Ahead of the Council of Australian Governments (COAG) Energy Council Ministerial meeting on Friday 22 November 2019, EY released an action plan to fix Australia’s creaking energy grid. Here, Matt Rennie, Oceania Power and Utilities Leader at EY, discusses the action needed to prevent Australia’s energy grid falling into disarray over the next decade.

Matther Rennie, Digital Utilities 2020 Speaker

Matther Rennie, Oceania Power and Utilities Leader, EY

Ahead of his presentation at the Digital Utilities 2020 conference in Sydney from 19-20 March, Mr Rennie explained that EY has developed key recommendations for the Federal, State and Territory Governments to implement.

This plan includes:

  • AEMO needs a new funding compact to undertake an enhanced coordination role for Australia’s energy grid as power becomes more decentralised – this coordination and management role does not negate the need for network providers to build the system
  • As part of this new role, AEMO should be given more power to influence the network architecture to efficiently manage a decentralised National Energy Network
  • Further rollout of smart meters for households to better understand their consumption and generation of energy
  • Better use of data to enable peer-to-peer communication and coordination of the energy grid in the future rather than continued reliance on a strong central authority to undertake those tasks
  • Investigation of demand-side incentives, including instantaneous price signals, to encourage more efficient use of energy by users such as households and businesses

At the heart of Australia’s energy policy paralysis is the lack of a strong, clear and mandated central coordinating authority. This is despite well-intentioned attempts to create such an authority. In 2017, the Council of Australian Governments (COAG) recognised the need for a coordinated approach, and through its Energy Council, set up the Energy Security Board (ESB) with representation from the Australian Energy Market Commission (AEMC) which is the ultimate rule maker; the Australian Energy Regulator (AER) which polices the rules; and the Australian Energy Market Operator (AEMO) which operates the system and markets.

For EY Oceania Energy Transition Leader, Matt Rennie, the coordination role is critical to getting the necessary grid transformation happening now. Bluntly put, it’s time to get things moving on the ground.

“There are two critical tipping points for the Australian generation mix,” Mr Rennie said.

“The first is the point at which new renewable energy is cheaper than new coal. The second is when new renewables are cheaper than existing coal.

“We passed the first one two years ago. The debate on coal versus renewables is over. We are now heading straight towards the second tipping point, with higher cost generators to be impacted by new renewables from 2027. It is time to start talking about how to create a reliable system in the face of massive changes in the cost of renewables. The question is no longer ‘whether’, and has moved past ‘when’. We are now talking how.”

Mr Rennie believes that the single most important factor missing from the market is a coordinated approach by a mature and enabled body. And that that body should be a beefed-up AEMO.

“The time for waiting is over. Billions of dollars need to be spent in the next 20 years, we simply can’t afford to wade into the water with our eyes closed. It is clear we need concerted action now to ensure Australia’s energy grid remains reliable and efficient,” Mr Rennie said.

“Our energy market operator must be given the power and resources to ensure Australia’s transition to renewable and decentralised energy is a success. AEMO is going to need a new funding compact to re-imagine and implement an even more complex and data-driven grid. We recommend they are given a significant additional capital injection to fulfil this expanded remit.”

Coordination of generation, transmission and distribution level assets doesn’t mean tossing out the existing state of play, but it does represent a significant amount of work and needs to be funded properly. Mr Rennie said this funding would need to be in the range of $1 billion to build the systems needed for the next 50 years.

“AEMO is going through a maturity journey of its own – they’ve never solved these problems before,” Mr Rennie said.

“AEMO needs to investigate and determine what the system requires and should be given the power and the knowledge and, crucially, the capacity to be able to do that. It needs a funding mechanism from state and federal governments that rivals the programs controlled by market participants if it is to play a central role. It can’t be asking the network participants to give it money every year like a membership fee – which it pretty much does at the moment.

“This is an engineering issue, not an economic issue. What matters now is keeping the lights on through the most efficient system design possible.”

He says AEMO needs budget allocations to execute significant capex programs.

“At a minimum, they need an imprimatur to develop a blueprint for a prudent and efficient network architecture to enable the future of the National Electricity Market. Questions around edge versus cloud technologies, communications protocols and technologies cannot be answered seven times by seven different entities. We have the governance system we need right now to see these decisions made. We just need to use it.”

Rennie is talking about the Australian Energy Market Agreement, the document that sees government act through COAG and allows the AER, AEMC and AEMO to co-exist in a growing and changing system.

“The roles of the three are clear,” Mr Rennie said.

“AEMO, as operator, has a clear mandate to operate the system and to develop the basis on which effective operation can be best enabled. The AEMC needs to be able to balance the needs of all of the stakeholders and develop rules which are to work.

“And then the AER needs to have a funding compact with all of the network companies to ensure the build is both necessary, interactive, prudent and efficient. This provides network investors with the certainty they need as well as allowing a playing field which is known and understood for new entrants and enabling technologies. Above all, households can’t afford to pay for system capability they don’t need.”

Mr Rennie said that the expansion of AEMO’s role into the distribution network will also undeniably require buy-in and flexibility from the current market participants.

“I understand that the network businesses in particular get a little bit nervous that AEMO is going to come in with their system operator hat on and manage the individual distribution networks,” Mr Rennie said.

“But if the grid is to transform, we simply need to clearly delineate the roles of market participants and recognise that system operation will extend into decentralised energy in the future. The distribution system will become the source of generation in a decentralised world.

“There are a number of outstanding questions that must be resolved in a clear, coordinated and consistent manner – and it’s our view that engineering reliability should be the first priority of policymakers. AEMO is best placed to answer these first-order questions, with input from other parts of the energy grid.”

What opportunities will the future energy system present for agile network players?

Hear more from Matt Rennie about how utilities can reshape themselves, with digital capabilities at the core of change, in readiness for a vastly different energy world at Digital Utilities 2020, running from 19-20 March at the Sofitel Wentworth in Sydney.