Since pretty much the start of the National Electricity Market more than a decade ago, the Australian power industry has regarded the annual Electricity Statement of Opportunities (ESOO) as their bible to help pinpoint where a new coal or gas-fired generator might be needed to meet rising demand.

Given the recent revisions to the demand outlook, the list of opportunities for the coming year was expected to be small. It turns out there are basically none. This would come as no surprise to the industry, which as been foreshadowing such a scenario since the start of the year, and it makes it pretty much official: There is no need for any new fossil fuel generation over the next decade, and wind farms will dominate Australia’s new build in the years to come.

The 2012 ESOO released today by the Australian Energy Market Operator suggests that under its “medium scenario,” the date that individual states might need new baseload generation has been pushed out by between three and seven years. No state will face an energy deficit until 2018/19, when Victoria might require 115MW, while South Australia might need just 24MW in 2019/20, and Queensland 79MW by 2020/21.

Under its low scenario, which incorporates factors like increased distributed generation and low growth in demand – a scenario that many expect given the response to rising electricity prices and the anticipated growth of demand management and energy efficiency measures – the only state with a looming deficit any time in the next decade is Victoria, which might need an extra 54MW by 2021/22.

As the table below illustrates, this is in sharp contrast to the 2011 predictions, when its medium scenario projected that 341 MW would be needed in Queensland in 2013-14 and AEMO forecast deficits in 2018-19 of over 150MW in every region except Tasmania. Just two years ago, a deficit of more than 770MW was predicted for Queensland by 2013/14, a situation which prompted TRUenergy to announce plans for 1,500MW of gas generation. Those plans are indefinitely on hold.

Decreasing demand is not the only factor influencing the forecasts. AEMO notes that small-scale generation investment has increased rapidly over the last three years, the Large-scale Renewable Energy Target (LRET) is driving continued investment in wind generation capacity, and average spot market prices have been falling in every region since 2007–08. These prices have been influenced by mild summer temperatures (with fewer and shorter high-price peak periods), reduced demand and the growing deployment of rooftop solar PV, and the increasing capacity of connected wind farms, “the lower operating costs of which put downwards pressure on spot prices.”

While AEMO suggests that the only significant new build in energy capacity over the next decade will come from meeting the Renewable Energy Target, it does question whether this can be met with a “potential shortfall in capacity to meet the LRET emerging in the second half of the decade.” AEMO estimates that the surplus of renewable energy certificates that has caused a delay in large-scale wind farms over recent years, will likely extend out to 2015. So from 2016 it expects a surge in investment – it estimates some 8,500MW of wind capacity will be needed, although it does not attempt to predict how much or solar might be built to meet the RET.

AEMO CEO Matt Zema would not expand on his reasons for suggesting that the RET may not be met, but when asked by RenewEconomy if utilities may choose to pay the penalty price, rather than build new generation and compromise the economics of current capacity, Zema said – “It could be.”

The only thing that could change the “muted” outlook for baseload generation is the planned retirement of 2,000MW of brown coal generation under the Contracts for Closure program – although some of this capacity may not be retired until 2020 – and the fact that the carbon price may “change the competitiveness” of some generators; i.e. put them out of business. As Zema noted: “The market is sending a signal that the need for new generation is muted. Take away load growth, renewables will have to displace existing generation.”

AEMO said three plants had been retired in the past year – the 34MW Mackay Gas Turbine and the 125MW Swanbank B Power Station Unit 3 in Queensland, and the 600MW Munmorah coal-fired generator in NSW. Two others – the 75MW Morwell unit 5 and the 240MW Playford B in South Australia – were considered to be effectively closed, and the 540MW Northern power station available only for the summer months. It said it anticipated no impact on energy supply from these retirements. NSW still has the 2,000MW Bayswater B Power Station on its books, as well as the revamp of the 700MW Munmorah Power Station, although AEMO noted that 550MW HRL Developments Dual Gas Demonstration Project in Victoria, and the 504 MW Stanwell Corporation integrated black coal gasification combined-cycle power station near Wandoan in Queensland, had been withdrawn.

Given the change in demand, and the muted outlook for new capacity, there is also expected to be a wholesale review of network requirements – the issue that has become the focus of political debate this week since Prime Minister Julia Gillard chose to sheet the blame on state government, and finally foreshadowed some action on controlling the unfettered investment in new capacity. However, the network requirements are a complicated issue, one made more so by the increase in wind and solar.

AEMO expects to address much of this in its forthcoming National Transmission Network Development Plan, which will also look at the opportunities for demand-side and generation investment to provide network services, or to defer the need for network augmentations in the NEM.

New generation

The ESOO document notes that only four new plants have come on line in the past financial year – the 67MW Oaklands Hill wind farm in Victoria and the 53MW Hallett 5 wind farm in South Australia, along with the first 566MW stage of the Mortlake gas peaking plant in Victoria and a 60MW upgrade to the Eraring coal-fired generator in NSW.

And despite the fact that – as the table above shows – more than 13,000MW of wind, 11000MW of peaking gas, and around 3,000MW of baseload gas and coal-fired generation are “planned”, little remains committed. In the past year, only five new plants have moved from “planned” to “committed”, and these include the 420MW Macarthur wind farm and the 20MW Mortons Lane wind farm in Victoria, and the 168MW Musselroe Wind Farm in Tasmania. Others include the 21MW Qenos cogeneration facility in Victoria, and another 60MW upgrade of Eraring.

However, it also noted that the amount of planned wind capacity had decreased by some 2,200MW since 2011, with 14 of the withdrawn 18 projects located in Victoria, which has introduced aggressive planning controls over wind farms. See this story for a list.