Energy White Paper (Submission) - Australian Academy of ...€¦ · Australian Academy of Technological Sciences and Engineering (ATSE) GPO Box 4055, Melbourne Victoria 3001, Australia

Australian Academy of Technological Sciences and Engineering (ATSE) GPO Box 4055, Melbourne Victoria 3001, Australia

www.atse.org.au ACN 008 520 394 ABN 58 008 520 394

Submission to the

Draft Energy White Paper

by

The Australian Academy of Technological Sciences and Engineering

(ATSE)

to

Department of Resources, Energy and Tourism

Australian Government

Australian Academy of Technological Sciences and Engineering (ATSE) GPO Box 4055, Melbourne Victoria 3001, Australia

www.atse.org.au ACN 008 520 394 ABN 58 008 520 394

President

Professor Robin Batterham AO FREng FAA FTSE

Energy White Paper Secretariat

Department of Resources, Energy and Tourism

GPO Box 1564

CANBERRA ACT 2601

15 March 2012

Dear Sir/Madam

Draft Energy White Paper – ATSE Commentary

I have pleasure in submitting the response of the Australian Academy of Technological Sciences and

Engineering (ATSE) to the Government’s Draft Energy White Paper (EWP).

The EWP is an important contribution towards a comprehensive national energy policy for Australia.

It therefore warrants a constructive response. To this end, ATSE approached a wide range of its

Fellows with high level managerial, operational, scientific, engineering and industrial experience to

comment constructively and critically on the EWP. A significant number of Fellows responded. There

was an extraordinarily high level of consistency of opinion throughout all commentaries.

ATSE was privileged to sight the EWP commentary of Engineers Australia (EA). The comments from

ATSE, where paralleled by EA, most notably on individual technologies and their costs, are generally

consistent and not repeated by ATSE.

The attached comments are offered constructively, recognising the importance of national energy

policies that are respected, credible, consistent, thoroughly researched, honed by community

response and capable of providing the investment community, upon whom massive demands will fall,

with the long-term stability and assurance they need. To this end ATSE is ready to assist in

supporting such further work as required to finalise the document.

Yours faithfully

Robin Batterham

Submission Draft Energy White Paper

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The Draft Energy White Paper

Executive Summary

The Australian Academy of Technological Sciences and Engineering (ATSE)1 welcomes this

opportunity to respond to the call for submissions to the Draft Energy White Paper (EWP). This ATSE

submission has been prepared based on wide ranging comments from a number of ATSE Fellows. It

highlights the following key issues:

Overview: The Energy White Paper (EWP) is thorough and informative but it should be

strengthened by providing more succinct and pragmatic national strategic and policy guidance,

together with a comprehensive overview of the technological/financing challenges and

opportunities available to Australia to reach carbon reduction emissions targets. A clear policy

statement is required to address how, with what technologies and at what indicative cost these

targets will be achieved.

Timescale: The timescale of the EWP (i.e. out to 2030) is too short to be a foundation for policy in

this sector. It should look further, for example to 2050, if it is provide any amount of certainty for

investors. The EWP should provide further market and strategic guidance for investors to provide

the capital and operational funding in a stable and assured long-term policy environment.

Policy observations:

o Principal policy goal: The overarching principal goal of Australia’s national energy policy

could be to promote sustainability of energy supplies at competitive prices while progressively

reducing the carbon footprint in terms of greenhouse gas emissions per unit of energy

produced.

o Policy priorities: In addition to the four identified priority areas, three additional priority areas

are suggested for consideration: 1) Continuity of supply; 2) Promotion of investment; 3) Clean

energy generation.

o National policy coordination: Co-ordination between State and Commonwealth energy

policies and consistent national regulation is crucial. The EWP could explore the need for a

review of institutional arrangements, i.e. policy issues to be addressed at national rather than

state level, such as population growth, demographic change and consequent impacts on

energy intensity. The suggestion for regular policy reviews is commended

o Technology advice: An independent standing technology advisory body should be

established. Other robust, independent, evidence based sources of advice, such as ATSE,

should continue to be engaged closely in policy development.

o R&D investment: There is a need to invest in further R&D for some low emissions energy

technologies to take them to commercial viability. The EWP should consider alternate

approaches to funding demonstration projects given that the current outlook for the price of

carbon is not sufficient to support adequate investment in renewable energy to reach

emissions reductions targets.

o Capital adequacy: Consistent planning policies and incentives are essential to ensure that

sufficient capital can be attracted to enable and encourage investment in new energy

infrastructure.

1 The Australian Academy of Technological Sciences and Engineering (ATSE) is an independent body of 800 eminent

Australian engineers and scientists driving technological solutions for a better Australia. ATSE was established in 1976 with the mission to promote the application of scientific and engineering knowledge to the future benefit of Australia. ATSE is one of four learned national Academies, which have complementary roles and work together both nationally and internationally. www.atse.org.au

http://www.atse.org.au/


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Technology observations:

o Energy portfolio: A portfolio approach that takes account of all proven national and regional

energy resources, including nuclear power, is essential.

o Low emission technologies: Hydroelectric power and pumped storage should be examined

in greater detail in the EWP. Wave and tidal power also offer significant potential, and

international collaboration offers a strategic pathway to accelerate the development of these

technologies. The foreshadowed contribution of geothermal power to the portfolio seems

overly optimistic at this time given that Australia still has no viable near-commercial

demonstration projects.

o Nuclear power: The EWP should include consideration of nuclear generation in the low

emissions portfolio, including preliminary planning of the regulatory framework and identifying

the education and training needed to build and retain the required skills sets. Australian

membership of the international GIF and ITER consortia should be evaluated. Both uranium

and thorium pathways should be explored.

o Fossil fuels: Coal is likely to remain the dominant Australian energy resource for a number of

decades. Further RD&D is warranted in advanced combustion cycles and CCS, not only to

meet domestic imperatives but also to support coal technology exports to world users. Natural

gas, including coal seam gas (CSG), is likely to be the transition fuel over the next two

decades, at least until lower emission technologies become more economically viable.

