Energy

6.1.1 Defining 'clean energy'
6.1.2 The scale of transformation
6.1.3 Clean energy resources
6.1.4 Our clean energy capacity
6.1.5 Technology cost potentials

As outlined in Chapter 3: Future energy trends and challenges, Australia’s emissions reduction goals will require a large-scale transformation to cleaner energy sources, resulting in a substantially decarbonised energy system by the middle of the century.

This transformation to a clean energy economy will open up commercial opportunities for Australian innovators, particularly through export markets, create new jobs and promote regional development.

While these reforms will impose moderate increases in energy costs on consumers in the short to medium term, delaying them would be likely to impose higher adjustment costs on the economy because of the long lives of investments in the energy sector and the risk of technology ‘lock in’ (IEA 2011a, Treasury 2011).

This chapter outlines the drivers and scale of the clean energy transformation under the government’s Clean Energy Future Plan, the key policy challenges involved in transitioning the energy sector, and the actions that the government will take to address them.

6.1.1 Defining ‘clean energy’

There is no fixed definition of ‘clean energy’. This Energy White Paper adopts a broad and pragmatic interpretation, as a clean energy future will require the pursuit of a broad suite of technology options. In this document, ‘clean energy’ means sources of energy, technologies or processes that produce zero greenhouse gas emissions or lower emissions than their conventional counterparts while meeting social, environmental, health and safety standards.

Clean energy technologies include zero- or low-emissions electricity generation, energy storage and management systems and transport technologies. They include renewable as well as fossil-fuel-based technologies, or hybrids of both, and can be applied to centralised or distributed generation systems. Energy efficiency and demand-side technologies are also part of the clean energy mix (these are covered in Chapter 11: Energy productivity).

The deployment of clean energy technologies is also interlinked with information, communication and system control technologies. Examples include ‘smart’ energy systems that manage variable renewable energy supply sources and the remote operation of distributed or off-grid renewable energy capacity.

One strength of carbon pricing as a policy instrument is that it largely avoids the need for the government to regulate or mandate what are (and are not) clean energy technologies. Instead, the market will determine the energy mix that meets our assigned emissions caps most cost-effectively.

It is reasonable to expect that this transition will require our energy system to be a mix of different technologies and fuels for many decades as the penetration of new clean energy technologies and fuels deepens. Our understanding of clean energy technologies will also change as they develop and shift further towards zero emissions over time. Thus, technologies defined as ‘clean’ today may no longer be considered clean by 2050 (or earlier).

6.1.2 The scale of transformation

The transformation that is needed to support our greenhouse gas emissions objectives will have large impacts and take a long time. To illustrate this, Figure 6.1 shows a possible projected share of generation technologies in Australia’s electricity sector based on the recent Bureau of Resources and Energy Economics modelling described in Chapter 3: Future energy trends and challenges.

Figure 6.1: Electricity generation technology shares to 2050

Source: BREE (2012d).

Based on the recent Australian Energy Technology Assessment mid-point technology cost estimates, this suggests that clean energy technologies could provide around 40% of Australia’s electricity generation by 2035 and up to 85% (or 305 TWh) by 2050, when fossil-fuel-fired generation with carbon capture and storage (CCS) would contribute 29%, large-scale solar 16%, wind energy and household solar photovoltaic (solar PV) 13% each, geothermal energy 9%, and hydroelectricity and bioelectricity 5%.

While these long-term estimates are heavily qualified and should be treated more as illustrations than predictions, they point to an enormous long-term change.

This ambitious transformation will be achieved from a currently modest but growing clean energy base: renewable energy (largely hydro-electric, wind and a small but growing component of household solar systems) contributed around 10.1% of electricity needs in 2010 (or 19.4 TWh) (BREE 2012a).

The transformation may require more than $200 billion in new generation investment between now and 2050, including around $50–60 billion in gas, $100 billion in renewables and $45–65 billion in coal, nearly all of which is for CCS plants (SKM MMA 2011, ROAM Consulting 2011). To put this into context, we may need an additional 286 TWh of new clean energy capacity by 2050, but no significant Australian CCS, large-scale solar, ocean or geothermal generation systems are in operation today.

