Australia’s parched red soils and vast undulating coastline would give the Empty Quarter in Saudi Arabia a run for its money for solar-power-generating potential. Researchers at the Australian National University estimate just 2 percent of the country’s landmass could generate 7,000TWh of annual renewable electricity, roughly 27 times its current domestic needs.
The Australian government is finally starting to recognise this immense potential. After winning the federal election in May, the Labor Party was quick to embrace low-carbon energy and has pledged to increase the share of renewable power generated across the National Electricity Market (NEM), the country’s main population centre on the east coast, to 82 percent by 2030.
As one of the world’s leading coal producers, the significance of this move cannot be understated. “The proposed legislation to increase carbon emissions reduction targets to 43 percent and achieve net zero by 2050 is the first significant climate legislation at the national level in more than a decade, while the associated target of 82 percent renewables would be triple current levels,” says James Buford, president and CEO of PAG Renewables. “In NEM alone, this could mean +50GW of new renewable capacity and supporting storage coming online through 2030.”
This decarbonisation shift could hardly come soon enough. The country has struggled to prevent blackouts this winter and in June was forced to suspend the electricity spot market in all regions of the NEM after wholesale prices hit record levels. The government had earlier issued a price cap for consumers, but extreme volatility in the international gas market only added to suppliers’ financial woes and forced them to scale back
The NEM spot price hit a whopping A$264/MWh in the second quarter, more than double the previous high of A$130/MWh set in the first quarter of 2019, according to Australia’s Energy Market Operators. The precarious situation was hardly helped by the reduced availability of coal-fired generation, the lack of black coal supply, soaring gas prices and the coldest start to June in many decades across parts of the east coast.
“Australia’s energy network has been under pressure from a range of factors, including global supply issues as well as outages in domestic coal-fired power stations caused by planned maintenance and equipment failures,” says Gloria Chan, executive director, Future Grid at the Clean Energy Finance Corporation, an Australian government-owned green bank. “However, with abundant untapped sources of low-cost and low-emissions renewable energy in the form of sun and wind, combined with increased storage expected to come online, Australia has a golden opportunity to take advantage of its natural resources and drive down electricity prices.”
Out with the coal-ition
This newfound policy shift will be welcome news for energy transition investors, and clearly there are incentives on both sides. “The government backing of such growth is exciting, especially when coupled with already compelling market dynamics,” says Buford. “Renewables are the cheapest form of electricity generation in Australia and are well positioned to replace the ageing coal fleet, which accounts for up to two-thirds of generation in some regions.”
Others agree that government ambitions will boost private investment in low-carbon energy and its associated infrastructure. “While private capital certainly has an important role to play in the investment in the transition to net zero, many private investors have taken a ‘wait and see’ approach in the past,” adds Rob Koczkar, managing director and co-founder of Adamantem Capital. “Private action is needed as the net-zero transition agenda will require over $4 trillion in annual investment globally.”
Australian superannuation fund Aware Super says it has already invested more than A$1 billion ($630 million; €640 million) of its members’ retirement savings in renewable energy and low-carbon technology projects to address the impacts of climate change, but government assurances will help accelerate that trend.
“Australia has a golden opportunity to take advantage of its natural resources and drive down electricity prices”
Clean Energy Finance Corporation
“Enshrining Australia’s emissions reduction targets in legislation will go some way towards creating a more certain domestic investment environment, enabling more retirement savings to be invested in high-quality energy transition opportunities here in our own backyard,” an Aware Super spokesperson tells Infrastructure Investor.
Rewriting the script
One of the key challenges to boosting renewables capacity, and the associated intermittency of wind and solar, will be improving battery storage and gaining access to the national grid. “Australia’s grid was built around ‘one-way traffic’ from a small number of fossil-fuelled generators (mostly coal),” explains Chan. “Two-thirds of these coal-fired generators are scheduled to close by 2040.”
Ross Israel, head of global infrastructure at QIC, highlights the sheer volume of investment needed to overhaul the current system. “We need to build greater than 120GW of grid-scale generation, which is nine times the current national variable renewable energy capacity, and add 45GW of new battery and hydro storage, which is three times the national electricity markets’ current firming capacity.”
Renewable energy sources are generally not found near Australia’s legacy coal reserves, adding to complexity and cost, but the energy transition will create new opportunities for “private capital investing in the grid outside the incumbent network operators”, adds Buford.
Another crucial consideration for the low-carbon economy is sourcing a steady stream of green metals, particularly lithium, cobalt, nickel and copper. The International Energy Agency points out that electric vehicles require six times more mineral input than conventional vehicles, while total mineral demand from clean energy technologies could as much as quadruple by 2040.
“One of the positive aspects for Australia is we are very well positioned with reserves and production of some of those key materials,” says Israel. “Australia is an interesting test tube considering the opportunity that exists for those raw commodities to be manufactured and the role that they will play in the energy transition.”