New Energy Quarterly The Rise of Dispatchable Renewables - Hamilton Locke
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
New Energy
Quarterly WINTER 2021
The Rise of Dispatchable Renewables
New Energy Quarterly – Winter 2021 – A
Welcome to New Energy Contents
Welcome to the first edition of New everything” is the result. Once something is powered by Editorial 02
electricity, it is a relatively incremental step to connect /
Energy Quarterly – a reflection on communicate / control via electricity – and the “internet of Watt’s happened 06
developments and trends in new things” is the result.
Watt’s new 06
energy markets over the last 3 months The rise of dispatchable renewables
Watt’s next 07
(including updates on our observations). Ever increasing electrification requires more and more
We will also pull out the crystal ball and electricity to be produced at the time when it is required. The Dawn of Dispatchabe Renewables 06
The inflexibility of when large scale renewable energy is
make some predictions for the future. created and when power is required has placed a natural Committee inquiry into the need and potential for dispatchable
limit on the amount of electricity we can “rely” upon being generation and storage capability in Australia 08
What is “New Energy”? generated from renewable energy – the sun is not always
But first, what do we mean by “new energy”. New Energy shining nor the wind blowing when electricity is required, Dispatchable renewables – how bright is the future? 10
is the label we give the production and/or storage of not every town has a geothermal spring to capture heat,
power in “nontraditional” ways. Power (light, heat or and not every city has a river to turn a water wheel. Let’s tax the COVID vaccine… 12
motion) has traditionally been produced at scale by the Humanity bypassed this “intermittency and scale” problem Negative prices – what you gon’ do when they come for you… 14
combustion of finite (non-renewable) resources or stores by generating electricity from non-renewable resources
of energy. in traditional ways – burning carbon-based material to Battery industry given renewed charge 16
Through technological advancement humanity has and convert its calorific value into electrical energy.
will continue to invent more efficient ways to capture Redesign of the NEM beginning to take shape 17
However, burning finite resources has natural, physical
and use renewable sources of energy at larger and and economic limitations - physical in that there is only so Big Boost for Batteries in the Redesigned NEM 18
larger scale. This search for efficiency and scale defines much of a finite resource, and economic in that the cost of
new energy. extracting and burning the resource must be less than the Slowly Slowly for Very Fast Batteries – but Regulations still Playing Catch-up 20
It is important to note that using renewable sources of value of the electricity generated, particularly if the local
energy is not new – the burning of wood is as old as and global externalities of burning carbon-based materials The Integrated Resource Provider is born… 22
civilization itself, the harnessing of wind to traverse the are considered.
oceans can be traced back millennia while wind has The Integrated Resource Provider, VPPs and the DC coupled future 24
Both, but in particular economic considerations, have
also been used to create motion / mechanical energy to presented just another problem that humanity is solving The Integrated Resource Provider – A Window to the Future 26
pump water and crush grain for hundreds of years, gravity through technological advancement, this time in the form
(arguably the source of all energy) has been used to create of the efficient storage of electrical energy at scale to be Consultation Paper on the Design and Structure of Long Term Energy Service
power (in the form of motion) since the middle ages. available (dispatchable) when required. Agreements Awarded Under the Electricity Infrastructure Roadmap 28
Now we give these sources of energy different names
– biomass, waste-to-energy, wind farms, hydro, etc. The efficient large scale storage of electricity created
from renewable resources solves the “intermittency and Hamilton Locke New Energy Team 30
Humanity was a little slow to converting solar energy to
power, but plants have been doing it (via photosynthesis) scale” problem, making renewable energy “reliable”
Key Contacts 31
since the dawn of time. or “dispatchable” and therefore removing the ceiling
on the proportion of renewable energy which can
Everything that is new was old power our electricity networks – hence the rise of
dispatchable renewables.
What differentiates old renewable sources of energy from
“new energy” is the capture and conversion of renewable Over the last few months, we have focused on this
energy into power at ever increasing scale and efficiency. seismic shift in the energy sector, and it is the theme of
this edition of New Energy Quarterly.
Ultimately New Energy is how humanity will create the
energy to power our society into the future. It recognises So welcome to the New Energy Quarterly and
that human advancement is based upon a constant our focus theme for this quarter – the rise of
technological evolution – solving problems to improve our dispatchable renewables.
lives through the invention and application of ideas is at
the core of what makes us human.
There is no better example of constant technological
evolution than the ever expanding use of electrical energy. Matt Baumgurtel
From supercomputing and the internet, to transportation, Partner – Head of
robotics and nanotechnology, we are in the electrical age New Energy
and will be for some time.
Increased utility, flexibly and efficiency in the use of
electricity has facilitated the application of electricity to
more and more areas of our lives - the “electrification of
New Energy Quarterly – Winter 2021 – B New
New
Energy
Energy
Quarterly
Quarterly
– Winter
– Winter
2021 – 01– 01
2021
Editorial Authors:
Matt Baumgurtel and David O’Carroll
The current landscape We have also seen that the regulatory landscape is Regulation has struggled to keep up with the pace Similarly, the proposed congestion management model
The fundamental structure of the National Electricity undergoing significant change. The latest National of technological advancement and falling equipment (or COGATI 2.0) is an abstract economic modelling
Market (NEM), and electricity networks around the Electricity Rules changes to introduce new spot-market and construction costs. National Electricity Rules thinktank thought-bubble experiment looking for a
world is changing. Increased penetration of intermittent arrangements for fast frequency response supports amendments and revisions continue to incrementally problem. The practical frailties and counterproductive
renewable generation is placing increasing demands on dispatchable generation. respond to the evolving market, however, these signalling to the investment of congestion taxing
aging thermal (particularly coal fired) generators, most revisions are ad hoc, bespoke changes often resulted in the first iteration being dismissed. Reviving
The proposed introduction of a new registration
of which are well past their initial design life and are implemented to address a specific gap or respond to a the COGATI ghost under the guise of the promotion
category, the Integrated Resource Provider and
nearing the end of their useful (i.e. reliable) life. particular set of circumstances (and often sponsored by of Renewable Energy Zones denies the reality that the
Integrated Resource Unit classification will simplify the
stakeholders with a vested interest in the change). future is a decentralized generation system.
