Why NSW may have to choose between football stadium and power stations

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It was clear at Transgrid’s stakeholder presentation day that despite NSW’s newly announced scheme, it is not doing nearly enough to prepare for the exit of most of its coal stations. It is talking the talk, but not walking the walk.

Cap-and-trade programs help replace electricity from fossil fuels with cleaner alternatives. Credit: Jan Brodbeck/Flickr
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On Thursday last week, Transgrid hosted a transmission planning day. As well as Gerard Reiter from Transgrid, we also heard from David Swift from AEMO, Dr Liz Devlin from the NSW Govt Department of Planning, and Alex Wanhas from Aurecon.

What did I learn?

Many times I seem to hear different messages to others, so please check for yourself.  What I took from an interesting morning was:

Fare more transparency is needed in the connection queue

I learned that there is not enough transparency in the connection process. By and large each player in the renewable industry operates in a secretive fashion and constantly seeks to gain commercial advantage over other players. AEMO’s David Swift several times made the point that this resulted in inefficient use of resources and a lot of wasted time and effort and duplication.

It would be better, he said, if once some threshold, such as a formal application, was made all details were made public so that the industry could see where projects were in the connection queue and some planning efforts could be shared.

Renewable energy zones have behavioural problems and there isn’t yet a good working model

More generally, Renewable Energy Zones (REZs) sound good on paper, but the devil’s in the details and in practice there isn’t much clarity on how to make them work. Aurecon stated that based on their assumptions REZ’s in NSW provided a $0.9 bn advantage over not having REZs.  So they are useful, using Aurecon’s assumptions, but not game changing.

Still, before we even get to the benefits it is clear that REZ’s need an economic model. REZ’s first require some transmission to be built, but Transgrid won’t adopt a “build it and they will come” approach. I find this disappointing and I think its one area where the State Government could throw its weight around a bit more.

Potential participants in an REZ at the moment have little incentive to co-operate and plenty of incentive to let someone else be the first mover. A first mover doesn’t want to share any advantage it obtains.

Right now the industry is at the point where the problems are understood but there doesn’t seem to be a clear way forward.

I personally think REZs main benefit is in the certainty and leadership they provide to the industry and that’s why I’m fundamentally in favour of a “build it and they will come”. Perhaps making some money available from the ALP’s proposed $5 bn Energy Security and Modernization fun [ESM] could act as a carrot to Transgrid to just get on with it.

(You can listen to a discussion on this in our podcast recording with Mark Butler, including on Labor’s proposed Energy Modernisation Fund).

Again I don’t think enough time has been paid to how it was made to work so successfully in Texas and perhaps the NSW Govt could make more use of the people in the Dept of Planning and Environment, Division of Energy, Water and  Portfolio Strategy with experience of Texas  to take advantage of their learnings.

Why one of the 1001 industry conferences doesn’t get someone from ERCOT as a guest speaker, instead of trotting out the same faces with the same messages time and tine again, is simply beyond me.

The same would go for getting someone from California. There are enormous learnings from these States in the USA that anyone with half a brain here in NSW should see is worth accessing.

Some transmission upgrades are on track, but slow, others are already behind

As I understood what AEMO’s David Swift was saying the South Australia – NSW interconnect RIT-T process is proceeding is on track for its admittedly tortuously slow schedule. What is being described as “mini QNI” upgrade (Qld NSW) is also on track but the NSW – Victoria upgrade is already behind. And this brings me to the main issue:

The NSW Govt doesn’t get it, or – if it does – good intentions are not the same as results

Obviously, no one said the above headline at the conference or anything remotely like it. Nor did anyone imply it. It’s just what I see when I look at what’s going to happen and what’s being done about.

This is not meant to be political. It was Paul  Samuelson who wrote one of the most widely used 1960s and 1970s textbooks on Microeconomics. He presented the choice as “guns or butter” or at least that’s the way I remember it from about 1974.

It’s perhaps crass in NSW to put it as “football stadiums or power stations” but that’s kind of how I see it.

Every presenter included in their presentation the now famous chart  showing  the expected closure date  of NSW power stations.

This shows that chart is dominating industry thinking.

They all think it’s so important they’ve created their own Excel version of it. Just like me. Except I’ve made it just NSW to emphasize that  90% of current NSW coal generation will retire by 2035 and essentially about 60 TWh of replacement energy is required. 60 TWh is about 3X what’s been built  or currently under construction. It’s 30% of NEM supply.

Figure 1 NSW coal fired electricity generation based on 50 year or announced closure and FY18 production. Source: Various

In contrast to views a couple of years ago, there didn’t seem to be any disagreement with the basic message of the chart, the NSW coal stations are going away sooner or later. Frankly there wasn’t any real support for end of life extensions. Of course if Trevor St Baker, much older than his power station but just as energetic, had been there we might have heard the minority view.

So the increasingly urgent problem is  in a nutshell

  • NSW is already a net electricity importer;
  • It is going to become a LOT more dependent on imports as the coal stations close; but
  • The required transmission links are running behind; and
  • NSW has one of the lowest rooftop PV penetration rates in the NEM;
  • NSW’s share of new generation investment in the NEM is well below its share of electricity consumption.

Our view is that this adds up to a failure of policy. It may not end in tears but there is a significant risk it will. It’s a very good thing, in my opinion, that the coal generation is going away. It’s a very bad thing if policy and market settings don’t replace it before it goes away.

Dr  Devlin pointed to the things the NSW Govt is doing. These include $170m on things such as “smart homes”; the EOI for putting pumped hydro on State water resources and $300m subsidy per year for low income users some of which could be converted to solar panel installations.

My argument is that this may convince some people that NSW is doing something, besides waiting for the market to solve the problem, but its not even close to being enough. It’s basically talking the talk but not walking the walk.

In my view the largest consuming State with increasing dependence on imports but the least investment in electricity clearly hasn’t got the policy settings right.

Whatever you think of the ideology behind Victoria and QLD’s 50% renewable targets we must sure all agree that they lead to more supply being built. NSW needs more self supply. Or if tis going to rely on imports it needs to be darn sure those imports are available and there is enough transmission to move them round the place.

If NSW wants the market to solve the problem it needs to give some credible signals in this direction.

At an absolute minimum, and we don’t think its anywhere enough, but just to start with it could give a commitment to developers that if you want to connect to the grid there will be enough transmission and you won’t be short changed by last minute revisions to MLF (marginal loss factors) or to having to pay for “condensors”.

However, we would definitely go further and take on some financial risk by running some reverse auctions for wind and solar say 3 GW over the next 3 years. 3 GW produces about the same amount of energy as Liddell maybe a bit more.

ESB could yet end up taking control away from Transgrid

Government is getting back into electricity one way or another.  COAG is due to hear from the ESB in December about what is the preferred way forward for transmission investment. This meeting could yet be boom, boom, “a circuit breaker”

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