Future of Australian Energy: PwC Models our Energy Future

Topic
Fleur_Jaouault_New_Energy_SolarFleur Jouault19 December 2019

Pricewaterhouse Coopers (PwC) has recently released a report titled “Future of Energy: Australian energy outlook report”1. The global accounting group has waded into the energy debate to provide “facts and perspectives that help them [policymakers and the investment community] move beyond the polarized debate towards a policy approach that supports optimal investment decisions and secures the best energy future for Australia”.

The release of the PwC report is a welcome addition to the Australian energy debate and their conclusion is supportive of increased investment in renewable energy sources:

“We suggest pursuing an energy mix dominated by intermittent renewables with reliability provided by a mix of dispatchable power stations is a no regrets policy direction for Australia. This would result in the country being supplied by 80% renewable energy within 20 years and with lower emissions from power generation (68% lower than 2005). It would also add more than $13b to GDP and enable an additional $6b in consumption by Australians.”

Observations

Beyond the report’s conclusion, the analysis conducted by the report writers and contributors makes some interesting points. Firstly, the report looks at global generation capacity additions and retirements and notes that the vast majority of additions will be from non-fossil fuel sources over the next two decades, while the highest proportion of retirements will be from coal and gas assets.

The comparison with the data compiled in 2017 is also interesting and illustrates the extent to which the trends are changing, not directionally but in terms of amplitude.  The deployment of wind and solar is accelerating, while the previous expectations for coal additions were overstated and the rate of coal retirements understated.

 Modelled Scenarios

 The PwC report goes on to compare four alternative scenarios for Australia’s energy mix from now to 2040.  Three cases assume the currently planned retirements of thermal generation but look at three different mixes of replacement generation capacity, while the fourth case assumes accelerated thermal generation closures and replaces that retired technology primarily with renewables.

The base case uses AEMO’s current forecasts and supporting data for thermal generation capacity closure and assumes no long-term energy policy, but the continuation of existing Federal and State/Territory policy settings.

 Brief Summary of Results

 The base case modelling suggests that 65% of generation capacity will come from renewables by 2040 and as a result, emissions from the power sector will be 57% lower than 2005 levels.  In addition, our power system is forecast to be reliable and energy costs will have declined compared to current levels.

 This base case result is good news, but what is also interesting is that the modelling indicates that the economic opportunity is increased if the retiring thermal capacity is replaced wholly with renewables and if the thermal retirements and renewables replacement are accelerated.  To be clear, all of the scenarios show positive economic returns compared to the base case when focusing on GDP, but the expected impact on consumption, which is used as a proxy for household economic well-being, is an area in which the cases diverge more clearly.  On this basis, the renewables and accelerated renewables cases are meaningfully more positive than the coal case.

 PwC’s report is available on their website, accessible here and is a strong addition to the commentary and research available on the topic of Australia’s energy future.

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