Working Papers

Working Papers by Members of the College.

A short-lived gas shortfall

Authors: Tim Forcey, Dylan McConnell

Abstract: With the publication of the 9th March 2017 Gas Statement of Opportunities (GSOO), the Australian Energy Market Operator (AEMO) cautioned that within 18 months, “shortfalls” of gas supply could lead to shortfalls in the supply of electricity generated by burning gas. AEMO suggested solutions to potential shortfalls that included the construction of new pipelines or Coal Seam Gas (CSG) fields.

Our report investigates AEMO’s gas-and-electricity-system modelling results as well as the communications that followed. We explore reasonable alternate conclusions that can be drawn by analysing AEMO’s published modelling inputs, assumptions, and results, and by contemplating future real-world events.

We find that although a “gas-price crisis” exists in eastern-Australia, a gas-supply shortfall is very unlikely to occur. Our review finds that the size of AEMO’s forecast shortfall is very small, amounting to no more than around 0.2% of annual supply.
In addition, only eleven days after announcing its supply-gap concerns, AEMO essentially closed the gap when it published, on its website, updated (lower) electricity-demand forecasts that therefore lead to less demand for electricity generated by burning gas.
In this report we also consider alternative solutions to gas shortfalls, and find that there is no need to expand gas-supply infrastructure.
The full report can be downloaded here.

The risk of migratory methane emissions resulting from the development of Queensland coal seam gas

Authors: Dimitri Lafleur and Mike Sandiford

Summary: In sedimentary basins migration of methane and other fluids occurs naturally in response to multiple factors. Natural methane surface seeps are well known in many gas provinces. The pathways for such seeps can be enhanced and new pathways created through subsurface resource developments, leading to so-called induced migratory emissions. Distinguishing induced migratory emissions from natural emissions is important for a range of considerations, including resource recovery efficiency and safety, carbon budgets and environmental impacts.

As a companion to a more extensive paper on the measurement and reporting of methane emissions of unconventional gas, this paper reviews the current understanding of migratory emissions associated with CSG developments in eastern Australia. The paper forms part of series of contributions from the Melbourne Energy Institute’s Sedimentary Basin Management Initiative aimed at providing new approaches to optimising the value of subsurface sedimentary basin resources.

The current paucity of publicly available data makes it impossible to definitively assess the impact of coal seam gas (CSG) production has had, if any, on the creation of new migratory emissions pathways and the enhancement of known methane seeps, such as in the Condamine River in Queensland. Similarly, in the absence of thorough baseline data, the cumulative impacts of water production from various aquifers for multiple purposes would compromise unique attribution of cause and effect in any observed enhancement of such seeps.

The full report can be downloaded here.

The Paris Agreement global goals: What does a fair share for G20 countries look like?

Author: Yann Robiou du Pont12
1 Australian-German Climate and Energy College
2 EU Centre on shared complex challenges
Download full report here.

This report reviews the literature to compare the socio-economic implications and climate impacts of achieving each of the Paris Agreement temperature goals: 1.5 °C and 2 °C. Drawing on a recent publication (Robiou du Pont, Jeffery, Gütschow, et al., Nature Climate Change, 2017) and its related website Paris-equity-check.org, this report then examines the scenarios to reduce greenhouse-gases (GHG) emissions consistent with the Paris global goals.

Finally, this report presents greenhouse-gases (GHG) emissions targets for G20 members consistent with the five effort sharing categories contained in the latest report of the Intergovernmental Panel on Climate Change (IPCC), and compares the equity performances of their climate pledges against their own declarations on equity.

The Paris Agreement global goals: What does a fair share for G20 countries look like?Key findings

  • The pledges of the G20 members are collectively insufficient to meet any concept of equity
  • Collectively, G20 pledges for 2030 should be lower by 39 percent (of 2010 levels) to align with the average of the five equity concepts under the 2 °C goal, and 63 percentage lower under the 1.5 °C goal
  • The G20 can close the 2030 mitigation gap towards 2 °C and considerably reduce the gap towards 1.5 °C by adopting the average of the five equity allocations
  • Brazil and Mexico are the most ambitious countries towards the 2 °C goal with pledges within the range of four out of five equity allocations, followed by the EU whose 2030 pledge is within the range of three
  • The pledges of Russia, China, Turkey and Saudi Arabia are weaker than any equity allocation

Submission to 2017 Review of Australia's climate change policies

Lead Author: Annabelle Workman1,2,3
1 Australian-German Climate and Energy College
2 EU Centre on shared complex challenges
3 School of Earth Sciences
Download full report and list of authors here.

