Powering Australia's Future by Dance Gavin Dance


									                                                    Powering Australia’s Future
               Meeting Australia’s energy needs, creating jobs and cutting greenhouse emissions

                                    A discussion document by the Australian EcoGeneration Association
                                                                                            August 2001

                                                                                       Producing Sustainable Power
 Introduction                   The latest CSIRO report on the impacts of climate change on
                                Australia is a wake-up call. Australia must significantly reduce its
                                greenhouse emissions. Electricity generation, which is the largest
                                producer of greenhouse gas emissions, clearly needs to be a key
                                part of that strategy.
                                Electricity is a vital part of the Australian economy. Any strategy                                        Association
                                to reduce greenhouse emissions from electricity generation must                                   Producing Sustainable Power

                                take into account the need to ensure security of supply and
                                provide competitively priced energy for Australian industry and                                              Cogeneration
                                households.                                                                                                    Renewables
                                                                                                                                    Distributed Generation
                                EcoGeneration, which includes cogeneration, renewables, waste-to-
                                energy and distributed power, offers significantly cleaner power
                                and is reliable and available.

                                This paper outlines how Australia’s future energy needs can be
                                met, creating local jobs and investment while at the same time
                                significantly reducing our greenhouse gas emissions. It is about
                                balancing environmental and energy needs.

                                The Australian EcoGeneration Association welcomes feedback from
                                interested parties on this document.

                                Andrew Stock
                                Australian EcoGeneration Association

                                Australian EcoGeneration Association                                     Cover pictures: PaperlinX uses cogeneration to

                                Suite 1, Level 2, 19-23 Prospect Street                                       meet most of the energy needs of its paper

                                Box Hill VIC 3128                                                      manufacturing plant at Maryvale, Victoria (left) and

                                Phone: 03 9898 4200                                                       Stanwell's Windy Hill wind farm on the Atherton

                                Fax: 03 9898 7499                                                           Tablelands produces enough energy to supply

                                Email: aea@ecogeneration.com.au                                        3500 homes and reduces carbon dioxide emisions

                                Website: www.ecogeneration.com.au                                                       by 25,000 tonnes per year (right).
Powering Australia’s Future 2
       Executive                There is now heightened community concern about climate change and an expectation that governments are pro-active in
                                addressing the issue. This is supported by the recent Newspoll survey that showed 80 per cent of Australians believed
       Summary                  the Government should ratify the Kyoto protocol. Community concern will only increase as the consequences become better

                                Australia must respond effectively to reduce the emissions intensity of the Australian economy through using our resources more
                                sensibly. Specifically, we need to reduce the growth in electricity consumption through demand side management and significantly
                                reduce the emissions intensity of the electricity produced.

                                The way we are heading, by 2010 greenhouse emissions from electricity generation, Australia’s largest source of greenhouse
                                emissions, will have grown by around 60 per cent on 1990 levels. Electricity accounts for 37.5 per cent of Australia’s greenhouse
                                emissions and its emissions levels are growing faster - 33 per cent growth (1990 to 1999) - than any other sector. Electricity
                                demand is expected to grow a further 36 per cent by 2010.

                                The Federal Government has committed to a number of initiatives for this sector, principally the Renewable Energy (Electricity) Act,
                                which requires electricity retailers to source in total an extra 9500 GWh of their energy from renewable sources by 2010. Based
                                on electricity forecasts this in fact represents negligible increase in market share for renewables. The Australian EcoGeneration
                                Association (AEA) believes additional measures are needed to reign in Australia’s electricity industry emissions.

                                The AEA believes Australia can reduce its greenhouse emissions by more than 40 million tonnes per year by 2010 (10
                                per cent of 1990 levels). This is the equivalent to taking nearly 10 million cars, or all those in Australia, off the road
                                permanently. The AEA believes generation from coal should be maintained at current levels, with all increases to be provided
                                from EcoGeneration projects.

