AUSTRALIA’S OFF-GRID CLEAN ENERGY MARKET RESEARCH PAPER This report was produced with support from the Australian Renewable Energy Agency (ARENA). ARENA was established by the Australian Government as an independent agency on 1 July 2012 to make renewable energy technologies more affordable and increase the amount of renewable energy used in Australia. ARENA invests in renewable energy projects, supports research and development activities, boosts job creation and industry development, and increases knowledge about renewable energy. More information about ARENA can be found at www.arena.gov.au Follow us on Twitter: @ARENA_aus Subscribe to updates: arena.gov.au/subscribe NewActon Nishi, 2 Phillip Law Street, Canberra GPO Box 643, Canberra ACT 2601 T: +61 2 6243 7773 A ustralian Renewable Energy Agency 08-Oct-2014 Australia's Off-Grid Clean Energy Market Research Paper AECOM Australia's Off-Grid Clean Energy Market Research Paper Australian Renewable Energy Agency Client: Australian Renewable Energy Agency ABN: 35 931 927 899 Prepared by AECOM Australia Pty Ltd Level 21, 420 George Street, Sydney NSW 2000, PO Box Q410, QVB Post Office NSW 1230, Australia T +61 2 8934 0000 F +61 2 8934 0001 www.aecom.com ABN 20 093 846 925 08-Oct-2014 AECOM in Australia and New Zealand is certified to the latest version of ISO9001, ISO14001, AS/NZS4801 and OHSAS18001. © AECOM Australia Pty Ltd (AECOM). All rights reserved. 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Subject to the above conditions, this document may be transmitted, reproduced or disseminated only in its entirety. 08-Oct-2014 Prepared for – Australian Renewable Energy Agency – ABN: 35 931 927 899 AECOM Table of Contents Executive Summary i 1.0 Introduction 1 2.0 Australia in the Global Context 3 2.1.1 Global renewable energy market 3 2.1.2 Australian energy industry 3 2.1.3 International remote or off-grid market 5 3.0 Australian Electricity Markets 7 3.1 Overview 7 3.2 National Electricity Market 9 3.3 South West Interconnected System (SWIS) 11 3.4 Australia’s fringe-of-grid market 13 3.5 Australia’s Off-grid Electricity Market 14 3.5.1 Overview 14 3.5.2 Existing off-grid generation 15 3.5.3 Value proposition for off-grid renewable energy 17 3.5.4 Australia’s off-grid renewable market size and distribution 18 3.5.5 Stakeholders consultations 22 4.0 Government Legislation, Policies and Programs 26 4.1 National energy policy in Australia 26 4.2 Australia’s Direct Action Plan 26 4.2.1 Emissions Reduction Fund 26 4.2.2 Solar Towns 26 4.3 Other major initiatives 27 4.3.1 The Renewable Energy Target (RET) 27 4.3.2 Australian Renewable Energy Agency (ARENA) 27 4.3.3 The Clean Energy Finance Corporation (CEFC) 27 4.3.4 ARENA’s Regional Australia Renewables (RAR) program 28 4.4 Other support programs 28 5.0 Off-grid Interconnected Systems 31 5.1 Western Australia 31 5.2 Northern Territory 31 5.3 Queensland 33 5.4 Renewable energy opportunities in off-grid interconnected systems 34 5.4.1 Large shopping centres and warehouses 34 5.4.2 Behind-the-meter installations on hospitals, schools, airports 34 5.5 Challenges to renewable energy in the off-grid interconnected systems 34 5.5.1 Economics 34 5.5.2 Opposing subsidies 34 5.5.3 Split incentives 35 5.6 Off-grid interconnected systems case studies 35 6.0 Off-grid Industrial Market 36 6.1 Mining sector 36 6.1.1 State of the market 36 6.1.2 Market outlook 37 6.1.3 Energy demand in the mining sector 41 6.2 Renewable energy in the mining sector considerations 43 6.3 Independent Power Producers 46 6.3.1 Energy Development Ltd 46 6.3.2 Pacific Energy 47 6.4 Off-grid industrial case studies 48 6.5 Other off-grid Industrial applications 48 6.5.1 Non-Mining Industrial renewable energy opportunities 49 7.0 Off-grid Communities Market 51 7.1 Western Australia 53 7.1.1 Remote communities 53 08-Oct-2014 Prepared for – Australian Renewable Energy Agency – ABN: 35 931 927 899 AECOM Source: AECOM; (Horizon Power, 2012-13) 55 7.1.2 Key stakeholders 55 7.1.3 Renewable energy opportunities 57 7.1.4 Case Studies 59 7.2 Northern Territory 60 7.2.1 Territory growth towns and remote communities 60 7.2.2 Key stakeholders 63 7.2.3 Renewable energy opportunities 63 7.3 Queensland 63 7.3.1 Remote communities 64 7.3.2 Key stakeholders 65 7.3.3 Renewable Energy opportunities 66 7.3.4 Case studies 66 7.4 South Australia 67 7.4.1 Remote communities 67 7.4.2 Key stakeholders 68 7.4.3 Renewable energy opportunities 68 