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Select Committee into the Resilience of Electricity Infrastructure in a Warming World
Storage technologies and localised distributed generation in Australian electricity networks

FRANKLIN, Dr Evan, Senior Lecturer; Fellow, Energy Change Institute, Australian National University

SIMENTO, Dr Noel, Managing Director, Australian National Low Emissions Coal Research and Development

STOCKS, Dr Matthew, Fellow, College of Engineering and Computer Science, Australian National University

Committee met at 08:31

CHAIR ( Senator Hanson-Young ): I declare open this public hearing of the Senate Select Committee into the Resilience of Electricity Infrastructure in a Warming World and I welcome you all here today. Thank you, Senators, for giving up your Friday after the first week back. It has been a long week already. This is a public hearing and a Hansard transcript of the proceedings is being made. The hearing is also being broadcast via the Australian Parliament House website.

I remind all witnesses that, in giving evidence to the committee, they are protected by parliamentary privilege. It is against the law for anyone to threaten or disadvantage a witness on account of evidence being given to a committee and such action may be treated by the Senate as contempt. It is also a contempt to give false or misleading evidence to the committee. The committee prefers to hear evidence in public, but, under the Senate's resolutions, witnesses do have the right to request to be heard in private session. If a witness objects to answering a question, the witness should state the ground of the objection and the committee will determine whether it will insist on an answer, having regard to the ground which is claimed. If the committee determines to insist on an answer, a witness may request that the answer be given in camera. Such a request may, of course, be made at any other time. In addition, if the committee has reason to believe that evidence may reflect badly on a person, the committee may direct that the evidence be heard in private. Witnesses should also be aware that, if in giving their evidence they make adverse comment about another individual or organisation, that individual or organisation will be made aware of the comment and given reasonable opportunity to respond to the committee.

On behalf of the committee, I would like to thank witnesses who have given up their time this morning for their cooperation. I welcome our first witnesses. We have received your submissions, numbered 28, 30 and 35. They have been published on the committee's website. Information on parliamentary privilege and the protection of witnesses and evidence should have been provided to you. I invite all three of you to make an opening statement. Can you keep it as brief as you can so that we can get to questions.

Dr Franklin : The Energy Change Institute is a cross-disciplinary body at ANU. It represents people from across science, engineering, law, policy and economics. Our submission is largely centred around several different aspects of resilience of the electricity network, how storage and distributed generation might impact that resilience and how those technologies might be used to best serve strengthening resilience of the network. We focus particularly on three storage technologies, and the two which I will highlight in my introduction are pumped hydro storage and battery storage. They offer, on the one hand, technologies which are very familiar to the power industry and which provide some of the services that conventional generators provide but which are capable of doing so at a faster and in a more flexible manner than most traditional generators. On the other hand, battery storage offers unprecedented flexibility and ability to meet power system demands on very short time scales. A really key factor in providing resilience is that short time scale nature.

As part of our submission, we also note that these technologies on their own can deliver these various aspects of resilience which we have highlighted, but they do not necessarily deliver those unless the market or regulatory frameworks are in place to facilitate them to do so. As an example—and I will try to keep this brief—the battery storage behind the meter in the house, which is the main deployment of battery storage in Australia at the moment, is being installed with the express purpose of satisfying that householder's needs and does not necessarily have the wider interests of the electricity network in mind. That could be changed by a number of market rule changes and by a number of regulatory changes and so forth. The key point that I wish to make for our submission is that these technologies are there, they are coming, and they will provide resilience, but it can only be done if that is facilitated by the way the market operates.

Dr Stocks : Our submission is very much focused on network support via storage. There is clearly a challenge, as you increase the amount of intermittent power generation that goes into the network, with balancing supply and demand. We very much see storage at the key enabler to support the increasing penetration of variable renewables into the network. The work that we have been doing is very much focused on pumped hydro storage. Pumped hydro storage is a very established technology. There are more than 150 gigawatts deployed around the world, including two gigawatts deployed within the Australian network in Tumut 3 in the Wivenhoe scheme and also in the Shoalhaven. Our interest has been very much on how you can use that storage to ensure that you have a stable and reliable network.

Probably the most interesting finding from our perspective was looking at very high penetration of renewables that go to a 100 per cent renewable grid. The work that we have done there demonstrates that, if you distribute this generation very widely and develop an appropriate transmission network, you need a surprisingly small amount of storage and a relatively small amount of support to ensure that you can have a reliable balancing of energy supply over that five-year period. We have shown that the additional premium is quite small. We are talking less than three cents a kilowatt hour to enable the entire system to behave in a balanced manner in order to ensure that the energy is distributed across the country in such a way that you meet all of the vagaries of the supply and demand in the network.

Dr Simento : Unlike R&D our primary role is to deliver a scientific platform on which low emissions from coal technology such as carbon capture and storage can deploy sustainably in Australia. Our research is conducted in universities in Australia and the CSIRO right across the country. I recognise that the terms of reference of this committee implies energy storage technologies. It is not my intention nor my expertise to cover technology topics like pumped storage and batteries. My submission relates to grid resilience in general and the role that fossil fuel technologies might play into the future. To this extent, I suspect my submission falls into the category of 'other relevant material'.

