Renewable Energy Module 8: IMPACT OF POWER SECTOR REFORM OPTIONS ON RENEWABLES
Markets for energy, renewable energy and...
Transcript of Markets for energy, renewable energy and...
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Energy Productivity & Pricing
Dr Jenny Riesz
February 2015
Markets for energy, renewable energy and carbon
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Electricity price rises
3CSIRO Future Grid (2013) Change and choice, The Future Grid Forum’s analysis
of Australia’s potential electricity pathways to 2050
Avera
ge e
lectr
icity r
eta
il prices
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Changes in residential retail electricity price components
4
Causes are complex, various and differ by state, but investment in the electricity distribution
system played the largest role.
Changes in r
eta
il prices (
NS
W)
CSIRO Future Grid (2013) Change and choice, The Future Grid Forum’s analysis
of Australia’s potential electricity pathways to 2050
Carbon
pricing
LNG
Renewables
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RENEWABLES
The market for
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Renewable Energy Market
Renewables create certificates (1 MWh = 1 REC)
Clean Energy Regulator sets Renewable Power Percentage (RPP) – defines annual liability
Retailers surrender the RPP of their electricity sales in RECs
Cre
ate
s a
RE
C
ma
rke
t
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Renewable Energy Target
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Renewable Energy Target
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Renewable Energy Target
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Solar Photovoltaics drivers
• Global oversupply of PV modules
• High Australian dollarInternational
• Solar 5x Multiplier (RET)Federal
• Generous FiTsState
• Strong supportIndividual
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Global PV module retail prices and Australian
equivalent
http://www.trade.nsw.gov.au/__data/assets/pdf_file/0016/360142/AECOM-REPORT-for-
Solar-Bonus-Scheme-Review.pdf
13% reduction in global module prices
Appreciation of Australian dollar
40% reduction in Australian module prices
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Oversupply until 2015-16?
+1
,00
0 M
W
+3
,500
MW
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Renewable project development
PPA Financing Construction
2-3 years
Long term PPA
required to secure
project financing(eg. $90/MWh for 15yrs)
For project commissioning in 2015-16
needed a PPA in 2013-14
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RET Review
Climate Change Authority Review – Dec 2012
• Operational - is the scheme working?
• Major lobbying – 8700 submissions, many seeking reduction
• But CCA recommended minor changes only
Change of Government
• Initiated another review!
Perpetual uncertainty
• Detrimental to investment
RET Legislation requires biannual review
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RET Negotiations
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RET Negotiations
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RET Negotiations
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RET Negotiations
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RET Negotiations
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Proposed new capacity
Need ~7.5GW wind to meet
original target
– 1 GW commissioning 2015
– 14.5 GW proposed
And solar:
– 0.219 GW commissioning 2015
– 1.2 GW proposed
20AEMO, Statement of Opportunities 2014
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Toowoomba Solar Farm (Bulli Creek)
Feb 2015 – Planning
approved for 2GW
Negotiating connection
agreements
Needs large-scale
investor
Solar Choice taking on
“development risk”, taking
projects to “pipeline
ready”
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RET may not function without the carbon price
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RET Shortfall charge
($65/MWh nominal)
Cost of cheapest
renewables available
If remove carbon price, need to:
- Increase shortfall charge
- Extend RET
CEEM Working Paper – Payments for closure: Should direct action include payments for
closure of high emissions coal-fired power plants? http://ceem.unsw.edu.au/sites/default/files/documents/Working%20paper%20-%20Payments%20for%20Closure%20-
%202013-10-07a.pdf
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CARBON PRICING
Mechanism and impacts of
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Climate averages vs extreme weather
24Climate Change Authority, Targets and Progress Draft Report, Oct 2013
