SoE 2003 > Human settlement > 2.3 Energy

2.3 Energy

Energy consumption is still growing rapidly but greater energy efficiency and a lowering in emissions could reduce the environmental impact and costs

NSW has a very reliable energy infrastructure. Most demand for energy is met from non-renewable sources, mainly coal, but also natural gas and petroleum products. The production and use of energy have significant environmental impacts, including being the main source of greenhouse gas emissions in NSW.

Demand for electricity continues to rise at a faster rate than previously expected, particularly in the commercial and residential sectors, in part driven by the demand for airconditioning. A report by the Ministry of Energy and Utilities indicated that new generating capacity of between 1500 and 3000 megawatts may be needed over the next 10 years. Deciding on the mix between coal and gas as the fuel for the expansion is likely to have significant environmental consequences for NSW.

There is large untapped potential for energy efficiency which could reduce growth in demand and make the system more sustainable. Significant investment in low-emission power generation, such as gas-fired co-generation, greater energy efficiency and the use of renewable energy sources, is also required. The recent setting of compulsory greenhouse benchmarks for the electricity industry may provide a solid basis for such investment, although market support programs as operated by the Sustainable Energy Development Authority will be required for some time while these new directions become established.

NSW Indicators

Importance of the issue

Energy is essential to the functioning of an advanced industrial society. NSW enjoys a reliable and secure energy infrastructure and relatively low prices. The supply of energy and its use have arguably the largest environmental impact of all human activities. Most of the energy used in NSW is made from fossil fuels, such as coal, with adverse impacts on the environment throughout the production and supply chain.

Energy production and conversion, such as coal-to-electricity in power stations, is the main source of greenhouse gas emissions (carbon dioxide, methane and nitrous oxide), oxides of nitrogen, sulfur and particle emissions (see Atmosphere 3.2 and Atmosphere 3.3). The process of energy conversion and transmission is also highly inefficient, in terms of energy lost. Energy systems affect the atmosphere, land use and water quality.

The Independent Pricing and Regulatory Tribunal reported that greenhouse gas emissions from the NSW electricity sector averaged 8.42 tonnes of carbon dioxide equivalent (CO₂-e) per capita in 2000–01 compared with the NSW Government's target emission level, as set in the Electricity Supply Act 1995, of 7.27 tonnes (IPART 2002a). More sustainable energy generation and use will be of fundamental importance in any strategy to reduce greenhouse gas emissions and mitigate the impacts of climate change.

Energy supply

Most of the State's energy demand is met from coal mined in NSW, and petroleum brought from interstate or overseas. The remainder comes from natural gas imported from South Australia and Victoria, hydro-electricity, wood and bagasse, a by-product of the sugar industry.

The total installed energy capacity of NSW has risen by about 50% over the last 20 years (Table 2.4). The major source of growth has been in the coal sector, although the creation of a market for renewable energy has added some capacity.

Table 2.4: Installed NSW energy capacity (megawatts)

Source: MEU data, as at June 2003

Notes: (a) Calendar years
(b) Excludes Snowy Mountains Hydro-electric Authority (SMHEA) but includes co-generation

A report by the NSW Ministry of Energy and Utilities (MEU), Statement of System Opportunities (MEU 2001b), estimates that energy demand is increasing rapidly and faster than previously anticipated. The report cites as causes population growth, the increasing use of airconditioning, rising incomes and consumption, and the low price of electricity. It also suggests that 1000 megawatts (MW) is needed as a minimum reserve rather than the 600 MW currently budgeted because of the increasing demand and need for regular maintenance of ageing power plants.

The combined effects of higher demand, including an increase in peak and base load summer demand and the need to increase reserves to 1000 MW, means that new generating capacity of between 1500 and 3000 MW may be required over the next decade. This represents an increase of up to 25% on current generating capacity and will cost an estimated $8.1–$8.7 billion. As an alternative, the MEU report says that investment could be directed to increasing energy efficiency, which would reduce demand and have considerable economic and environmental benefits.

Given the currently low base of renewable energy generation, additional capacity is likely to be coal- or gas-fired. Figure 2.6 compares emissions from 1000 MW of new black coal capacity with 1000 MW of new combined cycle gas turbine.

Figure 2.6: Indicative emissions of new coal-fired and combined cycle gas turbine power generation

Source: Carbon dioxide (CO₂) figures are drawn from modelling undertaken on behalf of NSW Treasury (NSW Government 2001). Sulfur dioxide (SO₂) and oxides of nitrogen (NO_x) figures are derived from emission factors (NPI 1999).

