independent review into the future security of the national electricity market
TRANSCRIPT
Independent Review into theFuture Security of the National Electricity Market (NEM)
(The Finkel Review)
Aurecon summary of panel findings and recommendations
Table of Contents
Sense making & shared benefits 3 - 5
System Security 6
Low Emissions Transition 10
The Role of Gas 13
System Planning 16
Rewarding Customers 19
Stronger Governance 23
Glossary 27
Contact 28
3
Sense making The Review contains 50 recommendations in total. All but the Clean Energy Target have been
adopted by the government – with four key outcomes sought
4
Sense making The Review contains a matrix for success – spread across three pillars
5
Shared benefits
Government
Clear line of sight for planning energy policy and delivery
Business
Clarity around making investment decisions
Customers
Improved supply continuity and pricing
Environment
Reduced emissions
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System Security
7
Withdrawal of synchronous generation is
reducing security
− Less physical inertia
− International experience shows that in large
power systems, such as the NEM, FFR cannot
provide a complete substitute for physical inertia
− Minimum levels of physical inertia are required
− Demand side FFR should be further considered
System restart capability
− Can we get the system back up in case of a
system wide blackout?
System Security: Issues identified
Lack of DER visibility to AEMO
− Makes management of power system more
difficult
Solutions should be technology neutral, they
should also be supply side/demand side
neutral
− Specify technical parameters of the service, not
the technology
− Market mechanisms preferred, however non-
market approaches may still be required
8
TNSPs to quantify minimum required inertia
levels
− Also quantify the proportion to be substituted by
synthetic inertia (FFR)
Review and update connection standards
requirements
− Existing performance requirements are written
for synchronous generators (considerations:
FFR/FCAS, SCC, inertia, power ramp rates due
to changing weather, etc.)
All new generators to provide fast frequency
response capability
System Security: Recommendations
Full disclosure by generators of parameters
which could affect security or reliability
Three yearly review of connection standards
for generators
9
Establish a data collection framework/mechanism for DER
− At a suitable aggregate level
− Map locations of clusters of DER for inclusion in power system models
Cyber security
− Annual report on the cyber security preparedness/maturity
National skills assessment for workforce skill
− Need: Power system engineers, data specialists in analytics and visualisation, cyber security specialists,
software programmers with an energy specialisation
System Security: Recommendations
Low Emissions
Transition
11
As coal plants are retired, the NEM will need dispatchable capacity:
− Clean coal, gas, hydro, solar thermal, biomass, interconnectors, storage and demand response
Wind and solar PV (not dispatchable), will therefore require complementary dispatchable
capacity to maintain reliability
Issue with energy market: VRE capacity has been pulling wholesale prices down, inhibiting
investment in dispatchable capacity – issue is if generators exit the market at short notice
things could switch from a NEM capacity oversupply to undersupply in a short period
Low Emissions Transition: Issues identified
12
Capacity market is not recommended
− Too big a transition, will take too long to implement, more immediate reliability concerns
− Instead: Provide long term investor confidence and greater control to AEMO
Whole of economy emissions reduction strategy
Large generators to provide three year notice of closure
Emissions reduction mechanism (CET)
AEMO to identify and ensure adequate dispatchable capacity is available in each region
“Generator Reliability Obligation”
Low Emissions Transition: Recommendations
The Role of Gas
14
NEM is likely to require higher levels of gas fired generation to support VRE
− Gas generators will need to switch in and out, provide fast ramp rates while operating and require more
starts (depending on intermittent generation)
− Aging, inefficient turbines will need to replaced with more modern turbines at the same sites
AEMO should have better oversight of gas supply contracts to ensure sufficient supply is
available
Need to avoid blanket restrictions/bans on gas projects, encourage development of the industry
The Role of Gas: Issues identified
15
Gas generators to provide info to AEMO on fuel resource adequacy and fuel supply contracts
to enable assessment of fuel (and subsequently generator) availability
Increase community trust and understanding on gas (including hydraulic fracturing) by mid-
2019
− COAG Energy Council to bring together scientific and regulatory data in an easy to understand
format
The Role of Gas: Recommendations
System Planning
17
Whole of system planning approach required− Considering interstate generation availability,
interstate interconnectors
− No longer appropriate to plan the network at a state/jurisdictional level
Optimise the design of the network to enable connection of new renewable energy resources− Providing capacity for new renewable generators
− Integrated grid plan: renewable energy zones, concept line routes to connect, quality of resource, cost, network impacts etc.
