AEMO CEO delivers address at the AFR Energy and Climate Summit: Australia’s energy transition – domestic and international perspectives

10 min

Let me first acknowledge the traditional custodians of this land, the Gadigal people of the Eora nation. I’d like to acknowledge their continuing connection to country and pay my respects to elders past, present and emerging, and to all first nations people with us today.

Distinguished guests, ladies and gentlemen. It’s a pleasure and honour to be here at the AFR Energy and Climate Summit for 2022.

This summit comes at a critical time for Australia. A time when it is clearer than ever before that we need to urgently act on this energy transition – each of us both individually and collectively – to navigate this journey in the best interests of all Australians.

I often say that Australia is leading the world in many parts of the global energy transition, and that, too, has never been more true.

I’ve just returned from visiting leading system operators across Europe and the US, and while many of our fundamental challenges are similar, Australia is leading the way on many fronts.

So today I’ll share both a domestic and an international perspective on Australia’s energy transition.

Now, to see the pace of Australia’s energy transition, you really don’t have to look far at all. In fact, the past few weeks alone have highlighted just how fast the transition is occurring.

Australia now has a legislated target of net zero by 2050, a 43% emissions reduction target by 2030, and aims to have the grid … fed by 82% renewables also by 2030.

A new Heads of Agreement has been struck with LNG producers, seeking to avoid a gas supply crunch like we saw just a few months ago.

And consultation on a new set of roles and responsibilities for AEMO in the east coast gas markets has opened looking at improving consistency, transparency and, if needed, providing the power for AEMO to issue directions to prevent potential shortfalls, like we do in the National Electricity Market.

States have been busy, too.

Queensland launched a $62 billion energy transition plan, including ambitious renewable energy targets; 7 GW of pumped hydro; and a ‘SuperGrid’ that will tie together 22GW of new renewable energy capacity across the state.

Victoria launched new storage targets including 6.3 GW by 2035, and two new ‘grid forming’ batteries – a new technology that will help reduce the grid’s reliance on coal and gas generation.

For New South Wales, AEMO’s subsidiary company which acts as the Consumer Trustee, opened the tender process for 1 GW of renewable energy capacity & 600 MW of long duration storage.

In corporate Australia, AGL announced Loy Yang A Power Station in Victoria is set to close 10 years earlier, now 2035, while confirming that the Bayswater power station in NSW is on track for closure between 2030 and 2033, and Liddell power station is set to close in April next year.

All of these developments are consistent with our central scenario, the Step Change scenario, in our 30-year Integrated System Plan. The ISP is a product of extensive consultation and review with the wider energy industry and consumer groups.

And this Integrated System Plan is world class – and I’m not just saying that. Over the past few weeks, governments and system operators around the world have held up Australia’s plan as a global benchmark, and a model to follow. And while I’m very proud of what we’ve collectively achieved, the work doesn’t stop here.

I’m pleased that Energy Ministers have agreed to ‘supercharge’ it beyond its current remit, and we’ll work collaboratively with governments and other stakeholders to realise this. Because, as the ISP shows, there is a lot to do.

We are moving rapidly away from our historic dependency on an ageing coal-fired power generation fleet, and towards an energy future that is built on four things:

  1. Low-cost renewable energy, taking advantage of the abundant natural resources that Australia has to offer;
  2. Firming technology like pumped hydro, batteries, and lower emissions gas generation, to smooth out the peaks and fill in the gaps from that variable renewable energy;
  3. New transmission to connect these new and diverse low-cost sources of generation to our towns and cities; and
  4. A grid that is capable of running, at times, entirely on renewable energy.

And I’ll say more about these four essentials in a moment, but first I think it’s worthwhile to reflect on what has been a very challenging winter period, which has seen significant disruption in our east coast energy markets.

A confluence of factors led to a tight balance between supply and demand, which caused extremely difficult operational challenges, and ultimately forced AEMO to temporarily suspend the entire National Electricity Market.

Similar challenges were faced just a few weeks ago in California, where emergency powers were used to call for consumers to urgently reduce consumption and avoid load shedding.

And the operational similarities between this winter in the NEM and winter storm Uri in Texas last year are striking. But the consequences in Texas were far more severe, with some 4.5 million homes losing power, some for several days.

I’ve said before that while we are unlikely to see a repeat of the exact same set of circumstances, many of the underlying issues persist.

