RESEARCH PAPER SERIES, 2020–21              20 July 2020

Australian electricity options: introduction

Research Branch, Parliamentary Library

Finding the best options to meet Australia’s future electricity requirements remains a source of debate and controversy, often framed in terms of fossil fuels versus renewables. Electricity generation in Australia produces more greenhouse gas emissions than any other individual sector and so the issue of emissions is a major factor in the debate over future power generation. This series of publications, ‘Australian electricity options’, examines various alternatives for electricity generation, each considered with its own advantages and disadvantages.

This is timely because the Minister for Energy and Emissions Reduction (the Hon Angus Taylor MP) recently released the Technology Investment Roadmap, a discussion paper around a framework to accelerate low emissions technologies across all sectors (not just electricity generation).

As Figure 1 shows, electricity accounts for about one-third of Australia’s emissions, although its share has declined in the last decade. The other two biggest sectors responsible for Australia’s emissions are ‘stationary energy excluding electricity’ (which means the direct combustion of other fuels such as natural gas for uses such as heating and industrial processes), and ‘transport’. Together, these two sectors account for more emissions than electricity generation. These publications do not address the major energy sources for these other sectors.

Australia’s electricity system can be considered to have four elements: the energy source or fuel (for example coal or wind); the generation site (where the source energy is converted into electricity); energy storage (such as pumped hydro or batteries); and the transmission and distribution systems (grids) connecting these elements with the electricity user.

In this series of publications we provide short overviews of five main sources of electricity and one of the main storage options. Each paper briefly explains the relevant technologies, international trends, and some of the opportunities and constraints that apply to their use in Australia.

Figure 1: Share of total emissions, by sector, for the year to December 2019

Source: Department of Industry, Science, Energy and Resources, Quarterly Update of Australia’s National Greenhouse Gas Inventory: December 2019, p. 7.[1]

As the Finkel review discussed, any solution to reduce emissions must also consider the need for the security, reliability, affordability and convenience of electricity supply. In addition, total electricity generation must be balanced with total electricity usage or consumption to maintain frequency and grid stability. This balance is dynamic as demand varies continuously and must be managed in real-time. A rapid shift towards variable energy sources—such as solar or wind—where output may not be as predictable as traditional generation, has important implications for grid management.

Australia does not have a single electricity grid. Over time, the production and distribution of electricity has evolved. The largest grid is operated through the National Electricity Market (NEM), which covers much of Queensland, New South Wales (including the ACT), Victoria, South Australia, and Tasmania. The Northern Territory and Western Australia are not connected to the NEM. The Wholesale Electricity Market (WEM) covers the South West Interconnected System (SWIS) in Western Australia. Both the NEM and WEM are operated by the Australian Energy Market Operator (AEMO).

Along with many other sectors, the energy sector is undergoing significant disruption as a result of the COVID-19 pandemic. The International Energy Agency (IEA) has examined the impact of the pandemic on global energy and carbon dioxide emissions and on electricity. Readers of the ‘Australian electricity options’ papers should note that some statements and projections about future demand and pricing may no longer be reliable as a result of impacts of the pandemic on energy demand and markets.

Energy sources

Debate around electricity generation in Australia has largely focused on five energy sources:

•          coal

•          natural gas

•          nuclear

•          photovoltaic (PV) and

•          wind.

The contribution of each of these in Australia’s total electricity generation since 1990 is shown in Figure 2.

Figure 2: Fuel sources of Australian electricity generation, 1990–2018

Source: International Energy Agency, Statistics, Australia 1990-2018.

Several other energy options are canvassed in public debate but are either not generally considered viable for large scale energy production in Australia at the moment or have not shown the same levels of significant growth as other options. These include:

•          wave/tidal

•          geothermal

•          solar thermal (collecting and concentrating sunlight to produce the high temperature heat needed to generate electricity) and

•          biomass (burning of material from forestry, agriculture or from waste from other human activities, such as municipal waste)

In these papers, we focus on the Australian context and recognise that the various energy sources have different characteristics, strengths and weaknesses which can make them more or less suitable in different parts of Australia.

Energy storage

The capacity to store energy is necessary for safeguarding the grid against unexpected shutdowns, surges in demand, and frequency management.

