REPORT TO AUSTRALIAN ENERGY COUNCIL 02 SEPTEMBER 2016 SOUTH AUSTRALIAN TECHNICAL CHALLENGES INTEGRATION OF RENEWABLES ASSESSING POTENTIAL SOLUTIONS ACIL ALLEN CONSULTING PTY LTD ABN 68 102 652 148 LEVEL FIFTEEN 127 CREEK STREET BRISBANE QLD 4000 AUSTRALIA T+61 7 3009 8700 F+61 7 3009 8799 LEVEL TWO 33 AINSLIE PLACE CANBERRA ACT 2600 AUSTRALIA T+61 2 6103 8200 F+61 2 6103 8233 LEVEL NINE 60 COLLINS STREET MELBOURNE VIC 3000 AUSTRALIA T+61 3 8650 6000 F+61 3 9654 6363 LEVEL ONE 50 PITT STREET SYDNEY NSW 2000 AUSTRALIA T+61 2 8272 5100 F+61 2 9247 2455 LEVEL TWELVE, BGC CENTRE 28 THE ESPLANADE PERTH WA 6000 AUSTRALIA T+61 8 9449 9600 F+61 8 9322 3955 161 WAKEFIELD STREET ADELAIDE SA 5000 AUSTRALIA T +61 8 8122 4965 ACILALLEN.COM.AU © ACIL ALLEN CONSULTING 2016 CONTENTS EXECUTIVE SUMMARY I 1 INTRODUCTION 1 2 BACKGROUND TO THE SOUTH AUSTRALIAN “PROBLEM” 3 3 RISK OF SEPARATION OF SOUTH AUSTRALIA 7 3.1 What could cause South Australia to be separated from the NEM? 7 3.2 What do we mean by the South Australia to Victoria Interconnector 8 3.3 How often has South Australia been separated from the NEM? 12 4 EVALUATION CRTERIA 143 5 CURRENT ARRANGEMENTS 14 5.1 Voltage and power flow management 15 5.2 Frequency control 16 5.3 Reliability, security and system restart 19 6 SOUTH AUSTRALIAN SUPPLY / DEMAND OUTLOOK ESOO FORECASTS 22 7 GAS SUPPLY CHALLENGE 25 8 EVALUATION VOLTAGE AND POWER FLOW MANAGEMENT 36 8.1 Technical evaluation summary matrix – voltage and power flow management 36 8.2 Options that provide little to no improvement 37 8.3 Options that provide strong improvement 37 8.4 Options that provide moderate improvement 37 8.5 Options that provide mixed improvement 39 9 EVALUATION FREQUENCY CONTROL 42 9.1 Technical evaluation summary matrix – frequency control 42 9.2 Options that provide little to no improvement 43 9.3 Options that provide strong improvement 43 9.4 Options that provide moderate improvement 43 9.5 Options that provide mixed improvement 43 CONTENTS 10 EVALUATION RELIABILITY SECURITY AND SYSTEM RESTART45 10.1 Technical evaluation summary matrix – reliability and security 45 10.2 Interconnection reliability 46 10.3 Options that provide little to no improvement 47 10.4 Options that provide strong improvement 47 10.5 Options that provide mixed improvement 47 11 EVALUATION IMPLEMENTATION 48 11.1 Key findings 49 12 OPTIONS CONSIDERED 54 12.1 Interconnector options 54 12.2 Non-network options 57 13 DETAILED EVALUATION CRITERIA 60 13.1 Technical criteria 60 13.2 Implementation criteria 66 GLOSSARY OF TERMS 69 A OPTIONS A–1 A.1 All options — technical evaluation A–2 B EVALUATION OVERVIEW B–1 C LARGE SCALE ENERGY STORAGE C–2 FIGURES FIGURE ES 1 EVALUATION OF OPTIONS AGAINST TECHNICAL AND IMPLEMENTATION CRITERIA III FIGURE 2.1 OVERVIEW OF GENERATION STATUS IN SOUTH AUSTRALIA5 FIGURE 3.1 TRANSMISSION NETWORK CONNECTING VICTORIA AND SOUTH AUSTRALIA 8 FIGURE 3.2 SIMPLE DIAGRAM OF INTERCONNECTION BETWEEN SOUTH AUSTRALIA AND VICTORIA 9 FIGURE 5.1 NEM ANCILLARY SERVICE PAYMENTS FROM 2010-2014 14 FIGURE 6.1 SOUTH AUSTRALIAN SUPPLY DEMAND BALANCE 2015 ELECTRICITY STATEMENT OF OPPORTUNITIES (ESOO) 23 FIGURE 6.2 UNSERVED ENERGY COMPARISON AUGUST 2015 ESOO TO OCTOBER 2015 ESOO UPDATE 24 FIGURE 7.1 DRILLING ACTIVITY IN QUEENSLAND AND SOUTH