Markets must be the primary mechanism by which Australia transforms its electricity supply. Yet it will not be able to meet its emission targets and at the same time produce future electricity at a price acceptable to the public unless governments act to reduce the costs of low-emission technologies.
It is increasingly clear that the carbon pricing scheme alone is not enough to make low-emission technologies competitive and effect the change that Australia needs.
The report analyses the potential of seven clean-energy technologies: wind farm, solar photovoltaic panels, large-scale concentrated solar power, geothermal energy, carbon capture and storage, nuclear and bioenergy.
The report argues that wind turbines and solar photovoltaic may be commercially viable if carbon pollution prices rise to foreseeable levels over the next 20 years. But it states that those technologies can never provide more than 50 per cent of Australia’s electricity needs without massive advances in storage technologies.
Geothermal energy, which has huge potential in Australia, is highly uncertain when it comes to reliability and costs because it’s still in the exploration stage. The report acknowledges that nuclear and CCS are unlikely to be demonstrated in Australia anytime soon "unless government takes on most of the material risk of the project".
Mr Wood says the carbon tax and subsequent emission trading scheme (ETS) must be the primary mechanism by which Australia reduces its emissions but he argues the market on its own won’t make low-emissions technologies competitive.
The Gillard government, at the behest of the Greens, is establishing a $10 billion Clean Energy Finance Corporation which will leverage private sector financing for renewable energy and clean technology projects. But the Grattan Institute report says more needs to be done aside from support for research and development.
Labor’s carbon price scheme begins on July 1, at a price of $23 per tonne of carbon dioxide emitted. The government has also promised a $10 billion clean energy finance corporation, due to start in 2013-14, and Australia has a target of 20 per cent of energy coming from renewable sources by 2020.
But the Grattan Institute found government was responsible for several barriers preventing the development of clean-energy technology. They could be removed by changing the rules governing the electricity network, improving mapping of solar and geological resources and giving potential investors greater certainty by releasing annual emissions limits for well into the future.
Further, it calls on governments to expand exploration and mapping of solar energy and geographical resources to aid in the development of concentrated solar thermal power and geothermal energy and the location of suitable sites for carbon storage.
Finally, the think tank’s report stresses the need for a complete overhaul of Australia’s distribution network. "Existing transmission networks and network regulation are designed around the assumption that almost all electricity generators will be large plants close to existing centres of generation," it states.
Current cost structures mean wind farm, solar energy and geothermal energy plants in remote locations are unviable simply because they can’t connect to the grid. Mr Wood suggests existing generators and retailers should foot the bill for new hubs to be built with low-emissions suppliers only paying a share of the cost once they’re up and running. New regulatory frameworks are required that ensure long-run cost-efficient trade-offs, the report concludes.