Victoria’s Energy Future If you would like to receive this publication in an Disclaimer accessible format (such as large print or audio) please call the 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 Published by the Department of Primary Industries, that the publication is without flaw of any kind or is Marketing & Communications Branch. May 2010 wholly appropriate for your particular purposes and therefore disclaims all liability for any error, loss or other © The State of Victoria, 2010 consequence which may arise from you relying on any This publication is copyright. No part may be reproduced information in this publication. by any process except in accordance with the provisions For more information about DPI visit www.dpi.vic.gov.au of the Copyright Act 1968. or call the Customer Service Centre on 136 186 Authorised by the Victorian Government, 1 Spring Street, Melbourne, Victoria 3000, Australia ISBN 978-1-74264-036-5 (print) ISBN 978-1-74264-037-2 (online) Message from the Premier Message from the Minister

We are on the edge of a major energy transformation. Our energy system is something we all rely on, and perhaps take for granted. Countries around the world are searching for ways to cut greenhouse gas emissions and making huge investments However, the pressing need to reduce our greenhouse gas in clean energy projects. emissions in response to our changing climate will bring energy issues to the fore. This inevitable shift to a low carbon economy will create a climate of opportunity for Victoria. We know that it is the energy sector that produces the vast bulk of our greenhouse gas emissions. So it makes It is up to us to seize that opportunity and be at the sense for us to redouble our efforts in shifting towards forefront of change. cleaner sources of power. A strong move towards renewable and low emissions The Government has never understated the size of energy in Victoria will be good for the economy, good this task. We cannot get there overnight, but we must for jobs and good for the environment. It will drive down get there. emissions and drive up jobs and investment. It will create new opportunities in energy production and distribution Victorians recognise the scale of the transformation in regional areas and safeguard energy supply. Most of all, required – and understand that we must implement it will help us meet the climate change challenge and a generational change in technology and attitudes. preserve our quality of life. In the decades ahead, we will move from a system that Victoria’s leadership around climate change is well known. is almost entirely dependent on high emissions fossil fuels to a more diverse and dispersed system based on cleaner We were the first state to introduce a mandatory technologies. renewable energy target, mandatory energy efficiency target for electricity retailers and mandatory energy and Victoria is already positioning itself to benefit from such water efficiency program for the biggest corporate energy major changes. and water users. We have attracted major new investments We will see a tremendous growth in the amount of in gas generation and low emissions coal developments. renewable energy we use. Investment in wind-generated We are investing tens of millions of dollars into energy power will be taken up most actively at first, but over technology and innovation and remain committed to time solar power and other options will become large-scale solar. increasingly important. We have already released a biodiversity White Paper to The Victorian Renewable Energy Target has already been keep local economies strong after 13 years of drought and a big driver of this change, attracting more than $2 billion a Green Jobs Action Plan to equip the current generation of investment. The national expanded Renewable Energy of workers with the skills they’ll need for the future. And Target will build on this effort. we are teaming up with local communities across the state, exploring new ideas to reduce emissions. We also expect growth in low emissions forms of fossil fuel energy. Carbon capture and storage (CCS) is a Our shift to a low carbon economy is already well technology of global importance. Victoria has some underway, but there is much more to do. of the best conditions in the world to test whether Victoria’s Energy Future sets out the size and complexity of CCS will be effective. the task ahead. This statement outlines the short, medium We can all play a part in embracing cleaner energy and long term action needed to move Victoria away from for a brighter future. its historic reliance on coal, oil and gas to generate energy. The challenges ahead are significant, but so are the opportunities – to cut emissions, create jobs, safeguard our economy and secure energy supplies for the future.

Peter Batchelor John Brumby Minister for Energy Premier of Victoria and Resources

1 Contents

Victoria’s energy transformation 4 Part 3 – Our approach 59 3.1 Working with the community 60 Part 1 – Our energy story 7 Building awareness about the need for change 61 1.1 Our energy story 7 Helping to keep energy affordable 61 Victoria’s energy sector 8 Enhancing the capacity of communities and helping regions to adjust 65 Victoria’s energy demand 13 Building the skills for change 66 Making the transition to a low carbon future 14 Preparing for climate change and emergencies 67 Future energy options 16 3.2 Driving energy innovation 68 Getting ready for change 20 Renewable technologies 68 Victoria’s Energy Future 21 Low emissions coal and carbon storage 70 Part 2 – Our future options 23 Supporting new transport fuels 72 2.1 Renewable energy 24 A smarter electricity grid 72 Renewable energy resources in Victoria 25 3.3 Attracting and facilitating investment 74 Research and development into renewable energy 29 Efficient planning and development approvals 74 Bringing new technologies to market 29 Mapping new opportunities in Victoria 76 Integrating more dispersed and intermittent sources of power 30 Support for pre-commercial investment 77 2.2 Gas and low emissions coal 32 Future investment in coal and carbon storage 77 Gas – an essential part of the transition Supporting development of a carbon capture and to a low carbon economy 34 storage ‘hub’ – the CarbonNet project 77 Victoria’s coal – a cleaner future 34 Helping people and business invest to save energy 79 Low emissions coal technologies 34 3.4 Leading further market reform 80 Carbon capture and storage 36 Supporting the implementation of a well designed national emissions trading scheme 80 Managing Victoria’s coal resources 41 Providing competitive, efficient energy markets 81 2.3 Transport energy 44 Monitoring the evolution of national institutions 82 Oil and petroleum products 45 Improving transmission planning and Alternative fuels 46 network connection 84 2.4 Saving energy 50 Promoting effective national regulation Energy efficiency and a carbon price 51 of transport technologies 84 Smarter energy use 52 Glossary 86 Better design and processes 53 Further Resources 88 Ensuring best practice in energy efficiency 54 Reducing stationary energy use at times of peak demand 55 Distributed micro-generation 56

2 3 Victoria’s energy transformation

As the world makes the shift to a low carbon future, Victoria’s energy sector faces a major transformation. In the coming decades, we will have to make energy differently – from a wider range of sources, with new technologies, and in new places. We will also have to use energy differently – in our homes and businesses, in our industries and in the vehicles we drive.

To limit the damage from changes to our global climate, This program, and ultimately a carbon price, will have nations around the world are taking greater steps to major consequences for Victoria – and we must be significantly reduce carbon emissions from human activity. prepared for these changes and the opportunities More and more countries are investing unprecedented and challenges they will bring. amounts in low emissions energy, driven by concerns Victoria’s economic development over the 20th century about climate change and the need to secure their future benefited from accessible and cheap resources of fossil fuel energy supplies. energy. Brown coal provides us with electricity for many These developments mark the start of a global energy uses; oil is a versatile source of transport energy; and gas is revolution – a revolution that Victoria must embrace if we available for industrial and household heating and cooking want to remain competitive in a low carbon future, and if – all in large quantities and at low prices. we want to safeguard our economy and our standard of A low cost and reliable energy supply has provided the living from the worst impacts of climate change. Victorian economy – and especially manufacturing and To be part of this global energy revolution, Victoria needs industry – with a strong competitive advantage. This has to follow a path towards lower emissions. We need to take supported economic development and jobs in many parts immediate action to ensure that we continue to enjoy a of our State. secure energy supply and can take full advantage of the But the heavy use of fossil fuels, in particular our many opportunities being generated as the world moves dependence on brown coal for more than 90 per cent to reduce carbon pollution. of our electricity, has made us heavy carbon polluters: A price signal on carbon is the most effective and we release about 23 tonnes of carbon dioxide per person comprehensive way of making sure our investment and each year. Victoria’s population – and our consumption – purchasing decisions account for the emissions they create. continue to grow, driving further increases in our demand The Victorian Government supports a national emissions for energy. trading scheme as the most efficient way of making The way we currently make and use energy is this happen. unsustainable in a low carbon future. In the coming Despite the delay in a national approach to pricing carbon decades, we will have to make energy differently – from a pollution, it is sensible for the Victorian Government, and wider range of sources, with new technologies, and in new for Victorians, to be ready for a carbon price and prepare places. We will have to use energy differently in our homes, ourselves for the coming changes. businesses and industries, and in the vehicles we drive. The energy transformation that will be required is of such The Commonwealth has introduced a law to greatly magnitude and cost that it will take decades to complete. expand renewable power; and announced large funds to Investment on an unprecedented scale will be required help the private sector commercialise new, low emissions from energy companies and the financial sector to develop energy sources. new technologies and integrate them into a secure and sustainable energy system. The Victorian Government will play an important role in this period of change.

4 Our goal is to steer a course towards a low emissions To build community understanding and acceptance of the future, while ensuring that Victorians have a secure and challenges we face, the Government is beginning a new reliable energy supply at competitive prices. At the same dialogue with Victorians focusing on our future energy time, we must make sure that these changes occur security. Victoria’s Energy Future marks the start of smoothly and fairly. this dialogue. All Victorian households, communities, businesses and This statement describes the issues facing our energy governments will have to play their part in this period of sector and the companies that work in energy resources. transformation. We will all need to make a greater effort to It explains the challenges ahead and outlines our future understand our energy use and take steps to save energy. energy options. It sets out how the Government will play Communities across the State will need to participate in its role in ensuring that our energy future is secure and decisions about building new infrastructure to produce and sustainable, and that energy costs are kept as low distribute low emissions energy. as possible.

Constructing a wind turbine

5

Part 1 Our energy story

For nearly a century, Victoria has relied heavily on coal, oil and gas to supply us with reliable and relatively cheap energy. Now, we face the prospect of having 1 to reduce our greenhouse gas emissions while our demand for energy continues to grow. We must be prepared for the changes, challenges and opportunities ahead. We must take action now to transform our energy system into one that reduces the impacts of climate change, promotes competitively priced energy, and delivers a secure and sustainable energy supply that meets our needs into the future.

7 Part 1 Our energy story

Victoria has one of the most competitive retail electricity markets in the world and we have an abundance of fossil and renewable energy sources. Our challenge is to find the right energy mix for the future as we move from a heavily coal-dependent system to a far more diverse and dispersed supply of electricity.

Victoria’s energy sector Victoria’s fossil fuels – coal and gas – currently meet These market reforms mean that the private sector will be over 95 per cent of our stationary energy needs and the key investor in building Victoria’s future energy system, have provided us with cheap and reliable power for although governments retain critical roles in designing and nearly a century. At present, renewable sources of energy regulating energy and carbon markets, facilitating investment, contribute between 2 and 4 per cent to our power supply, driving technology innovation, and managing change. with most of this energy coming from wind, bioenergy Our energy system also includes transport fuels. In contrast and hydroelectricity. to electricity and gas, these fuels are supplied through a Victoria’s stationary energy system – based on the global market. Petroleum based fuels account for nearly centralised, large scale generation of power – was all of this market, taking advantage of well established developed through a mix of monopoly and competition, networks for distribution. It took nearly 25 years for and public and private ownership. In the 1990s, significant liquefied petroleum gas (LPG) to become established as an reform of the system was undertaken and government- alternative to petrol in Australia. New fuel technologies will owned parts of the electricity and gas systems were face similar challenges as they compete for market share. privatised. This brought greater competition and the The diagram on pages 10 and 11 illustrates the connections independent regulation of monopoly networks, and between these elements. resulted in a more productive and reliable electricity and gas system. Victoria now has one of the most competitive retail electricity markets in the world. Further reforms have taken place over the last decade. Our electricity and gas systems became integrated down the eastern seaboard of Australia, creating the National Electricity Market (NEM) and a national gas market. Our electricity and gas markets now operate under national supervision (see Box 1 – p12).

8 1

Turbines in a coal-fired power station

9 Part 1 Our energy story

Figure 1 How our energy system works Electricity, gas and transport fuels provide the energy we use for many of our daily activities. Over the coming decades our sources of electricity will diversify and come from different areas across the state. We will use more gas for electricity production and transport. Alternatives to oil will start to play a greater role in transport. How we use our energy in the future will also need to change. A smarter electricity network will be needed to facilitate this transformation.

Distribution network The distribution network brings electricity to our homes and businesses. In the future, more electricity sources will connect directly to this network.

Transport fuels Our transport sector is heavily dependent on oil, with oil based fuels supplying over 90 per cent of our transport energy needs. The transport sector is responsible for 16 per cent of Victoria’s greenhouse gas emissions. In the future, new technologies such as electric vehicles and next generation biofuels could help reduce our emissions and improve our energy security.

10 Existing renewable energy Renewable energy is generated using resources that can be rapidly replaced by ongoing natural processes. We currently use renewable energy from hydro, wind and bioenergy sources.

Electricity generation Electricity comes from various sources. In Victoria we get more than 90 per cent of our electricity from brown coal. Reducing the carbon pollution from electricity generation is a major challenge. In the future, other sources of electricity generation such as gas, renewables and low emissions coal must increase. Electricity transmission The electricity grid comprises large transmission lines which connect the generators and 1 distribution networks to the national grid.

Future carbon capture and storage Carbon capture and storage technologies have the potential to significantly reduce emissions from the large scale use of fossil fuels.

Future renewable energy Over the next 10 years we will start to see new forms of commercially viable energy from sources such as solar, geothermal and marine. Gas network Most of Victoria’s gas comes from Bass Strait. We use reticulated gas as an energy source for domestic and commercial applications such as heating and cooking and industrial uses. Our future access to gas could come from sources discovered locally or from greater access to the rapidly developing Queensland coal seam gas industry.

11 Part 1 Our energy story

Box 1. How renewable, gas-fired and coal-fired generators currently compete in the National Electricity Market

Victoria’s electricity is provided by private companies s )NTERMITTENTPOWERSTATIONSnSUPPLYPOWERWHEN that operate in a competitive market place. resources are available, such as wind and solar

Victoria, along with Queensland, NSW, ACT, Tasmania s 0EAKINGPOWERSTATIONSnEXPENSIVEORLIMITEDENERGY and South Australia, is part of the National Electricity sources that operate for brief periods when demand Market (NEM). and therefore price is highest. Because electricity can’t be easily stored in large quantities, In the current market, coal is the cheapest form of supply must always match demand. If supply cannot meet baseload electricity, providing over 90 per cent of Victoria’s demand, industry and homes experience power ‘brown electricity. Gas has higher operating costs but lower capital outs’ or ‘black outs’. costs (supplying intermediate and peaking power) and provides approximately 4 per cent of our electricity. The physical market, or ‘spot’ market, trades all electricity produced and consumed. Generators bid to supply Renewables supply between 2 and 4 per cent of Victoria’s electricity at a particular price for a five minute period. electricity use. Renewable energy from hydroelectricity has Electricity is then dispatched to retailers from cheapest recently fallen due to the drought, but power from wind to more expensive until demand is satisfied for that five is now rapidly increasing. minute period. This process is continuous throughout In the market today, renewable energy from wind and solar the year. is expensive compared to fossil fuel energy (see Figure 9 – Generators and retailers can also enter into contracts on p29). However, over time, the costs of renewables are the financial market to manage the risk of variable prices. expected to fall, while prices for coal and gas will rise Currently, retailers use this type of contract to cover most due to a carbon price. Currently, renewable energy targets of the electricity they buy. are the main driver in the growth of wind energy. This market is managed on a day to day basis by the The level of peak demand for electricity in Victoria is Australian Energy Market Operator (AEMO) in accordance growing at a higher rate than the total demand for with the National Electricity Rules. electricity. This is primarily due to the increased use of air conditioners in Victorian households. In order to meet demand, the market provides a range of different power plants with different characteristics: With the overall electricity system built to meet peak demand, the continued growth of consumption in peak s "ASELOADPOWERSTATIONSnOPERATENEARLYALLTHETIME periods is likely to significantly increase the cost of and use cheap fuels – coal currently supplies Victoria generating and transmitting electricity. with baseload (or continuous) power Recently the wholesale electricity market has responded s )NTERMEDIATEPOWERSTATIONSnFOREXAMPLEHYDRO to high prices in peak periods and this has led to investors or combined cycle gas-fired generators building new peak generation capacity.

12 1

Victoria’s energy demand This ‘peak’ demand is driven mainly by the increased use of air conditioning on very hot days. ‘Intermediate’ demand Demand for energy in Victoria continues to grow for electricity accounts for 30 per cent of electricity use, due to factors such as an increasing population, smaller while ‘baseload’ demand refers to the average energy households and rising disposable incomes that drive demand that occurs all year round and accounts for more consumption. 60 per cent of the electricity we use. There is a growing demand for energy from all sources Demand for energy is predicted to continue to grow, – brown coal, gas and petroleum products (see Figure 2). although this could be moderated significantly by efforts Transport energy use increased by more than 20 per cent to save energy. Implementing successful approaches between 1990 and 2006. Our use of coal based energy to using less energy will save us money and help to has increased by 40 per cent over the same period. ease the pressures on augmenting our power supplies. Our patterns of demand have also shifted over recent years. For example, Victoria’s electricity market experiences brief, but very large peaks of demand during summer.

13 Part 1 Our energy story

Making the transition to a low carbon future We are now embarking on a period of transformation – one in which Victoria will need to contribute to national and global reductions in carbon emissions, while providing an energy supply that supports a competitive economy and fair society. In 2008, 84 per cent of Victoria’s carbon emissions came from the energy sector (see Figure 3). This highlights the size of the challenge facing our energy sector – its emissions must fall significantly while continuing to meet the needs of a growing population and an increasing demand for energy. The transformation will require the Commonwealth and Victorian Governments to encourage investment in cleaner energy sources, to expand energy saving measures, and to encourage people to use energy more wisely and efficiently. Commonwealth Government policies, like the enhanced Renewable Energy Target (RET) and future policies that place a price on carbon, will encourage the energy industry to lower emissions from fossil fuels and supply more renewable energy (see Box 2 – p15). Complementary national ‘flagship’ programs for CCS and renewable energy will build on existing Victorian programs such as the Energy Technology Innovation Strategy (ETIS), and stimulate early deployment of commercial-scale systems by the private sector.

14 Box 2. How an emissions trading scheme and the Renewable Energy Target would affect the energy market

The Victorian Government continues to support an emissions trading scheme (ETS) as the main policy for reducing emissions. Together with national schemes like the enhanced Renewable Energy Target (RET), a well designed ETS would be the most effective way of promoting the transformation of the Victorian and Australian energy sectors.

An ETS works by placing a cap on carbon emissions coming from specific sectors of the economy. This means that large emitters would have to pay to release greenhouse gases, like carbon dioxide (CO2), into the atmosphere. The price for carbon would encourage existing businesses to reduce their emissions in cost effective ways. Similarly, new investors would need 1 to consider the future costs incurred by emitting CO2 when making decisions about where to invest.

This means that low emissions technologies that are expensive today would gradually become more competitive. Conversely, high emissions activities would become more expensive and would slowly be replaced by low emissions competitors.

Figure 4 shows the indicative running costs of different types of power stations. The running cost determines which generator can offer to sell electricity into the market at the lowest rate. Of the plants shown, brown coal is currently the cheapest (shown in brown). But these current running costs do not include any costs for emitting greenhouse gas emissions.

As a carbon price is introduced, the running costs increase in line with the amount of emissions that are produced

(see Figure 4). At a carbon price of $30 per tonne of CO2

($30/tCO2) black coal generators would be able to sell their electricity at the lowest price (shown in light green). With a carbon price of $45/tCO , brown coal operators 2 The enhanced national RET will replace Victoria’s State- would have to pay almost $60 towards carbon permits for based RET and ensure that by 2020, at least 20 per cent of each megawatt hour (MWh) of electricity they generate. national energy generation comes from renewable sources Gas (if supplied at today’s prices) would become the – massive growth for this industry. The target guarantees cheapest form of electricity generation. With a carbon that a major portion of our demand growth will be met price of $45/tCO , a new wind-powered generator would 2 by renewable sources. be able to compete with an existing coal-fired generator. Governments will complement these policies by supporting A carbon price could also affect transport fuels – innovation and making sure consumers and investors have for example a price of $40/tCO would add about 2 access to reliable information about improving their 10 cents to the price of a litre of petrol. energy efficiency. A ‘soft start’ to an ETS (meaning low initial targets) would allow existing businesses to prepare and adjust to the impacts of the carbon price.

15 Part 1 Our energy story

Future energy options These technologies are still being tested and their commercial viability will depend upon their success and Victoria has an abundance of energy sources – both fossil whether costs fall enough (or a future carbon price rises and renewable energy. From these options, we will need to enough) to make them commercially attractive. If large develop different technologies and take a range of actions scale demonstrations of CCS and high efficiency coal to build a secure future energy system. technologies such as integrated drying and gasificiation Gas will be an important energy source over coming combined cycle plants (IDGCC) are successful, these decades. The emissions intensity of gas is lower than coal technologies could make an important contribution (see Figure 11 – p33), making it suitable for supplying to Victoria’s energy security in a low carbon future. baseload electricity and complementing intermittent Renewable energy will progressively grow over many renewable energy, such as wind and solar. As conventional decades. It may become the world’s main source of energy coal-fired power becomes more expensive, gas will play in the very long run, as fossil fuel resources become less an important transitional role. However, in the long term, competitive and greenhouse gas targets are tightened. carbon capture and storage (CCS) may also be needed, Victoria is fortunate to have a good supply of renewable while a rising price for gas could limit its overall energy sources. Wind has the advantage of currently being contribution to our energy supply. one of the most cost-competitive forms of renewable Low emissions coal, in particular the more efficient use energy. As large scale solar power becomes more cost- of brown coal coupled with CCS, may open up future competitive, it will make a significant contribution to our prospects for coal-fired electricity and for alternative energy supplies, especially from north western Victoria. energy products. We will need to make sure that the electricity grid can adjust to the variable output from wind and solar power and develop efficient ways to store this energy.

16 1

17 Part 1 Our energy story

Victoria is also exploring other newer forms of Smarter energy networks will be an integral part of our renewable energy, such as geothermal and marine energy. future energy system. This will include the roll out of smart Geothermal energy comes from the energy found meters to provide clearer information and price signals to in hot rocks, deep underground. It is capable of providing consumers. As our energy mix diversifies, generation will continuous baseload power. There are significant exploration be distributed more widely across the State and at different and development opportunities in Victoria and we need to scales. Over the next decade, smarter electricity infrastructure determine the potential of geothermal energy to contribute that is able to ‘communicate’ across the distribution system to Victoria’s electricity supply. in real time will deliver more flexible and responsive network services to energy users and producers. New opportunities will arise in transport energy. A progressive shift to alternative fuels over the next few Saving energy can save money and delay the need decades is likely as domestic supplies of crude oil decline for new electricity generation and network investments. and an emphasis on emissions reduction increases. In the Price increases under RET and any future emissions trading short term, there may be greater take-up of fuels such as scheme, along with complementary programs such as smart diesel, liquefied petroleum gas (LPG) and biofuel blends. meters and Victoria’s Energy Saver Incentive scheme, will In the medium term, we may see increased take-up of drive more energy efficiency as households and businesses natural gas fuels in the form of compressed natural gas respond to price signals – particularly if rising public (CNG), liquefied natural gas (LNG) or next generation awareness prompts a greater commitment to energy biofuels. Electricity is also likely to emerge as an important saving. There will also be improvements in the energy transport energy as emissions from electricity generation efficiency of the built environment and our transport decline. In the long term, synthetic fuels such as brown system – in areas such as vehicle fuel efficiency, public coal to diesel may also become commercially viable. transport, commercial shopping centres and other large public spaces. Nuclear power is a substantial and growing source of low carbon energy in many countries because it is a proven Being smarter with our energy use and using more technology associated with low full life cycle greenhouse efficient products are also cost-effective ways of reducing gas emissions. The Government has no plans to overturn our greenhouse gas emissions. its existing ban on nuclear power and is committed to While it is not possible to predict Victoria’s precise energy retaining the Victorian Nuclear Activities (Prohibitions) Act mix in the long term, some trends are likely to develop 1983. The Government’s view is that nuclear power is not (see Box 3 – p19). needed as part of Victoria’s energy mix, given our State’s abundance and diversity of low cost and reliable fossil fuel and renewable energy sources. These energy sources give Victoria a diverse range of energy options in assessing and meeting our future energy needs.

