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Environment and Communications Legislation Committee
04/04/2019
Estimates
ENVIRONMENT AND ENERGY PORTFOLIO
Australian Renewable Energy Agency

Australian Renewable Energy Agency

[16:58]

CHAIR: Welcome back to ARENA. Mr Miller, do you have an opening statement you'd like to make?

Mr Miller : No, I don't.

CHAIR: No problem; we will go straight to questions then.

Senator URQUHART: Are you aware of the modelling report conducted by Brian Fisher of BAEconomics, Economic consequences of alternative Australian climate policy approaches?

Mr Miller : Yes, I'm aware of the report.

Senator URQUHART: Did ARENA consult with Dr Fisher or anyone representing BAEconomics about this modelling report prior to its publication?

Mr Miller : No.

Senator URQUHART: Did ARENA provide any input, such as parameter value assumptions, into the modelling exercise before its publication?

Mr Miller : No.

Senator URQUHART: Are you aware of the electricity storage cost assumptions contained in the BAEconomics report?

Mr Miller : Yes, I've read the report.

Senator URQUHART: Has ARENA conducted any analysis of electricity storage costs?

Mr Miller : We've commissioned some studies into the costs of firming and balancing, which is the added costs of storage. You'll be aware that one of our commissioned reports, the ITP report, was referenced in the BAE report.

Senator URQUHART: Yes. Can you provide a summary of those conclusions, in particular with respect to the minimal cost of storage, in terms of your analysis of electricity storage costs?

Mr Miller : Are you talking in relation to the work that we've commissioned, not the BAE report?

Senator URQUHART: Yes. My previous question was, have you conducted any analysis? And you said that yes, you had. Can you provide a summary of those conclusions, in particular with respect to the minimal cost of storage?

Mr Miller : The ITP report, which is the work that we commissioned, had a cost of various combinations of renewable energy generation plus different types of storage and tried to essentially cost out those discrete components. For example, utility PV plus a four-hour battery—a half-hour battery to a four-hour battery—came in at a range of $105 to $170 a megawatt hour. If you paired that with pumped storage in the range of two to 10 hours of storage, that would have been $121 to $135 a megawatt hour. And just to be clear, that's the cost of generation plus the storage, not just the storage. And I would note that this report had a generation—

Senator URQUHART: Sorry—your ITP report?

Mr Miller : Yes, this is the ITP report. It had a generation cost assumption of $65 a megawatt hour for utility-scale solar and $62 for wind. And I would just note that those prices are out of date. Prices have come down a lot. So, you would expect that the top line numbers that I gave you before for generation plus storage would commensurately come down.

Senator URQUHART: Did the work that was in that report conclude that the electricity storage costs for an electricity system that has a renewable electricity share of over 35 per cent are no lower than 45 megawatt hours? Is that the conclusion from that report?

Mr Miller : The ITP report doesn't make that conclusion. It's purely the costs of the component parts. How you combine them in an electricity system of the future with higher shares of renewable energy is not part of what that report studied.

Senator URQUHART: Did it talk about the minimum storage cost being higher levels of renewable energy penetration above 75 per cent?

Mr Miller : No, not that ITP report.

Senator URQUHART: Did you view the electricity storage cost assumptions in the BAEconomics modelling report as consistent with your analysis of storage costs? Or was it different?

Mr Miller : I think it's fair to say that we don't know the genesis of the storage costs that are apparent in the BAE report. They are not numbers that are easy to identify through the analysis that we've done and the work that we've commissioned in the ITP report.

Senator URQUHART: Did you view the BAEconomics storage cost assumptions as credible, even if it was based on a different assumption?

Mr Miller : Without getting too technical about how those numbers appear and how they are construed in the BAE report, I think what I would say is that it's very difficult for us to comment on the BAE report. We had no input into it. While we sought to understand the figures in the BAE report by even talking to the report's author, we still are unclear how those numbers came about or how—

Senator URQUHART: Because you had no input.

Mr Miller : We had no input into it.

Senator URQUHART: Are you aware that on 19 March, in an interview on ABC Radio, with reference to the BAEconomics storage assumption numbers, the energy minister said, 'The modelling is based on ARENA's assumptions'?

