Schott defends NEG modelling, says wind and solar at “low end” | RenewEconomy

Schott defends NEG modelling, says wind and solar at “low end”

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Schott says NEG modelling assumes “low end” of wind and solar costs, defying recent evidence. But ESB did admit there is much work to do on policy, dispatchability had yet to be defined, new coal unlikely to get a look in, and states free to pursue own targets.

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Kerry Schott2
Dr Kerry Schott. Screenshot from the ESB Webinar.

Energy Security Board chair Dr Kerry Schott has defended the modelling assumptions for the National Energy Guarantee, the controversial new policy idea put forward by the ESB and endorsed by the federal government, saying that it assumed costs at the “low end” for wind and solar.

Schott, in a webinar on Friday outlining the principles of the policy, noted that the cost of wind, solar and battery storage were falling at a “breath-taking” rate, and asserted that the ESB had assumed the “low end” of cost assumptions.

“Every time we look at them they have headed south. It seems to be best to go to the lower end” of the cost assumptions, she said.

But perhaps the ESB, and more particularly the Australian Energy Market Commission and modellers Frontier Economics, should take another look.

tech costs

The technology cost assumptions (see above) do not seem to bear out reality. The assumed cost of wind is $78-$90/MWh – well above the major contracts signed for more than 1GW of wind farms (Stockyard Hill, Silverton, Cooper’s Gap) so far this year of below $60/MWh.

Likewise, the ESB modeling assumes a cost of utility-scale solar of $90-$100/MWh, well beyond the (less visible) costs of large-scale solar projects, which ARENA puts at around $70/MWh and others put slightly lower.

In the 45-minute long webinar, Schott outlined the basics of the proposed NEG to an audience of 600 people, and then answered several dozen questions. There were many more asked. (The video and webinar will be available on the ESB page of the COAG website mid next week, we are told).

What was clear from her presentation and answers was that the work of the ESB was extremely preliminary, a fact noted by its short 8-page policy outline produced with just 10 days notice.

Schott said the ESB had not yet even worked out how to define “dispatchability”, and the ESB hadn’t yet worked out what they would do about the market power of the incumbents, which many say will simply be reinforced by this new system of emission and reliability obligations and contracts.

Schott said the market power of some players – such as AGL Energy in South Australia – was a concern.

“Everyone is worried about power of large gentailers. In the South Australia market the power of AGL is an issue. We will be looking at that in due course.”

But Schott later seemed satisfied by the level of competition in other states, which appears to contradict assessments by the ACCC and the Productivity Commission, and the Thwaites Review, which all pointed to the price impacts imposed by powerful oligopolies.

Many of the criticisms of the NEG have centred on the potential for it to reinforce the market power of the big gen-tailers, which would likely serve to increase prices, rather than reduce them.

This has been the view of market analysts at Deutsche Bank, Morgan Stanley, Bloomberg New Energy Finance, ITK, and elsewhere.

Other claims made by Schott could also be considered contentious.

Schott pointed to the high level of “intermittent” energy such as wind and solar in South Australia and the level of “market intervention” by the Australian Energy Market Operator.

“AEMO is having to step in to the market to instruct generators to remain on,” she noted,

Indeed they have, since early July, and this intervention has included the curtailment of output from some wind farms when “enough” gas generation could not be found to handle high wind generation.

But since that time, South Australia – despite sourcing more than 50 per cent of its local generation from wind and solar, and instructing some gas generators to stay online when otherwise they might not – has enjoyed the lowest wholesale prices in the country, as Ross Garnaut pointed out last week.

Another contentious point from Schott was that there had been a lot of commitments to wind and solar projects in recent years, but none for “dispatchable” generation.

“What we are not seeing is any commitment at all to dispatchable generation – apart from the federal government looking at Snowy 2.0 (pumped hydro scheme),” she said.

tesla storage south australia

That comment also seems to ignore recent developments, such as the Tesla big battery – 100MW/129MWh in South Australia, which is nearing completion, and numerous other projects such as:

+ The contracted 30MW/8MWh Wattle Point battery storage project next to the existing wind farm

+ The new 10MW, 5MWh battery storage project at Lakeland in Queensland, the first to combine the two.

+ The 100MW/100MWh battery storage and 120MW/600MWh of pumped hydro unveiled by Liberty OneSteel, the owner of the Whyallas steel works.

