Evolving energy

By the time the 2015 Paris climate talks wrapped up, Australia had committed to doing its part to curb global warming. To help meet the international target of less than a two-degree temperature rise this century will require significant changes to our energy system. How, exactly, will this play out?

A discussion paper released by the Clean Energy Council (CEC) in May, titled ‘Power Shift: A blueprint for a 21st century energy system’, makes it clear that some pretty extensive modification is needed.

There’s no denying that Australia’s existing electricity system is outdated. We rely heavily on brown and black coal and most of our generators are at or beyond their expected operating life, according to the CEC. These two factors combined means that our energy generation system is one of the most carbon-intensive in the world. Not exactly a good starting point for emissions reductions.

If we have a hope of meeting our targets, the CEC says that a complete overhaul is required and this will mean not only modernising energy infrastructure, but also reducing our reliance on carbon in favour of alternate energy sources... and it all needs to be in play by 2050. No pressure.

Being naturally planted firmly in the renewables space, the CEC is aiming high; suggesting that both zero emission generation and 100% uptake of clean energy is possible, technologically, economically and societally. As part of the discussion paper, the CEC has developed a range of policy and regulatory reforms it sees as essential in the transition to an ideal scenario.

One of our biggest advantages is access and availability of renewable resources. We’ve got plenty of land and sunshine and are completely surrounded by water, making wind, solar and marine sources viable options. Easier said than done, of course, but at least the bare bones are there.

Five-point plan

Having capability isn’t enough, however. Advances in technology requires substantial investment and the landscape has been a bit volatile in recent years — renewable energy targets have been a moving feast and this does not inspire investor confidence. The CEC sees the setting of strong, long-term targets as key to a successful transition, but this is only part of the picture. The Power Shift report details the following five-point plan to get us on the road to a new system.

1. Ensure long-term and transparent carbon targets that apply to the energy sector, recognising the important interaction between energy policy and climate change policy. This should facilitate the closure of Australia’s most carbon-intensive coal-fired generation over time.
2. Set strong and long-term renewable energy targets that ensure the continued and steady deployment of renewable energy. This can be achieved by an increase and extension of the Renewable Energy Target beyond 2020.
3. Foster innovation that delivers the next generation of clean energy solutions with appropriate institutions and support for R&D, demonstration and innovation financing for the clean energy sector.
4. Devise smart regulation for a 21st-century energy system that creates a competitive market and empowers consumers. Reform the energy market and current regulatory framework to facilitate greater competition, empower consumers and overcome the barriers to unlock the commercial opportunities to transition to smarter, cleaner energy technologies.
5. Cement public support through ongoing focus on improving the way in which the sector interacts with consumers and communities.

The plan seems straightforward enough, yet the CEC concedes that there are challenges to overcome. Earlier this year, there were widespread cuts to CSIRO funding, specifically in the area of monitoring and modelling of climate change. The federal government has since had a complete turnaround, now telling the organisation to focus on climate science, dedicating $37 million in funding and creating 15 new positions to implement the new strategy. What a difference six months and a close election makes.

Obviously, there will be significant pressure from the coal industry to keep things as they are, with some recent media coverage even suggesting that published criticism of renewables, such as wind farms, was coming directly from that quarter.

For years, the threat of a renewable future was assuaged by the theory that alternative energy types were simply too expensive. Not so, says the CEC. As the largest outlay associated with renewable energy is in the upfront capital infrastructure, with no ongoing fuel costs, we would no longer be subject to the cost volatility associated with fossil fuels (particularly those linked to international markets).

Declining costs

The report cites some significant falls in renewable energy costs over time. It says that the cost of solar power systems is less than a quarter of what they were a decade ago and, according to a research paper from University of NSW, the manufacturing cost of solar panels is estimated to drop by an additional 30–50% by 2019. Analysis by the Australian Renewable Energy Agency (ARENA) shows that the average cost of large-scale solar in Australia has dropped from $200/MWh in 2013 to around $130/MWh today.

While pricing may be tracking in the right direction, there are wheels within wheels when it comes to our energy system, something that the CEC acknowledges. Government, industry and community collaboration is required to make the dream a reality.

The CEC five-point plan is backed by a series of actions aimed at facilitating change through cooperation and recognises that a commitment to long-term change in the electricity sector is essential.

Pre-emptive policy

The process begins with policy change. Based on current projections, carbon emissions from the electricity system (the single largest contributor of total emissions in Australia) are likely to increase over the next 20 years. We have an oversupply of power generation capacity, which the CEC says is “in part a consequence of the absence of any long-term carbon price signal”. This makes investment in new infrastructure challenging. The answer, the council says, is to ensure that long-term and clear energy and carbon policies are developed, to ensure that we remain “internationally competitive and prepared for an increasingly carbon-constrained world”.

