Victoria's Clean Energy Future 2ndedition

January 2005 2 nd Edition
The Clean Energy Future Group came together in 2003 to commission a study investigating how to meet
deep emission cuts in Australia’s stationary energy sector. The Group published a Clean Energy Future
for Australia Study in March 2004. The Clean Energy Future Group comprises:
• Australasian Energy Performance Contracting Association
• Australian Business Council for Sustainable Energy
• Australian Gas Association
• Australian Wind Energy Association
• Bioenergy Australia
• Renewable Energy Generators of Australia
• WWF Australia
First published in November 2004 by WWF Australia; revised January 2005

© WWF Australia 2004. All Rights Reserved.
ISBN: 1 875941 79 7
Author: Dr Mark Diesendorf, Sustainability Centre Pty Ltd, P O Box 521, Epping NSW 1710
www.sustainabilitycentre.com.au
Liability - Neither Sustainability Centre Pty Ltd nor its employees accepts any responsibility or liability for the
accuracy of or inferences from the material contained in this report, or for any actions as a result of any person's or
group's interpretations, deductions, conclusions or actions in reliance on this material.
The opinions expressed in this publication are those of the author and do not necessarily reflect the views of WWF.
The Renewable Energy Generators of Australia Ltd (REGA) support the endeavour to investigate alternative
opportunities for the long term sustainable supply of power generation in Victoria, particularly through the increased
penetration of renewable energy sources and energy efficiency measures.
WWF Australia, GPO Box 528, Sydney NSW Australia

Tel: +612 9281 5515, Fax: +612 9281 1060, www.wwf.org.au , enquiries@wwf.org.au
For copies of this report or a full list of WWF Australia publications on a wide range of conservation issues, please
contact us at publications@wwf.org.au or call 1800 032 551.
Front Cover Images – left to right:

AGL’s gas peaking power station at Somerton, in Melbourne’s northern suburbs. The facility comprises four
37.5 megawatt gas fired generating units. Courtesy of BCSE
Stanwell Corporation’s Toora wind farm. The wind farm consists of twelve turbines, producing 21
megawatts of electricity. This is enough to power more than 6,600 homes, and prevents the release of 48,000 tonnes
of greenhouse gas emissions per annum. The towers were manufactured in Bendigo, VIC. Courtesy of Stanwell
Corporation
Charles IFE Ltd’s Berrybank biomass digesters at Wyndemere ( near Ballarat). The company is saving
$435,000 per year from a $2 million investment in a Total Waste Management System for its Berrybank Piggery
Farm. The System generates electricity from biogas, conserves and recycles water and collects waste for sale as
fertiliser. Courtesy of SEAV
Pacific Hydro’s Victorian hydro projects. Three hydro-electric stations were built on irrigation dams. They
convert previously wasted energy from water releases into clean electricity. Total average annual generation is 34
GWh for the three stations. This represents over 37,000 tonnes of greenhouse gas savings per annum. Courtesy of
Pacific Hydro Ltd
Solar and gas hot water heating. Courtesy of BCSE
60L The Green Energy Efficient Buildings, Melbourne. This uses two thirds less energy than a similar
standard commercial building. Efficiencies are gained through widening internal temperature control band to
between 19-26°C, optimising natural ventilation and natural lighting, high efficiency artificial lighting and light
fittings and solar shading to name a few. All electricity comes from renewable sources resulting in close to zero
greenhouse gas production. Courtesy of BCSE
Contents
Executive Summary 4
Section 1 Introduction 6
Section 2 Victorian electricity backgrounder 8
2.1 Victoria’s electricity industry 8
2.2 State Government’s greenhouse policies and strategies 9
Section 3 Reducing demand growth and cleaning up energy supply 11

3.1 Efficient energy use 11
3.2 Supply options for capacity and energy 13
3.3 MMA Report 14
3.4 A cleaner energy mix 16
Section 4 Energy reserves 20

4.1 Gas 20
4.2 Biomass 21
4.3 Wind 21
Section 5 Recommended policies and strategies 22

5.1 Expand MRET 22
5.2 Require energy retailers to surrender RECs 23
5.3 Place greenhouse intensity constraint upon baseload power stations 23
5.4 Implement tradeable emission permits or carbon levy 24
5.5 Remove subsidies for fossil fuels and energy wastage 25
5.6 Encourage the purchase of solar hot water 26
5.7 Mandate Energy Efficiency Measures 26
5.8 Encourage voluntary energy efficiency measures 28
5.9 Remove barriers to energy efficiency in network price regulation 28
5.10 Local jobs in appropriate regions 29
Section 6 Allocation of costs of the alternative mix 30

6.1 Cost to Government 30
6.2 Cost to Electricity Consumers 30
Section 7 Employment gains from substituting renewable energy for coal 32

Section 8 Conclusion 37
Section 9 Acknowledgments 38
Section 10 References 39
Appendix A Why we need an economic mechanism to enable gas and
renewables to compete with coal-fired electricity 42
Appendix B Demand management fund 44
Appendix C Remove barriers to energy efficiency in network price regulation 45
Appendix D Environmental impacts of bioenergy and wind power 46
Units and conversion factors 50

Executive summary
The Victorian Government is currently addressing the growing electricity demands of Victorians,
given technological solutions that are currently available, the economics of various options and
the environmental and health costs associated with greenhouse gas emissions.
At present in Victoria there are proposals to expand existing coal fired power assets (e.g. by
extending the life of the old 1600 MW Hazelwood power station in the Latrobe Valley), develop
gas fired power assets (e.g. Origin Energy’s proposed natural gas-fired station near Mortlake)
and develop renewable energy power assets (eg Pacific Hydro’s Portland Wind Project). Any
decision to continue supporting coal fired power asset development would lock the State into
CO2 emissions that could dwarf any current and proposed measures for reducing the State’s
emissions.
This report, Towards Victoria’s Clean Energy Future, shows that cleaner energy sources could
substitute for both the capacity and energy generation of a 1600 MW base-load, coal-fired station
by means of a mix of realistic supply-side and demand-side initiatives by 2010. This cleaner
energy system would reduce Victoria’s carbon dioxide emissions by about 13.8 million tonnes
per year. If adopted, it would be cost-effective and would set the State on the path away from
coal-fired assets in order to deliver much deeper emission reductions in the longer term.
The proposed supply-side mix involves wind power, bioenergy (fuelled primarily with crop
residues), and either natural gas combined cycle and cogeneration or a reduction in exports of
Victorian (brown coal-fired) electricity to other States.
Policy measures required for the Victorian Government to deliver this supply mix include:
• a greenhouse intensity limit on all new power stations and on all proposals for major
refurbishments and other life-extensions of old power stations;
• either a carbon levy or tradeable emission permits of the cap and trade type implemented
jointly with other States; and
• the requirement that energy retailers submit Renewable Energy Certificates (RECs) annually
to the State Government as a licence condition.
Recommended demand-side measures include:

• the extension of energy performance standards from new buildings to buildings with new
renovations, all existing government-owned and government-tenanted buildings, and some
other categories of existing buildings;
• substantial expansion of the use of solar hot water encouraged by both incentives and
penalties;
• the wide dissemination of ‘smart’ meters and peak-load pricing to make users pay the full
cost of air conditioning and other contributions to increases in electricity demand; and
• the provision of low-cost packages of energy efficiency measures for householders.
The supply-side solutions to move to cleaner energy sources will increase the average price of a
unit of electricity to the Victorian community. However, the demand-side energy efficiency
Towards Victoria’s Clean Energy Future 4

savings will reduce the number of units purchased by consumers, with the net result that energy
bills will either decrease or remain approximately the same Then the challenge in moving onto
the clean energy pathway becomes neither technological nor economic, but rather organisational
and institutional: namely, how to deliver cost-neutral packages of energy efficiency, renewable
energy and natural gas to consumers. Since the State Government would have to play the leading
role in making organisational and institutional changes, the key issue becomes one of political
will.
The proposed fuel substitution for electricity generation from coal to gas and renewable energy,
coupled with efficient energy use, would reduce the socio-economic risk faced by Victoria as the
result of having an electricity supply system that is based 97% upon brown coal, the most
greenhouse-intensive of all fuels. In the likely event that international greenhouse gas emission
constraints are tightened over the next decade, this high dependence upon brown coal would
become a major economic and environmental liability.
An additional and very important benefit of undertaking the transition to a clean energy future is
that the key policies detailed in this report will stimulate job growth and increased economic
activity. We strongly advocate that the Victorian Government provide incentives to ensure that
the major proportion of these new jobs be located in regions most affected by the closure of coal
fired power assets, such as in the Latrobe Valley.

1. Introduction
There is widespread and growing international concern about global climate change resulting
from the greenhouse effect. We know that our world’s average temperature is rising unusually
rapidly. Climate change impacts have the potential to threaten lives, the capacity to sustain
agriculture, the availability of fresh water, the control and spread of disease, the survival of
native species and the weather (e.g. in terms of the frequency and severity of floods and
droughts). The most pressing solution to this is to act immediately to cut our greenhouse gas
emissions by 60% by 2050 (Coleman et al. 2004).
In Victoria by far the largest component of greenhouse gas emissions comes from electricity
generation from coal-fired power stations. At present, in several States, including Victoria, there
are proposals for either new, or extensions to the lifetimes of old, conventional coal-fired power
stations. Decisions made today will determine our carbon emissions for decades, limit alternative
reduced emission options for the future and undermine our ability to make the transition to a
much cleaner energy future by 2040.
For example, the power station operator, International Power Hazelwood, has requested the
Victorian Government to approve the development of an extension to the Hazelwood West Coal
Field. This would enable Hazelwood power station to extend its operation from 2009 to 2031.
Hazelwood is one of the most greenhouse-intensive power stations in Australia and is arguably
the largest point source of annual greenhouse gas emissions in the country. An expansion would
lock in 380-407 million tonnes of Victoria’s future total CO2 emissions. This would wipe out
many times over the greenhouse gas savings envisaged under current government polices and be
at odds with the Victorian Government’s Greenhouse Challenge and recent acknowledgment to
address the negative impact of climate change.
The recent scenario study, A Clean Energy Future for Australia, explains how Australia can
reduce by half its CO2 emissions from stationary (i.e. non-transport) energy by 2040 (Saddler,
Diesendorf and Denniss, 2004). The latter study assumes continuing economic growth and
utilises existing technologies. It identifies a myriad of cost-effective technologies for using
energy more efficiently, together with cleaner energy supply based primarily upon gas (the least
polluting fossil fuel), crop residues and wind power. The study finds that coal-fired power
stations with geosequestration are unnecessary for achieving the target.
The study by Saddler, Diesendorf and Denniss (2004) suggests that achieving the 50 percent
emission reduction target by 2040 requires a range of new policies to be acted upon immediately.
These include a maximum greenhouse intensity for new base-load power stations1, an expansion
of the federal Mandatory Renewable Energy Target (MRET), the introduction of either a carbon
levy or tradeable emission permits and some mandatory requirements for energy efficiency
measures.
1
Conventional coal-fired power stations have the highest greenhouse gas intensities (CO2 emissions/TWh of
electricity sent out) of all types of power station. They also emit large quantities of sulphur dioxide, nitrogen
oxides, fluoride, hydrochloric acid, boron, particulate matter, sulphuric acid and mercury. Therefore, the maximum
greenhouse intensity would be set to promote the building of low or zero emission power plants or energy
efficiency measures.

In this context, this report focuses on the potential of a mix of energy efficiency and cleaner
electricity supply measures to substitute for 1600 MW of coal-fired base-load generation by
2010.2 In making this substitution, we match the two principal contributions that a base-load
power station makes to electricity supply:
• annual energy that is measured here in GWh/yr, where 1 GWh = 1 gigawatt-hour = 1,000
megawatt-hours (MWh); and
• capacity to meet peak demand, that is measured here in megawatts (MW).
After giving a concise background on Victoria’s electricity system and existing policies and
strategies to reduce greenhouse gas emissions from electricity use (Section 2), this report
proposes in Section 3 a mix of demand-side energy efficiency and supply-side natural gas and
renewable energy measures. Section 4 comments upon energy reserves and Section 5 proposes
policies and strategies for achieving the substitution. The allocation of costs is discussed in
Section 6 and the employment implications in Section 7.
2
Because conventional power stations generate large blocks of power, they are brought on line several years before
their full capacity and electricity generation are actually required. Clean energy options are generally provided in
much smaller blocks and so they can be brought on line as required by electricity demand.

