AEMO’s ‘cohesive’ energy plan falls short because it omits two key economic facts

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Is the sun setting fast enough on coal-fired power?

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The Conversation

The Integrated System Plan, unveiled this week by the Australian Energy Market Operator (AEMO), has been billed as a cohesive energy plan for Australia. In reality, it falls seriously short.

Australia needs to accelerate its energy transition and give businesses and investors the support they need to seize economic opportunities from clean energy.

Instead, AEMO’s analysis calls to exploit the economic life of high-polluting infrastructure such as the Eraring and Bayswater coal-fired power stations.

In seeking to prolong coal-fired power for as long as feasible in the name of cheap energy, AEMO’s supposedly comprehensive plan overlooks two crucial facts: first, there is serious money to be made from clean energy; and second, coal is not as cheap as it sounds when we factor in the indirect social costs.

AEMO’s report confirms that the electricity sector is in the midst of an unprecedented transformation. As existing generation infrastructure grows older, we are witnessing a shift to renewables, battery storage and lower demand growth.

On top of that, Australia needs to consider how to meet its internationally agreed climate targets.

Disappointingly, the AEMO report shows no understanding of how to successfully retire unsustainable infrastructure early and move rapidly to adopt cleaner technology. Quite the contrary, in fact.

It is promising to see that the report assumes that the ageing Liddell power plant will be retired by 2023, after surprisingly strong political pressure by the Turnbull government on operator AGL to prolong its life until at least 2027.

Yet AEMO’s overall plan is still to retain existing coal-fired stations for as long as they can be economically relied on. AEMO assumes a strong role for coal up to 2030 and beyond, and forecasts that many large power stations (Vales Point, Gladstone, Yallourn, Eraring, Bayswater) will retire between 2030 and 2040.

Goals, not coals

Coal power is not the solution to guarantee power supply in this country. We need to look at more viable, cleaner transition energy options.

First, Australia should consider a rapid implementation of less-polluting “transition technologies”, such as gas. In overseas markets such as the United States and Europe, natural gas has played a major role in the ongoing energy transition.

When energy company AGL released its plan to retire Liddell early, it proposed a transition to gas, alongside a mix of renewables, battery storage and demand response. AGL’s plan shows that transition technologies are economically feasible in Australia, just as they are overseas.

Second, the Australian government and bodies such as AEMO need to recognise the changes in underlying market forces that are driving investments in clean technology.

Whereas clean technology development has previously been heavily reliant on federal government funding, analysis by my research centre shows that strong market forces are now driving the clean-tech revolution.

According to our estimate, the total global wealth creation through the development of clean technology patents will range from US$10.16 trillion to US$15.49 trillion (A$13.69 trillion to A$20.87 trillion) by 2050. Included in this estimate are patents in areas such as bio-fuels, fuel cells, hydro energy, wind energy, solar energy, and geothermal energy. This is 13% to 20% of total global GDP in 2017.

During that time we predict that investment growth in green technologies will be between US$2.93 trillion and US$3.71 trillion (A$3.95 trillion to A$5 trillion), or 3.7% to 4.7% of world 2017 GDP.

Australia should not miss out on this enormous potential by clinging on to old technologies.

Third, the AEMO report does not factor in the huge costs of fossil fuels to the community. My research, carried out with colleagues at Macquarie and Vanderbilt universities, shows that society fails to charge fossil fuel firms for the damage that their activities cause in terms of environmental pollution.

This failure to pay the significant external social costs means that coal power is effectively getting a huge subsidy. In our research paper we describe this as “legal looting” of public funds by the fossil fuel industry.

Using Australia’s erstwhile carbon price as an example, if emitters worldwide had been charged the Australian carbon price (A$24.15) for emissions from coal, oil, gas and flaring, they would have had to pay a total of A$12.67 billion over the period 1995-2013.

This amount is a low estimate given that some other countries have much higher taxes in place.

Sweden, for example, introduced a carbon tax in 1991. It began at a rate equivalent to A$38.50 per tonne of carbon dioxide emitted and has since increased to the equivalent of A$177 in 2018. If all global emitters were required to pay this price, they would have been liable for A$91.94 billion over the period 1995-2013.

Clearly, the fossil fuel industry would would be far less lucrative if it were made to pay its debt to society in full.

The example of Europe’s energy supply deregulation during the 1980s and ’90s shows that a transition to renewable energy is not at odds with a secure and reliable electricity generation system.

Any use of coal-fired plants in Australia must only be short-term, and at a drastically reduced level.

The ConversationGas-fired stations serve as a less-polluting interim measure for Australia’s transition to renewable energy. They can fill the electricity gap between consumption and renewable electricity to avoid any outages.

Of course it has to be acknowledged that changing gas prices can be a factor in price rises, and cheaper gas supplies would need to be secured in order to make this transition work smoothly.

Source: The Conversation. Reproduced with permission.

