The National Electricity Market (NEM) is in the midst of a major transformation in the way that electricity is generated and consumed, with all signs pointing towards a renewable future. But when will that future actually arrive, and what will it take to get there?
It’s expected there will soon be times when the NEM has enough renewable energy to meet 100 per cent of demand. But that’s not the full story – and for the NEM to complete its evolution from fossil fuels to renewables, it will require unprecedented levels of investment in generation, storage, transmission and system services.
What’s the timeline for Australia reaching 100 per cent renewable energy?
Australia is leading the world in per capita deployment of solar and wind power, at a rate four to five times faster than the USA, Japan, China and the European Union. There is already 16 gigawatts (GW) of utility-scale variable renewable energy (VRE) in the NEM, as well as 15 GW of consumer-owned rooftop solar capacity.
The Australian Energy Market Operator (AEMO), the body responsible for managing the NEM, recently released its 2022 Integrated System Plan (ISP), a whole-of-system roadmap for the development of Australia’s electricity sector over the next three decades.
The ISP notes that instantaneous renewable penetration peaked at a record 61.8 per cent on 15 November 2021. This means that, for one brief five-minute dispatch period, 61.8 per cent of the energy that was dispatched was provided by renewable resources.
This peak has been rising by roughly 6 to 7 per cent each year, and by 2025, it’s expected there will be brief periods when the system reaches 100 per cent instantaneous renewable penetration.
These periods will initially occur at times of low demand and will become more frequent over the coming decades. By 2040, AEMO forecasts renewable resources could meet 100 per cent of demand at any given time approximately 36 per cent of the time, and by 2050, renewable resources could meet 100 per cent of demand at any given time 65 per cent of the time.
In 2020-21, renewables made up approximately 28 per cent of total annual generation. AEMO now expects this figure to rise to 83 per cent in 2030-31 (consistent with Commonwealth Government policy); 96 per cent by 2040; and 98 per cent by 2050.
In other words, AEMO’s most likely scenario is that electricity supply will be generated almost exclusively from renewable resources by the middle of this century, with the remaining two per cent supplied by peaking gas plants providing firming support at times of high demand.
To determine this, AEMO projected four possible futures with varying rates of emission reduction, electricity demand, and decentralisation. Decentralisation, in this case, is the extent to which households and businesses manage their own electricity generation and storage, as opposed to drawing power from the grid.
The four scenarios projected by AEMO were:
- Slow Change, in which a challenging economic environment leads to slower net zero emissions action, but businesses and households continue to install rooftop solar at rapid rates.
- Progressive Change, in which a combination of consumer uptake of rooftop solar; government policies; and decreases in the price of technology lead to emission reductions throughout the 2020s, before commercially viable alternatives for emissions-intensive heavy industries emerge throughout the 2030s, leading to economy-wide decarbonisation and industrial electrification in the 2040s.
- Step Change, in which Australia transitions from fossil fuel to renewable energy at a faster pace, supported by global policy commitments; rapidly falling energy production costs; increased digitalisation to assist with demand management; and a swift uptick in the use of electricity for heating and transport.
- Hydrogen Superpower, in which energy consumption in the NEM is nearly quadrupled, supporting a hydrogen export industry. In this scenario, households with gas connections would progressively switch to a hydrogen-gas blend, and appliance upgrades would eventually allow for 100 per cent hydrogen use.
What’s the most likely scenario, and what needs to be done for it to happen?
Just two years ago, when AEMO published its last Integrated System Plan, Step Change was considered an outlier scenario. This year, after extended consultation with industry stakeholders following the 2021 UN climate change conference, AEMO has declared Step Change as the ‘Central’ – i.e. most likely – scenario, and the foundation that should be used when planning for investment in the NEM to meet its ambitious emissions reduction targets.
While only 8.4 GW of the 23 GW of coal-fired generation capacity in the NEM is announced to withdraw by 2030, AEMO are anticipating that 14 GW (60 per cent) of coal-fired capacity will be withdrawn by 2030, adding urgency to the transformation of the grid.
Under the Step Change scenario, 210 GW of Variable Renewable Energy (VRE) generation capacity will be required by 2050 for renewables to meet 100 per cent of demand approximately 65 per cent of the time, with the generation mix being 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 the aforementioned peaking gas, the only non-renewable resource in the mix.
But 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 a number of assumptions.
Stay tuned to What’s Watt – because next week, we’ll explain what has to happen for the Step Change scenario to occur as AEMO projects, and the obstacles that will need to be overcome.