The link below is to an article reporting on the approval of Australia’s largest wind farm in Queensland.
Moving to a future powered mainly by renewable energy will be crucial if we are to stay within the global warming limits set out by the Paris Agreement. But building all of this new renewable energy will initially require fossil fuels to help power all of the necessary mining, construction and decommissioning. This raises the question as to whether the energy transition itself will be pointless.
But new research by a group at UNSW (Bahareh Sara Howard, Nick Hamilton, Tommy Wiedmann and myself) shows that it is theoretically possible for Australia to move to a renewable energy future without blowing its share of the carbon budget.
Actually doing it will require two things: prompt, decisive action, and a reliance on “renewable energy breeding” – the process by which mining the raw materials and manufacturing technologies such as solar cells and wind turbines are themselves powered by renewables rather than fossil fuels.
Already under way
This renewable energy breeding is already under way in some places. Tesla’s solar panel factory in Nevada, known as Gigafactory 1, will itself run on solar power. In South Australia, Liberty OneSteel, the new owner of the Whyalla steelworks, is planning solar power, pumped hydro, batteries and demand management to reduce energy costs and greenhouse emissions. In Western Australia, Sandfire Resources’ DeGrussa gold and copper mine and Galaxy Resources’ lithium mine are both going solar.
These are encouraging developments. But will they be enough? The world has only a limited emissions budget left to keep global warming below the Paris Agreement’s 2℃ limit, and an even smaller budget for the agreement’s more ambitious 1.5℃ goal.
As Australia is responsible for about 1% of global emissions and its electricity industry is responsible for about one-third of that, we have assumed that the country’s carbon budget for electricity generation is about one-third of 1% of the global carbon budget. Overall, then, this gives us a total carbon budget for Australia’s electricity sector of 3.3 gigatonnes of carbon dioxide equivalent (post-2011) for the 2℃ target, and 1.3 gigatonnes for the 1.5℃ target. For comparison, Australia’s annual carbon dioxide equivalent emissions are over half a gigatonne (actually 0.55 gigatonnes), so we are only three years away from overshooting the 1.5℃ target.
Even these budgets are generous, because Australia is one of the biggest per capita carbon dioxide emitters in the world and has enormous renewable energy resources.
What’s more, electricity is the easiest part of the energy sector to move to renewable energy – heating and transport are more difficult prospects. This means that if we are to move to an entirely renewable energy future, most heating and transport will need to be electrified. Therefore, electricity should have a greater emissions reduction target than other sectors.
Making the transition
Our study, which builds on earlier research, looked at 22 possible scenarios for transitioning Australia’s electricity sector to predominantly renewable energy. Some were developed by us, and some by other research groups.
Crucially, our study factored in the “life-cycle” emissions of these energy generation technologies – that is, the total greenhouse emissions including those released during the manufacture of the technologies themselves. And we looked explicitly at renewable energy breeding as part of that analysis.
Our scenarios also assume that overall electricity demand will either stabilise or decline, despite the move towards electrifying transport and heating. This is because Australia is well placed to make huge improvements in energy efficiency.
Rapid action needed
The principal findings of our research include the good news that the life-cycle greenhouse emissions from manufacturing renewable energy technologies such as solar panels and wind turbines are tiny, compared with the emissions saved by using them as substitutes for fossil fuels.
With the help of renewable energy breeding, the overall life-cycle emissions savings can be substantial – more than 90%, in some of the scenarios we examined. Therefore, manufacturers of renewable energy systems should use renewable energy to power their production lines.
The bad news is that, in every scenario we investigated, Australia nevertheless fails to achieve its share of the ambitious emissions reductions needed to limit global warming to 1.5℃ with 66% probability. Furthermore, 9 of our 22 scenarios also fail the more lenient 2℃ target.
The main reason for this is the legacy of CO₂ emissions from fossil fuel use before the renewable energy transition. In most of our scenarios, the benefits of renewable energy breeding to the cumulative emissions become significant only beyond 2040.
The scenario (S8a, labelled V in the graph above) that comes closest to achieving the 1.5℃ target involves a 98% transition to renewable electricity and a 35% reduction in electricity demand by 2030 – a very rapid transition indeed!
