It has taken years of fierce resistance and catastrophising about the supposed cost and economic impacts from the shift from fossil fuels, but it seems that Australian industry is finally waking up to the possibilities of wind and solar.
Australia’s debate about energy costs has constantly been framed in the light of reports that are either ignorant or deliberately pessimistic about the cost of renewable energy alternatives such as wind and solar.
But a whole series of events is now causing industry to think differently. One of these was the blackout in South Australia, widely blamed – for ideological and political purposes – on wind energy, but in fact a perfect illustration of how inefficient and unwieldy the grid and the old model of centralised generation had become.
Then there is the entering into force of the Paris climate agreement last Friday, some three or four years before expectations and at a fraction of the speed of the much narrower Kyoto Protocol that preceded it.
New research, highlighting the precarious state of both the Arctic and Antarctic ice caps, the continuing records in monthly temperatures, and the rapidly closing window for action are putting on the pressure for quick action, something that will be reinforced in the international climate talks that begin this week in Marrakesh.
Industry recognises what’s at stake. As this slide from Innex Willox, the head of the Australian Industry Group shows, the Paris climate agreement means business and will require Australia reaching zero net emission before 2050.
If you remember, Australia’s bipartisan target once was for an 80 per cent reduction in emissions by 2050, but the Abbott government dumped that when it sacked the carbon price.
The Turnbull government hasn’t even thought yet how it can get to its modest interim target of a 26 per cent cut by 2030, let alone the reality of zero net emissions barely a decade later. Industry is not impressed.
Then there is the growing reality that Australia’s coal fleet is starting to close down and will need replacing. One major factor driving this is that Australia’s fossil fuel plants can no longer continue at current prices. Some in industry and the conservative commentariat have blamed the closure of the Northern brown coal power station on government policies, but Alinta spent a lot of effort trying to get industry to sign contracts to take its output at a cost of $50-$60/MWh. No one took up the offer, so it closed.
In Victoria last week, the most powerful symbol of Australia’s high polluting coal generation sector, the Hazelwood brown coal power station in Victoria, was slated for closure because it is too old and is no longer economic to run at current power prices.
Now it is dawning on industry that there is no way they can avoid the closure of the remaining fleet of coal-fired power plants. Much of it has to be retired within a decade or two, so best that they investigate the alternatives.
And that leads us to the last and the most important factor – that the Australian debate about energy costs has mostly been framed in the light of reports that are either ignorant or deliberately pessimistic about the cost of renewable energy alternatives such as wind and solar.
The presentation by Willox provides perhaps the clearest sign yet that Australian industry has been either blind to, ignorant, or duped about the price of renewables, solar and wind in particular.
First is his admission that recent price spikes have been driven by costly gas. Second is the admissions that, as this graph above shows, most of the information relied on by industry and government have put all alternatives, such as wind and solar, at two to three times the cost of current power.
“If this slide represents the future, why would they ever reinvest in Australia?” Willox said.
One reason they might is that everybody is in the same boat. Here’s Willox: “If this is what it costs to produce low- or zero-carbon energy, and the world is moving in that direction, then the high cost of new energy in Australia might not mean a competitive disadvantage – assuming the countries that matter are moving at roughly the same time.”
Bravo, he is is finally learning from the likes of Ross Garnaut who have spoken at length of the magnificent energy and economic opportunity Australia has in renewables.
“A second answer is that the projections may be wrong,” Willox says. “We could be pleasantly surprised by technological and commercial innovations that means new energy turns out to be cheaper than we thought.”
Yes, we could. As this next graph shows, those forecasts (now in green and gold stripes) have been beaten in Australia’s own top-start large scale renewable energy sector, and absolutely thrashed by experience elsewhere.
The Australian projections are some of the same ones we just looked at, now in green and gold stripes. The Australian actuals are in solid green, and represent the outcomes of the ACT wind auction and the ARENA large scale solar round.
The international actuals are in solid blue, and represent contract prices for the winning bidders in a wide range of auctions and procurement processes. For good measure, recent Australian wholesale prices and price futures are depicted at the far left.
In wind and solar, Willox notes, there is a yawning gap. Competitive wind projects in the United States, Mexico and Chile are being built for 4-6c/kWh – 4-5c/kWh cents less than the Australian projection. And they are dropping fast – solar by 50 per cent in a year, wind by 25 per cent.
“Solar is becoming genuinely cheap,” he says. The contracted prices in Abu Dhabi, Chile and Dubai for $A0.03-$A0.04 per kilowatt hour is below Australia’s own historical benchmark for cheap power.
“Even keeping the on-costs of networks and reliability in mind, these prices are extraordinary – and they keep happening, with new record lows reached every few months in 2016,“ he further noted.
And he might have added battery storage as well – although he did mention it as part of the reforms that are so desperately needed in Australia, along with demand response, so that Australia can develop a smart electricity system, rather than the dumb one it has relied along for so long.
Australia could reduce its costs dramatically – probably not as much as the Middle East, but certainly a lot lower than most forecasts. But, as Willox notes, it needs policy certainty – that will reduce the cost of finance which can influence one-third of the cost.
But as Tesla has demonstrated, the costs of battery storage can and will fall quickly. Their household offering has nearly halved in price per kilowatt hour in less than a year, and that is before the much anticipated gigafactory opens.
Willox was speaking about industry, which he notes has enjoyed prices of 4c/kWh. Consumers – households and most business – have had no such luxury and are paying nearly 10 times that much after the cost of the grid, retail margins and other add-ons are included.
Now, as Bruce Mountain has pointed out, those grid costs are already being challenged by solar and storage – with obvious ramifications for the future of the grid and centralised generation.
Battery storage at grid level is also shown to be much cheaper than grid upgrades and new wires, and for micro-grids it’s role as a cheaper alternative to diesel and gas plants, and with added security, is now being widely considered.
Indeed, if the various value proposals for battery storage are considered – time-shifting renewables, smoothing out renewable output, responding to peak demand, providing frequency and other ancillary services, and as a replacement for poles and wires – then the technology is probably well and truly in the market.
What needs to happen is for the rules to be changed. This is a reasonably complex issue as it is, made more challenging by the resistance and scare mongering by those technologies who will lose their market dominance – gas peaking plants, coal fired generators, retailers and network operators stuck in old business models.
But Willox is recognising some unavoidable truths. The need to de-carbonise is pressing. Australia’s electricity fleet needs to be renewed. Nuclear – as illustrated by the citizen jury response to the idea of nuclear waste storage – is not going to happen, new coal plants won’t be built, gas is a marginal option due to its own emissions and volatile fuel costs, and the best way to bring the costs of solar and wind down to the levels of coal is to accelerate their deployment, and the regulatory and policy changes that need to go with it, not hold it back.
That is a major step forward.
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