Daniel Westerman’s Australian Energy Week speech: Orchestrating the pace of change so the energy system stays functional through the transition

2 min

I’m delighted to speak to you today on a topic that is fundamental to Australia’s future: ensuring the energy system stays functional through this once in a generation energy transition.

That’s pretty important I would say!

At AEMO, Australia’s Energy Market and System Operator, our role is to ensure safe, reliable and affordable energy today, and to enable the energy transition for the benefit of all Australians.

So that means our primary purpose is to keep the electricity and gas flowing to homes and businesses every day while we work collaboratively, with everyone in this room and beyond, as the Australian energy sector continues its rapid transformation towards a decarbonised, decentralised and democratised energy future.

Easy right? Well no, not really.

Energy is always a topic of great public interest here in Australia, and that’s certainly no exception over the past week, given recent energy supply challenges and very high prices.

And it’s times like this that our role at AEMO is absolutely front and centre.

Several factors have come together to create this current situation.

Last week:

  • We’ve experienced an earlier than normal cold snap in the southeast of the country, creating higher demand for both electricity and gas.
    • In Melbourne, more than 80% of homes use gas as their primary fuel for heating, so this demand is real
    • In fact, gas demand jumped 30% where electricity demand grew 10-15%
  • We’ve had sustained high gas prices, consistent with international gas markets;The default of Weston Energy triggered price caps for gas markets in NSW and Queensland at $40 / GJ - that’s five to seven times the level they were at in previous years; and
  • In Victoria the $40 price cap was triggered due to hitting the cumulative price threshold.

Last Wednesday, we determined that there would be insufficient gas supply to meet generation needs for the NEM and triggered the Gas Supply Guarantee mechanism for the first time since it was created in 2017.

And since then, we’ve seen additional gas flowing from Queensland to southern states to meet generation needs.

At the same time, we were working through tight reserves in the NEM, from a variety of thermal plant outages, fuel supply constraints, and lower output from renewables.

So it’s times like these in particular, when I’m most proud to represent our teams at AEMO, who acted swiftly and decisively to ensure safe, reliable energy for millions of Australian homes and businesses.

Last week it was related to electricity and gas supply, but we also play a significant role in the longer term solution.

I’ve said before that this energy transition is not just about environmental benefits. It’s driven by a kaleidoscope of technical, economic, political and societal factors.

And these recent weeks of high pricing have highlighted the economic benefit of this transition to low-cost, firmed renewable energy.

Today, many homes and businesses across Australia are facing increased energy costs.

This is a very real challenge, and it goes to the heart of our role at AEMO.

We know through the work that’s gone into developing the Integrated System Plan, that firmed renewables will provide the most economic form of electricity generation moving forward.

The ISP that we will formally release later this month will contain an updated roadmap to integrate greater levels of cheap, clean, renewable generation, and the right firming capacity into the NEM.

The sooner the nation can integrate higher levels of firmed renewables into the energy system…
the sooner we can electrify more of the economy….
and the sooner we can decouple energy costs from international factors,
the sooner we can reduce stress on Australian homes and businesses.

So, today I want to take you on this energy transition journey in three stages.

First, I want to start by sharing AEMO’s view of the change underway in Australia’s energy system.

Second, I’ll canvass AEMO’s approach to overcoming power system challenges and planning for the future.

And third, I’ll take you through AEMO’s actions in enabling a sustainable energy system that still provides safe, reliable and affordable energy.

So let’s begin…with the changes underway in Australia’s energy system.

Change underway in Australia’s energy system

Today, and since the COP26 international climate talks last November, an alignment exists between the federal, state and territory governments on achieving a
net-zero emissions economy in Australia by 2050.

Granted, the way a net-zero economy will be achieved differs in its details between the various jurisdictions, but for the first time we have alignment across our governments on a common emissions reduction goal in a common time frame.

And it becomes increasingly clear every day that society now expects the pace of change to go up a gear, and for us, that means AEMO must respond accordingly.

Energy accounts for one-third of all national greenhouse gas emissions, and we know that a net-zero energy system is the foundation of a net-zero economy.

Creating a net-zero power system is possible because the way Australia generates electricity is changing – as you know – from traditional synchronous generators, and increasingly to inverter-based solar and wind energy.

And Australia is introducing renewables at a per-capita rate
10 times the world average and twice the rate of the next closest nation, Germany.

The data that flows into our control rooms shows that according to the season and time of the day, renewable energy can swamp the grid for short bursts.

So, we’ve adopted an ambitious goal at AEMO that I hope you know…and that is to collaborate with industry and governments to engineer grids that could run at times of up to 100 per cent peaks of instantaneous renewable generation by 2025.

This goal is not driven by ideology, politics or personal ambition: it is because that’s where the data shows we are heading, and I think we ought to be prepared for that.

It’s recognised internationally that Australia is among the first to grapple with the challenges this brings.

In terms of navigating this energy transition, AEMO is both ship’s crew and its cartographer.

We’re also working with some of the world’s brightest minds in power system engineering and operations, including experts from the UK & Ireland, to Texas & California, who are keen to both help, and learn from us.

