Renewable Revolution or Risky Gamble? Australia’s Bold Energy Transition Plan

Edge Utilities_Energy Transition Plan

The Australian Federal Government, led by Chris Bowen, has announced a bold move to support renewable energy, the energy transition plan will add an extra 550 megawatts (MW) of firming generation in New South Wales (NSW). This strategy aims to ensure grid reliability and security and attract nearly AUD 10 billion in investment, thereby contributing to an estimated 6 gigawatts (GW) of additional power. The energy transition plan is designed to offset the projected power shortages following the anticipated shutdown of various fossil fuel generators across the National Electricity Market (NEM).

Despite the optimism, there are challenges. It remains uncertain whether the proposed measures, largely based on large-scale battery and pumped hydro storage, can compensate for the power shortage following the phasing out of fossil fuel generators. Further concerns have been raised following the delays to the Snowy 2.0 project, with doubts about the NEM’s ability to maintain a stable electricity supply and prevent a spike in power prices. The reliability of renewable energy during periods of calm weather and low sunshine is also under scrutiny.

These uncertainties lead to an important question: will this ambitious plan become a successful blueprint for the future, or a cautionary tale of overambitious planning and under-delivery? The outcomes will have significant implications for the future of renewable energy, not just in Australia, but globally. As Australia embarks on this renewable energy journey, the world watches closely.

This is a summary article from Edge2020 – read the original article.

The team Edge Utilities are passionate about renewables and sustainability, we are energy brokers with an eye on the planet. We are committed to helping councils and business communities reach their net zero goals through renewable power purchasing agreements (PPAs) and smart portfolio management.
To discuss options and plans for your community contact us at save@edgeutilities.com.au  or call us on 1800 334 336 to discuss. 

Unpacking the Impact of AEMO’s Scheduling Error Post Liddell Shutdown: A Peek into the Energy Market Dynamics

Light Bulb - Electricity

The Australian Energy Market Operator (AEMO) recently confirmed a scheduling error involving the Liddell Power Station, which led to considerable disruptions in the National Electricity Market (NEM) and the futures market on May 1, 2023. The closures of the last three units of the Liddell Power Station towards the end of April should have been integrated into the AEO dispatch system. However, a data mismatch within the system kept these units active, leading to market inconsistencies.

This oversight originated from a disparity within the NEM Dispatch Engine (NEMDE) utilized by AEMO. While a portion of the system correctly acknowledged the shutdown of the Liddell units, another part, responsible for handling constraints, continued to count them at their initial 500MW capacity rather than the actual zero. The resultant 1500MW drop in capacity from the system’s balancing equation led to adjustments in the power distribution across states.

To rectify this situation, AEMO reduced power flow from Victoria to New South Wales and moderated power generation by approximately 173MW. The resulting market response was a surge in electricity prices, pushing the daily average price up by around 30%.

In the aftermath of the Liddell shutdown, the market has been on high alert, responding to the smallest of disturbances. This sensitivity was evident as the futures market reacted positively, experiencing a rise in the Q3 2023 close price across QLD, VIC, and NSW, and a notable increase in SA.

In the following weeks, the power market continued to be volatile due to various outages and unexpected factors such as a tube leak at Bayswater 2, outages at Kogan Creek, Eraring 2, and Tarong, the delay of Callide’s return, and unexpected interest rate hikes. This scenario led traders to act on the price differences between states, resulting in a rise in NEM prices. It is suggested that this sensitivity and rapid reaction of the market is likely to continue for some time. Despite the quick adjustments in the spot market, the futures market appears to be retaining its value.

This is a summary article from Edge2020 – read the original article.

The team Edge Utilities are passionate about renewables and sustainability, we are energy brokers with an eye on the planet. We are committed to helping councils and business communities reach their net zero goals through renewable power purchasing agreements (PPAs) and smart portfolio management.
To discuss options and plans for your community contact us at save@edgeutilities.com.au  or call us on 1800 334 336 to discuss. 

