Australian Energy Market Operator CEO, Daniel Westerman, has highlighted the challenges of a transitioning energy grid and the need for more transmission lines across Australia, offering a suite of recommendations and solutions to the industry as it grapples with the evolving energy grid. 

Mr Westerman, speaking at the Australian Financial Review Energy and Climate Summit, outlined the three critical challenges the industry will need to overcome as the energy grid transitions and evolves. 

According to Mr Westerman, the three key challenges are generating enough clean energy to transition away from coal; building the transmission to deliver this renewable energy to the markets where it will be used; and ensuring the opportunities provided by residential rooftop solar can be shared among all Australians.

“The fact is that the historic mainstay of the power system – coal-fired generation – is on the way out,” Mr Westerman said. 

“It is reaching the end of its service life. Asset owners have already told us about a fifth of today’s older coal and gas fired generators will be retired by 2033. 

“But our own modelling suggests almost two-thirds of existing coal generation will be gone in that time frame. That’s a big deal, given that coal counts for 62 per cent of today’s electricity fuel mix.

“So there’s an urgent need for replacement generation. That’s the first challenge.

“Second, as firmed renewables are the cheapest form of replacement energy, they are, understandably, built in places where wind, solar and hydro resources are strong.

“And that’s often in dispersed locations and at the electrical fringes of the grid,” said Mr Westerman.

“So that’s the second challenge – building transmission lines to these new areas of generation and firming to maximise the clean and low-cost power that can flow into the grid.

“And thirdly, we need to make sure that Australians’ love of rooftop solar can continue to flourish, but in a way that works in the best interests of all Australians.

“And that extends to home batteries, electric cars, and other home energy management systems collectively known as Consumer Energy Resources.”

Renewable generation to meet demand

Speaking to the challenge of developing enough clean energy projects to meet demand, Mr Westerman noted that the demand for energy throughout the country is continuously growing, and is driven by a combination of factors including population growth and the electrification of areas where the economy was previously dependent on fossil fuels. 

“There is no doubt renewable solar and wind generation are the cheapest replacement technology for those retiring coal power stations, even taking into account firming and integration costs.

“(And) Australia does have a substantial pipeline of proposed generation projects for the NEM, around 250GW, but the critical thing is to get these projects from spreadsheets and analyses, through investment committees, and turned into real assets that generate, store and transmit electricity to Australian homes and businesses,” Mr Westerman said. 

“I know that’s not always easy. The first hurdle is getting business cases over the line.I’ve been a developer and I know how hard it can be to get sufficient revenue certainty for a project to stack up. 

“Progressing projects through financial investment development is critical. If investors can’t see a path forward with existing market mechanisms, then look to current and upcoming schemes like Long-Term Energy Service Agreements (LTESA’s), the capacity investment scheme, renewable energy target schemes and others to improve revenue confidence.

Mr Westerman also noted that rising project costs further increase the challenge of getting new clean generation projects.

“Australia is of course among many nations around the world that are navigating this energy transition, so we are competing not only for material and labour in Australia, but in global markets and through global supply chains.

“And in our various roles at AEMO, we’re seeing these increased costs, together with the impact of various planning approvals, playing through into both the costs and timelines of getting energy infrastructure built,” said Mr Westerman. 

Another hurdle is the constraint on skilled labour broadly, and specifically Australia’s engineering workforce.

“Australia has a limited pool of skilled labour for the enormous task ahead. Like all big challenges the solutions will be varied, from incentivising greater female participation in STEM careers and thereby growing the talent pool, to enhanced university offerings and skilled migration.

“At AEMO we are leveraging our international relationships with other system and market operators and leading research institutions, to actively share learnings from the cutting edge of energy transitions that are happening around the world.

“Australia stands to benefit from these close and ongoing exchanges,” Mr Westerman said. 

10,000km of new transmission

Discussing the transmission challenge, Mr Westerman  said that Australia needs to update its transmission layout, making it fit for the 21st century, and suggested that 10,000km of new transmission lines would be needed to connect renewable energy generation to the markets where it will be used. 

“Australia’s existing transmission network was laid out to convey the huge outputs of coal fired generators located centrally in places like the Hunter and Latrobe valleys.

“Now of course the new sources of generation are located in geographically dispersed locations of strong wind and solar resources, often at the electrically weak fringes of the grid.

“Around 10,000km of new transmission is needed to connect these areas to demand centres, and to ease congestion on existing transmission lines, which are increasingly operating at the outer limits of capacity and, at times, effectively gridlocked.

“In practice, it means using the breadth of Australia’s geography to lower energy prices for Australian consumers: just this past week we’ve seen that it can be cold and windy in Victoria, but sunny and warm in NSW.

“An upgraded transmission network allows for the lowest-cost electrons to flow across geographies to meet demand.

“And that’s exactly what was envisaged by the introduction of the NEM 25 years ago.

“But rolling out new transmission, something not done at scale in Australia for decades, needs government and community support,” Mr Westerman said. 

“I know it’s not easy for everyone to accept, but transmission lines are a core part of the national energy upgrade, to deliver energy reliably and at the lowest possible cost to all of us, wherever we live.

