No new coal projects will be commenced in Australia over the next five years, the latest forecast suggests.
And the pace of renewable energy construction will ease whilst activity shifts toward building greater transmission capacity.
As part of the launch of his company’s Economic and Construction Outlook report series, BIS Oxford Economics Nicholas Fearnley took a ‘deep dive’ into the outlook for construction within the energy sector over the next five years.
Overall, BIS expects the dollar value of work done on electricity construction projects to trend downward as an upturn in work on transmission projects is offset by a pull-back in new investment in renewable generation (see chart).
Delving into generation side, Fearnley said the outlook was dominated by renewable energy – albeit with the pace of construction on renewable projects expected to drop back to enable the nation’s transmission infrastructure to catch up with the volume of renewable generation entering into the grid.
He says there are no new coal projects in the outlook for the forecast period.
Instead, the only works which are expected to be done on coal facilities will be those needed to sustain existing assets.
“As you can see, most of Australia’s construction (in terms of energy generation) is focused on renewable energy …” Fearnley said.
“We don’t have any new coal plants on our forecast and our outlook for construction activity (in terms of coal) is more focused on sustaining capital works.”
Despite renewables continuing to dominate the generation outlook, Fearnley says activity has slowed and will continue to trend down amid recognition of constraints on the capacity of the transmission network to handle the volume of renewable generation coming onto the market.
Instead, construction will focus on upgrades to prepare the transmission network to handle a greater volume of renewable generation.
Here, a pipeline on projects includes a $2.4 billion interconnector between New South Wales and South Australia, an upgrade to the Queensland and-New South Wales interconnector, an upgrade to the interconnector between New South Wales and Victoria and the proposed Maninus Link between Tasmania and Victoria.
These upgrades, Fearnley said, will help to unlock renewable energy zones which will help drive the next wave of renewable investment that will carry Australia toward our 2030 climate target.
“You can see that we have had a ramp up in activity over recent years which is the renewable energy investment boom, Fearnley said.
“But activity has since slowed and we expect activity to generally trend down over the next few years. The reason for that is that Australia simply doesn’t have a transmission network capable of handling too much more renewable energy generation.
“Australia’s transmission network is very much built for fossil fuel generators and there is a period of time where we need to upgrade the transmission network to be able to deal with the challenges of renewable energy.
“That’s something that regulators, government and transmission companies are very much aware of.
“We do have significant investment coming into this space.”
The latest forecast comes amid ongoing debate about the future of coal-fired energy generation in Australia.
Earlier this year, a National Party blueprint included an ambitious target of creating 800,000 new jobs in manufacturing on the back of a new coal fired power plant in the Hunter Valley along with a new oil basin to deliver cheap gas.
This, the Nationals argue, will help to generate lower energy prices for manufacturers and will therefore with other policies help to underpin a recovery in Australian manufacturing.
Nevertheless, many argue that Australia needs to move away from coal and toward cleaner forms of energy as we move toward our climate targets under the Paris Agreement.
Indeed, the coal energy generation sector is facing headwinds in many directions.
For starters, obtaining finance for new coal projects is becoming more difficult amid growing reluctance from banks to finance new coal plants.
In its new climate change policy released last October, ANZ ruled out directly financing any new coal fired power plants or new thermal coal mines including expansion by 2030 and said it would wind down lending activity to existing coal plants.
Moreover, there are concerns about existing coal plants becoming unviable as the surge in renewable generation depresses wholesale power prices.
Tellingly, the part owner of Australia’s most recently built coal plant which was constructed in 2009 now says the value of its investment is worthless.
In its accounts prepared for the six months ending September 2020, Japanese conglomerate Sumitomo – which owns half of the Bluewaters Power Plant which supplies about 15 percent of electricity for Western Australia – wrote off the entire amount of its investment in the plant due to difficulty in refinancing senior secured loans which had become due in August.
Outside coal and renewables, Fernley said the outlook for gas is uncertain as it remains unclear what role gas will play in the future energy network.
This, he said, will depend on whether Australia adopts the path of 100 percent renewable energy or maintains a level of gas generation to support the network.
That, in turn, will depend upon the impact of new technologies upon system stability along with how our energy storage system develops and evolves.
That last point in turn depends upon not only upon the amount of storage with hydro plants but also how the battery system evolves and whether we have fewer major batteries or a greater number of smaller and more localised ones around the network, Fearnley said.