7.5 Independent remote networks 68 7.5.1 Islands 69 7.5.1 Outstations and homelands 70 7.5.2 Aboriginal communities in Western Australia, not serviced by Horizon Power 70 7.6 Summary of key opportunity areas 71 7.7 Challenges to renewable energy in the community market 72 8.0 Renewable Hybrid Considerations 75 8.1 Financial drivers 75 8.2 Feasibility assessment guide 77 8.2.1 Existing system assessment 77 8.2.2 Optimisation 77 8.3 Hybrid assessment tools 78 8.4 Enabling Technologies 79 8.4.1 Energy storage 79 8.4.2 Diesel generator performance 80 8.4.3 Cloud tracking 81 8.4.4 Demand management 81 8.4.5 Control systems 81 8.5 Common hybrid risks 81 8.6 Project procurement – contracting strategy options 83 9.0 Bibliography 86 Appendix A A Renewable Resources and Technology Status A List of Tables Table 1 Overview of the Global Remote Renewable Sub-segments 5 Table 2 Summary of Australia's Energy Markets 7 Table 3 Differences between NEM and SWIS (EnergyAction, 2012) 8 Table 4 NEM Snapshot 9 Table 5 SWIS Snapshot 11 Table 6 Distribution of demand from the off-grid industrial and communities sectors 16 Table 7 Capacity and percentage distribution of off-grid generation by region 17 Table 8 Estimated off-grid renewable market size by Region (MW)** 18 Table 9 Key observations from Off-grid renewable market 22 Table 10 Key opportunities and recommendations for stakeholders 24 Table 11 Remote energy programs 28 Table 12 Electricity generation in 2011 in the NT regulated markets 32 Table 13 Key stakeholders and challenges of large shopping centres and warehouses 34 08-Oct-2014 Prepared for – Australian Renewable Energy Agency – ABN: 35 931 927 899 AECOM Table 14 CSO Subsidy Overview 34 Table 15 Off-grid interconnected systems case studies 35 Table 16 World ranking of Australia's mineral production and resources for 2009 (Source: (Geoscience Australia, 2012), (Austrade, 2014)) 36 Table 17 Summary of Mining projects in the investment pipeline, October 2013 38 Table 18 South Australian mines using off-grid diesel generation systems 43 Table 19 Challenges and opportunities in the mining sector 44 Table 20 EDL’s remote power stations 47 Table 21 Case studies in the mining sector 48 Table 22 Off-grid industrial opportunities 48 Table 23 Key stakeholders and considerations of the Square Kilometre Array 49 Table 24 Key stakeholders and considerations of Pilbara algae project 50 Table 25 Approximate* Community Service Obligation payments to selected utilities for regulation of remote electricity users 52 Table 26 List of remote communities serviced by Horizon Power 54 Table 27 Case studies in Western Australia 59 Table 28 Territory Growth Town electricity supply status (2011) 62 Table 29 Ergon Energy community asset portfolio ( December 2012) 64 Table 30 Case studies of Ergon Energy remote communities 66 Table 31 Diesel generation systems in South Australia 68 Table 32 Case studies for integration of renewables on islands 69 Table 33 NT remote communities renewable energy examples 70 Table 34 Communities in the Shire of Ngaanyatjarraku 70 Table 35 Challenges and solutions to renewable energy in the community market 72 Table 36 Commonly used hybrid assessment tools 78 Table 37 Overview of energy storage configurations with indicative performance factors 79 Table 38 Diesel genset characteristics 80 Table 39 Common hybrid risks 82 Table 40 Contracting strategy options 84 Table 41 Off-grid Renewables Technology & Resource Potential Overview a-2 Table 42 Long term generation potential of animal waste a-6 Table 43 Wave power pilot and demonstration projects in Australia a-10 Table 44 Proposed demonstration wave projects a-11 List of Figures Figure 1 Fringe-of-grid and off-grid areas of Australia 1 Figure 2 Composition of Residential electricity costs in 2012-13 4 Figure 3 National Electricity Market overview 10 Figure 4 Electricity production in the NEM by fuel type (FY 2012) 11 Figure 5 Map of SWIS 12 Figure 6 Proportion of generation in the SWIS by fuel type, 2011 13 Figure 7 NSP Average Network Customer Density 13 Figure 8 Off-grid generation in off-grid Australia 15 Figure 9 Distribution of Off-Grid Generation by State and Territory 16 Figure 10 Estimated off-grid renewable market size by Region (MW) 19 Figure 11 Non-renewable off-grid generation and hybrid potential in Australia 21 Figure 12 North West Interconnected System (NWIS) 31 Figure 13 Power Water Corporation interconnected systems and power