The Good, Bad and Downright Ugly of Australia's Energy Transition | Deep Dive Australia 09: Anna Freeman & Michael Liebreich

Michael Liebreich
So the narrative of, oh, Australia's got this kind of superpower, cheap wind and cheap solar, cheap renewables. That doesn't work if wind is at that cost. And so I put that, I kind of put it in the less good, it's not a showstopper, but you've really got to get that inflation under control. And you've got to build some wind because it comes up at different times of the day and the month and the season, it complements solar. And all the modeling says, if you try and do this with just solar and batteries, it's going to be much more expensive, much, much more expensive than a combination that also has a chunk of wind.

Anna Freeman
G'day, I'm Anna Freeman, and this is Cleaning Up. I'm Head of Electrification at the Energy Efficiency Council and joining you today from Ngunnawal country, which is more commonly known as Canberra, which is of course Australia's capital. And I am joined today by a special guest who has been on tour here in Australia over the course of the last two weeks, talking to business, political and thought leaders right across the energy transition to get his thoughts on how we are going here in this wide brown land called Australia. Welcome, Michael Liebreich.

ML
Anna, brilliantly done, thank you so much. So for the audience, we should explain why you're in the hot seat.

AF
Well, you know, I think you like to phrase it that I begged you to be sitting here behind this microphone. I'm a longtime listener of this podcast and suddenly find myself hosting you on your own show, what an honour, thank you. But the Energy Efficiency Council for whom I work, has obviously been working with you and your team over the last few months in putting together this visit. And I was really keen to understand at the tail end of it, this is the final episode, what you have thought, what you've taken away from the experiences and also the key messages that you have for Australians.

ML
Well, thank you. And thank you for being up for kind of hosting the episode and drawing out some of the lessons. It's just been an extraordinary two and a bit weeks here in Australia. So I was in Singapore first and then I came here. I've been in Sydney, I've been in Melbourne, I've been now here in Canberra. And I've also for the first time got outside the big cities in Australia. I've been coming here since I was trying to work out 2008 or something like that. But I've always done the hops to and from the big cities. So I got to Wollongong, I did the Great Ocean Road with my new best friend Cameron Begley, CEO of Spiegare Pty, hi Cameron, and it's been great. And I think that it's a really interesting time, you've got an energy crisis going on, the Gulf crisis. You've got a transition going on and of course, led by the party in power is Labour, the last few times I've been here, it's been the coalition. So the Liberals and Nationals and so that very, very different feel. But you've also got the preparations of course, Australia is going to be co-host or you'll know the terminology better than me, of the COP 31 later this year in Antalya in Turkiye. So there's a huge amount going on. And it has been probably the most, it's been the longest trip that I've done in 20 years and by some margin, the most gruelling.

AF
Yeah, absolutely, we've definitely put you through your paces, I have heard some occasional moaning about the packed schedule. But you have really been in front of a lot of, I think, the leading lights in the Australian energy transition, whether it's the investors and the businesses and the developers that are behind the large scale renewable energy shift here in Australia. And it's been a massive change in a relatively short period of time, we've gone from around 17% renewable energy in the electricity market mix since probably around the time of your last visit, if that was around the 2018 sort of mark. And we're now at 43% of the latest numbers off the press. And that's been an incredible transformation. To some degree, I feel like it is almost, we are convincing ourselves of the possibility of doing what we're trying to do by actually doing it, sometimes surprising ourselves along the way.

So there's been quite a shift in that regard. In terms of the others that you've met with, you've been talking to people about innovation, which is a really interesting topic when we've got a very long skinny grid, a relatively sparsely populated, massive continent, and trying to keep the lights on in that context as we make this massive transition away from coal. Thought leaders like Ross Garnaut, independent members of Parliament sitting around with sporting stars, ex-sporting stars, and of course federal and state ministers. And I think you've also had the occasional conversation with the opposition, the liberal opposition, the centre-right party, or if we can still call them centre-right, as Australia's going through an interesting political transition as well. So really keen to hear about your takeaways. I think many of the audience might've already listened into some of those episodes. Shall we start with the good? If you were to take away the sort of key messages or highlights and things that you think that the rest of the world would be interested in learning from Australia, what would they be?

ML
Well, so you're absolutely right that things have changed very quickly. So you talked about my last trip, which would have been 2018-2019. So one of the observations is just it's been a bit like, if you haven't seen your kids for ages and suddenly they walk into the room and they're just really tall and you think, whoa when did that happen? Now, I would say that Australia is still, I'm going to say kind of an early teenager, it's not like they've grown up.

AF
Lanky.

ML
And becoming a little lanky in a good way. So obviously, solar households, the solar roof program, which is really bearing fruit now, I mean, it's generating a good chunk of daytime electricity is actually generated in the home. In fact, just before recording this roundup, I've been recording with Chris Bowen, the Minister for Climate Change and Energy. And he came up with this phrase that the road to decarbonisation starts with the household. And I think that that's really apparent. And it's not just the solar roofs. It's also incredibly impressive, the number of batteries. So 400,000, 424,000 additional batteries.

AF
So that's only one year into a program, less than one year into that program.

ML
Yeah. And by the way, concern about that, if you want me to kind of bookmark a concern, is that those batteries are not yet being used by the grid, the homeowner is buying them. In many cases, it's not even economically, they're not being driven only by the numbers. They're buying huge systems, huge solar systems, huge batteries. But one of the drivers is a sort of, I suspect it's an Australian national characteristic of wanting to be more independent, and they're paying over the odds relative to what they're actually using to be a bit more independent than the economics would suggest. But it does also mean that those batteries are not available to the grid operator to use to balance or to do other things. So that's the caveat. In a macroeconomic sense, that's an overinvestment of resources.

