One of the biggest challenges facing advanced economies is maintaining reliable and reasonably priced electricity as we decarbonise to combat climate change. This year we’ve seen some ominous signs that this may not go well. The war in Ukraine has reminded us we’re still highly dependent on fossil fuels, and disruptions to supply are very costly. European electricity prices are now soaring as Russian gas supply is restricted and it’s looking like a bleak Winter for Europe, something I identified as a downside risk to the global economic outlook in a generally positive Queensland economic update I gave at the Brisbane Club last Tuesday. You can download my slides via the link below. The scary European electricity prices chart is on the last slide.
In Australia, our National Electricity Market (NEM) had a near death experience in June and was temporarily suspended by the Australian Energy Market Operator (AEMO), which had to assume command and control, central-planning style, to keep the lights on. In the latest episode of my Economics Explored podcast, I speak with local energy expert Andrew Murdoch of Arche Energy about what happened in June and whether it could happen again. Are renewables coming into the system too quickly? What’s happening with batteries? Will Australia be able to cope with the retirement of coal-fired power stations? And what about all the EVs that will need charging? These and other questions are tackled in a frank and fearless conversation.
Andrew is generally optimistic about our ability to manage the transition to greater renewable energy, but he certainly does appear to appreciate the risks, as this observation of his (at around 47:10 of the episode) illustrates:
“Looking forward, we’ve got 8.3 gigawatts of coal plant scheduled to be taken out of the market between now and 2029. It’s 2022 now. So that’s a lot of firming capacity that needs to be developed in that timeframe. If I look at the various different committed projects that are in the system at present…that only adds to 1.32 gigawatts of dispatchable generation required to cover that 8.3 gigawatts of retiring capacity. So there is a bit of a deficit there in terms of project firming projects that are available.”
That looks like a big challenge to me. The reliability and cost of electricity will very likely remain one of the top economic and political issues for the rest of the decade.
Please have a listen to my conversation with Andrew and let me know what you think.
Callide power station, near Biloela, Queensland.
Note: I changed the podcast episode title and the title of this post after publishing both. On reflection, meltdown wasn’t a good way to describe what occured in June.
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