A Deep Dive into the 2024 ESOO – What it Means for the Energy Sector

We have taken a deep dive into the 2024 Electricity Statement of Opportunities (ESOO) report to understand what valuable insights can be gained of the National Electricity Market (NEM), particularly in light of the ongoing energy transition.

As Australia increases its focus on renewable energy integration, decarbonisation, and grid reliability, the 2024 ESOO provides crucial technical and market data on projected supply-demand balances, potential reliability risks, and infrastructure needs for the NEM over the next decade. This information is essential for guiding planning and investment decisions, and policy development aimed at ensuring a secure, reliable, resilient and sustainable NEM.

Improved Reliability Outlook

In 2024, the ESOO showed a more optimistic reliability outlook compared to the 2023 report. This improvement is attributed to several factors, including increased investments in renewable energy and reduced energy demand. Reliability concerns have lessened, but challenges remain in some regions if projected developments do not proceed on schedule. The 2024 ESOO highlights that while the near-term forecast is positive, to ensure grid reliability it remains vital to ensure that all committed and anticipated energy projects are completed in a timely manner.

Source: AEMO 2024 Electricity Statement of Opportunities

New Renewable Developments

One of the major contributors to the improved reliability is the addition of approximately 5.7 GW of new renewable energy capacity since the 2023 forecast. Renewables, however, must be complemented by investments in firmed energy supply (such as battery energy storage, pumped hydro and clean thermal generation) and transmission infrastructure to address intermittency issues. Maintaining system reliability through this renewable energy transition remains a critical focus as more projects come online and availability of existing coal fired generation is reduced as it is retired.

Rooftop Solar Investments

There has been increased investment in larger rooftop solar systems, which has led to a noticeable reduction in the amount of electricity supplied by the transmission system to both households and businesses. This trend has been driven by policy incentives and decreasing solar panel costs, allowing more people and companies to generate their own power. However, while rooftop solar reduces energy demand from the grid during sunny daytime conditions, it does not significantly help in reducing demand peaks during extreme temperature events that coincide with nighttime or cloudy conditions when solar generation may be limited.

Lower Energy Consumption Projections

The forecast for energy consumption growth has been revised downward, largely due to slower-than-expected adoption of electric vehicles (EVs) and reduced business energy consumption trends since the 2023 forecast. The slower pace of EV uptake means that the surge in electricity demand previously expected from widespread vehicle electrification will occur later than initially predicted. Additionally, businesses are becoming more energy-efficient, employing strategies to reduce consumption, which also contributes to lower-than-expected demand growth. This reduction in demand growth positively impacts grid reliability in the near term (but also requires updated planning for future energy needs).

Sufficient Generation Capacity

Despite lower-than-expected demand growth, the 2024 ESOO indicates that sufficient generation capacity will be available to meet growing electricity demand within established reliability standards for most of the next 10 years. However, the prompt delivery of anticipated investments in both renewable energy projects and grid infrastructure is critical. The grid will face reliability challenges if these projects experience delays or are cancelled. Continued investment in new technologies, such as energy storage systems (e.g., batteries and pumped hydro), will be essential for integrating intermittent renewable resources while maintaining a stable energy supply.

Potential Reliability Gaps

While the overall outlook is positive, the ESOO identifies potential reliability gaps over the coming years if new investments in energy generation and grid infrastructure are delayed or fail to materialize. The forecast is particularly concerning for:

  • Victoria in 2027-28 and from 2028-29 after Yallourn Power Station is advised to retire.
  • New South Wales in 2027-28 when Eraring Power Station is advised to retire, and from 2031-32.
  • South Australia in the period from 2026-2027, when the Torrens Island B and Osborne Power Stations are scheduled to retire, and in 2033-34.

These retirements could lead to energy shortages if alternative generation capacity is not brought online in time.

Critical Areas for Reliability

Throughout the vast majority of this year, the generation reserves in the NEM are sufficient to ensure reliable operation of the power system. However, during extreme temperatures, particularly the coming summer, the large use of air-conditioners increase the demand on the power system. It is during these times that the need to maintain high reliability and performance of existing generators becomes critical.

Over the near term, there are many policies and programs that are being actively funded and supporting new developments. The federal and state schemes and programs currently underway include:

  • The Federal Capacity Investment Scheme.
  • The New South Wales Electricity Infrastructure Roadmap, and its firming tenders.
  • The Victorian Renewable Energy Target Auction 2.
  • The Queensland Energy and Jobs Plan.
  • The South Australian Hydrogen Jobs Plan.

Additional actionable transmission developments include:

  • New England Renewable Energy Zone (REZ) Network Infrastructure Projects, Sydney Ring South, the Hunter Transmission Project and the Hunter-Central Coast REZ Network Infrastructure Project in New South Wales.
  • Gladstone Grid reinforcement and Queensland SuperGrid South projects in Queensland
  • Mid North South Australia REZ Expansion in South Australia.
  • Waddamana to Palmerston transfer capability upgrade in Tasmania.
  • East and West Metro projects in Victoria.
  • Strategic transmission projects which improve inter-regional transfer capacities, including Marinus Link, Victoria – New South Wales Interconnector West (VNI West) and the Queensland – New South Wales Interconnector (QNI) Connect.

The ESOO concludes that these investments into renewable generation, dispatchable capacity, transmission and coordinated consumer energy resources are critical in providing reliability levels within the reliability standard.

Source: AEMO 2024 Electricity Statement of Opportunities

AEMO also considers a scenario in which only the projects that have made sufficient progress against “AEMO’s commitment criteria” are forecast. This scenario shows that the timing and completion of each project is critical to the reliability assessment, with caps appearing in New South Wales, South Australia, and Victoria over the coming decade. AEMO concludes that if new developments are commissioned on or ahead of schedule, reliability risks may lower, but if currently considered developments experience commissioning delays, the reliability outlook is likely to worsen.

Over the next 10 years, existing generator operators have scheduled expected closures of approximately 11.2 GW of generation capacity. This includes ~34% of the currently registered thermal – coal, gas, and diesel – generation fleet. The ESOO warns that any advancement or addition to this closure schedule will worsen the reliability outlook and require the further acceleration of investment into new generation, storage, transmission and/or flexible demand resources.

Mumford Commercial Consulting

Mumford Commercial Consulting is an independent consulting business specialising in providing bespoke commercial advice and support to the Australian & Global energy and resources sector including those transitioning to a new energies future.

MCC offers commercial strategy and advice on:

  • negotiation, due diligence and strategy;
  • project commercialisation and business development;
  • economic and market analysis;
  • project & risk management;
  • renewables & clean energy;
  • decarbonisation & sustainability.

We are a solution-based consulting business translating complex problems into simple solutions.