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ABCD

Department of Transport Energy &


Infrastructure - Energy Division

Review of the Remote Areas


Energy Supply Scheme

June 2011
This report contains 142 pages
12081474_1.DOC

2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

Contents

Executive summary 1

1 0BPurpose of report 10

2 1BOverview of the Remote Areas Energy Supply Scheme 11


2.1 8BTariff setting and pricing principles 13
2.2 9BRecent scheme developments 14

3 2BCurrent service delivery arrangements and benchmarks 17


3.1 10BGovernment-operated sites 17
3.2 1BIndependently-operated sites 18
3.3 12BHigh level cost overview 19

4 3BGrid connection analysis 21


4.1 13BSummary 21
4.2 14BExisting transmission infrastructure 24
4.3 Coober Pedy 25
4.4 Andamooka 32
4.5 Yunta 37
4.6 17BParachilna and Blinman 39
4.7 18BMarree 42
4.8 19BNundroo 44
4.9 21BMannahill (incorporating Yunta) 46
4.10 Investment evaluation period 48
4.11 23BOther grid connection costs and benefits 49

5 4BEnergy efficiency options for consumers to reduce their


energy costs 50
5.1 24BDomestic sector 50
5.2 25BRetail (general store, supermarket) 57
5.3 26BTourism accommodation 58
5.4 27BGovernment office building office lighting 61
5.5 28BGovernment office building office air conditioning replacement 62
5.6 29BImplications of increased energy efficiency investment 63

6 5BRenewable energy projects illustrative options 64


6.1 30BSummary 64
6.2 31BGovernment investment in centralised renewable energy 65
6.3 32BUser investment in distributed renewable energy 66
6.4 3BMethodology 67

12081474_1.DOC - 1 July 2011 i


2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

6.5 34BOpportunities for renewable energy implementation 68


6.6 35BRenewable generation options 70

7 6BCommonwealth programs and external funding opportunities 87


7.1 36BGrid connection 88
7.2 37BEnergy efficiency 89
7.3 38BRenewable energy 92
7.4 39BOther funding sources considered 96

8 7BFuture strategies 98
8.1 40BGrid connection 98
8.2 41BEnergy Efficiency 100
8.3 42BRenewable Energy 101

A Appendix A Grid connection financial analysis


(Commercial-in-confidence) 105

B Appendix B Engineering and technical 117

C Appendix C Additional financial tables 137

Disclaimers
Inherent Limitations
This report has been prepared as outlined in the Purpose of Report Section. The services provided in
connection with this engagement comprise an advisory engagement, which is not subject to assurance or
other standards issued by the Australian Auditing and Assurance Standards Board and, consequently no
opinions or conclusions intended to convey assurance have been expressed.
No warranty of completeness, accuracy or reliability is given in relation to the statements and
representations made by, and the information and documentation provided by, the Department of
Transport, Energy and Infrastructure as part of the process.
KPMG have indicated within this report the sources of the information provided. We have not sought to
independently verify those sources unless otherwise noted within the report.
In the course of our work, projections have been prepared on the basis of assumptions and methodology,
which have been described in this paper. It is possible that some of the assumptions underlying our
projections may not materialise. Nevertheless, we have applied our professional judgement in making
these assumptions, such that they constitute an understandable basis for estimates and projections.
Beyond this, to the extent that certain assumptions do not materialise, then our estimate and projections
of achievable results will vary.
KPMG is under no obligation in any circumstance to update this report, in either oral or written form, for
events occurring after the report has been issued in final form.
The findings in this report have been formed on the above basis.

12081474_1.DOC - 1 July 2011 ii


2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

Third Party Reliance


This report is solely for the purpose set out in the Scope Section and for the Department of Transport,
Energy and Infrastructure information.
This report has been prepared at the request of the Department of Transport, Energy and Infrastructure
in accordance with the terms of KPMGs contract dated 13 May 2011. Other than our responsibility to
the Department of Transport, Energy and Infrastructure, neither KPMG nor any member or employee of
KPMG undertakes responsibility arising in any way from reliance placed by a third party on this report.
Any reliance placed on this report is that partys sole responsibility.
We understand that this report may be released publicly. As any third parties are not a party to our
contract with the Department of Transport, Energy and Infrastructure, accordingly, they may not place
reliance on this report. Our engagement was neither planned nor conducted in contemplation of the
purposes of third party use of this report. Accordingly, KPMG shall not be liable for any losses, claims,
expenses, actions, demands, damages, liabilities or any other proceedings arising out of any reliance by
third parties on this report.

12081474_1.DOC - 1 July 2011 iii


2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

Executive summary
Overview
The Remote Areas Energy Supply (RAES) Scheme provides subsidised electricity to
households and businesses in 13 remote towns in South Australia not connected to the main
electricity grid. The SA Government sets domestic tariffs at main grid price+10% for
reasonable levels of supply, and all consumers face inclining block tariffs such that the full
costs of supply are recovered at higher levels of consumption.

Over several years, there has been pressure on the RAES budget, in particular through
increasing diesel fuel costs, which comprise over half of the RAES operating budget.

The Minister for Energys recent electricity tariff pricing decision has raised concern
amongst residents and businesses over whether electricity can be supplied at a lower cost.
These concerns precipitated this independent review of whether grid connection, renewable
energy, and energy efficiency projects provide any opportunities for government and energy
users to reduce costs.

This report identifies opportunities for the Government to reduce the cost of providing
services to some RAES communities, but there is no panacea for significantly reducing
energy costs. The costs of providing energy to a small customer base in very remote, off the
main grid communities is by its nature expensive and heavily dependent on diesel
generation. The results of our analysis are summarised below.

Table 1-1: Overview of study results (eight grid connect sites)


Site Financial case for grid Potential for user Illustrative renewable
connection savings through energy energy investment
efficiency option
Coober Pedy Yes Yes Wind 0.275 MW
(long term, but requires
external funding)
Andamooka Yes Yes PV 90 kW
Yunta No Yes PV 16 kW (school)
Parachilna and No Yes PV 20 kW (Blinman)
Blinman
Marree No Yes PV 30 kW
Nundroo No Yes Wind 10 kW
Mannahill No Yes PV 5 kW

To deliver reduced electricity costs to users, any future savings to the RAES Scheme
(i.e. savings over and above the costs of investment and ongoing costs) would have to be
passed on to or shared with customers.

12081474_1.DOC - 1 July 2011 1


2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

How the Government applies or allocates any savings is a separate issue to be considered
later. However, conceivably such savings would either reduce the RAES operating budget,
effectively finance infrastructure investment, reduce tariffs, or some combination of the
above. Any decision to reduce tariffs would need to consider the impact on changes in
demand, distributional impacts and the impact on different users, and may require that the
Government revisit its current pricing policy.

Grid connection
Grid connection is generally uneconomic due to the high capital costs of transmission
infrastructure, and the low demand at RAES sites. The costs of grid connection are
generally so large that the impacts of additional loads, or more optimistic assumptions
(e.g. significant increase in the future price of diesel), do not alter this finding. The
exceptions to this general finding are the two largest sites, Andamooka and Coober Pedy.

Summary of grid connection financial analysis

The results of the discounted cash flow / net present value analysis are summarised below.
Negative present values suggest the discounted future costs of investing in grid connection
are greater than the discounted value of future benefits, or savings which arise from grid
connection.

Table 1-2: Summary of grid connection financial analysis


Base case net present Grid connection net Financial case
Town value present value for grid Comment
1
(10 years) (10 years) connection

Coober Pedy Yes Financial analysis contained in confidential appendix


Andamooka Yes Financial analysis contained in confidential appendix
Yunta No Financial analysis contained in confidential appendix
Marree ($3,406,000) ($5,314,000) No
Nundroo ($868,000) ($11,130,000) No
Blinman ($1,613,000) ($3,782,000) No The Blinman project also incorporates connection of Parachilna
Parachilna ($886,000) n/a No
Mannahill ($447,000) ($9,332,000) No The Mannahill project also incorporates connection of Yunta
1
The base case considers the net cost of providing services at Government-operated sites, or the current level of subsidy payments at independently-operated sites, over 10 years.

Source: KPMG based on data from DTEI and ITP

From the Governments perspective, the results of the analysis, based on the assumptions
applied in this report suggests for the private operators a favourable financial case for grid
connection for Coober Pedy and Andamooka, and an unfavourable financial case for Yunta.

The detail of the analysis for the private operators is not disclosed in the body of this report
due to:

- elements of the data underlying the analysis being commercial-in-confidence;

- the potential for disclosure of the analysis to prejudice future commercial negotiations
with private parties; and

12081474_1.DOC - 1 July 2011 2


2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

- uncertainty over future pricing policy in regards to Coober Pedy and Andamooka
(i.e. where the Government might play a different role in electricity supply at these
towns, under a grid connection scenario).

Further financial analysis is provided in confidential Appendix A (Commercial in


confidence) Grid connection financial analysis.

Coober Pedy

The value in todays dollars of subsidy payments to Coober Pedy, over 10 years is
significantly negative. This implies that the Government could conceivably be willing to
make some upfront capital payment to remove the need for ongoing subsidy to the District
Council of Coober Pedy.

Under grid connection, the ongoing difference between the costs of wholesale energy
delivered through private infrastructure (i.e. owned by BHP-Billiton and OzMinerals) is
uncertain and would be subject to commercial negotiation with those parties for
transmission access and energy. However, excluding implementation costs and capital costs
(which could arise, for example, through upstream capacity upgrades to transmission
infrastructure), the ongoing savings could be significant.

Under plausible energy and transmission pricing scenarios discussed with DTEI, the
potential savings available (i.e. the difference between the cost of National Electricity
Market-delivered energy, and diesel generation costs) are so significant that they could be
above the current level of the South Australia (SA) Government subsidy.

This suggests that the District Council of Coober Pedy could have financial capacity to
invest in grid connection infrastructure, but this would be insufficient to fully fund the
capital cost of connection. An option that could be explored is 50% capital funding through
the Commonwealth Regional Development Australia Fund.

There are numerous complexities in achieving grid connection for Coober Pedy. For any
project to proceed, a project must be based on commercial outcomes for each of the
Government, Council, OzMinerals, and BHP-Billiton. In addition, the Government may
wish to consider a reduction in energy prices to users, which would reduce the value which
could be captured by other parties. Grid connection would also require implementation
effort from the Council and, potentially, other costs could arise, which are uncertain and
have not been considered in the preliminary financial analysis.

The financial analysis demonstrates that there is potential value which could be created by
grid connection of Coober Pedy. However, how that value is captured by the various
stakeholders is uncertain and depends on the implementation arrangements pursued by the
Council and Government, commercial negotiations, and future pricing policy.

12081474_1.DOC - 1 July 2011 3


2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

Coober Pedy - possible way forward

In view of the potential savings available from grid connection of Coober Pedy, the
Government could consider the following as the broad preferences for grid connection.

1 Council fund grid connection and apply to the Commonwealth for 50% funding under
the Regional Development Australia Fund (preferred option)

2 Council fund a portion of infrastructure costs, with capital funding assistance from the
State Government for the remainder (second option)

3 State Government fully fund the costs of grid connection (potential option, but delivers
least savings and may ultimately prove to be uneconomic).

All three options require commercial negotiations and preparation of a detailed business
case, however option three is more marginal and may ultimately prove to be uneconomic.
A discussion of these approaches and why they could be considered is contained in
Section 4.

Andamooka

The high-level analysis of connection of Andamooka to Roxby Downs appears economic


based on the assumptions used. Discussions with the operator of Andamooka Power House
and BHP-Billiton could proceed to gain in-principle, commercial agreement to test the
feasibility of this project further.

Commonwealth Government funding through the Regional Development Australia Fund


may assist to meet some of the capital costs for this project, however the SA Government
cannot itself apply and the application would need to be sponsored by a suitable not for
profit organisation.

Andamooka - possible way forward

In view of the potential savings available from grid connection of Andamooka, the
Government could consider the following as the broad preferences for grid connection.

1 Private operator partially funds grid connection and a third party applies to the
Commonwealth for 50% funding under the Regional Development Australia Fund
(preferred option).

2 Third party funds grid connection and applies to the Commonwealth for 50% funding
under the Regional Development Australia Fund (second option).

3 State Government funds grid connection infrastructure and comes to an arrangement


with the operator (third option).

12081474_1.DOC - 1 July 2011 4


2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

A discussion of these approaches and why they could be considered is contained in


Section 4.

Energy efficiency
Energy efficiency investments have potentially high returns with opportunities for cost-
effective investments. There are a number of free, inexpensive, or subsidised energy
efficiency measures which provide opportunities for households and businesses to reduce
their energy costs.

Energy efficiency measures provide consumers with relatively low cost ways of reducing
their energy costs, without necessarily compromising lifestyle or comfort. There are a
number of practical energy efficiency measures which households, businesses, and
government offices on the RAES Scheme can implement to reduce their energy costs. This
is particularly true for RAES customers on high marginal tariffs, where many modest energy
efficiency investments become financially attractive.

In particular, this report discusses a number of case studies and practical measures which
can be taken by households, tourism / accommodation providers, supermarkets, and in
Government office buildings.

The availability of Government incentives further increases the attractiveness of these


investments, in particular, through programs such as:

- the Commonwealth Renewable Energy Bonus Scheme Solar Hot Water Rebate, the SA
Government Solar Hot Water Rebate, and Small-scale Technology Certificates all
reduce the upfront cost of solar hot water systems, typically water heating is the single
largest source of household energy demand; and

- the Commonwealth Energy Efficiency Scheme for Coober Pedy (funded by the
Renewable Remote Power Generation Program), provides a 35% rebate for the capital
cost of replacement appliances including air conditioners, electric hot water storage,
lighting and refrigerators. This program is scheduled to end during 2011.

Renewable energy
The existing investment in generation assets at RAES sites is significant and it is not
feasible to completely re-design generation and distribution systems in the short to medium
term. However, there are opportunities for marginal investments to augment supply in an
economic manner, and in doing so achieve modest, ongoing fuel and cost savings.

Given the price of diesel (the primary fuel source for RAES sites), the intensity of fuel use
at different sites, and the reduction in costs of commercially available renewable energy in
recent years, a number of sites are appropriate for modest solar photovoltaic (PV) and wind
systems to augment the existing generation stock.

12081474_1.DOC - 1 July 2011 5


2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

The costs of solar PV modules and wind turbines have reduced substantially in recent years.
Combined with the financial incentives available through Small-scale Technology
Certificates and the associated Solar Credits multiplier, which is applied to the first 20 kW
of PV generation capacity in remote areas,this reduces capital costs further. Where financial
assistance is also available from other schemes, such as the National Solar Schools Program,
this can, in some cases, remove nearly all the upfront capital costs and result in very short
payback periods.

Importantly, technical limitations suggest that, without significant modifications, the RAES
mini-grids are only able to bear up to around 30% penetration of PV compared to their
noonday load. This is because penetration beyond this level typically requires additional,
expensive system augmentations to maintain power quality. This practical limit may be
higher if there is future investment in control systems, low-load diesels and/or energy
storage, which is required for more significant penetration of intermittent PV.

The implication of this is that only a limited amount of RAES-owned or funded renewable
energy can be installed. Similarly, only a limited amount of private investment can be
accomodated, without DTEI needing to restrict future generation connecting to the mini-
grid.

The following table summarises the fuel savings from a number of illustrative renewable
energy options, annual savings in diesel costs and simple payback periods. These
investments are illustrative, as in most cases there was insufficient data to confirm systems
capacity for renewable energy integration, or to accurately estimate the output of systems at
the remote RAES sites. Payback periods are used to illustrate the savings available from
more simple, fuel saving investments (whereas the discounted cash flow approach is
appropriate for more complex infrastructure investments).

From these figures, annual savings and payback periods have been estimated, which are
suggestive of a number of modest renewable energy investments being able to reduce fuel
costs at RAES sites, but are not of sufficient size to fund a reduction in tariffs.

12081474_1.DOC - 1 July 2011 6


2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

Table 1-3: Overview of renewable energy options


Forecast Simple
Average Illustrative annual payback
Location load kW Option net cost $* savings $ (years)
Government Sites
Oodnadatta 113 PV 30 kW 137,400 16,750 8.2
Marla 111 PV 30 kW 137,400 16,750 8.2
Marree 104 PV 30 kW 139,750 15,850 8.8
Glendambo 47 PV 20 kW 85,425 10,500 8.1
Nundroo 48 Wind 10 kW 62,500 7,250 8.6
Blinman 35 PV 20 kW 85,425 10,500 8.1
Parachilna 22 Energy Efficiency
Kingoonya 13 PV 5 kW 21,375 2,650 8.1
Manna Hill 13 PV 5 kW 21,375 2,500 8.6
Cockburn 9 Energy efficiency
Independent sites
Coober Pedy 1,256 Wind 0.275 MW 1,300,000 132,000 9.8
Andamooka 285 PV 90 kW 46,080 47,650 10.1
Yunta 46 PV 16 kW school 18,400 9,500 1.9
Total 2,474,975 292,800 8.5

*Net of subsidies and Small-scale Technology Certificates. Oodnadatta and Marla are in ORER Zone 1 which is why
the costs and savings are different to Marree in ORER Zone 2.

Source: KPMG based on data from DTEI and IT.

Future strategies

Grid connection

The principal method for reducing costs to the RAES Scheme related to grid connection.
Although uneconomic for most RAES towns, the high-level analysis suggests that grid
connection may be economic for the two largest towns, which together comprise over 2,000
of the 2,500 customers on the Scheme.

The next steps for exploring grid connection of these towns are discussed above.

12081474_1.DOC - 1 July 2011 7


2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

Energy efficiency

As the Commonwealth RRPGP funding Energy Efficiency Rebate for Coober Pedy schemes
is soon to cease, it could be worth exploring the benefit to the RAES Scheme of a new
energy efficiency scheme.

The forecast savings to the RAES budget which would result from further energy efficiency
investment could be analysed. These budget savings could be brought forward to induce
energy efficiency investment, and might result in some sharing of the potential long term
savings for the RAES subsidy with those consumers considering energy efficiency
investments, by providing an upfront rebate.

While the 35% current rebate reduces payback periods, smaller rebates may also stimulate
investments by giving the consumer confidence that the efficiency investment is worthwhile
as it is supported by the SA Government.

Renewable energy

Based on the opportunities identified for renewable energy sources (predominantly solar
PVs) to realise fuel savings, the Government could consider a number of potentially modest
investments to reduce expenditure on fuel. Whether through Government investment or
private investment, it is possible that renewable energy penetration rates could reach
threshold points at which system stability issues become a concern and require a policy
response from the DTEI as administrators of RAES.

In this case, it would be necessary for the Government to restrict future generation
connections to mini-grids installations to prevent grid instability and rising capital costs to
the grid operator, i.e. where the level of energy input into the system from market led
investments may be beyond technical constraints of a small generation system.

Given the limitation of regulatory approaches (e.g. capping installations, introducing


eligibility requirements, installation standards), one option to manage the network
externalities associated with high levels of private PV investment is to consider a demand
charge for customers with grid-connected PV or wind systems. This is similar to the
approach used for major industrial customers, whose energy demand needs impose
significant network costs on ETSA Utilities main grid network.

DTEI could progress a tariff design review project to identify a tariff structure to apply to
future installations of PV, potentially by engaging the Essential Services Commission of SA
(ESCOSA) on key tariff design principles, utilising their expertise in setting regulated tariffs
across several industries.

By way of a trial project, the Yunta school provides an opportunity to use Commonwealth
incentives to reduce the upfront costs of a PV system, and this site to trial an alternate tariff
structure. In collaboration with the administrators of Yunta school and the private power
operator, DTEI could use data collected from this trial to be used to design renewable
generator tariffs for other diesel mini-grids. It is recommended that DTEI explore a tariff

12081474_1.DOC - 1 July 2011 8


2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

that includes a peak demand charge with the school administrators and the private power
operator.

12081474_1.DOC - 1 July 2011 9


2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

1 Purpose of report
0B

The Department of Transport, Energy and Infrastructure (Energy Division) released a RFT
dated 19 April 2011 for the Review of the Remote Ares Energy Supply Scheme Including
Options for Grid Connection, Energy Efficiency Opportunities and Renewable Energy, to:

undertake a review of the RAES scheme to determine the opportunities for connecting
towns to the national electricity grid, while also considering incentives to reduce energy
use, the potential for alternative and renewable energy and to identify possible technical
and financial interactions and synergies

In particular, the review should address:

Grid Connection identify the costs and benefits to connect Andamooka, Coober Pedy,
Parachilna, Blinman, Marree, Nundroo, Yunta and Mannahill to the national grid. The
review should provide a high-level business case for each site taking a 10-year view of costs
to government for each site, benefits to customers, and any assistance available from the
Commonwealth Government or other sources to offset costs.

Energy Efficiency identify generic business cases plus any incentives for commercial,
government and domestic customers to reduce their energy consumption by improving their
energy efficiency. The review should identify possible savings to customers and/or the
subsidy cost of the scheme that might flow from implementing energy efficiency measures.

Renewable Energy provide a summary of opportunities and likely costs for installing
renewable energy at a range of sites across RAES. Issues addressed should include control
of system stability, appropriate business models and charging regimes. Solutions shall
address the challenges with both distributed and centralised renewable energy. These
solutions should be generic but, where opportunities are identified, should be site specific.
The level of detail should enable costs to be estimated within +/- 20%. The study should
identify possible funding sources and government assistance available to offset capital costs.

The study should identify possible technical and financial interactions and synergies of
implementing two or more of the measures above a particular site, including through
incentives and alternative business models, to deliver energy services at least cost.

The report responds to the scope outlined above.

12081474_1.DOC - 1 July 2011 10


2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

2 Overview of the Remote Areas Energy Supply Scheme


1B

The RAES Scheme provides Government subsidized electricity to 13 off grid locations.
Under the Scheme, the Minister for Energy sets domestic electricity tariffs at the grid price
+10% for low levels of consumption, and at higher levels of consumption (and for commercial
businesses), tariffs increase to recover the full costs of electricity generated.

Typically, the RAES towns have diesel generators and a mini-grid for reticulated power. Due to
the high cost of diesel generation, the electricity tariffs charged do not recover the full cost of
power generation.
A location map of all RAES sites is attached.

Key facts:

About 2,515 customers are provided with over 18 million kWh of electricity annually.

The 2010-11 RAES budget includes $7.25 million for:

- operating expenditure and capital funding for 10 Government owned sites; and

12081474_1.DOC - 1 July 2011 11


2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

- subsidy payments to the three independent operators at Andamooka, Coober Pedy and
Yunta.

Offset against this is revenue of about $1.8 million from tariffs paid by customers of the
10 government owned sites.

Three are independently owned (Andamooka, Coober Pedy and Yunta) and receive a
subsidy based upon the difference between operators reasonable costs and their tariff
income (with tariffs set by the Minister for Energy).

The 2010-11 capital program will see $332,000 of investment in the state-owned sites for
replacement of generator sets at the end of their economic life, and upgrades to distribution
and control systems.

A high level overview of RAES sites, load data, and growth is provided in the table below.

Table 2-1: Loads and approximate growth.


Town Approx MWh pa MWh pa Customers
Peak Load
kW generated sold
Coober Pedy 3,500 12,500 11,000 1500
Andamooka 1000 3000 2,500 500
100 230 190 40 and 15
Parachilna &
Blinman 100 360 310
Marree 250 1060 910 80
Nundroo 150 490 420 45
Yunta 160 460 400 70
Mannahill 40 130 110 20
Marla 300 1140 970 80
Gelndambo 150 480 410 15
Oodnadatta 300 1160 990 100
Kingoonya 40 130 110 20
Cockburn 30 80 80 20

The total load growth in the RAES towns is shown in the following figure.

12081474_1.DOC - 1 July 2011 12


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Advisory
June 2011

Figure 1: Total Annual Electricity Sales and Forecasts in RAES towns

Source: IT Power Australia based on data supplied by DTEI

DTEI advises that load growth has averaged 3.8% per year over the last several years. Figure 1
shows the three privately-operated sites plus Government run sites. The above figure assumes
that if load growth continues at this rate, consumption will be more than 20,000 MWh in
2014-15.

Eleven towns have a peak load less than 300 kW. There is also Andamooka with a 1 MW peak
load and Coober Pedy with a 3.5 MW peak load.

These figures highlight the relative size of the communities on the RAES Scheme, in particular,
that Coober Pedy is the largest site by some margin and dominates the RAES budget, with
Andamooka also being very significant in terms of size.

2.1 Tariff setting and pricing principles


8B

The Government has approved the following principles for setting tariffs for the RAES Scheme.
These principles are considered by the Minister for Energy in the annual tariff review process to
ensure: 1 0F

1
Source: DTEI at:
http://www.sa.gov.au/subject/Water%2C+energy+and+environment/Energy/Energy+supply%2C+providers+and+bill
s/Electricity+and+gas+supply/Energy+supplies+in+remote+areas#electricity_tariffs
12081474_1.DOC - 1 July 2011 13
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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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Department of Transport Energy & Infrastructure -
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Advisory
June 2011

small to medium domestic customers (up to 8000 kWh per annum) continue to pay no more
than 10% above the on-grid regulated standing contract tariff

larger domestic customers and commercial customers pay tariffs which step up towards the
full cost of supply i.e. tariff unit rates increase as consumption increases

government agencies pay a tariff which reflects the average full cost of supply

all customers pay a fixed supply charge, similar to on-grid customers, of $50 per quarter.

DTEI estimates that the full cost of supply of electricity to the RAES grid is 70-78 cents per
kWh, i.e. over three times the metropolitan domestic tariff, due mainly to the high cost of diesel
generation and the high costs of operating in remote locations.

As can be seen from the pricing principles above, the Minister for Energys pricing decisions
effectively must incorporate (1) tariffs for low level of consumptions based at grid + 10%, and
(2) full cost of supply. As these minimum and maximum tariff levels are effectively set, the
Ministers discretion over pricing relates to:

consumption thresholds, at which inclining block tariff increases apply;

the number of inclining block tariffs; and

the tariff applying at each level of consumption.

2.2 Recent scheme developments


9B

Agreements with independent operators


84B

In the past, subsidy payments to independent operators have been made based on available
agency resources, but have not been reconciled to actual costs within any formal or standardised
(between sites) subsidy framework.

To address this, in late 2010 the Government approved the establishment of formal funding
arrangements with the three independent operators, and agreements have since been executed
with Coober Pedy Council and the operators of the Andamooka and Yunta Powerhouses.

