Confused about energy policy? Here’s a quick guide to the latest

From solar to wind, nuclear and coal, it’s hard to separate the hype from reality. Here are the facts about key energy types.

Here's everything you need to know about Australia's energy sources.

Australia’s electricity network is undergoing its biggest shake-up ever, with social, environmental and economic pressures driving rapid change that will reshape the country’s $2.5 trillion economy and uproot many rural communities. The nation’s electricity network already uses several different fuel sources, and newer arrivals are likely to alter how Australia draws its power in the next decade. The federal government wants renewable energy to meet 82 per cent of our electricity needs by the end of the decade. It’s a target that will require enough solar and wind facilities to deliver 16 Terawatt hours (TWh), according to the Australian Energy Council. The problem is we’re only at half that: 8.5TWh. And increasing the output is not easy. There are manufacturing challenges; the need to build larger-scale solar and wind farms, including on and offshore; long government approval time frames; and adapting the power grid to transmit renewable energy to cities. Here’s a guide to our energy options.

COAL

Like most Western countries, Australia has historically relied on coal for its electricity generation but its use is waning – quickly. A little more than two decades ago, coal was the single source of Australia’s energy. Now about two-thirds of our electricity is generated by burning coal, with Queensland the state most dependent on the fuel. Coal is, however, under mounting social and economic pressure. Australia has pledged to reach net-zero emissions by 2050, a target that will see the use of coal severely restricted and significant upheaval in communities that are dependent on coal.

Economics are accelerating coal’s exit, and the Australian Energy Market Operator expects two-thirds of the country’s power stations to be shuttered within 10 years.

Coal is under mounting economic pressure because of the rise of renewables. The output of coal power stations is largely inflexible, but Australia has seen such growth in solar generation that during sunny days the price of electricity is often below zero. As a result, generators – such as coal power stations – are charged for producing electricity. Coal generators can’t turn off as they cannot be restarted quickly.

Many traditional power stations remain viable because they produce electricity during the evening when the sun has set and the wholesale electricity price rebounds.

An increase in batteries, which could be charged by solar power, is likely to dent the profitability of coal-fired power stations; the retirement of coal as a key energy source in Australia may come sooner than many anticipate.

GAS

While coal is designed to churn out electricity day in and day out, its fossil-fuel cousin, gas, is the supplementary partner and is used only during periods of high demand. For that reason it’s often known as a “peaker”. Gas power stations can be turned on and off quickly, often for a few hours at a time when there is high demand because the weather is too cold or too hot. When demand abates, the gas power stations are shut down. As a result the role of gas can fluctuate widely. On some days, gas may generate only a tiny percentage of Australia’s electricity. On others, it can provide as much as 20 per cent of the country’s energy needs.

Gas has been a critical part of Australia’s energy mix, but it too is under social and environmental pressure. Gas power stations were used almost around the clock in 2022 after a spate of outages at Australia’s ageing coal power stations caused widespread concern about possible blackouts. It underscored the role gas plays as a safety net in our electricity network. Victoria is particularly dependent on the fuel source, using it for heating during cold winter months. The state Labor government wants to wean households off gas-powered energy, however, as part of its electrification push. If renewable energy generates 82 per cent of the country’s electricity by 2030, as per the federal government target, the remaining 18 per cent is likely to be dominated by gas, which fills the gaps when the sun is not shining.

But Australia is struggling to develop new sources of gas to supply its east coast market, with new wells almost exclusively found in WA and the Northern Territory and used to service export markets. Pressure to unlock new supplies for the east coast is increasing, with the Bass Strait oil and gas fields – traditional supplier of up to half of Australia’s east coast gas demand – experiencing rapid declines. The eastern states will need to overcome social and environmental pressure and allow new gas developments. Alternatively, a facility to allow imports from WA and the Northern Territory will need to be established to prevent a potentially damaging shortfall.

SOLAR

With an abundance of sun, it is perhaps not surprising that Australia had led the world in the generation of solar power. Householders who can afford to make the transition have bolted solar panels on their roofs at record levels as high power bills and government rebates incentivise a rapid uptake. On sunny days, solar can often compete with coal as the largest source of electricity and in South Australia it can sometimes meet the state’s entire energy needs for hours at a time. For residents with solar panels, the savings can be substantial. The rise of solar can be positive for the wider community: households that don’t use all the electricity generated by solar can export power to the grid to be consumed by the market, assisting with Australia’s quest to cut emissions. Solar infrastructure can be prohibitively expensive for some, and if solar makes coal uneconomical before the fossil-fuel power has been adequately replaced, it can contribute to higher bills for those without the rooftop generation source. The rise of solar has also placed a strain on Australia’s transport infrastructure, and on some extreme sunny days the Australian Energy Market Operator has had to cut off supply. With households enduring two consecutive years of price rises of more than 20 per cent, and little sign of relief, rooftop solar is expected to grow rapidly. Retailers hope that there will be a significant increase in the number of households with batteries so excess supplies can be stored rather than flooding the grid during the daylight hours and reducing the pull when the sun sets. Household demand for batteries has been muted to date amid prohibitively high costs.