It is important to acknowledge that the provision of reliable energy at the lowest cost to both domestic and industrial customers is really important for the Australian economy. Our electricity supply has traditionally been delivered through the state grids to state based grids and large interconnectors between them. Our market systems were built on this basis, and it has served us well to date in achieving a competitive objective. We are, however, in a period of change and our commitment to reduce greenhouse gas emissions requires the deployment of low emissions energy technologies at an increasingly rapid rate. The inherent nature of these technologies is placing new demands on resilience and the operation of a network to grid.

In my written submission, I have referred to attributes that contribute to, or take away from, a resilient grid. I have highlighted the benefits of grid stabilisation features offered by synchronous power generation from fossil fuel power. I have also illustrated how the retirement of significant synchronous assets in South Australia might have contributed to reduced grid strength and, consequently, reduced overall resilience. The events and localised interruptions that are being experienced is building evidence for what might be expected from a grid supply where the strength has been compromised or investment in the necessary technologies delayed.

Fossil fuel power generation has brought with it several grid services that have provided resilience and delivered a system which is robust to deviations such as faults and which recovers quickly when such issues occur. The services have never been valued in the network system to date. However, the loss of these services will be felt if comprehensive planning and investigation of instability and reliability risks are not undertaken promptly.

The need for reducing emissions has been the introduction of renewable energy sources of electricity supply. Maximising the delivery of low emissions energy at the lowest cost is an inherently virtuous objective but doing so in a way that maintains reliability, avoids disruption and delivers certainty to customers is a more onerous task and one that will require every technology option at our disposal.

In the absence of a strong interconnected network, the high penetration of non-synchronous power generation like solar has the potential to make the grid more vulnerable in terms of resilience. This is a particular feature of the east coast grid, often referred to as the NEM, where the transmission network is very long and the strength of the network is variable across regions, especially at its extremities.

The point I wish to make is that high penetration of non-synchronous power generation can still avail of grid stabilising benefits delivered from fossil fed infrastructure. Low emissions fossil fuel power generation technologies like carbon capture and storage are available. Technology can deliver grid stabilising services offered by conventional power generation, together with low emissions credentials required by modern power stations. Access to low emissions from coal-fired power generation and renewable energy are not mutually exclusive. Indeed one might argue that the grid stability services delivered by low emissions fossil fuel generation is essential to secure a strong and resilient grid while maximising the penetration of renewable energy sources.

Low emissions from carbon capture and storage is often referred to as an unproven technology. This is not the case. I note that even in the submission by the Energy Networks Australia that it refers to CCS as a proven technology. Internationally enhanced oil recovery has been injecting carbon dioxide into the subsurface for decades. This year we are likely to see the commencement of one of the largest carbon dioxide injections to come online in the north west, the Gorgon gas project. For applications in power generation, both SaskPower's Boundary Dam project in Canada and the Petra Nova project in Texas, USA, are now operational.

Finally, time is a forgotten variable. The closure of Hazelwood Power Station in Victoria and the announced retirement of the Liddell asset in New South Wales in 2010-22 will represent the loss of a significant size of synchronous power generation from the grid. Unless these are replaced by technologies that bring comparable grid strength, inertia, frequency control, it is not unreasonable to conclude resilience of the grid will be lower. The closure of these assets also presents a firm deadline for investment in replacement capacity. While low emissions fossil fuel technologies can deliver the required grid stability features as replacement, the lead times for investment are nearly upon us, as it could take up to seven-plus years to deploy a fully integrated facility of the required size. This investment is not happening, and the events in South Australia are an example of the cost of continuing imbalance and the loss of local resilience in a network.

It is worth noting that for investments of this size the present policy and regulation uncertainties are too risky and not conducive to attracting investment. These are key factors that serve to preclude the deployment of low-emissions fossil generation and hence its disadvantages for Australia's energy competitiveness. We will eventually transform to a very different grid with very different technologies, but in the short to medium term it is in the Australian interest to avail of all technologies, including low-emissions fossil fuel technologies, to get us there.

Australia is a microcosm in global emissions terms. However, we can demonstrate an emissions-reduction approach that maintains our energy competitiveness with reliable supply, meets our emissions reductions commitments and supports our energy resource markets. Importantly, it can be a sustainable way forward for emerging economies that continue to rely on fossil energy for their futures.

CHAIR: Dr Franklin, you referenced that you believe that in order to take advantage of storage technology that already exists and is continuing to emerge and reduce in price to both consumers and business there would need to be rule changes. Can you elaborate a bit more specifically what those rule changes should be and at what level, in terms of agencies or organisations that should be responsible for driving that?

Dr Franklin : I think it is not just market rule changes. It could be regulations or requirements of new storage that is installed that changes. But maybe the easiest way to illustrate is by example. If we have thousands of systems installed in people's houses behind the metre, they will, generally speaking, always be acting in the best interests of that consumer. So, if the individual is generating PV during the day, they will store that energy. That is good. And that energy would be available to provide fast-frequency response in the case of supply-demand imbalance in the wider system. But unless that is either enabled by a market rule change or flexibility or was required of that battery system to do that, then it will otherwise meet local load. Now, local load may coincide with peak demand. That is often the case. On a hot afternoon, the chances are that when there is a peak demand on the NEM there is a peak demand locally, but it is certainly not necessarily the case. And the speed at which you require a system to respond to a frequency deviation, for example, in the system is very fast. So, you need to enable that technology to be incorporated into the battery systems and acted upon.

