Peter Dutton has released the costings for the Coalition’s nuclear energy plan, proposing to build seven nuclear power stations at the sites of current coal plants. The Coalition says its plan would be markedly cheaper than Labor’s plan to convert to mostly renewable energy by 2050. But a report from CSIRO and the Australian Energy Market Operator suggests that renewables have the lowest cost range of any new electricity generation.
Added to this, debates around energy prices are only going to get bigger as the 2025 federal election draws closer. And in the end, is the ultimate goal of emissions reduction getting lost in the clamour for cheaper bills?
On this podcast, Grattan’s energy experts Tony Wood and Alison Reeve provide incisive commentary on the state of energy policy – and they argue that Australia shouldn’t jump to Plan B anytime soon.
Links to reports mentioned in the podcast:
- Frontier Economics report
- CSIRO and AEMO GenCost Report
- Grattan Institute’s submission on nuclear energy
Transcript
Kat Clay: Peter Dutton has released the costings for the Coalition’s nuclear energy plan. The plan pitches building seven nuclear power stations at the sites of current coal fired plants. The data prepared by Frontier Economics shows that this would be a markedly cheaper strategy than Labor’s plan to convert to mostly renewable energy by 2050.
Meanwhile, the CSIRO and Australian Energy Market Operator’s, Gencost report states that renewables have the lowest cost range of any new electricity generation despite inflation.
Like many people reading the news. I find it hard to know what to believe when multiple sources are providing conflicting information. Added to this energy costs and therefore costs to consumers are deeply entrenched in political debates that are only going to get bigger as the 2025 federal election draws closer.
And in the end is the ultimate goal of emissions reduction getting lost in the clamour of cheaper bills?
I wanted to get our top energy experts, Tony Wood, and Alison Reeve to do a deep dive into the data that’s been presented and independently cut through some of these heated discussions on nuclear. So, my first question for you, Tony is a big picture question. Which is, how do you begin to make an assessment on this situation when there’s multiple data sources saying different things?
Tony Wood: Well, I think, Kat, you begin by not believing any of it but having a look at all of it. Basically, what’s happened here is the federal opposition has been looking for an alternative to the government’s approach to climate change generally, and one of the biggest areas of our emissions electricity generation. They have used some of the uncertainties that have been created by the challenges of getting more renewable energy in place, together with some pushback in regional and rural Australia around the necessity of building new transmission to connect the new renewable energy to the system, to create a different view of the world.
In one level, it looks like just another, an alternative technology, but the way they presented it is much more fundamental than that. Nuclear technology, as they say, is used around the world. Generally, most of the time, safely, it has some very significant risks and consequences. And more so, what they propose has many serious risks and consequences.
But that’s what we want to get into this afternoon. The core here is that there is now an alternative way forward. And what we need to, I think, better understand is, what do we have to believe to c consider those two alternatives because they’re not really easily comparable at all, as you said.
Kat Clay: So, let’s get into what the Coalition is suggesting and how that stacks up. I mean, Tony, what’s your take on that?
Tony Wood: Well, at the simple level, they’re suggesting that in the late 2030s, early 2040s, as soon as they think is possible and probably even sooner than many people think is possible. We should have into our electricity supply system, seven new nuclear power stations. Five of those would be current technology that is very large power stations, about the same size as our current coal fired power stations.
And that would be built pretty much where the existing coal fired power stations would be. And two of those would be what’s called, what I call small modular nuclear reactors, which are a technology that in any commercial level don’t exist yet, but they may have some other advantages. So that’s the idea. Let’s have nuclear.
That would then constitute a relatively small share of our total generation, but quite a significant part of our total electricity. That would be built to align with the further introduction of renewables. And they would also basically be there when coal shuts down, which is not debatable. No one’s arguing about shutting down coal, interestingly enough.
And remember, both sides of politics are supposed to be looking at this as a pathway to net zero by 2050, something where we apparently have bipartisan support. That’s fundamentally what they’re talking about.
Kat Clay: I mean, that’s an interesting point though, because I think this plan keeps coal going for a lot longer than say the plan to switch to a renewable strategy. One of the things that I’ve been wondering out of this was that question of emissions. If we keep coal open for longer then does that have an impact on our emissions strategy?
Tony Wood: Yes. The difference in the moment, given the sort of numbers we’ve seen, and these are not precise numbers, obviously, Kat, but this will play out, who knows, over the next 25 years.
