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Tesla, Zen, Lyon slam S.A. energy security target as industrial “relic”

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Tesla, the US phenomenon that is building the world’s biggest lithium-ion battery storage installation in South Australia, has slammed the state government’s proposed energy security target, saying it provides perverse incentives that favour gas over new technologies and is a “relic” of the past.

Tesla is not the only battery storage manufacturer to be unimpressed with the proposals designed by Danny Price from Frontier Economics. All complained it was designed to favour and deliver potential windfalls to incumbent gas plants over new technologies such as battery storage.

Tesla, however, said South Australia risked losing its leadership on renewable energy by supporting legislation that favoured technology relics. It compared the preferences to choosing paper records over digital files.

“We do not feel that the draft Regulations and supporting consultation paper are representative of the current South Australian position as leaders and innovators in the renewable energy space,” Tesla wrote.

“The Regulations support incumbent gas generation assets that are neither low-emissions, nor capable of providing a long-term flexible technical solution to South Australian grid frequency excursions.”

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The submission – written in May – takes the sheen off the apparent “bromance” between Tesla founder Elon Musk and South Australian Premier Jay Weatherill, on display at last month’s announcement of the battery installation to be built at the Hornsdale wind farm in Jamestown, which will provide essential grid services and peak supply.

The Tesla submission says the EST proposals designed by Frontier Economics favoured only one incumbent technology (gas), and assumed that kinetic inertia was the only way to manage frequency excursions in South Australia.

“International evidence shows synthetic inertia provides improved network reliance, and it can provide a superior option for South Australia,” it says. (We go into more detail of Tesla’s explanation here).
Tesla’s thoughts were echoed by Zen Energy, chaired by Professor Ross Garnaut, which said the draft legislation provided perverse incentives and would entrench the profits of incumbent gas generators, without incentivising them to increase their availability in the market.

“Our general view is that the Energy Security Target, as framed in the discussion paper, has laudable aims but is unlikely to deliver the broad outcomes desired for two reasons: it offers perverse incentives, and fails to incentivise certain technologies that are likely to deliver system security at lowest cost.”

Lyon Group, which plans two of the world’s biggest battery storage installations – much bigger than the contracted Tesla installation, says the legislation “creates a significant regulatory barrier to technologies available now or in the future that could provide energy security in South Australia.”

The energy security target was one of the centerpiece announcements of the energy security plan drawn up by the state government after the load-shedding fiasco that hit the state in early February.

Of these proposals, it seems that only the battery storage installation is going ahead as planned. That will be up and running by December, while the state government’s plans for a new gas generator have been modified.

The state has approved a lease for temporary diesel generators to be used this summer and next, but has taken only an option over making those plants permanent and gas-fired, possibly to see the impact of the demand response initiative being put together by AEMO and ARENA.

The energy security target, which sought to lift the amount of local, dispatchable generation from 36 per cent to 50 per cent by 2025, has already been delayed by at least six months, with accusations that the design has been rushed, not properly thought out, could discriminate against new technologies and cause prices to rise.

Opposition to the EST, particularly from battery storage manufacturers, emerged quickly because of fears it  favoured gas generators, and it was clear that the state government would have to rethink its position.

Tesla said that far from being technology agnostic, the proposed EST would lock in a single solution until 2030, impose barriers on innovation by excluding rapidly evolving fast response technologies ( such as battery storage), and would not improve the dispatchability of South Australia’s large penetration of wind generation.

It also criticised the regulations for having no technical guidelines and for the “extremely short consultation period” that will deny a number of South Australian market participants the opportunity to provide a response.

Zen Energy’s criticism was equally withering, saying the state could find itself “in the unique position of having the RET to disincentivise new gas, and the EST to disincentivise renewables. This turns the death spiral of thermal generation into a double death spiral,” it said.

SolarReserve, the company which proposed Australia’s first solar tower with molten salt storage near Port Augusta, said the design of the scheme would allow gas generators to increase output at times of low demand, and throttle back at times of high demand, causing significant price swings.

In fact, it was difficult to find any submission that supported the target. The Australian Energy Market Operator urged caution, suggesting the descriptions didn’t seem to recognise that some wind farms and inverter technologies can provide levels of “real inertia” and “fault current”, and some gas plants had very little capability.

