Major development projects – April 2009 listing

Alan Copeland

• As at the end of April 2009, there were 22 major electricity generation projects at an advanced stage with a total generating capacity of 4792 megawatts and value of around $6.7 billion.
• There were a further 101 projects at a less advanced stage of development.

ABARE’s list of major electricity generation development projects

ABARE has been compiling its biannual list of major minerals and energy projects for more than a decade. In October 2008, ABARE released the first edition of the major electricity generation list. April 2009 marks the second release of the list, which contains information on electricity generation projects based on black and brown coal, oil, natural gas, coal seam methane and renewable energy sources (solar, wind, hydro, biomass and wave). The information draws predominantly on publicly available sources but, in some cases, is supplemented by information provided directly by companies.

ABARE’s list provides details of each announced project where total capacity is expected to exceed 30 megawatts. Generally these projects are at relatively advanced stages of planning, that is, ranging from ‘planning approval underway’ through to ‘under construction’.

The projects list contains information on 123 projects, and provides the following details:

• project name
• location
• expected startup date
• capital cost of the project
• proponent company or joint venture
• project status
• additional output capacity
• additional employment at the construction and operating stages, where available.

With a focus on projects planned to commence generation over the next few years, projects at more advanced stages of planning, that is, those identified as ‘committed’ or ‘under construction’, are grouped together and listed first within each principal energy source. These projects appear in the blue shaded areas of the table. Projects at less advanced planning stages (for example, those at planning approval stage) follow within each energy source and appear in the yellow shaded areas. The listing includes new greenfield projects as well as expansions of existing projects.

Electricity market in Australia

The electricity supply chain begins with electricity generators, which are normally located near fuel sources such as natural gas pipelines, coal mines and hydroelectric water reservoirs. There is typically a long distance between electricity generators and consumers, requiring a transmission and distribution network to transport power. The supply chain is completed by retailers who purchase wholesale electricity and package it with transmission and distribution services for sale to customers (figure a).

Increased investment in generation capacity is required to meet future growth in electricity demand in Australia and to maintain security of supply. This can include the construction of new power stations or upgrades/expansions at existing power stations.

Market structure

The current structure of the Australian electricity market was shaped by industry reforms in the early 1990s. Vertically integrated state-owned utilities were disaggregated into separate generation, transmission, distribution and retail supply components, where the electricity businesses were either corporatised or privatised.

A key element of these reforms was the establishment of the national electricity market in 1998 linking the Australian Capital Territory, New South Wales, Queensland, South Australia and Victoria (Tasmania joined in 2005). This allowed for power to flow across state and territory borders to meet customer demand in other jurisdictions.

The national electricity market comprises of a wholesale market and a competitive retail sector, which promotes competition and efficiency in the production and provision of electricity and allows for choice of supplier. Most electricity retailers purchase electricity from generators on a contract basis. Additional electricity can be purchased through the spot market.

The management of the electricity spot market and the central coordination of the dispatch of electricity from generators (figure b) is the responsibility of the National Electricity Market Management Company (NEMMCO). In April 2007, the Council of Australian Governments (COAG) agreed to establish an industry funded National Energy Market Operator for wholesale electricity and gas, which will replace NEMMCO. The National Energy Market Operator will commence on 1 July 2009.

The regulation of transmission and generation is the responsibility of the Australian Energy Regulator (AER). By 2010 it is anticipated that the AER’s responsibilities will extend to electricity and gas markets, gas transmission in eastern and southern Australia and electricity distribution in the Northern Territory. This will allow for a consistent near-national approach to regulation in the market. Western Australia will retain state-based regulation of its electricity and gas sectors.

Western Australia is not connected to the national electricity market primarily because of its geographic distance from the national market. Electricity infrastructure is organised in several distinct systems including the South West Interconnected System (SWIS); the North West Interconnected System (NWIS); and 29 regional, non-interconnected power systems. SWIS is the largest network and serves Perth and the other major population centres in the south-west of Australia.

The SWIS became a wholesale market (where generators sell directly to retailers) in 2006. Because of the small scale of the other systems it is impractical to introduce a wholesale market. Instead, they operate as retail markets where end use consumers purchase from competing retailers.