But over those 25 years, if you compare the two approaches to how we go down this pathway, by keeping coal moving, going longer and delaying a lot of the renewable projects, which the opposition leader has been talking about, effectively over the period, you end up with about 750 to 800 million tonnes a year, more greenhouse gases.
Now, put that in context, Australia’s total emissions in a year about 450 million tonnes. So, it’s a lot. The big difference is a lot. The opposition does not plan to make that up by 2050. Their proposal is that by the time you get to 2050, both plans will be close enough to zero by then.
And from then on, the emissions will be very, very small, arguably even smaller. But by the time you get to 2050, you’re talking about things that are so far into the future. Any suggestion we know what’s going to be happening that is just really quite silly.
Alison Reeve: Kat, I think the other thing we should add there too is that there isn’t an allowance in the costing for an additional cost for keeping coal in play longer. So, one of the things we’ve often discussed on the podcast and in lots of the work that Grattan has published is that because all our coal generators at the moment are old and becoming less reliable, keeping them open for longer actually has quite a cost associated with it.
And that hasn’t been costed, costed into this plan. The assumption in this modelling is that there’s no extra cost either to governments or consumers or companies of keeping the coal open for longer.
And that’s not actually borne out with what we are seeing in the market at the moment. Both the Victorian and New South Wales governments have had to make payments to coal fired generators in order to keep them open for longer because of the lag in building enough renewables to replace them.
Tony Wood: Alison pointed out one of the assumptions, but there are several assumptions in this analysis that together go to the most high level, a claim of the opposition. And that is, this is going to be a lot cheaper. Now put that in the context of what most people now think, most people argue is going to be a cost-of-living election.
Don’t pretend that any of what we’re talking about with nuclear is going to have any impact on cost of living for the next five to ten years. The difference only emerges after that, to the extent you believe it’s going to happen, so there’s going to have to be further discussion around how both sides of politics will think about the affordability of electricity, and be very careful to not believe any of them, because we’ve all been burnt before when politicians promise cheaper bills.
The really important question then is to think about what do you have to believe about the various assumptions that’s been made in this analysis. To accept the hypothesis that this will be overall a significantly lower cost approach than what the government is currently pursuing.
Kat Clay: So Tony, that is something I wanted to ask you about because in our previous discussions, we’ve talked about nuclear energy being a more expensive option. So, I was very surprised when the Coalition’s plan came in, pitched as a cheaper option. I mean, Alison, could you talk to that? Maybe explain that a little bit for me.
Alison Reeve: What this goes to is what costs you count, and which costs you don’t count. So, the way that usually costing is done for things like the integrated system plan and some of the other planning documents that are done for the electricity system is just on the basis of the upfront capital that you need in order to build a new system.
They don’t go to the ongoing running costs of that system and the whole of life costs. It’s a little bit like the difference between what you pay up front for a car and then what pay for up front plus all of the on-road costs.
The approach that the modelling has done for the Coalition’s plan is to look at that total system cost. The thing is that you need to be very careful there about which scenario you compare with which. So just as you don’t look at, you know, the cost of a car plus it’s on road costs next to just the cost of a car and say, oh, one of those is cheaper than the other. You need to be very careful to do that with this type of modelling as well.
The other thing that, is sort of different, between the two options and that therefore affects the cost is that the Coalition’s plan builds less new generation. And that’s because it has an input assumption that assumes that electricity demand is lower. The reason that electricity demand is lower is because we go a lot slower on decarbonizing our economy.
We have a lot fewer people opting to buy electric cars because the rate of economic growth in that scenario is lower as well. And so, you have a, you have smaller economy that is making a slower transition towards net zero. And so, therefore, it needs less electricity.
Therefore, you’re building less and hey presto, things look cheaper. It’s really important if you’re delving into or listening to anyone talk about, this modelling from the Coalition to understand which scenario is being compared with which to make sure that it’s actually a valid comparison between the two of them.
Tony Wood: I think the other thing about this is that part of your question, I think, Kat is around, well, why are these numbers so different? So, there was a lot of debate last year about comparisons between, or criticisms from the opposition about the analysis that GenCost, the CSIRO, as you said, and the Australian Energy Market Operator had done looking at the costs of all the technologies.
