Impact of climate change policy on the National Electricity Market

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IEAUST NEWCASTLE PRESENTATION OCTOBER 2010

The Impact of Climate Change Policy on the National Electricity Market

The Challenges for Power System Operations

PRESENTED BY MARK MILLER, EXECUTIVE GENERAL MANAGER SYSTEM OPERATIONS

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AGENDA

1. The Changing Power System and Uncertainty

2. The Forces Driving Change

3. The Nature of these Changes

4. Impact of Changes on Power System Operations

5. The Implications of these Changes

6. Enhanced Operations Planning Process

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THE CHANGING POWER SYSTEM

• The 20th Century witnessed vast changes in the nature of power systems which required fundamental changes in operating practices.

• Thus, the fact that we are now likely to face significant change is nothing new.

• However, the pace of change that will be faced over the next twenty years could be unprecedented.

• This change will require operating processes to adapt to radically different plant mixes, a much less passive role for demand, and major changes in the geographic distribution of generation.

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THE UNCERTAINTY OF CHANGE

• An important feature that distinguishes this period of change from others is uncertainty

• A year ago my presentation would have been reasonably definite about the direction and pace of change

• It would have acknowledged that there were uncertainties but would have suggested that these would be largely resolved in 12 months

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THE UNCERTAINTY OF CHANGE cont.

• But now the actual situation is even more uncertain

• The power system is embarking on a major journey but we do not know the destination or the speed of the journey

• However we do know the forces that are likely to drive this change

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THE FORCES DRIVING CHANGE

The forces driving this change are likely to be:• Introduction of an enhanced RET scheme which will

aim to have 20% electrical energy supplied by renewable sources by 2020.

• Introduction of incentives for distributed generation (eg rooftop solar) and reduction of costs of such generation with increased production.

• Possible introduction of some form of carbon pricing which could have a significant impact on the marginal cost of gas and coal fired generators.

• Increase in the costs of gas and black coal in eastern Australia as these fuel markets become more closely linked to international markets.

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THE FORCES DRIVING CHANGE cont.

The forces driving this change are likely to be:|

• Commercialisation of a wider range of renewable energy sources such as solar thermal and geothermal.

• Improvements in technologies in the areas of metering and data communications which enhance the capabilities for demand side management.

• Possible measures reduce carbon impact in other sectors may lead to the introduction of new electricity loads such as plug-in electric vehicles

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THE NATURE OF THESE CHANGES

These forces will manifest themselves in:• Entry of new plant of types which differ fundamentally

from previous norms ( what was exotic could become the norm for new entrants).

• Possibly accelerated retirement of older coal fired generation.

• Changes in demand patterns as demand side management becomes more widespread and new types of loads emerge.

• Possibly a more demanding operating environment due to the impact of climate change.

• Increased use of sophisticated monitoring and control systems ( “the smart grid”)

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IMPACT OF CHANGES ON POWER SYSTEM OPERATIONS

Adequacyof Capacity Reserves

Forecasting Performance

Regulation Requirements

Location of Plant

Merit Order

Adequacy of Energy Reserves

Plant Mix

Voltage Control

Transmission Flows

Ramping Capability

TstabLimits

Commitment Pattern Regional

System Inertia

FCAS Requirements

OFGS

UFLS

Carbon Pricing New

Capability

DSM & new loads

Plant Retirement

RET

Changes in Fuel Costs

Weather Conditions

Underlying Load Growth

Pow

er S

yste

m

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THE IMPLICATIONS OF THESE CHANGES

• The previous diagram is not intended to be a comprehensive description of possible implications (for instance does not look at the issue of fault levels).

• It is intended only to illustrate the fact that the power system is a complex system and that changes could have unexpected implications.

• AEMO, thus sees a need to enhance its operations planning processes over the medium term time-frame (up to 2 years ahead) to be able to take a more proactive stance.

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ENHANCED OPERATIONS PLANNING PROCESS

• AEMO is now looking ahead 2 years in more detail.

• Since the actual environment even 2 years ahead will be to some extent uncertain AEMO has adopted a scenario approach looking at. o An expected change scenario based upon committed new

entrants and transmission developments and plant retirements.

o A sensitivity study looking at a hypothetical unexpected retirement of about 1000 MW across the NEM .

• A report entitled Power System Adequacy – Two Year Outlook has been published by AEMO.

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ENHANCED OPERATIONS PLANNING PROCESS cont.

• For each of these scenarios AEMO looked at implications in areas such as:

o Adequacy of capacity reserves and energy o Ability to continue to manage frequency both under normal

conditions and extreme events due to changes in parameters such as system inertia

o Ability to maintain adequate voltage control which might be affected by changes in unit commitment patterns

o Ability to adequately respond to power system events which might be impacted upon by changes in plant ramp rate capability

o Changes in network transfer capabilities

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ENHANCED OPERATIONS PLANNING PROCESS cont.

• This process is supported by a enhanced tracking of operational trends so as to allow progressive adjustment to these scenarios.

• The aim of this exercise is to improve AEMO’s ability to recognise significant operational trends up to 2 years ahead.

• AEMO will be in a better position to develop, in consultation with the NEM Participants and other stakeholders, the required changes to operational practices to more effectively manage these trends.

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ENHANCED OPERATIONS PLANNING PROCESS cont.

• It is important to recognise that this operational planning process is a complement not a substitute for effective network planning processes operating over a much longer timeframe.

• The National Transmission Statement and the Electricity State of Opportunities has also looked at the impact of alternative carbon pricing scenarios over such a timeframe.

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Any Questions and Discussion?