The Ragnarök of Renewables- A Conflict between the Future of Energy and an Economy of the Past

The Ragnarök of Renewables- A Conflict between the Future of Energy and an Economy of the Past

Posted by Deekhit Bhattacharya
July 6, 2018

The world is frantically attempting to dismantle an ecologically inconsiderate global economy. The international community has been tirelessly ironing out differences amongst nations to arrest climate change as it occurs. Australia however, stands divided on the issue. Its economic and environmental interests seem to be poles apart, with dissonance degenerating into policy conflict. The country is the world’s third largest producer of coal, and is aiming to become the largest exporter of LNG. Australia’s most important export by value is coal, and its per capita CO2 emissions are the highest within the G20. At the same time, the deluge of improving renewable is seeping into the economy and beyond, threatening the pre-existing. Australia’s commitments towards its economy are locked in a polarised dichotomy with those of its environment.

The issue has no easy answers and is politically divisive, to say the least. Stances and policies oscillate feverishly from one end to another. Latest developments saw the government declare the removal of subsidies and incentives for solar and wind generators from 2020. The motivational principles behind the move were given as lower costs for consumers and encourage ‘right investment’ in all forms of power. This signals yet another reversal from previous policy directions, one of many. From repealed Acts of Parliament to fluctuating energy targets, the fault line between divergent interests is palpable.

The Chief Scientist, Alan Finkel, undertook a massive review of the energy sector after blackouts due to the 2016 South Australia storms. A list of recommendations he gave included the Clean Energy Target (CET). This particular policy would’ve compelled power companies to distribute a proportion of power from renewable, low emissions sources. The government instead is pushing for the National Energy Guarantee (NEG), where a minimum amount of power must be sourced from ‘dispatchable’ sources, including coal. The same also keeps the emissions reduction target by 2030 at 26%, woefully short according to most environmental organisations.

Australia is a hotbed of investments in renewable energy, with big ticket projects ballooning. South Australia has set renewable energy targets of 75% by 2025, while New South Wales intends to retire its coal plants. Buoyed by investment and innovation, these two states are aggressively spending on solar and wind. Each passing year is seeing the cost of renewable energy drop (with a roughly 50% reduction in the last two years alone, globally). Flagship projects such as Tesla’s Hornsdale Power Reserve, the largest in the world, are permanently warping paradigms. These states have clearly spelt out their outlook to engage renewables in both policy and action. This, however, heralds headwinds for the domestic coal and gas industry. No wonder, the federal government is alarmed. Federal Energy Minister Josh Frydenberg expressed unease in Adelaide, saying “It’s time the South Australian Government got behind a national solution for a national problem”.

Tesla’s battery has removed massive cost spikes in the FCAS (Frequency Control and Ancillary Services- essentially backup power resources to fulfil demand) market. Power companies have been routinely charged of collusion in driving costs more than a hundred fold during times of requirement. Since the Tesla facility became operational, the spikes have been flattened significantly. Meanwhile, the facility made an estimated $1.4 million in two months, denoting profitability. The same firm is also setting up a ‘Virtual Power Plant’ with government aid where 50,000 low income households would be supplied batteries and rooftop panels. Similarly, the Bruny island battery trial involving the Australian Renewable Energy Agency (ARENA), top universities, Tasmania’s energy network, and the battery control software business Reposit Power is conceptualising an entirely different future for energy. It aims to turn households into producers and distributors of energy, using renewable sources. Australia, in fact, exceeded its renewable energy targets, with both big projects as well as rooftop solar installations coming up stronger than expected. Furthermore, according to an ARENA commissioned report, electric vehicles will achieve price and range parity with petrol cars within a decade. With such endeavours simultaneously proliferating and scaling up, the very existence of the conventional energy industry is in doldrums. Concomitantly, even thermal coal, oil and gas sectors are in midst of an unrealised crisis.

To complicate matters further, public sentiment is veering against conventional energy. The Carmichael coal project has been in churning opposition ever since 2011. Victoria banned onshore unconventional gas permanently in 2016. In 2017, a Lowy institute poll concluded that “81 per cent of respondents wanted policymakers to focus on clean energy sources such as wind and solar, even if it costs more to ensure grid reliability”. The Australia Institute echoed this in its 2018 study, where “A majority of Australians would support phasing out coal power by 2030”, cutting across party lines. The future looks rather bleak for the status quo in the energy market.

A far more poignant question faces the Australian economy. Australia is the world’s second largest exporter of thermal coal (coal used for power generation), with its largest market being Southeast Asia. India too imports roughly 2% of Australia’s exported thermal coal. All of these countries are reducing, even reversing, their dependence on coal and other non renewable energy sources. India’s National Electricity Plan (NEP) foresees no new coal fired plants being built till until at least 2027. Furthermore, new wind and solar plants in India are 20% cheaper than currently operational coal plants’ average wholesale price for power. 65% of coal plants’ offers in competitive auctions are greater than those of new renewable energy projects. Essentially, it is only a matter of time before coal power becomes uncompetitive. It’s very much possible that oil and gas would be the next sectors to feel the heat.  This scenario is playing out across all major markets, one way or another. Naturally, this does not augur well for a country which is a prime energy resources exporter.

On the other end, India’s rapidly growing refining capacity might run into unforeseen pressures. India’s largest exports by value are petroleum fuels and products, with Australia buying roughly 2% of India’s fuel exports. The renewable switch is equally unsettling for Indian petroleum as it is for Australian coal. Case in point is a declaration of India’s apex car body in 2017, estimating electric vehicles to make up 40% of all new sales in 2030.

For the first time since the Industrial revolution, the position of coal as the premier choice for energy generation is coming into question. Technological change has become a hurricane from a breeze, and in the process is contending to blow away existing energy sources. Australia is placed ideally for both wind and energy, and the unforeseen pace of innovation is being translated into practical economics. Yet, it is the centrality of mineral energy within the Australian economy which gives rise to fears. If adjustment is inadequate, not just Australia but vast swathes of the world would be facing a dangerously disruptive economic reorientation. Coal mining alone directly employs roughly 55,000 Australians, and along with LNG is the lifeblood of Australian export. India too will be stuck in a position where its biggest exports are obsolete products with lacklustre demand. A massive proportion of the populace would need to be re-skilled and the economy envisioned anew. The most alarming fact isn’t that the process is already underway. The focal point of our anxieties should be that in countries including Australia and India, there is no coherent policy strategy to keep up with the times to come.

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