2. Victorian electricity backgrounder
2.1 Victoria’s electricity industry
Victoria has a population of 4.8 million and 1.8 million households. On the principal electricity
grid, installed capacity on 30 June 2001 was 7,864 MW; maximum demand in 2000/01 was
8,019 MW3 and occurred in summer; electricity generation in the financial year 2000/01 was
49,971 GWh; and electricity sent out from the power stations was 45,611 GWh (ESAA, 2002).
Of this, net electricity exports to other states (S.A. and NSW) were approximately 3,000 GWh.,
equivalent to about 27% of the electricity sent out from Hazelwood. Electricity consumption
within Victoria was 38,395 GWh (ESAA, 2002).
Table 1 shows the mix of energy sources used on the main grid. Brown coal, the most
greenhouse intensive fuel of all, contributed 97% of electricity generation.
Table 1: Fuels used in Victoria’s electricity generation, main grid, 2000-01
Fuel Electricity % of
generation b generation
(GWh/y)
Brown coal 48,465 97
Gas 881 1.8
Hydroa 625 1.2
Oil 0 0
Total 49,971 100
Source: ESAA (2002)
a. excluding pumped hydro
Table 1 only considers the main electricity grid and so excludes some renewable energy and
cogeneration with natural gas. According to ESAA (2002), some Victorian electricity is
generated from waste, other biomass, wind and solar, although quantified amounts are not given.
By the end of 2003, 92 MW of wind power was installed in Victoria, with expected annual
electricity generation of about 240 GWh. At that time there were proposals for an additional 915
MW of wind power, but most of these would depend upon the expansion of MRET. In the first
half of 2004, additional proposals have been announced.
Biomass energy is not as yet being used to generate much electricity in Victoria, although there
is significant potential, as discussed in Section 4.
In 2000/01 the power stations on Victoria’s main electricity grid were responsible for the
emission of about 57 Mt CO2 compared with about 170 Mt for the whole of Australia
(Diesendorf, 2003). Victoria’s per capita CO2 emissions from electricity generation (11.1
t/person) were higher than those of every other State (Wilkenfeld, 2002) 4. This is because of the
3
The maximum demand was greater than the State’s generating capacity. Imports supplied the difference. On 29
January 2003 Victoria set a new record of 8104 MW.
4
Queensland was second highest with 10.0 t/person.

domination of Victoria’s electricity generation by brown coal (see Table 1) and because Victoria
also has several large electricity intensive industries, such as aluminium smelting.
Drivers of Victoria’s growth in energy demand are population growth, economic growth from
industrial and commercial development, and changing lifestyles, including the trend towards
larger houses, smaller households (i.e. number of persons per house) and the rapid increase in the
use of electrical appliances, including air conditioners.
2.2 State Government’s greenhouse policies and strategies
The Victorian Government has put in place the following policies and strategies for reducing
greenhouse gas emissions, that could assist the substitution of cleaner energy sources and
demand-side measures for coal-fired electricity:
• Solar Hot Water Rebate Program: available for a new solar hot water system installed in an
existing building that replaces an existing gas, wood, briquette or oil fuelled water heater.5
Replacement of electric hot water systems by solar is not eligible, presumably because that is
already subsidised by the Federal Government’s Renewable Energy Certificates. (For details
see www.seav.vic.gov.au)
• Star homes: From 1 July 2004 all new homes (i.e. houses and apartments) in Victoria must
have a greater implementation of energy and water efficiency measures. Various trade-offs
are permitted until 1 July 2005. After this transitional period, the energy efficiency rating of
the building fabric must be 5 Star standard and either a solar hot water system or a rainwater
tank must be installed6. The standard does not apply to existing homes or to
additions/renovations to existing homes. After 5 years, this scheme will save 200,000 tonnes
of CO2 per year. (See www.buildingcommission.com.au)
• Green Star rating system for new and refurbished office buildings: a voluntary tool and
therefore unlikely to have significant effect..
• Wind power target: total wind power capacity of 1000 MW installed by 2006. The Victorian
Government does not appear to have set in place any strategies to achieve this substantial
wind penetration and it would be implemented best by the expansion of MRET by a future
Federal Government. However, there are measures that State Governments could implement
to get more out of the existing MRET (see Section 5.2).
• Renewable energy target: Increase the share of Victoria’s electricity generation using
renewable energy sources from the current 4 per cent (including hydro) to 10 per cent by the
year 2010. Again, the Victorian Government does not appear to have set in place any
strategies to achieve this target. However, there are measures that State Governments could
5
Only systems that result in reduced greenhouse gas emissions are eligible and therefore replacement of an existing
natural gas water heater with an electric-boosted solar water heater is ineligible in Victoria.
6
Allen Consulting Group (2004) considered several different options and found that implementation of the solar
hot water heater and water efficient plumbing requirement, in addition to the 5-Star energy standard, will yield the
greatest financial return for Victoria.

implement to get more out of the existing MRET (see Section 5.2). In addition, the following
item may assist.
• Inter-jurisdictional working group on renewable energy targets: The governments of

Victoria. NSW, SA and Tasmania have established an inter-jurisdictional working group on
renewable energy targets. The intention is to develop a state-based approach to renewable
energy targets in the absence of Federal Government action.
• SEPP for energy efficiency: Under the State Environment Protection Policy (Air Quality
Management) Victorian enterprises subject to the EPA Victoria works approvals and
licensing system are required to implement cost-effective opportunities for improving energy
efficiency. By December 2003 businesses subject to the SEPP were required to undertake
energy efficiency audits and submit plans to implement energy efficiency measures with a
pay back period of three years or less. The measures must be implemented by December
2006.
• Inter-jurisdictional working group on emission trading: All state governments are

participating in an inter-jurisdictional working group on emission trading, which is scheduled
to report to ministers in December 2004.
• Renewable Energy Support Fund: $8 million for grants to assist medium-scale renewable
energy projects.

3. Reducing demand growth and cleaning up energy supply
Generally speaking the cheapest and fastest measures for reducing greenhouse gas emissions
from stationary energy are improvements in the efficiency of energy use.
3.1 Efficient energy use
Detailed studies have been made on how to improve substantially the energy efficiencies of
certain technologies (e.g. some office equipment, vending machines, refrigerators and washing
machines), but a much wider range of studies is needed. It is well known that many of the
barriers to implementation are neither technical nor economic, but rather arise from market
failures such as the split incentives of landlords and tenants, and the lack or appropriate
organizations or institutions (such as energy service companies) to facilitate large-scale
implementation. The economic potential is large, but to capture it we need policies, strategies
and action plans at all levels of government and in business. (Greene and Pears, 2003; BCSE,
2003a; Ministerial Council on Energy, 2003; Saddler, Diesendorf & Denniss, 2004),
One of the few detailed studies of the potential for efficient energy use within a State was carried
out for Queensland by SRC Australia (1991). It found that, through efficient energy use
(including solar hot water) in the residential, commercial and industrial sectors, total savings of
1092 GWh/y and demand reductions of 392 MW in winter and 263 MW in summer could be
achieved cost-effectively after 6 years. The energy and demand savings did not stop after 6
years, but increased in magnitude for each year until they peaked around 17-18 years after the
commencement of the proposed program. At this peak the energy savings were about 3760
GWh/y while the demand savings were 950 MW in summer and 1454 MW in winter. We
consider here a period of 6 years, in order to compare the SRC results with the potential energy
savings for the period between 2004 and 2010 over which Hazelwood coal-fired power station
could be replaced.
The Queensland electricity supply industry was rather different in the starting period for the SRC
study, 1990-91, compared with the Victorian supply of today. Then, Queensland electricity
consumption was only about 21,000 GWh/y; the maximum demand of 4090 MW occurred in
winter; and there was no significant use of gas by consumers. Nevertheless, until the equivalent
of the SRC study is repeated for Victoria, a rough estimate of the potential for efficient energy
use can be obtained by simply scaling up the SRC results to present conditions: i.e. doubling the
savings in energy generation and doubling the savings in summer peak (which was considerably
lower than the savings in the winter peak in the early 1990s. The results are shown in Table 2
(column 3). In total, in the sixth year there is a reduction in electricity consumption of 2188
GWh and a reduction in summer and winter peak demands of 526 MW and 784 MW,
respectively.
In the SRC (1991) results, the annual benefits of the efficient energy use program keep
increasing over 18 years and are still at least as good as the 6-year benefit after 30 years. As time
goes on, the costs of the renewable energy technologies continue to decline. There are too many
uncertainties in the data scaled up from 1990-91 to attempt a Net Present Value calculation.

For comparison, the study by EMET (2004) obtains a reduction in residential electricity
consumption, beyond that of business-as-usual, of 6,400 GWh/y and of summer demand by 1324
MW for the whole of Australia in 2010, assuming a payback period of 6.5 years. To rescale these
results to apply to Victoria, we multiply them by 0.22 (the ratio of electricity consumptions in
Victoria and Australia), obtaining electricity savings of 1,408 GWh and summer demand
reduction of 291 MW.
For the commercial sector EMET (2004) only considers a 4-year payback and obtains a
reduction, beyond business-as-usual measures, of 1800 MW in Australia’s summer peak, which
becomes 396 MW when rescaled to Victoria. EMET’s corresponding estimate of savings in
Australia’s electricity consumption is 7,639 GWh/y, which becomes 1680 GWh/y for Victoria
(Table 2). Larger reductions would be expected from a 6.5-year payback period. EMET (2004)
does not investigate the electricity saving in the industrial sector.
Table 2: Annual energy and capacity reductions by sector, achieved 6 years after
commencement of an energy efficiency program
Study Æ SRC results Scale-up of EMET for Vic

for Qld in SRC to Vic. in in 2010
1997 2010
Residential sector
Electricity consumption (GWh) 532 1064 1408
Summer peak (MW) 65 130 291
Winter peak (MW) 282 564 291
Commercial Sector
Electricity consumption (GWh) 460 920 1680
Summer peak (MW) 151 302 396
Winter peak (MW) 76 152 282
Industrial Sector
Electricity consumption (GWh) 102 204 ND
Summer peak (MW) 47 94 ND
Winter peak (MW) 34 68 ND
Total: All Sectors

Electricity consumption (GWh) 1,094 2188 ND
Summer peak (MW) 263 526 ND
Winter peak (MW) 392 784 ND
Note: ‘ND denotes ‘no data; EMET results for residential sector have 6.5 year payback, but EMET results
for commercial sector have 4-year payback.

On the basis of the amount of efficient energy use identified as resulting from ‘medium’ energy
efficiency measures in the recent national study (Saddler, Diesendorf & Denniss, 2004), we
consider that this report, Towards Victoria’s Clean Energy Future, and McLennan Magasanik
Associates (2003) (see Section 3.3) may have underestimated the potential for electricity savings
through efficient energy use in Victoria. Furthermore, the approach of this report could well lead
to an even larger underestimate of the reduction in CO2 emissions, because the SRC study does
not take into account the substitution at the point of use of gas in the place of electricity for
heating and cooling. Fuel substitution reduces emissions for these particular energy services by a
factor of about 4.
3.2 Supply options for capacity and energy
Before considering the various energy supply options, we consider the requirements for
substituting for contribution to peak demand by a 1600 MW base-load power station.
One approach would classify fossil fuel and nuclear power stations as ‘reliable’ or ‘dispatchable’
and wind and solar energy without storage as ‘unreliable’ or ‘not dispatchable’7. But the
distinction between ‘reliable’ and ‘unreliable’ is simplistic. On one hand even coal-fired power
stations have a significant probability of forced outage (unplanned failure) that typically varies
between 3% and 10%. Victoria had an average forced outage rate of 8.1% in 2000/01 (ESAA,
2002) Thus coal-fired power stations are dispatchable, but not completely reliable. Therefore,
they require partial backup in the form of ‘reserve plant’8.
As a rough approximation, we consider the capacity of a base-load coal-fired power station to

meet peak demand reliably to be its annual average power (Martin and Diesendorf, 1980), i.e.
rated power x capacity factor9. For Hazelwood this becomes 1600 x 0.85 MW = 1360 MW.
Therefore, to substitute for Hazelwood’s capacity and energy generation we require a mix of
energy supply and demand-reducing technologies with Equivalent Firm (i.e. 100% reliable)
Capacity of at least 1360 MW and annual energy sent out of at least 11,100 GWh (using the
2000-01 output).
On the other hand a wind farm is partially reliable, because wind speeds in the next hour or two,
or even the next day, are predictable with a probability that is substantially above that of pure
randomness. Furthermore, a group of wind farms, located at geographically dispersed sites, is
considerably more reliable than a single wind farm.
The main energy supply options are the substitution of natural gas and renewable sources of
electricity for coal-fired electricity.
7
In this context ‘dispatchable’ means ‘available upon demand’. To describe wind and solar power, we do not use
the term ‘intermittent’, because it could imply incorrectly that the sources switch on and off abruptly.
8
Indeed, the ‘spinning reserve’ plant (i.e. that which is actually running, but is not loaded) must be able to replace
the largest single generator in the system – 500 MW.
9
Strictly speaking this should be divided by a factor of about 1.07 to allow for the electricity use within the power
station.

