Feed aggregator

On the early evening of Wednesday, February 8, electricity supply to some 90,000 households and businesses in South Australia was cut off for up to an hour. Two days later, all electricity consumers in New South Wales were warned the same could happen to them. It didn’t, but apparently only because supply was cut to the Tomago aluminium smelter instead. In Queensland, it was suggested consumers might also be at risk over the two following days, even though it was a weekend, and again on Monday, February 13. What is going on?

The first point to note is that these were all very hot days. This meant that electricity demand for air conditioning and refrigeration was very high. On February 8, Adelaide recorded its highest February maximum temperature since 2014. On February 10, western Sydney recorded its highest ever February maximum, and then broke this record the very next day. Brisbane posted its highest ever February maximum on February 13.

That said, the peak electricity demand in both SA and NSW was some way below the historical maximum, which in both states occurred during a heatwave on January 31 and February 1, 2011. In Queensland it was below the record reached last month, on January 18.

Regardless of all this, shouldn’t the electricity industry be able to anticipate such extreme days, and have a plan to ensure that consumers’ needs are met at all times?

Much has already been said and written about the reasons for the industry’s failure, or near failure, to do so on these days. But almost all of this has focused on minute-by-minute details of the events themselves, without considering the bigger picture.

The wider issue is that the electricity market’s rules, written two decades ago, are not flexible enough to build a reliable grid for the 21st century.

Vast machine

In an electricity supply system, such as Australia’s National Electricity Market (NEM), the amount of electricity supplied must precisely match the amount being consumed in every second of every year, and always at the right voltage and frequency. This is a big challenge – literally, considering that the NEM covers an area stretching from Cairns in the north, to Port Lincoln in the west and beyond Hobart in the south.

Continent-sized electricity grids like this are sometimes described as the world’s largest and most complex machines. They require not only constant maintenance but also regular and careful planning to ensure they can meet new demands and incorporate new technologies, while keeping overall costs as low as possible. All of this has to happen without ever interrupting the secure and reliable supply of electricity throughout the grid.

Until the 1990s, this was the responsibility of publicly owned state electricity commissions, answerable to their state governments. But since the industry was comprehensively restructured from the mid-1990s onwards, individual states now have almost no direct responsibility for any aspect of electricity supply.

Electricity is now generated mainly by private-sector companies, while the grid itself is managed by federally appointed regulators. State governments’ role is confined to one of shared oversight and high-level policy development, through the COAG Energy Council.

This market-driven, quasi-federal regime is underpinned by the National Electricity Rules, a highly detailed and prescriptive document that runs to well over 1,000 pages. This is necessary to ensure that the grid runs safely and reliably at all times, and to minimise opportunities for profiteering.

The downside is that these rules are inflexible, hard to amend, and unable to anticipate changes in technology or economic circumstances.

Besides governing the grid’s day-to-day operations, the rules specify processes aimed at ensuring that “the market” makes the most sensible investments in new generation and transmission capacity. These investments need to be optimal in terms of technical characteristics, timing and cost.

To borrow a phrase from the prime minister, the rules are not agile and innovative enough to keep up. When they were drawn up in the mid-1990s, electricity came almost exclusively from coal and gas. Today we have a changing mix of new supply technologies, and a much more uncertain investment environment.

Neither can the rules ensure that the closure of old, unreliable and increasingly expensive coal-fired power stations will occur in a way that is most efficient for the grid as a whole, rather than most expedient for individual owners. (About 3.6 gigawatts of capacity, spread across all four mainland NEM states and equalling more than 14% of current coal power capacity, has been closed since 2011; this will increase to 5.4GW and 22% when Hazelwood closes next month.)

Finally, one of the biggest drivers of change in the NEM over the past decade has been the construction of new wind and solar generation, driven by the Renewable Energy Target (RET) scheme. Yet this scheme stands completely outside the NEM rules.

The Australian Energy Markets Commission – effectively the custodian of the rules – has been adamant that climate policy, the reason for the RET, must be treated as an external perturbation, to which the NEM must adjust while making as few changes as possible to its basic architecture. On several occasions over recent years the commission has successfully blocked proposals to broaden the terms of the rules by amending the National Electricity Objective to include an environmental goal of boosting renewable energy and reducing greenhouse emissions.

Events in every state market over the past year have shown that the electricity market’s problems run much deeper than the environmental question. Indeed, they go right to the core of the NEM’s reason for existence, which is to keep the lights on. A fundamental review is surely long overdue.

The most urgent task will be identifying what needs to be done in the short term to ensure that next summer, with Hazelwood closed, peak demands can be met without more load shedding. Possible actions may include establishing firm contracts with major users, such as aluminium smelters, to make large but brief reductions in consumption, in exchange for appropriate compensation. Another option may be paying some gas generators to be available at short notice, if required; this would not be cheap, as it would presumably require contingency gas supply contracts to be in place.

The most important tasks will address the longer term. Ultimately we need a grid that can supply enough electricity throughout the year, including the highest peaks, while ensuring security and stability at all times, and that emissions fall fast enough to help meet Australia’s climate targets.

