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.
- The market operator warns that power supplies on Australia’s largest grid could run out within three years.
- AEMO says mass coal plant closures combined with higher demand are putting pressure on supply
- The forecast drives the urgent construction of renewable energy generation and transmission projects
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.
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.”
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.
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.
“The great energy transition that we’ve all been talking about for the last 10 years is really up and running,” Rennie said.
“Now we are starting to understand what happens at the coal end and we are asking the question if electrification is feasible.”
According to Mr. Rennie, Australia faced three key obstacles in its efforts to build the green energy projects needed to replace lost coal capacity.
The first was to secure access to the materials needed to build the wind turbines, solar farms, and storage plants, along with the transmission lines, that would generate and transport the power.
A second was attracting the money needed to pay for the once-in-a-lifetime construction boom.
Rennie said the ultimate challenge was finding workers who could get the job done.
“The answer to the first question is yes, and the answer to the second question is yes,” he said.
“But the third question is the most critical.
“Do we have enough men and women with helmets and hi-vis gear to be able to deliver this electrification that we will need to see in the next 10 to 15 years?
“We’ve never had a tighter job market.
“Everyone is going through electrification at the same time and we are anticipating a huge shortage in the amount of labor that will be available to make this happen.”
‘No one wins’ from chaos
For Lisa Zembrodt, director of energy markets at the French conglomerate Schneider Electric, the tightness of the market predicted by AEMO should be a call to action for governments.
Ms Zembrodt said a crucial missing piece in Australia’s energy transition was an overarching policy that could guide everyone from a system running on fossil fuels to one powered by renewable sources.
“The situation is not as serious as what is put on that [AEMO] base case,” said Ms Zembrodt.
“But it is still a call for more supply to be put on the market.
“This is exactly why we need more renewable capacity, more storage and more demand optimization as part of our plan going forward.
“We cannot delay the addition of new renewable capacity and storage.”
Ms Zembrodt said there were few winners from the chaotic energy markets.
“It’s certainly very difficult for an economy to flourish when energy costs are exorbitant,” he said.
“And of course it’s also very difficult for households, which are the driving force of any economy.”