Like most developed nations, Australia faces significant challenges transitioning to a low carbon footing, while ensuring business and consumers have cheap energy.
Once again, surging electricity prices have put renewable energy on the national agenda. In one Australian state (renewable energy focused, South Australia), prices have soared to as much as $14,000 per megawatt hour prompting calls for a Senate inquiry to examine the mix of renewable energy in Australia, and a national energy summit to look at ‘the states over-reliance on renewables’.
While questions are rightly being asked about why South Australia is experiencing such a brutal energy crisis, solely blaming renewable energy is a simplistic answer to a complex problem.
The reality is the power shortages point more to a National Electricity Market (NEM) in need of reform, rather than an ‘over-reliance on untrustworthy and expensive wind and solar power’, as some quarters have branded it.
The NEM is the Australian wholesale electricity market that connects the states and territories of eastern and southern Australia. It provides a spot market where electricity can be bought and distributed between states through interconnections.
The problem is the NEM was designed in the 1990’s with the assumption that energy supply would mostly be provided by coal. While Australia’s energy mix has evolved significantly since the 90’s, the NEM has not kept pace. The result is an aging system that is not designed for renewable energy, and a privatised electricity market with sub standard interconnections.
The SA Treasurer, Tom Koutsantonis, said as much when he claimed those blaming the State’s energy problems on its adoption of renewables ‘missed the point’. At the core of the Treasurer’s argument is that a fit-for-purpose national energy market would allow renewable energy to be sold into other states, while also providing access to a stable base load power.
That the SA government’s response to its current energy crisis was to bring back a mothballed gas power plant to fill the gap however adds fuel to the anti-renewables bonfire.
This action has also given credence to the claims that if other states follow South Australia’s lead and shift to between 40 and 50 per cent renewable generation, power prices and volatility will increase in the eastern seaboard network.
The spectre of having to pay expensive subsidies to keep deactivated power plants on standby as insurance against power crises, seems extreme.
The problem facing those advocating for less renewables in the energy mix is that, late last year, Australia signed up to the Paris climate agreement and promised to cut emissions to 26%-28% below 2005 levels by 2030. To meet these targets a fine balance will need to be struck between renewable and traditional energy sources.
The challenge now facing the newly appointed Environment and Energy Minister, Josh Freydenberg, is to develop an integrated national policy process to drive the transition of the country’s energy system to a lower-carbon future, while also avoiding crises like that in South Australia.
The good news is the COAG Energy Council, the decision making body of federal and state energy and resources ministers, has already recognized the critical connection between energy and climate policy. What is needed now is a genuine debate about the make up of Australia’s energy future.