“Rewiring the Nation” project to invest $20 billion

Gala sitting on electrical wire

Australia is undertaking a significant “Rewiring the Nation” project to invest $20 billion to transform its energy sector. Spearheaded by Chris Bowen, the initiative focuses on developing and constructing 10,000 kilometres of transmission lines by 2030. Bowen stresses the importance of obtaining social acceptance for this transition. To that end, New South Wales (NSW) and Victoria (VIC) governments offer landowners affected by the infrastructure projects generous incentives of $200,000 per kilometre. These measures aim to establish strong stakeholder relationships in the regulatory investment test process.

To meet its ambitious renewable energy targets, Australia requires roughly 29GW of large-scale renewables, equivalent to installing about 3.6GW annually. However, the country only added 2.3GW of large-scale solar and wind capacity in the previous year, and progress in developing essential transmission lines has been slow, posing a significant challenge to achieving these goals. AEMO‘s Chief Executive, Daniel Westerman, highlights that the curtailment of solar and wind generation is due to inadequate transmission capacity. Though renewable energy integration is at record highs, with an average of 37% and a peak of 66% in the grid during Q1, the closure of 14GW of coal-powered generation capacity by 2030 surpasses the 8GW of announced renewable projects.

The government plans to address these concerns by introducing a new Capacity scheme and examining potential extensions to existing infrastructure. In addition, as the VIC-NSW West Interconnector’s final drafts and Humelink’s approval are expected, the transition to new transmission systems is underway. There are still questions, however, over whether the government will be able to reach its renewable energy goals in the allotted time. Further updates will provide information on the advancement and difficulties encountered along the road as Australia works to attain its clean energy ambitions. Australia’s energy environment is continually changing.

This is a summary article from Edge2020 – read the original article.

The team Edge Utilities are passionate about renewables and sustainability, we are energy brokers with an eye on the planet. We are committed to helping councils and business communities reach their net zero goals through renewable power purchasing agreements (PPAs) and smart portfolio management.
To discuss options and plans for your community contact us at save@edgeutilities.com.au  or call us on 1800 334 336 to discuss. 

Renewable energy storage roadmap released

Edge Utilities Brisbane City

The CSIRO’s Renewable Energy Storage Roadmap underlines the importance of energy storage in Australia’s journey to net zero emissions.

Despite leading in solar power generation and reducing emissions, Australia requires a significant increase in storage capacity to maintain affordable and reliable energy.

Storage is vital to integrating renewables into the grid and reducing coal and gas-fired generation dependency. A combination of various storage technologies, such as electrochemical, mechanical, chemical, and thermal storage, is needed to meet the evolving demands of the National Electricity Market (NEM).

Increasingly, dispatchable generation must come online as coal-fired generation retires between 2023 and 2035. The CSIRO report calls for accelerated development timelines for projects by 2030. Faster development or alternative storage technologies are needed, as pumped hydro typically takes ten years to develop.

CSIRO’s chief executive emphasises the need for a “massive increase” in storage capacity, estimating an additional 11 to 14 gigawatts by 2030. As a result, the focus should shift to storage as the deadline approaches, exploring repurposing old mine pits and retiring thermal power stations.

This is a summary article from Edge2020 – read the original article.

The team Edge Utilities are passionate about renewables and sustainability, we are energy brokers with an eye on the planet. We are committed to helping councils and business communities reach their net zero goals through renewable power purchasing agreements (PPAs) and smart portfolio management.
To discuss options and plans for your community contact us at save@edgeutilities.com.au  or call us on 1800 334 336 to discuss. 

AEMO’s MLF assessment reveals solar and wind farms as big losers

Solar Panel

The Australian Energy Market Operator (AEMO) recently released its final Marginal Loss Factors (MLFs) assessment, highlighting solar and wind farms as the big losers. The MLFs determine how much energy is lost between the generator and the region reference node in each state, and the changes in the new MLF forecasts were primarily driven by changes in availability due to the closure of Liddell, revised return to service dates for Callide C, revised demand forecasts, and the increased penetration of solar and wind generation into the grid.