So I would draw out three key lessons from the operational challenges this winter:

  • First, it underlines just how important it is to get more of the least-cost electricity into the grid – that’s firmed renewable generation.
  • Second, it underscores the value of relationships between AEMO and the energy industry and governments. Our open and frank dialogue and a spirit of cooperation was critical to rapidly restore order to the market.
  • And third, importantly, that these low probability but high impact events are actually becoming more frequent, and collectively as industry, governments and the system and market operator, we must put additional measures in place to manage these extreme events.

So let me pick up those four points from earlier: building Australia’s energy future on renewable energy, firming capacity, new transmission, and stable grid operations.

At least five coal-fired power stations are set to close between now and 2030, and we expect the pressures on other coal-fired generators to result in further closure announcements in line with the ISP’s Step Change scenario.

To replace this energy, Australia needs to install 45 GW of new supply by 2030. Around 36 GW should be from renewable generation like solar and wind, and 9 GW from new firming capacity like pumped hydro, batteries, and gas generation, to unlock those renewables.

AEMO has a critical job to do in connecting this new generation, and in close collaboration with the Clean Energy Council, we are implementing a swathe of improvements to the connections process.

And while there’s still much work to do, I’m pleased to say our efforts are making a difference.

In the last financial year, 29 projects representing nearly 4 GW of new generation, achieved market registration in the NEM. That’s 1 GW more than the previous year, and nearly 2 GW more than year before that.

And between now and the end of the year, another 19 projects totalling 2.7 GW of generation are also expected to achieve market registration.

And at last count, we had nearly 150 individual projects, totalling more than 22 GW in capacity across the four connection stages in the NEM.

This is a huge pipeline of critically important connections to progress at a rapid pace. To benchmark that internationally, California, which has a grid roughly 50% bigger than ours, are aiming for about the same rate of new connections as Australia.

In a world-first, we are enabling project developers to have open access to test their connection directly against AEMO’s power system model through a secure gateway.

This will allow developers to simulate their connection, interrogate the technical outputs and iron out any bugs quickly and directly.
Connections have been a teething issue in recent years, but now this is an area where Australia is absolutely leading the world.

I’ve recently had feedback from two of the world’s leading energy equipment manufacturers that the structure, clarity and specificity that is now being provided is setting the benchmark for grid connections around the world.

For me, that’s really pleasing to hear, also very humbling, but I know there is still much more to do.

Take, for example, the potential of hydrogen.

AEMO’s own forecasts have grown – in the 2020 ISP it was just a few paragraphs, and in the 2022 ISP we had a standalone “hydrogen superpower” scenario, developed with inputs from industry.

Large-scale hydrogen projects present a clear opportunity for Australia.

Not only do we have abundant natural resources to harness, but also have the skills and capability from our world-leading LNG export industry, to create a new high value, low carbon, energy export industry.

Hydrogen production also enables the storage of low cost renewable electricity, adds to our firming capability, and by integrating renewable energy and hydrogen production can offer additional flexibility and resilience to our existing electricity grids.

But European countries in particular are already moving quickly to capture their share of this new, global market.

Now for the second element, firming capacity.

Firming is the technology that unlocks renewable energy.

Firming smooths out the peaks and fills in the troughs of variable renewable energy by storing energy when there’s excess, and releasing it when it’s needed.

Our Integrated System Plan has highlighted how important these firming investments are to provide a reliable and resilient NEM to offset the closures of ageing generators.

By 2050, our central scenario calls for over 60 GW of firming capacity – that’s three times today’s capacity – and a mix of technologies including pumped hydro, batteries of all shapes and sizes, and low emissions gas-generation.

But we simply won’t get this built with the current “energy only” market design.

As variable renewable energy becomes the mainstay of our electricity generation, investors will struggle further with the inherent volatility of wholesale prices, and customers will baulk at long periods of elevated pricing.

This is why the Energy Security Board has recommended a capacity mechanism, to send a clear market signal for investment in firming capacity, and I’m delighted to see Energy Ministers and officials leaning in to this strongly.

Nearly every advanced electricity grid in the world already uses some kind of mechanism that incentivises dispatchable capacity.

Those with competitive retail markets like Australia use a centralised ‘capacity market’, like Great Britain where a very similar industry structure exists.

I’ve personally operated in many of these markets with capacity markets. I’ve built projects and grown a business across a portfolio that spanned from a Gigawatt of large-scale wind and solar, to grid-scale storage and virtual power plants of residential batteries.

A well designed capacity market will help Australia’s energy transition.

