Energy2050 – How Australia can achieve a net zero emissions future

It’s been a busy week in energy with the release of the Wholesale Market Settings Review draft report, the Productivity Commission’s interim energy report and the impending Energy Roundtable hosted by the Minister for Energy and Climate Change. 

But this level of review and reflection is not unusual for an industry undergoing unprecedented levels of change. The challenge is that that we’re all so busy contributing to reviews and shepherding in a myriad of regulatory and market changes that it can be difficult to see the forest for the trees - whether we are heading in the right direction, and at the right speed, to successfully navigate the energy transition (ie. replace ageing thermal generation with firmed renewable assets in a timely, efficient manner).  

The last few weeks has also seen more debate from the Coalition as to whether net zero by 2050 should continue to be pursued. The challenge with this position is that if it’s not pursued, what is the alternative and is it viable? The AEC recently explored this scenario modelled by Paul Simshauser and Joel Gilmore from Griffith University in their academic paper  (The Counterfactual Scenario: are renewables cheaper?), which demonstrates that extending existing or building new coal fired generation is not  a cheaper alternative.  

The AEC supports the transition to net zero emissions by 2050 on the premise that the least cost, lowest impact pathway is an energy system dominated by renewables (wind and solar, including rooftop solar) and firmed with battery storage, gas and pumped hydro. There is generally broad alignment across industry about this energy mix – effectively the ‘what’ of the energy transition. But transitioning to an energy system dominated by renewables represents a fundamental shift in how energy is generated, transmitted and supplied to consumers.  

Consequently there is constant debate around the “how” – how we can achieve the desired mix of lowest cost energy sources while delivering against the sacred energy trilemma of reliable, affordable and sustainable energy supply.  

To support an informed and constructive debate on the direction and pace of the transition pathway, the AEC intends to develop a comprehensive approach on how we can deliver a net zero energy system by 2050.  Focusing on these core "trilemma" pillars: reliability, affordability, and sustainability, Energy2050 will delve deeper into the critical factors required to achieve net zero, effectively the policy, market, and operational considerations necessary for a successful transition. 

Forecasting documents like the Australian Energy Market Operator’s Integrated System Plan (ISP) are often referenced when discussing the energy mix of the future, but it is still just that – a forecast on the “what” that isn’t necessarily best placed to determine “how” we successfully navigate the energy transition.  

Acknowledging this, the AEC’s Energy2050 project will propose frameworks and supporting policy characteristics to help maintain the direction and ideally increase the pace of the transition, rather than advocating for a singular pathway or approach.  

Energy2050 will also consider the South West Interconnected System (SWIS) in Western Australia, noting that it will undergo a similar, albeit smaller-scale, transition. Energy2050 will recognise that the needs of the SWIS vary from those on the east coast and require its own approach to achieving net zero.  

There are, however, common enablers across all jurisdictions that are required to deliver a successful transition to net zero and many of these are already under consideration by governments, various market bodies and participants. Energy2050 is designed to contribute to these ongoing conversations and provide an overarching framework for how these enablers work together to deliver the best outcomes for governments, industry and most importantly, consumers. These enablers include: 

Pace of Change and Delivery Risks: the transition can only go as fast as the industry and consumers can bear. Energy2050 will reflect on the actual pace of change, the barriers delaying the transition and associated delivery risks along with strategies to address them.  

Market and Policy Design: effective market and policy design underpins investments. Energy2050 will explore the characteristics of good market and policy design for general advocacy and policy processes. The recent release of the Wholesale Market Review recommendations is a great example of comprehensive consultation across industry to inform effective market and policy development.  

Energy Products and Pricing: There is much debate as to where energy costs will land into the future and what energy products and services should look like, balancing the need for simple, stable retail price structures for consumers with the right investment signals and risk mitigations for market participants.  

Consumer Energy Resources (CER): Electric vehicles alongside rooftop solar and battery storage systems will play a critical role in achieving a net zero energy system. Energy2050 will highlight how regulation and standards, market mechanisms and energy products and services will need to evolve to support consumers’ achievement of their own energy needs and their role in maintaining system stability and reliability.    

Distribution Networks:  Optimising network infrastructure at the distribution level will be critical to manage transition costs and we will need to find the right ways to incentivise the uptake of localised investments (such as battery storage, EV charging) that optimise the operation of energy resources at the local level. In other words, let’s use more of the networks before we build more. 

Gas Supply:  Gas generation will continue to play a role in supporting a high renewables energy system, but the way in which gas will be used will fundamentally shift over the next 25 years. Energy2050 will consider what sort of gas might be used in gas-powered generation or elsewhere to achieve net zero (for example, green hydrogen, biomethane, carbon capture and storage or natural gas with offsets). Ensuring adequate supply and transport, as well as the partial wind down of gas networks, also needs consideration. 

System Security Procurement: Energy2050 recognises the need for evolution in the way essential system services are quantified, valued and procured to ensure a stable energy system in high renewables context.  

Technology "Shocks": Energy2050 will consider future energy system resilience to rapid changes in the technology mix and how market and policy design can enable the industry to capitalise on unexpected technological breakthroughs. 

So what form will Energy2050 take? The AEC along with its members will engage with stakeholders on two key publications: 

A Forecast & Assumptions Paper: will outline key characteristics and the supply and demand trends for the 2050 energy ecosystem (with a 2035 waypoint) for both the WA SWIS and the NEM. It will highlight critical sensitivities across the trilemma pillars, detailing the opportunities and challenges of a high renewables grid. The intent is not to replicate the ISP nor undertake new modelling, but to focus on the most likely pathway based on existing publicly available forecasts. 

An Energy2050 White Paper: Building on the forecasts, this draft 'vision' paper will paint a picture of the energy ecosystem for the SWIS and the NEM at 2050. It will describe how energy is exchanged to ensure accessibility and affordability and map out the critical path and milestones required for each trilemma pillar to achieve the desired outcomes, using 2035 as a key waypoint. 

These documents will ultimately culminate in the publication Energy2050: Delivering on a Net Zero Energy Ecosystem in 2026.  

Stakeholder engagement is central to the project, involving Future Energy Forums with members, stakeholders and energy experts to gather diverse perspectives.  

Energy2050 represents a critical, detailed effort to envision Australia's energy future from an industry perspective. By addressing the 'how' of the energy transition and focusing on the crucial trilemma of reliability, affordability, and sustainability, it aims to provide an overarching perspective on the frameworks and policies necessary for Australia to achieve its net zero goals by 2050.