scenario 2:

WINDS OF CHANGE

Scenario 1:

PATHWAYS MAZE

Figure 7: Scenario Logic Map

Figure 8

Mix of electricity generation17

Figure 9

Electricity generation emissions: source of CO218

Pathways Maze is a world characterised by muted and inconsistent regulatory responses to greenhouse gas emissions by both industrialised and developing nations.

Public support for action on climate change is divided and, although pressure increases to use energy in a more sustainable way, many communities continue to resist the construction of large-scale alternative energy generators either because of where they are in their locality or their perceived impact on the economy.

Victoria’s foreshadowed move to a low-carbon economy in the early part of the century is stymied by conflicting economic and social priorities and the absence of commercial drivers sufficient to propel significant market investment in lowemission technologies.

Mirroring international developments and defying negative public sentiment, the Commonwealth and State Governments seek to insure long-term against the future impacts of climate change by assuming most of the risks and costs associated with deploying carbon capture and storage for the coal energy sector.

The investment of significant public funds is also motivated by several top-order policy objectives: maximising the value of the nation’s natural resources, including coal (particularly via downstream processing rather than raw material exports), promoting regional development and encouraging manufacturing export sector growth.

17 Electricity supplied to the NEM by Victorian generators.

18 Net of CCS.

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Weak international response to climate change

Australia shadows international lead

In the early part of the century, weak or ineffectual emissions reduction targets continue to be the norm in international negotiations.

After much argument about the social and economic impacts of climate change mitigation measures, Australia introduces enhanced concessions for industry as well as a minimal carbon price through an emissions trading scheme (ETS).

Already delayed by a year due to the financial crisis and political opposition, the ETS does not deliver sufficiently strong price signals for the private sector to invest heavily in low emissions technologies. Furthermore, its effect is diluted by polluters buying relatively cheap international offsets which underwrite investments in mitigation projects overseas.

Some countries, particularly those heavily exposed to rising sea levels, undertake a range of voluntary measures to curb greenhouse gas emissions as they seek to adapt to the effects of climate change.

However, worldwide fallout from the 2008 global financial crisis continues to cloud public sentiment and impede the mandating of appropriate emission targets within Australia and many other industrialised nations.

Despite climate change impacts including water restrictions and higher food prices, community pressure to safeguard jobs (particularly in regional areas) mounts as high carbon-emitting generators and manufacturers sound dire warnings about impending plant closures in a bid to extract concessions and greater industry protection.

At a State level, measures to improve water demand management and the completion of the Wonthaggi desalination plant ease community concern about the availability of water. Nonetheless, the visibility of drought and the impact of water restrictions mean that water remains the dominant environmental concern for Victorians.

The initial jump in electricity prices under the ETS heightens community and industry pressure for secure and low cost electricity.

Several State Governments move quickly to shield consumers from further price impacts through a suite of policy initiatives. These include pricing offsets, retail price controls, energy efficiency measures, concessions for large manufacturers, and the mandatory reservation of a proportion of coal and gas for domestic power usage. The increased spread of ‘time of use’ electricity pricing enabled through a state-wide smart meter rollout program assists consumers to manage the costs.

15

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20 TheF

ent m e e r g a l No Globsaions targets on emis s slow r ow CO2 p L : a li a r t s Au sponse climate re

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ice

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

Eastern seaboard states upgrade transmission lines to increase the flow of electricity across state borders via the national grid. This is a pragmatic response to the issue of stable and secure electricity supply: consumers value power at their fingertips and care little for intra-state energy selfsufficiency.

Renewables rise and stumble

Investment in energy security

In the following decade the expanded Renewable Energy Target (eRET) encourages the development of green energy sources. eRET requires Australia to produce 20 per cent of electricity from renewable energy sources by 2020. This, and early impetus from Victoria’s own renewable energy targets, leads to renewables occupying a substantial space in the State’s energy portfolio.

During the first two decades, there is a heightened focus on maximising the value of Victoria’s large brown coal and gas resources and insulating them from potential rapid increases in emissions reduction targets which could threaten the security of the State’s future energy supply.

Market research indicates that consumers want more renewable energy generation and are even prepared to pay a premium for it. However, these attitudes are not matched by action as regional communities increasingly resist visually intrusive wind power generation systems.

With population and energy demand growth rates continuing to outstrip most other states, a subsidised highly-efficient gas fired power station is developed in the Latrobe Valley in the early 2020s. This new power station, built ready to further reduce plant emissions by integrating carbon capture and storage (CCS), produces only one third of the carbon dioxide emissions of existing coal power stations.

Community education programs aimed at limiting power usage fail to promote an understanding of the relationship between greenhouse gas emissions and fossil fuel electricity generation.

Increased debt costs, better investment opportunities offshore, and uncertainty over the future price of carbon under the ETS result in Victoria finding it harder to attract investment capital into the energy sector.

Local community resistance halts further expansion of Victorian wind generation once it reaches a capacity of 2000MW in early 2020. Increased costs for off-shore wind and wave generation combined with consumer resistance to higher electricity prices make these technologies commercially unviable.

Despite considerable funding support for new clean coal technologies from Government, concerns around their long term commercial feasibility further deter industry funding and market investment. The main issues are the low carbon price and the uncertain future of Australia’s emissions trading scheme as international agreement on emission reduction levels continue to flounder.

A large-scale solar power station is built in northern Victoria with government support. However the relatively high cost of energy storage restricts it to supporting the afternoon peak in household electricity demand.

South Australia establishes geothermal generation in remote locations, having attracted the necessary investment by leveraging significant State and Commonwealth Government support for its comparative geological advantage.

Although some Victorian geothermal resources are planned to commence in early 2020, development at scale falters because of concerns about the disposal of highly saline water (despite assurances to the contrary).

Consequently, Government becomes the principal investor in CCS for the coal energy sector and is forced to assume more of the risks and costs associated with low-emission brown coal power.

In the early 2020s, with significant Government support, industry commissions a new large scale coal CCS demonstration project in Victoria’s Latrobe Valley. However, plans to secure large scale commercial backing for a second plant falter and the Government is required to increase its funding support to enable the project to proceed.

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

17

Gas and nuclear stall Although economically competitive in the early 2020s, gaspowered electricity generation becomes relatively expensive by the end of the decade, owing to interstate LNG (Liquefied Natural Gas) projects driving shifts to world parity pricing of gas. As a result, Victoria’s gas-fired power station now operates only to meet peak electricity demand and as a backup to intermittent wind generation.

With gas prices increasing rapidly, the Commonwealth Government clears regulatory constraints for nuclear power generation in the early-2020s in response to escalating demand from developing countries and continuing uncertainty about world-wide reserves.

By mid-2030, a fourth generation nuclear power station is operating interstate. The move to nuclear is driven by the need for a baseload electricity source in addition to geothermal generation, which continues to struggle under significantly higher capital costs.

However Victorians continue their reluctance to embrace nuclear power. The assurance of electricity baseload security (albeit via brown coal) together with increasing supplies of renewable energy to alleviate environmental concerns means that there is no major demand for nuclear energy in this State.

The Bass Strait Times O N L I N E

15 June 2022

Taxpayers forced to fund second CCS project

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Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

CCS successful but capital markets wary Despite the technical success of early demonstration projects, by 2030 there is no commercial driver for large private sector investment in CCS. This is because the cost remains relatively high and the continuing low carbon price discourages capital outlays for further efficiency improvements.

More significantly, ongoing uncertainty about the future policy direction of the ETS deters market investment. Of most concern are the potential for a much higher emissions reduction target and international sanctions by key trading partners against high-carbon emitters.

This uncertainty undermines funding support for the widespread deployment of CCS from capital markets, resulting in an under-investment in potential brown coalbased projects.

Concerns about the risk of leakage and the ‘not in my backyard’ mindset that earlier derailed the growth of wind farms lead to mounting community opposition to geological storage of CO2, particularly where the carbon dioxide comes from new manufacturing plants or interstate.

Combined with the low carbon price the strength of this community opposition ultimately curbs Victoria’s ability to exploit its proven CO2 geological storage potential and deters new manufacturers from locating to the State.

Throughout the 2020s and early 2030s, Australia’s relatively low carbon price means that significant Government support is required to enable both of Victoria’s new low-emission coal-based power plants to continue to operate.

CCS increases the energy generation costs of the new plants, which compete in the energy supply market against existing high-emission, lower-cost, coal-fired power stations and mandated renewable energy targets.

Continuing high subsidisation of CCS gives rise to increasing tensions within the National Electricity Market. In 2035, excessive costs to Government force the mothballing of the CCS facility incorporated in the State’s original demonstration plant. This lowers operational costs and boosts energy output from the plant. While community pressure has increased for low-emission electricity supplies, capital markets remain wary of investment in the energy sector including additional peak load capacity.

The gap in State-generated low-emission electricity supply is met largely by electricity imported from the NEM and continued energy supply from Victoria’s original coalbased power stations. The conventional power stations have operated with minimal maintenance and efficiency improvements during the past three decades and remain marginally economic in the relatively low carbon price environment.

Throughout this period, brown coal continues to dominate Victoria’s electricity generation with gas, wind, solar and hydro sources together providing up to one fifth of the State’s power supply.

Victoria’s coal based electricity generation industry has also moved to adaptation mode. Coal drying and dewatering technologies, first demonstrated at scale in the early 2020s, are progressively retrofitted to each of the pre-existing power stations, halving water usage and cutting emissions by up to one third.

In an industry which remains constrained by higher risks and lower investment returns than other major capital projects, the State and Commonwealth Governments continue to lead the development and application of the new technologies.

