This report (available here in pdf) presents our key findings and conclusions on how the National Electricity Market (NEM) may evolve over the next 10 years. We look at three key scenarios. For each scenario we map out the investments needed to balance the market for energy and dispatchable capacity.

The dynamics and uncertainty surrounding the NEM motivated us to write this report. The NEM is experiencing significant structural, regulatory and policy upheaval. It is transitioning from being a mainly coal/ thermal market, to one increasingly supplied by variable renewable energy (VRE) (wind and solar). The fact that there is currently no Federal renewable energy target or carbon price signal post 2020 is adding uncertainty to the mix.

These structural changes and policy uncertainties will present significant technical challenges for the market operator (AEMO) in the future. They are also a challenge for industry participants wanting to make decisions about where to invest for the future.

To help investors and market participants, and to identify challenges for AEMO, we have looked at the following three scenarios:

  1. The Status Quo. The NEM is in the midst of a renewables boom. Even if no further VRE projects are sanctioned, there will be step change in the percent of the market from renewable sources over the next couple of years as currently committed projects come on line. Decarbonisation will also be driven by coal generator retirements. Thermal generators’ energy and dispatchable capacity also needs to be replaced. Our first scenario evaluates these dynamics, considering committed projects and expected withdrawals only.
  2. Current State and Federal Renewable Energy Targets (RETs). The States may take the lead and pursue their own renewable targets, as they currently appear to be. Alternatively, the Federal government may resurrect the National Energy Guarantee (NEG) or extend the LRET. The Labor government has suggested a 50% renewables target by 2030 if it wins the Federal election in May, which is on the cards. Scenario 2 analyses the investments that would be needed if the States all meet their RETs by 2030.
  3. All Proposed Projects are Built. There are currently over 51 GW of proposed projects across the NEM, including 38 GW of VRE, 10 GW of storage and 3 GW of mostly gas. Scenario 3 is more theoretical, and we think highly unlikely. It considers what the NEM would look like if all proposed projects are built.

Want to speak to the author?  Get in contact with Bruce Low in our Sydney office.

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