Australia’s power system has the seen the closure of four large coal fired power stations in the last three years, with the most recent announcement being the closure of the 1600 MW Hazelwood coal fired power station.

We look at proposals for a more orderly arrangement for the exit of coal fired generating units, not only for carbon abatement objectives but to ensure power system security as NEM regions lose synchronous generation.

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Two weeks ago, ENGIE announced the 1,600 MW coal-fired power station at Hazelwood, would close at the end of March 2017. The closure of the power station was somehow both long-expected and a surprise.

Hazelwood was reported to be targeted for closure in 2005 by the State Electricity Commission of Victoria prior to Victoria’s privatisation and mine permit extensions, and had been in focus to close by 2020 under the Gillard Government’s abandoned Contract for Closures program.

However, when the announcement came, it provided 5-month’s notice to energy system participants of the closure of plant providing up to 25% of Victoria’s electricity. When the Morwell Power Station closed in 2014, one month’s formal notice was provided prior to its August 2014 closure. Over the past three years, four large coal fired generators announced closure, including Wallerawang and the Northern Power Station at Port Augusta in South Australia.

The Climate Institute recently noted the relatively short notice periods of closure for Hazelwood (Victoria) and Northern (South Australia), stating:

“[Retirement]… is not something that has been built into electricity market policy or electricity market rules, regulations or operations …

…We need to have the policy framework in place to ensure that replacement generation and transmission services, replacement energy services, are consistent with the energy policy trilemma: do they provide decarbonising electricity; is it secure; is it affordable?”

The Senate’s Standing Committees on Environment and Communications is currently considering a range of issues related to the retirement of coal-fired power stations, including impacts on workers and communities and policy mechanisms to encourage retirement of coal-fired power stations “… having regard to environmental factors, the expected life span of existing coal-fired plant, the changing mix of generation in the NEM, and the need for electricity supply, reliability and affordability to be maintained”.

Australia’s power system will increasingly require new capabilities to manage the unpredictable timing of generation exits in a way that has not been necessary in the past. If it is to be met, the Commonwealth’s Renewable Energy Target of 33000 GWh by 2020, is estimated to force in 6000 MW of new renewable energy capacity by 2020. The Victorian Government alone is planning for up to 5400 MW of additional renewable energy capacity investment by 2025. Analysis by Jacobs has previously indicated that to reach Australia’s 2030 emissions target, that the period to 2030 will be characterised by a reduction of overall coal usage between 37 per cent and 47 per cent, including a switch from brown coal to black coal generation in some scenarios.

It is frequently recognised that around three-quarters of the NEM’s thermal (coal and gas) plant is well past its original design life and the uncertainty of closure is a deterrent to efficient investment in both renewables and other solutions such as gas turbines, pumped storage and advanced batteries. The uncertainty is also likely to be an increasing issue for Transmission Network Service Providers (TNSPs) and power system stability. TNSPs have a fundamental role in ensuring power system reliability and security[1]. The withdrawal of traditional ‘synchronous’ generation and an increasing mix of different generation types will require detailed consideration of technical issues and appropriate planning.

Appropriate planning for system security

AEMO is likely to face increasing challenges in identifying potential generation closures in a dynamic market environment, particularly with uncertain and poorly integrated State and National carbon policy settings. Under the current rules, AEMO must include in its annual Statement of Opportunities (ESOO), information relating to planned plant retirements for a ten year forecast period. AEMO’s 2016 ESOO Methodology states that:

“…the time-sequential modelling takes industry-announced new entry and generation capacity withdrawals and assessed future generation withdrawals from the generation outlook model…”. (emphasis added)

In the 2016 ESOO, which was published just three months before the closure was announced by ENGIE and eight months before the closure now scheduled, the closure of the 1,600 MW Hazelwood power station or other Victorian generation units was not forecast over the ten-year period to 2024-25. The ESOO did evaluate a scenario, whereby to meet potential COP21 commitments, up to 800 MW of coal-fired generation would be withdrawn in the region by 2024-25.

After the official announcement of the closure, AEMO noted that the five-month notification period:

“…is a key opportunity for NEM participants to respond to the announcement by adjusting their gas and electricity portfolios. The notice period is also valuable from an investment perspective as it provides an opportunity for supply side options to emerge”.

While this notice period may be manageable on this occasion in the case of Hazelwood, in the future the implications for system stability are too significant to rely on current frameworks which can result in short-term timeframes of notification. This is a particular concern where the unit size is significant and where future synchronous generation closures could increasingly approach ‘tipping points’ for system stability.

Given the likelihood of further closures of coal fired generation units in the NEM, a new mechanism is needed to assist TNSP’s better manage the complexities of responding to changes in the generation mix, well in advance of the closure of the plant. TNSPs need to consider the impacts of the changing and diverse mix of generation on overall system inertia, protection systems, frequency control, voltage control, transient and oscillatory limits, network constraints, network flows, and power quality. The reduction of system inertia – including that provided by coal-fired generation sources – is normally assessed by those developing constraint equations which are used to plan and operate the network.

AGL’s submission to the Senate Committee confirms the problem with current arrangements:

“… due to a range of factors, any closure announcements, particularly from large generators, are unlikely to be made in a timeframe consistent with longer term planning. As such there is likely to be little to no ability to allow new capacity and system planning considerations to account for such a closure in a timeframe commensurate with an efficient transition”.

At the Committee’s Canberra hearing, Dr. Frank Jotzo also noted that:

“Under a pure energy market approach, a company will pull the plug typically when a plant comes up for major refurbishment, and the market has really no insight into when that might happen. Not even close competitors may know when that will happen, and so you have these situations arising where there are only a few months of lead time between announcement and closure, and that is not enough to bring additional new capacity online”.

Potential for Revised Arrangements

Dr Jotzo’s submission identifies a range of options that might be considered including market mechanisms for closure, regulated closures or industry compacts.

For network businesses revised arrangements would ideally include a new mechanism to provide enhanced notification and predictability. This would assist TNSP’s and other stakeholders to better manage the complexities of responding to changes in the generation mix, well in advance of the closure of the plant. Earlier notification would allow network businesses to:

• carefully consider potential investment in zones that are likely to retire coal-fired generation assets in their respective regulatory proposals, to the benefit of consumers
• negotiate new or alternative network support arrangements after the closure of these stations, and
• better manage amendments and outcomes to existing commercial connection agreements.

The COAG Energy Council recently restated its commitment to improve the integration of carbon and energy policy. At its latest meeting of 7 October 2016, the Council agreed that “AEMO will provide it a 6 monthly update on the implications on security and reliability of current and proposed investment in the national electricity market”.

Energy Networks Australia has recommended the COAG Energy Council initiative be complemented by a detailed assessment of the impact of future synchronous generation closures (including coal-fired generation). It would be important for such an assessment to be informed by appropriate involvement of relevant network service providers, in addition to AEMO.

The Senate Committee is expected to release an interim report by 28 November 2016 and a final report by 1 February 2017.

For further information, contact Norman Jip Energy Networks Australia.