The “s” words

After another week in which the extent to which politicking and populism hold sway in our energy debate has again been demonstrated, the importance of getting a solid grip on power market planning needs to be underlined even more strongly.

It seems, as a result of this week’s Senate horse-trading, that we are now to also have a joint report on “policy or policies to enhance power system security and to reduce energy prices” from the Australian Energy Market Commission and the Climate Change Authority – this in addition to the Finkel task force report (due mid-year) and the federal review of climate change policies (due end of 2017).  This apparently includes a deal with Senator Nick Xenephon that rules changes for the NEM to “pursue energy affordability and security” will be implemented by July next year.

Meanwhile the Senate select committee in to “the resilience of electricity infrastructure in a warming world” should be reporting in April and there is also a House of Representatives standing committee inquiry under way in to “modernizing the electricity grid.”

Plus the Australian Competition & Consumer Commission inquiry in to retail competition in the east coast electricity market.

Expecting policymakers to get a real grip on a durable, efficient consensus way forward in this environment requires leaning on hope rather than experience.

However, there is good advice already available – if the politicians will stop blathering and start focusing on what needs to be done.

As an example, speaking at a Committee for the Economic Development of Australia forum recently, Origin Energy CEO Frank Calabria, who is also the current chairman of the Australian Energy Council, put his finger on three key words for the new direction in energy supply management that we so obviously need.

We have to stop spinning our wheels, Calabria told the CEDA lunch, and make sensible and swift decisions to ensure supply security.

The “s” words are what matter – “security” and “sensible” and “swift.”

In an environment where “broken” is the epithet most frequently thrown at the east coast energy market, Calabria argued that the cost and complexity of redesigning the NEM will far outweigh any benefits. Instead, he said, we should act quickly to adapt the market to meet Australia’s energy goals.

This can be accomplished, he added (and the points form part of Origin’s submission to the Finkel task force) in three ways.

First, immediately operating the NEM to cope with the high levels of variability from renewable energy and the decline of coal and gas generation. “Sufficient synchronous – or coal and gas – generation must be physically available in each State at all times and interconnector flows must be managed so that the system is resilient to sudden changes in production and demand.”

Second, developing ancillary service markets relatively quickly to keep system voltage and frequency stable, enabling efficient and technology-neutral security as the generation mix changes.

Third, focusing on the future impact on the market of distributed generation, storage, smart meters and demand response.

There’s much more in Calabria’s CEDA talk (it’s on the company’s website), not least speaking up for an emissions intensity scheme to be put back on the table by the Turnbull government, asking “why travel down the path of ‘next best’ solutions that will only drive up the cost of carbon abatement?”

The Origin addendum to this is that the achievement of clarity on long-term emissions policy will help the continued viability of the NEM.

Interestingly, the company’s Finkel submission, in talking about the market, also throws in the thought that the objective of proposals for increased interconnection between the market regions (which has quite a lot of support) may be to enhance reliability, but it could also further undermine the viability of generation in these areas.

The appeal for me in the approach of Calabria and his business as set out above is that it reinforces a concern that a number of us share – it was a frequent point of discussion in the breaks at the recent Australian Domestic Gas Outlook conference – that Finkel’s task force may be tempted to over-reach and policymakers, with their only-too-obvious penchant for over-reacting, to then grab at options that have glamor in the media but risk throwing up yet more unintended consequences.

Grattan Institute, in its submission, reminds the task force that the heart of the job it has been given is to report on whether the NEM can continue to efficiently deliver dependable power supply through the transition on which we are embarked? “Effectively,” says the institute, “(answer the question) is the market broken?”

The Grattan paper provides its own answer: “While there is room for improvement, the NEM is working by responding to greater uncertainty about generation investment and system security with high prices.” It adds: “The NEM has many mechanisms to manage issues with generation capacity, system security and network optimisation. Some of these are still to be put to the test. We should test and build on existing low-cost mechanisms before making major capital investments or redesigning the market.”

It urges the adoption of “no regrets” moves, adding: “(They) are things that are likely to be needed whatever the future brings. They should be low cost, technology-neutral and enable new solutions to emerge over time.”

One of my industry friends, who has had experience locally and overseas at senior executive levels, has commented to me this week, in supporting the view that the NEM is not broken, that one the keys to addressing the problems which sparked the present “crisis” mode in the national debate is for the Australian Energy Market Operator to ensure there is enough synchronous plant in each region depending on the demand at the particular time and the level of intermittency presented for dispatch.

“AEMO,” he adds, “must be brave enough to schedule intermittent plant (zero marginal cost plant) off while bringing more expensive plant onto the system to ensure security.  If they had done that from the beginning, we would not be where we are.”

All of this lends itself to the argument that, whatever else it cares to comment about, the Finkel task force should ensure its major thrust is to answer the big NEM question with Calabria’s three “s” words at the forefront of its thinking.

How far a practical, focused report will be heard in this cyclone of inquiries and politicking is another matter.



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