The scenarios that deliver on the 2℃ target have rapid and high penetrations of renewable energy into the market, and high contributions from energy efficiency.
While it may already be too late for Australia to make a fair contribution to keeping global warming at 1.5℃, our results show that we can stay within our share of the carbon budget for 2℃ – provided we have the political will to move fast.
What’s more, if we implement policies that incentivise renewable energy breeding, there is no reason to suppose that moving to 100% renewable energy would necessarily entail a large increase in emissions to produce the necessary technologies.
But the overriding message is that time is of the essence, if we want to come anywhere close to limiting dangerous climate change. Our various scenarios suggest that even if we implement a rapid, effective response, we are likely to have to take CO₂ back out of the atmosphere in the future, to compensate for the likely overshoot on our share of the global carbon budget.
Solar photovoltaic and wind power are rapidly getting cheaper and more abundant – so much so that they are on track to entirely supplant fossil fuels worldwide within two decades, with the time frame depending mostly on politics. The protestation from some politicians that we need to build new coal stations sounds rather quaint.
The reality is that the rising tide of solar photovoltaics (PV) and wind energy offers our only realistic chance of avoiding dangerous climate change.
No other greenhouse solution comes close, and it is very hard to envision any timely response to climate change that does not involve PV and wind doing most of the heavy lifting.
About 80% of Australia’s greenhouse gas emissions are due to the use of coal, oil and gas, which is typical for industrialised countries. The land sector accounts for most of the rest.
Sadly, attempts to capture and store the carbon dioxide emissions from fossil fuels have come to naught due to technical difficulties and high cost. Thus, to curtail global warming we need to replace fossil fuel use entirely, with energy sources that meet these criteria:
- very large and preferably ubiquitous resource base
- low or zero greenhouse gas emissions and other environmental impacts
- abundant or unlimited raw materials
- minimal security concerns in respect of warfare, terrorism and accidents
- low cost
- already available in mass production.
Solar PV meets all of these criteria, while wind energy also meets many of them, although wind is not as globally ubiquitous as sunshine. We will have sunshine and wind for billions of years to come. It is very hard to imagine humanity going to war over sunlight.
Most of the world’s population lives at low latitudes (less than 35°), where sunlight is abundant and varies little between seasons. Wind energy is also widely available, particularly at higher latitudes.
PV and wind have minimal environmental impacts and water requirements. The raw materials for PV – silicon, oxygen, hydrogen, carbon, aluminium, glass, steel and small amounts of other materials – are effectively in unlimited supply.
Wind energy is an important complement to PV because it often produces at different times and places, allowing a smoother combined energy output. In terms of worldwide annual electricity production wind is still ahead of PV but is growing more slowly. The wind energy resource is much smaller than the solar resource, and so PV will likely dominate in the end.
Complete replacement of all fossil fuels requires solar and wind collectors covering much less than 1% of the world’s land surface area. A large proportion of the collectors are installed on rooftops and in remote and arid regions, thus minimising competition with food production and ecosystems.
The more widely PV and wind generation are distributed across the world, the less the risk of wide-scale disruption from natural disasters, war and terrorism.
Other clean energy technologies can realistically play only a minor supporting role. The solar thermal industry is hundreds of times smaller than the fast-growing PV industry (because of higher costs). Hydro power, geothermal, wave and tidal energy are only significant prospects in particular regions.
Biomass energy is inefficient and its requirement for soil, water and fertiliser put it in conflict with food production and ecosystems. Nuclear is too expensive, and its construction rates are too slow to catch PV and wind.
A renewable grid
PV and wind are often described as “intermittent” energy sources. But stabilising the grid is relatively straightforward, with the help of storage and high-voltage interconnectors to smooth out local weather effects.
The cost of PV and wind power has been declining rapidly for many decades and is now in the range A$55-70 per megawatt-hour in Australia. This is cheaper than electricity from new-build coal and gas units. There are many reports of PV electricity being produced from very large-scale plants for A$30-50 per MWh.
Solar PV and wind have been growing exponentially for decades and have now reached economic lift-off. In 2018, PV and wind will comprise 60% of net new electricity generation capacity worldwide. Coal, gas, nuclear, hydro and other renewable capacity comprise the rest. Globally, US$161 billion will be invested in solar generation alone this year, compared with US$103 billion in new coal and gas combined.