These agreements, based on the same regulatory principles used to regulate on-grid electricity
businesses, have allowed DTEI to finalise reconciliation payments for underpayments to
operators in earlier years.

Minister for Energy pricing decision


85B

A revised RAES tariff schedule was implemented from 7 March 2011.

12081474_1.DOC - 1 July 2011 14


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June 2011

However, on 13 May 2011, the Government announced that the tariff increases would be phased
in over three financial years (rather than increased in one step), resulting in higher subsidy costs
for the RAES Scheme. The cost of this decision is estimated by DTEI to be $1.3 million over
three financial years.

Table 2-2: Current RAES Tariffs, inclusive of GST


Cockburn Coober Pedy All other sites
cents/kWh cents/kWh cents/kWh

Domestic
Supply Charge of $50 per quarter for all sites
First 300 kWh per quarter 24.2284 24.2284 24.2284
Next 700 kWh per quarter 25.2980 25.2980 25.2980
Next 1,000 kWh per quarter 25.2980 29.9090 29.9090
Next 2,500 kWh per quarter 25.2980 58.0000 58.0000
All additional kWh 25.2980 70.6700 78.0000
General Supply
Supply Charge of $50 per quarter for all sites
First 15,000 kWh per quarter 30.0000 30.0000 30.0000
Next 35,000 kWh per quarter 30.0000 43.1516 43.1516
Next 40,000 kWh per quarter 30.0000 43.1516 69.5000
Next 60,000 kWh per quarter 30.0000 58.5000 78.0000
All additional kWh 30.0000 70.6700 78.0000
State Government Agencies
Supply Charge of $50 per quarter for all sites
All kWh 30.0000 70.6700 78.0000
Commonwealth Government Agencies
Supply Charge of $50 per quarter for all sites
All kWh 30.0000 70.6700 78.0000

Source: DTEI

Other aspects of the Governments decision include:

General Supply customers would still have a tariff increase from 7 March 2011, although
significantly reduced from the increase announced on 18 February 2011, followed by further
increases in the following two years; and

tariffs for domestic customers will remain consistent with those announced in March 2011.

12081474_1.DOC - 1 July 2011 15


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

Under the recent pricing decision, DTEI has estimated customer impacts as follows:

small to medium domestic customers (up to 8,000 kWh per annum) will pay on average
4% higher than equivalent on-grid consumers. This is well within the schemes principle of
paying no more than the equivalent on-grid price plus 10%;

an average domestic customer consuming about 5,000 kWh per annum will see an increase
of about 18%;

larger domestic customers will see increases of 15-35% as they move toward more cost
reflective tariffs;

outside of Coober Pedy, all general supply customers will see increases between 5-15%;

in Coober Pedy, about 90% of general supply customers consuming up to 70,000 kWh per
annum will face increases of 10% or less; and

in Coober Pedy, a small number of customers consuming between 70,000 and 400,000 kWh
per annum will see increases up to 40%. One or two very large customers will see a 50-60%
increase.

As can be seen from the estimated impacts outlined above, many RAES customers are expected
to experience comparatively modest increases in their electricity bills, with the greatest increase
in average bills to be experienced by large domestic energy users and large commercial users in
Coober Pedy.

Despite the generally moderate price differences between metropolitan and remote electricity
users, recent price increases affecting large energy users such as businesses and large
households have led to a call for an independent review of the RAES Scheme. This review
deals with the principal means by which cost reductions might be achieved, namely grid
connection, energy efficiency, and renewable energy solutions.

12081474_1.DOC - 1 July 2011 16


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

3 Current service delivery arrangements and benchmarks


2B

The terms of reference for the review require an understanding of the current RAES service
delivery arrangements to inform the analysis. This section provides an overview of those
arrangements and a high-level analysis of costs.

This RAES Scheme operates under two broad arrangements:

Government-operated sites; and

independently-operated sites.

These are discussed in turn below.

3.1 Government-operated sites


10B

The Government owns and operates 10 sites on the RAES Scheme: Blinman, Glendambo,
Kingoonya, Mannahill, Marla, Marree, Nundroo, Oodnadatta, Parachilna and Cockburn. The
tariff revenue from these sites offsets a portion of the costs of service delivery, as outlined
below.

With the exception of Cockburn, which is supplied electricity from the NSW Grid, the
remaining townships are managed under contract by Cavpower, which undertakes operations
and maintenance of generation assets, and ETSA Utilities, which undertakes distribution system
operation, maintenance, meter reading and billing services. Fuel costs are incurred under
separate arrangements.

Cavpower maintenance of generation and system control assets


86B

Cavpower performs routine maintenance on generation assets, and assists DTEI with its capital
planning activities, based on engineering assessments of the operating condition of assets.
Cavpowers contract with DTEI recovers site-specific costs for:

on-site operator costs (for a local day-to-day operator of the powerhouse);

asset maintenance labour costs associated with quarterly maintenance; and

consumables costs associated with quarterly maintenance.

The Cavpower contract also recovers overheads (for example, administration fees) and makes
provision for emergency call out costs. However, these are relatively minor and, for the
purposes of this analysis, the site-specific costs outlined above provide sufficient information to
allow a reasonable estimate of the cost savings which would arise from, say, grid connection or
alternate delivery models.

12081474_1.DOC - 1 July 2011 17


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

ETSA Utilities distribution, meter reading and billing


87B

ETSA Utilities operates and maintains the distribution network, performs meter reading and
billing, and responds to emergency outages. Expenditure under ETSA Utilities contract is
predominantly through a fixed operations fee, with some additional costs which arise due to
responding to outages.

The contract provides for sites to be added or removed from the scope of the contract, and the
contract acknowledges the number of customer meters as the principal cost driver. This allows
an estimation of distribution costs for each site.

Fuel
8B

Fuel costs are incurred by DTEI directly. On-site operators monitor fuel supply/reserves and
order fuel as required. Fuel is purchased through the whole of Government contract with Elgas
and MoGas.

Importantly, it should be noted that fuel costs comprise around half of the costs of operating
Government-operated sites. The Government effectively underwrites the RAES Scheme as
the Minister sets tariffs, but then is exposed to the risk of fuel price increases.

In recent years, the increase in fuel costs has placed pressure on DTEIs RAES budget, and
DTEI has required out-of-budget supplementation (additional appropriation from Department of
Treasury and Finance) to manage the increase in costs. This issue is expected to be ongoing
given the nature of fuel price volatility and the inherent difficulties in forecasting the various
market variables.

3.2 Independently-operated sites


1B

The Government pays direct subsidies to the operators of independently-owned and operated
power generation and distribution systems at Coober Pedy, Andamooka and Yunta.

The history of each of these sites is different. In broad terms, it has been past practice for the
Government to set tariffs, and then make subsidy payments to the operators of these sites based
on the difference between their tariff revenue and reasonable costs.

For a variety of reasons, including historical factors and the operating difficulties of some
providers, the administration of these arrangements in the past was based on the cooperation of
parties and not subject to strict contractual arrangements, transparency or third party oversight.

However, DTEI has recently put in place agreements with each of the operators which set out a
systematic approach to payment of tariff subsidies. This includes line in the sand valuation of
assets, allowing owners to receive a return on assets, recover the costs of depreciating assets,
and recover reasonable operating costs in the future.

12081474_1.DOC - 1 July 2011 18


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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Liability limited by a scheme approved under Professional Standards Legislation.
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Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

These agreements provide the basis for estimating the future subsidies which would be paid to
these operators in a no change scenario. This has informed the analysis of potential subsidy
savings which would arise through grid connection.

3.3 High level cost overview


12B

The net cost of services to the Government-operated sites in 2009-10, including capital
expenditure and overheads and after sales revenue, was approximately $2 million, while the cost
of subsidies to the independently-operated sites was $4.01 million.

The total net cost of $5.996 million represents an average subsidy of:

$2,383 per customer per annum; or

$0.33 (33 cents) per KWh sold.

Independent sites
89B

DTEI has provided us with historical subsidy payments to independent operators, forecast
2011-12 subsidy amounts, and an estimate of customer numbers.

The direct subsidy payment per customer provides a broad (albeit imperfect) indicator of the
efficiency of each site and is included for comparison. It should not be misinterpreted as being
an indicator of the efficiency of any individual operator; however it is broadly suggestive of the
economies of scale and efficiency of the generation assets at each site.

For example, the RAES Schemes largest site, Coober Pedy, comprises 1,500 of the 2,515
customers on the RAES Scheme and is relatively more efficient due to economies of scale. The
subsidy for Coober Pedy is almost half of the RAES budget.

Table 3-1: Direct costs (net cost of services or subsidy per customer) per annum for the RAES
sites in scope (forecast 2011-12)
Subsidy (or net
Subsidy per
Tariff revenue Costs* cost of services) in Customers
customer
2011-12

Independently operated sites:


Coober Pedy n/a n/a $ 3,077,000 1500 $ 2,051
Andamooka n/a n/a $ 1,018,000 500 $ 2,036
Yunta n/a n/a $ 187,000 70 $ 2,671
Government-operated sites:
Marree $ 248,000 $ 509,000 $ 261,000 80 $ 3,263
Nundroo $ 152,000 $ 253,000 $ 101,000 45 $ 2,244
Blinman $ 99,000 $ 214,000 $ 115,000 40 $ 2,875
Parachilna $ 71,000 $ 128,000 $ 57,000 15 $ 3,800
Mannahill $ 49,000 $ 103,000 $ 54,000 20 $ 2,700
Across all 8 study sites $ 4,870,000 2270 $ 2,145
Note: costs and inferred per customer subsidy amounts do not include RAES overhead costs of allocation of capital budget
Source: KPMG based on data from DTEI

12081474_1.DOC - 1 July 2011 19


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

Government sites
90B

For the Government-owned sites, we have constructed per site cost and revenue estimates to
illustrate the existing level of Government subsidy.

Tariff revenue is based on actual billing data, and is assumed to be foregone under grid
connection arrangements. Potential cost savings are based on:

direct costs arising under the Cavpower contract;

distribution costs under the ETSA Utilities contract apportioned on the basis of number of
meters; and

actual fuel costs from November 2009 to November 2010.

The net cost (or subsidy) for each site is displayed in the graphs below, on a per customer basis.

Figure 2: Average net cost of services or subsidy, per customer, to RAES sites in scope (forecast
2011-12)

$4,000
$3,500
$3,000
$2,500 Average per
customer subsidy
$2,000 all sites $2,145

$1,500
$1,000
$500
$-

Source: KPMG based on data from DTEI

12081474_1.DOC - 1 July 2011 20


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

4 Grid connection analysis


3B

4.1 Summary
13B

In this section, we have identified grid connection options for a number of the RAES sites in
South Australia, in consideration of alternative power supply sources for these sites.

The estimated grid extension costs for the eight sites, the nature of the power line extension, and
the result of the high-level financial analysis are outlined in the following table.

Table 4-1: Town loads and main-grid connection costs


Further
consideration
Peak Average Distance Voltage Estimated of grid
Town Population Load kW Load kW km kV cost $m connection?

Coober Pedy 2,103 3,500 1,256 150 66 $48.0


Andamooka 402 1,000 285 15 33 $1.5
Parachilna & 7 100 22
Blinman 22 100 35
100 11 $7.2
Marree 380 250 104 120 33 $10.0
Nundroo 9 150 48 150 33 $21.0
Yunta 105 160 46 100 33 $8.3
50
$4.2
Mannahill 66 40 13 from Yunta 33 from Yunta

Source: KPMG based on data provided by DTEI and IT Power

In addition to grid connection costs estimated by IT Power, the current direct operating costs for
each site were identified (or allocated) to allow an estimate of the savings that would arise under
alternate grid connection scenarios for each town. In addition, tariff revenue foregone under
grid connection was considered, where applicable.

The financial case for grid connection has been evaluated using a discounted cash flow
approach for each site, taking into account different service delivery models operating across the
sites. For example, the differences include Government-owned sites, independently operated,
grid connections via the existing state-wide distribution network, or via mining and privately
owned transmission infrastructure. This is explained in more detail below.

Potential future service delivery arrangements


91B

The nature of costs and savings considered for each site differ depending on the delivery model.
This is because the implication of grid connection could result in a number of different
delivery arrangements applying to the sites in question, depending on their proximity to existing
infrastructure, and who owns the infrastructure.

12081474_1.DOC - 1 July 2011 21


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ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

The service delivery scenarios below formed the basis of the financial analysis performed for
each site:

1 Sites connected to regulated network assets this is assumed to involve transfer of new
and existing assets to ETSA Utilities for management and allow commercial retail supply,
i.e. extending the grid and contestable market to such sites.

- Applicable sites: Yunta, Mannahill, Parachilna/Blinman, Marree and Nundroo


(incorporating extension to Yalata and Fowlers Bay)

2 Independently-operated sites connected to private infrastructure the existing


independently-operated sites could source electricity through the NEM and negotiate access
to private transmission infrastructure. These sites would continue to operate with reduced
ongoing subsidy or possibly, with no ongoing subsidy.

- Applicable sites: Andamooka, Coober Pedy

Financial analysis
92B

A Net Present Value (NPV) framework was applied for estimating future cash flows (costs and
benefits) to the RAES Scheme of grid connection over the next 10 years. This approach is
generally accepted for project financial analysis of this sort. A positive NPV suggests that the
discounted value of future benefits outweigh future costs.

The financial analysis of options is summarised below.

Table 4-2: Summary of grid connection financial analysis NPV results


Base case net present Grid connection net Financial case
Town value present value for grid Comment
1
(10 years) (10 years) connection

Coober Pedy Yes Financial analysis contained in confidential appendix


Andamooka Yes Financial analysis contained in confidential appendix
Yunta No Financial analysis contained in confidential appendix
Marree ($3,406,000) ($5,314,000) No
Nundroo ($868,000) ($11,130,000) No
Blinman ($1,613,000) ($3,782,000) No The Blinman project also incorporates connection of Parachilna
Parachilna ($886,000) n/a No
Mannahill ($447,000) ($9,332,000) No The Mannahill project also incorporates connection of Yunta
1
The base case considers the net cost of providing services at Government-operated sites, or the current level of subsidy payments at independently-operated sites, over 10 years.

Source: KPMG based on data from DTEI and IT Power

From the Governments perspective, the results of the analysis for the private operators suggests
a favourable financial case for grid connection for Coober Pedy and Andamooka, and an
unfavourable financial case for Yunta. This is, however, dependent on the realisation of a
number of assumptions which have not yet been tested in a commercial setting, but indicates
that sufficient benefits exist for the two positive projects to be considered in the next stage of
the Governments considerations.

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Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

However, the detail of the analysis for the private operators is not disclosed in this section or the
body of this report due to:

elements of the data underlying the analysis being commercial-in-confidence;

the potential for disclosure of the analysis to prejudice future commercial negotiations with
private parties; and

uncertainty over future pricing policy in regards to Coober Pedy and Andamooka (i.e. where
the Government might potentially no longer play a role in electricity supply at these towns).

This analysis is provided in confidential Appendix A (Commercial in confidence) Grid


connection financial analysis.

Key findings of the financial analysis

The key findings of the financial analysis, subject to the assumption made and financial inputs,
are that:

Broadly, connection of the RAES towns to the nearest, adequate national grid-connection
point is uneconomic, with the exception of Andamooka and Coober Pedy. The evaluation
of economic grid connection solutions is not sensitive to cost and revenue assumptions.

In the case of Coober Pedy, the 10-year analysis for grid connection results in a negative
project valuation from the Governments perspective, however it may be a slight
improvement from the Governments current position. For the project to provide a positive
valuation to the Government, it relies on the District Council of Coober Pedy applying for
50% Commonwealth Government funding through the Regional Development Australia
Fund. This should be the Governments first preference. Alternately, a direct contribution
from the Government to the Council may deliver a positive project valuation, but is a
second best option. This is explained further below.

In the case of Andamooka, connection to the Roxby Down Council-owned network would
appear to be economic but would rely on an implementation arrangement and agreement
between parties, particularly around a power purchase agreement. This is discussed further
below.

For the other sites, the cost of grid connection sufficiently outweighs the benefits for there to
be limited value in undertaking more detailed analysis, or further considering
implementation and delivery arrangements.

We are unaware of any foreseeable events, for example mining developments or other
growth scenarios, which would be likely to change the economics of the grid connection
analysis conducted in this report.

There are no foreseeable regional economic impacts that would appear to justify a change in
the conclusions.

12081474_1.DOC - 1 July 2011 23


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

4.2 Existing transmission infrastructure


14B

The map below provides a snapshot of the existing transmission infrastructure in SA.

Figure 3: Location of existing transmission infrastructure 2 1F

Coober Pedy

Andamooka

Parachilna/Blinman

Source: ElectraNet

2
Source: ElectraNet available at: http://www.electranet.com.au/site/images/state_map_large.jpg
12081474_1.DOC - 1 July 2011 24
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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

There are a number of factors that make grid-connection a high cost option. For RAES
townships, the financial viability of long-distance, electricity grid extensions is challenged by:

the high impedances of long radial lines;

the high reactive power losses of long radial lines; and

the very high costs of power line construction in remote areas.

A general discussion of these issues and the financial viability of long-distance grid connections
is also provided at Appendix A.1.

An overview of the power supply issues, a description of the grid connection solution, and
financial analysis of costs and benefits for each site is discussed in turn.

4.3 Coober Pedy


As noted above, the detailed analysis for Coober Pedy is provided in confidential Appendix A
(Commercial in confidence) Grid connection financial analysis. However, those elements of
the analysis which are not considered to be commercialin-confidence and do not influence
future commercial negotiations are provided below.

An overview of existing services in Coober Pedy is provided in the table below.

Table 4-3: Coober Pedy summary


Overview of existing service delivery Coober Pedy
Customers 1,500
Installed generation capacity 8 x 500 kW diesel gen sets, 1 x 150 kW wind turbine
Peak load 3,500 kW
Annual load (sold) 11,000 MWh pa
Forecast subsidy payment from DTEI in 2011-12 $3.077million
Per customer subsidy in 2011-12 $2,051
Service delivery overview Independently operated by District Council of
Coober Pedy. Power Purchase Agreement (PPA) in
place with EnGen for operation and maintenance of
generation assets.
Future issues Network Use of System (NuOS) and/or Distribution
Use of System (DuOS) costs, diesel station
decommissioning, reliance on use of OzMinerals
spare capacity.

The consideration of the Coober Pedy grid connection option has some complexities not present
in other RAES locations considered in this report.

12081474_1.DOC - 1 July 2011 25


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

Coober Pedy customers are supplied power through arrangements with the Coober Pedy
Council rather than DTEI. Power generation is supplied by a third party (EnGen) to the
Council, and DTEI makes a subsidy contribution to the Council for the difference between the
cost of supply and the tariff revenue recovered from the customers. These arrangements are
considered in this analysis.

Coober Pedys electricity mini-grid is located some 130 km from the current termination of the
main-grid at the Prominent Hill Mine. There is a 132 kV line to Prominent Hill (owned by
OzMinerals) from Olympic Dam, which then connects to the NEM via a 275 kV line. The
275 kV line is privately owned by BHP-Billiton. Therefore, there are two private networks
involved in the grid supply option, in addition to the proposed extension.

Figure 4: Coober Pedy connection

Coober Pedy Potential new


Township connection

Oz Minerals
Prominent
Hill Oz Minerals
owned line

BHP
Olympic Dam

The Coober Pedy proposed connection relies on


BHP owned
two private networks to deliver power from the
line
National Electricity Market through a grid
connection at Davenport near Port Augusta

Main Grid
Connection

Given the relatively small, peak demand of Coober Pedy (around 3.5 MW), spare capacity may
be available from the 132 kV line to the Prominent Hill Mine, but this is not certain. This
would need to be confirmed in a full business case analysis and through commercial
discussions.

12081474_1.DOC - 1 July 2011 26


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Advisory
June 2011

4.3.1 Grid connection option

One option is to extend the 132 kV line to Coober Pedy and establish a 132/11 kV zone
substation at the current Coober Pedy Power House. This potentially could deliver a huge
power capacity to the town. However, this capacity would be constrained by the power
reserved for the mine which would mean the extended 132 kV line would not operate at full
capacity.

Another option is to transform to 66 kV at Prominent Hill and construct a 66 kV line to Coober


Pedy, and establish a 66/11kV substation. This option would have a limited capacity for growth
in Coober Pedy (to around double its current demand) and would be the cheapest option.

Any grid-extension to Coober Pedy would need to consider potential load growth at Prominent
Hill and any mining developments along its route. Figure 7 shows there are a number of mining
interests in the area between Coober Pedy and Prominent Hill that are utilising (or might in the
future utilise) diesel as their fuel source for electricity. These include:

Peculiar Knob Western Plains Resources; and

Cairn Hill IMX Resources.

Figure 5: Mines in proximity to Coober Pedy

12081474_1.DOC - 1 July 2011 27


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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Source: Department of Primary Industries and Resources 3 4F

There is potential to involve these companies in power line construction/connection to assist in


reducing the cost of solely connecting Coober Pedy. However, discussions with Department of
Primary and Industry officers 4 suggest that there are no mining interests ready to be a party to
5F

such an investment. Although there may be speculative potential for the demand at these mines
to require the 132 kV lines to be built, this would be cost prohibitive.

By way of context, OzMinerals 180 km 132 kV line from Olympic Dam to Prominent Hill cost
$100m (about $0.55m/km), and was completed in July 2008 5. This is significantly more than
6F

the 66 kV option.

Additionally (as discussed earlier), any 132 kV grid extension would not be able to utilise the
full potential of the 132 kV line due to the upstream demands of the Prominent Hill Mine. The
cost of upgrading upstream transmission infrastructure to accommodate growing regional loads
is likely to be in the order of magnitudes higher than what is financially viable.

4.3.2 Grid connection solution


46B

IT Power has identified that the key components of a grid connection solution for Coober Pedy
are:

Connection via a 66 kV power line from the OzMinerals site, with a line route cutting to the
Stuart Highway and then following the highway to Coober Pedy. Route length is estimated
at 150 km, 132/66 kV transformation at Prominent Hill, with 66/11 kV transformation at
Coober Pedy.

A 150 km 66 kV transmission line built on an existing road reserve with minimal


environmental issues and tree clearing would cost in the order of $30 million, with major
transformation asset costs at each end. The 132/66 kV substation and switching costs are in
the order of $12 million, while a 66/11 kV package substation will cost around $5 million.
The environmental impact study, SCADA control systems and negotiation of land
easements are estimated to add $1 million to the cost.

A major factor is the decommissioning of the diesel power station currently owned and
operated by Engen at Coober Pedy on a long-term contract. There would be costs
associated with breaking that contract and, and delivering tariff reductions to customers.
While assessing these costs is outside the scope of this report, they will need to be
considered in a full business case.

3
Available at:
http://www.pir.sa.gov.au/__data/assets/pdf_file/0003/125184/Future_Electricity_Infrastructure_Requirements_Infor
mation_Paper_-_Final_Draft_25Nov2009.pdf
4
In meeting with DTEI on 10 June 2011.
5
Source: OzMinerals available at http://www.ozminerals.com/Media/docs/bk_sareic-300408-e41e7e05-03eb-4060-
8fc6-e64124a6c3fe-0.pdf; and http://www.ozminerals.com/Media/docs/bk_sareic-300408-e41e7e05-03eb-4060-8fc6-
e64124a6c3fe-0.pdf.

12081474_1.DOC - 1 July 2011 28


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IT Power estimates that total construction works, based on the above assumptions, would be in
the order of $48 million.

4.3.3 Financial analysis


47B

The detailed financial analysis for connection of Coober Pedy to the transmission infrastructure
at Prominent Hill is provided Appendix A (Commercial in confidence) Grid connection
financial analysis.

The general findings of this analysis are as follows:

The Governments existing subsidy payments to Coober Pedy Council over 10 years can be
valued in todays dollars, to allow an estimate of what the Government would be willing
to pay upfront to remove its future obligations.

The existing valuation of subsidy payments over 10 years is significantly negative. This
implies that the Government could conceivably be willing to make some upfront capital
payment to remove the need for an ongoing subsidy to the District Council of Coober Pedy.

The ongoing difference between the costs of wholesale energy delivered through private
infrastructure (i.e. owned by BHP-Billiton and OzMinerals) is uncertain and would be
subject to commercial negotiation with those parties for transmission access and energy.
However, excluding implementation costs and capital costs (which could arise, for example,
through upstream capacity upgrades to transmission infrastructure), the ongoing savings
could be significant.

Under plausible energy and transmission pricing scenarios discussed with DTEI, the
potential savings available (i.e. the difference between the cost of National Electricity
Market-delivered energy and diesel generation costs) are so significant that they could be
above the current level of the SA Government subsidy assumed over the longer term.

This suggests that the District Council of Coober Pedy could itself have financial capacity to
invest in grid connection infrastructure, but this would probably be insufficient to fully fund
the capital cost of connection. An option that could be explored is 50% capital funding
through the Commonwealths Regional Development Australia Fund.

There are numerous complexities in achieving grid connection for Coober Pedy. For any
project to proceed, a project must make commercial sense for each of the Government, Council,
OzMinerals, and BHP-Billiton. In addition, the Government may wish to deliver a reduction in
energy prices to users, which would reduce the value which could be captured by other parties.
Grid connection would also require implementation effort from the Council and, potentially,
other costs could arise.

The financial analysis demonstrates that there is potential value which could be created by grid
connection of Coober Pedy. However, how that value is captured by the various stakeholders is
uncertain and depends on the implementation arrangements pursued by the Council and
Government, commercial negotiations, and future pricing policy.

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Proposed way forward

In view of the potential savings available from grid connection of Coober Pedy, the Government
could consider the following as the priorities for progressing the case for grid connection
further.

1 Council fund grid connection and apply to the Commonwealth Government for 50%
funding under the Regional Development Australia Fund

From the State Governments perspective, the preference should be to encourage the District
Council of Coober Pedy to apply for Commonwealth Government capital funding and the
Council to fund the remainder of the costs of grid connection. Conceivably, in this scenario
the State Government need not necessarily contribute upfront to the capital costs.

Under this scenario, the State Governments involvement via subsidies could cease, and the
District Council of Coober Pedys retail prices could be price monitored or similar by
ESCOSA, to ensure that future retail prices reflect reasonable costs using a building block
approach and other standard regulatory approaches.

Although the State Government cannot apply for funding under this program, the
Government could consider how DTEI might support the Council make an application, for
example around assisting in negotiations with commercial parties, to maximise the chance
of a successful funding application.

