Good morning, ladies and gentlemen,
Let me begin by acknowledging that I’m on the lands of the Wurundjeri people of the Kulin nation.
I’d like to acknowledge them as traditional owners and pay my respects to elders past, present and emerging, and to all First Nations people with us today.
It gives me enormous pleasure to be asked to speak at this Annual Symposium of the Melbourne Energy Institute.
Thanks in particular to Michael Brear for the invitation to be here. Melbourne University and the Melbourne Energy Institute hold special relevance for me.
So it’s great to be here among such interested and informed colleagues in Australia’s energy transition.
And it’s also timely, with Australia’s energy transition happening at pace, AEMO having released a number of important engineering publications in recent weeks, and I’ve just returned from a meeting with Energy Ministers in Brisbane yesterday.
So, today’s topic is Paving the way to Australia’s net-zero future.
As Australia’s independent system and market operator and system planner, AEMO’s role is to ensure safe, reliable, and affordable energy today, and enable the energy transition for the benefit of all Australians.
And there has been a seismic shift in the pace of the energy transition.
As we know, Australia’s energy transition is accelerating due to a combination of technological innovation, government policies, market forces and consumer preferences.
The Australian Government has legislated a target of net-zero emissions by 2050 and, by 2030, a 43% reduction in 2005-level emissions, aiming to have 82% of energy in the National Electricity Market (NEM) from renewable sources by then. This target complements individual state and territory government energy policies and renewable energy zones and targets.
And of course the first step towards a net-zero economy is a net-zero energy system.
Creating a net-zero electricity system is possible because the way Australia generates electricity is changing – from traditional spinning thermal generators to electricity sourced from the sun and wind, and injected into the grid by electronic inverters.
As Australia moves rapidly away from its traditional dependency on coal generation, our energy future will be built on four pillars:
- Low-cost renewable energy, taking advantage of the abundant wind, solar and hydro resources that Australia has to offer;
- Firming technology like pumped hydro, batteries, and gas generation, to smooth out the peaks and fill in the gaps from that variable renewable energy;
- New transmission and modernised distribution networks to connect these new and diverse low-cost sources of generation to our towns and cities; and
- Power systems capable of running, at times, entirely on renewable energy.
So how do we get there?
The best place to start is by talking about our 30-year blueprint for the National Electricity Market, the biennial Integrated System Plan, the ISP.
The ISP is a least-cost, least-regret pathway to what the power system should look like over the next 30 years, as the size of the NEM nearly doubles, from serving 180 terrawatt hours of electricity to 320 by 2050.
Because no one can say for sure how things will pan out over that timeframe, we modelled a range of four scenarios of the evolution of the energy system, from slow to fast rates.
We asked our stakeholders which one they thought was the most likely plausible future operating environment for the energy sector, and overwhelmingly the industry told us the Step Change scenario…our second fastest model…was the one.
Step Change sees 40% of coal-fired generation capacity in the NEM withdrawn over the next five years, 60% by 2030 (that’s 14 GW), 87% by 2035, and about 96% by 2040.
To replace coal when it’s all retired by 2050, we’ll need a whole lot more of a whole lot of different technologies.
Under this scenario, the NEM will need nine times the utility-scale variable renewable energy capacity, from 16 gigawatts (GW) today to 141 GW in 2050.
Australia is currently installing variable renewable energy, VRE, faster than at any time in history.
This record rate needs to be maintained every year for a decade to triple VRE capacity by 2030 – then almost double it again by 2040, and again by 2050.
The NEM will need nearly five times the distributed PV capacity.
Today about a third of detached homes in the NEM have rooftop PV, representing about 15 GW of generating capacity, supplying their household needs and exporting surplus back into the grid.
We forecast this to rise to 65% of homes, sporting 69 GW of capacity by 2050, with most systems complemented by battery energy storage.
And storage needs to grow by a factor of 30, from 2GW today to more than 60 GW in 2050.
And since this Step Change scenario is the most likely scenario for our future energy system, and it’s aligned with government policies, there is real and growing urgency to act now to prepare for our energy future.
Announcements that bring forward the anticipated retirement dates of coal-fired generators are abundant. And these plants currently account for around 40 per cent of the NEM’s generating capacity but which supply 60 per cent of our electricity needs.
In the ISP we identified five major transmission projects, representing around 10,000 kilometres of lines, required to link new areas of renewable generation to towns and cities and states where it’s needed.