AUSTRALIA—CONVENTIONAL PETROLEUM AND SHALE GAS 26 CONTENTS FIGURE 7.2 DAILY GAS CONSUMPTION BY SOUTH AUSTRALIAN GENERATORS, JANUARY 2015 TO JUNE 2016 30 FIGURE 7.3 SOUTH AUSTRALIAN GAS CONSUMPTION—ELECTRICITY GENERATION AND OTHER USES 30 FIGURE 7.4 GAS PRICES IN THE ADELAIDE SHORT TERM TRADING MARKET 32 FIGURE 7.5 DAILY GAS DELIVERIES BY TRANSMISSION PIPELINE 33 FIGURE 7.6 SOUTH AUSTRALIAN GAS CONSUMPTION COMPARED WITH PIPELINE CAPACITY 33 FIGURE 7.7 COMPARISON OF FIRM FORWARD HAUL PIPELINE TARIFFS34 TABLES TABLE ES 1 EVALUATION CRITERIA III TABLE 3.1 NETWORK ELEMENTS WHICH COULD CAUSE SOUTH AUSTRALIA TO SEPARATE FROM THE NEM 10 TABLE 3.2 HISTORICAL SOUTH AUSTRALIA SEPARATION EVENTS 12 TABLE 4.1 EVALUATION CRITERIA 13 TABLE 5.1 MAINLAND FREQUENCY OPERATING STANDARDS — INTERCONNECTED SYSTEM 17 TABLE 5.2 MAINLAND FREQUENCY OPERATING STANDARDS — SEPARATED SYSTEM 17 TABLE 5.3 NEM EMERGENCY CONTROL SCHEMES 20 TABLE 7.1 GAS-FIRED ELECTRICITY GENERATION PLANT IN SOUTH AUSTRALIA 29 TABLE 7.2 CAPACITY FACTORS FOR GAS-FIRED ELECTRICITY GENERATION PLANT IN SOUTH AUSTRALIA, JANUARY 2015 TO JUNE 2016 31 TABLE 10.1 ABILITY OF EACH OF THE OPTIONS TO REDUCE RISK OF SEPARATION 46 TABLE 12.1 INTERCONNECTOR OPTIONS 55 TABLE 12.2 NON-NETWORK OPTIONS 57 TABLE 13.1 CONSOLIDATED PRICE IMPACTS METHODOLOGY 67 TABLE A.1 TECHNICAL EVALUATION – ALL OPTIONS A–2 TABLE A.2 IMPLEMENTATION EVALUATION - INTERCONNECTOR OPTIONS A–8 TABLE A.3 IMPLEMENTATION EVALUATION - NON-NETWORK OPTIONSA–11 TABLE B.1 DIFFERENT LARGE SCALE ENERGY STORAGE TECHNOLOGY AND CHARACTERISTICS C–3 TABLE B.2 TECHNOLOGIES AND APPLICATIONS C–5 BOXES BOX 2.1 SYNCHRONOUS AND NON SYNCHRONOUS GENERATORS 4 BOX 3.1 CREDIBLE AND NON-CREDIBLE CONTINGENCIES 8 BOX 3.2 RELIABILITY BENCHMARKS FOR TRANSMISSION LINES 10 E X E C U T I V E SUMMARY The electricity system in South Australia has been the subject of increased scrutiny in recent years as the level of intermittent renewable generation has increased as a share of that state's total generation. South Australia now has around 38 per cent of its total large scale generation sourced from wind energy, with another 3 per cent estimated to be supplied by distributed rooftop solar PV. The South Australian power system is now somewhat unique given its current generation mix, which includes high penetration of renewable generation and now excludes coal-fired generation. Consequently South Australia now relies on capacity-limited interconnectors with Victoria and less flexible gas fired plant1 to provide dispatchable base load generation. The scale up of intermittent renewables has been occurring for the past decade, accelerated by an increase in the national Renewable Energy Target (RET) in 2009, aimed at reaching 20 per cent of national generation by 2020. South Australia has good wind and solar assets, and the state government has encouraged renewable investment both through streamlined planning processes and generous rooftop feed in tariffs. The purpose of increased renewable generation is to reduce greenhouse gas emissions through the deployment of renewable instead of conventional technologies and to underpin the development of the renewable energy industry in Australia. When originally conceived, it was expected that (1) the 20 per cent target would