REPORT TO CUSTRING PTY LTD 14 DECEMBER 2020 COPPERSTRING ECONOMIC TECHNICAL REPORT ASSESSMENT OF ELECTRICITY MARKET AND ECONOMIC IMPACTS FINAL REPORT ACIL ALLEN CONSULTING PTY LTD ABN 68 102 652 148 LEVEL NINE 60 COLLINS STREET MELBOURNE VIC 3000 AUSTRALIA T+61 3 8650 6000 LEVEL NINE 50 PITT STREET SYDNEY NSW 2000 AUSTRALIA T+61 2 8272 5100 LEVEL FIFTEEN 127 CREEK STREET BRISBANE QLD 4000 AUSTRALIA T+61 7 3009 8700 LEVEL SIX 54 MARCUS CLARKE STREET CANBERRA ACT 2601 AUSTRALIA T+61 2 6103 8200 LEVEL TWELVE 28 THE ESPLANADE PERTH WA 6000 AUSTRALIA T+61 8 9449 9600 167 FLINDERS STREET ADELAIDE SA 5000 AUSTRALIA T +61 8 8122 4965 ACILALLEN.COM.AU RELIANCE AND DISCLAIMER THE PROFESSIONAL ANALYSIS AND ADVICE IN THIS REPORT HAS BEEN PREPARED BY ACIL ALLEN CONSULTING FOR THE EXCLUSIVE USE OF THE PARTY OR PARTIES TO WHOM IT IS ADDRESSED (THE ADDRESSEE) AND FOR THE PURPOSES SPECIFIED IN IT. THIS REPORT IS SUPPLIED IN GOOD FAITH AND REFLECTS THE KNOWLEDGE, EXPERTISE AND EXPERIENCE OF THE CONSULTANTS INVOLVED. THE REPORT MUST NOT BE PUBLISHED, QUOTED OR DISSEMINATED TO ANY OTHER PARTY WITHOUT ACIL ALLEN CONSULTING’S PRIOR WRITTEN CONSENT. ACIL ALLEN CONSULTING ACCEPTS NO RESPONSIBILITY WHATSOEVER FOR ANY LOSS OCCASIONED BY ANY PERSON ACTING OR REFRAINING FROM ACTION AS A RESULT OF RELIANCE ON THE REPORT, OTHER THAN THE ADDRESSEE. IN CONDUCTING THE ANALYSIS IN THIS REPORT ACIL ALLEN CONSULTING HAS ENDEAVOURED TO USE WHAT IT CONSIDERS IS THE BEST INFORMATION AVAILABLE AT THE DATE OF PUBLICATION, INCLUDING INFORMATION SUPPLIED BY THE ADDRESSEE. ACIL ALLEN CONSULTING HAS RELIED UPON THE INFORMATION PROVIDED BY THE ADDRESSEE AND HAS NOT SOUGHT TO VERIFY THE ACCURACY OF THE INFORMATION SUPPLIED. UNLESS STATED OTHERWISE, ACIL ALLEN CONSULTING DOES NOT WARRANT THE ACCURACY OF ANY FORECAST OR PROJECTION IN THE REPORT. ALTHOUGH ACIL ALLEN CONSULTING EXERCISES REASONABLE CARE WHEN MAKING FORECASTS OR PROJECTIONS, FACTORS IN THE PROCESS, SUCH AS FUTURE MARKET BEHAVIOUR, ARE INHERENTLY UNCERTAIN AND CANNOT BE FORECAST OR PROJECTED RELIABLY. ACIL ALLEN CONSULTING SHALL NOT BE LIABLE IN RESPECT OF ANY CLAIM ARISING OUT OF THE FAILURE OF A CLIENT INVESTMENT TO PERFORM TO THE ADVANTAGE OF THE CLIENT OR TO THE ADVANTAGE OF THE CLIENT TO THE DEGREE SUGGESTED OR ASSUMED IN ANY ADVICE OR FORECAST GIVEN BY ACIL ALLEN CONSULTING. © ACIL ALLEN CONSULTING 2020 CONTENTS 1 INTRODUCTION 1 2 REGIONAL