But as good as the ISP is as a planning document…and I’ve had energy people in Europe and the US spontaneously tell me what a world-class plan it is…we are among the first in the world to confront the engineering and commercial challenges to re-engineer and transition our energy system to one underpinned by firmed renewables.
So, to understand the intricacies of what’s involved in managing our energy transition, AEMO has a number of concurrent and intersecting streams of work underway, which I’d like to take you through.
These streams of work are paving Australia’s way to net zero.
The six are…and I’ll list them and then come back to say a few words about each…
The Engineering Roadmap to 100% Renewables – which was released just last week;
Our technical reports on system security, inertia and network ancillary control services – also released last week – in addition to the reliability outlooks for electricity and gas, and quarterly market dynamics;
The Connections Reform Initiative;
The delivery of major transmission – the actionable ISP projects;
The NEM 2025 Reforms, which derives from the Energy Security Board recommendations on shape of the post-2025 energy market; and…
Our Operations Technology Roadmap, to ready AEMO’s control rooms and systems for the future.
These six streams support the introduction of more renewable energy…more firming…new transmission…and grid operability…the four pillars I mentioned at the outset that Australia’s net-zero future will be built on.
You see, the point about maximising the inflow of renewable energy into the system is not just the environmental and emissions benefits that come from not needing to run on fossil fuels.
There are significant economic benefits too.
Running on renewables decouples the input cost of power generation from the international price shocks that affect gas, petroleum products and coal.
Our joint work with the CSIRO shows that even with the cost of new transmission factored in, wind and solar are, by far, the cheapest forms of new build generation. And that includes an estimate of costs associated with the integration of high levels of renewables.
So as international commodity prices continue to impact Australia’s energy markets, this context should only accelerate our resolve and the urgency of a smooth transition for Australia.
But make no mistake, we have a lot of work to do!
So let me start with the Engineering Roadmap to 100% Renewables.
This report delves into the preconditions that must be met in order to operate the (NEM) power system without fossil fuels.
This is a seminal piece of work.
Not long after I started at AEMO last year, our engineering team showed me a scatter diagram, that models the increasing penetration of renewables in the NEM.
And it shows that by 2025, there could be enough renewable energy resource potential – so enough solar, wind, hydro and storage – to cater for 100 per cent of demand from the grid…by 2025!
The obvious question was “so are we ready for that?”. And if not, what would it take for us to be ready?
Of course, operating a gigawatt-scale power system at 100% instantaneous renewable generation is a feat unparalleled worldwide.
But if the data shows that by 2025 there would be enough renewable energy to meet all the east coast’s grid demand at certain times of the day, we need to understand what practical actions are required to maximise the use of these low cost and low carbon electrons.
This exploration began with the Engineering Framework, which set out the six likely operating conditions we need to prepare for.
The main ones are fairly apparent: fewer synchronous generators online as the older coal fleet retires, and then what replaces them – extensive grid-scale variable renewable energy and ubiquitous rooftop solar and widespread energy storage.
Then there are the changes to the patterns of energy use, including structural demand shifts and responsive demand.
But we needed to still understand further what engineering would need to be in place to operate at instantaneous penetrations of 100% renewables, and that’s what the Roadmap to 100% Renewables report does.
By “instantaneous”, we mean a half-hour period. Naturally, these half-hour periods will become more frequent, as the duration operating entirely on renewables extends to hours or days at a time.
The Roadmap provides a clear view of the engineering and operational readiness steps required to prepare for operation at 100% renewables.
It is divided into three broad technical preconditions that must be met:
- power system security – maintaining the secure technical operating envelope of the power system under increasing renewable penetrations;
- system operability – securely and reliably operating the power system and transition through increasingly complex operating conditions; and
- resource adequacy and capability – building the energy resources and network capability to unlock the renewable potential and the flexible capacity to balance variability over different timeframes.
The roadmap outlines more than 150 actions in these three categories…and that’s just the top layer. Each of these actions has a number of subcomponents, so it multiplies out to around 500 to 600 detailed considerations.
Some actions are in AEMO’s basket, others the responsibility, variously, of transmission network providers, distributors, equipment manufacturers, market bodies and government instrumentalities, and even consumers actively participating.
Some of the Roadmap’s actions are already in train, some are soon to be commenced. Some are contingent on other work streams being done.
