Queensland lays out three “cost neutral” paths to 50% renewables

The panel appointed by the Queensland government to canvass options for its renewable energy target has outlined three “credible” pathways for the state to achieve 50 per cent renewable energy by 2030, and says each of them will create jobs, boost the economy, and be “cost neutral” to consumers.

In a direct smackdown to the “scare-mongering” of the federal Coalition government, the report says adding up to 5,500MW of new large-scale renewable energy capacity will cost one quarter of the amount suggested by federal energy minister Josh Frydenberg, and would have no deleterious impacts on energy reliability.

The report, from a five person team led by Macquarie Group banker Colin Mugglestone, and including energy consultant Paul Hyslop, University of Queensland’s Paul Meredith, the Climate Council’s Amanda McKenzie, says the plan will attract billions in investment and add $5 billion to gross state product.

The first two options are a choice between a “linear” approach to meeting the target, adding around 400-500MW a year, or a “ramp” approach, starting slow at around 200MW a year and then increasing the target to take advantage of falling technology costs.

The third option assumes a federal emissions reduction target of 45 per cent by 2030, in which case the modelling shows that Queensland would source around 41 per cent of its electricity from renewables. It would then use mechanisms such as reverse auctions to add another 1,900MW to top its share to 50 per cent.

All three scenarios are based on the fact that Queensland currently has about 700MW  of large-scale renewables (mostly hydro and biomass), just over 1,500MW of rooftop solar PV, and will build another 3,300MW by 2020 to meet its share of the federal 2020 target.

The scenarios suggest that it could use reverse auctions – like those pioneered in Australia by the ACT – to secure 400MW of new renewable capacity in Queensland by 2020.

Between 2020 and 2030 it would use those auctions, which would be used to find the cheapest “contract for difference” for a further 4,000MW to 5,500MW of large-scale capacity. Overall, by 2030, it expects around 7,000MW of large-scale solar and 2,000MW of large-scale wind.

(Ironically, this modelling was conducted by Jacobs, which in recent reports released by the Energy Networks Association and the Climate Change Authority had predicted little or no large-scale solar being built in Australia between 2020 and 2030).

The report also expects another 3,400MW of rooftop solar PV – mostly on industrial and commercial properties – as predicted by the Australian Energy Market Operator. All of this rooftop solar would be paid for by the households and businesses and would likely reduce their overall electricity bills. It would require no further subsidy.

In total, the modelling suggests around 14,100MW of current and new renewable energy capacity would be needed to deliver the about 33,000GWh a year needed to source 50 per cent of all electricity from renewables.

Mugglestone says the additional 4,000 to 5,500MW of large-scale capacity would cost somewhere between $6.1 billion and $6.7 billion (net present value). This compares to the Coalition forecast of $27 billion in added costs. (Even if Coalition’s estimate included rooftop solar, it would still come in at around $10 billion).

The Queensland modelling, however, is based on conservative forecasts for the cost of solar, wind and battery storage (see above) from last year’s Australian Power Generation Technology report and the CSIRO. Mugglestone says these cost predictions could well be beaten, but said the group chose to be conservative.

Its modelling shows that the new build of large-scale solar would require government subsidies (in the form of contracts for difference) of between $500 million and $900 million over the course of the target, but the impact on this would be more than offset by a fall in wholesale prices out to 2030.

In fact, in most scenarios the modelling suggests a fall of just below and above 1 per cent in electricity costs to consumers, depending on whether they are retail or industrial customers. But the panel prefers to paint this as “cost neutral.”

“That will surprise a lot of people,” state energy minister Mark Bailey said, noting the “scare-mongering” about renewables on the national political front that had “no evidence” to back that up.

Indeed, the Coalition has branded the state-based targets of Queensland, Victoria, South Australia and the ACT as reckless and unrealistic. Bailey said this report “cast those aspersions” aside.

The report predicts this would add around 6,500 jobs, and add $5 billion in value to the economy (state gross product).

The only sector to suffer would be coal power, which now accounts for nearly three quarters of generation. Its total revenue could contract by more than $1 billion as it is progressively displaced by wind and solar. But the modelling suggests that no coal-fired generator would be forced to retire in this time frame, because the state has a relatively young and efficient fleet.

Indeed, the only scenario where coal generation is forced out is if the federal government pushes a national scheme that aims to cut emissions by 45 per cent by 2030 – the level considered by most as the bare minimum needed by Australia to meet its fair share of the Paris climate deal. In this scenario, about 1,500MW of coal-fired capacity might be forced to retire.

Mugglestone says it is clear in the panel’s talks with investors, developers and financiers that there is money to invest in renewable energy in Queensland.

“This is a sensible way of doing things. There is no need for any further subsidy (rooftop solar) …. and there is money to invest (in large-scale projects) and banks are very interested.”

On system reliability, a hot issue among renewable energy opponents after price spikes and blackouts in South Australia (although none of these were directly attributed to renewable energy), the panel says reliable power supply is a must.

But it points out that AEMO has not identified any fundamental barriers to achieving higher penetrations of renewable generation in Queensland.

“Modelling indicates the 50 per cent renewable energy target for Queensland can be met while maintaining the required reliability standard,” the report says. And it notes the likely retention of coal-fired generators as an important factor.

Queensland says that once a decision is taken after a final report is delivered later this year, the target will be put into place early in 2017, with the first auction of large-scale capacity possibly occurring in that year to ensure that Queensland attracts its fair share of renewable investment.

“This is a priority for us as a government, so we will take a considered and throrough analysis off the three credible pathways,” energy minister Mark Bailey told RenewEconomy.

“It will be 2017 (when we get started), but it is not something that we’ll be wanting to delay in any way. We’re very committed to this, as you can see from this piece of work. This is a substantial piece of work with not just Queensland implications but national implications.”