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The end of the NEM as we know it

When the Victorian Government announced it was creating VicGrid, a new entity that will be responsible for the connection of renewable energy, it reinforced how impatient many states and territories have become and chosen to ‘go it alone’ when it came to clean energy.

Market forces will dictate the impending closure of ageing coal-fired power plants.

According to Green Energy Markets and the Institute for Energy Economics and Financial Analysis, up to five out of 16 remaining coal fired power plants in Australia will become financially unviable and this will advance their closure.

Australia has entered a period where wholesale electricity prices are at their lowest in recent history thanks to a slew of new wind and solar generation capacity in the National Electricity Market (NEM). Even through a period of policy uncertainty, renewable energy has staked its claim on the grid.

The Clean Energy Regulator has estimated that 7GW of new renewable energy generation capacity was commissioned last year, making the argument to retire some of our coal-fired power plants much earlier more compelling.

The pressure to accommodate the growth of renewables on the grid has gained further momentum in the last 12 months.

From plans for New South Wales, Queensland and Victoria to create Renewable Energy Zones (REZ) to support regions that have a high potential for renewables, to the ambitious NSW Electricity Infrastructure Roadmap that looks to reduce carbon emissions from energy by 90 million tonnes by 2030.

25 percent of Australian homes now have rooftop solar and the appetite for solar PV and home batteries fuelled by subsidy schemes or interest-free loans in South Australia, New South Wales, Victoria and the Australian Capital Territory will create greater energy independence — but also threatens to destabilise the grid and the functions of the NEM.

What has added pressure to the relevance of the NEM are the disparate needs of the states who are connected to it. For example, South Australia has focused on innovation by finding better ways to adopt solar, storage and electric vehicles.

New South Wales has made a significant investment in its electricity network and it is now ready to capitalise on new economic opportunities such as the REZ.

In Victoria, the rollout of smart meters and a forward thinking state government has driven energy regulatory reform. Queensland has leveraged its history in untangling issues it has faced with its network to develop forward slow but steady solutions around the adoption of clean energy

Without achieving consensus on energy policies, rules and energy market reforms, we are heading towards a collision course that could lead to fragmentation in the NEM.

There’s a lot to be said about having one country and two systems in Australia – the NEM and WEM. It would be fair to say the NEM has a lot to learn from the WEM, which as the ‘canary in the coalmine’ is leading the way in acknowledging a future energy market that is led by DER.

Utilities such as Horizon Power have shown how they can manage the growth of DER on the network. Western Power have similarly changed the way they manage DER with community batteries, projects with commercial partners for load shifting.

With data and technology, we have the ability to address the imbalances we’re seeing in the NEM right now. We could find the right balance for wholesale electricity prices if we have better insights on how much generation is actually needed.

Using technology to control and manage DER will give more confidence to everyone – from households to large scale energy asset owners – to invest in renewable energy.

We can recalibrate how the electricity market should operate and, in the process, define if the NEM needs to be retired – or modernised to keep up with the times.

Source: RenewEconomy