2 Council fund a portion of infrastructure costs, with capital funding assistance from the
State Government for the remainder

If the above application is not successful, the second preference should be for the Council to
fund a portion of the infrastructure costs, but with the State Government financing the
remainder.

To achieve this, the Government could still assist the Council engage commercial parties in
preliminary negotiations, while also seeking an agreement with the Council around State
Government funding levels. Subject to in-principle commercial agreements being reached,
a full business case could be prepared and submitted to the State Governments annual
budget process to obtain capital funding. This would also require the Council and DTEI to
prepare a detailed business case.

Under this scenario, the value or savings from grid connection from the Governments
perspective, and whether there is a financial case for grid connection, is less clear. A full
business case would be required to confirm whether the project makes financial sense for
the Government.

12081474_1.DOC - 1 July 2011 30


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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3 State Government fully fund the costs of grid connection

The third option is least preferred, and preparation of a full business case may ultimately
prove it to be uneconomic from the Governments perspective, depending on the outcome of
commercial negotiations with parties. However, it is included for completeness of the
analysis.

The financial analysis identifies that if the Government financed the full cost of grid
connection infrastructure and effectively gifted the asset to the Council, this would result
in a negative project valuation.

However, this could potentially achieve an improvement on the Governments base case
scenario (which is also negative, but is a potentially lower valuation over the longer term).
We note that it would be difficult to justify this course of action, in particular, due to project
risks and low project returns (meaning this project could not compete against other
government priority projects). There may also be limited scope to reduce electricity tariffs
under this option.

From the Governments perspective, in all scenarios it would be critical that delivery
arrangements are implemented at a reduced cost compared to the existing subsidy.

4.3.4 Issues for full business case analysis

Although beyond the scope of this report, the high-level analysis is suggestive of there being
value in grid connection subject to the outcome of commercial negotiations of relevant parties,
including the District Council of Coober Pedy, BHP-Billiton, and OzMinerals.

For the Council or State Government to pursue one of the options identified above, it would be
sensible to proceed to a full business case analysis. However, it would not be sensible to
proceed without there first being some high-level, in-principle agreement with the commercial
parties.

A full business case would need to consider a number of issues, including:

Contract timing and break costs discussions with Coober Pedy Council and, potentially,
EnGen, could identify when contracts were up for renewal and the potential contractual
provisions around break costs for the generation operation. It would be inappropriate to
assume these costs in the financial analysis and commercial negotiations are required to
identify indicative values.

Access to transmission capacity discussions with BHP-Billiton and OzMinerals is


required to establish if capacity can be considered within the current and proposed
infrastructure upgrades on these privately owned lines, and if power purchasing
arrangements can be accommodated with these parties.

12081474_1.DOC - 1 July 2011 31


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June 2011

Capital and ongoing costs a more developed project scope, taking account of specific
line route configurations and connecting infrastructure, could firm the capital and ongoing
costs of infrastructure.

Modelling of customer impacts a full business case could model customer impacts under
alternate pricing policies, as this will affect the value in the project available to finance
infrastructure.

4.4 Andamooka
As noted above, the detailed analysis for Andamooka is provided in Appendix A (Commercial
in confidence) Grid connection financial analysis. However, those elements of the analysis
which are not considered to be commercialin-confidence and do not influence future
commercial negotiations are provided below.

An overview of existing services in Andamooka is provided in the table below.

Table 4-4: Andamooka summary


Overview of existing service delivery - Andamooka
Customers 500
Installed generation capacity 1,650 kW of diesel gensets
Peak load 1,000 kW
Annual load (sold) 2,500 MWh pa
Forecast subsidy payment from DTEI in 2011-12 $1.018 million
Per customer subsidy in 2011-12 $2,035
Service delivery overview Independently operated subject to agreement
between operator and DTEI.
Future issues Diesel station decommissioning, environmental
clearance.
Reduced cost of power contingent upon reaching
negotiated position with BHP-Billiton for power
purchase agreement

Discussion
93B

Andamookas mini-grid is approximately 30 km from the current Roxby Downs Grid, which in
turn is supplied from the 275 kV transmission line that services BHP-Billitons Olympic Dam
Mine, owned by BHP.

The 33 kV network in Roxby Downs is administered by Roxby Downs Council, and has a
supply capacity of around 10 MW. While in previous years there may have been capacity
available in the line to add an extra 1 MW of load from Andamooka, however more recently,
BHP-Billiton has advised DTEI that capacity is no longer available.

12081474_1.DOC - 1 July 2011 32


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Department of Transport Energy & Infrastructure -
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Advisory
June 2011

With the expansion of Olympic Dam Mine, there will be major increases in population in Roxby
Downs, along with the relocation of the mines contractor camp to midway between Roxby
Downs and Andamooka. This will result in a major upgrade of electrical capacity to Roxby
Downs and an extension of 33 kV power lines to the contractors camp.

At that time, capacity might be expected to be available in the 33 kV system, and the line route
to Andamooka will have been halved.

In addition, it is reasonable to expect that many BHP-Billiton contractors and others working in
Roxby Downs will establish homes in Andamooka, increasing electrical demand in the town.

The construction of the contractor camp and the new powerlines presents an opportunity to
extend the new lines to connect Andamooka to the grid. A number of implementation issues are
identified below.

4.4.1 Grid connection solution


43B

IT Power has identified that the key components of a grid connection solution for Andamooka
are:

Connection via a 33 kV power line from the Roxby Downs grid during its expansion to the
airport and contractor camp.

A 15 km, 33 kV line built on a road reserve with minimal environmental issues and tree
clearing would cost in the order of $1.2 million. Connection, switching, SCADA control
and transformation assets at each end of the line are likely to add an additional $200,000 to
this cost.

Decommissioning of the diesel power station could add an extra $100,000 to the cost. This
assumes that the diesel storage tanks and other infrastructure have not created any
environmental concerns through leakage or spillage.

Based on the above assumptions, IT Power estimated total construction works would be in the
order of $1.5 million.

4.4.2 Financial analysis


4B

The detailed financial analysis for connection of Andamooka to the infrastructure owned by
Roxby Downs Council is provided in Appendix A (Commercial in confidence) Grid
connection financial analysis.

The general findings of this analysis are that:

The existing subsidy payment from DTEI to the private operator is around $1 million per
annum. There is the potential to cease this subsidy payment entirely through a grid
connection.

12081474_1.DOC - 1 July 2011 33


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The potential ongoing savings from grid connection, arising from the difference between
National Electricity Marketdelivered energy and diesel generation costs, are significant.

The high-level financial analysis is suggestive of the project being economic with a
relatively short payback period, however upfront capital costs (e.g. to upgrade the
upstream network) or implementation costs would negatively affect the business case.
The extent of such costs would depend on the outcome of commercial negotiations with the
relevant parties.

Like Coober Pedy, the possibility of obtaining 50% Commonwealth Government funding
through the Regional Development Australia Fund should be explored. However, this may
require another party lead the application, for example the Opal Miners and Progress
Association, Outback Areas Trust, or Roxby Downs Council (for-profit organisations are
excluded under the Funds eligibility requirements).

As with Coober Pedy, a favourable business case relies on commercial negotiations with
BHP-Billiton and Roxby Downs Council.

Business model

Connection to the Roxby Downs grid brings a number of questions about the potential business
and service delivery model. In addition, there are questions over the funding, delivery and
ownership of the power line.

For example, the existing operator in Andamooka could continue to provide distribution and
retail services, or there may be economies of scale from an arrangement with Roxby Power
(Roxby Downs Council) to take over these services.

These issues would need to be resolved as part of a full business case analysis, and would also
require commercial negotiation with the parties involved.

For the purposes of the analysis, we have assumed that the existing operator would continue to
provide distribution and non-contestable retail services in Andamooka under price monitoring
by ESCOSA.

Proposed way forward

In view of the potential savings available from grid connection of Andamooka, the Government
could consider the following as the priorities for progressing the case for grid connection
further.

1 Private operator partially funds grid connection and a third party applies to the
Commonwealth Government for 50% funding under the Regional Development Australia
Fund

From the State Governments perspective, the preferred option should be to encourage the
private operator to fund some portion of grid connection infrastructure with a third party

12081474_1.DOC - 1 July 2011 34


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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ABCD
Department of Transport Energy & Infrastructure -
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Advisory
June 2011

who is eligible to apply for Commonwealth Government funding, to assist with financing
some of the grid investment.

Under this scenario, the Governments involvement in Andamooka via subsidies could
cease, and retail prices could be price monitored or similar by ESCOSA, to ensure that
future retail prices reflect reasonable costs using a building block approach and other
standard regulatory approaches.

Although the State Government cannot apply for funding under this program, the
Government could consider how DTEI might support another party make an application, for
example the Roxby Downs Council, Opal Miners and Progress Association, or Outback
Areas Trust. DTEI could, for example, assist or facilitate negotiations with BHP-Billiton, to
maximise the chance of a successful funding application.

2 Third party funds grid connection and applies to the Commonwealth Government for 50%
funding under the Regional Development Australia Fund

An alternative to the above could be to encourage a third party to apply for Commonwealth
Government funding, for example the Opal Miners and Progress Association with the
assistance of the Outback Areas Trust. The current operator would not finance any portion
of the grid investment.

Under this scenario, the third party would need to either negotiate with the current operator
some network charge (allowing the operator to access energy through the network
infrastructure to the NEM), or seek access to the existing distribution network for re-sale of
energy.

The addition of a third party network creates transaction costs and commercial uncertainty.
It also creates a number of regulatory access issues. However, it is a conceivable option
which could be explored, before the Government considers funding grid connection
infrastructure.

3 State Government funds grid connection infrastructure and comes to an arrangement with
the operator

The third priority should be for the Government to fund the infrastructure build, effectively
gifting the asset to the existing operator, and ceasing ongoing subsidy payments.

Under this scenario, prices could be monitored by ESCOSA and the Government would no
longer have a role in setting electricity charges.

These options should be progressed through commercial negotiations with the parties involved
(the current operator, BHP-Billiton, and Roxby Downs Council). Subject to there being some
level of commercial agreement, an application for Commonwealth Government funding could
then be progressed. Alternatively, if an application for funding is not successful, the
Government can progress negotiations with the current operator to fund the network
infrastructure.

12081474_1.DOC - 1 July 2011 35


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Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

4.4.3 Issues for full business case analysis


45B

The high-level case for connection of the Andamooka mini grid to Roxby Downs is strongly
suggestive of the need for a full business case analysis to be undertaken.

A full business case analysis would consider the following in greater detail:

Costs and benefits of alternate operating models for example, operation of Andamooka
distribution/retail functions by the existing operator, Jeril Enterprises or, alternately, the
existing distribution assets might either be leased or sold and to transfer the
distribution/retail function to the Roxby Downs Council-owned entity, Roxby Power. This
analysis could include identifying any implementation / transaction costs between parties.

- These scenarios demonstrate that the final NPV project evaluation will be contingent
upon the future operating arrangements and negotiated position between parties.

Ensuring reasonable commercial interests of parties are met the analysis could assist to
identify broad financial parameters for commercial negotiations to commence. These
financial parameters should recognise the legitimate commercial interest of parties, and may
extend to the sorts of regulatory principles which are already agreed between the
Government and the independent operators.

Legal and implementation issues for example, interaction with the Roxby Down
Indenture Ratification Act 1982, and commercial issues associated with network access and
any power purchase agreement.

Project timing the timing of major network expansions for Olympic Dam Mine, which
would provide capacity in the transmission line, as well as through the Roxby Down grid
through to the new airport site, would also need detailed consideration.

Alternate financing and delivery arrangements the power line could be funded and
procured by the Government, or by another entity. It is also possible that BHP-Billiton,
Jeril Enterprises, or the Andamooka Opal Miners and Progress Association could apply for
Commonwealth Government funding, for example under the Regional Development
Australia Fund.

Importantly, it would be necessary to first establish some in-principle understandings between


the parties, i.e. the Government, BHP-Billiton, and Jeril Enterprises, prior to undertaking
detailed business case development.

Ideally, this would take the form of a heads of agreement or exchange of letters between
parties. While this would not be contractually binding on parties, it would recognise that they
intend to share information and work together to inform preparation of a detailed business case.

Such an agreement could conceivably:

identify the Governments policy objectives associated with connection of Andamooka and
reducing the cost of electricity to consumers;
12081474_1.DOC - 1 July 2011 36
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provide a commitment from parties to share information for the purposes of a full business
case analysis; and

commit parties to negotiate in good faith in any later-stage commercial negotiations.

It would be important to have this level of commitment from parties prior to commencing any
full business case analysis.

4.5 Yunta
As noted above, the detailed analysis for Yunta is provided in confidential Appendix A
(Commercial in confidence) Grid connection financial analysis. However, those elements of
the analysis which are not considered to be commercialin-confidence and do not influence
future commercial negotiations are provided below.

An overview of existing services in Yunta is provided in the table below.

Table 4-5: Yunta summary


Overview of existing service delivery Yunta
Customers 70
Installed generation capacity 500 kW diesel
Peak load 160 kW
Annual load (sold) 400 MWh pa
Forecast subsidy payment from DTEI in 2011-12 $187,000
Actual generation costs 2009-10, less Fuel Excise $240,000, less $58,000 = $182,000
Credit (note: approximate value of subsidy)
Per customer subsidy in 2011-12 $2,675
Service delivery overview Independently operated. DTEI/operator agreement
in place for ongoing subsidy payment.
Future issues Dalfoam would continue distribution of energy in
Yunta as ETSA is unlikely to assume ownership of
the assets.

Yunta is located approximately 80 km (as the crow flies) to the north east of the National
Electricity Grid at Peterborough. The line distance is estimated to be around 100 km.

The only option available is to extend the Peterborough 33 kV distribution network north east to
Yunta.

As the Yunta mini grid is privately owned by Dalfoam, there may be additional costs involved
in the operator ceasing current generation activities. Dalfoam acts as retailer and deals with the
customers. DTEI provides a subsidy to Dalfoam in the order of $180,000 per annum, but this is
slightly less than the potential generation and fuel cost savings. This analysis is based on the
generation and fuel cost savings.

12081474_1.DOC - 1 July 2011 37


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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ABCD
Department of Transport Energy & Infrastructure -
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Advisory
June 2011

4.5.1 Grid connection solution


56B

IT Power has identified the key components of a grid connection solution for Yunta are:

Connection via a 33 kV power line from Peterborough grid.

A 100 km, 33kV line built on the rail reserve with minimal environmental issues and tree
clearing would cost in the order of $8 million. Connection, switching, SCADA control and
transformation assets at each end of the line are likely to add an additional $200,000 to the
cost.

Decommissioning of the diesel power station would add an extra $100,000 to the cost
assuming the diesel storage tanks and other infrastructure have not created environmental
concerns through leakage or spillage.

IT Power has estimated that, based on the assumptions above, the total construction works
would be in the order of $8.3 million.

4.5.2 Financial analysis


57B

The detailed financial analysis for grid connection of Yunta is provided in Appendix A
(Commercial in confidence) Grid connection financial analysis.

The general findings of this analysis are that:

The existing subsidy payment from DTEI to the private operator is around
$180,000 per annum. There is the potential to cease this subsidy payment entirely.

Taking a 10-year view, the savings from subsidy payment, valued in todays dollars, is
significantly less than the cost of grid connection of $8.3 million.

Grid connection of Yunta has a negative project valuation of $6.3 million.

There is no financial case for grid connection of Yunta.

12081474_1.DOC - 1 July 2011 38


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

4.6 Parachilna and Blinman


17B

An overview of existing services in Parachilna and Blinman is provided in the table below.
These townships are dealt with jointly as they would be best served by a common grid extension
solution.

Table 4-6: Parachilna and Blinman summary


Overview of existing service delivery Parachilna and Blinman
Customers 15 (Parachilna) and 40 (Blinman)
Installed generation capacity 300 kW diesel (Blinman) and
230 kW diesel, 20 kW PV (Parachilna)
Peak Load 100 kW each
Annual Load (sold) 190 MWh pa (Parachilna) and 310 MWh pa Blinman
Net direct cost of service delivery 2011-12 $114,000 (Blinman) and $57,000 (Parachilna)
Per customer subsidy in 2011-12 $2,864 (Blinman) and $3,778 (Parachilna)
Service delivery overview Government owned with services delivered under
contract by Cavpower and ETSA Utilities.
Future issues Grid connection likely to be via loop incorporating
both townships.

The closest power line to both of these towns is the 132 kV line that runs from Port Augusta to
Leigh Creek. There is a major substation on that line near Parachilna. However, this is not an
option that can be considered feasible due to the high cost of transformation from such a
voltage.

Leigh Creek has 33 kV and 11 kV connections, and is around 60 km North of Parachilna, with
Blinman another 30 km east of Parachilna.

The most sensible option is to treat these two towns as a single extension project. A major
obstacle however is the Flinders Ranges between Parachilna and Blinman. Flinders Ranges
creates an extreme difficulty in finding a suitable line route between the two towns that does not
have overhead power lines across the ranges. Such a proposal is considered unlikely to ever
gain environmental approval.

Both towns have very modest electrical demands now, however with main-grid connection, it is
foreseen that demand would increase significantly, with it being likely that the presence of grid
power would drive tourism and residential development in both towns.

As a result, the minimum voltage for transmission to the two towns would be 11 kV, with a
capacity of 1 MW.

An option exists to extend Single Wire Earth Return (SWER) powerlines south from the
Balcanoona line on the east of the Ranges to Blinman. SWER can deliver around 150 kW under
the length of line conditions, with the Blinman demand currently at around 100 kW. However,

12081474_1.DOC - 1 July 2011 39


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June 2011

such an option provides no future demand capacity and could result in significant voltage
fluctuation and impedance issues at Blinman as the result of a 60 km line route, requiring the
use of voltage regulators along the line and the inability to connect any new loads to the town
supply in future. This option, as a result, has not been considered for this study.

4.6.1 Grid connection solution


50B

IT Power has identified the key components of a grid connection solution for Parachilna and
Blinman are:

Connection via an 11 kV power line from Leigh Creek to Parachilna with a further
extension to Blinman.

A 60 km 11 kV line to Parachilna built on a road reserve with minimal environmental issues


and tree clearing would cost in the order of $4.2 million, with connection, switching, and
SCADA control assets at each end of the line likely to add an additional $100,000 to the
cost.

A further 40 km (long line route to avoid ranges) 11 kV line extending to Blinman built on a
road reserve with minimal environmental issues and tree clearing would cost in the order of
$2.8 million, with connection, switching, and SCADA control assets at each end of the line
likely to add an additional $100,000 to the cost.

Decommissioning of the diesel power stations would add an extra $100,000 to the cost
assuming the diesel storage tanks and other infrastructure have not created environmental
concerns through leakage or spillage.

IT Power advises that, based on the above assumptions, total construction works would be in the
order of $7.2 million.

4.6.2 Operating model

The operating model assumes connection to the ETSA-Utilities regulated grid would allow
transfer of distribution functions to ETSA Utilities and for RAES costs to be rolled into its state-
wide, regulated grid prices. Similarly, retail services might be provided by AGL, through an
obligation to supply. Distribution assets would be gifted/transferred to ETSA Utilities.

The new power line would be funded by the Government as per the usual process for customer
connections. The upfront cost to the Government might be reduced marginally by applying the
specific customer contributions policy in Chapter 3 of the Distribution Code6. However, for this 9F

high-level analysis, the full capital cost is used as a simplifying assumption.

6
The customer contributions policy allows the capital connection costs to be reduced through application of a
formula which takes account of the future payments made to ETSA Utilities by the customers being connected.
12081474_1.DOC - 1 July 2011 40
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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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June 2011

4.6.3 Financial analysis

The detailed financial analysis for grid connection of Parachilna and Blinman is provided in
Appendix A (Commercial in confidence) Grid connection financial analysis.

The general findings of this analysis are that:

The potential for ongoing savings is in the order of $380,000 in 2013-14, comprising fuel
savings and savings of costs under the commercial contracts with ETSA Utilities and
Cavpower. This saving increases over the 10-year period.

Taking a 10-year view, the savings from subsidy payment, valued in todays dollars is
significantly less than the capital cost of grid connection of $7.2 million.

To put the capital cost of connecting Parachilna and Blinman into context, the $7.2 million
capital cost identified by IT Power would equate to a direct subsidy of approximately
$131,000 for each of the 55 customers being connected.

Grid connection of Parachilna and Blinman has a negative project valuation of $3.8 million.

This suggests that there is no financial case for grid connection of Parachilna and Blinman.

12081474_1.DOC - 1 July 2011 41


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

4.7 Marree
18B

An overview of existing services in Marree is provided in the table below.

Table 4-7: Marree summary


Overview of existing service delivery Marree
Customers 80

Installed generation capacity Total 540 kW consisting of three 180 kW diesel gensets.

Peak load 250 kW

Annual load (sold) 910 MWh pa

Net direct cost of service delivery 2011-12 $260,624


Per customer subsidy in 2011-12 $3,258
Service delivery overview Government owned with services delivered under
contract by Cavpower and ETSA Utilities
Future issues Network assets are not in a condition suitable for
transfer to another party.

Marree is located some 120 km north of Leigh Creek, where the 132 kV transmission is
transformed to 33 kV and 11 kV distribution assets.

The only option available is to extend the Leigh Creek 33 kV distribution network north to
Marree.

4.7.1 Grid connection solution


52B

IT Power has identified the key components of a grid connection solution for Marree are:

Connection via 33 kV power line from Leigh Creek.

A 120 km 33 kV line built on a road reserve with minimal environmental issues and tree
clearing would cost in the order of $9.6 million, with connection, switching, SCADA
control and transformation assets at each end of the line likely to add an additional $200,000
to the cost.

Decommissioning of the diesel power house would add an extra $100,000 to the cost
assuming the diesel storage tanks and other infrastructure have not created environmental
concerns through leakage or spillage.

IT Power has estimated that, based on the assumptions above, the total construction works
would be in the order of $10 million.

12081474_1.DOC - 1 July 2011 42


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

4.7.2 Operating model


53B

The operating model assumes connection to the ETSA-Utilities regulated grid would allow
transfer of distribution functions to ETSA Utilities and for RAES costs to be rolled into its state-
wide, regulated grid prices. Similarly, retail services might be provided by AGL, through an
obligation to supply. Distribution assets would be gifted/transferred to ETSA Utilities.

The new power line would be funded by the Government as per the usual process for customer
connections. The upfront cost to the Government might be reduced marginally by applying the
specific customer contributions policy in Chapter 3 of the Distribution Code7. However, for this 9F

high-level analysis, the full capital cost is used as a simplifying assumption.

4.7.3 Financial analysis

The detailed financial analysis for grid connection of Marree is provided in Appendix A
(Commercial in confidence) Grid connection financial analysis.

The general findings of this analysis are that:

To put the capital cost of connecting Marree into context, the $10.0 million capital cost
would equate to a direct subsidy of approximately $125,000 for each of 80 customers being
connected.

The potential for ongoing savings is in the order of $560,000 in 2013-14, comprising fuel
savings and savings of costs under the commercial contracts with ETSA Utilities and
Cavpower. Savings will rise over the 10 year period due to load growth and real price
increases.

Taking a 10-year view, the savings from subsidy payment, valued in todays dollars, is
significantly less than the capital cost of grid connection of $10.0 million.

Grid connection of Marree has a negative project valuation of $5.3 million.

The results of the analysis suggest that there is no financial case for grid connection of Marree.

7
The customer contributions policy allows the capital connection costs to be reduced through application of a
formula which takes account of the future payments made to ETSA Utilities by the customers being connected.
12081474_1.DOC - 1 July 2011 43
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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

4.8 Nundroo
19B

An overview of existing services in Nundroo is provided in the table below.

Table 4-8: Nundroo summary


Overview of existing service delivery Nundroo
Customers 45
Installed capacity and generation Total 350 kW (from three diesel gensets)
Peak load 150 kW
Annual load (sold) 420 MWh pa
Net direct cost of service delivery 2011-12 $101,000
Per customer subsidy in 2011-12 $2,251
Service delivery overview Government owned with services delivered under
contract by Cavpower and ETSA Utilities.
Responsibility for management of nearby services in
Yalata (outside scope of this report) were transferred
from the Aboriginal Affairs Division of the
Department of Premier and Cabinet to DTEI on
1 July 2011.
Future issues N/A

There may be a case to argue that the settlements of Nundroo, Fowlers Bay and Yalata should
be connected in one project, although the scope of this study covers only Nundroo.

The closest connection to the main-grid is the 33 kV line to Ceduna which is approximately
144 km from Nundroo as the crow flies.

4.8.1 Grid connection solution


54B

In 2009, ETSA estimated that connecting the regionally close towns of Nundroo (RAES),
Yalata (AARD) and Fowlers Bay at 33 kV from the Ceduna grid would cost in the order of
$15 million.

Yalata is approximately 47 km to the north-west of Nundroo.

Fowlers Bay is approximately 32 km to the south-east of Nundroo.

IT Power has identified the key components of a grid connection solution for Nundroo only are:

Connection via 33 kV power line from Ceduna.

A 150 km 33 kV line built on a coastal road reserve with minimal environmental issues and
tree clearing would cost in the order of $14 million, with connection, switching, SCADA

12081474_1.DOC - 1 July 2011 44


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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Department of Transport Energy & Infrastructure -
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Advisory
June 2011

control and transformation assets at each end of the line likely to add an additional $200,000
to the cost.

Decommissioning of the diesel powerhouse would add an extra $100,000 to the cost
assuming the diesel storage tanks and other infrastructure have not created environmental
concerns through leakage or spillage.

IT Power has estimated that, based on the assumptions above, the total construction works
would be in the order of $14.3 million.

IT Power has estimated the addition of Yalata and Fowlers Bay would add a further $7.7 million
to this estimate. 5

4.8.2 Operating model

The operating scenario is that the connection to the ETSA-Utilities regulated grid would allow
transfer of distribution functions to ETSA Utilities and for RAES costs to be rolled into its state-
wide, regulated grid prices. Similarly, retail services might be provided by AGL, through an
obligation to supply. Distribution assets would be gifted/transferred to ETSA Utilities.

The new power line would be funded by the Government as per the usual process for customer
connections. The upfront cost to the Government might be reduced marginally by applying the
specific customer contributions policy in Chapter 3 of the Distribution Code8. However, for this 9F

high-level analysis, the full capital cost is used as a simplifying assumption.

4.8.3 Financial analysis

The detailed financial analysis for grid connection of Nundroo is provided in Appendix A
(Commercial in confidence) Grid connection financial analysis.

