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Address to Australian Energy Week 2017

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28 June 2017

Tracking towards 2020: the Renewable Energy Target and Emissions Reduction Fund

Australian Energy Week 2017, Melbourne, 23 June 2017

Mark Williamson, Executive General Manager, Scheme Entry and Entitlement Division

Certainty can lead to enormous investment and some great results, and I’ll present some of those results both in relation to the Renewable Energy Target and the Emissions Reduction Fund.

I’ve been hearing over the past days at the conference that we need more electricity supply, and I’ll talk about that for the Renewable Energy Target that we will see between 2017 and 2020 over 9000 megawatts of additional capacity come in to the system – about 6000 megawatts will be large-scale and 3000 will be small-scale behind the meter.

I’ll give you some insights into the fact that while most of that will be variable renewable energy, it will have some different characteristics to the past and that may in fact assist the transition.

In terms of the abatement side of the equation, what we’ve contracted under the Emissions Reduction Fund plus the abatement through to 2030 from the extra 9000 megawatts of renewables will make about 400 million tonnes of abatement difference to Australia’s 2030 task to achieve its Paris goals.

We’re a Commonwealth economic regulator with an environmental objective. Our purpose is to accelerate carbon abatement for Australia. We administer all the Commonwealth’s climate change laws. The ones that I’ll be talking about are the Renewable Energy Target and Emissions Reduction Fund, and we also look after National Greenhouse and Energy Reporting scheme.

In terms of our international obligations, the Department of Environment and Energy – of which we are a part of the portfolio – released Australia’s latest inventory and projections at the end of last year and those indicated that the challenge to meet the 2030 objective is around about 990 million tonnes. As I said before, that target would be about 400 million tonnes harder – so it would be higher than that – if it wasn’t for the contracted abatement under the Emissions Reduction Fund and meeting the 2020 Renewable Energy Target.

Meeting the 2020 Renewable Energy Target and the Emissions Reduction Fund are the two major mechanisms spoken about in that report.

The Emissions Reduction Fund leverages off the Carbon Farming Initiative. Under the Carbon Farming Initiative it was mainly land based carbon abatement, but broaden out under the Government’s Emissions Reduction Fund to include a range of energy efficiency, transport opportunities.

The statutory part of the scheme – you have to register a project. Once you’ve delivered the abatement you get Australian carbon credit units (ACCUs). You get one ACCU for every tonne of emissions either avoided or sequestrated. You can sell those on the secondary market, but we are the primary market and we purchase those ACCUs through a reverse auction.

You can get what is a rolled-gold Commonwealth contract for up to 10 years. That’s what’s accelerated the abatement under the Emissions Reduction Fund compared to the previous Carbon Farming Initiative.

We’ve so far had 37 million ACCUs created, which is equivalent to 37 million tonnes of abatement. In the old Carbon Farming Initiative, it was eight million. So of that 37 million, eight million was under the CFI, it’s really accelerated through the $2.55 billion we were given to buy abatement, and those Commonwealth contracts giving a lot of certainty to the investors.

Most of the projects are in Queensland and New South Wales.

This shows the results so far from the reverse auctions we’ve run. 189 million tonnes of abatement we’ve contracted from 435 projects at an average price of $11.83 per tonne of abatement. So they’re the headline numbers. About 72 million tonnes of that will be delivered before 2020. You may have heard the Minister say on other occasions Australia will meet and beat its 2020 commitments, and the balance of that 189 million tonnes of abatement will be delivered by 2030 which is obviously important for our Paris commitments.

This is our delivery schedule. The key line to look at is that red line in the purple wedge. That’s where we’re tracking in terms of deliveries to date. And the other lines show the minimum that can be delivered under the contracts and the original and varied delivery schedules. The headline message here is the abatement on a portfolio basis is delivering ahead of what the contracts require. The purple wedge reflects the amount of abatement they achieved.

So far, on a portfolio basis, it’s going really well.

In terms of the large-scale renewable energy scheme, the target was re-legislated in mid-2015 with bipartisan support of 33 000 gigawatt hours. We said for that to be achieved, from 2016 through to 2020, we would need to have committed and built around about 6000 megawatts of additional generation. We’re currently tracking at 4000 megawatts firmly announced. At the end of last year we finished at 2000 megawatts firmly announced. Most of those announcements really only happened in the back part of last year. We’ve really seen an acceleration in the momentum of announcements.

