Australia sets aside $1.9bn for 'low emission' tech, maintains focus on gas

The Australian Government has extended funding for the Australian Renewable Energy Agency (ARENA) and Clean Energy Finance Corporation (CEFC) but – as widely expected – has moved to change their remit from wind and solar to “low emission” technologies.

The two agencies will be granted up to $1.9bn with ARENA set to receive the lion’s share, or up to $1.62bn in total funding, including guaranteed baseline funding of $1.43bn over the next 10 years.

As part of this, the government plans to introduce new legislation to allow the agencies to invest in other technologies that would reduce emissions in agriculture, manufacturing, industry and transport such as carbon capture and storage (CCS) and hydrogen.

Funds will go towards supporting microgrid projects in regional and remote communities ($67m) in a bid to encourage the switch from diesel generators to cleaner technology, a Technology Co-Investment Fund to help agriculture, manufacturing, industrial and transport businesses reduce their emissions.

Prime Minister Scott Morrison said that while steps had been taken previously to reduce the cost of energy, lower prices would be needed to drive the country’s economic recovery.

“In Australia, you cannot talk about electricity generation and ignore coal. For decades, coal-fired generation has been a source of competitive strength for our economy. Reliable, low cost energy. This is still true,” he added.

“Coal will continue to play an important role in our economy for decades to come. With new technologies such as carbon capture and storage continuing to improve, it will have an even longer life, not just here in Australia, but in our export markets as well.”

He also acknowledged that cheaper renewables would not only help Australia meet its emissions reduction targets by 2030, it also held the promise of further declines in energy costs.

“To back up intermittent renewables, we need firming capacity. Firming keeps the lights on when the sun isn’t shining and the wind isn’t blowing. Every megawatt of dispatchable generation – coal, gas, pumped hydro batteries – can firm around 2 megawatts of renewables,” Morrison added.

“And we need to bring forward new dispatchable generation capacity as a priority, to compliment what is happening in the renewables sector.”

Integration, not subsidies for renewables

Morrison added that with grid scale wind and solar now on economic parity with traditional sources of generation, they didn’t need subsidies but rather integration to the current grid.

“Our energy plan understands this, and includes measures to strengthen our transmission network to better move power to where it’s needed.

“Having a renewable future isn’t just about building a windmill. You’ve got to connect it up and you’ve got to ensure it’s backed in by the reliable power that firms it when the wind isn’t blowing.”

He added that the government will work with state governments to accelerate the Marinus Link, Project Energy Connect and VNI West Interconnectors, which are all priority transmission projects identified in the Australian Energy Market Operator’s Integrated System Plan.

“New rules will take account of the increasingly distributed nature of generation and better recognise the critical stabilising role played by dispatchable generation.”

Gas-led recovery

The Prime Minister also touched on the much criticised plan that bets on cheaper, more abundant gas being key to driving Australia’s recovery from the COVID-19 pandemic.

He acknowledged that the most pressing challenge that many companies faced is the failure of the east coast gas market to meet competitiveness benchmarks.

“While spot prices have fallen under COVID, Australian industry is paying well above export parity prices for contracts.

“(ACCC) Chair Rod Sims has identified 18 cargoes of gas sent offshore this year at prices well below those being offered to Australian industrial customers. And despite our resources, AEMO is forecasting potential gas shortages in the east coast market by 2024.

“Now that’s not on. This is not acceptable.”

He maintained that there was no credible energy transition plan for an economy like Australia that does not involve the greater use of gas, noting the long-term goal was a transparent and competitive Australian Gas Hub on the east coast, with a family resemblance to the ‘Henry Hub’ system in the United States.

“We must unlock new sources of supply, we must get additional gas to market as efficiently as possible, and we must empower domestic gas customers,” Morrison added.

“State governments can also do more to facilitate development, for example through ‘use it or lose it’ requirements on gas licences that encourage producers to bring gas to market as quickly as possible.”

Support and criticism

The focus on gas as well as advancing CCS and hydrogen drew support from the Australian Petroleum Production and Exploration Association.

“The Australian oil and gas sector is a high-technology industry, and natural gas will play a positive role in facilitating the transition to a lower-carbon economy,” APPEA chief executive Andrew McConville said.

“At a time when the economy is under pressure from the challenges of COVID-19, investing in cleaner energy technologies makes sense, from an emissions perspective and to strengthen the economy.”

APPEA also maintained that Australia’s liquefied natural gas exports can substitute gas for more emissions-intensive fuels used by its trading partners and potentially reduce their greenhouse gas emissions by 169 million tonnes.

However, pro-renewables think tank the Institute for Energy Economics and Financial Analysis (IEEFA) rubbished the focus on gas, saying that throwing public money at gas will benefit only one sector – the gas industry.

“Globally, gas prices are at unsustainably low levels. Gas companies simply cannot make money at these prices and are going broke. Yet Australians are paying way too much for their own gas,” IEEFA gas/LNG analyst Bruce Robertson said.

“That’s because a handful of companies on the east coast controls the price and they fix it at levels above international parity pricing.”

Robertson added that the government wants the private sector to invest in “nation-building” gas projects but noted that Australia’s gas industry took $25 billion in asset write-offs in the first six months of this year alone.

“Gas companies around the world are declaring bankruptcy and major projects are being shelved. Is this really an industry we want to trust with our economic recovery?”

Meanwhile, the Investor Group on Climate Change supported the expansion of ARENA and CEFC’s remit to include “low-emissions” technology, saying it could help accelerate investment towards net-zero emissions.

However, it warned that institutional investors had little appetite to allocate capital to legacy technology such as fossil fuels with CCS in the electricity sector.

“Expanding the functions of the ARENA and the CEFC to open up opportunities for this technology in other sectors can be valuable for creating opportunities for zero and negative emission technologies in harder to abate industries,” it added.