Government Boosts Firming Power Generation: Blueprint or Cautionary Tale?

Edge2020_Power Generation

In a bold stride towards energy security and sustainability, the Australian Federal Government, led by Chris Bowen, unveiled plans on Thursday to augment its support for an additional 550 megawatts (MW) of firming power generation in New South Wales (NSW). This amplification propels the existing plan of the state to nearly a gigawatt of firming capacity, a robust move geared to maintain grid reliability and security.

The comprehensive scheme, anchored in sustainability, is anticipated to attract nearly AUD 10 billion in investment and stimulate the power generation of an impressive 6 gigawatts (GW) to support the national grid’s dependability.

To date, proposals exceeding 3.3GW have been tendered, these initiatives target the void left by the looming shutdown of fossil fuel generators across the National Electricity Market (NEM). The government’s ambitious plan aims to offset the forecasted power deficits in the CAL28/29 periods following the discontinuation of Eraring and Vales Point power stations, operated by Origin and Delta respectively.

Chris Bowen hailed the announcement as a substantial enhancement to energy security, attributing this positive shift to the deployment of large-scale batteries and other zero-emission technologies. These avant-garde technologies promise to swiftly dispatch cleaner, more affordable renewable energy on-demand, such as during intervals of calm weather and diminished sunlight.

However, the ambitious plan is not devoid of challenges. It remains uncertain whether the proposed measures will adequately address the power shortage anticipated from the phasing out of fossil fuel generators. The firming capacity earmarked for support is predominantly anchored in large-scale battery and pumped hydro storage.

Recent delays to the Snowy 2.0 project have sparked fresh apprehensions about the NEM’s ability to maintain a stable electricity supply and avert a surge in power prices. Furthermore, while storage options such as pumped hydro and batteries seemingly complement renewable sources, uncertainties linger about the reliability of renewable energy during periods of calm weather and low sunshine. These concerns will be crucial in determining whether the shutdown of existing coal generation is postponed or accelerated.

The Federal Government’s bid to enhance firming generation capacity in NSW, although ambitious, is riddled with uncertainties. Striking a fine balance between maintaining grid reliability, mitigating price surges, and ensuring project completions will be a delicate act.

As Australia stands on the precipice of a renewable energy revolution, it begs the question: will this be the blueprint for the future, or will it serve as a cautionary tale? The success or failure of this grand scheme will undeniably cast a long shadow over the future of renewable energy not only in Australia but globally.

Electricity Statement of Opportunity

The expectation of the Electricity Statement of Opportunities (ESOO) expected by the end of August 2023 is one with a little better news in the short term but overall, the expectation of shortness will remain in NSW and SA.

The 2024 contracts have taken a slight breath of relief after the previously uncertain future of the Tallawarra B gas station were thrown a lifeline, and expectations are the plant will come online in mid to late 2024 following its previous contractors collapse (Clough).

This plant will assist with the shortfall left by Liddell and will also have the ability to partially run on Hydrogen which will secure its future in a net-zero grid. Kurri-Kurri, the 750MW gas plant near Newcastle, owned by Snowy Hydro, which was originally due online this year is now unlikely to be commissioned before December 2024, and could potentially still be pushed further. It is worth noting neither of these are currently within dispatch modelling (PASA).

We are expecting from 2025 the ESOO to focus on the closure of Eraring (~25% of the NSW grid, 2,880MW) which will have all 4 units closed by late August 2025, this will not be replaced on the system and therefore the expectation is these units will remain online (or at least half of them in Edge’s view). The question is at what cost? With Eraring already being out of coal contracts and having significant Ash dam storage issues. The cost associated with keeping the station running could significantly increase the merit order bids. In this case, as dispatch is likely required, this could increase spot prices which would have an impact across the NEM.

Current RRO T-3 triggers are in place for SA Jan and Feb 2024 and Jan – March 2025 and 2026 as well as in NSW Dec 2025 – Feb 2026. This is giving strength to these contracts.

