Renewable Energy & Greenhouse Update October 2005

Australia

PM wants oil bosses to use biofuels

Prime Minister John Howard has stated that he believes a meeting conducted with oil companies in late September will result in a renewed commitment to helping the government meet its ethanol target.

He has released the Report of the Biofuels Taskforce (August 2005) on the impacts of ethanol and other biofuel use on human health, environmental outcomes and automotive operations. Mr Howard’s biofuels taskforce report warns market resistance will probably see the government fail to meet its already modest target of 350 million litres of ethanol in the nation’s fuel supply by 2010.

Mr Howard said the Federal Government remains committed to achieving the biofuel production target. Discussions with the industry are considered part of this commitment.

The following new measures were also announced, aimed at removing market barriers and restoring consumer confidence in the ethanol and other biofuels industry:

• encourage commonwealth vehicle users to use petrol containing 10 per cent ethanol (E10)
• test vehicles to validate their operation with E5 (5 per cent ethanol) and E10 blends and work with the Federal Chamber of Automotive Industries to ensure that consumers are well-informed
• increase fuel quality compliance inspections to ensure ethanol blends meet fuel quality standards
• simplify the E10 labelling requirements, which he says act as a warning against using ethanol 
• allow E5 blends to be sold without a label—subject to vehicle testing 
• work with Australian fuels and transport industries to establish standard forms of biodiesel, and
• work with the states and territories to adopt nationally consistent fuel volatility standards.

Mr Howard said the government will further assess and promote the benefits of biofuels by commissioning a study on the health impacts of ethanol to validate overseas research, and promoting biodiesel’s beneficial environmental properties such as its biodegradability through a B5 biodiesel trial in Kakadu National Park.

The government has also launched a campaign to promote the use of the fuel additive, including allowing some ethanol-blended petrol to be sold without a label.

Consumer confidence in ethanol—a fuel additive that can be made from sugarcane and grain—was substantially diminished in 2002–03 after reports of high concentration ethanol blends being sold in Sydney, and claims the additive causes severe engine damage, particularly in older vehicles.

Wind farms up for grabs

Investment bank Babcock & Brown (B&B) will float its wind farm trust, raising up to $396 million.

In an announcement to the stock exchange in mid-September, B&B Infrastructure said it would sell 258 million new shares in B&B Wind Partners to raise $361 million, with the option of raising an additional $35 million.

On listing, Wind Partners will have investments in 15 wind farms in Australia, the US and Europe.

B&B is pitching the float as a growth story offering healthy yields. It says the wind energy industry is forecast to grow at 20 per cent a year through 2009, driven by pressure to cut greenhouse gas emissions.

Wind Partners will offer investors a forecast yield of  7.25 per cent in the 2006 financial year, based on the $1.40 a share offer price. That yield would rise to eight per cent the following year.

The forecast compares with an average of about 3.7 per cent for the stocks on Australia's benchmark S&P/ASX 200 Index.

B&B entities will retain 32.5 per cent of Wind Partners, which would have a market value of as much as $692 million on listing.

The sale will run from 4 October to 21 October. The shares are scheduled to start trading on 28 October.

There was also talk this month that a further spin-off could be on the way, should B&B secure Southern Hydro, a renewable energy business controlled by the New Zealand Government.

Joint plan for $1.5 billion in wind generation

Hydro Tasmania and China Light & Power (CLP) plan to spend $1.5 billion building 1000 megawatts (MW) of wind generation by 2010 in their joint venture.

Originally Hydro Tasmania planned to roll out a wind business only on Australian soil, but the Federal Government’s decision last year not to raise the mandated renewable energy target (MRET) meant it had to find other opportunities.

Roaring 40s, as the joint venture is known, plans quick-paced development with four new projects within two years. Two will be in Tasmania, the 125MW Musselroe and 75MW Studland Bay projects, as well as 50MW plants in New Zealand and China.

If Roaring 40s is to keep to its schedule, over the three years from 2007, it will have to build 700MW of wind generation for about $1.05 billion.

With wind projects on average 75 per cent debt financed, total equity committed will be $262.5 million with Hydro Tasmania's share at $131.25 million, or $44 million a year over three years.

Hydro Tasmania was approached by several potential wind power joint venture partners, including Spanish renewables group Acciona, the under bidder to Industry Funds Management on the $788 million sale of Pacific Hydro.

Wind power industry again urges stronger policies for renewables

The Australian wind energy sector has renewed calls for government to beef up support for the development of the renewable energy industry amid fresh indicators that suggest the industry is about to stall, with the nation’s 2010 renewable energy target to be met three years early. It also launched new initiatives designed to facilitate the development and approvals process for wind farm projects.

