As Australia’s energy sector sits at a crossroad, we chat to Aurecon managing director of Energy, Resources and Manufacturing and former executive director for CSIRO’s environment, energy and resources sector Dr Alex Wonhas, who has worked with and advised some of the biggest projects happening in Australia right now, about why he believes the country is on the brink of an energy revolution.
With skyrocketing power prices, closing coal plants and a lack of anything resembling even a possibility of bipartisan policy, the energy sector is currently fraught with uncertainty.
But Dr Wonhas says it doesn’t have to be that way, if we just get back to basics.
“I think when you look at the debate we are currently having in the energy sector, it seems to be very confusing,” he says.
“I think we can bring some order to this apparent chaos if we focus on what we really understand about the sector, and there are quite a number of things that we do understand.
“We know what people really want: they want affordable energy that is available when they need it. We also know what the building blocks of our energy system are; we know the existing infrastructure; and frankly, it doesn’t change that quickly. We know the resources that we need to generate energy, we know the technologies, and we know what the market mechanisms and the regulatory mechanisms are that we are using to manage our energy.
“So, there are only a couple of things we don’t know, but we can deal with that.”
Dr Wonhas refers to the things we aren’t quite certain about as ‘known unknowns’. These include the future of major evolving elements in the sector such as the regulatory environment, clean energy policy and the future of demand.
“There is some uncertainty around what future prices are going to do, in particular gas, which is obviously quite important, and how consumer preferences will evolve with respect to PV, batteries, and electric vehicles,” Dr Wonhas says.
“But all of these ‘known unknowns’ are quite tractable. They are not real disruptions that we can’t foresee in the energy sector and so we don’t need to be afraid of them.
“When you look back at the history of the sector, I don’t think there has been any disruption that wasn’t foreseeable. I would argue that anyone who got surprised by energy sector either didn’t look or consciously ignored an emergent trend at their peril.”
The future of energy in Australia can be tackled, Dr Wonhas says, if we as a nation can work out what we really want from our electricity system.
“In the end, we as a collective shape the future of our nation and control the politics, and I think if the population wants a sensible outcome, politicians have to deliver a sensible outcome. I think in the end it’s actually up to us,” he says.
From the desired level of emissions reduction to the adoption of a clean energy target, Dr Wonhas says we need to determine the nitty-gritty details before we can move forward.
“We need to articulate what is an acceptable level of reliability that we want from our electricity system and then build a system and be prepared to pay for a system that does that,” he says.
“As long as we have those debates in a fact-based way, focusing on what the underlying engineering and technology is and focusing on what the true economics is, while leaving the politics aside, I think we can build a very sensible energy system into the future.”
Australia’s chief scientist Dr Alan Finkel has provided a blueprint to help guide the country towards such a system as part of his Final Report of the Independent Review into the Future Security of the National Electricity System.
Since the report was released, the COAG Energy Council has committed to 49 of the 50 recommendations handed down by Dr Finkel.
Dr Wonhas says he is “deeply impressed” with what the review panel achieved.
“I was at the COAG meeting in December last year when the review was announced and I thought, that it is an almost guaranteed hospital pass because it is such a complex and, at times, divisive issue involving so many different stakeholders,” Dr Wonhas says.
“But, to Alan’s and his team’s credit, they have navigated this very well despite difficult circumstances and tight timeframes. They have presented the nation with a compromise that I feel many in the industry are endorsing.”
The only recommendation that has not been actioned by the government, and that has been causing quite a debate in the sector, is the clean energy target (CET).
“I think it is an important discussion to have because it will provide us clarity with what expectation we have for the emissions profile of the energy sector, and that gives investors clarity. Greater clarity will ultimately result in lower costs for making investments in the sector,” Dr Wonhas says.
“As much as I would like to see a target adopted, in the end, it is not going to be as big as an issue as some might expect because we have already made a lot of progress, thanks to that review.”
When asked if there is a place for clean coal in Australia’s energy future, Dr Wonhas says he abides by a ‘golden rule’ when it comes to making decisions or developing a strategy.
“The key to success for a strategy under uncertainty is to maximise your options and, for me, clean coal is one option. It can help us to deliver firm power output,” he says.
“I think one thing is absolutely clear – we will need firm or dispatchable power and coal can help us to create it, but it does have some drawbacks that many people understand well.
“The one that we talk about the most is emissions intensity. Even an ultra-supercritical coal plant with emissions of maybe 700-800 kg CO2 per MWh, is still fairly high in emissions.
“In order to make coal truly ‘clean’, you would have to use technologies such as carbon capture and storage that is, frankly, still very expensive but feasible.
“The other challenge coal has is that it is not very good at changing its output in response to what the market at a particular point in time needs.
“Again, there might be a role for a technology like that because there is some level of output we always need in the system. In future, there will be real value placed on any generation technology that can vary its output subject to the changing demand in the market. To be successful in future, coal needs to become better at following variable demand.”
The future of the energy system really comes down to costs and what we, as consumers, are prepared to pay for a stable and reliable energy system.
