Energy consumers about to find out what it means to be “Negged”

Source: Pixabay

In the despicable world of pickup artists, there’s a term for a subtle, insulting comment meant to undermine the self-confidence of a woman so she might be more vulnerable to advances. It’s called a neg.

Now perhaps it’s too much to ask the government to run the new NEG (national emissions…, sorry national energy guarantee) past focus groups, given that the body that ostensibly devised it only met for the first time last month, but you could excuse the Australian public for feeling negged.

The Australian public loves renewable energy. As this week’s Essential Report shows, support for incentivising renewable energy outnumbers disapproval 74% to 10%, and in case you’re tempted to think support is tribal, the split for Coalition voters is 75% to 12%. Even a majority (52%) of Coalition voters support Labor’s commitment of a 50% renewable energy target for 2030.

An estimated 4.4 million Australians live under a solar roof and the rate of installations this year is blowing previous records out of the water — Australians buy solar panels every time electricity costs are in the news much the same way that Americans buy guns after massacres.

The Australian public has been ‘negged’ by the myth of blackouts. We have been repeatedly told, by media of all stripes, that we have a reliability problem. We don’t. Not even in South Australia.

The myth began when a series of tornados — tornados people! — took out three major transmission lines, setting off a cascading series of events that resulted in a blackout. Much of the more populous areas of the state came back online within 3–4 hours, but, spare a thought for the technicians working through impossible conditions to restore 23 downed pylons, there were significant parts of the state that had to wait for transmission towers to be replaced and wires restrung.

Thankfully, the engineers and economists who designed and operate our electricity system really know their stuff. It’s not well known that we pay a group of generators to stand-by, as System Restart Ancillary Services (SRAS), for eventualities like 28 September 2016.

One of the more interesting stories of that fateful day is that both SRAS providers in SA failed, and the state had to be ‘jump-started’ through the interconnector from Victoria.

(I imagine a young engineer proposing the plan, a la Apollo 13, with the silver-backs responding “It’s so crazy, it might just work”, followed by the Hollywood scenes of back slapping and cheering as the lights came back on suburb by suburb. Ron Howard, you can have that pitch for free.)

But haven’t there been a string of blackouts in SA? Apart from massive storm damage after Christmas (in the distribution network) there’s only been two incidents of ‘unserved energy’ in the past 12 months. The first was due to a transmission line failure in Victoria in the middle of the night last December and was resolved quickly.

But the other ‘major blackout’ shouted from the rooftops (everywhere but in SA) occurred on 8 February. On that hot afternoon, AEMO knew the wind was going to drop off and that gas generators would need to be ramped up.

AEMO screwed up their temperature forecast, ignoring much more accurate Bureau of Meteorology forecasts on the day, and at 3pm determined that SA would soon be short of reserve power.

AEMO scrambled to bring more generation on-line, but a sizeable portion of the fleet was variously unavailable through the afternoon due to communications system problems, unavailability of gas, ‘tube leaks’, inability to spin up in time or unable to work in such high ambient temperatures.

So much for gas being reliable — as New South Wales found out just two days later when a significant part of their ‘reliable’ fleet failed in the heatwave.

Gas generation being ‘reliable’ on 10 February 2017 in NSW. Source: Dylan McConnell, Energy Transition Hub

So, with a predicted shortfall of 100MW, or just 3 per cent of demand, and significant gas generation sitting idle, at 6:10pm AEMO instructed ElectraNet to switch off 100MW, or 30,000 homes. Due to a ‘glitch’ — which has received one-poofteenth as much attention as any other problem in the grid this year — ElectraNet accidentally turned off 90,000 homes. Inconvenient, undeniably, but AEMO directed Electranet to restore 100MW at 6:30pm and the remainder at 6:40pm.

Those mathematically minded might have just done the mental sums and noticed that the Tesla ‘megabattery’, or Big Banana as Scott Morrison would have it, would have been well capable of carrying the 100MW load for the 20–30 minutes of this ‘load shed’, and would still have most of its charge available.

But isn’t it true, as Virginia Trioli claimed when hosting QandA, that “we’re going to have blackouts” this summer? Perhaps we will — no doubt some major generators will fail in hot weather, or perhaps someone will drop a spanner into a switchyard a week before the SA election — but AEMO thinks the chance of ‘blackouts’ is relatively unlikely.