Mr Miller : I heard the interview and I'm aware of those comments.

Senator URQUHART: So, has ARENA been in contact with BAEconomics since the publication of their report?

Mr Miller : Yes.

Senator URQUHART: Who initiated that contact?

Mr Miller : I asked my staff to meet with Dr Fisher.

Senator URQUHART: For what purpose?

Mr Miller : To get a sense of how our numbers had been referenced and used in his report and his modelling.

Senator URQUHART: What was the outcome of that? Did you get a sense of—

Mr Miller : My sense of it is that it is still very unclear how, or whether, our numbers have actually been used in the BAE report's modelling. Our report is referenced. Dr Fisher told my staff that he had used the ITP numbers as a reference point for his modelling, in among 26 other referenced reports and studies that Dr Fisher had used. But the input of our numbers into that report is very unclear. We are still none the wiser as to how the numbers made their way into his modelling or how they were used in the modelling.

Senator URQUHART: Just to be clear: ARENA had no input to that report?

Mr Miller : Correct.

Senator WHISH-WILSON: Could I ask some follow-up questions to questions on notice that I put through at the last estimates. The first one is question on notice 227. I note that questions 227, 228 and 229 weren't answered by ARENA. Question 227 asks: 'Does Arena consider the combustion of municipal solid waste to generate electricity to be renewable energy? The question was not answered. Would you be able to answer that question for us today.

Mr Miller : There is a component of renewable energy in the combustion of municipal solid waste. That is calculated as a result of a life-cycle costing analysis which is done both prior to the construction of the project and after the construction of the project. Following that analysis, the renewable percentage of the fuel in the incineration stream is determined.

Senator WHISH-WILSON: Why are those components considered renewable?

Mr Miller : I can do it at a high level. Essentially what you would be doing is comparing the case of consuming the waste and producing electricity from that waste—what sort of electricity you are effectively offsetting by injecting that form of electricity into the national grid, or the Western Australian grid. And you would also be counting the avoided methane emissions leaching from landfill had you essentially left that landfill to rot in a pit. The combination of those factors gives you the calculations you need for the renewable energy component.

Senator WHISH-WILSON: If we break it up into biomass and non-biomass components, do you consider the non-biomass component of municipal solid waste to be renewable energy?

Mr Miller : I can't answer that question. I would have to take it on notice.

Senator WHISH-WILSON: You did last time and you never responded to it. So could you have a crack at it now.

Mr Miller : I can't, off the cuff, tell you how all the components of the waste stream are treated. I don't know why we haven't responded. I have seen the responses on notice and I thought we had provided that to you.

Senator WHISH-WILSON: You responded to the other questions but there was no answer to those three questions.

Mr Miller : That would be an error on our part if that is right, so I would have to check. Again, I would have to take that on notice and get back to you.

Senator WHISH-WILSON: But do you see what I'm getting at? I understand that the biomass components can be considered renewable in some shape or form, but I'm interested in the fact that these funding arrangements that have gone to electricity generation from burning municipal waste will have a fairly large non-biomass component. So I'm just trying to get a grip on whether this is actually renewable energy. It seems to be the trend at the moment.

Mr Miller : Municipal solid waste would have a variety of components, some of which can't be separated out; there would be an element of the remaining waste stream that is inseparable that you would have to incinerate at the same time as the organic components. That's why the renewable energy component is not 100 per cent; there is a fractional element to that. I would have to get you the exact fractions.

Senator WHISH-WILSON: I'd like to know what the fraction is. The Renewable Energy (Electricity) Regulations 2001 state that biomass base components and municipal solid waste are an eligible source. But, by exemption, doesn't that mean non-biomass components aren't an eligible source under the Renewable Energy Electricity Regulations?

Mr Miller : As I said, it's a percentage. It's roughly, in the projects we've seen, about 50 per cent for municipal solid waste. It obviously depends on the exact location and the sampling of the waste streams before you, in doing your calculations.

