tag:theconversation.com,2011:/global/topics/liddell-power-station-42918/articlesLiddell power station – The Conversation2023-10-18T19:05:56Ztag:theconversation.com,2011:article/2138792023-10-18T19:05:56Z2023-10-18T19:05:56ZThe original and still the best: why it’s time to renew Australia’s renewable energy policy<p>If Australia is to meet its <a href="https://www.dcceew.gov.au/climate-change/publications/australias-emissions-projections-2022#:%7E:text=In%20June%202022%20Australia%20updated,emissions%20budget%20from%202021%2D2030.">commitment to reduce greenhouse gas emissions</a> to 43% below 2005 levels by 2030, we need to cut emissions faster. Even if all current government policy commitments are achieved – an unlikely outcome given delays in implementation – emissions are still <a href="https://www.dcceew.gov.au/climate-change/publications/australias-emissions-projections-2022#:%7E:text=Under%20a%20'with%20additional%20measures,below%202005%20levels%20by%202035.">projected to be only 40% below 2005 levels</a> by 2030. </p>
<p>Last year the federal government announced that <a href="https://www.energycouncil.com.au/analysis/the-82-per-cent-national-renewable-energy-target-where-did-it-come-from-and-how-can-we-get-there/#:%7E:text=But%20then%20in%20December%202022,renewable%20electricity%20target%20by%202030%E2%80%9D.">82% of all electricity production</a> would come from renewable energy by 2030. This was a crucial step. To have any chance of hitting our overall emission reduction targets, we must speed up the rollout of renewable energy. </p>
<p>Several experts, such as <a href="https://theconversation.com/why-australia-urgently-needs-a-climate-plan-and-a-net-zero-national-cabinet-committee-to-implement-it-213866">Tony Wood at the Grattan Institute</a> and the <a href="https://www.cleanenergycouncil.org.au/news/clean-energy-council-releases-power-playbook">Clean Energy Council</a> are calling on governments to consider using the Renewable Energy Target (RET) to accelerate investment in new renewable supply. Why are these experts recommending the RET as a policy option?</p>
<p><iframe id="tc-infographic-973" class="tc-infographic" height="400px" src="https://cdn.theconversation.com/infographics/973/534c98def812dd41ac56cc750916e2922539729b/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>A brief history of renewable energy in Australia</h2>
<p>At the turn of the century Australia had almost no wind or solar energy generation. In 2001, the Howard government recognised the potential benefits of renewables and <a href="https://www.aph.gov.au/about_parliament/parliamentary_departments/parliamentary_library/flagpost/2014/august/ret-review#:%7E:text=The%20RET%20was%20originally%20introduced,on%20top%20of%20existing%20generation.">introduced the RET</a>. The target, which was expanded and reformed by the Rudd and Abbott governments, has two elements:</p>
<ul>
<li><p>the <a href="https://www.cleanenergyregulator.gov.au/RET/About-the-Renewable-Energy-Target/How-the-scheme-works/Large-scale-Renewable-Energy-Target">Large-Scale Renewable Energy Target</a>, which requires retailers to buy a set percentage (currently about 15%) of their energy from renewable producers through the purchase of a Large-Scale Generation Certificate</p></li>
<li><p>the <a href="https://www.cleanenergyregulator.gov.au/RET/About-the-Renewable-Energy-Target/How-the-scheme-works/Small-scale-Renewable-Energy-Scheme">Small-Scale Renewable Energy Scheme</a>, which provides an upfront subsidy to households and small businesses that install their own rooftop solar panels. </p></li>
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<p>Over the past two decades, the RET has been by far the most effective of all Australia’s climate initiatives. It has led to an additional 40 gigawatts (the capacity of around <a href="https://www.agl.com.au/about-agl/media-centre/asx-and-media-releases/2023/april/agls-liddell-power-station-closes-after-52-years-of-operation">20 Liddell power stations</a>) of new solar and wind generation. It has lifted Australia’s renewable generation from almost nothing other than hydro (from Hydro Tasmania and Snowy Hydro) in 2000 to nearly <a href="https://opennem.org.au/energy/au/?range=all&interval=1y&view=discrete-time">37% of all electricity today</a>. </p>
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Read more:
<a href="https://theconversation.com/the-human-factor-why-australias-net-zero-transition-risks-failing-unless-it-is-fair-214064">The human factor: why Australia's net zero transition risks failing unless it is fair</a>
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<p>Between 2011 and 2021, the RET accounted for more than half of Australia’s greenhouse gas abatement, delivering by 2021 40 million metric tonnes (Mt) out of about 75 Mt. Over a decade that’s the equivalent of retiring two very large coal-fired power stations each year (see chart below). </p>
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<img alt="Emissions reduction in Australia by policy driver." src="https://images.theconversation.com/files/554168/original/file-20231017-19-s1194o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/554168/original/file-20231017-19-s1194o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=434&fit=crop&dpr=1 600w, https://images.theconversation.com/files/554168/original/file-20231017-19-s1194o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=434&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/554168/original/file-20231017-19-s1194o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=434&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/554168/original/file-20231017-19-s1194o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=546&fit=crop&dpr=1 754w, https://images.theconversation.com/files/554168/original/file-20231017-19-s1194o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=546&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/554168/original/file-20231017-19-s1194o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=546&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Emissions reduction in Australia by policy driver.</span>
<span class="attribution"><span class="source">Clean Energy Regulator</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<p>The RET succeeded for two reasons. First, its targets extend all the way through to 2030, creating certainty for investors. Second, it created a market that encourages retailers to purchase the lowest-cost large-scale generation certificates. In purchasing a certificate, the retailer pays the difference between the cost of a project and what its generated power earns on the market. </p>
<p>That approach has diversified our renewable energy mix by making it easier to compare different technologies. For example, a wind farm might cost more to build than a solar farm but it can potentially earn more on the market by generating at the right time of day or night. A greater diversity of renewable energy sources means more reliable generation. </p>
<h2>Why has the boom in renewables investment stalled?</h2>
<p>The bad news is that while investment in <a href="https://www.cleanenergycouncil.org.au/news/australian-rooftop-solar-breaks-new-ground-in-2022-clean-energy-australia-report">small-scale solar photovoltaic continues to grow</a>, investment in <a href="https://www.abc.net.au/listen/programs/worldtoday/renewable-energy-investment-stalls/102765622">large-scale renewables has largely stalled</a>. There are two main reasons why. </p>
<p>First, Australia must build more transmission infrastructure. We have great renewable energy resources but we need new transmission lines to take that energy to homes and businesses. Governments have recognised this and are prioritising new <a href="https://aemo.com.au/-/media/files/major-publications/isp/2022/2022-documents/a3-renewable-energy-zones.pdf?la=en">Renewable Energy Zones</a>, with the Commonwealth providing substantial funding through its <a href="https://www.dcceew.gov.au/energy/renewable/rewiring-the-nation">Rewiring the Nation</a> package.</p>
<p>But the second reason for the stalled investment is less well known. The
<a href="https://www.cleanenergyregulator.gov.au/RET/About-the-Renewable-Energy-Target#:%7E:text=As%20part%20of%20the%20amendment,post%2D2020%20targets%20adjusted%20accordingly.">target of 33 terrawatt hours</a> under the Large-Scale Renewable Energy Target was <a href="https://en.wikipedia.org/wiki/Renewable_energy_in_Australia#:%7E:text=In%202019%2C%20Australia%20met%20its,terawatt%2Dhours%20(TWh).&text=With%20the%202020%20targets%20being,Victoria%20and%20the%20Northern%20Territory.">largely achieved in 2020</a> and since then has not been increased. The current legislated target is about 15%, well below the government’s commitment to reach 82% by 2030. Why did governments pivot away from the successful RET policy?</p>
<p>In the late 2010s, the Commonwealth government was not interested in increasing renewable energy targets. So state governments keen to act on climate change moved away from using the RET and other market-based policies, instead creating their own policy frameworks, known as <a href="https://www.energyco.nsw.gov.au/industry/long-term-energy-service-agreements">Contracts-for-Difference</a>.</p>
<p>Under these frameworks, state governments hold reverse auctions and award solar and wind projects a contract for a guaranteed price for their energy for 15–20 years. </p>
<p>Government contracts-for-difference can be a useful tool to assist new technologies, such as offshore wind, to enter the market. But they have <a href="https://ideas.repec.org/p/enp/wpaper/eprg1901.html">significant limitations</a> when they are used to deploy mature technologies such as solar and wind. </p>
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Read more:
<a href="https://theconversation.com/too-hard-basket-why-climate-change-is-defeating-our-political-system-214382">Too hard basket: why climate change is defeating our political system</a>
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<p>The most obvious problem is that, in contrast to a market framework such as the Large-Scale Renewable Energy Target, under contracts-for-difference the government becomes the only market for renewable energy. The government assumes the risk of any project, freeing operators from the need to efficiently locate and run their projects. If a project fails, the public pays the cost in higher power prices or taxes. </p>
<p>Moreover, when government is buying the power, it naturally often goes for the cheapest option, thereby usually favouring solar and narrowing our renewable energy mix. And a generator has no incentive to sell its electricity to households and businesses. The result is that investors hold off building new projects, waiting instead to be awarded a contract-for-difference. </p>
<p>This dynamic is stalling investment even as coal generators near the end of their useful lives and the market demand for both energy and firming capacity grows. </p>
<h2>Governments working together to get investment flowing</h2>
<p>But there is reason to be optimistic. The states and the Commonwealth all now agree on the need to rapidly decarbonise the electricity sector by deploying renewables, transmission and storage. Now the states have the opportunity to work with the Commonwealth to incorporate their different frameworks into a nationally consistent, market-based approach built on the Large-Scale Renewable Energy Target. </p>
<p>The simplest approach, which would create a pivot back to market-based frameworks, would be to legislate to increase that target each year to achieve a linear growth from current renewable energy levels to 82% in 2030. </p>
<p>Under that solution, <a href="https://www.sciencedirect.com/science/article/abs/pii/S0301421521005139">history suggests</a> investors would rush to capture their share of the target. Investors and energy retailers would work together to find the right mix of technologies to deliver the lowest-cost power to consumers.</p>
<p>A national 82% renewable energy target also ensures that as other <a href="https://www.climateworkscentre.org/news/sectoral-decarbonisation-plans-a-welcome-priority-for-australias-government/">sectors use electrification</a> to decarbonise, they will have access to clean energy. Without a target, electrification may lead to use of high-emissions coal power. </p>
<p>Under our proposal, state governments could still pursue their own objectives, such as supporting projects in a particular region, but they could <a href="https://onlinelibrary.wiley.com/doi/epdf/10.1111/1467-8489.12457">align their policy frameworks with the RET</a> by funding the cost of Large-Scale Generation Certificates rather than entire renewable energy projects.</p>
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Read more:
<a href="https://theconversation.com/the-road-is-long-and-time-is-short-but-australias-pace-towards-net-zero-is-quickening-214570">The road is long and time is short, but Australia's pace towards net zero is quickening</a>
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<p>If the electricity sector does not reach 82% by 2030, other sectors will have to do more to deliver our legislated 43% reduction in emissions by 2030. This is likely to be more costly and unnecessarily increase pressure on our trade-exposed industries, which would be required to reduce emissions more quickly at higher cost.</p>
