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Managing the transition to higher variable renewable energy penetration

The challenge for Australia’s electricity market

The Renewable Energy Target has driven the unprecedented deployment of rooftop solar PV and utility-scale renewables in Australia over the past few years. This growth is expected to continue in 2019. While the variable renewable energy capacity has increased rapidly since 2016, over the same period more than 2300 megawatts28 of coal fired synchronous generation capacity has been retired from the National Electricity Market.

The Renewable Energy Target incentivises generation from renewable energy sources, which diversifies the energy resources in the electricity grid and reduces greenhouse gas emissions from the electricity sector. However, the Renewable Energy Target does not incentivise the flexible capacity required to support the transition to an electricity grid with a high penetration of variable renewable energy.

Australia’s National Electricity Market operates on one of the world’s longest interconnected power systems, stretching from Port Douglas in Queensland to Port Lincoln in South Australia and across the Bass Strait to Tasmania—a distance of around 5000 kilometres. The unique size and shape of Australia’s National Electricity Market means the rapid transformation of the energy supply requires complex management.

Figure 10: New renewable capacity, 2016 to 2019
Figure 10: New renewable capacity, 2016 to 2019
Rooftop solar PV (0-5 megawatts)Utility-scale solar PV (over 5 megawatts)WindOther fuel sources
2019 (projected)2.222.30

The National Electricity Market was designed around large thermal generators located close to major load centres. Now, large renewable power stations are typically distant from those load centres and cities are increasingly generating significant amounts of electricity from solar systems on rooftops.

The Australian Energy Market Operator has been using its operational levers to ensure the electricity grid is operating within technical limits. This includes constraining the dispatch of renewable generators at times in areas where there is too much wind and solar generation and insufficient synchronous generation, as well as relying on the Reliability and Emergency Reserve Trader program.

Dispatchability and predictability in the National Electricity Market

In an electricity grid, supply and demand must be kept in balance to ensure frequency and voltage remains within tight technical limits. In Australia, the Australian Energy Market Operator manages the operation of the National Electricity Market and the challenges that come with balancing supply and demand of a large, changing electricity grid29 with a high penetration of renewables. To keep the National Electricity Market within technical requirements, both the Australian Energy Market Operator and network service providers need access to operational levers. These represent the ability manage dispatch and configure power system services to maintain system security and reliability as well as the ability to both measure energy demand and generation output in real time and forecast into the future.30

These levers were an inherent part of a grid of mostly uniform energy supply, which comprised Large-scale fossil fuel-fired synchronous generators. This was relatively easy with predictable demand allowing large thermal power plants to slowly ramp up and down to meet that demand. Achieving the same level of stability in the grid transformed with varied energy resources located far from loads requires greater levels of flexibility, including generation sources that can be ramped up and down much more rapidly to keep supply and demand in balance.

Electricity supply from weather dependent utility-scale wind and solar generators is currently less predictable than electricity supply from fossil fuel-fired synchronous generators. More than 8 gigawatts of distributed Small-scale solar PV is on rooftops, and this presents the Australian Energy Market Operator with a significant challenge in forecasting how these systems will behave at any given time as it depends on the level of sunlight available over a sizeable geographic area. The aging thermal generators also face potential issues in maintaining generation on hot summer days when demand peaks and high temperatures may increase the likelihood of plant failures. The slower ramp rate of these thermal generators means they are unable to respond quickly to sudden changes in supply or demand caused by changing weather or as a result of thermal power station outages.

Flexibility in the National Electricity Market

A flexible electricity grid is one that can respond quickly to sudden changes in electrical supply or demand. This is increasingly important for a grid with high penetrations of variable renewable energy.

Technologies and standard techniques are available to improve the flexibility of a grid with high penetration of renewables and an ageing fleet of thermal generators. These include open cycle gas turbine and diesel generation systems, battery storage, virtual power plants, pumped hydro energy storage and demand response, as well as increased grid and interconnection capacity (see Table 1). All of these systems have been, or are in the process of being, deployed in Australia.

Future options include concentrated solar thermal with storage, hydrogen and biomass based systems.

Table 1: Technologies or mechanisms for flexibility in the National Electricity Market
Technology or mechanism for flexibilityHow is flexibility achieved?
Large-scale and Small-scale batteriesBatteries can be charged using thermal, wind or solar energy at times of low demand. This stored energy can be released during periods of high demand, for example Small-scale batteries can be used by the household at night during peak demand when electricity prices are high. Batteries can provide excellent grid stability services due to the speed (milliseconds) with which they absorb or dispatch electricity on demand. Batteries are typically used for relatively short duration interventions of minutes or hours.
Virtual power plantsVirtual power plants are a coordinated group of distributed energy resources and can have similar functionality to Large-scale batteries. They offer additional flexibility through the central management of aggregated Small-scale batteries that can dispatch or consume electricity to manage local voltage or frequency variations to improve grid stability.
Pumped hydro energy storagePumped hydro can effectively act as a battery, by storing excess energy from any power source including thermal, renewables (such as wind and solar) and releasing the energy when required. Pumped hydro quickly responds to changes in demand by ramping up or down in a matter of seconds, delivering a flexible source of power. In contrast to batteries, pumped hydro can provide power for hours or days depending on the size of the water storage capacity.
Open cycle gas turbines and diesel generation systemsOpen cycle gas turbines can be started within minutes and ramped up and down quickly to meet spikes in demand or sudden changes in loads. However, they are relatively expensive to operate due to high fuel costs coupled with low efficiency at part load. Diesel generation systems have faster ramp rates than open cycle gas turbines and can maintain higher efficiency at part loads, but are expensive to operate for long periods due to the cost of fuel.
Increased connectivityA more interconnected grid provides better use of resources across the National Electricity Market, through both access to lower-cost resources and realising the benefits of diversity from different resources in different locations with different generation profiles.
Demand responseDemand response offers flexibility through instantaneously reducing demand when supply is insufficient to meet demand. The use of this mechanism can reduce the need for involuntary load shedding.