I think the nature of contributors to the energy market are changing in the speed at which they can respond. Using a 30-minute settlement period is a disincentive for resources which can act in the best interests of the system for one minute or five minutes or 10 minutes. It is moving away from an energy-only transaction to energy plus other services. So I think these are some of the things that need to be considered as possible changes.

CHAIR: One of those suggestions was, in your submission, shifting from a settlement period of 30 minutes to five minutes.

Dr Franklin : Yes.

CHAIR: Do you think that period is fast enough to overcome what you have described as a disincentive and instead allow for market operator to respond more quickly—and more diversely, perhaps?

Dr Franklin : Yes. It would allow more diversity in response, because you can schedule responses over a five-minute period, of course. At the moment the dispatch period is five minutes, with the settlement period of 30 minutes. It would not be enough to ensure that you get the kind of response within seconds that you need for a major system disturbance, and one of the aspects of resilience that I talked about in the submission is that dynamic system response which is something that occurs over a matter of seconds. That requires some different incentives or maybe even different markets to be in place.

So, if I can take up Noel's point, I agree that traditional synchronous generators have provided at least two services for free over the life of the system, and that is because they are an inherent part of that type of generator. The two services I am thinking of are inertia and voltage support or active support to maintain voltage in the network. Those services could be provided by a traditional generator with another market mechanism in place—so they can be providing inertia without providing energy into the energy market. Likewise, if those incentives were in place, other storage systems like pumped hydro or battery storage could participate in that market to add extra value or to alter the behaviour of that system to meet the needs of the broader electricity market and power system.

CHAIR: As to the current rules in relation to the 30-minute settlement time frame, you say that that is a disincentive. Is it more about the market protecting their own price as opposed to responding to the needs of consumers?

Dr Franklin : To be honest, I do not know that I can answer that. There is a lot of text and literature around this and there is a lot of talk. I think in the Finkel NEM review this topic will come up. The reasons for resisting a change to five-minute settlements, I honestly would not like to comment on. Obviously, it will affect some of the incumbents.

CHAIR: Why do you think the current 30 minutes is a disincentive?

Dr Franklin : If there is one five-minute period where you need a lot of extra generation to meet demand, it will come in at a very high price, but the average price over that 30-minute period may not reflect the need over that five-minute period. So if you are a generator who supplies much-needed electricity during that five-minute period, you get paid for the five minutes but you get paid on the 30-minute price. You may get paid a fraction of the value of that electricity for that period of time.

CHAIR: Obviously there has been quite a bit of public conversation about the response time and the response in South Australia this week and previously the blackouts caused by the big storms that we had in South Australia. From a practical perspective and a perspective of being able to put something in place that is tangible for people to understand, what do you think would have avoided what happened this week? What rule changes or what investments need to be made to avoid what occurred on Wednesday?

Dr Franklin : We have to bear in mind that it was incredibly high demand in South Australia and, before we jump in and decide which technologies may have or may not have altered the situation, we should really take a look at how the demand forecasting is done and work out really what could have changed in that respect to have changed the situation. I could say AEMO indicated that they were expecting up to 100 megawatts of shortfall, so, in theory, if you had 100 megawatts of battery storage, for example, which was able to be deployed at very short notice, then it could have addressed that concern, but—and I hope I have stressed that in the submission as well—you cannot assume, if you have 100 megawatts of battery storage in the system, that it will be available for response. But one of the issues that arose on Wednesday night was: AEMO realised they did not have the generation capacity, and the capacity they could bring on, like the Pelican Point plant, takes time to ramp up, to warm up, and to get it to a point where it can dispatch energy.

CHAIR: It is not just pressing a button.

Dr Franklin : It is not just pressing a button. So this is where battery storage in particular comes in. If the button is there and able to be pressed, it can be pressed and it will respond and it can output within milliseconds and it can output a high amount of energy, if you have a large amount in the system, within seconds or within milliseconds.

CHAIR: So response time is much faster?

Dr Franklin : The response time for battery systems for any power electronics driven source of generation is very fast—much faster than what we are used to seeing in the system.

CHAIR: Dr Stocks, do you have anything to add to that?

Dr Stocks : I will certainly take a much stronger position on the settlements. One of the challenges with having a different dispatch and a different settlement period is that you have people who come in and support the system at times of very high stress and then, when that stress disappears, people who continue to generate get rewarded for the very high prices in that period. One of the things that are happening, particularly with storage, is that people will be able to respond faster—we are talking seconds for batteries and less than a minute for pumped hydro. People can respond to the needs of the system much more rapidly, so if the price heads to a price gap of $14,000 a megawatt hour then everyone, for that 30-minute period, benefits from that divided by six for that entire half-hour. So if you are just idling along through that entire period then you get rewarded for somebody coming in and helping out, at a very high price, for a short period of time, and it then drives behaviour like what we have seen recently in South Australia, where operators will bid at negative prices to ensure that they get that average price for that entire period. There were examples where people bid at minus—

CHAIR: Isn't that price gouging?

