Electricity market review is pregnant with options

27 June 2017

It is hard to see from a review of Australia's National Electricity Market how Australia can manage to balance cost, reliability and emissions without creating a role for nuclear energy, as in virtually all of its key economic competitor countries, writes Ian Hore-Lacy.

A review of Australia's National Electricity Market (NEM) covering eastern and South Australia has reported its findings to government in the light of concerns about reliability of supply, lack of investment in new dispatchable plant to supply base-load demand, and escalating retail prices. The matters addressed in the Chief Scientist Alan Finkel's comprehensive 212-page report are not unique to Australia. It confirms experience elsewhere that integrating high levels of variable renewables into electricity supply while maintaining reliability and keeping costs down is a daunting challenge. It is hard to see how Australia can manage to balance cost, reliability and emissions without creating a role for nuclear energy, as in virtually all of its key competitor countries - both OECD and non-OECD.

"Security and reliability have been compromised by poorly integrated variable renewable electricity generators, including wind and solar" (security being about frequency control and other ancillary services, reliability about meeting demand). Furthermore, "existing wholesale and contract market investment signals alone are no longer a suitably dependable mechanism to ensure the reliability of the NEM." In other words, subsidised renewables are compromising reliability as well as raising prices.

Arising from these observations is a major and likely game-changing recommendation to "develop and implement a Generator Reliability Obligation … [for all] new generators to ensure that adequate dispatchable capacity is present in each region". It is evident that no realistic reliability can be achieved from variable renewables which utilise only about one quarter of their capacity on an unpredictable basis, so are certainly not dispatchable to meet demand. The only gigawatt-scale storage option over days and weeks is pumped hydro storage, and we don't have enough water or gravity for much of that beyond the forthcoming Snowy 2.0 project. So either this Reliability Obligation means that demand must be fully covered by coal or gas capacity, with a little help from hydro, or some other source with no carbon dioxide emissions - nuclear power. The report does not directly specify more wind and solar, though that is part of the modelling, but seems to take for granted that they are the only clean energy options. However, putting that aside, we can still connect the dots.

The chronic problems in the NEM are most fundamentally due to the progressive overlay of subsidised intermittent renewables on the liberalised wholesale market, to reduce carbon dioxide emissions. In responding to the popular support for an increasing proportion of wind and solar by means of our Renewable Energy Target (RET), governments at both state and federal levels have failed to address the challenges posed by increasing proportions of wind and solar for both reliability of supply and investment which will maintain that reliability. Hence, "All governments need to agree to an emissions reduction trajectory to give the electricity sector clarity about how we will meet our international commitments. This requires a credible and durable mechanism for driving clean energy investments to support a reliable electricity supply." A Clean Energy Target concept is recommended, to replace the RET after 2020. The RET is certainly not fit for purpose.

The focus of the Clean Energy Target is on "incentivising new low emissions generation while supporting our emissions reduction trajectory", which is a 28% emissions cut from 2005 by 2030. It will "encourage new low emissions generation into the market in a technology neutral fashion. Under this mechanism, new low emissions generators such as wind, gas, or the combination of coal with carbon capture and storage, will receive incentives to enter the market." Later: "all fuel types … would be eligible" under CET. If nuclear power progressively takes over from coal to a large extent, then the CET can be set low enough to gladden the hearts of all climate action activists.

"It has become evident in recent years that emissions reduction policy needs to be better integrated with energy policy." So, we need, along with reliability, "a long-term emissions reduction trajectory for the electricity sector," within the policy commitment of the "national target of 26% to 28% reduction of 2005 levels by 2030." Moreover, "It may be appropriate for governments to ask the electricity sector to do more than a direct application of the national target. The electricity sector may have more economically viable opportunities to reduce emissions than other sectors. Moreover, emissions reduction efforts through electrification in transportation and industrial processes will be enhanced by lowering the emissions intensity of the electricity sector." Once again, nuclear power is the stand-out answer.

As head of AEMO, the late Matt Zema's remarks in April 2016 are important: "The renewable developments and increased political interference are pushing the system towards a crisis. South Australia is most vulnerable … The system is only manageable with robust interconnectors but these operate effectively only because there is abundant coal based generation in Victoria." However, with the closure of Hazelwood, which provided about one-fifth of Victoria's power, that qualification is moot. Zema continued: "Wind does not provide the system security. But the politicians will not allow the appropriate price changes to permit profitable supply developments from other sources. In the end the system must collapse." Without a robust government response to Finkel's review, Australia will remain in third-world territory.

Cost will be an issue, but it is already an acute issue due to the massive subsidies under RET, and nuclear power could well end up lower cost than the present mix, with system costs and all things considered. Incidentally I am tired of hearing, even from respectable sources, that the cost of electricity on a levelised basis from wind is now cheaper than that from coal or nuclear. The comparison of cents/kWh is meaningless, since you have two very different products: continuous reliable supply which is dispatchable to meet demand, versus incurably intermittent and variable supply which bears no relation to demand, and which may be absent for days on end. One is worth paying for, the other is an expensive subsidised folly. We need to think in terms of value for reliability and value for no carbon emissions - both being a matter of judgment apart from per kilowatt-hour cost.

One of the immediate issues causing the last September's blackout in South Australia was inadequate frequency control from synchronous generators. This is normally provided by the spinning inertia of coal, gas, nuclear or hydro plants, but not by wind or solar. The review recommended that new generators should have fast frequency response capability, and transmission operators such as the Australian Energy Market Operator (AEMO), should "maintain a sufficient level of inertia" for reliability. Once again, complementing the RET dream with nuclear power will secure that.

The report makes no recommendation concerning generation technology, though a final chapter includes nuclear power among the "high-potential" options for the future, "beyond the scope of the blueprint" report. Most of these are unproven commercially, but in contrast, "For many countries, nuclear power provides a secure, affordable and zero emissions electricity supply. In Australia, the establishment of nuclear power would require broad community consultation and the development of a social and legal licence ... Any development will require a significant amount of time to overcome social, legal, economic and technical barriers."

If 2030 seems a bit soon to have a lot of nuclear capacity online, consider the UAE. It has gone from a standing start with no nuclear expertise or experience to having the first of four large new reactors almost online in ten years. Australia, with ANSTO and ARPANSA for technology and regulatory expertise respectively is today well ahead of their starting point in 2008.

The modelling in the report has attracted a lot of criticism for skewing towards renewables. In particular it does not show credible back-up for the increasing share of wind and solar. The Clean Energy Target is calibrated to 28% emission reduction from 2005 by 2030 in modelling, which could be achieved with nuclear. There is strangely little new dispatchable capacity in 2030. (Hydro remains constant at 8% in models.) If emissions reduction is to be a major goal alongside reliability and affordability, then we will need nuclear power to take over a lot of coal's role around then, though that is not modelled in the report.

The NEM now has 47 GWe installed capacity, including 4.34 GWe of wind and solar (9.2% of capacity supplying 6 to 7% of electricity), with maximum demand almost 33 GWe, and it serves 9.6 million metered customers.

Reliable supply of electricity without the cost being inflated by extraneous demands is a basic social good that governments should ensure. The most obvious way of ensuring it long term is to embark upon a nuclear power program now.

Ian Hore-Lacy

Comments? Please send them to editor@world-nuclear-news.org

Ian Hore-Lacy is a senior research analyst with the World Nuclear Association. One of the Association's longest serving staffers, Ian is the author of the organisation's Information Library.


Filed under: Energy policy, Australia