This was written two years ago for a state government department. And things have got worse for the renewables sector…
Who is the most unpopular person in the renewable energy sector at the
moment? It’s easily the author of the Council of Australian Government
(COAG) energy market review published late last year – the Hon Warwick
Parer.
Parer attacked the federal government’s Mandatory Energy Renewables
Targets (MRET). The report concluded that the energy industry was
facing large costs because of greenhouse uncertainty. The Parer report
proposed that as soon as a national carbon dioxide emissions trading
system is introduced that MRET cease operation.
Jeff Harding managing director at Pacific Hydro, which has near $4m in wind power projects in development or approval stage in Victoria, says: “We feel the Parer review will not be accepted by state or federal government. It has done this industry an enormous amount of damage.”
One criticism review from inside and outside the renewables sector is the level of input from the oil, coal and aluminium industry, which was represented on the Parer panel. Renewable energy is important for Australia because it has a vast virtually untapped resource of wind and sunlight. It is one of the largest producers per capita of greenhouse gases in the world. In 1990 we produced, 129 Mega tonnes (Mt or million tonnes) of greenhouse gases. By 2000 we pumped out 175 Mt and are expected to be pumping 210Mt by 2010.
Harding says: “It is inappropriate that organisations or people in one country are able to just pump CO2 into the atmosphere without consideration because there is a cost. People have felt there isn’t a cost. But now we know there is a cost.”
That cost is global warming, a major contributor to drought and bush fires.
When MRET was announced on 20 November 1997 renewables accounted for 11 per cent or 16.8 Terra Watt hours (Twh or 1,000 Gwh) of the total electricity demand of 153 Twh. The original MRET was that for a 2 per cent increase on the 11 per cent share by 2010. But this was revised, capped at a fixed amount – 9,500 Gwh.
The idea is that electricity retailers and large companies (although the largest energy users are exempt) buy a certain amount of renewable energy from generators installed post 1997.
But because of Australia’s economic success, growth in electricity demand is likely to exceed forecasts. This means that renewable energy’s share of electricity generated will fall to an estimated 10.7 per cent of the total generated in 2010.
The renewables sector wants MRET to be retained and the target is increased to a 10 per cent increase, which will bring Australia to similar levels of renewable generation as in Europe or the US.
The disparity can be seen in a comparison between Germany and Australia. Germany has 10,000MW of installed wind energy. Australia has less 100MW. In Germany, according to Harding, about 10 cents per MW/H is paid for wind energy. In Australia it costs under 4 cents per MW/h.
Targets or incentives are currently needed because energy created from renewables is more expensive than fossil fuels such as coal. For example, wind power and hydropower cost about $80/MW; coal about $40/MW. The maths is easy until greenhouse gases are factored in and the cost of coal generation doubles. The cost of Electricity generated in the Latrobe valley doubles in cost when 100 million tonnes of carbon dioxide emitted each year is taken into account.
Energy company BP has put a cost carbon dioxide through its carbon trading system, established in 2000 as the first global trading system after two years of trials.
During 2001, BP traded over 4.55 million tonnes of carbon dioxide at an average price of US$39.63 ($ 78) a tonne.
At that cost the Latrobe Valley is pumping out $3.9bn worth of carbon dioxide each year.
Carbon dioxide can be traded within or between countries or companies. Permits are allocated for a fixed amount of greenhouse gas emissions. These permits can be bought or sold on the open market depending on whether the organization is under or over its target.
Each year each BP unit is allocated reduced credits. A business can only exceed its allocation if it buys units from another business, which is below target. In 1998 BP’s idea was to cut emissions to 10 per cent below 1998 levels by 2010. BP beat its target by 2001 and now has committed itself to reducing the emissions from the products it supplies, which are responsible for ten times of its carbon dioxide emissions.
Shell, which in 2001 emitted 103 million tonnes of carbon dioxide, and is following a similar path.
Harding says: “We’re not paying the CO2. We are not paying for waste product. If you don’t count half your costs it can be very very cheap. Yes, Australia has the lowest cost of electricity in the world because we are not counting the costs of emissions. If you count the costs of the emissions we are still fairly cheap.”
If MRET is increased from its current nominal 2 per cent up to 10 per cent the price of electricity in Australia will increase by about 4 per cent. Harding: “We will still be by a significant amount the lowest cost electricity in the developed world. That’s why MRET should go over 10 per cent because we will be making some positive inroads with regards to CO2. We will create a new industry in Australia in manufacturing wind generators because nobody does it in this country and what’s more we can be exporting carbon credits to Europe.”
Harding argues that MRET and the clamping down of carbon emissions isn’t necessarily a threat to coal. “We are seeing the whole coal thing as a threat not an opportunity. We will always be a major coal producer and exporter. The projections for fossil fuel generation for the next decade is that there will be a 30 per cent increase in generation of electricity from fossil fuels.”
If MRET is increased to 10 per cent that leaves a 20 per cent increase in generation by fossil fuels.