For electricity networks to function in a stable and registration and operation of energy storage systems.
secure manner, intermittent or viable generation It is widely acknowledged that a structural rewrite is The future NEM requires better and more transmission
Allowing for the aggregation and participation of small-
needs to be balanced by dispatchable (on demand) required to implement a regulatory system (both a set infrastructure – unsurprising given the lack of
scale batteries in the wholesale market will unlock
generation. Traditionally this was done by baseload of rules and the regulators that enforce them) which investment in transmission over the last 30 years.
revenue streams for behind the meter generation
coal fired generation supplemented by open cycle gas is fit for purpose for this decade, the next generation Someone should work out where more electricity
and storage assets, and open a new market in the
turbines and traditional hydroelectricity. This need for of technology, and beyond. Redesigning the NEM is a transmission infrastructure is needed and develop a
aggregation of the capability of these assets.
“balancing” or “firming” generation places a technical monumental challenge – building a regulatory system plan to build it in an integrated way addressing the
limit on the amount of intermittent or viable generation These rule changes are consistent with AEMO’s on shifting technology sands with powerful vested greatest need first. An integrated system plan is what
in the network. objectives of ensuring system security and market interests at every turn will require huge amounts of we need – hang on, didn’t we do that? Why don’t we
efficiency. However, these changes are ultimately at fortitude and a heavy dose of political buy in across just get on with building the ISP 2020?
At the same time, in the NEM we are seeing significant the margin. State, Federal and political party lines. We may look
reductions in the reliability of coal fired generators, A new NEM is crucial to unlocking the massive
back and mark the statements this month from the new
primarily due to their age and failure to be properly private investment eager to invest in energy
The future head of AEMO, Daniel Westerman, that the grid needs
storage and dispatchable renewables. Legislative
maintained over many years. to be able to run 100% renewables by 2025, as the
The continued retirement of coal generators will support, regulatory certainty, and a transmission
So, in a landscape where the amount of intermittent continue to create opportunities for new dispatchable beginning of the seismic structural change required.
system fit for a distributed energy future is critical
renewable generation in the network is reaching its renewable generation and standalone energy storage Engaging all stakeholders in this process will be crucial to the smooth transition to the inevitable future of
technical limit and once reliable balancing generation (i.e. projects that store electricity generated by others). to achieving a NEM which is fit for purpose for the long baseload renewables…
is faulting, human ingenuity is solving the problem – term. What the “new NEM” needs to look like is quite
The opportunity for standalone energy storage is
energy storage – by removing the need to balance clear and building broad consensus around how to
directly proportionate to the requirement for generation
generation by making renewable energy available on achieve it will be important. However, it will be more
to balance existing and new intermittent generation,
demand (i.e. dispatchable). important to resist the influence of vested interests to
and hence is heavily dependent on the retirement of
The integration of energy storage in renewable coal generation. Hence there is a natural limit to the delay and resist structural change.
generation projects is creating enormous opportunities. amount of standalone energy storage required. The ESB’s option paper released in April and the
Renewable energy projects that were previously public statements from the ESB upon the delivery of
Dispatchable renewable generation will fill the
non‑economic due to curtailment, Marginal Loss Factor its final advice to the Energy National Cabinet Reform
gap left by existing coal generation – the almost
(MLF), grid capacity, or market price risk are now Committee are consistent with a redesign of the NEM.
weekly announcement of another “mega” project in
feasible when coupled with energy storage allowing
development which integrates renewable generation, However, media reports in relation to the final advice
for time of energy dispatch to be flexible and not
energy storage (and potentially hydrogen production) is and statements from the Federal Energy Minister Matt Baumgurtel David O’Carroll
determined by the time of generation.
testament to this. suggest the progression of the broad reforms required Partner – Head of Associate - Energy,
The steady advances in energy storage technology and have been put aside in favour of the short-term New Energy Infrastructure and
These mega projects are possible because of
reductions in cost are now enabling renewable energy propping up of old failing technology via a capacity Resources
continued equipment and construction cost reductions
generators to produce a product that their customers payment mechanism. Such a mechanism ignores the
and are fueled by the huge amounts of low cost capital
want – electricity at the time of day they need it. inherent and ever-increasing unreliability of old coal-fire
seeking to invest in clean energy, often driven by ESG
Large scale energy storage technology is also playing mandates and attracted to the macro fundamentals generators. It steals from the future by living in the past.
a key role in supporting grid stability – providing the of energy markets and long-term stable cash flows. In Electricity capacity markets are inherently inefficient
network balancing previously delivered by coal fired and addition, governments around the world are stimulating and are being abandoned around the world. A capacity
open cycle gas generation. Grid-stabilizing batteries their covid affected economies by investing staggering market would be a significant step backwards for the
are providing a whole raft of support functions such as amounts in their electricity and energy markets, NEM, not the giant leap forward required to develop a
frequency control ancillary services (FCAS) and network essentially resetting them for the next millennia. NEM fit for the future.
support and control ancillary services (NSCAS). Hydrogen produced from renewable energy will be a
huge part of this future - from covid lemons to green
hydrogen lemonade!