The general findings of this analysis are that:

To put the $14.3 million capital cost into context, this is the equivalent of $317,000 per
customer.

The potential for ongoing savings is in the order of $271,000 in 2013-14, comprising fuel
savings and savings of costs under the commercial contracts with ETSA Utilities and
Cavpower. Savings increase over the 10-year period due to load growth and real price
increases.

Grid connection of Nundroo has a negative project valuation of $11.1 million.

The results of the analysis suggest there is no financial case for grid connection of Nundroo.

8
The customer contributions policy allows the capital connection costs to be reduced through application of a
formula which takes account of the future payments made to ETSA Utilities by the customers being connected.
12081474_1.DOC - 1 July 2011 45
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Advisory
June 2011

Other considerations connecting Yalata and Fowlers Bay

There would also be additional savings to the Government, outside of the RAES Scheme for
savings associated with grid connection of Yalata (fuel, generation, asset maintenance, etc).

Yalata will be managed by DTEI from 1 July 2011 as a result of a recent Government decision
to transfer management responsibility from the Aboriginal Affairs Division (AARD) of the
Department of Premier and Cabinet.

Although outside the scope of this study, it is unlikely that the cost savings from connection to
Yalata would change the financial analysis of the project, and it would add capital costs of
approximately $7.7 million.

It is understood that there is a low level of cost recovery for customers on Aboriginal lands, with
most domestic sites not metered. This would result in comparatively higher consumption levels
and direct costs than the RAES Scheme (as RAES recovers tariff revenue), however these costs
would have to be of an order of magnitude greater than in RAES towns for grid connection to be
feasible, and this is unlikely.

Similarly, the addition of Fowlers Bay is also not expected to change the outcome of the
analysis. Connection of Fowlers Bay would require additional distribution infrastructure
investment, operation and maintenance, and require a party to perform the retailer/distributor
functions. Further, the low level of usage would not result in significant tariff revenue.

In view of the above, extending the high-level analysis to include savings from Fowlers Bay and
Yalata is not expected to change the financial feasibility of the project. 20B

4.9 Mannahill (incorporating Yunta)


21B

An overview of existing services in Mannahill is provided in the table below.

Table 4-9: Manna Hill summary


Overview of existing service delivery Manna Hill
Customers 20
Installed generation capacity Total 200 kW, from three diesel gensets,
Peak load 40 kW
Annual load (sold) 110 MWh pa
Net direct cost of service delivery 2011-12 $53,700
Per customer subsidy in 2011-12 $2,686
Service delivery overview Government owned with services delivered under
contract by Cavpower and ETSA Utilities
Future issues N/A

The only option for connection of Mannahill is to extend any 33 kV line that might be built in
the future to Yunta.
12081474_1.DOC - 1 July 2011 46
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Department of Transport Energy & Infrastructure -
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June 2011

A power line from Yunta to Mannahill, following the Barrier Highway, would have a line route
of approximately 50 km.

4.9.1 Grid connection solution


58B

IT Power has identified the key components of a grid connection solution for Mannahill are:

Connection via 33 kV power line from Yunta (as yet unbuilt and estimated to cost
$8.3 million).

A 50 km 33 kV line built on the rail reserve with minimal environmental issues and tree
clearing would cost in the order of $4 million. Connection, switching, SCADA control and
transformation assets at each end of the line are likely to add an additional $100,000 to the
cost.

Decommissioning of the diesel power station would add an extra $100,000 to the cost
assuming the diesel storage tanks and other infrastructure have not created environmental
concerns through leakage or spillage.

IT Power has estimated that, based on the assumptions above, the total construction works
would be in the order of $4.2 million (plus $8.3 million to connect Yunta).

4.9.2 Operating model


59B

The operating model would conceivably require a transfer of assets from the existing operator at
Yunta to ETSA Utilities, to allow an effective extension of ETSA Utilities regulated grid,
transfer of distribution functions to ETSA Utilities, and for costs to be rolled into its state-wide,
regulated grid prices. State-owned assets at Mannahill would also be gifted/transferred to ETSA
Utilities. Retail services could be provided by AGL, through an obligation to supply.

The new power line infrastructure would be funded by the Government as per the usual process
for customer connections. The upfront cost to the Government might be reduced marginally by
applying the specific customer contributions policy in Chapter 3 of the Distribution Code 9. 9F

However, for this high-level analysis, the full capital cost is used as a simplifying assumption.

It is noted that there would be a number of commercial issues arising in such a scenario,
including purchase or lease of the current operators assets at Yunta. However, as the financial
analysis is suggestive of a negative project valuation, these issues are not considered in further
detail.

4.9.3 Financial analysis

The detailed financial analysis for grid connection of Mannahill (incorporating Yunta) is
provided in Appendix A (Commercial in confidence) Grid connection financial analysis.

9
The customer contributions policy allows the capital connection costs to be reduced through application of a
formula which takes account of the future payments made to ETSA Utilities by the customers being connected.
12081474_1.DOC - 1 July 2011 47
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Department of Transport Energy & Infrastructure -
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Advisory
June 2011

The general findings of this analysis are that:

The capital cost of connecting Mannahill to Yunta is approximately $4.2 million, which
equates to a direct subsidy of approximately $210,000 for each of the 20 customers being
connected. As the project relies on the Yunta grid connection occurring (via Peterborough),
the financial analysis should be considered holistically.

The combined capital cost of connecting Mannahill ($4.2 million) and Yunta ($8.3 million)
is approximately $12.5 million, which equates to around $140,000 for each of the
90 customers which would be connected. 2

The potential for ongoing savings is in the order of $306,000 in 2013-14, comprising
subsidy payments (Yunta), fuel savings (Mannahill) and savings of costs under the
commercial contracts with ETSA Utilities and Cavpower (Mannahill).

The results of the NPV analysis is a negative project valuation of $9.3 million.

This suggests that there is no financial case for grid connection of Mannahill.

4.10 Investment evaluation period


The preceding analysis of grid connection options is based on a 10-year time horizon and
investment evaluation period, as per the engagement scope.

However, a longer period would result in improved project NPV results in each case.

This is because the displacement of local, predominantly diesel-based generation results in


permanent reduction in ongoing costs to the Government, whereas the capital costs for the
power line, which may have a life of over 40 years, occurs almost entirely at the outset of the
project period. This is illustrated below.

Figure 6: Illustrative case where time horizon affects the investment evaluation

Capital costs of power line plus ongoing


operating and maintenance costs

Ongoing cost of local generation (fuel,


generation operating and maintenance
costs, and subsidy payments)

A 10-year evaluation period results


in an unfavourable project
evaluation, however a 30-year
view captures additional benefits
(through avoided cost savings),
without a substantial increase in
costs, as the power line costs are
predominantly upfront
0 5 10 15 20 25 30 35 40

12081474_1.DOC - 1 July 2011 48


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June 2011

Source: KPMG

One option of dealing with the timeframe assessment issue is valuing all future costs
(i.e. subsidy payments by Government) at the end of the 10-year period. Owing to the very
small size of most of the RAES towns, this has not been performed, as it would be a significant
assumption that towns would continue to exist, under a no change policy scenario, in
perpetuity.

Lastly, we note even a positive NPV project valuation does not automatically suggest a project
should proceed. Governments have numerous competing priorities for funding of economic and
social programs. Ultimately, infrastructure funding decisions are made in view of policy
decisions and prioritisation of spending within budget constraints.

4.11 Other grid connection costs and benefits


23B

In addition to the costs and benefits of grid connection to the Government / RAES Scheme
Budget, there are additional benefits which would be captured in a full cost benefit analysis, but
this is beyond the scope of this report.

Importantly, these would not be so significant that they would alter the findings above and, with
the exception of Andamooka and Coober Pedy, grid connection of sites would remain
uneconomic. Although beyond the scope of this report, some other benefits are noted here for
completeness of analysis.

Electricity cost savings to consumers (private benefits) electricity cost savings would be
realised where grid connection allowed the Minister for Energy to reduce RAES tariffs
below their current levels. However, as electricity is already heavily subsidised for small to
medium domestic consumers (i.e. to allow grid+10% pricing), these benefits would not be
significant for these customers.

Local amenity (private benefits) the potential removal of power houses from town
centres may improve local amenity through reduced noise, reduced movement of trucks for
fuel deliveries, and remediation of land.

Increase in other retailer/distributor net costs grid connection of RAES sites assumes
that other parties would provide retailer/distributor functions, and this may add to their net
cost of service delivery, through both increased costs and revenues.

For example, connection to the regulated network could result in ETSA Utilities performing
distributor functions and recovering regulated revenues through all network users, or AGL
might be obligated to supply customers.

12081474_1.DOC - 1 July 2011 49


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ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

5 Energy efficiency options for consumers to reduce their


4B

energy costs
Energy efficiency measures have the potential to provide consumers with relatively low cost
ways of reducing their energy costs, without necessarily compromising lifestyle or comfort.

Various energy efficiency awareness programs have been promoted by all levels of government
in Australia for some time. For RAES customers on high marginal tariffs, many modest energy
efficiency investments become financially attractive, and provide a practical means by which
households and businesses can reduce their energy costs. The availability of government
incentives increases the attractiveness of these investments.

Discussions with Sustainable Focus, who undertook energy efficiency audits in Coober Pedy
and other RAES towns, indicate that, until recently, energy efficiency investment in RAES
towns has been minimal. The Energy Efficiency Rebate program, funded by the
Commonwealth through the terminating Renewable Remote Power Generation Program
(RRPGP) was delivered by the Coober Pedy District Council and the SA Government. The
efficiency rebate program stimulated energy efficiency investment and delivered significant
savings for major energy consumers, with approximately $220,000 in rebates delivered. The
small users section of the same program is reported to have received some interest, but the level
of resultant household investment is not yet available.

Sustainable Focus 10 has indicated, from their experiences of energy auditing in RAES towns,
10F

that there are still significant improvements to be made in air conditioning, water heating and
energy consumption behaviours.

The following sections provide illustrative case studies which demonstrate some of the practical
energy efficiency measures which households, businesses, and government offices can pursue.
While significant energy efficiency investments will benefit RAES towns, the benefits will flow
to consumers rather than powerhouse operators. This will have minimal impacts on subsidised
tariff rates which will mainly trend with diesel price movements.

5.1 Domestic sector


24B

5.1.1 Background
60B

The energy savings that can be achieved through energy efficiency in the domestic sector is
dependent on the individual house and the behaviour of the occupant.

Typically, household loads in desert climate locations are dominated by air conditioning, with
water heating and refrigeration also being significant. Compared to the Australian average,
homes in Central Australian desert climates require significantly less heating but more cooling.

10
Sustainable Focus is a specialist energy auditing and energy efficiency advisory business with a presence in remote
areas, in particular through it being the principal deliverer of energy audits under the Coober Pedy Council Energy
Efficiency Program (funded by the Commonwealth through the Renewable Remote Power Generation Program).
12081474_1.DOC - 1 July 2011 50
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Department of Transport Energy & Infrastructure -
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Advisory
June 2011

The energy efficiency measures outlined in this section relate to above-ground houses which are
the majority in RAES towns. Coober Pedys underground houses are unique as they require
little heating and cooling, and thus have significantly lower energy bills and different end use
proportions.

Figures 1 and 2 show energy consumption for an average Australian house compared with an
average house in Alice Springs, which is located in a similar climate zone and is a reasonable
guide to potential savings in outback South Australia.

Figure 7: Breakdown of average Australian household energy use (DCCEE, 2010)

Source: Department of Climate Change and Energy Efficiency

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June 2011

Figure 8: Breakdown of average household energy consumption in Alice Springs (Alice Solar
City, 2009)

Source: Department of Climate Change and Energy Efficiency

An average house in Alice Springs consumes approximately 8,000 kWh per year (Alice Solar
City, 2009). This has been used as the baseline energy consumption for an average house in
RAES towns. However, due to extensive use of LPG and solar hot water systems, many homes
in RAES towns consume around 5,000 kWh per year.

Table 5-1 shows a breakdown of energy consumption and costs for an 8,000 kWh per year
home in Coober Pedy based on current tariffs.

Table 5-1: Breakdown of average household energy consumption and costs in Coober Pedy for
a house with energy consumption of 8,000kWh/year
Water
Cooling Fridge Cooking Appliances Other Lights Heating Total
heating

Energy use
2,320 2,080 960 800 400 960 80 400 8,000
(kWh/year)

Cost ($/year) 572 513 237 197 99 237 20 99 1,972

Source: ITP

12081474_1.DOC - 1 July 2011 52


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

5.1.2 Solar hot water systems


61B

Solar hot water systems (SHW) have significant potential for energy savings for householders in
RAES towns. A 2005 study of SHW usage in Alice Springs found that correctly sized SHW
systems are very effective throughout the year, with most households using their electric booster
on only 10 days through the winter months. Due to the very low need for boosters, SHW
systems reduced water heating energy consumption by 95% compared to electric storage hot
water systems.

In areas where bore water or heavy water is used, closed loop SHW systems (that utilise a
working fluid circuit and heat exchanger to tank water) must be used. Closed loop water heaters
have a higher capital cost than direct flow water heaters and are required in all RAES towns
with bore water, except Coober Pedy due to the use of reverse osmosis which produces a high
quality water supply ideally suited to SHW systems. The following cost estimates are based on
evacuated tube solar water heaters, which are closed loop systems, and assumes selection of an
appropriate tank for bore water (corrosion resistant).

Most homes in RAES towns are using either electric storage water heaters or LPG instantaneous
water heaters. Where electric storage water heaters are used, SHW systems with one-shot
boosting have the potential to make large savings in domestic energy consumption. SHW
systems that are installed to replace electric storage water heaters, are eligible for the Federal
Governments $1,000 rebate 11. 1F

Correct use of the booster is critical to ensure low running costs and longer life for the solar hot
water system. For a conventional electric boost system, when the water is colder than desired,
the householder manually turns on the booster which heats the tank electrically. This system
relies on householders remembering to turn the booster switch off. Unfortunately, it is common
for electric boosters to be left switched on, which means the system uses electricity rather than
the sun to heat the water.

To address this issue, one-shot boosters can be used. Because of their energy saving benefits,
all systems installed under the Alice Solar City project must utilise a one-shot booster.
One-shot boosters are devices that indicate when the booster needs to be used; once the booster
is turned on it will heat the water in the tank and then automatically switch off.

Solar hot water systems are eligible to generate Small-scale Technology Certificates (STCs)
under the Australian Governments Mandatory Renewable Energy Target (MRET). Refer to
section 7.6 for a description of this program and STCs. SHW retailers typically offer customers
an upfront discount on the price of the SHW system for the eligible STCs. The retailer then
creates and sells the STCs and the customer does not need to be involved.

11
Renewable Energy Bonus Scheme solar hot water rebate, see
www.climatechange.gov.au/en/government/programs-and-rebates/solar-hot-water.aspx.
12081474_1.DOC - 1 July 2011 53
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Table 5-2: Indicative assumptions for a domestic Solar Hot Water System
Assumption Illustrative
Amount
Capital cost (for average house)* $4,500
Federal Government REBS Solar Water Heater Rebate $1,000
Coober Pedy District Council Energy Efficiency Rebate** $1,575
Total Capital cost to householder $1,925
Assumed annual running cost of electric storage water heater $572
(average house in Coober Pedy)
Maintenance pump replacement every 5 years $250
One-shot booster use 10 days pa

* Note the capital cost includes the STC discount from the retailer.

**Note that the efficiency rebate is subject to eligibility requirements and may not be available to all customers.

Source: ITP

Some retailers offer financing arrangements for SHW systems (such as 12 months interest
free). This allows consumers to pay for their installation over a 12 month period, minimising
the initial capital cost barrier.

In addition to the subsidised upfront costs of gas boosted SHW, a number of retailers are
understood to offer finance to purchasers, thereby removing any perception of there being a
financing barrier preventing households installing SHW. However, these offers may not be
available to customers living in remote towns because the retailers offering them are based in
metropolitan centres. The greatest barrier in RAES towns is likely to be a lack of retailers and
installers of SHW systems. This could be overcome through a bulk buy arrangement, under
which retailers from larger metropolitan centres are invited to submit quotes. Such an
arrangement could potentially be coordinated by the local council, progress association or other
community groups.

Table 5-3: Illustrative cost savings and payback for a solar hot water system with one-shot
electric boost
Capital cost Running Maintenance Total Simple Coober With EE
after STCs cost pa cost pa saving pa payback Pedy EE rebate simple
and REBS (years) Rebate* payback
(years)
$3,500 $20 $50 $559 6.3 $1,225 4.1

* First round closed on 15 June 2011.

Source: ITP

A SHW system will have an average lifetime of approximately 15 years. Tanks are typically
warranted for 10 years but will usually last 15 if water quality is good. Tanks are not warranted
for extremely saline water and will degrade much faster if water is not desalinated before
12081474_1.DOC - 1 July 2011 54
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Advisory
June 2011

entering the tank however this problem is common to both solar water heater tanks and
storage water heater tanks. This is not an issue in Coober Pedy as the town benefits from good
water quality due to the bore supply being treated by a reverse osmosis plant.

Pumps are often the first point of failure in a SHW system and need to be replaced
approximately every five years at estimated typical cost of $250. Over the 15 year life of the
system, a SHW system could be expected to save $4,000 to $5,000 compared with an electric
storage water heater over the same period, assuming that the major components of both systems
last 15 years 12. 12F

By way of comparison to other forms of hot water systems and running costs, solar hot water
systems are significantly cheaper to operate, and provide a clear means for reducing many
households energy costs. Investment in a solar hot water system offers significant potential to
a household looking to reduce its energy bills. Given there are savings for both the consumer
and the RAES annual subsidy, ongoing incentives are worth considering once the efficiency
rebate ends due to the cessation of Federal RRPGP funding.

5.1.3 Evaporative cooler with water management system


62B

Evaporative coolers can be very effective in arid climates like those of the RAES towns.

Evaporative coolers can reduce air conditioning energy consumption by up to 90%. However,
they consume water in significant quantities. This can be improved by using a water
management system to control the frequency of water dumping. However, the dumping rate
must be increased when bore water is used. This is less of an issue for Coober Pedy where the
water is treated. Domestic customers with large air conditioning loads could consider using
evaporative coolers or similar products instead of reverse-cycle, air conditioners. Two-stage
evaporative coolers use less water and deliver drier air, but are more expensive.

The following costs are based on installation of a ducted, single stage evaporative cooler in an
average sized house.

Table 5-4: Illustrative cost savings and payback for ducted evaporative cooling system
replacing existing inefficient air conditioner
Assumption Amount
Capital cost (for average house) for ducted evaporative cooling system to replace 3 kW air $3,000
conditioner
Expected energy savings range (depending on what is being replaced) 65 - 90%
Coober Pedy District Council Energy Efficiency Rebate* $1,050
Total Capital cost to householder $1,950
Assumed annual running cost of existing air conditioner (average house in Coober Pedy) $520
Average running time (based on average annual electricity consumption) 4hrs / day
Maintenance pad replacement every 5 years $100

12
Source: ITP
12081474_1.DOC - 1 July 2011 55
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Assumption Amount
Water consumption with water management system to monitor salinity levels and only dump
20L/hr
when necessary.

Source: ITP

Due to the potential variation in savings for replacing an existing air conditioner with an
evaporative cooler, two scenarios are shown in Table 5-5. The first scenario assumes
replacement of an old, inefficient air conditioner while the second assumes replacement of a
newer air conditioner with performance 25% better than that of scenario 1.

Table 5-5: New evaporative cooler, range of savings and simple paybacks
With EE
Simple Coober rebate
Capital Water Electricity Maintenan Annual payback Pedy EE simple
cost cost saving ce cost Saving (years) Rebate* payback
$3,000 $116 $462 $20 $345 8.7 $1,050 5.6
$3,000 $143 $336 $20 $193 15.5 $1,050 10.1

* Energy efficiency rebate first round closed on 15 June 2011.

Source: ITP

5.1.4 Other efficiency options


63B

There are a number of behavioural changes that domestic customers can make to reduce their
bills, without necessarily reducing comfort or lifestyle, including:

reduce the running time of air conditioners;

increase the summer temperature set point of the air conditioner by 2 degrees;

switch off appliances when not in use (including standby power); and

switch off second fridge if applicable.

These approaches can result in reduced energy bills, without any upfront or additional costs.

In addition, there are some low cost measures which can be used to help reduce solar loading on
the walls, windows and roofs of houses, for example:

shading of windows and walls (using awnings, pergolas or shade cloth);

painting the roof white;

installing reflective insulation and thermal insulation, and

12081474_1.DOC - 1 July 2011 56


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

reducing other heat loads by replacing incandescent and halogen light bulbs with fluorescent
light bulbs.

5.2 Retail (general store, supermarket)


25B

Supermarkets and retail spaces dealing with food have high energy requirements due the need
for freezers and fridges. These items can often run inefficiently and there is the potential for
large energy savings.

An energy audit for a major store complex in Coober Pedy, conducted by Sustainable Focus in
2009, found that electricity consumption was very high compared to other similar sized
buildings. This complex is the largest in Coober Pedy and RAES towns, at 2,300m2.

For this report, a smaller grocery store or general store of approximately 500m2 will be used for
the illustrative example. There are stores of a comparable size across RAES towns and an
example at this size may be relevant to more businesses than the larger store complex.

A store with older refrigeration equipment is assumed to consume approximately


100,000 kWh/year, falling into the second-highest tariff bracket for commercial electricity
consumers. Table 5-6 documents the assumptions used in the energy breakdown for a
small/medium commercial retail outlet with significant refrigeration requirements for groceries.

Table 5-6: Electricity consumption for retail case example


Assumption Amount
2
Size (m ) 500
Annual electricity consumption 100,000kWh
Annual electricity cost (Coober Pedy tariffs) $48,000
Annual refrigeration electricity consumption 50,000kWh
Annual HVAC consumption 30,000kWh
Annual lighting consumption 20,000kWh

Source: ITP

Replace refrigeration compressors


103B

Compressors in refrigeration systems are large energy consumers for retail stores. Old
compressors on refrigeration systems run inefficiently and new energy efficient compressors
typically consume 25% less than older models. The following table shows expected savings for
replacing one compressor on a grocery store refrigeration system.

It is assumed that the installed cost for a new compressor for the refrigeration system is $10,000.

12081474_1.DOC - 1 July 2011 57


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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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Advisory
June 2011

Table 5-7: Savings from compressor upgrade


Capital Saving (kWh) Saving ($) Simple Payback Coober Pedy Adjusted Simple
cost Pa pa Years EE rebate* Payback (Years)
$10,000 4,300 $2,287 4.4 3,500 2.8

* First round closed on 15 June2011.

Source: ITP

The very short payback period on this investment highlights the importance of up-to-date, high
performance refrigeration equipment for retail stores. This is particularly important in hot
climates where loads on refrigeration equipment are very high and should be a priority
investment for retail stores with refrigeration requirements.

5.3 Tourism accommodation


26B

Since the inception of the Coober Pedy District Councils Energy Efficiency program, a number
of businesses in Coober Pedy have already undertaken energy audits and implemented
recommended energy saving measures. These energy audits identified major areas of
improvement and have reportedly resulted in significant savings for the business owners.

An energy audit undertaken by Sustainable Focus for a Coober Pedy accommodation business
identified the potential for major energy savings for that property. Energy consumption is
dominated by air conditioning loads (HVAC, illustrated in figure 9). A brief summary of the
opportunities identified for the site is provided in the following table.

Table 5-8: Summary of identified energy savings for Coober Pedy hotel
Category Potential saving (% of total
hotel consumption)
HVAC (Heating, Ventilation and Air Conditioning) 14%
Equipment (including in-room equipment) 7%
Lighting 4%
Total potential savings 25%

Source: Sustainable Focus, 2009

Within these categories, specific measures included upgrades to the HVAC plant, upgrades to
room equipment and air conditioning, replacement of lighting with energy efficient bulbs, and
changing the controls on air conditioning to reduce running time.

12081474_1.DOC - 1 July 2011 58


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Figure 9 shows an approximate breakdown of end use consumption typical for a large
accommodation complex in Coober Pedy.
Figure 9: Major energy use breakdown for Coober Pedy Hotel

Source: Sustainable Focus

Though most other hotels in RAES towns will be smaller in size, many of the same
opportunities will apply due to the large air conditioning requirements in RAES towns. The
following recommendations should be applicable to a range of accommodation properties.

Air conditioning upgrade


104B

A medium sized hotel may have a centralised cooling plant or individual room air conditioners.
Some hotels will have a mixture of both.

Smaller hotels typically use individual room air conditioners.

While there are a number of large hotels in Coober Pedy that use centralised cooling plants,
several of these have already had detailed walk-through energy audits performed by Sustainable
Focus.

The following calculations are based on a smaller hotel/motel with approximately 20 rooms.

Each room air conditioner has an effective coefficient of performance (COP) of 1.5 or lower and
is replaced with high efficiency, reverse cycle split systems including key card controls and
timers.

12081474_1.DOC - 1 July 2011 59


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It is assumed that the use of key card controls and timing will result in a reduction in air
conditioning use from 12 hrs per day to 10 hrs per day.

Table 5-9: Savings from air conditioning upgrade


Capital Saving Saving $ Simple Payback Coober Pedy 35% Adjusted Simple
cost kWh pa pa Years EE rebate* Payback Years
$20,000 5,006 $2,662 7.5 $7,000 4.9

* First round closed on 15 June 2011.

Source: ITP

Free or low-cost energy reduction opportunities


105B

Encouraging behaviour change


106B

Many visitors to Australia in general, and remote areas specifically, can understand that
resources are scarce and will respond if they are informed of this through signage in rooms. It is
common practice for modern hotels to use signage informing guests that Australia is a dry
continent and provide options for reducing their water usage.

Hotel owners can appeal to the environmental conscience of their guests by placing signage in
all rooms encouraging visitors to switch off lights and air conditioners when they leave the
room. Key card control of major appliances when leaving a room is more expensive to retrofit
but is worthwhile as it can lead to significant savings.

There are also options for reducing guests water consumption (eg, provide a basket for linen
and towels, and offer the option to not have their linen and towels washed every day).

The effects of such measures are difficult to quantify, since they are highly dependent on
individual behaviour, occupancy rates and site-specific features. However, hotels have claimed
energy consumption reductions of up to 20% from behaviour-based changes and these are
particularly significant for small hotels 13. Reducing water consumption will also result in cost
13F

savings, particularly as water prices are likely to rise in line with electricity prices.

