Reliability and Emergency Reserve Trader Scheme

The Morrison Government have again distorted the Electricity market when Angus Taylors office announced it was intervening to pay Victoria’s Portland aluminum smelter in Victoria nearly $80 million to act like a “giant battery” in the Reliability and Emergency Reserve Trader (RERT) scheme.

The announcement surprised the market and means that Portland will be the only provider of RERT services. They will be paid just to be on standby to deliver emergency power reserves.

The intervention was announced on Monday under the veil of securing Victoria’s energy system, while subsidising the Alcoa owned smelter with guaranteed revenue, with up to $76.8 million of RERT revenue over the next 4 years.

The short term solution to Energy security in Victoria will cease in 2025 when new electricity market reforms are expected to be in place.

Under Australian Energy Market Operator’s (AEMO’s) RERT mechanism, RERT participants are paid to reduce demand at times when the supply / demand balance become tight, but only pays if parties participate. In the Portland cases they will get paid to just be on standby.

This year AEMO is seeking 1,600 Megawatt (MW) of RERT, apart from the guaranteed money going to the Portland smelter. RERT will not cause market participants anything unless it is activated.

In the 2020, AEMO published the Electricity Statement of Opportunities (ESOO). AEMO commented that it was highly unlikely that Portland’s services will be called upon this summer, due to the additional generation in the region from wind and solar.

Smelters are well placed to provide long duration outages. Other industrial processes like mineral processing are best suited to short duration outages. It is understood, in return for the guaranteed revenue, the RERT agreement means the Portland smelter will participate to the maximum extent possible. This is likely to include the smelter being shut down for an extended duration,  most likely during the highest stressed times of the year.

The Portland smelter and other smelters in Australia are struggling to remain competitive on the world stage. The Portland smelter has received around $1.1 billion of subsidies from the Victorian Government since 2017 and a $40 million interest free loan from the Federal Government.

Market participants have raised their concerns over the government’s intervention, highlighting that it has distorted the pricing and availability of RERT available to AEMO. Other concerns are that it may encourage other smelters such as Tomago in NSW and Boyne smelter in QLD to seek similar payments.

The Clean Energy Council released it latest renewable investment confidence survey and a key concern named federal government market intervention as one of the turn-offs for prospective large-scale wind and solar developers.

To say 2020 has been a colossal year………… is an understatement!

As the year rounds to an end, we would like to take the time to reflect and give thanks. Our sincere thanks to all those who have supported us during this difficult year. Our thoughts and best wishes go out to the individuals, families, and businesses who too have been adversely impacted by the events of 2020. We wish you well as you pivot and rebuild.

The year that was…

Big picture:

  • Trump does, well Trump things – drones, tweets, fails to manage COVID-19 better than anyone, apparently wins an election that he didn’t actually win.
  • China flexes its military muscles in our backyard, their international trade muscles get a workout too.
  • Oh, China also “seemingly” gifts the world COVID-19.
  • A global pandemic follows – 59.7 million cases worldwide, over 1.4 million deaths.
  • Entire industries and businesses are decimated as governments deliver unprecedented incentives.

Close to home:

  • Australian bushfires rage – 46 million acres burn, 1 billion animals perish, 6,000 buildings go, 34 people die.
  • Australia locks down to the threat of COVID-19 – 27.8k cases, over 900 deaths.
  • State and federal governments start spending, leading us into 2021 with a propped-up economy.
  • The RBA drops the cash rate to 0.10%.
  • Energy prices crash – only recently starting to rebound.
  • Many equity and commodity markets crash – most having firmly recovered.
  • Victorians are banished, for months.
  • The AFL grand final is played in QLD – and during the night! Go Tigers!!!
  • The State of Origin is played in three weeks, with the “worst QLD team ever” winning the series.
  • Northern NSW and QLD property prices soar, as they are deemed the safe space to be by cashed up southerners?!……… along with Chris Hemsworth and his mates.
  • Anna has “kept us safe” so she lives to torment Gladys another day.

