How will Australia’s renewable evolution unfold? 

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The Australian Energy Market Operator (AEMO) has projected a scenario in which renewables account for 98 per cent of the total annual generation in the National Electricity Market (NEM) by 2050. Here’s what they think will need to happen for us to get there. 

Last week, we explained the Step Change scenario laid out by AEMO in their 2022 Integrated System Plan (ISP), a whole-of-system roadmap for the development of Australia’s electricity sector over the next three decades. 

Under AEMO’s Step Change scenario, renewables would account for 98 per cent of total annual generation by 2050 and renewables meet 100 per cent of demand approximately 65 per cent of the time, the generation mix would come to be dominated by distributed PV (rooftop solar), utility-scale solar and wind energy. 

These variable renewable energy sources would be firmed by coordinated storage of distributed energy resources (DER), utility-scale storage, hydro, and peaking gas, the only non-renewable resource in the mix. 

In this scenario, the changing generation mix in the NEM would look like this as we approach 2050:

But as we said last week, this scenario isn’t guaranteed. In order for something like the Step Change scenario to unfold as AEMO forecasts, while maintaining system security and reliability, the next few decades will have to follow the NEM operator’s optimal development path, which makes the following assumptions. 

An increase in electricity usage 

Today’s NEM delivers just under 180 terawatt hours (TWh) of electricity each year. Under the Step Change scenario, it would deliver almost double that amount – approximately 320 TWh. This would be needed to support the electrification of transport, industry, offices and homes, as electricity would replace gas, petrol and other fossil fuels. 

Initially, demand for electricity from the grid during the day would continue to be driven lower by the uptake of rooftop solar, but this would gradually be driven up by the electrification of more sectors and appliances.  

An increase in utility-scale VRE capacity 

Australia is installing VRE faster than at any other time in our history. Under the Step Change scenario, that record pace needs to accelerate, as the 16 GW of utility-scale VRE currently installed in the NEM would need to increase almost nine-fold to 141 GW by 2050.

A mix of solar and wind is required, in a range of diverse locations. This diversity of resources – assuming they can be connected to the grid efficiently – reduces the variability of renewable generation and its vulnerability to localised weather events, which in turn reduces the need for firming and dispatchable resources

Much of this capacity will be installed in Renewable Energy Zones (REZs) – spaces where multiple renewable energy generators and energy storage technologies are built in the same location, and paired with high-voltage poles and wires, so that renewable energy can reach the homes and businesses that need it with minimal transmission loss.   

REZs should be located in locations with high quality renewable resources, as well as suitable topography and available land to support the development of multiple generators in a coordinated way. This unlocks areas of high investor interest, streamlines the development of new projects, and helps to foster jobs and growth in the regional economies where the zones are located. 

The Queensland, New South Wales and Victorian governments have all committed to developing REZs. New South Wales formally declared the Central-West Orana Zone, centered around Dubbo, as Australia’s first dedicated REZ in November 2021; it will host at least 3 GW of solar, wind and storage capacity. 

In Queensland, $145 million in funding has been allocated to establish three Queensland Renewable Energy Zones (QREZs) in northern, central and southern Queensland. 

The Central QREZ will be located in an area that’s already home to several traditional generation assets, as well as some of Queensland’s largest energy consumers and most energy-intensive industries. 

Clarke Creek Wind Farm, an 800 MW wind project that recently commenced construction in the heart of Central Queensland, approximately 150km north-west of Rockhampton, will become one of the largest wind farms in the southern hemisphere upon its completion. The first stage of the project is planned to include 100 wind turbines, exporting 450 MW of electricity into the grid in 2024. Stanwell is the primary recipient from the project and will also act as an intermediary for the wind farm, taking responsibility for the dispatch and bidding of the generation into the NEM.  

Queensland’s second Renewable Energy Zone (REZ) has also been established with work commencing at the MacIntyre Wind Farm precinct on the Southern Downs west of Warwick.  The 1,026MW precinct consists of two wind farms—the 103MW Karara Wind Farm and 923MW MacIntyre Wind Farm. 

Hydrogen also presents an exciting opportunity for the region. In April 2022, the Australian Government announced $69.2 million in funding via its Clean Hydrogen Industrial Hubs program to Stanwell to support the development of a Central Queensland Hydrogen Hub, including a proposed 3,000 MW green hydrogen electrolysis facility at Aldoga, 20 kilometres west of Gladstone. 

The facility, which would be powered by the nearby Aldoga Solar Farm, would position Gladstone and Central Queensland as a global exporter of hydrogen, and help to power Gladstone industries. 

Since the publication of the ISP, the Australian Government has also declared Australia’s first offshore wind zone, which gives developers the green light to go ahead with wind farm projects in the waters off the Gippsland coast in Victoria’s south-east. Other offshore wind zones are expected to follow off the coast of the Hunter Valley and Illawarra in New South Wales; Portland in Victoria; Northern Tasmania; and Perth and Bunbury in Western Australia. 

Under AEMO’s Hydrogen Superpower scenario, even more VRE capacity would be required. In this scenario, the NEM would require approximately 269 GW of wind and 278 GW of solar – 34 times its current VRE capacity. 