Bar fridges
107B

Switching off bar fridges in rooms that are not occupied can save around 2% of energy bills in
large hotels and requires only a little extra diligence from hotel staff 14. 14F

13
Hotels Case Study, Sustainable Energy Ireland available at:
http://www.seai.ie/Publications/Your_Business_Publications/Jurys_Doyle_CS_-_Final.pdf
14
Sustainable Focus, March 2010
12081474_1.DOC - 1 July 2011 60
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Liability limited by a scheme approved under Professional Standards Legislation.
ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

5.4 Government office building office lighting


27B

Offices with older light fittings are frequently over-lit and use inefficient fittings. Depending on
the current lighting levels in the building, there are several cost-effective options for reducing
lighting energy consumption. Lighting levels in the office space should be measured with a
calibrated light meter to determine which option is suitable.

Option 1 De-lamping
108B

Where light levels are significantly higher than the Australian Standard requirement, de-lamping
can be appropriate.

Illumination is measured in units of lux - lumens per square metre. The Australian Standard
AS 1680, suggests the following lighting levels for an office environment:

160 lux for working with computers and background lighting,

320 lux for task lighting, and

240 to 320 lux for meeting rooms.

Detailed measurements and calculations for the individual site are required to ensure that light
levels will still be adequate after any de-lamping.
Assumption Amount
Size of office (m2) 500
Hours of use 8hrs/day, weekdays
Existing lighting Twin 36W fittings with magnetic ballast
Existing lighting density 20W/m2
De-lamping tube removal 1 tube per fitting in 80% of fittings
Cost (3 hours labour@ $80/hour) $240

Table 5-10: Savings from de-lamping


Capital Annual Simple
Saving kWh pa
cost ($) Saving ($) Payback
$240 6,220 $3,997 22 days

Option 2 Lighting upgrade

Where de-lamping is not appropriate and older lighting is installed, a full lighting upgrade may
provide significant savings whilst also improving lighting quality and aesthetics within the
building.

12081474_1.DOC - 1 July 2011 61


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Advisory
June 2011

Table 5-11: Savings from lighting upgrade


Assumption Amount
Size of office (m2) 500
Hours of use 8hrs/day, weekdays
Existing lighting Twin 36W fittings with magnetic ballast
Existing lighting density 20W/m2
Replacement twin 36W fittings with single 28W 100% of fittings
triphosphor fittings with reflector and electronic ballast
New lighting density 12W/m2
Cost (including installation) $24,000

Table 5-12 summarises savings achievable through lighting upgrade.

Table 5-12: Savings from lighting upgrade


Capital Saving kWh pa Saving ($) pa Simple Coober Pedy Adjusted Simple
cost Payback 35% EE rebate Payback
$24,000 9,600 $6,168 3.9 $8,400 2.5

5.5 Government office building office air conditioning replacement


28B

Service desk government offices have high cooling demands and may have frequent opening
and closing of doors, increasing the need for cooling. Inefficient air conditioning is a major
energy consumer. Old air conditioners can be replaced with a high efficiency, indirect
evaporative cooling system utilising a water management system (measuring salinity levels and
dumping water when necessary). Indirect evaporative coolers do not cause excessive humidity.

Assumptions
109B

200m2 office

High 90% saving, low 65% electricity saving compared to reverse cycle air-conditioner. Saving
depends on the age of the air-conditioner being replaced, how well the new air conditioner is
maintained and its set points for water control.

Note the total annual saving is not proportional to the electricity saving due to water costs.

Table 5-13: Savings from office air-conditioning upgrade


Adjusted
Simple
Evaporative Capital Maintenance Total saving Coober Pedy simple
payback
cooler cost cost per year per year EE Rebate payback
(years)
(years)
High $35,000 $200 $7,812 4.5 $12,250 2.9
Low $35,000 $200 $7,384 4.7 $12,250 3.1
12081474_1.DOC - 1 July 2011 62
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ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

5.6 Implications of increased energy efficiency investment


29B

The implementation of energy efficiency and energy conservation measures in homes and
businesses in the selected RAES sites will have the immediate effect of lowering electricity
consumption.

Customer electricity bills are also expected to decrease in the short term, and although initial
financial savings may be overshadowed by increases in electricity prices, the measures that are
implemented will nonetheless be reducing customers' electricity bills compared to the business-
as-usual scenario. In addition, customers usually see other benefits from upgrading equipment
including improved comfort, reduced noise, less down-time and improved aesthetics.
On the generation side, the reduction in electricity consumption will mean that there will be a
reduction in fuel use at the powerhouse. If sufficient energy efficiency activities are
implemented, the reduction in load at the power station may also be sufficient to defer the cost
of adding new generation capacity to meet increasing demand. However, for RAES towns
planned new generation is minimal and costs are not significant compared to ongoing annual
fuel bills.

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ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

6 Renewable energy projects illustrative options


5B

6.1 Summary
30B

At a diesel price of approximately $1 per litre (after GST and Diesel Fuel Excise rebate), there
are cost-effective renewable energy options for reducing the costs of generating electricity for
RAES towns.

A number of renewable fuel saving investments have simple payback periods of 8 to 9 years
which is within the life expectancy of the equipment proposed 15. This is suggestive of 15F

marginally positive case for Government investment in renewable generation. While reducing
annual fuel consumption on a portion of energy generated by up to 10 per cent is worthwhile, it
is unlikely to materially affect user tariffs.

Larger annual fuel savings are feasible with increased renewable generation. However, for
standard diesel mini-grids, the economic benefits reduce when the instantaneous, renewable
input is more than 20 to 30% of the load due to the need for some form of power quality
management. Typically, this requires expensive storage technologies and/or automated control
systems with low-load diesel gensets.

We note that there is some level of risk in achieving those payback periods calculated, both
upside and downside. For example, upside risks include real increases in diesel prices, lower
PV prices, a good match between PV output and load, and better performance of PV than the
REC Zone rating performance used for this analysis. Downside risks include not realising
diesel savings due to integration issues and operation and maintenance risk.

As detailed diesel genset performance data for each site was not available, this analysis is
illustrative. While conservative assumptions have been used, site-specific optimum sizes and
integration issues would need further investigation prior to proceeding to an investment
decision.

We have not made an assumption about whether the Government has an appetite for the capital
investment in such projects. However, if it does, the following section identifies possible
renewable fuel saving augmentations which it could consider pursuing.

15
Photovoltaic (PV) modules are available with 20-25 year performance warranties (e.g. 80% rated in year 25 at
standard test conditions), and standard inverter warranties are 10-12 years., thus an inverter replacement is included
in 20 year cost. However, there are inverter manufacturers that offer extended warranties (up to 20 years) on some
products if a premium is paid.
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ABCD
Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
June 2011

6.2 Government investment in centralised renewable energy


31B

For RAES sites, only proven commercial technologies were considered in this analysis. Due to
their locations, this amounts to a choice of wind and PV. Other technologies exist but, at the
scale of the RAES towns, are closer to the demonstration stage as opposed to commercially
available with warranties. Demonstration stage technologies are unsuitable for reducing costs
reliably in remote locations.

These options, identified below, are based on the marginal cost or renewable energy sources
being less than the marginal cost of diesel-generated electricity (calculated from the average
efficiency of the existing generation assets). These are summarised below.

Table 6-1: Illustrative renewable energy investment options


Illustrative Illustrative Illustrative
net cost forecast simple
Location
Average Load (after annual payback
load kW growth Option rebates)$ savings $ (years)
Independent
Sites
16 kW PV
Yunta
46 low school 18,400 9,500 1.9
Andamooka 285 medium 90 kW PV 465,200 47,650 9.8
275 kW
Coober Pedy
1,256 low Wind 1,300,000 153,000 8.5
Government
Sites
Oodnadatta 113 medium 30 kW PV 137,475 16,750 8.2
Marla 111 low 30 kW PV 137,475 16,750 8.2
Marree 104 medium 30 kW PV 139,750 15,850 8.8
Glendambo 47 low 20 kW PV 85,500 10,500 8.1

Blinman 35 high 20 kW PV 85,500 10,500 8.1


Nundroo 48 low 10 kW Wind 62,875 7,150 8.8
Energy
Parachilna 22 high
Efficiency
Kingoonya 13 low 5 kW PV 21,400 2,650 8.1
Manna Hill 13 low 5 kW PV 21,400 2,500 8.6
Energy
Cockburn
9 low Efficiency
Total 2,474,975 292,800 8.5

Source: ITP

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The optimum size of renewable fuel saving systems which can be installed economically at
these sites is difficult to estimate, due to the specific operational characteristics (load profiles,
generator types, control systems and other technical configurations), at each site.

As intermittent renewable energy sources are introduced, there are threshold points where the
fuel saving rate (litres/kWh) from additional renewable generation declines. There are also
threshold points where the fluctuating renewable energy contribution, combined with the
fluctuating load, may occasionally exceed the existing infrastructures ability to maintain power
quality. This may cause inverters to automatically disconnect from the mini-grid.

ITP advises that depending on the diesel genset sizings and control systems, for PV the
threshold is in the vicinity of 20% to 30% of the minimum noon load (not peak load, which
usually occurs later in the afternoon). For wind in diesel mini-grids, the threshold is in the
vicinity of 20% to 25% of the minimum load, which typically occurs at night.

Powerhouses with advanced control systems and a range of appropriately sized, low load diesel
gensets, can manage instantaneous renewable contributions above these thresholds. However,
there still comes a point where some investment in load management and/or energy storage is
required to increase the renewable contribution beyond the gensets rapid response capabilities.

Going above these thresholds, without expensive storage, introduces power quality risks and
increases the cost/kWh for the existing diesel gensets. The thresholds will vary depending on
loads, the control systems and size of existing generation assets. Significant investments may
be required to increase renewable generation beyond certain levels.

As such, the optimum size of renewable generation for each site requires collection of further
site specific data. This is explained further below.

6.3 User investment in distributed renewable energy


32B

Consumers will also have strong incentives to invest in PV. The availability of the Solar
Credits multiplier of three in 2011-12 applying to the first 20 kW for off main-grid renewable
generation, reduces initial capital costs 16 and thereby improving returns on the customers
16F

investment.

However, as noted above, there are ceilings for the maximum instantaneous renewable
contributions to mini-grids, beyond which significant additional system costs are incurred.
Given the existing level of Commonwealth incentives, it is feasible for power quality thresholds
to be reached in very short timeframes with rapidly deployable renewable generation.

If the Government undertakes no significant investment, then private distributed PV investment


can proceed up to the indicative threshold levels without a significant increase in costs to the
RAES Scheme. Beyond this point there is a case for restricting further PV connections to the
mini-grid, (unless they have appropriately sized energy storage and sophisticated control
systems). The additional storage and control requirements for a site are likely to more than

16
The off main-grid, 2011-12 Solar Credit multiplied, Small-scale Technology Certificate (STC) discount (at $25 per
STC) is in the range of 22 to 29% (depending on the zone and size) for PV in the 20 to 30 kW range.
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double the installed cost of PV systems making investments significantly less attractive once
threshold levels are reached.

However, if the Government does undertake PV investment, and there is no restriction on


private PV connection, then the addition of these variable generation sources may result in
power quality issues that require substantial investment to manage. Equitably allocating the
benefits and costs, for any required system upgrades or storage investments, will be a challenge.

In essence, there will be some trade-off between reducing scheme costs and reducing individual
private users costs. There are also equity issues, if the first movers investing in PV are not
allocated a portion of future system upgrade costs (i.e. through charges), then they will
effectively free ride from either the Governments investment in system upgrades, or users
connecting to the system later (where the late movers are allocated the costs of system
upgrades).

Policy response issues are discussed in Section 8.

6.4 Methodology
3B

To identify specific renewable energy opportunities at RAES sites, specialist advice was sought
from renewable energy consultants IT Power (ITP).

To inform this review, ITP:

gathered data on the potential renewable energy (solar and wind) resource at RAES sites for
modelling purposes (where no specific data was available, comparable data was used);

undertook a desktop review of current technologies, their potential applications, and


identified where technologies have been successfully deployed elsewhere; and

constructed RAES site-specific illustrative renewable energy investment options, to estimate


the potential for renewable energy solutions to contribute to reducing costs to the
Government as operator of the RAES sScheme.

The following section deals with the specific solutions which have been identified.

Appendix A.2 Technical appendix renewable energy resources, technologies, and issues
with off-grid applications provides the relevant analysis of resource data and technologies
which informs the renewable energy options identified. It also provides more details on the
integration issues associated with renewable and diesel generation and storage options.

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6.5 Opportunities for renewable energy implementation


34B

Due to the high solar resource and recent decrease in PV prices, opportunities exist for PV
investment in RAES towns.

As the Parachilna experience shows (see case study in Appendix A.2), integrating renewable
generation and battery storage with existing diesel generator infrastructure can have challenges.
The following section explores one main option for each site.

For any one technical solution, there will be a range of technical options and a range of views in
industry as to optimum designs and the merits of storage technologies. Not surprisingly, these
often favour installers or manufacturers proprietary technology. The following section
provides the technical sizing and cost for illustrative renewable energy investments based on
industry benchmarks. This is sufficient for the high-level financial analysis for this review.

Levelised cost of energy versus diesel savings

The Levelised Cost of Energy (LCOE) is often used to compare the generation costs from
differing sources. The LCOE is the total lifecycle cost spread over the amount of energy
produced by the system over its lifetime. For this report, 7% is used as the discount rate and the
timeframe for the analysis is 20 years. Different discount rates and timeframes will affect the
analysis17.

Cost and savings estimates


10B

ITP estimated the initial capital cost estimates for installed renewable generation based on
recent prices seen in the Australian market for similar remote sites. The distance from Adelaide
(or Alice Springs), and whether PV is roof or ground-mounted, will effect installed prices but
for the purposes of this high level review, a single installed rate for PV has been used.

The discount on the installed cost from the Solar Credit multiplied Small-scale Technology
Certificates (STCs) was estimated using the Office of the Renewable Energy Regulator (ORER)
Zone rating and $25/STC. Section 7.3.1 provides further details on STCs, remote Solar Credits
and the assumptions for the value of STCs.

ITP has estimated that:

PV systems in the RAES towns (after STC discount), typically have an LCOE of
around 31c/kW; and

based on the average RAES fuel efficiency and $1/litre, that fuel cost for diesel generation is
approximately 34c/kWh at the powerhouse and 40c/kWh sold (due to line losses and other
inefficiencies).

17
20 years align with PV module warranties and a discount rate of 7% is consistent with other studies for estimating
savings from PV.
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As the PV LCOE is less than the average diesel fuel cost per kWh, this indicates that there are
potential opportunities for reducing the cost of generation in the RAES towns.

The choice of discount rate has significant effects on the LCOE. For example, choosing a
discount rate of 10%, increases the LCOE for PV to 37 c/kWh.

Further detail of the basis of these estimates is provided in Appendix A.2.

Predicting PV performance
1B

ITP modelled the performance of PV systems for each town and found their performance to be
slightly above the ORER REC zone rating, (except Nundroo which was slightly lower).
However, for the illustrative options presented, the ORER Zone rating has been utilised to
predict PV performance18. This conservative assumption slightly underestimates potential
savings, particularly for Marree and sites such as Oodnadatta and Marla, where their REC Zone
rating is 5 to 10% below their forecast annual PV output.

Implementation approaches
12B

The implementation of renewable energy solutions can be pursued in a number of ways.

For the larger proposed systems in RAES towns where the SA Government owns the
powerhouse, the SA Government could consider tendering for supply, installation and
integration. An alternative approach may be to tender for a 15 or 20-year Power Purchase
Agreement on a c/kWh delivered basis and let suppliers carry the performance, operations and
maintenance risk. Alternatively, the renewable generation capacity could be added to the
mini-grid by consumers if a connection agreement with appropriate tariff and metering
requirements is offered. However, this approach requires a total capacity cap which raises
several issues in how this is managed.

Implementation options and strategies are discussed further in Section 8.

18
The ORER Zone ratings factor in non-optimum PV system tilt (typical roof pitch is 22.5 degrees) and some
shading. Ground mounted PV systems would typically be expected to perform better than the ORER ratings, since
the PV is likely to be optimally tilted and sited for minimum shade. Roof mounted PV would be expected to perform
closer to the ORER ratings, since the PV is more likely to be installed at sub-optimal orientation and tilt plus also
experience some shading.
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6.6 Renewable generation options


35B

Independent sites

6.6.1 Yunta
68B

Figure 10: Yunta Gensets and Load Summary

Source: ITP based on data from DTEI

Existing demand Yunta has 70 consumers purchasing an average total of 1.1 MWh per day
with minimal load growth.

Current marginal costs assumed to be as per average. Using the average of 2.5 kWh (sold)
per litre and a $1/litre diesel cost gives an as sold energy cost of 40c/kWh.

Costs of renewable energy option utilising $6/W for installed, medium-scale PV systems,
gives a 20 year LCOE for Yunta of around 31 c/kWh.

Renewable energy option The nature of the RAES subsidy scheme and the independent
powerhouse operator at Yunta, indicate that renewable energy investment is more likely to be
driven by private investment in PV. This highlights the need for effective policy response to
ensure that PV system connections are capped, to avoid the need for significant investments in
storage, power quality management and control systems.

However, it is possible that a large proportion of Yuntas system capacity for renewable energy
(without significantly increasing system costs), could be met from a PV system on the school.
If the Yunta school is classified to be a government school by the Federal Government, it may
be eligible for a $50,000 grant from the National Solar Schools Program (NSSP). This program
has had its end date brought forward and a large amount of interest, so enquiries and
applications should be made as soon as feasible.

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A $50,000 grant combined with remote Solar Credits reduces the installed price of a 16 kW PV
system by 80% at the Yunta school. Using the average fuel efficiency, this is estimated to
reduce diesel consumption by around 9,500 litres per year.

Figure 11: Yunta Rural School 19 17F

Source: Outback Communities Authority

Table 6-2: Yunta illustrative renewable energy investment option


Simple
RE Option Cost Discount* Net Cost Savings pa Payback
(Years)
16 kW PV $96,000 $77,600 $18,400 $9,500 1.9
Source: ITP

Basis of calculating savings Discount includes $50,000 from the National Solar School
Program and $27,600 for the value of the 1,104 STCs.

Observations the fuel savings from any distributed PV system would not be sufficient to
allow any reduction in tariffs. Owing to Yunta powerhouse being subsidised and independently
operated, it is unlikely that the private operator would have sufficient economic incentive to
pursue a centralised PV solution. However, PV would be economic for electricity consumers if
any connection agreement offered had favourable tariff arrangements and minimal connection
requirements.

For the school to pursue a PV system, eligibility for the National Solar Schools Program should
be confirmed and then contractual negotiations could commence with the private power station
operator to work out connection, metering and tariff requirements, (especially as the schools
load is likely to be low on weekends). This may require DTEI to assist the School
administrators to negotiate a connection agreement with the independent powerhouse operator.

19
Source: Outback Communities Authority - Yunta Community Plan, 2002 available at
http://www.oca.sa.gov.au/html/files/Yunta_community_plan.pdf
12081474_1.DOC - 1 July 2011 71
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For any exports of power to the mini-grid, the appropriate tariff needs to consider system wide
impacts and may not be what the school currently pays to import power. Systems engineered to
never physically export to the mini-grid, still require a connection agreement to manage
potential power quality and financial impacts on the existing mini-grid system. This may
require the introduction of peak demand charges and tariffs based on the estimated diesel cost
savings at the powerhouse.

6.6.2 Andamooka
74B

Figure 12: Andamooka genset sizes and loads summary

Source: ITP based on data from DTEI

Existing demand Andamooka has 500 customers purchasing around 6.8 MWh per day and
medium load growth.

Current marginal costs current marginal costs could not be calculated from the data
available.

Current marginal costs assumed to be as per average. Using an indicative figure of 3.0 kWh
(sold) per litre and a $1/litre diesel cost gives an as sold energy cost of around 33c/kWh.

Renewable energy option It is estimated Andamooka could integrate 90 kW of PV systems


without requiring significant investments in storage. This is estimated to reduce diesel
consumption by approximately 46,080 litres per year based on the indicative kWh (sold) per
litre.

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Table 6-3: Andamooka illustrative renewable energy investment option


Simple
RE Option Cost Discount Net Cost Savings pa Payback
(Years)
90 kW PV $540,000 $74,800 $465,200 $46,080 10.1
Source: ITP

Observations Owing to Andamooka powerhouse being subsidised and independently


operated, it is unlikely that the private operator would have sufficient economic incentive to
pursue a centralised PV solution.

Although we have identified a potential renewable energy supply augmentation project for
Andamooka which might marginally reduce costs, this will not deliver cost savings of the same
magnitude as connection to the Roxby Downs grid (see Section 4). Grid connection provides
the principal cost reduction strategy for Andamooka. Further, if consideration is given to grid
connection as a cost reduction strategy, it should be less of a priority to pursue renewable
energy options for this site.

6.6.3 Coober Pedy


75B

Figure 13: Coober Pedy Generation and Load Summary

Source: ITP based on data from DTEI

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Existing demand Coober Pedy has 1,500 customers purchasing an average of around
34 MWh per day with low load growth. The load has the potential for future growth driven by
new mining developments in the region.

Current marginal costs the current marginal costs under the existing private power purchase
agreement are not known. However, for the purposes of this illustrative option, the indicative
figure used for Andamookas powerhouse is used for Coober Pedy giving an as sold energy cost
of around 33c/kWh.

Costs of renewable energy option The $/W cost of turbines reduces as the size of the turbine
increases. A conservative $4.75/W has been used and if the turbine achieves the apparent
Nordex capacity factor of 0.21, with 10% wind spill, maintenance costs of $20,000 per year and
annual LGCs at $35 each, then the LCOE will be around 27c/kWh. Reducing the capacity
factor to 0.19 increases this to 30c/kWh. A detailed wind investigation was beyond the scope of
this report but is worth consideration as it assists on choosing the optimal turbine.

Renewable energy option An illustrative option might involve retiring the existing 150 kW
wind turbine and replacing it with a modern, carefully sized wind turbine on the existing tower
or a higher tower. This would require further analysis of wind data.

Options to minimise any wind spill through load management 20 are also worth investigating.
19F

The following project scope is for illustrative purposes. It gives the estimated figures for the
installation of a 275 kW wind turbine on a new 30m tower. This is estimated to reduce diesel
consumption by approximately 132,000 litres per year based on the indicative powerhouse fuel
efficiency. If capacities higher than this are to be considered, then some form of energy storage
to assist integration with the existing diesel generators may be required.

Table 6-4: Coober Pedy illustrative renewable energy investment option


Simple
RE Option Cost Discount* Net Cost Savings pa Payback
(Years)
275 kW Wind $1,300,000 $16,000 $1,300,000 $132,000 9.8
* The discount is the value of the LGCs which is claimed each year. However, this income is offset by the assumed
maintenance cost of $20,000 per year.

Source: ITP

Observations Detailed wind monitoring and analysis would need to be undertaken to prove
up the potential wind resource and the estimates made above. Depending on the wind resource,
the economics of short and long-term storage options may also be worth further analysis.

20
Rottnest Island installed a 0.6 MW wind turbine in 2004. The Rottnest Island desalination plant load is managed to
minimise wind spill, maximising the diesel savings. The load on the Coober Pedy desalination plant, water storage
opportunities and the local wind resource will be very different to Rottnest Island but this concept is considered to be
worth further investigation.
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Developments in the economics of dry-cooled, small-scale solar thermal generation systems


with storage are also worth monitoring as Coober Pedy has a Direct Normal Irradiance solar
resource in excess of 2,650 kWh/kW/year which is high by world standards.

Although we have identified a potential renewable energy supply augmentation project for
Coober Pedy which might marginally reduce costs, this may not deliver cost savings of the same
magnitude as connection to the grid via OzMinerals (see Section 4).

Grid connection provides the principal cost reduction strategy. Further, if consideration is given
to grid connection as a cost reduction strategy, there should be less of a priority to also pursue
renewable energy options, although individuals may still pursue their own installations.
6.6.4 Blinman
75B6

Figure 14: Blinman genset sizes and load summary

Source: ITP based on data form DTEI

Existing demand Blinman has 15 customers purchasing an average total of 850 kWh per day
with high load growth recently.

Current marginal costs assumed to be as per average. Using the average of 2.5 kWh (sold)
per litre and a $1/litre diesel cost gives an as sold energy cost of around 40c/kWh.

Costs of renewable energy option utilising $6/W for installed medium-scale PV systems,
gives a 20 year LCOE for Blinman of 31 c/kWh.

Renewable energy option a small fuel saving system may be appropriate for this site,
especially thief recent load growth continues. Depending on the seasonal range of typical mid
day load profiles, a 15 to 20 kW PV system is likely to be able to be integrated without
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requiring major control system upgrades or battery storage. This is estimated to save around
10,500 litres pa based on the average diesel powerhouse efficiency.

Any administrative overheads are not included in the following summary.

Table 6-5: Blinman illustrative renewable energy investment option


Simple
RE Option Cost Discount Net Cost Savings pa Payback
(Years)
20 kW PV $120,000 $34,575 $85,425 $10,500 8.1
Source: ITP

Observations to proceed, DTEI would need to provide average daily load profiles for winter
and summer, specify existing diesel operational and management strategies and invite quotes for
design, supply and integration of an appropriately sized fuel saving PV system.

6.6.5 Glendambo
69B

Figure 15: Glendambo genset sizes and loads summary

Source: ITP based on data from DTEI

Existing demand Glendambo has 15 customers purchasing a total average of 1.1 MWh per
day with low load growth.

Current marginal costs assumed to be as per average. Using the average of 2.5 kWh (sold)
per litre and a $1/litre diesel cost gives an as sold energy cost of around 40c/kWh.

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Costs of renewable energy option utilising $6/W for installed, medium-scale PV systems,
gives a 20 year LCOE for Glendambo of around 31 c/kWh, based on a discount rate of 7%.

Specification of renewable energy option a fuel saving PV system of approximately 20 kW


in size is estimated to be able to be incorporated with the existing diesel gensets. It is estimated
that this would reduce diesel fuel consumption by 10,500 litres per year based on the average
powerhouse fuel efficiency.

Table 6-6: Glendambo illustrative renewable energy investment option


Simple
RE Option Cost Discount Net Cost Savings pa Payback
(Years)
20 kW PV $120,000 $34,575 $85,425 $10,500 8.1
Source: ITP

Observations to pursue such an opportunity, DTEI could tender for supply, installation and
integration of a 20 kW PV array with the existing diesel genset control systems. Remote
monitoring and control upgrades to the existing powerhouse could be considered at the same
time.

