Renewable Energy Opportunities for the Decentralised Energy Master Plan - Renewable Energy

Transcription

1 Renewable Energy Opportunities for the Decentralised Energy Master Plan - Renewable Energy A Financial and Economic Analysis April 2013 Report to the City of Sydney

2 Allen Consulting Group Pty Ltd ACN , ABN Melbourne Level 9, 60 Collins St Melbourne VIC 3000 Telephone: (61-3) Facsimile: (61-3) Sydney Level 1, 50 Pitt St Sydney NSW 2000 Telephone: (61-2) Facsimile: (61-2) Canberra Level 1, 15 London Circuit Canberra ACT 2600 GPO Box 418, Canberra ACT 2601 Telephone: (61-2) Facsimile: (61-2) Online Website: Suggested citation for this report: Allen Consulting Group, 2013, Renewable Energy Opportunities for the Decentralised Energy Master Plan Renewable Energy: A Financial and Economic Analysis Report to the City of Sydney, Sydney, April. Disclaimer: While the Allen Consulting Group endeavours to provide reliable analysis and believes the material it presents is accurate, it will not be liable for any claim by any party acting on such information. Allen Consulting Group 2013 The Allen Consulting Group ii

3 Disclaimer Inherent Limitations This report on renewable energy opportunities for the City of Sydney s Decentralised Energy Master Plan Renewable Energy is given subject to the written terms of the Allen Consulting Group s engagement. The services provided in connection with this engagement comprise an advisory engagement which is not subject to Australian Auditing Standards or Australian Standards on Review, or Assurance Engagements, and consequently no opinions or conclusions intended to convey assurance have been expressed. No warranty of completeness, accuracy or reliability is given in relation to the statements and representations made by, and the information and documentation provided by, the City of Sydney representatives consulted as part of the process. The Allen Consulting Group has indicated within this report the sources of the information provided. We have not sought to independently verify those sources unless otherwise noted within the presentation. Any economic projections or forecasts in this report rely on economic inputs that are subject to unavoidable statistical variation. They also rely on economic parameters that are subject to unavoidable statistical variation. While all care has been taken to ensure that statistical variation is kept to a minimum, care should be taken whenever using this information. Any estimates or projections will only take into account information available to the Allen Consulting Group up to the date of the deliverable and so findings may be affected by new information. Events may have occurred since we prepared this report which may impact on it and its findings. The Allen Consulting Group is under no obligation in any circumstance to update this report, in either oral or written form, for events occurring after the report has been issued in final form. Third Party Reliance This presentation has been prepared at the request of the City of Sydney in accordance with the contracted terms of the Allen Consulting Group s engagement. Other than our responsibility to the City of Sydney, neither the Allen Consulting Group nor any member or employee of the Allen Consulting Group undertakes responsibility arising in any way from reliance placed by a third party on this report. Any reliance placed is that party s sole responsibility. The Allen Consulting Group accepts no responsibility to anyone other than the City of Sydney for the information contained in this report. The Allen Consulting Group iii

4 Contents Executive summary Introduction Main summary points Conclusions and recommendations viii viii x xiii Section 1 Overview 1 Scope of report 1 Green Infrastructure 2 The Decentralised Energy Master Plan Renewable Energy 3 Electricity generation technologies 4 Renewable gas resources 6 Limitations of this report 6 Section 2 Our approach 8 Scenarios 8 Financial analysis 10 Economic analysis 12 Assumptions 16 Section 3 Financial analysis 18 Capital expenditures 19 Operating expenditures 19 Delivered Cost 21 Conditional viability 22 Financial analysis - summary and conclusion 27 Section 4 Economic analysis 28 Potential greenhouse gas abatement 28 Marginal social cost of abatement 29 Economic analysis summary and conclusion 40 The Allen Consulting Group iv

5 Section 5 Trigeneration with renewable gas feedstock 41 Renewable gas 41 Methodology 45 Gas availability 46 Gas capital costs 51 Cost of gas 52 Delivered cost of electricity 54 Marginal social cost of abatement 55 Evaluation of renewable electricity options 58 Section 6 Conclusion 60 Appendix A Economic assumptions 63 Overview 63 Macroeconomic assumptions 63 Policy framework assumptions 66 Appendix B Cost assumptions 69 Overview 69 Cost assumptions 69 Appendix C Electricity technology assumptions 71 Overview 71 Technical specifications 71 Appendix D Renewable gas resources assumptions 73 Overview 73 Detailed SNG data 74 Levelised Cost of Gas 78 Gas cost assumptions 78 Financial assumptions 81 Delivery cost assumptions 82 References 87 The Allen Consulting Group v

6 Abbreviations and acronyms ACG AD AEMO AETA ALPF BREE C&I CCGT CCS CFI CO2 CO2-e CPM CPRS DCCEE ERA ETS EU GDP GJ HHV IGU IPART kgco2-e kw kwh Allen Consulting Group anaerobic digestion Australian Energy Market Operator Australian Energy Technology Asessments Australia s Low Pollution Future: The Economics of Climate Change Bureau of Resources and Energy Economics commercial and industrial combined cycle gas turbine carbon capture and storage carbon farming initiative carbon dioxide carbon dioxide equivalent carbon pricing mechanism Carbon Pollution Reduction Scheme Department of Climate Change and Energy Efficiency Extended Regulatory Area emissions trading scheme European Union gross domestic product gigajoule higher heating value International Gas Union Independent Pricing and Regulatory Tribunal kilograms of carbon dioxide equivalents kilowatt kilowatt hour The Allen Consulting Group vi

7 LCOE LCOG LGA LGC LNG LRET MAC MRET MSW MT MtCO2-e MW MWh NTNDP O&M PJ PV REC RET SGLP SMA SNG SRES STC T&D tco2-e TW TWh WACC levelised cost of energy levelised cost of gas local government area Large-scale Generation Certificate liquefied natural gas Large-scale Renewable Energy Target marginal abatement cost Mandatory Renewable Energy Target municipal solid waste megatonne megatonnes of carbon dioxide equivalents megawatt megawatt hour National Transmission Network Development Plan operating and maintenance petajoule photovoltaic Renewable Energy Certificate Renewable Energy Target Strong Growth, Low Pollution: Modelling a Carbon Price Sydney Metropolitan Area substitute natural gas Small-scale Renewable Energy Scheme Small-scale Technology Certificate transmission and distribution tonnes of carbon dioxide equivalents terawatt terawatt hour weighted average cost of capital The Allen Consulting Group vii

8 Executive summary Introduction The City of Sydney has engaged the Allen Consulting Group to conduct a financial and economic analysis of renewable energy opportunities for the Decentralised Energy Master Plan Renewable Energy. This study was undertaken using research commissioned by the City of Sydney on renewable electricity technology options by Arup, the City s proposed Trigeneration network by Kinesis, and renewable gas resources by Talent with Energy, as well as additional information in the public domain. Background The 14 renewable electricity technologies to be assessed for the Decentralised Energy Master Plan Renewable Energy is set out in Table ES.1 below. Table ES.1 DECENTRALISED ENERGY MASTER PLAN - RENEWABLE ENERGY: TECHNOLOGIES UNDER CONSIDERATION Technology Renewable electricity within the LGA Building scale Solar hot water Micro wind Solar photovoltaic (PV) Renewable electricity within the LGA Precinct scale Precinct scale wind turbines Concentrated solar thermal Direct use geothermal Renewable electricity beyond LGA Onshore wind energy Offshore wind energy Geothermal electric Concentrated solar PV Concentrated solar thermal Wave Tidal Hydro Source: City of Sydney (2012). In addition to the 14 technologies listed above, the potential for using four different types of renewable substitute natural gas (SNG) resources as fuel for the City s proposed Trigeneration network is also assessed, as set out in Table ES.2. The Allen Consulting Group viii

9 Table 1.2 ALTERNATIVE RENEWABLE FUEL FOR THE TRIGENERATION NETWORK Renewable Gas Resources Renewable and synthesis gas from waste Municipal solid waste + commercial & industrial waste (MSW + C&I) Large scale biogas (vegetable crops/horticulture, chicken and cattle manure) Biomass (forestry and broadacre crop residue) Small scale biogas and landfill gas Source: City of Sydney (2012). Project objectives The objective of this study is to evaluate the potential relative economic costs of different electricity technology options that could be considered for use in achieving the City of Sydney s targets for renewable electricity use and greenhouse gas emissions abatement by 2030 under a particular macroeconomic scenario. This study focuses on a comparison of the marginal social cost of abatement for each of the 14 technologies and four gas resources that will enable the determination of the optimal technology mix for achieving the City s renewable electricity and emission reduction targets at least cost. The marginal social cost of abatement represents the estimated cost of achieving a given quantity of greenhouse gas emissions abatement, in this case, the real dollar cost of abating a tonne of carbon dioxide equivalent emissions in 2012 prices. This study is a high level evaluation of the economics of various electricity technology generation options and is subject to a number of limitations, such as uncertainty about future Australian macroeconomic developments, any future changes in the government policy framework, project specific factors, such as financing and taxation, and site-specific factors. Limitations of the report This report is not a detailed benefit and cost analysis of the City s Decentralised Energy Master Plan Renewable Energy, or of individual generation projects that may form a part of the plan. The report provides an indication of various average measures of the potential costs of different renewable energy technologies and resources under consideration by the City of Sydney. The results and findings presented in this report should be considered within the limits of the constraints of the underlying analysis, which include the following: only the cost of generation using each technology has been analysed; in addition, only average generation costs have been modelled, the cost of generation using each technology at specific sites would be expected to vary from this average; disruption costs associated with constructing building and precinct scale generators throughout the City, including disruptions to traffic, have not been accounted for; The Allen Consulting Group ix

10 disruption costs associated with alterations to the transmission and distribution network resulting from the implementation of these technologies, or from the transportation of gas to the City have not been analysed; a detailed commercial analysis, including the impact of adopting the renewable technologies as part of the City s renewable energy master plan on prices and competition in the electricity sector has not been undertaken; while allowances have been made for the likely impacts of replacing grid electricity with local renewable sources, these impacts have not been directly, explicitly analysed due to limitations in information availability; and the modelling results reflect possible outcomes that could occur under three different macroeconomic, industry, and policy environment scenarios; differences between the modelled scenarios and actual macroeconomic, industry, and policy environments would produce variations between the modelled results and actual outcomes. Main summary points The marginal social cost of abatement for each of the renewable electricity technology options and a number of comparator technologies, relative to the baseline technology of black coal, is reported in Table ES.3. Table ES.3 indicates that by 2030, the following electricity technology options could potentially have negative marginal social costs of abatement by 2030: micro wind; Trigeneration (SNG MSW + C&I); Trigeneration (SNG Small scale biogas); building solar photovoltaic (PV); and large scale onshore wind technology. The Allen Consulting Group x

11 Table ES.3 SUMMARY - MARGINAL SOCIAL COST OF ABATEMENT, REAL 2012 DOLLARS PER TONNE OF CARBON DIOXIDE EQUIVALENTS (2012 $/TCO2-E) Technology Solar hot water (Building) Solar PV (Building) Micro wind (Building) Wind turbines (Precinct) Direct use geothermal (Precinct) Concentrating solar thermal (Precinct) Onshore wind Offshore wind Geothermal electric N/A Concentrating solar PV Concentrating solar thermal Wave Tidal Hydro Trigeneration (Natural Gas) Black Coal with carbon capture & storage (CCS) N/A CCGT with CCS N/A CCGT Trigeneration (SNG - MSW + C&I) Trigeneration (SNG - Biomass) Trigeneration (SNG - Large scale biogas) Trigeneration (SNG - Small scale biogas) Source: Allen Consulting Group calculations (2013). In interpreting the results presented in Table ES.3, the following points should be taken into consideration: The cost estimates represent the costs of electricity supplied from a typical generating unit of each technology type in NSW. However, the actual costs of sourcing electricity supply from a generating unit of each technology type located in the City of Sydney, the Greater Sydney region, or neighbouring regions of NSW, will vary from this typical cost according to project and site specific factors. These factors include the location and scale of the generator. Location would impact on the generating capacity of wind, wave, hydro, and solar generators in particular, as different sites would receive different amounts of sunlight, rainfall, and wind in a given year. The Allen Consulting Group xi

12 It is important to note that while a number of different renewable and lowemission energy technology options have been estimated as potentially having low or even negative marginal social costs of abatement by 2030, it is not possible to completely source the City s electricity requirements from any one of these sources, as they are subject to capacity constraints. In particular, the building and precinct scale technologies are limited by the amount of space available in the City to host the necessary equipment. The renewable gas resources are also constrained by limits on their availability. The gas will need to be sourced from dozens of different sites across the Sydney Metropolitan Area and neighbouring regions. While it may be potentially economically viable to use these particular sources of renewable gases as fuel for the Trigeneration network, it is unclear if it would be commercially viable. The costs and complexities of sourcing small quantities of gas from dozens of sites across NSW may render a number of renewable gas resource options impractical. SNG-Large scale biogas is the only renewable fuel that is capable of supplying sufficient quantities of gas to meet the Trigeneration network s maximum expected demand. If any of the other SNG options are selected, their cost would need to be considered in conjunction with the cost of other gas sources that would be needed to supply the full 27.6 PJ requirement of the City. This could range from conventional natural gas to any of the other types of SNG. The analysis of the implication of the Trigeneration system being supplied by several different types of natural gas resources and/or from multiple suppliers of SNGs have not been undertaken for this report. Large scale solar and wind power projects are currently operating or under construction throughout NSW and the rest of Australia. However, they have been assessed as being unviable in Greater Sydney and neighbouring regions of NSW on average. As discussed earlier in this section, the costs and benefits associated with specific generator projects vary from the average, depending on project specific factors. Certain sites may generate benefits that are greater and costs that are less than the average, which could result in it becoming financially and economically viable even though the average site would not be. Non-financial and non-economic factors may also affect the viability of a particular electricity project. For example, government policy could mandate the purchase of electricity from a renewable electricity supplier that may not be the least cost supplier of electricity in order to achieve a climate change mitigation, environmental, energy, regional, and/or industry policy objective. The Allen Consulting Group xii

13 Conclusions and recommendations This study represents a high level evaluation of the relative economic costs of different renewable electricity technology options for achieving the City of Sydney s renewable electricity and greenhouse gas abatement targets by With few exceptions, most renewable electricity technologies assessed in this report are not expected to become financially or economically viable within the timeframe set for achieving the City of Sydney s renewable energy target under the given macroeconomic and policy environment scenarios. Those technologies that may be potentially viable by 2020 and 2025 tend to be small scale generators with serious capacity constraints that would limit their ability to substantially reduce the City s reliance on grid electricity. The potential for large scale renewable electricity technology to replace the City s use of grid electricity is not expected to be available until at least late 2020s. The cost of providing viable small scale electricity generators is also expected to reduce further by then. The costs and benefits of each technology type estimated in this report reflect that of a typical or average example of a generating unit in NSW. However, project specific factors would cause the costs and benefits associated with a particular generator to vary from the average. Furthermore, there are a number of important limitations to this study with regards to key macroeconomic variables and a lack of information about the actual commercial and financial arrangements under which investments in these technologies would be made. Therefore, this study should not be used as the basis for making investment decisions regarding projects related to the electricity technologies evaluated in this report. Detailed financial analysis of each individual project that account for project specific factors not included in this report needs to be undertaken before decisions can be made on any particular project. The Allen Consulting Group xiii