+ The significant amount of battery storage unveiled this week by DP Energy, as part of an expanded wind and solar hybrid renewable energy park near Port Augusta.

+ The proposed pumped hydro installation combined with a solar plant proposed by Genex for an old gold mine in Queensland.

+ The proposed pumped hydro facility at Cultana. The proposed 600MWh pumped hydro project in New England, and the 20MW/34MWh battery storage installation proposed for Australia’s largest greenhouse in Stawell, Victoria.

Schott answered many questions about the NEG (though unfortunately not RenewEconomy’s on some of those points above. AEMO’s Joe Adamo said responses will be published on line in coming days).

Other highlights of the webinar included:

Schott said it was unlikely that any new coal-fired generator would be built, even so-called HELE plants (so called because they claim to be “high efficiency, low emissions” – but only in comparison with the existing dirty generators).

“Lower emissions coal plants being built in Japan and discussed as proposals in Australia are actually very expensive per MW,” she said.  “At present, unless someone has a major technology breakthrough, we wouldn’t anticipate seeing much more coal (even) as the (current) coal fleet retires.”

Schott said the definition of dispatchability had not been finalised – this is a crucial point for those who worry that slow, ageing coal plants may benefit from being described as “dispatchable”, when what AEMO really needs is flexible, fast response.

But Schott also said that contracts could be written with coal, gas or pumped hydro to meet the reliability obligation.

Retailers can write contracts with coal generators and with gas generators. “Both are disptachable. Coal runs pretty well all the time. Gas can run as required as retailer,” she said.


Schott provided this illustration (above) to show how the contracting might work. A retailer with a lot of coal and gas might be required to contract to buy wind or solar to meet emissions obligations.

But a retailer with a large amount of renewables will also be required to contract with coal, gas or pumped hydro to meet the reliability obligation.

“If the wind stops blowing or the sun stops shining they (retailers with high renewables) won’t have power to dispatch,” Schott said. “To make sure they have power to dispatch at all times, they will need to contract with someone with dispatchable power.”

Schott said the ESB’s dismally low forecasts of the wind and solar share by 2030 – at 18-24 per cent it is barely above anticipated 2020 levels – was a function of the federal government’s emissions reduction targets.

(We asked about the CSIRO estimate that any share of wind and solar below 30 per cent could be considered trivial, but did not yet get a response.)

How AEMO manages this will be crucial. Schott said AEMO had no incentive to require excessive amounts of dispatchable generation, but anyone remembering the organisation’s woeful forecasts on demand, which were used to justify the excessive investment in networks and gas generation, may not be comforted).

Schott acknowledged that many thought the modelled emissions targets were low, but she said the ESB did not have input on climate policy – and would not advocate – and insisted that the states would be free to set their own targets, while meeting the reliability obligation.

Schott also repeated that carbon credits could be used to meet emissions obligations, rather than building new wind or solar farms. These included the Australian based ACCU’s or international units. Clearly, much work will need to be done to ensure that this does not end up in double counting.

Schott also said the ESB assumed that energy intensive trade exposed (EITE) industries would continue to be exempt, as they are from the renewable energy target and were from the carbon price.

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  1. hugh grant 3 years ago

    Thanks Giles. FYI – I asked 5 questions and none of them were answered.

  2. Chris Drongers 3 years ago

    Before I go to the webinar, where did demand management fit into the reliability discussion?
    Is it considered ‘dispatchable’?
    And one of the key dispatchability issues – what were the time framws considered? To cover seconds to minutes for a generator or bus trip, hours for daily peaks, week long weather system passage, or Trump’s 90 day national security coverage?

    • Andy Saunders 3 years ago

      There’s a whole bunch of different demand management flavours. The old off-peak HW systems are one example – very inflexible.

      Probably the fastest response are utility-linked SCADA systems in industrial customers – can reduce demand typically within seconds by the click of a mouse and often in big chunks (but customers require large payments to allow this). Less automated are (often aggregated) campaign-type demand response, where a flood of SMS/email/calls go out (usually semi-automated) again mostly to industrial customers who are paid a retainer plus a curtailment fee.

      Then there are day-ahead tariffs where customers agree to drop demand for defined maximum periods (often 3-4 hours) specified in advance (day ahead) – good forecasting is obviously essential. Sometimes 2-day notice (different tariff).

      There’s similar flavours on the consumer end of things as well.