By 2040, two thirds of Victoria’s coal fleet is essentially obsolete and public investment in new plant becomes critical from an energy security perspective.

Electricity imports necessary to meet demand

Adaptation to climate change

By the early 2040s, Victoria’s power generation is marked by minimal gas-fired generation and increased diversity of supply from renewables.

From mid-2030 onwards, Victoria is forced to rapidly adapt both household and industry electricity consumption. This is in response to tightening controls on greenhouse gas emissions and the failure of power generation to keep pace with the growth in demand.

With renewables and low-emission generation technologies unable to fill the growing demand gap in the short-term, the focus again turns to energy efficiencies and demand management. Unlike the successful appliance efficiency measures adopted in the early part of the century, new adaptation strategies are much more interventionist and result in far greater economic costs.

State Governments become more active in enlisting their emergency reserve powers, particularly during summer when household electricity consumption forces load-shedding on an increasingly frequent basis. Power companies are directed to remotely switch-off household and industry air conditioning at the source. Office towers and major shopping centres are only permitted to lower temperatures to within ten degrees of external readings.

However, uncertainty about future carbon prices continues to constrain commercial investment in brown coal power generation. This ambiguity is further exacerbated by the prospect of increased community pressure to cut greenhouse gas emissions through more Government economic and policy support for renewable energy growth.

The steady rise in Victoria’s electricity demand over the previous 20 years (largely due to population growth) has further undermined the State’s self sufficiency in power generation.

During this decade, Victoria becomes a net importer of electricity. Victoria draws its supply via the National Electricity Market from black coal based generation in Queensland and from renewable and nuclear energy sources.

‘Brown outs’ are an increasingly common occurrence as power companies seek to maintain system stability by restricting power to whole regions on a rotating basis. With traditional summer temperatures increasingly occurring throughout spring and into early winter, all manufacturers are required to plan for production shutdowns of up to thirty days per year.

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

19

Timeline of key events mid 2010s

Weak international response to climate change Australia implements a low, fixed, carbon price cap

early 2020s

Subsidy support for a new gas-fired power station Government-funded CCS demonstration project

mid 2020s

Carbon pricing uncertainty deters market investment Gas price up – new generation no longer economic

early 2030s

Subsidised low-emission brown coal generation causes market tension

mid 2030s

Costs force mothballing of CCS-enabled coal power plant Supply shortages put pressure on demand management/adaptation

early 2040s

20

Victoria becomes a net importer of electricity

Figure 10

Retail electricity price index

Figure 12

Carbon price

Figure 11

Coal cost and consumption

Figure 13

Gas price and consumption

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

Boomfor or Bust?: Possible Victorian brown coal in a carbon Boom or bust: Four possible futures Victorian brownfutures coal infor a carbon constrained world – ERDCconstrained Scenarios toworld 2040

21

Scenario two: ‘Winds of Change’ Decision point 1: Strong international response to climate change?

ecision point 2: D Carbon capture and geosequestration for brown coal viable?

Decision point 3: Coal conversion for fuels and other high-value products viable?

YES

Scenario 4: FUELLING GROWTH

NO

POWERHOUSE

YES YES NO NO

Scenario 3:

Scenario 2:

WINDS OF CHANGE

Scenario 1:

PATHWAYS MAZE

Figure 14: Scenario Logic Map

Winds of Change is a world in which the energy sector is dominated by renewable energy technologies and the use of coal, although an abundant natural resource, is in rapid decline.

Figure 15

Mix of electricity generation19

Figure 16

Electricity generation emissions: source of CO220

Brown coal has been relegated to a supporting role in Victorian electricity generation and the State’s energy supply is extensively diversified through large-scale wind, distributed solar photovoltaics, large-scale solar, geothermal, emerging wave generation and natural gas.

This revolution in supply is driven by society’s prioritisation of clean and sustainable energy, which is reflected in global agreements mandating significant reductions in greenhouse gas emissions. As initial investments deliver cost breakthroughs and other benefits for consumers, market forces sustain the penetration of renewable technologies.

19 Electricity supplied to the NEM by Victorian generators.

20 Net of CCS.

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Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

International goodwill on greenhouse

Australia invests in energy efficiency and renewable energy

Early in the century, further evidence of the escalating pace of global warming fuels community pressure for decisive action on climate change and sets the scene for unparalleled international agreement on emissions targets.

Following agreement by the world’s largest industrialised and developing economies, the Commonwealth Government targets a 25 per cent reduction on 2000 emission levels by 2020 through implementation of an Emissions Trading Scheme (ETS).

The impetus for regulatory action is also spurred by impending World Trade Organisation agreement on a heavy regime of trade taxes and other sanctions to be imposed on nations and individual emitters thought to be ‘doing too little on mitigation’.

The United States takes the lead by committing to a 20 per cent reduction in emissions by 2020 as a first step towards an 80 per cent reduction in the longer term. Japan, China and to a lesser extent India - keen not to be left behind on the world stage – also announce stronger than expected emissions targets. China revises its 2009 commitment, which was to reduce its carbon intensity levels by 40 to 45 per cent by 2020, to instead target an overall reduction in emissions from 2020. Japan significantly increases its 2009 commitment to a 15 per cent reduction in overall emissions by 2020, to 25 per cent.

The expanded Renewable Energy Target (eRET) In August 2009, the Australian Parliament passed the expanded Renewable Energy Target (eRET) of a 20 per cent share of renewable energy in Australia’s electricity mix by 2020. This target is expected to generate thousands of renewable energy jobs and attract billions of dollars of clean energy investment in Victoria.

Two years prior to this commitment, the Victorian Government established the Victorian Renewable Energy Target (VRET) which aimed for 10 per cent of the State’s annual electricity consumption to be met by renewable energy by 2016. Since its introduction, VRET has encouraged an additional 300MW of wind energy to be built in Victoria and 140MW of hydro energy.

At the beginning of 2010, Victoria will transition to eRET which is expected to deliver about twice the investment in renewable energy in Victoria than would be delivered under the State scheme alone. These policy decisions provide increased certainty to renewable energy investors in Victoria and Australia.

The development of green energy sources is also encouraged through the expanded Renewable Energy Target (eRET). The eRET initially requires Australia to produce 20 per cent of electricity generation from renewable energy sources by 2020.

The Commonwealth Government also announces a significant boost to investment in renewable energy development and resource mapping, coupled with an enhanced policy framework and funding support for a range of initiatives designed to deliver energy efficiencies and slow growth in energy demand.

Enhanced appliance standards are introduced through the nation’s Minimum Energy Performance Standards, coupled with cash rebates and free home efficiency assessments, aimed primarily at assisting low-income households to overcome the higher purchase costs of energy efficient appliances and fittings. ’Green’ building codes are also progressively strengthened, heralding Victoria’s new seven star energy rating standard for residential building construction.

Demand management initiatives including smart meter deployment, ‘time of use’ electricity tariffs, and the proliferation of solar hot water systems further ease energy growth; particularly during the traditional afternoon peak in electricity usage.

Major inroads in energy efficiency and electricity demand management are made during the first decade through a suite of policy measures encouraging the rapid retrofitting of existing residential and office buildings.

These measures range from purchase inducement through appliance rebates and stamp duty savings for energy efficient housing, to regulatory requirements such as the mandatory installation of ceiling insulation in all rental properties and solar hot water systems for new buildings.

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

23

Together, improved energy efficiency and electricity demand management deliver a better than 10 per cent reduction in projected energy demand throughout the first decade. An increase in green energy supply is also engineered during this period when the Commonwealth Government lifts the eRET target to 25 per cent renewable energy generation by 2025.

Heightened community awareness of climate change, particularly the linkage with cataclysmic weather events and decreased average annual rainfall, motivates a major shift in consumer attitudes and behaviours, and bolsters demands to aggressively reduce greenhouse gas emissions. This cultural change is underpinned by a substantial investment in public education, modelled on the successful water saving program adopted in the previous decade.

Changing consumer attitudes lead to demand growth for products and services which, through their supply chains, produce low emissions. Consumers are prepared to pay a premium for these goods and services. The Commonwealth Government requires the CO2 associated with production to be listed on product labelling, and this enables consumers to make green choices.

The Victorian 3 May, 2026 Mandatory solar energy targets to boost renewables

Breakthroughs in renewable energy costs and technologies Midway through the 2010s, a large solar power station begins to generate electricity in northern Victoria. The State’s research and development of large scale solar generation contributes to international technology breakthroughs which reduce plant capital and production costs and lower solar energy prices in the longer term.

Solar photovoltaic panels and fuel cells in homes and commercial buildings also become an increasingly common sight throughout the State. This is due largely to technology developments that rapidly reduce production costs.

Building Integrated Photovoltaic systems, where photovoltaic cells are incorporated into building walls and windows, enable homes and offices to become largely energy self-sufficient. During periods of low demand such as weekends for office complexes, these buildings also feed surplus electricity generation into the national grid. By the mid 2020s, more than half of Victoria’s buildings are equipped with solar photovoltaic panels.

Throughout the next decade, a substantial portion of ETS permit revenue is committed to developing renewable energy sources. Targeted Government support mechanisms, such as additional venture capital tax concessions, accelerate technology investment.

The rapid development of technologies delivers major breakthroughs in the cost of most forms of renewable energy in Australia. The strong marketing of ‘green branded’ energy sources also drives sizeable consumer demand-pull, fostering a positive market environment for renewable infrastructure investment.

Widespread deployment of smart grid technology during the late 2020s supports the integration of renewable energy into the electricity network, reduces transmission losses and provides further avenues to manage both energy demand and the reliability of the national electricity grid during peaks and troughs in energy consumption.

