Renewables are set to overtake coal and gas as Australia’s main source of electricity generation, according to analysis from Rystad Energy.

Australia’s demand for coal and gas for power has peaked, with solar and wind to overtake both fossil fuels for power generation by 2026, according to Rystad.

Over the next three years, coal and gas capacity is anticipated to shrink from a combined 39.1 gigawatts this year, to 35.3 GW, based on the Australian Energy Market Operator’s (AEMO) “Step Change” scenario.

Rystad claims gas-for-power demand has already peaked in Australia, at 15 billion cubic metres in 2017, and it expects that figure to dwindle to 6 Bcm by 2040.

However, the reduction in domestic gas demand could provide a boon for the nation’s liquefied natural gas export market, with Rystad noting Australia could look to international gas demand growth to absorb some of the domestic gas no longer needed.

Gas could also provide energy security for Australia, providing a “plan B” for electricity supply when the future renewables-dominated power mix falls short.

Surge in wind and solar

The rise in renewables is expected to see power generation from solar and wind in Australia grow from 26.4 GW this year to 41.4 GW by 2023.

While this would see installed capacity overtake coal and gas in 2023, Rystad noted that transmission limitations will prevent the green energy options from reaching urban centres and cities. According to Rystad, it will take another three years, until 2026, for solar and wind to fully overtake fossil fuels as Australia's main source of electricity.

“The challenge will be to successfully shift from a centralised grid to one that is inverter/weather-based,” Rystad senior analyst David Dixon said.

“Also, the lack of new transmission capacity is likely to be an obstacle. Most areas rich in solar and wind resources in Australia are located inland and far away from urban centers and cities. Currently, the transmission system is fixed from coal generators to the cities and is weak to areas inland.”

However, Rystad highlighted that Australia was already moving to improve its transmission infrastructure, with A$5.1 billion (US$3.7 billion) of capital expenditure committed for transmission-related projects towards 2025, the majority of which are in New South Wales.

Investment in storage

The increase in renewables in Australia’s power generation mix will also require an increase in energy storage to ensure stability of the grid.

As a result, Rystad anticipates the most mature form of energy storage, namely pumped storage, to increase from 1.4 GW in 2020 to 10 GW in 2040.

Rystad noted that pumped storage would likely be used to cover the long duration dips in wind and solar, while short-duration shifts will be covered by lithium-ion batteries.