Over the past few months, there has been an avalanche of announcements related to the energy market. Victoria wants to be 65% renewable by 2030 and 95% by 2035, AGL is likely to retire Loy Yang A ten years earlier, Queensland has its Energy and Jobs Plan, and transmission investment projects are getting financial support from the governments.
These announcements validate the insight from AEMO’s latest Integrated System Plan (ISP) and the industry’s expectation that the National Electricity Market (NEM) is transitioning to a lower-emissions future faster than expected. The transition is driven by many factors: economics, affordability, environmental ambitions, social license, reliability, and system security.
While we all understand the importance of this transition, the pace at which we act on it also becomes increasingly critical, if not the most critical. In this Chart of the week, we ask: is the industry acting fast enough to meet the requirements of this transition?
The answer is simple: not yet.
From now until 2050, according to the 2022 ISP Step Change scenario, the NEM must add at least ~5,000 MW of large-scale Variable Renewable Energy (VRE) and Battery Energy Storage and System (BESS) year-on-year. However, according to registration data from AEMO’s Nemweb, over the past five years, the NEM has only been building about 3,000 MW, on average, of new capacity year-on-year. While this figure has been record-breaking in terms of additional penetration of new capacity, predominantly VRE and BESS, it is still slower than the required pace at which we must commission new capacities to meet the ISP projections.
If we keep going at this pace, ~2,000 MW behind the required build-out year-on-year, it is equivalent to retiring a full Loy Yang A power station (installed capacity value) every year. On this basis, we would soon find ourselves in a precarious situation. This analysis is also exclusive of the potential shortfall in projected annual installed capacity from the distributed network, which could make this total shortfall even larger
Of course, the reasons why we are building slower than how we need to and how we could expedite it is a much broader equation to solve than what we can put in this diagram; and it is also a separate discussion to have. Nevertheless, while we have begun to put new mechanisms in place to expedite new capacity, more support will likely be needed to get capacity to market sooner. We are already behind the curve, and the point stands currently, we are underperforming.
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