Geothermal steam 18 Box 3. Our changing stationary energy sector

In the coming decade (2010 to 2020), in response to a price on carbon, we are likely to see: s !NEXPANSIONINGAS FIREDANDWINDPOWERFROM around 5 per cent today to around 25 per cent by 2020 s !CONTRACTIONINPRODUCTIONANDLIKELYCLOSURESOF some conventional coal-fired power stations s ,ARGESCALEDEMONSTRATIONOFLOWEMISSIONSCOAL technologies and other coal products s %XPANSIONOFLARGESCALESOLARPOWERDUETODIRECT government support s 0OSSIBLEDEMONSTRATIONOFGEOTHERMALENERGY s 'REATERRESEARCHINTOMARINEANDBIOENERGY s !DVANCESINTHEEFFICIENTUSEOFENERGY 1 s 4HEFIRSTELECTRICVEHICLESHITTINGOURSTREETS Energy production will be distributed more widely across the landscape, with medium and large scale energy facilities being developed in increasingly diverse locations. The following decade (2020 to 2030) should see: s #OMMERCIALDEPLOYMENTOFLOWEMISSIONSCOAL large scale solar and potentially geothermal energy s &URTHERCLOSUREOFCONVENTIONALPOWERSTATIONS s 0OTENTIALLYLARGEADVANCESINENERGYEFFICIENCY s )NCREASINGUSEOFELECTRICVEHICLES s ,ARGESCALEDEPLOYMENTOFSOMEMIXOFGEOTHERMAL tidal, and wave energy may also begin. Growth in the use of gas may slow as gas prices align with the global oil price, and the growth of wind power may slow as the most productive wind sites are taken up. The decentralisation of energy production may slow if low emissions coal is competitive enough to experience high growth. Over this time, while our electricity output will continue to grow, our emissions will begin to fall significantly. Figure 6 indicates how our electricity may change over the next two decades. As shown in Figure 7, we will progressively move from a heavily coal-dependent situation to a far more diverse supply of electricity.

19 Part 1 Our energy story

Getting ready for change As a community, we will need to deal with a number of major changes, including finding ways to use energy The transformation of our energy sector will not happen more efficiently to reduce the impact of price rises on our overnight and it is important that we understand the size households and businesses; making sure we have the skills of the task. required to support the shift in energy jobs away from The shift to a low carbon economy will provide economic traditional uses of coal; providing the resources our regions benefits. However, building a new energy future will be a will need to manage changes in regional wealth and take long, complex and costly task, creating unprecedented up new opportunities; and accommodating new energy challenges for governments, communities and the infrastructure across the State’s landscapes. private sector. The transition will bring risks. Over the next ten years The transformation will require more of society’s resources and beyond, the transition to a low carbon future will to be devoted to energy. It is likely that nationally, over bring new challenges to the energy sector. Investment in the next ten years, we will need to spend an average the sector needs to increase to levels far in excess of that of around $10 billion a year on new and upgraded delivered over the last ten years, and during a period of energy infrastructure.i higher risk and uncertainty. We must be prepared for the changes. As part of the As our electricity grid incorporates more variable sources national transition to a low carbon future, energy prices of electricity such as wind power, the costs of maintaining are expected to increase substantially. Many factors are past levels of reliability in our energy supply are likely likely to contribute to these price rises, including the to increase. possible introduction of a carbon price, an increase We will also start to see the closure of very large brown in the use of renewable energy, increased infrastructure coal generators, which will need to be well managed requirements, increasing global prices for oil and gas, to maintain the security of stationary energy supply. and greater demand for the resources needed to build new cleaner energy projects. The Commonwealth Government is proposing to manage the risks of introducing an emissions trading Australia will also need to cover the costs of increased scheme in 2013 by providing assistance to help businesses, investment in new and replacement network infrastructure, households and communities make the transition. The such as high voltage electricity interconnectors that connect Victorian Government can also help by advocating that networks between states. More dispersed supplies of national energy markets allow efficient pricing, promote electricity will mean that more people will see wind farms, competition and safeguard consumer protections. powerlines and gas pipelines in their areas.

20 A carbon price could bring risks for energy retailers if more Victoria’s Energy Future volatile prices make it harder to secure stable contracts or Recent national reforms and new policies by the pass costs on to consumers. All Australian governments Commonwealth Government are dramatically altering need to work together to establish processes that maintain the role of the Victorian Government in managing the the security of our electricity supply to the network and energy sector’s transformation. to customers. The Commonwealth’s RET and a price on carbon will The challenges are practical. High levels of investment be the main policies which will drive change. Under are required to prove low emissions technologies and these settings the private sector will be the source of demonstrate their commercial viability at large scale. most new investment. We need to ensure that a range of technologies are able to enter the market when the combination of lower The potential for a future carbon price is already impacting costs of production and a future rising carbon price makes decisions about future fossil fuel based energy projects. them competitive. But until there is more certainty about the form and level of the carbon price, it will be difficult to determine the best Each new energy project requires finance to be secured, timing and technologies for new investments. The early land obtained, environmental and planning approvals introduction of carbon price will help to make this gained, community concerns addressed, equipment adjustment smoother and less costly. purchased and infrastructure built. It requires skilled people to be hired and trained. There is intense national and Victoria’s competitive and efficient energy sector will help 1 global competition for these resources. Clear and relevant to attract the investment needed to maintain the security information about future network requirements will be of our energy supply. The recently established national needed to help to drive strategic investments at the market operator and regulator have a key role to play in necessary rate. this respect. They are responsible for ensuring that our electricity and gas systems are flexible enough to respond But with challenges, come opportunities. New energy to changing supply and demand patterns. industries that leverage Victoria’s diverse resource base (locally and for export) will generate investment opportunities Similarly, the Commonwealth will be a major source of in regional areas, creating regional wealth and more innovation funds for large scale demonstration of new diverse local economies. More people, including young technologies such as solar and low emissions coal. people with new skills, will be drawn into newly created Nevertheless, the Victorian Government will play a central jobs in these industries, giving renewed vibrancy to many role in managing essential parts of the transition and in regional areas. promoting the interests of all Victorians. In particular, the This is particularly the case for the Latrobe Valley, the Government will ensure the application of strong, proactive centre of Victoria’s brown coal industry. While ‘the Valley’ State policies and lead energy market reform at the faces challenges from reduced electricity output over the national level. next decade, the growing global demand for energy could Victoria’s Energy Future statement focuses on Victoria’s create markets for new products made from brown coal. energy sector and the energy resources in our State. Successful commercialisation of CCS could also mean that the Latrobe Valley remains an energy hub for Victoria, The statement describes the issues facing our energy sector delivering low emissions coal and gas-fired electricity. today and into the future. It sets out the Government’s vision and directions for the State’s energy sector over the coming decades, explains the challenges ahead and outlines our future options. It describes the Government’s broad approach to creating an energy future that is secure and sustainable, that reduces emissions to address climate change, and that helps keep our energy costs as low as possible. The Government’s future energy actions and initiatives will be based on four main strategies (see Part 3):

s 7ORKINGWITHTHECOMMUNITYTOUNDERSTANDANDADJUST to the task ahead

s $RIVINGENERGYINNOVATIONIN6ICTORIA s !TTRACTINGANDFACILITATINGINVESTMENTIN6ICTORIA s !DVOCATINGFURTHERENERGYMARKETREFORMS

21

Part 2 Our future options

Victoria has extensive energy resources. As we move away from high emissions forms of energy, we have to decide how to best use these resources and what mix of options will best meet our energy needs. Exploring these options poses difficult questions and requires us to make tough choices. Shifting to renewable energy, developing low emissions coal 2 technologies and reducing our use of high emissions forms of transport will bring opportunities for new industries and jobs. But we also need to deal with the challenges that accompany change. Changing our behaviour and adopting new ways of doing things to save energy will be essential to supporting these changes to energy supply.

23 Part 2 Our future options

2.1 Renewable energy

There is great potential for renewable energy to contribute to Victoria’s future economic prosperity. But we have to overcome some significant challenges before renewable energy can play a major part in meeting our energy needs.

Renewable forms of energy are set to play a greatly However, we face a number of challenges in producing expanded role in meeting Victoria’s future energy needs. and using more renewable energy. To reduce emissions from transport and electricity, Many new forms of renewable energy are much more renewable energy must be a substantial part of our new expensive than fossil fuels, even taking into account energy mix. Victoria will not be alone in making this a price for carbon. transition; the shift to renewable energy is a global trend, In addition, power from sources such as wind and solar with the use of renewable energy for electricity growing is variable. Because we need to have a continuous supply rapidly worldwide. of electricity, we need to deal with reliability through the Victoria has an abundance of renewable energy sources. complementary use of coal and gas-fired power, and in the long term by finding ways of storing this energy. The national target of increasing energy from renewable sources to at least 20 per cent by 2020 will see a massive Some renewable energy sources, like geothermal, do growth in renewable energy over the next ten years (see offer the promise of providing baseload power. But the Box 4 – p25). A carbon price (put in place by an emissions geothermal resource and the technology itself need further trading scheme) would also make energy from fossil testing and development. fuels more expensive, making renewable energy more This means that until renewable energy costs reduce, competitive. carbon prices increase, and renewable baseload power and The growth in this sector will create new industries across large scale storage options become available, renewable the state that will stimulate local economies and generate energy will work alongside – and not replace – fossil fuels thousands of skilled jobs – making a substantial as our major source of energy. contribution to Victoria’s future economic prosperity.

24 Box 4. How renewable energy production Renewable energy resources in Victoria could change in Victoria Renewable energy is generated using resources that can be rapidly replaced by ongoing natural processes. This means Wind is likely to see the most growth over the next ten harnessing resources such as the sun’s radiation or heat, years. After this time, solar and new technologies such as the wind, the tides or heat stored underground to make geothermal may progressively play a larger role. Biomass electricity and heat. and hydro are low cost forms of renewable energy but their overall growth is likely to be limited. Hydro is limited In almost every case, carbon is not burnt in order to release by the need for dams and biomass is likely to be most energy (bioenergy is the exception). Therefore, generating suitable for local or niche applications. renewable energy emits little or no greenhouse gas. The main sources of renewable energy that could be harnessed to create electricity in Victoria are shown in Figure 8. Wind, bioenergy and hydroelectricity currently account for over 99 per cent of renewable energy generation in Victoria, compared with around 0.5 per cent for solar power. It is likely that the supply of renewable energy will further diversify over time as new renewable technologies emerge to suit different user needs. All potential renewable energy resources pose potential challenges for Victoria. Overcoming these challenges and ensuring renewable energy is able to be part of our future energy mix will require a comprehensive, systematic approach. All levels of government will need to work 2.1 with industry and the community to ensure that measures are put in place to deliver an effective, long term plan for the deployment of renewable technologies.

25 Part 2 Our future options

Wind Generating electricity from wind uses established technology and provides intermittent generation. Generally, electricity grids are able to accept up to 20 per cent of energy supply from variable power sources before extra provisions are needed to maintain the security of the system. At February 2010, Victoria had a cumulative capacity of 428 megawatts (MW), generating about 1,125 gigwatt hours (GWh) of electricity per year (almost 2 per cent of all electricity generation). A further 1,554 MW of projects have been approved. Offshore wind power will be much more expensive than onshore, so it is unlikely to be developed for some time. Wind resources in Victoria

Potential for growth

Advantages Challenges to be overcome UÊ /iV ˜œœ}ÞʈÃÊ«ÀœÛi˜ UÊ Ê7ˆ˜`ʈÃÊ>ÊÛ>Àˆ>LiÊÀiÜÕÀViÊÜÊiiVÌÀˆVˆÌÞʈÃʜ˜ÞÊ}i˜iÀ>Ìi`Ê UÊ "˜iʜvÊÌ iÊV i>«iÃÌÊvœÀ“ÃʜvÊÀi˜iÜ>LiÊi˜iÀ}Þ when the wind blows. This makes it difficult to manage UÊ
L՘`>˜ÌÊ«œÌi˜Ìˆ>Ê܈˜`ÊÀiÜÕÀViÃʈ˜Ê6ˆV̜Àˆ> the reliability of electricity UÊ Ê œiÃʘœÌÊÀiµÕˆÀiÊ>ÊÜ>ÌiÀÊÃÕ««Þ]ÊVœ“«>Ài`Ê̜ÊܓiÊœÌ iÀÊ UÊ Ê7ˆ˜`Êi˜iÀ}ÞʈÃÊ>Ê`ˆÃ«iÀÃi`ÊÀiÜÕÀViÊ>˜`ÊܓiÊÀiÜÕÀViÃÊ renewable sources are located away from the existing electricity grid UÊ Ê ˆÃ«iÀÃi`ʏœV>̈œ˜ÃʜvÊ܈˜`Ê}i˜iÀ>̜ÀÃÊÀi`ÕViÃÊÌ iÊÀˆÃŽÊœvÊ UÊ Ê7ˆ˜`ÊÌÕÀLˆ˜iÃÊ>˜`ʘiÜÊÌÀ>˜Ã“ˆÃȜ˜Êˆ˜iÃʓ>ÞÊ >ÛiÊ no supply visual amenity impacts on the landscape, which may cause community concern in some locations. UÊ Ê iÜÊ«Ài`ˆV̈œ˜ÊÌiV ˜œœ}ÞÊV>˜Ê>œÜÊÌ iʜÕÌ«ÕÌÊvÀœ“Ê܈˜`Ê power to be better managed by the network operator. Solar Energy from the sun can be used to generate electricity directly (solar-electric or photovoltaic) or heat (solar-thermal) which can be used to generate electricity. Large scale solar plants are expected to supply in excess of 300 GWh of electricity in Victoria by 2015 as a result of Victorian Government support for large scale solar generators. Small scale photovoltaics could produce around 30 to 50 GWh by 2020. Solar resources in Victoria

Potential for growth

Advantages Challenges to be overcome UÊ Ê-ˆ}˜ˆwV>˜ÌÊiVœ˜œ“ˆiÃʜvÊÃV>iʓ>Žiʏ>À}iÊÃV>iÊ܏>ÀʓÕV Ê UÊ Ê ÕÀÀi˜ÌÞʜ˜iʜvÊÌ iʓœÃÌÊiÝ«i˜ÃˆÛiÊvœÀ“ÃʜvÊÀi˜iÜ>LiÊ less costly than small scale (rooftop) solar energy (significantly more expensive than wind) UÊ œÀÌ iÀ˜Ê6ˆV̜Àˆ>Ê >ÃÊiÝVii˜ÌÊ܏>ÀÊÀiÜÕÀVià UÊ Ê-œ>ÀÊ«Àœ`ÕViÃÊi˜iÀ}ÞÊ>ÌÊ>ÊÛ>Àˆ>LiÊÀ>ÌiÊ­«œÜiÀʈÃʜ˜ÞÊ UÊ Ê-œ>ÀÊi˜iÀ}ÞʈÃʏiÃÃʈ˜ÌiÀ“ˆÌÌi˜ÌÊÌ >˜Ê܈˜`Ê>˜`Ê ˆ} iÀÊ generated when the sun shines) generation occurs between 12:00 pm and 4:30 pm which UÊ Ê/ iÊLiÃÌÊ܏>ÀÊÀiÜÕÀViÃÊ>ÀiÊv>ÀÊvÀœ“Ê«œ«Õ>̈œ˜ÊVi˜ÌÀiÃÊ>˜`Ê coincides with part of the peak demand period in summer at the margins of existing transmission infrastructure UÊ Ê-“>ÊÃV>iÊ܏>ÀÊV>˜Êˆ“«ÀœÛiÊ`ˆÛiÀÈÌÞʈ˜Êi˜iÀ}ÞÊÃÕ««ÞÊ>˜`Ê UÊ Ê-“>ÊÃV>iÊ܏>ÀʈÃÊÃÕLÃÌ>˜Ìˆ>ÞʓœÀiÊiÝ«i˜ÃˆÛiÊÌ >˜Ê>À}iÊ in the long term may reduce peak demand. scale solar.

Potential for growth over the next 20 years. Substantial potential – could be used in more than 15% of our electricity supply Significant potential – could be used in between 2% and 15% of our electricity supply 26 Limited potential to expand – unlikely to be used in more than 2 % of our electricity supply iœÌ iÀ“> iœÌ iÀ“>Ê i>ÌÊvÀœ“ÊÌ iÊi>ÀÌ ½Ãʈ˜ÌiÀˆœÀÊV>˜ÊLiÊÕÃi`ÊvœÀÊÓ>Ê>˜`ʏ>À}iÊÃV>iÊ>««ˆV>̈œ˜Ã°Ê>À}iÊÃV>iÊ>««ˆV>̈œ˜ÃÊV>˜Ê ÕÃiÊ i>ÌÊvÀœ“ÊÀœVŽÃʜÀÊÕÃiÊ œÌÊÜ>ÌiÀÊ>˜`ÊÃÌi>“Ê}i˜iÀ>Ìi`ʈ˜ÊÌ iÊ}ÀœÕ˜`°Ê œÌ Êi˜iÀ}ÞÊÜÕÀViÃÊV>˜ÊLiÊÕÃi`ÊvœÀÊ`ˆÀiVÌÊ i>ÌÊ >˜`Ê«œÜiÀÊ}i˜iÀ>̈œ˜° Geothermal resources in Victoria

Potential for growth ??

Advantages Challenges to be overcome UÊ ÊiœÌ iÀ“>Ê >ÃÊÌ iÊ«œÌi˜Ìˆ>Ê̜ʫÀœÛˆ`iÊ>ÊÈ}˜ˆwV>˜ÌÊ«œÀ̈œ˜ÊœvÊ UÊ iœÌ iÀ“>Êi˜iÀ}ÞʈÃÊ>Êޜ՘}ʈ˜`ÕÃÌÀÞÊ}œL>Þ L>Ãiœ>`Êi˜iÀ}ÞÊqÊ>ÊVœ˜ÌÀœ>LiÊ>˜`ÊVœ˜Ìˆ˜ÕœÕÃÊÃÕ««ÞÊ UÊ Ê
VViÃÃÊ̜ʈ˜vœÀ“>̈œ˜Ê>LœÕÌÊ6ˆV̜Àˆ>½ÃÊ}iœÌ iÀ“>ÊÀiÜÕÀViÃÊ œvÊ«œÜiÀ is limited 2.1 UÊ Ê6ˆV̜Àˆ>Ê >ÃÊiÝ«œÀ>̈œ˜Ê>˜`Ê`iÛiœ«“i˜Ìʜ««œÀÌ՘ˆÌˆiÃÊ UÊ Ê Ý«œÀ>̈œ˜ÊœvÊ«œÌi˜Ìˆ>ÊœV>̈œ˜ÃʜvÊÌ iÊÀiÜÕÀViʈÃÊ ˆ˜Ê}iœÌ iÀ“>Êi˜iÀ}Þ]ÊÜˆÌ ÊVœÃiÊ«ÀœÝˆ“ˆÌÞʜvÊ«œÌi˜Ìˆ>Ê ÛiÀÞÊiÝ«i˜ÃˆÛi° geothermal energy sources to the electricity grid UÊ ÊiœÌ iÀ“>Êi˜iÀ}ÞÊ >ÃÊLii˜ÊÕÃi`Ê>ÌÊ>ÊÓ>ÊÃV>iÊvœÀÊ`iV>`iÃÊ in Victoria. Hydroelectricity Hydroelectricity is generated through the conversion of flowing water into electrical energy, often using dams to store the water. Victoria’s hydroelectricity is sourced from the State’s major dams, including Lake Eildon, Hume and Dartmouth. Hydroelectricity resources in Victoria

Potential for growth

Advantages Challenges to be overcome UÊ ÊÞ`ÀœiiVÌÀˆVˆÌÞʈÃÊ>ÊÃ̜À>LiÊvœÀ“ÊœvÊÀi˜iÜ>LiÊi˜iÀ}ÞÊqÊÜ>ÌiÀÊ UÊ Êˆ} ÞÊ`i«i˜`i˜Ìʜ˜ÊÀ>ˆ˜v>Ê‡Ê Þ`ÀœiiVÌÀˆVˆÌÞÊ}i˜iÀ>̈œ˜Ê >ÃÊ V>˜ÊLiʫՓ«i`Ê̜Ê`>“ÃÊ­vœÀÊiÝ>“«i]ÊLÞÊÕȘ}Ê«œÜiÀÊvÀœ“Ê Ài`ÕVi`ʜÛiÀÊÌ iÊ«>ÃÌÊ`iV>`i]Ê`ÕiÊ̜ʏiÃÃÊÌ >˜Ê>ÛiÀ>}iʈ˜yœÜà œÌ iÀÊÀi˜iÜ>LiÊÜÕÀViîÊ>˜`ÊV>˜ÊLiÊÀii>Ãi`Ê>Ãʘii`i` UÊ Êˆ“ˆÌi`ÊvÕÌÕÀiʈ˜ÃÌ>>̈œ˜ÃʜvÊÈÌiÃÊLiV>ÕÃiʜvÊÌ iʏˆ“ˆÌi`Ê UÊ Ê >˜Ê«ÀœÛˆ`iÊ>ÊVœ˜ÌÀœ>LiÊÃÕ««ÞʜvÊ«œÜiÀ]ÊÜ ˆV ÊV>˜ÊLiÊÕÃi`Ê ˜Õ“LiÀʜvÊÈÌiÃÊ>˜`ÊÌ iÊœÛiÀ˜“i˜Ì½ÃÊVœ““ˆÌ“i˜ÌÊ̜ʘœÌÊ ÌœÊ“>ÌV Ê«i>ŽÊ`i“>˜`ÃÊ LՈ`ʘiÜÊ`>“à UÊ Ê7 i˜ÊÜ>ÌiÀÊÃÕ««ÞʈÃÊ>L՘`>˜Ì]ʈÌÊ«Àœ`ÕViÃʏ>À}iÊ>“œÕ˜ÌÃʜvÊ UÊ Ê˜vÀ>ÃÌÀÕVÌÕÀiÊV>˜ÊV>ÕÃiÊ>“i˜ˆÌÞ]ÊÀiVÀi>̈œ˜>Ê>˜`Ê iiVÌÀˆVˆÌÞÊÛiÀÞÊV i>«Þ° i˜ÛˆÀœ˜“i˜Ì>Êˆ“«>VÌð

