2.3 Energy
Fossil fuels currently provide 95% of the State's primary energy needs and the demand for energy continues to grow – both factors that have a significant impact on the environment.
Decisions on technologies and fuel sources to meet future energy demands, particularly electricity generation, will have significant environmental consequences for NSW. A shift to lower emission electricity generation, such as gas-fired power stations and renewable energy sources, as well as greater pursuit of energy efficiency and demand management, will reduce the negative environmental impacts of energy use.
NSW indicators
Indicator |
Status of indicator |
HS 7
Energy source impacts |
Status: The bulk of NSW energy needs is being met by fossil fuels, particularly coal. This contributes high greenhouse gas and air pollutant loads and consumes large quantities of fresh water. Trend: The trend is deteriorating as rising demand has led to increased total emissions from energy production. Information quality: Good quality information about the impacts of energy sources is provided by power suppliers and government agencies. This indicator will be further defined during the review of all indicators prior to SoE 2009. Response(s): The Government has introduced a range of measures to reduce the impacts of power stations and encourage investment in new energy technologies. These measures are included in amendments to the Protection of the Environment Operations (Clean Air) Regulation 2002, the NSW Greenhouse Plan 2005, and the NSW Greenhouse Gas Abatement Scheme and the recently announced mandatory renewable energy target for NSW. |
HS 8
Energy use |
Status: Energy consumption is steadily increasing, driven by population and economic growth, and by behavioural and lifestyle changes. Trend: Changing lifestyles have increased the demand for energy, which is leading to increased environmental impacts and a deteriorating trend for this indicator. Information quality: Good quality information on the amount of energy being used is provided by the energy suppliers and government agencies. Response(s): Demand management is being promoted through the Energy Savings Fund, Energy Savings Action Plans, BASIX, the NSW Greenhouse Plan 2005 and the NSW Greenhouse Gas Abatement Scheme. |
Introduction
'Energy' in this section refers to the stationary energy sector (transport is dealt with separately in Human Settlement 2.4). It covers:
- energy industries (electricity generation, petroleum refining, gas processing and solid-fuel manufacturing)
- direct production of energy for the manufacturing and construction industries
- energy use by other sectors, including commercial and residential
- fuel use by agricultural, fisheries and forestry equipment
- mining activities that contribute fuel to the above sectors.
NSW has a reliable and affordable supply of energy, an important factor underpinning the stability and growth of our economy. However, the production of energy can have significant consequences for the environment. Most of NSW's current stationary energy demand is being met using fossil fuels.
The stationary energy sector is the single largest source of greenhouse gas emissions: it contributes around 48% of the State's total emissions, the majority of which (approximately 77%) comes from the generation of electricity (AGO 2006a). The sector also:
- is a major source of regional air pollutants, such as oxides of nitrogen (NOx), sulfur oxides (SOx), fine particles and heavy metals
- consumes large quantities of fresh water
- generates large quantities of waste ash.
Of the activities covered by the stationary energy sector, electricity production has by far the largest overall impact on the environment (Atmosphere 3.1).
Demand for electricity and other energy sources continues to rise, driven by population increase and economic growth.
Current status and trends
Energy sources
Fossil fuels currently provide for the bulk of NSW primary energy needs, accounting for around 95% of the State's stationary energy needs (ABARE 2005). Figure 2.7 shows that electricity – most of which is generated using coal – made up 35% of the final energy consumption in NSW in 2003–04. Direct use of fossil fuels makes up 62% of the final energy consumption.
Figure 2.7: Final energy consumption in NSW by fuel, 2003–04(a)
Source: DEUS data 2006
Notes: (a) Excludes primary energy inputs to electricity generation.
Energy measured as petajoules.
Electricity generation
Electricity is the largest component of stationary energy in NSW and more than 90% of the State's electricity is derived from coal-fired power stations (Figure 2.8).
Figure 2.8: Electricity generated in NSW by fuel source, 2004–05
Source: DEUS data 2006
Notes: Some of the electricity generated is exported interstate (notably Snowy hydro-electricity) while around 11% of the electricity consumed in NSW is imported from interstate.
