Daniel J Cass, University of Sydney; Joel Gilmore, Griffith University, and Tim Nelson, Griffith UniversityAustralian governments are busy designing the nation’s transition to a clean energy future. Unfortunately, in a misguided effort to ensure electricity supplies remain affordable and reliable, governments are considering a move that would effectively pay Australia’s old, polluting coal-fired power stations to stay open longer.
The measure is one of several options proposed by the Energy Security Board (ESB), the chief energy advisor to Australian governments on electricity market reform. The board on Friday released a vision to redesign the National Electricity Market as it transitions to clean energy.
The key challenges of the transition are ensuring it is smooth (without blackouts) and affordable, as coal and gas generators close and are replaced by renewable energy.
The redesign has been two years in the making. The ESB has done a very good job of identifying key issues, and most of its recommendations are sound. But its option to change the way electricity generators and retailers strike contracts for electricity, if adopted, would be highly counterproductive – bad both for consumers and for climate action.
The energy market dilemma
The National Electricity Market (NEM) covers every Australian jurisdiction except Western Australia and the Northern Territory. It comprises electricity generators, transmission and distribution networks, electricity retailers, customers and a financial market where electricity is traded.
Electricity generators in the NEM comprise older, polluting technology such as gas- and coal-fired power, and newer, clean forms of generation such as wind and solar. Renewable energy, which makes up about 23% of our electricity mix, is now cheaper than energy from coal and gas.
Wind and solar energy is “variable” – only produced when the sun is shining and the wind is blowing. Technology such as battery storage is needed to smooth out renewable energy supplies and make it “dispatchable”, meaning it can be delivered on demand.
Some say coal generators, which supply dispatchable electricity, are the best way to ensure reliable and affordable electricity. But Australia’s coal-fired power stations, some of which are more than 40 years old, are becoming more prone to breakdowns – and so less reliable and more expensive – as they age. This has led to some closing suddenly.
Without a clear national approach to emissions targets, there’s a risk these sudden closures will occur again.
So what’s proposed?
To address reliability concerns, the ESB has proposed an option known as the “physical retailer reliability obligation”.
In a nutshell, the change would require electricity retailers to negotiate contracts for a certain amount of “dispatchable” electricity from specific generators for times of the year when reliability is a concern, such as the peak weeks of summer when lots of people use air conditioning.
Currently, the Australian Energy Market Operator has reserve electricity measures it can deploy when market supply falls short.
But under the new obligation, all retailers would also have to enter contracts for dispatchable supply. This would likely require buying electricity from the coal generators that dominate the market. This provides a revenue source enabling these coal plants to remain open even when cheaper renewable energy makes them unprofitable.
The ESB says without the change, the closure of coal generators will be unpredictable or “disorderly”, creating price shocks and reliability risks.
A big risk
Even the ESB concedes the recommendation comes with considerable risks. In particular, the board says it may:
- impose increased barriers to retail competition and product innovation
- lead to possible overcompensation of existing coal and gas generators.
In short, the policy could potentially lock in increasingly unreliable, ageing coal assets, stall new investment in new renewable energy storage such as batteries and pumped hydro and increase market concentration.
It could also push up electricity prices. Electricity retailers are likely to pass on the cost of these new electricity contracts to consumers, no matter how much energy that household or business actually used.
The existing market already encourages generators to provide reliable supply – and applies strong penalties if they don’t. And in fact, the NEM experiences reliability issues for an average of just one minute per year. It would appear little could be added to the existing market design to make generators more reliable than they are.
Finally, the market is dominated by three large “gentailers” – AGL, Energy Australia and Origin – which own both generators and the retail companies that sell electricity. The proposed change would disadvantage smaller electricity retailers, which in many cases would be forced to buy electricity from generators owned by their competitors.
Australia’s gentailers are heavily invested in coal power stations. The proposed change would further concentrate their market power while propping up coal.
What governments should do
If coal-fired power stations are protected from competition, it will deter investment in cleaner alternatives. The recommendation, if adopted, would delay decarbonisation and put Australia further at odds with our international peers on climate policy.