Let me take you through some of the key insights.
One of the most foundational points the report makes is that you can’t just operate the NEM at 100% instantaneous renewables just because you have amassed the resource potential of 100%.
As the system transitions to higher levels of inverter-based resources (IBR) generation, the behaviour of the power system is less well understood, and operability becomes more complex, incorporating sources like aggregate VRE output from new renewable energy zone (REZ) developments and the level of uncontrollable distributed energy resources.
You see, for the first period of 100% renewable operation, reliability requirements may mean a renewable resource potential well above the level required to meet customer load at that time.
What does this mean in action?
The day shown on top left has 100% renewable resource potential during the middle of the day but does not result in 100% renewable dispatch.
And that’s because in the evening peak, as solar falls away steeply, there is still the need for a solid chuck of power to fill in the gap...the white space you see below the dotted demand line.
Because coal plants can’t just be turned on and off when needed for a few hours, they will be generating across the whole day, which is why you see that black segment.
On the bottom, we see a much larger quantum of renewable resources…nearly double the demand. In this scenario the system can run for most of the day solely on renewables – and no need for coal – with a bit of gas in the evening peak.
And why would it be gas rather than hydro to fill in the evening gap? That’s not a matter of engineering and power system physics but one of market economics and price signals.
Some of the Engineering Roadmap’s other 150 key actions required to operate entirely on renewables include:
- Redesigning the system restart process without fossil-fuelled generation having been online prior to a system black;
- Establishing a coordinated approach to resilience planning, including managing outages to allow entry of new generation and transmission;
- Modernising the distribution network and operating frameworks between AEMO, network service providers and aggregators;
- Installing distributed PV inverters that comply with AS4777 to avoid disconnection during disturbances;
- Having control of sufficient distributed PV to manage the bulk electricity supply;
- And of course, building the new transmission the ISP identifies.
In many ways, the operational challenges we faced this year provided a glimpse into the operation of the grid of the future.
In June when we faced a shortage of generation – which I will come back to shortly.
And most recently in November when storm damage left most of South Australia without an AC connection to the rest of the NEM.
You may have read that South Australia has at various times run on 100% renewable generation – a world-first and an impressive achievement. But each of these occasions occurred when South Australia was connected to synchronous generation in the rest of the national market.
But without this umbilical cord, maintaining a secure network with high renewable penetration throughout the event was a more significant achievement.
Now I know this graph looks a bit manic, but it’s the various contributions of predominantly renewables (in green, brown and yellow) and gas firming (turquoise) made to the power mix in South Australia when the state was pretty much on its own.
The fascinating part is the dark line…renewable penetration…which on a number of times hit about the 90% mark and peaked at 91.5% instantaneous penetration on Friday 18th of November at 9.30am.
This was achieved, in large part, by using four synchronous condensers that are strategically placed within the South Australian network.
These syncons are generators without a turbine or power source. It’s technology from the 1950’s, and they provide the services that are traditionally provided by coal, gas, and hydro plants – such as inertia, system strength and voltage control.
As in any operational crisis, the role of collaboration, in this case across industry and government, was enormous. Large reductions in rooftop solar generation were required to keep the power system operating with required technical limits.
This was only achievable with the combined efforts of SA Government, network businesses, solar industry and customers. Moving forward, the ability to at times curtail rooftop solar will remain a valuable tool.
The ability to manage frequency – in large part achieved by the contribution of battery and gas generation – was critical through this disconnection from the rest of the NEM.
The Hornsdale big battery’s role was particularly valuable. By maintaining as much headroom as we could – in either direction – we were able to automatically respond to frequency challenges by either charging or discharging the battery.
The Hornsdale wind farm was also used to provide some critical frequency control services.
And the contribution of gas-fired generation is a timely reminder that while it won’t be used very often, gas generation is a key enabler in unlocking Australia’s renewable potential.
It’s early days in the incident investigation but I’m sure there will be many more lessons to come. Like the importance of emergency control over rooftop solar, real time visibility on distribution networks, and many more.
AEMO’s market intervention in June was another life lesson in managing a grid with lower levels of dispatchable generation. While the causal factors were different to the South Australian event, the lessons were equally valuable.
This was of course a NEM-wide event, but to focus for a minute just in New South Wales during this period, we saw that:
- coal plants that had a limited supply of coal;
- gas generation that was constrained by supply; and
- hydro generation that was unable to release water for environmental reasons.
