A few weeks ago, when we had a look at the International Energy Agency’s (IEA) Australia 2023 Energy Policy Review, there appeared to be quite a lot of positives and cause for optimism.
You can read our blog post What the International Energy Agency thinks of Australia’s energy transition to get a fuller picture.
However, there was one comment that gave us pause and has stuck with us: “The net zero commitment requires a faster trajectory and increased efforts in energy efficiency and renewable energy.”
Given the economic landscape, where one week a project can be costed at around $2.6 billion and then suddenly it’s blown out to more like $7 billion and doesn’t stack up, you can probably appreciate why we’re not feeling as confident of what’s ahead as we’d like to be.
Coal-fired generation isn’t being replaced quickly enough
Perhaps the most apparent issue that’s causing concern for government is the speed at which the generation which we used to be able to rely on from coal-fired power stations is being replaced by energy generated from renewable sources.
The Australian Energy Regulator (AER) has just released a report noting that wholesale electricity prices rose in May due to higher demand in southern states and reduced cheap coal capacity in NSW and Queensland.
The report naturally found that “prices would have been lower” had the output previously provided by the Liddell plant in the NSW Hunter Valley, which closed in April, still been available.
The next major milestone is the projected closure of Australia’s largest coal-fired power plant, currently scheduled for “no sooner than August 2025”.
The Eraring facility at Lake Macquarie was originally slated for closure in 2032, however its operator Origin Energy announced last year that it was being brought forward some seven years in line with the sector’s shift to alternative energy and government emission reduction goals.
What do people in the know have to say?
All the experts (people who know a lot more than us) continue to point to more challenges than achievements. We’re reading and hearing some sense of urgency about what still needs to be done.
“I think it’s very unlikely that the power station [Eraring] could close totally by the said date. There’s simply too much new wind and solar capacity that needs to be built to meet the demand that generator is currently meeting,” Professor Bruce Mountain, the head of Victoria University’s Energy Policy Centre, told the ABC.
“As coal fired power generation leaves Australia’s grids, we need investment in generation to fill those gaps. And, as more variable renewables deliver our energy for consumers and decarbonisation, we need investment in firming – which is on-demand energy to smooth out the peaks and troughs from renewable generation,” the Australian Energy Market Operator’s (AEMO) executive general manager, System Design, Merryn York explained.
“Australia’s energy challenge lies in the transformation of our existing energy system, while ensuring the continuing delivery of sustainable, reliable and affordable energy as we strive to achieve net-zero emissions by 2050,” is how the CSIRO’s director of energy Dr Dietmar Tourbier summed it up.
Targeting net zero
If Australia is to have a target of net zero for greenhouse gas emissions, then how quickly can this be achieved and at what cost – both in terms of the billions of dollars of investment and the price consumers pay for energy. There are already cost of living pressures, and so the transition needs to be navigated with extreme skill and pragmatic leadership.
According to the Australian Trade and Investment Commission’s website: “Australia is committed to cutting domestic carbon emissions. And we plan to become a major global supplier of renewable energy, ramping up solar, onshore and offshore wind capacity, upgrading our grid and generating export quantities of green hydrogen.”
It also notes: “Australia has enshrined in law its targets of reducing greenhouse gas emissions by 43% from 2005 levels by 2030 and net zero by 2050”.
On the way to reducing emissions, we need to ramp up the proportion of energy that comes from renewable sources.
The Albanese government’s plan to reach 82 per cent renewables by 2030 requires at least $76 billion of investment to create 44 gigawatts of renewables, 10,000 kilometres of new transmission lines, and up to five million electric cars on the country’s roads.
That brings us back to another ‘warning’ in the IEA report (which we also noted in our blog post): “Power sector decarbonisation efforts need to be stepped up considerably, as Australia aims to increase the share of low-carbon power generation by 2030 – with 82% to come from renewable energy, up from 27% today. This will require an accelerated implementation of renewable energy zones, faster permitting of grid-related projects, and additional coal retirements.”
There’s nothing to suggest the transition is going to be smooth
If there’s one ongoing theme that concerns us, it’s the indication that the next 10 years is going to be a bumpy ride.
Last November, (now-outgoing) Reserve Bank of Australia governor Philip Lowe warned that “… we could expect higher and more volatile energy prices during the transition to a more renewables-based energy supply.”
Speaking at the same event – a Committee for Economic Development of Australia (CEDA) dinner – Origin Energy boss Frank Calabria made no bones about the fact that the energy transition facing Australia is a massive undertaking, comparing it to a post-war reconstruction effort.
“It is a truly staggering task to achieve those 2030 targets, and we must act with more urgency, as each month that passes makes the challenge harder with the propensity for adding costs,” he said.
“I fear rising energy prices could erode community support for the transition – a task that can only be delivered with coordination and commitment across governments, the private sector, market operators, regulators, and communities.”
Striking a balance
Again, nobody is really questioning the transition to renewably sourced energy. The key that nobody seems to have hold of quite yet is how to make it as ‘painless’ as possible.
In an annual report called GenCost, produced through a collaboration between the CSIRO and AEMO and released last week, renewables retained their position as Australia’s cheapest new-build electricity generation, despite a 20 per cent average rise in technology costs.
Critics often argue that the “cost of generation” argument is either too simplistic or purposefully misleading because, for example, you can’t generate solar power at night. They argue that the focus should be changed to “cost of dispatchable generation” as a more holistic metric to be measured against.
The 2022-23 report marks the first time that all technology costs have increased from the previous year since GenCost commenced in 2018.
The report highlights industry concerns that the rapid pace of the global energy transition will contribute to escalating cost pressures.
This is attributed to the immense scale of manufacturing, raw materials, and labour required to develop and deploy clean energy technologies consistent with net zero goals.
A lot of work to be done
In April, Net Zero Australia – a partnership of the University of Melbourne, the University of Queensland, Princeton University’s Andlinger Center for Energy and Environment, and Nous Group – released final modelling results of pathways to net zero.
We might go into its findings in more detail in a future post, but for now in summary it found that Australia will need to triple the National Electricity Market’s power capacity by 2030 to be on track for net zero by 2050.
This will require a rapid rollout of wind and solar power, transmission, storage, electric vehicles, and heat pumps as we replace our coal fleet. There are so many voices pushing to be heard at the moment. Some want to cancel the transition altogether pointing at the cost of living. Some want to accelerate regardless of cost. Some want to moderate the pace.
It’s understandable that no politician wants to come out and simply say “this is more challenging than we thought so it’s going to take longer and cost more”, however, we think it would be better to be upfront with everyone (assuming that is the case and we’re not misreading all these reports).
Either way, it’s a significant conversation that we really should be having more openly in a respectful and collaborative way because at the end of the day all sides generally want the same thing: cheap, reliable, renewable energy.