Issue 181, May 2020
The value of a reliable electricity supply can never be more evident than in this national lockdown – and, so far, in the NEM and the SWIS, power suppliers are serving their communities well. But the focus for government and their advisers, as well as the supply industry and its regulators, has to go beyond the present horribly real emergency to the recovery period (with no clarity yet on when that may begin). At that stage affordability will again be as important as market security and reliability. Momentarily out of sight (notwithstanding the anxious cries of green campaigners and promoters of subsidized renewables) is the climate change issue but its return to a high profile is only a matter of time. Meanwhile work goes on to pursue an east coast market for the ‘Twenties and beyond capable of meeting the needs of those who sell power and those who use it – while promoters of technologies such as small modular nuclear reactors and carbon capture, storage and use continue to argue that there needs to be a broader focus than just variable renewable energy and pump storage.
“We have never seen an economic shock of this speed and magnitude” – Federal Treasury Secretary Steven Kennedy.
“With prolonged bushfires and major power separation events, changing markets and a reduction in operational demand, and the lowest east coast energy prices since 2016, it’s been an extraordinary start to the year” – Audrey Zibelman, Australian Energy Market Operator CEO.
“It’s essential Australian businesses and households have access to reliable and efficient energy supplies during the pandemic. There is a clear need for co-operation between industry participants to prevent any disruption” – Rod Sims, chairman, Australian Competition & Consumer Commission.
“Our energy systems and markets continue to operate steadily and we will continue to monitor the effects of the pandemic on supply and work with the sector to ensure we maintain reliable supply” – Federal Energy Minister Angus Taylor. “Australians should be confident that our domestic supply of gas and electricity is secure.”
“This winter many families will face a choice between heating their homes and having enough money for food and rent” – Craig Memery, head of energy policy, Public Interest Advocacy Centre. “Temporarily suspending disconnections and debt collections won’t stop winter energy bills for households jumping by $200 a month.”
Electricity sent to the grid on the east coast in the first quarter of pandemic-blighted 2020 was 3.5 per cent down on the same period last year. Meanwhile investment bankers Morgan Stanley estimate that demand for NEM grid power fell seven per cent in March, an outcome influenced in part by mild weather.
Data collated by analysts EnergyQuest shows that, excluding estimated use of rooftop solar, power sent to the eastern Australian system in the March quarter 2020 was 47,902 gigawatt hours – versus 49,645 GWh for the same period of 2019.
EnergyQuest also report that estimated use of rooftop solar power in the quarter was 9,872 GWh – up from 7,199 GWh in 2019, a rise of 37.1 per cent.
The analysts say that coal-fired generation in the 2020 quarter totalled 35,155 GWh, down 5.8 per cent on the 2019 period. However, this still represents almost 73.4 per cent of power despatched to the NEM. Add gas-fired generation (down 22.6 per cent from the 2019 period) and fossil-fuelled power production in the market in the 2020 quarter was 81.7 per cent.
Wind farms and solar farms contributed 11.7 per cent of electricity sent to the grid with hydro power providing 6.5 per cent.
The supply of green electricity at these levels might surprise followers of mainstream media and some websites – who were told in mid-month that renewable power on Easter Saturday was meeting 50 per cent of “the national grid” (the NEM). What these reports failed to explain was that this reference was to capacity (not output) over a two hour period in the middle of the day and included the estimated use of rooftop solar.
The OpenNEM website shows that at this point on Easter Saturday, leaving aside rooftop PVs, capacity on line amounted to 5,850 megawatts for wind and solar farms plus 480 MW for hydro systems versus 8,195 MW for black coal plant, 2,969 MW for brown coal units and 524 MW for gas generation. The claim boosting green power relied on estimated use of 4,839 MW of rooftop solar.
The Australian Financial Review reports TransGrid as saying peak demand in New South Wales this autumn is 10 per cent lower than in recent years following a summer peak that was predictably high.
Transgrid also says the reduction in NSW demand since the lockdown is primarily due to cuts in commercial and small industrial loads, with large industrial customers maintaining their requirements.