 Closer to home:

  • Edge Energy Services turns 13 years young and is rebranded Edge2020.
  • Our team trades over $627 million in energy and environmental products.
  • Over 5.7 TWh  approximately $283 million in energy.
  • Over 800k Large-Scale Generation Certificates (LGCs), 1.2m Small-Scale Technology Certificates (STCs), and 33k Energy Savings Certificates (ESCs), totalling over $77 million in environmental certificates.
  • We facilitate over 775 GWh p.a. of renewable power purchase agreements (PPAs), with terms from 5 to 9 years and a total value of over $267 million.
  • We dive deep into the Safeguard Mechanism and deal in several Australian Carbon Credit Units (ACCUs).
  • We continue to structure competitive renewable deals, and we blend and extend as we knowingly fall on our progressive portfolio management sword.
  • We say a temporary goodbye to a few large clients, as they bed down with fixed term fixed (COVID friendly) prices and + 30% savings.
  • We re-contract a number of larger clients, as they continue to support us as a valued business partner and energy management team.
  • Our team expands, then contracts, as we ride the wave of uncertainty.
  • Edge LIVE gets a welcomed facelift and a few new features, including deal capture.
  • Edge Utilities is reborn, officially launching on 1 July 2020. With a tenacious new National Sales Manager and some valued service providers, we deliver a shiny new website edgeutilities.com.au.
  • We dive into the world of strata / body corporate and all things embedded networks – determined to bring value to a “smaller” large consumer.
  • Our journey in this new world uncovers the good, the bad, and unfortunately, the ugly.
  • New products and business opportunities arise, pipelines grow, new trading partners present, new alliances are formed.

On a more personal note:

  • R U OK? Day coincides with me going public in support of kinder client relations with staff – too many lives lost, too many reasons why.
  • We focus on our people, as individuals that instinctively operate within our core values – with integrity, honesty, trust, loyalty, and respect.
  • With increased working from home arrangements, we become even more focused on cultivating a cohesive, supportive, and collaborate team culture.
  • We watch David Attenborough’s witness statement “A Life on Our Planet” and ask ourselves – How can we use our expertise to contribute to the “road to recovery?

2021 looks busy, but oh so sustainably bright!

  • We will shift our focus even more to renewable solutions, products, and markets.
  • Edge Utilities will move to become a fully renewable backed brokerage service.
  • We will soon be offering physical renewable solutions behind the meter and getting more involved in managing Frequency Control Ancillary Services (FCAS) and Virtual Power Plants (VPPs).
  • Edge2020 will continue to play a key role in assisting our clients to achieve their sustainability objectives and proactively manage energy market risks.

With renewable solutions exponentially gaining momentum, we’ve never been more excited about where our market and products are headed!

We hope you take a well-earned and restful Christmas break with loved ones.

Our team look forward to sharing much more detail with you soon and working with you in 2021.

Stay safe and well.

Stacey Vacher
Managing Director, Edge2020, Edge Utilities

What is a VPP?

Many of you would have seen the acronym VPP floating around the energy industry, in AEMO documents and publications like the Integrated System Plan (ISP). So, what is a VPP? A Virtual Power Plant (VPP) is basically an aggregation of resources. These can be generation, storage and controllable load from decentralised sources.  All being coordinated to deliver services to the power grid including electricity, FCAS and other power system services.

Last week battery manufacturer Sonnen reached the magic threshold of 1MW to operate in the National Electricity Market (NEM) and plans to operate a VPP.

The German based company, Sonnen, now owned by Shell, has built a network of customers to allow their Sonnen branded home batteries to participate in the company’s new virtual power plant.  This has been designed to provide frequency control services. The customers will receive a financial benefit through cash payments. Sonnen’s new program will also provide grid stability services.

The VPP branded, sonnenConnect is Sonnen’s first VPP worldwide.

Each Sonnen battery will not be heavily relied on due to the nature of the VPP aggregating all outputs. To operate in the FCAS market, each household will only be required to supply 4kWh of energy to provide the essential grid stability services.

To be eligible to participate in Sonnen’s VPP and rewards program, households will need to have one of Sonnen’s batteries installed, with at least 4kWh of capacity. No additional equipment will be required to allow batteries to participate in the program as Sonnen batteries incorporate the necessary control systems.

Sonnen has chosen Australia to launch its VPP products as Australia is more open to the establishment of VPPs, along with the high uptake of battery storage system installations compared to other parts of the world.

“With the growing uptake of rooftop solar and home batteries globally, utilities are recognising the importance of home batteries in Frequency Control Ancillary Services (FCAS) or what is known as demand response, to stabilise the grid when there is a surge in the demand for electricity”, Nathan Dunn, Sonnen Australia CEO said.

He also said “through sonnenConnect, we are rewarding customers who are providing us access to their Sonnen Battery when needed for demand response. Not only will they enjoy being energy independent, Sonnen Battery owners are working together as a community to stabilise the energy grid that connects millions of homeowners in the National Electricity Market.”

Sonnen has established a manufacturing facility at the former Holden factory in Adelaide. This allows Sonnen to be branded Australian made. They plan to use the Australian facility to produce other components and software for the energy industry including electric vehicle charging units.

The Electricity Statement of Opportunities (ESOO)

Electricity Statement of Opportunities (ESOO)

On Thursday August 27th, 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/