The energy transition in South Australia

We are all interested in latest developments around the world. Saul Kavonic writes on the Forbes website.


Making The Transition: What South Australia Can Teach Us About Switching On To Renewables

Around half of South Australia’s power generation capacity comes from wind and solar, with renewables’ share of the energy mix continuing to rise. The Australian state is proving a world leader in the rapid rise of renewable penetration into an energy grid, especially for markets with limited or unreliable interconnections into neighbouring systems. As a result, South Australia is a case study in how – and how not – to manage a power system in transition to renewable energy.

The rapid rise of renewable power in South Australia is changing the power mix, with coal phased out and gas utilisation dropping. And it is raising intermittency challenges because, despite South Australia’s favourable wind and solar conditions, wind speeds are often too low for generation and the sun is not always shining.

This leaves peak power loads that need to be supplied by dispatchable power generation, such as gas or batteries, otherwise the lights will go out.

South Australia has suffered from increasing energy insecurity, with a number of blackouts, load shedding and near-miss events over the last year. In response, South Australia has started to resort to investing new gas power generation, diesel power generation, and batteries, with the high=profile Tesla “world’s largest battery” deal signed recently.

Today, for managing peak loads, batteries cost over 50% more than gas. But by 2025, if battery cost trends continue, batteries will start to compete for managing peak loads. Battery costs are falling and charging costs will also come down. This is because as South Australia builds up further renewables, we will see more renewable curtailment and therefore batteries will be able to be charged at low cost (or for free) during off-peak hours for an increasing proportion of the year. Batteries can also act as a bridge to provide time for gas turbines to start up, and provide other grid balancing services.

But for the time being, batteries are expensive. And the rosy long-term outlook for batteries is dependent on cost decline trends continuing. Batteries have yet to prove their long-term efficiency and lifespan, which can materially impact their economic viability. So there is that uncertainty there. Whereas for gas and coal power plants, there is ample historic data so their long term performance is well understood.

The rise of renewables has been enabled by climate policy subsidies and a market design that imposes renewable intermittency costs on the remainder of the grid. Within the current market design and policy framework, South Australia appears on a path that will see incremental renewable investments that are economic each and of themselves, but that overall does not result in the most efficient or stable energy grid for Australians.

There is of course no shortage of people who can read the trends and see the green energy future of a decentralised and optimised energy grid fed by sun, wind and batteries. But amidst the ideology and a vision for the future, one can lose sight of how we are going to transition there – securely.

Renewables and battery technology have similarities to other disruptive technologies, such as computer chips, mobile phones, digital cameras. Innovation continues apace, with performance improving and costs coming down. This portends great potential for a more efficient, cleaner, optimised energy grid eventually.

But energy infrastructure requires a more robust treatment than a cell phone. When a cell phone crashes, its easy to reach for a friend or colleague’s phone, or go dust off that old land line and make your call with minor inconvenience. But when the lights go off at a hospital or out-patients’ clinic, for example, the repercussions can be serious. When it comes to energy security, jobs, livelihoods and lives are on the line.

As our power systems transition to renewables enabled by new technologies, we need a plan to get there, with the redundancy and backup built in to deal with the inevitable uncertainties, mistakes and trial and error the journey will entail.

It should enable the entrance of future technology developments, including on demand side optimization, but not be dependent on them (at least until their performance track records are established).

That is the task Australia’s energy regulatory bodies face today, burdened by a patchwork of incoherent and parochial government energy policies that don’t incentivize long-term investment.

Policy to date has pushed renewables build up, without addressing the storage or backup the resulting intermittency entails. This has compromised energy security and South Australian’s are starting to pay a big price for that.

Market design changes and ancillary investment is needed to manage the transition. Much of that ancillary investment could come in the form of battery technology, but there will be a big cost involved to do that today instead of waiting until battery costs come down.

Even after a large renewable and battery buildup, there is still a need for gas (or diesel) backup post 2025, or even post 2035. The exceptional low levels of wind (and high prices) over recent months in South Australia have indeed illustrated that having dispatchable backup available is critical.

From a policy perspective, what is key is to have a market design that still incentivizes having dispatchable backup available for the unusual, yet inevitable, weather periods. This is the big challenge for policy makers and regulators in managing the transition to a renewables dominated grid.

Other jurisdictions around the world could question building up as large a renewables penetration in their grids until this issue is addressed. Moreover, they may want to consider the benefits of waiting, as costs for renewables and batteries are plummeting, so they can get more bang for their buck later.

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