CarbonSignal

Google has just signed a 20-year Power Purchase Agreement with a 114 MW wind farm in Iowa.   The terms of the deal are unique in the US, and may serve as a template for future projects.   The renewable energy sourced under this agreement contributes to Google’s plan to become carbon neutral.  The announcement was made on the Official Google Blog.

By contracting to purchase so much energy for so long, we’re giving the developer of the wind farm financial certainty to build additional clean energy projects. The inability of renewable energy developers to obtain financing has been a significant inhibitor to the expansion of renewable energy. We’ve been excited about this deal because taking 114 megawatts of wind power off the market for so long means producers have the incentive and means to build more renewable energy capacity for other customers.

In this case, we’re buying renewable energy directly from its source – the wind farm. We cannot use this energy directly, so we’re reselling it back to the grid in the regional spot market – but retiring the RECs associated with the power. By obtaining RECs through the purchase of green power, our deal has a greater impact on the renewable industry than simply buying “naked” RECs from third parties; our long-term commitment directly frees up capital for the developer to build more wind projects.

This week the Western Australian Government progressed the approvals for four new coal-fired power plants.  These plants will lock-in greenhouse-intensive power generation, and maximum cost exposure from a future carbon price, for decades.  These plants will make it impossible for the State to meet the nationally-imposed 20% by 2020 Renewable Energy Target.  Current renewable generation in WA is 9%.  Renewable Energy Certificates will need to be imported from interstate.

The global financial crisis proved that the Australian economy is one of the most robust in the world.  We avoided a recession, and we even experienced a mini-boom earlier this year before the current slowdown.  The Australian Government has just announced that the budget will return to surplus.

Contrast this with Europe.  They had a severe recession and they are fighting off a double-dip.  In 2009, 62% of all new generation capacity built in Europe was renewable.  Last month EU member states submitted plans to Brussels “affirming their intention to install plenty more [renewable generation] to meet targets set last year under the E.U.’s Renewable Energy Directive, which would boost Europe’s use of renewables from 8.5 percent of total energy consumption to 20 percent by 2020.”

Here we have two economies going from around 9% today to 20% by 2020, and two completely different approaches to achieve that goal.

The WA government is essentially saying that “to meet our renewable target, we prefer to pay other Australian States to build extra renewable generators so they can sell us their surplus RECs.  Sure, we have world-class solar and wind resources, but we can’t build renewable capacity fast enough or cheap enough.  We’ll stick with coal for the next 30-40 years.”

In 2002 the Western Australian Government set a target to reduce energy consumption by 12% from 2001/2 levels by 2006/7.  A report recently released by the Auditor General has found that the government’s energy efficiency programs have not met the target, with the government achieving just a 0.1% reduction.

At HAC we have engaged with many of these same government agencies on energy use and greenhouse gas management.  A few have achieved impressive energy efficiency improvements, while others have not.  Key success-factors seem to include a very clear commitment to energy efficiency at the Director-General or CEO level and a willingness/ability to invest when presented with a strong business case.

The Auditor General found that there was a lack of incentives to achieve the targets, and a lack of consequences for inaction.  “There were no consequences for failing to achieve expected results.”  There was no carrot, and there was no stick.

It seems that saving money is not a sufficient incentive in and of itself.  In fact, our analysis shows that in the absence of urgent action, energy use, greenhouse gas emissions and especially energy expenditure will continue to rise sharply.  We estimate that due to inaction by Government, more than $2 million is being wasted each month and that cost effective energy savings of between 20% and 40% are possible.  For perspective, a 20% energy reduction will save taxpayers over $30 million per annum, year after year.

The report states that “a lack of effective strategic management and accountability also contributed to the failure to achieve overall program goals.”

The document can be downloaded from the following links:

Kevin Rudd wants to reassure us that he still believes that Climate Change is the biggest challenge facing human-kind.  Indeed, his recent blog says: “Climate change is happening faster than we previously thought, creating a more serious threat to our economy, our environment and to future generations”.  But, is he putting his (well, our) money where his mouth is?

One way to judge the relative importance of climate change is to compare how much new money he will spend on climate change, with what he’s planning to spend on other things.  Let’s see how his $652 million Renewable Energy Future Fund stacks up against other items in the 2010 budget.

Things Kevin thinks are nearly as important as Climate Change:

• Fixing the insulation scheme debacle ($422 million)
• Subsidising a satellite service so regional and remote people can watch digital TV ($375 million)
• Planning for – but not yet constructing – a National Broadband Network ($233 million 2009-2011)
• “Enhancing Australia’s development partnership with Indonesia” ($323 million)
• “Investing in Australia’s Sporting Success” ($324 million)
• Support for art and artists through the Australia Council ($686 million)

And the kicker is that Big Kev is planning to spend more than $3,400 million on ROADS over the same period.  Can we assume from this that roads are over 5 times more important than Climate Change?  I leave you to draw your own conclusions…

Melbourne University is currently writing the Victorian Geothermal Assessment Report (VGAR) which aims to map the Victoria’s geothermal potential and demonstrate that generating power from the resource is technically feasible and cost-effective.  Leading the project at Melbourne University’s Energy Research Institute are Rachel Webster, professor of physics, and Edwin van Leeuwen, former head of BHP’s Global Technology Group.

The report will be publically released in September 2010 but initial results have been released through the ABCs Radio National Science Show and through the website Inside Story.