Several methods of storing energy at the generating plant are part of conventional energy systems, including:

•        rotating kinetic energy in heavy turbines and generators

•        high pressure steam stored in boilers and

•        high pressure water in penstocks (applicable to both hydroelectric dams and pumped hydro energy storage, or PHES).

As noted earlier, there are some challenges with integrating more variable (intermittent) renewable technologies, such as wind and solar PV, into large-scale power systems. The difficulties arise from the variability in supply from solar and wind. Previously, demand was often most variable. Supply was usually successfully kept at a constant baseload, being augmented by fast start-up generators to cover unpredicted peaks or outages. When supply suddenly changes, there can be excess production (too much electricity in the system) or sudden reductions so that demand is not being met. Juggling variabilities in both supply and demand can be met in a variety of ways, including using flexible, dispatchable generation options such as gas-fired power, as well as building more integrated networks to enable greater geographical spread of renewables, and for electricity to be shifted between regions. In addition, greater demand side management and enhanced storage capability can play important roles.

Currently, the most widespread storage technology in use globally is pumped hydro, providing almost all power storage, with a total capacity of around 150 GW (total global power capacity is around 6700 GW). PHES is discussed in a separate paper.

More recent developments concern batteries, notably lithium-ion systems, which accounted for almost all utility-scale battery installations in 2016. Battery-based systems have the advantages of quite low losses, and very rapid response times. Rapid cost declines in these systems have been observed recently, while performance has increased markedly. Over the last decade, battery costs have fallen from around $US 1000/kWh to below $US 200/kWh, with even bigger improvements in energy density. However, the total energy availability in a battery tends to be less than pumped hydro, and is measured only in minutes or a few hours. These cost improvements have seen a rapid surge in both large-scale and vehicle applications, albeit from a low base.

Cost

An important part of any discussion of generation systems and their emissions characteristics involves a comparison of costs. Changes to the generation mix can aim to achieve maximum emissions reduction at minimum cost, without compromising reliability or causing grid destabilisation. Cost and emissions comparisons can also vary considerably according to the time horizon assumed in any calculation.

A comprehensive whole-of-life analysis takes into account emissions and costs associated with the extraction, purification and transport of a fuel (in the case of coal, gas or uranium), the construction of facilities (whether it be solar panels, wind turbines or power plants), the running of the facility, and decommissioning, removal and safe disposal of all components at the end of its working life. For some technologies with a long life, such as solar panels, the latter part of the life cycle is only just being reached on a broad scale.

Some relevant costs, such as those associated with upgrades to the transmission network or storage options required to support different technologies, can sometimes be excluded from an analysis—particularly where different stakeholders are responsible for different components of the system—which adds to the challenge of fully quantifying and comparing the costs associated with different options.

In this series, we briefly touch on some costs but because this is more about the technology, economic aspects are not investigated in depth.

One measure to broadly compare the relative competitiveness of different electricity generation technologies is the levelised cost of electricity (LCOE). LCOE analyses typically factor in lifetime costs associated with establishing, operating and maintaining new, utility-scale electricity generation—however they are not a detailed comparison between specific projects and the assumptions and factors including in the LCOE often vary between analyses.

The CSIRO and AEMO are collaborating to produce an annual GenCost report on electricity generation and storage costs, which feeds into other AEMO planning activities—and provides analysis and projections of selected generation options in the Australian context. Their latest report, GenCost 2019-20, includes the LCOE for a variety of technologies and combinations (such as variable renewables with different types of storage) each decade until 2050—Figure 3 below shows the LCOE for 2020.

Figure 3: Calculated levelised cost of electricity (LCOE) by technology and category for 2020

Source: P Graham, J Hayward, J Foster and L Havas, GenCost 2019-20, 2020, CSIRO, Australia.

Further reading

Energy resources: a quick guide, Parliamentary Library, December 2017.

Energy challenges, Parliamentary Library Briefing Book, July 2019.

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[1] LULUCF means ‘Land Use, Land Use Change and Forestry: defined by the United Nations Climate Change Secretariat as a ‘greenhouse gas inventory sector that covers emissions and removals of greenhouse gases resulting from direct human-induced land use such as settlements and commercial uses, land-use change, and forestry activities’.