AEMO wants 5 years’ warning on coal plant closures to fix “fundamental mismatch” in pace of energy transition

The Australian Energy Market Operator is calling for a longer heads up on coal plant closure and much shorter delivery times for crucial new electricity generation and grid stabilising resources, as it seeks to redress a “fundamental mismatch” between energy transition step changes and response.

In a rule change request submitted to the Australian Energy Market Commission (AEMC) on Friday, AEMO is proposing a suite of reforms to system security planning frameworks, to support the National Electricity Market’s (NEM) transition from big, baseload generation like coal to firmed renewables.

Among them, AEMO wants the owners of Australia’s remaining coal-fired generation plants to give five years’ notice of their closure date, instead of the current requirement of 3.5 years, to ensure there are sufficient resources to replace them.

“The risks of under procurement for system strength and inertia within the context of the transition are substantial and can obstruct the transition from progressing,” the rule change proposal says.

“There is a fundamental mismatch between the relatively short timeframes within which system step changes can become known … and the longer lead times within which approval … procurement and commissioning activities …can respond.

“Coal plant exit notice requirements are 3.5 years, but the RIT-T [Regulatory Investment Test for Transmission] process for system strength has taken more than three years to complete and the delivery and commissioning of new resources can take several more years beyond that.”

To remedy this, AEMO proposes extending the notice of closure outlook obligations in the National Energy Rules (NER) for relevant exiting plant to
five years to align with Network Support and Control Ancillary Services (NSCAS) gap declaration timeframes.

And to complement this, the market operator also proposes changes to the RIT-T framework to increase the speed and agility of system service procurement.

AEMO suggests this could be achieved by incentivising transmission network companies to take earlier action so that resources are committed by time of need. And it recommends regulatory processes are streamlined and tweaked to incentivise both network and non-network solutions to emerging needs, system conditions and technology capabilities.

As energy expert and former AEMC staffer Christiaan Zuur notes on LinkedIn, this is probably the “biggest bit” of AEMO’s rule change request, and “mirrors” the Nelson review’s proposal for a new system of contracts for bulk power, shaping and firming that would be known as the Electricity Security Entry Mechanism (ESEM).

“Not much detail as to what a ‘streamlined’ RIT-T for system services would look like, but its telling that the rule change request refers to ‘appropriately incentivis[ing] both network and non-network solutions’,” Zuur writes.

“Think syncon procurement vs [grid-forming battery energy storage system] provision – the latter can be delivered a lot faster than the former, although the tech is still new.”

Zuur says that the problem of “risk asymmetry” is something energy industry folk have been “banging on about” for years – probably since 2016, when Engie announced it was closing its Hazelwood coal plant in Victoria with just five months’ notice.

“A key point made by AEMO is that major step changes in the system can occur very quickly – think Hazelwood closure – much faster than the ability of the regulatory frameworks to deliver needed solutions,” Zuur writes.

“Put simply, when it comes to keeping the grid secure, the costs of going a little too late far outweigh the costs of going a little too early.”

The AEMC says it has not yet initiated the rule change request, but when it does it will publish a Consultation Paper to facilitate stakeholder consultation on the request. 

You can read AEMO’s proposal here.

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