AEMO issues stark warning for Summer months

The 2019 Electricity Statement of Opportunities (ESOO) released by the Australian Energy Market Operator (AEMO) has forecasted that the upcoming 2019-20 summer will have tight electricity supply-demand conditions for several states. 

The ESOO is developed annually to forecast electricity supply reliability in the National Electricity Market (NEM) over a ten-year period and is designed to inform the decision-making processes of market participants, new investors and policy-makers. For the first time, this ESOO also considered whether there was a sufficient resource need to trigger an obligation on retailers under the Retailer Reliability Obligation (RRO).

The 2019 ESOO forecasts a continued elevated risk of expected unserved energy (USE) over the next ten years. Compared to 2018’s ESOO forecast, AEMO observes greater risks of load shedding due to uncontrollable, but increasingly likely, high impact events such as simultaneous unplanned outages during hot days.

For the immediate summer, findings highlight the impact of major generation outages in Victoria and the need for additional reserve resources and reflect the measured impact of a deterioration of reliability of aging thermal generators. 

Beyond 2020, AEMO forecasts only slight improvements in reliability for peak summer periods until new transmission and dispatchable supply and demand resources become available, with the situation to further worsen following the gradual closure of Liddell power station.

The impact of the retirement of one unit at Liddell Power Station in April 2022 will begin to tighten the reserve situation in New South Wales, culminating in an increased USE level in 2023-24 following the closure of the remaining units. 

However, as the USE level is forecast within the expected 0.002 per cent across these years, it does not meet the “material reliability gap” threshold that would require AEMO to trigger the RRO in 12 months’ time. 

The analysis does, however, highlight that as in Victoria this summer, following the gradual closure of Liddell, a combination of high summer demand and unplanned generator outages will leave the region exposed to significant supply gaps and involuntary load shedding during peak electricity demand, unless mitigating actions are taken in advance. 

AEMO’s Managing Director and Chief Executive Officer, Audrey Zibelman, said that the analysis demonstrates the need for urgent action and prudent planning and investment in the sector to deliver affordable and reliable electricity supply to Australian consumers all year round, but particularly during the summer period.

“AEMO has already commenced work with the industry throughout the NEM and is working closely with governments to prepare for this summer by securing additional resources to meet peak summer demands. However, while expected and allowed for under current rules, we are finding this type of reactive action is imposing higher costs on consumers and risks to reliability which are not sustainable over the longer term.

“A more measured course is to take a number of deliberate actions that address the challenges of our aging coal fleet and which meet the need for secure and dispatchable supply, whilst also taking advantage of Australia’s natural resources. 

“We need to harness all the resources we have in the system, together with the opportunities that come with the technological advances occurring in the industry to meet current and future energy demands at the lowest cost possible.”

AEMO has identified several pragmatic actions that should be taken to avoid consumer exposure to an unreasonable level of risk of involuntary load shedding during peak summer periods. 

Some of these actions are currently underway, such as AEMO’s Summer Readiness Plan and the planning and commissioning of targeted transmission augmentation, and others require changes to rules and/or additions to AEMO’s authority.

Further actions identified include several changes that will support better outcomes for reliability and affordability. These include the introduction of a new reliability standard designed to assure that each region has sufficient resources to meet peak demand requirements during 90 percent of the time (this is a more typical standard used internationally); the development of new markets for essential services so AEMO can more efficiently pay suppliers for all resources required to maintain the reliability and security of the physical system; the acceleration of critical upgrades and construction of interconnectors and transmission to enable better use of existing and new supply resources; and the ability to procure and operate a three-year strategic reserve to minimise the need to pay a premium for emergency power.

“The development of a more reliable and secure power system does not equate to a more expensive one,” Ms Zibelman said. 

“At present, AEMO does not have the tools or mechanisms to enable cost effective access to sufficient resources for all hours of the year, so we are forced to use more emergency actions that impose unnecessary risk and costs on consumers, just at a time where the goal is to pursue more cost-effective outcomes. 

“To achieve our goal, we are working closely with industry, the Commonwealth and State governments to pursue with necessary speed the adoption of changes required to deliver affordable, secure and reliable energy to Australian consumers this year and in the future.”

Federal Energy Minister, Angus Taylor described the report as another reminder of the reliability challenges facing the National Electricity Market (NEM). , He also said that the report confirm’s the Government’s focus on the key challenge of ensuring enough reliable and affordable generation remains in the electricity system.

“The Government is taking strong action to deliver the reliable, 24/7 affordable power that Australian families and businesses deserve,” said Mr Taylor.

“We have established the Liddell Taskforce to consider options to deal with AGL’s announced closure of the plant.

“We have delivered the Retailer Reliability Obligation to ensure enough available dispatchable generation to keep the lights on.

“We have committed to Snowy 2.0, which will deliver an additional 2000 MW of dispatchable storage into the NEM; and through the Underwriting New Generation Investment program, we will deliver new, reliable generation into the market, putting downward pressure on prices and ensuring the security of the grid.”

However Australian Wind Alliance (AWA) National Coordinator, Andrew Bray, took a different view, arguing that the market operator’s report highlights the costs of federal inaction on energy and climate change policy. 

“What we have now is an ageing grid, with failing coal plants and inadequate transmission to tap into Australia’s vast renewable resources.

“By investing in the poles and wires that connect new wind, solar and storage projects, the government can fill the gap left by failing coal-burning plants and keep the lights on for all Australians.

“Our energy minister has no plan. Angus Taylor has not met with the COAG energy council since December. He is missing in action, while our grid heads for blackouts this summer.”

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