Issue 239 March 2025
Any day now Australian voters will find out when they will go the polls federally. How big a role the issues of energy costs, supply reliability and emissions management will play in voters’ decisions has been a topic of media speculation for months but it will only become clear when the ballots are counted. Meanwhile, doubt continues about whether Labor or the Coalition will emerge from the poll with a clear majority in the Representatives and an ongoing lack of control in the Senate seems almost a given for either side. In February Alinta Energy CEO Jeff Dimery was probably speaking for more than his own company and its shareholders when he declared on social media that the prime need in the debate is “an honest conversation” about the costs and benefits of transition management. In a more general observation during the month, leading lawyers Corrs Chambers Westgarth said: “Australian businesses are facing complex, interconnected challenges in undertaking development projects. Key focus areas shaping the policy landscape in 2025 will be around housing affordability, climate change and environmental conservation. However, with domestic and global regulatory pathways uncertain, businesses must be vigilant of rapidly evolving policy shifts.”
“As the federal election draws near, the conversation is leaning back toward energy. With prices rising, unpopular infrastructure encroaching on farmland, and power grids struggling – there has never been a more visible sign of Albanese’s failure as a Prime Minister than the number at the bottom of everyone’s energy bill” – Spectator Australia magazine.
“The government does not know how to integrate a vast amount of renewable energy without the system falling over” – Minerals Council CEO Tania Constable.
“We just say all options should be on the table for the national energy mix between 2035 and 2050” – Andrew McKellar, CEO, Australian Chamber of Commerce and Industry.
"Many businesses are facing significant hikes in energy costs” – McKellar.
“The giant Tomago aluminium smelter near Newcastle faces the threat of closure in 2029 with a planned move to a new energy contract costing double the current coal-based power contract, raising fears over the future of more than 1000 workers at the site” – The Australian newspaper.
“If you can’t get competitively priced electricity, you cannot have smelting” -- Rio Tinto chief executive Jakob Stausholm.
“Australian electricity prices, having been among the lowest in the world only a decade ago, are now at European levels and threefold those of China, Russia and India” – economist Alan Moran.
“The government takes its advice from the experts – the best way to keep the lights on and prices down is with renewables, backed by batteries, hydro and gas peaking” – ALP energy ministers Chris Bowen and Madeleine King.
“Labor has not a skerrick of credibility now that they have shown their hand by buddying up with Adam Bandt on an anti-gas crusade. The reality is simple: Australia needs a balanced energy mix and that includes gas working with renewables, especially before zero-emissions nuclear energy is available to enter the system in the mid to late 2030s” – Coalition energy spokesman Ted O’Brien.
“Australia’s energy system is locked in a cycle of bounded rationality where limited thinking dominates decisions on pricing and policy” – veteran analyst Alan Pears.
“Neither the government nor any of its agencies provide quantified assessments of the cost of subsidies to renewable energy. Indeed, suspicions that the government wishes to hide the full costs of its policy are heightened by its refusal to publish the prices it pays for wind/solar electricity contracts under its new signature program, the $68 billion capacity investment scheme” – Alan Moran.
Sources of dismay about energy have now spread well beyond Australia’s resources sector, according to Saul Kavonic, head of energy research at MST Marquee.
In a national newspaper commentary in February, Kavonic argued that earlier warnings – such as from the gas industry in 2022 – “were too readily dismissed as whingeing from an unpopular industry’.
Now, he said, “Our manufacturing sectors, broadly based business groups and even the renewables industry itself are sounding the alarm.”
Kavonic added: “Many businesses have felt compelled to hold their tongue for the past few years, fearful that any public critique of influential members of Labor cabinet could see them targeted for political retaliation.
“But the scale of the damage being done is now too severe and being felt too widely across the economy, forcing the business community to stand up.
“Australian businesses know they won’t be able to continue to compete like this for another three years unless we change course.”
Australian Energy Producers claim electricity supply will cost more and east coast consumers will face an increased risk of blackouts because the Albanese government has done a deal with the Greens to keep natural gas out of its controversial capacity investment scheme.
Samantha McCulloch, AEP chief executive, says the arrangement is at odds with the government’s own view that gas must play a critical role in delivering reliable and affordable electricity by backing up the policy of large-scale investment in renewables.
“Australia needs significant investment in new gas power generation to keep the lights on and power bills down,” McCulloch says, “but, instead of encouraging this investment, the government has again capitulated to the Greens’ anti-gas agenda and ignored repeated warnings from experts about the critical role of gas in the power mix.”
She points to the Energy Market Operator’s modelling showing that the NEM will need 13,000 megawatts of new gas-fired generation by 2050.
“AEMO has made clear that gas is the ultimate backstop for the grid and estimates that gas power in the NEM must be double today’s levels by the early 2040s,” she says.
Meanwhile, federal Liberal energy spokesman Ted O’Brien says, if the Coalition regains office, “we will restore common sense by ensuring gas is included in the capacity investment scheme, securing investment in reliable, dispatchable power to keep prices low and the lights on for Australian households and businesses.”
There are clear signals that the NEM is running out of time in Australia’s energy transition, according to consultants ERM Energetics.
Writing on the WattClarity website in mid-February, the firm says “Today, with more coal generators approaching the end of their asset life, there is widespread concern for the security of supply. It is clear we need to pick up the pace of building wind, solar, storage and other fast response firming capacity to replace the aging coal fleet. But the build-out of projects is not the only concern. Our financial energy markets must transform, as our coal-fired generators are also natural sellers of many electricity derivative contracts.”
It notes that extreme spot market price events in the NEM increasingly coincide with coal-fired power generation outages as the units strain under operational changes to accommodate cycling – which leads to thermal fatigue, mechanical stresses and increased wear and tear.
