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With TBH Principal, Ali Nami
A significant transformation is taking place in Australia’s energy market as the nation looks to reach net zero by 2050.
However, the rapid growth of renewable energy generation projects has caused a bottleneck in connecting these resources to the grid. In the midst of the growing backlog of renewable energy projects and the imminent retirement of large coal-fired plants, we need to invest in renewable generation and transmission infrastructure to keep the grid stable and secure.
Retiring these power stations without overcoming other network challenges could result in significant problems, including possible outages and instability of the network.
Having worked across a number of Australia’s renewable generation projects, TBH Principal Ali Nami understands the current trials and opportunities facing the sector. In this article, he outlines key grid integration challenges and what he considers to be the best way forward.
Powering Ahead
Australia’s coal-fired power stations are retiring faster than previously anticipated, with all plants expected to be out of the National Electricity Market (NEM) by 2038. If the 2050 emission reduction targets are to be met, we must transition from fossil fuels to clean energy as soon as possible. But what needs to be done to achieve this goal?
When decommissioning coal power plants, we need to ensure we plan carefully, especially in terms of the transmission network that connects NSW, South Australia, Victoria and Queensland.
A successful transition will require not only replacing the lost generation capacity with renewable energy sources but also upgrading the transmission network to handle new energy dynamics. Therefore, the integration of renewable energy sources such as solar, wind, and battery storage systems needs to be carefully thought out and executed to maintain grid stability and prevent outages.
How the Grid Operates in Australia
Operating through interconnected transmission and distribution networks, the Australian grid up until now has been mostly centralised, allowing for a more coordinated approach to integrating distributed energy resources (DERs) like solar and wind into the system.
However, as the energy landscape evolves, the integration of DERs presents new challenges and opportunities that require both innovative solutions and collaborative efforts among various stakeholders.
This shift necessitates a rethinking of grid management strategies to ensure stability, reliability, and efficiency in a system increasingly characterised by decentralised energy generation.
Key Players in the Australian Energy Landscape
Made up of a mix of state-owned and privatised network components, each with their own focus on integrating a rapidly growing share of renewable energy sources into the system. Unlike the United States where the grid is operated by multiple ISOs and RTOs, the Australian National Electricity Market (NEM) is largely managed by just AEMO.
The responsibility for connecting renewable energy projects to the grid in Australia involves multiple stakeholders, including Transmission Network Service Providers (TNSPs), Distribution Network Service Providers (DNSPs), and the Australian Energy Market Operator (AEMO):
- TNSPs are responsible for the high-voltage transmission network and technical and operational aspects of the connection.
- DNSPs manage the lower-voltage distribution networks that deliver electricity to end-users, including homes and businesses.
- AEMO is responsible for ensuring grid reliability and the day-to-day operations of the electricity and gas markets in all states except Western Australia and the Northern Territory.
Key Challenges in Grid Connection
Grid Stability and Reliability
The complexity of transitioning from synchronous to inverter-based generation to meet renewable energy targets brings with it a series of challenges.
Factors like clouds blocking sunlight, or low wind speed due to weather changes make matching renewable supply with demand more complicated than the consistent baseload generation of fossil fuels.
In specialised markets, electricity is bid on through a process where generators submit offers to supply a certain amount of electricity at specific prices. This process is managed by AEMO in Australia, which coordinates the dispatch of electricity to ensure that supply meets demand in real-time.
Electricity companies and other market participants submit bids on what price they are willing to pay for electricity. These bids are matched, and the resulting prices set the cost of electricity for different times of the day. The energy companies then distribute electricity to our homes, with the grid operators ensuring that the supply meets the demand based on these market transactions.
The entire process is driven by consumption needs. For example, if we need 20 gigawatts of power today, that’s what the grid must be able to carry. During peak times, we might need the full 20 gigawatts, while off-peak might only require 150. Although our generators may produce more, they must align their output with the grid’s demand capacity to avoid waste demand.
Since renewable energy cannot always be dispatched on demand, and the grid cannot handle fluctuations in power levels without causing frequency and voltage instability.
That means to ensure grid stability we need to use advanced technologies such as grid-forming inverters, synchronous condensers, and battery energy storage systems (BESS) to provide system services like inertia, frequency control, and voltage regulation.
Demand management using smart grid technologies is able to shift usage to times of high renewable generation through dynamic pricing incentives and schedulable loads to not only help balance supply and demand but also reduce the need to limit excess solar and wind energy production.
