Kean’s Electricity Act Subjugates Regional NSW

Matt Kean (above) is on a mission to transform New South Wales. In November 2020, the thirty-nine-year-old Minister for Energy and Environment got his electricity investment bill through the state parliament and released the first stage of a “Roadmap” to get the state to net zero emissions by 2050. It takes us to 2030, with the aim of delivering a 35 per cent reduction on 2005 levels, leaving 65 per cent for the following twenty years. Kean is boyishly optimistic that: “New opportunities, inconceivable today, will emerge over the next decade.”[i]

New South Wales has reduced its emissions by about 13 per cent since 2005. The scheduled closure of the Liddell and Vales Point power stations in the coming decade will deliver about 13 per cent more, leaving about another 9 per cent to be found from outside the electricity sector. That will not be easy. It is equivalent to about half of all New South Wales emissions from transport, and those emissions have been rising steadily for decades, Covid-19 excepted.

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Apart from electricity, Kean’s Roadmap reflects emissions reduction policy orthodoxy. The government will ensure new buildings are ready for electric vehicles, will support fast-charging infrastructure, and will help businesses transition their plant and processes to low-emission alternatives. It aims to eliminate emissions from organic waste and to have 10 per cent hydrogen in the gas network by 2030. It will seek to establish Sydney as a world-leading carbon services hub, will support emissions reduction innovation, and will lead by example. It will buy more sustainable goods and services, increase the number of electric or hybrid vehicles in its own fleet, will replace Sydney’s buses with electric ones, and will roll out a new fleet of hybrid diesel-electric trains for regional lines. It will expand the national parks estate. Under Kean’s Roadmap key environmental information will be provided at the point of sale and allow consumers to offset carbon emissions. The money will be spent on revegetating national parks and supporting remote communities to install solar panels. The government will include emissions information, and the option to offset them, on annual vehicle registration papers. It will be interesting to see what price is set, what the take-up rate is, and how long it will be until it is made compulsory. And the government will monitor and review its progress. The Roadmap seems to fall short of the scale needed for New South Wales to more than double its rate of emissions reduction from under 1 per cent per year since 2005 to over 2 per cent in the decade to come. New South Wales would then need to step that up to over 3 per cent for each of the following twenty years to 2050. These rates are unlikely to be realised.

Kean’s plan for electricity could be the biggest ever shake-up of New South Wales. And it is already law. His Electricity Infrastructure Investment Act 2020 passed in November with the support of the Labor opposition and the Greens after just thirty hours of debate. Mark Latham, leader of One Nation in New South Wales, led resistance to the Bill. His concerns included that the detailed modelling was not made available to the parliament, the Bill was not referred to a committee for scrutiny, and its “command and control” approach would “make Joe Stalin blush”. Neither was the plan outlined to the people of New South Wales ahead of the state election in March 2019.

Five large coal-fired power stations, four of them in the coal-rich Hunter region, now supply the lion’s share of electricity in New South Wales. All are relatively close to the load centres in the Sydney and Hunter regions, including the Tomago aluminium smelter, which is the largest single load in New South Wales. In Kean’s Roadmap for a new electricity system, “The three [Renewable Energy] Zones in the Central-West, New England and South West will play a critical role in replacing retiring generators in New South Wales over the next two decades and bringing up to 17,700 megawatts of … renewable power into the grid.”[ii]

This will be backed by about 2000 to 3000 megawatts (MW) of pumped-hydro storage, with four to twelve hours of duration, in addition to Snowy 2.0:

The coordinated build for each [Renewable Energy Zone] can take up to ten years, and each pumped hydro project needs up to eight years to develop. The footprint of required new electricity infrastructure could be up to 11,000 km of transmission and over 2000 km² of generation.[iii]

Another two Renewable Energy Zones (REZ) in the Hunter and Illawarra appear to be intended mainly for pumped-hydro storage and industrial infrastructure, such as the electrolysis of hydrogen from water, including to support the making of “green steel”.

As 3320 MW of coal-fired generation in New South Wales is retired over the next decade, equivalent to about 40 per cent of average demand, it is worth remembering that Victoria has a target for 50 per cent renewable electricity by 2030. To achieve the target, output from Victoria’s coal-fired generators will need to halve over the coming decade. The Yallourn power station will close early, before 2030, as well as significant closures, mothballing or idling at the Loy Yang complex. Not unreasonably, the Morrison government insists that 1000 MW of new gas-fired generation capacity is urgently built in New South Wales, which it claims will forestall price rises following the Liddell closure in 2023. It will also lower the risk of blackouts but will put a dent in Kean’s emissions budget.

