The cost of building contingency plans into the National Electricity Market to cover for the intermittent nature of wind and solar could cost billions of dollars and lead to higher power prices, according to energy experts.
As the debate continues about whether renewables are reliable enough to become the main power source in states such as South Australia, the Grattan Institute’s energy program director Tony Wood said it would be a costly exercise to provide back-up options for the less reliable wind and solar.
This would include more interconnectors between states to help cover for when the wind is not blowing or sun not shining as well as more gas-fired power stations to provide peak demand capacity.
A new interconnector between South Australia and Victoria would cost about $1 billion, while a new gas-fired peaking plant would cost hundreds of millions of dollars each.
It would also create the dilemma of further “gold-plating” of the power network, with the owners of regulated transmissions networks passing on the costs to consumers in the form of higher power bills.
“The big question is how do you manage this risk and who is going to pay for it? Eventually the consumer pays for it but who does it hit first?,” Mr Wood said.
Mr Wood said it would be too costly to have to provide a megawatt of reliable supply for every megawatt of intermittent generation, but there was still a need to augment the NEM to deal with supply issues.
But wind and solar producers could be forced to take on the intermittency risk and pay for back-up capacity, rather than state governments paying for extra capacity.
“In the short-term I think there will be some ugly solutions, like capacity payments or other expensive solutions, to get to the next stage [of embedding renewables],” he said.
The Australian Energy Market Operator – which runs the wholesale and retail energy and gas markets across the country – warned in February it would cost billions of dollars to duplicate the NEM to help cope with the problems raised in SA.
AGL Energy chief executive Andy Vesey on Wednesday said the regulations may need to be adapted to move the NEM away from an “energy-only” market, where generators are paid only for the power they produce and sell, to a “capacity” market, where they are paid to keep plants on standby, to be ready to generate power when needed.
But others believe there could be cheaper solutions for bedding down renewables into the NEM.
Simon Currie, global head of energy for Norton Rose Fulbright, said there were several low-cost solutions to the problem of SA’s heavy reliance on intermittent wind power that could be completed within two years and there was no need to slow the development of renewable energy.
“We need to focus on how to build as efficiently and quickly as possible new flexible generation capacity,” Mr Currie said.
He said SA could construct peaking gas-fired power plants or concentrated solar plants within two years to fill the gap when the wind stopped blowing.
Concentrated solar plants are huge arrays of solar dishes linked to storage systems such as batteries that can be turned on when needed. He said such systems were operating in many countries, including the US and Morocco, producing electricity at prices competitive with fossil fuels.
Mr Currie said the SA government would not have to build the peaking gas plants. It could instead offer a guaranteed long-term contract for a plant to be on stand-by and the private operator and price could be selected by reverse auction in a process used in the ACT to buy renewable energy.
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