14 Section 1 Overview Scope of report The City of Sydney has engaged the Allen Consulting Group to conduct a financial and economic analysis of renewable energy opportunities for the Decentralised Energy Master Plan Renewable Energy. The 14 renewable electricity technologies to be assessed for the Decentralised Energy Master Plan Renewable Energy is set out in Table 1.1 below. Table 1.1 DECENTRALISED ENERGY MASTER PLAN - RENEWABLE ENERGY: TECHNOLOGIES UNDER CONSIDERATION Technology Renewable electricity within the LGA Building scale Solar hot water Micro wind Solar photovoltaic (PV) Renewable electricity within the LGA Precinct scale Precinct scale wind turbines Concentrated solar thermal Direct use geothermal Renewable electricity beyond LGA Onshore wind energy Offshore wind energy Geothermal electric Concentrated solar PV Concentrated solar thermal Wave Tidal Hydro Source: City of Sydney (2012). In addition to the 14 technologies listed above, the potential for using four different types of renewable gas resources as fuel for the City s proposed Trigeneration network is also assessed, as set out in Table 1.2. Table 1.2 ALTERNATIVE RENEWABLE FUEL FOR THE TRIGENERATION NETWORK Renewable Gas Resources Renewable and synthesis gas from waste Municipal solid waste + commercial & industrial waste (MSW + C&I) Large scale biogas (vegetable crops/horticulture waste, chicken and cattle manure) Biomass (forestry and broadacre crop residue) Small scale biogas and landfill gas Source: City of Sydney (2012). The Allen Consulting Group 1

15 This report focuses on the economic aspects of delivering the renewable electricity generating capacity that could potentially be used to achieve the targets of the Master Plan and incorporates technical data produced by Talent With Energy and ARUP for the City of Sydney, in addition to publically available information. It presents estimates of the potential differences in the financial and economic cost of the renewable energy technologies, and competing technologies. All forecasts produced in this report represent estimates of the potential financial and economic costs and benefits of each type of renewable electricity technology based on particular scenarios about how the future of the Australian and international economies will evolve out to The estimates produced in this report depend on a number of key variables such as changes in future global economic growth, energy prices, Australian electricity prices, changes in the price of carbon, and government policy that are inherently unpredictable. The implications of the analysis contained in this report will deviate greatly depending on the scale of the variance between the actual values of these economic variables and their values in the macroeconomic scenarios underlying this analysis. This report offers an analysis of the likely relative costs and benefits of the selected renewable energy technologies at a high level, and do not take into account key variables such as the financial structure of any entities that may be involved in constructing, operating, and/or owning these technologies and resources, detailed analysis of project specific taxation obligations, future borrowing costs, or site specific costs, for example. Investment or other financial decisions taken with regards to the renewable energy technology and resource opportunities analysed in this report should not be taken without seeking detailed, independent assessment of each particular project. Green Infrastructure Green Infrastructure to achieve reductions in greenhouse gas emissions and other environmental objectives are one of the key elements of Sustainable Sydney 2030, the City of Sydney's vision for a green, global and connected future. Currently, the City has targets to achieve the following by 2030: reduction in greenhouse gas (GHG) emissions by 70 per cent from 2006 levels; zero reliance on coal fired electricity; and 30 per cent of the electricity consumed in the City to be from renewable resources. When completed, the City's Green Infrastructure Plan will comprise of five interrelated Master Plans on: Trigeneration; Renewable Energy; Advanced Waster Treatment; Decentralised Water; and Automated Waste Collection. The Allen Consulting Group 2

16 The Decentralised Energy Master Plan Renewable Energy The Master Plan has a major role in achieving a number of the City s environmental objectives, such as: its greenhouse gas emissions reduction targets; the elimination of the City of Sydney s reliance on coal fired electricity; and providing for 30 per cent of the City s electricity needs from local renewable resources by Electricity sourced from the grid is currently dominated by polluting, GHG emission-intensive fossil fuel burning generators, which account for an estimated 90 per cent of Australia s electricity generation in 2011 (Department of the Treasury 2011). The emission intensity of grid electricity in New South Wales is estimated to be 1.06 tco2-e/mwh, slightly above the national average of 1.03 tco2-e/mwh (DCCEE 2012). Australian Treasury (2011) modelling indicates that even with the carbon price mechanism (CPM) and Renewable Energy Target (RET) in place, electricity produced from fossil fuels is projected to make up between 64 and 80 per cent of total generation by 2030, with emission intensity of electricity generation estimated to average 0.61 tco2-e/mwh. Figure 1.1 charts the changes in the share of electricity generation technology in Australia over time under the Carbon Price Mechanism as modelled by SKM MMA and ROAM Consulting for the Australian Treasury (2011). Figure 1.1 SOURCES OF ELECTRICITY GENERATION UNDER THE CARBON PRICE MECHANISM SKM MMA ROAM Source: Department of the Treasury (2011). The Allen Consulting Group 3

17 Another disadvantage of grid electricity in addition to relatively high carbon intensity is that the generators feeding electricity into the grid tend to be located far away from their end users. A significant amount of electricity is lost in delivery through the transmission and distribution network. This lost energy adds to the emission intensity of grid electricity. With the City of Sydney local government area (LGA) being connected to the National Electricity Market network, the LGA s power can be sourced from generators located throughout the eastern mainland states and Tasmania. Local renewable energy sources can offer electricity generation with zero carbon emissions from generation and minimal transmission and distribution losses. With the City of Sydney forecast to consume 4.3 TWh of electricity per year by 2030, its renewable electricity target of 30 per cent will require 1.3 TWh of electricity to be produced from local renewable sources by In addition, the Master Plan has a target of supplying up to 27.6 PJ of renewable gases per year to replace the natural gas resource that will be used to supply the 372 MW of Trigeneration capacity identified in the Trigeneration Master Plan. This will convert the Trigeneration capacity from a source of low emission electricity to a near zero emission source, further reducing the City s GHG emissions and displacing the use of fossil fuel fired electricity. Electricity generation technologies The 14 renewable electricity technologies to be assessed for the Decentralised Energy Master Plan Renewable Energy Master Plan all offer zero emissions generation or displacement. The City of Sydney has determined that 60 per cent of the renewable electricity requirement identified under the Master Plan is to be sourced from within the City of Sydney LGA by 2030, with the remainder to be sourced from beyond. Electricity sourced from beyond the LGA will incur electricity losses in the transmission and distribution network. However, generation capacity is intended to be sourced from sites located within 250km of the LGA, limiting the losses. Locations within approximately 250km of the City of Sydney are represented by the area inside the red circle in Figure 1.2. The shaded red area represents the Greater Sydney area while the City itself is denoted by a red balloon denotes the City. The Allen Consulting Group 4

18 Figure 1.2 LOCATIONS WITHIN APPROXIMATELY 250 KILOMETRES OF THE CITY OF SYDNEY Source: Google (2013). A comparison of the marginal social cost of abatement for each of the 14 technologies will enable the determination of the optimal technology mix for achieving the City s renewable electricity and emission reduction targets at least cost. Box 1.1 provides an explanation of the concept of the marginal social cost of abatement. Box 1.1 MARGINAL SOCIAL COST OF ABATEMENT The marginal cost of abatement of a renewable electricity technology is equal to the amount of emissions reduction that can be achieved using renewables instead of grid electricity, divided by the cost difference between renewable and grid electricity. In contrast, the marginal social cost of abatement includes the cost faced by the electricity supplier in reducing its greenhouse gas emission, in addition to any cost to the rest of society, such as: subsidies offered by the government to encourage renewable electricity; and any costs faced by the end user of electricity that may result, such as the need for new equipment to utilise a certain electricity resource. Benefits that may exist, such as any reduced transmission and distribution costs, and avoided carbon permit liabilities have been factored into the calculation. However, benefits such as climate change mitigation have not been factored in. The Allen Consulting Group 5

19 Of course, the optimal technology mix would also be subject to resource constraints, such as the limited availability of suitable sites within Sydney and neighbouring regions to host generation capacity that may be dependent on an abundant supply of specific natural resources such as wind, sunlight, waves, and rapid currents. Renewable gas resources The four renewable gas resources to be assessed for their potential use as a fuel source for the City s proposed Trigeneration network all offer low to near zero emissions alternatives to the use of conventional, non-renewable natural gas resources. The Trigeneration network is expected to be capable of providing Sydney with a 372MW local low-emissions electricity generating capacity by 2030 using conventional non-renewable natural gas and/or local renewable substitute natural gas resources. Analysis of the cost of using alternative renewable gases as fuel for the Trigeneration network is dependent on estimates of the cost of producing these gas resources using feedstock from sites across the Sydney Metropolitan Area, and nearby areas within NSW that have been prepared for the City of Sydney by Talent with Energy. Projections of the future cost of conventional non-renewable natural gas reported by the Bureau of Resource and Energy Economics (BREE) in the Australian Energy Technology Assessment (AETA) 2012 form the baseline for comparison. Limitations of this report This report is not a detailed benefit and cost analysis of the City s Decentralised Energy Master Plan Renewable Energy, or of individual generation projects that may form a part of the plan. The report provides an indication of various average measures of the potential costs of different renewable energy technologies and resources under consideration by the City of Sydney. The results and findings presented in this report should be considered within the limits of the constraints of the underlying analysis, which include the following: only the cost of generation using each technology has been analysed; in addition, only average generation costs have been modelled, the cost of generation using each technology at specific sites would be expected to vary from this average; disruption costs associated with constructing building and precinct scale generators throughout the City, including disruptions to traffic, have not been accounted for; disruption costs associated with alterations to the transmission and distribution network resulting from the implementation of these technologies, or from the transportation of gas to the City have not been analysed; a detailed commercial analysis, including the impact of adopting the renewable technologies as part of the City s renewable energy master plan on prices and competition in the electricity sector has not been undertaken; The Allen Consulting Group 6

20 while allowances have been made for the likely impacts of replacing grid electricity with local renewable sources, these impacts have not been directly, explicitly analysed due to limitations in information availability; and the modelling results reflect possible outcomes that could occur under three different macroeconomic, industry, and policy environment scenarios. differences between the modelled scenarios and actual macroeconomic, industry, and policy environments would produce variations between the modelled results and actual outcomes. The Allen Consulting Group 7

21 Section 2 Our approach There are four major steps to completing this financial and economic analysis of renewable energy technology options for the Master Plan, as illustrated in Figure 2.1: Scenario development; Financial analysis; Economic analysis; and Reporting findings and formulating conclusions. Figure 2.1 STAGES OF THE ANALYSIS Source: Allen Consulting Group (2012). Scenarios The costs and achievement of the renewable energy and emission reduction targets of the Master Plan are dependent on the uptake of the renewable technologies. The Allen Consulting Group 8

22 Three scenarios representing different take up rates of the renewable technologies were constructed to examine their impacts on the cost of delivering the Master Plan. The take up of these renewable energy technologies will depend critically on their prices relative to that of grid electricity. Alternatives to grid electricity that are cheaper will be adopted, while those that are more costly will require subsidies to render them commercially viable. The carbon price is expected to have a major influence on the price of electricity, and is modelled by the Australian Treasury (2011) to raise the wholesale price of electricity in NSW by an average of 38 per cent from to Retail electricity prices are modelled to be 10 per cent higher. The three scenarios are based around three different carbon price trajectories to Higher carbon prices will drive up the cost of grid electricity, which would increase the commercial viability and take up of renewable energy technologies and resources. Figure 2.2 sets out the three carbon price trajectories underlying the three scenarios. Figure 2.2 CARBON PRICE PATHS BY SCENARIO (REAL 2012 DOLLARS PER TONNE OF CO2 EQUIVALENT EMISSIONS, 2012$/TCO2-E) Source: Allen Consulting Group analysis (2013), Department of the Treasury (2011). The Allen Consulting Group 9

23 Central This represents a medium uptake scenario, based on the Government Policy scenario carbon price trajectory and electricity price impacts. The City of Sydney s renewable energy target is met by High Based on a world where Australia faces a significantly higher carbon price as the result of more ambitious emission reduction targets, grid electricity prices are higher than the central scenario, resulting in higher uptake of renewables. The City s renewable target is exceeded by Low The low uptake scenario represents a world with slow carbon price growth, resulting in low electricity prices and a relatively low rate of adoption of renewables. The City s renewable target is only met by 2030 with higher subsidies. While the trajectory of the carbon price under the Australian Government s carbon price mechanism (CPM) plays a central role in the formulating of the three scenarios due to their expected impacts on the price of electricity and renewable energy in Australia, the future of the CPM is currently uncertain. The Coalition Opposition has stated its intention to repeal the CPM and implement an alternative climate change mitigation policy framework if it were to form government following the federal election scheduled for 14 September It is uncertain what impact this would have on electricity prices and renewable electricity prices in particular. Financial analysis Financial analysis of each of the renewable energy technologies under the Master Plan is centred on the levelised cost of energy (LCOE). The LCOE of each technology is the minimum cost of energy at which a generator must sell the electricity produced using that technology in order to achieve its target level of return. The LCOE can be considered as the break-even price for each technology/resource. The LCOE of each type of generation capacity is dependent on the following factors: capital costs the costs of acquiring and installing the generation capacity; fixed operating costs the costs of operating the generators that is independent of the actual output; variable operating costs costs of operating the generators that varies with output generated; fuel costs the costs of any fuel that may be required by the generator to produce electricity; carbon price the price of carbon permits under the Australian Government s carbon price mechanism; The Allen Consulting Group 10

24 capacity factor technical, regulatory and market constraints on the output of the generator; the discount rate the interest rate at which future cash flows are discounted to give their present value to enable a comparison between alternative uses of the funds in the present on a consistent basis. The rate selected is 9.79 per cent, which is the weighted average cost of capital (WACC) adopted by the Australian Energy Market Operator (AEMO) for the Decentralised World scenario of the 2010 National Transmission Network Development Plan (NTNDP); and the amortisation period the period over which the LCOE is calculated, and can be based on the estimated operating life of each generation technology before it is either refurbished or decommissioned. Factors such as the effects of taxation, plant decommissioning costs at the end of its useful life, and plant residual costs are excluded from the calculation of the LCOE, in keeping with the methodology adopted in the Bureau of Resource and Energy Economics (BREE) 2012 Australian Energy Technology Assessment (AETA). The LCOE calculation includes the value of any federal and state government subsidies available to each technology. These include the Large-scale Generation Certificates (LGCs) and Small-scale Technology Certificates (STCs) that are available to renewable energy generators under the Australian Government s Renewable Energy Target, and feed in tariffs that are made available to renewable energy generators by the NSW Government. Note that details of the new feed in tariff regime in NSW to replace the previous scheme that was closed to new entrants by the NSW Government in 2011 have not yet been finalised. The feed in tariff scheme assumed to operate in NSW for the purposes of this analysis is based on the Independent Pricing and Regulatory Tribunal (IPART) determination on a fair and reasonable solar feed-in tariff for NSW of June Appendix B sets out the methodology used to calculate the LCOE in detail. After the LCOE is calculated, the delivered cost of each renewable electricity technology can be calculated. The delivered cost of is equal to the LCOE with network and distribution costs added. This represents the actual cost that is incurred in delivering a unit of electricity from a generator using each type of technology, to the final user. Network charges are a major influence on the delivered retail price of electricity for the end user. It is assumed that the large scale renewable electricity sourced from beyond the LGA would be associated with network costs that would be comparable to that of standard grid electricity as it would be dependent on the same transmission and distribution network. Precinct scale generators and even building scale generation technology may not completely eliminate network costs. While it is true that those parts of the City that are disconnected from the grid could avoid network charges, it is unlikely that disconnection would occur. End users within the City of Sydney would require a connection to the grid in order to: export surplus electricity generation to the grid; The Allen Consulting Group 11