One deceptive aspect of the New South Wales Roadmap is that it presents the name-plate capacity of renewables, in megawatts or gigawatts, rather than the expected electricity output, in megawatt hours or gigawatt hours per year. This gives a false impression because the capacity factors for renewables are much lower than for coal-fired plant. Graphs show an apparently impressive increase in overall installed capacity as coal-fired generation is retired and renewables capacity is built. This hides the reality that the new renewables capacity will not generate anything like the same electricity output, megawatt for megawatt of capacity. And although there are numerous assertions about energy security, no graphs or analyses are presented to back these claims.

The New England REZ is targeted for the most capacity, because “New England has some of the best natural energy resources in the country, some of the State’s best potential sites for pumped-hydro development and strong investor interest.”[iv] About 8000 MW of renewable generation is expected to go into the New England REZ. A large majority of that could be wind turbines, as it has some of the best wind resources in the state. That could mean perhaps 2000 or more three-megawatt turbines for New England, or about twenty large wind farms, maybe more. Although all of the REZs are identified as having decent opportunities for pumped-hydro schemes, the vast majority of the opportunities with the highest “excellent” rating are in the north-east region. The maps provided are not in a form that allows sites to be identified, but it seems that a good many of these “excellent” opportunities for pumped hydro are in the area west of the Pacific Highway from Kempsey to Coffs Harbour, in and around the Styx river valley, the Dorrigo plateau, and nearby national parks. Other “excellent” pumped-hydro opportunities are in the Lower North Coast, in what appears to be the area around Gloucester and the Barrington Tops National Park, and in the south-east, in the area west of Bega, around Bemboka and the Wadbilliga National Park. Sites in national parks themselves, however, have been excluded.

Delivering the envisaged 2000 to 3000 MW of pumped hydro would involve on the order of ten schemes of the 200 to 300 MW scale. For a sense of that scale, Origin Energy’s Shoalhaven scheme is 240 MW and its proposed expansion would add 235 MW. Not all the schemes would involve greenfield developments, as New South Wales will be opening its current water infrastructure to proposals. But the plan still envisages around 1000 MW from greenfield sites—perhaps three to five decent-sized schemes, more if schemes are smaller in scale. And the government will provide grants to developers to assist with the cost of early-stage, detailed project feasibility studies for new pumped-hydro projects.

The REZs are declared by the minister under the Act, including geographical boundaries, infrastructure, and an infrastructure planner. Before making a declaration, the minister must, among other things, consider the “views of the local community in the renewable energy zone”, but the requirements for public consultations are left to regulations. Interestingly, the minister may expand the zone, add infrastructure, and increase the intended network capacity, but cannot reduce any of these, nor repeal the declaration. Once declared, the zones can go in only one direction—bigger.

The Energy Corporation of New South Wales is to be the infrastructure planner:

The interests of local regional communities will also be a core consideration of the Energy Corporation of NSW, the entity responsible for coordinating the delivery of the Renewable Energy Zones in the Central-West Orana, New England and South West NSW. The Energy Corporation will take a holistic view of Renewable Energy Zone infrastructure delivery. This includes engaging with communities to understand local expectations and realising on-the-ground benefits. The Energy Corporation will seek to achieve a balance between electricity, agriculture, heritage, visual amenity, mining and other land uses within the proposed Renewable Energy Zones. It will also be able to restrict network connection of projects over 30 megawatts (MW) in Renewable Energy Zones where reasonably necessary to maintain social licence, such as where projects would be in close proximity to towns and face strong local community opposition.[v]

It is not clear how the Energy Corporation will interact with local government planning and approvals processes, or with the Independent Planning Commission, which in 2019 refused development consent for the Crookwell 3 wind farm in the Southern Tablelands, or with the Land and Environment Court. We are told that:

The NSW Government will support planning processes to reduce assessment timeframes and planning fees for Renewable Energy Zone projects, saving investors time and money.

The NSW Government will establish a Renewable Energy Zone planning framework to streamline assessments, attract investment, optimise complementary land uses and deliver enduring benefits for regional communities. For communities, it will provide an opportunity to engage with Renewable Energy Zone delivery as a whole, rather than in a piecemeal, project-by-project way. It will also seek opportunities for broader scale community benefit sharing and better environmental outcomes. [vi]

With the minister able to make zones bigger and add capacity, there is an obvious risk that communities in zones declared with stated capacities will see those capacities raised over time. For example, the Act says the Central West REZ has an intended network capacity of 3 gigawatts (3000 MW), however:

Through a Registration of Interest process, the NSW Government received 27 GW of generation and storage proposals from investors looking to build in the Renewable Energy Zone—more than nine times the proposed capacity of 3 GW.[vii]

The Act creates a legal and institutional environment in which large areas of regional New South Wales, the REZs, become targets for mega renewables and storage projects, which it appears local communities will be relatively powerless to resist, and which the minister may at will expand and increase in capacity.

