Interview: AEMO’s Zibelman says system black was “wake-up call”

Audrey Zibelman has only been in Australia and in her role as chief executive of the Australian Energy Market Operator for six weeks, but already her views on the changes needed to adapt rapidly to a modern grid and new technologies are being described – both within her organisation, and in the broader energy industry – as a breath of fresh air.

Never before has Australia had a senior executive in the energy industry being so up-front about the possibilities of new technologies, and so enthusiastic about the changes that lie ahead. She is convinced the gird will change dramatically, and will be cheaper, cleaner, smarter and more reliable. And focused around the consumer.

Her entry could not have come at a better time for AEMO, which has been roundly criticised, by the industry, by the South Australian government, and more recently by the regulator for its actions, or lack on action, in the major blackouts and load shedding that occurred last September and earlier this year.

In this wide-ranging interview with RenewEconomy, Zibelman discusses the lessons learned from the system black event in South Australia, the market reforms needed for the Australian industries, and the opportunity that Australia has to lead the world in what most accept as an “inevitable energy transition.”

Here is the interview in full, only lightly edited.

RenewEconomy: You’ve been saying that Australia’s leading the world in this energy transition. Given that you are from New York where you led the very ambitious Reforming the Energy Vision, and you had both political support and control over the regulations and rules, it’s hard to imagine that Australia is where you say it is.

Audrey Zibelman: The reason why I say that is because I look at the penetration of renewable energy in Australia and the continuous growth. The interconnection requests we are getting are just phenomenal, there are parts of the country, certainly in South Australia and Western Australia where we seeing many hours a year well in excess of 50-60 per cent of demand is being supplied by renewables. So that’s one benchmark.

Secondly, I take a look at the really interesting proof of concept, demonstrations, new market entrants that are doing things in the markets, it’s quite phenomenal. The rest of the world really is starting to look at Australia and saying how are you operating in a system where you have this degree of penetration of renewables, we’re the only continent-wide system. So all of those things, all the elements of the market I believe is what gives us the opportunity to leapfrog above and ahead of everyone else and show how this can be done

RE: And how can this be done? What do you need?

AZ: I think there is a lot of different things that we’re going to have to involve in how we think about the system of the market. Certainly some things have already been identified, the sophistication of forecasting has to change. We’re looking at the fact that historically you could look at a system and you would say, looking at this weather condition and  storm condition in the last end of day of the week and the time of the year, what’s the likely demand going to be at any given hour? And using those .. , come out with a fairly good sense of what it’s going to be doing in the next hour.

That’s the kind of things we did at PJM and things that most market operators do. Now you have all these other dimensions that we need to start adding, weather is one thing but that’s also going to influence what systems are going to be available, because at that point you’re operating largely with dispatchable resources as oppose to renewable resources, so that changes how much lasting demand you have. What’s that going to be doing in a few minutes? So understanding how those things need to work together is going to require just a different approach to forecasting and how we operate the market. And it will be the type of thing that any economy that’s looking at decarbonisation is going to have to understand how to do differently.

RE: Have you been surprised that Australia has gotten so far down the tract in its penetration of renewables and yet hasn’t dealt with these issues to date?

AZ: I’m not looking back and asking why, as I wasn’t here so I don’t think it’s particularly useful. What’s more important is figuring out what we need to do to move forward, and address really what our opportunities to work the system better:

RE: So do you accept the fact, and I’ve heard this a lot over the last few days, that we have the technology available to us but not necessarily the systems or the market rules that need to be put into place?

AZ: I think what’s changing is a number of different things. One is that historically when we had large-scale generation and largely fossil, nuclear and hydro, they are predictable resources. That’s changed. We have to look at the generation and understand that they have different attributes than they have had historically. It’s already been discussed in terms of being able to have resources that can act very quickly. As you know there is a lot of discussion about moving to 5 minute markets. Within a 5 minute window, wind and solar are highly predictable, and so is understanding and being able to forecast and manage the market within a short time frame is going to allow for greater predictability and greater value of resources like storage, and the demand for the resources have to be fast responding.

