$100 billion needed to decarbonise Australia's energy grid

$100 billion must be invested in renewable energy infrastructure to meet 2050 net-zero targets and decarbonise Australia’s electricity grid

Research by Deloitte Access Economics shows that Australia must up its game, and regulators also warn that the country could face higher power prices due to the investment needed to decarbonise the grid.

The news comes just after Federal Treasurer Jim Chalmers warned that energy prices are forecast to rise by 56 percent over the next two years.

Concerns that natural gas could increase by 40 percent led the Treasurer to task the Australian Competition and Consumer Commission with reviewing gas producers’ voluntary code of conduct to ensure domestic supply.

The Treasurer is also considering introducing a cap on domestic gas prices.

The Victorian Labor Party has announced that it will directly revive the State Electricity Commission to invest in renewable energy. If it wins the November 2022 election, the Labor Party will legislate a 95 per cent renewable energy target by 2035 and between 75 and 80 percent emissions reduction.

South Australia’s government has also stated that it will not rule out taking energy generation assets into state hands to counter the threat of energy price volatility.

Queensland is set to invest millions in creating renewable energy hubs to reach a new 80 percent renewable target by 2035.

The Energy Security Board stated last month that the Australian energy grid requires “massive physical investment and wide-ranging policy reforms” which will put ongoing pressure on prices.

Decarbonising costs money, but doing nothing would be worse

Deloitte said that while investing in decarbonising the grid will cost money, doing nothing would be worse.

“The price Australia is paying for a disorderly transition is now becoming evident,” Deloitte Access Economics said.

Queensland is spending $60 billion over 10 years in transmission and renewables, NSW is spending $32 billion over eight years on its energy infrastructure roadmap, and Victoria is spending $18.7 billion over 10 years on wind farms.

Over the next ten years, the Deloitte report estimates that $25 billion must be moved away from coal and gas-fired power – to low-emissions assets including solar and wind.

“We are already seeing this manifest in the form of asset write-off, impairments, and disinvestment,” the report said.

Australian coal power stations are shutting down earlier than expected, with the closure of AGL Energy’s Liddell plant in the Hunter Valley in April 2023 set to be followed by Origin Energy’s Eraring plant as early as mid-2025.

Vales Point is currently anticipated to run until 2029 but faces the possibility of early closure if it does not cut harmful nitrous oxide emissions.

AGL’s Bayswater is set to close as early as 2030 while Loy Yang A’s retirement has been brought forward to 2035.

Renewable energy investors urge transmission capacity expansion

Meanwhile, renewable energy investors are calling for more urgency to expand transmission capacity and unlock rural green generation hubs.

New South Wales has taken the lead in expanding transmission capacity by investing $1.2 billion to fast-track the development of the state’s renewable energy zones and funding the transmission infrastructure.

In the last state budget in June 2022, NSW Treasurer Matt Kean said the Transmission Acceleration Facility will fund the transmission infrastructure needed to enable new wind and solar projects to replace the state’s ageing thermal power stations.

The NSW has also doubled payments to private landowners who host major transmission links.

The Strategic Payments Benefit Scheme will double payments to private landowners hosting high voltage transmission to $200,000 per kilometre, to be paid out in equal instalments over 20 years.

It is estimated that this will cost the state $800 million for the estimated 4,000 kilometres of new transmission links needed to transition the grid to wind, solar and storage.

New transmission lines are a core part of the Integrated System Plan outlined by the Australian Energy Market Operator and supported by Labor’s $20 billion Rewiring the Nation program.

The electricity transmission system needs a major overhaul

In her annual appraisal of the global solar situation, BloombergNEF’s solar industry analyst Jenny Chase said: “We don’t need a technology breakthrough.

Today, solar developers need a grid connection and permission to sell electricity and they’ll be off building solar plants whether it’s a good idea or not.”

Australia’s electricity networks were originally built and owned by state governments, mostly during the latter half of the 20th century. Over several decades, interstate transmission interconnectors were built to share resources more efficiently across borders.

The National Energy Market was formally created in the late 1990 and between 2000 and 2015, several states either partly or fully privatised their transmission networks, leading to the mixed model of today.

The Australian Energy Regulator (AER) sets the prices the transmission monopolies can charge.

Since 2007, Australia has increased its renewable energy generation capacity to 60 GW from 40 GW.

It is projected that more than 30 gigawatts of renewable generators and 12 gigawatts of energy storage will come online by 2040.

But upgrading the transmission grid is easier said than done. Australia’s electricity transmission network is the longest in the world. The sheer physical size and cost of overhauling the system are subject to lengthy economic studies and planning processes.

Another obstacle to unlocking renewables is that generation hubs are often located in rural areas where transmission lines are antiquated and simply do not have the capacity that is required.

The Energy Security Board (ESB) says the transmission grid must be reconfigured along the lines of the Integrated System Plan to suit the emerging mix of renewable generation and storage.

This would mean upgrading existing interconnectors, building new ones and facilitating intrastate transmission from regional areas to coastal centres.