Australia’s National Electricity Market (NEM) is witnessing a once-in-a-century shift in the manner electricity is generated and consumed. As the country races to meet the target of net zero by 2050, the NEM will see a replacement of legacy assets with low-cost renewables, deployment of energy storage and other forms of firming capacity, and reconfiguration of the power grid to enable bidirectional energy flows. The strengthening and expansion of the transmission network is crucial to enable the transition and it is imperative for the NEM to have a clear roadmap to support Australia’s ambitions. The 2022 Integrated System Plan (ISP)—a whole-of-system plan to efficiently achieve power system needs up to 2050—released by the Australian Energy Market Operator (AEMO) in June 2022 provides this roadmap to the NEM. The 2022 ISP aims to facilitate transition to a net-zero emissions energy system and enable the transmission of low-cost renewable energy to supply reliable, secure and affordable power to consumers for the next three decades.
The plan is based on extensive stakeholder consultations following the publication of the draft ISP in December 2021. The draft considered four scenarios for the pace of energy transformation on the path to reach net zero by 2050, and out of those scenarios, stakeholders have resonated the most with the ‘Step Change’ scenario. The 2022 ISP also sets out an optimal development path (ODP) outlining the key transmission projects to meet the needs of the NEM in the coming years. These projects entail the development of 10,000 km of new transmission lines yielding net market benefits worth AUD28 billion by 2050 under the Step Change scenario. This article presents key findings of the 2022 ISP.
Future demand scenarios
The ISP outlines four future demand scenarios—Slow Change, Progressive Change, Step Change and Hydrogen Superpower—based on varying rates of emission reduction, electricity demand and decarbonisation.
The Slow Change scenario takes into account the difficult economic environment following the COVID-19 pandemic wherein Australia’s decarbonisation objectives are not reached. Meanwhile, the Progressive Change scenario delivers on the 2050 net zero emissions target by progressively building momentum with stronger economy-wide decarbonisation measures in the 2040s. On the other hand, the Step Change scenario considers an accelerated transition from fossil fuels to renewables fulfilling Australia’s net zero commitments faster. The last scenario, Hydrogen Superpower, nearly quadruples NEM energy consumption to support a hydrogen export industry whereas the two previous scenarios assume the same doubling of demand for electricity to support industry decarbonisation.
The energy consumption by 2030 across all scenarios varies from 163 TWh (Slow Change) to 294 TWh (Hydrogen Superpower), reaching the levels of 213 TWh (Slow Change) to 1,278 TWh (Hydrogen Superpower) by 2050.
Industry stakeholders, an experts’ panel and the public forum chose the Step Change scenario as the most likely scenario to be realised in the coming decades. This was backed by accelerated market shift towards decarbonisation through 2022 partly driven by the 26th session of the Conference of the Parties (COP26) commitments. Further, many coal-based plants have announced/are planning retirement, offshore wind is gaining greater traction year-on-year, and policy efforts towards electric vehicles are becoming more pronounced, thereby pointing towards faster emission reduction across the Australian economy. In addition, the Australian government’s Rewiring the Nation policy, an AUD20 billion investment plan to rebuild and modernise the electricity grid to enable transfer of renewables, indicates the government’s resolve towards fast-paced decarbonisation and emission reduction, which aligns well with the Step Change scenario.
Generation capacity forecast
The 2022 ISP presents a generation and storage capacity forecast to meet Australia’s electricity needs over the next three decades. In the Step Change scenario, the NEM’s total installed capacity is forecast to increase from 60 GW at present (as of May 2022) to 173 GW by 2050. The annual energy supply to homes and industry will increase from 180 TWh to 320 TWh during the same period.
Renewable energy capacity is set to grow considerably, from 16 GW presently to 141 GW by 2050 in the Step Change scenario—a nearly ninefold increase. This would essentially require doubling of capacity every decade. In addition, distributed solar is projected to increase from 15 GW to 69 GW in the same period. The share of renewables in total annual generation would increase from about 28 per cent in 2020-21 to 83 per cent in 2030-31, and further to 96 per cent by 2040, ultimately reaching 98 per cent by 2050. By the mid-2040s, a majority of the electricity generation will come exclusively from renewables complemented by energy storage systems to manage variability and peaking gas-fired power plants providing firming support.
