AEMO's new electricity plan is neither a death knell nor a shot in the arm for coal
- Written by Lucy Percival, Associate, Grattan Institute
Beholders of the Australian Energy Market Operator’s (AEMO) Integrated System Plan (ISP) see different futures for coal-fired generation: it’s either on the way out; or it’s going to be needed for decades; or perhaps even new coal plants should be built.
The report does have important implications for the future of all electricity technologies, including coal. But none of these simplistic perspectives captures the full flavour of the plan.
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What is the plan?
The Integrated System Plan is a comprehensive, systems-engineering assessment. Its goal is to identify the lowest-cost combination of investments and decisions over the next 20 years, to support Australia’s energy transition to a low-emissions future.
The assessment uses an economic model of the system that includes maintaining reliability, reducing greenhouse gas emissions, closing existing plants when they reach the end of their technical life, and adopting lowest-cost replacement technologies.
AEMO considers two emissions reduction scenarios: the first is based on Australia’s current target under the Paris Agreement (a 26-28% reduction below 2005 level by 2030). The second adopts a target closer to that recommended by the Climate Change Authority and assessed by CSIRO as a fast change scenario (a 52% reduction by 2030).
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In both scenarios existing coal-fired power stations close, either on their planned closure date (for those where such a date has been announced), or once they are 50 years old. Around 14 gigawatts (GW) of a total 23GW of coal-fired generation capacity will retire by 2040. As these plants close, a mixture of gas-fired generation, renewable energy, and storage (particularly pumped hydro) is projected to be the lowest-cost way to replace them.
The ISP is not technology-prescriptive, but it doesn’t include new coal-fired generators.
It is hardly surprising that the ISP supports maintaining the existing coal-fired generation facilities up to the end of their technical lives, to minimise costs. Coal-fired power stations represent big up-front capital investments that then produce relatively cheap electricity. But, like all such plants, they become increasingly expensive to operate and unreliable as they age. Keeping them operating beyond their technical life will become more expensive than replacing them with new generation. The ISP is closely aligned with the reliability requirements of the Finkel Blueprint and the National Guarantee to ensure closure is carefully planned.
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Improving transmission
Unfortunately for new coal investment, what will be more valuable in the future is much greater flexibility to deal with changes in supply and demand. Coal-fired power stations, existing or new, make their best contribution when they operate at very high levels – that is, 80-90% of the time. Upgrading transmission lines between states, can raise the occupancy level and lower the cost of existing power stations.
The NEM needs to transform to support widely distributed renewable generation. Historically, electricity has been generated by centralised, large power stations. New generation is likely to involve a mix of small and large renewable assets over much larger areas. This mix of generation technologies will require investment in the transmission network.
The central recommendation of the ISP is a three-stage development of the transmission network to support the new world of distributed energy and storage. The immediate stage is focused on transmission upgrades to address bottlenecks and connect regional renewable energy plants.
The second phase (2020-30) continues this approach and extends to connecting strategic storage initiatives – Snowy Hydro 2.0 and the Tasmanian Battery of the Nation.
The third stage (2030-40) further augments interstate transmission and included intrastate connections for renewable energy zones (REZ) located in regional Australia.
The ISP provides a hard-nosed engineering and cost assessment of what our energy system needs. It applies neither an accelerator nor a brake to the closure of existing coal-fired power stations. We need more of this approach and less ideology if we really want to see a lowest-cost, reliable and low-emissions future for Australia.