What's the challenge? Australia's energy grid is facing new minimum demand records as renewable energy sources, energy storage systems, and increasing demand variability reshape the market. The rise of rooftop solar has lowered minimum demand, while extreme weather events push maximum demand to critical levels, stressing both ageing coal plants and renewables. Batteries offer flexibility but introduce new complexities, such as coordination and market dynamics.
So what? AEMO is addressing these issues through initiatives like grid interconnections, market mechanisms, and modernisation efforts. For businesses, this evolving market presents risks of price volatility, grid instability and increasing cost pass-through, but also opportunities for new revenue streams through energy storage and demand response programs. Utilizer helps businesses navigate these changes with tailored energy strategies, market insights, and expert advocacy.
Challenges for Energy Generators, Retailers & AEMO
Australia’s energy landscape is undergoing a seismic shift as the rise of renewable energy sources reshapes the grid. For generators, retailers, and the Australian Energy Market Operator (AEMO), managing the growing divergence between minimum and maximum demand presents complex challenges. These are compounded by the ageing fleet of coal-fired power plants, which still underpin a significant portion of the grid’s reliability.
Additionally, the increasing adoption of energy storage systems, particularly batteries, is adding a new layer of complexity, offering opportunities to balance supply and demand but also introducing new coordination and integration challenges. Meanwhile, progress in hydrogen as an energy carrier continues, with its potential to play a significant role in the long-term, and nuclear energy remains a potential future strategy as a somewhat controversial option for meeting peak demand.
The Impact of Minimum Demand
Traditionally, the grid was designed to manage peak demand, ensuring sufficient capacity to meet consumption at its highest. However, the growing uptake of rooftop solar and other distributed energy resources (DERs) has pushed minimum demand to new lows. Daytime periods, particularly in spring and summer, now experience significant dips as residential and commercial solar generation surges.
Key challenges of minimum demand include:
Voltage Stability: Lower demand makes it harder for the grid to maintain stable voltage levels. When the grid is operating at low demand, voltage levels can become more volatile, leading to sudden fluctuations in voltage. These fluctuations can affect the performance of sensitive equipment, both in the grid infrastructure and in consumer devices. Generators operating at reduced output may struggle to meet system strength requirements, increasing the risk of cascading failures which could lead to large-scale blackouts.
Inflexibility of Coal-Fired Plants: A recent test by AGL at its Bayswater coal-fired power station highlights the challenges coal plants face in responding to minimum demand. AGL successfully wound down the plant and brought it back online five hours later, demonstrating the potential for some flexibility. However, this process is not without its issues. Coal plants are designed for steady, high output, and reducing their output for extended periods can cause inefficiencies and strain on the system. The delicate balancing act of ramping plants down and up again during demand spikes increases wear on ageing assets, raising maintenance costs and the risk of breakdowns over time.
Curtailment of Renewables: When minimum demand falls too low, there may not be enough demand to absorb the power being generated, particularly during the day when solar generation peaks. To avoid grid instability, excess renewable generation may be curtailed, meaning it is intentionally turned off or not utilised, despite the fact that it is a clean and cost-effective source of energy. As a result, renewable generators lose the opportunity to sell this excess power on the market, leading to unrealised financial benefits and environmental inefficiencies.
Integration of DERs: The input of DERs to the grid is highly variable as their output depends on weather conditions, time of day, and seasonal factors. Current grid infrastructure, designed for a more centralised model, struggles to accommodate the fluctuations and dispersed locations of these renewable energy sources. Coordinating the output of thousands, or even millions, of small-scale generators to maintain grid stability requires sophisticated forecasting, real-time monitoring, and advanced control systems, which the existing grid is not fully equipped to handle.
The Pressure of Maximum Demand
Despite the shift in focus to minimum demand, maximum demand remains a pressing issue, particularly during extreme weather events. Heatwaves and cold snaps can push energy consumption to critical levels, testing the capacity of ageing coal-fired power plants and new renewable assets alike.
Recent heatwaves in November 2024 have significantly affected energy prices in New South Wales and Queensland. High temperatures drove up electricity demand. mainly due to increased air-conditioning use. This surge coincided with multiple coal-fired power plants undergoing maintenance, which limited generation capacity and strained the grid. Consequently, spot prices spiked, with NSW experiencing critical reserve shortages, prompting the Australian Energy Market Operator (AEMO) to issue blackout warnings and encourage industrial users to reduce consumption.
Key challenges of maximum demand include:
Reliability of Ageing Coal Plants: As coal-fired plants near the end of their operational lives, unplanned outages during peak demand events pose a significant risk to supply security. To address this challenge, the energy market is considering alternatives such as large-scale batteries, pumped hydro storage, and gas-fired peaking plants, alongside efforts to expand renewable energy capacity, to ensure reliable supply as coal assets wind down.
Intermittency of Renewables: While renewables like solar and wind significantly contribute to the grid's overall capacity, their output depends on weather conditions and time of day, which makes them inherently variable and less predictable. This variability means that AEMO must carefully consider firming strategies to ensure reliable, on-demand power when renewable output is low.
Market Volatility: Retailers must navigate increasingly volatile spot markets as supply tightens, balancing customer needs with cost pressures. To do this, they employ strategies such as hedging contracts to lock in stable electricity prices and reduce exposure to unpredictable wholesale costs, while also exploring alternative generation sources, including renewables, gas, and storage, to diversify supply options and enhance reliability.