During the past two decades, energy efficiency and demand management measures have reduced the afternoon electricity peak load which was driving the need for additional generating capacity in the early part of this century.

Retail electricity prices more than double over the same period to 2030, resulting in much higher peak-use electricity costs and spurring a significant demand shift to off-peak electricity usage.

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Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

The combination of higher energy costs and transport congestion impels a revolution of the traditional five day working week. Universities, government departments and small service companies are the early innovators in partly re-scheduling their operations to minimise peak hour transportation and electricity usage.

Despite electricity prices flattening over the next decade to 2040, these structural changes lead to a levelling-off of traditional peak load electricity demand. Constraining the relative growth of peak energy consumption limits the need for peak load power plants.

In partnership with industry, the Governments of many developed countries invest heavily in researching and developing innovative storage technologies with the potential to enable electricity generated from a range of renewable sources to be stored for varying periods of time. These technologies can mitigate some of the intermittency difficulties which hampered wind and solar generation during the early part of this century and allow the renewables sector contribution to provide a large-scale, continuous supply source.

Meeting baseload electricity requirements

surface hot water resources and proximity to transmission infrastructure.

By the end of the decade, geothermal energy sources together with advanced storage technologies for wind and solar power ensure that renewable energy generation produced within Victoria and imported from interstate (particularly South Australia) is a serious contender for displacing a large portion of Victoria’s remaining brown coal-fired electricity for baseload needs.

Distributed solar-powered electricity generation was initially focused on meeting the afternoon peak in demand but development of a range of innovative electricity storage technologies including batteries, carbon blocks, saline ponds and compressed air storage means that large scale solar power stations are embedded within the transmission grid by the late 2020s.

Following a rapid breakthrough in the cost of technologies, particularly through the application of high technology polymers and ceramics, the emerging implementation of commercial-scale wave and tidal energy generation in the early 2030s secures the generation of large-scale, continuous electricity supply sufficient to meet the State’s growth in baseload electricity demand.

With easy access to the State’s existing electricity grid, Victoria’s high quality wave resources, particularly along the south west coast, provide a comparative cost advantage.

A relatively low-cost, large-scale, stable electricity supply is critical to retaining Victoria’s large manufacturing sector.

Slowing electricity demand growth throughout the last decade is now offset by power generation requirements for plug-in electric vehicles. This further escalates the push for a new low-emission, large-scale electricity supply.

Not everything is rosy

Keen to meet new power generation requirements through exploitation of its significant gas reserves in the Gippsland and Otway Basins, Victoria supports initial infrastructure development for gas powered electricity generation. In the early 2010s, new highly efficient and comparatively loweremission gas power stations begin to encroach upon brown coal market share for baseload electricity.

Local community resistance to visually intrusive wind farms increasingly constrains projected wind farm development during the 2020s. Although there is broad based community support for wind generation, rural communities protest that they are shouldering the burden for emissions reduction on behalf of the State.

However, sustained community commitment to substantially reducing emissions, together with escalating prices driven by world parity gas pricing, ensures that gas-powered generation is rendered a transitional fuel and a back-up for wind power intermittency in the medium-term.

By the mid 2020s, large-scale exploitation of Victoria’s significant geothermal resources is also underway.

Exploratory drilling in the 2010s has identified a surprisingly widespread geothermal resource throughout Victoria offering a comparative cost advantage through near

Not all renewable and low-emission energy sources are a success story.

Solar generation is encouraged to further reduce costs. A mandatory solar target is established in 2026.

Water scarcity and environmental concerns also prevent new hydro generation capacity within Victoria. Although emerging micro hydro generation promises a breakthrough in optimising water usage, local communities again resist the development of planned projects, partly in response to environmental concerns about the potential long-term impact on ecosystems.

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

25

Additionally, biofuels have not grown as predicted earlier in the century because of conflict with land use for the production of food crops. The tension surrounding land use is exacerbated by a significant increase in food prices resulting from record low rainfalls.

During this decade, significant Commonwealth Government funding together with industry support enables the completion of several large-scale CCS demonstration projects in the Latrobe Valley.

In a bid to maximise the value of its vast brown coal resources and ensure a large-scale stable and continuous electricity supply many decades into the future, Victoria also invests heavily in CCS technology. By the late 2020s, one CCS-enabled medium-scale electricity generation plant has progressed beyond demonstration phase and is operating commercially as “first-of-a-kind” in the Latrobe Valley.

However the market fails to embrace the call for widescale deployment of CCS, in part, because consumer preferences continue to favour renewable energy supply and community resistance extends regulatory approval processes. The relatively high carbon price and cost of CCS enabled coal-fired generation compared to renewable energy sources, and also the perceived risk of carbon leakage from geosequestration have further reduced investor confidence in the coal sector.

There is also some evidence of increasing community support for nuclear power but International Energy Agency (IEA) projections of insufficient global resources force up market prices for uranium. After successive Commonwealth and State Governments refuse to subsidise radioactive waste management, nuclear powered electricity generation is rendered largely uncompetitive in the National Electricity Market.

26

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

What effect will eRET have on Victorian energy transmission?

For much of the past century Victoria’s electricity supply has been provided almost entirely from brown coal deposits in the Latrobe Valley. These deposits are located in a relatively small area of the State, and allow for production of large volumes of energy from comparatively small areas of land. Consequently the electricity network was designed to transport electricity from a small number of large (>1,000MW) power stations to a relatively small number of load centres (Melbourne, Portland etc).

Due primarily to climate abatement initiatives, by 2001 Australia had embarked on a program of expanding its use of renewable energy - including wind, solar, hydro, biomass and (potentially) sources such as geothermal and marine energy. In 2009 this scheme - the Renewable Energy Target, or RET, - was expanded to comprise an additional 45 terawatt hours, or a total of 20 per cent of Australia’s electricity consumption by 2020.

Unlike coal, energy sources such as wind and solar require a significantly larger amount of land to produce the same amount of energy. For example, one gigawatt hour of electricity per annum requires approximately: 0.35 hectares for a Victorian brown coal station; 2.3 hectares for an overseas utility-scale solar plant, and up to 8.8 hectares for Victorian wind farms. (As windbased generation is compatible with a range of other land uses such as stock grazing, these figures should not be considered in isolation.)

In short, a future Victorian electricity supply that is heavily reliant on renewable sources will be more visible in the landscape for the average Victorian. In addition, the extent of network augmentation required to bring such dispersed, low density energy generation on line will be proportionately higher than in the past. This will incur extra costs which electricity consumers will have to bear.

Hydrogen breakthrough

World at 2040

Although gas and oil prices have risen and would make the production of hydrocarbon liquid and gaseous fuels from coal economically viable, limits on tailpipe greenhouse gas emissions from vehicles have driven the deployment of alternative fuels.

By 2040, winds, solar and geothermal sources together are a large feature of Victorian electricity generation with wave generation also fast-emerging as a significant energy source. The recent deployment of new efficient transmission technology utilising superconducting materials, together with the deployment of smart grid technology in the 2020s, has also improved overall transmission efficiency by more than 20 per cent nationally.

By the late 2030s, large-scale solar power stations have been built to produce electricity for hydrogen production rather than electricity for the grid. This has proven to be a more cost effective application as the hydrogen effectively provides the storage system for intermittent solar power.

Commonwealth and State Governments, together with vehicle manufacturers, also invest significant funds in hydrogen infrastructure including pipelines, safer storage technologies and fuelling stations for vehicles. The transport market is now dominated by a combination of electric drive, hybrid vehicles and those powered by hydrogen fuel cells.

The Victorian 22 September, 2036 Driving greener travel: electric vehicles dominate

Although gas powered generation is relatively expensive, it remains a critical, albeit smaller component of supply as the backbone of Victoria’s baseload electricity requirements.

Major gas-fired power stations and Victoria’s only CCSenabled coal power station sit alongside the last of the original four coal power stations operating at the beginning of the century.

Victoria also imports some of its renewable requirements from South Australia which greatly exceeded its 2020 target of more than 35 per cent renewable energy in its generation mix. New capacity with pumped storage and micro hydro has also significantly changed the way in which water is used for electricity generation and Tasmania, not as greatly affected by drought, is once again exporting electricity to Victoria through Basslink on a regular basis.

Although its use for power generation is in rapid decline, by 2040 a small proportion of coal is being mined as a feedstock for the plastics industry as oil and gas have become prohibitively expensive. Storage of carbon dioxide emissions from the conversion of coal is managed via a combination of algal or mineral sequestration with community opposition continuing to forestall exploitation of Victoria’s off-shore geological carbon storage resource.

Ironically, new organic photovoltaic materials and plastics based on coal have become an integral part of the low-emissions future via the production of light weight construction and manufacturing materials. In addition, uranium and thorium-based nuclear energy is again being considered as a potential baseload source to replace remaining coal and gas-fired generation.

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

27

Timeline of key events early 2010s

Strong international commitment to emissions reductions Australia commits to a 25% reduction by 2020 Gas power encroaches on coal market share

late 2010s

Energy efficiencies and demand management widespread Renewable target lifted to 25% of electricity generation by 2025

early 2020s

Price rises render gas a transitional fuel – now a back-up for wind

mid 2020s

Cost breakthroughs in renewable energy Storage technologies manage renewable intermittency Large scale exploitation of geothermal resources Demand managed by smart grids & energy storage

early 2030s 2040s

Emerging wave power generation Wind, solar and geothermal dominate Victorian electricity generation Coal power generation in rapid decline

28

Figure 17

Retail electricity price index

Figure 19

Carbon price

Figure 18

Coal cost and consumption

Figure 20

Gas price and consumption

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

Boomfor or Bust?: Possible Victorian brown coal in a carbon Boom or Bust: Four possible futures Victorian brownfutures coal infor a carbon constrained world – ERDCconstrained Scenarios toworld 2040

29

Scenario three: ‘Powerhouse’ Decision point 1: Strong international response to climate change?

ecision point 2: D Carbon capture and geosequestration for brown coal viable?

