Recently, the NSW, Queensland and Victorian governments each pushed the development of renewable energy zones as part of their post-COVID economic roadmaps. We explore how Australia’s state governments are developing their renewable energy zone initiatives.
In the past several months the NSW, Queensland and Victorian governments have all pushed the development of renewable energy zones as part of their post-COVID economic roadmaps.
They are hardly the only state governments to develop green infrastructure plans throughout the pandemic. Western Australia, for example, launched a $66.3 million renewable technology project as part of its stimulus package, while the nation’s leader in this space, South Australia, announced a $240 million hydrogen project to develop a green hydrogen export industry.
However, these three states’ policies offer unique examples of bold, strategic network investments with likely massive implications for government-sector relationships.
Today The Mandarin explores how state governments are developing their renewable energy zone (REZ) initiatives and, in the words of energy analyst and director of the Victoria Energy Policy Centre Bruce Mountain, are: “Quite explicitly taking back the development of their electricity sectors and planning for their expansion.”
Mountain emphasises REZs are simply an aspect, and not the key feature, of “a paradigm shift, if you exclude the cliché, from where we’ve been through the last 30 years of the National Electricity Market. Which was meant to devolve all decision-making on expansion and production to market participants, with these passive transmission network service providers regulated by these national entities.”
“The states now are very explicitly taking back those authorities themselves and planning for the development of their power systems, sort of recognising that transmission and generation go together, the pair, and so they are now coordinating the expansion of both generation and transmission,” Mountain says.
“And of course, energy production source of the future is going to be renewable and may get the name RED Zones [renewable energy development zones]. But it’s really taking us back to the sort of arrangements for electricity provision that set up the coal valleys in New South Wales, Victoria and Queensland, that then underpinned electricity production for 70-80 years.”
How Australia came to embrace renewable energy zones
As way of background, the Australian Energy Market Operator (AEMO) first explored in its 2018 Integrated System Plan (ISP) how distributed REZs — geographic areas capable of leveraging renewable energy resources, network transmission and storage infrastructure, and capital investment — could help transition states along the National Electricity Market (NEM) from their ageing coal plants, and a grid predominantly based around plants and capital cities, over the next 20 years.
According to the Energy NSW’s definition, a REZ involves:
…the coordinated development of new grid infrastructure in energy rich areas, efficiently connecting multiple generators in the same location. REZs are the modern-day equivalent of a power station, combining generation, transmission, storage and system strength services to ensure a secure, affordable and reliable energy system.
AEMO, which has since published a 2020 ISP that includes a 35th REZ, originally identified 34 candidate REZs across the National Electricity Market (NEM) through consideration of a mix of resources, current and future transmission network capacities and cost, and other technical and engineering considerations.
These included immediately optimal REZ development areas supported by existing transmission capacity and system strength and capacity, which included:
- New South Wales – central tablelands (wind and solar) and southern tablelands (wind)
- Queensland – Darling Downs and Fitzroy (wind and solar)
- South Australia – northern SA (solar) and mid-north (wind)
- Tasmania – north-west Tasmania (wind)
- Victoria – Moyne (wind)
Additionally, the ISP identified several optimal areas beyond the current transmission capacity that would work in coordination with proposed transmission investments. They include:
- New South Wales – New England (wind and solar), north west NSW (wind and solar), northern
tablelands (wind and solar) and Murray River (solar)
- South Australia – Riverland (wind and solar)
- Victoria – western Victoria (wind) and Murray River (solar)
Following the 2018 ISP, the Australian Renewable Energy Agency engaged consultants Baringa Partners, in partnership with DIgSILENT Pacific, to undertake a study into the technical, commercial and regulatory challenges of developing REZs and to identify potential commercial and regulatory solutions.
Two REZs were modelled for the final report — one in north-west Victoria, and the other in central-west New South Wales — and results emphasised the fact that there is no ‘once size fits all’ approach to managing technical challenges:
While in the near term the technologies assessed could unlock about 1 GW of ‘headroom’ in central-west New South Wales, a poles and wire solution could free up about 3 GW of new capacity. This comes at a lower cost per KW for the technology solutions, though with a longer time to build than other technology options. The report also notes that the price of technologies like batteries is falling, and may fall further if market reforms open new revenue streams.
In north-west Victoria the network improvements based on AEMO’s ISP and Western Victorian Regulatory Investment Test for Transmission were identified as the ‘fundamental solution’. The technologies assessed could unlock new capacity to host renewable projects, but would be unable to address the thermal constraints or risk of curtailment.
State government plans
New South Wales
NSW was the first state to publicly embrace the scheme, announcing in November 2019 a plan to build three renewable energy zones under the NSW Electricity Strategy.
The first is planned for the central-west region assessed in the Baringa Partners report, located between Orange, Nyngan and Tamworth. The NSW government expects the Central-West Orana (CWO) REZ would unlock up to 3,000 megawatts (MW) of new generation — enough to power around 1.3 million homes — by the mid-2020’s and be worth around $4.4 billion in private sector investment once fully developed.