On short-term (10-year) timescale, it is assumed that there will be no cheap solar electricity, or
geothermal, or hydrogen storage & transport of renewable energy, or capture and
geosequestration of CO2 from coal-fired power stations.
However, there is:

• natural gas and other forms of gas (e.g. LPG and waste gas from petroleum refining), that can
be used as fuels for new power stations and at the point of use as substitutes for electricity
(mostly coal-fired) for hot water, cooking, space heating and industrial processes.
• bioenergy from crop residues (e.g. plantation forestry, wheat) and energy crops;
• wind energy;
• solar hot water to replace electric resistance water heating (which we treat here as a demand-
side contributor).
Renewable sources of electricity are growing steadily. On 31 December 2003, Australia’s

operating non-hydro renewable energy generating capacity comprised mainly 368 MW bagasse
cogeneration, 197 MW wind power10, 100 MW landfill gas, 77 MW black liquor and 26 MW
sewerage gas (BCSE, 2004).
3.3 MMA report
In its report to International Hazelwood Power, McLennan Magasanik Associates (2003),

hereinafter referred to as MMA, provides a possible energy and capacity mix for substituting for
the 1600 MW Hazelwood power station. This is of course relevant to the substitution of a
different energy mix for any large coal-fired station. MMA’s new mix has the following
characteristics.
• It has a substantial component of black coal electricity imported from NSW. But, from the
viewpoint of achieving large reductions in CO2 emissions in the long term, there is little point
in replacing brown coal with black coal. The use of both types of coal have to be
substantially reduced over the next several decades (Saddler, Diesendorf & Denniss, 2004).
However, in the short term, black coal power from existing plant in other states could act as a
buffer as generating units of current Victorian coal fired assets are withdrawn while
alternatives are ramped up.
• Renewable sources of electricity are all lumped together, thus missing the individual
contributions that each can make to the mix, and their total contribution appears to be
unnecessarily small.
• This entails that there is a large increase in the demand for natural gas and new gas fields
may have to be developed in Bass Strait, the Otway Basin and/or, in the longer term, using
imported gas from Papua New Guinea or the North-West Shelf. (See Section 4.)
10
By 31 December 2004, Australia’s wind power capacity had reached 380 MW, with an additional 1350 MW
approved or under construction.

• Solar hot water is not mentioned. Over 20% of Victorian homes use electric hot water, so
there is significant scope for reduction in electricity use here, using gas-boosted solar where
gas is available and electrically-boosted solar or electric heat pumps where there is no gas.
• Although the MMA report states that “the Government…would need to get quite serious
about promoting alternative measures such as demand side efficiency”, it is pessimistic about
doing this within the framework of the National Electricity Market: “Such programs would
require higher electricity prices in the market which are not currently in prospect.” Why not,
this paper asks? For most electricity consumers, the important factor is the amount of the bill,
not the price of a unit of electricity.
• For meeting increased peaks MMA includes an upgrading of the transmission link to Snowy
hydro; peak and/or intermediate-load imports from Tasmania via Basslink (under
construction); peak and/or intermediate-load imports from South Australia; open-cycle gas
turbines; and, a novelty, compressed air storage using aquifers in Gippsland and using energy
from brown coal or gas.
The MMA report does not provide tables showing the proposed contributions from the various
energy sources and demand-reducing measures. It is difficult to estimate quantitative values from
its graphs of projected energy generation by source over the next 12 years. However, in
qualitative terms, the results are clear: it is possible to substitute for 1600 MW of coal fired
power, but this would drive up the price of a unit of electricity11. One option, mentioned in the
text of p.38 of the draft MMA report, is the following substitution at 4.0-4.5 c/kWh equivalent
as set out in Table 3:
Table 3: An energy mix used by MMAc to substitute for a 1600 MW coal-fired power
station
Technology Capacity Cost of electricity

(MW) (c/kWh)
Efficient energy use (all sectors) 285 Various items in range 3.9-4.8
Cogeneration at Maryvale 300 4.0
Industrial cogeneration, small-scale 240 4.2
Snowy interconnection upgrade 600 4.0-4.2
(peak-load)
Imported coal-fired power from NSW Large but not specified
not
specified
Source: The present author has compiled this table from information scattered through MMA (2003).
Notes: a. MMA seems to have made the incorrect assumption that the equivalent firm capacity of Hazelwood is equal
to its rated capacity, 1600 MW. However, we have chosen 1360 MW to be more appropriate, allowing for forced
outages.
b. MMA does not give the energy generation by source, only capacities.
It is inappropriate to compare the price per kilowatt-hour of efficient energy use and some cases
of distributed generation with the price of coal-fired power at the power station, because the
11
If the alternatives involved improving energy efficiency by, say, 5%, then a 5% increase in electricity price would
essentially be cost-neutral.

former avoid the capital costs of transmission and distribution – which is around 4 c/kWh – and
line losses. Furthermore, if efficient energy use and distributed generation are focused on regions
with high line losses and capital costs, then large savings can be captured.
There would be additional transmission costs involved in upgrading interconnections with the
Snowy, NSW and SA.
MMA mentions that the Victorian grid now has a base-load capacity of 6,600 MW and this
leaves a large reserve plant margin which is used to export electricity up to 1300 MW to NSW
and SA during off-peak periods. Since this displaces mainly black coal, the high level of
Victorian electricity exports, while ‘rational’ from the market viewpoint, increases Australia’s
CO2 emissions. We suggest that reducing Victoria’s interstate electricity exports12 could provide
a large fraction of the required capacity and electricity generation. The ‘mothballed’ half of
Pelican Point combined-cycle gas-fired power station in S.A. and, as a temporary measure, the
mothballed black coal power stations in NSW could be restarted to cover reductions in Victoria’s
exports.
MMA note that its scenario would displace a large number of jobs in the Latrobe Valley. We
address this issue in our own scenario (see Sections 5.10 and 7).
3.4 A cleaner energy mix
Table 4 sets out our own choice of a possible mix of demand-side and supply side measures that
could substitute for coal-fired assets generating 1600 MW, using Hazelwood as an example, by
2010. The scenario in Table 4 offers measures that are additional to those installed or under
construction at 30 June 2004. It supplies the annual energy generation in GWh/yr, and much
more than the Equivalent Firm Capacity in MW, of a 1600 MW coal-fired power station. It
would reduce Victoria’s CO2 emissions by 13.8 Mt/y in 2010. The principal contributions to our
alternative energy mix comes from cogeneration and combined cycle power stations fuelled by
gas, followed by wind power, then efficient energy use, and then bioelectricity fuelled mostly
from crop residues.
On the demand side we use the rescaled results of SRC (1991) to obtain the reduction in peak
load and electricity consumption resulting from efficient energy use (see Table 2, column 3). A
more accurate calculation must consider fuel substitution at the point of use and boosting of solar
hot water13.
Column 3 gives the capacity factors, i.e. annual average power generated divided by rated power.
Column 4 gives the approximate contributions to Equivalent Firm Capacity, i.e. to peak load. For
base-load thermal power stations the average power is taken as a proxy for Equivalent Firm
Capacity.
12
E.g. by applying either a carbon tax, or tradeable emission permits or a constraint on carbon emissions.
13
While gas boosting of solar hot water avoids peak electricity demand contributions, for electrical boosting there is
the option of smart booster controllers or an off-peak tariff. Controllers could be set up to give users feedback (via
a display inside) as to the water temperature in the storage tank and a suggested best boost and shower time. This
would give feedback to users to maximise solar contribution and allow for minor behaviour change.

In the limit of very small penetrations of wind power into the grid, the Equivalent Firm Capacity
of wind power = average wind power (Martin & Diesendorf, 1980; Haslett & Diesendorf, 1981).
In our scenario the annual wind energy generation is about 5% of the total grid generation. With
this penetration, the equivalent firm capacity of wind power is about 0.71 times the annual
average wind power generation14 (Martin & Diesendorf, 1980, Table 2). Under these
circumstances it is arguable whether there is need for any additional partial backup15 or storage
of wind power. Most, if not all, of the wind power could be backed up from the existing peak-
load and reserve plant margin.16 However, even if wind power was assigned zero capacity
credit, our energy mix in Table 4 provides larger Equivalent Firm Capacity than that of the 1600
MW coal-fired power station. Furthermore, we have done our costing in Table 4 on the
conservative assumption that, to better compensate for fluctuations in wind power, 200 MW of
gas turbines with capacity factor 10% is provided as partial backup.
The cost in millions of dollars per year of electricity generated or saved is given in Column 9.
However, this could be misleading with regard to the costs of efficient energy use, especially in
the residential and small business categories. The latter costs should not be compared with the
prices of electricity sent out from Hazelwood, but rather with the respective prices of electricity
delivered to end-users in these categories. Typical prices for Victoria, as given by ESAA (2002,
Charts 5.1-5.4) and adding GST, are:
Melbourne residential 13.0 c/kWh;
Melbourne small business 18.9 c/kWh; and
Melbourne big business 6.5 c/kWh).
Rural Victoria, (non-domestic tariff) 21.4 c/kWh.
For simplicity we use Melbourne prices of electricity to calculate the value of electricity saved
by efficient energy use in Column 10. This halves the total cost of electricity delivered by our
supply-side and demand-side mix in 2010, bringing the cost far below that of a typical brown
coal-fired power station of Hazelwood’s capacity of about 3.8 c/kWh.
The question then arises as to the actual cost of electricity generated by Hazelwood under
circumstances that the Hazelwood West Coal Field is developed and further refurbishment of the
power station is carried out. The operators could argue that the capital cost of the original
Hazelwood power station has been written off, although the cost of some subsequent
refurbishment is still being paid off annually and further refurbishment would be required if the
power station is to generate beyond 2009. Based on costs in 2010, our substitution for
Hazelwood is cost-effective in 2010 with the continuation of Hazelwood provided the long-run
marginal cost of that power station is greater than about 2.5 c/kWh. However, we must keep in
mind that the benefits of early investment in efficient energy use increase with time and, in the
14
This is an underestimate because the calculation was performed with the simplifying assumption that there is no
geographic dispersion of wind farms.
15
In the form of peaking gas turbines or part of Snowy hydro.
16
If after drawing upon existing reserve and peaking plant, some amount additional back-up for wind power is
required, it can be calculated to be peak load plant (e.g. gas turbine or hydro) with capacity approximately equal to
one-quarter of the wind capacity that still has to be backed up. If all the wind farms were concentrated at one site
the back-up required would be one-half the wind capacity (Martin & Diesendorf, 1982).

case of the scenario developed by SRC (1991), the benefits only peak after 18 years. Therefore,
provided policies and strategies are implemented to capture the cost-effective energy efficiency
measures, our mix is likely to be in the long run less expensive than continuing with Hazelwood
or any equivalent coal-fired power station.
Redding Energy Management (2000) find that Victoria’s commercial and manufacturing sectors
have a combined technical potential17 for cogeneration of over 1,000 MW. The study also refers
to economic forecasting by the gas industry indicating that an additional cogeneration capacity of
320 MW could be installed by 2010, with a further 300 MW installed in the period 2010-15.
(Based on more recent proposals and appropriate policies, we have assumed that 500 MW is
possible by 2010.) Assuming a gas price of $3/GJ and 12% discount rate, Redding finds that the
cost of cogenerated electricity varies from about 3.4 c/kWh for a 220 MW power plant up to
about 6-8 c/kWh for plant in the range 1-10 MW. Electricity from microtubines smaller than 1
MW will be even dearer. However, as with efficient energy use, we must consider that small
cogeneration plants, e.g. those installed in commercial buildings, are not competing with the
generation cost of electricity at a coal-fired power station, but rather with the price of electricity
delivered to the building via the distribution network at 6-17 c/kWh. We have not attempted to
do that in Table 4. Clearly, Victoria’s cogeneration potential could be large. The problem for
cogeneration (and combined cycle gas-fired power stations) in Victoria is the limited gas
reserves (see Section 4).
According to Outhred (2003) up to 2,200 MW of wind power could be readily integrated into the
principal Victorian electricity grid. Outhred assumes a short-term time horizon (about 10 years);
no changes to the existing electricity grid; no additional backup for wind power; and the existing
level of electricity demand. Therefore, if sufficient wind resource exists on suitable land or off-
shore, then, with upgrades of sections of the grid and some backup, even more than 2,200 MW
could be integrated in the longer term.
17
Technical potential is generally much greater than economic potential.

