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Australia’s coal-fired power generators are closing, but to ensure that homes and businesses still have access to a reliable power supply, major investment in renewable energy infrastructure is needed. The Australian Energy Market Operator (AEMO) has published a draft of the 2024 Integrated System Plan (ISP), a roadmap set to guide the energy transition along the lowest cost pathway to net zero.

AEMO’s Draft 2024 Integrated System Plan (ISP) is a roadmap for the energy transition of the National Electricity Market (NEM) over the course of the next 20 years, in line with government policies to reach a net zero economy by 2050.

The plan outlines the lowest-cost pathway of essential generation, storage and transmission infrastructure to meet consumers’ energy needs for secure, reliable and affordable energy, and to achieve net zero emissions targets.

With the retirement of coal-fired power stations, the way Australia generates electricity is shifting towards renewable sources. However, as the country undergoes this transition, it is essential that the NEM is still able to meet demand.

AEMO’s Draft ISP 2024 maintains that renewable energy connected with transmission, firmed with storage and backed up by gas-powered generation is the lowest cost way to supply electricity to homes and businesses throughout Australia’s transition to a net zero economy.

Future scenarios

AEMO outlines three possible future scenarios:

» Step Change, which fulfills Australia’s emission reduction commitments in a growing economy.
» Progressive Change, which reflects slower economic growth and energy investment.
» Green Energy Exports, which sees very strong industrial decarbonisation and low-emission energy exports.

All three scenarios acknowledge that coal will continue to retire over the coming years, and all three scenarios align with government net zero commitments.

After extensive consultation with more than 30 expert panellists that represent industry, government, network service providers, researchers, academics and consumers, AEMO has assigned likelihoods of 43 per cent for Step Change, 42 per cent for the similar Progressive Change and 15 per cent for Green Energy Exports. Step Change therefore is the ISP’s most likely scenario.

Candidate pathways were then tested against these future scenarios, through to 2050. Some of these tests looked at greater electricity demand in the NEM and other influences that would increase the benefits of transmission – such as more rapid industry decarbonisation, faster coal retirements, and reduced energy efficiency.

Others considered slower delivery of infrastructure and other influences that would instead reduce the benefits of transmission higher costs of capital, more constrained supply chains, weaker (host community acceptance for new infrastructure). Of these candidate pathways, the optimal development path (ODP) is the lowest cost, most resilient, pragmatic path to the NEM’s energy future.

The shift away from fossil fuels

In the 2024 ISP, AEMO reports that coal is retiring faster than announced. Since Munmorah ceased operations in 2012, ten major coal-fired generators have closed and retirements have been announced for all but one of the remaining fleet, with about half shutting down by 2035 and the rest by 2051.

On 1 In November 2023 a new emissions reduction element came into force in the National Electricity Objective (NEO) of the National Electricity Law.

In its preparation of the Draft 2024 ISP, AEMO has chosen to apply the amended NEO by using only scenarios that comply with Australian State and Federal governments’ emissions reduction policies and by considering policies and targets in the Australian Energy Market Commission’s Emissions Targets Statement, including those which are on their way to meeting (but have not yet met) the National Electricity Rules requirements for public policies’ inclusion in the ISP.

However, the draft 2024 ISP forecasts that the remaining coal fleet will close two to three times faster than those announcements. In the most likely Step Change scenario, about 90 per cent of the current 21GW of coal capacity would retire by 2034–35, and all before 2040.

Even in Progressive Change, only 4GW of coal generation would remain in 2034–35. Coal retirements may occur even faster than these forecasts. AEMO states that ownership has become less attractive, with higher operating costs, reduced fuel security, high maintenance costs and greater competition from renewable energy in the wholesale market.

Coal owners are only required to give three and a half years’ notice of a closure, which gives very little time for the NEM to react.

The essential shift to renewable energy

With coal retiring, renewable energy connected with transmission, firmed with storage and backed up by gaspowered generation is the lowest cost way to supply electricity to homes and businesses throughout Australia’s transition to a net zero economy.

A number of different investments are needed for a transition that maximises benefits to energy consumers:

» Low-cost solar and wind generation will take advantage of Australia’s abundant solar and wind resources.

» Renewable energy zones (REZs) are being developed across the NEM to tap into high-quality wind and solar areas using economies of scale and providing new employment opportunities.

» Transmission networks, existing and new, will connect the renewable energy from REZs through to consumers, bringing low-cost electrons to heavy industry, businesses and households.

» Firming technologies will smooth out the variations in renewable supply: batteries for everyday variations, and strategic pumped hydro projects for longer-term and seasonal variations.

» Gas-powered generation will provide necessary back up with critical power supply when it is needed, both for ‘renewable droughts’ of ‘dark and still’ conditions, or to meet peaks in consumer demand.

» Batteries, gas and other network investments will deliver essential power system services to maintain grid security
and stability.

» Rooftop solar and local batteries, connected to modernized distribution networks, will generate consumers’ own electricity, store it for when they need it, and supply the excess back to the grid.

Doing all this at once is complex. Across the electricity sector, people are working on the operational and engineering solutions needed to support our transition to a high-renewables power system. All the while, the priority is secure, reliable and affordable supply for Australian consumers.

