Pragmatism over populism will be essential to success in the energy transition

APGA Chief Executive Officer Steve Davies shares why the Australian Federal Government’s rejection of environmental approvals for the Victorian Renewable Energy Terminal is a significant obstacle in the nation’s push towards renewable energy.

This decision has a big impact on Victoria’s ambitious goal of achieving 95 per cent renewable electricity by 2035 and adds even more pressure to the Federal Government’s target of 82 per cent by 2030.

The challenges faced in Victoria are not isolated but reflect a broader trend in Australia’s energy transition. Across the country, big projects and significant plans are encountering obstacles.

From community opposition to the construction of electricity transmission lines to geological issues such as the soft soil at the Snowy Hydro 2.0 project and the need for careful consideration of cultural heritage sites for undersea pipelines, these complications are increasingly seen as the norm rather than exceptions.

The core of these challenges lies in the reliance on modelling to plan the energy transition.

Predictive models, although useful, require extensive inputs and assumptions. The Australian Energy Market Operator’s (AEMO) Integrated Systems Plan is a case in point.

The 2024 draft plan projected 2 gigawatts (GW) of offshore wind power to come online by 2030. However, these models failed to account for potential environmental concerns, such as the implications of dredging a declared Ramsar wetland.

These critical oversights have a significant impact on the transition, on electricity reliability and security, and most importantly, on energy bills.

It has already manifested through the Victorian government signing confidential deals to prevent the early closure of brown coal generation, while the New South Wales Government negotiates an extension for the operation of the Eraring coal-fired power station.

This reliance on models – where announcements evolve into plans, then assumptions, and finally ‘known’ outcomes – often overlooks real-world complexities. Models typically predict smooth progress, yet they fall short in anticipating complications.

Recent years have shown the dangers of this over-reliance as projects frequently do not proceed as planned because of community resistance and supply chain challenges.

Illogical approach

As modelling fails time and again, the Victorian Government’s approach to phasing out natural gas, based on flawed emissions and cost forecasts, is illogical. Natural gas, although not a forever solution, is a critical transitional energy source. The need to develop and deliver reliable, sustainable, and cost-effective alternatives before significantly reducing gas usage cannot be overstated.

The journey to net zero is often compared to rebuilding an aeroplane while in midair. The first priority cannot be to take the wings off, lest the social licence of the energy transition goes into freefall.

But the good news is there is already a road map to support offshore wind and get off coal.

The UK leaned heavily on natural gas to rapidly reduce coal generation and emissions, while prioritising the build-out of its nascent offshore wind industry.

Between 2012 and 2017, this road map led to an 85 per cent decrease in coal generation and a more than 52 per cent reduction in emissions, with an accompanying 5 per cent drop in the overall price per megawatt hour (MWh). During this period, there was also a significant increase in the UK’s offshore wind capacity, from 2.9GW in 2012 to 6.9GW in 2017, reaching 13GW today.

As Australia moves towards its 2030 and 2035 energy targets, it is imperative to recognise and plan for the inevitability of complications. The gas sector, with its extensive infrastructure and capacity for flexible response to energy demands, must be a key component to help manage these challenges.

Triumph of populism over pragmatism

The exemption of gas from the Capacity Investment Scheme is a triumph of populism over pragmatism. Its potential inclusion provides a buffer against unforeseen demands and complications arising in the energy system, including indefinite delays in offshore wind generation coming online.

It also significantly distorts the risk/reward profile of all energy investments. There is unanimous agreement on the necessity of new gas peakers but no incentive for them to be delivered. This exclusion of gas creates a two-tiered energy system where project prioritisation isn’t based on need.

The recent draft Integrated System Plan, which did not account for delays in offshore wind, revealed that Australia required the equivalent of 17 new Hunter Power Projects for the National Electricity Market to remain reliable in a net-zero future. This generation must be brought forward, alongside renewable projects, to ensure Australia can get off coal as quickly as possible without the lights going out.

Opponents of gas argue that its continued use commits the nation to decades of increased emissions. However, the sector is undergoing its decarbonisation journey.

Innovations in biomethane and hydrogen are poised to replace much of the current natural gas usage. The global shift towards cleaner alternatives is already under way, and the gas infrastructure sector is leading the charge.

The lesson here is clear: reliance on predictive models, although valuable for planning, should not overshadow practical considerations and real-world evidence. Understanding and adapting to the complexities of the energy transition requires a balanced approach that includes innovative modelling and pragmatic solutions.

We know Australia’s energy transition is a complex and multifaceted endeavour. The challenges faced in Victoria and across the nation highlight the need for an adaptable and rational approach.

But first, we must stop the over-reliance on what models tell us and start paying attention to reality.

This article featured in the March edition of The Australian Pipeliner. 

Subscribe to The Australian Pipeliner for the latest project and industry news.

Send this to a friend