The wholesale market for electricity in Western Australia was deregulated in 2006; the Independent Market Operator (IMO) is responsible for the administration and operation of this market. The retail market is regulated by the Economic Regulation Authority of Western Australia.

In the Northern Territory, market reforms were undertaken from 2000 to phase in competition of electricity supply and reduce Power and Water Corporation’s natural monopoly. New entrants into the Northern Territory electricity market are permitted to use existing infrastructure (transmission and distribution) after signing an access agreement and payment of a network charge. The Utilities Commission of the Northern Territory is responsible for the regulation of the market.

Consumption and generation

Australia’s electricity generation sector faces a number of challenges over the medium to longer term including increasing domestic consumption, the need for investment in new generation facilities and policy measures aimed at reducing greenhouse gas emissions.

In 2006-07, Australian consumption of electricity was 261 799 gigawatt hours (GWh). New South Wales, Victoria and Queensland account for more than three-quarters of total electricity consumption because of the large population base in these states (figure c). Electricity consumption in Western Australia has increased over the past few years. This largely reflects the increased use of electricity in the mining industry.

The majority of Australia’s electricity is produced using coal, accounting for 83 per cent of total generation in 2006-07. This is because coal is a relatively low cost energy source in Australia. It also reflects the abundance of coal reserves along the eastern seaboard, where the majority of electricity is generated and consumed.

Effect of the Carbon Pollution Reduction Scheme on the electricity sector

The Australian Government White Paper on the Carbon Pollution Reduction Scheme (CPRS), released on 15 December 2008, sets out the details of the scheme to reduce Australia’s greenhouse gas emissions in response to climate change. A subsequent revision will see the scheme commence in July 2011. Emissions from industrial processes, the energy sector (stationary, transport and fugitive), waste and forestry will be covered. The White Paper identified coal-fired electricity generation as a strongly affected sector and as such has proposed an assistance package. Factors on which the basis for the support is considered to be justified include:

• the inability of a number of power stations, which have higher emissions relative to competitors, to pass on costs associated with carbon permits, leading to a potential loss in asset value
• the significant sunk capital costs
• the lack of significant and economically viable abatement opportunities currently available.

To address some of the potential effects of the scheme and to ensure a smooth transition to lower emissions intensity, the government will provide assistance in the form of the Electricity Sector Adjustment Scheme. The ESAS will be available to coal-fired generators which have an emissions intensity above 0.86 tonnes of carbon dioxide equivalent per megawatt hour (CO2-e/MWh), which were in operation or committed to be constructed on 3 June 2007. Eligible power stations will receive a fixed allocation of permits (or around $3.9 billion of assistance in nominal terms or around $3.5 billion in real 2008-09 dollars) over the first five years of the CPRS, after which the ESAS will cease.

A review of the assistance measures will take place in 2014, to ensure that power stations allocated permits are not earning windfall profits. In the event that the regulator deems the ESAS assistance has resulted in windfall profits, it may recommend that all or part of the last two years of assistance be withheld.

Completed projects

During the six months to April 2009, there were 10 electricity generation projects completed – six gas, two wind and two biomass fired. The largest of these projects, in terms of generation capacity, is the 640 megawatt Uranquinty power station, which had a capital expenditure of $700 million and is located near Wagga Wagga in south-west New South Wales. Also in New South Wales is the 400 megawatt Stage 1 of the Tallawarra power station which is located around 100 kilometres south of Sydney. In Western Australia, the $400 million, 330 megawatt gas-fired NewGenKwinana power plant was completed by Babcock and Brown Power and ERM. Babcock and Brown Power subsequently sold its stake in the power station to ERM. Origin Energy completed a 120 megawatt expansion of its Quarantine power station, which is located in South Australia.

The largest renewable energy project completed, in terms of generation capacity, is the
192 megawatt Waubra Wind Farm located in Victoria. The wind farm is the largest in the southern hemisphere and contains 128 wind turbines spread over an area of 170 square kilometres. A second wind farm (Stage 2 of the Portland Wind Farm), also in Victoria, commenced operation during the six months to April 2009. It has a capacity of 58 megawatts and is one of a number of wind farms Pacific Hydro is constructing and planning in south-west Victoria.

