This energy revolution is hard - really hard - but it’s doable

Australia’s east coast electricity grid was under unprecedented pressure last week, laying bare the challenges of achieving a zero-emissions electrical system. It’s hard, really hard. And it’s only the beginning. The next step is to expand our zero-emissions electricity generation, and hydrogen produced from it, to replace oil and gas in transport, building heating and industry.

It has been easier for countries such as Norway and France because they have drawn on hydroelectricity and nuclear electricity to massively reduce their emissions. Tasmania, too, has achieved virtually 100 per cent emissions-free electricity through its combination of hydro and wind electricity.

Nyrstar’s Port Pirie smelter in South Australia, where owner Trafigura plans to build a $750 million ‘green’ hydrogen plant. Credit: Supplied

From an engineering perspective, hydroelectricity and nuclear are dream players, producing electricity on demand and contributing to the secure and reliable operation of the grid. Solar and wind generation are less co-operative, but realistically that’s all that mainland Australia has at hand. To deploy them, they must be supported by transmission lines, storage and arguably a modest amount of natural gas generation.

Australia has made good progress. There has been record investment in the past three years that has seen our solar and wind generation in the east coast grid almost double from 12 per cent in 2018 to 23.5 per cent in 2021. On a per capita basis, our solar and wind generation is comparable with California. Looking just at solar electricity, on a per capita basis Australia is No. 1 in the world.

Where we are behind schedule is on the construction of transmission lines, especially the local lines required to connect solar and wind energy zones to metropolitan and industrial loads. These transmission lines, combined with batteries, will substantially improve the reliability of our electricity system.

The requirements for transmission lines are well described in the Australian Energy Market Operator’s integrated system plan, a recommendation of the 2017 review of the national electricity market that I chaired. The new federal government’s $20 billion fund for transmission lines and grid strengthening will accelerate implementation.

As we design the electricity system of the future it is essential to plan for the extremes, not the averages. In the past few weeks alone, we have suffered from a combination of floods, international price pressures, generator breakdowns, lower than usual wind and the normal low winter sunshine. A rare combination of events indeed, but rare events come in many shapes and sizes and, overall, one or the other happens frequently. More foreseeable is that every few years we will see low sunshine and low wind weather patterns lasting for many days or a week or two.

The solution is to invest in long-duration storage. Today, the only way to achieve long-duration storage is with pumped hydro, but such projects have been few and far between because of local objections to the facilities themselves and to installing the transmission lines to connect them. In future, hydrogen made from excess solar and wind electricity during good weather will be stored in large volumes and used to fuel converted natural gas generators to provide long-duration storage.

The economics for investing in storage work well for short-duration storage of an hour or two. For that reason, investment in big batteries in Australia is already happening and growing rapidly, as it must. However, because the existing electricity market only pays for energy (megawatt-hours) dispatched, long-duration storage that will only be called upon infrequently is not an attractive investment. The solution is to introduce payments for the capacity to provide electricity on demand. This is an additional market mechanism known as a capacity market.

Details for such a market have been planned by the Energy Security Board and, encouragingly, federal, state and territory energy ministers have agreed to fast-track its adoption.

There are questions about whether it should include coal and natural gas. Coal generation needs separate attention to manage a planned exit. If the federal government in 2017 had not rejected the clean energy target recommended by the Finkel review, the coal generation owners would already be participating in an orderly exit consistent with the targeted emissions reduction trajectory.

On the other hand, natural gas generation could be included because it provides on-demand electricity that can ramp up and down within minutes to match the variable solar and wind. Natural gas generators will increasingly only be used as the last resort for a small number of hours per year, providing high value by keeping the lights on for short, medium and long durations. But the natural gas has to be available in volume and at reasonable price, which could be achieved by encouraging more supply and implementing a domestic reserve.

The fear that building new natural gas generators will lock them in for decades can be avoided by ensuring that in future they can be powered by hydrogen, as in the Tallawarra B power station under construction in NSW.

Small market tweaks would also help. For example, the $300 per megawatt-hour cap on the wholesale price was set more than 20 years ago. This cap is too small, not just because of inflation but because of our exposure to international coal and natural gas prices. If it had been set at a higher value, the operator might not have had to suspend the trading market.

The imminent threat of blackouts has been averted through excellent system management by AEMO, supported by constructive action by the energy ministers. We must learn from the current price and availability crunch that the transition will not be easy, but with the kind of determination currently being manifest it should be eminently doable.

Alan Finkel was Australia’s chief scientist from 2016 to 2020 and chaired the 2017 national electricity market review, the 2019 national hydrogen strategy and the 2021 low-emissions technology roadmap.