Regulator opens up new battleground over Australia's dirty, dumb grid | RenewEconomy

Regulator opens up new battleground over Australia’s dirty, dumb grid

Australian Energy Markets Commission to review grid “system security” in light of increasing penetration of wind and solar, opening up a new battlefront between the powerful incumbent energy industry and the new technologies challenging their business models.

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Over the past few weeks, we’ve seen how Australia’s energy oligopoly has been able to exercise its dominance over the power markets, and its soft power over the media. In coming weeks and months, we may get to see the extent of their influence over the country’s regulators and policy makers.

At the height of the so-called energy crisis in South Australia last week, the country’s principal policy maker took the opportunity to open up a new battlefront between the powerful incumbent energy industry and the new technologies challenging their business models.

powergrid

The Australian Energy Markets Commission said it will look further into “system security” in the light of the growing penetration of wind and solar in the main electricity markets.

The review has been at least partly triggered by requests for rule changes by some of the market’s big players, such as AGL Energy, for a new market that some fear could be used to reinforce the dominant position of the incumbents, rather than paving the way for a change to a 21st century grid, using new technologies such as storage and smart software.

Analysts say it is a new and critical battleground on the role of distributed energy and other technologies in the National Electricity Market and the choice between old technologies and a “dumb and dirty” grid, and new technologies for a clean and smart grid.

It represents not just a battle of technologies and business models, between incumbents and disruptors, but also a clash of energy philosophies and ideologies.

These battles are happening not just in the market place, but within policy circles and within regulators themselves. As numerous people have mentioned, including the head of China’s State Grid, transitioning the energy system is not so much a technology issue, as a cultural and political issue.

For this reason, analysts such as Tristan Edis, of Green Energy Markets, welcome the AEMC review, but warn that it could be turned in favour of the incumbents.

Edis says renewable energy has already been unfairly blamed for the recent price spikes in South Australia and elsewhere and fears that the AEMC review “could be used as a subterfuge” to undermine efforts to cut emissions and reinforce the dominance of high carbon emitting generators.

At the core of AGL’s proposal is to create new markets in ancillary services, to deal with issues such as inertia and frequency as more fossil fuel generators are sidelined and renewables take a more dominant position.

At its core the review is a good idea. The current electricity market was designed in and for the last century and to favour fossil fuel technologies. The price is set by the marginal cost of generation, and when demand rises, or changes suddenly, the price goes up, and everyone profits.

The arrival of new technologies with zero marginal costs – principally wind and solar – is turning that model upside down. Already, solar has removed much of the midday peaks which used to be the source of most of the profits for the coal and gas generators, and wind energy is bringing down the average cost.

The question that the AEMC is asking, as coal generators are sidelined and gas generators are also marginalised – mostly due to the incredibly high cost of gas – is what will provide the balance and the ancillary services (frequency control and inertia) critical for energy security of the grid?

AGL’s favourite option is a “capacity” market. But these are seen as yet another fossil fuel subsidy. They have been criticised by the UN and EU, and in Western Australia they have been dismissed as a rort that has seen diesel plants built when they are not needed. Some have never actually been switched on.

An alternative is to encourage new technologies such as battery storage, which can provide the same services, and react a lot quicker than the current fleet of gas and diesel generators.

But the battery storage industry says the market is pitched in favour of the incumbents. It is supporting a rule change that would address what regulators and market operators agree is a major market “distortion”, that is putting up prices, but this rule change is being vigorously opposed by AGL and other coal and gas generators.

“This review is a new battleground on the role of distributed energy in the NEM,” says James Myatt, the CEO of Mojor Power, a new retailer.

“In the same way that the 5 minute settlement rule change is partly about the role of distributed energy in balancing supply and demand in the wholesale market, this review will look at the role of distributed energy in balancing power quality (i.e. frequency, voltage, rate of change in frequency etc.) to keep the power system in a secure operating state.

“The issue is clearly there and it’s very important. With last century’s supply model that generated electricity in huge quantities in far-away places, it was fairly easy to keep the system stable. All those big fossil fuel generators synchronise with the frequency on the power system and hum in tune with the system.

“That’s a market with lots of inertia. Fluctuations in supply and demand in a market with lots of inertia don’t affect power quality too much. But as more distributed and renewable generation enters the market, and as more of the big fossil fuel generators exit, last century’s power system becomes harder to balance. Fluctuations in supply and demand start to have greater impact on power quality.

