Master of Engineering Sustainable Energy Sustainable Energy Systems

Master of Engineering (Sustainable Energy) Sustainable Energy Systems and Design MIET 2129 Semester 1, 2018 Week 3, Tuesday 13 March 2018 Professor John Andrews Sustainable Energy Systems and Design MIET 2129 RMIT

This week’s session Triple bottom line evaluation - example Levelised cost of energy (LCOE) Electricity supply scenarios to meet Australian greenhouse targets – evaluation The Australian Government’s Energy Guarantee Incorporating uncertainty into economic and technological analyses Sustainable Energy Systems and Design MIET 2129 RMIT

TBL evaluation: example From slide 26, week 2 presentation Sustainable Energy Systems and Design MIET 2129 RMIT

Levelised Cost of Electricity (LCOE) The constant unit price of electricity the generator must charge to gain its set rate of return over lifetime of project ($/MWh or c/k. Wh) Illustrate with spreadsheet Also equal to: – [Annual capital charge (at specified discount rate) + annual recurrent cost (constant)] / … …annual electricity supplied – Real discount Sustainable rate: 5% other Energy or Systems and Design MIET 2129 RMIT

CSIRO (2017) Sustainable Energy Systems and Design MIET 2129 RMIT

Aims of roadmap To help inform the Australian Government’s 2017 climate policy review by providing an independent science-based analysis of technology options in the energy sector that can help Australia meet its 2030 emission reduction target (Paris Agreement, 2015) To address the energy ‘trilemma’:

LCOE: CSIRO Low emissions technology report, 2017 (App B) 1 $/MWh = 0. 1 c/k. Wh CCS adds 45 -50 $/MWh = 4. 5 – 5 c/k. Wh Sustainable Energy Systems and Design MIET 2129 RMIT

LCOE: CSIRO Low emissions technology report, 2017 (App B) -2 Sustainable Energy Systems and Design MIET 2129 RMIT

Electricity supply scenarios to meet Australian greenhouse targets – evaluation Sustainable Energy Systems and Design MIET 2129 RMIT

Australia’s Paris emission target (Nov 2016) 26 -28% reduction in GH emissions by 2030 compared to 2005 levels Strengthen abatement to limit increase in global mean surface temperature to less than 2 C above pre-industrial levels, with efforts to keep to 1. 5 C Recognises world will need to achieve zero net emissions in second half of this Sustainable Energy Systems and century Design MIET 2129 RMIT

Pathways examined

Findings Transition to low-emissions economy often framed in terms of costs, but will also create demand for new products and services in Australia and for export Sustainable Energy Systems and Design MIET 2129 RMIT

Sustainable Energy Systems and Design MIET 2129 RMIT

Schedule for consultation and decision Sustainable Energy Systems and Design MIET 2129 RMIT

Aims of Energy Guarantee To bring together climate and energy policy To ensure the electricity sector meets its share of Australia’s international obligation to reduce greenhouse emissions To support the reliability of our electricity system while achieving GH targets Sustainable Energy Systems and To bring down electricity Design MIET 2129 RMIT prices.

Emissions requirement Must meet Electricity sector’s share (~one third) of reducing Australia’s emissions by 26 -28 per cent on 2005 levels by 2030. Six steps: 1. Forecast total electricity demand (e. g a particular year, AEMO forecast) 2. Establish allowed emissions in meeting this demand consistent with meeting the targetted reduction in total GH emissions. 3. Divide allowed emissions by total electricity suppplied (each per year) to get a target emissions intensity for Sustainable Energy Systems and that year. Design MIET 2129 RMIT

Emissions requirement - 2 4. Require all retailers to buy their total electricity in the National Electricity Market from a mix of generation technologies that gave an average emissions intensity equal to (or below) the required emission intensity over that year. 5. Each retailer clearly would seek the least cost way of supplying their total electricity at the required emission intensity. 6. Required emission intensity would fall each year in line with the required trajectory of falling total emissions from the electricity sector Sustainable Energy Systems and Design MIET 2129 RMIT

Commonwealth Government role 1. Set emission reduction target for the NEM, 2. Set rules for treatment of emissionsintensive trade-exposed activities [exempt from emissions requirement? ] 3. Set eligibility of offsets (purchase of abatement from other sources nationally and internationally. Sustainable Energy Systems and Design MIET 2129 RMIT

GH emissions target Government considering setting this the target as a trajectory of annual average emissions per MWh levels for retailers in the NEM. Trajectory consistent with the 2030 emissions reduction target for the electricity sector of minus 26 per cent on 2005 levels. Meeting absolute target depends on total annual electricity consumption. The absolute reduction determines climate change impact Sustainable Energy Systems and Design MIET 2129 RMIT

Reliability requirement Energy Security Board’s ‘eight high-level steps’: 1. Forecasting by AEMO of the reliability gap [deficiency in dispatchable power, in MW in any NEM region over a forecast period]. 2. Updating reliability gap by AEMO [e. g. to reflect retirement of a particular generator]. 3. Triggering the requirement: If reliability gap identified, the market expected to invest in new capacity or offer additional existing capacity within a set period in advance of the forecast reliability gap. But if retailers do not invest sufficiently, reliability requirement is ‘triggered’ and retailers must then respond. Sustainable Energy Systems and Design MIET 2129 RMIT

Reliability requirement - 2 4. Qualifying instruments: Retailers incentivised [how? ] to make investments or enter into contracts to alleviate the gap. 5. Allocating the requirement: gap (in MW) will be ‘allocated’ proportionatle [somehow? ] to each retailer 6. Compliance: The Australian Energy Regulator will assess whether retailers have met their reliability requirement. 7. Procurer of last resort: If retailers do not meet requirement by compliance date, AEMO will procure resources to fill any remaining gap. 8. Penalties: Penalties to retailers that do not meet their reliability requirement. Sustainable Energy Systems and Design MIET 2129 RMIT

Difficulties? As average emission intensity is lowered to meet the national GH reduction target, demand for fossil-fuelled power will decrease, and there will be an oversupply – Fossil-fuel power price lowered, making it more difficult for these generators to remain economically viable? Demand for zero emission renewable power will increase: – Price increase of RE for retailers and hence consumers – Price increase of RE bought by private households and businesses for direct supply will increase No incentives for private investment by household, commercial and industrial consumers in zero-emission renewable power and energy efficiency measures that reduce consumption Sustainable Energy Systems and Design MIET 2129 RMIT

Difficulties - 2 Required quantity of dispatchable power will keep demand for fossil-fuel power up, but will this be consistent with meeting target average emission intensity? – unless renewables + storage come in Harder for renewables to compete as price of fossil-fuel power falls Regulatory complexity (very bureaucratic) Sustainable Energy Systems and Design MIET 2129 RMIT

Advantages No price on carbon as with Emissions Trading (ET), so price of fossil-fuel power kept lower No complicated, unpredictable ET market for emission certificates Guarantee, via regulation, of meeting both emission reduction target, and reliability requirement each year, while ET does not address reliability Sustainable Energy Systems and Design MIET 2129 RMIT

Incorporating uncertainty into economic and technological analyses Sustainable Energy Systems and Design MIET 2129 RMIT

Probability distribution for NPV Sustainable Energy Systems and Design MIET 2129 RMIT

Monte Carlo method for generating the probability distribution for NPV Sustainable Energy Systems and Design MIET 2129 RMIT

Project topics PROJECT TOPICS – post your project brief on Canvas/Assignments by end of week 5, 30/03/18 if you want feedback Sustainable Energy Systems and Design MIET 2129 RMIT

Project topic discussions Prof. John Andrews Dr Biddyut Paul