That’s how we can provide a more secure grid. Other things like load shaping, we have a lot of distribution of energy resources, we know that even though things are unpredictable there are levels of predictability. We know certain times of the year or day the sun sets, so our solar resources will go down. How do we make sure that during that period of time we shift the load away from those hours, either through storage or other resources so we don’t have things called the duck curve, where all of a sudden load is coming up very quickly because it is still on, and you’ve lost the resources, so what do you do during that period without straining the system. It’s those types of things that we need to be thinking about.

RE: And that presumably comes out of demand management, of which there is a lot in PJM – about 10 per cent, compared to less than one per cent in Australia.

AZ: It’s demand management, but even in the PJM it is more about peak load management. So they are working on that, how do we use storage better now we have EVs coming on, how do we manage those, so it’s having the tools and knowledge and thinking about what changes need to be made in the market place, to incent the types of investment we’re going to need for that message.

RE: And how quickly are we going to need to act? You alluded to this yesterday, it’s going to happen very quickly, we used to think in terms of decades of change, now we’re thinking in terms of years and you even suggested it’s going to happen quicker than that with the pace of new technology.

AZ: I think what we need to do, our processes that are embedded now may be too elongated. I think now we need to have processes in place were we identify a problem and a solution and we have a plan to execute in a rational time frame and to do that, is how do you put in proof of concepts. And something we can do is shadow markets. For example, if we know in a certain amount of time we want to put in a 5 minute market and there are concerns on how we are going to operate that, we could spend a year operating in a 5 min market where people are bidding in and your settling but no money is exchanging hands – it gives the market participants time to adjust and understand their bid strategies, for AEMO to understand how it works so when it goes live – it’s good business- you’ve worked out the kinks that need to be changed and you can set up the changes that need to be made in place to reflect reality

RE: So you want more involvement in the some of those rule changes, I think that’s one of your things in your Finkel review submission of having more control and having the ability to make those rule changes as you go , because technology changes are happening so quickly.

AZ: Right, the other thing that will be changing is the owners, in terms of whose engaged, sometimes people think if you have new companies moving in and you have the old guys protecting their franchise. Frankly the old wants to become the new. And they want to be in the new markets so we need to realise we can’t paint people as one or the other. For AEMO, when we look stakeholder engagement and what changes we need to make we really need to be engaged with our stakeholders at a much deeper level. They’re the ones we want to invest, we need them to understand. That way when we bring something to the AEMC for an idea change and they have an input. Not just AEMO looking at it from our point of view but from the view of the marketplace. That’s an area that I found when we were doing REV, you get people engagement and the outcomes are much better, not in a legalistic way, but in a room debating, discussing and with ownership of the outcome.

RE: You mentioned previously about the importance of the consumers, and according to some of the forecasts they’re going to be generating at least half of the energy demand. How do you manage that? Your stakeholders now are probably different than what they will be tomorrow.

AZ: That’s where we’re going to work through 3^rd parties, there will be some consumers, particularly large energy companies, who will engage directly with the wholesale markets because their consumption levels are as large as a small city, if you look at smelters or the aluminium plants. That is one piece of it. For small commercial and residential consumers, where it’s from retailers, or networks who represent those interests on how best to use those resources. That’s when we’re really talking about demand management. It’s really this concept of the virtual generation when you get a lot of individual homes  working in concert, that has a positive affect on the system, when you need it. Somebody needs to be that conductor that AEMO will work with.

RE: So it seems the in Australia we are shifting from this centralized generation model that seems to be a thing of the past.

AZ: I don’t think it’s a thing of the past, I want to be clear on that. I think that there’s always going to be centralised solutions, but we are going from tat being the dominant factor, to being one of the resources along with the others.

RE: Does the nature of the market change if were going to have so much behind the meter? I’m just thinking of the market and the way it is  integrated, retailers and generators on one side, networks on the other. Is that an issue as far as your concerned?

