January 2005 2nd Edition The Clean Energy Future Group came together in 2003 to commission a study investigating how to meet deep emission cuts in Australia’s stationary energy sector. The Group published a Clean Energy Future for Australia Study in March 2004. The Clean Energy Future Group comprises: • Australasian Energy Performance Contracting Association • Australian Business Council for Sustainable Energy • Australian Gas Association • Australian Wind Energy Association • Bioenergy Australia • Renewable Energy Generators of Australia • WWF Australia First published in November 2004 by WWF Australia; revised January 2005 © WWF Australia 2004. All Rights Reserved. ISBN: 1 875941 79 7 Author: Dr Mark Diesendorf, Sustainability Centre Pty Ltd, P O Box 521, Epping NSW 1710 www.sustainabilitycentre.com.au Liability - Neither Sustainability Centre Pty Ltd nor its employees accepts any responsibility or liability for the accuracy of or inferences from the material contained in this report, or for any actions as a result of any person's or group's interpretations, deductions, conclusions or actions in reliance on this material. The opinions expressed in this publication are those of the author and do not necessarily reflect the views of WWF. The Renewable Energy Generators of Australia Ltd (REGA) support the endeavour to investigate alternative opportunities for the long term sustainable supply of power generation in Victoria, particularly through the increased penetration of renewable energy sources and energy efficiency measures. WWF Australia, GPO Box 528, Sydney NSW Australia Tel: +612 9281 5515, Fax: +612 9281 1060, www.wwf.org.au , [email protected] For copies of this report or a full list of WWF Australia publications on a wide range of conservation issues, please contact us at [email protected] or call 1800 032 551. Front Cover Images – left to right: AGL’s gas peaking power station at Somerton, in Melbourne’s northern suburbs. The facility comprises four 37.5 megawatt gas fired generating units. Courtesy of BCSE Stanwell Corporation’s Toora wind farm. The wind farm consists of twelve turbines, producing 21 megawatts of electricity. This is enough to power more than 6,600 homes, and prevents the release of 48,000 tonnes of greenhouse gas emissions per annum. The towers were manufactured in Bendigo, VIC. Courtesy of Stanwell Corporation Charles IFE Ltd’s Berrybank biomass digesters at Wyndemere ( near Ballarat). The company is saving $435,000 per year from a $2 million investment in a Total Waste Management System for its Berrybank Piggery Farm. The System generates electricity from biogas, conserves and recycles water and collects waste for sale as fertiliser. Courtesy of SEAV Pacific Hydro’s Victorian hydro projects. Three hydro-electric stations were built on irrigation dams. They convert previously wasted energy from water releases into clean electricity. Total average annual generation is 34 GWh for the three stations. This represents over 37,000 tonnes of greenhouse gas savings per annum. Courtesy of Pacific Hydro Ltd Solar and gas hot water heating. Courtesy of BCSE 60L The Green Energy Efficient Buildings, Melbourne. This uses two thirds less energy than a similar standard commercial building. Efficiencies are gained through widening internal temperature control band to between 19-26°C, optimising natural ventilation and natural lighting, high efficiency artificial lighting and light fittings and solar shading to name a few. All electricity comes from renewable sources resulting in close to zero greenhouse gas production. Courtesy of BCSE Contents Executive Summary 4 Section 1 Introduction 6 Section 2 Victorian electricity backgrounder 8 2.1 Victoria’s electricity industry 8 2.2 State Government’s greenhouse policies and strategies 9 Section 3 Reducing demand growth and cleaning up energy supply 11 3.1 Efficient energy use 11 3.2 Supply options for capacity and energy 13 3.3 MMA Report 14 3.4 A cleaner energy mix 16 Section 4 Energy reserves 20 4.1 Gas 20 4.2 Biomass 21 4.3 Wind 21 Section 5 Recommended policies and strategies 22 5.1 Expand MRET 22 5.2 Require energy retailers to surrender RECs 23 5.3 Place greenhouse intensity constraint upon baseload power stations 23 5.4 Implement tradeable emission permits or carbon levy 24 5.5 Remove subsidies for fossil fuels and energy wastage 25 5.6 Encourage the purchase of solar hot water 26 5.7 Mandate Energy Efficiency Measures 26 5.8 Encourage voluntary energy efficiency measures 28 5.9 Remove barriers to energy efficiency in network price regulation 28 5.10 Local jobs in appropriate regions 29 Section 6 Allocation of costs of the alternative mix 30 6.1 Cost to Government 30 6.2 Cost to Electricity Consumers 30 Section 7 Employment gains from substituting renewable energy for coal 32 Section 8 Conclusion 37 Section 9 Acknowledgments 38 Section 10 References 39 Appendix A Why we need an economic mechanism to enable gas and renewables to compete with coal-fired electricity 42 Appendix B Demand management fund 44 Appendix C Remove barriers to energy efficiency in network price