Lengthy Approval Processes
One of the primary hurdles to the energy transition I see right now is the lengthy approval process required to commence construction of renewable projects.
This process can be so protracted that some developments take years before construction can even commence, significantly delaying project timelines and impacting the overall pace of renewable energy integration into the system.
I can think of a specific wind farm project that took six years to develop due to delays in approvals. When it finally was given the go-ahead, it was acquired by another developer. This new developer decided to modify the project to increase capacity and reduce the project’s environmental footprint, but these changes meant returning to the planning stage and starting from scratch to secure all the necessary approvals.
Renewable energy projects also need to undergo rigorous assessments to ensure they do not adversely affect local biodiversity, cultural heritage, or archaeological sites.
A report from the Clean Energy Investor Group (CEIG) found that it often takes several years to achieve an assessment decision, with some projects experiencing multiple delays and requests for additional information well after the initial submission
While important for preserving the environment and respecting cultural heritage, lengthy assessments do significantly extend the timelines for project approval. They can also present significant financial risks, since delays can lead to cost overruns, affect project economic viability, and deter future investment.
This was the case for Greek-based international contracting group and renewable energy developer Ellaktor, a major contractor, that faced significant losses from its Australian solar projects due to delays and regulatory challenges. These delays ultimately led them to exit the Australian market.
As a result of regulatory delays, investors can be deterred from investing and project planning and execution may be complicated – ultimately undermining investor confidence. Streamlining and expediting development approvals might be the answer to helping speed up these lengthy development periods and assessments.
Community Acceptance
Renewable energy offers significant benefits, but it also presents challenges, particularly for those heavily invested in non-renewable energy sources or those who refuse to acknowledge the changing energy landscape. This group may find it difficult to transition to renewables due to economic concerns around their existing investments, infrastructure or communities.
Obtaining local agreement and community acceptance is therefore a time-consuming task, involving various types of approvals, including environmental permits and development applications.
Since renewable projects typically span across large areas and multiple properties, to obtain necessary approvals we need to engage with a vast variety of stakeholders including landowners, farmers, first nations people and community groups to ensure that each group is properly consulted and on-board.
Initiating conversations early in the project lifecycle and maintaining them throughout provides assurance that community concerns are addressed, benefits are clearly communicated, and local support is secured. This approach not only facilitates smoother project implementation but also contributes to the long-term sustainability and acceptance of renewable energy projects.
The Tasmanian government’s active involvement of the community in the development of the North West Renewable Energy Zone (REZ) exemplifies this strategy. By engaging with the community, developers can safeguard their interests, address their concerns, and ensure satisfaction with the new infrastructure, ultimately contributing to the state’s clean energy future while addressing the needs and concerns of local residents.
Grid Connection Delays and Complexity
The process of connecting a large-scale renewable energy project to the grid involves several stages and agreements and can take a considerable amount of time from start to finish. This complexity can lead to significant delays, even if the project itself is completed on time.
A significant backlog of development applications awaiting grid connection approval in Australia has created substantial challenges for the country’s energy transition. This congestion, exacerbated by lengthy and uncertain interconnection processes, has led to delays in project timelines and increased costs for developers.
This is why even though some regions offer excellent potential for renewable energy production, no new developments have been approved in the area for several years, and why even if a wind or solar farm is completed on time, it can get stuck, not able to operate until the power grid has been upgraded to accommodate it.
AEMO has identified specific areas designated as Renewable Energy Zones (REZs), which are intended to encourage developers to build new renewable energy generators in those locations. However, these areas still need an adequate power grid network, which has not been constructed yet.
The first of these, called Central West Orana (CWO) will start construction next year and aims to activate regions in Dubbo and Bathurst, in the heart of NSW, for developers to build their assets and connect to this grid.
This creates a chicken-and-egg dilemma. In the absence of completed generators, a power-ready grid becomes an underutilised and costly infrastructure asset, capable only of carrying minimal load.
The only answer is to ensure a coordinated and concerted effort, so all components progress in parallel to meet emission reduction goals. It is a delicate two-step dance that requires precise timing and strategic resource allocation.
Financial Concerns Around Delivery and Connectivity
The Clean Energy Finance Corporation (CEFC) has recently committed significant funds to accelerate grid infrastructure delivery. In New South Wales, for example, the CEFC announced a $490 million commitment to the CWO, which aims to provide an additional 4.5 gigawatts in network capacity. This funding is intended to ease the overall financing task by covering capital expenditures related to land acquisition and biodiversity offsets.
