ENERGY FOR VICTORIA ENERGYA Statement by the Minister for Energy and Resources FOR ENERGY FOR VICTORIA – A Statement by the Minister for Energy and Resources
DEPARTMENT OF NATURAL RESOURCES AND ENVIRONMENT VICTORIA © The State of Victoria, Department of Natural Resources and Environment, 2002 ISBN 1 74106 298 5 Photographs on pages 12 and 32 courtesy of Origin Energy, 2002. Find more information about the Department of Natural Resources and Environment (NRE) on the Internet at www.nre.vic.gov.au or call the NRE Customer Service Centre on 136 186. This publication may be of assistance to you but the State of Victoria and its employees do 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. INTRODUCTISECTION 1 | INTRODUCTION
Energy underpins our economy and our way of life. Our households, businesses and community facilities depend on energy supplies that are secure and reliable, efficiently 1 produced and used, competitively and affordably priced, and environmentally sustainable. SECTION 1 Since coming to office, the Bracks Government has implemented important measures to maintain and improve our energy supplies and increase the efficiency of our energy use. We have more policy initiatives under development. Through the 1990s, energy policy was focused on dividing and privatising the former State-
owned businesses and introducing competitive energy markets. These markets now play a | key role in delivering our policy goals. However a broader approach is needed to develop an INTRODUCTION energy system that can meet future challenges and ensure affordability, security and sustainability. In Growing Victoria Together, the Government stated its commitment to ‘triple bottom line’ policies that promote economic development that is socially responsible and environmentally sustainable. Our energy policy reflects this commitment, and the breadth of our approach is demonstrated by the achievements and plans that are described in this Statement. These include: Upgrading our electricity link with New South Wales and facilitating new electricity and gas supplies. Developing ambitious proposals to reform the National Electricity Market. Establishing a safety net for consumers entering the new energy retail markets, and the Essential Services Commission to protect the long-term interests of energy consumers. Introducing a range of sustainable energy measures in the Victorian Greenhouse Strategy, and creating the Sustainable Energy Authority to promote renewable energy and energy efficiency. Because of initiatives such as these, Victoria currently enjoys a secure, reliable and affordable supply of energy and can expect to do so for some time. This Statement also foreshadows further initiatives including: Extension of the consumer safety net beyond the current sunset dates; The development of proposed new governance arrangements for the southeast Australian gas market; and A proposed increase in the Commonwealth’s Mandated Renewable Energy Target. Meeting Victoria’s energy needs in the first half of the 21st Century poses new long-term 2 challenges and opportunities for governments, households, communities and businesses. Our consumption of energy is forecast to keep growing. Community concerns about new energy infrastructure are increasing, and concerns about the enhanced greenhouse effect and other environmental impacts of our energy use continue to grow. The Bracks Government will continue to responsibly address the challenges and realise the opportunities that we face. In June 2000 I stated that, “This government came to power with a clear view of the importance of the energy and resources sector and the particular challenges that must be met if the industry is to continue to make a valuable contribution to the wealth and well-being of all Victorians”. Much has been achieved since that time, but more remains to be done. This Statement is both a record of our achievements and a signpost to the future. I welcome your interest in this important topic.
Candy Broad Minister for Energy and Resources CONTENTSCONTENTS
1 Introduction 1 3 2 Energy for Victoria – An overview 5 CONTENTS Victoria’s energy policy 5 The evolving role of Government 6 3 The Government’s record and plans 13 Supply security and efficiency 13 Supply reliability and safety 19 Access to affordable supplies 22 Sustainability 25 4 An energy policy for the future 33 Appendix A – Victoria’s energy system 43 Primary energy 44 Secondary energy 47 Access to energy supplies 55 Energy prices, expenditure and affordability 56 Appendix B – Governance framework for energy 65 The division of responsibility between Commonwealth and State 65 The role of other institutions 66 Appendix C – Contact details 75 Glossary 81 O
4 OVERVIEWSECTION 2 | ENERGY FOR VICTORIA – AN OVERVIEW
VICTORIA’S ENERGY POLICY 5 Energy is essential to our well-being, both as individuals and as a community. It powers, heats
and cools our industries, businesses, transport, homes and recreational facilities. Energy, and SECTION 2 the services it provides is the basis of our lifestyle and economy. The sustainable, secure, reliable and affordable supply of energy is a critical policy focus for Government. Energy policy settings can have significant impact on the supply of and demand for energy in all its forms.
Energy policy is part of Growing Victoria Together, a policy framework that provides a vision |
for Victoria in 2010. ENERGY FOR VICTORIA – AN OVERVIEW
Objectives of energy policy The key objectives of Victoria’s energy policy are to: Ensure an efficient and secure energy system. This requires ongoing investment in both supplies and the efficient use of those supplies. We need to provide for the state’s economic and social well being as cost-effectively as possible. Ensure those supplies are delivered reliably and safely. The reliable distribution of energy – particularly electricity, which cannot be stored on a significant scale – is an ongoing challenge. Fossil fuels and electricity are inherently hazardous, so they must be distributed and used safely. Ensure consumers can access energy at affordable prices. The Government is committed to ensuring all consumers, especially low income earners, can access essential energy services at affordable prices. Ensure our energy supplies and the way we use them are environmentally sustainable – and in particular less greenhouse intensive. Achieving sustainability is a key challenge for Victoria. We generate most of our low cost electricity from brown coal, which brings major economic benefits but also contributes about half of our greenhouse gas emissions. We have to find ways to ensure our mix of energy sources and our use of them minimises damage to the environment and economy and in particular reduce the intensity of our greenhouse emissions. What you will find in this Statement This Statement outlines the evolving role of Government in the energy sector and the characteristics of Victoria’s energy system. It reports on the Bracks Government’s energy policy objectives and achievements and the challenges and opportunities of supplying energy services to Victoria in the first half of the 21st century.
THE EVOLVING ROLE OF GOVERNMENT 6 The role that Government plays in meeting the energy needs of Victorians has changed considerably over time. Some of the biggest changes took place in the last two decades, in response to global market forces, new energy demands and national policy commitments.
GROWING VICTORIA TOGETHER Victoria’s energy policy is part of the Government’s wider policy framework outlined in Growing Victoria Together. Growing Victoria Together expresses the Government’s broad vision for the future. It identifies: the issues important to Victorians; the priority actions we need to take next; and the measures we will use to show progress. It is a basis for involving all Victorians in our ongoing challenge – working together to build a fair, sustainable and prosperous future. Growing Victoria Together is not concerned with economic growth alone; it recognises that we need a broader measure of progress and common prosperity. It demonstrates a way of thinking, a way of working and a way of governing that values and aims to balance our economic, social and environmental goals. Growing Victoria Together describes a vision for Victoria in 2010 in which: innovation leads to thriving industries generating high quality jobs; protecting the environment for future generations is built into everything we do; we have caring, safe communities in which opportunities are fairly shared; and all Victorians have access to the highest quality health and education services all through their lives. The vision and action areas described in Growing Victoria Together are the foundation of Victoria’s energy policy.
In the past For several decades Victoria’s electricity and gas industries were mostly managed by integrated, self-regulated Government monopolies, specifically the State Electricity Commission of Victoria and the Gas and Fuel Corporation of Victoria. Only the supply of transport energy and the production of natural gas were controlled by the private sector. In the 1990s, industry reforms led to the disaggregation and privatisation of the monopolies. The reforms introduced competition into energy production and retailing and established economic and safety regulators in the form of statutory authorities. The Government’s role changed from directly managing energy monopolies to setting policy objectives on behalf of the community and managing the new statutory framework governing the energy market.
The current role of Government This privatised arrangement remains in place today. Competition in the energy market is 7 designed to enhance efficiencies in the energy industry and to encourage innovation in the supply of energy services. In line with this arrangement, the Bracks Government aims to SECTION 2 ensure the mix of competitive suppliers, and the framework of economic and safety regulation continue to deliver the State’s energy policy objectives. The Government does not make investment decisions or underwrite them. Nor does it provide services in its own name. However, the Government has reserve pricing powers and powers to manage supply
emergencies and to mitigate against their occurrence. | ENERGY FOR VICTORIA – AN OVERVIEW Local government, too, has a key role to play. Principally in the areas of: considering planning applications for energy infrastructure; facilitating the extension of natural gas reticulation to regional towns; managing energy use in municipal operations; and promoting sustainable energy action in the local community.
CHANGES IN THE ENERGY INDUSTRY ENVIRONMENT Past environment Current environment Mainly publicly owned Mainly privately owned Centralised monopoly model based on Disaggregated model based on economies of scale competition State markets National markets Information/communication expensive Information/communication low cost Customer satisfaction assumed Customer satisfaction measured and managed Labour unit costs low, larger labour forces Labour unit costs high, smaller labour forces Less stringent environmental controls More stringent environmental controls New arrangements The role of Government, however, continues to evolve. The Bracks Government uses its legislative and funding powers to ensure that competitive energy markets deliver economic, social and environmental outcomes beyond those that the market provides. For example, the Government: licenses access to natural resources; implements a consumer safety net; 8 funds energy concessions for low-income consumers; supports research and development in new production technologies; and creates incentives for improved environmental performance. These have become key points of leverage, enabling the Government to offset and influence market forces, while ensuring the climate for continued private investment remains as favourable as possible.
MORELAND ENERGY FOUNDATION LTD (MEFL) MEFL is a leading example of how thinking globally and acting locally can make a difference to the way we use energy. It is a non-profit organisation working to reduce greenhouse gas emissions within the Moreland community, located in the northern suburbs of Melbourne. MEFL has various programs to help the Moreland community become more energy smart. These include the following: Education and practical assistance: building a knowledge base in the community about greenhouse issues and practical ways we can become energy smart. Research and innovation: using research and analysis to find clever ways to solve the problems that lead to wasteful energy usage. Financial support and partnerships: assisting those who have the motivation but lack the resources to become energy smart, and partnering with like-minded bodies to pool resources. Advocacy: taking up issues on behalf of the Moreland community to lobby government and private enterprise for decisions that are consistent with the MEFL mission.
Global and national market trends When we consider the market forces themselves, one major trend becomes apparent; Victoria’s energy sector is increasingly part of a national and global industry. Oil and gas production has for decades attracted global companies, as has petrol retailing. More recently, however, Victoria’s electricity and gas industries have become part of the global economy. And it’s not all ‘one way’ investment. Innovative new companies have emerged in Victoria and are competing on national and global markets; examples include Energy Developments Ltd (energy from waste) and Pacific Hydro (hydro and wind electricity ). Our electricity and gas networks are becoming increasingly interconnected with other states, and natural gas links with onshore Papua New Guinea and the Timor Sea are currently being considered by investors. Clearly, our energy policies are increasingly required to take national and global influences into account. In the electricity and gas markets (where the states have primary policy responsibility), the governments of interconnected states are increasingly required to act together, particularly when it comes to wholesale trading and transmission. In the case of 9 transport energy (primarily a Commonwealth responsibility), the State Governments play
critical roles in developing national policy. SECTION 2
The Victorian energy system The Victorian energy system comprises energy production and conversion, transmission, distribution and end-use. |
Based on Victoria’s energy resources, augmented by some imports, the Victorian energy ENERGY FOR VICTORIA – AN OVERVIEW system has undergone significant change over the past 50 years. Further changes are foreseen. Brown coal is our major primary energy resource but we also have significant oil, gas and renewable resources, which are used to produce end-use (secondary energy) forms, particularly electricity. The future mix and level of energy supplies will change in line with demand and environmental challenges. In particular, our supplies will be less greenhouse gas intensive and we will use energy much more efficiently. The Victorian energy system will also evolve to maintain and enhance security, reliability, access and affordability of energy services. Note: Detailed information on the Victorian energy system is provided in Appendix A and the Governance framework in Appendix B.
The Bracks Government’s achievements The Bracks Government has implemented a range of energy initiatives and has a substantial record in encouraging energy markets to operate effectively. It has also worked hard to deliver policy outcomes beyond those that the market can deliver. The Government has attracted substantial new investment in Victorian electricity and gas supplies and is examining market reforms to encourage more timely investment in new supplies. It has encouraged innovation and efficiency by introducing full competition in electricity and gas retailing, and it has reinforced the safety net to protect consumers during the transition to new market arrangements. Specific initiatives include: facilitating new electricity supply capacity, including the augmentation of the Snowy to Victoria interconnector (SNOVIC) transmission link with NSW by 400 megawatts (MW); temporary retail price constraints, which the Government has imposed to protect consumers from unjustified price rises; a $118 million Special Power Payment to address the gap between metropolitan and regional electricity prices in 2002 (further measures are currently being considered for 2003 and beyond); 10 funding promotion of natural gas exploration in Victoria through the Victorian Initiative for Minerals and Petroleum; funding increased safety regulation of the oil and gas industry and establishing major hazard regulations in 2000; and establishing the Sustainable Energy Authority of Victoria, and a range of programs in the Victorian Greenhouse Strategy, to encourage more sustainable use of energy through promoting increased investment in renewable energy and energy efficiency.
Note: The Government’s record and plans are detailed in Section 3.
New initiatives This Statement also announces further reform initiatives: An extension of the consumer protection safety net for electricity and gas customers until at least the end of 2004. The development of a proposed new regulatory and operational framework for the newly emerging southeast Australian gas market. A proposal that the Federal Government increase the Mandated Renewable Energy Target for 2010 by 60 per cent.
The long term view The Government is confident that Victoria will continue to enjoy secure energy supplies over the next 10 to 15 years. Longer term, the challenges mainly revolve around environmental concerns, in particular the increased greenhouse effect, and our growing reliance on distant sources of oil and gas. Given Victoria’s projected growth in energy use and our current reliance on high emission fossil fuels, sustainability presents a large challenge. The Government’s ongoing policy development will consider a number of key long term questions. These include addressing the following issues: What measures are required to mitigate the impact of our energy production and consumption on greenhouse gas emissions? Do we need to incur costs now to avoid greater costs in the future? What are the appropriate roles of brown coal, natural gas, renewable energy sources and energy efficiency in our energy future? Do Victorians need to be more aware of the energy challenges and opportunities we face? 11 Should Victoria play a more active role in influencing the Commonwealth’s policy on
transport energy, given its economic, social and environmental significance? SECTION 2 How can we reconcile community concerns about the environmental impact of new energy infrastructure with Victoria’s growing demand for energy? How long and how deeply should the Government continue to oversee retail prices, terms and conditions in electricity and gas supply for small customers? Note: These issues are discussed in more detail in Section 4. | ENERGY FOR VICTORIA – AN OVERVIEW P
12 PLANSSECTION 3 | THE GOVERNMENT’S RECORD AND PLANS
The Government has implemented a range of important energy policy initiatives since 1999 in support of its objectives of: 13 supply security and efficiency; SECTION 3 supply reliability and safety; access to affordable energy for consumers; and environmentally sustainable energy production and use. This section summarises the Government’s achievements to date and outlines planned initiatives that will support continued progress. | THE GOVERNMENT’S RECORD AND PLANS SUPPLY SECURITY AND EFFICIENCY The Bracks Government is working to maintain the secure electricity and gas supplies that Victorians currently enjoy. Victorians have not experienced gas shortages except for the Longford explosion in 1998 and last experienced electricity shortages in 2000, which were principally due to an industrial dispute at a major power station. It is encouraging investment in new supplies and seeking to ensure this investment is efficient by stimulating competition where possible, and enforcing sound economic regulation where it is not. It is also facilitating energy efficiency and demand management through a range of measures including: market reforms; minimum efficiency standards; and user education.