According to Energy NSW, the region was chosen for the first pilot REZ because it benefits from relatively low build costs, a strong mix of energy resources, and significant existing investment and investor interest.
After opening registrations of interest in June 2020, the government received 27,000 MW of generation and storage proposals, a figure nine times its target it says represents a total possible investment of $38 billion.
The state government then announced $31.6 million to support the development of the CWO REZ, funding that comes on top of $9 million announced in late 2019 and includes setting up a new government-controlled statutory authority, the Energy Corporation of NSW, to coordinate the development of transmission and generation in state REZs.
Energy NSW notes the main functions of the corporation include:
- Leading community and stakeholder engagement
- Contributing to strategic planning for each REZ, including an optimal land use strategy
- Designing and implementing a commercial framework to support investment
- Administering an access framework for the REZ that delivers benefit to generators
- Administering a competitive process to coordinate generation in the REZ
- Coordinating technical design of the REZ in consultation with program partners and generators
- Promoting local development opportunities, engaging with local community and industry.
Additionally, ARENA has announced $5 million in funding to TransGrid to conduct a detailed feasibility study for the CWO REZ in late June, and, following consultation with local communities the state government expects construction will begin in 2022.
The NSW government is also in the early stages of planning an 8,000 MW REZ in New England, and, on top of a third initial plan for a REZ in South-West regions, The Age reported in mid-November that a late amendment from the Nationals to the now-passed, bipartisan-supported Electricity Infrastructure Investment Bill 2020 creates a fourth REZ in the Hunter Valley.
As part of an economy recovery plan outlined in her August 2020 ‘State of the State’ address, Queensland premier Annastacia Palaszczuk pledged $145 million for three renewable energy ‘corridors’ that, while referred to as Queensland Renewable Energy Zones (QREZ), span eight of the potential REZs identified by AEMO.
Uniquely, Queensland’s Department of Resources highlight several applications unrelated to electricity, or even energy, for these zones:
- Southern QREZ, which includes the Darling Downs REZ. It “[H]as driven the majority of renewables investment in the state since 2016, benefiting from strong network infrastructure that can accommodate large amounts of renewable capacity, and close proximity to South-East Queensland demand… [W]ill offer diversification opportunities for the agricultural sector (cotton and beef) and the mining and resource sector, which are already operational in this region.”
- Central QREZ, which includes the Fitzroy and Wide Bay REZs. “Central Queensland boasts strong network infrastructure, wind and solar resources, and a large manufacturing and industrial demand profile… The Central QREZ will build on existing regional strengths to capitalise on opportunities in industries such as new economy minerals extraction and processing, minerals recycling and agricultural equipment manufacturing.”
- Northern QREZ, which contains REZs above Rockhampton identified by AEMO, including Isaac, Barcaldine, North Queensland, North Queensland Clean Energy Hub and Far North Queensland. “Northern Queensland (above Rockhampton) has significant potential for long-term renewable energy development with some of the strongest wind and solar resources in the state and country… The Northern QREZ will build on existing regional strengths to capitalise on opportunities in industries such as new economy minerals extraction and processing, hydrogen production and export, biofuels, and food processing and manufacturing.”
Palaszczuk emphasised these non-electrical applications in her address, noting that the on top of offering significant wind and solar opportunities, the Northern QREZ would include a focus on “new economy minerals”, such as CopperString 2.0, process manufacturing and hydrogen.
Similarly, renewable energy zones in Central Queensland “would make our aluminium and smelting industries more competitive with strong potential as well for hydrogen development”.
“In the Southwest, the Darling Downs renewable energy zone will meet demand from agricultural production and has the potential to help supply New South Wales,” Palaszczuk said. “These renewable energy zones will support Powerlink to invest further funding and CleanCo to increase their publicly owned renewable generation capacity to deliver energy security.”
The Queensland government opened registrations of interest for two weeks in August for potential renewable energy generations and storage projects in these zones, and Department of Resources reports it received 205 submissions:
The information we received will help guide next steps for the Queensland renewable energy zones (QREZ), using information about the scope, scale, location, and timing of development from survey participants. We plan to undertake a separate consultation towards the end of 2020 focusing on how to attract electricity load and industrial demand to specific QREZ areas.
In a budget delayed several months due to the state’s second wave and released November 24, the Victorian government pledged $540 million to establish all six renewable energy zones proposed by AEMO, “from sunny Mildura to the windy east coast”:
- South west Victoria (wind)
- Western Victoria (wind)
- Murray River (solar/wind)
- Central north Victoria (solar)
- Ovens Murray (pumped hydro)
- Gippsland (wind)
While little else has been revealed about the development of these zones, the budget also allocates $12.6 million to underwrite the state’s previously flagged 600MW renewable energy auction, the second of its kind in Victoria and “enough energy to power 100% of the Victorian government with renewable energy — from public transport to schools and government buildings”.
