When the Spin Stops - Paying for Inertia

It is always interesting how culture snakes its way through society over time, how points of view become fashionable and then not, and how things we once knew as truth begin to reveal themselves as otherwise. Indeed, the “conventional wisdom” of the day has much to answer for in the history of mankind. John Kenneth Galbraith once wrote that the enemy of the conventional wisdom is not ideas, but the march of events. Events are marching towards a quite different fuel mix over the next 50 years in generation. 

Renewables are cheaper – but don’t shut down coal yet

There are two critical tipping points for renewable energy. The first is the point at which it becomes cheaper to build a new renewable energy facility than a new coal-fired power station. The second is when it becomes cheaper to build a new renewable energy facility than operate an existing coal-fired power station. The first has implications for the way in which capacity is replaced in a system, the second has far more disruptive implications for the shutdown of plant before the end of its useful life.

With all of the political rhetoric around renewables, coal, system security and keeping the lights on, it has gone somewhat under the radar that we passed the first tipping point some years ago. It is, without much doubt at all and according to the research, cheaper to build a renewable plant [1] than it is to build new coal[2]. It is also seldom reported that the cross over between building new renewables and dispatching existing coal fired power stations is happening already in some places and is forecast to occur on average between 2025 and 2030[3]. 

This is not to say that coal plants should be shut down and replaced with new renewables in all areas – for two simple reasons. Firstly, there are some extremely cheap coal-fired power stations out there, some of which will never be more expensive than renewable facilities even under the most optimistic forecasts, and which in the absence of draconian carbon policies will produce cheap and reliable electricity to the end of their useful lives. Secondly, and importantly, there is a limit to the amount of renewable energy that an electricity system can bear, or stated more correctly, there is a minimum amount of inertia that is required in an electricity system to make it work. Too little inertia, whether from coal, gas or hydro generation, and the system cannot recover from the impact of temporary reductions in sunlight and wind on renewable plant. It is from these two points that much of the controversy around renewables and coal is born.

Three points to consider when planning energy policy

Part of the policy development problem in most countries, Australia included, is that we need to hold two or three quite conflicting points in check while answering the question of how to set energy policy. Firstly, there will be a point, between 2025 and 2050, when it will not make commercial sense to run coal-fired power stations because renewable energy will (a) be cheaper; and (b) the amount of money made when the sun goes down will not be enough to pay for the costs of operation.  Secondly, at this point there may not be enough inertia in the system and markets will become unstable. This is a point that goes beyond reliability and to the heart of whether we have our present quality of life. 

Thirdly, this is not a problem that can be solved, economically or technically, with storage unless the technology evolves to a point where batteries can provide both inertia and capacity. They are not the same. Solving for these points often leads commentators to the extremes of both ends of the arguments for and against different fuel types. What is needed is a laser focus on the specific problem. 

In Australia, the National Electricity Market (NEM) is an energy system, meaning it pays generation when it turns on and supplies energy to the system. The NEM does not pay baseload or peaking power to sit idle and to provide capacity or inertia when it is required.   Many other systems globally have similar structures.

Time for new markets to cope with mass penetration of renewables?

There are three – often discussed – options for dealing with the issues associated with mass penetration of renewables. 

The first option is to create, through batteries or some other technology, synthetic inertia. It is not well understood however that while batteries do provide capacity, they do not provide inertia and therefore (a) provide little in terms of system strength, and (b) become unstable when grid signals become sufficient from rotating generation. Further, even fibre optic communications can be too slow in circumstances where frequency drops are sudden (sometimes as rapid as 0.25 seconds), outpacing current battery software and communication technologies. They are, in short, not solely capable of providing an answer to the question of system security.

 The second is demand response either contractually (paying people to be turned off) or the more politically unpalatable load shed.

The third is to pay for the inertia that is required via new markets, specifically through the creation of inertia markets . This would require rotating inertia, as a service, to be valued in a way which is far different than today and paid under mechanisms that will incentivise both new and existing technologies to provide the underpinning reliability that the system needs. These are significant changes and would go beyond and stretch the bounds of existing ancillary services in a market like the NEM in Australia.

These are not new challenges. In Australia, like in many other countries, the system operator AEMO establishes minimum inertia requirements in each region and publishes these, and has rules for system strength. These arrangements however all imply a continued requirement however for rotating inertia, in an environment where renewables are rapidly reducing in price. 

Galbraith once said that the conventional view serves to protect us from the painful job of thinking.  It is now time to think, specifically how we can balance a need for rotating inertia in the system with the reality that renewables will be the primary method of power generation in our grandchildrens’ lives. While the energy only market has served us well in the NEM since 1998, it may be time to challenge the conventional wisdom.

 Is it time for a market for inertia? Leave your comments below and join the discussion.

[1] https://about.bnef.com/blog/battery-powers-latest-plunge-costs-threatens-coal-gas/

[2] https://www.climatecouncil.org.au/new-wind-and-solar-now-as-cheap-as-existing-coal/

[3] https://www.climatecouncil.org.au/new-wind-and-solar-now-as-cheap-as-existing-coal/