If Net Zero 2050 is the goal, transforming energy generation and delivery is essential – the electricity market currently contributes around a third of Australia’s greenhouse gas (GHG) emissions. Accelerating spending and smart policy choices on transmission infrastructure, while undoubtedly complicated, does two key things: it unlocks our vast, abundant and affordable renewable energy resources, and it helps lower the cost of electricity for customers, making the cost of doing business in Australia more internationally competitive.
“Investment in transmission infrastructure and energy storage is on the critical path to the continued growth and attractiveness of renewable energy generation,” says Igor Sadimenko, EY Oceania Power and Utilities Leader. “Our transmission network was designed to transport electrons that are primarily generated by base coal-fired power stations. With the significant growth of large-scale renewables generation and household solar installations, there is a need to augment and reform the transmission system to support the connection capacity requirements and efficiently manage future congestion issues.
“The Australian Energy Market Operator’s (AEMO) 2020 Integrated Systems Plan has identified several transmission infrastructure projects that are key to maintaining the stability of the overall system and continuing building confidence in the private sector investment for renewables generation.”
A report from June 2020 noted that Australia had over 160GWs of grid-scale renewables in the development pipeline, though system constraints mean many of these will not get full approval. In all but the Slow Change scenario of AEMO’s ISP, this represents more than the 26GW that AEMO forecasts will be necessary to offset the retirement of 15GW of “coal-fired generation that will reach the end of its technical life and so likely retire by 2040.”
AEMO makes explicit note that we need both investment and rule-based changes to bring optimal change into the energy market. “[The 2020 ISP] identified the least system cost investments needed for Australia’s future energy system. These are distributed energy resources and variable renewable energy, supporting dispatchable resources and power system services. Significant market and regulatory reforms will be needed to bring the right resources into the system in a timely fashion,” says the report.
It’s a view backed up by many in the industry. “You need transmission upgrades and you need regulatory reform,” says Nicky Ison, WWF Energy Transition Manager. “We need funding to unlock the transmission upgrades. On the renewable deployment side, a mixture of renewable energy zones, reverse auctions, supporting corporate PPAs and an adaption and upgrade of the renewable target would be a really simple way of doing it.”
From the NSW experience of oversubscribed renewable opportunities, to South Australia’s Hornsdale battery project that has, to date, delivered $150 million in savings for South Australian energy consumers, as well as creating 158 jobs and more than $300 million in economic benefits for the state, the intelligent interplay of policy and regulatory reform has proven that private money will come, even without public stimulus. CEP Energy is planning to instal a 1.2GW battery, the world’s largest battery, in Kurri Kurri, north west of Newcastle.
Meanwhile, Neoen, the French renewable energy developer, is proposing a $3 billion solar, battery and wind project in South Australia, which includes battery storage, that when fully rolled out would be ten times larger than Hornsdale. Crucially, however, the full plans rely on the Australian Energy Regulator finalising regulatory approval for the Project EnergyConnect interconnector between NSW and South Australia.
This interdependence of future investment in renewables and the grid is made clear in the AEMO 2020 ISP. “Strategically placed interconnectors and REZs, coupled with energy storage, will be the most cost-effective way to add capacity and balance variable resources across the whole NEM,” notes AEMO. “Without adequate investment in transmission infrastructure, new [renewables] will be struggling to connect. This could in turn lead to the private sector under-investing in the new generation capacity needed ahead of the planned or unplanned retirement of existing generators.”
Paul Orton, Head of Project and Export Finance, Institutional Banking at ANZ, says that while there’s a sizeable amount of investment available from institutional investors, those funds and banks and providers of large-scale capital need to see a coherent value chain.
“There’s still a huge pipeline of large-scale investment in renewable energy projects, let alone what’s happening on the rooftops and now behind the meter,” he says. “But the transmission network is still an area of constraint. For me, that would be a starting point for investment in a decarbonised economy. If we don’t get that worked out in the next three to four years, there will be a slow-down in the number of projects.
“People are simply not going to invest unless they understand the connection capacity. Some investors and even some lenders are willing to have certain amounts of merchant risk in their structures but they need a reasonable level of certainty that the forecast or assumed generation is going to be able to be dispatched. At the moment they may not have that certainty.”