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23 Jun 2024 19:35
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  •   Home > News > Motoring

    Warnings Australia's energy transition 'out of control' as NSW market quietly melts down

    It passed largely unnoticed, but a NSW energy market meltdown has sparked warnings the energy transition is veering off the road.

    The head of one of Australia's biggest power retailers has warned that Australia's energy transition is veering out of control, pointing to a major market disruption that hit New South Wales as evidence of the turmoil.

    During a week in which NSW agreed to extend the life of the state's biggest coal plant, Alinta boss Jeff Dimery cited dramatic events in the market earlier in the month to argue the system was in distress.

    The Australian Energy Market Operator was forced to step into the NSW market and cap wholesale prices between May 8 and 15 after a series of shocks sent costs into orbit.

    It's believed to be only the second time the market operator has had to make such an intervention in NSW — the first being the energy crisis of 2022.

    Among the blows were a number of planned and unplanned outages at coal plants in NSW.

    One of the affected plants was the giant Eraring power station, which the Minns government this week announced would be kept open until 2027, two years later than planned by its private owners, Origin Energy.

    Paul McArdle from market analysis firm Global Roam said the coal outages coincided with relatively calm conditions, which meant output from wind farms was lower than normal.

    At the same time, Mr McArdle said there were disruptions to high-voltage power lines linking NSW to Queensland and Victoria.

    Market turmoil 'sign' of times

    He said these not only limited NSW's ability to import surplus power from interstate, but further constrained the output of other generators including wind farms and gas plants.

    "It was a bit of a strange one," Mr McArdle said.

    "It was not demand related – that's the first point.

    "In fact, demand was boringly normal, I'd say.

    "But questions about why it happened and what it means for the future are two separate questions."

    Mr Dimery, speaking at an oil and gas industry conference in Perth this week, said the intervention by AEMO was a portent of the disruptions to come if Australia failed to properly handle the switch away from fossil fuels and towards renewable energy.

    He said the energy system was getting more fragile as the addition of new clean sources of power failed to keep pace with the retirement of coal-fired generation.

    "We're not at the extreme levels with pricing we were at 18 months ago when AEMO had to step in and coordinate the market," Mr Dimery said.

    "However, we got a glimpse just two weeks ago in NSW, where the interconnector was out for maintenance.

    "And we had a couple of base-load units that were forecast to be out, and then we had a couple of unplanned, and again, we hit the cumulative price threshold in NSW.

    "Make no mistake, that flows through to energy bills during the next reset, when the regulator takes into consideration the cost of energy.

    "So I think that it's not so much my opinion, it's the facts that are telling us that we're not getting it right."

    The turmoil in NSW also preceded a report by AEMO on Tuesday, when it warned Australia's most populous state and Victoria were at increased risk of blackouts from this summer, extending to South Australia from 2026.

    Underlying the warning was the shuttering of diesel and gas plants in South Australia and delays to the connection of a transmission line connecting NSW and South Australia.

    Gas concerns flare again

    According to Mr Dimery, AEMO's report was a salutary reminder about the difficulties of keeping the lights on and the dangers of getting the energy transition wrong.

    He said the events in NSW also highlighted what he believes are the flaws in the Federal Government's "capacity investment scheme", which is being used to underwrite new generation and storage capacity but which excludes gas power.

    Mr Dimery said adding in ever more intermittent renewable energy without the capacity to back it up for days at a time was fraught.

    While batteries were extremely well suited to tasks lasting up to about four hours, he said other options were desperately needed for longer-duration requirements.

    He argued those options often boiled down to pumped hydro plants such as Snowy 2.0, which were complex and expensive to build, or gas-fired generators.

    His comments were echoed at the conference by Frank Calabria, the boss of "Big Three" Australian energy retailer Origin.

    Mr Calabria said the federal government's capacity investment scheme, which was supposed to ensure there was enough new capacity to replace retiring fossil fuel units, must include gas peaking plants.

    The Origin chief said the volume of gas that would need to be burnt for electricity in Australia would continue to fall in future as more and more renewable energy was added to the system.

    But he said it was imperative there was enough gas-fired capacity on hand to ensure it could step in as a back up for wind, solar and batteries when required.

    "That need will become more pressing and therefore, I would be hopeful that policy follows with that signal," Mr Calabria said.

    'We'll lose the community'

    Mr Dimery was more forthright. 

    "That (the risk of blackouts) is an immediate issue we need to solve — no one will accept that in the Australian community and why should they," Mr Dimery said.

    "The second question is about cost and efficiency.

    "Again, I think … the government will lose the support of the community, we as an industry will lose the support of the community, if we can't manage this transition in a cost efficient way.

    "And there is ample evidence right now that that is not the case."

    News that the NSW government would keep Eraring alive for longer drew mixed reactions this week, with workers and energy users celebrating the announcement.

    Conservationists and renewable energy advocates, by contrast, denounced the decision as a waste of taxpayers' money and an environmental disaster.

    Under the deal, the government will underwrite a two-year extension of the 2880MW plant until at least August 2027 at a cost of as much as $225 million a year.

    Federal Climate Change and Energy Minister Chris Bowen stood by the government's decision not to include gas in the capacity investment scheme.

    But the minister's office also pointed out there was nothing excluding gas from some state schemes that supported Commonwealth policies.

    "The CIS is squarely focused on bringing forward investment in renewables and storage because that's what we need to ensure a reliable and affordable grid," Mr Bowen said.

    "But we have always recognised the important role gas plays in ensuring our energy markets remain reliable as we transition to net zero.

    "Its role will vary from state to state, and that's why states and territories are able to support whatever method of system reliability they choose, including gas."


    © 2024 ABC Australian Broadcasting Corporation. All rights reserved

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