Decision point 3: Coal conversion for fuels and other high-value products viable?

YES

Scenario 4: FUELLING GROWTH

NO

POWERHOUSE

YES YES NO NO

Scenario 3:

Scenario 2:

WINDS OF CHANGE

Scenario 1:

PATHWAYS MAZE

Figure 21: Scenario Logic Map

In the Powerhouse world, Victoria’s vast and easily accessible brown coal assets, unique off-shore geological formations for carbon storage and key renewable energy resources position the State at the centre of a revolution in low-emission electricity generation.

Figure 22

Mix of electricity generation21

Figure 23

Electricity generation emissions: source of CO222

Against heavy international competition, Victoria seizes a strategic advantage through significant investment in the early commercialisation of carbon capture and storage (CCS).

Easy access to low cost geosequestration and infrastructure for transporting carbon dioxide attracts new manufacturers to the Gippsland region and fuels further investment in CCS. By 2040, the State is a net exporter of generated electricity to other states participating in the National Electricity Market with Victorian electricity net exports expected to grow to nine per cent of total generation within the next five years.

21 Electricity supplied to the NEM by Victorian generators.

22 Net of CCS.

30

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

United States and China agree on Investment in CCS emissions reductions To mitigate consumer and industry concerns about The United States administration seizes upon a groundswell of community support for action on climate change and commits to a 20 per cent reduction in greenhouse gas emissions by 2020.

The announcement is a first step towards an 80 per cent reduction in emissions in the longer term and encourages other industrialised nations to declare explicit reduction targets. Agreement is also reached with China on emissions reductions but several other developing nations continue to maintain intractable negotiating stances.

Australia subsequently regulates a carbon dioxide emissions reduction target of 25 per cent by 2020. The target is at the high end of the range foreshadowed by the Commonwealth Government, despite continuing reservations about the commitment to emissions reductions by a few key trading partners.

Modelling shows that carbon prices will rise steadily over the next decade in order to achieve the Australian Emissions Trading Scheme (ETS) targets. Supporting policy measures such as carbon price floors and CCS targets are also being considered by Government.

However it is widely recognised that the carbon price alone is insufficient to drive commercial deployment of CCS for brown coal generation, particularly in the first decade.

electricity costs, the stability of large-scale electricity supply, and the future competitiveness of Australian manufacturing, the Commonwealth Government announces a further multibillion dollar boost for CCS research, development and demonstration.

A major portion of the additional Commonwealth funding for CCS is ultimately committed to Victoria due to its suitability to host CCS. In a determined bid to retain the State’s large manufacturing base in an emissions constrained world, there is also support for brown coal drying as well as for dewatering and coal combustion/gasification technologies.

In 2018, one of Victoria’s existing coal-fired power stations is partially retrofitted with post-combustion carbon capture technologies. The project reduces greenhouse gas emissions from the plant, which is further enhanced by coal drying technologies that largely offset the energy required for CCS. Although retrofitting is more expensive over the plant lifecycle than integrating CCS in the design of a generation plant, the move is critical in generating industry and community support for CCS and for securing the retention of Victoria’s largest manufacturing energy consumers in the medium-term.

A significant community education program improves understanding of brown coal electricity generation and CCS. Improved community attitudes towards the injection and storage of CO2 underground succeeds in overcoming initial concerns about coal-fired power generation.

Figure 24

Carbon captured and stored23

23 CCS interstate imports not included.

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

31

Coal drying and dewatering technologies Coal drying is the process by which water is removed from coal by evaporation, which means that it produces less CO2 in combustion to produce electricity. In contrast, dewatering refers to the removal of water as a liquid. This removal usually occurs through mechanical processes such as “squeezing” (similar to squeezing a sponge).

Evaporating water uses a lot of energy and there is debate over whether this is the most energy efficient and therefore economical way of removing water from coal. Whilst using less energy than the alternative of evaporating the water, dewatering by “squeezing” the coal has a higher mechanical plant requirement.

There are many options for drying and dewatering coal by varying the process time, pressure, temperature, particle size, flow of drying medium, and relative humidity. However as at 2010, no clear winner has emerged.

32

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

Coal combustion and gasification technologies Combustion is the process by which coal is burned in oxygen (air) to release the latent energy contained in the coal structure.

In traditional power plants, coal is combusted and the energy is captured by heating water in a boiler to high temperatures, often referred to as superheated steam.

This superheated steam is then used to turn a steam turbine that drives a generator to produce electricity.

In an integrated gasification combined cycle plant, coal is heated to break down the chemical structure and form a gaseous fuel, often referred to as syngas. The syngas is combusted in a gas turbine that drives a generator to produce electricity. In addition, the waste heat from the turbine is used to produce steam (as in traditional plants) to drive a second generator and produce electricity.

Demand management and energy CCS proven and deployed efficiency Streamlined regulatory approvals processes enable Victoria By 2020, energy efficiency and demand management measures are widespread as State Governments seek to meet emissions targets and avoid the need for new additional large-scale electricity generation in response to continued demand growth.

In combination with the gradual easing of interstate residential electricity price controls, the impact of the ETS results in significantly higher peak-use tariffs throughout Australia. Deployment of smart meters facilitates a major shift to off-peak power usage and helps to offset growth in the traditional afternoon peak in electricity demand.

Changes to the incentive structure of the National Electricity Market (NEM) propel a major re-build of the transmission network. Support from both Government and industry, including significant Public Private Partnerships, facilitates the improved flow of electricity across state borders, shoring up system stability during peak demand and forestalling the drive for a significant boost in additional power generation.

37

ne cialTribu

TheFinan

2, 2019 | AUGUST

r flicks ia’s e t s i n i M Prime tch on Austral the swi l based first coant CCS pla

to fast-track the development of Australia’s first purposebuilt, commercial-scale, CCS-enabled power generation plant.

The new power plant produces near-zero carbon emissions and is significantly more efficient.

CCS commercialisation is also facilitated by previous breakthroughs in the drying and dewatering of coal, air cooling, and carbon capture technologies which require minimal water. This mitigates the threat to the brown coal generating industry in the mid-2020s when water trading, combined with declining water resources, challenges water use in power generation.

International innovations, together with research findings through the CO2CRC, lead to breakthroughs in capture technologies. This results in reduced capital costs and significantly reduces the energy required for second generation CCS-enabled power plants.

The success of these early plants is an important step forward in securing continued community and industry support for CCS deployment. Although initially wary, the community is now satisfied with CCS monitoring and verification regimes developed in Victoria and subsequently applied throughout the world. This provides an attractive climate for additional commercial investment in the refinement of CCS technology.

The State’s remaining high-emission coal plants are progressively phased out over the next fifteen years and replaced by new highly efficient power generation plants with CCS. These plants include a high degree of heat integration which ensures that heat wasted in coal power plants at the beginning of the century is now utilised more efficiently to produce electricity.

Of particular importance to Victoria is the commercial deployment of low temperature gasification, which is well suited to brown coal, is efficient and has much lower capital costs than high temperature black coal gasification due to its lower temperature operation.

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

33

Victoria green power grows and plateaus The development of green energy sources is encouraged throughout the 2010s through the expanded Renewable Energy Target (eRET). The eRET requires Australia to produce 20 per cent of electricity generation from renewable energy sources by 2020.

Victorian renewable energy supply is initially dominated by the continued development of on-shore wind generation and a large scale solar photovoltaic power plant established in the north west of the State.

Progressive breakthroughs in solar electric technologies bring down production costs (although these costs remain significantly higher than brown coal without CCS). In the mid-2020s, building integrated photovoltaics systems, in which photovoltaic cells are incorporated into building walls and windows, are mandated for all new residential and commercial buildings.

Photovoltaic panels and fuel cells enable a sizeable proportion of homes and commercial buildings to become largely energy self-sufficient, particularly as continued climate change extends the traditional summer season into both spring and early autumn. These buildings feed surplus electricity generation into the national grid and the progressive retrofitting of existing buildings helps to offset the continued growth in energy demand.

Although renewable energy has become a significant element of the State’s power generation scene by the mid-2020s, conflicting social priorities, including increased resistance to higher electricity costs, begin to slow the growth in green energy sources.

The relatively high price of generating renewable electricity and community concerns about visual and environmental impacts impede the ongoing expansion of wind and hydro generation. The focus for both sources turns to efficiency with technology developments, such as larger turbines for wind, enabling a 10 per cent improvement in supply generated from existing power assets.

Victoria’s geothermal resources have also proven not to be as extensive as originally thought prior to 2010 and significantly higher capital construction costs, compared with both CCS-enabled coal and gas-fired power generation, deters market investment in this energy source as a potential alternate for large-scale, continuous electricity supply.

34

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

Victoria seizes strategic advantage Victoria’s early success in commercialising CCS-enabled coal generation, together with the State’s unparalleled off-shore geological carbon storage capacity, attracts a range of major manufacturers to the Gippsland region.

New high-emitting, power-intensive industries are keen to exploit easy access to sequestration and infrastructure for transporting carbon dioxide. Victoria’s new highly efficient, low-emission, coal power plants also provide a relatively lower-cost, stable and secure baseload electricity supply.