25 access grid electricity during periods of peak demand and/or any period where the local generator capacity cannot adequately meet demand; and maintain a high level of supply reliability in the event of the failure of the building and precinct scale technology. Any network cost savings that may be achieved are factored into the calculation of the delivered cost of each electricity technology. A necessary condition for a renewable technology to be financially viable is for the delivered cost to be less than or equal to the delivered cost of the baseline electricity technology, which is assumed to be black coal without CCS, the current primary source of base load power in NSW. However, this condition alone may not be sufficient for the project to be financially and economically viable, as non-price factors such as reliability and security of supply, government policies would also affect the viability of a generation project incorporating any given technology. The financial analysis is intended as a vanilla analysis of each technology and is intended as a high level analysis of the relative costs of different technologies. It is not intended as financial advice or as a basis for making investment decisions. This analysis does not take key considerations such as the structure of the entity undertaking the project, project specific borrowing costs and tax obligations, or site specific costs. The primary purpose of this financial analysis is as an input into the economic analysis of the selected technologies. Economic analysis Economic efficiency is attained when the efficient level of total emissions reduction is achieved at the lowest overall cost to society. The marginal social cost of abatement for each of the fourteen renewable electricity technologies, four renewable gas resources, and baseline technologies need to be evaluated in order to compare their relative cost-effectiveness in achieving greenhouse gas emissions abatement. The methodology to be adopted for estimating the marginal social cost of abatement of the renewable energy technologies and resources is based on that which the Allen Consulting Group had previously used in evaluating the Decentralised Energy Master Plan Trigeneration. Marginal social cost of abatement The marginal social cost of abatement of each renewable technology is the basis by which each of the fourteen technologies and four renewable gas resources would be assessed for their potential economic viability as a source of renewable electricity generation for the City of Sydney. This cost measure is made up of two concepts: social cost; and marginal cost. The Allen Consulting Group 12

26 Social cost The social cost of taking a particular action, such as adopting renewable electricity, refers to the costs incurred collectively by the entire society in taking that action. In the context of this report, society refers to all residents, businesses, government, and other entities operating within the City of Sydney, as well as those with activities located in the City. This includes the electricity generators and network operators who may be geographically located far from the City. Marginal cost The marginal cost of an action is the additional cost that is incurred in taking that action. Returning to the renewable electricity example, the marginal cost is the difference in cost between sourcing electricity from a renewable generator and from a coal fired power plant, which is the baseline technology. Marginal social cost then, is the marginal cost of taking an action that is faced by the entire society. This concept is graphically illustrated in Figure 2.3. Figure 2.3 MARGINAL SOCIAL COST Source: Allen Consulting Group (2013). The marginal cost of an activity can change over time, due to a number of factors, including technological improvements. In the example illustrated in Figure 2.3, the marginal social cost of renewable technology falls from $10 in 2012 to $0 in However, renewable electricity produced from renewable technology installed in 2012 will still have the 2012 marginal social cost of $30 in 2020, even though electricity produced from renewable technology installed in 2020 would have a marginal social cost of $20. The Allen Consulting Group 13

27 The logic behind this is straightforward. A simple explanation of this is that even though technology is cheaper in 2020, that doesn t reduce the price that society paid to install the technology back in In this report, the marginal social cost of abatement refers to the social cost of achieving a unit of greenhouse gas reduction or avoidance, as measured in terms of tonnes of carbon dioxide equivalents (tco2-e). Box 2.1 explains the concept of and method of calculating the marginal social cost of abatement in greater detail. Box 2.1 CALCULATING THE MARGINAL SOCIAL COST OF ABATEMENT Renewable electricity technologies abate greenhouse gas emissions by replacing the use of emissions intensive fossil fuel powered generators. However, renewable electricity technologies tend to be more expensive than non-renewables. The difference between the cost of generating electricity using black coal generators and a particular renewable technology can be considered the cost of abating greenhouse gas emissions. When this cost is divided by the amount of greenhouse gas emissions avoided (measured in tonnes of CO2 equivalents, or tco2-e), this provides the cost of abatement on a dollars per tco2-e ($/tco2-e) basis. Each of the renewable electricity technologies to be assessed produces low emissions electricity at a different cost. The lowest cost technology should be used to replace emission intensive fossil fuel based electricity generators, such as the black coal baseline technology. However, there may be constraints to how much electricity each technology type can provide to the city. These constraints may stem from need to balance between different technologies to ensure supply reliability, or natural physical limits, such as land availability, the amount of sunlight hours available at different points for solar technologies, or the availability of sufficiently windy sites for wind power. As such, each technology type is capable of providing only a certain amount of low emissions electricity. In other words, at each cost level, a certain renewable electricity technology can provide a limited amount of emissions abatement potential. If additional abatement is required, the deployment of the next cost-effective technology is required. The marginal abatement cost curve is a curve that plots out the amount of emissions abatement that is available at each cost level through different technologies. It is marginal in that it provides an indication of the additional cost that is required to achieve additional quantities of emissions abatement. The marginal social cost of abatement curve takes into account both private and social costs of abatement, that is the cost to those directly involved in producing the renewable electricity, as well as any additional costs imposed on society, such as any government subsidies or a requirement for the adoption of new equipment by consumers in order to gain access to the renewable electricity. The following example provides a basic explanation of how the marginal social cost of abatement of a technology can be calculated. If replacing 1 unit of coal fired electricity with 1 unit of renewable electricity reduces the amount of greenhouse gas emissions by 1tCO2-e; and 1 unit of renewable electricity cost society $1 more than 1 unit of coal fired electricity; then the marginal social cost of abatement of renewable electricity is $1/tCO2-e. The Allen Consulting Group 14

28 Therefore, the marginal social cost of abatement of replacing a portion of the City of Sydney s grid-sourced electricity with a particular renewable electricity generator is the cost that is borne by everyone who conducts activities in or is economically connected to the City, such as residents, businesses, government, and the electricity supply industry. However, as the marginal social cost of abatement is an indication of the cost borne by society in total, it does not offer an indication about who specifically within society bears the cost. In summary, the marginal social cost of abatement of a technology in a given year is the cost of achieving an additional unit of greenhouse gas abatement using equipment featuring that technology that was produced in the particular year. A social marginal abatement cost (MAC) curve is produced by graphing the marginal social cost of abatement (or social MAC) of every technology under comparison on a single curve, in order from the lowest cost to the highest cost, or vice versa. This provides a visual representation of the cost of achieving an additional unit of abatement using each technology in a given year. Figure 2.4 is an example of a marginal social abatement cost curve. Figure 2.4 EXAMPLE MARGINAL SOCIAL COST OF ABATEMENT: RENEWABLE ELECTRICITY TECHNOLOGIES IN 20XX (REAL 2010 DOLLARS PER TONNE OF CO2 EQUIVALENT OF EMISSIONS ABATEMENT) Source: Allen Consulting Group (2013). The Allen Consulting Group 15

29 This approach accounts for: the cost of any subsidies that will be necessary to support the commercial viability of each technology; and any additional cost borne by the final consumer of electricity from adopting a particular technology. In addition, the methodology for assessing the social cost of carbon abatement from renewable gases will incorporate the following assumptions: renewable gases to be generated locally (within 250km); gas would be: converted to substitute natural gas and injected in the existing natural gas pipeline; or liquefied and transported directly into the city; and renewable gases would be used in the City s Trigeneration units to generate electricity and thermal energy and displace grid fired electricity. The costs involved with these specific assumptions for sourcing renewable gases have been factored into the methodology for assessing the social cost of abatement of this technology. As with the financial analysis upon which it is built, this economic analysis does not take into account a number of project and site specific factors that are necessary for an assessment of the economic costs and benefits of individual energy projects. It is also dependent on future macroeconomic scenarios that were constructed using publicly available information at the time of writing, such as the Australian Treasury s Strong Growth, Low Pollution: Modelling a Carbon Price report, released in The methodology for undertaking this study of renewable electricity technologies and renewable gas resource options under the City of Sydney s Decentralised Energy master Plan Renewable Energy, as set out in this section, is in line with that previously used to undertake the financial and economic analysis of the City s Trigeneration Master Plan by the Allen Consulting Group in conjunction with Kinesis in Assumptions Underlying the financial and economic analysis of the technologies that could potentially be adopted under the master plan are assumptions about the macroeconomic environment from the present to as well as the development and availability of the technologies. Economic assumptions Economic variables that could affect the financial and economic viability of the technologies to be evaluated under the master plan include: the carbon price; The Allen Consulting Group 16

30 the Large-scale Generation Certificate (LGC) and Small-scale Technology Certificate (STC) prices under the Australian Government s Renewable Energy Target (RET); and electricity prices. The economic assumptions underlying this report are based on the Government Policy scenario of the Australian Treasury s Strong Growth, Low Pollution: Modelling a Carbon Price (SGLP) report released in July 2011 and subsequent updates released in September In particular, the carbon price trajectories modelled in the SGLP report have a major impact on the results of this analysis. However, since the publication of the SGLP report in July 2011 and subsequent revisions in September 2011, there have been further changes to the Carbon Price Mechanism (CPM) which would affect Australian carbon prices in the future. This includes the proposed linkage of the Australian CPM to the European Union Emissions Trading Scheme (EU ETS) at the conclusion of the fixed price trading period in 2015 and the consequent removal of the CPM floor price. The likely impact of these changes on the carbon price remains uncertain. Appendix A sets out the economic assumptions in greater detail. Technical assumptions Estimates of the capital costs for the fourteen renewable electricity technologies and four renewable gas resources were produced by combining cost estimates of each type of technology using up to date estimates contained in the AETA and public domain information with the information to be provided by the City on the types, scales and locations of the renewable energy sources to be installed. Developments of comparator and competitor generation technologies such as black coal and gas fired power plants, carbon capture and storage (CCS) technology, also need to be taken into account. Appendix C sets out the technical assumptions underlying the electricity technology in detail while Appendix D sets out the renewable gas resources assumptions. The Allen Consulting Group 17

31 Section 3 Financial analysis Results from a financial analysis of the renewable electricity technologies are presented in this section. The analysis focuses on the differences between the cost of delivering a megawatt hour (MWh) of electricity using each renewable technology and coal fired electricity, the baseline technology. The capital costs of each technology are assumed to be constant for all three scenarios, although the delivered cost varies under the different scenarios due to the impact of the carbon price on the LCOE of emission intensive comparator technologies. The financial analysis focuses only on the Central scenario, as described in Section 2. As explained in Section 2, the financial analysis conducted in this report is based on generic assumptions for each type of technology, and a macroeconomic forecast scenario as set out in Section 2 and elaborated on in Appendix A. It should be considered as a high level assessment of the relative costs of each type of electricity generation technology, given the macroeconomic environment scenario adopted for this study. This analysis cannot be considered as an assessment of the financial viability of a particular project or considered as financial advice for any particular investment project as it does not account for project specific factors relating to tax concessions, actual borrowing costs, and other limitations as specified in Section 2. The cost estimates reported in this section reflect the average cost of constructing and operating generation capacity using each type of technology. However the per unit cost of operating and constructing a particular generation facility would vary with the size and capacity of the facility. The Allen Consulting Group 18

32 Capital expenditures The estimated capital costs of constructing generating capacity using each type of renewable energy technology and resources in is presented in Table 3.1. Where available, capital cost estimates are drawn from the 2012 AETA. Estimates for the remaining technologies were produced using other public domain information. Table 3.1 ESTIMATED CAPITAL COST BY RENEWABLE ENERGY TECHNOLOGY, REAL 2012 DOLLARS PER MEGAWATT OF INSTALLED CAPACITY ($/MW) Technology / Resource Building integrated within LGA Solar hot water 2,935,000 2,801,000 2,720,000 2,642,000 Solar PV 4,295,000 3,458,000 2,993,000 2,590,000 Micro wind 4,885,000 3,353,000 3,360,000 3,406,000 Precinct scale within LGA Wind turbines 3,732,000 2,562,000 2,567,000 2,602,000 Direct use geothermal 314, , , ,000 Concentrating solar thermal 8,282,000 5,116,000 4,461,000 4,457,000 Renewable electricity beyond the City Onshore wind 2,579,000 1,771,000 1,774,000 1,799,000 Offshore wind 4,538,000 3,978,000 4,043,000 3,942,000 Geothermal electric 10,943,000 11,010,000 11,067,000 10,979,000 Concentrating solar PV 3,822,000 2,434,000 2,290,000 2,138,000 Concentrating solar thermal 4,888,000 2,997,000 2,599,000 2,611,000 Wave 6,118,000 6,193,000 3,951,000 3,807,000 Tidal 6,175,000 6,251,000 3,988,000 3,843,000 Hydro 3,620,000 3,486,000 3,400,000 3,316,000 Baseline technology Black coal 1,548,000 1,861,000 2,054,000 2,248,000 Source: Allen Consulting Group calculations (2013), Bureau of Resource and Energy Economics (2012), CSIRO (2011) and EPRI (2006). Operating expenditures The costs of operating electricity generators fall under two categories: fixed, and variable. Fixed operating costs include 1 : direct labour costs and associated support costs; fixed service provider costs; 1 BREE (2012, p.19). The Allen Consulting Group 19

33 minor spares and fixed operating consumables; and fixed inspection, diagnostic and repair maintenance services. Estimated annual fixed operating costs are reported in Table 3.2 in terms of cost per MW of installed capacity ($/MW per year). Table 3.2 ESTIMATED FIXED OPERATING COST BY RENEWABLE ENERGY TECHNOLOGY, REAL 2012 DOLLARS PER MEGAWATT OF INSTALLED CAPACITY ($/MW PER YEAR) Technology / Resource Building integrated within LGA Solar hot water Solar PV Micro wind Precinct scale within LGA Wind turbines 42,939 45,921 47,785 49,649 Direct use geothermal 81,238 86,881 90,407 93,934 Concentrating solar thermal 60,000 64,168 66,772 69,377 Renewable electricity beyond the City Onshore wind 40,000 42,778 44,515 46,251 Offshore wind 80,000 85,557 89,030 92,503 Geothermal electric 170, , , ,568 Concentrating solar PV 38,000 40,639 42,289 43,939 Concentrating solar thermal 60,000 64,168 66,772 69,377 Wave 190, , , ,693 Tidal 270, , , ,764 Hydro 40,357 40,357 40,357 40,357 Baseline technology Black coal Source: Allen Consulting Group calculations (2012), CSIRO (2011) and EPRI (2006). (2013), Bureau of Resource and Energy Economics Variable operating costs include 2 : chemical and operating consumables that are generation dependent, such as raw water, and water treatment chemicals; scheduled maintenance of the entire plant; and any unplanned maintenance. Estimated variable operating costs are presented in Table 3.3 in terms of cost per MWh of generation sent out ($/MWh). 2 BREE (2012, p.19) The Allen Consulting Group 20

34 Table 3.3 ESTIMATED VARIABLE OPERATING COST BY RENEWABLE ENERGY TECHNOLOGY, REAL 2012 DOLLARS PER MEGAWATT HOUR OF GENERATION SENT OUT ($/MWH) Technology / Resource Building integrated within LGA Solar hot water Solar PV Micro wind Precinct scale within LGA Wind turbines Direct use geothermal Concentrating solar thermal Renewable electricity beyond the City Onshore wind Offshore wind Geothermal electric Concentrating solar PV Concentrating solar thermal Wave Tidal Hydro Baseline technology Black coal Source: Allen Consulting Group calculations (2013), Bureau of Resource and Energy Economics (2012), CSIRO (2011) and EPRI (2006). Delivered Cost On the basis of the capital and operating costs presented above, the estimated LCOE and delivered cost for each technology was calculated. As explained in Section 2, the delivered cost represents the minimum price that electricity produced by each technology need to be sold at, inclusive of transmission and distribution costs, in order to break even. The estimated delivered cost of each renewable electricity technology and the baseline technology is presented in Table 3.4 in terms of cost per MWh of generation ($/MWh). The Allen Consulting Group 21

