When we look back at 2018 in a decade or so, it will be interesting to see how we rate the role this year played for the clean technology industry around the world. There have been significant milestones met and exceeded the world over, but also some tremendous failures — an awkward combination which came together in Australia, where political turmoil and antipathy were bypassed by state-level and independent action to bring about a record year of clean energy investment.
To understand the state of the Australian clean energy, one must first understand the state of Australia federal politics. The country, famed for replacing its leader through internal party battles, is currently led by the Australian Liberal Party, under the leadership of the seventh Prime Minister in 10 years, Scott Morrison. The Liberals — who bear no relationship to a lower-case liberal in the political scheme of things — have long been beholden to entrenched interests such as the massive coal lobby, backing one of the largest coal industries in the world and the world’s largest coal exporter (accounting for 36.6% of total coal exports in 2017, according to the International Trade Centre).
However, two things are working against the Federal Liberal party — a looming Federal election which must be held no later than May 18, 2019, and state-level politics which are swinging towards the opposition Australian Labor Party and its state-subsidiaries.
This was highlighted most dramatically in November when the Victorian Labor Party was re-elected to power in an election which was described as “stunning,” “a landslide,” and a “bloodbath.” In fact, the Labor Party was returned to power with more seats than it has held in over 15 years. Most importantly, from the position of the clean technology industry, was the simple fact that returning Labor Leader Daniel Andrews won, in part, on strong clean energy and environmental policy promises.
This included the last-minute policy promise that, if re-elected, the Victorian Labor Party would increase the state’s Renewable Energy Target to 50% by 2030.
“Labor’s VRET has helped create a jobs boom and boosting it further will see even more jobs created across our state,” said Victoria’s Labor Minister for Energy, Environment and Climate Change, Lily D’Ambrosio. “The last Liberal Government smashed our renewable energy sector and the Liberals are promising to do it again by axing VRET if they’re given the chance.”
The Federal Liberal Party’s apathy and, at times outright antipathy, towards clean energy and its blatant coddling up to the country’s fossil fuel interests is further undermined by the fact that, according to recent figures, if Australia maintains its current rate of solar and wind installations through the next decade, Australia’s clean energy industry could account for 78% of the country’s electricity supply along its west and east coast main grids by 2030.
Further — and highlighting the speed at which the economics of clean energy are outpacing backwards politics — the Clean Energy Council of Australia published new figures earlier this month which showed that Australia’s renewable energy and storage project pipeline has surpassed $20 billion worth of investment in 2018, with 14.6 gigawatts (GW) of projects under construction around the country set to deliver 12,000 direct jobs.
“The total value of the projects underway is double where we were at the end of last year,” said Clean Energy Council Chief Executive Kane Thornton. “Plus, the wind and solar projects completed in 2018 add up to $6 billion, taking the total of projects completed or underway this year to more than $26 billion.”
“The industry experienced another record-breaking year in 2018, with $20 billion invested in large-scale renewable projects and close to 1.5 GW of rooftop solar installed, taking Australia past the magic milestone of 2 million homes with rooftop solar,” Thornton wrote in a separate piece shown to me in lieu of answers to questions submitted earlier this month. “While the renewable energy industry still has its detractors, most notably on the right wing of the Federal Coalition, nothing silenced the critics quite like the installation of hundreds of thousands of solar panels on Australian rooftops or the billions of dollars of investment and tens of thousands of jobs brought to rural Australia by dozens of new wind and solar farms.”
All of which serves to show that, as much as the current Australian Liberal Party policies are intended to constrict and restrain the clean energy industry and support flagging fossil fuel industries, market dynamics are winning out.
“Despite the energy policy chaos at the Federal Government level, private individuals and investors have both accepted the technology-driven disruption is here today, and that the straight economics of deflationary renewables are now compelling,” said Tim Buckley, Director of Energy Finance Studies at the Institute for Energy Economics and Financial Analysis (IEEFA) in Sydney, who spoke to me via email. “The trebling of the domestic gas price and doubling of domestic thermal coal prices in recent years has made it clear that thermal electricity generation is becoming the expensive source of generation, particularly when renewable energy costs have dropped by two thirds to just A$40-50/MWh in the last 3-4 years, with expectations of more deflation still to come.”
In reaction to very high wholesale electricity and [Large-scale generation certificates (LGC)] prices, projects drawn up in previous years proceeded into construction, with over 1,700 MW of solar farms and over 750 MW of Wind farms connecting to the NEM in 2018,” added Jonathan Prendergast, Technical Director for the Business Renewables Centre – Australia (BRC-A), a member-based platform that streamlines and accelerates corporate purchasing of large-scale wind and solar energy and storage, who similarly spoke to me via email. “This surge in investment and construction activity has buoyed the industry. But it has also created challenges around resourcing projects and expertise to work through grid connection and commissioning processes.
“Contracting and project investment has continued at a similar pace in 2018, so construction and investment activity will continue in 2019.”
Beyond the obvious renewable energy flagpoles of solar and wind, Buckley also highlights the “cost and availability of variable renewable energy firming has also moved forward dramatically over 2018. Progress on Snowy 2.0 and Tasmania’s Battery of the Nation programs shows pumped hydro storage is available in the medium term at an unprecedented scale.