  3. Andy Saunders 3 years ago

    This arguing about dispatchability can learn from elsewhere. In north america the usual terms are ramp-rate and fast-start/start time. Perhaps we should use those terms – and perhaps create markets in them (rather than trying to re-invent the wheel on dispatchability)

    • ZeroEmissionsNoosa 3 years ago

      I think most folks would “get” fast-start. To most people terms like “baseline” & “dispatchability” are just mumbo jumbo and just serve to obfuscate

      • Alastair Leith 3 years ago

        And dispatchable generation is a different thing to dispatchable stored energy, which tends to be very much limited in energy capacity until recharged. But the two things are talked about interchangeably.

  4. David leitch 3 years ago

    Demand management was mentioned by Ms Schott on several occasions. That’s good. A missing word from all the discussion about the NEG is flexibility. In the future we may well need generation that can quickly ramp up and down. Not only that it has to be able to ramp up and down without incurring excess cost.

    By and large the existing coal and gas fleet in the NEM is not really well suited to fast ramping.

    One thing seems obvious, the more fragmented the retail market the more backup capacity will be needed. That’s from portfolio theory. The NEM will be less volatile than a State and a retailer in a State will be more volatile than the State itself…..

    Next issue dispatchability is measured by reference to maximum demand, but is that expected demand or actual maximum demand? I’m still far from convinced that we aren’t throwing “good money after bad” trying to make the gross pool market based on high levels of competition and separation between retailers and generators do a job which it is entirely unsuited for.. I feel an article coming on.

  5. Andrew Stock 3 years ago

    Like Giles & Hugh, I asked 5 Q’s and got no A’s. Lots of opaque answers raising more questions: eg Will states extra emissions savings come under a Federal 26-28% 2030 national wrap, allowing free riding by some states and the Feds. Most unclear how retailer financial contracts (per NEM) coupled with retailer physical dispatchability contracting obligation (per NEG) will work.
    Mention of the ESB considering implementing via “Rules changes so there is no change to the general (NEG) approach with changes in governments”. Is this to work around States’ objections to the NEG? I thought we lived in democracy – apparently not when it comes to how electricity, a commodity essential to our lives, our wallets, and the future of the planet, is governed via the NEM (and the NEG in future).

    • solarguy 3 years ago

      Amazingly I asked the same question and of course no reply as yet.

    • neroden 3 years ago

      You’re lucky that the state control of power is reserved by the Constitution. It’s time for the states to quit the NEM.

  6. Carl Raymond S 3 years ago

    Time for a new definition of “target”. The govt are using old easy targets to cap the rate of decarbonisation. What we need are proportional targets. e.g. Each two years we will increase clean energy production by 50%, above the level at the start of the two years.
    Or scrap targets entirely and let market forces sweep away coal.
    A target is not a target when its a lid.

    • Alastair Leith 3 years ago

      NEG is a do nothing but reinforce the status quo and try to look like you’re doing the opposite. Classic Turnbull, all things to all people, except those who understand the facts. Just think NBN disaster all over again. (And Kerry Schott was an NBNco director so has a head start).

  7. Sally Noel Triggell 3 years ago

    The NEG is just another political tool wheeled out by a corrupt regime to slow the uptake of renewable energy. It’s called buying time.

    • Alastair Leith 3 years ago

      And buying a PM an office, wolf pack forming…

  8. Chris Baker 3 years ago

    I don’t understand how the retailer goes about doing contracting with generators. Currently the retailers buy actual power from the NEM. So what they get is some kind of aggregation of power due whatever AEMO has dispatched. The retailer has no control over this mix. Retailers have financial instruments with wind farms and other generators which don’t actually buy electricity, but are really some kind of hedging contract. Its a mystery to me how this is going to work. In Ms Schott’s explanation she says “a retailer with a lot of coal and gas…” — how is it that a retailer even knows if it has a lot of coal and gas? Its just plain old MWh that they buy from the NEM without any tags attached to show where it came from. A retailer in SA might get a lot of wind energy one day and then gas energy the next. Am I just not getting something obvious? Can someone explain how this retailer portfolio requirement can fit with the NEM?

    • Alastair Leith 3 years ago

      “The retailer has no control over this mix. ”

      If they buy GreenPower™ they are changing the mix. PPAs also change the mix. They don’t get the actual electrons generated, but it does change the mix. An explanation of the markets would require more time.