The Protection of the Environment Operations (Clean Air) Regulation 2002 lists scheduled premises. There are eight coal-fired power stations within the greater metropolitan area, as defined in the Regulation. At current generating levels these power stations contribute large air pollutant loads, including 46% of the NSW total of NOx, 87% of total SOx, and 20% of total mercury, as well as fine particles, fluoride and other pollutants (DEH 2005). The power stations are all water-cooled: those located inland consume in total more than 70 gigalitres of fresh water each year (Delta Electricity 2003; Macquarie Generation 2003; Delta Electricity 2004; Macquarie Generation 2004; Delta Electricity 2005; Macquarie Generation 2005), much of which is lost through evaporation to the atmosphere. The cooling waters that are discharged to the environment can include high thermal loads.
The environmental impact from these existing power stations is predicted to increase over the next decade as their electricity production increases to meet growing demand.
The wide array of environmental impacts from the energy sector in NSW is due to a number of factors, including the relative abundance of cheap fossil fuels, a high dependence on coal-fired power generation, and rising standards of living (NSW Government 2005).
Coal consumption, greenhouse gas emissions, pollutant loads and water needs per unit of electricity generated are not only proportional to the total amount of electricity generated by a power station but also to the plant's thermal efficiency. The average thermal efficiency of NSW power stations has reportedly been declining, falling from around 37% in 1991 to about 35% a decade later (Bardak 2002). Every 1% decrease in thermal efficiency results in a 2–3% rise in carbon dioxide emissions.
Mining
The extraction of fossil fuels has environmental consequences. Approximately 28% of coal mined in NSW is consumed within the State (DPI 2005), while the remainder (72%) is exported. Fugitive methane emissions from coal mines contribute around 7.8% of NSW's total greenhouse gas emissions (AGO 2006a). Depending on the type of mine and its location, there can also be other significant environmental impacts. 'Alteration of habitat following subsidence due to longwall mining' has been declared a key threatening process under the Threatened Species Conservation Act 1995. Mine subsidence can cause cracking of creek beds, as occurred in the Cataract River (Everett et al. 1998; ACARP 2001; ACARP 2002), and adversely affect hydrogeology, water quality and biodiversity.
Energy demand
Historically, energy supply (including electricity) has been inexpensive in NSW, due partly to an abundance of good-quality black coal. As a result, energy has accounted for a relatively small percentage of total outlays for most firms and households (Productivity Commission 2005) and energy efficiency has remained, until recently, a low priority for many users. On the other hand, while NSW has 33% of Australia's population, it is responsible for just over a quarter of Australia's greenhouse emissions. This is due to the lower emission-intensity of NSW industry compared with other states (AGO 2003a).
Figure 2.9 illustrates primary energy consumption and predicted growth in various components of the stationary energy sector. The largest absolute growth is predicted for the electricity generation sector, while mining is forecast to have the highest rate of growth.
Figure 2.9: Primary energy(a) consumption in NSW by sector – data for 2003–04 and predicted to 2024–25
Source: ABARE 2005
Notes: (a) Primary energy includes coal, gas and petroleum products, but does not include electricity (which is a secondary energy).
(b) 'Other' includes solvents, lubricants, bitumen and greases.
Figure 2.10 shows predicted trends in electricity consumption under three growth scenarios. Rising electricity demand in NSW is being driven by population and economic growth and changes in people's behaviour and lifestyles. As real incomes have risen so too have levels of material consumption. For example, NSW households with air conditioners rose from 31% in 1994 to 54% in 2005, and the number of homes with more than one cooling unit in operation also increased (ABS 2005b). The ownership of dishwashers also jumped from 25% to 43% over the same period.
Figure 2.10: Actual growth and predicted trends in electricity consumption for three scenarios
Source: Transgrid 2005
Note: The low, medium and high economic growth scenarios include projections of population, gross state product, real electricity and natural gas prices and interest rates.
