Market insights

Victoria achieving at least 20 per cent renewables share?

06 October 2015

Victoria already has at least 18 per cent renewables share of electricity generation by 2020 locked in once we account for wind farms that are under construction or started operating in 2015. If Victoria delivered its share of the required large scale generation capacity required to meet the Mandatory Renewable Energy Target then it would achieve 25 per cent renewables share of generation by 2020. In the event that one of the older brown coal generators ceased to operate by 2020 then the renewables market share would be 30 per cent by 2020.

The Victorian Government is aiming for at least 20 per cent renewables market share of generation by 2020 and is looking for submissions as to what the 2020 and 2025 targets should be.

Any future renewables target should be couched in terms of share of electricity consumption not generation otherwise the target would need to be reset as some of Victoria’s aging power stations closed or changed their operating profile.

To ensure that Victoria’s renewables industry maintains an annual build rate of 210 to 220 MW per annum over the next 14 years would require a renewable target of 29 per cent of consumption by 2020, 39 per cent by 2025 and 50 per cent by 2030.


At least 20 per cent renewables by 2020

The Victorian Government released its  Renewables Energy Roadmap in August and announced that it is aiming for at least 20 per cent renewables market share by 2020 and is looking for submissions as to what targets for 2020 and 2025 should be.

The Government aims to produce at least 20 per cent of the state’s electricity generation from renewable sources by 2020. The Government is asking for community feedback on what the 2020 and 2025 targets should be, as part of broad public consultation on this Roadmap. (Page 7 of Victoria’s Renewable Energy Roadmap, August 2015)

This paper draws together the results of some recent work that we have undertaken to provide a snapshot of the current level of renewable energy in Victoria and what level of new projects need to be committed to achieve different levels of market share.

The approach we have taken is to firstly consider the current level of renewable generation in Victoria, specifically for the 2014 calendar year. We then consider the renewable projects that were under construction at the end of 2014 and those that have been committed so far in 2015. We then add the level of generation from rooftop solar PV systems that are expected to be committed in future. We then arrive at the level of renewable generation that we can expect without any further government policy measures or without any further new project commitments.

To arrive at renewables market share we need to consider the level of future power generation or consumption and then allow for the impact of the recently announced expansion and extension of the Victorian Energy Efficiency Scheme.

Renewables currently account for 11.7 per cent of generation and 12.6 per cent of consumption

Metered renewable generation was 4,428 GWh in 2014 (5,854 GWh in 2013) this comprised 1,889 GWh of hydro and 2,539 GWh of wind. The hydro generation included the output of the Murray power station which is part of the Snowy scheme and the Australian Energy Market Operator (AEMO) classifies it as being in Victoria. Murray produced 1,021 GWh in 2014 and 2,392 GWh in 2013. The average generation of the Murray power station over the last 10 years was 1,889 GWh.

There are a large number of smaller renewable generators in Victoria that are distributed throughout the state that are not accounted for by AEMO. We estimate the generation levels for these power stations by considering the level of renewable energy certificates that they have produced and then add back the appropriate baseline for each power station (refer to  GEM Power Station Report, May 2015). We estimate that these renewable projects generated 756 GWh in 2014 and are expected to continue to generate at this level to 2020 and beyond.

Electricity generation from both large and small renewable power generation projects that were operating at 31 December 2014 were to have generated 5,185 GWh in 2014 and once we allow for average generation levels from the Murray power station then 6,071 GWh is expected to be generated on an ongoing basis.

We also include the power generated by rooftop solar systems installed in Victoria and we use AEMO estimates for these of 737 GWh in 2014 (refer to Figure 3).

In determining market share we have used generation sent out to the grid which means that we have excluded auxiliary power use (the electricity used by the power station and coal mine) by fossil fuel generators (average of 9 per cent for brown coal and 3 per cent for gas).

Table 1. Generation mix in Victoria for 2014 calendar year

 

Renewables currently accounts for 12.6 per cent of consumption

It is important to note that Victorian electricity consumption is considerably lower than generation levels included in the table above due to the significant level of net power exported to other states.

