South Australia’s Labor government says it wants to bring back two mothballed diesel generators to act as supplier of last resort in an admission that the state has failed to deliver enough demand side options as it charges towards its target of 100 per cent net renewables in 2027.
French owned utility Engie flagged this year it is mothballing its 75 MW Port Lincon and 63 MW Snuggery diesel generator ahead of an expected final exit in 2028 because they were no longer profitable, squeezed out of the market by more flexible battery storage.
But state energy minister Tom Koutsantonis wants to bring them back on standby – at least for the next two summers as part of a reserve trader mechanism.
Koutsantonis cites concerns about forced load shedding due to high demand in summer, the delays in connecting the new transmission link to NSW, and the lack of demand side options.
It is the latest move by the state government to ensure it has sufficient dispatchable capacity to fill in short and long term supply shortfalls. Earlier this week, Renew Economy revealed the state is proposing a capacity market that would include existing and new gas generators, which the clean energy industry has labelled a backward step.
The new Project Energy Connect transmission link to NSW, now expected to be fully connected in 2027 after delays on the NSW side, is expected to reduce the share of gas in South Australia to minimal levels. But the state is still concerned about wind droughts in autumn and summer, and also having enough capacity to respond to summer heatwaves.
The latest proposal requires a rule change to be urgently agreed by the Australian Energy Market Commission, essentially to allow certain exemptions to allow these two generators to be used over the next two summers, when they are most likely to be needed.
That is because the two generators had been operating within the last 12 months, a fact that would normally exclude them from consideration in the market operator’s reserve trader mechanism.
The state is seeking an urgent ruling because it says Engie has indicated that work will be required at both diesel generators to make them available this summer and the government needs time to negotiate a deal.
In his letter to the AEMC, Koutsantonis argues that the two generators would only be required in an LOR3 (lack of reserve 3) type situation when load shedding was the only other option.
He says that in these circumstances, the market price would likely be at the market cap of $17,500/MWh, so the use of these diesel generators would not distort the market and may free up capacity for other uses..
But his application also acknowledges the lack of demand side options in the state. “South Australia typically has very limited demand side reserves available to AEMO,” the application says.
Later, it cites this “historical lack of demand side participation” as one of the key reasons for its application, along with uncertainty regarding the timing of energisation of Project Energy Connect, the new link to NSW, and anticipated demand over the approaching summer, for the change of rules.
The lack of demand side participation, and the focus on energy supplies, has been one of the big frustrations for many analysts, and particularly the proponents of energy efficiency and other demand side measures whose entreaties over the past two decades have largely fallen on deaf ears.
This has been a failure of public policy, and of regulators and rule makers who have decided not to push through with proposed changes – often at the behest of old-school energy types, such as the former Snowy Hydro CEO Paul Broad, who would label demand side options as “enforced blackouts.”
Consumers are now paying the price of this single minded obsession with supply side options, and so, too, might governments as they resort to the measures proposed by South Australia and have to deal with the sort of price hikes to the market cap, and the impact that will be felt on consumer bills in the future.
It is one of the great hopes of the market reform kick started on Tuesday by federal energy minister Chris Bowen, with the appointment of an independent panel led by Tim Nelson, that it can finally look at both sides of the energy equation, and help unlock consumer resources as well as the high cost assets of the big utility players.