PV and wind are growing at such a rate that the overall installed generation capacity of PV and wind has reached half that of coal, and will pass coal in the mid-2020s, judging by their respective trends.
In Australia, PV and wind comprise most new generation capacity. About 4.5 gigawatts of PV and wind is expected to be installed in 2018 compared with peak demand of 35GW in the National Electricity Market. At this rate, Australia would reach 70% renewable electricity by 2030.
Together, PV and wind currently produce about 7% of the world’s electricity. Worldwide over the past five years, PV capacity has grown by 28% per year, and wind by 13% per year. Remarkably, because of the slow or nonexistent growth rates of coal and gas, current trends put the world on track to reach 100% renewable electricity by 2032.
Deep cuts (80% reduction) in greenhouse gas emissions require that fossil fuels are pushed out of all sectors of the economy. The path to achieve this is by electrification of all energy services.
Straightforward and cost-effective initial steps are: to hit 100% renewable electricity; to convert most land transport to electric vehicles; and to use renewable electricity to push gas out of low-temperature water and space heating. These trends are already well established, and the outlook for the oil and gas industries is correspondingly poor.
The best available prices for PV already match the current wholesale price of gas in Australia (A$9 per gigajoule, equivalent to A$32 per MWh for heat).
High-temperature heat, industrial processes, aviation and shipping fuel and fugitive emissions can be displaced by renewable electricity and electrically produced synthetic fuels, plastics and other hydrocarbons. There may be a modest additional cost depending on the future price trajectory of PV and wind.
Electrifying the whole energy sector of our economy of course means that electricity production needs to increase massively – roughly tripling over the next 20 years. Continued rapid growth of PV (and wind) will minimise dangerous climate change with minimal economic disruption. Many policy instruments are available to hasten their deployment. Governments should get behind PV and wind as the last best chance to deliver the necessary solution to global warming.
As the world embraces inherently variable renewable energy sources to tackle climate change, we will need a truly gargantuan amount of electrical energy storage.
With large electricity grids, microgrids, industrial installations and electric vehicles all running on renewables, we are likely to need a storage capacity of over 10% of annual electricity consumption – that is, more than 2,000 terawatt-hours of storage capacity worldwide as of 2014.
To put that in context, Australia’s planned Snowy 2.0 pumped hydro storage scheme would have a capacity of just 350 gigawatt-hours, or roughly 0.2% of Australia’s current electricity consumption.
Where will the batteries come from to meet this huge storage demand? Most likely from a range of different technologies, some of which are only at the research and development stage at present.
Our new research suggests that “proton batteries” – rechargeable batteries that store protons from water in a porous carbon material – could make a valuable contribution.
Not only is our new battery environmentally friendly, but it is also technically capable with further development of storing more energy for a given mass and size than currently available lithium-ion batteries – the technology used in South Australia’s giant new battery.
Potential applications for the proton battery include household storage of electricity from solar panels, as is currently done by the Tesla Powerwall.
With some modifications and scaling up, proton battery technology may also be used for medium-scale storage on electricity grids, and to power electric vehicles.
How it works
Our latest proton battery, details of which are published in the International Journal of Hydrogen Energy, is basically a hybrid between a conventional battery and a hydrogen fuel cell.
During charging, the water molecules in the battery are split, releasing protons (positively charged nuclei of hydrogen atoms). These protons then bond with the carbon in the electrode, with the help of electrons from the power supply.
In electricity supply mode, this process is reversed: the protons are released from the storage and travel back through the reversible fuel cell to generate power by reacting with oxygen from air and electrons from the external circuit, forming water once again.
Essentially, a proton battery is thus a reversible hydrogen fuel cell that stores hydrogen bonded to the carbon in its solid electrode, rather than as compressed hydrogen gas in a separate cylinder, as in a conventional hydrogen fuel cell system.
Unlike fossil fuels, the carbon used for storing hydrogen does not burn or cause emissions in the process. The carbon electrode, in effect, serves as a “rechargeable hydrocarbon” for storing energy.