Note: The results are based on an assumed 38% thermal efficiency for coal and 40% for combined cycle gas turbine.

Energy consumption

Growing energy consumption drives the addition of new generation capacity and investments in new transmission and distribution capacity. Electricity consumption in NSW doubled between 1980 and 2001, and on current trends is still growing rapidly.

A total of 64,688 gigawatt hours (GWh) of electricity was generated in 2000–01, up 12% from 57,535 GWh in 1997–98. A further 3472 GWh of electricity was imported from the Snowy Mountains Hydro-electric Scheme, Victoria and Queensland.

The major energy end-users are industry and transport (81%), followed by the residential (12%) and commercial (7%) sectors. Figure 2.7 shows the sources of energy used by each of these sectors.

Figure 2.7: Final energy use by source and sector, 1999–2000

Source: MEU data, as at June 2002

From 1999–2000 to 2000–01, NSW electricity consumption increased by 4.5% and associated greenhouse gas emissions were up by 5.7% to approximately 54 megatonnes (IPART 2002a).

Australian energy consumption over the last three decades has grown at an average rate of 2.6% a year, well above the OECD average of 1.4% for that period. This growth has been underpinned by a steady population growth of 1.3% per annum and economic growth averaging 3.3% (ABARE 1999). Between 1993 and 1998 the increased energy demand was much higher than the 25-year average of 3.6% per annum, mainly as a result of strong economic growth and a shift towards more energy-intensive industries.

In the decade 1989–99, all sectors increased their overall energy consumption, although at slightly different rates. However consumption, measured as energy use per $1000 gross state product (GSP), remained fairly constant or declined slightly in each sector in the early 1990s (see Figure 2.8).

Figure 2.8: Energy consumption relative to gross state product

Source: ABARE 1999 and ABS 2002c

Note: 'Energy conversion' refers to the energy used to deliver electricity, gas and water, including the energy lost in the process.

The price of Australian electricity and oil-based petrol is very low compared with other developed countries. Since the establishment of the national electricity market, prices have fallen, with reported average power cost savings of 31% in NSW (DISR 2000). These lower prices have prompted an increased reliance on coal-fired power stations and particularly those with lower thermal efficiency.

Energy affordability has been a key factor in why Australia has been slow to adopt energy efficiencies and has resulted in a dependence on cheap fuel to maintain international competitiveness (Newton et al. 2001).

Response to the issue

Historically, growing energy demand has been met through increasing supply by building new power stations and additional transmission and distribution capacity. The approach currently adopted by the NSW Government is to first manage demand by increasing the efficiency of use and then increasing capacity.

Ultimately, buyers of energy want the final benefit of its use, not the energy itself, that is, they want illumination or warmth, not the electricity that produces them. Consumers will be equally happy with greater efficiencies in energy use or alternative energy sources, such as passive solar design and insulation, providing they are getting the same outcome in light and warmth. Such approaches offer major 'win-win' opportunities because they both reduce environmental impacts and save money.

Regulation

Legislative changes since 1995 have introduced competition into the energy generation and retail supply sectors. At the same time the NSW Electricity Supply Act 1995 introduced voluntary requirements that energy retailers develop strategies to reduce the greenhouse gas emissions associated with their product and increase energy efficiency. By 2002, only two energy retailers had achieved the benchmarks set in the Act, although several others had implemented some supply-side emission reduction measures (IPART 2002a). As a result, per capita greenhouse gas emissions from the energy sector in 2001 were 10% above 1990 levels, rather than the Act's target of being 5% below.

This outcome led the NSW Government to enact the Electricity Supply Amendment (Greenhouse Gas Emission Reduction) Act 2002, which established the first compulsory benchmark scheme for the electricity industry in Australia. Retail supply licensees, retailers and wholesale energy users are now compelled to reduce per capita greenhouse gas emissions to 5% below 1989–90 levels or 7.27 tonnes of carbon dioxide per capita by 2006–07. These reductions must be maintained until 2012 and penalties apply for failure to meet annual benchmarks.

Reductions must be achieved through a variety of abatement initiatives, including lower emissions when producing power, energy efficiency and the use of forests as carbon 'sinks', all of which earn a tradeable currency. Electricity retailers and other liable parties comply with their benchmarks by surrendering units of this currency each year.

The Independent Pricing and Regulatory Tribunal is the administrator and regulator of the scheme which will be reviewed should Australia ratify the Kyoto Protocol on greenhouse emissions (see Atmosphere 3.2).

