Governments must take stock from SA’s electric shock

by Tony Wood

Published by Australian Financial Review, Friday 30 September

In July South Australians endured an electricity shock when wholesale power prices soared to nearly $9000 per megawatt hour. This week they suffered a frightening power blackout. They must be wondering what’s next.

As the electricity grid returns to normal, calm heads are needed to avoid conflating these two events. The Prime Minister’s reported comments that intermittent renewable energy sources posed a “real threat” for energy security, imply a link between high levels of renewable energy and Wednesday’s blackout. But the issues are different and require different responses.

The first step is to understand the reasons for Wednesday’s state-wide blackout and their implications. All the information we have so far indicates that the high proportion of wind power in South Australia neither contributed to the problem nor worsened its consequences.

Dramatic photographs of broken transmission towers testify to the ferocity of the storm. Damage of this magnitude demanded that the power generators shut down quickly to protect public safety and the generators themselves. It seems that the instability in the system became impossible to contain and quickly cascaded, leading to the blackout.

The initial effect of the storm on electricity infrastructure could not have been avoided. What the government will focus on is whether the power outages could have been contained and the blackout avoided. There will also be debate about whether different designs of this essential infrastructure, even taking critical transmission lines underground, could enable it to better withstand such extreme weather events. These debates are vital: our society is highly dependent on its power supply.

Second, we need to return to the underlying issues exposed by the price shock in July – the urgent need to manage the transition to a low-emissions future while maintaining reliable, secure and affordable electricity. We should remember that as the physical system responded to protect people and assets in September, so the market responded to keep the lights on in July.

The Australian government has committed to a significant emissions reduction target – 26 to 28 per cent below 2005 levels by 2030. It has also committed to review its policies in 2017, knowing that its target, when combined with those of the global community, is not enough to meet the underlying challenge of climate change.

Electricity generation accounts for a third of Australia’s emissions, yet we have no national policy to reduce the sector’s emissions in line with the target. The Renewable Energy Target was never designed for this role. In the absence of such a policy, investors are faced with unmanageable uncertainty and state and territory governments respond with their own, often misguided, policies. Here, the Prime Minister’s criticism of state renewable energy targets is on surer ground.

It falls to the Commonwealth to take action. Its Direct Action policy does provide a platform for building a credible and predictable plan that states and territories could support and that could secure bipartisan passage through parliament. Grattan Institute’s 2016 report, Climate Phoenix: a sustainable climate policy, sets out one way in which this could be achieved.

The government’s climate change policy review needs to deliver on this task. It is essential that the result is both more credible and scalable than current policy and works with, and not outside, the electricity market.

Alongside clear climate policy, the design of the wholesale electricity market should be reviewed to ensure it can continue to provide the secure and reliable power that Australians take for granted. High levels of intermittent supply such as wind power require a high level of flexibility. That may mean new commercial and/or market arrangements to provide it. System security demands additional capabilities to integrate technologies with technical characteristics that are different from traditional generation. None too soon, the central government energy agencies have begun a review of these system security issues.

The next policy steps are clear. Let’s all hope that short-term politics doesn’t get in the way.