If everybody in Australia ended up with huge solar roofs and a big battery, it would not be the optimal way of getting to decarbonise the grid. But that's a small bookmark in a very large book, frankly. I would love to see more people understand case studies formalized and disseminated. Maybe this is the sort of thing that you can inject into the COP process, but how did you do that? Because I think a big chunk of it is actually ease of use, the ease of doing that is part of the answer. In fact, if you give me a minute more, I'll tell you what, I'll give you an example.

AF
One minute more.

ML
I met with Will Rayward-Smith. So he now runs the net zero commission in New South Wales, used to be with Bloomberg New Energy Finance, and he talked about how the day he got solar, and he went misty eyed. It was like he was talking about the birth of his children almost, I mean, I'm sure he talks about them even more misty eyed. But it was really impressive. And he said, just the ease of it, you literally, you decide, you call, you know, it might be one email, and these people arrive. And a few hours later, you've got solar on the roof. And I think that is so different from every other experience in every other country. And that's one of the reasons why your solar on the roof costs half or less than half of what it costs in the US.

AF
It does help that we have a very high number of freestanding homes, as opposed to if you live in Europe or other places, so that's part of the story. It's not so easy if you're part of a body corporate to do that. But yes, it's very easy in Australia and there are so many installation companies, there's fierce competition. I used to work for the organisation that accredits that army of installers. There's a lot of thinking around the safety requirements around that and making sure that, and that doesn't mean it's perfect, but yes it's relatively easy.

ML
And every country, almost all countries, maybe not Singapore where I was earlier, but if you look across America, there are plenty of freestanding homes, even in the UK. You know, if you move away from the centre of the big cities, there's lots of freestanding homes. I tell you, Australia there has got stuff to teach the world.

AF
Yes, yes. I mean, especially if you compare it to the US, it doesn't really make sense why we are doing so much better in that regard. Okay, so the household story is definitely a bright spot for Australia. Anything else on your good list before we turn to maybe some of the less good?

ML
Yes. I think big batteries, starting with the Big Battery, which was the one that came out of the bet between Mike Cannon-Brookes, your local hero billionaire running Atlassian. Unfortunately, I didn't manage to catch up with him on this trip. I think he's a bit busy running Atlassian with what's going on in AI and he's having to do some restructuring and so on. So good luck to Mike if he's listening, but there was the bet with Elon Musk, could you build this battery in 100 days? And what I loved about it was that that one was called by your former Prime Minister, Scott Morrison, he was asked about it and he said, look, if you want to build a big anything, go ahead, knock yourself out. A big banana by the road to advertise, because that's apparently a big cultural thing, the big banana, the big prawn.

AF
Pineapple.

ML
Pineapple as people drive, presumably these are restaurant advertisements. But so he was likening the battery to a big banana and a big prawn. And within the first couple of years, it actually saved the grid AU$150 million and that wasn't the money that it made for its owners, which of course has been very considerable and well done there. But this was money saved to the grid, reducing the cost of running the grid.

AF
So it really proved up the business case.

ML
And it's very interesting to be here now, a few years later, because as I was here, your Australian energy regulator, who sets a default tariff that has to be made available to homeowners, and the default tariff has come down. And the reason it's come down is so many batteries that are on the grid now that the gas peakers, which have been setting the price with high priced gas, they're now being forced out for those very important times of day, the evenings and during the night and so on, when they have to fill in for the coal fired power stations, which are so old, they're falling over, I understand. And the prices are now coming down. So Australian consumers and businesses starting to see the value of all of this, all of the above, because of big batteries. Again, if Australia can tell that story to the world, that's a hugely important piece of the matrix.

AF
It's definitely a story that we have been talking about with policymakers over the course of the last five years about the potential for batteries to play a really important role in terms of dampening those peaks, and we're starting to see it play out.

ML
But what's really important is that it's actually starting to be seen, you're actually starting to see that. So I met privately with David Osmond, who produces his weekly analysis of what percentage of the week could renewables plus five hours of batteries have covered the Australian grid. By the way, the number is 98.7% for the last, I think it's either cumulatively or for the last week, you can do huge amounts with renewables and batteries. But he was saying for the first time, starting to see the signal of the batteries pushing the gas out on those peaking times.

AF
It's exciting times, I have to say. It really has been a battery-led story in the last two or three years. Let's turn now to the less good, you talk about the missing middle. What have you been talking about in this regard?

ML
Yeah, so the less good, and on this show, we don't say anything's bad, we've got the good and the less good.

AF
Are you sure about that? I'm not convinced. We might get it.

ML
I suspect you're going to go to the bad soon. But the less good, when I talk about the missing middle, I'm thinking specifically about batteries and solar, where households, great, and actually, the big stuff, the big battery, but also big solar, great. And now starting to see big battery with big solar, which starts to approach 24-7 power. And certainly, if you look at the numbers most recently out of, I think, IRENA and EMA, and the work in the UAE, acronym alert, United Arab Emirates, on 24-7 power and others, really starting to look for how could you use solar with batteries to power, to run through the day and night and therefore be more appropriate for industry, that's all great. But what I call the missing middle here in Australia is if you fly in, you see all these solar on the rooftops, you fly over solar farms, okay, tick. You also fly over and you see, as you go over the cities, you'll see the solar rooftops on all the homes. But what you don't see is the box retailers, the sports centres, the schools, the churches, so the middle, the community. And that feels like it ought to be the next frontier because it sits in between. It actually, and I had a conversation with Marc England, one of the episodes, the CEO of Ausgrid, the Distribution Network Service Provider, DNSP, in Sydney and around, and there's all sorts of initiatives.

