With Australian Energy Week around the corner, the challenges and opportunities facing generators, networks and grids have become hotly topical. We spoke to three leading energy generator CEOs about the future of the industry and their thoughts on it.
What are the most significant challenges facing energy generators across Australia?
Having sufficient firming and electrical service capable plant to maintain system security. With the rapid increase of renewables, gas being very expensive and coal plants getting closing there is a need to either extend the life of existing plants or secure new investment.
How much renewable energy do you think the NEM can currently integrate?
Excellent question and unfortunately no-one truly knows the answer. Australia is an island nation and cannot just plug into firm generation from other countries as occurs in those European countries with high renewables penetration. Our best parallel is Ireland, which reached 50% of dispatchable capacity as renewables and the system operator halted further deployment until it could review its market model and also establish a range of around 12 new ancillary services. AEMO is supposed to be conducting this system security study for the NEM this year and it is urgently required. This is evident by the amount of times AEMO needs to intervene in the SA region of the market now, and it is emerging as an issue for Victoria as well.
Firming new renewable projects is becoming increasingly important – how are you making a decision between different technology options?
Energy capacity and cost. Batteries are excellent for frequency control and domestic application, but are not going to be a serious provider of energy anytime soon (Hornsdale could only run Tomago aluminium smelter for 8 minutes). Gas is very expensive and new gas generators could become stranded early in their lives under high carbon abatement. This leaves pumped hydro, which can provide large capacity for many hours and sources its energy stores from excess renewables.
How are you viewing opportunities in hydrogen storage of excess energy generated by renewable projects?
Pumped hydro is a lower cost and more efficient way to use excess renewables. When the new government term is underway, what policies will you be hoping to see being pursued? Given renewables claims of a cost advantage, consumers should be relieved of the subsidy burden on their bills. This money would be better deployed for abatement across all industries as electricity is already decarbonising whereas other sectors are not.
What are the most significant challenges facing energy generators across Australia?
For renewable generators, the challenge is getting new projects connected. For other generators, the challenge is to consider what the influx of renewables means over the long term and what the role of large synchronous generators is going to be in a different energy mix.
How much renewable energy do you think the NEM can currently integrate?
There’s a commercial answer and a technical answer to this question as the NEM is both a commercial market and a technical network of physical assets.
Commercially, while the cost of renewables continues to fall, there remains demand for renewable energy generation.
Technically, the NEM can integrate far more renewable energy than we have currently deployed, provided that the enablers are there, such as transmission upgrades, storage, and system strength support. Firming new renewable projects is becoming increasingly important – how are you making a decision between different technology options?
Different technology options have different capabilities when it comes to firming so it depends very much on what characteristics we are looking for. Firming can also be provided by existing generators so that is an option we consider when it is available.
To some extent we use the diversity of assets across geographical and technological spread to provide firm energy to our customers. How are you viewing opportunities in hydrogen storage of excess energy generated by renewable projects? Taking anything that changes one form of energy to another is inherently inefficient and can be costly so, first, the price has to work. But as we have seen with other technologies, the cost has continued to fall and in readiness for this trend to continue, we are maintaining a close watching brief. In the near term, batteries and pumped hydro energy systems are both more viable forms of energy storage. When the new government term is underway, what policies will you be hoping to see being pursued?
Ten years ago, renewables didn’t economically compete with coal and gas without help, but as the cost of renewables has continued to fall, the industry is no longer so reliant on policy to support prices. However, now we need other enablers: system support for the grid, transmission upgrades, and market mechanisms that make commercial sense.
Over the longer term, we still need policy support to ensure that we transition to a less carbon-intensive future. This means providing clear signals for the orderly closure of high-emitting thermal power plants.
What are the most significant challenges facing energy generators across Australia?
From the perspective of a traditional merchant generator, the three most significant challenges are:
- Lack of stable energy policy at the Federal level:
The energy policy vacuum in Australia is well documented, leading to lack of investor confidence and, in some cases, early closure of generation assets. It has also contributed to the uncoordinated construction of new, disaggregated generation facilities that have led to a surge in transmission connections across a rapidly degrading network – leading to system security and reliability concerns. All of these challenges lead at some point to higher energy costs, while the ‘mess’ is untangled. A stable, bi-partisan energy policy that encourages coordinated investment is desperately needed for the NEM. This would also avoid the need for some of the more punitive regulatory changes currently proposed by various governing bodies, such as the so-called ‘big stick’ legislation.
- The rapid pace of technology change and the rise of the prosumer:
Traditional power systems and energy markets are being challenged by the widespread growth of renewable generation, the reducing cost of alternative generation and distribution technology, the increasing deployment and acceptance of digital systems, and sophisticated and engaged consumers. While large traditional generation entities (including CS Energy) are taking steps to protect revenue and asset value by diversifying across the energy value chain, the ability for new entrants to disrupt is becoming easier, with access to new, data-driven technologies and forms of generation which are less capital intensive than in the past. Traditional generators must adapt to survive, and must find the right balance between incumbency and the pace and breadth of diversification in order to transition effectively.
- The competing demands of increasing regulation and pressure to decrease prices for consumers:
The electricity industry is currently undergoing an unprecedented amount of regulatory change. 5-minute settlement, the ACCC retail pricing inquiry, the implementation of the recommendations from the inaugural Coordination and Generation and Transmission Investment Report are some of the measures which will drive fundamental changes to how the NEM will operate, and how participants must operate in the retail market. These changes are significant and costly, and stem from the National Policy vacuum mentioned above. If a stable energy policy is introduced and endorsed by both sides of Government, investment in all aspects of the energy value chain will be stimulated, and the market will be able to self-resolve some of the issues it is currently facing.
How much renewable energy do you think the NEM can currently integrate?
As a participant in the generation industry, it is expected that investment in generation and transmission will occur in an orderly way, based on correct investment signals. The reforms signalled to be phased in as a result of the inaugural Coordination and Generation and Transmission Investment Report may come a little later than required, but will begin to address these issues. The deterioration of marginal loss factors for many generators (some that are only 2 years-old) has been devastating and is predicted to continue at high rates over the next couple of years. The location of new projects moving forward must be carefully considered in order to design and maintain a system that is fair for all participants.
Firming new renewable projects is becoming increasingly important – how are you making decision between different technology options?
As an asset-backed baseload generator, with substantial trading capability, CS Energy is well placed to provide firming generation for intermittent generation projects and customers that require a mixture of black and green energy in their loads (over the short and long-term). As we look to the future, we will evaluate other storage and firming options taking into account many factors, including cost of generation, return on investment, efficiency, environmental impact, and strategic and portfolio fit.
How are you viewing opportunities in hydrogen storage of excess energy generated by renewable projects?
CS Energy is very interested in the development of hydrogen storage, and will take an active role where possible. As the imperative for grid stability and fast-start technology options gather momentum, the potential for hydrogen storage technology to form a significant part of Australia’s export market in the future cannot be overstated, and we watch this emerging market with interest. We are, in fact, actively pursuing a very exciting opportunity in the hydrogen space, which I hope to be able to talk about at length in the future.
When the new government term is underway, what policies will you be hoping to see being pursued?
We hope to see a bipartisan energy policy that encourages investment and research and development in the sector, particularly in emerging and fast-dispatch technologies as well as retail markets. We also look forward to seeing a clearer policy for improved integration of distributed energy technologies as they start to pick up a larger share of the energy supply mix. We see this as a way of stabilising energy costs for customers, and ensuring that the National Energy Market transitions to a less carbon intensive market in an orderly and safe way. Other industries including transportation, manufacturing and processing should also be encouraged to reduce carbon emissions.