New
New Energy
Energy Quarterly
Quarterly –– Winter 2021 –– 02
Winter 2021 02 New
New
Energy
Energy
Quarterly
Quarterly
– Winter
– Winter
2021 – 03– 03
2021
Watt’s happened? Watt’s new?
World
Veno Panicker spoke at the 2021 Matt Baumgurtel featured on Boardroom NSW government to invest additional The newly appointed CEO of AEMO has
Integrated Project Engineering Congress on Media’s Around the Markets Segment $380 million in funding for renewable announced that he wants Australia’s main
“Avoiding a repeat of post GFC mistakes in energy zones in NSW as part of grids to be able to handle periods of 100%
discussing “Energy as a service”
major infrastructure projects” 2021‑22 budget renewable energy penetration by 2025. This
ambitious target will require a multi-faceted
Matt Baumgurtel featured in Inframation House Standing Committee on approach including stabilising the increasing
Matt Baumgurtel featured in which-50
discussing the reality of the Australian Environment and Energy holds first penetration of solar and wind with dispatchable
Minicast on “The emerging world of energy
renewables M&A market hearing on 23 June 2021 for its inquiry technologies (eg big batteries) to plug gaps in
as a service”
into dispatchable generation and storage peak-usage periods
capability in Australia AEMC draft determination in relation to the
Watt’s new? SA Government inviting national and integration of energy storage into the NEM
- the single largest reform to the NEM since
international expressions of interest to
the NEM was created over 20 years ago. We
develop land at Port Bonython in the Upper
unpack the implication in our 3 part series here
Hamilton Locke Halo Group Spencer Gulf, one of SA’s most prospective
hydrogen export hubs The Energy Security Board released its Post
2025 Market Design advice to Government
New starters Interesting times await regarding the on 28 July 2021. The leaked advice outlines a
upcoming AGL demerger – owners number of reforms which are likely to stymie
of renewable energy assets will be deployment of renewable energy projects and
encouraged to test the market after energy storage projects.
the valuation and acquisition of Tilt
Renewables. It is reasonable to consider
that NewAGL (AGL Australia) may be
an attractive take-over target for the
David O’Caroll Mark Schnider AFR recognises Halo Group right buyer
Associate Partner Hamilton Locke
Energy, Infrastructure Litigation and Hamilton Locke as Acquires Leading
and Resources Restructuring Australia’s fastest Launches Regulatory and
Sydney Brisbane growing legal Brisbane Office Compliance Firm,
partnership Hamilton Locke The Fold Legal
is pleased to
read more announce the
launch of our
read more
Watt’s next?
Brisbane office, as
featured in Lawyers Connecting Green Hydrogen APAC Conference on 11-13 October, 2021:
Adam Jeffrey Alex Ninis Weekly, with Matt Baumgurtel will be moderating the panel ‘Green Hydrogen: Accelerate Production
Partner Partner corporate partner, and Use of Renewable Hydrogen’ and will be speaking on the panel ‘Exploring
Banking and Finance Intellectual Property
Sydney and Technology Peter Williams Opportunities for Hydrogen Export & Industry Supply’
Melbourne and insolvency
and litigation 5th Solar Energy Future Australia Conference 2021 on 11-13 October, 2021 in
partner, Mark Melbourne: Matt Baumgurtel will be speaking on the panel ‘Key Considerations
Schneider joining when going into a Corporate PPA in Australia’
as foundation AFR features HALO
Matt Baumgurtel
partners of our Group’s intention to The upcoming Summer months are likely to see even more negative pricing events.
appointed to
Brisbane presence. list on the ASX Following AEMC’s recent determination on negative pricing, generators await
Market Advisory
Peter Williams Sandra Taran Panel of Business how AEMO will use its new power in the coming months. See our analysis and
read more read more
Partner Special Counsel predictions here
Corporate Corporate
Renewables Centre
Brisbane Sydney Australia
read more Renewable hydrogen (in particular green hydrogen) as the focus of our next quarterly
Ammonia Energy Conference 2021 on 25 - 27 August 2021:
Matt Baumgurtel will be speaking on innovation and R&D in the ammonia value chain
Hannah Jones
Senior Associate
Corporate M&A and
Private Equity
Sydney
New
New Energy
Energy Quarterly
Quarterly –– Winter 2021 –– 04
Winter 2021 04 New
New
Energy
Energy
Quarterly
Quarterly
– Winter
– Winter
2021 – 05– 05
2021
Authors:
The Dawn of Matt Baumgurtel and David O’Carroll
First published:
Dispatchable Renewables 25 March 2021
Dispatchable renewable electricity generation The integration of energy storage into solar Pull factors a lot more confidence to contract for a much larger
has the ability to support a secure, reliable farms is no longer a public relations tool. But this is only the “push factor”, the “pull factor” is percentage of their total load, conceivably up to 100%.
and affordable electricity system with a higher Developers are implementing large scale even more critical. Offtakers are looking for firmed This leads to the obvious question from both electricity
share of renewable energy. Dispatchable energy storage into project design to manage green power. The types of offtakers in question are the consumers and generators – why can’t the generator
generation essentially refers to sources of curtailment and marginal loss factor risk. The big US technology firms, who are heavily committed be the supplier (retailer) of electricity? – and hence we
electricity that can be dispatched on demand ability to shift large amounts of generation from to reducing their emissions and increasingly active in are seeing the birth of the “miniGentailer”.
