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Australian AEMO’s ISP: Focus on transforming NEM [free access]

August 13, 2018

The Australian energy sector has been significantly transformed in the past few decades. Its structure has drastically changed through regulatory liberalisation; competitive markets have been set up, and there have been incremental improvements in supply efficiency. In the current period, the nature of the national electricity system is changing as large fossil fuel generators are being replaced by smaller renewable energy generation and storage facilities – including those owned and operated by households and small business energy consumers.

 

This emerging, more decentralised energy system has implications for the role of the electricity transmission infrastructure and where it will need to be built. The changes collectively are affecting the production, transmission, and consumption of power at an unprecedented rate.

 

Therefore, the country urgently needs a nationally integrated strategic plan, which considers how these transformations affect the need for infrastructure development and how essential technical requirements of the power grid will be efficiently met across the National Electricity Market (NEM), which represents about 90 per cent of the Australian electricity market and comprises six jurisdictions, namely, Queensland, New South Wales (NSW), the Australian Capital Territory (ACT), Victoria, South Australia and Tasmania that are linked together by an interconnected transmission network. 

 

The draft blueprint prepared on the future security of the NEM by an independent review team led by Dr Alan Finkel in 2016 recommended that the Australian Energy Market Operator (AEMO) should develop a new planning framework for the changing energy environment and guide the development of transmission connections of the new Renewable Energy Zones (REZ).

 

Under its role as NEM’s national transmission planner, AEMO has recently released an inaugural Integrated System Plan (ISP) – a comprehensive evaluation of the likely changes that will occur over the next 20 years across the NEM.

 

Over the 20-year plan period, AEMO anticipates the retirement of a significant number of coal-fired generators. Collectively, the generators expected to retire by 2040 produce around 70 TWh of electricity each year, close to one-third of total NEM consumption. The plan forecasts the replacement of these retirements with lower cost facilities including solar (28 GW), wind (10.5 GW) and storage (17 GW and 90 GWh), complemented by 500 MW of flexible gas plant and transmission facilities. The investment costs to replace old and retiring infrastructure with new plants is estimated at between AUD8 billion to AUD27 billion.

 

Plan pathway                     

The plan is consistent with the current experience in the NEM, where new renewable generation is being proposed and commissioned at a high rate. Some of this generation is incentivised through the Commonwealth’s Renewable Energy Target, and renewable energy schemes in Victoria, Queensland, and the ACT. The Renewable Energy Target is an Australian Government scheme designed to reduce emissions of greenhouse gases in the electricity sector and encourage additional generation of electricity from sustainable and renewable sources.

 

Consequently, there is a need to increase the capability of the transmission system to reduce congestion and provide generators, existing and new, with cost-effective access to markets.

Under the ISP, the AEMO has recommended action plans to be taken in three timeframes – near-term, medium-term and long-term.

 

Near-term plans

The near-term plan (up to the mid-2020s) involves immediate action to maximise the economic use of existing low-cost generation and secure investments required to facilitate the development of projected new renewable resources that will replace retired and retiring generation systems. As per the plan, the initial transmission developments are expected to be undertaken at a cost of between AUD450 million and AUD650 million, and the assets will continue to benefit consumers well beyond the 20-year ISP forecast period.

 

Two relatively minor transmission augmentations have been identified in the near-term that would increase the transfer capacity among NSW, Victoria and Queensland, providing immediate reliability and more competitive alternatives to consumers.                         

 

In addition, the ISP also identifies the need for synchronous condensers in South Australia to supply both system strength and inertia to the region. This will support the development of the RiverLink interconnector (the new South Australia to NSW interconnector to be discussed in medium-term plans) to allow the cost-effective use of South Australia’s local generation.

 

 

Medium-term plans

As per the ISP, by the mid-2020s, there will be an increasing need for significant levels of energy storage systems on account of the increasing influx of low-cost renewable generation systems for continued reliability and security. In particular, costs of new renewable energy plants will continue to fall, and advances and availability of storage technologies, particularly pumped hydro, flexible gas-powered generation and distributed energy resources (DER), will emerge as core components of a low cost and reliable energy future. In line with this, the transmission grid needs to be developed to support the connection of the generation and storage options at the lowest cost, co-optimising investment in transmission, storage, and generation across the market and optimising the use of all resources.

 

A major plan to be undertaken during the medium-term will be the development of a new interconnection between South Australia and NSW (RiverLink). The link will help increase resilience in South Australia, will enable the connection of large amounts of renewable energy resources from the Riverland to Murray REZ, and improve inter-regional trade and competition, especially if linked to developments to support the Snowy 2.0 project in the 2020s and the planned augmentation of the Victorian to NSW interconnection to be undertaken in the long-term plans. The project is currently under assessment by ElectraNet as part of the South Australian Energy Transformation Regulated Investment Test (RIT-T). Based on current estimates, the interconnector will cost AUD1.5 billion across both states, and will, subject to receiving all necessary environmental and development approvals, commence operations between 2022 and 2024.