<p>No Australian emission reduction policy matches the success of the Renewable Energy Target. By working together and aligning their renewable energy policies with the target, Commonwealth and state governments can get Australia’s renewable energy investment back on track, providing us with a reliable, competitive and clean electricity system by 2030 and beyond.</p><img src="https://counter.theconversation.com/content/213879/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tim Nelson is an Associate Professor at Griffith University and the EGM, Energy Markets at Iberdrola Australia, which develops renewable projects and batteries. He is also a Climate Councillor.</span></em></p><p class="fine-print"><em><span>Joel Gilmore an Associate Professor at Griffith University and is the General Manager Policy and Regional Energy at Iberdrola Australia, which develops, owns and operates renewable energy and batteries.</span></em></p><p class="fine-print"><em><span>Tahlia Nolan is the Commercial Manager Hydrogen at Iberdrola Australia, which develops, owns and operates renewable energy and batteries. </span></em></p>Of all Australia’s climate policies, the Renewable Energy Target has been the most effective. Why have Australian governments moved away from it, and how can they revive it?Tim Nelson, Associate Professor of Economics, Griffith UniversityJoel Gilmore, Associate Professor, Griffith UniversityTahlia Nolan, PhD Candidate, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2035482023-04-12T20:04:00Z2023-04-12T20:04:00ZFarewell Liddell: what to expect when Australia’s oldest coal plant closes<p>After more than five decades, the last operating units of the Liddell coal-fired power station will close this month. The station’s owner, AGL, is Australia’s <a href="https://www.greenpeace.org.au/wp/wp-content/uploads/2021/06/Greenpeace_Coal-Faced-Report_Digital_Edit-June-2021.pdf">largest carbon polluter</a>. Liddell’s closure will reduce the company’s emissions <a href="https://www.agl.com.au/content/dam/digital/agl/documents/about-agl/sustainability/ctap.pdf">by 17%</a>.</p>
<p>Liddell, in the New South Wales Hunter Valley, is Australia’s <a href="https://www.abc.net.au/news/2023-03-05/liddell-coal-fired-power-station-about-to-close-what-comes-next/102027488">oldest coal station</a>. It started operations in the early 1970s – about the same time the Datsun 180B was released, and before the Sydney Opera House officially opened! </p>
<p>In the same way a Datsun 180B was a great car in its day, Liddell was the cheapest and most reliable electricity generation technology in the 1970s and 1980s (at least if you ignore the long-term costs of carbon).</p>
<p>But like all coal-fired power stations in Australia, Liddell’s performance <a href="https://wattclarity.com.au/articles/2023/01/farewell-liddell/">declined</a> as it aged. It became unreliable and inefficient. One unit of the station closed last year, leaving three operating.</p>
<p>Governments must act to make sure our electricity grid doesn’t fall short when coal plants close. But the demise of facilities such as Liddell means Australia has a once-in-a-generation opportunity to become a global energy superpower. </p>
<h2>Life after Liddell</h2>
<p>AGL announced the decision to close Liddell in 2015. Virtually no one in the energy industry argued against the move, but it triggered endless <a href="https://www.theguardian.com/australia-news/2017/dec/10/coalition-mps-attack-agl-decision-to-shut-liddell-coal-power-station">political debate</a>.</p>
<p>Some politicians are still railing against Liddell’s retirement. Federal Nationals leader David Littleproud <a href="https://www.dailytelegraph.com.au/news/nsw/new-energy-minister-penny-sharpe-says-nsw-facing-serious-challenges-on-electricity/news-story/c72fd9f1bd6c15ebae5b4d9f15215741">this week said</a> the closure should be delayed to prevent supply problems, and suggested Australia should have an urgent conversation about building nuclear energy.</p>
<p>But closing Liddell is unlikely to cause the lights to go off in NSW. For now, the state has enough remaining capacity to <a href="https://aemo.com.au/-/media/files/electricity/nem/planning_and_forecasting/nem_esoo/2023/february-2023-update-to-the-2022-esoo.pdf">ensure reliable supply</a>.</p>
<p>In the eight years since the decision to close Liddell, large-scale renewable capacity in NSW has <a href="https://aemo.com.au/en/energy-systems/electricity/national-electricity-market-nem/nem-forecasting-and-planning/forecasting-and-planning-data/generation-information">ramped up</a>, as has new <a href="https://pv-map.apvi.org.au/postcode">rooftop solar</a>. </p>
<p>Plenty of new “firming” capacity is also being developed – that is, flexible energy capacity to be activated if renewables aren’t producing energy or electricity demand suddenly increases. Projects under construction in NSW include the Kurri Kurri and Tallawarra gas-fired power stations, the Waratah “super battery” and the Snowy 2.0 pumped hydro project.</p>
<p>When electricity consumption in NSW is at its highest, about <a href="https://www.energy.nsw.gov.au/sites/default/files/2022-08/2019_11_NSW_ElectricityStrategyDetailed.pdf">14,000 MW</a> of power is required. Without Liddell, about <a href="https://www.aer.gov.au/wholesale-markets/wholesale-statistics/registered-capacity-by-fuel-source-regions">13,500 MW</a> of coal, gas and hydro generation is available. </p>
<p>Add in existing wind and solar capacity, plus energy that can be imported from Victoria and Queensland via transmission lines, and total generation capacity in NSW looks to be more than enough.</p>
<p>However, the reliability of some of this remaining capacity – namely, remaining coal-fired power stations – is becoming less certain. That’s why the energy industry is looking past Liddell, to the closure of the Eraring coal plant in 2025, and others to follow. </p>
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Read more:
<a href="https://theconversation.com/global-coal-use-in-2022-is-reaching-an-all-time-high-but-australia-is-bucking-the-trend-196809">Global coal use in 2022 is reaching an all-time high, but Australia is bucking the trend</a>
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<h2>All eyes on Eraring</h2>
<p>Modelling by the Australian Energy Market Operator shows the closure of Eraring <a href="https://aemo.com.au/-/media/files/electricity/nem/planning_and_forecasting/nem_esoo/2023/february-2023-update-to-the-2022-esoo.pdf">puts pressure</a> on remaining electricity supply. However, it says the market would still meet the grid “reliability standard”, even if no new projects are developed.</p>
<p>Under that standard, expected unserved energy needs (leading to blackouts) should be no more than 0.002% of total energy used in a region. The standard assumes that while the occasional blackout is inconvenient, eliminating them completely is unfeasible because it would require building expensive power stations that are rarely used.</p>
<p>Blackouts could become more common, if extreme weather hits or coal units fail – <a href="https://www.afr.com/companies/energy/still-no-answer-to-catastrophic-failure-at-callide-power-station-20230125-p5cfha">which happened</a> at Queensland’s Callide C power station in 2021. But blackouts are still far more likely to be the result of a <a href="https://www.aemc.gov.au/sites/default/files/2020-03/Reliability%20Standard%20Factsheet.pdf">power line problem in your street</a> than a lack of generation capacity.</p>
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<img alt="sign reading 'Eraring power station'" src="https://images.theconversation.com/files/520434/original/file-20230412-28-ufitvu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/520434/original/file-20230412-28-ufitvu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=386&fit=crop&dpr=1 600w, https://images.theconversation.com/files/520434/original/file-20230412-28-ufitvu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=386&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/520434/original/file-20230412-28-ufitvu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=386&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/520434/original/file-20230412-28-ufitvu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=485&fit=crop&dpr=1 754w, https://images.theconversation.com/files/520434/original/file-20230412-28-ufitvu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=485&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/520434/original/file-20230412-28-ufitvu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=485&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The grid will remain reliable after Eraring shuts down in 2025.</span>
<span class="attribution"><span class="source">Dean Lewins/AAP</span></span>
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<h2>Over to the Minns government</h2>
<p>No electricity supply shortfalls are projected for Australia in the near-term. But to ensure the clean energy transition happens smoothly, we should develop new renewable energy and firming capacity <em>ahead</em> of coal closures.</p>
<p>The earlier-than-expected closure of coal units remains a possibility – as occurred with Victoria’s Hazelwood coal station due to <a href="https://www.abc.net.au/news/2016-12-01/worksafe-notices-detail-extent-of-repairs-needed-at-hazelwood/8082318">unaffordable repair costs</a>. </p>
<p>We have previously <a href="https://theconversation.com/3-key-measures-in-the-suite-of-new-reforms-to-deal-with-australias-energy-crisis-184554">recommended</a> a “waiting room” for capacity that can be brought quickly into the market when required. Batteries and pumped hydro would be developed ahead of coal closures, and brought into the market as soon as coal exits.</p>
<p>The NSW Minns Labor government can also bring forward investment through an existing policy called the NSW Energy Roadmap. This involves asking the Australian Energy Market Operator to enter into <a href="https://www.energyco.nsw.gov.au/industry/long-term-energy-service-agreements">long-term contracts</a> to underwrite new renewable energy and firming projects, to help reduce the financial risks proponents face. </p>
<p>One tender round is already under way, but this could be accelerated. Given the <a href="https://www.iea.org/topics/global-energy-crisis">global energy crunch</a>, it may be worth commissioning projects now, even if delivery is not required until later. This is a much better way to manage reliability than, for example, the NSW government using taxpayer money to <a href="https://reneweconomy.com.au/nsw-labor-may-buy-australias-biggest-coal-generator-to-keep-it-open/">buy Eraring</a> – an option NSW Labor left on the table ahead of last month’s state election.</p>
<p>In the longer term, construction of renewable generation <a href="https://reneweconomy.com.au/boom-cycle-means-82-pct-renewables-target-is-doable-says-regulator/">must dramatically scale up</a> to ensure energy reliability and meet emissions reduction targets. </p>
<p>This will be challenging. But we can take heart from <a href="https://www.smh.com.au/politics/federal/labor-takes-victory-lap-on-clean-energy-after-doubling-the-approval-of-projects-20230406-p5cyoq.html">news this week</a> that under the federal Albanese government, renewables projects are being approved at twice the rate of previous years.</p>
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<h2>A new era</h2>
<p>There’s more work to be done to make sure the electricity grid can withstand coal plant closures. </p>
<p>Many new transmission lines must be built to carry electricity from renewables generators to the grid. And the ongoing development of <a href="https://www.energyco.nsw.gov.au/renewable-energy-zones">renewable energy zones</a> – clusters of large-scale renewable energy projects – will make establishing new projects quicker and simpler. </p>
<p>Importantly, local communities and First Nations people must be engaged and consulted throughout the transition.</p>
<p>But while adjusting to the exit of coal brings challenges, nuclear power in Australia is unlikely to be the answer.</p>
<p>Australia has world-class wind and solar resources – enough to eventually produce clean, cheap energy for ourselves and for export. Technologies such as batteries, hydrogen and hydro will fill the gaps when needed.</p>
<p>Producing energy from emerging nuclear technologies in the form of “small modular reactors”, as proposed by Littleproud, will be still be <a href="https://publications.csiro.au/publications/publication/PIcsiro:EP2022-5511">more than twice the cost</a> of Australian renewable energy firmed by batteries or other storage technologies, even under the most ambitious scenarios. This gives Australia a global competitive advantage.</p>
<p>Liddell’s closure is an historic moment in the Australian energy landscape. Now, with tweaks to existing policies, the new NSW government can increase reliability, lower electricity prices and get on the path to net-zero.</p>
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Read more:
<a href="https://theconversation.com/batteries-wont-cut-it-we-need-solar-thermal-technology-to-get-us-through-the-night-203545">Batteries won't cut it – we need solar thermal technology to get us through the night</a>
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<img src="https://counter.theconversation.com/content/203548/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Joel Gilmore is an Associate Professor at Griffith University and the GM, Policy and Regional Energy at Iberdrola Australia, which develops renewable projects and batteries.</span></em></p><p class="fine-print"><em><span>Tim Nelson is an Associate Professor at Griffith University and the EGM, Energy Markets at Iberdrola Australia, which develops renewable projects and batteries. He is also a Climate Councillor. </span></em></p>Liddell’s closure is an historic moment in the Australian energy landscape. Now, let’s get to net-zero.Joel Gilmore, Associate Professor, Griffith UniversityTim Nelson, Associate Professor of Economics, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1527472021-01-07T01:50:16Z2021-01-07T01:50:16ZHow Australia can phase out coal power while maintaining energy security<p>The end of coal-fired generation in Australia is inevitable.</p>