at the request of power grid operators or the the middle of the day to peak load times later writing Australian power purchase agreements. When Energy storage is also supercharging the “sub 5MWac”
plant owner according to the needs of the in the day re-writes the wind, and particularly presented with a choice of renewables offtake firmed market (those projects which have a connection
market. However, without government help, solar, business case. from the grid or energy storage charged from known capacity below 5MWac). The oversizing of the MWdc
or a balance sheet, it is less obvious where renewable generation (ie behind the meter BESS),
Projects which were marginal or non-economic capacity and incorporation of BESS to store the
developers or investors might shoehorn they are choosing the green firmed option despite the
because of curtailment, MLF, grid capacity, or “excess” energy allows projects to be sized to match
storage into their renewables business. significant price difference.
market price risk are completely transformed the more modest annual MHh consumption of some
But there is a way forward.
when the time of energy dispatch is flexible and There appears to be a strong impetus to be the first corporates. These projects can be constructed and
not linked to the time of generation. This is the truly 100% green energy user, not merely buying wind generating within a matter of weeks (12 weeks is
dawn of dispatchable renewables. or solar MWhs equal to consumption on an annual common) with the single offtaker often being given
basis which ignores when that energy is consumed. naming rights adding to the appeal. These projects are
While nothing has been announced on this yet, we have often progressed on a portfolio basis (5 – 10 separate
seen term sheets which reflect this. sites) to create economies of scale in equipment
procurement, construction, and financing.
New offtaker market As coal fired generators retire and are replaced with
The rise of dispatchable renewables is also expected to cheaper renewable energy and Australia moves to
open up a whole new offtaker market. a low carbon future the resolution of the ‘energy
trilemma’ – energy which is affordable, sustainable and
Corporates, governments and even community groups reliable – will be critical to a smooth, just and efficient
with smaller inflexible load profiles will be able to buy low carbon transition.
renewable energy directly from generators with the
confidence that the time (and hence price) when the While all roads lead to dispatchable renewables,
electricity is dispatched into the grid matches the partnering with advisors with depth and breadth of
time they are consuming electricity from the grid. This renewables market experience who provide innovative
“load following generation” removes the inherent risk commercial legal solutions will be critical to navigating a
of entering into a financial contract (PPA) referenced to constantly evolving environment.
electricity prices at the time of generation in the hope
that profits from that contract will offset the cost of
electricity they consume at a different time of day.
At its simplest, advances in energy storage technology read more
and reductions in cost are allowing renewable energy
generators to produce a product that their customers
want – electricity at the time of day they need it.
Ultimately this will give these electricity consumers
New Energy Quarterly – Winter 2021 – 06 New Energy Quarterly – Winter 2021 – 07
Committee inquiry into the need and Authors:
potential for dispatchable generation Matt Baumgurtel and David O’Carroll
First published:
and storage capability in Australia 08 April 2021
Update: On 23 June 2021, the Committee held the first public hearing for its inquiry into dispatchable energy
generation and storage capability in Australia. It heard from AEMO and from the Department of Infrastructure,
Science, Energy and Resources about the policy framework and settings for Australia’s dispatchable
energy future.
At the time of writing, a report of the hearing has not yet been published. We look forward to its publication
and will issue an update as soon as this becomes available.
Following on from our recent article on the need for and We at Hamilton Locke are engaged with our clients
rise of dispatchable renewable electricity generation in in relation to this inquiry and we will be assisting in
Australia (see: The Dawn of Dispatchable Renewables), preparing submissions to the Committee in the coming
we are pleased to see that on 24 March 2021, the weeks. We are also very interested to hear from
House Standing Committee on the Environment other stakeholders in the sector on any of the items
and Energy has resolved to inquire into the current raised above. Please get in touch with our Energy,
circumstances, and the future need and potential for Infrastructure and Resources lead, Matt Baumgurtel,
dispatchable energy generation and storage capability should you wish to discuss.
in Australia.
The Committee is accepting written submissions, read more
addressing one or more of the terms of reference to be
received by Friday 7 May 2021. The terms of reference
listed are:
a. current and future needs;
b. issues related to system integration, connection,
and grid transmission requirements;
c. existing, new and emerging technologies;
d. comparative efficiency, cost, timeliness of
development and delivery, and other features of
various technologies;
e. applications to various scales and forms of end-use
such as households, industry, and transport;
f. Australia’s research and innovation development
framework and policies;
g. opportunities for Australia to grow and export
dispatchable zero-emission power; and
h. other relevant matters, including reference to
international examples.
New Energy Quarterly – Winter 2021 – 08 New Energy Quarterly – Winter 2021 – 09
Authors:
Dispatchable renewables – how Matt Baumgurtel and David O’Carroll
First published:
bright is the future? 08 April 2021
In the solar space, the falling costs of essential solar farms as path finder projects the multi-billion
Update: We note the news that AGL Energy will equipment such as panels, tracking systems and smart dollar Australian solar market would arguably not exist
be partnering with Australian solar technology inverters are resulting in generators adding more panels (see “Insights from the First Wave of Large-Scale Solar
firm RayGen to deploy concentrating solar and to produce more power in times of lower sunlight and Projects in Australia” (ARENA report, January 2020)).
energy storage technologies at Liddell. The curtailing their output during peak times. Coupled with
project will be a further example of renewable this, the cost of batteries is also decreasing rapidly as To be reliable and secure, a high
energy supplies being paired with long- the global and Australian supply scales up. penetration renewable power system
term energy storage facilities, by building a
3MW/50Mwh ‘solar hydro’ facility alongside a A variety of technological options should provide will need to make use of a blend of
4MW concentrating solar PV project, providing solutions for different demand profiles and can dispatchable and VRE technologies with
up to 17-hours of dispatchable storage. contribute to minimizing the overall system cost. a mix of different technologies, durations
Ultimately, policy decisions on electricity market design
Furthermore, we welcome the recent report
will decide which degree of dispatchability is required
and locations.