35 Table 3.4 ESTIMATED DELIVERED COST BY RENEWABLE ENERGY TECHNOLOGY, REAL 2012 DOLLARS PER MEGAWATT HOUR OF GENERATION ($/MWH) Technology / Resource Building integrated within LGA Solar hot water Solar PV Micro wind Precinct scale within LGA Wind turbines Direct use geothermal Concentrating solar thermal Renewable electricity beyond the City Onshore wind Offshore wind Geothermal electric Concentrating solar PV Concentrating solar thermal Wave Tidal Hydro Baseline technology Black coal Source: Allen Consulting Group calculations (2013), Bureau of Resource and Energy Economics (2012) and CSIRO (2011). Conditional viability A comparison of the cost estimates in Table 3.4, indicate that the following renewable technologies could possibly be delivered at a lower cost than black coal fired electricity by 2030 under the macroeconomic forecast scenario adopted for this report: building solar photovoltaic (PV); building micro wind; and large scale onshore wind. Cost of the Decentralised Energy Master Plan Renewable Energy Using the per kilowatt capital costs from Table 3.1, an estimate of the cost of constructing the generation capacity required to meet 30 per cent of the City of Sydney s total electricity requirements with renewables under the Central Scenario of the Master Plan was produced. It is assumed that least cost technology options as identified in Table 3.4 are used to provide the required generation capacity. The Allen Consulting Group 22

36 Under the scenario, 30 per cent (1.3TWh) of the City of Sydney LGA s annual electricity demand in 2030 would be supplied by the following technology mix: building integrated renewables within the LGA supply 23.1 per cent (297.9 GWh per year), costing $716.7 million from 2012 to 2030 ($210.7 million in 2012 dollars when discounted using a 9.79 per cent nominal rate); 76.9 per cent (994.3 GWh per year) is generated by renewable sources from beyond the City of Sydney, costing at least $535.5 million (or $129.9 million in discounted terms), assuming the use of onshore wind technology. Note that the finding that 23.1/76.9 per cent split between renewable electricity sources within the City of Sydney LGA and those from beyond the LGA is based on a methodology designed to determine the least cost method of delivering the City s renewable electricity target. This methodology also accounts for the resource constraints that apply to the City, such as the limited availability of suitable sites to host building-scale solar and wind generators within Sydney. However, since the completion of this analysis, the City of Sydney has determined that 60 per cent of the renewable electricity requirement under its renewable electricity target would be sourced from within the LGA, while the remaining 40 per cent would be sourced from beyond. The differences between the latest design of the plan by the City of Sydney and the version analysed in this section of the report should be kept in mind in considering the implications of this analysis. The differences between the version of the plan analysed in this section and the current version of the City s only affects the plan s technology mix, not the costs and benefits of each technology. That is, the analysis of the costs and benefits of each individual technology are unaffected by these differences. Figure 3.2 provides a breakdown of the installed generation capacity by technology that would be required under this scenario. Building integrated renewable represents 1MW of capacity in 2020, growing to 121MW by 2025 and 243 by Beyond LGA renewables make up 300MW of installed capacity by 2030, for a total renewable capacity of 543MW. Precinct scale renewables cannot provide capacity at a sufficiently low cost to enter the renewable electricity generation capacity mix in this scenario. The Allen Consulting Group 23

37 Figure 3.2 CENTRAL SCENARIO, MEGAWATTS OF INSTALLED RENEWABLE ELECTRICITY GENERATION CAPACITY TO 2030 (MW) Source: Allen Consulting Group calculations (2013). Overall, the implementation of the Decentralised Energy Master Plan Renewable Energy from 2012 to 2030, using the least cost mix of technologies, is estimated to require at least $1,252.2 million (or at least $340.7 million in discounted terms) in capital costs. Figure 3.3 provides a breakdown of the generation share and capital cost share of each technology type under the Central scenario of the master plan. The Allen Consulting Group 24

38 Figure 3.3 DECENTRALISED ENERGY MASTER PLAN RENEWABLE ENERGY: CENTRAL SCENARIO, ELECTRICITY GENERATION AND CAPITAL COST BY TECHNOLOGY (PER CENT SHARE) Source: Allen Consulting Group calculations (2013). Given construction lead times, it is assumed that work will have to begin on the onshore wind generators by 2026 in order to ensure that sufficient renewable energy capacity is available to allow the city to achieve its 2030 target. However, as onshore wind is not expected to be commercially viable until at least 2029, an estimated subsidy of between $1.00 and $6.00 per MWh is required to enable the provision of electricity from this source to be competitive with output from the baseline black coal plant. A breakdown of the delivered cost of onshore wind power between the baseline technology (black coal) delivered cost and the subsidy required is displayed in Figure 3.4. The Allen Consulting Group 25

39 Figure 3.4 COMPONENTS OF THE DELIVERED COST OF ONSHORE WIND, REAL 2012 DOLLARS PER MEGAWATT HOUR (2012 $/MWH) Source: Allen Consulting Group calculations (2013). This estimate is for an average onshore wind generation facility in average NSW conditions. The viability of a specific onshore wind generation project would vary depending on site specific factors, such as wind availability and site accessibility. Indeed, there are currently onshore wind facilities in operation or under construction throughout Australia. However, there are a number of factors influencing the viability of these sites, many of which are unlikely to be applicable to future projects, such as renewable energy support schemes at the state and federal levels that may no longer be in operation or available to new projects, or may be due to non-financial factors. For example, the NSW Government had signed an agreement to purchase renewable energy from the Capital Wind Farm in Southern NSW for 20 years to provide a 100 per cent offset for the Kurnell Desalination Plant s power requirements in order to fulfil a specific policy objective of powering the Desalination Plant with renewable energy. The Renewable Energy Target, together with the Carbon Pricing Mechanism, continues to provide incentives for the construction of low greenhouse gas emissions electricity generation technologies. However there is an element of risk associated with electricity generation projects with viability that is dependent on the RET and CPM. These instruments exist under Commonwealth legislation and regulations that are subject to change at discretion of the government of the day. The Allen Consulting Group 26

40 The RET is due to terminate in 2030, and the CPM s future is uncertain given the Coalition Opposition s stated intent to repeal the scheme if it succeeds in forming government following the federal election scheduled for 14 September Financial analysis - summary and conclusion On average, it appears that only three renewable electricity technologies could potentially offer alternatives to grid electricity to the City of Sydney by 2030 that would be unlikely to require additional subsidies under the macroeconomic environment portrayed in the Central scenario: building solar photovoltaic (PV); building micro wind; and large scale onshore wind. That is, these are the three technologies projected to on average to have the potential to provide electricity at a lower delivered cost than coal-fired electricity supplied through the grid. However, the performance of individual electricity generation projects would vary from the average depending on site and project specific factors that cannot be accounted for in the absence of project specific information. Changes in the macroeconomic, legislative, regulatory, and policy environment from that modelled under the Central scenario would also affect the implications of this analysis. An assessment of the financial viability of a specific renewable electricity generation project would require project specific factors, and could vary from the implications of the high level financial analysis of the average example of each type of technology presented in this section. The Allen Consulting Group 27

41 Section 4 Economic analysis Results from an economic analysis of the renewable electricity technologies are discussed in this section. The focus is on the greenhouse gas abatement achievable, and the marginal social cost of abatement under each scenario. Potential greenhouse gas abatement Figure 4.1 illustrates the amount of renewable electricity that could be produced by the capacity installed under the master plan from 2012 to 2030 under each scenario. All three scenarios achieve the target of 1.3 TWh by Figure 4.1 ELECTRICITY SUPPLY PER YEAR BY SCENARIO, TERAWATT HOURS PER YEAR (TWH/Y) Source: Allen Consulting Group calculations (2013). On the basis of the analysis in Section 3, it is apparent that renewable electricity technologies would not begin to become financially viable until Through displacing generation from non-renewable, emission intensive power plants, the cumulative greenhouse gas emissions abatement achievable under each of the three scenarios from 2012 to 2030 are as follows: The Allen Consulting Group 28

42 3.0 MtCO2-e under the Central scenario; 6.5 MtCO2-e under the High scenario; and 2.6 MtCO2-e under the Low scenario. The 2030 renewable energy target is estimated to be achieved by 2027 under the High scenario, but is not expected to be achieved until 2030 under the other two scenarios. Figure 4.2 illustrates that cumulative greenhouse gas emissions abatement that could be achieved from 2012 to 2030 under each of the three scenarios. Figure 4.2 CUMULATIVE GREENHOUSE GAS EMISSIONS ABATEMENT ACHIIEVED BY SCENARIO (MTCO2-E) Source: Allen Consulting Group calculations (2013). Marginal social cost of abatement The marginal social cost of abatement under each scenario at 2020, 2025, and 2030 for each scenario are presented over the remainder of this section. Black coal without CCS is the baseline technology used for this analysis. In relation to the City of Sydney s renewable energy target, the marginal social cost of abatement can be considered as the cost of achieving the abatement of a tonne of carbon dioxide equivalent greenhouse gas emissions using each of the different technologies. The Allen Consulting Group 29

43 In order to achieve abatement at least cost, the City s targets should be achieved by using the combination of technologies that are capable of meeting the City s electricity needs at the lowest price. However, other considerations could influence the choice of technologies, such as safety, aesthetics, reliability, and security of supply, for example. Abatement costs reported for each year represents the relative costs of adopting each type of technology in that year. For example, if a technology is considered to be viable in 2030, it indicates that it is viable if it is constructed in However, if the same type of technology was installed in an earlier year, such as 2025, its marginal social abatement cost in 2030 would reflect the cost reported for that year (2025) rather than 2030, as its construction costs are already locked in to 2025 levels. The exception is for the Trigeneration technologies. It is assumed that construction of the Trigeneration network begins in Central Scenario Figure 4.3 presents the estimated marginal social cost of abatement of each of the renewable electricity technologies that are available by 2020 and a number of comparator technologies: the City of Sydney s Trigeneration master plan; and Combined Cycle Gas Turbine (CCGT). Note that geothermal electric is not yet available by Two additional comparator technologies are also not yet available at this point in time: CCGT with carbon capture and storage (CCS); and black coal with CCS. Note that the estimates for Trigeneration are simply based on the figures reported in the Trigeneration Master Plan and adjusted for 2012 prices to provide a common base of comparison. This analysis indicates that micro wind would potentially have a negative marginal social cost of abatement by A negative marginal social cost of abatement suggests that for the City as a whole, including the generators (which may be located beyond the City), it is cheaper to produce electricity using the cleaner technology than the more polluting baseline technology of black coal. However, it is uncertain where this benefit of reduced cost accrues to. That is, it is uncertain whether households, the Council, the generators, other parties, or some combination of them all, would capture the benefits. The marginal social cost of abatement curve indicates that under the Central Scenario, in 2020, micro wind (building) on average represents the lower cost option for achieving the City s renewable energy target, with a negative marginal social cost of abatement ($-17/tCO2-e). This indicates that on average, micro wind (building) has the potential to simultaneously deliver greenhouse gas abatement and electricity cost savings. The Allen Consulting Group 30

44 Figure 4.3 MARGINAL SOCIAL COST OF ABATEMENT: CENTRAL SCENARIO, 2020 (REAL 2012 DOLLARS PER TONNE OF CO2 EQUIVALENT OF EMISSIONS ABATEMENT) Source: Allen Consulting Group analysis (2013). However, the potential of micro wind (building) as a source of clean energy for the City of Sydney is limited by constraints in a key resource: space. It is unlikely that there will be sufficient suitable sites available within the City of Sydney for the construction of micro wind (building) generators in the quantity necessary to displace a significant proportion of the City s electricity demand that is currently supplied by grid electricity. Tidal electricity appears to be possibly the most expensive option, on average, at $281/tCO2-e. However, even within the assumptions of this scenario, it is possible for the cost of constructing individual generation units using each technology to vary from the average cost, depending on site/project specific factors, such as the size and scale of the generation unit. The Allen Consulting Group 31

45 Figure 4.4 presents the estimated marginal social cost of abatement by All technologies are expected to be available by 2025, with building solar PV ($- 28/tCO2-e) and micro wind ($-40/tCO2-e) estimated to have potentially negative abatement costs. Tidal power remains as the technology with the highest cost under this scenario, at $185/tCO2-e). Figure 4.4 MARGINAL SOCIAL COST OF ABATEMENT: CENTRAL SCENARIO, 2025 (REAL 2012 DOLLARS PER TONNE OF CO2 EQUIVALENT OF EMISSIONS ABATEMENT) Source: Allen Consulting Group analysis (2013). Only building scale renewable electricity technologies are considered to be capable of delivering abatement and cost savings simultaneously on average under this scenario by Due to the capacity constraints associated with building scale technology flowing from the limited availability of suitable locations within the City of Sydney, it is unlikely that these technologies would be able to deliver renewable electricity generation capacity in sufficient quantities and with acceptable levels of reliability to enable the City to end its reliance on grid electricity by 2025 under this scenario. The Allen Consulting Group 32

46 Estimates of the marginal social cost of abatement by 2030 are presented in Figure 4.5. At this time, large scale onshore wind technology is also estimated to potentially have negative marginal social costs of abatement ($-4/tCO2-e). Overall, under the Central Scenario, it appears that on average, large scale renewable electricity technology is not likely to become viable until at least until the late 2020s. Even then, only onshore wind generators located beyond the City of Sydney is potentially capable of providing large scale renewable generation capacity. Figure 4.5 MARGINAL SOCIAL COST OF ABATEMENT: CENTRAL SCENARIO, 2030 (REAL 2012 DOLLARS PER TONNE OF CO2 EQUIVALENT OF EMISSIONS ABATEMENT) Source: Allen Consulting Group analysis (2013). Small, building scale technology would probably have a major role in providing generation capacity in the early years of a renewable electricity rollout plan based on this scenario. Under such circumstances, it is likely that the City of Sydney would need to rely upon access to grid electricity in order to ensure security of supply, as the output of wind power generators are dependent on prevailing weather conditions. The Allen Consulting Group 33

47 High Scenario A major feature of this scenario is the importance of the carbon price as a major driver of the viability of renewable technologies, particularly in the later years, due to its impact on emissions intensive generators. Conversely, the RET has a smaller role in the viability of electricity generation technologies under this scenario as the high carbon price is assumed to drive an expansion of renewable electricity capacity to the extent that the role of the RET in fostering the development of renewable electricity in Australia becomes redundant. Figure 4.6 presents the potential marginal social cost of abatement of each of the renewable electricity technologies that are available by Figure 4.6 MARGINAL SOCIAL COST OF ABATEMENT: HIGH SCENARIO, 2020 (REAL 2012 DOLLARS PER TONNE OF CO2 EQUIVALENT OF EMISSIONS ABATEMENT) Source: Allen Consulting Group analysis (2013). Under this scenario, only building scale micro wind is estimated to potentially have a negative marginal social cost of abatement ($-30/tCO2-e) by At $263/tCO2-e, tidal power remains, on average, the most expensive potential source of renewable electricity for the City under this scenario. The Allen Consulting Group 34

48 It is estimated that by 2025, building scale solar PV (rooftop solar panels), and large scale onshore wind would also each potentially have a negative marginal social cost of abatement, as shown in Figure 4.7. Building micro wind is expected to remain the lowest cost potential source of renewable electricity for the City on average in 2025 under this scenario. Although there is expected to be a wider range of generation technology that could potentially offer renewable electricity and greenhouse gas abatement at below baseline technology costs by 2025 under this scenario, it is unlikely that the City would be able to end its reliance on grid electricity without a substantial increase in energy costs at this point. Figure 4.7 MARGINAL SOCIAL COST OF ABATEMENT: HIGH SCENARIO, 2025 (REAL 2012 DOLLARS PER TONNE OF CO2 EQUIVALENT OF EMISSIONS ABATEMENT) Source: Allen Consulting Group analysis (2013) The building and precinct scale technologies are constrained by the limited availability of suitable sites within the City, while onshore wind and the two building scale technologies are also limited by dependence on favourable weather conditions. The Allen Consulting Group 35

