Reliability versus Renewable Energy. Can we have both?

Home Blog energy policy Reliability versus Renewable Energy. Can we have both?


Reliability is contradictory to Renewable energy because it depends of sunshine or wind, so it’s not reliable, right? So an electricity supply with increasing renewable energy, would be increasingly unreliable, right?
Fortunately, this proposition is dead wrong!

Reliability in the National Electricity Market

Reliability is the first consideration in the design of electricity markets. This is how it works in the National Electricity Market:

Customers pay a fixed retail price guaranteed by retailers. Retailers contract with generators to guarantee a fixed wholesale supply price. Generators suffer crippling penalties for even small periods of non-performance when supply is scarce.

The fear of crippling penalties drive retailers to contract and generators to build extra generation called a reserve margin, which typically around 15+% additional generation to provide good levels of reliability.

Reliability incentives and penalties

Spot market electricity prices can rise to $14.00/kWh at times of scarcity compared with the implied wholesale price of around 10c/kWh, or the retail price you pay of around 20c/kWh. If you are paying more than that, visit Energy Umpire and compare.Incentive: if generators don’t generate they miss out on the super revenues.
Customers pay a fixed price, so electricity retailers contract with generators to fix the price, otherwise they could be buying at $14.2/kWh and selling to you at 10c/MWh.Incentive: Generators pay out under contracts at $14.00/kWh.
A generator with contracts for 1000MW would pay out $14M per hour if not generating.

Renewable Energy vs. Reliability?

Renewable Energy is mostly ‘must run’ so the balance of electricity demand must be served by thermal plant, batteries, hydro and demand management.

The demand, after allowing for wind and PV solar, is increasingly peaky. To meet this demand requires less baseload coal and more peaking capability as the need for baseload shrinks.

Action Plan

Reliability will only be affected adversely if Governments chop and change and investors can’t predict what will happen next. If prolonging the life of coal is the answer, you asked the wrong question. This is just a fact when the need for baseload is shrinking so rapidly.

Peaking capability has traditionally been supplied by gas turbines with diesel backup for use when contracted gas is insufficient, and of course by hydro electricity.

Harnessing the response of customers is more important than ever before with batteries and distributed generation but also the rise of control technologies to manage usage.

Storage of gas and electricity are increasingly important.
Governments need to focus on facilitating investment that is actually needed in servicing peaks otherwise prices will increase further and reliability will be compromised.