By Sonali Paul
MELBOURNE, July 30 (Reuters) - Australia will need billions of dollars of new transmission lines tied to wind and solar farms and back-up power sources to keep the lights on as coal-fired plants shut over the next 20 years, the nation's energy market operator said on Thursday.
Among projects yet to be approved, the Australian Energy Market Operator (AEMO) called for a new A$2.6 billion ($1.9 billion) link between Victoria and New South Wales, the two biggest power consuming states, and construction of the A$3.5 billion Marinus link between Victoria and the island state of Tasmania.
The grid links are needed to connect renewable energy zones, as well as large-scale batteries, pumped hydro projects and gas-fired plants to replace coal-fired generation due to close by 2040, the AEMO said in its Integrated System Plan (ISP).
"This will create a modern, efficient and resilient energy system that delivers A$11 billion in net market benefits weighted across the different ISP scenarios over the next two decades," AEMO Chief Executive Audrey Zibelman said in a statement.
The benefits of having the right links include lower fuel costs, less need for new generation and lower maintenance costs, says AEMO - which runs the country's largest electricity and natural gas markets.
The market operator faces the complex challenge of how to manage the grid with weather-dependent renewables and flexible power sources as the coal plants shut, while households turn to roof-top solar, batteries and electric vehicles.
Nearly two-thirds of coal-fired capacity in the National Electricity Market, which serves most of Australia, is due to close by 2040.
The Australian government is already backing some new grid links and power projects and building the Snowy 2.0 pumped hydro project, but warned against too much new transmission capacity.
"It is critical to avoid over investment and 'gold plating' of the network, because it is consumers who have to pay for this as part of their electricity bills," Energy Minister Angus Taylor said in a statement.
($1 = 1.3930 Australian dollars)