AEMO worries about ageing coal fleet and summer extremes, wants new tools

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AEMO concerned about reliability of thermal assets, saying multiple generator failures could put reliability at risk. And it wants a new standard put in place that recognises uncontrollable events.

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The Australian Energy Market Operator has issued a sobering warning for the coming summer, saying it has fears about the risk of “multiple” failures of ageing coal and gas plants in the fierce summer heat, and has pleaded for new tools and mechanisms that can help it manage the grid and keep the lights on.

In its annual Electricity Statement of Opportunities, an annual document that predicts in great detail the risks facing the grid, and the potential shortfalls and investment opportunities in this coming summer and over the next decade, AEMO says its biggest fear is the “deterioration of reliability of ageing thermal generators”, particularly in extreme summer heat.

Remarkably, in its 10-year forecast, AEMO predicts a breach of the country’s strict reliability protocols – to limit unserved energy to 0.002% of annual consumption – to just one state, Victoria, and in just one year, this coming summer. And it sees no need to trigger the new “reliability mechanism” on energy retailers in the next decade.

Still, AEMO is conscious that even those reliability protocols have been and will likely be met, there is no political tolerance for outages, and it fears what might happen as climate change imposes yet more impacts, extreme temperatures of 45°C or more, bushfires and multiple plant failures.

For this, it breaks tradition and uses the document as a push to be inferred with new powers, and to lament the lack of policy direction and development.

AEMO’s concern around Victoria this year  is largely because two major coal and gas units are out of service until mid-December, and AEMO is not confident they will return to service then and it worries that other units may also simultaneously trip in what it calls “tail risk” events.

It wants more tools at its disposal, and particularly to create a new reliability standard that will take into account these uncontrollable “tail-risk” events, rather than just a year average.

And, in what appears to be a growing sign of frustration, AEMO is urging for accelerated changes to the rules and mechanisms and investments needed for the future grid, rather than the planning and policy inertia that continues to prevail over the electricity market as the political energy warrior march on.

“At present, AEMO does not have the tools or mechanisms to enable cost effective access to sufficient resources for all hours of the year,” CEO Audrey Zibelman said in an accompanying statement.

“So we are forced to use more emergency actions that impose unnecessary risk and costs on consumers, just at a time where the goal is to pursue more cost-effective outcomes.”

For this summer, the concern is focused on Victoria, where the ageing infrastructure is creaking and delays in connections and construction of replacement plant – mostly wind and solar – and transmission, is leaving the state exposed.

AEMO notes that there is a 30% probability that Loy Yang A Unit 2 remains out of service all summer, and a 60% probability that Mortlake gas unit is also out all summer.

Based on those assumptions, AEMO estimates expected USE (unserved energy) in Victoria this summer is 0.0026% of annual consumption, which exceeds the reliability standard, which deems that 99.998 of electricity consumption should be guaranteed.

However, this estimate from AEMO does not assume that two gas units in South Australia at Torrens Island will continue operating, even though owner and operator AGL has said they will.

The worst case scenario is much worse than that – as the mainstream media made clear in its headlines: Victoria prone to blackouts as grid wilts and Summer blackout risk gets worse.

Indeed, if you assume the Torrens units are out, rather than in, that the two Victorian units don’t come back to service, and that demand is stretched by days of extreme heat, and that AEMO sits on its hands and makes no preparations, then there is a chance that up to 1.3 million people might go without power for up to four hours sometime over summer.

Of course, AEMO will do something. It will seek enough capacity in its reserve trader mechanism to meet nearly all eventualities, although it can’t promise there won’t be a repeat of these “tail risk” factors, such as the unexpected loss of even more generators, as happened last summer when more than 2,000MW of coal and gas were lost and up to 200,000 people lost power for a short time.

Throw in bushfires that could affect transmission lines and the ability to import power from other states, plus more demand from the expanded use of desalination units, and other rogue events, then things could go wrong, and the headlines will scream ever louder.

In the coming summer, the outlook is much better in South Australia, already well beyond 50 per cent share of wind and solar, as it is in NSW – at least for the next three years until the first unit of Liddell is due to close, and in later years as other units close.

Curiously, AEMO predicts that NSW could get close to breaking the reliability standards in about 10 years time, particularly because of the addition of electric vehicles, which it seems to see as a grid liability rather than a potential asset.

Even so, it is forecast to remain within Australia’s strict reliability standards, before any extra measures AEMO might make, or any other investment that might appear. Yet, the federal and state governments insist on an inquiry, manned by un-named people, to go with their nuclear inquiry and pro-coal protestations.

As for the tools that it needs, AEMO’s Zibelman says she wants a number of deliberate actions taken that address the challenges of the country’s ageing coal fleet and which meet the need for secure and dispatchable supply.

This includes redefining the reliability standard, so it can address some of the risks that will prevail in NSW, which may not breach the reliability standard but will still be at risk of considerable load shedding events.

It publishes this table to show how the reliability gap may look under its favoured standard, compared to the current one. Clearly, the AEMO preference would call for more investment and back-up, particularly in Victoria this year and in South Australia and NSW in the future.

But it also notes the huge pipeline of projects – mostly wind and solar and growing amounts of storage – that would help address unserved energy risks.

The report also highlights the much reduced risk of outages if AEMO’s proposed investments contained in the Integrated System Plan are put in place, along with the benefits of its “step change” scenario, which in this case means a higher uptake of distributed energy resources, such as rooftop PV along with battery and EVs (managed properly with suitable tariffs and incentives).

“We need to harness all the resources we have in the system, together with the opportunities that come with the technological advances occurring in the industry to meet current and future energy demands at the lowest cost possible,” she said.

Zibelman also wants new markets developed for essential services so AEMO can more efficiently pay suppliers for all resources required to maintain the reliability and security of the physical system.

And it wants critical upgrades and construction of interconnectors and transmission to be accelerated so existing and new supply resources can be better used. It notes, for instance, that for all the hype, Snowy 2.0 won’t add much to reliability without the construction of new transmission lines such as Hume, proposed by Transgrid.

AEMO also wants the ability to procure and operate a three-year strategic reserve to minimise the need to pay a premium for emergency power, which it is now doing on a yearly basis in what it calls a “reactive” response.

“At present, AEMO does not have the tools or mechanisms to enable cost effective access to sufficient resources for all hours of the year, so we are forced to use more emergency actions that impose unnecessary risk and costs on consumers, just at a time where the goal is to pursue more cost-effective outcomes,” Zibelman said.

 

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