Two biomass projects were completed in late November, located on the far north coast of New South Wales. The two power stations have a combined capacity of 60 megawatts and cost around $220 million to develop. The power stations will use bagasse, a waste product associated with the crushing of sugar cane, as a feedstock.

Advanced projects

At the end of April 2009, there were 22 projects at advanced stages of development included in ABARE’s project list. Total capacity of the 22 advanced projects at the end of April 2009 was 4792 megawatts (figure e).

This is equivalent to 12 per cent of Australia’s total generating capacity as at June 2007. The location of projects is widespread, with at least one advanced project in every state and in the Northern Territory (figure f).

Non-renewable electricity projects

As at April 2009, non-renewable electricity generation projects accounted for 13 of the
22 advanced projects on ABARE’s list and around 84 per cent (or 4049 megawatts) of planned additional capacity (figure e, table 2). Natural gas-fired projects account for 51 per cent of the announced capacity of advanced non-renewable electricity projects, while coal seam methane accounts for a further 30 per cent.

In terms of capacity, Delta Electricity’s Colongra project in New South Wales is the largest advanced project in Australia’s electricity generation sector. The project has an announced capacity of 660 megawatts and is scheduled to be completed in late 2009 at a cost of
$500 million.

In March 2009, Origin Energy commenced construction on Stage 1 of the Mortlake power station in Victoria. The project is scheduled to be completed in 2010 with a capacity of
550 megawatts and a capital cost of $640 million. A second 450 megawatt unit at the complex could be built by Origin Energy at a later date.

Four other natural gas-fired projects account for a further 837 megawatts of committed additions to capacity. The largest of these is Aurora Energy’s Tamar Valley project in Tasmania. The project has an announced capacity of 375 megawatts, a capital cost of $464 million and is scheduled to be completed in late 2009. Also scheduled for completion in late 2009 is the Neerabup power station, located 50 kilometres north of Perth. The project, which is owned by ANZ Infrastructure Services and ERM, will have a capacity of 320 megawatts and a capital cost of $425 million.

Three coal seam methane powered projects account for 1220 megawatts of committed additions to capacity. The largest of these projects is Origin Energy’s Darling Downs project in Queensland. The project has an announced capacity of 630 megawatts and is scheduled to be completed in early 2010. The project has a capital cost of $951 million, which includes the construction of a pipeline to access coal seam methane reserves in the area around Roma and Chinchilla.

In relation to black coal, stages 1 and 2 of Griffin Energy’s Bluewaters project have an announced capacity of 208 megawatts each. The two stages are expected to be completed in the second half of 2009, at a total capital cost of $800 million.

The only non-renewable electricity generation project to progress to an advanced stage during the six months to April 2009 was the upgrade of the Eraring power station on the central coast of New South Wales. The upgrade of the power station will result in a 240 megawatt increase in capacity at a cost of around $245 million. The Eraring power station upgrade is scheduled for completion in 2011.

Renewable energy projects

At the end of April 2009, there were nine renewable energy projects at an advanced stage of development. Seven of these projects are wind powered and comprise more than 80 per cent of the committed additions to renewable energy capacity.

During the six months to April 2009, there were three wind projects added to the advanced list, Clements Gap and Hallet 4, both located in South Australia and Musselroe in Tasmania. Clements Gap is being developed by Pacific Hydro and has a capacity of 57 megawatts and a capital cost of $135 million. The project is scheduled for completion in late 2009. In March, AGL approved the 132 megawatt Hallet 4 project which has a capital cost of $341 million and is scheduled for completion in 2011. The Roaring 40s Musselroe project has a capacity of
129 megawatt and is expected to be completed in 2011 at a capital cost of $350 million.

The largest advanced wind project, in terms of capacity, is Renewable Power Ventures’ Capital Wind Farm, located 50 kilometres north-east of Canberra. The wind farm will have a capacity of 140 megawatts when complete in mid-2009 and has a capital cost of around $220 million. There are three other advanced wind projects, all of which are due for completion during 2009. Hallet 2, Portland Stage 3 and Cullerin Range have capacities of 71, 44 and 30 megawatts, respectively.

