Episode 16: AEMO’s plan for managing the integration of 75% wind and solar by 2025

Australia has extraordinary renewable energy resources. Parts of Australia are already experiencing some of the highest levels of wind and solar generation in the world, including one of the highest levels of small (residential) distributed solar photovoltaic systems. In recognition of the opportunity they present and the need to carefully manage the penetration of renewable resources into the National Electricity Market (NEM), the Australian Electricity Market Operator (AEMO) conducted the Renewable Integration Study (RIS). Released in April 2020, the RIS is the first stage of a multi-year plan to support a secure NEM into the future. In this podcast, we speak with one of the study’s authors, AEMO’s Chris Davies, who discusses the features, the feedback received to date, the evolution of the market and the critical next steps. 

Featuring: Chris Davies, Manager of Future Energy Systems, AEMO and Gilles Walgenwitz, General Manager, Energy and Carbon Markets, Energetics

Out host: Anita Stadler, Associate, Energetics

Note: The information and commentary in this podcast is of a general nature only and does not take into account the objectives, financial situation or needs of any particular individual or business. Listeners should not rely upon the content in this podcast without first seeking advice from a professional.

Transcript

Speaker 1: 0:05

Welcome to the energetics exchange podcast conversations with energy and climate experts. Please note that the information and commentary in this podcast is of a general nature only, and does not take into account the objectives, financial situation, or needs of any particular individual or business business should not rely on the content in this podcast without first seeking advice from a professional.

Speaker 2: 0:30

Hello everybody. And welcome to the energetics podcast series. I would like to start this podcast recording with an acknowledgement of country. I acknowledge and pay respect to all first nations people as the traditional owners of the lands on which we meet today here in Sydney, I particularly acknowledged the Gadigal people of the Eora nation and pay my respect to elders past and present and emerging. I am an eater settler and associated with energetics focus on the renewable energy sector. And today I'll be leading a discussion on the integration of renewables in the name. Joining me today is Chris Davis manager of future energy systems at the Australian electricity market operator or email. He also led the MOS renewables integration study, which is a key input into the 2020 integrated systems plan. Hello, Chris, and thank you for joining us today. Hi everybody. As I'm based in Adelaide on the corner of the Adelaide Plains, pay my respects to elders past, present and emerging. We recognize and respect their cultural heritage, beliefs and relationship with the land. Thank you, Chris. I would also like to welcome Joel's logging bits, energetics, a head of energy and carbon markets and a close observer of the Australian electricity markets. How long has it been jealous? It must be about 20 years or so. Hello, anytime. Um, well, nearly 20 years, I'm not that old Anita, uh, I joined only 16 years ago after nearly 10 years working on all the interesting and challenging energy market jurisdictions. Well, in that case, I think you're well qualified to share your views on the challenges facing the renewable energy sector in Australia. Before I dive in and get Chris to share some of his insights with us. So we are not hunting onto, uh, challenges right now. Um, so I will probably focus just on two of them. The first challenge we are experiencing right now or later to policy system limitations. So there'll be, these limitations are new to our lack of timely investment in transmission capacity that support some additional generation or sources. What does this mean for when you blend G generators? If we focus on, on those or for the complete off-takers that may be listening to us? Well, uh, this type of, um, I would say your transmission capacity mutation can lead to a more, a network connection delays before commercial operation. So when you're seeking to have a network connection agreement from the Netflix service provider or the Australian energy market operator, and then, um, thermal rating limitations as well during operation. So typically what we we've experienced certain transmission congestion risk for this type of global energy generators. So the industry normally agrees that we need a better coordination of generation and transmission investment, and these challenges tackled by the market, whereas Intuit simpler, the facilitation of renewable energy zones in the national interest, the market, as well as, um, the Getty market for you. We changed to perform access advancements to transmission and network. Um, th th the sound challenge, which is much more relevant for the conversation we have today with, uh, with Chris, um, relates to, uh, the increasing share of generation from viable or noble energy. Uh, the system operates with an increasing share of non synchronous inverter based resources, such as wind and solar and a declining share of conventional, um, synchronous, um, coal and gas fired power stations, these challenges well-documented in the winnable energy integration study that quizzes, uh, uh, led or what on, um, in summary, um, an increasing sensitivity to the power system, um, with this increasing penetration of renewable energy. And that's, um, an increasing sensitivity, especially to disturbances in the power system, makes it very challenging for the market or arena to operate the system. And that's detailed in the pneumo integration study. And, and we will be talking about, about that it's highlights, especially, and just a few key points before Chris delve into more details, but the study highlights going through situations in that load. So basically an increase in no blood and on one viability in supply demand as a result of increasing wind and solar generation and these going lamps, um, uh, further concerns, um, because as like in the report, there is a 14, uh, system in Nasha, which is the stored kinetic energy and that you have in what 18 Synchrony's, uh, generators, um, because we have a short form in inertia and that is going with increasing penetration of renewable energy. It makes us system point to rapid frequency changes and following disturbances, we could probably talk at length about all of the other challenges, but I think that there's probably a very quick summary. Uh, what does it mean for renewable energy generators? Well, without going into further details here, but with increasing viability in supply demand, lowering of inertia and to systems things as well, which is another terminology that relates more to the wave forms, and there is more risk of consigned stability constraints, or wordage stability constraints, um, applied by the market operator to only new energy generators. And I need to know, are you aware of that with what, what you see in, uh, the detrimental impact of such situations, for example, in the West Murray region, when available, when you blingy capacity, uh, needed to be constrained by the market to burner to maintain power system voltage, go on since I can see, uh, within the designated limits.