The Australian Energy Market Operator reports record system costs in the NEM in the first quarter of 2020 – hitting $310 million, or eight per cent of energy costs, much higher than the typical 1-to-2 per cent.
The operator says $144 million of the bill was recovered from energy retailers and $165 million from generators (who also receive revenue for providing system services).
AEMO says a key factor in the high costs was the 18-day separation of the Victorian and South Australian systems after a fierce storm knocked down six transmission towers at the end of January, impacting on frequency control ancillary services.
The New South Wales government has welcomed the Australian Energy Regulator speeding up approval for an upgrade of the QNI, the interconnector between the State and Queensland, enabling it to be operational 18 months earlier than initially planned..
Some of the project costs are being underwritten by the NSW and federal governments as part of implementation of a memorandum of understanding between them.
NSW Energy Minister Matt Kean says completing the QNI upgrade early is “critical” to ensuring the State can access affordable and reliable power following the phased closure of Liddell power station, scheduled to start in April 2022.
TransGrid CEO Paul Italiano says the project will reduce the reliance the QNI has on coal-fired generation in the NSW Hunter Valley to provide regional system dynamic stability and should reduce the difference between wholesale power prices between the State and Queensland.
In a statement, the AER estimates that TransGrid will incur $218 million in capital costs on the project – to be recovered from customers. Transmission charges will be raised by 1.7 per cent in 2021-22 and 2022-23. Clare Savage, AER chair, says cumulative benefits of the project are expected to exceed costs within seven years.
In February the AER also approved development of an interconnector between South Australia and NSW at a cost of $1.53 billion.
Lawyers Gilbert+Tobin declare two new Energy Security Board papers, published in late April, are “important” and “a significant step” towards maximizing benefits from technological changes now in train.
In a commentary, Gilbert+Tobin note that one paper, Moving to a Two-Sided Market, “will allow consumers to schedule their intentions and participate in the NEM” while the other, System Services and Ahead Markets, looks at the creation of new markets for reserve capacity, essential system services and demand response.
The lawyers say “these are important changes that will not only enable the market operator and network service providers to better understand the impact of large quantities of distributed energy resources on the system but will allow these and other resources to contribute to system security and reliability.” They add it is notable that the ESB recognizes “there is trade-off between higher levels of visibility for the system operator and the cost of technical requirements these might impose on scheduled (NEM) participants.”
However, Gilbert+Tobin say the two papers do not address an important question: “who will manage the complex flows of data and electricity at the distribution level?” They posit that it may be appropriate for a patchwork of local system operators to be introduced – with the Australian Energy Market Operator maintaining the central role of managing the wholesale market.
The lawyers argue “it is inevitable that in future we will pay for energy services differently.” And they add: “the real magic will be in the design of the transition path and in convincing all stakeholders that changes to tariff structures are necessary and appropriate.”
Releasing the papers, the Energy Security Board commented that its aim is to “make sure the east coast power system has the right essential services it needs at the right time.
ESB chair Kerry Schott said: “Consumers are already participating in the electricity market through their use of solar panels, electric vehicles and smart devices but this information is largely hidden, making it very hard for AEMO and other participants to know whether supply will meet demand.”
The Two-Sided Markets paper proposes simplifying market participants in to two categories: those who sell electricity and those who use it. This, according to the ESB, “will finally unlock data on consumer energy demand that is hidden behind the meter and needed to keep the power system reliable and secure.”
AEMO chief executive Audrey Zibelman commented that a two-sided NEM “will fundamentally change the way energy is traded to benefit consumers.”
The ESB proposes that the reformed market will be in place from 2025.
Hydro Tasmania has released new analysis, co-authored with the Australian Renewable Energy Agency, that it says confirms the long-term value of the “Battery of the Nation” project.
Stephen Davy, CEO of the State government-owned utility, declares the research supports claims that the project “can deliver new energy supply at costs lower than other known market options.”
