Month: September 2020

AEMO’s governance in question

Energy Networks Australia (ENA) represents Australia’s electricity transmission, distribution networks, and gas distribution networks. The Australian Energy Council (AEC) represents generation companies. Recently, ENA and the AEC have engaged Cambridge Economic Policy Associates (CEPA) to investigate the governance arrangements of Australian Energy Market Operator (AEMO) within the National Electricity Market (NEM).

The AEC and ENA raised concerns over AEMO’s expenditure on transition studies and planning. Specifically, the pace of change proposed by AEMO and their approach to new technologies such as virtual power plants and new market mechanisms.

CEPA reviewed similar government models from international market operators and has now proposed alternate models. Among the suggested new models were options to make AEMO answerable to the Australian Energy Regulator (AER). CEPA suggested that a budget and planning committee with members from AEMO and member representatives could be created.

It appears that these actions have come off the back of AEMO’s recently published Integrated System Plan (ISP). The ISP mapped out AEMO’s pathway to a shift to renewable energy within 20 years. AEMO commented that thanks to Australia’s fleet of ageing and increasingly unreliable coal generators, there is a need to transition to a renewable energy future. The only thing that could deliberately slow down this transition would be due to industry or government policy changing. AEC members want to hear this as they are heavily invested in coal fire generation assets and, in recent times, gas powered generation.

Renewable advocates have viewed this review as a way for thermal generators to slow down the regulatory process. By including the AER in decision making, they are reducing competition from renewable generators. The renewables industry sees the AEC as a pro-thermal generation body. Their Chief Executive Officer (CEO), Sarah McNamara previously worked as Senior Energy Policy Advisor for Tony Abbott. Prior to this, she worked for AGL’s Corporate Affairs team as well as anti-renewable lobbies, Ian MacFarlane.

ENA members have been more positive towards AEMO’s ISP as they see the benefits of more transmission infrastructure. However, some members in the distribution business see a threat on the lower voltage networks by rooftop solar, battery storage and Electric Vehicles.

AEMO have also been offside with the renewable industry in its role responsible for Victorian grid connections. Last minute changes to connection requirements and agreements has caused delays and reductions in projects. Market participants, including end users, are also unhappy with AEMO following recent budget increases.

AEMO has been spending more money on projects such as the ISP, research and the development of new market mechanisms that will favour new technologies such as batteries and virtual power plants. The budget was set at $241 million this year which was an increase of 12% on previous budgets. Prior to this, fees generally remained static or increased by Consumer Price Index (CPI). AEMO have defended these increases by saying that the volume of rule changes in the NEM has tripled in the last three years. They stated that virtually all the rule changes have directly impacted them.

Queensland Energy Users Network (QEUN), a prominent consumer advocate in Queensland, have also come out against AEMO. They noted that AEMO’s total costs amounted to eight cents a week to the average consumer. They believe that development of the market should not be at the expense of the Australian economy, jobs, or reasonable living standards. QEUN suggested that AEMO sticks making sure the lights are kept on. They essentially told AEMO to stay quiet about any big plans for the future.

Written by: Alex Driscoll

To keep up-to-date with Edge Utilities, connect with us on LinkedIn: https://www.linkedin.com/company/edge-utilities/

Read our latest article: https://edgeutilities.com.au/changes-to-the-generation-mix/

AEMO

Changes to the Generation Mix

The current fuel mix within the National Energy Market (NEM) is predominantly made up of fossil fuels. Black and Brown coal still dominate the mix followed by Natural Gas. Which makes perfect sense as we live in a country which is rich in natural resources. Power stations can be directly next to the fuel source and provide low cost energy to an energy hungry population.

The retirement of old coal fired generation is not only inevitable due to the age of the plant and technology but, a necessary step to tackling the climate crisis. The International Energy Association has determined that CO2 from coal combustion was directly responsible for over one third of the 1⁰C rise in global average temperatures (taken above the pre-industrial levels).