Australia’s wind energy capacity almost doubled last year and is set to quadruple again on the back of projects that are already approved or under construction. However, the government’s refusal to lift the 2010 target of an extra 9500GWh of renewable energy use has led some wind equipment manufacturers that have set up in Australia, such as Vestas, to reconsider expansion plans: see the September newsletter for more information.

Meanwhile, the Global Wind Energy Council has called on the Australian government to use the new Asia-Pacific Partnership on Clean Development and Climate to accelerate implementation of wind energy.

IEA suggests carbon trading plan to ease climate-change concerns

The International Energy Agency (IEA) has cast doubt on the Australian Government’s reliance on technological developments to address its growing climate change problem, and has urged it to consider introducing a national carbon-emissions trading system and step up efforts to improve energy efficiency.

While the development of new technologies will be a key component in tackling long-term climate change, that strategy provides no certainty about when or to what extent the necessary technologies will be developed and take effect, the IEA warned. Furthermore, the government’s strategy would possibly require a carbon price signal in the market to facilitate its implementation, IEA stated in its 2005 review of Australia’s energy policy.

‘An emission trading system can be an effective means of introducing a price signal, and the government is encouraged to re-appraise as required the costs and benefits of a national emissions trading scheme, particularly in light of development regarding further international and domestic climate change frameworks and technology advancements,’ according to the IEA assessment.

Industry and Resources Minister Ian Macfarlane, however, claimed the IEA report endorsed the government’s approach to tackling climate change.

Sustainable Australian cities — Making it happen

The Sustainable Cities report was released in September by the House of Representatives Environment Committee.
The report has 32 recommendations. While most of the areas covered are traditionally the preserve of the states and territories, the committee believes it is time for the Australian Government to take a leadership role.

Some of the major recommendations in the report are that:

• the National Water Commission report on water options for all cities and regional centres 
• COAG fund a campaign on the benefits, economics and safety of using recycled water 
• the Federal Government significantly boost funding for public transport, particularly light and heavy rail, in the major cities 
• the government review the FBT concession for car use and tariff rate on four-wheel drives 
• the government increase the First Home Owner Grant to $10,000 for homes that meet stringent sustainability criteria 
• those states and territories that do not have a five-star rating for homes implement one as a priority.

To oversee Australia’s move towards sustainability, the committee recommends the establishment of an Australian Sustainability Commission and an Australian Sustainability Charter. The commission will explore the concept of incentive payments to the states and territories for sustainability outcomes, along the lines of the National Competition Council model.

Hazelwood Agreement to secure Victoria’s energy efficiency supply while reducing greenhouse emissions

The Victorian State Government has secured a landmark agreement with the owners of Hazelwood power station that it claims will help keep electricity prices affordable while reducing greenhouse gas emissions. Hazelwood’s owners, International Power, have signed a Greenhouse Gas Reduction Deed—the first of its kind in Australia—under which the company will be subject to a cap on its greenhouse emissions, and will achieve greenhouse savings of 34 million tonnes.

Premier Steve Bracks said the government had endorsed the assessment of the Environmental Effects Statement by an independent planning panel which recommended in March that International Power should be granted access to coal in Hazelwood’s West Field.

Under the agreement with the government, Hazelwood will:

• have its greenhouse gas emissions capped at 445 million tonnes
• achieve greenhouse savings of 34 million tonnes compared to its business-as-usual output
• be granted access to 43 million tonnes of coal in a new reserve outside the existing mining licence boundary of its West Field 
• have set greenhouse emission milestones to aim for
• be required to make regular reports on its greenhouse performance, and
• be provided with extra incentives to invest in renewable energy projects in Victoria.

Environment Minister John Thwaites said the agreement would not constrain the state in the design or operation of a future greenhouse gas abatement scheme, such as an emissions trading scheme.

The deed requires Hazelwood to report on its emissions and its development of clean coal technologies.

In brief — governments and NGOs

• Nationals back greater use of alternative fuels—The National Party has passed a motion calling for greater use of alternative fuels in government vehicles. Delegates at the Nationals federal council meeting in Canberra voted in favour of greater use of ethanol in motor vehicle fuel. They want state government and federal government vehicles to use a percentage of alternative fuels, including ethanol.
• Katherine lobby group to fight nuclear dump plans—Katherine residents have formed a lobby group to fight Federal Government plans to build a nuclear waste facility south of the Northern Territory town. The group argues the proposed site at Fishers Creek is inappropriate on environmental, social and economic grounds.

