31 March 2021

Department of Environment, Land, Water and Planning 8 Nicholson St, East VIC 3002 Melbourne VIC 3000

Submitted by email to [email protected]

Victorian Renewable Zones Development Plan Directions Paper

Snowy Hydro Limited welcomes the opportunity to comment on matters raised in the Directions Paper from the Department of Environment, Land, Water and Planning on the Victorian Renewable Energy Zones Development Plan (the Plan).

Snowy Hydro welcomes the development of Renewable Energy Zones (REZ’s) across as part of the key initiative in the energy transformation. To ensure the timely and cost-efective delivery of REZ’s, in areas of abundant renewable energy resources, it is however necessary to bring forward signifcant network capacity to connect renewable energy projects in Victoria.

Victoria’s Renewable Energy Zones Development Plan all pressages the urgency of VNI West and the connection to frm generation. The V2, V3, V6 REZ’s proposed by the Plan all require VNI West. The risks are too high to delay the crucial sections of these upgrades. VNI West addresses the identifed transmission network limitations to ensure the power system continues to deliver least-cost, secure and reliable energy to consumers. The interconnector will enable Victorian consumers to access lower cost generators across State borders, enable the connection of new generators that will replace those power stations scheduled to retire, and improve the reliability of supply.

Victoria's renewable energy targets (VRET) must be supported by large scale storage so that excess or low value generation can be captured for discharge during times of energy scarcity, and critically, to provide requisite risk and contingency management to ensure the future energy security of the NEM as we decarbonise. Once frmed Variable Renewable Energy (VRE) from REZ’s is the same as the other more traditional energy resources,

Transmission augmentation

The current transmission system is no longer ft for purpose and is already exposing major load centres, particularly Melbourne, to load shedding. As noted in the Plan, VNI West will increase power export capacity to NSW by 1930MW and capacity to Victoria by 1800MW as well as unlocking investment in over 2000MW of renewable energy projects.

The area of the Victorian and NSW power system bounded by Ballarat, Dederang, and Darlington Point is known as the ‘West Murray’ zone has attracted signifcant investment in grid-scale solar and wind generation, despite being a remote and electrically weak part of the NEM. An important long term solution will be VNI West which will support the West Murray zone as it enables the connection of a signifcant amount of renewable energy as shown below in Figure 1. Snowy is concerned should timely transmission augmentation not occur that this could also delay more REZ’s proposed in the plan. Figure 1: Map of West Murray Zone 1

Victoria should therefore be ensuring that VNI West be commissioned no later than 2025 to complement the Victorian REZ Development Plan and Victoria's renewable energy targets (VRET) target date. This target date will provide system resilience to cater for unplanned early exit of coal plant, by allowing Snowy 2.0 to frm VRET output and capture excess or low value generation for discharge during times of energy scarcity, facilitating an orderly transition to the future renewables dominated power system.

EnergyAustralia have recently announced the early closure of Yallourn, by mid 2028 versus the 'end of life' 20322. Greater penetration of wind and solar is already increasing the incidence of zero and negative-price periods which will make Yallourn unsuited to this volatility, making it difcult to operate economically even until this earlier retirement date. In 2019 AEMO’s report3 highlighted that advancing KerangLink (VNI West) provides insurance against earlier-than-expected closure of (or loss of equivalent capacity) and enables Snowy 2.0 to support Victoria if coal-fred generation retires earlier than expected.4 VNI West will therefore improve the resilience of the power system to withstand high impact low probability (HILP) events such as extreme weather events once Yallourn closes and frm up the Plan to build REZ’s. The VNI West project will mitigate the risk of high costs to consumers if the next brown coal-fred generation retirement in Victoria occurred earlier than announced.

In the medium-term, if Victoria is concerned with the infux of renewables in the NEM increasing congestion in the transmission network, and that competition for transmission access is creating risk for existing and future dispatchable generation then Snowy Hydro suggests a straightforward solution to reduce this transmission access risk for dispatchable generation without the need to unnecessarily disrupt the market with access reform.