<p>Zero marginal cost, zero emissions energy is now a reality. Wind and solar are <a href="https://www.bloomberg.com/news/articles/2020-10-19/wind-solar-are-cheapest-power-source-in-most-places-bnef-says">cheaper</a> sources of new electricity than coal in most cases, putting significant pressure on the profitability of the inflexible, ageing coal generators. </p>
<p>The only questions are when coal-fired power stations will close and how well Australia will manage that phasedown.</p>
<p>That’s why we need to talk about the role governments can play to ensure the transition is orderly, maintains energy security, avoids price spikes that have followed past closures, looks after affected workers and communities, and ensures Australia meets its commitment to reduce greenhouse gas emissions by 2030 to <a href="https://www.theguardian.com/australia-news/2021/jan/05/australias-new-climate-pledge-to-un-criticised-for-not-improving-on-2030-target">26-28% below 2005 levels</a>.</p>
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<a href="https://images.theconversation.com/files/377317/original/file-20210106-19-1xdcure.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="alt text" src="https://images.theconversation.com/files/377317/original/file-20210106-19-1xdcure.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/377317/original/file-20210106-19-1xdcure.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=303&fit=crop&dpr=1 600w, https://images.theconversation.com/files/377317/original/file-20210106-19-1xdcure.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=303&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/377317/original/file-20210106-19-1xdcure.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=303&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/377317/original/file-20210106-19-1xdcure.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=381&fit=crop&dpr=1 754w, https://images.theconversation.com/files/377317/original/file-20210106-19-1xdcure.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=381&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/377317/original/file-20210106-19-1xdcure.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=381&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Cost of renewable energy to other sources over the past decade.</span>
<span class="attribution"><span class="source">Lazard, Australian Energy Market Operator</span></span>
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<p>At least halving emissions from coal-fired power stations (which account for about <a href="http://www.cleanenergyregulator.gov.au/NGER/National%20greenhouse%20and%20energy%20reporting%20data/electricity-sector-emissions-and-generation-data/electricity-sector-emissions-and-generation-data-2018-19">90%</a> of electricity sector emissions) by 2030 is an obvious route to achieve Australia’s international commitments. </p>
<p>Given most state governments are already <a href="https://theconversation.com/australias-states-have-been-forced-to-go-it-alone-on-renewable-energy-but-its-a-risky-strategy-151086">committed</a> to forcing renewables into the grid at record pace, that could happen even without federal action. </p>
<p>But continuing down the current path will be unnecessarily costly, and pose significant risks to supply and prices as coal-fired generators exit on sporadic timelines based on their viability. These risks are part of the reason why Australia’s <a href="https://esb-post2025-market-design.aemc.gov.au/32572/1609802925-p2025-january-directions-paper.pdf">Energy Security Board</a> is considering mechanisms that facilitate an orderly transition from coal-fired generation to renewables as one of four priority reform areas.</p>
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Read more:
<a href="https://theconversation.com/unjustifiable-new-report-shows-how-the-nations-gas-expansion-puts-australians-in-harms-way-151199">'Unjustifiable': new report shows how the nation's gas expansion puts Australians in harm’s way</a>
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<p>National leadership and careful policy design are needed to enable coal plant operators to bow out of the market gracefully, and in a manner that secures certainty for investors, consumers, workers and communities.</p>
<h2>Learning from past closures</h2>
<p>Past closures of South Australia’s Northern and Playford B power stations in Port Augusta (in 2016) and Victoria’s Hazelwood power station in the Latrobe Valley (in 2017) illustrate this point.</p>
<p>Price spikes followed the closure of these plants. In the case of Hazelwood, majority owner Engie gave barely five months’ notice of its closure <a href="https://www.engie.com/en/journalists/press-releases/hazelwood-power-station-australia">in March 2017</a>. With Hazelwood, a brown-coal-fired generator accounting for 20% of Victoria’s electricity supply and 5% of national output, the supply ramifications were significant. Victoria’s average electricity prices increased from A$60 to A$100 per megawatt hour (MWh).</p>
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<a href="https://images.theconversation.com/files/377318/original/file-20210106-15-1lb165g.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Alt text" src="https://images.theconversation.com/files/377318/original/file-20210106-15-1lb165g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/377318/original/file-20210106-15-1lb165g.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=297&fit=crop&dpr=1 600w, https://images.theconversation.com/files/377318/original/file-20210106-15-1lb165g.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=297&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/377318/original/file-20210106-15-1lb165g.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=297&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/377318/original/file-20210106-15-1lb165g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=374&fit=crop&dpr=1 754w, https://images.theconversation.com/files/377318/original/file-20210106-15-1lb165g.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=374&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/377318/original/file-20210106-15-1lb165g.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=374&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Impact of Port Augusta and Hazelwood station closures on wholesale electricity price.</span>
<span class="attribution"><span class="source">Australian Energy Regulator</span></span>
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<p>These offer a stark warning to policy makers. The market requires adequate notice of coal-fired generator exits. Greater certainty provides investors with the assurance they need to build enough capacity to replace retiring coal plants, and the infrastructure to connect them to the grid. A haphazard transformation is in no one’s interests.</p>
<h2>A new Coal-Generation Phasedown Mechanism</h2>
<p>We outline a market-based mechanism to achieve just that in a report published by the <a href="https://www.blueprintinstitute.org.au">Blueprint Institute</a>, an Australian think tank established last year to promote rational, pragmatic policy proposals.</p>
<p>The Coalition has generally claimed to oppose market-based mechanisms — such as emissions trading schemes or carbon taxes — to reduce greenhouse gas emissions. But the Abbott government in 2014 introduced an emissions trading scheme alongside its A$2.5 billion Emissions Reduction Fund, a mechanism the Morrison government rebadged in 2019 as the <a href="https://theconversation.com/the-governments-2bn-climate-fund-a-rebadged-rehash-of-old-mistakes-112412">Climate Solutions Fund</a>. A “Safeguard Mechanism” sets emissions caps for the country’s highest-emitting businesses, with emissions permits tradeable on the open market.</p>
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<a href="https://theconversation.com/australias-new-cap-on-emissions-is-a-trading-scheme-in-all-but-name-47035">Australia's new cap on emissions is a trading scheme in all but name</a>
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<p>To facilitate the orderly phasedown of coal-fired electricity generation, we propose a “Coal-Generation Phasedown Mechanism” (CPM), leveraging the Safeguard Mechanism to establish sector emissions targets — for 2026, 2028 and beyond 2030.</p>
<p>A key component of the CPM is the use of auctions to achieve withdrawals of coal generation from the electricity market. Auctions are commonplace in commercial and government contexts. The federal government has long used auctions to allocate telecommunications spectrum, for example, and the Emissions Reduction Fund uses reverse auctions to buy the most cost-effective emissions abatement.</p>
<p>The CPM would set emissions targets to phase down coal-fired generation to halve current emissions by 2030. Under a well-designed auction system, the least profitable coal generators would withdraw from the market first, ensuring emissions reductions occur at minimum cost.</p>
<p>One possible scenario is shown in the graph below. Example generators have been chosen based on their operating costs and approximate remaining life. Those with higher costs and a shorter remaining life have greater incentives to bid for earlier exits.</p>
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<a href="https://images.theconversation.com/files/377319/original/file-20210106-17-mf7ytx.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="alt text" src="https://images.theconversation.com/files/377319/original/file-20210106-17-mf7ytx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/377319/original/file-20210106-17-mf7ytx.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=289&fit=crop&dpr=1 600w, https://images.theconversation.com/files/377319/original/file-20210106-17-mf7ytx.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=289&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/377319/original/file-20210106-17-mf7ytx.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=289&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/377319/original/file-20210106-17-mf7ytx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=363&fit=crop&dpr=1 754w, https://images.theconversation.com/files/377319/original/file-20210106-17-mf7ytx.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=363&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/377319/original/file-20210106-17-mf7ytx.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=363&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">A scenario showing how the CPM could reduce coal-fired generation to 2030.</span>
<span class="attribution"><span class="source">source</span></span>
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<p>The CPM should also be designed to ensure financial support for affected workers. This could be in the form of redeployment, retraining opportunities or generous remuneration in the case of retrenchment. </p>
<h2>Who should pay?</h2>
<p>A phasedown of coal-fired generation will come at a cost to someone — either taxpayers or investors in coal-fired generation. This cost can be made larger or smaller. It can be hidden from view. But it cannot be avoided. The proper role for government is to minimise and fairly distribute those costs. </p>
<p>We can’t predict exactly how much the phasedown will cost, because that depends on information known only to the generators. But a market-based mechanism is sure to minimise those costs.</p>
<p>The CPM can be designed to ensure the least viable plants close first. How much money generators receive to close or pay to stay open is an entirely separate question. The CPM can be designed to accommodate any financial commitment by taxpayers.</p>
<p>At one extreme, the federal government could pay generators to close by fully compensating auction participants for the loss of future profits, as has been adopted in <a href="https://www.reuters.com/article/us-germany-coal-auctions-idUSKCN2501DQ">Germany</a>. But this would likely require a federal funding commitment significantly larger than under the existing Emissions Reduction Fund, which might make it politically unpalatable.</p>
<p>At the other extreme, the government could charge operators for the right to stay open. One significant advantage of this option is it would raise revenue that could then be used to support directly affected communities. This could be modelled on Western Australia’s “Royalties for Regions” program, which allocates a quarter of the state’s mining and petroleum royalties to programs benefiting regional and rural areas. </p>
<p>A funding allocation between these two extremes is also possible, decided through government negotiation with the industry.</p>
<p>Ultimately, the question of who pays is a political decision. But political difficulties shouldn’t be used as an excuse for delay. The economic rationale for the CPM stacks up either way. </p>
<p>We must avoid another Hazelwood or Port Augusta, and coordinate an orderly grid transformation that provides certainty to communities, workers, investors, and consumers alike.</p><img src="https://counter.theconversation.com/content/152747/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Daniel D'Hotman is director of research and operations at Blueprint Institute.</span></em></p><p class="fine-print"><em><span>Steven Hamilton is chief economist at Blueprint Institute.