6.6.6 Marla
72B

Figure 16: Marla Generation and Load Summary

Source: ITP based on data from DTEI

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Existing demand Marla has 80 customers purchasing an average of 3.1 MWh per day with
negligible current load growth.

Current marginal costs assumed to be as per average. Using the average of 2.5 kWh (sold)
per litre and a $1/litre diesel cost gives an as sold energy cost of around 40c/kWh.

Costs of renewable energy option utilising an installed cost for medium-scale PV of $6/W,
the LCOE for this site is 31 c/kWh.

Renewable energy option ITP has estimated that a 30 kW PV system could be integrated into
Marla electricity system without the need for major upgrades. It is estimated that this would
reduce diesel consumption by 16,750 litres per year based on the average powerhouse fuel
efficiency.

Table 6-7: Marla illustrative renewable energy investment option


Simple
RE Option Cost Discount Net Cost Savings pa Payback
(Years)
30 kW PV $180,000 $42,600 $137,400 $16,750 8.2
Source: ITP

Observations A slightly larger PV system may be able to be accommodated but this size has
potential synergies with the 30 kW PV systems being considered for other RAES towns, i.e.
through potential single purchase arrangement.

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6.6.7 Oodnadatta
73B

Figure 17: Oodnadatta Gensets and Load Summary

Source: ITP based on data from DTEI

Existing demand Oodnadatta has 100 customers consuming about 2.7 MWh per day with
medium load growth.

Current marginal costs assumed to be as per average. Using the average of 2.5 kWh (sold)
per litre and a $1/litre diesel cost gives an as sold enegry cost of around 40c/kWh.

Costs of renewable energy option utilising $6/W for an installed 30 kW PV systems gives a
20 year LCOE for Oodnadatta (Zone 1) of around 31 c/kWh, based on a discount rate of 7%.

Renewable energy option ITP has estimated that a 50 kW PV system could be integrated into
Oodnadattas electricity system without the need for major upgrades. However, a 30 kW
system is suggested to be on the conservative side and to allow for potential synergies with the
30 kW PV systems being considered for other RAES towns. A 30 kW PV system is estimated
to reduce diesel consumption by approximately 16,750 litres per year based on the average
powerhouse fuel efficiency.

Table 6-8: Oodnadatta illustrative renewable energy investment option


Simple
RE Option Cost Discount Net Cost Savings pa Payback
(Years)
30 kW PV $180,000 $42,600 $137,400 $16,750 8.2
Source: ITP

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June 2011

Observations Oodnadatta and Marla are the closest RAES towns to Alice Springs.
Oodnadatta has the highest solar resource of the RAES towns. An optimum sized PV system
for this location is worth further consideration. Integrating with the gas engine generator as
well as the diesels may increase costs slightly. Remote monitoring and controls for the
powerhouse should be considered with any upgrade.

6.6.8 Marree
71B

Figure 18: Marree genset sizes and loads summary

Source: ITP based on data from DTEI

Existing demand Marree has 80 metered consumers purchasing a total average of 2.5 MWh
per day with medium load growth recently. If consumers were given the opportunity to connect
PV to the mini-grid, applications for in excess of 120 kW could easily be reached.

Due to the uniform sizing of the diesel gensets, this is likely to introduce power quality
management issues that require investment to rectify. Depending on the quantity of PV that
applied to connect, this investment may include network upgrades, storage and/or the ability to
control consumers inverters. Determining how these costs should be shared would be a
challenge.

Current marginal costs assumed to be as per average. Using the average of 2.5 kWh (sold)
per litre and a $1/litre diesel cost gives an as sold energy cost of around 40c/kWh.

Costs of renewable energy option the estimated LCOE at Marree for PV at 20 years,
7% discount rate is 31 c / kWh.

Renewable energy option ITP assessed that the appropriate PV system size for Marree will
be in excess of 20 kW which is the maximum for the remote Solar Credit multiplier.

Basis of calculating savings Larger systems also benefit from economies of scale in
installation costs. However, the conservative $6/W rate has been used for installed,
12081474_1.DOC - 1 July 2011 80
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Advisory
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medium-scale PV costs. A key component of installation costs will be integration with the
existing ComAp-Greenbird diesel genset controller system installed in August 2008. A 30 kW
PV system is estimated to reduce diesel consumption by 16,750 litres per year based on the
average powerhouse fuel efficiency.

Table 6-9: Marree illustrative renewable energy investment option


Simple
RE Option Cost Discount Net Cost Savings pa Payback
(Years)
30 kW PV $180,000 $42,525 $137,475 $16,750 8.2
Source: ITP

Observations DTEI could tender for supply, install and integration of a 30 kW PV array with
the existing diesel genset control systems.

Some load profiles were provided for Marree and these are shown in the following figures. The
availability of data from DTEI has allowed ITP to estimate the optimal size of the system for
Marree to be estimated with greater accuracy than the other sites. The minimum noon load
(summer Sunday) from the samples given is 100 kW, so implementing 30% of this from PV
indicates that 30 kW could be integrated at Marree with minimal integration issues. If a greater
contribution from PV was desired, then investments in low load diesel generators or a
centralised, large-scale battery bank would be required. Low load diesel suppliers have
indicated that the minimum size is around 250 kW, thus expensive energy storage is likely to be
required to have high renewable energy contributions at Marree.

Figure 19: Typical peak summer Wednesday 24 November 2010, (midnight to midnight,
252 kW peak occurs at 4pm, noon load 200 kW)

Source: DTEI

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Figure 20: Mild summer Sunday 28 November 2010, noon load 100 kW

Source: DTEI

Figure 21: Typical winter load Friday 2 July to Sunday 4 July 2010

Source: DTEI

The above load profiles indicate that the noon load can be anywhere between 100 kW (summer
Sunday), 150 kW (winter Friday to Sunday) and 200 kW (summer Wednesday). With medium
load growth recently, a 30 kW PV fuel saving system is worth investigating.

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Advisory
June 2011

6.6.9 Nundroo
70B

Figure 22: Nundroo genset sizes and loads summary

Source: ITP based on data from DTEI

Existing demand Nundroo has 45 customers purchasing an average of around 1.1 MWh per
day with minimal load growth. While Nundroos solar resource is good, it is the lowest of the
RAES towns. Fortunately, it has the best wind resource of the RAES towns.

Current marginal costs assumed to be as per average. Using the average of 2.5 kWh (sold)
per litre and a $1/litre diesel cost gives an as sold energy cost of around 40c/kWh.

Renewable energy option ITP assessed the load and generation at Nundroo and concluded
that a 10 kW wind turbine can be integrated without requiring major upgrades. However, a
dump load is required to enable some of the wind generation to spill at night, when loads may
be too small to take full advantage of the wind generation. Finding a suitable location, near the
powerhouse, should be undertaken in consultation with local stakeholders.

Costs of renewable energy option Assuming an installed cost of $70,000 for a 10 kW wind
turbine on an 18m tower achieving a capacity factor of 0.25 leads to a LCOE of around
27c/kWh (after STC discounts). A 10 kW wind turbine with 20% spill is estimated to reduce
diesel consumption by 7,250 litres per year. A higher tower will achieve a better capacity factor
but ease of maintenance needs to be considered.

Table 6-10: Nundroo illustrative renewable energy investment option


Simple
RE Option Cost Discount* Net Cost Savings pa Payback
(Years)
10 kW wind $70,000 $7,500 $62,500 $7,250 8.6
Source: ITP

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Observations While PV deems 21 for 15 years, small wind deems for 5 years and can deem
18F

again in year 6, this would reduce the Simple Payback. However, maintenance also needs to be
considered. Wind is deemed at a capacity factor of 0.23, so metering to ORER requirements
and claiming annual LGCs is worth considering.

6.6.10 Kingoonya
65B

Figure 23: Kingoonya genset sizes and Load Summary

Source: ITP based on data provided by DTEI

Existing demand The equal smallest load of the Government RAES diesel sites, Kingoonyas
20 consumers purchase an average of 300 kWh per day and this load is not growing. The solar
radiation is also equivalent to the average of the RAES sites.

Current marginal costs assumed to be as per average. Using the average of 2.5 kWh (sold)
per litre and a $1/litre diesel cost gives an as sold energy cost of 40c/kWh.

Costs of renewable energy option Utilising $6/W for installed PV systems, gives a 20 year
LCOE for Kingoonya of around 31c/kWh, based on a discount rate of 7%.

Renewable energy option As the PV LCOE is less than the cost of fuel, a small fuel saving
system may be appropriate for this site. At an average generation output of 356 kWh per day, it
is unlikely that a significant investment in storage would be viable. Depending on the seasonal
range of typical mid day load profiles, a 5 kW PV system is likely to reduce ongoing costs,
potentially without requiring major control system upgrades or battery storage. The saving is
estimated at 2,650 litres pa based on the average powerhouse fuel efficiency.

21
The maximum deeming period set by ORER for PV is 15 years.

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To proceed, DTEI would need to analyse and provide average daily load profiles for winter and
summer, specify existing diesel operational and management strategies and invite quotes for
design, supply and integration of an appropriately sized fuel saving PV system.

Administrative overheads are not included in the following summary.

Table 6-11: Kingoonya illustrative renewable energy investment option


Simple Payback
RE Option Cost Discount Net Cost Savings pa
(Years)
5 kW PV $30,000 $8,625 $21,375 $2,650 8.1

Source: ITP

Observations the savings are not of sufficient size to support any material reduction in tariffs.
6.6.11 Manna Hill
6B

Figure 24: Manna Hill genset sizes and loads

Source: ITP based on data from DTEI

Existing demand Manna Hills 20 consumers purchase an average of 300 kWh per day and
the recent load growth has been minimal.

With a similar load to Kingoonya, Manna Hill has less of a range of diesel genset sizes to
manage load fluctuations. As the load is not growing and the diesel gensets appear oversized
for the average load, a fuel saving PV system is likely to face more integration challenges than
at other sites.

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June 2011

Current marginal costs assumed to be as per average. Using the average of 2.5 kWh (sold)
per litre and a $1/litre diesel cost gives an as sold energy cost of around 40c/kWh.

Costs of renewable energy option utilising $6/W for installed PV systems, gives a 20-year
LCOE for Kingoonya of around 31c/kWh, based on a discount rate of 7%.

Renewable energy option when replacing the number 1 generator (49,000 hrs) in 2 years
time, DTEI should consider the purchase of a fully automated, low load diesel of a size likely to
work well with a PV system. A 5 kW PV system would save slightly less than at Kingoonya
due to the potential requirement to spill some renewable generation when the load is low.

Administrative overheads are not included in the following summary.

Table 6-12: Manna Hill illustrative renewable energy investment option


Simple
RE Option Cost Discount Net Cost Savings pa Payback
(Years)
5 kW PV $30,000 $8,625 $21,375 $2,500 8.6
Source: ITP

Observations the savings are not of sufficient size to support any material reduction in tariffs.

6.6.12 Cockburn
64B

Existing demand Cockburn is a main-grid connected town, (11 kV line from Broken Hill,
about 50 km away), with a peak load of around 30 kW and an average load of 9 kW.

Current marginal costs Cockburn is different from the other RAES towns due to being grid
connected from NSW. As a result, the Government is unable to realise savings from reducing
diesel generation, as it can at the other sites.

Costs of renewable energy option assuming minimal network upgrade requirements, the
installed cost of small-scale (up to 20 kW), distributed generation PV at Cockburn is estimated
to be approximately $6/W (before STC discounts).

Renewable energy option Not applicable. From the perspective of Government, as there is
no high cost diesel generation source to offset renewable energy against.

However, if connection and metering arrangements can be resolved with the upstream
stakeholders and a 1:1 retail arrangement can be negotiated, there is potential for private user
investment in distributed generation PV solutions to be economic. Should tariffs move above
31c/kWh in the future, then this would strengthen the attractiveness of PV investment.

However, the network providers are key stakeholders and their costs need to be carefully
considered. The inter-jurisdictional nature of power flows is also likely to add complexity to
any contractual arrangements.

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7 Commonwealth programs and external funding opportunities


6B

This section provides a scan of the Commonwealth and external funding opportunities and
identifies how they may impact Government or private parties decisions around:

grid connection projects;

energy efficiency investments; and

renewable energy options.

Potential sources of funding have been identified from publicly available information.
An overview of funding sources and discussion of how they might apply to the RAES Scheme
is provided in the following sections.

Successfully obtaining funding from these sources will be influenced by a number of


uncertainties and factors. This includes the final scope and timing of projects, detailed
eligibility criteria, competition from other applicants, and other factors which may influence the
evaluation of projects by third parties. For these reasons, parties should not rely on this report
to inform their investment decisions.

The key findings of the scan for funding opportunities are:

1 Grid connection

- the Commonwealth Regional Development Australia Fund is a potential source of


capital funding for connecting Andamooka to the Roxby Downs grid, but requires
matching private investment.

2 Energy efficiency

- the Low Carbon Communities fund is a potential source of funding for the District
Council of Coober Pedy to pursue energy efficiency projects. This could extend to
desalination efficiency projects (water prices is a major cost of living pressure tied to
energy use and desalination pumping is the Councils biggest energy use).

- The Coober Pedy Small User Energy Efficiency Scheme (Commonwealth funded
through the terminating Renewable Remote Power Generation Program) provides up to
35% capital rebates for the cost of replacement appliances, and this provides a
considerable incentive to replace old inefficient appliances with new units. This scheme
also funds energy audits for residents and businesses. The first round of this scheme
closed on 15 June 2011.

- RAES Commercial Energy Efficiency Scheme which broadly offers up to 70% subsidy
towards the cost of an energy audit, and a further 35% rebate on the cost of upgrades
and implementing the recommendations in the audit, subject to conditions and caps.
This scheme is open until September 2011.

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3 Renewable energy

- Small-scale Technology Certificates (formerly Renewable Energy Certificates),


including Solar Credit multipliers, provide an upfront subsidy to install PV and certain
solar hot water products, and these are typically claimed by installers at time of
installation.

- Solar Hot Water rebates are available from the Commonwealth (Renewable Energy
Bonus Scheme) and State Government (Solar Hot Water Rebate Scheme), which can be
claimed after installation. The former is restricted to households which have not claimed
the insulation scheme, while the latter is restricted to certain low income households.

7.1 Grid connection


36B

The only potential source of external funding identified is the Regional Development Australia
Fund.

7.1.1 Regional Development Australia Fund


76B

Overview
13B

The RDAF is a $1 billion Commonwealth program to support Australias regions and enhance
the economic development of their communities. It aims to leverage and better coordinate state,
Commonwealth, local government and private (including not-for-profit) infrastructure
investments.

Funding is available for projects which are predominantly capital in nature, such as new
infrastructure and upgrades to existing infrastructure, are important to regional and local
communities, align with Commonwealth priorities and meet the objectives of the program.

Up to $100 million is expected to be distributed to approved projects in Round One, for which
applications are closed and are currently being assessed. It is expected that Round 2 will be
announced in late 2011.

For over $5 million at least a dollar-for-dollar fund matching is required (excluding other
government funding).

For projects under $5 million no prescribed ratio, but priority will be given to those projects
which maximise leverage from external sources.

Projects must be 'investment ready', that is ready to proceed within six months of signing the
Funding Agreement, and have all planning rezoning, environmental and/or native title approvals
in place.

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Eligibility and assessment criteria


14B

For-profit organisations can participate in applications for funding where they are a member of a
consortium. Local Government and Incorporated not-for-profit organisation can apply in their
own right, or as a member of a consortium. The SA Government is ineligible to apply but does
not appear to be excluded from being a member of a consortium.

Assessment criteria include the projects being in line with certain priorities, including energy
efficiency and sustainability. Displacement of diesel generation would appear to fulfil this
requirement. Other criteria in relation to community benefit, regional economic growth, and
proven service capability, also appear to be fulfilled.

Other comments
15B

Conceivably, Jeril Enterprises (operators of the Andamooka Power House) could apply for
funding with, for example, the Outback Areas Community Development Trust or the
Andamooka Opal Miners and Progress Association.

As noted in Chapter 4, Coober Pedy Council could apply for funding. The financial analysis is
suggestive of their being sufficient value in grid connection to Council, that it could, say, fund
half of the capital costs if Commonwealth Government funding could be secured.

7.2 Energy efficiency


37B

The potential sources of funding for energy efficiency measures are:

Low Carbon Communities (Commonwealth);

Business Sustainability Alliance Energy Efficiency Program (SA Government); and

Energy Efficiency Scheme for Coober Pedy Residents (Commonwealth).

7.2.1 Low Carbon Communities (Commonwealth)


7B

Overview
16B

Low Carbon Communities is an $80 million fund over four years to support local councils and
community organisations to cut pollution and reduce their energy costs through energy
efficiency upgrades to street lighting, community facilities and council buildings. The program
will also assist communities to reduce carbon pollution through investment in cogeneration
facilities or energy efficient upgrades to community icons such as stadiums, education facilities,
town halls and nursing homes.

Low Carbon Communities will provide competitive grants to local councils and operators of
community facilities via three funding streams.

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1. Small scale grants of up to $500,000 for local councils to undertake smaller scale projects to
reduce energy consumption in facilities such as outdoor lighting.

2. Large scale grants of up to $5 million for operators of community facilities to invest in


energy efficient upgrades such as the installation of cogeneration or new heating and air
conditioning.

3. Greener Suburbs grants of up to $500,000 for councils to implement capacity building and
demonstration projects that improve the use of parks/green spaces in urban areas.

Eligibility and assessment criteria


17B

Detailed eligibility guidelines are not yet available, and the first call for applications is
anticipated to occur in mid-2011 through the Commonwealth Department of Climate Change
and Energy Efficiency (DCCEE).

Other comments
18B

The District Council of Coober Pedy may be able to apply under stream 1 (see above),
however there is still little detail on the specific eligibility of projects, requirements for co-
funding, and other issues.

In particular, the cost of energy for desalination is the District Council of Coober Pedys major
energy use. This fund could be an opportunity to improve the efficiency of the current pumping
and purification processes, and result in energy and cost savings to the community.

For example, the current cost of water in Coober Pedy is currently $3.60 to $5.75 per kL. The
Governments recent decision to phase in announced tariff increases over 2 years, were it
implemented with immediate effect, would have increased water costs by a further $0.78 per kL
across the board.

As other RAES communities are in unincorporated areas of the state (under the jurisdiction of
the Outback Areas Community Development Trust rather than local governments), the scope for
funding through this program appears limited.

7.2.2 Business Sustainability Alliance Energy Efficiency Program (SA Government)


78B

Overview
19B

This program is aimed at small-to-medium South Australian companies committed to energy


efficiency to help reduce their energy usage and related costs. The program enables a company
to engage an accredited energy auditor, associated with the program, to conduct an energy
assessment of their South Australian operation.

The external energy auditor reports typically containing the following:

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An energy and greenhouse gas emissions profile including the identification of carbon risk
and liabilities in line with the relevant reporting standards.

Advice on capturing and analysing performance data from energy systems, before and after
improvement measures are undertaken.

Identification of energy efficiency opportunities within the companys operations.

Cost-benefit analysis of identified improvements.

A strategic action plan to implement recommended improvements.

Successful applicants will be able to receive 75% of the cost of their energy assessments, up to
$10,000 (excluding GST).

The total funding pool is $300,000 over three years form 2010-11 to 2012-13.

Eligibility and assessment criteria


120B

The program is open to south Australian-based business with an Australian Business Number
and be a non-tax exempt company. Applicants must be (1) willing to work with the BSA to
undertake a comprehensive energy assessment through one of the accredited auditors; and
(2) be willing to enter into an agreement to convert economically viable energy efficiency
opportunity recommendations into actual savings.

Assessment criteria include energy being a significant percentage of current product or service
cost; the potential for 15% minimum reduction in energy usage; a strategic and financial
commitment to achieving energy reduction targets within two years; preparedness to participate
in case-study development; and business growth and potential export plans for the next three
years. Preference will be given to small-to-medium manufacturing based organisations of
which there are very few in RAES towns.

Other comments
12B

Many large commercial customers may have already received energy audits and progressed
energy efficiency measures.

The capacity of commercial businesses in RAES site to demonstrate growth potential, export
plans, to link to manufacturing industries, may be challenging in the context of competitive
funding.

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7.2.3 Energy Efficiency Scheme for Coober Pedy Residents (Renewable Remote Power
79B

Generation Program, Commonwealth)

Overview
12B

The Energy Efficiency Scheme for Coober Pedy residents provides a 35% rebate up to $5,000 in
value for new appliances which replace existing, inefficient appliances including air
conditioners, electric hot water storage, lighting, freezers and refrigerators. It also applies to
energy efficiency improvements.

Eligibility and assessment criteria


123B

All residents and small businesses within the District Council of Coober Pedy. Applicants must
identify the pre-existing infrastructure being replaced.

Other comments
124B

The scheme is delivered in partnership with Sustainable Focus.

Feedback from Sustainable Focus energy auditors is that there are significant opportunities to
implement energy efficiency measures. Also, that access to this fund plays an important part in
influencing the decisions of households and businesses to purchase more energy efficient
appliances and equipment.

The first round of the scheme closed on 15 June 2011. Future rounds are dependent on
Commonwealth RRPGP funding being made available in 2011-12. As the RRPGP is a
terminating program, there is no guarantee that this will occur.

7.3 Renewable energy


38B

Potential sources of funding of renewable energy investments include:

Small-scale Technology Certificates (formerly Renewable Energy Certificates), including


the Solar Credits multiplier (Commonwealth);

Renewable Energy Bonus Scheme Solar Hot Water Rebate (Commonwealth); and

Solar Hot Water Rebate Scheme (SA Government).

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Department of Transport Energy & Infrastructure -
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Advisory
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7.3.1 Small-scale Technology Certificates (formerly Renewable Energy Certificates)


80B

Overview
125B

The Australian Governments Renewable Energy Target22 was split into the Small-scale
Renewable Energy Scheme (SRES) and the Large-scale Renewable Energy Target (LRET) as of
1 January 2011. From this date, Renewable Energy Certificates were reclassified into two
certificate types:

Small-scale Technology Certificates (STCs); and

Large-scale Generation Certificates (LGCs).

The SRES creates a financial incentive for owners to install eligible small-scale generation
units. It does this by legislating demand for STCs. Liable entities have a legal requirement to
buy STCs and surrender them on a quarterly basis. Small-scale generation units are defined as
no more than 100 kW for PV and no more than 10 kW for wind turbines.

The price of STCs fluctuates depending on supply and demand. Due to a large over supply
compared to the legislated amounts to be surrendered each quarter, market prices in June 2011
have been approximately $25 which is the value used for this report. There is a guaranteed
price of $40/STC if the seller uses the STC Clearing House. However, the timing of the $40
payment is determined by the certificates position in the STC Clearing House Transfer List and
the rate of purchase of STCs from the Clearing House. Thus sellers may have to wait for some
time to receive their payment. There is no guarantee on how long STCs will take to sell through
the Clearing House.

The STCs can be assigned to installers, such that small generation unit purchasers are not
required to finance the full system capital cost and trade STCs, but instead pay only a net cost to
their installer.

Importantly, the Solar Credits multiplier currently allows additional certificates to be created
for eligible small generation units. For systems not connected to the main-grid, the Solar
Credits multiplier applies to the first 20 kW of installed capacity (which is more favourable than
the 1.5 kW limit for systems connected to the main-grid). The definition of main-grid, allows
PV installations in RAES towns to apply the Solar Credits multiplier for the first 20 kW of
installed capacity even if the PV system is connected to the towns mini-grid.

From 1 July 2011, the current 5 x Solar Credit multiplier, reduces to a 3 x Solar Credit
multiplier. Although this represents a reduction in external funding, there remains a
considerable incentive to pursue installation of PV systems. The Solar Credit multiplier is
scheduled to reduce to a 2 x multiplier on 1 July 2012 and end on 1 July 2013. STCs can still
be created in 2013-14 but there will be no multiplier applied to the amount that can be created.

22
More information is available from the Office of the Renewable Energy Regulator: www.orer.gov.au
12081474_1.DOC - 1 July 2011 93
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Department of Transport Energy & Infrastructure -
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Advisory
June 2011

Eligibility and assessment criteria


126B

The number of STCs which can be claimed is dependent upon the location of the small
generation unit. ORER has classified Australias postcodes into four Zones for the purposes of
claiming STCs from PV systems. The RAES towns are mainly in ORER Zone 2 with the three
most northern towns in ORER Zone 1 for PV systems. Eligibility of applicants is not restricted,
however the eligibility of hardware is listed on registers (e.g. Register of Solar Hot Water
Heaters, of Clean Energy Council list of accredited components for PV systems).

Other comments
127B

There is a competitive market for installation of eligible PV and solar hot water systems, and
installers have established business models where the value of STCs is built into the upfront
installation costs. Installers have a presence in the RAES communities and have been actively
marketing their products.

In view of the above, households are able to themselves assess whether investment in such
systems will reduce their total energy costs, taking account of the size of their current
expenditure, and anticipated savings from domestic-level systems.

The penetration of PV systems and the issues this may present for grid-connection agreements
and system stability are discussed separately.

7.3.2 Renewable Energy Bonus Scheme Solar Hot Water Rebate (Commonwealth)
81B

Overview
128B

The Renewable Energy Bonus Scheme Solar Hot Water Rebate (REBS) assists households to
save money on power bills and reduce their carbon emissions.

REBS is available to help eligible home-owners, landlords or tenants to replace their electric
storage hot water systems with solar or heat pump hot water systems. Under REBS, eligible
households can claim a rebate of $1,000 for a solar hot water system or $600 for a heat pump
hot water system.

Eligibility and assessment criteria


129B

The system must replace an existing electric storage hot water system. The REBS is available
to households who have not previously received assistance to install ceiling insulation through
the Home Insulation Program.

An owner-occupier, landlord or tenant can apply for the rebate as long as the dwelling where the
hot water system is installed is a principal place of residence.

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Other comments
130B

The REBS rebate can only be claimed after installation. This may create a financing barrier for
low income households.

Generally, households are able to themselves assess whether investment in such systems will
reduce their total energy costs, taking account of the size of their current expenditure, and
anticipated savings from domestic-level systems.

7.3.3 Solar Hot Water Rebate Scheme (SA Government)


82B

Overview
13B

The SA Government scheme allows concession cardholders (Centrelink Health Care Card or
certain Department of Veterans Affairs cards), up to a $500 rebate for the cost of installing
certain hot water systems. The system requirements differ depending on whether it is for new
premises or is replacing an existing system, the type of system being replaced, and the
availability of gas.

