Rapid growth of Australia's renewable energy capacity in recent years is now being stifled by grid limitations and insufficent long-term targets, according to energy research and consultancy firm Wood Mackenzie.
Government funding and the long-term Renewable Energy Target (RET) have contributed to a renewables boom alongside the falling costs of equipment, a senior analyst has said.
The renewables share in Australia’s National Electricity Market (NEM) power generation mix is expected to double to 41% by 2030.
Speaking to Windpower Monthly, Wood Mackenzie’s principal analyst Robert Liew said: “Despite the lack of an ambitious renewable energy target, there are still over 1.3GW of wind projects under construction and over 35GW of planned pipeline.
“Australia will continue to attract international investors as the third-largest wind market in Asia Pacific. There is potential upside if offshore wind is realised in Victoria, and Western Australia. If Australia is serious about its push to be a leader in green hydrogen exports, we expect wind power to play a key role capitalising on low wind prices and its world-class wind resources.”
Renewables' current share (21%) of Australian power generation already exceeds the country's target of 20% between 2020 and 2030 under its RET scheme.
The RET scheme is meant to secure at least 33TWh of Australia's electricity from renewable sources by 2020, until it ends in 2030.
Renewables such as onshore wind and utility-scale solar are already competing well against coal and gas, with a renewables discount of close to 50% expected by 2030, according to Wood Mackenzie.
But grid and profitability issues will limit renewables development, while gas provides grid flexibility – though gas' role in doing this is increasingly being challenged by other storage technologies.
Wood Mackenzie senior analyst Rishab Shrestha said: “Australia does not have a federal long-term national power mix target like many other countries.”
The analysts called for a revision of Australia's 2030 RET as well as a longer-term target, for 2050 or 2060. While this would is in the distant future, Shrestha believes such a target would indicate the country's ambition to investors.
There are various ways of reaching a high renewables share, but a long-term horizon could help enable least-cost pathways, Shrestha said, adding: “The RET scheme, alongside government funding, have led to the renewables boom over the last few years. Hardware cost declines have continued to be a precursor for growth. But the grid has been pushed to its limit making future renewable cash flows difficult to ascertain and stifling growth.
“There is definitely room to achieve more renewables penetration with a more ambitious target for the RET scheme, but the potential needs to be unlocked through grid flexibility investments. A coordinated federal push would be effective.”
According to the firm’s analysis, Australia could provide US$40 billion of power generation investment opportunity over the next 10 years.
Around two-thirds of Capex is expected in new-build renewables by 2030, with equal amounts going into wind and solar.
Some US$14 billion will be invested in fossil fuels with 90% for gas projects, the analysts predict, arguing that Australia is at a “pivotal juncture”, with imminent key investment decisions set to shape energy generation as coal is retired.
Shrestha said: “Coal retirements will be challenging due to its important role in providing low-cost baseload power. Over 40% or around 10GW of existing coal fleet in the National Electricity Market (NEM) is expected to retire over the next two decades. But realistically, we think significant retirement of coal capacity will only start from the early 2030s.”
In the 2020 NEM power generation mix, coal made up 55% and gas 12%.
Over the next 10 years, coal power will make up 47% of the generation mix and gas 10%, Wood Mackenzie believes.
However, the Australian Energy Market Operator (AEMO) expects gas' share to fall to 1% by 2030. Wood Mackenzie's Shrestha added this may remove critical balancing capacity from the grid system and make renewables' integration more challenging.
Shrestha concluded: “While storage is effective for managing intermittency on the scale of a few hours, it is still far from being able to provide the multi-day or even multi-month backup that gas units provide.
“In the event of a large plant or transmission line outage, a system relying heavily on renewables and storage looks fragile. More storage is needed, but it will not solve all the problems which are causing a slow-down in wind and solar investment in Australia.”