The operator of the main electricity transmission line in NSW and a leading international energy research group say that adding more wind and solar capacity will be critical for the state to lower its electricity prices, particularly as its ageing coal fleet starts to exit the market.
Transgrid, which runs the main energy highway in NSW, and its links to other state markets, and is also involved in the creation of up to three renewable energy zones in the state, says the recent falls in wholesale electricity prices could be sustained by connecting yet more renewables to the grid and generating more competition in the market.
NSW prices have fallen in the last year, but it currently has one of the highest prices in the National Electricity Market, largely because its coal fleet have relatively high running costs and it is a big importer of capacity, and to date only 10 per cent of its supply come from lower cost wind and solar.
South Australia, which for most of the past two decades has suffered the highest wholesale prices in the NEM, now has one of the lowest as the benefits of its switch to wind and solar take hold. It now supplies more than 55 per cent of its demand from wind and solar.
Transgrid, in itsTransmission Annual Planning Report 2020, says new transmission infrastructure is essential to unlocking and sharing new win, solar and storage sources – and this will deliver lower wholesale prices and a better ability to meet peak demand as coal power generation is phased out.
“Relief from high wholesale prices won’t last without the transformation of the power system, so a commitment is needed to develop more renewable energy sources and improve interconnection to better share existing and new generation,” Transgrid’s head of network planning, Andrew Kingsmill, said in a statement.
“Establishing renewable energy zones and integrating new, low-cost generation will increase competition, helping to maintain downward pressure on the wholesale electricity market price and reduce electricity bills.”
This echoes the comments made by state energy minister Matt Kean, who said in the latest episode of RenewEconomy’s Energy Insiders podcast that the transition to wind, solar and storage was the obviously path to cheap and clean energy for a state that would see nearly all its coal fired generation retire within the next 15 years.
Kean said the abundance of cheap, clean, and reliable wind, solar and storage meant NSW could be a renewable energy superpower, and through that an economic superpower by attracting industry to the state and its regions. A recent call for expressions of interest for the first REZ, located near Dubbo, received 27GW of wind, solar and storage proposals, nearly 10 times the proposed capacity of the new zone.
The pipeline of projects is there, but the challenge for NSW comes from accelerating what has so far been a relatively slow build out of wind and solar, and timing the delivery of new capacity ahead of the retirement of the existing coal fleet.
Kingsmill says the tight supply-demand balance that occurred over summer will worsen without new investment.
“It is essential to progress the transformation of the power system in a timely way. This will avoid excessive reliance on gas peaking generation and market interventions, which place upward pressure on electricity prices,” he says.
The comments came as energy consultancy and research group Cornwall Insights Australia warned the energy transition in NSW over the next decade will need to gather pace significantly as the exit of the coal generators accelerates.
“The below graph shows that renewables have contributed an average of about 10% of total generation in NSW in the last four years. Over that same period, coal generators (exiting the market by 2035) provided on average about 77% of total generation in the state,” it said in a report.
“This indicates a noticeable gap between power generation over the last four years and those generators that are earmarked for retirement before 2035 and renewables.
“It is startling that over the next 10-15 years, ~77% of the current generation sent-out in NSW would have to come from elsewhere. It is particularly poignant that this gap will have to be bridged by technologies whose generation has grown by just ~7% in the last four years.
“The Central-West REZ represents a significant move to help bridge this gap. NSW is also looking to improve its import capacity with ~3GW of interconnector expansions in various stages of regulatory approvals. Other innovative models for network reinforcements within the state are also being planned in preparation for new generation seeking to connect.
“NSW will undoubtedly continue pushing the envelope as it prepares for a shift in the pace of renewable/storage development needed to close this gap. It is however left to be seen if regulation can keep up.
“While the urgency needed in the transition is most evident in NSW, the state is not alone; Victoria and Queensland are also preparing for significant coal exits in the coming years.”
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