Introduction to the Australian National Electricity Market with Alex Leemon

Australia has three or four main grids. So there is a national electricity market on the East Coast and the NEM is an energy only market. It's one of only half a dozen in the world so it's a somewhat unusual design. There's no capacity mechanism. We've got five minute dispatch and five minute settlement which makes for some pretty interesting times particularly when we talk about battery storage and e mobility. I mean, one thing just to take a a quick step back is that the Australia energy is not in the constitution.

So the federal government doesn't actually look after energy. It's actually managed by each of the individual states. So if it appears that Australian energy policy is a bit of a patchwork, that is actually that is the correct answer. Managing risk in the NEM under those kind of those five minute volatility kind of conditions that can occur is quite challenging if you don't have physical generation. You're sort of forced onto the the ASX energy market to do sort of financial derivatives trading and it's generally easier to to manage that risk with an actual physical asset.

Hello, and welcome back to the last transmission episode of twenty twenty four. The National Electricity Market or NEM is Australia's largest energy market and one of the largest interconnected electricity systems in the world.

In this episode, Alex Lehman, flexibility markets lead at Gridcog, joins Wendell Hortop to take a look at how the NEM works, the current state of battery build out in Australia, and the unique characteristics of the system.

As always, if you're enjoying the podcast, please hit subscribe so you never miss an episode and give us a rating wherever you listen. See you next year.

Hi, everyone. Welcome to the Transmission Podcast. I'm joined today by Alex. Hi, Alex. Good day.

And this is a very special episode. So not only are we doing our first look in detail at the Australian market, but this is our first episode recorded in Australia. So Alex has come to join me in Sydney. And I think, yeah, before we listen to what Alex has to say, which probably would be far more interesting, I just wanted to quickly point out the fact that so Modo has now moved to Australia.

We've got an office based in Sydney. So this podcast is one of the first, episodes we'll be doing on looking at the Australian market, and we've also got research coming out. We've just published our first deep dive into batteries in the NEM. With that being said, that's enough about Modo.

And so, Alex, firstly, yeah, welcome to podcast.

Thank you.

Yeah. Who are you? Like yeah. Can you give us a quick background into you, really?

Yeah. Sure. So my name is Alex Lehman. I'm the flexibility markets lead at GridCog. GridCog is an optimization software for doing feasibility, pre feasibility analysis, techno economic analysis of energy resource projects. So we can cover everything from batteries to solar to e mobility through to sort of load shape and tariff optimization is the kind of work that we do. So very broad and deep software across the energy industry.

And so yeah. I guess, how long have you been kind of working in the Australian market?

I I think, actually, my entire career since I graduated university has been energy.

I actually a long, long time ago, I actually worked in coal powered stations crawling around them doing physical asset maintenance. And then roughly ten years ago, went market side and and worked for Anenoc before they became Enelix, so the very large demand response provider here and globally, and then did a number of years with Flow Power, which is a sort of fairly innovative tier two retailer here in Australia, which does spot exposure for commercial industrial customers. And I've been with Gridcog coming up on three years now. Awesome. And so I think some people who are active on LinkedIn may may may notice you from there.

I think that's definitely the case for me.

And so well, firstly, yeah, big shout out for everything you do on the online and LinkedIn forums to promote the kind of clean energy sort of transition in Australia. We brought you on to talk about all things the Australian market. Quickly before we do. Yeah. So Gridcock, we've actually had Gridcock on the podcast before talking about things that are looking at the UK. And so I guess, yeah, briefly, just, yeah, what sort of customers, I guess, would you typically work with? And, yeah, like, how does that involve the work that you do?

Yeah. So we've got we've actually got customers across kind of the entire energy sort of chain. We've got through from sort of project developers, project finances, through to retailers, like the major Gentellers here in Australia, like consultants, project developers, down to sort of some of the, like, large energy users, particularly those that are thinking about complex or, you know, difficult to solve energy problems both behind the meter and front of meter, as well as increasingly, e mobility is becoming a big space that we're working on and and sort of congested and constrained connections as part of the big kind of emerging space here in Australia.