Speaker 3: 6:20

Thank you. Thank you very much, Jules. And I think, uh, as you've pointed out there, significant, uh, technical challenges that's faced by the sector, even though we are really just as the cusp of, of, uh, unprecedented transformation of the name. Um, so in, in light of that, it sounds like the integrated, uh, the renewable integration study couldn't have come at a better time. So, Chris, uh, would you like to share with us some of the aims of the study of what you try to achieve?

Speaker 4: 6:46

Yeah, sure. Thanks, Amanda. And thanks a lot for having me along today. The renewable integration study was really focused at looking at one of the technical and operational complexities of operating a, a large interconnect power system. Like we have on the East coast of Australia, as we have this, this really quite rapid change in the generation mix. So progressive retirement of, of aging assets and the changing behavior of those aging, coal fired power stations and the introduction of a really highly dispersed fleet that's based on variable, renewable technology. So that's a big wind farms and big solar farms, but also the rapid rise of distributed solar. So that sort of residential and commercial solar on people's rooftops and all of those things together are a challenging sort of the fundamentals of how power systems have been built and operated since the Dawn of time. And essentially we're going through, uh, the needs of re-engineer the way that the system works, but to do that without stopping the system without turning it off. Um, so it's kind like, uh, trying to change the engines on your plane while you're mid-flight across the ocean and in an industry where there's no single owner that there's so many different owners and it's, it's kind of a system of systems. So this was very much a technical study to, to delve into one of the physical things that are changing. And if we wanted to really stretch the system to its limits, if we look at the, sort of the projected futures that AEMO's integrated system plan says could be honest in the next five years, one of the things that we would need to do to get ready for that, if we wanted to go to really high, high levels of renewable generation,

Speaker 3: 8:27

Which brings me to the next point actually, is that if we've only narrowed roundabout about 20% Bruno energy, I think the plan has also been studies also been referred to as an action plan to get to 75%, uh, renewable energy penetration by 2025. Now that's music to many of our customers is, but given that we sitting with these technical challenges already with 20%, what actually needs to happen, and who's going to have to take those actions to get us to two 75% by 2025.

Speaker 4: 8:56

Great question. And then, um, I guess the, the first really important distinction there is around sort of what those different percentages are. And this is, this is a common point of confusion, and I've seen articles even in recent weeks, quoting back to our study and mixing those things up. So it's, it's important starting point the national target, the 20% renewable energy target is an average annual target. So do the average annual contribution of renewable energy, all of our electricity supply requirements, the numbers that we're talking about, uh, the proportion of renewable energy at any instant in time. So for any five minute period or any half hour period, what proportion of our electricity is coming from renewables, it's those instantaneous levels that create the real challenges that the hard stuff is, how do you operate in the here and now at really high levels? If we can do that for five minutes or half an hour, then raising that national target, that annual target from 20% to higher levels is actually quite easy. It's just, you just keep doing what you've learned, how to do for that, for that short period of time.

Speaker 3: 10:00

She going to have to act on this plan, Chris, what is the key steps that needs to be taken to get us to that?

