2017 will be a big year for Australia's energy system: here's what to look out for | RenewEconomy

2017 will be a big year for Australia’s energy system: here’s what to look out for

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Our outdated energy market model is falling apart. Will 2017 be the year Australia sorts out its energy policy?

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The Conversation

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2017 is the year when many long-festering energy policy problems must be addressed. Our outdated energy market model is falling apart. The gas industry is lining its pockets at the expense of Australian industry. Climate policy is urgent, but controversial among key decision-makers. Our fossil fuel exports are under threat from global forces.

The objectives are clear: provide reliable, affordable and low-carbon energy services to households and business, and build a sustainable energy export sector.

The problem is that there is little agreement on how we interpret and frame these goals, let alone how to achieve them. Some see threat where others see opportunity. Powerful interests are keen to protect their investments. Meanwhile diverse competitors are emerging from many directions and consumers clamour for equity, rights, affordability and choice.

These debates are set in a context of Chief Scientist Alan Finkel’s review of the sector, a federal review of climate policy, and debate about extending the Renewable Energy Target.

Australian business is calling for certainty in energy and climate policy: that’s one thing they can’t be certain they’ll get this year. But there will be some useful groundwork.

Into the jungle

The energy and environment minister, Josh Frydenberg, has criticised state governments for introducing uncoordinated and overly aggressive renewable energy policies.

He is seeking “harmonisation”, which is code for capping growth of renewable energy, as he and his prime minister struggle to satisfy the rampant extreme right within their party.

But state governments know supporting renewable energy is a vote winner. The economics and climate pressures are shifting in favour of renewable energy.

The ACT’s “contracts for difference” auction approach to renewables has reduced risk for project proponents while delivering low-cost renewable energy projects additional to the RET, and delivering ambitious climate targets. Others are copying.

The problem for the minister is that the nature of the energy sector has changed from a centralised, top-down, slowly changing system dominated by big businesses, governments and large investments to a chaotic, decentralised, diverse and rapidly changing jungle.

Even if state governments could be brought into line, local governments, the private sector, households and community groups will pursue their agendas. Competitive democracy is at work.

So we may see a rethink of the design and operation of energy markets in 2017. Governments will focus on reliability, energy security, consumer rights and providing fair access for emerging competitors balanced by higher expectations.

Reliable supply

Debates in the wake of the Basslink failure and South Australia’s blackout suggest that few politicians, industry participants and commentators have a comprehensive understanding of the fundamentals of delivering reliable and secure energy services in a modern world.

But it’s not just about having enough well-maintained energy supply. We can now manage demand by using energy more efficiently, actively managing demand, and storing energy.

We can then use a mix of supply-side options to satisfy this demand. For instance, we can install storage in regional pumped hydro dams and at solar thermal generators. We can transport electricity via batteries in electric vehicles instead of power lines.

We must face new challenges, such as increasingly extreme weather events and bushfire risks from power lines, without disrupting consumers. And consumer rights must be protected when they may have equipment and services provided by multiple energy businesses.

So appliance manufacturers, distributed energy and storage providers will need to incorporate new features into their products and meet tougher performance standards, to play their part in maintaining system reliability and security.

In return, governments will have to open up access to the electricity market and encourage investment in a smarter, distributed energy system.

2017 is the year when a new framework for our electricity service system must be designed.

Reducing demand

Australian policymakers seem to have a blind spot on energy efficiency. Energy efficiency plays a key role in managing electricity demand. For example, energy efficiency didn’t appear to rate a mention following the South Australian blackout. The draft Finkel Review focuses on supplying electricity, mentioning energy efficiency ten times, but only in passing.

Yet the International Energy Agency describes energy efficiency as “the first fuel” – cutting demand is the same as building more supply, and cheaper. It could make the biggest contribution to cutting fossil fuel carbon emissions out to 2030.

Research by many groups such as Climateworks and Beyond Zero Emissions has shown that many energy efficiency measures actually save money while cutting carbon emissions, so have a “negative” carbon cost.

Despite ongoing analysis and adjustment, energy efficiency and demand management have not captured significant roles in the National Electricity Market. The National Electricity Objective, which sets the overall focus of the electricity market, focuses on the price of electricity that consumers pay, not the total cost of delivering energy services (which should include carbon). This undermines focus on actions that reduce the amount of energy needed.

Among the original 1992 draft objectives in the National Grid Management Protocol was:

To provide a framework for long-term least-cost solutions to meet future power supply demands including appropriate use of demand management

Our electricity market could have been a very different creature.

The National Energy Productivity Plan is a positive step forward. But it is poorly funded (A$18 million was allocated by COAG) and has vague governance. Yet it is supposed to deliver a large chunk of our 2030 emissions reduction target.

As with renewable energy, states and territories are filling the vacuum.

There is also emerging support for the concept of energy productivity. This goes beyond energy efficiency and aims to deliver more economic value from each unit of energy consumed. The Australian Association for Energy Productivity and Climateworks have published major reports on doubling energy productivity by 2030, while A2EP has worked with business to develop sector roadmaps and an “innovation scan”.

A much stronger focus on improving energy productivity may well be an outcome of the climate review. If so, it will play a significant role in reshaping our energy future. But it will require strong leadership, cultural change and policy intervention beyond past levels.

Keeping prices under control

Energy markets are failing to deliver on their objective of low prices, reliability and protection of the “long-term interests of consumers”. It is increasingly clear that emerging nimble technologies and business models are outflanking traditional structures. 2017 seems to be the year it is coming to a head.

