Progress of Snowy 2.0

Active construction site of Snowy 2.0 hydroelectric project with cranes and temporary buildings on a rugged landscape.

Since the beginning of construction, Snowy 2.0, a pumped storage power station, has faced a variety of challenges and issues, including the tunnel boring machine getting stuck late 2022 and the project being well over budget, more than double the previous estimate, and six times the ballpark figure given by Malcolm Turnbull.

Despite these setbacks, rock conditions are currently good, and in a year’s time, the project is forecasted to have created an underground cavern that should be big enough to accommodate a 22-story building. This will house the $12b 2.2GW system with a storage capacity of 350,000MWh (159 hours at full power), which is forecasted to reach full commercial operation by December 2028.

Snowy Hydro CEO Dennis Barnes stated they are approximately 51% of the way to completing the project, but there is still a lot to de-risk going forward.

The tunnel boring machine Florence, which got stuck in September 2022 due to unexpected soft ground, was stuck only 140 metres into its 16-kilometre journey. Florence has begun to move again in December 2023, but moving at a rate of 6 metres per day. In order to stay on target, Florence will need to pick up the pace to 12 to 15 metres a day.

According to Barnes, Snowy is considering a fourth boring machine to ensure the project will keep on the revised target, with the decision being made in the following months.

Projects such as Snowy 2.0 providing long-term storage are crucial for the energy transition in the NEM, being able to provide firming capacity during solar and wind droughts, which will inevitably occur. This will allow for the retirement of coal units, as well as allow for a total of 6.6GW of new renewables into the system.

Even with the need for such projects, the project has faced backlash due to the cost blowing out considerably higher than initial estimates, particularly when the additional $8.5 billion of connecting transmission to the north and south is included.

Despite the range of challenges faced by Snowy 2.0, including budget blowouts, difficulties with the tunnel boring machine, and delays, the project is showing progress and plays a key role in achieving Australia’s renewable energy targets.

 

Potential for Below Baseline REGOs

Two silhouetted figures stand on a platform at sea, observing a vast offshore wind farm against a dramatic sunset sky.

LGCs are now in an interesting position. With the REGO scheme all but fully legislated to start in 2025, there may be opportunity to meet voluntary requirements from this secondary market before it becomes the likely primary market at the end of 2030 until 2050.

The REGO scheme looks likely to exist in parallel to the LGC scheme until the expiry of the RET, with generators able to decide which products they would like to produce in any given period.

However, the REGO scheme will open previously un-tapped generation, such as below baseline generation, generation from outside of the Australian economic waters area and exported generation i.e. Sun Cable, which the LGC cannot. Further (although unlikely before 2030), STCs can be pooled to create 1 MWh, i.e. 1 REGO certificate at the point the 1MWh limit is reached.

This market is currently untapped, but with a REGO holding the same credentials as an LGC, the voluntary surrender optionality (RET Liability must still be met with LGCs until 2030) can be achieved through the REGO scheme.

With voluntary surrenders increasing, the CER estimated in 2022 a total of 7.4million LGCs were surrendered voluntarily. This increased the demand for LGCs by 1.6million in comparison to 2021 and created a demand 23% above the legislated requirements for LGCs (33m).

Prior to a REGO scheme, the increasing demand for these LGCs has come from growing corporate targets either directly into the LGC market or through its secondary market, such as GreenPower schemes.

Without increasing the availability of alternative generation sources, this growth could lead to a tightening of the supply-demand balance of the LGC and an increase in price. As such the introduction of a REGO from 2025 could be the pressure release valve the industry requires.

The growing non-RET requirements are significant, and therefore, the introduction of secondary sources of power through the REGO scheme is the only way the market will be able to meet the increasing demand.

The ACCC investigation into Momentum in 2016, where Momentum was handed a $54,000 fine for falsely advertising their green credentials, as they are backed by Hydro Tas whose generation was below baseline, has brought to the fore the requirement for accreditation of these below baseline assets (outside of the i-REC scheme).