      • Chris Baker 3 years ago

        Retailers sell Greenpower by buying LGCs. Whilst that does change the mix it isn’t connected to a region. PPAs are a financial hedging arrangement between retailer and generator, to give some certainty for financing the generator and some price certainty for the retailer. The power from such a generator is sold into the NEM, where there’s no difference between green and black electrons. None of this changes the delivery of the actual power, which is decided by AEMO based on the bid stack, and other requirements such as minimum synchronous generators in SA for instance. It just seems so dumb to me for the ESB to be suggesting the security of the grid can be managed by financial paper shuffling rather than by power engineering.

  9. Robert Comerford 3 years ago

    carbon credits??
    Who is this fossil fool scam artist?

  10. juxx0r 3 years ago

    Sounds like she’s full of Schott.

  11. john 3 years ago

    Here is the type of stuff being published all the time.
    Just look at the prices quoted for solar and .

    • john 3 years ago

      The strange price point for coal and CCS.
      SOLAR is $125 to $175 MWh ???
      Just how this equates to real figures is a quandry perhaps they just multiplied by 2.

      • Mike Westerman 3 years ago

        Authorised by George C and you expect the truth?!!?

        • john 3 years ago

          Well the figures quoted support your conclusion

    • Rod 3 years ago

      They used 2015 LCOE figures! Lazard published 2017 figures this week.
      I expect their coal plant data is out of date too.
      Clean coal FFS

      • john 3 years ago

        The Black Coal with CCS of which; not one plant is working; is quoted
        at $195 to $295 a $MWh.

        Solar commercial is quoted as being $125 to $175 per MWh. just where they dreamed up these figures I do not know.

        Needless to say cost of wind and solar commercial in the real world is under $100 MWh, in fact around $60 or not much more.
        This rubbish is being published all the time.
        Because New Corp now has ownership of the media.

  12. dhm60 3 years ago

    Referring to Schott’s illustration; why does wind + battery meet the energy guarantee but solar ( + battery) doesn’t?
    I get the impression that the ESB is crab walking away from storage – except for Talcum’s bright and shiny Snowy 2.0. If they are doing that to protect coal and gas; Mr. Market could bugger their cunning plan quite soon as utility and distributed wind and solar storage price fall.
    Worrying that in the age of interlinked grids, multiple interconnectors, very accurate wind and solar generation maps, almost instantaneous weather satellite data and increasing computer controls that the ESB are still babbling about “If the wind stops blowing or the sun stops shining…” like it is still stuck in Howard’s 1990s universe.
    It might be an idea for them to check out what Scotland does when the wind supply blows all the other “candles” out of the grid. Amazingly, their grid does not collapse.Quite possibly; all the technical issues so bothering Australia have already been answered by other grid opertators overseas. But, Australia likes to invent round things with holes in the middle when the rest of the world is using wheels.

    • Sir Pete o Possums Reek 3 years ago

      Please don’t conflate an entire continent with that subset sitting around the walls inside a virtual 1970’s 60/40 dance mirror tiled silo.

      (Poor things have only stove-pipes to view the planet through, and each others report generation industry to protect.)

      Scotland is so far away, and there are too many cans of sugar coated contra dealt *doughnuts* to kick further down the road.

      How can they deliver consumers to the market without them !?

      Will the ladies from the “Entertainment Committee” get that third layer of card-tables under the sponge cake model of the NEM ?

      Can Brian thread the 16mm projector ?
      (Its not like the one in “Marketing” )

      Yeah it does make one a tad cross though.
      I’ve unbuttoned my Nice Beige Cardigan !

      Its just more half arsed misdirection and time wasting by some awfully confused blue nosed quad bypassed back slapping pricks sucking cigars around the doorway pretending they have punch in their tea cups.

  13. Alastair Leith 3 years ago

    So how is a retailer signing a contract with a “dispatchable” generator (read: coal and gas) somehow better than the AEMO instructing a generator to remain online/available (which Schott pointed to in SA as a cause for concern)?

    Presumably the retailer will need to be able to say the same to the dispatchable generator. Except you have just dispersed this requirement from one order or backup to multiple orders with every retailer on the NEM, presumably this is what Energy Minister for WA (not on the NEM) Ben Wyatt refers to as “more effective and more efficient” than state based mechanisms?

