South Australia’s power woes expose deeper problems with nation’s energy security-NewsCO

March 9, 2017

Updated

March 09, 2017 15:13:07

Australia is rapidly stumbling into a major energy crisis, and there’s little evidence to suggest the federal and state governments can agree on the solutions to fix it.

This horrifyingly stark picture is painted by the blandly titled ‘Gas Statement of Opportunities’ released by the Australian Energy Market Operator today.

To understand what’s coming, look no further than my home state of South Australia.

In short, the sudden and unexpected closure of ageing coal plants at Hazelwood in Victoria this month and Port Augusta in South Australia last year are putting enormous pressure on power supply.

From next summer, on hot days, there may not be enough electricity in either state to go around. In South Australia, wholesale prices are regularly spiking to the market-allowed maximum of $14,000 per megawatt hour.

In a healthy market, you’d expect those dire warnings to prompt new investment.

But only the crazy-brave are willing to build new coal power. Old coal generators are shutting down with little notice.

In the absence of a carbon price, no-one’s willing to build new gas plants either. And despite advocacy for a carbon price from the likes of the CSIRO to the Business Council of Australia to BHP Billiton, to one of the nation’s biggest coal power producers in AGL, the Federal Government won’t even consider one.

Remember, this is the same sort of pricing scheme that Malcolm Turnbull once advocated as opposition leader.

Federal Labor opposed it then, but has now adopted it as its own policy.

Risks and rewards of renewables

In the absence of a carbon price, the only investment in new large-scale electricity generation is in renewables — primarily wind and solar.

These projects are primarily funded through subsidies — Renewable Energy Certificates.

The subsidy is imposed by the Federal Government, but paid for by power retailers. That means it’s really paid for by power users. Some states are also pursuing their own Renewable Energy Targets with inbuilt subsidy mechanisms.

Because wind farms make money from these subsidies, they can afford to underbid coal and gas into the wholesale electricity market.

South Australia has its own Renewable Energy Target but it’s mostly spin. There’s no subsidy mechanism behind it.

The state does, however, have traditionally high wholesale prices, good wind and solar resources, and a state government eager to welcome renewable competition into an uncompetitive power market. Particularly when it comes with the promise of new “clean, green” jobs. Especially when it can take the political credit for a mechanism imposed by another level of government.

SA now has nation-leading, and perhaps even world-leading, penetrations of renewable energy.

For a while, they helped stimulate competition and put downward pressure on prices in a not-particularly-competitive market.

Things have started changing rapidly in the past year. This abundance of cheap wind (in a market sense) has helped contribute to the closure of a coal-fired power station and the partial mothballing of a gas plant. The state now survives on wind, solar, gas, diesel — and yes, brown coal from Victoria.

The problem is, the wind doesn’t always blow and the sun doesn’t always shine. The high peaks in South Australia’s energy usage don’t always match up with a large chunk of its increasingly intermittent supply.

Intermittency isn’t the only problem though. Under current market settings, wind farms aren’t required to provide the same stability coal and gas has traditionally provided to the energy grid.

Without getting too technical, the national electricity market is a machine. It has to stay in sync. It was designed last century to transmit power from huge clunking turbines and spinning wheels, not the nimble inverters connected to wind farms and solar cells.

With no more coal generators, and some gas generators lying idle, South Australia has become increasingly reliant on the interconnector from Victoria to provide not only supply, but the inertia required to keep the system frequency in balance.

Grid frailties exposed by extreme weather

Last September, a storm set off a catastrophic chain of events which resulted in that interconnector becoming suddenly severed. South Australia became an electrical island, separated from the national grid.

The Australian Energy Market Operator (AEMO) didn’t see this chain of events coming, even though it had warned of a statewide blackout in South Australia in similar circumstances just months before.

Because the wind had been blowing pretty well in a “one-in-50-year storm”, wind farms and the interconnector had been providing most of the state’s supply. When the interconnector failed, not enough gas generators were switched on to maintain the frequency.

The entire state blacked out.

It’s hard to tell what was worse – the storm itself, or the ideological blame-storm that followed. Both left the public in the dark.

For the record, the weather — not renewables — caused the blackout. But the sheer volume of renewables in the system that day did contribute to the lack of stability which might have saved the power grid.

Not that gas generation is looking like an immediate saviour.

Since South Australia’s power system was privatised in the early nineties, both the generation and retail sides of the market have been dominated by AGL, the owner of the state’s biggest gas-fired generator at Torrens Island near Port Adelaide.

Torrens Island Power Station is a half-century-old relic. Half of it was almost mothballed until Port Augusta’s coal plant suddenly shut down. AGL this week told a Senate committee it will never again be able to fire it up to its full potential. The company enthusiastically agreed with the suggestion from one senator that the gas plant is in danger of “crapping out”.

The output from the slightly-less-elderly half of Torrens Island Power Station almost exactly matches the demand of its customers. It used to top up this supply with coal power from Port Augusta and gas power from the nearby Pelican Point plant. That was until one closed and the other was partially mothballed.

Demand for gas rises, but so does cost

Now AGL is struggling to find enough gas supply in what one executive this week described as a “dysfunctional” market. It’s shedding business customers to make sure there’s enough to go around.

Prices are soaring. An illiquid gas market is supplying a less-than-competitive electricity market.

As production trains in Queensland are busily liquefying Australian natural gas for export into Asia, domestic production is drying up. Fracking fears are forcing some state governments to lock the gate on potential new gas supplies. All this as demand for gas generation is increasing.

AGL told the senate committee it is paying up to three times more for Australian gas than overseas buyers.

The company says it’s seriously considering an admittedly “crazy” idea — building its own import terminal to buy liquefied natural gas from Asia.

AGL’s concerns are echoed by AEMO. It’s forecasting widespread gas shortages in New South Wales and South Australia from summer next year. Victoria follows soon after.

But because this gas is now being expected to sure up electricity supply, the gas shortfall means power shortfalls are not just possible but likely.

To fill the void, the nation’s ageing coal generators might be required to fire up more frequently. Let’s hope nothing goes wrong.

Without action, AEMO could face a Clayton’s choice: provide gas to homes, manufacturers and other businesses, or keeping the lights on.

There are potential solutions. Rules can change. Rising prices might stimulate new gas supply. Renewable storage solutions are getting rapidly cheaper. And as market prices continue to increase, more customers will take power into their own hands, and generate or store their own.

Without change though, this might only serve to make the rest of the grid less stable for those who depend on it.

In recent months, it’s been hard to avoid the sniggers from colleagues and friends interstate about South Australia’s well-documented power woes.

They shouldn’t laugh too hard. They’re next.

Topics:

coal,

electricity-energy-and-utilities,

oil-and-gas,

alternative-energy,

federal—state-issues,

australia,

sa,

adelaide-5000

First posted

March 09, 2017 14:54:51

9 March 2017 | 3:54 am

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