Low-cost, high-reliability road to renewable energy: Grattan Institute

Australia can implement a net-zero national energy market with renewable energy that is both affordable and reliable, but committing to go zero emissions makes little economic sense at this time, according to the Grattan Institute.

Grattan Institute has released a report modelling how the National Energy Market (NEM) could look under where net zero by 2040 is the goal, and has come up with a series of scenarios, including 70% renewable energy with gas as a back-up and 90% renewable energy with gas as a back-up.

"What you find is that we can make some real progress in the next few years," said Tony Wood, program director, energy and climate change and co-author of the report. "Any of the coal fired generators that shut down in the meantime can be replaced with renewables. It's not a free ride, it needs to be backed up, but it can be done with virtually no impact on cost and you're almost getting emissions reduction for free."

The report Go for net zero: A practical plan for reliable, affordable, low-emissions electricity notes that governments should enact policies that reduce carbon emissions in the NEM with confidence that a high-renewable NEM "can be reliable and affordable," and recommends against using taxpayer funds to extend the life of existing coal-fired generators, or subsidising the entry of new coal-fired generators.

However, Grattan Institute also cautions that that committing now to go absolute zero makes little economic sense because the challenge of cutting marginal emissions is hard and expensive. Net zero - where gas is a back-up for reliability and emissions are offset through carbon credits - is "an appropriate goal."

The report looks at three scenarios - "keep coal", where retired coal-fired generators are replaced 'like for like' by equivalent-capacity, new coal-fired power stations, and where renewable electricity sources make up less than 30% of all generation, a 70% renewables scenario, where about two thirds of coal generators are retired and are replaced primarily by renewable electricity and storage, and a 90-plus per cent renewables scenario where all coal generation is assumed to exit the market, so only renewables, storage, and gas provide the NEM's electricity.

Under the 70% and 90% renewable energy scenario, the federal government needs to recommit to an interconnected NEM to assure reliable, low-emissions electricity at lowest cost, with battery storage and gas-fired plants being used as a back-up when renewable energy generation is lower, such as winter. Grattan Institute defines renewable energy as wind, solar and pumped hydro.

"This is all based upon real analysis of real data across the NEM of weather patterns in detail," Wood said. "You do find up to two weeks when those conditions actually occur, and even if build more Snowy Hydros, if we had any, wouldn't help that. As best we know it now, the most cost effective now would be to use some gas to meet those conditions, and if you need to get to net zero, offset those emissions somewhere else."

The report notes that as the proportion of renewables increases to around 70%, the value of inter-regional transmission and an interconnected NEM increases, to ensure sufficient supply at times when weather conditions mean less wind and solar energy is being generated. This is where battery storage and gas-fired generation as a bridging technology will play the role of guaranteeing supply.

According to its modelling, the costs of the "keep coal" and the "70% renewable energy are nearly equivalent, but emissions drop by two thirds by going to 70% renewable, while going to 90% renewable would result in emissions of 10 million tonnes of carbon emissions, but at greater cost.

Grattan Institute believes that using gas with offsets looks to be the lowest-cost 'bridging' technology until zero-emissions alternatives are economically competitive.

"By the time we get to the late 2030s to 2040s, it's quite possible that the zero emissions technologies would have made substantial progress from there and we could go to 92, 94, 96% renewables without additional cost," Wood said. "But this is what things look like today."

Grattan notes that a single, economy-wide emissions price would be the most efficient way to ensure that emissions in each sector are reduced at lowest cost, but if that is out of reach politically, then decarbonising the electricity sector is one avenue to reducing overall emissions in Australia.

Wood noted that in addition to the price of technologies such as hydrogen and carbon capture and storage coming down, the price of carbon credits could go up as companies and countries seek to achieve net zero through some offsetting activities.

"What we should be doing, is continue to work on the Technology Investment Roadmap, including hydrogen," Wood said. 'Right now, hydrogen is a very expensive alternative, but it's not implausible that the government will meet the $2/kg hydrogen target. By 2050, you could have hydrogen at $1.50/kg.

"What we are saying is what we should do is continue to do everything we can to push down the price of technologies and watch very carefully the price of offsets."

Read more: Grattan InstituteNEMNational Energy MarketTony WoodSnowy HydrosTechnology Investment Roadmap