PROFILE 3 2.1 Regional economic profile 3 2.2 Regional economic context 3 2.3 Population characteristics 4 2.4 Indigenous residents 5 2.5 Gross Regional Product 6 2.6 Key regional industries 7 2.7 Labour force information 8 2.8 Housing and land market 13 2.9 Regional disadvantage and opportunity 14 3 GAS MARKET ANALYSIS 15 3.1 Eastern Australia: tightening gas supply with little relief 15 3.2 Future gas supply in Eastern Australia 16 3.3 Implications for the NWMP 17 4 NORTH WEST MINERALS PROVINCE ANALYSIS 20 4.1 The NWMP 20 4.3 Forecast of power requirements in the NWMP 28 5 ELECTRICITY MARKET ANALYSIS 36 5.1 Introduction 36 5.2 Modelling process 37 5.3 Mount Isa and the NWMP – current supply situation 37 5.4 BAU case – key assumptions 39 5.5 NEM connected case – key assumptions 50 5.6 BAU case – key results 51 5.7 NEM connected case – key results 59 6 ECONOMIC IMPACT ANALYSIS 66 6.1 Introduction 66 6.2 Framework of analysis 67 6.3 Key assumptions 71 6.4 Measures of macro-economic impacts 72 COPPERSTRING ECONOMIC TECHNICAL REPORT ASSESSMENT OF ELECTRICITY MARKET AND ECONOMIC 1 IMPACTS CONTENTS 6.5 Discounted future costs and benefits 73 6.6 Economic modelling results 74 6.7 Sensitivity analysis 81 7 BENEFIT COST ANALYSIS 85 7.1 Assessment methodology 86 7.2 Calculation of benefits 86 7.3 Calculation of costs 95 7.4 Benefit cost analysis results 97 7.5 BCR sensitivity to 10% change in cost and benefit components 100 7.6 Sensitivity: no change in mining production 103 7.7 Distribution of costs and benefits 107 7.8 Northern Australia benefits 109 7.9 Unquantified effects 111 7.10 Summary 112 8 STRATEGIES FOR LOCAL PARTICIPATION 113 8.1 Employment strategies for local residents 113 8.2 Strategies to address government policy 113 8.3 Helping achieve other Queensland Government policies 115 9 IMPACT ON PROPERTY MANAGEMENT 116 9.1 Stages of installing and maintaining the transmission infrastructure 116 9.2 Land uses transected by the transmission infrastructure 117 9.3 Impacts – Agricultural land 118 9.4 Mitigation measures – Agricultural land 119 9.5 Extractive industries 119 A OVERVIEW OF TASMAN GLOBAL A–1 A.1 A Dynamic Model A–1 A.2 The Database A–1 A.3 Model Structure A–3 A.4 Population Growth and Labour Supply A–6 A.5 Detailed Energy Sector and Linkage to PowerMark and GasMark A–10 A.6 References A–11 FIGURES FIGURE 2.1 ESTIMATED RESIDENT POPULATION OF POTENTIALLY