Summer blackouts and our slow energy switch

Samantha Hawley: Hi, I’m Sam Hawley, coming to you from Gadigal Land. This is ABC News Daily. As we head towards summer, it appears almost inevitable that the lights will go out for some of us. The energy market operator is predicting rolling blackouts in some parts of the country because governments have failed to replace aging coal plants with renewable power fast enough and they simply can’t cope with demand. Today, energy expert at the Grattan Institute, Alison Reeve, on how our switch to solar and wind isn’t going to plan and why we now have to rely on coal for longer.

Alison, let’s talk about the potential for blackouts in a moment. But first, I want to have a look at Eraring, which is the biggest power plant in the country. It’s been around for a long time, hasn’t it? Since 1984.

Alison Reeve: It is – it is getting on a bit.

News clip: The power station takes its name from nearby Lake Eraring. It’s Australia’s biggest capable of producing more than 2600MW, a third of New South Wales..

Alison Reeve: Eraring is about 20 percent of New South Wales’s electricity. The company that owns it, Origin, was originally planning to close the power station at the end of its technical life. That would have been 2032. In February last year, they announced they’d bring that date forward to 2025, and that was because the power station wasn’t competitive with wind solar, and gas generation.

Tony Phillips, Group Manager, Eraring Power Station: The number of renewables that have come into the market, which I think has caught all of us by surprise at that speed, has made the viability of coal-fired power stations quite challenging. So that’s led us to the decision to provide the three and a half years notice of a proposed exit.

Alison Reeve: But since that decision was made, the pace at which we’ve been building renewables and transmission lines to replace Eraring has slowed down. And so there’s been concerns emerging about whether the electricity system would still be reliable if it closed as planned in 2025.

Samantha Hawley: So the Labor Government in New South Wales and the Energy Minister, Penny Sharpe, are trying to extend Eraring’s life.

Alison Reeve: Yes. So when they came into office earlier this year, they commissioned a report into the health of the energy system and they got that report last week that recommended the New South Wales Government should engage with origin and negotiate a temporary extension.

Penny Sharpe, NSW Energy Minister: We can’t simply have coal-fired power come offline if there’s nothing to replace it. It’s why the race is on. It’s why the renewable energy zones are so important. That’s why the various plans that we’re now beginning to roll out need to be done as quickly as possible.

Alison Reeve: But the thing that the report said was that you should do this in the context of having a more managed exit policy for future closures. Up until now, closures of coal-fired power stations have just been left to the owners. There is a requirement that you have to give a certain amount of notice, but that’s pretty much it. And so what this report said was, well, that isn’t really working out very well and we probably need to do something that’s a bit more managed.

Samantha Hawley: And does it make sense to extend the life of Eraring while we’re undergoing this transition to renewable energy?

Alison Reeve: It’s difficult to see what else they could do. The reason that they’re in this position of having to consider it is that they’ve been trying to build a lot of infrastructure in a very short time, which means that things are costing more and inflation doesn’t help with that either.

There’s a shortage of skilled workers, there are engineering challenges that they keep meeting, and there are hold-ups in planning approvals. I guess the way to think about this is that the New South Wales Government needs to buy some insurance against the lights going out. The thing that is hard about buying insurance is figuring out how much you should buy and how much you should pay for that.

Samantha Hawley: And Penny Sharpe, points out that this is a massive job, a huge transition.

Penny Sharpe, NSW Energy Minister: We’re essentially asking to do the industrial revolution in about 15 years. The retirement of coal-fired power in the state that has 70, where 70 percent of our power relies upon it, is not an easy thing to do. We’re working carefully through…

Samantha Hawley: Yeah. All right. Well, let’s talk a bit more, Alison, about the lights going out in a moment because that’s the bottom line we don’t want that to happen, I suppose. But just tell me, why is it that we can’t meet these deadlines that we set? What is going so wrong?

Alison Reeve: I think the thing is that we spend a lot of time dilly-dallying and not building fast enough, not building ahead. And then the other thing is that we now have more ambitious targets both at the state level and at the federal level, which means that a lot of the building that we would have been doing in 2030 has now been brought forward into the 2020s.

And the thing is, you know, ultimately what these projects are like is they’re like any construction or building project, whether that is an airport or your kitchen renovation or whatever. They always tend to run over time and budget, and that is just what is happening. And that was not anticipated, which is not unusual for infrastructure projects. You know, we always announce that they’re going to be done by a certain time, and that never turns out to be the case.

So it’s just the whole thing of trying to do a lot of stuff quickly. And then I think particularly at the moment, you’ve got a little bit of extra problems there with the fact that supply chains got disrupted by Covid worldwide. The cost of renewable energy projects has been going up because Europe shifting away from using gas, which is a response to the war in Ukraine. So that’s pushed up the cost of everything. Rising interest rates everywhere have pushed up the cost of capital for everybody, and inflation is not helping either.

Samantha Hawley: Mhm. It’s frustrating isn’t it, because we have so much solar and so much wind in this country and we just want to use it. Let’s return to that point of keeping the lights on because while we’re facing all these problems as we try and wean ourselves off coal-fired power, we’ve already faced problems, haven’t we, with keeping the lights on? We saw that last year…

News clip: With the temperature falling, households are again being warned of a possible shortfall of energy as they try to keep warm.

