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Finkel needs to cut through myths about “baseload” power

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Chief scientist Alan Finkel is widely expected to lay out various policy scenarios for Australia’s energy industry when he presents his report to COAG leaders on Friday, but perhaps the most profound impact of his report will be how it can shape the discussion of the future of the industry.

Australia’s energy policy has been bogged down by the idea that “baseload” power – from spinning turbines powered by burned fossil fuels – is the only source of cheap, reliable and dependable power.

Newly appointed Chief Scientist Dr Alan Finkel speaks to the media during a press conference at Parliament House in Canberra, Tuesday, Oct. 27, 2015. Dr Finkel will replace current Chief Scientist Professor Ian Chubb, whose appointment finishes at the end of the year. (AAP Image/Lukas Coch) NO ARCHIVING

This myth, propagated by industry incumbents, conservative ideologues and the just-don’t-knows, is one of several often rolled out in an attempt to demonise the impact of variable renewable energy sources such as wind and solar, and roll back ambitious emissions or renewable energy targets.

Finkel is likely to try to reset the discussion. He needs to.

His preliminary report gave a major taste of what he calls the “unstoppable transition” of our energy system that would be based around the consumer rather than centralised generation.

“It is the antithesis of the centralised energy model”, he said then. And he continued along this line in an appearance at a Senate Estimates committee last week.

Asked by Labor industry spokesman Kim Carr if his recommendations about the operations of the electricity system would include “base load” power, Finkel responded:

“I prefer to use the word ‘reliable’, but not because there is something intrinsically wrong with ‘base load’. The challenge is not the kind of power it is but can it be delivered when it is needed and securely?”

Senator KIM CARR: That is right.

Dr Finkel: The combination of reliable and secure means that you can operate the system for large industrial consumers and for everybody—

Senator KIM CARR: Will the aluminium industry look to your report with confidence in terms of security of supply?

Dr Finkel: Yes.

This is critical. We have seen in the past week the fears and misconceptions of Australia’s manufacturing industry about the issue of “baseload power”.

Bluescope Steel’s Paul O’Malley was on Radio National breakfast on Thursday morning arguing that a focus on emissions or renewable energy would amount to all jobs and industry leaving the country. “It’s really easy, if we don’t want jobs in Australia, let’s make emissions reduction a number one priority,” he said.

O’Malley said this at the same time as apparently embracing the “clean energy target”, that according to modelling commissioned by the Climate Change Authority would bring 70 per cent renewables by 2030, the same as other scenarios such as renewable energy target or government legislation.

(For the record, we think the modelling commissioned by the CCA is absolute rubbish. It is based on nonsensically high assumptions about the cost of wind and solar, and somehow imagines that geothermal energy will make a miraculous re-appearance and play a dominant role, or that solar will all but disappear after 2020. It even imagines new coal generation (unabated) after 2040. We pray that Finkel is producing his own modelling, based on some up to date assumptions about the cost of wind and solar, the cost of integration, and of gas).

The assumption that coal is the cheapest power source is being propagated by the likes of Tony Abbott, still influential within the large conservative rump in the Coalition. “Coal is by far the cheapest form of baseload power,” Abbott said on 2GB radio on Wednesday.

Not so, says Finkel. In that Senate estimates hearing he noted: “The actual cost of bringing on new coal in this country per megawatt-hour is projected to be substantially more expensive than the cost of bringing on wind or solar.”

And this leads to what will be an important argument from Finkel – away from the traditional idea of “base-load” coal to something like the “base-cost renewable concept” concept promoted by Michael Liebriech, from Bloomberg New Energy Finance.

“The new way of doing things will be about locking in as much locally available base-cost renewable power as possible, and then supplementing it with more expensive flexible capacity from demand response, storage and gas, and then importing the remaining needs from neighbouring grids,” Liebrich wrote in January.

He was pointing to the plunging cost of wind and solar across the world, to below $US30/MWh, and still falling. In Australia, wind is down to $A52/MWh, and solar close to $A70/MWh, and falling quickly. Both are well below the average cost of wholesale power set by the coal and gas generators.

“Putting super-cheap, “base-cost” renewable power at the heart of the world’s grids in this way will require a revolution in the way the electricity system is regulated,” Liebrich writes.

