Turning to Renewables

Australia transitions to a more diverse energy mix

Australia has been witnessing a transition towards clean energy sources. The country’s electricity generation is evolving from its historic reliance on coal to a more diverse mix, which incorporates renewable energy sources such as wind and solar. As of July 2019, more than 21 per cent of the country’s power was generated by renewables. Since 2014,  renewables’ share in the total installed generation capacity has increased from 23 per cent to 34 per cent.

The country has been investing in utility-scale variable renewable energy and distributed energy resources. Investment in large-scale renewable projects was doubled from $10 billion in 2017 to $20 billion in 2018. About 14.5 GW of new generation was under construction or financially committed by end 2018, which will help meet the government’s large-scale renewable energy target (RET) of generating 33 TWh of clean energy by 2020. Rooftop solar has seen the installation of 1.55 GW of capacity in 2018, covering more than 2 million households. Energy storage also made significant gains with several new utility-scale batteries installed and planned across the country.

The rise in electricity prices in the country is the key factor behind this rapid shift to wind and solar projects. The new wind and solar capacity that has been installed in recent years has already brought down wholesale prices. The cost of new wind and solar – even when backed by storage – is lower than the cost of new coal generation in the country.

The focus on renewable energy will increase over the next few years, with programmes such as the RET and the solar credits scheme in place. Australia’s commitment under the Paris Agreement signed in 2015 is to reduce greenhouse gas emissions by 26-28 per cent below 2005 levels by 2030, and state governments are aiming to increase their renewable generation. A fresh target of 50 per cent renewable energy by 2030 has been proposed to provide a strong market signal for investors.

Expanding the renewable base also requires adequate investment grid modernisation. Australia is expected to invest over AUD 3,450 million by 2022 in its electricity transmission segment. Nearly 81 per cent of the total investments will be utilised to augment grid assets and establish new grid connections to meet the growing demand, while the remaining investment will be in non-network facilities including IT and communication systems.

Australia’s existing power network

Australia depends heavily on coal to generate electricity. As of July 2019, of the country’s total installed capacity of 52,955 MW, more than 23,000 MW or 43 per cent was coal based. However, coal’s domination in power generation has been reducing with the installation of renewable energy projects. Since 2014, the share of fossil fuel-based generation capacity has reduced from 86.5 per cent to 79 per cent, with higher contribution of renewable energy sources.

As of 2018, the country’s high voltage grid comprised about 52,107 ckt. km of transmission lines and 161,995 MVA of transformer capacity at the 110 kV-500 kV levels. Australia’s National Electricity Market (NEM), which connects six major transmission interconnectors, represents about 90 per cent of the Australian electricity market and comprises six jurisdictions, namely, Queensland, New South Wales (NSW), the Australian Capital Territory (ACT), Victoria, South Australia and Tasmania. These areas are linked by six major interconnectors, namely, the Queensland-NSW interconnector, the Terranora interconnector (formerly Directlink), the Victoria-NSW link, the Heywood interconnector, the Murraylink and the Basslink.

Each region in the NEM has a separate transmission owner and operator known as the transmission network service provider. NSW is served by TransGrid, Queensland is served by Powerlink, Victoria is served by AusNet Transmission, South Australia is served by ElectraNet and Tasmania is served by TasNetworks. In addition, Western Australian and the Northern Territory, which are not part of the NEM, are served by Western Power, and the Power and Water Corporation respectively.

Changing grid dynamics

While the generation network is experiencing a transformation due to the adoption of new sources and a decentralised market structure, the transmission and distribution (T&D) network, which was developed about a century ago, is now bearing the brunt of this transition. The joint forces of technological advancement, decarbonisation of the economy and a private sector approach to capital investments are putting enormous pressure, both on the physical operation of grids and on traditional utilities that generate, transport and sell electricity. With the development of a more decentralised and dynamic structure, consumers now have greater control over how and when they use electricity and what they pay for it.

