AEMO CEO speech at 2023 Australian Energy Week

20/06/2023
10 min

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 their Elders past and present, and to all First Nations people with us today.

Ladies and gentlemen,

I’m really grateful to have this opportunity to speak to you today at Australian Energy Week 2023.

Today I’d like to discuss how, collectively, we can maximise the benefits of this energy transition for all Australians.

And my spoiler alert is that this is not an easy thing to do.

I often share AEMO’s view of the energy transition we are facing in Australia, drawing on the unique perspective we have from our control rooms.

And in a nutshell, our view is that as Australia transitions rapidly away from our traditional dependency on coal generation, our energy future will be built on four pillars:

  • Low-cost renewable energy like solar, wind and hydro
  • Firming capacity to smooth out the peaks and troughs, like batteries, pumped hydro, and flexible gas generation
  • New transmission and modernised distribution networks to connect consumers to those new sources of energy, and
  • Power systems capable of running, at times, entirely on renewable energy.

AEMO is not alone in this view. In fact, I’d say that this view has broad acceptance across the energy sector and governments, with the debate no longer being about whether this will happen, but how quickly.

But there are a number of uncertainties at play now.

Inflation, global supply chain constraints, workforce constraints, across-the-board cost of living increases – including the cost of energy – and community reactions to large scale energy projects.

These are just some of the tensions that our industry and society are facing right now.

So this is the theme I’d like to explore today: to question how best we manage the tensions that are inescapable in what is, arguably, the biggest energy system transformation since the introduction of electricity itself.

And why do I call these tensions?

There’s a tendency in our industry to look at things as diametric opposites…positive or negative…on or off…stop or go.

In reality we are dealing with a continuum of things; an invisible thread that connects the range of positions on challenges we face together.

But that’s not to say this invisible thread isn’t under tension, like the wires strung between power poles.

The way we collectively respond to these tensions will determine how usefully, how quickly and how harmoniously we can make the energy transition work for all Australians.

As I see it, there are three main tensions that AEMO and the industry must grapple with to maximise the benefits of this energy transition.

The first tension: between today and tomorrow

The second tension: between the parts and the whole

And the third tension: between people and populations

Let me explain.

The first tension – between today and tomorrow – requires our industry to redesign and rebuild the aeroplane while we’re flying it. We need urgent investment. And we have to keep the lights on and the gas flowing today, while we assemble the new system of tomorrow, as the old system of yesterday gradually gives way.

The second – between the parts and the whole – is about integrating and operating the diverse range of technologies that a multi-gigawatt clean energy system needs, from the smallest to the largest, to create a reliable energy system at the lowest cost for consumers.

The third tension – between people and populations – is about addressing the concerns that are genuinely held in those local communities who are being asked to host the infrastructure of Australia’s energy future, while they share the benefits with others in densely populated cities far, far away. It’s about the concessions are we asking individuals and small local communities to make for the greater good, and how we reconcile them.

So today I’m going to explore each tension in turn.

Let’s start with the tension between today and tomorrow.

And that‘s a story of coal, renewables and rooftop solar, and energy efficiency.

Let’s face it. Coal-fired electricity generation, which has powered Australia for decades, is reaching the end of its life.

Today, while coal generation accounts for just over a third of the generating capacity in the National Electricity Market, it supplies around 60 per cent of our electricity needs.

Asset owners have already announced that a third of this coal generation will exit the market by 2030. But our modelling suggests that could be twice as much…almost two-thirds of coal generation gone in six-and-a-half years’ time.

As you know, governments are aligned across the country to reach a net-zero economy by 2050.

There are various interim targets, including the federal 2030 targets of 43% emissions reduction, and a grid fed by 82% renewables.

The market is responding to the withdrawal of coal, with investment in renewable energy, firming generation and storage to fill the gap.

This is positive for consumers, because we know that firmed renewable energy is the cheapest form of new build energy.

But this investment is not happening fast enough.

There is a strong pipeline of potential future generation projects proposed for the National Electricity Market, totalling over 200 GW. Half of these are wind projects, and there’s 40 GW of proposed battery storage.

But the crucial word here is ‘proposed’.

Bringing these new projects to market and connecting them into the grid urgently is critical to ensure consumers continue to have reliable power when they need it.

For AEMO’s part, we are connecting these new projects as quickly as we can. On the east coast we have 163 projects comprising more than 27 GW of new generation going through different stages of the connection process.