Cool. And so for some of our listeners, this might be, like, the first time they're kind of thinking about the Australian power market. I mean, like, kind of really high level Mhmm. You know, how are things going in the Australian power sector, you know, I guess, in terms of, like, what are the clean energy goals that the country has? And yeah. Like, what's the progress towards that so far?

Yeah. So I'd say, I mean, much like the rest of the world, we are heading towards net zero by twenty fifty. I think we have very much officially hit the kind of the messy phase of the transition, and that's become sort of something that's kind of bubbled up through industry and has really hit the mainstream as a a talking point now. We have this overarching sort of federal goal of of eighty two percent renewable by twenty thirty, which as uncomfortable it is to say, I think we are not on track to hit. And so a lot of those in the industry are now really starting to think about how can we actually accelerate and make sure that we don't miss the twenty fifty targets because those are obviously critical and something that we've agreed to globally along with many other countries.

So I guess coming in as a sort of a bit run outside into the Australian market, it seems like there's a bit like a contrast here because there is still a big reliance on coal.

Yes. Coal is still, like, a massive part of Yes. Electricity generation in Australia. But at the same time, there's been, like, enormous progress in the deployment of renewables in general I guess, like, more general electrification.

And see, I guess, quickly on that side of things, yeah, in terms of, like, the renewables, like, where are we in Australia?

Yeah. So we've got, I think I mean, one thing just to take a a quick step back is that the Australia energy is not in the constitution. So the federal government doesn't actually look after energy. It's actually managed by each of the individual states.

So if it appears that Australian energy policy is a bit of a patchwork, that is actually that is the correct answer, unfortunately. So you've got states like South Australia that retired their last coal fired power station in twenty sixteen and have hit periods of actually over a hundred percent renewables. And then sort of the the largest states like New South Wales, Victoria, and Queensland are all still very heavily dominated by coal, sort of in the order of about seventy percent typically, but are progressing sort of towards that, you know, increasing renewables and each of the state based targets are about accelerating those renewable buildups.

On top of that, we've also got some policies. So for example, in the last twelve months, maybe a bit over twelve months ago, the Victorian government announced that they would phase out residential gas. So no new residential builds are allowed to be built with with gas, and it is expected that, you know, existing households like my own will eventually have the gas connection phased out at some time in the near future.

Nicely brings us on to my next question because, obviously, the to go alongside the growth renewables is, like, that change in electrification Mhmm.

Of kind of everything. So, yeah, I guess that is a really good example then of how some of that is already happening. But elsewhere, if we look at, say, transport Mhmm. You know, what's the progress there?

It certainly feels compared to, you know, looking across to the UK and Europe, we are significantly behind in terms of electrification of, you know, mobility, e mobility. So electric vehicles are they're they're beginning. They're here. You know, they're not they're not not here, but they are still very much in the minority.

You'll notice that fast charging networks leave a little bit to be desired. They're still being developed. They're getting better every day, every month, but but we're a little bit behind the curve there. But then on the flip side, we're just starting to see some real in the last twelve months, some real acceleration in e mobility. We've actually cut a number of users of our software, for example, modeling electrification of bus fleets, which again, driven by state governments are looking to sort of encourage private operators with those contracts to actually get onto electric electrification of their buses. And so I'd say that's where, you know, from private residential or private, you know, privately owned cars that are people buying EVs through to electrification of the bus fleets. And then very slowly, we're starting to see some slow electrification of, say, privately owned, you know, last mile delivery trucks or, you know, that other type of haulage is is slowly electrifying.

Nice. And so I think, yeah, we sort of you I guess you've touched on the fact that things are quite regional here. Mhmm. And, definitely is the case when we talk about well, there is no power there's no single Australian power market. Yes.

So I guess just very quickly, you know, what what do the power markets that exist in Australia look like? And then I think we'll focus, I guess, on the biggest one than them.

Yeah. So yeah. Great. So Australia has Australia has three or four main grids. So there is a national electricity market on the East Coast, which covers all the way up to just path past Cairns in Northern Queensland, out to past Adelaide to Port Augusta in and down to Tasmania.