49 Figure 4.8 shows that although the marginal social cost of abatement may potentially fall further for all technologies by 2030, no additional technologies are expected to have potentially negative abatement costs. Although this is the most optimistic of the three scenarios for renewable electricity technologies, there are very few technologies that may potentially be economically viable for inclusion into the City s plan even under the High Scenario. Figure 4.8 MARGINAL SOCIAL COST OF ABATEMENT: HIGH SCENARIO, 2030 (REAL 2012 DOLLARS PER TONNE OF CO2 EQUIVALENT OF EMISSIONS ABATEMENT) Source: Allen Consulting Group analysis (2013). As in the Central Scenario, only onshore wind is expected to be an economically viable potential source of large scale renewable electricity by 2030 under the High scenario. Due to limitations on the reliability and availability of potentially economically viable technologies, as discussed throughout this section of the report, it is unlikely that the City would be able to completely substitute grid electricity with electricity sourced from these renewable sources. However, the City may choose to draw on other more expensive sources of renewable electricity that are available. The Allen Consulting Group 36

50 Low Scenario Of the three scenarios, the Low Scenario offers the least favourable prospects for the viability of renewable electricity technologies. Due to the low carbon price trajectory underlying this scenario, the RET has a major role in encouraging renewable electricity generation. The relatively low carbon price under this scenario raises the marginal social cost of abatement compared to the other scenarios by effectively increasing the cost differentials between the baseline coal-fired electricity technology and renewables. However, as a consequence of the lower carbon price, conventional coal-fired based grid electricity would also be expected to be more heavily polluting than in the other scenarios, which would exert a downward influence on the marginal social cost of abatement for clean technologies relative to the other scenarios by allowing for more greenhouse gas emissions abatement per MWh of electricity generated. The Low Scenario represents a possible outcome that could result if there is no rapid increase in the Australian Carbon Price following the end of the fixed price period of the CPM in Other forces, such as economic growth, inflation, and other macroeconomic factors could result in an outcome that is quite different to that modelled in this scenario, even if the actual carbon price trajectory matches the assumed trajectory. The marginal social cost of abatement of each of the renewable electricity technologies that are available by 2020 under the Low scenario is illustrated in Figure 4.9. Figure 4.9 MARGINAL SOCIAL COST OF ABATEMENT: LOW SCENARIO, 2020 (REAL 2012 DOLLARS PER TONNE OF CO2 EQUIVALENT OF EMISSIONS ABATEMENT) Source: Allen Consulting Group analysis (2013). The Allen Consulting Group 37

51 Of the renewable electricity technologies currently expected to be available by 2020, building scale micro wind is estimated to potentially have a negative marginal social cost of abatement, at $-9/tCO2-e. Under the Low scenario, it is estimated that by 2025, building solar PV would also potentially have a negative marginal social cost of abatement, as shown in Figure Figure 4.10 MARGINAL SOCIAL COST OF ABATEMENT: LOW SCENARIO, 2025 (REAL 2012 DOLLARS PER TONNE OF CO2 EQUIVALENT OF EMISSIONS ABATEMENT) Source: Allen Consulting Group analysis (2013). With a sustained, low carbon price trajectory, under this scenario, the marginal social cost of abatement of most renewable electricity technologies, including all of those offering large-scale generation, remain positive even by The absence of a high carbon price is projected to maintain the competitiveness of coal-fired electricity. Trigeneration has a lower marginal cost of abatement under this scenario than in the higher carbon price scenarios as it is assumed to be fuelled with fossil natural gas. The lower carbon price would reduce the carbon price liability and hence the total operating costs of the Trigeneration network relative to scenarios with higher carbon prices. The Allen Consulting Group 38

52 It is estimated that no additional technologies would be likely to have a negative cost by 2030, although the four technologies already with potentially negative cost in 2025 may become even more negative, as presented in Figure Figure 4.11 MARGINAL SOCIAL COST OF ABATEMENT: LOW SCENARIO, 2030 (REAL 2012 DOLLARS PER TONNE OF CO2 EQUIVALENT OF EMISSIONS ABATEMENT) Source: Allen Consulting Group analysis (2013). Overall, it appears that under the assumptions of the Low Scenario, large-scale renewable technologies are unlikely to become viable on average within the City of Sydney. This is due to the expectation that a low carbon price would be unlikely to raise the cost of baseline grid electricity by the amount necessary to close the cost differential with renewable electricity technologies. The relatively greater abatement per MWh of renewable electricity generated that could be achieved under this scenario due to the expected higher level of baseline emissions resulting from the low carbon price, is more than offset by the higher marginal costs of renewables under this scenario. The end result is an overall higher marginal social cost of abatement for all of the renewable technologies in this scenario relative to the Central and High scenarios. The Allen Consulting Group 39

53 This suggests that the large-scale substitution of coal-fired grid electricity with renewable electricity is unlikely to occur by this point of time through market forces alone, under the given macroeconomic and policy environment. Additional incentives may be necessary to encourage the large-scale uptake of renewable electricity technologies under this scenario. Economic analysis summary and conclusion A number of different renewable and low-emission energy technology options have been estimated as potentially having low or even negative marginal social costs of abatement by 2030 under the three scenarios. However, it is important to note that it is not possible to completely source the City s electricity requirements from any one of these sources, as they are generally subject to capacity constraints. In particular, the building and precinct scale technologies are limited by the amount of space available in the City to host the necessary equipment. The optimal mix of renewable electricity technologies for meeting the City of Sydney s electricity demands with a renewable substitute for grid electricity is dependent on both cost and capacity constraints. Overall, the majority of the renewable electricity technologies assessed are on average projected to have positive marginal social costs of abatement under all three scenarios all the way to This indicates that the baseline technology of coal-fired electricity sourced from the grid is likely to remain cheaper than most renewable technologies, especially those with the potential for large scale generation, within the macroeconomic, and policy parameters of the three scenarios modelled. As the positive marginal social cost of abatement for each renewable electricity technology represents the average cost differential between that technology and coal, it can also be considered as an estimate of the average minimum subsidy on a $/tco2-e basis that would be required to make this technology economically viable. Conversely, technologies with negative marginal social costs of abatement indicate that these technologies are on average likely to become economically viable even without additional subsidies as they are projected to be capable of producing electricity at costs below that of coal. However, bear in mind that the marginal social cost of abatement refers to the costs incurred by the entire society. A renewable electricity project incorporating an economically viable technology may not necessarily be financially viable, and a project making use of a technology that is not projected to be economically viable on average, may turn out to be financially viable. The viability of any individual electricity generation project is dependent on project specific factors. The Allen Consulting Group 40

54 Section 5 Trigeneration with renewable gas feedstock Results from an analysis of the use of alternative local renewable gas resources as a substitute for conventional non-renewable natural gas to fuel the City of Sydney s planned 372MW Trigeneration network are discussed in this section. According to the City s Trigeneration Master Plan, it is estimated that up to 27.6 PJ of gas would be needed to fuel the city s Trigeneration network per year by Renewable gas Renewable natural gas is a type of substitute natural gas (SNG) produced by refining biogas to a quality that is comparable to traditional or fossil natural gas. At a basic level, biogas is a mixture of gases that is produced from the decomposition of organic matter, such as agricultural, industrial, and municipal waste. While the chemical composition of fossil natural gas and renewable bio-sng are similar, differences in the environmental and global warming implications of the two gases stem from their origins. Fossil natural gas is a finite, non-renewable resource extracted from underground rock formations and coal seams, which when combusted, release greenhouse gases into the atmosphere that would have otherwise remained trapped underground. Bio-SNG is recovered from gases released during the breakdown of organic matter, making use of greenhouse gases that would have been released into the atmosphere regardless of whether or not it was recovered and combusted. Biogas is produced for use as a fuel in various countries, including the UK, USA, Canada, Japan, Korea, and Germany, Europe s leading producer of biogas (International Gas Union 2012). The international experience indicates that conditions do exist for bio-sng, and biogas more broadly, to offer a viable source of feedstock for natural gas fuelled electricity, heating, and other applications. Figure 5.1 presents a figure reproduced from IGU (2012, p.40) that graphically illustrates the number of biogas production units by country. However, despite the successful production of biogas as a source of energy overseas, the biogas industry remains in its infancy in Australia. While small scale biofuels project currently exist throughout Australia, there do not appear to be any biogas projects that are comparable in scope or scale to that being considered in this report to supply the City of Sydney. In recent times, there has been increased interest in the potential of the biogas industry in Australia. For example, the Australian Capital Territory Government commissioned a pre-feasibility study of a Thermal Conversion Facility in the ACT, which would, amongst other functions, produce biofuels using municipal waste (URS 2010). The Allen Consulting Group 41

55 The Tweed Shire Council, in regional NSW, has generated electricity from biogas since 2006, when it installed a micro power station at the Stotts Creek Recovery Centre that is fuelled with gases recovered from the Centre s methane gas extraction system. The facility can produce up to 3,000 MWh of electricity per year (Australian Government 2012). Introduced as part of the Australian Government s Clean Energy Future laws, the Carbon Farming Initiative (CFI) provides incentives for farmers and land managers, including municipal waste facilities to undertake activities to store carbon or reduce greenhouse gas emissions from their land. The CFI applies to a number of activities that are not covered by the CPM and provides carbon credits that can be used or sold to other individuals and businesses to offset greenhouse gas emissions. The CFI has the potential to encourage an expansion in biogas production. Biogas produced from sources within the Sydney Metropolitan Area or nearby regions of NSW could be transported to the City of Sydney LGA to power the proposed Trigeneration network and/or displace other current uses of fossil natural gas via rail, road vehicles, or through the gas pipeline network if the gas quality is up to bio-sng standard. Figure 5.1 NUMBER OF BIOGAS PRODUCTION UNITS BY COUNTRY Source: International Gas Union (2012). The Allen Consulting Group 42

56 Access to the existing gas pipeline network would require the bio-sng production sites to be located close to the existing network, or an extension of the pipeline network, as well as agreement with the network operators under the regulatory framework governing gas pipelines. The delivery method of feeding bio-sng directly into an existing gas pipeline network is one that currently exists overseas. In the UK, biogas producers need to be connected to the network by licenced gas transporters, secure access agreements with the network operators, and must meet certain gas quality standards, amongst other regulatory requirements, in order to deliver their biogas output through the gas pipeline network (DECC 2009). While Australian producers would probably face similar requirements for supplying their biogas through the gas pipeline network, at this stage, it is uncertain what exact requirements biogas producers under the City s renewable energy master plan would face under the Australian regulatory framework. Given the infancy of the bio-sng industry in NSW and Australia more broadly, there are no directly comparable bio-sng projects currently in existence that could provide guidance as to the exact requirements that bio-sng producers in NSW would face in order to gain access to the gas pipeline network, apart from the regulatory framework that currently apply to other forms of natural gas. It is likely that the regulatory framework applying to bio-sng would evolve with the industry. Types of bio-sng The Gasification Technologies Review commissioned from Talent with Energy by the City of Sydney in 2012 provided a detailed assessment of the renewable gas potential associated with conversion of a range of waste and biomass feedstock available within the region surrounding Sydney. This study provided the City with a snapshot of the available potential in 2030 for substitute natural gas (SNG) derived from each of the following pathways: Syngas from Waste SNG (SNG-SfW) SNG derived from upgrading of synthesis gas generated from thermal conversion of residual wastes (MSW, C&I) available within the City s LGA, the Sydney Metropolitan Area (SMA) and the Extended Regulatory Area (ERA) of New South Wales; Syngas from Biomass SNG (SNG-SfB) SNG derived from upgrading synthesis gas from thermal conversion of forestry and broadacre crop residues available within a 250 km radius from the City of Sydney LGA; Large-scale Biogas (SNG-LsB) SNG derived from anaerobic digestion of horticultural crops and animal manure available within a 250 km radius from the City of Sydney LGA; and Small-scale Biogas (SNG-SsB) SNG derived from upgrading biogas from anaerobic digestion of sewage sludge available at wastewater treatment plants operating within the Sydney Metropolitan Area (SMA) and the Extended Regulatory Area (ERA) of New South Wales; Landfill Gas (SNG-LFG) SNG derived from upgrading of landfill gas generated and captured at landfills operating within a 250 km radius of the City of Sydney LGA. The Allen Consulting Group 43

57 The Review provided details of the type of raw gas generated, the resulting SNG yield and the amount of SNG delivered to the city, net of losses and own use along delivery operations for each conversion strategy and resource stream. The study also provided detailed feedstock resource characterization and conversion technology assessment to enable the evaluation of the renewable energy component within each SNG resource stream. Key findings from the study are provided in Figure 5.2. Figure 5.2 RENEWABLE GAS INFRASTRUCTURE TOTAL AND RENEWABLE GAS FLOWS Source: Reproduced from Talent with Energy (2012). The different types of gas analysed by Talent with Energy (2012) for the City of Sydney are condensed into four types of renewable bio-sng for analysis in this report, and are as follows: SNG sourced from municipal solid waste (MSW), and commercial and industrial (C&I) waste; SNG sourced from biomass, such as forestry waste and broadacre crop residue; SNG sourced from large scale biogas, such as vegetable crops and horticulture, chicken and cattle manure; and SNG sourced from small scale biogas, and landfill gas. The Allen Consulting Group 44

58 Methodology The development of a renewable natural gas production and supply network of the scale that would be necessary to supply the City of Sydney s natural gas requirements from sources located within Sydney and in neighbouring regions has not been accomplished in Australia to date. This would be a pioneering achievement and make the City a leader in bio-sng fuelled power in Australia. However, this also presents some additional challenges to the task of evaluating the costs of the renewable gas component of the City s renewable energy master plan due to a lack of existing Australian biogas projects that could offer comparable empirical evidence on the subject. International experiences are of limited use as a comparator due to a number of differences between them and Australia. For example, the climate, environment as well as the density and distribution of population and economic activity vary significantly between Australia and many of the countries listed in Figure 5.1, such as Korea, Japan, the United Kingdom, and Germany. Also, the current electricity generation technology mix is quite different between different countries. Australia is heavily dependent on coal-fired generators for base load electricity, and has zero nuclear power capacity. In contrast, nuclear energy plays a significant role in the electricity production of a number of European countries, and Japan. Furthermore, international comparisons of energy production costs indicate that they vary greatly between countries, even when the same type of technology is used (EPRI 2006, p.2-31). Indeed, a paper on the potential for renewable gas in the UK by National Grid (2009) found the cost of a range of renewable gases to be broadly comparable to that of offshore wind technologies. As discussed later in this section, the results from the Allen Consulting Group s analysis are substantially different, with renewable gases projected to be significantly cheaper than offshore wind. Instead, the cost of renewable gases fuelled Trigeneration is found to be broadly comparable to that of onshore wind by 2030, but not earlier. In order to estimate the marginal social cost of abatement of replacing gridelectricity with electricity produced by the City of Sydney s proposed Trigeneration system using bio-sng feedstock from within Sydney and/or neighbouring regions of NSW, the following information was required: the availability of suitable sites for producing bio-sng; the volume of bio-sng that could be produced at each site; the emission factor of bio-sng produced from these sites; the levelised cost of gas (LCOG) of bio-sng from each site; the cost of transporting the bio-sng from each site to the City of Sydney; and the levelised cost of energy (LCOE) of producing electricity with the Trigeneration network using each type of bio-sng. Given the dearth of biogas projects in Australia that are comparable to that envisioned by the City of Sydney, only very limited data was available about the likely costs of producing bio-sng within the City of Sydney, the Greater Sydney area, and neighbouring regions of NSW. The Allen Consulting Group 45