Senator WHISH-WILSON: Let me give you an example of one you did provide some feedback on. In answer to question on notice 230, from last estimates, you stated that the calorific component of the municipal solid waste intended to go to the proposed Kwinana waste-to-energy plant was roughly 50 per cent biomass. In other words, only half of the fuel there, according to regulations, is going to be renewable. Is this the first time that ARENA has put money towards a new project where only half of the fuel source is from fossil fuels?

Mr Miller : I don't know. ARENA has done 400-odd projects; I couldn't tell you if it's the only one. But certainly I take your point. I think that's largely right—that the waste stream is not all renewable; it's a 50 per cent ratio.

Senator WHISH-WILSON: In this case it is, but it would be interesting to know how you calculate that component in other projects, as you said earlier, with your life cycle analysis. I'll get to some questions in a second on what's separable and what's not. I've got some questions on whether burning municipal solid waste is actually better than landfill, which seems to be the assumption on why these projects are going ahead. In question 228, I asked you to explain how you assess the net emission impacts of burning municipal solid waste, as opposed to landfilling it. Your response directed me to ARENA's guidelines, as you said earlier, on life cycle analysis of bioenergy products and projects. If 50 per cent of the calorific fraction of the municipal solid waste is from biomass, as we saw with Kwinana, what is ARENA doing to determine the life cycle impacts of the fossil fuel fraction of that component?

Mr Kay : We'd have to take that on notice.

Senator WHISH-WILSON: If you could.

Mr Kay : We are going to focus on the renewable component.

Senator WHISH-WILSON: Did you use the bioenergy life cycle analysis to assess the Kwinana plant specifically, which you put money into?

Mr Miller : We have a life cycle analysis; that's happened on the Kwinana plant, and there'll be another one done post-completion of the plant.

Senator WHISH-WILSON: I would like to tie those two questions together. You'll have to take that on notice. I would be very keen to know why, potentially, you're using a life cycle analysis that's not fit for purpose if you haven't actually factored in the life cycle impacts of the fossil fuel fraction of that waste.

Mr Miller : We'll take your question on notice and get you the details that you want.

Senator WHISH-WILSON: Yes, because I would like to compare that as to whether the Kwinana plant will result in a net reduction in emissions compared to landfilling that municipal solid waste. But you can take that on notice as well.

Mr Miller : Yes. The analysis we've done is that the Kwinana plant will avoid 228,000 tonnes of carbon emissions per year. That is the end result, if you like, of the life cycle analysis. As to the efficacy of the life cycle analysis, I was suggesting that might be part of your question and we can get you the details of the specific way that's been analysed.

Senator WHISH-WILSON: My office has just done this very basic flow chart. This is what I'm trying to get my mind around. I ask you to have a look at that. Feel free to pick any holes in it or tell me what bits are missing, or potentially do that after as well. I've got landfill versus waste to energy there, with the two basic types of landfill—organic and non-organic. Obviously, when you get the non-organic waste fill and it's buried, you don't get any emissions from it. With the organic waste fill, you get captured and burnt and you get non-captured methane. I've been out to landfill sites, and since the carbon price has been in place, most large landfill sites around the country do capture their methane and burn it as energy. Then, if we look at waste to energy, you've got the organic, which is burnt, and then non-organic, which is burnt, the key difference being you're getting CO2 emissions from burning the non-organic part of the waste stream. That wouldn't happen if it had gone to landfill. I just want to be confident that your analysis has actually got the accounting right on this.

Mr Miller : I understand your question and we will answer it for you on notice.

Senator WHISH-WILSON: I'll look forward to tick-tacking with you on that. I have a couple of questions around how these kinds of projects actually help with what I think is commonly accepted as the recycling crisis in this country that we've seen in the last 18 months and that this committee's done some fantastic work on, having released a report looking at that crisis. In respect of the recycling crisis faced in the country, your website says:

ARENA is cognisant that future energy-from-waste projects can assist in helping to address this issue—

that we're facing at the moment. But, in answer to question 234 from last estimates, you explain this statement by saying that municipal solid waste combustion projects:

… reduce the volume of solid waste streams that would otherwise be sent to landfill. These projects may therefore reduce the cost associated with disposing of the solid waste in landfill.

You seem to be saying that waste-to-energy plants help with the recycling crisis because they're cheaper than landfill. Would that be the correct assumption to draw from that?

