LAUNCESTON, Australia, Sept 1 (Reuters) – The risks and challenges of moving from an energy system dominated by fossil fuels to renewables are being played out in Australia, which faces power shortages within two years.
The Australian Energy Market Operator (AEMO) said in its annual report on Wednesday that two states, Victoria and South Australia, face electricity shortages as coal-fired power plants come to the end of their usable lives and shut down. read more
Coal and natural gas account for some 34.5 gigawatts (GW) of the current 59.6 GW of electricity generation in the National Electricity Market, which consists of all of Australia other than the sparsely populated Northern Territory and Western Australia state.
AEMO said it expects 8.3 GW of coal-fired generation to exit the system between 2023 and 2029, but there are only 7.3 GW of new projects in the pipeline to replace the lost capacity.
Furthermore, demand for electricity is expected to grow as more businesses and households transition to electricity for heating and transport, raising the risk of power shortages.
The report is effectively a call for increased investment in generation in order to ensure the reliability and security of Australia’s electricity system.
AEMO also notes that the pipeline of new power projects is sufficient, but the problem is ensuring they reach a committed stage and actually get built in time to compensate for the loss of coal-fired power.
In itself, the report is a deep dive into the state of the electricity market and the likely scenarios, and doesn’t take a stand on whether the potential supply gap should be met by renewable energy backed by storage or increased use of fossil fuels.
The problem in Australia is that electricity and power markets have increasingly become a political football, dominated by lobby groups, activists and politicians who generally spend most of their time talking past each other, while companies often struggle to operate in what seems to them like a policy vacuum.
Those on the right of the political spectrum advocate for new coal-fired and gas-fired generation to be built, while those on the left favour a rapid end to the existing fossil fuel generation and their replacement by renewables such as wind and solar, firmed by battery storage.
There is even a vocal, but tiny lobby group advocating for Australia to adopt nuclear power.
What is often missing from the debate is a realistic look at what is possible in the necessary timeframes, and the cost of achieving the desired outcome.
If this was the driving force of the debate, several things would become clearer.
RENEWABLES BY DEFAULT?
Firstly, nuclear can be dismissed quickly for being too expensive, too long to build, too little public support and no track record or industry experience available domestically.
New coal-fired generation is also likely a non-starter, despite Australia’s vast reserves of the fuel and its status as the world’s second-biggest exporter behind Indonesia.
Again cost is a factor, but lack of public support amid climate change concerns and the new federal government, led by the centre-left Labor Party, is opposed to new coal-fired power.
Private generating companies are also opposed to new coal power, and in fact those that have coal assets are generally planning on shutting them on an accelerated time frame.
Natural gas generation is somewhat more likely, but it also runs into the climate change lobby and has the problem of currently being very expensive, due to the global price surging in the wake of Russia’s invasion of Ukraine and the subsequent threat of the loss of Russian pipeline supplies to Europe.
While gas-fired generators can effectively serve as peaking plants to firm up more variable renewables, the key is going to be cost.
If left to pure market forces, Australia runs the risk of gas-fired generators standing by idle amid power shortages as it won’t be economic for them to enter the market, as happened earlier this year during the winter peak demand season.
For gas-fired generation to have a sustained future, and for any new units to be built, there will have to be significant regulation, both on the price of natural gas being supplied, the price of the electricity being generated and also the cost of simply being available when needed.
Assuming these issues can be addressed, it still leaves renewables and storage, either battery or pumped hydro, as the energy source most likely to do most of the heavy lifting.
For this to work there will need to be certainty about returns on investment, again implying a certain level of regulation.
The role of household solar also needs to be addressed, with AEMO projections for half of all households to have systems by 2050.
It’s likely that governments at federal and state levels will have to look at subsidising the cost of household battery systems in order to smooth out the peaks and troughs of this form of generation.
Overall, Australia offers a cautionary tale of what happens when you seek to rapidly transform an electricity system, with the main risk being that sensible, cost-effective solutions get lost in the fog of lobbying and political point-scoring.