Power System User Requirements Elijah Pack – Manager National Planning (AEMO) November 2018

Agenda Australia’s energy transition User requirements Australia’s energy “trilemma” Technical Requirements Resource adequacy Frequency management Voltage management System restoration

The Energy Transition Changing supply technologies – Environmental sustainability, renewables boom, ageing infrastructure, decreasing need for baseload power, growing need for energy storage and peaking. Evolving consumer needs – Rooftop PV, electric vehicles, energy storage, flat / negative demand growth, affordability. The grid – Adapting to changing needs on both sides of the supply chain Structural change – regulatory liberalisation and competitive energy markets.

The User Requirement: The Energy “Trilemma” Achieve a balance of: Reliability and security Affordability (Energy Equity) Environmental Sustainability Source: World Energy Council†

Reliability & Security – Supply interruptions Source: Reliability Panel AEMC Final Report - Reliability standard and settings review 2018. Data represents 2007/08 to 2016/17

Affordability Source: International Energy Agency, Energy Prices and Taxes 2016.

Electricity Bill Components

Affordability – Average weekly household costs Source: Australian Bureau of Statistics

Sustainability LRET Target Paris commitment State based RETs 6.5 solar panels installed per minute Policy uncertainty Reliance on coal for baseload power

Global trilemma rankings Source: World Energy Council

Trilemma hardship Wealthy Well educated Great natural resources Trilemma Measurement Advantages Trilemma Measurement Disadvantages Wealthy Well educated Great natural resources World-class solar and wind Abundance of coal and gas Geographically large – low population density Per capita metrics can disadvantage Australia due to mining exports Island – no “electrical neighbours” to support each other Policy uncertainty Reliance on coal Complex climate

Technical Requirements “ Modern power systems are giant, multi-faceted machines. To operate the complex ‘system of systems’ in Australia’s National Electricity Market (NEM), AEMO oversees in aggregate millions of separate electricity supply and demand decisions in real time, all day, every day. – Power System Requirements (AEMO)

Power System Requirements Operability Dispatchability (Controllability, Firmness, Flexibility) Predictability Technical Resource adequacy and capability Frequency management Voltage management System restoration

Operability Attribute Description Dispatchability (Controllability, Firmness, Flexibility) Ability to manage dispatch and configure power system services to maintain system security and reliability. “Dispatch” refers to the process whereby AEMO issues instructions to generators (and certain loads) to operate at a certain output. Predictability Ability to: Measure or derive accurate data on energy demand, power system flows, and generation output across numerous time frames (real time, hours/days/weeks/years ahead) as key inputs into planning and operational decision-making. Forecast upcoming power system conditions and have confidence in how the system will perform.

Technical System attribute Requirement Service(s) needed to meet requirement Resource adequacy and capability Provision of sufficient supply to match demand from consumers Bulk Energy Strategic Reserves Capability to respond to large continuing changes in energy requirements Operating Reserves Network transport capability Transmission and distribution services Frequency management Ability to set frequency Grid formation Frequency within limits Inertial response Primary frequency control Secondary frequency control Tertiary frequency control Voltage management Voltage within limits Slow response voltage control Fast response voltage control System Strength System restoration Ability to restore the system System restart services

Time frames for power system requirements

Where can these system services come from?

The Finkel Review Independent Review into the Future Security of the National Electricity Market 49 out of 50 recommendations accepted by COAG Clean Energy Target still being debated Recommendation 5.1: “ By mid-2018, the Australian Energy Market Operator, supported by transmission network service providers and relevant stakeholders, should develop an integrated grid plan to facilitate the efficient development and connection of renewable energy zones across the National Electricity Market.

Integrated System Plan Elijah Pack – Manager National Planning (AEMO) November 2018

Agenda ISP Context Renewable Energy Zones Scenarios and inputs Technical Requirements ISP Modelling Process Key Insights Energy Outlook REZ Development System Strength 20 year integrated development plan ISP Publication 26/11/2018

Energy mix and infrastructure are transforming A profound transition of the NEM is underway: TO Rapidly changing world: Consumption flat, but demand peaks even more pronounced under extremes Supplies involve geographically dispersed, technologically diverse resources Requiring: Flexible dispatchable plant Energy storage Visibility and controllability of resources, including embedded Efficient re-configuration of the transmission system to support FROM A static world: Predictable demand growth Predominantly based on coal and gas resources A power system designed around bulk energy transport on main highways from major (synchronous) gen centres

Planning Coordination

Context The National Electricity Law establishes AEMO as the national transmission planner, requiring AEMO to: develop a National Transmission Network Development Plan provide advice on the development of the grid or projects that could affect the grid; provide a national strategic perspective for transmission planning and coordination; The Finkel review recommended AEMO develop and Integrated Grid Plan as part of Better system planning, one of the pillars to deliver the key outcomes.