Speaker 4: 10:06

There's multiple really good questions in that, Anita. No, no, no, it's good. So I think, I mean the renewable integration study, it was a targeted study looking at a fairly specific question of how do we, how far can we push the system? Um, and we, we identified the possibility of within five years being able to operate at levels as high as 75%, but it identified a number of barriers and a number of actions sort of relating to the different physical characteristics of the system that the Jill's outlined before. So voltage management and frequency and system strength, and what do we need to do to progressively move through those barriers as an industry and the study lays out that's, there's about 16 actions in there and that they're spread across industry. And that's the really, I guess the big takeaway here is that no, no single organizations got, got the role in fixing this. So there's sort of technical technical actions that sit on us as the market operator and the national transmission planner to, I guess, give a better forward view to industry on what's coming and to make sure we've got the systems and processes in place to operate that system. And then there's market. And there's regulatory changes that, that sit in the realm of the Australian energy market commission and also the energy security board and the Australian energy regulator plus roles for the network service providers, the companies that own the poles and wires, and then obviously governments as well with their, their policy targets and the incentives that they're, they're also providing to, to sort of get different outcomes in their States. And increasingly now the role of consumers, both large and small, and the, the role they're playing, both in how they consume electricity and the time that they're using their electricity. Cause that's a big, a big part of this future question and how we match, match our demand for electricity, with more variable supply. And also how they're generating, which is the study showed. We are the world leaders in the amount of highly distributed generation, which again is a complete shift from how electricity the electricity system was set up with big, big central power stations.

Speaker 3: 12:19

It clearly is coordinating all those different role players as a is going to be challenging. I think as it, as it always will be, but, um, at least I think it's busy being achieved through the integrated systems plan. And the contribution of the study is that there's a convergence of the plans and clarity in terms of the next steps that that's required. So I think that's obviously very welcome, uh, the increased coordination to achieve this, but it doesn't mean that while this plan is being rolled out and kind of conceived that, uh, corporates can sit back and just let it play out. I think so Joseph is really a question for you really is that knowing what we know and the insights that we've got from the renewable integration study, what would you advise corporates, um, to look out for if they were contracting for utility scale, renewable PPA?

Speaker 2: 13:11

Well, I would try to reflect the discussion that we had with developers, negotiating long term contracts like that. And we'll either the time we've seen over the last few months now increasing discussion or tactic negotiations are on the contractual, closes quality to some, some of these concepts. So when creating a new blingy project for a possible, let's say long-term offtake agreements, especially on our financial, um, PBA our contract for difference, there have been more emphasis on a network, uh, congestion and power system, settlement risks. So for example, um, is the project located in a constraint dire of the network at some distance, from major load centers, um, uh, their transmission mutation projects that are undergoing economic evaluation that could potentially and use this congestion risks or cattlemen. So that's really more the, on the DD side. And you can imagine it's very difficult to foresee what will happen, but still we need to ask the question and need you to discuss with the developer. Those is a subset of that. There is, uh, more and more discussion on they are more and more discussions sewing on who is taking network constraints, risks, and how does constraint in the compact, um, how are they defined? Are there limited through thermal congestion risks or are there as well? Um, including what Chris just mentioned, which could be, uh, limitations due to, let's say if I can see or voltage or go on to, um, limitations. That means that the market of a, when I will impose a binding constraint on anywhere who is taking this risk, um, are there whisking impacting, uh, the minimum generation performance requirements? So are there some relief to the generator under such circumstances and you saw, um, is, um, uh, proposed, uh, minimum generation amount and the white level, uh, compared to the P 50 yield estimates that we have. So will you, you can see it very, a significant trend we've seen over the last 12 months now due to obviously January is being impacted by that. And, and discussions on who is taking this risk and then discussions are, what does it mean commercially put them off potential penalties. And I would say that's just purely on the, I would say the, the physical side, but then we need also to discuss wastefully, uh, on the market side of, of Axel higher penetration of coincident. When you blend change and energy generation, we know will depress the spot prices further leading to a reduction and possibly a hole in the dispatch weighted average price from these generators with, uh, potentially more negative high sevens. Uh, the experience, uh, uh, recently and possible sales curtailment, uh, due to market signals, um, from, from those gentlemen. So both parties operation or on one side and the generators on the other for a contract for difference, they need to be clear about how this compliance risk between spot pricing generational put including a negative price events will be located in the contract and how, uh, this, um, these co-location, uh, is impacting the site place. In my view, the, the face value of as tight price on, but most by placing the PPA has very limited benefits. If you are not fully understanding who is taking this, um, say in negative place events where, or who is, uh, who clearly quantifying the risk of illusion of the dispatch weighted average pies. So I'm considering these, these challenges that we sell. So our benefits, I would say in, is probably my closing comment there to your question. And, uh, there is a benefit in talking about the complexual closes, what I did to, um, project, um, we call this project expansion or modification or, or battery storage. It is well possible that over the next 10 years, 15 years, whatever the tenure, the compactor, when negotiating with all the massive changes in the market that, uh, that Chris highlighted before, and that they will be a benefit for both the[inaudible] and for the co-pilot off-taker to install. Uh, I still had system, um, or core located with, with, with the wind farm or the solar farm there are conductive with, um, and I would say a sexual option could be especially worthwhile considering that we, what we discussed before is an increasing need for other services than purely energy, fast ways, also assets, uh, we'll have, uh, potentially, or being more benefits to this market as who, not just by Sabi college, but potentially, you know, things like, uh, I would say, and if I can see control or additional[inaudible] operating reserves, and that's additional benefits at the top off of a newborn is shifting, and that can be supported by a battery storage onsite, and that could benefit both parties. And so there is a benefit in talking with a generator when you negotiate a compact like that, uh, on losing school sees, uh, what could happen if, and what could be the optionality you could have basically in the contract. So that's in a nutshell, um, what comes in there, um, from a purely practical perspective. So clearly I think negotiating these financial PPS could become much more complex going forward, needing to take into account, uh, the real kind of challenges and opportunities that you flag that could be accessed, but, uh, flipping it to the other side a little bit, Chris, uh, if you were to think about it from a developer perspective in any and investors in current assets and in new assets, within in the network, what is the key messages for them from their renewables integration study that you think is worth taking on?

