Rooftop solar capacity to double or even triple to replace existing thermal generation, new assessment by the energy market operator predicts

Australia’s ageing coal-fired power plants could be shuttered earlier than expected if competition from renewable generators and carbon budgets render them uneconomic, according to a new assessment by the Australian Energy Market Operator.

Aemo will, on Thursday, publish a new draft integrated system plan which snapshots the unfolding revolution underway in Australia’s energy market. The energy market operator predicts rooftop solar capacity will double or even triple, providing up to 22% of total energy by 2040.

It says 63% of Australia’s coal-fired generation will be out of the system by 2040, and more than 30 gigawatts (GW) of large-scale renewable energy will be needed to replace existing thermal generation.

While some in the Morrison government continue to campaign for new coal-fired power, Aemo is clear about the future. It says “due to the already low cost of renewables and their firming options, and their projected future reductions” the lowest-cost replacements for emissions-intensive generation is a “portfolio” of renewable, storage, gas-powered generation, demand management and network resources.

With Australia’s energy market transitioning to large-scale renewable energy, and to distributed energy such as rooftop solar, Aemo says between 5 and 21GW of dispatchable resources will be needed to support renewables.

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That transition will require more utility-scale pumped hydro and battery storage, demand management and distributed batteries participating as virtual power plants. There could also be a role for flexible gas generators “if gas prices materially reduce”.

Aemo is planning for a two-sided national energy market, where consumers are rewarded for buying and selling energy in real time, and it says demand-side participation could either double, or perhaps even quadruple, by 2040. It says a number of technical and market changes will be needed to manage two-way flows, and ensure there are sufficient interoperability capabilities to maintain power system security.

In order to prepare for the reality of a low emissions energy grid, substantial investments will be required in transmission to unlock new renewable energy zones. Aemo warns grid strengthening needs to be under way now, otherwise consumers will wear the downside risks associated with the transition – what it calls “regret costs” – which run into hundreds of millions on some scenarios.

One example cited in the system plan involves the closure of the Yallourn plant in 2026-27 before enhanced interconnection is in place. If the necessary system upgrade didn’t happen until 2031-32, the estimated “regret cost” of that shift is $118m.

Aemo says immediate priorities to strengthen the network include a new transmission line between Wagga Wagga in New South Wales and Robertstown in South Australia, and a new interconnection linking the Snowy 2.0 expansion to western Victoria and southern NSW “to enable energy from the upgraded Snowy 2.0 pumped hydro generators to flow to Victorian towns and cities and to unlock large-scale renewable generation in Victoria”.

It also recommends upgrading the existing interconnections from Queensland to NSW and Victoria to NSW. Aemo also wants new interconnection from Tumut to Bannaby to reinforce the southern NSW grid, a strengthening of transmission in western Victoria to unlock more renewable generation, and increasing inertia and fault current in SA’s transmission networks.

The Aemo chief executive, Audrey Zibelman, says planning will maximise the benefits and avoid unnecessary transition costs for Australian consumers.

In a statement, Zibelman said: “To maximise economic benefits, as traditional generators retire, Australia must invest in a modern energy system with significant consumer-led distributed energy resources – such as rooftop solar – and utility-scale variable renewable energy, supported by sufficient dispatchable resources and well targeted augmentations to the electricity network.”