Mr Miller : I think there are two key components. One is the reduction in landfill, which is not a renewable energy calculation or issue per se, but it is the economic driver to the need or to the ability to build these plants. What we're concerned about at ARENA is the renewable energy side to this. Noting that it's not 100 per cent renewable energy but 50 per cent in the case of Kwinana and perhaps similar numbers for the others, we're most concerned with the renewable energy side, but, noting that our job at ARENA is to help things get to commercialisation, the avoidance of landfill and the gate fees you might earn from the diversion of the waste stream are an important part of bringing those projects to life in Australia.

Senator WHISH-WILSON: It is, and I respect that you've got a specific mandate here for various projects, but I could also say to you that there are a number of other approaches that would be effective in improving recycling and avoiding landfill—and that's what the committee looked at specifically—such as getting better quality material, having proper sorting systems in place in the first place and rebooting the examination of kerbside separation. Have you, for example, considered the impact that the contractual arrangements that you'll have in projects like Kwinana, which supply waste-to-energy plants over long periods of time, will have on recovery rates for recyclable materials? How confident are you that recyclable materials will actually go to be burnt in these plants?

Mr Miller : We do pay close attention to the recycling pyramid of reduce, reuse, recycle, and we make sure that those things have been considered in the projects that we have funded. Ultimately, though, there's an unavoidable element to landfill, and that's what we're dealing with in these waste-to-energy plants.

Senator WHISH-WILSON: In your the media release announcing your support for the Kwinana plant, you said:

The facility will divert up to 400,000 tonnes per year of municipal solid waste from non-recyclable curbside collection.

What exactly do you mean by non-recyclable?

Mr Miller : What that refers to is what we know as the red-bin waste, where, if waste is separated by the household, we're not using the paper and plastics and glass that would be collected as part of the recyclable component. What we're dealing with is the remainder—the household garbage and red-waste stream.

Senator WHISH-WILSON: Would it be more accurate to say that some material—for example, in the red bins—isn't being collected for recycling rather than being non-recyclable material? We could have better education standards, for example, around the country, which was one of the recommendations from this committee, around what is recyclable and not recyclable. I think all of us who sat in on the inquiry, even, still probably don't know what is properly recyclable and what is not. Wouldn't you agree that you are going to end up burning a lot of material that is potentially recyclable, under, for example, an alternative waste system?

Mr Miller : That may be right and I'm sure that that's something that should be looked at. Again, it's not ARENA'S mandate to look at the recycling component and the practices. I think there is a desperate need for that, but ARENA'S mandate is to look at the facts on the ground around what is the mix of waste in that non-recyclable component.

Senator WHISH-WILSON: With your life cycle analysis, would you mandate to include looking at opportunity costs associated with undermining a better approach to recycling? We know that recycling is primarily a collection problem and that if we had better sorted material we'd have better recycling in this country. That's the base problem. It seems to me that burning this stuff—and, indeed, building more incinerators around the country—is almost a surrender in the sense that we've got to fix this and take a whole-of-life-cycle approach to waste. Just burning it is going to create more waste and more problems.

Mr Miller : I'm sure there's a lot of work to be done on recycling, and we'd be supportive of that at an intellectual level. I would note that these types of plants exist en masse overseas, in countries that have very strict emissions standards. In Europe, they're on street corners in Paris. People are very used to these plants having a part to play in the renewable energy story overseas.

Senator WHISH-WILSON: That's true, and yet the evolution is quite different. They don't have large land masses available. I've been out and seen them in Ipswich—massive, open-cut mine sites which you can use for landfill and methane collection. You have to accept that there's a different imperative there.

I did have more questions that I'll put on notice, but it will be interesting what you can come back to me with on those other answers.

Mr Miller : Sure.

Senator WHISH-WILSON: In essence, in question on notice 234 you said:

ARENA funded the ReGroup to assess the feasibility of Refuse Derived Fuel (RDF) as a combustion fuel. The RDF is separated from bin waste after all recyclable components of the waste have been separated.

Are you aware that ReGroup are the proponents of a waste-to-energy plant, located with the Mount Piper coal-fired power station? Is that correct?