The federal and state governments must work together to develop a plan for electricity that facilitates clean energy investment while controlling costs for consumers.
The plan should be coordinated across the states. Without this, we risk creating a sharper shock later, when climate diplomacy requires the planned retirement of coal plants. Other nations have acknowledged the likely demise of coal, and it’s time Australia caught up.
Daniel J Cass, Research Affiliate, Sydney Business School, University of Sydney; Joel Gilmore, Associate Professor, Griffith University, and Tim Nelson, Associate Professor of Economics, Griffith University
The bilateral deal represents a key driver for the national economic recovery from COVID. It promises to provide jobs in the energy sector and contribute to South Australia achieving net 100% renewables by 2030.
But there’s a big caveat: the agreement involves a joint commitment to accelerate new gas supplies into the east coast market.
With so much money on the table and other nations recently doubling down on climate commitments, let’s look at the good and bad bits of this landmark deal in more detail.
A gas-led economic recovery
The agreement was announced ahead of US President Joe Biden’s climate summit last week, which saw Australia spruik technology growth to cut emissions instead of committing to new climate targets.
In total, the federal government will contribute A$660 million and the South Australian government A$422 million towards the new deal.
Both governments have also agreed to a gas target of an additional 50 petajoules of energy per year by the end of 2023, and 80 petajoules by 2030. Their rationale is the need to improve energy security and reliability.
In February, the Australian Competition and Consumer Commission outlined a potential shortfall of 30 petajoules of gas for the east-coast market leading up to 2024. This shortfall could impact energy supply, and the federal government has used this to help justify opening new gas reserves.
Bad: investing in gas
With the seismic shift in the economics of renewables over the past decade, investing in new gas supply is unnecessary and retrograde. In fact, it’s now more expensive to transition from coal to gas than from coal to renewables.
For example, the cost of lithium ion batteries used for battery storage has fallen over the past decade by nearly 90%. But the cost of gas — both economically and environmentally — has steadily risen. This inevitably means means its role in the energy market will diminish.
Eventually, gas generators will be retired without replacement. Victoria’s March quarter data, for example, shows black coal generation volumes dropped by 9.5% and gas generation dropped by 43%. Meanwhile, rooftop solar went up 25%, utility solar up by 40% and wind power by 24%.
And at the end of the day, gas is still a fossil fuel. There are approximately 22 major gas production and export projects proposed for Australia. A report from The Australia Institute in September 2020 suggested that, if produced, these projects could lead to about half a billion tonnes of emissions.
If all potential gas resources in Australia were tapped, the report indicates it could result in emissions equivalent to three times the current annual global emissions.
Good: investing in critical infrastructure
The energy deal sets aside $50 million towards the new $1.5 billion electricity interconnector between South Australia and NSW. This is critical infrastructure that will allow South Australia, Victoria and NSW to share energy reserves.
Indeed, the Australian Energy Market Operator has reported in excess of 5,000 megawatts of renewable energy projects near the proposed interconnector. This means South Australian wind and solar could contribute more significantly to electricity generation in both Victoria and NSW.
In turn, this will have a positive effect on pricing. Forecasts suggest the proposed new interconnector could reduce power bills by up to $66 a year in South Australia and $30 in NSW.
The energy deal also reserves funding for “investment priority areas”, which include carbon capture storage, electric vehicles and hydrogen. For example, $110 million is allocated for energy storage projects. This level of funding will help develop a world-class hydrogen export industry in South Australia.
The energy deal is a funding win for renewable energy and technology, with energy technology advancing much faster than anticipated. However, its focus on gas is environmentally and economically regressive.
It’s completely inconsistent with the powerful climate plan announced by the Joe Biden administration at the Climate Summit last week, which includes a pause and review of oil and gas drilling on US federal land and doubling energy production from offshore windfarms by 2030.
In March, the European Union’s parliament voted in favour of a Carbon Border Adjustment Mechanism. This will impose a tariff on products being sold into the EU according to the amount of carbon involved in making them. The Biden administration in the US has announced a similar plan.