Several major private sector energy developers are actively involved in building this power grid infrastructure as part of the REZ Network Operator (ACEREZ consortium led by ACCIONA) which is expected to cost around AU$10 billion.
Developers secure debt financing from major Australian and global banks like NAB, ANZ, Westpac, Deutsche Bank, and others. These banks are keen to invest in renewable energy projects as they align with sustainable finance goals and commitments to support the energy transition. For example, ACEN secured an AU$150 million green term loan from ANZ and Westpac to expand its renewable pipeline in Australia – including the development of large-scale projects in the Central-West Orana REZ.
However, while investing in renewable energy generation presents significant opportunities – these projects also carry risks for financiers, particularly concerning the potential for stranded assets where generated electricity cannot be transmitted due to insufficient grid capacity. This can also negatively impact revenue streams and repayment abilities
Many will remember the case of RCR Tomlinson, an Australian engineering and construction company that experienced a dramatic collapse in 2018, primarily due to its expansion into the solar energy sector and subsequent difficulties in connecting its projects to the electricity grid. Delays in grid connection meant that RCR could not achieve project milestones and receive final payments from developers, leading to cash flow problems and delays.
It was announced on 20 April 2023 that the Australian Energy Market Commission (AEMC) would revise its minimum access standards for inverter-based resources. This rule change aims to lower the cost of connecting renewable generators and improve system security outcomes for investors.
With several recommended changes to rules, processes, and information availability, the Connections Reform Initiative has also been working to improve grid connection to provide investment certainty and speed up the connection process.
Extreme Weather Events
Extreme weather events such as heatwaves, bushfires, dust storms, flooding and hailstorms have become more frequent and severe in Australia due to climate change.
Heatwaves can reduce solar panel and wind turbine efficiency, while smoke and dust storms can block sunlight, decreasing renewable power output.
Hailstorms physically damage solar panels, compromising performance, while prolonged periods of climate-induced disruptions such as heavy rain and flooding or bush fires can delay construction schedules. The 2019-2020 bushfires led to the temporary disconnection of New South Wales from Victoria, highlighting the vulnerability of the grid to weather events too.
For these risks to be managed, ongoing planning and operational decision-making will need to consider weather-resilient strategies like elevating critical infrastructure components above predicted flood levels or storm surge heights, using fire and flood-resistant materials, effective stormwater management systems, and emergency response plans.
Supply Chain Issues
Even though renewable energy is booming around the world, because it is happening all at once, securing resources and establishing reliable supply chains can be a costly challenge. A shortage of skilled workers, concrete, steel, and fill material has plagued Australia’s renewable projects since the start of the upswing towards clean energy.
This scarcity has stretched construction periods past initial estimates and caused delays in the procurement and delivery of materials and equipment to project sites.
With the mass construction of transmission and renewable generator infrastructures happening globally, there is enormously high demand for manufacturing and delivering components like wind turbines, solar panels, converters, tower steels, transformers, synchronous condensers, and other substation equipment. Due to these extended lead times, the overall construction and delivery timelines have been prolonged significantly.
To reduce reliance on overseas markets, the Australian government is encouraging local production of certain vital supplies to reduce reliance on overseas markets. However, current production levels are insufficient to satisfy what will no doubt be enormous future demands as we near 2030 and 2050 targets.
A global effort may be required to increase the manufacturing of components needed for delivering these assets.
Possible Solutions to Integrating Renewables into the Grid
The challenges inherent in integrating renewable energy sources are not insurmountable. By taking advantage of advanced technologies, innovative market incentives, and strategic planning, we can create a more resilient and efficient energy system.
There are several potential solutions to the challenges listed above, such as energy storage systems, smart grid technologies, and streamlined regulatory frameworks. These solutions can enhance grid flexibility, ensure reliable power supply, and accelerate Australia’s transition to a sustainable energy future.
Energy Storage for Variability and Intermittency
Energy storage systems that can store excess electricity generated during periods of high production (e.g. a windy day or sunny afternoon) and release it during times of high demand or low production (e.g. calm nights or cloudy days) to help address the challenge of balancing intermittency and variability issues in the grid.
To manage the unpredictability of renewables, grid operators often need to maintain high levels of reserve capacity. As a result, additional generation resources are needed and must be kept on standby – ready to be deployed at short notice; this process can be inefficient and costly.
Wind turbines will continue to generate power as long as the wind speed is within an operable range. If it’s too high or too low, they won’t turn. Batteries can solve this issue by storing excess energy when production is high and supplying it when there’s a demand. In this way, energy supply varies with demand and is aligned with demand regardless of fluctuations in generation.
