Electricity supplies are forecast to fall short of demand within three years across Australia's eastern grid, unless new renewable energy and transmission capacity is urgently brought online, according to an official report.
In its latest 10-year outlook for the national electricity market, to be released today, the Australian Energy Market Operator (AEMO) warns of reliability "gaps" affecting New South Wales from 2025 and Victoria, Queensland and South Australia by the end of the decade.
The warning from the government agency follows a period of turmoil in the market, which has been buffeted by soaring coal and gas prices fuelled by Russia's invasion of Ukraine and higher-than-usual demand.
Central to the upheaval has also been a spate of coal-fired plant outages, which at one stage in June affected a quarter of the fleet in the eastern states.
AEMO said those supply pressures were likely to get worse in the coming years as five coal plants closed, taking with them 14 per cent of the National Energy Market's total capacity.
Further complicating matters is an expected surge in demand amid efforts to electrify big chunks of the economy, such as the transport industry.
Race on for new capacity
AEMO chief executive Daniel Westerman said that unless replacement capacity could be built in time, demand was forecast to periodically outstrip supply by 2025.
First hit would be NSW, where major energy retailer Origin has announced plans to close Australia's single biggest power station, Eraring, in the same year.
But Mr Westerman noted the shortfalls were forecast to spread to Victoria from 2028, Queensland from 2029 and South Australia by the beginning of next decade.
"The report reiterates the urgency of progressing generation, storage and transmission developments to maintain a secure, reliable and affordable supply of electricity to homes and businesses," Mr Westerman said.
"Forecast reliability gaps have emerged across NEM regions due to considerable coal and gas plant closures, along with insufficient new generation capacity commitments needed to offset higher electricity use.
"Without further investments, this will reduce generation supply and challenge the transmission network's capability to meet reliability standards and power system security needs."
To help plug the gap left by exiting coal and gas-fired generation, AEMO has called for governments and industry to urgently get on with building new renewable energy projects.
The agency said the projects, with a combined capacity of 3.4 gigawatts, or enough to power more than two million homes, would be crucial to keeping the lights on.
'Paying through the nose'
What's more, AEMO said there were five high-voltage transmission lines that needed to "progress as quickly as possible" to ensure the new green power could be delivered to where it was needed.
The Australian Industry Group, which represents major manufacturers, said the report was aimed at holding "ministers' and industry's feet to the fire".
Tennant Reed, the group's climate and energy director, acknowledged AEMO tended to err on the side of caution given its responsibility for maintaining the security of the grid.
Mr Reed said the report did not take into account some projects that were likely to be up and running within its timeframe.
But he said the size and the urgency of the task to replace retiring coal capacity was undeniable.
"We've got a lot of work to do to meet the existing timeframes," Mr Reed said.
"Ideally, we would be accelerating a lot of those timeframes because we are going to be paying through the nose for electricity and gas over the next few years because of the price of coal and natural gas in international markets.
"The faster we can make the transition to clean energy happen, the less of that Ukraine invasion premium we will be paying.
"But we have our work cut out for us just to deliver the existing timeframes, let alone to do the acceleration which would benefit us."
Transition at crunch point
The comments were backed by Matt Rennie, a partner at Brisbane-based energy consultancy Rennie.
Mr Rennie said the outlook from AEMO brought into sharp focus the extent of the changes up-ending the electricity system.
"The great energy transition that we've all been speaking about for the last 10 years is well and truly up and running," Mr Rennie said.
"We're now starting to understand what happens at the end of coal and asking ourselves the question about whether electrification is doable."
According to Mr Rennie, Australia faced three key obstacles in its efforts to build the green energy projects required to replace lost coal capacity.
The first was securing access to the materials needed to build the wind turbines, solar farms, and storage plants — along with the transmission lines — that would generate and transport the power.
A second was attracting the money required to pay for the once-in-a-lifetime construction boom.
Mr Rennie said the final challenge involved finding the workers who could do the job.
"The answer to the first question is yes, and the answer to the second question is yes," he said.
"But the third question is the most critical.
"Do we have enough men and women in hard hats and high-vis gear to be able to deliver this electrification that we're going to need to see in the next 10 to 15 years?
"We've never had a labour market which is more tight.
"Everyone is going through electrification at the same time and we're anticipating large shortages in the amount of labour that will be available to make this happen."
'No-one wins' from chaos
For Lisa Zembrodt, the director of energy markets at French conglomerate Schneider Electric, the tightness of the market as predicted by AEMO should be a call to action to governments.
Ms Zembrodt said a crucial missing piece of Australia's energy transition was an overarching policy that could guide everyone from a system run on fossil fuels to one powered by renewable sources.
"The situation is not as dire as what is put down in that [AEMO] base case," Ms Zembrodt said.
"But it is still a call for more supply to be put into the market.
"This is exactly why we need more renewable capacity, more storage and more demand optimisation as part of our plan forward.
"We can't delay the bringing in of new renewable capacity and storage."
Ms Zembrodt said there were few winners from chaotic energy markets.
"It's certainly very difficult for an economy to flourish when energy costs are exorbitant," she said.
"And it's, of course, very difficult on households as well which are the driving engine behind any economy."