Australia’s transport energy sector is likely to undergo a similar scale of transformation. By 2050 there will be significant growth in transport fuels and technologies that have little or no presence in the market today (see Box 6.1). Biodiesel could contribute around 13% of total transport fuel consumption, natural gas 12%, bio-derived jet fuel 8%, electricity for transport 5%,¹ and synthetic diesels 2% (CSIRO 2011a). Demand for transport services is affected by many factors, including land-use planning, registration and road charges, the availability public transport and freight logistics; these factors are outside of the scope of this White Paper.

These are not predetermined or mandated outcomes. The market is best placed to drive the pace and shape of the transformation and the relevant technologies. The role of government is to establish a market-based framework, such as by establishing a carbon price and the Renewable Energy Target, which enables the market to allocate resources efficiently to test various technologies. Public funding will support those decisions and priorities to ensure that a mix of technologies is given the opportunity to commercialise within the market.

6.1.3 Clean energy resources

The 2011 Australian Energy Resource Assessment (GA–ABARE 2010) demonstrates that we possess some of the world’s best renewable energy resources, including:

• the highest average solar radiation per square metre of any continent
• world-class wind resources along our southern coast
• large-scale potential hot rock geothermal resources, estimated at roughly 25 000 times Australia’s primary energy use
• a large and diverse bioenergy potential
• abundant wave energy resources along the western and southern coastlines, and tidal resources in the north-west.

We also possess extensive and highly prospective geological storage sites for carbon dioxide onshore and offshore, which we could use to develop near-zero net emissions coal-fired or gas-fired baseload electricity generation.

Despite this assessment, the true potential of our clean energy resources will not be properly understood until these technologies mature and are commercially deployed at scale.

6.1.4 Our clean energy capacity

The adequacy of Australia’s technological and engineering capabilities will affect our ability to realise our clean energy potential. In this area, we are well placed:

• Australia has well-developed basic and applied research, development and demonstration capabilities in the CSIRO’s energy and advanced manufacturing research programs, some world-class energy-related university research schools, cooperative research centres and primary industries research and development (R&D) organisations.
• Australian researchers have been recognised internationally for their groundbreaking work in solar PV energy research, and Australia is a world leader in a range of PV technologies.
• Similarly, we are among the world leaders in the development and/or application of ocean, enhanced geothermal and CCS technologies.
• The Australian Government maintains a strong national innovation framework that aims to improve skills, expand research capacity, boost collaboration and increase incentives for innovation across the economy.
• We have a strong track record in utilising new generation technologies and reliably integrating intermittent energy into Australian grids (notably wind power in South Australia) and in applying off-grid solutions.

Improving this capacity will require an ongoing commitment from the public and private sectors to the education, training and development of Australia’s workforce.

6.1.5 Technology cost potentials

Investors and policymakers considering where best to focus private and public sector resources require a sound understanding of technology cost potentials, including the relative importance of capital and operating costs, the potential for technology improvement, and sensitivities to other input costs.

The 2012 Australian Energy Technology Assessment (AETA) by the Bureau of Resource and Energy Economics substantially revises previous technology cost projections for 40 different large-scale stationary energy generation technologies through to 2050 (BREE 2012d). A comparison of cost estimates for these technologies in 2012 and 2030 is shown in Figure 6.2. While many clean energy technologies are currently not cost-competitive, that is expected to change dramatically over the next two decades.

However, it is also important to understand the limitations of cost projections. The analysis in the AETA, while based on comprehensive research and peer review, is not a predictive tool. It is better understood as an indication only of the known cost drivers for a range of technology classes. The estimates also do not include any localised or system-based cost factors (such as connection costs or backup costs), which can have significant impacts on delivered energy costs from individual projects. Investment decisions should, and will, be made based on the actual costs of projects and not levelised cost-of-electricity estimates.

Many factors other than those drivers can radically alter a technology’s future potential. For example, few could have predicted the dramatic reduction in solar PV costs that has occurred over the past few years, driven substantially by the emergence of large-scale Chinese manufacturing capacity. Along with a substantial winding back of solar subsidies in many markets, this is resulting in a significant restructuring of the global PV industry, which may also have further effects on price paths.

Figure 6.2: AETA projected technology cost ranges (2030)

CCS = carbon capture and storage; IGCC = integrated gasification combined cycle; LCOE = levelised cost of electricity; PC= pulverised coal; PV = photovoltaic; SWIS = South West Interconnected System (Western Australia).

Notes:
Default region is New South Wales, except for brown coal technologies (Victoria) and SWIS scale (as specified).

Source: BREE (2012d)

¹ As a percentage of energy. Expressed as kilometres travelled, it may be significantly higher