However caution is needed, as current domestic prices are unlikely to be maintained as

Australian gas approaches parity with world markets.

o Transport fuels: While threats of ‘peak oil’ can be overstated, Australia is at significant

supply security risk in politically charged markets. RD&D towards CTL and GTL technologies

need strong strategic support. In parallel, integrated national strategies for the introduction of

electric vehicles need to be developed and coordinated.

International collaboration: Australia has a mixed record of international energy sector

collaboration. While the benefits of such collaboration are hard to quantify, history shows that

international trade, in IP no less than resources and manufactured goods, can yield incalculable

trade and political benefits to the collaborating parties. It is suggested that the EWP address the

issue of an integrated national policy on such collaboration.

Electricity transmission and distribution: The EWP should foreshadow the need for integrated

national planning to manage growth and accommodate different future grid configurations.

Distributed generation, especially solar, wind and localised gas cogeneration, together with

distant interconnection, demand robust long term planning to ensure optimal outcomes providing

supply security.

Intelligent grids and smart metering: The impacts in this domain will be profound. Energy

consumption will become far more sophisticated with continuous price signalling and advanced

operational intelligence. While the EWP recognises this evolution, forward planning is needed to

maximise benefits and avoid downstream ‘rail gauge’ issues.

Energy end use and efficiency: Despite the benefits arising from intelligent grids, there still

remains massive potential for improved performance in the efficiency of end user technologies

and demand management. The EWP could usefully provide more focus on end user technologies

and behaviours.


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Introduction

The Draft Energy White Paper (EWP) is an exceptional piece of data research and presentation.

However, it would be strengthened by providing more succinct national strategic and policy guidance

in an environment of significant sector transition. While hugely informative on today’s situation, it

should seek to canvas adequately and critically the realistic technological, ownership and financing

options available to Australia, and to evaluate persuasively and comprehensively the policy and

investment steps to 2050 and beyond. Certain steps are already enshrined in the policies of several

advanced nations, including Australia, for example in the commitment to substantial atmospheric

carbon emission reductions by that time.

The proven and near-commercial resources and technologies of today are highly likely to be able to

meet Australia’s economic, social, and environmental energy sector needs of the future, with the

possible exception of conventional transport fuels for which Australia is projected to be heavily import

dependant. Indeed many emerging (and perhaps disruptive) technologies offer exciting opportunities

to add value to the nation’s economy. Investment decisions taken in the present policy environment

will inexorably shape that future for better or worse.

It is crucial that investors are well informed with a clear understanding of the policy environment and

the confidence in its stability if Australia is to successfully compete in world markets for the capital it

needs. The EWP falls somewhat short in this assurance, although the material is there to enable this

shortcoming to be redressed and to provide the clear policy statement that is so vitally needed.

This submission is based on extensive comments received from a number of ATSE Fellows. The

commentary following summarises these contributions and offers constructive suggestions on the

composition of a more succinct and persuasive policy document. ATSE is ready to assist further if

needed.


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1. General Observations

Document length

The EWP is exceptionally long, comprehensively covering a wide range of factual information.

However, by trying to cover so much ground the document runs the real risk of at times militating

against broader general use. In contrast, the fact sheet is short but being a compilation of general

statements, is of limited value. A shorter crisper document would be preferred. This would permit

more focus on energy strategy for Australia, outlining clear cut policies which assist in attracting and

directing appropriate sector investment.

Policy and strategy

The EWP sets out to provide a long term energy policy framework to address challenges in our

energy sector and maintain Australia’s competitiveness. However, as currently written, it is more an

information document rather than a guide to the proposed evolution of Australia’s energy future.

Ideally the EWP should be a crisp well-defined national energy strategy with timely revisions of policy

directed to fine tune these aims. The overarching principal goal of Australia’s national energy policy

could be to promote sustainability of energy supplies at competitive prices while progressively

reducing our carbon footprint in terms of greenhouse gas emissions per unit of energy produced.

Policy reviews

Regular four-yearly reviews of energy policy and strategy, along with biennial national energy security

assessments from 2014, are welcomed. Many national and international developments impact on

energy planning; the landscape is constantly changing and regular review updates are warranted.

Popular culture, carbon reduction targets and technical rigour

To a certain extent the EWP reflects current ‘popular’ thinking on low emission renewable

technologies rather than making the necessary analyses of the economic realities of the resources

and technologies available to Australia. Some governments, including Australia, have already set

carbon reduction targets of 80% by 2050. Additionally Australia has set itself the challenging target of

20% renewables by 2020. The EWP does not adequately address how, with what technologies and

at what indicative cost these targets will be met.

Optimism for clean energy sources

The EWP conveys an optimistic view as to future developmental and commercial success (i.e.

economically competitive without subsidies) of clean energy sources, principally solar, wind,

geothermal and clean coal with CCS. It should be made clear that caution is warranted as such

sources are not yet commercially viable. Further discussions are needed on the importance of

maintaining adequate base load power at affordable prices and avoiding electricity shortages. It is

acknowledged that one consequence could be re-assessment of the nuclear power option and steps

to evaluate this should be undertaken in the immediate future, not when it could be too late (this is

discussed further below).

Climate change policy

The interaction between energy policy and climate change policy is a complex mix and is not

adequately resolved. For example, the levying of a known carbon tax to 2015 gives some certainty to

business, but from then on there is an unknown and variable carbon price which will depend on

emission caps set by Government.


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Consideration of yet to be commercialised technologies

The EWP refers to consideration of the “emergence of new energy sources and

technologies”. Planning needs to be based on a number of scenarios; these should start with what is

certain, and include others where the assumptions made about new energy sources are clear.

1.1 Priority Action Areas

The EWP identifies four priority action areas:

1 – Strengthening the resilience of Australia’s in policy framework,

2 – Reinvigorating the energy market reform agenda,

3 - Developing Australia’s critical energy resources, and

4 - Accelerating clean energy outcomes.

While each is acknowledged as important, the action measures proposed tend to be vague, for

example – undertaking regular security assessments, four-yearly reviews of national energy strategy,

further exploration of potential measures to reduce growth in peak demand, and the like. While these

are commendable, the EWP gives limited indication of resulting actions and outcomes. This lack of

clear direction arises in part because the EWP suffers from being a general framework document

rather than a clear cut energy plan for how Australia will achieve what most would agree is likely to

be a fundamental transformation to a far lower carbon economy.

