Energy

Victoria’s current dependence on energy from fossil fuels has serious effects on human health and the environment, especially as greenhouse gas emissions contribute to climate change. To meet our climate change targets, we must move to low-emission and zero-emission energy resources. The Victorian government has legislated for a target of net-zero greenhouse gas emissions by 2050 – meaning any remaining emissions must be counteracted by other activities.

The science evidence that informed this assessment is available in this Energy chapter 

What the indicators tell us

Of the 9 indicators for energy use and generation in Victoria, 8 are poor, and 1 is fair. However, 5 of the indicators are showing improvement, and 3 are stable.

The Energy Indicator Report Card provides an assessment summary of all indicators in this chapter 

Themes and indicators: How does Victoria measure up?

Energy consumption

Photo: https://www.flickr.com/photos/36199303@N04/

Total energy consumption in Victoria increased by 29% from 1989–90 to 2015–16, however consumption has been relatively stable since 2005–06. Energy consumption per capita has decreased since reaching a peak in 2005–06. However, the data suggests that energy consumption has not yet decoupled from population and economic growth.

Victoria’s energy system is highly fossil-fuel dependant. Despite a small decrease in energy consumption from fossil fuels since 2008–09, energy sourced from the burning of fossil fuels provides over 96% of all energy consumed in Victoria in 2015–16. The share of consumption from renewable energy has doubled in this period, but the total share of renewables remains small (<4%) when compared to the consumption of energy from fossil fuels.

Greenhouse gas emissions associated with the energy sector reflect Victoria’s heavy reliance on fossil fuels for energy. In 2016, emissions from energy accounted for 90% of Victoria’s total greenhouse gas emissions. Energy emissions remain well above 1990 levels, despite generally decreasing since 2012. 

Electricity

The electricity sector in Victoria continues to be heavily supplied by coal, which contributes 75% of total electricity generation in 2017–18. However, an increasing proportion of electricity is being supplied by renewable sources, increasing from 9% of total generation in 2010–11 to 19% in 2017–18.

This trend is reflected in the changes in Victoria’s emissions from electricity. Emissions were increasing until 2011 and have declined since, however, they remain well above 1990 levels. Victoria’s electricity system is a major contributor to the state’s total emissions, producing over 50% of total emissions in 2016.

Energy in transport

Photo: https://www.flickr.com/photos/mikefarah/

Other energy sectors

Photo: https://www.flickr.com/photos/mugley/

This area includes all the remaining sectors, including manufacturing, construction, commercial and residential. Emissions reductions in this area will be challenging as each sector is likely to require many specific solutions. Industry-related data is not available at the level required to be able to make sound judgements on the drivers of change in each sector. In some cases, emissions reduction may be driven by industries closing down in Victoria rather than efficiencies.

Further work will need to be completed to understand the factors influencing change in these sectors in order to develop appropriate indicators, for example AEMO’s recent study on the effects of energy efficiency policies and programs on energy usage.

More detail

Background

Victoria has a high-energy, high-carbon economy. The state’s modern economy and society depends on a continuous flow of affordable and reliable energy. Energy powers the state’s businesses, homes and transportation systems. It lights, heats and cools Victorians’ buildings; powers their appliances and information and communications systems; cooks and cools their food; and pumps their water and sewerage. It is an essential factor of production, producing and transforming materials for the state’s manufacturing and industrial sectors. The history of energy production and consumption in Victoria has shaped its cities, industries and broader economy.

An abundance of cheap energy fuelled Victoria’s 20th-century economic development. Low-cost electricity allowed the state to develop heavy industries like aluminium smelting and steel production from the 1960s and become one of Australia’s pre-eminent manufacturing centres. Long periods of cheap energy during the 20th century – combined with policy choices on building standards, urban planning and transport – helped to keep Victoria’s energy-use efficiency at a comparatively low level compared to citizens of other Organisation for Economic Co-operation and Development (OECD) nations. For example, the energy efficiency of Victoria’s building stock is low when compared to world best practice, and Victoria’s low urban population density ensures Victorians use considerably more energy for transport per capita than citizens of most other OECD nations. Overall, Victoria’s per capita energy consumption in 2015 was higher than the Australian national average and higher than that of most other OECD nations, particularly when Victoria’s relatively mild climate and low heating loads are taken into account (see Table E.1).

Chart of per capita energy use in Victoria, compared to OECD nations, 2015

Figure E.1 Per capita energy use in Victoria, compared to OECD nations, 2015

Victoria’s energy is primarily sourced from the combustion of fossil fuels, with which the state is richly endowed. Victoria has some of the world’s largest deposits of brown coal, in the Gippsland Basin, alongside oil and gas reserves in the Gippsland, Bass and Otway Basins. Access to these fossil fuel reserves helped keep Victorian energy prices low during the latter half of the 20th century. However, low-cost brown coal has also left Victoria with a legacy of dependence on high-emissions brown coal-fired generators and a much higher carbon intensity of electricity than other developed nations whose past investments in electricity generation focused on nuclear and/or hydro‑electricity.

