The Energy Transition Down Under in a Nutshell - Part II

This is the second part of the article about the energy transition in Australia. ?Part I (available here ) describes the general characteristics of the Australian electricity market, its regulatory structure and key energy policies.

Part II focus on the current transformation of electricity system, future trends and the main challenges to reach the National and State targets, as well as consumers points of view and impacts.

The sections, figures, footnotes and references were numbered following Part I standard.

The views and opinions expressed in this article are the author’s own.

4. Energy transition and challenges

According to the World Bank 2020 data[48], Australia is the 7th largest CO2 per capita emitter among all Countries. With respect to greenhouse gas, the electricity sector responds for almost 35% of all emissions, followed by direct combustion of fuels (manufacturing, mining, residential and commercial) with 23%, transport (22.5%) and agriculture (18.4%)[49].

4.1 Emissions and targets

The Federal and State government established their own GHG emission reduction and renewable energy targets, with the common goal to reach net zero[50] emissions by 2050, as summarised in Figure 4.1.

As highlighted in section 2 (Part I ), each State has the authority to set their own energy targets and establish policies to meet such goals, without being formally obligated to follow strictly the Commonwealth’s targets.

Utility-scale solar PV and onshore wind have the lowest Levelised Cost of Energy (LCOE)[52] among the possible energy sources in Australia, standalone (only generation) and considering the integration cost to the network, as highlighted in Figure 4.2.

Aiming to achieve the Commonwealth targets, while keeping the electric system operating safely and with minimal costs, AEMO publishes every two years the pathways for the energy transition in the NEM through the Integrated System Plan[54].

According to AEMO’s preferred forecast scenario[55], solar (utility and rooftop), wind (onshore and some offshore), utility scale storage and coordinated distributed energy resources[56] (behind the meter solar rooftop PV + batteries, electric vehicles and virtual power plants) will drive the transformation of the electric matrix, as presented in Figure 4.3.??

Renewables are already reaching higher levels of instantaneous generation in the NEM, calculated on a half-hourly basis by AEMO, as observed in Figure 4.4. The record so far was 72.1% (20,365 MW on 24 October 2023).

As the penetration of distributed PV increases, the difference between the expected demand (load) and the operational demand increases (load minus instantaneous rooftop PV generation), bringing additional challenges for AEMO to manage the transmission network, as highlighted in Figure 4.5.

However, despite the challenges to manage the high penetration of uncoordinated consumer energy resources into the distribution network, the reliability of the grid has been improving over the years, as presented in Figure 4.6.

On the other hand, the level of curtailment of large-scale wind and solar has increased due to economic reasons (negative prices in the wholesale market) and network constraints, as shown in Figure 4.7, highlighting the need for a solution to better utilise the energy resources already available.

Storage is key to filling the gap in time between load and non-dispatchable generation (wind and solar) throughout the day, as well as increasing the reliability of the electric system for longer periods. Therefore, a mix of technologies and sizes are needed to provide flexibility and support the network.

Small-scale storage (less than two hours) provided by behind-the-meter devices owned by residential, commercial, and industrial customers on passive mode (running on individual preferences) and virtual power plants that aggregate many small batteries and coordinate the dispatch to supply energy and capacity on peak times will play a key role in absorbing the excess of solar rooftop production during the day.

On the other hand, utility-scale storage from different capacities and durations – small or shallow (up to 4 hours), medium (4 to 12 hours) and long period or deep (more than 12 hours) - would be able to shift large amount of energy not only within the same day, but also weeks and months.

Figure 4.8 shows AEMO’s forecast of the installed capacity in the NEM for the coming years, where Borumba (Queensland) and Snowy 2.0 (New South Wales) highlighted in the figure are pumped hydro projects (deep storage).

4.3 Challenges

Despite the ambitious target to reach 82% of renewable generation by 2030, there is still a long way to go since renewables currently account for just 40% of the generation mix (NEM and WEM)[61].

