Australia is fighting an energy war on two fronts. The need to tackle climate change looks stark against a background of bushfires, floods and rising temperatures. But the more pressing concern is what we do to keep the lights on.
Our nation’s $120 billion energy transition is well under way as we pursue net zero by 2050.
It could be the biggest economic transformation since the Industrial Revolution, but how do we get there?
“The only question is whether we do it well or do it badly,” says Tony Wood, director of energy and climate change at public policy think tank the Grattan Institute.
“Badly means disruptions of power supplies, disruptions to gas supplies and much higher prices, while we suffer the consequences of climate change.”
Wood, a former senior executive with Origin Energy, argues Australia deserves credit for substantially reducing its emissions since 2005, but worries that progress has slowed in recent years because of supply-chain blockages, rising costs, regulatory hurdles and community concerns about new clean energy projects in their backyard.
“The risks to transition are mounting all the time,” Wood says.
And there’s still plenty of heavy lifting to be done.
“This is the hard part. This is not the time to stop, this is the time to be very clear about what we need to do,” he says.
Rob Scott, chief executive of Wesfarmers, which operates major chemical operations in Western Australia and a string of major retail chains including Bunnings, worries that the size of the task can be underestimated and potentially disrupted without long-term commitment.
“The issue that concerns me most is that the energy transition and the decarbonisation projects that we need to focus on are going to take decades, and we need to manage that transition in a fair and just way,” Scott says.
Australia, one of the world’s top 20 emitters, aims to reduce its domestic emissions by 43 per cent on 2005 levels by 2030, with reductions in the energy industry through the closure of coal plants and the expansion of renewable sources of power — including solar, wind and biofuels — crucial to the aim.
However, sceptics argue that 2030 target needs to be strengthened significantly, to 75 per cent or 80 per cent, to align with the goal of the Paris Agreement to limit warming well below 2C.
That appears a big ask to other observers, who say government, industry and business need to be better aligned on the targets, investment settings and priorities to ensure affordable and reliable energy while the transition is under way.
And they still worry about a blowout in energy costs or power disruptions that would risk household support for clean energy. For many consumers, affordable energy is more important than the threat of climate change.
According to 2023 CSIRO data, electricity generation through coal and gas accounted for about one-third of Australia’s emissions, with industry such as manufacturing and mining contributing 22 per cent, transport 21 per cent and agriculture nearly 18 per cent.
The issue that concerns me most is that the energy transition and the decarbonisation projects that we need to focus on are going to take decades, and we need to manage that transition in a fair and just way.
Each sector has its own decarbonisation challenges but all would benefit from cleaner electricity grids and the accelerated development of new energy technologies to reduce carbon emissions.
Australia’s long-haul transport industry, for example, still relies on diesel to cart materials around the country because of the lack of viable electric options.
But not surprisingly, much of the public focus has been on the energy sector.
It’s been the biggest contributor to emission reductions since 2015, thanks to the rising development of renewable energy sources, which now account for about 43 per cent of power generation.
They actually reached an average record 46 per cent share of the east coast’s National Electricity Market in the December quarter, according to the Australian Energy Market Operator, with coal-fired generation dropping below 50 per cent for the first time.
On a daily basis, the contribution of renewables peaked at 75.6 per cent last November when household and business rooftop solar and storage accounted for 43 per cent of the generation mix, with grid-scale solar and wind contributing 19 per cent and 11 per cent respectively.
The Albanese Government is targeting the renewables share to be at 82 per cent by 2030.
Wood believes that could be a stretch.
“We were happy to pay for people to put solar on rooftops, and electricity grids had capacity to connect wind and solar farms,” he says. “But we’ve used up a lot of that capacity.
“We now need to build more transmission to connect more remote renewables to the grid.”
But that is proving expensive and difficult from a regulatory perspective, with timelines also pushed out because of opposition, particularly in Victoria and NSW, from farmers and coastal communities concerned about the pathway of new transmission lines or the development of new solar and wind farms.
“So, we have gone from about 10 per cent renewables in 2010, to about 40 per cent now, and we’re going to go from 40 per cent to 80 per cent in the next five years. Really?” Wood says.