                                The AEA’s plan to reign in Australia’s greenhouse emissions includes:

                                • Incorporating emissions cost into energy investment and purchasing decisions through market-based measures such as
                                   emissions trading. The proceeds raised from the auctioning of permits should be recycled to encourage industry and the
                                   community to invest in greenhouse abatement activities. This will involve no net cost to business or the community but will
                                   provide a strong economic signal to move Australia’s economy in a more sustainable and energy efficient direction;

                                • Increasing renewable generation to 20.7 per cent of total electricity generation by 2010 (an increase of 10 per cent on current
                                   levels). This includes expanding the renewable energy target from 9500 GWh in the Renewable Energy (Electricity) Act to
                                   require retailers to source an additional 5 per cent of their energy from renewable sources by 2010 to 21,400 GWh, increasing
                                   to 10 per cent by 2020 (33,400 GWh). Promoting Green Power can achieve the additional 5 per cent market share. This will
                                   result in emissions reductions of an additional 22 million tonnes per annum by 2010;

                                • Developing a national cogeneration strategy that doubles cogeneration’s market share from 5 per cent to 10 per cent by 2010
                                   through a mechanism similar to the Renewable Energy (Electricity) Act. This will result in emissions reductions of more than
                                   15 million tonnes per annum;

                                • Delivering effective energy market reform by engaging State Governments to ensure that the National Electricity Code is
                                   developed in a manner that: re-introduces environmental sustainability as one of its objectives, as it was initially envisaged;
                                   removes market impediments that act as a barrier to mobilising low emissions generation projects; and promotes market
                                   driven investments rather than state government intervention;

                                • Streamlining planning approval of sustainable power projects so as to reduce uncertainty and delays; and

                                • Incorporating emissions disclosure on customers’ electricity bills so they are aware of the greenhouse impact of their energy
                                   purchasing and investment decisions and can be empowered to choose more environmentally sustainable options.

Powering Australia’s Future 3
   The climate                  Global warming is one of the most significant environmental problems facing the planet and stands to impose significant
                                future costs on the Australian and international community. There is now heightened community concern and expectations that
     challenge                  governments take action to reduce its impact. This is evidenced by the recent Newspoll survey that showed 80 per cent of
                                Australians believed the Federal Government should ratify the Kyoto protocol.
                                Australia will be hotter and drier in coming decades according to CSIRO’s latest climate change estimates. Rising concentrations of
                                greenhouse gases are the culprit. Warmer conditions will produce more extremely hot days and fewer cold days.
                                Australia’s farmers will bear the brunt of the impact of climate change and will struggle to cope with more droughts and
                                floods, according to the CSIRO. Australia’s food bowl, the Murray Darling-Basin, will be stressed even more as lower rainfall
                                accelerates land wastage due to salinisation. Significant costs will be borne by the Australian community in adapting to the
                                expected change in our climate. But many developing countries will not be so fortunate and will struggle to adapt and face
                                complete devastation.
                                The CSIRO’s forecasts focus on the Australian impact of the findings of the Intergovernmental Panel on Climate Change Report
                                accepted by more than 100 countries in late January 2001. The CSIRO forecasts:
                                    > Over most of the continent, annual average temperatures will be 0.4º to 2º greater than 1990 by 2030. By 2070, average
                                    temperatures are likely to increase by 1º to 6º.
                                    > South-western Australia can expect decreases in rainfall, as can parts of south-eastern Australia and Queensland. Wetter
                                    conditions are possible in northern and eastern Australia in summer and inland Australia in autumn. In areas that experience
                                    little change or an increase in average rainfall, more frequent or heavier downpours are likely. Conversely, there will be more
                                    dry spells in regions where average rainfall decreases.
                                    > Sea level is likely to rise at a rate of between 0.8 and 8.0 cm per decade, reaching 9 to 88 cm above the 1990 level by the
                                    year 2100.
                                    > Natural ecosystems most at risk are coral reefs, alpine ecosystems, mangroves and wetlands. Also under threat are tropical
                                    forests, savannas, deserts and native grasslands.
                                    > Some tropical pests, like the Queensland fruit fly, may spread southwards. Other temperate pests, like the light brown apple
                                    moth, may move to cooler areas.
                                    > Australia is also likely to experience more water shortages and less snow.

