Climate cost shock looms for generators - Recycling & Sustainable Investments

06 Aug 2009Archived News Energetics in the News

Front Page Story: The Australian by Keith Orchison, Energetics is quoted as a consultancy who can assist business' achieve emissions reductions.

NO industry sector in Australia offers a bigger opportunity or challenge for sustainable investors than electricity supply.

Just fulfilling the Rudd government's renewable energy target (RET), including the infrastructure to support variable and intermittent generation, may end up costing close to $50 billion in capital works in the next decade.

The actual outlay will depend on when, and in what form, the government's renewable energy target legislation passes the federal parliament and what international abatement goals are delivered by the UN conference in Copenhagen in December.

Analyst Mark Blackwell, of Morgan Stanley Research, working on the basis that Australia ends up pursuing an emissions cut of 20 per cent below 2000 levels by 2020, has predicted that this would require expenditure of more than $34bn on renewable generation (mostly wind farms), more than $6bn on peaking gas plants to support green power intermittency and a further $21bn on developing gas-fired, base-load power stations to meet new demand and replace coal-burning plants stranded by carbon charges.

Some of the base-load generation could end up coming from coal plants using

carbon capture and storage technology, but there is a wide perception in the energy sector that it will be the decade after next before these processes are in mainstream power-supply use.

Blackwell and other analysts are adamant this scale of investment is unlikely to be pursued without certainty on the future of the controversial emissions trading scheme. They warn that timely development of this size is likely to be affected by the availability of a skilled workforce and by manufacturers' lead times in delivering equipment, when lower-emission infrastructure demand will be at a peak around the world.

The electricity industry also points out that efficient delivery of new renewable energy -- the Rudd government's RET will mandate supply of 35,500 gigawatt hours a year by 2020 (equivalent to half the current annual consumption in NSW) -- must be supported by an adequate transmission service, because wind farms and other green power plants will be mostly constructed in areas remote from the existing main load centres and their power grids.

The transmission network companies have estimated that servicing RET needs will require expenditure of about $5bn between now and 2020 in addition to the $16bn they will have to spend to deal with increased electricity demand and the replacement of aged assets, many of which are 40 to 60 years old.

The need to augment transmission is also driven by grid reliability requirements.

The Australian Energy Market Commission points out that a large proportion of intermittent generation in one region -- new wind farms are expected to be concentrated in South Australia and Victoria -- can lead to problems when demand is high, wind power unavailable and the interconnnectors are overloaded.

The government's RET proposes to provide financial support for investors through a charge of $65,000/GWh on energy retailers who fail to meet their green commitments. By 2020 this will deliver renewable generators $2.9bn a year in revenue -- the Howard government's Mandatory Renewable Energy Target, plus Kevin Rudd's RET add up to 45,000GWh of supply -- in addition to what they will receive in the wholesale power market for their product.

Current eastern seaboard market power prices are about $40,000/GWh. At that wholesale value, the new policy would deliver $5.5bn in annual income to renewable power suppliers in 2020.

The overall decarbonisation policy also represents a river of gold for the manufacturers of power supply equipment, making Australia an attractive market over the next decade and beyond. But it's nonetheless not a large market in the global sense at a time when, on some estimates, more than $US100 billion ($123bn) a year can be expected to be outlayed around the world on low or zero-emission infrastructure.

The other major beneficiary of the shift away from coal burning to make electricity is the gas supply industry, which in Australia covers both conventional gas and coal seam methane in Queensland and potentially in NSW. The gas sector is in the highly favoured position of having two big market opportunities -- domestic and international.

The upstream petroleum industry estimates that development of gas projects to meet export and local requirements could need more than $100bn in investment in the next decade.

Not all the challenge lies in providing megawatts. There is also a growing focus on ``negawatts'', industry jargon for capacity savings resulting from a major national focus on customer end-use efficiency.

Just how far federal and state government energy efficiency requirements plus higher retail electricity charges will dampen power demand is a large, open question for all power stakeholders.

Environmental campaigners and management consultants such as Sydney-based Energetics argue that major demand cuts can be achieved, contributing both to greenhouse gas emission reductions and economic benefits. Australia, they claim, can reduce the growth of power use substantially without compromising industrial and commercial development.

They also point out that an efficiency program would drive large new investment in equipment as well as products such as insulation and demand for ``green'' workers.

Changing the trend in power demand would represent a major shift in Australian life. The Energy Market Commission says consumption has risen 67 per cent since 1990-91 and is forecast to go on increasing by an average 2 per cent a year, reaching 415,000GWh annually by 2030. The rise between now and 2020, if unchecked, is forecast to be 70,000GWh.

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