But the recent data from the Clean Energy Council is concerning. It shows that there have been no new financial commitments on large-scale renewable generation projects in Q1 this year.

One quarter doesn’t make a trend, but investment decisions are an important leading indicator for our energy transition.

Governments are aware of this need for investment, and AEMO is supporting initiatives designed to accelerate investment in renewable and dispatchable generation.

I believe Australia’s grid should be among the most investable in the world. And there is no shortage of capital globally to support Australia’s energy transition.

So the principal way that we can better manage the tension between today and tomorrow is to ensure we have enough clean and dispatchable generation projects that are being developed and commissioned in time to allow our coal plants to gracefully retire.

In contrast, we have no shortage of commitment by mum-and-dad investors in their own rooftop solar systems!

In fact, rooftop solar is now the second-biggest source of generation in the east-coast grid, with roughly 15 GW of installed capacity. That’s equivalent to 25% of the grid’s capacity today.

Our modelling shows that this trend will continue at pace …with a five-fold increase by 2050.

At that level, two-thirds of homes will have rooftop solar, and that power would meet nearly one-fifth of the east coast underlying demand.

But as the operator who is accountable for system security, huge amounts of rooftop solar can sometimes be a challenge because it is largely invisible and doesn’t yet respond to either market or operational signals.

On mild sunny days, the energy from our rooftops floods the grid, overwhelming most other forms of generation.

Last November, when South Australia became disconnected from the rest of the National Electricity Market, these challenges became more evident than ever. A real postcard from the future.

As you know, electricity supply and demand must be balanced at every point in time. An oversupply of generation, even from rooftop solar, would cause our electricity system to lose balance with dire consequences.

So we’re working collaboratively on a couple of ways to harness the benefits of rooftop solar while keeping the grid steady.

The first is to agree a set of operating procedures to help manage a potential flood of solar generation from rooftop systems if it becomes a threat to system security.

A few defined, incremental interventions, agreed in advance between our controllers, governments and network companies, focus on larger commercial solar farms first and household systems last.

The last step is often called the ‘emergency backstop’, which allows the network, if directed, to remotely stop solar exports to the grid. It’s a last resort, but an important insurance policy against the grid becoming unstable.

A far more preferable approach though, is for rooftop solar owners to become an active participant in our energy market, by joining together to form a virtual power plant, or ‘VPP’.

Several retailers, and other market players, are offering VPPs for customers who have a rooftop solar and battery system at home.

We hope to see these products being extended to a broader range of products including electric vehicle charging.

This will provide benefits to customers and the power system as demonstrated in the way VPPs can provide essential system services for the grid, like we’ve seen in Project Symphony in Western Australia, and Project Edge here in Victoria.

The final way we can manage the tension between today and tomorrow is through energy efficiency, which we know is a critical part of our energy transition.

Recent data ranks Australia as 18th out of 25 countries for energy efficiency, significantly behind leading European countries like France or the UK, and also behind countries in our own neighbourhood, like India and Indonesia.

The recent federal budget contained new funding for energy efficiency measures, supporting state programs, small businesses and households.

We’re analysing the potential impact of these measures, including new building regulations and incentives to upgrade household lighting, appliances and heating and cooling.

And the impact of market-led energy efficiency measures as new technologies become cheaper and consumers continue to focus on lowering their energy bills.

We’re feeding all of those insights into the scenarios that underpin our updated Integrated System Plan due next year, so that those scenarios accurately reflect the most up-to-date picture of the energy transition.

Now, to the second main theme: the tension between the parts and the whole.

Our east and west coast electricity grids are among the most complicated machines ever assembled.

And we’re attempting to stitch together a new system that is infinitely more complex, with a vast number of smaller generators, storage and firming technologies, and 3.5 million rooftop solar systems…

…while we operate the current system, which is now a hybrid arrangement…part old-school coal with an as-yet-incomplete renewable energy system, every minute of every day.

How do you make sense of this?

Fortunately, in one of the great demonstrations of collaboration across industry, governments and consumers, AEMO’s Integrated System Plan provides a credible pathway forward.

It’s a blueprint of the investments most needed for National Electricity Market to 2050. And these investments are needed urgently.

It’s an ingredients list of the components needed to transition Australia to a reliable, low-cost electricity system underpinned by firmed renewable energy…

… but baking this cake over the years ahead will take our best engineering expertise, precision, judgement, and care.

