Out-Law Analysis 2 min. read

What the draft AEMO plan means for Australia’s transmission network

The Australian energy market operator’s (AEMO) draft integrated systems plan for 2024 may not spell a major change from its 2022 plan in terms of actual transmission projects needed for the energy transition, but it does highlight the need to significantly speed up the timeline for the development of those projects.

The draft ISP (87-page / 2.82MB PDF), which was published last year, reiterates the need for the construction of 10,000km of new and upgraded transmission infrastructure in the National Electricity Market by 2050, with 50% of the proposed energy infrastructure required by 2030. This is on top of the additional 4,000km of transmission lines required in the South West Interconnected System to support increased demand in that market over the next 20 years.

This is all to support AEMO’s ‘step plan’ scenario which contemplates the tripling of large-scale renewable generation to 57GW by 2030, and its prediction that the coal industry will decline by approximately half of its current levels within the same timeframe. One thing is clear: the scale of change is enormous and the only way to support the scale of change is transmission.

The complexities of Australia’s electricity grid pose a significant challenge to its transition to net-zero, however.

Planning for transmission projects is largely in the hands of network service providers (NSPs) but even so, given the scale and speed highlighted in the draft ISP, contractors may anticipate an influx of projects to come online sooner than expected. While the number of projects presents a large opportunity, there are foreseeable challenges for contractors once those projects have begun.

Potential challenges for contractors on transmission projects

First and foremost among the hurdles that contractors are likely to face is social licence. This is becoming a growing issue for projects generally, however is a particular risk for transmission projects where the community has expressed concern about the visual and environmental impact of these projects.

While the initial community engagement for a project, including in relation to the proposed transmission route, will have been undertaken by the NSP, AEMO, and relevant government departments, ultimately the contractor’s involvement in the project will still need a much higher level of ongoing community engagement throughout the project than may have previously been needed. Ensuring that a social licence framework is adopted and taken into account in decision making as to the construction of a project will be critical to minimising project delays and cost overruns.

The Australian federal government recently accepted recommendations intended to improve community engagement on renewable energy generation, storage and transmission projects but it remains to be seen what implementation of these recommendations will look like.

Supply chain issues are another major challenge facing developers and contractors, not just within Australia but globally, as more markets look to accelerate their energy transition and bring a greater number of projects online. Uncertainty around securing the right materials and workers for a project carries a big risk for contractors as the traditional approach to procuring these projects transfers that risk onto the contractor, making them ultimately responsible for ensuring their supply chains are in place.

It may not be feasible for contractors on Australian transmission projects to be able to fully anticipate these issues and prepare accordingly because the timing of these projects and how they will be rolled out remains uncertain. Even so, one way to curtail these likely challenges is for contractors to start to secure supply chains as early as possible.

Contractors would also benefit from keeping a pool of talented workers to choose from, so that projects can run as smoothly as possible once begun. With a number of transmission projects in Australia covering large and very remote areas it is essential that, in order to avoid any delays, cost overruns or potential disputes with relevant stakeholders, contractors employ project managers who have the right skills and experience to coordinate such large-scale projects and see them through to completion.

Greater certainty from the government and NSPs around the actual timeline for transmission projects being rolled out is critical to the contractors who are watching those projects being able to manage challenges effectively.

Ultimately the expected boom in transmission projects needed to support the transition to a renewable energy future represents a significant opportunity for contractors and developers of generating assets alike.

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