AEMO’s Electricity Statement of Opportunties, released last month, provides the warning that if we have a high-demand summer and if we don’t do the range of things that are already well underway, then in Victoria we might breach the reliability standard, expressed as ‘unserved energy’ (USE) by 0.00025 per cent.

The South Australian story is similar, 99.9975% reliability, but note that AEMO’s report explicitly excludes the measures being taken before summer to ensure we don’t see a repeat of the minor event from last February. (These measures include 1000MW of strategic reserves procured under AEMO’s long-standing Reliability and Emergency Reserve Trader mechanism.)

Some of the measures not considered in the Electricity Statement of Opportunities.

The fact is that Australia has one of the world’s most reliable electricity systems and part, but certainly not all, of the reason we’ve ‘gold plated’ our grid is because we demand that reliability. While the media and Canberra continue you bleat about reliability, keep in mind that even Dr Kerry Schott, alleged co-author of the NEG, has openly stated that we don’t have a crisis.

At this point, very little detail of the scheme exists — almost certainly because it hasn’t yet been written. But of what has been released, one clause is particularly concerning. As reported by The Australian:

If retailers can’t meet their emissions profile they can buy generation from the spot market which will be assigned an average emissions level, or buy Australian carbon credit units (ACCU) or international units.

The average emissions intensity factor of the NEM is 820 (kgCO₂-e/MWh), already below our black coal plants (919 for Queensland’s four ‘HELE’ plants and 1011 for the sub-critical plants) and well below the 1130–1410kg of the brown coal fleet in Victoria’s Latrobe Valley.

In 2016 electricity retailer ERM chose not to purchase renewable energy certificates but instead to pay a penalty for non-compliance. Will ERM have a change of heart and invest in renewables or will it free-ride on the back of others who have progressively brought down the emissions intensity of the highest emitting sector of our economy?

Or will they purchase ACCUs? Ponder this: ACCUs are a by-product of the government’s so-called Emissions Reduction Fund which, to give just one example, has provided 8.5 million certificates to a single company for equipment built before the ERF to capture gas as required by law and burn it for energy and LGC income. I lose count somewhere between double- and triple dipping.

Or will retailers simply buy international offsets to, at best, help transform and future-proof other economies?

So if we don’t have a reliability issue and if the scheme is compromised on an emissions front, how is it placed to reduce energy prices?

What’s been lost in this debate is that the impost of the RET on consumers is on track to evaporate. Between Stockyard Hill and Coopers Gap almost 1 GW of wind energy has been contracted this year with an effective certificate price of $0. If, and it’s a big if, retailers can be trusted to pass on the savings obtained by the falling technology costs of wind and solar, the LRET portion of retail charges will also head towards zero.

The incredible RE prices we are seeing in the market, among the lowest in the world according to Bloomberg New Energy Finance, have only been achieved because such projects are ‘bankable’. Banks only look at these projects because they are underwritten by long-term power purchase agreements (PPAs) with top-tier retailers.

Without PPAs the projects would either have included a significant risk premium or simply not be built. The obligatory and stable nature of the RET has delivered cheaper and cheaper power, resulting in a ready supply of LGCs — for those who can write a 15 year PPA — increasingly available at no cost.

The NEG proposes to leave annual target setting in the hands of a government appointed board. Without a table of bipartisan, legislated and therefore stable targets, most projects won’t get a look-in with banks. But don’t take my word for it. This from Rob Koh of Morgan Stanley Australia:

Working off initial information only, we highlight that the NEG includes a Government-set emissions reductions pathway (rather than by an independent body). The risk of political interference in the targets may reduce investor confidence in the scheme, particularly where there is no explicit linkage to Australia’s Paris Agreement commitments.

Unless the NEG is legislated with prescribed targets, fewer projects will enter the market and those that do will face higher financing costs. This is not recipe for affordability.

It’s not fair to comment much more until the detail is released — but it’s not looking good for the so called energy trilemma — reliable, low emissions and low-cost energy.

Australia, we’ve got to ask ourselves, are we being negged?

Simon Holmes à Court is senior advisor to the Energy Transition Hub at Melbourne University and can be found on twitter @simonahac