In brief — business

• Making fuel from waste—Axiom Energy hopes its prospect of a cheap, environmentally friendly fuel made from cooking oil or old shopping bags will attract investors’ interest with its initial public offer. Axiom plans to be the largest biodiesel producer in eastern Australia by 2008, increasing output at its Laverton, Victoria, plant from a forecast 70 million litres in 2007 to 100 million. While the plant will use recycled cooking oil, tallow and possibly palm oil to create biodiesel, two separate plants are planned on the same site, which also will produce low-sulphur diesel from waste plastics such as shopping bags. These plants are forecast to produce 11 million litres of low-sulphur diesel in 2007, with the product excise-free as it will be made using a recycling process. Biodiesel currently receives a full excise offset but, from 2011 to 2015, this will be scaled back so eventually the excise will be 19.1 cents per litre, or half the petro-diesel excise. Axiom has scope to build another 13 waste-plastic recycling plants in Australia and New Zealand in the next five years at a cost of about $6 million each.
• Stop press! Axiom Energy has withdrawn its prospectus and refunded more than $37 million to prospective shareholders after the Federal Treasury recommended changes to the excise position on diesel fuel. Axiom’s prospectus assumed zero excise on low-sulphur diesel created from waste plastic, however Treasury now intends to impose a full excise of 38.17 cents a litre. This change is effective from 1 July 2006.
• Gorgon Gas Project environmental impact statement released—ExxonMobil and Shell have prepared a draft Environmental Impact Statement/Environmental Review and Management Program (EIS) for the proposed Gorgon development. The $11 billion gas project ’involves a two-train 10 million tonne per annum liquefied natural gas plant and a domestic gas plant on Barrow Island’. The environmental approval application includes a proposal to cut greenhouse gas emissions by disposing of reservoir carbon dioxide by re-injection into wells drilled deep below Barrow Island. This is the first attempt in Australia to use geosequestration to offset greenhouse gas emissions. The draft EIS is open for public comment until 21 November 2005. Submissions should be addressed to Chairman, EPA, PO Box K822, Perth WA 6842.
• PM urged to lift target—Ergon Energy has urged the Howard Government to reconsider raising its renewable energy target from two per cent following a collapse in the value of related certificates designed to underpin investment in the sector. Executive general manager of retail Kate Skilleter said renewable energy certificates had plunged more than 30 per cent in value from $42 each six months ago to about $28 now. This drop was due to an unexpected surge in solar hot water system sales since the mandatory renewable energy target scheme was reviewed last year.
• Southern attracting attention—The energy sector has come out with a great deal of interest in the bidding war for Southern Hydro, with Australian Gas Light (AGL), Origin Energy and Babcock & Brown all making it to the shortlist for the sale of the generation group. The fourth on the list was Canadian infrastructure and property group Brascan. New Zealand state-owned corporation Meridian Energy bought Southern Hydro in 2003 for $600 million and had planned to hold it until 2008. However, the recent highly priced sale of Pacific Hydro to Industry Funds Management (IFM) after a bidding war with Spanish group Acciona encouraged Meridian to take advantage of the bullish market. The make-up of the shortlist is a reflection of the nature of the assets for sale. Southern Hydro has 640MW of hydro and 90MW of wind, all in Australia and all 100 per cent owned. Its development pipeline consists of 566MW of projects, including a planned 130MW hydro project in Victoria. It is expected to sell for $1.2 billion to $1.5 billion. Pacific Hydro, with 230MW of assets in four countries and a large international development plan, sold for $788 million. European buyers were said to be interested in Southern Hydro, but none have appeared on the shortlist.
• Hot rocks prospector happy with South Australia results—Hot rocks hopeful Petratherm Ltd is a step closer to tapping energy from the earth’s core after a drilling program in South Australia. The company, which is working in the Flinders Ranges, has drilled to 700 metres and found temperatures of about 64°C. Technology developed by Petratherm and the University of Adelaide enables modelling of hot rocks several kilometres down by using a heat probe. The initial results were in line with its model and Petratherm now plans to go to a depth of 1.5 kilometres.

International

Ozone layer hole gets bigger

The hole in the ozone layer above Antarctica has grown to near record size this year, suggesting 20 years of pollution controls have so far had little effect, the United Nations stated in September. In a bulletin on the seasonal depletion of ozone gas the UN’s World Meteorological Organisation (WMO) said the hole would peak within a couple of weeks.

The hole above the South Pole and Antarctica, which spans about 27 million square kilometres, was expected to grow another million square kilometres in a week, bringing it close to the record years of 2000 and 2003, stated the WMO.