What’s more, the battery can be charged and discharged at normal temperature and pressure, without any need for compressing and storing hydrogen gas. This makes it safer than other forms of hydrogen fuel.
Powering batteries with protons from water splitting also has the potential to be more economical than using lithium ions, which are made from globally scarce and geographically restricted resources. The carbon-based material in the storage electrode can be made from abundant and cheap primary resources – even forms of coal or biomass.
Our latest advance is a crucial step towards cheap, sustainable proton batteries that can help meet our future energy needs without further damaging our already fragile environment.
The time scale to take this small-scale experimental device to commercialisation is likely to be in the order of five to ten years, depending on the level of research, development and demonstration effort expended.
Our research will now focus on further improving performance and energy density through use of atomically thin layered carbon-based materials such as graphene.
The target of a proton battery that is truly competitive with lithium-ion batteries is firmly in our sights.
You live in one of the sunniest countries in the world. You might want to use that solar advantage and harvest all this free energy. Knowing that solar panels are rapidly becoming cheaper and have become feasible even in less sunny places like the UK, this should be a no-brainer.
Despite this, the Australian government has taken a step backwards at a time when we should be thinking 30 years ahead.
Further reading: Will the national energy guarantee hit pause on renewables?
Can we do it differently? Yes, we can! My ongoing research on sustainable urbanism makes it clear that if we use the available renewable resources in the Sydney region we do not need any fossil resource any more. We can become zero-carbon. (With Louisa King and Andy Van den Dobbelsteen, I have prepared a forthcoming paper, Towards Zero-Carbon Metropolitan Regions: The Example of
Sydney, in the journal SASBE.)
Enough solar power for every household
Abundant solar energy is available in the Sydney metropolitan area. If 25% of the houses each installed 35 square metres of solar panels, this could deliver all the energy for the city’s households.
We conservatively estimate a total yield of 195kWh/m2 of PV panel placed on roofs or other horizontal surfaces. The potential area of all Sydney council precincts suited for PV is estimated at around 385km2 – a quarter of the entire roof surface.
We calculate the potential total solar yield at 75.1TWh, which is more than current domestic household energy use (65.3TWh, according to the Jemena energy company).
Wind turbines to drive a whole city
If we install small wind turbines on land and larger turbines offshore we can harvest enough energy to fuel our electric vehicle fleet. Onshore wind turbines of 1-5MW generating capacity can be positioned to capture the prevailing southwest and northeast winds.
The turbines are placed on top of ridges, making use of the funnel effect to increase their output. We estimate around 840km of ridge lines in the Sydney metropolitan area can be used for wind turbines, enabling a total of 1,400 turbines. The total potential generation from onshore wind turbines is 6.13TWh.
Offshore turbines could in principle be placed everywhere, as the wind strength is enough to create an efficient yield. The turbines are larger than the ones on shore, capturing 5-7.5MW each, and can be placed up to 30km offshore. With these boundary conditions, an offshore wind park 45km long and 6km wide is possible. The total offshore potential then is 5.18TWh.
Altogether, then, we estimate the Sydney wind energy potential at 11.3TWh.
Turning waste into biofuels
We can turn our household waste and green waste from forests, parks and public green spaces into biogas. We can then use the existing gas network to provide heating and cooling for the majority of offices.
Biomass from domestic and green waste will be processed through anaerobic fermentation in old power plants to generate biogas. Gas reserves are created, stored and delivered through the existing power plants and gas grid.
Further reading: Biogas: smells like a solution to our energy and waste problems
Algae has enormous potential for generating bio-energy. Algae can purify wastewater and at the same be harvested and processed to generate biofuels (biodiesel and biokerosene).
Specific locations to grow algae are Botany Bay and Badgerys Creek. It’s noteworthy that both are close to airports, as algae could be important in providing a sustainable fuel resource for planes.
Using algae arrays to treat the waste water of new precincts, roughly a million new households as currently planned in Western Sydney, enables the production of great quantities of biofuel. Experimental test fields show yields can be high. A minimum of 20,000 litres of biodiesel per hectare of algae ponds is possible if organic wastewater is added. This quantity is realisable in Botany Bay and in western Sydney.