It’s worth pointing out several new records for renewable generation have been seen this year for the NEM, the east coast National Electricity Market.

Grid-scale solar output on its own hit a new record of nearly 4.5 GW in mid-February, accounting for 22% of total demand, excluding rooftop solar.

And we’ve registered a new wind generation record of
6.8 GW a week ago, on May 31, meeting more than one third of NEM demand at the time.

But as the system operator, the measure I like to watch is the level of instantaneous renewable generation, and this was right up there over 60% on several occasions this year.

That measure nearly broke the previous record set last November, and I have no doubt that it will be broken again several times this year.

During these times of course, distributed or rooftop solar output is high, and at times accounted for nearly one-third of total NEM generation.

At the same time, the power system also needs to be prepared for the withdrawal of coal generation as the asset owners have already foreshadowed impending retirement dates.

So let me talk coal for a moment.

Today, coal accounts for 23 GW of capacity in the 60 GW National Electricity Market.

As a share of total generation in FY22, black and brown coal generators supplied over 60% of total generation in the NEM.

When the Draft ISP was released last December, 5GW of coal plant was announced to retire by 2030.

But in February, Origin announced their application for Eraring to retire in 2025. And AGL brought forward expected retirement dates for Loy Yang A and Bayswater. This now means that

8 GW of coal generation will exit the market by 2030.

And what we hear from asset owners is that commercial pressures on the future of these power stations are likely to continue to accelerate closure timelines.

This has all informed the modelling in our Step Change scenario, and in our soon-to-be-released 2022 Integrated System Plan, which indicates that 14 GW of coal could exit by 2030.

And what replaces coal is clear.

To put downward pressure on energy prices, Australia needs to maximise the flow of energy from the cheapest form of electrons…those made by the sun, wind, and water…
firmed by the appropriate capacity,
stabilised with the right system characteristics…
and sent through transmission and interconnectors to consumers where they’re needed.

But incorporating more renewables into the system isn’t as easy as it sounds.

Overcoming power system challenges and planning for the future

So that brings me to the second part of my remarks today: overcoming power system challenges and planning for the future.

The accelerated impending closure of coal generation does bring forward the challenges of integrating more inverter-based generation.

In fact, the challenges of maximising renewables in the system are multiple, complex, have interdependencies and will require greater collaboration between government, regulators, industry, and communities than ever before.

When I think about the evolution of the power system, there are four things that I focus on:

  1. The energy itself;
  2. Firming;
  3. Transmission; and…
  4. System services … which go the heart of the operability of the power system, which I’ll say more about shortly.

You could say these four things concern me most as system operator and planner to ensuring the energy system stays functional through this once in a generation energy transition.

Let me take each of them in turn.

First, Australia needs a heck of a lot more energy ….firmed renewables which are both the lowest-cost option and the way to meet economy-wide, net-zero targets.

Our estimate is that by 2050, the NEM will require:

  • A doubling of the quantum of electricity the NEM presently delivers, from 180 terawatt-hours today to about 330 terawatt-hours by 2050 to replace much of the gas and petrol consumed in transport, industry, offices and homes;
  • A nine-fold increase in utility-scale variable renewable energy capacity… from 15 GW currently to nearly 140 GW…
    tripling VRE capacity by 2030 and doubling again each decade after that;

And it’s one thing building these utility-scale projects and another to connect them swiftly and efficiently to the grid.

Right now, our National Connections team are managing grid connections for 189 new projects, mostly renewable generation and storage installations.

In the past year, we connected 4 GW in new renewable generation and storage projects…so the equivalent of
two Liddell power stations…

That’s up 40% on the previous year, and actually double the amount connected the year before.

And if all goes to plan, at the end of the calendar year we’ll have connected nearly 5 GW, so a 20% increase again.

But 5 GW per year is actually the minimum that we will need to connect every year for the remainder of the decade to replace the energy supplied by the retiring coal fleet.

While we’ve got more work to do, I’m really pleased to see that the collaboration between developers and AEMO in the Connections Reform Initiative, which began in May a year ago, is beginning to make a difference.

Second, we will need sufficient…in fact a lot…of firming technology, to iron out the lumps and bumps of intermittent and variable renewable generation so that the supply is there when our homes and businesses need it.

It is insufficient to have the energy there if it’s not there at the right time.

Our Integrated System Plan forecasts the need for 60 GW of firming capacity by 2050, triple what we have today.

That firming capacity, including dispatchable storage, is absolutely critical and, to be frank, one of my worries is we’re not really seeing that investment in firming capacity in sufficient scale at the moment.

Granted, I acknowledge the great thought and work resulting in South Australia’s and Victoria’s big batteries, the Snowy 2.0 project, the gas plants of Tallawarra B and Kurri Kurri in NSW and Tasmania’s Battery of the Nation initiative.

But these projects must be just the start of the investment we need.

To help provide the right incentives, the Energy Security Board is developing a capacity mechanism which will prove vital to create the right market signals to properly value and incentivise investment in dispatchable capacity.

Different depths…or durations…of storage will be needed to help with ramping and frequency control, matching intra-day patterns of supply and demand, and smoothing between time zones, seasons and states.