Market Incentives and Policy Frameworks
I’ve seen instances where developers and contractors have built several solar farms only to find that connecting them to the network is impossible in those conditions, and they couldn’t generate revenue. Some have even left the Australian market altogether.
Better data sharing among regulators, proponents, and operators and faster, more predictable, and transparent approvals could help prevent such situations. Updating grid codes, investing in transmission networks, rolling out smart grid management systems, and exploring storage solutions could also improve grid resilience.
In recent years, policymakers have been prompted to reassess ways to better support renewable technologies. However, there are still hurdles to overcome, especially when connecting constructed energy assets to the power network.
The large-scale deployment of renewable energy introduces new challenges in grid integration, necessitating rapid adaptation of these structures, along with incentive programs and policy frameworks. These adaptations are essential to deliver better market signals that ensure grid reliability and balance costs among producers, taxpayers, and consumers.
Sliding feed-in tariffs, long-term power auctions, and value-of-solar tariffs are all ways of keeping track of falling generation costs and redistributing burdens efficiently.
Maximum Response Times for Key Stages of the Approval Process
To address approval lags in the regulatory landscape, processes need to be streamlined so that environmental and community assessments are balanced against the need to deploy renewable energy infrastructure rapidly.
Some ideas might include setting maximum response times for key stages of approval and treating projects next to existing ones as expansions instead of new developments to simplify the process.
Additionally, a more coordinated approach between different levels of government and clearer guidelines for developers could help speed up the approval process without compromising environmental and social standards.
Risk Management and Climate Resilience Planning
By diversifying renewable energy sources, grids will be better able to cope with a wide range of weather conditions, increasing resiliency. The complementary nature of different renewable sources in different geographical locations (which Australia has no shortage of these) could help ensure a more stable and predictable energy supply for all.
For example, solar power is generally most productive during the day, while wind power can be stronger at night or during specific seasons.
Hydroelectric power provides a consistent base load capacity, while geothermal energy gives a stable output regardless of weather conditions. If it is raining in Victoria, it might be sunny in Queensland, or windy in New South Wales. This complementarity helps in smoothing out the energy supply, making the grid more resilient to changes in demand and supply.
Advanced forecasting combined with control systems is another strategy to better predict the future output of renewable sources based on weather data. This helps grid operators by proactively adjusting the dispatch of conventional generators to accommodate expected variability. Granular, predictive climate analytics can also assist in identifying and quantifying circuit-level threats from climate change such as heat, flooding, and bushfires.
Career Development and Supply Chain Diversification
To address the global competition for renewable energy equipment and the prolonged manufacturing and delivery times, we need to diversify supply chains. This might involve developing local manufacturing capabilities, sourcing from more suppliers, or maintaining strategic reserves of critical components to prevent bottlenecks.
Particularly in the construction phase of renewable energy projects, as mentioned earlier, we are seeing significant stumbling blocks and delays. We need to build a considerable number of projects, but we’re constrained by limited resources. This includes not just the supply of equipment and material but importantly the availability of skilled personnel such as technicians, designers, and individuals capable of effectively communicating with various stakeholders.
Data suggests that Australia has a skills gap particularly in engineering, technical expertise, construction, and operations and maintenance roles and estimates suggest that up to 85,000 additional workers will be needed by 2030. But where these workers will come from is still uncertain.
The shortage of skilled labour might be addressed by investing in training programs and education to build a local workforce capable of supporting the sector during this time of growth. A skilled migration program is another important part of the solution because Australia cannot supply the full scale of workforce required and the timeframe is short.
A good example of this is the Legacy100 programme, a joint effort between Transgrid and Elecnor to train transmission line workers for Project EnergyConnect, a 900km transmission line connecting the power grids of New South Wales, South Australia, and Victoria.
Final Thoughts on Renewable Grid Integration
As the energy sector transforms to integrate more renewables into the grid towards a target of net-zero emissions, the journey will be full of challenges and opportunities.
In this landscape, TBH brings valuable expertise to the table, particularly when it comes to orchestrating parallel efforts that lead to integrating large-scale renewable energy sources into the grid, ensuring that the expansion of green power is both reliable and sustainable.
TBH has a unique depth of experience in the renewable energy sector, having been involved in over 30 renewable generation projects, 60 network connection projects and 10+ transmission infrastructure initiatives in the last five years across Australia alone.
Ali Nami a Principal at TBH, is a renewables specialist with varied experience in projects in Australia, New Zealand, the Middle East, and SE Asia.
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