Roadblocks in Australia’s Inevitable Energy Transition

Australia is currently undergoing what is acknowledged to be the fastest energy transition in the world. In the face of this rapid and uncertain transformational change, the federal government is pushing for a ‘gas-led recovery’ and a Technology Investment Roadmap that explicitly excludes support for solar and wind energy under the guise of a technology-agnostic approach. This brief piece discusses the Australian government’s energy policy and its role in impeding the inevitable transition to a fossil fuel free economy.

The impending retirement of coal

Wind and solar energy are currently the cheapest form of new energy generation, set to increasingly dominate national energy consumption as Australia’s ageing coal-fired generators retire. The challenge now lies in integrating increasing amounts of renewables into a power system traditionally built around the location of coal-fired generators, and electrifying heavy industry and transport.

The Australian Energy Market Operator (AEMO) – whose ownership is shared between government and industry – recently released its 2020 Integrated System Plan (ISP), a biennial 20-year blueprint to navigate the transformation occurring in Australia’s main grid, the National Electricity Market. It modelled five different scenarios, from slow to fast paced energy transitions.

Under the fastest scenario with high political, consumer and commercial motivation, renewable energy could account for 94.2% of total national energy consumption by 2040. In the business-as-usual scenario governed by current government policy, this proportion could still reach 74%.

What’s the target?

Despite the increasing uptake of renewable generation, the federal government has resisted setting any new targets outside of its unambitious commitment under the Paris Agreement to reduce emissions to 26-28% below 2005 levels by 2030. Furthermore, the achievement of the national Renewable Energy Target last year remains underwhelming given the government’s reduction of the target from 41,000 gigawatt hours (GWh) to 33,000 GWh of renewable generation by 2020.

States and territories have largely taken the lead in setting renewable generation and net zero greenhouse gas emissions targets. Renewable targets coupled with net zero targets are an important and increasingly uncontroversial policy tool, yet it is critical they do not eventuate in ‘target techno-speak’ disguised as ambitious policy allowing for increased renewables without the explicit phasing out of fossil fuels.

In the absence of any national renewable or net zero targets, the federal government’s main climate strategy, the $18 billion Technology Investment Roadmap, has been described as a “roadmap to nowhere”. The five shortlisted technologies to be invested in over the next decade include carbon capture and storage (CCS) which is widely considered an unviable technology, and ‘clean’ hydrogen primarily produced from gas or coal gasification supplemented with CCS as opposed to ‘renewable’ hydrogen produced from renewable energy.

Source: Clean Energy Council, 2020, Clean Energy Australia Report

Gas is the new coal

In the context of the COVID-19 pandemic, the federal government has committed to a gas-led recovery. Gas is a fossil fuel whose emissions in 2018-19 were equivalent to 49% of total on-grid electricity emissions. This figure only accounts for gas extraction, processing, pipelines and use by industrial facilities, and is likely to be much higher when including gas-fired power stations and gas used in mining operations and in households. Replacing coal with gas is a marginal form of climate policy inconsistent with the Paris Agreement’s goal of limiting global warming to 1.5°C  above pre-industrial levels.

The Prime Minister recently made a suite of announcements in what he dubbed ‘energy week’, including plans to develop five major gas basins across the country to feed a new Australian Gas Hub in Queensland. The federal government justifies the need for new gas as a source of dispatchable energy to replace the traditional baseload energy – continuous and steady generation – that will be lost from retiring coal-fired generators.

While existing gas plants currently provide significant dispatchable support, AEMO’s ISP features a continuous reduction in gas generation and no need for new gas plants as the federal government claims. The ISP outlines that 63% of Australia’s coal-fired generation with a collective baseload capacity of 15 GW will retire by 2040. 26 GW of new grid-scale renewable generation – variable energy dependent on variable weather conditions – will be needed. 6-19 GW of new dispatchable generation – controllable energy that can be dispatched on demand – will be required to support the transition from a traditionally baseload energy-dominated to modern variable energy-dominated power system.

Gas vs clean dispatchable solutions

The 6-19 GW of new dispatchable generation referred to in the ISP includes batteries, pumped hydro, virtual power plants and demand side participation. AEMO suggests that new gas generation will only play a role if gas prices range between $4-6 per gigajoule (GJ) which is unlikely as domestic prices have been sky rocketing, ranging between $8-11 per GJ earlier this year. Meanwhile, the cost of batteries – a source of clean dispatchable energy – have been falling. The ISP’s findings satisfy the mainstream pursuit for a least-cost transition pathway (as opposed to a least-polluting transition pathway), and nonetheless the federal government has selected a high-cost, high-polluting pathway in its push for new gas.

Before becoming Prime Minister, Scott Morrison mocked Tesla’s plans to build what was until recently the world’s biggest battery in South Australia, likening the Big Battery to the Big Banana in Coffs Harbour. The Big Battery demonstrated its distinct usefulness just weeks after its connection to the grid after responding within a fraction of a second to the tripping of a 560 megawatt (MW) coal-fired generator in Victoria with no warning in 2017.

The Prime Minister’s preference for new gas over new batteries was further solidifed during ‘energy week’ when he announced that the government owned utility Snowy Hydro would build a 1 GW gas plant in the Hunter Valley to replace the retiring Liddell coal power station if the private sector did not commit equivalent dispatchable energy by April next year.

This sent a confusing signal to the market as AEMO had not identified a 1 GW capacity gap. The owner of the coal-fired generator, AGL, had already committed to replacing Liddell’s capacity largely with new battery storage. This decision, by a company once known as Australian Gas Light, demonstrates the growing preference for new batteries over new gas. One week after the initial announcement the Prime Minister revised the 1,000 MW threat to 250 MW which AEMO still has not identified as needed.

This created even more confusion in an already discouraged industry with a threat hanging over its head, prompting Atlassian co-founder Mike Cannon-Brookes to announce his willingness to meet the challenge if the government would clarify its ask of industry before hastily building a gas plant to be locked in for 40 years. This is yet another instance where billionaires such as Elon Musk and Mike Cannon-Brookes have been compelled to step in with clean solutions.

The energy transition is inevitable

The federal government has claimed a technology-agnostic approach to the energy transition, while taking advice to pursue a gas-led recovery from a National Covid Coordination Commission consisting of hand-picked members with strong links to the gas industry. The Prime Minister’s insistence on a ‘non-ideological’ approach to energy policy rests on a history of taking a lump of coal into parliament and comparing Big Batteries to Big Bananas.

In the face of confusing and unambitious national climate politics, Australia is currently undergoing what has been labelled the fastest energy transition in the world. Early and long-term planning is urgently needed to support the retirement of coal-fired generation over the next 10-20 years, the electrification of industries and transport, and the phasing out of fossil fuels.

The energy transition is inevitable. The government can either choose to speed it up or slow it down depending on whether it chooses to support energy sources that have a long-term future in the transition to a fossil fuel free economy.