The Australian Energy Market Operator has sought to switch the debate about Australia’s energy future, saying it is critical to focus on dispatchable and flexible generation rather than baseload, and it wants to create a short-term “strategic reserve” and long-term changes to market design to ensure this need is met.
On Tuesday, in its annual Electricity Statement Of Opportunities, AEMO outlined some of the potential shortfalls in supply this summer and over the coming 10 years, with the focus on South Australia and Victoria this year, and in NSW in five years time.
On Wednesday, the full report that it supplied to the government over longer-term needs for dispatchable generation was also released, and it basically echoed the ESOO in its fundamental message: the electricity grid is changing rapidly and there is no point trying to stop it. What needs to be done is to embrace the new technology and ensure that all the right elements are in place to keep the lights on.
Its message on baseload generation is blunt: They are struggling to compete in the new environment and are not well suited to the changes taking place around them – their business model will be further challenged by the falling costs of their competitors, namely wind and solar.
A careful look at the ESOO report shows – with one exception – even the most extreme scenarios are unlikely to breach Australia’s strict reliability standards. Which is not to say that no power will be lost; meeting the standard of 99.998 per cent reliability does not mean 100 per cent, and AEMO points out that no grid can guarantee that.
The best thing to do is mitigate the risks. AEMO points out that new wind and solar plants can significantly reduce the risk of reliability risks, more so if they are coordinated under a national scheme.
Tellingly, it models a wind and solar penetration share of 45 per cent by 2030 (a level that the Coalition has deemed “reckless”) to underline that reliability can be enhanced. It notes there are 21GW of wind and solar projects in the pipeline and seeking connections. They are split about 50:50.
Note in the graph above how a coordinated, national renewable energy strategy can eliminate reserve shortfalls in Victoria and minimise them in NSW.
That is not the only component needed. Dispatchable generation is also required, and this could take many forms – large-scale battery storage, household storage linked in virtual power plants, demand management schemes (turning off appliances or reducing loads in exchange for payments) or new and existing fast response generation.
It could also come from pumped hydro facilities or flexible network capacity.
To ensure that all this is used, several things need to happen to ensure that capacity is available when needed.
In the first instance, it talks of a “strategic reserve” to overcome the potential problems in South Australia and Victoria in coming summers.
Much of this could be in demand response (Enernoc talked of meeting half of those needs at the Disruption and Energy conference in Sydney on Wednesday), while the rest could come from battery storage, or diesel generators that are not otherwise registered in the main market.
Over the longer term, AEMO wants a mechanism for a strategic reserve – or a version of it – to be a permanent fixture, citing initiatives in other countries faced with similar issues.
One suggested system is inviting capacity through a series of reverse auctions – as it is using in a trial for demand response to be in place this summer – and again the emphasis is on fast response. AEMO talks of costs of less than $50 million a year – that seems a pittance considered to the billions traded in the wholesale markets.
(To be sure, any such “capacity” payments need to be thought through carefully. WA has had a capacity mechanism for years, but it has proved to be a disaster, resulting in the construction of diesel generators that have never been switched on, at a total cost of $200 million a year to consumers.)
AEMO also wants long-term incentives in the main market, and plans to study the options that could combine Finkel’s recommended Generator Reliability Obligations, demand side markets and mandatory “day ahead” commitments.
AEMO also wants to do a full analysis of how much dispatch flexibility should be maintained in the NEM by region, and for the wider system.
This was one of the recommendations of the Finkel Review – it is likely to be a moveable feast and will evolve dramatically, along with the operator’s understanding of the dynamics of a system based around large-scale renewables, behind the meter technology, smart software and new business models.
Ultimately, the answer will not be inflexible baseload. As we have pointed out, baseload should not be confused with reliability, and AEMO’s report underlines this. It points to the increased risk of failure at times of extreme heat.
Most tellingly it says (our emphasis in bold):
“These dispatchable resources could consist of generation on the grid, storage, demand resources behind the meter, flexible demand, or flexible network capability. However, given the increasing variability on the power system, dispatchable resources that are more flexible in capability, such as starting and stopping, or ramping up and down quickly, will provide additional benefits.”
And for those wondering just how much synchronous generation will be needed in a future grid, AEMO is blunt and says it doesn’t know:
“Given the range of potential solutions, it is not possible to define a single fixed minimum level of synchronous generation that is required to maintain system security.”
But you can bet that it will be playing safe, as it has in recent months in South Australia where it has increased the number of gas-fired generators required to run at times of high wind penetration.
“AEMO, like every system operator in the world, targets a defined market reliability standard (NEM: 99.998%) and cannot promise or deliver 100% supply reliability.
“There are a number of variable factors that can, at one time or simultaneously, have an adverse impact on the power system and are outside AEMO’s control, such as major environmental events, bushfires or floods, and/or unplanned asset faults and failures.”
“Longer-term in the NEM, any number of events could eventuate,” it says, “including increased demand, additional generation plant retirements (probable given increasing variable generation undercuts high capacity dispatchable generation energy provision), or catastrophic failures of generation plant (possible given the age of some plant), or fuel shortages (such as the Mt Piper coal mine).
“For example, the retirement of an additional coal plant (modelled as 1,320MW) in NSW from 2023 could, without replacement, increase expected USE in NSW to 0.0054%, which would significantly exceed the current reliability standard.”