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How the Federal Government Could Help Modernise our Electricity Grid

October 28, 2021

By Rowan Huxtable

The Federal Government’s marketing of its climate change mitigation policy - exemplified by its slogan ‘technology not taxes’ - implies that progress towards net zero emissions depends on some ‘not-yet-available’ solution. The unspoken corollary of this is that until the unknown date when that technology arrives, we should just carry on with fossil fuels. 

For some areas – for example green hydrogen and steel manufacture – major R&D effort is indeed needed.

But for electricity supply, we could eliminate fossil fuel electricity without any major new technology breakthroughs. The federal government’s ‘technology message’ obscures the need to act with technological and financial tools already at hand.

Highly polluting and using non-renewable resources. Liddell coal fired power station and open cut mine for extraction of black coal, Hunter Valley
Highly polluting and using non-renewable resources. Liddell coal fired power station and open cut mine for extraction of black coal, Hunter Valley. Photo credit: Taras Vyshnya

The Job of the Electricity System

The job of the electricity system is to supply enough power to consumers to meet their electricity demand.

The two charts below show daily demand variation in NSW for two different days.

Source: Australian Energy Market Operator (AEMO)
Source: Australian Energy Market Operator (AEMO)

The demand shown on these charts is the demand seen by the big electricity generators, which equals the total electricity use minus all electricity generated on site by consumers (eg solar power, cogeneration at factories)

The graphs show that the peak demand happens in the evening. It can be double the minimum demand. And on some days it is much higher than others.

The Way it Used to Be Done

In the 1990s there was an interconnected network of coal power stations producing constant ‘baseload’ power.  To supply the extra power needed at peaks we would use a mix of hydroelectricity (hydro) and gas. At night, demand was low, so to give the coal power something to do, we heated water at night (off peak water) and pumped water uphill, ready to downhill again to make power.

The distribution system was designed and built to move power from a few central places (the coal power stations and the Snowy scheme) outwards to consumers.

Tumut power station, part of the Snowy Mountains Hydro-electric-Scheme
Tumut power station, part of the Snowy Mountains Hydro-electric-Scheme. Photo credit:

The whole thing was government owned and run, and there were buildings full of engineers making sure the system was reliable and secure. In those quaint old days governments used to think they should own, operate, control and subsidise the complete entity in the national interest.

How it is Now

Starting in 1999, governments of both persuasions in all states progressively sold most power stations and power distribution assets to private enterprises.

The Australian Electricity grid is physically in three parts - National Electricity Market (NEM) (Qld, NSW, Vic, Tas, SA), the ‘Wholesale Electricity Market’ (WA) and the Northern Territory.  

The rules for operating the market are created and updated by the Australian Electricity Market Commission (AEMC) – a government body. The government has defined the ‘National Electricity Objective’ to steer the AEMC. This objective refers to electricity price and reliability but includes nothing about transition to lower greenhouse gas (GHG) emissions.

Another government body - AEMO (Australian Energy Market Operator) administers the rules and manages the network.

a complex web of tangled power lines and wires
Energy suppliers, a complex tangled web.......... Photo credit: Mick2770/

Each part is operated as a competitive market. Energy suppliers can bid to supply power into the grid in five-minute slices. The cheapest bidders are authorised to provide power. The average price is about 7-10c/kWh, but there can be extremely high price peaks when demand is high. (The chart for 9/2/17 shows a peak of nearly $8/kWh). Electricity companies can withhold supply in order to increase the price. AEMO can require generators to turn on, but it must pay $15/kWh to do this.

The fleet of coal power stations is now retiring quickly, for a few reasons:

  • There is international recognition of the need to rapidly bring greenhouse gas emissions to net zero. We should aim to do this well before 2050.
  • Renewable energy is now so cheap when the sun is shining and the wind is blowing (most of the time) that coal power stations cannot compete for most of five-minute time slots, and their owners are losing heavily. The cost situation for coal power is even worse when you need to factor in cost of building new coal power stations
  • Coal power stations are large items. It is unviable financially to operate them for long periods at below capacity. And they are unsuited to rapid changes in power output. So they are not suited to intermittent operation with other sources like solar and wind.