                                            Ranges of annual average rainfall change (%) for 2030 & 2070 relative to 1990

                                       -80 -60 -40 -20 0 20 40 60 80                                                      -80 -60 -40 -20 0 20 40 60 80
                                        Drier              2030             Wetter                                         Drier             2070             Wetter
                                                      Rainfall Change                                                                   Rainfall Change

                                                 Ranges of annual average warming (ºC) for 2030 & 2070 relative to 1990
                                                                            2030                                                                              2070

                                        0    1    2    3    4    5      6   7    8                                         0   1    2    3    4    5      6   7    8
                                                 Temperature Change (ºC)                                                           Temperature Change (ºC)

                                                                                        Courtesty CSIRO
Powering Australia’s Future 4
    Electricity-                                Electricity generation accounts for 37.5 per cent of Australia’s greenhouse emissions and its emissions are growing faster
                                                - 33 per cent growth (1990 to 1999) - than any other sector. Electricity demand is expected to grow by 80 per cent from
    the largest                                 1990 to 2010.
   and fastest
       growing                                  The way we are heading, by 2010 emissions from electricity generation, Australia’s largest source of greenhouse emissions, will
                                                have grown by a staggering 60 per cent on 1990 levels.
      source of
    Australia’s                                 The National Greenhouse Gas Inventory released in April 2001 reveals that greenhouse gas emissions from electricity generation
   greenhouse                                   increased more than three times the rate of all other sectors in 1999.
                                                Electricity industry reform was supposed to deliver a cut in greenhouse gas emissions. In November 1997 the Prime Minister said
                                                the Government’s “Accelerating Market Reform Initiative” would accelerate greenhouse gas reductions. In projections made by
                                                the Commonwealth prior to the Kyoto climate change conference, the “Business as Usual” case predicted greenhouse gas savings
                                                of 14 million tonnes per annum from energy market reform.

                                                These policy initiatives have failed. Instead of falling greenhouse emissions, the electricity industry has delivered substantial
                                                increases in emissions, and the emissions intensity of electricity generation has actually increased over the decade to 1999.

                                                We need to reduce the growth in electricity consumption through demand side management and significantly reduce the emissions
                                                intensity of the electricity produced. The AEA believes generation from coal should be maintained at current levels, with all
                                                increases to be provided from EcoGeneration projects.



                                                             1990                 1995           2000               2005              2010

                                                        > 80% increase in electricity generation from 1990 to 2010                                          Generation (TWh/a)
                                                                                     2                                                                                         2
                                                              > 57% increase in CO emissions from 1990 to 2010                                              Emissions (Mt/pa CO equivalant)

                        (Mt/pa CO equivalant)


                                                       Electricity     Other       Transport    Fugitive   Industrial   Agriculture   Waste   Forrestry /
                                                       Generation    Stationery                Emissions   Processes                            Other

                                                      > Electricity generation at 38% is the largest source of greenhouse emissions                              1990 Emissions
                                                                       > Emissions from electricity are increasing at the fastest rate                           1999 Emissions

                                                                                                                           Projected Emissions from Power Production
Powering Australia’s Future 5
  Delivering a                   EcoGeneration means producing sustainable power. Eco stands for the ecological, economic and social benefits associated with
                                 sustainable power production. EcoGeneration is a name developed by the Australian EcoGeneration Association to encapsulate the
    solution -                   proven technologies available to power the future: renewables, cogenerators, waste-to-energy and distributed generators.
EcoGeneration                    EcoGeneration benefits the environment because it produces significantly lower or no greenhouse emissions.