The Snowy 2.0 delay announced to the market has had a slight uptick in the later curve contracts but overall, the full effect of this is not yet known, as per the above, a lot will be reliant on the continuation of the traditional thermal generation until enough storage will be available to manage a renewable grid. This is obviously heavily reliant on the transmission being available for this also via the re-wiring the nation project and possible Transmission Access Reforms as discussed last week.

To try and bring forward generation, this year’s budget discussed the introduction of a capacity mechanism, now this has been an idea the ESB has been floating around since 2021 if not before and has gained little support outside of the large coal generators.

It is worth noting the government announced scheme for South Australia and Victoria, is not the Energy Security Board’s (ESBs) design as it is to be based on non-fossil fuel generation, however if this will be decided state by state and with QLD and NSW yet to announce their schemes, they may roll out the fossil fuel capacity bids in later years but allow them in the short term. Victoria and South Australia have declared that they will be the first two states to implement these schemes with auctions expected by the end of 2023. The South Australian market is likely to be dominated in these auctions by the big batteries under construction, Torrens Island, Tailem Bend and Blyth which will bid against the existing assets at Hornsdale, Lake Bonney and Dalrymple.  The Victoria auction is likely to assist the state in meeting its ambition to close the last 3 brown coal stations by 2035 and have a grid consisting of 95% renewables, with a lot of these projects as per Queensland’s target either being owned by or providing offtake to the new government owned “state energy corporation.”

NSW is expected to do this within its Electricity Infrastructure roadmap, but this is yet to be confirmed and with Queensland announcing this week that half of the new renewable capacity within Queensland must be government owned, it is likely that any capacity scheme will heavily feature projects which are either owned by one of the GOC’s or provide the offtake to them under a PPA, as per the Budget announcement of the support for the Borumba Pumped Hydro project.

Overall investment is coming but not in time for the ESOO and the market reaction to this legislation will be seen fully in September.

 

Carbon Border Adjustment Mechanism gaining traction in Europe

Edge2020_Carbon Border Adjustment Mechanism

The European Parliament is introducing new climate legislation including a Carbon Border Adjustment Mechanism, in a bid to reduce greenhouse gas emissions.

The new package aims to reduce emission by at least 55% by 2030 and will include a series of measures which will have big impacts to many large industry customers who now will have millions of tonnes of carbon at risk.

The proposal will include phasing out of the free European Emission Trading Scheme (ETS) allowances after 2026, including maritime shipping within the ETS and a Carbon Border Adjustment Mechanism. The latter of these the CBAM or Carbon Border Adjustment Mechanism will impose a tariff on goods whose production is carbon intensive and shows the greatest risk of carbon leakage, in Australia the most vocal opponents of this scheme are unsurprisingly the cement, aluminium and steel industries.

As a quick digress the term carbon leakage is referring to the idea that you move the most carbon intensive parts of your production abroad, into countries with less stringent climate policies, and then import them back into Australia.

The idea of the CBAM is this will place a price on the carbon which has been emitted during this production phase. The price being derived from the price of carbon which was paid for the product to be developed and produced within Australia.

Those keen eyed amongst us will remember the Safeguard Legislation, which will come into effect on the 1st July 2023, cited a review would be undertaken to examine the feasibility of a CBAM within Australia, including a consideration for early commencement for those high-exposure sectors such as steel and cement.

Now with the EU making the leap and the likely follow on from the UK, Japan and Canada, amongst others, including the US via its own Polluter Import Fees Australia, we will surely have to comply to ensure both our own goods are being protected as well as meeting the requirements of the global expectations.

However, what is the cost of compliance. Whilst the legislation is quite straight forward the compliance cost will increase. Cradle to gate / grave accounting is complex and with auditors being stretched between, NGERs, Safeguard and now this, finding a resource to complete the calculations and data collection will be one thing, but looking to have these accounts audited will be another. With the CER having only 75 registered auditors on their books will the cost of this be wider than the government are imagining?