The development of low-emission coal generation is initially highly reliant on Commonwealth and State Government funding. However a range of policy measures, including the gradual easing of interstate retail price controls and greater certainty regarding the future sufficient pricing of carbon permits, underpins the potential for reasonable returns on investment and attracts private capital to CCS power generation developments from the mid-2020s.

Linked to world parity pricing, gas prices have continued to rise and the early gas power stations established to bridge a demand gap in the early 2020s are now too expensive to compete with low-emission brown coal generated electricity and some renewables.

Gas-fired power remains as a back-up to the intermittency of wind generation in most Australian states with storage technologies not yet sufficiently evolved to enable renewables to act as an alternate baseload supply source.

While biosequestration and mineralisation carbon storage developments have established a significant foothold, the relative cost and scale advantage of off-shore geological storage in Victoria remains unchallenged. This is particularly so with biosequestration where competition with land-use for food crops has resulted in regulatory restrictions and driven up the cost of this form of carbon storage.

As new industry is established, economic wealth drives continued investment and leads to ever increasing efficiency gains in geological carbon dioxide injection and sequestration.

The renewable energy boom envisaged in South Australia has failed to materialise because of the remoteness from load and an inability to make significant inroads into the NEM. This is in large part because of competition from new lowemission brown coal which stalls investment in relatively higher-cost geothermal generation.

The commercial future of black coal remains primarily in the export markets to Asia, while brown coal continues to be economically best suited to domestic power generation.

New manufacturing and transport technology Although efficiency and demand management measures are widespread, Australia continues to experience an exponential rise in energy demand growth.

The continued increase in energy demand throughout this period is largely driven by population growth, Victoria’s new manufacturing industry and transport technology breakthroughs. By 2030, up to 50 per cent of light vehicles and medium-sized commercial vehicles in urban areas have electric drive with battery regeneration provided through connection to mains electricity.

Victoria exporting electricity By 2040, most of Victoria’s required power supply is split fairly evenly between brown coal and renewables. All of the Latrobe Valley’s power plants are new except one. Although old and out-of-date, this was partially retrofitted with CCS technology in the mid 2010s to effectively capture some of its emissions cost, and subsequently retrofitted with drying and new low cost carbon capture technology.

There is an increase in coal mining but combustion efficiency gives more power per tonne, even with the application of CCS. Government support facilitated the development of CCS network infrastructure and, as a result, royalties from the sequestration of CO2 generated out of Victoria flow to State and Commonwealth governments.

Victoria is now Australia’s lowest cost, low-emission electricity provider and is exporting 30 per cent of its electricity production via the NEM. There is diversity of supply sources through renewable energy and gas, but CCSenabled brown coal generation continues to dominate for baseload electricity.

Major infrastructure developments facilitate the growth of manufacturing centres in the Gippsland region. In addition to pipelines connecting the region to off-shore geological sequestration, new port and fast-rail developments attract export-oriented industries to the area.

Other states participating in the NEM have failed to stimulate the necessary innovation and investment to capture the leadership in development of low-emission electricity.

The Bass Strait Times O N L I N E

16 July 2029

‘Park and plug’ network to power Melbourne’s electric cars

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

35

Timeline of key events early 2010s

Victoria’s unique geological attributes for carbon storage confirmed Australia commits to 25% reduction on 2000 emission levels by 2020 Government significantly boosts investment in CCS

mid 2010s

Retrofit of coal drying and post-combustion CCS technologies

late 2010s

Victoria fast-tracks first commercial, CCS-enabled coal power plant

early 2020s

Gas power stations built to bridge energy demand gap Off-shore carbon storage and new power spurs growth in Gippsland

mid 2020s

Community resistance slows spread of wind Breakthroughs in solar technology production costs Private capital attracted to CCS-enabled coal generation projects Gas prices render gas power stations less competitive

36

early 2030s

Electric-drive light and medium-sized vehicles in urban areas

2040s

Victoria net exporter of electricity production to other States

Figure 26

Retail electricity price index

Figure 28

Carbon price

Figure 27

Coal cost and consumption

Figure 29

Gas price and consumption

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

Boomfor or Bust?: Possible Victorian brown coal in a carbon Boom or Bust: Four possible futures Victorian brownfutures coal infor a carbon constrained world – ERDCconstrained Scenarios toworld 2040

37

Scenario four: ‘Fuelling Growth’ Decision point 1: Strong international response to climate change?

ecision point 2: D Carbon capture and geosequestration for brown coal viable?

Decision point 3: Coal conversion for fuels and other high-value products viable?

YES

Scenario 4: FUELLING GROWTH

NO

POWERHOUSE

YES YES NO NO

Scenario 3:

Scenario 2:

WINDS OF CHANGE

Scenario 1:

PATHWAYS MAZE

Figure 30: Scenario Logic Map

Fuelling Growth is a world beyond electricity generation for Victorian brown coal. In the wake of a significant and sustained escalation in oil and gas prices, the conversion of coal to liquids (CTL) and other high-value commodities establishes a valuable new market for the State’s vast coal resource.

Figure 31

Mix of electricity generation24

Figure 32

Electricity generation emissions: source of CO225

Building on its strategic advantage in the early commercialisation of geological sequestration for carbon dioxide emissions, Victoria is a world-leader in fostering the development of high-value applications for brown coal and the State soon becomes an attractive manufacturing base for a broad range of new industries and exports.

However the rapidly expanding, high-value coal conversion (CTX) market spurs a substantial increase in the price of the raw material and threatens to progressively outprice coal as an energy source for the next generation of domestic power production.

While coal conversion makes a contribution to energy security for Australia’s petroleum-based transportation system, there is increasing broad-based industry and political pressure for Victoria to substantially increase its coal reservations for electricity generation. Advocates say the move is necessary to safeguard relatively low electricity prices into the future.

24 Electricity supplied to the NEM by Victorian generators.

25 Net of CCS.

38

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

International cooperation on climate change By 2014, further evidence of the escalating pace of global warming and signs of a rapid world recovery from the 2008 global financial crisis help to set the scene for unparalleled international agreement on tougher emissions targets.

The United States announces a 25 per cent reduction in emissions by 2025. China and India, facing increasing pressure for decisive action on climate change from their rapidly growing middle-classes, also commit to significant reductions in greenhouse gas emissions.

The Commonwealth Government’s Emissions Trading Scheme (ETS) targets a 25 per cent reduction in emissions by 2020.

The national target was predicated on strong international action on climate change and requires the progressive upscaling of carbon prices over the next decade. However it is acknowledged that carbon pricing alone will be insufficient to drive market investment in carbon capture and storage (CCS) for brown coal power generation within that timeframe.

Investment in clean coal technologies To mitigate concerns about long-term, large-scale electricity supply and costs, the Commonwealth Government announces a significant increase in funding for carbon capture technology development and emissions storage exploration.

Together with Government subsidies and policy support, a substantial increase in industry financial support for geosequestration is ultimately committed to Victoria where a comprehensive report has confirmed the State’s unique natural geological attributes for source-sink matching for CCS.

017

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VEM torian NO ic V e h T 43

share ofnt ’s n o i l s n i vestme n i Victoria w S C C n io lant multi-bill old coal p replaces as d Cycle G Combine

Bass Strait and adjacent waters feature some of the world’s most suitable formations for the permanent underground storage of carbon dioxide emissions. The off-shore locations, near to the State’s large carbon emitters, are untroubled by the community concerns and planning delays which plague several proposed on-shore sequestration developments.

In addition, several brown coal power generators invest in coal drying and dewatering technologies, with Government grants. This reduces the moisture content of brown coal prior to combustion and substantially improves the efficiency of existing coal-fired power generators and a corresponding reduction in carbon dioxide emissions.

Gas powers energy demand gap Throughout the early 2010s, energy efficiency and demand management measures are widespread as State Governments seek to meet emissions targets and forestall the need for additional power generation capacity.

Higher electricity prices as a result of ETS and the deployment of smart meters facilitate a marginal shift to offpeak power usage by domestic users. Victorian residential electricity prices are unregulated. However several interstate Governments, facing a growing electoral backlash, move to strengthen retail price controls. This further squeezes electricity export profit margins for coal power generators.

In the mid-2010s, infrastructure for Victorian gas-fired power generation is significantly upgraded. This enables the State to exploit its significant gas reserves, reduce total emissions from domestic power generation, and assure baseload electricity for energy-intensive manufacturing in the medium-term.

A new highly-efficient combined cycle gas turbine plant, which produces half the emissions of existing coal-powered plants, begins operation in the Gippsland Region and quickly encroaches on market share held by the four coal power stations.

Development of the new combined cycle gas-fired generator was progressed in place of plans to retrofit one of the Victoria’s coal generators with post-combustion carbon capture technology. The planned retrofit was abandoned when both industry and capital markets failed to support investment in the project.

Over the next two years, several existing open-cycle gas turbines throughout Victoria and other States are also rapidly converted to combined cycle. This significantly improves the efficiency of the plants and enables a sizeable increase in electricity generation for the same emissions load.

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

39

Renewable power grows in favour The development of green energy sources throughout the 2010s is encouraged through the expanded Renewable Energy Target (eRET), which requires Australia to produce 20 per cent of electricity generation from renewable energy sources by 2020.

Victorian renewable energy supply is initially dominated by the continued development of on-shore wind generation and a large scale solar power plant established in the north of the State. Progressive breakthroughs in solar technologies rapidly bring down production costs and targeted Government support mechanisms, including additional venture capital tax concessions, bring forward technology investment and accelerate development.

