Baseload coal and peaking gas paradigm “no longer fit” for modern grid, says AEMO chief

Australia Energy Market Operator chief Daniel Westerman says the traditional combination of baseload power and peaking generation is no longer fit for the modern Australian grid, as cheap renewables backed by storage eat away at the markets once dominated by coal and gas.

In a speech at the AFR Energy and Climate Summit on Monday, Westerman said Australia’s National Electricity Market had been built on an operational paradigm from last century: Baseload coal power for steady consumption, and peaking generation – usually from gas – to meet short periods of high demand.

“But that formula is no longer fit for modern Australia,” he said. “The principle of a security constrained economic dispatch market, is that the lowest cost electricity is dispatched first.

“Today that lowest cost energy is renewable energy.

“Dependent on the weather, that renewable energy needs firming – the batteries, pumped hydro and flexible gas as the ultimate back-up – to support it when the sun and the wind across Australia are not.

“Australia’s operational paradigm is no longer ‘baseload-and-peaking’, but increasingly it’s a paradigm of ‘renewables-and-firming’.”

Westerman’s reminder that “soon … coal will be gone,” from Australia’s energy mix – just as it has recently exited the market in the UK – comes as the nation enters its final stretch of the transition to renewables, testing the nerve of policy makers unconvinced of a no-coal, no-baseload future.

But for the head of Australia’s electricity market, the future is clear – in fact, he’s even witnessed it in action, from the control room of the UK National Grid, near London, on the day that its last coal plant powered down and disconnected.

“When I spoke with operators, there was a sense of nostalgia,” he told the conference on Monday. “That it was the end of an era.

“But also a sense of confidence, since this was just one of many steps in the transformation of Britain’s energy system.

“In fact, Britain’s first day without coal was in 2017, during the time when I was responsible for operational control of the transmission system across England and Wales.”

Westerman’s point is that, while there are challenges to running modern energy grids on large amounts of highly flexible and at times unpredictable resources, it can be done – and is being done – with the help of existing transmission and storage technologies including increasingly clever big batteries.

“The Californian grid is an example where batteries are already playing a very meaningful role,” he said.

“In a grid roughly 1.5 times the capacity of the NEM and a similar proportion of renewable energy today, nearly 14 GW of battery storage has been installed over the past few years.

“When I was overlooking their control room in Sacremento a few weeks ago, their operations teams shared with me how successful these batteries are already in shifting energy from when the sun is shining to after it’s set.”

And Westerman stresses, once again, that what is urgently needed in Australia as it makes the final step away from coal is not more baseload – such as would be supplied by nuclear – but more transmission lines “connecting and flowing the least-cost power from renewable energy zones to the cities and towns where they live and work” and more storage.

“What will ensure the power system is secure, reliable and the lowest cost for consumers? In a nutshell: investment.

“Urgent and sustained investment. In generation. In storage. And in our networks.

“And collaboration across industry, governments, market bodies and the community is essential,” Westerman adds.

“There will be headwinds, and unexpected events on this rapid and complex transition.

“But I am confident that by working together, Australia can realise the opportunities of this energy transition.

“Through collaboration, and a laser-like focus on the interests of our most fundamental stakeholders: The families and businesses that depend on secure, reliable and affordable energy.”