27 Part 2 Our future options

Bioenergy Organic matter, or biomass, can be converted into bioenergy (heat, electricity and biofuels) using a variety of technologies. Bioenergy generators tend to be small scale and are best suited for local applications such as municipal waste facilities or for on-farm applications. Bioenergy resources in regions across Victoria

Potential for growth

Advantages Challenges to be overcome UÊ Ê >˜Ê«ÀœÛˆ`iÊ>ÊVœ˜ÌÀœ>LiÊ>˜`ÊVœ˜Ìˆ˜ÕœÕÃÊÃÕ««ÞʜvÊ UÊ Ê ˆœ“>ÃÃÊÃÕ««ˆiÃʓ>ÞÊLiʏˆ“ˆÌi`ʜÀʏœV>Ìi`ʈ˜ÊëiVˆwVÊ «œÜiÀÊqÊÜˆÌ Ê«œÌi˜Ìˆ>Ê̜Ê}i˜iÀ>ÌiÊiiVÌÀˆVˆÌÞÊÓ{Ê œÕÀÃÊ locations, making it most suitable for local uses a day (baseload energy) UÊ ÊˆviÊVÞViÊ}Àii˜ œÕÃiÊ}>ÃÊi“ˆÃȜ˜ÃʜvÊLˆœvÕiÃÊ UÊ ÊÃÊVœ“«ï̈Ûiʈ˜ÊܓiÊÈÌÕ>̈œ˜ÃÊ̜`>Þ]ÊiëiVˆ>ÞÊÜ i˜Ê Û>ÀÞÊÈ}˜ˆwV>˜ÌÞ using a waste product to create energy UÊ Ê >ÞÊÀiÃՏÌʈ˜Ê>“i˜ˆÌÞʈÃÃÕiÃ]ÊÃÕV Ê>Ãʜ`œÕÀÊ>˜`Ê UÊ Ê/ iÀiÊ>Àiʓ>˜ÞÊ`ˆvviÀi˜ÌÊÜÕÀViÃÊvœÀÊLˆœi˜iÀ}Þ° airborne emissions UÊ / iÊVœÃÌÊ>˜`ʵÕ>ˆÌÞʜvÊLˆœ“>ÃÃʈ˜«ÕÌÊÛ>Àˆià UÊ Ê >˜ÊVœ“«iÌiÊÜˆÌ Êvœœ`Ê«Àœ`ÕV̈œ˜ÊvœÀʏ>˜`]Ê unless based on waste products. Wave and tidal Wave energy is captured by turbines that are either fixed to the shore or sea bed or float on the water’s surface. Tidal energy is captured from the flooding and ebbing tide through the use of either tidal turbines or tidal barrage systems, which trap large areas of water and require larger tidal currents. Wave and tidal resources in Victoria

? Potential for growth

Advantages Challenges to be overcome UÊ Ê/ iÀiÊ>ÀiÊܓiÊ«œÌi˜Ìˆ>ÊÜ>ÛiÊ>˜`Ê̈`>ÊÀiÜÕÀViÃʈ˜Ê6ˆV̜Àˆ> UÊ Ê7>ÛiÊ>˜`Ê̈`>ÊÌiV ˜œœ}ÞʈÃʘiÜÊ>˜`ÊÀiµÕˆÀiÃÊvÕÀÌ iÀÊ UÊ Ê œ>ÃÌ>Ê>Ài>ÃÊ>ÀiÊÀi>̈ÛiÞÊVœÃiÊ̜Êi݈Ã̈˜}ÊÌÀ>˜Ã“ˆÃȜ˜Ê research, development and commercial demonstration infrastructure (both intermediate and high voltage lines) UÊ Ê/ iÊÃVœ«iÊvœÀÊÜ>ÛiÊ>˜`Ê̈`>ÊÌiV ˜œœ}ˆiÃÊ̜Ê`iˆÛiÀÊ«œÜiÀÊ UÊ Ê/ˆ`>Ê«œÜiÀÊV>˜ÊLiÊÃV i`Տi`Ê`>ÞÃʈ˜Ê>`Û>˜ViÊqÊLiV>ÕÃiÊ ÌœÊ6ˆV̜Àˆ>Ê >ÃÊÞiÌÊ̜ÊLiÊ`iÌiÀ“ˆ˜i`]ÊLÕÌʈÌʈÃÊ՘ˆŽiÞÊ̜ÊLiÊ we know when the tides will occur a major contributor in the near term UÊ Ê-œ“iÊ`iۈViÃÊV>˜ÊLiÊVœ˜ÃÌÀÕVÌi`Ê՘`iÀÊÜ>ÌiÀÊÜÊÌ iÀiʈÃÊ UÊ Ê˜vÀ>ÃÌÀÕVÌÕÀiʓ>Þʈ˜ÌiÀviÀiÊÜˆÌ ÊœÌ iÀÊVœ““iÀVˆ>ÊœÀÊ no visual impact. recreational activities UÊ Ê˜ÃÌ>>̈œ˜Ê>˜`ʓ>ˆ˜Ìi˜>˜ViʈÃÊVœ“«iÝÊLiV>ÕÃiÊÌ iÊ}i˜iÀ>̜ÀÊ is located offshore in a challenging environment.

Potential for growth over the next 20 years. -ÕLÃÌ>˜Ìˆ>Ê«œÌi˜Ìˆ>ÊqÊVœÕ`ÊLiÊÕÃi`ʈ˜Ê“œÀiÊÌ >˜Ê£x¯ÊœvʜÕÀÊiiVÌÀˆVˆÌÞÊÃÕ««Þ -ˆ}˜ˆwV>˜ÌÊ«œÌi˜Ìˆ>ÊqÊVœÕ`ÊLiÊÕÃi`ʈ˜ÊLiÌÜii˜ÊÓ¯Ê>˜`Ê£x¯ÊœvʜÕÀÊiiVÌÀˆVˆÌÞÊÃÕ««Þ 28 ˆ“ˆÌi`Ê«œÌi˜Ìˆ>Ê̜ÊiÝ«>˜`ÊqÊ՘ˆŽiÞÊ̜ÊLiÊÕÃi`ʈ˜Ê“œÀiÊÌ >˜ÊÓʯʜvʜÕÀÊiiVÌÀˆVˆÌÞÊÃÕ««Þ Research and development into Bringing new technologies to market renewable energy Compared to traditional energy generation sources, many Encouraging development of new technologies is a global renewable energy technologies are expensive (see Figure 9). effort. Many technological breakthroughs can be adopted This means that a major challenge is to ‘prove’ these globally. As a result, renewable energy sources benefit from technologies – bringing down costs and demonstrating the research and development undertaken in other parts their potential commercial viability. This includes techniques of the world. to store energy. Australia and Victoria have a role to play in this When developing new technologies, the business involved effort, focusing on areas of research, development and must bear the costs of taking action from which other commercialisation that favour our comparative advantage business can easily generate benefits. Whether it is and national interest. We also need to look for clever ways knowledge, skills or the expenses involved in lobbying a to quickly adopt technologies developed overseas and government to make new regulations, the original business apply them to Victorian conditions. is disadvantaged compared to its competitors. To overcome this problem of bringing technologies from Over time, less mature technologies can be expected their initial research and development to the stage where to decrease in cost as a result of economies of scale and they are ready to be commercialised, funding support as more is learned about applying these technologies from governments is required. effectively. Further, a rising carbon price would increase the costs of fossil fuel electricity generation, making renewable Victoria’s Energy Technology Innovation Strategy energy (particularly mature technologies such as wind) more (ETIS) is designed to reduce the costs of renewable competitive. Finally, the Renewable Energy Target (RET) energy technologies. is already providing a steady additional revenue steam to renewable energy projects, allowing them to compete 2.1 in today’s energy market.

29 Part 2 Our future options

Integrating more dispersed and intermittent Many forms of renewable energy produce intermittent sources of power electricity. Their output will vary depending on whether it is cloudy or sunny, windy or still. This variable character of Compared to coal-fired energy generation, which renewable energy may limit the proportion of electricity occurs primarily in the Latrobe Valley, renewable energy that it can securely supply into the network. generation will increasingly be sourced from different parts of Victoria and interstate. Until large scale storage options become viable, planning for complementary forms of power generation (such as As these resources are developed, we are likely to see gas) will need to account for potentially rapid fluctuations renewable energy projects clustered in geographic areas in renewable electricity generation. Increased capacity to that are remote from the majority of consumers and the transmit electricity between states may also help to existing transmission network. In limited instances, this mitigate this risk. Sophisticated forecasting capability to may create opportunities for renewable energy facilities improve the accuracy of wind generation forecasts can to provide electricity directly to nearby communities. This also help the network operator manage the changing may assist in moderating peak demand loads, delaying output levels. system upgrades and reducing transmission losses. Geothermal and some marine sources will have the However, the scale of the coming growth of renewable advantage of delivering continuous and reliable electricity. energy means there will be an increase in applications for Commercialisation of these technologies would allow the connection to the electricity grid and many new sources proportion of renewable energy in the network to increase will be located in relatively remote areas. The appearance to much higher levels. of structures such as wind turbines and power lines will be markers of Victoria’s movement to a cleaner energy system, Part 3 of this statement describes Victoria’s approach but will cause concern to some local residents. to addressing these and other issues to develop our renewable energy potential.

Storing renewable energy

Renewable energy sources such as wind and solar are Energy storage in fuel form – A variety of possible variable in output and unpredictable to some degree. storage options are being investigated, including This can create problems for an electricity system if these hydrogen (an energy carrier which can be used as a sources are contributing more than about 20 per cent of transport fuel or for energy storage), converting total supply capacity. biomass to biofuel and storing it in this form until use, and storing solar energy in heated oil or salt solutions This is an issue shared by electricity grids all over the world. or in combination with a geothermal resource. As a result, there is global interest in finding low cost and reliable ways of storing electricity. Success in this area will The capacities of storage systems, the cost of their allow us to use a much higher proportion of power from construction and the overall costs per unit of energy vary variable sources. widely, according to the International Energy Agency. Options to store renewable energy include: Some examples of installations around the world include instalment of 34 MW of batteries at a 51 MW wind farm Hydro – Where this is available, it is a proven and in Rokkasho, Japan and 12 MW of battery storage in a reliable way of ‘storing’ power. Renewable energy 39 MW facility in Ireland. can be used to pump water up into storages for later ‘on-demand’ use. Unfortunately, this has limited application in Victoria. Batteries and mechanical storage – Batteries, capacitors, compressed air and flywheels represent forms of energy storage technologies that are presently available today for small scale applications. There are many forms under consideration for larger scale storage applications.

30 What we are doing now

Victoria is already developing renewable energy as a major part of our future energy mix. Renewable Energy Targets

UÊ Ê6ˆV̜Àˆ>ÊÜ>ÃÊÌ iÊvˆÀÃÌÊ>˜`ʜ˜ÞÊÃÌ>ÌiÊ̜ʈ˜ÌÀœ`ÕViÊ>Ê,i˜iÜ>LiÊ ˜iÀ}ÞÊ/>À}iÌÊ­6, /®°Ê œ““i˜Vˆ˜}ʈ˜ÊÓääÇ]ÊÌ iÊ scheme sparked new investment in renewable energy across Victoria. Over 1,500 MW of wind projects worth around $2 billion have received planning approval. Renewable energy companies get an additional source of revenue from selling renewable energy certificates (which sell for between $30 and $50 per MWh). This financial support means they can compete with other forms of generation in the electricity market.

UÊ Ê6ˆV̜Àˆ>Ê܈ÊÌÀ>˜ÃˆÌˆœ˜ÊÌ iÊ6, /ʈ˜ÌœÊÌ iÊ œ““œ˜Üi>Ì ½ÃÊi˜ >˜Vi`Ê,i˜iÜ>LiÊ ˜iÀ}ÞÊ/>À}iÌÊ­, /®Ê«Àœ}À>“ʈ˜ÊÓä£ä°Ê The RET is predicted to result in an extra 7,000 GWh of large scale renewable energy in Victoria over the next ten years, including approximately 1200 new wind turbines, new large scale solar energy plants and new biomass generators. The result will be cleaner energy and billions of dollars of new investment in Victoria. Energy Technology Innovation Strategy and investment support

UÊ Ê*ÀœiVÌÃÊÃÕ««œÀÌi`ÊLÞÊÌ iÊ ˜iÀ}ÞÊ/iV ˜œœ}Þʘ˜œÛ>̈œ˜Ê-ÌÀ>Ìi}ÞÊ­ /-®ÊÛ>ÀÞÊvÀœ“ÊÓ>ÊÃV>iÊÀiÃi>ÀV Ê>˜`Ê`iÛiœ«“i˜ÌÊ to large scale pre-commercial projects. They include a $6 million grant to develop thin film organic solar cells.

UÊ fÇÓʓˆˆœ˜Ê >ÃÊLii˜Ê>œV>Ìi`ÊvœÀÊ>ÊÃiVœ˜`ÊÀœÕ˜`ʜvÊÀi˜iÜ>LiÊi˜iÀ}ÞÊ«ÀœiVÌÃÊ՘`iÀÊ /-°Ê UÊ Ê œ˜ÌÀˆLÕÌiÊf£ääʓˆˆœ˜Ê̜Ê>ÌÌÀ>VÌÊÃÕ««œÀÌÊvœÀÊ>ʘiÜʏ>À}iÊÃV>iÊ܏>ÀÊ«œÜiÀÊÃÌ>̈œ˜]ÊÃÕLiVÌÊÌœÊ œ““œ˜Üi>Ì Ê Flagships funding. 2.1 UÊ Ê/ iÊœÛiÀ˜“i˜ÌÊ>ÃœÊv>VˆˆÌ>ÌiÃÊÀi˜iÜ>LiÊi˜iÀ}Þʈ˜ÛiÃ̓i˜Ìʈ˜Ê6ˆV̜Àˆ>ÊLÞÊ«ÀœÛˆ`ˆ˜}ÊVœ“«>˜ˆiÃÊÜˆÌ Ê>ÃÈÃÌ>˜ViÊ to access required information, approvals and support. Support for geothermal energy

UÊ Ê/ iÊœÛiÀ˜“i˜ÌʈÃÊ«ÀœÛˆ`ˆ˜}ÊfÓxʓˆˆœ˜Ê̜ʫÀœ“œÌiÊÌ iÊ}iœÌ iÀ“>ÊÀiÜÕÀViʈ˜Ê6ˆV̜Àˆ>ÊLÞÊÃÕ««œÀ̈˜}Ê>Ê`Àˆˆ˜}Ê program and encouraging small scale (then expanded) operations if the resource is proven. Project approvals

UÊ Ê/ iÊœÛiÀ˜“i˜ÌÊ >Ãʈ`i˜Ìˆvˆi`ʜ««œÀÌ՘ˆÌˆiÃÊvœÀʈ“«ÀœÛˆ˜}ÊÌ iÊÀi}Տ>̈œ˜ÃÊ>˜`Ê«ÀœViÃÃiÃÊÌ >ÌÊ >ÛiÊ>ÊLi>Àˆ˜}ʜ˜Ê investment and approvals for renewable energy projects. This includes a review of Victoria’s environmental regulations, reviews of important environmental and planning legislation and a Parliamentary Inquiry into opportunities to reduce red tape in relation to renewable energy projects. Working with communities

UÊ Ê/ iʓʫÀœÛˆ`iÃÊfÈʓˆˆœ˜Ê̜Êà œÜV>Ãiʈ˜˜œÛ>̈ÛiÊi˜iÀ}ÞÊ܏Ṏœ˜ÃÊÃÕV Ê>ÃÊ local renewable energy supply and smart meters. Other programs include solar hot water rebates and the Victorian Solar in Schools initiative. This allows Victorians to directly contribute to renewable energy generation.

UÊ Ê/ iÊœÛiÀ˜“i˜ÌÊ >Ãʈ˜ÌÀœ`ÕVi`Ê>Ê«Ài“ˆÕ“Êvii`‡ˆ˜ÊÌ>ÀˆvvÊvœÀÊÀœœv‡Ìœ«Ê܏>ÀÊ«>˜iÃÊ>˜`Ê>ʼv>ˆÀÊ>˜`ÊÀi>ܘ>Li½Êvii`‡ˆ˜Ê tariff for other forms of renewable energy.

31 Part 2 Our future options

2.2 Gas and low emissions coal

While fossil fuels – coal and gas – have been a major cause of climate change, they can also be part of the solution. The development of commercially viable clean fossil fuel technologies will be particularly important to Victoria, given our large resources of brown coal, gas and carbon dioxide storage sites.

Victoria’s fossil fuels – coal and gas – currently meet over Because Victoria has extensive fossil fuel reserves located 95 per cent of our stationary energy needs and have close to potential carbon storage sites, CCS could be provided us with cheap and reliable power for nearly a particularly important. New technologies that convert century. Today, four large brown coal generators located brown coal to forms of energy other than electricity also in the Latrobe Valley continue to do most of the work hold great promise if CCS becomes commercially viable. (see Figure 10 – p33). These generators run continuously By comparison to current uses of coal, gas is a (except when closed for maintenance or unforeseen much lower emissions fuel for electricity generation outages), providing baseload power for Victorian homes (see Figure 11 – p33). Gas has the capability to be a and businesses. future source of baseload power and to complement While fossil fuels are a major cause of the climate the intermittent character of renewable energy. change problem, they must also be part of the solution. A carbon price would make gas-fired power stations The development of low emissions coal, and specifically more attractive investments. Consequently, gas will grow carbon capture and storage (CCS) technologies, will be in importance in Victoria as we transition to a low carbon an important part of the global response to climate economy (see Figure 12 – p33). change. The International Energy Agency estimates that The transformation of the energy sector over the coming achieving a 50 per cent reduction in global emissions by decades will present a range of opportunities for both 2050 will rely on CCS for one fifth of those reductions.ii these forms of fossil fuels – opportunities we will need to Without CCS the overall cost of reducing emissions to actively develop. 2005 levels by 2050 could increase by up to 70 per cent.iii

32 Box 5. How Victorian fossil fuel energy production could change

Coal now dominates our energy supply. But over the next two decades its contribution will decline substantially. In the short term, the gap will be made up by greater energy efficiency, gas and wind power. In the medium term, coal with carbon capture and storage (CCS) is expected to make a growing contribution and eventually, CCS technology may also be applied to gas.

2.2

33 Part 2 Our future options

Gas – an essential part of the transition to a low Victoria’s coal – a cleaner future carbon economy Victoria has one of the world’s largest brown coal reserves Gas currently plays a limited but important role in Victorian (23 per cent of the world’s known reserves). These reserves electricity generation. Gas-fired electricity generation is are very low in impurities such as heavy metals and sulphur, used largely to meet our peak energy demands in summer. reducing the need for expensive pollution control methods. As a result, although gas provided less than 5 per cent of But the high water content of our coal means it is expensive all our electricity in 2008, gas-fired power stations represent to export. It is also unstable to transport – brown coal can 20 per cent of the total installed capacity in Victoria. spontaneously combust. Gas may also help meet demand when electricity from More significantly, brown coal’s high water content means renewable energy falls unexpectedly (for example, when it produces high levels of carbon dioxide when burnt. wind speeds drop). These high emissions mean we must re-evaluate the We also use reticulated gas as an energy source for role brown coal will play in the future of Victoria and domestic and commercial applications such as heating particularly in the future of the Latrobe Valley, where and cooking, and for industrial uses. As with the electricity most of Victoria’s coal is found. sector, reforms over the last ten years have increased In the long term, the use of brown coal for electricity competition in the delivery of gas to consumers. generation in Victoria cannot continue without the Victorian gas supplies are now increasingly linked application of technologies to reduce carbon dioxide into an east coast market. emissions. The introduction of a cap on emissions, which Most of Victoria’s gas comes from Bass Strait. We buy would lead to a steadily increasing carbon price, would this gas at prices that are less than half the current make brown coal-based electricity generation – in its international market price. Our future access to gas current form – progressively less competitive. could come from new sources discovered locally or from As the carbon price rises, the older, least efficient brown greater access to the rapidly developing Queensland coal coal power stations would start to reduce output and seam gas industry (by expanded pipelines). close. To avoid disruptions to our energy supply, we need As this occurs, a range of factors will start to influence sufficient new capacity to be introduced in a timely way to our demand for, and the supply of, gas. replace the retiring plants. The extent to which Victoria’s coal reserves contribute to this new capacity will depend A carbon price added to the cost of gas would be expected upon our success in developing low emissions coal to slowly rise over time. But because gas is less emissions- technologies and the introduction of a carbon price intensive than other fossil fuels such as brown and black at the national level. coal, it would probably become more competitive, leading to increases in demand. Low emissions coal technologies A carbon price could also affect gas production. As we ‘Low emissions coal technologies’ commonly refers to the develop new gas fields, we may find higher concentrations various approaches used to reduce emissions from coal of naturally occurring carbon dioxide in the gas. This means powered electricity generation (see Coal drying, that CCS could find application in capturing and storing gasification and other processes – p39). These technologies gas from natural gas production. include coal drying and gasification, and CCS. The increase in demand for gas internationally may see For example, a new technology is available that dries and Queensland gas being developed for export. If this occurs, gasifies brown coal in an integrated process and generates because the east coast market will become increasingly electricity using hydrogen from the gas produced. Using interconnected, the local Victorian gas price could this technology as part of a process called Integrated approach international gas prices over time. Drying Gasification Combined Cycle (IDGCC) reduces The limitations of existing pipelines will create the need carbon dioxide emissions by 30 per cent. If combined with for capacity upgrades in Victoria and possibly greater CCS, it could lower carbon dioxide emissions to near zero. interconnectivity with gas supplies from Queensland. IDGCC has undergone extensive research and development and is planned for use in a new large scale demonstration Although potential price increases present long term plant in Victoria. challenges for gas, the greater use of gas in the medium term will create opportunities for regional growth and economic diversification. As with all mature energy sources, further expansion of gas markets will not be determined by governments. The private sector will make its investment decisions according to its assessment of the various risks and rewards that operating in the gas sector offers.

34 Syngas – a new product from cleaner coal

Syngas or synthetic gas is a gas that can be produced from brown coal. Syngas contains carbon monoxide, carbon dioxide and hydrogen, as well as other gases. Through the gasification process of producing Syngas (the conversion of the coal into a gas), carbon dioxide can be captured (a form of ‘pre combustion’ carbon capture). Prior to the carbon dioxide capture, the carbon monoxide is reacted with steam to give carbon dioxide and more hydrogen. The carbon dioxide is then separated leaving a hydrogen-rich fuel.

Industrial Uses

Gas Purification & Coal Gasification Fuel Cell Applications CO2 Separation

CO Compression 2 Electricity Generation 2.2 & Storage

Syngas has 50 per cent of the energy density of natural gas and can be burnt as a fuel source for electricity generation. However, as well as being a direct energy source, Syngas can provide hydrogen, liquefied natural gas (LNG), natural gas, chemical fertilisers and other petroleum based products. Syngas is not a new technology. During the oil crisis in the 1970s, countries experimented with the production of Syngas as an alternate fuel supply. However, at that time the process did not prove to be economically viable. But as energy prices start rise, Syngas could become an important new product derived from brown coal.