Speaker 4: 19:17

The big message for me, would be seeking to understand the context that you're operating in. And I guess your role in the electricity supply chain, the big change that's coming here is that renewables are not, they're not fringe players anymore. So it's not, it's not a case of just plugging in a wind or solar farm and walking away and, and being out, uh, to Kashi in the Y. It probably was with the early days of the industry. We now looking at, as we said, at sort of periods where these generators are the dominant generators in the system. Um, for example, we saw a few weekends ago, we had a half hour period in South Australia where all of the state's electricity needs were met purely by solar generation. So 70, 77% by rooftop solar. So I think understanding that context really important, um, understanding that the emerging system needs as, as deals was, was stating, and I think really informing yourself on the network limitations and the locational factors. That's, that's the real big, really big pain point for a lot of projects at the moment. And, and I would say there's a lot of efforts underway to try and alleviate that pain. And so there's a lot of sort of regulatory and market reform processes that are looking, looking to get ahead of those problems. And the integrated system plan is looking to get ahead of those and signal kind of where the, where is their real capacity in the network, not just, I guess, the capacity to get the electricity out, but also all the services that you need. So I think being informed of where those signals are, so that you're reducing the risk of, of any of those sorts of constraints binding. And I think also that that covariance risk that the Jules mentioned, particularly in the solar space, that you've got rooftop, solar, residential, commercial, solar, competing with utility solar for the same generation. And I think that the questions about how that plays out for you as the developer or the investor in those projects is, is a really important one to, to factor in as well.

Speaker 3: 21:21

Good segue actually, to the final question, probably for both of you given this greater level of understanding that we've got about what needs to happen and, and, and who the different role players are that needs to, to, to take the action. What's next. Um, we are, we know what needs doing so in your view, Chris, what, what's the next?

Speaker 4: 21:40

So the big focus for us has been over the month since we published through new open integration study, looking at how do we build and consolidate upon that action plan. So, as I said, the 16 actions that the renewable integration study laid out, but there's a lot of other work going on across the email and across industry to get, get the system in the market ready for this, this future that is really on us now. Um, so for us, the next stage on the back of 3d open degration study is, is building on that into a broader engineering strategy that really tries to create a common map for everyone and industry for all stakeholders, to understand I, what are the, the most pressing physical priorities and the system that needs to be addressed, and B what's being done about it and what needs to be done about it, and really opening up that industry discussion about how do we, how do we best prioritize efforts? Cause there's, there's an infinite number of challenges and the limited amount of resources. How do we best prioritize efforts in the areas where they're most valuable? Um, so we're working towards a, a directions paper for December that that'll come out for consultation with stakeholders and, and lay out our view of, of next steps there in terms of the physical needs of the system, um, and how that plays across into the, the ongoing market reform processes that are being driven by the, the energy security board and the AMC. Um, so we, we, our hope is that the strategy will really provide that map in a concise way that helps, helps anyone that's interested in the space, understand the complexity and the scale of what's going on and, and have a way of navigating easily. Okay, these are the biggest issues, and this is what's being done about it. And this is where I can find more information. And these are the, these are the next steps. These are the things that are coming over the Hill.