While there’s a broad if not universal acceptance that ageing, unreliable coal-fired stations must be retired, there’s still vociferous debate about what will complement renewables in the future energy mix.
Hydrogen was briefly much touted by the likes of Andrew Forrest and his company Fortescue, but it has fallen back in priority as advocates struggle with rising costs and the commercialisation of enabling technologies.
The cleaner form, green hydrogen, is not yet price-competitive, and it won’t be until proponents get the demand needed to build commercially viable plants.
And at the moment, buyers don’t want to pay the “green premiums” required to support development. And US President Donald Trump’s return to “drill baby drill” pro-fossil fuel policies has weakened the appetite of buyers and backers.
Nuclear energy has also been getting an airing, though it too faces significant hurdles, not least political opposition and legislative challenges to overturning bans around Australia.
Wesfarmers’ Scott says the energy transition in Australia will be partly shaped by global trends, and “there are a lot of developments on the nuclear side internationally”.
“It’s important to have an open mind because we see technology changing quite rapidly,” he says.
Wood concedes also it could play a part, albeit a limited one.
“Nuclear is not the answer; it could be part of the answer, but it’s not the answer,” he says.
The debate leaves gas as the most likely complement to renewables, even though it contributes to emissions.
The fuel still faces staunch opposition from climate activists, who have stepped up campaigns against developers such as Woodside Energy and Santos, and new projects and expansions.
But government and business seemingly are in consensus that gas is a required bridging fuel, arguing it will be needed along with renewables, storage and pumped hydro if Australia is to produce affordable electricity once its 20 coal-fired power stations are retired by 2040 at the latest.
AEMO’s 25-year roadmap for 2050 released last year confirmed that its “optimal development path” saw “renewable energy connected with transmission and distribution, firmed with storage, and backed up by gas-powered generation (as) the lowest-cost way to supply electricity to homes and businesses as Australia transitions to a net zero economy”.
In particular, gas is seen as supporting peak demand for electricity generation when solar and wind drop off, at least while increasingly bigger and more reliable battery storage is developed.
So, we have gone from about 10 per cent renewables in 2010, to about 40 per cent now, and we’re going to go from 40 per cent to 80 per cent in the next five years. Really?
The trouble is, traditional gas resources in NSW and Victoria are nearing depletion, and State Government opposition and regulatory hurdles have deterred new exploration and development.
It has left Australia’s two most populous States reliant on gas from Queensland and other northern Australian reservoirs and exposed to energy shortages from as early as this year.
That has created the extraordinary likelihood that one of the world’s biggest producers of the fossil fuel will have to import LNG to underpin energy security.
Pipeline company APA Group is a multi-sided energy player with a holistic view. It transports nearly half of the nation’s domestic gas supply while managing a growing portfolio of renewables.
APA chief executive Adam Watson argues LNG imports would be “disastrous” for consumers, because LNG would cost up to twice as much as domestic gas.
“Clearly, when you bring (domestic) gas into the mix and you’re able to turn it on reasonably quickly, it’s the most affordable complement to renewables,” Watson says.
However, he adds, “it is still challenging for the industry to get projects moving”, citing “lots of voices, lots of ideology, lots of red tape”.
The Energy Users Association of Australia, which represents the country’s biggest energy-intensive users, backs the transition to clean energy, but it too worries about the scale of the task, particularly given the competition for labour and raw materials from other infrastructure projects.
“We don’t have enough people, or skills or materials to build all the transmission systems we need in the timeframe people want,” says chief executive Andrew Richards. “They’re just not there.”
The Federal Government’s Australian Renewable Energy Agency, which is backed by $14b of capital to support clean energy projects, says the cost of materials for developments rose as much as 40 per cent after Russia’s 2022 invasion of Ukraine stretched supply chains.
Chief executive Darren Miller says prices are now starting to come down, noting lower solar panel prices and the cheaper cost of batteries.
“Large-scale battery technology is proving itself, and it has been critical,” Miller says.
“The early batteries we supported six or seven years ago would have . . . (provided) energy for maybe half an hour, now we are seeing durations of four or five hours.
“So there’s a lot of confidence that batteries are going to do the job.”