35 Part 2 Our future options

Carbon capture and storage In Australia, the Commonwealth Government is best placed to be the major funding source for these projects. Carbon capture and storage (CCS) technologies have the An ETS would create an ongoing revenue stream that potential to significantly reduce emissions from large scale could be directed towards supporting energy innovation. use of fossil fuels (see Box 6 – p37 ). As a result, these The Commonwealth also has the constitutional power technologies are of global importance and are a major to capture revenue from coal exports to ensure private focus of global research and development. sector support. The continued expansion of coal use worldwide means it Commercialisation of CCS would bring great benefits to will be much harder to achieve the necessary reductions in Victoria because our State appears to be uniquely suited global emissions if CCS is not successful. If this is going to to carbon storage. Victoria is recognised internationally be the case, the sooner we know, and can take alternative as holding some of the world’s most promising geological action, the better. carbon storage sites – made more significant because they Technologies for different components of CCS – capture, are within 200 kilometres of major coal deposits in the compression, transport, and storage – have been Latrobe Valley. demonstrated at the pre-commercial level in various parts The depleted oil and gas fields of the offshore Gippsland of the world, but successful commercial demonstration of Basin are large enough to potentially store several decades integrated CCS at a large scale is yet to occur anywhere of carbon dioxide emissions, with hundreds of years of (although it is used commercially as part of enhanced storage potential even deeper under the seabed. With its oil recovery). proximity to the principal source of fossil fuel emissions, There are major barriers to be overcome before integrated carbon storage in the Gippsland Basin could have lower CCS can be implemented at a commercial scale. CCS costs than other sites around Australia. technology is costly and highly energy intensive, and The Commonwealth’s Carbon Storage Taskforce estimates reliable long term carbon storage is still being tested. the storage capacity in the Otway Basin at over 14 billion The long term safe storage of carbon dioxide underground tonnes. As a comparison, Victoria’s total energy sector looks promising but technical challenges and community emissions are about 100 million tonnes per year. concerns need to be addressed. One of the world’s largest research and demonstration Even if the technical feasibility of CCS can be demonstrated projects of geological sequestration of carbon dioxide is at an industrial scale, it may be many more years before currently underway in the Otway Basin. This pilot project the technology can be applied economically. will contribute to global understanding of carbon storage technology (see case study – p71). Significantly, CCS will not develop without extensive support from governments. Early support for carbon capture technology will also be required. In Victoria, this is occurring through ETIS, which The market does not currently provide sufficient incentives supports research, development and demonstration of to overcome these significant risks for the private sector. several carbon capture projects. Support from governments will be needed to complement private sector investment in large scale CCS demonstration Technologies are also being developed to capture carbon until carbon prices increase and risks reduce sufficiently emissions without the need for storage – by converting the to make CCS fully commercially viable. carbon dioxide to a solid (such as cement or aggregates) or liquid (such as biodiesel or fertiliser from algae). Victoria will also explore the potential use of these technologies.

CO2CRC/CSIRO Carbon capture project, Loy Yang

36 Box 6. What is carbon capture and storage and what will it mean for Victoria?

What is carbon capture and storage? But the costs associated with building new plants, retrofitting CCS technology into existing plants and Carbon capture and storage (CCS) involves collecting the building the infrastructure for capture, compression, large amounts of carbon dioxide (CO ) released by power 2 transportation and storage will be high. This means stations or other industrial plants and then storing these that CCS will not be commercially viable in the short to emissions securely – deep underground – just as oil and medium term. To overcome these problems, Australian gas have been stored naturally for millions of years. governments – and other governments around the CCS could help power stations around the world world – are contributing significant funds towards to drastically cut CO2 emissions while continuing to proving CCS technologies. produce electricity. Victoria is well placed to take advantage of these

There are three stages to CCS. First, the CO2 is collected technologies as the State’s electricity industry in the at its source. CO2 capture can take place either before Latrobe Valley is close to potential large storage sites (pre-combustion) or after (post-combustion) the fossil fuels in decommissioned oil and gas fields. are burnt. In post-combustion capture, instead of being What if carbon capture and storage is too expensive discharged directly to the atmosphere, flue gas is passed to be commercially viable? through equipment which separates out most of the CO2. If CCS is not successful, the complexity of reducing The CO is then compressed at very high pressures and 2 emissions may be even greater. The sooner we know pumped through a pipeline to a suitable storage site. this, the better. Finally, the CO is injected into secure natural rock 2 If CCS does not become viable, it will be because formations deep underground for permanent storage. alternative sources of low emissions baseload electricity 2.2 At the moment, this geological storage looks like being are available at a lower cost. These could include existing the most feasible option. technologies, in use here or overseas, or new technologies Will it be viable at a commercial scale? that are still under development. CCS has not been implemented as an integrated large We could also invest in greater capacity in the scale technology. However, components of the technology interconnecting high voltage power lines between have been operating in isolation for some time. As a result, the states. many experts believe that technological hurdles are likely to be manageable as larger projects are developed.

Figure 13 The carbon capture and storage process

37 Part 2 Our future options

Gas Gas-fired power stations may be an important transitionary source of electricity for Victoria. Currently gas represents 20 per cent of installed capacity in Victoria – about 1800 MW – but because some power stations are used mainly for peak supply, it supplies only about 4 per cent of our electricity.

Location of Victoria’s gas resources

Potential for growth

Advantages Challenges to be overcome UÊ Ê*ÀœÛi˜ÊÌiV ˜œœ}ÞÊÌ >ÌÊV>˜Ê«Àœ`ÕViÊiiVÌÀˆVˆÌÞÊÛiÀÞÊivwVˆi˜ÌÞ UÊ Ê6ˆV̜Àˆ>Ê >Ãʏˆ“ˆÌi`Ê}>ÃÊÃÕ««ˆiÃ]ÊÜÊ܈Ê˜ii`Ê̜ÊÃÌ>ÀÌÊ UÊ Ê ÕÀÀi˜ÌÊLiÃÌÊ«À>V̈ViÊVœ“Lˆ˜i`ÊVÞViÊ«>˜ÌÃÊ >ÛiÊ>˜Êi“ˆÃȜ˜ÃÊ importing gas at some point over the next decade (requiring expensive new infrastructure development) intensity of 0.35tCO2 /MWh (compared to 1.2–1.5tCO2 / MWh for existing brown coal power stations) UÊ Ê6ˆV̜Àˆ>˜Ê}>ÃÊ«ÀˆViÃʓ>ÞÊÀˆÃiʈ˜ÊÌ iÊvÕÌÕÀiÊ>ÃÊ`i“>˜`Ê UÊ >˜Ê«ÀœÛˆ`iÊL>Ãiœ>`Ê>˜`Ê«i>ŽÊ«œÜiÀ° for gas increases globally UÊ ÊœL>ÊVœ“«ï̈œ˜ÊvœÀʘiÜÊ}i˜iÀ>̜ÀÊiµÕˆ«“i˜ÌʈÃʏˆŽiÞÊ to drive up costs UÊ 7ˆÊÀiµÕˆÀiÊ -ʜÛiÀÊÌ iʏœ˜}ÊÌiÀ“°

Potential for growth over the next 20 years. Substantial potential – could be used in more than 15% of our electricity supply Significant potential – could be used in between 2% and 15% of our electricity supply Limited potential to expand – unlikely to be used in more than 2 % of our electricity supply

38 Coal drying, gasification and other processes Coal drying uses various technologies and processes to reduce the water content of brown coal. Some form of coal drying is likely to be a component of any new technology using coal. Coal gasification can be used to increase the energy efficiency of coal use and can be applied as part of other conversion processes to make liquid fuels or fertilisers. Direct coal liquefaction converts coal to liquids without the gasification phase.

Coal resources in Victoria

Potential for growth* ? * Used in association with coal-fired power generation (can be used in other processes). 2.2

Advantages Challenges to be overcome Coal drying General UÊ Ê*œÌi˜Ìˆ>Ê̜ÊLiÊ>˜ÊivwVˆi˜Ìʓi>˜ÃʜvÊÀi`ÕVˆ˜}Ê}Àii˜ œÕÃiÊ UÊ ii`Ê̜Êi˜ÃÕÀiÊ>ˆÀÊ>˜`ÊÜ>ÌiÀʵÕ>ˆÌÞÊÃÌ>˜`>À`ÃÊ>ÀiʓiÌ

gas emissions from power generation (from 1.3tCO 2 /MWh UÊ iÜÊ«>˜Ìʘii`ÃÊ̜ÊVœ˜Ãˆ`iÀÊÜ>ÌiÀÊ>Û>ˆ>LˆˆÌÞ to 0.8tCO /MWh) 2 UÊ ˆ“ˆÌi`ÊvÕÌÕÀiÊÜˆÌ œÕÌÊ -°Ê UÊ ˜VÀi>ÃiÃÊiiVÌÀˆVˆÌÞʜÕÌ«ÕÌÊvÀœ“ÊÌ iÊÃ>“iÊ>“œÕ˜ÌʜvÊVœ> Coal drying UÊ Ê7>ÌiÀÊiÝÌÀ>VÌi`ÊVœÕ`ÊLiÊÌÀi>Ìi`Ê>˜`ÊÀiÕÃi`ʜÀÊ>``i`ÊÌœÊ UÊ Ê/ iÊ«ÀœViÃÃiÃÊÕÃi`Ê̜Ê`ÀÞÊVœ>Ê˜ii`Ê̜ÊLiÊ«ÀœÛi˜Ê>ÌÊ>˜Ê Victoria’s water supply industrial scale and the efficiency factors need to be improved UÊ ÊÌʈÃÊ>˜Êi˜>Lˆ˜}ÊÌiV ˜œœ}ÞÊvœÀÊivwVˆi˜ÌÊV>ÀLœ˜ÊV>«ÌÕÀiÊ UÊ Ê
ÊȘ}iÊ`Àވ˜}ÊÌiV ˜œœ}Þʓ>ÞʘœÌÊLiÊÃՈÌ>LiÊvœÀÊ>ÊVœ>Ê and storage (CCS) implementation. types or applications. Coal gasification Coal gasification UÊ Ê˜VÀi>ÃiÃÊivwVˆi˜VÞÊ­iëiVˆ>ÞÊÜˆÌ ÊVœ“Lˆ˜i`ÊVÞVi®ÊœvÊ«œÜiÀÊ UÊ ÕÃÌÊÃ̈ÊœÛiÀVœ“iÊÌiV ˜ˆV>Ê>˜`ÊVœÃÌÊL>ÀÀˆiÀà generation and can lower to 0.8tCO /MWh (without CCS) 2 UÊ ,iµÕˆÀiÃÊÛiÀÞÊ`ÀÞÊVœ>ÊvœÀÊ ˆ} ÊÌi“«iÀ>ÌÕÀiÊ}>ÈwV>̈œ˜ UÊ Ê
œÜÃÊVÀi>̈œ˜ÊœvʘiÜÊ«Àœ`ÕVÌÃÊ­-ޘ}>Ã]ÊviÀ̈ˆÃiÀÃ]ʏˆµÕˆ`ÃÊiÌV® UÊ 7œÕ`ÊÀiµÕˆÀiÊÌ iÊÀiÌÀ>ˆ˜ˆ˜}ʜvÊÌ iÊi݈Ã̈˜}ÊܜÀŽvœÀVi° UÊ Ê
`>«Ì>LiÊÌœÊœÌ iÀÊ«Àœ`ÕVÌÃÊ­«>À̈VՏ>ÀÞÊÌÀ>˜Ã«œÀÌÊvÕiÃ®ÊÜˆÌ Ê Direct coal liquefaction potential to create products for export. UÊ ÕÃÌÊÃ̈ÊœÛiÀVœ“iÊÌiV ˜ˆV>Ê>˜`ÊVœÃÌÊL>ÀÀˆiÀà Direct coal liquefaction UÊ Ê*Àœ`ÕViÃÊ>ÊÃÞ˜Ì ïVÊVÀÕ`iʜˆÊÌ >ÌÊÀiµÕˆÀiÃÊvÕÀÌ iÀÊÀiw˜i“i˜Ì UÊ œÜiÀÊV>ÀLœ˜Ê`ˆœÝˆ`iÊi“ˆÃȜ˜ÃÊÌ >˜Ê}>ÈwV>̈œ˜Ê«ÀœViÃÃià UÊ Ê ii`Ê̜Ê>``ÀiÃÃÊœÌ iÀÊi˜ÛˆÀœ˜“i˜Ì>ÊVœ˜ViÀ˜ÃʏˆŽiÊÜ>ÃÌiÊ`ˆÃ«œÃ>° UÊ Ê>ÃÊÌ iÊV>«>VˆÌÞÊ̜ʜvvÃiÌʜˆÊˆ“«œÀÌÃÊ>˜`ÊÃÌÀi˜}Ì i˜ÊÃiVÕÀˆÌÞÊ of supply UÊ
`>«Ì>LiÊÌœÊœÌ iÀÊi˜iÀ}ÞÊÃiV̜ÀÃ]Ê«>À̈VՏ>ÀÞÊÌÀ>˜Ã«œÀÌ°

39 Part 2 Our future options

Carbon capture, transport and storage Carbon capture will be a critical technology to the ongoing development and use of brown coal in Victoria. Without the successful demonstration and commercialisation of this technology, the future uses of coal will be limited. It can be applied to multiple processes, including those in coal-fired power stations and other coal technologies (like gasification) as well as natural gas extraction (as in the Gorgon Gas project off the coast of Western Australia) and gas-fired power stations. Transport of carbon dioxide is a proven commercial process. But as with carbon capture, the safe and economic storage of carbon dioxide needs to be demonstrated in Victorian conditions.

Potential storage sites for carbon dioxide

Potential for growth* ? * Used in association with coal-fired power generation (can be used in other processes).

Advantages Challenges to be overcome Carbon capture Carbon capture UÊ Ê-ˆ}˜ˆwV>˜ÌÞʏœÜiÀÃÊ}Àii˜ œÕÃiÊ}>ÃÊi“ˆÃȜ˜ÃÊvÀœ“ÊvœÃÈÊ UÊ ÊÃÊVÕÀÀi˜ÌÞÊ>ÊÛiÀÞÊiÝ«i˜ÃˆÛiÊVœ“«œ˜i˜ÌʜvÊV>ÀLœ˜ÊV>«ÌÕÀiÊ fuels (with storage) and storage process (especially for existing power plants) UÊ
Ài>`ÞÊVœ““iÀVˆ>Êˆ˜ÊܓiÊ«>ÀÌÃʜvÊÌ iÊ}>Ãʈ˜`ÕÃÌÀÞ UÊ Ê>À}iÊi˜iÀ}ÞÊ>˜`ÊVœÃÌÊ«i˜>ÌÞÊ­>Ìʏi>ÃÌÊÎäÊ«iÀÊVi˜ÌʜvÊi˜iÀ}ÞÊ UÊ Ê-œ“iÊV>«ÌÕÀiʓiÌ œ`ÃÊÌ >ÌÊ«Àœ`ÕViÊ«Àœ`ÕVÌÃÊÌ >ÌÊ`œ˜½ÌÊ output) require storage show promise. UÊ Ê,iµÕˆÀiÃÊÌiV ˜ˆV>ÊLÀi>ŽÌ ÀœÕ} ÃÊ̜Ê>V ˆiÛiÊÃV>iÊÀiµÕˆÀi` Transport and storage UÊ Ê-«iVˆwVʓiÌ œ`Ãʓ>ÞʘœÌÊܜÀŽÊ>VÀœÃÃÊ>ÊÌÞ«iÃʜvÊVœ>Ê UÊ Ê*œÌi˜Ìˆ>ÊÃ̜À>}iÊÈÌiÃʈ˜Êˆ««Ã>˜`Ê >ȘÊVœÃiÊ̜ʫœÜiÀÊ and technology. stations in the Latrobe Valley (about 100 –200 kilometres) Transport and storage UÊ -̜À>}iÊ>Ìʓi`ˆÕ“ÊÃV>iʈÃʜVVÕÀÀˆ˜}ÊiÃiÜ iÀiÊ UÊ œ““Õ˜ˆÌÞÊVœ˜ViÀ˜ÃʜÛiÀÊÃ>viÌÞ UÊ Ê iV>`iÃʜvÊÃ̜À>}iÊ>ÀiÊ>Û>ˆ>Liʈ˜ÊÌ ˆÃÊ>Ài>½ÃÊ`i«iÌi`ʜˆÊ UÊ ˜ÛœÛiÃÊ>ÊVœÃÌÊ>˜`Êi˜iÀ}ÞÊ«i˜>ÌÞÊ and gas fields UÊ Ê,iµÕˆÀiÃʘiÜÊ>˜`ÊiÝ«i˜ÃˆÛiÊÌÀ>˜Ã«œÀÌÊ>˜`ʈ˜iV̈œ˜Êˆ˜vÀ>ÃÌÀÕVÌÕÀi UÊ Ê ii«ÊÃ>ˆ˜iÊ>µÕˆviÀÃÊ>ÀiÊ«œÌi˜Ìˆ>Þʏ>À}iÊi˜œÕ} Ê̜ÊÃiVÕÀiÊ UÊ 1˜ViÀÌ>ˆ˜ÌÞÊÀi}>À`ˆ˜}ʏœ˜}ÊÌiÀ“ʏi>Ž>}iÊ several hundred years of carbon emissions. UÊ 1˜ViÀÌ>ˆ˜ÌÞÊ>ÀœÕ˜`Ê«œÌi˜Ìˆ>ÊÃ̜À>}iÊۜÕ“ià UÊ ,iµÕˆÀiÃʏœ˜}ÊÌiÀ“Ê`i“œ˜ÃÌÀ>̈œ˜ UÊ Ê/À>˜ÃviÀʜvʏˆ>LˆˆÌÞÊvœÀÊÌ iÊÃ̜Ài`ÊV>ÀLœ˜Ê`ˆœÝˆ`iÊ̜ÊÌ iÊ-Ì>ÌiÊ in the long term UÊ Ê*œÌi˜Ìˆ>Ê>VViÃÃÊ`ˆÃ«ÕÌiÃÊLiÌÜii˜ÊV>ÀLœ˜Ê`ˆœÝˆ`iʈ˜iV̈œ˜Ê and storage licences, and oil and gas extraction licences.

Potential for growth over the next 20 years. Substantial potential – could be used in more than 15% of our electricity supply Significant potential – could be used in between 2% and 15% of our electricity supply Limited potential to expand – unlikely to be used in more than 2 % of our electricity supply

40 Managing Victoria’s coal resources New commercial opportunities are emerging for coal to be converted to products such as diesel, ammonia (urea), Victoria has good access to fossil fuel resources that methanol, hydrogen and fertilisers. These technologies have generated wealth and economic opportunities for could also provide the early streams of carbon dioxide the State. necessary to support the commercialisation of CCS. However, circumstances have changed and a carbon price If these applications are commercially viable in a carbon would mean the future uses of coal will look dramatically constrained global economy, Victoria could create a different to its past. There is no doubt that less coal will number of new domestic and international markets for be used for power generation in Victoria as gas and coal products. The Government will ensure the export renewable energy expand. Future uses of coal for power of brown coal products is subject to an assessment of its or other products will be dependent on the successful contribution to achieving a low carbon global economy. demonstration of new technologies that lower its emissions or convert it to other products. For example, new technologies are being tested that take brown coal through a heating process to create diesel. A task for the Government across all these options will be This product would be readily exportable and may find a to make sure that all Victorians benefit from using coal in growing market as oil prices start to rise. There is potential an environmentally sustainable way. The potential to create to capture the carbon dioxide produced in the transformation an ongoing source of competitive advantage for Victoria is and store it underground, making the process more viable one we cannot afford to overlook. as we reduce our carbon emissions. To do this, we must be aware of the opportunities that The long term export potential of these new products will may become available, have a clear idea of how land depend on the cost of local emissions (that occur during use decisions could affect future access to coal, and ensure production) and any subsequent costs from the emissions the processes for allocating and approving coal-based released when these products are used overseas. If emissions projects meet the needs of investors and the community. 2.2 regulations overseas are tightened as part of an effective Development will also need to consider local environmental global regime, the need to reduce emissions at the point issues such as water quality and availability. of use will grow in importance.

41 Part 2 Our future options

What we are doing now

Victoria is playing a leading role in exploring low emissions coal technologies. Energy Technology Innovation Strategy

UÊ Ê ˜iÀ}ÞÊ/iV ˜œœ}Þʘ˜œÛ>̈œ˜Ê-ÌÀ>Ìi}ÞÊ­ /-®Êv՘`ˆ˜}ʈÃÊ>VViiÀ>̈˜}Ê>ÊÀ>˜}iʜvÊ«Ài‡Vœ““iÀVˆ>Êi˜iÀ}ÞÊÌiV ˜œœ}ˆiÃÊ by supporting the research, development, demonstration and deployment of these technologies. Low emissions projects supported by ETIS are: Low emissions demonstration plant (HRL) – A $750 million dual-gas plant is being developed in Victoria. It will demonstrate IDGCC at a commercial scale, reducing carbon dioxide emissions from brown coal electricity generation by 30 per cent. The Victorian Government will contribute $50 million. Carbon storage demonstration – To demonstrate carbon storage under Australian conditions, a major carbon dioxide storage pilot project is underway in the Otway basin (see case study – p71). The Victorian Government has contributed $6 million. Low emissions demonstration projects – The Victorian Government will provide $110 million to support new, large-scale, pre-commercial CCS demonstration projects. Successful projects will be announced in 2010, with projects expected to commence in 2011. Low emissions research and development – $12 million is being provided for brown coal research and development grants to investigate new brown coal applications and to advance low emission technologies associated with power generation. In addition, $1.2 million has been allocated for brown coal research and development post doctoral fellowships to leverage input from industry and research institutions. Carbon capture and coal drying – International Power is developing a large, commercial scale coal drying and combustion plant at Hazelwood, which will include a 25 tonne per day carbon capture plant to demonstrate the latest carbon capture technology. The Victorian Government will contribute $30 million. Clean Coal Victoria Clean Coal Victoria (CCV) began work in May 2009. It will play an important role interacting with local communities, local planning authorities and the coal industry on issues such as land use, infrastructure and the capture, transport and storage of carbon dioxide emissions. A critical priority for CCV is the development of a strategic resource plan for the management of brown coal resources. This plan will more accurately define the coal resource, consider the mining sequence of future projects, and analyse the potential value-add from new uses of coal. Geoscience Victoria

UÊ Ê7ˆÌ ÊÌ iÊ>ÃÈÃÌ>˜ViʜvÊÌ iÊ -,"]ÊiœÃVˆi˜ViÊ6ˆV̜Àˆ>Ê­-6®ÊˆÃÊÀiÃi>ÀV ˆ˜}ÊÌ iÊ«œÌi˜Ìˆ>ÊœvÊÌ iʈ««Ã>˜`Ê >È˜Ê for carbon storage in Victoria. The Victorian Government has contributed $5.2 million. Legislative reform for carbon capture and storage

UÊ Ê˜Ê"V̜LiÀÊÓään]ÊÌ iÊœÛiÀ˜“i˜ÌÊ«>ÃÃi`ʏi}ˆÃ>̈œ˜Êi˜>Lˆ˜}ʜ˜Ã œÀiÊV>ÀLœ˜ÊV>«ÌÕÀiÊ>˜`ÊÃ̜À>}i°ÊThe Victorian Greenhouse Gas Geological Sequestration Act 2008 establishes a property rights and access regime to ensure that competing rights and interests are managed and public health and environmental risks are addressed.

