South Australia covers its arse and its FCAS in new energy plan

South Australia’s bold new energy plan – and you’d have to call it that considering its leadership in renewable energy – is both an energy document and a political one.

It’s an energy one, because once again South Australia is leading the country, and possibly the world, by being the first to install a mega-size battery storage device of at least 100MW, to help balance its world leading share of renewable energy, which is already nearing 50 per cent (wind and solar).

The battery storage tender is being introduced alongside a new plan called an energy security target, to ensure that its surplus renewable energy supplies come hand-in-hand with some sort of storage, to both store wind and solar when needed, and to provide grid security.

It’s a political plan because the Labor government knows it cannot allow any more blackouts, even if the general population are more appreciative of renewable energy than the Coalition would like to think.

It’s quite an extraordinary step to invest $360 million in a new gas-fired generator, whose primary purpose is to act as an “emergency back-up” in case other generators don’t operate. But as premier Jay Weatherill says, it no longer has faith in the market operator to act in the state’s best interests.

It is so worried about this security issue that if this new gas generator cannot be built by summer, it will order in back-up diesel and gas generators to ensure that supply is sufficient.

Here are the four major policy initiatives from the new plan, with explanations:

Battery storage:

Premier Jay Weatherill insists that it is just a coincidence that the state’s tender for at least 100MW of battery storage just happened to come five days after the “billionaire tweets” of Elon Musk and Mike Cannon-Brookes suddenly made battery storage front page news.

In any case, energy minister Tom Koutsantonis is expecting a heap of interest in the tender from battery storage players, which will likely attract Tesla, Lyon Solar (with AES), Zen Energy (Greensmith), Perth-based Carnegie and any number of other players.

The tender is expected to be so competitive that Koutsantonis suggested only a fraction – say $15-$20 million – of the newly formed $150 million Renewable Energy Technologies Fund would be needed as a government grant or loan. (The SA government is effectively duplication the roles of the CEFC and ARENA to make sure that the project happens in their state, where they say it is needed most).

The remaining money, Koutsantonis says, will be used for further tenders, which also could be used for other storage technologies such as battery storage pumped hydro or possibly solar thermal.

New gas plant:

The South Australia government will spend $360 million building a 250MW gas plant – for no other purpose than to act as an “emergency” back-up. And it will give itself emergency powers so it can switch it on when it wants.

The government argues that it has no choice because it can no longer rely on a National Energy Market system that allows customers to be blacked out rather than requiring an idle gas generator to fire up, as happened in the February 8 event that led to this new energy plan.

In reality , the Labor government is spending the money because it knows it can not allow such events to be repeated, even though many would argue that its other measures – new battery storage, and emergency powers to the energy minister – are more effective and more immediate.

Premier Weatherill says the new gas plant would not compete with AGL, Origin or Engie in the normal day-to-day running of the wholesale market, but would fire up when needed in case of a potential shortage or severe weather event, when treasurer Tom Koutsantonis said it would be bidding in at the market cap of $14,000/MWh.

It also intends to play in the newly formed FCAS market – meaning frequency and ancillary reserves – which is to be introduced by the slow-moving Australian Energy Market Commission to encourage more players in the market that delivers energy security.

It’s hard to imagine this being anything other than a significant loss maker, but Labor will be hoping for a better return on its political capital.

The government also announced a doubling of incentives for new gas generation – presumably so this plant has some gas to burn – but energy analysts do not expect this to increase gas availability, because of the long lead-times and the falling cost of renewables and storage.

Indeed, the decision by Santos to work with ZEN Energy to build a new solar farm, rather than drill for more gas, in order to free up gas reserves, suggests that gas exploration is already out of the money.

Energy Security Target

This new scheme appears to be the brainchild of Danny Price’s Frontier Economics, the architect of the emissions intensity scheme.

And it could be a model that could be taken national. Price told RenewEconomy that it would act in a similar fashion to a renewable energy target, in that the onus was on the retailer, and to an EIS, in that it gives a credit for dispatchable or “synchronous” generation.

Clearly, more work needs to be done on the finer details, even if it is due to come into effect by July 1. It aims to ensure that 36 per cent of all local generation is “synchronous”. That roughly relates to the current share of gas generation in the state (about 40 per cent comes from wind and the rest from imports).

The target is for 50 per cent by 2025. The aim is to reduce imports from Victoria, and to ensure that new wind and solar is accompanied by some sort of storage.

The documents mention only “synchronous” generation such as gas, solar thermal and pumped hydro, all of which use big turbines.

But under questioning from ZEN Energy chairman Ross Garnaut, and from RenewEconomy, Price and Koutsantonis insisted it would also be open for inverter-based technologies such as wind and solar with battery storage, as long as they could provide a similar service.

Garnaut, who plans a major solar farm and a “big battery” around Port Pirie and Whyalla seemed satisfied, saying that battery storage could be tweaked to do just that.

RenewEconomy hasn’t crunched the numbers to work out what exactly this means for future solar and wind developments, and how much could be built without storage.

But clearly the price signal will be there. As to what the price will be, and whether it would be sufficient and long-term enough to encourage storage and solar towers and storage over gas, Danny Price said he had done the modelling, but had not been authorised to release it yet.

Government procurement tender:

This drawn out tender for 75 per cent of the government’s state-wide energy needs is finally nearing its end-phase, or so we are told, with an announcement to be made “soon”.

Apparently there is now a shortlist, and it includes no existing generators, which means that Pelican Point is out of the equation. Weatherill said there were three in the shortlist, but would not comment further.

RenewEconomy raised a question when it supported Frontier Economics assessment of the new energy plan and its assertion that the tender was seeking to source power from a “high efficiency, fast start gas generator.”

Does that mean that solar thermal is out? we asked. No, that must be a misprint, government officials hastened to add.

Another tender, to allocate 25 per cent of its capacity to “dispatchable” renewable energy sources, is also to be announced soon, the government officials said.