Australia’s energy transition: What’s needed to keep the momentum going
To begin, I’d like to acknowledge that I’m on the lands of the Gadigal people of the Eora nation.
I’d like to acknowledge them as traditional owners and their continuing connection to land, waters and culture, pay my respects to elders, past and present, and to all First Nations people with us today.
And I want to thank the hosts of this Australian Clean Energy Summit for 2024 — the Clean Energy Council — for all your work, and for the warm introduction.
Ladies and gentlemen, never has energy been a more important topic for Australians.
Energy is fundamental to every aspect of our lives.
It underpins our health, education, transport, banking, telecommunications, defence, manufacturing, retail, housing…all industries and all sectors are utterly reliant on secure, reliable and affordable energy.
Energy is the backbone of modern society.
And as this audience knows, Australia’s energy transition is happening at pace.
It’s our job at AEMO to operate Australia’s energy systems and markets, in real time, minute by minute, around the clock. AEMO never stops.
We deal with the ups and down of supply and demand, market dynamics, short-term incidents and long-term trends.
And we draw on that lived experience to help inform our other key responsibility, to plan the energy system for the future.
And that’s what I would like to discuss today — the insights we have as the real-time system operator and how it underpins and informs our thinking in a long-term plan for the future.
Three weeks ago, we released the 2024 Integrated System Plan, or ISP.
The plan is a 25-year roadmap to transition the National Electricity Market (NEM) to net zero by 2050, in line with government policies.
Far from being a work done in isolation, it involved 2,100 stakeholders and the consideration of more than 200 formal submissions from external organisations and energy specialists.
Consistent with our previous reports and publications, the 2024 ISP confirms that renewable energy connected with transmission and distribution firmed with storage, and backed up by gas-powered generation is the lowest-cost way to supply electricity to homes and businesses as Australia transitions to a net zero economy.
We have increasingly described the need for investment as urgent.
That’s because Australia’s historic source of electricity, the fleet of coal-fired power stations, which still provide around two-thirds of our electricity, are soon to close.
And the lowest-cost form of new-build energy to both replace retiring coal power stations and meet our growing demand for electricity is renewable energy, powered by the sun and the wind, firmed with storage and backed up by gas.
And there has been some discussion recently about the prospect of nuclear power, so let me address this early.
Our ISP does not model nuclear power because it is not permitted by Australian law, and development of nuclear power generation is not a policy of any government.
But we know from our work with the CSIRO on the GenCost report that nuclear is comparatively expensive, and has a long lead time.
Even on the most optimistic outlook, nuclear power won’t be ready in time for the exit of Australia’s coal-fired power stations.
And the imperative to replace that retiring coal generation is with us now.
To be clear, AEMO does not form the view that one form of energy is ‘good’ and another ‘bad’.
Our engineers and economists are focused on finding the least-cost path to reliable and affordable energy for Australian consumers.
Let me unpack the Integrated System Plan to explore what Australia’s future power system might look like.
And at this point I should say what the ISP is, and what it is not.
It is not a prediction of what will be in 2050.
It’s a roadmap of what the National Electricity Market requires to meet the energy needs of Australian consumers — and to hit emissions targets.
The ISP identifies an optimal development pathway of generation, storage and transmission on a timeline to meet consumer needs for secure and reliable energy at the least cost, while meeting government policies on energy and emissions.
The plan has an estimated annualised capital cost of $122 billion to 2050.
That cost includes the cost of new generation, storage and transmission that is required in addition to what is already committed.
It does not include the cost of distribution networks whose plans are made at a local level and it does not include the cost of consumer devices like rooftop solar systems, because those investment decisions are made by consumers themselves.
Today the National Electricity Market — the system that serves the bulk of Australia’s population, businesses and industry — has around 60 GW of generating capacity.
Roughly a third is coal and the rest a mix of solar, wind, hydro, and gas … and increasingly storage.
On top of that capacity sits more than 20 GW of domestic rooftop solar.
The ISP sets out the capacity of new grid-scale generation, storage and transmission needed in the NEM through to 2050.
The resulting NEM capacity through to 2050 — in the most likely scenario — reaches almost 300 GW.
