Finally, Australia’s energy network planning will include climate policies

The Energy Security Board has laid the way for climate and renewables targets to be included in future energy system planning, as governments move to put the Australian Energy Market Operator’s (AEMO) Integrated System Plans into practice.

In an update delivered to the COAG Energy Council in March, the Energy Security Board laid out its final recommended changes to the planning process, that will ensure future transmission network investments are optimised to best serve the needs of the wider electricity system and include the ability for AEMO to take “public policy” considerations into account.

Critically, AEMO will be able to take climate policies into account as part of its “central” base case plan, rather than including it in an alternative scenario and extend it to the inclusion of renewable energy zones in future transmission network plans.

“Public Policy” can be read as code for state and federal emissions reduction targets and renewable energy targets, which are themselves designed to shape the types of technologies being added to the National Electricity Market.

“In addition, AEMO may prepare sensitivities showing the impact of State and Federal government environmental and energy policies where a participating jurisdiction has advised AEMO to model the policy,” the Energy Security Board said.

This may seem an obvious move, but for the past two decades Australia’s energy policy – its network planning and the rules that shape the operation of the market – have been operating in a vacuum because when the NEM was created in the late 1990s, environment and climate considerations mysteriously disappeared at the last moment.

While the new rules won’t require climate and renewable energy policies to be considered in all decisions made by regulators in shaping the future energy system, they are a step forward in integrating considerations relevant to increased wind, solar and storage adoption in network planning.

The AEMO has been tasked with preparing regular Integrated System Plans, which outlines the most efficient and effective way forward for energy system development in the National Electricity Market, to ensure network investment is coordinated to meet future needs.

Even on its current “central scenario” it says that the share of renewables is likely to be around 70 per cent by 2040, and up to 90 per cent under the “step change” scenario that dials in the 1.5°C Paris target. But many utilities have said this may be conservative, because the cost of solar and storage, and the uptake of distributed energy may be far more favourable than that factored in by AEMO.

With a fundamental transition to lower emissions technologies underway, including a shift from centralised generation to distributed energy resources, network investment coordination is crucial to avoid unnecessary investment in unneeded infrastructure and to ensure network infrastructure is built in places where it is needed most, including to avoid current constraint issues that are preventing new wind and solar projects connecting to the grid.

The Energy Security Board had previously considered including public policy concerns within a list of critical “power system needs”, alongside factors that include electricity supply and network reliability and system security.

After lobbying from several of the major energy sector players, including the Australian Energy Council, the Energy Security Board opted to relegate “public policy concerns” from being viewed as an essential power system need, to a factor AEMO may take into account, at its own discretion, when designing an Integrated System Plan.

“With respect to public policy, AEMO may incorporate State and Federal government environmental and energy policies into the ISP’s central case where there is a current policy commitment with clear articulation of when and how it impacts the power system,” the Energy Security Board said.

AEMO be able to take emissions reduction and renewable energy targets into account when designing the optimum integrated system plan, provided the targets have either been agreed to under an international treaty (like the Paris Agreement), enshrined in legislation, significant public funding has been allocated to the policy, or the COAG Energy Council has advised AEMO to include it in its considerations.

In its first Integrated System Plan, AEMO included the federal government’s climate and energy policies, including the subsequently abandoned National Energy Guarantee (NEG), as well as legislated Victorian and Queensland renewable energy targets in its core planning scenario.

However, AEMO excluded the Snowy 2.0 project, and the ‘Battery of the Nation’ project to expand Tasmania’s pumped hydro storage, opting to consider them in an alternative scenario.

The new guidance from the Energy Security Board will likely help ensure future network planning will include all relevant policies, while avoiding the inclusion of policies, like the NEG, that may not ultimately reach implementation.

AEMO delivered its first Integrated System Plan in 2018 and is currently developing its next update, due later in this year. AEMO will continue to produce further updates to the plan through a two-year cycle.

Presenting its final proposal for how to implement the ISP, the Energy Security Board outlined to the COAG Energy Council how the ISP process will be integrated into the existing network investment assessments(the RIT-T process) while ensuring all-new transmission network investments are consistent with the future needs of the electricity system while delivering value for money to consumers, and delivering on government’s plans for zero-emissions technologies.

Network companies will also be required to consider viable alternatives to new network investments, which may include the use of new distributed energy resources, including battery storage or strategically placed wind and solar generation. Such alternatives can often be a way of alleviating network pressures, by adding new supply directly where it is needed and can be a cheaper way of eliminating the need for new network investment.

The Australian Energy Regulator has already begun directing transmission network companies to include the consideration of big battery systems as part of their future network investment proposals.

The new planning approach was endorsed by energy ministers through the COAG Energy Council, and are set to be adopted through amendments to the National Electricity Rules.

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