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ABARE's projections of peak oil and solar power's growth

Estimates & Committees
Christine Milne 24 May 2010

RURAL AND REGIONAL AFFAIRS AND TRANSPORT LEGISLATION COMMITTEE - 24/05/2010 - AGRICULTURE, FISHERIES AND FORESTRY PORTFOLIO - Australian Bureau of Agricultural and Resource Economics

Senator MILNE» -The International Energy Agency in recent weeks upgraded its forecast for the take-up of solar energy, predicting a quarter of the world's energy could be sourced from solar PV or solar thermal by 2050 and also predicting that both technologies would achieve grid parity by 2020 in the sunniest regions. I want to know what ABARE's analysis or prediction is about the potential for solar energy in Australia in terms of 2050 and 2020.

Mr Glyde -I might ask my colleague Jane Melanie to take us through that. We released in March of this year our long-term energy projections, which goes to the question of the relative shares of various technologies and sources of energy with an outlook horizon to 2029-30.

Ms Melanie -As my colleague just stated, ABARE undertook a comprehensive energy resource assessment with Geoscience Australia that was released in March of this year. The assessment looked at both renewable energy and non-renewable energy. There were two components to the assessment. The first part was a scientific assessment that was contributed by GA that looked at the energy resources that Australia has. The second part was related to the economic perspective, looking at what market developments are likely to be and what the policy settings are. On the basis of the modelling done by ABARE, we provided an outlook for the energy sector in Australia that covered both renewable and non-renewable energy.

In terms of solar in particular, what the assessment found was that Australia had vast and largely untapped solar resources. We have some of the best solar resources in the world; however, at the moment solar accounts for a very small share of total electricity consumption. The main barrier to the growth of solar is its cost relative to other technologies. If you look at the spectrum of costs, solar is certainly at one end of the spectrum. For this reason, we do not see a lot of solar currently in Australia. However, under the RET, the renewable energy target, which requires that 20 per cent of electricity be sourced from renewable technology by 2020, we see a significant growth in renewable energy, including in solar. So what we are seeing for solar is that there is potential growth of about 17 per cent a year between now and 2030.

Senator «MILNE» -That is very conservative compared with what the IEA is now saying its revised forecasts are in relation to solar. What were the assumptions in that model about a carbon price in terms of coal and oil?

Ms Melanie -In doing the projections, ABARE basically considered policies that have already been implemented and those that can reasonably be expected to be adopted over the outlook time frame. So we took into account the renewable energy target, which is the main driver of what happens to renewable technology over that period, but we also had a five per cent carbon emissions reduction target below 2000 levels by 2020.

Senator «MILNE» -So you did not model anything greater than a five per cent reduction.

Ms Melanie -No.

Senator «MILNE» -To come to oil for a moment, what is ABARE's analysis of the impact of the oil spill off Western Australia and the oil spill now in the Gulf of Mexico in terms of the cost-benefit of offshore exploration and drilling into deeper and more dangerous waters, compared with demand reduction and efficiency?

Ms Melanie -We have not looked at the issue.

Senator «MILNE» -So ABARE did not anticipate that by having to go into deeper water and more dangerous terrain there was a higher probability of accident?

Ms Melanie -No, we have not looked at that aspect of oil markets. Essentially, we look at market factors; what demand is doing and what supply is likely to do.

Senator «MILNE» -All right. So given that we currently have a European crisis with Greece and so on, and that has dampened demand, what analysis are you planning in response to the environmental crisis in the Gulf of Mexico, given that it is unlikely that the US drilling program that has previously been announced is likely to proceed?

Ms Melanie -As you are probably aware, ABARE puts together a set of forecasts every quarter. We are now in the process of revising our forecasts, which we publish in June. That will only cover the short term, so a year or a year and a half in advance. The impact of what is happening in the Gulf of Mexico is probably more of a long-term issue. At this point in time it is not something that we have looked at.

Senator «MILNE» -Can you tell me whether ABARE believes that oil has peaked or whether we are still anticipating peak oil from ABARE's point of view? Just keeping a monitoring eye on ABARE and oil-

Ms Melanie -We are certainly-

Senator «MILNE» -Perhaps, Mr Glyde, you would be able to tell me that?

Mr Glyde -I am very happy for Ms Melanie to continue. I would be very interested in the answer.

Senator «MILNE» -Wouldn't we all?

Ms Melanie -ABARE is certainly constantly doing the same-keeping an eye on what is happening in oil markets. On the basis of that we are constantly reviewing our long-term assumptions. But we are still of the view that in the longer term oil prices will be determined by the cost of alternative fuels. That is certainly where we see the ceiling, I suppose, in the longer term.

Senator «MILNE» -Yes, but you must be making some judgment about peak oil. In ABARE's view have we reached peak oil or not?

Ms Melanie -We do not tend to look at the issue from that perspective. Basically, underlying our forecast is the notion that markets-demand and supply-will determine the price of oil and will determine when alternatives come in. The point is not so much whether we will be running out of oil; it is more when and whether the alternatives will become economically viable.

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