In the middle of weeks of positive news about renewables, the Grattan Institute released a report outlining the economic case for a transition to renewable energy. You'd be mistaken for thinking this well-researched report would have our governments, and market investors, scrambling to act. Saving the climate can also save investors - and electricity users - money, or so they would have us believe.
The truth is, the report - titled ‘Go for Net Zero’ - falls far short of the mark.
Don't get me wrong - the report is meticulously modelled and researched, and it all adds up. It starts by looking at the current policy debate; given the goals of our two major parties to reach net zero by 2050 (or "ideally" so), and the fact that most of our coal plants are due to retire by then, if not sooner, what would the lowest overall cost option be?
Figure 1.1 from page 6 - we'll be referring back to this one
From here, the report gets into an extensive discussion of the technical challenges in converting Australia’s main grid, the National Electricity Market (NEM), to run on renewables. This isn't ground-breaking - I have talked about some of these in earlier posts - but the detailed research and costing on different options, drawn from the most up-to-date science and prices, is useful to examine. I’m going to do my best to summarise it and do it justice, before I get into my points of criticism.
The report looks at costs from two primary points of view - the "levelised" or "system" cost of electricity provided by different power stations, which are currently paid by private companies building assets, and flow onto consumers as wholesale and then retail costs (with a fluctuating degree of profit and losses along the way - the report is quick to point out that it essentially is forecasting the total system costs, not prices on our energy bills); and the cost of building transmission infrastructure, which is usually shelled out by government or regulators, which NEM users then pay as a direct fee added to their bill.
Renewable energy already provides cheaper wholesale power than fossil fuels, even in a market like Australia without a price on carbon emissions. The trouble is, it's easier to distribute electricity from a small number of large fossil-fuel plants than a lot of smaller renewable energy assets, which need to be spread across a wide variety of climates to make sure some can keep generating even if there's bad weather in a particular region. At present, our grid has a mix of the two, which makes power cheap (even sending wholesale prices below zero) when the weather is good, but providing enough even when it isn't.
Running a grid on renewables also requires some built-in storage to handle small fluctuations caused by changes in weather, which add to the cost as well; these could fall into either category of costs in the NEM, but moreso wholesale ones, as big batteries (like the Tesla one in South Australia) or pumped hydro (like Snowy 2.0 or the Kidston mine) work within the wholesale market, buying low and selling high. The report doesn't model household battery storage or rooftop solar increasing above present rates, and it allows for a big uptake in electric vehicles.
The trouble, then, is finding the option that balances those two kinds of costs. The report picks the date 2040, and projects the balance of costs of what is projects to be the three most viable options by that point, which I'll call A, B and C: keeping the present level of renewable power and replacing retiring coal plants with the most up-to-date technology (A), letting renewables displace coal and keeping 30% of the grid fossil fuelled (B), and shutting all the NEM's coal plants by 2040, moving to 90% renewables, and relying on gas-fired power for the remaining 10% (C). To make those options a little more concrete, here's what A-C look like when compared with the timeline of our coal plants retiring back in Figure 1.1:
Figure 1.1 as three retirement plans for coal
It isn't very surprising, given what I said earlier, that A and B end up costing basically the same, as there's still enough coal in the grid to cover most of the gaps, and the present infrastructure doesn't need to change very much. But even C, wiping out over 90% of emissions from our grid, comes out as less than 10% more expensive – increased investment in “smoothing” assets like transmission and storage balanced by cheaper production:
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| Page 20. |
Given the goal of our major parties is Net Zero – reaffirmed today by our Prime Minister, getting a swipe in on inner-city voters concerned about climate change in the process – then how do we get there? This is where carbon offsets come in. The authors look at different prices and project the cost of buying offsets to match the emissions under A, B and C. At today’s prices for offsets (around $15/t), sticking with coal in A and paying to offset our emissions would still come out cheapest. But with even moderate rises in the cost of carbon offsets (inevitable as Australia, and the world, moves to net zero emissions), B almost certainly be cheapest, or even C:
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| The offset cost equation - Page 38 |
But if the costs for C didn’t end up being that much higher, why is there no model for option D – 100% renewable energy? This one would require no offsets at all. The authors dismiss politicians like the Nats pushing for new coal, but they also dismiss the Greens pushing for this target. They don’t say it’s impossible, but that the cost to remove that final 10% of fossil-fuelled electricity from the NEM would be far higher than relying on a moderate amount of transitional gas-fired power and offsetting the remaining emissions (10mt annually) until the other options become more affordable.