In this environment, basic steps like charging batteries and pumping water at hydro facilities enabled us to manage a constrained generation fleet.
Generation was carefully managed to store energy – allowing discharge during evening peaks.
In many ways it was similar to managing a market with more variable generation, where optimising the storage of energy and transfer across NEM regions will be critical to keeping the lights on.
I’ve said before that I think we will have many bumps on the journey through Australia’s energy transition. But at each hurdle we must act in the same way we have in each of these events.
- Work collaboratively and in the interests of consumers to work through the issue; and
- Turn a constructive mind to learning valuable lessons from each of these new operational situations.
Last week we released three reports into system security: inertia, system strength and ancillary services, Network Support and Control Ancillary Services, NSCAS.
Most people will know that inertia is the power systems ability to maintain steady electrical frequency, at 50 hertz, even during disturbances.
And system strength is the ability of the power system to maintain a stable voltage waveform at any given location, both during steady state operation and following a disturbance.
System strength is location-specific, and our most recent report looks at a number of nodes across the NEM, and what happens over time with more and more renewable generation.
It’s a bit like securing a beach towel on the sand on a windy day by anchoring it with a number of rocks in various places. The challenge is where to put those rocks, and how heavy they need to be to stop the beach towel flapping too much.
The good news is that these reports show a pathway to the answer.
To be specific, to run the NEM at 100% renewable penetration, we found that the equivalent of up to 40 new synchronous condensers are required to meet inertia and system strength requirements.
40 syncons sounds like a big investment, but it’s unlikely that this will be the actual solution.
Other technologies can also supply these attributes, like fast frequency response batteries, grid-forming inverters and even existing power stations retrofitted with synchronous condensers and flywheels.
And connecting the new generation, firming and system security technologies to the grid is fundamental to the transition.
Today, 147 projects representing 21.2 GW are undergoing AEMO connection assessment across the NEM, from the application phase through to the commissioning stages of the connection process.
I’m really pleased that AEMO is collaborating with the developer community to improve the connections experience.
This financial year we expect to connect around 5 GW of new generation. Last financial year is we connected 4GW, and the year before it was 3GW. So the trajectory here is good.
In July we connected Australia’s first grid-forming battery, the 150 MW Hornsdale Power Reserve in South Australia, which has provided inertia support – the very attribute the power system needs as synchronous generators progressively retire.
And in a world-first for a power system operator, we’ve just released to the developer community a Connections Simulation Tool.
The simulator allows developers to test and fine tune the settings of their generation and storage projects against a model of the NEM in real time – testing things like frequency, voltage and reactive power, protection settings and fault ride-through – to see whether their settings comply with standards and remain stable during network disturbances.
Being able to test and retest will accelerate the grid-connection process.
AEMO is also undertaking a review of the technical requirements for connections, to make them more practical and applicable to real-world operation.
A key focus is establishing technical requirements for new technologies, including grid-forming batteries, large inverter-based loads (in readiness for hydrogen plants), and DC converter transmission – which will assist at least one of the ISP projects, the Marinus Link HVDC sea cable between Tasmania and the Gippsland coast.
The commercial side of the NEM needs just as much updating as the technical.
The Energy Security Board’s recommended reforms last year to the make the energy market fit for the post-2025 period, were endorsed by National Cabinet and have evolved into a significant, declared AEMO project, called NEM 2025.
The NEM 2025 reforms have interrelated pathways – resource adequacy, essential system services, transmission, and integrating distributed energy resources and flexible demand.
These are complemented by a data strategy, which recognises that digitalisation and data are critical to enabling the reforms.
And we’re cracking on with implementing the reforms at full speed.
In essential system services, new mitigation requirements and new access standards come into effect, in March, for the efficient management of system strength on the power system.
In Frequency Control - Fast Frequency response, AEMO is working to introduce two new market ancillary services to help control system frequency and keep the future electricity system secure.
In October, we revised and published the market ancillary services specification (MASS) to specify the detailed description and performance parameters for the very fast ‘raise’ service and the very fast ‘lower’ service.
And next October we’re working with industry to meet the scheduled date for commencement of the 'very fast' FCAS markets.
In integrating DER and flexible demand, we are working to remove barriers to storage and aggregate systems participating in the market.
