Energy Policies of IEA Countries: Australia 2018

244 Pages·2018·5.328 MB·English

by  coll.

ENERGY
POLICIES
OF IEA

COUNTRIES
Australia
2018 Review

Secure
Sustainable
Together
ENERGY
POLICIES
OF IEA

COUNTRIES
Australia
2018 Review
INTERNATIONAL ENERGY AGENCY
The IEA examines the full spectrum of energy issues including oil, gas and coal supply
and demand, renewable energy technologies, electricity markets, energy efficiency, access
to energy, demand side management and much more. Through its work, the IEA advocates
policies that will enhance the reliability, affordability and sustainability of energy in its
29 member countries, 7 association countries and beyond.
The four main areas of IEA focus are:
n Energy Security: Promoting diversity, efficiency, flexibility and reliability for all fuels
and energy sources;
n Economic Development: Supporting free markets to foster economic growth and
eliminate energy poverty;
n Environmental Awareness: Analysing policy options to offset the impact
of energy production and use on the environment, especially for
tackling climate change and air pollution; and
n Engagement Worldwide: Working closely with association
and partner countries, especially major emerging
economies, to find solutions to shared
IEA member countries:
energy and environmental
Australia
concerns.
Austria
Belgium
Canada
Czech Republic
Denmark
Estonia
Finland
France
Germany
Secure
Greece
Sustainable
Hungary Together
Ireland
Italy
Japan
Korea
Luxembourg
Netherlands
New Zealand
Norway
Poland
Portugal
Slovak Republic
© OECD/IEA, 2018 Spain
International Energy Agency Sweden
Website: www.iea.org Switzerland
Turkey
United Kingdom
United States
Please note that this publication
is subject to specific restrictions
The European Commission
that limit its use and distribution.
The terms and conditions are also participates in
available online at www.iea.org/t&c/ the work of the IEA.
D
Foreword R
O
The International Energy Agency (IEA) has been conducting in-depth energy policy W
reviews of its member countries since 1976. As a core activity, the process of review by
E
peers not only supports member countries’ energy policy development and mutual
R
learning, but it also encourages exchange of international best practice and experience.
O
In short, by seeing what has worked – or not – in the “real world”, these reviews help to
identify policies that achieve objectives and bring results. F
In 2016, the IEA decided to modernise the reviews by shifting their focus to key energy
security challenges in fast-changing global energy markets and to the transition to a
clean energy system.
This report on Australia offers insights into two special focus areas, which were chosen
by the Australian government: the transition to a low-carbon energy economy and related
challenges, and the role of natural gas in this context.
Natural gas can play a crucial role as a transition fuel to a lower-carbon economy.
Australia’s gas market reform and the review of the country’s emissions reduction
policies were actively discussed with reform proposals under way in 2017. The report
examines these ongoing reforms and explores new initiatives that Australia could put in
place to encourage domestic production, investment and competition.

The special focus chapter on the energy system transformation evaluates opportunities
and challenges with regard to increasing the share of variable renewable energy in
the power sector and beyond, in industrial heat and transport. The energy transition is
under way, and efforts are required to ensure system reliability and improve market
integration of renewable energy. The electricity sector is at the heart of the energy
system transformation. Therefore, this report provides recommendations for the design
of climate policies addressed to this sector, including ways to shape market rules and
network regulation, retail market reforms, and wholesale market actions to improve
electricity security during the transition.
The primary aim of this report is to support Australia in its quest for a secure, affordable
and environmentally sustainable transformation of its energy sector and economy. It is
my hope that this country review will guide Australia in its energy transition and its
contribution to a cleaner, more sustainable and secure global energy system.

Dr. Fatih Birol
Executive Director
International Energy Agency
3
ENERGY INSIGHTS S
T
N
Executive summary .........................................................................................................13
E
Overview ............................................................................................................................13 T
Progress and challenges ...................................................................................................13 N
O
Energy security ..................................................................................................................15
C
Energy system transformation ...........................................................................................17

