Can Australia keep the lights on this summer?

The report by chief scientist Alan Finkel has been praised for being technology agnostic but still encouraging investment in clean energy.

The Finkel Review into energy security has pointed to solutions, but the most urgent question is will Australia have enough power to see it through the coming long, hot summer?

Hats off to Professor Alan Finkel. Given the political juggling act of coming up with a blueprint for Australia’s energy future, the nation’s chief scientist has won widespread – if not universal – praise for his review. That’s not bad for a neuroscientist who feels more comfortable discussing genomics and the cosmos than engaging in diplomatic argy-bargy.

Released in June 2017, the final report of the Finkel Review (more properly known as the Independent Review into the Future Security of the National Electricity Market) makes 50 recommendations to revamp the National Electricity Market, a 40,000km-long colossus of towers and cables with more than 9 million metered customers. The report provides a policy and regulatory path as governments, businesses and consumers grapple with soaring electricity prices. 

The Council of Australian Governments (COAG) has already endorsed 49 of Finkel’s suggestions, but grey areas remain as the nation tries to shift from its reliance on coal-fired generators to a more sustainable energy mix using gas and renewables, such as solar and wind power.

Three big concerns

The Finkel Review’s proposals are underpinned by three concerns: an orderly transition of Australia’s energy target, better system planning and stronger governance.

To achieve an orderly transition, Finkel suggests setting a Clean Energy Target (CET) to cut emissions and encourage low-emissions technology. In addition, existing large electricity generators would be required to give at least three years’ notice of plant closures.

Utilising the rooftop of city buildings with solar panels.Better system planning is addressed by a proposed grid plan that would inform network investment decisions and enhance energy security. This would include a list of potential projects to develop renewable energy zones.

Stronger governance would come through setting up a new Energy Security Board to implement the blueprint and provide regular health checks on the state of the electricity system.

Dr Paul Burke, from the Australian National University’s Energy Change Institute, says the review is “sensible”, with support for renewable energy sources such as solar and wind power. 

“Given the cost of building new coal-fired generators and also the long-run carbon risks of doing so, private investors are not so interested in doing that,” Burke says. “It’s not that attractive an option when we have these other technical solutions that are nicely falling into place now.”

In the hot seat

As the discussion unfolds about getting sufficient energy generation and the right mix of coal, gas and renewables, the spotlight will be on the Australian Energy Market Operator (AEMO), an independent body with the job of managing and maintaining power system security for Australians.

Joe Adamo, acting executive general manager public affairs at AEMO, says his group is “fuel and technology neutral” and, when making decisions, factors in three core energy considerations: cost, reliability and security.

“We need to move the conversation beyond the renewable versus fossil fuel debate,” he emphasises. “As an industry, we need to gain a greater understanding of how new technology responds in extreme circumstances.”

The report by chief scientist Alan Finkel has been praised for being technology agnostic but still encouraging investment in clean energy.

The report by chief scientist Alan Finkel has been praised for being technology agnostic but still encouraging investment in clean energy.

In his review, Finkel makes it clear that AEMO’s role should include stronger input into planning the future transmission network and fostering innovation. That will require better data, early testing of technology, cyberthreat awareness and workforce preparedness.

“Maintaining power system security in the future will require comprehensive changes in the rules we use to secure the grid and operate the markets,” Adamo says.

“The implementation of these changes will take time. Therefore, it is essential that we have a good transition plan for the interim.”

Adamo says AEMO will investigate and recommend improvements as new technology, such as battery storage, continues to enter the electricity market. He adds that networks which integrate and appropriately use what are termed distributed energy resources (DER), including rooftop photovoltaics (solar panels), will be important.

“If managed effectively, DER not only boosts local energy supply, but can also provide network support services that subsequently assist in maintaining reliability and security of supply at a lower cost.”

Most of the new generation coming into the power system is from renewables. In 2008, for example, the nation had just 1172 megawatts (MW) of wind generation compared with 4237MW today. With rooftop solar power, there has been phenomenal growth. In 2008, there were 14,064 small-scale solar photovoltaic units. In 2017, there are almost 1.7 million units.

“I think it’s important to look at new technologies coming into the system with a national planning focus,” Adamo says. 

Spotlight on energy security

Perhaps no other event better sums up Australia’s energy conundrum than the shortfalls in supply in South Australia that caused statewide blackouts last year.

Professor Samantha Hepburn, director of the Centre for Energy and Natural Resource Law at Deakin University, says the energy debate has generally been “reactive” to the South Australian debacle, which highlighted issues with the state’s high level of renewable generation, including wind farm turbines.

