This week, our CEO Paul Italiano addressed the Australian Financial Review’s National Energy Summit, where Australia’s ‘energy crisis’ was dissected by some of the industry’s leading minds. His speech outlines the role that transmission networks can play in delivering reliable, sustainable and affordable energy in a transitioning energy system. Read on for more insights into how transmission can harness the nation’s abundant renewable resources to address energy shortages and reduce costs.
As Australian Financial Review journalist, Jennifer Hewitt recently observed, conversation about the energy crisis solution has become about being quicker and cheaper. In other words, Australia is looking for a quick fix.
While I agree that a short-term solution to the energy challenge is imperative, it should not be at the expense of the planning required for a sustainable, affordable energy system of the future.
Artificially extending the life of an energy coal plant or curtailing gas exports is not an answer for 2022, and it is certainly not an answer for 2050.
We should be careful not to take a short-term approach to long-term investment challenges in the National Electricity Market.
There is enough time to implement and execute solutions that are in the best long-term interest of consumers. But our time is running out.
One option available at the moment is better utilisation of the assets we already have. Leveraging the footprint of our transmission system and removing the constraints that exist in the NEM, enables more energy flow between state markets and will allow easier connection for new energy sources to enter the grid.
NEM regions could be better connected to minimise localised energy shortages
We tend to look upon the NEM as one big bucket, which of course is not true.
In reality, our electricity system is comprised of as a series of energy ‘nodes’. Australia has some of the highest levels of dispatchable energy in the OECD, but electricity nodes are not well-connected, meaning that when one region is suffering a shortage, three others could be seeing a surplus.
These constraints are – by and large – caused by the nature of the existing configuration of our transmission network.
The limitations of the current network are a major impediment to freeing up capacity. They contribute to the erosion of reliable supply and the lessening of wholesale market competition.
Benefits of transmission investment
It is transmission infrastructure that provides access to the economy of scale and economy of scope in our network. It provides access to the substantial capacity that is outside of the grid, and also the ability for us to dispatch the lowest cost generation.
If our nodes were better connected we would not only have more than enough power to meet our demand, we would have excess energy available to be transported between regions and states.
In addition, and very importantly, we would also be able to use these connections to better manage the impact that increased renewables have on the efficient running of our electricity system.
Transmission provides reliable and low cost dispatchable generation
However, it seems that as a society we have lost our sense of electricity transmission’s value proposition in the NEM, and the social benefit of transmission to our community.
Transmission is more than moving electrons from A to B. It is a universal network asset that provides reliable and low cost dispatchable generation.
We can retire ageing coal fired power stations and replace them with generation from other sources by using a common platform. The value proposition allows people to share capacity across the network and facilitates equal access for all.
As a market we must keep in mind that we need to invest in maintaining and developing an integrated grid, with a common platform, accessible to everyone.
Without one platform, the social benefits of transmission are eroded, and the potential of sharing capacity and integrating other forms of generation – including renewables – cannot be realised.
We need to plan prudently for the energy system of the future
The NEM will need capacity to accommodate the population growth and increasing demand that we are beginning to see. Right now, TransGrid is doing very little to build for the challenges of our network’s future.
The City of Sydney alone is forecasting population growth of 25% over the next decade.
The Metrorail project in Sydney requires 70MW of power to run the ventilation system.
Generators of all sorts are contacting us, seeking to connect to the grid. We’re turning away more generators than we are able to connect because of the capacity constraints of the system.
So, what are we doing about it?
At the moment, our Revenue Proposal (to the Australian Energy Regulator) suggests $100 million augmentation expenditure for the next five years. That’s less than four dollars per customer, per annum. This of course is amortised over 50 years.
It is important to note that TransGrid’s electricity tariff over the last two regulatory cycles has decreased. Even our Proposal to the Revenue Determination that’s underway proposes a price reduction of 2.5 per cent in real terms over the next five years. This will bring us to 15 years of consecutive cost reductions in electricity tariffs for transmission.
It’s also important to note that TransGrid did not appeal the decision in the last round of regulatory process. In this respect, we seek to differentiate ourselves from other networks in the Australian energy market.
At some stage, however, a low level of investment becomes unsustainable. The current situation is concerning for the long-term, given that transmission is the low-cost and effective investment to access new generation.
Transition to renewables
The effective management of our transition to renewables is without doubt the biggest challenge for the network.
Much has been said about investment in renewables and the pathway to the reliable, secure, affordable and low-emission supply of electricity.
Australia is blessed with some of the world’s best renewable energy potential. There are new technologies that allow us to manage this more effectively.
In July this year, TransGrid connected White Rock Wind Farm, west of Glen Innes. There are two more projects in that space. Individually, White Rock is able to supply power for 75,000 homes a year, indicating that there is space for significant renewable generation in our market.
This is one success story. Unfortunately, we have had to turn down a few others that have been trying to connect to our system. The value-add of these investments, we believe, would be substantial.
Renewables, particularly in combination with storage capabilities, have the potential to provide a cheaper form of reliable energy than some of the traditional sources. Heavy coal ranges between $70 and $100 per megawatt. This is more than the competitive prices we’re getting for renewable generation.
Cost-effective renewable energy – enabled by transmission – is already a reality overseas
There are other countries and jurisdictions around the world that have been successful at integrating higher levels of renewable generation than we have.
If you look in Texas, the cultural home of US crude oil, competitive renewable energy zones were established 10 years ago to access wind capacity.
The Electric Reliability Council of Texas covers 75% of land, manages 85% of the load, involves 60,800 kilometres of transmission lines and more than 550 generation units. They propose to integrate 18.5 GW of renewable generation into their system.
Even whole towns such as Georgetown in Texas are supplying their electricity exclusively with renewable generation. What’s important is that the case for renewable generation in Georgetown, Texas, was not built on a renewable ideology. It was built on the basis of cost.
Increasingly, we see that the economics of renewable generation, with the support of global investment in the technologies required to make them work, are becoming more and more important on an economic basis, rather than an ideological basis.
Despite this, we do still hear the doomsday arguments about renewables: the wind doesn’t always blow and the sun doesn’t always shine. The truth is, with the right technology and the right level of connectivity we can effectively manage the efficiency and impact that these technologies have on the system.
Scotland is another example. They built 692 km of transmission lines that have significantly increased the amount of renewable generation available. They export energy to the London market.
As a nation we have been slow to act on our energy challenges. The Finkel Review has provided an economically rational, socially responsible path to planning and implementing a sustainable energy system for the suture. We call on government to adopt the recommendations.
I’d like to conclude with a quote from Warren Buffet: “Someone is sitting in the shade today because someone planted a tree a long time ago.”
If we persist in looking for solutions that provide a cheaper, quicker experience we will forego the shade that we can offer future generations. We’ve been basking in the shade of trees planted by generations of electricity engineers before us. We should make sure that we don’t hand down a poorer legacy to future generations.