Further reading: Biofuel breakthroughs bring ‘negative emissions’ a step closer
Extracting heat from beneath the city
Shallow geothermal heat can be tapped through heat pumps and establishing closed loops in the soil. This can occur in large expanses of urban developments within the metropolitan area, which rests predominantly on deposits of Wianamatta shale in the west underlying Parramatta, Liverpool and Penrith.
Where large water surfaces are available, such as in Botany Bay or the Prospect Reservoir, heat can also be harvested from the water body.
The layers of the underlying Hawkesbury sandstone, the bedrock for much of the region, can yield deep geothermal heat. This is done by pumping water into these layers and harvesting the steam as heat, hot water or converted electricity.
Further reading: Explainer: what is geothermal energy?
Hydropower from multiple sources
The potential sources of energy from hydro generation are diverse. Tidal energy can be harvested at the entrances of Sydney Harbour Bay and Botany Bay, where tidal differences are expected to be highest.
Port Jackson, the Sydney Harbour bay and all of its estuaries have a total area of 55km2. With a tidal difference of two metres, the total maximum energy potential of a tidal plant would be 446TWh. If Sydney could harvest 20% of this, that would be more than twice the yield of solar panels on residential roofs.
If we use the tide to generate electricity, we can also create a surge barrier connecting Middle and South Head. Given the climatic changes occurring and still ahead of us, we need to plan how to protect the city from the threats of future cyclones, storm surges and flooding.
I have written here about the potential benefits of artificially creating a Sydney Barrier Reef. The reef, 30km at most out at sea, would provide Sydney with protection from storms.
At openings along the reef, wave power generators can be placed. Like tidal power, wave power can be calculated: mass displacement times gravity. If around 10km of the Sydney shoreline had wave power vessels, the maximum energy potential would be 3.2TWh.
In the mouths of the estuaries of Sydney Harbour and Botany Bay, freshwater meets saltwater. These places have a large potential to generate “blue energy” through reverse osmosis membrane technology.
To combine protective structures with tidal generating power, an open closure barrier is proposed for the mouth of Sydney Harbour. The large central gates need to be able to accommodate the entrance of large cruise ships and to close in times of a storm surge. At the same time, a tidal plant system operates at the sides of the barrier.
Master plan for a zero-carbon city
All these potential energy sources are integrated into our Master Plan for a Zero-Carbon Sydney. Each has led to design propositions that together can create a zero-carbon city.
The research shows there is enough, more than enough, potential reliable renewable energy to supply every household and industry in the region. What is needed is an awareness that Australia could be a global frontrunner in innovative energy policy, instead of a laggard.
Australia can meet its 2030 greenhouse emissions target at zero net cost, according to our analysis of a range of options for the National Electricity Market.
Our modelling shows that renewable energy can help hit Australia’s emissions reduction target of 26-28% below 2005 levels by 2030 effectively for free. This is because the cost of electricity from new-build wind and solar will be cheaper than replacing old fossil fuel generators with new ones.
Currently, Australia is installing about 3 gigawatts (GW) per year of wind and solar photovoltaics (PV). This is fast enough to exceed 50% renewables in the electricity grid by 2030. It’s also fast enough to meet Australia’s entire carbon reduction target, as agreed at the 2015 Paris climate summit.
Encouragingly, the rapidly declining cost of wind and solar PV electricity means that the net cost of meeting the Paris target is roughly zero. This is because electricity from new-build wind and PV will be cheaper than from new-build coal generators; cheaper than existing gas generators; and indeed cheaper than the average wholesale price in the entire National Electricity Market, which is currently A$70-100 per megawatt-hour.
During the 2020s these prices are likely to fall still further – to below A$50 per MWh, judging by the lower-priced contracts being signed around the world, such as in Abu Dhabi, Mexico, India and Chile.
In our research, published today, we modelled the all-in cost of electricity under three different scenarios:
Renewables: replacement of enough old coal generators by renewables to meet Australia’s Paris climate target
Gas: premature retirement of most existing coal plant and replacement by new gas generators to meet the Paris target. Note that gas is uncompetitive at current prices, and this scenario would require a large increase in gas use, pushing up prices still further.
Status quo: replacement of retiring coal generators with supercritical coal. Note that this scenario fails to meet the Paris target by a wide margin, despite having a similar cost to the renewables scenario described above, even though our modelling uses a low coal power station price.