Workman et al. Submission to 2017 Review of Climate Change Policies cover
Recommendations

To protect Australia’s national interests, it is recommended that the Australian Government:

  1. establish an achievable, equitable and economically responsible 2030 greenhouse gas emissions target of 60 percent below 2000 levels alongside a long-term goal of net-zero emissions by 2046;
  2. foster the RET scheme to successfully reach its first target in 2020, and extend the scheme with broader competition, competitive capacity allocation, and effective financing;
  3. reinstate an economy-wide carbon pricing mechanism;
  4. create climate policies that use additional methodologies, such as the social cost of carbon; and
  5. support state and local government initiatives that reduce emissions and increase renewable energy generation.

Submission Summary
  • To meet their commitments under the Paris Agreement, Australia must set a target date for net zero emissions and increase their 2030 emissions reduction goal
  • The Renewable Energy Target (RET) scheme has been an effective mechanism that will contribute to a long-term emissions goal post-2030
  • In addition to the RET, a direct carbon pricing mechanism is essential to signalling a commitment to a low-emission pathway at the lowest economic cost to Australia
  • The Australian Government should consider the benefits and opportunities afforded to Australia by using additional modelling and methodologies, such as the social cost of carbon, in the policy development process
  • The Australian Government should support deep emissions reduction target-setting from state and local governments. Those states able to achieve deeper cuts earlier should be encouraged to do so and, especially in the absence of an economy-wide carbon price, the Australian Government should embrace ambitious state renewable energy targets.

Value of Aligning Dispatch and Settlement

Author: Dylan McConnell12

1Melbourne Energy Institute (University of Melbourne)

2Australian-German Climate and Energy College (University of Melbourne)

Download full report here.

Summary Points
  • More storage capacity is required with 30-minute settlement to realise the same value as under 5-minute settlement.
  • The impact of forecast errors has a substantial impact on the value of storage under 30-minute settlement.
    • The value of storage under 5-minute settlement is generally 60-80% higher than under 30-minute settlement.
    • 5-minute settlement also significantly improves the value of storage in real world cases when the occurrence of price spikes is not perfectly known. Approximately 80%-90% of the 'perfect value' can be captured with 5-minute settlement. By comparison, only 40%-60% of the 'perfect' value is captured under 30-minute settlement.
  • 30-minute settlement increase cap contract prices from storage by up to 30% relative to the 5-minute settlement case.
  • Cap contract penalty payments can substantially erode the value of providing fast response.

Imagineering Australian climate futures

Author: Anita Talberg1

1 Australian-German Climate and Energy College (University of Melbourne)

Download full report here.

Geoengineering is the collective term for a diverse set of techniques and technologies that aim to manipulate the planet’s environment to address climate change. Many of the methods that sit under the geoengineering umbrella engender severe risks and potentially irreversible impacts, both environmental and social. To date, Australia has not engaged heavily with the geoengineering debate. However, Australia has a lot at stake in any discussion of geoengineering. Will geoengineering present a risk or an opportunity for Australia? How can Australia contribute to geoengineering decision-making?

This project sought to explore how Australia and the world might manage climate change in 2050 as a way to understand the diversity of situations in which geoengineering might be deployed. A workshop was held to produce multiscale scenarios to 2050. The four scenarios that were produced—‘Corporatocracy’, ‘The Purge’, ‘1984’ and ‘Spaceship Earth’—illustrated four very different worlds and worldviews. Drivers or uncertainties that were identified as determinants of how the world manages climate change in 2050 were:

  • Global geopolitical stability
  • Cultural acceptance of geoengineering
  • Social and political pressure to act on climate change
  • The role of private technology and financial interests in acting on climate change and in developing geoengineering technologies

The drivers of Australia’s management of climate change were seen to be:

  • The effectiveness/longevity of the Paris Agreement
  • Generational change: the potential for a new cultural paradigm
  • Climate change impacts and our ability to adapt
  • The potential for major socio-economic or ‘ecosystem’ events
  • National security views of climate change
  • Role of the media in Australia

In all but one scenario, geoengineering was deployed to manage temperature increases and other climate change impacts. However, the direct justification for the geoengineering deployment and the way in which the act took place differed between scenarios. Generally, where geoengineering deployment is considered, Australia is seen to be involved and to cooperate with other ‘rich’ countries.