by the Clean Energy Council (Battery Storage:
The New, Clean Peaker) which finds that large- and rewarded. As the system value for short and long In the current landscape, CEFC’s Dispatchable Power
scale battery storage is now a better choice term storage is not the same, revenues from these Program which is designed to complement grant
than gas for electricity peaking services, based segments might also be different and yet, technologies funding offers for emerging technologies is available
on cost, flexibility, services to the network and to serve both segments will be needed and as such, to support contracted, partially-contracted and
emissions. The CEC states that, whilst the future should be supported. uncontracted projects and it is expected that large-
applications of batteries have almost unlimited
potential, gas projects come with several inherent scale battery projects will meet CEFC’s investment
Reliability criteria eligible for finance, with such projects being
risks, such as the price of gas, which has a
significant impact on the economic feasibility of
Security The main market objective is and will continue to be assessed on a case-by-case basis. In NSW, the $75
gas-fired peaking services. In contrast, batteries If the fundamental opportunity for renewables is their overall reliability, ie providing electrical power when million NSW Emerging Energy program has allocated
have higher availability due to the requirement for abundance and relatively widespread occurrence, the it is most needed. This is the issue that will require funding into capital projects and pre-investment
less maintenance and can offer guaranteed fixed challenge is applying these to meet demand given their the greatest long-term planning and investment. studies streams to support activities that accelerate
power and energy for over 20 years. The CEC’s variable nature over the long-term. This for the most Some dispatchable generators are more flexible (ie the development of on-demand, electricity projects
analysis shows that “battery storage is the true part means the availability of large-scale electricity faster in response) than others. Consistent renewable and as of the date of this article, grants have been
bridge to a clean energy future and can become storage. Battery storage systems are emerging as energy sources such as bioenergy and geothermal awarded to five capital projects with a combined
the new flexible peaker to accelerate Australia’s one of the key solutions to effectively integrate high are inherently dispatchable, while VRE inputs such as capacity of 220MW and nine investigative projects
transition to sustainable energy”. shares of solar and wind renewables in power systems solar or wind energy can be converted to dispatchable with the potential to deliver 2,700MW. We at Hamilton
Finally, we note the recent announcement by worldwide. In Australia, battery storage for renewable generation when combined with a form of energy Locke are actively assisting our clients in relation to
Daniel Westerman, the new CEO of AEMO, energy is increasingly being used in a variety of storage (such as batteries, pumped hydro or hydrogen). these programs.
settling an ambitious target for Australia to designs, sizing and locations for the main purposes
lead the rest of the world with a grid ready to To be reliable and secure, a high penetration renewable Equally critical – and which will assist in unlocking
of load shifting and supporting the stability of the grid. power system will need to make use of a blend of
handle 100 per cent of renewables by 2025. the tidal wave of private investment eager to invest in
Batteries are also now being included more and more dispatchable and VRE technologies with a mix of
To do this, it is clear that not only will stronger energy storage - is legislative support and regulatory
in project planning as mitigation against future storage different technologies, durations and locations.
transmission infrastructure be required, but so to certainty both in terms of the orderly retirement of
will dispatchable technologies (ie big batteries) costs, penalties or to account for future legislative or
As referenced above, it is therefore important that existing coal generation and the market in which
so that the intermittency of solar and wind market requirements.
energy policy is technology neutral and the services dispatchable renewables will operate over the
generation can be stabilized to provide electricity long term.
to the grid when required. Cost that are required to support system reliability and
A fundamental question when considering whether the security are appropriately defined and valued. Looking ahead, the retirement of coal generators will
long-term goal of net zero emissions will be achievable inevitably require alternative energy supply technologies
In the first article in this series (see link), we discussed is whether the technology needed for dispatchable Other factors to fill the gap left behind. Effective dispatchable
the need for and rise of dispatchable renewable generation will be cheap enough. If so, in theory Government policy and incentives will largely dictate renewable electricity generation is currently mooted as
electricity generation in Australia, highlighting that enough of it can be added to the grid to absorb just the growth and uptake in alternative means of one of the key solutions to this as renewables become
in recent years there has been a marked shift from about any fluctuations. electricity generation and storage. As recently as last more controllable and affordable. While the ultimate
baseload coal balanced by open cycle gas turbines week, we noted the House Standing Committee on solution will likely require a holistic approach using
and hydro, to increasing levels of variable renewable In general, costs are likely to continue to fall for all the Environment and Energy’s inquiry into the current multiple energy sources and technologies, having a
energy generation (VRE) balanced by dispatchable renewable energy technologies in correlation with their circumstances and future need and potential for high volume of renewable energy in the system that
renewable generation. growth in global deployment. This should improve dispatchable energy generation and storage capability is dispatchable on demand would appear to be an
the competitive position of dispatchable renewables in Australia (see link to bulletin). essential part of this approach. The future is likely
But this transition is and will not be without its compared to other forms of energy such as gas.
challenges and the oft cited “energy trilemma” of having dominated by dispatchable renewables.
Readily achievable growth rates (around 25% per year) Support in the form of grant funding will be critical in
an energy system that is secure, affordable and reliable in dispatchable renewables could keep pace with coal the formative stages of this market, as it was in the
still rings true. Here, we consider these challenges and early years of large scale solar. Absent ARENA and read more
retirements and enable an orderly transition to a large
some of the proposed solutions and opportunities. share of renewable energy. CEFC funding of early Moree, Nygan and Broken Hill
New Energy Quarterly – Winter 2021 – 10 New Energy Quarterly – Winter 2021 – 11
Authors:
Veno Panicker and Andrew Elias
First published:
Let’s tax the COVID vaccine… 14 April 2021
With such a significant uptake by Australian households
Update: On 12 August, AEMC delivered its final decision on the rule change. Owners of rooftop solar homes of rooftop solar PV systems, it would be logical to
may be able to export their excess power without facing additional charges under a “basic export service”, then consider implementing sound policies that look
but can expect to pay their electricity retailers for paid plans to avoid curtailment and to access the best feed- to ensure that projects commence to expand the
in-tariffs. The fall out from the introduction of the Solar Tax remains to be seen, however, it is clear that it will existing electricity grid infrastructure to withstand the
continue to cause controversy across the industry. exponential increase in supply of electricity.