Of course, the government trumpets the modelled benefits:

Coordinated build out of new transmission, generation and storage infrastructure will deliver lower power prices for households and businesses in NSW, and support an expected 6300 construction jobs and 2800 ongoing operational jobs in 2030 mostly in regional NSW, as a result of attracting an estimated $32 billion of private sector investment. The Roadmap is expected to reduce household average annual energy bills by $130 per year and small business average annual energy bills by $430 per year between 2023 and 2040.[viii]

A naive reader might think it is a reduction from current prices. However, the Roadmap explains that: “The Department has adopted the BAU Imperfect Foresight Scenario as the baseline for the purposes of assessing the benefits of the Electricity Infrastructure Roadmap.”[ix] It is worth quoting at some length what this scenario is:

The BAU Imperfect Foresight Scenario assumes that market participants (including generation and transmission businesses) are slow to respond to events in the [National Electricity Market] and respond reactively to price signals, rather than accurately forecasting them. For example, as power stations retire, delivery of replacement generation will be delayed until an extended period of high prices has been observed. To create this scenario, the modelling projected a generation mix where new capacity is only allowed to build in response to higher prices 1–3 years after power stations exit. This creates more volatile wholesale prices and lumpier investment cycles, ultimately driving up consumer costs.

The claimed price reductions are hypothetical reductions from a scenario designed to create higher price projections which is of dubious validity. For example, the four companies operating coal-fired power stations in New South Wales are likely to plan in advance for their replacement rather than behaving purely reactively to price signals and lose market share. The price reductions in the Roadmap are a foregone conclusion to deliver a palatable headline, hiding behind a curtain of pseudo-analysis.

Latham reckons an average family’s bill might increase by $400 a year. My back-of-an-envelope estimate is that if the $32 billion Kean’s Roadmap says will be invested is recouped over twenty years, that takes $1.6 billion a year, which is around a quarter of the New South Wales share of the National Electricity Market. Latham’s $400 increase, a quarter of the average annual household bill of $1600, could well be about right.

To address the all-important issue of electricity security, the Act creates the role of an “energy security target monitor” to calculate a security target for each year of the decade ahead. The target is a forecast of the maximum expected demand plus a reserve equal to the state’s two largest generating units. The target monitor reports to the minister on whether or not the target will be met by firm generating capacity for each year of the decade ahead. The report is to be published within sixty days of being given to the minister. The idea is to provide advance notice of any inability of firm capacity to meet expected demand with the two largest generating units out of action in time for additional firm capacity to be developed. How this will work in practice remains to be seen. What is clear is that as existing coal-fired generators close, the security target will drive requirements for new firm capacity. The Act requires a Consumer Trustee to plan for the development of the infrastructure required to meet the energy security target and to minimise electricity costs. The Consumer Trustee is also expected to ensure projects “benefit host communities” through “income streams for landholders that host electricity infrastructure” and “benefits sharing schemes”. The Consumer Trustee’s job is to do the best deals for renewables and storage infrastructure and ensure that regional communities which have to host it are paid off.

A Renewable Energy Sector Board will be established with members from industry, unions, the Energy Corporation and electricity customers, jointly chaired by a union representative and an electricity customer representative. It will develop a plan for the sector to maximise use of locally produced and supplied goods and services, maximise the employment of suitably qualified local workers, and foster opportunities for apprentices and trainees. The Act also creates an Electricity Infrastructure Jobs Advocate to advise the minister about strategies and incentives to encourage investment, workforce development, employment, education and training in the energy sector in the REZs, with the notable omission of New England for some reason. These structures are drawn straight from the standard Australian corporatist industry development playbook particularly favoured by Labor governments, although rarely, if ever, set out in primary legislation. No sunset clause is included—the Board and the Advocate continue until abolished by a subsequent Act, although individual board member terms and conditions of appointment are to be set out in regulations. One can only hope that the Board and Advocate try to get some seriously new manufacturing capability into the state, rather than just oversighting routine construction, installation, operation and maintenance work. How about a turbine blade factory?

The Hunter region is where most New South Wales coal-fired generators and coal mines are located. Jobs will be lost as these generators close. Kean’s Roadmap backs hydrogen to provide the industrial jobs of the future. Hydrogen, according to the Roadmap, can replace or supplement natural gas, can be used as a renewable energy transport and storage medium, and as a feedstock for industrial processes including steel, ammonia, chemicals and synthetic fuels: “A green steel industry in just one NSW region has the potential to support an expected 10,000 jobs.”[x]

This jobs estimate comes from the Grattan Institute report “Start with Steel” and the region is the Hunter. The report explains:

This scenario relies on Australia producing almost 7 per cent of the world’s steel, a significant increase on the 0.3 per cent it produces today.