Total Victorian electricity consumption to be met by registered and metered generators was 45,426 GWh in 2014 (Figure 1) and increases to 46,916 GWh when we allow for distributed rooftop solar and other distributed renewable generators. As a result renewables share of Victorian electricity consumption amounts to 12.6 per cent (compared to 11.7 per cent of generation).

Wind farms under construction account for 1218 GWh or 2.6 per cent of consumption

At the end of 2014 the Bald Hills and Chepstowe wind farms were under construction and these power stations started generating for the first time in 2015. In addition the Ararat wind farm and Coonooer Bridge wind farms were committed in 2015 after being successful under the ACT wind auction.

Combined these power stations have a capacity of 372 MW (Table 2) and are expected to generate 1,218 GWh when fully operational and will account for 2.6 per cent of Victoria’s current electricity consumption.

Table 2. Wind farms under construction


Rooftop solar PV contribution expected to continue to increase

Electricity generated from rooftop PV is seen as a reduction in consumption by the electricity system and as a result we need to estimate its contribution and add it back to AEMO’s figures to properly reflect market share.

At the end of 2014 there was more than 620 MW of rooftop PV stalled in Victoria and AEMO estimated that it generated a total of 737 GWh. AEMO rooftop PV estimates (Figure 1) imply that an average of 206 MW of solar PV will be installed from 2015 to 2020 and 250 MW from 2021 to 2030. This results in generation of 2,204 GWh in 2020 and 5,168 GWh by 2030.

 

18 per cent renewable share of generation already locked in

A total of 9,494 GWh of renewable generation is already substantially locked in by 2020 after we allow for the full year’s output of projects currently under construction and the continued installation of just over 200 MW per annum of rooftop solar (Figure 1).

Figure 1. Renewables generation currently locked in


 

Determining renewable market share of generation or consumption?

Forecasting Victorian electricity generation is quite a challenge as there will be many factors that will impact on state generation levels as Victoria is able to import or export generation to other states. Supply and demand factors occurring in other states will impact on Victorian generation levels as will the level of gas prices and the prospect of the eventual closure of some very old brown coal plants in Victoria. The Morwell brown coal plant ceased generating in 2014 and the Anglesea power station stopped generating in August 2015. These were relatively small generators, the future closure of the aging Hazelwood and Yallourn power stations, which are an order of magnitude larger will have a much more significant impact.

In forecasting generation levels we have assumed that in the absence of any further policy measures Victoria’s current brown coal fleet remains and continues to produce at current levels. With significantly higher gas prices we have assumed that gas-fired generation in Victoria reduces by two- thirds of 2014 levels which is broadly consistent with AEMO gas projections. For renewables, at this stage, we have assumed that no more large-scale renewable projects are committed.

So in the absence of any further large-scale renewable projects, renewables increases its market share from 12 per cent in 2014 to 18 per cent in 2020 and then increases to 22 per cent by 2030 (Figure 2).

Figure 2. Renewables market share of generation
(assuming no new large-scale projects and no brown plant closures)

For Australia to have any chance of meeting a 26 per cent greenhouse reduction target by 2030, at least one or more of the very old brown (greater than 50 years) coal generators in Victoria would be expected to cease generating. This may require the implementation of further policy measures by the Commonwealth government, such as tightening the Safeguard Mechanism.

As a sensitivity we have assumed that one of the older brown coal generators ceases operating before 2020 and another ceases operating by 2025. Under this scenario renewables market share (with no further large-scale renewables projects built) increases to 22 per cent by 2020 and reaches
32 per cent by 2025 (Figure 3).

Figure 3. Renewables market share of generation
(Assuming no new large-scale projects and two brown plant closures)

Defining a renewables target in terms of generation market share is very problematical in the context of the NEM where Victoria exports and imports electricity. The Victorian government could easily achieve its 20 per cent market share by 2020 objective if one of the old brown coal generators fully or partly ceases generation before 2020. So it is possible to have a really high renewables market share which disguises the fact that a significant proportion of Victoria’s electricity needs are from imported coal fired generation from NSW and Queensland.

