State renewables targets will need concerted effort and new investment
In this article we look at the role of state renewable energy and emissions targets for Victoria, New South Wales, Queensland, and South Australia. In the absence of a federal mechanism to drive uptake, state government targets and policies will be crucial. In total, NSW, Queensland, and South Australia will need around 7.95GW of new capacity to meet their 2030 targets. Victoria and the ACT will meet their targets on the basis of projects with existing contracts.
There is no prospect of long-term revenue from Large-scale Generation Certificates (LGCs) driving investment in new projects. No more capacity is needed to meet the renewable energy target. The supply and demand balance for LGCs remains tight this year - assuming liable parties such as electricity retailers comply with their targets. But supply of LGCs will well outstrip demand in the next few years. Reflecting traders’ current expectations of this future balance, LGCs for delivery at the end of 2023 (Cal23) and 2024 (Cal24) are now trading at $13.25 and $6.20 respectively (as at 28 September 2020).
The Clean Energy Council recently drew attention to the slowing of investment. In the past two months further commitments announced bring 2020 investment on par with 2019 on a pro-rata basis. However, investment in 2019 was itself a 43% contraction on 2018.
Figure 2 shows the source of revenue for capacity committed during 2020. Two projects – or 41% of this capacity - have energy contracted with CleanCo and CS Energy, which are Queensland government-owned entities. While government PPAs often don’t cover all a project’s output, they have a creditworthy counterparty and generally enough revenue is locked-in to satisfy investors. Three projects (one third of committed capacity) have no known contracted output at this stage and may be merchant, one project (15% of capacity) has a PPA with Snowy Hydro, and the remainder (11%) are self-generation projects by companies to power their operations.
Stalling of investment puts some of the over 25,000 jobs in the industry at risk. And we must continue reducing greenhouse gas emissions. In the long term, the retirement of coal-fired power stations will tighten the demand/supply balance in the wholesale power market sending a price signal to boost investment. But this will take time. In the meantime, revenue uncertainty makes attracting project finance more difficult and more costly. In addition to price risk, there are concerns over output volume due to transmission constraints, commissioning delays and marginal loss factors.
We have looked at the role the states own renewable energy or emissions targets might continue to play.
To meet their targets New South Wales, Queensland and South Australia need another 7,950MW of renewables
The states and territories all have renewable energy or emissions targets, and each have shown a willingness to implement mechanisms to help meet these. Table 1 outlines each region’s targets.
The ACT Government has announced it has already met its 100% renewable energy target, through contracting of new renewable energy supply. Just recently it announced the winners – 200MW capacity from two wind farms - of its further 2019/20 auction. This generation will ensure that as electricity consumption grows with electrification of sectors such as transport, it maintains the 100% renewables share.
We have investigated how Victoria, NSW, Queensland, and South Australia are tracking towards their targets. Table 2 shows that in total 21,227 gigawatt hours (GWh) of additional generation is needed. NSW has the largest task of all the states, followed by Queensland.
If we were to assume half of the demand was met by solar and half by wind then a further 4,890MW of solar farms (AC-rated capacity) and 3,460MW of wind farms are necessary across the NEM. (This assumes an average capacity factor for solar of 27% (after transmission losses, on an AC-rated basis) and 35% for wind (after transmission losses).
Victoria will meet its renewable energy target assuming Yallourn power station retires by 2030
Victoria is expected to meet its 2030 target of 50% without any further investment in large-scale renewable energy, beyond projects that are already operating, committed or with power purchase agreements (PPAs) in place or those to deliver on government announcements (see Figure 3). This includes the further 600MW of projects the Victorian Government recently announced it intends to contract to power state infrastructure including schools, hospitals and rail. These projects are expected to deliver 30,171GWh in 2030, post transmission losses. So, if Victorian brown coal-fired generation contracts in line with our assumptions, in 2030 Victoria will reach a 56% renewable energy share, up from an expected 30% share this year.
Note: The actual target level of 50% is an estimate based on Green Energy Markets forecast Victorian generation in 2030.
Under the Victorian Renewable Energy Auction scheme, the Victorian Government awarded six renewable energy projects 15-year contracts (three wind, three solar). Combined, the six projects are expected to generate around 2,880GWh per year (before taking losses into account).
