South Australia's green dream, or its nightmare?

26 July 2016

South Australia is being watched closely by both energy companies and renewable energy specialists worldwide as a test case for what happens when high levels of intermittent energy, such as wind and solar, are introduced into a system that is not fully covered by other sources of readily available (dispatchable) power, writes Ian Hore-Lacy.

Recent performance in South Australia - where wholesale power prices have spiked dramatically, household electricity costs are the highest in the nation, and industry is threatening to quit - provides a good reality check. Early in July, electricity prices in South Australia have soared as it struggles with the consequences of an ambitious build of wind farms without firm power backup.

Eastern Australia's National Electricity Market (NEM) operates the world's largest interconnected power system that runs for more than 5000 kilometres from North Queensland to Tasmania and central South Australia, and supplies some AUD 10 billion electricity annually to meet the demand of more than 10 million end users. NEM infrastructure comprises both state and privately owned assets, and is managed under the overall direction of the Australian Energy Market Operator (AEMO), which was established by the state and federal governments. South Australia is a small part of this, connected only to the extent of only one quarter of its peak load.

Though a small part of the NEM, South Australia is poorly connected to the rest, with a 460 MWe link to Victoria at Heywood (Vic) in the south and the 220 MWe Murraylink one further north, providing back-up from Victorian brown coal, equivalent to about 23% of SA's 3100 MWe peak demand. The Heywood interconnector is being upgraded to 650 MWe in both directions, at a cost of AUD 108 million. Modeling by Deloitte Access Economics suggests that by 2019 the interconnectors from Victoria will be at maximum capacity into SA for about 23 hours per day. However AEMO forecasts a decline in supply from Victoria after 2020, due partly to Victoria’s greater reliance on wind, the output of which will fluctuate very much in line with that in SA.

The relatively dry and flat state has had a strong policy of promoting wind and solar capacity, and over 40% of its electricity is from these sources (from 1473 MWe wind, but no solar on grid). Gas accounts for 90% of the dispatchable supply (from 2617 MWe), and the former SA coal-fired plants have been shut down (Northern 546 MWe, Playford B 240 MWe). Another 3200 MWe of wind capacity is committed or proposed. Solar PV is widely used, but virtually all behind the meter.

As well as simply meeting power and supply demand, the challenge of power quality (voltage and frequency control) is increased by the high dependence on wind.

The outcome of this generation situation is that NEM spot prices are sometimes very high, when the wind is low. The fossil fuel-fired power stations are uneconomic due to low capacity factors forced by significant priority input of wind generation, coupled with low prices in the wholesale market when (subsidised) wind is abundant. Several have therefore closed down, and a further 770 MWe of gas-fired plant is due to close in 2017. Gas prices are rising due to several factors, which acutely compounds the SA dilemma.

Following winter price spikes in 2015, AEMO commissioned a report by Frontier Economics, which confirmed that the reason was a low level of wind generation at the time. "As has been long predicted, increasing penetration of wind, and its inherent intermittency, appears to be primarily responsible for the (price spike) events. While the events have coincided with relatively high demand conditions in South Australia and some minor restrictions on imports of electricity from Victoria, low wind production levels are the key common feature of every event. The market response at such times has been to offer higher-priced capacity to the market, leading to high prices, just as the National Electricity Market was designed to do under conditions of scarcity."

The Frontier report says the level of wind and solar penetration in South Australia presents a fascinating natural experiment in the impact of intermittent generation on wholesale prices. "Unfortunately, this test is anything but academic and the people of South Australia are increasingly likely to bear increased electricity costs as wind makes up a greater proportion of South Australian generation," Frontier said, according to a report in The Australian, "While policymakers may be tempted to act to force thermal and/or wind to behave uneconomically, the likely outcome means South Australian consumers will bear more costs."

In the first half of July 2016, wholesale prices averaged over AUD 300/MWh in South Australia, compared with under AUD 80/MWh in the four eastern states. In June, SA prices had averaged AUD 133/MWh. Spikes of over AUD 10,000/MWh have occurred. On July 7, SA wind farms were producing 190 MWe early in the morning, but by afternoon they were actually drawing energy from the grid, this effect being most acute due to limited back-up supply.

There are proposals for three new interconnectors from SA to New South Wales, ranging in projected cost AUD 3 to AUD 3.75 billion, but none is proceeding. A further connection from Krongart in SA to Heywood (Vic) is costed at AUD 530 million but is not proceeding.

