Australia’s energy system is evolving. While the shift towards renewables presents exciting opportunities for energy consumers and providers, it also presents significant challenges – including a rapid decline in demand for energy from the grid during the day.
Operational demand is the demand for energy supplied from the national power system, or grid. Minimum operational demand, then, is the lowest level of demand for energy from the grid in any given day.
For the power system to be operated securely, there are thresholds that demand cannot fall below. At present, the Australian Energy Market Operator (AEMO), responsible for managing the day-to-day operation of Australia’s energy markets and systems, estimates at least 4 to 6 gigawatts (GW) of operational demand is required in the mainland National Electricity Market (NEM) at any given time.
But minimum operational demand is falling rapidly, and if no action is taken, it will become increasingly challenging for AEMO to operate the system securely.
Here’s why minimum demand is becoming a major issue, and what AEMO plans to do about it.
What’s driving down demand?
The way Australia produces and manages electricity is changing. Rather than electricity being generated solely by the centralised power stations that supply energy to the grid, distributed energy resources (DER) are becoming more common – these are renewable energy units or systems that are commonly located at homes or businesses. These are also referred to as behind-the-meter systems.
When households and businesses are able to supply more of their own energy with behind-the-meter systems, such as rooftop solar PV units, they demand less energy from the grid.
AEMO’s most recent Electricity Statement of Opportunities (ESOO) found that the NEM is leading the world in the growth of rooftop solar, which is driving operational demand to new lows.
On 10 October 2020, a record maximum 35 per cent of underlying demand – all the electricity used by consumers, including energy sourced from the grid and DER – was met by rooftop solar, and operational demand reached a new minimum record of 13.6 GW.
AEMO forecasts an additional 8.9 GW of rooftop solar capacity to be installed by 2025, which will drive demand for energy from the grid down further. By 2026, AEMO predicts rooftop solar could supply up to 77 per cent of underlying demand in the mainland NEM at times.
If large-scale solar and wind resources are included, AEMO expects renewables to meet 100 per cent of underlying demand at certain times of the day throughout the year by 2025.
Why does minimum demand matter?
AEMO actively manages the dispatch of energy from centralised generators – including coal, large-scale solar, wind, gas and hydro units – to maintain precise supply-demand balance.
A minimum number of these centralised units must be online, at or above minimum generation levels, to supply essential system security services, including system strength, inertia, frequency control, voltage control and reactive power management, and ramping management.
As noted in AEMO’s ESOO, a power system supplied primarily by distributed generators will operate very differently. Most rooftop solar systems in the NEM today aren’t subject to the same performance requirements as centralised generators, and can’t be actively managed by AEMO, even under emergency conditions.
Even some of the services provided by centralised units, such as inertia and system strength, can only be effectively provided by centralised synchronous units, such as coal, gas and hydro units, or synchronous condensers – they can’t be provided by centralised solar or wind generation.
To support the minimum generation levels of the units that provide the services required for the secure operation of the grid, AEMO estimates that a minimum of approximately 4-6 GW of operational demand is required in the mainland NEM at any given time.
AEMO now forecasts that minimum demand will decrease to this critical threshold by 2025-26. Even before then, AEMO says the system will struggle to cope with network and unit outages, and with events such as bushfires and storms.
Initially, the occurrence of demand below this threshold will be rare, and only apply to a small handful of intervals. But over time, the incidence and duration of periods below the threshold will grow.
As operational demand begins to fall into this range regularly, AEMO says there will be reduced operational flexibility, and it will become increasingly challenging to operate the power system securely.
When these thresholds are reached, AEMO says it will become increasingly necessary to take extreme actions, including selectively disconnecting whole distribution feeders (electrical distribution networks), which would lead to all consumers on that feeder losing their power supply.
In some regions where the majority of consumer load is residential, and uptake of rooftop solar is particularly high, AEMO says it may reach a point where disconnecting feeders is not enough, and it will simply no longer be possible to operate the NEM securely in periods of low operational demand.
In that case, the power system wouldn’t have adequate frequency control and system strength to act as a safety net in the event of a moderate contingency, like a generator trip or network fault. This could result in a cascading failure to what’s called a black system – a large-scale blackout of the power system.
These contingency events aren’t exactly uncommon, either. AEMO says they were reported at a rate of at least once a week across the NEM from 2018 to 2021, but until now, the required frequency control and system strength services have been in place to secure the grid.
But in the near future there could be extended periods for many hours during the middle of each day when the grid would be at risk of black system events – each of which is estimated to cost consumers somewhere in the range of $300-500 million.
How will system security be maintained?
Renewables are here to stay, and there’s no putting the genie back in the bottle. The question isn’t whether or not we can revert to the old status quo, but how the security of the system can be maintained as it evolves.
AEMO’s ESOO makes the case that no single institution, industry sector or consumer group can solve the issue of decreasing minimum demand by themselves, but close collaboration between industry, market bodies, governments, consumer advocates and AEMO itself can ensure the system continues to operate securely, reliably, safely and affordably beyond 2025, when minimum demand thresholds are currently forecast to be reached.
The range of required adaptations cited by AEMO fall into four categories.
- Social licence for active management of DER. As discussed above, AEMO has traditionally managed a power system supplied primarily by centralised generators, as opposed to DER such as rooftop solar. However, new technology makes it possible for DER to be actively managed through virtual power plants (VPPs) – but AEMO says this can only be done with community approval, which will require educating consumers about the benefits of AEMO actively managing their systems.
- Adapted market and regulatory frameworks. Since the majority of resources in a high DER system will be owned and operated by consumers, AEMO says frameworks need to be put in place to incentivise consumers to make decisions about their energy production and consumption that align with the needs of the larger power system.
- Foundational security adaptations. Investment in new assets that provide the essential system security services currently provided by traditional generation assets could enable minimum demand to safely fall below the forecast 4-6 GW threshold. These could include synchronous condensers to provide system strength and inertia; reactors to provide voltage control; and batteries to provide frequency control.
- Emerging opportunities for stakeholders. AEMO says it aims to give stakeholders as much transparency as possible, and provide an early view of where and when opportunities could emerge to facilitate the development of the market, so that they can be properly valued. To that end, AEMO aims to encourage investment in frequency control services, load management, active DER management, energy storage, and generator and load flexibility.
AEMO’s ESOO also projects that if demand for renewable hydrogen increases rapidly, the NEM could see significant load growth and greater load flexibility. The electrolysers required to produce renewable hydrogen can be powered by renewable solar energy, and could be operated when that solar energy was readily available in the middle of the day, helping to soak up excess solar generation.
There are a number of major renewable hydrogen projects in various stages of development across Australia, including the 300MW Central Queensland renewable hydrogen project being developed by a consortium formed by Stanwell, leading Japanese companies Iwatani Corporation, Marubeni, Kansai Electric Power Company and Kawasaki Heavy Industries, and Australian gas infrastructure company APA Group.
Directly substituting electricity for fossil fuels is another way to significantly increase demand. And like renewable hydrogen, it has the added benefit of decarbonising the sectors that choose to do so. ESOO analysis suggests that with strong incentives for the electrification of the transport, residential and industrial sectors, fuel-switching from other fuels to electricity could be as high as 81 terawatt hours (TWh) by 2030-31 – equivalent to 46 per cent of the total operational consumption in the NEM today.
As the necessary adaptations are made, the prospects for an energy system powered by renewables look bright. In the meantime, traditional generation assets will continue to play a critical and ongoing role in supporting the frequency and inertia requirements of the system, ensuring the grid remains stable, secure and reliable as we move towards the future.