The following three additional priority action areas are offered for consideration:

5 - Continuity of supply – AEMO and others warn of possible supply shortages by 2013. Assured

supply is crucial to business and commerce; investment to this end needs to be encouraged.

However some major prospective investors, especially offshore, have avoided Australia because of

perceived unattractive investment conditions compared with other economies.

6 - Promotion of investment - It follows that promotion of investment is crucial and the need to

invest wisely is evident. The challenge of ameliorating peak load conditions is a significant component

of such investment.

7 - Clean energy generation – The focus is directed towards apparently near-commercial projects

and technologies, leaving less developed technologies stranded. There appears to be reluctance to

support distributed renewable generation deployments (essentially solar and wind) by adequately

enhancing the transmission system in a similar mannerto the NBN, for example.

1.2 Policy

Review of institutional arrangements

Crucial policy issues such as national energy security, the regulatory environment, commonality of

technical and other standards, special tariffs for subsidising renewables, health and safety and much

more, increasingly need to be handled at national rather than state level. This evolution, whilst

politically challenging, should be impartially evaluated. The EWP does not explore the significant

economic potential of such rationalisation in areas that impact on the energy sector. The EWP could

explore the need for such institutional review in the light of today’s realities of interconnection,

communications and necessary harmonisation of practices and standards.


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Consistency of Commonwealth, State and Territory Acts and Regulations

An issue addressed in the EWP and of significant concern to power industry owners and operators, is

that of the plethora and inconsistency of Acts and Regulations covering the competing sub-surface

rights and obligations of coal, oil, natural gas, coal seam gas (CSG), shale gas, geothermal,

underground coal gasification UCG and nuclear wastes. This is now replicated by legislation relating

to wind and solar technologies.

Consistent national regulation is crucial; complex and inconsistent legislative frameworks create

barriers to energy resource development as well, perhaps, as requiring large implementing

bureaucracies. There are strong economic incentives for national harmonisation of such legislation.

The EWP should emphasise this issue more strongly.

Until such national harmonisation is fully in place a higher degree of co-ordination between State and

Commonwealth energy policies is essential. There is still significant potential for enhanced

cooperation in this important policy space and further mechanisms are required to facilitate this. An

appropriate Ministerial Council could be charged with such implementation.

Australia's long term energy future

The EWP looks forward to 2030. There is a strong case to present a desired situation over a longer

period, for example to 2050, as a goal towards which to direct long term policies. This is missing from

the EWP, which tends to move forwards linearly from the present rather than defining in general terms

where Australia needs to be to meet its declared goals. The EWP could then direct policies towards

achieving those goals.

Standing technology review agencies

In addition to the Department of Resources, Energy and Tourism as the lead agency, the Australian

government is well served by a range of other specialist agencies in the energy sector including

Treasury, the Productivity Commission, ABARES, BREE, CSIRO, ACRE, ANSTO and others,

including specialist consultants. Each can provide expert advice within its mandate over a range of

domains and associated technologies.

However there are notable gaps. For example, a properly qualified independent technology advisory

body should be established (or sufficiently expert existing independent agencies expanded) with

responsibility for the periodic monitoring, review, evaluation and reporting on the potential (or not) for

Australia to adopt existing and emerging energy technologies. Such a body, supported as needed by

nationally and internationally reputable consultants, should also report on what changes are occurring

internationally and advise on what changes to existing energy technology support settings might be

warranted. Robust independent evidence based sources of advice, such as ATSE, should be

engaged more closely.

Carbon pricing impacts

Further modelling of the benefits and risks associated with the introduction of a carbon price and the

management of the transition to a flexible-price cap-and-trade scheme after 2015 requires more EWP

consideration as several questions arise.

The current policy to put a price on carbon is a necessary step, but the projected price will not be

sufficient to result in any large scale demonstration plants (such as concentrated solar or CCS) being

built in Australia. Current grants-based programs are struggling to deliver outcomes. The main

difficulty appears to be that the level of government funding available is insufficient to offset the

perceived level of risk around these projects (including financial, technical and market). The EWP

should consider alternate approaches to funding such demonstration projects. In this context, the


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ACT government’s approach for supporting medium scale (<20MW) solar power plants may be worth

exploring.

The decision to rely mainly on carbon pricing for emissions reduction, rather than establishing

emission standards or carbon capture and storage standards for future coal-fired generation

investment, should be reviewed. Technology developers and investors need certainty on design

standards, while the community expects much lower emission levels (of all types) from its new

generating plant. Without demanding emission standards there is a real risk that generators could

find it more economic to buy low cost carbon credits on the international market than to invest in low

emission technologies.

Small developments require two to three years for planning, approval, financing and construction

while larger projects require five to fifteen years. Therefore, a fixed carbon price out to 2015 (i.e. 3

years) is irrelevant for a facility that has a productive life of 25-50 years. The timescale of the EWP

(out to 2030) is also too short to be a foundation for policy in this sector.

Community support

Informed community understanding and ultimate support for strongly prospective energy resources

and technologies relevant to Australia such as CO2 storage, CSG, geothermal, nuclear power and

others is crucial. Without a ‘licence to operate’, sound commercial projects in the national interest

may not eventuate. Governments need to encourage effective community engagement on these

issues.

Population and load growth

The EWP puts insufficient emphasis on population growth, demographic change and consequent

impacts on energy intensity (e.g. air conditioning) growth of regional centres which compounded into

small grids will push them to large scale generation. Price elasticity may result in a different

relationship between population and energy demand growth.

1.3. Capital investment

Investment planning policies

Consistent long term planning policies and incentives are essential to ensure that the billions of

dollars per annum required for new energy infrastructure can be attracted within an acceptable

timeframe. The importance of developing a priority framework for such massive investments must be

acknowledged; governments have both direct and indirect roles to play.