So he's on the, I was going to say on the coal face, but on the frontline of that conversation about the distribution grid. And there's some, it felt to me like what's happening is these grids were built from the big stuff out to the edge, and now they're almost being reversed. This is probably the leading, these are the leading grids in the world. I'm sure if I go to South Australia, it'd be even more so than Ausgrid because they're so far advanced in renewables, 75%. Not quite winning the world championship, but second just behind, only in silver position just behind Denmark. But it's kind of the grid is being re-engineered from the household, decarbonisation starts from the household or the road to decarbonisation starts with the household. So, you're re-engineering the grid from the household out, but the next step has to be these bigger chunks. And there's some regulatory barriers and there's some inflation barriers, and probably some maybe not technology, but making sure that things don't fall over barriers in terms of what you do. And by the way, a great example, Lily D'Ambrosio, who's the state minister in Victoria for energy and climate action and so on. And she's actually, she also has got this grid, she's removing all the coal, I probably shouldn't personalise it on Lily, but the coal-fired power stations, Yallourn, Loy Yang A and B, and I suppose we'd have to just hope that the distribution grid there doesn't fall over. So, there's a lot of work to be done at that level, I think.

AF
I think, I mean, in a way, there's a really big opportunity with the distribution networks because we're talking about driving greater volumes of power through those, and that will be helpful and hopefully help us to sort of also broaden out the spread of costs on households and businesses. So, there's an opportunity, a really big opportunity and a big role for the distribution networks to play.

ML
Yeah, there is. And so, my conversation with Marc England, I learn something with every episode but that one was great. There's a statistic that he threw into the mix, which is that in the, think it was the Greater Sydney, not even the whole of the Ausgrid region, but in Greater Sydney, that 72% of the power demand could be generated within the boundaries of Greater Sydney. And from essentially from solar, I don't know if he's adding in a bit of wind there, but that's fascinating. Except that what you don't want to do is to say, right Marc, you've got Ausgrid, here's all the money, and you become a monopoly supplier of 72% of Sydney's electricity. So, there's a lot of work to be done to find the regulatory packages that enable it.

Because of course, the benefit of doing it that way is you don't have to build lots of unpopular, and it is unpopular, transmission grids, which would slow everything down. It's unpopular, which means it's slow and it's expensive, and it's also risky for investors. So, we've got to find ways of unlocking distribution grid connected assets of all sorts that feed the same distribution grid without creating economic structures, which frankly will end up just, we all know, just pushing prices up, you know, monopoly rents.

AF
Well, let's turn now, I think that's the right time to say, okay, distribution networks have got a massive role to play and I think we've been realising that, and these distribution networks have been grappling with how to, I guess redirect, reshape, and get ready for what's coming their way. But what about the big stuff? What about on the large scale transition? This is in your column of the less good on the wind and the transmission front. These have been big challenges for Australia just in the last, I'd say, let's say two to three years in particular. What were you taking away from that conversation?

ML
Also, on transmission, as I say, I think everywhere I go, everybody's got to build transmission, right? So, that's clear. And I've had on the show, we've had John Pettigrew, CEO of National Grid, we've had Tim Meyerjürgens, CEO of TenneT Germany, billions and billions being spent on transmission grids. Also, we've had distribution network operators from various countries and huge billions and billions of investments there as well. Leo Birnbaum in Germany from E.ON, and then Marc England, so massive investment. So, when I say it's less good, it's just it's clunky and it's slow and it's also unpopular. And I think we've got to be, we probably have to come back to talk a bit more about it, it might pop up again and again.

AF
Show me a place where transmission is popular.

ML
Well, so I have an answer to that, which is actually locational pricing. Because if you actually benefit from the renewable resources in your locality, if you're getting free electricity, and that's one of the things actually you should put on the list of the probably good, is the three hours of free electricity, the promise of three hours of daytime electricity free. And I hadn't realised until I came down here, the role that that might play, which is that you've got 35% of your households with solar roofs, but of course there's 65% who don't, and they may not be able to, they may be in shared housing, but they also will get the three hours free if they sign up for it. But I think locational pricing should make having renewables close by, and then maybe it might change the narrative on transmission as well who knows? But transmission is just, it's just tough. It's hard. So it's under that column.

But the other one is, you've got a big problem here with wind. If you just do, because solar has stayed about the same cost as 2019, 2018, whenever it was, I think 2019 when I was last here. But wind has had this enormous inflation, and I spoke to Paul Simshauser, a professor at Griffith University in Queensland, used to run the Queensland grid, and he has got the numbers. Wind has gone from AU$48 to AU$110 since then. And by the way, at AU$110, what is that, that's $75 or $80 USD, probably something like that, just to translate it for the international audience. That's expensive. So the narrative of, oh Australia's got this kind of superpower, cheap wind, and cheap solar, cheap renewables, that's doesn't work if wind is at that cost. And so I put that, I kind of put it in the less good. It's not a showstopper, but you've really got to get that inflation under control. And you've got to build some wind, because it comes up at different times of the day and the month and the season. It complements solar. And all the modelling says, if you try and do this with just solar and batteries, it's going to be much more expensive much more expensive than a combination that also has a chunk of wind. How much wind depends where you are, depends on the relative costs, but with expensive wind, it's really bad.

AF
Yeah. And look, wind was expected to play a very large role in our transition. I seem to remember a few years ago when I was looking at the numbers, it was going to be something like 70% of the total new build in Australia between about 2023 and 2030 was going to be wind. And that hasn't materialised, it is a major problem. Effectively, I would like to say though, that wind has suffered the same problem as many infrastructure projects across Australia in the last five years. We've experienced massive inflation, as you mentioned, higher capital costs, borrowing costs, etcetera. But there's also been some shocks in the international wind supply chains that have fed into that. But we do have a higher cost of labour. We're trying to do a lot of these projects in remote areas that brings an additional cost. And some of the best opportunities are quite a long way from where you do need to bring in workforces from outside because you simply don't have 300, 400 workers in a particular location, a small town in regional Queensland or New South Wales, you need to bring in that expertise. So it all adds up and I think Australia is grappling with that.