Table 4: Energy mix to substitute for a 1600 MW base-load coal-fired power station in 2010
Technology Rated Capacity Contrib. Elec. sent out Emission CO2 Price of unit of Costb of elec. Cost of elec.
power factor to peak or saved g emissions elec. gen. or gen. or saved deliveredd
Intensity
(MW) (MW) (GWh/y) (Mt CO2/TWh) (Mt)/y saved (c/kWh) in 2010 ($M/y) in 2010
($M/y)
Bio-electricity 115 0.75 86 756 0.00 0.00 7.5 56.7 56.7

c
Gas Combined Cycle 240 0.80 192 1682 0.4 0.67 4.5 75.7 75.7
Gas: Cogeneration 500 0.85 425 3723 0.5 1.86 4.1 152.6 152.6
Gas turbine 200 0.1 200 175 0.5 0.09 6.3 11.0 11.0
e
Wind 1000 0.30 213 2628 0.0 0.00 7.5 197.1 197.1
a
EE : residential N/A N/A 130 1064 0.2 0.21 4.9 52.1 -86.1
a
EE : commercial N/A N/A 302 920 0.2 0.18 4.9 45.1 -129.0
a
EE : industrial N/A N/A 94 204 0.2 0.18 4.9 10.0 -14.90
2055
Total + EE N/A 1642 11,152 N/A 3.20 N/A 600.3 263.2
Hazelwood or 1600 0.85 1360 11,134 1.45 17.00 3.8 423.1 423.1
equivalent 2.5 278.4 287.4
Notes:
a. EE denotes efficient energy use and includes fuel substitution at point of use and solar hot water. EE data based on rescaling the SRC (1991) data from
Queensland. We assume that EE has an average cost of 4.9 c/kWh saved, which corresponds to the value after 6 years of EE implementation given by SRC
(1991) adjusted for inflation. By current standards, this seems very conservative.
b. Cost (column 9) is for 2010, the 6th year after implementing the program. EE contributions calculated by SRC (1991) increase with time up to the 18th year, then
th
gradually decline up to 30 year.
c. Most of this gas generation could be obtained from the currently mothballed part of Pelican Creek combined 478 MW cycle gas-fired power station in South
Australia, assuming that exports of brown coal-fired electricity from Victoria to S.A are reduced. However, there are uncertainties in costs of refurbishing
Hazelwood and new coal mine, among others. If there are insufficient gas reserves, we substitute for the combined cycle gas-fired power generation by reducing
exports of Victorian coal-fired electricity.
d. In Column 10, we have adjusted the residential, commercial and industrial energy efficiency costs to take account of the situation that they are saving electricity
delivered at 11.8, 17.2 and 5.9 c/kWh respectively, instead of electricity generated at 3.8 kWh.
e. For 1000 MW of wind power capacity, the Equivalent Firm Capacity is approximately 0.71 x average wind power (see Section 3.4).
f. Energy efficiency measures have been arbitrarily given an emission intensity of 0.2 Mt CO2/TWh saved. In practice it could be much less than this.

4. Energy reserves
4.1 Gas
In the latter half of the 21st century the use of natural gas will decline in Australia – since its
reserves are limited, large quantities are being allocated to export, and it is a fossil fuel
contributing to greenhouse gas emissions. However, in the short and medium term it is valuable
as a significant transitional fuel towards an energy system with much lower CO2 emissions than
the present. In this role it can be used to fuel combined cycle and cogeneration power stations
and as back-up for solar hot water, solar thermal electric power stations and wind farms. It is
assumed that geosequestration will be introduced to capture CO2 that would otherwise be
released into the atmosphere from gas fields.
ABARE comments that, “in the absence of significant and positive exploration results, there is a
real possibility that eastern Australian supplies will need to be supplemented within the period to
2019-20 from gas resources in Australia’s north west, Papua New Guinea or from coal seam
methane.” (Fainstein et al., 2002). These comments apply to business-as-usual as well as clean
energy scenarios.
‘Gas’ includes natural gas; coal seam (aka coal bed) methane, which is identical to natural gas;
coal mine gas (aka waste mine gas) which may have a much lower concentration of methane
than the above two gases and so may have to be used on-site at the coal mine; and waste gas
from petroleum refining. Firm estimates of the reserves of these gases are notoriously difficult to
obtain, both because of corporate confidentiality and the uncertainties inherent in proving these
resources. At present there are no proven reserves of coal seam methane in Victoria, where an
investigation has only recently commenced.
Geoscience Australia estimates that the Category 1 (i.e. both ‘proved and probable’18
commercial) reserves of sales gas (i.e. natural gas) in Victoria (Gippsland and Otway Basins)
amount to 147 billion cubic metres on 1/1/2003, down from 152 billion cubic metres on 1/1/2002
(Petrie et al., 2003), The 2003 estimate of reserves has energy content of about 5,000 PJ and this
is equivalent to 1,000 MW of gas-fired combined cycle power stations operating for 55 years.
Clearly our proposed energy mix, as well as that of MMA, and indeed business-as-usual, will
require more gas reserves to be proven and more gas processing facilities or a new transmission
pipeline to be built. However, gas must be seen as a transitional fuel to take our energy needs
from coal towards carbon neutral fuel sources.
If it turns out that no further gas reserves are proven in Victoria, a large part of the gas
component of our electricity supply mix could be replaced by reducing the off-peak exports of
Victoria’s electricity from brown coal to NSW and SA.
18
i.e. reserves established at the median value – that is with a 50% cumulative probability of existence.

4.2 Biomass
In Saddler et al (2004) biomass contributed 28% of Australia’s future electricity generation by

2040. Potentially significant sources of biomass residues in Victoria include, in probable order
of importance:
• stubble from grain crops;
• plantation forestry residues, including sawmill residues;
• animal residues from abattoirs / meat processing works;
• other green wastes.
Probably the largest contribution from this list could be obtained from stubble from grain crops,
mainly wheat, barley, oats, field peas, canola and chick peas in order of importance. Following
Kelleher (1997) and based on total land area planted of 2.18 million ha, stubble yield of 2.0 t/ha
(leaving 1.4 t/ha on the land to maintain the soil) and thermal efficiency of conversion to
electricity of 30%, gives an annual electricity generation of about 3,600 GWh. Therefore, given
appropriate policies and strategies, it should be possible to obtain at least one-quarter of this, 900
GWh/yr, from grain stubble and other biomass residues in Victoria by 2010.
Victoria may be suitable for short-cycle tree crops for bioenergy, where previously cleared land
that is not earmarked for housing is available. Biomass crops are expected to be more expensive
fuel for generating electricity than biomass residues, unless multiple economic benefits can be
obtained from the crops (Stucley et al., 2004; Howard and Olszack, 2004). Oil mallee is a short-
cycle crop that offers, in addition to electricity, eucalyptus oil, activated charcoal and a means of
reducing dryland salinity.
4.3 Wind
The Victorian Wind Atlas indicates that the State has a medium level of wind energy potential by
Australian standards (SEAV, 2004). In addition, some wind energy surveys have been conducted
by energy utilities, but the results have not been published.
The present paper suggests an additional short-term wind energy capacity of 1000 MW, which is
equal to the Victorian Government’s target for 2006. However, with the Federal Government’s
refusal to extend MRET, it is unlikely that the Victorian target will be met as early as 2006.
There are already proposals for hundreds of megawatts of wind farms that are currently stalled
due to the refusal of the Federal Government to expand MRET. The Victorian Government, at no
cost to itself, could assist the wind industry to make better use of the existing MRET as discussed
in Section 5.2.
There is the possibility, that Victoria may have significantly higher wind speeds in shallow off-
shore waters, close to electricity demand centres. The off-shore resource may be significant and
warrants wind monitoring and modelling.

5. Recommended policies and strategies
To substitute for 1600 MW of coal-fired power and at the same time to achieve significant
reduction in CO2 emissions within the framework of the National Electricity Market, it is
necessary to introduce economic instruments and/or constraints on generation sources to allow
cleaner energy sources to compete with highly polluting coal (see appendix). Here we propose
several such strategies, among others.
These strategies can be justified on the grounds that the price of coal-fired electricity does not
include externalities, such as the environmental and health costs of its use, and that existing
market signals fail to fully reflect important costs – e.g. pricing of transmission and distribution
is averaged over large areas, so that the costs of supplying some customers is underpriced and so
the economics of alternatives in those areas are undermined, even though, from society’s
perspective, they offer a lower cost solution.
5.1 Expand the Mandatory Renewable Energy Target (MRET)
The only significant existing driver of low-cost, commercially available, renewable energy is
MRET. However, the current Australian target of 9,500 GWh/year in 2010 is very small,
corresponding to less than 1% of projected electricity demand for 2010. Furthermore, several
electricity generators are either failing to create Renewable Energy Certificates19 (RECs) for
parts of their renewable energy generation or accumulating RECs that they have created until
their price increases. This has the effect of limiting the market for RECs and increasing REC
prices. As a result, MRET is expected to be fully utilised by 2007. This means there is a serious
risk that the renewable energy industry will face a ‘boom and bust’ situation as MRET demand
dries up from 2007.
An expansion of MRET is especially important to:

• assist the establishment of bioenergy; and
• encourage the wind power industry to utilise the numerous inland sites that have lower wind
speeds than the best coastal sites.
We support the recommendation of the Business Council for Sustainable Energy for the
Commonwealth Government to expand MRET for Australia to 21,600 GWh/y by 2010 and to
33,800 GWh/y by 2020. We also support BCSE’s recommendation that projects installed prior to
2020 to be guaranteed 15 years to produce RECs. (BCSE, 2003b)
The expansion of MRET is best driven nationally by the Federal Government. However, in the
absence of Federal action, it has been suggested by Alan Pears that State Governments, either
individually or collectively, could resolve this situation by setting their own separate and
additional renewable energy targets above and beyond the Commonwealth MRET Target,
applying to electricity within their State boundaries. A State target could be imposed as a licence
condition for electricity retailers to annually submit additional RECs, that they have created in
19
1 REC = the generation of 1 MWh of electricity from a renewable source or the saving or 1 MWh of electricity
through the use of solar hot water.

the State, to the State Government. This would force retailers to purchase more RECs from
generators, thus freeing up the market for RECs and hence making better use of the existing
MRET. Thus, each energy retailer would then have to surrender RECs to the Office of the
Renewable Energy Regulator (ORER) for the Commonwealth MRET scheme and additional
RECs to a State agency for the State scheme.
To stimulate local renewable energy industries the State Government could also require that the
RECs provided to it by energy retailers satisfy a specified portfolio of renewable energy sources:
e.g. the New South Wales Government could require 40% bioelectricity, 30% wind power, 20%
solar hot water and 10% unspecified. An advantage to a State Government of expanding MRET
is that the costs do not come out of the State budget, but rather are covered by all electricity
consumers through a very small increase in electricity prices.
The details of how this scheme would work depend on how the Commonwealth Government
responds to the MRET Review Panel (2003) recommendation relating to extinguishment of
RECs. At present, only a Liable Party (ie retailer or wholesale buyer of electricity) can
extinguish RECs. However, the MRET review proposed that the owner of a REC (regardless of
who they are) should be able to extinguish it. If the Commonwealth Government legislates to
allow this, then a State Government could become the owner of the retailers’ RECs and could
then simply extinguish them. Since these RECs would no longer exist for compliance with
MRET, this would effectively increase the number of RECs that had to be generated beyond
those required for MRET target.
On the other hand, if the Commonwealth Government does not change the legislation, a State
Government could still set up a mechanism to acquire and quarantine RECs so that they were not
available at any time in the future for surrender to ORER. A precedent exists: the Green Power
administrators have already set up such a mechanism, so that all renewable electricity used for
Green Power is additional to the MRET Target.
5.2 Require energy retailers to surrender Renewable Energy Certificates (RECs)
Currently MRET is not working properly, because electricity generators are either failing to
create RECs for parts of their renewable energy generation or accumulating RECs that they have
created until their price increases. This has the effect of limiting the market for RECs.
The State Government can resolve this situation by imposing as a licence condition the
requirement that electricity retailers submit RECs, that they have created in the State, annually to
the State Government. This will force retailers to purchase more RECs from generators, thus
freeing up the market for RECs and hence making better use of the existing MRET.
5.3 Place a greenhouse intensity constraint upon base-load power stations
Conventional (pulverised fuel) power stations burning brown coal have greenhouse gas emission
intensities typically in the range 1.0-1.5 Mt CO2 per TWh of electricity sent out, depending upon
age, choice of technology, type of coal, capacity, etc. Hazelwood, as an old brown coal-fired

