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Who turned out the lights on Australia’s energy certainty?

February’s heatwave in eastern Australia raised more questions about the country’s energy mix and stability. South Australia’s (SA) power system spent more than 30 minutes in an insecure operating state, leaving more than 90,000 residents without power as temperatures reached 42 Celsius.

The outage was caused by many factors, such as higher-than-forecast demand, lower-than-forecast wind generation and reduced thermal generation capacity (gas-fired or diesel-generation units) due to forced outages.

" Our electricity sector needs to be flexible enough to accommodate innovation in a range of forms, while maintaining security, reliability and affordability."
Craig Shortus, Head of Utilities & Infrastructure, ANZ

It wasn’t on the same scale or nature as last year’s massive black-out but still renewed anxiety about security of supply.

The February shortage of available generation capacity forced electricity to be transferred from Victoria via the Murraylink and Heywood interconnectors. While it’s not unusual for this to occur, generators are not rewarded for maintaining capacity in the event of increased demand.

Despite an oversupply of generation in SA (SA has 5,157 MW of installed capacity, whilst a total of 3,046MW was only available during the interruption), the market is unable to dispatch enough electricity to meet demand. Blackouts have cost electricity distributors millions in compensation payments.

This situation - combined with recent similar threats to New South Wales’ energy supply, which is more reliant on fossil fuels, creates questions around what the energy sector can do to create secure supply and a sustainable business model. 

SHAPING THE SECTOR

So what is the solution? New technologies will play a key role in the energy market and are transforming it in unprecedented ways.

Recent advances include low-emission electricity generation technologies, distributed energy sources, digital metering, rooftop solar PV, battery storage systems, electric vehicles, and software for peer-to-peer electricity trading.

There are inevitable challenges when integrating technologies and services into existing markets and regulatory arrangements must be properly managed to avoid adverse outcomes.

Our electricity sector needs to be flexible enough to accommodate innovation in a range of forms, while maintaining security, reliability and affordability.

The Federal government’s Renewable Energy Target (RET) will lead to expansion in intermittent generation such as solar and wind. However, it’s also important to consider if Australia has enough baseload generation from other sources such as coal, hydro and gas to provide supply security and affordability.

This is a particularly important consideration for SA, given two recent coal-fired plant closures, and Victoria where an additional plant is due to close by the end of March.

GENERATION MIX

As the generation mix changes across the National Electricity Market (NEM), similar risks to those faced by SA may impact the security of all five NEM regions. The NEM is designed as an energy only market in which generators are paid for selling electricity.

Wind and solar are disrupting the business models of thermal generators but are not currently configured to replace the ancillary services thermal generators provide.

Technical integration solutions such as the installation of inverters and the use of variable-speed generators can be adopted to overcome this challenge.

The Australian Energy Market Operator (AEMO), an independent body tasked with managing Australia’s gas and electricity markets, is partly owned by the government and by market participants. It’s not under the control of the federal or state governments – unless in emergency situations.

SA’s Premier was recently critical of the AEMO for not ordering the gas-fired Pelican Point plant to start operating earlier to avoid rolling blackouts.

It’s important AMEO’s board, which includes former and current employees of electricity companies, works collaboratively with the government to mitigate supply risks.

ENERGY POLICY

The government has many considerations to make when looking to solve the supply challenge. This includes integrating energy policy with climate change policy to deliver secure and affordable energy whilst achieving emission reductions.

The government must also ensure policy stability to encourage investment, which is necessary as investments in the sector are long-term in nature and have stalled.

Investors have become less responsive due to the numerous RET reviews and uncertainty about policies to reduce emissions after 2020.

The right set of policies to support the development and implementation of grid connection codes is essential for successful integration of Variable Renewable Electricity (VRE) generators and for maintaining the security of the electricity system.

According to the International Energy Agency, with declining electricity demand and various incentives for renewable energy, most countries are seeing an increase in wind and solar installed capacity, which depresses wholesale energy prices.

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This reduces the annual load factor of conventional electricity generators still needed to maintain system security and complement variable renewables.

Renewable energy storage, such as batteries, provides an answer to the intermittency of renewable electricity generators addressing fluctuations in renewable energy generation over both seconds and hours.

They can enable households, communities and electricity grids to reach higher proportions of renewable electricity and reduce the need for reliance on back-up power from the grid powered by fossil fuels.

Coal generators are currently managing the load and intermittency of renewables. This function will become critical as more renewables connect to the grid, however this service is not cost reflective yet – something that will require regulatory change to ensure the NEM can support a new generation mix.

The country’s energy supply challenge is not an easy issue to solve and the debate will continue for many months. What is clear is the issue can’t be solved by any one party alone. Innovative solutions will be required from all levels of government as well as the sector.

Craig Shortus is Head of Utilities and Infrastructure at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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