Electricity Victoria’s electricity market experiences short periods of very high demand – the top 15 per cent of demand occurs in summer but for less than 1 per cent of the year. Peak demands are expensive to serve and are forecast to increase by 200-300 MW per year. In response to electricity supply disruptions in the summer of 1999-2000, the Government undertook a review of electricity supply security in Victoria. The review recommended: the facilitation of new supply projects; and improved demand management. New electricity supplies The Government has subsequently facilitated new generation capacity totalling almost 1,000 megawatts (MW), as detailed below.
New generators Energy source Capacity Completion date
Duke Energy, Bairnsdale Gas 86 MW January 2002 Valley Power, Latrobe Valley Gas 300 MW June 2002 14 AGL, Somerton Gas 148 MW November 2002 Codrington Wind 18 MW July 2001 Toora Wind 22 MW Late 2002
Other supplies Southern Hydro, Eildon Hydro 15 MW Recommissioned 2001 Loy Yang A power station Brown coal 300 MW Increased capacity by 2005 The Government is facilitating further new generators (gas-fired, biomass, hydro and wind) and interconnectors through planning, environment and connection processes for example the Portland and Challicum Hills windfarms (180 and 52.5 MW respectively).
TWO NEW VICTORIAN GENERATORS Duke Energy Bairnsdale plant (completed in 2002) 2 x 43 MW gas turbine units (86 MW total) Supplies electricity to regional load centre, reducing need for network augmentation Produces about 50 per cent lower greenhouse gas emissions than average delivered brown coal electricity Pacific Hydro Codrington Wind Farm (completed 2001) 14 x 1.3 MW units (18.2 MW total) Supplies electricity to regional load centre, reducing transmission losses Produces zero greenhouse gas emissions, saving about 70,000 tonnes of greenhouse gas emissions per year. Transmission inter-connectors Following failure of the market to respond to the opportunity, the Government requested the Victorian Energy Networks Corporation (VENCorp) to upgrade Victoria’s interconnection with the Snowy (SNOVic) by 400 MW at a cost of approximately $44 million. The upgrade received all regulatory and planning approvals and is on schedule to be commissioned by December 2002.
Transmission interconnectors between States, like SNOVic, increase the security of Victoria’s 15 electricity supply and promote competition. SECTION 3
Other electricity initiatives The Department of Innovation, Industry and Regional Development (DIIRD) offers assistance to potential investors with projects that will provide significant economic
benefit to Victoria. This assistance has been provided to both fossil-fuelled and renewable |
generators over the past three years. THE GOVERNMENT’S RECORD AND PLANS The Government published Policy and Planning Guidelines for Wind Energy Developments in August 2002 to assist planning applications for windfarms. These guidelines seek to balance the energy and environmental benefits and the visual impacts of windfarms. In October 2001, the Government issued a Brown Coal Tender for the right to explore for brown coal in specified areas in the Latrobe Valley. Licences were awarded to: - HRL Developments Pty Ltd; - Australian Power and Energy Ltd; and - Loy Yang Power Pty Ltd. Mining licences issued will be: - subject to competition in energy markets; and - conditional on the companies ensuring that greenhouse emission rates from brown coal generation at the sites are a minimum of 33 per cent lower than current Victorian best practice.
Capacity mechanisms In the National Electricity Market (NEM), the energy-only spot market and the hedging contract market provide economic signals for the development of new generating capacity. High spot and contract prices during the hot summer of 2000-2001 triggered investment in new generators, but the generators were not completed in time for the following summer (2001-2002). This raised questions as to whether the capacity signals in the market are adequate to produce timely investment. The Minister for Energy and Resources requested that the National Electricity Code Administrator (NECA) prepare a discussion paper for the NEM Ministers Forum on the adequacy of capacity mechanisms. The NEM Ministers will consider options in the paper by the end of 2002.
NEM reforms In response to concerns about duplication and delays in the regulation of the National 16 Electricity Market (NEM), and uncertainty about the framework for transmission development, the Minister for Energy and Resources has proposed a package of NEM reforms. The key proposals are: to create a single NEM regulator; and to give the National Electricity Market Management Company (NEMMCO) reserve powers to direct the efficient augmentation of interconnectors where a timely market response is not forthcoming. These proposals are now under active consideration by the NEM Ministers Forum.
Electricity demand side management Demand side management (DSM) includes peak demand reduction, energy efficiency, and the use of cogeneration and standby supplies. It can contribute to supply security by reducing the size of Victoria’s peak and overall demands. The Government has given a statutory role to VENCorp to facilitate demand management. A study commissioned by VENCorp, in 2001, proposed a package of measures to: educate customers; encourage aggregation of individual DSM initiatives; and lower regulatory barriers to the use of stand-by generation when supplies are tight. The NRE, VENCorp and the Sustainable Energy Authority of Victoria (SEAV) are working with other Government agencies to implement the study’s recommendations. The Essential Services Commission is also investigating the costs and benefits of a smart meter roll-out to all consumers. INFRASTRUCTURE PLANNING COUNCIL In May 2000, the Government established the Infrastructure Planning Council (IPC) to provide it with independent advice on Victoria’s infrastructure needs for the next 20 years. The IPC released an Interim Report in October 2001 and invited public submissions. After extensive consultation, the IPC presented Government with its Final Report in August 2001. The Final Report provided the Government with advice on priorities for new public works, roads, public transport, water facilities, energy and telecommunications. 17 In September 2002, the Government released the IPC’s Final Report and the Government’s response to the Final Report, Investing For Our Future, which outlined a long term vision for SECTION 3 infrastructure development in Victoria. Among other things, Investing For Our Future outlines the Government’s response to IPC’s recommendations on energy sector issues including institutional arrangements, new generation capacity and its location, demand management and energy efficiency, greenhouse gas emissions and community education. | THE GOVERNMENT’S RECORD AND PLANS Copies of the Investing For Our Future and The Final Report of the Infrastructure Planning Council can be accessed from www.vic.gov.au
Demand side management for Government The Government is also leading demand management by example. SEAV has developed demand management guidelines for Government departments and is overseeing their implementation.
Oil and gas supplies The Government has taken a number of initiatives to promote the competitive development of new oil and gas supplies including: Improving the release and management of petroleum tenements. Onshore and offshore areas are released annually after consultation with affected stakeholders including indigenous peoples. The industry is provided with highly regarded release reports that summarise the geological setting and other relevant information. Providing reference material relevant to oil and gas exploration. The Government is selectively capturing and preserving technical data that has been acquired by petroleum companies at a cost to those companies of billions of dollars over the past 30 years. This data is then released back into the public arena. Regional reports including the Petroleum Atlas of Victoria provide valuable reference works for current and future oil and gas explorers. Publishing A Guide to the Petroleum Industry in Victoria, a comprehensive guide to help petroleum companies and others to understand the Government’s management of these resources (see www.nre.vic.gov.au/minpet/pet). Reviewing the Pipelines Act 1967, through NRE and in consultation with stakeholders, to ensure that the legislation effectively facilitates development of gas pipelines while taking account of public and environmental impacts. Facilitating major gas projects in the Otway and Gippsland Basins to augment supply.
Increased gas supply options The Government’s policy has resulted in an increased number of supply options, particularly 18 for gas. Recent discoveries in the onshore and offshore Otway Basin are expanding the number of potential gas producers to the State. In September 2002, BassGass announced a $370 million project that will bring gas onshore from the Yolla Gas Field in Bass Strait, increasing Victoria’s gas supplies by 10%, boosting the competitiveness and security of the State’s energy resources.
NEW INITIATIVE: GAS MARKET OVERSIGHT The Government is concerned that there is no effective institutional oversight of the emerging southeast Australian gas market. It will develop proposals to extend the remit of the proposed NEM regulator to gas wholesaling and transmission, and to improve oversight of the market’s supply and demand balance.
Emergency response procedures The Government has statutory powers to manage electricity and gas supply emergencies and has established emergency response procedures to lessen the impact of disruptions and maintain supply for essential services. Similar procedures are in place for petroleum supply disruptions.
Native title Any energy development project over Crown land must comply with the Commonwealth Native Title Act 1993 (NTA). The Victorian Government has established a “whole of government” approach to resolve Native Title issues using indigenous land use agreements, based on mediation rather than litigation. Victoria is continuing to develop more efficient procedures to further streamline Native Title processes. Standard agreements, policies and guidelines have been developed to this end. SUPPLY RELIABILITY AND SAFETY The reliability and safety with which electricity and gas are transported over transmission and distribution networks to end-users is a key focus of Victoria’s energy policy.
Electricity Most interruptions to electricity supply are due to faults in the distribution system, the poles and wires that carry electricity from the transmission systems to most users. 19 Providing a reliable electricity supply is the responsibility of distributors and transmission
companies. Their performance in this area is subject to the regulatory oversight of the SECTION 3 Essential Services Commission and the National Electricity Code Administrator. The key measure of reliability is the average minutes off supply per customer. This has shown significant improvement since the mid 1990s, particularly in metropolitan Melbourne and to a lesser extent in regional Victoria.
The following graph illustrates trends in average minutes off supply per customer in Victoria |
from 1993 to 2001. THE GOVERNMENT’S RECORD AND PLANS Average minutes off supply per customer
300
Unplanned 250 Planned
200
150 Minutes 100
50
0 93/94 1995 1996 1997 1998 1999 2000 2001 SEC* Distribution Businesses
* State Electricity Commission of Victoria. The Office of the Chief Electrical Inspector (OCEI) oversees electrical safety, covering electricity generation, distribution and use. A key measure of electrical safety is the number of electrical fatalities per year per million. As Victoria’s safety record has improved there has been a reduction in electrical fatalities from an average of 2.49 in 1991 per year per million per head of population, to an average of 1.69 per year per million per head of population in 2002. Further results, including OCEI annual reports can be viewed on the OCEI’s website at www.ocei.vic.gov.au/electricalincidents.html. 20
Gas The reliability of gas transmission and distribution is high compared to electricity, due to the fact that underground gas pipelines are less susceptible to damage than overhead electricity wires. The ESC oversees the reliability of gas distribution. The Office of Gas Safety (OGS) oversees the safe transmission, distribution and use of gas. As with electricity, Victoria’s gas safety performance is good. Key performance indicators are published on the OGS web site at www.ogs.vic.gov.au/ performance/index.html. These indicators show a decrease in the number of fatalities and gas related incidents over the last four years, since the establishment of the OGS.
Essential Services Commission The establishment of the ESC as an economic regulator is a major policy initiative of the Government. The ESC commenced operations on 1 January 2002, subsuming the role of the Office of the Regulator-General, and was given increased powers to ensure reliable energy supply. ESSENTIAL SERVICES COMMISSION The ESC is an economic regulator established as a statutory authority. The ESC is responsible for delivering Government policy as set out in the statutes under which it operates, but is otherwise not subject to direction by Government. The key roles of the ESC are to: license essential service providers, particularly energy and water companies and authorities; ensure open access to natural monopoly networks at regulated prices and service 21 standards; and facilitate competition, particularly in energy retailing. SECTION 3 The general functions and powers of the ESC are set out in the Essential Services Commission Act 2001, and are applied to the Victorian electricity and gas industry through the Electricity Industry Act 2000 and Gas Industry Act 2001.
The ESC’s primary objective is to protect the long-term interests of Victorian consumers with | regard to the price, quality and reliability of essential services. Its secondary objectives are to: THE GOVERNMENT’S RECORD AND PLANS facilitate the financial viability and efficiency of regulated industries and facilitate incentive for efficient long term investment; prevent the misuse of monopoly or non-transitory market power, facilitate effective competition and promote competitive market conduct; ensure that regulatory decision making has regard to the relevant health, safety, environmental and social legislation applying to the regulated industry; ensure that users and consumers, including low-income or vulnerable customers, benefit from the gains made through increased competition and efficiency; and promote consistency in regulation between States and on a national basis.
Network reliability initiatives In 2001 the ESC (then the Office of the Regulator-General) introduced financial incentives for Victoria’s electricity distributors to maintain and improve supply reliability. Over the 2001- 2005 period, distributors will be required to achieve reliability improvements of 15-37 per cent. They will be financially penalised for under-performance and rewarded for out-performing the targets, through adjustments to distribution prices. Further, guaranteed payments of $80 were introduced to residential and small business customers who experience low reliability performance – defined as an interruption lasting more than 12 hours, or more than a specified number of interruptions in a calendar year (9 for urban customers and 12 for rural customers). VENCorp currently administers an incentive scheme under which the State’s main electricity transmission company, SPI PowerNet, is rewarded and penalised according to the availability of the shared transmission network. The Government has proposed that the scheme be extended to cover transmission connections. This issue is being considered by the Australian Competition and Consumer Commission (ACCC) in its review of transmission price controls for 2003-2007. The ESC is also introducing guaranteed payments to gas consumers who experience poor 22 service and reliability. The payments are detailed in the ESC’s final determination on gas distribution price controls for 2003-2007 and vary depending on the area of service.
Safety audit In 2001, the OCEI commenced the first major safety audit of Victoria’s distribution and transmission companies to assess their compliance with network safety regulations. The results of that audit will be made public. The price controls contained in the ESC’s electricity distribution price determination for 2001- 2005 were calculated on the basis that expenditure of $168.3 million would be required to comply with the new safety regulations.
ACCESS TO AFFORDABLE SUPPLIES The Government has demonstrated its commitment to ensuring that Victorians have access to affordable energy through a range of initiatives that include: introducing competition in electricity and gas retailing; implementing price constraint measures; funding supply upgrades; establishing a comprehensive consumer protection safety net; and establishing consumer advocacy and complaint resolution schemes. Note: The current levels of access to and affordability of energy are outlined in Appendix A.