The lower MLFs impact the amount of revenue generators can make, and many of the intermittent generators have been impacted by changes to the grid and the closure of thermal generators. The location of renewable generation is becoming increasingly important for the success of a project, with unfavourable MLFs potentially reducing the revenue for generators and impacting the renewable energy available to the market.

While a 3% drop in solar farm generation may not seem significant, some solar farms in the New England region have experienced drops that are greater than this. These changes can affect the success of a project and reduce the renewable energy available to the market, potentially leaving end-users with less renewable energy than they signed up for. The final MLF assessment from AEMO underscores the importance of carefully considering the location of renewable energy projects for successful implementation and revenue generation.

This is a summary article from Edge2020 – read the original article.

The team Edge Utilities are passionate about renewables and sustainability, we are energy brokers with an eye on the planet. We are committed to helping councils and business communities reach their net zero goals through renewable power purchasing agreements (PPAs) and smart portfolio management.
To discuss options and plans for your community contact us at save@edgeutilities.com.au  or call us on 1800 334 336 to discuss. 

Overview of the National Electricity Market (NEM) – Quarter 3, 2022

The NEM has experienced an unprecedented year of high electricity spot prices, recently Q322 averaged $216/MWh across the (NEM) which was more than three times higher than the same quarter in the previous year and close to matching the all-time high during Q222 of $264/MWh.

Many factors influenced the volatility and elevated spot prices including:

  • A tight supply / demand balance resulting from gas flow restrictions in Europe associated with the war in Ukraine
  • Australian weather events
  • An increase in demand
  • Generator bidding behaviours
  • A reliance on thermal generation (coal and gas fired)

Coal and gas prices are at all-time highs due to international demand leading to a high cost of generation. In turn increasing the underlying fuel cost for generators, contributing to the increase in spot prices. As little energy storage is currently installed in Australia, large swings in the output from wind also contributed to the volatility in the market.

Generators who want to sell electricity to the NEM must submit a bid detailing how much energy they would like to offer in ten different price bands. Recently a lower volume of generation has been available from coal due to bidding behaviour with participants withdrawing thermal capacity and intermittent generation like solar and wind taking a larger market share.

A lower capacity factor for coal generation has resulted in coal fired availability to move higher up the bid stack, resulting in coal fired generation needing to dispatch at higher spot prices to meet their long run average costs.

Weather influences such as La Niña and a negative Indian Ocean Dipole (IOD) event increased the likelihood of rainfall across the east coast of Australia this year. With September’s rainfall being the fifth highest on record across Australia. The cloudy and wet conditions impacted solar generation and the supply of coal to power stations resulting in higher fuel prices.

Demand from the grid has increased for the first time in Q322 since 2015 as households and businesses require more electricity from the grid due to rooftop solar not generating as much as previous years due to cloudy conditions.

If you feel you need more control of your company’s energy spend, please reach out to discuss joining our Edge Utilities Power Portfolio (EUPP) where we use the power of bulk purchasing to help Australian businesses of all sizes save on their energy bills. Read more: https://edgeutilities.com.au/edge-utilities-power-portfolio/ or call us on: 1800 334 336 to discuss.  

NEW TOOLS FOR AEMO

We all agree having a safe, reliable, and secure National Electricity Market (NEM) is the key deliverable for AEMO. AEMO have flagged that there is a shortfall in the participants able to provide key services to keep the grid stable as the generation mix changes and they are running out of tools to keep the grid stable.

The biggest issue for AEMO and market participants is as synchronous generators such as thermal power stations reduce availability and eventually retire the much-needed system security services such as inertia and voltage control that they provide, drops.

