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Pace of power grid transition in dispute

The owner of the Vales Point coal power generator in NSW has joined AGL Energy in voicing doubt whether the rapid exit of coal power envisaged by the Australian Energy Market Operator is feasible without putting at risk security of supply.

But the view of Delta Electricity, which is partly owned by energy entrepreneur Trevor St Baker, stands in stark contrast to that of Fortescue Future Industries, which wants AEMO to instead focus on its Hydrogen Superpower scenario that would involve a much more rapid transition to green energy.

How fast the switch to renewables will take place in the power grid is a point of dispute. Glenn Campbell

FFI said it is planning to develop early, large-scale hydrogen production from the mid-2020s, sooner than the AEMO envisages even in its most rapid-change scenario – called Hydrogen Superpower – and that the level of electricity storage will also increase faster than is being assumed.

But Delta criticised several aspects of AEMO’s draft blueprint for the power grid over the next 30 years, including the modelling behind it and the risk that forecasts of early coal plant closures would lead to “imprudent” decisions on new investments.

It said, for example, that investment in new transmission or new generating plants underwritten by government would drive up costs for consumers.

“This will unnecessarily drive up costs of the power system and increase consumer electricity bills,” Delta’s executive manager marketing, Anthony Callan, said in the company’s submission on AEMO’s draft Integrated Systems Plan.

“In particular, regulated transmission investment is very long-lived and overinvestment will unnecessarily burden consumers for many decades.”

The comments in part echo concerns expressed by AGL Energy chief executive Graeme Hunt, who said the rapid change of the power grid envisaged under the Step Change scenario – now AEMO’s most likely scenario – was “difficult to envisage”.

AGL said the plan was not “credible” as it did not align with government policy on emissions reduction and did not consider whether the whole power system would in any case be ready for such a rapid transition.

It called for the 50 per cent probability assigned to the Step Change scenario to be reduced, and more weighting given to a more gradual transition scenario.

However, Iberdrola, the world’s biggest wind power producer, backed AEMO in its focus on the Step Change scenario, describing that as “appropriate as a conservative central case”.

“In light of Australia’s international commitments, technology improvements and the costs of maintaining ageing units, coal closures will inevitably proceed much faster than are currently announced,” Iberdrola said.

It said the Progressive Change case favoured by AGL “is likely to be too conservative to be realistic” and called for AEMO to limit further investigation into that case.

Origin Energy, which owns the country’s biggest coal-fired power generator, the Eraring plant in NSW, asked for more transparency in the final document on the likely costs to consumers of building the transmission infrastructure needed as the power mix shifts more towards renewable energy.

It also pointed to a “disconnect” between some modelling and what could reasonably be expected in the Step Change scenario.

For example, in the New England Renewable Energy Zone in NSW, some 3.4 gigawatts of wind generation capacity would be commissioned in a single year, in 2027-28, which it deemed “unlikely” given the lead time involved in new projects and grid congestion in the region.

Origin called for AEMO to stress-test the risk of delays in the construction of transmission and the impact of cost overruns.

AEMO’s executive general manager of system design, Nicola Falcon, highlighted the huge changes already taking place in the National Electricity Market, in support of the organisation’s focus on the Step Change scenario.

“Today, 90 per cent of investment across the NEM is in renewable energy, with Australia adding four to five times more grid-scale solar and wind than the European Union, the US or China on a per capita basis,” she said.

“The Draft 2022 Integrated System Plan reflects this, and the continued acceleration industry is expecting over the next 30 years, a point made clear over 18 months consultation with industry, consumers and governments.”

Ms Falcon said the ISP provides “a least-cost, least-regret development path” for the grid to deliver secure, reliable and affordable electricity for consumers, while also contributing to emissions reductions”.

Source: Financial Review