UÊ Ê/ iÊ6ˆV̜Àˆ>˜ÊœÛiÀ˜“i˜ÌʈÃÊܜÀŽˆ˜}ÊVœÃiÞÊÜˆÌ ÊÌ iÊ œ““œ˜Üi>Ì ÊœÛiÀ˜“i˜ÌÊ̜ÊiÃÌ>LˆÃ Ê>ÊÀi}Տ>̜ÀÞÊÀi}ˆ“iÊ for Victoria’s offshore waters that is consistent with the national regime.

42 2.2

43 Part 2 Our future options

2.3 Transport energy

Our transport sector will also see major changes over the coming decades and we will need to take action to reduce greenhouse gas emissions from transport – especially from road transport.

Like the stationary energy sector, Victoria’s transport sector To make a real difference we must work to reduce the will see major changes over the next few decades as we emissions intensity of road transport. That is, each vehicle move into a low emissions future. In transport, we face travelling on Victorian roads must be more fuel efficient the dual challenges of reducing greenhouse gas emissions and produce fewer emissions per kilometre travelled. while ensuring the long term security of transport fuel New technologies and alternative transport fuels could supplies as the global demand for oil increases. help to reduce emissions from the transport sector and Our transport sector is heavily dependent on oil, with improve our energy security. Electric vehicles, for example, oil-based fuels supplying over 90 per cent of our transport could reduce our long term dependence on oil and provide energy needs. Our demand for transport continues to a pathway to near zero emissions from transport as we increase, while domestic supplies of crude oil are in decline. move towards using electricity from renewable sources and This means we are increasingly reliant on imported oil clean coal (see case study – p47). to meet our transport energy requirements. New fuels, such as next generation biofuels, may also But unlike electricity, which is produced and used provide economic development opportunities, especially for domestically, crude oil and derived petroleum products regional Victoria, where they could be produced and used. are internationally traded commodities. Petroleum prices in Victoria are linked to the world price, so our best avenue to maintain a secure supply of transport energy at competitive prices is to promote fair and open international markets. We must also ensure efficient and competitive domestic markets for transport energy across all parts of the supply chain. The transport sector is responsible for around 16 per cent of Victoria’s greenhouse gas emissions, making it the second largest contributor of these emissions after the stationary energy sector. Road transport, both passenger and freight, is responsible for the bulk of these emissions (see Figure 14). As set out in The Victorian Transport Plan, released 2008 (see Box 7 – p45), we can reduce transport related emissions through a combination of actions, including:

UÊ ,i`ÕVˆ˜}ÊÌ iʏi˜}Ì Ê>˜`ʘՓLiÀʜvÊÛi ˆViÊÌÀˆ«ÃÊÌ>Ži˜Ê UÊ Ê ˜VœÕÀ>}ˆ˜}ÊÌ iÊà ˆvÌÊ̜ʓœÀiÊivvˆVˆi˜ÌÊÌÀ>ÛiÊ“œ`iÃ]Ê such as from single driver cars to public transport, cycling and walking

UÊ Ê*Àœ“œÌˆ˜}ÊÌ iÊÌ>Ži‡Õ«ÊœvʏœÜÊi“ˆÃȜ˜ÃÊvÕiÃÊ and vehicles.

44 Box 7. Victorian Transport Plan

Decisions made now about transport infrastructure UÊ Ê,i}ˆœ˜>ÊÀ>ˆÊÃiÀۈViÃÊqÊfÈääʓˆˆœ˜Ê̜ÊÀiÌÕÀ˜Ê will shape Victoria for the rest of the 21st Century. train services to Maryborough and for up to 74 The Victorian Transport Plan uses the best population new V/Line carriages and travel demand forecasts available to set strategic UÊ ÊœÜÊi“ˆÃȜ˜ÊÛi ˆViÊÌÀˆ>Ã]ÊV>À‡«œœˆ˜}Ê>˜`ÊiVœ‡`ÀˆÛˆ˜}Ê directions for transport to 2020 and beyond. initiatives, and $105 million for bicycle lanes and paths. The Victorian Transport Plan is a 10 year, $38 billion See www.transport.vic.gov.au investment plan to develop a sustainable and lower emissions transport system for Victoria. It is unprecedented * These projects have been submitted to Infrastructure in scope and scale, and includes: Australia for funding. UÊ Ê
ÊvÀ>“iܜÀŽÊvœÀÊvÕÌÕÀiʏ>˜`Ê`iÛiœ«“i˜ÌÊ̜ÊÀi`ÕViÊ the demand for travel by bringing where we work and where we live closer together

UÊ Ê
ʼ«ˆ«iˆ˜i½Êœvʓ>œÀÊÌÀ>˜Ã«œÀÌÊ«ÀœiVÌÃʜÛiÀÊÌ iÊà œÀÌ]Ê medium and long term to respond to current demands and shape a responsible, sustainable transport system for future generations of Victorians. Major initiatives under the plan include:

UÊ Ê iÜÊÌÀ>ˆ˜ÃÊ>˜`ʘiÜÊÌÀ>VŽÃÊqÊ>˜Êˆ˜ÛiÃ̓i˜ÌʜvʓœÀiÊ than $2.6 billion 2.3 UÊ Ê œÀiÊÌÀ>“ÃÊ>˜`ÊLÕÃiÃÊqÊf£°xÊLˆˆœ˜ÊvœÀÊxäʘiÜÊ low-floor trams and up to 270 new low-floor buses

UÊ Ê,i}ˆœ˜>Ê,>ˆÊˆ˜ŽÊqʓœÀiÊÌ >˜Êf{ÊLˆˆœ˜ÊvœÀÊ>ʘiÜÊ track from West Werribee to Southern Cross Station

UÊ Ê iLœÕÀ˜iÊ iÌÀœIÊqÊ>ʘiÜÊÀ>ˆÊÌ՘˜iÊLiÌÜii˜ÊÌ iÊ city’s west and east, costing more than $4.5 billion

UÊ Ê
˜Ê>ÌiÀ˜>̈ÛiÊ̜ÊÌ iÊ7iÃÌÊ>ÌiÊ Àˆ`}iIÊqʓœÀiÊ than $2.5 billion to build a new tunnel under the Maribyrnong River

Oil and petroleum products However, there is agreement that global demand will Historically, Australia has been a significant producer of oil. continue to grow, and that oil-based transport fuels will In the mid 1980s, we produced levels of oil equivalent continue to be the predominant source of our transport to 80 per cent of our domestic consumption. However, energy needs at least until 2030.v As growing demand domestic reserves have peaked and Australia, like many places increasing pressures on available supplies, prices other developed countries, now depends on oil imports will inevitably rise. to meet our growing domestic demand. A small proportion of Victoria’s transport energy consumers Petroleum markets in Australia are mainly regulated already take advantage of our well established liquefied under national laws that aim to ensure consistency and petroleum gas (LPG) distribution network. Australia is a net competition at a national level. The price of petrol or exporter of LPG, which has the potential to produce lower diesel at a local service station in Victoria is largely set emissions than petrol. Better vehicle efficiencies and even by international market conditions and national taxes. lower emissions could be achieved with vehicles specifically Globally, crude oil is a finite resource. Opinions vary on designed for LPG, rather than simple conversions. Factory when the world’s reserves will peak and begin to decline. fitted LPG vehicles are already on the market and some A recent Commonwealth Government study reported that vehicle manufacturers are investigating advanced LPG our liquid fuel security is likely to remain sound for at least technology and developing car models designed specifically the next 15 years.iv for LPG use.

45 Part 2 Our future options

Alternative fuels Electric vehicles To complement oil-based fuels, and to help reduce Electric vehicles also appear promising, particularly for transport-related greenhouse gas emissions, the use passenger travel. They have zero emissions at the tailpipe of alternative transport fuels could be encouraged. with significant benefits to air quality, but their overall emissions depend on the source of electricity used to There are a number of possible alternative fuels and charge the car battery. With the emissions intensity of vehicle technologies, each with particular advantages electricity expected to fall significantly in the future – and and disadvantages, as well as suitability for particular uses. because electric motors tend to be very efficient – they Natural gas may provide a significant avenue for greenhouse gas emissions reductions (see case study – p47). Australia has an abundance of natural gas and an existing system that distributes natural gas to many homes Victoria needs to be in a position to benefit from the in Victoria. Natural gas can be used as a transport fuel in research occurring around the world on these technologies. the form of compressed natural gas (CNG) or liquefied That means adopting the right environmental and natural gas (LNG) for heavy vehicles used in regular short regulatory settings to enable the use of electric vehicles. runs. It has potentially lower emissions than petroleum For example, it will be important to encourage the or diesel. CNG is used already for forklifts and other establishment of recharging infrastructure that will applications where vehicles are able to regularly return promote competition between different makers of to a refuelling base. electric vehicles. Natural gas could be used more widely as a fuel for cars, The impact of the increased demand for electricity on buses and trucks. Several companies are investigating the electricity distribution network will also need to be the use of LNG for their trucks. For example, the Murray investigated. For example, it is possible that as the use Goulburn Cooperative trialled the use of LNG in four milk of electric vehicles grows, the networks will have to be collection trucks in 2004. Cost savings achieved have been upgraded to cope with the increase in electricity demand. so convincing that the cooperative has since invested in Indicative scenario modelling suggests that if 25 per cent two refuelling facilities to supply a fleet of 54 trucks of passenger and light vehicles were electric by 2030, now running on LNG, with plans to increase this Victorian electricity demand would be about 5 per cent number further. higher. We also need to better understand the potential for smarter electricity grids to use the combined storage power Biofuels of electric vehicle batteries to act as a viable means of Biofuels are another group of alternative fuels that could storing power and returning it back into the grid when contribute to the diversity of transport energy sources. it is needed. Biofuels are currently supported through the Victorian Coal-to-liquids Government’s Driving Growth biofuels action plan, as well as through Commonwealth Government assistance Victoria has very large brown coal reserves. As already (including an excise rebate). discussed in the gas and low emissions coal section, when combined with low emissions coal technologies, such as First generation biofuels are generally made from products CCS, these reserves could be converted to synthetic fuels. like grains or seed that could be used for food for humans or animals. By contrast, second generation biofuels use Using these technologies, Victoria could create new ‘waste’ products that do not compete with food crops. economic development opportunities by exporting these fuels to growing global markets. The competitiveness of There is a limit to the amount of biofuels that can be these products will depend on the costs of CCS and the produced in Victoria using first generation technology. success of the technologies. The crops used as inputs are often too expensive to produce commercially viable biofuels. Because the opportunities for current biofuels are limited by the availability and the low energy density of existing crops, they are best applied to local production. Victoria may have many more opportunities in next generation biofuels than in first generation biodiesel and ethanol. This could have many benefits for regional Victoria, including increased fuel security, generating new jobs and adding value to waste materials.

46 Driving the future today

Over the past two years Trentham publisher Alan Gray has The Sustainability Fund, managed by Sustainability racked up just over 20,000 kilometres in his all-electric car, Victoria, has also provided funding to Maribyrnong City produced by Victorian green industry start-up firm Blade Council for a project to assess the performance of BEV Electric Vehicles (BEV). as fleet cars. Alan produces and edits Earth Garden Magazine, and BEV Managing Director Ross Blade said the company chuckles when he hears predictions that “in the future relocated from Sydney to Castlemaine because their we’ll all be driving electric cars”. research showed that Victoria’s support for new green technologies offered the best opportunities for their “Well, I’ve been driving the future every day since 2008, business to grow. and I have to say, my electric car is absolutely fantastic,” Alan said. “I feel like George Jetson.” While the electric drive system currently uses off-the- shelf components, the development of a uniquely “You just plug it into a normal power point, it costs around Australian drive system is underway in conjunction one cent per kilometre, and if you use 100 per cent with the CSIRO. This coupled with BEV’s proprietary renewable energy, there are no greenhouse gas emissions.” electronic control system means additional The car is called the Electron, re-manufactured by hand manufacturing and licensing opportunities. at BEVs’ Castlemaine production factory. The control system allows rapid one-hour charging, BEV converts Hyundai’s Getz vehicles into the Electron optimises battery life and drive system performance, by replacing the existing internal combustion engine, and will soon enable the cars to interact with the exhaust system and fuel tank with a battery box and electricity grid. 2.3 electric drive system. “Blade is not just about the technology but also safety. With a range of 100 kilometres and a top speed of The Electron is the only Australian electric vehicle to be 110 kilometres per hour, the Electron is ideally suited successfully crash tested,” Ross said. to urban driving. Alan purchased the car in 2008 as a business vehicle, using a grant from the Victorian Government’s Enhancing Sustainability in New Investment program which assists businesses to access and assess new green technologies.

47 Part 2 Our future options

What we are doing now

The Government is already taking steps to help reduce transport related emissions, support transport energy security and create a more sustainable transport system. In addition to our actions under the Victorian Transport Plan, the Government has the following initiatives: Biofuels

UÊ ÊDriving Growth: A Road Map and Action Plan for the Development of the Victorian Biofuels Industry is promoting investor and consumer confidence in the Victorian biofuels industry by assisting the industry to plan for the future, attract investment and build critical mass.

UÊ Ê/ iÊ«>˜Êˆ˜VÕ`iÃÊfxʓˆˆœ˜ÊvœÀÊÌ iÊ ˆœvÕiÃʘvÀ>ÃÌÀÕVÌÕÀiÊÀ>˜ÌÃʈ˜ˆÌˆ>̈Ûi]ÊÜ ˆV ʈÃÊ i«ˆ˜}Ê̜Ê`iÛiœ«ÊÌ iÊVÀˆÌˆV>Ê infrastructure needed by the biofuels industry in Victoria.

UÊ Ê/œÊ`>ÌiÊ>ÊfÓʓˆˆœ˜ÊœÛiÀ˜“i˜ÌÊ}À>˜ÌÊ >ÃÊLii˜Ê}ˆÛi˜ÊÌœÊ i«Êˆ˜ÊÌ iÊVœ˜ÃÌÀÕV̈œ˜ÊœvÊ>ʘiÜÊLˆœ`ˆiÃiÊLi˜`ˆ˜}Ê and storage facility in Melbourne that will enable Victorians to access locally produced biodiesel. Cleaner vehicles

UÊ Ê/ iÊœÛiÀ˜“i˜ÌʈÃÊÃÕ««œÀ̈˜}ÊÌ iÊ`iÛiœ«“i˜ÌʜvÊ>Ê/œÞœÌ>Ê ÞLÀˆ`Ê >“ÀÞÊ>˜`Ê >ÃÊVœ““ˆÌÌi`Ê̜ÊLÕÞÊÓäääÊ ÞLÀˆ`Ê Camrys over two years. Production started at the end of 2009.

UÊ 6ˆV̜Àˆ>ʜvviÀÃÊ>ÊfxäÊÀi}ˆÃÌÀ>̈œ˜Ê`ˆÃVœÕ˜ÌÊvœÀÊ ÞLÀˆ`ÊÛi ˆVið UÊ / iÊ6ˆV̜Àˆ>˜ÊœÛiÀ˜“i˜ÌʈÃÊܜÀŽˆ˜}ÊÜˆÌ ÊiiVÌÀˆVÊÛi ˆViÊVœ“«>˜ˆiÃÊ̜Ê>ÌÌÀ>VÌʈ˜ÛiÃ̓i˜ÌÊ̜Ê6ˆV̜Àˆ>°Ê UÊ
Êfxää]äääÊÌÀˆ>ÊœvÊ ÞLÀˆ`‡iiVÌÀˆVÊLÕÃiÃÊÜ>Ãʏ>՘V i`ʈ˜Ê՘iÊÓä䙰 Coal-to-liquids

UÊ / iÊœÛiÀ˜“i˜ÌÊÃÌÀœ˜}ÞÊÃÕ««œÀÌÃÊÌ iÊ`iÛiœ«“i˜ÌʜvÊV>ÀLœ˜ÊV>«ÌÕÀiÊ>˜`ÊÃ̜À>}iÊÌiV ˜œœ}ˆið UÊ / iÊœÛiÀ˜“i˜ÌʈÃÊ>ÃœÊܜÀŽˆ˜}ÊÜˆÌ Êˆ˜`ÕÃÌÀÞÊ̜Êv>VˆˆÌ>Ìiʈ˜ÛiÃ̓i˜Ìʈ˜ÊVœ>‡Ìœ‡ˆµÕˆ`ÃÊ«ÀœiVÌð

48 2.3

49 Part 2 Our future options

2.4 Saving energy

In addition to the major changes that will take place in the way our energy is generated, there is substantial scope to significantly reduce our demand for energy and become smarter in the way we use energy.

Saving energy by becoming more energy efficient is an Our patterns of energy use are also changing. The area with the potential to achieve significant cost-effective increased use of domestic air conditioners, while not reductions in greenhouse gas emissions, as well as resulting in a large overall increase in energy use, creates contributing to the security of our energy supply. problems for our power supply on very hot days when peak demand occurs. For instance, in the summer of 2009, Population and economic growth, combined with other three days over 43 degrees Celsius led to local power factors such as the increasing use of high energy use outages throughout Melbourne. appliances (such as large screen televisions) and larger houses (often with fewer people living in them), has led Awareness of these issues has started to grow. Victorians to a steady increase in overall energy consumption. But now recognise that energy efficiency measures can help because Victorian energy has been cheap, there has been to reduce their energy costs, improve our overall energy little incentive for consumers to constrain their energy use productivity and lower the cost of addressing climate or for businesses to provide more efficient products. change. We are also realising that saving energy will contribute to a more stable energy system at times of peak demand and delay the need for expensive capacity upgrades to our electricity system.

50 Businesses are realising that using energy efficiently is good We know this because many of the cost-effective energy practice – it will save money and enhance competitiveness. efficiency gains that are currently available are not being Businesses and investors are also recognising that energy taken up by households or businesses. We miss these efficiency measures can create new jobs and industries in opportunities because there are barriers that stop us the emerging low carbon economy. changing our behaviour. These barriers include ‘split incentives’ (where the person buying a product is Despite the opportunities available to us, we are yet to different to the person using it – such as water heating fully tap into our energy efficiency potential. A study in a rental house), information failures (where consumers looking at options for reducing emissions in Victoria found do not have sufficient information to compare the energy that, based on conservative assumptions, greater energy efficiency, operating costs or emissions of products), efficiency could reduce emissions from the energy sector and limited access to upfront funds to purchase a more by over 20 per cent by 2025.vi efficient alternative. This finding is supported by a report prepared by ACIL These ‘residual barriers’ are likely to be most relevant in Tasman for the Victorian Government.vii This report found the residential and small business sectors. Commercial that there are significant energy savings to be made, and industrial sectors have much better access to capital beyond ‘business as usual’ practices, in the residential, and information, although split incentives may still play commercial and industrial sectors (see figure 15 – p50). a role in areas such as improving commercial building A report by the Nous Group for the Government suggests energy performance. similar savings can be achieved by improving the energy efficiency of our transport activity.viii If we are unsuccessful in capturing these readily available low cost emissions savings – and making significant gains Energy efficiency and a carbon price in energy efficiency – the costs of adjusting to a carbon price would be higher: for individuals, businesses and for A national emissions trading scheme would be the most the economy as a whole. 2.4 efficient and effective means of reducing greenhouse gas emissions in Australia. As noted in Part 1, such a scheme To overcome these barriers, the Victorian Government will drive a reduction in greenhouse gas emissions by has implemented, and will continue to implement, placing a cap, and therefore a price, on these emissions. effective, targeted policies and programs to support the take up of cost effective energy efficiency opportunities. But while a carbon price would provide some incentive for businesses and households to use energy more efficiently, These policies and programs will complement a future price changes alone may not address some energy use carbon price under an emissions trading scheme. behaviours – for a variety of reasons.

5-star rated Kangan Batman TAFE’s Automotive Centre of Excellence

51 Part 2 Our future options

Smarter energy use The Government is keen to encourage developments that benefit consumers in these and related applications. With electricity prices expected to rise for some time into the future, one simple way in which we can cut costs is The range of advanced functions that are incorporated by adjusting our electricity usage. in smart meters will steadily expand over time. This is a particularly attractive option because it can deliver We can combine these with targeted programs to give cost savings to families and businesses. When combined more detailed, personalised advice on how people, with additional zero or low cost information measures households and businesses can change their behaviours (see below), or by applying better building design and to reduce energy use. Activities such as home assessments, more efficient industrial processes, the benefits can be home retrofits, business energy audits, rebates and other even greater. incentive programs can help us to make these changes and will be particularly beneficial to low income earners. However, a major challenge exists in getting us to change our habits – precisely because they are ‘habits’ and are largely subconscious actions. Behaviours like turning off lights and appliances, or setting the heating and cooling to more moderate temperatures, take time to become part In-home displays of our daily lives. Another problem is that consumers do not have readily available information about how much An in-home display is an electronic display (usually a electricity or gas they are consuming. small LCD screen) which can monitor information about electricity use and communicate wirelessly with the Smart One important first step has been building awareness Meter and to the retailer. When used with compatible about how to reduce emissions from our energy use (many devices, some displays enable householders to remotely Victorians now recognise the Black Balloons campaign). control (turn on and off) appliances in the house. This will But achieving lasting change will require further action. allow consumers to see how much electricity they use at The roll out of smart meters across Victoria will be an specific times, and provide opportunities to save money important step in empowering consumers to monitor, and energy by changing behaviour. understand and adjust their energy use. Smart meters will enable retailers to create innovative pricing structures that provide incentives to change the timing of our energy use. They will also support more active ways of managing demand during peak periods and contribute to the overall security of our energy system. In addition to a number of other functions, smart meters incorporate advanced communications technology that can provide consumers with highly useful time-of-use information on the volume and cost of their electricity consumption. Energy retailers will provide customers with a summary of this new information through their normal bills. However, the technology also enables the use of ‘in-home displays’ (see box opposite) and internet-based measures that can monitor and display this information, and empower consumers to take even more beneficial actions.

