Finkel says consumers driving change, and policies need to catch up

Chief scientist Alan Finkel has outlined the case for serious and urgent market reform in Australia’s energy markets, saying the solutions for the massive and “unstoppable” transition to a grid based around wind and solar exist, but the market structures and the supporting policies do not.

In a 58-page preliminary assessment of how Australia is placed in the “biggest transition” since the electricity industry was created more than a century ago, the five-person panel headed by Finkel says consumers are at the very centre of change.

These consumers are being battered by soaring grid costs, but they also have technologies available to them to reduce their bills and help manage the transition to a grid supporting a high level of renewable energy.

These technologies, such as rooftop solar and battery storage, are the “antithesis of the centralised energy model”, Finkel notes, and are a big test for Australia’s fleet of ageing and polluting power stations, and for its policy makers and market rules.

But, in stark contrast to the myth-making and hyperbole that has dominated the national stage, particularly in the last week, the Finkel report calmly notes these changes, and the solutions, which are ready made but not yet given the go ahead.

This lack of preparedness, it suggests, is the major reason South Australia was caught short in its blackout of September 28, and why other states may also be at risk. But it need not be so, and the answer is to look forward to new technologies and system designs, not to old centralised thinking.

Most of all it highlights, as the CSIRO did earlier this week and others have previously, that the consumers and their technologies can and will need to play a critical role in the future grid if the policy settings and incentives are right.

And on this matter, Australia does not look well placed. The Finkel review, as has been previously reported, highlights the inconvenient truth that Australia’s policy settings are lacking and are not sufficient to meet Australia’s modest Paris climate targets.

On that, it provides something of a slap in the face to federal politicians. It adds to the impression that the South Australia blackout, which prompted this review, only goes to highlight Australia’s archaic grid, and the need to accelerate the transition, not slow it down.

On the policy shortfall, it notes that the Renewable Energy Target does not extend or act beyond 2020, and its effectiveness has been undermined by policy instability and uncertainty driven by numerous reviews.

The emissions reduction fund has been focused on land-sector abatement and the safeguards mechanism, and is not calibrated to drive emissions reduction, because its baseline is set well above the current level of emissions – at 198 million tonnes of CO2 equivalent compared to the current level of 178 million tonnes.

It says options to reduce emissions include the emissions intensity scheme ruled out by the government earlier this week in a spectacular backflip, extending the renewable energy target, or through legislative closures. It says reports from others suggest that the EIS is the cheapest option.

The Finkel review looks at the issue of system security and reliability, particularly in the light of recent events in South Australia, Victoria and Tasmania.

It points out that high penetrations of “variable renewable energy” (wind and solar) pose challenges to the current structure of the grid, but while solutions for increased renewables are currently available they are not encouraged by the current market design.

“Solutions are available to effectively integrate variable renewable electricity generators into the electricity grid, but we will have to change the way we operate,” the report says.

“Such solutions include intelligent wind turbine controllers, batteries and synchronous condensers, all of which can contribute to system security. But the NEM does not currently encourage their adoption.

“Emerging markets for ancillary services, required to maintain system security, have not kept pace with the transition. New and updated frameworks, technical standards and rules may be required.

The Finkel report notes that the transition to a lower emissions economy “cannot be reversed”, and residential and commercial consumers are at the centre of this change, with distributed energy resources (such as solar and storage) allowing them to become investors and electricity traders – with or without the National Electricity Market.

“Solar PV located on consumers’ premises has become a partial alternative to traditional grid- supplied energy. Australians households have invested several billion dollars in such systems over the past decade,” it says.

“Rooftop solar PV combined with battery storage can save consumers money. Instead of selling excess electricity to the retailer during the day at low feed-in prices they can store the excess and avoid purchasing electricity in the evening and night at higher retail prices.

“Advances in batteries and other storage technologies are likely to make it cost-effective for increasing numbers of residential and commercial consumers to partially or even fully disconnect from the grid and operate independently, or be supplied by a micro-grid (for example, small-scale local generation and storage supporting an entire town or suburb using its own separate network).

“Digital meters, the ‘Internet of Things’ and energy management software can help consumers trade, track and control their electricity usage to manage their electricity costs.”

On this, its conclusions are similar, and indeed incorporate, the findings of the CSIRO and Energy Networks Australia report, which suggested up to half of all generation could come from consumers by 2050, and could deliver significant cost savings if managed properly. But that process has to start now.

Finkel notes that how the NEM adjusts to these forces will be critical and a whole of system review is also required to identify where there are gaps or blind spots in the program.

And it warns that consumers face rising grid costs: Wholesale markets prices are going to rise because of increased reliance on gas, and the fact that most gas is now used for export market; network costs had soared, partly because of peak demand was forecast to rise, but didn’t. And it raised concerns about the lack of transparency on the retail component of the bill and of retail operating costs and margins.

The report also looks at South Australia, and suggests it was a failure of preparation that was the principal cause of the September blackout.

“While the September 2016 blackout was not directly triggered by an increased presence of renewable energy, the response of the power system demonstrated its reliance on services traditionally provided by synchronous generators, and a failure to fully integrate new non-synchronous technology.”

One of the issues in the blackout was the fault right through mechanisms of wind farms, which caused them to reduce output or disconnect after a series of faults.

But it included advice from the International Energy Agency that this problem had been identified and resolved 10 years ago in Europe, and in Spain the occurrences of VRE (wind and solar) generators disconnecting after a voltage dip have been reduced to zero.

The IEA advice also notes that several countries as well as the Nordic market, the EU, Texas and New Zealand have demonstrated that it is possible to manage the challenge of integrating a rising share of VRE generation into their electricity networks.

The biggest challenge came in countries with very high shares of renewables. Ireland, another isolated grid, had managed this by limiting the combined share of wind power and HVDC connector to 50 per cent of power demand, but is now looking to lift this limit to 75 per cent.

The UK has a new market for enhanced frequency response to mitigate the operational impact of lower levels of synchronous inertia.

Of the solutions to more wind and solar it said these could include:

• Synchronous condensers. These are spinning synchronous motors whose shafts are not connected to a mechanical load. They consume very little real energy (machine losses), and in addition to providing inertia, they can generate or absorb reactive power to help to stabilise the system voltage and supply fault current contributions to the network. They can be purchased as new, or reconfigured from decommissioned synchronous generators. For example, at Huntington Beach in California two natural gas-fired generator units (which had been closed since 1995) were converted into synchronous condensers in 2013.
• Synthetic inertia. New controllers are available that will transiently convert the non-synchronous mechanical inertia of a wind turbine into ‘synthetic inertia’. These are compulsory, for example, for all new wind turbines installed in Québec, Canada..
• Power conversion systems. These allow the stored energy in large batteries to be used for a variety of power system tasks including the synthesis of inertia, reactive power control and system restart. Battery connected power conversion facilities are currently being installed in England and Wales.
• Fast interruption of loads to correct demand and supply imbalances.