PERFECT STORM impacts on
electricity sector:
- Extreme demands
- Power station de-rating
- Transmission lines de-rating
- Increased forced outage
probabilities
- Drought reducing cooling
water supplies
- Increased temperature
ratings for all equipment
- …
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Carbon targets
Bipartisan support for -5% by 2020 target
25Climate Change Authority, Targets and Progress Draft Report, Oct 2013
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Pathways to 2050 that meet recommended long term
emissions budget
26Climate Change Authority, Targets and Progress Draft Report, Oct 2013
-25% by 2020 or -15% by 2020
recommended by CCA
-5% by 2020 is likely to be impossibly steep
post 2020 to meet recommended budget
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Australia’s Greenhouse Emissions (2012)
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Policy mechanisms
ExamplesMechanism type
Policy mechanisms
Regulatory
Appliances –minimum star
ratings
Building efficiency standards
Market-based
Carbon tax
Emissions trading
Mandating restrictions or banning particular
items, technologies or techniques
Price on carbon
ADVANTAGES:
Good where market not effective
DISADVANTAGES:
Can be haphazard
Difficulties evolving with the market
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Market based approaches
$/tCO2
$
$$
$
R&D
Tax cuts
+$$
+$$
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Creating a market for carbon
Price
($)
Quantity
(Q)
DemandSupply
Dictated by
Government
Cost of abatement
options
Option 1:
Set the price
(Carbon tax)
Market
determines
quantity
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Creating a market for carbon
Price
($)
Quantity
(Q)
DemandSupply
Dictated by
Government
Cost of abatement
options
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Option 2:
Set the quantity
(Emissions Trading)
Market
determines
price
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Creating a market for carbon
Price
($)
Quantity
(Q)
Demand(uncertain)
SupplySet the price
Uncertainty in
quantity
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Creating a market for carbon
Price
($)
Quantity
(Q)
Demand(uncertain)
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Supply
Set the quantity
Uncertainty in
price
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Creating a market for carbon
Which is most important?
Price
Carbon tax
Quantity
Emissions Trading
• Price certainty
• No guarantee of meeting
emissions targets
• Price may require
adjustment (removes price
certainty benefits)
• Simpler
• Guaranteed to meet targets
• No price certainty
• Can experience price
volatility (especially at
market start)
• Can link internationally
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Clean Energy Future
Emissions trading with initial
fixed price period
– (note that it wasn’t actually a
tax…)
Operated 1st July 2012 to 1st
July 2014
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Price of carbon
July
2012
July
2013
July
2014
July
2015
July
2016
July
2017
July
2018
$23.00$24.15
$25.40
July
2019
Nom
inal price $
/tC
O2
Treasury modelling
(July 2011)
Repealed
Flexible priceFixed price
Price depends upon targets
($30-60 /tCO2 by 2020)
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So no more carbon price?
37
Must reduce emissions
• Widely agreed that serious emissions reductions are required
Carbon pricing is the most efficient method
• Carbon pricing is generally agreed to be the most economically efficient way to transform the economy across diverse sectors and sources of emissions
Considered likely to return
• Sensible businesses are factoring in a carbon price
Uncertainty inhibits investment
• Lack of a credible carbon reduction mechanism perpetuates uncertainty and delays investment & economic growth
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Emissions Reduction Fund
Abatement buy-back (specific abatement projects)
Reverse auction/tender
– Businesses submit tenders to
reduce emissions
– Govt selects lowest cost
– Forward contracts
– Commence April 2015
– Limited scope (mostly Carbon
Farming)
Funds allocated in budget
– $2.55 bn over 4yrs
– Long term this mechanism
implies significant tax
increases
“Safeguard mechanism” (large facilities)
Mechanism to provide
incentives not to exceed
historical emissions baselines
No Government revenue
Commence 1 July 2015
No detailed design published
yet
– Exposure draft legislation due
Jan-Apr 2015
Outstanding questions:
– New entrants?
– Non-compliance penalties?
– Electricity sector?