There’s just a couple of problems:
1. the electricity networks are considered to be
Who will pay to upgrade the grid? We will refer to this two-way pricing system as a natural monopolies and unlike other industries,
The need to upgrade if not over-haul much of the ‘Solar Tax’ throughout this article. the electricity networks do not compete and
electricity network across Australia is not a new drive to lower costs and invest in adequate
So how does AEMC propose the Solar Tax
problem – and is a problem measured in billions. infrastructure; and
be calculated?
2. there is a lack of political will in both sides of
We reported on 12 April 2021 on the Australian government to implement sound policies for the
Energy Market Commission’s (AEMC) How will the Solar Tax be calculated?
development and renewal of infrastructure and in
announcement to review plans to upgrade electricity AEMC has justified this draft determination on the most cases, projects that are government funded
networks – a decision which will be a barrier to basis that currently, the energy sector is suffering a are late, over budget and poorly managed.
operators financing their network projects. ‘traffic jam’ problem with large volumes of excess
electricity being exported to electricity grids. To drill the point home, this is analogous to government
A recent draft determination from AEMC floated the approving 1,000 units in a low-density suburb without
equivalent of a charge for home owners that export AEMC’s draft determination provided three different approving any policies for the upgrading of roads in that
to the grid during busy periods – to assist in funding methods when modelling the impact of the Solar suburb, inevitably leading to traffic congestion… then
the grid upgrade. Tax2: taxing each person living in that suburb a tax for using
In effect, this is a tax for consumers that have • a flat export charge - $0.00-0.02/kWh; their cars during busy periods of the day.
invested in roof top solar for their homes. We • a time-of-use (TOU) export charge - $0.00-0.02/
If this is absurd, then why don’t we consider the
consider this the energy equivalent of a tax on the kWh; and
existing Solar Tax absurd?
COVID vaccine. • a max export capacity - $2.93-29.31/kW.
We understand that the grid needs funding in the Submissions were made on the effectiveness Way forward
billions to meet future demand – this is not a cost of the three pricing methods by various industry The energy market is constantly changing, improving
which should be borne by those home owners that players including MEU, ARENA and the Clean and innovating at a rapid pace and as a result there
have already invested in solar panels to minimise Energy Council. So what was the basis for AEMC’s is no real ‘quick fix’ to the problems faced. The
their energy costs. Solar Tax? Government at Federal and/or state levels must lead by
Of concern for the industry as a whole, such a A long-term solution or a band-aid to patch a more example and implement sound policies to incentivise
tax is reflective of a government seeking to offset systemic problem in the energy sector? the upgrade and expansion of infrastructure in the
costs to anyone they can palm it too. The reality energy market, particularly electricity grids.
Underlying what appears to be a ‘quick’ and ‘cheap’
is government at Federal and State levels have solution to this problem is a more systemic issue At best this ‘Solar Tax’ is poor policy which will cost
dropped the ball for decades in the management rooted by the failures of successive governments to home owners and make very little impact to the
and upkeep of the grid. ensure adequate infrastructure and electricity grids upgrade of the grid – a problem orders of magnitude
to store the increasing electricity supply by mum and greater than such a tax will yield.
What is the Solar Tax? dad solar panel owners. What’s next – a tax on the COVID Vaccine? It makes
On 25 March 2021, AEMC issued a draft about as much sense.
In the early 2000s, the Australian Government
determination outlining its strategy to deal with
introduced a renewable program which provided
the integration of small-scale solar energy into the
rebates to Australian households who acquired solar read more
electricity grid.
photovoltaic (PV) energy systems.
To break this down further, AEMC floated the idea
This program was very effective and successful with
that electricity grids should offer what’s called a ‘two-
over 20% of Australian households having rooftop
way pricing system’. The two-way pricing system
solar PV systems, which is a rate that is among the
operates so that solar and battery owners1:
highest in the world3. Households which produced
1. are rewarded for exporting power to the grid excess solar energy would then typically receive
when it is needed; and a credit for the excess solar energy which is then
2. are charged for exporting power to the grid when exported back to the electricity grid. The credit
it is busy. amount will vary between each electricity retailer.
New Energy Quarterly – Winter 2021 – 12 New Energy Quarterly – Winter 2021 – 13
Authors:
Negative prices – what you gon’ do Matt Baumgurtel and David O’Carroll
when they come for you…
First published:
08 April 2021
A recent determination of the Australian Energy As a result of the change, a semi-scheduled What’s next?
Market Commission (AEMC) amending the National generator will be deemed to have complied with
Electricity Rules may have negative consequences for a dispatch level if it only varies from the dispatch Revisions to PPAs currently being negotiated are
solar and wind generators who have Power Purchase level as a result of energy source availability, and in being vigorously debated by offtakers and generators.
