Our slow energy transition
Technology and prices
As the absolute price of renewable energy sources has fallen, their relative prices have changed, resulting in changing patterns of investment in electricity supply.
The cost of renewable technologies continues to fall. The most spectacular fall over the last 15 years has been in solar photovoltaics (“panels” in everyday terms). The cost of wind power – offshore and onshore – has also fallen, as has the cost of concentrated solar power (mirrors concentrating sunlight on a heat exchanger, called CSP). Other technologies – hydro, geothermal and bioenergy – which were once the cheapest, have not had such cost reductions, which means they are now among the relatively higher-cost renewable technologies.
The figure below, taken from the International Renewable Energy Agency (IRENA) report Renewable power generation costs in 2024, shows these price movements, in terms of the levelized cost of electricity: that is the average cost of generating electricity, not including the cost of transmitting, distributing and firming electricity supply. They don’t show coal as a cost because its inclusion would require a stretched Y axis.
The message from the IRENA report is that new generating capacity costs about six Australian cents per kWh – a diminishingly small part of the cost of getting electricity to homes and businesses.
IRENA and other agencies, such as BloombergNEF, believe that the cost of wind and solar power will continue to fall, although not so spectacularly as in the past. But the same analysts forecast that the cost of battery storage will keep on falling rapidly in the foreseeable future.
These changes in relative prices mean that investors’ thinking has changed over the years. In earlier times there was great interest in geothermal energy and bioenergy, which can provide 24/7 power. Then there was the idea of solar and wind investment in concentrated “hotspots”, in different time zones and with different local weather, connected with long transmission lines, to hedge against times “when the sun doesn’t shine and the wind doesn’t blow”. The economics of power generation is now moving to favour solar and wind backed up by localized storage, ensuring that electricity is always available.
Storage can be in three forms, serving different purposes:
Capacitors, which can accumulate energy quickly and can send it back quickly, but they don’t perform well for storage because they slowly discharge. They can help smooth out short-term fluctuations and hold energy for a short period, such as when wind is gusting, and when clouds are breaking periods of sunlight.
Batteries, which can hold charge for hours and days, typically matching supply and demand over a 24-hour cycle. These can be grid-scale, usually co-located with large solar or wind projects, or household size, including electric vehicles – “batteries on wheels”.
Pumped hydro, which is slow to accumulate energy (it takes time to pump water uphill), but which can hold energy in long-term storage – a particularly useful feature if other sources are subject to seasonal supply variations, such as the diminution of solar power in winter.
Therefore investors – and governments – have been shifting their thinking about how a combination of generation and storage technologies can deliver the lowest-cost “dispatchable” power.
This is a fundamental change from the “base load” model that dominated for more than 100 years, and which still seems to be ingrained in the thinking of the anti-renewable lobby. That’s the model that offered households cheap tariffs for night-time hot water heating, because the coal-fired and nuclear power stations had to be kept running.
This means much more attention is being placed on storage, particularly batteries. It’s not just about the benefits of scale economies and improved manufacturing techniques: it’s also about technological breakthroughs. For example engineers at Monash University are working on “supercapacitors” which bridge the gap between capacitors and batteries, to name just one such research path.
Some critics of the Snowy 2.0 scheme, the cost of which has now blown out from $2 billion to something north of $10 billion, point out that its cost per kWh of stored electricity is becoming higher than the cost of battery storage, but as Alison Reeve of the Grattan Institute points out in a Saturday Extra interview – Snowy Hydro 2.0 is leaking money – large pumped-hydro systems and batteries serve different purposes, outlined above. That doesn’t let the project off the hook: the initial cost estimates by the Turnbull government were rushed and sloppy.
Further out on the horizon are quite radical technologies, such as may develop from the work of this year’s Nobel Prize winners in chemistry (including Richard Robson from the University of Melbourne) who developed methods of producing large holes within molecular lattices – described in a Conversation contribution by John Griffin of the UK’s Lancaster University: Nobel chemistry prize awarded for crystal materials that could revolutionise green technology. These holes could be used not only to store hydrogen, for example, but also to capture carbon, which in time (a very long time possibly), could bring carbon capture and storage back into the zone of economic feasibility.
No mention of technology is complete without mention of nuclear fusion. For as long as anyone can remember it’s always just 30 years away, but Alan Kohler suggests that strong worldwide growth in electricity demand associated with data centres, combined with established concerns about nuclear fission power, is stimulating fusion research.
Renewable records
For electricity generation, renewable sources in Australia and worldwide are nudging ahead of coal. Expect the trend to hasten.
Our energy transition may be slow, but records are being broken. Writing in Renew Economy, Giles Parkinson draws two achievements to our attention.
On Saturday October 4, renewables achieved a 79.8 percent share of the National Electricity Market, in spite of heavy curtailment, without which it could have met 113 percent of demand. That peak was achieved mostly through rooftop solar, he writes.
A more substantial achievement is that over September this year renewable energy – a combination of solar, wind, hydro and biomass – overtook coal for the first time.