Victoria’s continued dependence on energy from fossil fuels has significant human health and environmental impacts including local air pollution (see Air chapter) and diversion of water flows for electricity generation. However, the most significant long-term environmental and human health issue arising from the state’s dependence on energy from fossil fuels is the impact on Victoria’s greenhouse gas emissions and their contribution to climate change (see Climate Change Impacts chapter). In 2016, Victoria’s net greenhouse gas emissions were around 115 Mt CO2-e (carbon dioxide equivalent). Emissions from energy, including fuel combustion and fugitive emissions, contributed around 103 Mt of CO2-e, or 90% of this total (Figure E.2), representing almost one-quarter of Australia’s total emissions from energy.

Graph of Victorian energy GHG emissions compared to Victorian total GHG emissions

Figure E.2 Victorian energy GHG emissions compared to Victorian total GHG emissions

In 2015, Victoria’s per capita greenhouse gas emissions from energy were higher than the Australian average, which was itself the highest in the OECD (Figure E.3).

Chart of Per capita energy emissions in Victoria, compared to OECD nations, 2015

Figure E.3 Per capita energy emissions in Victoria, compared to OECD nations, 2015

See the full report for analysis of Victoria's energy challenges.

Current Victorian Government Settings

Energy Consumption and Electricity

The Victorian Government has been supporting Victoria’s energy transition by increasing the supply of renewable energy and subsequently reducing Victoria’s reliance on fossil fuels. Key Victorian Government actions to support the state’s energy transition include:

  • allocating $122 million in the 2017–18 Victorian budget for projects to upgrade energy system

  • legislating for an emissions reduction target of net-zero greenhouse gas emissions by the year 2050, in the Climate Change Act 2017. Interim targets to assist with the end target will come into effect from 2021.

  • working towards VRETs (to generate 25% of Victoria’s electricity from renewable energy by 2020 and 40% by 2025), legislated in the Renewable Energy (Jobs and Investment) Act 2017. The government’s work on these targets includes $146 million in investment through the Renewable Energy Action Plan.

  • using the government’s energy purchasing power to source renewable energy certificates from new wind and solar farms in Victoria – bringing forward around 351 MW of new renewable capacity, including 35 MW to match the electricity used by Melbourne’s tram network.

  • entering a support agreement with Neoen Australia to deliver the 200 MW Bulgana Green Power Hub project, a major new wind farm with battery storage in Stawell. The wind farm is due to be completed by late 2019.

  • launching the Victorian Renewable Energy Auction Scheme, Australia’s largest ever reverse auction, for up to 650 MW of new renewable energy generation. This Scheme supports Victoria to achieve the VRETs.

  • requiring Victorian electricity retailers to offer a minimum feed-in tariff (a minimum rate that electricity retailers must pay) to households and small businesses for clean electricity exported to the grid

  • releasing the New Energy Technologies – Sector Strategy (2016) which aims to position Victoria to capture new jobs arising from the energy sector’s transformation and includes $20 million for a New Energy Jobs Fund

  • developing the Energy Efficiency and Productivity Strategy (2017), which outlines $55 million of investment in new and expanded action on energy efficiency and includes an aspirational energy productivity target of 50% improvement in Victoria’s energy productivity from 2015 to 2030

  • legislating energy savings targets under the Victorian Energy Efficiency Target Act 2007

  • strengthening the Victorian Energy Upgrades program, which, since 2009, has supported approximately 1.8 million households and 80,000 businesses to undertake energy efficiency activities – saving over 46 million tonnes of greenhouse gas emissions

  • allocating $33 million to improve the energy efficiency of government buildings through the Greener Government Buildings program, which is anticipated to save 25,000 tonnes of greenhouse gas emissions annually

  • assisting Victorian businesses to get expert advice on saving energy and to make capital investments to improve gas efficiency through Sustainability Victoria’s $6.1 million Boosting Business Productivity program

  • supporting 50 poorly performing commercial buildings and tenancies to implement energy efficiency improvements through the Better Commercial Buildings grants program

  • supporting the Victorian households most in need to undertake energy upgrades through the $17 million Home Energy Assist program

  • implementing the $25 million Energy Storage Initiative, which includes funding for two large-scale storage facilities in western Victoria – one in Ballarat connected to the Ballarat Terminal Station and another connected to the Gannawarra Solar Farm.

  • boosting energy productivity through the National Energy Productivity Plan 2015–2030, a COAG-led national plan to achieve a 40% improvement in energy productivity in Australia by 2030.