power station, is close to the upper end of this range. The low end could possibly be achieved by
new power stations and new technologies for the pre-combustion treatment of brown coal, but
even these still have emission intensities greater than those of new black coal-fired power
stations and more than double emission intensities of new combined cycle gas-fired power
stations. The use of conventional coal-fired power stations as major sources of electricity is
incompatible with the goal of achieving large reductions in CO2 emissions. Also, these coal
assets may become stranded assets under the recent ratification of the Kyoto Protocol by Russia.
In Victoria conventional brown coal-fired power stations generate electricity at costs in the range
3.7-4.0 c/kWh. These costs do not reflect the substantial environmental and health damage they
produce. If they continue to be built or refurbished, conventional coal-fired power stations will,
under the current National Electricity Code, make it almost impossible for combined cycle gas-
fired power stations to be constructed and operated economically as base-load in eastern
Australia (see Appendix) and will undermine any strong measures to implement efficient energy
use.
Australian Power and Energy Ltd has suggested that the government should initially set a
maximum allowable emission intensity of 700 kg of CO2/MWh, reduced to 100 kg of CO2/MWh
after 2020 (APEL, 2003). However, we take the position that the initial allowable intensity
should be 500 kg of CO2/MWh sent out. This would entail that in the short term the only power
stations that would be built would be either renewable energy or combined cycle natural gas or
cogeneration natural gas. Beyond 2020 the only power stations that would be built would be
either renewable energy or fossil fuels with geosequestration (assuming that geosequestration
proves to be permanent, safe, cost-effective compared with renewables, suitable for the location
in question, etc.).
We recommend these proposed maximum allowable emission intensities for new and refurbished
power stations, and for old power stations whose coal mines are proposed for extension. This
would work best if implemented by all States in the NEM.
A future Federal Government could assist the States by applying a ‘greenhouse trigger’ leading
to a national inquiry on proposals, such as new coal-fired power stations, that would significantly
increase Australia’s greenhouse gas emissions.
5.4 Implement tradeable emission permits or a carbon levy
Provided a cap on emissions is established and the cap is reduced annually, tradeable emission
permits would assist in allowing gas, renewables and efficient energy use to compete with cheap
and polluting coal. In the long run, if the price of tradeable permits increases sufficiently, it may
be possible to phase out MRET. The permits should be applied to all industry sectors, including
aluminium smelting which after all takes a large fraction of Victoria’s electricity. The method of
allocation of permits should strike a balance between encouraging new entrants with new
technologies into the market and recognising that some emitting businesses have previously
made investment decisions that produce high levels of emissions.

Tradeable emissions would best be implemented as a national scheme. However, it would still be
of value if implemented by a group of cooperating States. It is not a recommended action for a
single State.
A carbon levy would be a possible alternative to tradeable emission permits. The funds raised by
the levy could be invested in funding the transition to a clean energy future and addressing social
equity e.g. by substituting for payroll tax and assisting low-income earners to reduce energy
waste.
5.5 Remove subsidies for fossil fuels and energy wastage
In Australia over $5 billion p.a. is paid as ‘perverse’ subsidies to the production and use of fossil
fuels (Riedy and Diesendorf, 2003; Riedy, 2003). These subsidies are ‘perverse’ in the sense that
they are both economically inefficient and environmentally damaging. Most of these subsidies
go to liquid fuels and the use of the motor car. However, in several States, including Victoria,
there are large subsidies to aluminium smelting (Turton, 2002) and in every State there is a large
de facto subsidy to the use of air conditioning, whose use is rising out of control in Victoria.
When someone purchases and uses an air conditioner, all other electricity users in the State have
to pay for the costs of the additional infrastructure required: power stations and power lines.
Rough estimates suggest that, for a single-phase 5 kW residential air conditioner, the real costs
could be of the order of $1,500 p.a. based on a 10-year simple payback. However, at present the
customer may be paying only $60 p.a. (Anon., 2003).
We suggest the following way of removing the subsidy:

Air conditioners would have to be purchased with a ‘smart’ meter that measures electricity
consumption by time of day and allows the use of the air conditioner to be controlled by both the
customer and the energy retailer. The meter should provide instant feedback to the household,
and should have a feature that allows the householder to program load shedding if the electricity
price goes above a specified level (otherwise households will feel victimised when they receive
bills 3 months after their children ran the air conditioner after school on a hot day). The energy
retailer would be required by law to charge for electricity consumed according to cost by time of
day. This would:
• encourage some prospective purchasers to install energy efficiency measures, such as
shading of windows and insulation, instead of air conditioners;
• discourage unnecessary use of air conditioners that are purchased;
• encourage the use of evaporative coolers and fans, which use much less electricity than air
conditioners; and
• assist solar electricity systems, that tend to generate most during the hottest times of day, to
compete with conventional peak-load electricity generation.
There is also the historical subsidy to centralised power, as the whole infrastructure was built
using low interest-government-guaranteed finance, and until the 1980s, no dividends were paid
by publicly owned electricity suppliers. The sale of the Victorian electricity infrastructure also
locked in some subsidies. For example, the value of SECV rural assets was ‘written down’ by
$450 million before sale to keep rural electricity prices low. We suggest that, to compensate for

this historical subsidy, the State Government should subsidise new powerlines or upgrades of
existing powerlines required for bioenergy and wind power in rural areas.
5.6 Encourage the purchase of solar hot water
In Australia hot water accounts for about 27% of residential energy use and on average only
about 5% of households have solar (or electric heat pump for shaded roofs) hot water systems. In
Victoria ownership is less than 2%. It is clear that existing incentives (i.e. the inclusion of solar
hot water in MRET; Victoria’s solar hot water rebate program) are not sufficient. In terms of
achieving greenhouse gas reductions, a large shift from electric resistance hot water to solar and
electric heat pump hot water, could achieve a large reduction in emissions. The problem is that
electric resistance hot water is more quickly and easily installed, and has a lower upfront cost
than solar, even though the lifetime cost of electric resistance hot water is higher than that of
solar in large areas of Victoria.
Therefore, we propose the following additional measures to enable consumers to overcome the
barriers to solar and heat pump hot water:
• State Governments should pass legislation making it illegal for local governments to require
planning permission for installing solar hot water. At present, some local governments do
and others don’t. Obtaining planning permission takes so much time that it discourages home
owners from replacing an existing hot water system at the end of its life with solar.
• State Governments should require all new buildings and renovations involving hot water
supply to have solar, heat pump or solar-compatible gas hot water systems. At present NSW
is moving towards this measure through the introduction of the Basix scheme, while Victoria
is taking the measures summarised in Section 2.2, which allow a choice between solar hot
water and a water tank. Where both sunshine and natural gas are available, we recommend
that only gas-boosted solar hot water be permitted.
• For existing buildings, purchasers of electric resistance hot water systems should be required
to take out mandatory Green Power and purchase and install a ‘smart’ meter on the hot water
circuit. This would bring users closer to the ‘user pays’ requirement. Furthermore, all
replacement electric hot water systems should be solar compatible.
5.7 Mandate energy efficiency measures
A Clean Energy Future for Australia identified a wide variety of cost-effective measures to
implement substantial amounts of efficiency in energy use (Saddler, Diesendorf & Denniss,
2004). The national study found that implementation of a medium level of efficient energy use
reduced the growth in total energy demand over the period 2001 to 2040 from 57% in the
baseline (weak energy efficiency) scenario to 25%. Similar results were obtained by economic
modelling for the Ministerial Council on Energy (2003), whose strong energy efficiency
scenario, which envisages 100% penetration of end-use energy efficiency measures with a four
year or less payback period, would achieve an 18% reduction in greenhouse gas emissions from
stationary energy together with increases in real GDP and employment.

Although the potential is huge, the wide dissemination of efficient energy use technologies is
impeded by market failure (Greene and Pears, 2003). Therefore, this is an area where regulation
must play an important role. The following measures are recommended:
• Mandatory energy rating and labelling of all new and existing buildings. Energy labelling of
buildings must be disclosed whenever the building is put onto the market or leased. This
should not just cover the heating and cooling energy but also include the energy efficiency of
major fixed appliances within the building such as water heaters, cooking stoves, air
conditioners and lighting.
• Mandatory energy performance standards for all new energy-using appliances and
equipment. (Current standards are limited to only a few appliances.).
• State Governments should make it illegal for local government, developers or the body
corporate of residences under strata title to ban solar powered equipment such as solar water
heaters, photovoltaic power systems, or solar clothes driers (i.e. clothes lines). This should
also apply to developers’ covenants.
• The subsidy should be removed from electricity prices in remote and rural areas. This would
assist cost-effective energy efficiency, solar hot water and local renewable sources of
electricity (especially solar) to compete with the grid. State Governments could still pay the
subsidy to households and businesses in rural areas by means of an annual cheque and by
offering incentives and assistance programs to improve energy efficiency and install solar hot
water.
• ‘Smart’ meters should be introduced as soon as possible to measure electricity demand by

time of day and to allow both the energy retailer and the consumer to switch off and on the
circuits where the meters are installed. For buildings with smart meters, energy retailers
should be required to charge by time of day. These meters should allow the occupant to
program load management strategies and give them feedback on electricity use. This will
allow time-of-day pricing and widespread load-shedding to be introduced.
• Mandatory energy performance standards for all new and renovated buildings. In cases
where a building is renovated (e.g. the addition of a room to a house), the energy
performance standards would not be limited to the addition. Otherwise, heat could flow in
and out of the added section through the rest of the building. However, the added section and
new buildings would be required to achieve more stringent energy ratings than renovated
existing buildings.
• Mandatory energy performance standards for all rental and Government-owned and
Government-leased buildings. Existing buildings would be required to achieve less stringent
energy ratings than new buildings. There would be government assistance to low-income
building owners, such as pensioners, who are landlords.

• The Victoria Government should establish a Clean Energy Fund or Demand Management
Fund to provide incentives and resources to overcome barriers to energy efficiency and
accelerate the adoption of energy efficiency in homes and businesses. The fund should be set
at a reasonable level (no less than 1% of total energy bills) and be made independent of the
Victorian budget, by being raised directly from electricity bills. (see Appendix B).
5.8 Encourage voluntary energy efficiency measures
State Governments or energy/water retailers could offer householders a package of low-cost

energy efficiency measures for energy-using appliances and equipment that are not part of the
building envelope. The package could include compact fluorescent lamps, water efficient shower
heads and tap fittings, insulation wrap and adjustment of thermostat on hot water systems, and
replacement of compressors and seals on refrigerators. This package would include a service-call
by an electrician-plumber. If implemented on a mass scale, the cost per household would be low,
the reductions in energy consumption and CO2 emissions would be significant and so would the
reductions in energy and water bills. Thus the scheme would be attractive to many households.
This proposal would have value both by reducing greenhouse gas emissions and by educating the
community about simple energy efficiency measures in the home. It could be further justified by
the results of a pilot project by Moreland Energy Foundation (2004), which found that:
• The energy efficiency of most old fridges could be improved by up to 25% by simple low-
cost measures.
• Improvements in energy efficiency of greater than 50% could be attained by slightly more
expensive measures, such as compressor replacement.
• There is a large unfilled demand for refurbished fridges in low-income households.
• The removal of unrepairable fridges from the market could reduce emissions of greenhouse
gases significantly (because of both high electricity use and CFC emissions), while saving
low-income households the high running costs of these inefficient appliances. A scheme to
remove unrepairable fridges has been developed by Moreland Energy Foundation.
Recently Sydney Water ran a more limited version of the proposed package of low-cost energy
efficiency measures, by providing a plumber to assist households to fit water-efficient shower-
heads and tap aerators for a service charge of only $22. Governments could consider whether to
provide low-interest loans to assist low-income householders to make these and other
improvements. Governments could encourage energy retailers to run the scheme by putting in
place revenue caps on the amount of revenue a retailer could earn per household on sales of
electricity. There would be no cap on sales of efficient energy use products and services.
5.9 Remove barriers to energy efficiency in network price regulation

For the reasons discussed in Appendix C, the Victorian Essential Services Commission should
ensure that the system of distribution network price regulation to commence 1 Jan 2006 rewards
rather than penalises distribution networks that effectively help their customers to save energy.

