Tasmania’s 200% Renewables Target

A Briefing paper by Climate Tasmania

On 13 October 2020, the Tasmanian Government introduced a Bill in state parliament to legislate the previously announced target (the Tasmanian Renewable Energy Target – TRET) whereby Tasmania would set a goal of delivering 200% renewable electricity by 2040.

This paper provides background on this legislation and some of the issues it raises.

Our Summary

Climate Tasmania is concerned by * the lack of detail on mechanisms for meeting this target, * the absence of a wider public debate about Tasmania’s possible role in decarbonising the National Electricity Market, and * the lack of a comprehensive State Plan on climate change.

There are a lot of questions about future large scale projects that require further expert analysis and public consultation.

It is not clear that the TRET and associated projects are the most effective way of reducing mainland greenhouse gas emissions.

There is a risk that projects will be indirectly subsidised by the people of Tasmania and that the benefits will flow mainly to commercial developers of renewable electricity generation assets.

Climate Tasmania calls on the State government to guarantee that before new projects are subsidised by the State government there is a comprehensive public consultation process about the best ways to reduce greenhouse gas emissions in both Tasmania and the mainland.

What does the legislation do?

The bill:

  •  Assumes a baseline of 10,500 GWh of electricity will be produced from renewable sources in 2022.
  •  Sets a target of 15,750 GWh (150% of baseline) of renewable electricity generated in Tasmania from renewable sources in at least one calendar year by 31 December 2030.
  •  Sets a target of 21,000 GWh (200% of baseline) of renewable electricity generated in Tasmania from renewable sources in at least one calendar year by 31 December 2040.
  •  Requires the Director of Energy to report annually on progress towards meeting the targets.
  •  Provides that licensed electricity businesses and prospective renewable electricity generators are able to share non-public information about their projects without the mere sharing of information giving rise to an inference of anti-competitive behaviour under the Competition and Consumer Act 2010 (Cwlth).

The Bill does not provide any mechanism (other than the sharing of information) by which the targets may be achieved.

Legislation of the TRET is one of conditions set in the AEMO 2020 Integrated System Plan (ISP) in order for Marinus Link to be regarded as an actionable ISP project.

Issues

Where will the electricity go?

Investments in new electricity generation and the supporting transmission infrastructure and storage are only economically viable if there is a demand for the electricity and it can be sold for more than the cost of production and distribution.

As Tasmania is already close to 100% self-sufficient in renewable electricity generation, doubling production only makes sense if there is additional demand.

A full discussion of future electricity demand in Tasmania and the mainland is beyond the scope of this paper but some of the key variables are:

  • About half of Tasmania’s electricity is used by five major industrial users. If any of these close down there would rapidly be a surplus of existing generation capacity.
  • Major new industrial users of electricity in Tasmania are a possibility and are a focus of the State government’s hydrogen strategy, but it is not yet clear if these projects will be economically viable without significant subsidy.
  • Increased domestic and commercial electricity demand in Tasmania may grow through both population growth and electrification of transport, however these changes will be relatively slow and may be offset by increased energy efficiency and distributed solar generation.

It follows that a doubling of electricity generation in Tasmania is largely dependent on anticipated exports to the mainland and these are in turn dependent on the construction of Marinus Link at a current estimated cost of $3.5 billion for a 1500 MW link.

What impact will the legislation have?

The previous announcements of the 200% target have received favourable treatment in both general {Franklin 2020} and specialist {Maisch 2020} media.

Of themselves, such announcements can have a positive impact in encouraging confidence in private sector investment in new renewable electricity generation. This is particularly the case when the policy is part of a suite of other activities by energy government business enterprises (GBEs) and the state government such as TasNetworks’ Project Marinus, Hydro Tasmania’s Battery-of-the-Nation and the state government’s draft Tasmanian Renewable Energy Action Plan {TasGov 2020}.

However the Bill does not provide any mechanism (other than the sharing of information) by which the targets may be achieved.

The explicit provision of the protection of the sharing of confidential information between the State government, its energy GBEs and private renewable electricity developers implies that this type of coordination is the best way to ensure new generation projects are encouraged.

As detailed below this type of confidentially negotiated agreement does not provide full transparency of the costs of encouraging new investment and does not ensure that projects are developed at the least cost to the State or to energy consumers.

Is it an effective way to reduce greenhouse gas emissions?

State government policies and initiatives such as Marinus, Battery-of-the-Nation and the proposed Tasmanian Renewable Energy Action Plan are promoted mainly as mechanisms for encouraging jobs and investment rather than as the most effective way to reduce greenhouse gas emissions.

However these projects are generally seen as being both driven by the need for action on climate change and as contributing to emissions reduction.

In the context of a climate emergency it is worth considering if the proposed suite of Tasmanian projects is likely to contribute to a significant reduction in greenhouse gas emissions. The Climate Tasmania submissions to the draft Tasmanian Renewable Energy Action Plan argues that in terms of reducing Tasmania’s greenhouse gas emissions, other sectors are more important that electricity generation.

The implication from various Tasmanian Government documents is that export of renewable electricity from Tasmania (mainly from wind farms, firmed by Hydro Tasmania’s existing capacity and proposed pumped storage) is a necessary and cost effective source of dispatchable renewable electricity that is needed on the mainland as coal- fired power stations retire and there is more electricity sourced from variable renewable energy.