Transport and Energy

The Commonwealth and Victorian Governments are investing over $38 billion in road and rail transport infrastructure projects to improve the reliability and efficiency of the Victorian transport system. The extent to which these projects will change Victoria’s transport energy use or the carbon intensity of transport is not clear. Many of Victoria’s major transport infrastructure projects involve extending or improving freeways; these are likely to support and encourage increased use of internal combustion engine (ICE) vehicles as Victoria’s primary transport option.

The Parliament of Victoria Economy and Infrastructure Committee published the report from their Inquiry into Electric Vehicles in May 2018. This was not associated with any project funding, however, it provided important background information on the potential future for electric vehicles in Victoria.

Future Focus

Monitor and report on the targets for Victoria’s energy transition

Victoria’s Climate Change Act 2017 explicitly acknowledges the goal of the 2015 Paris Agreement to hold the increase in the global average temperature ‘to well below 2 °C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 °C above pre-industrial levels recognising that this would significantly reduce the risks and impacts of climate change’.

In addition to legislating Victoria’s 2050 net-zero-emissions target, the Climate Change Act 2017 requires the premier and relevant minister to establish five-yearly interim targets to keep Victoria on-track to meeting the 2050 target. The Climate Change Act 2017 requires the minister to obtain expert advice on options for the interim targets, indicative trajectories for Victoria to 2050 based on interim target options, and efficient and cost-effective opportunities for achieving the interim targets. Interim emissions targets for the 2021–25 and 2026–30 periods must be set on or before 31 March 2020.

Reducing greenhouse gas emissions from energy is Victoria’s principal challenge to meet its greenhouse gas emissions reduction goals. The Independent Expert Panel constituted under Climate Change Act 2017 to provide advice on interim emissions reduction targets has identified opportunities to achieve emissions reductions through an energy transition in electricity generation, transport, industry and the built environment. Major opportunities include shifting to zero and low-carbon electricity generation, electrification of energy services (combined with low-carbon electricity) and increasing end-use efficiencies. Measuring progress against emissions targets and associated policies, including the Victorian Renewable Energy Targets and the Energy Efficiency and Productivity Strategy, will require appropriate indicators.

The integration of high concentrations of distributed energy resources (including rooftop solar and small-scale battery storage) into Victoria’s electricity system requires distribution networks to become ‘smarter’, integrating information and communications technology to allow network operators to better understand local, low-voltage network conditions and provide signals or incentives to individual resources to respond and provide system support.

Similarly, Victoria’s transport infrastructure will change over time to meet the challenge of substantial emissions reductions from reducing its reliance on fossil-fuel combustion for energy. These changes may range from increased availability of charging infrastructure for electric vehicles (or refuelling infrastructure for other fuels such as hydrogen), which is an important enabler for a low-carbon fleet transition, to the broader adoption and integration of low-emissions urban-planning principles, such as those found in the Green Building Council’s Green Star Communities.

Energy use by Victoria’s buildings and industry must also change in the transition to a net-zero-emissions future. This will include substantially increasing the energy efficiency of building stock, as well as the efficiency of industrial processes and their electrification.

Recommendation: That DELWP establish a set of indicators, and implement measures to collect appropriate data, to track the impact of energy emissions reduction to meet interim targets set under the Climate Change Act 2017. The reporting should also track the transition of Victoria’s grid, transport and industry infrastructure to support a low-carbon future.

Improve data capability to track the impact of Victoria’s energy transition on consumers and markets

Victorian consumers are likely to play an increasingly important role in the energy sector during Victoria’s transition to its net-zero-emissions target. As the extensive (and largely unanticipated) investment Victorian consumers have made in rooftop photovoltaic systems over the past decade shows, energy consumers can no longer be assumed to be passive purchasers of energy. Nonetheless, their choices are limited to purchasing energy-using devices – from cars to heaters and washing machines – and choosing a supplier of electricity, gas or liquid fuels.

Victoria’s almost complete smart-meter coverage makes engaging active consumers possible, with or without distributed energy resources. However, consumer education and consumer trust are essential for gaining the engagement required for the efficient and effective coordination of demand-side resources, which can include broad behavioural change that alters the demand for energy services.

Further, changes are likely to be required for the National Electricity Market (NEM) to assist the transition to a low-emissions electricity system. When the NEM was established there was no variable renewable generation supplying its regions, and the Finkel Review described the NEM as ‘a market for different times’. Victoria will need to work with the other NEM states and the Australian Government to assist the NEM to evolve to incorporate high proportions of variable renewables and distributed energy resources.

Governance arrangements, in particular consumer protection measures, will need to be extended to cover new energy products and business models to ensure that consumers understand the risks of participation in new markets and engaging with new types of energy businesses (for example, distributed energy resource aggregators). New institutions (such as distributed system and distributed market operators) may also be required to operate distribution system-level markets and coordinate and dispatch resources.