He says the current progress of renewables has been based around subsidising or mandating its installation, while forcing the rest of the system to provide flexibility, and this has taken renewable energy to 20,30, or 40 per cent in some markets.

“But it won’t work when it comes to 60, 70 per cent or higher. That would mean a smaller and smaller proportion of conventional power generation has to provide a larger and larger amount of flexible supply for which it was never designed.

“We are reaching the point in the story where power system regulation will have to be fundamentally rethought. Simply layering on a capacity market is the wrong response: creating guaranteed demand for obsolete technologies has never ended well.”

And that is the message that Finkel needs to make clear to federal and state policy makers, the energy industry, and the large energy consumers such as Bluescope, BHP and Glencore, all still attached to the notion of baseload coal, and to households.

Actually, the households get this, having produced a lot of their own electricity with rooftop solar, and now looking to store it. As the CSIRO, the network lobby, and the Australian Energy Market Operator have all pointed out, this will be the basis of the future grid.

If the CCA modelling is right, and the country is headed towards 70 per cent renewable energy by 2030, then the system has to be rethought.

The Clean Energy Finance Corporation had a go at this and produced this graph to illustrate how renewables will provide the “base cost” variable generation, supplemented by storage, and other balance of systems such as demand response.


baseload to smart gridSome of this dispatchable generation could come initially from gas peakers, or as AEMO boss Audrey Zibelman prefers, smarter and cheaper solutions such as demand management and energy efficiency.

Remember, it is the spiralling cost of gas peakers, and the bidding practices by their owners, that are responsible for Australia’s current surge in wholesale prices.

Changing the system, as Zibelman points out, requires a reset of market rules, let alone business models and fuel sources.

Liebreich had a go at this in a blog he wrote in May. He recommends clearly-defined, separate markets for variable power and dispatchable power. The delta between the variable and firm price is then the “Firm Spread” – the true value of dispatchability at key locations in that particular market.

This spread will be very low in any market that has not yet saturated in terms of variable renewables, and where there is a lot of existing flexibility at little or no incremental cost.

But it will rise rapidly in markets where there is so much solar and wind that the spot price for variable power is crashing to near-zero or even sub-zero at sunny/windy times, and where restricted operating hours drive the cost of flexible generators up.

It can be expected to drop again over time, as technological innovation – particularly in battery storage – makes firming cheaper and the premium for firm power is reduced.

“It is Firm Spread that is the motor needed to drive innovation in technologies with the potential to turn cheap variable power into affordable dispatchable power,” Liebriech writes.

It will be interesting to see what Finkel produces, because he is sure to touch on the issue of energy security and how dispatchable generation will be encouraged.

We can be sure that the overriding message will be clear: Australia needs to shift quickly to a smarter, cheaper, cleaner and more reliable grid. Baseload coal won’t just disappear overnight, but it has no long-term future in that scenario.

Note: Please read this explainer of a Low Emissions Target by the ANU’s Frank Jotzo. It is important to note that the benchmark for a LET, say of 600kgCO2/MWh is not necessarily a carbon intensity target. But that target – and the way the scheme is structured – will decide whether it is good policy or not.

  

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  • George Darroch

    Serious question – what does the graph on the left look like at 5pm on a cold still evening in June, when solar and wind are both at low levels of production?

    • Darren

      one would assume by 2030 and the rapid rate of tech advancement in both cells and storage, such as ANU’s cell able to harvest moonlight and Aiko’s improvements etc, that starts to become an irrelevent question and more about demand management as mentioned in the article.

      “Bifacial module energy yields have been reported to be as much as 50% higher than a like for like mono-facial module.”

      https://www.pv-tech.org/products/aiko-solar-launches-bifacial-solar-cell-with-front-side-cell-efficiency-of

    • solarguy

      George, mate there won’t be any solar generation at 5pm in June, unless your on the ISS, but that’s were storage comes in.

    • David Boxall

      The blue will be lower and the green thicker. That’s the point.

      On the left, we have the old. On the right, the new.

    • Roger Brown

      Well my little 3 kW solar system produced over 10 kWh today .

      • Tom

        Two weeks from the winter solstice?! That’s awesome!

        Where do you live? (Not your home address – just your region.)

        • Roger Brown

          Greenbank qld . North facing . Only got 5.8 kwh today, bit cloudy and light showers .