AEMO has selected an optimal development path that sets out the capacity of new generation, firming, storage and transmission needed in the NEM through to 2050. Under forecasts for the Step Change scenario, the ODP calls for investment that would:

» Triple grid-scale variable renewable energy by 2030, and increase it seven-fold by 2050. About 6GW of capacity would need to be added every year, compared to the current rate of almost 4GW. Wind would dominate installations through to 2030, complementing installations of rooftop solar systems, and by 2050 grid-scale solar capacity would be 55GW and wind 70GW.

» Focus grid-scale generation in REZs, selected to access quality renewable resources, existing and planned transmission, and a skilled workforce. REZs will support better grid reliability and security; reduce transmission, connection and operation costs for individual assets; and promote regional expertise and employment at scale.

» Almost quadruple the firming capacity from sources alternative to coal that can respond to a dispatch signal, using utility-scale batteries, pumped hydro and other hydro, coordinated consumer energy resources as virtual power plants (VPPs), and gas-powered generation. This includes 50GW / 654GWh of dispatchable storage, as well as 16GW of flexible gas.

» Support a four-fold increase in rooftop solar capacity reaching 72GW by 2050, and facilitating the use of consumer-owned batteries and VPPs to deliver 27GW of flexible demand response for the NEM.

» Leverage system security services and operational approaches to ensure that the NEM stays reliable and secure even as the renewable share of generation approaches 100 per cent, as identified in AEMO’s Engineering Roadmap to 100 per cent Renewables.

Transmission driving the transition

Transmission connects diverse generation and storage to towns, cities and industry. It brings electricity where it is needed, when it is needed, and improves the power system’s resilience. These transmission networks need to be able to meet the changing demands and connect the renewable energy from REZs through to consumers, bringing low cost electrons to heavy industry, businesses and households.

Transmission planners make the most of the existing network before considering new projects, for example by using real-time weather monitoring to maximise line use. In many cases, new transmission will complete a network that can take advantage of the NEM’s geographic diversity, allow REZs to transfer their future energy to where it is needed, and maintain a secure and reliable power system.

The Draft 2024 ISP predicts that close to 10,000km of transmission would be needed by 2050 under the Step Change and Progressive Change scenarios. If Australia is to pursue the more transformational Green Energy Exports, then more than twice as much transmission would be needed, delivered at a much faster pace.

The benefits of the ODP

The selected ODP sets out the capacity of new generation, firming, storage and transmission needed in the NEM through to 2050. The path would:

» Guide the capital investment needed for essential electricity infrastructure to sustain and grow Australia’s $2 trillion annual economy

» Avoid $17 billion in additional costs to consumers (in present value terms) if no transmission was included in this capital investment

» Connect emerging areas of renewable generation to regional industries and to urban businesses and households

» Firm variable renewable energy with batteries, hydro and gas-powered generation, and

» Create new economic and job opportunities, particularly in regional areas.

The annualised capital cost of all generation, storage, firming and transmission infrastructure in the ODP has a present value of $121 billion (in Step Change scenario to 2050). The equivalent upfront capital cost has a present value of $138 billion (as some technical life remains after 2050 for the long-lived assets).

Of the annualised cost, transmission projects amount to $16.4 billion or 13.5 per cent of the total. AEMO ascertains that they would pay themselves back and deliver the additional $17 billion net market benefit noted above.

Risks to delivery of the ODP and to the energy transition AEMO has identified the ODP as the most effective path to maintain reliable electricity supply as coal retires and to deliver the energy system needed for a net zero economy.

Any delay to delivery of the ODP increases the likelihood of interruptions and higher costs. While significant progress is being made, challenges and risks are already being experienced. Unplanned coal generator outages are becoming more common as the fleet ages.

Planned projects are not progressing as expected, due to approval processes, investment decision uncertainty, cost pressures, social licence issues, supply chain issues and workforce shortages. The possibility that replacement generation is not available when coal plants retire is real and growing, and a risk that must be avoided. The sooner firmed renewables are connected, the more secure the energy transition will be.

To deliver the transition on time, industry and governments must also work together with communities throughout the NEM to ensure there is the needed social acceptance. AEMO outlines the following risks to the delivery of the ODP:

» Risk of uncertainty for infrastructure investment
» Risk of early coal retirements
» Risk that markets and power system operations are not yet ready for 100 per cent renewables
» Risk that consumer energy resources are not adequately integrated into grid operations
» Risk that social licence for the energy transition is not being earned
» Risk that critical energy assets and skilled workforces are not being secured

AEMO’s Draft 2024 ISP sends a clear message: “urgent action is needed to deliver benefits for consumers as the NEM moves away from its traditional dependency on coal-fired generation.”

This transition to renewables has already begun, and it’s the biggest transformation of the NEM since it was formed 25 years ago. A clear path is needed to ensure that new, essential infrastructure meets future energy needs, while balancing consumer risks and benefits to their long-term interests.

The read the full AEMO Draft 2024 ISP, visit aemo.com.au/consultations/current-and-closed-consultations/draft-2024-isp-consultation

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