Blackout risk remains high

Blackout risk remains high

Matthew Warren, former chief executive of the Australian Energy Council, the Energy Supply Association of Australia and the Clean Energy Council and author of How is energy-rich Australia running out of electricity, continues to sound the alarm bells on our fragile and failing energy market.

He writes the following in today’s AFR:

If South Australia is a glimpse of our electricity future then it appears to be dysfunctional rather than dystopian. It reflects a disorganised and inefficient shuffle towards a regulated electricity market, requiring ongoing government intervention to repair problems created by earlier government intervention.

The problem: intervention begets intervention. The uptake of intermittent wind and solar penetration has been driven by subsidies without due consideration for the need to maintain affordability and reliability.

A decade of managing climate risk without having a national climate and energy policy has resulted in a patchwork of political interventions that have impeded crucial investment and gradually degraded the capacity of the machine until its ability to cope with contingencies – from fires to heatwaves – was compromised.

The subsidies have sent the wrong ‘market signals’, perversely resulting in underinvestment in affordable, dispatchable power, driving power companies to close reliable coal power stations such as Northern in South Australia and Hazelwood in Victoria and caused increased price volatility, driving price increases well above CPI.

Warren notes that the incentivisation of unreliable forms of power continues.

On Tuesday EnergyAustralia chief executive Cath Tanna suggested renewable investment should be paused until enough new firming generation could be installed to support it and demand was better managed.

This hasn’t deterred the Victorian government, which has committed to 50 per cent renewables by 2030. The target is creating similar commercial risks for new firm capacity. As in South Australia, increasing renewables can be expected to eventually take out some of the remaining coal-fired power stations.

Renewables advocates like to talk about how cheap wind and solar is. But they need to use ‘creative accounting’ to do so, externalising the cost of intermittency.

In its much-publicised 2013 paper on the feasibility and cost of a 100 per cent renewable grid in Australia, the Australian Energy Market Operator observed that this type of renewables-based grid would require a capacity of around double the maximum demand levels to cover the intermittency of wind and solar.

You see, wind power only averages 30% of its installed capacity, with a range of 0% to 100%. Solar PV averages around 25%, with a range of 0% to 60%.

The big policy failure was not requiring wind and solar projects to provide backup power and storage solutions to ensure ‘firm’ supply.

The simple reason for this failure is neither wind nor solar stack up financially on their own, let alone with the added burden of having to actually meet demand.

The solutions held up by renewables advocates, such as the ‘worlds largest battery’ in SA, can do some things reasonably well, such as frequency control services, but cannot affordably bridge the gap of reliably meeting demand. As Warren notes…

Battery storage is useful to provide technical services in the grid, but it’s expensive and relatively small in scale. The world’s biggest battery in South Australia is tiny in the scale of that grid.

Of all the potential storage solutions, pumped hydropower is currently the cheapest, but it’s dependant on geography and rainfall (or snowmelt).

To understand how increased penetration of intermittent renewables increases the risk of blackouts, we need only look at the data from South Australia, which relies heavily upon natural gas generators and electricity imports from Victoria’s Latrobe Valley brown coal generators.

Here’s where SA gets its baseload when the wind isn’t blowing and the sun isn’t shining:

Source: AEMO

The above paints an interesting picture. Wind is providing little electricity. Almost 200MW is being sourced from neighbouring Victoria. The rest is provided by fossil fuel generation within the state. And given the fact that wholesale gas prices have skyrocketed over the past few years, the cost of backing up wind and solar with natural gas has amplified the ‘cost of intermittency’.

The below maps show SA wind farms operating below 30% capacity at 7:15 am while gas-fired generators exceed 90% in response.


The following two charts show the difference in the energy profile between SA and Victoria:


The purple and red areas are fossil fuel-generated electricity. Contrast this with the below chart of Victoria’s baseload of brown coal-fired electricity at the same time:

In short, intermittent wind and solar can’t track demand. Instead, intervention is increasingly required to force demand to track wind and solar.

Storage can help but it will be at a huge cost.

The solution?

Clearly, there’s no silver bullet, but Warren does commend the introduction of the Retailer Reliability Obligation (RRO) last month.

The obligation, if invoked, requires electricity retailers to ensure that they have contracted enough firm generation to meet their share of peak demand. It’s like a game of musical chairs, except in this case whoever doesn’t have a chair when the music stops has to build one.

Despite this admirable effort to bridge the gap, Warren goes on to highlight the challenge may be the RRO’s reliance on a market mechanism to drive new investment when the market signals have already been so compromised.

Unbalanced intervention, though well-intentioned, has resulted in deteriorating affordability and reliability.

We believe a sensible, economically sustainable transitional approach that seeks to balance reliability, affordability and emissions intensity, while remaining technology-neutral, should prevail. Under such an approach measures could be taken to utilise Victoria’s vast, world-class lignite resource to underpin reliability and affordability, allowing renewable energy generation the time to mature to the point of commercial viability instead of forcing them upon the consumer before they are technically or economically ready.

Under such an approach, carbon capture and storage (CCS) could be applied to brown coal power generation. The challenge there is getting the cost down. In any event, it makes sense to avoid the emissions in the first place, thereby avoiding the need to capture and store them.

This is where our Coldry technology comes in.

Coldry is a pre-combustion emission reduction solution that costs less per tonne of CO2 avoided than the short-lived carbon price of $23t back in 2012, and less than the cost of CCS.

By efficiently and cost-effectively removing over 80% of the moisture in brown coal before combustion, around 30% less CO2 is emitted. When integrated with a new high-efficiency, low-emission (HELE) power station, the reduction in CO2 compared to existing brown coal power station can be as high as 62%, lowering the burden and cost of CCS.

We look forward to a return to reliability and affordability in our electricity network but suspect the damage will take considerable time to unwind.