ERM Energetics adds: "Unplanned outages of coal units are now the norm, contributing to the general decline in operating capacity assessed at 65 per cent (as a percentage of nameplate capacity) in 2024 compared to the more than 80 percent expected from a well-performing coal fleet.
"The Coalition’s long-term plan for additional capacity through nuclear power generation aside, this poor reliability supports building new wind, solar and fast response firming capacity at pace,” the firm says.
It also comments that, to meet the federal government's 82 percent renewables target by 2030, at least 6,000 megawatts of large-scale variable renewable energy capacity must be added in the market every year between 2023 and 2030, saying that this is more than double the annual average of about 2,500 MW of new utility-scale renewable capacity delivered between 2022 and 2024.
ERM Energetics warns: "Sophisticated renewable generation and storage asset owners that seize the opportunity can unlock significant premiums in the post-2028 world, but it will take at least three to five years to build the trading and risk management capabilities to thrive in this segment of the NEM.
"Now is the time for renewable energy generators and storage operators to consider their role in the energy transition and the electricity derivatives market specifically, or risk being relegated to a lower tier of 'as produced’ generators, which will be an extremely price competitive segment as we approach 2030."
The Australian Energy Council says Western Australia is “fast running out of time” to develop new networks to support the State’s shift from coal-fired power.
The lobby group’s CEO, Louisa Kinnear, has told media in the approach to WA’s State election in March that the situation is complicated by the West running out of coal to fuel existing generators. “WA should be looking to keep these coal-fired power stations open longer and that is becoming incredibly challenging,” she said, both because of the plants’ age and because “the actual supply of coal is dwindling massively.”
The AEC is pointing to a recent Australian Energy Market Operator’s report warning of the prospect of power supply shortfalls in the State by the decade’s end. The association says further delays to WA’s grid refurbishment will put energy reliability and affordability at risk.
In a new commentary on its website, AEC declares that the energy sector will “continue to be a hot button issue” in the West as the State election looms. It asks “how can new generation connect to the grid when all of the existing transmission lines in the SWIS are approaching full capacity?”
It warns that the government-owned utility, Western Power, is “buckling under the weight” of the “escalating” demands for project approvals.
It adds: “Getting enough of new generation online before the expected capacity shortfall is a huge undertaking requiring leadership from the State government, a flexible and innovative process from Western Power and a continued drive from investors.”
In its new global report on electricity supply, the Paris-based International Energy Agency predicts that Australian output from renewable energy sources will surpass coal-fired generation by 2027.
The agency records that power demand in Australia rose by 3.2 per cent in 2024, “largely due to a combination of a stronger economy amid population growth of 2.5 per cent in 2023, as well as higher temperatures increasing usage during peak demand periods.” It adds that it expects national consumption to rise by an annual average of 0.4 per cent in 2025-2027.
The IEA says that it anticipates Australian generation capacity additions in the coming years to come mostly from renewable sources, with a small contribution from new gas-fired capacity.
It records that, in 2024 almost 5.4 gigawatts of renewables capacity was installed, including over 4.4 GW of solar PV and around a gigawatt of wind power.
It adds: “In 2024, total renewable generation reached 34 per cent of the electricity mix, consisting mainly of solar (16 per cent), wind (11 per cent) and hydro power ( five per cent).The share of renewables is expected to reach 44 per cent in 2027, surpassing coal for the first time and driving a steady decline in fossil fuel generation.”
The agency notes that coal’s share of the generation mix fell from 47 per cent in 2023 to 46 per cent in 2024 and is expected to decline to 39 per cent in 2027 while the market share for gas remained constant at 18 per cent in 2024 and is forecast to drop to around 15 per cent by 2027.
Even without a formal calling of a federal election, which at the time of writing could still be held any time from mid-April to late May, politicians and the media are now in full polling propaganda mode and, not surprisingly, energy issues are high in the debate on a daily basis.
This will be in the twenty-first national election since I arrived in Australia at the end of 1970 as a migrant from South Africa and each one has had its surprises. There is no reason to suppose things will be different this time, but the raft of issues on the table mean that picking a definitive line is quite the guessing game.
What is easier to say is that, whatever the poll outcome, the next financial year and those out to the decade’s end will see gas and electricity market management and investment as major issues for attention.
In this regard, I found it interesting in recent days to read a commentary by Aidan Morrison, energy research director at the Centre for Independent Studies.
He wrote:
“The AEMO integrated system plan is beyond salvage. It's worse than useless. It tells us nothing other than what a bunch of politicians wish the future would be. It doesn't tell us what's affordable. It doesn't tell us what's reliable. It doesn't tell us what's optimal. It certainly doesn't tell us what's feasible. It cloaks plans that are none of those things - that came from politicians - in a livery that suggests it is independently determined by experts to be all of those things.
“The nail in the coffin is the 82 renewable energy target for 2030. By forcing every scenario to conform with that implausible ambition, the last claims of a useful degree of independence in the technical analysis have been removed. It is now completely divorced from reality and entirely subservient to the politically determined policy ambitions of the government/s of the day. It cannot be called independent or expert.
“This has utterly debased the debate. It's made it impossible to engage robustly and objectively (which requires distinguishing facts from fantasy) in a way that is evidence-based and civil, without appearing to suggest that others are completely ignorant, or partisan political hacks, and/or facing the same accusations in return. This is a disaster for the public discourse.”
That is pretty trenchant stuff and leaves you – well, me – wondering to what extent even a decisive outcome to the election, let along a hung parliament, can lead to fruitful change in three or six years.
Keith Orchison
26 February 2025