In order to achieve those targets and deliver the planned transition, there are innumerous challenges that are not restricted to the energy sector, and they must be dealt in a coordinated effort between the Commonwealth and States governments, as well as regulators, network operators, developers, manufactures, and communities, as summarised below:

• Expanding renewables: 6 GW needs to be added to the system every year until 2030 (large-scale), compared to the current rate of 3 to 4 GW.
• Adding firming capacity: Increasing four times the current alternative capacity to coal generators, formed by storage (batteries plus pumped hydro), virtual power plants and flexible gas, to provide grid stability and inertia to the electrical system.
• Expanding transmission system: Building 10,000 km of transmission lines by 2050 (23% of increase in the NEM), with 50% during the next decade, representing an investment of $ 16 billion Australian Dollars to integrate large-scale wind, solar and storage, as well as reducing congestion and curtailment of renewable generation. ?
• Improving system strength: Reduction of synchronous generators (due to retirement of coal-fired power plants) and increase of inverted based resources (wind and solar) put pressure on AEMO and transmission network operators to maintain and control the voltage waveform during steady state operation and following a disturbance.
• Dealing with supply chain constraints: Global competition for the same resources impacts project timelines and budget, adding risks for developers, original equipment manufacturers and investors to deliver cost-effective projects.
• Dealing with skilled workforce competition: The demand for skilled workers to build and maintain energy infrastructure is forecast to increase from 36,000 in 2025 to over 60,000 by 2050[62] and there are many countries already seeking and recruiting the same qualified professionals.
• Unlocking environmental and planning approvals: Federal and State departments need to streamline their approval processes and reduce uncertainties for developers and investors, without compromising the quality and effectiveness of their assessment.
• Improving social licence: Governments and developers should improve their engagement with local communities and landholders that will be impacted by the new infrastructure to get their acceptance to the project, reducing the risk of judicial disputes and long delays.
• Speeding-up generation connection: The connection process is too long, complex, and costly in Australia, demanding much engineering modelling and rework until getting AEMO and TNSP[63] acceptance.
• Reducing energy policy and regulatory uncertainties: The regulatory framework is constantly changing. Federal and State policies are not always well aligned, which increases risks for investors. The market design beyond 2030, when the current renewable energy targets (RET) policy ends, is expected to be open for consultation in 2025[64]. Transparency and predictability in such process are crucial to reduce uncertainties for investors, developers, and all stakeholders during this transition period since the Capacity Investment Scheme will also be running only until 2030.
• Improving energy affordability: Consumers are struggling to pay high energy bills and renewables are the cheapest option, but the estimated value to build and upgrade the infrastructure (generation and transmission) to deliver the energy transition by 2050 is $ 122 billion Australian Dollars[10].

5.????? Consumer Perspective

?The Australian innovative and dynamic regulatory framework opened opportunities for consumers to take responsibility on their power supply to reduce the energy costs and support the environment, becoming an active player in the energy market. Figure 5.1 shows the average monthly residential consumption in each State in the NEM per season.

According to AEMO[66], the expected increase on the electricity consumption in the next 30 years will be driven by the electrification of the hot water and heating systems (where gas is currently the main energy source), as well as the uptake of electric vehicles and hydrogen production.?

On the other hand, residential consumption will reduce (from the grid perspective) due to the high penetration of rooftop PV and higher standards of energy efficiency, as illustrated in Figure 5.2.???

Consumers are allowed to choose their electricity supplier with plenty of options of products and prices, but the market is heavily concentrated and only three retailers own 62% of the residential customers, as illustrated in Figure 5.3.

Despite the alternatives available, consumers tend to stay with the same retailer[68], even if they are not offering the cheapest plan and one of the reasons is the difficult to understand and compare products that are not similar. Figure 5.4 summarises consumers interests in receiving clear information on how to reduce their costs.

In order to reduce such issue, the regulatory agencies (AER[70] and ESC[71]) run regular campaigns to encourage consumers to search for better prices and use their comparison tools[72],[73]. In addition, retailers should inform consumers whether they are on the most appropriate plan for their consumption profile.

According to ESC[74], an average residential electricity bill includes costs from the wholesale market (generators), retails, transmission and distribution networks, environmental policies and tax, as represented in Figure 5.5.??

In fact, electricity costs have been increasing over the years and consumers are facing challenges to cope with expensive bills, reflecting the high prices in the wholesale market, as show in Figure 5.6. Consequently, the number of residential customers accessing hardship programs reached 2.2% in March 2024 (around 213,000).

On the other hand, consumer energy resources (rooftop PV, home batteries and electric vehicles) are expanding rapidly due to a combination of policy and regulatory incentives (such as rebates and feed-in tariffs), cost reduction (driven by a competitive market), innovative business models (virtual power plants) and consumer engagement.

Figure 5.7 presents one of the main results of a survey[76] performed by Energy Consumers Australia aiming to measure the level of consumer engagement with such energy resources, and it shows that most of them have already embraced the energy transition or are considering doing it to reduce their electricity bills.

