Competitive power in a warmer Australia

Australian needs a diversified energy system to cope with a changing climate. Power sources reliant on water, and networks vulnerable to high heat, need to be reconsidered.

Preparing for the future is about understanding the past.

At the height of the drought in the eastern states of Australia in 2007, there was bipartisan support for policies to reduce Australia’s carbon emissions and for Australia to participate in global climate change mitigation. Australians were surrounded by evidence that life in ‘the lucky country’ was under pressure.

Drought had played havoc with water availability, forcing state governments into expensive water supply alternatives as dams dried up, and Brisbane, in particular, was subject to stringent water restrictions (including the shutdown of power stations) in an attempt to survive until the recycling and desalination plants came online.

But it wasn’t only a shortage of water that impacted on people’s comfort levels. A series of hot summers started investment in cooling for homes that forced electricity distributors in Queensland and New South Wales to invest heavily in poles and wires to supply electricity to up to 80 per cent of homes that switched on air-conditioners on those long, hot summer days.

When the rains returned many Australians forgot about the discomfort of the drought. Anger quickened when the costs of investment in water alternatives became known and electricity prices soared. Opportunists jumped at a chance to discredit incumbent decision-makers, and deflected the discussion away from the need to prepare for rising climatic variability, to prognoses of poor decision making and governance.

Policy that was enacted to respond to an unfolding crisis of water availability and soaring summer temperatures is now in the process of being wound back.

Predictions of increased climate variability by scientists are rubbished by politicians, journalists and commentators with no scientific expertise. And now the Bureau of Meteorology is advising us that this year will be one of the hottest in history, and huge areas of Queensland are back in drought.

So, what is there to learn from the variability of climate from our recent past? Firstly, our comfortable existence on this hot, dry continent is dependent on water. We need it to survive, sustain the production of our food, disperse our effluent, and run our power stations, in that order.

If drought continues to spread, it will become imperative to have energy options that are not reliant on water for production or extraction.

In a nutshell, we need energy alternatives to coal and coal seam gas to power our electricity system.

Secondly, we need to be smart about our use of energy. As temperatures soar, our electricity distribution systems become less efficient. About 10 per cent of energy supplied is lost in distribution from centralised power stations. If temperatures increase, energy losses too will increase.

South Australia shuts down its power system when conditions indicate a high fire risk. This means that we need to concentrate our efforts on decentralised options, closer to where they are needed, so that we can reduce, not increase, those energy losses and risks.

We should also be using the potential for hot, dry conditions to generate energy; which brings the discussion back to energy alternatives other than coal and coal seam gas.

Our recent past highlights that we need to invest in alternative sources of energy to improve efficiencies and to increase security of supply if we are to have a competitive, fit-for-purpose power supply in the future.

It is, however, a much touted refrain that investing in any generation alternative other than coal is expensive and will render Australian power uncompetitive.
The cleft stick here is that staying with coal or shifting to gas may well be more expensive if temperatures continue to rise.

How do we know this? Well, in 2007, the water crisis in Queensland resulted in water restrictions to Tarong North and Swanbank power stations which curtailed generation and caused wholesale spot prices to double. The consequences of water restrictions for electricity prices in 2007 were more severe than the introduction of the carbon price in 2012.

Further evidence can be found in what happens on hot summer days, when energy usage peaks. The chart below shows a comparison between two hot days in Queensland, pre- (2008) and post (2013) the installation of 718MW of rooftop solar panels, which replaced 780MW of inefficient coal fired generation.

The orange line represents the wholesale spot price for electricity on 23 February 2008, which reached $9154/MWh or $9/kWh, compared to the average wholesale spot price in 2012/13 of $62/MWh or 6c/kWh including carbon price. The blue line represents the wholesale spot price for electricity on 19 January 2013, which remained relatively low as a result of generation from rooftop solar panels (estimated via the black line).

With evidence like this it is hard to argue that shifting to alternative forms of energy is going to be more expensive. Indeed our research into options for 2035, showed us that shifting to renewable and distributed energy provided cheaper electricity than shifting to gas-fired power.

Graph for Competitive power in a warmer Australia

Planning for alternatives however needs investment. The previous government’s Clean Energy Package provided a framework for raising the funds for, and investing in, alternatives

The particular advantage of renewable energies is that they may be expensive to invest in initially, but after that they are cheap – dirt cheap – to run. To validate this assumption, check out the electricity prices of countries with very high levels of renewable energy like Canada and Norway.

For this reason, our research, A better way to competitive power in 2035, points to policy in Australia needing to pursue a diversified approach taking elements from both Labor’s Clean Energy Package and the Liberal/National’s Direct Action Plan.

The carbon price provides a mechanism for raising funds to invest in a diversity of sources of energy to be able to adapt to future requirements and the Direct Action Plan provides a mechanism for directing that investment towards the most appropriate diversification and emission reduction options. A recent article in The Conversation makes the same suggestion and research by the Grattan Institute came to a similar conclusion.

Without an adaptive mindset, Australian power will become increasingly vulnerable to its changing climate and global energy crises. We will go back to the future of 2007, burdened with drought and heat, and facing ever-rising energy costs. This will ensure that we will be unprepared for, and uncompetitive in, the future.

Australia has significant potential to be able to supply competitive power in the uncertain future, but – and it’s a big 'but'– its people and its policymakers have to embrace a change. Only change and the pursuit of a suite of powerful policy mechanisms to prepare our power system for the future will deliver that competitive power we so need.

Lynette Molyneaux is a research officer, Energy Economics and Management Group, University of Queensland.

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