And the NEM is an energy only market. It's one of only half a dozen in the world. So it's a somewhat unusual design. There's no capacity mechanism.

We've got five minute dispatch and five minute settlement, which makes for some pretty interesting times, particularly when we talk about battery storage and e mobility. And then over on the West Coast, we have the Southwest interconnected system, which covers sort of Perth and surrounds, and that is the wholesale electricity market, the WEM. Not not the Western electricity market, which would have been logical. And the WEM is actually a capacity market, so much more similar structure to the market seen in the UK and Europe with a a capacity price and then a a day ahead short term energy market and then a balancing price, which is known as a real time market.

And then we've also there are two other smaller grids, but they're they're operated not as markets. So there's a there's a northwest interconnected system, and then it's a Darwin Catherine system, but they're they're they're not markets.

Yeah. So I think and this was quite interesting to me. Like, when you look at, like, a map of the transmission network in Australia. I mean, firstly, Australia is obviously a big place.

Yeah. And so, yeah, you've got a kind of network big network on the East Coast that kind of spreads all the way down and then across. And then you've got the the southwest corner, and then that's kind of yeah. Apart from these sort of small areas, I guess the rest of it is, like, off grid.

Is that almost what it is?

Yeah. There's actually I mean, Australia is a country known for its its mining, and there's actually a large number of of mining sort of off off grid micro grids built largely around mining loads that then have, you know, mostly powered by gas turbines and some diesel. There's actually some pretty interesting electrification opportunities there. And again, we've seen in grid COG users modeling renewable micro grids to build that out. And there is actually one Mount Isa, which is in sort of northwestern Queensland project copper string two point o is a a proposed interconnected to link it to Queensland's part of the NEM. But that's again based around the copper mine out at Mount Isa, which has sort of gas turbines powering it.

And so if we look at the NEM, because, yeah, it's the biggest kind of market, and I think it's probably where, you know, most people who are looking at Australia will probably be looking at the NEM. Like, what would you yeah. You've highlighted the fact it's an energy only market, which I think would be really interesting to come back to. But, yeah, how does it look? Because I I guess it's sort of split between those five different regions, and, you know, it's not one it's not one sort of market. Right?

Yeah. So it's it's split into five different regions which roughly align with the states. Not all not every part of each state is fully connected, but I guess that the main load centers are. And then there's kind of, you know, a maximum of about roughly a thousand odd megawatt interconnectors between.

So so if you think about, you know, something like Victoria is a sort of maybe a roughly ten gigawatt peak system on a on a extremely hot day in summer. New South Wales and and Queensland are both roughly sort of twelve to thirteen gigawatt peak systems, where a summer peaking market, there's only, you know, sort of their ten percent kind of interconnection capacity between each of those regions. And then both Tasmania and South Australia are connected by about five hundred megawatt interconnectors, and they're much smaller systems. South Australia is about a two point two, two point five gigawatt peaking market, and Tasmania is even smaller.

Cool. And then so, I guess, if we look at the NEM, like, who would be the major parties who are kind of responsible for, engaging in it, making it work?

Yeah. So, yeah, from a regulatory perspective, we've got the the the acronym organization. So we've got the the Australian energy regulator who is the the policemen, police watchdog for the market. We've got the Australian Energy Market Commission, which sets the rules and and sort of manages rule changes.

And then we've got the AEMO, the Australian Energy Market Operator that manages the electricity gas system. It's both the market operator and the system operator. And then, I guess, below that then, there are sort of one, there's a transmission network service provider within each region. There's a whole host of distribution network service providers that, you know, provide power out to individual customers.

And then the other, I guess, noticeable thing about the NEM is Australia is famous for its competition. Well, you know, I said that tongue in cheek, very much lack of competition. So the market is very much dominated by three big gentailers, generators, retailers. So that's AGL, Energy Australia, and Origin who own generating assets in most states and have customers, you know, all up the East Coast.

And so they have something along the lines of sort of a sixty to eighty percent market share between the three of them, both in sort of customer supplied load and, generation capacity.