  14. Alastair Leith 3 years ago

    Schott acknowledged that many thought the modelled emissions targets were low, but she said the ESB did not have input on climate policy – and would not advocate – and insisted that the states would be free to set their own targets, while meeting the reliability obligation.

    Right, so the whole reason for the national RET, for the ERF for the brief CT (and all that blood on the floor) and the fact that Australia can’t even find a pathway to our pathetic Nationally Determined Contributions to the Paris Agreement*, all of it neatly side stepped with a get out of jail card handed to, and played by Kerry Schott. And what are these geniuses being paid to hand all decarbonisation efforts back to the states while they lock in coal for another century?

  15. neroden 3 years ago

    The fact that Schott is lying about the cost assumptions on wind and solar, and lying about the many dispatchable battery projects, is a bad sign.

    Maybe someone can quietly point out to Schott that her claims are verifiably false and maybe she should be more careful what she says.

  16. mick 3 years ago

    just got around to watching her on lateline best thing for us now (sa) would be to pull of the nem my 2 cents

  17. Richard 3 years ago

    Schott could turn out to be the real hero in dousing Australia’s energy wars.
    As the front person selling the NEG policy from the ESB, I take it she had the major hand in its design?
    Regardless, the NEG is a brilliant policy idea that will result in the most efficient energy transition, while maintaining energy stability at least cost, given the political realities.

    Many jurisdictions globally will be looking to this idea going forward in negotiating the transition. It makes the bipolar political debate look stupid and impotent.

    • John Norris 3 years ago

      I originally thought you were being sarcastic? But maybe you’re not?

      • Richard 3 years ago

        I’m not ideological about it. It’s not the job of the regulators to set renewable policy, that is up to elected governments. This policy simply allows the regulators to manage the system in a changing policy environment and ensure the lights stay on.

        There is nothing more to it than that. If you want high renewable targets, then elect a government with that policy. Simple

        • Tony Pfitzner 3 years ago

          1) Elected governments direct regulators to manage policy.
          2) You are ignoring the lies and false assumptions. Acceptance of such lies is a feature of ideology.
          3) The NEG is a half-baked policy with little detail – a strategy by the “government” to kick the can down the road and appease the climate, science, and fact-denying rump of the LNP – and a repudiation of most of the economic analysis.
          4) High renewable targets will push prices down in the intermediate term, and are the foundation of a competitive economy.

          • Richard 3 years ago

            Of course they direct the regulator’s, der! But the government sets the policy, ie how much renewable is to brought into the system over what period. The regulators job is to manage that and provide advice to government on the best way to achieve it.

            Maybe their figures are a bit off and the policy is light on detail, that is being worked through. But that doesn’t mean the central idea is a bad one. The cost of firming capacity must be recognized in renewable contracts otherwise you kill the grid as more renewable is brought into the system.

            I don’t disagree with you on high renewable targets, that is a good idea. But getting that through the political system is difficult.

          • Mike Westerman 3 years ago

            Richard you ignore the context of this non-policy (or should I say, ghost policy). The regulators and their experts had developed a range of options to meet the government policy to embrace Paris and government policy to give greater priority to system security. The outcomes were Finkel plus work AEMO had been doing on synchronous inertia plus system support thru fast response storage. All this was thoroughly engineered, supported by evidence. What was lacking was the implementation framework to hold all these elements together in a way that was clear and certain so that investment would follow. Such a framework would have cited Finkel and his recommendations, including the establishment of the ESB, and incorporate the AEMO work. It would have set out targets and timetables that picked up what the states were doing, so that state targets could be subsumed into the Federal target. I would have countenanced the large outstanding task that is electrification of the transport sector including autonomous vehicles and made some attempt at the timing of a commensurate policy in this sector.

            Instead we had a cynical, somewhat pathetic ghost pretending to be a policy displacing what had gone before, built on “alternative facts” derived from a unique reconstruction of the evidence others have used, no certainty and hence no new investment, other than strong incentives for individuals to continue the record breaking installation of uncontrolled generation on their rooftops. The only commitment to storage has been the nonsense of Snowy 2, a technically interesting but unfinanciable mega scheme first looked at 35y ago, while practical schemes such as batteries for fast response, and localised pumped hydros are disparaged and ignored.

            In summary, a rerun of NBN – arrogant wordsmithing to sound clever but totally lacking in a shadow of ability to fix the real issues, big promises with no delivery.

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