Issue 55, September 2009
The electricity industry is projecting a greater than 20 percent rise in national electricity market (NEM) peak load between now and 2017-18.
The latest yearbook of the Energy Supply Association forecasts that the NEM’s combined highest demand could be more than 47,200 MW in 2017-18 – versus an estimated 39,100 MW in the current financial year.
Over in the stand-alone south-west Western Australia market, the yearbook indicates, the rise in peak demand could be even higher – up from a projected 3,824 MW this financial year to more than 5,360 MW in 2017-18.
By then, the load forecast claims, New South Wales consumers will need to have more than 17,000 MW available (versus 14,000 MW now), Queensland nearly 13,000 MW (at present 9,900 MW) and Victoria more than 11,500 MW (versus almost 10,000 MW now). The reports suggests South Australia’s load will rise by nearly 400 MW and Tasmania’s by more than 300 MW.
The projections have major implications for generation and network investment – and for the NSW and Queensland government who own most power plants and all transmission and network services in their States.
The new list of proposed generation projects shows that builders of gas plants and wind farms are poised to pursue massive investments in the next decade in the wake of national decarbonisation policy decisions.
With the Federal Parliament having agreed on a new renewable energy target, the investors will be waiting anxiously to see if the Rudd government and the Liberal Party can negotiate an arrangement for emissions trading. It is not yet clear when the government will bring the ETS bills back to the Parliament after their defeat in the Senate in August.
The proposed new power stations and extensions to existing ones published in the Energy Supply Association 2009 yearbook indicates that four States – New South Wales, Queensland, Victoria and Western Australia – are particularly in the gas generators’ sites. There are plans, in various stages of planning and development, for more than 5,500 MW of gas plants in NSW, another 5,150 MW in Queensland, more than 2,100 MW in WA and almost 2,000 MW in Victoria.
In all, the report identifies more than 15,500 MW of gas power stations under consideration, providing strong support for the contention of the Australian Petroleum Production & Exploration Association that some 70 percent of new generation development in the next decade could be fired by conventional gas or coal seam methane.
Wind farm developers are reported to have more than 11,400 MW of projects in their sights, with Victoria (more than 3,900 MW), NSW (more than 3,200 MW) and South Australia (2,580 MW) leading the charge. The report says nearly 900 MW of wind projects are being considered for Queensland plus more than 660 MW for Western Australia and 129 MW for Tasmania.
Vestas Australian Wind Technology, the local arm of the world’s largest wind farm equipment manufacturer, headquartered in Denmark, reckons that the new mandatory renewable energy target will see about $25 billion spent here on 10,000 MW of new projects.
The forecast was contained in the company’s submission to the Senate Economics Committee when it considered the RET legislation.
The South Australian government has committed a million dollars to a feasibility study by the private sector of the State’s need to expand its transmission network to accommodate a major expansion in renewable energy generation.
Premier Mike Rann says improvements to the high voltage system will be needed to attract renewable investors to the Eyre Peninsula – which he hopes will be the site for some $6 billion in capital outlays on as much as 5,000 MW of non-emitting power production. The government has set Australia’s highest renewable energy target – aiming to achieve 33 percent of consumption by 2020. “That’s bold even in international terms,” Rann adds.
Participants in the consortium include Macquarie Bank, Worley Parsons and the law firm Baker & McKenzie.
While wind farmers are rejoicing about the passage of the renewable energy target legislation, proponents of emerging green technologies are disappointed. They fear that fast development of wind power – there are more than 5,000 MW of developments under way or proposed for construction by 2011 – will crowd them out of the RET marketplace.
The Brisbane-based geothermal company, Geodynamics, which is pursuing a major project in South Australia’s Cooper Basin, told the Senate Economics Committee review of the RET legislation that the proposals, now passed by Federal Parliament, would disadvantage its sector as well as large-scale solar and ocean energy investors.
Wind power, Geodynamics said in its submission, was best placed at present to take advantage of the RET. Its risks were sufficiently well known for investors to make informed and relatively low-risk decisions and the technology is available and in place in many locations. The attraction for wind farm investors is that, under the RET, they will receive bankable certificates from day one of operations through to the completion of the scheme in 2030.
In the case of geothermal, said Geodynamics, the sector will not have the opportunity to be involved in the RET in any meaningful way until about 2013 and “will not be in a position to participate on a large scale until some time after then.”
The emerging technology developers wanted the RET legislation to include “carve-out” clauses to reserve space for them later in the next decade, but they failed to persuade legislators to agree to this.
The RET legislation is due to be reviewed in 2014.