What’s more, the European Union and the US, as outlined at the recent Climate Summit, are planning to impose fees or quotas on goods from countries failing to meet their climate and environmental obligations. This may mean Australian manufacturers will end up paying for the governments failure to take rapid action to drive down emissions.
Bilateral agreements provide critical planning and funding for Australia’s energy progression. However, they should not prolong the use of fossil fuels under the guise of energy security. To do so undermines global climate change imperatives and hinders Australia’s progress in a new energy era.
Michelle Grattan, University of CanberraAnthony Albanese will promise a Labor government would deliver a discount to cut the cost of electric cars and install community batteries, in modest initiatives costing $400 million over several years.
The announcement, to be made Wednesday, comes as Labor debates its platform at a “virtual” national conference involving some 400 participants.
At present only 0.7% of cars sold in Australia are electric – considerably under the global average of 4.2%. There are only about 20,000 electric cars registered in Australia.
Labor’s policy would cut taxes on non-luxury vehicles – the luxury threshold is $77,565 in 2020-21 – exempting them from tariffs and fringe benefits tax.
The Electric Vehicle Council has estimated a $50,000 model would be more than $2000 cheaper if the import tariff was removed. These tariffs are not on all the imported vehicles – there are exclusions where Australia has free trade agreements.
If a $50,000 vehicle was provided through employment, exempting it from the fringe benefits tax would save the employer (or employee, depending on how the FBT was arranged) up to $9000 annually, Labor says.
The opposition at the last election had a policy to promote electric cars, with a target of 50% per cent of new car sales being electric vehicles by 2030.
This came under heavy attack from the government, which cast it as a “war on the weekend”.
The government recently released a discussion paper on electric cars, and flagged it would trial models for the COMCAR fleet which transports politicians.
In a statement on the initiatives, Albanese and energy spokesman Chris Bowen said electric vehicles remain too expensive for most people, although a majority of Australians say they would consider buying one. There are no electric cars available in Australia for less than $40,000.
“By reducing upfront costs, Labor’s electric car discount will encourage uptake, cutting fuel and transport costs for households and reducing emissions at the same time,” Albanese and Bowen said.
The discount would begin on July 1 2022 and cost $200 million over three years.
The community batteries would help households who have solar panels but do not have their own battery storage, which is expensive.
Australia has one in five households with solar, but only one in 60 households has battery storage, which gives the capacity to draw overnight on the solar energy produced during the day.
Labor would spend $200 million over four years to install 400 community batteries across the country. This would assist up to 100,000 households.
Albanese and Bowen said the measure would cut power bills, reduce demands on the grid at peak times and lower emissions.
“Households that can’t install solar (like apartments and renters) can participate by drawing from excess energy stored in community batteries.”
A community battery is about the size of 4WD vehicle and provides about 500kWH of storage that can support up to 250 local households.
There’s something the energy minister said when they announced the early closure of Victoria’s second-biggest coal-fired power station last week that was less than complete.
Yallourn, in the Latrobe Valley, provides up to 20% of Victoria’s power. It has been operating for 47 years. Since late 2017 at least one of its four units has broken down 50 times. Its workforce doubles for three to four months most years to deal with the breakdowns. It pumps out 3% of Australia’s carbon emissions.
In what might have been a rhetorical flourish, Energy Minister Angus Taylor warned of “price spikes every night when the sun goes down”.
Then he drew attention to what had happened when two other coal-fired power stations closed down — Victoria’s Hazelwood and South Australia’s Northern (South Australia’s last-remaining coal-fired generator).
He said “wholesale prices skyrocketed by 85%”.
And there he finished, without going on to detail what really mattered. South Australia and Victoria now have the lowest wholesale power prices in the National Electricity Market — that’s right, the lowest.
Coal-fired plants close, then prices fall
Before Northern closed, South Australia had Australia’s highest price.
Five years after the closure of Northern in 2016, and four years after the closure of Hazelwood in 2017, South Australia and Victorian have wholesale prices one-third lower than those in NSW and two-fifths lower than those in Queensland.
Something happened after the closure (largely as a result of the closure) that forced prices down.
South Australia became a renewables powerhouse.
