14 November 2022
The Albanese government’s promise to reduce average household power bills by $275 is disappearing along with its mandate for a renewables-dominated electricity market. Despite Labor pundits’ claims to the contrary, a clear choice is emerging between Rewiring the Nation and nuclear when it comes to reducing carbon emissions. Whoever wins the social licence to operate holds the key to Australia’s future energy security.
Australia’s wholesale electricity market is divided into two main sections, the east coast’s National Electricity Market (NEM) and Western Australia’s Wholesale Electricity Market (WEM). Distance is the major reason for the division between the two markets. The Australian Energy Market Operator (AEMO) manages the wholesale and retail markets across the power system with over 300 registered participants including generators and distribution and transmission providers.
There are two main types of electricity generators in the traditional grid, ‘baseload’ and ‘peakers’. Baseload generators like coal-fired stations and the original Snowy Hydro scheme are best at producing consistent amounts of electricity over time, whereas ‘peaker’ generators like gas-fired stations are best able to meet sporadic demands. Australia’s electricity demand is becoming increasingly ‘peakier’. Over the past year, coal-fired stations in the NEM provided 65 per cent of total electricity supply while gas provided 7 per cent.
While there are arguments over whether or not baseload generation is relevant in an era of pumped hydro (Snowy 2.0 – effectively a big on-demand battery) and battery storage, renewables like wind and solar rely on the wind blowing and the sun shining to produce electricity. NEM data shows that Australia produces significant amounts of renewables-generated electricity during the day. But as the sun goes down and people return home from work and settle in for the evening, our electricity demand peaks significantly, and production during this time relies mostly on coal generation. This is the trickiest part of the day for renewables to be effective.
Further, each type of electricity generator produces less than its theoretical maximum output, known as capacity factor. As Australia’s coal-fired stations age, their traditional average capacity factor of 70 per cent is reducing, with recent NEM data indicating that coal-fired generators are operating at around 40 per cent capacity (reflecting US trends). Gas operates at a capacity factor of around 60 per cent, whereas hydro operates at around 40 per cent, wind at around 35 per cent, and solar at around 25 per cent. Nuclear operates at a capacity factor of over 90 per cent. These capacity factors are important considerations in designing transmission grids.
There are two main policy options being considered to reduce carbon emissions in the energy sector, renewables-dominated (Labor) or renewables underpinned by nuclear (Coalition). Labor’s Rewiring the Nation program aims to expand the electricity grid to connect all the hydro and wind and solar farms and batteries that will be required to replace the ageing coal-fired stations. This program will provide some $20 billion of investment over the next three years with the aim of expanding the grid significantly. The Parliamentary Budget Office notes that, ‘Financial implications of this proposal are uncertain and highly sensitive to assumptions about the speed at which capital is deployed, the rate of return earned, the time required for project approval and the average maturity period of investments.’
One of the major challenges for Labor’s renewables plan is ‘greenflation’. Renewables technologies such as wind turbines and solar panels require significant amounts of copper, lithium, and cobalt. Further, electric vehicles, a major part of Labor’s emission reduction strategy and touted by some to become an important part of the grid’s storage and stabilisation system, use more than six times the minerals used to build conventional vehicles.
In addition, solar and wind farms require vast amounts of land in locations that provide the best access to sunny and windy days. Initially, the best locations are likely to be chosen, and as demand for electric vehicles and green hydrogen and green ammonia increases, electricity demand is set to soar. As demand increases, the demand for critical minerals and appropriate land increases. Greenflation suggests that as these demands increase, critical shortages in minerals and land will result in the cost of renewables and the connecting grid increasing, not decreasing, over time. Labor is betting on technological improvements to mitigate greenflation, but the experience in Europe does not bode well for this strategy.
The other issue is capacity factor. Wind and solar requires an overbuild of actual transmission capacity by three (wind) or four times (solar). This means that for two-thirds (wind) or three-quarters (solar) of the time, the capital investment in the grid promised by Rewiring the Nation will be doing nothing. It also means that the existing grid will have to be expanded significantly to connect new wind and solar farms to the grid. In addition to the land required for wind and solar farms, rights of way for transmission lines will become a crucial issue for the social licence to operate a renewables-dominated market.
Projects like HumeLink that connect Snowy Hydro 2.0 to the NEM grid are already coming under fire from landowners. This situation is only likely to become worse as the Rewiring the Nation project is expanded, and greenflation is likely to make this problem exponentially more expensive. But there is an alternative that requires a different social licence to operate. Enter nuclear.
Nuclear energy was prohibited in Australia as a result of a political trade-off by the Howard government in 1998 to enable construction of the OPAL reactor at Lucas Heights. The OPAL reactor superseded ANSTO’s original 1950s reactor and performs a crucial role in medical supplies and research. A private members bill, led by Nationals Senator Matt Canavan, is in progress to remove the prohibition on nuclear given the focus on small modular reactors (SMRs), particularly in Canada.
Labor pundits continue to suggest that SMRs are a pipe dream and that renewables are cheaper. But energy prices throughout the world are proving otherwise, and Labor is relying on similar pipe dreams to ‘rewire the nation’. If Labor’s bet is wrong, then we will have ‘done’ $20 billion of investment capacity. To add salt to Labor’s $275 energy bill reduction wound, energy prices look set to increase by 35 per cent next year. And getting the social licence to operate an enormous transmission grid to support renewables may well thwart the Albanese Governments’ technology bet. Nuclear, however, will require a different social licence to operate.
SMRs are effectively scaled-down versions of traditional nuclear power plants. The major difference is in the construction techniques which reduce the volume of earthworks and concrete that consume a major part of the capital expenditure required. Nationals MP Dr David Gillespie recently visited Canada and South Korea to explore the possibilities for nuclear in Australia. A presentation at the Australian Nuclear Association revealed that Australia already has a 1981 nuclear cooperation treaty with Canada that would allow a relatively swift transfer of SMR technology. Although SMRs are a recent innovation, the technology for the most part is already proven.
Key to the advantage of nuclear electricity generation is its ability to fit in with the existing grid. Geological and other conditions permitting, SMRs can be placed in situ with existing coal and gas generators or at key junctions in the grid, negating the need for Rewiring the Nation. While this overcomes the property rights challenges associated with Rewiring the Nation, the issue of social licence to operate nuclear is largely cultural. Every tradie I speak with thinks nuclear in Australia is a ‘no-brainer’ but for every tradie there is a bureaucrat who is worried about nuclear proliferation. Others are concerned about nuclear safety. But that mood is changing and the divide does not fall neatly along left and right political fault lines with support for nuclear growing among environmentalists in Australia and internationally.
While Climate Change and Energy Minister Chris Bowen claims that SMRs are a pipe dream, so too might be Labor’s ability to deploy the massive Rewiring the Nation program anytime soon. And while the social licence to operate either policy approach will be key to Australia’s energy future, it is tragic that rather than having a bet each way, the Albanese Government is prepared to experiment with people’s lives and livelihoods. Let’s hope that Labor’s experiment does not replicate Europe’s recent findings.