IMPACTED REGIONS 4 FIGURE 2.2 INDIGENOUS STATUS BY LGA, 2016 6 FIGURE 2.3 GROSS STATE PRODUCT: AUSTRALIA AND QUEENSLAND ($ MILLION) 6 FIGURE 2.4 GROSS REGIONAL PRODUCT: COPPERSTRING REGIONS ($ MILLION) 7 FIGURE 2.5 INDUSTRY OF EMPLOYMENT: QUEENSLAND, COPPERSTRING REGIONS (%), 2016 7 FIGURE 2.6 WORKFORCE OF SELECTED COPPERSTRING REGIONS (NUMBER OF PERSONS) 8 COPPERSTRING ECONOMIC TECHNICAL REPORT ASSESSMENT OF ELECTRICITY MARKET AND 2 ECONOMIC IMPACTS CONTENTS FIGURE 2.7 EMPLOYMENT BY OCCUPATION: QUEENSLAND AND COPPERSTRING REGIONS (%), 2016 9 FIGURE 2.8 UNEMPLOYMENT RATE: AUSTRALIA, QUEENSLAND, COPPERSTRING REGIONS (%) 10 FIGURE 2.9 TOTAL PERSONAL INCOME FOR QUEENSLAND AND COPPERSTRING REGIONS, 2016 11 FIGURE 2.10 TOTAL PERSONAL INCOME BY QUEENSLAND AND COPPERSTRING REGIONS (%), 2016 12 FIGURE 2.11 NON SCHOOL QUALIFICATION FOR QUEENSLAND AND COPPERSTRING REGIONS (%), 2016 12 FIGURE 2.12 POPULATION BY INDEX OF RELATIVE SOCIO-ECONOMIC DISADVANTAGE QUINTILES FOR QUEENSLAND AND COPPERSTRING REGIONS, 2016 14 FIGURE 3.1 EAST COAST GAS DEMAND 15 FIGURE 3.2 FORECAST LONG TERM CONTRACT MOUNT ISA GAS PRICE ($/GJ, REAL 2020) 18 FIGURE 4.1 MAP OF THE EASTERN SUCCESSION, NORTH-WEST MINERALS NWMP 21 FIGURE 4.2 QUEENSLAND EXPORTS OF BASE METALS: VALUE ($ BILLIONS) 22 FIGURE 4.3 SELECTED GLOBAL METALS PRICES 23 FIGURE 4.4 EXPLORATION EXPENDITURE FOR SELECTED METALS 24 FIGURE 4.5 COPPER METAL GRADES 25 FIGURE 4.6 NORTH-WEST QUEENSLAND LARGE INDUSTRIAL CUSTOMER GAS PRICES 27 FIGURE 4.7 BREAKDOWN OF OPERATING COST STRUCTURES FOR NWMP MINES 30 FIGURE 4.8 EXAMPLE OF EFFECT OF REDUCED CUT-OFF GRADES ON PRODUCTION 31 FIGURE 4.9 PRODUCTION REVENUE: BAU CASE 32 FIGURE 4.10 PRODUCTION REVENUE: NEM CONNECTED CASE 33 FIGURE 4.11 POWER DEMAND: BAU AND NEM CONNECTED CASES 35 FIGURE 5.1 ASSUMED EIS EMISSIONS BENCHMARK AND CERTIFICATE PRICE – BAU CASE 44 FIGURE 5.2 BREAKDOWN OF QLD ELECTRICITY CONSUMPTION SUPPLIED FROM RENEWABLE SOURCES - 2030 45 FIGURE 5.3 PROJECTED DEMAND FOR ELECTRICITY IN THE MOUNT ISA REGION 49 FIGURE 5.4 DETAILS OF THE PROJECTED DEMAND FOR ELECTRICITY IN THE MOUNT ISA REGION - BAU CASE 49 FIGURE 5.5 COPPERSTRING 2.0 LOCALITY MAP 50 FIGURE 5.6 PROJECTED TIME WEIGHTED ANNUAL AVERAGE PRICES (REAL 2020 $/MWH) – BAU CASE 52 FIGURE 5.7 PROJECTED AGGREGATE CAPACITY, CUMULATIVE AND ANNUAL CHANGE IN CAPACITY (MW) BY TECHNOLOGY – QUEENSLAND – BAU CASE 54 FIGURE 5.8 PROJECTED