Renewables have the potential to fill this gap with a much smaller carbon footprint than their traditional fuel counterparts. However, the nature of renewable technology is inherently intermittent. It will be important to have a broad-brush approach across technologies. This will ensure the balance between supply and demand can be met without increasing costs associated with fast response generation.

The Integrated System Plan (ISP) talks heavily about the need for Renewable Energy Zones (REZs) within Australia. There is no questioning that the sun will shine, and the winds will blow. But harnessing this on ageing and existing infrastructure will not work. Constraints are currently being placed on Northern Queensland due to the load centre being too far from the abundant Solar in the North. This is causing the transmission lines to be over utilised. As such, everything we are discussing in this paper is reliant upon upgrades to existing and new transmission lines ensuring that the capacity is there to service this technology which is not in the traditional load centre vicinity.

In exploring some of the possible Renewable Energy Sources currently available here in Australia, along with some which are not yet being used, we can see where we may expect the energy of the future to come from.

Renewable Generation Changes

Read more about the changes happening to renewable generation by clicking on the buttons below.

Written by: Kate Turner (Senior Manager, Markets & Advisory)

Keep up-to-date with Edge Utilities by connecting with us on LinkedIn: https://www.linkedin.com/company/edge-utilities/

Read our latest article here: https://edgeutilities.com.au/changes-to-your-energy-bill/

Changes to your Energy Bill

The effects of COVID-19 have impacted the retail energy space heavily in the last 12 months. This has caused underlying costs of electricity production to decrease significantly. It is expected that costs will remain low for the next 6 to 12 months.

As the Australian economy begins to rebuild itself in the next 6 to 12 months, it is expected that costs will remain low. Following the impact of COVID-19, came price changes with the introduction of the Default Market Offer (DMO) and Victorian Default Offer (VDO).

The DMO outlines the annual maximum total bill amount that an energy company can charge to eligible residential and small business customers in New South Wales, South Australia, and South East Queensland. Energy retailers use the DMO as a reference price, to guide how they structure their charges. However, retailers can set their own supply and usage charges provided they are equal to or less than the DMO price. The VDO is like the DMO, however is applicable to eligible Victorian customers only.

High electricity offers have now reduced significantly. This reduction means end users who choose to switch offers will still save money but not as much as prior years. The difference between the highest standing offer and lowest market offer has decreased by 10%. Although there has been a decrease in the overall offer price, Victoria has actually seen a 10% increase. The average market offer price is still considered to be quite high at 56%. It is unclear whether these changes are because of the DMO and VDO changes, or by increased market competition.

Market Competition

The increased market competition appears to be pushing retail energy prices down after the introduction of 40 new retail brands. In the last 12 months alone, 35 new companies have entered the market. There have also been 8 existing brands who have expanded into other states jurisdictions and are now offering new products. Net retailer margins across the National Electricity Market (NEM) have also dropped due to increased competition. This has seen on average, a decrease of $93 to $66 per customer in the last 2 years.

Products deemed to be essential services such as electricity and gas, have also continued to evolve. To appeal more to customers, retailers are strategically using add-on products as a way of selling the underlying product. Most retailers are doing this by bundling electricity and gas with internet and phone services.

As we can see, there has been a large amount of changes to the market and to customers costs. However, an Energy Consumers Australia (ECA) survey has shown that end users are happier. The results of the survey showed that 57% of customers believed there was value for money at today’s price. Switching rates are a leading indicator of customer dissatisfaction, and recently these have lowered.

Written by: Alex Driscoll

To learn about what else is changing in the market, read our latest article: https://edgeutilities.com.au/2020-isp/

To stay up-to-date with Edge Utilities, connect with us on LinkedIn: https://www.linkedin.com/company/edge-utilities/

The Electricity Statement of Opportunities (ESOO)

On Thursday August 27^th, 2020, the Australian Energy Market Operator (AEMO) published its latest Electricity Statement of Opportunities (ESOO). The ESOO is a 10-year projection of electricity supply reliability in the National Electricity Market (NEM).

