The day after the release of the two key reports from the Australian Energy Market Operator last week – its annual Electricity Statement of Opportunities and the specially commissioned report on dispatchable generation requested by the federal government – RenewEconomy could barely believe what it read and heard in the media.

Consumers were being frightened into thinking that the lights were going out, the economy would collapse, and they’d all be better off going out to buy a generator and a supply of candles and batteries. The only possible solution to the crisis, we were told, was to stop renewable energy and keep the Liddell coal generator on line.

What was missed – in the fog of politics, ideologies and deliberate misinformation – were the fundamental messages of the two reports: that the energy system is transitioning quickly, and it is more or less unstoppable, because of the march of technologies and global trends.

This is not a bad thing, AEMO boss Audrey Zibelman underlined. But it does require some policy certainty and some co-ordination to ensure that Australia’s dirty, expensive and increasingly unreliable grid can be transformed into a smarter, cleaner, more reliable and cheaper source of power.

Because this message was largely buried by the media reporting and the political posturing, we thought it might be useful to go through some of the biggest electricity market myths and clarify a few points:

Is AEMO suggesting we need a new coal-fired power station?

No. and neither is anyone else outside the confines of the Liberal National Party and the Minerals Council of Australia, and some right wing commentators. So let’s move on.

Malcolm Turnbull says AEMO report shows Liddell is the only option to keep the lights on and to make sure Barnaby Joyce doesn’t get stuck in a lift without a bottle to pee in. Did it?



No, it didn’t. It referred obliquely to extending the life of some existing assets (which are not limited to generation), but it did not mention Liddell. And why would it? As the document makes clear, AEMO wants more “dispatchable” resources (see below). They all need to be able to respond quickly to changes in demand and supply. Liddell cannot do that.

But Turnbull keeps on talking about “dispatchable baseload.” Is that a thing?

No, it’s like describing something as a “round square,” or trying to fit a square peg into a round hole. It is being used as a marketing term like “clean coal” or “high efficiency coal”, neither of which exists.

Wikipedia’s definition is useful: “Dispatchable generation refers to sources of electricity that can be dispatched at the request of power grid operators or of the plant owner; that is, generating plants that can be turned on or off, or can adjust their power output accordingly to an order.”

And distpachable resources, as discussed by AEMO, goes beyond generation, and can include storage such as pumped hydro and batteries, behind the meter resources, flexible demand resources, or flexible network capability.

The key is flexibility. Baseload isn’t flexible, it cannot be easily turned on or off, and so is little use when a market operator needs to respond quickly to changes in supply and demand.

Is AGL wrong to close Liddell? What was wrong about Liddell was selling it to AGL in the first place. The ACCC said at the time it was a bad idea and it would reduce competition and send prices up, and it tried to stop the transaction but it was over-ruled by the courts. The geniuses in the NSW government effectively gave Liddell to AGL for free as part of its package with Bayswater. Great result: Give the plant away for nothing and watch competition contract and prices go up. But AGL has given plenty of notice about Liddell’s closure – seven years – which is more than twice as long as the closure notice recommended by Finkel (three years). Experts say this is more than enough time to find alternatives. The only reason that it might not be replaced by other capacity is the policy paralysis that prevents any investment signals, a point underlined in the AEMO report. But surely Liddell is cheap and reliable. What’s wrong with keeping it open?

Because it is actually very old, very dirty and not very reliable. And as ITK analyst David Leitch points out, quite costly too. It has barely run at more than half of its capacity in recent years; has had frequent outages; and was unable to respond in the middle of the NSW heatwave last summer. AGL says it is expensive to maintain, and it is rapidly depleting its supply of cheap, subsidised coal.

What could replace it?

All sorts of different technologies. AGL has its own plans for replacing Liddell with solar, wind, pumped hydro, battery storage and some gas. Leitch put together his own theories about how that could be done and its costs.

But there are numerous other projects out there in the offering, from many other providers (which would be good for competition in the market).

After all, AGL signalled this withdrawal two years ago, so people have been thinking about their opportunities ever since. Apart from a huge pipeline of wind and solar projects, Transgrid is talking of two renewable energy spines mixed with storage in NSW. Others, like EnergyAustralia, Enernoc and a myriad other providers talk of demand management – a resource that, according to our Energy Security Board chair, could exist in such quantity that it would obviate the need for any new generation at all.

So AGL is the good guy in all of this?

Let’s not get carried away. The PM is right to question the bidding practices of AGL and other big generators, but the Coalition should have been doing over the last four years, and not suddenly use it as a tool to bully it into submission.

Let’s not forget, AGL only got into coal 5 years ago, and bought Liddell and Bayswater three years ago, and despite its protestations of wanting to make an exit from coal, it is making huge profits from the investment and plans on being the last one out of the coal generation industry with a planned 2048 closure of Loy Yang A.

But CEO boss Andy Vesey was right in refusing to buckle to Turnbull and Frydenberg and Joyce, and in pointing out that future investments lie in new technologies, not old ones.

Did AEMO warn of widespread blackouts?

No. Only if it sat on its hands and did nothing, and AEMO hasn’t been sitting on its hands and doing nothing. Its report highlights both the worst case scenario – a one in 10 year demand event – and assumes no action is taken.

How bad are the blackouts going to be this summer?