Retail competition The Victorian Government has made choice of electricity and gas retailer available to residential and small business consumers, to discipline prices and encourage innovation in service. Choice of electricity retailer was extended to users consuming 40-160 MWh/year in January 2001, and to all remaining consumers in January 2002. Choice of gas retailer was progressively extended to large and medium sized business users consuming more than 5 TJ/year from October 1999. All remaining consumers were provided choice from October 2002. More than 25,000 residential and small business electricity consumers have transferred to a new retailer as at the end of August 2002. The rate of transfer is growing as the performance of new consumer transfer systems improves and new retail products are developed, and is expected to grow further with the recent introduction of competition in gas retailing.
Constraint on retail price rises In the transition to retail competition, the Government has constrained retail price rises by: limiting proposed electricity retail price increases of 15-21 per cent in 2002 for 23 residential and small business consumers to 2.5-15.5 per cent, and constraining gas prices to small consumers to 2.5 per cent; SECTION 3 introducing the $118 million Special Power Payment rebate for the period April 2002- March 2003. This payment ensures consistency between metropolitan and regional electricity prices for residential and small business consumers and effectively limits price increases to 4.4 per cent; and
introducing a new off-peak electricity concession costing $6 million per year to reduce |
the impact of off-peak price rises. This concession is available to all eligible households THE GOVERNMENT’S RECORD AND PLANS with dedicated off-peak metering. The Government will make further decisions on the regulation of retail prices in 2003 taking into account the ESC’s report on the effectiveness of retail competition. It is also examining structural options to address the price gap between metropolitan and rural consumers of electricity once the Special Power Payment expires.
Distribution tariffs reduced The ESC regulates electricity and gas distribution tariffs. The ESC: reduced electricity distribution tariffs by 9-18 per cent (in real terms) in 2001 across the five distribution businesses. Further reductions of 1 per cent each year will continue to 2005; and will reduce gas distribution tariffs from 1-10 per cent in 2003 across the three distribution businesses, with further reductions of 1 per cent in each year to 2007.
Natural gas distribution extensions Decisions made by the privatised gas distribution businesses to extend the natural gas network focus on commercial returns and do not capture all the benefits that reticulation of natural gas can provide. The Government understands the importance of reticulation of natural gas to regional communities across the State. It is anticipated that Government will soon be in a position to make an announcement on this matter. Bottled LPG Bottled LPG prices rose substantially in 2001. In recognition of the reliance of regional and rural consumers on this energy source, the Government directed the ESC to investigate whether the price rises were the result of the exercise of substantial market power, and to recommend whether price regulation or other measures were required to address that market power. The ESC’s report concluded that some market power was exercised but not to a substantial degree. The Government has accepted in principle the ESC’s recommendations for greater 24 price disclosure, improved concessions and further monitoring to address the concerns of LPG users. The Government is considering the report’s recommendations and is investigating options to improve concessions to eligible LPG users.
Supply upgrades Some rural areas are supplied through single wire earth return (SWER) systems, which were a low cost means of electrifying rural areas. SWER systems have lower supply quality than ‘three-phase’ and ‘two-wire single-phase’ supplies and can be a constraint on economic development, particularly in dairying areas where growth in output is planned. The Government has allocated $8 million to contribute 50 per cent of the cost of upgrading SWER lines in regional Victoria through the Regional Infrastructure Development Fund (RIDF) administered by the Department of Innovation, Industry and Regional Development.
Consumer safety net The Government has established a comprehensive consumer protection safety net through the Electricity Industry Act 2000 and the Gas Industry Act 2001. The safety net is designed to ensure that consumers retain access to electricity and gas at reasonable prices and standards of service in the transition to an effective competitive market. Key provisions in these Acts are as follows: Residential and small business customers have a right to connection by the local distributor at regulated prices and standards, and a right to supply by the incumbent retailer at standard prices and service levels. The Government retains a reserve power to regulate retail prices, which it may employ where competition is not effective and market power is being exercised. The ESC has power to regulate retail and distribution service standards, which it does principally through the gas and electricity Retail Code and the Distribution Code. The regulation of prices, terms and conditions for residential and small business customers expires in December 2003 (electricity) and August 2004 (gas). NEW INITIATIVE: EXTENSION OF SAFETY NET Based on advice from the ESC, the Government has decided to extend the safety net to at least the end of 2004, and will consider whether to extend it further based on the state of the market at that time.
Energy Ombudsman The Energy and Water Ombudsman of Victoria (EWOV) is an independent, industry-funded 25 scheme that provides free assistance to consumers to help them resolve complaints with their
electricity, gas or water provider. SECTION 3 The board of the EWOV comprises equal numbers of industry and consumer representatives and an independent chair. The Victorian Government has given statutory force to the EWOV scheme, which has strengthened the ESC’s oversight role. The Government has established the Consumer Utilities Advocacy Centre to provide consumer groups with additional resources to undertake research and advocacy on consumer matters | regarding energy and water companies. THE GOVERNMENT’S RECORD AND PLANS
CONSUMER UTILITY ADVOCACY CENTRE The Bracks Government established the Consumer Utility Advocacy Centre (CUAC) to provide a forum where consumer representatives can exchange information and monitor utility issues. The CUAC will: fund research into utility issues; provide an in-house research capability offering a world-class centre of excellence in consumer advocacy, research and information dissemination; and establish a broad reference group of consumer representatives to assist the board with advice. This will include the organisations covered by the Essential Services Commission’s Consumer Consultative Committee plus additional members to represent other consumer interests as identified from time to time. In establishing the CUAC the Bracks Government is demonstrating its continued commitment to providing resources to the community that help to ensure that Victorians enjoy a high standard of utility service delivery.
SUSTAINABILITY For Victoria’s energy sector to be sustainable, the supply and use of energy must be consistent with our economic, social and environmental aims. Earlier sections of this Statement address the need for energy supplies to be secure, efficient, reliable, safe, accessible and affordable. This section outlines measures taken by the Victorian Government to ensure that energy supply and use are consistent with our long-term environmental goals. The Government’s initiatives to facilitate wind power are outlined in this section, under ‘Supply Security’. Its proposals to strengthen the Commonwealth’s Mandated Renewable Energy Target are described in Section 4.
Sustainable Energy Authority of Victoria A major initiative of the Bracks Government has been to establish the Sustainable Energy 26 Authority of Victoria (SEAV) to provide focus for sustainable energy. The Authority has received a substantial increase in funding relative to its predecessors. The key objective of the SEAV is to accelerate progress towards a sustainable energy future by bringing together the best available knowledge and expertise and by stimulating innovation. It also has a role to provide Victorians with a greater range of options for contributing to improved energy sustainability in the State. The SEAV will contribute to improving energy sustainability by facilitating increased energy efficiency and renewable energy production that will: improve the energy efficiency of the economy; stimulate employment and innovation in industries supplying sustainable energy services and products; increase the diversity and distribution of energy supply, helping to improve long term energy security; and reduce the environmental impacts of energy supply and use. The SEAV works in partnership with business and the community to: demonstrate the innovative use of commercially viable energy efficiency and renewable energy technologies; build capacity to access energy efficiency and renewable energy technologies; provide sustainable energy policy advice to Government; and provide an independent source of information on renewable energy and energy efficiency. The SEAV represents the State on the development of national energy efficiency and measures such as the National Appliance and Equipment Energy Efficiency Program (NAEEEP). This program sets minimum energy performance standards (MEPS) for a range of domestic, commercial and industrial equipment. ENERGY EFFICIENCY Improvements in energy efficiency within all elements of the energy system produce economic, social and environmental benefits. In electricity generation, improving the efficiency of fossil fuel generators reduces fuel input costs and greenhouse emissions per unit of electricity generated. For energy end-users there is substantial potential for reducing the energy needed for a specific task in appliances, the fabric and energy systems in buildings, industrial processes and transport units (cars, trucks, planes, etc.) and the overall transport system. 27
The SEAV is undertaking a range of projects to develop Victorian capabilities of achieving world SECTION 3 best practice in energy efficiency. This will be achieved by working closely with other government agencies, businesses and the community at large. The SEAV’s work includes the implementation of the key energy efficiency initiatives of the Victorian Greenhouse Strategy. | THE GOVERNMENT’S RECORD AND PLANS Victorian Greenhouse Strategy The Bracks Government released the Victorian Greenhouse Strategy (VGS) in June 2002 to ensure Victoria plays its part in national and international efforts to address the threat of climate change. The VGS comprises a range of measures to reduce the State’s greenhouse emissions from energy sector activities. Key elements of the strategy include the following: reducing the greenhouse intensity of Victoria’s electricity supply and use; supporting strong growth in the use of renewable energy, including the purchase of 5 per cent of the Government’s electricity needs from renewable sources by 2005/2006; measures to improve the efficiency of energy use; and reducing transport-related greenhouse gas emissions. (For details see www.greenhouse.vic.gov.au)
VICTORIA’S GREENHOUSE EMISSIONS Victoria’s greenhouse gas emissions mainly (91 per cent) come from the energy sector: Stationary (i.e. non-transport) energy production and use was responsible for 72 per cent of Victoria’s total greenhouse gas emissions in 1999. Electricity generation contributed just over three-quarters of these emissions (or around 55 per cent of Victoria’s total), with the direct use of gas contributing most of the remainder. Greenhouse gas emissions from stationary energy grew by 32 per cent between 1990 and 1999, with emissions from electricity generation increasing by 41 per cent. Transport energy use was responsible for 16 per cent of the State’s total emissions – an increase of 12.6 per cent compared with 1990. Buildings energy efficiency To lead by example, the Government has set a target to reduce energy use in government buildings by 15 per cent by June 2006. New homes built in Victoria will have to be built to a 5-star energy rating compared with the current average of 2.2 stars. Also, assistance will be provided for the improvement of energy efficiency in public and low-income housing.
Transport emissions 28 Greenhouse gas emissions from transport are addressed through the VGS and other initiatives such as the Metropolitan Strategy (see below). These initiatives include programs to: reduce the need for motorised travel; promote a shift to public transport; improve the fuel economy and emissions performance of motor vehicles; influence travel choices and driver behaviour; and promote more efficient freight transport. The Government has a set target to reduce greenhouse gas emissions from the Government fleet by 10 per cent by June 2006.
Developing new energy technologies The VGS establishes a Centre for Energy and Greenhouse Technologies, to coordinate, integrate and support Research, Development, Demonstration and Commercialisation (RDD&C) of technologies (see box) that can reduce the greenhouse gas intensity of Victorian energy production and use. The Centre will focus on technology developments in the following areas and complement the project work of the SEAV. Energy efficiency (appliances, equipment and processes). Renewable energy. Fossil fuel technologies. The Centre is partially funded by the Victorian Government ($14.25 million over three years) and will also seek Commonwealth and private sector support. In 2001, the Government allocated $680,000 to a generator efficiency improvement project (using Mechanical Thermal Expression) of the Cooperative Research Centre (CRC) for Power from Lignite. This project has the potential to contribute significantly to the increased efficiency and reduced greenhouse gas emissions of brown coal generators. The Government also provides about $3 million a year to the CRC in general funding support.
Greenhouse emissions information on electricity bills In 2002 the Government amended the Electricity Industry Act 2000 to require information on greenhouse gas emissions to be included on electricity bills. RESEARCH, DEVELOPMENT, DEMONSTRATION AND COMMERCIALISATION Technology development is a key driver of economic, social and environmental performance. Research (R) is the first step in technology development. It includes the development of concepts, basic research and applied research. Not all research finds direct application, although the results may be applied in other fields and add to scientific knowledge. Because research entails high risks and public benefits, governments support research through direct payments and tax concessions for private research, and by funding government research agencies. 29 Development (D) involves resolving technical issues concerned with potential commercialisation,
and may include the construction of small-scale pilot/prototype projects. These projects may raise SECTION 3 further technical issues requiring additional research. Although the risks are lower and the private benefits greater for development than for research, government support is common. Demonstration (D) involves testing, monitoring and evaluating successful R&D in projects or plants in near-commercial operating conditions. This stage is less risky but the required
expenditures may be substantial (hence demonstration is often referred to as “big D”). Government | support is therefore often given but generally to attract much higher private expenditure. THE GOVERNMENT’S RECORD AND PLANS Commercialisation (C) is the application of developed technology to commercial operation, for which the case for government support is not strong. However, some apparently commercially viable technologies are not commercialised, so governments have sometimes become involved in this stage by providing technical and economic information to potential technology users, assisting with marketing, or purchasing the technology for government use. Another important aspect of technology development is coordination of RDD&C. Governments can assist in creating databases of technology development projects, identifying gaps in the process, and facilitating technology transfer from suppliers to users. Both the Commonwealth and State Governments support technology development. In general the Commonwealth supports RDD&C activities that are of national interest, including through contributions to international initiatives. The States support those activities of particular relevance to them.
Embedded generators While transmission-connected generators are often distant from load centres, embedded generators are connected to the distribution system and are generally located closer to communities. The Government is responding to issues of concern to embedded generators, most of which are based on more sustainable technologies. It has addressed the issue of network support payments and is continuing to assess other issues such as network connection charges and conditions. To help embedded generators to compete on equal terms with transmission-connected generators the ESC, in 2001, provided for distributors to pass through the cost of network support payments to end users. The ESC later approved the pass through of network support payments for AGL’s Somerton power station.
Air quality improvement Victoria’s air quality has improved significantly in the last 20 years, mainly due to: 30 reductions in emissions from industry; tighter motor vehicle emission and fuel quality specifications; and reductions in domestic sources, such as waste burning in backyards. Recent studies confirm that air pollution still leads to health impacts in Melbourne, and local air quality in parts of Victoria may not reflect the general improvement. In addressing air quality issues, the Environment Protection Authority (EPA), through its State Environmental Protection Policy on Air Quality Management SEPP (AQM), has increased its focus on opportunities to efficiently reduce emissions at earlier stages of production processes. The SEPP (AQM) also addresses greenhouse gas emissions and energy efficiency. Applicants for EPA works approvals and licence holders are required to adopt best practice in energy management and greenhouse gas emissions abatement. The SEPP (AQM) also increases EPA’s focus on diffuse emission sources such as motor vehicles. The EPA represents Victoria in national development of motor vehicle emission and fuel quality specifications, in which energy efficiency and greenhouse gas emissions are key considerations. An Air Quality Improvement Plan (AQIP) for the Port Phillip Region is currently being finalised. The plan will address emissions from all major sources of air pollutants in the region, consistent with the VGS and the Metropolitan Strategy.
Victorian Firewood Strategy In September 2000, the Minister for Environment and Conservation announced that a Victorian Firewood Strategy would be developed as part of the Government’s response to the Commonwealth Regional Forest Agreements (RFAs). This response, Growing Victoria’s Forests, included a commitment to facilitating firewood and fencepost plantations on cleared land as an alternative to using wood from public Box-Ironbark forests. The aims of the Victorian Firewood Strategy are: to ensure an ecologically sustainable supply of firewood for Victorians; and to ensure that the impacts of firewood collection on important flora and fauna communities are minimised. A discussion paper has been released and public consultation conducted, after which the Strategy will be drafted. There are no current plans by the Bracks Government to ban the collection of firewood from roadsides or private property. The release of this paper does not impact on the present firewood collection arrangements.