Foreign capital

The EWP recognises the need for foreign capital to meet demands beyond the self-generation

capacity of the entities themselves and of domestic financial markets. There is a distinct risk the

necessary investment may not materialise for the current government strategy to be realised. In that

case there is a risk of some significance. Clearly continuing careful oversight, as is the case at

present, is required.


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2. Technology Observations

2.1. Australia’s energy portfolio options

The portfolio approach

ATSE concurs with the EWP that it is neither feasible nor realistic for Australia to ‘aggressively move

exclusively to one or two renewable technologies to supply its energy’. A portfolio approach that

takes account of all national and regional energy resources is essential2. With balanced regionally

relevant policies the portfolio for 2030 and beyond will have to include an economically appropriate

and socially acceptable mix of both advanced fossil fuel technologies – coal, oil, gas and CCS - as

well as renewables such as geothermal, biomass, solar, wind and ocean energy, depending on the

location in Australia.

It is however important that Australia keeps all its future energy options open. Studies by

organisations such as ATSE, IEA and CSIRO studies conclude that excluding options can

considerably decrease the affordability of future energy. In this regard, to have nuclear generation

excluded from policy formation, albeit held in ‘reserve’, limits the usefulness of the EWP.

Retaining the nuclear generation option at this stage would be supported by two streams of activity:

preliminary planning of the regulatory framework that would need to apply if Australia was seek to

take up the nuclear power option at some future stage; and

building and retaining the skills sets that would needed to plan and regulate a possible future

nuclear power sector.

Renewable energy subsidies

Renewable technologies, principally wind and solar, are acknowledged as an important element of

Australia’s energy mix, but the timeline for their commercial viability remains unclear. Under the

current outlook for the price of carbon, it is probable that some form of additional support will need to

be maintained for a decade or more if Australia seeks to have a meaningful component of its energy

supplied by renewable resources, for example as required by the current 20% renewables by 2020. If

so, this policy direction needs to be acknowledged in the EWP the policy statement. Growth in wind

power generation will depend upon State governments having policies that are more conducive to

investment in the sector. The present environment in some States limits prospective investment.

Share of gas in the generation portfolio

It is likewise difficult to support the projection that by 2050 electricity will be 44% gas fuelled. Although

domestic gas is still relatively cheap (circa $4/GJ), energy economists project prices to double before

long to meet world parity. It is believed that gas and hydro are most appropriate for mid merit and

peaking applications; with base load provided by proven coal and nuclear. Geothermal could make a

useful base load contribution if problems are overcome.

2.2. Low emissions energy technologies

Hydroelectric power

Hydroelectric power receives little mention in the EWP. Regular independent reviews should include

assessments of the prospects for new dams and hydroelectric generation, associated with water

supply demand issues.

2 ATSE (2009) “The Hidden Costs of Electricity; Externalities of Power Generation in Australia”

http://www.atse.org.au/resource-centre/func-startdown/63/



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Pumped storage

The EWP does not adequately address the importance of pumped storage. This well proven

technology, for which considerable additional undeveloped capacity remains, is a critical enabling

technology for intermittent non–despatchable supplies such as wind and solar PV generation.

Photovoltaic RD&D

Recognising global demand growth for renewable energy and its scientific and technical lead in PV,

Australia should seek to capitalise on the prospective economic benefits by investing strategically in

further RD&D, possibly by channelling carbon pricing income into PV technologies where Australia

can demonstrate competitive advantage. In this regard it is encouraging to note mention of

development work in organic and dye-sensitised PV technologies; strong support is commended.

Wind power

Wind power is attractive where the resource is abundant, population is sparse and energy storage in

the form of hydro pumped storage is readily available, for example in NW Tasmania. However wind

farms are unfortunately burdened with a capacity factors in the region of 15-30% while supply is

intermittent and variable, needing thermal or hydro backup to follow load. Wind power cannot be

considered as reliable baseload. Moreover the energy generated is diffuse at point of capture,

requiring considerable real estate and extensive relatively low voltage cabling and attendant

transformer losses to capture its energy harvest. Acceptance into the grid system can give rise to

potentially severe problems of system stability which are not easy to control.

Wave and tidal power

While the potential is huge, the technologies for reliable energy capture have yet to reach commercial

maturity. International collaboration, notably with the UK, associated with appropriate national RD&D

funding offers an attractive strategic pathway.

Geothermal power

The projected contribution of geothermal energy, as noted above, to the generation portfolio to 2030

and beyond appears overly optimistic. Australia as yet has no viable near-commercial demonstration

projects of substance, despite significant expenditures. Central Australia’s extraordinarily promising

hot rock resources, if technologically proven for electricity generation, still need substantial grid

connections, possibly HVDC, with the attendant need for massive public investment. Moreover the

thermodynamics of energy conversion from hot rocks to electricity remain challenging.

Nuclear power

The EWP makes limited mention of nuclear power for low emissions base load generation, apart from

its possible application should other technologies fail to meet the energy market demands ahead. If

not-yet-commercially-proven low emission technologies (e.g. CCS, geothermal, solar thermal and

wind) are found not to be viable (for example due to inability to secure investment funds, technological

failure etc) then the deferred lead time for nuclear power becomes too long to contribute to Australia’s

needs, maybe 15-20 years, due to Australia’s lack of requisite infrastructure – legislation, regulation

and technical expertise. The economic consequences could be substantial.

This lead time could be shortened significantly if steps are taken reasonably soon at least to gain

community support (see below) and then plan and put in place the necessary infrastructure (including

regulatory and skills) platform. Such forward planning would ensure that the nuclear option, if

needed, could be available in time to alleviate the industrial, commercial and political consequences

of inadequate affordable base load power and failure to meet declared emission goals. Prudent

planning requires backup or contingency measures for vital community services, the EWP

foreshadows no such planning.


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Nuclear power, currently generating around 14% of the world’s electricity, should be given more

serious consideration as a component of the national generation portfolio by 2030 and beyond.

Australia is already the third largest exporter of uranium. Australia also contributes significantly to

international bodies working towards the safe and efficient use of uranium, to the safe disposal of

radioactive wastes and towards enhancing the non-proliferation safeguards regime. Actions being

taken to address these responsibilities could be more given more attention in the EWP.

