Environmental factors, including the issue of climate change, are having a significant impact on the electricity industry. Community expectations and government policies are driving increasing investment in clean energy technologies.
The Fund defines clean energy as electricity or other consumable energy produced from renewable, waste or inherently low emission sources. On this basis, clean energy includes energy generated from:
waste gas (landfill gas, biogas, process gas); and
natural gas and coal seam methane.
While coal seam methane and natural gas are fossil fuels, the use of modern technology enables these fuels to be used for electricity generation with higher efficiency and lower emissions than other fossil fuels.
Wind
Wind power involves absorbing energy from wind through multi-bladed turbines mounted on top of towers. The rotation of the turbine blades produces mechanical power that is converted to electricity by a generator.
Hydro
Hydro is one of the oldest and most widely used forms of renewable energy. It captures the energy of flowing water (from a reservoir, river or in a tidal current) to drive a turbine connected to an electricity generator. Usually, water flows through an intake pipe or tunnel to a turbine. The turbine spins a shaft attached to a generator, converting the mechanical energy of the spinning shaft into electricity.
Biomass
Biomass can be defined as any organic matter available on a renewable basis, including dedicated energy crops and trees, agricultural food and feed crops, agricultural crop wastes and residues, wood wastes and residues, aquatic plants, animal wastes, municipal wastes and other waste materials. These biomass fuels are used to produce electricity through a range of technologies including direct-combustion, co-firing, gasification, pyrolysis and anaerobic digestion.
Geothermal
Geothermal energy technologies exploit the heat of the earth for electricity production by using underground reservoirs of dry steam or hot water. Electricity can be generated through several methods; dry steam can be fed directly into a turbine to generate electricity; flash steam plants convert pressurised water from high-temperature water reservoirs to steam, which is then directed to a turbine to generate electricity; and binary power plants transfer the heat of a geothermal fluid to a separate “working” fluid, which boils to a vapour and is directed to a turbine for power production.
Solar
The energy contained in sunlight can be harnessed to generate electricity. There are two main ways of doing this. One is by the use of photovoltaic devices, made up of special types of material in which energy in sunlight induces electrical current. The other method concentrates or focuses the thermal energy in sunlight by means of lenses or mirrors. The lenses or mirrors are arranged in a dish, trough or tower configuration. The generated heat can then be used to drive a steam generator to generate electricity.
Waste fuels
Landfill gas
Landfill gas is generated by the anaerobic decomposition of organic refuse deposited in landfills. It consists mostly of methane and carbon dioxide together with quantities of water vapour and minor quantities of organic compounds. The substantial methane content of landfill gas enables it to be utilised as a fuel for power generation.
Bio gas
Waste gases are produced from sewage treatment facilities, food waste processing plants and other bio matter processing facilities. The substantial methane content of the gases enables their use as a fuel for power generation.
Process gas
Waste gases produced from many industrial processes, such as iron and steel production, can be used as a fuel source for power generation.
Coal seam methane and natural gas
Coal seam methane and natural gas
Methane gas occurs naturally in underground coal seams. This gas can be extracted either by direct drilling into coal seams or as part of a coal mining process, where the capture and ventilation of mine gases is essential for mine safety.
Natural gas comprises largely methane. It is a primary fuel used worldwide, with growing consumption due to its environmental benefits.
Coal seam methane and natural gas are fuels that are well suited to cogeneration and combined cycle power generation. Cogeneration and combined cycle plants are highly fuel efficient.
Cogeneration technology involves the simultaneous production of electricity and thermal energy from a single fuel source. Either a reciprocating engine or gas turbine drives a generator to produce electricity. Waste heat from the process is recovered and can be either utilised directly or in a boiler to produce steam. This enables the supply to customers of both electricity and steam or heat.
Combined cycle technology is similar to a cogeneration plant in that waste heat recovered from the gas turbine generation process is directed to a boiler to produce steam. The steam powers a steam turbine to produce additional electricity.
Factors underpinning growth of the clean energy sector
Several factors are contributing to the forecast growth of the clean energy sector.
Environmental awareness and climate change
Increasing awareness of global climate change among governments and consumers has led to increased pressure to reduce greenhouse gas emissions. As a significant contributor to global emissions, communities have recognised the role the electricity industry can play in achieving these reductions. The development of sustainable, clean energy solutions offers a significant and cost-effective response to reducing greenhouse gas emissions.
Regulatory support mechanisms
Governments around the world have introduced regulatory frameworks at industry and consumer levels to compel or promote the use of clean energy and to facilitate the development of clean energy technologies and infrastructure. These frameworks provide direct incentives to developers and further enhance the attractiveness of investment in clean energy.
In particular, in a number of jurisdictions, electricity suppliers are required to purchase a designated amount of their energy from renewable energy sources. Compliance is effected through the surrender of certificates obtained from qualifying renewable energy producers. Qualifying renewable energy producers are able to supplement their revenue through the sale of these certificates or credits. Other jurisdictions have adopted alternative support mechanisms based on fixed or premium electricity pricing for clean energy sources or target capacity allocations.
Carbon emissions and trading
The recognition of climate change as a global environmental issue is leading to increased government action to regulate greenhouse gas emissions. While some countries have chosen not to adopt mandatory national greenhouse gas emission reduction targets, there is a worldwide trend towards action to limit carbon emissions. The coming into force of the Kyoto Protocol during 2005, having achieved ratification by the required number of countries, is evidence of this trend.
Europe is leading the world in action on climate change, with the implementation of the European Union Emissions Trading Scheme (“EU ETS”). This establishes carbon emission limits for each country and, within countries, limits for industry sectors and industrial installations under national allocation plans. Trade in emission allowances occurs to allow market forces to determine the most efficient allocation. The Kyoto Protocol envisages this market based “cap and trade” approach and the system adopted by the EU is a possible model for future global carbon emissions trading. The EU ETS is in addition to specific market share targets and quotas for clean energy adopted by EU countries.
Under the EU ETS, carbon emissions are no longer “free” and the cost of energy will progressively incorporate a “carbon cost”. As electricity consumption grows in a regulatory framework of constrained carbon emissions, the price of emissions allowances will increase. This will be reflected in higher electricity costs. Power generation plants which utilise clean energy technologies (with low or zero carbon emissions) will therefore benefit from higher operating margins. The significance of this “carbon cost” will depend on the levels at which overall emission limits are capped, which is ultimately a matter of government policy.
With its exclusive investment focus on clean energy assets, the Fund expects to be well positioned to benefit as “carbon cost” flows into electricity prices through the market for carbon emission allowances.
Consumer choice
In competing for market share, electricity retailers are responding to the growing environmental awareness of consumers by introducing a range of clean power products. These products typically involve consumers electing to pay a premium over and above normal energy costs to be supplied with energy generated from clean sources. The introduction of these consumer choice programs in increasingly liberalised electricity markets provides further support for the development of the clean energy sector.
Technological advances
Specific focus on clean energy has led to significant technological advances in many of the technologies, in particular wind, geothermal, waste fuels and biomass. Traditional perceptions of these technologies as “alternative” and “desirable, but operationally and commercially unsustainable” are no longer valid. Clean energy technologies are increasingly proving to be reliable, low-risk forms of electricity generation that, together with their associated environmental benefits, make them a genuine alternative to traditional electricity generation technologies. Reductions in capital and operating costs have further enhanced the attractiveness of these technologies from an investment perspective.
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