Eligibility and assessment criteria


132B

The rebate is for domestic installation only, and does not apply to rental properties, retirement
villages, aged care facilities, and commercial properties.

The rebate is not available to holders of Commonwealth Seniors Health Card, State Seniors
Card, and Department of Veteran Affairs White and Orange cards.

As gas is not available in the RAES townships, eligible individuals would be required to install
gas-boosted (LPG) solar hot water heater, an electric-boosted solar hot water heater, or an
electric heat pump water heater.

Other comments
13B

The SA Government rebate is paid after installation, but can also be claimed through installers.
However, there may still be a financing barrier, as low-income households may not be able to
afford the other costs involved with the installation.

7.3.4 National Solar Schools Program (Commonwealth Government)


83B

Overview
134B

National Solar Schools Program (NSSP) offers eligible primary and secondary schools the
opportunity to compete for grants of up to $50,000 (GST exclusive), to install solar and other
renewable power systems, solar hot water systems, rainwater tanks and a range of energy
efficiency measures.

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The National Solar Schools Program (NSSP) re-opens for registrations on 1 July 2011. The
2011/12 application round is expected to open on 1 August 2011 and close on 30 September
2011.

As part of the 2011/12 Budget, the Government announced that the NSSP will close two years
earlier than expected, with two remaining funding rounds. Approximately $50 million in
funding remains available under the program.

Changes to the NSSP that come into effect from 1 July 2011 include:

The NSSP will run until 30 June 2013. The 2012/13 funding round will be the final
opportunity for schools to apply for the grant.

As limited funding is available, applications from schools located in remote or low socio-
economic areas will receive additional assessment weighting to allow funding to be directed
to the most disadvantaged schools.

For government schools - state or territory government education authorities may request
that the maximum funding amount available to government schools in their jurisdiction be
reduced to allow more schools to receive the grant.

Eligibility and assessment criteria


135B

All schools.

Other comments
136B

This program provides an opportunity for the Yunta school to install a PV system with minimal
costs, and with a short payback period (as discussed in Section 6).

7.4 Other funding sources considered


39B

A number of other potential program funding sources were considered and discounted as
potential sources of funding, for example where they reference energy efficiency or
renewable energy.

Some examples of these other programs are below for completeness of the analysis.

Australian Energy Efficiency Program (Carbon Trust/Low Carbon Australia) although it


provides finance for energy efficiency projects, these tend to be for highly visible sites
where demonstration effects can be proven. Also, for large-scale commercial operations
where there is significant opportunity to realise energy savings. This program is unlikely to
apply or be of benefit to commercial operators on RAES sites.

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Enterprise Connect (Clean Technology Innovation Centre) RAES communities do not


fully meet the clean technology program criteria, including being export businesses under
Austrades Clean Energy Export Strategy.

Connecting Renewables Initiative (Commonwealth Government) the CRI was


announced in July 2010 with $1 billion in funds over the next decade to facilitate
connecting renewable energy projects to electricity networks, with $100 million committed
for the first 4 years from 2010-11. However, this fund is focussed on transmission
infrastructure to connect major renewable power (e.g. geothermal), rather than remote
communities to the National Electricity Market.

The Emerging Renewables program (Australian Centre for Renewable Energy (ACRE))
this program aims to reduce the cost of innovative renewable energy technologies and has
total funding of $100m. The program is expected to offer funding to support for (1)
renewable energy and enabling technology projects to progress technologies to the next
stage along the innovation chain and to lower the cost of renewable energy in Australia; and
(2) renewable energy measures that may involve renewable energy industry skills
development, capacity building, knowledge sharing and collaboration. Remote sites are not
always optimal for innovative projects that progress technologies to the next stage, so this
program has limited relevance for the RAES towns.

Australian Solar Institute Solar R&D Projects this program focuses on large-scale
concentrating solar power projects, with a focus on research and development. This does
not apply to the RAES Scheme.

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8 Future strategies
7B

The preceding chapters have identified that the principal opportunities to be considered for
delivering cost savings are by:

grid connection of Coober Pedy and Andamooka;

pursuit of energy efficiency measures; and

several small-scale, fuel saving renewable energy investments.

Potential approaches DTEI could consider for each are considered below.

8.1 Grid connection


40B

Opportunities for consideration of grid connection is a key finding from this report. Although
uneconomic for most RAES towns, the high-level analysis suggests that grid connection may be
economic for the two largest towns, which together comprise over 2,000 of the 2,500 customers
on the Scheme.
If grid connection is chosen as a method of reducing electricity costs at these sites, then
integrating local renewable generation with diesel generation should not be a priority until the
grid connection option is exhausted. At present costs, renewable energy is more economic
when it is displacing high-cost diesel generation.

Coober Pedy
137B

Section 4 outlined that the financial analysis of Coober Pedy is suggestive of a case for grid
connection as there are significant ongoing savings, arising from the difference in NEM-
delivered energy and the current diesel-generated energy, based on the assumptions used in the
analysis.

It also identified that the potential savings may be higher than the current level of Government
subsidy, which suggests that the Coober Pedy Council may have financial capacity to contribute
some portion of their savings to the capital costs of grid connection. In fact, without a
significant Council contribution, it would be difficult for the Government to justify proceeding
on its own.

On the basis of preliminary financial analysis, the Council would be unlikely to be able to fund
grid connection infrastructure itself, without Commonwealth Government funding or State
Government involvement.

The Regional Development Australia Fund provides up to 50% funding for infrastructure
projects in rural and remote areas. While the State Government is ineligible as an applicant,
local government authorities can apply. Funding is competitive, with the second round of
applications expected to be called for in the second half of 2011 and closed in late 2011.

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A Council-led application would provide an alternate delivery arrangement and DTEI could
provide some level of assistance to the Council in support of its application, for an appropriate
grant from the Regional Development Australia Fund.

The Government could consider the following as the broad preferences for grid connection.

1) Council fund grid connection and apply to the Commonwealth Government for 50%
funding under the Regional Development Australia Fund (preferred option)

2) Council fund a portion of infrastructure costs, with capital funding assistance from
the State Government for the remainder (second option)

3) State Government fully fund the costs of grid connection (potential option, but
requires full business case analysis to confirm such a project is economic).

A discussion of these approaches and why they could be considered is contained in Section 4.

It is noted that successfully delivering any of these options is dependent on the outcome of
Commonwealth Government funding decisions, commercial discussion with parties, analysis of
transition and implementation costs, and preparation of a full business case.

Coober Pedy next steps


138B9

Upon review of this report and a Government decision to further investigate grid connection for
Coober Pedy more fully, next steps for DTEI could include:

engaging Coober Pedy Council to agree some principles for further investigating grid
connection, including exploring the option of an application to the Regional Development
Australia Fund;

through the Olympic Dam Taskforce, engaging BHP-Billiton on access to its transmission
infrastructure, including on indicative load requirements, and discussing potential
timing/expansion scenarios;

engaging OzMinerals, on access to its electricity infrastructure issues;

through the Council, engaging EnGen on potential timing and confirming mutual
understanding of the commercial arrangements regarding cessation of the current contract;
and

developing alternate pricing policy arrangements which might apply to Coober Pedy
residents if they were grid-connected in the future.

This would allow for a detailed business case to be developed to provide the appropriate level of
analysis required to justify a major infrastructure funding decision.

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The business case could be designed to meet the dual objectives of (1) submission for funding
under the Regional Development Australia Fund; and (2) any SA Government / Department of
Treasury and Finance requirements, for submission into future SA Government Budget
deliberations (if required).

Andamooka
14B

In accordance with the analysis presented in Section 4, and in view of the potential savings
available from grid connection of Andamooka, the Government could consider the following as
the broad preferences for grid connection.

1) Private operator partially funds grid connection and a third party applies to the
Commonwealth Government for 50% funding under the Regional Development
Australia Fund

2) Third party funds grid connection and applies to the Commonwealth Government
for 50% funding under the Regional Development Australia Fund (second option)

3) State Government funds grid connection infrastructure and comes to an


arrangement with the operator (third option).

A discussion of these approaches and why they could be considered is contained in Section 4.

Upon review of this report and a Government decision to further investigate grid connection of
Andamooka, the next steps for DTEI could include:

engaging the operator of the Andamooka Power House with a view to agreeing some key
principles around investigating grid connection;

engaging the Outback Areas Trust or Opal Miners and Progress Association about leading a
Regional Development Australia Fund application; and

engaging BHP-Billiton, through the Olympic Dam Taskforce, about the timing of there
being capacity available on its transmission lines and the Roxby Downs distribution
network, identification of reasonable network charges, and ensuring that any grid
infrastructure planning can take account of capacity which may be available for
Andamooka.

8.2 Energy Efficiency


41B

Energy efficiency is a cost effective form of demand reduction and can also mitigate the effects
of load growth. Energy efficiency activities are by their nature a private investment with
customers investing money for benefits in the form of savings.

However, uptake of energy efficiency measures can be improved with information, incentives,
rebates or facilitation from Government. Such measures may be cost effective and may achieve
good results for relatively low levels of Government investment. Aside from capital support,
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the SA Government or Councils (where applicable) could assist energy efficiency uptake by
facilitating bulk buys or ensuring appropriately skilled people are available in the RAES towns
for energy efficiency assessments and implementation.

Energy efficiency next steps


142B

In view of the above, DTEI could continue to assess the effectiveness of energy efficiency
programs in RAES towns with a view to the benefits they deliver to users, as well as to the
Government as operator and funder of the RAES Scheme.

As the Energy Efficiency Rebate for Coober Pedy Schemes Commonwealth RRPGP funding is
soon to cease, the forecast savings to the RAES Schemes budget which would result from
further new energy efficiency investment could be analysed. This could enable investigation of
the option of a State-funded energy efficiency program.

This could see some sharing of the potential long term savings for the RAES subsidy with those
consumers considering energy efficiency investments, by providing an upfront rebate. While
the 35% current rebate reduces payback periods, smaller rebates may also stimulate
investments by giving the consumer confidence that the efficiency investment is worthwhile as
it is supported by the SA Government.

8.3 Renewable Energy


42B

The increased uptake of renewable energy to realise diesel fuel savings could occur through
either Government-led investment or through relying on market investment by individual
customers.

There has been no significant investment in renewable energy projects on RAES sites to date
and, as such, both these scenarios are discussed below.

Government-led investment
143B

Government-led investment in renewable energy involves DTEI funding centralised renewable


energy generation, or distributed generation on a number of Government buildings or sites.

The analysis in Section 6 demonstrates that direct Government investment in renewable


generation reduces taxpayers exposure to fluctuating diesel prices and mitigates the need for
future tariff increases proportional to diesel price increases.

The SA Government could tender for design, supply and installation on an initial capital cost
basis or on a Power Purchase Agreement (PPA) basis. The tender would be competitive and the
private sector would build the renewable generation. The ongoing O&M responsibility would
depend on the model chosen for implementation.

The Government investment approach allows integrated network planning to be undertaken to


reduce the risk of future power quality issues. It also allows for renewable energy grid
contribution limits to be reached in a planned way. In addition, if larger renewable
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contributions are sought, it allows for centralised energy storage which has economies of scale
and control advantages.

Further discussion of centralised generation is provided in Appendix A.2.

Market investment
14B

The market investment approach would allow individuals to invest privately and become small
(or large) generators. At present, the upfront cost of renewable energy, in particular PV
systems, is discounted heavily through Commonwealth Government incentives.

In this case, it is necessary and appropriate for Government to specify grid connection
requirements and total capacity limits to prevent grid instability and rising capital costs to the
grid operator where the level of energy input into the system from market led investments may
be beyond technical constraints in the system (without significant investment in control systems
or energy storage).

Unlimited private investment in distributed generation would expose the SA Government to


risks through increased capital and operating requirements. Ultimately, a small number of
installations could have significant cost implications for the entire mini-grid, and the RAES
Scheme capital budget could be insufficient to undertake the necessary system stability
augmentation investment.

Also, in the absence of a defined cap for PV connections, it is conceivable that the Government
may need to impose a sudden freeze on connections in the future. This might result in a
perception of inequity as early investors would benefit, effectively locking others out of the
market once renewable contribution limits are reached.

Options for managing private investments in renewable generation seeking connection to a


mini-grid could include:

generation caps;

eligibility requirements, e.g. only householders or businesses can apply to connect;

restrictions on installation; or

alternative supply and tariff arrangements (e.g. peak demand charges and declining tariffs
for net exports).

By applying a system-level cap, this amounts to a first in best dressed approach, which has
equity implications. Although DTEI may ultimately need to employ some cap approach, by
reactively setting the cap, the benefits of PV installation would be captured solely by first
movers.

Eligibility requirement could be used to bias PV installation (and potential energy savings)
towards households or businesses, however this essentially amounts to the Government making
a policy decision about a class of electricity users which it wants to allow to realise energy
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savings, with no guarantee that all users in that class will realise those savings. In addition,
there may still be a need to impose system-wide caps.

Restrictions on installations, the size of systems, and requirements for inverters seems
appealing, but these do not fully address the system instability issues. While systems can be set
up to never export to the grid even if power is available, this does not mitigate the risk of a
cloud event signal into the network, explained below.

For example, in a cloud event we have considered the case of a hotel with a significant
load and large PV array on a small mini-grid. When a cloud shades the array, the output
from the PV falls dramatically, and the load on the network increases. If this occurs at
the same time as the hotels cool room plant powers up, there is a risk of a significant
voltage drop. Depending on location and other loads in the area, the gensets may
struggle to respond in time to keep power quality in the required tolerance for the
coincident events.

As these regulatory approaches appear limited in what they can achieve, the use of an effective
price signal to users about the costs of installing PV, including the system costs which are
imposed on the Government, could be effective in managing increased penetration of PV.

The RAES tariff structure could be altered to achieve cost recovery of these system costs from
customers with PV installations by including a demand charge based on a consumers
maximum demand.

This approach to recovering costs is common on the main grid, in particular for large
commercial and industrial customers whose high or variable loads contribute significantly to
network-wide costs. These businesses often have monthly and annual peak demand charges as
part of their tariff. Appropriate main-grid demand charges and the methodologies for
calculating them could be utilised as a starting point to explore the options for setting peak
demand charges in RAES towns.

Considering the challenges in operating remote mini-grids, a peak demand and time-of-use
(peak, shoulder, off-peak) tariff may offer better price signals to customers, and be more
reflective of the network and powerhouse costs incurred. The tariff design can also influence
PV system sizings and incentivise designs to best fit the load of the site.

We note that the use of an alternate tariff structure is not a prerequisite for the renewable
contribution levels examined in this report. However, the need to set a tariff for any net exports
and the potential impacts on the amount of electricity sold to a site need to be carefully
considered. At higher renewable contribution levels, tariff design is more critical as the day
time fuel efficiency of the powerhouse may be affected and there are less kWh sold to cover
non-fuel costs (such as the cost of generation plant, and network costs).

Further discussion of distributed generation is provided in Appendix A.2.

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Penetration of PV systems next steps

In summary, we note two key steps which could be considered around penetration of PV on
RAES sites:

DTEI could progress a tariff design review project to identify the tariff structure to apply to
future installations of PV, potentially by engaging ESCOSA on key tariff design principles
to apply to setting demand charges, utilising their expertise in setting regulated tariffs across
several industries 23; and
20F

in collaboration with the administrators of Yunta school and the private power operator,
DTEI could trial a new tariff for any future school PV installation. Data collected from this
trial could be used to design renewable generator tariffs for other diesel mini-grids. It is
recommended that DTEI explore a tariff that includes a peak demand charge with the school
administrators and the private power operator. If the PV installation is completed, , this
could subsequently be rolled out to other RAES sites.

23
This would be similar to the approach recently used for independent operators (Coober Pedy, Andamooka, Yunta),
where ESCOSA provided advice on a building block methodology for implementation by DTEI.
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B Appendix B Engineering and technical

B.1 Power Line Cost Increases further background


Recent years have seen increase in the cost of constructing power lines, particularly in remote
locations, for reasons including:

a) A shortage of skilled workers:

Line Workers. Apprentice intakes in the past 20 years have been reduced
significantly. As a result, some Line Workers are now asking for, and receiving,
higher wages than engineering staff in the industry.
Para-professionals. As with apprentices, technical training programs have been
reduced significantly leading to a scarcity of mid-range technical staff. Many of
these staff are now paid significantly more than engineering staff.
Engineers. With the mining boom in Australia, engineering salaries have increased
significantly, but they have not kept pace in the electricity industry. Significant
numbers of experienced engineers have left the electricity sector to pursue the
opportunities in other industries.
The result is that the private contracting firms now have very large salary and
wages costs for skilled staff in comparison to 20 years ago. This increase far
exceeds that of national wage growth and staff retention is difficult without
resorting to further financial incentives.
b) Environmental issues:

With the loss of State Government mandates to construct power lines wherever the
need arose, there has been a significant increase in the cost of obtaining
environmental approvals.
Major lines, (eg 33 kV and above) now need an Environmental Impact Assessment
prior to construction.
Permitting for construction of lines on public roadways has become difficult with
Planning Permits needed in some cases.
It is now more difficult to obtain permission to cut down trees that lie in the power
line route, meaning some lines take less optimal routes to reach their destination.
Construction on private land is now more prevalent and the cost of acquiring
easements has skyrocketed. The peppercorn easement is no more, with some
reports that relatively unencumbered pieces of land can command easement fees of
in excess of $10,000.
Timelines for construction have now increased significantly as a result.

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c) Major demand within the Industry:

In recent years, most of the States have started to suffer from the circumstance
where their networks are becoming overloaded as a result of the increase in
electricity consumption and peak loads. Power lines built to supply houses with
typical 3 kW peak loads now have to supply homes that can have peak loads of 12
to 15 kW (larger homes with multiple TVs, fridges air-conditioners and a pool
etc). As a result, there is large demand for construction and augmentation to
electricity networks to increase capacity, and that demand is expected to continue
over the coming decade.

In a market with high demand, where skilled power line staff are in short supply with minimal
training occurring, it is not surprising that staff costs are increasing rapidly. The complexity of
planning and approvals also adds costs to new power line construction.

As these challenges are unlikely to diminish, new power line construction costs are expected to
continue increasing above inflation in the short to medium term.

B.1.1 The impedances of long radial lines

Remote communities are commonly supplied with electricity using a radial network
configuration, whereby there is only one set of transmission lines between the load and the
substation. Although this kind of configuration is less reliable than a mesh-type configuration,
whereby a load is supplied by several substations, it is more economical.

Over long distances, the voltage on a transmission network will decrease due to resistive and
reactive effects. These effects can be mitigated through the careful selection of equipment and
the appropriate setting of transmission voltage.

The impedance of a transmission line is determined principally by the size and material of the
conductor used to transmit electricity. Reducing impedance is achieved by either increasing the
diameter of the conductor or by transmitting power at a higher voltage (thus reducing the
current carried by the lines for a given power output). Power losses due to impedance are
proportional to the square of the current flowing through the lines: a doubling of power
transmitted will result in a quadrupling of power losses. Often, utilities will delay upgrading
transmission and distribution networks by changing the settings on substation transformers so
that the consumer at the end of a long feeder receives electricity at the prescribed voltage. This
method may work well if there are no consumers between the substation and the consumer at
the end of the line, however, if there are any intermediate consumers they will receive electricity
at a voltage that is higher than normal, so that the consumer at the end of the line receives
electricity at an acceptable voltage.

B.1.2 The reactive power losses of long radial lines

Power losses are also caused by reactive power on a transmission line. Reactive power is
present when the transmission network's power factor is less than unity. This is caused by large
inductive motor-driven loads (e.g. compressors, mining equipment, pumps, etc.) or by inductive

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electronics. To correct lagging power factor, capacitor banks are commonly used at the
consumer end so that the consumer receives electricity that has as close a power factor to unity
as possible.

At low loads and long transmission distances, voltage rises may occur at the consumer end due
to the Ferranti Effect. This is caused by the capacitive effects of energized high-voltage
transmission lines in proximity to one another.

For large radial transmission networks operating at very high voltages and transmitting large
amounts of power, static synchronous compensators, (STATCOMs) or static VAr compensators
(SVCs), are used to correct reactive losses. The low amounts of power drawn by the systems
covered under this project mean that their use may not be economical.

B.2 Technical appendix renewable energy resources, technologies, and


issues with mini-grid applications
South Australia has significant renewable energy resources including solar, wind, geothermal,
biomass and marine. The locations of the RAES towns and their load sizes combined with the
timeframe available for this study has limited the analysis to solar and wind.

Further examinations could consider geothermal as Birdsville has an operational 80 kW plant


that generates from hot (98C) bore water. This plant is estimated to save around 160,000 litres
of diesel per year 28.
21F

There are also plans for Innaminka to be Australias first Hot Dry Rock geothermal powered
town with a proposal for a 1 MW plant 29. Unfortunately, Parachilna may not benefit from any
2F

Hot Dry Rock developments in the vicinity as the main resource is to the west of the 132 kV
line and Parachilna is located to the east.

The Australian Renewable Energy Atlas was launched by the Commonwealth Government in
October 2008. The Renewable Energy Atlas was a web-based, interactive atlas of Australia that
provided maps and information on renewable energy resources and infrastructure. It was hosted
on the Department of the Environment, Water and Heritage and the Arts (DEWHA) website
but due to budget constraints, this resource is no longer available 30. As a result, the Renewable
23F

Energy Atlas wind maps are not included in this report. The wind section of RenewablesSAs
website needs to be updated to provide links to wind resource information.

28 http://www.derm.qld.gov.au/register/p00834aa.pdf
29 http://www.pir.sa.gov.au/__data/assets/pdf_file/0016/80008/Final_EIR_1MW_Power_Plant_GRL_web_Aug08.pdf
30 http://www.climatechange.gov.au/en/what-you-need-to-know/renewable-energy/atlas.aspx
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B.2.1 Solar Resource

A Global and Direct Normal Irradiance map of SA is available from the RenewablesSA
website 31.24F

In addition, RenewablesSA commissioned 3TIER to provide solar radiation and weather data
for four locations. These are listed below with their average global horizontal radiation and
location:

Pimba 5.3 kWh/m2/day (Lat 31.2, Long 136.8);


Neuroodla 5.3 kWh/m2/day (Lat 31.8, Long 138.1);
Port Augusta 5.2 kWh/m2/day (Lat 32.5, Long 137.8); and
North West Bend 5.2 kWh/kW/day (Lat 33.9, Long 139.7).

This data is available for detailed simulations of plant performance. The variability of the solar
resource and cloud intensities for RAES towns could be estimated from these detailed datasets.
The 3TIER Pimba global horizontal radiation is 7% lower than the Bureau of Meteorology data
for Glendambo (Lat 30.6, Long 135.4).

The RAES towns receive high amounts of global solar radiation, see Table A- 6.

Table A- 6: Bureau of Meteorology average daily global horizontal solar radiation


Average daily solar Annual solar radiation on a
Location radiation on a fixed fixed horizontal plane
horizontal plane kWh/m2 kWh/m2
Government sites
Oodnadatta 6.02 2,197
Marla 5.98 2,183
Marree 5.90 2,154
Glendambo 5.70 2,081
Nundroo 5.31 1,938
Blinman 5.62 2,051
Parachilna 5.65 2,062
Kingoonya 5.70 2,081
Manna Hill 5.53 2,018
Cockburn 5.59 2,040
Independent sites
Coober Pedy 5.87 2,143
Andamooka 5.80 2,117
Yunta 5.49 2,004
Source: Bureau of Meteorology

31 http://www.renewablessa.sa.gov.au/investor-information/resources
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The seasonal variation in the horizontal plane solar resource is illustrated in the following
Figure for the 13 RAES sites.

Figure 27: Seasonal variation in solar resource daily kWh/m2 on a horizontal plane in RAES
towns

Source: ITP from Bureau of Meteorology data

The seasonal variation of the solar resource would be less for PV modules facing north and
tilted at 30 degrees above horizontal. To maximise annual solar radiation received, tilting fixed
PV modules at latitude angle above horizontal is required, (for RAES towns this is 27.5 to 32.5
degrees). To match seasonal load profiles and existing gensets, fixed PV design solutions that
maximise summer or winter or a particular time of day performance are feasible. Some PV
arrays are designed to allow for manual, seasonal adjustments. Seasonal adjustment requires
dedication and increases costs due to the need to design for the worst-case, wind-loading
scenario and due to the additional staff time required for adjustments.
Single axis tracking and dual axis tracking are claimed to increase the solar radiation received
by 25 to 35%. Tracking also increases generation in the afternoon, when peak loads tend to
occur. However, tracking systems increase installation and O&M costs. With the PV module
price falls seen in the last two years, the value proposition for tracking vs buying more PV
modules has declined for larger power generation applications.

B.2.2 Wind Resource

South Australia has some of the best wind sites in the world but they are generally restricted to
the coastal and southern regions.

Between 1984 and 1988, the SA Government monitored wind speed and direction data at twelve
coastal sites. Data was collected for minimum, peak and average wind direction on a 20 minute
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basis from 10 meter towers. This data is available from RenewablesSA 32. This data is useful 25F

for main-grid connected wind farms as the sites are too far from RAES towns to interpolate
useful trends. The following figure illustrates average wind speeds and the coastal and southern
nature of the best wind resources.

Figure 28: Australia's average wind speeds (m/s), CSIRO, 2003, height of monitoring/modeling
not specified, (based on earlier AGO work derived from Mills and other sources).

Source: CSIRO

Figure 29: Australias wind resources, (Geoscience Australia and ABARE, 2010 referencing
Windlab Systems, DEWHA renewable energy atlas, Geoscience Australia)

Source: Geoscience Australia and ABARE

32
http://www.renewablessa.sa.gov.au/files/wind_1984-88study_map.pdf

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The DEWHA Renewable Energy Atlas is no longer available, thus the height is unclear for the
wind resource shown in Figures 29 and 30. The wind resource increases above ground level,
hence the trend for large wind turbines to have towers of 85m or above in windy areas.

The Bureau of Meteorology (BoM) logs wind speed at 10m above ground at 9am and 3pm each
day at some weather stations. The long term average of these two readings is not ideal for
assessing wind resources but gives an indication of the more favourable sites.

