Strategic investment needed to support energy transformation

The release of the 2016 Electricity Statement of Opportunities (ESOO) today by the Australian Energy Market Operator (AEMO) highlights the need for Australian Energy Ministers to improve current processes for co-ordinating national energy and carbon policy.

ESOO provides National Electricity Market (NEM) participants, investors and policy-makers with a projected 10-year outlook of supply adequacy under a number of scenarios – and this year, further generation withdrawals have been modelled in response to the COP21 emission abatement commitment.

From the information provided by industry, and assuming no additional generation withdrawals to occur between now and 2025-26, the only projected supply shortfall in the 2016 ESOO occurs towards the end of the outlook period in New South Wales.

Energy Networks Association (ENA) CEO John Bradley said the report did not change the need to decarbonise Australian energy – but it did identify the need for integrated carbon and energy policy and a planned transition to a cleaner energy system.

“Australia’s transition to a cleaner energy system is non-negotiable. The AEMO report shows the need to anticipate threats to system reliability, security and price volatility,” Mr Bradley said, warning the NEM could “drown under the weight” of competing state and federal carbon and renewables policies.

“Australian market bodies like the AEMO and AEMC are actively planning for the dynamic changes in our generation mix, but the policy makers can do more to assist,” he said.

“COAG Energy Council could take a practical step to support integrated carbon and energy policy by agreeing to incorporate an explicit assessment of national energy market implications when developing jurisdictional initiatives.

“Governments already assess new initiatives for regulatory burden, so it makes sense to assess proposed carbon and energy policy initiatives for impacts on national energy markets or network efficiency.

“To ensure an assessment independent of any government or political party, the COAG Energy Council should consider commissioning the Australian Energy Market Commission (AEMC) to undertake this role.

“Australia needs a clearer process for integrating carbon and energy policy nationally, because the current system isn’t working.”

As the NEM generation mix continues to keep pace with new technology and policy changes, AEMO chief operating officer Mike Cleary said future supply adequacy will depend on the availability and capability of new supply options providing electricity services when needed.

“The 2015 ESOO identified NSW, South Australia and Victoria as potentially being at risk of breaching the reliability standard at various points over the next decade,” he said.

“The latest information suggesting only a shortfall in NSW in 2025-26 takes into account a reduction in demand forecasts, and illustrates a market response with some planned plant withdrawals deferred and an additional 537MW of wind generation capacity announced.”

However, additional to the information already announced by market participants, AEMO has modelled scenarios that assume the COP21 commitment is achieved, investigating the impact of potential, but not announced, generation withdrawals.

“AEMO has modelled the impact of withdrawing a further 1360MW of coal-fired generation capacity to meet the COP21 commitment under AEMO’s neutral scenario, with results suggesting potential reliability breaches occurring in South Australia from 2019-20, and New South Wales and Victoria from 2025 onwards,” Mr Cleary said.

“These breaches would most likely occur when demand is high (usually between 3-8pm), coinciding with low wind and rooftop PV generation, and low levels of electricity supply imported from neighbouring regions.

“In this scenario, the majority of coal-fired generation withdrawals are assumed to come from Victoria, which would reduce that State’s generation output to support South Australia and New South Wales via the interconnected network.”

The 2016 ESOO report outlines the importance of maintaining power system security during this period of rapid transformation and, with the potential withdrawal of coal-fired generation across the NEM, a number of support services will need to be provided by other resources.

“The secure operation of the NEM’s 40,000km transmission network, which transports generated electricity to demand points, is reliant on support services that manage the rate of change of frequency and system restart services,” Mr Cleary said.

“AEMO is signalling potential future supply gaps in providing these important stability services, gaps which could be met through prospective new forms of electricity generation, or alternative technologies.

“To maintain a secure electricity supply demand balance during peak demand periods, AEMO is working closely with industry to identify both network and non-network developments. Possible solutions could include an increased interconnection across NEM regions, battery storage, and demand side management services.”

AEMO’s 2016 ESOO follows the recent release of the 2016 National Electricity Forecasting Report, which looks at forecast electricity demand trends throughout a 20-year horizon. The ESOO analyses these demand trends against future generation availability to identify any potential breaches of the NEM reliability standard, which requires that no more than 0.002 per cent of annual operational electricity consumption should go unserved for any region in any year.