The exponential rise of renewables – especially the vast amounts of small-scale rooftop solar – has changed how electricity is sourced in the National Electricity Market (NEM).

The NEM now regularly experiences periods of excess supply in the middle of the day, while overall supply remains tight to meet periods of extremely high demand during hot summers. The daily demand-surge as the evening peak kicks in and solar generation drops off is becoming more pronounced, and reliance on thermal generation when wind conditions are low is increasing.

This article considers how these complications can be best managed as more renewables continue to enter the NEM.


Supply and demand dynamics

The supply and demand characteristics of the NEM are extremely dynamic. Unlike markets for other goods and services that operate and fluctuate on a longer-term basis, the supply and demand of electricity across the entire NEM must always balance instantaneously, as electricity is not a commodity that can be readily stored in large quantities.

As a result, the central market operator AEMO calculates every five minutes which generators are available and how the electricity needs of customers across the NEM can be met at lowest cost, taking into account how much electricity is being used and the overall safety and security needs of the system. Additional markets – such as power system frequency regulation – exist on even narrower timeframes (as little as six second increments) to ensure supply and demand remain precisely balanced, and a reliable supply of energy is available for the NEM’s 11 million households.


Different generators in the mix

Although electricity needs to be produced all the time to meet customer demand, individual electricity generators are not always running, and adjust their output depending on their availability and the needs of the system.

As much generation as possible needs to be available during peak periods to meet customer demand, but otherwise generators can reduce their output or shut down generation completely during periods when demand is able to be met by other sources. At these times, generators can run scheduled maintenance activities or simply allow lower-cost generation to meet the needs of the system.

In the case of coal-fired generators, switching units on and off can be an expensive and complicated process, so it is often more cost-efficient over the long-term to run them constantly for long periods of time. Coal-fired generators are kept running within the range of their operational output 24 hours a day, but peaking gas generators can be switched off completely – and then be returned to full capacity within minutes of being switched on.

Large-scale wind and solar farms generate electricity whenever the wind is blowing and the sun is shining, and do so at a much lower cost. However, just like other facilities, the electricity these generators produce is only paid for and dispatched to the market when it is required by AEMO.

Generators work with the market operator to ensure that, throughout the year, the needs of the NEM will be met and their facilities will be run as efficiently as possible to maximise their output – but that the generators also meet the needs of the system at the lowest cost.


But what about rooftop solar?

In contrast to large generators – which must bid into the market and dispatch electricity in accordance with AEMO’s instructions – small-scale solar panels on rooftops generate and dispatch electricity whenever the sun is shining, regardless of the needs of the NEM.

The electricity that a rooftop solar panel generates will be used in different ways depending on the underlying conditions within that household, in the local network area, and more broadly throughout the NEM. As household solar electricity cannot be readily stored without a connected battery, the electricity that is generated in solar panels needs to be used immediately, either by being consumed within that household or exported to the grid to be used by another consumer. If it is exported to the grid, the market operator will allow for this by reducing the amount of electricity that is required to be dispatched by other generators.

As more solar and renewables enter the system, there are increasing periods where there is an ample supply of cheap energy during the day that is being produced by large-scale wind and solar generation as well as rooftop solar.


Case study: wind and solar supply in South Australia

However, there are still times when electricity demand must be met by other sources.

This graph shows the demand (in blue) alongside wind and solar generation (in cyan and orange) in South Australia on Sunday, 23 July 2017.

Supply and demand over time in SA, Sunday 23 July 2017

Graph explainer

Throughout the night, (see left-hand side of chart) almost all of South Australia’s demand was being met by wind generators.

Then, as small-scale solar generation increased during the middle of the day, there was an excess of generation, (see middle of chart), which would have been exported interstate to Victoria via the interconnector. System demand during this time (blue line, generation required from large generators) also reduces as rooftop solar meets the electricity needs of many South Australian customers.

During these periods, very small amounts of scheduled generation would have been required to meet system demand.

As the next evening peak arrived, (see right-hand side of chart), there was a large drop in generation from wind at the same time that solar generation slowed down. To counteract this drop in supply, a significant increase in flexible scheduled generation was required as demand increased in the evening. In this case, the generation would have been sourced from a combination of gas-fired turbines located in South Australia and from Victorian generators via the interconnector.

This case study and other generation trends are discussed further in a 2018 report published by AEMO.


Case study take-aways

While the pace and scale of declining wind generation in this example is rare, and not indicative of the regular pattern of generation in South Australia, electricity generators and the market operator need to be aware of and prepared to manage these types of situations. As we can see, without the ability to source generation from other regions or from local scheduled generation, demand would not have been met in the evening as wind and solar production decreased and the risk of load-shedding (blackouts) may have increased.

This is not to say that wind and solar generation are not beneficial to the NEM; in fact, quite the opposite.

Producing electricity with zero fuel costs and with no emissions, wind and solar present huge opportunities in the NEM to reduce wholesale prices and address climate change risks. The high penetration of wind and solar means that the NEM has experienced periods of zero and negative prices, and emissions in the electricity generation sector have reduced over the last few years due to less coal and gas generation being required.

As the mix of generation across the NEM improves and more regions become interconnected, it is likely that there will be fewer occasions where such a significant drop in renewable generation will occur at the same time. Better forecasting of wind and cloud conditions by AEMO will also mean that these circumstances are more predictable.

However, for the time being, as more intermittent renewables enter the market we need to ensure there is enough flexible and dispatchable or stored generation to maintain a reliable and stable power system. This is why firming power sources, like the gas-fired Barker Inlet Power Station (which will open in South Australia later this year), are so important.

In the next article in this series, we will take a deep dive into how energy storage like batteries and pumped hydro can help support the peaks and troughs in energy demand. Stay tuned.