As recently reported in the Guardian newspaper a new modelling study was recently published by the Institute for Sustainable Futures which looked at the potential cost and benefits of a rapid transition towards a renewable energy future here in Australia.
The headline finding from this study – emphasised by the media in a slightly simplistic manner – is that a rapid-ish transition to a 100% renewable energy future (over the next 25 years) will save Australia lots of money, roughly $90 billion dollars. That is, the claim is that sticking with fossil fuels for our electricity and for transportation will be much more expensive than transitioning to renewables and greater electrification (i.e. electrification of transportation and services like heating and cooking, etc). Indeed the first question put by Waleed Aly to one of the study authors on the TV show The Project was “OK Nicky let’s just say that we spend billions to go renewable. Can you guarantee that we’ll make this $90 billion profit? Because wherever you are in 2050 we will find you…”. Talk about being put on the spot!!
I intend to further consider studies like these over the coming months and to discuss them on this blog, partly because these are interesting studies; partly because they are attempts to influence policy processes during a Federal election year (i.e. therefore potentially lots to learn about the political dimensions of prospective exercises); and partly because I may consider some exercises like these as comparisons to the CSIRO cases I’m studying in greater detail in my doctoral research.
The obvious question to ask is how did the researchers reach the conclusion that sticking with the status quo (fossil fuels) will be significantly more expensive than making this major transition? I’ll briefly outline some of the details below (for the full details please refer to the published report).
To understand this we need to explore the model that was used and the key assumptions and choices that were made. The model is described as a “bottom-up energy balance model” but for our purposes the key aspects are that the modelling focusses on energy supply and demand and, based partly on assumptions provided by the researchers, also generates related cost projections (e.g. cost of electricity generation, fuel costs). Lots of things aren’t included in the model – more on this below.
The status quo future is called the Reference Scenario. The report states that the Reference scenario is “based on Australian government forecasts and [is] reflecting a continuation of the status quo” (p.2). Key scenario elements include:
- Replacement of existing ageing coal power plants with new coal power plants;
- Increase in total final energy demand which rises 54% to 6000 PJ/a in 2050 (p.15);
- As part of this rising demand the scenario assumes increased demand for transport fuel (and by implication it assumes very low adoption of electric vehicles). They state that “due to population increase, GDP growth and higher living standards, energy demand from the transport sector is expected to increase in the Reference scenario by around 40% to 2540 PJ/a in 2050” (p.26); and
- In 2050 conventional fossil fuel power plants still “account for approximately 43% of total power sector investment, while the remaining 57% would be invested in renewable energy and cogeneration technology”.
This scenario has lower capital investment costs – which are estimated to be $150 billion – but has high transport fuel and power sector fuel costs.
The alternative scenarios are summarised as follows: the Renewable Scenario is “focused on renewable energy in the stationary power sector by 2030 while the transport and industry sectors remain dependent on fossil fuels”; the Advanced Renewable Scenario is “a fully decarbonised power sector by 2030 and a fully renewable energy supply system – including transport, and industry – by 2050”. I’ll focus here on the Advanced Renewable scenario as the projected $90 billion saving is based on comparing this scenario with the Reference scenario. Key elements of this scenario include:
- Fossil fuel phase out over the next 24 years – initially brown coal power plants, then hard coal power plants, then gas power plants. By 2030 the supply of electricity is 100% renewable for stationary power; by 2050 100% of energy supply for transport is renewable; by 2050 100% of energy supply for industrial processes is renewable;
- Very strong improvements in energy efficiency, e.g. energy productivity doubles by 2030. Overall, the scenario assumes continual economic and population growth but, due to energy efficiency improvements, primary energy demand is projected to be 36% lower in 2050;
- As part of this dramatic improvement in efficiency “heat related final energy consumption equivalent to about 900 PJ/a by 2050 is avoided” such as via an increase in “energy-related innovation in industry and renovation of the existing stock of residential buildings” along with new “highly efficient air conditioning systems” (p.17);
- A major reduction of final energy demand for road transport due to electrification of vehicles;
- Electricity becomes the major renewable of ‘primary’ energy resulting in “a greater increase in electricity demand by 2050 of 1900PJ/a”. Electricity is “not only for direct use for various purposes (stationary electricity, electric vehicles, etc.) but also for the generation of synthetic fuels for fossil fuel substitution” (p.17). In 2050 approximately: 830PJ of electricity is used for electric vehicles and rail transport, 180PJ of electricity is used for hydrogen production, and 145PJ of electricity is used for synthetic liquid fuel generation for the transport sector (excluding bunkers); and
- Very high adoption of electric vehicles and a high level of transportation mode-shift (e.g. greater public transport use, walking, etc).
Cost estimate considerations
Key cost considerations, as per the above scenarios, include the following:
- Large increase in energy demand in the Reference scenario, and a large overall reduction in energy demand in the Advanced Renewable scenarios;
- Little adoption of electric vehicles and limited transportation mode shift in the Reference scenario; the opposite in the Advanced Renewable scenario;
- Required capital investment such as for purchasing new power plants; and
- A set of common scenario assumptions, including technology cost assumptions (e.g. for power plant investments), fuel prices (e.g. oil price assumptions which have been taken from the International Energy Agency’s World Energy Outlook 2014 ‘450-ppm scenario’), population growth (from ABS projections) and GDP assumptions (average growth of around 2.0% per year).
The $90 billion in savings figure reported in the media comes from projected fuel cost savings in the Advanced Renewable Scenario which is projected to “cover around 110% of the capital investment cost” (p.3). The report authors argue that “new renewable power generation needed for a 100% renewable energy system can therefore be financed by fuel cost savings before 2050” (p.3).
In coming to these conclusions the researchers also didn’t consider a large variety of other costs:
“As set out in the assumptions, it should be noted that there are costs and savings that are outside the scope of this research:
• Grid infrastructure costs, including the costs of smart meters and greater integration with communications technologies,
• Transport capital investment such as the cost of new cars or charging infrastructure, and
• Demand management and energy storage costs” (p.29).
The above list of “out of scope” costs also doesn’t include other costs that would be incurred such as costs associated with massive improvements in energy efficiency (e.g. cost of improving existing building stock), transportation mode-shifts costs (e.g. costs of improving public transport, cycling infrastructure, etc) which may come under ‘transport capital investment’ (see above), and potential social cost of the envisaged transitions (e.g. adjustments in affected communities, retraining workers, etc).
Summary of key cost analysis components
As outlined above the projected $90 billion in savings figure thus requires:
- A projected large increase in energy demand in the Reference scenario, and limited technological change (e.g. low adoption of electric vehicles), which contributes to high projected fuel costs (for both transport and electricity generation);
- A projected large decrease in energy demand in the Advanced Renewables scenario which reduces the capital investment requirement for this major transition; and
- A determination that many of the costs involved in this energy transition are “outside the scope” of this study/analysis and therefore not included in the calculation.
In a nutshell that’s it. There are many more details (see the report) but that seems to be the essence.
I’ll leave judgements about whether this new modelling study is reasonable or misleading to others. In this post I’ve been more interested in exploring how the researchers reached the conclusions which the media subsequently jumped on. The above summary appears to be a reasonable overview, but those who are interested should refer to the published report and/or contact the researchers.