59 Similarly, little information was available about the likely costs of transporting relatively small quantities gas from the multitude of sites that the bio-sng would have to be source from throughout NSW to the City. While the total volume of gas required by the City would be substantial, they would be supplied in small quantities from a large number of sites located throughout the Greater Sydney region and surrounds. The estimates reported in this section were produced using the best information available in the public domain, and additional information provided by the City of Sydney, including technical information sourced from a study prepared for the City of Sydney by Talent with Energy. Gas availability Drawing on research conducted by Talent with Energy for the City of Sydney, a number of sites within the Greater Sydney area and surrounding regions were identified as being potentially suitable locations for the production of bio-sng to fuel the Trigeneration network. These sites are mostly locations of existing waste collection, processing, and/or storage sites, such as sewage treatment plants, landfill sites, and recycling centres, which all provide ready sources of feedstock for a biogas production facility. The exceptions are the potential sites for producing biogas from forestry, broadacre, horticultural, and agricultural waste, which refer to centres of forestry, broadacre, horticultural, and agricultural activity. All of these sites are located within 250km of the City of Sydney LGA to fulfil the City s requirement for locally sourced renewable energy. The identity, capacity, and emission factor of each of these sites are set out in the tables listed below: Table 5.1 SNG sourced from MSW; Table 5.2 SNG sourced from C&I waste; Table 5.3 SNG sourced from biomass; Table 5.4 SNG sourced from large scale biogas; Table 5.5 SNG sourced from small scale biogas; and Table 5.6 SNG sourced from landfill gas. The Allen Consulting Group 46

60 Table 5.1 MUNICIPAL SOLID WASTE (MSW) SNG POTENTIALS Source Delivered (PJ/year) Emissions Factor (kgco2- e/gj) SMA - Inner Sydney SMA - Northern Sydney SMA - Western Sydney SMA - Southern Sydney SMA - Macarthur Region ERA - Central Coast ERA - Illawarra/South ERA - Newcastle MSW Waste (All Sources) 8.32* ^ ^ Weighted average across all sites. * Total across all sites. Source: Unpublished estimates by Talent with Energy (2012). Table 5.1 indicates that a total of 8.32PJ of bio-sng produced from MSW feedstock can potentially be sourced from MSW collection sites located across the Sydney Metropolitan Area (SMA) and the Extended Regulatory Area (ERA) per year. The ERA covers regions of NSW adjacent to the SMA, including the Central Coast, Hunter and Illawarra regions. The potential annual output of gas from this source amounts to less than a third of the City s 27.6 PJ per year requirement. Table 5.2 COMMERCIAL AND INDUSTRIAL (C&I) WASTE SNG POTENTIALS Source Delivered (PJ/year) Emissions Factor (kgco2- e/gj) SMA - Inner Sydney SMA - Northern Sydney SMA - Western Sydney SMA - Southern Sydney SMA - Macarthur Region ERA - Central Coast ERA - Illawarra/South ERA - Newcastle C&I Waste (All Sources) 13.7* ^ ^ Weighted average across all sites. * Total across all sites. Source: Unpublished estimates by Talent with Energy (2012). The Allen Consulting Group 47

61 As reported in Table 5.2, a total of 13.7 PJ of bio-sng produced from C&I feedstock can potentially be sourced from C&I collection sites located across the SMA and ERA per year. This amounts to just under half of the City s 27.6 PJ per year requirement. Table 5.3 BIOMASS SNG POTENTIALS Source Delivered (PJ/year) Emissions Factor (kgco2- e/gj) Oberon/Bathurst Mid-West North West West South West Biomass (All Sources) 2.50* 11.61^ ^ Weighted average across all sites. * Total across all sites. Source: Unpublished estimates by Talent with Energy (2012). Table 5.3 indicates that a total of 2.5 PJ of bio-sng produced from biomass feedstock can potentially be sourced from regions near the Greater Sydney area. This amounts to less than 10 per cent of the City s projected annual requirement. The Allen Consulting Group 48

62 Table 5.4 LARGE SCALE BIOGAS SNG POTENTIALS Source Delivered (PJ/year) Emissions Factor (kgco2-e/gj) Fairfield and Liverpool Blacktown The Hills Penrith Camden Cessnock, Gosford and Wyong Hawkesbury Wollondilly Kiama Wingecarribee Lithgow Shoalhaven Oberon Maitland Singleton Port Stephens Bathurst Mid-Western Goulburn Mulwaree Musswellbrook Upper Lachlan Dungog Great Lakes Blayney Orange Palerang Upper Hunter Boorowa Gloucester Cowra Cabonne Yass Valley Wellington Greater Taree Eurobodalla Liverpool Plains Large Scale Biogas (All Sources) 7.03* 20.67^ ^ Weighted average across all sites. * Total across all sites. Source: Unpublished estimates by Talent with Energy (2012). The Allen Consulting Group 49

63 As reported in Table 5.4, up to 7.03 PJ of large scale biogas can potentially be sourced from feedstock in regions within and adjacent to the Greater Sydney area. This amounts to just over a quarter of the City s projected annual requirement. Table 5.5 SMALL SCALE BIOGAS SNG POTENTIALS Source Delivered (PJ/year) Emissions Factor (kgco2- e/gj) Bondi Sewage Treatment Plant Malabar Sewage Treatment Plant North Head Sewage Treatment Plant Cronulla Sewage Treatment Plant Warriewood Sewage Treatment Plant Liverpool Sewage Treatment System Hornsby Heights Sewage Treatment Plant Quakers Hill Sewage Treatment Plant Rouse Hill Sewage Treatment Plant Richmond Sewage Treatment Plant West Camden Sewage Treatment Plant Wollongong Sewage Treatment System Shellharbour Sewage Treatment System Blackheath Sewage Treatment Plant Norah Head Outfall Toukley Sewage Treatment Gerringong-Gerroa Sewage Treatment Plant Belmont Wastewater Treatment Works Bowral Sewage Treatment Plant Cessnock Wastewater Treatment Works Burwood Beach Wastewater Treatment Works Farley Wastewater Treatment Works Raymond Terrace Wastewater Treatment Works Small Scale Biogas (All Sources) 0.69* ^ ^ Weighted average across all sites. * Total across all sites. Source: Unpublished estimates by Talent with Energy (2012). Table 5.5 indicates that up to 0.69 PJ of small scale biogas can potentially be produced from 22 sewage and wastewater treatment facilities located within and adjacent to the Greater Sydney area. This amounts to 2.5 per cent of the City s projected annual requirement. The Allen Consulting Group 50

64 Table 5.6 LANDFILL GAS SNG POTENTIALS Source Delivered (PJ/year) Emissions Factor (kgco2- e/gj) Belrose Waste and Recycling Centre Lucas Heights Waste and Recycling Centre Eastern Creek Waste and Recycling Centre Jacks Gully Waste and Recycling Centre Summerhill Waste Management Centre Woodlawn Landfill Landfill Gas (All Sources) 2.04* ^ ^ Weighted average across all sites. * Total across all sites. Source: Unpublished estimates by Talent with Energy (2012). Figures reported in Table 5.6 indicate that up to 2.04 PJ of landfill gas SNG can potentially be produced from six water collection facilities located within and adjacent to the Greater Sydney area. This amounts to around 7 per cent of the City s projected annual requirement. It is apparent that in order to secure 27.6 PJ of bio-sng per year from local sources, the City of Sydney would need to source gases from dozens of sites and would require a combination of at least three types of bio-sng. The implications of this fragmented supply of bio-sng on transport and other costs are uncertain, but it is likely that their costs would be collectively greater than that faced by a single or small number of major gas producers. Gas capital costs The cost of capital for each type of gas production facility, based on an analysis of data from Talent with Energy, is reported in Table 5.7. Table 5.7 CAPITAL COST OF GAS PRODUCTION FACILITIES, BY TYPE (2012 DOLLARS PER TONNE OF OUTPUT PER YEAR) Plant Technology Resource Output Capital Cost ($/t/y) Pyro-gasification and melting Gas from MSW 1,023 Fluid-bed gasification Gas from MSW 1,053 Plasma gasification and melting Gas from MSW 1,064 Fluid-bed gasification (biomass) Gas from Biomass 718 Large-scale Anaerobic Digestion (AD) Large-scale biogas 174 Small-scale AD Small-scale biogas 300 Landfill gas recovery Landfill gas 0.50^ ^ Measured as dollars (constant 2012 prices) per normal cubic metre per year ($/Nm 3 /y). Source: Allen Consulting Group analysis of unpublished estimates by Talent with Energy (2012). The Allen Consulting Group 51

65 Table 5.8 sets out the capital costs estimates for ancillary facilities associated with biogas production. Table 5.8 CAPITAL COST OF ANCILLARY PLANT AND EQUIPMENT FOR GAS PRODUCTION (2012 DOLLARS) Facility and Equipment Purpose Unit Capital Cost ($/unit) Syngas upgrading facility Upgrading gas to SNG standard GJ per year 15 Biogas upgrading facility Upgrading gas to SNG standard GJ per year 26 Pipeline injection station Connection to gas pipeline network GJ per year 2 Micro-LNG plant Conversion of gas to liquid natural gas for transport by road vehicle GJ per year 37 Small (6 cubic metres) LNG tanker truck Road transport of liquid natural gas cubic metre 63,333 Small (13 cubic metres) LNG tanker truck Road transport of liquid natural gas cubic metre 43,077 Source: Allen Consulting Group analysis of unpublished estimates by Talent with Energy (2012). Cost of gas The cost of conventional natural gas and each type of SNG, estimated by Talent with Energy, is reported in Table 5.9. Table 5.9 NATURAL GAS COSTS IN 2020, BY TYPE OF GAS (REAL 2012 DOLLARS PER GJ) Type of gas $/GJ Conventional Natural Gas 8.6 SNG - MSW + C&I 9.7 SNG - Biomass 16.7 SNG - Large scale biogas 27.3 SNG - Small scale biogas 9.7 Source: Unpublished estimates by Talent with Energy, BREE (2012). With the exception of conventional natural gas, the costs reported are on a levelised cost of gas (LCOG) basis, which represents the price at which each type of gas needs to be sold at to break even. The LCOG concept is similar to that of LCOE used for the electricity technologies as reported in Section 3. While the LCOG is the price at which a supplier of renewable natural gas must sell its output in order to break even, the actual price at which the gas is sold may vary according to market and other factors. As such, the LCOG can be considered to be the minimum price at which each type of gas may be obtained. It is assumed that the SNG facilities would be constructed from 2020 onwards. The estimated price of conventional natural gas is as reported in the AETA 2012 by BREE (2012) for The Allen Consulting Group 52

66 Table 5.10 sets out the availability of each SNG resource meeting the City of Sydney s requirement for the gas to be locally sourced, that is preferably within the City of Sydney, the Sydney Metropolitan Area, or in neighbouring regions within NSW. Table 5.10 SUBSTITUTE NATURAL GAS RESOURCE AVAILABILITY (PJ/YEAR) Type of gas Maximum Availability (PJ per year) SNG - MSW + C&I 22.0 SNG - Biomass 2.5 SNG - Large scale biogas 7.03 SNG - Small scale biogas (incl. landfill gas) 2.73 Source: Unpublished estimates by Talent with Energy. The estimates of SNG availability were prepared for the City of Sydney by Talent with Energy and represent estimates of the maximum amount of each gas resource that may be obtained within the geographic boundaries set by the City. Many of these gas resources are extracted from diverse and geographically diverse sources, which are generally incapable of individually supplying the quantity of gas required. Furthermore, there is an insufficient availability of any one of these gas resource types to meet the City s maximum requirement of 27.6 PJ per year. SNG - MSW + C&I is the resource type that can be supplied in the greatest quantity, with a maximum availability of 22.0 PJ per year. Regardless of which type of gas is selected, it would need to be sourced in conjunction with other types of gases to meet the 27.6 PJ requirement. Delivered cost of gas The delivered LCOG is the LCOG of each type of gas, plus the cost of delivering the gas from the production site to the end user, in this case, the City of Sydney. In modelling the LCOE of the Trigeneration system using each type of bio-sng, the cost of delivery or transport for fossil natural gas was adopted for all four classes of bio-sng. This simplifying assumption was adopted in order to facilitate a direct comparison of the cost implications of sourcing different types of gas, in the absence of more detailed information about the precise location of the proposed renewable gas facilities and the associated cost differentials. However, this assumption may represent a lower bound estimate, as it is possible that the bio-sng producers examined in this report may face higher transport costs than fossil natural gas producers due to the following reasons: the need for the construction of additional pipelines, equipment, and associated capital works to link up the bio-sng sites to the gas pipeline network; The Allen Consulting Group 53

67 additional capital works to ensure that the quality of the bio-sng meets the standards required by the pipeline operators, which would probably use fossil natural gas quality levels as the standard, given the dominance of fossil natural gas in the Australian market; and the relatively small scale of each of the individual bio-sng sites, relative to traditional fossil natural gas producers. Estimates of the delivery cost associated with using two different delivery methods over a range of distances are reported in Appendix D to facilitate the consideration of a wider range of delivery cost possibilities. Delivered cost of electricity Using the delivered LCOG of each type of bio-sng, it is possible to calculate the LCOE of producing electricity from the City s proposed 372MW Trigeneration capacity. The estimated delivered cost of electricity can then be calculated through the addition of the estimated cost of delivering electricity from the Trigeneration system to the end user to the LCOE. The delivered cost of each type of Trigeneration generation is calculated by: taking the delivered cost estimated for Trigeneration in Section 4, which assumed the use of fossil natural gas as its feedstock, and recalculating the gas price component with the delivered LCOG of each bio-sng; adjusting for the impact of the CPM on the delivered cost of electricity due to the different emission factor of each type bio-sng and fossil natural gas; and adjusting for the impact of the RET on the delivered cost of electricity due to the different emission factors of each type of natural gas. Table 5.11 sets out the estimated delivered cost of electricity generated by the City s 372MW Trigeneration network using each of the four types of bio-sng. Table 5.11 DELIVERED COST OF ELECTRICITY IN TRIGENERATION WITH BIO-SNG, REAL 2012 DOLLARS PER MEGAWATT HOUR OF GENERATION ($/MWH) Trigeneration with Renewable Gases $/MWh Trigeneration (SNG - MSW + C&I) 215 Trigeneration (SNG - Biomass) 216 Trigeneration (SNG - Large scale biogas) 221 Trigeneration (SNG - Small scale biogas) 214 Source: Allen Consulting Group analysis (2013). With the delivered cost of electricity calculated, the marginal social cost of abatement of Trigeneration electricity generated using bio-sng can then be combined with emission factor data and an analysis of the baseline electricity generation technology of coal-fired electricity to determine the marginal social cost of abatement of each of these Trigeneration fuel options. The Allen Consulting Group 54

68 Marginal social cost of abatement The marginal social cost of abatement under the Central scenario at 2020, 2025, and 2030 are presented over the remainder of this section. Black coal without CCS is the baseline technology used for this analysis. The marginal social cost of abatement has been estimated by adjusting the estimates of the cost of the City s 372MW Trigeneration network produced by Kinesis (2012) for the City of Sydney. The natural gas cost share of the costs is adjusted to reflect the costs of different gas resource options. Further adjustments are made to account for the influence of the CPM and RET as well as inflation since the Kinesis analysis was conducted. The marginal social cost of abatement results reported for each year represents the relative costs of adopting each type of technology in that particular year. Electricity supplied from the same type of technology installed in earlier years will have a cost that is associated with the year it was installed, not the present year. The exception is for the Trigeneration technologies. It is assumed that construction of the Trigeneration network begins in 2013, and that the renewable gas resources extraction capacity would be installed at selected sites from 2020 onwards. Note that the estimates for Trigeneration (Natural Gas) are based on the figures reported in the Trigeneration Master Plan and adjusted for 2012 prices to provide a common base of comparison. In addition, note that none of the SNGs are expected to be capable of supplying sufficient gas to power the Trigeneration network. If any of the SNG options are selected, their cost would need to be considered in conjunction with the cost of other gas sources that would be needed to supply the full 27.6 PJ requirement of the City. This could range from conventional natural gas to any of the other SNGs. The analysis of the implication of the Trigeneration system being supplied by several different types of natural gas resources and/or from multiple suppliers of SNGs have not been undertaken for this report. However, the sourcing of gas from multiple suppliers is likely to have different cost implications relative to receiving a supply of gas from a single source. Furthermore, the potential for the use of the renewable SNGs in alternative applications, such as in CCGT plants, or for heating, and the implications such applications may have for the market prices of these gases has not been factored into this analysis. However, such additional demand for renewable SNGs would be expected to affect the costs faced by the Trigeneration network for these resources. Figure 5.3 presents the marginal social cost of abatement of each of the renewable electricity technologies that are available by 2020, including the four renewable gas fuelled Trigeneration options, and a number of comparator technologies: the City of Sydney s Trigeneration master plan; and Combined Cycle Gas Turbine (CCGT). The Allen Consulting Group 55