FIREWOOD USE Victorians consume an estimated 0.7-1.4 million tonnes of firewood each year. 31 Firewood is an important source of low cost space heating, especially for Victorian households
without access to natural gas. Consumers collect two thirds of the firewood used in Victoria. SECTION 3 The remainder is purchased from merchants. Firewood collection and use can have significant adverse impacts on our air quality, biodiversity and Aboriginal heritage, and can contribute to the greenhouse effect if the firewood source is not renewed. |
Melbourne 2030 – planning for sustainable growth THE GOVERNMENT’S RECORD AND PLANS In the next 30 years, Melbourne will grow by up to one million people and 620,000 households. This will require considerable investment in infrastructure and services including secure and sustainable energy supplies. The Government has released Melbourne 2030 – planning for sustainable growth to provide a strategic framework to coordinate the location and management of new infrastructure and services necessary in Melbourne and regional centres. Melbourne 2030 – planning for sustainable growth plans to meet the Growing Victoria Together target to increase the proportion of motorised trips that are taken by public transport from 9 per cent in 2001 to 20 per cent by 2020.
Visual amenity The Government funds up to 50 per cent of the cost of placing powerlines underground, or otherwise relocating them, where a community benefit will result. The funding is made available through the Powerline Relocation Scheme administered by the NRE. A budgeted $3.2 million is to be spent on the scheme in 2002/3. F
32 FUTURESECTION 4 | AN ENERGY POLICY FOR THE FUTURE
Secure energy supplies have been a pillar of Victoria’s economic and social development, and there is no foreseeable reason why this will not continue to be the case. However, significant 33 changes in the State’s energy base may be required to meet the challenges and opportunities SECTION 4 of the first half of the 21st Century. This section outlines the key characteristics of Victoria’s future energy challenges, and describes Government’s strategy for meeting the requirements of a changing energy sector over the next 20 to 50 years. In doing so, it discusses the issues that will be addressed in the ongoing development of energy policy, and some directions which that policy may take. | AN ENERGY POLICY FOR THE FUTURE THE CHALLENGE, AT A GLANCE Forecasters believe that Victoria’s demand for energy will grow substantially over the next few decades, driven largely by Victoria’s expected growth in population and wealth. It is the nature of the demand, however, that will change most, as we seek more comfortable living and working environments, higher mobility and more energy-dependent appliances and services. To meet this demand, the State will need substantial investment in: new supplies of energy; additional infrastructure to transport energy to end-users; and greater energy efficiency in our buildings, appliances, industrial processes and transport system. As a result, Government will need to place a high priority on attracting investment to both the supply and the demand sides of the energy system. The pattern and direction of that investment will be influenced by the following key parameters: We are likely to need further measures to reduce our greenhouse emissions. We will need to honour Australia’s international commitments, by using fossil fuels more efficiently and increasing our reliance on renewable sources. We are likely to become increasingly dependent on imported transport fuels. Our stationary energy supplies, particularly natural gas, may be sourced increasingly from less accessible reserves in Australia and from countries to our north. The long transport distances and possible instability in exporting countries may impact on the security of our energy supplies. We will need to address community concern about the visual, health and amenity impacts of energy facilities. GREENHOUSE AND VICTORIA’S ENERGY FUTURE Gobal warming will become a more important driver of energy policy, translating into major impacts on the Victorian energy sector. The challenge for Government is that the sector is responsible for a high proportion of Victoria’s greenhouse emissions, yet continued economic growth will increase demand for energy services. It is difficult to accurately predict the impact of greenhouse concerns on future energy policy, but Government is likely to face increasing pressure to: 34 lower the greenhouse gas intensity of energy production by improving the efficiency of brown coal generators, and by using natural gas and renewable sources more extensively; and substantially improve the efficiency of stationary and transport energy use.
Implications for energy policy Initially, this pressure may result in energy prices being higher than they otherwise would be to signal the need for investment in new supplies and to accelerate the take-up of natural gas efficiency improvements and renewables. However, price increases may be mitigated by cost reductions made possible by technology developments. In the meantime, various approaches and instruments may be employed to reduce the greenhouse gas intensity of our energy production and use. One approach is to implement targeted measures such as conditions on resource development and mandatory generator- efficiency standards. Another is to implement a single economic instrument such as an emissions trading scheme. GREENHOUSE FUTURES In 2001 the Intergovernmental Panel on Climate Change released its third five-yearly assessment of the science of climate change. It found increasing evidence that human activity is already altering the global climate system and projected that the rate of warming over the next 100 years is “very likely to be without precedent during at least the last 10,000 years”. Over the last 10 years climate change science has increasingly pointed to this conclusion. At the policy level the United Nations Framework Convention on Climate Change (UNFCCC) was established in 1992, and in 1997 the Kyoto Protocol to the UNFCCC was adopted. The 35 Protocol aims to have industrialised countries as a whole to reduce their net emissions over the 2008-2012 (first commitment) period to 5 per cent below 1990 levels, on average. SECTION 4 Australia is limited to an emission increase of 8 per cent, which remains unratified by the Federal Government. The Kyoto Protocol commitments are widely recognised as the first step towards achieving deep cuts in global emissions over coming decades to meet the UNFCCC’s ultimate objective | of avoiding dangerous anthropogenic (human) interference with the climate system. AN ENERGY POLICY FOR THE FUTURE International negotiations are due to commence by 2005 on further emission reductions beyond 2012. Most industrialised countries have signified their intention to ratify the Kyoto Protocol and it is likely that it will come into force by 2003. The United States has stated it will not ratify, and Australia’s position remains in doubt. The Bracks Government has affirmed its support for ratification and the Victorian Greenhouse Strategy will make a significant contribution to Australia’s target. In Victoria’s view, the risks and costs of non-ratification are greater than those associated with ratification, given that most developed countries are likely to ratify what is now a flexible Protocol. The Bracks Government believes that the most likely global greenhouse policy future is one of increasingly stringent targets. To prepare for such a future, significant efforts to curb emissions must commence now.
Government’s strategy The current Victorian Greenhouse Strategy comprises a range of initiatives to reduce greenhouse gas emissions, but additional measures may be required to meet future pressures for more stringent greenhouse targets. As yet Government has no particular view on the form or nature of these additional measures, or on emission targets that need to be established. As a general rule, however, it would prefer to help work towards national measures rather than state-specific measures, particularly where such measures have the potential to impact on competition in energy markets. The Government also favours schemes that are comprehensive, such that they recognise the contribution of natural gas and energy efficiency as well as renewable energy sources in reducing greenhouse gas emissions from the energy sector. THE FUTURE ROLE OF BROWN COAL Victoria’s vast brown coal resource base today provides large amounts of low cost fuel for 90 per cent of Victoria’s electricity output. There are sufficient reserves to continue that contribution for over 500 years. Brown coal has been a key driver of Victoria’s economic development.
36 NEW BROWN COAL TECHNOLOGIES New technologies are being developed in Victoria to reduce the greenhouse gas emissions associated with the production of electricity using brown coal (lignite). These technologies include: Mechanical Thermal Expression (MTE), a process of efficiently reducing the moisture content of brown coal prior to combustion; Integrated Drying Gasification Combined Cycle (IDGCC); and Advanced Fluidised Bed Combustion (AFBC). The successful development and application of these technologies could reduce greenhouse gas emissions by up to 40 per cent compared with current best practice generation units.
The Victorian Government recognises that substantial capital is tied up in existing brown coal power stations and that future measures will need to take account of this. The Government has set greenhouse gas emission conditions above world best practice for the development of new plants based on brown coal areas in areas covered by the Brown Coal Tender described in Section 3. Successful bidders must comply with these conditions. Any measures that Government develops to deal with future greenhouse constraints will take full account of those emission conditions, while seeking to maintain a stable investment climate in Victoria.
NATURAL GAS AND DISTRIBUTED GENERATION Natural gas is widely seen as playing a significant role in providing a secure energy supply source. This is because natural gas: produces substantially lower greenhouse emissions than brown coal technologies; is more competitive than current renewable sources; and has sufficient flexibility to fuel large base load and peaking plants as well as small-scale distributed and high-efficiency generation. Current reserves of natural gas near and in Victoria are considerably lower than reserves of brown coal. Recently expanded exploration activities may yield significant new resources, but it is likely that new discoveries will be smaller and less economic than the Gippsland Basin reserves that have provided low-cost gas to Victoria since the 1960s. Growth in demand for gas may therefore require us to bring new supplies of gas into Victoria from sources such as the Timor Gap, Papua New Guinea, or the greater Northwest Shelf region within 20 years. Note: New sources of gas supply in Victoria are discussed in Appendix A.
Distributed generation Distributed generation in a range of smaller sized plants, based on renewables or natural gas, can play an important role in energy security, efficiency, regional supplies and sustainability. 37 Fuel cells being developed in Victoria and elsewhere are expected to become an important distributed energy technology. SECTION 4
DISTRIBUTED POWER: A FUTURE TREND Distributed generation comprises smaller power plants generally located close to markets,
thereby reducing network costs and losses and security risks. | AN ENERGY POLICY FOR THE FUTURE Most distributed generation is based on renewable and cogeneration technologies, and often based on local resources. Cogeneration plants produce electricity and process heat with high conversion efficiencies of more than 70 per cent. Substantial improvements in existing (eg: wind, biomass, solar) and new (eg: fuel cells, micro turbines) technologies are envisaged. Distributed generation plants generally have low environmental impacts including low greenhouse gas emissions and toxic air emissions (Oxides of Nitrogen, Oxides of Sulphur, particulates, hydro carbons). They also have the potential to stimulate substantial regional employment and economic activity. Since 1997 over 200 distributed power (DP) plants have been commissioned or are under construction, planned or proposed in Australia, of which about 40 are located in Victoria. Facilitation of distributed power plants in Victoria is being undertaken through the Renewable Energy Support Fund (RESF), cogeneration and RDD&C initiatives of the Victorian Greenhouse Strategy. Solid oxide fuel cell technology This technology is being developed in Victoria by Ceramic Fuel Cells Ltd (CFCL)
Emissions Valuable high H2O, CO2 temperature heat
Methane and H2O Internal reforming to 38 at 800ºC form H2 & CO
Anode
Oxygen ions Electrolyte DC current
Cathode
Air at 800ºC
- A fuel cell is an electrochemical energy conversion - The high temperature exhaust heat from the fuel cell device. It generates electricity without combustion – can be easily used in congeneration applications to allowing greater efficiency and lower emissions. increase the overall system efficiency. - Solid oxide fuel cells (SOFC) achieve the highest - Of all the fuel cell types, solid oxide fuel cells have efficiency of all fuel cells on hydrocarbon fuels such the highest overall system efficiency. as natural gas (up to 50% and above). - SOFC operate at high temperature, which makes - CFCL’s solid oxide fuel cells have the added it easy to capture exhaust heat for congeneration applications. advantage of being able to undertake direct internal reforming of methane, resulting in significantly - SOFC technology can be based on a range of reduced complexity and lower cost. fuels, including many renewables.
RENEWABLE SUPPLIES The Victorian Government remains strongly committed to augmenting renewable energy supplies, recognising that renewables can reduce greenhouse gas emissions and provide a sustainable and distributed supply of energy.
NEW INITIATIVE: INCREASE IN MANDATED RENEWABLE ENERGY TARGET Victoria supports the Commonwealth’s Mandated Renewable Energy Target (MRET), but has concerns that flaws in the scheme will result in relatively low levels of new renewable generation. Victoria proposes a 60 per cent increase in the 2010 target (from 9500 GWh to 15100 GWh) to accord with the Commonwealth’s initial intent for the measure. The Government has provided incentives for expansion of renewable supplies through the Victorian Greenhouse Strategy. The Government recognises that renewable sources of energy are currently more expensive than fossil fuel sources – not including the cost of externalities – and that often the output from these sources is intermittent. The Government will further consider means to encourage greater take-up of renewable energy, and how that take-up should be achieved. These and other renewable energy issues are being addressed in a Renewable Energy Strategy for Victoria being developed by the Sustainable Energy Authority of Victoria.
TRANSPORT ENERGY 39 Since the 1990s Victoria’s energy policy has largely been concerned with stationary energy, SECTION 4 particularly the reform of the State’s electricity and gas markets. It has focussed less on transport energy, even though expenditure on transport energy (predominantly oil products) has been considerably higher than on stationary energy. This situation appears to be largely due to: the importance of international markets in the oil sector; |
lack of recent supply disruptions (though crude oil prices remain volatile); and AN ENERGY POLICY FOR THE FUTURE the private ownership of the supply chain. However, it is now clear that more attention should be paid to the transport energy sector, due to the following factors: Australia’s predicted decline in self-sufficiency in transport energy; concerns about the affordability of transport fuels; and the level and growth of greenhouse and toxic emissions from transport. In addition, the likely convergence of the transport and stationary energy sectors through, for example, the development of vehicles powered by a combination of electricity and natural gas (and in the long term, the possible use of hydrogen as a storable and renewable fuel), reinforces the need to carefully investigate transport energy options. While recognising the primacy of the Commonwealth’s role in transport energy matters, Victoria has a key role to play in providing feedback to the Commonwealth on its transport energy initiatives, and taking action to encourage improved transport energy efficiency and emissions. Victoria intends to strengthen its policy stance on key transport energy issues.
LAND-USE PLANNING Some energy infrastructure projects attract community concern on planning and environmental grounds. In the past few years, investment in power stations, transmission facilities and distribution substations have been delayed and in some cases abandoned, in part because of community opposition. Even renewable power sources such as wind farms have encountered opposition – to clarify the planning process for these facilities, wind power planning guidelines (see Section 3) have been developed and published. The challenge to Government is to find a balance between planning, community and energy policy objectives. An additional challenge to Government is to ensure that planning decisions on energy projects recognise, and factor in, the essential nature of energy for sound economic and social performance.
ENERGY AWARENESS The future challenges to Victoria’s energy supply, and the implications of our current levels of 40 use, are not well understood in the community. Most larger enterprises, particularly those where energy is a significant input cost, are energy- conscious and plan their energy use accordingly. Case studies by the Sustainable Energy Authority of Victoria and other agencies attest to the significant energy management efforts of many enterprises. But in many smaller firms and, more generally, those firms where energy is not a significant input, energy management could be significantly improved, often to the financial benefit of the firm. The situation is similar for households, which appear to vary widely in terms of energy awareness.
