The quest for ‘enough megawatts when we need them’

"Resource adequacy" rapidly became one of the hot-button phrases of the Australian Financial Review Energy & Climate Summit.
  1. “Resource adequacy” rapidly became one of the hot-button phrases of the Australian Financial Review Energy & Climate Summit.

    Typically it took the straight-speaking Kerry Schott, chair of the Energy Security Board, to spell out in simple terms what it means: having enough megawatts of electricity generation capacity for when we need them.

    It wasn’t a problem in the traditional, one-way power system of the past, when supply was stable and demand rising. If shortages were forecast, wholesale prices would rise and suppliers would hit ‘go’ on a power station to fill the need.

    But with increasing generation from weather-dependent wind and solar power, and households and businesses adding rooftop solar systems as fast as ever to generate much of their own needs – driving down daytime prices – it has become so. Fewer megawatts of capacity are needed during the day, but the evening peaks when household consumption surges still need to be met just when the solar panels have powered down.

    At the same time, after the shock of the power price spikes after the relatively sudden closure of the Hazelwood coal station in Victoria in 2017, politicians have little tolerance for the “incentive prices” needed to cause generators to commit to gas-fired peaking power plants to smooth out wind and solar. But nor are they prepared to risk blackouts.

    Hence the consternation voiced by both federal Energy Minister Angus Taylor and his NSW counterpart Matt Kean at the Summit over the investment drought of 10 years or more in new “on-demand” generation in NSW. The capacity is increasingly needed as variable renewable energy grows and as the closure of the Liddell coal generator looms in 2023. But the commercial incentives and certainty haven’t been there for AGL and EnergyAustralia to commit gas power projects that have been on the drawing board for years.

    The combination of factors spells the end of the “energy-only” system that underpins today’s National Electricity Market and means that only power that is produced is paid for. It doesn’t work any more when average prices are on the slide, and would have to return to politically unpalatable heights to drive the investments.

    Not that Dr Schott and her colleagues on the Energy Security Board are proposing to shift wholly to the other dominant type of market – a centrally controlled “capacity” market where generators are paid to have capacity available for use, rather than the actual power produced.

    Rather, Dr Schott pointed to options in between, including tightening the “retailer reliability obligation” that would require retailers to ensure they have contracted in advance for all their load.

    Audrey Zibelman, head of the Australian Energy Market Operator, also pointed to the potential for an element of the NSW energy infrastructure road map that tackles that problem to be used elsewhere in the National Electricity Market. While the details are yet to be hammered out, NSW is proposing offering long-term contracts under competitive tenders to generators for “firming” power, when a breach of its energy security target is identified.

    “What we need to do is make sure that when people are investing in the firming resources they know that they can get a fair price and they can invest with confidence,” Ms Zibelman said.

    That’s not the only reform looming in the ESB’s post-2025 NEM reform system, by any means. Another key strand is the introduction of markets for the sort of grid services currently provided invisibly by coal generators that will become increasingly scarce as coal generation exits. But it’s an important part of the problem that is increasingly urgent to solve.

    Source: Financial Review