It had passed over Ushuaia, in the Patagonia region of southern Argentina, ‘leading to noticeable increases in UV (ultraviolet)’ radiation, according to the bulletin.

Chlorofluorocarbons (CFCs) containing chlorine and bromine, have been blamed for thinning the layer because they attack the ozone molecules, causing them to break apart.

US court case dismissed

A New York federal judge has dismissed a global warming lawsuit brought by eight states and the city of New York against five utilities, saying the issue is one for Congress or the president, not the judiciary. The states filed suit against American Electric Power Co. Inc., Southern Co., Xcel Energy Inc., Cinergy Corp., and the Tennessee Valley Authority public power system in July 2004 asking the court to force the utilities to cut their carbon-dioxide emissions.

Judge Loretta Preska of the US District Court for the Southern District of New York dismissed the suit Thursday, saying that the case revolved around political questions that would be inappropriate for her to resolve.

‘Were judges to resolve political questions, there would be no check on their resolutions because the Judiciary is not accountable to any other branch or to the people,’ she wrote in her opinion.

Connecticut and New York have indicated that they will appeal.

The utilities are five of the largest carbon dioxide emitters in the United States.

New US case opens

Fifteen states led by New York Attorney-General Eliot Spitzer have sued the US Energy Department (DOE) for dragging its feet on setting efficiency standards for household appliances that would save enormous amounts of energy.

The states and the city of New York have filed a suit stating that the DOE violated Congressional mandates to adopt stronger energy-saving standards within deadlines stated by law for 22 appliances.

Eighteen years ago, Congress passed laws requiring higher efficiency for household appliances and charged the DOE with setting standards and, over time, raising them.

By filing suit, 15 states representing 118 million people are claiming that the DOE has not complied with that mandate and is from six to 13 years behind schedule, depending upon the type of appliance.

In July, the states coalition told US Energy Secretary Samuel Bodman that the DOE must agree to meet a timetable for setting efficiency standards, and warned that it would sue the agency if it refused to make such a commitment.

The suit was filed on Wednesday after giving the DOE 60 days to respond. The suit seeks an injunction that would force the agency to enact these standards.

The lawsuit comes as energy prices soar in the wake of Hurricane Katrina, which damaged oil rigs, refineries and pipelines along the US Gulf Coast. It marks the latest effort by states to pursue business and environmental reforms generally pursued by the federal government.

California, Connecticut, Illinois, Iowa, Maine, Massachusetts, New Hampshire, New Jersey, New Mexico, North Carolina, Pennsylvania, Rhode Island, Vermont, Wisconsin and the City of New York joined the suit.

The DOE has declined to comment on the suit.

Burying CO₂ may curb global warming, but cost is high

Burying heat-trapping gases emitted by power plants and factories could be instrumental in fighting global warming but would be inordinately expensive requiring strong government backing, a UN report has indicated.

The survey by 100 experts said greenhouse gases like carbon dioxide can be filtered from chimneys of plants burning fossil fuels then piped and stored in disused mines or oilfields. The gases might also be dissolved in the oceans.

However, electricity prices could typically rise by 25–80 per cent if power plant operators, the most promising users, adopted the technology, according to the report by the UN's Intergovernmental Panel on Climate Change (IPCC).

If exploited via hundreds of thousands of storage sites around the world, the system could make up 15–55 per cent of total projected cuts in emissions of greenhouse gases needed to offset climate change by 2100, the report estimated.

To combat the warming, the report said that carbon dioxide emissions needed to cost at least $25–$30 a tonne for the capture and storage technologies to work. Three projects were in operation—in Canada, Algeria and off Norway, it said.

The report also noted that carbon storage could be up to 30 per cent cheaper than some alternative strategies for fighting climate change.

Biofuel suggested as alternative in UK

Farmers could help ease the fuel crisis, the UK Government has stated this month. The Department for Environment, Food and Rural Affairs wants more farmers to grow biofuel or biomass crops.

• Suzlon Energy, the wind energy equipment supplier, is setting up manufacturing plants in China. The plants will become operational next year. The company is focusing on India, China, Australia, the US, Italy and Portugal as major markets. The company also plans to set up manufacturing plants in the US. The plant in the US is to supply rotor blades to markets there. The company has supplied 24 wind turbines to the US and has agreements to supply another 62.
• China intends to invest in geothermal power stations in Indonesia, at Batujara and Muara Enim in the south of Sumatra and at Tanjung Jati region in central Java. An agreement on the investments was signed by Indonesian President Susilo Bambang Yudhoyono during a visit to Beijing in July. Financing will reportedly be provided by three Chinese banks, the Exim Bank, the China Development Bank and the Bank of China, with the latter responsible for 85 per cent of investment of US$190 million in the first geothermal project, the Batujara power station. The Muara Enim plant will involve an investment value of US$2.1 billion and the power plant in Tanjung Jati US$1.1 billion.
• China Energy Savings Technology Inc. (China Energy), which sells energy saving products to Chinese consumers, has stated that it is considering expanding into alternative energy areas. China Energy said it is looking into fuel cells, solar power and micro hydrogen generation technologies to address China’s growing need for energy conservation. China Energy said it is forming a panel to look into new technologies and opportunities involving the use of fossil oil and is actively seeking strategic partnerships. It also appointed a director to be its liaison in further discussions with US companies focused on energy conservation.

