Why Australia’s renewable energy revolution is behind schedule, and how it can be fixed

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Alison Reeve, Grattan Institute

For years, the electricity sector has been the model for emissions reductions in Australia. The sector has achieved a staggering 26% reduction in emissions over the past fifteen years, while other sectors have barely made any progress. The share of renewable energy has increased from 7.5% to more than 30% in that time.

But unfortunately this impressive pace is not fast enough.

Investment in renewable power plants slowed in 2023 – financial approvals for new solar farms shrank by more than a third and no new wind farms received support. By the end of that year, Australia had 56 renewable energy projects under construction, up from 72 the year before.

If Australia is to achieve the federal government’s 43% emissions reduction target by 2030, and the deeper and faster cuts needed afterward, we must accelerate. The federal government wants the electricity sector to generate at least 82% from renewable sources by 2030. The electricity sector must be clean enough by that year to make electrification a better choice for sectors that rely heavily on fossil fuels, from transport to heavy industry. on household gas.

And it won’t end there. After 2030, when other sectors start to electrify en masse, the electricity sector will have to continue building more and more new renewable capacity to keep up.

If not, it simply won’t be possible to eliminate the remaining 56% of our emissions that come from the production and combustion of fossil fuels. And that’s before Australia even starts looking at expanding its industrial base to become a so-called “renewable superpower.”

There are three reasons why the electricity sector is currently not meeting the required pace.

Not enough poles and wires

New wind and solar farms need new transmission lines to get their electricity to users. That’s because the good sources of wind and sunshine are not in the same places as the existing transmission network. And even if it were, we would still have to upgrade and build the transmission due to growing demand.

The Australian Energy Market Operator estimates that 50% of the transmission needed to deliver a clean, reliable and affordable energy supply by 2050 will need to be built over the next six years.

But most of these transmission lines have yet to be constructed.

graph showing the construction of renewable energy sources and transmission lines
This graph shows the planned five-year construction period for transmission and utility scale renewables, based on the AEMO Draft 2024 Integrated System Plan, Step Change scenario. Grattan Institute, CC BY-NC-ND

Instead, sustainable producers have had to connect to existing lines, which have become overloaded. So even if new renewable plants receive approval for construction, their production may be curtailed because they cannot get it to consumers. This has hit developers’ finances hard.

And many rural communities are not happy with the new transmission lines planned for their regions. While many of the required lines have been known in the energy sector for years, the communities that will house them are only now learning about them. Understandably, many object.

In addition, bottlenecks in the planning approval bureaucracy are causing construction to progress slowly. This isn’t just about transmission lines: it also applies to new renewable generators and even improving roads so that equipment and machinery can be used safely.

Coal sticks around

There is still uncertainty about when coal generators will exit the market.

We need to build replacement capacity for aging coal generators before they retire, but no one wants to build new generators to replace coal if they aren’t sure when demand for their electricity will arise.

Generators are required to announce their earliest exit date if that date is less than three and a half years away, but there is nothing stopping them from postponing that date. That’s what Delta Electricity did last year when it changed the closure date for the Vales Point power station in New South Wales from 2029 to 2033.

Moreover, nervous governments have started making opaque deals to pay coal-fired power stations to stay open, while insurance against the slow pace of renewables is increasing.

Governments do not coordinate well

Every state government on the East Coast has a renewable energy target. This also applies to the federal government. But these targets were set as arbitrary percentages tied to arbitrary dates, and not chosen to deliver the cleanest, most reliable, and cheapest energy system for consumers.

State and federal governments choose their targets separately, driving up overall costs. To give just one example, both New South Wales and Queensland have established ‘renewable energy zones’ in the New England county, located right across the border from each other. Developing these areas as a single zone should cost less overall, but no such interstate efficiency has emerged. Each state has gone its own way.

Is there a way out?

All of the above has created a policy quagmire that has bogged down Australia’s energy transition.

In our report released last month, my colleagues and I argue that the best way forward is to temporarily set aside the desire for neat, market-driven policy. Instead, we believe that governments and industry must embrace an approach that may at times feel ad hoc or disorganized over the next decade as coal exits take place.

During this time, governments will likely need to intervene regularly to coordinate new transmission, new generation, and coal exits to keep the lights on.

Once coal no longer makes up a substantial part of the market, it will be time for governments to step back. After 2030, electricity demand is expected to continue growing and the construction of renewable energy sources will continue.

graph showing coal gradually leaving the Australian grid
If current predictions are correct, coal will fall below 10% of our electricity production by 2032. ‘Storage’ includes utility and consumer storage. This is based on AEMO’s 2023 Integrated System Plan, Step Change scenario. Grattan Institute, CC BY-NC-ND

Governments must start designing the rules that will govern this new electricity system. It requires asking a fundamental question: what will be the respective roles, rights and responsibilities of energy consumers, industry and governments in the future?

Keeping the system reliable will be a fundamentally different task if the amount of electricity generated depends on the weather. Market rules must change to ensure that there is always sufficient generation available to meet demand in this new electricity system.

And CO2 pricing – a political taboo for so long – will have to be discussed again. Even if the coal-fired power stations are closed, an essential part of our electricity will come from gas. The electricity sector needs a clear and sustainable carbon price for the energy sector to guide the entry and exit of gas-fired power stations and ensure that they pay for their emissions.

Governments will need to better integrate and orchestrate all forms of distributed energy resources, from rooftop solar panels to electric vehicles, especially now that electric vehicles can use their batteries to power the grid.

Australia may muddle through in the coming years, but voters won’t forgive their political leaders if they botch the post-coal era and fail to deliver the trifecta of clean, affordable and reliable energy. The hard work starts now.The conversation

Alison Reeve, Deputy Program Director for Energy and Climate Change, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.