NSW Electricity Security Target, FY2024-33. Source: AEMO Energy Security Target Monitor Report, Oct 2023

1 FEBRUARY 2024

Happy new year!

We're back on deck and looking forward to working with our valued partners and collaborators again this year toward our collective vision of a prosperous and equitable decarbonised future, in which Australia is a renewable energy and zero-emissions trade and investment leader. We plan to build on our activities across all our strategic priority areas – see our report on July-December 2023 here – as we work to accelerate the shift of capital to cleantech. When the money moves, get out of the way! 

THE LIGHTS WILL STAY ON 2.0: OUR LATEST RESEARCH CONFIRMS COAL CLUNKER ERARING SHOULD CLOSE ON TIME IN 2025

As we find in our new ‘Lights will Stay On’ report, released earlier this month, after some dangerous inertia around the change of NSW government and a history of chronic approvals delays in the NSW bureaucracy, there has been significant progress in NSW electricity market transformation over recent months, as strong collaborative efforts with the Federal Government unleash a significant pipeline of firmed renewables.

We are even more confident than in our previous analysis of July 2023 that with continued improvements and delivery on projects under development, the lights will stay on in NSW as Australia's biggest coal clunker – the hyper-expensive, high-emissions, unreliable, end-of-life Eraring power station – closes on time around the planned date of August 2025.

And it's not just us saying this. At the end of December 2023, AEMO quietly released the Energy Security Target Monitor Report it had delivered privately to NSW Energy Minister Penny Sharpe in October. The report should be required reading for vested interests bleating about widespread blackouts if the NSW government holds its nerve and commits to the planned closure.

AEMO’s own modelling (see figure above) shows that once federal and state capacity schemes are included, there is no NSW electricity supply reliability gap forecast in any year out to 2033, notwithstanding the on-time shutdown of Eraring next year.

Consistent with both AEMO’s analysis and our July 2023 report, our new analysis reconfirms that there is no material reliability gap.

And there is no case for taxpayer subsidies in the hundreds of millions to keep Eraring open when this money should be invested in further accelerating the state's energy transition! 

What we do need to see is a step-up in policy support for faster consumer energy resource deployments, particularly a lift to the100kW cap on the small scale renewable energy scheme (SRES) for commercial and industrial, which provides financial incentives for installation of renewable energy systems.

Read our full report.

Some of our coverage: ABC AM story entirely focussed on the report, The Guardian, our op ed in Renew Economy, Canberra Times/AAP across 100+ mastheads, Newcastle Herald, Michael West Media, FS Sustainability, and an extensive interview Ausbiz (with Ch 9 TV News to come.)

AEMO & AER FLAG POWER PRICE RELIEF AS RENEWABLES SURGE

More firmed renewables ultimately equals cheaper power. We expect that retail power prices will reverse some of the fossil fuel energy hyperinflation seen in the 20% pa regulated price increases in July 2022 and July 2023. 

AEMO’s Quarterly Energy Dynamics Report for Q42023, released last week, shows reliance on expensive, polluting, ageing and unreliable coal-fired power is being reduced as new records are set by an influx of utility scale renewables and rooftop solar in the National Electricity Market (NEM).

As Tim commented for The Guardian, retail power prices should fall in some Australian states (led by Queensland) when the Australian Energy Regulator sets its default market offer for the year from 1 July. Even though wholesale prices make up only about one-third of the bill consumers pay, the halving so far this financial year could provide a “double-digit drop” if maintained and fully reflected in forward pricing (even noting that higher long term interest rates do push up the regulated returns required on grid transmission and distribution). 

This week, the Australian Energy Regulator released its Q42023 Wholesale Markets Report. As we wrote, consumers can hope for some real energy cost of living relief when the AER determines the Default Market Offer over coming months in light of the halving of wholesale electricity prices in the last year. NSW consumers unfortunately might have to wait till July 2025. 

This follows the progressive unwinding of two years of hyperinflation in coal and gas commodity prices, both internationally and in our domestic energy markets. 

See Tim’s commentary in the SMH, on ABC RN’s AM and in multiple mastheads via AAP, with ABC NewsRadio and 702 Sydney Drive to come.

CHINA’S RE MEGABOOM: 293GW OF INSTALLS #1 DRIVER OF GDP

China installed a staggering 292.8GW of variable renewable energy in CY2023, 5 times the current total installed capacity of Australia’s National Electricity Market (NEM). This is +99% yoy, way beyond any forecasts. Solar newly installed capacity grew by 148%, reaching 216.9GW in 2023. Newly added wind power surged by 75.9GW, and zero-emissions capacity accounted for over 52% of total installed capacity. China is accelerating electrification of everything, sustaining strong electricity demand growth ahead of the strong +5.2% yoy GDP growth delivered.