complement and ultimately converge with a national emissions trading scheme and (2) the renewable deployment would capture growth in demand and that existing plant would remain in service to meet existing levels of demand. The proposed emissions trading scheme never proceeded and a subsequent scheme was repealed. Moreover, falls in consumption since 2009 and the expectation that there will be very little growth from current levels of consumption prior to 2030 means that the renewable energy deployed under the RET is displacing existing conventional thermal generation, both coal and gas. This is compounded by increasing gas prices associated with the burgeoning east coast LNG industry and resulting very tight gas supply-demand balance. The RET is designed to encourage the lowest cost renewable generation, which has led to a high proportion of wind farms deployed under the RET exploiting South Australia's strong wind energy resources. Around 50 per cent of Australia's existing wind farms are located in South Australia. The RET legislated objectives are to encourage renewable investment and reduce greenhouse gases. These objectives were imposed on the existing NEM design. It was expected that the NEM would accommodate the levels of deployment anticipated, with the energy only market accommodating intermittent renewable dispatch and facilitating efficient entry and exit as required. To date this has largely proven to be the case with low cost wind generation dispatched preferentially while it is generating and unprofitable thermal and gas fired capacity either being mothballed or exiting the market. However, there are a number of technical issues that arise with increased intermittent 1 Some of this plant is currently mothballed and there is significant uncertainty as to when it might be returned to service. i TECHNICAL CHALLENGES INTEGRATION OF RENEWABLES renewable deployment, especially in relation to the South Australian region which is heavily dependent on imports and may on occasions be separated from the rest of the NEM. Importantly, South Australia is increasingly reliant on both fast-response gas fired generation and imports from Victoria to underpin reliability of supply. In particular, the loss of the interconnector with Victoria during periods of peak demand presents an ongoing risk to maintaining reliability within acceptable bounds. However, the threat of separation itself is very low. It requires either the simultaneous loss of multiple transmission elements, generators or other system faults, or on relatively rare occasions, one of these events occurring coincident with a planned transmission outage. Planned outages of transmission assets typically last for a few hours to allow owners the opportunity to maintain plant, or maybe a few days when project construction works are underway and would normally be expected to be carried out at times of lowest risk to the power system. While the threat of separation is very low, the consequences can be very high. The type of very low probability events that would result in South Australia’s separation, mostly fall outside the normal planning and operating obligations of AEMO. They typically require some form of investment or change to market arrangements to adequately resolve them.