      • Great when the sun is shining. I have a 4kW solar PV system + solar hot water. We are now into our 3rd day of rain on the NSW mid North coast and at mid day today I have generated 0.3kWh. The previous 3 days averaged 4kW/h day. My average daily demand is 13kWh so clearly even with a reasonable size battery I cannot go off-grid without a bech-up gen set.

  • john

    As i see it in the present political climate the outcome will be that the Finkel Report will be given lip service then business as usual.
    Absolutely nothing will change from a policy point of view.
    In the real world what will happen is that more and more solar generation systems will be built and so will wind generators all of who will feed into the grid and feed local requirements.
    Do not be surprised to hear some minister grandstand and claim credit for these outcomes such is the nature of claiming credit as is the want of politicians.

  • Brunel

    Does baseload mean the electricity demand at 3 AM?

    Consider the word “load”.

  • Ian

    Base-cost is a good concept, where the lowest cost generator sets the pace, other dispatchable generators will have to fill in the gaps between generation and demand. Traditionally, before the advent of renewables, this is how the market worked anyway. Coal was the cheapest and, to be economical, was required to generate power no matter what load demand required. To match this generator profile, dispatchable generators were invented and load management techniques applied. Ideally, under that system, the amount of coal generation would match the most base or lowest load demand. As Brunel points out demand at 3am. Other generators like gas or hydro would be more dispatchable and could ramp up and down to handle the supply gaps as shown in the left graph of the diagram. Well, like it or not, wind and solar are the cheapest generators now, and other forms of generators will just have to play second fiddle in the band of generators.

    Cost is king, so toughen up or shut up. That should be Finkels strong point.

    Coal and gas are not so dispatchable, wind and solar are very curtailment (or ramp down) dispatchable and hydro is both ramp up and down dispatchable. To best accommodate a diverse grid, storage is needed at the place of generating electricity and at the consumption site. We may have come to the point where all generators be required to add storage, with the exception of hydro, which is already a form of storage and has rapid dispatchability. Coal needs storage to increase its dispatchability, so that it is not so inflexible, gas needs storage because its dispatchability has proven to be slow, and its standby function is extremely expensive – just like coal its best run continuously. Wind and solar generate opportunistically even if cheaply and need storage to make them more positively dispatchable. To be fair to all generators, all should be required to install storage on site, or at a major distribution hub. Every generator new or old fossil or renewable should be compelled to install storage. For starters 1MWH for each 1MW generating capacity.

  • Tom

    Just a thought on different markets for “variable” and “dispatchable” power:

    Maybe the rules can be changed so that prices bid can only change, say, once per day, rather than re-priced every 5 minutes. For example, sell bids at the next day must be entered by 8pm the previous night.

    “Variable” generation obviously cannot guarantee supply. Maybe the “dispatchable” generators, which should be able to guarantee supply, can be penalised if supply is called upon but not delivered (and delivered at the price bid for it at the start of the day).

    Wind and solar would be price-takers rather than price-setters – their “bid” at the start of the day might be $10/MWh, but they get paid up to whatever the highest accepted “dispatchable” bid is in each 5-minute window. If they are generating more than requirements (ie, if no “dispatchable” power is being bought), then the wholesale price will be $10/MWh, and either power can be wasted or demand management can kick in and charge home batteries or super-heat home hot water tanks cheaply. Concentrated solar thermal could even triple the size of their molten salt tanks and have electric elements heating them with surplus power in addition to the sun.

    Which wind/solar plants have their power not bought in a surplus situation is another question – maybe everyone in the state on the “variable” market takes an equivalent haircut.

    The “dispatchable” market would include gas (probably OCGT), batteries (domestic and large-scale), hydro, probably not coal as it is too slow, maybe CST if it can be started fast enough, and other things that I probably haven’t thought of.

    Clearly the “dispatchable” market would attract a higher price than the “variable” market (when it is required), but this would also raise the price paid to the “variable” generators for those 5-minutely intervals that the “dispatchable” generators are generating. The flip-side for entering the high-value “dispatchable” market is that you get fined (either a defined or market-difference value per MWh) for not meeting the obligations that you have offered and that have been called upon.

    The thing is, with two parallel markets, it would solve a lot of problems. Dispatchable generators wouldn’t feel as though they are “propping up” the variable generators by copping an ever-decreasing capacity factor. Variable generators wouldn’t need to be legislated to provide separate dispatchable storage to enter the market – as a separate market should produce this storage by market forces. The variable generators may indeed deem it profitable to install some dispatchable storage at their site of generation. It would also force dispatchable generators to improve their reliability – think of the Qld and NSW coal and gas generators last summer.

