The major federal political parties are committed to net-zero emissions. The current policy debate is focused on how to meet this target and ensure that a system dominated by intermittent wind and solar power can deliver acceptably reliable electricity. This report answers that question with the aid of a sophisticated economic model of the NEM. It provides an analysis of what the NEM could look like with higher levels of wind and solar electricity than today, and what the cost is likely to be compared with a system dominated by coal.

The analysis leads to three conclusions. First, Australia can move to 70 per cent renewables across the NEM with little risk to reliability or affordability. Achieving 90 per cent renewables will be slightly more expensive but will slash emissions at relatively low cost.

Second, as the proportion of renewables increases, the value of inter-regional transmission and an interconnected NEM grows, to ensure sufficient supply at times when less wind and solar energy is being generated. Battery storage, alongside gas-fired generation, will also play an important role in ‘balancing’ the system.

Third, the best information today indicates that achieving net-zero emissions in the NEM will be most efficient if a small and declining quantity of emissions are offset. The alternative – achieving absolute-zero emissions – looks more costly. As the proportion of renewables grows from 90 per cent to 100 per cent, the physical and economic challenge of balancing the system during rare, sustained periods of high demand, low wind, and cloudy skies becomes too big.

Policy makers can be confident in planning for net-zero emissions. Governments should back current efforts, led by the Energy Security Board, to integrate renewable generation and storage with interstate transmission and renewable energy zones.