Hot potato

Energy system security and reliability has become a hot potato as South Australia has endured increased price volatility and instability in its electricity market, culminating in a storm-induced statewide blackout in September and a five-hour outage two weeks ago.

The report says South Australia's experience shows there is a practical limit to wind and solar penetration of 35-40 per cent, beyond which the grid becomes less stable.

Victoria and Queensland could face similar instability as their share of wind and solar power rises under their own state targets, forcing more coal power out. Victoria could face a "lights out" situation if Energy Australia's Yallourn brown coal power station – the next most polluting – follows Hazelwood and shuts its doors, it says.

Mr Moore worked with energy experts Frontier Economics on the report, which represents a major effort by CLSA to get to the bottom of the revolution in wind and distributed solar and battery energy and its implications for the incumbent power companies and the centralised grid.

AGL CEO Andy Vesey was already mulling a new gas plant for SA. Pictured on the rooftop of the company's new Docklands building in Melbourne. Wayne Taylor/Fairfax Media

He completed his report before the Turnbull government ruled out an emissions intensity scheme for the power sector, but argued it would come back on the table because it can help to maintain security of supply by forcing out the most carbon intensive power stations first.

Different conclusions


The conclusions differ from other expert assessments. Carbon + Energy Markets director Bruce Mountain, has argued that the dramatic improvements in the power and capacity of Tesla's Powerwall 2 battery mean the incumbent generators' "fabulous lunch" is coming to an end because a savvy rooftop solar customer will be able to beat all discounted grid power offers.

In sharp contrast, Mr Moore argues that even with Powerwall 2, solar households with batteries will not be able to compete with grid power offers.

One big difference is that Mr Mountain compares the cost of solar and battery energy generated and consumed at the household with the full retail cost of electricity delivered to the household

Tesla's Powerwall 2 home battery has changed the game for Rydalmere man Michael Vorstermans. Michele Mossop

Mr Moore excludes the cost of transmission and distribution from the equation on the grounds that the Australian Energy Markets Commission has said that grid energy suppliers will be able to alter their pricing to ensure the full cost of the network is recovered from all households regardless of how much grid energy – as opposed to solar and battery energy – they consume.

On this basis he concludes that electricity from a combination of solar panels with a Tesla Powerwall 2 battery costs about twice as much as grid energy, and will not be as popular as Mr Mountain and others assume. CSIRO, Energy Networks Australia and Bloomberg New Energy Finance have also forecast rapid uptake of solar and battery by households and firms.