A detailed report into the electricity market shows the risks to generators and consumers of a rapid, uncoordinated transition to clean energy, writes Jeremy Chunn.

Children of a certain age always know for certain what they desperately want. It is left to parents to decide whether a “want” will be interpreted as a “need”. In its 622-page GenInsights21 report, energy consultancy Global-Roam sees Australia’s electricity market facing the same moment of truth.

The rapid transition to clean energy is getting more complex and risky; rooftop PV is having a significant impact on revenues, especially at solar farms; as minimum demand falls, the ramp to a stubbornly high peak puts strain on supply. Rising risk and uncertainty can only lead to unexpected outcomes.

Perhaps it’s time for the parent to say to the child: 100 per cent renewables at all costs is not the best solution.

Coal and gas still supply about 65 per cent of the energy in the National Electricity Market. As states pursue ambitious intentions for renewable energy zones that will host gigawatts of new wind, solar and storage, investors and developers are nervous about falling energy prices in their revenue models.

“Price is just a product of supply and demand,” says Global-Roam CEO Paul McArdle, who co-authored the report with Greenview Strategic Consulting CEO Jonathon Dyson. “If you shoehorn lots of additional capacity into the market and you don’t retire other stuff, that’s going to depress prices.”

Falling prices affect every form of generation, McArdle says, but large-scale solar (about 4.2 per cent of generation) is taking a bigger hit as it bows to rooftop PV (about 7.8 per cent). That’s what happens when you share an inflexible generation profile.

How much PV is too much?

Australia hosts three million rooftop solar systems, and the Australian Energy Market Operator in its Draft 2022 Integrated System Plan predicts five times as much by 2050. For anything in the future to resemble a system, McArdle says rooftop generation needs to be visible to AEMO.

Distribution companies can take the lead, says Dyson. “If the DNSPs see voltage issues, they can start the process to curtail generation.” The flood of uncontrolled solar exports is “curtailing everything”, Dyson says, but utility solar especially.

Take a look at South Australia. The 1GW-or-so of rooftop PV connected within 25km of the Adelaide CBD has “the highest priority to the system” under the current rules. “[The market is] effectively saying: that’s more efficient than a whole heap of utility-scale solar sitting tens or hundreds of kilometres away. But it’s far more efficient economically to put large-scale solar in than rooftop solar.”

It’s hard to argue with that. Fans of PV in Adelaide also should face up to the fact that when a dense cloud appears from out of nowhere, 1000MW can be very quickly taken out of the system. “That’s the system we have now and it has a lot of risk,” Dyson says.

Low-probability events always happen

Negative demand and new records for solar and wind as a share of generation sound like good news, but they also show how energy users are being pushed further out on a limb. Sure, the GenInsights21 report points out, high-risk, low-probability events may seldom happen, but they will happen one day. A greater reliance on variable renewables sees that risk amplified. “It’s a big gamble when it comes to the influx of rooftop PV,” Dyson says.

Chart showing minimum demand “duck curve” in the NEM. From GenInsights21 report.

Plant owners, AEMO and tech providers are always refining forecasting methods but AEMO has said dense, fast-moving storms have the biggest impact. “The problem is by no means solved,” McArdle tells Ecogeneration. “It means other generators have to step in and surge very quickly.”

A ramping event in South Australia where 30-50 per cent of rooftop PV has been lost in less than 10 minutes will put strain even on gas, Dyson says. AEMO can restrict flows to Victoria via the interconnector to force a price outcome but “there’s only so much they can do and there is only so much time to do it in”.

Chart showing minimum demand “duck curve” in South Australia. From GenInsights21 report.

If that sounds worrying, get used to it. It’s the new normal. “These are the complexities and riskier situations that are starting to materialise every other weekend.”

Can dispatchables be pushed too far?

Scheduled generators — coal, gas, hydro and batteries — have seen their aggregate supply targets slowly hollowed out, McArdle says. That makes it harder to recoup costs and increases the frequency of high-ramp events. “Are the scheduled plant going to earn sufficient returns to actually continue to be there?”

Proponents of clean energy may not sympathise with owners of written-down coal plant, but voters who are suddenly without electricity will freak right out. Who will be blamed? Renewables, probably. Thankfully, there is a wave of large-scale storage queuing to connect. Beefy, fast-response batteries will help, McArdle says, but “[they] won’t have enough energy storage to meet all the requirements.” Pumped hydro, which can take a very long time to build, will help. And let’s not overlook gas as an “economically proven” method of firming supply.

Net zero vs 100 per cent renewables

As politicians and the public live through the latest energy revolution they will learn the difference between net zero, which implies some polluting generation will be allowed, and 100 per cent renewables, which gives you the idea all electricity will come from clean sources all the time. At AEMO, CEO Daniel Westerman is targeting 100 per cent “instantaneous” renewables by 2025, only a few years away. This has already happened, of course, in South Australia at moments during 2021.

But is it realistic to target 100 per cent renewables at all costs? “Maybe the pragmatic question to ask is: does it have to be 100 per cent or is 90 per cent good enough? And can the 10 per cent [energy difference] be made up from a net-zero technology?” McArdle says.

It will cost an enormous amount to build the clean generation required to reach 100 per cent renewables, Dyson says, “and that is absolutely not being factored into what is going on now.” You only ever hear about gigawatts, he says, with new transmission and interconnectors seldom mentioned.

In case of emergency…

Getting caught up with the goal of 100 per cent on the NEM could leave operators overlooking less-expensive solutions, such as the occasional use of fossil fuels. It happened in Tasmania in 2014 when hydro plant owners ran their turbines hard to earn carbon tax income. This depleted dam levels, so energy imported from Victoria was relied on to make up for inadequate rainfall. When Basslink failed in December 2015, diesel generators were quickly deployed.

“You wouldn’t have wanted to get yourself into that situation in the first place,” McArdle says. “But once you’re there, deploying diesel generators is the pragmatic thing to do.”

That unfortunate series of events is unlikely, but anything that’s unlikely will one day happen. Wind droughts can be counted among such long-tail risks. They shouldn’t be ignored.

Tasmania’s diesel solution, which met 30 per cent of demand, simply would not be possible on the mainland in the event of a similar and sudden tightening of supply. “Those are the realities of the risks we are talking about,” Dyson says.

The point of the $3000 report isn’t to deny a transition to renewables but to clear the air about the risks ahead, because when something goes wrong — and it will — the real disaster will be to blame new technology. “If we continue to put our head in the sand and not talk about the challenges … [and something goes wrong], we’re going to [be told] there will be no more than 50 per cent renewables in this grid, and that is absolutely a suboptimal outcome,” says Dyson.