These preliminary results show that one of the most promising sites in Victoria is in the Latrobe Valley, primarily because of the insulating affect of the thick layer of brown coal.  Brown coal it turns out has very good thermal insulating properties, far better than black coal and its insulating affect raises the subterranean temperatures to some of the highest in of Australia.  Test wells indicate that the target temperature of 200 degrees Celsius will be found at a depth of 4km to 5km .   Leeuwen believes that a “sweet spot” exists at about 7km where heat could be extracted indefinitely.

The Latrobe valley offers several advantages of over the hot rocks sites being investigated in places like South Australia’s Cooper Basin.  It is located to close to substantial electricity transmission infrastructure, water and a skilled labour force with expertise in mining and drilling.  It is also located over a sedimentary basin rather than granite so the drilling is an easier task.

Leeuwen’s team are also proposing investigating the use of super critical carbon dioxide as the heat transfer medium within the subterranean reservoir.   Again the Latrobe Valley offers a unique advantage here producing 22% of Australia’s greenhouse gases.  There are also sources offshore in the Gippsland Basin that could be tapped into.

Leeuwen states that “Once you take carbon dioxide into its super-critical form, some really nice things start to happen. First of all, it just flows down the well. You don’t need pumps. With water, for instance, you need to pump the fluid down, you need electric pumps in the hole and also to extract it. So one-third of your costs related to using water is in the pump. So the energy you produce, one-third directly goes into pumping water down and out of the hole. That’s not the case with CO2. So what we really need to do is develop a laboratory at five kilometres and really study CO2 as a reservoir working fluid, understand more some of the issues related to pumping water through the reservoirs as well. So there’s a lot of work here that needs to be done.”

The next step is to drill test wells and establish a pilot plant.  Leeuwen and Webster are proposing a staged expenditure of up to $100M over several years to prove up the concept.  Given that this could lead to a clean and sustainable source of several gigawatts of generating capacity and avoid the continued burning of Victoria’s brown coal it seems to be a good investment.  As Robyn Williams of the Science Show says “its about the cost of four cruise missiles”.

So brown coal can be a source of sustainable large scale renewable energy provided we avoid the temptation of burning it.

The Prime Minister’s Task Group on Energy Efficiency is seeking “options for delivering a step change improvement in Australia’s energy efficiency by 2020”.

The opportunities and barriers regarding energy efficiency are well-studied and well-known.

Of the many known barriers to energy efficiency improvements, we believe the key barrier is access to capital.  The companies that control efficiency opportunities are not necessarily lacking in capital resources, however the available capital is often allocated to other projects.  The problem is not so much the absolute availability of capital, but the competing priorities for capital expenditure that exist within each organisation.

We do not suggest that the government should necessarily make capital freely available for energy efficiency projects.  Grants and loan guarantees should be allocated to projects which carry a high degree of risk, thus helping overcome the investment barrier that exists for innovations which require further research and development before widespread uptake can occur.

For the majority of efficiency projects, the upgrades do not require further R&D – they involve technologies and changes which are relatively well proven and ready for deployment.  Amory Lovins of the Rocky Mountain Institute often states that “efficiency is arguably the highest return/lowest risk investment in the whole economy.”  Further, in his work in over 29 industrial sectors, which includes a large amount of work in Australia, Lovins has found that large-scale energy efficiency projects which achieve substantial energy savings provide better returns than small-scale projects.  “So we get expanding, not diminishing, returns on investments in advanced energy efficiency.”

For many companies, capital is allocated to growth projects before efficiency projects.  Energy efficiency may be recognised as a high-return/low-risk investment, hurdle rates and other investment triggers may be exceeded, however efficiency projects are still deferred because growth projects which expand operations and increase throughput are seen to be more profitable and more progressive.  For some organisations, energy is only a few percent of the cost of doing business.  There are bigger issues demanding attention and energy efficiency ends up at the bottom of the priority list.

One way to overcome this challenge is to create a centrally-managed investment fund which is dedicated to energy efficiency projects.  If we accept Lovins’ statement that “saving energy is among the highest-return investments anywhere” , then this investment fund should be a sustainable and profitable enterprise.  The investment fund could be a public/private partnership which aggregates funding from government funds and private financiers, and sets out a structured framework to evaluate investment opportunities and share the returns with the companies hosting the changes.  Previous work in efficiency investment finance, and measurement and verification, such as the Energy Efficiency Council Best Practice Guides , can be referenced to define the terms under which this fund would operate.

This fund should be a sound investment.

We suggest that the PM’s Task Group could recommend this as a possible solution requiring further development, and could further incentivise companies to undertake energy efficiency projects through tax savings and other financial benefits.  The government could allow companies to depreciate energy efficient equipment on an accelerated schedule, and pile on other incentives so that energy efficiency investments are seen as a tax sanctuary.

HAC has significant experience with the opportunities, issues and barriers surrounding energy efficiency.  We will continue to expand on these ideas, and assist in the design and implementation of effective solutions.

If a step change in energy efficiency is the goal, then energy efficiency needs to become an easy decision and a high priority for business.  We believe a step change can occur if the government creates an array of resources and incentives which, in the words of Thomas Friedman , make energy efficiency a “no-brainer good deal” for businesses leaders.

Click here to download HAC’s submission to the PM’s Task Group on Energy Efficiency.