Energy, and what Australia’s future energy ecosystem might look like, is a polarising topic for many.
Affordability and reliability are paramount when considering what this future might be, but this future also needs to consider the environment and economy if it is to carry weight and have impact with policy makers, customers, community and industry.
Unfortunately, there is a roadblock hindering agreement on this energy future and the policy choices needed to get us there: our public discourse. The debate is often partisan and mired in claims that green (renewable) is good and black (coal) is bad, or vice versa. Numerous analyses show all types of power generation are the cheapest sources of generation, and many could be considered correct - in isolation. However, such conclusions are irrelevant to the debate about the best sources of generation if they don’t also consider their impact on the entire energy system and the economy.
As a result, there is confusion about the real impact of different policy decisions on our energy system and on our economy.
To provide impartial, fact-based input to the debate, we have conducted detailed analyses considering the financial, economic and environmental impacts of four different energy scenarios for Australia through to 2040.
We have gathered insights from opposing ‘sides’ of the energy and climate debate to develop an objective view on the different elements of the energy trilemma – affordability, reliability and sustainability.
Our motive is to equip policymakers and the investment community with facts and perspectives that help them move beyond the polarised debate towards a policy approach that supports optimal investment decisions and secures the best energy future for Australia.
A renewables approach will add >$13b to GDP for Australia
We’ve modelled four possible scenarios and have come to a conclusion that may surprise many.
A power generation mix dominated by renewables by 2040 can deliver reliable and affordable electricity, as well as drive an increase in Australia’s economic welfare.
Conversely, replacing retired coal-fuelled thermal plant with new High-Efficiency Low-Emissions (HELE) coal plants would result in a comparatively poorer economic outcome.
We suggest pursuing an energy mix dominated by intermittent renewables with reliability provided by a mix of dispatchable power stations is a no regrets policy direction for Australia. This would result in the country being supplied by 80% renewable energy within 20 years and with lower emissions from power generation (68% lower than 2005). It would also add more than $13b to GDP and enable an additional $6b in consumption by Australians.
In order to provide the energy debate with a better foundation for discussion, we have focused on four energy choices for Australia, modelling their financial, economic and emissions impact. Three of these scenarios share the same assumptions regarding the timing of thermal capacity retirement and vary only in the mix of new capacity added. They provide a good baseline comparison of the impact of different technologies. The fourth option serves to understand the impact of accelerated thermal capacity closure and increased renewables penetration. Because the amount of capacity replaced is higher compared to the other three scenarios, the results are not strictly comparable, but provide directional insight.
Based on analysis of various AEMO forecasts and supporting data and assumes major thermal power plant closures in line with company announcements - sees 47% of Australia’s thermal generation capacity retiring by 2040 replaced by a mix of new gas and renewable generation on a least cost basis
In line with the reference case on most assumptions, including the retirement rate of thermal generation – replaces most retiring thermal capacity with renewables
Aligned with the reference case and its thermal plant retirements – assumes that for all coal-fired generation closed 50% of its capacity will be replaced by High-Efficiency LowEmissions (HELE) coal technology
Deviates from the reference case by accelerating the thermal plant closure schedule, particularly for plants currently scheduled to close in the 2040’s and 2050’s – sees 60% of thermal capacity closed by 2040 and replaces it mostly with renewables
Policymakers and regulators have very little time to build consensus on the energy future we should be aiming for and implementing a robust framework that will lead us there.
For Australia to harness the potential economic benefits of moving to a more reliable and a more renewable future, Australia’s supply mix, networks and wholesale market need to undergo a significant and well-planned transition.
Failure to reform our energy market to ensure key energy infrastructure investment decisions are made in the short term could push Australia into a disruptive energy future. Poor or unbalanced energy policy choices undermine stability and create a poor investment climate. Taking a forward view on energy system needs with a blend of dispatchable and nondispatchable generation is not only possible but essential for our economy and our wellbeing.
At the risk of being simplistic we see there are four key actions we must take as a nation:
Ensure that the current energy policy and market reform work being undertaken by our various regulatory bodies and governments comes together in a single coherent and comprehensive plan quickly and have the necessary legislation and regulation agreed within the next 1-2 years. Governments of all persuasions must not continue with political brinkmanship on the matter of energy policy.
A definitive body of work be undertaken within the next 1-2 years to develop a view of the critical role of the energy networks (both transmission and distribution) sector and its investment needs over the next 10+ years as it continues its transformation to becoming the physical energy platform we need for our energy future.
Developing transition plans for those industries, States and regions undergoing radical change - given our analysis points to major regional shifts in employment and economic prosperity as the transition under all scenarios (including the reference case) unfold. Building coherent and action oriented industry and regional economic transition plans are fundamental to how Australia’s energy communities continue to flourish as our energy markets transition.
Ongoing innovation is key to solving Australia’s energy puzzle and creating world leading expertise. Much of what we will reshape over the next 20 years will occur across the globe which provides an opportunity to develop world-leading Australian expertise on how to build new energy systems and the underpinning technologies, both physical and digital.
This report injects much needed economic perspective into the energy debate, however, we don’t have all the answers of what happens next.
Over the course of the coming months, we’ll be holding a number of energy leadership discussions to identify opportunities and action-critical things that need to be done in order to get shift the dial, especially within the next two years.
If you have ideas or thoughts that will positively impact this dialogue and future planning, we would love to hear from you.
Energy Utilities & Mining Leader, PwC Australia
Tel: +61 3 8603 0009
Chief Economist & Partner, PwC Australia
Tel: +61 (2) 8266 4611
Senior Manager, Markets, Energy, Utilities and Resources, PwC Australia
Tel: +61 3 8603 3291
Co-lead Energy & Utilities Consulting, PwC Australia
Tel: +61 2 8266 3355
Senior Manager, Economics & Policy, PwC Australia
Tel: +61 2 8266 6376