AEMO Integrated System Plan: What are the implications and outcomes?
In July 2020, the Australian Energy Market Operator (AEMO) published its second Integrated System Plan (ISP) underpinned by extensive stakeholder consultation, modelling and analysis. The regulatory framework requires the ISP to be updated every two years and is intended to provide a ‘whole of system’ actionable roadmap that identifies investment choices and actions for eastern Australia’s power system over the next 20 years. It is also designed to inform market participants, investors, policymakers and business energy consumers.
The ISP needs to be comprehensive and dynamic
The ISP takes into account several factors such as the capital and fuel costs of generation, future transmission network developments and the deployment of Distributed Energy Resources (DER) such as solar PV, virtual power plants and batteries. It also includes analysis for areas related to but outside electricity, in particular, transport (electric vehicles), natural gas and hydrogen. It also models the physical limitations and constraints of Australia’s energy system to ensure accuracy in the analysis and conclusions.
The energy sector is undergoing a period of rapid significant transformation, complexity and uncertainty and the ISP aims to efficiently and optimally meet the power system needs that are in the long term interests of consumers of electricity. The ISP models a number of scenarios and uncertainty and also has a dynamic element that recommends signposts and decision points to manage affordability, maintain security and reliability whilst reducing emissions during this transition period.
The ISP identifies significant development opportunities
The implementation of the ISP is expected to create an efficient and modernised energy system, that balances the competing trade-offs or reliability, security, affordability and emissions reductions.
The ISP identifies the following development opportunities:
- A doubling or possible tripling of distributed energy resource capacity: Consumers of all types (residential, industrial and commercial) will continue to invest in solar PV, but also newer technologies such as batteries and demand management. Modelling suggests that DER could provide 13% to 22% of annual NEM energy consumption by 2040.
- More than 26GW of new grid-scale renewables may be required: Given the eventual retirement of coal-fired generation (approximately 15 GW), more renewables will be required. To put this in context, 26GW is the equivalent of nearly 12 Loy Yang A Power Stations. This must be undertaken in an orderly and gradual way to ensure sufficient new generation in place before each major coal plant exits.
- Potentially 6 – 19GW of new dispatchable resources will be required: Given the variable nature of renewable energy, a significant investment in dispatchable energy resources will be required to provide ‘firming’ services. This includes grid-scale batteries, virtual power plants, pumped hydro, gas generation and demand-side management. To incentivise and best capture value from these resources there are also likely to be some wholesale market design changes that reward flexibility and dispatchability. These changes are currently being progressed through a reform program led by the Energy Security Board.
- Targeted augmentation of the transmission system through 18 projects: To support the growing and diverse generation mix the ISP has identified several commercially and technically feasible projects. Without these projects, the new generation will struggle to connect to the electricity system. The result of the ISP transmission and generation investment will be to create a series of ‘Renewable Energy Zones’ across the power system.
There are several key outcomes from implementing the ISP
If the ISP is fully implemented there are expected to be several major achievements and outcomes:
- Net market benefits of $11 billion: Assuming effective market design, these benefits would be available to consumers through reduced power bills.
- Significant renewable energy penetration: Modelling suggests that by 2035 there may be periods in which nearly 90% of demand is met by renewable generation.
- System reliability will be maintained: The modelling projects that the power system should remain reliable during a 1-in-10 year summer meeting the required government reliability standards.
- Exceedance of our national emissions reductions targets: Australia’s target of a 26% reduction in 2005-level emissions by 2030 would be exceeded on a pro-rata share basis.
- State-based renewable energy targets would be met: The various state-based renewable energy targets would also be met, thereby supporting state-based development initiatives and growth objectives.