Download NSW Climate Change Fund draft strategic plan

16 December 2016
Climate Change and Resource Efficiency Policy Branch
NSW Office of Environment and Heritage
PO Box A290
Sydney South, NSW 1232
Australia
By email: [email protected]
Online: engage.environment.nsw.gov.au/Environmental-Future-Consultation-Make-Submission
Dear Sir/Madam,
Clean Energy Council submission to the Climate Change Fund Draft Strategic Plan
The Clean Energy Council (CEC) welcomes the opportunity to make a submission to the New South
Wales Government’s Climate Change Fund Draft Strategic Plan (the draft plan). The CEC supports the
draft plan and the several other positive reforms being undertaken by the NSW Government as a part
of the Environmental future funding package.
The renewable energy industry can attract significant new investment to NSW, creating jobs and
making a material contribution to reducing the state’s carbon footprint in the process. As renewable
energy technology has no impact on ground water or air quality, it also protects the health and safety
of the community. The role of renewable energy in helping to reduce electricity prices and protect
consumers from rising fossil fuel prices is becoming more broadly appreciated among the general
public.
The Baird Government has an opportunity to position NSW as a leader in a sector that is innovative
and can support real employment in rural and regional areas. A clear strategic plan is an effective way
to demonstrate a strong commitment to the industry and will boost investor confidence about the
longer term intent of the Baird Government. The CEC’s submission will focus on the role that
renewable energy can play in achieving the goals in the draft plan.
2.1 Unlock investment under the Renewable Energy Target
To ensure NSW can secure the maximum benefit from renewable energy investment, the NSW
Government should introduce and build upon support mechanisms such as the proposed 250 MW
reverse auction that can attract projects under the existing federal Renewable Energy Target (RET), as
well as driving the construction of additional projects. NSW is the largest generator of electricity of
any Australian state, and therefore should attract the largest portion of RET-funded renewable energy
projects and the associated investment benefits.
CEC calculations suggest that in order to achieve a 20 per cent renewable energy generation target,
NSW will need to install approximately 2,500 MW of renewable energy. While a good portion of this
will likely be delivered by the RET and by Australian Renewable Energy Agency (ARENA) funded solar
projects under business as usual conditions, there is a clear argument for more ambitious state
support.
The Government could set aside a pool of funds for reverse auctions, and if the price of projects is
lower than expected the surplus funds could be reinvested into a higher target. This model was used
by ARENA in the large scale solar funding rounds, where an initial 200 MW funding round turned into
a 480 MW funding round due to unforeseen price drops.
Over time, if investment into renewable energy by the Government ends up saving the Government
money (for example if the ‘strike price’ ends up being less than the price of electricity plus certificates
and the Government is therefore in front), then this money should also be reinvested into further
funding rounds.
Projects built under the RET will be those that deliver the most competitive Large Scale Generation
Certificates (LGCs) to the liable parties. Competitiveness is influenced by a combination of factors
including resource quality, electricity market conditions and the planning regime. The NSW
Government can attract more projects to NSW by creating additional demand for renewable energy,
and by ensuring an efficient and fair planning system that doesn’t unfairly delay or obstruct projects.
The major advantage of initiatives to support renewables in addition to the RET is that the NSW
Government can include other policy outcomes as a requirement in tenders, rather than simply
choosing the cheapest electricity. For example, the selection process can favour bids that include the
greatest number of local jobs, or the greatest amount of local investment, or the most effective
community benefit sharing scheme. The NSW Government can use the transition of the electricity
system as an opportunity to achieve additional benefits for the state.
NSW should also link its renewable energy target to a wider goal to ensure the community
understands the rationale behind the transition. If the NSW Government aims to limit emissions then
the target should be explained in terms of modernising NSW’s generation fleet, reduction of emissions
and what the growth of renewable energy will achieve.
Reverse auction scheme structure
A reverse auction is a proven and effective way to stimulate the construction of large scale renewable
energy projects. The ACT Government has been able to secure some of the cheapest renewable
energy in Australia while providing jobs and driving investment into rural Australia. The key aspects of
the scheme’s success are long contracts, a scheme design that will not unnecessarily interfere with
the federal Renewable Energy Target, and good evaluation criteria.
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Clean Energy Council submission to the Climate Change Fund Draft Strategic Plan
Longer contracts result in lower prices because of reduced financing margins. A 20 year contract will
secure very attractive pricing for the NSW Government and minimise the cost that is eventually passed
through to electricity users.
The industry’s preference is that the Government should purchase electricity and Large-scale
Generation Certificates (LGCs) as a bundled product or offer Contracts-for-Difference (CFDs) for the
difference between the bundled product and the agreed CFD ‘strike price’. Maximising the portion of
the revenue stream that is contracted will increase project certainty and therefore drive down costs.
If this is not the preferred approach, the Government should clearly set this out at the beginning of
the program implementation.
