Wood Mackenzie assesses Australia’s renewable energy policy

Share of renewables in the country’s National Electricity Market (NEM) power generation mix is expected to double to 41% by 2030, from its current share of 21%, a figure which has surpassed the RET.

The RET seeks 20% of power generation to come from large-scale renewables from 2020 - 2030 and is designed to ensure that at least 33 000 GWh of Australia's electricity comes from renewable sources by 2020. This annual target will remain until the scheme ends in 2030.

Wood Mackenzie senior analyst, Rishab Shrestha, said: “Australia does not have a federal long-term national power mix target like many other countries. The RET scheme, alongside government funding, have led to the renewables boom over the last few years. Hardware cost declines have continued to be a precursor for growth. But the grid has been pushed to its limit making future renewable cash flows difficult to ascertain and stifling growth.

“There is definitely room to achieve more renewables penetration with a more ambitious target for the RET scheme, but the potential needs to be unlocked through grid flexibility investments. A co-ordinated federal push would be effective.”

At the same time Australia could provide US$40 billion of power generation investment opportunity this decade. Close to two thirds of CAPEX are expected to flow into new-build renewables by 2030, with equal amounts going into wind and solar. The remaining US$14 billion will be invested in fossil fuels with gas accounting for over 90% of projects.

Australia is currently at a pivotal juncture, and investment decisions in the next few years will play a key role in shaping the role of dispatchable generation which will be the need of the hour as coal retirement snowballs.

Shrestha said: “Coal retirements will be challenging due to its important role in providing low-cost baseload power. Over 40% or approximately 10 GW of existing coal fleet in the National Electricity Market (NEM) is expected to retire over the next two decades. But realistically, we think significant retirement of coal capacity will only start from the early 2030s.”

In the NEM power generation mix, coal accounted for 55% and gas accounted for 12% in 2020. By the end of the decade, Wood Mackenzie projects coal power to account for 47% of the generation mix, while gas makes up 10%. In contrast, AEMO expects gas to play a much-subdued role with just 1% share of the 2030 power generation mix.

Shrestha said: “There are risks that AEMO’s recently released integrated system plan which targets 1% gas by 2030 would remove critical balancing capacity from the grid system and make renewables integration more challenging.”

While renewables (onshore wind and utility scale solar) are already competitive against coal and gas, the competitiveness will widen as renewables come at a discount of close to 50% by 2030. However, grid and profitability issues limit renewables development. Gas provides grid flexibility but is increasingly being threatened by other storage technologies.

Shrestha explained: “While storage is effective for managing intermittency on the scale of a few hours, it is still far from being able to provide the multi-day or even multi-month backup that gas units provide. In the event of a large plant or transmission line outage, a system relying heavily on renewables and storage looks fragile. More storage is needed, but it will not solve all the problems which are causing a slow-down in wind and solar investment in Australia.”

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