Energy Spectrum Australia

Energy Spectrum Australia | Issue 3

Welcome to the third edition of Energy Spectrum Australia.

The below extract has been taken from our third edition, and if you have enjoyed reading this article and want to read more about the latest developments in the Australian energy market, please contact Ben Cerini, b.cerini@cornwall-insight.com.au  for more information.

NSW to deliver Renewable Energy Zones in new strategy

The New South Wales (NSW) government announced, as part of its Electricity Strategy, a plan to deliver three Renewable Energy Zones (REZ) in the state’s Central-West, New England and South-West regions.
The strategy was launched on 22 November, promising that the REZs will unlock a “significant” pipeline of large-scale renewable energy and storage projects, while supporting up to $23bn of private sector investment in the regions and up to 2,000 construction jobs each year. Figure 1 shows the different aspects of a REZ.

The NSW government said the REZs will play a “vital role” in delivering affordable energy to help replace the state’s existing power stations as they retire over the coming decades. The zones are expected to deliver multiple benefits for NSW, including:

  • Improving electricity reliability by delivering significant amounts of new energy supply.
  • Increasing affordability by reducing wholesale electricity costs.
  • Supporting emissions reduction by delivering reductions in the electricity sector.
  • Engaging communities by helping them to actively participate in the development of energy infrastructure in their region.

The first pilot REZ is set to be built in the Central-West region. The NSW government expects that a pilot REZ in the Central-West region would unlock up to 3,000MW of new generation by the mid-2020s and be worth around $4.4bn in private sector investment once fully developed. The Central-West region is the planned location for the first pilot because it benefits from significant existing investment and investor interest, with around 4,500MW of projects either approved or in the planning system, relatively low build costs, and a strong mix of energy resources.

The NSW government’s push for development of REZs is a positive outcome from a reliability perspective in a state facing a couple of generator retirements in the coming years. The age of the coal fleet in NSW, in particular, is of concern with the imminent retirement of Liddell and possibly others shortly after. With the pilot project looking to commence construction in 2022, this, in conjunction with the southward upgrade of the QNI, provides the state crucial options for maintaining reliability as coal is phased out in the state.

As these REZ areas are unlocked, the government would have to continually work with the market operator and transmission networks in managing congestion risks given the pipeline of projects currently seeking to connect to the grid. Another potential issue will be the level of firming required for these new assets to adequately replace the current fleet of dispatchable coal stations set to retire during the coming decade. According to AEMO’s 2020 Draft Integrated System Plan, the majority of new assets in the Central-West REZ will be wind and solar. Whilst these assets may provide the needed raw megawatts hours of energy when the sun is shining or when the wind is blowing, the question about energy shifting remains during unfavourable weather outcomes, as well as other non-energy related services typically provided by thermal plants. It will be interesting to see how much storage comes with this development and how these business models will be sustained without the unintended consequence of price cannibalisation during periods of coincident renewable generation.