Yeah. And that's that's quite interesting because I think coming at it from, say, like, the UK perspective, we've seen the kind of slow, like, transition away from that that vertically integrated supplier sort of approach. Whereas here, it still seems pretty strong. I mean, do you see the transition changing that or are they, yeah, each taking actions to keep up?

I think we've seen with the rise of renewables over the last decade and a half, two decades, we saw certainly a proliferation of kind of new entrance to the market building wind and solar farms. We've seen a number of international kind of players come to Australia and build sort of assets down here. But at the same time, we've also seen some consolidation of those assets. We've seen kind of existing wind and solar farms bundled up and sold to to other parties.

I think the other thing that's perhaps significant is I have a slightly pithy joke that every retailer becomes a gentailer because managing risk in the NEM under those kind of those five minute volatility kind of conditions that can occur is quite challenging if you don't have physical generation. You're sort of forced onto the the ASX energy market to do sort of financial derivatives trading, and it's generally easier to to manage that risk with an actual physical asset. And so if you look at the history of retailers, smaller retailers, they are starting to either use custom assets, so virtual power plants, or they are building their own wind, solar farms, and batteries to actually manage that risk from a physical perspective.

Interesting. And so that neatly brings me on to my next question which, yeah, I think to dive into a bit more on the technical detail of how the NEM operates. Because Mhmm. For me, I think when I first, like, started looking into it maybe, like, three years ago, I was like, this is such a cool just from a pure power market's perspective from a bit of a nerd perspective, like, such a cool design of a power market. And so, yeah, you said so it's a energy only, sort of five minute market. Like, in practice, what does that look like?

Yeah. So, I mean, ironically, the NEM economic theory design came from the UK. We stole the the UK's market design one point o from the early nineties and ran with it when the UK transitioned to a capacity market instead of their second design. But in practice, it's it's yeah.

It's it's a five minute market. A couple of years ago, twenty twenty one, we shifted to five minute settlement as well, And we have one of the higher the energy only markets. We have one of the higher price caps. It's currently seventeen and a half thousand dollars per megawatt hour.

And that kind of volatility is actually extremely important for driving investment in new generation assets because there's no, you know, forward markets, there's no capacity market. That volatility actually becomes a really important driving sort of pricing signal for investors in the market here. And then also interestingly, Australia has certainly been at the forefront of negative pricing. So we have a floor of negative a thousand dollars per megawatt hour.

And as we've seen, sort of renewables build out has has risen in in them, and we've also seen the rise of rooftop solar over roughly the same period. We've seen a a very high preponderance of negative pricing to the point that all regions are now experiencing something like thirty percent of the entire year is at negatively priced intervals.

Yeah. I think that's why, like because coming from the UK and Europe, I think this year, more than ever, has seen kind of, like, the explosion of negative pricing. But even then, it's sort of five percent of the time, and so to be running at, like, thirty percent of periods negative is pretty mad.

Yes.

And, yeah, I think it shows kind of where, like, kind of Europe and those other areas which have kind of built out a lot of soda may well get to. And so I think the yeah. I think one thing that's kind of interesting again if we kinda contrast, I guess, to those European markets.

So at firstly, I guess, the name is Century Dispatch. So AMO sort of run everything. Right?

Yeah. So yeah. So it's a security constrained economic dispatch. So it's generators submit bids day ahead, and then, you know, it's it's a pay as cleared market.

Generators can bid in ten tranches. I think what's perhaps slightly unusual about the NEM is there's no technical gate closure. So you see pretty frequent rebidding right up until five minutes before the affected interval, which has a lot of implications on volatility and volatility management. And then perhaps the comment about the security constrained economic dispatch is that it there is a whole series of quite complicated constraints that are used to manage the network which can lead to sort of some, you know, areas of the network getting sort of entire, like, congestion in the network is managed by these sort of real time constraints which has particularly come to affect some of the renewable generators in recent years.

