The Australian Energy Market Operator has echoed the fears of incumbent fossil fuel generators, saying that an unchanged renewable energy target will hasten the exit of existing generation plant.
The AEMO, however, does not appear to look favourably on this development, claiming – bizarrely – that higher penetrations of renewables would not have an environmental benefit, but would add to economic costs.
It’s position appears to reflect that of Origin Energy, the country’s largest “gentailer”, which said in its submission to the RET Review panel that the RET was not designed to force out coal or gas generation, but to require less of it to be built to meet rising demand.
Of course, demand has not risen, meaning that renewables have had the effect of “crowding out” existing coal and gas generators and reducing the revenues of others because of a fall in wholesale price.
In its submission, AEMO says that sustained demand growth had been an important factor in “accommodating” investment in renewable energy.
“The reduction in demand in recent years, and the lower levels of energy growth forecast are expected to materially change the way the RET impacts the market,” it writes.
“AEMO’s assessments of supply and demand suggest the NEM (National Electricity Market) is over-supplied with existing generation capacity and, even without any further new-entry, our forecasts of subdued demand growth will not consume this over-supply until after 2020.
“This implies that all the additional pre 2020 renewable capacity mandated by the RET will not avoid the construction of any non-renewable capacity. Instead it is likely to lead to the early retirement or mothballing of more existing generation plant than would otherwise be the case.”
AEMO said that the fall in demand indicated during the previous review – conducted by the Climate Change Authority – has accelerated, and a further write-down of demand forecasts would occur in its 2014 update.
“In the two years since, this trend has become more pronounced and we consider that this is very significant to the Panel’s deliberations,” it writes. It also republished this graphic below from its 2013 forecasts. AEMO, however, focuses on demand from the grid, which does not include the increasing amount of rooftop solar PV.
AEMO, notes, however, that the grid is perfectly capable of absorbing increased amounts of renewable energy with little problem, and little cost.
It says South Australia has one of the world’s highest wind penetrations, with around 25 per cent of total supply on average and up to 88 per cent of local demand. It says this is being well managed operationally, although it is having an impact on market prices in areas of high concentration. It suggests future installation should be more evenly spread.
“Based on experience to date and analysis of likely future outcomes, AEMO considers that it is technically feasible to integrate the renewable energy likely to emerge from the existing RET settings while maintaining the security of the power system.”
AEMO chief Matt Zema is one of four members of the panel, but AEMO said he took no part in its submission.