Figure 2.11 shows NSW energy consumption by sector. Combined, the manufacturing and residential sectors are responsible for about 76% of energy consumed, excluding the energy consumed by power stations in generating electricity.
Figure 2.11: Final energy consumption in NSW by sector, 2003–04(a)
Source: DEUS data 2006
Notes: (a) Excludes energy used in electricity generation.
Energy consumption measured as petajoules.
Even though the electricity intensity of the NSW economy has declined since 1995–96 (AGO 2003a) – due partly to a structural shift towards less energy-intense service industries – total electricity consumption in NSW has continued to rise.
This rising energy demand will increase the sector's environmental impacts. Existing power stations have the capacity to increase their production by around 30% above current levels, with corresponding increases in greenhouse gas emissions and pollutant loads. However, beyond this, demand will have to be met by new generating capacity.
Nationally, greenhouse gases from the stationary energy sector increased by 43% between 1990 and 2004 because of rising energy consumption (see Atmosphere 3.1). Greenhouse gas emissions from electricity generation alone rose by 51% over this period (AGO 2006b).
Response to the issue
Energy sources
Reducing environmental impacts
The NSW Government has introduced a number of measures that will reduce the rate at which the negative environmental impacts of the stationary energy sector are growing.
Some measures tackle the environmental footprint of the State's existing coal-fired power stations. Amendments to the Protection of the Environment Operations (Clean Air) Regulation in 2005 introduced a framework to review the adequacy of older emission standards applying to existing industry. As a result, older power stations must either demonstrate that their operations do not result in any adverse environmental or human health impacts or upgrade their pollution control equipment to more modern technology.
A number of power stations have undertaken, or committed to, refurbishments that will reduce emissions. Several have either recently completed or are planning capacity upgrades, which will bring small improvements in their thermal efficiency. Vales Point power station has recently announced plans to upgrade its control technology in order to significantly reduce particulate emissions.
A number of recently introduced measures may reduce the impact of coal mining, and thereby the overall environmental footprint of the stationary energy sector:
Cleaner fuels and technologies
The NSW Government is pursuing measures to influence new investment in energy supply capacity, encouraging a shift towards greater uptake of cleaner fuels and technologies, as discussed below.
The NSW Greenhouse Gas Abatement Scheme requires all NSW electricity retailers and some large electricity users to meet annual greenhouse gas emission reduction targets (see Atmosphere 3.1). In providing a financial incentive for electricity generators with low greenhouse emissions, the scheme is encouraging cleaner energy sources (IPART 2005).
The NSW Premier has announced that the scheme will be extended to 2020 and beyond, until a national emissions trading scheme is in place. Depending on the ultimate design of the extended scheme, it could provide the necessary financial incentive for investment in gas-fired generation. The existing Greenhouse Gas Abatement Scheme has provided a carbon price signal that has facilitated the development of a gas-fired generator at Tallawarra (currently under construction). By design, it is unlikely to be a catalyst for significant investment in renewable energy projects.
In 1997, NSW developed the Green Power Program, which has since gone national. Customer numbers and demand for renewable energy have continued to grow. By March 2006, NSW sales of Green Power accounted for a third of Australia-wide Green Power sales. The 60 gigawatt-hours (GWh) of Green Power purchased in the first quarter of 2006 represents approximately 0.3% of total electricity sold in NSW. At least 6% of the energy purchased by State Government agencies is Green Power. Although there are currently just over 40,000 residential and 8000 commercial customers signed up to Green Power in NSW, 71% of households remained unaware of the scheme (ABS 2005b), which suggests significant scope for expanding the program.
In the NSW Greenhouse Plan 2005, the Government committed to a requirement that all new or relocating electricity customers will be offered 10% Green Power, with an option to vary the Green Power component (NSW Government 2005). Electricity retailers will also be required to adopt standard labelling of greenhouse performance on electricity bills, allowing consumers and businesses to compare the performance of competing retailers and make informed choices on their energy supply (see Atmosphere 3.1).
