Can Electricity Markets Be Transformed? Walter Gerardi Outline - - PowerPoint PPT Presentation

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Can Electricity Markets Be Transformed? Walter Gerardi Outline - - PowerPoint PPT Presentation

Mar 05, 2024 226 likes •516 views

Can Electricity Markets Be Transformed? Walter Gerardi Outline What is required? Current cost comparisons Key trends What do we need to do get there? Policy framework What is required? Emissions, Mt CO2e 100 150

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Can Electricity Markets Be Transformed?

Walter Gerardi

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Outline

  • What is required?
  • Current cost comparisons
  • Key trends
  • What do we need to do get there?
  • Policy framework
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What is required?

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Emissions without carbon policy

50 100 150 200 250 300 350 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 Emissions, Mt CO2e Projected emissions Proposed target

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How much low emission plant/energy efficiency required?

50 100 150 200 250 300 350 400 450 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 GWh equivalents

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Situation could be even more challenging

  • Electricity generation “share” of target could be

greater

  • Uptake of electric vehicles

– Could add up to 10% to 20% to electricity use

  • Switch to electricity in other stationary energy

activities

– Already happening to a limited extent

  • Also could have comparative advantage in low

emission energy

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SLIDE 7

Current cost comparisons

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Key cost drivers

  • Capital costs of new plant

– Scale – Phase of development – Technology learning rates – WACC

  • Fuel Prices

– Coal – Natural gas – Biomass

  • Carbon prices
  • Technology support

– RET – CEFC

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Levelised costs: mean values

50 100 150 200 250 300 CCGT ‐ Latrobe Valley CCGT ‐ Western Victoria Subcritical CFB Supercritical CFB Fluidised Bed Coal Fired Boiler Utrasupercritical CFB IGCC IGGC with CCS Wind Tier 1 Wind Tier 2 Solar PV (Flat Plate) Solar Thermal Solar Thermal with Storage Geothermal $/MWh

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But not so simple: risk premium

50 100 150 200 250 300 CCGT ‐ Latrobe Valley CCGT ‐ Western Victoria Subcritical CFB Supercritical CFB Fluidised Bed Coal Fired Boiler Utrasupercritical CFB IGCC IGGC with CCS Wind Tier 1 Wind Tier 2 Solar PV (Flat Plate) Solar Thermal Solar Thermal with Storage Geothermal $/MWh Mean values Risk adjusted values

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But not so simple: grid parity

5 10 15 20 25 30 35 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 c/kWh Year of installation LRMC, 2.0 kW system Retail tariff

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Policy Trends: Clean Energy Future

  • Carbon Pricing

– Fixed price (first 3 years) starting at $23/t CO2e from 1 July 2012 – Fixed cap with minimum of 5% below 2000 levels in 2020 – Cap to be set by Parliament with advice from Climate Change Authority

  • Minimum and maximum price caps to 2020

– Minimum: $15/t CO2e – Maximum: $20/t CO2e above forecast price

  • Not all sectors covered:

– Greater than 25 kt per facility – Agriculture, forestry, land use change, private road transport and legacy waste excluded – Excluded sectors may be a source of offsets

  • International permits (limited to 50% of total allowable

emissions

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Policy Trends: Support Measures

  • Assistance measures:

– Free permits for EITEs for at least 6 years – $5.5 billion worth of permits to generators with emission intensity greater than 1 t/MWh – Pay for set retirement: 2000 MW of capacity with emission intensity greater than 1.2 t/MWh – $1.8 billion to hep other manufacturers/SMEs to adjust, plus $1.2 billion for coal industry to adjust

  • Carbon Farming Initiative

– Source of offsets from land use change and legacy waste – Biodiversity funding

  • Energy efficiency measures

– Expansion of MEPS and EEO programs – Energy Savings Initiative

  • Renewable Energy Support:

– Clean Energy Finance Corporation ($10 billion) – ARENA

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Carbon price outlook

50 100 150 200 250 300 350 50 100 150 200 250 300 350 2013 2018 2023 2028 2033 2038 2043 2048 2011 A$/t CO2-e 2011 A$/t CO2-e High price scenario Core policy scenario

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Competitive trends: capital costs

