The global climate summit in Glasgow was designed to “consign coal power to history“. Australia is not among the major coal-consuming nations committed to phasing out fossil fuels in the 2030s.

The federal government has created a scenario in which the electricity sector will still use coal in 2050 under its recently published plan to achieve net-zero emission by 2050.

The states are making progress in phasing out coal, despite the federal government’s insistent on keeping it alive. However, this messy state-by-state approach will almost certainly lead to higher costs for consumers than if Australia had a coherent, long-lasting climate and energy policy.

Recent Grattan Institute analysis shows that we can keep the lights on while reducing emissions at low costs if we manage the coal phase-out well.

Grids today are not suited for coal economics

Australia consumes more coal than it exports. We still have 25 gigawatts worth of coal-fired power plants, 23 of them producing power for the National Electricity Market. These coal-fired power plants are aging – nearly two-thirds of their capacity will be lost by 2040.

These plants are struggling to remain profitable due to market conditions. In recent years, renewable energy has flooded into NEM. Rooftop solar has drastically reduced the demand for grid electricity during the middle of the afternoon, effectively taking coal’s lunch.

Wholesale electricity prices drop when there is a lot of sunshine and wind, which can lead to a financial penalty for generators who generate power during those days.

Coal-fired power plants are also less flexible than hydroelectric dams and batteries. It is difficult for coal plants to increase output when electricity prices rise or decrease when they are lower or negative.

Coal-fired generators have poor economics and are not well-suited for a system that has lots of solar or wind-powered electricity.

Coal stations are closing earlier than anticipated

It is difficult to justify the closure of older coal plants due to poor economics, higher maintenance costs, and a higher risk of technical failure.

Three coal-fired power plants have seen their closing dates moved forward this year: Victoria, Eraring, and NSW.

A faster closure will lower coal generation capacity for future years. The expected reduction in coal generation capacity by 1.5 gigawatts from the early closures at Yallourn or Eraring, for example, will be seen in the 2030 closings of Eraring .

Nevertheless, the current closure schedule would still allow at least six coal-fired power plants to continue operating in Australia after 2040.

This is contrary to Australia’s goal of limiting global warming to 1.5 degrees Celsius, as noted by the CSIRO July.

What are the States doing about it?

South Australia’s last coal-fired power station closed in 2022. NSW will be the next, with the Mt Piper station closing in 2040. Queensland and Victoria are left.

A and B power stations in Victoria use brown coal. They are among the most polluting but also the most expensive to run. Victoria has also committed to net zero emissions by 2050, and Victoria intends to use half of its renewable energy by 2030.

The state can push for more renewable energy, which will increase the likelihood of the remaining coal-fired power plants leaving. Each plant owner has indicated that they will be closing.

Queensland has the most complex situation, with Australia’s youngest fleet of coal-fired power plants. Five of these stations are expected to close by 2040.

Four of the five are owned or partially owned by Queensland. This means that the timing of their closings is both a political and economic issue.

Queensland has some of the unique renewable resources in Australia, with large tracts of land suitable for renewable energy projects. The state government is well equipped to remove coal-fired power from the system, thanks to its 50% renewable energy goal by 2030.

We need a strong, national policy

Grattan Institute analysis shows that a mostly renewable system without coal and a small role for gas can provide reliable electricity while cutting down on emissions.

Because the cost of solar and wind has fallen, energy storage like batteries can be used to help smooth out fluctuations in supply and demand. Gas is the best backstop solution for irregular and prolonged periods of high demand, low sun, or low wind (which happen every few winters) until hydrogen’s economics become better.

This will require substantial, timely investment within and between the states in the transmission network. This will allow states to share their resources and reduce the overall cost to consumers. It is important to keep costs under control for transmission projects. The risk of overruns is greater for more complicated projects.

It won’t be easy to ensure a smooth coal exit. Unexpected closures or breakdowns can cause shortages in electricity supply, as investors in the electricity market don’t have enough time for new capacity.

A national coordination policy for a coal exit could reduce uncertainty in the electricity system.

Grattan previously suggested that coal plant operators set a time frame within which they will close their plants. This was accompanied by a minimum $100 million payment to an escrow account. Operators’ money will only be released if the plant closes within the nominated time frame. If it exits unexpectedly, market operators will keep the money to address reliability issues.

If they are to have a coal-free NEM by 2040, the government could require that nominated closing windows occur before 2040. They could also establish an emissions standard for NEM using tradeable certificates. This would allow market participants to meet the standard at the lowest cost.

The current political reality is that neither side wants to be seen as supporting any policy that resembles a carbon price. Even though carbon pricing has the overwhelming support of Australian economists and the business community, this is true.

The states’ renewable energy targets will determine how fast the NEM can become coal-free. Our research shows that it is possible to create a much lower-emissions electricity network in just two decades if governments have the courage.

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