AEMO adds to the spooking of the Energy Market post Liddell Shutdown

Energy Market - AEMO _ Liddell Shutdown

On Thursday (25th May 2023) AEMO released their Scheduling Error notification (incident number 54) confirming they had incorrectly scheduled three of the Liddell units into one of their systems, post the Liddell shutdown, which caused price spikes across the NEM and forwards market on the morning of 1st May 2023.

As has been widely documented the last three Liddell units came offline on the 24th of April (Unit 4), 26th April (unit 2) and finally unit 1 on the 28th of April. This should have flowed through to the systems within the AEMO dispatch engines, however due to an error this was not the case, and the market was affected by the error between midnight and midday on the 1st of May 2023.

The error was cause by a mismatch of data used within the systems which feed the NEMDE (NEM Dispatch Engine) used by AEMO, whereby one part of the system removed the units from 00:01 on the 1st May. However, a separate part of the NEMDE’s data feed system, which controls the constraints still included the Liddell units at their “initial values” i.e. 500MW, not their real value of zero.

When the equations within the constraint tried to equalise, there was a “drop” of 1500MW on one side of the equation from the first interval on the 1st May 2023.

To rectify this AEMO reduced flow coming from Victoria into NSW and around 173MW of generation was dispatched down.

Prices reacted as expected with 6 periods between midnight and 6am having prices between $2,771.58/MWh and $2,964.04/MWh and increasing the daily average price by around 30% to an average of $288.86.

With a marketplace reacting to every cough of a power station, especially in the days following the Liddell closure the added constraint was enough to also strengthen the forwards market with the Q323 close price rising $5.50/MWh on the day in comparison to the day before across QLD, Vic and NSW and even SA was affected with an $8/MWh increase on the previous days close.

This strength continued into the next few weeks as outages came into the mix, a tube leak delaying the return to service of Bayswater 2 to the 3rd May, Kogan Creek, Eraring 2 and Tarong taking outages, the return of Callide being delayed and an unexpected interest rate hikes putting additional pressure on the market. Speculators were quick to act trading the spread between states thus increasing prices across the NEM.

This reactionary sentiment is one we feel will remain for a while, with the spot market quickly correcting however the futures continue to hold value down the curve.

News from Rewiring The Nation

Australian Power Lines

Over the last week Chris Bowen has been selling from everyone to industry to landowners on the government’s $20 billion “Rewiring the Nation” project. He has stated that “securing social license to build the transmission lines is the single most pressing issue for the Australian energy transition.

The proposal involves the development and construction of 10,000km of lines before 2030 and the key to achieving this will be community and stakeholder relationships, which are now being built into the regulatory investment test (RIT-T) process. To facilitate this the NSW and VIC government are offering $200,000 per km for the land crossed by these new infrastructure projects.

Ian Learmonth, the head of the Clean Energy Finance Corporation, said that Australia will need an estimated 29GW of large-scale renewables to meet our ambitious goals, which breaks down to around 3.6GW a year.

This compares to last year’s large-scale wind and solar where Australia only installed 2.3GW. The 29GW required to be installed is challenged by the slow progress in developing essential new transmission lines and therefore Australia’s targets are at risk.

Daniel Westerman, the Chief Executive of AEMO, has stated that “From our control room we can see that increasing amounts of solar and wind generation are being curtailed because there’s not enough transmission capacity to transport it.”

Despite this, the share of renewables in the grid is hitting new highs, averaging 37% in Q1, and peaking at 66% for a half-hour dispatch period. As a result, greenhouse gas emissions from the grid were at their lowest recorded ever in Q123.

Additionally, there is concern from AEMO that there is 14GW of coal powered generation capacity retiring by 2030, which exceeds the 8GW of renewables announced so far. The effect of this could be starkest in the short term. With Eraring (2,880MW) due to come off in late 2025, there are concerns of a significant short term firming capacity gap for first few summers in NSW.

However, with a new Capacity scheme expected to be announced in the next few months, and the next ESOO due in October expected to show the shortfall for NSW, the possibility of extension is one being seriously discussed.

