Off the charts: ESOO flags earlier reliability shortfalls but no need to panic yet

In the space of a year, the prospect of reliability shortfalls in the NEM has increased significantly. This is the stark finding of AEMO’s latest Electricity Statement of Opportunities (ESOO) report. In our Chart of the week, we illustrate how reliability forecasts have deteriorated in just a year, and we look at the reasons driving the change. 

The ESOO is an annual publication that provides a ten-year forecast of the supply and demand balance to assist with planning in the NEM. Specifically, the ESOO tracks ‘unserved’ energy, a measurement of total energy demanded in a given region that cannot be served to customers and may result in involuntary load shedding. 

There are two key thresholds for unserved energy:

  • Reliability Standard: 0.002% – this means unserved energy must be no greater than 0.002% of total energy demanded over a year.
  • Interim Reliability Measure: 0.0006% – unserved energy above 0.0006% in a region for a given year would trigger the Retailer Reliability Obligation, an additional measure to reduce the risk of unserved energy. The measure is interim as it is due to expire in June 2025.

The ESOO is crucial in this regard as it identifies periods and regions where the Reliability Standard and Interim Reliability Measure are unlikely to be met. These periods and regions are at heightened risk of blackouts and load shedding, which the ESOO seeks to reduce by identifying risks for market planners to alleviate.

As can be seen from the chart, the latest ESOO shows that unserved energy for all states is expected to breach both the Reliability Standard and the Interim Reliability Measure many years earlier than was forecast in the 2021 ESOO. NSW’s results appear bleak, with the Reliability Threshold expected to be breached in FY2026, four years earlier than the previous forecast. Furthermore, for NSW, the forecasts for unserved energy are now literally off the charts, with unserved energy expected to hit 0.007% in FY2028, more than triple the Reliability Standard. 

The trend is also evident across Victoria, with the unserved energy expected to escalate significantly in FY2029 and much more severely than forecast in the 2021 ESOO. In Queensland, the standard is expected to be breached in FY30, whereas the previous ESOO forecasted no breach at all.

The ESOO lists several causes for this deterioration:

  • Increased consumption and maximum demands, meaning more generation is needed
  • A number of thermal generators have announced their retirement since the 2021 ESOO, such as Eraring in NSW
  • A domestic energy market that is currently uncertain and volatile, with exposure to escalating international commodity prices roiling the market

While the forecasts may seem gloomy, the ESOO can be seen as conservative as it models only ‘committed’ new generation projects that will happen rather than including ‘anticipated’ projects that are likely to happen although not (yet) entirely confirmed. If anticipated projects are included, unserved energy forecasts improve significantly, with the Reliability Standard breach for NSW being delayed until FY2030 although the forecast only marginally improves for Victoria, suggesting transmission and congestion may be barriers to investment in that state.

Additionally, the generation pipeline may be boosted by investments resulting from NSW’s Electricity Infrastructure Roadmap and a second auction for Victoria’s Renewable Energy Target, all reducing the risk of breaching the Reliability Standard in the coming years.

That said, threats remain if commissioning falls behind schedule and delays in transmission investment occur. While it is not ‘panic stations’ yet, the sheer escalation of unserved energy forecasts in the ESOO is a reminder of how fragile the NEM can be during this energy transition.

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