The Australian National University’s Hugh Saddler points out that renewable-sourced power — wind and grid solar — now accounts for 62% of power supplied to the South Australian grid, and at times for all of it.
Much of it is produced near Port Augusta, where the Northern and Playford coal-fired power stations used to be, because that’s where the transmission lines begin.
Being even cheaper than the power produced by the old brown-coal-fired power stations, there is at times so much it that it sends prices negative, meaning generators get paid to turn off in order to avoid putting more power into the system than users can take out.
It’s one of the reasons coal-fired plants are closing: they are hard to turn off. They are just as hard to turn on, and pretty hard to turn up.
Coal can’t respond quickly
There are times (when the wind doesn’t blow and there’s not much sun, such as last Friday in South Australia) when prices can get extraordinarily high.
But coal-fired plants, especially brown-coal-fired plants such as Victoria’s Hazelwood and Yallourn and Victoria’s two remaining big plants, Loy Yang A and B, are unable to quickly ramp up to take advantage of them.
Although “dispatchable” in the technical meaning of the term used by the minister, coal-fired stations can’t fill gaps quickly.
But coal can barely move. As with nuclear power, coal-fired power needs to be either on (in which case it can only slowly ramp up) or off, in which case turning it on from a standing start would be way too slow.
What was a feature is now a bug
That’s why coal-fired generators operate 24-7, to provide so-called base-load, because they can’t really do anything else.
Brown coal generators are the least dispatchable. Brown coal is about 60% water. To make it ignite and keep boiling off the water takes sustained ultra-high temperatures. Units at Yallourn have to keep burning coal at high output (however low or negative the prices) or turn off.
In the days when the other sources of power could be turned on and off at will, this wasn’t so much of a problem.
Hydro or gas could be turned on in the morning when we turned on our lights and heaters and factories got down to business, and coal-fired power could be slowly ramped up.
At night, when there was less demand for coal-fired power, some could be created by offering cheap off-peak water heating.
But those days are gone. Nationwide, wind and solar including rooftop solar supplies 20% of our needs. It turns on and off at will.
Wind often blows strongly at night. What was a feature of coal — its ability to provide steady power rather than fill gaps – has become a bug.
Gas and batteries can fill gaps coal can’t
It’s as if our power system has become a jigsaw with the immovable pieces provided by the wind and the sun. It’s our job to fill in the gaps.
To some extent, as the prime minister says, gas will be a transition fuel, able to fill gaps in a way that coal cannot. But gas has become expensive, and batteries are being installed everywhere.
Energy Australia plans to replace its Yallourn power station with Australia’s first four-hour utility-scale battery with a capacity of 350 megawatts, more than any battery operating in the world today. South Australia is planning an even bigger one, up to 900 megawatts.
Australia’s Future Fund and AGL Energy are investing $2.7 billion in wind farms in NSW and Queensland which will fill gaps in a different way — their output peaks at different times to wind farms in South Australia and Victoria.
Filling the gaps won’t be easy, and had we not gone down this road there might still have been a role for coal, but the further we go down it the less coal can help.
As cheap as coal-fired power is, it is being forced out of the system by sources of power that are cheaper and more dispatchable. We can’t turn back.
Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University
Renewable energy capacity in Australia is expected to double, or even triple, over the next 20 years. There is one oft-overlooked question in this transition: where will it all be built?
Many renewable energy technologies need extensive land area. Wind turbines, for instance, cannot be located too close together, or they won’t work efficiently.
Some land will be in urban areas. But in the transition to 100% renewable energy, land in the regions will also be needed. This presents big challenges, and opportunities, for the farming sector.
Two important factors lie at the heart of a smooth transition. First, we must recognise that building renewable energy infrastructure in rural landscapes is a complex social undertaking. And second, we must plan to ensure renewables are built where they’ll perform best.
Bringing renewables to the regions
My research has examined how much land future energy generation will require, and the best way to locate a 100% renewable electricity sector in Australia.
A National Farmers Federation paper released last week called for a greater policy focus on renewable energy in regional Australia. It said so-called renewable energy zones should “be at the centre of any regionalisation agenda” and that this would give the technology a competitive advantage.