Demand for electricity is set to almost double as homes and businesses increasingly electrify their heating, transport and industrial processes.
In the next decade, peak demands in the winter will outstrip those from summer, and flexibility will be key to managing variability in both demand and supply.
To meet this growing demand for electricity, our power system needs a significant step up in capacity.
By 2050, the optimum capacity looks like this:
In terms of generation, the ISP puts onshore wind as the largest form of grid-scale generation, at almost 60 GW, up from 12 GW today.
That’s followed closely by grid-scale solar, at 58 GW, up from less than 10 GW today.
I know that investments in these two technologies are the focus of many in this room today.
Next comes gas-powered generation, at 15 GW. With 11.5 GW in place today, that doesn’t sound like much more.
But between now and 2050, more than 9 GW of existing gas plant is projected to retire, meaning almost 13 GW of new gas generation — either as natural gas, biogas or hydrogen — will need to be built in the years ahead to cater for the growth needed.
Beyond generation, the next big-ticket item is utility-scale storage, of all different depths or durations, from batteries lasting multiple hours, to pumped hydro and other solutions lasting many days.
And the biggest ingredient of the NEM in 2050 is distributed generation and storage, through rooftop solar, distribution level batteries, electric vehicles and other smart appliances.
There are now more than 3.3 million solar systems on roofs across the NEM, with a combined capacity of over 21 GW.
By 2050, rooftop solar panels are likely to provide a massive 86 GW of generating capacity and we expect this to be complemented by 44 GW of battery storage.
Today these systems are already making a phenomenal contribution to the supply of cheap decarbonised electricity.
But today, these devices are mostly uncontrolled and uncoordinated, which left unchecked, can cause issues on the bulk power system.
That might seem like an odd statement, so let me explain.
On mild sunny days, excess power from rooftop solar systems can sometimes be too much for the main grid to handle, causing issues with system stability and resilience.
These issues can occur when there isn’t enough load on the transmission network, so we have needed to introduce frameworks and procedures to manage 'minimum system load' to protect the bulk power system and the consumers we serve.
I’ve previously described the bulk transmission system as a bit like riding a bike. At very low speeds, riding can become quite unstable.
Solar and wind power comes and goes with the sun and the wind of course, and that’s why we need complementary technologies, called firming, to smooth out the peaks and the troughs.
These are energy storage technologies, such as batteries, pumped hydro and the ultimate backstop of gas-powered generation.
Depending on their depth of storage, they can soak up excess supply in the middle of sunny days, and use that stored energy to meet the daily evening peaks.
And it’s worth understanding the transition role of gas and how it helps to get renewables into the grid.
At times there will be long spells of dark, windless periods — described by the famous German word of 'dunkelflaute' — where output from solar and wind generation is very low.
Victoria experiences conditions like this in June.
These periods highlight the critical role of gas-powered generation as the ultimate backstop for our grid.
The ISP highlights the ongoing need for flexible gas generation, with its insurance value being less about day-to-day peak demands, but increasingly to ensure reliability through these dark, still periods.
This gas generation will not be used often — perhaps just 5% of the time across the year — but is the ultimate backstop to ensure reliable electricity supply.
In fact, the old notion of 'baseload' generation which runs constantly, supplemented with 'peaking generation' for the daily peaks in demand, simply does not reflect the way our power system works either today, or into the future.
When the sun is shining and wind is blowing, renewable generation produces energy at zero marginal cost, and 'baseload' energy simply can’t compete.
It is either pushed out of the market entirely, or has to sell its energy at a loss if it can’t flex up and down to absorb the peaks and troughs of variable renewable supply.
Flexibility is key in our current and future energy mix, and the shift away from 'baseload and peaking' to 'renewables and firming' is already well underway.
And the final piece of the ISP is transmission.
New or upgraded transmission serves three purposes: the connection of new generation sources into the grid, to share that low-cost energy across a diverse geography, and to improve the resilience of the power system.
A range of new or upgraded transmission projects are identified out to 2050, half of which are needed over the next decade.
