Power fix ‘urgent’ as grid teeters

Power Fix

Preventing power blackouts is becoming more difficult as cheaper but weather-dependent renewable power increasingly replaces coal power generation, endangering the security of supply in the national electricity market.

The rise of renewables is forcing the Australian Energy Market Operator to intervene more often to keep the lights on, either by ordering some generators – often renewables – to cut back output, or requesting others, typically gas plants, to come online even if they are more expensive to run.

This type of intervention was needed more than 250 times in 2019-20, compared with fewer than 20 times three years earlier.

Energy Security Board chairman Kerry Schott said the latest report card on the health of the National Electricity Market, to be released today, had exposed the fallout caused by the speed of the change. It also highlights the increased urgency of addressing the problem of keeping the power grid stable without the thermal plants that typically provide those services.

‘‘What we have in place now is no longer fit for purpose for the energy transition and beyond,’’ Dr Schott said as the board released its annual assessment of the NEM as well as its narrowed-down options for reforms to the energy market.

‘‘The Health of the NEM clearly shows the repercussions of rapid change in our electricity system and highlights the absolute urgency of addressing them.

‘‘It’s now time for tough, united decisions. If we keep kicking this further down the road, it’s going to cost us all more for electricity in the future.’’

The 2020 report ranked electricity supply security the area of the market with the gravest status of ‘‘critical’’, with no improvement from 2019. The outlook for electricity security is now ranked ‘‘moderate-critical’’ as low wholesale power prices make coal plants more likely to shut down before their rated end of life.

‘‘Power system security remains the biggest immediate challenge to the efficient operation of the market,’’ the ESB said.

‘‘As traditional assets age they will face cost pressures and will often be displaced by a mix of new resources in the market. In response, they may retire or operate differently, risking that some of the services they previously provided are no longer available throughout the normal operations of the market.’’

Still, having access to reliable and low-emission electricity supply is less of a worry, now rated moderate rather than critical as in 2019. The ESB still noted ‘‘some concerns’’ in NSW in 2023-24 after AGL Energy’s Liddell coal plant closes.

One option to address the perilous state of system security is an NEM-wide approach for investment schemes that some states have introduced to drive ‘‘firming’’ generation. Those gas and pumped-hydro plants would fill in the gaps between wind and solar, and provide essential services such as inertia and frequency control.

The possibility of using a state-based underwriting mechanism such as that controversially introduced by NSW late last year was foreshadowed by Dr Schott and AEMO’s then chief Audrey Zibelman at The Australian Financial Review Energy and Climate Summit in November.

Also under consideration is a potential operating reserve to ensure flexible and on-demand power supply when it is needed and a beefed-up Retailer Reliability Obligation that requires electricity retailers to guarantee they have enough generation available to meet peak demand from customers.

The ESB has already ruled out a centralised auction process for generation capacity as part of its post-2025 redesign process for the NEM.

Still, majors such as Origin Energy and EnergyAustralia and customers such as BlueScope Steel have raised concerns that some potential reforms may add to costs, distort the market and increase uncertainty.

The ESB noted a wide range of views on what was needed to spur investment in capacity, from participants including Tesla, Snowy Hydro and Rio Tinto.

Mechanisms that give AEMO more confidence on what generation will be available are also included in the ESB’s latest ‘‘directions paper’’ on the redesign, as are moves to give energy users more ability to participate in the market by shifting usage to off-peak times. On transmission, measures are canvassed to ease the integration of increasingly popular renewable energy zones and to improve visibility about grid congestion.

Federal Energy Minister Angus Taylor described the redesign of the NEM as the most critical energy reform governments have been tasked to deliver by the national cabinet.

‘‘The NEM needs to adapt to address risks to reliability, security and affordability, particularly sudden, unexpected exits of thermal generators,’’ Mr Taylor said.

‘‘We need long-term signals for private sector investment in reliable generation and storage, to replace exiting generators with like-for-like capacity.’’

Dr Schott voiced concern about security problems in some parts of the grid and rising pressure on electricity distribution networks from surging rooftop solar generation.

‘‘This, combined with growing largescale renewable generation and low wholesale prices, means it is vital that post-2025 reforms are put in place that can work alongside government policy schemes,’’ she said.

Meanwhile, the scope of the reforms sought by the ESB has been narrowed, with the removal of measures tentatively proposed to deal with the closure of old coal plants, an issue that will now be handled within other measures to ensure the adequacy of generating resources.

At the same time, the rule-making body for the industry, the Australian Energy Market Commission, has called for feedback on two proposed rule changes – made by renewable generator Infigen Energy and coal power generator Delta Electricity – on the supply of generation reserves and other services.

AEMC acting chairwoman Merryn York said the changes were being considered alongside the broader reforms overseen by the ESB.

‘‘Our work on reliability and security is about making sure that the right energy supplies are available when and where they are needed and can meet demand,’’ said Ms York, who also sits on the ESB.

The ESB’s latest paper on the reforms follows extensive consultation with industry and other stakeholders and comes ahead of detailed market design proposals it will make to energy ministers in March, and final recommendations in mid-year.

Dr Schott called for market participants to come together now on the reform package after the hundreds of workshops and thousands of pages of submissions.

Source: Financial Review 5 Jan 2021

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