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80-20 thinking applied to the
Victorian Renewable Energy
Roadmap
The Victorian government is to be applauded for its consultation on the Victorian Renewable
Energy Roadmap (VRER) as government has the ability to create an environment that exerts
tremendous leverage to create effective environmental, economic and social outcomes.
Below I briefly summarise the roadmap and provide an overview of an alternate pathway,
using 80-20 thinking and analysis.
The Victorian Renewable Energy Roadmap is in fact a Renewable Electricity Roadmap, and does
not consider natural gas or transport fuels. It states a target of 20% renewable electricity supply by
2020, largely based on the roll out of wind farms which are near “shovel ready”. It also seeks to
address some of the barriers to distributed generation and storage, seeks to support community
investment in RE, and looks at government’s role. It is couched in terms of Victoria reassuming a
leadership role in the supply of RE and in “being on the front foot” globally when it comes to the
emerging carbon-free economy.
The 80-20 principal states that cause and effect are unbalanced, and that it is important to focus on
the important few (causes/policies/regulations) from the trivial many
(causes/policies/regulations) when wanting to achieve an outcome. The 80-20 process involves
understanding the current situation and what the objectives are, identifying and analysing
causes, effects and consequences, then out of this proposing a few small high impact actions to
focus on. Below I apply 80-20 thinking and analysis under the headings of leadership, key
constraints, and solutions.
Leadership
Unfortunately the VRER fails from the beginning to define a set of objectives that match the
aspiration to be a leader and “on the front foot”. The proposed pathway is, with only one or two
exceptions, largely a proposal for a few small changes that fails to engage or excite Victorians
about the potential for clean energy and will fail to position Victoria as a leader.
To put the Victorian 2020 target of 20% in context, Australia’s national renewable energy
target (RET, electricity only) is around 23.5% by 2020. South Australia, next to Victoria, had
already achieved 20% by 2011 and has set a 50% RET by 2025. The Australian Capital
Territory has a 90% RET by 2020! Clearly the Victorian target is unambitious. To its credit
the roadmap does seek input on what a suitable 2025 RET should be.
Australia, along with many other countries, has made a broad commitment to cut emissions
by 80% by 2050, 35 short years away. To put this in context, the Hazelwood power station has
now been in operation for 45 years.
In this regard a leadership position could be considered to be one which has a zero carbon
energy supply before 2050. Indeed a range of other countries have this aspiration.
On this basis I would suggest that a suggested target and vision is for Victoria to commit to at least
100% renewables in our electrical energy supply, balanced over a year, by 2030 (or perhaps by
2035), and by 2040 (2045?) at least 100% renewables, balanced over one year, in our total
energy supply.
Essentially this means firstly, moving from coal-fired power to renewable power, then moving off
gas-fired heating to renewable heating, and also moving away from petrol/diesel/LPG to
renewable, carbon-free transport energy.
Constraints
The 80-20 process involves identifying a few core constraints, and then focusing intently on solving
these. 80-20 thinking means doing a few high impact things very well, rather than trying to do lots
of things, some of which have minimal impact.
So what are the key constraints to moving to 100% renewable energy? It would have been
great to have had discussion on this in the VRER consultation, rather than have participants rank
the merit of 22 different actions that had little stated linkage to cause and effect.
As I see it the 4 key constraints are:
1. The energy marketplace rules are not suited to RE as the dominant supply.
2. Victoria’s legacy coal fired power stations provide electricity at a lower cost, and more
reliably, than renewable energy.
3. The most economic renewable technologies do not produce electricity that is easily
dispatched.
4. Victoria uses much more energy in winter than it does in summer.
Energy marketplace rules are not suited to RE as the dominant
supply.
The marketplace rules for Victoria’s electricity supply industry were developed around 18 years
ago when electricity assets were privatised, and are based on a model of centralised,
competitive generation, and regulated monopoly distribution. The marketplace has been
effective in providing low cost electricity generation. In a global context, however, distribution and
retail charges are high.
The existing rules are designed in a way that they can be tweaked to grudgingly let in some
renewable supply. But they are totally inadequate when it comes to an economy that has 100%
renewable energy.
The rules as they stand, are based on an outdated model. A state powered by renewable energy will
have both centralised and decentralised generation and will have both distributed storage and
centralised storage (some of which already exists in the form of pumped storage). It will have a
strong demand management focus, seeking to shape demand to suit the renewable supply.
Because the existing set of marketplace rules are not based on this model, they represent a
structural barrier that small tweaks and changes, as proposed by the roadmap, will do little to
overcome.
Coal fired power is cheap and reliable
A key cause as to why there is comparatively little renewable electricity supply in Victoria is
our old, fully depreciated brown coal fired power stations which can produce electricity cheaper
than anywhere else in Australia – at as low as $0.03/kWh - and supply over 80% of the
state’s electricity. Basically renewable energy, along with its intermittency challenges, fails to
compete with coal on price and dispatch-ability.
