Tag Archives: electricity

Australia’s electricity market is not agile and innovative enough to keep up

The Conversation

Hugh Saddler, Australian National University

On the early evening of Wednesday, February 8, electricity supply to some 90,000 households and businesses in South Australia was cut off for up to an hour. Two days later, all electricity consumers in New South Wales were warned the same could happen to them. It didn’t, but apparently only because supply was cut to the Tomago aluminium smelter instead. In Queensland, it was suggested consumers might also be at risk over the two following days, even though it was a weekend, and again on Monday, February 13. What is going on?

The first point to note is that these were all very hot days. This meant that electricity demand for air conditioning and refrigeration was very high. On February 8, Adelaide recorded its highest February maximum temperature since 2014. On February 10, western Sydney recorded its highest ever February maximum, and then broke this record the very next day. Brisbane posted its highest ever February maximum on February 13.

That said, the peak electricity demand in both SA and NSW was some way below the historical maximum, which in both states occurred during a heatwave on January 31 and February 1, 2011. In Queensland it was below the record reached last month, on January 18.

Regardless of all this, shouldn’t the electricity industry be able to anticipate such extreme days, and have a plan to ensure that consumers’ needs are met at all times?

Much has already been said and written about the reasons for the industry’s failure, or near failure, to do so on these days. But almost all of this has focused on minute-by-minute details of the events themselves, without considering the bigger picture.

The wider issue is that the electricity market’s rules, written two decades ago, are not flexible enough to build a reliable grid for the 21st century.

Vast machine

In an electricity supply system, such as Australia’s National Electricity Market (NEM), the amount of electricity supplied must precisely match the amount being consumed in every second of every year, and always at the right voltage and frequency. This is a big challenge – literally, considering that the NEM covers an area stretching from Cairns in the north, to Port Lincoln in the west and beyond Hobart in the south.

Continent-sized electricity grids like this are sometimes described as the world’s largest and most complex machines. They require not only constant maintenance but also regular and careful planning to ensure they can meet new demands and incorporate new technologies, while keeping overall costs as low as possible. All of this has to happen without ever interrupting the secure and reliable supply of electricity throughout the grid.

Until the 1990s, this was the responsibility of publicly owned state electricity commissions, answerable to their state governments. But since the industry was comprehensively restructured from the mid-1990s onwards, individual states now have almost no direct responsibility for any aspect of electricity supply.

Electricity is now generated mainly by private-sector companies, while the grid itself is managed by federally appointed regulators. State governments’ role is confined to one of shared oversight and high-level policy development, through the COAG Energy Council.

This market-driven, quasi-federal regime is underpinned by the National Electricity Rules, a highly detailed and prescriptive document that runs to well over 1,000 pages. This is necessary to ensure that the grid runs safely and reliably at all times, and to minimise opportunities for profiteering.

The downside is that these rules are inflexible, hard to amend, and unable to anticipate changes in technology or economic circumstances.

Besides governing the grid’s day-to-day operations, the rules specify processes aimed at ensuring that “the market” makes the most sensible investments in new generation and transmission capacity. These investments need to be optimal in terms of technical characteristics, timing and cost.

To borrow a phrase from the prime minister, the rules are not agile and innovative enough to keep up. When they were drawn up in the mid-1990s, electricity came almost exclusively from coal and gas. Today we have a changing mix of new supply technologies, and a much more uncertain investment environment.

Neither can the rules ensure that the closure of old, unreliable and increasingly expensive coal-fired power stations will occur in a way that is most efficient for the grid as a whole, rather than most expedient for individual owners. (About 3.6 gigawatts of capacity, spread across all four mainland NEM states and equalling more than 14% of current coal power capacity, has been closed since 2011; this will increase to 5.4GW and 22% when Hazelwood closes next month.)

Finally, one of the biggest drivers of change in the NEM over the past decade has been the construction of new wind and solar generation, driven by the Renewable Energy Target (RET) scheme. Yet this scheme stands completely outside the NEM rules.

The Australian Energy Markets Commission – effectively the custodian of the rules – has been adamant that climate policy, the reason for the RET, must be treated as an external perturbation, to which the NEM must adjust while making as few changes as possible to its basic architecture. On several occasions over recent years the commission has successfully blocked proposals to broaden the terms of the rules by amending the National Electricity Objective to include an environmental goal of boosting renewable energy and reducing greenhouse emissions.

Events in every state market over the past year have shown that the electricity market’s problems run much deeper than the environmental question. Indeed, they go right to the core of the NEM’s reason for existence, which is to keep the lights on. A fundamental review is surely long overdue.

The most urgent task will be identifying what needs to be done in the short term to ensure that next summer, with Hazelwood closed, peak demands can be met without more load shedding. Possible actions may include establishing firm contracts with major users, such as aluminium smelters, to make large but brief reductions in consumption, in exchange for appropriate compensation. Another option may be paying some gas generators to be available at short notice, if required; this would not be cheap, as it would presumably require contingency gas supply contracts to be in place.

The most important tasks will address the longer term. Ultimately we need a grid that can supply enough electricity throughout the year, including the highest peaks, while ensuring security and stability at all times, and that emissions fall fast enough to help meet Australia’s climate targets.

The ConversationHugh Saddler, Honorary Associate Professor, Centre for Climate Economics and Policy, Australian National University

This article was originally published on The Conversation. (Reblogged by permission). Read the original article.