Both authors wish to acknowledge the contribution of Blueprint Institute economics and policy researchers Emma Beal, Luke Heeney and Josh Steinert to this article.</span></em></p>The end of coal-fired generation in Australia is inevitable. But the federal government can do more to ensure an orderly transition to renewables – avoiding price spikes and supporting workers.Daniel D'Hotman, DPhil Candidate, University of OxfordSteven Hamilton, Visiting Fellow, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1464052020-09-17T11:33:50Z2020-09-17T11:33:50ZGrattan on Friday: Morrison signs up to the gas gospel, but the choir is not in tune<p>If Labor were threatening to build a power station, the Liberals would likely be screaming “socialists”.</p>
<p>As for a Coalition government contemplating such a thing — well, to say the obvious, it hardly fits with the Liberals’ stated free market, private enterprise philosophy. But hey, neither does the hyper-Keynesian support package to cushion the economy through the pandemic.</p>
<p>Only a few within its own ranks would dispute the government’s COVID mega spending, whatever the ideological contradiction. And they’re keeping their voices to private whispers.</p>
<p>The gas power plant is another matter, and it will be fascinating to see how the debate plays out if the threat turns into reality.</p>
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Read more:
<a href="https://theconversation.com/morrison-government-threatens-to-use-snowy-hydro-to-build-gas-generator-as-it-outlines-gas-fired-recovery-plan-146154">Morrison government threatens to use Snowy Hydro to build gas generator, as it outlines 'gas-fired recovery' plan</a>
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<p>The threat is part of the go-with-gas policy unveiled by Scott Morrison this week, spruiked as driving a “gas-fired” recovery, especially for manufacturing. This sounds suspiciously like a three word slogan that promises more than it is likely to deliver.</p>
<p>But Morrison has signed up to the church of gas, whose pastors include Nev Power, chairman of the prime minister’s COVID-19 commission and Andrew Liveris, the head of its (now defunct) manufacturing taskforce, which delivered a pro-gas report. Morrison this week referenced his discussions with Liveris at Kirribilli House.</p>
<p>Much of the gas plan is broad and aspirational at this stage. But the threat is specific enough, and Morrison adopted a grim, school teacher tone when he delivered it in his speech at Newcastle unveiling the policy.</p>
<p>He said the electricity sector must lock in by April investments to deliver 1,000 megawatts of new dispatchable energy to replace the Liddell coal-fired power station before it closes in 2023. Or else. The government-owned Snowy Hydro was working on options, Morrison said.</p>
<p>Going back to Malcolm Turnbull’s time, the government conducted — and lost — a bitter battle with AGL over the planned Liddell closure. It exerted maximum pressure on the company to extend the life of the station, or alternatively, sell it, but to no avail.</p>
<p>The gas policy, especially the threat, hasn’t gone down well — with the energy sector or environmentalists. And it’s come under criticism from experts and even within Coalition ranks.</p>
<p>The Australian Energy Council, representing investors and generators, warned the spectre of a government gas generator could put off private investors.</p>
<p>Environmentalists are against gas anyway, whoever produces it, because it is a fossil fuel and therefore has emissions, albeit not as bad as coal.</p>
<p>The Nationals Matt Canavan, who not so long ago was resources minister, says if a new power station is to be built in the Hunter region it should be coal-fired.</p>
<p>And the director of the Grattan Institute’s energy program, Tony Wood, says the government’s claim that 1000 megawatts of new dispatchable capacity is needed isn’t supported by the advice from its own Liddell taskforce.</p>
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Read more:
<a href="https://theconversation.com/politics-with-michelle-grattan-angus-taylor-on-the-gas-fired-recovery-146328">Politics with Michelle Grattan: Angus Taylor on the 'gas-fired' recovery</a>
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<p>More generally, Wood argues the idea of a gas–led recovery “is a mirage”.</p>
<p>He says east coast gas prices are unlikely to fall to very low levels and anyway, even very low prices would not stimulate major economic activity. “Investing in more gas infrastructure in the face of climate change looks more like a herd of stampeding white elephants,” is Wood’s blunt assessment.</p>
<p>“Gas is very likely to have a role for some time to balance solar and wind. This role will be important but diminishing in volume and the pace of change will be determined by the relative economics of gas versus storage technologies and hydrogen.”</p>
<p>Some see the government’s big takeup of gas as a way of walking away from coal, without fanfare. The government denies this, but it would fit with Morrison’s middle-course pragmatism.</p>
<p>That pragmatism is reflected in the week’s other major energy announcement, for $1.9 billion investment in new and emerging technologies to lower emissions.</p>
<p>Morrison explicitly spelled out the government’s view that renewables, notably solar and wind, have boomed commercially and can take care of themselves.</p>
<p>The policy looks both backwards and forwards.</p>
<p>Backwards, with its support for carbon capture and storage (CCS) which — leaving aside its problems as a technology — is an encouragement to fossil fuels.</p>
<p>Forwards, by extending support to a wide range of technologies of the future.</p>
<p>Critics don’t like the proposed expansion of the remit of the Australian Renewable Energy Agency (ARENA) and the Clean Energy Finance Corporation (CEFC) beyond supporting renewables.</p>
<p>If the government can get the legislation through the Senate, these bodies would be able to back a wide range of projects, including CCS.</p>
<p>The government is also clinging to its Emissions Reduction Fund, which has had trouble attracting proposals. It plans to reform the fund’s processes.</p>
<p>Taken as a whole and leaving aside the arguments about their efficacy, this week’s decisions have a clear political element. They are relatively risk averse within the Coalition, the threatened power plant notwithstanding.</p>
<p>Energy has been such a fraught area for the government that Morrison is very aware of juggling the conflicting forces within his ranks.</p>
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Read more:
<a href="https://theconversation.com/government-targets-emerging-technologies-with-1-9-billion-saying-renewables-can-stand-on-own-feet-146327">Government targets emerging technologies with $1.9 billion, saying renewables can stand on own feet</a>
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<p>The internal coal lobby, spearheaded by Canavan but wider than him, will continue to mutter. The crunch will come when the government’s feasibility study for a Queensland coal-fired power station is finished. But putting gas at the centre of the picture will reassure some in the Coalition who remain deeply suspicious of renewables.</p>
<p>The Liberals in seats where climate change is a big preoccupation may or may not find enough to sell in this week’s packages. They can emphasise the “transition” nature of gas — Morrison described it as “a stable transition fuel” — and talk up the support for emerging technologies.</p>
<p>But they will confront the counter argument that the government is not doing enough or proceeding fast enough on climate change.</p>
<p>Meanwhile, Labor struggles with its own energy and climate policies, which caused it such problems last election, when it had dual or confusing messaging in the country’s south and north and lacked costings.</p>
<p>Post election, the spectrum of Labor thinking on these issues has been exposed, and resources spokesman Joel Fitzgibbon, who takes many of his cues from his NSW coal seat of Hunter, frequently speaks out.</p>
<p>Like Morrison, on energy and climate policy Anthony Albanese will be seeking to position himself somewhere in the middle ground for the election. He’ll look to being to the left of the PM — but not way out on a limb.</p><img src="https://counter.theconversation.com/content/146405/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Building a new power plant hardly fits in with the Coalition’s free market philosophy, but then again neither does a massive support package to cushion the economy through a pandemic.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/946512018-04-09T06:55:44Z2018-04-09T06:55:44ZAGL’s plan to replace Liddell is cheaper and cleaner than keeping it open<p>The Commonwealth government <a href="https://www.theguardian.com/australia-news/2018/apr/08/josh-frydenberg-lobbies-agl-board-to-force-liddell-power-plant-sale">called</a> last week for AGL Energy to consider selling its Liddell power station to rival Alinta. </p>
<p>Federal Energy Minister Josh Frydenberg has raised concerns that the scheduled 2022 shutdown of Liddell will affect New South Wales’ energy reliability. It’s suggested the sale would provide a way to keep the ageing power station open past the end of its normal 50-year operating life.</p>
<p>However, AGL responded to <a href="https://www.aemo.com.au/-/media/Files/Electricity/NEM/Planning_and_Forecasting/NEM_ESOO/2016/v2/2016-Electricity-Statement-of-Opportunities-Report_V2.pdf">government concerns</a> in December 2017 by releasing a replacement plan. Liddell’s theoretical maximum output is 1,800 megawatts (MW), but the firm capacity – the power that can be relied upon at peak time – is 1,000 MW. AGL is confident this can be replaced by a mix of improved efficiency, renewables and demand response. </p>
<h2>AGL’s proposal unpacked</h2>
<p>Late last year, in response to the Commonwealth government’s pressure, AGL updated its <a href="https://www.agl.com.au/-/media/AGL/About-AGL/Documents/Media-Center/ASX-and-Media-Releases/2017/171209NSWGenerationPlanDecember2017.pdf?la=en&hash=529E1A89370A33DA8F378D761CEEF1D919C9C91D">Liddell replacement plan</a>. The updated plan includes generator efficiency upgrades, new natural gas and renewable energy generation capacity, and demand response.</p>
<p>This plan builds on the planned 2022 closure of the Liddell station. Phased investments in new, low-emissions generation and upgrades to existing generation will replace the 1,000 MW of coal-fired power by: </p>
<ul>
<li>increasing the capacity of AGL’s nearby Bayswater coal-fired power station by 100MW<br></li>
<li>installing 750MW of high-efficiency gas power (at potential sites in Newcastle and/or elsewhere in NSW)</li>
<li>adding 1,600MW of new renewable generation capacity (wind and solar farms)</li>
<li>providing 100MW of firm capacity from demand response and 250MW from battery storage.</li>