He says “Tasmania has hundreds of megawatts of latent capacity and ample opportunities to optimize our existing asset base and build highly cost-competitive pumped hydro development.
“In particular, our existing and potential long duration (deep) storages allow us flexibility to best meet future NEM needs.”
“Battery of the Nation” aims to combine Tasmania wind and solar generation with hydro power and pumped hydro to export electricity to mainland Australia via a new transmission line as well as the existing Basslink cable.
The Tasmanian government has set a target of increasing the State renewable generation to 200 per cent of island needs by 2040.
“This target,” the government says in a new statement, “will create thousands of jobs and billions in investment, attracting more businesses and industries to our chores.”
March saw it being talked up but April has seen a degree of obfuscation; so what is the state of play with the federal government’s Technology Investment Roadmap?
In March, federal Energy Minister Angus Taylor told a Committee for the Development of Australia forum that the roadmap would be developed “on the basis of a series of detailed pieces of work” to be completed “over the course of this year” under oversight of a ministerial reference group chaired by chief scientist Alan Finkel – adding that much of the work is already done.
He signalled that the next big public step in the process would be a consultation paper to be released “in the near future.”
In April he told the Australian Financial Review that the process has been overtaken by the need to respond to the pandemic. “Work on the roadmap is ongoing,” he said. “It will be released in due course.”
The original pressure for delivery of the report was the need to be prepared for the next UN climate change summit in Glasgow towards the end of 2020, but this meeting has now been put off to some time in 2021.
The delay in producing the federal report has opened the way for promoters of radical action to get in first, with ClimateWorks Australia published its own roadmap in April urging “immediately accelerating deployment of mature and demonstrated zero-emissions or best-available technologies.”
What the organization and others of its ilk are not prepared to countenance is the lifting Australia’s ban on nuclear power supply. However, one of the leaders in the nuclear field, Australian National University professor Andrew Stuchbery, head of the ANU’s department of nuclear physics, believes that the technology and renewable energy “can complement each other in the quest for a low carbon economy.”
Stuchbery told the ABC in April that “the advantage of small modular nuclear reactors in comparison with renewables like wind and solar is that they deliver power with near 100 per cent capacity factor and there is no need for storage.” He added “nuclear power plants (can be) a direct substitute for fossil fuel thermal plants, plugging directly in to the existing grid system in the same location.”
More than 56,000 rooftop PV installations were added across Australia in the first quarter of 2020, according to the Clean Energy Regulator, accounting for 408 megawatts of new capacity. This was an increase over the same quarter in 2019 – when installations totalled 48,500 (capacity 325 MW).
Eastern States continue to account for three-quarters of activity, with Queensland and New South Wales seeing 224 MW added in the March 2020 quarter, followed by Victoria with 72 MW.
However, the pandemic lockdown impacted on March installations, with the Australian Energy Council observing that there appears to be a drop of 50 per cent compared with the previous month.
Promoters of PVs are now nervous about prospects for the rest of this year, having expressed hopes earlier that 3,000 MW of residential and small-scale commercial capacity would be added in 2020 – up from 2,130 MW in 2019. A sector survey indicates that a hoped-for surge in purchases of battery storage – as households and businesses seek to build resilience in their systems in the face of economic uncertainty – has so far also not emerged.
It remains to be seen whether a new federal government move to promote PV – providing tax deduction incentives for commercial and factory solar investment in its coronavirus economic response – will have any meaningful impact.
The McGowan government in Western Australia has launched its distributed energy resources roadmap to acclaim from promoters of renewables.
State Energy Minister Bill Johnston says rooftop solar panels, batteries, electric vehicles and microgrids are transforming the WA electricity system but they present challenges as well as opportunities for production and consumption of power.
Almost one in three households in the south-west integrated system (SWIS) now have rooftop solar and this is expected to rise to 50 per cent this decade. The roadmap, Johnston asserts, is “a robust plan for a brighter energy future.”
Steve Edwell, chairman of the taskforce that devised the roadmap, adds: “Rooftop solar is a great source of power but changes are needed to ensure that it helps rather than hinders the operation of the SWIS.”
