AEMO warns of power ‘gaps’ in Australia’s largest grid three years from now as coal exodus accelerates

Electricity supplies are forecast to fall short of demand within three years on Australia’s largest grid, according to an official report that calls the need to build new transmission lines and renewable energy urgent.

In its latest 10-year outlook for the national electricity market, to be published today, the Australian Energy Market Operator (AEMO) warns of reliability “gaps” that will affect New South Wales from 2025 and Victoria , Queensland and South Australia at the end of the decade.

The warning from the government agency follows a period of turmoil in the market, which has been hit by rising coal and gas prices fueled by the Russian invasion of Ukraine and higher-than-usual demand.

Central to the turmoil has also been a series of coal plant outages, which at one stage in June affected a quarter of the fleet in eastern states.

AEMO said those supply pressures were likely to worsen in coming years as five coal plants closed, taking with them 14 percent of the National Power Market’s total capacity.

To further complicate matters, a surge in demand is expected amid efforts to electrify large portions of the economy, such as the transportation industry.

A large power plant blowing smoke with green hills in the foreground.
Yallourn’s scheduled closure in 2028 is expected to increase pressure on Victoria’s power supplies.(ABC News: Freya Michie)

Race for the new capacity

AEMO chief executive Daniel Westerman said that unless replacement capacity can be built in time, demand is forecast to periodically outstrip demand by 2025.

The first blow would be New South Wales, where major energy retailer Origin has announced plans to close Australia’s largest power station, Eraring, in the same year.

But Westerman noted that the shortfalls are forecast to spread to Victoria from 2028, to Queensland from 2029 and to South Australia early in the next decade.

“The report reiterates the urgency of advancing generation, storage and transmission developments to maintain a safe, reliable and affordable electricity supply for homes and businesses,” Westerman said.

“Gaps in forecast reliability have emerged in the NEM regions due to sizable coal and gas plant closures, coupled with insufficient commitments of new generation capacity needed to offset increased electricity use.

“Without further investment, this will reduce generation supply and challenge the ability of the transmission grid to meet reliability standards and power system security needs.”

a wind turbine
Wind farms will account for much of the new power capacity expected to come online by 2030.(Vasailios Muselimis: public domain)

To help fill the gap left by the exit of coal and gas-fired generation, AEMO has called on governments and industry to continue building new renewable energy projects.

The agency said the projects, with a combined capacity of 3.4 gigawatts, or enough to power more than two million homes, would be crucial to keeping the lights on.

‘Paying through the nose’

Additionally, AEMO said there were five high-voltage transmission lines that needed to “progress as quickly as possible” to ensure the new green power could be delivered where it was needed.

The Australian Industry Group, which represents major manufacturers, said the report was aimed at keeping “the feet of ministers and industry on fire”.

Tennant Reed, the group’s director of climate and energy, acknowledged that AEMO tended to err on the side of caution given its responsibility to maintain network security.

Reed said the report did not take into account some projects that would likely be up and running within its time frame.

A man in safety gear looks at a conveyor belt of molten ore.
Industry across the East Coast is dealing with huge increases in electricity prices.(ABC News: Henry Zwartz)

But he said the size and urgency of the task of replacing retiring coal capacity was undeniable.

“We have a lot of work to do to meet existing deadlines,” Reed said.

“Ideally, we would be accelerating many of those deadlines because we are going to be paying through the nose for electricity and gas in the coming years due to the price of coal and natural gas in international markets.

“The faster we can make the clean energy transition happen, the less of that Ukraine invasion premium we’ll be paying.

“But we have a lot of work ahead of us just to meet the existing deadlines, let alone do the acceleration that would benefit us.”

Transition at the critical point

The comments were seconded by Matt Rennie, a partner at Brisbane-based energy consultancy Rennie.

Rennie said that AEMO’s perspective highlighted the scope of the changes that ended the electrical system.

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