**Mitsui & Co. Global Strategic Studies Institute Monthly Report** _June 2024_

**AUSTRALIA’S RENEWABLE ENERGY PROMOTION POLICY**

**― AIMING TO BECOME A HYDROGEN SUPPLIER THROUGH STABLE**

**SUPPLY OF ELECTRICITY ―**


Ai Kawamura

Asia Pacific Dept., Global Economic & Political Studies Div.

Mitsui & Co. Global Strategic Studies Institute

**SUMMARY**

⚫ Australia has set an ambitious target of achieving an 82% renewable energy share by 2030. One of the
reasons behind the policy for the rapid spread of renewable energy is that Australia aims to become a
green hydrogen production center by a stable and inexpensive supply of renewable energy.

⚫ Reduction of energy storage costs from technological innovation is expected to advance the introduction
of renewable energy. However, the major energy generation in Australia is currently coal-fired, and
transitioning to renewable energy presents technical challenges, such as adjusting transmission volumes
and securing engineers, as well as issues surrounding policy implementation, such as delays in the
development of renewable energy grids.

⚫ To address these issues, plans are underway to set up Renewable Energy Zone (REZ) that produce
renewable energy in areas adjacent to hydrogen demand zones and supply it over efficient grids, thereby
connecting renewable energy power with hydrogen production.

**1. AUSTRALIA’S ENERGY SITUATION**

Australia aims to become a global hydrogen supply hub and is promoting renewable energy policies with the
objective of establishing a stable power supply from renewable energy sources for the production and supply
of green hydrogen. Currently, the primary cost for producing green hydrogen is the electricity generated from
renewable energy, making the availability and efficiency of affordable and stable electricity indispensable. In
order to understand the current situation of renewable energy power that supports Australia’s hydrogen
strategy, this report will review the current situation and outlook of the power supply mix and the power
business structure resulting from the electricity market liberalization since the late 1990s.

**1-1. Current situation and outlook of the electricity mix**

Australia is one of the world’s leading producers of coal and gas, with the current domestic electricity supply
mix consisting of 60% coal-fired thermal generation, just under 10% natural gas, 10% hydroelectric power,
and 20% solar and wind power (Figure 1). However, as shown in Figure 2, the Australian government
forecasts a shift in coal- and brown coal (lignite)-fired power generation to wind and solar power.

When the Labor Party came to power in 2022, it set a target to raise the renewable energy share to 82% by
2030 and to achieve carbon neutrality by 2050. Prior to the Labor Party government, the Renewable Energy
Target (RET) set the target of producing 33 TWh of renewable energy by 2020, but this was not achieved
because the distribution of electricity produced from renewable energy and the development of the grid could
not keep pace


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**Mitsui & Co. Global Strategic Studies Institute Monthly Report** _June 2024_

**1-2. Wholesale electricity business**

Since the late 1990s, Australia’s electricity market has undergone reform from a centralized management
system under state electricity authorities to a liberalized market. These systemic reforms have allowed various
companies to enter the market, excluding the electricity generation and distribution business.[1]

1 Coal-fired thermal and gas power generation are handled by national enterprises, and the construction of transmission lines has not


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**Mitsui & Co. Global Strategic Studies Institute Monthly Report** _June 2024_

The national wholesale electricity market is divided into the National Electricity Market (NEM), Western
Australia, and the Northern Territory (Figure 3). Of these, the NEM accounts for about 90% of the national
electricity market on a generation capacity basis. The NEM is under the jurisdiction of the Australian Energy
Market Operator (AEMO), and statistics related to the Australian government’s decarbonization policy are
derived from the NEM. Policies are formulated in collaboration with state governments and transmission
system operators.

**2. BACKGROUND OF THE POLICY SHIFT TO RENEWABLE ENERGY**

Coal and natural gas are major export commodities for Australia, with 91% of coal and 76% of natural gas
domestically produced being exported during the 2021-2022 financial year. This section explores the reasons
behind the shift towards promoting renewable energy by examining the challenges associated with existing
energy resources.