In July 2019, the Australian Energy Regulator (AER) introduced the Retailer Reliability Obligation (RRO). The RRO was introduced to provide stronger incentives to market participants for investing in technologies that will improve the reliability of the NEM. AEMO uses the ESOO to identify gaps in the NEM’s reliability. Over the next 5 years, AEMO will work with the AER if there is a significant gap identified in reliability. As the ESOO covers the next 10 years, the second 5 years following the RRO looks closer at forecasts for the major transmission upgrades and the continued development of renewable generation.

COVID-19 and other impacts

This year’s ESOO has assessed the impact that COVID-19 had on the NEM. It also looks at what affect this could potentially have on the outlook’s uncertainty. COVID-19 combined with the change in generation mix, demand changes, and gas market changes has provided a positive outcome. Due to these changes, AEMO has forecasted no unserved energy (USE) for the upcoming summer season. Unserved energy is a measure of the amount of customer demand that cannot be supplied within a region. This happens due to a shortage of generation, demand-side participation or interconnector capacity.

The ESOO will require an update if life after COVID-19 returns to normal faster than expected. AEMO has also stated a few points of concern relating to the delays or deferment of planned outages that could affect reliability over summer.

ElectraNet, South Australia’s high voltage transmission network specialists, have reduced the summer rating on the Victoria to South Australia Interconnector. This reduction follows the damage incurred during the bushfires in the beginning of 2020. One downside of the reduced flow across the interconnectors, is further delays in the commissioning of renewable projects across the regions. This means that AEMO may need to deploy the Reliability and Emergency Reserve Trader (RERT) to manage the contingency events resulting in USE.

A new focus

After summer, the focus will shift to look at the reliability in NSW. This will be following on from the retirement of the Liddell Power Station. The outlook on this has improved since last years’ ESOO, with the augmentation of the Queensland to New South Wales Interconnector (QNI). This will take place in 2022-2023 and aims to increase renewable generation development in the region.

By 2025, minimum operational demand will change from the overnight period to occur at midday. This is due to an increase in rooftop solar panels and batteries. This will lead to challenges when managing voltage, system strength and inertia. AEMO has recognised this and are working with aggregators of Distributed Energy Resources (DER) to offer services such as increased photovoltaic (PV) controllability, load flexibility, storage, and load shifting.

New projects moving forward will require all new distributed PV installations to have suitable disturbance ride-through capabilities and emergency PV shedding capabilities. This will cause increased costs and delays in commissioning the projects.

AEMO is working with various stakeholders and industry experts to ensure energy supply is protected from the effects of increasing frequency, extremity and scale of climate induced weather events that have been observed in prior years. The NEM will continue to see a large quantity of renewable generation connections. Approximately 4,300 MW of new capacity is forecasted to be operational this summer and 1,900 MW of this is expected to be in Victoria alone.

A more realistic outlook on Summer

As COVID-19 is unpredictable, AEMO have warned that there is risk in their forecast regarding no USE this summer. Due to this, there is a level of uncertainty regarding the supply of electricity during the coming summer. Although, AEMO have still not seen a requirement to contract the volume of long-term RERT as seen in previous years. If renewable generators do experience delays, AEMO will continue to outsource short-term RERT suppliers as an emergency backup.

The Bureau of Meteorology (BOM) are forecasting La Niña this summer. This occurs when equatorial trade winds become stronger, the ocean surface currents change. This then draws cooler deep water up from below. La Niña will result in a cooler, wetter climate for this year’s summer. Because of this, we are likely to see less stress on the supply/demand balance this summer.

Federal Energy Minister, Angus Taylor has referenced this years’ ESOO in a recent statement. He informed Australians that households and businesses will have reliable electricity moving forward. However, AEMO have tempered this statement commenting that there may be issues after 2023 if capacity does not increase. Although there are fewer planned outages for coal and gas generators this summer, COVID-19 may extend repair times. Due to this risk, AEMO is taking everything they can get as an emergency backup under the RERT scheme.

Written by: Alex Driscoll

Read our article on the recently published Integrated System Plan (ISP) here: https://edgeutilities.com.au/2020-isp/

To keep up-to-date with Edge Utilities, connect with us on LinkedIn: https://www.linkedin.com/company/edge-utilities/