AZ: No, I think that’s an advantage. When we develop markets in the 1990s across the world, through privatisation here and restructuring in the US what we recognized was that by creating larger markets that were horizontally integrated you can get the diversity of the markets and that would play to the consumer advantage. And that was really the pace of what we could do for control systems and data. What we found that get that diversity adds to efficiency. What we didn’t have was the ability to look at 50% of the power grid that sits behind the metre, we didn’t have much flexible demand.

Now we have the ability to use the demand base resources. That’s where in particular Australia in the nature of our grid we will get a lot more liquidity and a lot more efficient overall system if we vertically integrate. That doesn’t mean that I’m suggesting AEMO will operate those markets, they will be operated by retail entities, but basically to optimize demand, and supply simultaneously so we have an overall productive system. That’s what we’re excited about working with ARENA. We have so much investment going on, how do we use it as a way to deliver value to energy consumers with the right compensation.

RE: That’s the interesting part of the Finkel submission, the wish to work with ARENA rather than working in isolation, rather than you just being presented with what the outcome is, you want to be involved.

AZ: Working with ARENA, working with networks, retailers and the aggregators. I think we’re going to have to change the nature of the system. The electric system of the 20^th century was very much command and control. When you have million of various elements of the system that can respond, you’re going to have to have a very different way of operating the system, moving away from determinalistic, probabalistic actions and you’re probably going to have the relationships, they’re going to be more complex, you’re going to be working with the networks who are going to be worrying about local reliability, with retailers who might have contracts with consumers. In the end, AEMO is not going to be talking to individual refrigerators telling them what to do, but working with the people that work the individual refrigerators telling them what value they have and then they respond.

RE: Ha! So it’s making sure that we have the technologies so people can actually talk to these refrigerators. I heard a line today that “ old refrigerators don’t die they just consume more energy.”

AZ: This is an interesting thing, there’s not a lot of basements in Australia, whereas in the US there were all these incentives to go out and buy a new fridge, so in the 90s when we were in our boom cycle, people went out and bought their new fridges and put them in their basement for beer.

RE: The ergon network did a solar and storage trial in a place called Magnetic Island on the Great Barrier Reef , they were trying to avoid the need to build a new cable from mainland to the island , so under the smart city they took a truck and took out all the beer fridges.

AZ: A new form of demand and response.

RE: Exactly, I’m just wondering how many of these things will not be popular, how much of these transitions will actually be popular and people will see it really positively, because a lot of the mainstream media looks at this new world and see it as too hard and too complicated and too expensive.

AZ: One, I think most people who would understand that the idea that building anything and only using it a few hours a year is risky investment for the owner, second not a good use of capital. So how can we take use of things that we already have. That’s not an issue that should fall against any political divide, it should be good economics. Why should we spend any more for energy than we have to.

RE: They’ve been saying that about energy efficiency for the last 20 years and they still haven’t done it much

AZ: I think that the other challenge is that with energy efficiency in particular, from an individual customer perspective, it could end up just being a few dollars a month, but from a system perspective it is significant. How do we engage individuals in thinking about these things when most of the time people think of electricity as a few hours a year and they don’t really want to think about it any more. So what are the gadgets that you could create, what is the moral persuasion? EG: recycling. How did people get interested in recycling and realised that it is important. Didn’t have a lot of negative monetary value, suddenly people understood that being able to avoid creation of waste was important. How do we get the concept for wasted energy across?

RE: The last 6-9 months has been a bit of a rocky road for AEMO, you’ve been criticized by the SA government for the blackouts, the report from the AER on the Feb 8 load shedding wasn’t complimentary. What lessons have you learnt from this and how are you going to avoid repeating those things in the future? Is it a cultural issue in the organisation? A difference in managing procedures? Recognising new technologies need to be embraced,?

AZ: I think in both instances of South Australia, there are lessons learnt from last summers events and the organization is actively changing things. We identified 17 or 18 different actions coming out of the September 28 system black, and in Feb 8 other things were changing, so I think in any organization when you run into an outcome that is undesirable a good organization will look at that and say how do we change. We identified the criticism, though a lot of elements were unfair and untrue. That being said the system that we have today is different from the system we had 2-3 years ago. What AEMO needs to do is make sure it has the capability to manage the system, so that we have the rights schemes, the right conversations in place.

