A renewable energy expert panel hosted by the Institute for Sustainable Futures and Bloomberg heard about the challenges and opportunities that face Australia as it decarbonises its economy.
It sometimes feels as though the clean energy sector couldn’t be in more of a rush. As politicians on one side hammer away at their differences a legion of engineers and workers is on the other side, bolting new renewable energy generation into place.
If it feels like we’re near the end of the journey, think again. The pipeline of projects required to allow Australia to hit any of its federal or state clean energy targets is enormous.
What can wrong along the way and what can be learned?
In a panel discussion in early March hosted by the Institute for Sustainable Futures and Bloomberg New Energy Finance, four industry experts were asked what challenges and opportunities marked the path as Australia transitioned to a renewable energy future.
- Jillian Broadbent, chair of the Clean Energy Finance Corporation
- Jenny Riesz, principal of market policy development at the Australian Energy Market Operator
- Kobad Bhavnagri, head of Australia at Bloomberg New Energy Finance
- Candace Vahlsing, senior policy advisor for energy and climate change at the White House Domestic Policy Council
An economic boost
Asked by moderator and Institute for Sustainable Futures senior research consultant Nicky Ison what are the opportunities for Australia of optimising our energy system, the CEFC’s Broadbent put the problem into perspective, reminding the audience of Australia’s strong reliance on primary produce for exports, particularly coal and agriculture. “It’s almost as though the sustainability component that’s coming in with renewable energy is threatening this whole Australian identity,” she said. “You think everyone would be onboard with that goal but there’s a lot of resistance to bringing in the sustainable component because the [energy] system was basically built on affordability and reliability.”
The challenge, she said, is to inform and share knowledge – to assure decision-makers at all levels that “we are not breaking the model of Australia’s economic prosperity.”
On the positive side, concerns about the future of energy in Australia have highlighted the importance of new technology and connectability. “Solving the system will involve a combination of small things and big things.”
The introduction of the National Electricity Market and privatisation of parts of the energy system in some states brought a huge boost to productivity, she said. “It’s not just the government owning and controlling; the market has to work, but it has to work with tweaks and support. It’s designing that plan and long-term vision … that will release economic prosperity.”
Clean energy and the grid
Dr Riesz of AEMO was asked by Ison about the challenges and opportunities that lay ahead, from her vantage as part of the AEMO Future Power Systems Security Program. “One of the key challenges that I think is really an opportunity is frequency control … now that renewable technologies are not fringe technologies,” Dr Riesz said. “We really do need a whole suite of system services to make the grid stable, and auxiliary services, and a lot of them are around frequency control.”
Wind farms and solar PV have not yet contributed to frequency control, she said, but they are “very capable” of contributing to maintaining very precise balance between demand and supply. “Wind farms are extremely flexible and responsive and can be designed with appropriate control systems to do that moderation in the grid.”
No Australian wind farms or solar plants have signed up to frequency control markets, she said, “but we have seen recently in South Australia a very strong price signal that we need more of these services … there is a huge opportunity there for wind farms particularly.”
Renewable energy assets will also be valuable as contributors to “inertia” in the electricity market, as coal- and gas-fired plants are retired. Inertia, she explained, is the “weight” of the system, which keeps frequency stable. “As we get less inertia on the system the frequency will move more quickly, and we will need much faster response services.”
Catalyst in the shadows
The clean energy investment pipeline is backed up with promise but blocked by politics. Ison next asked Bloomberg New Energy Finance’s Bhavnagri, who has been looking at the market for about eight years now, what is needed to release capital.
“There is going to need to be vast investment in renewable technologies in order to come anywhere close to the objectives that were set out in Paris,” Bhavnagri said, pointing out that decisions are made easier by the fact that various clean energy solutions are the cheapest options in many regions. “The economics are evolving more and more as being superior to existing fossil-fuel generators.”
To 2040, BNEF estimates an investment of about US$7 trillion in new power-generating infrastructure is required globally. Of that, about US$5 trillion will be invested in renewables. “In Australia, it’s a very similar balance,” Bhavnagri said, with about 80-90% of an estimated $100 billion spent on renewables before 2040.
Electric vehicles will become cost competitive with conventional petrol-powered transport between 2022 and 2026, he said. “After that EVs will start to become the mainstream new vehicle people buy.”
A huge amount of value will also be destroyed, he said, “and we should be honest about that.” The world’s most popular occupation is driver, and the effects of autonomous vehicles making that role redundant may be severe. “There are enormous social challenges created by this transition,” he said. “There will be massive opportunities but also massive challenges.”