The taskforce report says that, if not properly managed, there is a serious risk that high levels of distributed energy resources, most notably rooftop PVs, “will impact customers by eroding the security and reliability of the electricity system, (leading to) higher costs and a divide between those who can afford to install DER and those who can’t.”
The report adds that continuing uptake of rooftop solar at present rates “will see daytime demand fall to levels at which there is significant risk that the stability of the SWIS will be compromised.” This, it says, could be as early as 2022. If the problem is not resolved, the market operator will be required to intervene more frequently and to a greater extent than now to maintain system security, increasing customer costs.
The taskforce also warns that, without intervention, the south-west distribution system, “which was not designed to handle large amounts of solar generation,” will require costly infrastructure investment by Western Power – or imposition of limits on the size and number of PV panels consumers can install.
One of the other problems, it points out, is that the system load profile since the emergence of large use of rooftop solar features low demand in the middle of the day and high peak demand. “The existing flat electricity tariff structures are increasingly unsuitable because they do not reflect the true cost of supply from the grid.
Low Emissions Coal Australia (COAL21) says a University of Queensland study shows that deep emissions cuts – “in the order of at least 30 million tonnes annually for a minimum of 30 years” – can be achieved by establishing a large-scale hub using carbon capture, use and permanent storage technology.
CEO Mark McCallum argues that the three-year UQ study proves that the technology offers “a very real opportunity” for a project to reduce emissions from existing power stations “as well as many other industries” in regional Queensland.
He says the State’s Surat Basin has a large storage capacity with potential for “sustained, high-rate injection over many years.”
McCallum adds: “The beauty of a Queensland carbon hub is that industries of the future could be enabled. That means energy security, jobs and a transition to cleaner energy and a low-carbon economy.”
He says: “CCUS can make the fastest, single most significant contribution to emission reduction globally. Both the Intergovernmental Panel on Climate Change and the International Energy Agency advise CCUS is essential for achieving climate change targets and the only technology available to deeply decarbonize large industrial sectors.”
UQ professor Andrew Garnett, who directed the Surat study, says a CCUS project for the basin could comprise a number of incremental investments to avoid a large “all or nothing” approach.
“Carbon capture and storage may be essential to buy us the significant amount of time required to develop reliable, affordable, low-carbon baseload power and other decarbonization technologies.”
Garnett adds: “It is conceivable that commercial scale capture and storage (in the basin) could commence around 2030 but we need to start the process now.”
At another time, it might be front page news but, in the period of the pandemic, sobering reflections on the southern States domestic gas outlook fall well down the media’s attention span.
Early April saw consultants Rystad Energy warning that the region’s gas supply, without significant investment in new resources, was likely to be some 90 billion cubic feet short of demand by 2024, rising to a 600 bcf shortfall by the decade’s end. And concern has been expressed that the Victorian government decision to lift its ban on onshore exploration is unlikely to relieve the medium-term outlook because it won’t come in to effect until July next year.
A key factor in the situation remains falling production from offshore fields in Bass Strait. Supply from existing southern developments is expected to reduce by more than a third over the next five years.
Rystad say that proposed LNG import plants for Victoria and New South Wales will still be needed in 2022 to bridge the gap. The firm adds that, at current low international LNG prices, “an incredible 67 per cent” of Australia’s discovered but undeveloped resources are at risk of not being brought to market.
Rystad do not expect very low Asian prices to persist but say today’s situation “highlights just how vulnerable Australian operators would be in a lower-for-longer price scenario.”
Meanwhile a CSIRO work group has completed a three-year study in to the social and environmental consequences of hydraulic fracturing in Queensland’s Surat Basin petroleum fields and declared the technology presents “little or no impact” on air quality, soils, groundwater and waterways. Federal Resources Minister Keith Pitt says the study “dispels the misinformation activists have been spreading about the CSG industry.”