F
Special focus 1: The role of natural gas in the transition ..................................................19
O
Special focus 2: The transition to a low-carbon economy and system integration
E
of higher shares of variable renewables ...........................................................................19
L
Key recommendations .......................................................................................................21 B
A
1. General energy policy .................................................................................................23 T
Country overview ...............................................................................................................23
Supply and demand ...........................................................................................................25
Institutions ..........................................................................................................................28
Energy strategy and targets ..............................................................................................30
Energy data .......................................................................................................................31
Assessment .......................................................................................................................33
Recommendations .............................................................................................................35
References ........................................................................................................................35
ENERGY SECURITY
Summary of Part I ............................................................................................................37
2. Oil ..................................................................................................................................41
Overview ............................................................................................................................41
Supply and demand ...........................................................................................................41
Infrastructure......................................................................................................................45
Market structure .................................................................................................................47
Prices and taxes ................................................................................................................49
Fuel quality standards .......................................................................................................51
Oil supply security and emergency preparedness ............................................................51
Assessment .......................................................................................................................53
Recommendations .............................................................................................................55
References ........................................................................................................................55

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TABLE OF CONTENTS
3. Focus area 1: Natural gas market design .................................................................57
Overview ............................................................................................................................57
Supply and demand ...........................................................................................................58
Institutions and regulatory framework ...............................................................................66
Gas infrastructure and network regulation ........................................................................67
Market operation and prices ..............................................................................................72
Gas market reform .............................................................................................................75
Security of supply ..............................................................................................................77
Emergency response .........................................................................................................83
Assessment .......................................................................................................................85
Recommendations .............................................................................................................88
References ........................................................................................................................88
4. Electricity......................................................................................................................91
Overview ............................................................................................................................91
Electricity supply and demand ...........................................................................................92
Electricity systems and markets in Australia .....................................................................96
Institutional governance of the NEM .............................................................................. 100
Wholesale electricity market ........................................................................................... 101
Retail markets and consumer engagement ................................................................... 108
Electricity networks ......................................................................................................... 116
Electricity security ........................................................................................................... 123
Ongoing market reforms in the NEM .............................................................................. 130
Assessment .................................................................................................................... 133
Recommendations .......................................................................................................... 139
References ..................................................................................................................... 140
5. Focus area 2: System integration of variable renewables................................... 143
Overview ......................................................................................................................... 143
General considerations for system integration ............................................................... 144
System and market operation in the NEM ..................................................................... 148
Flexible resources .......................................................................................................... 151
Assessment .................................................................................................................... 158
Recommendations .......................................................................................................... 163
References ..................................................................................................................... 163

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TABLE OF CONTENTS

ENERGY SYSTEM TRANSFORMATION S
T
N
Summary of Part II ........................................................................................................ 165
E
6. Energy and climate policies .................................................................................... 167 T
N
Overview ......................................................................................................................... 167
O
Energy system transformation trends ............................................................................ 168 C
Greenhouse gas emissions in Australia ......................................................................... 171
F
Energy-related CO emissions ....................................................................................... 172 O
2
Australia’s coal sector ..................................................................................................... 176 E
Climate change mitigation .............................................................................................. 178 L
B
Long-term energy and climate scenarios ....................................................................... 181
A
Climate change adaptation ............................................................................................. 184 T
Low-carbon technologies and energy R&D policy ......................................................... 185
Assessment .................................................................................................................... 191
Recommendations .......................................................................................................... 194
References ..................................................................................................................... 195
7. Energy efficiency ...................................................................................................... 197
Overview of energy consumption trends ........................................................................ 197
States and territories ...................................................................................................... 202
Transport ........................................................................................................................ 206
Industry ........................................................................................................................... 208
Residential and commercial ........................................................................................... 210
Assessment .................................................................................................................... 215
Recommendations .......................................................................................................... 218
References ..................................................................................................................... 218
8. Renewable energy .................................................................................................... 221
Overview on demand and supply ................................................................................... 221
Policies and measures ................................................................................................... 224
Assessment .................................................................................................................... 229
Recommendations .......................................................................................................... 231
References ..................................................................................................................... 231

