Energy security under scrutiny in Tasmania

Energy security in Tasmania is once again in the spotlight, with the appointment of Dr John Tamblyn to lead an assessment of the feasibility of a second interconnector and a media focus on hydro generation sources of supply.

Separately, the Tasmanian Energy Security Taskforce is proceeding with submissions on its consultation paper closing last Friday. The Taskforce was established by the Tasmanian Government to identify ways to future-proof Tasmania from energy security challenges, like that experienced in early 2016 following the coincidence of low dam inflows and the extended Basslink outage.

The issues under examination by the Taskforce in its energy security risk assessment include[1]:

• defining energy security
• water management
• interconnection with the National Electricity Market (NEM)
• the gas market
• renewable energy and emerging technology development, and
• the impact of climate change and mitigation strategies.

Hydro Tasmania’s management of water storage levels and energy trading activity during the so-called ‘energy crisis’ gained significant attention. The Taskforce’s Terms of Reference require it to consider best practice water management and to review Hydro Tasmania’s storage strategy.[2] The financial capacity of Hydro Tasmania to maintain assets in the wake of the energy crisis were also the subject of media attention this week.

The Taskforce is assessing energy security for Tasmania over the short, medium and long term, noting it expects that the modelling of selected, credible scenarios will be required in order to reach an informed view of long term energy security management in Tasmania.[3]

“To support an assessment of ‘best practice’, the Taskforce intends to investigate water management undertakings in international energy systems where hydro power is the dominant form of energy generation. These practices will be compared against the situation in Tasmania to consider where enhancements could be made.”[4]

Feasibility of a second Tasmanian interconnector

The Taskforce’s activities are running in parallel with other reviews, including the Australian and Tasmanian government’s joint study into the feasibility of a second Tasmanian interconnector. A preliminary report delivered in June 2016 concluded that:

“…if viable, a second interconnector would support long term energy security in Tasmania, assist in the integration of Tasmanian renewable energy into the NEM, support the operation of the NEM and could open the path way for more than 1,000 megawatts of new renewable energy development in Tasmania.”[5]

Proposed future study activities include developing credible future scenarios of how a second interconnector might be developed and detailed modelling of these future scenarios to understand underlying electricity market dynamics and to support exploration of associated regulatory, financial and business models.[6]

Clearly, the studies are intricately linked.

The Federal Government announced on Sunday that Dr John Tamblyn would lead the continuing joint study into the feasibility of a second Tasmanian interconnector after the departure of the Hon Warwick Smith, with the timeline for completion of the study being extended to January 2017.

Economically efficient solutions

Economically efficient interconnection supports the reliability of the energy system and helps maintain power system security. Greater interconnection in the NEM can improve wholesale market competition, allow access to lower-cost generation at times of high demand, and allow customers to connect with new technology and cleaner sources of generation while benefiting from the back-up provided by a reliable grid.

But greater interconnection is not the only option. Both studies mentioned above recognise that there are a considerable number of options to be assessed for the benefits they contribute to energy security in Tasmania, and that these may vary across timeframes.

Reviews of Tasmanian energy security should include consideration of how to better utilise existing assets, which have already been built and paid for, including the Tasmanian Gas Pipeline (TGP) that connects Tasmania to Victoria and is significantly underutilised relative to its capacity[7], and the rapid response afforded by the Tamar Valley Power Station.

Oakley Greenwood indicates that Tasmania has two fuel sources with large storage capacity – water and gas – and that the TGP capacity is equivalent to 500MW of electricity generation. Oakley Greenwood noted the marginal cost of gas, in such a support role, was about $10 per gigajoule compared to the marginal cost of diesel at about $26 per gigajoule.[8]

It’s important to take a technology-neutral approach and consider all options for managing the energy trilemma of affordability, sustainability and reliability. The trade-off between cost and service level, and the value customers place on ‘energy insurance’ must be considered.

What level of energy insurance do customers value?

The Tasmanian Energy Security Taskforce recognises that the management of energy security needs to meet long term energy demand, but to a level of energy reliability that customers are prepared to pay for.[9] Meeting customers’ expectations requires robust, nationally consistent and ongoing assessment of the Value of Customer Reliability – the optimal balance of energy insurance.

The Regulatory Investment Test for Transmission (RiT-T) is currently being reviewed to ensure it is effective in the current market environment, with the review being fast-tracked following the COAG Energy Council meeting on August 19 and now due for completion by the end of the year.

It will be important to see close coordination and role clarity in Tasmania’s various reviews. Along with integration of carbon and energy policy at a national level and consideration of NEM-wide implications, there are a lot of ‘moving parts’ to be considered.

Timetable for reviews