Hosting renewable energy infrastructure gives farmers a second income stream. This can diversify a farming business and help it withstand periods of financial pressure such as drought. An influx of new infrastructure also boosts regional economies.
But successfully integrating renewables into the agricultural landscape is not without challenges.
A wicked problem
Renewable energy enjoys widespread public support. However its development can lead to social conflicts. For example, opposition to wind wind farms, often concentrated at the local level, can be motivated by concerns about:
- perceived health impacts
- changes to the landscape
- damage to wildlife
- loss of amenity
- reduced property values
- procedural fairness.
A proposed A$2 billion wind energy development on Tasmania’s King Island shows the difficulties involved in winning community support. The project was eventually scrapped in 2014, for economic reasons.
Research showed how despite the proponents TasWind using a “best practice” mode of community engagement, the proposal caused much social conflict. For example, the holding of a vote served to further polarise the community, and locals were concerned that the community consultation process was not impartial.
The local context was also significant: the recent closure of an abattoir, and associated job losses, had increased the community’s stress and sense of vulnerability. This led some to frame the new proposal as an attempt by a large corporation to capitalise on the island’s misfortune.
The King Island experience has all the hallmarks of a “wicked problem” – one that is highly complex and hard to resolve. Such problems are common in policy areas such as land-use planning and environmental protection.
Wicked problems typically involve competing perspectives and interests. Often, there is no single, correct solution that works for everyone. For example at King Island, the abattoir closure did not mean all locals considered the wind energy proposal to be the answer.
When seeking to address complex policy problems, such as building renewable energy in regional areas, the best approach involves:
- collaboration between all affected parties, including people beyond the property where the infrastructure will be located
- relationship-building between all those involved, to allow each to see the other’s perspective
- shared decision-making on whether the infrastructure will be built, and where.
Competition for land is intensifying around the world, especially as the population grows. High consumption levels in the West require ever-more land for resources such as food, and land degradation is rife.
To help alleviate this pressure, renewable energy developments may need to co-exist with other land uses, such as cattle grazing around wind turbines. And in many cases, renewable energy should not be built on the most productive cropping land.
Recipe for success
A successful energy transition will require strategic, long-term planning to determine where renewable generation is best located.
Our research indicates that while many places in Australia have renewable energy potential, some are far better than others. Wind energy is usually best located near the coast, solar farms in arid inland regions and rooftop solar power in densely-populated eastern Australia.
Traditionally, Australia’s electricity grid infrastructure, such as high-voltage transmission lines, has been located around coal-fired generators and large population centres. Locating renewables near this infrastructure might make it cheaper to connect to the grid. But those sites may not be particularly windy or sunny.
Australia’s electricity grid should be upgraded and expanded to ensure renewables generators are located where they can perform best. Such strategic planning is just what the National Farmers Federation is asking for. Improved connectivity will also help make electricity supplies more reliable, allowing electricity to be transferred between regions if needed.
Making renewables do-able
The economic and environmental benefits of renewable energy are well known. But without social acceptance by communities hosting the infrastructure, the clean energy transition will be slowed. There is more work to be done to ensure new renewables projects better respond to the needs of regional communities.
And to ensure Australia best fulfils its renewable energy potential, electricity grid technology must be upgraded and expanded. To date, such planning has not featured prominently enough in public conversation and government policy.
If Australia can overcome these two tricky problems, it will be well on the way to ensuring more reliable electricity, the best return on investment and a low-carbon energy sector.
Less than two decades ago, South Australia generated all its electricity from fossil fuels. Last year, renewables provided a whopping 60% of the state’s electricity supply. The remarkable progress came as national climate policy was gripped by paralysis – so how did it happen?
Our research set out to answer this question. We analysed policy documents and interviewed major actors in South Australia’s energy transition, to determine why it worked when so many others fail.
We found governments need enough political power to push through changes despite opposition from established fossil fuel interests. They must also watch the energy market closely to prevent and respond to major disruptions, such as a coal plant closing, and help displaced workers and their towns deal with the change.
South Australia shows how good public policy can enable dramatic emissions reduction, even in a privately owned electricity system. This provides important lessons for other governments in Australia and across the world.
