Energy Security

On Tuesday 21 February 2017, NSW Energy and Utilities Minister the Hon. Don Harwin MLC announced the establishment of a new NSW Energy Security Taskforce.

The Taskforce will look at how NSW manages energy security and resilience, including readiness, planning, preparation and response capability to extreme events such as weather.

NSW Chief Scientist & Engineer, Professor Mary O’Kane AC, has been appointed Chair of the Taskforce that will report to Minister Harwin. Professor O'Kane is joined on the Taskforce by former NSW Police Force Deputy Commissioner Dave Owens and Dr Brian Spalding, a commissioner on the Australian Energy Market Commission.

“My top priority as Energy Minister is to ensure that we maintain a secure energy supply for the people of NSW in their homes and workplaces,” Mr Harwin said. “We have a diversified and interconnected energy system that held up in the recent heatwave but I won’t be complacent. Households and businesses should know that the Government is actively pursuing this issue.”

The Taskforce will:

• assess the risks to and resilience of the NSW electricity system (including the transmission and distribution networks) from extreme weather events in the context of a changing climate
• review the adequacy of the State’s management of electricity system security events including prevention, preparedness, response and recovery
• make recommendations on actions to address any vulnerabilities identified and/or opportunities for improvements to current practices

Professor Mary O’Kane said NSW needs to be fully prepared for any energy security event, and be able to respond and recover effectively from issues that might arise.

"This is a very important, timely piece of work because as recent events across Australia have highlighted it is critical that households and industry have a resilient electricity system," Professor O'Kane said.

The Taskforce has and continues to engage broadly with stakeholders.

This work will complement the Independent Review into the Future Security of the National Electricity Market led by Australia’s Chief Scientist, Dr Alan Finkel AO, of which Professor Mary O’Kane is a member of the Expert Panel.

Terms of Reference

Extreme weather events, such as the heatwave conditions across NSW over January and February 2017, place significant demands on the State’s electricity infrastructure. They highlight the need for best practice long term planning, as well as the need to ensure that the State is well placed to prevent, respond and recover from events when they occur.

The planning and management for extreme weather events is complex. There is the interaction between national and State energy regulatory frameworks and responsibilities, as well as the need to ensure coordination across all elements of the supply chain – market operator, transmission and distribution networks, retailers and customers. The complexity of arrangements for managing high risk events across the national electricity market, networks and jurisdictions has been highlighted by the Reliability Panel in its recent Review of the System Restart Standard.

Energy plays a key role in NSW’s State Emergency Management framework. The Review will need to complement work taking place in this area.

Scope of Review

The review will:

1. assess the risks to and resilience of the NSW electricity system (including the transmission and distribution networks), from extreme weather events in the context of a changing climate
2. review the adequacy of the State’s management of electricity system security events including prevention, preparedness, response and recovery
3. make recommendations on actions to address any vulnerabilities identified and/or opportunities for improvements in current practices

In undertaking this work, the Taskforce will have regard to NSW and ACT Regional Climate Modelling projections. The Taskforce will consider the costs and benefits of any recommendations.

Process

The review is to provide a draft report by the first half of 2017 and a final report by the end of 2017. The review should complement any broader emergency management work being undertaken across the NSW Government.

There is significant work being undertaken by the COAG Energy Council, Australian Energy Market Commission, Australian Energy Market Operator and Australian Energy Regulator. The Taskforce draw on this work and focus on areas particularly related to NSW which are not the remit of these other work programs.

The Taskforce should draw on the expertise of a wide range of stakeholders including the NSW transmission and distribution network businesses, AEMO (Australian Energy Market Operator), AEMC (Australian Energy Market Commission), and other National Electricity Market state and territory regulators.

Initial Report (May 2017)

The Taskforce released its Initial Report on 22 May 2017 which has found NSW is reasonably well placed to deal with reliability and security risks under ‘normal conditions’. However, large spikes in demand and problems with supply that sometimes occur during extreme weather events, such as February's heatwave, pose challenges for our electricity system and, indeed, the National Electricity Market (NEM).

Professor O’Kane said the Taskforce has recommended the Government take steps to minimise potential risks ahead of next summer.

