This month will see the release of a number of supplementary planning and analysis documents, designed to provide interested stakeholders with an update on the progressive thinking and advancements being adopted ahead of the next iteration of AEMO’s Integrated System Plan (ISP).

Kick starting with a national industry consultation workshop in Sydney on Monday, 3 June to test and discuss preliminary forecasting and planning scenarios to be used for the 2019-20 ISP, AEMO is adopting a strong consultative process to increase engagement with a wide variety of stakeholders. Broad based input will help the ISP achieve its goal of mapping out a pathway for the National Electricity Market to achieve the lowest whole of system cost while maintaining reliability and security.

AEMO presented a number of scenarios during this workshop, from a central scenario incorporating current federal and state energy policies, to slow and fast change scenarios that factor in lower/higher than expected uptake of distributed energy resources and large scale renewable investment. Also presented were scenarios based on very high uptake of distributed energy resources, and a significant ‘step change’ that represents strong action on climate and acceleration of technology. Feedback from all scenarios will be taken into account as AEMO looks to finalise its forecasting and planning scenarios by the end of June 2019.   

This week will also see the release of two independent, supplementary analysis reports that further investigate two core components of the 2018 ISP. Developed by Aurora Energy Research (Aurora), Report 1 analyses the potential reduction in power bills the implementation of the ISP could provide to Australian energy consumers through increases in competition and market efficiency through additional interconnection investment. Report 2 provides independent economic analysis on whether AEMO’s coal closure timeline (based on either advice of closure or expected end of technical life in the ISP plan period) requires adjustment because of changing earnings in an evolving market environment.   

Aurora Energy Research analysis of AEMO’s ISP Part 1: benefits of interconnection (Report 1)

AEMO’s 2018 ISP estimates that the additional transmission investment proposed would conservatively delivers market benefits of around $1.2 billion across the energy system on a net present value (NPV) basis, compared to the case where no new transmission is built to increase network capabilities between regions (in the modelled Neutral case).

Aurora has provided independent validation of this market benefit assessment, as well as producing an alternative quantification to estimate the full cost savings to consumers from the additional interconnector capacity envisaged in the ISP. This analysis is based on Aurora’s market-based NEM dispatch model (AER-NEM) and the ISP’s plant cost and capacity mix assumptions.

Aurora finds that under AEMO’s ISP neutral scenario, the net present value (NPV) of consumer benefits through potential bill savings to 2040 to be approximately $3.8b. For the other ISP scenarios, Aurora forecasts the NPV of consumer benefits to range between $1-4b to 2040. This analysis does not include other benefits that may be generated from additional interconnection, in particular potential reductions in ancillary service spending and enabling emissions reductions.

Aurora Energy Research analysis of AEMO’s ISP Part 1: economics of coal closures (Report 2)

One of the key assumptions in the 2018 ISP is the expected sequence and timing of closures of existing coal fired generators. Their exit drives investment in necessary replacement generation capacity. A portfolio of utility-scale renewable generation, storage, distributed energy resources, flexible thermal capacity, and transmission is offering the lowest replacement cost.

To date, AEMO has assumed a 50 year technical life or a published closure date for coal fired generators. To understand whether this assumption needs to be modified, AEMO has commissioned Aurora to assess the financial viability of coal generators as the National Electricity Market (NEM) is expected to evolve in future.

Four key findings emerged from Aurora’s analysis:

  • Finding 1: In AEMO’s neutral scenario, Aurora forecasts sufficient revenues such that coal assets are NPV positive and are therefore likely to remain in the NEM for at least as long as AEMO estimates in the ISP.
  • Finding 2: Although all coal assets are forecast to generate sufficient revenues, Aurora’s forecasts highlight significant variability in profitability between coal assets. Some generators may be vulnerable in particular if there is a failure in a critical part of the plant that requires costly repairs.
  • Finding 3: In Aurora’s scenario modelling, there are some scenarios, especially those with lower demand, in which coal assets may exit earlier than AEMO estimates.
  • Finding 4: The early exit of one coal asset in the NEM would improve the profitability of the remaining coal plants on the system – as such, once a coal plant exits, the chances of subsequent unplanned closures due to lacking profitability are diminished.

It is important to note, Aurora’s analysis into each coal asset has been conducted ‘outside-in’ and used public AEMO ISP data as well as Aurora’s own assumptions. Coal asset owners will have insights and data on actual maintenance schedules and costs, as well as contracted coal costs, that are not publicly available. AEMO recognises the findings of Aurora’s independent study, however confirms these assumptions do not necessarily represent the view of the market operator.

Next steps

AEMO will continue to consult and deliver public updates on the development of the 2019-20 ISP, with the next instalment of the finalised report due for release mid-2020. AEMO will look to publish ‘ISP insights’ reports that focus on a key trend or core development in the lead up to the final report. 

If you wish you have your say along the way, please email forecasting.planning@aemo.com.au.

You can access the full 2019-20 Integrated System Plan Consultation here