Dr Stocks : No, it is working within the market that exists. If you have a set of market rules then everyone will behave to optimise their outcome within those rules. So what we have is a difference between settlement and dispatch which rewards particular behaviours, and they are not necessarily behaviours that are best for the resilience of the system; they are best for those particular operators. The technology and the ability to respond are changing, and to some extent this has really come out of old established rules where things did happen much more slowly, and it really did not matter that there was this five-minute period, because everyone had to ramp up, ramp down and take much longer periods of time. The challenge there is that, if storage is going to come into that, if you really want it to develop that very fast instantaneous response, it needs to be rewarded for filling in that gap and not end up being paid six times less than what that was deemed to be worth because whoever supplies in that six-minute period only gets about $2,000 a megawatt hour rather than the $14,000 that they bid. So it drives different behaviours in the system, and not necessarily those that best balance out the overall system.

CHAIR: So you would strongly support moving from a 30-minute time frame to something closer to five?

Dr Stocks : If you want to see storage being able to provide better support and have more confidence that the storage industry can see a return on the investment that they are making—the capital that is involved in these—then that seems to be a better balance, as far as I see, between the risk and reward that those people are providing in the network.

CHAIR: What about in response to the question I had about what, practically, could be done or should have been done on Wednesday to avoid a blackout in South Australia?

Dr Stocks : One of the challenges there is that we do not have the full answers yet, and it takes time to work through exactly what happened. There were certainly generators that I believe AEMO expected to be able to call on that, for various reasons, were not available. One of the challenges that we have at the moment is that we do not really have a single network. We have five states who operate markets, and we relatively weakly share energy between those states. I think that the stronger interconnection between the states is very likely to be important to increase resilience, and storage is another option that you have in that mix of saying, 'Well, if it's important to retain very strong local markets then storage becomes very critical to balance the ability to move energy around from one time period to another.' We do not, in this country, have a shortage of energy; we have a vast oversupply of energy capacity. What we have is periods of deficit and periods of excess, and storage is very good at being able to come in and fill that gap.

CHAIR: Would it be fair to blame the South Australian government for the blackouts on Wednesday?

Dr Stocks : Blame is not necessarily an efficient process at the moment. What we experience at the moment is a change in the electricity system, and people have to learn that the system is going to operate differently to how it behaved in the past. We used to have a system which was very state driven, and that is at a level of state ownership which said, 'We turn on and we turn off when we say it's important and best for the system.' As we have moved into a free market system, what has happened is that the system has really evolved out of that traditional way that we approach the market, and now we are seeing additional technologies come in, such as solar and wind, which behave differently in the system compared to how we traditionally operated the system. The system is operating differently, and we have to learn how that works and respond differently.

One of the aspects of operating the system is that people tend to be very conservative: 'The system used to work well 10 years ago; that's how it used to work. I'd really like it to look the way it did 10 years ago and to continue to operate in that way.' As we change the system, and as we have different systems of balancing some supply which is dispatchable and some which is not, we need to learn how to behave and how to predict what is going to happen better than we have in the past. The old systems are not going to work the same way in the future as they have.

CHAIR: So just leaving it up to AEMO at the moment with the current rules is not going to deliver the response that we need?

Dr Stocks : I think AEMO, to some extent, need to be able to learn how to respond to a different system. They have had a set of rules and a set of benchmarks which determine how they plan a given day's dispatch, but it is changing. They will have to recognise that and will learn, as I believe they will learn from what happened in South Australia, that the risks and the contingencies they need to put in the system are different to what they used to be. They have to go through that learning process.

CHAIR: Senator McAllister, do you have some questions?

Senator McALLISTER: Yes, I think my questions are principally directed to Dr Stocks and Dr Franklin, although you should feel free to jump in also, Dr Simento. There is a common assertion that the intermittent characteristics of most renewable technologies mean that there is an upper limit for inclusion of these technologies in a functioning grid. I note that in both of your submissions you have undertaken modelling of various kinds to examine some of the boundaries, constraints and possibilities of an increased proportion of renewables in the system. Are you able to talk about that? I think the flat-out assertion that it is not possible to incorporate these technologies into the NEM without introducing unacceptable instability is the starting point at the moment for much of the public discussion about this.

Dr Franklin : If you only look at the way wind farms, solar farms or small localised PV generators worked in the past, and if you assume there are no changes to the way that system operates and no changes to the way other players in the system may participate, then it is probably reasonable to come up with the conclusion that there will be an upper limit. We cannot deny the fact that PV and solar generation is variable; it is intermittent. We are understanding better, year by year, how that intermittency works and are better able to forecast that. But I think what we are seeing is a change needed in the way those systems operate.

If you just take a wind farm, for example, it could output the maximum amount of power, depending upon how the wind is blowing at any second of the day, but now we are increasingly requiring wind farms to have levels of ramp rate control so their power output does not go up and down as rapidly or they have a limit to how quickly they change their output. The same can be applied to PV farms or PV installations on households. As a PV generator or an individual PV system owner, unless there is a requirement or some kind of incentive to act in such a way, you would not do it. Storage technologies are clearly an integral part of this higher renewables penetration picture. They can fill energy gaps where they can provide those instantaneous or near-instantaneous services that you require of participants in the market, to keep stability.

Senator McALLISTER: But your earlier evidence was that at the moment the market rules do not really reward participation of energy storage technologies to the full value of the services they provide.

Dr Franklin : Yes, I think that is correct.

Senator McALLISTER: It would be interesting to hear your perspective on the maturity of storage technology—where we are in terms of the commercial development of those technologies. Whilst you acknowledge we have some installed capacity, particularly around hydro, there is not a lot in Australia yet.