Mr Miller : Sorry, I'm not following the question. Can you just state that again please?

Senator WHISH-WILSON: Yes. You said:

ARENA funded the ReGroup to assess the feasibility of Refuse Derived Fuel …

So that was the project.

Mr Miller : Yes.

Senator WHISH-WILSON: Are you aware that they are proponents of a waste-to-energy plant?

Mr Miller : Yes.

Senator WHISH-WILSON: You are? At Mount Piper? Okay. Is it unusual for ARENA to fund a private company to undertake a feasibility study for a project that they're actually going to gain from commercially?

Mr Miller : No, it's not unusual—

Senator WHISH-WILSON: It's not unusual.

Mr Miller : to fund feasibility studies for commercial proponents.

Senator WHISH-WILSON: For a feasibility study?

Mr Miller : Correct.

Senator WHISH-WILSON: Okay. Has anyone asked questions about electric vehicle infrastructure and strategy, Chair?

CHAIR: Yes, we've had some questions.

Senator WHISH-WILSON: Okay. I might put some more detailed ones on notice. The government announced recently that there would be up to $10 million spent on a feasibility study for a new coal plant in Queensland. Within minutes of it being announced energy analysts said it wouldn't work because the Collinsville region has serious transmission congestion, so any power created would have serious transmission losses. Did your plan include transmission investment from the Commonwealth too? What kind of work has been done on that?

Mr Miller : We haven't been doing work on the transmission network.

Senator WHISH-WILSON: So that wouldn't typically be part of—

Mr Miller : No, it's not part of ARENA's mandate.

Senator WHISH-WILSON: Okay. So, in that case, you'd just look at the long-term financing?

Mr Miller : Just to be clear: we have no involvement in that proposal.

Senator WHISH-WILSON: You don't have any involvement?

Mr Miller : No.

Senator WHISH-WILSON: I have a question on curtailing fugitive emissions. Actually, I don't think I'm going to get through these are the next five or 10 minutes, so I might put them on notice. I'll just ask one question on electric vehicles and put the questions about fugitive emissions on notice. Did you provide any feedback to the government on their policy announced in the recent budget that allocated $400,000 to develop a proper national electric vehicle strategy?

Mr Pratt : Sorry is that a question for—

Senator WHISH-WILSON: For ARENA. Did you have any input into that dollar amount or that quantum of funding?

Mr Miller : No.

Senator WHISH-WILSON: Is $400,000 enough?

Mr Miller : I'm not sure of the scope of the study, and I couldn't comment on whether that's sufficient.

Senator STORER: Thank you, Mr Miller and Mr Kay. Could you outline the status of any investment by ARENA in pumped hydro, particularly in South Australia, and the status of any investments or support you are giving.

Mr Miller : We have a number of proposals in front of us that have come to us in relation to pumped hydro projects in South Australia. We have a memorandum of understanding with the South Australian government in relation to their Grid Scale Storage Fund, and we're assessing applications for a number of pumped hydro projects in the state.

Senator STORER: There's no dedicated investment to date?

Mr Miller : We have funded some studies into two pumped hydro schemes in South Australia.

Senator STORER: Yes, that's right, with one of them being the Middleback Ranges.

Mr Miller : One is Middleback and the other is Cultana.

Senator STORER: That's right. I've been able to visit them recently. I may come back to pumped hydro. You've also been involved with a compressed air energy storage plant project—is that correct?

Mr Miller : Yes.

Senator STORER: This is the first investment by ARENA in this area in Australia—is that correct?

Mr Miller : Yes, it's a new and emerging opportunity and area.

Senator STORER: Is this a feasibility study or an actual project?

Mr Miller : It's a project.

Senator STORER: Is there specific reasoning in terms of its location in South Australia versus other parts of the country? What is the rationale there?

Mr Miller : It requires a disused mine site, effectively as a technical aspect, and I would imagine that South Australia with its high energy prices would be a good market to have a new type of battery storage system like this, so probably that combination. I note it's a Canadian company that's identified Australia as a specific opportunity for its technology.

Senator STORER: With the nature of the pumped hydro projects and the feasibility studies, would you consider that your involvement in these sorts of projects would be higher if the Snowy Hydro 2.0 equity investment project were not going ahead?

