The Grattan Institute says a 100 per cent renewably-powered electricity grid is currently an unviable target because of what it calls the “winter problem” – the period in winter when demand is high and renewables supply is low – arguing policymakers should instead set their sights on 90 per cent renewables by 2040.
The remaining 10 per cent should come from gas peaking plants, the think tank argues in a new report, with the resulting CO2 emissions – amounting to around 10 million tonnes a year – offset through carbon sequestration technology. The result would be a National Energy Market (NEM) that was “net zero” rather than “absolute zero”.
It’s a proposal likely to draw criticism from the renewables industry and environmental groups, who will argue that we have the technology to get the nation’s main electricity grid to 100 per cent renewables, or as near as dammit, and if there is an extra cost then it’s worth paying to help avoid catastrophic climate change.
It comes the same weekend the Clean Energy Council published a report arguing big batteries are already advanced and cheap enough to be the main source of peaking in the grid, providing the back-up required when sun and wind fail, and leaving little or no role for gas.
It should be noted that numerous different studies, from the ANU, the Insitute for Sustainable Futures and others, have modelled 100 per cent renewables, and in a lot shorter time frame. Even the Australian Energy Market Operator has modelled 94% renewables in its Integrated System Plan and is likely to model a shorter time frame in the next iteration of its ISP.
But the Grattan Institute paper’s co-author Tony Wood says his modelling shows gas is the cheapest option for the last 10 per cent. His answer to critics who want a 100 per cent renewably-powered grid is that we can reach 90 per cent renewables easily and with only marginally higher costs than if we kept on burning coal (the report recommends dispensing entirely with coal by 2040). So we should aim for that, and not worry about that last 10 per cent for now.
Wood says there is a strong likelihood that over those two decades the cost and capacity of carbon-free firming technologies such as hydrogen or batteries will improve substantially, meaning gas will not need to play as big a role, or indeed any role at all.
But he says the “best economics” of 2021 show the cost of low carbon firming technologies is too high to make it worthwhile.
“You’ve got green lights for the next couple of hundred kilometres, then a red light,” he says. “Where the red light is now, by the time you get there, there’s a good chance it will be green too.”
You can read Ketan Joshi’s response to those positions here: Grattan’s grid report could do with plenty more ambition
What is the winter problem?
The “winter problem” refers to a period in the cold winter months when demand for energy is higher than average, but solar generation plummets due to unfavourable weather. That leaves a period of around two weeks when the gap left by renewables cannot easily be filled by low carbon storage technologies.
In a renewables-dominated grid, this puts huge pressure on wind power, and when wind also falls short, the NEM could face inadequate supply. The Grattan Institute says this is a consistent annual problem, with wind and solar on occasion falling as much as 9 gigawatts short of demand for an entire fortnight, as seen in the last chart, below.
At other times of the year – even during the notoriously network-straining summer heatwaves – various carbon-free solutions should be sufficient to meet lulls in wind and solar supply. But that two weeks in the middle of winter is the real problem. And Wood claims batteries are currently nowhere near providing the necessary storage. He also says it would require the equivalent of nine Snow Hydro 2.0s to fill that gap with pumped hydro.
The report explores a number of low carbon solutions, including massive overbuilding of renewables capacity, more transmission lines to carry renewably-generated electricity across the country to where it’s needed, measures to reduce demand, carbon capture and storage, and low-carbon dispatchable energy such biomass, hydrogen fuel cells or turbines, nuclear, geothermal energy.
But it concludes all of these would be too costly, insisting gas is the best solution for now.
“It’s much easier and cheaper to store gas and liquid fuels than hydrogen or electricity,” the report argues. “Liquid fuels in particular can be stored at ambient pressure and temperature. This makes them ideal for energy storage in case of a particularly challenging winter.
“Even if in future renewable energy provides 100 per cent of the NEM’s electricity most years, it may be worth maintaining a reserve of liquid fuel and some fast-start generator capacity in case of a period of unprecedented bad weather. Liquid fuels are even more expensive to burn than gas, but used in this way only very small volumes would actually be consumed.”
Wood says of all the carbon-free technologies that could eventually replace gas as the emergency firming tool, he regards green hydrogen as the most promising.
No more coal
The role of gas aside, the report paints a pretty hopeful picture of the potential to decarbonise the grid – particularly on cost.
It goes through three possible 2040 scenarios: one in which coal remains the dominant energy source; one in which the grid is 70 per cent renewable and includes no coal; and one in which it is 90 per cent renewable and includes no coal.
According to Grattan’s analysis, one megawatt hour of electricity would cost $90.60 in the coal scenario, $93.20 in the 70 per cent renewables scenario, and $99.90 in the 90 per cent renewables scenario. In other words, in a 90 per cent grid, electricity will likely be less than 10 per cent more expensive – which looks like a small price to pay for a massive reduction in emissions.
In that scenario, the electricity network would produce just 10 million tonnes of CO2 a year, compared to around 135 million tonnes today. The NEM, which serves the southern and eastern states but does not reach to Western Australia or the Northern Territory, accounts for 80 per cent of Australia’s electricity emissions, which last year stood at 170.4 million tonnes, a third of total national emissions.
By far the biggest costs in the coal scenario is the coal itself. In the two renewables-dominated scenarios, capital expenditure on and maintenance of wind, solar and storage are the biggest costs. Those scenarios also have higher transmission upgrade costs.
“It might seem surprising that the renewables-based systems are not substantially cheaper than the coal-based system, given that wind and solar are the cheapest sources of bulk electricity today,” the report says.
“Two factors add to the cost of relying on renewable electricity. First, the best locations for wind farms and solar farms are often far from major population centres, requiring long distances of additional transmission to connect supply to demand. Second, firming the renewable supply adds significantly to cost.”
Together, the report finds these extra costs represent a carbon abatement price of $40 a tonne. That’s a lot more than the government is currently paying to reduce emissions through the Climate Solutions Fund. Australian Carbon Credit Units are currently selling for around $18 on the spot market.
But it’s also much cheaper than the price being paid in the Europe Union’s emissions trading scheme, where one tonne of carbon rose above A$67 in March 2021.
The overall cost of the 90 per cent strategy would include the purchase of carbon offsets to reach “net zero” rather than “absolute zero”. Grattan says those offsets would need to represent active carbon sequestration rather than just avoided emissions – whether through natural methods like tree planting or soil carbon, or through engineering methods like direct air capture.
James Fernyhough is a reporter at RenewEconomy. He has worked at The Australian Financial Review and the Financial Times, and is interested in all things related to climate change and the transition to a low-carbon economy.