Thus, the report is titled “Go for Net Zero”; it could just as easily be titled “Don’t Go For Zero”.
The technical challenges of transitioning to a 100% renewable grid are real, and the authors look at various ways of solving the big one – what they call the “winter problem”. Up to 8 hours of battery or pumped hydro storage would see the NEM grid through the worst expected weather in summer, when the days are long and solar power has many hours to produce. But with the shorter daylight hours of winter, there could be days, weeks or fortnights where far less energy can be produced than is needed; our houses, after all, are glorified tents, and take a lot of energy to heat during such spells.
The key word here is “could”; a 100% renewable grid would need a solution to this problem to ensure supply, but in most winters it might only be drawn on sparingly or not at all. No power plant operators would want to invest in an asset that they can’t rely on using, and thus recouping their costs, every year.
To their credit, the authors look at most of the options which have been mooted to solve this problem in prior papers on this issue, like Beyond Zero Emission’s Stationary Energy plan. But they load them down with caveats and assumptions which rule them out, when they could just as easily rule them in. I’m going to examine those now, and suggest how their supposed pitfalls might easily be overcome.
It seems as though the natural answer to this problem is storage – if it’s good enough to keep solar power running through the night, then surely it’s good enough to get us through winter? The trouble is capacity. By their models, it would take us around 9 Snowy 2.0s worth of storage in reserve to get through the “winter problem”, and they would need to start the worst fortnight full. There are big problems with this approach – lack of viable dams or reservoirs, for a start – and even if we could do something clever like turn former mines into pumped hydro installations, the capital costs would take a long time to be recouped, and interest would keep piling up.
Biomass is another option the authors look at. Powered by burning wood, primarily, along with other sources like landfill waste gases, biomass provides a lot of power in Europe – around half of all renewables – and, while it emits carbon when it is burnt, it is carbon that has been drawn out of the atmosphere by trees. It could, then be considered “carbon neutral”. So why don’t the authors use it as the 10% backup instead of gas? The capital costs are high, but the main barrier is fuel.
Right now, biomass from agriculture and forestry waste in Australia is cheap, but it is likely to get more expensive. The authors suggest using it as our winter backstop would raise prices and require dedicated farming – not necessarily a bad thing, as that could be a carbon abatement or even draw-down mechanism – but while it might price in projects to harvest biomass that is currently wasted, it might also price in less genuinely carbon-neutral options, like shipping wood pellets in from North America – as Europe does today.
Hydrogen is the main option that the authors see as potentially solving the “winter problem”. I’ve written about the technology here; to summarise, hydrogen produced through electrolysis is as clean as the electricity that fuels it, and it can be used as transport fuel, in industrial processes – or burnt for emissions-free electricity.
That could easily provide the solution to our “winter problem”, as hydrogen can be produced in the summer to soak up excess production, and burnt in winter as needed. But if hydrogen is to be used for industrial applications, such as carbon neutral steel to go into all of our new power infrastructure, then it would need to be able to produce a regular supply – and thus, it might require its own renewable energy plants to ensure it, prone to the “winter problem” themselves.
This is the case for a lot of
projects right now – renewable agency ARENA is providing startup funding for
these kind of standalone proposals – but a viable business model could also be based on hydrogen production connected to the grid, building up a
supply of hydrogen over summer to see us through the winter – and in the
spring, selling the excess to the steel industry - or northern hemisphere countries which are already looking
to use hydrogen in the same way, like Singapore or Japan, before their own winter
begins.
Together, these three options could provide the answer to the “winter problem” – even the authors admit that they may already be cost effective, if offset prices soar above their highest modelled price of $200/t. And as they start to be used they are likely to grow cheaper to build, as solar and wind did.
But the question is, why does it matter what the absolute cheapest option for de-carbonising our grid is? Aren’t there other things to consider – like what is the fastest? Or fairest?
That leads onto my bigger criticisms of this report. There are two main ways in which the framework the authors have set themselves falls short of the mark: the “market mechanisms above all” logic of the NEM, which got us into the problem of climate change in the first place, needs to be questioned, and amended – or ditched. And why we are even aiming for net zero needs to make sense.