**2-1. Aging and closure of coal-fired power plants**

In its 2018 Integrated System Plan, AEMO set a target to close all domestic coal-fired power plants by 2040.
The 2024 draft of the Integrated System Plan proposed moving up this target to shut down all coal-fired power
plants across the country between the 2037-2038 financial year. However, due to issues of power shortages,
it is difficult to shut down coal-fired power plants immediately. Therefore, the current outlook is that some coalfired power plants may remain in operation beyond 2040 (Figure 4).

**2-2. Current situation of LNG and gas**

From 2019 to 2022, Australia was a leading LNG exporter, competing closely with Qatar. However, in 2023,
it was overtaken by the US. Factors such as labor shortages increased plant construction costs, existing gas
fields became depleted, and environmental regulations were strengthened, resulting in an increase in the cost
of producing LNG for export, and leading Australia to source LNG from overseas, including the US. [2]
Additionally, the State of Victoria banned the supply of gas to new homes from January 2024, which is
expected to reduce domestic gas demand.

2 The Australian oil and natural gas giant Woodside Energy Group is expected to increase its LNG procurement from North America


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**Mitsui & Co. Global Strategic Studies Institute Monthly Report** _June 2024_

In May 2024, the Australian government released the Future Gas Strategy, stating that demand for LNG and
gas would remain flat until 2025 and would be an important transition energy source until it can be replaced
by hydrogen and biofuels. The International Energy Agency (IEA) has presented three scenarios for gas and
LNG consumption and demand, from which AEMO has developed three scenarios (Figure 5). Similar to the
IEA’s projections, which foresee a peak in natural gas and other fossil fuel demand around 2030, AEMO’s
scenarios predict that domestic gas demand in Australia will decrease until 2042 (Figure 6).


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**Mitsui & Co. Global Strategic Studies Institute Monthly Report** _June 2024_

[URL: AEMO | Gas Statement of Opportunities](https://aemo.com.au/energy-systems/gas/gas-forecasting-and-planning/gas-statement-of-opportunities-gsoo)

The Australian government expects that the introduction of renewable energy will lead to a decrease in
domestic gas demand from 2028, and a sharper decline in LNG exports from 2035 (Figure 7). AEMO forecasts
that global demand for LNG, particularly in Asia, will continue to increase until the 2030s. Although global
demand is expected to gradually decrease after 2035, LNG is still anticipated to account for the majority of
gas consumption.

[URL: AEMO | Gas Statement of Opportunities](https://aemo.com.au/energy-systems/gas/gas-forecasting-and-planning/gas-statement-of-opportunities-gsoo)


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**Mitsui & Co. Global Strategic Studies Institute Monthly Report** _June 2024_

**2-3. National Hydrogen Strategy**

Announced in November 2019, Australia’s National Hydrogen Strategy aims to make the country a green
hydrogen production hub by 2030, assuming hydrogen demand from Japan, South Korea, and China. [3]
Renewable energy constitutes the most significant cost in hydrogen production; therefore, a consistent and
cost-effective supply of such is essential to achieve affordable and stable hydrogen production. At present,
electricity accounts for 70% of the cost of hydrogen production, placing the focus on the reduction of electricity
costs from renewable energy generation.[4]

**3. RENEWABLE ENERGY PROMOTION PLAN**

The Australian government’s active promotion of renewable energy adoption is driven by the low cost of
introducing it. While state governments are also active in the introduction of renewable energy, there are
various issues to be addressed. The resolution of these will influence the promotion of renewable energy
adoption and the direction of the National Hydrogen Strategy.