Why is the energy transition so hard?
In decades past, fossil-fuel-dominated energy markets revolved around a few big, powerful players such as electricity generators and retailers. Overhauling such a system inevitably disrupts these incumbents and redistributes benefits, such as commercial returns, to newer entrants.
This can create powerful – and often vocal – losers, and lead to political problems for governments. The changes can also cause hardship for communities, which can be rallied to derail the transition.
The change is even harder in a privatised energy market, such as South Australia’s, where electricity generators and other players must stay profitable to survive. In the renewables shift, fossil fuel businesses can quickly become commercially unviable and close. This risks supply shortages, as well as price increases like those after Victoria’s Hazelwood coal plant closed in 2017.
The obstacles help explain why a wealthy nation such as Australia, with extremely high per capita emissions and cheap, plentiful renewable resources, has struggled to embrace its clean energy potential. Even frontrunners in environmental policy, such as Germany, have struggled to make the switch.
How South Australia did it
South Australia is a dry state – extremely vulnerable to climate change – with abundant wind and solar resources. These factors gave it the motivation and means to transition to renewables.
The South Australian Labor government, elected in 2002, adopted a target for 26% renewables generation by 2020. At the time, wind energy was already a competitive supplier of new generation capacity in Europe, creating an established wind farm industry looking to invest.
Some of South Australia’s best onshore wind potential was located near transmission lines running 300 kilometres from Port Augusta to Adelaide. This greatly reduced the cost of connecting new wind generators to the grid.
South Australia benefited greatly from the federal renewable energy target, established by the Howard government in 2001 and expanded under the Rudd government.
The scheme meant the South Australian government didn’t need to offer its own incentives to meet its renewables target – it just had to be more attractive to private investors than other states. This was a relatively easy task. Under the state Labor government, South Australia’s energy and environment policy was consistent and coordinated, in contrast to the weak and inconsistent policies federally, and in other states.
To attract renewable energy investors, the government made laws to help construct wind farms in rural zones away from towns and homes. New wind farms were regularly underwritten by state government supply contracts.
As the transition progressed, the state’s largest coal generator, at Port Augusta, was wound back and eventually closed. To help workers and the town adjust, the state government supported employment alternatives, including a A$6 million grant towards a solar-powered greenhouse employing 220 people.
The Labor government enjoyed a long incumbency, and the state was not heavily reliant on the export of fossil fuels. This helped give it the political leverage to push through change in the face of opposition from vested interests.
It’s not easy being green
South Australia’s transition was not without controversy. Between 2014 and 2018, the state’s consumer electricity prices rose sharply. While critics sought to blame the increasing renewables share, it was largely due to other factors. These include South Australia’s continued reliance on expensive gas-fired power and the closure of the Hazelwood coal-fired power station in neighbouring Victoria, which fed large amounts of power into South Australia.
After a second, smaller blackout six months later, the then federal treasurer Scott Morrison brought a lump of coal into parliament and argued South Australia’s renewables transition was:
…switching off jobs, switching off lights and switching off air conditioners and forcing Australian families to boil in the dark as a result of their Dark Ages policies.
In 2018, Labor lost office to a Liberal party highly critical of the renewables transition in opposition. But by then, the transition was well advanced. In our view, specific legislation would have been required to halt it.
The state Liberal government has now firmly embraced the renewables transition, setting a target for 100% renewable electricity by 2030. By 2050, the government says, renewables could generate 500% of the state’s energy needs, with the surplus exported nationally and internationally.
Leading the world
The South Australia experience shows a successful renewables transition requires that governments:
have enough political power to advance policies that disadvantage energy incumbents
monitor the energy market and respond proactively to disruptions
limit damage to displaced workers, businesses, consumers and communities.
It also highlights the importance of having transmission infrastructure near renewable resources before new generators are built.
As energy markets the world over grapple with making the clean energy transition, South Australia proves it can be done.
Michael McGreevy, Research Associate, Flinders University and Fran Baum, Matthew Flinders Distinguished Professor, Foundation Director, Southgate Institute for Health, Society & Equity, Flinders University