GHG, Energy Efficiency

1
GHG, Energy Efficiency Emissions TradingImpact
on Energy Markets End Users The Australasian
Milling Conference Sydney 15 April 2008
2
Agenda

• Sources of Australian GHG Reduction Options
• State Commonwealth Response pre 24 Nov 2007
• Commonwealth Response post 24 Nov 2007
• National Greenhouse and Reporting Act 2007
• Emissions Trading
• Impact on Energy Markets
• Impact on End Users
• Recommended Strategies for End Users

3
Australian GHG Sources Reduction Options

• Agriculture (16 of CO2, 70 livestock)
• Improved fertilizer use
• Improved grazing
• Land Use (7 of CO2)
• Reduced Clearing
• Salinity management Carbon sequestration
• Transport (13 of CO2, 89 road transport)
• Fuel economy opportunities (outweighed by
  technology speed)
• Use of Bio Fuels

4
Australian GHG Sources Reduction Options

• Stationary Energy (55 of CO2, 70 electricity
  production)
• Increase Generation Efficiency
• 30-35 efficient due to low cost of coal
• Australia has the highest emission of carbon/MWh
  for electricity generation of the developed
  nations
• De-Carbonise fuels
• Current Coal Generation 0.95-1.3 Tonne CO2/MWh
  25-45
• Gas Generation 0.43 Tonne CO2 /MWh 35-55
• Wind Generation 0 Tonne CO2 /MWh 55-80
• Solar Hot Water 0 Tonne CO2 /MWh 80-100
  (delivered)

5
Australian GHG Sources Reduction Options

• Stationary Energy cont.
• Bury Emissions
• Will not be cost free, est. 45-70/Tonne CO2
• Nuclear
• Fuel costs are minor
• Capital Cost are dominant, use of global
  technology
• Est. 92/MWh
• Efficiency in Usage
• Insulation Lighting New design retrofit,
  TOU Controls
• Efficient Motors,VSD, Power Factor correction
• Waste Reduction, Weekend/Night usage

6
State Response to GHG Reduction

• Queensland
• 13 Gas Scheme increased to 18
• 10 Renewables by 2020
• GHG reduction of 60 of 2000 levels by 2050
• Carbon Neutral Govt buildings by 2020
• 4 Star thermal ratings on new Residential
  buildings
• 4.5 Star rating for Govt commercial building by
  2010

7
State Response to GHG Reduction

• NSW
• GGAS scheme until 2020 (phased out when AETS
  introduced)
• 15 Renewables by 2020
• GHG reduction to 2000 levels by 2025
• 10 default Greenpower for residential customers
• BASIX (40 GHG reduction) on new Residential
  buildings
• Energy Savings Action Plan (similar objectives
  to EEO) with selective funding available

8
State Response to GHG Reduction

• Victoria
• 10 Renewables by 2016
• VEET for Residential market
• GHG reduction of 60 of 2000 levels by 2050
• Target of 25 Greenpower for Govt Buildings
• EREP, registration by 31 March, mandatory for 3
  yr payback
• 5 Star thermal ratings on new Residential
  buildings
• 4 Star rating for commercial building gt 5000m2

9
State Response to GHG Reduction

• South Australia
• GHG reduction of 60 of 1990 levels by 2050
• 20 Renewables by 2014
• Target of 20 Greenpower for Govt purchases
• 5 Star thermal ratings on new Residential
  buildings

10
State Response to GHG Reduction

• Western Australia
• 15 Renewables by 2020
• GHG reduction of 60 of 2000 levels by 2050
• Target of 20 Greenpower for Govt purchases by
  2010
• Mandated Energy Efficiency scheme (TBA)
• 5 Star thermal ratings on new Residential
  buildings

11
Commonwealth Response to GHG Reduction (Pre Nov
2007)

• Mandatory Renewable Energy Target (Supply Side)
• A solution based market scheme to encourage
  electricity generation from renewable energy
  sources (low/nil CO2)
• Targets 9500 GWh of generation by 2020
• A fee levied on users for all electricity
  consumption from Grid connection
• Low Emissions Technology Demonstration Fund
  (Supply Side)
• Renewable and Fossil fuel energy supply
  technologies
• Must be commercially available between 2020 to
  2030
• Reduce energy sector emissions by 2
• Funded by Emissions permit revenue

12
Commonwealth Response to GHG Reduction (Pre Nov
2007)

• Energy Efficiency Opportunity - EEO (Demand Side)
• Policy to increase end use efficiency
• Targets users of energy greater than 0.5 PJ pa
  (130 GWh pa)
• Demand Side response to GHG emission reductions
• Attempt to drive energy use onto the boardroom
  agenda
• Step 1 to an Emissions Trading regime
• Australian Emissions Trading Scheme (via PMC)
• Cap Trade Scheme
• Introduction in 2011
• free allocation for Trade Exposed, Emission
• Intensive Industry

