By Anna Collyer, Chair
To get an idea of the magnitude of investment needed to reach net zero, we need an eight-fold increase in large-scale wind, solar and hydro generation.
Customers and investors are leading the way in our transition to net zero.
Whether it’s to manage our electricity costs, make a contribution to tackling climate change or both, Australians have the fastest uptake of household solar PV in the world and this will only continue.
At the other end of the spectrum, the announcement by Origin Energy to bring forward the closure of its Eraring power station, and the attempted takeover bid of AGL by Mike Cannon-Brookes reinforce that economic and climate change factors are driving the uptake in renewables.
The Australian Energy Market Commission (AEMC) is the rule maker for the Australian electricity and gas markets. We also provide market development advice to governments and are part of the Energy Security Board with the Australian Energy Market Operator and Australian Energy Regulator.
We very much see our role, including through our participation on the ESB, as contributing to the achievement of a net-zero grid and a net-zero economy.
The work we are doing is about getting the most out of renewables as a low-cost, emission-free form of generation – while ensuring we maintain reliability, security and affordability to achieve the best overall outcomes for consumers.
We are working on three key reforms relating to the integration of renewables into the grid.
The first is the ESB’s work on a capacity mechanism. We know people are concerned that a capacity mechanism will slow down the transition to renewables. But what we are seeing, through government policy and the actions of customers and investors, is that this transition is getting faster, not slower.
In this context, our first challenge is replacing the thermal generation as it retires so we don’t end up with a gap. The second is replacing it with the right mix of firm, flexible and variable resources.
We have a couple of scenarios in mind that illustrate why we need this mix of energy in the system.
Let’s say you have a sudden dip in power in the middle of the day due to cloud cover or an unexpected storm, reducing solar panel output. You need something that can come on instantaneously. Customers shouldn’t notice a thing.
We also know that at the end of every day the sun goes down, about the same time as our traditional energy usage hits a peak. We’ll need a longer-lasting technology to make sure we can get through these hours until our demand drops off again later in the evening.
And if we had a wind drought scenario, as we saw in the UK last year, we would be thinking about the kind of asset that can be available over an extended period. This kind of arrangement could be considered like an insurance product where you may not need it often but when you do, you’ll be happy you had it there.
The second area of work we are undertaking in our move to net zero is the AEMC’s essential system services reform work.
When we talk about system services, it’s important to understand that maintaining the electricity system within the required parameters for frequency and voltage becomes harder as variable renewable generation and batteries increase their presence in the NEM.
As the power system transitions to lower emissions generation, the generation mix is changing from a relatively small number of large coal and gas-fired units to one that is far more diverse and includes many smaller renewable units as well as storage.
As a result, the system services that were previously provided as part of these large units may not be available to continue to maintain the secure operation of the power system. Without change, the system will become less stable.
The AEMC’s essential system services rule changes are now progressing this work with a strong emphasis on listening and learning, and putting in the basic building blocks to keep the grid stable as the system evolves to higher penetration of renewables.
Third, when we discuss net zero and getting the best deal for customers, it’s also vital we consider the importance of transmission investment.
To indicate the magnitude of transmission and generation investment we need to get to net zero, the AEMO’s latest draft Integrated System Plan identified that an additional 122GW of utility-scale variable renewable energy is forecast to be installed in the NEM by 2050. Yes, we are talking about an eight-fold increase in large-scale wind, solar and hydro generation.
There is insufficient transmission network capacity to accommodate this.
Investment in, and access to, the national transmission system is a key enabler of a successful transition, and AEMC’s transmission review is looking at how the regulatory framework can support investment in a timely way while keeping costs down for customers, and the ESB’s access work will ensure we get the best “bang for buck” for that investment.
The AEMC is committed to working towards a net-zero grid and a net-zero economy. To do that we need to harness different perspectives by working together.
A quote from American author Kenneth H. Blanchard sums this up: “None of us is as smart as all of us.” Our job isn’t to have all the answers, but to deliver the right solutions together, creatively and collaboratively.
Originally published in the Australian Financial Review.