Slump seen for clean energy investment

AUSTRALIA risks another slump in clean energy investment unless it can tackle the obstacles to clean energy growth and put in place a plan for net zero emissions, the Climate Institute has warned.

Jan Arreza

"Severe shocks" could come our way, revealed the Climate Institute's recently released report, A Switch in Time report.

“Clean energy is booming globally, but in Australia, it's stuck in bust-boom-bust cycles," CI CEO John Connor said.

"None of us can afford another decade of uncertainty - investors, companies, employees, the community and our climate effort deserve a well-managed transition to an electricity system that is modern, smart and clean."

The news comes as Prime Minister Malcolm Turnbull announced $17 million for nine new research and development projects tasked with delivering renewable energy technologies and solutions suited to the 21st century.

Through these projects, the government aims to bring together researchers and industry, aligning the nation’s big thinkers with industry needs and strengthening partnerships between government, research institutions and industry.

Specifically, the projects will bring together utilities, network and power companies together with the mining, agriculture, finance and property development sectors to advance a range of renewable energy technologies including storage, solar, concentrating solar thermal, wave and biofuels.

The successful projects will develop partnerships with at least one Australian research institution and at least one industry partner. They will address one of the four priority technology areas to meet the challenges facing Australia’s energy market and future energy supply.

Connor said the next 12 to 18 months were crucial, as either party in government conducts reviews and faces the widely recognised need to integrate climate and energy policy to meet post-2020 and long-term targets.

The institute commissioned electricity market modeller Jacobs to test the ability of various policy options under discussion to achieve electricity emissions reductions consistent with the two degree Celsius goal.

“Our modelling found a modest carbon price rising to $40 per tonne by 2030 would result in emission reductions similar to the government’s current national 2030 target of 26-28% below 2005 levels,” Connor said.

“This would result in almost no replacement of existing high-carbon power stations with clean energy; a 60% collapse in projected clean energy growth from 2020, followed by stagnation through most of the 2020s; and 98% of the sector’s 30-year carbon budget used up in the first ten years.”

What this means is climate action after 2030 would need to be more extreme.

“More than 80% of the coal-fired generation fleet would have to be closed in less than five years, and new clean energy capacity would have to jump four-fold and keep rising. The impacts of such a disruptive shift would be felt across the economy,” Connor explained.

Major obstacles

Even if the government decided to close its coal-generation fleet, the lack of

a framework for orderly replacement of the old, inefficient and high-emitting coal stations with newer and cleaner power sources would stand in its way.

Additionally, despite falling clean energy technology costs, the report noted that existing coal stations remained more competitive than new generation and their continued operation underpinned the sector’s high emissions and deterred investment in cleaner energy.

Unsurprisingly, these hurdles posed a number of major risks, including:

  • Prolonged uncertainty over Australia’s approach to climate and energy policy, further damaging investor confidence in the electricity market;
  • Failure to make a timely transition to clean energy requiring disruptive policy adjustments to enable a rapid catch-up with the carbon budget underpinning the Paris commitments;
  • Growing mismatch between the existing regulatory regime and new technologies and business models starting to enter the market;
  • Growing conflicts between stakeholders as shareholder, investor and community activism tries to make up for policy and regulatory gaps; and
  • Unexpected and disorderly generator closures for which the electricity system, energy users, local communities and workers are unprepared.

The road ahead

“Our research shows that a policy package that actively supports both clean energy investment and the orderly replacement of our aging coal-fired power stations can better manage a timely transition to a cleaner electricity supply. A baseline and credit or emissions trading scheme alone will not be strong or reliable enough to drive the change we need, when we need it," Connor said.

The institute's proposed package of policies would reduce the gap between a modest carbon price and a less than two degrees Celsius pathway by half and achieve a 45% reduction in electricity emissions by 2030, in line with the Climate Change Authority’s recommended minimum national 2030 target. However, these policies would use up 79% of the sector’s carbon budget.

Some of the reports recommendations include:

  • Developing a comprehensive policy package that delivers a credible path to net zero emissions by mid-century;
  • Orderly replacement of existing high-carbon generators (the report suggested systematically retiring these generators on a timeline that ensures all have exited by 2035), which would improve predictability for investment and community transition;
  • Providing a well-funded and well-planned structural adjustment package for communities affected by generator closure;
  • Strategically deploying energy efficiency policies to minimise costs to energy users and further reduce emissions; and
  • Including a carbon pricing mechanism that is capable of scaling up over time to provide a bankable signal for investment consistent with net zero emissions by mid-century.