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What’s driving load growth in the NEM?

Electricity usage could grow significantly in Australia’s National Electricity Market (NEM) over the coming decades. This has major implications for the amount of renewable energy and storage that needs to be built, beyond just replacing retiring coal-fired power stations.

Based on AEMO’s 2024 Electricity Statement of Opportunities (ESOO), the NEM’s underlying electricity consumption is projected to reach 211 TWh in 2025, gradually increasing to 371 TWh by 2041 and 515 TWh by 2054 under the Central Scenario (see chart below). AEMO incorporates various factors into its forecast, including distributed solar PV, home battery adoption, electric vehicle (EV) uptake, green hydrogen development, and more.

The business sector (dark grey in chart) aggregates underlying electricity consumption from large industrial load (LIL), liquefied natural gas (LNG) and business mass market (BMM) sectors. While electrification and hydrogen production sector are generally part of the business sector, these are presented separately by AEMO.

The chart shows that electricity usage is expected to decline in the categories labelled as the business sector and the residential sector. This is largely due to offsets from rooftop PV and small non-scheduled generation. 2041 is a critical point in the forecast as it marks the last year when electricity demand from the residential sector remains positive. From 2042 onwards, demand from the residential sector is projected to turn negative, meaning that households would become a net exporter of electricity.

In the coming years, we are likely to see substantial load growth from a combination of hydrogen production, data centres, and electrification in transport, mining, and manufacturing industries.

Green Hydrogen

Green hydrogen is produced using a process called electrolysis where electricity is used to split water into oxygen and hydrogen. This is a nascent industry, but has potential to be a major consumer of electricity in the future.

Green hydrogen production in Australia is expected to ramp up in the early 2030s, supported by government initiatives like the $4 billion Hydrogen Headstart program. However, the recent cancellation of the hydrogen plant project in Whyalla by the South Australian Government highlights the ongoing uncertainty surrounding hydrogen project development in Australia. Despite the significant potential of green hydrogen, the scale and timing of production remain uncertain and difficult to predict.

Data Centres

The second growing industry is data centres, which are expanding alongside the increasing utilisation of artificial intelligence (AI) and 5G telecommunications in the business and government sectors. In Australia, as of 2024, there are at least 135 operational data centres, mostly located in major cities such as Sydney, Melbourne, and Brisbane. An additional 1.7 GW is expected to be added to the system when all planned and proposed projects are completed by 2029, according to the M3 Property Research Report.

Electric Vehicles

Another significant contributor to load growth in the NEM is electric vehicles (EVs). EV adoption is already increasing rapidly, as reflected by the rising number of EVs on the road. EVs now account for 9.5% of all new car sales in Australia according to the State of Electric Vehicles 2024 report published by the Electric Vehicle Council. Furthermore, AEMO’s 2024 Forecast Accuracy Report revealed that the actual number of EVs is nearly 30% higher than previously forecast.

Uptake of EVs is expected to continue accelerating in the years ahead. This is driven by the global expansion of the EV industry and supportive domestic policy measures such as the introduction of a New Vehicle Efficiency Standard (NVES) for light vehicles.

The combination of these factors suggests that the future electricity landscape could be more complex than what we’ve seen in the past. Energy Synapse specialises in modelling the electricity market and revenue from utility-scale renewable energy and storage projects. Our models take into account the changing dynamics in the grid, including load growth. Learn more about our services.

Author: Mohamad Afin Faisol, Analyst at Energy Synapse.

Why Queensland could lead the next clean energy boom

Australia’s National Electricity Market (NEM) is going through the biggest transformation in its history, as we move from fossil fuels to renewable energy. This has created a once-in-a-lifetime investment opportunity in the clean energy sector.

The Queensland market, in particular, has very strong fundamentals driving this transition. This article summarises five key takeaways for project developers and investors when considering the Queensland market.

1. State government leading the clean energy transition

Coal currently generates 70% of the state’s electricity (see chart below). However, under the Queensland Energy and Jobs Plan, the state plans to end its reliance on coal by 2035. The plan includes targets for 70% renewable energy by 2032 and 80% renewable energy by 2035. Achieving these targets will require a massive build in new renewable generation and storage capacity. However, it is not just about filling the gaps left by coal…

2. Strong load growth

Electricity usage could increase significantly due to electrification and green hydrogen over the medium to long term. Research by Energy Synapse shows Queensland as having the strongest opportunity for green hydrogen out of any NEM state. Additional renewables and storage will be needed to meet this growth in electricity demand.

3. Above NEM average volatility

Queensland has had some of the highest wholesale electricity prices over the last two years (see chart below). Energy Synapse modelling shows a high probability for continued above NEM average volatility over the next 10-15 years. This could provide a significant revenue ‘uplift’ for local assets.

4. Wind patterns are complementary to solar

The wholesale energy price changes every five minutes in the NEM. Prices change based on live grid conditions and the supply/demand balance. The chart below shows the average wholesale energy price throughout the day in Queensland during 2022.

Prices can vary significantly throughout the day, and hence it is critical for developers and investors to understand the “shape” of their power projects. Wind is particularly interesting in Queensland, because several regions have an intraday profile that is complementary to solar. This means that wind farms in these areas can mitigate the risk of low daytime prices, while taking advantage of higher prices on the solar shoulder period.

Large spreads in intraday wholesale electricity prices also create significant arbitrage opportunities for energy storage.

5. Data is king

Queensland has a development pipeline of 140 power projects totaling over 50 GW. However, these projects are far from equal. In fact, some may end up having returns 3X higher than others. High quality data and analytics is key to picking the most profitable clean energy opportunities. Learn more about how the Energy Synapse Platform can help. 

 
Author: Marija Petkovic, Founder & Managing Director of Energy Synapse
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