There are entire sections like the northwest of Victoria or the southwest of New South Wales that are very congested because there's great solar and wind resources there. So everyone wants to build there, and then it's hard to get that power out to sort of Melbourne and Sydney, the load centers respectively.

Yeah. And so because yeah. So if if I kinda look at like, in the UK, we've kind of got energy, which is traded, and then this kind of constraint issue is all kind of solved. Well, there's, like, like, one wholesale market, and this constraint issue is all solved via the balancing mechanism. So it's sort of like a second order effect of of fig figuring that out, whereas in the NEM, that's all just done as part of the one sort of energy optimization.

Correct. And I think I guess that kind of speaks to why there's some of that pricing volatility because it's not just taking in energy, it's taking these constraint issues as well.

Yeah. Absolutely. And it it leads to a real, you know, potentially investor risk is that you, you know, you identify a site. It has, you know, good conditions for sort of, you know, weather.

You've done kind of pricing analysis. Things look things look pretty good. And then you build the asset and then it actually turns out that, you know, there are five or ten percent of intervals that you actually can't be dispatched for. In an energy only market, that now means you're earning absolutely zero revenue.

And then sometimes that's ironically compounded by those constraints and congestion may sometimes be the times that are very highly priced. Particularly, the interconnectors become very congested and constrained around around some of sort of the peak demand volatile periods. And so you might have a generator, you know, trying to to sort of generate power to get to, you know, what is a peak demand period. And if the power, you know, is is congested, constrained, then you're earning nothing, and the price might be above ten thousand dollars per megawatt hour and can be hard to, you know, justify the investment then or to make the money back in a reasonable time.

Yeah. So there's, like, a lot of detail to, like, break down even, like, at that sub state level, like, kind of locationally within states. Yeah.

And it's it's become a really key piece of that investment puzzle for for new for project developers understanding, you know, what the forward price prices look like in a market, what's that congestion, curtailment, constraint risk, how can that be managed, and then also, you know, what what are other people doing around them? Because we've also seen the rise of so marginal loss factors are used. We don't have a so where where a zonal pricing market and then marginal loss factors are used to account for the actual location of generators. And we've seen people who will say first move is build a solar farm in a sunny part of the state. They were fine. And as people have come and built solar farms on the same transmission line closer to load centers, their marginal loss factors have reduced by ten or twenty percent, which is a bit of a kick in the guts.

Yeah. I can imagine. And so I think, for me, I think one thing I just want, like especially for some listeners again who are coming from maybe, like, European perspective, the biggest thing, even from the US, you know, it's a five minute market that's dispatched entirely only at that five minute interval. There's no sort of, like, day ahead market. There's, like, they see bids day ahead, but, essentially, nothing's solved at that point.

And yeah. So it just runs entirely on this, like, five minute every five minutes just running. That's the way the entire market operates, and I guess that is what leads to that volatility. I think that's, like, a natural consequence of that.

And, yeah, I think it kind of raises some very big so for example, thinking about how you'd optimize a battery in that space when you don't really then know what's coming in the next period or the next really kind of raises some pretty interesting questions on how you approach it. And I think that neatly brings me on to talk about, I guess, batteries in and out. I think so some of you may be aware of kind of Hornsdale power reserve or the Tesla big battery, which was essentially the world's first big battery that famously kinda came out of a bet. I don't know in real life, like, actually how much truth there was to that.

I think I think it was, like, yeah, pre yeah. The Earl or not early days, but, yeah, Twitter, Mike Cannon Brookes, the CEO, cofounder of, Atlassian tweeted ated Elon Musk on Twitter, and and Elon Musk said that he could deliver it in a hundred days. And it was, yeah, more or less delivered that, a hundred megawatt, hundred megawatt, hundred and fifty megawatt hour battery delivered. It's actually since been upgraded. It's now a hundred and fifty megawatt battery.

Yeah. I think that's pretty like, it doesn't it's kinda weird to think about in time what like, it doesn't feel that long ago now, but, actually, in twenty seventeen, you know, that was, like, right at the early beginnings of the battery, like, battery storage space globally. Like, even in the GB market, you know, there was maybe, like, approaching a hundred megawatts operational at the time. And it's definitely kind of, I guess, continued.