Dr Franklin : No. Certainly there is a lot of pumped hydro around the rest of the world and the technology itself is, I would say, very mature, but I also recognise that it is evolving and there are advances in that technology in the way that the technology is controlled and operated.

As far as battery storage is concerned, battery storage itself is a very old technology. But the type of technology that we are seeing in the market now—the different lithium chemistry batteries—is advancing, and that is why we are seeing the cost come down as well. I would say the balance-of-system technology that goes around the battery system, which is an essential part of the system, is reasonably well established and quite mature.

I think battery storage is going to become a very large industry. It is already becoming a very large industry. There is a lot of manufacturing in the US and China, and the technology is, I would say, very well understood but still advancing. So we can expect to see improvements in efficiency and cost. One of the reasons I focused on pumped hydro storage and battery storage is I consider them to be mature and readily available. Perhaps barring some changes in prices for some of those technologies and market incentives, I consider them a technology that can be deployed now.

Senator McALLISTER: You mentioned earlier the need for the regulatory arrangements and the market arrangements to reach in and require small-scale distributed technologies to interact with the NEM for the purposes of system stability. I think that is a correct summary of your position?

Dr Franklin : Yes.

Senator McALLISTER: This may be outside your area of expertise, but I am interested to understand what economic actors might play a role in that. Imagining that households with very small-scale distributed technologies might participate in the NEM is unrealistic, so I assume you are thinking about aggregators of some kind participating in the market.

Dr Franklin : Yes. Most activity at the moment in this area is with aggregators or some type of distributive coordination of individual systems. I should say it is not just interaction with the NEM, the wider power system and the market but also interaction with distribution networks. Distribution network operators at the moment are becoming more and more active in this space, recognising there is a resource that can be used for the benefit of the network and trying to work out ways to incentivise those systems to work for the network owner's interests as well as the householder's or the battery owner's interests.

There is, though, scope for interaction even for a very small system distributed amongst the network at NEM level. That is on the same basis that all large generators use as a signal to indicate that there is a change in output required, and that is the frequency of the system. The frequency of the electrical power system, apart from for short-term transience moving across the system, is essentially the same everywhere. So the same signal that Hazelwood Power Station sees when it needs to increase output because there is an increase in demand or a drop in supply would be seen by a small PV system or a small battery system in the suburbs of Brisbane. It would see that same signal and could act accordingly. That is the angle that I was trying to take with that one.

CHAIR: We have the media here wanting to film. Can I check that witnesses are okay with that and the committee is okay with that?

Dr Franklin : Fine.

Senator McALLISTER: Dr Simento, you indicated in your evidence—I am paraphrasing—that there is a kind of investment strike in power generation. Some years back our concerns about peak demand were mostly around network capability. We are now moving into a conversation about peak demand constraints in terms of generation capacity. This is really a question for everybody. What is required to restore market confidence for investment?

CHAIR: Perhaps the Prime Minister not beating up on the industry every day.

Senator McALLISTER: Yes, or having the same policy two months in a row.

Dr Simento : I think the short answer, and it may be an oversimplistic answer, is policy certainty and investment certainty. I think that is what they will require to come into the system. At the moment, that seems to be lacking.

Dr Simento : The point I would like to make, having just listened to the conversation just now, is: when it comes to responding quickly, traditional technologies have dealt with that over the years. In fossil fuel systems, they have something called spinning reserves. They keep a spinning reserve just to bring on synchronous power as quickly as possible. So, I guess, the issue today is that you have to take account of emissions. So if you can have lower emissions from fossil generation that can give you that spinning reserve margin and that can satisfy the dynamics that the grid requires and stabilise a grid, then you could bring on as much of the non-synchronous powers as you want to.

I think there is a real opportunity to allow the current systems, in which there are billions of dollars invested, to respond to the needs of the grid. But what is really required, I guess, is investment certainty. These big power systems are not cheap. Expecting private investment in them will require a measure of that confidence and that certainty for return on investment. So I suspect that we have to find a way of using what we have to respond to the change and allow maximum penetration of the new technologies that would come. All of them need that certainty, I think.

Senator McALLISTER: A final question from me, Dr Simento. Your organisation is interested in what you term clean fossil fuel generation. Can I ask the same question that I asked about maturity of battery technology. Given the available technologies today, what kind of emissions reductions relative to the average performance of current generation capacity is possible from the new technologies that your organisation is interested in?

Dr Simento : With a full carbon capture and storage type of facility you can expect up to 90 per cent emissions reduction.

Senator McALLISTER: Do we have any of those operating anywhere in the world?

Dr Simento : Both the unit at SaskPower's boundary dam in Canada, which has been operational now and has injected over 1 million tonnes, I think, of CO2, and also Petra Nova in the US—in Texas—has come online. That is also a retrofit to a power generation facility, which is capturing and storing carbon dioxide.

Senator McALLISTER: What is the cost profile of those changes? You will be aware that the critique of this is that it is terribly expensive. I am very open to this as a possibility, but it seems that this technology is infinitely more expensive than comparative renewables for the emissions profiles that they present.

Dr Simento : I think 'infinitely' is probably more expensive, isn't it!

Senator McALLISTER: Too much.

Dr Simento : Yes. But it is definitely more expensive.

Senator McALLISTER: Significantly.

Dr Simento : Yes, it is significantly more expensive, but I think we compare costs—

Senator McALLISTER: How much more?