She supports the call for renewable generators to face more extensive regulation, while noting the importance of investing in new technologies at a time when the thermal coal market is in decline.

“The production particularly of dirty coal – coal that has high ash content – is an enormous problem,” Hepburn says.

“Even if we can extract it without necessarily affecting a lot of our emission targets, we’ve still got enormous concern about the coal that is being burned.”

Hepburn broadly endorses the Finkel Review and welcomes the fact that it heralds a new era of low-carbon energy production.

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Business impact of the Finkel Review

Energy producers and businesses have also backed the Finkel Review, seeing it as a potential means to end the uncertainty in the energy sector. That uncertainty has been a barrier to investment in new power sources and, as a result, power prices have soared to the point where they are seriously hurting businesses.

Former ACT chief minister Kate Carnell knows a thing or two about politics and says Finkel has done a fine job in creating a path for Australia’s energy future, especially as the nation seeks to meet its 2015 Paris climate accord commitment to cut emissions by 28 per cent below our 2005 levels by 2030.

“It’s a beautiful piece of public policy,” says Carnell, who is now the Australian Small Business and Family Enterprise Ombudsman. “I mean that, because this is an incredibly hard space to get a balanced approach that all sides of this debate should be able to sign up to.” 

“Given the cost of building new coal-fired generators and also the long-run carbon risks of doing so, private investors are not so interested in doing that.” Dr Paul Burke, ANU

She says the technology agnostic recommendations provide hope for small businesses – including high energy users such as manufacturers and hospitality companies – that are bleeding from rising energy costs.

“This isn’t just about emissions; it’s about the price of electricity and the affordable, reliable power businesses need to be able to get on with the job and grow their businesses and employ people.” 

Carnell welcomes Finkel’s suggestion of rewarding consumers if they reduce their power demands – “What a good idea!” – and believes the review provides light at the end of the tunnel for Australian enterprises that want to see a long-term flattening of power costs.
“We can’t expect Australian businesses, particularly manufacturing businesses, to be competitive in a global market if power prices are increasing to the extent that they are.”

The Clean Energy Target

The most controversial aspect of the review is the proposal for a CET, which builds on Australia’s current Renewable Energy Target (RET) and is designed to drive investment in clean energy sources.

Burke says the CET makes a lot of sense at a time when a standard carbon-pricing scheme is off the table for political reasons.

“Politically in Australia, we’ve got ourselves into a difficult situation,” he says. “If we were starting from scratch, we would definitely just have a simple carbon price and reduce other taxes and that would already give an incentive for the energy system to move away from coal. But we are where we are.”

Crucially, the report recommends a CET for Australia that is technology neutral, with clean energy being defined as coming from sources that produce no more than 700kg of carbon per MW/hour of power. 

“Maintaining power system security in the future will require comprehensive changes in the rules we use to secure the grid and operate the markets.” Joe Adamo, AEMO

Hepburn says the scope of this definition is broad enough to include not only renewable energy production, such as wind and solar, but also nuclear energy and gas, plus coal production incorporating carbon capture and storage technology. 

She describes it as “pragmatic policy” that means all generators can potentially operate under the CET.

“The Finkel report has done a good job in trying to come up with a policy framework that is not directed at taxes or trading schemes for emission reduction, but which is connected to a policy that has been quite successful, the RET.”

Technology game changers 

Consulting group McKinsey & Company is confident that low-cost storage can transform the power landscape as major players in Asia, Europe and the United States scale up cheap lithium-ion battery manufacturing. Such storage breakthroughs raise the possibility of replacing conventional power generators with new sources of power and using batteries to overcome the intermittency issues associated with energy sources such as solar and wind. 

In June, news that Tesla billionaire Elon Musk will help finance the world’s biggest lithium-ion battery in South Australia generated excitement. The 100MW battery will store energy generated at a wind farm at Hornsdale in the state’s mid-north, with about 70 per cent of the battery’s power to be reserved for government use and the remainder to go to the market.

Liquefied gas is in short supply for Australia's domestic market.

Liquefied gas is in short supply for Australia's domestic market.

Under a CET, if it’s approved, wind, solar and battery storage are tipped to be the big winners.

“With solar, in particular, the costs are falling quickly and probably will continue to,” Burke says.

He agrees that lower battery-storage costs represent a major development.

“It’s hard to predict the future, but those technologies will probably win the cost race against technologies that we were using last century, for example, coal-fired generation.”

As technology changes play out and responses to the Finkel report are bedded down, Burke relishes the opportunities that disruption will bring to the energy sector. “It’s an exciting time in that technologies are changing quickly, but there are challenges as well.” 