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<p>The replacement portfolio is split into three stages. The first aims for 550MW of new generation: 300MW from two solar power plants, to be built by third-party developers, and 250MW from a new gas peaking power station located at Newcastle (or other suitable sites in NSW). </p>
<p>Further, AGL has already approved 650MW of wind projects. The Bayswater efficiency upgrade will add 100MW to the capacity without burning any additional coal. </p>
<p>This, along with the 20MW of demand response, will provide the “firm capacity” required to meet existing customer needs, in line with the federal <a href="https://theconversation.com/infographic-the-national-energy-guarantee-at-a-glance-85832">National Energy Guarantee</a>. The “firm capacity factor” is the proportion of the installed capacity (the theoretical maximum) that can be relied upon to be available at peak time. </p>
<p>The next two stages will progressively add new capacity from renewables, battery storage and demand response to meet the energy needs of AGL’s potential uncontracted customers. Stage 2 and Stage 3 feasibility is expected to start by 2020 and 2021 respectively, for a 2022 delivery.</p>
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<h2>AGL is relying on the market</h2>
<p>AGL’s Liddell replacement plan is designed to provide an equivalent amount of energy and dispatchable power at a similar level of reliability. </p>
<p>The plan’s total investment of A$1.36 billion is more than the A$920 million estimate of the <a href="https://www.agl.com.au/-/media/AGL/About-AGL/Documents/Media-Center/ASX-and-Media-Releases/2017/171209NSWGenerationPlanDecember2017.pdf?la=en&hash=529E1A89370A33DA8F378D761CEEF1D919C9C91D">2027 Liddell extension plan</a>, but once operating and fuel costs are included the average cost of replacement generation is more affordable at A$83 per megawatt hour (MWh), compared with extending the life of Liddell at A$106 per MWh. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/213798/original/file-20180409-114109-oinjlb.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/213798/original/file-20180409-114109-oinjlb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/213798/original/file-20180409-114109-oinjlb.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=495&fit=crop&dpr=1 600w, https://images.theconversation.com/files/213798/original/file-20180409-114109-oinjlb.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=495&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/213798/original/file-20180409-114109-oinjlb.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=495&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/213798/original/file-20180409-114109-oinjlb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=623&fit=crop&dpr=1 754w, https://images.theconversation.com/files/213798/original/file-20180409-114109-oinjlb.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=623&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/213798/original/file-20180409-114109-oinjlb.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=623&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Levelised cost of energy based on information sourced by AGL including: the capital cost of the Liddell life extension works as advised by Worley Parsons (Advisian). AGL’s discount rate in line with their commercial target returns. Westpac Banking Corporation’s forecast of the Newcastle coal price discounted based on the lower calorific value required for power station coal. A carbon emissions cost has been included as per AEMO’s ‘moderate’ 2015 scenario.</span>
<span class="attribution"><a class="source" href="https://www.agl.com.au/-/media/AGL/About-AGL/Documents/Media-Center/ASX-and-Media-Releases/2017/171209NSWGenerationPlanDecember2017.pdf?la=en&hash=529E1A89370A33DA8F378D761CEEF1D919C9C91D">AGL's NSW Generation Plan</a></span>
</figcaption>
</figure>
<p>Though the replacement plan has an installed capacity of 2,900MW, it accounts for a firm capacity of 1,000MW. </p>
<p>The <a href="https://www.aemo.com.au/-/media/Files/Media_Centre/2018/Liddell-Advice_Final_.pdf">Australian Energy Market Operator</a> has endorsed AGL’s Liddell replacement plan. It said the plan provides more than enough energy and capacity to meet the potential shortfall created by the closure if AGL completes all three stages by the 2022 deadline. </p>
<p>Some of this plan is already under way, as the AGL board has approved the upgrades at Bayswater and Liddell and the new solar and wind power plants. However, the next two stages are dependent on market signals and investments other companies make in new resources. </p>
<p>If stages 2 and 3 of AGL’s plan are not undertaken in time and other market players do not invest, there could be a reliability gap that results in supply interruptions. While this is unlikely to occur, this is exactly the type of problem that the government’s National Energy Guarantee is supposed to fix. The guarantee envisions that retailers carry the responsibility of meeting the required amount for dispatchable energy. Failure to do so would invite financial penalties, with the energy market operator stepping in as the procurer of last resort. </p>
<p>However, AGL has proposed an adequate plan to meet the gap that the Liddell closure would create. It’s ultimately improbable that regulator intervention will be needed. </p>
<p>That said, AGL’s plan is not necessarily the best plan. There are other lower-emission options that are more cost-effective. </p>
<p>A <a href="https://www.uts.edu.au/sites/default/files/article/downloads/Beyond%20Coal-%20Alternatives%20to%20Extending%20Liddell%20Power%20Station%20%28FINAL%29%20Nov%202017.pdf">study</a> by the Institute for Sustainable Futures (which I have contributed to) proposes a third “clean energy package”, including renewable energy, energy efficiency, energy storage, demand response and flexible pricing. Rather than selling Liddell, if the Commonwealth is looking for low-cost and reliable solutions, this is the approach it should be pursuing.</p><img src="https://counter.theconversation.com/content/94651/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The Institute for Sustainable Futures undertakes paid sustainability research for a wide range of government, corporate and NGO clients. </span></em></p>Government pressure on AGL to keep its Liddell power plant open past 2022 ignores the sensible, cost-effective plan to replace it.Kriti Nagrath, Senior Research Consultant, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/844332017-09-27T01:07:23Z2017-09-27T01:07:23ZRenewables will be cheaper than coal in the future. Here are the numbers<p>In a recent Conversation FactCheck I examined the question: “<a href="https://theconversation.com/factcheck-qanda-is-coal-still-cheaper-than-renewables-as-an-energy-source-81263">Is coal still cheaper than renewables as an energy source?</a>” In that article, we assessed how things stand today. Now let’s look to the future.</p>
<p>In Australia, <a href="https://www.environment.gov.au/system/files/resources/97a4f50c-24ac-4fe5-b3e5-5f93066543a4/files/independent-review-national-elec-market-prelim.pdf">87%</a> of our electricity generation comes from fossil fuels. That’s one of the highest levels of fossil fuel generation <a href="https://www.energycouncil.com.au/media/1318/2016-06-23_aec-renewables-fact-sheet.pdf">in the world</a>.</p>
<p>So we have important decisions to make about how we’ll generate energy as Australia’s fleet of coal-fired power stations <a href="https://theconversation.com/the-true-cost-of-keeping-the-liddell-power-plant-open-83634">reach the end of their operating lives</a>, and as we move to decarbonise the economy to meet our climate goals following the <a href="http://www.environment.gov.au/climate-change/international/paris-agreement">Paris agreement</a>.</p>
<p>What will the cost of coal-fired and renewable energy be in the coming decades? Let’s look at the numbers.</p>
<h2>Improvements in technology will make renewables cheaper</h2>
<p>As technology and economies of scale improve over time, the initial capital cost of building an energy generator decreases. This is known as the “learning rate”. Improvements in technology are expected to reduce the price of renewables more so than coal in coming years.</p>
<p>The chart below, <a href="https://www.environment.gov.au/system/files/resources/1d6b0464-6162-4223-ac08-3395a6b1c7fa/files/emissions-mitigation-policies.pdf">produced</a> by consulting firm Jacobs Group and published in the recent <a href="http://www.environment.gov.au/energy/national-electricity-market-review">Finkel review of the National Electricity Market</a>, shows the projected <a href="https://en.wikipedia.org/wiki/Cost_of_electricity_by_source">levelised cost of electricity</a> (LCOE) for a range of technologies in 2020, 2030 and 2050.</p>
<p>The chart shows a significant reduction in the cost of solar and wind, and a relatively static cost for mature technologies such as coal and gas. It also shows that large-scale solar photovoltaic (PV) generation, with a faster learning rate, is projected to be cheaper than wind generation from around 2020.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/179968/original/file-20170727-8486-4pt9x.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/179968/original/file-20170727-8486-4pt9x.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/179968/original/file-20170727-8486-4pt9x.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=363&fit=crop&dpr=1 600w, https://images.theconversation.com/files/179968/original/file-20170727-8486-4pt9x.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=363&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/179968/original/file-20170727-8486-4pt9x.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=363&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/179968/original/file-20170727-8486-4pt9x.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=456&fit=crop&dpr=1 754w, https://images.theconversation.com/files/179968/original/file-20170727-8486-4pt9x.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=456&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/179968/original/file-20170727-8486-4pt9x.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=456&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Notes: Numbers in Figure A.1 refer to the average.
For each generation technology shown in the chart, the range shows the lowest cost to the highest cost project available in Jacobs’ model, based on the input assumptions in the relevant year. The average is the average cost across the range of projects; it may not be the midpoint between the highest and lowest cost project.
Large-scale Solar Photovoltaic includes fixed plate, single and double axis tracking.
Large-scale Solar Photovoltaic with storage includes 3 hours storage at 100 per cent capacity.