Right? Like, that big battery focus. So what does battery capacity look like today in the NEM, and what's on the way? So I guess that's probably the more interesting question.

Yeah. So the the rise of the utility scale batteries continued. There's about two point one gigawatts of installed capacity at the moment. They keep getting bigger.

There is very, very soon the new next biggest battery is about to come online, the Waratah super, battery from Acacia, which I think is a gigawatt, which is very large. Over in the WEM, the the Colley battery is is about to is being built at the moment, and so that's a five hundred megawatt four hour battery, which will become Australia's newest new biggest battery in terms of storage capacity. And then even further down the track, we've just seen a couple of batteries have won tenders from the New South Wales long term energy storage agreements, and so they're now eight hour batteries and some very large capacities.

So there's there's a fairly large pipeline of something about seven gigawatts in sort of anticipated and proposed batteries. And then I did actually check recently, there's ninety eight gigawatts or something insane in the sort of, like, you know, maybe proposed, you know, may or may not get built. So a very large pipeline of maybes, but definitely about seven gigawatts in the anticipated.

Yeah. So, like, a lot of interest in getting batteries built, which, I guess on one hand kind of makes sense when you look at that power market, like, the volatility in it. That's exactly what batteries are great at solving.

Mhmm.

But then, I guess, the flip side of that is no there's no capacity market. There's very little in terms of, like, contracted or guaranteed revenue to get these things built, which I don't know. I guess that, like, kind of has there been anything which has been behind getting that capacity built?

Yeah. I think there's there's kind of two things that have happened. I think one, there's been sort of early movers of stand alone battery have taken advantage that volatility.

And the the ancillary services markets, the FCAS markets here in Australia have actually been major value drivers, particularly in the last couple of years for for batteries where we're starting to see what I'd call the the early days of saturation and prices starting to come down since a sort of a peak of the last couple of years, but ancillary service has been big parts of the revenue stacks of large batteries. We've also seen, I think, a lot of colocation of batteries. So people who built solar farms and wind farms initially as stand alone assets and have seen declining wholesale revenues particularly due to negative pricing and and some of those congestion risks.

And so it's logical to invest in a battery as a co located asset as a physical, you know, a physical management of that congestion risk and some of that market risk. And then much more recently, we've seen a number of government, what I'm cheekily calling proxy capacity mechanisms. So we've got, you know, the New South Wales long term energy storage arrangement, the Altesa, which then blueprinted the federal government's capacity investment scheme. And that's very much around incentivizing for an eight hour sort of, you know, large scale batteries as well as new renewable builds and providing it's it's not a true capacity mechanism, but it's about providing sort of revenue guarantees to project developers based around the spot price, but it provides sort of flaws and flooring cap on on revenues.

And then just in the last month, we've seen the South Australian government announce the, firm energy reliability mechanism, which is very similar but includes gas because the gas is excluded from the capacity investment scheme.

Yeah. I was looking at I was looking for it, and I kind of there were some bits of it which looked like they borrow quite heavily from, like, capacity markets in the in sort of Europe and the UK, but then then it's, like, not a capacity market.

And that's just Yes.

Yeah. I think and, again, I am a bit cheeky in this, but I think the capacity markets have been a somewhat contentious point and get raised, like, much like locational marginal pricing. They're something that get raised sort of on a six monthly basis and get often battered down by sort of people who are pretty proud of the NEM energy only design and keen to keep it that way. But I do think there are some serious challenges with investing in an energy only market and encouraging that investment. And I think the the existence of things like the CIS and Altesa and FIRM are are sort of a implicit acknowledgment that investing in the energy market is challenging.

Yeah. And I think I guess the only other thing I just want to highlight is that, I guess, we have also seen, like, some state governments prove like, kind of take some actions to to bring batteries online. So if we look at, again, Hornsdale, it had this sort of, like, reserve contract to come online. And then similarly, I guess, we've seen similar in Victoria. Victorian big battery. Victorian big battery in the New South Wales now with the Warat RCU battery, which again, yeah, is kind of maybe more from the yeah. Again, looking at it, like, the state governments have been at well, from outside, it seems like they can be a bit more interventionist than we maybe are used to kind of in, yeah, Europe.

