One of the great surprises in the climate action debate recently has been the plummeting cost of renewable power and storage devices – a central theme in last week’s report into the ‘Future Security of the National Electricity Market’.
Even the report’s lead author, Chief Scientist Alan Finkel, admits he’s been caught off balance: “… even since the review started, utility scale batteries, wind and solar photovoltaic have declined in cost substantially more than expected”.
Wind is now cheaper per megawatt hour produced than brown or black coal, even including ‘firming costs’ – a measure of how much gas-fired capacity is needed to cover occasional periods when the wind fails across multiple regions.
Large-scale solar energy is not far behind, and gas, which will be important as a flexible ‘peaking’ power source, is most expensive of all – the report has a useful comparison chart on page 100.
Let the market rip?
The government says it’s committed to reducing carbon emissions by 28 per cent below 2005 levels by 2030, but given the falling price of renewables you might think the ‘market’ will now deliver that goal without any help.
Well, the report shows why that view is wrong. The ‘market’ as it exists is an artificial, badly regulated shambles, and it will need major reform – including the ‘clean energy target’ price signal recommended in the report.
Dr Finkel models three scenarios: ‘business as usual’; a scenario with the ‘clean energy target’; and a scenario with an ’emissions intensity scheme’ price signal that the Labor Party favours.
The two latter scenarios are actually pretty similar in their outcomes, but both produce lower prices than business as usual.
Yes, pricing carbon will lower energy costs.
There are two reasons for that. Firstly, power generation firms such as AGL, Origin and Energy Australia have been delaying investment in power infrastructure because of the dreadful political uncertainty of the ‘carbon wars’.
Energy Australia told the report’s authors: “… the introduction and, then removal, of a carbon price scheme and changes to the renewable energy target are two key examples”.
The second reason a price signal will bring prices down is that it will accelerate the building of small scale, ‘distributed power’.
If that acceleration doesn’t take place, consumers will bear the brunt of investments in large centralised power plants with 40 year lifespans.
To avoid that, the ‘clean energy target’ will incentivise the building of smarter grids infrastructure that will allow households and businesses to not just buy power, but generate it and trade it with power companies, and with each other.
This is more than a theoretical possibility. As veteran journalist Alan Kohler reported last week, large shopping centres are installing solar plants on their roofs and consuming power ‘behind the meter’ – reaping them a whopping 16 per cent return on the investment.
With returns like that, distributed power will spread like wildfire.
Similar options exist for homeowners with the new generation of solar-and-storage systems being marketed by a host of small companies, but also by the energy majors – a dramatic market shift first reported by The New Daily two years ago.
The Finkel report is the first comprehensive attempt to catch up with the changed economics of this revolution.
It notes: “Battery storage is poised to be the next major consumer-driven deployment of energy technology … Bloomberg expects the average payback period for residential consumers to fall below 10 years in the early 2020s, with around 100,000 battery storage systems to support rooftop solar photovoltaic generation predicted to be installed by 2020.”
As more households power their summer air conditioners directly from their rooftops – avoiding the ‘voltage drop’ of larger networks – or more shopping centre owners produce a surplus of power to sell back to the grid during peak times, the less demand for centralised coal and gas plants will become.
This is known as the ‘death spiral’, because as demand falls the generators are forced to raise prices to service their investments – an inversion of normal supply-demand logic.
The Finkel Report points out that if not managed carefully, that process could create chaos – what some have called the ‘Mad Max future‘ for consumers that can’t afford to join in.
So Dr Finkel is really calling for two things: an acceleration of a revolution that was being held back by the ‘carbon wars’, plus a huge overhaul of the energy grid and market to cope with the new technologies.
If accepted by the recalcitrant Coalition party room, it will empower businesses and households to take control of their energy spending, and will relegate simplistic arguments of ‘coal vs renewables’ to the dustbin of history.