52 Better design and processes While there are many cost-free behaviour changes that -“>ÀÌÊ ˜iÀ}ÞÊ<œ˜iÃÊ>˜`ÊÀÌÊ ˜iÀ}ÞÊ<œ˜iÃÊ«Àœ}À>“Ê>««ˆiÃÊ to retrofitting existing buildings, processes and appliances, holistic energy efficiency approaches in a local area. For as well as to constructing new buildings and developing example, as part of the Greensborough Smart Energy new products. Precinct a gas co-generation plant will be installed to supply electricity and heating to the local shopping centre, In the industrial sector, particularly mining and with the excess heat piped across the site boundary to heat manufacturing, much of this change will be driven by the public swimming pool and council offices. Buildings responses to increasing energy prices. Potential savings will also install double glazing, insulation, sun shading, may have been ignored in the past when energy was a energy efficient lighting and appliances. lower input cost and returns on investment were smaller. But increasing prices for resources such as gas and a / iÊœÛiÀ˜“i˜Ì½ÃÊ“Ê possible carbon price would make the returns on more showcases innovative energy, water, waste and transport energy efficient equipment and processes more attractive solutions, such as local renewable energy supply, and provide competitive advantage. sustainable master planning and design, onsite recycled water and smart meters to help manage energy usage. For commercial and residential buildings, the barriers to This will be achieved in collaboration with developers, change can be harder to recognise. Split incentives, lack local governments, service providers and the broader of information and difficulties in calculating the value of community. Up to six zero emission communities are savings are all examples of factors that inhibit substantial expected to be developed over the next four years. reductions in energy use. These will not be overcome 2.4 through a carbon price alone. See www.resourcesmart.vic.gov.au Instead, approaches like the minimum 5 Star building standards for Victorian homes introduced in 2005 have been very successful in raising the energy performance of new houses. Options such as minimum efficiency standards, mandatory disclosure of information about the energy efficiency of buildings and vehicles, and financial assistance to purchase energy efficient appliances can also contribute to better outcomes. For example, requiring the owners of residential and commercial buildings to disclose their energy efficiency at the point of sale and lease allows potential buyers and tenants to compare buildings. Many energy efficiency policies are best implemented in a consistent way across jurisdictions. That is why Victoria has worked with the Commonwealth Government and other state and territory governments to develop the National Strategy on Energy Efficiency. This strategy will accelerate energy efficiency efforts across the country and help households and businesses to prepare for the introduction of a price on carbon.

53 Part 2 Our future options

Ensuring best practice in energy efficiency major offices, with a view to applying it more broadly to buildings such as hospitals and schools. Individuals and Our own experience – and that of other places around the householders can also seek expert advice on how to world – gives us an indication of best practice in energy achieve energy savings through home energy audits. efficiency in many areas. For example, we know that substantial cost-effective emissions reductions can be We can also invest in innovative energy solutions at the achieved with positive pay back times by adopting best precinct scale (around 10,000 households). Precincts can practice across the built environment – in the design of demonstrate the substantial energy savings that can be buildings, in the materials and technologies we use to build achieved by combining energy efficiency and distributed and operate them, and in the way we plan our suburbs, energy generation technologies in one location. towns and cities. Best practice urban developments in Victoria are already One way in which businesses can adopt best practice in showing that such an approach can bring new housing energy efficiency is through energy performance contracts. and commercial areas onto the market that offer improved In these contracts, the upfront costs of undertaking energy energy efficiency for households, business and the broader efficiency improvements are offset against the future community compared to traditional approaches. But to savings delivered by these improvements, because the make a significant contribution to reducing emissions from contractor guarantees energy cost savings. The Victorian our built environment, these developments will need to Government is trialling energy performance contracting in become ‘standard’ best practice – not ‘unique’.

ÕÃÌÀ>ˆ>½ÃÊvˆÀÃÌÊÕÀˆ“iÀ

54 Reducing stationary energy use at times High peak prices for electricity can create opportunities for of peak demand businesses that are able to reduce their energy use during peak periods. During these periods, a retailer could arrange Some benefits from energy efficiency accrue to the person to pay a large customer to not use electricity and, as a undertaking the activity – the consumer. But there are result, save money by avoiding the need to buy electricity other benefits that can be delivered to the system more at the very high market prices. Some businesses may also broadly. These are especially relevant during times of be able to negotiate similar contracts with electricity peak demand, when prices are high and capacity is distributors to reduce electricity usage during times of being stretched. peak network congestion. Because electricity cannot be efficiently stored in large Better information (for example, as provided via smart quantities, installed capacity must be sufficient to meet meters), appropriate incentives and more variable prices peak demand. During peak periods, wholesale electricity for electricity could help make these arrangements prices can rise from their normal levels of around more attractive. $40-50/MWh to $10,000/MWh.ix However, most customers, including householders, contract to buy their Other emerging technologies could play a role in reducing electricity at a low fixed rate. This means retailers must energy demand. For example, ‘load control devices’ can be continue to supply this electricity at the normal low rate and fitted in appliances that consume high levels of energy (like purchase electricity to meet this demand at the higher rate. air conditioners) so that they can be controlled remotely. By better reflecting the cost of electricity at a particular This technology has been trialled successfully in places such point in time, the level of overall peak demand could be as California and Western Australia, where energy network lowered. Successfully lowering these peaks would mean operators switch off air conditioners for brief, intermittent expensive new generation capacity (new power stations) periods (usually just a few minutes). This can reduce the could be deferred, and capacity upgrades to the transmission demand across the system significantly, while the people 2.4 and distribution systems could be delayed. This would using the air conditioners may not even notice that they lower the overall costs of the system for consumers. have been turned off (see Box 8). While there is no plan at this stage to trial this technology in Victoria, emerging technologies that offer new ways of helping to deal with peak demand will continue to be monitored.

Box 8. Managing peak demand

The use of air conditioners on hot days can cause problems for our electricity network. The capacity of our system to generate and distribute electricity must be sufficient to meet the peaks in demand that occur for a few hours on a small number of days each year. Any process that can help to limit the height of these peaks can help to delay expensive network upgrades. This will be of increasing importance as our supplies of electricity diversify to include more variable sources such as wind power. A Western Australian company has trialled ‘switching devices’ that allow the retailer to alter the air conditioner compressor’s regular pattern of switching on and off. Used only on the hottest days (over 36 degrees Celsius), the trial – which included over 1000 households – was able to reduce demand in participating households by 27 per cent (see figure 16 below), while the people using the air conditioners may not even notice they have been turned off.

55 Part 2 Our future options

Distributed micro-generation National regulatory bodies are now responsible for establishing the rules that deal with grid connection. Distributed generation generally refers to small scale and It will be important for them to ensure that the system is ‘micro’ types of generators that are connected directly to sufficiently adaptable to cater for new patterns of energy the distribution network – not to the transmission network generation where these bring broader social benefits. like most large scale generators. The most common forms in current use are solar photovoltaic panels on the roofs of Small scale operators may also have difficulties negotiating residential, commercial and community buildings and gas a feed-in tariff (if, like some non-renewable technologies, ‘cogeneration’ systems that produce electricity and capture they are not covered by current feed-in tariff regulations). the heat for local use – for example, in hospitals. Many of the benefits from these systems are derived locally. The price of electricity from these systems can vary However, some of the broader benefits are only likely to from being commercially viable (for some forms of occur when the take-up of distributed generation is far co-generation) to very expensive (for solar panels). greater than today. Currently, the limited take-up of these A key factor in increasing the use of these technologies systems (due to high upfront costs or specific operating is ensuring that operators have the ability to sell excess requirements) means this is expected to only provide a electricity back into the grid. The Victorian Government marginal source of supply in the near future. recently introduced a premium feed in tariff (a minimum Nevertheless, distributed generation could help to of 60c/kWh) for small scale solar panels (up to 5kW). Other moderate peak demand loads, delay the need for system small scale renewable energy generators (up to 100kW) upgrades and reduce transmission losses. These systems can attract a ‘one-for-one’ payment (15-20c/kWh). can also allow businesses to maintain operations while In some instances, technical and regulatory barriers may temporarily disconnecting from the network in times of limit the broader take up of these systems. In particular, high electricity prices or during times of network congestion. our distribution system was not designed to accommodate large numbers of small generators which intermittently feed electricity into the grid. As a result, capacity and management issues can constrain the potential for distributed generation.

56 What we are doing now

Victoria has introduced a number of measures to improve energy efficiency. More information is available at the You Have the Power. Save Energy website - www.saveenergy.vic.gov.au Black Balloons campaign

UÊ / iÊ >VŽÊ >œœ˜ÃÊV>“«>ˆ}˜Ê ˆ} ˆ} ÌÃÊȓ«iʓi>ÃÕÀiÃÊv>“ˆˆiÃÊV>˜ÊÌ>ŽiÊ̜ÊÀi`ÕViÊÌ iˆÀÊi˜iÀ}ÞÊLˆÃ° Energy Saver Incentive scheme

UÊ Ê6ˆV̜Àˆ>½ÃÊ ˜iÀ}ÞÊ->ÛiÀʘVi˜ÌˆÛiÊ­ -®ÊÃV i“iÊÃiÌÃÊ>ÊÌ>À}iÌÊvœÀÊi˜iÀ}ÞÊÃ>ۈ˜}Ãʈ˜ÊÌ iÊÀiÈ`i˜Ìˆ>ÊÃiV̜À°ÊÌÊÀiµÕˆÀiÃÊ energy retailers to help households implement energy efficiency activities at no or discounted cost, including installing efficient light bulbs, shower roses and window sealing, switching to less greenhouse intensive fuels and removing old refrigerators. Rebates and grants

UÊ Ê,iL>ÌiÃÊ>ÀiÊ>Û>ˆ>LiÊvœÀÊ܏>ÀÊ œÌÊÜ>ÌiÀ]Êë>ViÊ i>̈˜}Ê>˜`ÊÜ ˆÌiÊ}œœ`ðÊÀ>˜ÌÊ«Àœ}À>“Ãʈ˜VÕ`iÊÌ iÊœ“iÊ7ˆÃiÊ program. The Energy and Water Taskforce program also provides free energy and water retrofits (like draft sealing and insulation) to concession card holders in disadvantaged areas and assists local jobseekers attain green skills. Specific programs to upgrade public housing are also being implemented. Smart Meters

UÊ Ê˜Ê-i«Ìi“LiÀÊÓää™]ÊÌ iÊÀœÊœÕÌʜvÊ-“>ÀÌÊ iÌiÀÃÊVœ““i˜Vi`°Ê ÞÊÌ iÊi˜`ʜvÊÓä£Î]Ê>ÀœÕ˜`ÊÓ°xʓˆˆœ˜Ê-“>ÀÌÊ iÌiÀÃÊ will be installed for all Victorian residential and small business electricity customers. 2.4 The roll out of Smart Meters represents the biggest investment in energy infrastructure in Victoria since the establishment of the poles and wires network. Smart Meters will allow:

Ê Ê UÊ Vœ˜ÃՓiÀÃÊ̜ÊLiÌÌiÀʓ>˜>}iÊÌ iˆÀÊiiVÌÀˆVˆÌÞÊÕÃiÊÌ ÀœÕ} Ê}Ài>ÌiÀÊۈÈLˆˆÌÞʜvÊÕÃ>}iÊ«>ÌÌiÀ˜Ã Ê Ê UÊ Vœ˜ÃՓiÀÃÊ̜Êi>ȏÞÊÃ܈ÌV Êi˜iÀ}ÞÊÀiÌ>ˆiÀÃʜÀÊ̜ʓœÛiÊ œÕÃi Ê Ê UÊ iiVÌÀˆVˆÌÞÊLÕȘiÃÃiÃÊ̜ÊÀi>`ʓiÌiÀÃÊÀi“œÌiÞ]Ê>˜`Êëii`ÊÕ«ÊÀi뜘ÃiÃÊ̜ʫœÜiÀʜÕÌ>}ið Environment and Resources Efficiency Plans

UÊ Ê ˜ÛˆÀœ˜“i˜ÌÊ>˜`Ê,iÜÕÀViÃÊ vvˆVˆi˜VÞÊ*>˜ÃÊ >ÛiÊÃÕVViÃÃvՏÞÊ>ÃÈÃÌi`ʏ>À}iʈ˜`ÕÃÌÀˆ>ÊVœ“«>˜ˆiÃÊ̜ÊÀi`ÕViÊi˜iÀ}ÞÊ and water use and waste generation. Government leadership on energy efficiency

UÊ Ê/ iÊœÛiÀ˜“i˜ÌʈÃʈ“«i“i˜Ìˆ˜}Ê>˜Êi˜iÀ}ÞÊ«iÀvœÀ“>˜ViÊVœ˜ÌÀ>VÌʜ˜Ê£ÈʜvvˆViÊLՈ`ˆ˜}Ãʈ˜Ê iLœÕÀ˜i°Ê Energy efficiency measures taken as part of this project are expected to reduce energy use by up to 33 per cent. A trial is planned for a public health care facility and the program could also be rolled out to schools. Participation in the National Strategy on Energy Efficiency

UÊ Ê Õˆ`ˆ˜}ʜ˜ÊÌ iÊ >̈œ˜>ÊÀ>“iܜÀŽÊvœÀÊ ˜iÀ}ÞÊ vvˆVˆi˜VÞ]Ê6ˆV̜Àˆ>˜Êˆ˜ˆÌˆ>̈ÛiÃʈ˜VÕ`iÊiÝÌi˜Ãˆœ˜ÃÊ̜ʓˆ˜ˆ“Õ“Êi˜iÀ}ÞÊ performance standards for appliances and appliance labeling.

UÊ Ê7œÀŽÊˆÃÊ՘`iÀÜ>ÞÊ̜ʈ“«ÀœÛiÊLՈ`ˆ˜}ÊÃÌ>˜`>À`ÃÊvœÀÊ œ“iÃÊ­vÀœ“ÊÌ iÊi݈Ã̈˜}ÊxÊ-Ì>ÀÊ̜ÊÈÊ-Ì>À®ÆÊ`iÛiœ«Ê˜iÜÊÃÌ>˜`>À`ÃÊ for commercial buildings; and mandate disclosure of building efficiency when a building is sold or rented.

UÊ Ê7œÀŽÊˆÃÊ>ÃœÊ՘`iÀÜ>Þʜ˜Ê“i>ÃÕÀiÃÊ̜ʈ“«ÀœÛiÊÌÀ>˜Ã«œÀÌÊi˜iÀ}ÞÊivvˆVˆi˜VÞ]ʈ˜Ê«>À̘iÀà ˆ«ÊÜˆÌ Ê«ÀˆÛ>ÌiÊviiÌÃÊ>˜`Ê through eco-driving campaigns.

57

Part 3 Our approach

The Victorian Government is adopting a comprehensive, far-reaching approach to secure the State’s energy future – making sure that all avenues are explored, all factors considered and the interests and circumstances of all parts of the State taken into account. The Government is focusing on building the capacity of Victorian communities to meet the energy challenges ahead, driving innovation in energy, facilitating investment in energy technologies and infrastructure, and working with other Australian governments to ensure that the national energy market can manage the transition to a low emissions future. 3

59 Part 3 Our approach

3.1 Working with the community

Across Victoria, many communities are taking action to respond to changes in our energy sector – exploring new ideas and creating practical local solutions to saving and producing energy. The Government will work alongside Victorian communities to promote awareness of the changes ahead and support local actions to keep energy affordable, adjust to change and capture emerging opportunities.

Communities will be affected by the transformation of our The more resilient communities are, the better equipped energy sector in different ways. they will be to identify and take advantage of new opportunities, and adapt to the changes that are necessary While all Victorians can expect energy prices to rise, other to secure our future energy supply and respond to climate changes will be more local. For example, some regions will change. Across Victoria, all levels of government will need become a focus of renewable energy generation; the to work closely with communities to promote awareness Latrobe Valley will see closures of old coal power plants of the issues facing our energy sector and the actions while demonstrations of low emissions coal technologies we can take to adjust to the changes ahead. start to appear; and other areas may see new high voltage transmission lines, or pipelines being built to transport natural gas or carbon dioxide.

Sherbrooke Community School – EnergySmart School of the Year 2009

60 Building awareness about the need Helping to keep energy affordable for change For most of us, the most identifiable change over the The changes we need to make in our energy system coming years will be our rising energy bills. Investment in will require widespread community support, including new infrastructure and infrastructure maintenance, the support from households, businesses, and industry and prospect of a steadily increasing carbon price, higher oil community groups. and gas prices, and global competition for investment in clean energy developments (such as skills and materials), Households and businesses can help by taking steps to will be contributing factors to these price rises. save energy. But even with substantial energy savings, unprecedented rates of new investment will be needed. Energy price rises will be felt more acutely by people on low incomes. The Commonwealth Government has Providing communities with reliable information and made a commitment that where any price rise is due engaging them in decision-making processes about new to an emissions trading scheme, low and middle income energy investment will be critical for communities to households will be compensated (to a greater value than support new energy projects and take advantage of the the expected price rises) through changes to the tax and benefits that these projects can bring. welfare systems. Households and businesses can also help to meet our Some groups with special needs may be less able to transport energy challenge. With a better understanding of change their consumption patterns, such as people with travel and transport fuel options and the impacts of these a disability or those caring for elderly relatives. These options, people can make more informed travel choices groups may also face problems in moving to new less that help to reduce emissions. energy-intensive housing, appliances and transport. To promote greater community involvement in decisions To address these challenges, the Victorian Government will: about our energy future, the Victorian Government will: UÊ Retain its energy hardship policies and programs UÊ Support the development of community capacity to ensure that energy retailers assist domestic customers and leadership, and encourage local engagement suffering hardship as a result of rising energy prices in planning processes. Strong community leadership – see www.new.dpi.vic.gov.au/energy/consumer- and cooperation – and an active and informed information/hardship community – can deliver good outcomes for the whole community when engaging with project developers. UÊ ÊContinue to deliver appropriate energy concessions The Government recognises that access to information and discounts to concession card-holders to assist is crucial to developing community capacity and will them to pay their energy bills. The Government will place a strong emphasis on ensuring that information also continue to improve the effectiveness of current 3.1 provided to communities is locally relevant, practical energy efficiency programs in reaching and assisting and easily accessible. low income and disadvantaged households – see www.dhs.vic.gov.au/concessions/entitlements/energy UÊ ÊEncourage communities to identify viable renewable energy possibilities. For example, making UÊMake Ê information and tools to identify and funding available to support the development of new measure energy use available to households and community based solar hubs. Involving communities communities. For example, awareness campaigns will in identifying and pursuing these possibilities will give promote the increased use of home energy audits, and local communities greater ownership of renewable energy bills will provide ‘benchmarking’ information energy projects. that will allow people to compare their energy use with the rest of the community – see www.resourcesmart.vic. UÊ ÊPromote the dissemination of information through gov.au/for_households/energy.html written material and interactive activities, such as site visits or community forums, to discuss key energy UÊContinue Ê to run programs that promote consumers sector issues. rights and choices like the services of the Energy and Water Ombudsman and the Your Choice campaign UÊ ÊExamine the need for, and investigate ways to run by the Essential Services Commission – see provide relevant transport energy information www.yourchoice.vic.gov.au to help inform and engage the community and business in making informed choices.

61 Part 3 Our approach

UÊ Continue to roll out smart meters to all homes and UÊ Roll out new policies under the National Strategy businesses across the State. Smart meters can feed on Energy Efficiency, such as mandatory disclosure information via the internet or to in-home displays so of residential building energy ratings (due for consumers can gain a greater understanding of their implementation in 2011). energy use. In-home displays could be used to create a UÊ ÊEncourage low cost, local initiatives to invest in home network that could allows the use of appliances energy efficiency measures. This can be achieved by such as washing machines or air conditioners to be building the capacity of community groups and social adjusted depending on the price of electricity. enterprises to advance local and collective action on UÊ Continue to help householders identify energy energy efficiency. These groups are important as they saving opportunities through the Energy Saver have established links with the community and can Incentive (ESI) scheme and retrofit programs aimed promote new ideas and encourage new initiatives at at low income households. the local level.

UÊ ÊExamine options to integrate and streamline the ESI scheme with other programs to deliver energy efficiency to broader sections of the community. An expansion of this scheme will be considered when it is reviewed in 2011.

Smart meter

62 In tune with energy savings

Melbourne jazz bass musician Howard Cairns had reached “I guess you just put up with all these things. But when the stage where he was starting to dread the electricity bill. you realise that they are what’s causing your bills to be so high, it makes you say ‘right. I’m going to change that’. Howard lives in a 1940s Californian Bungalow in Newport And we did.” with his partner Margo and teenage son Hayden. Howard and Margo replaced the old electric hot water Until recently, the house had no insulation, an old electric system with a new instant gas on demand system, hot water system, it was hard to heat and cool, and power which only switches on when they turn on the hot tap. bills were getting out of hand. They also replaced all their light bulbs with new Howard and Margo decided to take advantage of compact fluorescent lights, and installed insulation the State Government’s Energy Saver Incentive scheme, batts in the ceiling. which offers discounts and special offers on energy-saving products and services available from participating The Energy Saver Incentive scheme provided discounts businesses. on the gas system, and the insulation and the light bulbs were free. Before winter they plan to look at weather Many of the actions are simple and significantly reduce sealing and chimney dampers which will also be cheaper home energy use, carbon pollution and energy bills. through the scheme. The first step was a home energy audit, carried out by Combined with a recently installed solar panel system, Victorian start-up company Energy Makeovers – one the savings have been significant. of a growing number of “green industry” companies established in response to the scheme. “It’s made a huge difference – with the power bills it’s like turning the clock back about six years,” Howard said. “The home audit was a really interesting exercise,” Howard said. – see www.saveenergy.vic.gov.au/energysaver.aspx “You live in a house and you know about the drafts, and where the sun beats on the windows and that sort of thing.”

3.1

63 Part 3 Our approach

Box 9: Electricity prices – how does Australia compare?

Electricity prices vary around the world. Different countries rely on different generation types, some more expensive than others. Australia has been lucky in having wide access to low price electricity options. But because our electricity is high in emissions, we need to change how we generate it in the future. All countries will face this issue to some degree – those with higher emissions facing the greatest change.

As the graph shows, Australians pay much less for their electricity than most other countries – about half as much as people in the UK. It is likely that prices will rise across all these countries as each nation takes its own steps to reduce greenhouse gas emissions. While prices may rise more in Australia (and Victoria), we are still likely to enjoy low cost electricity compared to many other countries.

64 Enhancing the capacity of communities and But regional adjustment will not be limited to the Latrobe helping regions to adjust Valley. The expanding role of renewable energy – such as wind, marine solar and other low emissions technologies Local councils and community groups will be central to – will increase the need for communities to develop local helping communities to adjust to the changes ahead, responses to the wider energy transition. because the development of local initiatives will lead to greater awareness and understanding of these changes, The Victorian Government will support the development and the reinforcement and expansion of relevant of community capacity by: local skills. UÊ Building community capacity through a range of Communities that develop and implement new ideas and programs aimed at promoting engagement, strengthening strategies to manage these changes will be more resilient community networks and information sharing. and more likely to capture new investment, employment Promote the development of green industries in and economic development opportunities. UÊ Ê regional areas and improved application of energy The Commonwealth Government has committed to efficiency in regional businesses. supporting vulnerable regions if the impacts they face Delivering regional strategies which include are caused by an emissions trading scheme. UÊ Ê measures to address adjustment challenges faced The Latrobe Valley is one part of our State that is likely to by regional communities. These measures will be feel the effects of change more acutely than any other. subject to regular review. Evidence suggests that the best outcomes for the Latrobe Submitting a bid to the Commonwealth Valley will be achieved by initiating projects and programs UÊ Ê Government if an emissions trading scheme is that recognise the region’s existing strengths. Coordinated implemented for an appropriate share of funds initiatives will build local business networks (as well as allocated for regional adjustment to manage short creating external links to global businesses), strengthen the and long term structural adjustment issues in our Latrobe Valley’s labour market and skills base, and facilitate most vulnerable regions like the Latrobe Valley. the diversification of the region’s economy.