regulation 45 Appendix D Environmental impacts of bioenergy and wind power 46 Units and conversion factors 50 Executive summary The Victorian Government is currently addressing the growing electricity demands of Victorians, given technological solutions that are currently available, the economics of various options and the environmental and health costs associated with greenhouse gas emissions. At present in Victoria there are proposals to expand existing coal fired power assets (e.g. by extending the life of the old 1600 MW Hazelwood power station in the Latrobe Valley), develop gas fired power assets (e.g. Origin Energy’s proposed natural gas-fired station near Mortlake) and develop renewable energy power assets (eg Pacific Hydro’s Portland Wind Project). Any decision to continue supporting coal fired power asset development would lock the State into CO2 emissions that could dwarf any current and proposed measures for reducing the State’s emissions. This report, Towards Victoria’s Clean Energy Future, shows that cleaner energy sources could substitute for both the capacity and energy generation of a 1600 MW base-load, coal-fired station by means of a mix of realistic supply-side and demand-side initiatives by 2010. This cleaner energy system would reduce Victoria’s carbon dioxide emissions by about 13.8 million tonnes per year. If adopted, it would be cost-effective and would set the State on the path away from coal-fired assets in order to deliver much deeper emission reductions in the longer term. The proposed supply-side mix involves wind power, bioenergy (fuelled primarily with crop residues), and either natural gas combined cycle and cogeneration or a reduction in exports of Victorian (brown coal-fired) electricity to other States. Policy measures required for the Victorian Government to deliver this supply mix include: • a greenhouse intensity limit on all new power stations and on all proposals for major refurbishments and other life-extensions of old power stations; • either a carbon levy or tradeable emission permits of the cap and trade type implemented jointly with other States; and • the requirement that energy retailers submit Renewable Energy Certificates (RECs) annually to the State Government as a licence condition. Recommended demand-side measures include: • the extension of energy performance standards from new buildings to buildings with new renovations, all existing government-owned and government-tenanted buildings, and some other categories of existing buildings; • substantial expansion of the use of solar hot water encouraged by both incentives and penalties; • the wide dissemination of ‘smart’ meters and peak-load pricing to make users pay the full cost of air conditioning and other contributions to increases in electricity demand; and • the provision of low-cost packages of energy efficiency measures for householders. The supply-side solutions to move to cleaner energy sources will increase the average price of a unit of electricity to the Victorian community. However, the demand-side energy efficiency Towards Victoria’s Clean Energy Future 4 savings will reduce the number of units purchased by consumers, with the net result that energy bills will either decrease or remain approximately the same Then the challenge in moving onto the clean energy pathway becomes neither technological nor economic, but rather organisational and institutional: namely, how to deliver cost-neutral packages of energy efficiency, renewable energy and natural gas to consumers. Since the State Government would have to play the leading role in making organisational and institutional changes, the key issue becomes one of political will. The proposed fuel substitution for electricity generation from coal to gas and renewable energy, coupled with efficient energy use, would reduce the socio-economic risk faced by Victoria as the result of having an electricity supply system that is based 97% upon brown coal, the most greenhouse-intensive of all fuels. In the likely event that international greenhouse gas emission constraints are tightened over the next decade, this high dependence upon brown coal would become a major economic and environmental liability. An additional and very important benefit of undertaking the transition to a clean energy future is that the key policies detailed in this report will stimulate job growth and increased economic activity. We strongly advocate that the Victorian Government provide incentives to ensure that the major proportion of these new jobs be located in regions most affected by the closure of coal fired power assets, such as in the Latrobe Valley. Towards Victoria’s Clean Energy Future 5 1. Introduction There is widespread and growing international concern about global climate change resulting from the greenhouse effect. We know that our world’s average temperature is rising unusually rapidly. Climate change impacts have the potential to threaten lives, the capacity to sustain agriculture, the availability of fresh water, the control and spread of disease, the survival of native species and the weather (e.g.