The Grattan Institute’s report is essentially limited to decarbonising the NEM as it exists today. But the NEM has only existed since 1998, and it was only joined by Tasmania in 2006. It has been useful to create an interconnected grid across Australia’s east coast, but it is an institution of the neoliberal era, and takes it for granted that market approaches will always be cheapest. That is far from the case.
You remember, back at the start where I said the system cost for the power plants in the NEM is paid by private investors? Actually, it was largely paid by the taxpayers, or by governments issuing bonds - who then sold the assets to private companies in the era of privatisation. This isn't ancient history, and happened less than ten years ago in NSW.
The companies that bought up assets made sure they got a good deal, but they expect a return on their investments. Private companies don’t do things for the public good, but to make a profit – and they pay higher rates of interest on loans than governments do, so assets built by them will usually be more expensive than if they were funded by taxpayers. They also prefer to build assets that will quickly repay the capital investment required – like solar PV and wind, but not like concentrated solar thermal, or assets only planned to be used intermittently.
The structure of the NEM has been naturally resistant to big changes, since they have to pass all sorts of tests. Even a no-nonsense extra connection between NSW and SA, facilitating better transmission and unlocking large areas on the borders of those two states for solar investments, has taken many years of discussion and better-off-overall testing to get approved. Under this framework, one of the biggest solutions to the “winter problem” provided by BZE's 2010 report will never even be considered: turning our grid into a true coast-to-coast grid to rival Europe’s “super grid”, by interconnecting Western Australia &or the Northern Territory to the NEM.
The idea of connecting all of Australia’s states to a single grid hasn’t been widely explored – as far as I can tell, market regulator AEMO has never even assessed it. But it would allow the transport of solar energy from across three time zones, as well as opening up areas of high solar resource like the Nullarbor for development of power plants. And it would do a lot to solve the “winter problem”, along with implementing a strategic reserve based on the above technical solutions. We could effectively extend the available winter daylight by 2 hours. The amount of duplication, or “overbuilding”, required would be far less.
Regardless of that proposal, the concept of keeping a strategic reserve of electricity in store for the worst winters isn’t out of the question. When it comes to something like transport fuel, which is necessary to keep society running through global disruptions (or to go to war), governments around the world think nothing of spending up big to keep huge reserves on hand. World agreements demand we should keep 90 days of transport fuel available. So why can’t we break beyond the market mindset and think that our government might have a similar strategic reserve of stored electricity (and the assets to use it) to address the defining problem of the 21st century, averting runaway climate change?
That leads to my second criticism: the authors of this report mention our Paris Agreement
commitments to address climate change, and then move straight onto the
goalposts of our two major parties. But our two major parties have no interest
in policies that will do anything meaningful about climate change.
The science grows more clear every day – in fact, the same week ‘Go for Net Zero’ was released, the Climate Council released another report stating that, if we are to keep to the Paris Agreement goal of limiting warming to 1.5c, then we will need to do the heavy lifting of emissions reductions this decade, and hit net zero by 2035, before moving into net negative emissions and drawing down excess carbon. A slow transition, at the rate the market will deliver, will mean the death of the Great Barrier Reef, and it may not be enough to prevent the crossing of ‘tipping points’ that send us into irreversible climate change.
Reports on
renewable energy today must highlight the abject inadequacy of net zero by 2050
and the rate at which market mechanisms are decarbonising the grid, not take it
as a given.
What, then, does the retirement plan we need actually look like? Something more like this:
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| Figure 1.1 with policy to match the science |
Fossil fuel profiteers don’t want to see this kind of action, or policy and targets that will lead to it. It would mean turning a lot of their “sunk costs” into “stranded assets”, never able to recoup the cost of investment. Funnily enough, although this phrase has been in the policy debate, it hasn’t shown up in the report. Maybe it’s because the Grattan Institute is funded by investors in those assets, such as founding member and coal capitalist BHP, or affiliate and gas capitalist Woodside?
Regardless of that potential (and undeclared) conflict of interest, the report’s authors have done considerable legwork in modelling our transition. And, although they have claimed that we need to “Go for Net Zero” and not “100% renewables”, they have shown that we are already on the cusp of that major transition – and the technologies to do it are already there.
