Blackouts and the politics of power

by Tony Wood

Published by the Australian Financial Review, Sunday 10 February

Governments and the energy industry share the task of delivering an affordable electricity supply that is reliable and clean. Rolling summer blackouts and high-voltage media attention on a system under heat stress have raised the stakes. Governments must act and be seen to act, yet ensure their actions do not make things worse and are in proportion to the problem. This is hard to do.

Load-shedding was imposed on more than 200,000 Victorians on January 25 when there was insufficient supply to meet demand for several hours. In Sydney, more than 40,000 consumers lost power on January 31 due to a network failure. As happened after the 2016 statewide blackout in South Australia, some politicians and media commentators are exploiting these outages for their own purposes, seeking to convince us that more wind and solar power is making electricity less reliable and that it’s likely to get worse.

A new Grattan Institute report, Keep calm and carry on: Managing electricity reliability, shows the causes of power outages do not align with the popular perception.

Summer heat puts stress on all parts of the electricity system – power generators, transmission lines, transformers, substations and consumers. Responding to that stress requires understanding the individual impacts and ensuring the cost of each response is justified by the benefit.

As more coal generators are closed and summer heatwaves become more severe, outages will increase unless investment in new supply follows. But a lack of generation capacity on hot days caused only 0.1 per cent of all outages over the past decade.

To encourage investment and keep this problem rare, governments need to create a stable policy framework to reduce greenhouse gas emissions and ensure that retailers have enough supply to meet the needs of their customers. The Emissions Reduction Obligation proposed by the Energy Security Board and being resurrected nationally by the NSW government could meet the first half of this objective. The COAG Energy Council’s plan to implement a Retailer Reliability Obligation by mid-2019 could meet the second.

Extreme circumstances

To cover potential shortfalls that emerge with short notice (months), the market operator (AEMO) currently uses the Reliability and Reserve Trader (RERT) mechanism to contract backup such as fast-start gas generators, diesel generators or demand reductions. This capacity is not traded in the day-to-day market, but can be deployed under extreme circumstances. Last week the Australian Energy Market Commission (AEMC) proposed sensible refinements to the RERT, which should ensure that backup is procured and dispatched when the cost of doing so is less than the cost of load shedding.

More than 97 per cent of outages over the past decade have been caused by problems in the distribution networks. Most of these are due to local issues such as inquisitive animals, wild storms, fires or flooding. Customers seem to accept that these causes are unavoidable and unpredictable “acts of God”. It would be unacceptably expensive to try to prevent all these outages. Yet, customers seem to consider that a supply shortfall caused by extreme demand on very hot days is more predictable and therefore less acceptable.

But investment to make networks more resilient to hotter days must still be justified against the benefit delivered. There is a risk that consumer and political intolerance of outages creates an environment in which investment is justified to avoid all outages.

No one likes interruptions to their electricity supply. Most individuals and businesses find it hard to nominate what value they put on reliability – particularly if a blackout is a recent memory. Some organisations such as hospitals, airports and large data centres will place a very high value on reliability and invest in their own backup power. And special arrangements such as batteries or immediate hospital access are necessary for people with health problems that require life-support systems.

But these will be exceptions, until technology is available that individually matches the cost of supply reliability with its value for every home and business. The rest of the system should be planned and operated to a standard of reliability determined by an appropriate benefit-cost assessment.

Increasing extremely hot weather and increasing deployment of solar and wind power create challenges for managing the power system. We have the technologies, tools and systems to cost-effectively meet these challenges without a panic response. We should use them.