NSW treasurer and energy minister Matt Kean on Friday announced that five pumped hydro storage (PHS) projects across regional NSW with a combined capacity of 1.75 gigawatts will receive $45m for pre-investment feasibility studies.
This represents a significant proportion of the state’s target of a minimum of 2GW of new storage by the end of the decade.
If all these projects proceed, they are expected to create 2300 jobs and catalyse $4.4 billion of private investment, although we note the need for long term peak power off-take price certainty to de-risk PHS and ensure bankability, as suggested by the Renewable Electricity Storage Target (REST).
It is excellent to see NSW accelerating the deployment of new pumped hydro storage (PHS) capacity beyond Snowy 2.0. For the national electricity market (NEM) to deliver on 82% renewables by 2030, and then accelerate towards full decarbonisation next decade, significant new investment in flexible firming capacity is required.
Ever-cheaper solar and onshore wind will allow a return to electricity price deflation, and decarbonisation.
But Australia needs to invest in a range of firming technologies, including longer duration PHS but also batteries, batteries on wheels – otherwise called electric vehicles (EVs) – demand response management (DRM), gas peakers and greater interstate grid connectivity to leverage the benefits of geographic diversification of wind and solar.
Technology diversity will enhance grid resilience and reliability, as well as facilitating decarbonisation and deflation.
We are now in a likely prolonged period of extreme hyperinflation of all things fossil fuel related. Both globally and in East Australia now that we are exposed to export price parity on our domestic coal and gas assets.
Undue political influence and regulatory capture of our governments by fossil fuel multinationals mean that the latter both control a disproportionate share of our public energy resources, and are allowed unfettered use of these public assets for private foreign largely tax-free gain.
As a result, Australian domestic retail and industrial energy users all suffer the consequences, paying the fossil fuel cartel’s export parity prices on both coal and methane gas. It is beyond time that Australia impose windfall profits taxes to help finance energy poverty relief for Australians.
The only permanent solution to this fossil fuel hyperinflation is for the Albanese Government to accelerate the regulatory, policy and financing reforms needed to deliver on their election promises of 82% renewables by 2030 and the $20 billion Rewiring the Nation investment program.
The CSIRO has repeatedly highlighted the lowest cost source of new electricity generation is solar and wind, even absent a price on carbon emissions. The sooner Renewable Energy Zones can be operationalised, and grid connectivity established, the sooner NEM electricity prices will halve or more from the current inflated levels.
As this week’s Electricity Statement of Opportunities (ESOO) by the Australian Energy Market Operator (AEMO) highlights, the instability of end-of-life coal power plants combines with rising fossil fuel input prices and increasing electricity demand as we move to electrify everything, driving hyperinflation in energy prices.
The energy policy chaos inflicted on Australia by the previous Federal government has left us ill-prepared, and private investors are wary of committing to the 166GW / $200 billion pipeline of new firmed generation projects being proposed.
Providing the long term revenue certainty for firming capacity is key to getting the 53GW of dispatchable capacity proposals detailed in the ESOO to final investment decisions and then construction.
Globally, the energy transition is accelerating. The climate science is absolutely clear, and the financial risks mounting with every year. The severity and economic impact of the current climate change-driven catastrophic flooding in Pakistan just adds to the mounting global cost of delayed climate action.
Unprecedented fossil fuel hyperinflation is inevitably causing demand destruction, and increasing the disparity between rising fossil fuel power costs and deflationary renewable energy.
This is particularly so for countries reliant on imported fossil fuels, where the breakdown in global trade and skyrocketing shipping costs have added to energy security and supply chain security concerns.
Different markets are responding to the need for flexible on-demand peak capacity differently.
The US is on track to install a record 6.2GW of batteries in 2022, double the level of investment of 2021. The quadrupling of Henry Hub methane gas prices in 2022 has increasingly priced out of the market gas-power generation, the backbone of the US energy supply over the last decade.
So energy transition leaders like NextEra Energy are planning a record capital investment plan to deploy US$85-95bn into new investments over the four years through to 2025, incorporating the addition of 8-11GW of new wind, 14-19GW of solar and a record 5-7GW of energy storage.
And this will only accelerate post President Biden’s Inflation Reduction Act of 2022, which Climate Energy Finance expects to drive a doubling in renewable energy installs in America to 60GW annually. And firms like Orsted and RWE are accelerating US investment to deliver on the US Government target for 30GW by 2030, from nil today.
In contrast, battery investment in China is almost entirely going into the near doubling of EV sales to 6 million in 2022, 60% the world’s likely total.
China is already the world leader in PHS with 32GW of operating capacity, but with a hugely ambitious target to quadruple this to 120GW by 2030, leveraging their geographic diversity of renewable energy generation and world leading national grid covering 1.4 billion people.
Bloomberg NEF notes the more than doubling of investment in China in wind and solar installs in the first half of 2022, putting China on track for over 160GW of variable renewable energy adds this year.
Matt Kean is to be commended for leading the way on PHS.
We now need to see others follow suit and build regulatory clarity to accelerate investments, and urgently upscale our build out of firming technology and grid connectivity to underpin rapid decarbonisation this decade, building on the likely industrial emission reductions from a credible Safeguard Mechanism policy, the move to 7 star residential building standards, accelerating EV uptake and the restoration of credibility of Australian Carbon Credit Units.
It’s past time to decouple Australia from fossil fuel dependency and the associated energy price hyperinflation smashing East Australian domestic and business consumers alike.
Tim Buckley is director of Climate Energy Finance.