ADVANCING AWARENESS OF ENERGY EFFICIENCY IMPORTANCE The more efficiently energy is used in homes, transport, businesses and community the greater the decrease in: the amount of energy needed to be supplied; the money spent on energy use and infrastructure; and energy related greenhouse gas emissions. These outcomes benefit all of us. Increasing awareness of the benefits of energy efficiency and making real improvements in efficient energy use is a major challenge in Victoria and other jurisdictions around the world. Victoria is committed to achieving world best practice in efficient energy use. Much remains to be done and the Sustainable Energy Authority of Victoria (SEAV) is developing and implementing new strategies to realise this objective. A central strategy involves working with households, businesses, government agencies, the next generation of Victorians and the community at large to ensure all Victorians can contribute to more efficient energy use.
Understanding the impacts Inefficient energy management results in needlessly high energy outlays, which in turn causes over-investment in energy supplies (production and networks) and, overall, generates a greater impact on the environment. Low levels of energy awareness may also be a key influence on community attitudes to investment in new energy facilities. A greater and deeper level of energy awareness among users may therefore play a key role in securing sustainable energy supplies. Achieving this goal is a challenging task that will need to build on current awareness levels achieved by the Sustainable Energy Authority of Victoria and other agencies and non-governmental organisations.
WHERE TO FROM HERE? 41
The Government plans to address the issues outlined above in its continuing policy SECTION 4 development work. The Government, through the national Ministerial Council on Energy, will participate in the modelling of various energy supply and demand scenarios to inform its thinking on policy issues. The scenarios will be based on key drivers of energy supply and demand and
greenhouse emissions. | AN ENERGY POLICY FOR THE FUTURE
Like to contribute? Responses to the issues raised in this Statement are welcome, and should be directed to: Energy and Minerals Division Department of Natural Resources and Environment 13/8 Nicholson St East Melbourne Vic 3002 Australia Email [email protected] Ph +61 (0)3 9637 8819 Fax +61 (0)3 9637 8835 This document has been prepared by the Energy and Minerals Division of the Department of Natural Resources and Environment (NRE) with contributions from, and in close cooperation with, other Victorian departments and agencies. 42 APPENDIXAPPENDIX A – VICTORIA’S ENERGY SYSTEM A
Victoria’s primary energy resources include oil, gas and coal, and renewable resources such as hydro, wind and solar. These primary resources are mainly used to produce more 43 convenient energy forms for consumers, such as electricity, one of our main secondary APPENDIX A – VICTORIA’S ENERGY SYSTEM energy sources. The material in this Appendix outlines Victoria’s energy resources, providing information on primary energy sources and consumption, secondary energy production and consumption, access, cost, affordability and the environmental impacts of energy use.
50 YEARS AGO Victoria’s energy base has changed substantially over the past 50 years. In 1952 oil was replacing coal in rail transport and heating. Electricity generation and briquette production were developing in the Latrobe Valley and many parts of rural Victoria had not been electrified. Apart from minor oil production in the Lakes Entrance area over the 1930s to the 1950s, little success in exploring for petroleum onshore had been achieved and there had been no exploration offshore. Gas came from towns gas plants, mainly around Melbourne. The Kiewa and Snowy hydro electric schemes were under construction. Non-hydro renewable energy was restricted to farm windmills, a few farm wind generators and wood for space and water heating. Few buildings had central heating and cooling systems; and only basic electricity and gas appliances were used in most households. Energy efficiency and sustainability were not considered. The electricity system and most of the gas system was in public hands. 50 years on, energy consumption has increased substantially and Victoria has become heavily reliant on off-shore natural gas production. Hydro generation is well established and renewable energy is beginning to attract significant investment. Victoria is almost fully electrified and the electricity and gas industries have been privatised and are experiencing significant convergence. PRIMARY ENERGY
Brown coal Brown coal is the major primary energy resource in Victoria. Mined at low cost it is mainly used for base-load electricity generation. At current production rates, brown coal reserves are adequate to satisfy Victorian demand for at least 500 years. Brown coal generation is the source of about half of Victoria’s current greenhouse gas 44 emissions.
Note: For further discussion on Greenhouse emissions, see ‘Environmental impacts of energy use’. The Victorian Greenhouse Strategy is discussed in Section 3.
Oil Victorian oil production from offshore sources in the Gippsland Basin currently provides most of the State’s petroleum products, which are used mainly for transport and petrochemical feedstock. Oil production from Victorian sources is projected to decline by more than 70 per cent over the next 20 years.1 A similar decline is also projected for total Australian oil production overall unless significant new discoveries are made.2 This will increase reliance on imported oil and petroleum products.
Gas Gas production from the Gippsland and Otway Basins currently meets Victorian demand. The gas is used mainly for process, space and water heating. It is also used to generate electricity mainly during peak periods. New gas supplies are being developed for production in the Bass, Otway and Gippsland Basins and by 2005 Victoria will be a significant exporter of gas to New South Wales, South Australia and Tasmania. Victoria can also import small quantities of gas from New South Wales if required to meet peak demand, and future opportunities exist to diversify sources of supply through recent cross-border pipeline developments. At projected levels of consumption, gas reserves in the Otway and Gippsland Basins will be depleted between 2015 and 2030 unless significant new discoveries are made.3
1 National Institute of Economic and Industry Research (NIEIR), 2002.
2 Oil production from Australian sources currently provides 91 per cent of national oil requirements but a decline to 40 per cent by 2010 is projected (Australian Bureau of Agricultural and Resource Economics (ABARE, 2001).
3 Estimates of gas reserves in Victoria’s Gippsland and Otway basins vary substantially. Official reserves are estimated (NRE, 2002) to be about 7.8 trillion cubic feet (Tcf) and 1.4 Tcf respectively, a total of 9.22 Tcf or about 9,800 petajoules. Official reserve estimates are about 50 per cent below some estimates of ultimate recoverable reserves from these basins. Investment in Victorian oil and gas exploration is at its highest level in 10 years. This is resulting in additions to reserves, particularly gas reserves.
NEW GAS SOURCES In 1969 natural gas from offshore Gippsland via the Longford gas plant rapidly displaced towns gas. Minor gas production from the Otway basin west of Melbourne started in 1987. The Eastern Australian Pipelines Ltd (EAPL) link with the Cooper Basin was completed in 45 1999. Additional gas sources, each with its own processing plant, will be developed within
the next five years. Gas will be sourced from: APPENDIX A – VICTORIA’S ENERGY SYSTEM the Otway Basin (Minerva, Geographe, Thylacine); a new development in the Gippsland Basin (Patricia-Balleen); and the Bass Basin (Yolla). These developments will complement the main Gippsland Basin fields and the Longford plant.
Renewable resources Renewable primary energy resources mainly comprise hydro, wind, solar and biomass (wood and organic wastes). Hydroelectric facilities currently produce about 3 per cent of Victoria’s total domestic electricity supplies and represent 80 per cent of current renewable electricity capacity in Victoria. Solar energy is primarily used for water heating. The level of use is relatively low, but expanding. An estimated 0.7-1.4 million tonnes of firewood is consumed in Victoria annually, of which about half is collected from private land.4 The use of firewood for space heating is important in rural and regional areas but is declining mainly due to the increasing availability of gas. Rural and regional areas use approximately half of all firewood consumed in Victoria.5 Victoria’s total renewable electricity capacity is currently about 656 megawatts, produced in over 30 plants. It is estimated that renewable electricity generation has the potential to reach a capacity of 2,000 megawatts by 2010. The total current installed electricity capacity (fossil and renewable) in Victoria is around 8,500 MW, plus the capacity to import a further 2000 MW through cross-border interconnections.6
4 Sturgess and Associates, 1995.
5 NRE, 2002.
6 SEAV, ESAA; Victoria is entitled to 29 per cent of the Snowy Mountain Hydro Electric Scheme’s output. Primary energy consumption Victoria’s primary energy consumption increased by over 20 per cent during the period 1990- 2000. The use of brown coal increased faster than other major primary resources during this period due to the increased competitiveness of brown coal generation following industry reform. Consumption of primary energy is anticipated to increase by more than 14 per cent during the period 2000-2010. Although brown coal will remain our dominant primary energy source, the 46 proportion of brown coal consumed relative to other resources will decrease. Significant growth in the use of natural gas and renewables (from a small base) is projected to 2010. This is due to the growing availability and competitiveness of natural gas and increased incentives and competitiveness of renewable energy sources. Table A1 and the accompanying graph summarise trends in primary energy consumption from 1990-2000 and projections to 2010. Table A1 Primary energy consumption, Victoria, 1990-2010 (petajoules)
Oil products Renewables Brown coal (incl. LPG) Natural gas Biomass Hydro Other Total 1990 450 355 259 32 3 0.1 1099.0 1995 491 376 260 34 4 0.2 1166.0 2000 650 421 229 34 2 0.2 1336.2 2005 683 474 260 35 2 3.7 1457.7 2010 673 495 316 40 3 5.5 1532.5
Average annual growth rate (%)
1990-2000 3.76 1.71 -1.23 0.76 -4.40 4.56 1.97 2000-2010 0.34 1.64 3.28 1.59 4.43 39.08 1.38 Source: NIEIR, 2002 Primary Energy Consumption, Victoria 1990 to 2010
800 700 600 1990 500 1995 PJs 400 2000 47 300 2005 200 2010 APPENDIX A – VICTORIA’S ENERGY SYSTEM 100 0 Brown coal Oil Natural gas Hydro Biomass Other renewables Fuel source
SECONDARY ENERGY Victoria’s secondary energy resources include electricity, petrol and other oil products, natural gas, wood and other renewables. Oil products are the main source of transport energy and account for more than 50 per cent of all secondary energy consumption. Electricity and gas are the major stationary energy sources and represent about 45 per cent of total secondary energy consumption.
Consumption trends The consumption of electricity and oil products, including LPG, grew steadily over 1990-2000 and this growth is projected to continue over 2000-2010. Secondary gas consumption, which grew slowly over 1990-2010, is projected to grow more rapidly over 2000-2010. Seasonal variations in energy demand are significant. In winter, the demand for gas is about 2.5 times the level of summer demand. In summer the average peak demands for electricity are about 1.5 times above winter averages. Victorian households generally use multiple sources of stationary energy. Households with access to natural gas will often use gas for space heating, water heating and/or cooking, and electricity for lighting and other appliances. Households without access to natural gas use electricity and LPG, and a large number use firewood for space heating. The energy source mix used by businesses varies according to the nature of the business and the price and quality of energy supply. Table A2 summarises secondary energy consumption from all sources over the period 1990-2010. Table A2 Secondary energy consumption, Victoria, 1990-2010 (petajoules)
Oil products Renewables Electricity (incl. LPG) Natural gas Biomass Other Total 1990 116 326 202 20 0.1 664 1995 122 347 211 18 0.2 698 48 2000 141 394 208 16 0.2 759 2005 156 448 232 15 0.3 851 2010 170 470 256 14 0.3910
Average annual growth rate (%)
1990-2000 1.98 1.90 0.30 -1.50 4.91 1.28 2000-2010 1.91 1.78 2.08 -1.10 3.63 1.82 Source: NIEIR, 2002
ELECTRICITY AND GAS MARKETS The reform of the electricity and gas industries in the 1990s progressively brought competition into electricity generation and electricity and gas retailing, along with open access to natural monopoly networks. A national electricity pool (with a half-hourly pool price) and a State gas pool (with a daily pool price) were created to facilitate wholesale competition. The National Electricity Market (NEM) interconnects Victoria, New South Wales, South Australia, Queensland and the ACT. Tasmania has been granted entry to the NEM subject to the construction of the Basslink interconnector. The NEM Ministers Forum provides policy oversight. State-owned corporations, NEMMCO and VENCorp: run the electricity and gas pools; operate the transmission systems; publish planning information to facilitate investment in new capacity; and manage supply emergencies. VENCorp also directs the augmentation of Victoria’s electricity transmission grid. A hedging contract market has evolved in the electricity industry to manage the risk of trading in the pool. Gas is predominantly wholesaled under physical supply contracts. Economic regulation was introduced for natural monopoly networks. The Essential Services Commission regulates distribution prices and standards. The Australian Competition and Consumer Commission (ACCC), with the National Electricity Code Administrator, regulates transmission. The Office of the Chief Electrical Inspector and the Office of Gas Safety were established as independent safety regulators, and oversee appliance efficiency standards. Electricity production Electricity is produced from a range of primary energy sources. Brown coal is the major source (over 90 per cent) but the share produced by natural gas and renewable energy sources is increasing from a low base in 2000. Trends in fuel use for electricity production are presented graphically below. Energy generation fuels, 1990-2010 (PJs) 49 800
700 APPENDIX A – VICTORIA’S ENERGY SYSTEM 600 500
PJs 400 Renewables 300 Natural gas Brown coal 200 100 0 1990 1995 2000 2005 2010 Year
Six brown coal generators, located mainly in the Latrobe Valley produce most of Victoria’s electricity. Gas generators, co-generators (that produce electricity as well as process heat), hydro-electric plants and a range of other renewable energy sources also contribute to electricity production. Interstate generators can supply electricity to Victoria through transmission interconnectors if required, particularly to cover periods of peak summer demand. Table A3 summarises Victorian electricity generation over the period 1990-2000 and projections to 2010. Currently 75-80 per cent of the electricity generated in Victoria is available for end-use. Electricity consumption by generators, network losses and net exports to New South Wales and South Australia account for the remainder. Table A3 Victorian electricity generation, losses, exports and end-use, 1990-2010 (PJs)
Generation Losses (in-plant Net exports End-use and network)
1990 127 13 -2 116 1995 142 16 4 122 2000 185 27 17 141 2005 198 29 14 155 50 2010 211 31 9 171 Source: NIEIR, ESAA
Gas-fired generation Although electricity generated from brown coal has the lowest direct costs, the proportion of electricity generated from natural gas is projected to rise7 due to: its lower greenhouse emissions; its greater suitability for meeting Victoria’s infrequent peak demands for electricity; the scope to install gas-fired generation in small increments; and the savings in transmission costs that can come from locating gas-fired plant close to loads.
Renewable Energy Despite the current cost disadvantage of renewable sources of electricity, demand for them has been stimulated by: purchases of Green Power, under which users voluntarily pay a premium on the normal price of electricity; and the Commonwealth Government’s Mandated Renewable Energy Target (MRET).
Mandated Renewable Energy Target (MRET) The MRET requires energy retailers to purchase an additional 9,500 gigawatt-hours of electricity from renewable sources by 2010. Retailers are penalised $40 per megawatt-hour if they do not achieve this target. The MRET has created an incentive for the development of renewable sources of electricity including: wind farms; small hydro-electric facilities; and energy-from-waste plants.
7 Source: ABARE However, Victoria has concerns about the relatively low level of MRET requirements and the eligibility of pre-1997 renewable generators to participate in MRET. This is further discussed in Section 4.