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To pay solar households fairly, we need to understand the true value of solar

The Conversation

Joe Wyndham, University of Technology Sydney and Jay Rutovitz, University of Technology Sydney

The Australian government is reviewing our electricity market to make sure it can provide secure and reliable power in a rapidly changing world. Faced with the rise of renewable energy and limits on carbon pollution, The Conversation has asked experts what kind of future awaits the grid.


This year many Australian households will find themselves cut off from generous incentives paid for electricity they export into the grid from rooftop solar systems.

Between September and December, state feed-in tariff (FiT) schemes in New South Wales, Victoria and South Australia will finish. The FiTs applying to over 275,000 customers will drop from between 16 and 60 cents per kilowatt hour to between 5 and 7.2 cents per kWh. In NSW, the replacement FiT won’t be mandatory, with retailers allowed to decide what they pay. Of course, many of those customers have already recouped their investment.

Now that our rooftop solar industry has matured, we need to reconsider the purpose of FiTs and align them with our goals for the electricity system in the future.

Why pay solar households?

FiTs have been hugely important in getting the global solar industry to where it is now. Solar electricity costs have fallen to levels that were unimaginable just 10 years ago.

Governments have traditionally used FiTs to achieve a policy aim, such as increasing renewable energy production by bridging the gap between current costs of electricity and the cost of new sources.

Australian states began to introduce mandated FiTs in 2008. There has never been a national FiT in Australia, and Queensland, NSW and the ACT no longer have mandated FiTs. However, many electricity retailers offer FiTs, even when not mandated by government.

Current state of feed-in tariffs in Australia for new customers. Authors

The costs of FiTs are recovered in different ways, depending on whether they are government-mandated or not, but ultimately they fall on all electricity consumers. As governments wind back mandated FiTs, it’s assumed that FiTs will be roughly cost-neutral.

Have they worked?

Residential solar installations soared after the introduction of FiTs in 2008. Installations quadrupled each year in Australia until 2012, leading to 11,600 jobs and the highest penetration of households with rooftop solar in the world.

Cumulative and annual installed solar PV capacity in Australia.
Chapman et al 2015

This boom stimulated a competitive solar market in which residential installation costs have plummeted (as you can see below). Australia now enjoys some of the lowest installation costs for rooftop solar in the world.

Module and system installation price with number of installations.
Chapman et al 2015

The trick that state policymakers missed, however, was making FiT policies sustainable.

Early FiTs were excessively high, especially in NSW and Queensland, causing policy fallout and sudden withdrawal. This was partly because the rapid reduction in solar prices exceeded expectations.

For example, the NSW government was forced into a hasty reassessment of its 2010 policy in order to prevent a cost blowout after massively underestimating the level of uptake. By October 2010, just 10 months after it began, the NSW gross FiT was slashed from 60 to 20 cents per kWh. The scheme was closed to new participants in April 2011.

Across Australia most states cut or entirely removed FiTs within four years. Most current FiTs are now well below retail prices. This means that customers are being encouraged to use as much as possible of their solar energy to power their own homes rather than exporting it to the grid. This is one of the reasons why the system size for solar installations in Australia tends to be smaller than elsewhere.

The fallout from these unsustainable FiT policies has unfortunately polarised the national conversation about solar. Hundreds of thousands of solar power system owners are facing bill shock as FiTs are withdrawn, while those who do not have solar have been told they are footing the bill for their neighbours’ systems.

Politicians have sought to capitalise on this discontent, by blaming solar tariffs for high electricity prices. In many states, the actual value of rooftop solar has been pushed out of the conversation.

The real value of solar

A recent Victorian report found that the value of solar energy depends on when electricity is fed into the grid. Solar energy is more valuable when exported to the grid at times of peak demand.

The report argued that the value of solar should account for the reduction in transmission losses (the losses associated with transporting electricity from large power plants over great distances) and environmental effects, primarily the reduction in greenhouse gases from displacing fossil fuel generation.

Solar installations can potentially add value in other ways too. For example, installing battery storage along with solar systems may allow domestic solar systems to offer other network services such as frequency and voltage control.

Encouragingly, since the report the Victorian government has bucked the national trend and announced a multi-rate FiT scheme.

The scheme offers different rates for exporting during peak, shoulder and off-peak times. It will also reward solar owners for the greenhouse gas offsets related to their system’s output. The scheme is expected to raise FiTs from around 5c per kWh to an average of between 6.5c and 7c per kWh.

What next?

Nationally, we need to refocus the conversation about the purpose and value of FiTs. Having already established a world-leading solar industry, we need to ask what FiTs can do for us now and into the future.

If we want our electricity system to take advantage of technological advances, such as battery storage, we need to repurpose our FiTs to reflect the benefits of these technologies. The Victorian example is a great step forward, providing a mechanism where consumers can leverage Australia’s low installation costs to become players in a more competitive energy market.

But there are even more benefits to distributed energy systems that could be realised with intelligently applied FiTs. This means we need more consideration of what solar systems can do for us, and less simplistic conversations about electricity costs.

The ConversationJoe Wyndham, Research Analyst, Institute for Sustainable Futures, University of Technology Sydney and Jay Rutovitz, Research Director, Institute for Sustainable Futures, University of Technology Sydney

This article was originally published on The Conversation. (Reblogged by permission). Read the original article.

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