Agreements (PPAs) that don’t settle when prices the case of a semi‑dispatch interval, if it does not It is unlikely that offtakers will accept negative price
are negative. exceed the dispatch level, regardless of the energy exposure and hence it will likely be up to the generators
source availability. to manage the risk the best they can, and price the
Semi-scheduled generators such as wind and solar residual risk into the PPA price. However, with negative
farms, now face increased exposure to negative price The rule change is aimed at curbing the practices of prices likely to become more common before they
risk as they will not be permitted to simply turn down some semi-scheduled generators deviating significantly become less common, renewable generators who can
generation when the spot price falls below zero. from their dispatch targets instructed by AEMO best mitigate and manage this risk will have a significant
by curtailing export in response to negative price competitive advantage.
The rule change effectively limits a semi-scheduled
fluctuations, i.e. managing the negative price risk.
generator’s ability to not export electricity during times Parties currently negotiating PPAs are carefully
of negative spot prices, i.e. adjust their output without AEMC considered that negative price curtailment by watching and waiting to see how this rule change
an updated dispatch instruction from the Australian semi-scheduled generators without rebidding or waiting will be administered by AEMO – creating yet more
Energy Market Operator (AEMO) or without for an updated dispatch target materially impacts uncertainty and hence delay in closing agreements and
a valid rebid. AEMO’s ability to maintain power system security. progressing project investment, financing, construction
That may be true, however requiring semi-scheduled and ultimately new renewable energy generation.
Many wind and solar PPAs provide that the financial
generators to essentially operate as scheduled
“swap” of a fixed electricity price for the floating spot With almost monthly announcements of coal generator
generators imposes a large revenue risk on renewable
price only occur (or settle) when the spot price is retirements being brought forward, and the frailty of
generators – a risk that they (and their financiers) could
positive, i.e. above $0. This agreement was often ageing coal generators on show every time they fail
not have reasonably anticipated.
required by offtakers as a way to manage their financial in hot weather, perhaps regulators should focus on
exposure under the PPA. The positions essentially sets The amendments action one of the Energy Security encouraging cheap reliable, predictable, renewable
a maximum downside per MWh the offtaker must pay Board’s (ESB) recommendations for interim security electricity generation firmed by energy storage
the generator. measures which are designed to improve system technology – this is what is going to keep the lights on
security and market efficiency. The intention is that in 5 years, and after all that is the whole point right?
Many generators accepted the “negative price risk”
these will also assist in improving AEMO’s price and
on the basis that they would not be paid under the
dispatch forecast accuracy. These are admirable goals, read more
PPA for generation when the spot price was negative,
however, imposing additional revenue risk on renewable
however they assumed they could reduce generation
generators which could not have been anticipated at
at these times so they would not be exposed to the
the time the project was committed, together with the
negative price.
constant uncertainty of MLF, curtailment etc create yet
The rule change now requires semi-scheduled more regulatory uncertainty for investors.
generators to comply with the MW dispatch level
specified by AEMO during all dispatch intervals and What now?
observe a cap in generation during semi-dispatch Generators need to start preparing now for what they
intervals. Under previous arrangements, there was will do when negative prices next arise. For instance,
no explicit restrictions on semi-scheduled generators generators should consider whether their existing
deviating below the nominated dispatch levels in order dispatch procedures remain fit for purpose, particularly
to reduce their exposure to negative prices. automatic dispatch systems that automatically
reduce generation in response to a forecast negative
price period.
The rule change is aimed at curbing We know generators are also carefully considering the
the practices of some semi-scheduled change in law provisions of their PPAs. Provisions that
generators deviating significantly from were included to deal with COGATI, the NEG, or the
myriad of other policy thought bubbles from regulators
their dispatch targets instructed by and government over the last 5 years are now being
AEMO by curtailing export in response considered in the context of this latest rule change.
The challenge in most change of law provisions will be
to negative price fluctuations, i.e. that this rule change does not affect the project per se,
managing the negative price risk. rather it affects the business model of the project.
New Energy Quarterly – Winter 2021 – 14 New Energy Quarterly – Winter 2021 – 15
Authors: Authors:
Battery industry given Matt Baumgurtel and David O’Carroll Redesign of the NEM Matt Baumgurtel and David O’Carroll
First published: First published:
renewed charge 04 May 2021 beginning to take shape 06 May 2021
The battery storage industry in renewables has
been given a major shot in the arm by the recent
announcement of the Australian Energy Market
Commission (AEMC) of rule changes that will
incentivise renewable generators who use technology
that dispatches electricity quickly to respond to
changes in grid frequency.
The draft ruling published on 22 April 2021 proposes
the introduction of new market ancillary services in the
NEM to allow the Australian Energy Market Operator
(AEMO) to procure fast frequency response to help
control grid frequency following sudden and unplanned
generation or power system outages. The aim of these
services will be to lower the overall cost of frequency
control ancillary services (FCAS) relative to expected
future costs.
This has come about as a result of a rule change
request proposed by Infigen Energy to introduce
spot‑market arrangements for fast frequency response
to help efficiently manage system frequency. These 2. backing up power system security by ensuring
new FCAS will be similar to existing services but would Update: Energy Ministers met on 11 June measures are in place to manage more variable
operate much more quickly to address the high rates of 2021 as part of the Energy National Cabinet renewable energy without AEMO intervention;
change of frequency in the system, which have come Reform Committee. They noted the Energy 3. unlocking benefits for all energy consumers of
in part due to the increasing uptake of inverter-based Security Board’s (ESB) work to deliver the recent changes including solar PV, batteries and
generation in the NEM such as wind and solar PV and The announcement of the draft ruling is in keeping Post-2025 Market Design program, with smart appliances; and
demand-side resources. with AEMO’s desire to ensure system security, ie final recommendations to be delivered in the 4. opening the grid to cheaper large-scale renewables
the availability of dispatchable electricity generation following months. by putting generation and transmission together to
The introduction of these “very fast” FCAS would minimize the costs of transformation.
