Forecast by energy market operator is a blow to Coalition MPs campaigning for new coal-fired generation

This article is more than 2 years old

This article is more than 2 years old

Australia’s energy market operator says the future of power generation in Australia will be renewables with storage, and gas, with those technologies able to replace the power currently supplied by coal generators at least cost.

A new forecast by the Australian Energy Market Operator (Aemo) notes 30% of Australia’s coal generators will approach the end of their technical life over the next two decades, and it says it is important to avoid premature departures if the looming transition in the national energy market is to be orderly.

But while some in the Turnbull government have been campaigning to bolt new coal-fired power into the system, backed with government subsidy or underwriting, Aemo is clear about where the future lies, and it is not with coal.

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It says the future of power generation in Australia is renewables with storage, pumped hydro and flexible gas-powered generation.

The market operator says in a forecast to be released on Tuesday that when existing coal resources retire “the modelling shows that retiring coal plants can be most economically replaced with a portfolio of utility-scale renewable generation, storage, distributed energy resources, flexible thermal capacity, and transmission”.

While some in the government have sought to portray new coal generation as a low-cost option for consumers concerned about high power prices, Aemo’s new forecast completely debunks that argument.

It says the lowest-cost replacement options for retiring coal plants “will be a portfolio of resources, including solar (28GW), wind (10.5 GW) and storage (17 GW and 90 GWh), complemented by 500 MW of flexible gas plant and transmission investment”.

The energy market operator concludes that mix of generation can produce 90 terawatt hours of energy per annum, “more than offsetting the energy lost from retiring coal-fired generation”.

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It says the increasing penetration of rooftop solar and other distributed energy resources is having a profound effect on the power system, and it says a growing proportion of supply will come from this form of generation rather than baseload.

The new assessment also suggests Australia’s electricity transmission infrastructure will need to be reinforced to ensure the grid performs optimally after the shift.

It says targeted investment in new transmission “will minimise the overall cost and support consumer value by making better use of existing plant, including distributed energy resources, lower fuel and operating costs and operating risk by a more inter-regionally connected system, and provide system access to the least-cost supply resources that can replace the retiring coal plant”.

The forecast says the cost of replacing the retiring generators with new assets is “significant and unavoidable” – somewhere between $8bn and $27bn, depending on assumptions made around economic growth and rate of industry transformation.

But it says targeted investment in transmission infrastructure, rather than power generation, would create efficiency gains, with cost savings between $1.2bn and $2bn, as well as creating a more robust, resilient, flexible and adaptable network.

The report lays out a three-stage program of investment. A failure to invest in transmission infrastructure would increase consumer costs and risks, Aemo says.

Aemo’s chief executive, Audrey Zibelman, says Australia’s energy market is experiencing “an unprecedented rate of change”.

“We are witnessing disruption across almost every element of the value chain,” Zibelman says. But she says the looming transition will require careful planning “to manage this transformation in order to minimise costs and risks and maximise value to consumers”.