Solar Thermal with storage includes 12 hours storage at 100 per cent capacity.
Cost of capital assumptions are consistent with those used in policy cases, that is, without the risk premium applied.
The assumptions for the electricity modelling were finalised in February 2017 and do not take into account recent reductions in technology costs (e.g. recent wind farm announcements).</span>
<span class="attribution"><a class="source" href="http://www.environment.gov.au/system/files/resources/1d6b0464-6162-4223-ac08-3395a6b1c7fa/files/electricity-market-review-final-report.pdf">Independent Review into the Future Security of the National Electricity Market</a></span>
</figcaption>
</figure>
<p>Wind prices are already falling rapidly. For example: the graph above shows the 2020 price for wind at A$92 per megawatt-hour (MWh). But when the assumptions for the electricity modelling were finalised in February 2017, that price was already out of date.</p>
<p>In its <a href="http://www.environment.act.gov.au/__data/assets/pdf_file/0006/918528/200-MW-Next-generation-Renewable-Factsheet.pdf">2016 Next Generation Renewables Auction</a>, the Australian Capital Territory government secured a fixed price for wind of <a href="http://www.environment.act.gov.au/__data/assets/pdf_file/0006/918528/200-MW-Next-generation-Renewable-Factsheet.pdf">A$73 per MWh</a> over 20 years (or A$56 per MWh in constant dollars at 3% inflation).</p>
<p>In May 2017, the <a href="https://www.originenergy.com.au/about/investors-media/media-centre/origin-adds-530mw-of-renewable-energy-to-its-portfolio.html">Victorian renewable energy auction</a> set a record low fixed price for wind of <a href="http://reneweconomy.com.au/origin-stuns-industry-with-record-low-price-for-530mw-wind-farm-70946/">A$50-60 per MWh</a> over 12 years (or A$43-51 per MWh in constant dollars at 3% inflation). This is below the AGL price for electricity from the <a href="http://reneweconomy.com.au/origin-stuns-industry-with-record-low-price-for-530mw-wind-farm-70946/">Silverton wind farm of $65 per MWh fixed over five years</a>.</p>
<p>These long-term renewable contracts are similar to a LCOE, because they extend over a large fraction of the lifetime of the wind farm.</p>
<p>The tables and graph below show a selection of renewable energy long-term contract prices across Australia in recent years, and illustrate a gradual decline in wind energy auction results (in constant 2016 dollars), consistent with improvements in technology and economies of scale. </p>
<p><iframe id="R1bBY" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/R1bBY/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
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<p>But this analysis is still based on LCOE comparisons – or what it would cost to use these technologies for a simple “plug and play” replacement of an old generator. </p>
<p>Now let’s price in the cost of changes needed to the entire electricity network to support the use of renewables, and to price in other factors, such as climate change.</p>
<h2>Carbon pricing will increase the cost of coal-fired power</h2>
<p>The economic, environmental and social costs of greenhouse gas emissions are not included in simple electricity cost calculations, such as the LCOE analysis above. Neither are the costs of other factors, such as the health effects of air particle pollution, or deaths arising from coal mining.</p>
<p>The risk of the possible introduction of carbon emissions mitigation policies can be <em>indirectly</em> factored into the LCOE of coal-fired power through higher rates for the <a href="https://en.wikipedia.org/wiki/Weighted_average_cost_of_capital">weighted average cost of capital</a> (in other words, higher interest rates for loans).</p>
<p>The <a href="https://www.environment.gov.au/system/files/resources/1d6b0464-6162-4223-ac08-3395a6b1c7fa/files/emissions-mitigation-policies.pdf">Jacobs report</a> to the <a href="http://www.environment.gov.au/energy/national-electricity-market-review">Finkel Review</a> estimates that the weighted average cost of capital for coal will be 15%, compared with 7% for renewables.</p>
<p>The cost of greenhouse gas emissions can be incorporated more directly into energy prices by putting a price on carbon. Many economists maintain that carbon pricing is the most <a href="http://www.oecd.org/env/tools-evaluation/effective-carbon-prices-9789264196964-en.htm">cost-effective way</a> to reduce global carbon emissions.</p>
<p>One megawatt-hour of coal-fired electricity creates approximately <a href="http://www.environment.gov.au/energy/national-electricity-market-review">one tonne of carbon dioxide</a>. So even a <a href="http://carbonpricemodelling.treasury.gov.au/content/report/04overview.asp">conservative carbon price</a> of around A$20 per tonne would increase the levelised cost of coal generation by around A$20 per MWh, putting it at almost A$100 per MWh in 2020.</p>
<p>According to the <a href="https://www.environment.gov.au/system/files/resources/1d6b0464-6162-4223-ac08-3395a6b1c7fa/files/emissions-mitigation-policies.pdf">Jacobs analysis</a>, this would make both wind and large-scale photovoltaics – at A$92 and A$91 per MWh, respectively – cheaper than any fossil fuel source from the year 2020.</p>
<p>It’s worth noting here the ultimate inevitability of a price signal on carbon, even if Australia continues to resist the idea of implementing a simple carbon price. Other policies currently under consideration, including some form of a <a href="https://theconversation.com/finkels-clean-energy-target-plan-better-than-nothing-economists-poll-82066">clean energy target</a>, would put similar upward price pressure on coal relative to renewables, while the global move towards carbon pricing will eventually see Australia follow suit or risk imposts on its carbon-exposed exports.</p>
<h2>Australia’s grid needs an upgrade</h2>
<p>Renewable energy (excluding hydro power) accounted for <a href="https://www.environment.gov.au/system/files/resources/97a4f50c-24ac-4fe5-b3e5-5f93066543a4/files/independent-review-national-elec-market-prelim.pdf">around 6%</a> of Australia’s energy supply in the 2015-16 financial year. Once renewable energy exceeds say, 50%, of Australia’s total energy supply, the LCOE for renewables should be used with caution.</p>
<p>This is because most renewable energy – like that generated by wind and solar – is intermittent, and needs to be “balanced” (or backed up) in order to be reliable. This <a href="http://www.environment.gov.au/energy/national-electricity-market-review">requires investment in energy storage</a>. We also need more transmission lines within the electricity grid to ensure ready access to renewable energy and storage in different regions, which increases transmission costs.</p>
<p>And, there are additional engineering requirements, like building “<a href="https://theconversation.com/relying-on-renewables-need-not-mean-dealing-with-blackouts-28635">inertia</a>” into the electricity system to maintain voltage and frequency stability. Each additional requirement increases the cost of electricity beyond the levelised cost. But by how much?</p>
<p>Australian National University researchers calculated that the addition of <a href="https://theconversation.com/want-energy-storage-here-are-22-000-sites-for-pumped-hydro-across-australia-84275">pumped-hydro storage</a> and extra network construction would add a levelised cost of <em>balancing</em> of <a href="http://www.sciencedirect.com/science/article/pii/S0360544217309568?via%3Dihub">A$25-30 per MWh</a> to the levelised cost of renewable electricity.</p>
<p>The researchers predicted that eventually a future 100% renewable energy system would have a levelised cost of <em>generation</em> in current dollars of around A$50 per MWh, to which adding the levelised cost of <em>balancing</em> would yield a network-adjusted LCOE of around A$75-80 per MWh.</p>
<p>The Australian National University result is similar to the <a href="https://www.environment.gov.au/system/files/resources/1d6b0464-6162-4223-ac08-3395a6b1c7fa/files/emissions-mitigation-policies.pdf">Jacobs 2050 LCOE prediction</a> for large-scale solar photovoltaic plus pumped hydro of around A$69 per MWh, which doesn’t include extra network costs.</p>
<p>The <a href="https://www.environment.gov.au/system/files/resources/d67797b7-d563-427f-84eb-c3bb69e34073/files/100-percent-renewables-study-modelling-outcomes-report.pdf">AEMO 100% Renewables Study</a> indicated that this would add another A$6-10 per MWh, yielding a comparable total in the range A$75-79 per MWh.</p>
<p>This would make a 100% renewables system competitive with new-build supercritical (ultrasupercritical) coal, which, according to the Jacobs calculations in the chart above, would come in at around A$75(80) per MWh between 2020 and 2050.</p>
<p>This projection for supercritical coal is consistent with other studies by the <a href="http://www.co2crc.com.au/wp-content/uploads/2016/04/LCOE_Report_final_web.pdf">CO2CRC in 2015</a> (A$80 per MWh) and used by <a href="https://www.csiro.au/en/Do-business/Futures/Reports/Low-Emissions-Technology-Roadmap">CSIRO in 2017</a> (A$65-80 per MWh).</p>
<h2>So, what’s the bottom line?</h2>
<p>By the time renewables dominate electricity supply in Australia, it’s highly likely that a price on carbon will have been introduced. A conservative carbon price of at least A$20 per tonne would put coal in the A$100-plus bracket for a megawatt-hour of electricity. A completely renewable electricity system, at A$75-80 per MWh, would then be more affordable than coal economically, and more desirable environmentally.</p><img src="https://counter.theconversation.com/content/84433/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ken Baldwin receives funding from the Australian Research Council.</span></em></p>The price of renewable energy will fall significantly relative to new-build coal in coming decades, making an all-renewable electricity system more desirable, both economically and environmentally.Ken Baldwin, Director, Energy Change Institute, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/847012017-09-26T20:07:05Z2017-09-26T20:07:05ZTo avoid crisis, the gas market needs a steady steer, not an emergency swerve<p>Rising gas costs are “<a href="http://www.smh.com.au/federal-politics/political-news/gas-crisis-three-times-bigger-than-thought-turnbull-says-20170925-gyo418.html">the single biggest factor in the current rise in electricity prices</a>”.</p>
<p>What is most noteworthy about this statement is not the fact that it is <a href="http://www.tai.org.au/content/gas-exports-and-latest-electricity-price-hikes-audit-electricity-update">true</a>, but that it was made by Prime Minister Malcolm Turnbull, many of whose party colleagues remain <a href="http://www.abc.net.au/news/2017-07-13/renewable-energy-killing-people-this-winter,-liberal-mp-says/8703836">convinced that renewable energy is the real bogeyman</a>.</p>
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Read more:
<a href="https://theconversation.com/big-gas-shortage-looming-but-government-stays-hand-on-export-controls-84610">Big gas shortage looming, but government stays hand on export controls</a>
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<p>Turnbull’s comments were made in response to a <a href="https://www.aemo.com.au/Gas/National-planning-and-forecasting/Gas-Statement-of-Opportunities">report released this week</a> by the Australian Energy Market Operator (AEMO), which yet again warns of impending gas shortages. </p>
<p>I argue below that renewables are a solution to the problem, rather than its cause. But first, is there actually a gas crisis?</p>
<h2>A gas crisis?</h2>
<p>Although AEMO has predicted a potential gas shortfall for the east coast, there is <a href="https://theconversation.com/we-dont-have-a-gas-shortfall-worth-worrying-about-77857">no shortage of gas</a>. Unprecedented amounts are being produced and exported as liquified natural gas (LNG) from terminals in Queensland, while at the same time the domestic market is being starved, driving prices sky-high. </p>
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Read more:
<a href="https://theconversation.com/memo-to-coag-australia-is-already-awash-with-gas-80960">Memo to COAG: Australia is already awash with gas</a>