“So the big question in the review is about how we change market frameworks to protect the security of the power system as the electricity industry undergoes this tectonic shift from the outdated large-scale conventional, synchronous generation to the energy system of the future with smaller, distributed and non-synchronous generation.

“There’s a huge potential for a smarter grid with distributed energy to provide services to keep the system secure. We need to set a clear path to manage the transition from the outdated dirty power system we have to the smart, flexible and cleaner power system of the future.”

Myatt says it is not hard to see why AGL is pushing for a new market, because it would reinforce the position of their assets and create new barriers for renewable energy and other technologies.

“They would get a new revenue stream just to keep their fossil fuel generation online. Managing system security this way would also put an effective cap on the amount of renewables and distributed energy the grid could handle,” Myatt says.

“The problem with this is that it backs the market into a dumb grid that needs a big share of fossil fuel generation as its only method of keeping the system secure.

“Their proposed solution is to hold back the tide. As the economics of renewables stack up increasingly against fossil fuel generation, an inertia market to subsidise fossil fuel generators will just get more and more expensive over time.

“It will be customers paying for it and incumbent fossil fuel generators benefiting from it. And there will be an implicit cap on the amount of renewables this kind of market can handle.”

Myatt and Edis say that there are a number of policy levers that can be pulled to craft a smarter solution that isn’t just subsidising the status quo, but in the current public debate over renewables and the impact in South Australia, it may not be possible to find those.

Myatt agrees that some sort of financial incentive to the big generators to manage their withdrawal may be required, but only as part of a bigger policy package to manage a clear transition from the old dumb grid to the new smart grid.

That will be the big test for the new minister of energy and environment, Josh Frydenberg, the ministerial council of energy, and regulators and policy makes such as the AEMC.

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27 Comments
  1. iampeter 4 years ago

    “Oligopoly, influence, powerful incumbent energy industry”- are you talking about the fossil fuel industry which is shutting its doors in SA as it has been regulated out of business? What influence are you saying these out-of-business businesses have on policy makers and regulators?

    On the other hand looking at the alternative energy industry and all of the supporting schemes which have aloud for decades for money to be made not by selling energy at a price customers can pay but by receiving subsidies, regulatory support and protection. Oligopoly indeed.

    • Barri Mundee 4 years ago

      SA had very old and dirty brown coal stations. I know of no regulations that forced them out.

      • john 4 years ago

        The coal power plant stooped because it was uneconomic.
        Yes Re has removed the old power price structure, however now the state has to deal with a situation it seems large distributed over build is needed as well as battery back up to totally smooth the situation.
        Doable yes will they do it possibly.

      • iampeter 4 years ago

        Hi Barri, the Large-Scale Renewable Energy target (LRET) is the biggest specific culprit, along with set-in-stone PPA’s between alternative’s and the wholesalers. Then there’s the REC subsidy for alternative’s the 100’s of millions of dollars to run various supporting gov departments and even claims at the federal level of hitting this or that alternative energy target which sends investors running from fossil fuel businesses in this country.

        In the end there obviously isn’t a fossil fuels oligopoly which renders the very initial premise of this article false.

        If there is any oligopoly it is with the alternative industry which has set up this whole very cushy arrangement in this country. They don’t have to sell any energy at a profitable price and still get paid.

        • Barri Mundee 4 years ago

          Dumb grid with incentives to over-build is one of the most significant cost drivers for electricity. There is no “cushy” arrangement for renewables only subsidies which are required to ramp up roll outs. Over time those incentives will not be needed.
          Who built most of the coal fired stations? Not the current incumbents, mostly. It was built by government and eventually sold off. It’s interesting that in most states there have been very few coal fired stations built since privatisation. Victoria is a case in point.

          And we need a price on carbon to reflect the true cost of fossil fuels to get that level playing field you complain is skewed.

          • iampeter 4 years ago

            Subsidies are a cushy arrangement but it’s a lot more than just that. There’s agreed rates for wind outside of market prices with wholesalers, there’s a crippling of investment for fossil fuels when your own government promises to shut it down, there’s all manner of rebates and credits taken from taxpayers or passed on via electricity bills to alternative energy companies but not to fossil fuel businesses. Its a complete mess which if untangled would shut down alternative energy. But left in place is shutting down fossil fuel companies as you can see in SA.