“Given the cost of building new coal-fired generators and also the long-run carbon risks of doing so, private investors are not so interested in doing that.” Dr Paul Burke, ANU

Summer 2018: The heat is on

The Australian Energy Market Operator (AEMO) doesn’t have great news for residents and businesses in Victoria and South Australia: it is forecasting potential electricity supply shortfalls for the summer of 2018. 

The threats to electricity supplies not only come from heatwaves and our high use of air conditioners on those days. Catastrophic bushfires and freak violent storms, such as the one that crippled South Australia’s supplies in September 2016, also pose major threats.

As the Finkel report notes: “The FY2017 summer saw five tropical cyclones, one major fire outbreak, four separate heatwaves, 21 days of major storm activity, and major floods.”

Compounding these issues, human error can lead to undersupply. AEMO’s report on the extreme heat day of 8 February 2017 in South Australia found errors in temperature forecasts led AEMO to underestimate the likely demand for power that day. As a result, AEMO directed 100MW of customer supply to be interrupted, to avoid system-wide power shortfalls. 

On a heatwave day in New South Wales, on 10 February 2017, a gas-fired generator couldn’t operate due to a technical fault. To maintain system security, the Tomago aluminium smelter was shut down for an hour.

In response to these lessons, AEMO developed its Power System Emergency Management Plan (PSEMP), which aims to improve coordination across states and between all relevant agencies – including weather forecasters, electricity generators and distributors, and major industries. The PSEMP is summarised as a five-point plan focusing on:
  1. Supply availability: All generators to be available through summer; no summer maintenance taking generators offline, and mothballed generators ready to operate from October 2017.
  2. Fuel availability: Guaranteeing fuel supply levels, even after successive hot days.
  3. Network availability: Summer maintenance to be minimised.
  4. Peak demand response: A variety of strategies, including asking large consumers to reduce their demand on extreme heat days.
  5. Resilience and recovery: Preparing with emergency-event planning exercises.
Every consumer can contribute by limiting their power use on extreme heat days. The NSW Government noted that on the extreme heat day of 10 February 2017, which resulted in peak demand reaching 14,181MW at 4.30pm, its media campaign asking everyone to reduce consumption kept that peak figure below the forecast.

Finkel's four key suggestions

  1. Increased security: The energy system must be resilient to disruptions, integrating new technologies to meet the threat of natural disasters and cybersecurity attacks.
  2. Future reliability: As ageing generators are retired, the chief scientist says we must ensure new generators enter the market to meet demand.
  3. Reward consumers: They will be better informed and rewarded for managing their electricity demand.
  4. Lower emissions: The electricity sector will be called on to do its share to meet Australia’s commitment to cutting emissions.

Lower electricity costs on the way (but be patient)

Australian National University energy expert Paul Burke has some good news for businesses and consumers battling ever-rising power prices. He predicts that dramatic reductions in the cost of solar and wind technologies will lead to lower bills. 

The catch? It could take decades.

“Most definitely in the long run, Australia will have much lower electricity prices than we do now because technology is changing very quickly … but the long run can take a long time to get to,” he says.

Gas Power Play

The beauty of gas is that it can be turned on and off in response to energy demands.

Yet Australia has exported too much liquefied natural gas, leaving domestic markets under-supplied. In response, the Australian Government has announced it will move to impose export controls on gas in a bid to lower electricity prices. The restrictions are slated to start in 2018.

With a view to gas-fired generation providing a low-emission substitute for coal, the Finkel Review suggested that AEMO should have “better oversight of gas supply contracts for gas-fired generators; governments should work with communities and industry to enable the safe exploration and production of unconventional gas; and gas industry performance data should be transparent and accessible.”

Deakin University’s Samantha Hepburn is curious that Finkel suggests giving AEMO last-resort power to procure or enter into commercial arrangements to have gas-fired generators available to maintain reliable supply.

“The report says AEMO would only exercise that power if certain conditions are not met, but there’s no real clarity on what those conditions might be,” she says.

Hepburn says that the stronger focus on gas suggests that onshore gas production – both conventional and unconventional – is likely to be accelerated.

While the final policy conditions are uncertain, AEMO acknowledges that sufficient gas supply for the domestic market remains a critical component of a secure power system in Australia.

“Due to this increasing dependency on natural gas, we need to have a very clear process to ensure gas is available domestically,” says AEMO’s Joe Adamo. “We also can no longer look at gas in isolation due to the interdependencies the sector has with electricity.”

Read next: Inside the solar power revolution at Australia’s electricity giants

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