Yeah. I think it it's it's funny. The NEM is a, you know, is a fully private market. That was one of the conditions of kind of establishing the NEM, but it probably has more government involvement than many people realize. So, for example, the Queensland, most of the state most of the generation in Queensland or certainly the existing kind of gas and coal generation and the hydro units are actually all state government owned via corporatized sort of entities. And New South Wales for a long time was all sort of corporatized entities, although it's largely been privatized now. But Snow Hydro is federally owned and Snow Hydro is quite a big player, probably actually sits not far below the the big three Gentailers.

And as an election promise a couple years ago, Victoria brought back the State Electricity Commission, the SCCV, sort of, you know, version two point o. And and part of that promise was, again, a consumer led focus of trying to provide power, cheaper power, and greener power. But, again, it gives them sort of that that heft of government to be able to throw behind supporting projects, whether that be the sort of, you know, guarantees of revenue, underwriting schemes, or, you know, sort of capacity light sort of contracting mechanism. Governments have been quite heavily involved particularly recently.

Yeah. You kinda mentioned there's, like, kind of, like, ninety seven gigawatt pipeline.

I guess, within that, do you think there's enough that, like, kind of realistically will get built to achieve kind of the the targets and the transition that Australia needs?

I think the I think the battery pipeline and what's being built to date looks pretty healthy.

I I guess I'm a long way from an expert on on what's quite needed to hit those targets, but it certainly looks healthy and battery projects have been progressing really well. I think the big challenge that actually seems more likely is building, you know, the actual generation clean generation, renewable generation projects that then provide, you know, the the actual power into the system for batteries to to shift around has been more challenging. So building wind in this country has really slowed down and we we need a lot more wind particularly because it obviously has a a more, you know, a less diurnal profile than solar. Like, it's very easy to build solar in this country, but we we need more than just solar to to hit our transition goals.

Yeah. And I think, like, I guess, you know, I we naturally kind of think about Australia as a sunny place, which it is. But, I mean, since I came here, like, it's been wind like, it's very windy. And so, yeah, it kind of seems like a bit of a no brainer to, well, to try build out that wind generation.

But I guess the again, I that very quickly just comes back to that transmit like, kind of transmission constraint issue again, which is then also building the transmission infrastructure to support that.

Yeah. It's been a it's been a big topic of kind of discussion recently about the the big transmission build out required to support these these, you know, these new assets, these new both renewables and batteries. There's some lots of very large numbers floated about. The the build out of transmission, both the cost and the, I guess, the slowness of it has led the sort of the the opposition federal government to wedge their little sort of pro nuclear culture war thing, which is honestly kind of a nothing, just a a furphy, a distraction in the in the actual energy transition story. But it has been that the challenge is building a transmission have been able to kind of underpin that argument to essentially get air in the in the transition topic, honestly.

Yeah. In terms of running the grid, the system, like, what are the challenges that are faced, I guess, by AMO?

Yeah. Like, kind of day to day.

Yeah. I mean, I think one is this kind of legacy of the the patchwork of states, which are really you know, we call it the national electricity market, but it is a patchwork of state systems which are glued together by the interconnectors, which is still cause a lot of challenges day to day. And so increased interconnection is one of those potential ways to address that. But I think also day to day in the last couple of years, we've seen the emergence of minimum system demand.

So Australia now has just over twenty gigawatts of rooftop solar sitting behind, you know, behind the meter, which is at times larger than the entire, like, generation capacity of the of the coal fleet in Australia, which is kind of nuts. But it's leading to these periods where, yeah, we're hitting essentially this yeah. What AMO is calling the the minimum system load where it believes that if the if the demand on the grid were to drop any lower, we'd be an extremely unstable territory. And so it's led to things like in South Australia directing, basically forcing gas generation on to provide inertia and synchronous generation and that comes at a cost and not just the the carbon cost but a physical cost for paying them to come online.