1 Source: AEMO 2https://www.smh.com.au/business/the-economy/victoria-s-yallourn-coal-power-plant-to-close-fours-early-as-clean-shift-slashes -prices-20210310-p579bw.html 3 AEMO, 2019, “Building power system resilience with pumped hydro energy storage” 4 AEMO, 2019, “Building power system resilience with pumped hydro energy storage” Lifting the bid price foor of semi-scheduled generation and lowering the bid price foor of scheduled generation is a simple solution. This change will beneft the market as a whole as it ofers more certain capacity revenue to dispatchable generation, increases the ‘price signal’ for capacity investment, lowers contract costs to retailers and hence costs for consumers. It will improve incentives for dispatchable generation that future renewable generation relies upon for frming; that is, it increases the ability of the NEM to accommodate a higher penetration of VRE. Snowy Hydro would be pleased to provide more details on this proposal should the Department require it.

Deep storage

The growth in large-scale renewables is reducing average scheduled demand, while demographic trends and changing usage patterns are increasing maximum net demand. In short, energy is abundant but frm capacity will become increasingly scarce in Victoria. Firm capacity such as Yallourn is being continually displaced by variable renewable generation, increasing the mismatch between maximum demand and the frm capacity available to service it.

The Plan proposes to have battery energy storage system (BESS) projects which will increase the degree of frmness of VRE, and play an important role, however the nature of VRE is not regular and there will be periods in which output is concentrated, and periods of ‘resource drought’ as shown in the annual daily output levels from wind in the NEM in 2020.

Figure 2: Wind output in the NEM, 2020 (GWh)5

The long term view for Victoria must seriously consider not only the immediate and growing need for storage, but must also address the long-term requirement for connecting the forecast volumes of utility scale storage which, from the perspective of energy security and low cost to consumers, must also include signifcant amounts of deep storage.

Deep pumped-hydro stations (Tumut 3 and Snowy 2.0) are projected to be able to take advantage of spare energy during the shoulder seasons and use this for pumping, particularly during spring, and then generate to meet high demand periods throughout the year. This however can only be achieved by transmission augmentation.

5 Frontier Economics, “Potential for Gas-Powered Generation to support renewables”, A report for the Australian Pipelines and Gas Association Large volumes of VRE are forecast to be required to achieve the aggressive carbon reduction targets to address climate risks across the NEM. Snowy 2.0 is critical to accommodating the growth in VRE. The technical appendices to the 2020 draft ISP model Tantangara under the 'central' scenario in Summer 2039/406. The scenario shows how indispensable deep storage capability of Snowy 2.0 is during renewable energy droughts. Over a two week period, Tantangara is run down from 350GWh to 78GWh in order to manage a generation defcit in the NEM.

Figure 3: Hourly energy in storage in Tantangara in 2039-407

Low levels of VRE generation can persist for a long period of time and renewable droughts can last from days to weeks. Where there is high-VRE penetration additional deep storage capacity is required to ensure the lights can be kept on during these renewable droughts.

Forecasts by AEMO demonstrate the expected nature of renewable droughts. Recently Frontier Economics analysed South ’s wind droughts, a state that has excellent wind resources much like Victoria, and found that in the forecast 2035 traces, there is a three-month period where wind output is approximately 25% of capacity overall, and a month-long period where wind output is approximately 13% of capacity.

Figure 4: AEMO forecast wind droughts in South Australia (lowest capacity factor over period of time)8

6 AEMO, Draft 2020 Integrated System Plan Appendices, pp68 7 AEMO, Draft 2020 Integrated System Plan Appendices 8 Frontier Economics, “Potential for Gas-Powered Generation to support renewables”, A report for the Australian Pipelines and Gas Association It is for this reason new transmission is critical to ensure energy security in the future and to bring new deep storage generation. Transmission will bring forward additional resilience benefts such as a prolonged wind drought and open up new REZs providing Victorian consumers access to Snowy 2.0.

Snowy Hydro appreciates the opportunity to respond to the Department of Environment, Land, Water and Planning on the Directions Paper on the Victorian Renewable Energy Zones Development Plan and any questions about this submission should be addressed to [email protected].

Yours sincerely,

Panos Priftakis Head of Wholesale Regulation Snowy Hydro