Australia’s economic prosperity depends on a successful transition to a net-zero energy system that is both affordable and reliable. Yet the transition is heading into stormy weather and clear heads are needed. Now is not the time for turning.

There is mounting evidence that without further action the National Electricity Market may not be able to deliver enough investment in low-emissions generation, storage and transmission when and where it will be needed.

Ministers have lost faith in the market’s capacity to do this, consumers are unhappy with high power prices and industry players increasingly are wary about investing because they have been buffeted by frequent and unpredictable government interventions in the market.

Governments and industry have failed to co-ordinate coal exits and renewables entries, and construction of transmission to support the latter has been slow. A high-renewables system with weather-related output also brings different reliability risks. The NEM was not designed for this world.

The federal government is struggling with its ill-advised promises to reduce annual power bills next year by $275 below their 2022 level and to deliver an 82 per cent market share for renewables. The first should have been abandon­ed after the Ukraine war broke out.

The good news is that prices are showing signs of falling, and the government can claim some credit for that. Today, renewables have an almost 40 per cent share of generation and government projections have been for almost 70 per cent by 2030.

That is truly strong progress.

But the NEM is suffering severe growing pains. The closure of coal and its replacement with renewables, storage and gas has been such a dominant concern for policymakers and the market agencies that substantial reforms towards what comes next have failed to progress. A better way forward is a plan that deals separately with the two eras, pre and post-coal closure.

Governments must act immediately on two significant issues. Deals that provide insurance by managing coal closures must be expedited and co-ordinated, while momentum on emissions reductions is maintained via the Capacity Investment Scheme and renewable electricity targets. And co-ordinated, pragmatic action is required to remove roadblocks and bottlenecks to building new transmission.

Beyond coal, Australia can have a net-zero electricity system that is both affordable and reliable. Yet we are on a path to a less reliable and less affordable alternative. A change in direction is needed – governments must take stock now and begin designing a new NEM for when coal-fired generation is no more.

There are three priorities for planning Australia’s future net-zero energy system:

● Design a market structure that will help ensure adequate energy resources in a high-renewables system.

● Signal the introduction of an enduring carbon price, explicit or implicit, for the energy sector, to guide future investments and gas plant closures.

● Integrate and co-ordinate so-called distributed energy resources such as wind and solar farms, rooftop solar and batteries.

Australia may be able to muddle through the next few years with the current messy mix of ad hoc and uncoordinated policies, but Australians will not forgive our political leaders if they mess up the post-coal era and fail to deliver the trifecta of clean, affordable and reliable energy.

The plan described above must be led by governments, federal and state, with a real commitment to working together for its delivery under a revised Australian Energy Market Agreement. Industry should be engaged throughout the process.

The market agencies also should be engaged and will have the responsibility for technical design advice and implementation. But they should not lead. This was tried before through the Energy Security Board, and it failed.

The key to reforming the electricity system is to accept and work with today’s messy but now committed policy frameworks and market mechanisms through the coal closure era, while developing the reforms that will deliver long-term success for post-coal Australia. A carefully designed, effectively regulated and well-maintained electricity market will deliver the best long-term outcome for consumers.

Australia has accumulated economic prosperity on the back of energy from fossil fuels. But we also have accumulated an economic debt to the environment that poses an existential threat if not repaid. This is not the dreamy-eyed vision of green-left evangelists but clear-eyed conclusions from science and economics.

This can be a good news story, but it was never going to be cheap or easy. That does not mean, as some have argued in these pages, that the path to net zero leads only to disaster and we should turn back.

The choice is not between acting or not acting to deliver a successful energy transition. The transition is upon us. The choice from here is to go well or to go badly.

Tony Wood

Energy and Climate Change Program Director
Tony has been Director of the Energy Program since 2011 after 14 years working at Origin Energy in senior executive roles. From 2009 to 2014 he was also Program Director of Clean Energy Projects at the Clinton Foundation, advising governments in the Asia-Pacific region on effective deployment of large-scale, low-emission energy technologies.