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TABLE OF CONTENTS

ANNEXES
ANNEX A: Organisation of the review ............................................................................ 233
ANNEX B: Energy balances and key statistical data ..................................................... 236
ANNEX C: International Energy Agency “Shared Goals” .............................................. 240
ANNEX D: Glossary and list of abbreviations ................................................................ 242
LIST OF FIGURES, TABLES AND BOXES
Figures
1.1 Map of Australia ..................................................................................................24
1.2 Overview of Australia's energy system, 2016 ....................................................26
1.3 Total primary energy supply by source, 1973-2016 ...........................................26
1.4 Energy production by source, 1973-2016 ..........................................................27
1.5 Total final consumption by sector, 1973-2015 ...................................................27
2.1 Share of oil in Australia's energy system, 1975-2016 ........................................42
2.2 Crude oil supply by source, 1973-2016 ..............................................................42
2.3 Crude oil imports and exports by country (net), 1973-2016 ...............................43
2.4 Oil products imports and export by country (net), 1973-2016 ............................44
2.5 Oil demand in TFC by sector, 1973-2015 ..........................................................44
2.6 Oil supply by fuel and consumption by sector, 2015 ..........................................45
2.7 Refinery output, 2016 .........................................................................................46
2.8 Oil infrastructure in Australia ..............................................................................48
2.9 Fuel prices in IEA member countries, second quarter 2017 ..............................50
3.1 Natural gas share in different energy supplies in Australia, 1976-2016 ............57
3.2 Natural gas supply by source, 1973-2016 ..........................................................58
3.3 Natural gas resource basins in Australia ............................................................60
3.4 LNG exports and contracted exports by country, 1990-2022 ............................62
3.5 Natural gas demand by sector, 1973-2015 ........................................................65
3.6 Natural gas consumption by market and sector, 2015-16 .................................66
3.7 Natural gas infrastructure in Australia ................................................................71
3.8 Wholesale natural gas prices in trading hubs in Australia's eastern gas
region and prices for LNG exports, 2010-16 ......................................................74
3.9 Natural gas retail prices, by state .......................................................................75
3.10 Natural gas prices for households in IEA member countries, 2016 ...................75
3.11 Petroleum exploration expenditure by state and territory, 2012-17 ...................78
3.12 Projected gas supply and demand on the east coast market, 1989-2021 .........79
4.1 Electricity generation by source and consumption by sector, 2016 ...................92
4.2 Electricity generation by source, 1973-2016 ......................................................92
4.3 Electricity generation by fuel and state, 2016 ....................................................94
4.4 CO emissions per kWh heat and power in Australia and in other
2
selected IEA member countries, 1990-2015 ......................................................94
4.5 Electricity generation from hard coal and brown coal, 1973-2015 .....................94
4.6 Electricity generation by source in IEA member countries, 2016.......................95
4.7 Electricity consumption by sector, 1973-2015 ....................................................96
4.8 Map of Australia's electricity grid ........................................................................99
4.9 Governance in the NEM .................................................................................. 102
4.10 Installed electricity capacity by generator, 2017 ............................................. 102
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TABLE OF CONTENTS
4.11 NEM installed electricity generating capacity by states/company, 2017 ........ 102 S
4.12 Market concentration in the NEM (Herfindahl–Hirschman index HHI) ............ 103 T
4.13 Weekly volume-weighted average spot prices in the NEM, 2008-17 ............. 105 N
4.14 Generation adequacy in the NEM ................................................................... 107 E
4.15 Retail market reform in Australia ..................................................................... 110 T
4.16 Household electricity prices (in PPP) in IEA member countries, 2016 ........... 111 N
4.17 Household electricity prices in IEA countries, 1990-2016 ............................... 111 O
4.18 Household electricity prices in Australia's NEM regions, 1990-2015/16 ......... 112
C
4.19 Trend projection in Australian residential electricity prices ............................. 113

