Australia needs to spend up to $130 billion on new power generation and upgrades to the grid to comply with climate change policies.
New modelling to be launched today by federal Energy Minister Martin Ferguson in Melbourne shows that the government’s target of producing 20 per cent of the electricity supply from renewable sources such as wind by 2020 is doomed to fail unless a price is put on carbon.
The Australian Energy Market Operator, which did the modelling, is proposing a new $8.3bn link from Queensland through NSW and Victoria to South Australia and Tasmania to allow greater electricity trading between the eastern states in a bid to create a truly national power grid.
The research is set to reignite the debate over a carbon price, with the Gillard government placing renewed political pressure on Tony Abbott to support the policy after the climate negotiations in Cancun, Mexico.
Julia Gillard has warned that without a price on carbon, Australians will face more blackouts and soaring electricity prices as the power industry is gripped by investment uncertainty.
AEMO chief executive Matt Zema said investors in the electricity industry were “hedging their bets” in the absence of clarity over a carbon price.
“It’s all about certainty,” he said. “It’s really this issue of the industry needs some certainty. That doesn’t mean you can’t keep reforming and getting better, but in order to do that, it needs certainty around the carbon price.”
AGL Energy chief executive Michael Fraser echoed this, saying it was crucial to put a price on carbon before energy companies would build baseload generators, which are the power stations that meet Australia’s day-to-day electricity needs.
“You would have to assume that at some point a carbon price was going to be included. You’ve got no certainty about that, so how do you make that investment?” Mr Fraser said.
“With respect to coal-fired generation, how could you justify building coal-fired generation when at the end of the day the whole purpose of introducing a carbon tax is in fact to close down coal-fired power stations?
“That’s the whole policy point, to achieve that outcome. With that hanging over your head, there’s no way you can go and build baseload. And without a price on carbon, you can’t justify building baseload gas either.”
Mr Fraser said he preferred an emissions trading scheme over a carbon tax.
Mr Ferguson said the AEMO work would help investors respond, because well-planned investment was critical to ensuring continued reliability of supply as demand increased.
The AEMO research finds that between $35bn and $120bn in new electricity generation assets will be needed over the next 20 years, as demand for electricity is forecast to rise between 30 and 70 per cent on today’s levels as the economy and population grow.
On top of this, between $4bn and $9bn is needed for transmission — the high-voltage links that carry power for long distances — to connect up the new sources of power.
The modelling finds that a higher carbon price would require a greater investment in more costly renewables, such as wind or in coal-power stations that use carbon capture and storage technologies. But the costs of operating power plants using renewables is usually cheaper.
A medium to high carbon price that aims to slash emissions by 15 per cent to 25 per cent on 2000 levels would result in the closure of three coal-fired power stations in Victoria’s Latrobe Valley, which would be replaced by gas-powered generation.