April was to have been a momentous month for climate emergency activists; piggybacking on the fiftieth anniversary of “Earth Day,” it was intended for millions to take to the streets around the world, garnering massive media attention and fresh impetus to put pressure on politicians in a push towards influencing the next UN climate summit in Glasgow in November. However, the coronavirus snatched centre stage, mass rallies are not on, the Glasgow meeting is postponed until some time in 2021 and the media and policymakers have an overwhelming abundance of here-and-now emergency matters to occupy virtually all their time.
The International Energy Agency’s Fatih Birol made a crisp point at the start of April: the energy sector, as a key enabler of modern life, is uniquely affected by the pandemic crisis and is critical for global and national responses and recovery efforts.
The situation, he noted, highlights the value of electricity infrastructure and know-how in particular as many millions of people are confined to their homes, a lot resorting to teleworking to do their jobs, to e-commerce sites to do their shopping and to the Internet for entertainment essential to sustaining mental health. Electricity, Birol added, underpins things people (at least in the developed world) take for granted: fridges, washing machines and light bulbs, for example.
Here, as elsewhere, the focus for now is very much on ensuring that electricity remains flowing to household, commerce, manufacturing and other consumers – and not least on ensuring that vehicle fuel supply systems (dependent on electricity) keep operating as ongoing delivery of food, medicines and other essential goods depends utterly on the transport sector.
It would be foolish to think the Australian community has ditched its concerns about carbon abatement – but right now the far bigger focus is on using the existing, largely fossil-fuelled, energy supply sources and delivery networks to help keep the virus crisis from becoming an even worse national disaster. The challenges this imposes on the interlinked elements of the power supply chain and the highly-skilled people keeping it operating shouldn’t be lost to sight as the nation (rightly) praises its health and emergency services personnel for their extraordinary work.
The other angle to energy issues is that there will be an “after” when the pandemic ends or wanes – a “Pandexit” as one wit has dubbed it – and both electricity and gas services, not least their costs, will be just as important to pursuing economic recovery. How well Australia copes with this next challenge will underpin all else that follows.
Some of the workers in this reform and transition field have been pursuing their activities for a fair while – too long and ponderously, the critics of the process were scolding only weeks ago, with the media happy to give them prominence, especially where the raging related to climate change. As this newsletter reports, the reform work in ongoing and will come again in to public gaze in the months ahead. Controversy when it does is pretty well inevitable.
There is, however, a fresh front here in the form of the National Covid-19 Coordination Commission chaired by Nev Power – with a review of energy and the utilities (led by EnergyAustralia’s Catherine Tanna) as part of its remit. The NCCC’s reporting will be direct to the Prime Minister (and shared with other first ministers via the National Cabinet).
What the NCCC will propose can only be speculation at this stage. Its role is to ensure the governments receive the most comprehensive advice available to enable an effective dealing with “Pandexit.” In a nutshell, one task for the commission is to suggest how best to provide reliable, sustainable and competitive energy to help industry contribute to the fastest-possible recovery from the crisis. That is a lot easier to paraphrase than to produce.
One thing the NCCC can usefully do in the energy space is to drive home to our political leaders the core fact that sound policy for the very changed future we face must – not should, but must – allow for all technologies for electricity production to be available. None should be discarded or set to one side because of partisan views (whether political or green activist). Australia finally embracing this position would open the door to risk-taking investors to pursue efficient projects in a market place that is a level playing field.
The clamoring that is already under way to promote green investment to the exclusion of all else would be – and should be – ignored in a new technology-neutral regime, opening the door to investor consideration of modern nuclear and carbon capture technologies and, notwithstanding its toxic past political history in this country, to an efficient carbon pricing system (because you can’t have one without the other to take up national responsibilities on climate change).
Can this all be successfully pursued? Well, if the catastrophic virus offers us one big lesson already, it is that easy and lazy assumptions pave the way to hellish outcomes. Energy is only one aspect of change that we face going forward, but it is one of the most important and getting the fundamentals right at last would be a strong positive step in the best direction for Australians.
Keith Orchison
30 April 2020