                                                                                        EcoGeneration can make a difference


                                                       gas cogeneration                 EcoGeneration Technologies

                                                                 gas CCGT

                                                                          gas thermal

                                                                                                         black coal

                                                                                                                             brown coal

                                 0               200           400             600            800         1000        1200            1400

                                                                                                    Greenhouse Emissions (Kg/MWh)

                                 Renewable generation: Renewable generated power produces no net greenhouse emissions. It includes power generated from
                                 natural resources such as wind, hydro, solar, tidal, biomass and certain wastes. EcoGeneration does not include renewable projects
                                 that use waste from native forests, even if they are approved under a Regional Forest Agreement (RFA).

                                 Cogeneration (also known as combined heat and power - CHP): Cogeneration produces heat and power from the one
                                 fuel. Heat otherwise wasted in conventional power generation is recovered and used in commercial and industrial applications.
                                 Cogeneration is typically two to three times more efficient than major conventional coal-fired centralised power stations. On
                                 average it produces one third the greenhouse gas emissions of conventional power production.

                                 Waste-to-energy: This is electricity produced using waste fuels, some of which may otherwise cause local environmental
                                 challenges. A number of waste fuels are deemed to be renewable including: cane residue (bagasse) from the sugar industry;
                                 sludge gas from sewage treatment plants; and methane from land-fill sites. Fossil fuel-based waste streams include coal waste
                                 methane, refinery waste gases and coal tailings.

                                 Distributed generation: This is power generated close to where it is consumed in regional communities. It is also referred to
                                 as decentralised, embedded or localised generation. It can be as small as a 1 kWe solar photovoltaic system, or as large as a
                                 200 MW industrial on-site cogeneration system. Distributed power is more efficient as less power is lost through long distance
                                 transmission between the generator and consumers.

 Powering Australia’s Future 6
          An “Green technologies are on the verge of becoming one of the next waves in the knowledge economy revolution. I
              want Britain to be a leading player in this coming green industrial revolution. We have many strengths to draw on
international …world-class research in biomass generators, micro technologies such as small wind and gas turbines, domestic CHP
 comparison [cogeneration] based on Stirling engines, fuel cells…”                                 British Prime Minister Tony Blair

                                Increasingly, developed countries are taking action to decarbonise their economies. To achieve this they are implementing
                                progressive policies to promote EcoGeneration.

                                The Kyoto Protocol stipulates that by 2010 the UK must reduce its greenhouse emissions by 12.5 per cent on 1990 levels. The
                                UK has gone beyond its Kyoto obligations and set a target of reducing C0 2 emissions by 20 per cent. In response to the Kyoto
                                Protocol, the UK has developed a number of initiatives to reduce greenhouse gas emissions.

                                On 1 April, 2001 a Climate Change Levy was introduced. The levy applies to a range of fuels and is 0.43p/kWh for electricity
                                (equivalent to A$12/MWh). The levy is expected to raise around £1 billion (approx $3 billion) in its first year and reduce carbon
                                dioxide emissions by at least 5 million tonnes of carbon dioxide a year by 2010.

                                An important aspect of this measure is industry can negotiate to get an exemption of up to 80 per cent of the levy provided that
                                they commit to energy efficiency measures. The proceeds raised will be used to reduce employment taxes – no new revenue will
                                be raised. This provides considerable incentive for business to reduce energy consumption including through cogeneration without
                                forsaking their competitive position. At the same time the UK Government began a trial in emissions trading and contributed
                                £30 million to stimulate the demand.

                                The UK Government plans to increase renewable energy by 7 per cent by 2010 and double cogeneration to at least 10,000
                                MW, or 14 per cent of capacity.

                                Denmark has placed an obligation on municipalities to ensure local cogeneration projects are developed and in 1995 introduced
                                green taxes (amounting to DKK 2.6 billion between 1996 and 1999), which are used to promote to EcoGeneration projects. It has
                                also set a target of 30 per cent of its electricity to come from wind by 2010.

