24 February 2017

Opinion: No-show renewables must bear the risk of failure

By David Byers, deputy chief executive of the Minerals Council of Australia

Source: Australian Financial Review 

Next month, the AFL season begins. Dedicated fans will be keenly following the fortunes of their teams’ new draft picks. Who will be a star? Who will be a dud?

Now, imagine if your team’s top draft pick decided he could not commit to playing each game. He would be available, but couldn’t guarantee he would actually show up. It would then be up to the coach to figure out how to fill in for the missing star. You would think our draft player had a limited future, no matter how brilliant he looked in training or how many fans he promised to bring through the gate.

If that seems like a far-fetched scenario, then it may surprise that something similar is happening in our east coast National Electricity Market (NEM). Over the past 12 months, we have had four alarming energy security issues resulting in blackouts and load-shedding. Industries and consumers in South Australia particularly have had enough. While the precise circumstances have been different in each case, one factor is common to all. As four sobering reports from the energy market operator AEMO describe, each incident occurred when the output from intermittent wind and solar power dropped away substantially, leaving AEMO to pick up the pieces.

Like our No.1 draft pick, the renewables lobby wants us to overlook the times they are “missing in action”. Yet we can’t keep pushing part-time stars into an arena that needs a full-season commitment. A change in the NEM rules is needed.

The NEM rules were established in a different era when all power (from coal, gas and hydro) was equally available and of equal quality. But just as we learnt in the 1980s that “oils ain’t oils”, we now have to accept that power ain’t power. Not just politically, but also in electrical engineering terms.

Unlike coal, gas and hydro power, intermittent renewables are not always running. They don’t provide the 24/7 availability that keeps the grid secure and helps it ride through faults. AEMO’s task is a difficult one. With very limited storage to rely on, AEMO is required to match the demand for electricity with available supply in real time. It has always had to deal with peaks in demand in the morning and early evening. But now, particularly in SA with its “experimental” levels of wind and solar generation, AEMO has to manage those demand peaks as wind generation is frequently dropping (morning) and solar power is turning in for the day (early evening).

As the Renewable Energy Target (RET) forces more and more unreliable energy sources into the network – up to 33,000 GWh by 2020 – this task gets more and more difficult. Over time, the RET pushes traditional full-time sources – like coal and gas – out of work. Witness the closure in recent years of the Northern and Playford power plants in SA and, next month, Hazelwood in Victoria. Yet we need continuous suppliers in place to provide consistent “dispatchable” power to keep the lights on and the wheels of industry turning.

The problem is compounded by subsidies provided to intermittent renewables that would otherwise be uncompetitive. Intermittent wind and solar are more expensive to build and operate than coal and gas [1] . So they are being subsidised (to the tune of $3 billion in 2015-16) [2] . This equates to about 6 per cent to 9 per cent of the average household electricity bill and up to 20 per cent for an industrial customer’s bill.

In a perfect world we would get rid of the RET and subsidies. After all, with a guaranteed market share and a subsidised price, how much more assistance does this 20-year-old “infant” industry really need? But there is just no parliamentary appetite for this.

Yet we still need a fix for the effects of pushing more part-time players into a game that needs a full-season commitment.

One way is to change the NEM rules to sheet home costs to responsible players. We could either impose a minimum performance standard on all electricity generation types – to guarantee a minimum quantity of on-demand power. Alternatively, we could ensure the “integration costs” of absorbing large amounts of renewables in the electricity network are borne by the intermittent renewables sources that are responsible for these costs. Either way would give intermittent renewables the incentive to lower costs, invest in storage, or enter commercial deals with continuous power sources for the supply of on-demand power.

Not only would intermittent renewables then take responsibility for their impacts, but continuous sources would receive higher value for what they bring to the game. And the coach would sleep a little better knowing that his mercurial player was now subject to some steadying influences.

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