respond to changes in frequency in less than two to respond to fluctuations in the grid. As we have We also note that there has been increasing
highlighted in previous articles on the topic (see here criticism of the ESB’s NEM reforms by key
seconds, rather than six seconds, which is the One of the notable options put forward is to require
and here), the ability of battery storage technologies industry players (such as leading renewable
current fastest market. The intention is that this will electricity retailers – both big and small – to pay the
to respond at relatively lightning speeds to meet grid energy developer, Neoen) as being ‘rushed’ and
make the system more economically efficient by owners of dispatchable generators to guarantee future
demand, the continued increase globally in their use ‘unquantified.’ As flagged in our original article
reducing the overall costs of managing power system capacity to support the grid in times of peak demand.
as an area of key concern, criticisms have largely
frequency compared to current arrangements or other and the steady decrease in costs are all factors which This would include buying electricity from old coal
focused on the proposed new mechanism – the
the AEMC has recognised in promoting this form of generators, essentially providing them with a steady
arrangements to produce different types of frequency physical retailer reliability obligation (PRRO) - for
technology through the proposed rule changes. revenue stream into the future which would incentivise
response. The draft ruling also envisages that these propping up the revenue of old coal generators.
them to remain open. If this option is to be adopted
new spot markets will drive innovation in the provision The introduction of these new ancillary services is to and implemented, one would question how this is going
of various combinations of essential system services be welcomed as it equates to regulatory support for to assist with Australia’s climate change commitments.
from different technologies. dispatchable renewable electricity generation which is On 30 April 2021, the Energy Security Board (ESB) Indeed, it is hard to see how this option would be
targeted to play a fundamental role in replacing retiring released a shortlist of options for the redesign of the anything other than regressive.
It is also proposed that arrangements for these new National Electricity Market (NEM).
services would be the same as those for existing coal generators over the coming years. Fast frequency A final round of consultation with stakeholders is
services, including arrangements for registration, response will be essential in keeping the grid stable as Following consultation with industry and government, taking place – with submissions closing on 9 June
scheduling, dispatch, pricing, settlement and we move towards a high volume of renewable electricity the options under consideration have been narrowed 2021 - prior to the ESB providing advice to the Energy
in the grid. since the release of the ESB’s “post 2025 market National Cabinet Reform Committee by mid-2021. The
cost allocation.
redesign directions paper” published in January 2021. full picture of the new NEM will likely then become a
The ESB has stated that the options provided are to lot clearer.
read more address four critical areas:
1. preparing for old coal retirement by facilitating read more
the timely entry of new generation, storage and
firming capacity and an orderly retirement of ageing
thermal generation;
New Energy Quarterly – Winter 2021 – 16 New Energy Quarterly – Winter 2021 – 17Big Boost for Batteries in
Authors:
the Redesigned NEM Matt Baumgurtel and David O’Carroll
AEMC’s recent proposed rules changes are designed These additional services are all the more necessary
to facilitate and financially incentivise battery storage as the transition takes place from a system with
system owners in the National Electricity Market (NEM). centralised coal and gas-fired thermal generation to
But will these reforms have the desired effect? a system with a diverse portfolio of inverter based
energy sources. With this transition, there will be
As highlighted in our recent bulletin on the topic, the
much less inertia in the system which was previously
first of these reforms comes via a draft plan designed
provided by large spinning coal-fired generators. At
to better integrate energy storage technologies in the
lower levels of operating inertia, faster and/or more
NEM and to make it easier for small batteries to earn
frequency control services will be required to stabilise
extra income and to reduce the logistic hurdles large
the system frequency within the existing system
batteries have in participating in the NEM.
operating standards.
Included in this is the introduction of a new registration
The introduction of FFR services is to be welcomed for
category, the Integrated Resource Provider (IRP),
system security but should also incentivise an uptake
which will allow storage and hybrids to register and
in dispatchable technology ownership by providing an
participate in a single registration category rather
income stream for batteries, aggregators and hybrid
than under two separate categories. The intention is
businesses and other fast responders that are able to
that market participants with batteries will no longer
rapidly respond to fluctuations in grid frequency. Not
need to register twice to draw energy from the grid
only will the new ancillary services provide certainty to
and send it out and that additional revenues will be
the market that sufficient resources are available, but
unlocked for home and business battery owners by
they will also provide clear price and investment signals
participating in new aggregation services provided by
to new resources.
new aggregator businesses.
As always, the proof will be in the pudding but in
AEMC has also amended the framework to recover
principle these reforms are a big step in the right
non-energy costs based on a participant’s consumed
direction and should foster innovation by promoting
and sent out energy, irrespective of the participant
technologies that will keep the future electricity
category in which it is registered. Consumed and
system secure as the energy system transitions
sent out energy will be measured separately for all
to one with a high concentration of variable
market participants and not netted at the connection
renewable technologies.
point. Non-energy cost recovery would be based on a
participant’s gross energy flows, i.e. gross consumed
energy (ACE) or exported energy (ASOE) during
relevant intervals, rather than the category a participant
is registered in. According to AEMC this change
supports the principle that the costs of providing these
services to support the power system should be funded
by those who benefit from them.
Commencing in October 2023, the other major AEMC
reform will create new markets for Fast Frequency
Response (FFR) to financially reward ultra-fast energy
providers who deliver energy to the grid in just one
to two seconds to stabilise system frequency. This
will operate similar to the existing arrangements
for frequency control ancillary services, providing
an additional frequency control option with the aim
of reducing the overall cost of managing power
system frequency.
New Energy Quarterly – Winter 2021 – 18 New Energy Quarterly – Winter 2021 – 19You can also read
