On strike while the wire's hot

The latest south-eastern Australian heatwave is history but, for power providers and policymakers, it leaves in its wake a number of awkward questions.

Not the least of these is how well the evolving east coast generation mix and delivery grid will handle similar weather events over the rest of the decade, bearing in mind that these are as inevitable as the outcry about global warming that accompanies each one.

When the east coast load requirement steams towards 32,000 MW (almost half of it in Victoria and South Australia), as it did in mid-January, the strain on power stations and on networks is significant – and the risk of equipment failure under extreme conditions is not minor.

Today’s reality is that we are heading towards a supply set-up by 2020 where (under present policies) there will be a lot more wind farms, no new investment in gas-fired plant and the backbone of generation, brown and black coal capacity, will be a rather older and somewhat smaller than it is now.

As little as four years ago, there didn’t seem to be a generation problem.

In 2010 the federal government’s commodities research agency forecast a rapid rise in gas-fired generation capacity brought about by low-cost fuel, a carbon price that would make gas commercially viable in competition with coal and rising power demand.

This was a 2020 eastern Australian market where the requirement for power production would be a quarter higher with coal plant delivering 57 per cent, gas almost 21 per cent (up from 16 per cent in 2008), wind nearly 12 per cent and hydro 4 per cent.

This “dash for gas” hasn’t happened and the Australian Energy Market Operator is now predicting not only that no more gas generation will be built this decade but also that we may see 3,700 MW of existing coal-fired plant shut down and wind power expanded by 780 MW in 2014-15 alone.

The biggest expectation of all now is that power sent out in 2020 will need to be only about 80 per cent, perhaps less, of the earlier projection.

(A word of explanation: consumption of electricity is not output – it is production less the power plants’ own needs and line losses; the generation, and emissions, number that matters is what is sent out to the grid.)

A market where average demand continues to sink but there is a week or so a year, or even every two years, when extreme weather sends consumption through the roof and where power supply is more reliant on wind and solar is not a walk in the park.

And let’s not forget that, while all the focus is on high heat just now, the peaks for load in south-east Australian are often also driven by biting cold (at least by our standards).  The recent mild winters don’t mean that very cold ones have gone for good.

You need not be the reincarnation of Einstein to spot the inherent problem in this set-up.

While policy affecting supply via abatement programs is not made by people focussing on the market (that’s how we have ended up where we are today), the market is not run by governments but by competition and investors’ appetite for risk – plus it is almost impossible to accurately predict when extreme weather will plague us. 

Relying on machines rather than pollies’ good intentions, the east coast grid is vulnerable to breakdowns in critical peak operating conditions, not least in an environment where market conditions don’t encourage plant owners to lash out on expensive maintenance.

The bottom line here is that the business of electricity is to ensure that supply always matches demand - not to achieve political or populist ambitions, including the goals of those who see the industry’s main role as being an instrument of carbon abatement.

There is a marked complacency in some quarters about the health of the eastern power supply system because overall electricity demand in the rest of this decade is expected to be at the lower end of the current forecast range.

However, one of the lessons of the recent heatwave, if one can get past the yahooing of the renewables boosters, is that generation problems were averted because long-established coal plant (mostly) coped okay, hydro helped and gas plant was able to be whipped in to action.

The core numbers are that gas generation provided 46 per cent of increased power needs in Victoria (with hydro providing 28 per cent and coal 26 per cent) and 91 per cent of the extra needs in South Australia.

So far so good, but the issue of the eastern system’s resilience down this decade in the face of critical peak periods lasting days needs independent, expert analysis and this should be in hand before politicians paint consumers further in to the unfunny corner.

How the federal government can meaningfully review the RET without this advice escapes me.