4.20 Transmission network and interconnectors in the NEM .................................. 118 F
4.21 Regulatory TOTEX process for remuneration of distribution O
network companies .......................................................................................... 121
E
4.22 Total energy unsupplied in the NEM ............................................................... 127
L
4.23 System reliability in Australia (SAIFI*) ............................................................. 128
B
4.24 System reliability in Australia (SAIDI*) ............................................................ 128
A
5.1 Electricity generation from variable renewable sources as a
T
percentage of all generation in IEA member countries, 2016 ......................... 144
5.2 Electricity generation from variable renewable sources as a
percentage of all generation in Australian states, 2016 .................................. 144
5.3 VRE share in annual electricity generation and system integration
phase in selected IEA member countries, 2016 .............................................. 145
5.4 Integrating large shares of VRE requires system transformation ................... 148
5.5 Wind forecasting system as part of the dispatch processes in the NEM ........ 149
6.1 Trends in energy system transformation in Australia, 1990-2016 .................. 168
6.2 Breakdown of TPES in IEA member countries, 2016 ..................................... 169
6.3 Energy intensity in IEA countries, 2016 ........................................................... 170
6.4 Energy intensity trends in IEA countries, 1990-2016 ...................................... 170
6.5 Renewable energy as a percentage of TPES in Australia and in
IEA member countries, 2016 ........................................................................... 170
6.6 GHG emissions by emission source (sector) excluding LULUCF,
1990 and 2015 ................................................................................................. 171
6.7 Energy related CO emissions by sector, 1973-2015...................................... 172
2
6.8 Energy-related CO emissions by fuel type, 1975-2015 ................................. 173
2
6.9 Energy-related CO emissions per unit of GDP in IEA member
2
countries, 2015 ................................................................................................ 174
6.10 Energy-related CO emissions per unit of GDP in Australia
2
and in other selected IEA member countries, 1990-2015 ............................... 174
6.11 Economy-wide effective tax rates on CO from energy in
2
IEA countries, 2012 ......................................................................................... 175
6.12 Effective carbon rates by sector in Australia ................................................... 175
6.13 Difference tax rates on gasoline and diesel for road use ................................ 175
6.14 Share of coal in Australia's energy system, 1975-2016 .................................. 176
6.15 Coal exports by country, 1973-2016 ............................................................... 176
6.16 Historic and projected CO emissions in Australia .......................................... 179
2
6.17 NEM coal capacity and closures ..................................................................... 182
6.18 Government energy RD&D spending by category, 2009-16 ........................... 185
6.19 Total public energy RD&D spending as a ratio of GDP in
IEA member countries, 2015 ........................................................................... 185
6.20 Energy RD&D landscape in Australia .............................................................. 186
7.1 Energy intensity (TFC/GDP PPP) in Australia and other selected
IEA member countries, 1973-2015 .................................................................. 198
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TABLE OF CONTENTS
7.2 Total final consumption by sector, 1973-2015 ................................................ 198
7.3 Fuel share of total final consumption by sector, 2015 ..................................... 198
7.4 Electricity consumption by sector, 1973-2015 ................................................. 199
7.5. Final energy consumption decomposition in Australia, 2000-15..................... 200
7.6 Estimated cumulative energy savings by sector, 2000-15 .............................. 200
7.7 Decomposition into drivers of final energy consumption in the
residential and industry sectors, 2000-15 ........................................................ 201
7.8 Decomposition into drivers of final energy consumption in the
transport sectors, 2000-15 ............................................................................... 201
7.9 Energy efficiency as a driver of emissions reduction ...................................... 206
7.10 Energy intensity in transport by means of transport, 2000-15 ........................ 207
7.11 Total final consumption in industry by source, 1973-2015 .............................. 209
7.12 Total final consumption in industry by sector, 2015 ........................................ 209
7.13 Energy intensity in selected industry sectors, 2000-15 ................................... 209
7.14 Total final consumption in the residential and commercial sectors
by source, 1973-2015 ...................................................................................... 211
7.15 Energy consumption in the residential sector by energy use, 2013 ............... 211
7.16 Benefits of the E3 programme and its future priorities .................................... 213
7.17 Residential energy consumption by energy use and fuel, 2000-15 ................ 213
7.18 Energy intensity in the residential sector by energy use, 2000-15 ................. 213
8.1 Renewables share of TPES, electricity generation and TFC, 1975-2016 ...... 222
8.2 Renewable energy in TPES, 1973-2016 ......................................................... 222
8.3 Renewable energy as a percentage of TPES in Australia and IEA
member countries, 2016 .................................................................................. 223
8.4 Supply and consumption of biofuels and waste, 2015 .................................... 223
8.5. Renewable electricity and the share of VRE in Australia, 1973-2016 ............ 224
8.6 Electricity generation from renewable sources as a percentage of all
generation in Australia and in IEA member countries, 2016 ........................... 224
8.7 Renewable energy target under the amended Renewable Energy
(Electricity) Act 2000 ........................................................................................ 225

Tables
3.1 Estimated recoverable resources and production by field, 2014 (bcm) .............59
3.2 Gas transmission lines and regulation (excluding Western Australia) ...............68
3.3 Constructed and planned LNG projects in Australia ..........................................70
3.4 Gas storage facilities in Australia .......................................................................70
4.1 Installed power generating capacity in Australia, 1990-2015 .............................93
4.2 Australia’s generation adequacy outlook to 2035/36 ...................................... 107
5.1. Forecast value of feed-in electricity, Victoria, 2015 to July 2017
(in AUD) ........................................................................................................... 152
6.1 Australia’s operating and closed coal power plants ........................................ 177
6.2 Australia and the IEA Technology Collaboration Programmes ....................... 187
8.1 Accredited small- scale PV generation (2017) and renewable
electricity share ................................................................................................ 226
8.2 Current feed-in tariff schemes for selected states and territories ................... 228

Boxes
3.1 Golden rules for a golden age of gas .................................................................63
3.2 Gas pipeline arbitration framework .....................................................................77
3.3 Gas and electricity security .................................................................................82
10