If the road to net zero were open-heart surgery, it’s botched

‘‘If the energy transition is an open-heart surgery, as is sometimes said, then this operation has been a complete failure. We have to conclude: The patient is in danger of dying on the operating table.’’

This was the frank assessment sent to German Chancellor Friedrich Merz in July of this year in an open letter from Germany’s leading industrial giants and manufacturing unions. Across the world and at home, experience is converging on the same conclusion: the transition is proving far harder and more expensive than first promised.

In Australia, advocates for the current net-zero pathway often speak as though the costs are settled and objections are merely political. No one can deny that power bills have soared in recent years. But what remains hotly contested is whether the transition to net zero is the medicine that will cure this pain, or as the Germans put it, the intervention that is at risk of killing the patient.

To unpack this, we first need to revisit the assumptions that led policymakers to the conclusion that the transition to a renewable dominant grid would be cheaper than one underpinned by traditional baseload power in the first place.

Take for example promises made by the former NSW energy minister and current Climate Change Authority chair, Matt Kean. In his second-reading speech to introduce his signature legislation to advance the NSW renewable ‘‘Roadmap’’ back in 2020, Kean claimed his plan would ‘‘make NSW an energy and economic superpower … to give our local businesses and industries the competitive advantage that comes from having low-cost energy.’’

Around that time the CSIRO was attempting their first assessment of an integrated renewable energy system with up to 90 per cent wind and solar. Their estimate was that such a system in 2030 would produce electricity for around $70/MWh. But it would be fair to say today that these early estimates have proven to be naive.

In the CSIRO’s latest modelling, the lower bound for the same system constructed in 2024 is $125/MWh, and the mid-point in their range $150/MWh. This is higher than wholesale electricity prices have ever been in the National Electricity Market (NEM) outside the peak of the Ukraine war. It’s also much higher than credible costs of new coal, and almost double the cost of continued coal generation in Victoria and Queensland.

But perhaps the most influential document used to justify the transition is the Australian Energy Market Operator’s Integrated System Plan, or ISP. Many have used this document, including the Energy Minister Chris Bowen, as a ‘‘proof’’ that the system he has legislated for is the cheapest pathway forward.

In fact, the opposite is true. In the words of AEMO’s CEO Daniel Westerman: ‘‘The ISP is not a tool to evaluate government policy. It’s a tool to say what needs to be delivered in order for that government policy to succeed.’’ In layman’s terms, the ISP sets out the lowest cost pathway to deliver the government’s plan. It does not provide any evidence that the government’s plan is the lowest cost overall.

As renewable penetration has risen, so has price volatility. Price spikes above $300/MWh have increased by more than 200 per cent over the past five years, with evening spikes between 5pm and 8pm when solar output collapses driving this surge. New technologies such as batteries have not provided relief during these periods. Despite only providing around 1 per cent of total NEM generation, battery assets are setting the marginal price more frequently, and at higher levels – and yes, higher than gas.

It is this volatility that has sent shockwaves through the economy. Since 2020, several major industrial facilities have closed or curtailed operations due to high energy costs. Every major smelter or refinery in the country is now either subsidised, curtailed or under review, putting over 73,000 jobs at risk. And given the enormous industrial load of AI and data centres, if we can’t make power cheap enough to keep heavy industry, we have no hope of embracing the AI revolution and the jobs and opportunities that will come from it.

It should surprise no one that the Nationals have led the charge to abandon net zero. The regions carry the sharpest edge of this transition. Several years ago, many communities were open to the benefits promised by renewable developers. What followed has been far harder to live with once the full build-out became visible on the ground.

More and more, new projects are running into fierce resistance in regional communities. Recent proposals have attracted overwhelming local opposition, with 80 per cent to 90 per cent of submissions objecting in some cases.

Walking away from net zero is not an abandonment of responsibility. It is a decision to put affordability, fairness and better outcomes for our natural environment back at the centre of policy. As the Germans would say, the treatment is failing, the patient is deteriorating, and pretending otherwise is dangerous.

Australia still has time to change course. That begins with honesty about what has gone wrong, and the courage to admit that the medicine, as currently prescribed, is doing real harm to our country.

Gerard Holland is the CEO of the Page Research Centre.