Below baseline is renewable generation assets created before 1997 – mainly hydro assets. The baseline is set on production between 1994 – 1996, and therefore, generators coming on from 1997 have a baseline of zero and can produce LGCs, unlike those online prior to 1997. Indications are these facilities generate 12-13TWh of electricity each, that is, 12-13 million REGOs, which could come into the Australian voluntary market (pre-2030 RET end). However, the below baseline generation is eligible for an i-REC certification and many assets pursued this option prior to the REGO /GO scheme announcements. As such, this 12-13 million may be as low as 2 million in the initial years, given existing PPAs and voluntary i-REC surrender deals in place.

It is worth noting, if Hydro Tas had created the REGO and these were surrendered against the Momentum portfolio, the renewable claim would have been upheld, and the REGO would have never hit the market. This example shows that even if produced, companies may utilise the additional certification without giving others the opportunity to trade them in the open market.

A concern does sit around the inclusion of small-scale renewable REGOs, although unlikely to be in large quantities prior to 2030, the concern holds that the measurement of the “hour” the REGO is produced, when the cumulative units have reached 1MWh of generation, is currently untested and there are a significantly larger number of these units than there are utility scale solar. The cost and oversight required could add cost to the certificate, which we currently have no view of as to the uptake or requirements.

AEMO’s Draft 2024 Integrated System Plan

Electricity substation at sunrise, representing the transition in Australia's National Electricity Market as per AEMO's 2024 ISP.

AEMO recently released its Draft 2024 Integrated System Plan (ISP), which serves as a roadmap for the energy transition in the National Electricity Market (NEM) over the next 20-plus years in line with government policies aimed at achieving net zero by the year 2050.

The plan outlines a cost-effective strategy for essential energy infrastructure to meet consumer needs, ensure reliability and affordability, and achieve net zero. AEMO highlights the urgency for action as the NEM shifts from coal-fired generation dependency. With the closure of coal-fired power stations, the draft proposes using renewable energy supported by storage and gas as the most economical solution for Australia’s energy transition.

The policy set by the Federal Government aims for a 43% reduction in emissions compared to 2005 levels by the year 2030. Additionally, the policy targets 82% of electricity supplied in the NEM to come from renewable sources.

Previous ISPs established ambitious trajectories for investment, and it is imperative that projects are now executed according to the plans. AEMO’s most probable future scenario predicts about 90% of NEM’s coal fleet will retire before 2025, and the entire fleet will retire before 2040.

The energy transition is already well underway, with coal retiring faster than initially announced. The ISP continues to stress the need for urgent investments in generation, firming, and transmission to maintain a secure, reliable, and affordable electricity supply. The retirement of coal-fired generators necessitates a transition to low-cost renewable energy, supported by firming technologies like storage and gas-powered generation.

AEMO has stated that the NEM must almost triple its capacity to supply energy by 2050 to replace retiring coal capacity and meet increasing electricity demand. Every government within the NEM is actively endorsing the transition. The Federal Government has broadened the Capacity Investment Scheme, while various states have their initiatives supporting the transition to net zero.

The 2024 ISP outlined three future scenarios for 2050, which included Step Change, Progressive Change, and Green Energy Exports. All these scenarios involve the retirement of coal, aligning with government net-zero commitments. AEMO has assigned likelihoods of 43% for Step Change, 42% for Progressive Change, and 15% for Green Energy Exports.

Under AEMO’s optimal development path (ODP) for the Step Change scenario, there is a call for investment that would triple grid-scale variable renewable energy by 2030 and increase it sevenfold by 2050. The plan emphasises grid-scale generation within Renewable Energy Zones, quadrupling firming capacity, supporting a four-fold increase in rooftop solar capacity, and leveraging system security services to ensure reliability.

In terms of transmission, nearly 10,000 km of transmission is needed by 2050 for the Step Change and Progressive Change scenarios, with over twice that to support the Green Energy Exports scenario. The annualised capital cost for all infrastructure in the ODP until 2050 is $121 billion, with transmission projects constituting 13.5% of the annualised cost.

