It’s easy to get swept up in the promise of clean energy. We hear about targets, about a greener future, and it all sounds wonderfully straightforward. But as I’ve been digging into the economics behind it all, particularly in places like Australia’s National Electricity Market (NEM), it’s become clear that the path to renewables isn't quite as simple as flipping a switch. In fact, it’s become surprisingly complex, almost intractable at times.
Back in 2009, when Australia set its 20% Renewable Energy Target (RET), the thinking was pretty much aligned with what most people would expect: electricity demand was growing, and new renewable capacity would simply slot in to meet that rising need. The expectation was a steady climb in demand, something like 2.5% per year, pushing generation up to around 300 terawatt-hours by 2020. But then, something unexpected happened. Demand started to fall. Not just plateau, but actually decline. By 2012, generation was down to 221 terawatt-hours, even lower than in 2009.
Despite this shrinking pie, a significant amount of new renewable generation – over 6000 megawatts – was added. This was the policy working, in a sense, but it was operating in a market designed for growth, not contraction. The core issue, as I see it, is that the energy-only market structure, combined with what’s been termed ‘barriers to exit’ for older, incumbent power plants, has created a real headache for new renewable investment. Essentially, the market is flooded, prices are low, and the revenue generated by new renewable projects, even with the incentives like Large Scale Renewable Certificates (LGCs), isn't keeping pace with the cost of building them. It’s a bit like trying to sell ice cream on a freezing day – the demand just isn't there to support the price.
What’s particularly frustrating is the policy uncertainty. When governments set targets, but then there’s a sense that those targets might change, it creates a ripple effect. Investors get hesitant. They see the possibility of the rules changing down the line, and so LGC prices soften. This, in turn, delays investment. It’s a bit of a vicious cycle, where the anticipation of policy adjustments can actually undermine the policy’s effectiveness. The paper I was looking at highlighted that with so little time left to meet the original targets, policy makers are almost certainly going to have to adjust them to avoid outright failure.
So, what does this mean for the cost comparison of clean energy options? It’s not just about the upfront capital cost of a solar farm or a wind turbine. It’s about the entire ecosystem it operates within. The market design, the stability of policy, and the fate of existing energy infrastructure all play a massive role. To truly make renewable energy financially viable and to overcome these ‘barriers to exit’ for older plants, we're looking at needing more than just a fixed target. Options like direct government intervention, market-based solutions, or new regulations are being considered in the short term. But in the long run, it seems inevitable that the fundamental design of the energy market itself will need a rethink. It’s a complex puzzle, and the cost of clean energy is deeply intertwined with how we structure our entire energy system.