Renewable Energy Zones – “REZs” REZs are areas in the NEM where clusters of large- scale renewable energy can be developed to promote economies of scale in high-resource areas and capture geographic and technological diversity in renewable resources. – ISP Consultation Paper (AEMO)

Renewable Energy Zone (REZ) Candidate Identification Wind Solar Source: DNV-GL

Renewable Energy Zone (REZ) Candidate Identification Weighted Wind Weighted Solar Resource quality Correlation with demand Land parcel density Land cover Road access Terrain complexity Population density Protected areas Electricity network Source: DNV-GL

Renewable Energy Zone (REZ) Candidate Identification Pumped Hydro Source: ANU Source: Geoscience Australia Geothermal

Candidate REZ Identification

REZ Candidates

Key inputs Resource Quality Wind and solar resource data from DNV-GL Benchmarked against existing projects to validate Technology Technology costs and forward projection of costs primarily from CSIRO – confirmed by AEMO work and stakeholder consultation Pumped storage costs from ANU study Gas prices from Core Energy adjusted in early years to market prices Coal prices from Wood McKenzie Price relativities appear consistent with observed behaviour and investor interest

Scenarios and sensitivities The ISP focuses on seven scenarios/sensitivities: Two base cases: Neutral, and Neutral with storage initiatives. Three additional scenarios: Slow change, Fast change, and High DER. Two additional sensitivities to explore key opportunities or risks: Increased role for gas, and Early exit of coal-fired generation.

Key Inputs – NEM Energy Consumption

Key Inputs – Coal fleet operating life Note: Data is based on announced closure dates, assumption based on age and coal type, and mine rehabilitation guarantees.

ISP modelling process

A few key insights Maintaining existing coal-fired generation up to the end of its technical life is a key element of a least-cost approach. A portfolio approach to replacing thermal generation: Utility-scale renewable generation, energy storage, distributed energy resources (DER), flexible thermal capacity including gas-powered generation (GPG), and transmission. The crucial role of transmission to connect geographically dispersed renewable generation, establish REZs, and share surplus energy across the NEM DER can greatly reduce the total cost of supply, and will benefit from more interconnection. Focus on event-based timing and managing risks of unplanned events.

Projected change in resource mix Installed capacity by NEM region over the 20-year plan horizon 

NEM Energy Outlook (Results)

Growing need for energy storage Neutral Neutral with Storage Initiatives

REZ Report Cards Benchmarking the attributes of each REZ

Example – Darling Downs Renewable Resources Solar Wind Diversity of Wind with other REZs Resource Quality C B Potential (MW) 4,000 2,785 Diversity F Demand Matching Now 2030 2040   D Network Limitations Existing Upgraded Network Description Network Capacity (MW) 3,000 - The existing network is strong and around 3,000 MW of new generation could be connected without requiring major upgrades. The MLFs are robust compared to the other Queensland REZs, because this REZ is located near the 330 kV interconnector to New South Wales and the South East Queensland load centre. Long- term modelling identified retirement of 1,400 MW of coal-fired generation in the SWQ zone from 2037. This would enable additional solar generation to connect in Darling Downs REZ within the existing transmission capacity. Initial Loss Factor Loss Factor Robustness A Long-Term Market Simulation Scenarios Neutral Neutral with Storage Slow Fast High DER Generation Built (MW) 3,400 2,700 4,700 Timing >2040 Example – Darling Downs The Darling Downs REZ covers a wide area of South West Queensland (SWQ). The existing network is strong and could support around 3,000 MW of new generation without requiring major upgrades. The MLFs are robust.

Emerging opportunities to provide system strength 2018-19 2028-29 2038-39

Impacts of low system strength

20 year integrated development plan

Group 1 Near-term construction Maximise economic use of existing resources

Group 2 Developments in the medium term Enhance trade between regions, provide access to storage, and support extensive development of REZs

Group 3 Longer-term developments Support REZs and system reliability and security

Economic assessment - Neutral Present value of market benefits for Base development plan (Neutral)

Economic assessments Scenario Net benefits from interconnector upgrades ($ million) Central cases Neutral $1,192 Neutral with storage initiatives $1,249 Scenarios Slow Change $1,777 Fast Change $1,499 High DER $1,985 Sensitivities Increased role for gas $544 The ISP network plan delivers value in all scenarios

Early coal exit Base Plan Medium Very Low Base Plan with SnowyLink Low Risk Interconnector upgrades Unserved energy NSW QLD SA TAS VIC New South Wales coal power station closure Base Plan Medium Very Low Base Plan with SnowyLink Low Base Plan with Snowy 2.0 and SnowyLink Victorian coal power station closure High

Reliability outlook

ISP Published Published during project: Published in July: Consultation Paper Consultation submissions & summary Assumptions workbook Published in July: ISP report with Appendices Methodology Input data and results Interactive map

Way forward Implement strategic projects Market bodies’ reviews Local transmission planners to commence regulatory assessments on strategic developments identified in group 1 and group 2 projects. AEMO will continue to work with transmission planners via the joint planning process to progress network investments proposed in the ISP. Implement strategic projects AEMC’s Coordination of Generation and Transmission Investment (COGATI) review AER consulting on draft determination on regulatory investment test application guidelines ESB to conduct workshops looking at transmission planning and interconnection Market bodies’ reviews Enhance modelling capabilities Collaborate with ENA on Open Energy Networks, Engagement with industry to plan next ISP AEMO’s next steps over next 6-12 months Way forward