Reverse auction evaluation criteria
The Government should be very clear about desirable economic benefits and should require the
demonstration of tangible benefits. The highest weighting should be given to value for money, with a
secondary weighting for economic development. Community engagement is important and
Government should look for projects that can demonstrate effective engagement, remembering that
sometimes it is not possible to avoid criticism from vocal anti-renewable lobbying groups.
There is an opportunity for the auction scheme to include other Government priorities in addition to
jobs, investment, and emissions reduction. For example, the ACT Government’s scheme included a
requirement for educational outcomes, and winning projects undertook initiatives including setting
up university courses and visiting high school students. The NSW Government may want to tie the
auction scheme to separate outcomes and targets that form a part of the Climate Change Policy
Framework, such as energy efficiency targets, environmental projects like native vegetation
protection or planting, or other outcomes.
Network connection processes
The grid connection process has a long and problematic history of issues, complaints and apparent
failure to deliver fair and reasonable outcomes. For example, a survey of grid-connection experiences
run by the CEC in 2014 found that 48 % of respondents relating to mid-scale generation1 stated that
they were unable to manage their risks and costs effectively during the connection process. 77 %
stated that they did not believe the connection process meets their requirements in a fair and certain
manner and as quickly as reasonably possible. The full survey report is available on the CEC’s website2.
ClimateWorks (et al) have also conducted an investigation into the compliance of Distribution Network
Service Providers (DNSPs) with Chapter 5 of the National Electricity Rules (NER)3. Following rule
changes relating to the connection of embedded generation this assessment found low compliance
1
This submission defines commercial-scale embedded generation as being rated above 30kW (the current AS
4777 scope threshold) and below 5MW (the AEMO registration threshold). Given current technology trends
this is expected to largely be filled by solar PV.
2
http://www.cleanenergycouncil.org.au/fpdi/reports/grid-connection-experiences-survey-results.html
3
ClimateWorks et. al, 2014, Implementing the Connecting Embedded Generation Rule Change,
http://climateworks.com.au/
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Clean Energy Council submission to the Climate Change Fund Draft Strategic Plan
with the rules some six weeks after the rule commencement date. A repeat of the investigation found
increased compliance four months following the publication of this outcome. The low initial
compliance levels indicate that there is little oversight from the Australian Energy Regulator regarding
the rules for the connection of generation. Publication of independent benchmarking of compliance
seems to have driven outcomes more successfully.
The issues that require resolving to facilitate the efficient connection of embedded generation centre
on the process and its timeframes, costs and information availability. In the CEC’s experience best
practice connection process would address all of these issues while focussing on increasing certainty
for both parties.
Actions that the NSW Government can take to achieve best practice include:
1. Establishing grid connection processes that embrace technical capabilities to realise the
potential of renewable energy and storage
2. Implementing standards for the grid connection of commercial-scale embedded generation
3. Establish regular knowledge sharing forums to promote open collaboration and learning
across industry
4. Frequent reporting on grid connection process performance and outcomes
5. Establishing fair, reasonable and independently approved commercial terms for connection
6. Mapping clean energy connection opportunities
2.5 Empower local communities to adopt renewable energy
The CEC supports the development of community energy projects as an important tool for allowing
members of the NSW community to benefit from renewable energy. A vibrant community energy
sector will cement NSW’s leadership in the renewable energy industry as well as create many more
advocates for the transition to a clean energy system.
A wind or solar farm is part of a community for twenty years or more. History shows that projects
inject substantial direct and indirect economic benefits to communities both during the construction
and ongoing operational phase of the project. The renewable energy industry is not complacent about
the strong political and community support it receives and therefore continues to explore and
implement different models for sharing the benefits these projects bring, and has developed the
attached briefing paper to help policy makers understand some of these models, and inform all
stakeholders on potential models. Which model is best for any particular project is a decision that
should be made on a case-by-case basis, and in discussion with the community.
Grid connection costs can be a significant portion of a project capital, and are borne in the final stages
of a project’s development and only when the project is committed. The Government should support
committed community renewable energy projects by providing direct funding for grid connection
costs.
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Clean Energy Council submission to the Climate Change Fund Draft Strategic Plan
By definition under the market rules the connection of generation is a negotiated service, where only
light touch regulation is applied. Under this arrangement the NSW Government could simply pay for
all, or a portion of, the connection costs in partnership with the generator proponents.
There are a number of examples in NSW where it would make more sense (from the perspective of
safety, reliability and cost) to provide electricity supply through an independent grid powered by
distributed generation and storage, rather than a transmission line to the main grid. Bushfire-affected
communities are a particular case in point. Under the National Electricity Rules distribution businesses
are obliged to supply grid connection to communities, and it is our understanding that a proposal to
supply a community through an independent grid can only be implemented if there is a consensus
within the community. Businesses and governments are often not well placed to develop a consensus
within a community, and community organisations might be better placed for this role because they
are less likely to be perceived as having a vested interest.
2.8 Find cost-effective pathways to reduce emissions
Ensuring a smooth and cost-effective transition to a low-carbon future for NSW requires a planned
pathway for the closure of the most inefficient and polluting power stations. While states can play an
important role in the transition, NSW should work effectively with the Council of Australian
Governments (COAG) Energy Council to find pathways that achieve international climate
commitments.