Further notes on assumptions for Victoria’s target: Victoria’s target is a share of in-state generation, rather than consumption. So, we needed to make some assumptions regarding brown coal and gas-fired generation. For brown coal-fired generation we assume that Yallourn will close prior to 2030. (AEMOs planning assumption for Yallourn is closure of units over 2029 to 2032, and the Victorian Government’s projections of grid emissions intensity also imply more coal closing prior to 2030.) Gas-fired generation in 2030 is assumed to be the annual average since 2000. We also assume that Victoria exports its excess generation to New South Wales.
Queensland needs another 6,081GWh of renewable energy to meet its 2030 target
Queensland will need new investment in renewable energy to generate another 6,081GWh to meet its 2030 target of 50% of electricity consumption. This is beyond the 1400MW of new - owned or contracted - renewable generation targeted by CleanCo Queensland.
We expect current operating and committed projects or those with PPAs, along with as yet uncontracted CleanCo capacity, will generate 24,968GWh in 2030, equivalent to 40% of forecast demand. This is double the forecast share of 20% this year.
South Australia is on track for a 90% share of renewable energy in 2030
South Australia is within reach of its renewable energy target of 100% net renewable energy by 2030, but needs a further 1,509GWh of generation.
Current projects underway in the state put it on track to 13,232GWh, equivalent to a 90% renewable generation share. South Australia’s renewable energy generation benefitted from early strong investment underpinned by the RET and a favourable wind and solar resource and is on track to supply 61% of SA demand this year. Now the SA Government has turned its attention to enhancing storage capacity to support its high share of renewable energy.
New South Wales
We estimate that New South Wales will need a further 13,637GWh of renewable energy to meet its emissions target of a 35% below 2005 by 2030. The state is on track for 24,906GWh of renewable energy generation by 2030, equivalent to 35% of NSW demand, up from a share of around 19.8% this year.
As NSW does not have a renewable energy target, the state-wide emissions target must be converted to an emissions budget for electricity generation emissions. If NSW is to reduce emissions 35% below 2005 levels it cannot emit more than 103.6m tonnes. We estimate non-energy industry emissions at 75 Mt CO2-e. Therefore our 2030 budget estimate for energy industries, which includes electricity, is just 28.6 million tonnes CO2-equivalent (Mt CO2-e). Allowing 5 Mt CO2-e for non-electricity fuel combustion, this implies a budget for electricity emissions of 23.6 Mt CO2-e.
NSW power consumption in 2030 is forecast by AEMO at 71,227GWh. Of this just 24,906GWh is estimated to be renewable energy based on current projects, the remainder (46,320GWh) would be sourced from fossil fuel-fired generation and imports. Given emissions-intensities of black coal and gas are at around 0.95 and 0.45 Mt CO2-e/MWh respectively post losses, this would blow the emissions budget. This implies that further fossil fuel-fired generation must be replaced by renewable energy if NSW is to meet both demand and its emissions target. Fossil-fuel generation must contract until it fits into the emissions budget for electricity of 23.6 Mt CO2-e. Table 7 outlines these assumptions, with black coal and gas-fired generation able to deliver 25,535GWh. Table 6 shows that after assuming 25,535GWh of in state fossil fuel generation, imports from Victoria of 7,148GWh and projected renewables from existing projects and rooftop solar forecasts of 24,906GWh, there is a further gap of 13,637GWh to meet demand. This must be met by additional NSW renewable energy generation.
Information on assumptions for the NSW emissions target
To estimate the allowable emissions for energy industries (including electricity) we estimated emissions for all other sectors for 2030 to assess the remaining emissions budget. As Australia’s emissions projections are not available at state level, we must do our own estimates of sectoral emissions. We estimated that non-energy emissions for NSW would be around 75 Mt CO2-e. The methodology used was as follows.
For emissions from transport, waste, land use change and agriculture, our estimates of emissions in 2030 were scaled-up (or down) from 2018 levels by a similar growth rate as what is expected to occur nationally. For the remaining sectors we adjusted as follows, as the national trend is less relevant for NSW:
- Sectors/sources that remain at 2018 levels: Fuel combustion – manufacturing, other sectors; Fugitives – coal mining and oil & gas; Industrial processes – non-energy products from fuels, other product manufacture, other.
- Sectors/sources that contract compared to 2018 levels: Industrial processes – minerals production, metal production.
- Refrigerant emissions were assumed to decline faster than the national trend in the Australian Government’s emissions projections.
Table 7 outlines our assumptions for coal and gas-fired generation to enable NSW to reduce its electricity emissions-intensity to meet our estimated 2030 emissions budget for electricity of 23.6 Mt CO2-e.