Ahead of the Federal Budget on 25 October, we published our insights on Transforming Australia’s renewable energy sector. In this article, we highlighted the need to not only increase the pace of renewable energy developments but for it to be undertaken in the right way, supported by realistic policy to combat the sectors challenges and restore investor and consumer confidence.
Will the current renewable energy pipeline meet demand?
According to the AEMO in its 2022 Electricity Statement of Opportunities (ESOO) Report the reliability of the National Electricity Market (NEM) over the next decade is going to fall short unless the right projects are progressed quickly. The NEM currently generates 59.6 gigawatts (GW) of electricity (February 2022), with fossil fuels accounting for a significant portion of this (71 per cent in 2021). Coal and thermal energy power plants have a typical lifespan of around 30 years, and the first group of coal-generation retirements will occur over the next 7 years with five plants expecting to close reducing energy supply by around 8.3GW. So how will this gap not only be filled, but exceeded to factor in future retirements?
The 2022 ESOO shows 8.6GW of committed generation projects which meet AEMO’s criteria, are under construction and with operations beginning after 1 July 2024. There is a further 3.4GW of anticipated generation which meets some of AEMO’s commitment criteria, but not enough criteria to be considered “committed”. The reliability forecast improves with this 3.4GW when considered alongside the developments identified in AEMO’s 2022 Integrated System Plan (ISP). Assuming schedules are kept then reliability in all regions of the NEM will be met until other thermal generators are retired.
There is also a pipeline of 165GW of publicly announced (proposed) projects, with the majority of these in New South Wales. Over 68 per cent are renewable energy generation projects and over 26 per cent are storage projects (battery or pumped hydro). So, what has Labor committed to and is investment going to the right projects?
The Federal Budget’s $20b+ injection to aid the supply and demand challenge
The Budget outlined what Labor said it would do, further demonstrating the new government’s commitment to clean energy with a medium to long term view. The Budget included close to $25b to support the push to cut carbon emissions by 43 per cent by 2030.
The majority – $20b – will support the already announced Rewiring the Nation transmission upgrade initiative, needed to accommodate new and future projects with reliable grid connections in the right places. This will be done in part through investment into interconnector projects such as the Marinus Link project and the Victoria to New South Wales Interconnector West Project (VNI-West) to support Tasmania’s Battery of the Nation and Victoria’s offshore wind and renewables industries and linking renewable energy zones to the existing grid at low cost. The AEMO designated both projects as critical investments in its ISP to cope with the exit of fossil fuel generation projects.
The Australian Renewable Energy Agency (ARENA) and the Clean Energy Finance Corporation (CEFC) will both have their funding maintained. The CEFC will be the finance arm of the new Rewiring the Nation Office, with AEMO as a technical advisor
The Australian Energy Regulator (AER) also received $22.8m of support to help integrate more renewable energy into the NEM and improve the regulation of gas pipelines to lower transportation costs and promote reliable supply.
Other Budget investments include:
- $1.9b Powering the Regions Fund to transition regional industries to net zero and support new jobs. It will continue the purchase of Australian Carbon Credit Units and support the generation of carbon offsets in Australia. Labor will undertake and independent review of the integrity of Australian Carbon Credit Units as part of its focus on strengthening Australia’s carbon markets
- $275m to deliver the $500m Driving the Nation Fund to help reduce transport emissions, including delivery of electric vehicle charging infrastructure
- $224.3m for the Community Batteries for Household Solar grants program, to deploy 400 community batteries across Australia
- $157.9m to support the implementation of the National Energy Transformation Partnership to support Federal, State and Territory governments working together on priority actions and other energy security and reliability measures
- $102.2m to establish a Community Solar Banks program for the deployment of community-scale solar and clean energy technologies
- $71.9 million to build a Hydrogen Hub in Townsville, to fast-track Australia’s green hydrogen industry
- $40.9m in increased oversight of gas markets by the ACCC and implementation of reforms to the Australian Domestic Gas Security Mechanism. Labor is exploring options for further reforms to support energy transformation and ensure it is resilient and flexible enough
- $23m package of gas reliability and security measures agreed with State and Territory Energy Ministers
- $14.3m investment in expanding the Australian Energy Regulator’s oversight of gas pipeline operations
- Renewables and low emission technologies will also benefit from a portion of the $15bn National Reconstruction Fund as it supports the transition of existing industries to net zero emissions
At the State level, governments in NSW and Victoria have specific funds set aside for clean energy transition, which will speed up the development of renewable energy zones. Western Australia’s $35.5m virtual power plant recently went live as part of a trial in Perth’s southern suburbs. Funded by Federal and State governments and the AEMO, the project simulates the two-way flow of electricity, from homes to the grid and back again. It will be important for all levels of government to work together on a national energy strategy.
There is significant opportunity in the market for those looking to get their projects up and running, scaled and to full operation, given new projects to build capacity are time critical across states.
In what is a promising outcome, AEMO’s The Quarterly Energy Dynamics (QED) report for Q3, 2022 shows that grid-scale solar and wind generation reached a new quarterly average record of 4,465 megawatts (MW), up 7 per cent from the previous record in Q1 2022. This is a clear indication that the current investments are in the right direction.
Critical skills needed to bring renewable energy projects to life
Transitioning to cleaner, renewable energy is not just an Australian challenge, it’s a global one. Countries around the world have ambitious renewable energy plans all of which will require a range of skills and will be looking to the global talent pool to source these.
Talent shortages, particularly engineers and electricians for energy projects, and job creation continues to be a major concern in Australia. With increased energy demand there is going to be a greater need for experienced asset and project managers for engineering, procurement and construction companies looking to scale up their operations and in turn create jobs. We see a lot of movement in this industry, and it is a niche pool of expertise where competition for talent is high, and skills are global.
Expanding the cap on the permanent Migration Program to 195,000 and accelerating visa processing will go some way to alleviate the challenges, as will the inclusion of a $1b investment into education in the Budget. Addressing the demand for specific skills in clean energy, Labor has committed over $100m to the New Energy Apprenticeships and New Energy Skills programs. These programs include financial support, assistance and mentoring to 10,000 apprentices in a clean energy role over 10 years.
These measures will help ease the skills and labour shortages, but time will tell how this may impact and / or benefit the renewable energy projects coming to market in the near-term as well as support the decommissioning of coal generation power plants, an area where Australia does not have a great deal of domestic experience compared to other countries.
"Cheaper energy is renewable energy, and the Labor Government is focused on realising its pre-election commitments to drive investment in renewables. Grid stability is just part of the equation with $20b set aside to fund energy transmission. Addressing climate change and delivering renewable infrastructure projects will require Federal and State governments to work together. With electricity prices expected to increase there will be significant pressure to address the imbalance in the supply and demand equation and ensure access to cheaper energy is available for everyone.”
- Kate Bonner, Director - Audit & Assurance