Although many analysts have anticipated the permanent closure of Australia’s oldest and most
greenhouse-intensive power stations, the uncertainty created by major changes to national energy
and climate policies, along with barriers to exit (both real and perceived) mean this has only just begun
to take place. Addressing barriers to exit for the oldest and most polluting power stations needs to be
part of the policy solution for efforts to reduce emissions.
The closure of coal-fired power generation must also recognise the substantial reliance on these
projects by some regions and communities for employment and local economic activity. The phaseout of these generation assets needs to be accompanied by a careful and comprehensive strategy to
support these communities, including workforce training and re-deployment to minimise the social
and economic disruption.
3.5 Support vulnerable households to reduce their energy bills
In the past there have been many barriers preventing low income households from cost-effective
adoption of solar systems. Many of these factors no longer apply. The main barriers low income
households now face are primarily institutional in nature, and the NSW Government can play a crucial
role in overcoming those barriers.
The first and most fundamental barrier was operating cost. When the levelised cost of electricity
(LCOE) of a solar PV system is more than the retail price of electricity, solar systems are not an effective
investment for a low income household. This is no longer the case. In recent years the price of solar
PV systems has fallen dramatically. The Small-scale Renewable Energy Scheme (SRES) further reduces
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Clean Energy Council submission to the Climate Change Fund Draft Strategic Plan
system costs. The LCOE of a solar PV system is now less than the volumetric component of a retail
electricity bill. Accordingly, operating cost should no longer be a barrier to solar uptake by low income
households.
Capital cost has also presented a barrier to solar investment by low income households. Even with the
support of the SRES scheme, the up-front capital cost of a solar system often prevents low income
households from investing despite the savings that would result over the life of the system.
The main barrier to solar investment by low income households is the tenant-landlord split incentive.
It is not in the financial interest of a landlord to invest in solar when the savings will be enjoyed by the
tenant. It is not in the financial interest of the tenant to invest in solar when they do not have sufficient
security of tenure to ensure that the investment will pay for itself.
For those families living in public housing, with the state government as the landlord, there is a
solution. South Australia pioneered the development of a three-way contracting model in which the
government is a party of the contract, but all expenditure on the solar device is paid by the tenant.
We urge the NSW Government to consider adopting the South Australian model for public housing.
Electricity retailers who supply public housing should be encouraged to offer solar PPAs where they
can result in savings for tenants.
Low income families living in private housing need a different, more innovative solution. Solar PPAs
could be part of the solution. However they are not the complete solution and a range of barriers and
issues remain. Tenants do not enjoy sufficient security of tenure to enable them to enter a long-term
contract with a PPA provider. Landlords could offer their tenants a solar PPA (most likely with the help
of a solar PPA provider) and they have a class exemption that allows them to do so. However they
might be unwilling to do so because a function like electricity metering and billing is not ’core business’
for a landlord. They might also be unwilling to do so if they are proposing to sell, demolish or redevelop
their property in the short to medium term. There could be a role for local government in providing a
framework for enabling solar PPAs and outright purchase of solar systems for low income private
rental properties.
3.7 Reduce peak demand through battery storage and energy efficiency
Battery storage has a key role to play in addressing peak demand and could also provide grid
services in future. Tariff reform and creating markets for grid services will be key components for
ensuring that the benefits of battery storage are able to reduce system costs and electricity prices.
Strategies to address peak demand in a cost effective manner could include:
 Support for cost-reflectivity in electricity tariff reform, backed by information and pilot
programs to enable businesses and households to understand and make effective use of
demand-based tariffs
 Support for cost-reflectivity in feed-in tariffs. A prime example of this is the Victorian
government’s support for a ‘critical peak’ payment for feed-in tariffs when wholesale
electricity prices exceed a regulated threshold.
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Clean Energy Council submission to the Climate Change Fund Draft Strategic Plan

Establishment of regulatory frameworks for new markets to take advantage of the uptake
of battery storage, smart inverters and smart energy management systems. An excellent
example of this is the work currently being undertaken by Victoria’s Essential Services
Commission to establish principles for a well-designed market for grid services.
If you have any further questions or wish to arrange a meeting to discuss this submission please
contact Alicia Webb via telephone on 03 9929 4100 or by email at
[email protected]. For media inquiries, please contact Mark Bretherton on 0413
556 981.
Yours sincerely,
Alicia Webb
Policy Manager
Clean Energy Council
About the Clean Energy Council
The Clean Energy Council (CEC) is the peak body for the clean energy industry in Australia. We
represent and work with hundreds of leading businesses operating in solar, wind, energy efficiency,
hydro, bioenergy, energy storage, geothermal and marine along with more than 4,000 solar installers.
We are committed to accelerating the transformation of Australia’s energy system to one that is
smarter and cleaner.
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Clean Energy Council submission to the Climate Change Fund Draft Strategic Plan