Renewables now the cheapest source of reliable power generation in Australia, RepuTex says

This article is more than 3 years old

This article is more than 3 years old

“Clean” coal technologies won’t be commercially viable before 2030 without government subsidy and are fundamentally out of sync with the move towards more flexible power generation, according to the energy market analysis firm RepuTex.

In a new analysis released on Thursday, RepuTex argues that the rising price of gas, coupled with the falling cost of energy storage, has now made renewable energy the cheapest source of reliable power generation in Australia.

The long lead time before technologies such as carbon capture and storage reach commercial maturity means “clean” coal won’t help Australia meet its 2030 emissions reduction target under the Paris agreement.

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RepuTex used its submission to the Finkel review to argue that a market signal was required to determine the value of abatement and to allow an orderly retirement of ageing coal-fired generators.

The firm said the market signal could take the form of an emissions intensity scheme, a legislated emissions benchmark, cap, or target that “better links emissions reduction objectives to the operation of the Australian electricity system”.

While the debate accompanying the Finkel review has centred on the electricity industry, RepuTex pointed out energy was not the only source of low-cost emissions reduction potential in the Australian economy.

“Outside of the generation sector, the effort to reduce emissions could therefore be spread across the economy,” the firm said. “This may be achieved via the design of sectoral targets for industrial emitters via the safeguard mechanism, supported by emissions offsets, which would enable companies to reduce emissions at lower cost, while incentivising investment in cleaner, more efficiency energy technology.”

The call by RepuTex for a clear market signal follows similar arguments mounted by the National Farmers’ Federation, which this week reversed its once-vociferous opposition to carbon pricing.

Other major organisation to champion a market mechanism include Energy Networks Australia, the retailer EnergyAustralia, the electricity provider AGL, the Climate Change Authority, the Investor Group on Climate Change, the Business Council of Australia and the CSIRO.

The official conducting the energy review, the chief scientist, Alan Finkel, gave implicit support for an emissions intensity scheme in his preliminary report, saying it would integrate best “with the electricity market’s pricing and risk management framework” and “had the lowest economic costs and the lowest impact on electricity prices”.

The energy and environment minister, Josh Frydenberg, initially signalled the government would look at the desirability of an emissions intensity trading scheme for the electricity sector as part of its scheduled review of its Direct Action climate policy – but he reversed his position after an internal Coalition revolt.

A major stakeholder in Australia’s politically toxic carbon pricing debate, the Minerals Council of Australia, has used its submission to rebuke Finkel for floating an intensity scheme in his preliminary report without detailed analysis of the costs.

While the MCA doesn’t rule out supporting such a scheme, noting it is appropriate to consider all policy options, it says Finkel conducted “virtually no serious analysis of the economic costs”.

The council, which represents Australia’s mining giants, says modelling “relied upon by the independent review shows the costs of an EIS are very high”.

“For example, close analysis of one of the cited reports … shows the total additional cost to household and industry of an EIS configured around Australia’s contribution to a 2 degrees limit on global warming would reach $128bn over the period 2020 to 2030,” the submission says.

“That is a fact germane to the broader national policy debate. At the very least, the independent review should be more transparent about these costs in its final report.”

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The MCA blasts Finkel’s preliminary report on a range of fronts, declaring it “conspicuously fails to examine the comparable costs of available energy sources” – declaring this “an extraordinary omission for a report of this kind”.

The council uses figures dating from 2015 to argue that coal and gas technologies remain the lowest cost to build and operate. It asserts the review ignored the potential contribution of high-efficiency, low-emissions (HELE) coal technologies and ignored the potential of nuclear power.

The MCA submission contains new research arguing that electricity networks face significant integration costs as the relative share of wind and solar energy rises – including the requirement to keep backup generation power on standby.

The research says the direct subsidies paid by electricity consumers to achieve the large-scale component of the renewable energy target “are estimated at more than $1.8bn in 2016 alone but these subsidies only represent a fraction of the costs of this policy”.

The research by the consultancy BAEconomics says integration costs increase significantly as the share of intermittent generation capacity in a power system rises. The MCA argues the costs associated with intermittent capacity should be borne by renewable generators.

It also argues the government should provide support “to all energy sources or to none”.

It declares that the final Finkel report must make a “clear and unambiguous statement in favour” of a technology-neutral approach to policy support for both CCS and HELE coal technologies – meaning the rules should be changed to allow the Clean Energy Finance Corporation to invest in “clean” coal.

The CEFC has said clean coal plants are not financeable in Australia unless the government agrees to indemnify projects against the future risk of a carbon price being introduced, and against the cost of delays prompted by likely community protest action.

In its submission to the Finkel review, the CEFC noted there was no new coal-fired capacity among current proposals registered with the Australian Energy Market Operator.

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“Coal-fired generation tends to be relatively inflexible and not suited to a market with higher levels of renewable energy penetration and declines in daytime demand as a result of rooftop solar generation,” the CEFC said.

“While the range of cost estimates for new coal-fired generation capacity are broadly comparable with new renewable energy capacity (excluding any cost for carbon emissions), negative investor perceptions mean that new investment in coal-fired capacity would be unlikely to be financed by Australian or international capital markets.

“Investors perceive that new fossil-fuel generation capacity has carbon risk, which is the risk that a new asset would be stranded if a future government were to adopt tighter emissions constraints.

“Further, there is arguably no longer a social licence for new coal-fired power stations in Australia.”