The chart below shows the all-in cost of electricity in the 2020s under each of the three scenarios, and for three different gas prices: lower, higher, or the same as the current A$8 per gigajoule. As you can see, electricity would cost roughly the same under the renewables scenario as it would under the status quo, regardless of what happens to gas prices.
Balancing a renewable energy grid
The cost of renewables includes both the cost of energy and the cost of balancing the grid to maintain reliability. This balancing act involves using energy storage, stronger interstate high-voltage power lines, and the cost of renewable energy “spillage” on windy, sunny days when the energy stores are full.
The current cost of hourly balancing of the National Electricity Market (NEM) is low because the renewable energy fraction is small. It remains low (less than A$7 per MWh) until the renewable energy fraction rises above three-quarters.
The renewable energy fraction in 2020 will be about one-quarter, which leaves plenty of room for growth before balancing costs become significant.
The proposed Snowy 2.0 pumped hydro project would have a power generation capacity of 2GW and energy storage of 350GWh. This could provide half of the new storage capacity required to balance the NEM up to a renewable energy fraction of two-thirds.
The new storage needed over and above Snowy 2.0 is 2GW of power with 12GWh of storage (enough to provide six hours of demand). This could come from a mix of pumped hydro, batteries and demand management.
Stability and reliability
Most of Australia’s fossil fuel generators will reach the end of their technical lifetimes within 20 years. In our “renewables” scenario detailed above, five coal-fired power stations would be retired early, by an average of five years. In contrast, meeting the Paris targets by substituting gas for coal requires 10 coal stations to close early, by an average of 11 years.
Under the renewables scenario, the grid will still be highly reliable. That’s because it will have a diverse mix of generators: PV (26GW), wind (24GW), coal (9GW), gas (5GW), pumped hydro storage (5GW) and existing hydro and bioenergy (8GW). Many of these assets can be used in ways that help to deliver other services that are vital for grid stability, such as spinning reserve and voltage management.
Because a renewable electricity system comprises thousands of small generators spread over a million square kilometres, sudden shocks to the electricity system from generator failure, such as occur regularly with ageing large coal generators, are unlikely.
Neither does cloudy or calm weather cause shocks, because weather is predictable and a given weather system can take several days to move over the Australian continent. Strengthened interstate interconnections (part of the cost of balancing) reduce the impact of transmission failure, which was the prime cause of the 2016 South Australian blackout.
Since 2015, Australia has tripled the annual deployment rate of new wind and PV generation capacity. Continuing at this rate until 2030 will let us meet our entire Paris carbon target in the electricity sector, all while replacing retiring coal generators, maintaining high grid stability, and stabilising electricity prices.
Andrew Blakers, Professor of Engineering, Australian National University; Bin Lu, PhD Candidate, Australian National University, and Matthew Stocks, Research Fellow, ANU College of Engineering and Computer Science, Australian National University
The federal government’s new National Energy Guarantee (NEG) proposal looks likely to put the brakes on renewable energy investment in Australia. And based on the sparse detail so far available, there are serious questions about whether the plan really can deliver on its aims of reliability, emissions reductions and lower prices.
The broad mechanism design could be made to work, but to be effective in driving the transition of the energy sector it would need adequate ambition on carbon emissions and very careful thought about the reliability requirements of the future electricity grid.
The policy may well be used to force investment into the fossil fuel power fleet through regulatory intervention, and perhaps for the power sector to buy emissions offsets. This would risk locking in a carbon-intensive power system.
The NEG: top or flop?
Having rejected several options – including an emissions intensity scheme, the Clean Energy Target put forward by the Finkel Review, and any continuation of the Renewable Energy Target – the government has finally managed to get a policy proposal through the party room, formulated in advice by its newly established Energy Security Board.
Analysts’ initial reactions have ranged from unbridled enthusiasm to derisive rejection. It depends on political judgments, expectations about how the scheme might operate in practice, and how high one’s expectations are for efficiency and environmental effectiveness.
The politics of this are complicated, but there are hopes that the Labor opposition will agree to the scheme in principle. But the decision is ultimately with the Australian states, which would need to pass legislation to implement it.
