Planning to provide energy stability now and in the future
Thank you for inviting me to speak at Australian Energy Week this morning.
This conference is an important opportunity for the industry to come together, to reflect on the success and challenges in Australia’s energy transition, and to align on how we can collectively move forward in the interests of Australian energy consumers.
I’d like to begin by acknowledging the Wurundjeri People of the Kulin Nation as the First Peoples and Traditional Owners and custodians of the land and waterways on which we meet, and to pay my respects to Elders past and present, and to all First Nations people with us today.
Ladies and gentlemen,
Today I want to share with you the way that AEMO — Australia’s energy system and market operator — is approaching the energy transition.
AEMO sits in a unique and privileged position in the energy system and market.
Indeed from our control rooms, we oversee the dispatch of every 5-minute interval of energy, and we have a bird’s eye view of real-time operations.
From that vantage point, I want to take you through our latest plans, and initiatives to remove some of the roadblocks to the transition.
And I’ll do this in three parts:
First, I’ll bring to life some real-world challenges in running our energy systems through a few extreme weather events in this year, to show that there is cause for confidence in transition;
Second, that there is a plan for this transition that can adapt to the uncertainties of the future;
Thirdly, how we collectively can unstick some of the challenges that are getting in the way of the transition.
So, let me start with some recent events.
Rugged up here for Melbourne’s winter today, it seems a world away from the forecasts for last summer – a hot, dry El Niño summer.
AEMO, industry and governments had planned for difficult conditions in both the east coast National Electricity Market and Western Australia’s Wholesale Electricity Market.
Practical plans were put in place well before summer arrived to ensure plant maintenance could be accommodated in the milder shoulder seasons, that generators had adequate fuel supplies and stockpiles, and that networks were resilient.
Our energy systems were well prepared.
But sure enough, despite best laid plans, two summer storms — one in Victoria, and one in WA — tore through the countryside and flattened transmission towers.
In Victoria, storms on 13 February flattened six towers on the high voltage transmission line near Geelong.
A deep electrical fault caused by the collapse of those towers resulted in over one third of Victoria’s online generation to disconnect immediately, including all four units of Victoria’s largest power station, Loy Yang A.
That same storm smashed through Victoria’s towns and suburbs. Fallen trees and branches caused havoc with local power lines, and cut power to half a million Victorians.
In Western Australia, a supercell thunderstorm on 17 January flattened five transmission towers, leaving them lying in the fields.
Those transmission towers supported the single high voltage connection between Perth and the Eastern Goldfields, resulting in disruptions to power and communication networks in Kalgoorlie and surrounds for days to come.
There were heatwaves too.
Western Australia endured three severe summer heatwaves as temperatures in Perth and suburbs soared into the 40s day-after-day.
And on the east coast, Queensland had a February heatwave. Temperatures soared to the 40s, setting new records for electricity consumption — at 11 gigawatts, demand jumped up almost 10% — as Queenslanders dialled up their air conditioners.
And then, on 5 March in Queensland, a high-pressure gas pipeline ruptured, one that supplies gas to Gladstone and surrounds.
Now this may sound like an alarming start to a speech about planning for the energy transition.
These events across the nation certainly did cause significant challenge.
But let me tell you why the way the system recovered gives cause for some confidence in the nation’s energy transition.
In Victoria, our control room staff were able to reconfigure the power system to deal with that catastrophic condition — two 500kV circuits down and the complete loss of Victoria’s largest power station.
The bulk power system coped remarkably well, with Victoria’s interconnectors immediately drawing power from reserves in neighbouring states.
Not to be conflated with the long and hazardous clean-up and restoration, reconnecting the lines pulled down by fallen trees and branches, and restoring power to those half a million homes.
In WA, the newly minted Wholesale Electricity Market — just weeks old that AEMO built from the ground up — coped with repeated peak demand records.
Seven of the ten all-time maximum demand records occurred over this recent summer period, eclipsing the previous peak demand record set back in 2016.
Meeting these periods of peak demand was very challenging, and at times, with very little room for unexpected events.
The gas network wasn’t immune to challenges either.
When the high-pressure gas pipeline to Gladstone ruptured, AEMO worked closely with industry to utilise new functions and effectively ration the small amount of gas that was able to be delivered.
So what does this tell us?
Firstly, that storms, heatwaves and unexpected events are a fact of life, and we’ll have to continue to deal with them no matter what the composition of the energy system is at any point in time.
Second, that there’s rarely a dull day in the AEMO control rooms.
But third and most importantly, that the way our industry responds to these events, with speed, collaboration and a laser-like focus on the interests of energy consumers, shows that as an industry, we’re absolutely capable of dealing with the challenges of this energy transition.