  • Capital costs of new plant

– Expected to fall gradually from recent highs as commodity cycles reverse

  • Cyclical downturn also evident due to slowing economic

growth

– Accelerated R&D on new technologies – Lowering of WACC – Separation of cost trends

  • “Manufactured” generation equipment

– E.g. PV modules and wind turbines

  • Civil/structural component
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Capital cost trends

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Fuel price trends

  • Coal prices

– Expected to fall from record highs in short to medium term – Rise gradually in the long term – Carbon mitigation policies will also put downward pressure on prices

  • Gas prices

– Eastern seaboard gas prices rising to world benchmark levels (LNG net back pricing)

  • Dual market
  • Expectation of oil price linkage in Asia

– But can shale gas happen there?

– Carbon mitigation will have ambiguous impacts on world prices

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Average NEM gas prices

$2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00

High Medium Low

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Export coal prices

20 40 60 80 100 120 140 160 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 A$/tonne, f.o.b. SC Research ABARE IEA 1 IEA 2 IEA 3

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What do we need to do to get there?

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Issues

  • Cost trends point to rising costs of high emission

technologies (coal, gas) and falling costs for low emission technologies

  • But support for renewable energy will still be

required in the short to medium term to bridge the gap

– R&D – Demonstration – Technology deployment support – Market facilitation – Overcoming technology lock-in

  • Will need the development and deployment of less

mature low emission technologies

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Average Price versus Renewable Energy LRMC

20 40 60 80 100 120 140 160 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 $/MWh High Low Mean RE LRMC

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Generation mix: core policy: need for new technologies

50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 GWh Coal Gas Wind/hydro Other low emission

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Technology cost reductions required

20 40 60 80 100 120 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Index CCGT CCGT with CC OCGT Supercritical coal (dry‐cooling) Ultrasupercritical coal IGCC IGCC with CC Ultrasupercritical with CC and oxyfiring Solar PV Solar Thermal Solar Thermal with Storage Geothermal Wind

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Reduce risks: risk matrix

IGCC CCS Natural Gas GGCT Wind Geothermal

Solar Thermal

Technological risk Risk of technological failure High Low Low High

Low

Performance risk High Moderate Moderate High

Moderate

Construction Delay Moderate Low Low Moderate

Moderate

Carbon price risk Moderate Moderate None None

None

Fuel price risk Moderate High None None

None

Fuel supply risk Low High None None

None

Regulation risk Government Policy a. More/less stringent caps over time Moderate High None None

None

b. Favour other technologies Moderate Moderate Moderate Moderate

Moderate

c. Complementary policies Moderate Moderate Moderate Moderate

Moderate

Market regulations a. Dispatch rules Moderate Moderate Moderate Moderate

Modera te

b. Network pricing and access rules Low Low Moderate High

High

c. Ancillary service requirements Low Low High Low

High

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Reduce risks: risk matrix

IGCC CCS Natural Gas GGCT Wind Geothermal

Solar Thermal

Other regulations

  • a. Local planning rules

Moderate Low High Low

Low

  • b. Environmental rules

High Low High Low

Low

  • c. Rules governing

storage and seepage High None None None

None

Market risks Price trends and volatility High High High High

High

Competitor cost trends after entry (volume risk) High low Low Moderate

Moderate

Ramp up risk Moderate Moderate Low Low

Moderate

Large Load Leaves High High Low Low

Moderate

Breakthrough technologies down the track High High Moderate Moderate

Moderate

Transmission constraints Moderate Moderate Low Low

Moderate

MLF Adjustments Moderate Low High High

High

Carbon Transport Cost Moderate None None None

None

Storage Cost High None None None

None

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Support policies

  • Key attributes:

– Targeted: one policy per market barrier – Need to demonstrate:

  • Overcomes market barrier
  • Benefits exceed costs
  • Effective in achieving goal
  • Fair
  • Institutional fit

– No perfect policy response

  • Good design that appreciates the risks and uncertainties required
  • Mix of programs required

– R&D – Demonstration programs – Commercialisation – Early stage deployment

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Questions: Walter Gerardi Principal Consultant SKM MMA 03 8668 3081 0417 508 778