Key points

• The Australian Energy Market Operator says the nation must “decouple” from international coal and gas markets to avoid further price shocks linked to conflicts such as the war in Ukraine.
• AEMO says even after factoring the cost of new transmission lines, wind and solar remain “by far” the cheapest forms of newly built power generation.
• But it warns the thousands of kilometres of new transmission lines will be needed, along with new technology to allow the grid to cope with variable renewable energy.

Power bill shocks will remain a threat unless Australia quickly “decouples” from global coal and gas markets by ramping up renewables, the head of the east coast electricity grid has warned.

Australian Energy Market Operator (AEMO) chief executive Daniel Westerman suggested the Albanese government’s energy market interventions, including coal and gas price caps, represented “short-term solutions” to relieve households power bills.

Daniel Westerman, chief executive of the Australian Energy Market Operator.Credit:Jeremy Piper

But the conflict in Ukraine meant efforts to prepare the grid for higher levels of wind and solar to protect against future international coal and gas shocks were even more urgent, he said.

“Domestic thermal coal and gas prices are vulnerable to international events and conditions, as we’ve seen this year with the war in Ukraine,” Westerman told The Sunday Age and The Sun-Herald.

“This has contributed to higher than average wholesale energy prices, prompting short-term solutions to assist consumers.

“The sooner we integrate higher levels of firmed renewables with transmission into the energy system, the sooner we can decouple domestic energy prices from these international shocks, meet our emissions targets and reduce stress on Australian families and businesses.”

Energy Minister Chris Bowen on Saturday announced the federal government would invest $176 million in advanced battery technology through the Australian Renewable Energy Agency.

The announcement follows the government’s dramatic gas market intervention to temporarily impose a $12 per gigajoule cap for uncontracted wholesale gas and a $125 a tonne cap on coal, which passed Parliament last week with support from the Greens and prompted a furious response from gas producers.

In response, Bowen said the federal government would not tolerate “wartime profits being generated off the backs of Australian consumers, households and businesses”, hitting out at criticism of the intervention as “shrill and unhelpful”.

“We have responded carefully but clearly and powerfully to ensure that Australians are protected from the impacts of the war in Ukraine on their energy prices,” he said.

Energy giant Santos had described the intervention as a “Soviet-style” form of nationalisation, while Shell suspended its role in a landmark gas supply deal designed to prevent future shortfalls on the east coast. Opposition Leader Peter Dutton warned it would deter investment and lead to even higher prices.

But in an increasingly heated debate, the federal government argued the cap would have no impact on investment.

“Ninety-six per cent of gas was sold in Australia in 2021 for under $12, at an average price of $9.20. We are just simply requiring gas companies to sell in 2023 for what they sold 96 per cent of their gas for in 2021,” Bowen said.

“That is not actually a major intervention or, you know, the sort of remarkable rhetoric we’ve seen from some over recent days – shrill and unhelpful and laughable rhetoric that we’ve seen from some.”

AEMO has become increasingly vocal about the need to upgrade the grid to cope with periods of 100 per cent renewable energy, which could happen as early as 2025. It is calling for the construction of about 10,000 kilometres of transmission lines to better shift wind and solar energy to where it is needed.

The organisation has also called up for the equivalent of to 40 large synchronous condensers to stabilise the flow of energy from intermittent renewable sources as most of Australia’s coal-fired power plants close over the next decade.

It also wants a major upgrade of outdated computer systems that monitor and control the flow of power and an extraordinary 30-fold increase in battery and hydro storage over the next 25 years.

In a speech delivered late last week, Westerman argued that even after factoring the cost of new transmission lines, wind and solar remain “by far” the cheapest forms of newly built power generation.

“So as international commodity prices continue to impact Australia’s energy markets, this context should only accelerate our resolve and the urgency of a smooth transition for Australia,” he said.

Victoria is betting on offshore wind compensating for the loss of coal.Credit:Getty

Russia’s invasion of Ukraine has sent international energy prices soaring, with European countries dependent on Russian gas scrambling to find alternative sources. The global price squeeze has hit Australian households, underpinning the highest inflation in decades.

According to the Australian Energy Regulator, wholesale prices for gas in Sydney, Melbourne and Brisbane have more than quadrupled since 2020-21.

The government’s intervention followed a Treasury prediction that electricity prices would rise by more than 50 per cent in the next two years, and gas prices by more than 40 per cent.

About 40 per cent of coal-fired generation is expected to be withdrawn from the national electricity market within the next five years, with about 87 per cent likely to be gone by 2035 and 96 per cent by 2040.

Most analysts expect the war in Ukraine to continue well into 2023, and possibly longer, adding to uncertainty over coal and gas prices.

The CSIRO’s latest GenCost report, released in July, shows renewables were the cheapest “new-build” electricity generation option.

Bowen also confirmed that negotiations between the Commonwealth and NSW and Queensland on the compensation to be paid to coal producers and generators were at an “advanced stage”.

This masthead reported last week that the total compensation bill for the Commonwealth could be up to $500 million, but the details are yet to be worked out.

with Anthony Galloway

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