            These subsidies will always be required and are in fact the point of the alternative energy exercise. Due to the variability factor alone you cannot power a grid more reliably off sun or wind than fossil fuels, so these companies can never compete in the marketplace. They are only invested in for the purpose of collecting the subsidies. If the subsidies stop, so does wind and solar.

            I don’t disagree that the government was always heavily involved in the energy sector. I’m saying this is why we’ve always had issues in this sector. Similarly in telecommunications, transportation and so on. Whenever the gov steps outside its proper function, problems follow.

          • Barri Mundee 4 years ago

            We will have to disagree. I don’t accept your premise that “whenever the government steps outside it proper function” we have problems. In my view the proper function of government is to engender a just society rather than leaving it all to the market. The economy must be subordinate to society’s needs not the economy or the market.

        • solarguy 4 years ago

          Gee, don’t mention the fossil fuel subsidies will ya. To the tune of billions.

          • iampeter 4 years ago

            Fossil fuel companies get credits, deductions, etc. AFTER tax. These are not subsidies – it’s their own money.

            These payments do get represented as “subsidies” in a misleading fashion to make it look like fossil fuel industries couldn’t exist without Gov handouts just like alternative energy.
            This is false.

  2. Geoff 4 years ago

    ….. The Grid you speak of is the same one that supplies 24/7 On Demand electricity for Australia including SA. The same Grid that saves SA from its Duplicated Intermittent “Only When Available” electricity supply. The same Grid that “renewables” use to dump their erratic only when available electricity into Australia’s stable 24/7 Grid.
    When you accept solar/wind “renewable” is an expensive duplicate intermittent supply then industry may take you seriously Giles.
    Until then you write GETUP/CRIKEY nonsense. You can take the boy out of GETUP/CRIKEY but you can’t take the GETUP/CRIKEY out of the boy.
    Prattle on lads. Industry isn’t listening to you.

    • david_fta 4 years ago

      When you accept solar/wind “renewable” is an expensive duplicate intermittent supply then industry may take you seriously Giles.

      Meanwhile, the rest of us will just buy our Redflow Cells, Tesla Powerwalls and so on.

    • stalga 4 years ago

      So, how much will it cost the Australian public for you and your arrogant friends to pack up and go so we can have a future with cheap and plentiful clean energy? I’d prefer to pay you off now.

      • Chris Fraser 4 years ago

        Geoff wants to construct new coal burners for twice the LRMC of renewables. His world such a sad uneconomic state of affairs.

    • Barri Mundee 4 years ago

      The same grid that clearly needs to become smarter.

  3. Don McMillan 4 years ago

    The issue is that Coal and Gas fired generators are becoming uneconomic due to the renewables successfully out competing these plants when the sun is shining and the wind is blowing. Unfortunately, with the technology that is in place now, the renewables cannot meet demand which can lead to the ridiculous situation of subsidizing fossil generators.

    To make this work a complete rethink of the way we do business is in order. The investment profile in mining and petroleum industry requires a 10+ year outlook and supply contracts are based on take or pay and severe penalties for failure of delivery. It’s all based on the guarantee of supply. The renewables are the exact opposite.

    I am sure plenty of people are calling for a battery solution but the problem is now.

    The easy solution is to guarantee a market share for the coal & gas plants but controlling markets always end badly.

    Another is to force the renewables to guarantee supply. This would require them to form a JV or buy out gas fired generators. This is not a bad idea as once they have ironed out all the engineering issues to merge renewables and gas they can slowing introduce battery technology without the threat of market disruption. This will not happen.

    The end result will be regulators manipulating the market, which would be bad for everybody especially for innovation

  4. david_fta 4 years ago

    what will provide the balance and the ancillary services (frequency control and inertia) critical for energy security of the grid?

    Solar thermal? South Australia could build one of those … and if the Victorians ask nicely, export some of its production via interconnecters.

  5. Cooma Doug 4 years ago

    Giles
    You have been digging into this pile for a while now and you are exposing the realities and the mess. I thank you for this and encourage you to continue.

    It is true that the system security issues need to be addressed but the solutions are now available. It will also be cheaper. I was on shift the very first day that the ancilliary service market began. It was a great innovation for the big generators to come up with a way of selling things that they were never paid for in the past.