Dr Simento : The numbers I get out of Boundary Dam, I think, came out somewhere north of $8,000 a megawatt. Petra Nova is probably coming in at six. So as you deploy they get cheaper. You learn as you go. So those kinds of what I would call learning and saving will occur, even in this technology. It is important to realise that when you compare the costs of technologies, first of all these systems deliver large power capacity. They are large; they are thousands-of-megawatt systems. Of course, the carbon capture and storage projects that I mentioned are not that large. I think one is a 110 megawatts; the other one is 250. But they are in the process of scaling up to what would be big. And, as I said, Gorgon is coming online, which would represent of the order of double that sort of size. And Gorgon, I believe, will come online this year in Australia in terms of injection. When we are comparing costs, I think you have to compare the cost of the current systems and storage with the renewable systems and storage. You have to add to that because that is what is needed to give you the reliability and continuity of supply. You cannot just compare a renewable energy cost with a CCS cost. You have to add storage to the renewable energy cost.

CHAIR: Dr Simento, with such an exorbitant price difference between technologies that are already available and those that, perhaps, still need to be further developed in terms of clean coal technologies, why would anyone invest or finance that type of project here in Australia? I think it is pie in the sky to see that anyone is going to say, 'All right, we'll put our money behind this,' when there are technologies that are available—battery storage technologies that are available.

Dr Simento : I think the premise is that you have said the large difference in cost. I think the difference in cost when you add storage to renewables is not that much. When you have to add the component of energy storage to renewables, to give you the continuity of supply that you need—

CHAIR: Are you aware of anybody in financing these types of technologies in Australia?

Dr Simento : No, I am not. But that is because the regulatory environment does not give them any certainty in terms of policy space to make such a—

Senator ROBERTS: If you got the same level of subsidies as other renewables—

Dr Simento : You would probably see them come online.

Senator ROBERTS: would someone be interested?

Dr Simento : Absolutely. I think you would see them come online.

Senator BACK: This is the situation in South Australia on Wednesday night: the contribution from wind went down to 2½ per cent of the total demand, the interconnector from Victoria could not meet it and the Pelican Point gas fired power station needed six hours to warm up to get to that level. That contrasts with the South Australia of the past, when there was a reliable source of consistent energy. You mentioned investment, Dr Simento. You were confining yourself to investment in electricity generation and distribution. I would suggest you would expand it more broadly to investment in the state of South Australia, because that is where the large concern is.

I am very interested, Dr Franklin and Dr Stocks, in where storage might actually be able to play a role, simply because if and when Victoria turns off its base load-generating capacity from its major power stations there will be no guarantee of a reliable source of power coming across the interconnector. How quickly do you think storage systems—battery storage or pumped hydro—might be able to fill the void, because if there is not a filling of the void—as we saw last September when the interconnector failed—hen South Australia is in all sorts of strife. My pessimistic prediction is South Australia is going to continue to face that. I have said so publicly, as you probably know. How quickly and to what extent could we see battery storage or pumped hydro fill that void for South Australians, and indeed Victorians, into the future?

Dr Franklin : I think one of the inherent advantages of battery storage and photovoltaics, for example, is their distributed nature, so they are very fast to build capacity in a system if the economics is right. There are numerous predictions about where battery storage will go—if I can just talk about battery storage for a moment—in Australia. They vary between Morgan Stanley, for example, which expects a million household systems by 2025 and Bloomberg New Energy Finance, which expects something in the order of 2½ million systems installed in households by 2035, I think—I have to check that year. I expect this deployment is driven by the householders who have PV systems, of which there are a lot in South Australia, who are exposed to a price differential between import and export. So you would expect probably a more-than-proportional share of those systems to go into South Australia. Two-and-a-half million households with a battery storage system would end up being equivalent to something like 10 gigawatts of power generation capacity if it was arranged so that it could be deployed when required.

Senator BACK: If we were to talk battery storage I am happy—I will put it on the record that I am a huge believer in solar. As you know, I have no time for wind. I think it is an absolute nonsense, and my statements to that effect are coming to the fore, so I am pleased to see that. With regard to large-scale battery storage, as Dr Stocks has said, it can come onstream quickly. Once those batteries' stored power has been depleted, in the event that there is an urgent need, how quickly and from what sources would we actually see a replenishing of the energy in battery-stored systems?

Dr Franklin : Battery systems can discharge and charge very rapidly.

Senator BACK: Can they? What would they recharge from? That is my question.

Dr Franklin : Well, let's say a lot of solar generation; obviously not at night. You would normally charge batteries from solar during the day, of course, and have that available in the evening. If you depleted all of the batteries in the evening, then you would require other sources: wind or other generators to provide that recharging of batteries. The peak events that occur in South Australia occur in a reasonably predictable manner. Obviously, as you saw on Wednesday, it is hard to predict exactly what that peak will be and when it will be, but it is not very likely at all that, if you have serviced a major peak and that peak has subsided, you are going have another peak in the next couple of hours. I think there is ample time.

Senator BACK: I understand that in the UK, the system is actually paying baseload generators to remain on stand-by to keep their spinning reserves up and synchronised. Clearly, that is not happening in Australia, because, if there had been a commercial incentive, Pelican Point may in fact have been there on stand-by. Do you think that, if only as a short-term solution, the operator might start investing in, or requiring investment in, that stand-by base load?