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White paper released Apr 2014
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Impacts of the carbon price on electricity sector
+$$
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Impacts of carbon price on electricity sector
Capital cost ($)
• Initial installation cost
Fixed costs ($ pa)
• Fixed operations and maintenance
Operating costs ($/MWh)
• Fuel
• Variable operations and maintenance
• Carbon
SU
NK
Short Run
Marginal
Cost
(SRMC)
Operational
decisions
Long Run
Marginal
Cost
(LRMC)
Investment
decisions
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Dispatch impacts
Outcome depends strongly
upon gas prices
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Impact of carbon price on electricity market
Generator costs increase
• Proportional to emissions intensity
Increase bid prices
• Assuming a competitive market
Wholesale electricity prices increase
• Average emissions intensity ~1tCO2/MWh, so ~1:1 pass through of $23/tCO2 carbon price
Cost passed through to consumers
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Impact of carbon price on electricity market
Mild
weather
Extreme
summer
+$17
+$30
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Hugh Saddler, Pitt & Sherry
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Electricity sector emissions
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8.6%
reduction
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ANU modelling
45M. O’Gorman, F. Jotzo, “Impact of the carbon price on Australia’s electricity demand,
supply and emissions”, CCEP Working Paper 1411, ANU, 17 July 2014.
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Investment decisions
Black coal
Brown coal
GasRenewables
Gas CCS
Coal CCS
No carbon price -5% by 2020 -25% by 2020
Source: Treasury, Strong Growth Low Pollution Modelling, 201146
General consensus that a carbon price will drive low
emissions investment
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LNG
Impacts of
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Anticipated LNG exports compared to domestic
market
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USA and Canada
Shale rock gas
reserves
Gas Prices
80%
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Significant uncertainty over future gas prices
Delivering Energy Price Security in an age of Uncertainty (2012) 50
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The uncertainty is material
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New generation options
Generation technology Challenges
Coal High investment capital risk
Nuclear Highly politically sensitive
Hydro & Biomass Resource limitations
Geothermal, tidal, wave, CCS Not commercially viable prior to 2030
Solar thermal High cost
RET
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Proposed new capacity
AEMO, Statement of Opportunities 201453
(14.5 GW)(6.3 GW)
(2GW)
(1.2GW)
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A portfolio approach to risk management
RET
PEAKINGDomestic gas prices
Electricity prices
BASELOAD
Domestic gas prices
Electricity prices
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Comparing portfolios of renewables vs gas (2030)
55The role of wind and solar PV in mitigating the impact of uncertainty in the Australian Electricity
Industry (2013) http://ceem.unsw.edu.au/sites/default/files/documents/Paper_WIW13-1207.pdf
Percentage variable renewables:
0%
15%
30%
50%
70%
90%
Renewables reduce
cost risk
(and also reduce total
cost up to a point,
depending upon CO2
and gas prices)
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Comparing portfolios of renewables vs gas (2030)
56The role of wind and solar PV in mitigating the impact of uncertainty in the Australian Electricity
Industry (2013) http://ceem.unsw.edu.au/sites/default/files/documents/Paper_WIW13-1207.pdf
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International experiences
“promoting stable electricity
prices by hedging against
volatile natural gas prices”
33% Renewable Energy
by 2020California
“[Renewables] will be crucial to help protect consumers from fossil fuel price fluctuations”
15% Renewable Energy
by 2020UK
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Conclusions – Outlook for the electricity sector
Time
Impact
RET?Carbon
price?
Gas market?
PEAKING
58
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What about nuclear?
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Nuclear costs are increasing
Koomey, Jonathan, and Nate Hultman. 2007. “A Reactor-Level Analysis of Busbar Costs for
U.S nuclear plants, 1970-2005, Energy Policy
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Investment in nuclear has slowed
Mycle Schneider Consulting (2005)
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Levelised cost of nuclear is high
Levelised cost ($/MWh)
Nuclear (UK) $154 (£92.50)(Hinkley C, 35yr PPA)
Wind (Australia) $80 - $100(10-15yr PPA)
• Cost of establishing a nuclear industry?
• Also:• No export industry in renewable technologies• Inflexible – poor partner with variable renewables