Energy transition in liberalised electricity markets: Lessons from Australia
AuthorMcConnell, Dylan James
AffiliationSchool of Earth Sciences
Document TypePhD thesis
Access StatusThis item is embargoed and will be available on 2022-03-02.
© 2019 Dylan James McConnell
Renewable energy generation is being added to global electricity supply at a remarkable pace. A primary driver for this expansion has been the extraordinary cost reductions achieved by the sector, in large part in response to both explicit and implicit climate policy measures and objectives. While a globally consistent and coherent climate policy remains elusive, research and development efforts, deployment policies and industrial policy motivated by the need to dramatically reducing carbon emissions have all contributed to the recent success of the renewable energy industry. In December 2015, a historic global climate agreement was devised under the auspices of the United Nations Framework Convention on Climate Change at the 21 st Conference of the Parties in Paris. This agreement includes a global goal to hold average temperature increase to well below 2C and pursue efforts to keep warming below 1.5C above pre-industrial levels. According to the International Energy Agency, the average CO 2 intensity of electricity will need to fall from 0.411t/MWh in 2015 to 0.015t/MWh by 2050 (IEA 2016). Any future scenarios that meet this objective will necessarily involve significantly increased penetrations of renewable energy (Holz and Von Hirschhausen 2013). While many studies have concluded that such a substantial de-carbonisation of the electricity sector with renewable technologies is feasible, to date such studies have tended to focus on the technical viability of systems with high penetration of renewables to reliably supply electricity. In Australia alone 1 , there are now several such studies that show that 100% renewable energy systems are technically capable of meeting our electricity requirements (AEMO 2013a; Elliston, MacGill, and Diesendorf 2013; Wright and Hearps 2010). Challenges remain, but the questions are now shifting from technical viability to economic feasibility (Riesz 2012). Notwithstanding this, reaching high penetration of renewable energy requires more than technical or economic feasibility. There is a particular need for careful consideration of market design (IEA 2016). In this thesis, I explore the way market design issues are impacting the penetration of renewable energy in the context of the National Electricity Market (NEM) in Australia, with a particular focus on the experience in South Australia. Three different aspects of energy market design are considered in this thesis. Firstly, I consider how the current market design values energy arbitrage and storage. Secondly, I consider how specific market rules related to dispatch and settlement intervals impact the technology mix and capabilities, and effect the efficiency of the market itself. Finally, I consider how new technologies impact on secondary markets such as frequency control which have typically been provided by thermal generation. The thesis begins with a review of the energy-only market structure and design. This includes discussion of the ‘capacity cycle’ from both a historic and forward looking perspective, and how it is impacted by renewable technologies. The suitability of traditional ‘capacity overhang’ heuristics in a system where older technologies are displaced or replaced by fundamentally different technologies is discussed. I also explore the interaction with historical problems that remain contested and unresolved for energy-only markets, such as the so-called ‘missing money problem’, as well as the viability of energy-only markets in high penetration renewable energy systems. The second chapter specifically looks at the contextual settings of the Australian NEM, and in particular, the South Australian (SA) market region. Considered in isolation to the NEM, South Australia has an exceptionally high penetration of renewable energy, even by international standards, making this region a noteworthy case study in energy system transition. The historical and geographical context in which SA sits is nonetheless critical to understand both its place in the NEM and how it has responded to date. As such, this chapter includes an overview of the SA market, and important characteristics including energy mix, the size of the market, the impacts of the recent exit of coal generation and resultant changes in market concentration. The third chapter focuses on the way increasing renewable energy generation and price volatility give rise to opportunities for storage technologies in an energy-only market, using the NEM and SA as an example. In particular, I demonstrate that the main driver for storage options in an energy-only market is price volatility which, in turn, is dependant on capacity requirements to meet particular reliability settings. I show that storage technology economics are very similar to the economics of traditional forms of peak generation in this respect, and common hedging and contracting strategies used by peak generators would be suitable to finance storage assets. The analysis suggests that in energy only markets storage may also derive a competitive advantage over traditional peaking assets by deriving revenue from arbitrage opportunities, in addition to capacity payments. A case study involving Pumped Hydro Energy Storage (PHES) demonstrates that in certain circumstances, it may already have a competitive advantage over Open Cycle Gas Turbines (OCGT). The fourth chapter looks at a particular market-market design element, and investigates how this impacts the different technologies, and the efficiency of dispatch in the market. Specifically, I examine a particular characteristic of the NEM in which physical dispatch (which occurs on a 5-minute interval basis) is misaligned with financial settlement (which occurs on a 30-minute interval basis), and the incentives and outcomes that result. Drawing on the analysis and methods from the previous chapter, the effect and value of aligning these intervals is evaluated for storage technologies. The impact on other technologies, including demand side response and the costs to the system of ‘gaming’ this particular rule is also estimated. I find that market rules have a significant impact on the operation of an energy-only market under transition. The fifth chapter examines how, in a high penetration renewable market, storage technologies are able to contribute to security of supply, allowing for changes in traditional market management strategies. Specifically, I look at how lithium-ion batteries have participated in the existing frequency control framework, and the implications for the provision of system security in the longer term. The final chapter summarises and concludes the thesis, including a discussion of further avenues for analysis. A range of outputs have been generated as part of this thesis. In particular, chapter 3 was published as a journal article, while the analysis in chapter 4 was submitted and contributed to the Australian Energy Market Commission, as part of its assessment of a rule change. Finally, the analysis draws heavily on market data from the Australian Energy Market Operator (AEMO). In undertaking this analysis, substantial amounts of the publicly available data provided by AEMO have been curated in a large database that continues to be updated in real time. This database now exists as the ‘openNEM’ project - an online resource that is now both open access and opensource. Further details are provided in appendix F. Prior to this thesis I was the lead author of a journal article that investigated the merit order effect of rooftop solar in Australia (McConnell et al. 2013), and was co-author of a paper published in the Journal of Environmental Sociology (Haines and McConnell 2016) and another in the electricity journal (Sandiford et al. 2015). Whilst these are not included or part of this thesis, these work have informed my knowledge of the research area.
KeywordsRenewable energy; Renewable energy integration; Liberalised electricity markets; National Electricity Market; Electricity market design; Electricity storage; Electricity storage optimisation; Frequency control; Frequency control ancillary services; Energy-only market
- Click on "Export Reference in RIS Format" and choose "open with... Endnote".
- Click on "Export Reference in RIS Format". Login to Refworks, go to References => Import References