The regulatory fail on “system strength”, and how it nobbles wind and solar projects

The Korean zinc refiner and large scale solar operator Sun Metals has delivered an eviscerating assessment of Australia’s energy regulations, saying key measures introduced to deal with “systems strength” issues are poorly designed, lack transparency and add unnecessary costs to new projects. And they have caused new investment to be shelved.

The detailed assessment from Sun Metals comes in a submission made last week to the Australian Energy Market Commission, and is broadly reflective of the views and frustrations in the renewable energy industry, which has long complained about the poor regulatory environment and its failure to keep up with evolving technologies.

The Sun Metals submission has added weight because of its unique position in the industry. Sun Metals is a major energy consumer, one of the largest in Queensland, and set new ground three years ago when it became the first major consumer to add its own solar farm, a 114MW facility that it says reduces its energy costs and paves the way to expand its refinery.

Sun Metals also led the push to switch to a 5-minute settlement rule, moving away from the 30-minute settlements that it and other energy users  said had been subject to widespread rorting by incumbent generators. That rule change, proposed in 2015, but delayed until 2021, is now likely to be delayed another 12 months, in a blow to the battery storage and demand management technologies it will likely favour.

Sun Metals, however, has also fallen victim to “system strength” issues in north Queensland which, as in other areas of the grid, has resulted in its solar farm, along with the Haughton solar farm and the Mt Emerald wind farm, being subject to severe curtailment at times.

In a letter sent to the AEMC on May 20, and signed by CEO Kathy Danaher, Sun Metals says the “system strength” framework is one of the three main issues causing a reduction in new renewables investment, along with grid congestion and marginal loss factors.

It says the minimum strength fault levels set by the Australian Energy Market Operator are often arbitrary, set too low, lack transparency, and are not updated, and are often declared “reactively”, meaning a shortfall is not declared until minimum levels have already been breached and leave the system in a shortfall for several years.

It points to its own area in north Queensland, where it says the levels were set too low, did not take into account any newly connected renewable energy generators, and were not updated soon enough. It says the imposition of the constraints on its solar farm and other solar and wind projects reflect a failure of authorities to respond in a timely manner. A similar complaint is levelled by projects delayed in West Murray.

Sun Metals also pans the controversial “do no harm” rules introduced by regulators, which Sun Metals says requires new projects to design their own costly “mitigation strategy” – which may include the addition of synchronous condensers – without having access to the full modelling of the local network.

The information provided by the local network owner “does not provide any useful information to this process,” Sun Metals says. “The connection applicant is unable to optimise the proposed solution in any way and this results in a highly inefficient and slow process.

“In addition, the current rules have been interpreted by TNSPs and AEMO to prevent connection applicants from accessing all but the most limited information about the results. As with system strength, there is a significant issue for investors with the predictability and the transparency of the process.”

These thoughts have been echoed throughout the industry, including in western Victoria and south-west NSW where system strength issues have also been keenly felt, and where regulators are also accused of being slow to react, causing delays to new investment.

Even the transmission owner Transgrid has lamented the “do no harm” rules, saying they have resulted in “ad hoc’ installations of synchronous condenser which may have actually weakened the grid rather than strengthened it. 

The submission from Sun Metals highlights the frankly appalling state of regulatory affairs in Australia’s energy market, thanks largely to a rule maker that has been slow to accept the inevitability and benefits of the clean energy transition, and has been glacial in its movements. Some accuse it of being deliberately so.

Sun Metals points to the same issues identified by Transgrid, suggesting that the lack of transparency, the lack of coordination, and the ad-hoc nature of the requirements are doing little, if anything, to improve system strength, are simply transferring responsibility from the networks to individual generators, and are leading to increased costs to developers and consumers.

“Many of the issues here can be fixed with relatively simple rule changes,” Sun Metals says, and it urges the regulators to design a framework that encourages “voltage source generators” to facilitate the switch from large synchronous generation to inverter-based technology.

“This includes not unduly favouring incumbent generators and not unnecessarily constraining or disincentivising renewable generation,” it says.

This is not the first time that new rules introduced by the AEMC in the last few years have been panned by the clean energy industry for putting market theory added of physics and engineering. Pacific Hydro, for instance, described AEMC’s proposals for “fault ride through mechanisms” as being “unsupported by sound engineering practise” and created significant safety risks.

“The dismissal of the physical reality is a significant concern and the implementation of these rules appears to place maximum risk of any grid failure onto generators without adequate technical understanding of the forces that must be controlled,” Pacific Hydro wrote.

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