The EWP observes that uranium “will continue to be a significant contributor of energy in many

countries that lack indigenous energy resources”, to an extent inferring that nations that do have such

resources need not consider uranium. While countries such as Japan, Korea, France and Belgium

have fewer alternatives, the USA, Canada, Sweden, Russia and China all use nuclear in their national

portfolios along with their own indigenous fuels. The EWP should clarify that nuclear power does not

only have a place in a country’s energy generation portfolio where indigenous sources are scarce.

At the present time nuclear power is the only large scale, commercially proven, low emissions

technology available able to deliver at appropriate cost, within 10-15 years, a substantial proportion of

the nation’s base load power demand.

Nuclear power – the need for informed community debate

In advancing open community debate on nuclear energy, apart from the 2006 Uranium Mining,

Processing and Nuclear Energy Review (UMPNER), attention is drawn to recent ATSE reports of

relevance, both relying on significant peer reviewed input:

1. ATSE (2010) “Low-Carbon Energy: Evaluation of New Energy Technology Choices for

Electric Power Generation in Australia” http://www.atse.org.au/resource-centre/func-

startdown/286/

2. ATSE (2009) “The Hidden Costs of Electricity; Externalities of Power Generation in Australia”


3. National Academies Forum (ACoLA) (2010) Understanding the formation of attitudes to

Nuclear Power in Australia http://www.atse.org.au/resource-centre/func-startdown/90/

The still hesitant, albeit growing, nuclear debate in Australia needs to be supported. Government,

industry and the science community should come together to analyse the nuclear option using best

available international scientific and economic data to consider the benefits and risks. Such analysis

should include the potential benefits to Australia of mining and processing uranium ore, providing

waste management services for uranium buyers and researching and developing world leading

nuclear cycle technologies. Importantly the lay public needs to be given balanced overview of the

facts, including the risks.

Generation IV nuclear technologies

Significant work is progressing in the field of so called Generation IV thermal and fast neutron reactor

technologies. The Generation IV International Forum (GIF) of thirteen leading countries is a

cooperative international endeavour to carry out the R&D needed to establish the feasibility and

performance capabilities of the next generation of nuclear energy systems. The GIF focus is on six

short listed systems employing a variety of reactor, energy conversion and fuel cycle technologies,

large and small, expected to be commercially available from 2015 to 2030 and beyond. It is believed

that Australia, currently not a GIF member, would be welcomed, positioning it well for the next

generation of low emission technologies. While the EWP does not address the GIF, membership

obligations, costs and benefits should be evaluated.

Thorium






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The EWP is commended for referencing thorium; an unusually attractive, safe and efficient energy

source offering a considerably reduced waste disposal problem. However thorium reactor technology

development is well behind that of uranium; Australia needs to keep its potential under careful review

for many years yet. Technology partnerships with countries developing thorium capability, for

example the USA, India and China, could be strategically appropriate for Australia.

Fusion - ITER

The International Thermonuclear Experimental Reactor (ITER) is an international consortium of seven

members, one being the EU, focussing on advanced fusion research and engineering. It is currently

building the world's most advanced experimental tokamak reactor at Cadarache in southern France

with the aim of demonstrating the principle of getting more energy from the fusion process than used

to initiate it. Clearly the demonstration or even proof of concept of fusion power lies well beyond the

EWP time frame. Australia, with its undoubted scientific and technological capabilities, could in time

both give and gain much from an ITER association. Australia should, within its national RD&D

portfolio, maintain a watching brief on ITER, support the Australian fusion research community’s

efforts to engage with the ITER partners and, in time, maintain the option of enhancing collaboration

with ITER.

2.3 Fossil fuels

Black Coal

Much of the future coal-based investment is likely to be advanced technology that has a bias towards

black coal.

Brown coal

The EWP refers to substantial reductions in Victorian brown coal production. This prediction is

supportable only if it is assumed there will be no technological developments in cost-effective

dewatering and drying; no new developments in significantly lower emission power generation

technologies; and no new transport infrastructure for export of dewatered dry brown coal from the

Latrobe Valley. These assumptions are open to challenge for the following reasons:

1. Several brown coal dewatering/drying technologies have been or are being proven at pilot

plant scale. At least one has completed many successful pilot trials; has a low carbon

footprint; is readily scalable and technologically ready for demonstration.

2. New brown coal generation technologies with significantly higher efficiencies than

conventional PF technologies are under research and pilot trial. Successful development will

lead to a technology paradigm shift, quite possibly securing the future of very low cost Latrobe

Valley coal, even allowing for significant carbon costs. These technologies may also provide

the lowest overall cost route to near-zero emissions from brown (or any) coal generation in

light of the sequestration potential of the depleted Gippsland basin and its proximity to the

Latrobe Valley.

3. Latrobe Valley coals are amongst the world’s lowest cost fossil fuels to mine. At present

there is no transport infrastructure for export of dewatered coal through a Victorian port,

although local and international companies have expressed interest. Once dewatering and

drying is demonstrated commercially, infrastructure would follow, enabling Victoria to develop

a major new export industry.

Impact on Victorian brown coal generation

Development of gas generation, inevitable in the short term, could be expected to have major

implications for Victorian brown coal generation. It could also have implications for the use of higher

rank coals in other eastern states. The Energy Security Council guidelines on financial assistance to

http://en.wikipedia.org/wiki/Tokamak

http://en.wikipedia.org/wiki/Fusion_reactor

http://en.wikipedia.org/wiki/Cadarache

http://en.wikipedia.org/wiki/France


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coal-fired generators from the Clean Energy Future Fund for such developments will be critical for the

impacted regions.

Preservation of gas reserves

The desirability of reserving a significant proportion of offshore and onshore gas discoveries for long

term national security is mentioned in the EWP summary. This position is strongly supported.

Sufficient domestic gas should ideally remain available at prices which enable industry to compete in

energy intensive sectors.

Gas pricing for power generation

Gas for power generation will become expensive. As the EWP rightly notes, significant infrastructure

is needed in its acquisition and conversion. Escalation may well exceed national norms as prices

trend towards international parity.