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<p>Without government action there could indeed be a domestic shortfall next year, but the government has already set in place a system of <a href="https://industry.gov.au/resource/UpstreamPetroleum/AustralianLiquefiedNaturalGas/Pages/Australian-Domestic-Gas-Security-Mechanism.aspx">export restrictions</a> to ensure domestic supply. These restrictions have not yet been invoked, but the crisis for the government is that they may have to be, and the decision must be made before November 30.</p>
<p>Emergency export restrictions are an intervention of last resort for a governing party built on free-market principles. They are necessary because the government has failed to champion a longer-term and less interventionist strategy, such as the reservation of a certain percentage of gas produced from new gas fields for domestic use. <a href="http://www.jtsi.wa.gov.au/what-we-do/advise-on-economic-policy/domestic-gas-policy">Western Australia</a> has had a policy of 15% reservation for many years and other states are following suit.</p>
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Read more:
<a href="https://theconversation.com/our-power-grid-is-crying-out-for-capacity-but-should-we-open-the-gas-valves-72355">Our power grid is crying out for capacity, but should we open the gas valves?</a>
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<p>Not only is there plenty of gas being produced, but it would be relatively painless to divert some of it to the domestic market. AEMO notes several times in its report that producers have some flexibility in where they send their gas. In particular, a significant proportion of the exported gas is not under long-term contract but is destined for the overseas <a href="https://theconversation.com/baffled-by-baseload-dumbfounded-by-dispatchables-heres-a-glossary-of-the-energy-debate-84212">spot market</a>, where surplus energy is traded for immediate delivery. This gas could easily be diverted to the east coast market. </p>
<p>On current projections, <a href="https://www.accc.gov.au/media-release/interim-gas-report-finds-substantial-shortfall-for-east-coast-likely-in-2018">63.4 petajoules</a> of gas is destined for the spot market in 2018. To put this in context, the <a href="https://www.aemo.com.au/Gas/National-planning-and-forecasting/Gas-Statement-of-Opportunities">projected shortfall is 54PJ in 2018 and 48PJ in 2019</a>. In other words, the uncontracted gas destined for the spot market is more than enough to make up the expected shortfall.</p>
<p>Turnbull is also arguing that the potential shortage is due to state bans on gas exploration and production. However, the <a href="https://theconversation.com/memo-to-coag-australia-is-already-awash-with-gas-80960">production costs</a> associated with as-yet-untapped reserves and resources in those states are much higher than for Queensland. Thus, even in the absence of bans it would still make sense to target untapped Queensland resources first.</p>
<h2>Moving the gas south</h2>
<p>The extra gas released in Queensland for domestic use would need to be transported to the southern states by pipelines that are already close to capacity. This is a potential problem. However, it could be resolved by means of “gas swaps”. </p>
<p>Gas produced in the southern states that has been contracted for sale through the Queensland terminals could be swapped for gas released by Queensland producers for distribution to the southern states. This would avoid bottlenecks and gas transportation costs.</p>
<p>In the longer term, the problem could be solved by <a href="https://www.accc.gov.au/media-release/interim-gas-report-finds-substantial-shortfall-for-east-coast-likely-in-2018">AGL’s proposal</a> to establish a liquid natural gas (LNG) import terminal (a <a href="http://www.theaustralian.com.au/business/mining-energy/agl-gas-import-terminal-plan-draws-global-interest/news-story/0081a103d4242b7b5eac174bd7650706">regasification plant</a>) at Western Port in Victoria. </p>
<p>This facility could process LNG either from Queensland or from further afield. The terminal would have the potential to provide all of Victoria’s household and business customer gas needs. If all goes to plan, AGL will begin construction in 2019 and <a href="https://www.accc.gov.au/media-release/interim-gas-report-finds-substantial-shortfall-for-east-coast-likely-in-2018">bring the terminal into operation by 2020–21</a>.</p>
<p>Our free-market government is now firmly in interventionist mode, with gas export restrictions and plans to fund a <a href="https://theconversation.com/turnbull-unveils-snowy-plan-for-pumped-hydro-costing-billions-74686">Snowy pumped hydro scheme</a>. There is even a proposal to <a href="http://www.theaustralian.com.au/business/mining-energy/agl-gas-import-terminal-plan-draws-global-interest/news-story/0081a103d4242b7b5eac174bd7650706">subsidise</a> the continued operation of the AGL’s Liddell coal-fired power station beyond its scheduled closure in 2022. </p>
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Read more:
<a href="https://theconversation.com/baffled-by-baseload-dumbfounded-by-dispatchables-heres-a-glossary-of-the-energy-debate-84212">Baffled by baseload? Dumbfounded by dispatchables?
Here's a glossary of the energy debate</a>
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<p>But rather than continuing to badger AGL about keeping Liddell open, the government would be wiser to press the firm to bring its regasification plant online as soon as possible. Not only does it make economic sense, but it is greatly preferable from an environmental point of view.</p>
<h2>The renewables solution</h2>
<p>Another way to deal with the predicted gas shortfall is to reduce demand. According to <a href="https://www.aemo.com.au/Gas/National-planning-and-forecasting/Gas-Statement-of-Opportunities">AEMO figures</a>, gas-powered electricity generation in 2018 is expected to require 176PJ of gas, dropping to 135PJ in 2019. The lower demand in 2019 is due to increased renewable energy generation, as well as increased consumer energy efficiency. </p>
<p>Recalling that the shortfall in gas for 2018 is 48PJ, it is apparent that this shortfall would be wiped out by a 30% reduction in gas used for gas-fired power generation. <a href="http://www.environment.gov.au/system/files/resources/1d6b0464-6162-4223-ac08-3395a6b1c7fa/files/electricity-market-review-final-report.pdf">Based on 2016 figures</a>, that would require an increase of roughly 30% in power generation from renewables. </p>
<p>Given the relatively short time it now takes to build new renewable generators, this is a very promising path. Coupled with <a href="https://theconversation.com/explainer-what-can-teslas-giant-south-australian-battery-achieve-80738">battery storage</a> or <a href="https://theconversation.com/want-energy-storage-here-are-22-000-sites-for-pumped-hydro-across-australia-84275">pumped hydro</a>, these new generators would provide dispatchable power exactly as gas does. All that is required is for the government to implement the right policy settings.</p>
<p>Finally, state government policies may already be taking us in this direction. The Queensland government recently announced a <a href="https://www.dews.qld.gov.au/electricity/powering-queensland-plan">major program of incentives</a> for solar power. This will significantly increase renewable power generation and dampen the demand for gas-fired power. AEMO notes this development but states explicitly that this has not been taken into account in its projections.</p>
<p>For whatever reason, AEMO’s final conclusion is not as gloomy as its analysis might suggest. It states that the gas situation in eastern and south eastern Australia “is expected to remain tight”. Rather than calling for action, it considers that the situation “warrants continued close attention and monitoring”. Amid all the talk of impending crisis, what we need is steady pressure on the steering wheel, rather than a sharp swerve.</p><img src="https://counter.theconversation.com/content/84701/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Hopkins does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Prime Minister Malcolm Turnbull has blamed gas exports for rising energy costs, breaking with a party room determined to find renewables guilty.Andrew Hopkins, Emeritus Professor of Sociology, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/839782017-09-13T06:30:52Z2017-09-13T06:30:52ZMore coal doesn’t equal more peak power<figure><img src="https://images.theconversation.com/files/185799/original/file-20170913-20624-8gkj75.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Lake Liddell with power stations. </span> <span class="attribution"><span class="source">Wikimedia commons</span></span></figcaption></figure><p>The proposed closure date for Liddell, AGL’s ancient and unreliable coal power station, is five years and probably two elections away. While AGL has asked for 90 days to <a href="http://www.theage.com.au/federal-politics/political-news/win-for-malcolm-turnbull-agl-ceo-andy-vesey-backs-down-over-future-of-liddell-coalfired-power-plant-20170911-gyfbih.html">come up with a plan</a> to deliver equivalent power into the market, state and local governments, businesses and households will <a href="https://theconversation.com/the-national-electricity-market-has-served-its-purpose-its-time-to-move-on-80973">continue to drive the energy revolution</a>.</p>
<p>At the same time as AGL is insisting they won’t sell Liddell or extend its working life, government debate has returned to the <a href="https://theconversation.com/the-finkel-review-finally-a-sensible-and-solid-footing-for-the-electricity-sector-79118">Clean Energy Target</a> proposed by the Finkel Review. Now Prime Minister Malcolm Turnbull is suggesting a redesign of the proposal, potentially paving the way for subsidies to low-emission, high-efficiency coal power stations. </p>
<p>But even if subsidies for coal are built into a new “reliable energy target”, there’s no sign that the market has any appetite for building new coal. For a potential investor in a coal-fired generator, the eight years before it could produce a cash flow is a long time in a rapidly changing world. And the 30 years needed to turn a profit is a very long time indeed.</p>
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Read more:
<a href="https://theconversation.com/the-true-cost-of-keeping-the-liddell-power-plant-open-83634">The true cost of keeping the Liddell power plant open</a>
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<p>We also need to remember that baseload coal power stations are not much help in coping with peak demand – the issue that will determine whether people in elevators are trapped by a sudden blackout, <a href="https://www.theguardian.com/australia-news/2017/sep/09/the-lift-will-stop-barnaby-joyce-tells-nationals-coal-power-cant-be-ignored">per Barnaby Joyce</a>. It was interesting that a <a href="http://energy.unimelb.edu.au/__data/assets/pdf_file/0007/1526587/Opps-for-pumped-hydro-in-Australia.pdf">Melbourne Energy Institute study</a> of global pumped hydro storage mentioned that electricity grids with a lot of nuclear or coal baseload generation have used pumped storage capacity for decades: it’s needed to supply peak demand.</p>
<p>Solar power is <a href="https://theconversation.com/slash-australians-power-bills-by-beheading-a-duck-at-night-27234">driving down daytime prices</a> – which used to provide much of the income that coal plants needed to make a profit. Energy storage will further reduce the scope to profit from high and volatile electricity prices, previously driven by high demand and supply shortages in hot weather, or when a large coal-fired generator failed or was shut down for maintenance at a crucial time.</p>
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Read more:
<a href="https://theconversation.com/slash-australians-power-bills-by-beheading-a-duck-at-night-27234">Slash Australians’ power bills by beheading a duck at night </a>
