What is REALLY happening in the Australian energy debate?
The Australian energy debate is as heated and polarising as it has ever been. It seems that every day partisan interests from either side of the debate cherry pick information that can be inaccurate or misleading at best. We have prepared this paper to try and present a balanced view of real-world trends, projections and trajectories of the energy sector, not just within Australia, but across a worldwide context.
We have referenced the most recent publications and reports from independent bodies:
- The World Resources Institute,
- Bloomberg New Energy Finance,
- The Australian Energy Market Operator (AEMO),
- The Institute for Energy Economics and Financial Analysis (IEEFA),
- The World Bank,
- and major energy companies in Australia such as AGL, Origin and Energy Australia.
We have also referenced official Australian parliamentary enquiries with leading energy, technology and economic experts and future government energy plans based on those expert assessments.
CURRENT AUSTRALIAN ENERGY SOURCES, and EMISSIONS TARGETS
Currently, (July 2018) the power grid energy mix in Australia is around 18% renewables and 82% fossil fuels with approximately 72% coal. Australia has a renewable energy target for 2020 of 23.5% renewables. Within this, state and territories have their own renewable energy targets. Overall, 6 of the 8 Australian states and territories (comprising a mix of centre left and centre right governments) have net zero emissions targets by 2050 or earlier. Already significant progress has been made towards these targets. For example, the South Australian target of 50% by 2025 has already been met, and is projected to reach around 75% by 2025. The Victorian target is 40% by 2025, Queensland 50% by 2030, Tasmania 100% by 2030, ACT 100% by 2020, Northern Territory 50% by 2030.
,EMISSIONS TARGETS ARE BEING MET AS OLD POWER STATIONS ARE RETIRED.
Current electricity emissions at July 2018 in Australia are 18% below 2005 levels, due to the retirement of old technology coal-fired power stations, replacing them with household solar, and large-scale renewables (largely solar and wind turbines), and gas energy as additional back-up.
Nationally, low-emission and emission-free energy is experiencing a major surge in Australia. There are currently 47 confirmed and under construction renewable energy plants to be operational by 2020, totalling 5.5GW, which, in addition to the current approximate 11.5 GW renewables (including hydro) will bring the renewables total to just over 17GW by 2020, in a national grid total of around 60GW. This means that the projected renewable energy percentage in the country’s electricity grid by 2020 will be around 28%, with some reports suggesting it could be higher.
The march of renewables does not mean that the traditional energy sources such as coal, oil and gas will simply “switch off” or vanish overnight. These traditional power sources will remain to some extent for the next two decades. However, the percentage of energy that traditional fossil fuels provide in Australia will decline over this period, ultimately being replaced by the new low-carbon and zero-carbon technologies.
WHAT ARE THE COSTS?
While environmental and sustainability goals are the key driver for this, the most significant factors allowing this transition are economics and technological advances. Currently, the cost of new build solar PV power plant in Australia is between $55MWhr-$75MWhr, and for new build on-shore wind energy this is $65MWhr to $80MWhr. These technologies need battery pumped hydro or other energy storage systems to qualify as fully dispatchable energy sources, but the cost of such technologies is also plummeting. It is early days yet, but already the cost of the South Australian solar with battery back-up is $90 - $100 a MWhr.
In comparison, new coal fired power stations in Australia are in the range of $130MWhr, and those with “High Efficiency, Low Emissions” or HELE functions costing in the range of $160MWhr. When other factors such as subsidies and storage additions to such facilities are also taken into account, this still leaves new large-scale renewables with storage and gas back-up as the cheapest new energy sources. There will be a requirement for gas to be part of the low carbon energy future for several decades, but this will progressively diminish as more efficient energy storage facilities are developed.
RENEWABLES COSTS CONTINUE TO FALL OVER TIME
Current global estimates are for large-scale solar costs to decline by a further 50% over the course of the next two decades, with a similar decline projected for off-shore wind farms, and around 30% declines for onshore wind farms. Similarly, large-scale battery storage costs have halved in the space of only a few years, and are projected to halve again within the next 5 to 7 years.
As a result of such current and future developments, the official AEMO projected energy mix under a technology and policy “Neutral” Scenario to 2030 for Australia is 46% renewables, with a 2040 projection of 78% renewables. These “Policy Neutral” results are based on replacement of 16GW of coal fired power as it reaches the end of life commission period, with large-scale renewables (28GW solar, 10.5GW wind), energy storage (pumped hydro, solar-thermal, battery) and peaking gas back-up (500MW). These are based on lowest cost, highest efficiency energy sources currently available and those projected into the future. If more rigorous government mandated technology and policies were applied, the “Fast-track” Scenario to 2030 has indicated a 60% renewables mix and a 2040 Projection of 90% renewables.
THE POTENTIAL FOR EMISSIONS REDUCTIONS
The predicted emissions reduction in the electricity sector based on the “neutral” scenario would be a minimum 40% reduction from 2005 levels by 2030, and a minimum 70% below 2005 levels by 2040, with the potential for 85% below 2005 levels by 2050. Under a “Fast-track” scenario, this would be a minimum of a 55% reduction in emissions by 2030 and 85% below 2005 levels by 2040, up to 95% by 2050. Indeed, the currently proposed 26% reduction in emissions from electricity sector from 2005 levels by 2030 is projected to be achieved by 2022 based on current renewable energy projects.
BUT AREN’T OTHER COUNTRIES INCREASING COAL FIRED POWER STATIONS?
In short the answer is YES, but the rate of increase is rapidly slowing.
