The Future of our Energy Infrastructure
Issue 35 January 2012
On the 13th of December 2011, the Federal Government released its draft Energy White Paper, the first since 2004, reviewing Australia's energy needs to 2030 and providing a strategic policy framework for the Australian energy sector. While the White Paper serves as the official over arching policy document guiding energy infrastructure in Australia, the reality is that energy infrastructure decisions, investments and outcomes are driven by a combination of actions by Federal, State and Local Governments as well as the private sector which includes energy suppliers and users. This month's edition of the Kinesis Climate Monitor highlights some of the key features of the draft White Paper as well as examining some of the latest developments in energy infrastructure in Australia.
Federal Government Releases Draft Energy White Paper
The draft Energy White Paper outlines three key objectives around which energy policy in Australia should be based. These are the development of a secure, resilient and efficient energy system that:
- Provides accessible, reliable and competitively priced energy for all Australians.
- Enhances Australia’s domestic and export growth potential.
- Delivers clean and sustainable energy.
These three objectives highlight the difficulty of developing a single overarching energy policy in Australia. On the one hand is the urgent need to develop an energy system that is more sustainable, producing fewer greenhouse gas emissions. On the other hand, Australia is an energy exporter with abundant fossil fuel resources (the White Paper states that at current rates of depletion, Australia has at least a century of coal reserves).
The Bureau of Resources and Energy Economics projects that by 2035:
- Australia’s energy production will more than double – primarily due to strong export demand.
- Primary energy consumption will rise by 30 per cent.
- Electricity generation will rise by almost 42 per.
- Black coal production will more than double, growing by an average of 2.8% per annum.
- Gas production will increase nearly fourfold.
This growth will put pressure on domestic energy prices, especially gas prices which are projected to rise above historical levels.
Achieving the projected growth in fossil fuel production, while still improving the sustainability of Australia's energy system will be particularly difficult. The draft Energy White Paper projects that, even with the carbon price, energy consumption will continue to rise (electricity demand is projected to grow at approximately 1% per annum until 2030) and that Australia's electricity supply will continue to be met primarily by fossil fuels "over the next few decades".
The Federal Government projects a number of electricity supply scenarios which vary according to the rate at which the carbon price is set. Under these projections, electricity generated by brown coal will fall, while black coal electricity will remain relatively steady until at least 2030. Renewables will grow to as much as 20% of total supply, while gas will also grow significantly.
The White Paper states that "variations in modelling results suggest that changes from 2020 onwards become less predictable, and will depend on the ability of new technologies to overcome technical and cost hurdles as well as carbon price movements".
The draft White Paper places particular emphasis on the role of the carbon price in achieving greater uptake of renewable and clean energy technologies. In fact, it argues that energy policy in Australia needs to transition to a "market based" system with the carbon price as an almost singular policy mechanism.
It is in this context that the Federal Government has announced that it will not proceed with the introduction of an emissions standard or carbon capture and storage requirement for new coal power plants. It argues that such regulation would be unnecessary with the introduction of the carbon price.
Australia faces a difficult transition to a "clean energy future". In releasing its draft Energy White Paper the Federal Government has made clear that it will be relying on the carbon price to drive innovation and market transformations. In doing so it will be hoping that a carbon price alone can overcome the various market and regulatory barriers - many of which are not economic - which could impede the uptake of clean energy alternatives.
Energy infrastructure at the local level
The draft Energy White Paper outlines the future direction of Australia's Federal energy policy, emphasising the role of major economic programs such as the national carbon price in achieving transformative change. However, recent energy infrastructure announcements have highlighted the role that State and Local Government can play in shaping energy infrastructure developments, in ways that can both encourage and hinder clean energy development.
On the 6th of December 2011, the City of Sydney announced that it would be entering into negotiations with Cogent Energy, a division of Origin, to build a decentralised energy network based on the configuration set out in the City's Trigeneration Master Plan which was prepared by Kinesis in partnership with Cogent Energy and Origin.
The agreement between Cogent and the City will include the provision of trigeneration for the City’s building assets as well as the construction of a decentralised energy network servicing the four low carbon zones identified in the Master Plan. These are:
- CBD North (Martin Place/George Street);
- CBD South (Town Hall Precinct);
- Pyrmont/Ultimo; and
- Green Square
The scheme will deliver approximately 360 MW of trigeneration by 2030 and will reduce total greenhouse gas emissions across the City of Sydney LGA by approximately 20%.
This is a significant energy infrastructure development which will occur in the heart of Australia's financial capital. Business activity within the City of Sydney LGA generates approximately 10% of Australia's total GDP and the task of transforming this sector's energy supply to low emissions trigeneration is being undertaken by a partnership between local government and the private sector.
While the City of Sydney's announcement shows the progress local government decisions can have on energy infrastructure, decisions being made by State Governments in response to local concerns, show how these decisions can impede clean energy growth.
In the August 2011 edition of the Kinesis Climate Monitor it was reported that the Victorian Government had implemented a two kilometre set back on all proposed wind energy developments. These regulations allow any home owner within two kilometres of a proposed wind farm to veto that proposal. This decision threatens to greatly restrict the potential for developing wind energy in Australia.
Since that announcement, NSW and South Australia have proposed the introduction of similar restrictions. These states, which contain some of Australia's best wind resources, could see a significant reduction in wind energy development.
These announcements illustrate the role that State and Local Government, as well as the private sector, can have in shaping energy infrastructure outcomes. While a carbon price is a crucial policy development, the deployment of energy infrastructure ultimately has a local impact. Ensuring State and Local Governments are making energy infrastructure decisions which can support sustainable outcomes remains a key challenge for the Australian energy sector.
Electric Vehicles are Finally Here
In 2011, Mitsubishi, with its i-MiEV, became the first car manufacturer to begin selling plug in electric vehicles in Australia. In 2012 three additional manufacturers will be introducing plug in EVs, Holden with its plug in Cruze hybrid, the Nissan Leaf and the Renault Fluence ZE.
Recently the Sydney Morning Herald prepared a comparison review of the Nissan Leaf, Holden Cruse and Toyota Prius (a non-plug in hybrid). Of the three cars reviewed, the Nissan Leaf was the only pure electric vehicle and the review emphasised its estimated 160 km range (which it states is more likely to be 100 km in reality).
The review also noted the price premium electric vehicles will carry, with the Leaf to be priced at $51,000, approximately $30,000 more than a similarly sized petrol powered hatchback. A recent survey in the US conducted by Pike Research, found that public interest in purchasing a plug-in electric vehicle had fallen over the last two years, with price the main barrier.
At the same time, the 2011 update of the Garnaut Climate Change review noted that the uptake of electric vehicles may be more rapid than previously expected.
The commercialisation of electric vehicles signifies a potential turning point in our transport system, with a shift to a system that in intrinsically linked to our energy production, consumption and infrastructure. Whether we see large scale use of electric vehicles of the next few years or whether they remain a niche vehicle, State and Local Governments will soon have a new energy demand to plan for and manage.