Getting to net zero is not going to be easy. Last week’s blackout in Spain and Portugal clearly demonstrates that.

Europe is at the forefront of the energy transition. Yet, on Monday last week, most of Spain and Portugal were in the dark after a number of events that ultimately led to the grid interconnection between Spain and France dropping out. This led to a ‘system black’ event in both Spain and Portugal, when their electricity networks collapsed. It is estimated that approximately 60 per cent of the population of 49 million lost power.

For many South Australians, the events in Spain and Portugal will have brought back memories of 28 September 2016, when South Australia lost its electricity supply, impacting approximately 850,000 customers. The total cost of the blackout in South Australia was estimated at $367 million.¹

South Australia is now leading the way

Almost a decade later, South Australia is leading the world in the energy transition. Renewable energy often generates more than 100% of South Australia’s power needs.

In 2017, South Australia famously installed what was then the largest lithium-ion battery in the world, the ‘Tesla big battery’, now known as the Hornsdale Power Reserve.²

Batteries have been described as the ‘swiss army knife’ of the energy system toolbox, as they can do various jobs, including:

-       frequency support, to help keep the energy system at a stable frequency of 50Hz

-       network support, to help stabilise the network in the event of an unforeseen outage

-       firming of renewable energy, due to the intermittency of wind and solar

Batteries will play a crucial role during the energy transition, but they can’t provide the long duration energy storage we need to get us through days or weeks of low renewable generation.

We need firm, dispatchable generation that can run for days or weeks. South Australia has recognised this and is now leading the way in developing policy that will support long duration firm capacity, including gas powered generation (GPG)

Options such as pumped hydro and compressed air storage are maturing but are many years away from being able to provide the long duration energy storage we need to support the entire grid. As the AEMO CEO recently said:

“Flexible gas-powered generation will remain the ultimate backstop in a high-renewable power system,”

“Gas, alongside batteries and pumped hydro, will enable higher renewable penetration and support reliability as coal-fired power stations retire.” ³

To put into perspective just how much storage we are going to need, it is worth considering how much energy is stored at the Iona Underground Gas Storage (UGS) facility, the biggest gas storage facility on the east coast, compared to the Victorian Big Battery, the biggest battery in the National Electricity Market (NEM).

The Iona UGS facility can store the energy equivalent of more than 15,000 Victorian Big Batteries.⁴ The Iona UGS facility provides essential energy storage during the cold Victorian winter, at precisely the same time as solar generation will be at its lowest. Other large gas storage facilities are in development and will help provide energy security for southern markets.

Maintaining the electricity system in a secure state involves more than making sure there is enough generation to support customer demand. Frequency, voltage, and system strength must all be carefully balanced to make sure the electricity system stays secure.   

We saw this clearly in South Australia last week.

While Spain and Portugal were experiencing a black system event, the Australian Energy Market Operator (AEMO) was quietly directing one of the largest gas power generators in South Australia to continue operating, despite wind and solar producing around 100% of South Australia’s generating needs. Why? To help keep the South Australian energy system secure.

In multiple market notices last week, AEMO advised that it was intervening to “maintain the power system in a secure operating state” and ensure that there was sufficient voltage control in the market.⁵

That is, despite there being plenty of wind and sun in South Australia last week, synchronous generation, in the form of gas powered generation, was still needed to keep the electricity system secure.

How do we get ready for the closure of coal?

The South Australian Government recognises that GPG will be needed for decades to come. However, the NEM lacks investment signals to encourage new investment in the long duration firm capacity that will support the energy system as coal retires.⁶

In late 2024 the South Australian Government announced the development of a Firm Energy Reliability Mechanism (FERM) to support the entry of firm generation capacity that is capable of being dispatched for a minimum of eight hours. GPG was specifically included in the scheme.

Similar to the support offered to renewable energy projects under the Capacity Investment Scheme (CIS), the FERM will provide eligible long duration firm capacity with underwriting support and alleviate the revenue uncertainty associated with long-term investment.

South Australia closed its last coal power station in 2016. During periods of low renewable generation, South Australia often imports low cost coal power from Victoria via the Heywood interconnector. As increasing volumes of renewable energy come online across the country and further coal power stations exit the system, other states will find themselves in a similar position to South Australia.

AEMO’s 2024 Integrated System Plan forecasts that the NEM will require 15GW of GPG by 2050. However, despite the need for significant investment in GPG, just 1GW of dispatchable GPG is currently expected to come online over the next 10 years.⁷ This highlights the extent of the challenge before us.

The review of the NEM wholesale market settings, being led by Dr Tim Nelson, provides the perfect opportunity to ensure that the market sends the right signals for investment in long duration firm capacity.

In a similar fashion to the CIS, which was designed in NSW as part of the NSW Energy Infrastructure Roadmap but quickly adopted in other states, the FERM provides an excellent blueprint for use in other jurisdictions and at the national level.

If we get the market settings right and unlock new gas supplies, our energy system will have all the tools it needs to get us smoothly to net zero.