I understand though, that any change to market design is sensitive and carries inherent risk. That’s why I believe that the design of any capacity mechanism needs a mature conversation between governments, industry and consumers.

I also believe strongly in simplicity, and in leveraging best practice and proven designs.

Collaboration is the key to delivering a mechanism that drives the integration of more renewable energy, and ultimately more affordable energy for Australian homes and businesses.

The third leg of Australia’s energy future is new transmission to connect low-cost renewable generation to consumers.

That’s because the new wind and solar generation is located where the wind blows and sun shines, and often in places that haven’t been on our main high voltage grid before.

Five transmission projects identified in the 2022 Integrated System Plan should progress as urgently as possible to enable electricity consumers to make shared use of existing and future generation and storage.

These actionable transmission projects will significantly improve the reliability forecast if developed to their current anticipated schedules.

And there is strong interest from overseas engineering companies and capital providers to invest in Australia.

But while there’s no shortage of capital or interest, building new transmission has many challenges. Chief among them is earning the social licence from affected communities to build and host this critical new infrastructure.

I went to Ballarat recently to hear first-hand the views and concerns of the community along the alignment for the Western Renewables Link.

The need for the transmission is clear – it unlocks existing and new wind and solar projects in Western Victoria. But tight-knit regional communities are being asked to shoulder the burden of construction and hosting the new transmission, while the benefit will be shared with people hundreds of kilometres away.

I’ve heard that communities feel rail-roaded, and understandably they want to be consulted openly from the outset.

While there are a number of larger reviews underway on how transmission investment works, at AEMO we’re already engaging in a very different way on the VNI-West proceedings: early and openly.

The final essential component of Australia’s energy future is a grid that can run at times, entirely on renewable energy.

We’re wrestling with grid operability every day as the system becomes more complex, more decentralised and more divergent in technologies.

Already, our control room staff are grappling with higher levels of instantaneous renewable generation.

The current NEM record for instantaneous renewable penetration is 64%, a record broken just a few days ago, up 2% on the previous record. In Western Australia, renewables hit over 79% at one point in January, mostly due to rooftop solar.

These figures are up there with any power system in the world.

Of course the flipside of high renewable penetration, particularly from rooftop solar, are the record low minimum demands on the grid.

Just 12.5 GW in the NEM recently, 400 MW lower than the last record, when rooftop solar was contributing 42% of total demand. And the Perth grid has recorded a minimum demand of just 742 MW.

We’re sharing our learnings about operating grids reliably with high levels of renewables with an international consortium of leading system operators and research institutions, the GPST. Because Australia is at the forefront, and leading the way for the world.

Our modelling shows that there will enough resource potential to provide moments where 100% of our electricity supply could be provided from renewable resources by 2025.

To be able to securely operate at this level, though, we need to invest in new tools.

Visiting the control rooms of leading system operators across Europe and the US in has been a stark reminder that their advanced control systems are providing greater visibility and control of these complex electricity networks, and yet at AEMO, our control software is reaching the end of its life.

We need to upgrade our forecasting and real time control systems to ensure we continue to provide Australian energy consumers with secure, reliable energy supply.

Investing in people will be just as critical as technology or delivering reform.

As we know, Australia’s energy transition will need new skills, from a new workforce, to implement new technologies.

One of Australia’s great strengths is our engineering capability. In power systems, I’m proud to say that it is absolutely world renowned.

I do think that sitting at the heart of the energy industry, AEMO can play a central role in helping build skills and capability right across the industry…and this is an idea I have started to share with colleagues across the industry.

And while I don’t propose this will solve the challenge entirely, engineers and economists who work for a system operator see right into the nerve centre of the system, and can take that experience on to the rest of their career.

There are potentially many, many thousands of jobs in the energy sector as we make this transition. Queensland have cited 100,000 new jobs by 2040 in their energy plan, and Victoria’s latest storage plan calls for over 12,000. Often, these jobs will be in regional communities.

So our transition, if managed well, will create thousands of highly skilled roles that will be dotted across the Australian landscape, in a pattern that will match our new generation fleet.

As an example, new offshore wind farms in Gippsland could be a hub of highly skilled, valuable, jobs with transferrable skills, located in a region, which for decade upon decade, is known for intergenerational employment in the energy sector.

And there is every reason this should continue.

Because in this transition, people matter most.

I know that jobs and skills are one of many critical conversations across the industry, with governments and broader society.

So I trust this summit will be a platform to share ideas and perspectives and collaborate as we all act urgently to deliver this energy transition for the benefit of all Australians.

Thank you.


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