Notwithstanding price, the share of gas for power generation will certainly increase over the next two

decades as it becomes the so-called ‘transition fuel’, filling the capacity gap vacated by coal. Any

major new investment in base load coal generation is unlikely in the medium term, despite pending

supply shortages, given the uncertain policy environment and the heightened risk profile for such

investments. By contrast gas plant – both open cycle (OCGT) for peaking and combined cycle

(CCGT) for mid-merit application – derive from well proven generation technology, strong social

acceptance, relatively low front end costs, ease of construction and a perceived low risk project

environment.

Gas pricing scenarios

The EWP makes many references to the role of gas in displacing coal fired generation. Scenarios

modelled for the EWP use assumed future gas and carbon prices. However more recent gas price

projections as well as continuing international reluctance to incorporate a carbon price may challenge

these scenarios.

Recent awareness of future gas prices has arisen largely from committed Queensland LNG projects.

AEMO, ACIL Tasman, MMA and Santos reports indicate that the Gladstone LNG industry may soon

determine gas supply and wholesale costs in the eastern states.

With five or more LNG trains, as proposed, P1 gas reserves are still insufficient to satisfy feedstock

demand over plant production life. The industry clearly expects P2 CSG reserves to deliver the

shortfall, presumably based on significant exploration and production drilling.

These factors are projected to cause a significant increase in the wholesale gas cost for power

generation by the decade’s end with $6, $8 or even $10/GJ forecast. ACIL Tasman argue that the

marginal cost of production for CSG, where known LNG commitments take gas to a marginal cost of

$8/GJ, may push domestic gas prices to this level and beyond.

For Victoria, ACIL Tasman forecast a price of about $5/GJ in about 2020. In other states the figure

ranges from $6 to $10/GJ. Several issues may explain this Victorian outcome; but the question arises

as to why gas suppliers would hold Victorian wholesale prices below a national averages? If the

Commonwealth objective of closing a Victorian power station in the coming decade is achieved by

replacement with CCGT for base-load, with significant gas demand, it is hard to see how pricing

below the national market will be maintained.

Under the overall scenario it is arguable that only power generation companies with held reserves of

natural gas will use it for power generation. The obvious question arises on selling to the market


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versus own use. Power prices will need to rise substantially to cover the increased gas price,

otherwise power generators may be better off selling gas, as evident in the USA a few years ago.

Under the above scenarios it is likely that existing coal generators will remain competitive unless the

carbon price is very high. Those most likely to become uncompetitive are the high emission brown

coal stations in Victoria.

The recent US gas price collapse due to short-term oversupply arising from growth in shale-gas

production is not directly relevant to gas prices in Australia. These will be determined by LNG

industry demands and capital investment.

Gas as a ‘transition fuel’

The role of gas as the ‘transition fuel’ for the next two decades is accepted, despite its still significant

emissions profile at the wellhead (CO2 and methane) and after combustion (CO2). Nevertheless the

question arises – transition to what? Will gas fill the capacity gap until renewables are proven able to

provide affordable base load power? Will carbon capture and sequestration (CCS) give coal – black

and brown - the life extension it seeks? Will nuclear, geothermal or both prove to be economic

choices for base load? Whatever the answers, Australia should keep its options open and avoid pre-

judging the outcome.

Gas and electricity grids

With the anticipated growth of gas generation over the next two decades, coupled with the discovery

and exploitation of new gas resources and the addition of widespread distributed electricity

generation, it is inevitable that national gas and electricity grids will both develop dramatically, with

huge attendant investment. It is thus essential that high level national planning, including future way

leaves and system interconnectors, with adequate provisions for system security in the event of

supply disruption, be undertaken proactively rather than reactively.

Coal seam gas

The EWP pays insufficient attention to coal seam gas (CSG). This is becoming a huge issue in

Australia. CSG will be crucial to maintaining long term gas supplies to the eastern states, especially

given the emerging demands imposed by the Gladstone LNG project.

Ten years ago worries were prevalent about running out of gas in the east. As in the USA,

‘unconventional gas’ (coal seam and shale) is now expected to become a vital energy source, so

alleviating those fears. However social acceptance will not be obtained until community concerns are

addressed on the fraccing process; the true nature and impacts of so described ‘household

chemicals; the disposal of waste waters and brines; artesian and groundwater resource impacts;

unsightly plant; potential loss or sterilisation of arable land and other impacts. As a matter now of

some urgency policies encouraging focussed RD&D are warranted, along with providing for informed

community debate, if public confidence in managing CSG developments is to be attained. Such CSG

research could usefully be linked to wider issues of optimising scarce water resources in the Murray

Darling and other river basins. Possible dewatering of aquifers needs particularly careful review.

Finally the quantum of economic CSG reserves has to be ascertained. The risk arises that

recoverable CSG may be little more than a relatively short term diversion, leaving the question of long

term gas supplies and gas security unresolved.

Shale gas

Likewise shale gas finds limited coverage in the EWP. This continues to have a huge impact in the

USA and is emerging in other countries. Australia too has vast indicated shale gas reserves. While

not yet urgent it is potentially a huge future gas resource.


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Methane hydrates

Methane hydrates deserve mention in the gas section(s) of the EWP.

Carbon capture and storage

The EWP notes accelerated development and deployment of carbon capture and storage (CCS); this

is encouraged. The most important part of the CCS innovation chain requiring government investment

is proving the integrity of prospective storages; it is unlikely that private capital can be attracted at the

early demonstration stages of reservoir establishment, at least until basin integrity is established.

Given Australia’s substantial coal and gas reserves, it is in the national interest for government to

facilitate site identification as part of its GHG mitigation policies and also to generate prospective

international technology exports.

2.4. Transport fuels

Transport energy coverage

EWP coverage of transport energy is quite limited, observing that Australia is largely a technology

taker. Nevertheless it is felt that Australia’s growing transport task is too important to remain unduly

passive. Arguably, for example, solar car rallies have encouraged development of very high

efficiency electric drive trains; CSIRO and a few private entrepreneurs lead in energy storage

technologies; studies have shown the way forward for very fast trains. It is believed the EWP could

point to a more positive development roadmap for transport energy systems, both road and rail.

