When it comes to energy policy, most of us are in favour of a transition to renewable energy. Debates about climate change and the carbon tax have become increasingly controversial in recent years but when it comes to the idea that Australia could one day power our economy with clean, pollution-free renewable energy, most of us are in favour of the proposition. Take wind energy: despite the recent controversy about wind development, particularly in regional Victoria, a recent CSIRO study found that wind farms are welcomed in rural communities.
Renewable energy also enjoys the rare imprimatur of bipartisan support. Both the Coalition and the Labor Government continue to support the 20 per cent renewable energy target, which sets out to provide a fifth of Australia’s electricity needs from renewable energy by 2020. And of course the recently passed carbon tax, with its attached greenhouse gas emissions cap, will also drive renewable energy deployment, as it means that fossil fuels will slowly become more expensive.
So renewable energy is in the box seat, right? Not so fast. A new report by the Grattan Institute points out that the road to decarbonisation will be much rockier than most of us imagine.
The report’s title, "No Easy Choices", sums up the dilemma nicely. Australia has plenty of sun, wind, and hot rocks deep underground. But transitioning from our current high-carbon electricity footprint will require some hard decisions, and pose significant economic and political risks for energy companies and governments.
Renewable energy in Australia is a bit like the old Irish joke about the lost tourists who ask a local how to get to Limerick. "Well, if you were going there, I wouldn’t be starting from here," comes the waggish answer, and this is also true for Australia’s energy mix. Australia is one of the most fossil-fuel dependent economies in the world, with around three-quarters of our electricity generated by burning coal in giant base-load power stations. Getting to 50 or even 80 per cent renewable electricity will mean a massive re-imagining of our entire energy infrastructure.
Australia has come late to the renewables party. The Grattan report observes that, of the current renewable technologies in operation, "none currently represents more than 2 per cent of Australia’s electricity supply and their future technical and economic potential is shrouded in uncertainty." While this means there is a vast upside potential for renewable deployment, it also means that the pace of that roll-out will have to be rapid if Australia is to make a sizable dent in our dirty generation habits.
There are other problems. Australia’s legacy of big coal power-plants, hooked up to capital cities with little in the way of interstate connectivity, means that, in some ways, our electricity grid is not really a grid at all. Western Australia, for instance, is not actually connected to the eastern seaboard, while the high-voltage cables connecting Victoria to South Australia and Tasmania are already nearing their capacity.
Much of the renewable energy will also come from places currently far away from big cities. So building new wind farms and solar thermal plants will require big new investments in transmission capacity. But transmission and distribution costs are already the key drivers of rising household electricity bills, as Ross Garnaut pointed out last year. Australian state and federal governments are going to have to spend up to connect all these new generating sites to the national grid.
Then there are the fossil fuel subsidies, which are still significant. The muscular lobbying efforts of motoring groups and big resources companies have meant that Australian taxpayers subsidise existing dirty energy industries by as much as $9 billion a year, according to the Australia Institute. For instance, the New South Wales government is actually digging its own coal mine, so that it can ensure supply for the state’s coal-fired power plants. The perverse subsidy to fossil fuel generators is the complex outcome of the state’s botched electricity privatisation. The Grattan report estimates it might be worth $300 million a year to generators burning coal.
Another big problem for the renewables sector is that it still isn’t big enough. In risky times, deep pockets make a big difference. The huge investments and constant innovation required to drive prices down towards parity with the dirty fuels means smaller firms are inherently at a disadvantage to bigger firms, particularly in these early years where the certainty of so-called "power purchasing agreements" (guaranteed contracts from electricity retailers to renewable energy generators) are hard to come by. While wind and solar can be rolled out piecemeal and small-scale, potential game-changers like geothermal and collecting solar-thermal require billions just to get to demonstration phase.
The travails of geothermal pioneer Geodynamics, which has burnt through tens of millions as it struggles with a series of technical mishaps, is a good example of the so-called "valley of death" between nimble start-ups and established, cash-flow positive, going concerns.
Given all this, can some — or any — promising renewable technologies win to race to decarbonise our economy? The Grattan report looks at the current stable, from the established players like solar and wind, to international counterparts like nuclear, and emerging technologies like carbon capture and sequestration, geothermal and bioenergy. It argues that none of the current technologies are currently able to meet all our renewable needs, especially in the absence of a good solution for storage of renewable electricity in those times when the wind doesn’t blow and the sun goes down.
"It is possible that none of the technologies can produce power at a scale and at costs similar to today’s electricity," the report states, rather controversially. "Wind and solar PV may well become commercial if carbon prices rise to foreseeable levels over the next 20 to 30 years. However, these technologies can inherently not provide more than about 50 per cent of Australia’s electricity needs without storage technologies whose commercial viability remains uncertain."
These claims have already met with some criticism, from Beyond Zero Emissions’ Matthew Wright. Wright argues that there is fact proven renewable storage technology available, in the form of the molten salt technology seen in Spain’s Andasol 1 power plant. Wright claims that the Grattan Institute "ignores this game-changing technology, already commercially deployed in base-load, intermediate and peaking configurations in Spain and under construction at a number of sites in the US. This technology is commercially available, off the shelf and ready for deployment in Australia."
The Grattan report also seems weak when it comes to the potential for energy efficiency, smart grid and micro-generation to change the nature of Australia’s electricity mix. Solar photovoltaic cells are falling in cost so rapidly that the federal government’s recent Energy White Paper draft dramatically over-estimated their cost, and the Grattan report may well have over-estimated the speed of these falling costs too. With solar PV costs falling off a cliff, many analysts think grid parity with coal may only be a few years away.
The advantage here is that cheaper and better solar PV across Australia’s vast suburban roof-scapes will obviate much of the need for new investment in poles and wires. And if electric cars ever catch on, with their big batteries acting as local storage systems for solar electricity overnight, all connected to a smarter grid, renewable energy could suddenly vault across the cost gap. None of this is canvassed by the Grattan report.
But Tony Wood and his co-authors at the Grattan Institute are surely right about a number of fundamental points. Australia will have to make hard decisions over our future energy policy. We will have to invest significant amounts of taxpayer money if we want to abandon business as usual — as indeed we must. And we will have to navigate some very treacherous political waters, as the combined might of the status quo mobilises to protect the profits embedded in our existing energy infrastructure.