Is it possible to have affordable electricity while achieving a renewable energy target? Dr Wonhas says the answer could be ‘absolutely’ or ‘no way’.
“It really depends on what you mean by ‘affordable’. If we think affordable means that we have to have wholesale prices of $50 per MWh or consumer prices of just over 10c per kWh, as was the case just maybe a few decades ago, then I think the answer is certainly ‘no’ because a lot of the assets in our system are now aged.
“We hear a lot about our coal plants retiring. We have to replace them with new generation capacity. In order to make these new investment work for investors, we will have to pay a bit more than in the past for energy, regardless of which technology we chose to replace the existing coal generators.
“However if ‘affordable’ means that we are paying as much or even a little bit less than the current volume weighted wholesale prices, then I think we can absolutely maintain a renewable energy target in transition to a low-emission sector because renewables are quite cost-effective on an energy basis nowadays.”
Based on current costs, Dr Wonhas says ‘clean coal’ is a more expensive option on a pure energy basis than renewables.
“What see clean coal, or ultra supercritical coal, sit at around $80/MWh with 700-800kg of CO2 emissions per MWh,” he explains.
“A combined cycle gas turbine might produce power at about $100MWh – obviously its cost depend on the gas price so this is for about $10 per gigajoule, which is where the market is at the moment. Its emissions are around half that of coal, at about 400-500kg of CO2 per MWh.
“Solar has become quite competitive with maybe $75 per MWh, followed by wind with around $60 per MWh. So renewables are lower-cost than some of the conventional generation technologies on an energy only basis.”
Of course when discussing the cost of different technologies, Dr Wonhas says it is important to not leave out storage.
“What we are seeing in the market at the moment is maybe $750 per kWh for a battery system optimised for long-term storage on a full EPC basis, and maybe $1500 per kWh or more for a battery system that is more optimised towards providing short-term outputs and lower storage intervals,” Dr Wonhas explains.
“It’s quite instructive to compare that to pumped hydro, since the Prime Minister’s announcement of Snowy Hydro 2.0 has been a lot in the press. When you take some of the publically available data, and say well, it is $2 billion for 2GW of capacity, then you probably have to add another $2 billion for the necessary transmission system upgrades – that gives you maybe $250 per kWh for an 8 hour storage capacity.
“This is about a third of what you would pay for a battery system today. However the costs of battery systems are continually coming down so it will be interesting to see by how much battery costs will have reduced over the 4 years plus it will take to build Snowy Hydro 2.0.”
Aurecon has been delivering specialist and technical engineering advice for some of the country’s biggest and most exciting storage projects – including the South Australian government’s 100MW lithium-ion battery, and Territory Generation’s 5MW Batttery Energy Storage System (BESS) in Alice Springs.
These game-changing technologies are an important step in ensuring network reliability as Australia transitions to a renewable future.
“When you look at the role batteries can play in the energy market, they are very valuable these days in providing short-term support for the stability of the grid,” he explains.
“They can also help to bridge output between renewable generation ramping down and conventional generation ramping up – that’s exactly the type of set-up and function that the battery we have designed for the Alice Springs grid is playing.”
With ground-breaking advances, energy technology is developing at a rapid pace. Especially with the costs of new technologies declining quickly and exisiting capacity retiring, Dr Wonhas believes the Australian energy market is on the brink of a revolution.
“We have really reached a tipping point,” he says.
“When you look at the cost of new-build power stations, on an energy-only, long-run marginal cost basis, new-build renewables are cheaper than conventional power plants. Now, that doesn’t mean they always produce the power when consumers actually need it, but it is a real seismic shift in the debate.
“Historically, we had a debate about how much subsidy we need to provide to bring those technologies into the market in the first place, I think we now need to shift the debate to how do we integrate the system in a way that allows us all to benefit from the low-cost position of renewables, while maintaining system stability and reliability.
While there is a lot of debate surrounding how we will generate our power, Dr Wonhas says it’s vital we think about energy as a whole, and not forget about the importance of what occurs on the demand end of the system.
“We have consumers and industrial users thinking quite actively about energy efficiency and demand side response and that can shape the demand profile,” he says.
“They are also thinking about how can they self-generate an increasing amount of electricity, so we are moving from a system that historically consisted of maybe 50 generators to a system where we have up to a couple of million generators in the system at very different scales.
“I think it is also important to not forget the role that the electricity grid is playing and, in particular, interconnection between the different states – they can be very important to balance load between different locations and they can also help to ensure that we are statistically levelling out the variable output from renewable generators.
“So, the nature of the debate needs to shift. I think the regulatory environment needs to adapt to utilise the new technologies to their full potential, the generators need to adapt and deploy the new technologies, consumers will need to adapt in terms of their expectation of and participation in the energy system. This will be the foundation of the revolution that I am talking about.”
“I think these are the areas that we absolutely need to keep in mind to build a functioning energy system that is affordable, that delivers the lower emissions outcome that we want and that is reliable.”