SA and Tasmania biggest risk to energy security, says Finkel review

Australia's chief scientist Alan Finkel says the NEM needs a major overhaul. Australia’s chief scientist Alan Finkel says the NEM needs a major overhaul. Jessica Hromas

The renewable energy-reliant states of South Australia and Tasmania have been singled out as the biggest threat to Australia’s energy security, according to the first findings of the Finkel Review to be tabled at the Council of Australian Governments meeting in Canberra on Friday. The preliminary report into the future energy security of the National Electricity Market, obtained by The Australian Financial Review, also backed a “clear, national” approach to reducing greenhouse gas emissions in the electricity sector. As the Turnbull government ruled out an emissions intensity scheme for the electricity sector[1], the Finkel review’s draft report said the EIS was backed by the country’s top energy regulators, the Australian Energy Market Commission and the Australian Energy Market Operator.

The 58-page report, which is a discussion paper ahead of a final report early next year, highlighted Tasmania and South Australia as the biggest threats to maintaining power system security and reliability, because of their reliance on other states to boost their energy supply.

The Alan Finkel review preliminary report The Alan Finkel review preliminary report

It said Tasmania was too reliant on the Basslink interconnector from Victoria to bolster its power supply. It said the six-month outage from late 2015 exposed the fact that, in some circumstances, the state could not produce enough of its own hydro power to meet its needs. “The Basslink outage highlights the challenges for Tasmania and other states of managing reliability with only a lengthy ‘thin’ connection between separate electricity markets,” the report said.

“This is different from many other electricity markets around the world that have extensive interconnection. There is a risk of over-reliance on other states through interconnection rather than ensuring a balanced local portfolio of generation types.” South Australia, which has 40 per cent of its power from wind and solar and had a state-wide black-out in September[2], was also a major risk to the NEM.

“As the generation mix changes in a similar way across the NEM, over time these risks may impact the security of all five NEM regions,” the report said. “This is particularly the case if a region becomes separated from the NEM and must rely on its own resources to manage the power system security – as is the case for South Australia, being at the ‘end of the grid’.

The Alan Finkel review preliminary report The Alan Finkel review preliminary report

“The case of South Australia highlights the need to advance new technical solutions, through appropriate regulatory and market frameworks to support power system security.” The review, undertaken by chief scientist Alan Finkel and a panel which includes former Origin Energy chief financial officer Karen Moses[3], released the findings of a secret assessment done by the AEMC and the AEMO into three policies – an emissions intensity scheme, an extended large-scale Renewable Energy Target to 2030 and the regulated closure of fossil-fuelled power stations. “The AEMC and AEMO found that of the three policies assessed, an emissions intensity scheme best integrated with the electricity market’s pricing and risk management framework, had the lowest economic costs and the lowest impact on electricity price,” the Finkel review said.

“AEMC and AEMO also found that an emissions intensity scheme had the least impact on system security whereas the LRET [Large-scale Renewable Energy Target] had the most impact. “They found that an emissions intensity scheme is lower cost than the extended LRET because it can access broader emissions reduction options.” An emissions intensity scheme for the electricity sector has been backed by big energy user, the Climate Change Council and the ALP.

Although only a preliminary report, the Finkel report said there were four technical solutions that needed to be fast-tracked to increase grid security and reliability in the NEM.

The technical solutions – including synchronous condensers (to stabilise voltage), synthetic inertia (for wind turbines), power conversion systems (for large batteries) – could be required for new renewable projects, but they could also make them more expensive.

The Finkel review found the cost of wind had dropped over 50 per cent, while solar photovoltaic had dropped by over 80 per cent, but renewables still struggled to be as cost-effective and reliable as coal and gas.

References

  1. ^ As the Turnbull government ruled out an emissions intensity scheme for the electricity sector (www.afr.com)
  2. ^ a state-wide black-out in September (www.afr.com)
  3. ^ undertaken by chief scientist Alan Finkel and a panel which includes former Origin Energy chief financial officer Karen Moses (www.afr.com)

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