Grattan recommends setting emissions limits for coal-fired power plants under the federal government’s so-called “safeguard mechanism”, which forces the nation’s 215 biggest industrial polluters, such as smelters and factories, to cut emissions 4.9 per cent a year.
This would be a controversial move given energy has been exempted from the safeguard regulations to avoid increasing power bills, and Climate Change and Energy Minister Chris Bowen has already ruled it out.
He said the government had schemes in place to boost wind and solar farm development as well as household energy efficiency and would consider even more options to cut emissions in the ’30s.
“We are looking at a range of post-2030 settings to continue to drive investment and decarbonisation including… The government has no plans to include electricity in the Safeguard Mechanism,” Bowen said.
Grattan’s modelling forecast that wholesale electricity prices would rise from its current level of less than $50 per megawatt hour to more than $100 per megawatt hour in 2035.
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However, power prices would not double in line with this spike as wholesale prices comprise less than 30 per cent of a power bill that also includes retail profit margins, taxes and costs of poles and wires in the network.
“The safeguard mechanism is already constraining emissions in the industrial and transport sector, so it would be a natural choice to use it in the electricity sector,” Grattan’s report said.
The Australian Energy Market Operator has already flagged that ageing coal-fired power plants are increasingly costly to run, and due to competition from renewables, they are set shut down rapidly over the next decade.
Grattan Institute senior fellow Tony Wood said as the coal plants are switched off, oversupply of electricity to the grid from renewables would dwindle, wholesale prices would rise in the short term and “in 10 years’ time, prices are back up to where we are now, more or less”.
The report assumed that governments take the action required to achieve their climate goals, such as building transmission lines to link regional wind and solar farms with urban centres and delivering the federal government’s Capacity Investment Scheme, which uses taxpayers’ money to underwrite construction of private renewables projects worth a total of $70 billion.
“This might get done, it might not get done,” said Reeve. “They’ll probably get all the money out the door, but whether the projects actually get electrified is a different matter.”
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