There are three other jurisdictions in Australia that have committed to renewables targets:

  • ACT has a 90 per cent renewable energy target by 2020 which is measured as a proportion of the territory’s electricity consumption;
  • SA has a target of target of 50 per cent renewable market share of generation by 2025. This is going to be achieved easily once we consider the planned closure of gas and brown coal fired generation in the state.  http://www.businessspectator.com.au/article/2014/9/24/policy- politics/south-australias-do-nothing-renewables-target
  • Queensland has a target of 50 per cent renewables share by 2030. Little detail is available however the market share has been couched in terms of “electricity needs” which implies it is based on consumption.

A renewables target based on state consumption would appear to be more meaningful and more useful to measure given the likely changes to generation mix in the NEM. A generation based target would need to be reset every time major fossil fuel plant changed its operating regime.

 

Electricity consumption expected to be relatively stable

Metered electricity demand in 2014 was 47,020 GWh; 3.5 per cent lower than the 48,724 GWh in 2013. The impact of the closure of the Point Henry Smelter as well as expected reduction in other manufacturing demand will see demand reduce again in 2015. AEMO incorporate a modest impact from energy efficiency and assume that the level of demand to be served by generation (Operational demand) grows from by just under 1 per cent per annum from 2015 to 2020 and then grows at 0.6 per cent per annum after 2020 (Figure 4).

Figure 4. AEMO electricity demand projections for Victoria (June 2015)

It appears that AEMO have only incorporated a modest contribution from energy efficiency and does not appear to have factored in the impact of the recent Victorian Government commitment to expand and extend the Victorian Energy Efficiency Scheme. We have estimated the contribution of the expanded scheme and assumed that the 6.5 million target continues after 2020. As a result the level of operational demand is expected to remain flat from 2015 to 2020 and then reduce by 0.6 per cent per annum after 2020.

 

Expected Renewable energy market share to increase

On the basis that no further large-scale renewable power generation projects are built in Victoria and that we continue to roll out 200 MW or more of rooftop PV per annum then renewables will be expected to contribute a total of 9,494 GWh by 2020 which is equivalent to 21 per cent market share (Table 3). This essentially represents the level of renewable energy that is substantially locked in without much new happening.

Table 3. Renewables market share in 2014 and 2020


To meet the RET 2020 target of 33,000 GWh we estimate that 5,540 MW of new large-scale renewable generation projects need to be committed over the next 5 years. Victoria accounts for 20 per cent of total electricity consumption in Australia (according to BREE). As a result we would expect that 1,090 MW of new projects would be built in Victoria if it attracted its share of future new projects.

In the event that an additional 1090 MW of new projects were committed in Victoria over the next five years or so we would see renewables share of Victoria’s electricity consumption increase to nearly 29 per cent by 2020.

Given that the ALP nationally has committed to a renewables market share of 50 per cent by 2030 we have also considered what this would mean if Victoria adopted a similar target (Figure 5). To meet 50 per cent market share a total of 210 MW of new renewable power generation projects would need to be committed each year from 2019 to 2028. This level of new projects (on an average annual basis) is less than the level that would need to be committed if Victoria was to meet its share of the RET 2020 target (Figure 6).


Figure 5. Meeting 50 per cent market share by 2030


Figure 6. New project commitments to meet current RET and 50 per cent target


For completeness we considered what this renewable generation profile would mean in the context of generation share where two brown coal plants ceased operating by 2025 (comparable to Figure 3). Under this scenario (Figure 7) if Victoria achieved its share of the new projects required to meet the RET then its renewable market share would be 30 per cent by 2020. If 210 MW of renewables project continued to be built after 2020 then Victoria would achieve a 52 per cent market share of generation by 2025 and 64 per cent by 2030.

Figure 7.  Annual project commitments of 210 MW per annum measured against generation where 2 brown coal generators close