Understanding what’s next for Australia’s main electricity market

07.07.22 By
This article is more than one year old

Energy prices and the energy market (what even is an energy market?!) have been in the news a lot lately. A report modelling how the energy system will change was released by AEMO. You might be wondering what the heck the AEMO even is? Before we get into the report, here are some definitions you’ll need to get your head around. 

Okay, that’s all the acronyms for now, we promise. 

The Integrated System Plan is the Australian Energy Market Operator’s way to strategically plan for the use of the National Electricity Market over the next 20 years and beyond. The operator’s goal is ultimately to save people money by designing the lowest cost and most secure energy system. 

Hands holding out light bulb

Ok, so what’s AEMO’s report about?  

The report’s main purpose is to work out what power generation will be needed, and where, so new transmission lines – the things that transport power from power generators to homes and businesses – and other infrastructure can be planned for and built around the country. 

It’s very clear from the report that Australia can, and will, transition away from old, heavily polluting fossil fuels and towards low-cost renewables supported by storage. This would be cheaper than replacement with new fossil fuel power stations. 

The NEM is also being reconfigured to support two-way energy flow. Technical innovation, ageing generation plants, economics, government policies, energy security and consumer choice are all driving this transformation, and driving it faster than many anticipated. 

In case you’re wondering what two-way energy flow is: normally, users draw electricity OUT of the grid to power our homes and offices etc. But thanks to the huge uptake of renewables, people can now start putting electricity INTO the grid from their solar panels and batteries

This process is understood as a two-way energy flow. Batteries of all sizes and electric vehicles expand the possibilities of two-way flows because they can control when they charge and then release electricity. This can be a major benefit as they can charge when there’s lots of energy available and then contribute energy back to the grid when demand is high.

On top of this, the report emphasises how important it is to keep up with the rest of the world in our race to net zero: 

“As the global economy gathers pace towards its net-zero future, countries that have excess low-cost renewable energy will be at a distinct advantage. Australia is extremely well-positioned to be one of those countries, with options to export that energy or use it in industrial production or for energy-intensive digital industries. “ 

The good news is that Australia is actually accelerating faster than previously expected towards our net zero targets. This is primarily because of coal mine closures being brought forward and a decrease in the price of renewables.

Find the full 2022 IPS report here. 

What can the past tell us?

The Climate Council uses data from the ISP to explain why Australia doesn’t need any new gas power stations. The 2020 ISP clearly showed the cheapest way to support renewables was with zero emissions solutions (batteries, pumped hydro, demand management and new transmission lines). In that report, modelling predicted the number of gas power stations as well as their overall use consistently dropped across all scenarios. It formed a core part of the story of our 2020 Passing Gas report.

What to make of all this?

AEMO’s “Step Change Scenario”, which the operator now considers the most likely future outcome, shows that renewables will rapidly dominate the National Energy Market as fossil fuels, both coal and gas, exit the system.

“The scenarios mapped out by AEMO also show that we can push for higher ambitions to transition even sooner than predicted. In a time of energy crisis, and also seeing the consequences of a warming atmosphere, Australians want to see renewable power and storage to reduce energy prices, insulate against global energy price shocks and help avoid the worst effects of climate change.”

Greg Bourne: Climate Councillor, former President of BP Australasia, former advisor to Margaret Thatcher, and energy expert

Ultimately, the scenarios built by AEMO are based on a range of assumptions, which are all dependent on policy change, external factors and national awareness. We can push for a much faster switch to renewables backed by storage than what this report outlines.