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Rude awakening for eyes wide shut NEM policymakers

Rude awakening for eyes wide shut NEM policymakers

We knew our energy policymakers were asleep at the wheel for a decade until September 28 last year, when South Australia suffered a statewide blackout.

The Australian Energy Market Operator's advice to the federal government on dispatchable power supply tells us just how asleep they were.

The key finding is that the risk of supply disruptions has increased because the current design of the National Electricity Market doesn't include incentives to maintain adequate dispatchable – on-demand – supplies of power as more variable wind and solar power is introduced.

That's an indictment of the former Labor government, which ramped up the Renewable Energy Target without considering the need to maintain a balance of dispatchable supply, and the Abbott government, which reviewed the RET but did absolutely nothing to increase system reliability.

But it's also an indictment of the old guard at AEMO, which warned of looming difficulties in the market but somehow couldn't quite capture the scale of the risk and the urgency of the problem in striking enough terms to win the ear of government.

The crises of last spring and summer and new chief Audrey Zibelman's straightforward approach have changed that.

Greater urgency

Its latest Electricity Statement of Opportunities and dispatchability report are quite a bit more urgent and contain recommendations for a short-term strategic reserve and a longer term plan for new market incentives to maintain dispatchable supply.

The key finding is that the current design of the National Electricity Market doesn't contain incentives for participants to maintain adequate levels of dispatchable supply as more variable wind and solar energy is introduced into the market.

That's a failing that can be laid at the door of the Council of Australian Governments, which has allowed policy to drift for too long, and the Australian Energy Markets Commission, which makes the rules. The AEMC and its chairman, John Pierce, will find parts of the AEMO reports uncomfortable reading.

Strategic reserve

For example, the principal means by which AEMO is urgently marshalling up to 1000 megawatts of strategic reserve to avoid blackouts in Victoria and South Australia this summer is demand response, including by using its Reliability and Emergency Reserve Trader (RERT ) mechanism.

Demand response rewards customers for curtailing their energy use and sending energy from solar panels, batteries and smart appliances to the back of the grid to avoid blackouts.

But as AEMO points out, it's little used in Australia – a failing demand response companies like EnerNOC lay at the AEMC's feet. As well, the RERT is being curtailed from November, forcing AEMO to seek the development of new strategic reserve mechanisms along with long-term market incentives.

AEMO says AEMC also needs a "more holistic" view of system strength and inertia market mechanisms.

Australian Financial Review

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