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MELBOURNE, June 15 (Reuters) - Eastern Australia's power grid will be stretched again if fierce heatwaves hit over the next two summers, despite recent government steps to beef up supply, the nation's electricty market operator said on Thursday.
The latest outlook from the Australian Energy Market Operator (AEMO) comes three months after it warned that Australia's most populous states face a gas shortfall from the end of 2018 that could spark power or gas cuts to homes and businesses.
That warning, a string of blackouts and soaring energy prices led the Australian government and states to step in to shore up supply, including restarting a mothballed gas-fired power plant, funding huge storage batteries and limiting gas exports.
"This latest analysis indicates there will be challenges that will need to be managed proactively on days of extreme conditions to maintain secure, reliable and affordable energy to Australian consumers," AEMO Chief Executive Audrey Zibelman said in a statement.
The AEMO said power supply should be adequate in normal summer weather, assuming 140 megawatts (MW) of energy storage backed by the South Australian and Victorian state governments is in place, there are no planned generator outages and three gas-fired generators return to service as promised.
The market will need more coal-fired power in the state of New South Wales, more renewable power and higher output from gas-fired generators to replace a 1,600 MW plant shut by France's Engie SA in neighbouring Victoria in March.
The grid would be most vulnerable in extreme heat on weekday afternoons and evenings when people switch on air conditioners, with the risk rising if the wind drops and the sun is down or other generation is disrupted at the same time, the AEMO said.
Gas supply for two power stations that are being resuscitated to stabilise the grid will be key to avoiding power cuts, the body said in its Energy Supply Outlook (ESO).
"The ESO analysis suggests gas supply remains tight, however, the latest industry projections of gas production are just sufficient to meet current projections of gas demand," the AEMO said.
Companies ranging from the world's biggest miners, BHP and Rio Tinto, to steelmakers and brickmakers have raised alarm over unstable power supplies and soaring prices, which are threatening jobs.
The AEMO's outlook comes on the heels of a call by Australia's chief scientist calling for the federal government to set a "fuel neutral" clean energy target that provides an incentive to build new generation to cap soaring power prices, cut carbon emissions and keep the lights on.
Reporting by Sonali Paul; Editing by Joseph Radford