The most economic renewable technologies do not produce
electricity that is easily dispatched.
Wind and solar are the most economic renewable technologies. Unfortunately the supply
cannot be dispatched easily to match demand.
Solar production in Victoria in winter is around two and a half times less than in summer, and
produces no energy at night time and negligible amounts in early morning and late afternoon.
Wind energy does not demonstrate the same extreme seasonal imbalance as solar, being lower in
autumn and higher in spring and summer, but the wind does not necessarily blow all the time
that electricity is needed.
Its generally understood that up to about 40% supply of wind and solar is easily managed without
large amounts of storage and load shifting, but beyond that lack of dispatchability is a huge
barrier to going 100% RE.
Victoria uses much more energy in winter than it does in summer.
There has been little discussion about Victoria’s massive winter-summer imbalance in stationary
energy use and the implications of moving away from natural gas.
Converting electricity data from MWh to GJ to have constant units (and assuming none of the
dispatched gas is used in electricity production, which would be double counting), Victoria’s
stationary energy use over a 12 month period is graphed below.
Figure 1 – Victoria’s approximate stationary energy consumption by month, based on AEMO data
As most of gas use is for heating, and assuming (simplisticly) that 1 unit of electricity can
substitute 3 units of gas (as electric heating can be provided by heat pumps), the graph below
shows a potential seasonal stationary electricity load profile if all stationary energy use in Victoria
came from electricity.
Figure 2 – Victoria’s approximate stationary energy consumption by month, if all from electricity
and no change in demand.
For an economy in which electricity substituted transport fuels, the demand for electricity
would be even higher (I haven’t been able to access data to graph this), but on the reasonable
assumption that transport energy use showed little seasonal variation, the overall seasonal
imbalance would remain.
The challenge in moving to an economy powered 100% by renewable energy, assuming that this
is predominantly provided by wind and solar, is the large seasonal imbalance between supply and
demand.
Solutions
Due to the inter-relationships between the four key constraints identified above, the solutions
don’t exactly align with each of the constraints, as there are overlapping effects. As I see it, the
solutions are:
1. A new set of energy market rules.
2. Shut down coal power and develop a transition plan for the Latrobe Valley.
3. Become a leader in matching demand to renewable supply.
4. Develop a transition plan from natural gas and fossil fuel transport energy to RE.
5. Don’t do it alone.
A new set of energy market rules
Victoria has a deregulated energy market place, however this marketplace and its rules were
established before decentralized renewable generation and storage became possible, and
make it difficult to effectively transition to a decentralized clean energy future. Furthermore the
existing rules were established before today’s IT capabilities existed, and before the smart meter
roll-out, capabilities which enable demand and load management down to the household level
and make it easier to match demand to supply.
Accordingly we need to undertake a complete and thorough review of our energy
marketplace regulation and introduce a new set of rules.
This will include enacting legislation to change the authority of the Essential Service Commission
and the Australian Energy Market Operator (AEMO) to regulate in a way that effectively drives
the fast transition from centralized coal powered generation to renewable distributed energy
generation, storage and demand response. This review will also pave the way for a transition
away from natural gas and oil as energy sources, to renewably sourced electricity.
A key feature of the new rule is that they won’t just enable a 100% RE supply, they will actively
drive it.
Shut down coal power and develop a transition plan for the
Latrobe Valley
The only way to address the challenge posed by coal is to elevate the environmental benefit of
renewable energy, and take a strong leadership position to transform Victoria to be a state of clean
energy, not remain the dirtiest state in the country with the highest per capita carbon
emissions in the OECD. This involves setting a timeline to phase out coal power, developing a
transition plan for the Latrobe Valley and people employed in coal based generation, and creating
a regulatory and marketplace environment that drives innovation in RE such that it can
substitute coal, including addressing intermittency challenges.
At its core, addressing coal means putting a stake in the ground and taking a strong leadership
position to transfer to RE, knowing that this is in the mid to long term interest of the state,
but acknowledging the possible short term pain in doing so.
Become a leader in matching demand to renewable supply
Matching demand to renewable supply is a massive challenge that is faced across the world, and
I believe an area where Victoria is well positioned to become a leader.
Realistically the opportunity for leadership in the manufacture of solar and wind technology
is probably lost. Similarly Australia is likely to find it hard to compete internationally in the
manufacture of batteries.
However we already have a number of advantages that can be built on.
Victoria is unique in Australia with the smart meter rollout complete. There is significant
opportunity to use our IT capabilities to control energy loads at small intervals to be able to
better match demand to supply.
