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By Ruth Dawkins 27 January 2022 6 min read

Australia’s energy system is undergoing a major transition.

The four key components of the energy system - electricity, industry, transport and exports – are all evolving, in some cases even more rapidly than expected.

It’s an exciting time, driven by a range of different factors that include new technologies, changing consumer preferences, and national and global efforts to reduce greenhouse gas emissions.

Understandably, many people have a lot of questions about what our changing energy system means for them - and Paul Graham, CSIRO's Chief Energy Economist, is the man who can help answer them.

Australia’s changing energy mix

Electricity grids in Australia were built mainly to transfer electricity from large, centralised coal-fired power stations, with some assistance from gas and hydro. The transfer was essentially in one direction to end-users, and the system excelled in providing dispatchable electricity at any given time. (Dispatchability is the extent to which electricity can be supplied on demand, according to market needs.)

Traditionally, electricyt grids in Australia were built to transfer electricty from coal-fired power stations (like the Thomas Playford Power Station aka Playford A station at Port Augusta, South Australia) in one direction, to users. (Image: SA Government, 1962)

But a lot of Australia’s older coal-fired generators are nearing retirement. Approximately 80 per cent of gas and coal resources will reach the end of their asset life during the 2030s and 2040s.

Combined with a drive towards cleaner energy sources, the upcoming retirement of coal-fired generators is leading to a change in Australia’s electricity generation mix.

In 2020, the share of our electricity generation coming from renewable sources was at 24 per cent. The Australian Government projects that share will reach 50 per cent by 2030, although South Australia and Tasmania have already surpassed that target. Australia can also be proud of the fact that it already has the highest uptake of rooftop solar in the world[Link will open in a new window], with one in four homes using the technology.

“It’s been clear for a number of years that the cost of renewables is falling and it is now the lowest cost new build technology,” says Mr Graham. “That’s not controversial – it’s the mainstream view held by the industry itself who are the primary investors. The whole system is getting ready for renewables supported by storage.”

However, Australia’s unique geography, climate and changing energy mix present a number of technical challenges that need to be overcome to enable this change.

Our decentralised electricity grid is very different to other countries, our demand centres (major cities) are located long distances from each other in different climate zones. As the percentage of Variable Renewable Energy (VRE) sources in the grid increases, there is a need for greater interconnection and affordable energy storage solutions.

When researchers, governments and industry stakeholders are seeking solutions for Australia’s future energy supply, there are three key requirements that need to be addressed and they are known collectively as the energy trilemma.

Our supply must be reliable, it must be sustainable, and it must be affordable.

As we look to the decade ahead, an electricity system built upon these principles is possible - and CSIRO is working to solve the technical challenges that will help us get there.

Why is energy storage so important?

As the percentage of renewable energy in the grid increases, we need to provide stabilising solutions (also called ‘firming’) that help deal with the challenge of intermittency – fluctuating power caused by variable wind and sun.

Firming is currently provided by coal and gas but as those assets retire we need a plan for filling in the gaps. That’s where energy storage comes in – and it’s why the Australian Government has highlighted affordable energy storage as one of five priority low emissions technologies.

We will require a range of different but complementary energy storage capacity solutions that can meet the timescales of energy demands and maintain grid stability.

“A lot of the storage infrastructure is already being built,” says Mr Graham. “Individual states have been moving at different speeds because they have different renewable targets, but South Australia already has their big battery. Victoria has very recently installed and activated their big battery at Moorabool just outside Geelong, and New South Wales is working on the Snowy 2.0 pumped hydro scheme. There’s already an awful lot happening in this space.”

Electricity storage is a key to expanding low emissions electricity. (The Tesla 100MW ‘big battery’ at the Hornsdale Wind Farm, South Australia. David Clarke/flickr (cc by-nc-nd 2.0))

Putting a price on the energy transition

For a long time, it was very hard to get a transparent source of regularly updated data on the future costs of electricity generation and storage, and that lack of quality data made it very hard to prove or disprove any figures that were shared.

However, since 2018 CSIRO has collaborated with AEMO on the GenCost report – an annual process of updating generation and storage costs. GenCost places a strong emphasis on stakeholder engagement as a means of supporting the quality and relevance of outputs.

The fourth GenCost Report (2021-22) considers the costs of storage technologies and transmission network investment that would be needed to support different energy sources. It shows that wind and solar will continue to be the cheapest sources of new electricity generation in Australia through to 2050, even taking into account the cost of storage and new network infrastructure.

It’s a valuable piece of work, especially given how fast the sector is changing.

“Back in 2017, our analysis estimated that it would cost Australia a trillion dollars to convert to renewables,” says Dr Graham. “The knowledge we’ve gained since then on changes in technology costs cuts that figure in half. It’s now more like $500 billion, which is a pretty good improvement in a very short space of time. And to be clear, the cost would be greater if we decided to rebuild coal.”

The annual GenCost Report consistently show that wind and solar will continue be the cheapest sources of new electricity generation in Australia, even when factoring in transmission and storage (Hallicum Hills Wind Farm image: Changyang1230)

What does it all mean for consumers?

One serious concern that many people hold about Australia’s changing energy system is that it will impose a financial burden on households.

The cost of transitioning the sector is one thing; the numbers we can expect to see on our future electricity bills is another thing entirely. With dozens of different figures thrown around in the media – many of them high – it can be hard to get a sense of where the truth lies.

But according to Mr Graham, there is little cause for concern.

“In the last couple of years, we have seen electricity bills that are higher than normal, especially around 2019,” he says. “But that was actually to do with outages and higher gas prices. It was more about our existing structure than our future one. What we think will happen now is that retail prices will settle and stay fairly low. If anything, renewables tend to suppress electricity prices because they’re not influenced by fuel prices or global markets in the same way that fossil fuels are.”

The recent Energy Vision Report[Link will open in a new window] published by Transgrid in partnership with CSIRO, ClimateWorks Australia and The Brattle Group, supports this position, stating that “The decarbonisation of the Australian economy can deliver lower energy expenditure for residential consumers.”

The message then, is a clear one.

Decarbonising the energy sector is essential for Australia to achieve its emissions reduction targets, and there is already a range of mature low-emission technology options available.

The focus now is how to integrate these into our electricity systems in the most efficient and cost-effective way possible, ensuring that Australia has a future energy supply that is sustainable, reliable and affordable. According to Mr Graham, the future looks positive.

“In the electricity sector we’re now in an extremely fortunate position in that the technologies we need to decarbonise electricity supply, in the last few years, have emerged to be the cheapest technologies available to deploy. We’ve been very pleased to have a small part in identifying that trend.”

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