Australian Energy & Environmental Market Update - June 2024

Features

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Feature 1

The final version of the 2024 ISP released

• The final 2024 ISP recognises the value of consumer energy resources (CER) and has revised the optimal development path, based on recent policy directions and critical energy infrastructure timelines.
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• The Integrated System Plan (ISP) is a roadmap for the transition of the NEM to meet future energy needs and enable a net-zero economy by 2050.
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• Since the Draft 2024 ISP, numerous key changes have been made to the final version:
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  • Explicit recognition of consumer energy resources (CER) as a significant resource in this transition.
  • Incorporation of updated renewable energy and emissions reduction policies.
  • Addition of 3.7 GW of newly committed generation and storage projects.
  • Sensitivity analysis exploring the impact of low CER orchestration, which found that $4.1 billion of additional grid-scale investment would be needed without effective coordination of consumer batteries.
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• A call for more investments towards flexible gas capacity, including pipelines, storage, and supply. Additional gas supply may be through domestic production, import infrastructure, or alternative fuels like hydrogen.
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• Net market benefits of transmission investment have increased to $22 billion from $17 billion, now accounting for avoided costs and the Energy Ministers’ value of greenhouse gas emissions reduction.
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• An additional five transmission projects have progressed to actionable status – Sydney Ring South, Mid-North South Australia REZ Expansion, Waddamana-Palmerston Transfer Capability Upgrade, Hunter-Central Coast REZ Network Infrastructure project, and QNI Connect.
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• Despite recent announcements surrounding coal retirements (e.g. Eraring), AEMO’s Step Change¹ scenario still believes the entire coal fleet would retire by 2038, and that there is a need for 6 GW of new renewable energy per year until 2030.

¹ The Step Change scenario fulfils Australia’s emission reduction commitments in a growing economy and is regarded the most likely scenario by a group of expert panellists.

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Feature 2

Transgrid's system strength RIT-T

• Transgrid has evaluated a series of network and non-network solutions that are needed to achieve efficient levels of system strength in NSW.
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• System strength can be described as the grid's ability to maintain and control the voltage waveform at any given grid location, regardless of steady-state operations or soon after a disturbance (e.g. lightning strike). Without system strength, there is a higher risk of system instability and supply interruptions for end-consumers.
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• Transgrid recently published its Regulatory Investment Test for Transmission (RIT-T) Project Assessment Draft Report (PADR) on ”Meeting system strength requirements for NSW”, in which they investigated an array of network and non-network solutions to identify portfolio options to meet their system strength obligations.
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• Transgrid engaged Aurecon to assess whether grid-forming battery energy storage systems (BESS) are mature enough to provide system strength support. Aurecon concluded that there is insufficient evidence to rely on grid-forming BESS to support minimum fault level requirements up until 2032/2033.
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• Four portfolios of solutions were modelled by Transgrid, with the key differences between the options being the timing of commissioning of synchronous condensers, the number of gas units that could be contracted to provide system strength services and the inclusion of synchronous condensers services based on confidential proposal.
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• Portfolio Option 1, consisting of 8 synchronous condensers by 2028/29 and a further 6 by 2032/33, was found to have a net benefit of $11.3 billion and be the most credible option. However, benefits may be increased, should it be feasible for 5 synchronous condensers to be delivered by 2027/28 or to proceed with the confidential proposal. Accordingly, Transgrid will continue to investigate options.
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What this month’s developments mean for Australian business

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Energy market

June saw a further reduction in renewable energy penetration, greater energy demand and, unsurprisingly, higher spot and futures prices across the NEM.

This price volatility will have significant impact for energy users on progressive and short-term contracts who will need to keep monitoring the market in the coming weeks.

The sustained reduction in renewable energy generation is also a key consideration for organisations exploring power purchase agreements (PPAs) who will need to understand and manage firming exposure.

New in the report this month are charts that explore renewable asset performance from both a capacity factor and revenue perspective. These further highlight the importance of selecting the right assets when exploring long-term contracts.

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Carbon market

Overall, there is increasing interest and participation in the Australian carbon market.

We are seeing an active push from organisations with a significant carbon exposure evaluate opportunities for either offtaking, co-investing or partnering on early development stage projects. This approach may yield access to new supply lines and could be considered best balanced with an on market secondary book building approach. Get in touch with our team to explore your options.

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Do you need help navigating renewable energy and carbon markets?

The events outlined in this month's update highlight the evolving nature of carbon, environmental and energy markets and the complexity of the net zero transition.

To discuss your unique requirements, get in touch with our team today to see how we can help.