Electricity consumption Victoria’s electricity is consumed by industrial, commercial and residential users. Industrial use is dominated by aluminium smelting at Point Henry and Portland. Table 4A summarises secondary energy consumption from 1990-2000 and projections to 2010. 51
Table 4A Electricity consumption, Victoria, 1990-2010 (PJs) APPENDIX A – VICTORIA’S ENERGY SYSTEM
Residential Industrial Aluminium Commercial Traction Public Gas and Total (excluding lighting water Victoria aluminium) 1990 32 33 29 20 1.0 0.7 1.2 116
1995 32 35 27 25 1.1 0.8 1.4 122
2000 39 37 30 31 1.2 1.0 1.5 141
2005 44 38 32 37 1.3 1.1 1.6 155
2010 49 42 32 43 1.5 1.3 1.8 171
Average annual growth rate (%)
1990-2000 2.22 1.29 0.49 4.36 1.31 3.36 2.10 1.98
2000-2010 2.25 1.18 0.63 3.36 2.20 2.59 1.62 1.91
Source: NIEIR, 2002
Meeting future demand Electricity consumption is projected to increase by an average of 1.9 per cent per year over 2000-2010, mainly due to continued strong growth in the Victorian economy. Consumption growth rates can be reduced by improvements in energy efficiency (see below) but some additional base load generation is likely to be required. This may be met by: increasing the capacity of existing brown coal plant; converting open cycle gas generators to combined cycle operation; increased cogeneration; importing electricity generated from black coal, gas and renewables from states with excess capacity; and/or building new brown coal plant incorporating technology to reduce greenhouse emissions. Wind farms and other renewable generators in diverse locations defer the need for additional base load to some degree. The average output of fossil fuel base-load plants is over 90 per cent of their rated capacity. By comparison, the average output of wind farms is about 35 per cent of rated capacity. Peak demand The peak demand for electricity is growing faster than average electricity consumption. This is mainly due to the increased use of domestic air conditioning on a small number of unusually hot days. Over the next ten years 200-300 MW of new peaking generation capacity is forecast to be required each year mainly to meet increasing air conditioning loads in peak periods. Peaking plants are an expensive energy source. Typically, they generate for only 5 per cent of the year compared with more than 90 per cent for base-load plants. This means their capital 52 costs must be recovered over low electricity outputs. Open cycle gas generators are the main source of peaking generation capacity. Managing end-user electricity demand is also an important means of balancing demand and supply during peak periods. large users are increasingly signing demand management contracts with retailers.
Natural gas production The ExxonMobil/BHP Billiton joint venture dominates natural gas production in Victoria, with other companies beginning to enter the gas production market. Victoria’s natural gas network is interconnected with New South Wales and Tasmania will be connected with South Australia in 2003. Victoria currently exports gas to other states. The main end-uses of natural gas are space, water and process heating. Table A5 summarises trends in gas end-use from 1990-2010 indicating moderate growth in the 2000-2010 period compared with slow growth in the 1990-2000 period. Table A5 Natural gas consumption, end-use, Victoria, 1990-2010 (PJs)
Residential Industrial Commercial Vehicles Water, Gas Total sewerage, production, drainage distribution
1990 65 118 18 0.0 0.3 6 209 1995 74 115 22 0.2 0.4 6 218 2000 78 106 23 0.8 0.5 7 215 2005 93 110 27 1.6 0.5 7 240 2010 102 121 30 2.8 0.5 8 264
Average annual growth rate (%)
1990-2000 1.78 -1.09 2.38 n.a. 3.92 0.76 0.31 2000-2010 2.73 1.29 2.69 13.51 1.08 2.16 2.08 Source: NIEIR, 2002. LPG Liquefied petroleum gas (LPG) is a by-product of oil and gas production and crude oil refining. Victoria is a significant producer and net exporter of LPG. LPG is mainly used for: transport; industrial, commercial and residential heating, particularly in regional areas not connected to natural gas; and feedstock for the petroleum industry. 53 LPG is normally sold in bulk to large users and in cylinders (gas bottles) to smaller users who are mainly located in rural areas not supplied by natural gas. There is currently one large and APPENDIX A – VICTORIA’S ENERGY SYSTEM several smaller distributors, and a large number of retail outlets.
Transport energy use Petroleum products including petrol, diesel and aviation fuel dominate transport energy use. Electricity (mainly for rail services), natural gas and LPG are also important transport energy sources. The use of renewable fuels such as ethanol and bio-diesel is increasing from a very small base. Table A6 summarises trends in transport energy use by transport mode from 1990-2000 and projections to 2010. Table A6 Victorian transport sector fuel consumption by sector (petajoules)
Road Air Rail Sea Total
1990 220 21 2.4 16 259 1995 225 26 1.4 13 266 2000 258 34 1.6 10 303 2005 301 40 1.4 10 353 2010 320 44 1.3 10 374
Average annual growth rate (%)
1990-2000 1.63 4.98 -4.05 -4.52 1.61 2000-2010 2.16 2.70 -1.61 -0.53 2.12 Source: NIEIR, 2002 Petroleum sector In Victoria two companies, Shell and Mobil, own petroleum refineries as well as distribution and retail entities. These and other major oil companies control most of the distribution centres. The majors and a range of independents comprise the petroleum retail sector. The petroleum sector is undergoing change as competition from offshore refineries and environmental requirements increase. New pressures and opportunities include: new diesel and petrol standards designed to support new vehicle technology; 54 environmental marketing of fuels; and emission-offset initiatives.
Energy efficiency Since the 1970s, increasing attention has been given to maximising the efficiency of all energy use. By applying a range of technologies and techniques (insulation, controls, maintenance, etc) on a commercially acceptable basis the amount of energy required to produce a specific task or service can be reduced. For example heating a room to 18ºC in an energy efficient manner: decreases energy expenditure; and reduces the environmental impacts of energy production and use. Energy efficiency improvements have moderated energy growth rates but a range of studies8 indicate that substantial potential for improvement remains in each end-use sector. The following initiatives can contribute to increased energy efficiency: better price signals; improved information flows; end-use equipment standards; and support for technology development (RDD&C).
Demand side management Energy efficiency is a major element of demand side management (DSM). DSM comprises a range of technologies and techniques which is the management of the rate of energy consumption including aspects of: end-use efficiency; load control; load shifting; energy production (cogeneration, etc) within a consumer’s premises; and taxes, levies. DSM is an integral part of an efficient energy system. While energy efficiency improvements and load control reduce energy end-use, cogeneration efficiently supplies electricity and heat for end-use.
8 By the Sustainable Energy Authority of Victoria (SEAV), federal agencies and non-government organisations. ACCESS TO ENERGY SUPPLIES
Electricity Most Victorians have access to electricity from the grid. Those without access have a right to connection through their local distributor on fair and reasonable terms. In some areas connection to the grid would involve significant capital cost and stand-alone supplies provide an alternative. The Commonwealth Photovoltaic Rebate Program provides 55 subsidies for remote area supplies. In Victoria these subsidies are administered by the
Sustainable Energy Authority of Victoria, which also provides a range of information on stand- APPENDIX A – VICTORIA’S ENERGY SYSTEM alone systems. Some rural areas are supplied through single wire earth return (SWER) systems. These systems have lower supply quality and can constrain economic development, particularly in dairying areas. Affected businesses have a right to an upgraded supply on fair and reasonable terms. Government assistance for upgrade is currently available through the Regional Infrastructure Development Fund.
Natural gas Victoria has the highest rate of access to natural gas (per 1,000 population) in Australia, and reticulated natural gas is available in most Victorian cities and large towns. 250,000 households, mostly in smaller towns and rural areas, do not currently have reticulated gas. Users within one kilometre of a gas distribution network have a right to connection through their local distributor on fair and reasonable terms. Other users can seek offers of reticulation from competing distributors. No distributor is obligated to reticulate new areas beyond the one kilometre limit.
LPG Bottled LPG is widely available from distribution depots and other retailers, including in areas without reticulated natural gas.
Firewood Access to firewood is widespread. About 270,000 Victorian households use firewood, mainly for space heating: two thirds collect their own wood and the remainder buy wood from merchants.
Briquettes Briquettes made from brown coal in the Latrobe Valley remain in use mainly in regional Victoria. Transport fuels Petrol and other transport fuels such as diesel and LPG are available through a network of service stations throughout Victoria. A decline in the total number of retail fuel outlets in recent years has not materially restricted access to fuel. As we have become wealthier and more urbanised, we have become more reliant on road vehicles for transport of people and goods, and the number of vehicles registered in Victoria continues to increase. The graph below shows the number of vehicles on the register by year 56 since the 1930’s. Motor vehicles on register by year
350,000 300,000 250,000 200,000 150,000 100,000
Number of motor vehicles 50,000 0 1931 1941 1951 1961 1971 1981 1991 2001 Year
ENERGY PRICES, EXPENDITURE AND AFFORDABILITY
Energy pricing The end-use price of every energy source reflects a varied range of component costs incurred in bringing the energy from production through to end-use. Prices are also influenced by market conditions, competition and price regulation.
Electricity and gas Electricity and gas prices comprise the costs of: generation/production; transmission; distribution and retailing; a retail margin; and taxes and levies. Generation/production prices and retailing costs are subject to competition in a market that is increasingly national in scope. Transmission costs are subject to some competition but are largely regulated. Distribution costs are regulated. Due to economies of scale, electricity and gas prices are lower for larger users. Retail prices to small consumers are subject to the Government’s reserve power of price regulation. Regional areas may face higher costs of transportation and distribution due to distance from main supply sources and due to low population densities. Certain cross-subsidies (both embedded and explicit) reduce this gap. 57 APPENDIX A – VICTORIA’S ENERGY SYSTEM LPG LPG prices comprise: the international price of LPG; distribution and retailing costs; a retail margin; and taxes and levies. Prices tend to be highest for small and remote consumers due to distribution costs and lower competition. The Essential Services Commission has recently reviewed the price of bottled LPG, but found no substantial case for direct price regulation.
Petroleum products Petroleum product prices comprise: the international price of crude oil (set in $US); refining costs; wholesale and retail costs and margins; and federal excise duty (currently 37.7 cents/litre) and other government charges. The Australian Competition and Consumer Commission (ACCC) oversees petroleum prices. As with LPG, petrol prices tend to be highest in smaller and more remote towns due to higher distribution costs and lower competition.
Delivered energy prices The price levels and components of major delivered energy sources are summarised in Figure 2. Domestic component costs include margins Prices exclude GST Component definitions are not strictly comparable due to different industry structures and the different levels of efficiency with which energy is used Figure 2 Components of average domestic sector delivered energy prices: electricity, gas, gasoline, LPG (2002)
35 $33
30 Retail 14% $27
$24 58 25 Retail 25% Retail 5% Distribution 42% 20 Wholesale 5% Wholesale (cylinder filling, transport, storage) 25% 15
Price per GJ ($) Transmission 4% Federal excise duty $10 45% 10 LPG (terminal Retail 30% gate) 50% Generation 40% Distribution 33% 5 Gasoline (refinery Transmission 5% gate) 45% Gas (plant gate) 32% 0 Electricity Gas Gasoline (petrol) LPG (bottle)
Source: ESC, ESAA, AGA, NIEIR reports.
Price trends Table A7 summarises average gas and electricity price trends from 1990-2002. Over this period average real electricity prices for end users decreased by an average of 0.3 per cent per year while average real gas prices have increased marginally (an average of 0.2 per cent per year). As indicated, these are prices averaged across all users. Prices paid by individual users vary significantly from the average levels. The introduction of the GST has had the largest impact on prices over the past three years. Table A7 Average gas and electricity prices, all consumers, Victoria, 1990-2002 (2002 $’s)
Gas Electricity ($/GJ) (Cents/KWh) 1990 6.5 11.4 1995 7.2 11.5 2000 6.7 10.4 2002 6.7 11.0
Average annual growth rates (%) 59 1990-1995 2.08 0.11 APPENDIX A – VICTORIA’S ENERGY SYSTEM 1995-2000 -1.62 -2.12 2000-2002 0 3.04 1990-2002 0.2 -0.3 Note: In 2002 the average electricity prices would have been 11.2 cents per kilowatt hour without the Special Power Payment (see Section 4). Trends in average gas and electricity price are illustrated in the graph below. Average gas and electricity price trends, all customers, Victoria, 1990-2002
10 12
9 11
8 Electricity 10 Gas $/GJ (gas)
7 9 cents/kWh (electricity)
6 8 1990 1995 2000 2002 Year
International price comparisons Victoria and Australia have relatively low gas and electricity prices by international standards. Table A8 compares gas and electricity prices for the residential sector in 1999, the latest year for which international comparisons are available. Exchange rates, reporting periods and price structures have been taken into account to ensure, as far as possible, that the comparisons are accurate. Table A8 Comparison of Victorian, Australian average and international electricity and gas prices, residential sector, 1999 (1999 A$’s)
Electricity Gas (Cents/KWh) ($/GJ)
Victoria 12.0 8.3 Average Australian 12.4 9.5 Japan 38.5 57.3 60 United States 11.6 10.5 Canada 13.9 8.2 Germany 24.7 14.7 United Kingdom 18.2 12.4 Source: ESAA (2002) AGA (2001)
Future price trends The principal drivers of future energy prices will be: the effectiveness of competition; the need for and availability of new supplies; technological developments in new supplies; supply/demand balance in the relevant market; measures required to meet community reliability of supply standards; cost of capital, efficiency in production and distribution; and the possible introduction of economic measures to achieve greenhouse gas abatement. The response of energy demand to energy price changes, which is termed price elasticity, is difficult to estimate but in general is greatest in the long term.
Energy expenditure In Victoria in 2001 total energy expenditure by end-users was about $12 billion. This comprised $5 billion for stationary energy and $7 billion for transport.9
9 Source: NIEIR, SEAV AVERAGE HOUSEHOLD EXPENDITURE ON ENERGY IN 2001 Victorian household usage and expenditure on varies significantly. This table shows estimated average household energy expenditure.
Expenditure Energy Electricity $690 20GJ Gas $560 55GJ Transport $2,300 85GJ Other (LPG, firewood, briquettes) $100 10GJ 61 Total $3,650 170GJ APPENDIX A – VICTORIA’S ENERGY SYSTEM Source: Estimated from date in ESAA, ABARE, AGA, ESC and NIEIR reports, it is important to note that variations about the average are significant.
Affordability The affordability of energy is influenced by: energy prices; household income or business profitability; and how efficiently energy is used. The cost of using energy for a specific task is determined by the price of the energy source and the amount of energy used. Improving the efficiency of energy use can make energy services more affordable for households and businesses. For example a hot water service with a high efficiency rating uses less energy than one with a lower efficiency rating and reduces the cost of the delivered hot water.