 

Other major developments during the term involves the assessment to include the next stage of the Western Victorian transmission upgrades, augmentation of the Queensland-NSW interconnection, and a minor augmentation of the existing Victoria-South Australia transfer capacity.

 

To support the flexibility and system security required for this future energy mix, the AEMO will also co-ordinate work with project proponents on a design for transmission networks to support strategic initiatives – Snowy 2.0 and Battery of the Nation during the medium term.

 

Under the Snowy 2.0 initiative, a new link from Tumut to Bannaby (SnowyLink North) and associated works between Bannaby and Sydney West will be established. It is recommended to be delivered in two stages – a northern component (SnowyLink North) connecting Snowy 2.0 to Sydney, followed by a southern component (SnowyLink South) that enhances interconnection between Victoria and NSW. A final decision to go ahead with the Snowy 2.0 initiative is likely to be finalised before end-2018.

 

The Battery of the Nation initiative will provide additional pumped hydro storage in Tasmania for use across the NEM. A second interconnector linking Tasmania to the mainland NEM will be needed to support the project.

 

Long-term plans

In the longer term, with the bulk retirement of existing coal plants in the period from the mid-2030s to 2040, the plan points to the need for the further development of the transmission system to deliver a more integrated and resilient power system. Given the scale of the investment and building time required, it will be important to retain existing coal-fired generators until the end of their technical life to maintain reliability. The new generation mix, based on renewables, is projected to be cost less than new coal-fired generation.

 

The ISP suggests the strengthening of the interconnection between Victoria and NSW under the long-term plan (SnowyLink) to improve resource sharing across the NEM and deliver savings on the cost of fuel. The interconnector will also facilitate the efficient connection of new REZs within Victoria and NSW. In addition, a number of additional REZ’s in NSW and Queensland will be developed during the period to lower the cost of energy as compared to that supplied by the earlier retired coal-fired generators that these new REZs will replace.

 

While the actual investment during this period in generation and storage projects will be driven by market incentives and technology costs at the time, the transmission grid to support this requires planned and regulated investment. The long-term period will provide sufficient time to consult, refine and finalise initiatives, including the selection of preferred REZs and consideration of the timing of transmission development. However, it is imperative that the planned investments during this period should be made in sufficient time to provide a level of flexibility in the event of unexpected and irreparable catastrophic plant failure.

 

Summing up

Going forward, the forecast plan of the ISP will help identify the desirability of proactive policy, regulatory, and market reforms in the public interest. Collectively, these actions can identify required and likely investments, provide pathways for orderly retirements and investment in new resources that can best meet established and new policy and economic objectives, and enable broad innovation through the removal of existing and emerging barriers to entry and competition in the NEM.

 

Box 1:  Key observations

• ISP modelling projects a profound transition of the NEM over the next two decades, with: 

 

  • The energy mix transforming from one dominated by coal-fired generation to one with portfolios comprising large amounts of technologically and geographically diverse variable renewable generation sources, supported by increased transmission and energy storage solutions. There will be need to retain existing coal-fired generation while planning for orderly replacement on retirement.
  • A strong role for energy storage that can shift renewable energy production and provide capacity firming support during peak load conditions to support the dispatchability of this future energy mix.
  • An increasing need, with greater renewable energy penetration, for synchronous generation to operate with greater flexibility, responding to renewable intermittency. This will affect the operation of coal-fired generation, gas-powered generation (GPG), hydro-electric, and storage technologies, and may influence network solutions. GPG, for example, is expected to produce less energy overall, but continue to play a reliability and security role to complement variable renewable energy. Renewable energy will erode the need for GPG to operate during the day in the next decade, but GPG production is forecast to recover to near existing levels in the second decade as the retirements of coal-based power stations increase.
  • Coal-fired generation retirements and increasing development of large- and small-scale renewable generators expected to contribute to a reduction in emissions. 
  • The potential for significant savings through the greater use of DER, where those resources are well integrated and co-ordinated in the power system. For example, the greater use of DER could reduce the reliance on regional utility-scale renewable energy developments and the associated need to strengthen transmission within a region to support this.

• While the increased uptake of consumer-driven DER would slow growth in total grid-generated energy consumption, the modelling forecasts increasing value for strengthening interconnection between regions to meet an increasingly volatile demand across the NEM and take advantage of the diversity of renewable energy sources across regions as well as to ensure efficient sharing of resources across regions.

Source: AEMO