Peak oil

Peak oil gets little EWP attention. While there is good coverage of Australia’s transport fuel supplies,

there still appears an attitude that as a major energy exporter we can trade our way out of any oil

shortage. While this might once have been true, it is less so now as Australia’s oil deficit increases.

Previous oil shortages have resulted from political decisions and production disruptions; not physical

depletion. Australia does have alternative transport fuel options including second generation biofuels;

compressed and liquid natural gas (CNG and LNG), gas and coal to liquids (GTL and CTL); electricity

and perhaps hydrogen. The EWP could give further consideration to the potential challenges arising

from future oil shortages.

Transport fuels security

Transport fuel security, as domestic crude and local gasoline refining declines, warrants further EWP

policy discussion in terms of both security and trade consequences, in particular the impact of the

rapid increase in diesel fuel imports. The need for Government policies to foster GTL and CTL

technologies warrants more attention.

Transport fuels RD&D

Australia has coal, gas and biomass resources suitable for conversion to transport fuels. While there

is no imminent transport fuel security threat, now is the time to progress, in line with the precautionary

principle, pilot and demonstration projects to establish the technical, environmental and economic

parameters needed to guide prospective commercial developments. The EWP could usefully map

the way ahead.

Oil from tar sands

The EWP makes brief reference to tar sands. Oil extraction from tar sands, with CCS, will be

technologically and no doubt economically challenging, including disposal of expanded rock. Tar

sand exploitation, if pursued, must be qualified for social acceptance, overall economics and

environmental and climate change impacts.


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3. Energy Research, Development and Demonstration

Energy RD&D

This gets limited discussion in the EWP. Setting up institutions such as ARENA and other funding

mechanisms and structures is to be applauded. How they will operate is as yet unclear.

The Government is intending to apply around 10-15% of receipts from the carbon tax for new low

emission RD&D funding. This may be too low, especially given the enormous challenge of

transforming Australia into a “Clean Energy Economy” where breakthroughs will be required at an

unprecedented rate.

International RD&D engagement and collaboration is important. The EWP acknowledges this, saying

“continuing to engage in international clean energy processes and partnerships to promote clean

energy technology development and deployment through enhanced knowledge sharing, leveraging

international effort and building market capability”

Australia has a wide range of international RD&D participations, a prime example of which is the

International Energy Agency’s (IEA) Implementing Agreement (IA) process. IAs cover a broad

spectrum of activities, particularly in ’green’ technologies. Each country member pays an annual IA

joining fee, sending a delegate to the annual Executive Committee (ExCo) meeting and scientific

representatives to working group meetings. Relevant information is made available to all interested

member parties. IAs provide an inexpensive means of sharing international RD&D progress.

However Australia has little IA activity coordination. On occasions Government pays the country fees

but in most cases fees are paid by the relevant industry association. There is no Government support

for ExCo or scientific meeting attendance and results dissemination is ad hoc. The Government

should contribute to the cost of attendance at these meetings, provide central coordination for

Australia’s participation, and require reporting accountability to ensure that full value is gained and

disseminated.

International cooperation and collaboration

The EWP makes several references to Australia’s highly innovative energy research community, a

community that ‘punches above its weight’. However it rightly notes that with a small research

population (2%), Australia must often be an overseas technology-taker, going on to say that Australia

should therefore ensure that its researchers and industry are effectively engaged with overseas

counterparts.

This is a laudable objective. International meetings and communications can start useful interaction.

Unfortunately it is a high cost activity if significant benefit is to be obtained through actually taking part

in a joint international research program. International cooperation needs financial support from the

Commonwealth Government.

Along a similar line, it is a high cost activity to establish and manage a major international workshop to

facilitate international collaboration. Australian funding specifically focussed on real and effective

international collaborations, as distinct from short visits, is very modest in comparison to the benefit

that Australia could gain by a well-funded program to support international collaboration.


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4. Transmission and Distribution

NBN and NEM comparison

It is instructive to compare the differing funding approaches to the NBN project and corresponding

NEM and WA grid extensions. The NBN has a commitment to investing $43b. On the other hand, the

NEM and its WA counterparts, faced with reliability concerns have not received the support for

needed extensions if distributed renewables are to be deployed.

National grid development

While the EWP does indeed foreshadow national electricity grid developments, including for deployed

renewables and integration with the gas grid as gas generation extends, it stops short of developing a

clear planning and policy pathway towards long term design optimisation. The gas and electricity

grids of 2050 and beyond will look very different from those of today.

Planning and associated policies, including consideration of HVDC (and possible international

connections), the preserving of necessary way leaves, the load modifying impacts of intelligent grids,

smart meters (see below), electric vehicles, expansion of pumped storage capacity, advanced battery

storages and more, cannot begin too early and must be coordinated in the national context, not

fragmented between States and individual distributors.

Smart meters

The EWP refers to the undoubted benefits of smart meters, especially true for energy retailers and the

majority of consumers. As with any new technology (smart phones, tablets – even the internet) there

are winners and losers. Caution is needed for example with the elderly and those less versed in

modern technology. The advent of continuous time of use pricing to reflect wholesale prices, and

technologies to make smart end user decisions based on price and convenience, will require massive

public education, akin to the phasing out of analogue and introduction of digital HDTV. With the

advent of domestic continuous time-of-use pricing will come a host of devices, some using wireless

technology, to help optimise power usage both economically and behaviourally. The impacts on

electricity transmission and distribution systems, along with local generation (for example rooftop PV

and fuel cells) will be profound.


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5. Energy End Use

Conversion to electrification

The EWP could usefully place more emphasis on the progressive electrification of rail and road

transport, metallurgical processing, gas processing and other industrial processes and associated

opportunities for considerably improved energy efficiencies. It is probable that the huge industrial

and population growth being experienced in WA’s Pilbara region and offshore will lead the way in

such evolution.

