Renewables the priority as coal dominance ends by 2040: AEMO

Coal accounts for up to 70 per cent of power grid supply currently, but the role of the fossil fuel will largely disappear by 2040, says the energy market operator.

Market forces make the dominance of renewables in the energy market inevitable, says AEMO. Picture: Supplied.

The operator of the nation’s electricity grid said it is powerless to delay the closure of coal-fired power plants in Australia and warned renewable developers not to cut corners as a wave of new clean generation connects to the system.

While coal accounts for up to 70 per cent of power grid supply currently, the role of the fossil fuel will largely disappear by 2040 and potentially sooner as rival supply sources such as solar undercut its profitability during daylight hours.

The Australian Energy Market Operator said it expects renewables to dominate the power system and it was not thinking about extending the life of coal as part of the electricity mix.

“Even if we wanted to delay the closure, we actually can’t. It is in the Australian market framework a commercial decision by generators if they want to close,” AEMO’s chief system designer Alex Wonhas told a Wood Mackenzie energy conference.

“I think for us really the only option is we need to prepare for a system that very soon can be run almost exclusively on renewable energy because we actually can’t control some of these other factors.”

Origin Energy warned in June of a potentially “messy” energy transition with plunging prices forcing out coal generation earlier than planned.

Australian Energy Market Operator Chief system design and engineering officer Dr Alex Wonhas. Picture: AAP

Energy tsar Kerry Schott, chair of the government’s Energy Security Board, has suggested adding a new price mechanism reflecting the important reliability role provided by power stations through a ­“capacity market” could help spur investment before coal plants ­retire.

Origin’s 2880 megawatt Eraring plant, which supplies 20 per cent of NSW’s daily power needs, will switch off the first of its four units in 2030.

The move follows EnergyAustralia’s decision to shutter Victoria’s Yallourn coal power plant four years early in 2028 while AGL Energy’s Liddell coal plant will close in the 2022-23 summer, sparking a demand for generators to build new supply to avoid a spike in power prices.

AEMO predicts that by 2035 nearly 90 per cent of power demand could be met by renewable generation during periods through the day. But it warned that new solar and wind developers needed to properly think through how they connect to the grid and the location of new plants.

“It is true that connecting into the Australian energy market is a difficult process,” Dr Wonhas said. “For anyone who is interested in connecting in the Australian context, I have a couple of suggestions: make sure you get a really good consultant who understands how the Australian market works and the requirements of the market, select a proven technology and don’t try to cut any corners.”

“Select a strong connection point in the network because we have many points which are extraordinarily weak and cannot take connections any more.”

Connections into the power grid can be achieved in less than 18 months but only if all the right preparatory work had been completed, Dr Wonhas added.

Some 3300 megawatts of new renewables were added in 2020 and AEMO said Australia was undergoing the fastest energy transition in the world.

“We are experiencing probably the world’s fastest energy transition if you look at renewable additions per capita – but we are probably also experiencing some of the most challenging technical conditions to do this under.”

The Australian Energy Regulator included the behaviour of renewable generators among five compliance and enforcement areas it will target in 2021-22.

“The AER will also be monitoring compliance by generators with dispatch instructions issued by AEMO, with a particular focus on recent rule changes preventing weather-reliant generators, such as large scale wind and solar farms, from reducing their output when they are instructed by AEMO to generate electricity,” the AER said on Wednesday.

Australia requires at least 30,000MW of solar and wind to replace coal generation by 2040 and 47,000MW should more aggressive pollution cuts be required in response to the climate change crisis.

Originally published as Renewables the priority as coal dominance ends by 2040: AEMO