Australia’s 2035 Energy System: What do we need to do now?

What needs to change right now, and what investment signals are needed?

Published: April 11, 2019

The fact is inescapable: Australia’s future electricity needs will be supplied from renewable sources, increasingly, and ultimately exclusively.

And so there has been a wave of investment in renewables at utility scale and behind the meter on the roofs of businesses and houses. In just two years, growth in wind and solar has fully offset the summer output lost after the sudden closure of Hazelwood.

So, as we stand at the start of an election campaign where energy and climate policy will feature large two new questions arise.
Firstly, what needs to change right now to sustain the existing wave of investment in renewable generation?
Second, as more coal-fired power plants reach end of life, what investment signals are needed to take advantage of the superior technologies that can help complete our transition to a clean energy system?

Taking a long-term view helps provide answers to both questions. Pick a date like 2035 then envision what the grid could look like and what kind of market would supply all the energy services the community needs.

Already it’s evident the grid needs to be reconfigured for renewables. A decade of policy inertia means we’re not far enough along. The rise in generation coming from distributed resources has made two way flows the norm , and variability in both demand and supply is increasing. To adjust to this new reality, the grid will need more storage, more inter-connectors and much smarter operating systems. Transmission investments are needed now to enhance security, ease congestion and facilitate the development of renewable energy zones.

The good news on storage is that the boom in batteries is just round the corner; the tech is rapidly improving, the prices are coming down. As Telsa’s Elon Musk flamboyantly demonstrated, batteries can be deployed at speed. They smooth the supply demand balance and help stabilise the grid. That provides huge value to lots of stakeholders, but the market doesn’t have yet have a mechanism for battery investors and owners to capture appropriate revenue from that.

Another intriguing opportunity to reduce costs while stabilising the grid is to network small scale solar installations and batteries. I’m excited by the new generation of innovators trialling business models to aggregate and orchestrate those distributed resources. However, regulations and a market model designed for last century conditions often stand in the way. If those barriers are swept away, and regulators adopt a fresh approach to managing risk, there’s potential to unlock a valuable capability.

The Energy Security Board has started work on reforming the market. Let’s hope they are able to be sufficiently ambitious, far sighted and unfettered by political expediency.

Resist any temptation to despair. Plenty of people can see long term and have made up their minds. Households, businesses and investors have committed capital at scale to finance new solar and wind generation capacity. Last year set a 6-year record for new small scale installations. 59 new utility-scale renewable power plants are under construction right now across Australia, according to research by Green Energy Markets. Investors have committed more than $10 billion to those new wind and solar farms, calculated by the team at Impact Investment Group.

Notably, most of the under-construction power plants are owned by overseas investors. Perhaps they pay less attention to local noise and policy confusion, and more to the structural economics. They have the benefit of experience in other markets which are not as different from ours as we like to believe. The same solutions are technically available and economically preferable. The drivers of transformation are the same.

A few weeks ago, I visited IIG’s new Chinchilla Solar Farm, about 250kms north west of Brisbane. It’s one of the solar farms that’s part of the Queensland renewables boom, earning revenue as it produces clean energy. Along with my colleagues, a team of young musicians and filmmakers were there, asking great questions, learning everything they could, and figuring out how they’d support the next solar farm.

If anything, they had an even deeper commitment than established investors – whether overseas or local. For them, as for tens of thousands of school kids who recently marched in the streets, there is no question that clean energy must be built.

In this Election campaign energy policy and climate policy will again be presented as a point of differentiation for debate and division. It’s high time policy-makers and regulators stopped fighting and started adapting. I hope to hear positions that recognise investment is already flowing from households and professional investors to renewables, and that the focus should be on the grid, the market design and securing the benefits of the transition for all. Fortunately, right now, an industry of people is taking up the challenge and just getting on with it. The next generation is ready to do the same.

Chloe Munro (AO) is the Chair of the IIG Solar Asset Fund and a professorial fellow at Monash University. She was a panel member of the Future Security of the National Electricity Market (‘the Finkel review’), and the inaugural chair of the Clean Energy Regulator.