“2018 was also the year that the Tesla battery at Hornsdale Power Reserve in South Australia was also proven to be win for investors, a win for reliability and a win in delivering lower cost grid stabilisation for consumers, beyond any doubt.”
“A world first in terms of scale, this at-scale demonstration project is now being repeated in Victoria, South Korea, California, and in Europe,” Buckley added, referring in part to the Ballarat Energy Storage System, a 30MW/30MWh facility in Victoria unveiled in November.
Looking forward, the momentum seems to be with the clean technology industry. “2019 is likely to see a continuation of new renewable energy infrastructure projects being commissioned,” says Buckley. “The Australian Energy Regulator’s report of December 2018 estimates 2018/19 will see a record 3.8GW of distributed and utility scale renewables investment, with 2019/20 likely to see the second highest rate of new capacity installed at 2.75GW, almost all again being renewable energy.”
“2019 will see the commencement of at scale deployments of distributed behind the meter residential battery storage, with South Australia and Victoria both incentivising early take-up so as to establish manufacturing and the supply chain logistics needed to rapidly lower cost and ensure development of a smart grid system.”
Jonathan Prendergast of the (BRC-A) sees the need for more policy movement to further support the growth of the Australian clean energy sector. “New models such as corporate and Government PPAs need to be supported to continue investment in renewables. Projects can also be supported by quickly solving some emerging issues like local grid voltage challenges and transmission constraints which hold back more wind and solar.
“Solutions may include new investment in distributed and grid-scale batteries, Virtual Power Plants and Transmission lines to supporting incoming renewable connections.
“While the industry is enjoying this fruitful time, there is concern about whether this will continue past 2020, or whether past challenges will re-emerge,” added Prendergast. “However, the emerging diversification of contracting models and continued reduction in construction and finance costs may see continued investment in some shape or form.”
The Australian clean energy industry, however, nevertheless has to make do with what it has, and what it currently has doesn’t seem to stretch much beyond 2020. Australia’s current renewable energy target sits at securing 33,000 GWh worth of renewable energy by 2020, which represents around 23.5% of the country’s electricity generation. Earlier this year, members of the Liberal Leadership made it clear that they are not planning to replace the target with anything once it winds down.
This led some to believe that Australia’s fossil fuel industry may benefit from a short-term boost. “The Australian government’s recent decision (Sept 2018) not to revise the country’s renewable energy target (RET) after 2020, in addition to scrapping the National Energy Guarantee (NEG), which aims to reduce emissions by 26% by 2030, has brought about a certain degree of investment uncertainty in the Australian renewable energy market,” suggested Arkapal Sil, Power Analyst at GlobalData, in October. “As a result of this uncertainty, we may see Australia increase its conventional power capacity in order to maintain its annual base-load power requirements.”
However, this was only part of the puzzle and served to focus overly too much on Federal politics, and not enough on state-level politics and private investors.
“[The Institute of Energy Economics and Financial Analysis] is firmly of the view that thermal power generation capacity across Australia will progressively and inevitably continue to diminish over the coming decade, as it has been doing since 2010,” said Tim Buckley at the time. “There is no real business case for either new coal nor gas-fired power capacity, the escalation of fuel costs alone make both power sources for new capacity uncompetitive against new solar and wind at AU$40-50/MWh.”
Further, in the same month that Arkapal Sil pronounced his doom over the Australian clean energy industry, two pieces of news served to partially undermine his prophecies. Australian banking giant Macquarie Group announced in early October that it had joined a consortium of renewable energy leaders including Intercontinental Energy, Vestas, and CWP Energy Asia in investing in the Asian Renewable Energy Hub — a wind and solar hybrid power plant set to be built in the northwest of Australia which has been expanded once again to over 11 gigawatts (GW) in planned capacity. Only a few days later, the Australian Renewable Energy Agency (ARENA) announced that it would invest in the country’s first Business Renewables Centre which will aim to help businesses and local governments procure 1 GW of renewable energy by 2022 and 5 GW by 2030.
Tim Buckley also highlighted the recent decision by the Australian Investor Group on Climate Change (IGCC) to sign the “COP24 statement committing $2 trillion of domestic superannuation monies to a total coal-fired power plant phase-out by 2030.”
A Federal election is on its way and must be held before or on May 18, 2019, at the latest which, based on the most recent polls as of writing, is expected to see the Australian Labor Party (ALP) take the reins and partially sideline the Liberals. The Labor Party also seems to know that renewable energy will play a large part in securing such a victory, and has promised to implement a 50% renewable energy target if elected.
“Along with calls for no new thermal coal mines (e.g. Carmichael), clean energy and the need for a serious climate change policy are all going to be key Federal election issues, without doubt,” explained Tim Buckley. “The ALP has announced most of the energy and climate policies, and IEEFA expects further announcements to develop the details of an industry and transport decarbonisation plan once industry consultations are completed early in the new year.
