By Declan McManus, Co-Leader, EY Net Zero Centre and Partner, Infrastructure Advisory, EY Australia; Dr Steve Hatfield-Dodds, Associate Partner, EY Port Jackson Partners; Michael Newman, Partner, EY Australia, EY Regional Renewables Leader, Oceania; and Ben Vanderwaal
Australia’s three-fold transmission challenge requires refreshed energy market rules.
Australia has set a national target for 82% of its electricity to be supplied from renewable sources by 2030, as part of an orderly transition to net zero emissions by 2050.
Achieving this 2030 target will help meet Australia’s commitment under the Paris Accord of a 43% reduction on 2005 emissions levels by 2030. But we need to move faster to stay on track.
In the EY Net Zero Centre’s latest thought leadership paper, Powering progress: How Australia can fast-track energy transmission projects for a renewable future, we examine why so many transmission projects have stalled, and look at the levers we can pull to speed up delivery.
Powering progress is the second instalment of the three-part Energy Infrastructure Executive Briefing Series, Stepping Up to Drive the Step Change. And it is a step change.
The Australian Energy Market Operator’s (AEMO) Draft 2024 Integrated System Plan (ISP) outlines the investment required for Australia to meet its targets. This includes a tripling of grid-scale renewable energy by 2030 and a seven-fold increase by 2050.
Related article: Coal-free in 14 years as renewables rush in: new blueprint shows how to green the grid—without nuclear
Rooftop solar capacity is expected to double by 2030, and Australia needs to change the way it treats distributed energy resources (DER). The first paper in our Energy Infrastructure Briefing Series, From chaos to choreography, explores the challenges of orchestrating DER.
“Australia must integrate new energy infrastructure, piece by piece, while maintaining system stability. We must deliver reliable and affordable electricity while helping ensure the benefits are shared. And we must race towards net zero as the rest of the world decarbonises too,” EY Australia’s Declan McManus said.
All the evidence suggests firmed renewable energy has a decisive cost advantage over alternative options, including nuclear, and is better positioned to underpin future energy intensive export industries. But even if the relative costs and merits of different generation options change in coming decades, keeping the lights on in the next few years requires immediate action to build and connect new generation.
Most of this renewable energy generation will be built at a distance from our capital cities, requiring an estimated 10,000km of new transmission infrastructure by 2050.
However, in its most recent update to the Electricity Statement of Opportunities (ESOO), published in May 2024, AEMO noted significant delays to key transmission projects and called for urgent investments in transmission capacity. Recent analysis shows that all but one transmission line project has suffered delays; some projects are more than five years behind schedule.
How do we move beyond the bottlenecks?
Why have transmission projects slowed? And how do we move beyond the bottlenecks? Several obstacles stand in our way. But if we can overcome them, the opportunity is as enormous as the size of the challenge today.
1. Supply chain crunch
The International Energy Agency has observed that pressure on supply chains is affecting the pace of energy transitions around the world.[v] But Australia’s Transmission Network Service Providers (TNSPs) lack buying power, which makes it harder for them to compete for network equipment.
Australia faces an import impasse that we are unlikely to resolve any time soon. EY analysis finds Australia’s demand for key transmission equipment—while unprecedented by historical standards—is just 0.6% of transmission equipment demand in advanced economies. From a global perspective, Australia’s demand is just a ‘rounding error’ in global demand.
2. Skills squeeze
Labour constraints are likely to be an ongoing challenge for Australia. Jobs and Skills Australia, an independent agency established by the Australian Government to provide data and analysis on labour market needs, estimates that we will need up to 42,000 more electricians to meet our 2030 renewable energy target. The workforce must expand from 53,000 workers today to 84,000 by 2050. Compounding the difficulty is the global competition for the same skilled labour, as countries worldwide ramp up their own renewable energy projects.
3. Slow approvals exacerbated by social license concerns
Transmission projects have been subject to community opposition, highlighting the need to do more to gain community support. The Australian Energy Regulator is currently refining its approach to social license and, after consultation, is updating its guidelines and instruments.[vii] But the terminology of ‘social license’ itself suggests a privilege to be earned. The challenge for project proponents is to think instead about how benefits should be shared.
“We have three levers to pull. But with limited options on labour and equipment constraints, the only lever we can pull quickly is policy and planning—and so government needs to act urgently and decisively to overcome delays,” EY Australia’s Michael Newman said.
A supersized energy superpower opportunity
Our coal-fired power stations must be replaced. Doing nothing is not an option, because they are near the end of their economic life and become increasingly likely to break down as they age.
But this imperative also presents opportunities. Renewable energy provides the lowest cost option for replacing these retiring assets, and positions Australia to respond to growing worldwide demand for products made with zero emissions energy.
The EY Net Zero Centre’s 2023 report, Seizing Australia’s energy superpower opportunities, outlines the size of the opportunity. Investing in renewable energy at scale to provide Australia with clean energy and grow new industries could deliver around $65 billion to national GDP by 2050, EY team has found.
Related article: AEMO says renewables “the most efficient path” to net zero
“If we roll out cost-competitive firmed renewable energy at scale to grow our share of global materials and energy-intensive production, we could expand national GDP by 2.3% by 2050, relative to a lost opportunity where Australia falls behind the global march towards net zero,” EY Port Jackson Partners Dr Steve Hatfield-Dodds said.
Directionally, we know where we must go. But practically, we are trapped in a loop, challenged by supply chain and labour constraints, and by complex regulation and planning processes.
Australia’s energy ministers have agreed that long-term reforms to the National Energy Market (NEM) “must be carried out expeditiously”. But it will take the next two-to-three years, at least, for NEM reforms to kick in. In the meantime, transmission lines must be rolled out at pace.
Summary
The stakes are high, and the timeline is tight. We must accelerate approval processes, streamline regulatory frameworks, and actively engage with communities to secure their support. We need to act now to de-risk urgent actions and investments, allowing time to reform broader rules and regulations. By working hard on multiple fronts, we can overcome the current obstacles and deliver on our ambition for a reliable, affordable and sustainable energy future for Australia.