We need to do a better job of informing communicating and providing understanding. How do we affect things in a positive way around the mass markets is around energy literacy. So how do we take advantage of any situation, to educate the public on how this works. So if we do think the increase interest in solar and the best way to move forward in Australia is to think about how you get more people buying storage and how they understand how it works, how they save money, what questions they should be asking. Same concept as when people buy cars. We’re not there yet on energy, I don’t want to make things harder but we can’t ignore that if we are moving a situation from where most customers are passive to where customers are going to be active players.

We want tem to make investments and make the best use of that investment. How do we inform them and work with the aggregators. Part of AEMO’s role could be making sure the markets are designed to eliminate any of the barriers to entry, so people who are selling to consumers can inform them. Our role is to be seen as the honest broker, and be sensitive to where the market is going and offer value to it.

RE: Just how much market reform do you think is going to be needed?

AZ: From what I can see, everyone that I’ve had discussions with understands that things have to change in a very significant way. AEMO has the opportunity and obligation to work very closely with the market, meaning both traditional and new players to help identify where the needs can be most beneficial. Also to work with AEMC and AER as other market bodies to come up with a common plan on how do we make it operational. Each of us playing our role. Our role is to internalize the complexity of this market and to delivery solutions the  consumers can understand.

RE: going back to what happened in SA over the last 12 months, you would have had talks with the energy minister there, there’s more concerns about the next couple of summers in SA, we will have a lot more wind and solar. They might find themselves at 60-70% wind and solar in the next couple of years. How do you manage that and convince people who the future of energy is cheaper, cleaner, faster, smarter and more reliable than what we have now?

AZ: It’s the same pieces that we keep talking about. One is there are a lot of distributed energy resources that you could take advantage of if you did it the right way. SA has a program worth looking at with battery installations, and other resources. We’re working closely with them to make it successful. We have every interest in that to be highly successful as do they. Also being very clear headed in the market of what we are going to need in terms of operational changes, the works we’re doing around inertia development, all those are going to be very important to get the guidelines in place so that we already have rules that we put in place in frequency controls and requirements for new wind and new solar, those things were hard lessons learned.

RE: There’s an issue with the current generation isn’t there with the current deadband on the govern controls on existing fossil fuel generators. That has been cited as a risk to system security, are you concerned about that.

AZ: We’re investigating changes to power system frequency and one of the areas of focus is on the changing operation of governor controls. So we will be looking at the changes made by operators of synchronous plant – fossil fuel and hydro – through disabling or reducing governor response.

RE: Isn’t an issue that a lot of the public discussion is led by people who simply don’t believe that these technologies can \do what you think they can do. What’s the challenge there?

AZ: The work with ARENA will be helpful in really proving these concepts, and the business models, so we people can have the same confidence that we have these proven concepts. I think we also need to talk more about the things we are doing. We hear a lot of talk about what we did in Brooklyn with the micro grid, but if you were to do a study and talk to everybody and ask them to give you their most innovative project and then put them together you would probably have a great model.

One thing that Australia doesn’t do well is talking about all the great innovative things that they are doing. I think that across the industry, individual players know what they’re doing, but is there a general understanding of the great things companies are doing in each state?

RE: We write about those things in RE, but we’re certainly not seeing those being taken up in mainstream media. I guess part of that comes from the lack of political support here. New York had that, so people were engaged and people were excited about it.

AZ: The one thing that happened in New York was we had Cyclone Sandy. That was a huge wake up call. That’s what got the attention that there had to change. That’s what grounded New York. I’m not sure were not at this point right now. – given the system black, the   and the awakening that Australia has had that it can’t continue the way it has.

Maybe what we need to do is put a name to this, New York did this, we created a name (REV) that people can recognize and link into. Maybe we need a name.