New Zealand

• Four appeals have been lodged against Hastings District Council’s decision last month to approve the region’s first wind farm—a $90 million 16-turbine project that would generate power for more than 21,000 houses. The project is a joint venture between Hawke’s Bay lines company Unison and Hobart-based Hydro Tasmania. It is planned on rural land at Titiokura Summit, 35 kilometres north of Napier. Meanwhile, Unison has begun community consultation on further wind farming plans. A resource consent application for 35 to 36 turbines on the southern end of Te Waka Range is to be lodged with the council in two to three weeks. No public meeting is planned, with Unison preferring personal visits to discuss the project with the community. The two wind farm projects are a $260 million investment by Unison. Together they will generate enough electricity for 66,000 houses.
• Wellington City Council is looking to remove at least nine wind turbines off Meridian Energy’s $380 million Makara wind farm plan. The council wants to cut or shift any of the 70 turbines that would significantly affect local views or the coastal environment. The proposed wind farm, which would be the largest in the southern hemisphere, has drawn opposition from the Makara people, but is supported by environmental groups. A whirlwind of submissions has created the longest public statement seen on a Wellington resource consent application. A record 4337 submissions—including almost 600 received late—will be considered. Meridian Energy is asking for resource consent from Wellington City Council and Greater Wellington Regional Council. It wants to install 70 turbines, each up to 125 metres high, on 56 square kilometres of land between the Makara township and Tongue Point on the south coast. City council principal planner Warren Ulusele has outlined 61 conditions the council wants to impose. He has listed seven proposed turbine sites that dominated the visual outlook of South Makara Road residents, and two that had serious impact on the Makara coast. The council is also seeking 23 conditions requiring Meridian to analyse, control and plan how to manage noise from the construction of the farm and the turbines once they are running. Other proposed conditions ban Meridian from significantly altering the turbine layout from the agreed plan, require a special finish on turbine blades to reduce glare, and limit marine access to the site to Oteranga Bay.

United States

• The United States does not regulate global warming emissions, but many US companies are beginning to prepare for greenhouse gas limits, according to a study by a coalition of institutional investors. Over the past three years the investors group, the London-based Carbon Disclosure Project (CDP), has sent questionnaires to the world’s largest companies by market capitalisation, asking them to quantify the greenhouse gases they produce. It also asks them how they plan to manage their greenhouse risks. US companies, unlike their counterparts based in most other industrialised countries, are not required to cut emissions because President Bush backed out of the Kyoto Protocol early in his first term. The pact went into force this year. Scientists believe gases such as carbon dioxide, released when petroleum, coal and natural gas are burned, warm the Earth by trapping solar heat in the atmosphere. Many believe global warming can raise seas by melting glaciers and strengthen weather events such as hurricanes. Responses to CDP’s questions have created the world's largest database of corporate greenhouse emissions. This year 60 per cent of more than 250 US companies responded to the CDP, up from 42 percent last year. Only 13 per cent of companies that reported both this year and last to CDP had recorded a reduction in their greenhouse gas emissions since last year.
• A bipartisan group of US House lawmakers have introduced a bill that would require automakers to boost the fuel efficiency of new vehicles to an average 33 miles per gallon (mpg) over the coming decade, from the current 25mpg. The US is the world’s biggest consumer of oil, and most of it is used for transportation. The stricter mileage standard proposed in their legislation would save an estimated 2.6 million barrels of oil per day by 2025. The US consumes nearly 21 million barrels per day of oil, and more than half must be imported.

For more information please contact

Mark Dwyer
mark.dwyer@freehills.com
+61 3 9288 1234

John Taberner
john.taberner@freehills.com
+61 2 9225 5427

Michael Back
michael.back@freehills.com
+61 7 3258 6666

Tony van Merwyk
tony.van.merwyk@freehills.com
+61 8 9211 7777

Tim Power
tim.power@freehills.com
+61 3 9288 1484

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