Dr Franklin : There is a secondary market for spinning reserves over different timescales. There are the FCAS markets. For spinning reserve—which is typically from after five seconds to up to several minutes of reserve—the value in the Australian market for those services is quite low at the moment. I cannot comment which generators had bid into that market on Wednesday, but, at the moment, a generator may choose to output only partial capacity and bid into that market in place. A PU generator could do the same thing, by the way. They could output at 90 per cent of output and bid the rest into a spinning reserve market. That market exists for that five-second to 15-minute, if you like, reserve capability. I think at the moment, the market signals are not strong enough in some locations at some times to provide the reserve that you might be looking for.

Senator BACK: Time is limited and I know others want to ask questions. If I may ask you to take on notice: what would be the likely cost at the moment of large-scale battery storage of the scale that we would need?

Dr Simento, I am particularly interested in carbon capture and storage. I do have constituents who are ready to invest now. One operation at Collie in Western Australia is just simply waiting, because, as you know, there is to be a carbon capture and storage facility. Of course, at Barrow Island, I have visited the CCS project. It is completed. They are testing it and I know it will not be all that long. Where do you see the economic benefit—if, indeed, there is there the case in Australia for effective carbon capture and storage? How is that likely to change the market and the patterns of behaviour of investors?

Dr Simento : The principal benefit of something like carbon capture and storage is that it makes available the infrastructure that is already on the way. That is a huge build. It is built over all these decades, so the retrofitting of plant allows you minimise the costs of what I would call the total system. In whatever grid we are going to, there is a cost involved in transforming the grid. CCS will help minimise the cost of that transformation, and tracking that part of lowest cost of transforming the grid will have huge benefits in an economic sense. The other point, as I said, and it might have skipped though in the speed at which I read my opening submission, is that you do not have to lose all of the benefits of the current fossil generation if you have a low-emission solution like CCS. There is that resilience. It allows some of these new technologies to penetrate deeper and deeper. Of course, it is always hard to estimate, but the cost of disruption—you can avoid the cost of disruption—as we have seen, is very high.

Senator ROBERTS: I would like to start just with a question of background: who among you are engineers?

Dr Franklin : Yes, I am.

Senator ROBERTS: One.

Dr Stocks : Physicist, engineer—on the edge!

Dr Simento : Process engineering.

Senator ROBERTS: Okay, so all three are of an engineering background. Who are scientists?

Dr Simento : I think—

Senator ROBERTS: Obviously, a scientist—yes. So, one scientist. If you understand the definition of science to be someone who follows a scientific process, who are scientists?

Dr Franklin : Yes.

Dr Stocks : Yes.

Dr Simento : Yes.

Senator ROBERTS: All three of you—okay. Dr Simento, I want to acknowledge your comment that reliable energy at lowest cost is important to the Australian economy. Thank you very much for that, and energy competitiveness is essential for Australia's competitiveness. To me, there seem to be four main characteristics that need to be discussed in terms of resilience: price, stability, reliability and security. Am I missing anything?

Dr Stocks : I think many people would argue that emissions are an important part of the system.

Senator ROBERTS: When you say 'emissions', could you define what you mean by emissions?

Dr Stocks : Gases which are considered to be global-warming emissions—CO2, methane and the like.

Senator ROBERTS: You are a scientist—

Dr Stocks : I have acknowledged that, yes.

Senator ROBERTS: Have you ever seen any empirical evidence—after all, empirical evidence decides science—that proves human carbon dioxide is affecting global climate?

Dr Stocks : Senator, I think you are making a mistake in terms of understanding the scientific process. The scientific process never involves proof. There is no proven scientific evidence in anything. What we do is to create a hypothesis. We say, 'We believe X.' Then we look at what the response would be if X is true. We look at all of the evidence in terms of what is happening and what is out there, and we see if there is anything that contradicts X. As soon as there is anything that contradicts X, then we say, 'Okay, that theory is no longer correct. We need to consider a different theory.' That is actually the basis of the scientific process. It is: make a hypothesis, look at the evidence and then, if the evidence does not support that, we need a new hypothesis. That is actually the scientific process.

Senator ROBERTS: Have you ever seen any empirical evidence that contradicts the hypothesis that human carbon dioxide is affecting climate negatively?

Dr Stocks : No.

Senator ROBERTS: No, you have not. Chair, I would like to table my response to the CSIRO's presentation that it gave me on human causation of global warming. And I would like to get Dr Stocks' contact details so I can send you a copy.

Dr Stocks : Okay, absolutely.

Senator ROBERTS: Because there is empirical evidence completely contradicting the hypothesis that human carbon dioxide affects temperature and climate. It is implicit, I understand, that the need for reducing emissions, in this case—let's be specific—carbon dioxide from human activity is what is driving the renewable energy push and carbon sequestration. Is that correct?

Dr Franklin : That is partly correct.

Dr Stocks : I would agree that it is driving carbon capture and storage. I do not think it is the only thing that is driving renewables. I am putting PV on my roof at the moment because it is cheaper than buying electricity from the grid, so it makes a sensible economic decision today—

Senator ROBERTS: Cheaper than buying electricity from the grid?

Dr Stocks : Yes, it is cheaper for me to put in PV on my rooftop than it is to buy electricity from the grid. From a purely economic basis, renewable energy is the cheaper way for me to do it at a residential level.