Now I know some will point to our electricity & gas statements of opportunities…the ESOOs and GSOOs on east and west coasts … that clearly highlight the need for significant and sustained investment in our energy systems.
And that without that investment, in the “do nothing” scenario, we are clear that reliability risks increase.
But let me say this again.
These reports are not predictions, and they are not forecasts of blackouts.
These reports are a clear signal to investors that sustained and ongoing investment in generation, storage and transmission is needed to ensure that Australian energy consumers continue to have access to reliable energy.
They highlight some of the challenges in the transition, like delays in storage and transmission projects, and that old generators don’t last forever.
But they also highlight progress.
Like on the East Coast, some 4.6 GW of wind, battery, solar, pumped hydro, and gas generation projects which have been included since last year’s ESOO.
And on the West Coast, over 1 GW of capacity that AEMO has procured through short-term procurement frameworks to bolster reliability.
As we know, doing nothing is not an option…not for governments, not for industry and not for consumers.
Sustained investment is needed because Australia’s demand for electricity is growing, and our old coal-fired power stations are retiring.
And there is a plan for the investment that’s needed.
It’s called the Integrated System Plan, a roadmap for Australia’s energy transition.
A plan to meet Australia’s growing electricity demand, to replace our retiring coal-fired power stations, and to meet government targets towards a net zero economy.
It’s a dynamic plan.
We update it every two years because Australia’s energy transition is not set-and-forget.
Inputs like costs and timing do change, because of all the challenges we know so well, and because Australia is taking part in a global energy transition.
But at its core is the least-cost pathway that meet consumers’ needs for secure and reliable energy, incorporating all government targets, throughout the decades ahead.
And that objective of “least cost” is an important one, because we know Australian’s are dealing with cost of living challenges, including energy costs.
AEMO releases an updated version of this roadmap every two years, and we’re on the cusp of publishing the 2024 edition.
And I’d like to thank many of you in this room today who have had a hand in shaping it.
The ISP may have our name on it, but it’s a work of extensive collaboration.
Collaboration that’s involved federal and state governments, market bodies, industry, associations representing numerous business sectors, consumers and communities, including rural and regional areas and Traditional Owner groups.
The ISP reflects and aligns with federal and state government policies on emissions reduction to reach net zero by 2050.
So while I won’t pre-empt the detail of the final ISP that will be released in a few weeks, I do want to focus on its key finding, which is this:
As coal-fired power stations retire … renewable generation connected with transmission and distribution, supported by hydro, batteries and gas, is the lowest-cost way to supply electricity to homes and businesses throughout Australia’s transition to a net zero economy.
The reason we will need this transmission is three-fold:
- First, electricity demand is growing, in particular as we electrify other parts of the economy, like transport;
- Second, to connect new areas of generation, where strong solar and wind resources exist; and
- Third, for resilience and insurance against unfavourable weather patterns in a system increasingly reliant on variable renewable generation.
The 2024 plan was released first as a draft, for comment, back in last December.
Even at that point, to produce that draft report, our teams engaged more than 1300 stakeholders and considered more than 100 written submissions.
In response to the draft, AEMO received over 100 public submissions and almost 500 people attended webinars on the draft plan.
About a dozen key themes emerged from the submissions, which we have worked through, including topics like consumer energy resources, generation and storage developments, the role of gas … and our modelling approach.
That feedback has been gratefully taken on board, and it has shaped this final plan.
The ISP is an adaptive plan.
Its building blocks start with modelling different future energy scenarios, from moderately paced transitions to a scenario that sees Australia becoming a green energy superpower.
And we assessed more than 1,000 potential energy development pathways to find the “optimal development path” and they were tested against a range of sensitivities.
Because we know that Australia’s energy transition is not set-and-forget.
Inputs and contexts change.
We’ve seen a few in recent years: pandemics and wars that have impacted society and the energy system, and global momentum towards renewable energy that impacts costs and supply chains.
The robustness of the process to build the ISP scenarios and to assess options means that all participants in the energy industry can have confidence in the roadmap.
And while we are waiting for the 2024 ISP to be published, we’re already turning our sights to the next instalment, in 2026.
In April, Energy Ministers published their response to a review of the ISP which made 12 recommendations.
Those recommendations expand the scope of the ISP considerably, but retain the same objective function of identifying the least-cost pathway for Australian onsumers to maintain access to secure and reliable energy, as Australia’s coal-fired power stations retire.
Let me choose three recommendations to highlight here.
The first was to better integrate the role of gas, and gas-fired generation, in the expanded ISP.
We know that gas-powered electricity generation will play a critical supporting role alongside battery and pumped-hydro storage, particularly during winter, to compensate for the intermittency of renewable energy sources, and to enable many multiples of renewables to connect to the grid.
In effect, we’ll be integrating a more granular view of future gas supply & demand; and the potential impact on gas infrastructure into the 2026 ISP scenarios.