With the VIC – NSW West Interconnector final drafts expected soon and Humelink approval expected early next year, the move to new transmission is starting. However, questions remain as to whether it is too late for the government to meet its targets.

NSW South West Renewable Energy Zone

Street lights at night

Last Friday, the NSW government released their draft declaration for the South West Renewable Energy Zone (SW REZ) access scheme to the public. This is one of five REZs which have been identified within NSW as part of the NSW governments Electricity Infrastructure Roadmap. The schemes are overseeing the volume of projects which will be granted to the transmission within these zones and co-ordinate the network and generation investments into the areas.

The SW zone is based towards the Victorian border and the proposed connection point would be in the Dinawan Substation. The access standards are very similar to those already proposed in April for the states Central-West Orana (CWO) region.

With the CWO attracting more than $35billion worth of proposed projects the SW REZ is hoping to attract significant investment for its 2.5GW transfer capacity, noting the location will not allow for offshore wind and as much Hydrogen investment as that seen in the CWO.

The NSW government has stated that the aim of the declaration is that “An access scheme provides an opportunity to control the connection of projects to the REZ. In the case of the South West, the proposed access scheme triggers the application of modifications to the National Electricity Rules (NER) open access arrangements as they apply to the access right network.”

The access granted projects will benefit from significant network upgrades including potential upgrades to the Project Energy Connect (PEC) interconnector which is being developed at the moment and is to run between SA (Robertstown) and NSW (Wagga Wagga), upgrades to the HumeLink which would connect that Wagga Wagga substation with Snowy Hydro and its increasing capacity and further strengthen the investment case for the proposed Victoria-NSW interconnector (VNI West). The latter is currently within the RIT-T (Regulatory Investment Test for Transmission) process.

These proposals will surely give investors’ confidence in providing the required project certification to be granted the access to that zone. They must not only show feasibility and prepare to sign onto the standards set out in this proposition, but must ensure they can manage voltage, frequency especially which there are potential disruptions within the system. However, the rewards of participating in a well-funded, transmission rich environment which has certainty of curtailment risk for the access rights holders, are surely going to outweigh the paper-work process of being accepted and given the over subscription of the CWO, you can imagine a similar uptake in this round.

The consultation for the South West Renewable Energy Zone (SW REZ) access scheme is closing on the 15th May 2023.

Next test in NSW for the transition to renewables

Hand turning off light switch

For over eight years, there has been talk of AGL shutting down Liddell power station. Finally, this will become reality today, with the next Liddell unit being shut down.

Liddell Unit 4 will be shut down today, followed by Units 1 and 4 over the next 10 days. The retirement of Liddell power station will make 10% of NSW’s availability being bid unavailable.

It would be expected that the permanent closure of 10% of NSW’s electricity generation would put the grid at risk and lead to higher electricity prices.

AEMO has alleviated market concerns by saying, “Supply is not at risk”. However, Edge2020 is not ruling out an upward pressure on prices due to a shock to the market, despite the market knowing the Liddell units would be shut down for many years.

The retirement of Liddell power station is the next big step for NSW as the state transitions from scheduled coal-fired generation to intermittent renewable energy and storage.

While the market has known about the retirement of the Liddell power station for years, Edge2020 expects the market to be firm on the reality of the closures. Spot electricity and forward prices in NSW and Queensland may increase in the short term; however, they will settle over time.

Following the retirement of the Liddell units, availability will still be relatively high in NSW. The capacity factors of the remaining coal-fired units will increase, and gas will fill the remaining gaps. As a result of this and generation from neighbouring regions, it is unlikely that the NSW region will incur a significant drop in availability resulting in a Lack of Reserve (LOR) notice from AEMO.

AEMO confirmed in February that the closure of the Liddell units would not breach the reliability standard; however, AEMO’s latest reliability report has raised concerns that reliability risks remain in NSW. AEMO’s biggest reliability concern has been the delayed delivery of Snowy Hydro’s Kurri Kurri gas-fired generator. The Kurri Kurri gas-fired generator has been delayed by 12 months. AGL has confirmed AEMO has not approached them regarding reliability levels following the closure.

