2020 Electricity Statement of Opportunities August 2020 A report for the National Electricity Market Important notice PURPOSE AEMO publishes the National Electricity Market Electricity Statement of Opportunities under clause 3.13.3A of the National Electricity Rules. This publication has been prepared by AEMO using information available at 1 July 2020. Information made available after this date may have been included in this publication where practical. DISCLAIMER AEMO has made every reasonable effort to ensure the quality of the information in this publication but cannot guarantee that information, forecasts and assumptions are accurate, complete or appropriate for your circumstances. This publication does not include all of the information that an investor, participant or potential participant in the National Electricity Market might require, and does not amount to a recommendation of any investment. Anyone proposing to use the information in this publication (which includes information and forecasts from third parties) should independently verify its accuracy, completeness and suitability for purpose, and obtain independent and specific advice from appropriate experts. Accordingly, to the maximum extent permitted by law, AEMO and its officers, employees and consultants involved in the preparation of this document: • make no representation or warranty, express or implied, as to the currency, accuracy, reliability or completeness of the information in this document; and • are not liable (whether by reason of negligence or otherwise) for any statements or representations in this document, or any omissions from it, or for any use or reliance on the information in it. © 2020 Australian Energy Market Operator Limited. The material in this publication may be used in accordance with the copyright permissions on AEMO’s website. Executive summary The Electricity Statement of Opportunities (ESOO) forecasts electricity supply reliability in the National Electricity Market (NEM) over a 10-year period to inform decisions by market participants, investors, and policy-makers. The ESOO includes a reliability forecast identifying any potential reliability gaps in the coming five years, as defined according to the Retailer Reliability Obligation (RRO)1. The final five years of the 10-year ESOO forecast provide an indicative forecast of any future material reliability gaps. Key findings The expected reliability outlook has improved for summer 2020-21 and across the five-year outlook, due to lower forecast peak demand (which includes the projected impacts of COVID-19 next summer), minor generation and transmission augmentations, and significant development of large-scale renewable resources. However, as a result of COVID-19 and other factors, the uncertainty range of this outlook has increased compared to previous years: • In summer 2020-21, expected unserved energy (USE) is not forecast to exceed the reliability standard2, nor to exceed the Interim Reliability Measure (IRM)3, in any NEM region. – Although expected USE in Victoria has declined substantially since the 2019 ESOO, some risks of load shedding remain, particularly if peak demands reach 10% probability of exceedance (POE)4 levels and coincide with low renewable generation, or prolonged generation or transmission outages reoccur. – Due to fire damage incurred on one of ElectraNet’s static VAR compensators in July 2020, the transfer capability between Victoria and South Australia will be reduced in both directions for the next 12 months, but is not expected to materially impact USE. – Delays in the commissioning of over 1,900 megawatts (MW) of variable renewable energy (VRE) expected to become operational in late 2020 would increase forecast USE in Victoria, although not to levels that would exceed the reliability standard. – AEMO will seek to mitigate these risks through the use of medium-notice and short-notice Reliability and Emergency Reserve Trader (RERT). – While COVID-19 has reduced peak demand and energy consumption expectations for the coming summer, it also creates a significant new uncertainty. The current forecast would require an update if recently observed sector impacts change prior to or during next summer. Furthermore, COVID-19 could cause delays in the return to service of generators on forced outages or defer maintenance 1 The RRO came into effect on 1 July 2019. For more information, see http://www.coagenergycouncil.gov.au/publications/retailer-reliability-obligation-rules. 2 The reliability standard specifies that expected USE should not exceed 0.002% of total energy consumption in any region in any financial year. 3 The IRM is a new interim reliability measure, agreed to at the March 2020 COAG Energy Council and introduced by the National Electricity Rules (Interim Reliability Measure) Rule 2020, that sets a maximum expected USE of no more than 0.0006% in any region in any financial year. It is intended to supplement the existing reliability standard for a limited period of time and allows AEMO to procure reserves if the ESOO reports that this measure is expected to be exceeded. The proposed National Electricity Rules (RRO trigger) Rule 2020 would also allow the RRO to be triggered by a forecast exceedance of the IRM. AEMO has prepared the reliability forecast against the existing 0.002% reliability standard and against the IRM of 0.0006%. For more information, see the ESB website at http://www.coagenergycouncil.gov.au/reliability-and-security-measures/interim-reliability-measures. 4 POE is the probability a forecast will be met or exceeded. The 10% POE forecast is mathematically expected to be met or exceeded once in 10 years and represents demand under more extreme weather conditions than a 50% POE forecast. © AEMO 2020 | 2020 Electricity Statement of Opportunities 3 required for summer readiness. AEMO continues to carefully monitor COVID-19’s impacts as the situation evolves, and will issue an ESOO update should circumstances change materially. • Beyond next summer: – New South Wales’ reliability outlook after the Liddell Power Station retires has improved since the 2019 ESOO, as a result of the committed augmentation of the Queensland to New South Wales Interconnector (QNI) in 2022-23 and the development of local new renewable generation (900 MW). Absent additional investment, the region is forecast to exceed the IRM from 2023-24 onwards, and to be vulnerable to the coincidence of high demands, generator outages, and low renewable generation until Snowy 2.0 is commissioned and transmission augmentations allow Snowy 2.0 to help meet peak demand. However, the reliability standard is not forecast to be exceeded until 2029-30. – From 2023-24 onwards, expected USE levels increase in New South Wales, and to a lesser extent in Victoria, as coal-fired generation is projected to become less reliable as plant ages. Forecast minimum operational (grid) demand is declining rapidly, in all NEM regions, due to increasing contributions of distributed photovoltaic (PV) generation5 to meet consumer demand in the daytime: • By 2025, all regions are expected to experience minimum operational demand in the daytime, not overnight. Expected reductions are most evident in Victoria and South Australia, and continue across the full 10-year forecasting horizon. • Declining minimum demand could lead to issues with managing voltage, system strength, and inertia. It is creating near-term operational and planning challenges for sustaining a reliable and secure power system that must be addressed6. • Effective market and regulatory arrangements that incentivise more demand during the middle of the day would help minimise the occurrence of these extreme minimum load conditions. Innovative solutions could include providers/aggregators of distributed energy resources (DER) offering services such as increased PV controllability, load flexibility, storage, and load shifting. • Urgent action is required to ensure all new distributed PV installations have suitable disturbance ride-through capabilities and emergency PV shedding capabilities to be enabled under rare circumstances as a last resort to maintain system security. AEMO is working with stakeholders to introduce these capabilities. A summer of unprecedented weather events, followed by the COVID-19 pandemic, demonstrates the need for increased vigilance in supporting the reliable delivery of affordable energy while taking necessary steps to increase system resilience to minimise disruptions for consumers and businesses: • While the 2020 ESOO analysis captures some climate change trends, the calculated USE excludes the impact of numerous climate hazards and other high impact lower probability (HILP) events that affect generation and transmission infrastructure. • Absent additional investment, resilience analysis highlights the risk of potentially catastrophic reliability outcomes in New South Wales if the conditions experienced during the bushfire activity of 4 January 2020 were to occur during a period of high demand after the retirement of Liddell. • AEMO is continuing to work with climate scientists, governments, industry, consumer groups and market bodies to ensure energy supply is protected from the effects of increasing frequency, extremity and scale of climate-induced weather events and other emerging threats. 5 Distributed PV includes rooftop systems and other smaller non-scheduled PV capacity. 6 AEMO is working with transmission network service providers (TNSPs) to consider the impact of declining minimum demand as part of existing