Victoria’s electricity market is undergoing a fundamental shift away from the coal-heavy Latrobe Valley region and towards distributed renewables as the Australian Energy Market Operator report calls for new investment to support renewable energy zones.

In the latest Victorian Annual Planning Report released Friday, AEMO has warned that significant investment is required to ensure Victoria’s electricity networks are prepared for the “unprecedented change” currently underway in how electricity is produced and consumed, and to minimise the risk of supply disruption during summer periods.

The emergence of rooftop solar as a major source of electricity generation, the tapping of Victoria’s substantial wind resources in the state’s west, and the looming closure of brown-coal generators are all contributing to a reshaping of Victoria’s energy system, AEMO has said.

This will require work to increase the capacity of the Victorian grid, as the state’s electricity generation shifts from east to west and becomes significantly more decentralised.

“Parts of the system that have historically been net loads are now behaving increasingly as net generation sources – changing system dynamics at a fundamental level,” AEMO said in the report.

“The growth of renewable resources in western Victoria means that the geographic diversity of generation resources is now shifting away from the Latrobe Valley into parts of the state where the network is less developed and able to cope with the new forms of generation” AEMO’s chief system design and engineering officer Alex Wonhas added.

AEMO has warned of the potential for future supply constraints, particularly when the Yallourn power station commences its planned decommissioning starting in 2029.

AEMO has suggested investment may be required to strengthen the interconnection between the Victorian and New South Wales energy markets, to reduce overall network congestion, and to unlock the opportunities for dedicated Renewable Energy Zones in both states.

AEMO is confident that a transformation of Victoria’s energy system is achievable, and believes positive progress has been made by the Victorian government in making the necessary investment in network infrastructure, while the broader market has brought on significant investment in renewable generation capacity.

“This rapid surge in renewable generator connections is driving a fundamental change in the behaviour of the Victorian power system, as the generation fleet transitions from traditional synchronous generation (coal and gas) to variable non-synchronous generation (wind and solar),” the report said.

“AEMO is working closely with the Victorian State Government and industry to progress significant network investment projects, including the Western Victoria Renewable Integration Regulatory Investment Test for Transmission (RIT-T), which will help improve supply availability, manage voltage control challenges, and unlock the high-quality renewable energy zones detailed in our 2018 Integrated System Plan,” Wonhas added.

AEMO sees there is a greater imperative for investments in strengthening networks, as the exit of brown-coal generators from the market progresses, but is also evidently nervous about the “declining reliability” of such large coal-fired generators.

“In Victoria, the majority of market benefits are expected to coincide with the retirement of further coal-fired generation or declining reliability in the Latrobe Valley. Withdrawal of this plant may result in supply shortfalls, system strength gaps, reactive power issues, or other consequential power system impacts.” AEMO said.

“While participants are expected to provide adequate notice before decommissioning, there are risks that a substantial plant failure or force majeure event could cause an early or unexpected plant retirement.”

Recent analysis completed by the Australia Institute found that Victoria’s brown-coal generators rank as the least reliable thermal generators in the National Electricity Market, with Loy Yang A and Yallourn power station experiencing a combined 55 outages over the last 18 months.

AEMO sees a need for further investment in strengthening transmission and distribution network infrastructure in Victoria, following “exponential growth in renewable generation connections.”

“The network challenges associated with integrating large volumes of new renewable generation projects are being compounded by connection of these new projects in weaker parts of the network, where the highest quality renewable fuel sources are available,” AEMO said in the report.

“The transmission network in these locations was not originally designed to accommodate high volumes of generation, or to withstand the technical characteristics associated with renewable generation technology.”

The changing energy space has also fundamentally changed Victoria’s demand profile, with rooftop solar driving down demand during daylight hours, and forcing the market to adapt.

Over the last 12-months, there have been 12 instances where minimum daily demand occurred between 11:30 am and 2:30 pm, as installed solar continues to push down grid demand, challenging the traditional understandings of on-peak/off-peak, demand profiles.

“For the first time in Victoria’s history, minimum demand occurred in the early afternoon rather than overnight. This supports AEMO’s analysis that residential rooftop solar will continue to be a major energy resource in Australia’s National Electricity Market, forever changing the demand patterns,” Wonhas said.

AEMO was confident that the security and reliability of the Victorian grid could be maintained, seeing high-temperature summer days as the greatest concern at present, and will want to avoid further repeats of the load shedding incidents experienced in January.

AEMO has sought to include increasingly rapid shifts in energy technologies and clean energy adoption in its planning scenarios. The market operator recently revealed it would model a “step change” scenario as part of its Integrated System Plan.