Winter is coming: is the NEM prepared?

A year ago media reporting was rife with worried comments that the east coast electricity grid was “broken” following an unprecedented step by the Australian Energy Market Operator to temporarily suspend the NEM spot market. 

On the cusp of a new financial year, this debate is far from over and wrangling between stakeholders and analysts continues on perceived shortcomings in the system, its management and the form and pace of new investment.

The current state of play and the prospects for a more settled environment for the NEM need careful, objective analysis rather than partisan posing. An important consideration is supply security in NSW as Liddell power station closes; the immediate fate of Eraring continues to prompt discussion.

For consumers, whether householders, small business or large users, the top of mind issue in mid-2023 is as it was in mid-2022: the size of their power bills at a time when the cost of living and the pressures on business viability are a dominating part of the national debate. Steps announced in the new federal budget may reduce the sting but they can’t make the problem go away.

Will faster shuttering of ageing plants with large carbon emissions make the situation worse – or can the rush at State and federal levels to develop billions of dollars of weather-influenced renewable generation capacity and large storage back-up for wind and solar power, along with a massive investment in transmission, efficiently fill the gaps now emerging?

As Giles Parkinson pointed out in April: “The transition from fossil fuels to renewables and storage is not just about making sure there is enough electricity supply to meet demand when it is needed. It’s also about ensuring essential network services that stop the grid falling apart in the case of a major event. They include such things as frequency control, inertia and system strength, basically the ability of the grid to withstand a major disruption such as a failed plant or a downed transmission line.”

Meanwhile, Federal Climate Change & Energy Minister Chris Bowen is unlikely to have assuaged community concerns when he told the media that electricity price rises ahead will be “significantly lower” than predicted in his government’s first Budget but nonetheless “there is still more pain on the way for households and businesses.”

Bowen and other energy ministers across eastern Australia face ongoing urging from analysts and commentators for more competition in the NEM, faster and larger building of infrastructure to support the “green grid” and still larger investment in flexible and fuel-efficient technologies.

Looming over all this is the potential closure of Eraring in the next 30 months, described by some as a key risk to supply reliability in NSW in particular. What, they ask, if there is a return to hot summers in the near term?

The recently-elected Labor government in NSW is making it clear that a top priority is “ensuring the lights stay on” and it is signalling that closure of Eraring in 2025 will be reconsidered if security of supply comes into question.

The row over the inadequacy of gas supply in south-eastern Australia rolls on, as do the political/green activists’ arguments over the future of the fuel in the march towards net-zero for Australia as a whole.

Anna Collyer, chair of both the Australian Energy Market Commission, the NEM rule-maker, and of the Energy Security Board, said recently: “The complexity of fundamentally transforming the way we produce, share, store and use energy cannot be overstated. We must build resilience across all aspects of the transformation: market resilience, policy resilience and social resilience. Australia must harness all available talent in an increasingly diverse and innovative workforce if we’re to reach net zero on target.”

That sums up the state of play pretty well and brings home the point that today’s short answer to the time-honoured question “Are we there yet?” is “No” as far as the NEM is concerned. 

The challenge for policymakers, system managers and a wide range of companies engaged in the energy supply market is to live up to the implicit promise that the “transition” will bring better times in the immediate future as well as in the longer term.