− High level assessment of economics of the zones
− Publically available
System Planning: Issues identified
Co-ordination of generation and
transmission investment
− Transition requires closer co-operation
between NSPs and generators in making
investment decisions
18
System Planning: Recommendations
Develop integrated grid plan by 2018
− Facilitate efficient development and connection of
renewable energy
AEMO to identify priority projects which
governments may need to support if market is
unable to deliver
− Framework is required to achieve this
− Cost to be allocated in NSP revenue proposal &
recovered through users
COAG Energy Council to review AEMO’s role in
national network planning
Reforms to limited merits review regime
Further reviews to enhance effectiveness of
RIT-T & RIT-D
Rewarding
Customers
20
Improved access to data for consumers,
service providers, system operators and policy
makers is required
− More transparency and clarity on electricity prices
so customers can understand and compare prices,
know when discounts expire etc
− Customers should have access to consumption
data in real time and control over who can access
this data
− Smart meters are the required enabling technology
Rewarding Customers: Issues identified
Reward consumers financially for participating
in demand management, energy efficiency,
security and reliability improvement
− Demand response is cheaper and faster to
implement than new infrastructure construction
− International evidence is that for long term
customer participation in DR to occur, orchestrated
demand response through a service provider
under an agreement is preferred
− An estimated 2000MW of load in the NEM is
considered price responsive to a cost saving
21
To obtain value from DER, dispatch needs to be coordinated to be material
− Example: ARENA/AEMO 100MW demand response by December 2017
Opt in payment
Further curtailment payment
Incentivising networks to avoid capex‒ Current model of economic regulation may not be providing enough incentive for networks to
consider non-network solutions
‒ Alternate economic model: Single estimate of efficient total expenditure (totex) rather than separate
capex and opex determinations
Rewarding Customers: Issues identified
22
As part of its existing inquiry into the retail market, the ACCC should make recommendations
on improving the transparency and clarity of electricity retail prices
COAG Energy Council to remove complexities and make it easier for customers to access
and share their energy data
AEMC to recommend a mechanism that facilitates DR in the wholesale energy market – draft
rule change ready by mid 2018
AEMC to assess alternative models for revenue setting (totex approach) by mid-2019
Rewarding Customers: Recommendations
Stronger
Governance
24
No agency currently has explicit responsibility
under legislation to track emerging risks in
relation to the power system
− A new body is required to:
Report on Health of the NEM
Report on actions being undertaken to respond
to risks
Provide whole of system oversight for security
and reliability
Market body boards, have insufficient power
system engineering representation
− AEMO in particular requires network expertise on
the board, currently only has generation, retail and
energy market backgrounds
Governance: Issues identified
Response to change: NER have failed to keep
up with changes in technology and the NEM
− Time taken for end-to-end rule changes too long
(one year)
− Existing NER too long and too complex
25
AER needs a data strategy to ensure:
− Visibility of DER
− Consumption data sharing
− Changing drivers of demand & demand
forecasting
− Note: CSIRO Energy Use Data Model will help
address this issue but a funding, governance
structure needs to be in place to support this data
gathering and provision under law
Current level of AER funding considered
inadequate compared to the resource
requirements and workload
Governance: Issues identified
Perception of incumbency bias in AEMO due to
funding model which relies on industry co-
contributions
No single organisation has a complete view of
the NEM – less visibility of emerging threats
26
COAG to establish an Energy Security Board
to implement the panel’s recommendations
and provide whole of system oversight for
security and reliability
AEMC or other suitable body to complete by
2020 a comprehensive review to streamline
the NER
Vertigan review recommendations to expedite
the rule making process be implemented by
end of 2017
Governance: Recommendations
Increase funding to the AER
New skills matrix for AEMO directors to
ensure power systems engineers are
represented
AER to develop a data strategy for the NEM
27
Acronym Definition Explanation
ACCC Australian Competition and Consumer Commission Australia’s competition regulator and national consumer law authority.
AEMO Australian Energy Market Operator AEMO is responsible for the administration and operation of the wholesale national electricity
market in accordance with the National Electricity Rules.
AEMC Australian Energy Market Commission The rule maker for the Australian electricity and gas markets.
ARENA Australian Renewable Energy Agency ARENA funds innovation and shares knowledge relating to renewable energy.
CET Clean Energy Target A policy mechanism that provides an incentive for new low emissions forms of energy generation
to enter the market.
COAG Council of Australian Governments An organisation consisting of the federal government, the governments of the six states and two
mainland territories and the Australian Local Government Association.
DR Demand Response A change in energy usage by a customer in response to a change in price or incentive payment.
DER Distributed Energy Resources Small sources of power such as roof-top solar PV, diesel generators, home battery storage which
can be aggregated to enable a broader demand management response.
FCAS Frequency Control Ancillary Services A market in the NEM under which participants bid for the provision of active power to regulate
power system frequency.
FFR Fast Frequency Response An injection of active power at the right time, magnitude and phase in order to stabilise a power
system following a disturbance event such as loss of a generator, or transmission line.
NEM National Electricity Market The wholesale electricity market for the electrically connected states and territories of eastern and
southern Australia.
NER National Electricity Rules The rules which under the force of law govern the operation of the NEM.
NSP Network Service Provider A business or organisation which owns and operates an energy supply network, i.e. the grid.
PV Photovoltaic An electrical device which converts solar energy to electrical energy, also known as a solar cell.
RIT-T/D Regulatory Investment Test – Transmission/Distribution A cost benefit analysis process required to be followed by NSPs for investment in regulated asset
network augmentations of a cost over a particular threshold.
SCC Short Circuit Current The magnitude of electrical current that flows under short circuit (fault conditions). SCC is a
measure of the strength of the power system at a particular location.
VRE Variable Renewable Energy An energy resource which is non-dispatchable, i.e. the fuel source is fluctuating and not
controllable such as wind or solar power.
Glossary
28
Discuss the Finkel Review
Dr Alex WonhasManaging Director, Energy, Resources & Manufacturing
Paul GleesonEnergy Leader, East Coast Australia
Aneetha de SilvaManaging Director – Government
Victor YoungClient Director – Energy, ANZ
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