Energy efficiency

Energy efficient technological developments – industrial, commercial and domestic - are critical to

reducing per capita energy demand growth. This is a key area for State and Commonwealth

government investment with the promise of significant ‘low hanging fruit’ remaining to be garnered. It

would be appropriate to give more prominence to this potential in the EWP.

Needs of users

The EWP deals mainly with the production/source part of the energy cycle and thus misses the needs

of users e.g. reliability, price, continuity.


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6. Education, Training and Skills Formation

Skills base extension - If the generation portfolio for a low emissions future is to change as predicted

in EWP, then it is essential the Australian skills base is developed to meet the new challenges. This

calls for increased investment in education, training, research and development programs.

Commonwealth and State governments, industry and the educator sector all need to contribute to

new knowledge bases and new skills formation. The National Workforce Development Fund could be

an important source of funding for this imperative if Australia is to meet its declared GHG reduction

and renewables targets.


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Conclusion

The EWP should seek even-handedly, from a technological and economic standpoint, to address the

realistic energy sector options and opportunities for Australia to 2050 and beyond. By that time, some

100GW of electricity generating capacity - much of it new - will be needed to meet ageing plant

replacements, growing demand from rising populations and changing load profiles. Over that

relatively short period too it is unlikely that ‘business as usual’ projections will hold good. The White

Paper needs to ensure that it is explicit that the economic realities essential for energy security,

reliability and affordability (and social and environmental acceptability and sustainability) are

prioritised over and above views of energy technology pathways that do not adequately address the

need for low marginal cost baseload power.

Although a thorough and informative piece on the current state of play, the EWP, falls short of being a

fearless, focused and forward looking analysis of the opportunities and challenges Australia faces

over the coming 40 years. Some key assumptions are unlikely to be sustained and this places the

outlined plan at risk of early failure. We see limited market and strategic guidance for investors,

public and private, national and international, who will collectively need to be confident that there is a

stable and assured long-term policy environment if they are to provide the massive capital and

operational funding that will be required. The draft EWP does not yet provide the necessary

guidance.

The next 40 years will thus undoubtedly see the nation needing to address the game changing issues

of:

rapid growth in the use of distributed generation and local cogeneration;

increasing penetration of solar, wind and other renewable technologies where costs are

falling;

acceptance of technologies such as nuclear and geothermal energy;

deployment of advanced coal conversion technologies;

deployment of CCS;

economic impacts of growing supplies (and probably prices) of natural and coal seam gas

alongside possible shortages of fuel oil;

potential for deployment of advanced energy storage technologies;

emerging impact of electric vehicles including as a mechanism for electricity storage;

need for ongoing funding for energy research and development; and

demand management enabling consumer behavioural changes .

The list of prospective disruptive technologies is long. Robust, and equitable analysis of each is

needed. As a supporting paper (‘Appendix 1’) highlights, long lead times are involved in establishment

and consolidation of reliable energy technologies. Many of those pathways identified in the EWP are

at an early stage of development. The risk of failure or limitation of key preferred technologies may as

a result have been understated.


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APPENDIX

SUPPORT FOR COMMERCIAL ADOPTION OF NEW TECHNOLOGIES

The Australian National Electricity Market (NEM) is one of the world’s most competitive although that

may be counter-productive in introducing high-risk, high-cost, first-of-a-kind (FOAK) technologies.

Without special policy arrangements, to date applying only to a narrow category of renewables, new

technologies must compete against established businesses with mature technologies, written down

capital and lower production costs. The Australian government acknowledged this challenge in

establishing its Clean Energy Initiative for CCS and solar projects. The black coal industry has

committed major funding to CCS demonstration as have some State governments, notably Victoria

via its Energy Technology Innovation Strategy (ETIS) program.

Additional funding is however needed to establish previously planned demonstration plants.

Promising programs have been reduced to more modest outcomes and longer timelines. Committed

funding, or prospective funding based on pre-feasibility success, may relate only to major systems (for

example sequestration) of the project, while funding attaches only to the FOAK component. It is well-

known (and well evidenced with renewables development) that multiple demonstrations, typically five

or more, are needed to approach maturity. Thus emerging technologies such as IGCC-CCS, PV or

CST may require far more significant financial support, both capital and operating, than is presently

envisaged (see Figure 1).

Figure 1 - Cost Differential in Demonstrating New Technology

On-going operational support is critical. FOAK plant invariably has lower availability and higher

operations and maintenance costs than the mature technology with which it must compete. Other first

mover cost disadvantages include permitting and technology integration. Overall the first mover

disadvantage applies not only to the first mover, but in reducing amounts to first n-movers where n is

expected to be of the order of 5. The principle incorporates plants of a similar kind demonstrated

overseas, but local cost structures and technology knowledge do not mean that all such learning

translates fully to Australia.

In a very competitive market such as the Australian NEM, each of these first movers will carry a

greater financial burden than later movers and be at a commercial disadvantage. They will also be


21

competing against existing players which have capital associated with a mature and different

technology with known and likely lower operating costs.

The latter is important because first-of-a-kind plant invariably has lower availability and higher

operating and maintenance costs than the mature technologies with which it will be competing in the

NEM, for the life of the plant. Therefore achievement of maturity of a new technology such as IGCC-

CCS, PV or CST may require significant financial support for up to (say) five fully integrated plants

incorporating all the systems required to achieve low emissions power generation (Fig 2).

Figure 2 - Additional Costs for Multiple First Movers

The issue is further complicated as new low emissions technologies with high Australian IP content,

are at different places on the maturity cost curve. A modelling study is warranted to estimate the

support needed to achieve a level playing field for new NEM entrants.

Such a model could be based on current mature Australian coal power costs, escalated for future

carbon costs, discounted by the value of forecast lower carbon emissions, and incorporating capital

and operating costs to be competitive in the NEM.

Introduction of a carbon tax on 1 July 2012 could provide the proposed funding support. Other

options are guaranteed feed-in tariffs or supported power purchase agreements that apply to all other

new lower emission power technologies, taking into account carbon emissions intensity.

Documents

Energy White Paper (Submission) - Australian Academy of ...€¦ · Australian Academy of Technological Sciences and Engineering (ATSE) GPO Box 4055, Melbourne Victoria 3001, Australia