By Associate Professor Katja Ignatieva, University of New South Wales Business School
With a strong focus on accelerating the transition to renewables, the 2024–25 Budget opens the door to a shift in how Australia generates, consumes and thinks about energy.
The Federal Government’s 2024–25 Budget cemented Australia’s transition to renewable energy as a top priority, with the Future Made in Australia package set to deliver more than $22 billion to help the nation reach net zero. But, how exactly will this funding be allocated, and what are the key renewable resources and strategies that we’re likely to see in the coming year?
With climate change no longer a distant threat and the global rise in prices for fossil fuels such as coal, natural gas, and oil directly impacting electricity generation costs, Australia is navigating a significant transitional phase in its energy policy. Several factors contribute to the high electricity prices currently faced by consumers.
Rising global fossil fuel prices have led to increased costs for electricity generation. Despite Australia extracting enough coal and gas to meet its own needs, a significant portion of these resources are exported to meet global demand, which drives up domestic prices.
Supply chain disruptions due to geopolitical tensions, natural disasters and logistical challenges further exacerbate the situation. Outages at coal plants or delays in fuel deliveries can reduce the supply of electricity, causing prices to spike. Additionally, extreme weather events such as heatwaves, sudden cold waves and storms create significant imbalances between supply and demand, straining the electricity grid and leading to higher prices.
The transition to renewable energy presents its own set of challenges. Renewable energy sources like solar and wind are intermittent and require substantial infrastructure investment. During the transition period, there might be times when renewable energy is insufficient to meet demand, necessitating reliance on more expensive fossil fuels.
Setting up the necessary infrastructure for renewables, such as hydropower developments and battery storage, is both time-consuming and financially costly, contributing to higher electricity prices in the short term.
Geopolitical factors, including international conflicts, trade disputes and economic sanctions add another layer of complexity, contributing to uncertainty and volatility in energy markets. Environmental policies aimed at reducing carbon emissions, such as carbon pricing, while crucial for combating climate change, also influence electricity prices by increasing the cost of electricity generated from fossil fuels.
Mitigating price challenges
Within the National Electricity Market (NEM), electricity can be transmitted between different regions via interconnectors. These may be of particular importance when the price of electricity in adjoining regions is low enough to displace local supply, but also when the energy demand in a particular region is higher than the amount of electricity that can be provided by local generators.
Retailers are responsible for managing the risk associated with volatile wholesale prices, often passing these costs onto consumers through fixed-price contracts. The wholesale market is characterised by high volatility, with prices spiking frequently due to various factors such as demand fluctuations, supply disruptions, extreme weather conditions and geopolitical events.
Retailers can attempt to mitigate these risks through several strategies. One approach is securing long-term energy contracts that provide more stable pricing. However, predicting long-term market conditions accurately is complex and characterised by uncertainties. Another strategy involves investing in energy storage solutions, such as batteries, which can store excess energy during low-price periods and release it during high-price periods.
Despite these efforts, the inherent volatility of the energy market makes it challenging to mitigate all risks. Retailers often build the potential for extreme price spikes into their pricing models, passing these costs onto end-customers (businesses and households). This means that even with various hedging strategies, consumers ultimately face the impact of price volatility.
Mitigating these risks is paramount when planning the transition to renewables. The Budget needs to provide support and assistance for consumers, retailers and energy manufacturers to ensure that a renewable grid works for all.
Transitioning to renewable energy
As fossil fuel prices continue to rise and the urgency of addressing climate change increases, the transition to renewable energy has become a priority for the Federal Government as well as businesses. Renewable energy sources, such as solar, wind and hydropower, offer a more sustainable and potentially cost-effective alternative to fossil fuels.
The budget allocates more than $65 billion to enhance renewable energy capacity. Image: Image: SaiArLawKa2/shutterstock.com
These sources are abundant and sustainable, providing a long-term solution to energy needs. Businesses can benefit from diversifying their energy sources, ensuring a more resilient supply and potentially lowering costs over time. Moreover, improving energy efficiency is crucial for a sustainable energy future. Implementing energy-saving technologies and practices, such as energy-efficient lighting, heating, cooling systems, and smart grid technologies, can significantly reduce overall energy consumption and costs.