Victoria is also unique in that it has also recently passed the Local Government Legislation
Amendment (Environmental Upgrade Agreements) Bill 2015. This enables Victoria to develop
world leading capacity in the legal and financing aspects of rooftop solar energy and energy
efficiency, further building on our already strong capacity in finance and banking.
We also have a strong tertiary education sector, attracting a large number of overseas students.
Finally, we are nation of early adopters of distributed solar generation. We may not be good at
manufacturing RE products, but we are pretty good at installing them.
All of this means that we have the potential to apply our IT skills, legal and financial skills, and
solar installation skills, to develop a leadership position and exportable services associated
around this. We can become leaders in:
-
Demand shaping – matching demand to suit supply, through a combination of directly
switching loads, particularly heating and cooling loads for short-interval load matching, and
managing distributed storage.
-
The deployment and management of grid level and centralized storage to provide intra-day
load shaping.
-
Financial and legal models that attract a wide range of investment streams, from mums and
dads through to large institutional investors, in renewable energy, energy storage, and
energy efficiency.
-
Know how, standards and systems around the deployment and installation of distributed
RE and storage.
Develop a transition plan from natural gas and fossil fuel transport
energy to RE.
As shown in figures 1 and 2 above, there is a lot of energy associated with stationary gas use,
and even more than this if electricity is to substitute fossil fuels in transport. Transitioning away
from fossil fuels to renewable electricity is a large transition involving:
Renewable electricity generation capacity several multiples larger than that required for
renewable electricity alone.
Replacement of gas using appliances and equipment, requiring substantial investment.
Building a distributed electric vehicle charging network.
Industries that will be adversely affected by this include the natural gas supply and appliance
supply, installation and servicing industry and the engine tuning and maintenance trades.
Whilst it appears that the most cost-effective way to transition to a renewable energy economy is
through energy efficiency, demand management and load shaping, and wind and solar based
generation, and electric vehicles, any plan needs to have the flexibility to take advantage of other
sources of renewable energy that may emerge.
Don’t go it alone
Large seasonal energy imbalances and the national electricity regulatory environment mean that
Victoria cannot go it alone.
Clearly Victoria needs to be engaging with other states, including supporting the
construction of additional interstate transmission networks. We could also collaborate on extension
of transmission networks into South East Asia a, which does not have the solar and wind
resources of Australia, and then through to China. Potentially an Australia – Asia transmission
line has the ability to capture solar electricity from both hemispheres, and across different time
zones.
The coast of Victoria has very good energy resources, and Bass Strait has the best wind energy
resources in Australia. This represent possibly another opportunity for Victoria, and we could
become a exporter of wind energy.
Victoria has experience in offshore structural engineering through its oil and gas operations
in Bass Strait, experience which could be applied to offshore wind development – and also
contribute to the transition pathway for the Latrobe Valley.
We need to work with other states and at the federal level to change the rules of the national
energy market to not just enable, but actively drive the uptake of RE.
Summary
The Victorian Renewable Energy Roadmap unfortunately fails to effectively portray a vision of a
transition to clean energy in Victoria. Adopting a position of true leadership that will position the
economy well for a carbon constrained future involves setting ambitious targets, to first go to
100% renewable electricity and then 100% renewable energy. To be able to realise the economic
benefits such leadership would bring, we need to commit to 100% renewable energy before 2050.
Moving towards 100% renewable energy effectively requires addressing four key constraints: (a)
an outdated regulatory framework that favours the status quo; (b) the (presently) relatively high
cost of renewables in comparison with the very low cost and predictable brown coal power supply
in Victoria; (c) the intermittency challenges of the most economic renewable technologies; and
(d) seasonal energy imbalances.
These constraints can be overcome through (a) creating a new set of electricity market rules; (b)
taking a strong leadership position and environmental stand to phase out coal and developing and
implementing a transition plan for the Latrobe Valley; (c) becoming a leader in matching demand to
RE supply; (d) developing a transition plan from natural gas and fossil fuel transport energy to RE;
and (e) not going alone, engaging with other states and countries and building transmission
networks to help address seasonal imbalances in renewable energy supply and energy demand.
Bruce Rowse,
September 2015
Bruce founded energy efficiency company CarbonetiX in 2002, selling the business at end of
2013. In 2014 he worked as a policy advisor on building sector energy efficiency to the government
of Malaysia. He now consults through 8020Green.
He represents the Australian Institute of Refrigeration Air Conditioning and Heating on
Australia/New Zealand Standards Committee EN001 – Energy Management. He is the author of
Carbon Policy – How robust measurement and verification can improve policy effectiveness. Bruce
manages the LinkedIn Climate Policy Group.
8020Green is dedicated to the success of green energy business making our world more
sustainable. Bruce provides consulting services around policy, strategy and business
development.