Renewables on a hope and a promise

The latest Grattan Institute report realistically assesses technology costs and challenges of various energy sources, with some surprising conclusions.


A new report from the Grattan Institute has underlined the failure of current policies to push Australia quick enough down the path of a clean energy future, saying the government needs to do more to help unleash market forces, change the regulatory environment that protects incumbent systems from the advances of new technologies, and to reduce existing subsidies to fossil fuels. Or else face a much more expensive transformation.

The report also assesses the prospects of seven technologies that could, individually or in part, deliver on Australia’s target to of reducing emissions by 80 per cent below 1990 levels by 2050 – wind, solar PV, solar thermal, geothermal, carbon capture and storage, nuclear, biomass – as well as storage options and issues surrounding the grid. The latter is critically important to be able to link wind and solar resources to areas of energy consumption, but the report questions if Australia yet has the skills to achieve this.

The report, No easy choices: which way to Australia's energy future? is a refreshingly frank approach that has a realistic assessment of the pretensions of each technology and the policies that are needed to get there. It seems the principal difference between this report and others is that Grattan has looked at the current long-term policy targets and worked backwards to see how Australia might actually achieve these. As logical as this may seem, many other studies analysing our energy future assume little or no change to the business as usual, and a blithe disregard for the stated policy decisions.

Grattan makes some crucial points: the carbon pricing scheme alone will not be enough by itself to enable low-emission technologies to generate enough electricity at sufficiently low cost; gas will not deliver the emission reductions required and is at best a bridging technology; the current regulatory regime is designed to favour the incumbent gas and coal technologies; and these are supported by between $8 billion and $9 billion of annual subsidies (including the recent NSW government’s subsidised coal mining deal), and should be removed.

The report also uses provides a much more realistic assessment of technology costs and challenges of the various energy sources. Some of its assumptions and conclusions can, and no doubt will, be debated, but Grattan has gone to the trouble of seeking advice from the experts within each technology base, and its work provides a stark contrast to the outdated data included in the government’s draft energy white paper – particularly regarding the two most discussed and contentious technologies, solar and nuclear.

Solar is important because it is most likely to be the biggest single renewable source of the future, and a proper understanding of its near-, medium- and long-term costs is essential if energy policy makers are to decide how to manage the impact on grids, generators and other competitors. The failure to do so has already resulted in some disastrous policy making (NSW feed in tariff, federal solar multiplier), which has effectively brought the rollout of large scale renewables in Australia to a grinding and costly halt.

The Grattan Institute’s technology report puts the cost of solar PV at about $220/MWh in the best case scenario, which is consistent with industry estimates, and a high of $400/MWh. Finally, then, a bit of sanity, particularly when compared to the energy white paper’s best case forecast of $340MWh by 2030! It also makes some important notes about CCS and nuclear – particularly in the current debate around government incentives – saying neither technology would be able to be deployed in Australia without significant government support.

"CCS and nuclear are unlikely to be demonstrated in Australia in the near future unless government takes on most of the material risks of the project," it notes. "The demonstration of these technologies in Australia involves risks that only government is in a position to bear."

It also discusses the storage challenges (mostly in costs) facing intermittent sources such as wind, solar PV and solar thermal, the issues surrounding biofuels, and the question marks over geothermal.

There are several glaring omissions from the report: it does not adequately take into account energy efficiency and the impact that that will have on future energy demand, nor does it adequately address the prospects that large-scale renewables and small-scale distributed energy will have a dramatic change on the function of the grid – it assumes that it will continue to be defined by baseload and peaking sources, when studies in Europe and elsewhere suggest a more dynamic change.

It’s right, though, that renewables will be limited to their scope without cost-effective storage, and the technologies for these are promising but uncertain. And it’s put off the highly contentious discussion about which policies and how to a later report.

Controversially, the report does suggest that once emissions are capped through an emissions trading scheme, there is no case to support technologies beyond addressing the market and system failures identified in the report, including through a renewable energy target or low emission energy quotas. This would bring howls of protests from the pro-renewable lobby, but it does include one crucial caveat – that the emission caps are set with environmental integrity.

The irony is that given the science on climate change – the prime environmental consideration – such caps would likely trigger a transformation more rapid and disruptive than the scenarios painted in this report, as the IEA made clear when it canvassed the 450ppm scenario in its most recent World Energy Outlook. The Grattan Institute plans a further report to canvass what sort of mechanisms the government should be looking at – on the assumption, not doubt, that the government won’t be setting any emissions caps with environmental integrity any time soon. Given the important decisions to be made this year regarding the RET, the creation of the Clean Energy Finance Corp and the mechanisms that it would likely deploy, the sooner the better.

And the Grattan Institute’s energy program director, Tony Wood, also seems un-necessarily pessimistic about costs (A carbon-priced world is not enough, February 6). The report recognises that the costs of incumbent technologies will rise to $100-$150/MWh – up from about $40-$60/MWh – which it uses as its benchmark. Wood, says, however, that if CCS fails to deliver and nuclear is not deployed, then the price of energy could go "through the roof".

That’s not the view, however, of the EU, which believes that the transition to renewables will cost no more than continuing with fossil fuels, or the IEA, which notes in its "high renewable scenario" that the increased use of renewables – up to 75 per cent – in the event that nuclear is not deployed as widely as some may hope and CCS fails to deliver – may be less than 10 per cent more than otherwise.

This article was first published at RenewEconomy. Reproduced with permission.

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