The COAG Energy Council met last Friday 22 November 2019 in Perth. It was a meeting that had been much anticipated since its eventful predecessor in December 2018.
Not much is disclosed by the Communique’s mission statement, just that “Ministers focused on the key priority of ensuring energy security, reliability and affordability for all Australians”.
Security and Reliability
Ministers agreed that the Energy Security Board (ESB) should be tasked with a review of the Reliability Standard, to be completed by March 2020. This was driven by the focus of the Commonwealth, Victoria and New South Wales on reliability meeting an undefined concept of ‘consumer expectations’, despite the Australian Energy Market Operator’s assessment that the risk of interruptions over summer has been minimised.
This new review has real implications for the sector – political anxiety about the risk of blackouts is heightened, and although 100 per cent reliability is impossible, it is critical that we advocate for the right balance between the cost of providing reliability against the cost to the consumer of being interrupted.
We also know that the vast majority of interruptions to customer supply are as a result of network outages and power system disturbances, which the market itself cannot prevent. These types of interruptions dominate the customer experience but are often confused with outages due to supply shortages.
Interruptions caused by the inadequacy of generation occur where the demand exceeds the capacity of all the generators available to run at this time and is what the “Reliability Standard” applies to – in fact generation inadequacy causes only 0.3 per cent of outages. And if we run out of generators, AEMO directs rotational load shedding – i.e. areas of customers (without sensitive loads such as hospitals) are switched off for 40-60 minutes, then another area is selected. This is both the rarest form of interruption, and, thanks to its controlled form, causes the least inconvenience when it happens.
The industry will continue to prosecute its position – that 100 per cent reliability is unrealistic, that tight supply conditions do mean a heightened risk of blackouts over summer (particularly in Victoria), but notwithstanding those concerns, the industry has been working hard to ensure that unit maintenance has been completed and unforeseen outages guarded against in the lead up to summer 2019-2020.
As the Australian Industry Group has said: "Ministers should be aware that if they wind up signing a blank cheque for reliability, they will condemn Australians to paying through the nose for surplus generators and transmission lines that will sit idle most of the time.”
It is disappointing that a standard that was reviewed only last year, is now being reviewed again by a different body. It ignores the support of energy users and the market itself for the current standard.
The reliability issue was further complicated by a parallel announcement made by New South Wales on the same day the Council met. The NSW Minister’s proposed Energy Security Target requires consultation, but early indications are that it is intended to sit above the National Electricity Market’s standard, which adds the prospect of conflict, cost and complexity to this important measure in the market. Whilst the industry appreciates the NSW Government’s intentions, unilateral action by jurisdictions is problematic and it is imperative that the focus on affordability is not lost – customers can ill-afford a gold-plated NEM.
In relation to the Co-ordination of Generation and Transmission Investment Review, it was agreed that the Australian Energy Market Commission (AEMC) would present on this at the next COAG meeting in March 2020, with a focus on balancing the benefits of renewable generation (such as large scale wind and solar) with the cost of connecting those low-emission sources to the grid. Particular regard is to be paid to NSW’s Renewable Energy Zones, which that government is keen to progress as a priority.
Integrated System Plan
The COAG Energy Council reaffirmed its commitment to the Integrated System Plan (ISP), and affirmed its support for key projects that are being progressed, including KerangLink, HumeLink, MarinusLink and Energy Connect. Reforms to the all-important Regulatory Investment Test for Transmission (RIT-T) are also underway, and the competitive energy industry will retain a close focus on the need to ensure appropriate cost-benefit assessments.
The ESB has been asked to prepare advice for the next meeting on how best to optimise the ISP, which seems to be a tacit acknowledgement that perhaps transmission planning hasn’t been moving as fast as the Council would like.
National Hydrogen Strategy
Professor Alan Finkel presented to the Council on his blueprint National Hydrogen Strategy, including 57 initiatives to progress the role of hydrogen in Australia’s energy mix, and particularly as a clean, low-cost, innovative and safe energy source to the benefit of Australian consumers.
The progress of this strategy appears sensible and non-controversial. Clearly the targeted objectives for hydrogen, with the exception of hydrogen for industry, are yet to emerge in Australia. To that extent, COAG support for the overall strategy, initial research and development, and removal of regulatory barriers is supported.
Ideally in the future the electricity market’s existing signals, such as low prices at times of surplus generation, should alone encourage technology-neutral private investment in hydrogen systems, as well as other forms of storage.
Overall, it appears to have been a measured meeting, focussed on the practical matters that the Ministers around the table could agree on. Whilst there was no pre-meeting for stakeholders to advocate views to the Council directly (which is disappointing), there is time to now consult with the ESB on its review of the Reliability Standard, and also with NSW on the detail of its new energy package, which is intended to support reliability.
It is unsurprising that Ministers made no progress on a coordinated emissions policy for the electricity sector; Council members had agreed long before that no consensus position was possible.
Although the new trend towards the Commonwealth entering into bilateral agreements with individual States separate to COAG is new, and will likely move us further away from the principles of a nationally consistent energy policy framework, it is also a pragmatic option to move initiatives forward in a contested environment.
ESB Chair, Dr Kerry Schott, remarked this week, that perhaps stakeholders would be better to focus on practical solutions to the challenges in the electricity market, rather than continue to advocate for a national climate and energy policy – a debate that has seen no sustained progress in more than a decade. That is a question for all of us to ponder over the new year break.
A perennial discussion in energy market policy is the contest between what we are ultimately trying to achieve: “customer benefits” or “market benefits”. When making market rules, or building monopoly assets, rules require that we assess “net market” benefits. A number of recent government policies have been justified on customer benefit assessments alone.
The economics of traditional plants are well understood, but since their construction, the way they need to operate has changed substantially. This has been driven by a combination of the age of the plants as well as the large influx of renewables, which is changing the supply and demand patterns of the grid.
Yallourn has been home to a coal-fired power station for 100 years, but it was recently announced that this would come to an end in 2028 with the closure of the current four unit Yallourn W power station. In providing seven years notice of closure, EnergyAustralia has given the market, policy makers and government time to adjust and avoid shocks. We take a look at the announcement and some history of the power station.
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