An increase in rooftop solar 

AEMO’s Step Change scenario requires 69 GW of distributed PV (rooftop solar) by 2050. That’s 54 GW of new capacity – almost a five-fold increase. 

Today, approximately 30 per cent of homes in the NEM have rooftop PV, making up approximately 15 GW capacity. By 2032, AEMO forecasts over half of the homes in the NEM will have rooftop PV, with that figure rising to 65 per cent by 2050 to reach that 69 GW figure. 

AEMO expects most of these rooftop PV systems will be complemented by battery storage, as batteries become cheaper and more accessible for households and businesses. This will flatten out the spikes in demand for energy from the grid that have been occurring as a result of widespread rooftop solar adoption, as battery owners store excess electricity generated when the sun is shining and discharge it later on. 

AEMO also expects electric vehicle ownership to surge from the late 2020s onward, driven by falling costs, greater model choice and availability. In the Step Change scenario, AEMO projects 99 per cent of all vehicles to be battery powered EVs by 2050. 

If these batteries have vehicle-to-grid capabilities, they could be aggregated – along with the batteries connected to rooftop solar systems – as part of virtual power plants (VPPs) that AEMO can coordinate and dispatch into the energy grid at the right time to provide firming capacity. Speaking of which…

An increase in firming capacity 

For supply to continue to closely match demand as the market penetration of wind and solar power increases, there’s a need for firming capacity – a flexible supply of energy that can be called upon instantaneously or over long periods as wind and solar output changes, or when there’s a sudden increase in demand. 

Under a coal retirement trajectory, AEMO’s optimal development path calls for the NEM’s firming capacity to increase to approximately 68 GW by 2050, via investment in power sources that can respond to AEMO’s dispatch signals. 

This would include 46 GW / 640 gigawatt hours (GWh) of dispatchable storage, made up of roughly 31 GW from VPPs and other emerging technologies, and 16 GW from utility-scale batteries and pumped hydro storage; 7 GW of existing hydro generation, which differs from pumped hydro storage in that it relies primarily on natural inflows rather than pumping to operate; and 10 GW of gas-fired generation, which is expected to play a crucial role in periods of peak demand as coal-fired generation retires. (This gas-fired generation will need to be offset elsewhere in order for Australia to reach its goal of net zero emissions by 2050.) 

Crucially, the Step Change scenario also requires the installation of more than 10,000 kilometres of new transmission lines to deliver firmed renewable energy from generators and storage facilities scattered around the country to consumers throughout the NEM. 

What are the obstacles to a fully renewable energy system? 

While the scenarios presented in the ISP are all within the realm of possibility, the difficulties in getting there shouldn’t be understated. 

Ensuring consistent frequency across a fully renewable electricity grid (or, in this case, a 98 per cent renewable electricity grid) will be a significant challenge. Both coal-fired and gas-fired power stations are synchronous generators, which means they spin at the same frequency as the energy system, providing the grid with inertia. 

Inertia essentially acts as a shock absorber, to maintain consistent frequency across the grid, preventing surges and imbalances in supply and demand. These surges can cause damage to any connected electrical systems or equipment.

Solar PV panels and wind turbines aren’t synchronised to the grid. They’re connected via inverters, and therefore don’t provide it with inertia. 

With gas-fired generators as the only synchronous generating units, running only at times of peak demand, there will be fewer sources of the inertia and system strength that traditional generators have provided. AEMO floats advanced inverters, placed at strategic sites in the NEM, as a possible solution, but notes that their ability to replace these services has yet to be demonstrated at scale.

The coordination of behind-the-meter, distributed energy resources – such as rooftop solar PV units, battery systems and electric vehicles with vehicle-to-grid capabilities – is also not a given. 

AEMO expects this coordinated storage to be a major source of capacity for the NEM by 2050, whether it’s through VPPs or other, yet-to-be-finalised arrangements, but no such system currently exists in the market. AEMO acknowledges it will also need to secure social licence from consumers if it’s going to play an active role in managing their behind-the-meter systems. 

AEMO is also calling for $12.7 billion of urgent investment in new transmission lines, including five key projects – HumeLink, Sydney Ring, New England REZ Transmission Link, Marius Link and VNI West – that are currently being assessed or will soon be assessed for regulatory approval. These projects still only account for a small fraction of the total transmission development projects required to meet outcomes under the Step Change scenario.

Not only do these projects still require regulatory approval, but their timelines are likely to be threatened by supply chain disruptions – especially because nations all around the world will be attempting to build similar projects with similar net zero goals and timelines over the next 30 years. 

These projects will also require communication and engagement with landholders and regional communities to secure the social licence needed for projects of this scale.

In total, it is estimated more than $320 billion of investment is needed to develop, operate and maintain the generation, storage and future network investments of the NEM to 2050.

There’s no denying that Australia’s energy transformation will be complex. There’ll be no shortage of challenges ahead, and it will take ingenuity and adaptability to solve them – but ultimately, no matter which scenario prevails, the onus will be on the market to deliver reliable, secure and affordable energy to consumers, through 2050 and beyond. 

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