We say we need to be at 5000 firmly announced by the end of this year – that looks to be quite easily achievable. We said the whole 6000 will need to be committed by the end of 2018, I suspect it will be well before then.

On the left hand side of the diagram show the four gigawatts we say of new capacity which has been firmly announced and the blue on the right shows in gigawatts hours the actual generation.

A lot of the old hydro that was in existence before the Renewable Energy Target commenced does not get incentivised, apart from any generation that’s above their baseline.

We’ve had, in 2016, below baseline generation was around about 14 000 gigawatt hours, above baseline was around about 18 000 gigawatt hours. Assuming that full four gigawatts of firmly announced is actually built, that will take the generation over 30 thousand gigawatt hours in a full year.

You can see it takes it very close of being within reach of the target. However, the reason there are two horizontal lines – the target is 33 000 gigawatt hours but it’s a demand side target. There are other schemes leveraged off the Renewable Energy Target – one is the ACT reverse auction where they said they would surrender the certificates to be additional to the Renewable Energy Target and also Greenpower which is additional to the Renewable Energy Target. So the actual demand side signal is more like 37 000 gigawatt hours to meet the Renewable Energy Target and those voluntary sources of demand.

This map shows Queensland and New South Wales have the biggest share in the large-scale renewables market, while Victoria and South Australia are the next level down.

Of the 4000 megawatts that’s been firmly announced, 40 per cent of that is large-scale solar. That’s unprecedented -it’s been heavily dominated by wind in the past. For all of that solar, the market has moved towards single axis tracking very quickly. Single axis-tracking gives it a 30 per cent higher capacity factor, but more importantly it generates far more in the early part of the morning and late in the day. So it’s a totally different generation profile that better matches demand compared to fixed panels.

We’re also seeing ARENA and AEMO working with some of the developers of new wind farms to some better inertia and there’s a lot of interest from new developers for getting on top of that. We hear that it’s only about 0.5 per cent of the capital cost of the wind farm to provide some level of inertia.

There are also a lot of projects at the large-scale that are looking to incorporate batteries as well. That’s why I say most of this build will be variable renewable energy, but there will be some positive differences from the past.

This is a map of the small-scale generation that we’re seeing come in. We’re currently at about 5700 megawatts of installed capacity and you can see the breakdown state by state which is pretty heavily dominated by Queensland and New South Wales.

The small-scale scheme had been slowly declining off highs of a few years ago, but is actually taking off again. We’re really seeing material further development.

In terms of the small-scale scheme, this is the rollercoaster it’s been on. As you can see, it’s a quite a blip until 2008 and really took off in 2011-12.

This shows installed capacity annually. What we’ve seen since the highs of 2012-ish, we’ve seen dropping installation numbers but average capacity increasing. A part of that is a continued strength in commercial and industrial sized systems in the small-scale scheme between 10 and 100 kilowatts, as well as the average household system increasing.

What we saw for the first time last year is the installed capacity rose even though the number of installs dropped. This year, we’ve seen an increase in installations, so I suspect this year, we’ll probably be at about 800 megawatts of installed capacity, and for the first time in many years, an increase in system numbers.

That will be fascinating to watch. Who knows where this may go, because it is a consumer product, and consumers will react to a lot of things they’re hearing at the moment.

Last year we had about 130 000 new small-scale systems below 100 kilowatts that were installed – around about five per cent of those had a battery and batteries had technical integration issues. The industry has gotten past that. The best industry projections are that this year, it’s going to be more like 15 per cent of a higher number – probably 140 000 systems – that will have a battery. So the battery uptake could really surprise and could be one of the things that takes variable renewable energy look different going forward.

For a few years we have been exchanging data with AEMO, we have an automated data exchange between us. We give them all the information we’re tracking on new build and they get all of our small-scale data and we get their data to help us validate that those 140 000 PV systems were actually installed.

Looking forward, we still have about $300 million to spend out of the original $2.55 billion for the Emissions Reduction Fund, so that should take that abatement we’ve contracted so far of 189 million to reasonably well over 200 million tonnes of abatement.

We’ve got another 2000 megawatts that needs to be committed to meet the Large-scale Renewable Energy Target compared to the 4000 megawatts we’ve said is firmly announced. I think you should expect there’s lots of announcements still to come, and that 2000 megawatts will be announced some time by early next year.

Thank you.

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