The firming challenge – navigating Australia’s renewable energy transition

As Australia’s National Electricity Market (NEM) progresses on the path to decarbonisation, Marsden Jacob energy expert Andrew Campbell offers a visual understanding of how future firming requirements in each NEM region will vary over the coming years, and explores what this means for the future mix and role of storage (batteries and pumped hydro), gas power generation (GPG), and emerging technologies.

Australia’s National Electricity Market (NEM) is on a steep path to a lower carbon future. Much attention has been placed on both rolling out low-cost solar and wind (variable renewable energy or VRE), and the required firming of this generation to ensure a reliable system.  

Understanding the firming challenge 

Firming refers to the generation capacity needed when VRE can’t meet demand. This could come from: 

• Battery or pumped hydro storage. 
• Gas or coal generation. 
• Hydro (where available). 
• Interconnector flows from neighbouring states. 

The future level and mix of firming assets needed will depend on many issues, most notably the rate of demand growth, the development and mix of solar and wind generation, and the rate of coal generator closures.  A clear appreciation of how these issues will influence firming will be essential to the optimal development and operation of firming assets.

Introducing dispatchable demand – a visual insight 

To help our clients and partners understand the challenges and requirements of firming VRE, Marsden Jacob developed the concept of ‘Dispatchable Demand’, which provides a visualisation of these issues.

In each 5-minute period, we define a region’s Dispatchable Demand as ‘Demand (MW) minus VRE Generation (MW)’. When positive, this is the amount of demand that needs to be supplied by something other than VRE. When negative, this is the amount of surplus VRE generation that is available for either filling storage or flowing to another state. 

Figure 1 gives an example of Dispatchable Demand over two consecutive days in 2024 in South Australia. The top charts show the 5-minute profile of demand (orange) and VRE (blue), while the bottom charts show the corresponding Dispatchable Demand – VRE shortfall (blue) and VRE surplus (orange). 

If most VRE is to be used over time, a well-balanced system requires surplus energy generation (orange) to be moved to storage that can meet the demand not directly supplied by VRE (blue). 

Figure 1: The mismatch of VRE and demand and Dispatchable Demand MW

The daily pattern of the blue and orange energies allows the day-to-day firming requirements and challenges to be clearly visualised. However, it’s not just the volume that’s a challenge; it’s also the timing.

For example (and without accounting for storage cycle efficiency), if firming was to be provided by storage alone, 10 consecutive days of all blue energy followed by 10 consecutive days of all orange energy would require a level of storage that can store the 10 days of orange.

However, if these days had approximately equal amounts of orange energy one day and blue energy the next and so on, the level of storage needed would be about one tenth  that of the former scenario.

Firming outlook to 2050 under AEMO’s Step Change scenario 

Marsden Jacob applied this methodology to AEMO’s 2024 ISP Step Change scenario to estimate daily Dispatchable Demand profiles to 2050 across the four mainland NEM regions (VIC, NSW, QLD, SA). This scenario was chosen as AEMO presents this as the most likely NEM outlook.

The Y-axis on these graphs is similar to the bottom chart in Figure 1. However, in Figure 2, the daily level of the blue (firming demand) or orange (VRE surplus) energy is expressed as the average MW level over a 24-hour period.

Figure 2: AEMO 2024 Step Change scenario – daily Dispatchable Demand outlook 

A market suited for shallow and medium storage (1) would be expected to have the level of blue and orange daily energy somewhat uniform over each day of the year (accounting for the changes that occur over the transition). However, what we observe shows significant differences between seasons and regions.

Seasonal variation is critical 

The seasonal differences between NEM regions are significant, with the greatest challenges being in the winter period:

• In New South Wales and Victoria, the summer/high solar seasons have a high level of VRE available for storage (orange energy) exceeding the level of firming generation needed (blue energy), while in the winter/low solar seasons this is reversed. 
• South Australia is initially better balanced than Victoria and NSW but ends up with a high level of surplus VRE by 2050. Detailed analysis shows most of this surplus coincides with the times Victoria and NSW have surplus VRE. 
• By contrast, Queensland sees substantial VRE surpluses year-round, making it a likely exporter of energy, noting that this is constrained by the daily profile of the surplus and transmission limitations.

Implications for firming technology choice  

The requirements of firming are complex and will change over time. This will influence firming technology options and economics: 

• The firming needed includes assets capable of providing both capacity (to supply high demand) and energy (when the daily blue energy is consistently higher than the daily orange energy).  
• GPG technology is capable but brings emissions/cost trade-offs. 
• Clean, sustainable technologies will be required to close the remaining gap.  

Spot market impacts 

Winter may become the period of highest price volatility (particularly in the southern states) and peak pricing due to persistent firming challenges. 

Firm contracts remain essential 

Beyond physical supply, firm contracts (currently across deep storage and GPG) remain vital to support the risk management of wholesale energy buyers, such as retailers.  

The opportunity for dispatchable technologies 

Figure 2 also indicates that the net zero 2050 target provides the opportunity for zero emissions dispatchable generation facilities. These can address firming requirements and firm contract provision that cannot be met by shallow or medium storage.  This may likely include new ‘clean’ technologies that are emerging. 

Informing investment in a complex future 

Our analysis shows that the needs of a future NEM will be highly dynamic and regionally varied. Nuanced insights such as those provided here offer invaluable transparency, which is essential to understanding the complexities of the evolving NEM and when interpretating detailed NEM market modelling for smarter investment decision-making.  

With deep industry expertise and sophisticated modelling capability, the Marsden Jacob energy team specialises in detailed 5-minute and 30-minute NEM market modelling that addresses the complexity of the evolving NEM and accounts for transmission constraints, weather variability and market behaviour. Our work helps clients and partners answer pressing questions such as: 

• What is the optimal mix and economics of firming assets over time? 
• How will seasonality impact storage economics? 
• What are the greatest investment opportunities for emerging dispatchable technologies? 
• What role should transmission expansion play?  

Let’s talk 

The path to net zero is not simply about building more renewables – it's about building the right mix of assets to ensure reliability, affordability and emissions reduction. 

If you're exploring investment opportunities or planning energy policy, Marsden Jacob can help you cut through the complexity. 

Reach out to Andrew or learn more about our energy capabilities and expertise at marsdenjacob.com.au 

(1) AEMO classify storage assets based on the hours of storage as follows: CER Storage as about 2 hours, Shallow storage as less than 4 hours, Medium storage as 4 to 12 hours, Deep storage as more than 12 hours.