The people and the planet
The world’s biggest economy, the United States, can yield enormous influence via its actions. The trip to a clean energy future, however, is made arduous by politics. Ison asked Vahlsing, senior policy advisor for energy and climate change at the White House Domestic Policy Council, about the difficulties of directing policymakers.
No matter which side of politics you are on, she said, there is a policy interest in moving forward and transitioning the economy more towards renewables; it’s just the political part that seems to be getting stuck or slow to progress.
“From what I’ve learnt of being [in Australia], if I were to put on my policy hat I would recommend four things: one, more analysis is needed [such as the Finkel Review of the grid] … to inform, two, a larger plan,” she said, listing the second Obama administration’s Climate Action Plan, quadrennial Technology Review and quadrennial Energy Review of the Grid.
Third, she said, recommendations are required. “From meeting with [Australian] policymakers … it’s clear that there’s a big picture interest in moving forward but there’s a lack of concrete ideas that a policymaker could pick up.” Recommendations that can be “cut and pasted” into policy would make the task of drafting legislation enormously more simple.
Fourth, the benefits of a difficult and costly transition to clean energy need to be quantified. We hear a lot about the economics but little about the jobs, she said. “That seems to be missing from the discourse here.”
Asked by an audience member to identify levers for decarbonisation that received bipartisan support in the US, Vahlsing said renewables is not as “politically charged” as climate change in general and that community solar stood out as appealing to both sides of politics.
“There is a vast potential for solar in both blue [Democrat] and red [Republican] states, the same with wind,” she said. “But community solar in particular is a way where folks can invest together, share a solar system and it has strong economic benefits – every state can understand that. It’s also a way for low-income people to participate in the market.”
The CEFC’s Broadbent said the not-so-obvious role of financiers is in influencing decisions around projects, such as investment in ancillary services. “It’s interesting what you can do with money, if you withhold it until somebody does that or you finance just that piece at a special rate,” she said. “Finance is a very effective tool in facilitating this transition; not just investing in the technology itself but in incentivising people to make those incremental investments at the margin.”
She admitted the task of financing a shift to renewables has been a tough one in Australia. “There’s a bit of a question [in the business community] of challenging the whole Australian economic model,” Broadbent said. “We were such a beneficiary of having cheap energy; very affordable and very reliable for a long time.” As energy becomes more expensive in the transition to renewables, there will be a tendency by some to “cling on to the past and that prosperity that was there at the time.”
Top spin, bottom spin
Bhavnagri of BNEF lamented that energy has “become part of the culture wars” in Australia where people decide their positions often in ignorance of the facts. Two areas of universal agreement, however, are reliability and affordability, Broadbent said. “The key thing is: it’s not investable unless it’s clean,” Bhavnagri said. “Unless you acknowledge that and get the [policy] settings right on that, you just don’t get investment.”
Energy is a three-legged stool, he said, supported by affordability, reliability and sustainability. “If one of those legs is missing, the stool falls over,” he said. “And that’s the essential problem in our policymaking.”
A plan based only on “clean” will see the reliability and affordability legs start a-wobbling. Bhavnagri’s vision of a clean energy future relies on gas. “There needs to be recognition and understanding that if you don’t get gas right then renewables will always be problematic and expensive.” For that to happen, the market for this “very flexible” technology needs to be “fixed,” he said. “If [those who are opposed to gas] continue on that path and if the gas market continues to be dysfunctional we won’t be able to achieve a renewable future that is reliable and affordable.”
Demand response has been an important policy tool in US, said Vahlsing, and the BNEF is working on a report to measure its potential in Australia, where Bhavnagri said “it is a great way of preventing blackouts”. We have a long way to go, however. “The demand response we do have is the energy minister in NSW goes and begs people to turn down their air-conditioning.”
He also fears the incumbent generators will resist the trend towards energy efficiency as it erodes their profits.
Dr Riesz of the AEMO expects strong growth in distributed solutions, interconnectors and centralised renewable energy plants. “We have the huge advantage of a very large grid to draw upon different weather systems in the management of our renewable energy,” she said.
As technologies such as battery storage and energy management systems allow consumers to make their own decisions about supply and demand, ruled by their own motivations, she says “we are now moving into a realm where individual customers even at a household level can make that choice themselves about what they want to pay versus what reliability they want and how flexible they want to be – I think that’s an amazing opportunity.”