But I agree with you. I think it is one of the most important things that we need to address at the moment. I have a question for you on that front. Do you see, you talk about the sort of price differential between wind costs in Australia and wind builds in China, is there a prospect for it to come down independently of Australia's labour costs or some of those other sort of particular challenges for us? Do you think that will filter through to the Australian market in some way?

ML
So the difference in wind between let's say, Australia and Europe is that Europe is putting its stake in the ground about not allowing Chinese turbines. Well, some of the European, I think it hasn't really become a big question, but the UK has turned down the opportunity to get a Chinese turbine factory. So that's the extent to which they're turning their back on the Chinese technology. The EU is banning Chinese inverters and saying, well you can't have a situation where the inverter, which is of course always software controlled or has got the remote data and control access effectively from the manufacturers. I think it's probably impossible to switch that off. And you can't have a big chunk of your energy supply controlled by another nation. And we don't know, it's not to say that they look like using that as an economic weapon anytime, it doesn't seem foreseeable, it seems fantastical. But in this political environment where resilience is such an important issue that giving away control of your power resources is not feasible. So now the difference in Australia is you're much more comfortable. China looms over all discussions in Australia, that's one thing I've learned even more than anywhere else in the world probably, such a big neighbour and so on.

AF
And so much of our terms of trade.

ML
That's a very long winded way of saying you'll probably be OK with Chinese turbines, which will be cheap so that's good.

AF
Yes.

ML
One thing I would say, though, is offshore wind, Australia is building into these plans offshore wind, perhaps based on data sets…

AF
Parts of Australia.

ML
Parts of Australia, well, particularly Victoria. I talked about this with Lily D'Ambrosio, but I also talked about it with Chris Bowen, so that's the state and Victoria and then the federal climate and energy ministers, and they're putting a lot of hope in offshore wind. And I think that I hope they're not over indexed on the data point, the UK, our auction round four, which got a price of £37, by the way, that's in 2012 money, so really it's £55 or something like that. So it's already AU$110, but that is now regarded as an excessively low price. The most recent round in the UK, the price was around £90 and so AU$180. And that's with a supply chain that is already in place in the UK. You want to build a new supply chain to do offshore wind, you're doing there's a Victoria offshore wind auction that's supposed to happen in August, that could produce a price of AU$200 per megawatt hour, it could even be higher than that. And my question to Lily was, is there any price at which you just decide we're not going to do offshore wind in Victoria? And I would have the same question for Chris Bowen, because I worry that you're building in offshore wind as a solution. And it seems a bit weird because you've got so much land area to do onshore wind and good wind resources and if you can do them, they're now at AU$110 dollars. And if you could hopefully push that down interest rates come down and you really bear down on competition, get those Chinese turbines if you need to. But then why not do that? Why do offshore at double or more the cost? That seems kind of a bizarre thing.

AF
Yeah. I mean, we are the home to the big wind project, onshore wind project. And this is something I've found really fascinating when we've had overtures about the role of offshore wind in Australia. I think it could be fantastic to have, but it is a very steep cost. And we've got onshore wind projects of 1 gigawatt, 1.5 gigawatts, 1.3 gigawatts. They're happening now, and a lot of the renewable energy investors that I do talk to would suggest that we're looking at three times the cost potentially for an offshore wind project. And not only that, but we've got to build all the enabling infrastructure, the port facilities, etcetera. That's a tall hill to climb. So I think, yeah, we're going to have our work cut out for us if we're actually going to make a go of that one.

ML
And I think that if you were to say, well you know, that's too expensive, the solution is not to walk away from renewables and say we can't manage the transition. I think it's to say, okay let's put our heads together. Maybe that's already happening and I haven't picked up on it and do some really big wind areas onshore. But that has to be done properly with proper involvement, proper community consultation, indigenous people properly involved. But I'm talking about, why aren't you talking about 5, 10, 15 gigawatt onshore? Could you do that, I don't know. But it feels a little bit like the ambition around wind, the wind has kind of drawn its horns in a little bit. And I don't know what it would take to undraw that. I don't know if that's exactly right or whether what it would take to undraw the horns.

AF
We do have an onshore wind zone or renewable energy zone concept, the REZs. I don't know if you managed to speak…

ML
Yes, I think there's six of them.

AF
There's multiple in New South Wales and there's also some in Victoria. In some places they're going well and in other places they're a bit more tricky and it really does depend on the sort of socio demographic characteristics of those locations, but also how good the consultation's been, what the arrangements are for the benefit sharing, all of that stuff comes into play.

ML
But I'll be honest, I think that that's where, one of the things that I had put in the not so good column is a bit of fantasy thinking, right? Because if you've got a fantasy about doing lots of offshore, then it actually takes the air out of the conversation about the REZs, the renewable energy zones, I've caught up my acronyms. So you won't put the same political capital, the same investment in the outreach, in the community work, because you've got those zones would also need transmission. Potentially who knows, maybe you could even do an offshore, sorry, an off-grid REZ, solar, batteries, wind, and try and get somewhere where industry could be, don't know. This is one of the things that they're trying in China. But if you've got, if the narrative is the offshore wind is the cavalry that's going to help us get to, you know, from our 65% in 2035, and then to our 95% in 2045 or 2050, I can't remember all the targets. If you think the cavalry is coming, then you don't do the heavy lifting, which is a segue into fantasy thinking in another area. Another couple of areas there is still a bit of fantasy thinking, my observation around hydrogen. I think people have gone through some of the stages of grief for hydrogen, you know, the famous, I can't remember what it's called model.

AF
Myself included.