69 Figure 5.3 MARGINAL SOCIAL COST OF ABATEMENT: CENTRAL SCENARIO, 2020 (REAL 2012 DOLLARS PER TONNE OF CO2 EQUIVALENT OF EMISSIONS ABATEMENT) Source: Allen Consulting Group analysis (2013). As in the analysis in Section 4, geothermal electric is not expected to be available by Two additional comparator technologies also not yet available at this point in time are: CCGT with carbon capture and storage (CCS); and black coal with CCS. This analysis indicates that micro wind, Trigeneration (SNG MSW + C&I), and Trigeneration (SNG Small scale biogas) could potentially have negative marginal social costs of abatement by The Allen Consulting Group 56

70 Figure 5.4 presents the marginal social cost of abatement by All technologies are available by 2025, with building solar PV and micro wind estimated to potentially join the group of technologies with negative abatement costs. Figure 5.4 MARGINAL SOCIAL COST OF ABATEMENT: CENTRAL SCENARIO, 2025 (REAL 2012 DOLLARS PER TONNE OF CO2 EQUIVALENT OF EMISSIONS ABATEMENT) Source: Allen Consulting Group analysis (2013). The Allen Consulting Group 57

71 Estimates of the marginal social cost of abatement by 2030 are presented in Figure 5.5. At this time, large scale onshore wind technology is also estimated to potentially have negative marginal social costs of abatement. Figure 5.5 MARGINAL SOCIAL COST OF ABATEMENT: CENTRAL SCENARIO, 2030 (REAL 2012 DOLLARS PER TONNE OF CO2 EQUIVALENT OF EMISSIONS ABATEMENT) Source: Allen Consulting Group analysis (2013). Evaluation of renewable electricity options Based on the assumptions of a medium carbon price path along with the associated macroeconomic and policy environment, it is projected that a small number of technologies could potentially offer renewable electricity alternatives to coal-fired electricity at a zero or negative marginal social cost of abatement by All other technologies are not expected to be viable on average if left to market forces alone without additional subsidies or other incentives supplied to cover the cost differential with baseline grid sourced electricity. The Allen Consulting Group 58

72 Trigeneration (SNG MSW+C&I), Trigeneration (SNG Small scale biogas), building solar PV, building micro wind, and onshore wind are the renewable electricity options that are potentially viable without additional incentives. It is important to note that while a number of different renewable and low-emission energy technology options have been estimated as potentially having low or even negative marginal social costs of abatement by 2030, it is not possible to completely source the City s electricity requirements from any one of these sources, as they are generally subject to capacity constraints. In particular, the building and precinct scale technologies are limited by the amount of space available in the City to host the necessary equipment. The renewable gas resources are also constrained by limits on their availability. The gas will need to be sourced from dozens of different sites across the Sydney Metropolitan Area and neighbouring regions. While it may be potentially economically viable to use these particular sources of renewable gases as fuel for the Trigeneration network, it is unclear if it would be commercially viable. The costs and complexities of sourcing small quantities of gas from dozens of sites across NSW may render a number of renewable gas resource options impractical. The Allen Consulting Group 59

73 Section 6 Conclusion As part of its Decentralised Energy Master Plan Renewable Energy, the City of Sydney aims to supply 30 per cent of its electricity needs with local renewable energy, displacing around 1.3 TWh of grid electricity, and replacing up to 27.6 PJ of fossil natural gas with renewable gas resources, by This report has examined the potential economic viability of a number of renewable energy technology and resource options being considered by the City as possible sources of renewable power to achieve the targets of its plan, under three distinct scenarios of the world to 2030, reflecting different possible developments of the economic, policy, energy, and carbon market environments. Specifically, this report has set out estimates of: the capital costs for each of the 14 renewable electricity technologies and four renewable gas resources to be considered for inclusion into the City s renewable electricity capacity by 2030 (Section 3 of this report); a marginal social cost of abatement curves for three scenarios for all 14 renewable electricity technologies (Section 4 of this report); and an additional marginal social cost of abatement curve including estimates for the City s proposed Trigeneration network using each of the four renewable gas resources as fuel (Section 5 of this report). The methodology for undertaking this study, as set out in Section 2, is in line with that previously used to undertake the financial and economic analysis of the City s Trigeneration Master Plan by the Allen Consulting Group in conjunction with Kinesis in Assumptions are also provided in greater detail in Appendixes A to D of this report. This report is not a detailed benefit and cost analysis of the City s Decentralised Energy Master Plan Renewable Energy, or of individual generation projects that may form a part of the plan. The report provides an indication of various average measures of the potential costs of different renewable energy technologies and resources under consideration by the City of Sydney. The results and findings presented in this report should be considered within the limits of the constraints of the underlying analysis, which include the following: only the cost of generation using each technology has been analysed; in addition, only average generation costs have been modelled, the cost of generation using each technology at specific sites would be expected to vary from this average; disruption costs associated with constructing building and precinct scale generators throughout the City, including disruptions to traffic, have not been accounted for; disruption costs associated with alterations to the transmission and distribution network resulting from the implementation of these technologies, or from the transportation of gas to the City have not been analysed; The Allen Consulting Group 60

74 a detailed commercial analysis, including the impact of adopting the renewable technologies as part of the City s renewable energy master plan on prices and competition in the electricity sector has not been undertaken; while allowances have been made for the likely impacts of replacing grid electricity with local renewable sources, these impacts have not been directly, explicitly analysed due to limitations in information availability; and the modelling results reflect possible outcomes that could occur under three different macroeconomic, industry, and policy environment scenarios. differences between the modelled scenarios and actual macroeconomic, industry, and policy environments would produce variations between the modelled results and actual outcomes. Table 6.1 provides a summary of the potential marginal social cost of abatement estimated for each type of technology in real 2012 dollars per tonne of carbon dioxide equivalents abated under the Central scenario. Table 6.1 SUMMARY, CENTRAL SCENARIO - MARGINAL SOCIAL COST OF ABATEMENT (REAL 2012 DOLLARS PER TONNE OF CARBON DIOXIDE EQUIVALENTS) Technology Solar hot water (Building) Solar PV (Building) Micro wind (Building) Wind turbines (Precinct) Direct use geothermal (Precinct) Concentrating solar thermal (Precinct) Onshore wind Offshore wind Geothermal electric N/A Concentrating solar PV Concentrating solar thermal Wave Tidal Hydro Trigeneration (Natural Gas) Black Coal with CCS N/A CCGT with CCS N/A CCGT Trigeneration (SNG - MSW + C&I) Trigeneration (SNG - Biomass) Trigeneration (SNG - Large scale biogas) Trigeneration (SNG - Small scale biogas) Source: Allen Consulting Group analysis (2013). The Allen Consulting Group 61

75 This scenario is based on the Government Policy carbon price trajectory as modelled in the September 2011 update to the Australian Treasury s 2011 Strong Growth, Low Pollution: Modelling a Carbon Price report. Based on the assumptions of a medium carbon price path along with the associated macroeconomic and policy environment, it is projected that a small number of technologies could potentially offer renewable electricity alternatives to coal-fired electricity at a zero or negative marginal social cost of abatement by All other technologies are not expected to be viable on average if left to market forces alone without additional subsidies or other incentives supplied to cover the cost differential with baseline grid sourced electricity. Trigeneration (SNG MSW+C&I), Trigeneration (SNG Small scale biogas), building solar PV, building micro wind, and onshore wind are the renewable electricity options that are potentially viable without additional incentives. It is important to note that while a number of different renewable and low-emission energy technology options have been estimated as potentially having low or even negative marginal social costs of abatement by 2030, it is not possible to completely source the City s electricity requirements from any one of these sources, as they are generally subject to capacity constraints. In particular, the building and precinct scale technologies are limited by the amount of space available in the City to host the necessary equipment. The renewable gas resources are also constrained by limits on their availability. The gas will need to be sourced from dozens of different sites across the Sydney Metropolitan Area and neighbouring regions. While it may be potentially economically viable to use these particular sources of renewable gases as fuel for the Trigeneration network, it is unclear if it would be commercially viable. The costs and complexities of sourcing small quantities of gas from dozens of sites across NSW may render a number of renewable gas resource options impractical. Overall, a number of renewable electricity technologies have been found to have the potential to provide a low to zero emissions alternative to grid electricity for the City of Sydney by 2030 at zero additional or even at a lower cost under certain macroeconomic, industry and policy environments as set out under the three scenarios, on average. There are also a small number of options that can potentially become viable with a small subsidy in addition to the existing federal and state schemes supporting the renewable electricity sector. However, as these results are produced for an average generating unit of each technology type, and do not account for site and project specific factors, these results should be interpreted as an indication of the potential relative viability of each technology. Project specific analysis should be undertaken before making decisions about individual renewable energy projects. The Allen Consulting Group 62

76 Appendix A Economic assumptions Overview The methodology underlying the Renewable Energy Opportunities for Sydney analysis is based on that of the Australian Energy Technology Assessment (AETA) 2012 by the Bureau of Resources and Energy Economics. The AETA 2012 is the best, most up to date and comprehensive estimate of the cost of electricity generation technologies available in the public domain. The economic assumptions of the Central scenario of this analysis is consistent with that of AETA, which are in turn consistent with those of the National Transmission Network Development Plan of the Australian Energy Market Operator (AEMO) and the Strong Growth, Low Pollution: Modelling a Carbon Price (SGLP) report by the Australian Department of the Treasury. The NTNDP is published by AEMO to provide comprehensive information to the energy industry to support the development of planning for the electricity transmission network across Australia. The SGLP report was published and updated by the Australian Treasury in 2011 and represents the most comprehensive modelling available on the economic impacts of the introduction of carbon pricing to Australia, including impacts on the energy sector. Macroeconomic assumptions The macroeconomic assumptions underlying the Central scenario is based on those of AETA 2012, which incorporate elements of the Government Policy scenario of the SGLP report and the Planning scenario of the NTNDP. The Central scenario represents a possible path that the Australian economy would take from the present to 2050 in a world where the Australian Government s Clean Energy Laws are in effect, with the carbon price path following the Government Policy scenario. Figure A.1 is a copy of the macroeconomic assumptions table from AETA 2012, which has been adopted as the macroeconomic assumptions for this analysis. The Allen Consulting Group 63

77 Figure A.1 MACROECONOMIC ASSUMPTIONS OF AETA 2012 Source: BREE (2012). The High scenario is based on the High Price scenario of the SGLP report while the Low scenario is based on a scenario developed for this analysis where the carbon price does not increase rapidly at the end of the fixed price period in Figure A.2 illustrates the carbon price paths underlying the three scenarios. The Allen Consulting Group 64

78 Figure A.2 CARBON PRICE PATHS BY SCENARIO (REAL 2012 DOLLARS PER TONNE OF CO2 EQUIVALENT EMISSIONS, 2012$/TCO2-E) Source: Allen Consulting Group calculations, Department of the Treasury (2011). Retail electricity prices under each scenario are presented in Figure A.3. Forecasts of future Australian energy prices are central to the analysis of this report. Deviations from the forecast prices underlying the economic scenarios framing this analysis will substantially alter the implications of this report. While the electricity and gas prices used to develop the macroeconomic scenarios underlying this report is based on reputable publicly available sources of information such as the BREE s AETA 2012 and the Australian Treasury s 2011 SGLP report, these variables will fluctuate with broader changes to the Australian and international energy markets. Critically, global demand will have impacts on Australian gas and other energy prices, with domestic prices rising and falling dependent on international price movements. The development of the coal seam gas industry and the exploitation of other emerging sources of energy in Australia and overseas are expected to have a major impact on the international and domestic price of energy. This will have immense impacts on the results of the analysis conducted for this report. However, at this stage, it remains difficult to confidently assess the extent and direction of the net impacts that domestic and international developments in energy supply and demand will have on future energy prices. The Allen Consulting Group 65

79 The exchange rate will have a major impact on the domestic prices of energy, while global demand for Australian energy commodities, such as coal and gas, will in turn have impacts on the Australian exchange rate. Exchange rate fluctuations will also have impacts on the capital cost of Australian energy projects, since many key components of electricity generators such as turbines and solar panels are sourced from overseas suppliers. However, any predictions about future exchange rate movements and other macroeconomic variables, especially those extending 40 years into the future, are almost certain to deviate from reality. The results presented in this report should be interpreted as an estimate of possible future outcomes given a particular set of macroeconomic assumptions. Figure A.3 RETAIL ELECTRICITY PRICES BY SCENARIO (REAL 2012 DOLLARS PER MEGAWATT HOUR, 2012$/MWH) Source: Allen Consulting Group calculations, Department of the Treasury (2011). Policy framework assumptions The policy framework relating to the renewable energy sector that is in place as of the time of writing is assumed to remain in place unchanged until Deviations in the policy framework from its current settings and design would have significant impacts on the implications of the analysis contained in this report. While all care has been taken to incorporate realistic assumptions about future developments in the policy framework, government policy decisions are by its nature unpredictable. The Allen Consulting Group 66

80 Several major energy and renewable energy policies are discussed in detail in this section. However, in general, state renewable energy schemes are generally expected to be wound down with the introduction of the Australian Government s CPM and associated Clean Energy Future policies in However, the NSW Government s feed in tariff policy is expected to be revived and remain in operation for the duration of the study s timeframe. As discussed in Section 2 of the report, details of the new feed in tariff regime in NSW to replace the previous scheme that was closed to new entrants by the NSW Government in 2011 have not yet been finalised. The feed in tariff scheme assumed to operate in NSW for the purposes of this analysis is based on the Independent Pricing and Regulatory Tribunal (IPART) determination on a fair and reasonable solar feed-in tariff for NSW of June The Carbon Pricing Mechanism (CPM) The Australian Government s CPM came into effect on 1 July It is designed to operate in a fixed price period for the first three years, where the CPM permit price is mandated by the Government, with a flexible price trading period to follow. Since then, the scheme design has already been revised, with the original floor price set for the flexible price trading period repealed in late 2012 following the announcement that the CPM will be linked to the European Union Emissions Trading Scheme (EU ETS) at the conclusion of the fixed price period. The effects of the EU ETS linkage on CPM permit prices are uncertain. However, these changes to the CPM policy is likely to result in actual permit prices that are significantly different from those modelled by the Australian Treasury in its 2011 SGLP report and subsequent update, released in September 2011, which are the basis for the carbon price trajectories underlying the macroeconomic scenarios constructed for this study. Furthermore, the fate of the CPM remains uncertain, with a Federal election to be held in September 2013, and the Coalition Opposition s stated intent to repeal the CPM and associated policies if it is elected to office. The repeal of or substantial changes to the design of the CPM and associated policies are likely to result in substantial changes to the implications of this study. While the Coalition has proposed alternate climate change mitigation policies, it is currently unclear what their impact on the price of electricity and energy will be. The Renewable Energy Target (RET) The future of the Renewable Energy Target, which is due to expire in 2030, is currently unknown, but is assumed to continue until at least 2030 as in the Australian Treasury s 2011 SGLP report and associated consultant reports. However, if a decision is made to not continue the RET beyond 2030, it is expected that this would have a negative impact on the RET s LGC and STC prices in the years preceding the termination of the scheme. The value of the certificates associated with the RET is likely to plunge well before 2030 if it is expected to become worthless by that year. The Allen Consulting Group 67

