Jan 21 2020
Concerns are rising about Australia’s ability to keep the lights on this summer, as increasingly hot and dry conditions push coal-fired generators to the limit. According to IBISWorld research, hot climate conditions are driving up usage of air conditioners, placing enormous strain on coal-fired power stations that are already approaching the end of their usable lives.
Record investment in renewable generation is set to increase electricity supply. However, the intermittent nature of wind and solar power presents a complicated dilemma for network regulators. As scepticism of new coal infrastructure continues to rise, nuclear energy has been presented as a potential solution. However, the cost of nuclear energy remains prohibitively expensive. In any case, households and businesses are likely to benefit from a decline in electricity bills over the next three years, providing welcome relief after a surge in household power bills since 2016-17.
The dirty sheen of coal
According to IBISWorld, Australia generates over 80% of its energy production from fossil fuels, with approximately 60% coming from coal-fired plants.
“The major problem with Australia’s reliance on coal fired power plants is the age and efficiency of the infrastructure. Approximately half of Australia’s fleet of coal-fired power stations, generating over two-thirds of generating capacity, are over 30 years old. This trend presents a number of problems, primarily that these plants are no longer reliable,” said IBISWorld Senior Industry Analyst, James Caldwell.
Australia’s gas and coal-fired power plants broke down an average of once every 3.2 days over the two years through December 2019. As many of Australia’s coal fired power plants near retirement, there has been much debate about the future of Australia’s electricity production, threatening the future of the Fossil Fuel Electricity Generation industry.
A renewable solution?
A record volume of generation capacity has been developed by the Solar Electricity Generation and Wind and Other Electricity Generation industries over the past five years. However, these industries continue to struggle with issues of their own reliability, due to their intermittent nature.
“Although solar and wind resources are cheap and abundant, the use of these resources hinges on the capacity to economically store energy for later use. Storage projects, such as Snowy Hydro 2.0, may help in this regard,” said Mr Caldwell.
Despite the concerns with the reliability of renewable sources of energy, these methods of electricity generation have seen significant growth in capacity over the past five years.
- The development of a multitude of large-scale solar farms, which have increased industry generation capacity from less than 50 MW in 2014 to over 2,400 MW in 2018.
- The uptake of wind power has accelerated over the decade, rising from less than 1,500 MW in 2008-09 to close to 5,000 MW in 2018-19.
In future decades, the development of hydrogen storage technologies could eventually enable Australia to develop hydrogen export infrastructure, potentially enabling exports of solar and wind energy. In the long term, these exports could mimic the role of the Liquefied Natural Gas industry in providing energy throughout Asia.
A nuclear future?
Despite the ramp up in capacity of renewable electricity generation, these methods of electricity remain burdened with concerns about their reliability, causing some policymakers to call for the establishment of nuclear power in Australia. Nuclear energy is generally considered a clean and reliable source of electricity.
However, significant obstacles remain.
“The development of nuclear power facilities in Australia would come at great cost, and likely drive an increase in electricity prices. Despite being more reliable, the high establishment costs of nuclear power would ensure this method of electricity generation would be uneconomical, especially against the falling cost of renewable energy,” said Mr Caldwell.
Outlook for power prices
As Australia continues to move away from inefficient coal fired power stations, IBISWorld expects residential energy prices to decline over the next two years.
“As renewable sources of energy continue to become more competitive and ramp up capacity, the wholesale price of electricity is expected to decline. However, this decline is not expected to be applicable in all parts of Australia,” said Mr Caldwell.
Western Australia is more reliant on natural gas as a source of electricity than the rest of the country. Forecast rises in the cost of natural gas are projected to drive an increase in residential electricity prices in this region.
IBISWorld reports used to develop this release:
- Fossil Fuel Electricity Generation in Australia
- Solar Electricity Generation in Australia
- Wind and Other Electricity Generation in Australia
- Liquified Natural Gas Production in Australia
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647