Table A- 7: Sample average 10m wind speeds at RAES towns (or nearest weather station
location)
BoM twice a day average wind
Location
speed sample at 10m (m/s)
Government sites
Oodnadatta 4.8
Marla 3.2
Marree 3.4
Glendambo (Woomera) 4.9
Nundroo (Nullabor) 6.1
Blinman (Leigh Ck) 5.1
Parachilna (Leigh Ck) 5.1
Kingoonya (Tarcoola) 3.0
Manna Hill (Yunta) 3.6
Cockburn (Broken Hill) 3.8
Independent sites
Coober Pedy 3.7
Andamooka 3.1
Yunta 3.6

Source: Bureau of Meteorology

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The seasonal nature of the wind resource is illustrated in the following Figure.

Figure 30: Average 10m sample wind speeds in kph

Source: ITP from Bureau of Meteorology data

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Australia wide modelling undertaken by Mills in 2001 (based on May 1997 to April 1999 data),
indicated that the average wind speed at a height of 70m for most RAES towns was in the range
of 5.6 to 6.5 m/s with Nundroo being 6.5 to 7.3 m/s.

Like the solar resource, the actual wind resource can vary from the long term annual average by
plus or minus 15% in any given year. The annual generation of wind turbines will vary by more
than this due to their cut in, rated and cut out wind speed performance curves and this needs to
be considered when planning annual diesel fuel budgets.

B.3 Technologies
B.3.1 Photovoltaics

There are three main solar PV module types with different characteristics. It is important to
note, that as the fuel is free the efficiency of the PV module is not directly proportional to the
economics of the system. It is the installed cost ($/W) and generation (kWh/kW/year) that are
the key parameters. The PV module efficiency is proportional to the area required for a kilowatt
and thus indirectly effects installed costs due to the need for framing and securing. With PV
module costs declining significantly in the last two years, balance of system and installation
costs are becoming more significant for PV systems. This is heightened in remote areas where
costs tend to be higher, eg concrete footings and labour.

PV systems can be installed relatively quickly and if systems are placed on buildings or less
than 20kW, no environmental impact assessments should be required.

B.3.2 Monocrystalline silicon


Panels made using monocrystalline silicon cells are generally the most efficient commercially
available, with panel efficiencies of 12 to 18% and as high as 20%. Due to the manufacturing
process involved in making monocrystalline cells and the cells relatively higher efficiency,
their cost has generally been higher than that of the other silicon technologies. However, recent
developments in global PV markets have seen the costs of high efficiency PV panels fall
significantly.

B.3.3 Polycrystalline silicon

Typical efficiencies for this type of PV module range from 10 to 17%. Historically
polycrystalline modules have had lower costs due to their relatively simpler manufacturing
process.

Due to the internal wiring layout, mono and polycrystalline silicon PV modules experience
power output decreases in excess of the proportional area shaded under partial shading
conditions.

All PV modules are power rated under standard test conditions, (25C and 1000 W/m2). In the
field, performance varies with sun angle, module temperature, dust and other factors.

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Crystalline silicon cells efficiency increases slightly when below 25C and declines slightly for
every degree above 25C. Given PV modules can sit at 60C in Australian conditions,
temperature derating is required for PV output forecasting. An example temperature derating
coefficient for crystalline modules is 0.42%, so modules that are 60C would be generating
about 14.7% less than their rated capacity at sunlight intensity of 1000W/m2.

B.3.4 Amorphous silicon/thin-film

Thin film modules are less efficient than crystalline modules (around 5-12% efficient), so are
not always optimal when space is a constraint. Thin film PV modules use a different
manufacturing process from that used to manufacture crystalline silicon, by depositing a thin
coat of material on a substrate. This material is typically amorphous silicon, copper indium
diselenide (CIS) or cadmium telluride (CdTe). Numerous other thin film technologies are
available and under development.

The main advantage that these technologies have over crystalline silicon is the lower cost of
manufacturing. Thin film modules performance declines under cloudy conditions and partial
shading but typically less than crystalline PV modules. Typically, thin film has a lower
temperature derating coefficient than crystalline silicon modules. An example temperature
derating coefficient for thin film modules is 0.3%, so modules that are 60C would be
generating about 10.5% less than their rated capacity at sunlight intensity of 1000W/m2.
This means that thin film specific production (kWh/kW/year) is generally higher than crystalline
technologies in areas with high ambient temperatures.

B.3.5 PV Performance

In addition to temperature derating, PV degradation factors (% decline in performance each


year) need to be considered. Crystalline panels are often modelled with a linear degradation
factor of 0.8% per year to match their warranty. Typically, thin-film modules have higher
degradation factors.

The RAES towns are mainly in ORER Zone 2 for 15 year deeming of Renewable Energy
Certificates (RECs), with Coober Pedy, Marla and Oodnadatta in Zone 1. Figure 5 illustrates
the zone rating assumed performance based on postcodes compared to a forecast performance
based on the average solar resource at the nearest weather station.

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Figure 31: PV forecast output kWh/kW/year (average over first 15 years)

Source: ITP forecasts and ORER REC Zone rating.

The detailed methodology used by ORER, to determine postcode zone ratings and their average
annual PV generation for 15 year deeming purposes, appears to not have been published.
However, ORER has indicated that the theoretical forecast was reduced by 10% to take into
account factors such as shading, temperature and sub-optimal PV tilting (typical roof pitch of
22.5 degrees). Whether the ORER methodology also factored in annual degradation of PV
modules is unclear. PV module degradation is typically assumed to be linear (0.8% per year)
and the annual performance in year 15 would typically be forecast to be around 88.8% of the
first years output. However, actual PV module degradation depends on numerous factors and
the typical warranty of 80% output in year 25 is conservative to ensure maximum compliance.

The forecast PV generation figures in Figure 32 are 2% lower (Nundroo) to 9% higher (Marree)
than the ORER zone ratings due to numerous factors, including:

ORERs methodology of averaging groups of postcodes across vast areas for the zonings,

the forecasts for this report use the Bureau of Meteorology solar data and assume no
shading, and

the forecast methodology had its temperature loss factors correlated with the modelled
performance for Pimba (using the 3TIER data).

For the purposes of this report, the performance of the PV is assumed to be equivalent to the
ORER Zone rating. This is likely to slightly underestimate the performance.

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The SA Government may want to undertake detailed monitoring or modelling to support a


review of the ORER Zone ratings for some RAES towns. Installing a remotely monitored,
small PV system at several sites to assist with reviewing their REC zone may also be
worthwhile before considering any larger PV investments at these sites, eg Marree.
This review does not include quantitative analysis of Concentrating Solar Thermal Power (CSP)
or Concentrating PV technologies (CPV). CSP thermal generation technologies using steam
turbine based generation are commercially mature and there is rapid growth in installed capacity
around the world. However, CSP systems are more economic at sizes above 50 MW. Smaller
systems are worth considering where the alternative costs of generation are very high, however
the minimum technically feasible system size would be around 1 MWe. Thus of the towns
investigated, the steam turbine based CSP option would be worth considering for Coober Pedy
but not the others. Such a CSP system can also offer the considerable advantage of built in
thermal storage for a higher capacity factor. Self contained Dish Stirling solutions are offered
commercially and along with CPV solutions could be worth considering. Both are considerably
less commercially mature than flat plate PV solutions and so are more complex to analyse.
With the fall in PV module prices, both CPV and CSP face considerable challenges growing
market share. If a competitive technology selection process is adopted for Coober Pedy, CSP
and CPV technologies should be allowed to compete. The single or two-axis tracking
requirement for concentrating solar technologies, while appearing attractive due to increased
output, increases O&M requirements which is an important consideration in remote areas.

Solar air-conditioning is an area worth further investigation in the future, as there are several
companies developing products. However, the financial viability is still a challenge as
illustrated by the July 2010 decision by the NT Government 33 to not proceed with solar thermal
26F

air-conditioning for the Alice Springs Arts Centre after assessing the tenders received.

B.3.6 Wind turbines

Typically power generation wind turbines have two to three blades. A wind turbines power
output is rated at a certain wind speed which can vary between manufacturers. This power
rating also includes a cut-in and cut-out wind speed which defines the periods when the wind is
too light or strong for generation. The power available in the wind is proportional to the cube of
the wind speed, thus a 10% increase in wind speeds can increase output by up to 33%, hence the
desire for the very best wind sites when building large wind farms.

Wind turbines are an established technology and the Coober Pedy 150 kW wind turbine was
installed in 1991. The Nordex wind turbine is on a 30m tower. In November 2000, it was
reported that it supplied about 4% of the towns electricity supply and saved about $100,000 in
diesel per year.

This wind turbine has had periods when it was not operational due to maintenance and other
issues. However, publishing its performance data for the last 20 years would be a useful
addition to knowledge of the wind resource in outback SA.

33
http://www.nt.gov.au/nreta/publications/media/pdf/2010/07/20100722_araluen_solar_airconditioning_project.pdf
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Figure 32: Claimed performance for a reconditioned 1998 Nordex 150 kW at various wind
speeds m/s.

Source: Saylor and Associates,2006

If it is assumed that somewhere between 7,000 and 9,000 MWh were sold in the year 2000 in
Coober Pedy, then 4% of the towns electricity supply is between 280 to 360 MWh pa giving
the turbine a capacity factor of between 0.21 and 0.27. Wind sites closer to the South Australian
coast with wind turbines on significantly higher towers, typically achieve capacity factors of
between 0.3 and 0.4. Coober Pedys capacity factor is likely to be closer to 0.21 than 0.27 and it
would be worthwhile to publish and analyse the yearly generation figures. Using the
performance curve in Figure 7.6 and the Coober Pedy estimated capacity factor of 0.21 to 0.27,
indicates that the average wind speed at 30m is in the range 5.9 to 6.7 m/s. This is higher than
expected and higher than Mills 5.6 to 6.5 m/s modelled for 70m.

Typically wind turbines are designed for the higher wind speed areas. There have been attempts
at optimising the design of wind turbines specifically for lower wind speed areas but, in the past,
there has been limited success. New companies and products are becoming available but it can
be difficult to verify claims. In addition without detailed wind data, it is not feasible to compare
various designs and forecast performance for a specific location.

With the wind industry moving to larger turbines (Vestas website only provides brochures
down to 850 kW), there are also many smaller wind turbines available for sale in the second
hand market. Reconditioned wind turbines may appear to be attractive but consideration of
O&M requirements needs to be considered in any investment decisions.

The town of Exmouth in WA has three 20 kW Westwind turbines which generate around
120 MWh pa, (capacity factor 0.23). Coral Bay has three Vergnet 275 kW wind turbines which
generate around 2,500 MWh pa (capacity factor 0.35). The Coral Bay wind farm is combined
with a 500 kW short term energy storage system using a flywheel. The energy storage system

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combined with the seven low load diesel gensets (320 kW) allows for high wind penetrations
for Coral Bays electricity supply, (monthly averages of 45 to 65% have been achieved).

The Westwind turbines power curve is shown in Figure 7.9.

Figure 33: Westwind 10 and 20 kW power curve

Source: Westwind Turbines, (http://www.westwindturbines.co.uk/products/20kwwindturbine.asp)

There are several other manufacturers of small wind turbines and the above performance curve
is provided as an illustrative example. The following Vergnet performance curve is also
provided for illustrative purposes.

Figure 34: Vergnet 275 kW power curve

Source: Vergnet, (http://www.vergnet.com/pdf/specs-mpc.pdf)

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B.3.6.1 Storage

Storage is not required to integrate renewable generation into diesel mini-grids where the
instantaneous per cent contribution from renewable generation is not significant.

Diesel generators regularly ramp up and down to cope with load fluctuations and can handle
some additional fluctuations caused by renewable generation. However, beyond a certain point,
risks to power quality emerge and to manage this some form of energy storage is typically used.

A range of energy storage technologies are utilised for various applications around the world.
The most commonly used in stand-alone power systems is the lead-acid battery. Various other
battery technologies exist and are being developed such as Lithium-ion, Zinc-Bromine and
Vanadium Redox.

Lead-acid batteries are popular as they are the lowest cost, energy storage solution and are
widely used in uninterruptible power supply (UPS) applications. Deep-discharge lead-acid
batteries are commonly used in stand-alone power applications, either flooded wet cell or gel
(sealed). Because of the high cost of batteries, their limited life and the lower efficiencies of
smaller diesel generators, they are more economic for stand-alone power systems with loads less
than around 120 kWh/day 34). However, other analysis has come up with different thresholds
27F

and the calculation is sensitive to numerous assumptions including diesel and battery prices,
load profiles, diesel generator sizes, timeframes plus inflation and discount rates.

Current prices for lead-acid batteries are in the order of $250/kWh for large systems and
considerably more for smaller systems. The integration of batteries into a hybrid mini-grid
system would greatly increase both the capital cost of the project and the ongoing operational
and maintenance costs.

There has also been the use of flywheel technology combined with low load diesel generators in
three remote towns in WA for short-term energy storage to maximise the contribution of
renewable generation. Flywheels consist of a large rotating cylinder in a vacuum with
magnetic, low friction bearings. The flywheel is connected to a motor/generator mounted on the
stator that, with controls and power electronics, interacts with the mini-grid. Flywheels are
most useful for high power, short duration needs. They are utilised for maintaining power
quality rather than for long term energy storage.

Currently there are only a few providers of flywheels suitable for integrating renewable with
diesel generation. Typical flywheel sizes are in excess of 250 kW. In addition, the high capital
cost of the flywheels is likely to make them uneconomic for the smaller RAES sites.

34
Bushlight, 2007.
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B.3.6.2 Inverters

Inverters convert DC electricity to AC, manage power quality and can charge/discharge battery
storage systems as well as control diesel generators. They can also be connected to remote
monitoring systems. Inverter technologies have advanced significantly with programmable
functions, load management and other features. Inverter efficiency decreases at high
temperatures and this also needs to be considered with any performance forecasts.

B.3.6.3 Diesel generators

The Govt owned RAES towns existing gensets range in size from 30 to 250 kW across several
manufacturers. The dual fuel nature (LPG blending) of some gensets will affect their
performance curves as will high air temperatures. A typical efficiency curve for a new diesel
generator is shown in Figure 19.

Figure 35: New Deutz diesel generator efficiency curve at standard test conditions

Source: ITP from Deutz datasheet (http://www.deutz.com/live_deutz_products/html/display:index)

Smaller generators tend to have lower peak efficiencies than larger generators. The average fuel
efficiency for the Government owned RAES towns was 2.5 kWh (as sold) per (diesel
equivalent) litre in 2008-09. Factoring in an average of 15% for network and other losses, this
translates to about 2.9 kWh / litre at the powerhouse.

For consumers, on a tailpipe basis, the greenhouse gas intensity is 1.08 kg / kWh and full fuel
cycle intensity 1.2 kg / kWh. However, the LPG fuel blending would reduce these factors
slightly. Running diesel generators at less than 40% of their rating reduces efficiency and
significantly increases maintenance so management strategies aim to minimise this.

Low load diesels were invented in Australia and have several advantages in remote power
applications including running longer at low load levels. Low load diesels should be considered
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for any diesel generator replacements or new projects. Low load diesel suppliers have indicated
that the smallest unit commercially available is 250 kW. Discussions with suppliers may be
required to further investigate the feasibility of incorporating a unit of this size in the small
RAES towns or the possibility of developing smaller low load diesels for the RAES towns.

The cost of delivered diesel in remote communities varies and is difficult to forecast over
timeframes of 20 years when comparing LCOEs of various investment options. For the
purposes of the analysis, a flat starting point of $1.00/litre (GST exc, after Diesel Fuel Excise
rebate) has been used. Sensitivities to any forecast diesel price path include government carbon
policies, exchange rate fluctuations and overseas developments.

B.3.7 Case Study Parachilna

Figure 36: Parachilna diesel generation and loads

Source: ITP based on data from DTEI

Parachilna has 40 consumers purchasing an average of 631 kWh per day with high load growth
recently. The load is serviced by three diesel gensets sized at 52, 80 and 96 kW.

In August 2002, a 21 kW PV array and a battery bank were installed with the aim of reducing
annual diesel consumption. Like many isolated power projects, integration with the diesel
generators and the batteries, plus refining control systems and strategies took a while to become
optimised. In April 2011, remote control and monitoring was installed and this capability has
improved the potential to minimise operational costs. It also allows DTEI to reduce the solar
power input into the mini-grid to optimise the diesel gensets performance when required.

The PV project received Renewable Remote Power Generation Program (RRPGP) funding
support and the total installed cost was reported to be $517,000. This is equivalent to $24/W for
21 kW of fixed monocrystalline PV, a large battery bank consisting of 60 batteries and
installation plus commissioning. Care must be taken with $/W comparisons for remote
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installations as battery banks can be sized very differently and can account for around half the
cost of an installation. Costs of diesel infrastructure upgrades may also be included in some
total project costs.

The PV array is reported as producing 12% of the towns electricity and saving 32 tonnes of
greenhouse gas emissions per year. DTEI would have learned valuable lessons from the
optimisation of Parachilnas hybrid power system which will benefit any future government PV
projects in RAES towns. It may be useful for the key performance data and the lessons learnt to
be published as a case study on RenewablesSAs website to allow project developers to benefit
from DTEIs experience.

B.4 Centralised generation approaches


For larger towns, renewable PV generation is typically limited to up to 30% of the mid day load.
This fuel saving approach can avoid the need for incorporating energy storage and significant
upgrades to the powerhouse. Higher renewable contributions are feasible, depending on the
load and its management and whether there is a useful renewable energy spill load, eg a
desalination plant. The main advantage of centralised generation is that the design and control
systems can be optimised for integration with the existing powerhouse and loads. There may
also be economies of scale and larger more efficient and sophisticated inverters with remote
monitoring and control capabilities.

If higher renewable contributions are desired, typically some form of energy storage is required.
The centralised generation approach has more storage options, (battery or flywheel) and this can
be larger in scale which typically has advantages for control systems and maintenance. The
advantage of centralised storage may be challenged over the coming decade with significant
investments being made in battery technologies and smart control systems. In Queensland,
Redflow is developing remote, grid-support batteries and, in SA Zen Commercial Energy
Systems are working with Greensmith to further improve intelligent, distributed battery
systems.

Disadvantages of centralised RE include new O&M procedures and cloud events for larger PV
systems. Cloud shading on a centralised PV array can alter total output rapidly, which creates
power quality management issues.

Renewable energy centralised generation solutions have high initial capital costs as the
investment is effectively purchasing 20 years worth of fuel in advance. Ongoing subsidy
mechanisms may also need to be reviewed to ensure renewable contributions are incentivised
while avoiding any perverse incentives towards not maintaining power quality.

B.5 Distributed generation approaches


Having PV systems spread over a larger area, reduces the impact of cloud events thus assisting
with power quality management issues. Localised inverters can also improve power quality
support. However, it is more difficult to monitor and control dispersed inverters. In addition, it
will be more expensive than centralised generation but the costs and benefits may able to be
shared with some consumers. The attractiveness of PV investments for consumers increases
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with rising electricity prices. Depending on connection and metering requirements, there is the
potential for large amounts of PV investments to be stimulated quite rapidly if the SA
Government publishes connection and metering requirements.

Encouraging distributed generation on mini-grids charging high electricity prices has risks.
Eventually, there is the potential to decrease annual income and increase expenses per kWh sold
for the diesel powerhouse operator. Power quality issues also become more complex with
increasing renewable contributions. In early 2011, Horizon Power restricted the size to a
maximum of 1.5 kW of PV allowed to connect to the Carnarvon and Broome mini-grids 35. 28F

Norfolk Island is an interesting case study with power prices around 60c/kWh. After
investigations into centralised generation solutions which recommended large-scale wind, the
Norfolk Island Government released connection and metering requirements for small-scale PV.
Due to Federal funding of 50% available through the RRPGP, more than 900 kW of distributed
PV systems were installed in just over a year. For a mini-grid powered by six 1 MW diesel
gensets with a peak load of around 1,800 kW, this has introduced some challenges. While the
annual diesel fuel savings may not be optimal, they are still significant and power quality issues
have been managed.

B.6 Estimation of costs and savings


The initial capital cost estimates for PV are based on recent prices seen in the Australian market
for similar remote sites. The distance from Adelaide (or Alice Springs), and whether it is roof
or ground-mounted, will affect installed prices but for the purposes of this high level review, a
single installed cost rate has been assumed. The discount on this installed cost from Solar
Credits and Small-scale Technology Certificates (STCs) was estimated using the REC Zone
rating. The value of STCs was assumed to be $25 for the analysis.

The average fuel efficiency in the RAES towns is 2.9 kWh/litre at the powerhouse and
2.5 kWh/litre as sold. The difference occurs due to line losses, unmetered loads and other
factors. For estimating the diesel fuel savings from centralised generation, the powerhouse
average fuel efficiency has been used. For estimating savings from distributed generation, the
as sold, average fuel efficiency has been used. If there is no energy storage, consideration also
needs to made for some renewable energy spill. Typically, this is more significant for wind,
where a portion of night time wind generation may need to be spilled into dump loads, as its
proportional contribution to the demand may need to be controlled to ensure power quality.

This approach gives an indication of the potential for diesel savings as the actual savings will
depend on various factors including the load profile during the day and the size of the diesel
gensets used to meet it. Thus the average fuel efficiencies during the day will actually vary
from town to town. The average fuel efficiency can even have seasonal trends which can affect
the savings realised due to differing PV outputs across the year. Generally, the smaller towns
would be expected to have lower average fuel efficiencies than the larger towns. However, for
the purposes of this high level review, the average across all RAES sites has been used.

35http://www.horizonpower.com.au/environment/Renewable%20Energy%20Buy-back%20Scheme%20(REBS)/Fact_sheet.pdf

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The performance of PV systems in each town was modelled and found to be slightly above the
ORER REC Zone rating. However, for the illustrative options presented, the ORER rating has
been utilised to predict PV performance. This conservative assumption slightly underestimates
potential savings, particularly for Marree and sites such as Oodnadatta and Marla.

PV systems sized up to 20 kW and located in the REC Zone 2 RAES towns, typically have an
LCOE of around 31c/kWh, (after 2011-12 STC discount). Due to the 20 kW cap on the Remote
Solar Credit multiplier, PV systems of 30 kW located in REC Zone 1 RAES towns have a
similar LCOE.

The cost of fuel was assumed to be which at $1/litre (GST exclusive, after Diesel Fuel Excise
rebate). Using the average RAES fuel efficiency, this gives a fuel cost for diesel generation of
34c/kWh at the powerhouse and 40c/kWh sold. As the PV LCOE is less than the average diesel
fuel cost per kWh, there are potential renewable generation opportunities for reducing the cost
of generation in the RAES towns.

This will continue to improve with time as PV prices are forecast to continue to fall while diesel
prices are, generally, forecast by commentators to increase. The costs of installing PV could
also be reduced by achieving bulk supply economies, if several PV systems are tendered for at
once.

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Department of Transport Energy & Infrastructure -
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Advisory
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C Appendix C Additional financial tables

C.1 Direct operating cost, Government sites


Direct operating costs include fuel costs, operation and maintenance on generation assets, and distribution and metering costs.

Table A- 8: Direct operating costs per annum (generator O&M, distribution and metering, and fuel costs) Government operated sites
1 2 3 4 5 6 7 8 9 10
Direct operating costs per annum, Government sites
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Marree $ 509,000 $ 569,000 $ 613,000 $ 661,000 $ 713,000 $ 770,000 $ 832,000 $ 900,000 $ 973,000 $ 1,053,000
Nundroo $ 253,000 $ 267,000 $ 272,000 $ 277,000 $ 283,000 $ 288,000 $ 294,000 $ 299,000 $ 305,000 $ 311,000
Blinman $ 214,000 $ 240,000 $ 262,000 $ 286,000 $ 313,000 $ 343,000 $ 377,000 $ 415,000 $ 457,000 $ 504,000
Parachilna $ 128,000 $ 144,000 $ 157,000 $ 172,000 $ 189,000 $ 207,000 $ 228,000 $ 251,000 $ 276,000 $ 305,000
Mannahill $ 103,000 $ 107,000 $ 110,000 $ 112,000 $ 114,000 $ 116,000 $ 118,000 $ 121,000 $ 123,000 $ 125,000

C.2 Tariff revenue, Government sites


The tariff revenue would be foregone by the Government under each RAES grid connection scenario.

Table A- 9: Tariff revenue per annum Government operated sites


1 2 3 4 5 6 7 8 9 10
Annual tariff revenue per annum, Government-operated sites
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Marree $ 248,000 $ 253,000 $ 258,000 $ 263,000 $ 268,000 $ 273,000 $ 278,000 $ 284,000 $ 290,000 $ 296,000
Nundroo $ 152,000 $ 155,000 $ 158,000 $ 161,000 $ 164,000 $ 167,000 $ 170,000 $ 173,000 $ 176,000 $ 180,000
Blinman $ 99,000 $ 101,000 $ 103,000 $ 105,000 $ 107,000 $ 109,000 $ 111,000 $ 113,000 $ 115,000 $ 117,000
Parachilna $ 71,000 $ 72,000 $ 73,000 $ 74,000 $ 75,000 $ 77,000 $ 79,000 $ 81,000 $ 83,000 $ 85,000
Mannahill $ 49,000 $ 50,000 $ 51,000 $ 52,000 $ 53,000 $ 54,000 $ 55,000 $ 56,000 $ 57,000 $ 58,000

12081474_1.DOC - 1 July 2011 137


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Department of Transport Energy & Infrastructure -
Review of the Remote Areas Energy Supply Scheme
Advisory
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C.3 Assumptions
A number of assumptions were used for the purposes of forming estimates and modelling costs and benefits to the RAES Budget.

These assumptions were used to form a scenario, and are not forecasts or necessarily reflect DTEIs future expectations about contract
costs, tariff revenues and future prices, or subsidy payments to independent operators. In particular:

1 there is considerable uncertainty over the cost of diesel, and forecasting for numerous international market variables was beyond the
scope of this study;

2 the future outcomes of contractual negotiations with Cavpower, ETSA Utilities, or other future service providers are unknown; and

3 future tariff revenues are dependent on the Minister for Energys future pricing decisions.

Importantly, having established a base scenario, we were able to perform sensitivity on the financial evaluation of grid connection. As noted
earlier in the report, the results of the grid connection analysis are not sensitive to the assumptions used.

The base scenario used the following assumptions:

Real discount rate of 6%;

Real increase in local operator costs, maintenance labour costs, consumables, and distribution and metering costs of 2% per annum;

Fuel costs based on scenario of average delivered price per litre of $1.05 in 2011-12, exclusive of GST and excise, with a real increase in
prices of 2% per annum, in addition to a $0.05 cents per litre carbon tax impost arising at the start of 2013-14;

Real increase in subsidy payments to independent operators of 2% per annum; and

Real increase in RAES tariffs (and resultant average revenue) of 2% per annum.
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