Low income consumers The level of gas and electricity disconnections is a key indicator of low energy affordability or fuel poverty. The Essential Services Commission reports disconnection rates for gas and electricity six-monthly.10 The Government provides a range of energy concessions and relief grants to low income groups for electricity, gas, LPG and firewood to help to address fuel poverty. Further information on State energy concessions can be obtained from the Department of Human Services.
10 The total disconnection rate for residential and non-residential electricity consumers rose from 0.36 per cent in 1999 to 0.58 per cent in 2001. This remains lower than the best result achieved for the SECV in 1985 (0.63 per cent) and a significant decrease from the 1995 rate of 1.71 per cent. ENVIRONMENTAL IMPACTS OF ENERGY USE The environmental impacts of energy production and use in Victoria include: greenhouse gas emissions from brown coal and other fossil fuel generators; reduced air quality from vehicle emissions and the burning of fossil fuels and firewood; visual impacts (distribution lines, transmission towers, wind energy facilities); and reduced water quality due to residue run-off and oil spills.
62 Greenhouse emissions In 1999 electricity production accounted for 55 per cent of Victoria’s net greenhouse gas (GHG) emissions. Other energy uses contributed a further 35 per cent. From 1990-1999 emissions from the energy sector increased by 24.4 per cent, mainly due to increased production by Victoria’s brown coal generators. Brown coal generators are greenhouse gas intensive, that is they produce relatively high greenhouse gas emissions per unit (MWh) of electricity produced. Available data shows a marked slowing of emissions growth since 1999. Slower growth in energy sector emissions is expected from 2000-2010 due to: State and national greenhouse gas abatement programs; limited capacity to increase brown coal generation in existing plants; and increased electricity generation from natural gas and renewable resources. Table A9 summarises Victoria’s net greenhouse gas emissions by sector in 1990, 1995 and 1999. The emission totals in the table include emissions associated with electricity generated for export to other states. Excluding export-related emissions, the total emissions growth from 1990-1999 is 9.5 per cent, 6.4 per cent lower than the 15.9 per cent indicated in the table.11 Note: Greenhouse emissions and the Victorian Greenhouse Strategy are discussed in more detail in Section 3.
11 In 1999 Victorian net exports totalled 4,498 GWh, which means that in 1999 Victorian emissions from electricity used in Victoria were 74.6 million tonnes, 6.5 million tonnes below the 80.9 million tonnes indicated in Table 9. Table A9 Net greenhouse gas emissions by sector, Victoria 1990, 1995 and 1999
Net emissions % contribution Change in
(megatonnes (Mt) CO2 equivalent) of sector emissions to total emissions 1990-1999
Sectors/sub-sectors 1990 1995 1999 2010P 1990 1999 % Energy 82.1 86.3 102.2 107.9 84.4 90.6 24.4 Stationary energy 61.4 65.4 80.9 83.6 63.1 71.8 31.7 Transport 16.2 16.6 18.2 22.0 16.6 16.1 12.6 63 Fugitive emissions 4.5 4.3 3.0 2.3 4.6 2.7 -33.4 APPENDIX A – VICTORIA’S ENERGY SYSTEM Industrial processes 3.4 1.8 1.6 1.2 3.5 1.4 -52.9 Agriculture 14.6 14.4 14.2 16.3 15.0 12.6 -2.7 Livestock 12.0 11.6 11.5 13.4 12.4 10.2 -4.7 Other 2.5 2.7 2.7 2.9 2.6 2.4 6.9 Land use change and forestry -6.7 -9.6 -9.1 -9.9 -6.9 -8.0 34.7 Forestry and other -13.0 -12.9 -11.7 -11.3 -13.4 -10.3 -11.0 Land clearing 6.3 3.3 2.5 1.4 6.4 2.2 -60.1 Waste 4.0 4.3 3.9 2.0 4.1 3.5 -1.0 Total emissions 97.3 97.0 112.8 117.5 100.0 100.0 15.9 Note: Figures have been rounded. Emissions are those from Victorian sources and do not take into account exports and imports of products such as electricity from Victoria. This treatment is consistent with the National Greenhouse Gas Inventory (NGGI), which reports emissions per source location and does not take into account emissions in imports and exports.Preliminary estimate for 2010 (NIEIR, 2002). Source: 1999 Victorian Greenhouse Gas Inventory, Greenhouse Policy Unit Department of Natural Resources and Environment, 2001. For further details refer to www.greenhouse.vic.gov.au. A
64 APPENDIXAPPENDIX B – GOVERNANCE FRAMEWORK B FOR ENERGY
Appendix B describes the institutional market, regulatory and legislative framework for the delivery of energy services in Victoria. 65 APPENDIX B – GOVERNANCE FRAMEWORK FOR ENERGY THE DIVISION OF RESPONSIBILITY BETWEEN COMMONWEALTH AND STATE/ TERRITORIES Australian States and Territories have significant roles in delivery of energy services, as does the Commonwealth pursuant to its constitutional role and international commitments. These respective roles date back to federation in 1901 and have evolved since then, driven by constitutional interpretation and changing political, economic and social circumstances. Victoria has primary responsibility for developing energy resources onshore by issuing exploration and mining leases, and regulates the development of offshore petroleum resources beyond the three nautical mile limit (oil and gas) on the Commonwealth’s behalf. Both jurisdictions play roles in facilitating investment in energy infrastructure. The production, transmission, distribution and retailing of electricity and gas is a State responsibility, subject to: the third party access and market conduct provisions of the Commonwealth Trade Practices Act 1974; the Competition Principles Agreement, which ties Commonwealth National Competition Policy payments to States’ progress on microeconomic reform; and multi-state industry-specific agreements to establish third party access regimes. The Commonwealth has primary responsibility for regulating the production and refining of transport fuels subject to international agreements. The States currently set fuel standards but national uniformity is being phased in. Road development and public transport are largely State matters, except for national highways. Victoria has programs to encourage greenhouse gas abatement and more efficient and renewable energy use, and the Commonwealth has established complementary programs to address greenhouse gas abatement. The States share responsibility with the Commonwealth for developing efficiency standards, and the States administer some grant programs on behalf of the Commonwealth. Support payments to low-income energy users are administered by the State, with Commonwealth funding assistance. Environmental, health and safety regulation are primarily State responsibilities in respect of onshore activities that impact on the energy sector, although the Commonwealth has significant environmental responsibilities arising from Australia’s treaty obligations. Current energy roles of Victorian Government Departments
Department of Natural Resources and Environment Energy policy Exploration and mining licensing and project facilitation Gas transmission pipeline licensing Offshore safety regulation (oil and gas) 66 Greenhouse policy
Department of Innovation, Industry and Investment facilitation Regional Development
Department of Infrastructure Land use planning Transport policy
Department of Human Services Health standards Support payments to low-income energy users
Department of Justice Market conduct. Consumer advocacy assistance through administration of the Consumer Utilities Advocacy Centre (CUAC)
Department of Premier and Cabinet Government policy coordination
Department of Treasury and Finance Approval of expenditure programs Victoria currently undertakes offshore safety and environmental regulation with respect to petroleum exploration and development on the Commonwealth’s behalf. Establishment of a national petroleum safety authority is under consideration. States have primary responsibility for land use planning, which substantially impacts the energy sector. Market conduct of the electricity and gas sector is regulated in part under the industry- specific arrangements, and also under State and Commonwealth general competition laws.
THE ROLES OF OTHER INSTITUTIONS Several inter-jurisdictional bodies play key roles in making energy policy, and many statutory authorities and companies regulate the energy sector, operate markets and deliver Government energy programs. Policy bodies Coordination and harmonisation of State and Federal energy policies and programs is undertaken by the: Council of Australian Governments (COAG); Ministerial Council on Energy; and Ministerial Council on Mineral and Petroleum Resources. Policy oversight of the National Electricity Market (NEM) is undertaken by National Electricity Market Ministers Forum, and the National Gas Pipelines Advisory 67 Committee (NGPAC) currently oversees the access regime for gas. APPENDIX B – GOVERNANCE FRAMEWORK FOR ENERGY Australia is a member of the International Energy Agency (IEA), which is an agency of the Organisation of Economic Cooperation and Development (OECD). The IEA has responsibility for monitoring international energy trends (particularly oil) and conducts energy policy reviews of member countries. Australia is also a member of the Asia-Pacific Economic Council (APEC), which has a significant focus on energy. The National Competition Council (NCC) advises the Federal Government on the implementation of National Competition Policy (NCP). The NCC’s functions include advising on whether a State or Territory access regime should be certified as effective for the purposes of the Trade Practices Act. Certification of access regimes is one of three ways that a third party can seek access to infrastructure services such as electricity grids or natural gas pipelines. The Australian Competition Tribunal is a review body established under the Trade Practices Act. The Tribunal can: review decisions made by the relevant Minister or the Australian Competition and Consumer Commission under the Trade Practices Act; and review decisions by the Minister or the Commission in access matters under the provisions in the Trade Practices Act for third party access to infrastructure services such as electricity grids or natural gas pipelines.
Market operation and planning The National Electricity Market Management Company (NEMMCO): operates the National Electricity Market; publishes annual reviews of NEM developments and trends (the Statement of Opportunities); and has a key planning role in electricity transmission. The Victorian Energy Networks Corporation (VENCorp): operates the Victorian gas market; provides near to medium term (up to 15 years) projection data for the electricity and gas industries; and has a key role in planning and directing upgrades of electricity transmission. Regulation and program delivery Economic regulation is undertaken by the: Essential Services Commission (ESC); Australian Competition and Consumer Commission (ACCC); and National Electricity Code Administrator (NECA). The ACCC also oversees market conduct under the general competition provisions of the Trade Practices Act 1974. 68 The Energy and Water Ombudsman (Victoria) (EWOV) handles complaints made against energy and water utilities. The EWOV is an industry-funded body operating under a statutory requirement. Safety regulation is undertaken by: Victoria’s Office of the Chief Electrical Inspector (OCEI); the Office of Gas Safety (OGS); Workcover; the Department of Natural Resources and Environment; and the Plumbing Industry Commission. The Sustainable Energy Authority of Victoria promotes energy efficiency and renewable energy. The Australian Greenhouse Office develops and implements the Commonwealth’s greenhouse gas abatement programs. The Commonwealth Office of the Renewable Energy Regulator administers the Mandated Renewable Energy Target (MRET) scheme. The Victorian Environment Protection Authority regulates harmful emissions, the Department of Natural Resources and Environment oversees the protection of flora and fauna, and Environment Australia has carriage of the Commonwealth’s environmental responsibilities. Table B1 outlines the respective roles of agencies, structure of the stationary and transport energy markets, and the industry-specific institutions that operate and regulate them. Contact details for these agencies are provided in Appendix C.