Remembering that the CSIRO AEMO work really doesn’t look at a total system cost in the way Alison was describing. What they’re talking about is how much does it cost to have nuclear, how much does it cost to have wind and solar with backup and so on. And when you look at nuclear, the actual bill cost of building the nuclear plants isn’t that much different.
They’re about, I mean, these are expensive pieces of kit, don’t get me wrong, but the difference between the two scenario or plans. It’s about the same, it’s not much. What’s different, is that in the work that’s been done for the opposition, they’ve assumed that these plants, nuclear plants, will run 90 percent of the time.
Now if you’ve got a very expensive piece of kit, and you can run it a lot more, obviously the cost per unit you produce is much smaller. On the other hand, CSIRO and AEMO say experience around the world is nothing like 90%. And they put a range in their analysis of between about 55 and 90%. So that’s where one of the big differences lies.
Are we expected to believe that you could really run, you know, all seven of these power stations, basically at 90 percent of the time for the next 30 years, or are you more likely to see a system where they run more like 60 percent of the time, and that would make a big difference to the fundamental cost we’re looking to compare here.
Kat Clay: Yeah, and I think that’s a contingency issue when you’re doing any kind of strategic planning. You’re going to do a range here. So, what’s the optimal range, but also what’s the base range. I think you’re right that that’s not included here. There’s a few things here I did want to dig into.
I mean, there’s this idea of getting cheaper bills with nuclear. There’s also this idea of timeliness and what you were just saying, really kind of spoke to one of the biggest issues that I saw when having a look at these reports and reading the news commentary. Is that timeliness is probably one of the biggest issues with nuclear because first up nuclear is illegal in Australia at the moment, so you’d need to work at changing the law. But then also we don’t currently have this technology in Australia. Whereas with renewables we’re here. We’re ready to go. There are obviously businesses that want to build more renewable energy generation.
First of all, does this plan have a realistic timeframe?
And the second thing is like, is this a case of, we should just stay on the track that we’re on rather than jumping the rails to the next track and seeing what happens.
Tony Wood: I think part of the issue here is that to be really sensible about this, pragmatically sensible, is that what we’ve seen is a, this is a huge transition we’re trying to manage here, right?
What we’ve seen so far is that it doesn’t all go smoothly. And anyone who thought it was going to go smoothly was kidding everybody else. That’s not the fault of anybody’s. Maybe there should have been more thinking in the beginning. If we’d started, it’s one of those situations, if we’d started this journey 20 years ago, maybe we’d be having a different conversation.
But we didn’t, and we can’t. And so now we are where we are, and these time frames look increasingly challenging. And so when you look at the cost blowouts that we’ve seen on other major infrastructure, transmission lines, part of the electricity system, but also things like transport infrastructure, we can see why there should be serious questions raised about both the cost estimates, but also the time scale, because even when you put aside, and you shouldn’t, Alison’s point about what happens trying to keep the coal open longer, the idea that you can even get these things built by 2037 and beyond is really challenging, given that we know everything costs more, everything takes longer.
And that’s what the real history tells us.
Alison Reeve: And I think you raised a good point too, Kat, about where Australia is starting from. If you look at the costs that the, CSIRO did in the AEMO report, those costs were generous for nuclear in one sense, in that they assumed that they were what’s called nth of a kind cost. So that means it assumes that you already have a huge amount of experience in building this stuff and you’re just building one more.
If you start with a first of a kind cost, those costs would have been a lot higher. And realistically, that’s where Australia is going to be starting from. It is true that we would be able to import a reasonable amount of expertise from overseas because we would have to buy this stuff from overseas. But a lot of what we’re doing here would have to be stuff that we’re learning to do for the first time.
And as you know, with just about anything you do, whether it’s podcasting or writing or learning to drive a car or whatever, it, you know, things take longer when you haven’t done them before. And that’s the, the, that is the situation that we would find ourselves in.
Kat Clay: And I feel that building a nuclear power plant is infinitely more complex than learning to drive a car.
Tony Wood: No, really?
Alison Reeve: Well, I mean, Claire Savage, who is the head of the Australian Energy Regulator, says that, you know, she’s a very experienced, regulator of energy markets, and her estimate is that you would need at least eight years just to get the laws right in order to be able to start doing your designs and doing your planning.