Therefore, the Essential Services Commission should adopt measures equivalent to or better than
the NSW IPART 2004-09 distribution network pricing determination.
5.10 Give incentives for local jobs in appropriate regions
To establish cleaner energy industries in Victoria, the State Government should encourage
renewable energy installations and equipment manufacturing (e.g. of components for wind
turbines and bioelectricity power stations) in rural and regional areas. This will facilitate a
transition of skills for workers from industries dependent on coal and electricity generation.

6. Allocation of costs of the alternative mix
We must distinguish between the cost to State Government and the cost to State electricity
consumers.
6.1 Cost to government
The present paper considers the responsibility of State Government to maintain social equity, to
regulate the market and to administer some of the proposed strategies. Of these, the only
significant costs are for those items in the social equity category, as listed in Table 5.
Table 5: Items of State Government expenditure to maintain social equity
Item Strategy Cost

1 Upgrading energy efficiency of government housing State Government to
estimate
2 Low-interest loans to low-income owners of buildings for upgrading Cap to be chosen by
energy efficiency of their buildings. Cost is for interest subsidy only. government.
3 Low-interest loans to low-income tenants for package of energy Cap to be chosen by
efficiency measures. Cost is for interest subsidy only. government
The government could cap its costs by limiting the measures taken under Items 2 and 3 to those
with a payback period of a specified number of years. There would also be cost-savings to both
the State and Federal Governments from reduced medical, hospital and environmental
management costs resulting from the reduction in air and water pollution and land degradation
caused by coal-fired power stations.
6.2 Cost to electricity consumers
For electricity consumers there will be additional costs per unit of electricity from expanding
MRET, placing greenhouse intensity constraints on base-load power stations and tradeable
emission permits and from a demand management fund.
On the other hand there would also be reduced costs resulting from the reduced number of units
of electricity consumed after implementation of efficient energy use measures. Electricity
consumers who do not purchase air conditioners would also share in the savings in infrastructure
(power stations, transmission lines and distribution lines) that would be avoided.
A more detailed study would be required to investigate whether there is any net cost to electricity
consumers of the cleaner energy mix for the State. The national scenario study, A Clean Energy
Future for Australia, found that it is possible that there may be no net costs of the principal clean
energy scenario in 2040 (Saddler et al, 2004, chap. 10). This result depends on the future costs of
electricity from fossil fuels and renewable energy and the amount of demand reduction that can
be achieved with short payback periods from efficient energy use. In the early 1990s, when the
State Electricity Commission of Victoria was running a demand management program, it found
that it delivered net financial benefits to Victoria, even though it reduced net revenue for the
SECV (Gilchrist 1994). That result was obtained when programs were being trialled and energy

efficiency technologies were nowhere near as good as they are today. The present study (Column
10 of Table 4) suggests that our energy supply and demand-side substitution for a 1600 MW
coal-fired power station would be less expensive in 2010, provided the long-run marginal cost of
electricity from the coal-fired power station is greater than 2.67 c/kWh. However, the benefits of
the recommended efficient energy use measures will increase with time, well-beyond 2010.

7. Employment gains from substituting renewable energy for coal
One of the economic advantages of substituting efficient energy use and renewable energy for all
or part of a coal-fired power station is that there is a net gain in jobs within the State per
kilowatt-hour of electricity generated. This is particularly important at a time when jobs in coal
mining and the centralised electricity industry are falling.
To assess employment in the coal-fired electricity industry completely, it would be necessary to

examine coal-mining, power generation, transmission, distribution and retailing. Unfortunately a
complete database covering all these aspects together does not exist. However, there are data for
the electricity industry as a whole (without coal mining) showing that employment in the
industry decreased by 50% to 32,700 over the period 1991 to 1999 (Australian Bureau of
Statistics, 2000). Another time series from the Australian Bureau of Statistics (2004),
representing coal mining from the whole of Australia, shows a 42% decline in full-time coal
mining jobs from about 37,000 in November 1985 to about 21,000 in November 2003.
The employment losses in the electricity industry are the result of industry restructuring that
commenced in the early 1990s, while those in the coal industry are mainly the result of
increasing automation. In the Latrobe Valley brown coal is excavated with giant dredges made
overseas, which place the coal onto conveyor belts that feed it into the nearby power station,
untouched by human hand.
Over the past decade, wind power has been the fastest growing energy technology in the world,
with an average growth rate over the past 5 years of about 32% per annum and for the past
decade about 25% per annum (see Figure 1). This rapid growth presents some problems for
estimating employment: e.g. in separating the short-term on-site construction jobs from the long-
term jobs in manufacture, operation and maintenance; and in separating those jobs which are
created by completed projects from those under construction and in planning.
Here we present two approaches to comparing employment in coal and renewable energy
industries: a case-study approach and an approach that incorporates more extensive industry
data.
MacGill, Watt and Passey (2002) compared direct employment involved in the manufacture,
construction and operation of a coal-fired power station, a biomass cogeneration plant and a
wind farm, each commissioned in Australia since 2000 (Table 6).

Table 6: Case studies of total Australian employment for different types of base-load
power station
Power Description Australian Total Australian

station content (% of employment
(name) cost) (job-yr/TWh)
Tarong North Coal-fired, rated 450 MW, baseload 26 49
Albany wind Wind farm, rated 21.6 MW 44a 120
farm
Rocky Point Cogeneration, rated 30 MW, fuel: 50 220
bagasse + sawmill waste
Source: MacGill et al. (2002).
a. More recently commissioned wind farms have a higher Australian content and it seems likely that, if the industry
continues to expand in Australia at the global average rate, it may be possible to manufacture most of the
components in Australia, thus reaching an Australian content of about 80%.
Figure 1: World cumulative installed wind power capacity in GW, 1992-200320
50
40
30
20
10
0
1992
1994
1996
1998
2000
2002
End of Year
A detailed examination of employment in the wind power industry is given in a Danish study
based on 1995 data (Vindmoellenindustrien,1996). The study uses input-output analysis to
calculate the total direct and indirect ‘jobs’ created by the manufacture of wind generators and
their components in Denmark, plus installation of wind generators, research, consultancy, etc. In
that paper ‘indirect’ employment refers to purchases from Danish subcontractors and their
subcontractors throughout the economy. Taking into account that Danish wind generator
manufacturers supplied about half the world market, the study finds that worldwide employment
in the wind power industry was in the range 30,000 to 35,000 ‘persons’ in 1995, when world
wind power capacity was 4,778 MW. (As shown in Fig. 1, world installed wind power capacity
at the end of 2003 was about 40,000 MW.) However, we cannot deduce job-years/kWh from this
without making some assumptions.
The European Wind Energy Association (c.2004) uses 1998 Danish employment data and
obtains 17 job-years/MW manufactured and 5 job-years for every MW installed. With capacity
factor 0.3 and wind turbine lifetime 20 years, the 22 job-years/MW becomes 418 job-years/TWh,
where 1 TWh = 109 kilowatt-hour. This includes both direct and indirect global jobs, but does
not include jobs in operation and maintenance.
20
Source: 1992-2001 data from BP, www.bp.com/; 2002 and 2003 data from American Wind Energy Association
website, www.awea.org.

The world’s largest manufacturer of wind generators, Vestas, has production facilities in
Denmark, Germany, India, Italy and Scotland21. On 31 December 2002 it had a total of 6,182
employees, although it did not specify how many of these were part-time. In year 2002 Vestas
and its associated company installed 1,640 MW of capacity.
Although there are serious shortcomings and large gaps in the data, an attempt is made in Table 7
to compare job-years/TWh for coal-fired electricity and wind power in Australia. In constructing
the table we draw upon the Danish and other European studies as well as upon MacGill et al.
(2002). We also distinguish between global jobs and Australian jobs.
Table 7: Comparison of employment in coal and wind electricity (job-years/TWh).
a. COAL
Method & data source Manufacture Fuel, Total

& installation operation
&
maintena
nce
1. Australian electricity industry without coal, (ABS) 53
2. Australian coal industry (ABS & Productivity 10
Comm.) These jobs must be added to those in Row
1.
3. Australian electricity generators (from annual 12-21
reports). These jobs should be included in those in
Row 1.
4. Tarong North power station, includes some 7 (Aust. only) 42 49
indirect jobs; Aust. content 26%, Aust. jobs only.
(MacGill et. al. 2003)
b. WIND
5. Extrapolation from Danish data to global 418
direct+indirect global jobs. (EWEA: www.ewea.org)
6. Vestas, direct jobs only in countries where it has 59 Unknown
production facilities (www.vestas.com) (direct only)
7. Albany wind farm, includes some indirect jobs, 65 52 117
Aust. content 44%, Australian jobs only (MacGill et. (Australia
al. 2003) only)
8. ditto with hypothetical Aust. content 80%, 213
Australian jobs only
Source: Diesendorf (2004)
21
In 2003 Vestas opened a components manufacturing plant in Wynyard, Tasmania and in 2004 the Victorian
Energy Minister announced that another wind turbine manufacturer would open a factory in rural Victoria. With
the Federal Government’s refusal to expand MRET, some of the new Victorian jobs and a proposed expansion of
the Wynyard factory are now on hold.

From this rather limited data set and several untested assumptions, the following preliminary
conclusions are drawn (Diesendorf, 2004):
• The coal-fired electricity industry, including the contribution of coal mining, provides about
63 job-years/TWh in Australia in total. However, taking into account the low Australian
content of 26%, world jobs could be about 240 job-years/TWh.
• In coal-fired electricity there are more Australian job-years in fuel, operation and
maintenance than in manufacture and construction.
• In wind power, there are about 117-184 job-years/TWh in Australia (with 44% Australian
content) and about 265-418 job-years/TWh in the world. Most of these jobs are in
manufacturing and installation, not in operation and maintenance.
• With 80% Australian content, employment in wind power in Australia could rise to 213-335
job-years/TWh.
• So, with current Australian content, there could already be 2-3 times the job-years/TWh in
Australia from wind power compared with coal power. If the Australian content of wind
farms can be increased to 80% as projected, 3.6-5.6 times more job-years would be created
per TWh in Australia from wind compared with coal.
• It seems unlikely that the Australian content of coal-fired electricity could be increased,
because the Australian market is too small for the large imported items, such as the huge
dredges used in open-cut mining and turbo-generators rated at hundreds of megawatts.
• More and better data are needed on job-years required to build and install a MW of wind
power and coal power and the job-years required to fuel, operate and maintain these power
plants over their respective lifetimes.
• It may not be possible to capture the full employment potential by considering single wind
farms and single coal-fired power stations. For instance, R&D, wind energy data collection
and analysis, and the use of existing infrastructure may be overlooked.
• Without using systematic Input-Output Analysis, it is difficult to find all the indirect jobs
involved in providing components of a wind farm. This remains as a topic for future
research.
It is sometimes argued that the higher job creation potential of renewable energy is merely a
reflection of the low productivity of jobs in renewable energy. It is indeed possible that over a
period of decades the total number of global job-years/kWh in renewable energy will decline
until it converges to that of coal. However, our main point is that a much higher Australian (and
indeed Victorian) content can be achieved in the renewable energy technologies that are likely to
make the main contributions to the clean energy mix -- namely solar hot water, bioenergy and
wind power -- than in coal-fired electricity. In other words the number of local job-years/kWh in
renewable energy will always be much higher than in coal.

Another standard yet incorrect objection is that distributed, renewable energy technologies will
always be more expensive and less efficient economically than coal, because of the smaller scale
and resulting labour-intensive nature of renewable energy technologies. Therefore, it would be
more efficient (in economic terms) for Australia to continue to export primary produce and
purchase coal technologies (with capture and geosequestration of CO2 if required for
environmental reasons) from overseas. Investing in renewable energy is simply a “make work
scheme”.
This argument is fallacious because the low price of coal-fired electricity is not simply a measure
of its economic efficiency, but mainly of the failure to include in its price the very real
environmental and health costs of its use. Projections by the International Energy Agency of the
minimum future costs of coal-fired electricity with capture and geosequestration of CO2 put it at
about 9 c/kWh, that is, higher than the current costs of electricity from wind power and biomass
residues (Diesendorf, 2003; Saddler, Riedy & Passey, 2004). The European ExternE study found
that just a few of the environmental and health costs of coal-fired electricity amounted over 70
Euro/MWh (about 12.3 c/kWh), which are additional to the economic costs (Rabl & Spadaro,
2000). Even allowing for the lower population density and hence lower exposure to pollutants in
Australia compared with Europe, yields an environmental and health cost of over 7 c/kWh. A
cleaner energy scenario, if implemented in the form of packages of cost-effective efficient
energy use offsetting the additional costs of renewable energy, could turn out to be much less
expensive than continuing with coal (Saddler, Diesendorf & Denniss, 2004, Table 10.5).