The new federal minister for the combined portfolio of energy and environment, Josh Frydenberg, has said that it is clear the global energy supply dynamic was moving to lower emission energy sources. He said country comparisons showed that lowering emissions from the energy sector could not be one-dimensional because countries were starting from different positions and faced different challenges. "One such challenge will be the need to question traditional energy supply" and "such a discussion is currently taking place in South Australia", he said, referring to the South Australian Nuclear Fuel Cycle Royal Commission, which had "revived the discussion about the role nuclear power could play in a low-carbon economy. Given South Australia has 78% of Australia's uranium reserves and the stable geology to store high-level waste, this debate is shifting community attitudes and has some way to run," he said.

July's experience with over-reliance on wind has focused public attention on the considerations which must govern energy policy, including cost, reliability and low emissions. It has also raised the question, already acute elsewhere, of how much any state can rely on its neighbours to back up its policy indulgences for supply, and provide a dumping ground for occasional surplus power. Either way, the economic implications in any state's wholesale market are unlikely to be welcomed by neighbours.

Ian Hore-Lacy

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Ian Hore-Lacy is a Senior Research Analyst with the World Nuclear Association. One of the WNA's longest serving staffers, Ian is the author of the organisation's Information Library.



Knowledge is power

It is not clear from Ian Hore-Lacy's article if the energy situation in South Australia is being driven by a government or parliament that contains professional engineers or not, or whether the decisions being taken are based purely on political manifestos that have hopes and dreams or manifestos that are based on sound engineering analysis. Whatever the case the article implies that things are going, to put it mildly, pear shaped. How does this compare with the way things are heading in the UK?
Much of the debate in the press that I read in the UK seems to be about renewables versus nuclear versus gas versus coal and not in my back garden. This seems to come from the politicians, the environmental lobby, energy industry, local pressure groups and journalists. Yet, I know from discussions that I have had with professional peers over the years, from evidence given to the government, from past government energy papers etc., that there is beneath the rhetoric some understanding that energy supply, demand, storage, affordability, location and environmental impact have to be optimised; that there is a need for a balance energy supply mapped to the demand cycles and locations of users.
It seems to me that for the public to find electricity prices unaffordable or not available before they shout so loud that the politicians have to do something about it is at best bad governance but at worst short termism that could cause much economic and environmental damage. Having grown up through power shortages as an infant in the early 1950s and again in the power shortages and three day weeks in the 1970s, I feel I do not want to experience this a third time before we appoint energy policy makers who recognise that energy policy should not be a political issue but should be a long term social necessity. There are many today in positions of power who may not have been alive in those episodes. I can recall waiting six to nine months for delivery of stainless steel, for example, when I was trying to build research rigs in the 1970s; rigs that would otherwise have been supplied in say six to eight weeks.
So who is 'educating the public' about the role energy plays in our lives, when we need it and how it might be produced, and what are the implications of the alternative methods. Are professional engineers making enough noise, and are politicians listening, and are journalists writing useful articles? Whilst research and development funds are being spent on supply, is sufficient being spent on demand or storage? Will the recent suggestions that UK energy supply can be met by extra links across the channel put us in the same position as South Australia? Will the links be used sensibly for the public good or will the operators sit back and wait for demand to exceed supply and then price accordingly?
Perhaps someone could start by publishing against time of day, the demand, supply, cost and environmental impact of the energy used by each town, city or region in a way that the consumer can see what the issues are. I can go online to see the crime in my area, the house prices and other indices; but as far as I am aware, not the most important support to my wellbeing, energy. I am sure smart meters may be a good way of getting individuals to be aware of their use but it does not tell them where the electricity came from; I don't mean who supplied it but what generating combination was necessary to secure the supply. I always marvel at those organisations who have public meters indicating how much electricity they are generating and how much CO2 they have saved without having another meter alongside saying how much the cost and CO2 produced was to provide them with back up energy when necessary.
When there is a critical mass of knowledge about energy, maybe all can look at the present economic models for the energy industry and see if they are fit for purpose. I feel confident that supply and demand pricing works for goods sold in the shops, consumables, accomodation and commodities such as the price of raw materials but I am less convinced that such pricing models work well for large integrated networks of which energy, roads and railways are examples, which are built up of extensive and expensive infrastructure, which may have lifetimes between five and 100 years and can be changed over the medium-long term but not respond readily to very short-term fluctuations in supply and demand. I am sure some economist will tell me I am barking up the wrong tree and I suppose if the price of electricity goes so high in South Australia that industries shut down and move out and the unemployed move somewhere else, then supply and demand will have worked in so far as there will be no demand for the overpriced electricity and the price will go down again at least at certain times of day. 

Michael Grave
Consett, United Kingdom