Four years ago, when I returned to Australia to take up my role with AEMO, I spoke at a CEDA event.
Events like this are an important opportunity for the industry to come together, to reflect on progress in Australia’s energy transition, and to discuss how we can continue to serve Australian homes and businesses.
I’d like to begin today by acknowledging the Wurundjeri People of the Kulin Nation as the First Peoples, Traditional Owners and custodians of the land on which we meet.
It is on the lands of First Nations people that our industry works, to produce electricity and gas. To build the gas and electricity networks that supply customers, and ultimately where Australian energy is consumed.
I pay my respects to all Elders past and present.
INTRODUCTION - REVISITING THE CHALLENGE
When I last stood on a stage for CEDA, it was 2021, I’d just returned from working in energy systems across the US and the UK, and I set a pretty ambitious objective for us at Australia’s independent market and system operator.
That goal was to harness the talents, capabilities, experience and know-how across the industry, to engineer power systems that are capable of operating during periods of 100% renewable energy and to do that by 2025.
That was in 2021, and of course today we’re in 2025.
AEMO is technology agnostic. We were in 2021, and we remain so today.
That goal was selected because our own modelling showed that 2025 was the date by which the market would see enough renewable generation potential to meet 100% of customer demand in some dispatch periods.
The first of those dispatch intervals actually came in the third quarter of 2024, a few months ahead of our forecasts.
And they keep coming.
The ambition was set to ensure that the market is always able to dispatch the lowest cost generation, so that consumers can maximise their benefits.
When the NEM first reached 100% renewable potential, in Q3 2024, renewables were actually meeting 71% of demand.
This gap, between the availability of renewable energy and what actually gets dispatched, is explained by three factors:
- Commercial factors are the major reason – that is, the decision of renewable generators to curtail their output because market prices are unattractive.
- Transmission line congestion can also be a factor.
- And sometimes, it is the need to keep the main power grid stable and secure.
It’s minimising this third factor that has been the focus of AEMO’s work in recent years to ensure AEMO’s control rooms could maintain a secure power system while the market dispatched the lowest cost electrons – regardless of their generation source.
This is actually a global challenge, and has been the subject of significant collaboration between AEMO and our peer organisations around the world.
And since Australia is leading the world in aspects of our energy transition, AEMO is at the forefront of many of these technical challenges.
In Australia, rooftop solar systems are now more common than backyard swimming pools.
In 2021, Australia was leading the world in installing rooftop solar, with 2.5 million systems across the country. Today there are more than 4 million.
The fundamental changes to our energy mix are driven as much by decisions made around kitchen tables as those around board room tables.
At the time I described it as ‘a stunning democratisation of power’, a term that continues to describe it well.
The solar panel has become a symbol of Australian homeowners and business owners taking charge of their generation, to lower their costs, and ultimately transition their grid.
While this is a true Aussie success story, it’s a success that has created some challenges.
In the NEM, the addition of 21 gigawatts of generation was destined to disrupt a grid with a peak demand of 36 gigawatts.
This new generation source is the largest aggregate source of generation in the NEM, it has met more than 50% of total energy demand for periods across the entire NEM, and it regularly provides more electricity than is needed for the entire state of South Australia.
S1 – SUNSHINE, BASELOAD & FIRMING
Harnessing sunshine has forever impacted the economics of our power systems.
It is the old coal-fired power stations, for decades the cornerstones of grid stability, that have struggled most with this influx of low-cost variable generation.
Despite the historic benefits of thermal coal generation, and there are many, it is a technology that struggles to be as flexible as other types of synchronous generation, gas and hydro.
This is particularly challenging for coal generators when more than 20% of trading intervals across our major power systems see negative pricing.
That means generators are paying someone to take their energy away.
And this has led to a paradigm shift.
The power systems of yesterday were dominated by coal power stations – always on, and running at high levels of utilisation.
This was the lowest-cost energy at the time to meet the base load of demand for power, supplemented by more expensive peaking generation to meet evening periods of peak demand.
The lowest cost generation is dispatched first, supplemented by the next lowest cost and so on until demand is met.
Today the lowest cost energy is renewable energy, and it is therefore dispatched first. Other types of generation and storage are then required to “firm up” this variable renewable energy.
So the paradigm shift underway in our power system is from the economics of baseload and peaking, to renewables and firming.
And there is no going back.
S2 – A MARKET OF INCREASING COMPLEXITY
The ongoing shift in Australia’s generation mix has made our power systems more complex.