NSW Government policy has resulted in the deregulation of the gas market, which has led to new gas transmission pipelines being built to bring more gas into NSW and with it opportunities to develop gas-fired peaking generation. The first substantial gas-fired generator in NSW is currently being built at Tallawarra, near Wollongong.
The Commonwealth has also sought to increase the uptake of cleaner energy sources. The Mandatory Renewable Energy Target 1997 has encouraged considerable growth in renewable energy projects nationally. The scheme was designed to stimulate an increase in renewable energy generation of 9500 GWh annually by 2010, around 60% above 1997 levels.
In 2003, the Commonwealth's Review Panel recommended the scheme's continuation and refinement (AGO 2003b), and the following year the Commonwealth announced that the scheme would continue to 2020 but with no expansion of the target itself (Australian Government 2004). Consequently, new investment is expected to fall away rapidly, because it is predicted that by 2007 sufficient capacity will already have been installed to meet the target of 9500 GWh.
Although a number of Commonwealth funding packages provide indirect support to research and development into renewable energy, significant new investment remains uncertain while there is no policy commitment to expanding the uptake of renewable energy nationally. Several Australian jurisdictions, including NSW, have sought to remedy this through the adoption of state-based renewable energy targets.
The Council of Australian Governments (COAG) climate change group agreed in 2006 to conduct a study into the barriers to the commercial uptake of low-emission renewable energy technology, and will investigate the development of a national framework for the uptake of renewable and low emission generation.
Energy demand
In terms of environmental and health impacts, total energy demand is the key indicator. By comparison, concerns with peak energy demand are more closely linked to economic impacts, namely the need to build supply infrastructure that will operate for only a small number of hours per year. Reducing peak energy demand does generate some environmental benefit, but only where demand is actually reduced rather than shifted.
Total industrial and domestic energy consumption can be reduced through behavioural changes as well as the uptake of more energy-efficient technologies and processes.
The NSW Government has introduced various measures to stimulate energy savings in NSW. The Energy Savings Fund has allocated $40 million a year over five years to encourage savings in energy and peak electricity demand. Requirements for large energy users to prepare Energy Savings Action Plans were introduced in 2005 and apply to businesses in NSW which use more than 10 GWh per year at a site, all local councils in NSW with populations of over 50,000, and NSW Government agencies with energy use of more than 10 GWh per year at a site. The requirements for Energy Savings Action Plans incorporate savings from other energy efficiency initiatives such as the Commonwealth Government's Energy Efficiency Opportunities Assessment Program and the Cities for Climate Protection Program for local government.
In February 2006, COAG agreed to examine ways to improve the price signals for energy investors and customers through measures such as electricity 'smart meters'. The use of smart meters would allow consumers the option of time-of-use pricing for electricity and thereby stimulate reductions in peak demand. NSW retailers already offer this type of meter and pricing options to some customers.
The first years of the NSW Greenhouse Gas Abatement Scheme have stimulated a small but steadily increasing reduction in energy demand.
The Building Sustainability Index (BASIX) is ensuring each new dwelling design meets targets of up to 40% reduction in energy use, compared with the average home (see Human Settlement 2.1 and Atmosphere 3.1).
The Government Energy Management Policy 1998 sets out requirements for Government departments to reduce greenhouse gas emissions from their own operations. The policy aims to lower energy consumption by reducing waste, improving energy and water efficiency and making greater use of 'green energy' sources. The State Government used 2% of the NSW energy total in 2002–03, down from 2.3% in the previous year, and 4.4% of total electricity in both 2001–02 and 2002–03 (DEUS data).
Future directions
Tackling the impacts of the stationary energy sector is fundamental to addressing greenhouse gas emissions and climate change. It is also a key sector to target to reduce air pollution in NSW.
To reduce the electricity sector's environmental impacts in the short term, measures to improve the environmental performance of existing NSW power stations will need to be pursued. High emissions of greenhouse gases and regional air pollutants from this sector will continue until these existing power stations are retired. However, there are measures that these facilities can implement to reduce their environmental footprint, such as further efficiency improvements and upgrades to pollution control equipment.