Further to alleviate the availability and reliability concerns of the market as we approach to summer is the news that Energy Australia will have the 300MW Tallawarra B gas-fired generator online in December. Additionally, NSW imports additional electricity from Queensland and Victoria via the interconnectors.

AGL has plans to repurpose the Liddell site into a clean energy hub which will include a 250MW battery with room for expansion that could be linked to a nearby pumped hydro project.

After the closure of Liddell 4 on April 19th, followed by Unit 2 six days later, and then finally Unit 1 on April 29th, AGL will start demolition in early 2024.

The next few weeks will be an interesting time in the industry, particularly for NSW politics and the wider NEM. Edge2020 will monitor the market and provide updates over the next few weeks as the final unit retires.

Renewable energy storage road map released

Edge 2020 Brisbane City

The CSIRO released its Renewable Energy Storage Roadmap at the end of March 2023.

Their modelling suggested that while Australia leads the world in solar generation, and we have reduced emissions significantly, there is still a big task ahead of the country if we are to meet net zero emission targets and maintain affordable and reliable energy to end users. The CSIRO Renewable Energy Storage Roadmap report showed Australia will need significant amounts of storage to meet the transition to renewables.

Storage is the key to integrating renewable energy into the grid and reducing the dependency on coal and gas fired generation. Currently the electricity produced from renewable sources such as wind and solar is intermittent and is not easily dispatched into the grid when it is most needed. Storage allows the renewable energy to be generated when the natural resources are high and dispatching it into the grid when the electricity is needed.

Dispatchable storage is currently available in the grid in the form of pump storage hydro, such as Wivenhoe power station in Queensland and Tumut 3 in NSW. There are also various battery installations located across the NEM.

The dispatch of renewable energy may require different storage technologies to best suit an evolving NEM. Storage comes in various forms from electrochemical storage such as batteries, mechanical storage such as hydro, chemical storage and thermal storage. Each technology has its pros and cons, but a combination of technologies is likely to be required to meet the real time storage volumes and timings of the NEM.

For many years pumped hydro has been seen by governments as the solution to Australia’s energy storage needs, but timing is the limiting factor in this solution.

To enable the transition from coal and gas fired generation to renewables, storage is required now. On a typical day we have excess solar generation resulting in negative spot prices, however over the evening peak as demand increases the supply of renewable drops of coal and gas provide the generation to meet demand. Thermal generation is normally dispatched at prices higher than the cost of renewables resulting in higher spot prices. If storage could be used efficiently the solar energy produced during daylight hours could be used over the evening peak and into the evening resulting in lower electricity prices.

As coal fired generation retires between 2023 and 2035, new dispatchable generation needs to be brought online, the CSIRO report states, development timelines need to be accelerated to bring more projects online by 2030.

Pump storage hydro typically has a lead time of 10 years so either development timelines need to be accelerated or different storage technologies need to be employed in the meantime.

CSIRO chief executive said “there was a need for a “massive increase” in storage capacity to achieve the transition to net zero, with estimates of 11 to 14 gigawatts of additional storage capacity by 2030 alone.

2030 is not far away, to meet the transition targets should industry be focusing on storage rather than generation? Is storage an opportunity to utilise existing infrastructure like old mine pits for pump storage hydro or repurpose retiring thermal power station sites as storage hubs?

Solar and wind are the big losers in latest AEMO MLF forecasts

woman on a windy day

As the electricity market evolves the Australian Energy Market Operator (AEMO) makes assessments of the changing landscape from a transmission and security of supply perspective.

Recently AEMO released its final assessment of Marginal Loss Factors (MLFs). MLF determine how much energy is lost between the generator and the region reference node in each state.

In this next round of MLFs many of the big losers are the intermittent generators. Changes to the grid and the closure of thermal generators have had a detrimental impact on wind and solar farms. Lower MLF’s impact the amount of revenue generators can make.

