The wind and solar ‘transition’ has nothing to do with providing reliable and affordable power. It’s a wealth transfer from power consumers and taxpayers to rent seekers – driven by ideologues and enabled by politicos who wouldn’t know a kilowatt from their elbow.
Australia’s Eastern Grid is a heartbeat away from total collapse. Once upon a time, the Eastern Grid (which covers Queensland, New South Wales, ACT, Victoria, Tasmania and South Australia) delivered cheap and reliable power from coal-fired power plants situated in every one of those states, save Tasmania – which largely runs on its own hydro power.
20 years ago, that all changed with the Federal Government’s Renewable Energy Target, which was (and is) all about subsidising large-scale wind and solar.
Because wind and solar can’t be delivered on demand, the National Electricity Market (NEM) was destroyed from within to allow power with no commercial value to be traded within that market. Takeaway the renewable energy certificates (which constitute the subsidy) and there would be no market for intermittent wind and solar. Period.
As The Australian’s Economics Editor, Judith Sloan explains below, the NEM is in a state of self-inflicted chaos, with no remedy in sight. And, as always, it’s power consumers and taxpayers who will be left carrying the can.
Why the National Electricity Market is on its last legs
The Australian
Judith Sloan
26 March 2024
The national electricity market is on its last legs.
What started as a market-based dispatch and trading scheme in the late 1990s to connect the electricity-generating capacity of all the states bar Western Australia – the Northern Territory also is not part of the NEM – has descended into a chaotic combination of federal and state rules, regulations and subsidy arrangements. To call it a market is a stretch, with indications that self-interested states are pulling up their drawbridges.
It is worth recalling what we have lost and to list the vital features of any connected electricity market: a reliability standard, a dispatch mechanism and a contracts market. Without these working efficiently and effectively, the NEM becomes the equivalent of an old jalopy that hasn’t been maintained properly. It may take us a little way down the road but this is achieved at great expense. The goal of affordable and reliable electricity is effectively out of reach.
When the NEM was first created, the benefits were immediate. Wholesale electricity prices fell, along with the prices paid by retail consumers. The privatisation of the electricity assets in several states largely predated the NEM’s creation. The NEM was based on both private and public ownership of generation, distribution/transmission and retail assets.
Because generation was overwhelmingly from coal – there was some gas and hydro – the issue of what are called ancillary services didn’t arise. The frequency and voltage control needed to run the grid came gratis with the constantly spinning turbines. With the increasing prevalence of renewable energy, including rooftop solar panels, the need for these ancillary services is now a separate consideration for the grid operators and must be paid for.
The grid was always capable of handling a small proportion of renewable energy without much disruption. There is also no doubt that renewable energy investors were happy with the federal renewable energy target spinning off valuable tradeable renewable energy certificates. The workings of the market could continue to operate.
The problems were always going to emerge when the penetration of renewable energy began to creep up and the unexpected growth in rooftop solar began to cannibalise the daytime market for electricity. We are at this stage now, with wholesale electricity prices routinely very low or negative during the course of the day, then jumping up when the sun sets and particularly if the wind dies down.
No one would expect investors to spend money on new projects if there is no return or if the commercial environment is too uncertain. It isn’t surprising that there was a major slump in investment in renewable energy within the NEM last year.
The federal government has reacted by effectively seeking to underwrite renewable energy investment by introducing a contract-for-difference scheme, the so-called Capacity Investment Scheme. How this will work is that companies will bid in by nominating a minimum strike price: when wholesale prices fall below this level, the government compensates the company, but if the prices are above the level, the difference is paid back to the taxpayer.
There will be separate programs for renewable energy installations and storage.
On the face of it, this sounds like the cashflows of investors are effectively guaranteed and should therefore be bankable. But there are several complications.
There is also the issue of where power purchasing agreements fit with this intervention. PPAs commonly are used to secure a final investment decision by a renewable energy company entering into a contract with a customer on agreed terms for a period. The Capacity Investment Scheme cuts across these PPAs. The CIS also effectively kills the derivatives market within the NEM, a necessary feature of efficient markets.
One of the constraints affecting the NEM is the access of renewable energy output to the grid, with the existing transmission system overloaded at certain times and output being regularly curtailed. But with the delays in the expansion of the grid – think here planning delays, local opposition, labour and material shortages, exploding costs – this problem will not be sorted out quickly.
It has to be borne in mind that there is an obvious inefficiency of extending the grid for it to be used only 25 per cent of the time, say. This will be the case with far-flung renewable energy installations, but as long as the new transmission line is a regulated asset, the costs will be passed on to consumers.
Given that transmission/distribution makes up more than 40 per cent of retail prices, there is clearly a substantial cost of having a decentralised grid relative to our historic centralised one. (A grid based on nuclear power has the advantage of being centralised, with a small number of large plants.) Also taking into account the required overbuild of renewable energy because of the intermittency issue, it is inevitable that electricity prices will be higher in the future.
The issue of reliability is also a central concern and it is why the decision by the states to forgo the use of coal and gas within a capacity mechanism is impossible to fathom. The fact Victoria is subsidising two brown-coal fired electricity plants to continue – Yallourn and Loy Yang A – simply underscores the hypocrisy of this supposedly green-tinged state government. (Again, we don’t know the precise costs given commercial considerations, but there is no doubt the total cost is in the hundreds of millions of dollars.)
NSW is about to follow suit with taxpayer support for the continuation of Eraring.
There is no doubt that down the track there will need to be investment in new gas-peaking plants, notwithstanding the loud objections of the Greens. Battery storage is expensive and short duration. The grid needs more than batteries can offer, even if the longer-term backup is used only infrequently. The concern raised by the market operator of the near-term looming shortage of gas on the east coast is extremely disturbing. Both the federal and state governments need to facilitate the development of new gas reserves as soon as possible.
The bottom line is that the NEM was once a great innovation, providing cheap and reliable energy to retail customers and business. But the market operator now is being forced regularly to intervene in a way that was unheard of in the early years.
It is an almighty mess, heading essentially towards a chaotic centrally planned system.
The Australian
STOP THESE THINGS 
Politian’s and ‘activists’ who rush to improve something that is and has worked well, believe you must first destroy it. But!!!!
“What good is running when you’re on the wrong road.
German (on planning)”