Hugh Saddler is a member of the Board of the Climate Institute.

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Australia ranks equal 15th overall in a new World Bank scorecard on sustainable energy. We are tied with five other countries in the tail-end group of wealthy OECD countries – behind Canada and the United States and just one place ahead of China.

Called the Regulatory Indicators for Sustainable Energy (RISE), the initiative provides benchmarks to evaluate clean energy progress, and insights and policy guidance for Australia and other countries.

RISE rates country performance in three areas - renewable energy, energy efficiency, and access to modern energy (excluding advanced countries), using 27 indicators and 80 sub-indicators. These include things like legal frameworks, building codes, and government incentives and policies. The results of the individual indicators are turned into an overall score.

The majority of wealthy countries score well in the scorecard. But when you drill down into the individual areas, the story becomes more complex. The report notes that “about half the countries with more appropriate policy environments for sustainable energy are emerging economies,” for example.

The RISE ranking. RISE report

The report relies on data up to 2015. So it does not account for recent developments such as the Paris climate conference, the Australian National Energy Productivity Plan, the widespread failure to enforce building energy regulations, and the end of Australia’s major industrial Energy Efficiency Opportunities program under the Abbott government.

Furthermore, Australian electricity demand growth has recently re-emerged after five years of decline.

But the World Bank plans to publish updated indicators every two years, so over time the indicators should become a valuable means of tracking and influencing the evolution of global clean energy policy.

Australia

Australia’s ranking masks some good, bad and ugly subtleties. For example, Australia joins Chile and Argentina as the only OECD high-income countries without some form of carbon pricing mechanism. Even the United States, whose EPA uses a “social cost of carbon” in regulatory action, and has pricing schemes in some states, meets the RISE criteria.

Australia also ranks lower than the United States for renewable energy policy, at 24th. This is due to scoring poorly in incentives and regulatory support, carbon pricing, and mechanisms supporting network connection and appropriate pricing. But we are saved somewhat by having a legal framework for renewables, and strong management of counter-party risk. It’s not clear how recent political uncertainty, and the resulting temporary collapse of investment in large renewable energy projects, may affect the score.

I have argued in the past that Australia is missing out on billions of dollars in savings through its lack of ambition on energy efficiency. Yet we rate equal 13th on this criterion, compared with 24th on renewable energy. It seems that many other countries are forgoing even more money than us.

In energy efficiency, we score highly for incentives from electricity rate structures, building energy codes and financing mechanisms for energy efficiency. Our public sector policies and appliance minimum energy standards also score well. Our weakest areas are lack of carbon pricing and monitoring, and information for electricity consumers. National energy efficiency planning, incentives for large consumers and energy labelling all do a bit better. Of course, these ratings are relative to a low global energy efficiency benchmark.

The rest of the world

Much of the report focuses on developing countries. There is a wide spread of activity here, with some countries almost without policies, and others like Vietnam and Kazakhstan doing well, ranking equal 23rd. China ranks just behind Australia’s cluster at 21st.

RISE shows that policies driving access to modern energy seem to be achieving results. The report suggests that 1.1 billion people do not have access to electricity, down from an estimated 1.4 billion a few years ago. A significant contributor to this seems to be the declining cost of solar panels and other renewable energy sources, and greater emphasis on micro-grids in rural areas.

The report highlights the importance of strategies that integrate renewables and efficiency. But it doesn’t mention an obvious example. The viability of rural renewable energy solutions is being greatly assisted by the declining cost and large efficiency improvement in technologies such as LED lighting, mobile phones and tablet computers. The overall outcome is much improved access to services, social and economic development with much smaller and cheaper renewable energy and storage systems.

The takeaway

Screen Shot at am. RISE report

RISE finds that clean energy policy is progressing across most countries. However, energy efficiency policy is well behind renewable energy. “This is another missed opportunity”, say the report’s authors, “given that energy efficiency measures are among the most cost-effective means of reducing a country’s carbon footprint.” They also note that energy efficiency policy tends to be fairly superficial.

Australia’s ranking on renewable energy policy is mediocre, while our better energy efficiency ranking is relative to global under-performance. The Finkel Review and Climate Policy Review offer opportunities to integrate renewables and energy efficiency into energy market frameworks. The under-resourced National Energy Productivity Plan could be cranked up to deliver billions of dollars more in energy savings, while reducing pressure on electricity supply infrastructure and making it easier to achieve ambitious energy targets. And RISE seems to suggest we need a price on carbon.

The question is, in a world where action on clean energy is accelerating in response to climate change and as a driver of economic and social development, will Australia move up or slip down the rankings in the next report?

Alan Pears has worked for government, business, industry associations public interest groups and at universities on energy efficiency, climate response and sustainability issues since the late 1970s. He is now an honorary Senior Industry Fellow at RMIT University and a consultant, as well as an adviser to a range of industry associations and public interest groups. His investments in managed funds include firms that benefit from growth in clean energy.

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