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Climate
change
Sustainability Performance Report 2012 65
Actions taken in FY2012 to address climate change risks
Vulnerability assessment of electricity assets
The most material adaptation risk identified by AGL is the continued
decline in the capital utilisation rate within the electricity industry.
As the rate of peak demand continues to grow in excess of
underlying energy demand, greater levels of infrastructure are
required for comparably less time. This creates an ‘energy market
death spiral’ whereby prices increase further as a result of greater
fixed costs spread over lower output. AGL Applied Economic and
Policy Research Working Paper No.31, which raised this concept,
received extensive media coverage. Actions taken by AGL within
this context include: engaging with policy makers about the need
to introduce smart metering technologies and dynamic pricing;
promoting bill smoothing for our customers to avoid “bill shock”;
and working with our customers to explore individual energy
efficiency opportunities.
AGL has continued to update physical vulnerability assessments
of critical infrastructure. This ongoing assessment is based on
key Australian publications by the Commonwealth Scientific
and Industrial Research Organisation (CSIRO) and Bureau of
Meteorology (BOM).
The CSIRO/BOM report in February 2010 concluded that:
>> Australia may become hotter in coming decades: Australian
average temperatures could rise by between 0.6 and 1.5 ºC by
2030. Warming would be lower near the coast and in Tasmania
and higher in central and north-western Australia. These changes
would be experienced through an increase in the number of
hot days.
>> Much of Australia may become drier in coming decades:
Compared to the period 1981–2000, rainfall may decrease in
southern areas of Australia during winter, in southern and eastern
areas during spring, and in south-west Western Australia during
autumn. An increase in the number of dry days is expected across
the country, but it is likely that there will be an increase in intense
rainfall events in many areas.
The vulnerability assessment considered the potential risks emerging
from issues of water availability, interrupted access to market
through transmission being compromised and reliability of plant.
Potential opportunities were also evaluated, in particular the value
of peaking plant in meeting peakier electricity load at times of high
temperatures.
Project Carbon Price Implementation
In November 2011, the Federal Parliament passed the
Clean
Energy Act 2011
(Cth) (CEA), which introduced a price on carbon
from 1 July 2012. Operating at a pre-determined price for three
years, the carbon pricing mechanism is a cap and trade emissions
trading scheme.
Under the CEA, AGL anticipates a direct liability of around
27 mtCO
2
e arising from emissive facilities (primarily electricity
generation) and the embodied emissions associated with natural
gas supply to customers. In the first year of the carbon pricing
mechanism, the price is set at $23. As such, AGL’s liability under
the CEA will equate to around $620 million. However, as a net-
purchaser of electricity for customers (see greenhouse supply
footprint on page 71), AGL estimates the CEA will result in an
additional, approximately, $1 billion cost to supply our customers.
To prepare for the commencement of the carbon pricing mechanism,
AGL assembled a cross-business project team to assess the impacts
and implement the necessary changes to meet compliance, and the
new costs of supplying energy. The CEA introduces new measuring
and reporting requirements, new procedures with respect to
managing an energy supply portfolio, and changes to the way
that tariffs for electricity and gas supply are structured.
Consequently, AGL’s project team included expertise from:
>> wholesale electricity and gas markets;
>> retail electricity and gas supply;
>> communications;
>> finance and emissions accounting; and
>> legal and regulatory.
Given commencement of the price in just over six months after
passage of legislation, the timeline for the project was challenging.
As noted earlier, in the lead up to 1 July 2012, AGL held a series of
seminars with large market customers to assist in budgeting for the
impacts of the carbon pricing mechanism – this is believed to be an
Australian first. Information and communications to assist customers
to understand the reform was also developed, including animations,
social media and more traditional print media.
As at end of FY2012, AGL was on track to commence pricing
emissions in its portfolio of energy supply for both electricity
and gas.