Submission to Senate Environment and Communications References Committee inquiry: Retirement of coal fired power stations

Author: Dylan McConnell12

1 Melbourne Energy Institute (University of Melbourne)

2 Australian-German Climate and Energy College (University of Melbourne)

Download full report here.

Summary:

• In order to meet the objectives of ‘Paris Agreement’ and keep global warming below 2◦C, requires emission from the electricity sector to dramatically reduce, to practically zero, by 2050.

• The majority of existing coal fired power stations in Australia will have reached the end of their technical lives by 2050.

• Renewable energy is competitive with new entry fossil generation. This is particularly true when comparing equitable emissions outcomes.

• Plant ages, the ‘Paris Agreement’ and renewable energy costs suggest significant retirements of coal, with concurrent replacement with renewable energy between now and 2050.

• Evidence from South Australia points to a need for coordinated system planning of transitional arrangements maintenance of electricity supply, affordability and security

A review of current and future methane emissions from Australian unconventional oil and gas production

Authors: Dimitri Lafleur1, Tim Forcey2, Hugh Saddler3 and Mike Sandiford4

1 Australian-German Climate and Energy College (University of Melbourne)
2 Energy Advisor, Melbourne Energy Institute (University of Melbourne)
3 Hon. Assoc. Professor, Crawford School (Australian National University)
4 Professor of Geology, School of Earth Sciences (University of Melbourne)

Download full report here.

Methane is a powerful greenhouse gas, 86 times more powerful than carbon dioxide when its atmospheric warming impacts are considered over a 20-year time period, and 34 times more powerful over a 100-year time period. Reducing methane emissions is therefore an important part of any strategy to avoid dangerous climate change, as agreed by world leaders at the December 2015 Paris conference. Given the vast growth potential of unconventional oil and gas in Australia, this review addresses the current understanding of methane emissions by that industry, referencing recent developments in overseas jurisdictions. If natural gas is to provide maximum net climate benefit versus coal, the release of methane to the Earth's atmosphere (both intentional and unintentional) must be held to less than about one per cent of total gas production. In this context, the commitment of the Australian CSG-LNG industry1 to limit methane emissions to no more than 0.1% of total gas production is commendable.

Our review finds that:

  • no baseline methane-emission studies were completed prior to the commencement of the Australian CSG-LNG industry
  • there is significant uncertainty about methane-emission estimates reported by oil and gas producers to the Australian government, and by the Australian government to the United Nations. The United Nations has requested that Australia improve its methodologies.
  • Australian methane-emission reporting methodologies rely to a significant extent on assumed emissions factors rather than direct measurement.
  • the assumptions used to estimate methane emissions include some that are out-dated, and some that lack demonstrated relevance to the Australian unconventional oil and gas industry.
  • despite Australian Government greenhouse-gas reporting requirements having been established in 2009 and Australia's unconventional gas industry operating at significant scale since 2010 and rapidly expanding since, there has as yet been no comprehensive, rigorous, independently verifiable audit of gas emissions. Indeed, to quote CSIRO, "reliable measurements on Australian oil and gas production facilities are yet to be made." (Day, Dell’Amico et al. (2014)).
  • if methane emissions from unconventional oil and gas production are being significantly underreported, this could have a large impact on Australia's national greenhouse accounts.

The winds of change

An analysis of recent changes in the South Australian electricity market

Authors: Dylan McConnell1 and Mike Sandiford2

1 Australian-German Climate & Energy College, The University of Melbourne

2 Melbourne Energy Institute, The University of Melbourne

Download full report here.

South Australia has one of the highest penetration intermittent renewable generation portfolios in a liberalised energy-only market. In the year to the end of June 30th, 2016 (FY16) wind generation contributed 37.6% to the total grid dispatch in South Australia, while domestic solar PV contributed an estimated 6% of total electricity production. The rise of renewable generation in South Australia over the last decade has been accompanied by the progressive withdrawal of baseload coal generation, and a changing role for gas generation and reliance on exchanges with the neighbouring state of Victoria. Along with the opening up of the interlinked Australian east-coast gas market to international gas pricing, the dynamics of the South Australian electricity market has shifted accordingly, making it a test case for understanding how to manage the transition to a high penetration renewable energy system in liberalised energy-only markets. In the winter months of 2016, South Australian wholesale electricity prices rose steeply, generating intense interest in its causes and the consequences of the South Australian energy transition.