13
Commonwealth Response to GHG Reduction (Post Nov
2007)

• Mandatory Renewable Energy Target (Supply Side)
• A solution based market scheme to encourage
  electricity generation from renewable energy
  sources (low/nil CO2)
• Targets 60,000 GWh of generation by 2020
• 20 Target 5.2 pre 97, 3.1 old MRET, 6.7
  state based
• 5 NEW MRET
• Wholesale Price of RECs has increased from
  30/REC pre election to 50/REC in April 2008
  from 1.10/MWh to 1.57/MWh
• 500 million Renewable Energy Fund (Supply Side)
• Support Renewable energy demonstration projects
  eg hot rocks
• Funding 2 private for every 1 Government

14
Commonwealth Response to GHG Reduction (Post Nov
2007)

• Energy Efficiency Opportunity - EEO (Demand Side)
• Policy to increase end use efficiency
• Targets users of energy greater than 0.5 PJ pa
  (130 GWh pa)
• Demand Side response to GHG emission reductions
• Attempt to drive energy use onto the boardroom
  agenda
• Australian Emissions Trading Scheme Kyoto
  Signatory
• Cap Trade Scheme with international linkages
  via Kyoto
• Holistic Target reduction of 60 of 1990 levels
  by 2050 (this target would require an expected
  value of carbon at AUD 40-45/tonne)
• Introduction in 2010 (aggressive timetable)

15
National Greenhouse Reporting Act 2007

• Step 2 to an Emissions Trading regime (economy
  snapshot)
• Mandatory reporting for energy use or GHG
  emissions above thresholds at a corporate and
  facility level (similar to EEO)
• Effective as of 1 July 2008, Annual Reporting by
  31 October
• Defines emissions as
• the release of greenhouse gases into the
  atmosphere, covering direct releases of
  greenhouse gases (Scope 1 emissions) and indirect
  releases of greenhouse gases from the
  consumption of purchased electricity, heat or
  steam (Scope 2 emissions)
• Annual reporting required, covering an estimated
  700
• companies (EEO 210 entities) and 1700
  facilities

16
National Greenhouse Reporting Act 2007

• Reporting Thresholds
• Corporate level phased approach
• 2008/2009 Reporting Year 125 kt CO2e or 500 TJ
  of energy, Registration by 31 August 2008)
• 2009/2010 Reporting Year 87.5 kt of CO2e or 350
  TJ of energy (substantial impact on moderate
  energy users)
• 2010/2011 Reporting Year 50 kt of CO2e or 200 TJ
  of energy (massive impact on low to moderate
  energy users)
• Facility level
• 25 kt CO2e or 100 TJ of energy
• in a financial year

17
Emissions Trading Scheme

• Prior Government scheme managed via PMC (now
  defunct)
• AETS was proposed as a Cap Trade scheme
• Scheduled for introduction by 2011
• New Government deferring to the Garnaut Review
  due Q3 2008
• Scheduled for introduction by 2010
• Issues for resolution
• What economy wide reduction target will be set
  (Qty)
• Over what time timeline (Qty per year)
• Allocation of free permits (Price)
• Selling of residual permits (Price)
• Setting of price Market price and safety valve

18
Impact on Energy Market

• Price Increases
• Electricity NSW, VIC QLD Cal 2009 v Cal 2010
  10/MWh
• Natural Gas WA 2006 v 2008 4 - 5/GJ, NSW
  2006 v 2008 4/GJ
• Diesel Motor Spirit expected increase of
  0.10/cpl
• Supply Constraints
• Push for low emissions generation Wind, Solar,
  Geothermal, Gas
• Brown Black coal generation investments the
  Base Load debate
• Efficiency for Electricity Network operators KW
  to KVa tariffs
• Gas losses/UAG subject to Emissions charges
• Pipeline capacity constraints impact of gas
  fired generation
• Production of bio fuels v sale of bio fuels
• Wholesale and Retail Contracts
• Wholesale contracts passing emissions cost on
  to Retailers onto End Users Fixed
  Price/Variable Qty contracts to Variable
  price/Variable Qty contracts

19
Impact on Energy Users

• Electricity and Gas Market convergence
• Price correlation forward path up _at_ CPI
• Retailer/Supplier mix reduced
• Emissions costs past through in Forward Price AND
  Terms Conditions
• Regulatory Reporting obligations now on End Users
• Security of supply is an emerging issue for end
  users
• Capacity of existing production and supply
  networks
• LNG export Gas fired power stations
• Energy Efficiency Conservation is both a
• Compliance and Economic decision

20
Recommended Strategy for Energy Users

• Engage with your suppliers on their view on
  forward prices for energy and emissions and
  security of supply to your sites
• Obtain advice on your current Energy contracts
  with respect to emission cost pass through
  provisions
• Obtain advice on current and emerging legislation
  and the compliance obligations
• Prepare an Energy Data Capture and Storage
  strategy
• Calculate your Scope 1 Scope 2 emissions
• Prepare a forward looking energy budget to
  calculate paybacks on efficiency projects
• Set energy and emission reduction targets as
• a corporate KPI