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AEMO warns of risks of delay on transmission

When to press the button on billions of dollars of potential power transmission lines over the next few years will hinge on whether coal power plants close early, smelters stay open and on state policies such as Tasmania’s renewable energy target.

Major uncertainties, including the impacts of the COVID-19 pandemic on demand for rooftop solar panels, will also play a part in the pace of transmission investments needed to ensure power stays affordable and reliable in the fast-changing electricity market, the Australian Energy Market Operator said.

But AEMO chief executive Audrey Zibelman said that despite the uncertainties, projects needed to be taken forward while retaining flexibility in the timing on some.

“Our greatest concern is that we don’t act soon enough and therefore put ourselves in harm’s way and reduce the options to solve the issues,” Ms Zibelman told The Australian Financial Review.

AEMO’s latest 20-year blueprint for the future grid, released on Thursday, identifies up to $14 billion of transmission investments needed across the National Electricity Market (NEM) to adapt to an expected doubling or trebling of rooftop solar by 2040, plus more than 26 gigawatts of new grid-scale renewables.

Between six gigawatts and 19 gigawatts of new on-demand generation of pumped hydro, battery storage and potentially gas generators are also envisaged in the 2020 version of the Integrated Systems Plan, which builds on a draft in December.

“We need to be prepared to the extent that we have earlier-than-anticipated coal exits and there is no other firming coming in that we take advantage of our ability to use the diversity of the system and maintain reliability,” Ms Zibelman said.

At the same time, it was important to manage the cost of transmission “and if things change be prepared to be somewhat agile”, she added.

AEMO said the road map for transmission investment needed to be dynamic and flexible to take into account various possible scenarios, keeping the timing of some projects such as Marinus Link, a proposed second underwater cable between Tasmania and Victoria, uncertain.

Federal Minister for Energy and Emissions Reduction Angus Taylor emphasised that while transmission was an important part of the future electricity system, any investment in the grid must make economic sense.

“It is critical to avoid overinvestment and ‘gold plating’ of the network, because it is consumers who have to pay for this as part of their electricity bills,” Mr Taylor said.

“The government will continue working with its state colleagues to progress transmission projects that offer value for money.”

An AEMO report earlier this month revealed the coronavirus pandemic had a minimal impact on energy demand, and Ms Zibelman confirmed that COVID-19 hadn’t meant major changes in the 20-year plan for the grid.

The production of big energy users, such as mines and smelters, had not been affected by COVID-19, while lower commercial use by companies affected by lockdowns, most recently in Victoria, had been counterbalanced by greater energy use by households as people worked from home.

Ms Zibelman did point to faster-than-expected additions of rooftop solar and declining costs of grid-scale batteries that have come into play since the 2018 version of the ISP, as well as a worrying 30 per cent increase in transmission project costs compared with initial estimates. New gas-powered generators are also set to be smaller than originally assumed, leading to cost increases of up to 60 per cent, while costs for new pumped hydro storage have surged by 50 per cent.

Cost control, market and regulatory reform will be essential to ensure consumers reap the benefit from major investment needed in transmission to adapt to the rapidly changing electricity market, the energy market operator advised.

In all, AEMO estimates the projects identified in the ISP will deliver $11 billion in net market benefits out to 2040, available to consumers through reduced power bills.

Tasmania is intending to legislate its new renewable energy target, aiming for 200 per cent renewables by 2040, later this year.

NSW has meanwhile firmed up its commitment to develop the transmission needed to accommodate three gigawatts of large-scale renewable energy generation in its Central West Renewable Energy Zone, while Victoria is procuring a 250-megawatt battery to enable up to 250 megawatts of increased imports from New South Wales to Victoria.

NSW Energy Minister Matt Kean described the ISP as “a strong tick of expert approval” for the state government’s plans to build REZs and fast-track the connection with the Snowy 2.0 storage project.

As uncertainty swirls around the future of the Energy Security Board, led by chair Kerry Schott, Ms Zibelman – who is also a member – backed it to drive through the reforms to overhaul the NEM by 2025.

“The work of the Energy Security Board and market bodies on essential reforms to attract investment and optimise markets for emerging energy resources remains critical to ensure the consumer benefits of the ISP are fully realised,” she said.

Source: Financial Review