**3-1. Cost of renewable energy**

According to the Australian government’s estimates as of 2023, in comparison of power generation costs by
source, the scenario in which wind and solar power make up 60–90% of total electricity generation is the most
cost-effective (Figure 8). By 2030, technological innovations related to renewable energy storage are
expected to further reduce costs if renewable energy accounts for 60–90% of total electricity generation.
However, renewable energy, which is influenced by natural conditions, requires supplementary energy
sources for times of shortage. In addition to storage, it is difficult to ensure a stable power supply without
utilizing existing coal-fired or gas-fired thermal power generation. For this reason, achieving a 100%
renewable energy power supply is considered unrealistic.

URL: GenCost2023-24Final_20240522.pdf

3 Some view the export of hydrogen to Japan as economically inefficient because it necessitates the chemical conversion of hydrogen
into substances like ammonia. In response, Australia envisions that Japanese steel and other industries will leverage Australia’s
renewable energy and hydrogen to produce products such as green steel in Australia and then import them back to Japan. However,
this method raises concerns about the hollowing out of Japanese industries. Australia’s hydrogen exports will necessitate coordination
between Japan and Australia regarding transportation methods and hydrogen-related businesses.
4 This report does not go into the details of hydrogen production costs, but apart from the cost of renewable electricity, long-distance


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**Mitsui & Co. Global Strategic Studies Institute Monthly Report** _June 2024_

**3-2. Renewable energy policies by federal and state government**

The Australian government formulates the overall national policy related to the electricity sector, but federal,
state and territory governments also develop their own individual policies. The implementation of national
policies is left to the discretion of each state and territory government, resulting in varying renewable energy
targets across states and territories (Figure 9). Queensland, which has a high dependency on coal-fired power
(80%), has established a fund of AUD 1.5 billion (approximately JPY 154 billion)[5] to create 100,000 jobs in
the renewable energy sector and electricity distribution industry. It has also enacted legislation to achieve a
power supply mix of 50% renewable energy by 2030, 70% by 2032, and 80% by 2035. However, most of the
coal-fired power plants in operation in Queensland are scheduled to close after 2040, indicating a gap
between policy and actual progress in promoting renewable energy. It will be necessary to closely monitor the
state’s renewable energy policies and the actual trends in its electricity plans.

**3-3. Challenges in achieving the target**

Building a stable renewable energy power system involves addressing several challenges.

First, there are technical challenges such as supply and demand balance in transmission volumes and a
shortage of skilled engineers. [6] Many solar power operators are small-scale businesses, and their
transmission volumes can fluctuate due to environmental conditions. It is pointed out that this variability makes
it difficult for distribution operators to maintain a stable power supply while balancing supply and demand and
controlling output.[7] In terms of engineers, foreign workers’ labor costs are significantly lower than those of
Australian nationals,[8] leading to a shortage of essential personnel for renewable energy projects, such as

5 Calculated at an exchange rate of JPY 102 per AUD (rate as of May 10, 2024).
6 See Tomoko Matsumoto, 2020, “Research Report: Australia’s Efforts To Become a Major Hydrogen Exporter” [in Japanese] pp. 1–
31, pp. 25–28.
7 Matsumoto 2020 op. cit. pp. 27–28.
8 The wages of foreign workers are 25% lower than those of Australian nationals, and they are subject to fewer regulations regarding
vacation entitlement and other working conditions. When hiring Australian nationals locally, the strong bargaining power of domestic
labor unions, shorter working hours, and higher labor costs create barriers to employment. Additionally, there is a shortage of
personnel involved in renewable energy projects in Australia, leading to a reliance on foreign workers. This dependency on foreign
labor is recognized as an energy security issue, as it makes a critical industry dependent on non-domestic entities. Most of the
specialized engineering personnel required for offshore wind power projects are based in Europe, and Australia continues to rely on


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**Mitsui & Co. Global Strategic Studies Institute Monthly Report** _June 2024_

offshore wind power engineers, within Australia.

Next, after producing renewable energy power, a grid is needed to transmit the generated electricity. However,
the development of the grid for renewables within Australia has not yet progressed sufficiently. This has been
identified as an issue of policy implementation.[9]

Lastly, from a political perspective, if the Liberal or National opposition parties win the general election in 2025,
they may promote nuclear power, which could stall renewable energy policies.[10] From an economic security
standpoint, over 90% of solar panels are produced in China, making the sector highly dependent on China.
At present, only 1% of solar panels are produced in Australia.

