The Australian Energy Market Operator has hedged its bets on the impact of the planned closure of the country’s biggest coal generator, saying the issue has been complicated by project delays, a looming El Nino summer, and the lingering threat of unplanned fossil fuel outages.
The closure date of the 2.88GW Eraring plant, owned by Origin Energy, is turning into a major symbol for the strength and the pace of the green energy transition, and for many a political litmus test of whether the switch to green energy is doable or not.
AEMO’s latest 10-year outlook, its annual Electricity Statement of Opportunities (ESOO), is a typically nuanced, complex and sometimes confusing report, but AEMO has ramped up its language about the need to accelerate, rather than delay, the transition to renewables.
The bottom line is that if planned big battery storage projects are built and connected on time, then the reliability standards will likely not be breached in NSW with the closure of Eraring in two years time.
The situation is the same for most other states, although Victoria still needs more dispatchable power before the end of the decade, and this will be addressed by the new 2,400MWh storage tender that was announced by the federal and state governments on Wednesday – just a day before the ESOO release.
AEMO, whose job is to keep the lights on, suggests in the ESOO report that the planned Eraring closure date of August, 2025, in its “central scenario”, could trigger both the strict reliability standard and the even stricter interim reliability standard.
But, as usual, this central scenario does not include projects that are not yet “committed”, and in this case that means it doesn’t take into account the 930MW and 1860MWh of battery storage that has been tendered by the NSW and federal governments in one tender, and more wind, solar and long duration storage in another.
These projects are not included because, while the tenders are closed, the winners have yet to be announced, and so – in AEMO’s eyes – they cannot be counted as “committed” projects.
If they are built, then there is no predicted shortfall, even in the extremely tight “interim reliability standard”, which allows for just 0.0006 per cent of unserved energy (see graph above), a strict interpretation that is yet to be approved to extend beyond 2025.
“In 2025-26, the additional firming infrastructure from the firming infrastructure tender and additional Capacity Investment Scheme support, alongside the Waratah Super Battery project, is expected to offset the retirement of Eraring Power Station,” AEMO says in the document.
But you have to go to page 102 of the 175 page report to find that moment of clarity. And that assessment does depend on those big batteries being built in time, and getting through the AEMO connection and commissioning processes.
On page 74, there is another explanation of what is needed to address unserved energy (USE).
It should be noted that these USE assumptions do not include all the projects already named winners of the first NSW LTESA auction (for wind, solar and eight hour storage), and nor does it include the yet to be declared second LTESA auction or the 930MW, two hour storage capacity tender.
As always, there are several caveats: The reliability forecast could be affected by the ability to “orchestrate” distributed solar, a new focus of the ESOO reports, and AEMO has thrown in another new wildcard – the impact of transmission outages, which are increasing but whose impact is not quantified.
AEMO has further confused the issue by suggesting it will seek regulatory approval to trigger the “T-3” retailer reliability mechanisms, in NSW and Victoria, which would require big utilities to contract certain amounts of dispatchable power to ensure there is enough capacity.
The timing of the report is delicate because the NSW government is currently assessing an “independent” health check on its grid from consultant Cameron O’Reilly, which reportedly suggests that at least some units of Eraring should be kept open for another year or two.
On that note, AEMO has also modelled a “sensitivity” that includes keeping two 720MW units at Eraring open for another two summers, “assuming the generator can maintain the reliability of its plant.”
Helpfully, this would get the state Labor government past the next election, due in early 2027, but will also likely include substantial payments to Origin, or its new owner Brookfield, that would have to be negotiated.
And keeping coal plants open is not a real long term solution, because – as AEMO notes itself – these ageing plants present a growing reliability risk of their own.
See: Ageing coal and gas generators getting less reliable, says AEMO
The NSW government is thought to be divided over the Eraring closure. NSW premier Chris Minns, who even flagged a potential state buyout of Eraring in the election campaign earlier this year, met with some energy experts on Wednesday to discuss the issue and the pace of the green energy transition in the state.
