Australia will require declining emissions in every sector of economic activity in order to achieve its Paris commitments at least cost.
The electricity system, which represents about a third of national greenhouse gas emissions, is undergoing a multi-decade transition – from one dominated by coal-fired generation to a portfolio of utility-scale renewable generation, energy storage, distributed energy resources and flexible thermal capacity linked by a strengthened transmission network.
The pace of this transition is accelerating. In 2017-18, Bloomberg New Energy Finance reported new investment into large-scale renewable wind and solar energy reached more than $8.6 billion, compared with $5.4 billion in the previous year.
New revenue models are also emerging. While many new renewable energy projects have offtake arrangements with electricity retailers, some new capacity is initially operating on a partial or fully merchant basis. Increasingly, projects are underpinned by corporate power purchase agreements (PPA), as large-scale energy users seek to lock in lower long-term electricity prices, and preference renewable energy. Energetics estimates that corporate PPA transactions reached as much as 1,700 MW of renewable energy output in 2017-18, up from 1,200 MW a year earlier, and less than 200 MW in 2016-17.
Small-scale renewables growth is at record levels, with capacity being added at an average rate of more than 100 MW each month over 2017-18. Small-scale batteries are allowing households and businesses to integrate on-site renewables and storage to manage their electricity consumption and reduce costs. Bloomberg New Energy Finance forecasts that by 2024, a majority of new residential solar systems will incorporate storage.
Looking beyond the electricity sector, there is evidence of an accelerating clean energy transition in the property sector. The number of new projects certified under the Green Building Council of Australia’s Green Star rating scheme, which assesses the sustainable design, construction and operation of buildings, fit-outs and communities, continues to grow. Alongside this growth, the Green Star certified rating of buildings continues to rise, from an average of 4.6 to 5.1 stars over the past decade.
However, energy efficiency in residential dwellings is showing only small signs of improvement. Residential final energy consumption per person has declined by an average annual rate of 0.8 per cent over the past decade, and by 1.1 per cent on a per-dwelling basis. With property representing a substantial part of Australia’s emissions reduction challenge, this is an obvious area for further action.
As demand management and behind-the-meter technologies improve and become cheaper, we anticipate increased investment in such measures to improve household energy efficiency, both to reduce overall consumption and emissions, and better manage rising energy costs.
Along with decarbonising the electricity sector, electrifying Australia’s light duty vehicle fleet will be central to the achievement of Australia’s emissions reduction target. Electric vehicle sales grew strongly in 2017 from an exceptionally low base, with nearly 2,300 new vehicles sold. While this is a welcome trend, electrification of the vehicle fleet remains a very substantial challenge, given the extremely low penetration rates in Australia today.
An increase in global electric vehicle sales offers promising opportunities for Australia, which has strong potential to play an important role as a global supplier of materials for the clean energy transition such as lithium, cobalt, nickel and aluminium. Lithium production has increased dramatically in response to higher prices driven by global demand for vehicle batteries. In 2017 alone, the production of Western Australian spodumene (hard rock lithium concentrate) soared to almost 1,700 tonnes, up from 400 tonnes in 2016. This fourfold increase in tonnage represented more than $800 million in value according to the Western Australian Department of Mines, Industry Regulation and Safety.