In the mid-2010s, building integrated photovoltaics systems, where photovoltaic cells are incorporated into building walls and windows, are mandated for all new residential and commercial buildings. Photovoltaic panels and fuel cells enable a sizeable proportion of homes and commercial buildings to become largely energy self-sufficient despite still being connected to the electricity grid.

The continued impact of climate change and the strong marketing of ‘green branded’ energy sources enables renewables to gain a significant share of Victoria’s electricity power generation market throughout the operation of the eRET target.

In the late 2010s, the Commonwealth Government introduces a national feed-in tariff to support the continued growth of solar electricity generation beyond the windup of the eRET. The retrofitting of existing buildings helps to offset continued growth in the State’s energy demand and by the early 2020s, buildings with installed solar photovoltaic cells feed a sizeable portion of surplus electricity generation into the national grid.

Despite the relatively higher costs, the success of renewable electricity generation is an anomaly of consumerism in many wealthy industrialised nations. The same retail markets, which steadfastly resist the passing on of higher electricity costs from CCS-enabled brown coal generation, remain committed to the purchase of higher cost renewable electricity.

A significant investment in research and development of various storage technologies throughout the 2010s enables electricity generation from a range of renewable sources to be stored for varying periods and fed into the electricity grid. This allows renewables electricity supply to contribute to the continued growth in baseload electricity demand.

However, Victoria’s geothermal resources have not proven extensive and electricity supply from geothermal is small, continuing to incur significantly higher capital construction costs compared with both CCS-enabled coal and gas-fired power generation. This deters market investment in this form of energy as a potential alternate supply source to meet baseload electricity demand.

LY 1, 2018

45

ne | JU cialTribu n a in F e h T

s e h c a e r e Oil pric arrel $200 a b

40

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

Dramatic increase in oil and gas prices Throughout the 2010s, the growing thirst for Middle East oil from China, India and other rapidly growing economies progressively increases prices and heightens domestic and international concerns about long-term energy supply security.

In a bid to ensure supply security by acquiring equity in energy assets, Asia invests heavily in Middle East oil and gas infrastructure projects. From 2012 there is marked Asian interest in brown coal to liquids.

The State Government facilitates access to previously exempted coal resources in the Gippsland Basin. The licensing allocation is dominated by commercial entities focused on the conversion of coal to liquids and other highvalue commodities with CCS. Over three years in the early 2020s, gas prices move sharply up and double, linked to but lagging a significant jump in world oil prices. The exponential rise is attributed to continued growth of the world economy, the swift destabilisation of the Middle East, and escalating concerns about rapidly dwindling, easily-extractable fossil fuel supplies.

Early lower-emission gas-fired power stations, established to bridge an energy supply gap in the previous decade, are now unable to compete economically with Victoria’s remaining three now modified original brown coal power plants, with coal drying and partial CCS partly funded by development grants.

Australia’s first new commercial-scale, CCS-enabled coal power plant is progressed rapidly to secure large-scale, stable electricity supply for the State. Plans for the new generation plant have been on the drawing board for several years but were shelved in the early 2010s following a lack of investment interest in the project.

With capital markets deterred by relatively low investment returns, completion of the plant is dependant on Commonwealth grants, discounted loans and tax concessions. The state-of-the-art generation plant, prioritised as a critical energy stability and security project, produces nearly zero emissions and begins operation in the mid 2020s.

In 2024, soil carbon is finally considered as part of the ETS, allowing farmers to be paid for increasing the carbon in their soils. This helps with carbon reduction. It took ten years to agree to the accounting mechanisms.

Construction of a second coal power plant, with integrated pre-combustion carbon capture, begins immediately although development of the plant is also heavily reliant on Government grants and CO2 price support. Spurred by growing fears about long-term electricity supply security and economic growth, ETS permit revenue in Australia is now largely committed to the development of CCS-enabled brown coal generation.

Coal conversion proves valuable new market The swift and sustained escalation in fuel prices results in only a marginal reduction in demand with many large industrialised nations heavily dependant on petroleum-based transportation systems. As world demand exceeds supply, market forces drive significant industry investment in the commercialisation of coal to liquids (CTL).

While plug-in electric vehicles are an increasingly important mode of transport in large cities, hybrid vehicles heavily dominate most world consumer markets. CTL for the production of transport fuels quickly becomes a valuable market for long-haul transport.

In 2027, one of the world’s first commercial-scale plants to produce synthetic crude oil direct from the liquefaction of brown coal begins operation in the Latrobe Valley. The synthetic crude will be further processed to produce low sulphur diesel, fuel oil, motor fuel blends, kerosene and a number of other non-fuel products.

Production from the plant will be primarily sold into the domestic market with much lower transportation costs, enabling the plant to compete effectively with oil imports.

During this period, Australia continues to sell Liquefied Natural Gas (LNG) from Queensland and New South Wales into the higher-value northern export markets.

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

41

Figure 33: Potential products from brown coal

By the early 2030s, construction has commenced on a coal gasification plant in Gippsland to convert brown coal to syngas. Syngas is a gaseous feedstock that is a precursor to a much broader range of high quality products, such as diesel, methanol, fuel gasoline blends and high octane gasoline extenders, compared with the output from the liquefaction plant.

Production from the coal conversion plants will be distributed throughout Australia via a new freight rail network and port established near the fast-growing Latrobe Valley manufacturing centre. Car manufacturers have also begun to mass-produce vehicles which are fuelled directly by syngas, negating the requirement for further processing and eliminating associated costs .

Victoria has a long history of brown coal gasification: coal gas fuelled towns in the Latrobe Valley before natural gas from Bass Strait became available in the 1960s. However, it is the early commercialisation of carbon capture technologies and unique access to geosequestration, together with the State’s low cost brown coal resources, which elevates the Latrobe Valley as the site of the gasification plant.

Carbon capture technology, commercialised in Victoria in the early 2020s, is applied to coal liquefaction and gasification and the carbon-shifting process for the further conversion of syngas to fuel and non-fuel products.

Victoria’s early lead in the successful application of low-cost CCS provides a strategic advantage that is unmatched by other states.

As oil and gas are prohibitively expensive, syngas is also being produced as a feedstock for the manufacture of plastics. Organic photovoltaic materials and plastics based on coal quickly become an integral part of the low-emissions future via the production of light weight construction and manufacturing materials.

42

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

New manufacturing industry for Victoria By the late 2020s, Victoria’s proven success in carbon capture technologies, together with the State’s unparalleled off-shore CO2 storage potential, attracts new manufacturers eager to exploit easy access to sequestration and infrastructure for transporting carbon dioxide. This includes a speciality steel manufacturing facility wanting to produce zero emission steel by taking advantage of the low CCS costs.

The Commonwealth and State Governments are quick to recognise the potential of new coal conversion manufacturing applications to further drive the nation’s profile from a ‘dig and export’ approach to sophisticated processing of its natural resources. Significant tax incentives are provided to encourage the conversion of coal to high-value applications provided they generate lowemissions or incorporate carbon capture technology.

There is extensive support for infrastructure development to facilitate the early adaptation of CTL technology and stimulate new industries.

By the mid 2030s, wealth generated by the location of both carbon intensive and new coal based manufacturing industries in the Gippsland region heralds a new wave of economic prosperity for Victoria. Industry and community leaders proclaim the Latrobe Valley’s role as ‘the leading light of a low-emissions carbon world’.

Power generation in 2040 By the early 2030s, 3000MW of high-emission coal plant in the Latrobe Valley has been retired and replaced by new efficient and low-emission power generation plant involving pre-combustion capture of CO2. Within the next decade, the remaining two original power stations are closed.

Scale and significantly increased efficiencies enable the generation of electricity supply from the two CCS-enabled plants to exceed the total power produced by the four coal power plants originally operating at the start of the century.

By 2040, CCS enabled low-emission coal generation plants provide approximately half of Victoria’s electricity needs with renewable energy taking up a significant proportion of the growth in electricity demand during the past two decades. Effective demand management and high efficiency electricity generation technology enable the State’s power demand, which has doubled over the past 20 years, to be met from renewables with a significantly lower increase in coal being mined.

By 2040, equal amounts of brown coal are going to electricity generation requirements and coal-to-liquids conversion / non-fuel applications such as the manufacture of fertilisers and new-technology plastics.

The valuable market in coal-conversion commodities threatens to outprice coal as an energy source for domestic power generation. The Government faces pressure to secure relatively low-cost brown coal electricity generation into the future.

With Australian manufacturing and transportation now heavily reliant on brown coal converted products, there is significant market pressure for Victoria to balance the allocation of coal between competing uses. Remaining coal reserves are zoned for either CTX or electricity generation to preserve sufficient economic brown coal resources near existing CCS-enabled power plants.

However there is emerging public concern about the cost and security of Victoria’s electricity supplies. The Victorian Government moves to preserve electricity generation selfsufficiency in order to safeguard the State’s electricity supply in the event of any future network transmission failures.

Victoria is a centre of low emission manufacturing and power generation, with a significant new energy products industry.

