AEMO Insights paper: Storage and transmission key to resilience

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The Australian Energy Market Operator (AEMO) has released an Insights paper that provides new perspectives and deeper analysis on the important role pumped hydro energy storage (PHES) and strategic transmission developments can play in lowering costs to consumers and increasing the resilience of the National Electricity Market (NEM).

The inaugural 2018 Integrated System Plan (ISP) articulated the lowest cost and risk transition pathway for Australia’s energy system. It highlighted the importance of optimising future investments in new generation and networks while taking full advantage of new consumer technologies such as rooftop solar, demand response and electric vehicles. The purpose of this Insights paper is to provide a deeper analysis into the role of storage, including Snowy 2.0 and Battery of the Nation (BoTN) projects, and evaluate how storage can improve the resilience of the system and reduce costs for consumers.

The Insights paper incorporates evolved modelling of storage diversity and weather variability. It finds that when renewable energy availability is low, long-term storage such as Snowy 2.0 and BoTN deliver higher fuel costs savings than short-term solutions. Conversely, shallow developments with six-to-eight hours storage potential are the most valuable in providing intra-day and day-ahead energy shifting, complementing generation from utility-scale and rooftop solar systems. Distributed storage (batteries) with shorter discharge times will also play a critical role, providing value through capacity firming to support the grid at peak times.

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“The NEM has to manage the increasing variability of both supply and demand from changing weather patterns, consumer behaviours, growing variable renewable generation and declining reliability of existing generators,” managing director and chief executive officer Ms Audrey Zibelman said.

“AEMO’s in-depth analysis confirms the important role of energy storage to build power system resilience, improve reliability and to put downward pressure on wholesale costs. An example in the paper outlines that one week’s storage in Snowy 2.0 in 2030-31 saves approximately $86 million more on average in fuel costs, compared to the equivalent storage capacity with only six hours storage.

“By 2030, wind and solar generators, including consumer rooftop systems, are expected to represent approximately 50 per cent of the NEM’s installed generation and storage capacity, generating over 40 per cent of energy consumed. It is critical we advance the required transmission infrastructure to support the integration of these new resources to ultimately deliver secure, reliable and affordable energy for Australians.”

The Insights paper identified specific intra and inter-regional transmission investment to connect pumped hydro storage options with consumers. Within New South Wales, an increase in the transfer capability of the network between the Snowy region and Sydney would maximise the reliability and resilience benefits of Snowy 2.0 at the lowest costs for NSW consumers following the closure of the Liddell Power Station in 2022.

Inter-regionally, expanding the transfer capability between the Snowy area, North West Victoria and Melbourne would maximise the benefits of Snowy 2.0 for Victorian consumers ahead of any further coal-fired generation closures in the state. The increase of transfer capability between Tasmania and Victoria could also deliver benefits, allowing additional renewable generation and storage capability to be exported to the mainland.

“Transmission augmentations require significant planning, community consultation, and economic cost-benefit analysis in the form of the Regulatory Investment Test for Transmission (RIT-T) to ensure investments are in the best interest of all consumers.

“However, recent independent analysis conducted by Aurora Energy Research concluded an approximate $3.8 billion potential reduction in power bills if developments proposed in AEMO’s ISP were implemented, predominantly through increases in competition and market efficiency via additional interconnection investment.

“AEMO is working closely with the Energy Security Board and fellow market bodies to develop a package of changes to the National Electricity Rules to convert the ISP into an actionable national strategic plan. A key objective is to enable projects identified in the ISP to undergo a streamlined RIT-T and regulatory approval process that builds on the detailed cost benefit analysis undertaken as part of the ISP,” Ms Zibelman said.

Energy Networks Australia welcomed the Insights paper, saying it recognises the importance of transmission to support our transforming system.

Energy Networks Australia acting chief executive officer Tamatha Smith said that around the world, the logical response to growing levels of renewable generation was to create a more connected system.

“Transmission is our electricity superhighway and more strategically placed transmission means more power can reach more customers with greater reliability,” Ms Smith said.

“Coordinated investments in transmission and interconnections between states will ensure electricity from new generation can be shared across the National Electricity Market.

“This will support better reliability and system security as coal-fired power stations retire and put downward pressure on wholesale prices, which means lower bills for customers.”

The Energy Users Association Australia (EUAA) said the report highlights the urgent need to rethink the way we pay for the transition of our energy system, saying the cost of rewiring the grid must be shared.

The Energy Users’ Association of Australia (EUAA) is calling on the energy industry, governments, regulators and customers to collaborate on developing a new cost and risk sharing framework that will pay for the future energy system.  

“Our proposition is, quite simply, that everyone should pay their fair share of the costs and take their fair share of the risk,” EUAA CEO Andrew Richards said.

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“While energy consumers will gain some benefits from these investments so too will a broad range of other stakeholders including private investors and state governments. It is both unreasonable and unfair for consumers to continue to pay all the costs, as they have done traditionally, when they no longer receive all the benefits.”

The findings of this Insights paper are consistent with the recently released Victorian Annual Planning Report, which highlighted the growth and geographical diversity of renewable generation resources shifting away from traditional resource locations, and in turn presenting strong locational signals for investment.

The 2019-20 Integrated System Plan is due to be released in mid-2020, with stakeholder consultation ongoing, and subsequent Insights papers to precede this publication as required.

The complete Insights paper, titled ‘Building power system resilience with pumped hydro energy storage’ can be accessed here.