The Future

The system will be better when the coal power stations have been replaced.

The electricity will be inherently cheaper because no fuel is needed, and, for solar PV, no moving parts to maintain. Our abundance of cheap energy sets us up for major economic opportunities in hydrogen export and steel manufacture and sets us up to free ourselves from imported petrol and diesel.

There will be almost no operational CO2 emissions and less environmental damage than from coal mines.

Because renewable energy can be distributed and small scale, there are opportunities to provide cost relief and income to a wide range of people, businesses and regions.

installation of solar panels
Clean energy from the sun is available in abundance in Australia. Photo credit:

It is unlikely that nuclear power would be able to compete on price with solar and wind for the supply of most of the energy.

The Transition

When the power stations were sold, they were in good operating order and were sold off very cheaply. So all the power companies had to do was cover their operating costs. And businesses could defer capital expenditure and governments could claim that the privatisation was working well. But now, the power stations are reaching the end of their life. Major expenditure is needed regardless of the climate change imperative.

The Federal government can help by addressing some issues that do not depend on new technology:

Dispatchable Energy

We need more ‘dispatchable energy’. These are energy sources that can quickly and dependably be turned on for periods of hours to days when there is a lull in sun and wind output. Hydro power can fulfil this function. So can solar thermal plants. So can gas.

To support a grid running on 100 per cent renewables, a requirement of 450GWh +/- 30 per cent storage capacity has been estimated. This is about equal to 20 days production from the Liddell Power station. However this estimate does not include for the increases in demand for green hydrogen manufacture.

Snowy 2.0 will provide up to 350GWh, which is enough for well over 50 per cent renewables but not enough for 100 per cent. And we don’t want to put all our eggs in one basket. Hydro power stations have a long lead time, so we need more projects to start quickly.

Existing and prospective new renewable projects are already facing the prospect of curtailment because there is inadequate storage for the excess renewable energy generated at solar and wind peaks.

Fully privatised markets are not good at supplying 24/7 service to everyone, everywhere. The issue is that to decide to build a power station, an entrepreneur needs to see a way of recouping a large capital cost from an expensive asset that only runs intermittently. If the financial model is to recover the money by selling power, then the price needs to be very high – so high that it is unworkable. So a model needs to be agreed on quickly to reimburse prospective power station builders. The government also needs to contribute financially to get the necessary work started.

A reverse auction process is one possible path. The government can identify the requirement and select the offer(s) that require least public funds.  

It is an accepted use of government funds and regulations to ensure full coverage in situations like this. The Telstra Universal Service Obligation is one example. Australia Post is another.

Minimise the Use of Fossil Fuel Gas

The Federal Government has been promoting a ‘gas led recovery’ and subsidising gas power station start-ups. But there are problems with gas. 

The imperative to reach net zero CO2 emissions means that building gas power stations now will leave us with a choice in the near future of either incurring major expense in scrapping or replacing them, or retrofitting extremely expensive sequestration or offset schemes, or falling short on our emissions targets and continuing to cook the world. The mining and production of gas is a significant source of GHG emissions, in addition to the burning of the gas.

Prime Minister Scott Morrison, Industry, Energy and Emission Reduction Minister Angus Taylor and Senator Hollie Hughes promoting their gas-led recovery at the Tomago Aluminium Smelter
Prime Minister Scott Morrison, Industry, Energy and Emission Reduction Minister Angus Taylor and Senator Hollie Hughes promoting their gas-led recovery at the Tomago Aluminium Smelter. Image: Scott Morrison/Facebook

We saw in South Australia a few years agoH2, and are seeing in the UK nowH1, a foretaste of the cost risk with gas. Gas, whether it is fossil fuel gas or Hydrogen, is a world commodity and will be in high and variable demand. It is prudent to minimise our exposure to the vagaries of the world market.

