AEMO releases 20-year plan for system transformation

Maintaining existing coal-fired generation up to the end of its technical life is the cheapest way to transition to a stronger electricity grid, according to a new report from the Australian Energy Market Operator (AEMO).

The Integrated System Plan, a key recommendation of the  Final Report of the Independent Review into the Future Security of the National Electricity Market, proposes timely investments in transmission and interconnector capacity so that electricity can better be shared across the National Electricity Market (NEM).

“AEMO’s analysis confirms that we are in the midst of transformative and unprecedented rate of change in this sector,” AEMO CEO Audrey Zibelman said.

“We are witnessing disruption across almost every element of the value chain.

“Due to the vital importance of affordable, reliable and secure power as the engine of a strong economy, care must be taken now more than ever to manage this transformation in order to minimise costs and risks and maximise value to consumers.”

The 20-year plan provides for a coordinated approach to incorporating new solar, wind and gas-fired generation, supported by energy storage, into the grid as existing coal-fired plant ages and is retired.

“Maintaining existing coal-fired generation up to the end of its technical life is a key element of a least-cost approach,” the report says.

“When existing thermal generation reaches the end of its technical life and retires, the most cost-effective replacement of its energy production, based on current cost projections, is a portfolio of utility-scale renewable generation, energy storage, distributed energy resources (DER), flexible thermal capacity including gas-powered generation (GPG), and transmission.”

It is assumed approximately 15GW of generation (14GW of coal-fired and about 1GW of GPG) will reach its end of technical life by 2040 and retire, according to the report.

“This is projected to result in an overall reduction in the energy generated from coal, with the coal-fired power stations retiring currently generating approximately 70TWh, equivalent to around one-third of current total NEM consumption,” the report says.

Federal Energy Minister Josh Frydenberg said the plan is an important step towards ensuring the energy system is based on engineering and economis rather than ideology.

“The report underlines the significant transition underway in Australia’s National Electricity Market (NEM), the world’s longest interconnected energy system, with an unprecedented level of disruption and distributed energy resources entering the system,” Mr Frydenberg said.

“In order to maintain an affordable and reliable energy system into the future, the report underscores the importance of energy storage projects, flexible thermal capacity and greater interconnection which could result in potential savings of around $1.2 billion over the next 20 years.

“The Federal Government is taking a technology-neutral approach to energy policy.

“AEMO confirms the need to retain existing coal-fired generation as the cheapest current form of generation, finding that the continued operation of existing coal delivers the lowest cost outcome.”

Energy Networks Australia acting CEO Tamatha Smith said the plan was an important first step towards ensuring any investment in new generation delivered maximum benefit to customers through a more resilient grid and more competitive wholesale markets.

“Renewable generation won’t necessarily be built where the existing coal generators are, so the reality is that new transmission network infrastructure will be needed over coming decades,” she said.

“Around the world, the logical response to growing levels of intermittent (renewable) generation is to have a more connected system.

“However, without coordination, we risk ad hoc network investment, which is inefficient and would ultimately cost customers more.

“A priority for network businesses is to ensure we achieve balance – we don’t want to risk over investment, but doing nothing and responding to individual generation connection requests isn’t going to be the cheapest option for customers.”