Managing demand

The NSW Government has put in place a number of programs to improve its own energy management and, through the Sustainable Energy Development Authority (SEDA) and MEU, to start to transform the broader market for energy efficiency and demand management.

Government Energy Management Policy

The NSW Government Energy Management Policy, released in November 1998, aims to achieve significant energy cost savings across the NSW public sector. The policy requires all NSW Government agencies to improve energy management, increase their use of 'green' energy technologies, undertake energy-efficient purchasing, and implement cost-effective energy-saving measures.

The policy established targets for reduced energy use of 1.5% in all Government buildings by 2001–02 and 25% by 2005–06. The MEU reports the energy outcomes annually. It is estimated that a 4.7% annual reduction in overall building energy consumption will be required to meet the 2005–06 target and, based on the performance in years already reported, this may not be met (MEU 2001a). However since the policy was introduced, Government agencies have invested over $33.5 million in energy efficiency upgrades that will deliver $7 million in annual cost savings and reduce annual greenhouse gas emissions by 67,665 tonnes.

SEDA programs

SEDA's Energy Smart Homes Program demonstrates how efficient building design can save households energy and money. All new homes and major alterations to existing homes in the participating local government areas must achieve a 3.5-star energy rating. This potentially brings savings of 500–800 kilowatt hours of electricity a year or 500–800 kilograms of carbon dioxide per dwelling.

SEDA has provided over 6000 discounts for solar and heat-pump hot water systems since 1997, resulting in energy savings worth around $5.5 million and avoiding more than 78,000 tonnes of greenhouse gas emissions. Across NSW, 44 councils are implementing the Energy Smart Homes Program, so that around 75% of development applications in NSW are now covered by the requirements of the policy. A further seven councils have partially adopted the program.

Yearly energy consumption in existing homes can also be reduced by up to 50%, or $500 saved on electricity costs, by taking up a range of initiatives. These include the use of energy-efficient appliances, such as energy star computers; insulating the home; using solar, heat-pump or gas hot water systems; and adopting water use efficiencies.

The Energy Smart Business Program assists businesses to cut operating costs and reduce greenhouse gas emissions through energy efficiency projects. The program supports the analysis of individual company operations and energy costs to identify energy and cost-saving initiatives. To date, 220 NSW companies have participated in the program, achieving $23 million in annual energy savings and reducing greenhouse gas emissions by 400,000 tonnes of CO₂-e every year. The average rate of return on energy efficiency investments has been 38%.

Other NSW Government initiatives

Other NSW Government initiatives to promote sustainable energy and demand management alternatives include:

• requiring, under the Electricity Supply Amendment Act 2000, the three NSW Government-owned electricity distributors which provide low-voltage electricity network services to investigate demand management options and alternatives before they expand or increase the capacity of their systems
• the MEU's Statement of System Opportunities, which informs the market about forecast growth in energy demand and additional capacity required, and facilitates investment in renewable energy and demand-side responses as well as more conventional large-scale power stations
• preparation of guidelines by the Department of Infrastructure, Planning and Natural Resources to assist proponents address energy use and greenhouse gas emissions at the start of the environmental impact assessment process for new developments
• investigation by the EPA into the feasibility of including greenhouse gas emissions in pollution licensing
• requesting retailers to report greenhouse gas emissions on electricity bills to raise customer awareness of the environmental implications of their energy use.

Renewable energy supply

Green Power

SEDA's Green Power accreditation program has performed strongly with the number of households choosing Green Power increasing 30% over the past year. Under the scheme, customers elect to purchase their electricity on the basis that a certain proportion is supplied from an approved renewable 'green' power source.

In NSW about 15,000 customers participate in the scheme, using approximately 40% of Australian Green Power (SEDA data, as at June 2003). Australian households used 290 GWh of Green Power in 1999–2000 and 454 GWh in 2000–01. NSW Government agencies purchased over 71 GWh of SEDA-accredited Green Power in 2000–01, avoiding the production of 68,000 tonnes of greenhouse gases, which is equal to taking over 14,400 cars off the road.

Co-generation

Co-generation, where one fuel is used to generate two or more forms of energy, can double energy efficiency, halve power costs and reduce carbon dioxide emissions by two-thirds. SEDA has developed the Co-generation Development Initiative to identify viable co-generation sites around NSW and provide owners and operators with information and assistance. SEDA, in conjunction with several commercial sponsors, offers detailed feasibility studies to assess the viability of co-generation for organisations with an annual electricity consumption of greater than 7850 megawatt hours or more than 5000 gigajoules.

