The path to a clean energy future in Australia is becoming clearer, but the transition brings with it many challenges that need solutions, writes Jeremy Chunn.
If Australia wants to keep pace with large economies that have ambitious trajectories to clean up their energy generation profiles, it has some catching up to do. India has introduced legislation around a domestic carbon market and China says its industrial sector will peak in 2030. Meanwhile, Australia has all the sun and wind anyone could ask for, plus powerful catalysts such as the Clean Energy Finance Corporation and the Australian Renewable Energy Agency, but had a Coalition government that wouldn’t release the handbrake.
But now with Labor in charge in Canberra, it looks as though we’re about to get traction.
“If the government is willing to pull the levers, things will change pretty fast,” says Rob Fowler, partner in energy transition at consultancy Partners in Performance.
Trade-exposed business sectors that were once worried about the implication of cutting emissions are ahead of the game, says Fowler.
“They’re already working on plans to reduce by 40 per cent to 50 per cent by 2030,” he says. “There will be some areas that are very challenging, but some areas are racing hard.”
One tough little puzzle in the transition is the opportunity to offset gas and coal with renewables in the manufacturing of ammonia, which is used in many industrial processes and is the basis for urea used in fertiliser.
“If we turned off ammonia right now, we’d have massive food challenges,” says Fowler.
Don’t expect the sun to set on fossil fuels yet though, rather anticipate they will be used more efficiently. There are far better uses for hydrocarbons than seeing 70 per cent of energy density wasted, as it is in internal combustion engines.
“The energy crisis is pushing us towards different solutions,” says Fowler.
Australia has the longest, skinniest grid in the world, making the game of engineering stability much harder than in the US or Europe.
“The faster we can create links within that, the better,” says Fowler.
The hesitation to implement solutions to ease congestion can probably be put down to a lack of political willpower.
“It comes down to coordination,” says Fowler. “Now that the regulator has a partner in the government, it could happen quite fast.”
Surges in the price of diesel and gas see the need for their replacement heralded by the media, but the real issue is price forecasting. Same thing? Not really, says Fowler.
“If you install renewable energy, it’s going to produce within a certain band of sunshine and wind blowing at a set price for as long as it’s there,” he says. “That’s a whole different prospect if you’re trying to plan a mine, a factory, a facility – it takes away variability.”
Miners, for instance, who plan for clean energy systems with storage that are large enough to manage fleets of electric trucks – when they become a thing – might also budget for sufficient capacity to sell surplus firmed renewables to the grid.
“You do a hybrid solution [including storage],” says Fowler. “You can’t just do solar or wind; you need to have those three pieces together. We’re starting to help people design zero-carbon mines from scratch.”
He cites the Energy Transition Mechanism, a project that aims to purchase coal-fired power stations in developing nations and replace that capacity with renewables.
“If you have a coal-fired power station, the only bad thing is the coal,” says Fowler. “If you take away the coal boiler and do something else to create steam, all that other infrastructure is fantastic. There is a whole lot of infrastructure we already have that can be leveraged.”
Investors have watched the cost of solar and wind plummet. The intent of capital needs to be matched by quality opportunities, and certification bodies have evolved to verify green bonds and minimise “greenwashing”.
Fowler joined the Climate Bonds Initiative in 2015 to work on the climate bonds standard certification scheme, which has been used to certify about US$250 billion of issuance so far. “Back then, we could see the ‘greenwashing’ potential was amplified and we knew that unless we could get mainstream investors involved, it was never going to take off the way it could,” he says.
Investors who were hesitant to back the clean energy transition soon had a benchmark based on science and backed by a technical committee.
“Investors weren’t sure what was green enough and they weren’t trusting themselves,” says Fowler. “That’s why standards, certification and guidelines are really useful. It reduces the friction because it’s the friction in the process that is the real challenge.”
EcoGeneration caught up with Fowler on the day Federal Parliament voted in favour of legislating Labor’s target of 43 per cent emissions reduction by 2030, and for the National Electricity Market to be 82 per cent renewables by 2030.
“It only took 20 years of patience and optimism,” says Fowler, toasting the vote with a glass of prosecco at a bar in Sydney’s Barangaroo district. “Investors were hoping for bipartisan support at the federal level – not available, it seems – but with these parliamentary steps and the language people are using, I think there’s a much better situation for investors to rely upon.”
Going forward, the emergence of a strong Australian HVO/SAF industry will likely put pressure on global HVO/SAF refineries that utilise tallow as feedstock. In 2021, Australia exported roughly 392,000 metric tonnes of tallow with the bulk (239,767 metric tonnes) shipped to Singapore, where Neste operates Asia’s largest HVO/SAF refinery.
The US was a strong secondary destination market, importing 77,800 metric tonnes of Australian tallow in 2021. The bulk (roughly 65,000 metric tonnes) of US imports entered via the state of Louisiana where Diamond Green Diesel and REG Geismar operate HVO refineries.
Diamond Green Diesel has a California Air Resources Board approved pathway for the sale of HVO from Australian tallow into the California market. The diversion of Australian tallow back towards the domestic market would increase competition for UCO and other sustainable feedstocks, further pressuring prices amid the global ramp-up in SAF production capacity.
In 2022, S&P Global Commodity Insights estimates Australia will produce 548,000 metric tonnes of animal fats – primarily beef tallow – with exports forecast at 450,000 metric tonnes.
Australian airlines such as Qantas have already begun using SAF regularly on key international routes based out of the UK, and the airline’s long-term commitment to increase SAF use to 10 per cent of overall fuel consumption by 2030 is a positive signal for the deeper development of SAF markets, particularly on the supply side.
S&P Global Commodity Insights views SAF as an essential component of the decarbonisation of the aviation sector, and its strong demand signals over the long-term could incentivise additional investment in production pathways and technologies.