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Australia's electricity market needs urgent investment over next decade, says operator

Highlights

Forecasts reliability gaps to emerge from 2025

Capacity mechanism plan progressing, says energy minister

  • Author
  • Ruchira Singh
  • Editor
  • Wendy Wells
  • Commodity
  • Coal Electric Power Energy Transition Natural Gas

The Australian Energy Market Operator said Feb. 21 there is an urgent need for investment in generation, long-duration storage and transmission to ensure reliable domestic power generation over the next decade.

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In its update to the 2022 Electricity Statement of Opportunities report, AEMO said there has been generation capacity changes reflected in developer and market participant surveys and in its Generation Information and Transmission Augmentation Information workbook.

"Reliability gaps begin to emerge against the Interim Reliability Measure from 2025 onwards," AEMO CEO Daniel Westerman said. "These gaps widen until all mainland states in the National Electricity Market are forecast to breach the reliability standard from 2027 onwards, with at least five coal power stations totaling approximately 13% of the NEM's total capacity expected to retire."

Investment in generation, such as pumped hydro, gas and long-duration batteries, is critical to complement weather-dependent renewable generation to meet electricity demand without coal generation, Westerman said.

The National Electricity Market comprises five interconnected regions spanning the states of Queensland, New South Wales, Victoria, Tasmania and South Australia that generates around 200 TWh/year of electricity. It supplies around 80% of Australia's electricity, according to the Australian Energy Market Commission.

NEM has a pipeline of proposed generation and storage projects totaling three times the current generation capacity, with large-scale solar, wind and batteries accounting for 86% of the generation mix, according to the report, which did not provide an estimate of the investment required.

Reliability risks relative to the 2022 report have increased in New South Wales in the current fiscal year 2023-24 (July-June) due to the delay in commissioning of the Kurri Kurri generator, AMEO said.

Reliability risks will also increase in South Australia and Victoria from FY 2026-27 when the Torrens Island B power station in South Australia is expected to retire, and further in FY 2028-29 in Victoria when Yallourn power station is slated to retire, and in South Australia from FY 2030-31 when several gas-fired power stations are expected to retire.

The update highlighted the risk of events that may cause electricity demand to exceed supply, driven by weather or other circumstances such as generator or transmission outages.

Australia faced a winter energy crisis in mid-2022 amid rising coal and gas prices in the wake of Russia's invasion of Ukraine, pushing the federal government to take measures including the suspension of the spot electricity market for days.

Prime Minister Anthony Albanese on Dec. 9 imposed caps on the wholesale price of natural gas and coal at A$12/gigajoule ($8.12/gigajoule) and A$125/mt ($84.58/mt), respectively, for a year to ease soaring retail energy prices.

Government push

Australia's Climate Change and Energy Minister Chris Bowen in an interview transcript on his website Feb. 21 said the government is strengthening power generation reliability by working on renewable power enhancement and a capacity mechanism plan.

"I negotiated with the states what's called a capacity investment mechanism, which will underpin and underwrite billions of dollars of investment in dispatchable renewables," Bowen said in the transcript.

"We've made good progress on that since we agreed that last year... That will unleash at least six gigawatts, at least A$10 billion [$6.89 billion], probably more, over the next few years."

Bowen said the government has negotiated "Rewiring the Nation" deals with Victoria, Tasmania and New South Wales, referring to the ruling Labor Party's key plan for making energy cleaner and cheaper to spur economic growth and domestic manufacturing.

Many generation, storage and transmission developments are progressing and if developed to their current anticipated schedules, will lower the reliability risk and reduce forecast capacity requirements, AEMO said in the report.

The developments include:

** The 350 MW large-scale Wooreen Battery by 2026, part of EnergyAustralia's agreement with the Victorian government to deliver an orderly retirement of Yallourn power station.

** 290 MW of other anticipated battery developments in Victoria, as well as the potential for 542 MW of battery developments in South Australia.

** A second auction for the Victorian Renewable Energy Target, which will support at least another 600 MW of renewable energy capacity.

** The Victorian Offshore Wind Policy, which includes procuring at least 2 GW of offshore wind by 2032, and the state's energy storage target to develop 2.6 GW of energy storage by 2030 and at least 6.3 GW by 2035.