17 April2014
Mr Dick Warburton
Chair
Expert Panel
RET Review 2014
E: RETReview@pmc.gov.au
Dear Mr Warburton,
Review of the Renewable Energy Target- Consultation Paper on the Proposed
Approach to Key Modelllng Assumptions
Origin Energy Limited (Origin} is Australia's leading integrated energy company focused on gas
exploration, production and export, power generation and energy retailing. Origin is a
significant investor in low emissions and renewable energy technologies and has diverse global
renewable energy interests in wind, geothermal, hydro and solar technologies - including an
805 MW Australian wind portfolio1. Origin supports the Renewable Energy Target (RET) in the
context of a package of climate change policies.
Key points
Origin offers comments on the proposed approach to key modelling assumptions under the
following headings:
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General approach
Demand
Technology assumptions
Gas and coalprices
General approach
Peer review of the assumptions used is a valuable exercise and we support the panel's
transparent approach to engagement. After the modelling assumptions are further developed
we believe there would be merit in a further short round of public consultation on the more
detailed assumptions.
Demand
Consideration should be given to using market operator (AEMO and IMO) forecasts as the basis
for the demand forecasts, rather than as sensitivities. Due to electricity demand in the NEM
and SWIS being very sensitive to key parameters (such as key industrial loads retiring, or new
loads such as mines or gas compression commissioning}, a forecast which incorporates detailed
knowledge of these factors will more accurately reflect the timing and quantity of load
changes than a macroeconomic/top down forecast such as used by Treasury. This is due to the
detailed consultative process which market operators
1 Owned and contracted generation. Includes the 270 MW Snowtown II project which is currently under construction. Does not include the Stockyard Hill
project which is approved, and would add a further 400 MW to this portfolio.
undertake when conducting their analysis, aggregating the knowledge of retailers,
generators and transmission and distribution companies into their forecasts.
Technology assumptions
While AETA provides the most recent and detailed public source of generation technology
costs, it is important to flag that these costs only represent that of a generic plant and as
a result caution should be exercised in drawing conclusions from those numbers,
particularly relating to cost. For example, while connection costs are considered in AETA,
connection costs vary greatly depending on the size of the asset being connected relative
to the existing infrastructure- and are difficult to capture in a generic way. Additionally the
cost of transmission to the site is not considered, which can significantly increase total
cost. The generalisations made in AETA, while necessary for a piece of work of that style,
mean that actual costs will almost certainly vary significantly from those modelled.
It should also be noted that the costs should be calibrated to current levels, and that the
learning rates modelled in the AETA were based on expected uptake at the time, which
themselves were a function of those technology costs. Specifically, solar PV costs have
moved significantly in the past 2 years, meaning that the starting point of those costs and
hence the expected rate of uptake of the technology will have changed greatly as well.
Regarding the proposed Solar PV uptake, it should be noted that AEMO's current
projection of Solar PV uptake does not fully incorporate the potential of Solar PV uptake
from the commercial, industrial and SME sectors. Fulfilment of this potential could add a
significant amount of renewable capacity to the forecast, given that the relative
economics of the commercial sector are only a few years behind that of the residential
sector, and that already alternative Solar PV sales models are coming to market which
attempt to overcome split incentives such as renters versus owners of commercial spaces
in installing Solar PV systems. These systems will also be a much larger average size than
is currently being installed.
Gas and coal prices
Gas and coal prices supplied by the successful tender should reflect:
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a recent knowledge of gas and coal market dynamics
the already apparent link between international and domestic fuel prices
detail on the delivered cost of energy to power stations, including
transportation and margin, or netback equivalent prices where applicable,
rather than simply the cost of extraction/processing
be internally consistent with the proposed demand scenarios (as flagged in the
Call for Submissions).
an update to the fuel costs assumed within the AETA report.
If you have any questions regarding this submission, please contact me on (02) 8345 5287.
We look forward to further consultation through the RET Review process.
Yours sincerely,
Matthew Kaspura
Manager Carbon Policy
Origin Energy Limited
GPO Box 5376
Sydney NSW 2001
+61 2 8345 5287- Matthew.Kaspura@Originenergy.com.au