Power shake-up can drive emissions down, says Angus Taylor
Energy Minister Angus Taylor has given a broad thumbs up to the recommended reforms to the National Energy Market.
Energy Minister Angus Taylor has given a broad thumbs up to the recommended reforms to the National Energy Market. He insists the reforms are technology neutral, will make the grid fit for purpose and will help bring down emissions.
Importantly, the commonwealth supports new mechanisms that would pay for capacity and flexibility to sit alongside payments for energy.
“Our grid needs to adapt,” Mr Taylor told The Australian.
“We need more flexible dispatchable generation and this is a series of reforms that are necessary to deliver that outcome. AEMO has told us we need up to 19 gigawatts of new flexible firm resources and this will be critical to achieving that.”
The NEM is straining under flood of renewables into the grid and there is increasing risk of being caught short of reliable, dispatchable power to keep the lights on, and of dangerous trips or surges in the system. Kerry Schott, chair of the Energy Security Board, handed her reform recommendations to the government on July 27 with a message to just “get on with it”.
At the moment the market only pays for the energy itself.
The reforms, to be unveiled on Thursday, aim to address four things: introduce a system that pays for capacity so that power is reliable; pay energy providers for flexibility to turn on and off quickly so the grid remains stable and does not interrupt essential services; improve transmission; and solve how rooftop solar can be absorbed into the grid.
The politics has centred on the new capacity mechanism for reliable energy supply. “In the absence of incentives there will be continued ad hoc government intervention because governments have no choice,” Mr Taylor said.
However, some in the renewables sector have been highly critical, arguing a capacity mechanism will delay the exit of coal.
“Well it’s wrong,” Mr Taylor said. “If you read page 40 of the report, it says gas, hydro and long duration storage are likely to benefit from the capacity mechanism. Coal would only benefit to the extent it was able to respond flexibly when needed.
“The idea that this is some kind of nefarious plan to indefinitely extend the life of coal-fired generators – just ask the coal-fired generator companies whether that is true to not. Their lack of flexibility is part of the reason why they are exiting and they are exiting earlier than expected.”
Renewable energy has a big role in delivering flexibility. “Battery technology is extremely useful in essential systems services. They have filled a gap in the marketplace for this very short duration frequency control,” he said.
Mr Taylor said batteries had helped enormously in South Australia and that the federal government was funding battery projects.
The government has no commitment to net zero emissions by 2050, arguing that technology will drive emissions down. Mr Taylor says payment for capacity in the market would also help.
“You cannot add more intermittency to a grid without adding more flexible dispatchablity. The two go hand in hand,” Mr Taylor said. “The UK had to put a capacity mechanism in place in the last few years for exactly this reason.”
He also rebuffed the idea that the NEM might copy a capacity market model used in Western Australia that prices centrally using a formula: “That is not what the ESB is proposing.”
The ESB was asked for a market design for 2025, but the pace of transition is putting pressure on reform. Ms Schott wants to see plans to unbundle the value for capacity from energy developed over the next 12-18 months and a detailed capacity mechanism signed off by state ministers by mid-2023.
Where possible, Mr Taylor said the process would be brought forward but state ministers would need to work through the details. “All ministers recognise there needs to be reform in the market,” he said. “Every state is in a different situation. Some need different mechanisms more than others. The implementation of this needs to be flexible and recognise that.”
But the new capacity market is the one Mr Taylor says people get excited about. “They love to position some sort of battle ground between coal and renewables,” he said. “But I really point to the essential systems services, the distributed electricity and transmission reforms.”
An issue of concern is whether players in the capacity market could use certificates as a substitute for a contract in megawatts (more typical for renewables). States keen on hard emissions targets could insist those certificates were from low emissions players such as batteries or hydro.
“It depends how they are done” Mr Taylor said of certificates. “That’s why the detail matters. Now there are a number of ways to doing that but it is crucial that the actual underlying generation be there or else the lights don’t stay on.”
