It doesn’t feel like it at times, and the political debate would have us believe it is not happening at all. But the Australian Energy Market Operator says Australia is in the midst of what is likely to be the world’s fastest energy transition. And it has just finalised its 20-year blueprint to make sure that the shift from coal to a grid dominated by wind, solar and storage can happen smoothly and delivers the promised savings in costs and emissions.
The final version of the 2020 Integrated System Plan was presented to state and federal ministers in the past week and released to the public on Thursday. It differs little from the draft ISP unveiled late last year, apart from some price movements in gas and networks (both up), and battery storage (down), and an even more rapid embrace of rooftop solar by the public.
But the central message is this: The energy transition is inevitable, it’s accelerating and there’s not much point in resisting it. “This system is now experiencing the biggest and fastest transformational change in the world,” it says.
Even a “do-nothing” business-as-usual scenario delivers a 74 per cent renewables share by 2040. A “step-change” could deliver 94.2 per cent renewables by 2040. So if Australia is smart, can take advantage of its natural advantage in wind and solar, can lock in its technical know-how, and deliver a system that is smarter, cleaner and cheaper than what it has now, then it can position the country to become a renewable energy and economic superpower.
“It is inevitable. It is just who we are and what we are,” AEMO boss Audrey Zibelman told RenewEconomy in an interview ahead of the release. “We are at a position where the existing coal fleet is coming to an end of its technical life and is going to retire.”
Zibelman says coal will be replaced by renewables because the cost of wind and solar technology have already plunged in recent years and will continue to fall, and together with battery storage and pumped hydro, and other forms of dispatchable generation, they clearly offer the cheapest and obvious replacement.
Whichever way you cut it, AEMO says, Australia is going to experience the world’s fastest energy transition. As this graph above shows, only in the catastrophic (in climate and environmental terms) slow-change scenario does the share of renewables fail to reach 50 per cent by 2040, but only just. Even in the “central scenario” – essentially doing nothing beyond what has already been announced – the share of renewables reaches 74 per cent. The step change takes it to 94.2 per cent in just two decades, including 87.8 per cent from wind and solar alone.
The ISP is AEMO’s 20-year blueprint to ensure that the planning is in place, and so is the infrastructure, to go with the new market rules and regulations that take into account the change in technologies from a centralised grid, based around big fossil fuel generators, to a distributed, digital and democratised grid that links the best resources of wind and solar and behind–the-meter technologies.
It is very complex, and hard work for the engineers. But it is eminently doable. “These are all solvable issues,” Zibelman says. “We need to drive this transition at an affordable price, and learn how to maximize the opportunities for consumers for what are essentially free electrons from these assets.” And that means creating the conditions, and a coherent plan, where investors can invest with confidence.
Zibelman says the net benefits of its core infrastructure plan in the ISP – based around network infrastructure and new renewable zones – will be $11 billion.
“That’s two to three dollars of return for every dollar that is spent,” she says. The benefits could be even greater, depending on which of the five scenarios that Australia ultimately follows. The good news is that the step-change scenario, the fastest change and the one that accords with climate science, and the Paris targets of 1.5°C, delivers the biggest benefits – $40 billion.
This transition will, however, require massive investment in new generation.
Much of it will come from consumers. Residential, industrial and commercial consumers are expected to continue to invest heavily in distributed PV, battery storage and load management. Depending on the scenario, and subject to technical requirements, the AEMO modelling projects distributed energy could provide up to 22 per cent of total underlying annual energy consumption by 2040.
More than 26 gigawatts of new grid-scale renewables is needed in all but the Slow Change scenario, on top of the 10GW that has already been built or is in construction. This is to replace the approximately 15GW, or 63% of Australia’s coal-fired generation that will reach the end of its technical life and so likely retire by 2040.
The graph above shows the expected retirement dates of the big coal and gas generators. AEMO says existing coal-fired plants are not forecast to continue beyond their planned retirement dates and in the Fast and Step Change scenarios will exit earlier if the competition from renewable generators and carbon budgets reduce their revenue below what is economic for them to continue.
The new build requirements for wind and solar generation could total up to 55GW, depending on the pace of change, and this will have to be supported by between 6GW and 19GW of new flexible and dispatchable resources. (See graph below).
This is likely to come from pumped hydro, large-scale battery energy storage systems, distributed batteries, virtual power plants, and other demand-side participation (DSP).