In addition, as per the Step Change scenario, 60 per cent (or 14 GW) of the existing 23 GW of coal-based capacity is likely to exit operations by 2030 and the remaining fleet may retire by 2040. The retirement of coal capacity would necessitate the addition of other firm dispatchable generation for grid stability and security. The Step Change scenario calls for over 60 GW of firming capacity to be in place by 2050. This can be provided by utility-scale batteries, hydro storage, gas-fired generation, smart behind-the-meter batteries or virtual power plants (VPPs) and, potentially, vehicle-to-grid services from electric vehicles. In addition, demand side management will play a key role in load balancing.
Further, the 2022 ISP states that curtailment of renewables will sometimes be efficient as it may not make economic sense to build transmission network and storage to capture every unit of energy that is generated. Also, at times, security or operational constraints in the grid may make curtailment necessary. The efficient level of curtailed or spilled generation in Step Change increases to about 20 per cent of total available variable renewable energy output by 2050.
Optimal development path for transmission
As part of the ODP, the 2022 ISP outlines transmission projects and investments that are essential to efficiently enable renewables to replace exiting coal generation. The ODP comprises a range of projects classified as either actionable, committed and anticipated, or future. Together, these projects entail the development of 10,000 km of new transmission lines by 2050 under the Step Change and Progressive scenarios. The development trajectory of these projects is fairly linear, indicating steady line length addition through the years.
Figure 1: Map of the network investments in the optimal development path
The actionable projects under ODP include HumeLink, Marinus Link (cable 1 and 2), VNI West (via Kerang), Sydney Ring and New England REZ Transmission Link. These projects have commissionings scheduled between 2026 and 2031. The 2022 ISP highlights that all actionable projects should be completed as early as possible for enhanced benefits for consumers.
In addition, the key committed and anticipated projects include the Eyre Peninsula Link, Queensland–New South Wales Interconnector (QNI) Minor, Victoria–New South Wales Interconnector (VNI) Minor, Central West Orana REZ Transmission Link, Northern QREZ Stage 1, Project EnergyConnect (PEC), and Western Renewables Link. The committed network projects are those that have already made certain progress in five key criteria (site acquisition, components ordered, planning approvals, finance completion and set construction timing), while the anticipated ones are those that have progressed on three of the five criteria. The tentative completion timeline of these projects spans from end-2022 to mid-2026.
The future ISP projects comprise those that have not yet begun the regulatory investment test for transmission (RIT-T) and are likely to come up later in the time horizon until 2039. These projects include QNI Connect, Central to Southern Queensland, Gladstone Grid Reinforcement, New England REZ Extension, Darling Downs REZ Expansion, Far North Queensland REZ Expansion, Facilitating Power to Central Queensland, South East South Australia REZ Expansions, Mid North South Australia REZ Expansion, and South West Victoria REZ Expansion.
Notably, the ODP is expected to yield net market benefits worth AUD28 billion (weighted across scenarios), returning around 2.2 times their cost of about AUD12.7 billion, which represents just 7 per cent of the total investment in NEM generation, storage and network to 2050. Significant benefits arise from deferring the capex of generation and storage projects as well as fuel cost savings. The transmission infrastructure expansion will benefit the NEM and consumers by enabling the transfer of zero-emission renewable generation to demand centres located far away. Without adequate transmission, NEM would need to invest in costly low emission generation technologies such as offshore wind, gas power or carbon capture and storage closer to load centres.
The AEMO gives interesting insights in the 2022 ISP highlighting the essential investments in transmission and the likely shifts in generation over the 30-year period. The plan is expected to help the industry, investors, governments and communities plan for the decarbonisation of the power system going forward.