Large-scale investment in renewables safest bet for secure power supply; not inflationary

Friday 1 March 2024 – A new paper from the Centre for Policy Development finds that investments in renewable energy can unshackle the economy from volatile fossil fuel prices, replace ageing infrastructure and avoid major inflationary effects.   

Capital for kilowatts, authored by program director Toby Phillips and former Reserve Bank deputy governor Dr. Guy Debelle, states that concerns about possible inflationary effects are ill founded, and that the energy transition is vital to reduce emissions and ensure a more stable climate and planet.

The paper highlights the fact that Australia must replace approximately 38GW of coal and gas power by 2050 as ageing plants reach retirement, as well as meet a projected 20GW increase in energy demand.

Replacing and meeting new demand with fossil fuel powered generation will cost $400 billion, and would leave the Australian economy subject to volatile global commodities markets. 

Transitioning to renewables and green technology would require $625 billion over three decades, but the additional spending would support a more steady, secure supply of power to avoid the inflationary impacts of electricity supply shortages. 

The additional investment required over 30 years in this scenario is small in macroeconomic terms and unlikely to significantly impact inflation, the paper argues.

Infrastructure spending will be required regardless to ensure that energy assets are reliable and can be depended on over the coming decades, and this spend must be factored into any debates around inflation.

The paper also notes that the cost of renewable technologies could see prices drop more quickly than modelling suggests, concluding that the safest bet to ensure a steady, secure power supply without shortages or price spikes is to commit to transition investments. 

Dr. Guy Debelle emphasises the need for a swift and effective green energy transition to ensure the resilience and sustainability of Australia’s energy systems, even if it costs a bit more.

“Fears of potential inflationary pressure from a green energy transition are unfounded. There may be challenges from building out hundreds of billions of dollars of energy infrastructure – but Australia needs this investment regardless of whether it is green or not.

“The difference in cost between a fast green transition and any alternative scenario is small, and unlikely to be macroeconomically significant.

“This isn’t the first time Australia has faced a massive build-out of new infrastructure, and we can apply the lessons from previous investment cycles to this one.

“Not only will it set us up as a global leader in green technology, it will safeguard Australia’s energy future and, most importantly, reduce emissions and mitigate climate change.”

Sustainable Economy Program director Toby Phillips says that any inflationary pressure from investing in the green transition will be manageable and well worth the significant opportunities created.

“Australia has the opportunity to build a resilient energy generation system that removes significant volatility from the economy.

“Around 12GW of coal and gas generation capacity is set for retirement by 2030, and there are not enough projects set to come online in the same timeframe. Whatever we do from here is going to require serious investment.

”Of course economic stability isn’t the only reason to pursue a green transition. It will give us a more stable, sustainable energy system that can support Australia for generations to come.

“A swift, effective and just energy transition isn’t a nice to have, it is an economic imperative.”