Additionally, while NSW may have been the first to officially announce a REZ, Mountain notes that Victoria was the first to break away from the national transmission model and retake certain regulatory powers via the National Electricity (Victoria) Amendment Act 2020.
As the government explained in announcing the bill, the amendments to the National Electricity (Victoria) Act 2005 empower Victorian Energy minister Lily D’Ambrosio to override the “complex and outdated national regulatory regime, which causes excessive delays in delivering transmission projects and fails to properly account for the full benefits of investments”.
Energy Magazine explained following the legislation’s passage that the legislation empowers D’Ambrosio to exempt certain investments in new transmission infrastructure from the NEM’s usual assessment tests, including the regulatory investment test for transmission (RIT-T).
“For example, an Order may modify or disapply parts of the national regulatory framework that have the potential to delay timely investment in the transmission network, including the regulatory investment test for transmission (RIT-T) and rules relating to contestable procurement for augmentations,” D’Ambrosio said in her second reading speech. “The RIT-T can add years to a transmission project, frustrating investment to address Victoria’s urgent reliability needs. If appropriate, an Order may also specify an alternative test in place of the RIT-T.”
The government flagged it would use the powers in close consultation with AEMO, fast-track priority projects like grid-scale batteries and transmission upgrades, and focus on projects that deliver “clear benefits to consumers, while increasing our capacity to import electricity during periods of peak demand”. This announcement included a pledge to secure additional transmission capacity by asking AEMO to call for expressions of interest to increase the capacity of the Victoria-New South Wales Interconnector.
A new age of decentralisation and ‘quasi-national energy institutions’
For Mountain, an energy economist whose research and advisory work has focused on the economic regulation of network monopolies, the analysis of retail energy markets, and the design of emission reduction and renewable energy policies, the main message coming from the REZ announcements is that, especially for NSW and Victoria, governments are again becoming central buyers.
In Queensland, the plans offer a mixture of what the privatisation-adverse government already does with CleanCo, which does not buy centrally but owns assets it develops. Additionally, while the state government has run a registration of interest and flagged an auction, Mountain believes it is “likely to develop the assets themselves and own and operate.”
And although the director of the Victoria Energy Policy Centre doesn’t see this “new age quasi-national energy institutions’ as completely rewriting the dominant private ownership model, he believes that tendering for procurement and transmission puts the onus on government to develop “reasonable plans that account for efficient development of the electricity sector”.
“So getting competition for the market, rather than in the market as we have now,” Mountain says. “Which means running tenders and auctions and competitions, and specifying who can sell what in those competitions and ensuring that there is active competition in those tenders.”
“The drum I’ll be beating from now onwards on all this is around accountability and transparency,” he says, arguing that, in reference to the storied history of the federally owned-operated-regulated Snowy Hydro 2.0, the Commonwealth government has done “all the wrong things; it’s ass about face, it’s driven by the politics, it’s not transparent and not accountable.”
For the state governments, Mountain notes success will also come down to embedding appropriate expertise in the multiple commissions that end up overseeing the planning, construction and regulation of REZs; for example, while the Energy Corporation of NSW will be planning and coordinating the new zones, the government recently announced a new statutory office known as the ‘consumer trustee’ to run reverse-auctions in REZs.
This new age of government planning, regulation and in certain senses ownership raises several institutional questions for the public service, i.e., whether management of REZs should rest with energy departments, how new institutions are created, who they answer to, who they are composed of, what their set roles and responsibilities are, etc.
Mountain, while acknowledging there are some arguments for having responsibilities staying in parliament, believes there are “stronger arguments for having responsibilities a set up in a statutory corporation, around accountability expertise.
“It’s going to need to have lots of people, it’s going to need to balance a bunch of things,” Mountain says. “And I think doing that it’s better if it has a clear mandate, has a statutory role, has those obligations, which then clarifies it. I think ministers very clearly need to be able to ultimately dictate the terms. But I think setting it up slightly at arms length from governments will be helpful.”
He also notes that governments will also have to develop strategies outside the micro-economics of electricity development that contend with land access and social licence in the local communities and regional development, and other aspects of the development of energy infrastructure.
Finally, Mountain emphasises that the REZ plans have been developed by governments of all stripes — NSW not only saw Nationals MPs advocating for renewable projects but received support for its Electricity Infrastructure Investment Bill from every single political party save One Nation — is testament to the fact they have been driven by “solid, public sort of interests, and also by the economics of electricity supply, which is decentralising and turning into regional investments.
“And it’s quite right that it’s done that way, and it’s quite right that states take us back. We don’t need to coordinate nationally, we can make electricity supply more cheaply in each state… Our energy sources are going back to where they did when they started, which is local and regional.”
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