South Australia Unveils New Energy Plan In Bid To End Blackouts

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Originally published on The Conversation.
By Hugh Saddler, Honorary Associate Professor, Centre for Climate Economics and Policy, Australian National University

South Australia’s government has unveiled its keenly anticipated new energy plan, with the aim of making itself more self-sufficient.

Against the backdrop of repeated crises such as the blackouts of last month and September last year, and a dramatic offer from Tesla founder Elon Musk to fix the state’s energy security problems, the new plan proposes a range of measures to fix what Premier Jay Weatherill has described as the “failures” of national electricity regulation.

Battery storage

First, as almost universally anticipated, there will be a tender for a battery storage facility capable of delivering 100 megawatts of power, to be funded from a A$150 million Renewable Technology Fund. The plan document says this project will “modernise South Australia’s energy grid and begin the transformation to the next generation of renewable-energy storage technologies”.

Neither the National Electricity Market rules nor any other federal policy provides any specific mechanism to encourage battery installation. Nor do the existing regulations allow battery operators to be rewarded for other services they could provide, including responding rapidly to price spikes or to sudden drops in voltage on the grid.

Large battery installations, if appropriately configured, would be capable of providing large injections of energy to the grid over short periods, as a way to offset extreme volatility. Both SA and Queensland have been plagued by such volatility in recent months, causing a rash of short-term price spikes indicative of markets without enough competition.

The Australian Energy Market Commission (AEMC) is currently considering a Rule change, termed the 30 minute/5 minute trading interval change, proposed by a large electrolytic zinc smelter in Townsville. The change is ferociously opposed by established generators, but supported by almost everyone else. If and when the AEMC ever gets around to approving the rule change, large battery installations would be able to compete directly with generators, thereby both gaining a new source of revenue and helping to keep wholesale prices within reasonable limits.

Taking back control

The second component of the plan is to introduce legislation that would allow the state government to override the NEM’s market dispatch process for generation in the event of an emergency such as the demand peaks that triggered last month’s blackouts.

This is an obvious response to what is widely seen, at least in SA, as the reluctance of the federal regulator to use its powers to suspend the market. Many observers consider that such reluctance was most evident in the morning of the statewide blackout last September, and believe that earlier intervention could have prevented it, despite the massive storm damage to the state’s transmission infrastructure.

The new proposal could be interpreted as a challenge to the federal government over who controls SA’s electricity.

Energy security

Third, the plan will require all new generators with more than 5MW of capacity to demonstrate how they will contribute to the state’s energy security, by providing what are called ancillary services, such as frequency control, so-called inertia, or short-term storage. This is another clear statement that the state government believes the NEM rules, which establish markets for some frequency control services but not the other services mentioned above, fail to offer the state enough of a guarantee of reliable power supply.

Build a new gas plant

The government plans to become a power station owner, 20 years after the Liberal state government sold off the last publicly owned plant, by building a new open cycle (peaking) gas turbine plant. This decision is most obviously a reaction to the load-shedding blackout amid last month’s heatwave, when the operators of the Pelican Point gas power station were either unable or unwilling to increase output. Had they done so, load shedding could have been avoided.

At A$360 million, this seems a rather expensive way to avoid another load-shedding blackout, presumably justified on the basis of avoided political cost. It could be seen as a missed opportunity to provide more support for a far more innovative (though well proven in other countries) project to integrate solar thermal generation, gas generation and molten salt storage.

Solar thermal generation may gain support from the tender for new generation to supply the government’s own electricity requirements, and possibly some from the Renewable Technology Fund, but that remains to be seen.

Energy security target

Finally, the government will introduce a requirement, called an energy security target, requiring electricity retailers to source a minimum percentage of their wholesale requirements from local generators, rather than from Victorian coal-fired stations.

This will provide a guaranteed amount of revenue to local generators, thus reducing dependence on supply through the interconnectors with Victoria, with their associated security risks.

In a direct, though entirely unsurprising confrontation with the Commonwealth, the plan document states that “South Australia’s energy security target will transition to an EIS or Lower Emissions Target (LET) if or when national policy changes in the future”.

The wider context

In the policy document, Weatherill writes that the NEM is “failing South Australia and the nation”. Taken together, the various elements of the plan can be read as a list of how exactly the SA government considers it to be failing, and what powers the state proposes to assume in order to get it fixed.

Although the plan’s objectives are not stated explicitly, it is clear that they are threefold, and seen of equal priority:

• suppress retail price rises by introducing more competition into the wholesale market
• enhance the physical security of electricity supply
• encourage renewable generation and reduce greenhouse gas emissions.

These priorities neatly match the three components of what the preliminary report of the forthcoming Finkel Review calls the “energy trilemma”, which is the need to “simultaneously provide a high level of energy security and reliability, universal access to affordable energy services, and reduced emissions.”

With the review’s final version set to be delivered to the Commonwealth government in the coming months, it remains to be seen whether federal energy policy will become similarly proactive in the future.

Reprinted with permission.