A second action to highlight is to make available more locational information, to help investors with their decisions on where their capital could be best deployed.
To that end, we have now produced a new report called “Enhanced Locational Information” to provide industry participants with better information on the optimal location for new investments.
This report provides new and detailed analysis on locational factors including etwork congestion, network losses, security requirements, likely future network evelopments, and the pipeline of potential projects nearby when planning their investments.
Like many AEMO reports, it aims to inform decision-making and to enable investment in Australia’s energy transition.
And as always, we’d value your feedback.
A third action is to consider in greater detail the impact of consumer energy resources, or CER.
These include the rooftop solar systems, home batteries and electric vehicles in which Australian homes and businesses are investing.
These consumer-owned resources are a transformative force in the energy transition, and will be an indispensable part of our future energy system.
There are already 3.8 million rooftop solar systems installed across Australia.
Their combined capacity is now larger than the capacity of the remaining coal generation fleet.
Almost 100,000 have batteries installed, too.
If these consumer owned devices are enabled and encouraged to participate in the broader energy system, it will result in a significantly lower-cost energy system for everyone.
And without some level of co-ordination, large flows of power back into the main power system can cause significant issues for reliability and security of the main grid.
Technical trials have clearly demonstrated the value created by some co-ordination of these consumer devices, and business models already exist to share that value with the owner of those assets.
Ultimately, it’s consumers who own these devices who will decide on how they’re used.
And while emergency co-ordination measures are needed as an ultimate backstop to preserve power system security, we hope that effective co-ordination means that these measures are never used.
Given the need for significant and sustained investment in Australia’s energy systems highlighted by the ISP, at AEMO we are aiming to play our role in identifying barriers to investment, and removing those impediments wherever we can.
Australia competes in a global market for capital, and we will all be better off, if Australia’s energy systems are among the most investable in the world.
So in this final section, let me talk to three critical elements in improving the investment environment:
- revenue certainty,
- connecting to the grid, and, of course
- social licence.
The Commonwealth Government’s Capacity Investment Scheme is designed to accelerate investment in the energy transition.
In November last year, the scheme was announced to deliver an additional 32 gigawatts of clean generation and storage capacity by 2030.
This is clearly a step change for the Australian energy transition.
AEMO is the Commonwealth’s CIS delivery partner, which means that we independently run the tender process and provide recommendations for the Federal Government to decide which projects receive contracts.
The first CIS Tender is now open and is seeking 6GW of renewable generation in the NEM.
These contracts can provide greater revenue certainty than our current market settings, and aim to unlock the significant investment needed.
The first standalone CIS tender for clean storage capacity in South Australia and Victoria has shown that these contracts can be attractive, with an initial market response that was 32 times the tender size.
Connecting these new projects to the grid is absolutely fundamental.
So let me share a few achievements as we continue to invest in improving the connections process.
AEMO continues to work closely with the Clean Energy Council and industry on the Connections Reform Initiative, which has delivered significant results in recent years.
In addition, the Federal Government provided $3 million of extra funding to support the connection of new generation and storage to prepare for last summer.
Through the provision of dedicated project management and engineering resources to those projects, we estimate that over 200 weeks of delays have been avoided.
That’s an average of two months of avoided delay per project.
And projects that commenced commissioning during this program achieved full output in less than half the time compared to the historical norm.
We’re now taking the lessons learned from this dedicated effort and implementing them into business as usual.
Because while we receive feedback that the connections process has improved significantly in recent years, we know that continuing to streamline the connections process will result in greater investor confidence.
A third critical aspect of enabling investment in the energy transition is social licence.
Just as transmission is the backbone of our energy system, the backbone of social licence is trust.
It’s honest relationships with those local communities who will be directly affected through construction and hosting of transmission projects in their area, and those who stand to benefit from these investments.
And there are benefits.
New energy infrastructure paves the way for new jobs and careers in an expanding energy industry.
Hotels, cafés, and supermarkets all stand to gain from the influx of construction workers and the creation of ongoing jobs in the operational phase.
I understand that change can be difficult, but rebuilding our energy system and Australia’s journey to net zero will necessarily change the way we live life.
For all of us.
And all of us in this room and beyond have a role in building trust with local communities so that proposals, developments and investments don’t land with a shock.
So yes, Australia’s energy transition is complex and challenging, and requires us all to collaborate together on the journey ahead.
And AEMO’s Integrated System Plan, which is a work of extensive collaboration with all of our stakeholders, provides a roadmap for that journey.
There will always be headwinds, and unexpected events.
But our industry continues to demonstrate that we are capable of dealing with the challenges of this energy transition…through collaboration, and a laser-like focus on the interests of consumers.
Thank you.
[Ends]