By their very nature, the power systems of our parents’ generations were simpler.
Fewer generators. Fewer owners. Less engaged consumers.
To illustrate this point, I’m going to introduce three numbers of the day.
Those numbers are 1800, one, and 150.
The first number impacts generators. The second number impacts the market. And the third number impacts AEMO.
In 2024, AEMO issued over 1800 manual directions to generators.
Most of these were directions to synchronous generators – gas, hydro and coal – to synchronise to the grid at their minimum level of output, because the grid needed the resilience that they provide against disturbances.
And that’s because when inverter-based solar and wind generation reaches high contribution levels, it displaces the traditional spinning, synchronous generators that provide critical system stability.
When I was last at a CEDA event, I mentioned that in 2016, our control room staff issued just six manual interventions to maintain a secure grid.
And that by 2020 that number had reached 321 manual interventions, pretty much one every day.
Well last year that number was 1800 – almost five every day.
These interventions are not desirable, but at the moment they are necessary.
They are the only way AEMO’s control room operators can manage periods when large volumes of unused power are flowing into the main grid from rooftop solar systems and other inverter-based resources.
Because in addition to having enough energy to meet demand at any point in time, our power systems also need to be resilient against the disturbances that are a regular occurrence.
From a tree branch falling on a local power line, to a severe storm that destroys transmission towers, our main power grid must be resilient.
A large part of this resilience is provided by large spinning machines connected to the power system, most rotating at 50 times a second, providing the grid with the stable heartbeat that it needs.
They don’t need to be burning fuel, they just need to be spinning.
When the baseload coal-fired power stations retire, this stable heartbeat will need to be provided by synchronous condensers, or gas and hydro power stations fitted with a clutch that enables the generator to spin without burning fuel.
Until enough of these non-generating options exist, our control room will need to direct existing generators to synchronise to make sure our grid is resilient.
It’s not a decision AEMO takes lightly.
Indeed, we are acutely aware of the impacts on asset owners.
Just as we are aware of the impact on consumers from displacing lower cost electrons.
But after four years of work on AEMO’s Engineering Roadmap, collaborating across the entire industry and around the world, I’m confident that we now know what needs to be done to enable the lowest cost power to be dispatched at times when renewable energy can meet 100% of demand.
That was the 1800. Now for the one.
On only one occasion since the NEM was established in 1998 has AEMO taken the decision to suspend the entire National Electricity Market for an extended period.
On Wednesday 15 June 2022, we announced the market suspension because a confluence of events made it impossible to continue to operate the spot market while maintaining a secure supply of electricity for consumers.
This was an epic decision in the NEM’s 27-year history.
That confluence of events included an early winter spike in demand, combined with low renewable output, outages at several coal-fired power stations, and the impact of the Ukraine war on commodity markets.
It was the fact that all these things happened at once that caused real trouble.
In short, it was the need for AEMO to issue constant market directions that led to that specific, and drastic, course of action.
It was an operational complexity where the system was relying on market dispatch and a huge number of interventions.
It was a market divided, it was too complex, and too difficult.
I don’t raise this to revisit the history, but rather to make the point that issues like the four mentioned above can happen at any time.
And today the impact of these events is even more difficult to manage, because the system is more complex.
We need to continue to collaborate and solve these issues ahead of time, because energy demand can be unseasonable, because renewable generation is variable, and because we still depend on old infrastructure that can be unreliable.
The events of 2022 were a test of the entire energy industry.
For generators, commodity producers, transmission businesses, governments, and certainly for the market operator.
But as an industry, we navigated these events without disruptions to the homes and businesses that rely on the energy we produce and distribute.
So that is 1800 and one. Now for the 150.
The 150 number refers to the number of IT applications that AEMO uses in its system and market operations functions.
Some of these are highly technical and bespoke systems.
They include systems to manage the countless constraints in our major grids, and systems that AEMO uses to log interactions with market participants.
Some of these systems are as old as the NEM, and they’re in need of renewal.
Notwithstanding the issues with individual applications, it should be clear that 150 separate applications is too many to operate an already complex external environment.
AEMO’s Operations Technology program is a steady program of investment, providing our control room operators with the tools they need to manage an increasingly complex and variable energy system.
This activity will be complemented by a major uplift to our core digital systems.
That program, funded by the Commonwealth Government and completed over the next five years, will enhance energy security and reliability for Australian homes and businesses.