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

43

Timeline of key events early 2010s

Australia commits to 25% reduction on 2000 emission levels by 2020 Government co-invests in CCS demonstration Plans for CCS-enabled coal power shelved

mid 2010s

Major upgrades to gas-fired power plants - generation increases significantly Demand increases oil prices and heightens supply security concerns Gippsland: investment in new CCS coal power plant and plans for second

early 2020s

Gas prices double over three years; linked to world oil prices

mid 2020s

CCS-enabled coal power plant operating in the Latrobe Valley Gas unable to compete with Victoria’s coal power plants

late 2020s

Coal liquefaction plant begins producing synthetic crude oil Significant new investment and jobs in Gippsland

early 2030s 2040s

Construction commences on coal to syngas plant in Gippsland Equal amounts of coal allocated between electricity and CTL/CTX

Figure 34

Retail electricity price index

Figure 36

Carbon price

Figure 35

Coal cost and consumption26

Figure 37

Gas price and consumption

26 Additional coal consumption for uses other than electricity generation are not included in this model.

44

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

Boom or Bust: Four possible futures Boomfor or Bust?: Victorian Possible brownfutures coal infor a carbon Victorian constrained brown coal world in a carbon – ERDCconstrained Scenarios toworld 2040

45

Scenario comparison graphs Figure 38

Electricity generation27

Figure 40

Electricity generation emissions: source of CO229

Figure 39

% Mix of electricity generation28

Figure 41

Carbon captured and stored30

27 Electricity supplied to the NEM by Victorian generators.

28 ibid.

29 Net of CCS. 30 CCS interstate imports not included.

46

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

Figure 42

Retail electricity price index

Figure 45

Carbon price

Figure 43

Coal cost

Figure 46

Gas price

Figure 44

Coal consumption31

Figure 47

Gas consumption

31 Additional coal consumption for uses other than electricity generation are not included in this model.

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

47

48

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

Conclusions and observations In response to the Minister for Energy and Resources’ request to the ERDC to consider the future of Victorian brown coal, the ERDC scenario program brought together leaders from Victoria’s energy sector, including energy suppliers and industry peak bodies, as well as environmental groups and other non-government organisations, community representation, unions, technology developers, financiers and government. In this respect the scenarios are a joint creation.

With world class wind, wave, solar, gas, carbon storage and coal resources, Victoria clearly has the potential to respond to a carbon constrained future and to secure its own energy needs. The scenarios demonstrate how different policy settings, technology development paths and community responses will produce potentially quite different outcomes for Victorian brown coal and energy generation. The imperatives of minimising costs and emissions will drive the market to respond to whatever policy settings are in place.

The costs and timing of new technology deployment will be critical to how the future unfolds.

In Winds of Change we see international agreement on actions to address climate change, but technical issues and concern around CCS halt its broad deployment. The energy sector is dominated by renewable energy technologies and the use of coal, although an abundant natural resources, is in rapid decline. Whilst this is a clearly a green scenario with many benefits, it may not provide Victoria with a compelling competitive advantage compared to other states or countries unless Victoria can develop a strong technical advantage in some of the renewable technologies.

By contrast, Powerhouse sees CCS being technically and commercially feasible and acceptable to communities.

Victoria uses its brown coal and also develops its key renewable energy resources to position the State at the centre of a revolution in low-emissions electricity generation.

In this scenario Victoria would retains its competitive advantage of relatively low cost electricity, which has been so valuable to its economy in the past.

In the Fuelling Growth scenario we see further upside potential for Victorian brown coal as the conversion of coal to liquids and other high-value commodities establishes new markets beyond electricity generation. This opens vistas to new economic activity at a scale we have not seen in Victoria since the development of the Bass Strait oil reserves.

Interestingly the future that is perhaps least desirable is Pathways Maze, a world characterised by muted and inconsistent regulatory responses to greenhouse gas

emissions. The move to a low carbon economy is stymied by conflicting social priorities, including community opposition to the construction of large-scale renewable energy generators. In this environment Victoria would suffer from a lack of certainty and of investment, with significant consequences for emissions and the economy.

The scenarios highlight the interconnection of forces at a global and local level. Clearly neither governments nor industry can ‘dial up’ these futures for Victoria, rather they must work with the policy settings that emerge on the national and international stage, work with the technology that is emerging, and work within the boundaries of local and global energy prices. Last but not least they must work with the underlying resources that the state has.

Broad questions raised by the scenarios include: • Which people and connections will be the most influential in shaping the future?

• How will communities engage with the energy and climate change challenge outlined and what values will this embody?

• Which energy and low emissions technologies will emerge as commercial frontrunners in ten, twenty and thirty years from now, and how will this influence the future?

• To what extent should new and emerging technologies be supported and demonstrated, and what should the relative support for the range of emergent technologies be?

• What trade-offs will the Victorian community need to make and will it be willing to do so? At what point?

• What role will Australia and Victoria play in the global community – in both energy and climate change?

The scenarios are not an endpoint, but a starting point for further debate, discussions and considerations. The ERDC hopes that these scenarios are used to challenge existing assumptions, to identify key risks, opportunities and the drivers of change, and to provide a foundation for planning and action that will allow Victorians to develop a future for energy and energy usage that meets their aspirations for sound and optimal economic and environmental outcomes.

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

49

Acknowledgement The ERDC would like to thank the following organisations for their contribution to the workshops that provided the concepts for these scenarios to be developed: AGL Energy Limited

Geoscience Victoria

Alstom Australia

Gippsland Trades and Labor Council Inc (GTLC)

Alternative Technology Association (ATA)

Grattan Institute

ANZ

HRL Limited

Australian Association for the Study of Peak Oil and Gas (ASPO Australia)

Hydrogen Energy Australia

Australian Coal Association Australian Conservation Foundation Australian Energy Company

International Power Australia Pty Ltd KPMG Corporate Finance (Aust) Pty Ltd Latrobe City Council

Australian Petroleum Production & Exploration Association (APPEA)

Loy Yang Power

Australian Uranium Association

Macquarie Capital Advisers Limited

Australian Workers Union (AWU)

McLennan Magasanik Associates Pty Ltd

BP Hydrogen Energy

Minerals Council of Australia

Clean Coal Victoria

Monash Energy

Climate Institute

National Low Emissions Coal Council

Commonwealth Scientific and Industrial Research Organisation (CSIRO)

Origin Energy

Construction Forestry Mining and Energy Union (CFMEU)

RMIT Global Cities Research Institute

Cooperative Research Centre for Greenhouse Gas Technologies (CO2CRC)

Schlumberger Limited

Department of Energy, Resources and Tourism Department of Innovation, Industry and Regional Development Department of Premier and Cabinet Department of Primary Industries Department of Sustainability and Environment Department of Treasury and Finance Energy Safe Victoria Environment Victoria ExxonMobil Australia First Charnock Pty Ltd

50

Ignite Energy Resources Pty Ltd

Boom or Bust?: Possible futures for Victorian brown coal in a carbon constrained world

Pacific Hydro Pty Ltd

South East Water Sustainability Victoria TRUenergy Pty Ltd University of Melbourne Urbis Pty Ltd VenCorp William J. Clinton Foundation / Clinton Climate Initiative WorleyParsons Engineering Wyld Group Pty Ltd

Glossary Term

Definition

2009 G8 Agreement

Long-term goal of reducing global emissions by at least 50% by 2050 and, as part of this, on an 80% or more reduction goal for developed countries by 2050.

Adaptation

An adjustment in natural or human social or economic systems that moderates harm or exploits beneficial opportunities, in response to actual or expected climate change.

Algal sequestration

Through the process of photosynthesis, algae break down carbon dioxide captured from flue gases resulting in oils, proteins and carbohydrates.

Baseload

Electricity provided to the grid throughout all days of the year. as compared to peak electricity which is provided on days and at times of high demand.

Basslink

The electricity transmission interconnector that allows the flow and trade of electricity between Tasmania and mainland Australia.

Biofuel

Solid, liquid or gaseous fuel obtained from living biological material.

Biosequestration (biological sequestration)

The process of capturing and storing carbon in living organisms such as plants and algae. This occurs through the natural process of photosynthesis.

Black coal

A sedimentary organic rock that is primarily used as a solid fuel to raise steam to generate electricity and to produce coke for the steel making process.

Brown coal

Also called Lignite. An intermediate stage between peat and bituminous coal. The major primary energy resource in Victoria. It is mined at low cost and mainly used for baseload electricity generation. It is the source of about half of Victoria’s current greenhouse gas emissions.

Brown Outs’

A drop in voltage in an electrical power supply, so named because it typically causes lights to dim. Often occurs when electrical infrastructure becomes overloaded.

Building integrated photovoltaic systems (BIPV)

The incorporation of photovoltaic cells into building walls and windows, enabling homes and offices to become largely energy self-sufficient.

Carbon block

Also called a graphite block. In solar thermal systems mirrors focus solar energy onto the block (which can reach over 1000 degrees Celsius) where the heat is stored and used to produce steam to power a turbine and generate electricity. Demonstrations have shown that this process can provide full power up to eight hours after sunset.

Carbon capture and storage (CCS)

Technology to capture and store greenhouse gas emissions from energy production or industrial processes. Captured greenhouse gases have the potential to be stored in a variety of geological or ocean sites.

Carbon dioxide (CO2)

A naturally occurring gas; it is also a by-product of burning fossil fuels and biomass, as well as land-use changes and other industrial processes. It is the principal anthropogenic greenhouse gas that affects the earth’s temperature.

Carbon price

The cost of emitting carbon into the atmosphere. It can be a tax imposed by government, the outcome of an emission trading market or a hybrid of taxes and permit prices. The various ways of creating a carbon price can have different effects on the economy. Also referred to as the cost of carbon emissions.

Carbon Storage Taskforce (CSTF)

The Australian Government established the Carbon Storage Taskforce in October 2008 to bring together government and key industry sectors with an interest and expertise in carbon storage, to develop a National Carbon Mapping and Infrastructure Plan.

Climate change

A change of climate in addition to natural climate variability over comparable time periods that is attributed directly or indirectly to human activity.

