Russia’s invasion of Ukraine is taking place half a planet from Australia.
But the ripple effects are evident at every gas station and, potentially soon, on your electric bill.
Following the invasion and Western sanctions on Russian exports, energy prices skyrocketed.
If this makes you think nations should have taken action to secure alternatives to fossil fuels years ago, you’re not alone. As things stand, much higher energy prices are likely to accelerate the exit of coal – and gas – from our energy grids.
This should be a red flag. It doesn’t matter that Australia is far from the battlefield. Everyone in the world will be affected in one way or another.
What is the link between the invasion and energy prices in Australia?
You might think that Australia’s domestic coal and gas supply means we would be insulated from price hikes. Not so.
Due to formal sanctions and informal denial of Russian exports, oil, coal and gas are now extremely expensive globally. Thermal coal prices increased fivefold to an all-time high of around AUD 500 per tonne. Oil is around $140 a barrel and up 60% year on year. Natural gas in Europe is around 50% higher than last October, but since the invasion prices have soared to around 200% above 2021 levels.
Coal buyers are blocking supplies, fearing Russian sanctions will continue. Russia is the third largest coal exporter and its existing customers are now under pressure to find alternative supplies.
Russia’s aggression is not only causing a major humanitarian and political crisis. It is also causing problems for Australian consumers due to soaring oil prices and could soon lead to higher electricity bills.
Australia’s east coast electricity market is still heavily dependent on coal. While many coal-fired power plants have existing supply contracts, the much higher world price of coal may increase the cost of any additional coal purchases by existing power plants.
Not only that, but our gas-fired power plants face potential increases in operating costs due to much higher global gas prices.
Unfortunately, we can see the result in increased electricity bills. The price of future wholesale electricity contracts next year in New South Wales is now double what it was a year ago. Assuming this trickles down to end users, prices for residential customers could increase by 10-15%.
So what should Australia do?
While it’s too late to dodge that bullet, we can prepare for future shocks by doubling down on renewable energy firm. The sooner we act, the less we will be affected by coal price and reliability risks.
Already under pressure from cheaper renewable technologies, operators of coal-fired power plants now find themselves potentially facing much higher costs in the short term. Nor is there any relief for coal in the long term, with the rapid rise of renewables and other carbon-free technologies.
Not only that, but most of our coal-fired power plants are near the end of their life, and industry doesn’t want to build new ones. This means that coal will become more and more expensive, as power plants will become less and less reliable.
Wind and solar technologies are now much cheaper per unit of energy produced and can be integrated with energy storage to provide dispatchable “confirmed” energy. The sooner we move to storage-enhanced renewables, the better.
If we do, our new network will also be more reliable. Continuing to rely on coal is like relying on a 1970s car to travel from Sydney to Melbourne on the hottest day of the year.
State governments across the country are already taking this approach, with the New South Wales government moving forward with plans for 12 gigawatts (GW) of new renewables and storage and the Victorian government announcing plans for 9 GW of offshore wind farms.
Governments must carefully design policies to avoid guaranteeing profits to private sector actors while socializing potential losses between taxpayers and energy consumers. In New South Wales, alternatives are being considered.
As Europe and many other countries strive to reduce their dependence on Russian coal, oil and gas, Australia now has a once-in-a-generation opportunity to become one of the world’s leading exporters of new clean energy.
We really have enormous resources of clean energy in the form of free sunlight and wind. To export it, we can either run undersea cables to neighboring countries or convert cheap renewable energy into green hydrogen and ship it around the world like we currently do with LNG.
What else can we expect to see?
Soaring fossil fuel prices have amplified the existing disruption to an already rapidly evolving domestic energy industry. Over the past month, Origin has announced that it will phase out coal more quickly, with its NSW coal-fired power station, Eraring, closing in 2025.
Meanwhile, AGL is pursuing a “spin-off” to spin off its coal assets and pursue new energy technologies. It comes as Australian tech billionaire Mike Cannon-Brookes and Canadian asset fund Brookfield offered to buy AGL for $8.25 per share, although they were unsuccessful. Their plan was to accelerate the closure of AGL’s coal assets, which would transform AGL from Australia’s largest carbon emitter to a clean energy company. The age of coal power is coming to an end, and much faster than most of us realize.
This crisis should encourage us to build a long-term park of “closed” and well-distributed renewable energies with a known cost structure.
By doing so, we will protect ourselves from the pain of geopolitically determined fossil fuel prices. And we will have a platform ready if we want to deliver clean energy to the world in the form of green hydrogen.
We have had decades to take full advantage of our wealth of renewable energy resources. We haven’t embraced that as fully as we should have.
It turns out that localized generation of clean energy is not only necessary to fight climate change. This will prove to be a vital resource as we navigate the very turbulent decade in which we find ourselves.
Tim Nelson, Associate Professor of Economics, Griffith University and Joel Gilmore, associate professor, Griffith University
This article is republished from The Conversation under a Creative Commons license. Read the original article.