                                The German Government plans to double cogeneration by 2010, saving 23 million tonnes of C0 2. It also offers tax exemptions
                                for electricity generated close to where it will be used. Germany will install 2000 MW of wind energy in 2001, taking the
                                total wind capacity to 6000 MW.

                                Even US President Bush introduced initiatives to promote EcoGeneration. He has outlined a plan to offer tax benefits to promote
                                cogeneration and a US$17 MWh tax credit for renewable generation projects. Temporary tax credits for fuel-cell vehicles will also
                                promote the development of a technology that can also be used for stationary power generation. When Governor of Texas Bush
                                increased wind energy to 2000 MW and introduced emissions trading with caps below 1997 levels.

                                Australia has the opportunity to lead the region in the development and application of these technologies and to increase our
                                export earnings through Australian technology and engineering expertise.

International                    Cogeneration targets (% of total power supply)                      Renewable targets (excl. large scale hydro)
                                                                                                     (% of total power supply)
                                                 Today        2010 Target        AEA's View                           Today          2010 Target           AEA's View
                                 Australia       5%           no target          10%                Australia         1%             1.5%*                 6%
                                 UK              7%           11%                                   UK                2%             9%
                                 EU              10%          18%                                   EU                4%             9%
                                 Germany         10%          20%                                   Germany           Double current capactiy (5 to 10%)
                                                                                                   *The current “2% renewables target” is only 0.5% increase in renewables
                                                                                                   due to dramatic electricity demand growth

Powering Australia’s Future 7
   A national                   The challenge for policymakers is to develop a national energy policy for Australia that balances the need to produce reliable
                                power sustainably to meet future demand and to significantly reduce our greenhouse emissions. This must be achieved without
energy policy                   costing investment, jobs or living standards generally.
 for Australia
                                Supporting clean power technologies such as renewables and gas-fired cogeneration not only delivers substantial and sustained
                                emissions reductions for the economy but also supports the development of secondary processing industries. It adds value to
                                Australia’s mineral and agricultural products – industries where Australia is internationally competitive. Gas-fired cogeneration
                                underpins energy competitiveness to mineral processing, agricultural processing, pulp and paper, dairy, sugar as well as food
                                processing industries. All are located in regional and rural communities.

                                Australia is well endowed with renewable resources and low emission fuels such as natural gas. This means we are well placed
                                to respond to the climate change challenge without forsaking investment and jobs. The strategy and vision the AEA proposes is
                                to ensure that new electricity industry investments meet demand growth without increasing emissions materially. This does not
                                mean closing existing coal fired power stations and the loss of any more jobs in areas such as the Hunter Valley and the Latrobe
                                Valley. Continued operation of these existing power stations is essential. Industry forecasts say that Australia needs 30,000MWh/yr
                                more power generation by 2010. The challenge is to ensure that future electricity demand is supplied in a more sustainable
                                manner and that we take great strides in reducing the emissions intensity of additions to generation.

                                The AEA believes Australia can reduce power sector greenhouse emissions by more than 40 million tonnes per year by 2010 (the
                                equivalent to taking 10 million cars off the road permanently) and meet Australia’s growing power needs.

                                The AEA’s plan to reign in Australia’s greenhouse emissions includes:
                                    >     Incorporating an emissions cost with proceeds raised reinvested to increase energy efficiency
                                    >     Increasing targets for renewable generation to meet growth
                                    >     Setting a target and cogeneration strategy for industrial development
                                    >     Developing the National Electricity Code
                                    >     Streamlining the planning process for sustainable power producers
                                    >     Educating consumers through emissions disclosure on their electricity bills

                                                                                             The Whytes Gully Solid Waste and Energy Recycling Facility (SWERF)
                                                                                             in Wollongong NSW.