It is true that some coal-fired power is being added to the power grids in developing nations. However as the cost of clean alternatives has fallen, the rate and level of such developments have changed significantly in the last few years. For example, while global total coal-fired power added in 2018 to July was 20GW, (one of the lowest on record), 16 GW of coal globally shut down. Therefore there was a net gain of 4GW in coal fired power in the year to July 2018, - the lowest on record.
As a consequence, the global coal consumption has been declining by 2% per year for past three years. To put the apparent “growth” in coal fired power into perspective, the total planned coal to be added globally in 2015 was reported at 1,090GW. As of 2018, two thirds of that planned coal expansion has been cancelled. The planned global “new” coal is now 364GW, or a decline of 67% in 3 years.
DEVELOPING NATIONS TAKING ADVANTAGE OF NON-FOSSIL FUEL ADVANCES
Developing nations are dramatically changing their short and long-term energy plans. For example India’s most recent national energy plan is to retire 48GW of coal-fired power by 2027, as part of a shift from 30% non fossil-fuels to 57% non fossil-fuels by 2027. This will be achieved with 275GW of added non fossil-fuel energy (including a 2022 interim goal of 225GW of renewable energy, increased from previous target of 175GW) by 2022. The driver for such rapid changes has been the decline of costs of both new solar and wind power in India, most recently falling below $40 (US) per megawatt hour, lower than the cost of both new coal power and imported thermal coal from other countries.
China too, has accelerated significantly in the addition of non fossil-fuel energy sources. From an initial target of 150GW of solar power by 2020, China is already at this target by mid-2018, with the last two years totalling over 35GW per year and the 2018 projected total of another 36GW added. This will lead to the country having well over 200GW of solar power, with increased instances of battery storage to accompany it, by 2020. Wind power targets of 200GW by 2020 are also projected to be exceeded this year and will be over 230GW by the same 2020 date.
The projection is for zero new coal fired power stations to be added globally from approximately 2022 onwards. Certainly there will still be SOME coal fired power globally over the next few decades, but there will be net reduction of total coal-fired power in the global energy system from around 2022, with the rate of decline accelerating from that point.
THE MORAL ARGUMENT FOR EMISSIONS REDUCTIONS.
In spite of the weight of evidence, some people still challenge the science behind climate change. However if we accept that global warming is real, and fossil fuels are the major driver of it, then we have a moral responsibility to be part of the solution. We cannot expect the rest of the work to move on which we drag our feet on climate change.
And the momentum for change is significant. Across the developed world, the shift away from traditional fossil fuels is almost universal. As of the middle of 2018, 28 nations globally have a pledge of zero coal fired power by 2050 or earlier, including 15 European nations such as the UK, Portugal, France, the Netherlands, Finland, Italy, Austria and Canada. Germany is currently at 33% renewables with a 65% target by 2030, and an emissions reduction target of 55% below 1990 levels by 2030 (the same as the UK).
Even in the US, the percentage of fossil-fuels in the energy system has continued to drop significantly over the past decade, from 50% coal-oriented mix to just under 27% in 2018. Indeed, the US has averaged 12GW coal shut down per year over the past 4 years, with zero new coal power stations being added. In 2018, there has been 12GW of coal power closed so far, on track for 18GW by the end of the year. This is due to the increasing costs of aging, traditional power stations and the rapidly reduced costs of low-carbon replacement options. Some states have moved more quickly than others.
In California, for example, the renewable energy mix has increased to 32% in 2018 and is on track to reach 50% by 2025, well ahead of its target date of 2030. Even in Texas, the total renewable energy percentage increased to 22% in 2018.
DOES CLEANER MEAN COSTLIER?
A continuing argument against low-carbon technology replacing the traditional forms is the threat of increased cost to consumers. To get an idea of the veracity of this notion, it is interesting to compare the cost of power in high renewables markets with Australia’s current energy prices and electricity bills. Australia’s current renewable energy percentage is around 18% with an average electricity price of $60 (US) per megawatt hour, yet both California and Texas and indeed other states with high renewable energy percentages such as Iowa and Hawaii and New York all have electricity prices averaging $32(US) per megawatt hour.
Indeed, countries across Europe with higher percentages of non fossil-fuel in their electricity mix have average electricity costs below that of Australia’s at present. It appears that costs to consumers are driven more by scale and the specific make-up of a country’s electricity grid rather than whether or not it has a high percentage of renewables or other clean energy.
WHATEVER THE POLITICIANS SAY, THE WORLD HAS MOVED ON
Australian energy companies, especially the major retailers such as AGL and Origin, have policies for a minimum of 25% renewables by 2020, a 50% reduction in emissions by 2032, and net zero emissions by 2050 or earlier. It takes many years (measured in decades) for the investment in a major power station to provide a reasonable return to investors. Consequently there are no plans for any new coal-fired power stations in Australia.
Major industries are following a similar path. Major entities such as Sun Metals, Carlton and United, Whyalla Steelworks, Mars Inc. and several others have already commented that there is no need for added coal and fossil-fuels into the system, that the lowest cost sources of new energy are from clean energy and storage options and have outlined billions of dollars of investment and expansion of such technologies. Corporations on a global scale, including Google, Apple, Ikea, Nike, Fujitsu, Facebook, Tesla, and over 140 major international companies have now pledged official targets of 100% clean energy by 2050 or earlier, under a global network known as the RE100.
The decisions concerning the world’s energy future are being driven by the ever-accelerating advances in technology and engineering and the associated rapidly reduced costs and economic advantages. While there is little doubt that traditional fossil fuels will not disappear in the immediate or short-term, the reality is that a global transition is on and appears likely to continue at an increasing pace over the next 20 to 40 years.