Not as bad as you may have been told. The AEMO annual document, the Elecriticity Statement Of Opportunities is not a “blackout alert,” as some have interpreted it to be. It is a document that suggests where the opportunities may lie for new investment, usually by a predicted shortfall in the future

A few years ago, it said there were no such opportunities, because there was too much supply. So investors took the hint and closed some power stations, but the investment freeze in renewables and other technologies caused by the review of the RET and federal policy paralysis has left supply tight in Victoria and South Australia, and will do so in NSW if new investment remains frozen.

So, no blackouts then at all?

AEMO makes the point that no operator can guarantee 100 per cent supply all the time. There is always a risk of some catastrophic failure, big storms, bushfires, a lost interconnector or the sudden tripping of a big coal or gas plant.

But AEMO says it is confident it has done as much as it can to get ready for this summer, and it is urging politicians to give it the tools to put measures in place to deal with future issues, such as NSW.

The forecasts of unserved energy included in AEMO’s ESOO were a 26-33 per cent risk of load shedding in South Australia, with the possible loss of up to 97MW for between 2 to 4 hours.

But this assumes “without these actions” it has already taken – including the Tesla big battery, the state’s tender for demand management, and the emergency back-up generators, along with its instructions for more gas generators to run at all times.

The same applies for Victoria, where it talks of a 39 per cent to 43 per cent chance of up to 229MW load shedding over four to five hours – if none of the above actions had been taken.

To put that into context, its tender for demand management elicited interest of more than 1,00MW of capacity. And some providers think they can do that themselves.

And for NSW, where AEMO talks of a risk of up to 290MW of load shedding (out of total demand of 9,000MW) over a 2-6 hour period in 2022 – only applies in the improbable event that absolutely no action is taken between now and 2022.

So what is unserved energy?

It is an estimate of the potential shortfall in energy over a year. Australia has about the highest standard for “reliability” in the world – it is expected to meet demand 99.998 per cent of the time – and this has been the justification for much of the over-building of networks and the huge bills faced by consumers.

Imagine building a 50-lane Sydney Harbour Bridge to ensure there are no traffic jams at peak hour. That’s the approach that Australian energy regulators and policy makers have taken to the grid, and customers are paying for the privilege.

The forecasts of unserved energy are used by AEMO for both long-term indicators of investment opportunities (ESOO), and medium-term and short-term warnings are served by its MTPASA (medium term Projected Assessment of System Adequacy) and its series of forecast Lack of Reserve (LOR) advisories.

What are the solutions?

Smarter ones than we’ve had before. A lot more focus on demand management, which experts say could account for 30 per cent of electricity demand. For a really good explanation of “unserved energy”, and how it is calculated, read this over at WattClarity.

What did AEMO say was biggest threat to energy security?

There are two big threats identified by the AEMO report. One is not putting in place any policy to encourage dispatchable generation. The second is the failure of a big thermal unit at periods of critical peak demand, which it notes could increase the load-shedding risks in all states.

It even suggests that the loss of big generators is quite likely, given their vulnerability to extreme heat, and their performance last summer when units in South Australia and NSW failed, and units in other states had to shed capacity because of heat related faults. That will be its biggest concern this summer.

Does AEMO recommend more, or less renewable energy

I’ve barely seen this reported anywhere in mainstream media, but one of the core recommendations is to have more renewable energy, not less. AEMO’s analysis makes it clear that having either state-based renewable energy targets or, even better, a national target aiming for 45 per cent renewable energy, would reduce the level of unserved energy in all states in coming years, and eliminate it in some years.

And on the comparison with last year’s ESOO, it says: The risk of USE (unserved energy) from 2018–19 onwards has reduced, based on changed modelling assumptions on generation fleet, such as more renewable capacity and greater uptake of rooftop PV.

One telling graph is AEMO’s forecast of USE in NSW if Liddell closes and another big coal generator shuts as well (green dot on top of the black lines above).

That could push the risk of load shedding well above the reliability standards (dotted line), but would be minimised, and visually eliminated, by a coherent renewable energy policy (blue triangle).

What other policies does AEMO recommend

Policies that encourages dispatchable energy that AEMO can switch on or off to deal with the big swings in demand and supply, and deal with those critical peaks when many of the big generators (coal and gas) may struggle in the heat.

There’s a bunch of things happening as a follow on from the Finkel Review – new connection rules, a “generator reliability obligation” that may require some wind and solar farms to contract “firming” or dispatchable sources such as batteries, pumped hydro or gas.

And then there are new market rules. There is talk of “capacity market” (favoured by only a few), a flexibility market, or a “day ahead” market, as employed in some places in the US and Europe. This latter appears to be favoured by AEMO boss Audrey Zibelman.

More importantly, there needs to be clarity in the overarching energy and climate policy. There is currently no policy to deliver the government’s commitment to the Pris climate accord, and no mechanism to deliver the even stricter targets that will inevitable and urgently require us to meet the stated intent of the Paris goal: to keep average global warming “well below” 2°C and possibly as low as 1.5°C, if there is still time.

Conclusion

Twice in the last few months, with the Finkel Review and the AEMO reports, Turnbull has been given the opportunity to run – or even walk slowly – with his big schtick of being the “innovation” prime minister.

But rather than using these reports to justify an embrace of the future, or even the present, Turnbull has chosen to leap into the past – apparently with the sole aim of appeasing the conservatives in his party. Goodness knows what’s driving them, although one suspects it is big dirty money from the coal lobby.

If these reports cannot change the views of this government, and prompt its shift to a cleaner, smarter, cheaper and more reliable grid, then what hope has the country of moving on from its increasingly costly, dirty, dumber and unreliable system that it has now?