Energy transition will likely need $400b renewables ‘Marshall Plan’

by Mark Eggleton

Australian Financial Review

When the head of the Australian Energy Market Operator, Daniel Westerman spoke at Australian Energy Week late last month, he outlined how our energy future will be built on four pillars ranging from low-cost renewable energy to new transmission and distribution networks as well as the need for flexible gas generation to provide firming capacity.

Yet while everyone likes to mention gas as playing an important role in the nation’s energy transition, most of the talk centres around building out our renewable energy capacity in the wind and solar sectors as well as building big batteries. This is despite the International Energy Agency (IEA) acknowledging gas as playing a major role in supporting our transition to a net zero future.

Reason being is while burning natural gas does emit greenhouse gases, the IEA points out it contributes far less CO2 and air pollutants than many of the fuels it is increasingly replacing, especially coal.

Bearing all this in mind, participants at the recent Renewing our Energy Mix roundtable, hosted by the Australian Financial Review in partnership with Jemena and Australian Gas Networks, warned Australia is in danger of throwing all its eggs into the one basket when it comes to the energy transition.

While acknowledging the nation is heading in the right direction after nearly a decade of energy policy stasis, participants felt state and federal governments were directing all their support into a very narrow space rather than exploring all the options available, including renewable gases, such as green hydrogen (made using renewable electricity) and biomethane (from organic waste).

General manager renewable gas at Jemena, Linda Cardillo said at the roundtable that every Australian wants there to be an emissions reduction pathway.

“They want to reduce their emissions and they want to do it as cheaply and as fast as possible. Unfortunately, right now we’re backing one or two horses here when we want to back the whole stable of winners,” she said.

“And while gas is a really important enabler for the energy transition in Australia, gas is also in transition itself through our growing ability to produce renewable gases that will help to lower emissions, and we need the investment to flow in. You only need to look at the EU’s success in transitioning their gas networks to renewable sources like biomethane.”

Fellow roundtable participant, Jon Seeley who heads up the nation’s largest air conditioning, ventilation and heating manufacturer, Seeley International is concerned that ideology was trumping commonsense in our energy transition - and while we all want emissions reductions, we do need a better, more balanced and informed debate on how we are going to get there.

For Seeley, while the government may give the appearance it is focusing on the right things, there’s “no genuine consideration of the economics or the engineering or the science”.

Executive general manager, customer and strategy at Australian Gas Infrastructure Group (AGIG), Cathryn McArthur said the path to net zero is not linear and we need to be able to create space for all forms of renewable energy.

“Moving forward, we need to have all forms of low carbon gases considered in the energy mix and it’s really important we have good clear policy that sits behind that, that allows the industry to develop and to create the space and certainty needed to allow that investment to happen,” McArthur said.

The problem with Australia’s narrow focus on a couple of solutions such as wind and solar is we’ve fallen behind the rest of the world in our energy transition, leaving consumers largely unaware of the merits and potential of renewable gas, roundtable participant Shahana McKenzie said.

McKenzie who is the chief executive of Bioenergy Australia said the electricity sector has had a 20-year head start in Australia meaning our renewable energy target has basically become a “renewable electricity target”.

“People see solar, wind and pumped hydro and accept it as renewable but something like biomethane has only just seen its first injection into the gas distribution network in the last month at Jemena’s Malabar Biomethane Demonstration Project,” McKenzie said.

“The first one in Europe was around 15 years ago so we are so far behind in relation to providing the evidence for society to understand how we can decarbonise by growing a domestic renewable gas industry.”

But it is not too late for Australia to catch up to global peers, McKenzie said.

General manager of energy at building products manufacturer Brickworks, Melissa Perrow, agreed renewable electricity had a 20-year incentive sitting there to get to the point that we are now. She believes there has been spare capacity in the market over this period as more renewables have come online but as the coal generators close, we need to have more firming capacity.

According to Perrow, battery storage solutions at scale are still a fair way off so we must look at gas more closely and decarbonising it.

“The gas network is a form of storage. If we’re looking at a brick plant, it will need to consume gas 24/7 each day of the year whereas residential customers consume that gas, mostly at nighttime when solar has come off.

“Where is that additional capacity going to come from if we were to electrify all those homes – we will need gas, so why not renewable gas?” Perrow said.

“We really need to open our policy options up to look at the most cost-effective path to decarbonisation, and that will provide the most equitable transition for energy consumers.

Interestingly, South Australia, which now boasts 70 per cent renewables in its energy mix owes much of its success to gas.

According to the chief executive of Hydrogen Power South Australia, Sam Crafter, the state had a lot of gas from the Cooper Basin.

“Gas actually enabled the flexibility in our market - it hasn’t been completely smooth sailing but there’s no way that the renewables’ growth could have continued without gas,” Crafter said.

“The next bit we’re trying to drive towards is making it more renewable gas and in South Australia’s case - green hydrogen. Can it play a role in firming? It’s what we’re now trying to build, and we are working with technology providers and trying to get towards 100 per cent renewable gas generation.”

For Crafter, there are a lot of exciting and different technology options, and a fully firmed renewable system doesn’t just have to be hydrogen, “it’s a range of other gases as well”.

Fellow roundtable participant Danny Price who is the founder and managing director of Frontier Economics said it was important for the Australian government and business to be realistic about the timeframe and cost required to decarbonise.

Put bluntly, the size of the energy sector’s transition globally will dwarf the Marshall Plan.

“The program for the electricity sector alone is going to cost $300-400 billion over the next 30 years. That’s a huge investment and Australia has never embarked on anything like that before and right now we’re doing it terribly,” Price said.

“To put our challenge into perspective, only 4 per cent of Australia’s total energy supply comes from renewables at the moment and we’re effectively talking about replacing 96 per cent of our total energy supply in the next 30 years.

“This is a massive challenge and we’re talking $300-400 billion for electricity alone which makes up only 25 per cent of our energy mix,” Price said.

“Moreover, everyone’s doing this at the same time around the world, so people need to get a proper perspective on the challenge, cost and timeframes involved.”

As for a proper perspective, all participants agreed Australians need to be given a more balanced view on how renewable electricity and renewable gas will provide consumers with more choice, affordability and reliability in the energy they consume.

“We just need the policy settings in place to let consumers to continue to have a choice,” McArthur said.

The policy settings required have long been in place across Europe and North America, generating substantial growth in renewable gas.

It is proven, accepted, and widely embraced by our global peers and trading partners, McKenzie said, “with over 1300 sites globally injecting renewable gas into existing pipelines to a huge number of petajoules. It is just here, we haven’t latched onto the sexiness of capturing gas from wastewater treatment plants and piggeries and abattoirs and agricultural residues as being a valid form of energy yet.”