ANNUAL GENERATION BY FUEL-TYPE (TWH) – BUSINESS AS USUAL CASE – QLD 56 FIGURE 5.9 PROJECTED REGIONAL COMBUSTION EMISSIONS (MTCO2-E) – BAU CASE 57 FIGURE 5.10 PROJECTED ANNUAL NET INTERCONNECTOR FLOWS (GWH) – BAU CASE 57 FIGURE 5.11 PROJECTED ANNUAL WHOLESALE ELECTRICITY PRICE (REAL 2020 $/MWH) – BAU CASE – MOUNT ISA REGION 58 FIGURE 5.12 PROJECTED AGGREGATE CAPACITY (MW) BY TECHNOLOGY – MOUNT ISA REGION – BAU CASE 59 FIGURE 5.13 ANNUAL GENERATION BY FUEL-TYPE (GWH) – BAU CASE – MOUNT ISA REGION 59 FIGURE 5.14 PROJECTED CHANGE IN AGGREGATE CAPACITY (MW) BY TECHNOLOGY – MOUNT ISA AND QUEENSLAND – WITH NEM CONNECTED CASE COMPARED WITH BAU CASE 60 FIGURE 5.15 PROJECTED CHANGE IN AGGREGATE GENERATION (GWH) BY FUEL TYPE – MOUNT ISA AND QUEENSLAND – NEM CONNECTED CASE COMPARED WITH BAU CASE 60 FIGURE 5.16 PROJECTED MOUNT ISA GENERATION (GWH) BY FUEL TYPE 61 FIGURE 5.17 PROJECTED NET FLOWS (GWH) OF COPPERSTRING 2.0 – NEM CONNECTED CASE 62 FIGURE 5.18 PROJECTED ANNUAL WHOLESALE ELECTRICITY PRICE (REAL 2020 $/MWH) – MOUNT ISA REGION – BAU, AND NEM CONNECTED CASES 62 FIGURE 5.19 PROJECTED ANNUAL WHOLESALE ELECTRICITY LOAD WEIGHTED PRICE (REAL 2020 $/MWH) – CURRENT QUEENSLAND REGION OF THE NEM 63 FIGURE 5.20 PROJECTED ANNUAL WHOLESALE ELECTRICITY LOAD WEIGHTED PRICE (REAL 2020 $/MWH) – WHOLE OF QUEENSLAND 64 COPPERSTRING ECONOMIC TECHNICAL REPORT ASSESSMENT OF ELECTRICITY MARKET AND 3 ECONOMIC IMPACTS CONTENTS FIGURE 5.21 CHANGE IN PROJECTED NEM RESOURCE COSTS ($’M, REAL 2020 AND PV) DUE TO CONNECTION OF MOUNT ISA REGION TO NEM 65 FIGURE 6.1 ESTIMATING THE MACROECONOMIC IMPACT OF A PROJECT OR POLICY 68 FIGURE 6.2 ILLUSTRATIVE SCENARIO ANALYSIS USING TASMAN GLOBAL 69 FIGURE 6.3 MOUNT ISA LGA POPULATION AND BAU CASE AND NEM CONNECTED CASE 71 FIGURE 6.4 PROJECTED NORTHWEST QUEENSLAND MINING REVENUE UNDER THE BAU CASE AND NEM CONNECTED CASE 72 FIGURE 6.5 CHANGE IN AUSTRALIAN REAL ECONOMIC OUTPUT AND REAL INCOME AS A RESULT OF COPPERSTRING 2.0, NEM CONNECTED CASE RELATIVE TO BAU CASE (IN 2020 TERMS) 75 FIGURE 6.6 PROJECTED EMPLOYMENT IN NORTH-WEST QUEENSLAND 79 FIGURE 6.7 PROJECTED ADDITIONAL NORTH-WEST QUEENSLAND EMPLOYMENT BY OCCUPATION, NEM CONNECTED CASE RELATIVE TO BAU CASE (FULL-TIME EQUIVALENT JOBS) 79 FIGURE 6.8 PROJECTED CHANGE IN EMPLOYMENT BY REGION, NEM CONNECTED CASE RELATIVE TO BAU CASE (FULL TIME EQUIVALENT JOBS) 80 FIGURE 6.9 PROJECTED ADDITIONAL AUSTRALIAN