Origin Energy’s Chief Executive, Grant King, thinks that, if the proposed carbon prices are only $10 per tonne, the majority of Australia’s coal-fired generators will still be operating in 2020.
In an interview published in Business Spectator, King said: “Perhaps the oldest of the oldest of black coal, for maintenance cost reasons, not fuel cost reasons, and perhaps the most carbon-intensive of the brown coal may be off by 2020.”
The Latrobe Valley – home to 6,555 MW of brown coal plant and under continuous environmental movement attack – “will still be generating power in 2020,” King forecast. “The total megawatts of output may be less – should be less in order to reduce carbon – (but) most of the power stations will still be running (and) most of the people will still be working there.”
Meanwhile GE Energy, the energy engineering and equipment division of the giant US company General Electric, has revealed that it has submitted a proposal to the Queensland and Federal governments to build a 400 MW IGCC plant at Wandoan in the Surat Basin, 400 kilometres west of Brisbane. Partners in the project are the State Government-owned generator Stanwell Corporation and Xstrata Coal.
The plant would be construction as CO2 capture ready and be ready for commercial operation by late 2015 or early 2016. GE Energy is also building a 630 MW plant using the same technology for Duke Energy in Indiana, US.
While Australia has been engrossed in a major debate in the past five years over how to become greener, the use of coal to fuel power generation has been steadily rising.
The latest ESAA yearbook reveals that 56.6 million tonnes of black coal was burned in 2007-08 to make electricity – compared with 51.7 million tonnes in 2001-02. Use of brown coal, burned in Victoria and South Australia in power generation, has risen to 69.1 million tonnes compared with 67.1 million tonnes in 2001-02.
The big increase in black coal consumption has taken place in New South Wales, where the State government is one of the most vocal in the country on the need to tackle global warming issues and used a large television advertising campaign at the last State election to promote its environmental credentials. The State-owned power stations – NSW has 11,730 MW of coal-fired capacity – used 30.2 million tonnes of the fuel in 2007-08, up from consumption of 27.8 million tonnes in 2001-02.
Coal-burning has decreased in Queensland as coal seam methane power plant comes in to the supply system. The ESAA statistics show that Queensland plants burned just over 22 million tonnes of black coal in 2007-08, down from a peak of 24.3 million tonnes used in 2004-05.
Drought-plagued Hydro Tasmania, which has had its capacity to produce power cut by some 500 gigawatt hours a year to 9,500 GWh, plans to use the new RET to support a system enhancement program to increase production by 1,000 GWh annually.
The plan will target small increments of infrastructure development, the State government-owned generator told the Senate Economics Committee, rather than large developments. The program will include improved water canal efficiency, new diversion schemes to put more water through existing power stations, new storages and min-hydro generation.
The initial priority developments, to deliver 439 GWh a year, will cost $203 million, Hydro Tasmania said.
Reducing Australia’s greenhouse gas emissions to five percent below 2000 levels will require abatement of 138 million tonnes annually by 2020, according to Martin Parkinson, Secretary of the Department of Climate Change – and achieving a 25 percent cut by the end of the next decade, as targeted by the Government in the event of a comprehensive global agreement, will need to increase the reduction to 250 million tonnes a year.
To put these large goals in context, Parkinson pointed out in a speech that “placing a solar panel on every household roof would reduce emissions by 16 million tonnes a year at a total cost of more than $200 billion.”
The electricity industry’s customer base has risen by more than 40 percent in two decades and is now reaching 10 million accounts after serving just under seven million at the start of the 1990s.
The Energy Supply Association 2009 yearbook shows that there were almost 9.9 million customers at 30 June last year – with 1.2 million business accounts. Back in 1990 there were 6.9 million accounts, with 932,000 of them held by businesses.
The attraction to private investors of the New South Wales government’s planned – but apparently now delayed – sale of the retail arms of its three distribution businesses is highlighted by the new statistics. Analysis shows that the number of residential accounts they serve has risen by some 300,000 in five years and the State is projected to increase its population by about a million people in the next 10-15 years.
The latest ESAA statistics also highlight that the bulk of business customers lie on the eastern seaboard in NSW and Queensland, totalling more than 615,000, half the national total. The business base in the two States has grown by almost 140,000 accounts in the five years to June 2008.Add in Victoria’s 313,000 business accounts and almost 77 percent of the power sector’s non-residential business is found in three States and the Capital Territory.
The value of this customer base is demonstrated by ESAA’s report that commerce and industry in the three States and the ACT bought more than 114,000 gigawatt hours of power in 2007-08, equating to 80 percent of business sales nationally. This demand has risen by some 16 percent in the past five years – and next year’s data (covering the financial year that ended on 30 June 2009) will provide one of the most accurate indicators of the impact of the global economic crisis on Australia.
