Power squeeze worries linger despite Eraring extension

Angela Macdonald-SmithSenior resources writer

Aug 25, 2024 – 6.25pm

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The Australian Energy Market Operator is expected to warn of the risk of brownouts for households over the next several years in its closely watched annual assessment this week, despite the extension of coal-fired generator Eraring’s lifespan.

While the delayed closure of the 2880-megawatt Eraring until 2027 helps ease immediate supply concerns, the slow build-out of clean energy generation and transmission remains a problem for the grid.

Wind farms have been taking longer to secure planning approvals. Bloomberg

Adding to the tensions are expectations of rising demand for electricity from power-hungry data centres perhaps underestimated by the market operator, and which may drive up official projections for power usage.

“Everyone’s worried and/or scratching their heads about data centres,” said Dylan McConnell, renewable energy and energy systems analyst at the University of NSW.

He said there would invariably be new supply projects with sufficient certainty to be added by the market operator in its assessment, due on Thursday, improving the outlook for reliable power supply. And the extension of Origin Energy’s Eraring until August 19, 2027 should be significant in the near to medium term too.

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But Mr McConnell pointed out that since AEMO’s interim update for the supply-demand outlook for the National Electricity Market in May, the magnitude of a substantial delay in the New England Renewable Energy Zone in NSW had become clearer. He said that in May, AEMO was still assuming the New England REZ capacity would be available from late 2028, but a few weeks later in the market operator’s long-term blueprint for the power grid, it had June 2031.

“This might be expected to impact the reliability outlook in the 2028-2031 period,” Mr McConnell said.

‘Challenging’ 2030 target

The annual outlook statement comes as energy industry leaders are worried about slow progress towards 2030 climate targets and that the pace of expansion in clean energy is running further behind what is needed to replace coal power. In addition to Eraring’s closure now in 2027, several large coal-fired power stations are due to shut this decade, notably EnergyAustralia’s 1480MW Yallourn plant in 2028 and CS Energy’s 700MW Callide B plant in Queensland in 2028.

AEMO expects 90 per cent of the coal power fleet in the NEM will close before 2035, and the rest by 2038, in a forecast that indicates that several plants will end much earlier than the dates that have been announced so far.

The Albanese government has beefed up the Capacity Investment Scheme in a bid to accelerate the roll-out of clean energy and reach its 2030 target for 82 per cent renewable energy, but many in the industry still doubt it can be achieved.

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“It’s a challenging target just by the sheer volume of what’s required to be done between now and 2030,” Origin Energy CEO Frank Calabria told The Australian Financial Review.

“And you can see that one of the more significant areas that’s a really critical path for a lot of renewables coming in is the Renewable Energy Zones, and the transmission associated with those... but it’s certainly going to require a lot to be done to get that done on 2030 and I think everyone should just be focused on making good choices between now and then.”

‘One-off’ factors increase risks

More immediately, the timetable for the restart of the Callide C3 and C4 generators in late August and early September will support the supply-demand balance in Queensland and NSW, and together with the Eraring extension that should point to a calmer message from AEMO, said Josh Stabler, managing director of adviser Energy Edge.

Still, he pointed to several factors that could be regarded as one-offs that are impacting the market short-term, including a low water intake at Snowy Hydro dams this year, low water levels for Hydro Tasmania, the “devastating” winter wind drought and forecast lower gas output from the key Longford plant in Victoria in 2025 and 2026.

Matt Rennie, co-CEO at ESG and climate advisory firm Rennie, said he expected AEMO’s report to sound an alert for needed investment in fast-start gas power generation to help offset delays in transmission and approvals hurdles in supply projects.

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While several power producers are examining gas power opportunities, most remain on the drawing board.

“There is no doubt we are entering a phase where there are more drivers to separate supply and demand than to pull them together,” Mr Rennie said.

“With demand rising due to electrification, supply shortening due to coal closures, and a lack of true recognition of the cost and timing impediments to renewables and DER [distributed energy resources] assets bridging the gap in time, the only economic answer is fast-start gas.”

Mr Rennie called for AEMO to adequately incorporate the impacts of higher renewables build costs and higher prices for long-term power purchase agreements into the outlook.

“Unless we adequately incorporate the true timing costs of delays into the ESOO, the market will become increasingly volatile and prices will remain high, and the necessary investment in gas generation to bridge it won’t happen,” he said.