News clip: We’ve got enough reserve capacity at the moment, but there’s you know, there is not a lot of slack in the system.

Samantha Hawley: …Just remind me what happened then.

Alison Reeve: So last autumn was colder and rainier than usual and winter started earlier than it usually does. And what that meant was that renewable generation was lower than usual and we were using more coal and gas for the electricity system than we usually would. Because of that, the coal and gas generators had to go and buy extra fuel. And because of the war in Ukraine, the price at which they bought it was very high.

Now what happened was that some generators decided to stop operating because they couldn’t make a profit. And so some of them started saying, well, I’m sorry, we’re just going to withdraw from the market. The energy market operator stepped in and suspended the market.

News clip: The spot market was suspended last week after spiraling prices and generators withdrawing their services.

Alison Reeve: It’s kind of like putting it into a manual. And what we did for a couple of weeks was that the energy market operator just directed those generators to run when they were needed and there was a process of compensating them for the fuel later on. Now that eventually settled the market and brought it back into balance and into the point where the coal and gas generators weren’t losing money by running. The other thing that governments did as well was they put caps on the price of coal and gas so that the same problem couldn’t happen again.

Samantha Hawley: Although now, of course, there are more warnings from AEMO, the energy market operator, about power shortages, even blackouts, this summer.

Alison Reeve: Yes, I mean, this is a hot summer problem rather than a cold winter problem. Yes, there’s likely to be what they call a reliability gap, but this is what you and I would call a risk of a blackout. Yes. So the warning that they’ve issued this time is that there’s potentially a reliability gap in Victoria this summer. So at times of maximum demand. So the hot summer days, when we all have the aircon on, there’s a 13 percent chance of what they call unserved energy.

It’s a way of saying a brownout or a blackout for longer than eight minutes. Now 13 percent sounds low, but that’s the average across the whole system. So if I have a blackout all afternoon and you don’t, we might still be underneath that threshold. But it’s very inconvenient for me. Right. And it also matters when it happens.

You know, you might not mind a blackout for eight minutes in the middle of the night, but you’d be annoyed if it happened in the last set of the Australian Open final. Yes, there’s a sort of a thing here that’s about the probability of it happening, but also how long it lasts and how many people are affected.

Samantha Hawley: The figures you provided were for Victoria, but is it similar across the eastern states?

Alison Reeve: In the eastern states, I think South Australia also had a chance of blackouts this summer. In New South Wales it doesn’t emerge until a little bit later and that is much more linked to the closure of Eraring.

Samantha Hawley: So, Alison, there are some serious challenges in transitioning away from coal. When the Albanese government was elected, it promised to increase the share of renewables in our grid to 82 percent by 2030. Is there any way it can meet that now?

Alison Reeve: This was always going to be a challenging target and it’s not looking good. And that sort of comes back to those problems that I was talking about before. The other thing that we haven’t talked much about is the approval process. If you want to build a wind farm, you need to get approval to build the wind farm itself. But then you also have to sometimes straighten and upgrade access roads or even build access roads to be able to bring the turbines and the blades in.

News clip: The State Government plans to build a super-hub in the northwest, but infrastructure and services in the region could hold the project back.

Alison Reeve: All of those need local council approvals. Then you do the construction and then you need a transmission line to connect to. And if that transmission line has to be built, then it has to go through a whole approval process as well. And then finally, you need permission from the market operator to connect to that transmission line and turn it on.

And these approval processes are acting as a bit of a bottleneck at the moment as well, particularly at the local government level. Some local governments are getting a little overwhelmed because there’s a lot of activity going on in their area and they simply just don’t have the people and the capacity to push the approvals through quickly.

Samantha Hawley: So, Alison, pretty complicated. Is there anything we can do to speed things up a bit?

Alison Reeve: Oh, gee, there’s not a silver bullet answer here. In some ways, things are going to take as long as they take. I think certainly, as with everything in construction and with megaprojects in particular, getting better at planning and costing them ahead of time would be a smart thing to do. You know, the more time you spend on the drawing board, the less time you spend during construction and the better chance you have of keeping your costs under control.

Samantha Hawley: And Alison, bottom line, what does this mean for our power bills?

Alison Reeve: So none of this is impacting on bills at the moment. The price rises that people have seen this year were driven by the events that happened last winter around high coal and gas prices. Looking forward though, the more disorderly and disrupted that this transition is, the higher people’s bills will be. So the more that governments can work together to improve the coordination of how they get all this stuff built, the less it will end up costing everybody.

Samantha Hawley: Alison Reeve is the climate change and energy deputy program director at the Grattan Institute.

The New South Wales Government hasn’t said how much longer it will keep the Eraring power station open or how much it would cost. The total cost of the largest renewable energy project in Australia, Snowy Hydro 2.0 has blown out to $12 billion. The market operator doesn’t expect it to be delivering power until 2027 at the earliest.

This episode was produced by Nell Whitehead, Bridget Fitzgerald, and Anna John, who also did the mix. Our supervising producer is David Coady. You can find all our episodes of the podcast on the ABC Listen app.

Thanks for listening.