National Electricity Market Management Company Reserve Capacity The conversation around generation supply can often get very confusing and also very political. After all, do we want to see more coal fired generators or wind farms, can solar or greater energy efficiency meet our needs, or do we need to consider nuclear power? While the issue of the type of generation is important, the reality is that Australia's most immediate issue is meeting peak demand, not the base demand (where we currently use about 60% of the available base generation capacity). In the summer of 2005/06 Victoria and South Australia combined was short of reserve capacity by up to 700MW. The latest estimate for next summer in Victoria and South Australia combined, at time of writing, as seen in the chart below, is around 200MW to 400MW. This is significantly less than last year's requirement because it includes 300MW of the 600MW Basslink (the interconnector between Victoria and Tasmania) and a new 310MW gas generator at Laverton (Victoria). However, because the peak demand continues to grow at the considerable rate of around 3% per annum, the predicted shortfall in reserve continues unabated for the ensuing summers.Also, for the first time since the formation of the NEM, the New South Wales grid is running short of reserve at peak times, and to a lesser degree so is Queensland, as shown below. Is building more infrastructure the solution?Building more infrastructure is the traditional solution to meeting reserve capacity needs. However, infrastructure is a costly and highly inefficient use of capital if only required for less than 1% of the year. Such infrastructure can be in the form of a peaking generator/s or new interconnectors (or increased the capacity of an existing interconnector) to take advantage of excess capacity in another state/s, whenever possible.The current cost of building gas peaking generators, the most popular form of peaking plant, is about $600,000/MW. Hydro generation is also well suited to meeting peaks. However, our dry continent leaves little opportunity for further large or medium scale hydro generation developments. Further, large water storages often accompany hydro projects as reserve capacity, but do we want to flood more precious land and pristine valleys for water storage? Recent history, like the Franklin River Dam protest, suggests that, politically and environmentally, such hydro options are highly unpalatable to the community. Other generator types are even more expensive, and some, such as wind generators, photo voltaic cells, brown and black coal generators are really not well suited to peak generation.Increasing the capacity of the interconnectors or building new interconnectors would be counterproductive when New South Wales and Queensland are also short of reserve, especially as peaks are coincident in time. Indeed it is yet to be seen if Tasmania (via Basslink), which is heavily dependent on hydro, will be a net exporter or importer of electricity. Ideally, Tasmania should be an importer at off-peak times and an exporter at peak times. If lower rainfall predictions across the continent are realized, Tasmania will certainly be a considerable importer of electricity. Few amongst us would condone the building of more power plants and now that Tasmania interconnects with the NEM we could further diminish water reserves in that state to meet the demand on the mainland. Water is actually a far more valuable resource than the price of water or the price of electricity generated from hydro plants would suggest. Both gas and hydro generators are relatively Greenhouse Gas (GHG) friendly. However, there are also "demand side" alternatives that we must fully explore that are even friendlier. After all, is it not better to produce less electricity, thereby saving more resources, rather than using (wasting) more resources - both in terms of capital and energy?
DSR used for Reserve Capacity:
Reduces cost of reserve requirements by about $100million pa and releases generation capacity to supply energy rather than reserve, further deferring the need to build new generation (both peak and base load) Reduces GHG emissions peak lopping will reduce CO2 production equivalent to the consumption of 300,000 households
NEMMCO Reserve Trader
In November 2005 NEMMCO tendered for 500MW of Reserve capacity for the period 16 January to 10 March 2006. On 13 January 2006 NEMMCO announced Energy Response Pty Ltd was awarded a contract to supply 125MW of firm Reserve through aggregated Demand Side Response. Energy Response will supply DSR (as Reserve Capacity) of up to 125 MegaWatts for 15 hrs per day. This equates to about 25% of the total Vic - SA shortfall of electricity Reserve required during peak times. Energy Response's effective DSR measures operating in response to the NEM will result in significant value to the Australian economy as it will reduce the cost of managing the extreme price volatility in the wholesale market, improve the efficiency of the capital investments in the networks, and will improve the national power system reliability and security. Why consider curtailing Electricity Demand? Curtailing demand is a far better alternative than building more infrastructure: it's just that as a society we have been conditioned to think that if we use more energy then we need to build more power stations. It does not have to be that way. The NEM is large and dynamic enough for there to be considerable demand side potential. Demand side options can be quite dramatic. For example, if an Aluminum smelter was to drop a pot line off supply for an hour there could be 200MW of demand come off the grid very quickly (about the size of one of the eight Hazelwood generators). NSPs can also shed load by switching whole feeders off, or entire zone substations, blacking out entire suburbs. While this is a rare occurrence, it can even happen automatically if the power system frequency gets too low (which can happen if there is insufficient reserve capacity). Weighing up the options against a backdrop of rocketing peak demand, do we really have a choice? Why burn more gas unnecessarily? Why build more infrastructure that will only be used for less than 1% of the year? It is imperative that as a society we start looking at alternatives that are far more efficient, more cost effective and friendlier to our environment. Also, for the benefit of Australian electricity consumers and our exporters, it is imperative that we claw back as much of the $3billion or so wasted in peaks as possible. This is the only way to prevent the price of electricity from rising significantly in real terms. Our manufacturing industry would be devastated by a 20% above inflation price hike and more jobs would almost certainly leave the country.Our reserve shortages are not about to disappear in a hurry, and, at 3% per annum, peak demand is doubling in size every twenty years. Ultimately there will be an extremely hot week or two. Actually we are overdue for such an event, and a plant failure is always on the cards. What then?
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