In the medium to long term, the scale and type of new baseload electricity generation capacity will have a major influence over the sector's future environmental and health impacts. It is therefore important that these impacts are a major consideration in assessing options for new electricity generating capacity.
Any new coal-fired power stations built in the future are likely to have lower pollutant emissions than existing facilities because they will be expected to incorporate more modern combustion and pollution control technology. However, greenhouse and air pollutant emissions would remain high in comparison to alternative energy sources. Carbon capture and storage technology involving geosequestration has the potential to mitigate carbon dioxide emissions from coal-fired electricity generation (Australian Government 2005). However, at this early stage in its development, the technology appears to be among the more expensive greenhouse gas abatement options for the energy sector (NSW Government 2005). Nonetheless, significant funding is available through the Commonwealth's Low Emissions Technology Fund that may assist in piloting this technology.
Natural gas has the potential to be a viable fuel for future intermediate baseload electricity generation. A combined-cycle gas turbine plant has a greenhouse gas emissions intensity approximately half that of a new best practice coal-fired power station and significantly lower air pollutant emissions, and could therefore play an important role in reducing the impact of the electricity sector in NSW. In NSW there has been investigation and increasing interest in natural gas-fired electricity generation, primarily for peaking capacity. In December 2005, it was announced that two new gas-fired plants would be built in NSW: a 400-megawatt plant at Tallawarra and a 300-megawatt plant at Lake Munmorah. Increased investment in peaking gas-fired plant may also make larger scale gas-fired baseload plants more commercially viable, as gas supply infrastructure expands to accommodate the new demand. The Australian Bureau of Agricultural and Resource Economics has predicted that gas-fired electricity generation will be growing by 4.7% a year by 2020 (ABARE 2005).
Increasingly realising the opportunities provided by industrial co-generation (where electricity and heat are produced simultaneously using a single fuel) is another avenue to instigate greater energy conversion efficiency.
Policy settings at both a State and national level will significantly influence future investment decisions. Moving toward a cleaner energy sector while maintaining affordable and reliable energy supply and a competitive State economy is a significant task. If it is to be pursued, strong policy support is needed to ensure new investment focuses on cleaner fuels and technologies.
Ongoing assistance for research into, and development of, cleaner fuels and technologies would improve their commercial viability and encourage greater uptake.
The NSW Government recently announced that a mandatory NSW Renewable Energy Target relating to all electricity consumed in NSW will be introduced. The target will be 10% of NSW end use consumption by 2010 and 15% by 2020. This will provide ongoing support to the renewable energy industry. The scheme will impose a target on electricity retailers and will include renewable energy certificate trading and an enforceable penalty for non-compliance.
In many cases, measures that reduce greenhouse gas emissions – such as energy efficiency and the uptake of renewable and gas-fired electricity generation – also reduce emissions of regional air pollutants and other associated environmental impacts. Future policy efforts should seek to harness these co-benefits.
Continuing emphasis on the environmental and health costs associated with energy production would encourage behavioural change and investment in clean energy sources. For example, NSW is working with other states and territories on a national emissions trading framework which would establish a national market price signal for greenhouse gas emissions. This is likely to also have co-benefits for other environmental goals in addition to reducing greenhouse gases.
There is significant untapped potential for improved energy efficiency in Australia and NSW (Australian Government 2003). Studies indicate that energy efficiency is consistently the cheapest way of reducing greenhouse gas emissions, and there are significant opportunities across the residential, commercial and industrial sectors. Analysis for the National Framework for Energy Efficiency estimated that implementing all energy efficiency opportunities that had an investment payback of four years or less would reduce residential energy use by 13%, commercial energy use by 10.4% and industrial energy use by 6.2% (Australian Government 2004). The results achieved by existing energy efficiency programs at State and national levels could provide direction to ongoing future efforts in this area.
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