China's astounding green energy megaboom in 2023, which we have mapped in our monthly updates, emerged as the primary driver of its economic growth and investment, as research from our colleague Lauri Myllyvirta at CREA showed. Clean energy contributed to approximately 40% of the annual GDP growth across all sectors, marking a significant macroeconomic pivot. Investment flowed from the real estate sector into manufacturing, particularly the clean energy sector, leading to a 9% yoy increase in manufacturing investment. Investment in the power and heat sector increased by 23% yoy due to the large allocation of capital into clean energy.

This created a burgeoning cleantech jobs market. For example, wind power engineers saw a staggering 738% yoy increase in job postings while engineering supervision positions grew by 322%.

This transformation underscores the economic importance of an accelerated transition toward renewable energy, a lesson that countries like Australia should heed. Leveraging its abundant sun, wind, and mineral reserves, Australia has the potential to follow China's lead and thrive in the green energy economy – but we need to pick up the pace and act definitively now, and that means federal public sector investment commensurate with the scale of our opportunity to crowd in the billions in private capital needed to decarbonise.

Economies the world over are moving fast, with the cleantech-boosting US$1tn US Inflation Reduction Act rapidly re-industrialising the US and driving GDP and jobs, even China, as the world's second-largest economy, doubles down to forge ahead, setting an inspiring pace for the rest of the world.

Read our latest Monthly China Energy Update which presents a full year 2023 review of China’s electricity decarbonisation progress and details how this is the key driver of its economy.

TIME FOR AUS TO PUT THE ‘GREEN’ IN IRON AND STEEL 

Yesterday’s decision by the Federal Government to allocate $200m from the Powering the Regions Fund to start to decarbonise parts of Australia’s steel-making supply chain acknowledges the strategic importance of supporting trade-exposed industries as the Safeguard Mechanism progressively ratchets up decarbonisation ambition in heavy industry. 

But more ambitious and targeted incentives are needed here to accelerate the pivot away from high-carbon intensity steel production. Taxpayer support for a new blast furnace does not achieve this.

While Australia procrastinates, developed world leaders are pivoting. Sweden’s H2 Green Steel raised €5.5bn in debt and equity in late 2023 to finance an integrated new steel plant that will deliver steel with up to 95% less CO2 emissions compared to traditional blast furnace technology. January 2024 saw Japan’s JFE Steel announce plans to replace an ageing blast furnace with one of the world's largest electric arc furnaces, and Tata Steel UK announced the same strategic pivot.

The progressive shift to near zero-emissions steel production exposes our trade sectors in iron ore, where Australia accounts for 57% of global exports and A$124bn FY23 revenue, and metallurgical coal, 52% global exports and A$61bn revenue. Finance is shifting in recognition of this transformation, with globally significant lenders like BNP Paribas, HSBC and, at home, Westpac, all establishing financing restrictions on new metallurgical coal mines.

It is a sign that met coal is starting to follow the trajectory of thermal coal production, which is set to be completely phased out of credible developed world lenders portfolios’ by 2030. As we have previously argued, we should be using every single opportunity to incentivise onshore commercial scale facilities to produce green iron, so we value-add and export embodied decarbonisation. 

Read the Climate Capital Forum’s response to yesterday’s funding announcement, as well as Climate Energy Finance’s recent write up on the long-term terminal decline of coking coal. 

YES, THE ANSWER IS BLOWIN’ IN THE WIND

Offshore wind is a key part of the decarbonisation solution to supply large, stable electricity for major energy consumers and regional employers, particularly as we move toward and beyond 82 per cent renewables. It also can help empower and rebuild Australian regional communities, ensuring people have a say through public consultation on developments, partnering with First Nations, and putting in place different models of asset ownership. 

Wind executive and Climate Capital Forum member Satya Tanner and CCF strategic comms lead Amanda Caldwell explain in this opinion piece first published in the Newcastle Herald. 

IT’S NOW OR NEVER: FEDERAL BUDGET SUBMISSION 2024-25

The world is in a technology, trade and finance race as the energy transition accelerates and we grapple with the growing impacts of climate change and climate risk. Australia has one of the world’s biggest investment, employment, and export opportunities this century, but only if we proactively build a strategic national response proportional to the momentous scale of the investment opportunity – and build it now. 

With the Federal Budget looming, we call for a major public policy shift to send the right market signals and strategically leverage the national balance sheet to selectively provide the budget support necessary to unlock and crowd-in the hundreds of billions of private capital that will drive Australia’s energy revolution.

Read our comprehensive Pre-Budget Submission 2024-25 with the Climate Capital Forum.
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Annemarie for Tim, Paul, Nishtha, Matt, Xuyang and Amanda (see more on our team here).

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