I’ve spoken about the nine-fold increase in grid-scale renewable energy that’s required, and the near five-fold increase in rooftop solar.

But we also urgently need investment in firming technologies like pumped hydro, flexible gas generation and battery storage.

Our Integrated System Plan shows that storage needs to grow by a factor of 30, from 2 GW today to more than 60 GW in 2050.

By 2030, the plan calls for an additional 5GW of grid-scale storage to reliably operate our power system, with around three quarters of this being an average of 8-hours in duration.

That’s significantly deeper storage than most batteries we are seeing in the connections pipeline, which are often 1 to 2 hours in duration.

But there is progress nonetheless, both on storage and the engineering developments needed to ensure the ingredients bind together into a reliable power system.

ARENA is supporting eight grid-forming battery projects, with a capacity of 2 GW.

And AEMO has been working with stakeholders in Australia and around the world to help specify the performance standards for grid-forming inverters which will help reduce our reliance on old-school, spinning generators.

ARENA and industry are exploring cost-effective pathways to shut down the boiler at coal-fired power stations and convert the generator and supporting infrastructure into a synchronous condenser to provide much needed stability services back into the power system.

And collaboratively with industry, we’re launching new markets to support and promote new technologies through the NEM Reform Implementation Roadmap.

So, as we progress in this transition, as coal is replaced by a kaleidoscope of technologies and solutions, we need to be able to manage a high renewables grid.

That’s why our engineers are collaborating with industry to map out the engineering and operational steps required to be able to operate at periods of 100% renewable power.

In December, we published a detailed Roadmap outlining 174 actions across 14 different topics that are critical to operating a secure and reliable power system.

There is a huge amount of work already in progress across industry – 80 of those actions already have some form of work underway, with another 50 commencing soon.

We are working closely with each of you across the industry to progress this roadmap, and as you know, AEMO’s goal is to be ready for periods of 100% instantaneous renewable generation by 2025.

Implementation of this work will be crucial on three fronts.

Firstly, the work is needed for Australia to meet our 2030 targets.

And secondly, the more cheaply generated renewable electrons we can get into the grid, the more downward pressure there will be on wholesale electricity prices, that should flow through to benefit consumers.

And thirdly, our old coal-fired power stations are closing down … and we must ensure a secure, reliable power system in the periods that follow.

We know that operating a high renewables system means being able to have visibility and control in an ever more complex system.

But frankly, AEMO’s operational technology is not keeping pace with advances on the power system, or the exponential growth of data and the ability to analyse it in real time to gain insights to make decisions.

So we are taking steps to modernise the toolkit that our control room operators have available, through our Operations Technology Program.

We are working closely with other system operators around the world to leverage our collective knowledge and investments.

Others brand this work as the ‘control room of the future’, but in Australia that future is often already here.

Our capability uplift will help improve forecasting capabilities, visibility into real-time operational flows and disturbances, using smarter algorithms that can better manage ever larger data sets, and accommodating for more frequent, significant weather events.

These uplifts will be implemented in our control rooms progressively over the next three years.

So managing this second tension, between the parts and the whole, includes using the Integrated System Plan as the blueprint for the least cost, least regret pathway for the future power system …

… which requires urgent investment in low-cost renewable generation, energy storage of different depths and durations, and being able to operate a high renewables electricity system.

So I think we are managing this tension…but the pace of investment is critical, and it’s resolution is clearly not a fait accompli.

And let’s not miss a key ingredient highlighted in Integrated System Plan: Transmission.

Five priority projects are identified in the plan, that urgently need to be built. A blueprint for 12 billion dollars of investment returning 28 billion dollars in net market benefits.

They will connect Snowy 2.0 to Sydney and surrounds, and to customers in Victoria via a second interstate connection. And they’ll connect the mainland to the vast resources of Tasmanian hydro via a second subsea cable.

The need for this new transmission is quite simply explained.

The existing transmission network was laid out 70 years ago to connect the big, powerful coal generators mainly in the Latrobe and Hunter valleys to the cities.

But the new solar and wind farms which are our cheapest form of new build energy, are located in the places where the sun shines brightest, and the wind blows most consistently.

New transmission is needed to transport these geographically diverse sources of cheap, clean electrons in sufficient volume to our towns and cities.

Already, the existing transmission system is increasingly becoming gridlocked because of the way our electricity is being generated.

