Things are looking up for renewable energy in 2021 after the industry defied the challenges to have a breakthrough year in 2020.
The first half of 2020 was a tumultuous time for everyone in Australia, and the renewable energy industry wasn’t spared. Disruptions to supply chains, a sharp fall in energy demand and a significant reduction in wholesale electricity prices made long-term planning impossible and forced the industry to wait and see just how significant the impact of the covid-19 pandemic would be, both in Australia and overseas.
However, in what was a truly remarkable achievement, the industry was not only able to overcome these challenges but emerge from 2020 in a stronger position and with significant momentum heading into 2021. As we look ahead to the new year with a sense of optimism, it’s worth reflecting on what turned out to be a breakthrough year for the Australian renewable energy industry.
The stimulus trigger
As Australia emerged from the worst impacts of the pandemic in the second half of 2020, thought turned to the role that renewable energy could play in repairing the economic damage. As a result, the end of 2020 saw a flurry of new announcements from state and territory governments, who recognised the significant opportunity of using renewable energy to lead their economic recoveries from the pandemic.
This was most notable in NSW, which made a commitment to support new generation worth $32 billion and deliver 12GW of new renewable energy generation and 2GW of energy storage, and Victoria, which made big commitments to expand the Solar Homes program, develop renewable energy zones and push ahead with VRET 2. Not to be outdone, Tasmania legislated its 200% renewable energy target and many other states and territories allocated substantial funding to support the ongoing development of renewable energy projects in their budgets.
Perhaps the most significant development from these announcements was that they crossed the political divide, with Liberal and Labor governments alike making strong commitments to renewable energy. This shows that even though the federal Liberal party remains paralysed by division on climate policy, the states and territories offer a viable path for the continued acceleration of Australia’s renewable energy transition.
While the actions of the state and territory governments increased domestic pressure on the federal government, several important developments meant that international pressure also began to mount. The most significant of these was the election of Joe Biden as US President in November on the back of an ambitious climate change platform that included $2 trillion in clean energy investment and the US rejoining the Paris climate treaty. Of relevance to Australia, Biden also pledged to increase pressure on the US’s allies and partners to raise their climate ambitions.
An increasing number of countries also committed to net-zero emissions throughout 2020, with major economies such as China, Japan and South Korea all setting targets to decarbonise their economies. As a result, more than 70% of Australia’s trade partners have now set a net-zero emissions target for 2050 or 2060. More decisive international action and the threat of carbon border taxes mean that pressure is growing on the Morrison Government to increase Australia’s climate change ambitions and join the states and territories in setting a target of net-zero emissions by 2050.
Grid problems continue
Other than the political front progress was also evident in several other areas. Perhaps most importantly, electricity market reform gathered pace in 2020 following the release of the Australian Energy Market Operator’s 2020 Integrated System Plan and the Energy Security Board’s (ESB) Post-2025 Market Design Consultation Paper. These two initiatives provide a comprehensive long-term vision of Australia’s future electricity system in which large-scale renewable energy and energy storage is complemented by a vibrant market of rooftop solar, home batteries and electric vehicles.
However, while long-term planning is progressing well, 2020 highlighted that several short-term challenges remain. Grid congestion and complicated grid-connection processes continued to plague the industry in 2020, with the most prominent example the curtailment of several wind and solar projects in the West Murray region of Victoria and NSW. While the announcement of designated renewable energy zones in Queensland, Victoria and NSW will go a long way towards solving these issues by providing dedicated transmission links, grid connection and grid congestion continue to put a significant dampener on short-term investment decisions.
The expansion of Australia’s biggest battery and several new battery announcements meant the utility-scale storage sector made considerable gains in 2020. New large-scale batteries were announced in a number of states and territories during the year, including a 300MW battery in Victoria and a 250MW system in South Australia. While previous predictions that the battery market was poised to take off have not eventuated, the significant private investment backed by substantial government support this year mean it is safe to say the battery boom is well and truly underway.
In addition to the strong progress made on market reform and the gains made by the battery sector in 2020, rooftop solar reported its fourth-straight record-breaking year and corporate power purchase agreements were at their highest-ever level. Despite the impact of covid-19, Australian households continue to install rooftop solar to manage their power prices and contribute to climate action.
Only a few years ago the idea of renewable hydrogen being a major export commodity was considered science fiction. But 2020 delivered a raft of pilot projects, strong government ambition and tangible support programs. The opportunity for Australia to become a global clean energy superpower has been recognised and real momentum was built throughout 2020.
In a year in which so many other industries experienced considerable hardship, the outstanding performance of the renewable energy industry dispelled any lingering doubts about its ability to lead Australia’s energy transition and emissions reduction efforts.
Another big year ahead
Following such a strong 2020, there’s no reason to believe that the industry won’t have an even better year in 2021. As the economic situation improves, work will begin on making the commitments announced in 2020 a reality. This will result in significant project activity in all the states and territories, particularly NSW and Victoria, creating thousands of jobs in regional areas and pumping much-needed investment into the national economy. In addition, the large-scale storage sector will see a massive boost as more utility-scale batteries are commissioned and work continues on Snowy 2.0 and Tasmania’s Battery of the Nation project.
Reform of Australia’s electricity system will also continue throughout the year, with a key milestone set to be the release of the final recommendations of the ESB’s Post-2025 Market Review in the middle of the year. This is expected to reinforce the centrality of renewable energy in Australia’s energy future by offering solutions to existing problems and ensuring that the system can effectively respond to the challenges presented by a renewable-centric electricity system.
Politically, the pressure on the federal government to increase its emissions reduction ambitions will only grow in 2021. Domestically, the government will be stuck between the proverbial “rock and a hard place”, with the strong policies of the states and territories on one side and the government’s own recalcitrant backbenchers on the other. Pressure will also grow internationally as climate change action is increasingly integrated into foreign policy, raising the prospect of carbon border taxes if Australia continues to resist calls to increase its ambition. If no significant action is taken, this is likely to come to a head at the COP 26 conference in Glasgow towards the end of the year.
Following a year that started with trepidation and uncertainty, the remarkable achievements of the renewable energy industry in 2020 put us in an excellent position to build on the gains made in 2020 and further accelerate Australia’s renewable energy transition in 2021 and beyond.