With high levels of solar and wind, there are large periods where energy costs virtually zero. If we do not store this free energy, we are wasting it. Wasting free energy during solar, while at the same time fracking the artesian basin to get gas to burn at night, is not an optimal way to provide electricity.

The government claims that there is a shortage of gas for industry. If so, burning more of it in power stations will if anything exacerbate the shortage.

Transmission Line Funding

The existing grid was built to get energy from coal power stations to consumers. Now it needs to be rearranged to get the energy from the new places where it will be produced. AEMO already has a clear picture of priority work to be done.

The approach being taken by the Federal Government is that the private sector should finance transmission line projects. One problem with this approach is that it is difficult and complicated to arrive at a financial model. It is hard for a private organisation to predict how much revenue can be earned from a transmission line. There is a ‘chicken and egg’ situation.

The builder of the transmission line does not know how many customers there might be. In turn, prospective customers do not commit, because they do not know if the transmission line will be built. It is also hard to arrive at models for how the users of the line pay, and for allocating responsibility for the integration of the line and its connected power supplies into the total grid.

The net result is that, at the moment, new power generation projects are being stalled because existing transmission lines are too far away or inadequately rated.

In particular, the government, having committed taxpayer funds to building Snowy 2.0, needs to ensure that it will actually be connected to the grid on time.

Another issue is that, after the expenditure, the private owner has near-monopoly control over the asset, so electricity users are subject to ongoing monopoly level charges.

The government can help by financing transmission lines partially or wholly and owning assets.

The principle of using public finance for funding ‘nation building’ infrastructure like this is already well established when it comes to roads and railway lines.

Community Energy

The government can help by supporting community level energy storage. Batteries built at a rural community reduce the community’s dependence on remote power supplied by long hard-to-maintain bushfire-vulnerable power lines. Local businesses can make money by installing solar panels and selling the power to the battery operator. And, because the community can make more of its own energy, the community is wealthier and more robust.

Concept image of larger scale renewable energy and storage system.
Concept image of larger scale renewable energy and battery storage system. Image credit: petrmalinak/

Demand Side

Demand management and energy efficiency can make an important contribution.

Thousands of decisions about energy savings are made by thousands of individuals and businesses. The most efficient way to optimise these decisions is to set a proper price and let the people involved in the decisions work out the best thing to do. So ongoing production cost of energy should not be excessively subsidised. And there should be a carbon price to reflect the actual damage that GHG emissions are doing to the world.

Higher energy costs affect low-income earners and business competitiveness. But there are better ways to help low-income earners than subsidising energy. And there are ways to help business competitiveness that do not involve keeping energy prices to the absolute minimum.

It is better to support employment, training, capital improvement and R&D to set up our industries as energy efficient, low GHG emitting operations.

Willpower And Objective

We need a clear objective to lower GHG emissions, supported by a carbon price and / or enforceable targets, and included in the National Electricity Objective.  The absence of a GHG emissions objective, or rules about GHG reduction, or a carbon price, effectively sets the cost of not achieving net zero emissions as nil. This leads to public and private financing of projects which lock in CO2 emissions without evaluation of the actual cost of offsetting or eliminating emissions.

We have seen the positive effect of strong state government willpower to get things moving forwards. Similar willpower and ‘felt leadership’ from the Federal Government would set the tone and give a huge positive boost to this country.

Rowan Huxtable is an electrical engineer working in heavy industry and industrial automation. He was a founding member of Wollongong Climate Action Network.

Feature image: Clean energy from solar and wind is available in abundance in Australia eliminating the need for polluting coal fired power stations. Image credit: Eviart/

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    One comment on “How the Federal Government Could Help Modernise our Electricity Grid”

    1. A much more decenttralised community level energy storage and generation synchronomous systems utilizing existing renewable energy systems and batteries with and in-house smart deployment systems will see lower voltage transmission to neighbouring locals of mixed needs,with the current electricity generation and distribution map
      The only question is how much will we have to pay and how embroiled in politics and errant administration decisions must we endure to reach "the other side"?

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