So, we’ll need to close down existing coal-fired power generation facilities, but not before there are suitable and, most importantly, reliable alternatives in place. The CEC said that the uncertainty created by major changes to national energy and climate policy in recent years is partly to blame for a slower than desirable rollout. The fact that these facilities were built and funded many decades ago means there is no cost to produce electricity other than short-run costs — a direct contrast to new energy investment undertakings. To deploy new technologies is obviously regarded as more expensive when viewed in relation to existing plants that are fully depreciated.

The council also concedes that factors including employment and local economic activity will be impacted through the phase-out of existing facilities, many of which are located in regional areas, so a strategy to support communities including training and redeployment is required to minimise the disruption.

Renewable energy targets

Renewable energy targets (RET) have been on the table since 2000, when they were legislated, and the CEC said they have contributed to slowing emissions growth in the energy sector. The report cites modelling conducted by the federal government that shows Australia would not have met its commitment to the Kyoto Protocol without having RETs in place.

As a result, the CEC regards the targets as a vital tool in the transition to a cleaner energy future. RETs were redesigned in 2009, when it was assumed that a mechanism for carbon pricing would be in place and that this would drive investment into renewables. Since the carbon tax was repealed, uncertainty has abounded. The CEC recommends that RETs remain to support renewable investment, particularly in the absence of a strong carbon price signal. The council also sees increases in RETs as required to provide a stable growth pipeline and to allow the renewables sector to mature and develop.

Paying for innovation

Steering the industry through policy change is one thing, but the CEC argues that innovation must be fostered through schemes that support new development. A range of initiatives is identified in the report including:

• Funding of R&D to support the development of new technologies or applications that have a potential to drive higher-efficiency renewable energy manufacturing or deployment.
• Capital grants or other innovative programs that leverage private investment for the demonstration of renewable energy projects, and help to build scale, local capability and confidence with the deployment of technology in Australia.
• Provision of concessional finance and equity that addresses the capital-intensive and long-term nature of renewable energy investments, as well as helping to build confidence among debt and equity suppliers and driving innovation in renewable energy financing.
• A strategic and coordinated approach to identifying the opportunities and barriers for these solutions and a plan for addressing them. A recent example of this is the Clean Energy Council’s Australian Energy Storage Roadmap which provides a platform for collaboration between industry, regulators, policymakers and consumers to ensure the development of this technology.

Much of the current available funding comes from ARENA and the Clean Energy Finance Corporation (CEFC). ARENA works primarily in large-scale solar deployments, aiming to reduce costs and consequently enable access to competitively priced finance.

The CEFC provides finance to emerging parts of the clean energy sector, co-funding projects, lowering risk and attracting the private finance required to foster the industry.

Regulation requirements

Given the age of the Australian energy market, the CEC thinks that the current regulatory structures are a significant barrier to change. The framework in place was designed for a centralised market model which no longer applies, so the council believes that substantial reform is required to enable an accelerated market transition. It further suggests that this reform should place consumer expectation at the centre of market design, rather than regarding electricity customers as passive as has historically been the case.

Power to the people

The CEC recognises that the Australian public strongly supports an increased uptake in renewable energy and that this support cannot be taken for granted. To cement this public view, it says that a commitment to integrity and community engagement should be evidenced via the following means:

• In the case of large-scale renewable energy, this means community engagement and consultation, as well as respectful and transparent relationships with the people living in proximity to a project. It also means ensuring the whole community understands the benefits and value of these projects.
• Small-scale renewable energy deployment is based on a retail relationship with an end consumer. The integrity of this relationship provides the basis for the sector’s social licence to operate, including the way the consumer is treated, the management of expectations and the system’s satisfaction of performance and quality standards. Robust schemes such as the accreditation of solar installers and the Solar Retailer Code of Conduct provide the assurance that consumers expect.
• Public support for the transition of the energy sector will also be enhanced by measures that can provide consumers with greater control and choice in their own electricity generation and consumption, and the management of their electricity costs. This must include protection of the most vulnerable electricity consumers and targeted support for all electricity consumers to take advantage of low-cost clean energy solutions.

In such turbulent political times it is difficult to ascertain which, if any, of the CEC recommendations will be implemented. In fact, many of us won’t be around to see the 2050 Australian energy landscape, let alone if we made it to zero emissions. At least the wheels are in motion.

Image credit: ©Aania/Dollar Photo Club