11 June 2009 The Hon John Pandazopoulos Environment & Natural Resources Committee Parliament House Spring Street Melbourne VIC 3002 BY EMAIL to [email protected]
Dear Mr Pandazopoulos Environment and Natural Resources Committee - Inquiry into the Approvals Process for Renewable Energy Projects in Victoria (“Inquiry”) Ceramic Fuel Cells Limited appreciates the opportunity to provide a submission to the Inquiry. This letter introduces Ceramic Fuel Cells Limited and then sets out our high level suggestions, focusing on policies and regulations that impact the electricity market in Victoria.
About Ceramic Fuel Cells Ceramic Fuel Cells is a global leader in fuel cell development. We are developing electricity generation units to be installed into homes and other buildings. The units convert natural gas into electricity and heat, through ceramic fuel cells. The process is highly efficient, cutting carbon dioxide emissions by up to 75% compared to Victoria’s current brown coal power stations. The company has achieved electrical efficiency of 60% whilst exporting power to the grid – higher than any other technology in the world using hydrocarbon fuel, and about three times as efficient as Victoria’s current brown coal fired generators.
On 22 May 2009 we were honoured to host you and Premier Brumby at the launch of our “BlueGen” product. At the launch the Premier noted that "Local innovations like Ceramic Fuel Cells' technology will help to play an important part in reducing the carbon intensity of Victorian homes and businesses. Ceramic Fuel Cells' technology is a great example of local business delivering sustainable, 'green' jobs and exports for our State." At the launch we were also pleased to announce that we have signed a Memorandum of Understanding with VicUrban to deploy BlueGen units in demonstration homes. The first unit will be installed in VicUrban’s Sustainable and Affordable Living Centre in Dandenong to be opened towards the end of 2009.
The BlueGen product will be installed in homes and other buildings, connecting directly into the existing gas, power and water infrastructure. Unlike some other low emission technologies the product does not need expensive and extensive infrastructure upgrades and creates no adverse local amenity issues. There should also be no need for any local planning or building approvals. (The product is simply an innocuous ‘box’ sitting next to the home’s gas hot water unit: there is no adverse impact on neighbours – or local wildlife.)
Head Office and Factory 170 Browns Road | Noble Park | Victoria | 3174 | Australia P +61 (0)3 9554 2300 F +61 (0)3 9790 5600 UK Office Unit 8 | Candy Park | Hardknott Road | Bromborough | Wirral | CH62 3QB | United Kingdom P +44 (0)1513 34 8880 F +44 (0)1513 34 8804 German Office Industriepark Oberbruch | Boos-Fremery-Straße 62 | D-52525 | Heinsberg | Germany P +49 (0)2452 15 3752 F +49 (0)2452 15 3755 Website www.cfcl.com.au Ceramic Fuel Cells Limited
Page 2 of 4 Since the launch the Company has received expressions of interest from many potential partners and purchasers of BlueGen. The Company is continuing its positive discussions with potential Victorian manufacturing and sales partners for the product, which we plan to have available from early 2010. More details about the BlueGen product are available at www.cfcl.com.au/BlueGen. Ceramic Fuel Cells was formed in 1992 and has invested more than $230 million in developing its technology. Headquartered in Melbourne, the Company employs 90 people and is listed on the Australian Securities Exchange and London’s AIM market (code: CFU).
The Company is developing products with leading utility and appliance companies in Germany, France, the United Kingdom and Japan. More details are available at www.cfcl.com.au/partners. Through these partnerships the Company has developed significant experience of the forces driving the uptake of ‘distributed generation’ and clean energy products – and also of the barriers and market impediments.
Distributed Generation Put simply, distributed generation means generating electricity close to where it is used. It is widely recognised that distributed generation offers many benefits over the current paradigm of large power stations located far away from where power is used. Benefits include higher efficiency, lower emissions, reduced environmental impact, and significant savings for the electricity grid.1
The recent draft report on Demand-Side Participation in the National Electricity Market by the Australian Energy Market Commission (AEMC Report) noted that2:
[W]hen the use of the network is reduced at peak times through [demand side participation], the cost of providing network services will also reduce. This is because the costs of providing the network are driven by electricity use at peak times, so any action that reduces network peaks will also reduce costs.
The location of an embedded generator can influence the extent the transmission network is used to meet peak demand. This is because electricity from an embedded generator can be used to serve customer load rather than using transmission generated electricity. Consequently the costs of meeting peak demand on the transmission network can be reduced, which is beneficial as it can reduce the costs to society of delivering electricity.
More generally, the Garnaut Review Issues Paper 4, Research and Development: Low Emissions Energy Technologies (Garnaut Issues Paper) noted that: The stationary energy sector is expected to provide the greatest and the earliest reductions in emissions through a dramatic technological transition. The decarbonisation of electricity supply through technological change will be central to a successful mitigation story. The development and commercialisation of new energy technologies could have the added effect of spurring technological progress in other sectors.3
1 There are many studies on the benefits of distributed generation. Good starting points are the World Alliance for Decentralized Energy (http://www.localpower.org) and the IEA International Combined Heat and Power (CHP) Collaborative (http://www.iea.org/G8/CHP/chp.asp).
2 Draft report dated 29 April 2009, page 53. Available at http://www.aemc.gov.au/Market-Reviews/Open/Review-of-Demand-Side-Participation-in-the-National-Electricity-Market.html.