Though power consumption in Australia is rising, grid demand has become stagnant. The primary factor behind this is the development of solar PV (predominantly small-scale rooftop units). The growth in solar PV initially occurred in response to several government incentive schemes. Later, with rising electricity prices, investment continues in solar rooftop even after the withdrawal of  incentive schemes. As of 2018, one in every five households in Australia had installed solar rooftop systems. As per the 2015 National Electricity Forecasting Report of the Australian Energy Market Operator, the growing uptake of rooftop solar will reduce grid demand in the state of South Australia on certain occasions to zero by 2023.

Though overall demand is likely to reduce, peak demand is expected to increase due to the intermittent nature of renewable energy projects. The peak times for grid consumption (domestic) are early morning and early evening, when solar PV output is low. This puts further pressure on the country’s ageing T&D infrastructure.

High peak demand further pushes tariffs upwards. Considering this, the Australian market is investing heavily in energy storage projects. Battery storage assists in smoothing solar PV output and integrating other intermittent renewable generation into the grid, and provides ancillary services for the grid. It is also being used for peak shaving, where users charge their battery at night and use the stored power to satisfy a portion of their peak power demand at other times.

Battery use in the Australian electricity grid is expected to keep growing due to technological advances and rapid cost decline. Several government schemes have also driven down battery costs, accelerating battery storage adoption by energy producers and users.

Australia is on track to becoming the biggest home battery market in the world in 2019. As per market experts, over 70,000 Australian households will install batteries in 2019, driven by AUD 147 million in state government subsidies, as well as low-interest loans and demand response schemes, accounting for about 30 per cent of the global battery storage demand. A further AUD 200 million subsidy is expected for another 100,000 household batteries from 2020, depending on the political will.

Future grid investments

While decentralised solar projects are reducing dependency on the grid, upcoming utility-scale renewable projects need more investment in the transmission network for grid expansion as well as modernisation and refurbishment of the existing grid. Between 2019 and 2028, AUD 3,450 million will be invested in the country’s power transmission network.

A key transmission project has been proposed by Sun Cable (operating in Singapore and Australia)–the Australia-Singapore power link–to transmit power from its upcoming 3 GW solar project in the Australian desert in the Northern Territory to Singapore. The transmission project will have the capacity to transmit 10 GW of power to a 20-30 GWh storage facility, supply power to Darwin (Australia), and export 3 GW to Singapore via a 3,800 km long high voltage direct current subsea cable. The project is valued at $20 billion. This will allow Singapore and the national territory to have a more diverse electricity supply, thereby increasing resilience. In July 2019, Australia’s national territory government granted “major project” status to the link. The next step will be to prepare a project development agreement, after negotiations between the national territory government and Sun Cable. The company will be required to prepare an environmental impact statement and a territory benefit plan.

Another project, proposed by ElectraNet, will link South Australia and NSW and aims to reduce the cost of providing secure and reliable electricity to South Australia in the near term, while facilitating longer-term transition of the energy sector across the NEM to low emission energy sources. The 916 km, 330 kV interconnector will run between Robertstown in mid-north South Australia and Wagga Wagga in NSW, via Buronga and with an augmentation between Buronga and Red Cliffs. The project will cost AUD 1.73 billion. In addition, the $200 million Eyre Peninsula Reinforcement project, the $200 million-$500 million South Australia Energy Transformation project, and the $60 million-$80 million Main Grid System Strength Support Project have also been proposed to augment or reinforce the Australian grid during the period 2019-22.

Outlook

The ongoing efforts to decarbonise the country’s electricity system signal a bigger role for renewables in the future and are likely to create further debate on the challenge of integrating renewables and energy storage into the grid.

The Australian electricity market is being challenged by significant change and is quickly evolving from a traditional electricity model based on large power generators and long networks. Innovative energy products and services are rapidly emerging that will give consumers greater choice and control over their relationship with the energy market, including how their electricity is delivered and consumed.

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