As a result of AEMOs concerns, the Australian Energy Market Commission (AEMC) has developed ways of valuing the much-needed services.

The AEMC has just released a directions paper outlining mechanisms that could provide the system security services to the NEM. The AEMC has also highlighted support for innovative technologies to provide these services.

At this moment in time, AEMO has limited tools to improve system security at times of scarcity apart from using its intervention powers to direct generators online to provide the services. The problem with using its direction powers is that additional costs associated with the directions are passed onto end users and as a result this does not meet the requirement of the National Electricity Objective (NEO) of providing the lowest cost solution and it also distorts the market.

AEMC’s directions paper covers two rule changes proposed by Delta Electricity and Hydro Tasmania. The Delta proposal is to introduce a capacity commitment mechanism to provide system security and reliability services. In Hydro Tasmania’s request they propose to create a market for inertia, voltage control and system strength products.

Both these rule changes will form part of the Energy Security Boards (ESB) ‘post 2025’ market design. AEMO is also working with participants to develop the engineering to meet these challenges. These challenges include a changing market due to an increased reliance on weather dependent generation such as solar and wind and new technologies such as batteries.

The options in the directions paper are about providing a transitional approach as we move to a different generation mix while keeping the cost of the solutions to a minimum over the long-term. Solutions may include a similar process to direction but increasing the transparency of what assets should be online to maintain system security while keeping the costs down. Some of the options available to AEMO could be scheduling assets to provide specific services like voltage control while other would be scheduled for inertia. These arrangements would likely transform into stand-alone services similar to the current FCAS services.

The market is changing at a rapid pace and these extra tools in AEMO’s toolbox should allow the NEM to operate safely and securely for many years into the future.

SNOWY 2.0

With the release of the latest Electricity Statement of Opportunities (ESOO) some of the assumptions used in it have raised concerns of the viability of Snowy 2.0 and the impact it will have on security of supply for the market. Snowy 2.0 had been given the green light under AEMO assumptions even though the project would not have hit the hurdle rate AEMO uses for all other projects.  The second concerning point is when you build one of the largest generation assets in the country it is crucial that it is linked to the market via appropriate transmission lines. Information from transmission line providers suggests the full capacity of the powerlines will not be in place when Snowy 2.0 comes online. Our third concern is the cost of the new transmission line projects are rapidly rising. These costs will go directly to the end user.

Transmission provider TransGrid outlines information on HumeLink, the transmission line earmarked to connect Snowy 2.0 to the NEM. TransGrid estimates HumeLink costs have increased from $1.3B in the draft assessment to $3.3B. The more worrying statement is TransGrid saying the final cost could be up 50% or more.

Apart from HumeLink, to be full unconstrained, Snowy 2.0 will need the Victoria to NSW interconnector West (VNI West) transmission to be built. HumeLink is labelled the largest transmission project in history, VNI will be a similar size and most likely a similar price however costing have not been released.

The cost of these two transmission lines will eventually be passed down to end users via increases in transmission tariffs. Modelling has indicated that the $3.3B for HumeLink will add 40% to NSW costs. While these costs are met by all end users, large users will be impacted the most as these fees are paid for on a proportional basis.

Latest costing suggests HumeLink, VNI West and Snowy 2.0 has the potential to cost $12 billion. This will make Snowy 2.0 the most expensive generation and transmission project in history.

The question is, with far cheaper renewable projects that do not require 2 huge transmission lines to make them effective for system security, are there better options the federal government and the consumers of NSW could be spending their money on.

ORIGIN STILL IN THE RED

More bad news for electricity retailers with Origin Energy announcing an impairment of $1.6B after further writing down the value of its generation assets and reducing the value of its renewable energy contracts.

In a statement, Origin said the write downs were a result of falling wholesale prices, mostly driven by the influx of new wind and solar projects. High gas prices also reduced the returns from their fleet of gas-powered generation.

