As part of its recently released plan to achieve net zero emissions by 2050, the federal government modeled a scenario in which the power sector still burns coal in 2050 – but only in very small quantities.
Despite the federal government’s insistence on keeping coal alive, states are making progress towards phasing it out. But a messy, state-by-state approach is almost certainly a costlier outcome for consumers than if Australia had a credible and sustainable national climate and energy policy.
As a recent analysis by the Grattan Institute reveals, if the coal phase-out is managed well, we can keep the lights on and reduce emissions at a low cost.
The coal economy is not suitable for today’s grid
Australia exports a lot more coal than we consume. But we still have 25 gigawatts of coal-fired power plants, 23 of which generate electricity for the National Electricity Market (NEM). These coal-fired power plants are aging – two-thirds of that capacity is expected to close by 2040.
Market conditions prevent these plants from remaining profitable, as renewables have poured into the NEM in recent years. Rooftop solar power drastically reduced the demand for grid electricity in the middle of the day, effectively eating the coal lunch.
On days of abundant wind and sunshine, wholesale electricity prices regularly drop so low that they turn negative, financially penalizing any generators producing electricity at such times.
In addition, coal-fired power plants are less flexible than batteries, hydroelectric dams and reactive gas generators. This makes it difficult for coal-fired power plants to increase production when electricity prices are high, or slow down when prices are low or negative.
The economics of coal-fired generators are simply not suited to a system with a lot of solar and wind electricity.
Coal stations close earlier than expected
Poor economics – combined with higher maintenance costs and an increased risk of technical failure – make it difficult to justify keeping aging coal plants open.
So far this year, three coal-fired power plants have seen their advanced shutdown dates: Yallourn in Victoria, and Eraring and Mt Piper in NSW.
A faster shutdown means less coal production capacity in the years to come. For example, the anticipated shutdowns of Yallourn and Eraring will reduce the expected coal production capacity in 2030 by 1.5 gigawatts.
But the current shutdown schedule would still leave at least six coal-fired power plants operating in Australia after 2040.
As CSIRO noted in July, this is inconsistent with Australia’s pursuit of the Paris Agreement target of limiting global warming to 1.5 degrees Celsius this century.
So what are states doing?
South Australia closed its last coal plant in 2016, and New South Wales is expected to be next with the Mt Piper plant set to close in 2040. That leaves Victoria and Queensland.
Victoria’s Loy Yang A and B power plants use lignite, making them one of the cheapest but most polluting plants to operate. Victoria has also legislated its commitment to net zero emissions by 2050, and by 2030 Victoria plans to use 50% renewable energy.
Pushing even more renewable energy into the state increases the chances of the remaining coal-fired power plants going. In fact, the owners of each of the Loy Yang factories have hinted that their shutdown dates will be brought forward.
Queensland is more complicated, having the youngest fleet of coal-fired power plants in Australia. Five of them are expected to close after 2040.
But of those five, four are wholly or partly owned by the Queensland government. This means that the timing of their closures is as much a political question as an economic one.
Queensland also has some of the best renewable resources in the country, including large tracts of land suitable for renewable energy projects. Combined with its goal of 50% renewable energy by 2030, the state government has the levers it needs to take coal generation out of the system by 2040 or sooner.
We need a strong national policy
The Grattan Institute’s analysis reveals that a predominantly renewable system without coal – and only a limited role for gas – can maintain a reliable supply of electricity while reducing emissions at a lower cost.
This is because the cost of wind and solar has fallen and energy storage like batteries can help mitigate daily fluctuations in demand and supply. For those rare and sustained periods of high demand, low solar power, and low wind power (which occur every few winters), gas is the cheapest security solution, at least until the economy is over. hydrogen improves well.
Achieving this result by 2040 or sooner will require large and timely investments in the transportation network within and between states, allowing states to share their supplies and lower the overall cost to consumers. It is also crucial to control the costs of transport projects – the risk of cost overruns is greater the more complex the project.
There will, of course, be challenges in ensuring an orderly exit from coal. For example, unexpected shutdowns or blackouts of coal-fired power plants can lead to electricity supply shortages because investors in the electricity market do not have enough time to build new capacity.
A national policy to coordinate the exit of coal would reduce uncertainty for the electricity system.
Grattan has previously recommended that coal-fired plant operators designate a window of time during which their plant will shut down, combined with a payment of at least $ 100 million into an escrow fund. Operators’ money would only be released if the factory closes in its designated window – if it exits unexpectedly, the money would be kept by the market operator to deal with any reliability issues.
Governments could also require designated shutdowns to occur before 2040, and not after, if they want to achieve a coal-free NMS by that date. Alternatively – and more effectively – they could set an emissions standard for the NEM with tradable certificates, allowing market players to meet the emissions standard at the lowest cost.
Unfortunately, the current political reality indicates that no political side wants to be seen as supporting a policy resembling a carbon price, even though carbon pricing enjoys the overwhelming support of Australian economists and business.
Thus, states’ renewable energy goals are most likely to determine how quickly the NEM becomes coal-free. But if governments can muster the courage, our work shows that it is possible to achieve an ultra-low emission power system in less than two decades.