The National Electricity Market, Northwest Interconnected System, and the South West Interconnected System
Australia has three separate power grid systems. The largest of these is the electricity grid on the east coast, which supplies and distributes electricity to Queensland (Qld), New South Wales (NSW), the Australia Capital Territory (ACT), Victoria (Vic), South Australia (SQ) and Tasmania (Tas) (via the Basslink undersea power cable). This grid forms the National Electricity Market (NEM) and is one of the largest interconnected electricity networks in the world. It stretches more than 5,000km to enable trade of over $11 billion of electricity annually to almost 19 million end-use consumers. In addition to the NEM, Western Australia (WA) has a separate power grid, consisting of the North West Interconnected System (NWIS) and South West Interconnected System (SWIS). The third power grid system is in the Northern Territory (NT), which consists of three regulated networks and eight power stations owned by Territory Generation. In addition to these grids, approximately 2% of Australia’s population (~500,000 people) live in remote locations where they must supply and maintain their own electricity. For example, over 100,000 Indigenous people live in remote communities, where electricity is predominantly produced by diesel generators.
The NEM was created in 1995 and became fully operational in 1998. Since its establishment some states have chosen to privatise components: first Vic in 1995 and 1997, then SA in 1999, and NSW in 2008. Currently, Vic and SA networks are 100% privately owned, while Tas, WA, NT, and Qld electricity networks are 100% government-owned. Gas networks have also long served Australians, although gas networks were privatized in SA (1993), Vic (1997), WA (2000), and Qld (2006), while gas networks across NSW, Tas, and the ACT were privately developed.
Regulation and operation of the electricity grid systems in Australia are very complicated. The Australian Energy Market Commission maintains the Australian National Electricity Rules (NER) which are applicable to states and territories in the NEM. These rules are enforced by the Australian Energy Regulator, while NEM management is performed by the Australian Energy Market Operator (AEMO). The NT has adopted parts of the NER, with the commission subsequently enforcing these from July 2016. The NT is currently transitioning electricity network regulation from the Utilities Commission to the AER, while WA may also adopt sections of the NER in the future. Despite this complexity, on the whole, the electricity supply in Australia is very secure and seldom experiences large-scale outages outside of extreme weather events such as bushfires and floods. Regular reviews measure the dependability of supply, with the latest report demonstrating a generally high standard of network reliability. For example, average customers connected to central business district feeders experienced only 28 minutes without power on average in 2019.
Across all three grids, the interstate transmission network is extremely important in securing Australia’s electricity supply and traditionally has connected large power generators (such as coal-fired power stations) in distant areas to metropolitan locations. However, with the predicted closure of coal-fired generation, analysts note that stronger transmission networks are needed to move power interstate. To address this, companies and states will need to consider increasing the capacity of existing transmission interconnectors or high-voltage lines. The Australian Energy Market Operator’s recent update of the Integrated System Plan (ISP) estimated that at least 10,000km of new transmission lines were required in the eastern states to connect a nine-fold expansion of wind and solar farm capacity.
While Australia’s electricity grid is largely secure, reliable, and dependable, it faces significant challenges in decarbonization and integrating new supply and storage technologies. Although Australia has one of the highest uptakes of solar rooftop systems in the world, continuing the increase of domestic solar systems requires the transmission system to rapidly evolve from a one-way system (generator to consumer) to a two-way system. In addition, market failures continue to plague consumers. In 2022 Australia experienced an electricity crisis, which required the Federal Government to take unprecedented action suspending the electricity market. This market normally operates by managing bids from electricity generators at five-minute intervals. However, energy generators were ‘potentially gaming the system’, resulting in the usual costs of $50/megawatt hour soaring to $15,100/megawatt hour as generation was withdrawn from the market to drive up prices. Price caps were introduced by AEMO to stabilize the system, and the market resumed operation later that week. For many commentators, this crisis revealed serious flaws in the management of the NEM. In particular, the complex mix of owners and agencies overseeing the system has, according to many analysts, resulted in a major supply crisis, dramatically rising prices while causing delays in decarbonization.
Figure: Infographic demonstrating how domestic solar and storage presents challenges to existing electricity network systems. From Energy Networks Australia ‘Guide to Australia’s Energy Networks’, page 6.
Australia currently is a very high carbon emitter (14th in the world), much of which is produced through fossil fuel electricity generation. Projections indicate that the proportion of greenhouse gases emitted by the electricity sector is trending downwards, although not sufficiently fast enough to meet a 26-28% emissions reduction target set by the previous coalition (right-wing) federal government. Coal and gas continue to account for around 70% of electricity generation across Australia in 2021.
Image: Wikimedia image by Kai Tallungs, Australia electricity production by source. https://www.eia.gov/international/overview/world
The energy sector contributed to 33.6% of Australia’s total emissions in 2020, although this varies considerably by state. Queensland, which has the highest electricity emissions of any state, produced a State of the Environment Report in 2020 which noted that electricity-related emissions declined from 2010 to 2014. This decline was likely due to the impact of the carbon pricing mechanism introduced by the then Labor Federal Government alongside the rapid uptake of domestic solar systems. However, the carbon pricing mechanism was repealed with the change in Federal Government, and electricity-related emissions have steadily increased since 2015.
Figure: Clean Energy Australia Report, Clean Energy Council, page 11
The Australian Energy Market Operator’s Integrated System Plan has produced four scenarios for the electricity pathway to reach net zero emissions by 2050. The most likely of these scenarios still includes high-emitting electricity generation, with all coal-fired power plants not likely to have exited the market until 2043. However, the outcry about ongoing gas extraction, generation, and profiteering by gas companies, alongside investor activism is forcing the closure of coal-fired power plants and may rapidly bring forward these closures. Furthermore, Australia has already demonstrated that its electricity grid is capable of incorporating different types of energy input, with over 3.1 million solar power PV systems, more than 4.6 million small-scale renewable installations, 1.44 million solar, and heat pump water heaters, 424 wind systems and 20 hydro systems already integrated into the grid or distributed electricity systems. The main challenges for electricity decarbonization are the integration of variable and intermittent renewable generators into the system and the increasing capability to store renewably-generated electricity for later use. While Australia has historically dragged behind global action on decarbonizing its electricity system, strong support for a faster transition alongside established achievements in renewable energy integration may help it rapidly catch up in the future.
This Post was submitted by Climate Scorecard Australia Country Manager Robyn Gulliver