New flexible gas generators could play a greater role, but only if gas prices remain really low. Otherwise, they won’t be able to compete with battery storage. But AEMO points out that even within one scenario, there are near-infinite possibilities to mix generation, storage, transmission and distributed resources to meet cost, security, reliability and emissions expectations.
AEMO has a bunch of things on its to-do list. Apart from a rewrite of the market rules and regulations, and the upgrade of inverter technologies and other protocols that will give it increased visibility and control over the growing fleet of rooftop solar installations, it also has its eyes on new transmission links between state grids and the creation of specific renewable energy zones.
These are the focus of the ISP. And the most urgent of these are new links between NSW and Victoria – particularly as the growth of rooftop solar makes the ancient and inflexible brown coal generators in Victoria difficult to manage; the Marinus link between Tasmania and Victoria; the Hume link to deliver the Snowy 2.0 to where it might be useful, and a new link, Project EnergyConnect, from South Australia to NSW.
Its list of preferred REZ includes the central west in NSW, and other zones in south-west NSW and Victoria, and Queensland. The newly announced New England REZ, where NSW hopes to attract 8GW of wind, solar and storage capacity, is not top of its list.
But Alex Wonhas, AEMO’s chief system designer, says that’s not a problem because it can work with the state governments and accommodate its preferences. The NSW energy minister Matt Kean, possibly facing the most dramatic transition of all as the state’s ageing coalers exit the market and are replaced by up to 16GW of new renewables capacity, is not fazed.
“I welcome AEMO’s latest Integrated System Plan, which is a strong tick of expert approval for the NSW government’s plans to build Renewable Energy Zones and fast track our connection to Snowy 2.0,” Kean said in an emailed statement.
Tasmania energy minister Guy Barnett – like Kean, a Liberal – was equally chuffed with AEMO’s support for the Marinus link, which would have two new sub-sea cables linking the island state with the mainland, which would support its target of reaching 200 per cent renewables by 2040 so it can become a “battery of the nation”.
“Our number one priority is to create jobs, rebuild the economy and protect the Tasmanian way of life, which is why we continue to back renewable energy projects and our vision to be a Renewable Energy Powerhouse,” Barnett said.
AEMO insists its plan – put together over 18 months and with hundreds of consultations with stakeholders is robust. And it will repeat the process every two years to take into account changes to technologies, cost and ambition.
“As a rigorous whole-of-system plan, the ISP is a far more comprehensive and richer analysis than other comparable modelling exercises for Australia’s energy future,” it says.
“It takes into account not only the capital and fuel costs of generation but also future network developments and deployment of DER. It includes a degree of sector coupling with the transport and gas sectors.
“It also takes the first steps towards including insights on the role of hydrogen. It incorporates innovations in consumer-owned DER, virtual power plants (VPPs), large-scale generation, energy storage, and power-system services. Finally, it ensures the physical limitations and constraints of Australia’s energy system are accurately represented.”
It looks at five different scenarios, ranging from slow change through to the business-as-usual Central scenario, to the High DER scenario with more rapid consumer adoption of DER, a Fast Change scenario with greater investment in grid-scale technology, and a Step Change scenario where both consumer-led and technology-led transitions occur in the midst of aggressive global decarbonisation.
Four sensitivities that might vary the timing of key market events are considered. They include the earlier retirement of existing generators, Snowy 2.0 delays, a closure of large industrial load in Victoria and Tasmania, and the early development of VRE in the Central-West Orana Renewable Energy Zone (REZ).
Two new sensitivities test changes in inputs that could materially alter the optimal development path: legislation of a Renewable Energy Target in Tasmania, and updated demand forecasts including the potential impacts of COVID-19 and current trends in PV sales on demand.
From the draft ISP, the biggest changes in input are costs. Each major transmission project identified in the ISP that had gone through the RIT-T process had at least a 30% increase in cost from initial estimates, due to a range of factors. But costs of grid-scale batteries reduced by 30-40% and new gas-powered generators, because they are expected to be smaller than originally assumed, saw a cost increases of 30-60%.
Cost expectations for new pumped hydro energy storage also increased by 50%. Other technology costs have adopted projections from the CSIRO’s 2020 GenCost report.
See also Ketan Joshi’s initial take on the ISP: AEMO’s recipe for a cheap, clean and reliable energy future.