Australia Needs Nationwide Plan To Secure Electricity Supply.
Legal News & Analysis - Asia Pacific - Australia - Energy & Project Finance
19 June, 2017
Australia must adopt a single, nationally agreed plan to manage its national electricity market (NEM) and to help the transition to lower emissions, a report by the country's chief scientist Alan Finkel has said.
The report focused on four outcomes: the security of electricity supply in Australia must be increased, future reliability must be built into the system, consumers should be helped to make good energy use choices, and emissions should be gradually reduced.
Australia is at a "critical turning point", Finkel said, and needs to take action immediately to ensure its energy supplies for the future.
The security and reliability of the country's electricity supply has been compromised by "poorly integrated variable renewable electricity generators, including wind and solar", the report said, coinciding with the unplanned withdrawal of older coal and gas-fired generators.
South Australia suffered a state-wide power cut in 2016, due to transmission system faults during a severe storm.
Security obligations should be put in place for any new generators, including regionally determined minimum system inertia levels, and reliability should be reinforced through a generator reliability obligation implemented by the Australian Energy Market Commission and the Australian Energy Market Operator (AEMO). These obligations will require new generators to ensure that they can supply electricity when needed for the duration and capacity determined for each region.
Generators should also be required to give three years' notice of their intention to close, to allow time for replacement capacity to be built and help long-term investor planning, he said.
Australia's state governments need to agree to an emissions reduction trajectory as soon as possible to give the electricity sector clarity, Finkel said. This will need to include a "credible and durable mechanism for driving clean energy investments", he said.
Finkel has proposed giving AEMO a stronger role in planning Australia's transmission network, including through the development of an integrated grid plan for future investment decisions.
"Significant investment decisions on interconnection between states should be made from a NEM-wide perspective, and in the context of a more distributed and complex energy system," he said.
Energy storage is vital for variable sources of energy such as wind and solar and must be properly integrated into the power system, the report said.
The report also covers gas, which plays "an essential role in providing secure and reliable electricity for Australians", Finkel said. AEMO should be given more information on gas contracts so that it can plan responses to shortages, and state governments should work with communities to encourage safe exploration and production.
Consumers should rewarded for demand management and any power they generate themselves through resources such as rooftop solar panels.
"The future grid will be more distributed, but its security and affordability will be strengthened through smarter grids, meter data information and clear data ownership rules to promote new ways of trading, including a demand response mechanism," the report said.
Energy expert Anthony Arrow of Pinsent Masons said: "The report provides certainty to the renewable energy industry as well as other generators with respect to the renewable energy target and policy framework beyond 2020 and now hopefully out to 2050."
"The biggest winners from the policy recommendations are certainly the players in the wind and solar markets as well as the battery storage space," he said.
"Energy market security is a very strong theme across the report and a recommended requirement for new generation assets to include storage systems will certainly play a very significant role in avoiding a repeat of the blackout that transpired in South Australia," Arrow said.
Finkel has proposed an emissions reduction target of 28% below 2005 levels by 2030, "heading towards" zero emissions in the second half of the century. Australia's overall commitment in the Paris COP21 accord was for a 28% reduction.
"The debate around what percentage should be achieved is less important than a need for universal acceptance and recognition that our energy markets must transition into the new world of renewable energy generation both to ensure that the energy regulatory system is relevant and current and also to keep up with technology," Arrow said.
"The report is strongly advocating our collective responsibly across the entire economy for developing generation assets that will lead to a cleaner environment consistent with our commitments in Paris," Arrow said.
The review into the future security of the Australian electricity market follows a preliminary report published in December 2016 and public and private consultations across the country.
For further information, please contact:
Ian Laing, Partner, Pinsent Masons