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Term

Definition

CO2CRC

Co-operative Research Centre for Greenhouse Gas Technologies

Coal drying

A process which changes the molecular structure of raw, porous brown coal into a dense, dry hard pellet with the energy equivalent of high-grade black coal.

Coal to liquids (CTL)

Production of liquid fuel from coal involving either direct or indirect liquefaction.

Coal to ‘X’ (CTX)

A process for converting coal via liquefaction and gasification into a range of commodities such as fuel related, products, waxes, resins and polymers.

Combined Cycle Gas Turbine (CCGT)

A generator that uses a gas turbine to generate electricity. It then generates further electricity by producing steam from the waste heat to drive a steam turbine.

Combustion

The act or process of burning.

Compressed air storage

Compression of air stored during periods of low energy demand to be used later as a clean energy source when demand increases.

Desalination

A process for removing salt from water sources - normally for drinking purposes.

Dewatering (of coal)

A process to significantly reduce the moisture content of coal prior to combustion, thus improving the efficiency of combustion and reducing CO2 emissions.

Emissions

The release of greenhouse gases into the atmosphere.

Emissions Trading Scheme (ETS)

The objective of this scheme is to meet Australia’s emissions reduction targets in the most flexible and cost-effective way; to support an effective global response to climate change; and to provide for transitional assistance for the most affected households and firms.

A market-based approach to reducing emissions by placing a limit on emissions allowed from all sectors covered by the scheme. It allows those reducing greenhouse gas emissions to use or trade excess emissions permits to offset emissions at another source. Also referred to as a ‘cap and trade scheme’

expanded Renewable Energy Target A higher Renewable Energy Target (RET) of 20% renewable energy generation by 2020. (eRET) Feed-in tariff

A credit to households, small businesses, and so on from power companies for electricity that is ‘fed into’ the power grid.

Feedstock

The raw materials that go into a chemical process.

Fossil fuel

A hydrocarbon deposit, such as petroleum, coal, or natural gas, derived from the accumulated remains of ancient plants and animals and used as fuel.

Fuel cells

An electrical generation unit that converts energy from chemical reactions directly into electrical energy.

Gaseous fuel

A combustible gas that can be burned in a furnace or an engine.

Gasification (coal)

The process of producing gas (syngas) from coal.

Generation

The production of electricity by converting another form of energy in a generating unit.

Geosequestration (geological sequestration)

A technology that stores liquefied carbon dioxide in deep underground rock structures (see ‘sequestration’).

Geothermal (energy)

The heat energy contained or stored in rock, geothermal water or any other material occurring naturally within the earth.

Global warming

An increase in the earth’s atmospheric and oceanic temperatures widely predicted to occur due to an increase in the greenhouse effect resulting from pollution.

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Term

Definition

Greenhouse gas

Any gas that absorbs infrared radiation in the atmosphere.

Groundwater

Any underground water, generally occupying the pores and crevices of rock and soil.

Hot dry rock

Rocks deep underground with special naturally occurring radiogenic minerals which produce their own heat. The heat is trapped inside these granites by an overlying blanket of insulating rocks. This heat is captured for energy production by injecting water from the surface through bore holes into hot granite rock, say five kilometres underground. The water heats as it flows through cracks in the granite and when it returns to the surface the super heat of steam is used to generate electricity.

Hot sedimentary aquifer (HSA)

Hot water is extracted from a permeable sedimentary aquifer, and circulated through a power generation unit.

Hybrid vehicles

Vehicles with two forms of propulsion - generally some sort of electric motor plus another eg internal combustion diesel, LPG, ethanol or hydrogen engine or a fuel cell stack.

Hydrocarbon

Any of numerous organic compounds, such as benzene and methane, that contain only carbon and hydrogen.

Hydrocarbon liquid

A hydrocarbon that has been converted from a gas to a liquid by pressure or by reduction in temperature; usually limited to butanes, propane, ethane, and methane.

Hydrogen

A colourless, highly flammable gaseous element, the lightest of all gases and the most abundant element in the universe, used in the production of synthetic ammonia and methanol and in petroleum refining.

Hydro power (generation)

Electricity produced by a generator driven by the energy of falling or flowing water.

Infrastructure (electrical)

The large-scale public systems, services, and facilities necessary for the production and transmission of power such as a power station. Other forms of infrastructure include pipelines, rail, road, ports, and walkways.

Interconnector

High Voltage transmission line connecting power grids between two states.

International Energy Agency (IEA)

An intergovernmental organisation which acts as energy policy advisor to 28 member countries in their effort to ensure reliable, affordable and clean energy for their citizens.

Liquefied Natural Gas (LNG)

Natural gas (predominantly methane, CH4) that has been converted temporarily to liquid form for ease of storage or transport.

Liquefaction (coal)

A process that converts coal from a solid state into liquid fuels, usually to provide substitutes for petroleum products.

Load-shedding

Reduction or disconnection of electrical load from the power system generally in circumstances where there would otherwise be a shortage of electricity generation to meet demand.

Low-carbon economy

A concept that refers to an economy which has a minimal output of greenhouse gas emissions into the atmosphere.

Micro hydro (generation)

A small scale hydroelectric power plant. (see Hydro power)

Mineralisation (mineral sequestration)

A process in which CO2 is combined with rock minerals to produce a solid carbonate.

Minimum Energy Performance Standards (MEPS)

National energy efficiency standards covering a range of energy using equipment and appliances, under the National Appliance and Equipment Energy Efficiency Program.

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Term

Definition

Megawatt (MW)

A unit of electrical power (one million watts).

National Electricity Market (NEM)

Wholesale market for the supply of electricity to retailers and end-users in the interconnected regions of Queensland, New South Wales, the Australian Capital Territory, Victoria, South Australia and Tasmania. It began operating in December 1998.

National transmission grid

The system of electrical transmission lines, transformers and related electrical components that handle the flow of electricity in six States and Territories (QLD, NSW, ACT, VIC, SA & TAS).

Nuclear (generator/power station)

Electrical power generated from controlled (that is, non-explosive) nuclear reaction which heats water to produce steam. The generated steam turns a steam turbine to generate electricity.

Organic photovoltaic materials

Photovoltaics made from “organic” materials, consisting of small carbon-containing molecules, as opposed to the conventional inorganic, silicon-based materials. The materials are ultra-thin and flexible and could be applied to large surfaces. They are cheaper than but not as efficient as silicone.

Parity pricing

Concept that the selling price of a product or produce should go up in the same amount as the prices of the inputs used in its production increase.

Photovoltaic systems

Systems using wafers of silicon that produce an electric current when illuminated by the sun.

Often called solar cells or solar panels.

Pumped storage

Developed to store and release excess water for hydro-electricity.

Renewable (energy)

Energy that can be used without depleting its reserves. These sources include sunlight or solar energy and other sources such as wind, wave, biomass and hydro energy.

Renewable Energy Target (RET)

A national Renewable Energy Target scheme places a legal obligation on electricity retailers and large users who buy wholesale electricity to source a certain percentage of their electricity purchases from renewables-based generation. The annual targets are legislated in gigawatthours of electricity.

Retrofit

To modify machinery and so on to incorporate changes and developments after manufacture.

Saline ponds

Salt water ponds used to collect and store heat energy.

Sequestration

The long-term storage of carbon dioxide in the forests, soils, oceans or underground in depleted oil and gas reservoirs, coal seams and saline aquifers. Examples include: the separation and disposal of carbon dioxide from flue gases or processing fossil fuels to produce hydrogen and carbon-rich fractions; and the direct removal of carbon dioxide from the atmosphere through land-use change, reforestation, ocean fertilization and agricultural practices to enhance soil carbon.

Sequestration (Algal)

See ‘Algal Sequestration’

Sequestration (Biological)

See ‘Biosequestration’

Sequestration (Geological)

See ‘Geosequestration’

Sequestration (Mineral)

See ‘Mineralisation’

Smart grid technology

Delivers electricity from suppliers to consumers using digital technology to save energy, reduce cost and increase reliability and transparency.

Smart meters

A new type of tool to measure and record how much electricity you use at different times of the day and week. It’s able to measure energy use every 30 minutes.

Solar photovoltaic

The generation of electricity from light.

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Term

Definition

Solar power (energy)

Power obtained by harnessing solar energy.

Solar thermal

The collection of solar energy in the form of heat to generate electricity.

Source-sink matching

Matching storage capacity of CO2 to the anticipated supply rate of CO2 from CCS process eg Latrobe Valley / Gippsland.

Stationary Energy Sector

All energy used for non-transport applications. This includes the energy used in homes, businesses and industry such as electricity.

Superconducting (materials)

Materials that have an almost total lack of electrical resistance when cooled to a temperature near absolute zero. They allow low power dissipation, high-speed operation, and high sensitivity.

Syngas (Synthesis gas)

A mixture of predominantly carbon monoxide, carbon dioxide and hydrogen resulting from the gasification of coal.

Tailpipe greenhouse gas emissions

Transport emissions.

Transitional fuel

Fuel used in the interim. For example, gas can be used as a transitional fuel when moving from coal to renewables.

Transmission grid

A network of transmission lines to transmit electricity.

Transmission line

A series of towers or poles carrying suspended electrical conductors that convey electrical power from one place to another.

Wave (energy)

Electrical energy produced by a generator driven by mechanical devices that collect the energy of sea waves.

Wind (energy)

Electrical energy produced from a generator driven by a turbine that is driven by wind.

World Trade Organisation (WTO)

The only global international organisation dealing with the rules of trade between nations. The goal is to help producers of goods and services, exporters, and importers conduct their business.

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EARTH RESOURCES DEVELOPMENT COUNCIL