Annual Market Performance Review 2017/18

Australia’s energy sector is cleaner and greener but the speed of structural change is putting growing pressure on power system security and reliability, according to major reports issued today by the Australian Energy Market Commission (AEMC)

The annual market performance review (AMPR) conducted by the AEMC’s expert Reliability Panel and the AEMC’s investigation into intervention mechanisms and system strength show problems experienced by South Australia may start to emerge in other parts of the country.

The power system’s transformation is continuing to accelerate. Consumers are driving strong growth in rooftop PV; there is significant new entry of variable renewable generation, mainly intermittent large-scale wind and solar generation; and the exit of ageing coal generators ahead.

AEMC Chief Executive, Mrs Anne Pearson, said today’s reports detailed all the security implications attached to rapid change in the power system’s generation mix.

“They also point the way ahead – so we can address challenges and capture the opportunities of the renewable revolution while driving costs down for consumers.

“In the face of unprecedented change we see the power system still meeting consumer’s needs but only because the system operator, AEMO, is using built-in safety-nets on a daily basis to keep the lights on,” Mrs Pearson said.

“These emergency, expensive ‘stop-gap’ measures are not meant to be used all the time.

“AEMO and transmission companies are finding it harder to manage the system in the face of fast-moving renewables penetration as consumers adopt rooftop solar in greater numbers and state, territory and federal governments all pursue their separate environmental policies.

“AEMO and transmission companies are finding it harder to manage the system in the face of fast-moving renewables penetration as consumers adopt rooftop solar in greater numbers and state, territory and federal governments all pursue their separate environmental policies.

“The Reliability Panel report shows we are starting to see falling system strength at the fringes of the grid in north Queensland, south-west NSW, north-west Victoria and continuing weakness in South Australia.

“There are great opportunities in the renewable revolution. Some emerging stability problems could be solved by managing distributed energy resources in ways that help the power system operate securely within its technical limits.

“It’s important to fully understand implications of this change so precise solutions can be targeted to problems; and so the new rules requiring network businesses to add security to the grid when AEMO calls system shortfalls are complied with,” she said.

The AMPR has found a range of pressure points on the system including:

  • upcoming retirement of thermal coal power stations across the eastern seaboard; and the general ageing of the thermal coal generation fleet;
  • deterioration of system strength, particularly in north Queensland, south-west NSW, north-west Victoria and South Australia;
  • network issues in Victoria which have been exacerbated by the decommissioning of the Hazelwood power station;
  • rising levels of electricity lost in transmission (marginal loss factors) due to increased generator connection in remote parts of the network; and
  • impacts of accelerating take-up of solar PV on the grid.

High rates of growth in solar rooftop PV will see this type of local generation reach an estimated 25GW by 2035/36 or 45% penetration in a market the same size as today’s - posing significant grid management challenges.

“We are optimistic the network can adjust to the rapid pace of transition.

“But emerging pressures are clear and real,” Mrs Pearson said.

“In the meantime to keep the power system stable in South Australia day to day interventions by AEMO have been necessary to keep the power system operating. The report says there were 101 directions for synchronous generators (like gas) to turn on to keep the system stable, compared with only eight in 2016/17.

In 2017/18 the system operator issued 100 directions to keep the system stable in South Australia.

The need for AEMO to direct a Victorian generator to maintain adequate system strength there in November 2018 highlights the possibility of low system strength challenges in other national electricity market regions in the near to mid-term.

There are new rules in place to deal with these developments.

“Two years ago in 2017 the AEMC made new rules to make networks provide the minimum level of system strength determined by AEMO. Networks can do this by adopting any available technology capable of fixing the local problem,” Mrs Pearson said.

“After AEMO declared a problem in South Australia that state’s network provider organized to install synchronous condensers which are due to be commissioned in 2020,” Mrs Pearson said. When that happens the need for very frequent directions to maintain system strength in South Australia will hopefully come to an end. It is a timing and technology issue. First AEMO declares a shortfall, then networks decide the best local solutions for them and start putting them in place.”

The AEMC has started an investigation into system strength and intervention mechanisms in the national electricity market to check-in on how the new framework is working in the context of accelerating changes in the generation mix. Along with the AMPR report we have today released a consultation paper on system strength and intervention mechanisms which asks stakeholders for submissions on how the new process is working.

“While interventions are part of the system’s safety net they come with costs attached,” Mrs Pearson said.

“The challenge is to protect consumers while meeting the physical needs of the system as state, territory and federal governments act on climate change.”


Media: Communication Director, Prudence Anderson 0404 821 935 or (02) 8296 7817