Examples of increased flexible resources in the National Electricity Market

Tasmania has a large wind resource firmed by existing reservoirs across several hydroelectric schemes. This offers significant potential to deliver dispatchable on-demand generation and power system stability services to the National Electricity Market. Marinus Link, if it proceeds, will be able to support power transfers of up to 1200 megawatts between Tasmania and Victoria. This is in addition to the existing 500 megawatts Basslink Interconnector, which already supplies some of the peak load capacity to the eastern mainland states over summer.

In addition to the Snowy 2.0 pumped hydro project, an increasing number of mid-size pumped hydro power stations are being planned in New South Wales, Queensland and South Australia.

An increasing number of Large-scale renewable power stations are including additional infrastructure in their design in anticipation of installing energy storage systems. Large-scale and Small-scale batteries can be deployed much faster than building pumped hydro energy storage systems. A number of Large-scale renewable energy projects are co-locating battery storage with wind or solar farms, including Kennedy Energy Park in Queensland comprising 43.5 megawatts of wind power, 15 megawatts of solar power and a 2 megawatt battery, and the Gannawarra Solar Farm in Victoria with 50 megawatts of solar power and a 25 megawatt battery.

With the highest per capita uptake of Small-scale rooftop solar PV in the world, Australia’s focus for virtual power plants is to coordinate rooftop solar PV and battery storage. Battery storage is growing rapidly in Australia, with Bloomberg New Energy Finance31 estimating a 37 per cent increase in batteries between 2017 and 2018, and an expectation this will triple by 2019 with an expected 60,000 batteries installed. The data that is voluntarily disclosed to our agency on batteries installed concurrently with Small-scale solar PV systems shows a 16 per cent increase in the number of batteries between 2017 and 2018. This is partially driven by subsidy programs in several states and territories.

Supporting predictability in the National Electricity Market through data sharing

The Australian Energy Market Operator values access to data from multiple agencies at both state and federal levels to assist them to maintain and improve power security and to develop forecasts to improve the dispatch system’s ability to balance supply and demand. For example, the Australian Energy Market Operator registers all power stations over 30 megawatts, but has little visibility of smaller capacity systems.

We continue to provide key information gathered through the schemes we administer regarding distributed energy sources and utility-scale renewable energy power stations that can help manage the transition of the grid. We assist this transition by providing data and information through:

  • An automated data exchange on Small-scale solar PV systems with the Australian Energy Market Operator. This will be extended to cover all Large-scale systems, in particular those sized below 30 megawatts, for which the Australian Energy Market Operator has little visibility. We are also a member of the Distributed Energy Resources Register working group set up by the Australian Energy Market Operator.
  • The Solar Panel Validation Initiative (see page 45), which addresses the issue of unapproved panel installations in the Small-scale Renewable Energy Scheme. This initiative will be augmented to incorporate batteries.
  • Information sharing with various agencies regarding the pipeline of utility-scale renewable energy projects to ensure there is transparency on the pace and scale of renewable energy projects.

Looking forward

As the rapid pace of renewable investment continues, planning for the integration of a much higher penetration of renewables into the national electricity grid is the next key phase in Australia’s transition to a clean energy future. As the penetration of variable renewable energy passes 40 per cent, technologies such as storage32 are required to support the grid. Introducing flexible technologies and mechanisms assists with the challenges facing the National Electricity Market. The National Electricity Market is currently seeing renewable energy generation33 of a little over 21 per cent, with Tasmania at 95 per cent and South Australia at 51 per cent.

If flexible capacity does not keep pace with the addition of variable renewable energy, the Australian Energy Market Operator may have to keep using its operational levers to ensure the electricity grid is operating within technical limits.

Looking forward as the Australian Energy Market Operator’s 2019–20 Integrated System Plan is delivered we will see a more interconnected system with significant levels of storage as well as synthetic and actual inertia to maintain the operational effectiveness of the National Electricity Market. This, together with a range of more flexible energy capacity, will provide electricity market operators with the tools to improve the stability and efficiency of electricity systems while accelerating carbon abatement in Australia.

  1. South Australia’s Northern and Playford power stations closed in May 2016 followed by Victoria’s Hazelwood in 2017.
  2. Australian Energy Market Operator, Integrated Systems Plan, July 2018, p.4, available at: Electricity/NATIONAL ENERGY MARKET/Planning_and_Forecasting/ISP/2018/Integrated-System-Plan-2018_final.pdf.
  3. Australian Energy Market Operator, Power Systems Requirements, March 2018, p.5, available at:
  4. Bloomberg New Energy Finance, ‘Australia Residential Storage to Triple, Despite High Cost’, November 2018, p.2.
  5. Energy Networks Australia, Electricity Network Transformation Roadmap: Final Report, April 2017, available at:
  6. Department of the Environment and Energy, Australian Energy Statistics, Table 0, March 2019, available at:

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