How reliable will eastern Aust energy be over the next 10 years?

The recently released 2023 Electricity Statement of Opportunities (ESOO) report from the Australian Energy Market Operator (AEMO) has highlighted the need for urgent investment in renewable energy projects as coal and gas are increasingly phased out.

The ESOO report assesses the reliability of electricity over the upcoming decade for each state in the National Electricity Market (NEM) and signals what development is needed to cover predicted supply gaps. It is produced using insights from developer and market participant surveys, transmission information and extended analysis of energy limitations, like the potential impact of drought conditions, as well as coal and gas supply shortfalls.

“This year’s report highlights the pace of Australia’s energy transition and the urgency needed to deliver new investment to ensure reliable, affordable and cleaner energy for consumers,” said AEMO CEO Daniel Westerman.

“Over the 10-year outlook, we continue to forecast reliability gaps, which are mostly due to the expectation that 62% of today’s coal fleet will retire by 2033.

“To ensure Australian consumers continue to have access to reliable electricity supplies, it’s critical that planned investments in transmission, generation and storage projects are urgently delivered,” he said.

Emerging reliability gaps

AEMO predicts that over the next 10 years, electricity consumption and peak demand will grow due partly to population growth and economic activity, but also due to electrification (fuel switching) across all sectors of the economy, including transportation and residential heating and cooking.

Reliability risks are forecast to exceed the relevant reliability standard in Victoria from this summer; New South Wales from 2025–26; South Australia this summer and then again from 2028–29; and Queensland from 2029–30. These risks are calculated based on existing, committed¹ and anticipated projects² as per the ESOO’s ‘central scenario’.

The reliability gaps identified through the central scenario form an important part of the electricity planning process, as they provide the signal, and in some cases the obligation, for electricity retailers to contract sufficient capacity to provide for a reliable power system.³

However, Westerman pointed out that while the central scenario showed increased reliability risk, it did not reflect the reliability potential from the 248 gigawatt (GW) pipeline of proposed generation and storage projects, actionable transmission projects and government energy programs underway.

“Federal and state government initiatives, including transmission projects identified in the Integrated System Plan, and mechanisms delivering firming capacity, such as the Commonwealth’s Capacity Investment Scheme, can address many of the identified risks over most of the 10-year horizon, if delivered to schedule,” Westerman said.

“There is also the opportunity for consumers’ rooftop solar, batteries and electric vehicles to actively participate in the power system, which would further reduce reliability risks.”

Compared to last summer, around 3.4 GW of new generation and storage capacity is expected to be available this summer, which is forecast to be hotter than in previous years, meaning electricity demand may be higher than observed in recent years.

“We’re expecting an elevated level of risk compared to recent years, mostly due to hotter and drier conditions, and coal-fired generation reliability is at historic lows,” Westerman said.

“The entire industry is focused on managing the risks in the summer ahead, particularly during high-demand periods coupled with generation outages and low renewable output, but some risk will remain.

“In the longer term, AEMO will continue to collaborate with industry and governments to deliver energy projects to maintain reliable and affordable electricity for all consumers,” he said.

Energy analysts respond

Several energy analysts have weighed in on the 2023 ESOO report.

Tim Buckley, Director of independent public interest think tank Climate Energy Finance, said it was notable that AEMO explicitly confirmed that risks to supply can be adequately addressed by state and federal government renewable energy transition initiatives currently underway.

“These include enhancing orchestration of virtual power plants (VPPs) and distributed energy resources (DER) such as rooftop solar to help shore up supply and firming; major transmission infrastructure; pumped hydro storage (PHS); and battery energy storage systems (BESS) — assuming these can be delivered on schedule.”

However, Stephanie Bashir, Founder and CEO of Nexa Advisory, stressed that the pipeline projects AEMO designed to address reliability gaps were at risk of not being finished on time without significant action from industry.

“The industry, from investors to developers and providers, are ready and willing to do this. We have been saying, for years, governments and other decision-makers need to focus the effort on prioritising and accelerating connections of the renewable power projects in the ISP [Integrated System Plan] and building the transmission infrastructure.

“I cannot emphasise enough that we cannot rely on coal power to address reliability issues when [it is] part of the problem.”

Flow Power CEO Matthew van der Linden said that there were “very real, practical solutions staring policymakers in the face”.

“Demand response, or using energy at off-peak times, is an incredibly simple yet untapped opportunity. In Victoria alone, if just 5% of businesses powered down at the right times, the reliability gap for this summer would disappear.

“Likewise, for individuals: with the right education and incentives, households could play an active role in taking pressure off the grid and helping to correct the market. It’s high time governments got serious about demand response with funding and education. Programs like the Building Integrated Demand Response in South Australia show that government programs can support businesses to embrace automation and reduce their impact on the grid,” van der Linden said.

Tristan Edis, Director, Analysis and Advisory, Green Energy Markets, said, “While we certainly need to get our skates on building new power plants, the amount of unserved energy after Eraring exits is surprisingly small.

“If readers manage to make it to page 74 of the report they’ll find the amount of new capacity needed to meet the reliability standard can be easily constructed within the time frames required.”

_{1. Committed projects meet all five of AEMO’s commitment criteria (land, contracts, planning, finance and construction) but have not yet met the requirements of their first commissioning hold point.}

_{2. Anticipated projects have made progress towards at least three of AEMO’s commitment criteria and have provided AEMO confirmation or update of project status in the last six months.}

_{3. The ESOO Central scenario applies for the purposes of the Retailer Reliability Obligation.}

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