Australia ministers face tension over energy policy

Australian energy ministers are preparing for a potentially fractious meeting this month to discuss keeping coal-fired plants open well beyond their retirement date, to ensure the country's power system remains reliable during a transition to lower greenhouse gas (GHG) emissions.

The proposal, known as a capacity market, will provide a strategic reserve for significant events in the National Electricity Market (NEM). The NEM accounts for more than 80pc of Australia's total electricity demand, and coal-fired plants are its largest fuel source.

But the proposal has proved to be contentious, as some state ministers have announced that they will not support it.

Australian federal energy minister Angus Taylor says the capacity market is necessary to allow more renewable energy to come onto the market. But just weeks after the policy was unveiled, the annual outlook report for the NEM showed that, contrary to what the minister had claimed, there is actually little need for a capacity market. This is because of the planned construction of power transmission infrastructure to carry supplies from one state to another, as well as additional gas-fired peaking capacity that is to be built in Australia's most populous state New South Wales (NSW), such as the 316MW Tallawarra B gas-fired power plant, and the 635MW Port Kembla gas-hydrogen power station. These plants will provide the back-up power necessary to maintain grid reliability.

There are multiple well-established generation, storage, and transmission projects that would help mitigate supply scarcity risks, the Australian Energy Market Operator (Aemo) said in its 2021 [Electricity Statement of Opportunities (ESOO) report](ESOO). Around 62pc of electricity in the NEM comes from coal-fired plants, around 30pc from renewables, and around 8pc from gas. Renewables are expected to rise in the coming 12 months and take more market share from coal and gas-fired plants.

The reliability forecast for the next five years has improved since the 2020 ESOO report, which identified a gap in the reliability of the power supply. The 2021 report shows that this gap no longer exists, primarily because of a combination of newly-committed generation, storage, and transmission developments that were not included last year, Aemo said.

In addition, 2,200MW of new capacity, including 470MW of storage capacity, is forecast to be operational in the December 2021 to February 2022 summer, and another 2,200MW of new capacity is expected to become operational within the next five years. This includes the 750MW Kurri Kurri gas-fired plant which will commence operations in 2023-24 and partially replace the 1,680MW Liddell coal-fired plant, which will be retired over 2022 and 2023, Aemo said.

State capacity

In recent weeks, Australian states have disclosed more of their own policies for transitioning to a less emissions-intensive economy. They are also showing little interest in supporting ageing coal-fired plants, which are becoming less profitable, because renewable energy is increasingly eating into their market share. Power generation from renewable sources has today doubled from around 15pc in 2017, when coal accounted for 71pc of power supply, and gas accounted for the rest.

The NSW state government received proposals in late August to build 34,000MW of renewable energy projects at one of the state's three designated renewable energy zones (REZs), where initially only 8,000MW of solar and wind were to be built.

The number of proposals exceeded the interest displayed in the Central-West Orana REZ, which attracted 27,000MW worth of projects in a space where 3000MW of renewable energy is to be built. NSW, along with Victoria and Queensland are the only states in the NEM with coal-fired plants.

Tasmania, which has the lowest GHG emissions among Australia's six states, has attracted several green hydrogen project developers seeking to gain leverage from the state's renewable energy sector, which generates almost 100pc of the state's power from hydro and wind resources. As a result, the island-state has launched an initiative called Renewables, Climate and Future Industries. Tasmania will bring together resources from all its ministries to provide a whole-of-government approach to attracting renewables and hydrogen investment, as well as dealing with climate change adaptation and mitigation, as part of its strategy to become a leading player in green hydrogen, as it missed out on previous booms in coal and gas.

At the end of August, the state government in Victoria opened its second renewable energy auction to attract proposals to build 600MW of renewable energy, as part of its strategy to meet its renewable energy target of attaining 40pc of electricity from renewable sources by 2025, compared with around 33pc at present.

Critics say the capacity market mechanism is a cynical attempt by Canberra to keep coal production and coal-fired plants going for as long as possible. Proponents in the renewable energy sector claim it will deter future investment in the sector, including for green hydrogen projects, as it will be an added cost, and will also cost consumers more.

By Kevin Morrison