    I like it!

    • Chris Baker

      I think its a great idea. The parallel markets would encourage generators to become dispatchable, however that might be done. It would allow the market to come up with the best way to do it, rather than legislate for storage, as suggested by Ian.

      For example we see a tendency for wind generators to have lower specific power, that is smaller generator relative to rotor size. With a market to encourage it I think we would see this effect accelerated. This effect is similar to curtailment, and its easy to see how it might be useful if we look at an extreme case. By curtailing a wind plant to say 10% of its output, on a windy day it would be able to produce this output 100% of the time. And its output curve would have a flat top and look just like a baseload generator. So it becomes predictable, or dispatchable. It may be that curtailment or lower specific power generators would be a more economical way of offering dispatchable power from wind plant than providing storage. It could be that wind generators might bid some of their power into the dispatchable market, and some into the variable market. So, rather than curtail output, they might just “curtail” the price of the part of their output that is variable.

      • Tom

        What you suggest is both a solution and also a problem.

        Looking at what I wrote earlier – I got one thing wrong – I suggested that all variable and dispatchable generators get paid the same as the highest dispatchable bid per 5-minute block. That wouldn’t work – there would be no incentive to be dispatchable – all of the generators that actually are dispatchable would call themselves variable and generate the power anyway so they don’t get fined.

        So dispatchable generators need to be paid a premium. But the markets can’t be completely separate, or otherwise the variable generators would all be stuck on $10/MWh for all of the power that they ever produce. Maybe the dispatchable generators can get a 20% premium, or something like that?

        But you’ve highlighted a potential problem – the wind farms (or solar, or whoever else) who know that they will be producing a certain amount of power all day could with-hold power from the market to collectively bid up the prices on the dispatchable market.

        One way to potentially counter this is to allow every home battery owner to act as a “generator” on the dispatchable market. This probably wouldn’t mean the difference between a $60/MWh and an $80/MWh settlement, but it would probably help blunt/ avoid spikes over $150/MWh, as some houses with lots of panels and a medium battery would happily sell energy at 15cents/kWh during the day if they were confident they would not run their battery out and buy it back for more overnight.

        • Chris Baker

          Maybe this is what LGC’s could be repurposed for in a future market. They’ve done their job now by getting costs down for building new variable RE generators. Perhaps future LGC’s could be the premium needed for RE generators to become dispatchable. Otherwise the market could work as it does now. But for RE generators that get dispatched, they get LGC’s for that energy.

    • Ray Miller

      Tom, I disagree with “”Variable” generation obviously cannot guarantee supply”
      No it is not “obviously” to me. The variable generation is ‘predictable’ or at least with a high probability ranging from minutes to days, BoM this year have upgraded their Super computer and the weather forecasts are in many cases increasing in probability, with added and more geographic and technology distributed sources reduces variability. The renewable technology is a field sensor and maybe should be used by both as well. Yes AEMO need to lift their game in managing the variability and it even took the environment minister to send a BoM staff member to them. AEMO and BoM need to be very closely joined at the hip for AEMO to effectively manage the NEM in the new para dime.
      The thing I like about Alan Finkel is his ability to see and identify what the real problems are, which is really not obvious to most, especially the majority of our engineers and politicians.
      And yes we all need to be looking at the myriad of solutions starring us in the face and not be afraid to implement change.

      • Tom

        True, “variable” generation can almost guarantee a certain amount of supply one day in advance, but not one week in advance. And it certainly can’t respond to a request to add an extra 100MW in half an hour’s time please, hence is not dispatchable.

  • Joris75

    Variable renewables can only contribute to a least-cost electricity system if the power they produce costs less than the fuel cost savings of the stable generators they (sometimes) displace. In a fossil fuel dominated power grid, this only happens when renewables displace gas fired (peaking) plants. The fuel cost of a coal plant is so low that renewables cannot economically displace them. Hence, renewables can only contribute in a very limited way to a least-cost energy system.

    If Australia wants to transition to renewable energy, it has got to accept (much) higher electricity costs. If it doesn’t want to accept that, it should stick to coal or transition to nuclear power.