Public Accounts Committee

LEGISLATIVE ASSEMBLY OF NEW SOUTH WALES Public Accounts Committee REPORT 14/55 – MARCH 2014 POLYGENERATION IN NEW SOUTH WALES LEGISLATIVE ASSEMBLY PUBLIC ACCOUNTS COMMITTEE POLYGENERATION IN NEW SOUTH WALES REPORT 14/55 – MARCH 2014 New South Wales Parliamentary Library cataloguing-in-publication data: New South Wales. Parliament. Legislative Assembly. Public Accounts Committee. Polygeneration in New South Wales / Legislative Assembly, Public Accounts Committee. [Sydney, N.S.W.] : the Committee, 2014. [96] pages ; 30 cm. (Report no. 14/55 Public Accounts Committee) “March 2014”. Chair: Jonathan O'Dea, MP. ISBN: 9781921686887 1. Cogeneration of electric power and heat—New South Wales—Planning. 2. Cogeneration of electric power and heat—Economic aspects—New South Wales. 3. Cogeneration of electric power and heat—Law and legislation—New South Wales. I. O'Dea, Jonathan. II. Title. III. Series: New South Wales. Parliament. Legislative Assembly. Public Accounts Committee. Report ; no. 14/55 333.793 (DDC22) The motto of the coat of arms for the state of New South Wales is “Orta recens quam pura nites”. It is written in Latin and means “newly risen, how brightly you shine”. POLYGENERATION IN NSW Contents Membership _____________________________________________________________ ii Terms of Reference _______________________________________________________ iii Chair’s Foreword __________________________________________________________iv Executive Summary ________________________________________________________vi List of Findings and Recommendations ________________________________________ x Glossary ________________________________________________________________ xiii CHAPTER ONE – CONDUCT OF THE INQUIRY _______________________________ 1 CONDUCT OF THE INQUIRY _______________________________________________ 1 CHAPTER TWO – INTRODUCTION TO COGENERATION, TRIGENERATION, AND POLYGENERATION ___________________________________________________ 3 COGENERATION, TRIGENERATION AND POLYGENERATION _______________________ 3 POLYGENERATION OVERSEAS _____________________________________________ 5 POLYGENERATION AROUND AUSTRALIA _____________________________________ 8 CHAPTER THREE – THE BENEFITS AND RISKS OF POLYGENERATION ____________ 11 POTENTIAL BENEFITS OF POLYGENERATION __________________________________ 11 POTENTIAL RISKS OF POLYGENERATION ____________________________________ 16 CHAPTER FOUR – RESOURCE EFFICIENCY AND SUSTAINABILITY _______________ 26 RESOURCE EFFICIENCY & RECOGNITION OF POLYGENERATION __________________ 26 RESOURCE SUSTAINABILITY & POLYGENERATION _____________________________ 30 CHAPTER FIVE – CONNECTION CONSIDERATIONS FOR POLYGENERATION IN NSW _ 34 THE CONNECTION PROCESS _____________________________________________ 34 BACK-UP SUPPLY AND THE COST OF CONNECTION _____________________________ 43 CHAPTER SIX – EXPORTING ENERGY FROM POLYGENERATION SYSTEMS IN NSW __ 50 EXPORTING ENERGY ___________________________________________________ 50 SUPPLYING ENERGY WITHIN A PRECINCT ___________________________________ 57 CHAPTER SEVEN – RETAILING ENERGY AND CONSUMER PROTECTION __________ 65 RETAILING ENERGY ___________________________________________________ 65 CONSUMER PROTECTION _______________________________________________ 67 APPENDIX ONE – LIST OF SUBMISSIONS _________________________________ 74 APPENDIX TWO – LIST OF WITNESSES ___________________________________ 76 APPENDIX THREE – EXTRACTS FROM MINUTES ____________________________ 77 MARCH 2014 i PUBLIC ACCOUNTS COMMITTEE Membership CHAIR Jonathan O’Dea MP, Member for Davidson DEPUTY CHAIR Dr Geoff Lee MP, Member for Parramatta MEMBERS Mr Bart Bassett MP, Member for Londonderry Mr Michael Daley MP, Member for Maroubra Mr Greg Piper MP, Member for Lake Macquarie Mr John Williams MP, Member for Murray-Darling CONTACT DETAILS Public Accounts Committee Parliament of New South Wales Macquarie Street Sydney NSW 2000 TELEPHONE (02) 9230 2226 FACSIMILE (02) 9230 3309 E-MAIL [email protected] URL www.parliament.nsw.gov.au/publicaccounts ii REPORT 14/55 POLYGENERATION IN NSW Terms of Reference That the Committee inquire into and report on the installation and use of cogeneration/trigeneration technology in New South Wales and in particular: i whether the current regulatory framework can adequately support the utilisation of cogeneration/trigeneration precinct developments; ii the operation of cogeneration/trigeneration technology in other jurisdictions and the applicability of the technology to New South Wales; iii the economic viability of cogeneration/trigeneration technology in New South Wales including the impact of future gas prices on the running costs of cogeneration/trigeneration systems; iv any financial, public safety and/or other risks to prospective cogeneration/trigeneration