From our control room we can see that increasing amounts of solar and wind generation are being curtailed because there’s not enough transmission capacity to transport it.

Curtailment of renewable generation has grown by almost 40% from a year ago.

From January to March, the links from Victoria to NSW and Tasmania were at their limits for 42% and 57% of the time respectively. And during those hours when the sun is producing free electrons, the links were binding for two-thirds of the time to NSW, and over 80% of the time to Tasmania.

In short, the links that connect our states are already maxing out.

But new transmission hasn’t been built in Australia for decades and local communities hold some concerns, genuinely, about what is being proposed.

That brings us to the third big tension in the energy transition…between people and populations.

As inhabitants of this great country, we all stand to gain from Australia’s energy transition. A reliable energy system on a trajectory to net zero emissions. Reducing those same emissions that climate scientists tell us are contributing to devastating floods and unfightable bushfires.

As a population we can all look forward to a cleaner energy future that is better for our planet, better for our health, and more robust against price shocks.

For Australia, new transmission is essential to connect new areas of renewable generation and energy storage with where the energy will be consumed.

But clearly these developments would impact some communities.

As you can imagine, this has occupied quite a lot of my thinking recently, and it increasingly seems to me that this situation has been framed in fairly oppositional terms: city versus country; business versus community, infrastructure versus agriculture, David versus Goliath.

I think that some early, enthusiastic, and well-meaning actions to get the ball rolling on transmission projects may have unintentionally shaped these false dichotomies.

But the reality is nowhere near as polarised as this framing would suggest.

Our country regions have traits of city living… big national and international businesses in energy, resources, manufacturing, processing and transport … alongside small and family run businesses … pubs, cafes, and retail shopkeepers.

Similarly, there are country elements in city life: vegie gardens, beekeepers, famers’ markets, water tanks, earth moving businesses, quarries…all manner of things…even dare I say it… overhead transmission lines passing through some pretty swanky suburbs.

There isn’t a hard border between city and country…it’s a gradual transition.

And so it is with the energy transition.

We are all in this together.

Going forward, let’s not fall into the easy and false narrative of an “us versus them” dichotomy.

It’s all of us – together.

Communities that are being asked to host transmission lines do stand to benefit from stronger and more reliable energy supplies… I know how important it is to have a reliable source of electricity to run a farm or a country supermarket.

New infrastructure also brings new opportunities, whether that’s for upgraded internet and mobile coverage, lights for the local footy ground or any number of other improvements.

There are tangible benefits to be had when new infrastructure comes to town.

In urban and country areas, households will be able to run on more affordable, cleaner energy generated hundreds of kilometres away, or even interstate, by the sun, wind, water and storage.

But this won’t happen by wishing for it.

It requires diligent, honest work to build the social licence with our communities.

We know that people in regional and rural Australia understand a lot about the energy transition: they understand the practical need to connect more renewables from new locations into the grid, and that new transmission does just that.

We also know that communities expect the energy industry to be open with them: no hidden agendas, to explain clearly the situation, not hide behind obscure technical language, to listen, to respond thoughtfully and meaningfully, and to fairly compensate those affected.

And fair enough. Land owners in these communities that host transmission towers should be fairly compensated.

Communities have told us that this approach is essential for them to agree to host new transmission.

The ‘Rewiring the Nation’ policy provides a federal rationale for transmission planning and we also increasingly see state jurisdictions taking an active role in the transmission development.

For example, we fully support the Victorian Government’s new Transmission Investment Framework, to ensure environmental, land use, cultural and social factors are considered much earlier in new transmission projects.

The framework seeks to secure community support and social licence, that are both vital for the timely delivery of transmission projects.
Together, we will continue to work with VicGrid on transmission projects that are underway – and into the future.

AEMO’s commitment to communities is that we will be open, communicative and fair.

So let me finish where I started.

That maximising the benefits of this energy transition for all Australians is not easy, and it comes down to how well all of us manage these tensions inherent within it.

Managing the tension of operating of the system today while we build the system of tomorrow…

Managing the tension of integrating all the parts that go into making and operating the whole…

Managing the tension between people and populations so we can all benefit fairly.

This is a once-in-a-generation opportunity, let’s make the best of it.

Thank you.

[ENDS]

X
Cookies help us improve your website experience.
By using our website, you agree to our use of cookies.
Confirm