The problems confronting power delivery in Australia’s fastest-growing electricity market have been set out by the Queensland government’s transmission network operator, Powerlink, in its new planning report.
South-east Queensland – comprising Brisbane, Logan and the Sunshine and Gold coasts – is confronted by the high-voltage transmission system servicing the area reaching its capacity limits in about five years, during which time the load will increase by another 1,200 MW.
Rapid urbanisation in SEQ means that there are now significant land use planning constraints in the area for Powerlink Queensland. The logical next step is the replacement of the current 275 kV transmission network with a 500 kV system that has three times the capacity, commisioned in stages between 2012 and 2018. Powerlink has been acquiring strategic easements for a 500 kV system over a number of years.
American Electric Power, one of the US giant investor-owned utilities, has told Congress in Washington DC that 2020 is the earliest date when a reliable, commercial-scale carbon capture system can be available to be delpoyed.
In evidence to a House of Representatives committee, Gary Spitznogle, AEP’s manager of IGCC and CCS engineering, said most carbon capture technologies being examined would increase the energy cost of electricity by 60 to 70 percent. The utility expected the chilled ammonia process it was pursuing in a 20MW experiment in West Virginia would be less costly. If the initial results were encouraging, AEP intended to build a 230 MW plant at the 1,300 MW Mountaineer power station.
Spitznogle explained that the energy consumed by more conventional CCS technology, at high capture levels, would result in approximately one third of a generating unit’s power output. What’s more, in retrofitting power stations, owners were confronted by the fact that CCS system could require a doubling of the land space occupied. Many AEP plants, he said, would not be able to accommodate this requirement.
Adding to the portrayal of CSS as an expensive option for abatement, the global management consultants McKinsey & Co have put the technology costs at present at $US130 per tonne abated, arguing that this can be cut to about $US43/tonne by 2030 as the process is commercialised.
In a new report, the National Research Council of the US National Academy of Sciences says CCS development remains “an enormous challenge.” The coal and electricity sectors, the report adds, are going to have to demonstrate in the next decade that the tecnology is viable. “The (sequestration) challenge should not be under-estimated,” it says.
Meanwhile in Beijing, a senior Chinese official, Su Wei, director-general of the climate change unit at the National Development and Reform Commission and a senior negotiator in the Copenhagen round of talks, has told the Bloomberg news agency that CCS is not a priority for China because of its cost. Spending the same money on promoting energy efficiency and development of renewable energy would provide a larger abatement benefit, he said.
Bloomberg has calculated that China’s output of greenhouse gases increased by 366 million tonnes in 2008, almost two-thirds of the global rise in emissions. The country consumes about three billion tonnes of coal a year.
Australia’s major gas supply companies have launched a new campaign to promote their fuel as debate continues on national carbon policies and future power generation developments.
Under the banner “Natural Gas Positive Energy,” the campaign, facilitated by the Australian Petroleum Production & Exploration Association, was launched in mid-August with a breakfast for MPs and their advisers in Parliament House, Canberra.
The campaign theme argues that “natural gas is Australia’s positive energy asset. We have gas in abundance. Utilising it and exporting more of it to the rest of the world is good for the environment and good for the economy.”
A key part of the carbon and energy debates in Australia today is the the impact of policies on employment. APPEA is strongly promoting an argument that, with the right policy settings, the gas industry’s developments to serve domestic power generation and overseas markets through LNG exports could create up to 55,000 new jobs over the next 10-15 years.
Part of the campaign is devoted to building the image of gas-fired generation as supporting the popular drive to expand use of renewable energy. APPEA points out that gas plants can support intermittent generation projects – mainly solar and wind power – by their ability for fast start to meet supply shortfalls and fast shutdown when the renewables are again available.
The Aluminium Council of Australia took its carbon critics head-on when appearing before the Senate Economics Committee in August. The $11 billion a year industry, which employs 17,000 people directly and 50,000 indirectly, is by far the biggest user of electricity in the country, consuming about 16 percent of annual power production.
“If you look at what the world needs, it needs more aluminium,” Alan Cransberg, the AAC deputy chairman and managing director of Alcoa in Australia, told senators. “The use of aluminium will become very important as the world becomes more and more carbon-constrained. We think this is an industry that should be encouraged to grow in Australia.”
Australia’s choice in a world where aluminium demand was constantly rising, Cransberg said, was whether it chose to add value by processing bauxite here or to be a quarry, shipping the ore out for processing overseas.
