AEMO Concludes that Renewables with Storage Are the Cheapest Replacement for Old Coal Plants

9th Aug 18

Cameron Quin

Written by Cameron Quin

Even though Australia still gets most of its electricity from coal, the existing power stations are decades old and approaching the end of their service life. Once this happens, affordable generation from coal is over because new power plants require capital expenditures. Old coal stations can deliver cheap electricity simply because developers recovered their investment decades ago – there are no loans to cover like in new projects.

An example of this is the Liddell coal power plant, owned and operated by AGL, one of the largest power companies in Australia. Its closure was announced in 2015 and confirmed in 2017, which will remove over 2,000 megawatts of coal power from the Australian grid. In spite of government efforts and pressure to keep the station operational, AGL have concluded that is does not make sense financially, and the Liddell station will be replaced with a combination of solar photovoltaics, wind turbines, natural gas turbines and energy storage.

The Australian Energy Market Operator (AEMO) carried out a large-scale study, analyzing the best options to manage the large number of coal plants reaching the end of their service life. Their conclusions indicate that the Liddell scenario will be repeated many times: new coal is not cost-effective, and the best option is a mix of renewables and storage, backed up by natural gas.

Renewable Energy Growth Predicted by AEMO

By the year 2040, most of Australia’s coal fleet will have reached the end of its service life, and the country will lose a yearly energy output of around 70 billion kilowatt-hours. The new generation capacity brought online must be capable of filling this gap, while covering the growth in power demand – AEMO estimates the additional output required by 2040 at 90 billion kWh.

After analysing multiple scenarios, AEMO concluded that the most cost-effective solution is a mix of energy resources with the following composition:

  • 28,000 MW of solar power
  • 10,500 MW of wind power
  • 90 million kWh of energy storage, with an aggregated power output of 17,000 MW
  • 500 MW of natural gas turbines

Note how natural gas only represents a small fraction of the new capacity required, serving as a flexible resource to complement energy storage. Although natural gas is a fossil fuel like coal, its emissions per kilowatt-hour are around 50% less, and it provides grid stabilisation services that are not possible with the inflexible output of coal stations.

The AEMO study also emphasises that many segments of the Australian electric network are weak, and must be upgraded to provide a reliable power supply. Grid enhancements could deliver savings of $1.2 billion to $2 billion in grid operating costs.

Modeling future energy scenarios is a complex task, since innovation is impossible to predict. However, when AEMO calculated the net present value of transitioning to renewable sources with storage, the economic benefit ranges from $8 to $27 billion. The addition of new renewable generation capacity could range from 14,000 to 48,000 MW, combined by 4,000 to 23,000 MW of energy storage.

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