At the end of April 2009, the average capacity for projects using natural gas and coal seam methane was around 340 megawatts and 400 megawatts, respectively (figure g). Given that a large proportion of advanced and less advanced projects will be using natural gas and coal seam methane as a fuel, these energy sources will account for an increasing proportion of baseload power generation. The average capacity of wind powered projects at an advanced stage was around 80 megawatts. The lower capacity for these projects reflects the large amount of land required for wind turbines.

Electricity generation projects in Australia using solar as an energy source do not feature prominently in ABARE’s listing, largely because these tend to be below the 30 megawatt threshold.

Less advanced projects

Projects in the less advanced category are either still undergoing a feasibility study (in some cases, pre-feasibility study), or not subject to a definite decision on development following the completion of a feasibility study. Some of these projects may not proceed for several years. Some may confront changes in economic conditions, or may be targeting the same emerging market opportunities, necessitating rescheduling. In addition, securing finance for project development may also be an issue.

Despite the uncertainty inherent to projects at these earlier stages of consideration, there is a significant number of large scale projects at less advanced planning stages. These projects, if completed, are expected to provide a firm platform for future growth in Australian electricity generation in the medium term and beyond.

Of the 123 projects in ABARE’s April 2009 projects list, 82 per cent (101 projects) are less advanced. Table 3 contains a summary of the numbers and fuel distribution by state of the
101 less advanced projects, together with an aggregated capacity figure.

Non-renewable electricity generation projects

At the end of April 2009 there were 43 non-renewable electricity generation projects at a less advanced stage. Natural gas-fired and coal seam methane fired plants account for 29 and
7 projects, respectively. There are a total of six coal-fired projects (brown and black coal) and an oil-fired power plant under consideration.

Among the largest in terms of capacity is the 600 megawatt gas fired power station ERM Power is proposing to build near Wellington in central New South Wales. AGL is also proposing to build several large gas-fired power stations including two in south-east Queensland (capacity of 360 megawatts and 1150 megawatts), and power stations near Townsville (360 megawatts), Sydney (350 megawatts) and Canberra (500 megawatts).

There are also a number of coal seam methane based power stations at a less advanced stage. These include Braemar 3 (450 megawatts) and Spring Gully Stages 1 and 2 (1000 megawatts) in Queensland and Stages 1 and 2 of the Narrabri project (210 megawatts) and Richmond Valley power station (30 megawatts) in New South Wales.

Renewable energy projects

At the end of April 2009, there were 58 less advanced renewable energy projects. Of these projects, 50 are wind farms, accounting for around 87 per cent of the proposed addition to renewable energy capacity.

The largest wind energy project is the Silverton Wind Farm in New South Wales with a planned capacity of 1000 megawatts. If developed, the wind farm will be the largest in the southern hemisphere and one of the largest in the world. The project is scheduled to be completed in 2011 at a capital cost of $2.2 billion.

AGL and Windlab Systems’ Cooper’s Gap wind project in Queensland has an announced maximum capacity of 440 megawatts. The site will have up to 250 wind turbines and is scheduled to start operating in 2011. The project is expected to cost around $1.2 billion.

Projects new to ABARE’s list

There are 14 projects (all at a less advanced stage) new to ABARE’s list since October 2008. Figure h provides a summary of the 14 newly listed projects by generation fuel. Of the new projects, 10 are wind and there is one each of brown coal, gas, coal seam methane and solar.

The HRL IDGCC brown coal project is a joint venture between HRL Technology and China’s Harbin Power Engineering Co to build a 400 megawatt power plant in Victoria. The power project will be a demonstration of the integrated drying and gasification combined cycle technology and it is expected the electricity generated will emit 30 per cent less carbon dioxide and consume 50 per cent less water than traditional brown coal-fired power stations. The $750 million project has funding from the Australian and Victorian governments.

Of the 10 new wind powered projects, four are located in South Australia, three in Victoria and three in New South Wales. These 10 projects, if developed as currently planned, could have a capacity of more than 1865 megawatts, with the Yass and Stockyard Hill wind farms accounting for over 55 per cent of this capacity.

The ACT government has tendered for a 22 megawatt solar power project which a recently completed pre-feasibility study indicated would cost $141 million for construction with a completion date by 2012.