8. Conclusion
To allow the construction of new (or the extension to lifetimes of old) conventional coal-fired
power stations would severely undermine our ability to make the transition to a much cleaner
energy future by 2040. In particular, to allow the old brown coal-fired power station, Hazelwood,
to continue to generate from 2009 until 2031 would lock in a total of 380-407 Mt of Victoria’s
CO2 emissions. In Victoria two different scenarios, both potentially viable, have been offered as
alternatives to ongoing development of coal fired assets. The energy mix discussed by MMA
contains large contributions from imports of electricity from black coal, and from Victorian
natural gas, but little renewable energy. Our own energy mix does not involve the importation of
any fossil fuelled electricity, instead offering a greater contribution from renewable energy
sources, especially wind power and bioenergy, and either natural gas or a reduction in exports of
Victorian electricity. This is a much cleaner energy system that reduces CO2 emissions by 13.8
Mt per year in 2010 and creates many more local job-years.
In mainland Australia, employment in coal mining and in the conventional electricity generating
industry (almost all coal-fired) has been declining rapidly as a result of automation and industry
restructuring. The Australian wind power industry is expanding rapidly, driven mainly by the
Mandatory Renewable Energy Target (MRET). If the State Government policy options
recommended in this paper are implemented, then wind power and bioelectricity can be expected
to continue to grow and gain high a local content. Under these conditions wind power will
supply 4-6 times the number of local job-years per kWh of electricity compared with the local
jobs associated with coal mining and coal-fired electricity generation combined, and the
bioenergy industry could create even more local jobs per kWh than wind power. Efficient energy
use is also an excellent creator of local jobs.
State Government policies would be needed to encourage the new renewable energy industries to
locate their manufacturing facilities in regions that are currently losing jobs in coal and
conventional electricity generation. Thus a win for the environment could be achieved
simultaneously with a win for employment.
More work is required on the development of efficient energy use strategies and specific
measures for Victoria. The implications for employment in the state of expanding energy
efficiency and renewable energy industries also need further investigation. Mapping of Victoria’s
bioenergy resources is another priority. However, this suggested research should not be used as
an excuse to delay implementation of the proposed policies and strategies for a clean energy
future.
Maintaining an electricity generation mix that is 97% brown coal could offer a substantial
economic risk to the State. With Russia now having ratified the Kyoto Protocol, there is a
likelihood of carbon constraints being imposed against countries that have not ratified. Post-2012
more substantial greenhouse gas emission target could be set. Under such conditions
conventional brown coal-fired electricity will be the most heavily constrained, either by
regulation or by economic instruments. Current and future investments in electricity generation
should surely be governed by sound business principles, which involve choosing a portfolio of
investments with different risks. Although wind power and bioenergy are more expensive than

coal-fired electricity at present, they are much less risky under circumstances of global climate
change, and their capital and operating costs will continue to decline for decades. Efficient
energy use is both cost-effective and low in risk.
9. Acknowledgements
I thank Melanie Hutton, from WWF Australia, Darren Gladman, from Environment Victoria,
Alan Pears, from Sustainable Solutions, Richard Denniss, from the Australia Institute, and Steve
Schuck from Stephen Schuck and Associates for valuable comments on the manuscript and for
assistance in obtaining data and reports. Errors, omissions and opinions are the responsibility of
the author.

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Appendix A: Why we need an economic mechanism to enable gas and
renewables to compete with coal-fired electricity
Let’s start by comparing gas-fired and coal-fired electricity with the same capacity. Coal-fired
electricity has high capital cost and low running cost, while gas-fired electricity has low capital
cost and high running cost. For simplicity, consider an electricity grid without hydro. In theory
there is an optimal mix of coal- and gas-fired electricity in which the coal runs as base-load (i.e.
7 days per week for 24 hours per day) while gas is used mainly to meet the peaks. The mix is
‘optimal’ in the sense that the annual cost (capital plus operating) is minimised.
Now what happens if we wish to reduce CO2 emissions by replacing some of the base-load coal-
fired power stations with combined cycle gas-fired power stations? In theory this is
economically viable provided the long run marginal cost (LRMC) of gas-fired electricity is less
than that of coal-fired electricity. LRMC is essentially the annualised capital plus operating cost.
With the fuel price of natural gas at about $3/GJ and that of coal about $1/GJ it turns out that
there is not much difference between the LRMCs of gas- and coal-fired electricity. Depending
upon the discount rate, gas may be slightly cheaper, provided that it is not run 24x7. Balfe
(c.2003) has explored the sensitivity to fuel prices of the competition between coal, gas and coal
seam methane for generating electricity. Quite small changes in fuel prices can shift the balance
between coal and gas. In theory, the decision rests on the values of the respective LRMCs.
Presumably on this textbook basis, the Pelican Point combined-cycle gas-fired power station was
built a few years ago in South Australia. This power station comprises two generating units, but
one of these has recently been shut down and ‘mothballed’. This is because, in the National
Electricity Market (NEM), the decision to operate a power station is made on the basis of its
short run marginal cost (SRMC), which comprises its operating costs (fuel, other operation and
maintenance) only. So, even though Pelican Point was economic to build (in terms of LRMC), it
is uneconomic to operate (in terms of SRMC) except as intermediate load (i.e. running for only a
few hours per day). Clearly there is insufficient demand for intermediate load in South Australia
to allow both units of Pelican Point to operate22.
If gas is to play a significant transitional role in reducing CO2 emissions from the electricity
industry23, then there are only two choices: either a fundamental premise of the National
Electricity Code (i.e. the market rules) would have to be changed to take account of the need to
reduce CO2 emissions, or the relative prices of coal and gas fuels would have to be changed.
Within the electricity industry, among economists and within government, the general view is to
keep the Code and use economic instruments. A carbon tax or levy, or tradeable emission
permits, would have the effect of increasing the price of coal relative to gas and so improving the
economics of base-load gas-fired power stations relative to coal-fired. These economic
22
By the way, restarting the mothballed part of Pelican Point could contribute to the alternative to Hazelwood by
reducing exports of electricity from Vic to SA.
23
Generally speaking, to substitute for a large coal-fired power station, we would need efficient energy use,
renewable energy and natural gas, until the industry capability of the first two options has been built up to a larger
scale.

instruments would of course also reduce the price gap between renewable energy sources and
coal, but would be unlikely to close it completely. However, if these measures led to no new
conventional coal-fired power stations being built, they would also drive up the price of gas, thus
further narrowing the gap between gas-fired electricity and the cheaper renewable sources, wind
and biomass residues.
Incidentally, MMA (2003) seems to believe that increasing electricity prices would damage the
economy. That is not necessarily true. Most very large electricity users have long-term contracts
and would not feel the increases for many years. For most small businesses electricity is a small
part of business expenditure. The impact on medium-sized business is less clear – it is possible
that in most cases improvements in the efficiency of energy use would compensate for the
increased electricity prices. It could also be argued that the economy is already paying for some
of the environmental and health damage caused by coal burning. But this damage is treated as an
externality, i.e. not included in the price of coal-fired electricity.
From the viewpoint of sustainability, the main concern is surely social equity: the impact of
increasing residential electricity prices on low-income earners. Here the role of government is to
ensure that rising price of a unit of electricity is offset by reduced number of units consumed by
low-income earners, so that their energy bills remain the same. The number of electricity units
consumed must be reduced, not as a result of freezing in the dark, but by sound energy efficiency
measures. Hence the policy recommendations 5.6 - 5.8.

Appendix B: Demand management fund
Recognising the major barriers to the adoption of cost effective clean energy options,
governments in 18 states of the USA and numerous other nations, including the UK, Denmark,
Netherlands and Norway, have established dedicated funds to encourage energy efficiency and
demand management. These funds are usually raised by a small levy on electricity bills
(typically around 1 to 2% of total utility revenues).24 These DM funds are usually administered
by either government agencies or utilities, with transparent reporting. Based on US experiences,
demand management activities generally cost less than US$0.03 per kWh saved. This is
significantly less than the cost to generate and supply a kWh of electricity.
The NSW Government has established a high level taskforce to report on establishing such a
Demand Management Fund in NSW.
24
Martin Kushler, Dan York and Patti Witte, April 2004, Five Years In: An Examination of the First Half-Decade of
Public Benefits Energy Efficiency Policies, ACEEE.

Appendix C: Remove barriers to energy efficiency in network price regulation
Transmission and distribution networks make up about half of total electricity costs. These
networks are natural monopolies and are therefore subject to price regulation. How regulators
set prices can provide powerful incentives for or against particular technologies.
Economic regulators often inadvertently obstruct efficient demand side management (DSM) by
imposing a simple maximum price cap (cents/kWh) form of regulation on the network
businesses. This ties network businesses’ revenue to total kWh sales volume and means that
distributors have an incentive to encourage consumers to use more kWh in order to maximise
sales volume and therefore maximise revenue and profit. In these circumstances, energy
efficiency initiatives that assist consumers to save money by using less electricity will reduce
network businesses’ revenue and therefore profit.
The “weighted average price cap” adopted by the Essential Services Commission (ESC) in
Victoria creates such perverse incentives. The more a distribution network business helps their
customers to save energy, the less profit the network business receives. Even where it is cheaper
for the network business to help customers to save energy than to invest in more network
infrastructure, the infrastructure option is more profitable because the network business has no
way of recovering investment in energy efficiency.
The current Victorian price regulation system of the ESC, arbitrarily rewards network businesses
that encourage wasting energy and penalises network businesses that help consumes to save
energy. Such a system has no place in twenty-first century Australia yet the ESC appears
committed to continuing this perverse and archaic system for a further five years from 1 Jan
2006.
Recognising these barriers to cost effective energy efficiency programs, the Independent Pricing
and Regulatory Tribunal of NSW (IPART) has adopted several measures in order to counteract
the perverse incentive of a price cap for the regulated distribution network prices in NSW
commencing 1 July 2004.25 These measures include:
• Network businesses are permitted to retain the benefits of capital and operating
expenditure avoided through DSM during the 2004-09 regulatory period;
• Network businesses are permitted to recover revenue foregone as a result of energy
efficiency program during the regulatory period; and
• Network businesses are permitted to pass on to consumers energy efficiency program
costs incurred during the regulatory period, up to a maximum value of the avoided
distribution costs.
The following measure is recommended:
The Victorian Essential Services Commission should ensure that the system of distribution
network price regulation to commence 1 Jan 2006 rewards rather than penalises distribution
networks that effectively help their customers to save energy. Therefore, the Essential Services
Commission should adopt measures equivalent to or better than the NSW IPART 2004-09
distribution network pricing determination.
25 IPART, NSW Electricity Distribution Pricing, 2004/05 to 2008/09 Final Report, June 2004 p.90

Appendix D: Environmental impacts of bioenergy and wind power
D.1 Bioenergy
In considering the environmental impacts of bioenergy, we must keep in mind that

approximately 90% of modern bioelectricity generating capacity in the world uses the direct
combustion of solid biomass. Since this report aims to substitute for coal-fired power station(s)
by 2010, the main focus is on direct combustion of biomass. However, beyond 2010 it is
expected that there will be a much greater use of more efficient conversion technologies in which
biomass is gasified or liquefied and then converted into electricity either by combustion or by
electrochemical means (e.g. a fuel cell). Engineered anaerobic digesters are likely to provide a
role for conversion of wet wastes to produce a combustible gas, while having several other
benefits. The main physical and chemical processes for converting biomass into other energy
forms are discussed by Sørensen (2000, Chap. 4) and Stucley et al (2004).
International R&D of biomass energy conversion and its environmental impacts is coordinated
by IEA Bioenergy (www.ieabioenergy.com) – see especially the work of Tasks 30, 31, 32 and
38. Bioenergy Australia (www.bioenergyaustralia.org) has collected a wealth of information.
CSIRO Sustainable Ecosystems is working on a sustainability framework for bioenergy projects.
The principal environmental impacts that must be considered in using biomass to generate
electricity are greenhouse gas emissions (including those from energy inputs), air pollution, solid
waste, land use and soil nutrient loss. A brief summary follows.
Greenhouse gas emissions
Biomass is a renewable energy source, while coal is not. Under the Kyoto Protocol and from a
scientific point of view, sustainably managed biomass is carbon neutral, in that the CO2 liberated
during combustion is recaptured through photosynthesis during the regrowth of an equivalent
amount of biomass. On the other hand, coal releases fossilised carbon, and is not replenished (at
least not within millions of years).
In general some energy inputs to the use of bioenergy may come from fertiliser use and
transportation of the biofuels produced. There is no doubt that, if a large fraction of Australia’s
petrol and diesel were replaced with biofuels, energy inputs (for transportation of the biofuel to
service stations) would be a significant fraction of the energy content of the biofuel. Significant
life cycle analyses on the use of biomass have been conducted by IEA Bioenergy and the US
National Renewable Energy Laboratory (NREL), among others. Generally the results are that,
for a typical bioenergy project, the energy inputs in the form of fossil fuels tend to be only a few
percent of the bioenergy produced.
For the current proposal for producing bioelectricity in New South Wales, there would be no
additional fertiliser use and, since this report only considers transportation of biomass from field
to power station over distances of 50 km or less, the corresponding energy inputs and associated
CO2 emissions are negligible.