Research and development

The NSW Government is supporting research and development projects on renewable energy, energy efficiency and less greenhouse-intensive transport opportunities.

The Government made direct grants totalling $12.5 million between 1992 and 2002 for research and development of sustainable energy sources, new technologies, and the establishment of energy efficiency programs. In 1998, a further $2.4 million for sustainable energy and enabling technologies was allocated through the Sustainable Energy Research and Development Fund administered by the MEU. During 2003–04, the MEU will be seeking new proposals targeted at solar thermal technologies.

Through its Renewables Investment Program, SEDA has invested more than $22 million in renewable energy projects, and attracted more than $100 million in private sector capital investment in NSW. SEDA has also continued its work into defining the renewable resources potentially available to generate energy through its small hydro study, bioenergy resource studies and the recently published NSW Wind Atlas. These activities are helping to facilitate the growth of the NSW renewable energy industry and build capacity.

Commonwealth initiatives

The Commonwealth Renewable Energy (Electricity) Act 2000 addresses the supply-side of energy by requiring retailers and large users of power to purchase 9500 gigawatt hours (GWh) of electricity made from renewable sources by 2020. This will be enough energy to meet the domestic needs of 4 million people. The requirement has encouraged investment in wind and biomass capacity, although the NSW industry has been relatively slow to take up the initiative.

Commonwealth Government programs to manage energy demand include:

• working in partnership with local councils on the Cities for Climate Protection Australia program, which funds energy conservation and efficiency measures by local authorities to reduce greenhouse gas emissions in their municipalities
• encouragement by the Australian Greenhouse Office (AGO) for industry to reduce emissions in a variety of ways through the Greenhouse Challenge program
• successful development of Minimum Energy Performance Standards for appliances, plant and equipment and investigation into including them in the Building Code of Australia to bring consistently energy-efficient residential design across the country (Cross-sectoral Group 2003).

Effectiveness of responses

National Competition Policy reforms in the energy sector were expected to reduce prices and improve environmental performance through operational efficiencies. Prices have fallen as a result of competition and, while this has generally been beneficial, it has discouraged improvements in energy efficiency and the expected environmental improvements have not been realised. Nearly a decade after the deregulation of the Australian electricity industry, the country's power stations produce 10% more greenhouse gases per kilowatt hour of electricity than before. The operation of power plants is more efficient financially but not thermally, meaning that they are burning more coal to produce the same amount of electricity. NSW thermal efficiency fell from 37% in 1991 to 35% in 2002 (Bardak 2002).

In relation to greenhouse emissions, while the now superseded voluntary greenhouse gas benchmarks set quantified targets for the first time, they were not successful in achieving the required 5% reduction per capita of emissions. The new legislated targets and commercial penalties are now the strongest in the nation and are expected to address this problem. However their main impact is likely to be in promoting gas-fired energy generation, co-generation and improved energy efficiency, whereas the Commonwealth mandatory renewable energy target of 9500 GWh of electricity from renewable sources provides greater incentives for development of the renewables sector.

The greatest challenge in the energy sector is to slow the growth of consumption through greater efficiency. SEDA's experience highlights the economic and environmental benefits that can be realised by using some of the commercially attractive energy efficiency improvements available. However greater effort and new approaches are required to realise the potential benefits, both in terms of policy development and overcoming information and institutional barriers.

Future directions

To reduce its growing environmental impact, energy needs to be used more efficiently and cleaner sources of power promoted.

The area where the community, business and government have enormous and cost-effective opportunities is more efficient use of energy (particularly electricity). Existing programs are a starting point, particularly SEDA's market transformation activities that aim to build private sector capacity to deliver energy efficiency. SEDA has examples of the options open to householders and businesses.

Government, energy retailers and appliance manufacturers should continue to work to develop further approaches to demand management and better efficiency. Failure to reduce demand will mean large costs for consumers and industry in new investment to increase the capacity of energy supply systems.

The choice between coal and gas as the fuel for the next large addition of generation capacity is emerging as a key decision for NSW, given that the plant will be in service for up to 50 years. Overall greenhouse gas and other emissions from new plant should be key criteria in decision-making.

A national greenhouse gas emissions trading scheme, as part of an integrated package including renewable energy targets and demand management, would be a relatively cost-effective start and allow uniformity across the country and potentially greater gains in greenhouse gas reductions. This would need to be led by the Commonwealth Government.

Linked issues

2.4 Transport

3.2 Climate change

3.3 Urban air quality