In March, the ‘interim’ release which will enable additional revenue streams for aggregators of small generating and storage units by allowing them to opt in to provide ancillary services.
And by June 2024, the ‘final’ release enables full implementation to accommodate participants with bi-directional energy flows.
This will be mandatory for all participants with resources that have both generation and load (above auxiliary load) at a single connection point.
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 a capacity mechanism is vital – to send a clear market signal for investment in firming capacity, and I’m delighted to see energy officials embracing the concept.
Nearly every advanced electricity grid in the world already uses some kind of mechanism that incentivises dispatchable capacity.
I’m pleased to see yesterday’s developments by Energy Ministers to implement a Capacity Investment Scheme, and look forward to working through the details and implementation.
And AEMO needs to modernise itself, as system operator.
A power system with very high levels of variable renewable energy is more dynamic and complex to manage.
We need to modernise our control rooms to provide our operators with greater visibility to assess risk, so that they are not simply overwhelmed by the exponential growth and speed of data feeding into the control room.
I saw in my recent overseas travels that system operators in the US and Europe have much more sophisticated control systems available to their staff to help identify and prioritise required operational actions.
So, to address this, we have our Operations Technology Roadmap.
AEMO’s Operational Technology Roadmap, released in June, sets a strategic vision for the uplift in tools and capability required to manage and enable the transformative change anticipated in the NEM and Western Australia's Wholesale Electricity Market over the next decade.
It is focused on AEMO’s core real-time control room operational responsibilities, supporting operational functions…planning, forecasting, monitoring, reporting and analytics…and foundational enablers, that is…software, hardware, data and automation.
The Roadmap canvasses 10 operational technology areas to 2030, each compromising of a future vision, drivers for change, risk assessment, high-level cost benefit, data requirements and tool requirements.
It will bridge the gap between AEMO’s current control capability and the required capability that we need for the future.
Now that’s a ton of engineering I’ve been outlining, and really, the topics I’ve covered today...well…you could spend hours doing a deep dive into each of them.
But there’s a much more significant purpose that we at AEMO are aiming to serve.
The power system exists to serve energy consumers, and therefore, the interests of consumers must be at the centre of planned engineering solutions.
This position is recognised in the National Electricity Objective, which requires that investment in the power system must be in the long-term interests of consumers.
And that’s why, if I circle back to my introductory remarks, AEMO’s role is to ensure safe, reliable, and affordable energy today, and enable the energy transition for the benefit of all Australians.
AEMO is working with other market bodies, including the Australian Energy Regulator, the Australian Energy Market Commission and the Energy Security Board to ensure this is the case, given the cost of energy is fundamental to the cost of living.
I’m all too aware the cost of energy in Australia is headline news every day, whether you are a big industrial or a pensioner simply trying to make ends meet…
…and it’s heartbreaking to hear that for some of our most vulnerable people in society it comes down to a choice between heating or eating.
In this energy transition, people matter most.
It’s imperative for all of us in the energy sphere to do what we can to drive down cost pressures…and the best long-term fix is to run the grid with a high level of renewable power because it is by far the cheapest form of energy.
But I also know there is resistance is some communities towards hosting the infrastructure that will make this possible.
There is no easy or quick way to change attitudes.
The best approach, in my view, is to factor in ways to gradually build the social licence with affected communities by actively and genuinely engaging with them early on in the process.
No one likes to feel rail-roaded. We live in a vibrant democracy and people rightly expect the concerns to be heard.
If we…and I mean all of us involved in the energy sector…don’t get this right, infrastructure will cost more, take longer to build, and ultimately may never be completed.
So at AEMO we’re improving our practices in this regard.
At AEMO, we’ve just established an advisory council on social licence with a diverse composition, including landholders, rural and regional communities, First Nations, consumer and environment groups.
After calling for expressions of interest, eleven highly experienced individuals bringing a range of perspectives have been appointed to the council.
We have taken this step because securing social licence for the energy transition, including new infrastructure, will help enable Australia to achieve its net-zero ambitions.
Now I know that’s a lot to take in.
I can tell you, it was quite a lot to say, too!
Thank you for inviting me to speak, thank you for listening.
I hope that’s given you an insider’s look into the complexities and realities of Australia’s rapidly accelerating energy transition and how we, at AEMO, are approaching this once-in-a-lifetime transformation.
I’m happy to take any questions you have.