Threats to Gas Supply Deal

Aerial view of an LNG tanker docked at a coastal industrial facility with distinctive spherical storage tanks and infrastructure for natural gas.

Chris Bowen, the Energy and Climate Change minister, announced a plan to address looming supply issues for east coast homes and businesses by securing commitment from two big gas exporters (APLNG and Senex) to divert 300 petajoules of gas into the east coast domestic market by 2023. This amount is equivalent to about half of the annual East Coast domestic market demand or two years’ worth of industrial usage.

However, this new deal is already under threat from the Greens, who plan to challenge the government’s industry code of conduct in parliament. Should the coalition support the Greens’ motion, the deal could fall through, increasing the risk of gas supply shortages in the future.

The deal gives exemptions to APLNG and Senex from the $12/GJ price cap under the code of conduct. Chris Bowen stated that “This supply is critical for households, industry and gas power generation as the Bass Strait fields deplete”.

The gas price cap was introduced by the government last year, which triggered a freeze in new supply investments. After negotiations, the government revised the code of conduct, allowing exemptions for gas developers who committed to selling into the domestic market. Bowen has criticised the Greens for potentially disrupting the deal, highlighting the critical role gas will play in the energy transition and for grid reliability.

In related news, Australia’s annual climate change statement projects emissions to be 42% below 2005 levels by 2030, slightly below Labor’s election commitment of 43%.

Additionally, Chris Bowen has declined to specify the potential financial impact on taxpayers from the newly expanded Capacity Investment Scheme. The scheme involves the Australian government underwriting 32GW of new power generation through two auctions per year.

While industry experts anticipate this could cost billions annually, Bowen stated, “It is quite standard budget treatment to say we will not indicate our pricing expectations as we’re about to enter an auction”. He assured that the government’s strategy aims to maximise taxpayer benefits and maintain competitive bidding.

The scheme does not intend to “subsidising negative pricing”. Instead, it requires project proponents to state their minimum required profit and a maximum price point for sharing profits with the government. The government will retain control over bid acceptance and the total amount of gigawatts allocated.

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.

 

Powering Up: How Australia Is Revolutionising Its Electricity Grid

The launch of the Very Fast FCAS markets on 9 October 2023, 1300 (market time) will add two new FCAS markets, “very fast” Raise Contingency FCAS, and “very fast” Lower Contingency FCAS. These markets will enable frequency control by providing full active power response within 2 seconds, as opposed to the existing 6 seconds with the “fast” services. With the ability to respond to changes in power supply and demand within a second, these markets will provide a much-needed boost to the resilience of the National Electricity Market (NEM). As we move towards a future increasingly powered by renewable energy sources, the importance of maintaining a stable and secure power supply becomes even greater.

However, not everyone is convinced that the introduction of Very Fast FCAS markets is a positive development. Some critics argue that the increased competition created by these markets could drive down prices, potentially leading to lower revenues for generators and less investment in new capacity. There are also fears that the faster response times required by Very Fast FCAS markets may introduce technical challenges and increase the risk of errors or failures in the system. Furthermore, some stakeholders worry that the introduction of Very Fast FCAS markets represents a case of “scope creep,” where changes to the Market Ancillary Services System (MASS) exceed the original intent of the review and encroach on other areas of the NEM.

Despite these concerns, many see the benefits of Very Fast FCAS markets outweighing the drawbacks. By preparing for these changes now, businesses can take advantage of the opportunities presented by a more responsive and agile power grid.

In addition, the Department of Climate Change, Energy, the Environment, and Water is currently seeking feedback on its proposed Renewable Electricity Guarantee of Origin (REGO) scheme, which was originally proposed in Q4 2022, and aims to provide a stable framework for investors in the renewable energy sector.

The REGO scheme builds upon the existing Large-scale Generation Certificate (LGC) model but includes several key improvements. Firstly, it allows for greater transparency in reporting Scope 2 electricity emissions, making it easier for companies to demonstrate their commitment to sustainability. Secondly, it provides a long-term vision for the integration of offshore energy generation, improved electricity storage solutions, and distributed energy resources. Finally, it enables policymakers to adapt to changing market conditions and implement new policies as needed.

Another important development in the NEM is the Australian Energy Market Commission’s (AEMC) draft report on the Retailer Reliability Obligation (RRO). The RRO was introduced in 2019 to address concerns about the reliability of the power grid as the NEM transitions away from traditional fossil fuel-based generation towards cleaner, more intermittent sources of energy. Under the RRO, retailers must hold sufficient supplies of reliable generation and demand management resources, such as battery storage, pumped hydro storage, and demand response mechanisms, to meet customer demand during periods of peak usage.

While the RRO has been successful in encouraging retailers to invest in reliable resources, certain issues remain that need to be addressed. For instance, the current triggers for the RRO can create perverse incentives for retailers to over-invest in expensive peaking generators rather than cheaper, more efficient alternatives. Additionally, there are concerns that the RRO does not adequately account for the variability of renewable energy sources, leading to unnecessary expenditure on backup generation.

To address these problems, the AEMC’s draft report proposes several changes to the RRO. One suggestion is to replace the existing T-1 trigger, which is based solely on forecast demand, with a hybrid trigger that takes into consideration both forecast demand and actual supply. This change should help prevent situations where retailers are incentivised to overspend on backup generation due to overly conservative demand forecasts. Other recommended adjustments include allowing retailers to use non-generation sources of supply, such as demand response, to meet their obligations, and introducing an explicit mechanism for determining the reliability standard. Feedback on the draft is due by 2 November 2023, with the final report expected to be released in February 2024.

Overall, the launch of the Very Fast FCAS markets, the development of the REGO scheme, and the proposed modifications to the RRO form part of a broader effort to create a more reliable, resilient, and sustainable power grid for all Australians. While there may be disagreement around the specifics of each proposal, few dispute the urgent need for reform if we are to achieve our climate goals while keeping the lights on and the economy humming.

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.