Reliability guarantee: supporting fossil fuels?
The first element of the NEG is the “reliability guarantee”. This would require electricity retailers to buy some share of their electricity from “dispatchable” sources that can be readily switched on. The NEG list includes coal and gas, as well as hydro and energy storage – essentially, anything except wind and solar.
The NEG proposal might be informed by a political imperative to support coal. As John Quiggin has pointed out, defining coal-fired plants as dispatchable is questionable at best: they have long ramp-up times and are sometimes unavailable.
The Australian Energy Market Operator (AEMO) would prescribe the share of the “dispatchable” power sources and perhaps also the mix of technologies in retailers’ portfolios, separately in each state. This would be a remarkably interventionist approach.
Demand from retailers for the power sources they are told to use could trigger investment in new gas generators, refurbishment of existing coal plants, and some investment in energy storage. It is difficult to see how it would force the building of new coal plants, given their very large upfront cost and long-term emissions liabilities.
Would electricity prices be lower, as the Energy Security Board’s advice claims? Investment in new power generation will tend to reduce prices, cutting into profit margins. But the resulting investments will come at higher economic cost than market solutions, because they are determined by regulators’ orders made with a view to the short-term energy mix, not long-term cost-effectiveness. And there would be risk premiums on project finance, reflecting uncertainty about future policy settings.
Emissions guarantee: flexible but weak?
The NEG’s second pillar is the “emissions guarantee”. This would require retailers to keep their portfolio below some level of emissions intensity (carbon dioxide per unit of electricity).
This increases the demand for electricity from lower-emissions technologies, allowing them to command higher market prices and therefore encouraging investment in them. This price signal would benefit renewables and also favour gas over coal, as well as discriminating against the most polluting coal plants.
The Energy Security Board’s advice suggests that retailers would have flexibility in complying with that obligation, by buying and selling emissions components of their contracts, and potentially also using emissions offsets from outside the scheme to make up for any exceeding of emissions limits.
The reliability and emissions elements of the NEG interact with each other, and the net effect depends on the detailed implementation as well as the relative importance of the two components.
Given the politics within government, the weight could be on support for coal and gas generation. The reliability guarantee could therefore end up putting a tight lid on the amount of new wind and solar that can enter the system.
Renewables, gas or credits?
The Energy Security Board makes explicit reference to Australia’s Paris target of a 26-28% reduction in emissions, relative to 2005 levels, by 2030. Prime Minister Malcolm Turnbull has said the NEG will be expected to cut electricity emissions by a similar percentage, as a “pro rata” contribution to this goal.
But to meet the economy-wide target, the electricity sector would need to make deeper cuts, because emissions reductions are cheaper and easier here than elsewhere.
The Energy Security Board says it expects renewables to reach 28-36% by 2030. This is rather low, considering that the Finkel Review projected 42% under its proposed clean energy target, and 35% under business as usual. Other analyses have shown that much higher levels of renewables are achievable.
So if the NEG is not geared to support renewables, how could significant emissions reductions be achieved?
One way would be to replace coal with gas-fired power, and brown coal with black coal. But the government has flagged that it is opposed to closing old coal plants. And a large-scale shift to gas would raise electricity prices further, unless gas prices were to tumble.
That leaves another option, mentioned in the Energy Security Board’s report: power retailers could buy emissions offset credits from elsewhere to make up for not meeting the emissions standard, specifically from projects under the government’s Emissions Reduction Fund (ERF).
This might be attractive for the government, as electricity retailers would then pay for ERF credits, rather than government as has been the case until now. It may also be attractive to the power industry, as it would reduce the cost of complying with the new obligations. Retailers would pass on the costs to their customers, so electricity consumers would end up paying for ERF projects.
Even assuming that all of the ERF’s emissions reductions are real (and some of them may not be), all this does is shift the adjustment burden from electricity to other sectors such as agriculture.
The NEG has the potential to reduce emissions effectively if the parameters are adjusted accordingly. But what seems more likely is that it will put the brakes on investment in renewables, solidify the status quo and delay the energy transition.
Frank Jotzo, Director, Centre for Climate Economics and Policy, Australian National University and Salim Mazouz, Research Associate, Centre for Climate Economics and Policy, Australian National University