Should NSW coal be replaced by South Australia wind and solar?

Expect in the next few days, weeks, months and even years to be bombarded by reports calling for new transmission lines to be built across Australia’s main grid.

Proposals are going to come from everywhere. To connect the giant Snowy 2.0 pumped hydro scheme, to connect Tasmania’s “battery of the nation” project to the mainland, to create renewable energy zones in Queensland, NSW, and Western Victoria, and to offer an extra link to South Australia.

The premise is simple. More and more electricity will be supplied from local sources, but even when half of it comes from a “decentralised grid”, more links will be necessary to deal with the diversity of supply.

In the next week or so, AEMO is due to release a first draft of its Integrated System Plan – its assessment of what is needed to ensure that Australia is able to properly deal with the inevitable transition to clean energy, and how it manages a future grid reliant on wind, solar, hydro and storage.

The ISP will not be constrained by an attachment to coal, nor a blanking out of the future that has hindered federal policy making. It will assess what is needed both under Coalition and Labor policies, and what is required for a 70 per cent and a 90 per cent cut in emissions by 2050.

That report was preceded late last week by the transmission proposal that is most advanced – and apparently considered by AEMO to be one of the most important – providing another link from South Australia to the rest of the main grid.

A whole bunch of different scenarios were considered by South Australia transmission company ElectraNet – no new link at all and a reliance on local storage and generation; a third link to Victoria; a $1.8 billion high-voltage link to Queensland; and multiple options for a new link to NSW.

In the end, ElectraNet has settled on a favourite – a $1.5 billion HVAC transmission line, rated at 330kV with 800MW of capacity, connecting South Australia’s mid-north to Wagga Wagga in NSW. (It’s the purple line in the top graph).

The reasons cited in its Project Assessment Draft Report, were that:

The new link would provide greater opportunity for South Australia to unlock even more of its low-cost renewable energy sources, it would reduce the reliance on expensive gas in that state, and would help fill the gap caused by the retirement of more coal generators in NSW.

Most of the new links studied delivered “negative” or only marginal market benefits, and the economic case for the favoured proposal is not exactly mind-blowing.

ElectraNet puts the economic benefits of the $1.5 billion investment at $2 billion over 21 years, which is just under $50 million a year. Households looking at battery storage would get a better return.

Modelling by ACIL Allen for the proposal suggests that the reduction in wholesale costs would be $100 million a year, which translates to just $30 a year in reduced bills to South Australian households, and $20 a year in reduced bills to households in NSW.

This is going to be one of the tests of these network investment plans. Are they really necessary? Are there local alternatives, and are the current regulatory investment hurdles – known as RIT-T – flexible enough to recognise broader benefits and costs?

ElectraNet did look at the “non-network” alternative of relying on local resources – solar thermal and pumped hydro in Port Augusta, battery storage at Tailem Bend and elsewhere, a 400MW “virtual power plant” and synchronous condensers.

It was not its preferred option – it is a transmission company, after all – but we’d like to see the detailed modelling before deciding whether to agree with them.

The idea of the new transmission line has the support of the new South Australia Liberal government which, ironically, killed the idea of a new link when it was last in government 16 years ago, and was trying to maximise the price of the state-owned energy assets it was selling.

Still, this is what ElectraNet said about its favoured proposal to Wagga Wagga NSW:

The new inter-connector would be ready by 2022 to 2024, which is just after the likely closure of Liddell, but before the anticipated closure of other coal generators that could leave NSW with just one coal generator – Mt Piper – by 2035, if not earlier.

It would deliver “immediate” market benefits, but these are likely to be for South Australia, rather than NSW.

In the first instance, access to lower cost generation in NSW will deliver benefits to South Australia because it is cheaper than its expensive gas generators.

Over the longer term, and as NSW sees coal exits, the proposition is that this unlocks the ability for more wind and solar to be sourced in South Australia to deliver “low cost” renewables to the rest of the grid.

“In the medium to longer term, new interconnection provides diverse low-cost renewable generation sources to New South Wales,” it says, noting this would be a lot cheaper than gas. (It doesn’t seem to contemplate whether this is cheaper than NSW-based wind and solar).

“In the longer term, an enhanced ability to export low-cost power from South Australia, including renewables, can also provide market benefits by enabling supply in other jurisdictions to be met at a lower overall cost, as existing coal-fired plant retires.

“This is particularly the case for options involving new interconnection to New South Wales, which is forecast by AEMO to experience the greatest retirement of coal plant in the period from 2030, and which otherwise would rely on higher cost sources of generation to fill the resulting gap in supply.”

Unsurprisingly, the gas industry doesn’t like the idea. Engie, which owns Pelican Point, Delta Energy, SEA Gas and their lobby group, the Energy Supply Council, all said the new interconnector would reduce the viability of gas generators in the state, and shorten their life span.

AGL’s ageing Torrens B gas units are considered likely the first to go.

On this point, ElectraNet also says it disagrees with AEMO’s gas price assumptions, including in the ISP, which it apparently has seen, saying its low gas price assumptions – one of the main scenarios used in the planning – are wrong.

“We do not consider such a low price to be a plausible outcome,” ElectraNet says.

The wind and solar and storage industries may also not like it. The report seems to suggest that new generation investment will be reduced in the short term (see table above) even if over the longer term it encourages more wind energy and would result in less curtailment.

ElectraNet insists, however, that a new link is necessary because the continued growth in rooftop PV installations is leading to the minimum grid demand approaching zero in the mid-2020s, and without the new link “future rooftop PV installations will have to be controllable in order to disconnect them when operating as an island.”

ElectraNet says the new link will facilitate the transition to a lower carbon emissions future and the adoption of new technologies, “through improving access to high quality renewable resources across regions,” and will enhance security of electricity supply, including management of inertia, frequency response and system strength in South Australia.

“New interconnection also provides benefits through enabling greater integration of renewables in the NEM,” it says, and will avoid “intra-regional transmission costs that AEMO estimates in the ISP would otherwise be required to unlock additional renewable generation resources in the Murray River and Riverland REZs.”

That last paragraph sums up some of the difficulties and challenges as decisions are made over future investments. Apart from the ideological blockade at political levels, self interest reigns supreme, network providers are lined up, not just against gas generators, but also against each other’s proposals.

Will there be any adults in the house, to help the poor consumer?

Note: Capacity proposed line corrected to 800MW instead of 8000MW as originally published.