The costs of electricity, particularly the costs imposed by Government intervention in Australia, he added, were crucial in answering the question.
Australia holds 25 percent of the world’s bauxite reserves.
AAC executive director Miles Prosser added a warning that senators should not only bear in mind new aluminium industry developments in Australia, but also the impact of carbon policies on sustaining investment in existing facilities.
“It is the nature of a smelter,” he said, “that you tend to invest in rebuilding key components on a five to 10 year cycle. If you stop that investment, you are buying no more than a five to 10-year life for the smelter.”
With the Rudd government’s pressure on the federal Opposition to pass its emissions trading scheme legislation in the Senate having failed in August, it remains to be seen whether the bills are returned by November. The government has been signalling vigorously that it is not looking for a trigger for a double dissolution (leading to a federal election around February or March).
Meanwhile the Indian government keeps hammering nails in to the Copenhagen coffin ahead of the event. Its environment minister, Jairam Ramesh Ramesh, has told a media conference in New Delhi that “India is simply not in a position to take on legally binding emissions reductions targets.”
India and China have been in the forefront of the developing world’s argument that the first step in preparing a successor to the Kyoto treaty needs both a major abatement commitment by the developed world and an agreement to provide hundreds of billions of dollars a year towards technology transfer.
The Indian government, which has to find a way to provide power to 400 million citizens still without it, will only pledge that its per caputa emissions will not exceed those of rich countries – a taunt more than a pledge because the current per capita figure for India is one tonne of greenhouse gases versus an OECD average of 10 tonnes. Australia’s average exceeds 20 tonnes.
In Washington DC, doubts remain that the Us Senate can pass its version of the Waxman-Markey climate bill this year or that the Congress could then find time to reconcile legislation that is expected to differ considerably from the House version until well in to 2010 – a year for Congressional mid-term elections.
Coolibah’s Keith Orchison now has a blog, entitled PowerLine, on the BusinessSpectator website at www.businessspectator.com.au.
Whatever else may be said about this year’s political debates on decarbonisation policies, they have thrown up a wealth of information for stakeholders and laymen in the form of the hundreds of submissions and large amount of evidence to the Senate’s various committees and the reports of the committees themselves.To this can be added the submissions to the Federal Government’s energy white paper process being managed by the Resources & Energy Minister, Martin Ferguson.
This has been a form of national tutorial on energy supply issues and it is not over yet. The Senate select committee on fuel and energy, chaired by Western Australian Senator Matthias Cormann, is still continuing its work, which includes consideration of national transport fuel issues – a major policy concern in its own right, with a looming annual trade deficit of about $25 billion a year by the middle of the next decade.
For time-poor business executives, politicians, policy advisers and even the media, it is all far, far too much to digest. The analogy of standing under a waterfall with a tin cup trying to get a drink comes to mind – yet analysis and understanding of the information pouring on to the Internet is critical to achieving a national understanding of energy policy needs and directions.
An example of how the public understanding can be warped by lack of knowledge is the area of rooftop solar panels. The public is in love with the concept, as opinion polls and the political parties’ behind-the-scenes focus groups constantly demonstrate, so governments pander to their sentiments by throwing money at the technology through subsidies. In fact, rooftop solar is one of the least efficient ways we could go about addressing decarbonisation – as the Secretary of the Department of Climate Change is discretely trying to point out. He’s quoted in this issue: putting solar power on every household rooftop would cost $200 billion and save just 16 million tonnes a year of greenhouse gas emissions.
To put this in context -- $200 billion would enable us to build about 70 power stations using the latest capture-ready coal technology, twice the capacity we need, or to build 80,000 MW of wind power, ten times the new renewable energy target. It’s a capex outlay that would build 400 of the cutting edge solar thermal plants like the one SolarSystem and TRUenergy are constructing in rural Victoria, aided by State and Federal government grants.
The solar subsidies are great political spin, and they now have an entire industry dependent on their availability, but they are not going to address in any real way the two key goals confronting national carbon policy: delivering 138 million tonnes a year of abatement by 2020 under the emissions trading scheme floundering in the Federal Parliament or 250 million tonnes a year to meet the Government and Coalition commitment if the UN Copenhagen climate policy summit in December comes up – against the current odds, admittedly – with a comprehensive agreement.
The value of the material entering the public domain as the result of this year’s (and last year’s) carbon-related inquiries can be enormous, but only if we find a way to distil it in to a form that will undertake the critical task of genuine stakeholder education in a period where the policy decisions made, strongly influenced by public views, will echo on down the decades.
Keith Orchison
1 September 2009
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