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9 Comments
  1. Alistair Spong 5 months ago

    Ah yes , gas the magic pill to our co2 emmissions ……. but the author fails to demostrate how long new gas plants would operate for and hence if they would really drop emissions over the longer term. imagine if we still had co2 producing gas plants running in 2070 .
    IMO it needs to be demostrated that such a committment isnt slowing the uptake of renewables or the introduction of technologies that may be more expensive to start with, but incur rapid cost drops , Imagine if the world had gone to gas and not wind and solar . Theyd still be pricey and risky 0 carbon alternatives
    But more so what mechanisim sees cleaner energy sources built – i think the AEMO is saying the cheapest sources should win & hence why gas isnt very popular at the moment – but there really isnt a mechanism for closing down coal.Clouding out this problem with statements about gas and presumably more mining doesnt do justice to the main point – we need to do more and we need to do it quickly, China builds almost our entire generation capacity in renewables every year , its just a matter of policy

    • Hettie 5 months ago

      Is so agree! Promoting ff gas ahead of PHES, battery, more wind and solar is decidedly retrograde. It seems to ignore the very high levels of fugitive emissions, water contamination and land degradation associated with coal seam gas, an environmental disaster. Gas produces CO2, like coal.. The other pollutants not so much, but the money would be far better spent on real RE.

  2. Aerial Fencer 5 months ago

    AEMO is doing its job. Looking at current government policy and finding the least cost plan going forward. That cost defined as $/kwh and that’s it. If you want them to write a different report first start with a change in government.

    • Jonathan Prendergast 5 months ago

      Exactly

  3. Tom 5 months ago

    They have scenarios with sensitivities for more gas or faster renewables.

  4. D. John Hunwick 5 months ago

    You are right – Aerial Fencer. Anyone acquainted with the science of climate change knows that our scientists are calling for more urgent action NOW. I believe our grandchildren will inherit a global mess (biologically) because our present leaders refuse to run a real democracy where the vast majority of voters influence policy and not just those with money!

  5. MacNordic 5 months ago

    Sorry, but I strongly disagree with the call for gas:

    It is still a fossil fuel, which are rightly condemned in the latter part of the article.
    Looking at the planning and construction periods of gas peakers (not counting the converted aircraft turbines), you are easily looking at a 5-7 year implementation time before the first power is generated – under normal circumstances.
    Constructing gas plants will only help locking in obsolete technology together with the associated emissions and vulnerability to cost fluctuations. Not to talk of climate change, water use or a host of other things

    Now compare this with the cost trajectories of RE and the development in the US, especially the Xcel RFP of late last year – with RE coming in at record low prices – battery storage included*. Even if we assume the US to be ten years ahead of the rest of the world, such low prices will be the future everywhere – especially in a country with the excellent solar and wind ressource Australia has.

    Add in PHES- with a host of fantastic opportunities available in Australia – and the call for gas gets even stranger.

    * Wind+ battery at 2.1ct; PV+ battery at 3.6ct. Standalone wind: 1.8ct, PV 2.95ct (all US$, naturally. Location: Colorado. Year of first generation: 2023)
    [source: https://www.greentechmedia.com/articles/read/record-low-solar-plus-storage-price-in-xcel-solicitation; original Xcel report at https://assets.documentcloud.org/documents/4340162/Xcel-Solicitation-Report.pdf%5D

  6. brucelee 5 months ago

    If they did what you are criticising, then it would be the finkle report, we have that report. AEMO are highlighting the near term priority investment. By not calling for knee jerk plant closures they defend the right wing against anti coal war rhetoric and keep this report on the table. Once transmission is in place and RE is even cheaper operators will close their plants early like AGL, because it makes sense.

    You can’t let perfect be the enemy of the good.

  7. JackD 5 months ago

    As a general comment:

    Its seems to be odd, that we seemed to have been able to develop our gas reserves at Moomba and reticulate the gas into the Eastern Seaboard and SA gas markets but find it difficult to build a grid out to the same region to encourage the development of substantial solar and geothermal generation, and deliver the energy into the wider grid. Yes I know it costs money but development of the gas reticulation network wasn’t cheap either. Is our financial situation worse that what it was all those years ago? I would suggest, no. However back then, nation building was high on the agenda along with public development and ownership of infrastructure. It has been the triumph of economic rationalism over the Common Good.

    As Australians we have achieved much in the last 100 years or so. Since Federation, we have built the Snowy Hydro Electric scheme, the Ord River Scheme, vast electrical generation and transmission networks, the Sydney Harbour, Storey and Westgate bridges, the telephone network, gas, water and sewerage networks, road and railway networks as well as our ports. Many of which were massive projects in their own right. I may stand corrected here, but most were publicly developed projects.

    And is absolutely incomprehensible that we can build some 900km of freeway between Melbourne and Sydney, yet struggle to build and extend the grid to foster the development of renewable energy technologies in areas of renewable resource abundance.

    Where are our priorities?

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