The Shifting Landscape: Batteries, Gas, LPG, and Hydrogen
As Australia continues its transition towards a cleaner energy future, batteries, gas, LPG, and hydrogen remain pivotal, but each brings its own set of challenges. The varying costs, environmental implications, and infrastructure needs make their integration complex. Here’s a closer look at the key issues:
Batteries - A Double-Edged Sword: Batteries are increasingly seen as a solution for grid stability by storing excess energy during low demand and releasing it during peak periods. As battery prices decrease, their adoption for large-scale and residential storage grows, helping address energy challenges. However, their integration introduces complexities such as ensuring timely coordination with AEMO and retailers, influencing market dynamics through energy arbitrage, and managing lifecycle costs, as their finite lifespan and maintenance needs impact long-term economic benefits.
Gas Price Volatility & Emissions: Policy uncertainty surrounding the future of gas and the challenge of securing stable, affordable supplies further contribute to its volatility. The role of gas in Australia is becoming increasingly scrutinised, with shifting government policies and market forces influencing both its availability and price stability. This uncertainty creates challenges for energy retailers and consumers alike, making it difficult to predict long-term costs and emissions outcomes.
LPG’s Limited Role & Price Sensitivity: While LPG is used in some parts of the market, it has a smaller role compared to natural gas, and its prices are highly sensitive to global supply chain disruptions. The production of LPG is often linked to fracking operations, which can face regulatory scrutiny and environmental concerns, adding an element of uncertainty to supply. Additionally, the profitability of LPG can be impacted by fluctuations in crude oil prices and demand, making it less reliable for long-term pricing stability compared to natural gas.
Hydrogen Production & Infrastructure: Hydrogen is seen as a key future fuel, but its production remains expensive, requiring substantial investment in infrastructure such as storage, pipelines, and refuelling stations. The challenges include high production costs, particularly for green hydrogen, which relies on renewable energy sources, and the need for widespread infrastructure development to support its use in transport, industry, and electricity generation. Despite these obstacles, there are significant opportunities, particularly in decarbonising hard-to-abate sectors like heavy industry and long-distance transport.
Efficiency of Hydrogen: Hydrogen's energy conversion processes are less efficient compared to other storage solutions like batteries, which makes its adoption on a large scale more complex. One of the main environmental concerns surrounding hydrogen production, particularly via electrolysis, is the significant energy required to split water molecules into hydrogen and oxygen. If the electricity used for this process comes from non-renewable sources, the environmental benefits of hydrogen production can be significantly reduced. Though "green hydrogen" is produced from renewable sources, there are environmental concerns related to the production of hydrogen from fossil fuels, particularly "grey hydrogen," which involves using natural gas in a process that emits large amounts of CO2.
AEMO’s Role in Navigating the Transition
AEMO plays a pivotal role in maintaining grid stability amid these changes. Initiatives such as the Integrated System Plan (ISP) and reforms to the National Electricity Market (NEM) are designed to address these challenges, focusing on:
Strengthening Interconnections: Enhancing transmission infrastructure to share energy across states, mitigating the impact of localised demand spikes or dips.
Market Mechanisms: Developing new market structures to incentivise flexibility, including mechanisms for demand response and fast-start generation.
Grid Modernisation: Investing in technologies such as synchronous condensers and virtual power plants to support a more dynamic and distributed grid.
What This Means for You
For businesses, this evolving energy landscape can bring both risks and opportunities:
Price Volatility: Wholesale energy prices are becoming more unpredictable, particularly during extreme demand periods.
Grid Stability Risks: Supply interruptions or reliability challenges can impact operations and increase costs, increasing the benefits of on-site generation of renewables.
New Revenue Streams: Businesses with energy storage or flexible load capabilities can earn revenue through opportunities like arbitrage—buying or storing energy at low prices and selling it at higher prices—and participating in demand response programs, where they are paid to adjust energy use during peak periods.
Cost Pass-Through: Regulatory and operational changes, such as the growing reliance on batteries for grid stability, will lead to higher costs for retailers and generators. These costs will inevitably be passed on to energy users, making proactive energy management and strategic procurement essential for mitigating financial impacts.
How Utilizer Empowers You
At Utilizer, we understand the complexities of Australia’s energy transition and the challenges businesses face in adapting to it. Our expertise can empower your business to navigate this landscape confidently by:
Providing Market Insights: We deliver up-to-date analysis of market trends to help you understand how minimum and maximum demand trends affect energy costs and reliability.
Customising Energy Solutions: Our tailored energy procurement strategies align with your specific needs, working to mitigate risks from price volatility and grid instability.
Exploring New Opportunities: We advise on opportunities for participation in demand response programs, renewable integration, or battery storage solutions to optimise your energy profile.
Advocating on Your Behalf: Leveraging our industry expertise and strong relationships, we negotiate the best energy contract outcomes for your business and keep you informed of regulatory changes that may affect you.
The Path Forward
The road ahead may be challenging, but with the right strategies and support, your business can thrive in this dynamic energy market. At Utilizer, we'll empower you to achieve the best available energy outcomes, no matter how the market evolves.
Contact our expert energy consultants today to see how we deliver more power to you.
December 4, 2024 | 
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