And it's led to a brand new concept of a a minimum system load announcement, which matches the sort of the lack of reserve announcement, which is to cover peak demand opposite. And so there's lots of things going on there, including very unpopularly, AMO has been talking about basically kicking people's rooftop solar off via essentially over voltage control. It's a it's a hammer. It's a blunt mechanism to help that, but it's been quite unpopular.

You know, people taking private assets and kinda kicking them off the grid is not popular with consumers, understandably.

Yeah.

And so because I think yeah.

If kind of looking at those, like, kind of energy market, but then AMOCAT as a SNOM operator can take actions kind of outside of that to direct participants. So I guess in the instance of the minisysm mode, you know, instruct batteries to sort of essentially discharge so that they can charge up during the middle of the day. And I guess, like, in the inverse during the kind of the peak periods, they can do, yeah, do the flip side of that. So instruct batteries to hold high set of charge. Right?

Yeah. We actually saw an example of that just last week. So New South Wales had very high temperatures, particularly so so New South Wales, very high temperatures in the west of Sydney, Penrith, and and Parramatta sort of drive the the the center of the load, and that led to, yeah, extremely high demand in the system. There are a number of coal fired units that were offline unexpectedly, so there was sort of less generation available system. And AMO issued directions for both Walgrove and Waratah battery to and Waratah still in sort of commissioning phase to maintain a certain level of state of charge, presumably, as a kind of a and ammo doesn't have to quite state their reasons for that, but as a I I guess, as an emergency backstop that there would be some state of charge left in the battery in case things really went down south.

Yeah. And so, I guess, just to put a timestamp on on where we are. So, yeah, we're recording this, say, the first week of December. And so, yeah, I think, like, last week then we saw, like, that period of I guess it you kind of have this weird thing where there's these forecasts which say state we're gonna have, like, the price cap be hit for, like, four hours, and it doesn't seem to quite ever get to that point. But, yeah, we did see that prices in New South Wales hit, you know, seventeen and a half thousand dollars for quite a bit quite a lot of periods.

Yeah. It's yeah. It was it was certainly hot. It certainly was a a test of the system.

I think I think it is interesting that's kind of one of those kind of consequences of the energy only market is that high prices are generally, obviously, you know, high demand and and sort of stress on the system from a reliability perspective. I usually associate with high prices, but those things are technically separate. You can have rare instances of sort of reliability system problems and low prices, and you can have vice versa where you get very high prices and there's kind of, you know, relatively calm demand. But last week was was sort of both, which is more typical.

Yeah. So I think, basically, to wrap that up, I think if if anyone gets their kicks out of, you know, our market volatility, take a look at the NEM. And so I think that brings you on to the final question, which is, Alex, what is your contrarian view?

Love a contrarian view. I am a cynic on the projected rise of data center growth due due to domain AI tool. I am not convinced that the growth in AI is there sustainable enough to actually drive some of the fairly wild projections we're seeing in data center demand. And I do think actually we're being a little bit like the electricity industry is being led by the sort of the AI industry, which is obviously fairly hyped up at the moment.

And I think we've seen some of this happen before. For example, a lot of the smelters back in the eighties, which drove lots of wild promise about electricity usage and pricing, and it it actually caused a lot of headaches for the industry sort of thirty, forty years ago. So I am wary of that. Okay.

It's a good contravency. So, yeah, the kind of AI data center gigawatts Yeah. Pipe may not quite come to fruition.

But I yeah.

Thanks a lot for coming on the the podcast. I think it's hopefully been a really insightful episode for our listeners. And so, yeah, final little thing for me is, again, just to keep your eyes out for sort of research from Modo coming out on the NEM if you found this interesting. But, yeah, thanks, Alex. Thanks for having me. See you next time.

Thank you for listening to Transmission, a MODO Energy podcast. Transmission delivers conversations from industry leaders and experts exploring energy markets and the operations and technologies related to grid scale battery energy storage. Check out our other episodes by searching Transmission wherever you get your podcasts.

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