Energising the Pilbara by Exporting Solar Power Generated Electricity to Indonesia

26 September 2017 Matthew Meagher, Research Assistant, Northern Australia and Landcare Research Programme Download PDF

Key Points

  • Australia, due to its geographic location, arid climate and low population density, is highly suited to the generation of solar power, particularly in regions of northern Australia.
  • A recent report into the feasibility of a large scale solar project to export power to Indonesia has found the project may become commercially viable within the next 10 years.
  • Indonesia’s electricity demand has been forecasted to triple by 2030 and will, therefore, require upgrading current and the construction of new energy generation infrastructure.
  • If implemented, large scale solar plants could stimulate the Pilbara region, resulting in social, economic, and environmental benefits.

Summary

A recent study, commissioned by the Pilbara Development Commission,[1] inquired into the feasibility of exporting solar power from the Pilbara and Kimberley regions to Indonesia. It analysed the implementation of three, 1 gigawatt (GW) solar farms and a 1500km undersea cable from the Dampier Peninsula to Indonesia. The report found that it was technologically possible, and may be commercially viable within the next decade. The project is incredibly ambitious. It is comparable to other major projects such as the NBN or North-West Shelf oil and gas ventures with an estimated cost of over $20 billion. It would not, however, be the first of its kind in the world. Morocco is currently undertaking a four-phase solar project (the Ouarzazate Solar Power Station) that, upon completion, will result in a 580MW solar plant complex that will be able to provide energy to Europe through a subsea cable to Spain via the Straits of Gibraltar. There is no doubt that key stakeholders in the proposed Pilbara solar project will be following the development of the Ouarzazate station closely.

Indonesia’s electricity demand has been forecasted to increase from 210TWh to 770TWh by 2030, and will therefore, need to upgrade current and construct new energy generation infrastructure. The country has also pledged to cut greenhouse gas emissions by 29 per cent by 2030. A significant proportion of its demanded energy, therefore, should be supplied by renewable technologies. This could provide an opportunity for the proposed solar project to transmit power to Indonesia.

Analysis  

Solar Power

Simply put, solar power is the generation of electricity from energy provided by the sun. This is typically achieved via the use of photovoltaic (PV) systems, which use semiconductors which convert light into electricity. When sunlight interacts with the system, it causes electrons to flow and generate electricity. Solar energy can be converted into thermal energy, which is used to heat water, oil, or molten salt to power a turbine. Solar thermal power plants may use more advanced technologies, such as mirrors, lenses and automated sun-tracking systems to maximise thermal energy on a small area.
MapFigure 1: The Pilbara region receives the highest incidence of solar irradiation in Australia and, coupled with its relative proximity to Indonesia, this makes it an ideal location for solar power plants which can export electricity to Southeast Asia.

Traditional fossil fuels such as coal, oil and natural gas have significant negative environmental impacts through the production of greenhouse gases. Conversely, the negative health and environmental impact of solar energy is small even though manufacturing the components to produce such power is not completely environmentally friendly. Solar power does not emit greenhouse gases and, while large scale plants require a large area of land, they do not necessarily impact on nearby land usage such as agriculture.

Australia has the highest concentration of solar irradiance (the power per metre received from the sun) compared to the other continents, giving it the highest potential for solar power in the world. It receives on average around 58 million Petajoules of solar radiation annually. In 2016 Australia’s total energy consumption was approximately 5920 Petajoules, of which solar only accounted for about two per cent. Much of the solar generated power comes from domestic and commercial solar PV systems. There is a lack of operating solar power plants in Australia.

Economic and Technological Feasibility

The economic feasibility of a project is ultimately based on financial cost and return. The report assessed that with current and forecast technology, the long-term costs would be from 18-25 cents/kWh and earnings will be from 19-20 cents/kWh. The potential costs outweigh the potential benefits and, therefore, it is not commercially viable. The expectation (and hope) of the key stakeholders is that the project will be viable within the next decade due to increases in efficiency and a fall in input costs. Considering solar costs have fallen by approximately 58 per cent since 2010, and are expected to fall another 40 to 70 per cent by 2040, the expectation is not unreasonable.

Commercial viability is necessary, especially considering solar plants require high initial capital investment for no immediate return. Additionally, the uncertainty regarding the Government’s renewable energy policy and the current lack of a coherent, long-term strategy make it prudent for the private sector not to expect significant public funding.

Gigawatt scale solar generation is technologically feasible, but there are commercial and environmental constraints which limit how and where solar generation plants can be built. It would be uneconomic to aggregate output from several solar plants located throughout the Pilbara, as the network costs incurred would be large. The report states that ‘solar precincts’, solar generators concentrated at a single area, are more economically feasible as aggregation costs are low. For these precincts to be viable certain environmental criteria need to be met. They should be located from 50km to 250km away from the coastline, to provide for a buffer against weather cycles common in the region. Proximity to local population centres is important for the workforce. For engineering considerations, the gradient of the land must be less than one per cent. Geologically the area must have a composition of less than 10 per cent coarse rock and less than 50 per cent sand, an excess of either makes it unpractical for construction. The generation site should be within 50km of roads and railways to reduce transport costs. Finally, plants should avoid proximity to mining sites, heritage sites, national parks and similar areas.

High-Voltage, Direct Current (HVDC) systems use direct current for the transmission of electricity. Over long distances HVDC allows for the efficient transmission of electricity making it the perfect technology to use for the cross-border trade of solar power generated electricity from the Pilbara to Indonesia. HVDC distribution systems can travel very long distances with minimal transmission loss. They require less material to construct with lower environmental impact. HVDC systems already play an important part in electricity transmission across both China and the European Union. HVDC systems also provide the backbone for the proposed Asian Super Grid, a project in which renewable energies will supply electricity to countries throughout Asia.