This trend can be confirmed by observing the cumulative number of small-scale solar PV installations and capacity (MW) from April 2001 to June 2024, as illustrated in Figure 5.8, reaching 3.9 million systems in the country, or 2.4 GW of capacity.?

In addition, there were about 107 thousand small batteries associated with those solar systems installed behind the meter in June 2024[77], as shown in Figure 5.9.

Electric vehicles (EV) are also becoming more popular in Australia with the sales market share jumping from 3.8% in 2022 to 8.5% in 2023, reaching 180,000 cars, most of them being Battery Electric Vehicle (BEV), and a small fraction of Plug-in Hybrid Electric Vehicle (PHEV), as shown in Figure 5.10.

According to the Australian Electric Vehicle Council, the number of public DC charging locations reached up to 812 at the end of 2023 and almost 40% of the new ones installed last year offer ultrafast charging (100kW or above).

Conclusion

The energy sector in Australia is experiencing deep transformation and this process is accelerated by disruptive technologies, such as consumer energy resources, which associated with innovative and dynamic regulatory frameworks opened opportunities for consumers to take responsibility for their own power supply and reduce their energy costs, bringing them closer to the energy market through customized products.

On the other hand, the energy transition faces innumerous challenges, ranging from technical, financial, environmental, community engagement, regulatory and policy framework, to workforce shortage. Therefore, hard work and an innovative approach will be needed to reach the 82% renewable energy target for 2030 and net zero by 2050.

This article, divided in two parts (Part 1 available here ), shaded some light on key elements of the Australian Electricity Market and how consumers have been impacted so far. For those wishing to get more details, a long list of references is provided in both parts of this article

Footnotes and References

[48] CO2 emissions (metric tons per capita) | Data ( worldbank.org )

[49] Source: Quarterly Update of Australia’s National Greenhouse Gas Inventory: December 2023 ( dcceew.gov.au )

[50] cutting carbon emissions to a small amount of residual emissions that can be absorbed and durably stored by nature and other carbon dioxide removal measures, leaving zero in the atmosphere. Source: Net Zero Coalition | United Nations

[51] Source: https://www.aemc.gov.au/regulation/targets-statement-emissions ?

[52] Calculates present value of the total cost of building and operating a power plant over its lifetime. It allows the comparison of various technologies with different life spans, project sizes, capital costs, and capacities.

[53] Source: GenCost: cost of building Australia’s future electricity needs - CSIRO

[54] AEMO | Integrated System Plan (ISP)

[55] Step Change

[56] Also known in Australia as consumer energy resources (CER)

[57] Source: AEMO | NEM data dashboard

[58] Source: AEMO Quarterly Energy Dynamics Q2 2024 (qed-q2-2024.pdf ( aemo.com.au ) )

[59] Source: Annual Market Performance Review FY2023 | AEMC

[60] Source: nem-engineering-roadmap-fy2025-priority-actions.pdf ( aemo.com.au )

[61] Source: AEMO Quarterly Energy Dynamics Q1 2024. Available at: AEMO | Quarterly Energy Dynamics (QED)

[62] According to AEMO’s 2024 ISP step-change scenario.

[63] Transmission Network Service Provider

[64] ECMC Communique 1 March 2024.docx ( live.com )

[65] Source: https://www.aer.gov.au/publications/reports/performance/electricity-network-performance-report-2023

[66] Source: AEMO | Electricity Forecasting Data Portal

[67] Sources: www.aer.gov.au and Homepage | Essential Services Commission

[68] Only 19% of householders and 23% of small business changed the energy retailer in the last year, according to Energy Consumer Australia Survey available at: Energy Consumer Sentiment & Behaviour Surveys ( energyconsumersaustralia.com.au )

[69] Source: Annual Market Performance Review FY2023 | AEMC

[70] Australian Energy Regulator

[71] Essential Services Commission (Victoria)

[72] Energy Made Easy (New South Wales, Queensland, South Australia, Tasmania and the Australian Capital Territory).

[73] Welcome - Victorian Energy Compare (Victoria)

[74] Victorian Default Offer | Essential Services Commission

[75] Source: https://www.aer.gov.au/documents/q2-2024-wholesale-markets-quarterly-data

[76] PowerUp: Consumer voices in the energy transition ( energyconsumersaustralia.com.au )

[77] Small-scale installation postcode data | Clean Energy Regulator ( cer.gov.au )

[78] Source: EVC-Australian-EV-Industry-Recap-2023.pdf ( electricvehiclecouncil.com.au )