“There is a tremendous opportunity here for NSW to show strong leadership on what is an issue of national importance: our energy security,” Professor O’Kane said. “There are emerging risks that require prudent and proactive planning, including the forecast of hotter, longer and more frequent heatwaves; changes to the energy generation mix; and industry concerns about fuel availability, including coal and gas."

The Taskforce has made seven formal recommendations to Government:

1. That the NSW Government, through the Premier and Minister, take a leadership role in COAG and the COAG Energy Council to encourage the states and Commonwealth to have a national policy approach to climate change and the integration of renewables within the National Electricity Market, to safeguard energy security and reliability.
2. That the NSW Government work with AEMO to ensure that, in producing its revised Energy Adequacy Assessment Projections (EAAP) in May-June 2017, AEMO pay particular attention to the generator fuel positions so that the market can see in aggregate if there is sufficient fuel in the system and anticipate major changes. If the system is tight, this will be visible to participants, policy makers and market agencies, and may incentivise additional fuel contracting or investment in new generation.
3. That Government improve the speed and ease with which it can respond to an energy emergency, including revising legislative provisions where necessary.
4. That Government improve the structural processes underpinning the management of energy emergencies in NSW and ensure a stronger link between energy management and emergency management.
5. That Government improve procedures for operational communications during energy emergencies in NSW, including communication to the public, and ensure these procedures are well-practised.
6. That Government support industry and the community to prepare for, manage, and mitigate risks during energy emergencies, including providing guidance on how to reduce demand effectively during peak periods.
7. That Government establish a working group (including representatives of the Commonwealth and ACT Governments) to develop new protocols for agencies to reduce demand and increase behind-the-meter supply during periods of peak energy use (‘Code Warm’ protocol).

Final Report (December 2017)

The Taskforce released its Final Report on 19 December 2017, which examines issues that need to be addressed to strengthen the longer-term resilience of the NSW electricity system. The report considers the challenges of achieving a stable and reliable power system, which is characterised by low electricity costs and low emissions, while managing the transition to new forms of generation technologies in a changing environment.

The Taskforce examined a series of issues including:

• emerging risks to the electricity system, including from extreme weather
• market or regulatory barriers to new capacity entering the market and the opportunities associated with technology and new business models that could improve security and reliability in NSW
• risks to NSW and the Sydney CBD in particular of a black system event and how the Government might reduce these risks and ensure NSW is well prepared in the unlikely event of a state-wide blackout

Recommendations

The next decade will be a period of transition and disruption for the energy market, which will create opportunities for innovation.

The Australian Energy Market Operator (AEMO) is warning that supply and demand are tightening and there are emerging risks that need to be managed. While a national way forward is emerging to provide investment certainty and mitigate these risks, the market impact of these reforms will take some time to be realised. Therefore, the NSW Government needs to be alive to the short-term risks over the coming summers and manage risks proactively when needed.

The Taskforce’s recommendations are informed by the principle that the Government should allow the market to work through this transition.This means avoiding directly intervening or investing in new generation or other electricity infrastructure. However, the Government should do what it can within the state and through the COAG Energy Council to remove regulatory barriers and streamline processes to ensure the signals are there for the right type of new investment, in the right places at the right time.

In light of these issues, the Taskforce makes two types of recommendations:

• things for the NSW Government to do
• areas where the NSW Government can promote focus on issues of strategic importance through COAG and COAG Energy Council.

The Taskforce's nine formal recommendations:

Recommendation 1

Monitoring and information: That the Government establish mechanisms to monitor the electricity system and the market to ensure the Government has sufficient warning of any emerging risks, particularly those that fall within the remit of the Government, and can have assurance about ongoing reliability of the system in NSW. This can inform any decisions about whether actions at the Government level may be required to support the effective functioning of the market. This should include:

