July 21, 2016

Visionary, risky or unavoidable?

South Australia’s embrace of renewable energy is all three.

Visionary, as Australia needs to use more renewable energy to curb greenhouse gas emissions.

Risky because, despite technical progress and the promise of energy storage, renewables still produce intermittently and can be idle at times of peak demand.

Unavoidable, as South Australia has exhausted local coal supplies and its old gas-fired plants are being retired.

Some people in the energy debate will dispute one or other of these claims. Every technology has its cheer squad that is easily offended by criticism, real or imagined.

However, South Australia is a test case too important to be ignored or reduced to self-serving talking points. It highlights challenges all states will face.

As South Australian Energy Minister Tom Koutsantonis warns: “This is coming to Victoria, this is coming to NSW. every jurisdiction is facing what we’re facing now.”

“This” is the switch to the large-scale renewable generation we need to fulfil climate change targets. Are we ready for it?

Wind accounts for 37 per cent of South Australia’s electricity consumption. With solar added, renewables’ share rises to 41 per cent. By comparison, renewables account for 12 per cent and 8 per cent of Victoria’s and NSW’s electricity use.

Most states are racing to follow South Australia. Victoria promises 25 per cent by 2020 and 40 per cent by 2025. Queensland is considering 50 per cent by 2030.

Announcing targets and promoting the long-term environmental gains is easy for governments.

Achieving rapid change without jeopardising energy security and hurting consumers will not be so easy.

Soaring prices in South Australia confirm we need a pragmatic assessment of the policy and market changes to integrate more and more renewables into the grid.

Policymakers should accept that, for the foreseeable future, Australia needs a mix of generation technologies.

Reducing carbon intensity is more complicated than just force feeding more renewable capacity into a flat market.

When renewable output has failed to meet demand, as in South Australia and Tasmania, the solutions were energy imports from other states and the hasty return to service of retired gas plant.

Importing more energy from interstate is an efficient, national approach to meeting demand. It will mean costly upgrades to interconnectors. And there is a premium to pay for importing energy.

Announcing targets and promoting the long-term environmental gains is easy for governments.

Achieving rapid change without jeopardising energy     security and hurting consumers will not be so easy.

Policymakers should recognise that technologies complement as well as compete with each other.

It may seem contradictory but Australia needs more gas-fired generation because we need more renewable generation.

Gas-fired plant is ideal for responding rapidly to spikes in demand or sudden falls in renewable output.

But, while gas-fired plants underpin energy security, the same plants are being squeezed out of the eastern Australia market. Last month, gas generation accounted for only 10.5 per cent of the national electricity market its lowest level since March 2010.

This is down from a relatively consistent 12 per cent of market share since 2012.

If this trend continues, other states will find themselves in South Australia’s position: depending on interstate generators having spare capacity available for dispatch.

Treating generation as a zero-sum game between popular and unpopular technologies is not sensible policy.

Australia needs a mix of generation technologies. That mix will evolve and steadily will become cleaner.

Reducing emissions is essential but ensuring reliable supply is equally important.

The COAG Energy Council, postponed during the election campaign, must convene soon to find a bipartisan way forward.

As a first step, governments should accept that we need a diverse, responsive generation sector that can maximise use of renewable energy without jeopardising energy supply.

Concerns are being raised that the market is vulnerable to the retirement of large baseload plants and that essential gas peaking plant is being withdrawn when its balancing role is becoming more, not less, important.

Policies are compounding the problem by preventing the development of new gas reserves.

Independent experts, ranging from the Australian Competition & Consumer Commission to the Australian Energy Market Operator, agree eastern Australia will face a supply-side crunch.

Politicians supporting moratoriums on gas developments should admit that they accept higher prices and unnecessary risks to secure electricity supply.

It is time for governments to take seriously the need for policies to ensure a smooth transition to a cleaner energy sector.

This blog post was first published in The Australian on 22 July.