15 December 2011 – What is “conservative” when it comes to energy policy?

As energy expert Ian Dunlop pointed out at a recent Climate Alliance conference, humans are investing billions of dollars in exploration for more fossil fuels, when we cannot burn those we already know about without risking runaway climate change. Yet this investment is considered conservative by many financiers.

Our energy market policy experts consistently overprice emerging sustainable energy technologies and underestimate their potential for growth. This is seen as prudent, even though it increases risk of overinvestment in outmoded technologies that could become stranded assets no-one wants.

Study after study undervalues the benefits of sustainable energy. For example, a study for the Clean Energy Council on feed-in pricing for photovoltaics power concluded it should be less than 10 cents per kilowatt hour, when solar advocates argue for retail price equivalence.

This study ignored avoided and deferred energy infrastructure costs. It used an annual average percentage of net exports to estimate the avoided demand on hot days. And so on. Yet work like this is considered “safe” because it makes conservative assumptions. It makes assumptions that work against sustainable energy.

The problem is that what has been conservative is now risky financially and for the climate. If we under-invest in innovation and over-invest in high emission solutions, we are wasting money and building future liabilities. We need to rethink our energy policy analysis approach, before the hole our energy policy people have been digging gets even deeper.

PV and feed-in tariffs
As usual, policy makers have accepted conservative analyses like the one above, that claim limited benefit from PV. In contrast, a more thorough analysis by Melbourne University’s Energy Institute and Beyond Zero Emissions, in which the hourly net output of the PVs was modelled, gave a very different result: PV is reducing energy prices for everyone.

Efforts by policy makers to cut feed in tariffs assume that owners of PV have no choice but to sell their excess power to the retailer when they generate it. They still fail to see customers as partners in a sustainable energy future. Their focus is to prop up the existing industry at the cost of emerging competitors – consistent with the terms of reference issued by misguided energy ministers.

But when after some time of use electricity tariffs are charging over 40 cents per kilowatt hour at certain times of the day, the economics of energy storage start to look interesting for PV owners (and, indeed, anyone who can store cheap electricity and use it at high cost times).

If you have the choice of being paid less than 10 cents per kilowatt hour for PV exports at that price, the cost and energy losses of storage can be comfortably covered if the power replaces electricity priced at 40 cents/kWh.

Already some inverter manufacturers offer the capacity to add storage and run independent of the grid. Battery technology is improving and costs are falling due to electric vehicle development.

The great gas emission debate
The gas industry has promoted shifting to gas as the panacea to cut greenhouse gas emissions. A recent study by climate specialist Tom Wigley has challenged this.

Wigley uses a climate model to explore the year-by-year warming effects of replacement of half of global coal use by gas by 2050 (phased in at 1.25 per cent additional coal replacement each year to 2050). He includes a range of options for methane leakage from gas production from zero to 10 per cent. This provides some interesting insights.

Wigley’s work is much more useful than the Worley Parsons industry study, which uses warming factors averaged over 100 years: this understates the significance of the short term impacts of methane leakage, and simplifies the complexities of atmospheric processes.

There are actually two independent factors at work in Wigley’s study. First, there is the effect of a reduction in coal use, which cuts emissions of CO2 and methane leakage from coal mines, reducing warming. But it also reduces air pollutants such as oxides of sulphur and carbon particulates, which reduces their short term cooling effects.

Wigley’s paper suggests  this  loss of cooling will offset most of the reduction in warming from cutting coal use until mid-century, when the long-term effect of reducing carbon dioxide begins to swamp the air pollution effect.

Reduction in coal use could happen independent of gas use, driven by strong energy efficiency improvement, rapid adoption of renewables or even economic collapse. Indeed, the only way to achieve significant reduction in net warming by 2050 from cutting coal use seems to be through replacing it with zero emission options, because of the loss of the air pollution cooling effect.

Second is the impact of increasing gas consumption, which depends on how much methane leaks during production, the amount and type(s) of energy used for processing, liquefication and regasification (if sold as LNG), transport, and the efficiency of gas usage compared with the coal it replaces.

Wigley assumes all extra gas is used at 60 per cent efficiency to produce electricity that replaces 32 per cent efficient coal-fired electricity. He ignores LNG production and transport (which, according to the Worley Parsons industry study data adds 22 per cent to gas CO2 emissions). So Wigley’s assumptions are generous to gas.

If we consider only CO2 replacing coal with gas does reduce net warming progressively from the first year, due to its lower greenhouse intensity and higher assumed efficiency of use.

The change in methane warming impact depends on the balance between the reduction in leakage from coal mines relative to the extra leakage from gas production. A net increase in methane leakage gives net warming, particularly in the first few decades after the methane is released, as methane is a very greenhouse-active gas over this period.

In Wigley’s study, the reduction in cooling from sulphur oxides and particulates as coal use declines offsets the reduction in warming from gas replacing coal (at 1.25 per cent additional substitution per year) until 2050. As I pointed out earlier, this air pollution effect will happen whatever causes a decline in coal use, not just gas.

Overall, the loss of air pollution cooling offsets the reduction in warming through gas replacing half of coal usage to 2050, even with no methane leakage from gas. At 2.5 per cent leakage, the breakeven point is around 2055.

At 10 per cent leakage (a high scenario), it is 2140. Not good. So the net climate benefit of replacing coal with gas over the next century is very sensitive to the overall efficiency of production and use of gas relative to coal, and the extent of methane leakage.

Gas industry needs to drive efficiencies – hard
If gas is to help achieve a sustainable energy future, the industry must change. It must drive efficiency improvement in gas production and usage hard, so that gas consumption at many sites actually declines. For example, combining on-site efficiency improvement with cogeneration can reduce total site gas consumption while replacing imported electricity.

The industry should use renewable energy for production and transport where possible. It must aim for zero methane (and CO2 from gas fields) leakage, and accept independent monitoring for credibility.

Gas companies should also buy offsets to balance all emissions in their supply chains, while encouraging consumers to buy offsets to balance emissions from gas usage.

They must invest in zero emission options such as biogas, renewable synthetic gas and possibly hydrogen. Lastly, coal seam and shale gas must prove they won’t damage our underground water resources.

Then the gas industry might be able to claim a transitional role in the path towards a sustainable future.

This is an edited version of an article that first appeared in Renew magazine

Alan Pears has worked in the energy efficiency field for over 20 years as an engineer and educator. He is adjunct professor at the Royal Melbourne Institute of Technology and is co-director of environmental consultancy Sustainable Solutions.