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<p>There is now plenty of evidence that the diverse mix of energy efficiency, demand response, energy storage, renewable generation and smart management can ensure reliable and affordable electricity to cope with daily and seasonal variable electricity loads. New traditional baseload generators will not be financially viable, as they simply won’t capture the profits they need during the daytime.</p>
<p>The government is now focused on AGL and how it will deliver 1,000 megawatts of new dispatchable supply. In practice, appropriate policy action would facilitate the provision of plenty of supply, storage, demand response and energy efficiency to ensure reliable supply. But the government is unable to deliver policy because of its internal squabbles, and AGL looks like a convenient scapegoat.</p>
<h2>Demand response is already working</h2>
<p>It is astounding that conservatives can continue to blame renewable energy for increasing prices. They are either ignorant or have outdated agendas to prop up coal. A smart, efficient, renewable electricity future will be cheaper than any other – albeit not necessarily cheaper than our past electricity prices. </p>
<p>Along with other studies, CSIRO’s recent <a href="https://www.csiro.au/en/Do-business/Futures/Reports/Low-Emissions-Technology-Roadmap">Low Emission Technology Roadmap</a> showed that the “ambitious energy productivity (and renewable energy)” scenario was quite reasonably priced.</p>
<p>While the debate continues to focus on large-scale supply, “behind the meter” action is accelerating through demand response, energy efficiency and on-site renewables. As I mentioned in a <a href="https://theconversation.com/turnbull-is-pursuing-energy-certainty-but-what-does-that-actually-mean-83082">previous column</a>, the ARENA/AEMO demand response pilot has attracted almost 700MW of flexible demand reduction to be delivered before Christmas, and another 1,000MW by December 2018. That’s nearly as much as Liddell could supply flat out. And there’s plenty more where that came from.</p>
<p>Spending a few hundred million dollars to prop up an old coal plant for a few years would shift it to the high-cost end of coal generators. So when prices fall, it would be one of the first coal plants to have to shut down, and among the last to come back online when prices rebound. This would add to the stress on the facility and the management challenges of operating it – unless it had preferential cheap access to a lot of pumped hydro capacity.</p>
<p>In the medium to long term, we do need to work out how to supply electricity for 24/7 industries but, according to AEMO, this is not urgent. We don’t know how much of that kind of industry will be here in ten years or so, given high gas prices, the age of their industrial plants, and their relatively small scale relative to their international competitors. </p>
<p>On the other hand, they may adapt by investing in behind-the-meter measures. Or they could relocate to sunny places and be part of what the economist Ross Garnaut has called the “<a href="https://blogs.unimelb.edu.au/rossgarnaut/files/2015/12/061016-The-Economics-of-the-Future-Energy-System-full-presentation-Ross-Garnaut-1yrkvfa.pdf">low-carbon energy superpower</a>”.</p><img src="https://counter.theconversation.com/content/83978/count.gif" alt="The Conversation" width="1" height="1" />
<h4 class="border">Disclosure</h4><p class="fine-print"><em><span>Alan Pears has worked for government, business, industry associations public interest groups and at universities on energy efficiency, climate response and sustainability issues since the late 1970s. He is now an honorary Senior Industry Fellow at RMIT University and a consultant, as well as an adviser to a range of industry associations and public interest groups. His investments in managed funds include firms that benefit from growth in clean energy. He has shares in Hepburn Wind. </span></em></p>We need to remember that baseload coal power stations won’t help cope with peak demand – the issue that will determine whether people in elevators are trapped by a sudden blackout, per Barnaby Joyce.Alan Pears, Senior Industry Fellow, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/835772017-09-10T19:44:36Z2017-09-10T19:44:36ZTime for pragmatism, not panic, for the electricity market<figure><img src="https://images.theconversation.com/files/185223/original/file-20170908-9568-7l6kzd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There are many viable options for Australia's energy future. </span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>There was a familiar kneejerk reaction to <a href="https://www.aemo.com.au/-/media/Files/Media_Centre/2017/Advice-To-Commonwealth-Government-On-Dispatchable-Capability.PDF">last week’s announcement by the Australian Energy Market Operator (AEMO)</a> that there are risks to our electricity supply after the scheduled closure of the Liddell coal-fired power station in New South Wales in 2022. The sight of <a href="http://www.abc.net.au/news/2017-09-08/turnbull-liddell-power-station-confusing-announceable-grattan/8885300">the Prime Minister looking for options to keep Liddell open</a> raises the spectre of further reflexive government intervention that can’t end well. </p>
<p>Governments, understandably, want to make sure the lights stay on. But now is the time for perspective, not panic. Because, as the latest Grattan Institute report – <a href="https://grattan.edu.au/wp-content/uploads/2017/09/891-Next-Generation.pdf">Next Generation: the long-term future of the National Electricity Market</a> – shows, there are emerging challenges to the NEM that need dealing with. Make the right decisions now and a return to affordable and reliable electricity supply is on the cards. </p>
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Read more:
<a href="https://theconversation.com/the-true-cost-of-keeping-the-liddell-power-plant-open-83634">The true cost of keeping the Liddell power plant open</a>
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<p>The NEM is an energy-only market. This means that generators only get revenue when they sell their electricity into the market. All costs – including the capital costs of building the plant – need to be covered by the revenue they make when they sell electricity. Anyone who wants to build new generation capacity wants to be pretty certain that the market is going to deliver the revenue they need to cover their costs.</p>
<p>But right now no one is building any generation, unless it is government-backed renewables. This is despite a ripe environment for investment: high current and future prices in the wholesale market and the closure of old power stations. The result, as AEMO pointed out last week, is potential shortfalls in generation and potential blackouts in South Australia, Victoria and NSW over the next few years. </p>
<p>Much of the blame for this investment hiatus can be placed on politicians and the climate change policy mess that is creating so much uncertainty for potential investors. </p>
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Read more:
<a href="https://theconversation.com/turnbull-is-pursuing-energy-certainty-but-what-does-that-actually-mean-83082">Turnbull is pursuing 'energy certainty' but what does that actually mean?</a>
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<p>But the rise of wind and solar power is also causing problems. Wind and solar energy have zero marginal cost: once the facility is built, the energy produced is essentially free. And they are intermittent suppliers: they don’t produce energy unless the wind is blowing or the sun is shining. So when wind and solar plants are operating, the wholesale price of electricity is forced down. This means there needs to be high prices – sometimes very high – when wind and solar are not operating. This price volatility makes investors nervous that they will not be able to cover the costs of building new generation.</p>
<p>Governments may be tempted to conclude that the market has failed. But intervention may be premature. </p>
<p>There are still five years until Liddell is scheduled to close. Just because a new coal-fired power station will not be built in time to fill the gap doesn’t mean the market cannot respond. Coal was never going to be the market response, given climate change risks. But new gas-fired generators, or batteries to store electricity, could be built in this time frame. Or the market could finally get its act together on what is called demand-response: that is, paying consumers to reduce their electricity consumption during periods of peak demand, so that less new generation is required. </p>
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Read more:
<a href="https://theconversation.com/managing-demand-can-save-two-power-stations-worth-of-energy-at-peak-times-78173">Managing demand can save two power stations' worth of energy at peak times</a>
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<p>There are no guarantees for government, however. The risks that the market won’t deliver the new generation that is needed are increasing. If nothing changes, Australia will need, <a href="https://theconversation.com/the-day-australia-was-put-on-blackout-alert-83574">in the words of AEMO</a>, “a longer-term approach to retain existing investment and incentivise new investment in flexible dispatchable capability in the NEM”.</p>
<p>Many countries have responded to these same pressures by introducing a capacity mechanism. A capacity mechanism pays generators for being available, regardless of whether they actually sell electricity. Payments for capacity provide extra income for generators, giving them greater assurance that they will make enough revenue to cover their costs. </p>
<p>Any new market-based mechanism in Australia is likely to be better than the scattergun approach of various governments in recent years. <a href="http://www.smh.com.au/federal-politics/political-news/malcolm-turnbull-to-announce-millions-in-funding-for-snowy-hydro-20-pet-project-20170827-gy5042.html">Building Snowy 2.0</a>, extending Liddell’s life, or providing <a href="https://theconversation.com/victoria-is-the-latest-state-to-take-renewable-energy-into-its-own-hands-83097">state-based backing for new renewable generation</a> might deliver the results needed. But the lack of coordination, planning and strategic thought that sits behind these policies means they probably won’t. </p>
<h2>Getting it right</h2>
<p>Our report suggests a better way. First, governments should give the market a chance. This means sorting out climate change policy, and quickly. Dithering about a Clean Energy Target, or arriving at a solution that cannot be supported across the political spectrum, will guarantee that investors’ hands remain firmly in their pockets. </p>
<p>Second, work should begin immediately on an additional capacity mechanism, so it is ready if needed. Capacity mechanisms are complex and take a long time to design and implement. There is no one-size-fits-all approach, so careful consideration needs to be given to how one would work in the Australian context.</p>
<p>Finally, AEMO should be asked to provide a more robust assessment of the future adequacy of generation supply. On the basis of this information, the newly formed <a href="http://reneweconomy.com.au/kerry-schott-clare-savage-named-to-energy-security-board-34180/">Energy Security Board</a> should make the judgement on whether an additional capacity mechanism is needed to make sure enough new generation is built. </p>
<p>It is understandable that politicians feel the need to act when faced with the threat of blackouts. After all, they are the ones who get the blame when the lights go out. But caution is needed. Capacity mechanisms are expensive; the peace of mind they bring comes at a price. A pragmatic and planned approach is the best way to ensure that, if a decision is made to redesign our electricity market, that decision is the right one.</p><img src="https://counter.theconversation.com/content/83577/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Blowers does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The energy market operator has warned of possible future electricity shortages – but only if everything stays frozen as it is now.David Blowers, Energy Fellow, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.