Briefing Note | September 2021
Renewable Energy Zones
The idea of creating Renewable Energy Zones (REZ) represents a major change in how the electricity grid may be developed in the 21st century. It marks a major shift towards more central planning and a more direct co-ordinating role for governments and their agencies.
The idea of REZs was first proposed by the Finkel Review in 2017 and was formalised by the Australian Energy Market Operator (AEMO) in its inaugural Integrated System Plan (ISP) in 2018.
The ISP identified 34 potential Renewable Energy Zones across the entire NEM region to host large scale expansion of renewable generation capacity. The zones were grouped into three types, prioritising those that could utilise existing transmission capacity and deliver the lowest cost to consumers.
The rationale behind creating REZs is that renewable generation optimises its performance based on access to wind and sun, and therefore will increasingly locate in more remote parts of the grid. The cost of connecting this generation could be reduced by sharing connection assets and transmission.
This approach requires active coordination between generators, and/or governments underwriting some transmission and connection costs to facilitate enough capacity in each REZ to warrant the connection investment.
The challenge with developing REZs is to avoid over-build or stranded transmission and/or under-utilisation of capacity. Different renewable projects in each REZ will have different returns, timeframe and risks. Co-ordinating their development to optimise transmission and connection investments is unlikely to be costless.
Each state government in the NEM is developing its own approach to building out REZs. In response, the Energy Security Board has released a set of principles that it hopes will guide REZ development in a consistent manner across the NEM.