In our long-range planning we envisage dispatchable firming capacity that comprises utility-scale batteries, hydro storage, gas-fired generation, smart behind-the-meter batteries, Virtual Power Plants and vehicle-to-grid services from EVs.…complemented by flexible loads and wholesale demand response to manage peaks and troughs.

Third, we need new transmission…new interconnectors…to transport the electrons from new areas of renewable generation to energy consumers in densely packed population centres.

This is, of course, because the areas that have now become ideal for wind and solar generation projects are typically regional places historically known for growing oranges or tourist destinations for whale watching, and haven’t in the past needed to be the new superhighways of the grid.

New transmission will help alleviate network congestion. We don’t want to be put in a position of constraining the flow of the cheapest electrons into the grid because there isn’t the capacity to take them.

We want as many cheap decarbonised electrons in the grid as we can muster, as this will help the shift to net zero and keep downward pressure on power prices.

The other point about need for new transmission is that not every state has the natural hydro resources for pumped hydro, or the sunny or windy climes for wind and solar.

In the same way energy should be diverse and connected, so too should storage and dispatchable capacity.

So the answer really is transmission for a zero-carbon system, for renewable generation and storage: VNI West would connect Victoria to the Snowy 2.0 project while Marinus Link would provide more Tassie hydro into the NEM.

But the approvals process for new transmission is a pain for everyone. It really needs an overhaul.

If you take the Western Victoria Transmission Network Project, the first transmission project in about 30 years, conceived to carry renewable energy from Western Victoria to Melbourne...we‘ve seen local communities upset that their concerns haven’t been heard during the RIT-T process.

To build the transmission the whole industry and government must build the social licence with communities affected.

And that needs a new approvals process that considers and evaluates their concerns at the start – not the end – of the process.

For those of us in the energy industry, and I include AEMO here too – we all need to better sell the benefits of enabling the transition to a decarbonised energy future. It underpins the net-zero economy.

The timing of new transmission projects is critical, too, because there is finite capacity in the supply chain, nationally and internationally.

It would be a shame not to learn from the LNG boom of a decade ago, where multiple operators were building the same plants side by side at the same time, driving up the cost of labour and materials that consumers ultimately pay for.

Enabling a sustainable energy system that provides safe, reliable and affordable energy

And that brings me to final part of my remarks today: enabling a sustainable energy system that provides safe, reliable and affordable energy.

We have to be able to operate this complex, interconnected, variable, emerging two-way energy system and market in real time, constantly to keep the lights on and the gas flowing.

Grid operability becomes an infinitely more complex task as we head towards instantaneous peaks of 100 per cent renewable generation.

So this is the fourth dimension to the previous three components…energy…firming...and transmission…I’ve just spoken about.

And the long-term vision for the grid in the Integrated System Plan, is complemented by a set of near term actions.

We call it the Engineering Framework, and the Initial Roadmap outlines the tangible actions to ready the grid for its decarbonised future.

This Roadmap prepares the NEM for six identified operational conditions, including ubiquitous rooftop solar and widespread energy storage.

The Initial Roadmap outlines more than 300 potential gaps that we’ve now condensed into the key strategic decisions that need consideration over the next two years.

AEMO will shortly be publishing an Action Update report for the Engineering Framework, outlining the priority focus areas for FY23, including actions that will help prepare us for the operation of the NEM at up to 100% instantaneous penetrations of renewable energy.

And as we assess future system requirements with fewer large synchronous generators online, we’re already seeing the value of proven technologies…

… like South Australia’s four new synchronous condensers, which are helping to keep the heartbeat of the power system steady…and saving consumers money.

Q1 this year was the first full quarter where the four new synchronous condensers operated fully to bolster system security.

They reduced the need for us to intervene in the market for the sake of system security, cutting the cost of ordering on gas generation from $37 million in the previous quarter to $7.5 million in Q1. What a difference!

The other feature that we need to manage is a situation of minimum operational demand from the grid, a situation that arises when Australia’s 3 million rooftop solar systems pretty much cater for consumer demand on mild sunny days, and the grid can lose stability.

The implementation of the ESB reforms for the NEM 2025 will help manage the issue of distributed energy resource integration and essential system services, including fast response ancillary services.

And to manage these increasingly complex grids, at AEMO we need to make a step-change in our power system modelling and operational visibility.

That can sound academic and theoretical, but the truth is that we are literally breaking new ground every day in the way we operate Australia’s power systems….

… and we can only continue to do this if we can have timely and granular insight into what’s happening, and have models that allow us to stress test the resilience of different conditions.

We actually run the grid off some of these models, so they’re really important!

And investment in these operational technologies all ladder up to our Operational Technology Roadmap – readying our own AEMO systems for the control room tools that we need to manage an incredibly complex grid.

So I want to wrap up by saying I feel very privileged to be leading AEMO at such an instrumental time of change.

And to be here in this room with many of the change agents of the industry.

At AEMO, we’re working towards being more open, transparent, and collaborative with all our stakeholders.

We’ve got a difficult challenge, but a common goal, and we’ll be most effective if we’re working together.

Thank you.



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