The NEM faces several risks in transitioning from coal to renewable energy. Key challenges that AEMO has identified include uncertainty in infrastructure investment, early coal retirements, markets and power system operations that are not yet ready for 100% renewables. Additionally, consumer energy resources are not adequately integrated into grid operations, the social license for the energy transition is not being earned, and critical energy assets and skilled workforces are not being secured.

In summary, AEMO’s Draft 2024 Integrated System Plan charts a crucial path for Australia’s energy transition, aligning with net-zero goals. With an urgent focus on retiring coal-fired stations, the plan advocates a swift move to renewables backed by storage and gas solutions. The plan also outlines the significant challenges faced by the industry that are required to be overcome in order to reach net zero by 2050 while ensuring a reliable and affordable energy supply.

Transmission Requires Community Engagement Realisation

Back view of two children and an adult walking towards wind turbines, the adult holding a colourful pinwheel up in the air

With the government ploughing ahead with the re-wiring the nation rhetoric and discussions about $10,000/km costs for land the attention of the AEMC and others have naturally been drawn to the requirement for community engagement.

Many panels and speakers at this years’ All Energy conference in Victoria honed in on the requirements for the local communities to be brought into the fold regarding Renewable Energy Zones, Transmission and the benefit this could bring to those communities.

The AEMC have taken this a step further and on Thursday released the final requirements which are required for any transmission projects to get through the regulatory investment test (RIT-T). They are expecting for this engagement to be across all affected parties from councils to local landowners and will ensure they not only have clear information about the proposals but they are aware of the rights they hold.

Taking directly from the AEMC announcement the main changes being made include:

  • Stakeholders are to receive information that is clear, accessible, accurate, relevant and timely and explains the rationale for the proposed project.
  • Engagement consultation materials, methods of communication and participatory processes must be tailored to the needs of different stakeholders.
  • The stakeholders’ role in the engagement process must be clearly explained to them, including how their input will be taken into account.
  • Stakeholders are provided with a range of opportunities to be regularly involved throughout the planning of ‘actionable’ or ‘future’ Integrated System Plan (ISP) projects and Renewable Energy Zones (REZs).

This is timely given the announcement from Chris Bowen who was speaking at the Future Energy conference in Adelaide this week who amongst his optimistic speech stated that “a properly constructed renewable grid is a reliable grid… is one that we can count on in difficult times,” and that access to transmission or delays in building new infrastructure would be the main contributor to Australia not meeting its targets.

These targets are now set to 82% of Australia’s energy coming from renewable sources by the end of the decade, and GHG emissions cut by 45% (in comparison to 2005 levels) by the same time.

However, with the focus of the government squaring in on transmission as the key messaging to Australia missing its targets and not the lack of cohesive renewable energy strategy for the past 10 years or the governments approvals of new gas fields, you do wonder if that is part of the reason our Minister for Climate Change and Energy is ducking the hard questions at this years COP28 in Dubai which starts at the end of the month.

The announcement that he is dispatching his Assistant Minister, Jenny McAllister has not gone unnoticed, especially by the pacific islands our Prime Minister is trying to woo this week. With those nations key to Australia being announced as the COP31 hosts, Turkey is stating they would also be interested, they intend to firmly hold Australia to its climate promises and pointing the finger will not wash with their nations at the forefront of recent climate disasters.

 

AER’s State of the Energy Market in 2023

The AER released their annual ‘State of the Energy Market’ report last Thursday for 2023 for Australia’s electricity and gas markets. This included some relatively good news as the energy system in 2023 has “experienced fewer shocks and better outcomes than in 2022”. The 2023 wholesale electricity market prices have declined from the record prices in 2022, largely due to the government interventions in the coal and gas markets. Despite the decline, prices remain high by historical standards.

