Australian Energy Week Changing Technology Tim Nelson, Chief Economist, AGL Energy
Significant investment in renewables is underway Cheapest form of energy is now renewables Renewable wind and solar generation projects (>10 MW) Capacity (MW) 9,000 Further 4,800 MW, including PARF projects up to 1,000 MW 165 AGL renewable generation 8,000 Non-AGL renewable generation 7,000 6,000 5,000 4,000 3,000 2,000 1,000 1 4 6 8 10 15 0 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 2001 RET introduced c. 2% of 2020 generation 1,000 MW installed since RET introduced Further 2,000 MW installed since RET target increased 19 2009 RET increased to 41TWh c. 20% of 2020 generation 25 Momentum stalled, with 600 MW of new generation Main driver: ACT FIT 30 38 75 112 Jul 2016: PARF established 2015 LRET set to 33 GWh c. 23.5% of 2020 generation Sep 2013: Change of federal government Total no. of projects AGL s 1,700 MW of renewable generation (10 projects), equivalent to 20% of the total renewable generation 1: completed or reached financial close before December 2017 Source: AGL; SERA 2
Future of generation NSW case study
Not many power stations operate beyond 50 th year Internationally, only 1% of power stations in operation are older than 50 years Source: EPRI (2017) excludes China and Russia 4
Exit and entry Australia and the US Australian exit has exceeded entry of firm dispatachable capacity since 2013 Year of Exit/Entry Coal Retirements Gas Plant Entry Renewables Entry No. of plant Capacity (MW) No. of plant Total (MW) CCGT (MW) No. of plant Capacity (MW) 2005-2012 2 740 31 8,674 2,546 112 2,640 2013+ 9 4,656 4 218 52 49 2,422 Total 11 5,396 35 8,892 2,598 161 5,062 Av. Age 42 years Coal-fired generation closure 18% of fleet Source: Simshauser (2017) [1] CCGT column is a subset of the total gas capacity column.
Exit and entry Australia and the US US entry has significantly exceeded exit largely a function of low cost gas Year of Exit/Entry Coal Retirements Gas Plant Entry Renewables Entry No. of plant Capacity (MW) No. of plant Capacity (MW) CCGT (MW) No. of plant Capacity (MW) 2005-2012 245 11,257 648 81,775 72,925 1,500 57,449 2013+ 384 50,367 241 36,183 14,490 2,042 44,998 Total 629 61,624 889 117,958 87,416 3,542 102,447 Av. Age 52 years Coal-fired generation closure 18% of fleet Source: Simshauser (2017) [1] CCGT column is a subset of the total gas capacity column.
A disorderly transition Australia s NEM Hazelwood power station withdrawn from service with only six months notice proof of inter-period pricing concept
Issues in Australia Policy uncertainty in relation to climate change objectives and issues related to gas supply Source: Compiled from various companies and AEMO
But new supply is on the way.. Around 4.5 GW of new renewables and some low capacity factor gas is being built Source: Compiled from various companies and AEMO
Quick overview of NSW market
Existing firm supply to meet demand Without Liddell, existing baseload and intermediate plant is adequate but more peaking plant is required Source: AEMO
Existing firm supply to meet demand With peak demand growth and underlying consumption declining, still mainly a requirement for peaking capacity Source: AEMO
And then there is renewable energy Renewable energy is not firm but still provides energy (in a market with declining energy consumption) Source: AEMO
Cost of building and operating power stations Renewables are increasingly cost-competitive with traditional thermal sources such as coal and gas Source: Simshauser (2017) 14
Optimal plant mix results Given energy consumption forecast to decline and new renewables providing more energy, peaking capacity required Category Optimal Actual (2022) Imbalance Weighting Baseload 7,295 8,160 865 overweight Intermediate 1,669 567-1,102 underweight Peaking 5,022 4,236-786 underweight 13,986 12,963-1,023 [1] This assumes no new investment apart from plant under construction. It also assumes Liddell power station is closed. 15
So what can we conclude?
Some observations. Not all dispatchable plant is also flexible 1. Renewable energy provides the lowest long-run marginal cost of energy 2. But as renewables begin production, they require complementary firm capacity 3. In the short-term, existing coal-fired units can provide some flex 4. But while dispatchable, coal is not as flexible as gas or hydro 5. In the medium-term, an optimal plant mix is likely to transition to gas-fired peaking units and demand response 6. Gas-fired peaking units provide capacity but not significant volumes of energy 7. In the long-term, renewable energy is likely to be complemented by pumped hydro and battery storage to allow energy to be consumed at times when it is needed
Innovation in contract markets responding to the NEG
Policy recommendations Contract market is critical for ongoing functionality of retail markets renewables should become participants in these markets Criteria Achieved by current NEM energy-only market Policy recommendation Efficient dispatch Yes None New investment No Ensure climate policy incentivises complementary firm capacity Security and reliability No Establish supplementary markets (e.g. inertia, reserve generator) Real political economy of pricing No Rule-based mechanism for ensuring advanced warning of impending generator closure
How the NEG can drive innovation New dispatchable renewable derivative products now being offered to facilitate compliance with NEG
How the NEG can drive innovation New dispatchable renewable derivative products now being offered to facilitate compliance with NEG
Innovation behind the meter
The importance of retail competition Retail competition is providing significant benefits to consumers who engage in the market 23
Renewables behind the meter Grid modernization: network price transparency, multiple platforms and co optimisation of services 24
Contact Tim Nelson Chief Economist tanelson@agl.com.au @tanelsonaus agl.com.au 131 245 Download the app agl.com.au/ community facebook.com/ aglenergy twitter.com/@ aglenergy youtube.com/ aglenergy