ML
Yeah. And you go from anger, denial, negotiation, depression, acceptance. And I meet people here in Australia that are pretty much on all, but there's not that many are still in the anger. There are some in the negotiation stage, stage two, there's a few in depression. There's quite a lot in depression stage, but I would say those are the two dominant ones. There's negotiation, depression, no and three, and there's a lot of acceptance as well. There are people who just say, we tried and it didn't work.

AF
Exactly.

ML
But the superpower thesis is closely linked. And that one also, I think there's a little bit of fantasy thinking around the superpower thesis and I'm sorry to say that having spoken to the absolutely delightful and brilliant and wonderful Ross Garnaut, your former boss.

AF
Yeah. Well, I mean, I think there is still a lot in that superpower thesis, but it does hinge on the cost of electricity. And if Australia can't get the cost of electricity down, then it's a non-starter. We need to, what we're talking about is value adding without cheap renewables. And if the renewables aren't cheap, then it's very difficult for us to make the business case that yes, those industries should be here in Australia. And so, I mean, I think this is a really important problem for our treasury and some of the economists across various government departments to be thinking about what are the ways that we can help to lower the costs of these massive capex investments, upfront investments that do need to pay down over time. How can we make it easier for them to invest, how can we reduce those costs for them to get that kit in the ground for them to start working? I mean, once they do and if they have a reasonable life, they should be able to pump out some cheap electrons, but we're not at that point yet. And unfortunately, the trend has been going in the wrong direction for the last three or four years.

ML
Yes. And that's where the looming, I don't want to say the looming threat, but the specter of China just looms really large over this conversation because the superpower thesis was that Australia is this renewable energy superpower with the best wind and the best sun in the world, but also the minerals for the batteries. You've got the lithium, the spodumene which Australia exports, but you've got the money because you've got the Australian supers, the funds. So you've got everything you could possibly need to be a huge export powerhouse in a world that requires stuff to be made with renewable energy. The problem is you've got China, which is basically cheaper at everything. And I pushed Ross quite hard because I did an episode with him. I pushed him on what would you need to believe to believe that Australia can beat China as an export powerhouse? And the background is that Australia exports iron ore and it exports metallurgical coal to China where they process those. They put those two together and produce more than half of the steel in the world. So the thesis that Australia is going to make green steel would have to answer the question, why is that going to be cheaper than exporting the ore, which is an extra process step, adds 5%, 10% to the cost of the ore, but doing everything else in China?

AF
No one's really talking about exporting green steel here anymore. They're talking about exporting green iron. So direct reduced iron, which is a very energy intensive process and for some countries, and it is, China is not the only game in town. So Korea, Japan don't have the same energy resources that we do. So it may well be that they are very pleased to do trade with Australia, they're very pleased for us to reduce some of the demand they have. They've obviously got large steel making industries that they would like to continue to support. We can take some of that pressure off their own energy transitions by doing some of that early reduction effort here. I think that's a strong thesis. And some of those countries are actually going to still regard Australia as being a very important partner also, because they know they can trust us, there's a long history there of trade. So I'm not sure it's so clear cut. I understand what you're saying about us trying to compete with the Chinese, but the Koreans and the Japanese might have a slightly different interest in our success.

ML
Let me say you're absolutely right and you're also right to pick me up. Green iron is the thing. The steel, I think that the countries that have got the downstream steel processing will want to hold onto that. And I do think it's plausible that you'll sell green iron to Japan and Korea. Actually, even Europe, though would be difficult because as soon as what China makes is green as well, then it's going to be cheaper than your green. So it's their green against your green. Whereas with Japan and Korea specifically, their driver is going to be keeping as much as possible of their own steel industries and so there might be a deal that can be done. So absolutely fascinating. But this idea that fuels and iron or steel, that all sorts of things will be made in Australia and so globally competitive, if your electricity is twice as expensive as China's, then none of that other than for geostrategic reasons will happen.

AF
Look, I think it's also difficult in the short term if we're talking about some of these. But once we've actually made those large investments, you've paid down the debt. We're in a position where in the 2040s potentially, if we've got the kit in the ground, we are in a better position to take advantage of it and to pump out those cheap electrons. The thing is that we've got to get to that period of time and have made ourselves an attractive investment destination for that industrial investment.

ML
Anna, everywhere in the world, once all their investments are fully depreciated, we'll be in a different place. So I joke about the UK being a fantastic place for energy intensive industries. We're going to have massive amounts of renewables, excessive amounts of renewables, and we're going to have a boilerplate country. In other words, you can move electricity from anywhere to anywhere as a copperplate, sorry, copperplate country, so fantastic. The only thing is it will be 2050 by the time we've depreciated and paid off the expensive stuff. In other words, you need a cost of capital that's lower than China, if that's your argument. But the other thing I talked to Ross about by the way, which I think we need to focus much more on in this sector, and by the way, in every other sector, is that China at the moment through scale and through industrial strategy and through maintaining an exchange rate that is artificially low, is in a sense overly competitive in everything. That's not the way trade works. So I think that that's an issue. Essentially, I think that either our currencies are overvalued or China's currency is undervalued. And if that adjusts back to some kind of semblance of normality, one way or the other, I think it will, I'd like it to think it's through economic rationality and rather than a collapse in the value of all of our Western currencies. But if and when that adjusts, I think that Australia will start to look much, much more competitive, which would be a very good thing.

This Australia Deep Dive was made possible by the support from a number of organizations, the Australia Renewable Energy Agency, Race for 2030, the Energy Efficiency Council and the University of New South Wales Energy Institute, for whose support we are extremely grateful. Cleaning Up is proud to be supported by its Leadership Circle. The members are Actis, Alcazar Energy, Arup, Copenhagen Infrastructure Partners, Cygnum Capital, Davidson Kempner, EcoPragma Capital, EDP, Eurelectric, the Gilardini Foundation, KKR, Mitsubishi Heavy Industries, National Grid, Octopus Energy, Quadrature Climate Foundation, Schneider Electric, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit cleaningup.live. To keep up with all that's going on in the Cleaning Up universe, make sure you subscribe to our newsletter. Written and edited by my longtime New Energy Finance and Bloomberg NEF colleague, Angus McCrone, it comes out every second Monday. Angus provides the latest on the episodes we're recording, the events we're hosting, stories we're watching and what Bryony Worthington and I are up to. To sign up for the Cleaning Up newsletter, visit cleaningup.live.