3.1

65 Part 3 Our approach

Building the skills for change Where areas for government action are identified, the Victorian Government will: The growth in low emissions energy technologies will drive demand for many new skills – in research and UÊ Encourage the take up of green skills by young development, construction, and the operation of new people and the established workforce and provide energy industries such as home energy audits. support for new training courses and facilities to realise Victoria’s energy efficiency potential. In the past, the energy industry has identified skills shortages as being a problem affecting three categories UÊEstablish Ê a Green Skills Taskforce to provide of employment: apprentice / trade-qualified (particularly strategic advice on Victoria’s green skills and specialist trades such as turbine fitters and pressure training needs, including those needed by the energy welders); technical trainees / skilled technicians; and efficiency and low emissions energy supply sectors. graduate / professional engineers.

Harvesting the winds of Ararat

Ararat farmer Paul Buncle likes the idea of harvesting “For the farmers who own the hills, the wind farm has energy from the wind. It fits in with his sustainable been a very positive development – these days we all see it approach to farming and looking after the land. as just another way of farming.” Paul is one of seven landholders who agreed to a proposal “Farmers have always been conservationists – looking after by renewable energy company Pacific Hydro to construct the land is really the basis for successful farming, and wind a wind farm on a ridge line that adjoins their properties. farming is an extension of that.” Paul runs a 430 acre property, growing crops and running “I think Australia should be leading the way and showing sheep. Paul was interested in the idea of wind farming, how these technologies can work.” as the hilly areas towards the back of his farm are The 52.5 megawatt (MW) Challicum Hills Wind Farm near less productive. Ararat generates enough clean electricity to power 23,000 The steady, consistent wind patterns in the region make homes each year, and avoids emission of 141,000 tonnes the location ideal for wind farming, and the small of greenhouse gas each year. footprint of wind turbines allow farming operations to The $76 million project comprises 38 turbines, each 67 continue uninterrupted. metres tall, with a 37 metre fan blade. “We were a bit sceptical at first, but the company was very The wind farm is built on land leased from the seven good with consultation – they were right up front about farmers, who receive revenue payments for the life of everything,” Paul said. the wind farm.

66 Preparing for climate change and emergencies To be ready for the changes ahead, we will need a better understanding of the vulnerabilities with our energy system Victorians are accustomed to a dependable supply of gas and the dependencies between systems. To achieve this, and electricity. But climate change impacts mean Victoria the Victorian Government will: is likely to face more extreme weather events that could affect the security and reliability of the State’s electricity. UÊEnhance Ê obligations and compliance with the electricity safety regime through the work of We must be ready for the impacts of climate change on Energy Safe Victoria. The Government will also look at our energy system itself. Climate change will not only alter improving the information available to government and our patterns of energy demand (due to extreme weather the Victorian public about outages if problems do occur. events), it could also threaten energy infrastructure through the increasing intensity and frequency of natural UÊ ÊSupport greater cooperation between key agencies events, such as bushfires, heatwaves and windstorms. and groups in managing emergencies, such as the Victoria Police, Department of Sustainability and More wind and solar energy in the power grid also means Environment, Department of Health, Department of that a larger proportion of our electricity supply will be Human Services, Country Fire Authority, Metropolitan intermittent. This could make it more difficult to meet Fire Brigade, State Emergency Services and energy demand during peak periods. businesses and agencies. Our energy systems are also becoming more integrated. UÊSupport Ê more responsive energy markets that This generally makes supply systems more resilient because create the right incentives to protect our it reduces the risk of a single failure having a catastrophic infrastructure assets and build a more robust system impact on supply, but the management of any significant (see Leading further market reform – p80). The national incident is more complex. energy market operator is examining the need for For example, gas supply networks across eastern Australia improvements in the transmission planning process to have become increasingly interconnected, so that the reduce the risks due to extreme weather events such as management of any major gas supply shortfall will need to bushfires and heatwaves. be agreed between affected jurisdictions. In addition, as UÊ ÊConsider the findings of the Bushfires Royal gas is likely to become an increasingly important fuel for Commission and take appropriate action in relation electricity generation, gas shortfalls may also impact on the to Victoria’s energy infrastructure. security and reliability of electricity supply. The creation of a national energy market operator will assist in managing gas supply shortfalls and their potential electricity supply impacts. In the long term, we can also expect to see more electric 3.1 cars and a greater use of gas as an alternative transport fuel, leading to greater integration between transport and electricity and gas supplies. All these factors must be considered and managed alongside existing emergency situations that may affect the transmission and distribution systems.

67 Part 3 Our approach

3.2 Driving energy innovation

Energy innovation is accelerating at a rapid pace around the world. To keep up with these developments, we will support the development of new energy technologies – focusing on areas where we are already leaders and where we can build a strong competitive advantage.

Victoria is recognised as a leader in supporting innovation, Renewable technologies scientific research and technological development across a The Government is supporting renewable technologies range of industries. As the energy sector transition gathers from early research stages through to large scale momentum, the need for Government support for demonstration projects. research, development and commercialisation of new energy technologies will continue to grow. The Government aims to expand Victoria’s technological strengths in sustainable energy research – something that The Commonwealth Government, as the level of could, over time, form a new manufacturing base for our government with access to a broad tax base and possible State. Creating the right links to international industry future revenue from the sale of emissions trading permits, and research networks will be an integral part of this task. will need to fund a major share of this work. To ensure renewable energy technologies are ready The Victorian Government also has an integral and and able to meet our future energy needs, the Victorian ongoing role to play. Recognising that we are just one Government will: player in this global effort, Victoria will need to focus on those areas where we are already doing well and where UÊ ÊA further $100 million has been committed to we can gain further advantages through innovation. attract support for a large scale solar plant in Victoria, subject to Commonwealth Flagships funding. Victoria’s Energy Technology Innovation Strategy (ETIS) has already established a strong model for delivering this task. UÊ ÊDevelop policy frameworks, where necessary, for By supporting a portfolio of options, including specific new technologies, such as marine energy. The renewable energy technologies and low emissions coal, Victorian Government is addressing issues relating Victoria can expand the options available for meeting our to environmental and social sensitivity, and the future clean energy needs. absence of an efficient regulatory framework for these technologies. The Government is developing a marine energy policy to deal with issues such as suitable facility locations, managing access to marine areas (such as the sea bed) to potential investors, and regulations.

UÊExplore Ê the best ways to bring renewable energy storage technologies to Victoria (see Storing renewable energy – p30) and testing them to prove their commercial applicability.

68 Polymer solar cells: Printing the future

A new production process that uses banknote printing “We expect this product will find its first customers in niche technology to produce lightweight, flexible plastic solar markets as the first generation of materials is tested to cells could place Victoria at the forefront of the global establish efficiency and durability.” solar power industry. Preliminary print trials at Craigieburn in 2009 Using elements of the technology employed in the demonstrated the proof-of-principle that could ultimately production of Australia’s polymer banknotes, the lead to print rates of 200 metres a minute. production of polymer solar cells could literally be as easy If successful, under commercial manufacturing conditions as printing money. the technology could enable a single printing press to CSIRO researcher Dr Gerry Wilson said the solar cells produce up to 100 kilometres of solar cells per day. research was part of a broader program being conducted At that rate it would take just five months to print 1000 by the CSIRO to investigate Victorian manufacturing megawatts of plastic solar cells – equal to the output of a industry opportunities in the rapidly emerging field of large coal or gas-fired power plant. flexible electronics. The polymer solar cell technology uses a combination of “Although printable solar cells are in an early stage of unique, light sensitive inks and dyes developed by the development, they offer several advantages over CSIRO and other partners in the Victorian Organic Solar traditional rigid solar panel technology,” Dr Wilson said. Cell Consortium (VICOSC) project. “The flexible, light weight cells could be mass produced, VICOSC is a three year $12 million solar cell technology which would reduce costs, and can be applied to roofs, development project. The Victorian Government is walls, uneven surfaces and even as a semi-transparent providing 50 per cent of project funding through the ETIS. layer for use on windows.” In addition to the CSIRO, project partners include University of Melbourne, Monash University, Securency, BP Solar, Bluescope Steel, Merck and Nanovic.

3.2

Minister Batchelor inspects polymer solar cells

69 Part 3 Our approach

Low emissions coal and carbon storage Victoria’s ongoing support of energy innovation will create opportunities to access funds for pre-commercial Developing low emissions uses for brown coal continues to development of coal-to-liquid and coal-to-urea technologies. be a focus of the Victorian Government (see Part 2 – p32). As these technologies approach commercial application, The combination of our extensive coal resources, solid the regulatory and investment environment will become knowledge base and excellent offshore storage options increasingly important (see attracting and facilitating (close to the coal resource) creates the potential for Victoria investment – p74). to be a world ‘test case’ for carbon capture and storage (see Supporting development of a CCS ‘hub’ – the CarbonNet To continue this work, the Victorian Government will: project – p77). UÊ ÊOffer support for investment in first-of-a-kind First-of-a-kind CCS projects will provide the knowledge, carbon capture and storage (CCS) projects through experience and skills required to enable the commercial the ETIS. development of these technologies. By leveraging federal UÊ ÊContinue to provide funding support for the ‘flagship’ funds ($2.4 billion has been allocated to support Co-operative Research Centre for Greenhouse projects around Australia), Victoria ensures successful early Gas Technologies (CO2CRC), ensuring the Otway trials in CCS are able to move to the next phase. The Project continues to improve our understanding about Government will work to develop a strong, integrated carbon dioxide storage deep underground (see case network of support, coordination, engagement and funding study – p71). programs to undertake this work (see figure 18). UÊEnsure Ê communities are kept well informed and that public safety is preserved as these new technologies are developed.

Figure 18 Innovation support for new CCS projects

Commonwealth flagships Geoscience Victoria ETIS [Victorian Technical Government] Funds assistance

Private finance Resources

New Coal CCS Projects Allocation [Vic]

Global CCS Institute

Knowledge Regulatory frameworks National and State Legislation Universities

70 Clear communication for subterranean solution

In the dairying and cattle community of Nirranda South, Mrs Dumesny said the success of the CO2CRC Otway local farmers like the Dumesny family are no strangers to Project hinges on clear communication between the drilling rigs, exploration teams and seismic surveys. community and the project managers. Deep below the prime dairy and cattle country in this “We have had a lot of very well run meetings,” Mrs beautiful part of south-west Victoria are ancient geological Dumesny said. “The people from CO2CRC are very down formations that have been the target of extractive gas to earth, and they have continued to keep us informed.” exploration for over half a century. “I’m very interested in what they are doing; I don’t know if Mrs Delcie Dumesny moved to the area in 1956 and has it’s going to work, but you don’t know until you have a go.” seen many exploration and drilling operations come and Mrs Dumesny said the CO2CRC Otway Project liaison go. Today, Mrs Dumesny’s two sons run cattle operations officer and contractors had listened to farmers’ requests to on the family farms. provide notice before coming onto properties, to leave Two years ago a drilling rig returned, only this time the gates as they were found, and to protect fields from heavy aim was to inject carbon dioxide deep underground. machinery during wet weather. The Cooperative Research Centre for Greenhouse Gas To keep the community involved and informed, the Technologies (CO2CRC) is managing the $40 million CO2CRC Community Consultation Program also includes Otway Project, one of the most sophisticated and meetings, newsletters, site tours, online information and a comprehensive carbon dioxide storage projects community reference group. world-wide. The Otway Project has successfully injected, stored and One of the gas wells being used to inject carbon dioxide monitored over 65,000 tonnes of carbon dioxide-rich gas underground is located on one of Mrs Dumesny’s properties. in a depleted gas reservoir deep underground. An existing well on the property is used for monitoring, and preparations for an additional drilling rig to drill a new injection well are underway.

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71 Part 3 Our approach

Supporting new transport fuels A smarter electricity grid As with other elements of the energy sector, new A sustainable, secure energy future for Victoria requires technologies will be a key part of reducing emissions transforming the electricity grid so that it is equipped for from our transport sector – especially new technologies the connection of new forms and sources of energy, and is in alternative fuels and associated vehicle technologies. increasingly efficient in the way it distributes electricity. The statewide Smart Meter roll out is a first step in this process. Because we are part of a larger global market for transport fuels and vehicles, Victoria will need to carefully focus on Smart grids will modernise and transform the electricity areas most relevant to our circumstances. Accordingly, the grid, enabling more effective distribution, storage and Government’s goals are to facilitate the transition to cleaner end-use of the electricity. Smart grids support the delivery transport fuels by supporting innovation and information of electricity to consumers using digital communications programs, and to position Victoria to capitalise on long technology to improve service and reduce costs. They term economic opportunities in the transport sector. also offer better support for renewable and distributed generation and storage. They do this by improving the To support new transport fuels, the Victorian Government will: resilience and capacity of a network to reliably and safely UÊ Work with our fuel and automotive industries and connect the variety and wide-ranging geographical with transport users to encourage the development distribution of renewable energy generators. and adoption of new, cleaner technologies. The CSIRO and five of Australia’s leading universities are Technology developed in Australia and around the also combining in an Intelligent Grid (iGrid) initiative to world will allow Victoria to benefit from opportunities in research the economic, environmental and social impacts the production and use of different fuels to supplement and benefits of large scale use of low emissions distributed oil-based fuels. The Government will also explore the generation, and advanced communications and opportunities for alternative fuels to be developed and control systems. used in Victoria. To make sure smart grid technologies are applied in an UÊ ÊSupport investment in the biofuels industry effective way, the Victorian Government will: to support regional application of second generation technologies. UÊ Help to coordinate project partners and facilitate Victorian bids to access the Commonwealth UÊ ÊConduct a five year trial of electric vehicles to Government’s $100 million National Energy Efficiency provide ‘real-world’ information on the use of electric Initiative (NEEI) Smart Grid, Smart City program. This vehicles in Victorian conditions, including the market for initiative will support the installation of Australia’s first electric vehicles, the impacts the use of these vehicles commercial-scale smart grid. may have on driver behaviour, battery charging patterns and the potential implications for electricity consumption. UÊ ÊExamine the benefits of developing a Victorian smart grid demonstrated through the iGrid and Smart UÊImplement Ê a Sustainable Transport Energy Strategy Grid, Smart City trials and investigate ways to efficiently to help maintain Victoria’s long term transport energy deploy these new technologies in our grid. security, promote new economic development and job opportunities, and provide a framework for transport UÊ ÊAssess the need for additional Government energy policy that will allow diversity in Victoria’s intervention to stimulate other forms of innovation transport energy supply by removing barriers to by electricity distributors – not only for smart grid the adoption of alternative fuels and low emissions purposes, but for improving supply reliability, energy vehicle technologies. efficiency, quality and safety. It will be important to determine where incentives can be built into the regulatory framework and if alternative forms of government support are required.

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3.3 Attracting and facilitating investment

New investment in energy will be critical to Victoria’s future. We will make sure that our State continues to be an attractive, competitive location for new energy investment, and that our planning and project approvals processes are timely and efficient. This will give reasonable certainty to investors and deliver high quality developments that balance local and national objectives.

The Government has an important part to play in making Communities and planning sure that Victoria remains an attractive location for energy The community is often keenly interested in new energy investment. New investment will be critical to ensuring the developments that affect them and many groups and security of our energy supply and moving forward with individuals participate in planning processes in their renewable energy. region. Wind farms (and new powerlines) will be visible One of the objectives of a national electricity market, across more landscapes, pipelines (for carbon dioxide and national targets for renewable energy and carbon or natural gas) may need to be built through private pollution limits, is that investment will naturally head for land, and communities may have concerns over the the most desirable locations. To allow this to occur, and to safety of new processes, such as storing carbon attract investment to Victoria, we need to make sure that dioxide underground. our planning and regulatory functions meet our social and It is important that people affected by these developments environmental aims without creating unnecessary barriers understand the reasons behind them and can contribute to new projects. to the relevant planning and approvals processes. This will Efficient planning and development approvals require the active participation of governments, businesses and communities. The rapid transformation of our energy base will place strong demands on the processes we use to approve To assist this process the Victorian Government will: energy projects. For example, Victoria is expected to UÊ Develop a Blueprint for Regional Victoria to receive a significant share of the nation’s new wind farm manage the growth and change taking place across developments and this expansion will present challenges Victoria’s regions. The blueprint will include a new for the community and industry. Regulatory processes framework for regional strategic planning that takes managed at State Government level (such as planning into account the potential impacts on a number of approvals, environmental effects statements and works regions from new energy developments. Work on approvals) are important in ensuring that new developments the blueprint is underway and includes extensive continue to meet community, environmental and community input and consultation. business needs.

74 Investors and planning Box 10 – Green Door – Development assessment processes can be complex and Good Practice Principles time consuming, particularly if off-site impacts are not resolved in the early stages of project planning. Investors As part of the Green Door process, projects will benefit also need to appreciate the full range of costs they need if they commit to applying good practice consultation to cover which, in many cases, will include paying for principles with local communities. These principles are: connection to the existing network. UÊ ÊEarly and inclusive engagement of the local The Victorian Government will ensure that environmental community in the development of the project to and community concerns are addressed in a holistic way by ensure robust and effective input into its decision ensuring that developers are aware of the requirements of making process; for example at the point of the approvals processes. identification of potential sites. The Victorian Government is also working to ensure that UÊ ÊAn open and transparent consultation process regulatory approval processes, including the Victorian where all relevant information is made available to planning system, are reviewed and streamlined. Through the local community. this process, the Victorian Government will: UÊ ÊTimely and responsive feedback so that those involved in the consultation have a good idea of how UÊ Implement regulatory changes that will provide a new planning application process for projects of State their feedback and comments are being used. significance through the Planning and Environment Act UÊ ÊMaximise benefits to host communities: Renewable 1987 (Vic). energy developments will need to minimise impact on residential properties that are located near development UÊ ÊEstablish a dedicated Green Door entry point for low emissions energy investors. The Green Door will sites and clearly identify benefits for local communities. provide specialist advice on energy developments and UÊ ÊAll reasonable efforts must be made to provide initial coordination and facilitation assistance resolve conflict. (see Box 10).

UÊ Develop tailored best practice guidelines and tools that encourage wind energy developers to actively engage with local communities so that shared benefits can be maximised.

UÊDevelop Ê tailored best practice guidelines and tools to assist energy developers and the Government to 3.3 prepare and assess planning applications and share the benefits of development with local communities.

UÊ ÊAmend the Victorian Planning Provisions to support the development of a broad range of low emissions energy facilities.

UÊ ÊReview processes relating to electricity grid connections to ensure new investment in low emissions technologies are not unnecessarily delayed.

UÊ ÊIdentify key risks and opportunities to guide the location of new energy project proposals by applying existing and new information sources (such as biodiversity, high landscape and heritage values, location of residential dwellings and the latest population trends) to energy resource data across the State.

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Mapping new opportunities in Victoria UÊUndertake Ê geological studies and, where necessary, make information publicly available (as a pre-commercial The effort to advance new technologies will require a database) about potential underground carbon storage better understanding of the renewable energy resources areas to attract investors to Victoria. available in Victoria. This will allow companies to plan more effectively and Sources of renewable energy such as wind and solar are provide Victoria with a greater chance of securing reasonably well understood, with a Victoria wind atlas national funds to develop a flagship CCS project. already developed and a solar atlas being prepared. Further work is required for marine and geothermal resources. UÊ Allow prospective investors to bid for the right to explore for underground storage formations based To ensure effective use of our energy resources the on the geological studies undertaken. Victorian Government will:

UÊComplete Ê the development of a Victorian solar atlas. UÊ ÊInvestigate the need for targeted drilling work to develop a Victorian geothermal atlas (a map of possible geothermal resources). This would be a useful resource for assisting industry to identify viable sites.

3-D image of underground geological formations

76 Support for pre-commercial investment Victoria passed legislation in 2008 to enable and regulate onshore storage of carbon dioxide. Victoria is also working Frequently, new technologies reach a point where the with the Commonwealth Government on CCS regulation technical issues are largely resolved – and may even and an effective and streamlined set of regulations for have been demonstrated at large scale – but they are offshore storage is nearing completion. These regulations not commercially viable. Businesses cannot see a way will provide a clear framework for potential investors and to achieve a financial return commensurate with the protect the interests of Victorians. risks involved in adopting these new technologies or the technology is simply too expensive to compete Victoria must also address the process for allocating coal to with alternatives. support these future uses. To ensure this happens in a timely and predictable way for business, and to ensure the best However, there may be instances when governments want outcomes for communities, the Victorian Government will: to encourage the commercial development of particular technologies. This may occur where the technology is seen UÊ Continue reviews of the current legislative as strategically important in the light of a rising carbon arrangements and consider the future allocation price. The Victorian Government’s commitment to support of the State’s energy resources. projects applying CCS and solar technologies on a UÊ ÊDevelop a strategic plan for the development of commercial scale are examples. our coal resource – identifying optimal uses for the This is a difficult area for governments, which may end resource, preparing appropriate land use planning up ‘picking winners’ and assuming risks that are best guidelines, ensuring sound long term environmental managed by business. In addition, any support for a outcomes are associated with mining, and supporting particular new technology may ‘crowd out’ more cost- the necessary infrastructure for new developments effective options, resulting in higher prices to consumers. within a carbon constrained future. However, significant community benefits can also be UÊEnsure Ê future development is consistent with realised from active government support for new technologies water availability. The Government is developing the in certain circumstances. Where appropriate, the Victorian Gippsland Region Sustainable Water Strategy, which will Government will work in close cooperation with the consider issues related to water availability and new Commonwealth Government to provide this support. industry development. To ensure that new technologies are able to achieve commercial reality in a timely way, the Victorian Supporting development of a CCS ‘hub’ – the Government will: CarbonNet project.

UÊ Continue to support projects that will apply solar To capture the full benefits of research, development and technologies on a commercial scale, including the demonstration at a large scale, Victoria will coordinate 3.3 Government’s commitment of $100 million to attract activity and funding to run multiple complementary CCS Solar Flagship funding to support a new large scale trials. This will involve supporting different technologies for solar plant in Victoria. carbon capture and linking them via a shared transport network of pipelines to storage sites in the offshore UÊAssess Ê on a case-by-case basis the most appropriate Gippsland Basin. role for Government to support pre-commercial investment in promising new technologies. For The development of a CCS ‘hub’ in Victoria will help to example, the Victorian Government is supporting the ensure that infrastructure is developed from the outset installation of small scale electricity generation using with the intention of increasing its scale to cover new ceramic fuel cell technology in 30 public housing commercial operation from multiple users. This will sites across Victoria. lower the long term cost of CCS. Subject to Commonwealth funding support, the Victorian Future investment in coal and carbon storage Government will assist this process by: As many of the future uses of coal will be new, they UÊ Linking the efforts of multiple industry players will require new regulatory approaches to support into a single overarching investment plan. their implementation. By combining efforts, funding and risk will be shared Carbon storage is the obvious example. New rules are by more parties, encouraging earlier and more necessary to define the rights to storage; how these rights widespread investment activities. will relate to rights to extract oil or gas; the liability for long term management of stored carbon dioxide; how the allocation of storage sites will occur; and many other issues.

