pumped hydro energy storage vital to NEM

AEMO has released a new Insights paper, shedding light on the vital role that pumped hydro energy storage (PHES) and strategic transmission developments can play in lowering consumer costs and increasing resilience of the National Electricity Market (NEM).

The Insights paper provides a deeper analysis into the role of storage in the NEM, including the Snowy 2.0 and Battery of the Nation (BoTN) projects, and evaluate how storage can improve the resilience of the system and reduce costs for consumers. 

The Insights paper incorporates evolved modelling of storage diversity and weather variability. It finds that when renewable energy availability is low, long-term storage such as Snowy 2.0 and BoTN will deliver higher fuel costs savings than short-term solutions. 

Conversely, shallow developments with six-to-eight hours storage potential are the most valuable in providing intra-day and day-ahead energy shifting, complementing generation from utility-scale and rooftop solar systems. Distributed storage (batteries) with shorter discharge times will also play a critical role, providing value through capacity firming to support the grid at peak times. 

AEMO Managing Director and Chief Executive Officer, Audrey Zibelman, said “The NEM has to manage the increasing variability of both supply and demand from changing weather patterns, consumer behaviours, growing variable renewable generation and declining reliability of existing generators.

“AEMO’s in depth analysis confirms the important role of energy storage to build power system resilience, improve reliability and to put downward pressure on wholesale costs. 

“An example in the paper outlines that one week’s storage in Snowy 2.0 in 2030-31 saves approximately $86 million more on average in fuel costs, compared to the equivalent storage capacity with only six hours storage.

“By 2030, wind and solar generators, including consumer rooftop systems, are expected to represent approximately 50 per cent of the NEM’s installed generation and storage capacity, generating over 40 per cent of energy consumed. It is critical we advance the required transmission infrastructure to support the integration of these new resources to ultimately deliver secure, reliable and affordable energy for Australians,” Ms Zibelman said. 

The Insights paper identified specific intra and inter-regional transmission investment to connect pumped hydro storage options with consumers. Within New South Wales, an increase in the transfer capability of the network between the Snowy region and Sydney would maximise the reliability and resilience benefits of Snowy 2.0 at the lowest costs for NSW consumers following the closure of the Liddell Power Station in 2022. 

Inter-regionally, expanding the transfer capability between the Snowy area, North West Victoria and Melbourne would maximise the benefits of Snowy 2.0 for Victorian consumers ahead of any further coal-fired generation closures in the state. 

The increase of transfer capability between Tasmania and Victoria could also deliver benefits, allowing additional renewable generation and storage capability to be exported to the mainland. 

“Transmission augmentations require significant planning, community consultation, and economic cost-benefit analysis in the form of the Regulatory Investment Test for Transmission (RIT-T) to ensure investments are in the best interest of all consumers,”  Ms Zibelman said. 

“However, recent independent analysis conducted by Aurora Energy Research concluded an approximate $3.8 billion potential reduction in power bills if developments proposed in AEMO’s ISP were implemented, predominantly through increases in competition and market efficiency via additional interconnection investment. 

“AEMO is working closely with the Energy Security Board and fellow market bodies to develop a package of changes to the National Electricity Rules to convert the ISP into an actionable national strategic plan.”

Tasmanian Minister for Energy, Guy Barnett, said, “The Insights paper reaffirms our plans for the Marinus second interconnector and massive pumped hydro investments, which represents the single biggest economic opportunity for our state over the next 15 years, as not only do we have low cost, reliable and clean energy solutions, but our storage solutions are the best on the block.”

A key objective is to enable projects identified in the ISP to undergo a streamlined RIT-T and regulatory approval process that builds on the detailed cost benefit analysis undertaken as part of the ISP.

The findings of this Insights paper are consistent with the recently released Victorian Annual Planning Report, which highlighted the growth and geographical diversity of renewable generation resources shifting away from traditional resource locations, and in turn presenting strong locational signals for investment. 

The 2019-20 Integrated System Plan is due to be released in mid-2020, with stakeholder consultation ongoing, and subsequent Insights papers to precede this publication as required. 

The complete Insights paper, titled Building power system resilience with pumped hydro energy storage, can be accessed here

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