AF
Let's turn now to, I think you've termed it, the downright ugly. Not the good, the bad and the ugly, but the downright ugly, diesel addiction is at the top of this list. What have you discovered in your journeys?

ML
Yes. I mean, I had wavered about putting inflation in the downright ugly or the not so good. And I think we've dealt with inflation, let the audience decide where they'd put it. So under downright ugly, I put two things. I put one is the diesel addiction and let's call it what it is, it's a diesel addiction and it's a subsidised diesel addiction. Australia per capita, the biggest diesel consumers in the world.

AF
I think we've been surprised by it ourselves in the numbers that have come out recently, placing us I think it is accounting for 10% of traded diesel.

ML
Yeah. I tried to check that because you raised that with me a few days ago and I tried to check it using my friend Claude and it may be a subset of diesel. It's not 10%, I think it's 2% of all diesel, but relative to your economic size, that's massive. So maybe it is traded or whatever, but you're very exposed to it. And this has I think been brought home because of course, the Strait of Hormuz being closed for Australia, it was jet fuel and diesel. I talked to Chris Bowen, Minister Bowen about how he's been running around trying to making sure that alternative supplies are coming in. But that addiction is absolutely integrally linked to two things, the structure of your economy, mining extractive industries have been traditionally vast users of diesel and also agriculture. But the other thing is, so it's structure of your economy, but the other thing is the low taxation on diesel. And it turns out that if you essentially give people a tax free pass on diesel, that they buy a lot of diesel.

And while I was here, there was a story broke that of course Fortescue trying to entirely off diesel. So Andrew Forrest, who's been on cleaning up, Real Zero by 2030, pushing as hard as is possible for a billionaire to push to get rid of diesel and BHP internal papers surfaced in the news saying, well we've run the numbers, we've run the slide rule across it, and it doesn't quite make sense and therefore, we're not going to be doing diesel. And I think that that is a very, very, I'm not supposed to say this, but poor decision. I think it's a poor decision, not normatively, because oh you know, climate change, and we all have to do this and have to do that. I have a feeling that BHP will live to very much regret that decision. So they're locking themselves into diesel addiction for the next however many decades. And I think that they are going to be locking themselves into higher costs and a poorer reputation. Who's going to work for BHP if they are known as the diesel diggers?

AF
I think it underlines something which is very important in the transition, which is that you actually need commitment to what you're doing, but it will also put them in a stronger sort of competitive position down the track when they're less exposed to commodity markets. But there is obviously an upfront expense and some risk in innovating, electric mining trucks, you know.

ML
What was fascinating was that they said, well, we can't go electric because there aren't the electric mining trucks, right? You're BHP, you're the customer, you go to the mining truck companies, and you show leadership. And I hate to say it, but right next to them, there is the example of Fortescue. And it doesn't matter if Fortescue can't go, even if they can't manage it all by 2030 and it takes longer, or they can't do 100%.

AF
They're having a red-hot crack.

ML
But they're providing a market signal to the producers, Liebherr and Komatsu and whoever else makes these things. And I think yeah, it's ugly. It's in the ugly column not to do that across the board. But also, I'm going to say it, your EV penetration, maybe it's not ugly, but you are not, certainly, you know, if you look at that decarbonisation starting from the household, it needs to start from the car that's parked outside the household, or in the driveway, or wherever. And that's also, maybe not ugly is too big a word, but certainly in the not good.

AF
Oh, no, I mean, I think that's fair. We've been in very uncomfortable company, as I think it was, might be Saudi Arabia, I don't know if I've got that one right, and Russia, who are the only, one of only three countries...

ML
Russia and Kazakhstan is, I think, the one I've heard of.

AF
Only three countries in the world that didn't have a efficiency standard for fuel. And really, that has led to the unavailability, or basically, suppliers not sending us their EVs. There's been a perception that EVs therefore are elitist, because we were only getting Teslas, no cheaper sort of vehicle models etc were coming in, because we just didn't simply have anything to motivate those manufacturers to send their technology to Australia. That has changed under this government. Last year, they brought in a new vehicle efficiency scheme. And we have seen, Michael, the electric vehicle sales go up from 6% of sales around this time or a little bit earlier last year, to 22% now. So, it's been a huge uplift and I think we're now feeling a little bit like we're in better company, but we've got again a long hill to climb.

ML
Yes. And what I would say, so if it's 22%, that's the biggest number I've heard, because I know it went from 10% just before...

AF
That's the latest numbers.

ML
That must be the latest.

AF
And that's the fuel crisis induced as well. And we're certainly playing a part in that, not just the standards.

ML
So, what's happened is, not having the fuel standard, a lot of people have mentioned that, but that means that you're very exposed to diesel, and therefore this crisis hits Australia particularly hard, so you'd expect a big acceleration. And it was good, also, one of the great conversations, Darren Miller, the CEO of ARENA, and they're sort of funding earlier innovation and funding, he's got firmly in his crosshairs the vehicles and vehicle-to-grid, which is really interesting to see, because that's the role that ARENA plays, is not to be on the kind of current products, but to be investing...

AF
At the forefront.

