Transmission company Transgrid may have to cancel plans to build a world-first renewable energy mini-grid near Broken Hill, and be forced instead – by archaic regulations – to buy and maintain two ageing diesel generators to secure the power supply in the mining and tourism town.
The bizarre situation emerging in Broken Hill, where highly polluting fossil fuel assets are preferred over new clean energy solutions, is yet another example of the complete failure of Australia’s energy regulations to keep pace with technology and the evolving climate crisis.
Decisions across the grid – be it for new regulated investments such as networks, or in the setting of market rules – are being distorted because the Howard government decided in the late 1990s to deliberately exclude environmental considerations from the then newly formed National Electricity Rules.
And the grid has been paying the price ever since, because the regulator and rule makers are unable to take environmental and climate benefits into account. And narrow economic theory is also not helping.
Broken Hill is a prime example. The city and the surrounding mining province are located at the end of a long (260km) single line, and is prone to frequent outages. Back up supply is currently provided by two 25MW diesel generators, but their owner, Essential Energy, wants to sell them, or close them.
Options are needed, and Transgrid last year released a detailed report which – somewhat surprisingly – found that a world-first renewable micro-grid based around a 200MW compressed air storage facility, using technology from Canada’s Hydrostor and supported by Australia’s Energy Estate, was the best option.
“This creates a wonderful opportunity to bring Broken Hill back up into the 21st century,” Andrew Kingsmill, the then head of Transgrid’s network planning, said at the time. “This is a prime example of the value of grid- scale storage in the future power system and a project with which TransGrid is proud.”
But then the lawyers intervened, and it was decided that the Transgrid document, known as a PADR (Project Assessment Draft Report (PADR), had to be redone, to conform to the regulator’s narrow economic assessments.
Under these rules, the 40-year diesel generators are assumed to be able run for another 20 years, and the cost of their purchase is assumed to be zero, because the purchase price paid by Transgrid is cancelled out by the payment to Essential and the reduction in that network’s regulated asset base.
That means that buying the diesel generators and keeping these highly polluting and maintenance heavy machinery is now deemed to have a greater net economic benefit than all the alternatives, including the planned mini-grid and multiple big battery options.
Transgrid is clearly not happy about it.
“We have concerns that prolonging the use of fossil fuel technologies is inconsistent with the Sustainability Strategy of Broken Hill City Council or the general transition of the electricity sector to low emission technologies,” it writes in its new report.
It also notes that the diesel turbines are one trick ponies. They can only operate in “islanded mode” and can’t deliver broader, longer term market benefits, unlike the compressed air energy storage solution, which can store excess power from existing wind and solar farms, and provide incentives for more renewables and cheap power for new mining projects,
That means it can secure power for the Broken Hill region when the main transmission line is out of service, using local wind and solar resources, such as the 200MW Silverton wind farm and the 53MW Broken Hill solar farm.
At other times it will be able to store renewable generation from southern NSW that would otherwise be spilt, and make it available at other times.
Under the strict AER guidelines, the diesel generators win with net benefits of $302 million, (in green above), and just pip the compressed air storage option, which have net benefits of $278 million.
But Transgrid says the benefits could be even greater, because they could be scaled into a larger solution to accommodate potential new mining loads in the Broken Hill area.
This was the thrust of a study commissioned by Hydrostor and Energy Estate last year, which noted that its proposal – unlike the diesel turbines – could support more renewables in the region, and offer cheap power to encourage new mines.
Even the mayor of Broken Hill, population 17,000, was on board. “It will bring employment and energy security to our region and provide a new method of utilising mining infrastructure,” Darriea Turley said at the time.
Only the Australian Energy Market Operator, in its detailed 20-year blueprint known as the Integrated System Plan, has taken account of the need to reach zero emissions. But its blueprint is only a guide, and the federal government has all but ignored it.
ACT energy minister Shane Rattenbury is trying to rectify the situation, and in last week’s meeting of state and federal energy ministers gained approval to work on ways to get the environment written into the rules.
“This is important for ensuring emissions intensity of generation is considered and reducing emissions is prioritised” in regulatory and policy decisions.
Transgrid agrees. It recently wrote to the AEMC arguing that the RIT-T (regulatory investment test) should be broadened to include other relevant quantifiable economic and environmental benefits.
This is particularly important for the major projects identified in AEMO’s 20 year blueprint.
“Whilst it might be appropriate to apply a relatively narrow test for small scale augmentations or asset replacement, this is not appropriate for projects such as those in the ISP,” it wrote.
“The widely recognised costs to the Australian economy of climate change are not included in the current cost-benefit analysis in the RIT-T.
“This means that under the current RIT-T, the economic benefits for ISP projects such as Project EnergyConnect (which is facilitating large amounts of renewable generation into the system) and HumeLink (in terms of both Snowy 2 as renewable power source as well as providing a pathway to market for renewable energy from Snowy and other generation in the area) are undervalued.”
In relation to Broken Hill, Transgrid’s head of delivery, Craig Stallan, said: “The narrowness of the Regulatory Investment Test produces suboptimal outcomes for the energy consumer and the wider community.
“Clean, renewable energy solutions become preferred when taking into account the full quantifiable economic and environmental benefits.”
Hydrostor president Jon Norman told RenewEconomy from Canada on Friday morning that his company was pleased that its compressed air storage solution was deemed as the best non-diesel alternative, and it is considering its options it can bring to the table to make it the front-runner.
One option might be to buy the diesel plants itself, and then phase them out as the new storage system is built.
“We think there are a few pathways,” Norman said. “Diesel is not really a viable solution long term, we do feel our project is a better overall long term solution.”
Hydrostor in May signed a contract to build a massive one gigawatt storage facility in California, using technology that Norman describes as like a “giant air battery”.
The technology uses off-peak renewable electricity to run a compressor that produces heated, compressed air, which is then stored in underground caverns. When needed, the compressed air is expanded through a turbine to generate electricity.
The situation is frustrating many parties, but it’s not quite the end of the matter.
There will be further consultations – submissions are open to all parties until November 17 – and then Transgrid’s regulation team will put together another document, known as a PACR (Project Assessment Conclusions Report) in the long and tortuous path to regulatory approval. That is due in March next year.