In total, the transmission projects identified in this ISP are forecast to cost $16 billion, but is expected to not only repay their construction costs but also to save consumers a further $18.5 billion in avoided costs and deliver emissions reductions valued, according to the official rate, at $3.3 billion.
So that’s the plan.
An optimal development path for the NEM to 2050, designed to meet the growing needs of Australian electricity consumers, replace retiring generation, and meet government targets at the lowest possible cost.
While the ISP sets out the road ahead, we are already squarely on the journey.
From AEMO’s control rooms we can see the progress in the energy transition that’s already being made.
A strong pipeline of generation and storage projects is being developed.
In fact, today, there are close to 43 GW of new generation and storage projects within the various stages of the connection process in the NEM.
This is up from 30 GW at same time last financial year, thanks to a large number of connection applications received and processed — an inflow of 12 GW in FY24 compared with 7 GW in the previous 12 months.
The connections process itself has continued to improve, often through the relatively means efforts of collaboration.
We know that the more closely all four parties involved work together — developers, original equipment manufacturers, network service providers and AEMO — the faster and smoother the connections occur.
We introduced a streamlined approach to optimise testing, including flexibility in the sequence of tests, and replacing full ‘hold point’ tests with stability and staging tests.
Proactive engagement and collaboration with proponents has helped all parties to share challenges and find solutions.
Better visibility and planning has enabled parallel commissioning of generators in some parts of the network.
We know how important the connection process is, and we’re seeing the results when AEMO staff lean in to proactively help proponents and original equipment manufacturers, either in avoiding delays, or accelerating their connection to the NEM.
Our close relationship with the Clean Energy Council, members and the Connections Reform Initiative has been instrumental in driving these improvements.
As always, there’s more to do, and I look forward to continued collaboration with everyone in this room and beyond.
For the past three years, our Engineering Roadmap work has been preparing the NEM to securely operate with higher amounts of renewables, aiming to reduce the technical and engineering barriers that might inhibit the market from dispatching the maximum possible amount of renewable generation.
The objective is that when the market is ready to dispatch 100% renewable energy, so too is the power system itself.
Through the efforts of the entire industry, significant progress has been made to ready both the NEM and the WEM, for operation with increasing levels of renewable energy.
And our collective efforts are already paying dividends by ensuring secure and reliable electricity through periods:
- where renewable energy supplies more than 70% of the NEM
- where rooftop solar alone supplies more than 50% of energy in the NEM
- where over 90% of South Australian energy supply was met by renewable energy … in fact mostly rooftop solar, in a period where the state was electrically separated from the rest of the NEM
- and where rooftop solar meets more than 100% of South Australia’s underlying demand.
And while great progress has been made, there is much work still to be done this year and in the years ahead.
Australia is leading the world in proving how to reliably source the majority of electricity for a developed economy from entirely renewable energy.
And we look forward to our ongoing collaborations with stakeholders in this room and beyond, over the year ahead.
But having launched the Integrated System Plan, we can’t just sit back now and expect the transition to happen as a matter of course.
Much of Australia’s energy transition depends on investment decisions, considering large sums of capital and long payback periods.
Certainty about the long-term sources of revenue needed to secure these investments is critical, and greater certainty leads to both faster investment decisions and lower costs for everyone.
AEMO is working hard to help unlock investment in generation and storage through our role as the delivery partner for the Capacity Investment Scheme.
The ISP has a strong focus on building the transmission that is required, and the order and timing to optimise its value to consumers.
It’s often said that the biggest risk to the transition is not building the transmission required.
And the biggest risk to the transmission is failing to build the social licence.
At AEMO, we recognise the importance of social impact and community sentiment about the transmission Australia needs.
It is a shared responsibility for all of us in industry and with governments, to engage with local communities early, honestly and openly.
And to ensure community voices and concerns are heard, understood and considered.
Because we all stand to benefit from this energy transition.
So let me finish where I started, by thanking all our stakeholders for your input and collaboration.
Two years of analysis and consultation has resulted in the 2024 Integrated System Plan.
It’s a roadmap for the National Electricity Market.
It’s a call to action. And now it needs to be delivered.
Thank you.
[ENDS]