1. path to closure and maintenance for large plant: that Government engage with generators to understand better the path to closure of ageing plant, likely derating of plant over time, and the risk of plant being offline for prolonged periods or closing before expected
2. fuel: that Government engage with generators to understand and monitor risks to the fuel supply chain. The Government should prepare relevant regulatory arrangements that may be required in a fuel supply emergency to ensure fast response if required (e.g. moving coal by road)
3. energy market monitoring: that Government monitor electricity market data to watch for trends in fairness and efficiency of the market
4. transparency of the contract market: that Government work with the energy market bodies to improve transparency of the contract market so that Government can have visibility about how risks are managed and how the contract market is driving investment in sufficient generation capacity and operational decisions to meet demand, including peak loads. This could be achieved through the requirements placed on retailers through the National Energy Guarantee
5. investment pipeline: that Government watch the balance between the amount of generation leaving the system and new generation coming online, including transmission and distribution system adequacy for new generation. This should include watching the investment capital structuring for energy investments. If issues are identified, the Government should look at where it can take action that will support the market to bring forward new generation capacity or manage demand better
6. extreme weather signals: that Government establish processes to watch for warning signs and patterns in extreme weather events, and continue to support the work of the Office of the Environment and Heritage in filling research gaps about the risks of future extreme weather to energy infrastructure and consequent interdependencies for the operation of essential services
7. risks from other states: that Government establish mechanisms for keeping informed of developments in other states that may pose risks to the NSW electricity system.

Recommendation 2

Strategy: That the Government develop an electricity strategy for NSW that identifies objectives for an ideal electricity system in NSW and can inform trade-offs, decision-making, regulatory arrangements, and program design in NSW. The strategy should also inform the NSW Government approach to negotiations at COAG Energy Council, including to promote the review and effective operation of the Australian Energy Market Agreement.

Recommendation 3

Demand response focus over next period: That the Government focus on improving uptake of efficient demand management options to manage risks during peak demand periods and over the longer term to encourage more efficient use of the network and reduce costs.

Particular focus should be given to mapping out the technical capacity of the NSW system to conduct effective demand response and load shifting at scale to manage security risks during peak demand periods and accelerate the roll out of technology that will address any limitations. This will include supporting the work of AEMO and network businesses to improve the visibility of distributed energy resources in NSW, including those that may be of use during an energy emergency.

The Government should also establish a work program to examine barriers to uptake of distributed energy resources and demand response opportunities, for example, by low-income households, tenants, and apartment residents.

Recommendation 4

Enabling environmental permissions: That the Government do pre-work on environmental permissions for likely new styles of energy infrastructure, for example pumped hydro, in order to facilitate the smooth adoption and development of appropriate energy technologies.

Recommendation 5

Innovation: That the Government encourage innovation in the energy sector by focussing on:product and safety standards; removing regulatory barriers; open access to data; leveraging current research expertise and building research capacity further; and the workforce skills needed for a changing energy system. This should include:

1. standards: that Government ensure safety and product standards keep up with emerging energy technologies and international best practice, and are appropriately designed to protect consumers and enable more efficient and effective technologies to be developed and commercialised, including for export
2. regulatory barriers: that Government identify regulatory barriers at all levels for new generation or network technologies, or new business models that will contribute to greater security and reliability. For example, the Government should review regulatory arrangements at the NSW level to ensure efficient regulation of network innovations such as microgrids and other forms of embedded networks which have the potential to improve resilience of the NSW electricity system. This should have a particular focus on consumer protections, accessibility for regional communities, reliability and performance requirements, and safety issues
3. energy data: that Government facilitate more easy, open access to electricity data to inform decision making by governments and market participants at all levels from households to large organisations. This would be complementary to data provided to the market by AEMO and other market bodies
4. research and development:that Government encourage and promote dynamic and long-term partnerships between Government, industry and universities and other research institutions to support the NSW energy sector to remain at the cutting edge of technological developments in energy. This should have a particular focus on getting costs down, building on the research strengths of the state, and leveraging funding from the Commonwealth and other sources
5. skills: that Government encourage employers to partner with and leverage universities and vocational education and training providers to develop curricula that will deliver the targeted pipeline of skills and capability required to meet the future needs of the energy system.

Recommendation 6

Transmission corridors/generation zones: That the Government encourage COAG to ask the Energy Security Board to unpack the Finkel Review recommendation to develop “an integrated grid plan to facilitate the efficient development and connection of renewable energy zones across the National Electricity Market” and provide advice to jurisdictions about the role of land reservation for transmission corridors or renewable generation zones across jurisdictions.