**3-4. Solutions**

To ensure a stable supply of renewable energy, the Australian government aims to establish Renewable
Energy Zone (REZ) that co-locate hydrogen demand areas with renewable energy production sites within the
country, thereby forming hydrogen supply hubs. The 2024 Integrated System Plan identifies 43 sites for the
construction of REZs (Figure 10).

[Reference: a3-renewable-energy-zones.pdf (aemo.com.au)](https://aemo.com.au/-/media/files/stakeholder_consultation/consultations/nem-consultations/2023/draft-2024-isp-consultation/appendices/a3-renewable-energy-zones.pdf?la=en)

9 The renewable energy grid was initially scheduled for completion by 2020, but it was delayed due to factors such as the COVID-19
pandemic and, consequently, was not completed on time.
10 It will be difficult for such situation to occur unless the Labor Party loses the 2025 general election. Even if a change of government
were to take place, the introduction of nuclear power would involve long-term challenges such as constitutional amendments,


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**Mitsui & Co. Global Strategic Studies Institute Monthly Report** _June 2024_

In response to solar energy-related challenges, the Australian government announced the Solar Sunshot
Program in March 2024, with a budget of AUD 1 billion. [11] The program aims to make Australia a
manufacturing and supply chain hub for solar power-related products. The program outlines a policy of
reducing energy security risks by domestic production of the solar power industry. And this includes
reallocating workers from the coal and gas sectors to the solar power sector with the aim of avoiding
disruptions from phasing out existing fossil fuel businesses.[12] Initially companies like Tindo, which currently
manufactures solar panels in Australia, will import parts and assemble them domestically. The ultimate goal
is to produce polysilicon-based solar panels in Australia.[13] The first step is to increase the market share of
domestically produced solar panels, which currently stands at 1%.

**4. SUMMARY**

The Australian government is actively promoting renewable energy policies, emphasizing the cost advantage
of renewable energy over fossil fuels, in order to achieve its National Hydrogen Strategy. However, the
introduction of renewable energy faces technical challenges, potential policy shifts due to changes in
government, and economic security risks associated with dependence on China for solar power
manufacturing. To address these issues, the Australian government has proposed the establishment of REZs
and the Solar Sunshot program. The direction of policies by both the Australian federal, state and territory
governments, as well as the implementation of these policies, will determine Australia’s future as a major
hydrogen exporter, and it is worth keeping an eye on these trends.

[11 Prime Minister of Australia 2024 “Solar Sunshot for Our Regions”(28 March 2024)< Solar Sunshot for our regions | Prime Minister](https://www.pm.gov.au/media/solar-sunshot-our-regions)
[of Australia (pm.gov.au)>](https://www.pm.gov.au/media/solar-sunshot-our-regions)
12 With an eye on the 2025 election, one of the approaches that the Labor government is taking to workers in the coal and gas
industries is to promote domestic employment in the renewable energy sector. However, many are skeptical about the government’s
policy to reallocate workers from the coal and gas sectors to renewable energy projects. Due to technical differences, it is expected that
non-Australian personnel will be utilized more than domestic workers, such as those from Europe for wind power projects.
13 Hallam, Brett and Fiacre Rougieux 2024“Could Spending a Billion Dollars Actually Bring Solar Production Back to Australia? It is
[Worth a Shot” UNSW Sydney Newsroom <Could spending a billion dollars actually bring solar production back to Australia? It is](https://www.unsw.edu.au/newsroom/news/2024/04/Could-spending-billion-dollars-bring-solar-production-back-to-Austraia)
[worth a shot (unsw.edu.au)>](https://www.unsw.edu.au/newsroom/news/2024/04/Could-spending-billion-dollars-bring-solar-production-back-to-Austraia)

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