The renewable energy boom may be going to waste because the best place to put wind and solar is too far away to connect to the grid.
Australia has seen a major transition of its energy sector as it moves away from traditional coal and gas-fired power to include more wind, solar and hydro power but the existing network has not evolved to keep pace and consumers could bear the costs.
The large number of new renewables means many are either unable to connect to the grid due to the sudden congestion from excess power being generated at the same time or just a complete lack of transmission to push the power into the grid.
“Many new entrants – some are amazingly naïve – seem to be, on average, just assuming that transmission will be just rolled out to where they build and that they won’t have to pay the cost,” energy expert Paul McArdle said.
The Australian Energy Market Operator has already warned of a mismatch between the levels of renewables and a grid that is unprepared for them.
The generators, buoyed by the government’s Renewable Energy Target which encouraged more projects, are running the risks of becoming stranded or useless.
Wind farms in western Victoria and south-eastern Queensland and solar farms in western NSW are particularly at risk.
One potential project, the $8 billion, 2000 megawatt Star of the South offshore wind farm off Victoria’s coast – which could provide more power than the closed Hazelwood coal-fired power station – has no way to provide power to the grid yet is still rolling ahead.
AEMO executive general manager for planning and forecasting, David Swift, said while western Victoria has become a hotspot for renewable generation due to wind and solar resources in the region, it lacks the infrastructure to connect it all.
He said around 5000 megawatts of new generation is likely to be constructed in the region by 2025.
“However, without adequate capacity on the transmission network, generators connecting to this part of the network will need to be heavily constrained to maintain power flows within safe limits, which could impact electricity prices over the long term,” Mr Swift said.
This means it would simply disconnect wind and solar from the system, wasting power.
The power disconnect
The problem with the National Electricity Market’s grid – the east coast network of poles and wires that runs 5000 kilometres from Queensland through to Victoria – is that the transmission network was designed for a coal-powered system.
Power plants were originally built near the coal mining operations, and these transmission and distribution networks were built to support these power plants and take power to the people.
It was never designed for the influx of variable wind and solar power scattered around states and is now attempting to catch up.
AGL’s newly appointed chief executive Brett Redman said infrastructure hadn’t kept up with the evolution of power and this mismatch was inevitable.
“Stranded assets are the pain of transition,” he said, pointing to the lack of any national or coherent plan to integrate renewable power and new infrastructure.
Over the last decade, renewable projects have been built to optimise location around the wind resource and available transmission capacity, trying to find a balance.
Grattan Institute energy director Tony Wood said even those connected to the existing transmission network are faced with being kicked off the system for less intermittent power sources like coal. They are generating power for no one.
“It becomes complicated when multiple renewable projects are supported by a single new transmission line and the projects may not all come online at the same time,” he said.
Energy Networks Australia chief Andrew Dillon added: “If five solar projects were trying to connect, they’ll let two or three of them join and tell the others it’s full and they can’t join.”
This potential lack of connection or under-utilisation is even driving away investors.
The cost of connecting
As wind and solar farms begin to be built beyond the bounds of the existing transmission network, who pays for the infrastructure to connect them?
Mr McArdle said the issue these projects faced was in either trying to spark the poles and wires companies interest in building infrastructure or to go to the government asking for support.
“It makes for some tricky discussions about what might happen if the project does not turn up, or is under-utilised,” he said.
The head of Japan’s Mitsubishi UFJ Financial Group (MUFG) Bank’s Australian Structured Finance Office, Geoff Daley, said transmission issues are making it harder for new projects to get financing.
“There’s greater uncertainty at the moment around that issue and that will mean the lenders are more cautious,” Mr Daley said.
The government has a basic pub test for funding new transmission, the RIT-T, but it has failed to keep up with the speed of changes in the network, taking too long to greenlight the projects.
But it isn’t just smaller players facing this problem.
The largest new renewable energy project in the country – the Snowy 2.0 expansion – is even facing a $2 billion hurdle connecting to the network as the transmission infrastructure doesn’t exist yet.
Mr Wood said these new projects should pay the cost of connecting.
“A project like Snowy Hydro 2.0 should pay for its own transmission. If common transmission infrastructure is to be economically shared, then it pays for its share. On this basis, there is no ongoing regulated asset unless a future case is made for coverage,” he said.
“The renewable project proponents will argue on the basis that existing coal generators didn’t pay for the existing transmission network. On the other hand, all new generators already have to pay for some component of their connection.”
Pumped hydro generator Genex is working towards connecting to the grid in Queensland by partnering with a transmission company.
Powerlink is building and will own the transmission lines that connect Genex to the network, with Genex making an initial contribution to its construction and then paying ongoing maintenance and access fees.
The Australian Energy Market Commission said investment needs to happen now.
“There needs to be extensive investment in Australian power networks to connect new generation – especially the huge wave of renewable generation entering the market,” the AEMC said.
AEMO said without proper planning and timely investment in the network, electricity prices will probably increase.
However, state governments and energy bodies are trying to turn this around.
AEMO has prepared a massive Integrated System Plan, exploring how to connect the on-rush of renewables, spreading out their power across the day and rebuilding the grid for a future with less coal power.
“Reducing network congestion will allow generators in the region to participate more fully in the energy market, expanding the energy supply mix and increasing competition to the benefit of consumers,” AEMO said.
In December, the Australian Energy Regulator published its first ever annual transmission planning report guideline.
NSW has also identified multiple renewable energy zones, with high levels of wind and solar resources, where it can build renewable generation and prioritise transmission.
“Strategic planning and coordination of our power system is critical to making smart, informed decisions in the long-term interests of Australian energy consumers,” Mr Swift said.
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