In addition to adopting renewable energy sources, businesses must develop strategies to hedge against energy price volatility to enhance resilience. Long-term energy contracts and energy storage solutions, like batteries, are effective methods. By securing stable pricing and having the capability to store energy, businesses can better manage the risks associated with the volatile energy market.
Transitioning to renewable energy and improving energy efficiency involve both practical and ethical considerations. Companies must balance the need for reliable energy with the responsibility to minimise their environmental impact and support social responsibility initiatives.
The impact of a rapid transition
A rapid transition to renewable energy without intermediate solutions poses several risks. Shutting down fossil fuel power plants too quickly can lead to energy shortages, as the infrastructure for renewable energy may not be fully developed to meet demand. This can lead to higher energy prices and instability in the energy supply until a significant share of renewable infrastructure is established.
The transition stage from fossil fuel generation to renewables suggests setting up significant infrastructure, including hydropower developments and battery storage. This is a time-consuming process, and energy prices may continue to rise until sufficient renewable energy capacity is achieved. Thus, it is imperative to have a balanced approach that includes intermediate solutions, such as investing in dispatchable generation, to ensure a stable transition.
The Federal Government and businesses throughout Australia must collaborate to develop short-term strategies that support the sustainability of the energy sector, while building the necessary infrastructure for a renewable future. For instance, the Federal Government’s Rewiring the Nation policy aims to increase the share of renewables in the NEM to 82 per cent by 2030. This policy includes modernising the grid and investing in new infrastructure, which can enhance stability in the energy sector and eventually reduce electricity prices.
Turning point
The 2024–25 Federal Budget signifies a pivotal turning point in Australia’s energy policy. The Federal Government is making substantial investments to drive the country towards becoming a “renewable energy superpower”, which has significant implications on the energy sector, particularly within the scope of sustainability and renewable energy. With a strong focus on renewable energy and sustainability, the budget sets the stage for a transformative shift in how Australia generates, consumes and thinks about energy.
As global dynamics push towards greener energy solutions, Australia’s latest budget aims to position the country at the forefront of this global shift, targeting both environmental improvements and economic opportunities. One of the standout features of the budget is the allocation of more than $65 billion to enhance renewable energy capacity. Of that, $27.7 million has been dedicated to integrating batteries and solar into the grid. This is done to help Australia achieve energy independence, as well as to stabilise the grid as more intermittent renewable sources are incorporated into energy production.
The Future Made in Australia package outlined in the Budget includes substantial efforts to advance the energy sector’s sustainability and efficiency. With a focus on promoting renewable energy projects and enhancing grid integration, the Budget allocated significant resources toward these ends. A total of $134.2 million was granted to prioritise and expedite approvals for renewable energy projects, while $27.7 million was allocated to integrate consumer energy resources, like batteries and solar, into the grid. This funding initiative is set to stimulate private sector investment, crucial for scaling renewable projects across the continent.
The Australian Renewable Energy Agency (ARENA) has also received a significant boost with a $1.9 billion funding package to support its activities. This funding is expected to further ARENA’s mission in advancing renewable energy technologies and projects, thereby facilitating Australia’s transition to net zero emissions.
Industry implications
The 2024–25 Budget plays a critical role in Australia’s energy transition by allocating substantial investments and policy measures to accelerate the shift to renewable energy, enhance sustainability, and ensure a more resilient energy future. It has several key implications for the energy industry:
Investment in renewable energy infrastructure: the budget allocates significant funding for the development of renewable energy infrastructure, including investments in solar farms, wind turbines, and hydropower projects. This aims to reduce dependence on fossil fuels and lower greenhouse gas emissions, creating a sustainable energy system.