77 Part 3 Our approach

Showcasing the benefits of energy efficiency

Making the change away from established ways of doing The Government is also demonstrating what can be done things often takes a big effort. in the area of sustainable buildings. New approaches often rely on new skills, new materials Leading design and innovative operational features have and new designs. This can make some private sector allowed the Melbourne Convention and Exhibition Centre businesses reluctant to make the first move. to claim that it is the only 6 Star Green Rated convention centre in the Southern Hemisphere. To help overcome this, the Victorian Government is leading the way. This way, other businesses can confidently take But a building does not have to be new to be ‘green’. similar steps in their own operations. The ‘Goods Shed’ (pictured below) houses Vic Urban, the Building Commission and the Plumbing Industry The ResourceSmart government program was established Commission. It is the only 5 Star Green Rated Heritage in 2007 to work with State Government statutory agencies listed building in Australia. to develop environmental strategies and action plans. Although these buildings are the first of a kind, they More than 100 agencies have gone through the program have proven what is possible using sustainable design and begun reducing their environmental impact. and efficient technologies. It is now up to other businesses The Public Records Office in Victoria has shown that a to follow this lead. simple approach can be very effective. By reducing air conditioning in storage rooms and office areas, removing every second lamp in storage areas and reducing the amount of time lights are automatically turned on, the office managed to reduce their energy use by 30 per cent in just one year.

78 Helping people and business invest to While national coordination is important, the Government save energy will continue to implement appropriate, cost-effective State-based energy efficiency policies and programs to The Victorian Government believes that most areas of deliver significant benefits for Victorians. energy efficiency policy are best advanced at the national level. That is why in July 2009 the Government signed up To promote investment in energy efficiency, the Victorian to the next step in forging national cooperation on energy Government will: efficiency – the National Strategy on Energy Efficiency. This Evaluate and further develop the Energy Saver strategy builds on the work of the National Framework on UÊ Ê Incentive (ESI) scheme and encourage consideration Energy Efficiency (which began in 2004) and recognises the of its national potential. need for a renewed impetus to deliver a ‘step change’ in energy efficiency. UÊ ÊImplement 6 star energy efficiency standards for commercial and residential buildings, and facilitate A national approach allows Australian governments to approvals processes for green buildings. focus collectively on areas where substantial cost-effective energy efficiency opportunities exist: commercial buildings, UÊ ÊIntroduce standards for vehicles and a wider range residential buildings, appliances and equipment, industry of appliances in line with national settings. and business, government, transport, skills, innovation, Contribute to the delivery of information to and advice and education. UÊ Ê improve energy efficiency options, including energy performance contracting for small business.

UÊ ÊContribute through leadership in its own operations, including through the use of energy performance contracts, procurement policies and new housing developments that demonstrate cost-effective energy efficiency options.

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3.4 Leading further market reform

Competitive energy markets and efficient network services are essential for a stable transition to low carbon energy services at least cost for all Victorians under a future carbon price and Renewable Energy Target. The Victorian Government will continue to push for energy market reforms that deliver the best results for Victorians.

Creating the right conditions for open, competitive market Supporting the implementation of a well activity is essential for delivering reliable and efficient designed national emissions trading scheme supplies of energy. Victoria has succeeded in achieving this A carbon price is necessary to generate the structural goal. Our electricity and gas retail markets are regarded changes across the Australian economy to lower our internationally as the world’s most competitive and carbon pollution. effective energy markets. Policy certainty around this issue is essential to build Victoria is a world leader in the efficient and transparent investor confidence and help to ensure a smooth, regulation of monopoly electricity and gas networks to stable transition. keep costs fair and reasonable for users. Our oil supplies are also provided in highly competitive international The Government continues to support a national markets. emissions trading scheme as the most efficient way of making this happen. A major challenge for the Government is preserving and improving the benefits of our competitive energy markets Nevertheless, in implementing such a scheme there and efficient network services during the transition to a will be transitional challenges for some communities low emissions energy future. and energy users. The Government will make sure that impacts of a future scheme on Victorian industries, Victoria’s energy infrastructure – the power stations and groups or communities are identified and seek appropriate gas plants, the networks and the retailers – is privately transitional assistance from the Commonwealth for owned. As the energy sector grows to meet new demand these areas. and makes the changes needed to supply lower emissions energy, investment in new energy infrastructure will The Victorian Government will continue to urge the continue to be funded largely by the private sector. This Commonwealth Government to: task will require billions of dollars of new investment in Implement a well designed national emissions the sector every year. UÊ Ê trading scheme to provide investor certainty and The Government has a critical role to play in attracting drive a broad based structural change to a low and retaining the most efficient investment in new energy carbon economy. infrastructure by providing stable and effective frameworks Ensure that vulnerable and disadvantaged for regulating and operating energy markets and networks. UÊÊ Ê households continue to have access to energy as an essential service.

UÊÊ ÊProvide sufficient funding to state governments to enable them to deliver adjustment assistance to regions that are particularly vulnerable to the impacts of a carbon price.

UÊÊ ÊEnsure appropriate transitional assistance is provided to coal-fired generators to facilitate the early closure of older plants and the transition to cleaner energy sources, while maintaining a reliable electricity supply and ensuring Victoria remains attractive to investors.

80 Box 11. Renewables and the Providing competitive, efficient energy markets market framework Australia’s electricity and gas services are now governed by national laws that promote secure, reliable, safe and Because we have a national electricity market and efficient energy services in the long term interest of regulatory framework, transmission planning and grid consumers. National institutions such as the Australian connection arrangements are considered at a national level Energy Market Operator (AEMO), the Australian Energy by the Australian Energy Market Commission (AEMC). The Market Commission (AEMC), and the Australian Energy AEMC has reviewed the national energy market framework Regulator (AER) respectively provide market operation and to assess the capacity of the framework to manage change grid planning, rule making, and regulation services in the under the national climate change policies. national energy markets. The AEMC reported in September 2009 that existing This national framework promotes competition to deliver frameworks were resilient, and recommended a number of lowest cost energy services for all Australian consumers. It additional measures to strengthen the ability of the energy allows energy to be traded across state borders to provide markets to respond to national climate change policies. the lowest available cost energy to all consumers. The changes include more efficient network planning to connect clusters of remote generation, better transmission But this structure is new and lessons are still being learned. pricing to promote interstate energy flows, and the The Victorian Government believes the national energy removal of retail price regulation in competitive retail framework can deliver even better outcomes by: energy markets (price regulation was removed in Victoria from 1 January 2009). UÊ ÊReviewing the National Electricity Market (NEM) Reliability Standard to ensure that the standard meets The AEMC is also reviewing the effectiveness of security current community needs and takes account of the and reliability arrangements in the National Electricity reliability impacts of the Renewable Energy Target (RET) Market (NEM) in light of extreme weather events, and and any future carbon price. will report to the Ministerial Council on Energy (MCE) in April 2010. UÊ Advocating the further development of national markets to improve the investment environment and Other relevant AEMC reviews include better national support the security of our energy supply. arrangements for regulating the planning of electricity distribution network expansion arrangements, which UÊ ÊProviding a stronger role for private ownership of reported to the MCE in September 2009, and a review of energy assets in the NEM to reduce the uncertainty demand side participation (DSP) arrangements in the NEM associated with government ownership of power (due November 2009). The DSP review is considering, companies – in particular, uncertainty about the plans of along with other matters, distributed generation planning, other state governments for investing in the NEM could 3.4 regulatory frameworks and connection timing. adversely affect private investment in Victoria.

The AEMC’s findings will assist the Government to identify UÊ ÊRemoving interstate price regulation in retail areas where it might be able to facilitate better outcomes energy markets where competition has been shown for new energy investment. to be fully effective – this will promote stronger competition in the national markets and reduce energy Planning of the transmission network will also continue costs for consumers nationally. with the Australian Energy Market Operator (AEMO) taking over the planning role of VENCorp, which has led UÊ ÊImproving energy pricing in the NEM to give better the development of Victoria’s electricity transmission for signals to investors about the need for new investment over 10 years. In this role, the market operator’s key in supply. responsibility will be the preparation of the National UÊ ÊStandardising ‘best practice’ consumer protections Transmission Network Development Plan which will in the NEM help to ensure that local network investments contemplate the broader strategic direction of the network, guide UÊ Strengthening the national transmission network appropriate investment in network infrastructure and planning functions of AEMO to provide more promote efficiency savings. transparent and efficient national investment in networks and generators, and develop a strategic plan for the energy grid to accommodate clean energy sources.

UÊ ÊProviding stronger financial incentives to promote reliability in our large scale monopoly transmission network services – currently, some financial incentives for reliability do not reflect the costs caused by major network outages.

81 Part 3 Our approach

UÊ ÊStrengthening the capacity and resourcing of To date, reviews have concluded that the existing the national regulator by establishing AER as a fully competitive national markets, supported by efficient independent regulator of an essential service (AER is regulation of monopoly network services, will be able to currently a division of the Australian Competition and effectively manage the transition of the nation’s energy Consumer Commission). infrastructure to low emissions energy sources. However, the reviews have recommended some changes, including UÊAligning Ê the governance and funding models more effective network planning to connect clusters of of the AER and AEMC under the oversight of remote renewable energy supplies, and stronger incentives energy ministers. to reduce the cost of transporting new energy supplies to users. Further recommendations are anticipated. Monitoring the evolution of national institutions Victoria will continue to provide leadership in the A number of elements of the national frameworks for development of the national energy markets and their energy markets are being reviewed to determine the institutions. In addition, the Victorian Government will: changes needed to ensure effective management of the large scale restructuring of the sector (see Box 11 – p81). UÊContinue Ê to advocate that the national energy institutions be governed openly and transparently in the interests of consumers.

82 Box 12. A shared approach to shared challenges – National Reform on Climate Change

The challenges of restructuring the energy sector are not Critical areas include: just relevant to Victoria. All Australian states will face the UÊ-ÌÀÕVÌÕÀ>Ê>`ÕÃ̓i˜ÌÊ«œˆVˆiÃÊvœÀÊ>vviVÌi`ÊÀi}ˆœ˜Ã task of moving away from high emissions energy sources. UÊÊ >̈œ˜>ÊÃÌÀ>Ìi}ÞÊvœÀÊÀiÃi>ÀV ]Ê`iÛiœ«“i˜Ì]Ê Where these challenges are shared, or where we can learn demonstration and deployment for low emission from each other’s efforts, it makes sense to work together technologies to solve the problem. UÊÊÀi>ÌiÀÊΈÃÊ>˜`ÊÌÀ>ˆ˜ˆ˜}Ê̜ÊLՈ`ÊܜÀŽvœÀViÊV>«>VˆÌÞ To promote a shared approach, Victoria has led a proposal to establish a collaborative approach to key areas of UÊʘvÀ>ÃÌÀÕVÌÕÀiÊÕ«}À>`iÃʈ˜VÕ`ˆ˜}ÊiiVÌÀˆVˆÌÞÊ}Àˆ`ÃÊÌ >ÌÊ energy reform. support more dispersed generation. State and Territory First Ministers, through the Council for Second, policies must support adaptation to climate the Australian Federation, have committed to developing a change through improving the flexibility and adaptive nationally consistent response to climate change which is capacity of communities and businesses. This will include: strong, efficient and equitable. UÊÊ i>ÀÊ`iˆ˜i>̈œ˜ÊœvÊÀi뜘ÈLˆˆÌˆiÃÊLiÌÜii˜ÊÌ iÊÌ ÀiiÊ As a leading example of cooperative federalism, First tiers of government Ministers have agreed to focus on two areas to deliver UÊÊ Õˆ`ˆ˜}ÊÌ iÊV>«>VˆÌÞʜvÊ}œÛiÀ˜“i˜ÌÃÊ>˜`ÊÀiiÛ>˜ÌÊ an effective national response to climate change. agencies to deal with adaptation First, in readiness for a future price on carbon, policies UÊÊ
««Àœ«Àˆ>ÌiÊÀˆÃŽÊ“>˜>}i“i˜ÌÊÜ i˜ÊLՈ`ˆ˜}Ê>˜`Ê must be in place that support the transition to a low protecting infrastructure. carbon economy. Issues related to the energy sector are central to this stream. The next step is to take this proposal to COAG so that state, territory and Commonwealth governments can begin long term tasks required as part of these reforms.

3.4

83 Part 3 Our approach

Improving transmission planning Promoting effective national and network connection regulation of transport technologies Energy transmission infrastructure will play an increasingly Governments will have a role in informing consumers important role in the transition to a low emissions energy about low cost measures to reduce greenhouse gas future. As we change the ways in which we produce emissions in the transport sector and removing barriers to electricity, we will need to make major changes to the the adoption of these measures. This includes removing transmission network. barriers to the take-up of low emission fuels and informing consumers about the range of short and long term Planning for new transmission infrastructure must provide opportunities that exist in alternative fuels and low for future growth and major shifts in the location of power emissions vehicles. supplies. The AEMC has recommended a major new addition to transmission planning arrangements to ensure As new transport technologies and fuels become available, that relatively small scale and remote renewable generation they will face different barriers to adoption. is able to connect efficiently to the transmission network The Commonwealth Government is often better placed, (see Box 11 – p81). and has the necessary power, to make sure that national Assessing future transmission needs will be a major standards and regulations reflect best practice approaches. function of the national market operator AEMO, which The Victorian Government will have a role in leading will oversee development of the national grid, including coordinated action with other states and influencing the new connections between the states and better links in Commonwealth in areas where national action is most planning between electricity and gas networks, as gas-fired appropriate. For example, Victoria intends to play a leading power generation increases. role in the development of national guidelines and standards for the use of electric vehicles. Connection to new or existing networks is another critical component of a competitive and efficient energy market. Victoria will also have a role in developing and implementing policies that are complementary to a future It is important that regulatory arrangements promote open carbon price, such as the provision of information and access to our network infrastructure. These arrangements support for research, development and demonstration of must also ensure that all users of the shared network are alternative technologies. treated fairly. The Victorian Government is investigating barriers to the This requires transparent methods of allocating costs from take-up of different transport fuels to ensure a diverse and the impact of new connections on the shared network. competitive market. For example, the Government is These costs need to be fully recovered and shared leading national efforts to address infrastructure, regulation according to how benefits are derived. In most cases, and other requirements to support the introduction of costs should be borne by the owner of the new generation electric vehicles in Australia. The Government will support assets. This will allow investors to assess the comparative the development of new fuel infrastructure for alternative costs of alternative investment proposals – ensuring fuels where this is commercially viable and there is a net consumers benefit from lower prices. public benefit in doing so. The Victorian Government will: To support these new technologies, the Victorian UÊ Advocate that the AEMC establish improved Government will: processes for the pricing of connections of new plant UÊ Make sure that the barriers to the entry of new to the transmission grid. products are minimised and approvals processes for UÊ ÊEncourage the AEMC to streamline regulations for new investments are streamlined. developers seeking to install co-generation facilities in UÊ ÊContinue to support national approaches to new and existing urban developments. We will seek to harmonising planning for fuel supply, fuel and have barriers which impede broader scale take up of vehicle efficiency standards, and to encourage more distributed generation addressed at a national level. competition in the upstream petroleum industry.

84 3.4

Dartmouth hydro power station

85

Glossary

AEMC Australian Energy Market Commission AEMO Australian Energy Market Operator AER Australian Energy Regulator Baseload The constant level of power that is required to meet the minimum electricity demands of customers, all year round Biofuel Solid, liquid or gaseous fuel obtained from living material Carbon capture and storage (CCS) Technology to capture and store greenhouse gas emissions from energy production or industrial processes Carbon price The price that will be applied to carbon emissions from sectors covered by an emissions trading scheme CCV Clean Coal Victoria CNG Compressed natural gas

CO2 Carbon dioxide Coal seam gas (CSG) Coal seam gas (also known as coal seam methane) occurs naturally within coal deposits – the gas is largely composed of the gas methane which is also the principal component of natural gas Cogeneration A form of electricity generation that also makes use of the waste heat energy produced by the generator - the heat can be used for space heating or as an input into other industrial processes Combined cycle gas-fired turbine (CCGT) A generator that uses a gas turbine to generate electricity that has an additional stage that takes waste heat to make steam that drives a steam turbine to generate further electricity – see also OCGT below CSIRO The Commonwealth Scientific and Industrial Research Organisation COAG The Council of Australian Governments – a group consisting of all state and territory First Ministers and the Prime Minister Distributed generation Electricity generated from multiple small energy sources such as solar panels, co-generation plants or small scale wind Distributed network Also known as distribution grid or distribution system - it describes the portion of an electric network that is dedicated to delivering electric energy to an end user Emissions Trading Scheme (ETS) A market-based approach to reducing emissions by placing a limit on emissions allowed from all sectors covered by the scheme ESAA The Energy Supply Association of Australia Fossil fuel A hydrocarbon deposit, such as petroleum, coal, or natural gas, derived from the accumulated remains of ancient plants and animals and used as fuel Gasification (coal) The process of producing gas from coal – see Syngas below Geo-sequestration A process that stores liquefied carbon dioxide in rock structures deep underground

86 GW Gigawatt or a thousand million watts (a watt is unit that measures the rate of energy conversion) GWh Gigawatt hours: a measure of energy (energy is also measured using joules) IDGCC Integrated Drying and Gasification for Combined Cycle generators: the combination of high moisture gasification of coal with a combined-cycle system to generate electricity Interconnector High voltage transmission line connecting power grids between two states LNG Liquefied natural gas LPG Liquefied petroleum gas MW Megawatt or a million watts (a watt is unit that measures the rate of energy conversion) MWh Megawatt hours: a measure of energy (energy is also measured using joules) National Electricity Market (NEM) Wholesale market for the supply of electricity to retailers and end users in the interconnected regions of Queensland, New South Wales, the Australian Capital Territory, Victoria, South Australia and Tasmania, which began operating in December 1998 OCGT An open cycle gas turbine that generates power by burning gas in a turbine and releases residual heat into the atmosphere – see CCGT above Photovoltaic systems An energy technology that uses semiconductors to produce an electric current when exposed to sunlight - often called solar cells or solar panels Sequestration The long term storage of carbon dioxide in forests, soils or underground in depleted oil and gas reservoirs, coal seams and saline aquifers Smart grid The use of digital technology and real-time communication to better manage the flow of electricity around the network and provide network services to users Smart meters A new type of electricity meter that measures and records how much electricity a household uses every 30 minutes and provides this information to energy retailers – all old electricity meters in Victoria (that were read by a person who visited each house every few months) will be replaced with a smart meter at some stage over the next four years Syngas (Synthesis gas) A mixture of predominantly carbon monoxide, carbon dioxide and hydrogen resulting from the gasification of coal – the carbon dioxide can be captured for storage leaving a hydrogen rich gas for use as an energy source Transmission network Also known as transmission grid or transmission system: an interconnected group of electric transmission lines and associated equipment for moving or transferring electric energy in bulk between points of supply and points at which it is transformed for delivery over the distribution network lines to consumers, or is delivered to other electric systems.

87

Further Resources

Policy documents Victoria’s climate change website Victoria’s Climate Change Website outlines what the • Victorian Climate Change Green Paper Government is doing in relation to climate change, how www.climatechange.vic.gov.au Victoria has led the way for more than a decade, and • Our Environment Our Future – Environmental details of the policy initiatives. Sustainability Action Statement www.climatechange.vic.gov.au www.dse.vic.gov.au/ourenvironment-ourfuture Commonwealth Government • Victorian Transport Plan The Department of Resources, Energy and Tourism www.transport.vic.gov.au The Department of Resources, Energy and Tourism provides • Driving Growth - A Road Map and Action Plan for advice and policy support to the Australian Government the Development of the Victorian Biofuels Industry regarding Australia’s resources, energy and tourism sectors. http://www.business.vic.gov.au/busvicwr/_assets/main/ The Department develops and delivers policies to increase lib60018/rdv_biofuels_industry.pdf Australia’s international competitiveness, consistent with the principles of environmental responsibility and • Strategic Policy Framework for Near Zero Emissions sustainable development. from Victoria’s Fossil Fuels new.dpi.vic.gov.au/energy/energy-policy2/greenhouse- www.ret.gov.au challenge/near-zero-emissions

Government Websites National Agency Websites Victorian Government Australian Energy Market Operator Victoria’s Future Energy website AEMO is attuned to the changing needs of our growing A website dedicated to providing simple and accessible population by involving multiple states, jurisdictions and information about our energy sector and the changes communities and by delivering an array of gas and we can expect to see in the future. electricity market, operational and planning functions. www.dpi.vic.gov.au/energyfuture www.aemo.com.au Department of Primary Industries Australian Energy Regulator The Department of Primary Industries is responsible for The AER regulates the wholesale electricity market and is energy and earth resources policy, as well as the promotion responsible for the economic regulation of the electricity and regulation of the agriculture, fisheries and forestry transmission and distribution networks in the national industries in Victoria. electricity market (NEM). The AER is also responsible for the www.dpi.vic.gov.au economic regulation of gas transmission and distribution networks and enforcing the national gas law and national Sustainability Victoria gas rules in all jurisdictions except Western Australia. Sustainability Victoria focuses on changing behaviour by providing advice and assistance for individuals, businesses, www.aer.gov.au governments and communities to act in a more environmentally sustainable way. International Agency Websites www.sustainability.vic.gov.au International Energy Agency The International Energy Agency (IEA) is an You Have the Power. Save Energy. intergovernmental organisation which acts as energy policy A website targeted at Victorian energy users providing advisor to 28 member countries, including Australia, in advice on ways to save energy and including an energy their effort to ensure reliable, affordable and clean energy saving calculator. for their citizens. www.saveenergy.vic.gov.au www.iea.org ResourceSmart A Government website providing information and advice on rebates for energy and water saving devices, how and where to recycle, and useful learning tools for reducing greenhouse gas pollution. www.resourcesmart.vic.gov.au

88 Balnarring Primary School – ResourceSmart School of the Year 2009

End notes iAssessments by the ESAA and Morgan Stanley have produced similar results ii International Energy Agency (2008), CO2 Capture and Storage iiiInternational Energy Agency (2009), CCS Roadmap iv National Energy Security Assessment (March 2009), Commonwealth Government Department of Resources, Energy and Tourism v Commonwealth Government Department of Resources, Energy and Tourism (April 2009), Discussion Paper – Investment, Competitive Markets and Structural Reform vi Nous Group (2007), Understanding the Potential to Reduce Victoria’s Greenhouse Gas Emissions (report prepared for the Victorian Department of Premier and Cabinet) viiACIL Tasman (2008), Investing in Enhanced Energy Efficiency in Victoria (report prepared for Sustainability Victoria) viii Department of Transport (2008), Greenhouse gas emissions abatement potential of the Victorian Transport Plan, November 2008 ix These very high prices allow peak generators to make a profit when they may only operate for a small number of hours or days each year. From 1 July 2010 this will increase to $12,500/MWh. www.dpi.vic.gov.au/energyfuture