Of course, systems are only part of the challenge in a complex operating environment.
AEMO’s capabilities more broadly, and our culture, must also be able to manage in increasingly complex environments.
And I’m pleased to say that since 2021, AEMO has already seen an enormous evolution.
Industry is telling us the levels of trust are much higher than in the past, and that as an organisation we are on the right track – simplifying our operations, improving the connections process, delivering market reform, and being open, transparent and accountable.
There is clearly still much work to do on this journey, but with the right systems in place, the right capabilities in the organisation, and sound financial management, AEMO is well placed to tackle the challenges of today and tomorrow.
S3 – WHERE TO FROM HERE
So far we have focused on the evolution of the themes of Australia’s energy transition that I shared when last at a CEDA event in 2021.
These themes are driven by consumer sentiment and market forces – the direction is clear, it’s just the pace of change that’s uncertain.
Australia’s coal-fired power stations are old, and they will retire. Asset owners are telling us this.
And to meet Australia’s growing demand for electricity, significant investment is needed to replace the energy and stability provided by those retiring power stations.
AEMO’s Integrated System Plan is a roadmap to Australia’s energy transition, plotting the lowest cost pathway to meet both consumer needs and government energy and emissions targets between now and 2050.
And AEMO’s technical documents, including our Engineering Roadmap and Transition Plan for System Security, are a roadmap to ensure our grid remains stable and secure.
We don’t pretend that any of these documents are perfect. They benefit greatly from consultation and input from a wide variety of stakeholders, and they evolve with updated information.
And on a world stage, they’re held in very high regard.
Without diving too deep into the technical aspects, I’m confident that these roadmaps provide clear direction for Australia’s main power systems.
Both the Integrated System Plan and the Electricity Statement of Opportunities call for urgent and sustained investment in generation, storage and transmission, to ensure Australian homes and businesses continue to have access to secure and reliable electricity as our old coal-fired power stations retire.
The role of gas can sometimes be controversial.
But let me be clear, flexible gas-powered generation will remain the ultimate backstop in a high-renewable power system.
Gas, alongside batteries and pumped hydro, will enable higher renewable contributions and support reliability as coal-fired power stations retire.
And importantly, new gas-fired power stations can play an active role in system security even when no gas is being consumed.
This is because their heavy spinning generators – like those of coal and hydro – have benefits beyond generation.
If designed and built with this functionality in mind, they can spin freely to keep the main power grid secure and resilient without burning fuel.
So while they may only burn fuel 5% of the time, they can help keep our grid stable 100% of the time.
Our technical work has found that to keep the NEM secure and stable in periods with high renewable contribution, the equivalent of 22 large synchronous machines are needed to keep the grid stable and secure.
This could be provided by synchronous condensers, service contracts with existing units, retrofitting of retiring generators, or by new gas turbines fitted with a clutch so the generator can spin freely.
These machines are needed by the time the existing coal fleet retires.
If commissioned as flexible gas generators with a clutch, they could also provide valuable insurance for reliability as the fleet of coal-fired power stations gets older.
In order for gas to play its critical role as a back stop for reliability, there must also be enough gas in our domestic networks to meet demand.
Gas is still used as a fuel for heating, as a manufacturing feedstock, and as a fuel for generators.
However, gas production is falling faster than demand in the southern states, reinforcing the need for investment in new gas supply.
This investment could include new production, additional storage, pipeline upgrades, and LNG regasification terminals, or a combination of these solutions.
CONCLUSION – THE OPTIMISTIC ENGINEER
As I stand here today and look to the future, I can’t help but think of what has changed since I was last at a CEDA event in 2021.
And my observations are threefold:
- First, that the pace of this transition is not linear. In fact, it’s lumpy, with points of inflection or transition that will challenge us.
- Second, that collaboration is critical, particularly at these transition points.
- Third, that energy is the backbone of society, and there a strong expectation that this energy transition is just, fair and least cost, and ensures a secure and reliable supply of electricity to homes and businesses at every point.
From AEMO, we are more committed than ever to working collaboratively with industry, governments and consumers to navigate every transition point.
When I reflect on the work that has progressed since 2021, I’m confident that we have the capability that we need, at AEMO and across the industry, a set of roadmaps that can navigate Australia’s energy transition, and a mindset and track record of always acting in the best interests of Australian energy consumers.
The last four years has seen great progress, and I am confident the next four will be no different.
Thank you.
ENDS