Those are our achievements. Worldwide, for the first time, renewables have toppled coal as the leading source of electricity, writes Reihana Mohideen of the University of Melbourne in The Conversation. There are surprising patterns in this development, because while progress has slowed in the US and the EU, there has been fast progress in some “developing” nations. She reports specifically on progress in Bhutan, Nepal, Sri Lanka and the Maldives. Who could have imagined that Nepal would take a lead in getting electric vehicles on to its streets?
This seems to be another example of an established pattern of “developing” countries leaping over “developed” countries in adopting new technologies, because in those old “developed” countries there is the inertia of sunk cost in established technologies, and the power of established interests resistant to change.
Each country has taken its own path, generally driven by local economic needs, such as Sri Lanka’s shortage of foreign exchange to pay for fuel. The inference one can draw from her research is that as countries need to expand their electricity supply, which is usually a rapid expansion in “developing” nations in a period of rapid growth and industrialization, those countries turn to the lowest-cost source energy – renewables.
So far these records result from renewables nudging ahead of coal and other fossil fuels, but technological breakthroughs, improvements in manufacturing processes, and exploitation of scale economies put momentum on the side of renewables, while most fossil fuels suffer from diseconomies as more difficultly-won resources have to be exploited.
Towards a gas reservation policy
A poorly-considered uneconomic investment by one company is responsible for a large part of our gas supply problem. Should the government continue to underwrite its bad business decisions?
Ian Verrender describes how Santos, in trying to recoup the cost of an unwise investment in a massive LNG gas export plant, has contributed significantly to high gas prices in eastern states with economy-wide consequences: Why Santos is behind your soaring electricity and mortgage costs.
The Commonwealth is currently conducting an inquiry into the east coast gas market, and several parties have pointed to Santos’s role in elevating gas prices. If the Commonwealth were to implement an east coast gas reservation policy, similar to that operating in Western Australia, Santos would find it hard to meet its export commitments, resulting in a strain on the company’s finances.
The company is warning that any government policy resulting in its inability to meet its export commitments would constitute sovereign risk, damaging Australia’s reputation as a reliable trading nation. Verrender summarises this argument:
In essence, it is arguing that the cost of a failed high-risk strategy undertaken by the company in previous years should now become a national responsibility, that Australian businesses and households should continue to bear the cost.
In view of its recent poor business performance, the company may have run out of support from investors and the government.
Queensland – back to the Bjelke-Petersen days
Queensland’s “energy roadmap” is a victory for partisan political spite, achieved with the consequence of high electricity prices.
When the LNP Crisafulli government was elected a year ago there were early signs that it would be more centrist and more inclined to cooperate with the Commonwealth than had earlier Queensland premiers, such as Campbell Newman and Joh Bjelke Petersen, who had spent more of their political capital on efforts to undermine Commonwealth Labor governments than on advancing Queensland or national interests.
But the Crisafulli government seems to be out to thwart the Commonwealth’s 2030 target of achieving 82 percent of electricity generated from renewable resources, because last week it announced that it intends to keep coal-fired stations, originally scheduled for closure in 2035, generating for 20 more years, possibly to the 2050s. It is repealing the previous government’s renewable energy targets, has cancelled previously-approved wind projects, and has effectively stymied the idea of approving any renewable projects that aren’t already under construction.
This is how Giles Parklison, writing in Renew Economy, describes the state government’s “five year energy roadmap”: Queensland LNP to keep “ageing coal clunkers” online for decades, signals effective stop to new wind and solar. That plan places coal and gas at the core of the state’s growing energy supply, not just for firming, but also to deliver a substantial proportion of supply. The Queensland government is still talking about “baseload” supply.
Parkinson points out that the government is effectively condemning Queenslanders to an extended period of unnecessarily high electricity prices. He is in no doubt about how such economically irresponsible policy has come about:
The Queensland government has decided to scrap the state’s coal closure targets after Treasurer and Energy Minister David Janetzki was reportedly over-ruled by the Premier’s office, under pressure from the party’s right wing.
Unsurprisingly much of the funding to keep coal-fired stations open will come from government: no corporation, accountable to its shareholders, would be so rash as to invest in an uncompetitive technology.
It’s a reminder of where the Coalition’s remaining power lies. It holds office only in the Northern Territory, Queensland and precariously in Tasmania. Federally 37 percent of its House of Representatives seats are in Queensland, even though that state holds only 20 percent of the nation’s population.
While Andrew Hastie has the Coalition’s loudest anti-renewable voice, it’s Queensland where the Coalition – that is the National Party and the LNP – can put that policy into effect.
It doesn’t matter if it denies the nation the opportunity to lower its power prices and protection against the threat of carbon border adjustment charges, because it’s not about economics. It’s about embarrassing Labor on the path to putting the Coalition’s cronies back in office.
Everything you need to know about our energy transition, in two minutes
Alan Kohler explains it all in a videoclip.
If you don’t have time to read the above four posts, you might care to spend two minutes watching Allan Kohler’s videoclip Australia could be left behind on renewables.