While this is one possible scenario, a number of factors could result in the need to match demand and supply on the mainland being met from a combination of other mechanisms, including:

  • pumped hydro installed on the mainland (both Snowy 2.0 and other schemes)
  • a large installed base of electric vehicles combined with vehicle-to-grid (V2G) technology being able to meet peak demands and offer other grid services
  • a similar role played by residential and commercial behind-the-meter batteries being coordinated into virtual power plants (VPPs)
  • grid scale battery projects
  • large scale demand management initiatives for example in the aluminium industry – see {Parkinson 2020} Some commentators argue that pumped hydro is unlikely to be the most cost effective means of balancing demand and supply {Hogan 2020} {Mountain and Percy 2020} {Pears 2018}.

Who will be the beneficiaries of this policy and what are the costs?

Current private investments in new Tasmanian wind farms (Granville Harbour and Cattle Hill) has been facilitated by contracts signed with government business enterprises (GBEs). The Hydro Tasmania 2019 Annual Report states under the section on Community Service Obligations (p.101) that:

“On 5 September 2017 Hydro Tasmania was directed to enter a power purchase agreement with Westcoast Wind to facilitate the construction of the Granville Harbour Wind Farm.”

The Aurora Energy 2019 Annual Report includes a provision of a $32.8m “Write down of onerous contract” (p.53) which is further described on p.77 as follows:

(vi) Provision for an onerous contract: Aurora Energy has a ten year contract for the purchase of energy related products that was considered onerous at 30 June 2019 due to a reduction in forward market prices. A provision has been raised for the difference between the contract purchase cost and the expected economic value of the purchases to Aurora Energy. The provision has been estimated using the weighted average of probable future market prices and discounted to present value using Aurora Energy’s internal pre-tax cost of capital.”

Although it is not made explicit in the Aurora report, this relates to the purchase of large-scale generation certificates (LGCs) from the Cattle Hill wind farm.

The fact that these arrangements are reported as obligations or onerous contracts indicates that they were not entered into on a totally commercial basis, and there is some risk of costs being borne by the businesses (and ultimately by the GBE owners – the people of Tasmania).

These arrangements may ultimately be of net benefit to Tasmanians. In a competitive wholesale electricity market, facilitating increased supply via new generation should drive down prices. This is less certain in Tasmania where the dominant position of Hydro Tasmania as the largest generator allows it to strongly influence wholesale prices.

It is also possible that in the longer term, these arrangements may not be onerous. If wholesale electricity prices or LGC prices rise, the arrangements entered into by Hydro Tasmania and Aurora may prove to be sound financial arrangements. A rise in LGC prices is unlikely without an extended and increased national Renewable Energy Target.

The explicit protection in the TRET legislation for confidential negotiations between the state government bodies and private developers of renewable electricity generation suggests that the government anticipates continuing with these kind or arrangements.

Climate Tasmania’s concern is that this is not a fair and transparent mechanism for ensuring the economic and environmental benefits of increased use of renewable electricity are met in the most cost effective way.

What is the best way to increase renewable electricity generation in Tasmania?

Assuming it is desirable to increase renewable electricity generation in Tasmania the question arises as to what is the most desirable way to do this (which includes both minimising cost, and in the context of a climate emergency, ensuring rapid implementation).

Other jurisdictions (notably the ACT – see Mazengarb 2020) have used reverse auctions as a way of increasing the supply of renewable electricity in a way which is more transparent and ensures that new supply is obtained in the most cost effective way.

References

Franklin 2020, Talking Point: Ready for solar farms and more wind? Welcome to our energy revolution, Evan Franklin, The Mercury, 21 May 2020

Maisch 2020, Climate policy done right: Tasmania sets 200% RE target by 2040, Marija Maisch, 5 Mar 2020

Hogan 2020, Tasmania’s ‘Battery of the Nation’ energy plan faces challenge from cheap large-scale batteries, Hugh Hogan, 13 May 2020

Mazengarb 2020, ACT secures two big batteries for Canberra and record low price for wind, Michael Mazengarb, 8 Sep 2020

Mountain and Percy 2020, An analysis of the economics and greenhouse gas impact of Marinus Link and Battery of the Nation, A report prepared for the Bob Brown Foundation. Victoria Energy Policy Centre, Victoria University, Melbourne, Bruce Mountain and Steven Percy

Parkinson 2020, 10 key mega renewables projects and ideas to lead Covid-19 recovery, Giles Parkinson, Sophie Vorrath & Michael Mazengarb, 8 May 2020

Pears 2018, Bigger networks, bigger Snowy: Silver bullets or white elephants? Alan Pears, 19 Apr 2018

TasGov 2020, Draft Tasmanian Renewable Energy Action Plan, Department of State Growth, Tasmanian Government, 13 May 2020

Tas Parliament 2020, Energy Co-ordination and Planning Amendment (Tasmanian Renewable Energy Target) Bill 2020

Tas Parliament 2020, Fact sheet: Energy Co-ordination and Planning Amendment (Tasmanian Renewable Energy Target) Bill 2020


About Climate Tasmania

Climate Tasmania is a voluntary group of concerned professionals in Tasmania who have a diverse range of expertise, spanning scientific, legal, economic, health, social and policy aspects of climate change. The group aims to provide timely, independent and authoritative advice to the Tasmanian government, businesses and the community on climate change and appropriate policy responses. ( For further, see menu at head of this page. )

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