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.
Most important points:
- Market operator warns power supply to Australia’s largest grid could run out within three years
- AEMO says massive shutdowns of coal-fired power plants coupled with increased demand are putting pressure on supply
- The forecast urges urgent construction of renewable energy generation and transmission projects
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.
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.”
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.
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.
“The great energy transition we’ve all been talking about for the past 10 years is well underway,” said Mr Rennie.
“We are now beginning to understand what happens at the end of coal and ask ourselves whether electrification is feasible.”
According to Mr Rennie, Australia faced three major obstacles in its efforts to build the green energy projects needed to replace lost coal capacity.
The first was to secure access to the materials needed to build the wind turbines, solar farms and storage facilities — along with the transmission lines — that would generate and transport the power.
A second was to raise the money needed to pay for the one-off construction boom.
Rennie said the final challenge was to find the workers who could do the job.
“The answer to the first question is yes, and the answer to the second question is yes,” he said.
But the third question is the most critical.
“Do we have enough men and women in safety helmets and high-vis clothing to provide this electrification that we will need in the next 10 to 15 years?
“We have never had a labor market that is tighter.
“Everyone is going through electrification at the same time and we anticipate major shortages in the amount of labor that will be available to make this happen.”
‘No one wins’ from chaos
For Lisa Zembrodt, director of energy markets at French conglomerate Schneider Electric, the market tightness forecast by AEMO should be a call to action for governments.
Ms Zembrodt said a crucial missing piece of Australia’s energy transition was an overarching policy that could guide anyone from a system that runs on fossil fuels to one that is powered by renewable resources.
“The situation is not as dire as what is portrayed in it” [AEMO] base scenario,” said Ms. Zembrodt.
“But it remains a call for more supply on the market.
“This is exactly why we need more renewable capacity, more storage and more demand optimization as part of our plan for the future.
“We cannot delay bringing in new renewable capacity and storage.”
Mrs Zembrodt said: there were few winners from chaotic energy markets.
“It is certainly very difficult for an economy to thrive when energy costs are exorbitant,” she said.
“And of course it’s also very difficult for households, which are the driving force behind any economy.”
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