Mr Miller : I think it's fair to say that we've seen no change in the motivation of corporates who are looking at these projects. There's been no change in their motivation before or after the announcement regarding the new Snowy project, so our involvement would be the same. We have no different view.

Senator STORER: That would be your characterisation of the situation? Okay. I'm just interested in whether there's potential crowding out of other projects via the government's involvement in this and whether ARENA had stepped back from any other projects in light of the recent announcements.

Mr Miller : There's no noticeable shift in momentum, before or after.

Senator STORER: Could you just refresh my memory on the investments that ARENA is making in the electric vehicle area.

Mr Miller : Yes. We have most recently provided $6 million of grant funding to the Chargefox network, which is a rollout of 21 intercity charging stations. That rollout is happening; they've built a number of them. We have had a number of studies. We funded the Energeia study last year, which you'd be aware of.

Senator STORER: Yes.

Mr Miller : We provided funding to EV Energy, which is a small company that has looked at consumer habits and data for electric vehicles. I suppose you could add to the mix the announcement made recently around the hydrogen refuelling station at Toyota's mothballed Altona plant. It's not a battery electric vehicle, but traditionally fuel cell electric vehicles are counted as electric vehicles. So whilst it's a hydrogen story, it's also an electric vehicle story. We have other charging networks in our pipeline which I can't talk about yet.

Senator STORER: You would characterise the situation there that you would see ARENA funding more studies and making more investments in this space going forward?

Mr Miller : Yes.

Senator STORER: Your assessment of the worldwide marketplace is that there are significant benefits that could come to Australians from your investments in assisting this?

Mr Miller : Electric vehicles are particularly interesting for ARENA. There are two aspects to it. One is the avoidance of high-emitting refined fuels and converting that to clean electricity, which is where the market is headed. Also of particular interest to ARENA is the impact, potentially both positive and negative, that electric vehicles could have on the grid infrastructure. In particular, EVs could be a source of growing demand for the electricity sector, and it's always easier to transition something that's growing rather than shrinking. The electricity sector has had flat line demand for a number of years, and electric vehicles have the opportunity to add to demand. That creates opportunities to add new renewable energy technology as well as have the electric vehicles provide grid services and manage charging, which could benefit all consumers.

Senator STORER: On solar farms, I recently visited one of the largest, the Bungala solar farm in Port Augusta. What is ARENA's current involvement in terms of support of solar farms in Australia? Are you continuing to do that? Have you had a significant role in that?

Mr Miller : Our role has changed with regard to supporting solar farms. A couple of years ago we were involved in the reverse auction process, where we allocated $92 million to provide assistance to 12 solar farms, and they are all operational now. Costs have been driven down so far that we no longer see a role for ARENA funding for purely building the solar farm; we switched our focus to grid integration of solar farms and being able to utilise solar farms and the smart invertors and adding batteries to solar farms to help stabilise the grid and provide grid support.

Senator STORER: Would you characterise the reverse auction process that you've just mentioned as being highly successful?

Mr Miller : I think it's widely acknowledged that that was a very successful program which we led.

Senator STORER: Would you like to see a reverse auction arrangement in, for example, the pumped hydro space?

Mr Miller : I think it's a different type of market and a different type of technology. We think that the reverse auction process we used for large-scale solar was timed at the right time for the right technology. Pumped hydro is a little different in that a reverse auction would work well when you've got multiple sites that are all very homogenous competing for your money. Pumped hydro is a larger dollar set; there might only be one or two in any given period of time that could justify or reach financial close. So a reverse auction might be a more difficult proposition for pumped hydro.

Senator STORER: It's been put to me why we would not be undertaking reverse auctions in the pumped hydro space.

Mr Miller : It just has different attributes—the size of the projects and the number of projects you would actually get done. It's a different dynamic to the large-scale solar opportunity we saw.

Senator STORER: That's it for me, Chair.

CHAIR: Thanks, Senator Storer, and thanks very much, Mr Miller and ARENA. That means we are done with the Australian Renewable Energy Agency. We'll now move to the Clean Energy Regulator.