Features Australia

Patchwork power

21 April 2018

9:00 AM

21 April 2018

9:00 AM

The Australian summer has passed with only the occasional blackout, although a possibly grim winter, once unseasonably warm weather in NSW has passed, may be a tough test of an electricity market where almost all new investment is flowing into unreliable renewables.

But the task of coping with any new demands due to the weather has been made easier by the abandonment of the 20th century idea that the power grid should deliver power to all consumers as and when they want it, hopefully at affordable prices. Instead, if consumers really want all the power they can use, at the right price, they are encouraged to produce and store their own.

As part of this major change in how grids are expected to operate, which has gone almost unremarked, if demand exceeds supply then the Australian Energy Market Operator pays major users such as the Alcoa aluminium smelters at Portland in Victoria to wind back operations, or switch to diesel backups if they have them. Despite that demand management, however, if the lights do go out for consumers on a hot day, as happened at least once in sections of Melbourne in summer, then that’s all part of the new energy revolution.

The additional expense incurred in accommodating ‘increasingly cheaper’ renewable energy is seldom discussed but occasionally some information slips through to the public. Before summer, Minister Josh Frydenberg declared that it might cost an additional $50 million in standby fees and activation payments. Nothing’s been said since about the actual cost for the summer months, but whatever the cost, retail prices remain high.

An Australian Energy Market Commission report released in December states that overall, electricity retail prices (each state is different) will increase by 10.7 per cent in 2017-18, over 2016-17. Thereafter, prices are projected to fall a meagre 5 per cent or so thanks to a surge in renewable energy generators coming onto the market, with those generators expected to keep wholesale prices down.

The report also estimates that about 14 per cent of the cost of the average power bill can be attributed to environmental policies of one sort of another, apparently without counting the Reliability and Reserve Trader Mechanism (asking major consumers to stop using power), or the cost of foreign investors going elsewhere. However, it is also known that the increasing use of renewables was one factor in the retirement of a number of older, brown-coal plants, with those major retirements resulting in a major surge in wholesale prices as capacity dropped out of the market.

Thanks to that market shake-up, the major remaining ‘horrid’ fossil fuel generators are reaping the benefits of high prices, but those price signals have so far failed to tempt investors into building more conventional power. Instead, the bulk of new plants the AEMC expects to enter the market will be renewable, with about 3,900 megawatts of installed capacity to be built in 2018-20. These are mainly to help power companies meet their obligations under various state and federal renewable energy initiatives. The sole conventional plant mentioned in the report as likely to be in service during that period is the Swanbank E gas plant in Queensland, rated at 385 megawatts, which is being taken out of mothballs.

This investor reluctance means that a major problem in the network is going begging – not the absence of coal fired power, but a shortage of the more responsive gas power plants. Commenting on the expected closure of the aging Liddell coal-fired power station in NSW in 2022, the chief economist for owners AGL Energy, Dr Tim Nelson, estimated that NSW at least would still have enough reliable base-load power. But due to the additional, intermittent energy on the system and declining demand the state could do with an additional 1,000 megawatt ‘fast start’ capacity. This is capacity that can be swung onto the system in a moment, when the wind stops blowing.

No such capacity is on the drawing board. EnergyAustralia was planning a 700 megawatt gas powered plant on NSW’s southern tablelands, for example, but the company has since declared that project has been put on hold due to forecast reduced demand. A note entitled Electricity Forecasting Insights produced last year by the Australian Energy Market Operator (this operates the power market – the commission sets rules) states that electricity demand is expected to remain flat for the next 20 years, despite a 30 per cent increase in population and average economic growth. This is due to changes in consumer behaviour, as well as improvements in energy efficiency and users generating their own energy ‘behind the meter’.

The changes in consumer behaviour are hardly new. Consultancies dealing directly with consumers have been pointing out for years that, rather than use expensive electricity to warm the living room while watching television before going to bed, for example, an individual consumer might simply throw a blanket over themselves.

But the casual acceptance that demand will be reduced due to consumers generating their own power still remains a surprise. A new and highly-inefficient pre-industrial revolution style cottage industry is emerging, driven in part by incentives, feed-in tariffs and high costs resulting from the rebuilding of the traditional networks, and no-one seems particularly troubled by this.

This casual attitude to policy making is reinforced by governments which appear unaware of the actual problem – the lack of peaking gas plants, rather than new coal-fired generators.

In the meantime, the Australian climate will continue to test this muddled energy policy. Although the big peak times occur in summer, the heaviest use is always winter as consumers try to stay warm. Maverick forecaster David Taylor, who runs the East Coast Weather Facebook page and makes forecasts through interpreting sunspot activity has declared that this winter will be one of record-breaking cold. This is most emphatically not supported by the mainstream forecasters who point to a mild winter. But if a very cold winter does eventuate this year or in another, with little sun and no wind, our patchwork energy network will be put to a severe test.

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