WIND

Wind power is a small part of Australia’s renewable energy mix but its role may soon grow substantially. Developers have installed large towers in remote areas where gusty winds turn turbines that are often more than 150 metres high. Wind is useful as it tends to generate most electricity at night so can potentially supplement solar and reduce the country’s dependency on fossil fuels during so-called peak periods. New wind farms face obstacles: some communities have opposed developments, citing the visual and possible noise disturbance, and some states are responding. In August, Queensland said it would lift the social-licence threshold developers need to meet to secure approvals. As well, new developments typically require significant numbers of new high-voltage poles and wires that are also often vehemently opposed by communities or land owners. One solution is to build wind turbines offshore, with several hundred turbines generating electricity to be transported into Australia’s National Electricity Market using the transmission lines once used by coal power stations. Victoria – which has some of the world’s best wind resources – is moving quickly to establish offshore wind, placing it at the centre of plans to wean the state off coal and gas generation. In 2021, Victoria set the ambitious target of having offshore wind farms generate 20 per cent of its needs by the end of the decade, and the state hopes it will then power much of Australia’s energy requirements. The plan is feasible. Offshore wind has been successfully used throughout Europe, but new developments are extremely expensive and there is significant concern that the spate of projects cannot be completed quickly enough to compensate for the retirement of coal in Australia.

BATTERIES AND PUMPED HYDRO

Australia is moving quickly to develop new solar and wind projects, but power generation is often lumpy – either far more than households and businesses need or far less during so-called renewable energy droughts. To smooth output, Australia is pushing to build a number of pumped hydro projects and batteries, grouped together because they are seen as a stored energy alternative. During high periods of energy generation from solar and wind systems, cheap electricity can be used to charge a battery or pump water uphill. When the sun sets or the wind doesn’t blow, this stored energy can be discharged, meeting Australia’s energy needs and potentially even that of neighbouring countries. Development is significantly lagging the rollout of solar and wind energy, with prohibitively high costs and technological feasibility issues slowing the storage projects. Batteries remain extremely expensive so demand from households has been sluggish, though costs are expected to come down. However, for batteries to become more price competitive, the world will need significant increases in production of materials such as lithium and nickel, as well as new processing facilities.

Currently China dominates global rare earth processing, much to the concern of Western countries who worry that Beijing will be able to exert significant leverage over global trade. Pumped hydro is less problematic, but new developments are costly and the number of suitable sites limited. Those that are feasible are attracting opposition from environmental groups. Australia’s storage future is likely to be determined by the success of Snowy Hydro 2.0. The project has been beset by delays and extreme cost blowouts, but if it can be completed, it will safeguard the future of Australia’s energy grid. Snowy Hydro 2.0 is so large that once operational, it will be able to provide enough electricity to run large swathes of the grid on its own for about one week.

HYDROGEN

Hydrogen is the new kid on the block, but there is widespread disagreement about whether it actually has a role to play in Australia’s energy future. There is plenty of global buzz and investment in hydrogen but no consensus on when or if the fuel source will be widely adopted. Producing hydrogen is easy, with electricity used to split water into components of hydrogen and oxygen. The question is, what power source is used to generate the hydrogen. Developers could use fossil fuels to split water, but they would have to capture and store the emissions generated, undercutting hydrogen’s appeal. According to advocates, such as West Australian mining magnate Andrew Forrest, the future of hydrogen must be based on using renewable energy to power the electrolysis which generates hydrogen. But for that vision to materialise and for hydrogen to become a LNG substitute, Australia would need a significant rollout of renewable energy. Critics of hydrogen argue that the country would simply use up the renewable energy generated. Other experts suggest that hydrogen would be better placed as a substitute for Australia’s LNG export market, with energy-poor countries such as Japan and Korea burning hydrogen instead of gas. Such a plan has been demonstrated in some pilot projects, but transporting hydrogen is expensive and potentially dangerous, a risk that is only overcome by the laborious task of converting it to ammonia.