AEMO has undertaken very detailed engineering cost modelling of the operation of the electricity supply system of the NEM, assuming the shares of renewable generation implied by government policies now in place. These policies include the Victorian and Queensland government renewable energy targets, but do not include the NEG, as it is not yet policy.
The objective of the modelling is to determine the least cost mix of new transmission connections, energy storage, and other new approaches and technologies, which will ensure that the system remains at all times secure and reliable, despite a large increase it its dependence on variable renewable generation from wind and solar farms. It does this by recognising, from the outset, that reliability and security are properties of the system as a whole, not of individual generators supplying the system.
The NEG, by contrast, identifies just a single problem to be addressed as new renewable generation enters the NEM, lack of reliability, and chooses a single approach, generator dispatchability, to address the problem. This cannot be an optimal approach. There is no consideration of whether other options, most obviously transmission upgrades, could provide the same level of reliability at lower cost (while also providing other services, such as system strength). Irrespective of how efficient the proposed market in reliability services may be, it cannot be economically optimal or least cost overall, because it is using a single, narrow, predetermined approach, rather than a whole of system optimisation approach.
A large electricity supply system, like the NEM grid, has often been likened to a gigantic machine, with a great many different moving parts. In order to get the best outcome and the cheapest price we need to look at the whole system and not just focus on individual parts. The NEG is only concerned with one narrow solution, dispatchable power, and by doing this it is failing to give electricity consumers and all Australians the best solution that is going to be of the most benefit. The NEG’s narrow solution is not only going to be more expensive it is also does not take proper account of the long term change that the electricity sector is undergoing. At best, the NEG can be seen as an expensive Band-Aid that will eventually have to be ripped off.
Under AEMO’s base case (Neutral) scenario the total renewable share of NEM grid generation reaches 41% in 2030. If rooftop PV is included, the renewable share reaches 48%. The modelling approach means that these levels of renewable supply are perfectly consistent with a secure and reliable supply system, provided that investments have been directed in a timely manner to the required mix of new transmission and other grid service augmentations. Under some other approaches the renewable share reaches nearly 70%, again without compromising security and reliability.
A case study of the effectiveness of the system optimisation approach is provided by the South Australian part of the NEM system. After completion of a new high capacity synchronous interconnector, called RiverLink, between South Australia and New South Wales, during the early 2020s, AEMO concludes that this will be sufficient, in combination with the other new types of grid services described in the report, to eliminate the need for local, continuously operating synchronous, dispatchable generation. Consequently, the model closes all four “baseload” gas generators in the state in 2025, while also, by definition, delivering lower cost bulk electricity than would have been the case had gas generators remained open.
AEMO does not report the emissions arising from the different levels and mixes of generation under the various scenarios. Our report converts AEMO’s generation figures to emissions, using a model based on all of AEMO’s own generator performance parameters. The conclusion is that the proposed NEG emissions reduction target is meaningless, because it will be exceeded well before 2025 in all of AEMO’s scenarios. By 2030 emissions reduction could reach nearly 40%, and more under some scenarios.