3 Available at http://www.garnautreview.org.au/CA25734E0016A131/pages/all-reports--resources. Quote from page 3. Ceramic Fuel Cells Limited
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Barriers / Policy Gaps
Some elements of the current Victorian market structure can make it difficult to value and monetise all the benefits of distributed or embedded generation. The most obvious barrier in Victoria is that currently electricity retailers are only required to pay a ‘fair and reasonable’ tariff for power generated by small "renewable" generators4. Anecdotal market experience indicates that (a) it can be difficult to convert a retailer’s “offer” into a binding contract, and (b) retailers may generally offer a tariff so homeowners can ‘net off’ their own usage, but they are very reluctant to pay homeowners for excess power exported to the grid. This regime under-values and fails to capture the many “public benefits” of low emission distributed generation.
There are also conflicting incentives of electricity retailers vs distributors vs generators. There is a lack of incentives for transmission and distribution businesses to encourage significant distributed generation. While distributed energy would yield significant benefits for the transmission and distribution sector (such as reduced capital expenditure) in general terms the sector gets a fixed rate of return on capital and therefore, acting rationally, distributors will seek to increase their capital expenditure. Technologies which can provide significant public benefits may be under-valued because each private ‘actor’ in the market does not have an incentive to capture the value of those benefits. In addition the current policies, and the power of incumbent players, can be a barrier to connecting distributed generation technologies to the grid.
The AEMC Report also finds that connecting to the grid can be a barrier to distributed generation. The Report notes that the Ministerial Council on Energy Standing Committee of Officials has recommended a national framework for distributed connection arrangements including for micro-generation units.5 Ceramic Fuel Cells supports this approach provided it delivers a faster and easier way for low emission micro-generator technologies (of all kinds – not just fuel cells) to connect and export power to the grid.
Many policies which are designed to address these market failures or barriers are based on, and restricted to, specific technologies rather than the desired policy outcome. For instance: export to the grid is encouraged for small "renewable" generators (with a list of eligible technologies); there is a premium feed in tariff only for solar PV technologies; the ‘6 star rating’ policy for homes specifies solar hot water or rain water tanks. These policies often take a take a binary decision - is a technology "renewable" or not. We would suggest a better approach would be to match the policy incentive or assistance to the intended policy outcome. Technologies which can deliver greater emissions reductions or efficiency gains would receive greater assistance or recognition – but importantly the list is not closed.
We would suggest that by definition innovative and emerging technologies will not have the political or market power to get on the 'favoured' list of technologies in the face of strong incumbents and competing political interests. Policies that prescribe a closed list of technologies will not maximise the benefits of innovation.
In this respect the Garnaut Issues Paper noted that: Lock-in results in persistent market barriers where existing technologies benefit from incumbency advantages while new technologies face costly and inefficient barriers to entry. Barriers to entry are not by definition market failures, but in the context of climate
4 Electricity Industry Act 2000 s40F.
5 AEMC Report page 45+.
Ceramic Fuel Cells Limited
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change such barriers can reduce the important competitive pressures which stimulate and facilitate adjustment to an emissions constraint.
This results in sub-optimal levels of research, development, demonstration and diffusion of carbon-saving technologies, even where environmental and economic advantages have been established.
6 In order to maximise the benefits of innovation and encourage a broad portfolio of emerging clean energy technologies, we would suggest the best approach is a technology ‘agnostic’ one that rewards outcomes (e.g. a sliding scale of support or incentives to match the emissions reduction from an agreed baseline).
The second best approach is to keep the policy as open as possible to new technologies, i.e. if there has to be a “list” of preferred technologies, it should be as easy as possible to add new technologies to the list.
We acknowledge that an emissions trading scheme (if and when it is introduced) and a (meaningful) carbon price will help to overcome some of these limitations however a carbon price alone is not enough to achieve the Government’s stated target of quickly reducing Victoria’s greenhouse gas emissions.
To quote the Garnaut Issues Paper again:
Establishing a carbon price alone will be an incomplete approach to mitigating climate change; additional measures will be required. An emissions trading scheme will address the primary market failure of uncapped greenhouse gas emissions and will encourage some research and development (R&D) activity in lower-emissions technology.
However, the existence of other market failures in the innovation system means that simply establishing a price on emissions will not generate optimal levels of investment in technological change.7
Specifically in Ceramic Fuel Cells’ case, we believe it is appropriate for the mandatory ‘buy back’ regime in section 40 of the Electricity Industry Act 2000 to apply to power exported to the grid by any distributed generation technology, regardless of whether it is classed as “renewable” – provided the distributed technology can demonstrate meaningful and verifiable reductions in emissions or increases in efficiency over the incumbent generators.
8. Policies designed to encourage energy efficiency, such as the VEET scheme or minimum household efficiency levels, should also be open to all technologies which have verifiable efficiency improvements, rather than being restricted to a prescribed list.
We appreciate the opportunity of introducing Ceramic Fuel Cells and making a submission to the Inquiry. We would be happy to discuss our submission further. The Committee members are also welcome to attend our factory in Noble Park to see our fuel cell units in operation, exporting low-emission power to the local grid. Yours Sincerely Brendan Dow Managing Director
8 The generating efficiency and emissions intensity of current coal fired generators (grams of CO2 per kWh of electricity) are already publicly reported.
CFU Price at posting:
23.8¢ Sentiment: Hold Disclosure: Held