Powering Australia’s Future 8
     Emissions                   The future costs of greenhouse gas emissions from energy production must be recognised today. One unit of electricity
                                 produced by EcoGeneration is not the same as a unit produced by greenhouse intensive brown or black coal. Electricity
   trading and                   generated by coal brings significant future environmental costs. These costs must be recognised in the cost of electricity
      proceeds                   produced and consumed today.
reinvested for
                                 Incorporating an emissions cost into energy investment and purchasing decisions through market-based measures such as
                                 emissions trading will address this issue. If the true long-term costs of conventional power plants were recognised investors would
        energy                   conclude that EcoGeneration projects are cost competitive with fossil fuel generated electricity today.
                                 With its abundant low emissions resources, Australia is well placed to be a world leader in this industry. It is imperative that
                                 Australia takes early positive action to take advantage of this position and creates the necessary climate for its successful
                                 development. The best way to do this is to internalise the cost of greenhouse emissions into the investment decisions of
                                 emitters and consumers. This ensures that the parties creating the emissions and consuming the energy see the price
                                 consequence of their actions

                                 It is generally recognised that market based measures, such as emissions trading, are the most efficient mechanisms to deliver
                                 policy outcomes at the lowest overall cost to the community. The debate now is really around the allocation of permits and the
                                 scope and timing of introducing emissions trading.

                                 The arguments for delaying the implementation of emissions trading centre around whether (i) Australia should lead in this
                                 area, (ii) it should not implement any measures until all countries are bound by an emissions cap (i.e. including non-Annex B
                                 countries) and (iii) any scheme needs to cover every single emissions source. These arguments fail to recognise that the Australian
                                 community is presently creating a future legacy of significant costs for greenhouse abatement.

                                 An emissions cost should be introduced into the “stationary energy sector” as soon as possible as this accounts for the majority
                                 of Australia’s total emissions and this sector is the one that is growing at the fastest rate and has demonstrably not been
                                 controlled by other policy measures.

                                 Other countries have taken this approach. The UK has introduced a Climate Levy and carbon taxes are in place in other
                                 European countries. These measures ensure emissions costs are seen by the market and impact on investment and purchasing

                                 While it is vital that the cost of electricity recognises its environmental impact, the new measures must be implemented in a
                                 financially prudent manner. The AEA advocates that the proceeds raised from the auctioning of permits or levies are fully recycled
                                 to encourage industry and the community to invest in improved energy efficiency and greenhouse abatement activities. This will
                                 involve no net cost to business or the community but will provide a strong economic signal to move Australia’s economy in
                                 a more sustainable direction. The revenue can be recycled through incentives for businesses that commit to energy efficiency
                                 investments, through taxation incentives for domestic and commercial consumers to invest to reduce energy consumption and
                                 increase efficiency, and through stimulus programs for wind, other renewables and cogeneration.

                                 The Federal Government’s Greenhouse Gas Abatement Program (GGAP) illustrates that there are significant low cost greenhouse
                                 abatement opportunities that can proceed at a relatively modest cost. Some sectors have argued that reducing emissions in
                                 a country like Australia is quite expensive – GGAP proves the opposite. The abatement cost of the GGAP projects to date has
                                 been less than A$5 per tonne of emissions abatement over the project life, substantially below the doomsday abatement cost
                                 forecasts of some economic modellers.

 Powering Australia’s Future 9
Increasing the                   The development of the renewable energy sector is a high priority for a number of developed countries as they de-carbonise their
                                 economies. They recognise that as renewable energy is starting from such a long way behind fossil fuel generation it needs to be
    targets for                  “kick started” so as to develop a critical mass in order to achieve cost economies.
    generation                   The current Australian target of an increase of 9500 GWh per cent in renewable power generation (9500 GWh) is very small and
                                 trails well behind other developed countries. Indeed, based on growth forecasts for electricity generation 9500 GWh will not in
                                 fact increase the market share of renewables but will essentially only maintain its current market share. In the early stages much
                                 of the target will be delivered through bio-mass co-firing in existing power stations and from enhancements to existing large
                                 scale hydro. There will therefore be little need to significantly develop other renewable technologies and the industry development
                                 objectives of the measure are unlikely to be delivered.