Senator ROBERTS: What would be the price of electricity from the grid if it were entirely driven by coal-fired energy or gas-fired energy?

Dr Stocks : There are two components to the cost for me as a residential customer: there is a wholesale generation cost and there is a network cost. At the moment in the ACT it is about 18 cents and in most other states it varies from 25 to 33 cents—that sort of ballpark.

Senator ROBERTS: This has grown quite a bit in the last couple of decades?

Dr Stocks : The network component has increased dramatically but the wholesale component has not changed very much. As a residential customer, it makes sense to me to put in PV because it is a cheaper source of electrons than it is for me to buy it from the grid. I would argue that that is an economic driver rather than CO2 driver.

Senator ROBERTS: Would that be the case if it was not so heavily subsidised?

Dr Stocks : Yes.

Senator ROBERTS: You believe that?

Dr Stocks : Very comfortably.

Dr Franklin : You may have read two days ago that FRV, a large solar farm developer, closed a deal on a PPA for a completely unsubsidised solar farm in Queensland, 100 megawatts. Other companies in the last few years have completed projects at a cost of generation in the order of three or four cents per kilowatt hour for PV generation.

Senator ROBERTS: What about the stability of those power sources?

Dr Franklin : For solar generation, the predictability of the resource is reasonably well understood—the forecastability.

Senator ROBERTS: What is its impact on the grid?

Dr Franklin : Its impact on the grid goes to the heart of—

Senator ROBERTS: So it is not the same as wind?

CHAIR: Senator Roberts, let's let the witnesses answer the questions and do not badger them as they are speaking.

Senator ROBERTS: My apologies, Dr Franklin.

Dr Franklin : That is fine.

Senator ROBERTS: I have not been given much time and I am trying to get to the point.

CHAIR: I am letting it go over.

Senator ROBERTS: Thank you, Chair.

Dr Franklin : Certainly, PV generation and wind generation have different characteristics. There is no question of that. So, yes, it is different to wind. The impact on the grid can be significant, if there is not regulations in place, operations in place or marketing incentives in place to allow them to provide the stabilisation services that the grid needs.

Senator ROBERTS: So, we do need stabilisation because of solar and wind?

Dr Franklin : We need stabilisation because of all forms of generation, to be honest.

Senator ROBERTS: The more so with solar and wind than, say, traditional hydrocarbon fuels?

Dr Franklin : Sorry?

Senator ROBERTS: Is a hydrocarbon-fuelled grid inherently more stable than one that has hydrocarbons and solar and wind?

Dr Franklin : No. I think it is the way the generators are designed and operated. I understand the premise of your question. Traditionally, the way the market has been operated and the way the system has been designed has been designed with large synchronous generators in mind, and they provided up until now that stability that we need.

Senator ROBERTS: It is inherently stable.

Dr Franklin : Inherently, it can provide those services but, as you have seen, Pelican Point plant was not on and not able to come up and running, so you cannot say categorically that it provides stability services. It is the way it is operated and—

Senator ROBERTS: Okay, I got you. Like Senator Back, I totally oppose wind generation and, if ever solar becomes competitive, then that will be ideal for me when I look at the overall lifespan of the solar technology. Would you all agree that stable base load supply is essential?

Dr Stocks : No, I would not. My submission quite clearly points out that the system could provide a stable balanced system with a combination of wind and PV and pumped hydro storage. I take a very different position: base load is not essential.

Senator ROBERTS: Coming to your question, Dr Simento, about investment, right now investment is being scared off because of the uncertainties. Is that correct?

Dr Simento : That is correct. I think the whole policy and regulation system have so much uncertainty that, for the large amounts of funds required to deploy some of the low-emissions solutions for possible generation, it will be very hard for them to take that risk.

Senator ROBERTS: Dr Stocks, you answered my question about empirical evidence. Dr Simento also mentioned a commitment to reduce greenhouse gases. Would that commitment, Dr Simento, be based on the evidence that shows human production of carbon dioxide is having a negative effect on climate?

Dr Simento : My understanding is that those commitments have been made by Australia as part of a global agreement. The basis of that is probably climate science, and I will defer that I am not an expert in climate science.

Senator ROBERTS: So, Dr Stocks, then when we come to disrupting something that is inherently essential for this country's economic benefit, we would make those decisions on policy based on empirical evidence, wouldn't we? We should, I mean.

Dr Stocks : I think you are challenging the scientific process to say that—

Senator ROBERTS: No, I am challenging policy. When we make policy, shouldn't it be based on objective measured data wherever possible?

Dr Stocks : No. I think it should be based on the advice of experts in the field.

Senator ROBERTS: Regardless of whether or not they use empirical evidence to base their decisions?

Dr Stocks : Based on the understanding of the training and the experience that they have in the understanding of the area of which they are considered an expert.

Senator ROBERTS: So you would use an appeal to authority rather than empirical evidence?

Dr Stocks : I would be using the abilities of those who are more expert in an area than I am. I would trust that evidence more than I would my ability to read a single report and decide that the science is absolutely one way or the other.

Senator ROBERTS: Thank you, Dr Stocks.

CHAIR: Thank you gentlemen for coming in and giving us your expertise today. We really appreciate it. I think there were some questions asked on notice, so the secretariat will contact you in relation to time frames for that. But if there is anything you wish to clarify or correct from what you have done today, you have an opportunity to do that as well. Thank you very much.