Issue 15 March 2006

Power demand to rise 70 percent

A new study by the Energy Supply Association projects that electricity consumption in Australia will be 70 percent higher than current levels in 2030.

The Association asserts that this will need as much as 12,000 MW of new generation capacity be constructed over the next 25 years so long as all current generation plants, bar one, continue in operation.

This perspective, which foresees generation output in the region of 375,000 gigawatt hours a year in 2030 (versus about 215,000 GWh at present), exceeds the most recent projections of the Australian Bureau of Agricultural and Resource Economics. ABARE has forecast is that generation output will reach just over 350,000 GWh a year by 2030.

The ESAA report highlights the critical challenge of greenhouse gas emission management for both electricity suppliers and government. The first edition of the Association's new Energy Quarterly publication comments: "While currently there are few direct financial implications from emitting greenhouse gases, an uncertain future policy environment for greenhouse gas abatement means that decisions on the technology and fuel type for new and refurbished generation facilities are very difficult."

The ABARE Energy in Australia 2005  publication calculates that the bulk of generation output in 2030 will still be fuelled by black and brown coal. It forecasts that 757 petajoules of black coal will be burned in 2030 compared with 475 PJ at present and that 256 PJ of brown coal will be used compared with 180 PJ at present. In the ABARE scenario, natural gas-fuelled plant increases its market share substantially -- rising from consumption of 147 PJ at present to 321 PJ in 2030.

The ABARE projections for renewable energy (forecast to rise in contribution from 78 PJ now to 124 PJ in 25 years' time) do not, however, take in to account the potential for no-emissions geothermal generation from hot fractured rocks in South Australia's Cooper Basin. The developers of the HFR project claim that "thousands of megawatts" of new capacity will be available by 2030. The biggest market issue for the project will be the development of transmission links between the Cooper Basin and the NEM.

(A petajoule or PJ is the universal measure of energy. One petajoule is equivalent to a 25 million litre oil load in a coastal tanker, or the amount of gas 17,000 houses would use for heating annually or the amount of power needed to run the Sydney CBD railway system for a year.)

The ESAA report appears close on the heels of announcements at a Perth conference by Federal Industry Minister Ian Macfarlane and the Australian Petroleum Production & Exploration Association of an upstream petroleum industry strategy to pursue natural gas fuelling 70 percent of new electricity generation capacity by 2015.

APPEA chief executive Belinda Robinson says the industry aims to publish its strategy document by the end of 2006.

As the ESAA report makes clear, however, the bulk of Australian electricity generation in 2030 will still be provided by coal-fired plant that is already in operation or currently being constructed. "Advanced, low or zero-emission technologies for fossil fuel generation are unlikely to be commercially available until very late in the study period," the Association says. "Adoption of these technologies will be substantially more costly than those currently used."

In this business environment policy settings are critical. Obviously choosing its language carefully, given the broad range of its energy supply membership, ESAA adds: "A change in greenhouse gas emission policy could potentially alter the relatively marginal costs of competing fuels and technologies, quickly constraining or even stranding valuable assets, raising a whole raft of complex issues including that of compensation.

"Conversely," it goes on, "investing in more expensive but lower emission generation in anticipation of future constraints on greenhouse gas emissions risks price uncompetitiveness, at least in the short term."

The context here is that economic modellers from the National Institute of Economic & Industry Research have indicated that it will take a charge of at least $15 per tonne of carbon dioxide to change the generation merit order in the national electricity market.

Government responds to PC report

The Federal Government has said, in response to the Productivity Commission report on the cost-effectiveness of improving energy efficiency, that it is committed to realising the many opportunities to reduce national energy consumption. Industry Minister Ian Macfarlane and Environment Minister Ian Campbell add that energy efficiency will remain an essential component of the Government's climate change strategy.

Macfarlane and Campbell say the Government will work with the State and Territory administrations to implement the National Framework for Energy Efficiency, which it sees as "a fundamental element" of its policy direction. The Commission argued in its report that the NFEE should only proceed after the net social benefits of stage one programs has been established and a "convincing case" made for their expansion.

The Government has also agreed with the Commission that the case for a national energy efficiency target, in addition to existing policy and measures, has not been made and the ministers add that the concept is not under consideration.

Reacting to the Commission's view that a mandated roll-out of smart electricity meters should be subjected to a comprehensive cost-benefit analysis, the ministers notes that the Council of Australian Governments has made a commitment to a progressive introduction to allow users to respond to time-of-day pricing and to reduce the demand for peak power. Macfarlane and Campbell add that the Ministerial Council on Energy has been told to agree on common technical standards for smart meters and to implement the roll-out from 2007, "taking in to account the different market circumstances in each State and Territory."

Queensland moves on sustainable housing

The Queensland Government has legislated to require new houses in the State to be more sustainable from 1 March this year. The State Government claims the measures will result in new houses using 33 percent less electricity and up to 36 percent less water.  Under the legislation, home design must include energy-efficient lighting in at least 40 percent of the dwelling and greenhouse-efficient hot water systems.

No infrastructure crisis, emphasizes ACCC

ACCC Commissioner Ed Willett has used an address to the Committee for the Economic Development of Australia to drive home the message that "there is no, and never has been, an infrastructure crisis." Investment in energy infrastructure since implementation of the national competition policy, he adds, has been "remarkably high."

Looking at electricity transmission, Willett says ACCC decisions have paved the way for more than $4.5 billion in high voltage system investment since 1999, with recent decisions approving another $1.4 billion in new outlays for New South Wales and the ACT by TransGrid and EnergyAustralia.

Where the ACCC acknowledges problems is in the cumbersome and complicated regulatory framework. "Everyone wants quick decisions," says Willett, "but not everyone is happy to accept the umpire's verdict and many projects get mired in judicial challenges, appeals, court verdicts and tribunals."  It is important, he adds, that the transfer of regulatory functions to the Australian Energy Regulator take place as planned to establish a "one-stop shop." He notes that the February COAG meeting has committed to the transfer of distribution regulation to the AER and confirmed its intention to phase out energy price regulation where effective competition can be demonstrated.

Keith Orchison

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