I tend to believe that because she does have a lot, a lot of experience in this. And even if you were able accelerate that, that’s still a lot of time that you’re taking up where your coal fired power is wearing out and where you could be building renewables and transmission instead.
Tony Wood: 50,60, 70 years ago, there were serious considerations given to building nuclear power stations in Australia. Various Prime Ministers have seriously embraced the idea of nuclear. The reason we didn’t build those nuclear power stations had very little to do with some of the things we’re worried about now.
Nuclear waste. The dangers of radioactivity. Weapons proliferation. What killed nuclear back then, in Australia, was the cost. We discovered how to build really big, really cheap coal fired power stations. And we did! And, with the exception of one small problem, they went just fine. We’ve now realized that what we weren’t doing was paying, understanding and paying for the environmental damage we were doing.
And now we have to face that reality. And that’s not an easy thing to deal with, right? It never is. But that’s where we have to be. And so, we are now, we have been moving away from that fossil fuel base now for the last 10 years. We’ve made enormous progress in electricity. We’ve gone from 10 percent zero emission renewables to 40 percent in a very short space of time.
We’ll probably be 60 to 70 percent by the time we get to the end of this decade. That is an incredible change and it’s all going relatively smoothly now. It’s not perfect. One of the reasons that the opposition can criticise the government is they made some commitments which were hard to deliver. They didn’t think about how difficult it would be to get communities to support the transmission that would need to be built to connect the renewables in regional Australia.
That’s where some of the challenges have arisen. That pathway is not without challenges and there are further ones to come where there will be a role for gas, for example, we are on a very successful pathway. We can do this. We are going to do this across the entire economy, not just for electricity. Electrification of transport will be just simply another one of those. To think about what we should just change course now because this one isn’t going perfectly and here’s something bright and shiny is really a very dangerous thing to think about. I think the thing we should focus on, we’ve done a lot of that already this afternoon, Kat.
And on this podcast, and that is there are significant risks in what’s being proposed. It doesn’t mean that everything is free, but understanding how and why, if necessary, we should consider that path, an alternative pathway, I think is what really should be the sort of things that the Australian people should be thinking about.
Kat Clay: It’s that idea of progress, not perfection, as they say. Alison. Did you have anything you wanted to add to that?
Alison Reeve: I think if you take one thing away from the current government’s experience with trying to build out the power system with a lot of renewables is it what you should really take away from it is that a piece of economic modelling will show you one thing about what you should be doing or you know to help you decide what you should be doing. But when you actually have to go out and put boots on the ground and actually start digging holes and pouring concrete and all of that sort of thing you tend to find there’s a whole lot of stuff that wasn’t in your model. And that will be exactly the same for nuclear modelling.
There will be a whole lot of factors which didn’t make it into these costings. And it’s very easy when you’re in the middle of something that you’re finding difficult to assume that the alternative that you can see must be easier. And the only reason, a lot of time, the only reason it’s easier is because you haven’t actually started trying to do it yet.
The thing to take away from our experience of the past couple of years is that it doesn’t really matter which technology you go with.
There are going to be difficulties in, in getting there. And thing is that you need to try and do as much as you can ahead of time to understand what those are and have risks and contingency planning in place for if they should manifest.
And I haven’t seen anything from either side of politics that shows that they can really think in that way, you know, the way that a construction company would think if they were actually going to go out there and build stuff.
Kat Clay: That’s actually something I did want to ask you about is, you know, what are some of the risks here for Labor? I mean, we’ve talked a little bit about transmission, but what other things that you think might need to be addressed?
Tony Wood: I think one of the things is a characteristic of any of these technologies, particularly wind and solar, is they are weather related.
Now, what we do know is that the weather is becoming more unstable. We are seeing more extreme weather events and we’re seeing them more frequently. And that is a characteristic, always has been predicted by as a characteristic of a changing climate, driven by human induced climate change. Now, you can believe that or not, the science tells you that’s most likely the case.
Therefore, the question here is going to be around, well, as we do this, how do we address the things that we really haven’t considered enough about? And there’s, unfortunately, when we talk about the risks of bushfires and floods and fires, we don’t tend to think, if we think about, oh, you’re catastrophizing this whole thing, right?