Energy efficiency: the budget supports the adoption of energy-saving technologies across industries. Incentives are provided for upgrading to energy-efficient lighting, heating, and cooling systems, as well as implementing smart grid technologies. These measures are crucial for lowering overall energy consumption and costs.
Development of advanced energy storage solutions: the budget provides substantial support for companies developing renewable energy technologies, including hydropower plants, renewable energy components, and advanced battery technologies. Grants and subsidies foster innovation and ensure the availability of cutting-edge solutions needed for a sustainable energy future. To address the intermittent nature of renewable energy, the budget invests in advanced energy storage solutions, such as hydrogen and lithium-ion batteries, ensuring a stable and reliable supply. These investments mitigate risks associated with energy price volatility and enhance grid resilience.
Modernisation and expansion of the electricity grid: The budget focuses on modernising and expanding the electricity grid to facilitate the integration of renewable energy sources. This comprehensive approach includes upgrading transmission lines, constructing new interconnectors, and deploying advanced grid management technologies. These measures are designed to improve overall efficiency, ensure reliability, and accommodate the increasing share of renewable energy in the grid. By enhancing the grid infrastructure, the budget aims to support the stable and efficient distribution of electricity, mitigate risks associated with energy intermittency, and create a more resilient energy system capable of meeting future demands.
Incentives for renewable energy adoption: the budget introduces various incentives to encourage the adoption of renewable energy by businesses and households. These include tax credits, subsidies, and grants for installing solar panels, wind turbines, and other renewable energy systems, making clean energy more affordable and accessible.
Support for research and innovation: recognising the importance of technological advancements, the budget allocates funding for research and development in renewable energy technologies, fostering innovation in energy storage, grid management, and energy efficiency.
Ethical considerations: the energy transition encompasses not only technological and economic dimensions but also significant ethical considerations. Transitioning to renewable energy and enhancing energy efficiency allows businesses to reduce their carbon footprint, thus contributing to the global effort to combat climate change. Environmental policies aimed at reducing carbon emissions are reinforced through stringent regulations and carbon pricing mechanisms. These measures incentivise the reduction of greenhouse gas emissions and promote the use of cleaner energy sources. By placing a cost on carbon emissions, the Federal Government encourages businesses to adopt more sustainable practices and invest in renewable energy.
Social equity: finally, the budget promotes social equity in the energy transition by allocating funds for initiatives that ensure reliable and affordable energy access for disadvantaged communities. This includes programs providing financial assistance for low-income households to adopt renewable energy solutions and improve energy efficiency. By promoting social equity, the government aims to ensure that the benefits of the energy transition are shared widely across society. Additionally, businesses supporting these initiatives can help bridge the energy gap, contributing to a more inclusive energy future. Through these combined efforts, both the government and companies can play a pivotal role in fostering a sustainable and equitable energy landscape.
The Federal Government also ensures that all these initiatives are scalable to accommodate population growth and future energy demands.
By implementing robust infrastructure and technology development plans, Australia aims to maintain its leadership in the global renewable energy transition.
The future of the energy sector hinges on the successful transition to sustainable energy sources.
Overcoming the inherent challenges requires collaboration between businesses and the Australian government, with substantial investments in renewable energy, enhanced energy efficiency, and effective risk mitigation strategies.
This united effort can secure a stable and sustainable future for both industries and consumers.
The 2024–25 Budget plays a pivotal role in this transition. It emphasises substantial investments in renewable energy infrastructure, energy efficiency initiatives, and energy storage solutions.
Additionally, it focuses on modernising grid infrastructure and providing incentives for renewable energy adoption.
These initiatives, coupled with support for research and innovation, stringent environmental policies, and efforts to promote social equity, position Australia as a global leader in the transition to a cleaner, more resilient energy system.
By implementing these comprehensive measures, the budget aims to create a more sustainable and equitable energy framework, reinforcing Australia’s commitment to leading the global shift towards renewable energy.
Image credit: crbellette/shutterstock.com