Recommendation: That DELWP implement measures to collect data and track the impact of the transition to a low-emissions electricity system on (i) consumer sentiment and behaviour, (ii) investment in distributed, low and zero-emissions electricity generation, and (iii) the associated markets, governance and business models. 

UN Environmental Economic Accounts

The System of Environmental-Economic Accounting (SEEA) energy accounts typically present information in physical terms (PJ), but monetary valuations can also be applied to various energy stocks and flows. Two main types of accounts capture relevant energy information in a systematic way – flow accounts and asset accounts.

Energy flow accounts record physical flows of energy from (i) the initial extraction or capture of energy resources from the environment into the economy (energy from natural inputs); (ii) the flows of energy within the economy in the form of the supply and use of energy by industries and households (energy products); and (iii) the flow of energy losses.

Energy from natural inputs include mineral and energy resources (for example: oil, natural gas, coal, uranium) and inputs from renewable energy sources (for example: solar, wind, hydro, geothermal).

These accounts identify the flows between the environment and the economy, and can be used to show the many ways and multiple times that a natural input can be transformed, supplied to the economy, used in production processes, consumed by final users or returned to the environment.

Energy flow accounts allow for a consistent monitoring of the supply and use of energy by energy type and by industry. Indicators of energy intensity, efficiency and productivity can be derived from the accounts in combination with monetary information. This sort of information could be useful, for example, in assessing Victoria’s progress towards targeted 50% improvement in energy productivity from 2015 levels by 2030.

Paired with information from the System of National Accounts, the latest Australian Environmental-Economics Accounts, released in June 2018 by the ABS, have shown a decoupling of economic activity and energy use within Australia, with industry gross value add rising 28% over the period 2006–07 to 2015–2016, while energy consumption increased by only 6% over the same period.

Figure E.21 shows a similar story for Victoria, with industry gross value add rising 17% over the period 2008–09 to 2015–16, while energy consumption remained relatively stable.

Graph of Victoria industry gross value add vs energy consumption

Figure E.21 Victoria industry gross value add vs energy consumption

Index: 2008–09 = 100

Energy asset accounts measure the quantity of mineral and energy resources and changes in these resources over an accounting period. These accounts can be compiled in physical terms, which provide valuable information about energy resource availability; or, they can be compiled in monetary terms to show the contribution to, and the depletion of, natural capital reserves of energy resources.

Flows of extraction, depletion and discoveries are central to the energy asset account. Since these assets cannot be renewed on any human timescale, there is use in understanding the rate at which these assets are extracted and depleted, the overall availability of these assets, and the sustainability (dependence) of the industries that exploit them.

There is a direct linkage to be made between the energy accounts and the air quality accounts. The main residuals that flow from the energy sector as a result of economic activity (such as air pollutants) are captured in the air emissions accounts. There is also a link to the water accounts, as surface and groundwater flows are diverted for electricity generation and oil and gas extraction.

For Victoria, 90% of direct greenhouse gas emissions come from the energy sector, having direct links to climate change analysis and policy. Linking the air and energy accounts allows relevant physical (such as energy input and output and emissions) and monetary (such as taxes and expenditure) information to be compared, by industry. This has the potential to provide information to design, measure and monitor policy instruments that will help Victoria reach its net-zero-emissions target by 2050 and VRETs (currently 25% by 2020 and 40% by 2025).

Case studies

30 years of renewable energy in Victoria

Victoria’s first wind turbine was built in 1988. Thirty years on and Victoria’s renewable energy remains a small proportion of the state’s electricity generation.

Image: https://www.flickr.com/photos/takver/

Past and future performance

A 2014 Climate Council report found Victoria and NSW were the only Australian states that had not increased the proportion of renewable energy in their electricity supplies in the previous two years.

However, the Victoria Government has since committed to strong renewable energy targets in the future, with 25% of the state’s electricity generation to come from renewable sources by 2020, rising to 40% by 2025. The government has also set a target of net zero emissions by 2050.

Any new projects using Victoria’s brown coal resources have to be consistent with Victoria’s zero emissions commitment and renewable energy targets.

How we could achieve zero net emissions

In 2017 the Victorian Government established a ‘reverse auction scheme’ to achieve its renewable energy targets. This kind of scheme has already helped the ACT meet its commitments for renewable energy.

In a reverse auction scheme, the government sets a price for energy, and organisations compete to provide the energy. Once the projects are operating, the government tops up the payments made to the organisation when energy prices are low. When prices are high, the renewable energy company pays the government the difference between the set price and the amount the energy company is paid. This gives renewable energy companies more certainty about their return on investment.

In August 2017, companies were asked to submit bids with ideas for large-scale renewable energy projects. Contracts will be awarded to projects that offer the best value for money, benefit local economies, and show high levels of community engagement.

Around 15 projects were being assessed throughout 2018.


 

 

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