It suggested that the EST might only be “temporary” because of the rapidly evolving nature of technologies and grid management.

Of the more established retailers and generators, Momentum Energy, owned by Hydro Tasmania, said the EST, as designed by Frontier Economics, would “lead to windfall profits for the incumbent generators for no benefit and compound the price increases being felt by South Australian consumers.”

Even the owners of those gas incumbent generators – such as AGL and Origin – had reservations, although obviously not for the above reasons.

AGL was concerned that it appeared prescriptive by defining “real inertia” – it’s also interested in battery storage – and both it and Origin suggested the legislation was being rushed and was not clear. Alinta, which owned the now closed Northern coal generator, agreed and said the scheme, as designed, could add $100 a year to consumer bills.

Little wonder, then, that the South Australian government chose to defer the implementation of the EST until January 1, ostensibly to see what happens to the federal government’s proposed clean energy target.

The general principle behind the EST is good, most submissions acknowledged.

South Australia, as it hurtles towards 60 per cent wind and solar and beyond, with one 200MW solar farm and three new wind farms to be completed in the next 18 months, will need to integrate more storage and have a plan, and proper market signals – or an over-riding vision provided by the likes of AEMO.

But it clearly needs more work.  

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  • DevMac

    Frontier Economics seem to be front and centre for a number of “leaning towards gas” or “leaning away from renewables” recommendations.

    This may be unfair to Frontier, however, as one of the fundamental problems with economics theory is that it relies heavily on history, which means it’s biased towards maintaining the status quo. The very idea of doing economics research is to minimise risk, and anything not already entrenched is considered “new” and “unknown” in comparison to long-term existing situations.

    Any economic advice should be taken as very much on the conservative side of the ledger.

  • George Michaelson

    I’ve asked before here, if the intent is to offer current hardware a path out, to be re-purposed as condensers instead of generators. If so, demanding mechanical inertia might be a code for “bid for your ex-generator”

    Fear of the unknown often drives bad decision making. Synthetic inertia is not unknown, but its uncommon, and the state government might have felt exposed to too much innovation. Stronger signals on the cost for a given amount might help here. So, whats the conversion cost on an existing generator, to be a condenser, and whats the cost of the proposed new rotational energy plants, and whats the cost of synthetic inertia to the same volume?

  • Greg Hudson

    Who in their right mind would even consider the Frontier ”FF lobby group” (for lack of a better term) to provide any information at all. You would have to be insane to listen to anything they have to say. IMO all lobbyists should be banned. FE especially. Just my opinion.

    • Mike Westerman

      I’m not sure what evidence you have for saying that. I think Price’s comments re Snowy 2 for example were quite “anti-coal”. But that doesn’t mean that the thinking of economists should be accepted: the disaster that is the NEM is that because economists model on the basis that humans are not rapacious beasts unless strongly regulated, clearly a nonsense.

      • Jeremy C

        Don’t forget Churchill’s quip about economists:

        “Technicians on tap not on top”.

  • Mark Roest

    Great article!

  • howardpatr

    Sounds like SA is taking advice from the wrong people – the old brigade who for decades have so looked after after the incumbent generators and wholesalers.

  • Mike Westerman

    The Price recommendations seem to be a long term solution to what is likely a short term problem. Until there is enough very fast response on the system, the network will continue to rely on spinning inertia, so conservative engineering logically suggests incentives to encourage existing synchronous machines to make it available. The question then needs to be asked as to why the current market and AEMO directives can’t achieve what is required without an EST. IMO there is no evidence that the AEMO, having learned it’s lesson from the blackout/load shedding debacles, and under new management, cannot do what is needed without what could turn out to be perverse, long term distortions.

  • Cooma Doug

    This subject is complex. This document will create more questions and answers than you might expect. Please note that this document is 2016 and a work in progress.
    I believe you will see that a fossil fuel gen will not be a good investment as a syn con when the coal shuts down.

    https://www.aemo.com.au/-/media/Files/Electricity/NEM/Security_and_Reliability/Reports/2016-FPSS-Roadshow-presentation-3.pdf

  • Michael Harvey

    I don’t understand why South Australia had to be first for this battery.

    Denmark is the poster child for wind power generation.

    Why hasn’t Elon Musk built one there first ?

    What happens if this doesn’t work?