A green steel industry of this size would require substantial, but deliverable, amounts of electricity and water. It is likely that much of the required 135 gigawatts of renewable generation would be located west of the Great Dividing Range in less-populated, and sunnier, locations.

The amount of water needed—about 350 gigalitres—is equivalent to three or four large desalination plants.[xi]

That massive amount of renewable generation is equivalent to 450 large wind farms or large solar farms of 300 MW each, to say nothing of the water. No wonder Kean’s Act allows REZs to be expanded! Yet the report acknowledges that “green steel” and “green ammonia” are “likely to remain more expensive than conventional fossil fuel-based production processes for the foreseeable future”—perhaps 25 per cent more expensive for steel, even at imagined prices for green hydrogen a fraction of today’s. The Grattan Institute sees a cost penalty being applied to conventional steel (a carbon price) or fancies that buyers might be willing to pay a premium for “green steel”. But steel is one of the most important materials in modern economies, widely used in construction and a myriad of products. It would not be easy to extract a price premium of 25 per cent or more, even if, as the Grattan Institute claims, this would add only modestly to the final price of steel-oriented products like cars and infrastructure. The automotive, construction and other industries like appliances are incredibly price competitive, operate on thin margins, and negotiate prices ruthlessly with their suppliers.

In short, the Grattan Institute prognosticates that Australia could use its iron ore and potential for renewable energy to offer “green steel” at a substantial price premium to normal steel to capture nearly 7 per cent of the global steel market, expanding its steel industry twenty-fold and requiring the construction of hundreds of mega renewables projects. This is the hope on which political parties are building their pitch to regional Australians in the Hunter, Central Queensland and other coal-dependent communities. Those communities have every right to be sceptical.

Matt Kean has set the stage for the biggest battles that will dominate politics for a generation in our most populous state. Battles between urban professionals and their insistence on a renewables-only future, made law after scarcely any parliamentary or public scrutiny via Kean’s Act, suburban battlers struggling with electricity bills, and regional and rural people reduced to “host communities” whose environments will be transformed by sprawling renewable energy infrastructures, or offered blue-sky visions of “green steel” and other industries powered by hydrogen from renewables. Battles that will test Michael Shellenberger’s allegation that advocates for renewables-only energy systems would destroy the environment in order to save it. They might succeed in New South Wales. On the other hand, the wave of strident renewables-only enthusiasm could crash on the rocks of price rises, regional resistance, environmental concerns, blackouts, and a failure to deliver new “green” industries to coal-dependent regions. That would open up a space to discuss low-emissions alternatives like nuclear energy. These battles could lead to the final demise of the Nationals in New South Wales as regional voters desert them for alternatives like One Nation or the Shooters, Fishers and Farmers Party. Because one thing stands out: Kean’s Act legislates the subjugation of regional New South Wales.

Dr Michael Green has a PhD in Systems Engineering

[i] Department of Planning, Industry and Environment, Net Zero Plan Stage 1: 2020–2030, 2020, Minister’s Forward.

[ii] NSW Department of Planning, Industry and Environment, Net Zero Plan Stage 1: 2020-2030, 2020, p 16.

[iii] NSW Department of Planning, Industry and Environment, NSW Electricity Infrastructure Roadmap: Building an Energy Superpower, Detailed Report, November 2020, p 25.

[iv] NSW Department of Planning, Industry and Environment, NSW Electricity Infrastructure Roadmap: Building an Energy Superpower, Detailed Report, November 2020, p 8.

[v] NSW Department of Planning, Industry and Environment, NSW Electricity Infrastructure Roadmap: Building an Energy Superpower, Overview, November 2020, p 17; also Detailed Report, p 37.

[vi] NSW Department of Planning, Industry and Environment, NSW Electricity Infrastructure Roadmap: Building an Energy Superpower, Overview, November 2020, p 31.

[vii] NSW Department of Planning, Industry and Environment, NSW Electricity Infrastructure Roadmap: Building an Energy Superpower, Overview, November 2020, p 28.

[viii] NSW Department of Planning, Industry and Environment, NSW Electricity Infrastructure Roadmap: Building an Energy Superpower, Detailed Report, November 2020, p 9.

[ix] NSW Department of Planning, Industry and Environment, NSW Electricity Infrastructure Roadmap: Building an Energy Superpower, Detailed Report, November 2020, p 45.

[x] NSW Department of Planning, Industry and Environment, NSW Electricity Infrastructure Roadmap: Building an Energy Superpower, Overview, November 2020, p 40.

[xi] Grattan Institute, “Start with Steel: A practical plan to support carbon workers and cut emissions”, May 2020, pages 30-31.