The risk in costing the renewable transition

Today I want to discuss the Australian electricity network with a broader look at what has been planned for the transition to renewables. My major concern is that the deliverability of the transition has been completely underestimated and will lead to far higher costs than have been currently modelled.

First some , a very brief, background.

The backbone of the Australian electricity transmissions network was built over many decades in the 1900s based on an architecture of unidirectional flow with large base load dispatchable power (mostly coal-fired power stations) being controlled to meet load across a wide geographic area. The major parts of the transmission network are substations , containing power transformers and various other primary plant and the towers and lines that interconnect them. In addition substations contain secondary systems and communications that support administrative control, network protection and metering etc.

The network as grown incrementally over many decades and is now interconnected on the East Coast from North of Cairns in Queensland , to Tasmania and South Australia. It really is an engineering marvel !

As shown in the chart below, produced by the ENA way back in 2014, the original major investment in the transmission system was in the 60s and 70s with much of the original investment coming to end of life now.

This means, independent of any change in the system architecture, there is already significant re-investment required across the entire network simply to replace existing aged assets and systems.

Noting that some re-investment could be nullified by asset replacement (augmentation) the idea of overlaying a network transformation at the same time is a recipe for portfolio -wide cost and time blowout. At a time of significant re-investment the sensible thing to do with any portfolio is to limit other work, but that is not the plan at all!

Another quick bit of background, this time on renewables and what it takes to actually replace the current system built around baseload synchronous generation.

Wind and solar generation is known as Variable Renewable Energy , which basically means they fluctuate in their energy generation and therefore cannot be controlled in a way that guarantees they are available to meet energy demand at any one point in time. In order to get around this problem you need three things:

1. Storage, sometimes called "firming", so that you can save the power in a way that makes it dispatchable.  The two most common solutions for this on a commercial scale are BESS  ( Large chemical batteries )  and PHES ( Pumped hydro ).
2. Quite a bit more capacity in VRE than you would in base load supply because at any one time you can't guarantee VRE is outputting in the same way you can guarantee with coal or gas-fired power plants.
3. A back-stop of some form of dispatchable power , such as a gas peaking plant, to act as a power source of last resort.

What you may have realised by 1. above is that by requiring storage you have introduced a "double hop" into your electricity transmission. In the old system power would flow out of a generator and across the network and instantaneously meet a load. But under a VRE driven system power comes out of a generator and can either meet a load OR flow into storage and then flow again at a later time to meet a load. In addition , VRE sources require new network connections and , especially in the case of wind and PHES tend to be nowhere near existing network infrastructure.

So now you not only need a lot of VRE and storage and a bit of backstop , you also need a lot of new transmission network to cope with all the new ways power will flow across the network.

But it gets more complicated.

As I said above the electricity network was originally built with an architecture of uni-directional flow from a small number of large synchronous generators. That meant that the entire system, including sub-systems , were developed with the physical characteristics of large physical spinning turbines in mind.

It turns out that those physical characteristics are intrinsic to how the network operates and if you start turning them off then things start to go awry.

I won't try to explain all of this is a short post , but as per the diagram below , you can see that there a 4 overall areas of services you require to have a stable transmission network. A synchronous generator will provide all of them by design, but if you don't have one anymore in a region of your network then you need something else.

 

In electricity speak these are called Network support and control ancillary services (NSCAS) , and to provide a brief description of their possible impacts, and why they exist, here is an overview statement of one category, system strength, from the AER.

...  the ability of the power system to maintain and control the voltage waveform at a given location, both during steady state operation and following a disturbance. It is often approximated by the amount of electrical current that would flow into a fault at a given point in the power system. Historically, system strength has been supplied as a byproduct of energy generation by synchronous generators, such as coal, gas and hydro power. However, as these generators leave the market or operate less frequently due to the transition to inverter-based resources such as wind, solar and batteries, system strength in the power system has reduced. 

So now you need lots of VRE and storage a bit of backstop, and more network AND ancillary services.

To give you an idea of the scale of the investment required for ancillary services, one of the leading solutions to this problem is the installation of a synchronous condensor. This is a significant piece of equipment that is likely to cost $80-100M per unit to install and commission.

As noted in a recent AEMC directions paper 

... mainland TNSPs have an expected investment of 36 additional synchronous condensers within the coming decade. However, TNSPs may face challenges in acquiring enough synchronous condensers to meet the forecast inertia needs within the required timeframe. Subsequently, TNSPs may decide to explore alternative solutions, such as the conversion of retired thermal-based generation to synchronous condensers.

And yes that is approx. $3 billion and it is probably more. As noted above, the lack of physical equipment (because guess what! everyone in the world is trying to do this at the same time)  means the  solutions are likely to actually come via an upgrade of existing synchronous plant to provide the service under commercial terms.  It's already happening that way in some regions.

In the latest CSIRO gen-cost report (made famous by Peter Dutton) they bundled storage , new network and network support services into something they named "integration costs". This was added into the comparative costing for renewables versus other energy sources.

The CSIRO, based on their modelling , came to the conclusion.

The cost range for variable renewables with integration costs is the lowest of all new-build technology capable of supplying reliable electricity in 2024 and 2030. The cost range overlaps slightly with the lower end of the cost range for high emission coal and gas generation. However, the lower end of the range for coal and gas is only achievable if they can deliver a high capacity factor and source low cost fuel. Their deployment is also not consistent with Australia’s net zero by 2050 target. If we exclude high emission generation options, the next most competitive generation technologies are solar thermal, gas with carbon capture and storage (CCS) and largescale nuclear.

So VRE transition, with all its add-ons,  looks to be justified from both and economic and environmental perspective. Job Done!

The problem with the report is that although it tries to model the price it doesn't take into account the giant step change in work required to move to VRE as opposed to other options.  The "deliverability" factor of this work in an environment where the whole world is trying to do the same thing and there is already a huge backlog of re-investment work is completely understated in the costings.  The transition alone is probably 4x times the portfolio of work for most network operators in an environment where project deliver success rates are already relatively low.

Most of these projects will be run as discrete packages of work and every time you start one you push a little harder against resource constraints and add new risk to all of the work already underway across the network.

The  Integrated System Plan gives you a sense of the scale of what I am talking about and that only includes significant projects. There will be 1000s of smaller projects across Australia that will be required to meet the VRE network needs of transition.

There is a real risk that the cost modelling will in no way match the actual costs as you can already see from one of the first actionable projects in the ISP.

The cost of building a critical high-voltage cable connecting renewables projects in South Australia to the national power grid has blown out by $1.5 billion, leaving energy users concerned that they will have to pick up the bill and that the benefit of the project will be wiped out.

I predict so much more of this to come.