    On that day there were problems with some essential algorithms and it ran on extreme price swings for a while until it was sorted out.. It was a bit wierd at the time to be paid for pushing the system frequency up and down.
    What needs to happen is the smart switching on the load side in the home will manage it with billions of dollars of grid plant becoming redundant.

  6. South Australia 4 years ago

    The sooner we get one or two CSP solar thermal plants with plenty of overnight storage capacity in SA the better. The public and big business is fed up with the current unsustainable fraud. And as battery storage for households gets better and cheaper then more people will opt for that and opt out of the electricity rip off where possible??

    • Don McMillan 4 years ago

      In engineering there is a saying “we can do anything with an unlimited budget”.

      • South Australia 4 years ago

        This is very true 🙂 If only private investment would hurry up. A few are looking at it for Pt. Augusta but whether anything happens anytime soon remains to be seen.

        • Don McMillan 4 years ago

          Private investment [Private Equity, Funds Pension funds] will only invest if they are confident of a return. The current market is in turmoil and the rules may change. Only when the rules of the game are clear will they consider investing in new projects.

  7. Gary Rowbottom 4 years ago

    Yeah, another reason why I like CST, and why a network with a reasonable number of them would be good – they have reasonable inertia and thus ability for frequency control.

    • solarguy 4 years ago

      Gary, I agree. Even though almost all of my training has been in PV and Wind energy, I’m a big fan of CST too. It’s hard to ignore over twice the power output for a given area than PV and molten salt storage is a hell of a lot cheaper than batteries.
      The more we build, the cheaper they become (learning from doing) so will be streamlined.

  8. solarguy 4 years ago

    I reckon it’s a fair bet, that Frydenburg will help the status quo make huge profits!

  9. Ken Fabian 4 years ago

    Reliability and cost are genuine issues but they should not be permitted to be the excuse to fail to commit to the necessary transition to low emissions. So long as they don’t have to they won’t; it needs to be clear that they have to. Much progress will flow from that.

    Support for storage investment – or even for shifting from unresponsive “baseload” coal to gas in the short term – should take precedence over protecting the financial viability of coal. Becoming more intermittent in response to greater renewables penetration is exactly the direction we need to be going. One consequence is a market emergent defacto carbon price – by forcing fossil fuelers to raise prices outside the renewable rich periods – that gives clear incentive for investment in storage; that should be welcomed, not prevented. The true value of storage is much higher than any average daily electricity price reflects and when that is brought into focus the kinds of investments that need to happen will start to flow.

    Fossil fuels are already subsidised or rebated or otherwise supported to a far greater extent than renewables – even without considering the world altering climate consequences and costs that are being passed on to our future through responsibility avoidance. The system we have was built with extensive government support. The transition to low emissions needs extensive government support – and that doesn’t necessarily have to be massive subsidies; just better foresight and planning with a clear low emissions priority would be a big step in the right direction.

    Energy industry insiders assured governments that renewables could never produce enough to be significant. Energy industry insiders now assure governments that renewables are too significant and must be limited. Energy industry insiders assure governments that storage can never store enough to be significant. Energy industry insiders, in the presence of significant improvements in storage will almost certainly go on to assure governments it’s disruptive and must be limited. It’s clear that energy industry insiders are not to be relied upon.

    • solarguy 4 years ago

      Well said Ken. Transistioning to RE can be profitable for the incumbents, but instead they are so desperate to hold on to their current business model, which means they can loose a hell of a lot more in the long run.
      Their going to loose money anyway with stranded assets. Surely they can see there is a better business model.

  10. Heart 4 years ago

    I actually saw the limitations of injecting intermittent enerrgy sources into the grid when I created the inverter market with with companies that are now owned by Scheider Electric. There was no hope of simple grid tied inverters ever being scalable and net metering programs are being curtailed or redefined one by one. What is needed is a truly scalable approach which combines all energy management functions with solar input, integrated energy storage and automatic load control. This is exactly why I created Heart Transverter, http://www.transverter.com, which has this complete system functionality build in with units already in production and listed for UL 1741 and IEEE 1547. Every possible improvement for these standards is already anticipated and implemented. These implementations have the most economical impact when deployed close to the loads as this pretty much eliminates transmission losses, infrastructure improvement needs and spinning reserve capacity increases (usually with peaker plants). This is all doable today. Feel free to contact me at [email protected].

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