“The process of building trust is not quick, but happens through listening, dialogue, providing quality information, running a fair process that considers all the facts, and providing fair compensation to those affected.”

Solar for the people

Speaking on the third challenge, inspired by Australia’s love of rooftop solar, Mr Westerman called upon policy makers to have the courage to develop settings that will allow all Australians to benefit from rooftop solar – not just those that can afford to install costly systems on their own roofs.

“25 years ago, policy makers had the courage and vision to make the most of the generation and transmission infrastructure that had been built.

“And today, we face a similar opportunity, to maximise the benefit of Consumer Energy Resources for all Australian consumers, not just a few.

“As you know, Australians are continuing to invest in rooftop solar systems, and increasingly in electric vehicles (EV), battery storage systems and other home energy management solutions.

“Some homes and businesses have chosen to install batteries to manage their energy consumption, and electric vehicles are obviously batteries on wheels. With each EV having the capacity of five or six home batteries, they represent a real opportunity to help create the lowest cost energy system for everyone.

“In fact, Australia has about 3.5 million solar systems installed, and this represents around 20GW of potential output.

“That’s more than seven Eraring power stations at full output, and capable of meeting almost half (48 per cent) of our energy demand when the sun is shining at its brightest,” Mr Westerman said. 

“As summer edges closer, data coming into our control rooms show new records being set for both peaks of renewable generation and for record low demand as power from our solar rooftops edges out traditional sources of generation.

“In late September, the National Electricity Market hit a record 70 per cent for renewable penetration over a half-hour period.

“And around that time, potential renewable penetration was close to 100 per cent. 

“This means there was enough “potential” wind, solar and hydro resources that if it were dispatched, nearly 100 per cent of demand in the NEM would have been met by renewables.

“At AEMO we are working hard on our plans to be able to manage power systems at up to 100 per cent renewable energy, if and when the market dispatches it.

“In that same week in September, the National Electricity Market set a record low demand of 11,393 MW at 12.30pm, a fall of more than four per cent from the previous record set last spring (Nov 2022). At the time, rooftop and grid-scale solar contributed 57 per cent of total electricity supply in the NEM.

“But the market can’t dispatch power from solar rooftops like utility-scale solar and wind. And having so much generation that doesn’t respond to market signals or operational signals, can sometimes be a challenge.

“In November last year, AEMO got an unexpected taste of running an ultra-high-renewables grid when a storm disconnected South Australia’s AC connection from the rest of the NEM for a week. 

According to Mr Westerman, through this experience, AEMO learned some valuable lessons:

  • Firstly, an oversupply of energy from solar rooftops – when supply of electricity becomes greater than demand – can cause the grid to lose balance and lead to serious consequences. That’s why an emergency solar curtailment mechanism is needed across the NEM.
  • Second, consumers expect the power system must be resilient. The power system has small disturbances all the time, from lightning strikes to small faults that propagate through the system. If our rooftop solar systems can’t ride through these disturbances like other generators do, and instead disconnect en-masse, this can also cause significant issues. That’s why appropriate standards and compliance for these systems is important.
  • Finally, while small trials have successfully shown that actively managing these consumer energy resources brings down the cost of the energy system for everyone, the uptake of these “virtual power plants”, as they’re called, is disappointingly low.

But virtual power plants are an area of development and opportunity, and I hope this will be a significant area of growth in the years ahead,” Mr Westerman said. 

“Properly harnessing the value in Consumer Energy Resources requires focus and attention, and will help lower the cost of the energy transition for everyone.”

Preparations for a record Summer

Mr Westerman said that the AEMO has been closely collaborating with industries and government to create its summer preparedness plan, as the weather starts to get warmer. 

“As you would expect, we at AEMO, together with industry and governments, have been busy implementing our summer preparedness plan.

“For our part, we have been coordinating with generators about their summer readiness programs which ensure that their plant is fit and ready for periods of high demand and hot temperatures. Ensuring maintenance has been completed or scheduled, fuel supplies are reliable, and any limitations are identified early.

“Networks have been clearing vegetation away from power lines to minimise the impact of bushfires, and ensuring maintenance works are completed to make sure energy can flow through the grid with minimum constraints.

“We have been ensuring new generators are connected to the grid as quickly as possible, procuring emergency reserves which could be called on if there is insufficient generation in the market at critical times, and ensuring our own incident escalation and response procedures are well practised.

“These preparations are well advanced, but we have warned that some risk remains,” Mr Westerman said. 

“Summer readiness plans, and, indeed, the quest to navigate Australia’s energy transition, are motivated by the same principles that inspired the creation of the NEM 25 years ago.”

According to Mr Westerman, these principles, which also underpin the fundamental expectation of Australians for their energy supply, are that we have an energy system that is safe, reliable and affordable.

“So while a new market was the answer to the needs of 25 years ago, today’s need is about new infrastructure.

“When the next generation looks back in 25 years’ time, I hope they’ll see we collectively rose to the challenge and created an energy system fit for Australia’s net-zero future.”

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