Independent Review into the Future Security of the National Electricity Market Blueprint for the Future, Jun 2017

1.2 FY2018 summer forecast

Through its medium-term Projected Assessment of System Adequacy process, AEMO has identified a possible supply shortfall in South Australia and Victoria for the FY2018 summer.

If south-east Australia experiences similar conditions to the FY2017 summer and if the market does not respond, there is a risk that there could be insufficient generation and network capacity available to meet demand on very hot days in South Australia and Victoria. Victoria can typically support South Australia though the Murraylink and Heywood interconnectors. However, without supply from the Hazelwood Power Station, if two or more states face high-temperature days at the same time, the ability to get more energy from the interconnected state is reduced. Such coincident high-temperature days in South Australia and Victoria occur and can exacerbate the supply shortfall.

AEMO’s demand forecasts are based on temperature forecasts provided by two external service providers, neither of which is the Bureau of Meteorology.¹⁹ AEMO’s report into the events in South Australia on 8 February 2017 found that errors in the temperature forecast led to errors in the demand forecast.²⁰ AEMO has commenced a number of initiatives to improve demand forecasting, including working more closely with the Bureau of Meteorology.

Nevertheless, the Panel considers that more needs to be done to predict and manage any potential reliability issues. To provide assurance that decisions are made on the most robust information, an independent peer review of the underlying assumptions that AEMO uses in its short-term demand forecast techniques and reliability projections would boost confidence in the adequacy of these measures. This should occur prior to the start of the FY2018 summer.

Recommendation 1.1

By end-September 2017, the Australian Energy Market Operator should publish an independent third party review of its:

Short-term demand forecast methodology.

FY2018 summer forecast.

Preparedness for the FY2018 summer.

1.3 A collaborative approach for a reliable electricity supply

Since this Review commenced, energy market bodies and governments have undertaken a significant amount of work to improve the resilience of the NEM for the FY2018 summer.

As the power system operator, AEMO is responsible for maintaining power system security and reliability. If an event occurs which causes significant disturbances to the power system, AEMO must take all reasonable actions to return the power system to a secure operating state as soon as it is practical to do so, and, in any event, within 30 minutes.²¹

AEMO’s Power System Emergency Management Plan (PSEMP) enables a coordinated response across states to power system incidents. These arrangements are governed by the National Electricity Rules, the NEM Emergency Powers Memorandum of Understanding, and the NEM Emergency Protocol. The PSEMP is designed to complement each state’s own power system emergency response arrangements and communications plans. AEMO is reviewing the PSEMP to ensure that it is current before the FY2018 summer.

AEMO five point program to a secure FY2018 summer

Taking a more conservative approach to operating the NEM could improve power system security. This means operating the power system with increased generator, transmission and interconnector margins. This can be achieved by leaving sufficient headroom and running the power system components well within their technical envelope.

AEMO will continue to monitor conditions leading up to the start of the FY2018 summer and undertake the necessary measures to ensure the NEM remains stable. AEMO is currently progressing five measures underpinned by the implementation of the final recommendations from its review of the South Australian blackout,²² and the ongoing work of its Future Power System Security Program.

The five measures for the FY2018 summer include:

Supply availability: AEMO is focussing on increasing electricity supply from existing resources. There will be no scheduled summer maintenance of generators and all mothballed fleet will be required to be made available from October 2017.

Fuel availability: AEMO is contacting generators to ensure they will have enough fuel available to generate electricity at peak times, even after several successive hot days.

Network availability: AEMO is working with network businesses to ensure that required transmission network capacity is available and scheduled maintenance during summer is minimised.

Peak demand response: Under the Reliability and Emergency Reserve Trader provisions, AEMO is seeking expressions of interest for the provision of ‘long notice reserve’ in Victoria and South Australia for the FY2018 summer.²³ Reserve contracts could be used to access embedded generation, such as diesel and gas-fired generators connected to transmission and distribution systems (mostly located at industrial premises for their own use). It could also incentivise large consumers to reduce peak demand by load shifting. In addition to the use of the Reliability and Emergency Reserve Trader mechanism, AEMO is working with ARENA to pilot a new demand response initiative (see below).

Resilience and recovery: To maximise power system resilience and recovery, AEMO will be conducting emergency event planning and exercises.²⁴

Under its System Security Market Framework Review, the AEMC is progressing a number of rule changes to maintain the security of the NEM. To help prevent system-wide blackouts, the AEMC has introduced a new rule to enable AEMO to declare ‘protected events’. This is discussed further in Chapter 2.

Proof of concept – procuring demand response to manage reliability issues

ARENA and AEMO will be jointly piloting a new demand response initiative, set to begin in December 2017. This will help to manage electricity supply during extreme peaks. The three year program will be trialled in South Australia and Victoria to reduce demand during extreme weather and unplanned outages. Initially, the program will aim to secure 100 MW of demand response capacity by December 2017, with the potential to be scaled up in subsequent years. ARENA is committing up to $22.5 million over three years to fund the pilot.