Origin owns the largest coal fired generation unit in the NEM, so the market pressures weighed heavily on the balance sheet. Origins large exposure to the non-renewable segment of the market through its Eraring coal fired power station which resulted in a $583M post-tax impairment. This comes because of Origin’s assumption of a lower outlook for wholesale electricity prices driven by new supply expected to come online, including both renewable and dispatchable capacity, impacting the valuation of the generation fleet, particularly Eraring Power Station.

Eraring is expected to be the cause of much of the impairment, but the gas-powered generation (GPG) units did not fair much better. The GPG were affected due to the increased cost of gas and the decrease in the spot and contract electricity market price.

Strategically Origin has chosen to source renewable energy through PPA rather than build physical generation so are not exposed to the physical renewable market. Origin was an early mover in the renewable PPA space so the PPA’s on their books are very expensive compared to what the market offers are today. This has resulted in Origin writing down some of the value of these existing PPAs.

Origin says it will write down $995M in value of goodwill for these renewable PPA’s and the gas contracts that are out of the money. Origin expects the spot market price to be up to $20/MWh below where they previously anticipated the price to be.

Origin expect their FY2022 profits to be lower than expected at $450- 600M which will again be largely supported by the LNG export part of the business.

On a positive front, Origin expects the market to recover in FY2023 where earnings are expected to increase by $150-250M on the back of a material rebound in energy market earnings.

NEM BACK IN BLACK

On Wednesday last week the Energy Security Board (ESB) released a statement outlining that they had finalised advice on the redesign of the national electricity market (NEM) and handed the report to the Energy National Cabinet Reform Committee. This advice comes from a 2019 request to redesign the market to support the orderly transition to a modern energy system that allowed a rapid increase in the growth of large and small scale renewable energy.

Details of the advice is not publicly available but wording in the media release indicates that coal fired generation will play a key role in the transition. The statement outlines that there must be a coordination of the exit of aging coal fueled generation to maximise the opportunities and minimise risks associated with the transition to deliver affordable, smart, and clean energy.

The ESB consulted widely with industry stakeholders, conChanges to the generation mixsumer bodies, academics, government bodies and interested parties over the last two years. An options paper was released in April and the final advice is expected to closely reflect the options discussed.

Key areas we expect to be tackled in the final redesign advice is preparing for the older coal fired generation retirement, backing up power system security, unlocking benefits and opening the grid to cheaper large-scale renewables.

In preparing for the retirement of the older coal fired generation, the ESB want to give an incentive for the right mix of resources including renewables and non-renewable generation. This was to restore confidence in consumers that energy will be available when required and the mix will include intermittent generation like wind and solar as well as firm dispatchable generation like gas.

To tackle the need for a more secure power system, the ESB will require different ancillary services like inertia, voltage, and frequency control. A market for these services will be required to ensure the procurement and dispatch of these services save money while keeping the network electrically secure.

Further work will also include unlocking the benefits for all energy consumers to gain the advantages of rooftop solar PV, batteries, and smart appliances. Improvement in these areas may also include how consumers source their energy.

As generation is only part of the equation the need to reform the way electricity is transported is also a key redesign topic. Upgrading the network with the construction of transmission lines will reduce congestion and allow cheaper generation to be built in regional areas and improve the diversification of the grid by opening up more geographic locations.

The question most end users are asking is who is paying for all these improvements. As usual the end user will pay. The ESB is understood to be recommending capacity payments for electricity generators to remain online. These generators are likely to be the older coal fleet so consumers will be paying to keep higher carbon intensive technologies online rather than supporting renewables.

This situation will pay generators an available payment to generate when required. In reality, these units will not generate unless the market is at the point of load shedding.

Capacity payments are used in the Western Australian electricity market, under their current arrangements, generators receive capacity credits in line with their units generating capacity.

In the NEM if capacity payments are introduced, they will essentially offset the Reliability and Emergency Reserve Trader (RERT) costs currently used to provide a similar service.