Grid constraints are symptoms of an energy system in transition, say analysts from Cornwall Insight Australia. A balancing act of new supply and transmission will see bumps along the way.
Our electricity grid is being reengineered. What we have now are gigawatt-scale generators located near coal pits, with transmission channelling that output into cities. What we will end up with is many more plants located where the sun and wind are most reliable, along with storage and, inevitably, forms of dispatchable generation.
The east coast states are enthusiastic about developing renewable energy zones, or REZs, to host new wind and solar generation (although some locals in those regions may have other feelings). But there will be plenty of pain between now and a future scenario where our cities are strongly connected to faraway renewables.
“The current NEM is not designed to host large amounts of [variable renewable energy] at remote locations,” says Cornwall Insight Australia senior policy and regulatory consultant Franklin Liu.
On the expectations of the Australian Energy Market Operator, between 26 and 50GW of new renewable generation will be connected to the NEM as about 15GW of coal is retired by 2040.
Two symptoms of the transition to clean energy are curtailment (when a plant’s variable output can’t be matched with demand, or prices make it uneconomic) and marginal loss factors (where constraints result in loss of some output in transmission).
The curtailment calendar
During a webinar in late July, Liu showed how curtailment appears to change throughout the year across the states. Wind and solar are time-crucial, he said, but on a monthly basis about 10% of output is curtailed. In Queensland this peaks between August and October, when demand is lowest.
In South Australia curtailment is a result of wind’s dominance, he said. Every three to four months a significant wind front moves through the state, leading to oversupply of South Australia’s relatively low demand. Only so much can be exported to Victoria and curtailment bulges in the middle of the day, driven by the impact of rooftop solar. “[South Australia] needs new ways to export that energy,” he said. “There isn’t much room to move [surplus] VRE capacity.” More storage would also help.
In Queensland it’s a different story. Curtailment there spikes around the middle of the day and is concentrated between August and October. “There is a very strong signal for some form of new load around the middle of the day to soak up some of that excess solar,” Liu said, noting “there is only so far coal units can ramp down.”
Cheaper to do nothing
There are two types of curtailment, remember, and Liu pointed to a rise in economic curtailment – especially in South Australia and Victoria – as plants bid to stay out of the market “during times of negative prices” (see main image). In the first quarter of the year negative prices around midday were the norm, he said. But plant owners are adapting. “We now see VRE being much smarter in how they operate.” System curtailment is rising in NSW, especially in the southwest, but is “still quite low in terms of curtailment values”.
Economic curtailment happens when demand is simply too low, so why build expensive new transmission? It will still be worth it if energy can be shared between the states. (But the case for storage is also obvious.)
The funnel narrows
Because they are often located in weak parts of the NEM, marginal loss factors for wind and solar assets have been a drag on revenue for owners and the situation is unlikely to change for a few years, Cornwall Insight analysis shows.
Losses occur naturally as generation travels through the transmission network but the effect can be amplified in regions where output from generation sites is correlated. “That’s why wind and solar farms are worse hit when there is a change in MLFs,” said Cornwall Insight Australia lead analyst Jake Dunstan.
Over the past year MLFs have improved for solar in northern and central Queensland, but that’s an outcome of AEMO downgrading forecasts for future generation from PV. “It’s not necessarily good news,” Franklin said. In NSW, MLFs have generally fallen.
It’s a bumpy road for owners of wind and solar plants. AEMO publishes its preliminary MLF numbers in October, but its list of final coefficients (around 1) are released about five months later. There can be 5-7 percentage point movement between final and preliminary MLF numbers, Franklin said. “It’s volatile and pretty hard to forecast.”
It’s worth understanding how curtailment influences MLF values. When there is more curtailment the total energy that goes through transmission is less. Because less power is sent down the line, less is lost. And because less is lost, the MLF for that generator should improve. It’s not all good news, obviously – you’ve sold less power but earned better revenue per megawatt. Revenue can go up and down.
The states understand the logic of renewable energy, said Dunstan. NSW is pursuing five REZs and development at Central-West Orana and New England has started. The West Murray zone is at capacity, he said, so expect delays there. A zone in the Southern Tablelands looks unpopular with the locals, so far. Significant transmission upgrades are needed in NSW, along with storage that might include some attractive pumped hydro opportunities.
Queensland has decided on three zones, having diverged from AEMO’s Integrated System Plan which identified eight smaller REZs. The six REZs in Victoria and nine in South Australia show ample capacity to be developed.
Major transmission assets such as EnergyConnect and HumeLink will change the way the network operates, and policy and regulatory changes will have a big impact. “Essentially, we are going to rebuild our transmission network,” Franklin said, commenting that the state governments appear mighty eager to see the regulatory process streamlined.
One question remains, however: who is going to fund all this new transmission? Will projects be funded through a determination process overseen by the Australian Energy Regulator, with the expense then passed to consumers, or will state governments underwrite some of the REZs? The answer “will impact the timely delivery and cost of those projects,” Franklin said.
In the meantime, how can we manage congestion? One way is to build out transmission and then generation. Or should there be real-time pricing, so consumers respond to congestion via location marginal pricing? “The way you design the transmission pricing is going to have a crucial impact on participants’ behaviour.”