customers; v any supply security and reliability issues associated with cogeneration/trigeneration, especially for residential customers of these systems; vi the ability of existing regulatory arrangements at the New South Wales and national level to address issues which may be identified; vii any other relevant matters. MARCH 2014 iii PUBLIC ACCOUNTS COMMITTEE Chair’s Foreword Energy generation is becoming increasingly relevant for businesses and residents with recent electricity price rises. Polygeneration offers an alternative to relying on grid electricity. It allows businesses to generate their own energy output on site, for both heating and cooling purposes, and have a stable, reliable and affordable electricity supply. Polygeneration is relatively new to NSW. However, its popularity has gained momentum as large new developments consider its inclusion as a cost saving and environmentally friendly energy alternative. Its supporters, nevertheless, highlight difficulties in embracing this technology and a lack of incentives for its use. The NSW Public Accounts Committee (PAC) has attempted to consider feedback from both polygenerators and those contemplating its future use. The PAC acknowledges the benefits of polygeneration to the energy mix. It takes pressure off the distribution networks, is more energy efficient and provides a more secure energy supply. It is clear that there are many regulatory hurdles and disincentives to considering polygeneration as an alternative energy supply. I would like to assure those that made representations to the committee that we are sympathetic to this and support change. Nevertheless, the PAC is also keen to stress the need for responsible planning for polygeneration systems. The PAC received evidence from the City of Sydney that it had hoped to create a number of polygeneration precincts in the City but that these plans had stalled due to a number of factors, including the NABERS rating of a building supplied by polygeneration sourced electricity, uncertain electricity prices, and the slow speed of regulatory reform, particularly with regard to cost-reflective network access fees. The PAC recognises the City of Sydney’s plans to lower emissions as commendable but finds it reckless to spend significant amounts of ratepayers’ money (at least $10 million according to an ABC 7.30 report) based on incorrect assumptions or when hoping to operate in more preferable circumstances. Given that the City of Sydney provided the PAC with 15 significant recommendations for regulatory change to improve the economic viability of polygeneration in the City, it is questionable as to whether polygeneration was a viable option at this time, on the scale desired. Also, proposed savings for network access for polygeneration operators may lead to these operators being effectively subsidised by more remote customers to cover any shortfall experienced by the network operators. The PAC has made a number of recommendations primarily involving regulatory change and network integration issues to help polygeneration become another viable energy generation option for many users. Its intentions are to enable business to access information about the viability of polygeneration for their particular set of circumstances, make connecting to the grid easier and simplify retail licensing arrangements for smaller polygeneration operations considering selling excess energy back into the grid. One role of the NSW Government is to generally encourage alternative energy solutions, but the PAC does not recommend government providing financial incentives to favour iv REPORT 14/55 POLYGENERATION IN NSW development of polygeneration systems. It does not support automatic discounting of network use/access by users of polygeneration systems. Nor does it support ‘picking winners’ with alternative energy solutions and is mindful of the problems that can arise when particular technologies are given favourable treatment, as was the case with the previous government’s Solar Bonus Scheme. To encourage the adoption of polygeneration systems for small scale developments the PAC is recommending a number of regulatory and administrative changes. These include: mandatory standards for polygeneration networks in NSW; promoting information booklets that are available from the NSW Office of the Environment and Heritage about the feasibility of polygeneration; considering issues around the supply, cost and efficiency of gas; consideration of grid connections and selling excess electricity back into the grid; simplified retail licencing agreements for smaller polygeneration operators; and providing clarity around exclusive dealing agreements. Polygeneration is a complex alternative to grid supplied electricity. There will

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