Economic, Social, and Environmental Benefits

Despite the immense costs of the proposed project, the economic, environmental, and social benefits could justify the expense. The economic impact includes the creation of jobs and the potential revitalisation of the Pilbara region into an energy hub.

According to the Pilbara Development Commission’s report, the project has the potential to create over 12000 jobs across the state of Western Australia. Of these jobs, 2785 are in the Pilbara, with 766 fly-in-fly-out infrastructure works roles related to the plant construction, and 2019 permanent roles related to plant operations. This represents a 4.4 per cent increase in Pilbara employment. The construction of solar plants will also give rise to potential investment in the development of complementing industries in the region, such as solar technology manufacturing, local energy trading and consumption, and the development of the Pilgangoora Lithium-Tantalum Project (which contains a proven/probable ore reserve of approximately 80Mt of high grade lithium oxide) would help in the development of a lithium-ion battery storage industry. The project could also boost local service industries (especially retail and hospitality) with the increased population.

The environmental impact of solar power is minimal – throughout its lifetime a solar cell will not release any emissions, although emissions may be released via the extraction of raw materials (e.g. silicon) and their manufacturing into solar cells. Land usage is also quite high, with each plant requiring an area of approximately 30km2. Thermal solar plants may also require a large amount of water. Despite these environmental concerns, solar energy is several orders of magnitude less environmentally harmful than fossil fuels. According to a 2014 study by the UN, coal releases an average of 820g of carbon dioxide equivalent greenhouse gas per kilowatt hour, while solar plants release an average of 48g.

Social benefits stem from the increased employment in the state, especially the Pilbara. The operation of solar plants will provide a long-term source of employment in a region with many remote communities. There are 17 native title claims in the Pilbara region, covering a large area. If the solar plants are proposed for land held by Traditional Owners, a Land Use Agreement may be employed, which may provide the local community with financial compensation, employment, or vital infrastructure for the area.

The Case for Exporting to Indonesia

Exporting electricity generated by solar power to Indonesia is not a simple undertaking but, as stated, there is potential for it to be feasible in the not-to-distant future. The country has recently backed out of constructing coal power plants, with the fossil fuel originally expected to fill two-thirds of Indonesia’s energy mix. The planned power generation from fossil fuels has been reduced to half of the country’s need in favour of more renewable energy. This is based on climate change concerns and updated forecasting showing lower economic growth and thus lower energy requirements. So why import electricity from Australia? Both countries are interested in deepening their economic relationship, with the Indonesia-Australia Comprehensive Economic Partnership Agreement currently being negotiated to bolster bilateral trade; importing electricity from Australia will strengthen the partnership between the two countries. Importing electricity also saves Indonesia the immense capital investment of building solar plants.

Exporting electricity to Indonesia makes economic sense if the cost of energy generated from Pilbara solar plants is less than the amount received in payment for the electricity (the solar feed-in tariff) and if the resulting profit is higher than what is available in the domestic market. Indonesia’s current feed-in tariff of 19.3 to 33.3 cents/kWh is guaranteed for the next 20 years to provide a level of certainty for investors. With advances in technology and practices increasing efficiency and cutting cost, it is likely the cost of solar production and transmission will fall enough to make export viable. Australia’s domestic energy market is highly competitive; the feed-in tariff for solar energy is modest compared to Indonesia’s with the tariff for the eastern states in 2015-16  ranging from 5.0 and 6.7 cents/kWh. The business case clearly supports the sale to Indonesia: $1 622 million based on the Indonesian tariff compared to $284 million from the NSW wholesale price.

From an Australian perspective there are other benefits in exporting electricity to Indonesia. It is one of Australia’s most important strategic partners and exporting electricity would potentially strengthen the ties between the two countries, resulting in increased cooperation in regional security and strategic interests. Terrorism and people smuggling are two important issues facing Australia and, while both countries have been working closely to combat them, supplying a significant amount of electricity to Indonesia could provide Australia some leverage to increase cooperation on these issues. Exporting to Indonesia could also provide access to a future ASEAN power grid, allowing Australia to compete in the supply of electricity to the rest of Southeast Asia.

Despite the benefits of the project and proposed cross-border trade, for it to become viable there are many policy and regulatory obstacles to overcome. Indonesia’s energy policy is complex and ever-changing and, as in Australia, new governments can introduce new and conflicting policies, leading to long-term uncertainty. Their regulations regarding cross-border energy trade are strict, with the government monopolising transmission and distribution of electricity. Supplying Indonesia with solar electricity generated in the Pilbara will require close cooperation between the involved stakeholders, and the electricity must remain price competitive to make the proposition attractive.

Conclusion

Historically, Australia has been heavily reliant on fossil fuels as both a source of electricity and as an export commodity. Due to a range of factors, the world is slowly but surely turning away from coal and it can no longer be relied on for a long-term supply of export revenue and electricity. Australia has been blessed with an immense reserve of natural resources, with sunlight being perhaps the most abundant. The country is in a prime position to become one of the world’s leading exporters of solar power, just as it has been as with coal and natural gas. Gigawatt scale power plants in the Pilbara may not be economically viable at present but advancements in technology and efficiency will soon make the prospect more attractive. When this time comes such a project will revitalise a region of Australia which has been ever susceptible to the economic pain of boom-bust cycles and provide stable long-term work to thousands of people. The benefits aren’t purely economic; implementing the proposed solar plant will result in positive environmental, social, and political outcomes.

 

Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International.

Published by Future Directions International Pty Ltd.
80 Birdwood Parade, Dalkeith WA 6009, Australia.