ML
In the innovation, which you mentioned, I'd spoken to innovators, I spoke to Professor Martin Green, I mean, the colossal figure behind so much of the current photovoltaic technology, for which the Chinese are particularly grateful, and Australia is I think are probably somewhat grateful. But what Darren's doing with ARENA is pump-priming the next set of, so there's vehicle-to-grid potentially, that car parked outside the households might actually be serving the household. And then also, things like sustainable aviation fuels, where I think there's a new realisation that it will probably be bio-based, no it will not be hydrogen-based, and therefore you can focus on bio-based. And ARENA’s doing, they just got an extra AU$1.2 billion to drill into that and to fund early work on that. Whether it'll come to market, and when it will come to market we'll see, but it's really refreshing to see some big bets being placed on innovation.

AF
I have to say, one of the things I'm most excited about is that when you put all the pieces of the puzzle together, I wouldn't necessarily say that Australia has been an electrification leader, and that's something that I'm spending a lot of time working on at the moment.

ML
Well, that's your day job.

AF
That's my day job.

ML
When you're not hosting podcasts.

AF
When I'm not hosting podcasts, which is obviously most of the time, but if you put together the story of one in three households with solar, we've now got in less than one year, 500,000 behind-the-meter batteries for households and small businesses. We've only got something like 10 or 11 million households in Australia, so we're already a 20th of the way there on that front. More people buying EVs, you're going to get to a point where people are very soon going to start saying, why have I got gas in my household? We're starting to see everyone put it together. I think with all those different pieces, suddenly, I think things are going to move a hell of a lot faster on some of those more thorny issues like the transition out of gas, particularly for household and for the low heat and the low essential services in that regard.

ML
Absolutely, yes. You're working professionally on electrification, that's your hat at the moment, is to push that agenda. I think we're going to see it, hopefully, in Turkiye, in Antalya, although that's the responsibility of the action agenda, will be Turkiye's. Australia is handling the negotiation. I don't know whether we'll get electrification into the negotiation. I am an amateur, or you're a professional on electrification, I'm the amateur because I've got the electrification staircase that I've talked about. I did a presentation at this organisation called the Energy Efficiency Council, I'm smiling because that's your house.

AF
It is. Michael spoke at our national conference last week.

ML
Very good, I finished with the electrification staircase. What you talk about, the electric vehicle and the electric heating, absolutely is on the bottom rung of the staircase, as is by the way, industrial heat pumps. I think that we've got to see progress, but we shouldn't pretend it's easy. That Australian home that has got maybe gas heating in just one room or two rooms and so on, it is throwing out a lot of heat very quickly. You switch that on and that is fast. Of course, what the heat pumps want to do is just stay on and heat constantly using lower temperatures to be very efficient. I wouldn't say it's a long way to go, but it's a good challenge. I'm really proud because I came up with the slogan for your work on electrification.

AF
Tell me, what is it?

ML
You've heard of electrify everything and that's controversial because it actually sort of says...

AF
Not really.

ML
So I came up with electrification is everything because if we're going to get to anywhere near these ambitious decarbonisation targets, whether it's 2035, whether it's 2050 net zero or near net zero or pragmatic climate, whatever.

AF
I can feel some merchandise coming on.

ML
There's definitely a merchandise opportunity. I was going to trademark the name quickly as soon as we're out of the studio. But all roads lead not just from the household, because you've got to do industry as well. If you say it's all roads to decarbonisation, what was the phrase exactly? It was...

AF
Through households.

ML
Go through households, but they go through industry as well. And so I think electrification is everything, electrification is everything. So that's going to be at least my mantra. And I can see already, I'm going to get a MAGA hat and put electrification is everything and some buttons and all that but I'll sell you the licensing rights.

AF
Oh, well, thank you very much. I think we might be going with a different slogan, which is electrify now, which really puts the focus on the urgency of the problem. But I do like yours as well and I'd be happy to buy your T-shirt.

ML
My only concern with electrify now and electrify everything is also that it's an order, you're giving orders. And there's one other issue I want to raise just here, if I might, which is how we talk to people. And there is a slight drumbeat of, I'm going to say it, authoritarianism and lack of transparency.

ML
Where?

AF
So I don't want to overtrade that trend, but my conversation with Lily D'Ambrosio brought it out that, for instance, she, the state is going to, actually, the owners of the plants are the ones that are going to do the shutting. So the big coal plants are going to shut and then, of course, there has to be at that point enough other resources to keep the lights on and keep everything functioning. And the modelling has been done, but it's not in the public domain. And so Lily was pointing to, oh but AEMO says it's all fine. But of course, the contracts with those coal-fired power stations are not in the public domain, the modelling is not in the public domain and I find that problematic. So I've been a big promoter of something called free the models, #freethemodels, because too often what we've got is black boxes, GenCost, which is the big model that optimises everything. The trouble is that the average citizen can't run GenCost. And the academics have to be allowed to get under the hood of all the modelling and to the greatest extent possible, all contracts have to be, forget the bits that are commercially sensitive, the price you can blank out, the specific terms you can blank out, some of the warranties. But if people can't scrutinise this stuff, they will feel bounced into things that may push up their costs only temporarily, or it may require them to clear the loft or install an electric plug in their driveway, it may require annoying things and they're not on board with it.

AF
Well, I will acknowledge that yes there has been some frustration that the commercial details of the contract between the Victorian government and Yallourn have not been released.

ML
Correct.

AF
But I think when we come to transparency stakes in the system planning, I doubt that many do it much better than we do, actually, Michael. So I'm going to challenge you on that. We've got the integrated system plan, it's not GenCost. GenCost is about the technology costs that go feed into that integrated system plan. But that is released every two years, it's a very public and consultative process. I have sat in as part of that in many meetings in terms of how that is built and set out and the underlying assumptions, I actually think we do it pretty damn well in terms of that system planning. And that is something that a lot of other countries could learn from.