Recommendation 7

Cyber security: That the Government encourage COAG to commission ongoing studies on cyber risks and possible responses right across the system including transmission, distribution, retailers’ communication platforms, smart meters and other customer-facing demand management technologies and address any identified risks.

Recommendation 8

Emergency management: That the Government improve communications and more proactively drive processes to ensure essential services and sensitive loads are managed effectively in an energy emergency. This should include:

1. load shedding procedures and communications: that Government through the Jurisdictional System Security Coordinator make sure load shedding protocols minimise impact on sensitive loads such as essential services and central business districts and that the Energy and Utilities Services Functional Area Coordinator be more proactive in communicating to the public and private sectors (leveraging the Trusted Information Sharing Networks) any new information about load shedding
2. impacts of a black system: that Government get a better understanding of the potential economic impact of an extended black system event and identify the risks and vulnerabilities within the public and private sectors that need to be planned for and managed to minimise impacts on the economy and the health and safety of the community
3. system restart procedures: that the Government:
   • proactively work with AEMO, TransGrid and the distribution businesses to enhance the black start load restoration plan for NSW so that it prioritises load of strategic importance and estimates likely timeframes for load restoration
   • coordinate regular black start exercises between relevant NSW and ACT Government energy and emergency management representatives, AEMO, TransGrid, distribution businesses and generators
   • highlight at COAG Energy Council the need to assess the adequacy of the existing system restart procedures in each state and territory with specific consideration being given to the time anticipated to bring major economic centres back online
4. back-up fuel supplies: that Government develop an internal NSW Government register of back-up generation fuel supplies in NSW and the ACT to identify where supplies would come from, how they would be prioritised, and how long they would last during a black system event
5. NSW Government Continuity Plan: that Government, through the Office of Emergency Management, the Department of Premier & Cabinet, and the Department of Planning & Environment, develop a whole-of-government business continuity plan for responding to longer-term, widespread power outages and/or black system events.

Recommendation 9

Governance: That the Government identify any gaps in emergency response/management arrangements post-leasing of transmission and distribution businesses. Government should give consideration to the role of the Jurisdictional Responsible Officer and determine whether any additional emergency management or information sharing protocols need to be put in place given the role now sits within a leased entity, and not within a Government organisation.

Erratum: On page 17 of its Final Report, the Taskforce refers to ANZ as "the largest lender to the coal industry in Australia". The source of this information is an article by Mr B. Potter in the Australian Financial Review.

Experts assisting the Taskforce

Dr Brian Spalding

Brian is currently one of the Commissioners (part time) at the Australian Energy Market Commission (AEMC). He was formerly Chief Executive Officer of the National Electricity Market Management Company (the predecessor of the Australian Energy Market Operator) with responsibility for the National Electricity Market and power system for south-eastern Australia; and then Executive General Manager Operations of the Australian Energy Market Operator. He holds a Degree in Science, an Honours Degree in Engineering (University Medal) and is a Doctor of Philosophy in Power System Analysis from the University of New South Wales.

There is precedent for AEMC Commissioners, subject to availability and no conflicts of interest, working on other projects in addition to their Commissioner role.

Dave Owens, Managing Director, Risk-e Business Consultants

David established Risk-e Business Consultants, an Executive Level Management Consultancy, when he retired as Deputy Commissioner of the NSW Police Force after over 30 years of service. During his time in the Police Force, Dave David was appointed to the legislative role of State Emergency Operations Controller (SEOCON) and performed this position for some four years, making him the longest serving officer in this role. As SEOCON, he was responsible for overall emergency management responses within the New South Wales.

Since leaving the Police Force, David has been a consultant to the NSW and ACT Governments on Investigations, Policy Development and Emergency Management in the areas of mining and transport (Sydney Metro-formally North West Rail Link). David has also worked with the Office of Liquor, Gaming and Racing (investigations and policy advice).

Submissions

Please note: all submissions to the Taskforce are published on this website unless marked "Confidential".

Contact

For further information, please contact the Office of the NSW Chief Scientist & Engineer on (02) 9338 6786.