                                 The current 9500 GWh target in Renewable Energy (Electricity) Act, which requires retailers to source additional renewable power,
                                 needs to be expanded to at least 13,000 GWh (ie 5 per cent market share) by 2010 and 10 per cent by 2020. Even at 5 per cent
                                 this would still be below the 7 per cent growth required by the UK Renewables Obligation. Increasing the target to 5 per cent
                                 will result in additional emissions reductions of 11 million tonnes per annum. The extra renewable generation will still easily be
                                 accommodated within the demand growth expectations of the electricity industry.

                                 In addition to expanding the renewable energy target, the AEA seeks a Commonwealth commitment to assist in expanding
                                 the market for “Green Power” by funding promotional, publicity and educational campaigns. The aim should be to achieve an
                                 additional 5 per cent market share by 2010. This should include making voluntary premiums paid by electricity customers
                                 for Green Power tax deductible.

                                 These initiatives would allow the Australian renewables industry to attain a scale where it can compete internationally. It would
                                 promote investment and research, creating jobs and export opportunities. Otherwise Australia is likely to need to rely even more on
                                 importing skills and equipment in the future as its renewables sector stalls at sub world scale.

     Setting a                   Gas-fired cogeneration is one of the most effective means by which large-scale emissions reductions can be reliably achieved.
                                 It also delivers substantial energy cost reductions for industry and supports regional industry development. What is required
   mandatory                     is to bridge the gap to economic viability in a market environment and regulatory structure that would otherwise deliver
   target and                    centralised coal-fired generation. Recognising and rewarding the greenhouse gas emissions reductions cogeneration delivers
  strategy for                   can do this.

                                 Gas-fired cogeneration offers additional benefits. The development of natural gas-fired generation serves to underwrite the
                                 development and expansion of gas pipeline networks. The availability of clean, efficient and low-cost fuel such as natural gas leads
                                 to the development of new industries in rural communities as well as underwriting the economics of existing industries.

                                 Cogeneration improves the economics and viability of processing industries that provide a market for agricultural and resource
                                 production. Cogeneration greatly assists the “value-adding” to Australia’s raw materials – with these facilities generally located in
                                 regional and rural centres. Cogeneration is generally found in processing industries that require heat and electric energy, such as
                                 the dairy, food processing, paper and mineral processing industries

                                 Gas-fired cogeneration also increases the demand for natural gas, increasing petroleum resource taxation payments to the
                                 Commonwealth and royalty payments to the relevant States.

                                 Cogeneration, like energy efficiency and demand side management, has failed to deliver on its potential in Australia. This is largely
                                 due to market and institutional impediments and the fact that one of the key benefits that it delivers (reducing emissions) is
                                 not recognised and rewarded. Establishing a mandated target is a market based method of recognising the abatement potential
                                 of cogeneration. The target should be set at 20,000 GWh by 2010 with a penalty for non-compliance set at the equivalent of
                                 $10/MWh. This measure will result in emissions reductions of more than 15 million tonnes by 2010.

Powering Australia’s Future 10
Developing the The reform and restructuring of the electricity industry was a key component of the broad micro-economic reform agenda agreed
                 by all levels of Government in the early 1990s.
electricity code Apart from delivering reduced electricity prices to customers, electricity industry reform was supposed to provide opportunities for
                                    technologies including cogeneration, renewable generation and demand side management to compete once exclusive monopolistic
                                    supply arrangements had been removed.

                                    To deliver a level playing field for cogeneration and renewable generation, the market must be changed as follows. These changes
                                    are designed to promote market driven investments rather than state government intervention.

                                    Environmental sustainability need to be reintroduced as one of the objectives of the National Electricity Code. It is unambiguously
                                    clear that greenhouse gas emissions are imposing significant costs on electricity consumers and the Australian community.
                                    As the largest single contributor to greenhouse emissions, the electricity supply industry must recognise and deal with these
                                    increasing costs. Environmental sustainability must be re-established as one of the objectives of the National Electricity Code,
                                    as was initially envisaged.

