There is enough new wind and solar capacity locked in to take Australia to a share of about 42 per cent renewables by the end of 2025, and that might be enough to spell the end of the road for up to three incumbent coal generators.
The capacity of new utility-scale supply of wind and solar projects is about 7.3GW. This consists of the uncommissioned part of currently commissioning capacity, projects under construction, a couple of projects that have reached financial close, and some big projects that have announced PPAs with, say, the Queensland government, but have not yet got to financial close.
ITK estimates that there is a total of 4.2GW of wind and 3.1GW of solar in those combined categories.
The expected energy from those projects is about 21 terawatt hours, or about 10 per cent of current demand on the National Electricity Market. That’s greater than the combined output of say Yallourn (9.4TWh) and Vales Point B (7.4TWh) but the pain will be spread across generators of every class and every state.
Behind the meter adds another 10TWh by 2025
But wait, there’s more! Even assuming behind the meter slows down to, say, an average capacity add of 1.5GW per year over the next 5 years, that’s still a cumulative 7.5GW of new rooftop solar capacity, delivering about 10TWh a year at a 15% capacity factor. This will more than offset the anticipated business-as-usual demand growth of 3TWh.
Of course, demand might grow more if the numbskull federal government would incentivise electric vehicles as any security conscious government would already have started to do now there is an alternative technology. However, I hold no great hopes on that score and ITK forecasts total demand growth of 0.5% per year.
Over 40% renewable market share in 2025 is locked in
We can summarise the above the discussion in the following table:
This could force three coal generators to close within 5 years, but the pain will be spread out
So in total we anticipate that even without the addition of more announced winding solar projects between today and the end of 2025, thermal generation output will nevertheless decline by about 26TWh (from 145TWh in 2020 to 119TWh in 2025).
That’s enough to close three coal generators, eg Vales Point, Yallourn and one in Queensland, say parts of Tarong. However, gas generation might lose some of the little market share it has left and the other coal generators might all cede market share as an oligopoly and try to keep prices up. There is a lot more to be said on this but in this note we only get to the headlines.
Hands up if you think the NSW REZs will result in new projects being announced? Or the VRET 0.8 GW auction?
You don’t have to try very hard to see a further 5GW of new projects being announced over the next five years. There is over 3GW of capacity in the Orana/Central West REZ that the NSW state government has fully committed to getting going over the next couple of years and, of course, there was the 30GW expression of interest in bidding for that capacity.
As well as everything else the positive response to the NSW announcement means that the NSW government is likely to accelerate its second REZ development. After all, as Joh Bjelke Peterson was wont to say, “if the chooks cluck, feed them.” Dear old Joh.
Then there was the very strong expression of interest in the separate but adjacent Transgrid REZ proposal (Northern slopes and plains) corridor around Gunnedah/Tamworth.
Finally, in terms of State Government support there is the headline announcement of another 0.8GW of VRET in Victoria. That would be a further 13-14TWh and would eat another coal generator, say Eraring, which Kerrie Schott has stated needs a new coal ash dam.
What could possibly go wrong?
The downsides to the above estimates are:
Firstly, transmission may not be available to connect all the new generation. Most obviously ProjectInterconnect from South Australia to NSW is still sitting in the zombieland hands of the AER, having already been there for nine months. Yep, that’s progress on speeding up transmission development in Australia.
Secondly, there may end up being spilled wind and solar. Most modelling of the least-cost of an optimised system has some spilled solar and even wind. Mostly, though, the models don’t explain how the solar developer gets paid for the spilled output. No doubt a pat on the back and a quiet word that they’ve done their bit will suffice.
Thirdly, rooftop solar could slow down much more than shown in this note. Fourthly, there may be issues with inertia. The one area that I think the ESB, AEMC and AEMO need to think even harder about is building micro-grids into the existing main grids and distributing inertia, but those issues will at worst only slow down this new capacity.
Fifthly, some may say there is not enough dispatchable power, but at 50% wind and solar, and that includes 8-9% highly dispatchable, at least within Tasmania, hydro, we don’t see there is any issue with dispatchable power. Where one might imagine a problem is reliability, as the daily ramping requirement increases, but this will incentivise longer duration batteries (4 hours) which can easily smooth the ramp.
Sixthly, projects may proceed very slowly. The industry is more cautious now and there is less reason to rush as the LRET carrot is no longer dangling and power prices are less supportive.
As against that, if coal generators do close early, as looks increasingly likely to ITK, then that will of course lead to short term (2-3 year) higher prices and you’d like to have your facility on line for that.
There is lots and lots more to say but that’s enough for one day.
David Leitch is a regular contributor to Renew Economy. He is principal at ITK, specialising in analysis of electricity, gas and decarbonisation drawn from 33 years experience in stockbroking research & analysis for UBS, JPMorgan and predecessor firms.