“By comparison, the [Liberal] Coalition seem intention on one last roll of the dice to give yet more subsidies for the coal industry. The Longman and Wentworth by-elections sent a clear message, but the Coalition Canberra Bubble seems to be impervious.”
“Australians expect to see policies from political parties that embrace and encourage renewable energy,” added Jonathan Prendergast. “WWF polling released earlier this year showed that around 9 in 10 Australians agree that Australia should make renewable energy from sun and wind (87%). Over two-thirds of the population think that Australia should be the world leader in climate change solutions (71%) and should act on climate change without waiting for action by the major emitters (69%).”
And Prendergast believes that Federal support is necessary for continued clean energy growth in Australia. “The federal government is important in terms of messaging and leadership,” he said. “They set the tone for the public and industry,” and “Federal policies such as the Renewable Energy Target, Clean Energy Finance Corporation, and ARENA have been instrumental to date in getting us to 16% renewable.
Prendergast believes that a lack of Federal support “would be challenging beyond 2020, as there may be diminishing returns for renewable investments if wholesale prices reduce to historic levels and LGCs are oversupplied leading to a very low price.
“But State Governments, retirement of coal power stations, other new emerging business models, and both corporate and household activity could step in where there is no federal policy,” Prendergast added.
Tim Buckley, on the other hand, views “state government leadership in the renewal of our electricity system is key – given the absolute energy policy chaos at the Federal level shows no sign of abating until the May 2019 election.
“Fortunately, the runs on the board for the ACT, South Australia and Tasmania are clear and compelling,” Buckley continued. “Queensland and Victoria are through their state elections and both are committed to the Paris Agreement and to accelerating renewable energy deployments, with aggressive 50% by 2030 renewable energy targets. As a coalition government, NSW has been waiting for the Federal policy framework. But the announcements over the last few months of 2018 for the NSW Pumped Hydro Roadmap, the interstate Transmission Infrastructure Strategy and the Smart Energy Program all reflect the growing realisation that delaying any longer is unviable. NSW exits 2018 highlighting the $27 billions of regional low emissions investment pipeline. This is too big an opportunity to waste, knowing if NSW delays, we will only end up importing zero emissions electricity interstate from the wave of new investment plans.”
But the Liberals aren’t going to be waylaid without a fight, and according to Buckley, they’re also trying to ensure they get done what they can for their coal interests before it all goes belly-up.
“The Federal Government is trying one last ditch attempt to get taxpayers to subsidise new or reconditioned old coal-fired power plants with its December 2018 call for registrations of interest in its ‘Underwriting New Generation Investments’,” Buckley explained. “The proposed timeline is accelerated in the extreme to try to lock in the subsidies before the May 2019 Federal election. However, even this policy is likely to be white-anted by the reality that firmed renewables are now categorically cheaper than new thermal power in Australia. This is evident now more than ever given the export price parity of thermal coal and domestic gas. Even with no emissions controls and zero price on carbon, new thermal power is going to be shown to be uncompetitive absent massive subsidies. It will take financial engineering gymnastics in the extreme to make the ‘Underwriting New Generation Investments’ policy apply to new coal or gas ahead of low cost firmed renewables.”
Fox in the Henhouse
There is one bright spot for the Liberal Party — New South Wales Energy Minister Don Harwin, the state’s Pumped Hydro Roadmap, and its Snowy 2.0 pumped hydro scheme. Earlier this month the board of Snowy Hydro approved its Final Investment Decision, and now it’s only up to the Federal Government to make a final call on the AU$6.5 billion project. The project is expected to create 2 GW worth of on-demand generation and 350,000 MWh of storage.
“The NSW Government took a more outspoken and proactive approach to emissions reduction in the latter stages of 2018, having clearly learned some valuable lessons from the Victorian election result,” wrote Kane Thornton. “This leaves the Federal Government increasingly isolated, with its state Coalition counterparts abandoning the hardline approach to energy and climate policy. NSW Energy Minister Don Harwin has even branded his federal colleagues as “out of touch” and said it is time to put science, economics and engineering ahead of ideology. The Federal Government’s current policy of forced divestiture, extending the life of existing coal-fired power plants and denouncing renewables means that voters will provide a clear choice between renewables and fossil fuels at next year’s federal election, making it an extremely important one for the future of our industry.”
“And while NSW has been a real laggard amongst the states in embracing this technology driven transition, NSW Minister Don Harwin has shown that not all Coalition Energy Ministers are Luddites,” added Tim Buckley. “The December 2018 launch of the NSW Pumped Hydro Roadmap complements AEMO’s Integrated System Plan and NSW’s interstate Transmission Infrastructure Strategy of November 2018 – acknowledging in the unprecedented transformation that is disrupting the traditional linear model of energy delivery. NSW Planning is evaluating an unprecedented $27 billion pipeline of new low emissions energy infrastructure projects for regional NSW.
In the end, the danger of a post-2020 fall-off for Australia’s clean energy industry may be made moot by a Labor victory in 2019’s election, but even with a new leadership — even one set to revitalize Australia’s lackluster and, at times, simply backwards energy policies — more needs to be done, greater ambition set down in stone, and continued cooperation between politics, industry, and finance.