Legislation The energy sector is subject to a large number of industry-specific and general Commonwealth and State statutes, regulations and codes that address energy, economic, environmental and health matters. The framework is summarised in Table B2 below. several – –
69 major retailers owned by refiners, independent retailers Price oversight by ACCC Open to competition Open to competition Open to competition Several distributors international market National and international suppliers APPENDIX B – GOVERNANCE FRAMEWORK FOR ENERGY many – – Open to competition competitors Open to competition international market One joint venture dominant Open to competition One dominant distributor, several competitors N/A N/A several – several distributors – competitors Government has reserve power to regulate retail prices Service for small customers regulated by ESC Open to competition Open to competition (market SA, ACT and covers Vic, NSW, and may include NT Tasmania, and Qld in future) State market (net pool) operated by VENCorp, and interstate trading Market rules oversighted by ACCC scope for Natural monopoly, competition in reticulating new areas Price and service regulated by ESC One principal provider, some One principal provider, new entrants in interconnection Operation of the Longford to Melbourne pipeline oversighted by VENCorp. All other pipelines in the State are privately owned and operated. Information on investment opportunities published by VENCorp Economic regulation by ACCC several – several – one principal – significant number – competitors Government has reserve power to regulate retail prices Service for small customers regulated by ESC Open to competition (market ACT covers Vic,NSW,SA,Qld, and expected to include Tasmania) of large generators National Electricity Market (gross pool) operated by NEMMCO Market rules oversighted by NECA and ACCC distributors Price and service regulated by ESC provider, some new entrants provider, Operated by NEMMCO Information on investment opportunities published by VENCorp and NEMMCO Planning of Victorian grid by VENCorp Economic regulation by ACCC with some functions by NECA characteristics, some scope for competition for competition Electricity Natural Gas LPG and other transport fuels Petrol Market and regulatory arrangements for the Victorian energy sector Market and regulatory – Generation & production Retailing Open to competition Transmission Natural monopoly Distribution limited scope Natural monopoly, Table B1 Table –
70 managed by Commonwealth and States under international framework NRE (offshore oil and gas production for Commonwealth) (onshore production, Workcover distribution and retailing facilities) Consumer and Business Affairs Victoria receives and manages complaints and concerns Under Fuel Emergency Act Under Fuel Emergency Act NRE (offshore oil and gas production for Commonwealth) Office of Gas Safety (distribution, retailing, appliances, user installations) Plumbing Industry Commission (plumbing contractors) Consumer and Business Affairs Victoria receives and manages complaints and concerns Managed by Victorian Government, VENCorp, and the Office of Gas Safety Workcover (gas refining) Workcover Department of Natural Resources and Environment (NRE) (offshore oil and gas production for Commonwealth, and transmission pipelines) Office of Gas Safety (distribution, retailing, appliances, user installations) Plumbing Industry Commission (gas fitting contractors) Energy and Water Ombudsman Energy and Water Vic (billing and service) ESC (connection) Managed by Victorian Government, NEMMCO, VENCorp and OCEI Office of the Chief Electrical Inspector (generation, transmission, distribution, electrical contractors, appliances, user installations) (depots) Workcover Energy and Water Ombudsman Energy and Water Vic (billing and service) ESC (connection) Electricity Natural Gas LPG and other transport fuels Petrol Supply emergencies Safety regulation User complaints Mirrors Petroleum (Submerged – s electricity industry and electricity s gas industry and gas supply ’ ’ 71 APPENDIX B – GOVERNANCE FRAMEWORK FOR ENERGY Lands) Act 1967 supply emergency management emergency management Electricity Code specifies market and regulatory rules Pipeline Systems (National Gas Code), which specifies access rules for natural gas pipelines sources. Instrument Jurisdiction Summary of Purpose Petroleum Act 1998 Pipelines Act 1967 Petroleum (Submerged Lands) Act 1967 Commonwealth Petroleum (Submerged Victoria Offshore development of petroleum resources (beyond 3 Lands) Act 1982 Victoria Victoria Onshore development of petroleum resources Onshore development of oil and gas pipelines Offshore development of petroleum resources (within 3 nautical miles of coast) nautical miles of coast) Mineral Resources Development Victoria Act 1990 Fuel Emergency Act 1977 Development of mineral resources, including brown coal Victoria Gas Industry Act 2001 National Electricity (Victoria) Act 1997 Fuel supply emergency management Victoria Victoria Gas Pipelines Access (Victoria) Act 1998 Victoria Applies National Electricity Law in Victoria, establishing the Regulation of Victoria Essential Services Commission Act 2001 Applies Gas Pipelines Access Law in Victoria, establishing Victoria Sustainable Energy AuthorityVictoria Act 1990 Renewable Energy (Electricity) Victoria Establishes the Essential Services Commission as an Act 2000 Commonwealth Places obligations on electricity retailers to source a The basis of renewable energy and efficiency National Electricity Market and Code. The the National Third Party Access Code for Natural Gas policies and programs economic regulator of some essential services percentage of their electricity from renewable energy Primary Legislative framework for the Victorian energy sector – Table B2 Table Minerals and petroleum resource development Electricity and gas markets Electricity Industry Act 2000 Victoria Regulation of Victoria 72
Instrument Jurisdiction Summary of Purpose Electricity and gas markets (cont’d) Nuclear Activities (Prohibitions) Victoria Limits permissible nuclear activities Act 1983 Planning and environment Environment Protection Act 1970 Victoria Regulates environment protection – provides for State Environment Protection Policies (SEPPs), works approvals and licences Planning and Environment Victoria Land use planning Act 1987 Environment Protection and Commonwealth Protection of national and international environmental values Biodiversity Conservation Act 1999 Health and safety Electricity Safety Act 1998 Victoria Regulation of electricity safety and establishment of the Office of the Chief Electrical Inspector Gas Safety Act 1997 Victoria Regulation of gas safety and establishment of the Office of Gas Safety Occupational Health and Safety Act 1985 Victoria Regulation of Occupational Health and Safety Health Act 1958 Victoria Standards for electromagnetic radiation, indoor air quality Market conduct Trade Practices Act 1974 Commonwealth General law governing competition, market conduct and third party access to essential facilities Fair Trading Act 1999 Victoria General law governing market conduct – mirrors key consumer protection aspects of Trade Practices Act 1974 Victorian legislation can be viewed at the Victorian Parliament legislation site at: www.dms.dpc.vic.gov.au. Commonwealth legislation can be viewed on the Commonwealth Parliament legislation site at: www.scaleplus.gov.au. 73 APPENDIX B – GOVERNANCE FRAMEWORK FOR ENERGY A
74 APPENDIXAPPENDIX C – CONTACT DETAILS C
Australian Business Council for Sustainable Energy (BCSE) Suite 1, Level 2 75 19-23 Prospect Street APPENDIX C – CONTACT DETAILS Box Hill Victoria 3128 Ph +61 3 9898 4200 Fax +61 3 9898 7499 Email [email protected] Website www.bcse.org.au Australian Competition and Consumer Commission (ACCC) National Office 470 Northbourne Avenue Dickson ACT 2602 Ph +61 2 6243 1111 Fax +61 2 6243 1199 Australian Gas Association (AGA) National Office Level 3 40 Blackall St Barton ACT 2600 GPO Box 323 Canberra ACT 2601 Ph +61 2 6272 1555 Fax +61 2 6272 1566 Email [email protected] Website www.gas.asn.au Australian Petroleum Production and Exploration Association Limited (APPEA) Level 3, 24 Marcus Clarke Street Canberra ACT 2600 Ph +61 2 6247 0960 Fax +61 2 6247 0548 Website appea.com.au Australian Pipeline Industry Association (APIA) 1st Floor, 7 National Circuit Barton ACT 2604 Canberra ACT 2600 Ph +61 2 6273 0577 Fax +61 2 6273 0588 Email [email protected] Website apia.net.au 76 Commonwealth Department of Tourism, Industry and Resources (DITR) GPO Box 9839 CANBERRA ACT 2601 20 Allara Street Canberra City ACT 2601 Ph +61 2 6213 6000 Fax +61 2 6213 7000 TTY +61 2 6213 6921 Website www.industry.gov.au Consumer Utility Advocacy Centre (CUAC) Level 2, 172 Flinders Street, Melbourne, 3000. Ph 9639 7600 Department of Human Services (DHS) Department of Human Services 555 Collins Street Melbourne Victoria Ph +61 3 9616 7777 Website www.dhs.vic.gov.au Department of Innovation, Industry and Regional Development (DIIRD) Head Office GPO Box 4509 RR, Melbourne Victoria 3001 55 Collins Street, Melbourne Victoria 3001 Email [email protected] Website www.iird.vic.gov.au Department of Natural Resources and Environment (NRE) Energy and Minerals Division Head Office 8 Nicholson Street East Melbourne VIC 3002 Ph (03) 9637 8000 Fax (03) 9637 8835 Website www.nre.vic.gov.au Department of Natural Resources and Environment (NRE) Greenhouse Policy Unit Head Office 8 Nicholson Street East Melbourne VIC 3002 Ph (03) 9637 8000 Fax (03) 9637 8148 Website www.nre.vic.gov.au 77 Department of Premier & Cabinet (DPC)
1 Treasury Place APPENDIX C – CONTACT DETAILS Melbourne Victoria 3002 GPO Box 4912 VV Melbourne Victoria 3001 Ph +61 3 9651 5111 Fax +61 3 9651 5298 Website www.dpc.vic.gov.au Department of Treasury and Finance (DTF) 1 Treasury Place Melbourne Victoria 3002 GPO Box 4912 VV Melbourne Victoria 3001 Ph +61 3 9651 5111 Fax +613 9654 7215 Website www.dtf.vic.gov.au Electricity Supply Association of Australia (ESAA) Level 11 459 Little Collins Street Melbourne Vic 3001 Ph 03 9670 0188 Fax 03 9670 1069 Postal address GPO Box 1823Q Melbourne Vic 3001 Website www.esaa.com.au Energy and Water Ombudsman (EWOV) GPO Box 469D Melbourne VIC 3001 Ph 1800 500 509 (freecall) Fax 1800 500 549 (freefax) Interpreter 131 450 NRS 133 677 Website www.ewov.com.au Energy Users Association of Australia (EUAA) 19-23 Prospect Street Box Hill Victoria 3128 Ph +61 3 9898 3900 Fax +61 3 9898 7499 Email [email protected] Website www.euaa.com.au
78 Environment Protection Authority (EPA) HWT Building Podium Level, 40 City Road Southbank Ph (03) 9695 2722 (+61 3 9695 2722) Website www.epa.vic.gov.au Essential Services Commission (ESC) 2nd Floor, 35 Spring Street, Melbourne, Victoria, Australia 3000 Ph +61 3 9651 0222 Fax +61 3 9651 3688 Email [email protected] (for general information) National Electricity Code Administrator (NECA) Level 5, 41 Currie St Adelaide SA 5000 Ph (08) 8213 6322 Fax (08) 8213 6300 Email [email protected] Website www.neca.com.au National Electricity Market Management Company (NEMMCO) Melbourne Office Level 16, 461 Bourke Street, Melbourne Victoria 3000 Australia Ph (03) 9648 8777 Fax (03) 9648 8778 Website www.nemmco.com.au Office of Gas Safety (OGS) Level 1, Wool House 369 Royal Parade Parkville 3052 Ph (03) 9341 3800 or 1800 069 588 Fax (03) 9341 3850 Email [email protected] Website www.ogs.vic.gov.au Office of the Chief Electrical Inspector (OEI) Head Office Level 3, 4 Riverside Quay, Southbank Postal Address: PO Box 262, Collins Street West, Vic. 8007 Ph (03) 9203 9700 Fax (03) 9686 2197 Website www.ocei.vic.gov.au
Sustainable Energy Authority of Victoria (SEAV) 79 Ground Floor 215 Spring Street
Melbourne 3000 APPENDIX C – CONTACT DETAILS Ph 1330 363 744 Email [email protected] Website www.seav.vic.gov.au Victorian Energy Networks Corporation (VENCorp) Level 2 Yarra Tower, World Trade Centre Siddeley Street Melbourne 3005 Ph (03) 8664 6660 Fax (03) 8664 6511 Website www.vencorp.com.au For a more comprehensive listing of agencies and organisations consult the NRE website nre.vic.gov.au G
80 GLOSSARYGLOSSARY
Note: for a more detailed outline of agency roles see body of the Statement. 81 ABARE Australian Bureau of Agricultural and Resource Economics is a national
agency that provides public policy analysis and commodity forecasts GLOSSARY for Australia’s rural and resource industries. ACCC Australian Competition and Consumer Competition is a national agency dealing with competition matters and enforcement of the Trades Practices Act. AGA Australian Gas Association is the peak body representing the Australian natural gas industry. BCSE Business Council for Sustainable Energy (BCSE) is the peak body representing sustainable energy (renewables, cogeneration, energy efficiency) interests in Australia. Capacity Factor The percentage of a year electrical capacity is used. For example up to 95 per cent for a base load plant. A 100 MW plant operating at a 90 per cent CF would produce 100 x 8,760 (hours in a year) x 0.90 = 788,400 MWh of electricity per year. CEGT Centre for Energy and Greenhouse Technologies, established under the Victorian Greenhouse Strategy to coordinate, integrate and support development of energy technologies capable of reducing greenhouse gas emissions in the Victorian energy sector. COAG Council of Australian Governments is a strategic forum of Commonwealth, State and Territorial Governments for discussion of issues of national public policy importance. Cogeneration Cogeneration, or combined heat and power, produces electricity and useful heat (for processes, space, hot water) at high efficiencies which can approach 90 per cent. Consumer safety net A set of measures introduced by the Bracks Government to ensure consumers retain access to electricity and gas at reasonable prices while competition is becoming effective. CUAC Consumer Utilities Advocacy Centre provides a forum where consumer representatives can exchange information and monitor utility issues. DG Distributed generation – utilisation of small power plants (<100 MW) generally located close to local electricity markets and mostly based on sustainable energy sources. DIIRD Department of Innovation, Industry and Regional Development is the primary agency charged with co-ordinating whole-of-government policy and service delivery to the business community and achieving economic, industrial and regional development. 82 DSM Demand side management (or demand management) comprises a range of techniques to manage energy demand. Distribution use of Charges for use of the electricity and gas distribution network. system (DUOS) Energy efficiency (EE) The effective energy output per unit of energy input, for example high efficiency gas water heaters have an efficiency of about 80 per cent. (For a specific energy service, such as heating a given space to 18ºC.) Improvements in energy efficiency reduce, the amount of energy required to produce a specific output. Energy services The end-use services provided by energy in combination with other inputs. For example space heating to 18ºC produced by combining energy, heating systems, controls and building shells. Energy system Comprises production, generation, transmission, distribution, wholesaling, retailing and end-use of energy. Environment Protection Victorian agency responsible for the monitoring and regulation of Authority (EPA) environmental impacts of land, water, air and noise pollution. ESAA Electricity Supply Association of Australia is the peak body representing the Australian electricity industry. ESC Essential Services Commission is the independent economic regulator of essential energy, water, ports, grain handling and rail freight services within Victoria’s jurisdiction. EWOV The Energy and Water Ombudsman of Victoria is an independent industry funded body to provide free assistance to consumers in resolving disputes between consumers and their gas, electricity and water providers. Gigajoule (GJ) Unit of energy (109 joules). Greenhouse gas Gases (carbon dioxide, methane, etc.) giving rise to global warming (the (GHG) greenhouse effect). Each greenhouse gas has, for a unit of the gas, a different global warming potential (GWP). For example a unit of methane
(CH4) has 21 times the GWP of carbon dioxide (CO2). A combination
of GHGs can be expressed in carbon dioxide equivalent (CO2e) terms. Greenhouse gas Expresses the amount of greenhouse gas emissions associated with intensity (GHGI) production of a specific commodity. For example, approximately 1.4
tonnes of CO2e/MWh is the GHGI of average delivered brown coal electricity in Victoria. LPG Liquefied Petroleum Gas is used as a heating and transport fuel and as a petro-chemical feedstock. MEPS Minimum Energy Performance Standards comprise national energy efficiency standards covering a range of energy using equipment and 83 appliances, under the National Appliance and Equipment Energy GLOSSARY Efficiency Program. MRET Mandated Renewable Electricity Target is a federally legislated increase in the share of renewables in Australia’s electricity markets. MTE Mechanical Thermal Expression is a technology being developed in Victoria to reduce greenhouse gas emissions from brown coal electricity generation. MW Megawatt is a unit of electrical capacity (106 watts). MWh Megawatt hour is a unit of electrical energy (106 watt hours). National Electricity The rules that govern the National Electricity Market. Code NECA National Electricity Code Administrator – supervises, administers and enforces the National Electricity Code. NEM National Electricity Market – cover inter-connected eastern States. NEMMCO NEM Management Company is responsible for the administration and operation of the wholesale NEM in accordance with the NEC. Non-renewable energy Energy from finite reserves, for example oil, coal and natural gas. NIEIR National Institute of Economic and Industry Research NRE Department of Natural Resources and Environment is the primary agency charged with generating wealth through the sustainable development of Victoria’s natural resources. OCEI Office of the Chief Electrical Inspector is the agency responsible for electricity safety matters in Victoria. OGS Office of Gas Safety is the agency responsible for gas safety matters in Victoria. Peak loads/demands Higher than average loads/demands – these reach a Victorian maximum in summer for electricity and in winter for gas. Petajoule (PJ) Unit of energy (1015 joules). Petro-chemicals Inorganic chemicals produced from oil. Price elasticity The response of demand for a commodity to a change in the price of that commodity. Primary energy Energy sources occurring naturally, for example, crude oil, coal natural gas, elevated water storage (hydro), solar, wind, biomass (organic matter). 84 Process heat Energy in the form of heat used in industrial processes. RDD&C Research, Development, Demonstration and Commercialisation of technology. Renewable energy Energy forms from (practically) inexhaustible sources such as solar, wind, biomass (itself produced from solar energy and minerals) and geothermal sources. SEAV Sustainable Energy Authority of Victoria is the Victorian agency responsible for facilitating the development of a sustainable Victorian energy system, in particular renewable energy and energy efficiency. Secondary energy Energy sources converted to forms more convenient for energy users, for example electricity, briquettes, petroleum products. SEPP(AQM) State Environment Protection Policy (Air Quality Management), a measure designed to improve Victorian air quality. SNOVIC Electricity transmission line connecting New South Wales and Victoria via the Snowy Hydroelectric System. Space heating Heating of space (volumes) in residential, commercial and industrial buildings. SWER Single wire earth return is a low cost means of electrifying rural areas. Transmission use Charges for use of the electricity and gas transmission system. of system (TUOS) VENCorp Victorian Energy Networks Corporation is the agency responsible for management of Victorian electricity and gas transmission networks. VGS Victorian Greenhouse Strategy is a comprehensive set of measures to reduce greenhouse gas emissions in Victoria.