AEMO CEO Daniel Westerman has again highlighted the need to get on with the energy transition, with increasingly strong language, as its own modelling of an 82 per cent renewable share by 2030, and multiple coal closures are put at risk by delays in renewable, storage and transmission projects.
“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,” Westerman says in a statement accompanying the report.
But, as everyone has observed, many projects are falling way behind schedule, and the issue has been complicated by warnings of extreme heat in the coming summer – thanks to climate change and El Nino, increasing reliability issues with ageing coal plants, and significant changes to demand forecasts.
“We’re expecting an elevated level or risk this summer compared with recent years, mostly due to hotter and drier conditions and lower levels of reliability from our coal-fired generators,” Westerman said.
AEMO’s central scenario is now forecasting potential reliability gaps in every state in coming years – in Victoria and South Australia this summer, in New South Wales from 2025-26, and Queensland from 2029-30.
This is a more dire forecast than last year, and even the February update. But, again, it must be noted that this central forecast does not include many projects that are still likely to be built. AEMO is simply re-iterating that they must be built.
“While our central scenario shows increased reliability risk, it does 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,” Westerman says.
“Transmission projects identified in the Integrated System Plan, federal and state government initiatives, including 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.
“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.”
The situation is not helped by the increasingly strident polemic over Australia’s energy future, with the Coalition and much of mainstream media wanting to stop the roll out of wind, solar and transmission lines.
They urge, despite the increasingly urgent calls for rapid climate action in the wake of new temperature records and ice melts, that Australia should wait for nuclear small nuclear reactors to be built, which won’t occur in numbers even in advanced nuclear economies till the middle of next decade.
The situation is worsened by the widely predicted catastrophe that the controversial Snowy 2.0 hydro scheme has turned out to be, with costs more than doubling again to a reported $12 billion, further delays likely and questions about how useful it will actually be to the grid.
The AEMO report – which in this edition extends to 175 pages thanks to newly included 30-year demand forecasts for individual states – also throws in some new variations and sensitivities to its forecasts.
This includes the level of “orchestration” and new capacity limits on battery storage, as well as growing transmission issues – constraints and delays.
The battery storage is interesting, because it has been advised that battery storage cannot necessarily be guaranteed to work with “perfect foresight” at times of peak demand, so their nameplate capacity has been de-rated.
For all orchestrated CER (VPP and V2G) and devices with less than 1.5 hours of storage, storage energy (MWh) was reduced by 50%. For devices with 1.5 to (less than) 3.5 hours of storage, storage capacity was reduced by 25%, and those with up to 7.5 hours storage, it has been derated by 10 per cent.
Renewable advocates said the AEMO report illustrated there was no need to keep Eraring open past August, 2025.
“This ESOO is telling us we are behind in our energy transition. That is not news,” said Stephanie Bashir, from Nexa Advisory.
“AEMO has identified coal and gas power as being more unreliable than ever in 2022-23 and the outlook is for that to deteriorate further. That is also not news.
“What has changed is that six months ago it was assessed by AEMO that all the reliability risks would be addressed by projects in the pipeline if we delivered them on time. They won’t be, unless we pull our fingers out.’”
Johanna Bowyer, financial analyst at IEEFA, said the ESOO shows that if renewables and storage projects, government schemes and actionable transmission projects proceed on schedule, the market is forecast to remain within the reliability standards.
Distributed energy expert Dr Gabrielle Kuiper said one of the cheapest and fastest ways to get more electricity capacity into the system is on commercial and industrial roofs.
“The potential of commercial and industrial roofs around the country is estimated to be between 30 and 50 GW. This rooftop solar needs to be complemented with batteries, thermal storage, EV fleets etc, but it shouldn’t require costly upgrades to the grid, especially if batteries are put in places where the local grid is constrained.”
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