‘Energy shortages’ will be closed within three years if coal plants are closed

Electricity supply is expected to lag demand in Australia’s largest grid within three years, according to an official report that identifies the need to build new renewable energy and transmission lines as urgent.

In its latest 10-year outlook for the national electricity market, published today, the Australian Energy Market Operator (AEMO) warns of reliability gaps in New South Wales from 2025 and Victoria, Queensland and South Australia towards the end of the decade.

The government agency’s warning follows a period of market turmoil, plagued by rising coal and gas prices, fueled by the Russian invasion of Ukraine and higher-than-normal demand.

Also central to the upheaval was a spate of coal-fired plant outages, affecting a quarter of the fleet in the eastern states at some point in June.

AEMO said that supply pressure is likely to worsen in the coming years as five coal plants close, taking 14 percent of the national energy market’s total capacity.

Complicating matters further is an expected increase in demand amid efforts to electrify large parts of the economy, such as the transportation sector.

The planned closure of Yallourn in 2028 is expected to put a strain on Victoria’s power supply.(ABC news: Freya Michie)

Race on for new capacity

AEMO chief executive Daniel Westerman said unless replacement capacity can be built in time, demand is expected to periodically exceed demand by 2025.

The first hit would be NSW, where major energy retailer Origin has announced plans to close Australia’s largest power station, Eraring, in the same year.

But Mr Westerman noted that the shortages are expected to spread to Victoria from 2028, to Queensland from 2029 and to South Australia by the start of the next decade.

“The report reiterates the urgency of advancing developments in generation, storage and transmission to maintain a safe, reliable and affordable supply of electricity to homes and businesses,” said Mr. Westerman.

“Gaps in forecast reliability have emerged in the NEM regions due to significant shutdowns of coal and gas plants, along with insufficient commitments for new generation capacity needed to offset higher electricity consumption.

“Without further investment, this will reduce the supply of generation and put the transmission network’s ability to meet reliability standards and power system security needs to the test.”

a wind turbine
Wind farms will account for much of the new energy capacity that is expected to come online by 2030.(Vasailios Muselimis: public domain)

To close the gap created by the abandonment of coal and gas-fired generation, AEMO has called on governments and industry to urgently continue building new renewable energy projects.

The agency said the projects, with a combined capacity of 3.4 gigawatts, or enough to power more than two million homes, would be key to keeping the lights on.

‘Pay through the nose’

In addition, AEMO said there were five power lines that needed to “progress as quickly as possible” to ensure the new green power could be delivered where it was needed.

The Australian Industry Group, which represents major manufacturers, said the report was intended to “keep ministers and industry up to scratch”.

Tennant Reed, the group’s climate and energy director, acknowledged that AEMO tended to be cautious given its responsibility for maintaining grid security.

Mr Reed said the report does not take into account some projects that are likely to be operational by the deadline.

A man in safety equipment looks at a conveyor belt of molten ore.
The East Coast industry is dealing with massive increases in electricity prices.(ABC News: Henry Zwartz)

But he said the magnitude and urgency of the task of replacing the phasing out coal capacity was undeniable.

“We have a lot of work to do to meet the existing deadlines,” said Mr. Reed.

“Ideally, we would accelerate many of those timescales as we will be paying through the nose for electricity and gas in the coming years because of the price of coal and natural gas in international markets.

“The faster we can make the transition to clean energy happen, the less of that invasion premium into Ukraine we will pay.

“But we have our work ahead of us to deliver the existing timetables, let alone do the acceleration that would benefit us.”

Transition to crunch point

The comments were supported by Matt Rennie, a partner at Brisbane-based energy consultancy Rennie.

Mr Rennie said that AEMO’s outlook has brought into sharp focus the magnitude of the changes that are putting an end to the electricity system.

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