Air pollution
According to the National Pollutant Inventory (http://npi.gov.au), coal-fired electricity (including

coal mining) is a very big emitter of nitrogen oxides, sulphur dioxide, fluoride, hydrochloric
acid, boron, particulate matter, mercury and sulphuric acid. In comparison, if biomass is
combusted under appropriate conditions of temperature and pressure, it emits much less26
gaseous and particulate air pollution than coal, per unit of electricity generated. Very small
quantities of dioxin are emitted from the combustion of some types of biomass, however this can
be minimized by appropriate system design. The exception is dioxin emitted by the incineration
of municipal solid waste, which contains plastics—this is a serious problem and in the opinion of
this author all such incineration should be banned.
Solid waste
Ash disposal from biomass combustion is generally not a problem, since for instance stem wood
contains as little as 0.4% ash, compared to bituminous coal which can contain over 20% ash. In
some instances fly ash from biomass combustion is certified as a soil amendment. Bottom ash is
also sometimes used as road base, displacing quarried material. The amount of wood ash is very
little —and biomass power plants do not require ash dams or major works required for coal-fired
power. Biomass ash is generally free of toxic metals prevalent in coal ash.
Land use
As discussed in Section 4.2, New South Wales has huge biomass reserves from both crop
residues from existing wheat and other grain crops and from the potential for short-cycle tree
crops grown in the wheat belt for multiple environmental and economic benefits. Neither of
these sources requires a significant area of additional land. Coal mining on the other hand uses
and degrades large areas of land.
Soil nutrient loss
Nutrient loss from the use of wheat residues is kept low in this report by leaving one-third of the
residue on the ground. Short-cycle tree crops on the wheat belt will share in the fertiliser
received by the wheat. It is also possible to backload biomass ash from power stations to the
fields on the same trucks that collect the biomass from the fields. Nevertheless, this issue
requires further research.
In summary, the environmental impacts of well designed bioelectricity systems are in general
much less than those of coal-fired electricity.
D.2 Wind
Wind power is one of the most environmentally sound of all renewable energy sources. But, one
of its fundamental characteristics is that the power in the wind is proportional to the cube of the
26
The main exception is the typical domestic wood-burning heater used in Australia. However, the latest
technology of burning wood pellets reduces these domestic emissions substantially.

wind speed. This means that a site with a 25% higher wind speed will produce double the wind
power. As a result, wind turbines are often sited in prominent places such as on ridges, hill-tops
and near the coast, where they can catch the best wind.
Some opponents of wind power deny the scientific evidence of human-induced climate change
and bolster their subjective aesthetic judgements (to which they are entitled) by disseminating
exaggerated and in some cases false notions about the alleged environmental impacts and
technical performance of wind power. This appendix addresses the myths and misunderstandings
that opponents regularly disseminate.
During operation modern wind turbines emit essentially no chemical pollution and their only
physical emission, noise, is inaudible beyond several hundred metres, except under very rare
topographical conditions.
Of the thousands of existing wind farm sites around the world, there are very few (notably
Altamont Pass in California and Tarifa, Spain) where bird kills have been a significant problem
and only two (both in West Virginia, USA) where bat kills are a problem27. Australian studies on
the impacts of windfarms on birds show that there is an even lower level of impact than was
predicted on the basis of northern hemisphere experience and approved by planning authorities
prior to the wind farm being built. This may be because Australia's geography and bird ecology
are different from in the northern hemisphere, and so we do not experience the same
concentrations of migrating birds found in Europe and the USA. With modern wind turbines and
careful siting, both bird and bat kills are rare. In comparison, on a single foggy night, about 3,000
birds were killed when they collided with the chimneys of a thermal power station in Florida,
USA (Maehr et a., 1983).
To assess the biodiversity impacts of coal versus wind power, the global impacts, as well as the
local, must be taken into account. Global climate change resulting from the anthropogenic
greenhouse effect is predicted to wipe out many species of animals and plants. Australian
ecosystems are some of the most vulnerable to climate change. In Australia the biggest single
source of greenhouse gas emissions is coal-fired power stations. By substituting for coal and
other fossil-fuel power stations, wind power reduces carbon dioxide emissions and therefore
saves global biodiversity.
To reduce local biodiversity impacts of windfarms, planning guidelines for the siting of wind
developments have been put into place by Federal, State and Local Governments. Proposed
wind developments have to receive Federal planning approval under the Environment Protection
and Biodiversity Conservation Act and also under any local regulator. This addresses the
protection of wetlands and other specific areas of environmental importance and sensitivity.
Wind farms are highly compatible with agricultural and pastoral land, spanning approximately
25 ha per MW of installed capacity, but actually occupying only about 1-3% of that land (0.25-
0.75 ha/MW) with towers, access roads and other equipment. The Australian Wind Energy
Association has developed Best Practice Guidelines for the Implementation of Wind Energy
27
Fortunately the bats concerned do not belong to an endangered species.

Projects in Australia. The industry is further refining these guidelines with regard to landscape
and bird assessment protocols in partnership with environmental groups and Federal and State
Governments.
The energy required to build a wind turbine is generated in 3-5 months of operation, so, with a
20-year lifetime, a wind turbine generates 48-80 times the energy required to construct and
install it. Wind turbines are highly efficient in capturing renewable energy, since blades
occupying only about 5% of the swept-out area can in practice extract over one-third28 of the
wind energy flowing through that area. As a result the material inputs to a wind farm are modest
and indeed are similar in quantity to those used in the construction of an equivalent fossil-fuelled
power station..
Some of the incorrect technical claims about wind power are that:
• Wind farms cannot replace a coal-fired power station without expensive, dedicated long-
term storage.
• Because of wind power’s intermittency, it has no value in meeting peak demand.
• To maintain a steady state of voltage and frequency from a wind farm requires much
additional expense.
These claims are refuted by Saddler, Diesendorf and Denniss (2004, Section 7.2) and the
references cited therein.
One of the most peculiar arguments by some opponents of wind power is that the technology is
contributing only a fraction of 1% of electricity in Australia and globally and therefore, by
implication it can never make a significant contribution. But, averaged over the past 15 years or
so, wind power has been the fastest growing energy technology in the world, with an average
growth rate in capacity of about 25% per year. If it continues to grow steadily, wind power will
be able to contribute 20% of Australia’s electricity generation by 2040, as envisaged in A Clean
Energy Future for Australia. Interestingly, in Denmark, where wind power already contributes
20% of electricity, there is very little community opposition. Apart from a few electricity utility
managers, who object to the ‘inconvenience’ of being required by law to accept into the
electricity grid wind power from many distributed sources, Danes support wind power as an
environmentally sound, job-creating technology that has already substituted for coal-fired power
stations in Denmark.
For further reading on the technical capabilities and environmental impacts of wind power see:
Australian Wind Energy Association (AusWEA), fact sheets (www.auswea.com.au);
American Wind Energy Association (www.awea.org/faq/index.html, go to Wind Energy and the Environment);
European Wind Energy Association’s fact sheet, Wind Energy and the Environment (www.ewea.org); and
Saddler, Diesendorf and Denniss (2004, Section 7.2)
28
The maximum theoretical extraction is 59%.

Units and Conversion Factors
Powers of 10
Prefix Symbol Value Example
kilo k 103 kilowatt kW
mega M 106 megawatt MW
giga G 109 gigajoule GJ
tera T 1012 terawatt-hour TWh
peta P 1015 petajoule PJ
SI units
Basic unit Name Symbol
length metre m
mass kilogram kg
time second s
temperature Kelvin K
Derived unit Name Symbol

energy joule J
power watt W
potential difference volt V
pressure pascal Pa
temperature degree Celsius ˚C
time hour h
Conversion factors
Type Name Symbol Value

energy kilowatt-hour kWh 3.6 x 106 J = 3.6 MJ
energy terawatt-hour TWh 3.6 x 1015 J = 3.6 PJ
energy litre of petrol L 3.2 x 107 J
energy m3 of natural gas at STP 3.4 x 107 J
energy tonne of NSW black coal t 23 GJ
energy tonne of Vic. brown coal t 10 GJ
energy tonne of green wood t 10 GJ
energy tonne of oven-dried wood t 20 GJ
power kWh per year kWh/y 0.114 W
time year y 8760 hours
pressure atmosphere 101.325 kPa

Victoria's Clean Energy Future 2ndedition

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January 2005 2 nd Edition

First published in November 2004 by WWF Australia; revised January 2005

WWF Australia, GPO Box 528, Sydney NSW Australia

Front Cover Images – left to right:

Section 3 Reducing demand growth and cleaning up energy supply 11

Section 4 Energy reserves 20

Section 5 Recommended policies and strategies 22

Section 6 Allocation of costs of the alternative mix 30

Section 7 Employment gains from substituting renewable energy for coal 32

Units and conversion factors 50

Recommended demand-side measures include:

Towards Victoria’s Clean Energy Future 4

Towards Victoria’s Clean Energy Future 5

Towards Victoria’s Clean Energy Future 6

Towards Victoria’s Clean Energy Future 7

2.1 Victoria’s electricity industry

Table 1: Fuels used in Victoria’s electricity generation, main grid, 2000-01

Towards Victoria’s Clean Energy Future 8

2.2 State Government’s greenhouse policies and strategies

Towards Victoria’s Clean Energy Future 9

• Inter-jurisdictional working group on renewable energy targets: The governments of

• Inter-jurisdictional working group on emission trading: All state governments are

Towards Victoria’s Clean Energy Future 10

3.1 Efficient energy use

Towards Victoria’s Clean Energy Future 11

Study Æ SRC results Scale-up of EMET for Vic

Total: All Sectors

Towards Victoria’s Clean Energy Future 12

3.2 Supply options for capacity and energy

As a rough approximation, we consider the capacity of a base-load coal-fired power station to

Towards Victoria’s Clean Energy Future 13

However, there is:

Renewable sources of electricity are growing steadily. On 31 December 2003, Australia’s

3.3 MMA report

In its report to International Hazelwood Power, McLennan Magasanik Associates (2003),

Towards Victoria’s Clean Energy Future 14

Technology Capacity Cost of electricity

Towards Victoria’s Clean Energy Future 15

3.4 A cleaner energy mix

Towards Victoria’s Clean Energy Future 16

Towards Victoria’s Clean Energy Future 17

Towards Victoria’s Clean Energy Future 18

Bio-electricity 115 0.75 86 756 0.00 0.00 7.5 56.7 56.7

Towards Victoria’s Clean Energy Future 19

Towards Victoria’s Clean Energy Future 20

In Saddler et al (2004) biomass contributed 28% of Australia’s future electricity generation by

Towards Victoria’s Clean Energy Future 21

5.1 Expand the Mandatory Renewable Energy Target (MRET)

An expansion of MRET is especially important to:

Towards Victoria’s Clean Energy Future 22

5.2 Require energy retailers to surrender Renewable Energy Certificates (RECs)

5.3 Place a greenhouse intensity constraint upon base-load power stations

Towards Victoria’s Clean Energy Future 23

5.4 Implement tradeable emission permits or a carbon levy

Towards Victoria’s Clean Energy Future 24

5.5 Remove subsidies for fossil fuels and energy wastage

We suggest the following way of removing the subsidy:

Towards Victoria’s Clean Energy Future 25

5.6 Encourage the purchase of solar hot water

5.7 Mandate energy efficiency measures

Towards Victoria’s Clean Energy Future 26

• ‘Smart’ meters should be introduced as soon as possible to measure electricity demand by