A media release by the AER accompanying the report stated, “Increases in wholesale energy prices were evident in retail prices, with estimated electricity bills rising between 9% and 20% in all NEM jurisdictions in 2022-23, impacting households already experiencing broader cost-of-living pressures. “

The report highlighted the pressures for investment in renewables to permit the retirement of coal generation. The report also commented on Liddell’s retirement in April 2023 going smoothly due to the new renewable generation and recent favourable market conditions.

The transition to new energy infrastructure faces several challenges:

  • The vast scale and required coordination of investments.
  • Rising costs in the infrastructure sector.
  • The need for community engagement in infrastructure planning and development.

The report highlighted the government involvement and support in investments including joint initiatives between Australia Government and state and territory governments.

The dynamic between electricity and gas markets is increasingly interconnected. As regions shift from gas demand to electricity demand (like replacing gas heating with electric air conditioning), it’s anticipated that pressure on gas markets will decrease, while electricity demand will surge. Factors like electric vehicle adoption will further influence electricity demand and the necessity for new infrastructure.

Furthermore, planning will now also factor in emissions reduction to serve the long-term interests of energy consumers, integrating it with other goals such as price, reliability, and supply security.

An interesting comment was made in the report executive summary highlighting concerns in the industry surrounding issues of competition in the market and market power outlined below.

“Our concerns are around the reduced liquidity of exchange-traded hedging products, the declining number of clearing service providers for electricity derivatives, and the levels of concentration of ownership of flexible generation capacity, particularly in NSW and Victoria. The AER’s anticipated new powers in relation to contract market monitoring will allow us to better monitor participant behaviour and gain sharper insights on issues of competition and market power.”

Queensland’s SuperGrid Infrastructure Blueprint: A Bold Vision or a Tall Order?

Engineers in safety vests and helmets discussing renewable energy solutions on a laptop at a wind turbine electricity plant during twilight

In September 2022, the Queensland government unveiled its SuperGrid Infrastructure Blueprint, a comprehensive plan aimed at transforming the state’s energy landscape. With ambitious targets of achieving 70% renewable energy by 2032 and 80% by 2035, the blueprint sets out to revolutionise the state’s historically coal-dependent energy sector. But, as the initial excitement subsides, concerns regarding feasibility and practicality have begun to surface.

At the heart of the blueprint are six Renewable Energy Zones (REZs), designed to harness the state’s abundant wind and solar resources. These zones have been hailed as the cornerstone of Queensland’s renewable energy future, yet the involvement of various stakeholders, including First Nations people and local farmers, introduces complexities that may impede progress.

One of the primary concerns surrounding the blueprint is the intermittency of renewable energy sources. To address this issue, the plan proposes a significant investment in long-duration storage, complemented by an additional 3 GW of grid-scale storage. However, questions linger regarding the sufficiency of these measures to ensure a stable power supply during periods of high demand. With further delays to Snowy 2.0, the optimism of pumped hydro projects being completed on time has plummeted.

Furthermore, while the blueprint mentions low to zero emission gas-fired generation, the vagueness surrounding the term “low to zero” raises doubts about the commitment to truly reducing emissions. This ambiguity could undermine public trust in the project and create uncertainty for investors.

Another point of contention is Queensland’s continued reliance on its connection with New South Wales. Although this relationship provides a safety net, it also suggests a possible lack of confidence in the state’s independent capability to meet its energy needs.

Powerlink, the entity responsible for facilitating community engagement, faces the daunting task of balancing diverse interests and opinions. While the blueprint’s emphasis on collaboration is laudable, experienced observers may view this approach as a potential hindrance to timely decision-making.

Despite reservations, the SuperGrid Infrastructure Blueprint offers numerous opportunities for innovation and growth, particularly for those familiar with navigating regulatory frameworks. Nevertheless, the magnitude of the challenges ahead cannot be ignored. Bureaucratic obstacles, coupled with the weight of expectation placed upon Renewable Energy Zones, leaves room for doubt regarding Queensland’s ability to deliver on its promises.

