Costs incurred by the body that keeps the lights on across Australia's major electricity systems are skyrocketing as surging levels of renewable energy increasingly challenge the security of the grid.
Following another year in which record amounts of renewable energy were added to the national electricity mix, the Australian Energy Market Operator (AEMO) is pushing for a big hike in funding to oversee one of its key jurisdictions.
The agency wants $156.2 million over three years to 2025 — a 66 per cent jump on the previous period – to operate the main electricity market in Western Australia.
In a submission to WA's economic watchdog, the AEMO said it needed the extra funds to help cope with the increasing complexity and volatility in the market as more and more renewable energy flooded onto the system.
"While the growing level of variable renewable generation is helping the [WA system] transition towards clean, low-cost generation, it can pose operational challenges," it said in its submission.
The proposal mirrors the AEMO's actions in Australia's biggest power system — the National Electricity Market (NEM) – where the organisation has faced steeply rising costs to stabilise a grid that services almost 10 million customers.
As part of its most recent snapshot of the market, the Australian Energy Regulator (AER) noted the AEMO was spending tens of millions of dollars on contingency measures to ensure the NEM did not run short of power at vulnerable times.
Costs rise in 'stressed' grid
Much of the outlay was on back-up capacity — provided either by power plants that could generate electricity or major users who could scale back consumption when needed — for times when the grid was "under stress".
The AER noted that the so-called reliability and emergency reserve trader scheme had been in place for a number of years but had rarely been used until recently.
It said the scheme had now been invoked in all the biggest states, including South Australia, Victoria, New South Wales and Queensland, while its total cost between 2017 and 2020 had reached $110m.
On top of this, the regulator said the AEMO was having to intervene in the normal functioning of the market by calling on more expensive power plants that could help with the stability of the grid.
The regulator noted these interventions had "risen sharply in recent years" as the AEMO ordered some generators, such as gas-fired power plants, to stay on while telling others, including wind and solar farms, to back off at certain times.
These interventions had come "at significant cost to consumers", the AER said, with the AEMO shelling out $50m in 2018 and 2019 to compensate affected generators.
Despite efforts to control these costs, the AER noted they were higher still in 2020 at $66m.
"Aside from formal compensation, the use of constraints or directions penalises consumers by driving up wholesale electricity prices," the AER said in its report.
"For example, by restricting wind or solar output that might have zero marginal costs, AEMO directions may lead to dispatch from synchronous (coal- or gas-fired) generators with higher costs."
Records tumble in renewable wave
The AEMO said the growing challenges of keeping the lights on were highlighted in its latest snapshot of the market, which showed record volatility in the three months to December 31.
Minimum demand for electricity from the grid fell to new lows in SA, NSW and Victoria as cooler weather subdued demand and growing amounts of rooftop solar pushed out fossil fuel-fired generators.
Across the NEM, the average output of renewable energy also increased from 31.6 per cent to 34.9 per cent, with maximum output reaching as high as 61.8 per cent for a short time on November 15.
The AEMO said the combination of factors helped to push wholesale power prices into negative territory, where generators have to pay someone to take their electricity, a record number of times.
At the same time, the market body noted its own costs "remained elevated" for the quarter as it scrambled to ensure there was enough back-up to meet demand when renewable generation fell away or when there were other shocks to the system.
Synergy, the WA state-owned power provider that would be up for the biggest share of the AEMO's cost increase in the west, declined to comment.
The Australian Energy Council, which represents big electricity providers, said the AEMO's spending plan reflected the "dramatic shift in the energy mix and significant government reforms".
But the council also said it was critical to ensure the AEMO's spending was transparent to ensure it was kept to a minimum.
"WA's Economic Regulation Authority … plays an important oversight role [in the WA market] and we expect to make a detailed submission once the ERA has released its draft determination," a spokesman said.