Gas prices have been driven up by failure to manage impacts of a tripling of east coast gas demand from three Queensland LNG export plants. Industrial gas users are struggling to secure reasonably priced, long-term contracts.

The high gas prices and shortages at winter peak times have driven up electricity prices. In the wholesale electricity market, the highest bidder sets the price for all power stations.

So if that’s an expensive gas generator, all generators are paid handsome prices, regardless of how much it costs them to generate electricity. Over time, these prices flow over into electricity bills.

The solution for gas is not necessarily more gas supply. Decades of low gas prices have meant that Australian industry and households use gas very inefficiently, so there is substantial scope to save gas.

There is increasing potential to switch from gas to electricity and renewable fuels. Regional gas storage (or electricity storage) could reduce peak gas demand, reducing price spikes.

In any case, our gas industry seems to lack a social licence to increase gas production from coal seams, and we will need to cut fossil gas demand to meet our medium-term climate targets.

2017 is looking like a busy and challenging year across the energy sector.

Source: The Conversation. Reproduced with permission.

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15 Comments
  1. horsewhisperer 4 years ago

    “Australian policymakers seem to have a blind spot on energy efficiency. Energy efficiency plays a key role in managing electricity demand. For example, energy efficiency didn’t appear to rate a mention following the South Australian blackout.”

    Are you suggesting that the blackout would not have occurred with more energy efficiency?

    • solarguy 4 years ago

      No, he’s suggesting that energy storage would have been another source of supply in that scenario.

      • horsewhisperer 4 years ago

        Storage and energy efficiency are two different things, though …

        • solarguy 4 years ago

          That’s right but Alan wasn’t referring to energy efficientcy being storage, he meant storing energy made the grid more efficient, more up time, not wasting valuable kwhrs.

    • Peter F 4 years ago

      The blackout would not have occurred if
      a) AEMO had taken precautions and ordered another 100-200MW of local generation on line to leave space on the interconnects for contingencies. A practice that is common in North America and has now been adopted by AEMO
      b) if the backup at Quarantine station had connected as it was supposed to
      c) if 50-100MW of batteries had been available to bridge the gap while said Gas turbines ramped up
      d) More difficult but possible if 300MW of fast acting demand response had been available. The flexible demand is there the command and and control system is not.

      • horsewhisperer 4 years ago

        Okay – but none of those things relate to energy efficiency. Why should energy rate a mention following the SA blackout. Shouldn’t we be more concerned with security i.e. the things that you list above?

        • Matthew Wright 4 years ago

          Demand response is energy efficiency. ie if certain customers don’t need energy 24×7 and they’re willing to lose it at little cost as an alternative to spending up big on additional supply side hardware then that is efficient.

          • horsewhisperer 4 years ago

            Not in any conventional use of the term. Demand response is demand response. Energy efficiency is energy efficiency. Good try though.

      • Chris 4 years ago

        Voltage disturbances across the state (caused by the fallen pylons) had caused around 600MW of wind power to trip offline (as they are designed to do so), this then left the entire state of SA relying on 500mw of gas, and the rest via the interconnector. Considering demand was 1600MW at the time of failure, the interconnector tripped offline when loading on it reached the 950MW mark (only designed for 650MW). Your figures are significantly underestimated.

    • Chris Ford 4 years ago

      It’s possible that it wouldn’t have. Reduced load on the system means less load shedding required and/or less demand response required, reducing the chance of the whole network going down.

      • Ren Stimpy 4 years ago

        Yes agree. First, replace every incandescent and flouro light bulb in the state with an LED light bulb [….. LEDs use 17% of the power used by incandescent bulbs for the same luminescence, and LEDs use 30% of the power of flouros …..] in every home (there are 650,000 homes in SA), and every commercial, corporate, industrial and government / public building, and in all street lights. There’s at least 100 MW less load on the SA power grid at any given time, even daytime in the case of industrial buildings, commercial, corporate, government and all other office buildings.

        Next, air conditioning. Replace all old / inefficient ACs with new highly energy efficient ACs………………………etc. etc. etc.

        • Matthew Wright 4 years ago

          Totally agree. We can take air-cons out there from average COP of 2-2.5 upto >5 halving energy required for AC.

    • Ray Miller 4 years ago

      The significant issue relating to wide ranging and high levels of energy efficiency is a dramatic downward influence on the peak energy demand. What you get within the daily demand cycle is much lower and flatter and more predictable load on the network. Then if you also use smarts to work with demand management all your network contingency margins improve at a negative cost.
      I would also like to point out that not only how efficiently the end-use appliance is but also some of the technical specifications need to be addressed like power factor (in combination with energy efficiency). Poor Power Factor (PF) is significant as it increases the required network capacity, decreases the overload margins and costs everyone. (Australia has been asleep at the wheel on this one as well.)
      Would have the SA network back event still happen? Maybe but the odds would have improved against it with higher network capacity margins.

      • horsewhisperer 4 years ago

        No doubt EE changes load shapes and lowers peak demand. I am all the continued contribution of EE to reducing load and emissions. However given the (marginal) observed impact of EE to date, it’s ludicrous to relate it to the South Australia blackout.

  2. Greg Hudson 4 years ago

    ‘build a sustainable energy export sector’
    IMO this is a load of BS. Moving the production of CO2 offshore does no good to our air quality by exporting coal/gas. It also increases the price we have to pay for what gas we use at home. Who benefits from this export? 1. Chevron and others. 2. The Govt tyring to balance the budget. Anyone else ?

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