In conclusion, the SuperGrid Infrastructure Blueprint represents a bold vision for Queensland’s energy future, but its success hangs in the balance. Either the state will emerge as a leader in the global transition to renewables, or it will serve as a cautionary tale of overambition. Only time will tell if Queensland has taken a confident step forward or a tentative shuffle into the unknown.

Electricity Grid Faces Challenges Amid El Niño’s Return, Warns AEMO

Australia’s electricity grid is bracing for potential disruptions this summer, particularly in Victoria and South Australia. The Australian Energy Market Operator (AEMO) has expressed concerns about the imminent El Niño, which is anticipated to bring about a season of extreme heat and wind-less days.

This latest warning from AEMO (2023 ESOO) presents a very concerning picture. The slow pace of transitioning from old coal plants to cleaner energy sources, coupled with potential coal and gas shortages, has heightened the risk of blackouts. AEMO’s annual 10-year outlook emphasizes the urgency of investments. With nearly two-thirds of Australia’s coal power fleet expected to shut down by 2033, the need for swift action to ensure uninterrupted power supply is paramount.

The challenges of transitioning to a greener economy are becoming more evident. The scenario in NSW, following the proposed 2025 closure of the massive Eraring coal generator, is particularly urgent. AEMO strongly recommends postponing such retirements to avoid blackouts. Contrasting their optimistic report from February, the upcoming summer may see Victoria and South Australia facing with power shortages. These shortages can be attributed to a mix of factors, including periods of low wind, recurring generator breakdowns, and the gas plant shutdown.

The latest AEMO report indicates that roughly 3.4GW of new generation and storage capacity is projected by this summer. Furthermore, initiatives like Snowy 2.0 in NSW and the Borumba pumped hydro project in Queensland are aimed to bolster capacity by 2032-33. However, there are concerns as projects like Snowy 2.0 confront delays and rising costs.

With the re-emergence of the El Niño pattern, the electricity grid is anticipated to be under significant stress, especially following three comparatively milder summers due to La Niña. The growing popularity of electric vehicles and electric heating, notably in states like Victoria, will add to the strain on the grid.

Sarah McNamara, the CEO of the Australian Energy Council, perceives this both as a challenge and an opportunity. She is optimistic that the market can overcome these obstacles with the appropriate price signals to stimulate investment.

In conclusion, while the journey to a low-emission economy might be lined with challenges, with the right strategies and investment, Australia can ensure a reliable and sustainable power supply for its citizens.

And the Best Horror Story of 2023 Goes to…

No need for Stephen King, the ESOO (Electricity Statement of Opportunities) is this year’s horror bestseller, and it comes out this week.

In WA this week we have seen the power of the AEMO reports. With the WA WEM ESOO showing the government’s ambition to phase out coal by 2030 would result in shortfalls. This week the WA government scrambled to cover the shortfall and quickly announced the Muja 6 plant was given an extension until at least April 2025 under ‘reserve outage mode’ conditions. With WA planning to remove 1,366MW from the system by 2030, the transition was showing shortfalls of just below 1GW by FY26 and a terrifying 4GW by FY33. The noises coming from the state are therefore all about how to “manage the transition” and no longer how to meet the targets.

Over in the NEM (National Electricity Market), even before the release of the ESOO this week, this was the week in which we saw announcements in Victoria and an expected announcement from NSW looming. The question is no longer will Australia meet its Net-Zero target, but by how far we will miss it and what impact will closures have before renewable uptake comes onto the grid?

The Victoria government has pre-empted its requirements and moved forward to strike the “structural transition deal” with AGL to continue the operations at Loy Yang until 2035. Despite the pressure from certain board members, even they have to concede that the uptake in renewables is not at pace to orderly transition the market away from coal.

Energy Australia followed this announcement with the news that through its “Climate Transition Action Plan” the Yallourn power station will close in 2028, with the Point Piper remaining available until 2040.

This has been flanked by the NSW government strategically leaking, no doubt to soften the announcement, that the Eraring plant will remain online. The question now is in what form and at what cost.

