The grid of the future: we need more interconnection

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by Steve Masters, ElectraNet Chief Executive

It’s been touted as providing the missing link for Australia’s electricity network as we transition to a decentralised, renewables-focused grid, and here, ElectraNet Chief Executive Steve Masters explains why an interconnector between South Australia and New South Wales is the project we can’t afford not to build.

On current lists of the world’s most rapidly changing industries, renewable energy sits alongside, if not above, cybersecurity, biotechnology, virtual reality and artificial intelligence.

While the global automotive industry might like to claim that there will be more technological advancements in its sector in the next five years than in the past 50, it doesn’t even rate a place in a countdown of the fastest growing industries.

Steve Masters, Chief Executive

The global energy transformation is currently gripping the world’s power systems, as we move toward low emission and decentralised supply sources – and nowhere is this being felt more strongly than in South Australia.

In Australia and in particular, South Australia, our energy market supply chain – encompassing generation, transmission, distribution, retailers and consumers – is undergoing transformational change as the sector transitions to lower carbon emissions and emerging technologies.

More decentralisation requires more interconnection

The importance of the electricity industry to the Australian economy cannot be overstated.

Safety, reliability, affordability and the impact of emissions reduction policies are front and centre in our minds at ElectraNet, reflecting the priorities of the wider community.

Affordability issues are widely reported and impact all of us, and it is a little known fact that transmission costs in South Australia represent only around six per cent of a typical residential bill. And when the lights go out, for whatever reason, the expectations of our community are amplified and the finger pointing begins.

What is clear from the transitioning Australian energy market is that we can’t afford to be “just in time” with transmission. As the Australian Energy Market Operator (AEMO) recognised a few years ago, a more decentralised grid must be a more interconnected grid.

Critical transmission infrastructure needs to be in place and ready earlier; and we need to be there before new replacement generation is turned on, not playing catch-up after. The same goes for new generation. This required shift in thinking and planning is obvious on face value, but at times difficult to implement against recent examples of some large-scale generation retirements, and a regulatory framework made for a different paradigm.

Australian Energy Market Operator’s (AEMO) 2018 Integrated System Plan (ISP) acknowledges the fundamental transformation of eastern Australia’s power generation and electricity grids, representing the National Energy Market (NEM). Large amounts of coal generation are expected to close over the next 20 years to be replaced with wind, hydro and small- and large-scale solar generation.

The ISP identifies significant investment in transmission, energy storage, flexible thermal capacity and distributed energy resources, will be required to support this transformation, and in particular to fully harness the diversity and intermittency of the future generation mix.

What role can SA play?

Approaching the past three years, ElectraNet has been investigating options to deliver greater energy connection between South Australia and the eastern states. This work, backed by extensive modelling, independent analysis and significant stakeholder engagement, has been described as the most comprehensive regulatory investment test for a transmission (RIT-T) project ever undertaken in the NEM and to go before the Australian Energy Regulator.

Our cost benefit analysis is consistent with AEMO’s conclusion that a new interconnector between South Australia and New South Wales is an important element of a NEM’s roadmap, and one of its immediate priorities that would deliver positive net market benefits as soon as it can be built.

Project EnergyConnect – the preferred option identified in the Project Assessment Conclusions Report (PACR) published in February 2019, is a 900km interconnector between Robertstown, in South Australia, and Wagga Wagga, in New South Wales, via Buronga, jointly delivered by ElectraNet and TransGrid. An additional 24km connection from Buronga to Red Cliffs would also enable access to renewable generation in north-western Victoria.

The key findings in the PACR and accompanying reports and modelling, demonstrate a new, double-circuit 330kV interconnector between South Australia and New South Wales is expected to:

  • Deliver net benefits of approximately $1 billion over 21 years, including wholesale market fuel cost savings in excess of $100 million/year as soon as it is commissioned (primarily from avoided expensive gas-fired generation in South Australia)
  • Reduce annual residential bills by about $66 in South Australia and $30 in New South Wales, and annual small business customer bills by $132 in South Australia and $71 in New South Wales
  • Provide diverse, low-cost renewable generation sources to help service New South Wales demand going forward, particularly as existing coal-fired generators retire
  • Avoid substantial capital costs associated with enabling greater integration of renewables in the NEM
  • Generate sufficient benefits to recover the project capital costs within 14 years
  • Generate over 200 regional jobs in South Australia and over 800 regional jobs in New South Wales during construction, and create around 250 and 700 ongoing jobs in South Australia and New South Wales respectively
  • Improve the ability of parties to obtain hedging contracts in South Australia and help relieve the tight liquidity in hedging markets currently

ElectraNet has engaged widely with key stakeholders during this RIT-T process, and it is vitally important this project is thoroughly examined by the Australian Energy Regulator in order for the community to have confidence in this investment.

As the electricity sector transitions, coal generators are expected to continue to retire from the market over the medium to longer term. The retirement of coal generation is expected to be most rapid in NSW, and all eyes are currently focusing on the upcoming coal-fired Liddell power station retirement in 2022.

Project EnergyConnect is scheduled to be in place around the time of this closure, providing timely additional transfer capacity to allow for the sharing of reserves between states.

Going forward, the progressive retirement of around half of the New South Wales coal fleet by 2035 (or sooner) means that alternative low emission supply sources will be required to fill this gap whilst meeting Australia’s policy commitments.

Our assessment shows that a new interconnector between South Australia and New South Wales allows greater exports from existing and new high-quality renewable generation sources in South Australia and western New South Wales, that enables supply requirements in New South Wales to be met at a lower cost than if New South Wales was required to draw on other generation sources, including new gas generation, to fill the gap.

Any earlier retirement of coal generation in New South Wales would accelerate delivery of these benefits.

The preferred option provides a benefit through being able to avoid the transmission investment that would otherwise be required to unlock additional renewable generation resources in the Murray River and Riverland renewable energy zones (REZs), which have been identified by AEMO in the ISP as being priority areas to assist NEM transition. Since late 2018 for example, over 600MW of solar generation has reached committed status west of Wagga Wagga.

Where to from here?

A different generation map is emerging across Australia. It is obvious that a large amount of new generation will be built in areas that have not previously hosted such assets.

As we move to a lower carbon economy with renewable generation taking a greater share of the market, the reality is that current transmission highways do not align with where the best generation sources are to supply Australia’s future needs.

Interconnectors that coincide with REZs support ease of connection to the grid; it is cheaper for these generation proponents to be more proximal to transmission highways. Not surprisingly, Project EnergyConnect is attracting interest from potential new proponents.

The European Commission recognises the widespread benefits from well-interconnected energy networks: increased security of supply, affordable prices via market integration and decarbonisation through increasing levels of renewable generation.

The Commission views interconnection as an essential precondition for realising an integrated, competitive and sustainable European electricity market, and has a target of achieving an interconnection capacity of at least ten per cent installed electricity production capacity across its members by 2020 – with a view to eventually achieving a single, European energy market.

The South Australian and New South Wales Governments are both strong supporters of Project EnergyConnect, with a Memorandum of Understanding signed by both parties in December 2018 and financial underwriting of early works by the South Australian Government to accelerate some activities in advance of awaiting regulatory outcomes.

Total renewable energy resources in South Australia exceed its combined minimum demand and current export capability, putting it at the forefront of renewable penetration levels in power systems across the world.

South Australia also has among the most abundant and high-quality renewable energy resources in Australia and has seen an unprecedented, and highly publicised, uptake of renewable generation over the last decade.

Harnessing this competitive advantage in a transformational market setting for the long-term benefit of customers and communities across eastern Australia is a national imperative.

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