Now, ask somebody who’s had to evacuate their home three times in the last 10 years. They might have a different view about how these risks are going to unfold. So,
How we balance that system, I think, is going to become increasingly important. There’ll be things, as Alison said, which we won’t get quite right. That means we’re probably going to have to overcompensate. It’s not a symmetrical risk. We’re better off doing a bit more than we seem to need to now, just to be sure that we can make, we can cover what will be, in not many years, the final closure of the coal fired power stations at which we depend on, for example.
Now, we’ve already seen a bit of that happening, right? We’ve seen the state governments in New South Wales and Victoria take out a bit more insurance. They’re not committed just for the fun of it, to keep coal running a bit longer. What they’re trying to do is make sure that it doesn’t close too soon.
Because what we do know, almost with certainty, is if we have, as a consequence of getting that coordination right, if we did have rolling blackouts as a consequence of that, you can be sure that the Australian people will not appreciate that. And that would have, I think, a negative and damaging effect on the commitment that we have towards this transition.
Alison Reeve: Kat, last week on the podcast, we talked about, the emissions projections that had just come out from the government. And I think I mentioned on that, the, the thing that we were nicknaming the black run within our, our team, the very, very fast drop in electricity emissions that the current forecasts have because of that really big build of renewables.
And that big build has some real risks with it. You know, there are risks around, Labor availability, construction, equipment availability. Can you get the materials, what happens when you’ve got six or eight projects in the same area, all competing for the same workforce or the same equipment? There’s a whole lot of risks there.
Just coming back to what Tony was saying about the, the weather dependency of the, of a renewables-based system, it’s worth remembering that the whole power system is affected by weather.
So, on the day that we’re recording this, we’re having a heat wave on the east coast of Australia, which means that the current power system is under a lot of strain. That would continue under nuclear power as well.
Nuclear power stations use a lot of water, which means that they are more sensitive to droughts, just in the way that coal generation has been for a long time as well.
And of course, when, you know, when the wind does blow and blows very strongly, it doesn’t really care whether your transmission line is, is connected to a wind farm or connected to a nuclear power station. It’s going to blow it down anyway. So that risk is there regardless. And you don’t get rid of all of your weather dependent risk just by switching away from wind solar.
Kat Clay: You’ve had some really great analogies on the podcast today. I mean, that idea of the black run is really striking. And I think of the idea how, you know, these catastrophic climate events are kind of like, the avalanche is coming. You don’t choose not to take the black run if an avalanche is coming behind you, you don’t choose to sit still.
Alison Reeve: I don’t choose to ski at all that’s how I avoid the risk.
Tony Wood: There’s a tendency to set this debate up to say, look, oh my God, this is too hard. We’re going to try something different. And most things in our lives, at some points in our lives, we find things a bit harder, right? It’s like our transition is now in the teenage years.
We’ve had our parents looking after us when we were kids. And now we’re having to grow up and adjust to a whole lot of things that we haven’t thought about before. It’s hard, right? The worst thing we could do is say, well, it’s all too hard. This is not a choice. We don’t have a choice not to do this. We do have a choice, and that is we do it well or we do it badly.
And I think the pathway we’re on now, is it perfect? No, of course not. This is really hard. This is, we’ve called it in other places, an industrial revolution to a timetable, but this is a thing we need to do in Australia and globally. And so, I think we are on a pathway now to achieve that. Of course, we should consider alternative pathways if they make sense, if they would be better, if they would be cheaper, if they would be lower emissions, if they would be, if they would be.
But you’ve got to be convinced at least enough to be prepared to make a change, because at the moment I think where I would end up on this issue of this nuclear is, I’m not yet convinced that there’s a good reason to change the path now. Maybe, who knows, in 25 years’ time, nuclear could suddenly turn out to be a whole lot better.
That’s not where we are now. It’s not where we should be thinking about now.
Kat Clay: Thank you so much. Alison and Tony, that was a very insightful podcast explaining what a relatively complicated area of energy policy to us with some wonderful analogies and explanations is. If you’d like to read about the reports we’ve discussed today, as well as Grattan’s own take on this area of policy, I’ve put some links into the show notes for you.
Likewise, it’s the end of the year. We rely on donations from listeners like you. If you’d like to donate to Grattan, to support our work research and podcasting. Please go to grattan.edu.au. As it is the end of the year. This is our last podcast for 2024. We wish you and your families are very Merry Christmas and happy new year. And a happy holidays to you as well. Thanks so much for listening.