81 In any case, the design of the RET is also assumed to not change between the present and However, given the revisions to the scheme that has taken place between its inception as the Mandatory Renewable Energy Target (MRET) in 2001and the present, it is entirely possible that there may be further changes to the scheme in the future. In 2009, the target of the RET was raised from 9,500 GWh to 45,000 GWh by 2020 under the Expanded Renewable Energy Target policy. The scheme was further amended in 2010 with the introduction of the Enhanced Renewable Targe Policy, which separated the RET into two parts: the Small-scale Renewable Energy Scheme (SRES), and the Large-scale Renewable Energy Target (LRET). This change replaced the Renewable Energy Certificate (REC) under the RET with the Small-scale Technology Certificate (STC), and the Large-scale Generation Certificate (LGC), respectively. REC is now used as an umbrella term covering both types of certificates. REC prices interact with the CPM permit prices, and given the great uncertainties associated with future movements in CPM prices and indeed the future existence of the CPM, as discussed in the section about the CPM, it is difficult to accurately forecast the future trajectory of REC prices. The Allen Consulting Group 68

82 Appendix B Cost assumptions Overview Assumptions underlying the cost estimates in the analysis are based on those in the AETA Where available, cost estimates from AETA 2012 were used to calculate the delivered cost for this analysis. However, for technologies not covered by AETA 2012, such as the building scale technologies, costs were estimated using a consistent methodology. Note that the cost estimates represent the average or typical cost associated with a constructing and operating a typical generating unit of each type of technology in NSW. The actual costs of constructing a generation facility in the Greater Sydney region and/or nearby regions of NSW would vary according to site and project specific factors, and may be above or below the average. Scale and location are major determinants of the size of the variation of cost from the average. Cost assumptions AETA 2012 assumptions regarding each cost element that have been adopted for this study are outlined below. Note that the building scale solar hot water and precinct-scale direct use geothermal technologies differ from the other technologies in that they do not directly generate renewable electricity. Instead solar hot water systems produces renewable energy to heat water, while direct use geothermal systems uses renewable energy to directly heat and cool buildings. The two technologies displace the use of emissions intensive grid electricity for water and building heating with renewable energy. As such the costs reported for these technologies should be interpreted as the cost of displacing a megawatt hour of grid electricity, rather than as the cost of generating a megawatt hour of renewable electricity. Direct and Indirect Capital Costs The capital cost estimates for each technology include direct and indirect cost components. AETA 2012 (BREE 2012, p.14) excludes the following from direct and indirect costs: escalation through the period of performance; taxes; site specific considerations; for carbon capture and storage (CCS) technologies, the cost associated with carbon dioxide injection wells, pipelines to transport the captured emissions to a storage site, and other costs associated with the storage facility; import tariffs that may be charged for imported equipment or shipping charges for the equipment; and interest during construction (IDC) and financing costs. The Allen Consulting Group 69

83 Decommissioning Costs Costs associated with plant decommissioning are not included in LCOE calculations. Estimated Scope Cost estimates relate to a complete power plant on a generic site. Site-specific considerations such as soil conditions, seismic zone requirements, accessibility, and local regulatory requirements are not considered in the cost estimates (BREE 2012, p.14). The Allen Consulting Group 70

84 Appendix C Electricity technology assumptions Overview The technical specifications of each electricity technology evaluated in this report are adopted from the AETA 2012 publication where available. For technologies not included in AETA 2012, the technical specifications were based on public domain information about the particular technologies and assessed on a basis consistent with AETA Technical specifications As part of the process of assessing each renewable electricity technology, assumptions were made about a number of characteristics of a typical generating unit. These characteristics include: Plant capacity: measured in megawatts, this is the nameplate capacity of a typical generating unit using the particular technology. This is the output of the plant if it was operating at full capacity at all times. Plant capacity factor: the ratio of the actual output of a power plant over a given period of time and its potential output if it had operated at full nameplate capacity the entire time. Thermal efficiency: the ratio between the energy used to fuel a power plant and the plant s energy output. Auxiliary load: also known as the internal or parasitic load, this is the amount of electricity from the plant s output that is required to sustain the plant s operations. Emissions: this is the amount of greenhouse gases that are emitted by the plant in the production of its energy output. Emissions captured: this is the percentage of greenhouse gas emissions from a plant that is captured using carbon capture and storage technology. First year: the year when the technology first becomes available for use in electricity generation on a commercial scale. Life of plant: the amortisation period of the plant, the useful life of the plant without further upgrades and refurbishments. It can be thought of as the period over which a plant must achieve its economic return. Where available, the assumptions adopted for this report are as published in the AETA 2012 (BREE 2012). The assumptions for the remaining technologies were developed by the Allen Consulting Group in a manner consistent with AETA 2012 using information that is available in the public domain. Actual power plants utilising each technology will likely possess characteristics that are different from those specified in this report. The characteristics assumed in the report represent a typical or average plant for each technology. The Allen Consulting Group 71

85 The technical assumptions for the renewable electricity technologies and a number of additional baseline comparator technologies are reported in Table C.1. The comparator technologies include black coal with carbon capture and storage (CCS), combined cycle gas turbine (CCGT) with and without CCS, and the local trigeneration capacity to be installed as part of the City s Decentralised Energy Master Plan - Trigeneration. Table C.1 TECHNICAL ASSUMPTIONS - BUILDING AND PRECINCT SCALE RENEWABLE ELECTRICITY TECHNOLOGIES Plant Capacity (MW) Plant Capacity Factor (%) Thermal Efficiency (HHV) (%) Auxiliary Load (MW) Emissions (kgco2e/ MWh) Emissions captured (%) First Year Life of plant (years) Building integrated renewable electricity technology within LGA Solar hot water Solar PV Micro wind Precinct scale renewable electricity technology within LGA Wind turbines Direct use geothermal Concentrating solar thermal Large scale renewable electricity technology beyond the LGA Onshore wind Offshore wind Geothermal electric Concentrating solar PV Concentrating solar thermal Wave Tidal Hydro Source: BREE (2012), and Allen Consulting Group analysis. Note: ^ Assuming the use of conventional non-renewable natural gas as feedstock. The Allen Consulting Group 72

86 Appendix D Renewable gas resources assumptions Overview The renewable gas resources assumptions are formulated based on research conducted for the City of Sydney by Talent with Energy. The LCOG at which each type of gas resource can be made available and the quantities of each type of gas resource that can be made available are provided in Table D.1 and D.2, respectively. Note that 1 petajoule (PJ) is equal to gigajoules (GJ). Table D.1 AVERAGE SUBSTITUTE NATURAL GAS COSTS, BY TYPE OF GAS (REAL 2012 DOLLARS PER GJ) Type of gas $/GJ SNG - MSW + C&I 9.7 SNG - Biomass 16.7 SNG - Large scale biogas 28.6 SNG - Small scale biogas 9.7 Source: Allen Consulting Group calculations (2013) based on unpublished estimates by Talent with Energy (2012). Table D.2 AVERAGE SUBSTITUTE NATURAL GAS RESOURCE AVAILABILITY (PJ/YEAR) Type of gas Maximum Availability (PJ per year) SNG - MSW + C&I 22.0 SNG - Biomass 2.5 SNG - Large scale biogas 7.03 SNG - Small scale biogas 2.7 Source: Allen Consulting Group calculations (2013) based on unpublished estimates by Talent with Energy (2012). The Allen Consulting Group 73

87 Detailed SNG data Detailed SNG potentials data by type of gas calculated by the Allen Consulting Group for this study using data prepared by Talent with Energy for the City of Sydney are presented in the following tables. All reported LCOGs are for gas produced from facilities built in All prices are expressed in real 2012 dollars. Table D.3 LANDFILL GAS SNG POTENTIALS Source LCOG ($/GJ) Delivered (PJ/year) Emissions Factor (kgco2- e/gj) Belrose Waste and Recycling Centre Lucas Heights Waste and Recycling Centre Eastern Creek Waste and Recycling Centre Jacks Gully Waste and Recycling Centre Summerhill Waste Management Centre Woodlawn Landfill Landfill Gas (All Sources) 10.55^ 2.04* ^ Source: Allen Consulting Group calculations based on unpublished estimates by Talent with Energy (2012). Note: ^ Weighted average across all sites. * Total across all sites. Table D.4 BIOMASS SNG POTENTIALS Source LCOG ($/GJ) Delivered (PJ/year) Emissions Factor (kgco2- e/gj) Oberon/Bathurst Mid-West North West West South West Biomass (All Sources) 16.68^ 2.50* 11.61^ Source: Allen Consulting Group calculations based on unpublished estimates by Talent with Energy (2012). Note: ^ Weighted average across all sites. * Total across all sites. The Allen Consulting Group 74

88 Table D.5 SMALL SCALE BIOGAS SNG POTENTIALS Source LCOG ($/GJ) Delivered (PJ/year) Emissions Factor (kgco2- e/gj) Bondi Sewage Treatment Plant Malabar Sewage Treatment Plant North Head Sewage Treatment Plant Cronulla Warriewood Liverpool Hornsby Heights Quakers Hill Rouse Hill Richmond West Camden Wollongong Shellharbour Blackheath Norah Head Outfall - Toukley Gerringong-Gerroa Belmont Wastewater Treatement Works Bowral Cessnowck Burwood Beach Farley Raymond Terrace Small Scale Biogas (All Sources) 7.28^ 0.69* ^ Source: Allen Consulting Group calculations based on unpublished estimates by Talent with Energy (2012). Note: ^ Weighted average across all sites. * Total across all sites. The Allen Consulting Group 75

89 Table D.6 COMMERCIAL AND INDUSTRIAL (C&I) WASTE SNG POTENTIALS Source LCOG ($/GJ) Delivered (PJ/year) Emissions Factor (kgco2- e/gj) SMA - Inner Sydney SMA - Northern Sydney SMA - Western Sydney SMA - Southern Sydney SMA - Macarthur Region ERA - Central Coast ERA - Illawarra/South ERA - Newcastle C&I Waste (All Sources) 8.87^ 13.7* ^ Source: Allen Consulting Group calculations based on unpublished estimates by Talent with Energy (2012). Note: ^ Weighted average across all sites. * Total across all sites. Table D.7 MUNICIPAL SOLID WASTE (MSW) SNG POTENTIALS Source LCOG ($/GJ) Delivered (PJ/year) Emissions Factor (kgco2- e/gj) SMA - Inner Sydney SMA - Northern Sydney SMA - Western Sydney SMA - Southern Sydney SMA - Macarthur Region ERA - Central Coast ERA - Illawarra/South ERA - Newcastle MSW Waste (All Sources) 11.08^ 8.32* ^ Source: Allen Consulting Group calculations based on unpublished estimates by Talent with Energy (2012). Note: ^ Weighted average across all sites. * Total across all sites. The Allen Consulting Group 76

90 Table D.8 LARGE SCALE BIOGAS SNG POTENTIALS Source LCOG ($/GJ) Delivered (PJ/year) Emissions Factor (kgco2-e/gj) Fairfield Blacktown Liverpool The Hills Penrith Camden Gosford Hawkesbury Wyong Wollondilly Kiama Wingebarribee Cessnock Lithgow Shoalhaven Oberon Maitland Singleton Port Stephens Bathurst Mid-Western Goulburn Mulwaree Musswellbrook Upper Lachlan Dungog Great Lakes Blayney Orange Palerang Upper Hunter Boorowa Gloucester Cowra Cabonne Yass Valley Wellington Greater Taree Eurobodalla Liverpool Plains Source: Allen Consulting Group calculations based on unpublished estimates by Talent with Energy (2012). The Allen Consulting Group 77

91 Levelised Cost of Gas The methodology used by Talent with Energy to calculate the LCOG of each renewable gas is set out below. Methodology The levelized cost of gas (LCOG), calculated as the present worth of revenue requirements divided by the net amount of energy supplied at the point of delivery, represents the minimum selling price for the substitute natural gas that will meet the revenue requirements (including the total of capital and operating costs across the entire generation and delivery chain, as well as the required return on investment) over the project lifetime. Assuming a project with constant energy outputs and costs over its lifetime, the levelized cost of gas (LCOG) is calculated as follows: where: is the equivalent annual worth 3 project lifetime, expressed in AUD/y; of total capital investment over the is the annual O&M expenditure, expressed in AUD/y; and is the annual gas delivered to consumers, net of own consumption, conversion, upgrading and delivery losses. Gas cost assumptions The cost assumptions underlying the unpublished study prepared by Talent with Energy for the City of Sydney are set out below. Equipment cost estimates Capacity function cost estimates Figure D.1 below provides a summary of capacity cost function estimates adopted for this study, with details of the reference facility size adopted for each pathway. 3 Derived by multiplying the total capital cost by an appropriate annualization factor, such as the capital recovery factor (CRF), integrating parameters such as the discount rate and project lifetime. The Allen Consulting Group 78

92 Figure D.1 TALENT WITH ENERGY COST ASSUMPTIONS: RENEWABLE GAS INFRASTRUCTURE CAPACITY COST FUNCTION ESTIMATES FOR MAJOR EQUIPMENT Source: Supplied by Talent with Energy (2012). The Allen Consulting Group 79

93 Equipment cost factor estimates Figure D.2 provides a summary of major equipment cost factors adopted for this study. Figure D.2 TALENT WITH ENERGY COST ASSUMPTIONS: RENEWABLE GAS INFRASTRUCTURE MAJOR EQUIPMENT COST FACTORS Source: Supplied by Talent with Energy (2012). Feedstock, fuel and utilities costs Figure D.3 provides a summary of feedstock, fuel and utilities cost assumptions adopted for this study. Negative feedstock cost figures indicate the waste management fee paid at the plant gate, net of transportation cost, by resource owners delivering their waste to the plant. The Allen Consulting Group 80

94 Figure D.3 TALENT WITH ENERGY COST ASSUMPTIONS: RENEWABLE GAS INFRASTRUCTURE FEEDSTOCK, FUEL AND UTILITIES COSTS Source: Supplied by Talent with Energy (2012). Financial assumptions The financial assumptions underlying the unpublished study prepared by Talent with Energy for the City of Sydney are set out below. Figure D.4 COST ASSUMPTIONS: RENEWABLE GAS INFRASTRUCTURE FEEDSTOCK, FUEL AND UTILITIES COSTS Source: Supplied by Talent with Energy (2012). The Allen Consulting Group 81

95 Delivery cost assumptions Talent with Energy examined the possible costs of transporting renewable gases to the City of Sydney from production sites up to 250km away, using two different methods of delivery: direct injection into the natural gas pipeline network, which would require the upgrading of the gas to pipeline quality SNG standard; and road transport, which would require the conversion of the gases into liquid natural gas form for carriage in tanker vehicles. The delivery costs would be added onto the LCOG of each gas to work out a delivered LCOG for each type of renewable gas. Pipeline For this delivery pathway we consider a reference gas injection facility of 100,000 GJHHV/y. The figures below summarize the technical characteristics, capital costs, operating, and levelised costs for this infrastructure, considering the indicative delivery distances of 50, 100, 150, 200 and 250 km. Figure D.5 TALENT WITH ENERGY ASSUMPTIONS: RENEWABLE GAS INFRASTRUCTURE PIPELINE DELIVERY TECHNICAL CHARACTERISTICS Source: Supplied by Talent with Energy (2012). The Allen Consulting Group 82

96 Figure D.6 TALENT WITH ENERGY COST ASSUMPTIONS: RENEWABLE GAS INFRASTRUCTURE PIPELINE DELIVERY CAPITAL COSTS Source: Supplied by Talent with Energy (2012). Figure D.7 TALENT WITH ENERGY COST ASSUMPTIONS: RENEWABLE GAS INFRASTRUCTURE PIPELINE DELIVERY OPERATING COSTS Source: Supplied by Talent with Energy (2012). The Allen Consulting Group 83