The final MLF numbers are not as bad as what was published in AEMO draft report providing some positive news for wind and solar developers. Since the draft report new modelling has included the delayed return to service of the Callide C units.

The primary driver for changes in the new MLF forecasts has been 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.

Recent transmission line work has resulted in an increased capacity between Queensland and NSW which means increased flows from Queensland which results in wind and solar projects located in the north of NSW being constrained.

MLF generally gets worse for generators at the end of a long transmission lines, this has resulted in generation in northern NSW being the big loser this year. Some solar farms in the New England region have dropped by over 3%.

While a 3% fall sounds bad, it is not as bad as the MLF for Moree, a 57MW solar farm in western NSW which loses over 20% of its generation by the time it gets to the regional reference node. Previously Moree solar farm had an MLF of 0.8275, this year it is 0.7977.

The return to service of Callide C significantly impacted solar farms in central Queensland, however the delayed return to service has lessened the impact. Daydream, Collinsville, Kidston, and Moura are some of the solar farms most impacted by the new MLFs.

So what does the mean to end users? While we are seeing a rapid increase in renewable generation, the location of this generation is important to the success of a project. If we use the example of Moree where over 20% of the renewable generation does not reach the market then the question has to be, was it built in the correct part of the grid. Many people focus on the size of the project while the volume of electricity produced needs to be of greater importance. Unfavourable MLF will impact the success of the project, will reduce the renewable energy available to the market and potential can leave end users with less renewable energy than what they had signed up for.

AEMO’s emergency powers prevent blackouts during high peak demand

candle due to blackout

Last Friday demand was forecast to break the all-time record of 10,119MW seen in March 2022. AEMO’s pre dispatch forecasting was showing demand peaking at 10,656MW but by 5:30 it had fallen short with Queensland’s demand peaking at 9,750MW.

With a record peak demand forecast due to high temperatures and humidity, AEMO utilised its emergency powers to prevent blackouts across Queensland. As the evening peak approached on Friday, AEMO intervened in the market and at 4:25pm  they enabled Reliability and Emergency Reserve Trader (RERT).

Between 5.30pm and 9.30pm members of the RERT panel reduced consumption on site or increased on site generation to reduce the overall QLD demand. These panel members are compensated by AEMO under individual arrangements if their services are used.

Prior to the dispatching of RERT, AEMO had sent lack of reserve notices to the market to encourage generators to offer more supply. Also, the QLD energy minister said the system would be tight, but he was confident of avoiding blackouts.

As previously discussed, Queensland relies on wind and solar generation to provide clean cheap electricity, but it is currently reliant on coal fired generation to provide the reliable backup when the sun has gone down, and the wind is not blowing.

Currently on a “normal” day demand is easily filled with a combination of solar, wind, gas and coal but on extreme day like last Friday the system becomes more dependent on scheduled generation like gas and coal fired powered stations.

Following the failure at Callide C3 and Callide C4 the state is down 840MW of availability and on extreme days this generation can mean the difference between “normal” prices and the lights staying on and very high prices and the possibility of load shedding.

If it was not for AEMO stepping in, demand may have increased, and spot prices may have certainly capped out close to $15,500/MWh. While very high prices are not good for end users, they are a signal for investment.

If high spot prices occur, it may encourage increased participation in the market and new generation being built but currently the uptake of renewable projects and storage has been slow.

Queensland has high ambitions to replace the coal fleet with renewable and storage but days like last Friday only reinforce that coal fired generation still plays a significant part in the security and price outcomes in the QLD market.

Edge2020 have an eye on the energy market, enabling us to support price  benefits as well as customer supply and demand agreements. Our clients rely on our experts to ensure they are informed, equipped, and ideally positioned to make the right decisions at the right time. If you could benefit from an expert eye on your energy portfolio, we’d love to meet you. Contact us on: 1800 334 336 or email: info@edge2020.com.au