                                    Fair network access and cost reflective network pricing, including time and location sensitive signals, needs to be achieved. This
                                    involves reducing the extensive costs and delays that embedded generators face and are forced to bear in order to connect
                                    to the network. In addition, the lower distribution and transmission costs created by embedded generation should be rewarded
                                    and network pricing implemented in a manner that ensures equity between local and distant generators and between local
                                    generators and transmission options.

                                    The energy market in general, and the registration provisions of the National Electricity Code in particular, do not adequately cater
                                    for smaller generators connected to the distribution network. To deliver efficient and competitive outcomes, market arrangements
                                    must be modified to make it easier for these generators to connect.

        Streamline In Australia sustainable energy projects face unnecessary planning and approval delays. The Commonwealth Government
                   needs to take leadership in developing national planning guidelines with clear and consistent criteria for the approval of
          planning sustainable power projects. These guidelines must give appropriate recognition to the reductions in greenhouse gas emissions
       process for these projects deliver.
                                                                   unnecessarily delaying the implementation of wind
             power Lack of defined, uniform planning processes is of this important new form of renewable energy. energy projects. This increases
                   costs and uncertainty and will limit the growth
                                    It is important that areas with important significant conservation or heritage values be protected. However, for other areas
                                    streamlined processes should be established whereby renewable power projects can be assessed in a time and cost effective
                                    manner. The objective must be to reduce uncertainty and needless delays in the permitting of projects.

                                    Delay and uncertainty can also arise in local planning processes for gas-fired cogeneration projects. These projects can involve
                                    the use of natural gas within urban airsheds and the creation of local air emissions. Significantly, due to the increased efficiencies
                                    of cogeneration, local air emissions can in fact be reduced.

                                    It is important to create an environment whereby local air quality is improved but at the same time not put unnecessary delays
                                    on projects that have net environmental benefits.

   Powering Australia’s Future 11
   Emissions                     There is considerable evidence to show that customers are willing to pay more for products if they believe that they are better for
                                 the environment. Similar studies show this is also the case with Green Power. If prices are the same, customers are even more
disclosure on                    willing to select the product that has less environmental impact.
         bills                   One of the major impediments to the take-up of Green Power is that many people are unaware of the environmental impact of
                                 electricity. Many believe that electricity is “clean” power and don’t know that 85 per cent of Australia’s electricity is produced from
                                 the burning of coal. NSW studies show that more people think hydro and solar are the dominant fuel source ahead of coal. The
                                 studies also indicate that two thirds of consumers are interested in buying power from environmentally preferred sources.

                                 Disclosure of the source and greenhouse emissions intensity of a customer’s power source is vital as it is the only effective
                                 way to get the information to customers.

                                 The cost of implementing emissions disclosure is estimated to be very low. According the Sustainable Development Authority of
                                 NSW in the US detailed contract tracking systems necessary for such disclosure is estimated to be in the range of US$300,000 to
                                 $1 million per year. At the high end, this equates to about US3c per customer per year.

                                 The evidence strongly suggests that incorporating emissions disclosure on customers’ electricity bills so that they are aware of
                                 the greenhouse impact of their energy purchasing decisions will contribute to a greater take-up of Green Power. It will encourage
                                 retailers to differentiate products through lower emissions intensity offerings and allow consumers to make informed choices
                                 about their retailer based on the real environmental emissions impact of energy supplied. The small cost involved in implementing
                                 this means it is a cost-effective way to reduce greenhouse emissions and should be implemented nationally as soon as possible.
                                 Consumers should also be offered tax deductibility for the voluntary “green premium” they pay for Green Power.

                                                                                                                      The sugar industry is very well placed to benefit
                                                                                                                            from renewable energy certificate trading.

Powering Australia’s Future 12

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