With Australian renewable uptake at one of its lowest levels in years, hindered by the huge subsidies in the US and massive European demand. Increasingly vocal opposition to transmission upgrades, especially from rural communities, and no certainty on policy post the RET expiry in 2030, there is no doubt this week’s ESOO will make scary reading.

With the COP28 looming at the end of November, I think the hot potato in Canberra is going to be who goes, as there is no doubt when the ESOO is published we will be back in the naughty chair.

The question, therefore, is not will we miss our energy transition and therefore climate targets, but rather by how much?”

Australia’s Nuclear Power Debate Intensifies

Australia’s longstanding nuclear power ban, established in 1998, is under scrutiny. Coalition senators are making a strong case for its overturn, warning of impending higher power prices for households and businesses if nuclear energy isn’t adopted.

Queensland senator Matt Canavan recently faced opposition from a Labor-majority Senate committee while pushing to abolish the ban. Still, Coalition senators remain insistent. They state that the primary goal isn’t immediate construction but rather allowing regulators to evaluate nuclear proposals.

Interestingly, the opposition suggests integrating small modular nuclear reactors near retired coal power stations, ensuring a seamless grid connection. However, Prime Minister Anthony Albanese and Energy Minister Chris Bowen have dismissed this, countering the Coalition’s nuclear agenda.

The Senate Environment Committee, influenced by Labor and the Greens, sides with the Prime Minister. Their arguments are threefold:

  1. Nuclear power’s high costs compared to readily available renewable resources.
  2. The untested nature of next-gen SMR technology.
  3. The long timeline of nuclear adoption, which will likely miss the 2030 goal of 82% renewables.

Public sentiment is another hurdle. The committee suggests that Australians largely oppose nuclear plants and their associated waste in their localities.

However, Coalition senators spotlight Australia’s recent commitment to nuclear submarines through the AUKUS partnership, questioning the perceived inconsistency: If nuclear reactors are marine-safe, why not on land?

To officially challenge the ban, changes would be required in two significant acts from 1998 and 1999. As the debate rages on, Australia’s energy future hangs in the balance, highlighting the complex intersections of policy, technology, and public sentiment.

Hydrogen-Electric Powertrains on the horizon as Ecotricity launch the first ever electric airline

Edge2020_Hydrogen-Electric Powertrains

This week’s launch marks the first step towards Hydrogen-Electric Powertrains.

The hydrogen transition continues to evolve with the UK’s Ecotricity CEO this week launching the first Electric airline. The 19 seater plane will operate the roughly 400mile (650km) route between Southampton and Edinburgh.

The initial phase will see the plane run on a kerosene-based fuel but the hope is, within a year, they will transition to a “hydrogen-electric powertrains.”

The Fuel Cell construction is similar to that of a battery, and the compressed hydrogen gas will feed the stack, which does not burn the fuel but converts the chemical energy into electrical energy.

What does that mean – well imagine you have a lunchbox, and inside this lunchbox, you put sandwiches made of hydrogen gas. Now, these sandwiches aren’t like your normal sandwiches, because you don’t eat them, you just put them into this lunchbox.

This lunchbox is the fuel cell or stack. Instead of you eating the sandwich, the lunchbox eats it. But the lunchbox doesn’t eat it like we would, it turns the hydrogen sandwich into electricity. This electricity is then used to power the aeroplane’s engines.

It all seems quite logical, and the new “sustainable” air travel could be the key to the issue which has plagued the airline industry for so long, how do we travel without the emissions.

Australia will be watching this with interest as transport is the second-biggest greenhouse gas-emitting sector in Australia. It is estimated airline emissions make up about 12% of that sector. However, getting past regional flights into long haul may create other challenges the industry is not yet able to overcome.

With the idea of hydrogen cells being used for a range of industries now, China launching their Hydrogen fuel cell powered boat, “the Three Gorges Hydrogen Boat No 1” in April and BOC and BP already developing hydrogen service stations, the first to be placed at Lytton in Queensland the hydrogen future is already starting to move past the theoretical and into the reality.