Participants will receive incentive payments to be on standby in emergencies or peak demand days. They could be called upon by AEMO to switch off or reduce their electricity use temporarily, and would receive a further compensation payment for doing so. The program is expected to be open to demand response aggregators, large industrial and commercial users.²⁵

South Australia region

Since the South Australian blackout on 28 September 2016, AEMO and the South Australian Government have implemented a number of measures to reduce the risk of the South Australia region becoming separated from the rest of the NEM, and to address other technical issues highlighted by investigations into the event.

AEMO’s short-term initiatives include:

New constraints on the Heywood interconnector during credible contingencies.

A minimum requirement of two sufficiently large synchronous generators to be online at all times.

Improvements to emergency frequency control schemes.

New processes for reclassifying credible contingencies in response to changing network conditions.

Enhanced voltage ride-through settings on South Australian wind farms.

Addressing generator capabilities to withstand rapid changes in frequency.

As part of its Energy Supply Plan, the South Australian Government has also announced a number of measures to improve the resilience of the South Australian power system.²⁶ While these measures are progressed, the South Australian Government will work with the State’s transmission and distribution companies to provide up to 200 MW of temporary generation to be used in situations where extreme peaks in demand cannot be met in other ways. The South Australian Government has also introduced the Emergency Management (Electricity Supply Emergencies) Amendment Bill 2017, which gives the South Australian Energy Minister powers of direction in an electricity supply emergency for use as a last resort.

New South Wales region²⁷

The New South Wales Government established the Energy Security Taskforce chaired by Mary O’Kane AC, NSW Chief Scientist & Engineer in response to events relating to the February 2017 heatwave (as discussed in Box 1.1).²⁸ The Taskforce’s initial report was publicly released on 22 May 2017 and the New South Wales Government is acting on the recommendations.²⁹ The New South Wales Taskforce highlighted the need to monitor fuel availability (especially coal and gas) and suggested key priorities for the New South Wales Government in the lead up to the FY2018 summer are to:

Through the Premier and the Minister, take a leadership role in COAG and the Energy Council to have a national policy approach to climate change and the technology and market implications of these policies, to safeguard energy security and reliability.

Take measures to manage peak demand proactively, and through engaging community and industry support, with the Government to lead by example through development of a ‘code warm’³⁰ protocol.

If preventative measures fail and load shedding is required, make sure the processes are optimised and effectively communicated.

Improve the links between emergency management and the energy system, and make sure provisions, procedures and communications are refined and well-practised.

Victoria region

In preparation for summer, the Victorian Government is working with the energy industry to progress a number of measures including:

Commencing an expression of interest process to build two 20 MW battery storage facilities to improve grid stability.

Working with Emergency Management Victoria to strengthen coordination regarding emergencies involving energy supply disruptions. This includes the preparation and implementation of an annual Energy Sector Resilience Plan.

Ensuring compliance by operators of vital critical infrastructure under Part 7A of the Emergency Management Act 2013 (Vic).

Leading the Energy Sector Resilience Network – a forum for information sharing between government and industry, and between different industry sectors, concerning critical energy infrastructure resilience.

Supporting, with AEMO, the joint exercise to test the NEM arrangements for managing an event that affects the security of gas or electricity across NEM regions.

Tasmania region

In response to energy security challenges experienced in Tasmania in FY2016, the Tasmanian Government established the Tasmanian Energy Security Taskforce to undertake an independent energy security risk assessment for Tasmania.³¹

The interim Tasmanian Taskforce report was released in December 2016 and assesses that ‘there are no immediate threats to energy security in Tasmania’. The report also notes that the severity and occurrence of energy security incidents in Tasmania calls for ‘more conservative’ energy security settings, particularly given the unique characteristics of the whole Tasmanian energy system and the associated impact of rainfall variability on the state’s hydroelectric storages.

The Tasmanian Taskforce initial report identifies five priority actions (supported by 32 recommendations) to support Tasmania’s energy security over the short-term:

1.Define energy security and responsibilities.

2.Strengthen independent energy security monitoring and assessment.

3.Establish a more rigorous and more widely understood framework for the management of water storages.

4.Retain the Tamar Valley Power Station as a backup power station for the present and provide clarity to the Tasmanian gas market.

5.Support new on-island generation and customer innovation.

The Tasmanian Taskforce intends to focus its final report on the medium to long-term, including assessing options that could address some of the issues and challenges identified in their initial report. The final report will be delivered to the Tasmanian Government in June 2017.

Queensland region

The Queensland Government prepares for the summer storm season each year. This includes ensuring that the best available predictive information is available and reviewing emergency processes and contingency procedures.

Queensland’s government-owned electricity corporations’ summer preparations include:

Undertaking asset overhauls and maintenance outside of the storm season to ensure reliability during the summer period.

Electricity generators reviewing and testing their emergency procedures, managing staff levels and increasing supply stocks including coal stockpiles.

Electricity networks carrying out a number of preparative measures including: vegetation management, inspection and maintenance of assets, reviewing and testing emergency management plans, undertaking staff training and managing staffing levels, increasing supply stocks and undertaking stakeholder disaster management engagement.