At around 38% of annual market dispatch, South Australia currently has one of the highest penetrations of wind generation in any liberalised energy-only market, and therefore provides important lessons for other jurisdictions contemplating similar transitions. Recently South Australian saw new records set for extreme wholesale electricity pricing in June and July 2016, and is of particular pertinence to understanding transitional issues associated with decarbonisation of the electricity sector with renewable technologies. The context for the developments in the South Australian energy market can be understood in terms of several intersecting factors, including the increasing penetration of renewable energy generation, rapid and unprecedented changes in the gas market, the level of market concentration, and degree of system-scale planning. Key findings of this report are as follows:

  • The rise in renewable energy generation in South Australia since 2006 has impacted in several ways. The addition of renewable generation capacity and its heightened impact on merit order dispatch system has contributed to downward pressure on wholesale prices, which have declined in real terms since the 2007-2008, while also generating net Large-scale Renewable Energy Target certificates to the annual value of about $120 million. In so doing, it has contributed to decisions to close brown coal generators, and increased South Australian dependence on imports and, in times of low wind output, gas. As one of the largest stations on the National Electricity Market (NEM) in terms of its capacity relative to regional demand, the closure of Northern Power Stations in May, 2016, has tightened the demand-supply settings with consequent increases in wholesale prices.
  • The eastern Australian gas market has undergone rapid changes as it adapts to issues associated with a three-fold increase in production to fulfill international export contracts. Because of its high proportion of gas generation, South Australia wholesale electricity prices are particularly sensitive to price movements in the gas market. The closing of Northern has increased its reliance on gas, especially in times of low wind.
  • Concerns about the exercise of market power in South Australia have been evident in relatively low levels of liquidity in its market, and there is demonstrable evidence for the extraction of monopoly rents by some generators, arguably through physical and economic withholding of capacity. On top of pressure from rising gas market prices, electricity price increases were exacerbated by an unprecedented rise in gas generation margins as revealed by record high spark spread values. Since the closure of Northern, South Australia is the most concentrated region in the NEM, and this was further exacerbated by the earlier decision taken by Engie to effectively mothball its Pelican Point Power Station and on-sell its contracted supply into the gas market. We estimate the Herfindahl-Hirschman Index of the South Australia market at 3000 - 3400 (depending on the status of Pelican Point) making it severely concentrated, and well above the value of 2000 that the ACCC uses to flag competition issues.
  • A disorderly sequence of station withdrawals and mothballing and interconnector upgrades in South Australia has clearly impacted the way the prices have unfolded. In particular, the closure of Northern, in May, prior to completion of interconnector uprgrades has severely accentuated the price impacts, and enhanced the conditions for the exercise of market power. At a broader level, the policies that have opened up of the east coast gas market to international gas pricing have had disproportionate impact in South Australia, and flag tensions between national gas market developments and the Renewable Energy Target.

The interdependence of these issues suggests remedies that can be used to avert future crises in South Australia and elsewhere. For example, new investment in alternatives to gas-peaking designed to alleviate pressure on gas demand in times of low-wind output, such as storage, concentrating solar thermal or enhanced interchange capacity, can be used to address price volatility concerns, and, with appropriate regulation, competition issues. Further, we note that the South Australian experience provides a salutary forewarning of the havoc that can ensue from lack of coordinated system planning in times of transition. It bears on the question of disorderly exit that will be faced in all markets requiring substantial decarbonisation, in part because of the scale of the fossil power stations that are displaced. We note there are already calls for fundamentally new market design rules, including the introduction of a parallel capacity market, which we argue is not yet warranted, although attention to details such as the level of the market cap price, or even the need for one, should remain open.

While we don't make specific recommendations in this report, we note that in order to avert future crises in South Australia, as well other Australian jurisdictions on their pathway to decarbonisation, particular attention should be given to the:

  • potential for market power to be concentrated as a consequence of transitional arrangements,
  • diversification of low emission generation and storage portfolios,
  • alignment of national energy policy across related sectors, specifically the intersection of gas export markets and the Renewable Energy Target, and
  • more coordinated system planning during transitional arrangements.

TIMELINE: AUSTRALIAN CLIMATE AND CLEAN AIR POLICY INTERVENTIONS 2013-16

Developments under the Abbott-Turnbull government

Authors: Anita Talberg1 and Annabelle Workman12

1 Australian-German Climate and Energy College

2 EU Centre on shared complex challenges

Climate change remains a political issue both in Australia and internationally. This timeline is a record of Australian climate and clean air policy interventions from September 2013, when the Abbott Coalition government took office, to June 2016, as a new election looms. This publication builds on the Commonwealth Parliamentary Library’s similar timeline that covered such events up to the end of 2013.