Speaker 3: 23:37

It sounds like something that will be extremely valuable to potential investors in the renewable energy sector. And I think a close and important kind of a gap probably for, for many at the moment. So that's, we're all looking forward to, to December then. Um, but Joel, there's something you want to add in terms of priorities that you think, um, they should be in terms of things?

Speaker 2: 23:58

Yes. Probably from a market or use perspective, just, um, uh, what Chris mentioned. Um, so you're monitoring with interest, uh, possibly implications of the energy security boards, um, 20, 25 market design program. I would say the, the, the, the, the abuse it's very outside with the market, whereas in the, the system plan and it's, um, when you buy an intubation study, uh, but it's, uh, it's a compliment I component that needs to be taken into account. Um, especially I would say, um, because of what we discussed the, the, the possible price suppression, um, and, uh, the, the possible economic displacement of, uh, I would say a dispatchable generation capacity because of this new churning pipes in the middle of the day, which make it harder for, uh, some coal units to maintain operation if they are not compacted whilst at the same time, uh, you mentioned we, we will need a more, uh, for fast response dispatchable capacity to deal with the operational complexity of increasing penetration of renewable energy. So, um, there is a view, uh, in the industry and, and you can clearly see this in the consultation papers developed by the ESB, um, that, um, they could be seen that there is not enough long-term pricing in an energy only market, which is what I was trying to international, which is market ease, um, to incentivize investment in new generating capacity and fast response dispatchable capacity. So that's the reason why the years B, um, and, and, you know, uh, very interesting work was from one from FTI consulting, for example, on the possible market mechanism that could increase certainty on the documentation shuttling of ancillary services, such as operating with herbs, or for consumer response or inertia as discussed earlier today, um, that could include the ad markets, um, where they would see titers and basically selling and buying such a new services or systems services that could have implications. For example, for those proponents that are considering still edge resources, um, because you could agree that if they have, um, had market our instruments, they could better maximize the use of their resources and therefore the whole venue, if there is an, a high market punishment, uh, you would potentially have more visibility for, um, um, demand resources that demand responsible sources, so that need, um, they are held notification. So, um, all of those, uh, I would say potential, uh, market reforms, um, despite the fact that we're talking 20, 25, I think, uh, that needs to be fully understood by, by our clients and our listeners, um, because, um, well, if you really are considering a long-term lease management strategy in energy markets, you need to, um, play MTV, uh, anticipate the potential outcome of this market for you. And to what extent is, would create new opportunities for, uh, things like a fast response, especially with capacity, demand, response, battery storage, and the like, so that's, I would probably, um, be mayor response to your question on the, you know, like step and, uh, and opportunities is really our home, um, packing home. This could evolve from a market's perspective,

Speaker 3: 27:39

But, uh, Y Y you were talking, and obviously we've been touching on storage a lot. And I, uh, Chris, I was just maybe circling back to the, to the, the new, uh, strategy that you're developing an engineering study that we expecting to see in December. I was wondering, is it as part of that study scope, would there also be consideration to look at where in the system, a fast response resources such as storage, it would be best located or acquire? Does that something that will be included in this?

Speaker 4: 28:09

Yeah. Look there, there's, there's a couple of aspects of the strategy that we'll touch on it. One is, um, uh, a body of work around frequency control and sort of where we see the value for frequency control in the system. And we actually published in September kind of preemptively before this strategy, a frequency control work plan that lays out our views of the priority actions there. One of those is around exploring the role of fast frequency response and how that might incorporate into our markets. And the other is a piece in the strategy, looking at emerging technologies and how do we, what do we need to do, and what can we do as the market operator, um, to best sort of reduce barriers to entry and maximize the value of new technologies into the market, which is obviously a really important question, but is a, is a challenging one for us, from our role in terms of sort of how far do we need to extend ourselves and commute extend ourselves, uh, to be that, that facilitator. And so we'll be coming out with some questions of sort of how, how we can best best enable that for the stakeholders. Excellent. Well,

Speaker 3: 29:16

That, that sort of brings us to the end of the time we've got for today. So thank you both for joining me, it's been a big topic. And I think for our listeners interested to learn more about the renewable integration study. Emo has got some amazing resources, actually on their website webinars, that's covering all the different elements of the study. So I really encourage you to access that. So, Chris, we greatly appreciate the time you've given us, uh, today and, uh, to join Joel's and myself. And, uh, it's been a fascinating discussion. So thank you very, very much for, for your time and to our listeners. If you've got any questions, please don't hesitate to reach out to us on our work page.

Speaker 1: 29:54

Thank you very much. Energetics exchange podcast conversations with energy and climate experts.