The Australian government should revise its renewable energy target policy to unlock future investments of up to $40 billion within the power generation sector, according to a new study released by research firm Wood Mackenzie.
Two thirds of the investments are expected to flow into new-build renewables by 2030, with equal amounts going into wind and solar. The remaining $14 billion will be invested in fossil fuels with gas accounting for over 90% of projects.
Investment decisions to be made over the next few years are vital and will shape the country’s energy transition progress as the country retires its fleet of fossil fuel energy generation, according to the study.
Wood Mackenzie says Australia has the potential to double its portfolio of renewable energy portfolio to 41% within the country’s National Electricity Market (NEM) by 2030. To date the country’s renewables portfolio equals 21% of the total energy mix.
Coal accounted for 55% and gas accounted for 12% in 2020 in the NEM energy mix in 2020. Coal power is expected to account for 47% of the generation mix, while gas makes up 10% by 2030.
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In contrast, the Australian Energy Market Operator (AEMO) expects gas to play a much more subdued role with just 1% share of the 2030 power generation mix.
Australia’s renewable energy target policy seeks 20% of power generation to come from large-scale renewables from 2020 through to 2030 and is designed to ensure that at least 33,000GWh of Australia’s electricity comes from renewable sources. This annual target will remain until the scheme ends in 2030.
While renewables (onshore wind and utility scale solar) are already competitive against coal and gas, the competitiveness will widen as renewables come at a discount of close to 50% by 2030. However, grid and profitability issues limit renewables development. Gas provides grid flexibility but is increasingly being threatened by other storage technologies.
Wood Mackenzie senior analyst Rishab Shrestha said: “Australia does not have a federal long-term national power mix target like many other countries. The RET scheme, alongside government funding, have led to the renewables boom over the last few years. Hardware cost declines have continued to be a precursor for growth. But the grid has been pushed to its limit making future renewable cash flows difficult to ascertain and stifling growth.
“There is definitely room to achieve more renewables penetration with a more ambitious target for the RET scheme, but the potential needs to be unlocked through grid flexibility investments. A coordinated federal push would be effective.
“Coal retirements will be challenging due to its important role in providing low-cost baseload power. Over 40% or around 10GW of the existing coal fleet in the National Electricity Market (NEM) is expected to retire over the next two decades. But realistically, we think significant retirement of coal capacity will only start from the early 2030s.”
“There are risks that AEMO’s recently released integrated system plan which targets 1% gas by 2030 would remove critical balancing capacity from the grid system and make renewables integration more challenging.
“While storage is effective for managing intermittency on the scale of a few hours, it is still far from being able to provide the multi-day or even multi-month backup that gas units provide. In the event of a large plant or transmission line outage, a system relying heavily on renewables and storage looks fragile. More storage is needed, but it will not solve all the problems which are causing a slow-down in wind and solar investment in Australia.”