ML
So the free the models was about whenever a public authority commissions modelling, that the model, the code, not just the assumptions but the code and everything, so that people could replicate it. And it's built on the open source movement in software and saying, look if you want every researcher, every university etc to be able to try and optimise, maybe come up with a different way. I'm working with a company that's building digital twins of grids, but we need radically more transparency. If Australia is state of the art, that just means that all the other countries have a problem as well. And they do, by the way, frankly they do. So I think that's something I would love to see progress on.

AF
Michael, I think we're getting close to time. So I want to ask you, you have a section here about interesting tidbits, which I'm going to reframe in Australian speakers, the odd spot. Tell us, this is a little section that used to appear at the bottom of the newspaper where I live in Melbourne every day, the odd spot, what were your odd spot items?

ML
So I said at the beginning that what was great was I got outside the big cities. We did the Great Coast Road and that was fabulous to see some of the diversity of Australian landscapes, just a tiny minuscule fraction. But I also met Amanda Gorman in Birregurra and she's an expert on indigenous foods, and so we tried a whole bunch of bush food and it was just very, very interesting. So that was a highlight, as was by the way, Aussie rules football. I'd never seen a game before. It's brilliantly fast.

AF
It's impressive, isn't it?

ML
It's impressive because all the rules are designed around keeping the ball in play and keeping the flow in motion. So somebody catches the ball and there's a mark and there's 30 seconds to play it and the field all reorganises itself and off you go again. There are no scrums, there are very few interruptions to play. It's incredibly fast, but the way the ball is knocked forward, it's brilliant. And Carlton beat Geelong and I was really pleased to see that because I know that you're a Geelong fan.

AF
I am. I'm impressed that you've gone along. You've also remembered the teams that were playing, even though they're wearing the same colours, that's also good. Anything else on your list?

ML
Oh, I think there's just too many things. And I had dinners and lunches, Alan Finkel, the former chief scientist. Engineering with Rosie, the star and founder of that, Rosemary Barnes, set up for me to meet and have a dinner with the Canberra Clean Energy Massive and we had a fantastic dinner. So there's just too many highlights. Let me finish on one note, I was very impressed when I went to Canada with the quality of the Canadian, I'm going to call it the climate community. So the people working on climate and there's a kind of something going on that I see around the world. And I'm part of a generation that will be, or in some cases has already started to hand over to another generation that you can really see, and they're in their prime and they're absolutely brilliant and they've got fresh ideas and so on. And I see that, and I actually think that Canada and Australia, I've been really impressed with the climate, you know, here they're all got their own acronyms.

AF
Ecosystem?

ML
But the ecosystem is really impressive. No, but it's not the ecosystem, it's the individuals, the quality of the individuals working on this. The support for clean energy and climate is much broader than I thought. I was worried I'd come here and it would be trench warfare and everybody have their heads down. Not at all, people are out there, they're leading. They're younger than me and some of the folks who've been leading, it's really impressive. And I'm going to say it at the risk of upsetting some people in the UK, they've got more mojo and more dynamism and more freshness than the community in the UK. And obviously in the US that's kind of trench warfare and heads down kind of thing going on. So that's really, that's a fantastic invigorating trip that I've been on.

AF
Well, thank you for those very encouraging comments. And as a person who has a lot of friends in the UK, I'm not going to make any additional comments there except to say that I know a lot of very fine quality people living and working in those issues as well. Michael Liebreich may I just say, you have been the most interesting guest on this important podcast, Cleaning Up. I hope you have enjoyed it as much as I have and we've really enjoyed your company Down Under and we hope it won't be the last time we see you.

ML
Well Anna, you're very kind. I've had so many far more interesting guests on Cleaning Up, but I'd like to thank you for being game, for sitting in the hot seat, turning the tables on me. I also clearly have to thank the other people, your colleagues at the Energy Efficiency Council, Luke Menzel, there's Bill Lilley at Race for 2030, the entire team at ARENA who've helped us sort of network and set up these conversations. They've supported the whole of the tour and it's been absolutely great. And with that, I think this is the point where I turn to my camera and I say, as always we'll put links in the show notes to resources that Anna and I mentioned during our conversation, too many to mention here.

So in addition to all the other thanks that we've already delivered, I'd like to thank the team here at Lonsdale Street Studio for their help setting up this conversation. Also, Oscar Boyd our producer, Jamie Oliver our video editor, Kendall Smith head of operations, Jo Jagger who's been an absolute star setting up all of this tour to Singapore, Australia, and my next stop, which is actually going to be New Zealand. Everybody behind the scenes at Cleaning Up, the Cleaning Up Leadership Circle, many of whom we've met during the tour of Singapore and Australia already. And of course, you the audience, for bearing with us through what is now the nine episodes of the Deep Dive Australia of Cleaning Up. Please make sure that you subscribe to our newsletter. So that is cleaninguppod.substack.com to make sure that you don't miss any episodes of this or future Deep Dives and also the normal Cleaning Up programming. And if you've been listening to this Australia Deep Dive and wondering why Cleaning Up doesn't do a Deep Dive on your country or your industry, your sector, your business model, then we'd love to hear from you because we are planning our activities for 2027 and all things are possible so get in touch.

Cleaning Up is proud to be supported by its Leadership Circle. The members are Actis, Alcazar Energy, Arup, Copenhagen Infrastructure Partners, Cygnum Capital, Davidson Kempner, EcoPragma Capital, EDP, Eurelectric, the Gilardini Foundation, KKR, Mitsubishi Heavy Industries, National Grid, Octopus Energy, Quadrature Climate Foundation, Schneider Electric, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit cleaningup.live. If you're enjoying this episode, please hit like, leave a comment, and also recommend it to friends, family, colleagues, and absolutely everyone. To browse our archive of around 250 past episodes and to subscribe to our free newsletter, visit cleaningup.live.