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on the preliminary report into the future of the NEM – part 1

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Australia’s Chief Scientist, Alan Finkel, who also happens to be a regular columnist for Cosmos, Australia’s premier science magazine, of which I’m a regular reader, has released his panel’s preliminary report on our national electricity market (NEM), and it has naturally received criticism from within the ranks of Australia’s conservative government, which is under pressure from its most conservative elements, led by Tony Abbott amongst others, who are implacably opposed to renewable energy.

The report confirms that the NEM is experiencing declining demand due to a range of factors, such as the development of new technologies, improved energy efficiency and a decline in industrial energy consumption. It makes a fairly reasonable assumption, but one unwelcome to many conservatives, that our electricity market is experiencing an unprecedented and irreversible phase of transition, and that this transition should be managed appropriately.

The NEM has been in operation for over 20 years, and the recent blackout here in South Australia (late September 2016) was its first real crisis. The issue as identified in the report is that variable renewable energy (VRE) sources are entering and complicating the market, which heretofore has been based on the synchronous generation of AC electricity at a standard system frequency. VRE generation is multiform and intermittent, and as such doesn’t sit well with the traditional system.

There are a number of other complicating issues. Improvements in building design and greater public awareness regarding emissions reduction have led to a decrease in overall energy consumption, while high peak demand on occasion remains a problem. Also the cost of electricity for the consumer has risen sharply in recent years, largely due to network investment (poles and wires). It’s expected that prices will continue to climb due to the closure of coal-fired power stations and the rising cost of gas. Interestingly, the report promotes gas as a vital energy source for this transitional period. It expresses concern about our overseas sales of gas, our low exploration rates, and negative attitudes to the fuel from certain states and territories. Rooftop solar systems, numbering more than 1.5 million, have further complicated the market, as the Australian Energy Market Operator (AEMO) understandably finds it difficult to measure their impact. System integration, which takes solar and wind energy system contributions into account, is clearly key to a successful NEM into the future.

The report also stresses Australia’s commitment to emissions reductions of 26-28% by 2030. It points out that business investors are turning away from fossil fuels, or what they call ’emission intensive power stations’, and financial institutions are also reluctant to back such investments. Given these clear signals, the report argues that a nationally integrated approach to a system which encourages and plans for a market for renewables is essential. This is clearly not what a backward-looking conservative government wants to hear.

So the report describes an ‘energy trilemma’: provision of high level energy security and reliability; affordable energy services for all; reduced emissions. More succinctly – security, affordability and the environment.

In its first chapter, the report looks at new technology. The costs of zero-emission wind turbines and solar PVs are falling, and this will maintain their appeal at least in the short term. Other such technologies, e.g. ‘concentrated solar thermal, geothermal, ocean, wave and tidal, and low emission electricity generation technologies such as biomass combustion and coal or gas-fired generation with carbon capture and storage’ (p13), are mentioned as likely technologies of the future, but the report largely focuses on wind and solar PV in terms of VRE generation. The effect of this technology, especially in the case of rooftop solar, is that consumers are engaging with the market in new ways. The penetration of rooftop solar in Australia is already the highest in the world, though most of our PV systems have low capacity. Battery storage systems, a developing technology which is seeing cost decreases, will surely be an attractive proposition for future solar PV purchasers. Electric vehicles haven’t really taken off yet in Australia, but they are making an impact in Europe, and the AEMO has projected that 10% of cars will be electric by 2030, presenting another challenge to an electricity system based largely on the fossil fuels such vehicles are designed to do without.

The management of these new and variable technologies and generators may involve the evolution of micro-grids as local resources become aggregated. Distributed, two-way energy systems are the likely way of the future, and an Electricity Network Transformation Roadmap has been developed by CSIRO and the Energy Networks Association to help anticipate and manage these changes.

In chapter 2 the report focuses on consumers, who are becoming increasingly active in the electricity market, which was formerly very much a one way system – you take your electricity from the national grid, you pay your quarterly bill. With distributed systems on the rise, consumers are becoming traders and investors in new forms of generation. The most obvious change is with rooftop PV. The national investment in these systems has amounted to several million dollars, with the expectation that individual households will be generating electricity more cleanly, more efficiently, and also more cheaply, notwithstanding the traditional electricity grid. Developments in battery storage and other technologies will inevitably lead to consumers moving off-grid, likely creating financial stress for those who remain. The possibilities for developing micro-grids to reduce costs will further complicate this evolving situation. Digital (smart) metering and new energy management software empower consumers to control usage. And while this is currently occurring mostly at the individual level, industrial consumers will also be keen to curb usage, creating added pressure for a more flexible and diverse two-way market. The report emphasises that the focus should shift more towards demand management in terms of grid security. One of the obvious problems from the point of view of consumers is that those on low incomes, or renters, who have little capacity to move off-grid (or desire in the case of passive users), may bear the burden of grid maintenance costs at increasing rates.

Chapter 3 deals with emissions. In reference to the Paris Agreement of 2015, which has been ratified by Australia, the report makes this comment which has been picked up by the media:

While the electricity sector must play an important role in reducing emissions, current policy settings do not provide a clear pathway to the level of reduction required to meet Australia’s Paris commitments.

The current Renewable Energy Target does not go beyond 2020 and national policy vis-à-vis emissions extends only to 2030, causing uncertainty for investors in an already volatile market. Clearly the report is being critical of government here as it has already argued for the primary role of government in developing policy settings to provide clarity for investment. The report also makes suggestions about shifting from coal to gas to reduce emissions at least in the short term. The report discussed three emissions reduction strategies assessed by AEMO and AEMC (Australian Energy Market Commission): an emissions intensity scheme, an extended large-scale renewable energy target, and the regulated closure of fossil-fuelled power stations. The first strategy is basically a carbon credits scheme, which was assessed as being the least costly and impactful, while an extended RET would provide greater policy stability for non-synchronous generation, so adding pressure to the existing grid system. Closure of coal-fired power stations would reduce low-cost supply in the short to medium term. Base load supply would be problematic in that scenario, so management of closures would be the key issue.

Chapter 4 looks at how VRE might be integrated into the system. It gets a bit technical here, but the issues are clear enough – VRE will be an increasing part of the energy mix, considerably so if Australia’s Large-scale renewable energy target is to be met, along with our international commitment vis-a-vis the Paris Agreement. However, VRE cannot provide spinning inertia or frequency control, according to the report. Basically this means that they cannot provide base load power, at a time when coal-fired power stations are closing down (nine have closed since 2012) and eastern states gas is being largely exported. The Hazelwood brown coal power station, Australia’s largest, and one of the most carbon intensive power stations in the world, will cease operation by April next year.

The difficulty with non-synchronous, distributed, intermittent and variable energy generation (e.g. wind and solar PV) is that these terms seem to be euphemisms for ‘not effing reliable’ in terms of base load, a problem currently being encountered in South Australia and likely to spread to other regions. The report identifies frequency control as a high priority challenge.

Frequency is a measure of the instantaneous balance of power supply and demand. To avoid damage to or failure of the power system the frequency may only deviate within a narrow range below or above 50 Hertz, as prescribed in the frequency operating standards for the NEM.

It’s likely that this narrow range of frequency proved a problem for South Australia when it suffered a blackout in September. I’ll look at what the report has to say about that blackout next time.

national electricity consumption - apparently on the rise again?

national electricity consumption – apparently on the rise again?

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Written by stewart henderson

December 22, 2016 at 7:15 pm

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